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Example research essay topic: Financial Report Analysis Of Hershey Foods Corporation History - 1,139 words

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INTRODUCTION Hershey Foods Corporation is engaged, with its subsidiaries, in the manufacture, distribution and sale of confectionery and grocery products. The Company's principal product groups include confectionery products sold in the form of bar goods, bagged items and boxed items, as well as grocery products in the form of baking ingredients, chocolate drink mixes, peanut butter, dessert toppings and beverages. Hershey Foods manufactures confectionery products in a variety of packaged forms and markets them under more than 50 brands. The different packaged forms include various arrangements of the same bar products, such as boxes, trays and bags, as well as a variety of different sizes and weights of the same bar products, such as snack size, standard, king size, large and giant bars... The Company also manufactures and / or markets grocery products in the baking, beverage, peanut butter and toppings categories. Principal products in the United States include Hershey's, Reese's and Heath baking pieces, Hershey's chocolate milk mix, Hershey's cocoa, Hershey's Chocolate Shoppe ice cream toppings, Hershey's Hot Cocoa Collection hot cocoa mix, Hershey's syrup and Reese's peanut butter.

Hershey's chocolate- and strawberry-flavored milks are produced and sold under license by various dairies throughout the United States, using milk mixes manufactured by the Company. The Company's products are sold primarily to grocery wholesalers, chain grocery stores, candy distributors, mass merchandisers, chain drug stores, vending companies, wholesale clubs, convenience stores, concessionaires and food distributors by full-time sales representatives, food brokers and part-time retail sales merchandisers throughout the United States, Canada and Mexico. In 2002, sales to Wal-Mart Stores, Inc. and subsidiaries amounted to approximately 21 % of Hershey Foods' total net sales. Hershey Foods manufactures, imports, markets, sells and distributes chocolate products in Brazil under the Hershey's brand name. Additional products in Brazil include IO-IO hazelnut creme items and chocolate and confectionery products sold under the Visconti brand name.

In China, Japan, Korea and the Philippines, the Company imports and / or markets selected confectionery and grocery products. It also markets confectionery and grocery products in over 90 countries worldwide. ANALYSIS OF BALANCE SHEET ASSETS Total assets increased $ 233. 1 million, or 7 %, as of December 31, 2002, primarily as a result of higher cash and cash equivalents, prepaid expenses and other current assets, and other non-current assets, partially offset by lower deferred income taxes, inventories, property, plant, and equipment, and goodwill. Current assets increased by $ 96. 1 million, or 8 %, principally reflecting increased cash and cash equivalents, prepaid expenses and other current assets, substantially offset by a decrease in deferred income taxes.

The increase in cash and cash equivalents reflected strong cash flows from operations during the year, offset by contributions of $ 308. 1 million to the Corporation's pension plans. Prepaid expenses and other current assets reflected higher prepaid pension expense associated with the funding of pension plans during the year and increased original margin balances for commodity futures. The elimination of current deferred income taxes resulted primarily from the significant liability related to the tax effect on other comprehensive income associated with the gains on commodity futures contracts during the year. Property, plant and equipment was lower than the prior year primarily due to depreciation expense of $ 155. 4 million and the retirement of property, plant and equipment of $ 19. 0 million, partially offset by capital additions of $ 132. 7 million.

The decrease in goodwill primarily reflected the impact of the sale of certain confectionery brands to Farley's & Sather's and foreign currency translation. The increase in other non-current assets primarily resulted from the pension plan funding during the year. LIABILITIES Total liabilities increased by $ 8. 6 million, as of December 31, 2002, primarily reflecting a reduction in accrued liabilities, partially offset by an increase in deferred income taxes. The decrease in accrued liabilities was principally the result of lower pension liabilities resulting from the funding in 2002 and a decrease in enhanced employee benefits and other liabilities associated with business realignment initiatives recorded in the fourth quarter of 2001.

The increase in total current and non-current deferred income taxes was primarily associated with the impact of the tax effect on other comprehensive income and the pension funding, respectively CAPITAL STRUCTURE The Corporation has two classes of stock outstanding, Common Stock and Class B Common Stock ("Class B Stock"). Holders of the Common Stock and the Class B Stock generally vote together without regard to class on matters submitted to stockholders, including the election of directors, with the Common Stock having one vote per share and the Class B Stock having ten votes per share. However, the Common Stock, voting separately as a class, is entitled to elect one-sixth of the Board of Directors. With respect to dividend rights, the Common Stock is entitled to cash dividends 10 % higher than those declared and paid on the Class B Stock.

In December 2000, the Corporation's Board of Directors unanimously adopted a Stockholder Protection Rights Agreement ("Rights Agreement"). The Rights Agreement was supported by the Corporation's largest stockholder, the Milton Hershey School Trust. This action was not in response to any specific effort to acquire control of the Corporation. Under the Rights Agreement, the Corporation's Board of Directors declared a dividend of one right ("Right") for each outstanding share of Common Stock and Class B Stock payable to stockholders of record at the close of business on December 26, 2000. The Rights will at no time have voting power or receive dividends.

The issuance of the Rights has no dilative effect, will not affect reported earnings per share, is not taxable and will not change the manner in which the Corporation's Common Stock is traded. COMMON-SIZED ANALYSIS Current Year Previous year Current assets 8. 55 % 4. 13 % Goodwill 10. 87 % 11. 96 % Fixed assets 42. 69 % 47. 26 % Other Intangible assets 1. 19 % 1. 2 % Other assets 8. 98 % 3. 6 % Total assets 100 % 100 % Current liabilities 15. 7 % 18. 67 % Total liabilities 60. 58 % 64. 67 % Stockholder equities 39. 41 % 35. 32 % ANALYSIS OF INCOME STATMENT NET SALES Net sales decreased $ 16. 9 million from 2001 to 2002, primarily as a result of increased promotion costs and returns, discounts, and allowances, the divestiture of the Heide brands in 2002 and the Laden's throat drop business in 2001, and the timing of sales related to the gum and mint business acquired from Nabisco Inc. ("Nabisco"), which resulted in incremental sales in 2001 compared with 2002. A sluggish retail environment, characterized by the bankruptcies and store closings of certain customers, also contributed to the lower sales. Sales were also lower in several international markets, particularly Canada and Brazil. These sales decreases were partially offset by volume increases of key confectionery b...


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