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Hershey Announces Second Quarter Results; Updates Outlook For 2013

Note: In this release, Hershey references income measures that are not in accordance with U.S. generally accepted accounting principles (GAAP) because they exclude business realignment and impairment charges, business acquisition closing and integration costs and non-service-related pension costs (NSRPE). These non-GAAP financial measures are used in evaluating results of operations for internal purposes. These non-GAAP measures are not intended to replace the presentation of financial results in accordance with GAAP. Rather, the Company believes exclusion of such items provides additional information to investors to facilitate the comparison of past and present operations. A reconciliation is provided below of earnings per share-diluted in accordance with GAAP as presented in the Consolidated Statements of Income to non-GAAP financial measures, which exclude business realignment and impairment charges, NSRPE and acquisition closing and integration costs.

 
Second Quarter Ended
June 30, 2013   July 1, 2012
  Percent of   Percent of
In thousands except per share amounts Dollars Net Sales Dollars Net Sales
Gross Profit/Gross Margin $ 718,574 47.6 % $ 618,521 43.7 %
Project Next Century charges included in cost of sales 20 13,429
NSRPE included in cost of sales 1,323 2,443
Acquisition costs (credits) included in cost of sales   5     (166 )
Adjusted non-GAAP Gross Profit/Gross Margin $ 719,922   47.7 % $ 634,227   44.8 %
 
EBIT/EBIT Margin $ 268,917 17.8 % $ 222,271 15.7 %
Charges included in cost of sales 1,348 15,706
Project Next Century charges included in SM&A 11 738
NSRPE included in SM&A 1,464 2,087
Acquisition costs included in SM&A 212 1,481
Business Realignment & Impairment charges, net   3,587     4,845  
Adjusted non-GAAP EBIT/EBIT Margin $ 275,539   18.3 % $ 247,128   17.5 %
 
Net Income/Net Margin $ 159,504 10.6 % $ 135,685 9.6 %
Charges included in cost of sales 1,348 15,706
Charges included in SM&A 1,687 4,306
Business Realignment & Impairment charges, net 3,587 4,845
Tax impact of net charges   (2,519 )   (9,049 )
Adjusted non-GAAP Net Income/Net Margin $ 163,607   10.8 % $ 151,493   10.7 %
 
EPS - Diluted $ 0.70 $ 0.59
Charges included in cost of sales 0.05
Charges included in SM&A 0.01 0.01
Business Realignment & Impairment charges, net   0.01     0.01  
Adjusted non-GAAP EPS - Diluted $ 0.72   $ 0.66  
 
 
Six Months Ended
June 30, 2013   July 1, 2012
  Percent of   Percent of
In thousands except per share amounts Dollars Net Sales Dollars Net Sales
Gross Profit/Gross Margin $ 1,567,911 47.0 % $ 1,361,917 43.3 %
Project Next Century charges included in cost of sales 147 32,883
NSRPE included in cost of sales 2,680 4,619
Acquisition costs included in cost of sales   258     422  
Adjusted non-GAAP Gross Profit/Gross Margin $ 1,570,996   47.1 % $ 1,399,841   44.5 %
 
EBIT/EBIT Margin $ 660,734 19.8 % $ 556,801 17.7 %
Charges included in cost of sales 3,085 37,924
Project Next Century charges included in SM&A 17 1,551
NSRPE included in SM&A 2,955 4,062
Acquisition costs included in SM&A 705 6,812
Business Realignment & Impairment charges, net   10,438     8,149  
Adjusted non-GAAP EBIT/EBIT Margin $ 677,934   20.3 % $ 615,299   19.6 %
 
Net Income/Net Margin $ 401,410 12.0 % $ 334,336 10.6 %
Charges included in cost of sales 3,085 37,924
Charges included in SM&A 3,677 12,425
Business Realignment & Impairment charges, net 10,438 8,149
Tax impact of charges   (6,535 )   (21,431 )
Adjusted non-GAAP Net Income/Net Margin $ 412,075   12.4 % $ 371,403   11.8 %
 
EPS-Diluted $ 1.77 $ 1.46
Charges included in cost of sales 0.10
Charges included in SM&A 0.01 0.04
Business Realignment & Impairment charges, net   0.03     0.02  
Adjusted non-GAAP EPS-Diluted $ 1.81   $ 1.62  
 

In 2012, the Company recorded GAAP charges of $76.3 million, or $0.22 per share-diluted, attributable to the Project Next Century program and $20.6 million, or $0.06 per share-diluted, of NSRPE. Additionally, 2012 results were impacted by acquisition closing and integration costs related to the Brookside acquisition of $13.4 million, or $0.04 per share-diluted and non-cash impairment charges of $7.5 million, or $0.03 per share-diluted, related to the discontinuance of the Tri-US, Inc. nutritional beverages business. In 2013, the Company expects to record total GAAP charges of about $10 million to $15 million, or $0.03 to $0.05 per share-diluted, attributable to Project Next Century and $11.3 million, or $0.03 per share-diluted, of NSRPE.

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