XML 52 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
STOCK COMPENSATION PLAN
6 Months Ended
Jul. 01, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK COMPENSATION PLANS
STOCK COMPENSATION PLANS
The Hershey Company Equity and Incentive Compensation Plan (“EICP”) is the plan under which grants using shares for compensation and incentive purposes are made. The following table summarizes our stock compensation costs:
 
For the Three Months Ended
 
For the Six Months Ended
In millions of dollars
July 1,
2012
 
July 3,
2011
 
July 1,
2012
 
July 3,
2011
Total compensation amount charged against income for stock options, performance stock units (“PSUs”) and restricted stock units ("RSUs")
$
13.1

 
$
8.9

 
$
24.6

 
$
24.0

Total income tax benefit recognized in the Consolidated Statements of Income for share-based compensation
$
4.4

 
$
3.2

 
$
8.5

 
$
8.7


The increase in share-based compensation expense for the second quarter and first six months of 2012 resulted primarily from the forfeiture of unvested awards due to participant changes during the second quarter of 2011. This was offset to some extent by certain adjustments associated with accounting for performance stock units for the second quarter and first six months of 2012.
Stock Options
A summary of the status of our stock options as of July 1, 2012, and the change during 2012 is presented below:
 
For the Six Months Ended July 1, 2012
Stock Options
Shares
Weighted-Average
Exercise Price
Weighted-Average Remaining
Contractual Term
Outstanding at beginning of the period
14,540,442

$44.86
5.7 years
Granted
2,073,480

$60.69
 
Exercised
(4,208,781
)
$44.14
 
Forfeited
(171,219
)
$51.90
 
Outstanding as of July 1, 2012
12,233,922

$47.69
6.4 years
Options exercisable as of July 1, 2012
6,897,713

$45.73
4.8 years


 
For the Six Months Ended
 
July 1,
2012
 
July 3,
2011
Weighted-average fair value of options granted (per share)
$10.57
 
$9.97
Intrinsic value of options exercised (in millions of dollars)
$86.2
 
$58.4

We estimated the fair value of each stock option grant on the date of the grant using a Black-Scholes option-pricing model and the weighted-average assumptions set forth in the following table:
 
For the Six Months Ended
 
July 1,
2012
 
July 3,
2011
Dividend yields
2.4%
 
2.7%
Expected volatility
22.4%
 
22.6%
Risk-free interest rates
1.5%
 
2.8%
Expected lives in years
6.6
 
6.6

As of July 1, 2012, the aggregate intrinsic value of options outstanding was $253.3 million and the aggregate intrinsic value of options exercisable was $156.3 million.
As of July 1, 2012, there was $26.3 million of total unrecognized compensation cost related to non-vested stock option compensation arrangements granted under our stock option plans. That cost is expected to be recognized over a weighted-average period of 2.3 years.
Performance Stock Units and Restricted Stock Units
A summary of the status of our PSUs and RSUs as of July 1, 2012, and the change during 2012 is presented below:
Performance Stock Units and Restricted Stock Units
For the Six Months Ended
July 1, 2012
Weighted-average grant date fair value for equity awards or market value for liability awards
Outstanding at beginning of year
1,740,479

$48.70
Granted
394,290

$63.09
Performance assumption change
207,582

$58.91
Vested
(560,856
)
$42.30
Forfeited
(74,549
)
$56.40
Outstanding as of July 1, 2012
1,706,946

$55.41

The table above excludes PSU awards for 71,676 units as of December 31, 2011 and 41,064 units as of July 1, 2012 for which the measurement date has not yet occurred for accounting purposes.
For the first six months of 2012, we estimated the fair value of the market-based total shareholder return component of the PSUs using a Monte Carlo simulation model on the date of grant. The Monte Carlo assumptions included $35.62 for the estimated value which was based on dividend yields of 2.5% and expected volatility of 20.0%. For performance-based components of the PSUs, we used the closing market price of the Company's Common Stock on the date of grant. For the first six months of 2011, we estimated the fair value of PSUs based on the closing market price of the Company's Common Stock on the date of grant. In the third quarter of 2011, we recorded an adjustment associated with the accounting for PSUs to reflect the market-based and performance-based conditions.
As of July 1, 2012, there was $46.9 million of unrecognized compensation cost relating to non-vested PSUs and RSUs. We expect to recognize that cost over a weighted-average period of 2.1 years.
 
For the Six Months Ended
 
July 1,
2012
 
July 3,
2011
Intrinsic value of share-based liabilities paid, combined with the fair value of shares vested (in millions of dollars)
$
33.3

 
$
33.0


Deferred performance stock units, deferred restricted stock units, and directors’ fees and accumulated dividend amounts representing deferred stock units totaled 621,718 units as of July 1, 2012. Each unit is equivalent to one share of the Company’s Common Stock.
No stock appreciation rights were outstanding as of July 1, 2012.
For more information on our stock compensation plans, refer to the consolidated financial statements and notes included in our 2011 Annual Report on Form 10-K and our proxy statement for the 2012 annual meeting of stockholders.