Results of Operations — First Nine Months 2005 vs. First Nine Months 2004

Net sales for the first nine months of 2005 increased $321.8 million, or 10.2%, from 2004.  Business acquisitions contributed approximately 2.9% of the increase from 2004. Approximately two-thirds of the additional sales increase of 7.3% resulted from unit volume growth, primarily reflecting the introduction of new products and limited edition items, and improved performance by the Company’s international businesses, particularly the Canadian, Mexican and export businesses in China and the Philippines. The remainder of the sales increase resulted from selling price increases, a lower rate of promotional spending and the impact of favorable foreign currency exchange rates for the Company’s international businesses.

Cost of sales for the first nine months increased $224.1 million, or 11.7%, from 2004 to 2005. Business realignment charges increased cost of sales by $16.6 million. The remainder of the cost increase was primarily caused by the higher sales volume, business acquisitions, and higher raw material costs, in addition to higher labor, overhead and shipping costs. Gross margin decreased from 39.4% in 2004 to 38.6% in 2005.  The margin decline resulted primarily from a less favorable product mix, primarily associated with the lower-margin Mauna Loa and Grupo Lorena businesses and sales of certain new products which currently have lower margins, higher raw material, labor and overhead costs, and the impact of business realignment charges, partially offset by improved price realization, primarily from selling price increases. Improved profitability for the Company’s international businesses also helped to offset the margin decline.

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Selling, marketing and administrative expenses for the first nine months increased $35.9 million, or 5.7%, from the comparable period in 2004, primarily reflecting increased performance-based employee compensation costs, incremental expenses related to the business acquisitions and higher consumer promotions expenses. These increases were offset somewhat by lower advertising expense. Selling, marketing and administrative expenses as a percentage of sales declined from 19.9% in 2004 to 19.1% in 2005.

Business realignment charges of $84.8 million pre-tax were associated primarily with the voluntary workforce reduction programs.

Net interest expense in the first nine months was $15.1 million higher than the comparable period of 2004, primarily reflecting higher short-term interest expense and decreased capitalized interest. The increase in short-term interest expense was primarily associated with commercial paper borrowings to fund seasonal working capital requirements, stock repurchases and contributions to the Company’s pension plans.

The effective income tax rate for the first nine months of 2005 was 36.7%, compared with 25.8% in 2004. The lower effective income tax rate for the first nine months of 2004 resulted from a $61.1 million reduction to the provision for income taxes related to the adjustment to income tax contingency reserves recorded in the second quarter of 2004. The impact of the income tax contingency reserve adjustment reduced the effective income tax rate for 2004 by 10.8 percentage points.

Net income for the nine months decreased $85.5 million, or 20.3%, from 2004 to 2005, and net income per share-diluted decreased $.28, or 17.3%. Net income for the first nine months of 2005 was unfavorably impacted by total business realignment charges of $101.4 million before tax, $65.8 million after tax or $.27 per share-diluted. Net income for the first nine months of 2004 was favorably impacted by $61.1 million, or $.23 per share-diluted, as a result of the adjustment to the Federal and state income tax contingency reserves.

The trends of key marketplace metrics, such as retail takeaway and market share, continue to show positive results. During the third quarter and first nine months of 2005, the Company achieved gains in retail takeaway and market share and strengthened its position in the total snack market. In channels of distribution including sales in the food, drug, convenience store and mass merchandiser classes of trade, excluding sales to Wal-Mart Stores, Inc., retail takeaway during the third quarter increased by 4% resulting in a market share gain of .3 points and for the year-to-date retail takeaway increased 4.9% with a market share gain of .3 points.

The Company expects broadly higher input costs in the future during a period of economic uncertainty. Higher input costs are anticipated for certain raw materials, packaging and energy requirements. The Company is developing plans to address these cost pressures in order to sustain the future profitability of the business.

Results of Operations — First Six Months 2005 vs. First Six Months 2004

Net sales for the first six months of 2005 increased $208.1 million, or 11%, from 2004.  The Mauna Loa and Grupo Lorena acquisitions contributed incremental sales of $55.6 million, or approximately 3% of the increase from 2004. Approximately two-thirds of the organic sales growth of 8% resulted from unit volume growth, primarily reflecting the introduction of new products and limited edition items, and improved performance by the Company’s international businesses, particularly in Canada and Mexico. The remainder of the sales increase resulted from a more efficient rate of promotional spending, selling price increases and lower returns, discounts and allowances as a percentage of sales.

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Cost of sales for the first six months increased $131.0 million, or 11%, from 2004 to 2005.  The cost increase was primarily caused by the higher sales volume and higher raw material costs, principally associated with increased prices for cocoa, dairy and almonds in addition to higher labor, overhead and shipping costs. Gross margin decreased slightly from 39.2% in 2004 to 39.0% in 2005.  The margin decline resulted primarily from a less favorable product mix, primarily associated with the lower margin Mauna Loa and Grupo Lorena businesses, sales of certain new products which currently have lower margins, and higher raw material, labor and overhead costs, substantially offset by improved price realization, primarily from selling price increases, reduced promotional spending as a percentage of sales and a lower rate of returns, discounts and allowances. Improved profitability for the Company’s international businesses also helped to offset the margin decline.

Selling, marketing and administrative expenses for the first six months increased 8% from the comparable period in 2004, primarily reflecting increased performance-based employee compensation costs, incremental expenses related to the business acquisitions and higher consumer promotions and marketing research expenses. Selling, marketing and administrative expenses as a percentage of sales declined from 21.7% in 2004 to 21.1% in 2005.

Net interest expense in the first six months was $9.7 million higher than the comparable period of 2004, primarily reflecting higher short-term interest expense and decreased capitalized interest. The increase in short-term interest expense was primarily associated with commercial paper borrowings for repurchases of Common Stock and the 2004 business acquisitions.

The effective income tax rate for the first six months of 2005 was 36.4%, compared with 16.3% in 2004. The lower effective income tax rate for the first six months of 2004 resulted from a $61.1 million reduction to the provision for income taxes related to the adjustment to income tax contingency reserves recorded in the second quarter of 2004. The effective income tax rate for the first six months of 2004, excluding the impact of the income tax contingency reserve adjustment, was 36.4%.

Net income for the six months decreased $38.8 million, or 15%, from 2004 to 2005, and net income per share-diluted decreased $.11, or 11%. Net income for the first six months of 2004 was favorably impacted by the $61.1 million adjustment to the Federal and state tax contingency reserves. The income tax adjustment was offset by increased income from operations and the impact of lower weighted-average shares outstanding resulting from share repurchases.

The trends of key marketplace metrics, such as retail takeaway and market share, continue to show positive results. During the first six months of 2005, the Company achieved gains in retail takeaway and market share and strengthened its confectionery category leadership position. In channels of distribution accounting for approximately 80% of the Company’s retail business, consumer takeaway increased by 6% for the most recent eight-week period, and increased 4% for the year-to-date. These channels of distribution include food, drug, mass merchandisers, including Wal-Mart Stores, Inc. and convenience stores. Market share in measured channels for the most recent eight-week period increased 0.7 share points and, for the year-to-date, increased 0.8 share points. Measured channels include sales in the food, drug, convenience store and mass merchandiser classes of trade, excluding sales to Wal-Mart Stores, Inc.

Results of Operations — First Quarter 2005 vs. First Quarter 2004

Net sales for the first quarter of 2005 increased $113.3 million, or 11%, from 2004.  The Mauna Loa and Grupo Lorena acquisitions contributed incremental sales of $29.0 million, or approximately 3% of the increase from 2004. Approximately three quarters of the organic sales growth of 8% resulted from unit volume growth, primarily reflecting the introduction of new products and improved performance by the Company’s international businesses, particularly in Canada and Mexico. Additionally, a portion of the organic sales volume increase resulted from a buy-in prior to the effective date of selling price increases. The remainder of the sales increase resulted from a more efficient rate of promotional spending and lower returns, discounts and allowances as a percentage of sales.

Cost of sales for the quarter increased $69.5 million, or 11%, from 2004 to 2005.  The cost increase was primarily caused by the higher sales volume and higher raw material costs, principally associated with increased prices for cocoa and dairy products. Gross margin increased slightly from 38.2% in 2004 to 38.3% in 2005.  The margin expansion reflected improved price realization, primarily from reduced promotional spending as a percentage of sales, as well as selling price increases and a lower rate of returns, discounts and allowances. These margin improvements were substantially offset by higher raw material costs and a less favorable product mix, primarily associated with the lower margin Mauna Loa and Grupo Lorena businesses.

Selling, marketing and administrative expenses for the first quarter of 2005 increased 10% from the comparable period in 2004, primarily reflecting increased employee compensation costs, incremental expenses related to the business acquisitions and higher advertising expense. Selling, marketing and administrative expenses as a percentage of sales, declined from 20.1% in 2004 to 20.0% in 2005.

Net interest expense in the first quarter of 2005 was $4.6 million higher than the comparable period of 2004, primarily reflecting higher short-term interest expense and decreased capitalized interest. The increase in short-term interest expense was primarily associated with commercial paper borrowings for repurchases of Common Stock and the 2004 business acquisitions.

The effective income tax rate for the first quarter of 2005 was 36.6% compared with 36.4% for the first quarter of 2004, reflecting the best estimates of the expected effective income tax rates for the full-years.

Net income for the first quarter increased $11.1 million, or 10%, from 2004 to 2005, and net income per share-diluted increased $.06, or 15%. The increase was primarily attributable to increased income from operations and the impact of lower weighted-average shares outstanding resulting from share repurchases.