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INDEX

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   October 3, 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 — 185,241,222 shares, as of October 22, 2004. Class B Common Stock, $1 par value — 60,842,192 shares, as of October 22, 2004.

Exhibit Index – Page 22

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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 October 3, 2004 and September 28, 2003 3  
 
        Consolidated Statements of Income- Nine months ended October 3, 2004 and September 28, 2003 4  
 
        Consolidated Balance Sheets- October 3, 2004 and December 31, 2003 5  
 
        Consolidated Statements of Cash Flows- Nine months ended October 3, 2004 and September 28, 2003 6  
 
        Notes to Consolidated Financial Statements 7  
 
     Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 15      
 
     Item 3. Quantitative and Qualitative Disclosures About Market Risk 18      
 
     Item 4. Controls and Procedures 18      
 
Part II. Other Information
 
     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19  
 
     Item 6. Exhibits 20  

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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
October 3,
2004
 September 28,
2003
 Net Sales     $ 1,254,508   $ 1,191,019  
Costs and Expenses:  
 Cost of sales    756,408    724,185  
 Selling, marketing and administrative    216,696    212,107  
 Business realignment charge, net    --    8,564  
 Gain on sale of business    --    (8,330 )
   Total costs and expenses    973,104    936,526  
Income before Interest and Income Taxes    281,404    254,493  
 Interest expense, net    18,252    17,258  
Income before Income Taxes       263,152     237,235  
  Provision for income taxes       96,923     86,263  
Income before Cumulative Effect of Accounting Change       166,229     150,972  
  Cumulative effect of accounting change, net of $4,933 tax benefit       --     7,368  
Net Income   $ 166,229   $ 143,604  
Earnings Per Share - Basic - Common Stock  
  Income before Cumulative Effect of Accounting Change   $ .68   $ .59  
  Cumulative Effect of Accounting Change    --    (.03 )
  Net Income   $ .68   $ .57  
Earnings Per Share - Basic - Class B Common Stock  
  Income before Cumulative Effect of Accounting Change   $ .62   $ .54  
  Cumulative Effect of Accounting Change    --    (.03 )
  Net Income   $ .62   $ .51  
  Earnings Per Share - Diluted  
  Income before Cumulative Effect of Accounting Change   $ .66   $ .57  
  Cumulative Effect of Accounting Change    --    (.03 )
  Net Income   $ .66   $ .55  
Average Shares Outstanding-Basic - Common Stock    188,726    200,460  
Average Shares Outstanding-Basic - Class B Common Stock    60,843    60,844  
Average Shares Outstanding-Diluted    252,683    263,298  
 Cash Dividends Paid per Share:  
  Common Stock   $ .2200   $ .1975  
  Class B Common Stock   $ .2000   $ .1788  

The accompanying notes are an integral part of these consolidated financial statements.

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INDEX

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

For the Nine Months Ended
October 3,
2004
 September 28,
2003
Net Sales     $ 3,161,285   $ 2,993,296  
Costs and Expenses:  
 Cost of sales    1,915,244    1,836,434  
 Selling, marketing and administrative    630,390    601,047  
 Business realignment charge, net    --    12,449  
 Gain on sale of business    --    (8,330 )
  Total costs and expenses    2,545,634    2,441,600  
Income before Interest and Income Taxes    615,651    551,696  
 Interest expense, net    48,594    47,413  
Income before Income Taxes    567,057    504,283  
 Provision for income taxes    146,464    184,269  
Income before Cumulative Effect of Accounting Change    420,593    320,014  
  Cumulative effect of accounting change, net of $4,933 tax benefit    --    7,368  
Net Income   $ 420,593   $ 312,646  
Earnings Per Share - Basic - Common Stock  
  Income before Cumulative Effect of Accounting Change   $ 1.68   $ 1.24  
  Cumulative Effect of Accounting Change    --    (.03 )
  Net Income   $ 1.68   $ 1.21  
Earnings Per Share - Basic - Class B Common Stock  
  Income before Cumulative Effect of Accounting Change   $ 1.53   $ 1.12  
  Cumulative Effect of Accounting Change    --    (.03 )
  Net Income   $ 1.53   $ 1.09  
Earnings Per Share - Diluted  
  Income before Cumulative Effect of Accounting Change   $ 1.62   $ 1.21  
  Cumulative Effect of Accounting Change    --    (.03 )
   Net Income   $ 1.62   $ 1.18  
Average Shares Outstanding-Basic - Common Stock    195,288    202,561  
Average Shares Outstanding-Basic - Class B Common Stock    60,844    60,844  
Average Shares Outstanding-Diluted    258,866    265,229  
Cash Dividends Paid per Share:  
  Common Stock   $ .6150   $ .5250  
  Class B Common Stock   $ .5575   $ .4738  

The accompanying notes are an integral part of these consolidated financial statements.

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INDEX

HERSHEY FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)

October 3, December 31,
ASSETS 2004
 2003
     
Current Assets:            
  Cash and cash equivalents   $ 87,389   $ 114,793  
  Accounts receivable - trade    484,197    407,612  
  Inventories    643,549    492,859  
  Deferred income taxes    18,024    13,285  
  Prepaid expenses and other    117,015    103,020  
   Total current assets    1,350,174    1,131,569  
Property, Plant and Equipment, at cost    3,316,009    3,227,023  
Less-accumulated depreciation and amortization    (1,648,218 )  (1,565,084 )
   Net property, plant and equipment    1,667,791    1,661,939  
Goodwill    377,762    388,960  
Other Intangibles    38,222    38,511  
Other Assets    352,774    361,561  
    Total assets   $ 3,786,723   $ 3,582,540  
LIABILITIES AND STOCKHOLDERS' EQUITY  
 
Current Liabilities:  
  Accounts payable   $ 154,890   $ 132,222  
  Accrued liabilities    424,399    416,181  
  Accrued income taxes    19,924    24,898  
  Short-term debt    562,078    12,032  
  Current portion of long-term debt    979    477  
       Total current liabilities    1,162,270    585,810  
Long-term Debt    968,956    968,499  
Other Long-term Liabilities    394,933    370,776  
Deferred Income Taxes    320,055    377,589  
       Total liabilities    2,846,214    2,302,674  
Stockholders' Equity:  
  Preferred Stock, shares issued:  
    none in 2004 and 2003    --  --
  Common Stock, shares issued:  
    299,059,552 in 2004 and 149,528,776 on a pre-split basis in 2003    299,059    149,528  
  Class B Common Stock, shares issued:  
    60,842,192 in 2004 and 30,422,096 on a pre-split basis in 2003    60,842    30,422  
  Additional paid-in capital    22,019    4,034  
  Unearned ESOP compensation    (7,185 )  (9,580 )
  Retained earnings    3,351,860    3,263,988  
  Treasury-Common Stock shares at cost:  
   113,822,530 in 2004 and 50,421,139 on a pre-split basis in 2003    (2,774,636 )  (2,147,441 )
  Accumulated other comprehensive loss    (11,450 )  (11,085 )
      Total stockholders' equity    940,509    1,279,866  
      Total liabilities and stockholders' equity   $ 3,786,723   $ 3,582,540  

The accompanying notes are an integral part of these consolidated financial statements.

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INDEX

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

  For the Nine Months Ended
October 3,
2004
 September 28,
2003
Cash Flows Provided from (Used by) Operating Activities            
    Net Income   $ 420,593   $ 312,646  
    Adjustments to Reconcile Net Income to Net Cash  
    Provided from Operations:  
        Depreciation and amortization    141,115    133,852  
        Deferred income taxes    (58,749 )  (6,387 )
        Business realignment initiatives    --    12,449  
        Gain on sale of business    --    (8,330 )
        Cumulative effect of accounting change    --    7,368  
        Changes in assets and liabilities:  
             Accounts receivable - trade    (76,585 )  (166,694 )
             Inventories    (139,190 )  (60,965 )
             Accounts payable    22,668    (7,040 )
             Other assets and liabilities    53,565    (128,173 )
Net Cash Flows Provided from Operating Activities    363,417    88,726  
Cash Flows Provided from (Used by) Investing Activities  
   Capital additions    (144,794 )  (130,811 )
   Capitalized software additions    (10,886 )  (13,132 )
   Proceeds from business divestiture    --    20,049  
 Net Cash Flows (Used by) Investing Activities    (155,680 )  (123,894 )
Cash Flows Provided from (Used by) Financing Activities  
   Net increase in short-term debt    550,046    219,883  
   Repayment of long-term debt    (604 )  (7,600 )
   Cash dividends paid    (152,770 )  (134,546 )
   Exercise of stock options    67,096    37,217  
   Incentive plan transactions    (81,933 ) &nb