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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended   July 4, 2004

OR

[   ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to_______

Commission file number 1-183

HERSHEY FOODS CORPORATION
100 Crystal A Drive
Hershey, PA 17033

Registrant’s telephone number: 717-534-6799

  State of Incorporation IRS Employer Identification No.
          Delaware             23-0691590

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  [ X ]      No  [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  [ X ]      No  [   ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $1 par value — 196,709,598 shares, as of July 23, 2004. Class B Common Stock, $1 par value — 60,844,192 shares, as of July 23, 2004.

Exhibit Index – Page 20

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HERSHEY FOODS CORPORATION
INDEX

Part I. Financial Information Page  
 
    Item 1. Consolidated Financial Statements (Unaudited)  
 
       Consolidated Statements of Income- Three months ended July 4, 2004 and June 29, 2003 3  
 
       Consolidated Statements of Income- Six months ended July 4, 2004 and June 29, 2003 4  
 
       Consolidated Balance Sheets- July 4, 2004 and December 31, 2003 5  
 
       Consolidated Statements of Cash Flows- Six months ended July 4, 2004 and June 29, 2003 6  
 
       Notes to Consolidated Financial Statements 7  
 
     Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 14      
 
     Item 3. Quantitative and Qualitative Disclosures About Market Risk 16      
 
     Item 4. Controls and Procedures 16      
 
Part II. Other Information
 
     Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 17  
 
     Item 6. Exhibits and Reports on Form 8-K 18  

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INDEX

PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)

For the Three Months Ended
    July 4,
      2004
 June 29,
2003
 
Net Sales     $ 893,688   $ 849,115  
Costs and Expenses:    
 Cost of sales       533,204     515,370  
 Selling, marketing and administrative     209,561     201,388  
 Business realignment charge, net     --   3,885  
  Total costs and expenses    742,765    720,643  
Income before Interest and Income Taxes    150,923    128,472  
 Interest expense, net    15,488    15,544  
Income before Income Taxes    135,435    112,928  
 Income tax (benefit) provision    (11,782 )  41,444  
Net Income   $ 147,217   $ 71,484  
Net Income Per Share-Basic - Common Stock   $ .58   $ .28  
Net Income Per Share-Basic - Class B Common Stock   $ .53   $ .25  
Net Income Per Share-Diluted   $ .56   $ .27  
Average Shares Outstanding-Basic - Common Stock    198,068    201,416  
Average Shares Outstanding-Basic - Class B Common Stock    60,844    60,844  
Average Shares Outstanding-Diluted    261,707    263,966  
Cash Dividends Paid per Share:  
  Common Stock   $ .3950   $ .3275  
  Class B Common Stock   $ .3575   $ .2950  

The accompanying notes are an integral part of these statements.

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INDEX

HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)

For the Six Months Ended
     July 4,
       2004
 June 29,
2003
Net Sales     $ 1,906,777   $ 1,802,277  
Costs and Expenses:  
 Cost of sales    1,158,836    1,112,249  
 Selling, marketing and administrative    413,694    388,940  
 Business realignment charge, net    --    3,885  
  Total costs and expenses    1,572,530    1,505,074  
Income before Interest and Income Taxes    334,247    297,203  
 Interest expense, net    30,342    30,155  
Income before Income Taxes    303,905    267,048  
 Provision for income taxes    49,541    98,006  
Net Income   $ 254,364   $ 169,042  
Net Income Per Share-Basic - Common Stock   $ 1.00   $ .66  
Net Income Per Share-Basic - Class B Common Stock   $ .91   $ .60  
Net Income Per Share-Diluted   $ .97   $ .64  
Average Shares Outstanding-Basic - Common Stock    198,482    203,624  
Average Shares Outstanding-Basic - Class B Common Stock    60,844    60,844  
Average Shares Outstanding-Diluted    261,871    266,188  
Cash Dividends Paid per Share:  
  Common Stock   $ .790   $ .655  
  Class B Common Stock   $ .715   $ .590  

The accompanying notes are an integral part of these statements.

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INDEX

HERSHEY FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
JULY 4, 2004 AND DECEMBER 31, 2003
(in thousands of dollars)

ASSETS 2004
 2003
Current Assets:            
  Cash and cash equivalents   $ 19,475   $ 114,793  
  Accounts receivable - trade    256,657    407,612  
  Inventories    721,503    492,859  
  Deferred income taxes    21,741    13,285  
  Prepaid expenses and other    156,045    103,020  
   Total current assets    1,175,421    1,131,569  
Property, Plant and Equipment, at cost    3,304,282    3,227,023  
   Less-accumulated depreciation and amortization    (1,633,420 )  (1,565,084 )
   Net property, plant and equipment    1,670,862    1,661,939  
Goodwill    374,803    388,960  
Other Intangibles    38,334    38,511  
Other Assets    348,409    361,561  
     Total assets   $ 3,607,829   $ 3,582,540  
LIABILITIES AND STOCKHOLDERS' EQUITY  
 
Current Liabilities:  
  Accounts payable   $ 160,822   $ 132,222  
  Accrued liabilities    377,958    416,181  
  Accrued income taxes    --    24,898  
  Short-term debt    99,610    12,032  
  Current portion of long-term debt    979    477  
        Total current liabilities    639,369    585,810  
Long-term Debt    969,561    968,499  
Other Long-term Liabilities    383,004    370,776  
Deferred Income Taxes    300,612    377,589  
       Total liabilities    2,292,546    2,302,674  
Stockholders' Equity:  
  Preferred Stock, shares issued:  
    none in 2004 and 2003    --    --  
  Common Stock, shares issued:  
    299,057,552 in 2004 and 149,528,776 on a pre-split basis in 2003    299,057    149,528  
  Class B Common Stock, shares issued:  
    60,844,192 in 2004 and 30,422,096 on a pre-split basis in 2003    60,844    30,422  
  Additional paid-in capital    17,151    4,034  
  Unearned ESOP compensation    (7,984 )  (9,580 )
  Retained earnings    3,238,544    3,263,988  
  Treasury-Common Stock shares at cost:  
   102,383,154 in 2004 and 100,842,278 in 2003    (2,255,259 )  (2,147,441 )
  Accumulated other comprehensive loss    (37,070 )  (11,085 )
      Total stockholders' equity    1,315,283    1,279,866  
      Total liabilities and stockholders' equity   $ 3,607,829   $ 3,582,540  

The accompanying notes are an integral part of these balance sheets.

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INDEX

HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)

For the Six Months Ended
July 4,
2004
 June 29,
2003
Cash Flows Provided from (Used by) Operating Activities            
    Net Income   $ 254,364   $ 169,042  
    Adjustments to Reconcile Net Income to Net Cash  
    Provided from Operations:  
        Depreciation and amortization    93,980    88,071  
        Deferred income taxes    (75,122 )  10,774  
        Business realignment initiatives    --    3,885  
        Changes in assets and liabilities:  
             Accounts receivable - trade    150,955    140,596  
             Inventories    (208,644 )  (130,641 )
             Accounts payable    28,600    9,786  
             Other assets and liabilities    (98,583 )  (165,950 )
Net Cash Flows Provided from Operating Activities    145,550    125,563  
Cash Flows Provided from (Used by) Investing Activities  
   Capital additions    (106,437 )  (78,921 )
   Capitalized software additions    (8,486 )  (8,021 )
Net Cash Flows (Used by) Investing Activities    (114,923 )  (86,942 )
Cash Flows Provided from (Used by) Financing Activities  
   Net increase in short-term debt    87,578    31,326  
   Repayment of long-term debt    (570 )  (7,566 )
   Cash dividends paid    (99,857 )  (84,224 )
   Exercise of stock options    55,501    29,410  
   Incentive plan transactions    (73,012 )  (34,384 )
   Repurchase of Common Stock    (95,585 )  (252,228 )
Net Cash Flows (Used by) Financing Activities    (125,945 )  (317,666 )
Decrease in Cash and Cash Equivalents    (95,318 )  (279,045 )
Cash and Cash Equivalents, beginning of period    114,793    297,743  
Cash and Cash Equivalents, end of period   $ 19,475   $ 18,698  
Interest Paid   $ 29,976   $ 31,601  
Income Taxes Paid   $ 151,194   $ 136,119  

The accompanying notes are an integral part of these statements.

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INDEX

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.         BASIS OF PRESENTATION

   The accompanying unaudited consolidated financial statements include the accounts of Hershey Foods Corporation, its wholly-owned subsidiaries and entities in which it has a controlling financial interest (the “Company”) after elimination of intercompany accounts and transactions. These statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended July 4, 2004, are not necessarily indicative of the results that may be expected for the year ending December 31, 2004, because of the seasonal effects of the Company’s business. For more information, refer to the consolidated financial statements and notes included in the Company’s 2003 Annual Report on Form 10-K.

2.         STOCK SPLIT AND NET INCOME PER SHARE — BASIC

On April 21, 2004, the Company’s Board of Directors approved a two-for-one stock split to be effected in the form of a 100 percent stock dividend to stockholders of record on May 25, 2004. The Company’s stockholders received one additional share for each share in their possession on that date. This did not change the proportionate interest a stockholder maintained in the Company. The additional shares were distributed on June 15, 2004. All shares and per share amounts have been adjusted for the two-for-one stock split.

Statement of Financial Accounting Standards No. 128, Earnings per Share (“SFAS No. 128”), provides guidance on the calculation and disclosure of earnings per share (“EPS”). SFAS No. 128 defines EPS as “the amount of earnings attributable to each share of common stock” and indicates that the objective of EPS is to measure the performance of an entity over the reporting period. In deliberations regarding the application of SFAS No. 128, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) reached a consensus requiring the use of the two-class method of computing EPS for those enterprises with participating securities or multiple classes of common stock through EITF Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share (“EITF No. 03-6”).

The Company has two classes of common stock, Common Stock and Class B Common Stock (“Class B Stock”). With respect to dividend rights, the Common Stock is entitled to cash dividends ten percent higher than those declared and paid on the Class B Stock. Under EITF No. 03-6, the Class B Stock is considered a participating security requiring the use of the two-class method for the computation of net income per share – basic, rather than the if-converted method as previously used. The two-class computation method for each period reflects the cash dividends paid per share for each class of stock, plus the amount of allocated undistributed earnings per share computed using the participation percentage which reflects the dividend rights of each class of stock. Net income per share – basic reflects the application of EITF No. 03-6 and was computed using the two-class method for all periods presented. The shares of Class B Stock are considered to be participating convertible securities since the shares of Class B Stock are convertible on a one-for-one basis into shares of Common Stock. Net income per share — diluted has been computed using the if-converted method.

3.         EMPLOYEE STOCK OPTIONS AND OTHER STOCK-BASED EMPLOYEE COMPENSATION PLANS

As of July 4, 2004, the Company had two stock-based employee compensation plans. The Company applies the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for those plans. No stock-based employee compensation expense is reflected in net income for employee stock options since all stock options are granted at an exercise price equal to the market value of the underlying common stock on the date of grant. Compensation expense for performance stock units is recognized ratably over a period of up to seventy-two months based on the quarter-end market values of the stock. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

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INDEX

  For the Three Months Ended
 For the Six Months Ended
  July 4, 2004
 June 29, 2003
 July 4, 2004
 June 29,2003
  (in thousands of dollars except per share amounts)    
 
 Net Income, as reported     $  147,217     $  71,484     $  254,364     $  169,042  
 
Deduct: Total stock-based employee    
compensation expense determined under fair    
value method, net of related tax effects      (3,036 )   (3,975 )   (6,096 )   (7,660 )
Pro Forma Net Income     $ 144,181     $  67,509     $ 248,268     $ 161,382