# Hershey Co: Form 10-Q for the period ended Apr 5, 2015

- Company: [Hershey Co](/companies/hsy.md) (CIK 47111)
- Form: 10-Q
- Filed: 2015-05-01
- Accepted by EDGAR: May 1, 2015, 13:08 ET
- Period: 2015-04-05
- Accession: 0000047111-15-000029
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/47111/000004711115000029/hsy-20150405q1.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/47111/000004711115000029/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-04-05.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-01-01 to 2015-04-05 | $1.94bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2015-01-01 to 2015-04-05 | $1.04bn | us-gaap:CostOfGoodsSold |
| Selling, general and administrative | 3 months, 2015-01-01 to 2015-04-05 | $504.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2015-01-01 to 2015-04-05 | $532.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2015-01-01 to 2015-04-05 | $130.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2015-01-01 to 2015-04-05 | $244.7m | us-gaap:NetIncomeLoss |
| Diluted shares (weighted) | 3 months, 2015-01-01 to 2015-04-05 | 222,719,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2015-01-01 to 2015-04-05 | $256.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2015-01-01 to 2015-04-05 | $57.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2015-01-01 to 2015-04-05 | $114.4m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2015-01-01 to 2015-04-05 | $306.7m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2015-04-05 | $305.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-04-05 | $2.11bn | us-gaap:AssetsCurrent |
| Total assets | at 2015-04-05 | $5.76bn | us-gaap:Assets |
| Current liabilities | at 2015-04-05 | $2.18bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2015-04-05 | $4.41bn | us-gaap:Liabilities |
| Long-term debt | at 2015-04-05 | $1.81bn | us-gaap:LongTermDebt |
| Current portion of debt | at 2015-04-05 | $250.8m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2015-04-05 | $649.1m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2015-04-05 | $1.27bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,622 characters.

This Management's Discussion and Analysis (“MD&A”) is intended to provide an understanding of Hershey's financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. The MD&A should be read in conjunction with our Consolidated Financial Statements and accompanying notes. This discussion contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially. Refer to the Safe Harbor Statement below as well as the Risk Factors and other information contained in our 2014 Annual Report on Form 10-K for information concerning the key risks to achieving future performance goals.

The MD&A is organized in the following sections:

- Overview and Outlook
- Non-GAAP Information
- Consolidated Results of Operations
- Segment Results
- Liquidity and Capital Resources

### Overview and Outlook

Our 2015 first quarter net sales increased 3.5% compared to the same period of 2014. Excluding a 1.1% impact from unfavorable foreign currency exchange rates, our net sales increased 4.6%, driven by positive price realization resulting from the U.S. price increase in mid-2014 and incremental revenue from Shanghai Golden Monkey (“SGM”), acquired in September 2014. However, these benefits were partially offset by lower U.S. volumes resulting from the shorter Easter season in 2015 and volume elasticity related to the aforementioned price increase, as well as volume declines in China due to weakness across the majority of the consumer packaged goods space in the China modern trade.

We made progress against our strategic initiatives, particularly in our U.S. business where our first quarter 2015 market share increased 0.2 share points versus the prior year and our core, non-seasonal marketplace performance continued to improve. In China, we slightly outpaced the chocolate category and gained market share; however, the pace of category growth slowed significantly, contributing to the year-over-year decline in our China net sales. We believe the weakness in China is partially due to a decline in consumer confidence related to mixed macroeconomic data. We also completed the Krave acquisition towards the end of March, and integration activities are underway.

Our gross margin decreased 10 basis points in the first quarter of 2015, with the benefits of positive price realization and supply chain productivity and other cost savings initiatives more than offset by input cost inflation, unfavorable mix and higher pension costs. Our first quarter earnings before interest and taxes (“EBIT”) decreased by 2.4%, while EBIT margin decreased by 130 basis points, reflecting the lower gross margin, a higher rate of spending for advertising and related consumer marketing activities, and higher other selling and administrative expense as a percentage of net sales resulting from recent acquisitions and additional investments in route-to-market capabilities and consumer insights. The combination of these factors, coupled with a slightly higher effective income tax rate, led to a 3.1% decline in reported net income and 0.9% decline in reported earnings per share-diluted.

We expect total consolidated net sales to accelerate over the remainder of the year driven by core brands and innovation. Our new product pipeline is robust and new items such as *Kit Kat* White Minis, *Hershey's* Caramels, *Ice Breakers Cool Blasts* Chews, and *Brookside* Fruit & Nut Bars bring variety and news to the category that should help mitigate volume elasticity related to the aforementioned prior year price increase. We believe these investments should enable us to continue to out-pace the category and gain share in the U.S. market. Additionally, we continue to expect our investments in advertising and related consumer marketing to increase at a rate greater than net sales growth.

We currently estimate full year 2015 net sales growth of 4.5% to 5.5%, which includes a 2.5% net benefit from recent acquisitions and divestitures and a 1.5% unfavorable impact from foreign currency exchange rates. Excluding the net benefit from acquisitions and divestitures and the unfavorable impact of foreign currency exchange, 2015 full-year net sales are expected to increase 3.5% to 4.5%. This is less than our previous estimate of 4% to 6%, primarily due to lower than expected growth in China. Additionally, in April we initiated certain input cost strategies that we believe will enable us to expand 2015 gross margin by 155 to 165 basis points, which is increased from our previous guidance. We expect positive price realization, gross margin expansion and accretion from Shanghai Golden Monkey in the second half of the year to contribute to an increase in earnings per share-diluted in a range of 10% to 13%, including net dilution from acquisitions and divestitures of

$0.03 to $0.05 per share. We continue to expect growth in adjusted earnings per share-diluted of 8% to 10%, as reflected in the reconciliation of reported to adjusted projections for 2015 provided below.

### Non-GAAP Information

The following table provides a reconciliation of projected 2015 earnings per share-diluted and 2014 earnings per share-diluted, each prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), to non-GAAP projected adjusted earnings per share-diluted for 2015 and adjusted earnings per share-diluted for 2014:

|  | 2015 (Projected) | 2014 |
| --- | --- | ---: |
| Reported EPS – Diluted | $4.17 ‑ $4.28 | $3.77 |
| Acquisition integration and transaction charges | 0.05 ‑ 0.06 | 0.05 |
| Business realignment charges | 0.04 ‑ 0.05 | 0.03 |
| Non-service related pension expense (income) | 0.04 - 0.05 | (0.01) |
| India impairment charge | — | 0.06 |
| Loss on sale of Mauna Loa | — | 0.08 |
| Gain on sale of trademark | (0.03) | — |
| Adjusted EPS – Diluted | $4.30 ‑ $4.38 | $3.98 |

For the non-GAAP adjusted earnings per share-diluted measures presented above, we have provided (1) the most directly comparable GAAP measure; (2) a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure; (3) an explanation of why our management believes this non-GAAP measure provides useful information to investors; and (4) additional purposes for which we use this non-GAAP measure.

We believe that the disclosure of adjusted earnings per share-diluted provides investors with a better comparison of our year-to-year operating results. We exclude the effects of certain items from earnings per share-diluted when we evaluate key measures of our performance internally, and in assessing the impact of known trends and uncertainties on our business. We also believe that excluding the effects of these items provides a more balanced view of the underlying dynamics of our business.

Adjusted earnings per share-diluted excludes the impacts of acquisition integration and transaction costs; charges and non-cash impairments associated with our business realignment initiatives; the non-cash goodwill impairment charge relating to our India business; the loss on the sale of our Mauna Loa business; the gain on the sale of a non-core trademark license; and non-service-related pension expense (income).

Non-service-related pension expense (income) includes interest costs, the expected return on pension plan assets, the amortization of actuarial gains and losses, and certain curtailment and settlement losses or credits. The non-service-related pension expense (income) may be quite volatile from year-to-year as a result of changes in market interest rates and market returns on pension plan assets. Therefore, we have excluded non-service-related pension expense (income) from our internal performance measures, and we believe that adjusted earnings per share-diluted, excluding non-service-related pension expense (income), will provide investors with a better understanding of the underlying profitability of our ongoing business. We believe that the service cost component of our total pension benefit costs closely reflects the operating costs of our business and provides for a better comparison of our operating results from year-to-year. Our most significant defined benefit pension plans were closed to most new participants in 2007, resulting in ongoing service costs that are stable and predictable.

### Consolidated Results of Operations

*In millions except per share amounts*

|  | Three Months Ended April 5, 2015 | March 30, 2014 | Percent Change Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Net sales | $1,937.8 | $1,871.8 | 3.5% |
| Cost of sales | 1,037.0 | 1,000.3 | 3.7% |
| Gross profit | 900.8 | 871.5 | 3.4% |
| Gross margin | 46.5% | 46.6% |  |
| Selling, marketing and administrative (“SM&A”) expense | 504.2 | 465.0 | 8.4% |
| SM&A expense as a percent of sales | 26.0% | 24.8% |  |
| Business realignment charges | 2.6 | 2.9 | (8.8)% |
| EBIT | 394.0 | 403.6 | (2.4)% |
| EBIT margin | 20.3% | 21.6% |  |
| Interest expense, net | 19.2 | 21.3 | (9.8)% |
| Provision for income taxes | 130.1 | 129.8 | 0.2% |
| Effective income tax rate | 34.7% | 34.0% |  |
| Net income | $244.7 | $252.5 | (3.1)% |
| Net income per share–diluted | $1.10 | $1.11 | (0.9)% |

Note: Percentage changes may not compute directly as shown due to rounding of the amounts presented above.

### Net Sales

Net sales increased 3.5% in the first quarter of 2015 over the comparable period of 2014, driven by favorable net price realization of 3.8% and a 1.6% benefit from net acquisitions and divestitures, offset in part by a 1.1% unfavorable impact from foreign currency exchange rates as well as volume declines which reduced net sales by approximately 0.8%. Excluding foreign currency, our net sales increased 4.6% in the quarter. The favorable net price realization, primarily in the U.S., was attributed to the price increase announced in mid-2014. The volume declines were primarily related to the timing of Easter and volume elasticity relating to the pricing action in the U.S. coupled with softness in the China modern trade, which led to a reduction in China volumes. These declines were partially offset by volume growth in Canada, Mexico and Brazil.

#### Key U.S. Marketplace Metrics

For the 12-week period ended April 5, 2015, our U.S. candy, mint and gum (“CMG”) retail takeaway increased 4.6% and our market share was up 0.2 share points as compared with the same period of 2014. Excluding Easter from both years given the shift in timing, our CMG retail takeaway for the above-noted period increased 3.1%. Consumer takeaway and market share are provided for channels of distribution accounting for approximately 90% of our U.S. confectionery retail business. These channels of distribution primarily include food, drug, mass merchandisers, and convenience store channels, plus Wal-Mart Stores, Inc., partial dollar, club and military channels.

### Cost of Sales and Gross Margin

Cost of sales increased by 3.7% in the first quarter of 2015 compared to the same period of 2014. Higher commodity and other incremental supply chain costs, unfavorable sales mix and higher pension costs increased total cost of sales by approximately 5.3%. These increases were offset in part by supply chain productivity, which reduced cost of sales by 1.6%.

Gross margin decreased by 10 basis points in the first quarter of 2015 compared to the same period of 2014. Favorable net price realization as well as supply chain productivity and other cost savings initiatives collectively improved gross margin by 300 basis points. However, these benefits were more than offset by higher commodity and other input costs as well as unfavorable sales mix, which together reduced gross margin by approximately 310 basis points.

### Selling, Marketing and Administrative Expense

Total selling, marketing and administrative expenses increased by 8.4% in the first quarter of 2015 compared to the same period of 2014. Advertising and related consumer marketing expense increased 7.7% during the quarter. Excluding these advertising and related consumer marketing costs, first quarter selling and administrative expenses increased by 8.7% as compared to the same period of 2014, driven by incremental increases from acquired businesses, as well as additional continued investments in route-to-market capabilities and knowledge-based consumer insights. The higher selling, marketing and administrative expenses were partially offset by a $10.0 million gain on the sale of a non-core trademark in the first quarter of 2015.

### Business Realignment Charges

In the first quarter of 2015 and 2014, we recorded total business realignment charges of $2.6 million and $2.9 million, respectively. The 2015 charges mainly represented accelerated depreciation and amortization charges relating to a program commenced in 2014 to rationalize select non-U.S. manufacturing and distribution activities, while the 2014 charges primarily related to costs associated with the demolition of the former manufacturing facility in Hershey, Pennsylvania.

### Income Before Interest and Income Taxes and EBIT Margin

EBIT decreased 2.4% in the first quarter of 2015 compared with the first quarter of 2014, due primarily to higher selling, marketing and administrative costs, offset in part by the higher gross profit.

EBIT margin decreased 130 basis points to 20.3% for the first quarter of 2015 from 21.6% for the first quarter of 2014, due to the decrease in gross margin and the higher level of selling, marketing and administrative expenses as a percent of sales.

### Interest Expense, Net

Net interest expense was $2.1 million lower in the first quarter of 2015 than the comparable period of 2014, due primarily to higher capitalized interest expense coupled with savings resulting from fixed-to-floating interest rate swap agreements put in place towards the end of 2014.

### Income Taxes and Effective Tax Rate

Our effective income tax rate was 34.7% for the first quarter of 2015 compared with 34.0% for the first quarter of 2014. The lower effective income tax rate in 2014 reflected the benefit of effectively settled U.S. audit issues which did not reoccur in 2015. This variance was partially offset by a benefit from proportionately higher Canadian taxable income in the 2015 period.

### Net Income and Net Income Per Share

Net income in the first quarter of 2015 decreased $7.8 million, or 3.1%, while earnings per share-diluted (“EPS”) in the first quarter of 2015 decreased $0.01, or 0.9%, compared with the first quarter of 2014. The decreases in both net income and EPS were driven by higher cost of sales and selling, marketing and administrative expenses, as noted above. The decrease in EPS was partially offset by the benefit from lower weighted-average shares outstanding resulting from recent share repurchases pursuant to our Board-approved repurchase programs.

### Segment Results

The summary that follows provides a discussion of the results of operations of our two reportable segments: North America and International and Other. The segments reflect our operations on a geographic basis. For segment reporting purposes, we use “segment income” to evaluate segment performance and allocate resources. Segment income excludes unallocated general corporate administrative expenses, as well as charges associated with business realignment initiatives, acquisition-related costs, the non-service related portion of pension expense and other unusual gains or losses that are not part of our measurement of segment performance. These items of our operating income are managed centrally at the corporate level and are excluded from the measure of segment income reviewed by the CODM and used for internal management reporting and performance evaluation. Segment income and segment income margin, which are presented in the segment discussion that follows, are non-GAAP measures and do not purport to be alternatives to operating income as a measure of operating performance. We believe that these measures are useful to investors and other users of our financial information in evaluating ongoing operating profitability as well as in evaluating operating performance in relation to our competitors, as they exclude the activities that are not integral to our ongoing operations. For further information, see the Non-GAAP Information section at the beginning of this Item 2.

Our segment results, including a reconciliation to our consolidated results, were as follows:

| For the three months ended Net sales: | April 5, 2015 | March 30, 2014 |
| --- | ---: | ---: |
| North America | $1,706,995 | $1,659,047 |
| International and Other | 230,805 | 212,766 |
| Total | $1,937,800 | $1,871,813 |
| Segment income: |  |  |
| North America | $554,305 | $538,705 |
| International and Other | (21,759) | 6,615 |
| Total segment income | 532,546 | 545,320 |
| Unallocated corporate expense (1) | 138,781 | 128,222 |
| Charges associated with business realignment initiatives | 5,140 | 3,026 |
| Non-service related pension | 1,996 | (623) |
| Acquisition integration costs | 2,573 | 11,089 |
| Gain on sale of trademark | (9,950) | — |
| Income before interest and income taxes | 394,006 | 403,606 |
| Interest expense, net | 19,202 | 21,285 |
| Income before income taxes | $374,804 | $382,321 |

(1) Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance, and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense, and (d) other gains or losses that are not integral to segment performance.

### North America

The North America segment is responsible for our chocolate and sugar confectionery market position, as well as our snacks and adjacencies market position, in the United States and Canada. This includes developing and growing our business in chocolate, sugar confectionery, refreshment, snack, pantry, food service and other snacking product lines. North America results for the three months ended April 5, 2015 and March 30, 2014 were as follows:

*In millions of dollars*

| For the three months ended | April 5, 2015 | March 30, 2014 | Percent / Point Change 2015 vs 2014 |
| --- | ---: | ---: | ---: |
| Net sales | $1,707.0 | $1,659.0 | 2.9% |
| Segment income | 554.3 | 538.7 | 2.9% |
| Segment margin | 32.5% | 32.5% |  |

Net sales of our North America segment increased $48.0 million or 2.9% in the first quarter of 2015 compared to the same period of 2014, reflecting net price realization of 4.3% and a net benefit from acquisitions and divestitures of 0.1%, partially offset by a volume decline of 0.9% and an unfavorable impact from foreign currency exchange rates that reduced net sales by approximately 0.6%. The volume decline was due to elasticity related to the 2014 pricing action as well as a shorter Easter season in the 2015 quarter. Our Canada operations were impacted by the stronger U.S. dollar, which drove the unfavorable foreign currency impact.

Our North America segment income increased $15.6 million or 2.9% in the first quarter of 2015 compared to the same period of 2014, principally due to favorable price realization and supply chain productivity improvements, which offset volume declines and input cost increases. Segment income was pressured in the quarter due to the timing of seasonal net sales, primarily U.S. Easter products that occurred at pre-price increase levels. Additionally, advertising, consumer promotions and marketing expenses increased 9.0% in 2015 due to the timing of advertising and consumer promotion costs as well as additional investments in route-to-market capabilities and consumer insights.

### International and Other

The International and Other segment includes all other countries where we currently manufacture, import, market, sell or distribute chocolate, sugar confectionery and other products. Currently, this includes our operations in Asia, Latin America, Europe, Africa, and the Middle East, along with exports to these regions. While a minor component, this segment also includes our global retail operations, including Hershey’s Chocolate World stores in Hershey, Pennsylvania, New York City, Chicago, Las Vegas, Shanghai, Niagara Falls (Ontario), Dubai and Singapore, as well as operations associated with licensing the use of certain trademarks and products to third parties around the world. International and Other results for the three months ended April 5, 2015 and March 30, 2014 were as follows:

*In millions of dollars*

| For the three months ended | April 5, 2015 | March 30, 2014 | Percent / Point Change 2015 vs 2014 |
| --- | ---: | ---: | ---: |
| Net sales | $230.8 | $212.8 | 8.5% |
| Segment income | (21.8) | 6.6 | (428.9)% |
| Segment margin | (9.4)% | 3.1% |  |

Net sales of our International and Other segment increased $18.0 million or 8.5% in the first quarter of 2015 compared to same period of 2014, reflecting incremental revenue from the acquisition of SGM and favorable net price realization of 0.7%, partially offset by a volume decline of 0.7% and an unfavorable impact from foreign currency exchange rates that reduced net sales by approximately 4.8%. Excluding SGM and the unfavorable impact of foreign currency exchange rates, the net sales of our International and Other segment were about the same as the comparable period of 2014. Performance in the focus markets of Mexico, Brazil and India improved and, on a constant currency basis, first quarter net sales in these countries increased by a combined 15% versus the comparable period of 2014. As mentioned previously, net sales in China were adversely impacted by macroeconomic conditions that affected overall grocery as well as chocolate category growth. In the first quarter of 2015, China's chocolate category growth was 4%, which represented a significantly lower rate than the same period last year. Since we strive to ship to consumption, the deceleration in category growth and consumer takeaway led to a 47% decline in our China first quarter net sales, excluding SGM, versus 2014.

Our International and Other segment income decreased $28.4 million in the first quarter of 2015 compared to the same period of 2014. The decline was primarily attributable to lower net sales in China, coupled with increased levels of investment in go-to-market capabilities within our key focus markets and higher depreciation and amortization expense relating to recent acquisitions.

### Unallocated Corporate Items

Unallocated corporate administration includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense, and (d) other gains or losses that are not integral to segment performance.

In the first quarter of 2015, unallocated corporate items totaled $138.8 million compared to $128.2 million in the same period of 2014, with the increase driven by higher professional fees and employee-related costs.

### Liquidity and Capital Resources

Historically, our primary source of liquidity has been cash generated from operations. Domestic seasonal working capital needs, which typically peak during the summer months, are generally met by utilizing cash on hand, bank borrowings or the issuance of commercial paper. Commercial paper may also be issued, from time to time, to finance ongoing business transactions, such as the repayment of long-term debt, business acquisitions and for other general corporate purposes.

At April 5, 2015, our cash and cash equivalents totaled $305.7 million, and we held short-term investments, in the form of term deposits with maturities of six-months, totaling $99.5 million. In total, our cash and short-term investments declined $66.8 million during the first three months of 2015 compared to the balance of $472.0 million at December 31, 2014, as a result of the uses of cash outlined in the discussion that follows.

Approximately half of the balance of our cash, cash equivalents and short term investments at April 5, 2015 was held by subsidiaries domiciled outside of the United States. If these amounts held outside of the U.S. were to be repatriated, under current law, they would be subject to U.S. federal income taxes, less applicable foreign tax credits. However, our intent is to permanently reinvest these funds outside of the U.S. The cash that our foreign subsidiaries hold for indefinite reinvestment is expected to be used to finance foreign operations and investments. We believe we have sufficient liquidity to satisfy our cash needs, including our cash needs in the United States.

We generated net cash from operating activities of $256.4 million in the first three months of 2015, an increase of $52.6 million compared to the amount generated in the same period of 2014. The increase was mainly driven by the following factors:

- Working capital (comprised of trade accounts receivable, inventory and accounts payable) generated cash of $36 million in the 2015 period, while it consumed cash of $74 million during the same period of 2014. This is largely due to the shift in Easter timing, whereby the later Easter in 2014 led to higher first quarter Easter-related sales volumes in 2014 and related accounts receivable balances at the end of the 2014 quarter. Additionally, in the 2015 period, we used a greater amount of raw material inventory that had been built up at the preceding year-end to take advantage of favorable pricing.
- The impact of our hedging activities unfavorably impacted cash flow by $59 million in the 2015 quarter versus a positive $5 million impact in the 2014 quarter. This reflects the impact of non-cash gains and losses amortized to income from accumulated other comprehensive income, coupled with the cash flow impact of market gains and losses on our commodity futures. Our cash outlays typically increase when futures market prices are decreasing.

We used cash in investing activities of $249.1 million in the first three months of 2015, $180.1 million more than we used in the same period of 2014, with the increase due mainly to cash of $219 million used to acquire Krave, partially offset by net proceeds of $32 million from the sale of Mauna Loa. Further details regarding this activity is described in Note 2 to the Unaudited Consolidated Financial Statements.

We used cash in financing activities of $76.5 million in the first three months of 2015, which was $170.6 million less than we used in the same period of 2014. During the 2015 period, we spent $35 million more for share repurchases, we paid $9 million more in dividends and we received $64 million less in proceeds from the exercise of stock options. These reductions in cash flow were more than offset by increased cash flow from short-term debt, largely due to the $321 million in proceeds received from the issuance of commercial paper used for general corporate purposes in the first quarter of 2015.

### Recent Accounting Pronouncements

Information on recently adopted and recently issued accounting standards is included in Note 1 to the Unaudited Consolidated Financial Statements.

### Safe Harbor Statement

We are subject to changing economic, competitive, regulatory and technological risks and uncertainties that could have a material impact on our business, financial condition or results of operations. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we note the following factors that, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions that we have discussed directly or implied in this report. Many of the forward-looking statements contained in this report may be identified by the use of words such as “intend,” “believe,” “expect,” “anticipate,” “should,” “planned,” “projected,” “estimated,” and “potential,” among others.

The factors that could cause our actual results to differ materially from the results projected in our forward-looking statements include, but are not limited to the following:

- Issues or concerns related to the quality and safety of our products, ingredients or packaging could cause a product recall and/or result in harm to the Company's reputation, negatively impacting our operating results;
- Increases in raw material and energy costs along with the availability of adequate supplies of raw materials could affect future financial results;
- Price increases may not be sufficient to offset cost increases and maintain profitability or may result in sales volume declines associated with pricing elasticity;
- Market demand for new and existing products could decline;
- Increased marketplace competition could hurt our business;
- Disruption to our manufacturing operations or supply chain could impair our ability to produce or deliver finished products, resulting in a negative impact on our operating results;
- Our financial results may be adversely impacted by the failure to successfully execute or integrate acquisitions, divestitures and joint ventures;
- Changes in governmental laws and regulations could increase our costs and liabilities or impact demand for our products;
- Political, economic and/or financial market conditions could negatively impact our financial results;
- Our expanding international operations may not achieve projected growth objectives, which could adversely impact our overall business and results of operations;
- Disruptions, failures or security breaches of our information technology infrastructure could have a negative impact on our operations;
- Future developments related to civil antitrust lawsuits and the possible investigation by government regulators of alleged pricing practices by members of the confectionery industry in the United States could negatively impact our reputation and our operating results; and
- Such other matters as discussed in our 2014 Annual Report on Form 10-K.

We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date this Quarterly Report on Form 10-Q is filed.

## Market risk

As filed, 2,014 characters.

The total notional amount of interest rate swaps outstanding at April 5, 2015 and December 31, 2014 was $1.2 billion. The notional amount at April 5, 2015 and December 31, 2014 included $450 million of fixed-to-floating interest rate swaps which convert a comparable amount of fixed-rate debt to variable rate debt. A hypothetical 100 basis point increase in interest rates applied to this now variable rate debt as of April 5, 2015 would have increased interest expense by approximately $1.2 million for the first quarter of 2015 and by approximately $4.6 million for the full year 2014.

We consider our risk related to market fluctuations in interest rates on our remaining debt portfolio, excluding fixed-rate debt converted to variable with fixed-to-floating instruments, to be minimal since this debt is largely long-term and fixed-rate in nature. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. A 100 basis point increase in market interest rates would decrease the 2015 first quarter fair value of our fixed-rate long-term debt by approximately $81 million and decrease the 2014 year-end fair value by approximately $83 million.

The potential decline in fair value of foreign currency forward exchange contracts resulting from a hypothetical near-term adverse change in market rates of ten percent was $11.0 million as of April 5, 2015 and $7.0 million as of December 31, 2014. The market risk resulting from a hypothetical adverse market price movement of ten percent associated with the estimated average fair value of net commodity positions increased to $62.9 million as of April 5, 2015 from $50.7 million as of December 31, 2014. Market risk represents ten percent of the estimated average fair value of net commodity positions at four dates prior to the end of each period presented.

Other than as described above, market risks have not changed significantly from those described in our 2014 Annual Report on Form 10-K.

## Controls and procedures

As filed, 1,708 characters.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Rule 13a-15 under the Exchange Act. This evaluation was carried out under the supervision and with the participation of the Company's management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q. There has been no change during the most recent fiscal quarter in our internal control over financial reporting identified in connection with the evaluation that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 157 characters.

Risk Factors as of April 5, 2015 have not changed materially from those described in Part 1, Item 1A, “Risk Factors,” of our 2014 Annual Report on Form 10-K.

Filed May 1, 2015.
Source: SEC EDGAR, the filing index for accession 0000047111-15-000029. Last ingested by Listed: Nov 13, 2026, 15:03 ET. No prices; not investment advice.