Hershey Foods (HSY)

For the years ended December 31,

Net income

Depreciation and amortization

Stock-based compensation and excess tax benefits

Deferred income taxes

Business realignment and impairment charges, net of tax

Contributions to pension plans

Working capital

Changes in other assets and liabilities

Net cash provided from operating activities

Over the past three years, total cash provided from operating activities was approximately $2.0 billion.

Depreciation and amortization expenses decreased in 2008 principally as the result of lower accelerated depreciation charges related to the 2007 business realignment initiatives compared with accelerated depreciation charges recorded in 2007. Accelerated depreciation recorded in 2008 was approximately $60.6 million compared with approximately $108.6 million recorded in 2007. Depreciation and amortization expenses represent non-cash items that impacted net income and are reflected in the consolidated statements of cash flows to reconcile cash flows from operating activities.

Cash used by deferred income taxes in 2008 and 2007 versus cash provided by deferred income taxes in 2006, primarily reflected the deferred tax benefit related to the 2007 business realignment and impairment charges recorded during 2008 and 2007.

We contributed $72.2 million to our pension plans over the past three years to improve the plans’ funded status and to pay benefits under the non-funded plans. As of December 31, 2008, our pension benefit obligations exceeded the fair value of our pension plan assets by $40.8 million.

Over the three-year period, cash provided from or used by working capital tended to fluctuate due to the timing of sales and cash collections during November and December of each year and working capital management practices, including initiatives implemented during 2007 and 2008 to reduce working capital.

During the three-year period, cash used by or provided from changes in other assets and liabilities primarily reflected the impact of business realignment initiatives and the related tax effects, as well as the effect of hedging transactions.

The decrease in income taxes paid in 2008 compared with 2007 primarily reflected the impact of lower taxable income for 2008.

For the years ended December 31,

Net income

Depreciation and amortization

Stock-based compensation and excess tax benefits

Deferred income taxes

Business realignment and impairment charges, net of tax

Contributions to pension plans

Working capital

Changes in other assets and liabilities

Net cash provided from operating activities

Over the past three years, total cash provided from operating activities was approximately $2.0 billion.

In 2007, depreciation and amortization expenses increased principally as the result of the accelerated depreciation charges related to the 2007 business realignment initiatives. These amounts represented non-cash items that impacted net income and are reflected in the consolidated statements of cash flows to reconcile cash flows from operating activities.

The change in cash used by deferred income taxes in 2007 primarily reflected the deferred tax benefit related to the 2007 business realignment and impairment charges.

We contributed $316.9 million to our pension plans over the past three years to improve the plans’ funded status and to pay benefits under the non-funded plans. As of December 31, 2007, the fair value of our pension plan assets exceeded benefits obligations by $354.0 million.

Over the three-year period, cash provided from or used by working capital tended to fluctuate due to sales during December and working capital management practices, including initiatives implemented during 2007 to reduce working capital.

During the three-year period, cash provided from changes in other assets and liabilities primarily reflected the impact of business realignment initiatives and the related tax effects, incentive compensation, and the effect of hedging transactions.

The decrease in income taxes paid in 2007 compared with 2006 primarily reflected a lower federal extension payment for 2006 income taxes and the impact of lower annualized taxable income for 2007.

For the years ended December 31,

Net income

Depreciation and amortization

Stock-based compensation and excess tax benefits

Deferred income taxes

Business realignment initiatives, net of tax

Contributions to pension plans

Working capital

Changes in other assets and liabilities

Net cash provided from operating activities

Over the past three years, cash from operating activities provided approximately $2.0 billion.

The change in cash (used by) provided from deferred income taxes primarily reflected the tax impact of higher pension plan contributions in 2005 and the adjustment of income tax contingency reserves in 2004.

In 2004, we adjusted deferred income taxes primarily to reflect the deferred tax benefit resulting from a $61.1 million adjustment to income tax contingency reserves recorded in the second quarter of 2004. Deferred income taxes in 2004 also reflected an increase resulting from the Mauna Loa acquisition. These adjustments represented non-cash items that impacted net income and are reflected in the consolidated statements of cash flows to reconcile cash flows from operating activities.

We contributed $309.1 million to our pension plans over the past three years to improve the plans’ funded status. As of December 31, 2006, the fair value of our pension plan assets exceeded benefits obligations by $328.0 million.

Over the three-year period, cash provided from or used by working capital tended to fluctuate due to sales during December and inventory management practices.

During the three-year period, changes in other assets and liabilities primarily related to hedging transactions and the timing of payments for accrued liabilities associated with selling and marketing programs, incentive compensation and income taxes. The increase in income taxes paid in 2006 compared with 2005 primarily reflected significantly lower tax deductions in 2006 for pension plan contributions.