SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Common Stock, one dollar par value—~~155,899,924~~151,794,895 shares, as of February ~~5, 2016.~~10, 2017.

Class B Common Stock, one dollar par value—60,619,777 shares, as of February ~~5, 2016.~~10, 2017.

DOCUMENTS INCORPORATED BY REFERENCE

Annual Report on Form 10-K

For the Fiscal Year Ended December 31, 2016

The Hershey Company was incorporated under the laws of the State of Delaware on October 24, 1927 as a successor to a business founded in 1894 by Milton S. Hershey. In this report, the terms “Hershey,” “Company,” “we,” “us” or “our” mean The Hershey Company and its wholly-owned subsidiaries and entities in which it has a controlling financial interest, unless the context indicates otherwise.

We are the largest producer of quality chocolate in North America and a global leader in chocolate and non-chocolate confectionery. We market, sell and distribute our products under more than 80 brand names in approximately 70 countries worldwide.

Our organizational structure is designed to ensure continued focus on North America, coupled with an emphasis on ~~accelerating~~profitable growth in our focus international ~~markets, as we continue to transform into a more global company.~~markets. Our business is organized around geographic regions, which enables us to build processes for repeatable success in our global markets. The Presidents of our geographic regions, along with the Senior Vice President responsible for our Global Retail and Licensing business, are accountable for delivering our annual financial plans and report into our CEO, who serves as our Chief Operating Decision Maker (“CODM”), soAs a result, we have defined our operating segments on a geographic ~~basis.~~basis, as this aligns with how our Chief Operating Decision Maker (“CODM”) manages our business, including resource allocation and performance assessment. Our North America business, ~~currently~~which generates ~~over 87%~~approximately 88% of our consolidated revenue, ~~and none~~is our only reportable segment. None of our other ~~geographic regions is individually significant. Therefore, we currently define our~~operating segments meet the quantitative thresholds to qualify as reportable segments; therefore, these operating segments are combined and disclosed below as ~~follows:~~International and Other.

North America - This segment is responsible for our traditional chocolate and ~~sugar~~non-chocolate confectionery market position, as well as our grocery and growing snacks market positions, in the United States and Canada. This includes developing and growing our business in chocolate and non-chocolate confectionery, ~~refreshment,~~ pantry, food service and other snacking product lines.

International and Other - ~~This segment includes~~International and Other is a combination of all other ~~countries~~operating segments that are not individually material, including those geographic regions where we operate outside of North America. We currently have operations and manufacture ~~import, market, sell or distribute chocolate and non-chocolate confectionery and other products. Currently, this includes our operations~~product in China, Mexico, Brazil, India and ~~other~~Malaysia, primarily for consumers in these regions, and also distribute and sell confectionery products in export markets of Asia, ~~markets,~~ Latin America, Middle East, Europe, Africa and ~~the Middle East, along with exports to these~~other regions. ~~While a less significant component, this~~This segment also includes our global retail operations, including ~~Hershey’s~~Hershey's Chocolate World stores in Hershey, Pennsylvania, New York City, ~~Chicago,~~ Las Vegas, Shanghai, Niagara Falls (Ontario), Dubai, and Singapore, as well as operations associated with licensing the use of certain of the Company's trademarks and products to third parties around the world.

Financial and other information regarding our reportable segments is provided in our Management’s Discussion and Analysis and Note 11 to the Consolidated Financial Statements.

Business Acquisitions and Divestitures

In April 2016, we completed the acquisition of all of the outstanding shares of Ripple Brand Collective, LLC, a privately held company based in Congers, New York that owns the barkTHINS mass premium chocolate snacking brand. The acquisition was undertaken in order to broaden our product offerings in the premium and portable snacking categories.

In March 2015, we completed the acquisition of all of the outstanding shares of KRAVE Pure Foods, Inc. (“Krave”), the Sonoma, California based manufacturer of ~~KRAVE jerky,~~Krave, a leading all-natural ~~snack~~ brand of premium ~~jerky~~meat snack products. The transaction was undertaken to enable us to tap into the rapidly growing meat snacks category and further expand into the broader snacks space.

~~In September 2015, we acquired the non-controlling 49% interest in Hershey do Brasil, giving us 100% ownership of this business.~~

In September 2014, we completed the acquisition of 80% of the outstanding shares of Shanghai Golden Monkey Food Joint Stock Co., Ltd. (“SGM”), a confectionery company based in Shanghai, China, whose product line is primarily sold through traditional trade channels. The acquisition was undertaken in order to leverage these traditional trade channels, which complement our traditional China chocolate business ~~which~~that is primarily distributed through Tier 1 or

hypermarket channels. As discussed throughout 2015, SGM’s declining performance levels and the results of our assessment of the quality of SGM’s accounts receivables and existing distributor networks indicated the need to test the goodwill arising from the SGM acquisition for impairment and ultimately resulted in the recording of a $280.8

million impairment charge as of the end of the third quarter 2015. We are directing our efforts currently on developing an integration plan that is focused on the optimal structure for top-line growth. In the fourth quarter of 2015, we entered into an agreement redefining the terms of acquisition for the remaining 20% of SGM, which remained subject to regulatory approval as of year-end. We completed the purchase of the remaining 20% ~~on February 3, 2016.~~

~~In 2014, we also acquired all~~ of the outstanding shares of The Allan Candy Company Limited (“Allan”) headquartered in Ontario, Canada and a controlling interest in Lotte Shanghai Food Company, a joint venture established in 2007 in China for the purpose of manufacturing and selling product to the joint venture partners. These acquisitions provide us with additional manufacturing and distribution capacity to serve primarily the North America and Asia markets, respectively.

~~In March 2015, we completed the sale of Mauna Loa Macadamia Nut Corporation (“Mauna Loa”).~~SGM on February 3, 2016.

Our principal ~~confectionery~~product offerings include chocolate and non-chocolate confectionery products; gum and mint refreshment products; pantry items, such as baking ingredients, toppings and beverages; and snack items such as spreads, meat snacks, bars and snack bites and mixes.

Within our North America markets, our product portfolio includes a wide variety of chocolate offerings marketed and sold under the renowned brands of Hershey’s, Reese’s, and Kisses, along with other popular chocolate and non-chocolate confectionery brands such as Jolly Rancher, Almond Joy, Brookside, Cadbury, Good & Plenty, Heath, Kit Kat®, Lancaster, Payday, Rolo®, Twizzlers, Whoppersand York. We also offer premium chocolate products, primarily in the ~~U.S.,~~United States, through the Scharffen Berger and Dagoba brands. Our gum and mint products include Ice Breakers mints and chewing gum, Breathsavers mints and Bubble Yum bubble gum. Our pantry and snack items that are principally sold in North America include baking products and toppings and sundae syrups sold under the Hershey’s, Reese’s and Heath brands, as well as Hershey’s and Reese’s chocolate spreads and snack bites and mixes andKrave meat ~~jerky products and~~ ~~Brookside~~ ~~fruit and nut bars.~~snack products.

Within our International and Other markets, we manufacture, market and sell many of these same brands, as well as other brands that are marketed regionally, such as Golden Monkey confectionery andMunching Monkey snack products in China, Pelon Pelo Rico confectionery products in Mexico, IO-IO snack products in Brazil, and Nutrine and Maha Lacto confectionery products and Jumpin and Sofit beverage products in India.

Principal Customers and Marketing Strategy

Our customers are mainly wholesale distributors, chain grocery stores, mass merchandisers, chain drug stores, vending companies, wholesale clubs, convenience stores, dollar stores, concessionaires and department stores. The majority of our customers, with the exception of wholesale distributors, resell our products to end-consumers in retail outlets in North America and other locations worldwide.

In ~~2015,~~2016, approximately ~~26%~~25% of our consolidated net sales were made to McLane Company, Inc., one of the largest wholesale distributors in the United States to convenience stores, drug stores, wholesale clubs and mass merchandisers and the primary distributor of our products to Wal-Mart Stores, Inc.

The foundation of our marketing strategy is our strong brand equities, product innovation and the consistently superior quality of our products. We devote considerable resources to the identification, development, testing, manufacturing and marketing of new products. We utilize a variety of promotional programs directed towards our customers, as well as advertising and promotional programs for consumers of our products, to stimulate sales of certain products at various times throughout the year.

In conjunction with our sales and marketing efforts, our efficient product distribution network helps us maintain sales growth and provide superior customer service by facilitating the shipment of our products from our manufacturing plants to strategically located distribution centers. We primarily use common carriers to deliver our products from these distribution points to our customers.

Raw Materials and Pricing

Cocoa products, including cocoa liquor, cocoa butter and cocoa powder processed from cocoa beans, are the most significant raw materials we use to produce our chocolate products. These cocoa products are purchased directly from third-party suppliers, who source cocoa beans that are grown principally in Far Eastern, West African, Central and South American regions. West Africa accounts for approximately 70% of the world’s supply of cocoa beans.

Adverse weather, crop disease, political unrest and other problems in cocoa-producing countries have caused price fluctuations in the past, but have never resulted in the total loss of a particular producing country’s cocoa crop and/or exports. In the event that a significant disruption occurs in any given country, we believe cocoa from other producing countries and from current physical cocoa stocks in consuming countries would provide a significant supply buffer.

In 2016, we established a trading company in Switzerland that performs all aspects of cocoa procurement, including price risk management, physical supply procurement and sustainable sourcing oversight. The trading company was implemented to optimize the supply chain for our cocoa requirements, with a strategic focus on gaining real time access to cocoa market intelligence. It also provides us with the ability to recruit and retain world class commodities traders and procurement professionals and enables enhanced collaboration with commodities trade groups, the global cocoa community and sustainable sourcing resources.

We also use substantial quantities of sugar, Class II ~~fluid~~and IV dairy ~~milk,~~products, peanuts, almonds and energy in our production process. Most of these inputs for our domestic and Canadian operations are purchased from suppliers in the United States. For our international operations, inputs not locally available may be imported from other countries.

We change prices and weights of our products when necessary to accommodate changes in input costs, the competitive environment and profit objectives, while at the same time maintaining consumer value. Price increases and weight changes help to offset increases in our input costs, including raw and packaging materials, fuel, utilities, transportation costs and employee benefits. When we implement price increases, there is usually a time lag between the effective date of the list price increases and the impact of the price increases on net sales, in part because we typically honor previous commitments to planned consumer and customer promotions and merchandising events subsequent to the effective date of the price increases. In addition, promotional allowances may be increased subsequent to the effective date, delaying or partially offsetting the impact of price increases on net sales.

Many of our confectionery brands enjoy wide consumer acceptance and are among the leading brands sold in the marketplace in North America and certain markets in Latin America. We sell our brands in highly competitive markets with many other global multinational, national, regional and local firms. Some of our competitors are large companies with significant resources and substantial international operations. Competition in our product categories is based on product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing and promotional activity, the ability to identify and satisfy consumer preferences, as well as convenience and service. In recent years, we have also experienced increased competition from other snack items, which has pressured confectionery category growth.

Working Capital, Seasonality and Backlog

Our sales are typically higher during the third and fourth quarters of the year, representing seasonal and holiday-related sales patterns. We manufacture primarily for stock and typically fill customer orders within a few days of receipt. Therefore, the backlog of any unfilled orders is not material to our total annual sales. Additional information relating to our cash flows from operations and working capital practices is provided in our Management’s Discussion and Analysis.

Trademarks, Service Marks and License Agreements

We own various registered and unregistered trademarks and service marks. The trademarks covering our key product brands are of material importance to our business. We follow a practice of seeking trademark protection in the ~~U.S.~~United States and other key international markets where our products are sold. We also grant trademark licenses to third parties to produce and sell pantry items, flavored milks and various other products primarily under the Hershey’s and Reese’s brand names.

Furthermore, we have rights under license agreements with several companies to manufacture and/or sell and distribute certain products. Our rights under these agreements are extendible on a long-term basis at our option. Our most significant licensing agreements are as follows:



Company	Brand	Location	Requirements

Kraft Foods Ireland Intellectual Property Limited	York Peter Paul Almond Joy Peter Paul Mounds	Worldwide	None
Cadbury UK Limited	Cadbury Caramello	United States	Minimum sales requirement exceeded in ~~2015~~2016

Société des Produits Nestlé SA	Kit Kat® Rolo®	United States	Minimum unit volume sales exceeded in ~~2015~~2016

Huhtamäki Oy affiliate	Good & Plenty Heath Jolly Rancher Milk Duds Payday Whoppers	Worldwide	None

Research and Development

We engage in a variety of research and development activities in a number of countries, including the United States, Mexico, Brazil, India and China. We develop new products, improve the quality of existing products, improve and modernize production processes, and develop and implement new technologies to enhance the quality and value of both current and proposed product lines. Information concerning our research and development expense is contained in Note 1 to the Consolidated Financial Statements.

Food Quality and Safety Regulation

The manufacture and sale of consumer food products is highly regulated. In the United States, our activities are subject to regulation by various government agencies, including the Food and Drug Administration, the Department of Agriculture, the Federal Trade Commission, the Department of Commerce and the Environmental Protection Agency, as well as various state and local agencies. Similar agencies also regulate our businesses outside of the United States.

We believe our Product Excellence Program provides us with an effective product quality and safety program. This program is integral to our global supply chain platform and is intended to ensure that all products we purchase, manufacture and distribute are safe, are of high quality and comply with applicable laws and regulations.

Through our Product Excellence Program, we evaluate ~~the~~our supply chain including ingredients, packaging, processes, products, distribution and the environment to determine where product quality and safety controls are necessary. We identify risks and establish controls intended to ensure product quality and safety. Various government agencies and third-party firms as well as our quality assurance staff conduct audits of all facilities that manufacture our products to assure effectiveness and compliance with our program and applicable laws and regulations.

Environmental Considerations

We make routine operating and capital expenditures to comply with environmental laws and regulations. These annual expenditures are not material with respect to our results of operations, capital expenditures or competitive position.

Employees

As of December 31, ~~2015,~~2016, we employed approximately ~~19,060~~16,300 full-time and ~~1,650~~1,680 part-time employees worldwide. Collective bargaining agreements covered approximately ~~5,930~~5,630 employees. In December 2016, we ratified a new six- year collective bargaining agreement that covers a significant portion of our unionized workforce. During ~~2016,~~2017, agreements will be negotiated for certain employees at ~~four~~three facilities outside of the United States, comprising approximately ~~73%~~69% of total employees under collective bargaining agreements. We believe that our employee relations are generally good.

Financial Information by Geographic Area

Our principal operations and markets are located in the United States. The percentage of total consolidated net sales for our businesses outside of the United States was 16.7% for 2016, 17.2% for 2015 and 19.2% for ~~2014 and 18.4% for 2013.~~2014. The percentage of total long-lived assets outside of the United States was 29.8% as of December 31, 2016 and 31.8% as of December 31, ~~2015 and 31.3% as of December 31, 2014.~~2015.

Corporate Social Responsibility

Our founder, Milton S. Hershey, established an enduring model of responsible citizenship while creating a successful business. Driving sustainable business practices, making a difference in our communities and operating with the highest integrity are vital parts of our heritage. We continue this legacy today by providing high quality products while conducting our business in a socially responsible and environmentally sustainable manner. Each year we publish a full corporate social responsibility (“CSR”) report which provides an update on the progress we have made in advancing our CSR priorities such as food safety, responsible sourcing of ingredients, corporate transparency, our ~~new~~ focus on improving basic nutrition to help children learn and grow and our continued investment in the communities where we live and work.

In 2015, Hershey efforts were again recognized for its environmental, social, and governance performance by being named to both the Dow Jones Sustainability World Index and the North America Index. The company was also honored as one of ~~Corporate Responsibility~~ ~~magazine’s 100 Best Corporate Citizens, and as a 2015 World’s Most Ethical Company~~^® ~~by the Ethisphere Institute.~~ To learn more about our goals, progress and initiatives, you can access our full CSR report at www.thehersheycompany.com/social-responsibility.aspx.

Available Information

The Company's website address is www.thehersheycompany.com. We file or furnish annual, quarterly and current reports, proxy statements and other information with the United States Securities and Exchange Commission (“SEC”). You may obtain a copy of any of these reports, free of charge, from the Investors section of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an Internet site that also contains these reports at: www.sec.gov. In addition, copies of the Company's annual report will be made available, free of charge, on written request to the Company.

We have a Code of Ethical Business Conduct that applies to our Board of Directors (“Board”) and all Company officers and employees, including, without limitation, our Chief Executive Officer and “senior financial officers” (including the Chief Financial Officer, Chief Accounting Officer and persons performing similar functions). You can obtain a copy of our Code of Ethical Business Conduct, as well as our Corporate Governance Guidelines and charters for each of the Board’s standing committees, from the Investors section of our website. If we change or waive any portion of the Code of Ethical Business Conduct that applies to any of our directors, executive officers or senior financial officers, we will post that information on our website.


Item 1A.	RISK FACTORS

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K, including the exhibits hereto and the information incorporated by reference herein, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties. Other than statements of historical fact, information regarding activities, events and developments that we expect or anticipate will or may occur in the future, including, but not limited to, information relating to our future growth and profitability targets and strategies designed to increase total shareholder value, are forward-looking statements based on management’s estimates, assumptions and projections. Forward-looking statements also include, but are not limited to, statements regarding our future economic and financial condition and results of operations, the plans and objectives of management and our assumptions regarding our performance and such plans and objectives. Many of the forward-looking statements contained in this document may be identified by the use of words such as “intend,” “believe,” “expect,” “anticipate,” “should,” “planned,” “projected,” “estimated” and “potential,” among others. Forward-looking statements contained in this Annual Report on Form 10-K are predictions only and actual results could differ materially from management’s expectations due to a variety of factors, including those described below. All forward-looking statements attributable to us or persons working on our behalf are expressly qualified in their entirety by such risk factors. The forward-looking statements that we make in this Annual Report on Form 10-K are based on management’s current views and assumptions regarding future events and speak only as of their dates. We assume no obligation to update developments of these risk factors or to announce publicly any revisions to any of the forward-looking statements that we make, or to make corrections to reflect future events or developments, except as required by the federal securities laws.

Issues or concerns related to the quality and safety of our products, ingredients or packaging could cause a product recall and/or result in harm to the Company’s reputation, negatively impacting our operating results.

In order to sell our iconic, branded products, we need to maintain a good reputation with our customers and consumers. Issues related to the quality and safety of our products, ingredients or packaging could jeopardize our Company’s image and reputation. Negative publicity related to these types of concerns, or related to product contamination or product tampering, whether valid or not, could decrease demand for our products or cause production and delivery disruptions. We may need to recall products if any of our products become unfit for consumption. In addition, we could potentially be subject to litigation or government actions, which could result in payments of fines or damages. Costs associated with these potential actions could negatively affect our operating results.

Increases in raw material and energy costs along with the availability of adequate supplies of raw materials could affect future financial results.

We use many different commodities for our business, including cocoa products, sugar, dairy products, peanuts, almonds, corn sweeteners, natural gas and fuel oil.

Commodities are subject to price volatility and changes in supply caused by numerous factors, including:



Ÿ	Commodity market fluctuations;
Ÿ	Currency exchange rates;
Ÿ	Imbalances between supply and demand;
Ÿ	The effect of weather on crop yield;
Ÿ	Speculative influences;
Ÿ	Trade agreements among producing and consuming nations;
Ÿ	Supplier compliance with commitments;
Ÿ	Political unrest in producing countries; and
Ÿ	Changes in governmental agricultural programs and energy policies.

Although we use forward contracts and commodity futures and options contracts where possible to hedge commodity prices, commodity price increases ultimately result in corresponding increases in our raw material and energy costs. If

we are unable to offset cost increases for major raw materials and energy, there could be a negative impact on our financial condition and results of operations.

Price increases may not be sufficient to offset cost increases and maintain profitability or may result in sales volume declines associated with pricing elasticity.

We may be able to pass some or all raw material, energy and other input cost increases to customers by increasing the selling prices of our products or decreasing the size of our products; however, higher product prices or decreased product sizes may also result in a reduction in sales volume and/or consumption. If we are not able to increase our selling prices or reduce product sizes sufficiently, or in a timely manner, to offset increased raw material, energy or other input costs, including packaging, direct labor, overhead and employee benefits, or if our sales volume decreases significantly, there could be a negative impact on our financial condition and results of operations.

Market demand for new and existing products could decline.

We operate in highly competitive markets and rely on continued demand for our products. To generate revenues and profits, we must sell products that appeal to our customers and to consumers. Our continued success is impacted by many factors, including the following:



Ÿ	Effective retail execution;
Ÿ	Appropriate advertising campaigns and marketing programs;
Ÿ	Our ability to secure adequate shelf space at retail locations;
Ÿ	Our ability to drive sustainable innovation and maintain a strong pipeline of new products in the confectionery and broader snacking categories;
Ÿ	Changes in product category consumption;
Ÿ	Our response to consumer demographics and trends, including but not limited to, trends relating to store trips and the impact of the growing e-commerce channel; and
Ÿ	Consumer health concerns, including obesity and the consumption of certain ingredients.

There continues to be competitive product and pricing pressures in the markets where we operate, as well as challenges in maintaining profit margins. We must maintain mutually beneficial relationships with our key customers, including retailers and distributors, to compete effectively. Our largest customer, McLane Company, Inc., accounted for approximately ~~26%~~25% of our total net sales in ~~2015.~~2016. McLane Company, Inc. is one of the largest wholesale distributors in the United States to convenience stores, drug stores, wholesale clubs and mass merchandisers, including Wal-Mart Stores, Inc.

Increased marketplace competition could hurt our business.

The global confectionery packaged goods industry is intensely competitive and consolidation in this industry continues. Some of our competitors are large companies that have significant resources and substantial international operations. We continue to experience increased levels of in-store activity for other snack items, which has pressured confectionery category growth. In order to protect our existing market share or capture increased market share in this highly competitive retail environment, we may be required to increase expenditures for promotions and advertising, and must continue to introduce and establish new products. Due to inherent risks in the marketplace associated with advertising and new product introductions, including uncertainties about trade and consumer acceptance, increased expenditures may not prove successful in maintaining or enhancing our market share and could result in lower sales and profits. In addition, we may incur increased credit and other business risks because we operate in a highly competitive retail environment.

Disruption to our manufacturing operations or supply chain could impair our ability to produce or deliver finished products, resulting in a negative impact on our operating results.

Approximately two-thirds of our manufacturing capacity is located in the United States. Disruption to our global manufacturing operations or our supply chain could result from, among other factors, the following:



Ÿ	Natural disaster;
Ÿ	Pandemic outbreak of disease;
Ÿ	Weather;
Ÿ	Fire or explosion;
Ÿ	Terrorism or other acts of violence;
Ÿ	Labor strikes or other labor activities;
Ÿ	Unavailability of raw or packaging materials; and
Ÿ	Operational and/or financial instability of key suppliers, and other vendors or service providers.

We believe that we take adequate precautions to mitigate the impact of possible disruptions. We have strategies and plans in place to manage disruptive events if they were to occur, including our global supply chain strategies and our principle-based global labor relations strategy. If we are unable, or find that it is not financially feasible, to effectively plan for or mitigate the potential impacts of such disruptive events on our manufacturing operations or supply chain, our financial condition and results of operations could be negatively impacted if such events were to occur.

Our financial results may be adversely impacted by the failure to successfully execute or integrate acquisitions, divestitures and joint ventures.

From time to time, we may evaluate potential acquisitions, divestitures or joint ventures that align with our strategic objectives. The success of such activity depends, in part, upon our ability to identify suitable buyers, sellers or business partners; perform effective assessments prior to contract execution; negotiate contract terms; and, if applicable, obtain government approval. These activities may present certain financial, managerial, staffing and talent, and operational risks, including diversion of management’s attention from existing core businesses; difficulties integrating or separating businesses from existing operations; and challenges presented by acquisitions or joint ventures which may not achieve sales levels and profitability that justify the investments made. If the acquisitions, divestitures or joint ventures are not successfully implemented or completed, there could be a negative impact on our financial condition, results of operations and cash flows.

During ~~2015,~~2016, we ~~faced a number of~~successfully completed the SGM integration. However, additional challenges ~~in connection~~remain, including challenges associated with the ongoing integration of SGM. Since its acquisition in 2014, the SGM business has performed below expectations, with net sales and earnings well below pre-acquisition levels. In addition, issues with the quality of SGM’s accounts receivables and existing distributor networks have affected our ability to fully realize many of the acquisition benefits that we believe will help accelerate our growthmacroeconomic environment in China, ~~and enhance~~which could affect our ability to serve Chinese consumers. As a result of SGM's poor performance and these other contributing factors, in the second and third quarters of 2015 we recorded a goodwill write-down of approximately $266 million, representing all of the goodwill relating to the SGM reporting unit. While we believe we have appropriate strategies in place that will allow us to accelerate the SGM integration in 2016, additional challenges that impede further integration could jeopardize our growth strategy ~~in China~~ and could have a negative impact on the results of operations and cash flows of our International and Other reportable segment.

Changes in governmental laws and regulations could increase our costs and liabilities or impact demand for our products.

Changes in laws and regulations and the manner in which they are interpreted or applied may alter our business environment. These negative impacts could result from changes in food and drug laws, laws related to advertising and marketing practices, accounting standards, taxation requirements, competition laws, employment laws and environmental laws, among others. It is possible that we could become subject to additional liabilities in the future resulting from changes in laws and regulations that could result in an adverse effect on our financial condition and results of operations.

Political, economic and/or financial market conditions could negatively impact our financial results.

Our operations are impacted by consumer spending levels and impulse purchases which are affected by general macroeconomic conditions, consumer confidence, employment levels, the availability of consumer credit and interest rates on that credit, consumer debt levels, energy costs and other factors. Volatility in food and energy costs, sustained

global recessions, rising unemployment and declines in personal spending could adversely impact our revenues, profitability and financial condition.

Changes in financial market conditions may make it difficult to access credit markets on commercially acceptable terms, which may reduce liquidity or increase borrowing costs for our Company, our customers and our suppliers. A significant reduction in liquidity could increase counterparty risk associated with certain suppliers and service providers, resulting in disruption to our supply chain and/or higher costs, and could impact our customers, resulting in a reduction in our revenue, or a possible increase in bad debt expense.

Our ~~expanding~~ international operations may not achieve projected growth objectives, which could adversely impact our overall business and results of operations.

In ~~2015,~~2016, we derived approximately 17% of our net sales from customers located outside of the United States, ~~versus~~compared to 17% in 2015 and 19% in ~~2014 and 18% in 2013.~~2014. Additionally, approximately ~~32%~~30% of our total long-lived assets were located outside of the United States as of December 31, ~~2015.~~2016. As part of our ~~global growth~~ strategy, we have made investments outside of the United States, particularly in China, ~~and Asia,~~Malaysia, Mexico and Brazil. As a result, we are subject to risks and uncertainties relating to international sales and operations, including:



Ÿ	Unforeseen global economic and environmental changes resulting in business interruption, supply constraints, inflation, deflation or decreased demand;
Ÿ	Inability to establish, develop and achieve market acceptance of our global brands in international markets;
Ÿ	Difficulties and costs associated with compliance and enforcement of remedies under a wide variety of complex laws, treaties and regulations;
Ÿ	Unexpected changes in regulatory environments;
Ÿ	Political and economic instability, including the possibility of civil unrest, terrorism, mass violence or armed conflict;
Ÿ	Nationalization of our properties by foreign governments;
Ÿ	Tax rates that may exceed those in the United States and earnings that may be subject to withholding requirements and incremental taxes upon repatriation;
Ÿ	Potentially negative consequences from changes in tax laws;
Ÿ	The imposition of tariffs, quotas, trade barriers, other trade protection measures and import or export licensing requirements;
Ÿ	Increased costs, disruptions in shipping or reduced availability of freight transportation;
Ÿ	The impact of currency exchange rate fluctuations between the U.S. dollar and foreign currencies;
Ÿ	Failure to gain sufficient profitable scale in certain international markets resulting in an inability to cover manufacturing fixed costs or resulting in losses from impairment or sale of assets; and
Ÿ	Failure to recruit, retain and build a talented and engaged global workforce.

If we are not able to achieve our projected international growth objectives and mitigate the numerous risks and uncertainties associated with our international operations, there could be a negative impact on our financial condition and results of operations.

Disruptions, failures or security breaches of our information technology infrastructure could have a negative impact on our operations.

Information technology is critically important to our business operations. We use information technology to manage all business processes including manufacturing, financial, logistics, sales, marketing and administrative functions. These processes collect, interpret and distribute business data and communicate internally and externally with employees, suppliers, customers and others.

We invest in industry standard security technology to protect the Company’s data and business processes against risk of data security breach and cyber attack. Our data security management program includes identity, trust, vulnerability and threat management business processes as well as adoption of standard data protection policies. We measure our data security effectiveness through industry accepted methods and remediate significant findings. Additionally, we certify our major technology suppliers and any outsourced services through accepted security certification standards.

We maintain and routinely test backup systems and disaster recovery, along with external network security penetration testing by an independent third party as part of our business continuity preparedness. We also have processes in place to prevent disruptions resulting from the implementation of new software and systems of the latest technology.

While we believe that our security technology and processes provide adequate measures of protection against security breaches and in reducing cybersecurity risks, disruptions in or failures of information technology systems are possible and could have a negative impact on our operations or business reputation. Failure of our systems, including failures due to cyber attacks that would prevent the ability of systems to function as intended, could cause transaction errors, loss of customers and sales, and could have negative consequences to our Company, our employees and those with whom we do business.

We might not be able to hire, engage and retain the talented global workforce we need to drive our growth strategies.

Our ~~people continue to be our most important asset, and our~~ future success depends upon our ability to identify, hire, develop, engage and retain talented personnel across the globe. Competition for global talent is intense, and we might not be able to identify and hire the personnel we need to continue to evolve and grow our business. In particular, if we are unable to hire the right individuals to fill ~~the~~ new or existing senior management positions ~~created~~ as ~~a result of the productivity initiative we announced in June 2015,~~vacancies arise, our business performance may be impacted.

Activities related to identifying, recruiting, hiring and integrating qualified individuals require significant time and attention. We may also need to invest significant amounts of cash and equity to attract talented new employees, and we may never realize returns on these investments.

In addition to hiring new employees, we must continue to focus on retaining and engaging the talented individuals we need to sustain our core business and lead our developing businesses into new markets, channels and categories. This may require significant investments in training, coaching and other career development and retention activities. If we are not able to effectively retain and grow our talent, our ability to achieve our strategic objectives will be adversely affected, which may impact our financial condition and results of operations.

We may not fully realize the expected costs savings and/or operating efficiencies associated with our strategic initiatives or restructuring programs, which may have an adverse impact on our business.

We depend on our ability to evolve and grow, and as changes in our business environment occur, we may adjust our business plans by introducing new strategic initiatives or restructuring programs to meet these changes. From time to time, we implement business realignment activities to support key strategic initiatives designed to maintain long-term sustainable growth, such as the production and supply chain network optimization program we commenced in the second quarter of 2016. These programs are intended to increase our operating effectiveness and efficiency, to reduce our costs and/or to generate savings that can be reinvested in other areas of our business. We cannot guarantee that we will be able to successfully implement these strategic initiatives and restructuring programs, that we will achieve or sustain the intended benefits under these programs, or that the benefits, even if achieved, will be adequate to meet our long-term growth and profitability expectations, which could in turn adversely affect our business.


Item 1B.	UNRESOLVED STAFF COMMENTS

None.


Item 2.	PROPERTIES

Our principal properties include the following:



Country	Location	Type	Status (Own/Lease)
United States	Hershey, Pennsylvania (2 principal plants)	Manufacturing—confectionery products and pantry items	Own
	Lancaster, Pennsylvania	Manufacturing—confectionery products	Own
	Robinson, Illinois	Manufacturing—confectionery products, and pantry items	Own
	Stuarts Draft, Virginia	Manufacturing—confectionery products and pantry items	Own
	Edwardsville, Illinois	Distribution	Own
	Palmyra, Pennsylvania	Distribution	Own
	Ogden, Utah	Distribution	Own
Canada	Brantford, Ontario	Distribution	Own⁽¹⁾
Mexico	Monterrey, Mexico	Manufacturing—confectionery products	Own
China	Shanghai, China	Manufacturing—confectionery products	Own
Malaysia	Johor, Malaysia	Manufacturing—confectionery products	Own⁽²⁾

(1) We have an agreement with the Ferrero Group for the use of a warehouse and distribution facility of which the Company has been deemed to be the owner for accounting purposes.


~~(2)~~	~~Construction of the the Malaysia plant will be finalized in early 2016, with initial production and distribution expected to commence in mid-2016.~~

In addition to the locations indicated above, we also own or lease several other properties and buildings worldwide which we use for manufacturing, sales, distribution and administrative functions. Our facilities are well maintained and generally have adequate capacity to accommodate seasonal demands, changing product mixes and certain additional growth. We continually improve our facilities to incorporate the latest technologies. The largest facilities are located in Hershey and Lancaster, Pennsylvania; Monterrey, Mexico; and Stuarts Draft, Virginia. The U.S., Canada and Mexico facilities in the table above primarily support our North America segment, while the China and Malaysia facilities primarily serve our International and Other segment. As discussed in Note 11 to the Consolidated Financial Statements, we do not manage our assets on a segment basis given the integration of certain manufacturing, warehousing, distribution and other activities in support of our global operations.


Item 3.	LEGAL PROCEEDINGS

The Company is subject to certain legal proceedings and claims arising out of the ordinary course of our business, which cover a wide range of matters including ~~antitrust and~~ trade regulation, product liability, advertising, contracts, environmental issues, patent and trademark matters, labor and employment matters and tax. ~~See Note 13~~While it is not feasible to predict or determine the ~~Consolidated Financial Statements for information~~outcome of such proceedings and claims with certainty, in our opinion these matters, both individually and in the aggregate, are not expected to have a material effect on ~~certain legal proceedings for which there are contingencies.~~our financial condition, results of operations or cash flows.


Item 4.	MINE SAFETY DISCLOSURES

Not applicable.

SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company, their positions and, as of February ~~5, 2016,~~10, 2017, their ages are set forth below.



Name	Age	Positions Held During the Last Five Years
John P. Bilbrey⁽¹⁾	5960	Chairman of the Board, President and Chief Executive Officer (April 2015); President and Chief Executive Officer (June 2011);
Michele G. Buck ⁽²⁾	55	Executive Vice President, Chief Operating Officer ~~(November 2010)~~(June 2016); ~~Senior Vice President, President Hershey North America (December 2007)~~
~~Michele G. Buck~~	54	President, North America (May 2013); Senior Vice President, Chief Growth Officer (September 2011)~~; Senior Vice President, Global Chief Marketing Officer (December 2007)~~
Javier H. Idrovo	4849	Chief Accounting Officer (August 2015); Senior Vice President, Finance and Planning (September 2011)~~; Senior Vice President, Strategy and Business Development (November 2008)~~
Patricia A. Little ⁽¹⁾⁽³⁾	5556	Senior Vice President, Chief Financial Officer (March 2015)
Terence L. O’Day	6667	Senior Vice President, Chief Supply Chain Officer (May 2013); Senior Vice President, Global Operations (December 2008)
Leslie M. Turner ⁽²⁾⁽⁴⁾	5859	Senior Vice President, General Counsel and Secretary (July 2012)
Kevin R. Walling⁽³⁾	5051	Senior Vice President, Chief Human Resources Officer (November 2011); ~~Senior Vice President, Chief People Officer (June 2011)~~
D. Michael Wege	5354	Senior Vice President, Chief Administrative Officer (July 2015); Senior Vice President, Chief Growth and Marketing Officer (May 2013); Senior Vice President, Chief Commercial Officer (September 2011)~~; Senior Vice President, Chocolate Strategic Business Unit (December 2010);Vice President, U.S. Chocolate (April 2008)~~
Waheed Zaman ⁽⁴⁾⁽⁵⁾	5556	Senior Vice President, Chief Knowledge and Technology Officer (August 2016); Senior Vice President, Chief Knowledge, Strategy and Technology Officer (July 2015); Senior Vice President, Chief Corporate Strategy and Administrative Officer (August 2013); Senior Vice President, Chief Administrative Officer (April 2013)

There are no family relationships among any of the above-named officers of our Company.


(1)	Mr. Bilbrey will retire as President and Chief Executive Officer effective March 1, 2017. He will continue to serve as Non-Executive Chairman of the Board following his retirement from the Company.


(2)	Ms. Buck will become President and Chief Executive Officer effective March 1, 2017.


(3)	Ms. Little was elected Senior Vice President, Chief Financial Officer effective March 16, 2015. Prior to joining our company she was Executive Vice President and Chief Financial Officer of Kelly Services, Inc. (July 2008).


~~(2)~~(4)	Ms. Turner was elected Senior Vice President, General Counsel and Secretary effective July 9, 2012. Prior to joining our Company she was Chief Legal Officer of Coca-Cola North America (June 2008).


~~(3)~~	Mr. Walling was elected Senior Vice President, Chief People Officer effective June 1, 2011. Prior to joining our Company he was Vice President and Chief Human Resource Officer of Kennametal Inc. (November 2005).

~~(4)~~(5)

Mr. Zaman was elected Senior Vice President, Chief Corporate Strategy and Administrative Officer effective August 6, 2013. Prior to joining our Company he was President and Chief Executive Officer of W&A Consulting (May 2012); Senior Vice President, Special Assignments of Chiquita Brands International (February 2012); Senior Vice President, Global Product Supply of Chiquita Brands International (October 2007).

Our Executive Officers are generally elected each year at the organization meeting of the Board in ~~April.~~May.

PART II


Item 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock is listed and traded principally on the New York Stock Exchange under the ticker symbol “HSY.” The Class B Common Stock (“Class B Stock”) is not publicly traded.

The closing price of our Common Stock on December 31, ~~2015,~~2016, was ~~$89.27.~~$103.43. There were ~~30,262~~29,453 stockholders of record of our Common Stock and 6 stockholders of record of our Class B Stock as of December 31, ~~2015.~~2016.

We paid ~~$476.1~~$499.5 million in cash dividends on our Common Stock and Class B Stock in ~~2015~~2016 and ~~$440.4~~$476.1 million in ~~2014.~~2015. The annual dividend rate on our Common Stock in ~~2015~~2016 was ~~$2.236~~$2.402 per share.

Information regarding dividends paid and the quarterly high and low market prices for our Common Stock and dividends paid for our Class B Stock for the two most recent fiscal years is disclosed in Note 1617 to the Consolidated Financial Statements.

On ~~January 28, 2016,~~February 3, 2017, our Board declared a quarterly dividend of ~~$0.583~~$0.618 per share of Common Stock payable on March 15, ~~2016,~~2017, to stockholders of record as of February ~~25, 2016.~~24, 2017. It is the Company’s ~~342nd~~349th consecutive quarterly Common Stock dividend. A quarterly dividend of ~~$0.53~~$0.562 per share of Class B Stock also was declared.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Issuer Purchases of Equity Securities

The following table shows the purchases of shares of Common Stock made by or on behalf of Hershey, or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of Hershey, for each fiscal month in the three months ended December 31, ~~2015:~~2016:

Period
Total Number
of Shares
Purchased (1)

Average Price
Paid
per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (2)

Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans or
Programs (2)
(in thousands of dollars)
October 5 through November 1 —
$ —
—
$ 20,249
November 2 through November 29 135,000
$ 87.75
—
$ 20,249
November 30 through December 31 38,000
$ 86.76
—
$ 20,249
Total 173,000
$ 87.53
—



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
					(in thousands of dollars)
October 3 through October 30	1,466,446	$	95.45	—	$	100,000
October 31 through November 27	—	$	—	—	$	100,000
November 28 through December 31	—	$	—	—	$	100,000
Total	1,466,446	$	95.45	—


(1)	All of the shares of Common Stock purchased during the three months ended December 31, ~~2015~~2016 were purchased in open market transactions. We purchased ~~173,000~~1,466,446 shares of Common Stock during the three months ended December 31, ~~2015~~2016 in connection with our practice of buying back shares sufficient to offset those issued under incentive compensation plans.

(2)

In February ~~2014,~~2015, our Board ~~of Directors~~ approved a $250 million share repurchase authorization. This program was completed in the first quarter of ~~2015.~~2016. In ~~February 2015,~~January 2016, our Board ~~of Directors~~ approved an additional ~~$250~~$500 million share repurchase authorization. As of December 31, ~~2015,~~2016, approximately ~~$20~~$100 million remained available for repurchases of our Common Stock under this program. ~~In January 2016, our Board of Directors approved an additional $500 million~~The share repurchase ~~authorization (excluded from the table above), to~~

~~commence after the existing 2015 authorization is completed. Neither the 2015 or 2016 share repurchase authorizations has~~program does not have an expiration date.

Stockholder Return Performance Graph

The following graph compares our cumulative total stockholder return (Common Stock price appreciation plus dividends, on a reinvested basis) over the last five fiscal years with the Standard & Poor’s 500 Index and the Standard & Poor’s Packaged Foods Index.

Comparison of 5 Year Cumulative Total Return*

Among The Hershey Company, the S&P 500 Index,

and the S&P Packaged Foods Index

*$100 invested on December 31, ~~2010~~2011 in stock or index, including reinvestment of dividends.


	December 31,												December 31,
Company/Index	2010		2011		2012		2013		2014		2015		2011		2012		2013		2014		2015		2016
The Hershey Company	$	100	$	134	$	161	$	221	$	241	$	212	$	100	$	120	$	164	$	179	$	158	$	187
S&P 500 Index	$	100	$	102	$	118	$	157	$	178	$	181	$	100	$	116	$	154	$	174	$	177	$	198
S&P 500 Packaged Foods Index	$	100	$	117	$	129	$	169	$	189	$	221	$	100	$	110	$	144	$	161	$	189	$	206

The stock price performance included in this graph is not necessarily indicative of future stock price performance.


Item 6.	SELECTED FINANCIAL DATA

FIVE-YEAR CONSOLIDATED FINANCIAL SUMMARY

(All dollar and share amounts in thousands except market price and per share statistics)


	2015		2014		2013		2012		2011			2016		2015	2014	2013	2012
Summary of Operations
Net Sales	$	7,386,626	$	7,421,768	$	7,146,079	$	6,644,252	$	6,080,788		$	7,440,181	7,386,626	7,421,768	7,146,079	6,644,252
Cost of Sales	$	4,003,951	4,085,602		3,865,231		3,784,370		3,548,896			$	4,282,290	4,003,951	4,085,602	3,865,231	3,784,370
Selling, Marketing and Administrative	$	1,969,308	1,900,970		1,922,508		1,703,796		1,477,750			$	1,915,378	1,969,308	1,900,970	1,922,508	1,703,796
Goodwill and Other Intangible Asset Impairment Charges	$	280,802	15,900		—		7,457		—			$	4,204	280,802	15,900	—	7,457
Business Realignment Charges	$	94,806	29,721		18,665		37,481		(886		)
Business Realignment Costs												$	32,526	94,806	29,721	18,665	37,481
Interest Expense, Net	$	105,773	83,532		88,356		95,569		92,183			$	90,143	105,773	83,532	88,356	95,569
Provision for Income Taxes	$	388,896	459,131		430,849		354,648		333,883			$	379,437	388,896	459,131	430,849	354,648
Net Income	$	512,951	846,912		820,470		660,931		628,962			$	720,044	512,951	846,912	820,470	660,931
Net Income Per Share:
—Basic—Common Stock	$	2.40	3.91		3.76		3.01		2.85			$	3.45	2.40	3.91	3.76	3.01
—Diluted—Common Stock	$	2.32	3.77		3.61		2.89		2.74			$	3.34	2.32	3.77	3.61	2.89
—Basic—Class B Stock	$	2.19	3.54		3.39		2.73		2.58			$	3.15	2.19	3.54	3.39	2.73
—Diluted—Class B Stock	$	2.19	3.52		3.37		2.71		2.56			$	3.14	2.19	3.52	3.37	2.71
Weighted-Average Shares Outstanding:
—Basic—Common Stock	158,471		161,935		163,549		164,406		165,929			153,519		158,471	161,935	163,549	164,406
—Basic—Class B Stock	60,620		60,620		60,627		60,630		60,645			60,620		60,620	60,620	60,627	60,630
—Diluted	220,651		224,837		227,203		228,337		229,919			215,304		220,651	224,837	227,203	228,337
Dividends Paid on Common Stock	$	352,953	328,752		294,979		255,596		228,269			$	369,292	352,953	328,752	294,979	255,596
Per Share	$	2.24	2.04		1.81		1.56		1.38			$	2.402	2.236	2.040	1.810	1.560
Dividends Paid on Class B Stock	$	123,179	111,662		98,822		85,610		75,814			$	132,394	123,179	111,662	98,822	85,610
Per Share	$	2.032	1.842		1.63		1.41		1.25			$	2.184	2.032	1.842	1.630	1.412
Depreciation	$	197,054	176,312		166,544		174,788		188,491			$	231,735	197,054	176,312	166,544	174,788
Amortization	$	47,874	35,220		34,489		35,249		27,272			$	70,102	47,874	35,220	34,489	35,249
Advertising	$	561,644	570,223		582,354		480,016		414,171			$	521,479	561,644	570,223	582,354	480,016
Year-End Position and Statistics
Capital Additions	$	329,707	345,947		323,551		258,727		323,961			$	269,476	356,810	370,789	350,911	277,966
Total Assets ⁽¹⁾	$	5,344,371	5,622,870		5,349,724		4,747,614		4,398,625			$	5,524,333	5,344,371	5,622,870	5,349,724	4,747,614
Short-term Debt and Current Portion of Long-term Debt	$	863,436	635,501		166,875		375,898		139,673			$	632,714	863,436	635,501	166,875	375,898
Long-term Portion of Debt ⁽¹⁾	$	1,557,091	1,542,317		1,787,378		1,523,742		1,740,031			$	2,347,455	1,557,091	1,542,317	1,787,378	1,523,742
Stockholders’ Equity	$	1,047,462	1,519,530		1,616,052		1,048,373		880,943			$	827,687	1,047,462	1,519,530	1,616,052	1,048,373
Full-time Employees	19,060		20,800		12,600		12,100		11,800			16,300		19,060	20,800	12,600	12,100
Stockholders’ Data
Outstanding Shares of Common Stock and Class B Stock at Year-end	216,777		221,045		223,895		223,786		225,206			212,260		216,777	221,045	223,895	223,786
Market Price of Common Stock at Year-end	$	89.27	103.93		97.23		72.22		61.78			$	103.43	89.27	103.93	97.23	72.22
Price Range During Year (high)	$	110.78	108.07		100.90		74.64		62.26			$	113.89	110.78	108.07	100.90	74.64
Price Range During Year (low)	$	83.58	88.15		73.51		59.49		46.24			$	83.32	83.58	88.15	73.51	59.49

(1) The Company adopted ASU 2015-03 as of December 31, 2015, requiring classification of debt issuance costs as a reduction of the carrying value of the debt. Total asset and long-term debt balances presented herein for periods prior to 2015 have been restated to conform to this presentation.


Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis (“MD&A”) is intended to provide an understanding of Hershey's financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. The MD&A should be read in conjunction with our Consolidated Financial Statements and accompanying Notes included in Item 8 of this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed elsewhere in this Annual Report on Form 10-K, particularly in Item 1A. “Risk Factors.”

The MD&A is organized in the following sections:

Overview and Outlook

Non-GAAP Information

Consolidated Results of Operations

Segment Results

Financial Condition

Critical Accounting Policies and Estimates

OVERVIEW AND OUTLOOK

~~We continued to make~~In 2016, we made good progress against our strategic objectives, including a focus on our consumer brand engagement and continued refinement of our mix of marketing investments. These initiatives, as well as improved analytics, operating efficiencies and new information technology capabilities, strengthened our business model and positioned the Company for future growth. We continued to generate solid operating cash flow, totaling approximately $1 billion in ~~2015, including~~2016, which affords the Company significant financial flexibility. We are also in the process of conducting a strategic review of our global cost structure that we believe will result in solid gross and earnings before interest and taxes ("EBIT") margin expansion ~~in our North America segment which fuels our earnings per share~~once executed.

Our 2016 marketplace performance was similar to the slower growth experienced by other consumer packaged goods ("CPG") companies. Additionally, the U.S. candy, mint and ~~enables us to make investments in other parts of the business, a demonstrated commitment to transparency~~gum ("CMG") category and simple ingredients to satisfy evolving consumer preferences, additional investments in our snacks business, and a continued focus on insights and knowledge to identify and respond to changing consumer and retail trends and practices.

~~Our 2015 financial performance was~~manufacturers were impacted by a ~~continued slow-down in U.S. retail take-away, an increase in competitive activity~~shorter Easter season and ~~poor performance in China.~~merchandising and display strategies at select customers. For the full year, ~~2015, our~~ U.S. CMG retail takeaway increased ~~2.4%~~0.4%, lower than the historical average. Our U.S. CMG market share performance improved in the second half of 2016, resulting in full year market share of 31.2%, including barkTHINS, which ~~was largely~~is approximately in line with the ~~category growth rate but continues to be down from long-term historical average of 3-4%. We believe~~prior year. For the ~~category is being impacted by changing consumer shopping habits like channel shifting~~full year 2016, our U.S. market share, including CMG, salty snacks, snack bars, meat snacks, grocery items and ~~e-commerce,~~barkTHINS, increased competitive activity and higher levels of merchandising and display, and a proliferation of broader snacking options in the marketplace, which appears to be adversely impacting purchases of non-seasonal candy products.approximately 10 basis points.

Our ~~Shanghai Golden Monkey (“SGM”) business has performed below expectations since its initial acquisition in 2014, with~~full year 2016 net sales ~~and earnings levels well below pre-acquisition levels. In addition, as part~~totaled $7,440.2 million, an increase of our ongoing integration process, we assessed the quality of SGM’s accounts receivable and existing distributor networks. Based on the declining performance levels and the results of our integration assessments, we performed an interim goodwill impairment test as of July 5, 2015, which resulted in a preliminary $249.8 million non-cash goodwill impairment charge, representing a write-down of all of the goodwill related to the SGM reporting unit as of July 5, 2015. During the third quarter, we updated our estimates of the acquisition-date fair values of the net assets acquired, which increased the value of acquired goodwill by $16.6 million. We also finalized the impairment test of the goodwill relating to the SGM reporting unit, which resulted in a write-off of this additional goodwill, for a total impairment of $266.4 million. In the fourth quarter of 2015, we reached an agreement with the selling SGM shareholders to reduce the originally-agreed purchase price for the remaining 20% of SGM, and we completed the purchase on February 3, 2016. We are directing our efforts currently on developing an integration plan that is focused on the optimal structure for top-line growth.

Macroeconomic challenges and changing consumer shopping behavior adversely impacted our China chocolate business during 2015. The China chocolate category performance continues to be below the historical compound annual growth rate of 11-12% as marketplace trends continue to slow across all channels. As a result of the declining

performance in our China chocolate business, during the third quarter we also wrote-off $14.4 million of goodwill that resulted from the SGM acquisition and was assigned to our existing China chocolate business, as this reporting unit was expected to benefit from acquisition synergies relating to the sale of Golden Monkey-branded product through its Tier 1 and hypermarket distributor networks. In light of the declining results in our China business and challenges impacting the overall retail landscape in Asia, we will continue to assess the impact of potential excess capacity on the carrying value of our long-lived assets in the Asia region.

In June, we announced a new productivity initiative intended to simplify the organizational structure to enhance our ability to rapidly anticipate and respond to the changing demands of the global consumer. In 2015, we incurred charges totaling $105.8 million, representing employee severance and related separation benefits, pension settlement charges, and incremental third-party costs related to the design and implementation of the new organizational structure. Excluding pension settlement charges, we currently estimate total pre-tax charges and costs for the program to be approximately $120 million, the majority of which are cash. The remaining costs for this program are expected to be incurred within the first three quarters of 2016.

~~Giving consideration to the aforementioned impacts, our 2015 net sales decreased 0.5%, to~~0.7% versus $7,386.6 million in ~~2015 from $7,421.8 million in 2014, while our net income and earnings per share-diluted declined by 39.4% and 38.5%, respectively.~~2015. Excluding a ~~1.6%~~0.7% impact from unfavorable foreign exchange rates, our net sales increased ~~1.1%~~1.4%. ~~On a non-GAAP basis,~~The increase was driven by higher North America volumes, largely in products supported by increased promotional programming such as NCAA March Madness, the Summer Olympics and NCAA Football College Game Day, as well as new product innovation such as Snack Mix, Snack Bites and Hershey's Cookie Layer Crunch bars. Additionally, our consolidated net sales for the year ended December 31, 2016 included approximately $35.6 million attributed to barkTHINS. Our full year 2016 net income and earnings per share-diluted (EPS) increased 40.4% and 44.0%, respectively, compared to 2015 results, which were impacted by significant goodwill impairment charges. Excluding these goodwill impairment charges in 2015 and other items impacting comparability in both periods (as defined in the Non-GAAP Information section of this MD&A), 2016 adjusted net income increased ~~by 1.5%~~4.3%, ~~driven by positive U.S. gross margin expansion,~~reflecting the benefits from continued productivity and cost savings initiatives and a lower effective income tax rate, while ~~our non-GAAP EPS~~adjusted EPS-diluted also benefited from recent share buybacks, increasing a total of ~~3.5%~~7.0%.

Entering 2016, we expect changing shopping habits in the U.S. and volatile international markets to remain a headwind. Despite these issues, we will continue to invest in our core brands in the U.S. and key international markets and build on the strategies we have established as they will benefit the company over the long term. We also plan to make incremental investments in our existing snacks platform to drive additional growth. These initiatives should enable us to achieve net sales and earnings growth. We expect to achieve long-term net sales growth of 3-5%, excluding the impact of foreign currency exchange rates, and, given the scale advantages of our North America business and a balanced approach to international investments, we expect to generate long-term non-GAAP earnings per share-diluted growth of 6-8%.

For ~~2016,~~2017, we expect net sales growth of approximately 2% to 3%, ~~excluding~~which includes a 0.5% net benefit from acquisitions and a 0.25% unfavorable impact from foreign currency exchange rates. Excluding the unfavorable impact of from

foreign currency exchange rates, ~~which is estimated to be approximately 1.0% unfavorable. North America~~our net sales are expected to ~~be driven by confectionery~~increase approximately 2.25% to 3.25%. Our focus is on the continued rollout of Hershey's Cookie Layer Crunch bars, barkTHINS chocolate distribution gains and ~~snacks growth, including~~ ~~Krave~~ ~~meat snacks distribution gains. We have many exciting~~other new products ~~that will bring variety, news and excitement to the category, including~~such as ~~Reese’s~~Reese's ~~Snack Mix~~Crunchers candy and ~~Hershey’s~~Krave ~~Snack Bites canisters,~~ ~~Cadbury~~ ~~chocolates~~meat bars and sticks. We anticipate that these investments and related consumer marketing plans will accelerate our North America sales growth versus 2016 performance, which should enable us to outpace the broader food group in ~~a stand-up pouch targeting the mass premium market~~this challenging operating environment. Our previously discussed productivity and ~~the introduction of Allan Candy sugar confectionery peg bag items and some other yet to be announced new candy and snacking products. We expect gross margin to approximate the 2015 level and~~cost savings programs are focused on managing non-essential selling, marketing and administrative as we continue to leverage existing resources. Additionally, implementation of the business productivity initiative announced in June is on track, and we will continue to ~~invest in advertising~~focus on reducing non-essential spending going into 2017. Additionally, our effective tax rate is expected to be favorable versus 2016 driven by a favorable international tax mix, tax credits and ~~related consumer marketing, including a greater shift~~other incentives, and the adoption of Accounting Standards Update 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to ~~digital and mobile communication.~~Employee Share-Based Payment Accounting. As a result, we expect ~~2016 full-year~~full year 2017 reported ~~earnings per share-diluted~~EPS-diluted, prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), to improve ~~significantly, on~~and be in the ~~basis of lower unusual charges, and~~$4.54 to $4.65 range. From a non-GAAP perspective, we currently expect 2017 adjusted ~~earnings per share-diluted~~EPS-diluted to increase approximately ~~6%, as reflected~~7% to 9% and to be in the $4.72 to $4.81 range. A reconciliation of reported to adjusted projections for ~~2016~~2017 are reflected in the non-GAAP reconciliations that ~~follows.~~follow.

Our 2016 outlook reflects information currently available to us; however, it is subject to risks and uncertainties, particularly pertaining to the macroeconomic uncertainties and evolving consumer dynamics in China. While further volatility could evolve in that market, we do not expect it to have a material impact on our consolidated cash flows or financial position.

NON-GAAP INFORMATION

The comparability of certain of our financial measures is impacted by unallocated mark-to-market losses on commodity derivatives, costs associated with business realignment ~~charges, including the 2015 productivity initiative; asset impairment charges;~~activities, costs relating to ~~business and asset~~the integration of acquisitions, ~~and disposals; loss on early extinguishment of debt; and~~ non-service related components of our pension expense (income). ("NSRPE(I)"), goodwill and other intangible asset impairment charges, settlement of the SGM liability in conjunction with the purchase of the remaining 20% of the outstanding shares of SGM, the gain realized on the sale of a trademark, costs associated with the early extinguishment of debt and other non-recurring gains and losses.

To provide additional information to investors to facilitate the comparison of past and present performance, we use non-GAAP financial measures within MD&A that exclude the financial impact of these activities. These non-GAAP financial measures are used internally by management in evaluating results of operations ~~internally~~and determining incentive compensation, and in assessing the impact of known trends and uncertainties on our business, but they are not intended to replace the presentation of financial results in accordance with GAAP. A reconciliation of the non-GAAP financial measures referenced in MD&A to their nearest comparable GAAP financial measures as presented in the Consolidated Statements of Income is provided below.

Reconciliation of Certain Non-GAAP Financial Measures
For the years ended December 31,
In thousands except per share data 2015 2014 2013
Reported gross profit $ 3,382,675
$ 3,336,166
$ 3,280,848
Other business realignment charges 8,801
1,622
402
Acquisition and integration costs 7,308
—
310
NSRPE(I) 2,516
(2,685 ) 5,374
Non-GAAP gross profit $ 3,401,300
$ 3,335,103
$ 3,286,934
Reported operating profit $ 1,037,759
$ 1,392,261
$ 1,338,051
2015 productivity initiative 105,753
—
—
Other business realignment charges 12,555
12,034
19,085
Acquisition and integration costs 20,899
12,360
4,072
NSRPE(I) 18,079
(1,834 ) 10,885
Goodwill / intangible asset impairment 280,802
15,900
—
Loss on Mauna Loa divestiture 2,667
22,256
—
Non-GAAP operating profit $ 1,478,514
$ 1,452,977
$ 1,372,093
Reported interest expense, net $ 105,773
$ 83,532
$ 88,356
Acquisition and integration costs (benefits) 1,562
(1,603 ) —
Loss on early extinguishment of debt 28,326
—
—
Non-GAAP interest expense, net $ 75,885
$ 85,135
$ 88,356
Reported other (income) expense, net $ 30,139
$ 2,686
$ (1,624 )
Acquisition and integration costs —
2,513
—
Gain on sale of trademark (9,950 ) —
—
Non-GAAP other (income) expense, net $ 40,089
$ 173
$ (1,624 )
Reported provision for income taxes $ 388,896
$ 459,131
$ 430,849
2015 productivity initiative 35,423
—
—
Other business realignment charges 3,605
3,697
7,259
Acquisition and integration costs 8,264
3,021
(1,295 )
NSRPE(I) 6,955
(544 ) 4,228
Goodwill / intangible asset impairment —
1,565
—
Loss on early extinguishment of debt 10,736
—
—
Loss on Mauna Loa divestiture 2,620
4,896
—
Gain on sale of trademark (3,652 ) —
—
Non-GAAP provision for income taxes $ 452,847
$ 471,766
$ 441,041
Reported net income $ 512,951
$ 846,912
$ 820,470
2015 productivity initiative 70,330
—
—
Other business realignment charges 8,950
8,337
11,826
Acquisition and integration costs 14,196
10,249
5,367
NSRPE(I) 11,124
(1,290 ) 6,657
Goodwill / intangible asset impairment 280,802
14,335
—
Loss on early extinguishment of debt 17,591
—
—
Loss on Mauna Loa divestiture 47
17,360
—
Gain on sale of trademark (6,298 ) —
—
Non-GAAP net income $ 909,693
$ 895,903
$ 844,320
Reported EPS - Diluted $ 2.32
$ 3.77
$ 3.61
2015 productivity initiative 0.32
—
—
Other business realignment charges 0.04
0.03
0.05
Acquisition and integration costs 0.05
0.05
0.03
NSRPE(I) 0.05
(0.01 ) 0.03
Goodwill / intangible asset impairment 1.28
0.06
—
Loss on early extinguishment of debt 0.09
—
—
Loss on Mauna Loa divestiture —
0.08
—
Gain on sale of trademark (0.03 ) —
—
Non-GAAP EPS - Diluted $ 4.12
$ 3.98
$ 3.72



Reconciliation of Certain Non-GAAP Financial Measures
Consolidated results	For the years ended December 31,
In thousands except per share data	2016			2015			2014
Reported gross profit	$	3,157,891		$	3,382,675		$	3,336,166
Derivative mark-to-market losses	163,238			—			—
Business realignment activities	58,106			8,801			1,622
Acquisition integration costs	—			7,308			—
NSRPE(I)	11,953			2,516			(2,685		)
Non-GAAP gross profit	$	3,391,188		$	3,401,300		$	3,335,103

Reported operating profit	$	1,205,783		$	1,037,759		$	1,392,261
Derivative mark-to-market losses	163,238			—			—
Business realignment activities	107,571			120,975			34,290
Acquisition integration costs	6,480			20,899			12,360
NSRPE(I)	27,157			18,079			(1,834		)
Goodwill and other intangible asset impairment charges	4,204			280,802			15,900
Non-GAAP operating profit	$	1,514,433		$	1,478,514		$	1,452,977

Reported provision for income taxes	$	379,437		$	388,896		$	459,131
Derivative mark-to-market losses*	20,500			—			—
Business realignment activities*	19,138			41,648			8,593
Acquisition integration costs*	2,456			8,264			3,021
NSRPE(I)*	10,283			6,955			(544		)
Goodwill and other intangible asset impairment charges*	1,157			—			1,565
Loss on early extinguishment of debt*	—			10,736			—
Gain on sale of trademark*	—			(3,652		)	—
Non-GAAP provision for income taxes	$	432,971		$	452,847		$	471,766

Reported net income	$	720,044		$	512,951		$	846,912
Derivative mark-to-market losses	142,738			—			—
Business realignment activities	88,433			79,327			25,697
Acquisition integration costs	4,024			14,196			10,249
NSRPE(I)	16,874			11,124			(1,290		)
Settlement of SGM liability	(26,650		)	—			—
Goodwill and other intangible asset impairment charges	3,047			280,802			14,335
Loss on early extinguishment of debt	—			17,591			—
Gain on sale of trademark	—			(6,298		)	—
Non-GAAP net income	$	948,510		$	909,693		$	895,903

Reported EPS - Diluted	$	3.34		$	2.32		$	3.77
Derivative mark-to-market losses	0.66			—			—
Business realignment activities	0.42			0.36			0.11
Acquisition integration costs	0.02			0.05			0.05
NSRPE(I)	0.08			0.05			(0.01		)
Settlement of SGM liability	(0.12		)	—			—
Goodwill and other intangible asset impairment charges	0.01			1.28			0.06
Loss on early extinguishment of debt	—			0.09			—
Gain on sale of trademark	—			(0.03		)	—
Non-GAAP EPS - Diluted	$	4.41		$	4.12		$	3.98

* The tax impact is determined by multiplying each pre-tax reconciling adjustment by the applicable statutory income tax rates, taking into consideration the impact of valuation allowances, as applicable.

In the assessment of our results, we review and discuss the following financial metrics that are derived from the reported and non-GAAP financial measures presented above:


	For the years ended December 31,						For the years ended December 31,
	2015		2014		2013		2016		2015		2014
As reported gross margin	45.8	%	45.0	%	45.9	%	42.4	%	45.8	%	45.0	%
Non-GAAP gross margin (1)	46.0	%	44.9	%	46.0	%	45.6	%	46.0	%	44.9	%

As reported operating profit margin	14.0	%	18.8	%	18.7	%	16.2	%	14.0	%	18.8	%
Non-GAAP operating profit margin (2)	20.0	%	19.6	%	19.2	%	20.4	%	20.0	%	19.6	%

As reported effective tax rate	43.1	%	35.2	%	34.4	%	34.5	%	43.1	%	35.2	%
Non-GAAP effective tax rate (3)	33.2	%	34.5	%	34.3	%	31.3	%	33.2	%	34.5	%


(1)	Calculated as non-GAAP gross profit as a percentage of net sales for each period presented.


(2)	Calculated as non-GAAP operating profit as a percentage of net sales for each period presented.


(3)	Calculated as non-GAAP provision for income taxes as a percentage of non-GAAP income before taxes (calculated as non-GAAP operating profit minus non-GAAP interest expense, net plus or minus non-GAAP other (income) expense, ~~net.~~net).

Details of the activities impacting comparability that are presented as reconciling items to derive the non-GAAP financial measures in the tables above are as follows:

~~2015 productivity initiative~~Mark-to-market losses on commodity derivatives

~~In June 2015,~~Commensurate with our discontinuance of hedge accounting treatment for commodity derivatives, we ~~announced~~are adjusting the mark-to-market losses on such commodity derivatives, until such time as the related inventory is sold. Since we often purchase commodity contracts to price inventory requirements in future years, we make this adjustment to facilitate the year-over-year comparison of cost of sales on a ~~new productivity initiative, which is intended to move decision making closer to~~basis that matches the ~~customer~~derivative gains and losses with the ~~consumer, to enable a more enterprise-wide approach to innovation, to more swiftly advance our knowledge agenda, and to provide~~underlying economic exposure being hedged for ~~a more efficient cost structure, while ensuring that we effectively allocate resources to future growth areas. The project is intended to simplify~~ the organizational structure to enhance the Company's ability to rapidly anticipate and respond to the changing demands of the global consumer. We recorded pre-tax charges related to this program of $105.7 million forperiod. For the year ended December 31, ~~2015. See Note 8 to the Consolidated Financial Statements for more information.~~2016, unallocated mark-to-market losses on commodity derivatives totaled $163.2 million.

~~Other business~~Business realignment activities

We periodically undertake restructuring and cost reduction activities as part of ongoing efforts to enhance long-term profitability. For the years ended December 31, 2016, 2015 and 2014, we incurred $107.6 million, $121.0 million and $34.3 million, respectively, of pre-tax costs related to business realignment activities. See Note 7 to the Consolidated Financial Statements for more information.

Acquisition integration costs

For the year ended December 31, ~~2015,~~2016, we ~~recorded pre-tax charges of $12.6~~incurred expenses totaling $6.5 million ~~relating~~related to ~~programs commenced in 2014 to rationalize certain non-U.S. manufacturing and distribution activities and to establish our own sales and distribution teams in Brazil in connection with our purchase~~integration of the ~~non-controlling interest from~~2016 acquisition of Ripple Brand Collective, LLC, as we incorporated this business into our ~~joint venture partner. For the years ended December 31, 2014~~operating practices and 2013, we incurred pre-tax charges of $12.0 million and $19.1 million, respectively, primarily relating to the demolition of the Company's former manufacturing facility, representing the final phase of the Project Next Century Program. This program was substantially complete as of December 31, 2014.

~~Acquisition and integration costs~~

information systems. For the year ended December 31, 2015, we incurred costs related to the integration of the 2014 acquisitions of SGM and The Allan Candy Company and the 2015 acquisition of Krave totaling $22.5 million as we ~~incorporate~~incorporated these businesses into our operating practices and information systems. ~~This includes~~These 2015 expenses included charges incurred to write-down approximately $6.4 million of expired or near-expiration work-in-process inventory at SGM, in connection with the implementation of our global quality standards and practices. In addition, integration costs for ~~the year~~2015 were ~~benefited~~offset by a $6.8 million reduction in the fair value of contingent consideration paid to the Krave shareholders. For the ~~years~~year ended December 31, 2014, ~~and 2013,~~ we incurred ~~pre-tax acquisition and integration~~ costs of $13.3 million ~~and charges of $4.1 million, respectively. The 2014 and 2013 charges were~~ largely related to ~~SGM~~the acquisition ~~and integration costs. The 2014 charges were also~~of SGM, offset by a $4.6 million gain relating to the acquisition of a controlling interest in Lotte Shanghai ~~Food Company.~~Foods Co., Ltd.

Non-service related pension expense (income)

~~Non-service-related pension expense (income)~~NSRPE(I) includes interest costs, the expected return on pension plan assets, the amortization of actuarial gains and losses, and certain curtailment and settlement losses or credits. ~~The non-service-related pension expense (income)~~NSRPE(I) can fluctuate from ~~year-to-year~~year to year as a result of changes in market interest rates and market returns on pension plan assets. We believe that the service cost component of our total pension benefit costs closely reflects the operating costs of our business and provides for a better comparison of our operating results from ~~year-to-year.~~year to year. Therefore, we exclude ~~the non-service-related pension expense (income)~~NSRPE(I) from our internal performance measures. Our most significant defined benefit pension plans were closed to most new participants in 2007, resulting in ongoing service costs that are stable and predictable. We recorded pre-tax ~~non-service related pension expense (income)~~NSRPE(I) of $27.2 million, $18.1 million ~~$(1.8) million~~ and ~~$10.9~~$(1.8) million for the years ended December 31, 2016, 2015 and 2014, respectively.

Settlement of SGM liability

In the fourth quarter of 2015, we reached an agreement with the SGM selling shareholders to reduce the originally-agreed purchase price for the remaining 20% of SGM, and ~~2013, respectively. The 2015 expense adjustment includes approximately $9.6~~we completed the purchase on February 3, 2016. In the first quarter of 2016, we recorded a $26.7 million ~~in settlement charges~~gain relating to ~~lump-sum distributions~~the settlement of the SGM liability, representing the net carrying amount of the recorded liability in excess of the cash paid to ~~participants that did not separate in connection with~~settle the ~~2015 productivity initiative; settlement charges relating to individuals separating in connection with~~obligation for the ~~2015 Productivity Initiative are included within~~remaining 20% of the ~~“2015 Productivity Initiative” costs noted above.~~outstanding shares.

Goodwill and other intangible asset impairment

As discussed in Note 23 to the Consolidated Financial Statements, in connection with our 2016 annual impairment testing of other indefinite lived assets, we recognized a trademark impairment charge of $4.2 million primarily resulting from plans to discontinue a brand sold in India. In the second and third quarters of 2015, we recorded a total $280.8 million non-cash goodwill impairment charge, representing a write-down of all of the goodwill resulting from the SGM acquisition, including $14.4 million relating to the portion of goodwill that had been allocated to our China chocolate reporting unit, based on synergies to be realized by this business. For the year ended December 31, 2014, we recorded non-cash goodwill and other intangible asset impairment charges totaling $15.9 million associated with our business in India.

Loss on early extinguishment of debt

InDuring the third quarter of 2015, we recorded ~~within interest expense~~ a ~~pre-tax~~$28.3 million loss on the early extinguishment of debt ~~of $28.3 million~~ relating to a cash tender offer. See Note 4 to the Consolidated Financial Statements for further information.

~~Loss on Mauna Loa divestiture~~

In December 2014, we entered into an agreement to sell Mauna Loa, at which time the entity was recorded as held for sale and we recorded an estimated loss of $22.3 million to reflect the disposal entity at its fair value, less an estimate of the selling costs. The transaction closed in the first quarter of 2015, resulting in the recording of an additional loss on sale of $2.7 million, based on updates to the selling expenses and tax benefits.

Gain on sale of trademark

InDuring the first quarter of 2015, we recorded a $9.9 million gain relating to the sale of a non-core trademark.

Constant Currency Net Sales Growth

We present certain percentage changes in net sales on a constant currency basis, which excludes the impact of foreign currency exchange. This measure is used internally by management in evaluating results of operations and determining incentive compensation. We believe that this measure provides useful information to investors because it provides transparency to underlying performance in our net sales by excluding the effect that foreign currency exchange rate fluctuations have on the year-to-year comparability given volatility in foreign currency exchange markets.

~~2016~~To present this information for historical periods, current period net sales for entities reporting in other than the U.S. dollar are translated into U.S. dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rates in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.

A reconciliation between reported and constant currency growth rates is provided below:



	For the Year Ended December 31, 2016
	Percentage Change as Reported		Impact of Foreign Currency Exchange		Percentage Change on Constant Currency Basis
North America segment
Canada	(3.5	)%	(3.0	)%	(0.5	)%
Total North America segment	1.0	%	(0.2	)%	1.2	%

International and Other segment
Mexico	(8.5	)%	(16.0	)%	7.5	%
Brazil	15.7	%	(6.0	)%	21.7	%
India	(26.6	)%	(3.6	)%	(23.0	)%
Greater China	(0.3	)%	(4.9	)%	4.6	%
Total International and Other segment	(1.2	)%	(4.4	)%	3.2	%

Total Company	0.7	%	(0.7	)%	1.4	%

2017 Outlook

The following table provides a reconciliation of projected ~~2016 earnings per share-diluted,~~2017 EPS-diluted, prepared in accordance with GAAP, to projected non-GAAP ~~earnings per share-diluted~~EPS-diluted for ~~2016,~~2017, prepared on a non-GAAP basis, with adjustments consistent to those discussed previously. The reconciliation of 2016 and 2015 ~~and 2014 earnings per share-diluted,~~EPS-diluted, prepared in accordance with GAAP, to ~~2015~~2016 and 2015 non-GAAP ~~earnings per share-diluted~~EPS-diluted is provided below for comparison.

2016
(Projected)

2015 2014
Reported EPS – Diluted $4.18 - $4.23 $2.32 $3.77
Business realignment charges
2015 Productivity Initiative 0.07 - 0.08 0.32 —
Other international programs — 0.04 0.03
Acquisition and integration costs 0.02 - 0.03 0.05 0.05
Non-service related pension expense (income) 0.06 - 0.07 0.05 (0.01)
Goodwill / intangible asset impairment — 1.28 0.06
Loss on early extinguishment of debt — 0.09 —
Loss on sale of Mauna Loa — — 0.08
Gain on sale of trademark — (0.03) —
Adjusted EPS – Diluted $4.36 - $4.38 $4.12 $3.98



	2017 (Projected)	2016	2015
Reported EPS – Diluted	$4.54 - $4.65	$3.34	$2.32
Derivative mark-to-market losses	—	0.66	—
Business realignment costs	0.10 - 0.12	0.42	0.36
Acquisition and integration costs	—	0.02	0.05
Non-service related pension expense	0.06	0.08	0.05
Settlement of SGM liability	—	(0.12)	—
Goodwill and other intangible asset impairment charges	—	0.01	1.28
Loss on early extinguishment of debt	—	—	0.09
Gain on sale of trademark	—	—	(0.03)
Adjusted EPS – Diluted	$4.72 - $4.81	$4.41	$4.12

Our ~~2016~~2017 projected ~~earnings per share-diluted,~~EPS-diluted, as presented above, does not include the impact of mark-to-market gains and losses on our commodity derivative ~~contracts that will be reflected within corporate unallocated expenses in our segment results until~~contracts. Due to the ~~related inventory~~volatility of commodity market prices, it is ~~sold, pursuant~~not possible to forecast this mark-to-market impact. Pursuant to our revised accounting policy for commodity derivatives as discussed in Note 5 to the Consolidated Financial ~~Statements.~~Statements, we currently reflect changes in the fair value of our commodity derivatives as incurred within cost of goods sold, with an adjustment within our corporate unallocated expenses to enable us to present the gains and losses on commodity derivatives within our segment income at the time the related inventory is sold.

CONSOLIDATED RESULTS OF OPERATIONS


										Percent Change													Percent Change
For the years ended December 31,	2015			2014			2013			2015 vs 2014		2014 vs 2013		2016			2015			2014			2016 vs 2015		2015 vs 2014
In millions of dollars except per share amounts
Net Sales	$	7,386.6		$	7,421.8		$	7,146.1		(0.5	)%	3.9	%	$	7,440.2		$	7,386.6		$	7,421.8		0.7	%	(0.5	)%
Cost of Sales	4,003.9			4,085.6			3,865.2			(2.0	)%	5.7	%	4,282.3			4,003.9			4,085.6			7.0	%	(2.0	)%
Gross Profit	3,382.7			3,336.2			3,280.9			1.4	%	1.7	%	3,157.9			3,382.7			3,336.2			(6.6	)%	1.4	%
Gross Margin	45.8		%	45.0		%	45.9		%					42.4		%	45.8		%	45.0		%
SM&A Expense	1,969.3			1,898.4			1,924.1			3.7	%	(1.3	)%	1,915.4			1,969.3			1,898.4			(2.7	)%	3.7	%
SM&A Expense as a percent of net sales	26.7		%	25.6		%	26.9		%					25.7		%	26.7		%	25.6		%
Goodwill and Other Intangible Asset Impairment Charges	280.8			15.9			—			NM		NM		4.2			280.8			15.9			(98.5	)%	NM
Business Realignment Charges	94.8			29.7			18.7			219.0	%	59.2	%
Business Realignment Costs														32.5			94.8			29.7			(65.7	)%	219.0	%
Operating Profit	1,037.8			1,392.2			1,338.1			(25.5	)%	4.1	%	1,205.8			1,037.8			1,392.2			16.2	%	(25.5	)%
Operating Profit Margin	14.0		%	18.8		%	18.7		%					16.2		%	14.0		%	18.8		%
Interest Expense, Net	105.8			83.5			88.4			26.6	%	(5.5	)%	90.2			105.8			83.5			(14.7	)%	26.6	%
Other (Income) Expense, Net	30.1			2.7			(1.6		)	NM		265.4	%	16.2			30.1			2.7			(46.2	)%	NM
Provision for Income Taxes	388.9			459.1			430.8			(15.3	)%	6.6	%	379.4			388.9			459.1			(2.4	)%	(15.3	)%
Effective Income Tax Rate	43.1		%	35.2		%	34.4		%					34.5		%	43.1		%	35.2		%
Net Income	$	513.0		$	846.9		$	820.5		(39.4	)%	3.2	%	$	720.0		$	513.0		$	846.9		40.4	%	(39.4	)%
Net Income Per Share—Diluted	$	2.32		$	3.77		$	3.61		(38.5	)%	4.4	%	$	3.34		$	2.32		$	3.77		44.0	%	(38.5	)%

Note: Percentage changes may not compute directly as shown due to rounding of amounts presented above.																											NM = not meaningful.

Net Sales

2016 compared with 2015

Net sales increased 0.7% in 2016 compared with 2015, reflecting volume increases of 0.8% and a 0.6% benefit from net acquisitions and divestitures, partially offset by an unfavorable impact from foreign currency exchange rates of 0.7%. Excluding foreign currency, our net sales increased 1.4% in 2016. The volume improvement was primarily driven by new chocolate and snacking products in the United States, including Snack Mix, Snack Bites and Hershey's Cookie Layer Crunch bars. While the North America segment had unfavorable price realization due to increased levels of trade promotional spending, this was essentially offset by favorable price realization in the International and Other segment, due to significantly lower levels of trade spending and returns, discounts and allowances.

2015 compared with 2014

Net sales decreased 0.5% in 2015 compared with 2014, reflecting volume declines of 3.4% and ~~the~~an unfavorable impact from foreign currency exchange rates of 1.6%, substantially offset by favorable net price realization of 3.5% as well as a 1.0% benefit from net acquisitions and divestitures. The favorable net price realization, primarily in the ~~U.S.,~~United States, was attributed to the price increase announced in mid-2014. The volume declines were attributed to volume elasticity relating to the pricing action in the ~~U.S.~~United States as well as lower everyday product sales given the challenging shopper environment in North America, coupled with lower sales in China. Excluding the impact of foreign currency exchange rates, our net sales increased 1.1% in 2015.

~~2014 compared with 2013~~

Net sales increased 3.9% in 2014 compared with 2013, reflecting volume growth of 4.4% and favorable net price realization of 0.2%, offset in part by an unfavorable impact from foreign currency exchange rates which reduced net sales by approximately 0.7%. The volume growth was driven by incremental sales of new products in our North America and International and Other segments, coupled with almost 1% of growth from the recent SGM acquisition. The pricing benefit from the 2014 mid-year price increase was largely offset by higher trade promotions and lower core volumes associated with near-term volume elasticity related to the price increase.

Key U.S. CMG Marketplace Metrics


For the 52 weeks ended December 31,	2015		2014		2013		2016		2015		2014
Hershey's Consumer Takeaway Increase	2.4	%	2.7	%	6.3	%
Hershey's Consumer Takeaway (Decrease) Increase							0.3	%	2.4	%	2.7	%
Hershey's Market Share (Decrease) Increase	(0.1	)	0.3		1.1		-		(0.1	)	0.3

~~Consumer~~The consumer takeaway and ~~the change in~~ market share information provided above are ~~provided~~ for measured channels of distribution accounting for approximately 90% of our U.S. confectionery retail business. These channels of distribution primarily include food, drug, mass merchandisers and convenience store channels, plus Wal-Mart Stores, Inc., partial dollar, club and military channels.

These metrics are based on measured market scanned purchases as reported by Nielsen and provide a means to assess our retail takeaway and market position relative to the overall category. ~~In 2015,~~

The amounts presented above are solely for the U.S. CMG category which does not include revenue from our snack mixes and Hershey growth rates continue to be impacted by changing consumer shopping habits and increased levels of distribution and in-store activity of items such as salty, bakery and meat snacks, by both mainstream and newer contemporary niche manufacturers, which has been driving broader snacking category growth in 2014 and 2015. Despite these market dynamics, forgrocery items. For the full year ~~2015,~~2016, our ~~U.S.~~ CMG ~~retail takeaway increased 2.4%, which was in line with category growth. Our~~ market share, ~~decreased by~~including barkTHINS was 31.2%, about the same as 2015. Including barkTHINS, CMG, salty snacks, snack bars, meat snacks and grocery items, our full year U.S. market share increased approximately 10 basis ~~points; however, we maintained an industry leading 31.3% U.S. market share.~~points.

Cost of Sales and Gross Margin

2016 compared with 2015

Cost of sales increased 7.0% in 2016 compared with 2015. Incremental business realignment costs and mark-to-market losses on commodity derivative instruments increased cost of sales by 5.3%, while the remaining increase was primarily attributed to higher volume and higher supply chain costs, in part due to higher manufacturing variances and some incremental fixed costs related to the commencement of manufacturing in the Malaysia facility. As described in Note 5 to the Consolidated Financial Statements, our commodity derivative instruments are no longer designated for hedge accounting treatment and, as a result, the changes in fair market value are recognized currently in cost of sales.

Gross margin decreased by 340 basis points in 2016 compared with 2015. Mark-to-market losses on commodity derivative instruments and incremental depreciation expense related to business realignment activities drove a 300 basis point decline in gross margin. Higher trade promotional spending and supply chain costs also contributed to the decreased gross margin, but were partially offset by supply chain productivity and cost savings initiatives. On a non-GAAP basis, excluding the losses on commodity derivative instruments as well as business realignment costs, 2016 adjusted gross margin decreased by 40 basis points.

2015 compared with 2014

Cost of sales decreased 2.0% in 2015 compared with 2014. Supply chain productivity and volume declines reduced cost of sales by approximately 6.6%. These declines were substantially offset by higher supply chain and commodity costs, and unfavorable sales mix, which together increased total cost of sales by approximately 4.1%. In addition, cost of sales was impacted by acquisition and integration costs of $7.3 million, business realignment ~~charges~~costs of $8.8 million and ~~non-service related pension expense~~NSRPE of $2.5 million, which collectively increased cost of sales by approximately 0.5%. In comparison, cost of sales benefited by $1.1 million in 2014, primarily due to ~~non-service related pension income.~~NSRPI.

Gross margin increased by 80 basis points in 2015 compared with 2014. Favorable net price realization as well as supply chain productivity and other cost savings initiatives collectively improved gross margin by 330 basis points. However, these benefits were substantially offset by higher supply chain and commodity costs as well as unfavorable sales mix, which collectively reduced gross margin by approximately 250 basis points. On a non-GAAP basis, excluding the business realignment and acquisition and integration charges, 2015 gross margin increased by 110 basis points.

~~2014 compared with 2013~~

Cost of sales increased 5.7% in 2014 compared with 2013. Higher costs associated with sales volume increases, higher commodity and other incremental supply chain costs and unfavorable sales mix increased total cost of sales by approximately 7.8%. The higher commodity costs were largely driven by higher dairy ingredient costs, which cannot be effectively hedged, while the unfavorable sales mix resulted from a greater proportion of seasonal sales volumes, which are typically at lower margins than non-seasonal products. These cost increases were offset in part by supply chain productivity improvements and lower pension costs, which together reduced cost of sales by approximately 2.1%.

Gross margin decreased by 90 basis points in 2014 compared with 2013. Supply chain productivity and other cost savings initiatives, favorable net price realization, and operating leverage from the higher sales volumes collectively improved gross margin by 150 basis points. The impact of lower pension expenses in 2014 in comparison with 2013 benefited 2014 gross margin by 20 basis points. However, these benefits were more than offset by higher commodity and other input costs and unfavorable sales mix which together reduced gross profit margin by approximately 260 basis points.

Selling, Marketing and Administrative

~~2015~~2016 compared with ~~2014~~2015

Selling, marketing and administrative (“SM&A”) expenses decreased $53.9 million or 2.7% in 2016. Advertising and related consumer marketing expense decreased 4.0% during this period. We spent less on advertising and related consumer marketing in our International and Other segment, particularly in the China market, and our spending in North America declined as our marketing mix models were weighted toward higher trade promotional spending. Excluding these advertising and related consumer marketing costs, selling and administrative expenses for 2016 decreased by 2.0% as compared to 2015 as a result of our continued focus on reducing non-essential spending. SM&A expenses in 2016 were also impacted by business realignment costs of $18.6 million, NSRPE of $15.2 million and acquisition and integration costs of $6.5 million. In 2015, SM&A expenses included business realignment costs of $17.4 million, NSRPE of $15.6 million and acquisition and integration costs of $13.6 million.

2015 compared with 2014

SM&A expenses increased $70.9 million or 3.7% in 2015. Advertising and related consumer marketing expense increased 1.0% during this period. Excluding these advertising and related consumer marketing costs, selling and administrative expenses for 2015 increased by 6.7% as compared to 2014, driven by incremental increases from acquired businesses. Excluding the impact of acquisition costs, SM&A expenses for 2015 declined as a result of our continued focus on reducing non-essential spending. SM&A expenses in 2015 were also

impacted by charges of $13.6 million attributed to the ~~2015~~ productivity initiative we announced in June 2015, acquisition and integration costs of $13.6 million, ~~non-service related pension expense~~NSRPE of $15.6 million and other business realignment ~~charges~~costs of $3.7 million. In 2014, SM&A expenses included acquisition and integration costs of $12.4 million, other business realignment ~~charges~~costs of $2.9 million and ~~non-service related pension expense~~NSRPE of $0.9 million.

~~2014 compared with 2013~~

SM&A expenses decreased $25.7 million or 1.3% in 2014. This includes a 3.1% reduction in advertising and related consumer marketing expenses due to the timing of new product launches, a reduction in media production costs and a decision to shift resources to other more productive areas. Excluding advertising and related consumer marketing expenses, selling and administrative expenses were relatively flat compared to 2013 due to lower incentive compensation costs and discretionary cost containment efforts, offset in part by higher employee-related costs, including additional headcount in our China business and additional focused selling resources, as well as transaction costs associated with the acquisition of SGM. Selling and administrative expenses in 2014 also benefited from the $5.6 million in foreign currency gains realized on forward contracts related to the manufacturing facility under construction in Johor, Malaysia.

Goodwill and Other Intangible Asset Impairment Charges

In 2016, in connection with the annual impairment testing of indefinite lived intangible assets, we recognized a trademark impairment charge of $4.2 million, primarily resulting from plans to discontinue a brand sold in India.

As discussed in ~~the Overview and Outlook section as well as~~ Note 23 to the Consolidated Financial Statements, the SGM business performed below expectations throughout 2015, with net sales and earnings levels well below pre-acquisition levels. As of result of this declining performance, in the second quarter of 2015 we recorded an estimated goodwill impairment charge of $249.8 million relating to the SGM reporting unit. During the third quarter of 2015, we updated our estimates of the acquisition-date fair values of the net assets acquired, which increased the value of acquired goodwill by $16.6 million. We also finalized the impairment test of the goodwill relating to the SGM reporting unit, which resulted in an additional $16.6 million write-off of this increase to goodwill. During the third quarter of 2015, we also wrote off $14.4 million of goodwill that resulted from the SGM acquisition and was assigned to our existing China chocolate business, as this reporting unit was expected to benefit from acquisition synergies relating to the sale of Golden Monkey-branded product through its Tier 1 and hypermarket distributor networks. This goodwill impairment was driven by the continued declining performance in our China chocolate business through the third quarter of 2015, as a result of the macroeconomic challenges ~~and~~mentioned previously, as well as changing consumer shopping behavior ~~mentioned previously.~~in China.

In 2014, the annual impairment testing of our India reporting unit resulted in a $11.4 million goodwill impairment charge and a $4.5 million ~~pre-tax~~ write-down of a trademark associated with the India business. These impairment charges were largely a result of our decision at the time to exit the oils portion of the India business and realign our approach to regional marketing and distribution in India.

The assessment of the valuation of goodwill and other long-lived assets is based on management estimates and assumptions, as discussed in our critical accounting policies included in Item 7 of this Annual Report on Form 10-K. These estimates and assumptions are subject to change due to changing economic and competitive conditions.

Business Realignment ~~Charges~~Activities

~~Expenses~~We are currently pursuing several business realignment activities designed to increase our efficiency and focus our business behind key growth strategies. Costs recorded for business realignment activities during 2016, 2015 ~~2014~~ and ~~2013~~2014 and their classification within the Statements of Income are as follows:

For the years ended December 31, 2015 2014 2013
In millions of dollars
Cost of sales:
Other international restructuring programs $ 8.8
$ —
$ —
Next Century program —
1.6
0.4
Total cost of sales 8.8
1.6
0.4
Selling, marketing and administrative:
2015 productivity initiative 13.6
—
—
Other international restructuring programs 3.8
2.9
—
Total selling, marketing and administrative 17.4
2.9
—
Business realignment charges:
2015 productivity initiative 92.1
—
—
Next Century program - plant closure expenses —
7.5
16.4
Divestiture of Mauna Loa 2.7
22.3
—
India voluntary retirement program —
—
2.3
Total business realignment charges 94.8
29.7
18.7
Total charges associated with business realignment activities $ 121.0
$ 34.3
$ 19.1



For the years ended December 31,	2016		2015		2014
In millions of dollars
Operational Optimization Program:
Severance	$	17.9	$	—	$	—
Accelerated depreciation	48.6		—		—
Other program costs	21.8		—		—
2015 Productivity Initiative:
Severance	—		81.3		—
Pension settlement charges	13.7		10.2		—
Other program costs	5.6		14.3		—
Other international restructuring programs:
Severance	—		6.6		2.9
Accelerated depreciation and amortization	—		5.9		—
Mauna Loa divestiture	—		2.7		22.3
Project Next Century	—		—		9.1
Total	$	107.6	$	121.0	$	34.3

Operational Optimization Program

In the second quarter of 2016, we commenced a program (the “Operational Optimization Program”) to optimize our production and supply chain network, which includes select facility consolidations. The program encompasses the continued transition of our China chocolate and SGM operations into a united Golden Hershey platform, including the integration of the China sales force, as well as workforce planning efforts and the consolidation of production within certain facilities in China and North America.

We have incurred pre-tax costs of $88 million to date, including non-cash asset-related incremental depreciation costs, severance and employee benefit costs, costs to consolidate and relocate production, and third-party costs incurred to execute these activities. We currently expect to incur additional cash costs of approximately $37 million over the next two years to complete this program. The Operational Optimization Program is expected to drive annual savings of approximately $52 million by 2018.

2015 Productivity Initiative

~~On June 19, 2015,~~In mid-2015, we ~~announced~~initiated a ~~new~~ productivity initiative (the “2015 Productivity Initiative”) intended to move decision making closer to the customer and the consumer, to enable a more enterprise-wide approach to innovation, to more swiftly advance our knowledge agenda, and to provide for a more efficient cost structure, while ensuring that we effectively allocate resources to future growth areas. Overall, the 2015 Productivity Initiative ~~is intended~~was undertaken to simplify the organizational structure to enhance the Company's ability to rapidly anticipate and respond to the changing demands of the global consumer.

The 2015 Productivity Initiative was executed throughout the third and fourth quarters of 2015, resulting in a net reduction of approximately 300 positions, with the majority of the departures taking place by the end of 2015. For the year ended December 31, ~~2015,~~2016, we incurred charges totaling ~~$105.7~~$19.3 million, ~~representing employee~~consisting of pension settlement charges, adjustments to estimated severance ~~and related separation~~ benefits ~~as well as~~and incremental third-party costs related to the design and implementation of the new organizational structure. ~~This also includes a~~The 2015 Productivity Initiative was completed during the third quarter of 2016. We incurred total costs of $125.0 million relating to this initiative, including pension settlement ~~cost~~charges of $13.7 million recorded in 2016 and $10.2 million recorded in 2015 relating to lump sum withdrawals by employees retiring

or leaving the Company as a result of this initiative. We have realized approximately $82 million in savings since inception of the 2015 Productivity Initiative.

Total pre-tax charges and costs for this program are expected to be approximately $120 million, the majority of which are cash. This excludes the 2015 pension settlement costs and any additional pension settlement costs that could be triggered by additional lump sum withdrawals in 2016. The remaining costs are expected to be incurred within the first three quarters of 2016.

Other international restructuring programs

Other ~~2015 charges for~~costs incurred in connection with business realignment activities ~~relate~~for the year ended December 31, 2015 related principally to accelerated depreciation and amortization and employee severance costs for multiple programs commenced in 2014 to rationalize certain non-U.S. manufacturing and distribution activities and to establish our own sales and distribution teams in Brazil in connection with our ~~purchase~~acquisition of the ~~non-controlling~~remaining 49% interest ~~from our joint venture partner. Remaining costs relating to these programs are not expected to be significant.~~in Hershey do Brasil Ltda. under a cooperative agreement with Pandurata Netherlands B.V. ("Bauducco").

~~Divestiture of~~ Mauna Loa divestiture

In December 2014, we entered into an agreement to sell the Mauna Loa Macadamia Nut Corporation (“Mauna Loa”).

As a result of the expected sale, in 2014 we recorded an estimated loss on the anticipated sale of $22.3 million to reflect the disposal entity at fair value, less an estimate of the selling costs. The sale, ~~was~~ completed in the first quarter of 2015, resulted in an additional loss on sale of $2.7 million based on updates to the selling expenses and tax benefits.

Project Next Century ~~program~~

The 2014 ~~and 2013 charges~~costs shown ~~above~~ relate primarily to the demolition of the ~~Company's~~Company’s former manufacturing facility, representing the final phase of the Project Next Century ~~program (“Next Century program”). This program was substantially complete as~~program. As of December 31, ~~2014.~~2014, we have concluded Project Next Century.

The restructuring charges discussed above for the years ended December 31, 2015, 2014 and 2013 relate predominantly to initiatives undertaken by the North America segment, with the exception of the international programs, which relate to the International and Other segment. Segment operating results do not include business realignment and related ~~charges~~costs, as these initiatives are generally centrally managed and are not included within our internal measures of segment performance.

Operating Profit and Operating Profit Margin

2016 compared with 2015

Operating profit increased 16.2% in 2016 compared with 2015 due primarily to lower goodwill and intangible asset impairment charges, lower SM&A costs and lower business realignment costs, offset in part by the lower gross profit. Operating profit margin increased to 16.2% in 2016 from 14.0% in 2015 due primarily to these same factors.

On a non-GAAP basis, 2016 operating profit and operating profit margin increased 2.4% and 40 basis points, respectively, reflecting the reduction in total SM&A costs, including advertising and related consumer marketing, offset in part by higher trade promotional spending.

2015 compared with 2014

Operating profit decreased 25.5% in 2015 compared with 2014 due primarily to the goodwill impairment charges, higher ~~selling, marketing and administrative~~SM&A costs related to acquisitions as well as higher business realignment ~~charges,~~costs, offset in part by the higher gross profit.

Operating profit margin decreased to 14.0% in 2015 from 18.8% in 2014 due to the goodwill impairment charges, higher ~~selling, marketing and administrative~~SM&A expenses as a percent of sales, and higher business realignment ~~charges.~~costs.

On a non-GAAP basis, 2015 operating profit and operating profit margin increased 1.8% and 40 basis points, respectively.

Interest Expense, Net

~~2014~~2016 compared with ~~2013~~2015

~~Operating profit increased 4.1%~~Net interest expense was $15.6 million lower in ~~2014 compared with 2013 due primarily~~2016 than in 2015, as the 2015 amount included the premium paid to ~~the higher level~~repurchase long-term debt as part of ~~gross profit and lower overall selling, marketing and administrative costs, offset in part by higher business realignment and impairment charges in 2014.~~

~~Operating profit margin increased to 18.8% in 2014 from 18.7% in 2013 due to lower SM&A expenses as~~ a ~~percent of sales,~~cash tender offer. This decrease was partially offset by ~~higher business realignment~~lower capitalized interest expense and ~~impairment charges.~~

~~Interest Expense, Net~~lower interest income.

2015 compared with 2014

Net interest expense was $22.3 million higher in 2015 than in 2014 due primarily to the premium paid to repurchase long-term debt as part of a cash tender offer. This increase was partially offset by higher capitalized interest expense coupled with savings resulting from fixed-to-floating interest rate swap agreements put in place ~~towards~~toward the end of 2014.

Other (Income) Expense, Net

~~2014~~2016 compared with ~~2013~~2015

~~Net interest~~Other (income) expense, net was ~~$4.9~~$13.9 million lower in ~~2014~~2016 than ~~in 2013~~2015, due primarily to ~~a greater level~~the $26.7 million settlement of ~~capitalized interest~~the SGM liability in ~~2014 as well as higher interest income earned on short-term investments.~~

~~Other (Income) Expense, Net~~2016, partially offset by an increase in the write-down of equity investments qualifying for federal historic and energy tax credits.

2015 compared with 2014

Other (income) expense, net was $27.4 million higher in 2015 than 2014, due primarily to the write-down of equity investments qualifying for federal historic and energy tax credits, partially offset by the gain on the sale of a non-core trademark.

~~2014 compared with 2013~~

Other (income) expense, net reflected a net expense of $2.7 million in 2014 compared to a net gain of $1.6 million in 2013, due primarily to the foreign exchange loss related to our strategy to cap the U.S. denominated acquisition price of SGM, offset in part by the gain realized on the acquisition of a controlling interest in Lotte Shanghai Food Company.

Income Taxes and Effective Tax Rate

2016 compared with 2015

Our effective income tax rate was 34.5% for 2016 compared with 43.1% for 2015. The 2015 tax rate was significantly impacted by the non-deductible goodwill impairment charges. Excluding the impact of the goodwill impairment and other non-GAAP charges, the 2016 effective income tax rate was 190 basis points lower than the 2015 rate. The 2016 non-GAAP rate reflects greater benefit from manufacturing deductions, research and development and investment tax credits, and a favorable foreign rate differential relating to our cocoa procurement operations.

2015 compared with 2014

Our effective income tax rate was 43.1% for 2015 compared with 35.2% for 2014. The 2015 tax rate was significantly impacted by the non-deductible goodwill impairment charges. Excluding the impact of the goodwill impairment and other non-GAAP charges, the 2015 effective income tax rate was 130 basis points lower than the 2014 rate. The 2015 rate benefited from tax credits realized from the investment tax strategy initiated in the second quarter of 2015, which was partially offset by the valuation allowance recorded against the SGM net operating loss carryforwards.

~~2014 compared with 2013~~

Our effective income tax rate was 35.2% for 2014 compared with 34.4% for 2013. The 2014 effective income tax rate was higher due to unfavorable tax return true-up adjustments, unfavorable shifts of taxable income to higher tax jurisdictions, and the impact of business realignment and impairment charges with minimal tax benefit, partly offset by favorable settlement of Canadian assessments and favorable settlement of U.S. audits.

Net Income and Net Income Per Share

2016 compared with 2015

Net income increased $207.0 million, or 40.4%, while EPS-diluted increased $1.02, or 44.0%, in 2016 compared with 2015. The increases in both net income and EPS-diluted were driven by the lower goodwill and intangible asset impairment charges, lower SM&A costs and lower business realignment costs, as noted above. Our 2016 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.

On a non-GAAP basis, net income increased $38.8 million in 2016, or 4.3%, and EPS-diluted increased $0.29, or 7.0%, as compared with 2015. The increases in 2016 non-GAAP net income and non-GAAP EPS-diluted were primarily driven by the lower SM&A expense as well as the lower tax rate.

2015 compared with 2014

Net income decreased $333.9 million, or 39.4%, while ~~earnings per share-diluted (“EPS”)~~EPS-diluted decreased $1.45, or 38.5%, in 2015 compared with 2014. The decreases in both net income and ~~EPS~~EPS-diluted were driven by the goodwill impairment charges, higher ~~selling, marketing and administrative~~SM&A costs related to acquisitions ~~as well as~~and higher business realignment ~~charges,~~costs, as noted above. Our 2015 ~~EPS also~~EPS-diluted benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.

On a non-GAAP basis, net income increased $13.8 million in 2015, or 1.5%, and ~~EPS~~EPS-diluted increased $0.14, or 3.5%, as compared with 2014. The increases in 2015 non-GAAP net income and ~~EPS~~non-GAAP EPS-diluted were primarily driven by gross margin expansion and lower net interest expense.

~~2014 compared with 2013~~

Net income increased $26.4 million, or 3.2%, while EPS-diluted increased $0.16, or 4.4%, in 2014 compared with 2013. The increases in both net income and EPS were driven by higher sales, offset by higher commodity costs and unfavorable sales mix, as noted above. Our 2014 EPS also benefited from lower weighted-average shares outstanding, as a result of share repurchases pursuant to our Board-approved repurchase programs.

On a non-GAAP basis, net income increased $51.6 million in 2015, or 6.1%, and EPS increased $0.26, or 7.0%, as compared with 2013. The increases in 2014 non-GAAP net income and EPS were primarily driven by lower selling, marketing and administrative expenses as a percent of sales.

SEGMENT RESULTS

The summary that follows provides a discussion of the results of operations of our two reportable segments: North America and International and Other. The segments reflect our operations on a geographic basis. For segment reporting purposes, we use “segment income” to evaluate segment performance and allocate resources. Segment income excludes unallocated general corporate administrative expenses, ~~as well as~~unallocated mark-to-market gains and losses on commodity derivatives, business realignment ~~initiatives, goodwill~~ and ~~other intangible asset~~ impairment charges, ~~acquisition-related~~acquisition integration costs, ~~the non-service related portion of pension expense~~NSRPE(I) and other unusual gains or losses that are not part of our measurement of segment performance. These items of our operating income are largely managed centrally at the corporate level and are excluded from the measure of segment income reviewed by the CODM and used for resource allocation and internal management reporting and performance evaluation. Segment income and segment income margin, which are presented in the segment discussion that follows, are non-GAAP measures and do not purport to be alternatives to operating income as a measure of operating performance. We believe that these measures are useful to investors and other users of our financial information in evaluating ongoing operating profitability as well as in evaluating operating performance in relation to our competitors, as they exclude the activities that are not integral to our ongoing operations. For further information, see the Non-GAAP ~~Disclosures at the beginning~~Information section of this ~~Item 7.~~MD&A.

Our segment results, including a reconciliation to our consolidated results, were as follows:


For the years ended December 31,	For the years ended December 31,	2015			2014			2013			For the years ended December 31,	2016			2015			2014
In millions of dollars	In millions of dollars										In millions of dollars
Net Sales:	Net Sales:										Net Sales:
North America	North America	$	6,468.1		$	6,352.7		$	6,200.1		North America	$	6,533.0		$	6,468.1		$	6,352.7
International and Other	International and Other	918.5			1,069.1			946.0			International and Other	907.2			918.5			1,069.1
Total	Total	$	7,386.6		$	7,421.8		$	7,146.1		Total	$	7,440.2		$	7,386.6		$	7,421.8

Segment Income (Loss):	Segment Income (Loss):										Segment Income (Loss):
North America	North America	$	2,074.0		$	1,916.2		$	1,862.6		North America	$	2,041.0		$	2,074.0		$	1,916.2
International and Other	International and Other	(98.1		)	40.0			44.6			International and Other	(29.1		)	(98.1		)	40.0
Total segment income	Total segment income	1,975.9			1,956.2			1,907.2			Total segment income	2,011.9			1,975.9			1,956.2
Unallocated corporate expense (1)	Unallocated corporate expense (1)	497.4			503.2			535.1			Unallocated corporate expense (1)	497.4			497.4			503.2
Unallocated mark-to-market losses on commodity derivatives (2)											Unallocated mark-to-market losses on commodity derivatives (2)	163.2			—			—
Goodwill and other intangible asset impairment charges	Goodwill and other intangible asset impairment charges	280.8			15.9			—			Goodwill and other intangible asset impairment charges	4.2			280.8			15.9
Charges associated with business realignment activities		121.0			34.3			19.1
Costs associated with business realignment activities											Costs associated with business realignment activities	107.6			121.0			34.3
Non-service related pension expense (income)	Non-service related pension expense (income)	18.1			(1.8		)	10.9			Non-service related pension expense (income)	27.2			18.1			(1.8		)
Acquisition and integration costs	Acquisition and integration costs	20.9			12.4			4.1			Acquisition and integration costs	6.5			20.9			12.4
Operating profit	Operating profit	1,037.7			1,392.2			1,338.0			Operating profit	1,205.8			1,037.7			1,392.2
Interest expense, net	Interest expense, net	105.8			83.5			88.3			Interest expense, net	90.1			105.8			83.5
Other (income) expense, net	Other (income) expense, net	30.1			2.7			(1.6		)	Other (income) expense, net	16.2			30.1			2.7
Income before income taxes	Income before income taxes	$	901.8		$	1,306.0		$	1,251.3		Income before income taxes	$	1,099.5		$	901.8		$	1,306.0

(1)

Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense and (d) other gains or losses that are not integral to segment performance.


(2)	Reflects gains and losses on commodity derivative instruments that are excluded from segment income until the related inventory is sold. See Note 5 to the Consolidated Financial Statements.

North America

The North America segment is responsible for our chocolate and non-chocolate confectionery market position, as well as our grocery and growing snacks market positions, in the United States and Canada. This includes developing and growing our business in chocolate and non-chocolate confectionery, pantry, food service and other snacking product lines. North America accounted for ~~87.6%~~87.8%, ~~85.6%~~87.6% and ~~86.8%~~85.6% of our net sales in 2016, 2015 ~~2014~~ and ~~2013,~~2014, respectively. North America results for the years ended December 31, 2016, 2015 ~~2014~~ and ~~2013~~2014 were as follows:


										Percent / Point Change													Percent / Point Change
For the years ended December 31,	2015			2014			2013			2015 vs 2014		2014 vs 2013		2016			2015			2014			2016 vs 2015		2015 vs 2014
In millions of dollars
Net sales	$	6,468.1		$	6,352.7		$	6,200.1		1.8	%	2.5	%	$	6,533.0		$	6,468.1		$	6,352.7		1.0	%	1.8	%
Segment income	2,074.0			1,916.2			1,862.6			8.2	%	2.9	%	2,041.0			2,074.0			1,916.2			(1.6	)%	8.2	%
Segment margin	32.1		%	30.2		%	30.0		%					31.2		%	32.1		%	30.2		%

2016 compared with 2015

Net sales of our North America segment increased $64.9 million or 1.0% in 2016 compared to 2015, reflecting volume increases of 1.4% and the favorable net impact of acquisitions and divestitures of 0.7%, partially offset by unfavorable net price realization of 0.9% and an unfavorable impact from foreign currency exchange rates that reduced net sales by

approximately 0.2%. Our 2016 North America performance was similar to the slower growth experienced by other CPG companies. Additionally, the U.S. CMG category and manufacturers were impacted by a shorter Easter season and merchandising and display strategies at select customers. The segment's volume increase was primarily attributable to new product introductions, partially offset by lower everyday product sales. The unfavorable net price realization resulted from increased levels of trade promotional spending necessary to support higher levels of in-store merchandising and display activity. Our Canada operations were impacted by the stronger U.S. dollar, which drove the unfavorable foreign currency impact.

Our North America segment income decreased $33.0 million or 1.6% in 2016 compared to 2015, driven by lower gross margin as higher trade promotional spending and higher supply chain costs were only partially offset by the benefit from supply chain productivity and cost savings initiatives.

2015 compared with 2014

Net sales of our North America segment increased $115.4 million or 1.8% in 2015 compared to 2014, reflecting net price realization of 4.8% and the favorable net impact of acquisitions and divestitures of 0.3%, substantially offset by volume declines of 2.5% and an unfavorable impact from foreign currency exchange rates that reduced net sales by approximately 0.8%. The volume decline was due to elasticity related to the 2014 pricing action as well as lower everyday product sales, which ~~have been~~were impacted by changing consumer shopping habits, such as channel shifting and e-commerce, an increase in competitive activity and a proliferation of broader snacking options in the marketplace. Our Canada operations were impacted by the stronger U.S. dollar, which drove the unfavorable foreign currency impact.

Our North America segment income increased $157.8 million or 8.2% in 2015 compared to 2014, driven by gross margin expansion, primarily due to favorable price realization and supply chain productivity, which offset volume declines and input cost increases.

~~2014 compared with 2013~~

Net sales of our North America segment increased $152.6 million or 2.5% in 2014 compared to 2013, reflecting volume growth of 2.4%, net price realization of 0.5% and an unfavorable impact from foreign currency exchange rates that reduced net sales by approximately 0.4%. 2014 new product introductions, including ~~York~~ ~~and~~ ~~Kit Kat~~ ~~Minis, Nutrageous relaunch,~~ ~~Brookside~~ ~~Crunchy Clusters,~~ ~~Lancaster~~ ~~Soft Cremes and~~ ~~Hershey's~~ Spreads, drove the volume growth, as sales volumes for core, everyday products were unfavorably impacted by increased levels of distribution and in-store activity from confection and other snacking categories. Higher levels of trade promotion reduced the benefit from the 2014 mid-year pricing action. Our Canada operations were impacted by the stronger U.S. dollar, which drove the unfavorable foreign currency impact.

Our North America segment income increased $53.6 million or 2.9% in 2014 compared to 2013, principally due to higher sales volumes and supply chain productivity improvements, which offset input cost increases and unfavorable sales mix. Our core product mix in 2014 was more heavily weighted toward seasonal offerings which typically generate lower margins than our core, everyday instant consumable products. Additionally, advertising, consumer promotions and marketing expenses decreased 2.8% in 2014 due to the timing of new product launches, a reduction in media production costs, and a decision to shift resources to other more productive areas.

International and Other

The International and Other segment includes all other countries where we currently manufacture, import, market, sell or distribute chocolate and non-chocolate confectionery and other products. Currently, this includes our operations in China and other Asia markets, Latin America, Europe, Africa and the Middle East, along with exports to these regions. While a less significant component, this segment also includes our global retail operations, including Hershey’s Chocolate World stores in Hershey, Pennsylvania, New York City, ~~Chicago,~~ Las Vegas, Shanghai, Niagara Falls (Ontario), Dubai and Singapore, as well as operations associated with licensing the use of certain trademarks and products to third parties around the world. International and Other accounted for ~~12.4%~~12.2%, ~~14.4%~~12.4% and ~~13.2%~~14.4% of our net

sales in 2016, 2015 ~~2014~~ and ~~2013,~~2014, respectively. International and Other results for the years ended December 31, 2016, 2015 ~~2014~~ and ~~2013~~2014 were as follows:


										Percent / Point Change													Percent / Point Change
For the years ended December 31,	2015			2014			2013			2015 vs 2014		2014 vs 2013		2016			2015			2014			2016 vs 2015		2015 vs 2014
In millions of dollars
Net sales	$	918.5		$	1,069.1		$	946.0		(14.1	)%	13.0	%	$	907.2		$	918.5		$	1,069.1		(1.2	)%	(14.1	)%
Segment (loss) income	(98.1		)	40.0			44.6			NM		(10.3	)%	(29.1		)	(98.1		)	40.0			NM		NM
Segment margin	(10.7		)%	3.7		%	4.7		%					(3.2		)%	(10.7		)%	3.7		%

2016 compared with 2015

Net sales of our International and Other segment decreased $11.3 million or 1.2% in 2016 compared to 2015, reflecting an unfavorable impact from foreign currency exchange rates of 4.4%, volume declines of 3.7% and the unfavorable impact of net acquisitions and divestitures of 0.1%, substantially offset by favorable net price realization of 7.0%. Excluding the unfavorable impact of foreign currency exchange rates, the net sales of our International and Other segment increased by approximately 3.2%.

The favorable net price realization was driven by lower direct trade expense as well as lower returns, discounts and allowances in China, which declined significantly compared to the prior year. The volume decrease primarily related to lower sales in India due to the discontinuance of the edible oil business as well as lower sales in our global retail and licensing business, partially offset by net sales increases in Latin America and select export markets. Constant

currency net sales in Mexico and Brazil increased on a combined basis by approximately 13%, driven by solid chocolate marketplace performance.

2015 compared with 2014

Net sales of our International and Other segment decreased $150.6 million or 14.1% in 2015 compared to 2014, reflecting volume declines of 9.0%, ~~the~~an unfavorable impact from foreign currency exchange rates of 6.2%, and unfavorable net price realization of 4.0%, partially offset by incremental revenue from the acquisition of SGM representing an increase of 5.1% to 2015 net sales. Excluding the unfavorable impact of foreign currency exchange rates, the net sales of our International and Other segment declined approximately 7.9%.

The net sales decline was driven by volume declines in our China chocolate business. In 2015, chocolate category growth in China was flat relative to the prior year; however our 2015 chocolate retail takeaway in China declined by 11%, resulting in a market share decline in China of 1.1%. We believe that the category continues to be impacted by macroeconomic challenges and trends that are affecting consumer shopping behavior as accelerated e-commerce and on-line purchases of broader consumer staples are leading to lower trips to Tier 1 hypermarkets, where the majority of our chocolate sales are derived, adversely impacting the impulse-oriented chocolate category.

Performance in our focus markets of Mexico and Brazil improved and, on a constant currency basis, net sales in 2015 in these countries increased by approximately 6% and 3%, respectively, versus 2014. Constant currency net sales in India declined in 2015, primarily due to the planned discontinuance of edible oil products.

Net sales of our International and Other segment increased $123.1 million or 13.0% in 2014 compared to 2013, reflecting volume growth of 17.0%, unfavorable net price realization of 1.7%, and an unfavorable impact from foreign currency exchange rates that reduced net sales by approximately 2.3%. The sales volume increase was primarily due to increased demand for new and existing products in China as well as $54 million of incremental sales from the newly acquired SGM business. Excluding SGM, our 2014 chocolate net sales grew 35% in China and we increased our market share to almost 10% of the chocolate category. Our 2014 sales in Mexico were unfavorably impacted by the challenging economic environment, while our Brazil performance improved sequentially as the year progressed, finishing 2014 up approximately 7% from the prior year, excluding the impact of unfavorable currency. The unfavorable price realization reflects increased trade promotions and allowances, particularly in China and Mexico where we have made additional investments to drive sales volume growth.

Our International and Other segment income decreased $4.6 million or 10.3% in 2014 compared to 2013, as the benefit from higher sales volume was more than offset by higher trade promotions and a 5.9% higher investment in advertising to support core brands and the introduction of new products in our international markets. The most significant portion of this investment was focused on our China and Mexico markets. We also increased headcount, particularly in China in support of sales growth.

Unallocated Corporate ~~Items~~Expense

Unallocated corporate ~~administration~~expense includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense and (d) other gains or losses that are not integral to segment performance.

In 2014, unallocated corporate items totaled $503.2 million compared to $535.1 million in 2013, with the reduction driven by lower incentive compensation expense as well as discretionary cost containment measures intended to mitigate the higher commodity and other input costs in 2014.

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Significant factors affecting liquidity include cash flows generated from operating activities, capital expenditures, acquisitions, dividends, ~~repurchase~~repurchases of outstanding shares, the adequacy of available commercial paper and bank lines of credit, and the ability to attract long-term capital with satisfactory terms. We generate substantial cash from operations and remain in a strong financial position, with sufficient liquidity available for capital reinvestment, payment of dividends and strategic acquisitions.

The following table is derived from our Consolidated Statement of Cash Flows:

Our principal source of liquidity is operating cash flows. Our net income and, consequently, our cash provided by operations are impacted by sales volume, seasonal sales patterns, timing of new product introductions, profit margins and price changes. Sales are typically higher during the third and fourth quarters of the year due to seasonal and holiday-related sales patterns. Generally, working capital needs peak during the summer months. We meet these needs primarily with cash on hand, bank borrowings or the issuance of commercial paper.

Cash provided by operating activities in 2016 decreased $231.0 million relative to 2015. This decrease was driven by the following factors:

Cash provided by operating activities in 2015 increased ~~$370.0~~$370.1 million relative to 2014. This increase was driven by the following factors:

Cash provided by operating activities in 2014 decreased $347.0 million as compared to 2013, primarily due to a $140 million incremental investment in working capital to support the high sales volumes, partially offset by increased net earnings in 2014. Derivative activities had a $78 million unfavorable impact on 2014 operating cash flow and $101 million favorable impact on 2013 operating cash flow.

Pension and Post-Retirement Activity. We recorded net periodic benefit costs of $72.8 million, $66.8 million and $37.3 million in 2016, 2015 and ~~$55.0 million 2015,~~ 2014, ~~and 2013,~~ respectively, relating to our benefit plans (including our defined benefit and

other post retirement plans). The main drivers of fluctuations in expense from year to year are assumptions in formulating our long-term estimates, including discount rates used to value plan obligations, expected returns on plan assets, the service and interest costs and the amortization of actuarial gains and losses. ~~The 2015 costs also include net settlement and curtailment charges of $22.4 million, that were triggered by the 2015 Productivity Initiative.~~

The funded status of our qualified defined benefit pension plans is dependent upon many factors, including returns on invested assets, the level of market interest rates and the level of funding. We contribute cash to our plans at our discretion, subject to applicable regulations and minimum contribution requirements. Cash contributions to our pension and post retirement plans totaled $41.7 million, $53.3 million and $53.1 million in 2016, 2015 and ~~$57.2 million in 2015,~~ 2014, ~~and 2013,~~

Our principal uses of cash for investment purposes relate to purchases of property, plant and equipment and capitalized software, purchases of short-term investments and acquisitions of businesses, partially offset by proceeds from sales of property, plant and equipment and short-term investments. We used cash of ~~$477.2~~$595.5 million for investing activities in ~~2015~~2016 compared to ~~$862.6~~$477.2 million in ~~2014,~~2015, with the ~~decrease~~increase driven by ~~less~~additional business acquisition ~~activity and proceeds from the sale of short term investments.~~activity. We used cash of ~~$351.6~~$862.6 million for investing activities in ~~2013,~~2014, which was primarily driven by ~~capital expenditures relating to the Malaysia facility~~additional business acquisition activity and ~~the Next Century program.~~purchases of short-term investments.

Primary investing activities include the following:

Capital spending. Capital expenditures, including capitalized software, primarily to support capacity expansion, innovation and cost savings, were ~~$329.7~~$269.5 million in 2016, $356.8 million in 2015 ~~$345.9~~and $370.8 million in ~~2014~~2014. The reduction in 2016 was largely due to completion of the Malaysia plant construction early in the year. Our 2015 and ~~$323.6 million in 2013. Our 2015~~2014 expenditures included approximately $80 million ~~relating to the construction of a manufacturing facility in Malaysia, compared to~~and $115 million, ~~in 2014. Capital expenditures in 2013 included $40 million~~respectively, relating to the Malaysia ~~facility and $11.8 million relating to the Next Century program.~~plant construction. Capitalized software additions were primarily related to ongoing enhancements of our information systems. We expect ~~2016~~2017 capital expenditures, including capitalized software, to approximate ~~$285~~$270 million to ~~$295~~$290 million.

Acquisitions and divestitures. In 2016, we spent $285.4 million to acquire Ripple Brand Collective, LLC. In 2015, we spent $218.7 million to acquire ~~Krave.~~Krave, partially offset by net cash received of $32 million from the sale of Mauna Loa. In 2014, we spent $396.3 million to acquire three businesses, including $379.7 million for SGM and $26.6 million for Allan Candy, partially offset by net cash received of $10.0 million relating to the ~~LSFC~~ acquisition of an additional 5.9% interest in Lotte Shanghai Foods Co., Ltd., a joint venture established in 2007 in China, whereby cash acquired in the transaction exceeded the $5.6 million paid for the controlling interest. See Note 2 to the Consolidated Financial Statements for additional information regarding our recent acquisitions.

Investments in partnerships qualifying for tax credits. We make investments in partnership entities that in turn make equity investments in projects eligible to receive federal historic and energy tax credits. We invested approximately $13.5 million more in projects qualifying for tax credits in 2016 compared to 2015.

Short-term investments. We had no short-term investment activity in 2016. In 2015, we received proceeds of $95 million from the sale of short-term investments, which had been purchased in 2014 for approximately $97 million.

Our cash flow from financing activities generally relates to the use of cash for purchases of our Common Stock and payment of dividends, offset by net borrowing activity and proceeds from the exercise of stock options. We used cash of ~~$755.2~~$434.4 million for financing activities in ~~2015~~2016 compared to ~~$719.3~~$755.2 million in ~~2014,~~2015, with the ~~increase~~decrease due mainly to higher ~~dividend payments and repayments of long term debt and short term borrowings, offset in part by~~ proceeds from the issuance of ~~long term borrowings. Our~~long-term borrowings, partially offset by the purchase of the remaining 20% of the outstanding shares of SGM and higher dividend payments in 2016. We used cash ~~used in 2014 exceeded our cash used~~of $719.3 million for financing activities in ~~2013 by $272.7 million,~~2014, primarily ~~due~~ to ~~higher~~fund dividend payments and share repurchases.

The majority of our financing activity was attributed to the following:

Short-term borrowings, net. In addition to utilizing cash on hand, we use short-term borrowings (commercial paper and bank borrowings) to fund seasonal working capital requirements and ongoing business needs. In

Long-term debt borrowings and repayments. In 2016, we used $500 million to repay long-term debt. Additionally, in 2016, we issued $500 million of 2.30% Notes due in 2026 and $300 million of 3.375% Notes due in 2046. In 2015, we used $355 million to repay long-term debt, including $100.2 million to repurchase $71.6 million of our long-term debt as part of a cash tender offer. Additionally, in 2015, we issued $300 million of 1.60% Notes due in 2018 and $300 million of 3.20% Notes due in 2025. We had no repayment or issuance activity in 2014. ~~In 2013, we repaid $250 million of 5.0% Notes due in 2013 and issued $250 million of 2.625% Notes due in 2023.~~

Share repurchases. We repurchase shares of Common Stock to offset the dilutive impact of treasury shares issued under our equity compensation plans. The value of these share repurchases in a given period varies based on the volume of stock options exercised and our market price. In addition, we periodically repurchase shares of Common Stock pursuant to Board-authorized programs intended to drive additional stockholder value. We used cash for total share repurchases of $592.6 million in 2016, compared to $582.5 million in ~~2015, compared to $576.5 million in~~

Dividend payments. Total dividend payments to holders of our Common Stock and Class B Common Stock were $499.5 million in 2016, $476.1 million in 2015 and $440.4 million in ~~2014 and $393.8 million in 2013.~~2014. Dividends per share of Common Stock increased ~~9.6%~~7.4% to $2.402 per share in 2016 compared to $2.236 per share in 2015, ~~compared to $2.04 per share in 2014,~~ while dividends per share of Class B Common Stock increased ~~10.3%~~7.5% in ~~2015.~~2016.

Proceeds from the exercise of stock options, including tax benefits. We received ~~$97.6~~$124.8 million from employee exercises of stock options, including excess tax benefits, in ~~2015,~~2016, as compared to $97.6 million in 2015 and $175.8 million in ~~2014 and $195.7 million in 2013.~~2014. Variances are driven primarily by the number of shares exercised and the share price at the date of grant.

Other. In February 2016, we used $35.8 million to purchase the remaining 20% of the outstanding shares of SGM. In September 2015, we acquired the remaining 49% interest in Hershey do Brasil Ltda. under a cooperative agreement with ~~Pandurata Netherlands B.V. (“Bauducco”)~~Bauducco for approximately $38.3 million. Additionally, in December 2015, we paid $10.0 million in contingent consideration to the shareholders of Krave.

Liquidity and Capital Resources

At December 31, 2016, our cash and cash equivalents totaled $297.0 million. At December 31, 2015, our cash and cash equivalents totaled $346.5 million. ~~At December 31, 2014, our~~Our cash and cash equivalents totaled $374.9 million, and we held short-term investments in the form of term deposits with original maturities of one-year totaling $97.1 million. In total, our cash and short-term investment holdings at the end of ~~2015~~2016 declined ~~$125.5~~$49.5 million compared to the ~~2014~~2015 year-end balance as a result of the net uses of cash outlined in the previous discussion.

Approximately ~~half~~two-thirds of the balance of our cash and cash equivalents at December 31, ~~2015~~2016 was held by subsidiaries domiciled outside of the United States. If these amounts held outside of the United States were to be repatriated, under current law they would be subject to U.S. federal income taxes, less applicable foreign tax credits. However, our intent is to permanently reinvest these funds outside of the United States. The cash that our foreign subsidiaries hold for indefinite reinvestment is expected to be used to finance foreign operations and investments. We believe we have sufficient liquidity to satisfy our cash needs, including our cash needs in the United States.

We maintain debt levels we consider prudent based on our cash flow, interest coverage ratio and percentage of debt to capital. We use debt financing to lower our overall cost of capital which increases our return on stockholders’ equity. Our total debt was $3.0 billion at December 31, 2016 and $2.4 billion at December 31, ~~2015 and $2.2 billion at December 31, 2014.~~2015. Our total debt increased in ~~2015~~2016 mainly due to the additional debt issued mid-year to repay commercial paper that had been used to fund the ~~Krave~~Ripple Brand Collective, LLC acquisition in ~~the first quarter~~April 2016.

As a source of ~~2015.~~

~~In October 2011,~~short-term financing, we ~~entered into~~maintain a ~~five-year agreement establishing an~~$1.0 billion unsecured revolving credit facility, ~~to borrow up to $1.1 billion,~~ with an option to increase borrowings by an additional $400 million with the consent of the lenders. In November 2013, this agreement was amended to reduce the amount of borrowings available under the unsecured revolving credit facility to $1.0 billion, maintain the option to increase borrowings by an additional $400 million with the consent of the lenders, and extend the termination date to November 2018. As of December 31, ~~2015,~~2016, the termination date of this agreement ~~has been extended to~~is November 2020. We may use these funds for general corporate purposes, including commercial paper backstop and business acquisitions. As of December 31, ~~2015, $1.0 billion was~~2016, we had $526 million of available ~~to borrow~~capacity under the ~~agreement and no borrowings were outstanding.~~agreement. The unsecured revolving credit agreement contains certain financial and other covenants, customary representations, warranties and events of default. We were in compliance with all covenants as of December 31, ~~2015. We may use these funds for general corporate purposes, including commercial paper backstop and business acquisitions.~~2016.

In addition to the revolving credit facility, we maintain lines of credit in various currencies with domestic and international commercial banks. As of December 31, ~~2015,~~2016, we had available capacity of ~~$203.4~~$345.4 million under these lines of credit.

Furthermore, we have a current shelf registration statement filed with the ~~United States Securities and Exchange Commission~~SEC that allows for the issuance of an indeterminate amount of debt securities. Proceeds from the debt issuances and any other offerings under the current registration statement may be used for general corporate requirements, including reducing existing borrowings, financing capital additions and funding contributions to our pension plans, future business acquisitions and working capital requirements.

Our ability to obtain debt financing at comparable risk-based interest rates is partly a function of our existing cash-flow-to-debt and debt-to-capitalization levels as well as our current credit standing.

We believe that our existing sources of liquidity are adequate to meet anticipated funding needs at comparable risk-based interest rates for the foreseeable future. Acquisition spending and/or share repurchases could potentially increase our debt. Operating cash flow and access to capital markets are expected to satisfy our various cash flow requirements, including acquisitions and capital expenditures.

We have two classes of stock outstanding – Common Stock and Class B ~~Common Stock (“Class B Stock”).~~Stock. Holders of the Common Stock and the Class B Stock generally vote together without regard to class on matters submitted to stockholders, including the election of directors. Holders of the Common Stock have 1 vote per share. Holders of the Class B Stock have 10 votes per share. Holders of the Common Stock, voting separately as a class, are entitled to elect one-sixth of our Board. With respect to dividend rights, holders of the Common Stock are entitled to cash dividends 10% higher than those declared and paid on the Class B Stock.

Hershey Trust Company, as trustee for the ~~benefit of~~trust established by Milton S. and Catherine S. Hershey that has as its sole beneficiary Milton Hershey School (such trust, the "Milton Hershey School Trust"), maintains voting control over The Hershey Company. In addition, a representative of Hershey Trust Company currently ~~has three representatives who are members~~serves as a member of the Company's ~~Board, one of whom is the Lead Independent Director. These representatives, from time to time in~~Board. In performing ~~their~~his responsibilities on the Company’s Board, this representative may from time to time exercise influence with regard to the ongoing business decisions of our Board or management. Hershey Trust Company, as trustee for the ~~benefit of~~ Milton Hershey School Trust, in its role as controlling stockholder of the Company, has indicated it intends to retain its controlling interest in The Hershey ~~Company and that the Company~~Company. The Company's Board, and not the Hershey Trust Company board, is solely responsible and accountable for the Company’s management and performance.

Pennsylvania law requires that the Office of Attorney General be provided advance notice of any transaction that would result in Hershey Trust Company, as trustee for the ~~benefit of~~ Milton Hershey School Trust, no longer having voting control of the Company. The law provides specific statutory authority for the Attorney General to intercede and petition the ~~Court~~court having jurisdiction over ~~the~~ Hershey Trust Company, as trustee for the ~~benefit of~~ Milton Hershey School Trust, to stop such a transaction if the Attorney General can prove that the transaction is unnecessary for the future economic viability of the Company and is inconsistent with investment and management considerations under fiduciary

obligations. This legislation makes it more difficult for a third party to acquire a majority of our outstanding voting stock and thereby may delay or prevent a change in control of the Company.

We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, ~~which~~that we believe could have a material impact on our financial condition or liquidity.

Contractual Obligations

The following table summarizes our contractual obligations at December 31, ~~2015:~~2016:

(1) Includes the net interest payments on fixed and variable rate debt and associated interest rate swaps. Interest associated with variable rate debt was forecasted using the LIBOR forward curve as of December 31, ~~2015.~~2016.

(2) Includes the minimum rental commitments under non-cancelable operating leases primarily for offices, retail stores, warehouses and distribution ~~facilities, and certain equipment. We do not have material capital lease obligations.~~facilities.

(3) Represents future pension payments to comply with local funding requirements. Our policy is to fund domestic pension liabilities in accordance with the minimum and maximum limits imposed by the Employee Retirement Income Security Act of 1974 (“ERISA”), federal income tax laws and the funding requirements of the Pension Protection Act of 2006. We fund non-domestic pension liabilities in accordance with laws and regulations applicable to those plans. For more information, see Note 9 to the Consolidated Financial Statements.

(4) Purchase obligations consist primarily of fixed commitments for the purchase of raw materials to be utilized in the normal course of business. Amounts presented included fixed price forward contracts and unpriced contracts that were valued using market prices as of December 31, ~~2015.~~2016. The amounts presented in the table do not include items already recorded in accounts payable or accrued liabilities at year-end ~~2015,~~2016, nor does the table reflect cash flows we are likely to incur based on our plans, but are not obligated to incur. Such amounts are part of normal operations and are reflected in historical operating cash flow trends. We do not believe such purchase obligations will adversely affect our liquidity position.

In entering into contractual obligations, we have assumed the risk that might arise from the possible inability of counterparties to meet the terms of their contracts. We mitigate this risk by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. Our risk is limited to replacing the contracts at prevailing market rates. We do not expect any significant losses resulting from counterparty defaults.

Asset Retirement Obligations

We have a number of facilities that contain varying amounts of asbestos in certain locations within the facilities. Our asbestos management program is compliant with current applicable regulations, which require that we handle or dispose of asbestos in a specified manner if such facilities undergo major renovations or are demolished. Costs associated with the removal of asbestos related to the closure of a manufacturing facility under the Next Century program were recorded primarily in 2012 and included in business realignment and impairment charges. The costs associated with the removal of asbestos from the facility were not material. With regard to other facilities, weWe do not have sufficient information to estimate the fair value of any asset retirement obligations related to these facilities. We cannot specify the settlement date or range of potential settlement dates and, therefore, sufficient information is not available to apply an expected present value technique. We expect to maintain the facilities with repairs and maintenance activities that would not involve or require the removal of significant quantities of asbestos.

Income Tax Obligations

Liabilities for unrecognized income tax benefits are excluded from the table above as we are unable to reasonably predict the ultimate amount or timing of a settlement of these potential liabilities. See Note 78 to ~~our~~the Consolidated Financial Statements for more information.

Recent Accounting Pronouncements

37Information on recently issued accounting standards is included in Note 1 to the Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements requires management to use judgment and make estimates and assumptions. We believe that our most critical accounting policies and estimates relate to the following:



l	Accrued Liabilities for Trade Promotion Activities
l	Pension and Other Post-Retirement Benefits Plans
l	Goodwill and Other Intangible Assets
l	~~Commodities Futures and Options Contracts~~
l	Income Taxes

Management has discussed the development, selection and disclosure of critical accounting policies and estimates with the Audit Committee of our Board. While we base estimates and assumptions on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Other significant accounting policies are outlined in Note 1 to ~~our~~the Consolidated Financial Statements.

Accrued Liabilities for Trade Promotion Activities

We promote our products with advertising, trade promotions and consumer incentives. These programs include, but are not limited to, discounts, coupons, rebates, in-store display incentives and volume-based incentives. We expense advertising costs and other direct marketing expenses as incurred. We recognize the costs of trade promotion and consumer incentive activities as a reduction to net sales along with a corresponding accrued liability based on estimates at the time of revenue recognition. These estimates are based on our analysis of the programs offered, historical trends, expectations regarding customer and consumer participation, sales and payment trends and our experience with payment patterns associated with similar programs offered in the past.

Our trade promotional costs totaled $1,157.4 million, $1,122.3 million and $1,125.5 million in 2016, 2015 and ~~$995.7 million in 2015,~~ 2014, ~~and 2013,~~ respectively. The estimated costs of these programs are reasonably likely to change in the future due to changes in trends with regard to customer and consumer participation, particularly for new programs and for programs related to the introduction of new products. Differences between estimated expense and actual program performance are recognized as a change in estimate in a subsequent period and are normally not significant. Over the three-year period ended December 31, ~~2015,~~2016, actual promotional costs have not deviated from the estimated amount for a given year by more than ~~approximately~~ 3%.

Pension and Other Post-Retirement Benefits Plans

We sponsor various defined benefit pension plans. The primary plans are The Hershey Company Retirement Plan and The Hershey Company Retirement Plan for Hourly Employees, which are cash balance plans that provide pension benefits for most U.S. employees hired prior to January 1, 2007. We also sponsor two primary other post-employment benefit (“OPEB”) plans, consisting of a health care plan and life insurance plan for retirees. The health care plan is contributory, with participants’ contributions adjusted annually, and the life insurance plan is non-contributory.

For accounting purposes, the defined benefit pension and OPEB plans require assumptions to estimate the projected and accumulated benefit obligations, including the following variables: discount rate; expected salary increases; certain employee-related factors, such as turnover, retirement age and mortality; expected return on assets; and health care cost trend rates. These and other assumptions affect the annual expense and obligations recognized for the underlying plans. Our assumptions reflect our historical experiences and management's best judgment regarding future expectations. Our related accounting policies, accounting balances and plan assumptions are discussed in Note 9 to the Consolidated Financial Statements.

~~The net periodic~~Pension Plans

Changes in certain assumptions could significantly affect pension expense and benefit ~~costs relating to our pension~~obligations, particularly the estimated long-term rate of return on plan assets and ~~OPEB plans were as follows:~~

For the years ended December 31, 2015 2014 2013
In millions of dollars
Pension plans
    Service cost and amortization of prior service cost (1) $ 27.1
$ 26.3
$ 31.8
    Interest cost, expected return on plan assets and amortization of net loss 5.9
(1.9 ) 11.2
    Curtailment and settlement loss (credit) 22.4
—
(0.4 )
    Net periodic pension benefit cost $ 55.4
$ 24.4
$ 42.6
OPEB plans
    Net periodic other post-retirement benefit cost $ 11.5
$ 12.9
$ 12.4

~~(1) We believe that~~ the service cost and amortization of prior service cost components of net periodic pension benefit cost reflect the ongoing operating cost of our pension plans, particularly since our most significant plans were closed to most new entrants after 2007.

~~Actuarial gains and losses may arise when actual experience differs from assumed experience or when we revise the actuarial assumptions~~discount rates used to ~~value~~calculate such obligations:

Long-term rate of return on plan assets. The expected long-term rate of return is evaluated on an annual basis. We consider a number of factors when setting assumptions with respect to the ~~plans’ obligations.~~long-term rate of return, including current and expected asset allocation and historical and expected returns on the plan asset categories. Actual asset allocations are regularly reviewed and periodically rebalanced to the targeted allocations when considered appropriate. Investment gains or losses represent the difference between the expected return estimated using the long-term rate of return and the actual return realized. For 2017, we reduced the expected return on plan assets assumption to 5.8% from the 6.1% assumption used during 2016, reflecting lower expected long-term returns due to slowing growth in developed and emerging markets. The historical average return (compounded annually) over the 20 years prior to December 31, 2016 was approximately 6.5%.

As of December 31, 2016, our primary plans had cumulative unrecognized investment and actuarial losses of approximately $418 million. We ~~only~~ amortize the unrecognized net actuarial gains and losses in excess of the corridor amount, which is the greater of 10% of a respective plan’s projected benefit obligation or the fair market value of ~~assets,~~plan assets. These unrecognized net losses may increase future pension expense if greater. The estimated recognized net actuarial loss component of net periodic pension benefit expense for 2016 is $35.2 million. The 2015 recognized net actuarial loss component of net periodic pension benefit expense was $30.5 million.

~~The weighted-average assumptions for our pension and OPEB plans were as follows:~~

2015 2014 2013
Pension plans
   Expense discount rate 3.7 % 4.5 % 3.7 %
   Benefit obligation discount rate 4.0 % 3.7 % 4.5 %
   Expected return on plan assets 6.3 % 7.0 % 7.8 %
   Expected rate of salary increases 4.1 % 4.0 % 4.0 %
OPEB plans
   Expense discount rate 3.7 % 4.5 % 3.7 %
   Benefit obligation discount rate 4.0 % 3.7 % 4.5 %

~~To determine~~not offset by (i) actual investment returns that exceed the expected return on our pension plan assets, we consider the current asset allocations, as well as historical and expected returns on the categories of plan assets. The historical average return over the 28 years prior to December 31, 2015 was approximately 8.3%. The actual return on assets was (2.3%), 8.4% and 16.7% for the years ended December 31, 2015, 2014 and 2013, respectively. Our investment policies specify target allocation percentages for each asset class. The current estimated asset return is based upon the following targeted asset allocation for our domestic pension plans as of December 31, 2015:



~~Asset Class~~		~~Target Asset Allocation~~
~~Equity securities~~		~~50%~~
~~Debt securities~~		~~49%~~
~~Cash~~		1%

~~Sensitivity of Assumptions~~

Since pension and OPEB liabilities are measured on a discounted basis, the discount rate impacts our plan obligations and expenses. The discount rate used for our pension and OPEB plans is based on a yield curve constructed from a portfolio of high-quality bonds for which the timing and amount of cash flows approximate the estimated payouts of the plans. A 100 basis point decline in the weighted average pension discount rate would increase net periodic pension benefit expense by approximately $4.7 million. A decrease in the OPEB discount rate by 100 basis points would decrease annual OPEB expense by approximately $0.5 million. For the OPEB plans, a decrease in the discount rate assumption would result in a decrease in benefit cost because of the lower interest cost, which would more than offset the impact of the lower discount rate assumption on the post-retirement benefit obligation.

~~The expected return on plan assets assumption impacts our defined benefit expense, since certain of our defined benefit pension plans are partially funded. For 2016, we reduced the expected~~long-term rate of ~~return assumption~~investment returns, (ii) other factors, including reduced pension liabilities arising from higher discount rates used to ~~6.1% from the 6.3% assumption used in 2015, to reflect lower expected long-term returns due to slowing growth in developed and emerging markets. The process for setting the expected rates of return~~calculate pension obligations or (iii) other actuarial gains when actual plan experience is ~~described in Note 9~~favorable as compared to the ~~Consolidated Financial Statements.~~assumed experience. A 100 basis point decrease or increase in the long-term rate of return ~~for~~on pension assets would correspondingly increase or decrease annual net periodic pension benefit expense by approximately ~~$11.0~~$10 million.

~~For year-end 2015, we adopted~~

Discount rate. The discount rate used to determine the ~~Society~~present value of ~~Actuaries updated RP-2014 mortality tables with MP-2015 generational projection scales; however, adoption~~our future pension obligation at December 31, 2016 was based on a yield curve constructed from a portfolio of ~~these tables did not have a significant impact on our~~high-quality corporate debt securities for which the timing and amount of cash flows approximate the estimated benefit payments of the plans. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. A 100 basis point decline in the weighted-average pension ~~obligations or~~discount rate would increase annual net ~~period~~periodic pension benefit ~~cost since our primary plans are cash balance plans and most participants take lump-sum settlements upon retirement.~~

~~Funding~~

~~We fund domestic pension liabilities in accordance with the limits imposed~~expense by ~~ERISA, federal income tax laws~~approximately $7 million and the ~~funding requirements~~December 31, 2016 pension liability would increase by approximately $97 million.

Pension expense for defined benefit pension plans is estimated to approximate $35 million in 2017. Pension expense beyond 2017 will depend on future investment performance, our contributions to the pension trusts, changes in discount rates and various other factors related to the covered employees in the plans.

Other Post-Employment Benefit Plans

Changes in significant assumptions could affect consolidated expense and benefit obligations, particularly the discount rates used to calculate such obligations and the healthcare cost trend rate:

Discount rate. The determination of the ~~Pension Protection Act~~discount rate used to calculate the benefit obligations of ~~2006. We fund non-domestic~~the OPEB plans is discussed in the pension ~~liabilities~~plans section above. If the discount rate assumption for these plans was reduced by 100 basis points, the impact to the OPEB plans consolidated expense would not be material and the increase in ~~accordance with laws~~the December 31, 2016 benefit liability would be approximately $27 million.

Healthcare cost trend rate. The healthcare cost trend rate is based on a combination of inputs including our recent claims history and ~~regulations applicable to those plans. The annual minimum cash funding requirements for our plans are not material. However, we made contributions of $32.9 million~~insights from external advisers regarding recent developments in ~~2015 and $29.4 million in 2014, including $22.9 million in 2015 and $22.0 million in 2014 to maintain~~ the ~~funded status of our domestic plans~~healthcare marketplace, as well as ~~contributions~~projections of future trends in the marketplace. See Note 9 to ~~pay benefits under our non-qualified pension plans~~the Consolidated Financial Statements for disclosure of the effects of a one percentage point change in ~~both years. These contributions were fully tax deductible. We expect to make additional contributions of approximately $18.5 million to our domestic plans in 2016.~~the healthcare cost trend rate.

Goodwill and Other Intangible Assets

We ~~use~~test goodwill for impairment by either performing a qualitative assessment or using a two-step quantitative process. If we choose to perform a qualitative assessment, we evaluate economic, industry and company-specific factors as an initial step in assessing the fair value of the related reporting unit. If we determine that it is more likely than not that the fair value of the reporting unit is less than its carrying value, the two-step process ~~to quantitatively evaluate goodwill for impairment. In~~is then performed. Otherwise, no further testing is required. For those reporting units tested using the two-step process, we first ~~step, we~~ compare the fair value of each reporting unit with the carrying amount of the reporting unit, including goodwill. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, we complete a second step to determine the amount of the goodwill impairment that we should record. In the second step, we determine an implied fair value of the reporting unit’s goodwill by allocating the reporting unit’s fair value to all of its assets and liabilities other than goodwill (including any unrecognized intangible assets). We compare the resulting implied fair value of the goodwill to the carrying amount and record an impairment charge for the difference. We test individual indefinite-lived intangible assets by comparing the estimated fair value with the book values of each asset.

We determine the fair value of our reporting units and indefinite-lived intangible assets using an income approach. Under the income approach, we calculate the fair value of our reporting units and indefinite-lived intangible assets based on the present value of estimated future cash flows. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate the future cash flows used to measure fair value. Our estimates of future cash flows consider past performance, current and anticipated market conditions and internal projections and operating plans which incorporate estimates for sales growth and profitability, and cash flows associated with taxes and capital spending. Additional assumptions include forecasted growth rates, estimated discount rates, which may be risk-adjusted for the operating market of the reporting unit, and estimated royalty rates that would be charged for comparable branded licenses. We believe such assumptions also reflect current and anticipated market conditions and are consistent with those that would be used by other marketplace participants for

similar valuation purposes. Such assumptions are subject to change due to changing economic and competitive conditions.

We also have intangible assets, consisting primarily of certain trademarks, customer-related intangible assets and patents obtained through business acquisitions, that are expected to have determinable useful lives. The costs of finite-lived intangible assets are amortized to expense over their estimated lives. Our estimates of the useful lives of finite-lived intangible assets consider judgments regarding the future effects of obsolescence, demand, competition and other economic factors. We conduct impairment tests when events or changes in circumstances indicate that the carrying value of these finite-lived assets may not be recoverable. Undiscounted cash flow analyses are used to determine if an impairment exists. If an impairment is determined to exist, the loss is calculated based on the estimated fair value of the assets.

At December 31, 2016, the net book value of our goodwill totaled $812.3 million and related to five reporting units. As ~~discussed~~it relates to our annual testing performed at the beginning of the fourth quarter, no additional goodwill impairment was indicated, and the percentage of excess fair value over carrying value was at least 100% for each of our tested reporting units.

In 2015, we recorded a $280.8 million impairment charge resulting from our interim reassessment of the valuation of the SGM business, coupled with the write-down of goodwill attributed to the China chocolate business in ~~Note 2, based on~~connection with the SGM acquisition. As a result of declining performance levels and ~~the results of~~ our post-acquisition assessment, we determined that GAAP required an interim impairment test of the SGM reporting ~~unit was required by U.S. generally accepted accounting principles.~~unit. We performed the first step of this test as of July 5, 2015 using an income approach based on our estimates of future performance scenarios for the business. The results of this test indicated that the fair value of the reporting unit was less than the carrying amount as of the measurement date, suggesting that a goodwill impairment was probable, which required us to perform a second step analysis to confirm that an impairment existed and to determine the amount of the impairment based on our reassessed value of the reporting unit. Although preliminary, as a result of this reassessment, in the second quarter of 2015 we recorded an estimated $249.8 million non-cash goodwill impairment charge, representing a write-down of all of the goodwill related to the SGM reporting unit as of July 5, 2015. During the third quarter, we increased the value

of acquired goodwill by $16.6 million, with the corresponding offset principally represented by the establishment of additional opening balance sheet liabilities for additional commitments and contingencies that were identified through our post-acquisition assessment. We also finalized the impairment test of the goodwill relating to the SGM reporting unit, which resulted in a write-off of this additional goodwill in the third quarter, for a total impairment of $266.4 million. We also tested the other long-lived assets of SGM for recoverability by comparing the sum of the undiscounted cash flows to the carrying value of the asset group, and no impairment was indicated.

In connection with the 2014 SGM acquisition, we had assigned approximately $15 million of goodwill to our existing China chocolate business, as this reporting unit was expected to benefit from acquisition synergies relating to the sale of Golden Monkey-branded product through its Tier 1 and hypermarket distributor networks. As the net sales and earnings of our China business continued to be adversely impacted by macroeconomic challenges and changing consumer shopping behavior through the third quarter of 2015, we determined that an interim impairment test of the goodwill in this reporting unit was also required. We performed the first step of this test in the third quarter of 2015 using an income approach based on our estimates of future performance scenarios for the business. The results of this test suggested that a goodwill impairment was probable, and the conclusions of the second step analysis resulted in a write-down of $14.4 million, representing the full value of goodwill attributed to this reporting unit as of October 4, 2015. We also tested the other long-lived assets of the China asset group for recoverability by comparing the sum of the undiscounted cash flows to the carrying value of the asset group, and no impairment was indicated.

At December 31, 2015, after considering the impairments noted above, the remaining net book value of our goodwill totaled $684.3 million and related to seven reporting units. As it relates to our annual testing performed at the beginning of the fourth quarter, no additional goodwill impairment was indicated, and the percentage of excess fair value over carrying value was at least 50% for each of our tested reporting units, with the exception of our Krave reporting unit, which includes goodwill of $147.1 million. This reporting unit comprises a recently acquired business whose estimated fair value approximates its carrying value.

During our 2014 annual testing, the fair value of our India reporting unit approximated its carrying value. As a result and given the sensitivity of the India impairment analysis to changes in the underlying assumptions, we performed a step two analysis which indicated a goodwill impairment of $11.4 million. In addition, our 2014 annual test of indefinite-lived intangible assets resulted in a $4.5 million pre-tax write-down of a trademark, also associated with the India business. Also in 2014, in connection with the anticipated sale of our Mauna Loa business (as discussed in Note 2 to the Consolidated Financial Statements), during the third and fourth quarters of 2014, we recorded estimated impairment charges totaling $18.5 million to write-down goodwill and an indefinite-lived trademark intangible asset, based on the valuation of these assets as implied by the agreed-upon sales price.

~~Commodities Futures and Options Contracts~~

As discussed in Note 1 and Note 5 to the Consolidated Financial Statements, we use derivative financial instruments to manage a number of our market risks. Specifically, we use commodities futures and options contracts, in combination with forward purchasing of cocoa products and other commodities, to manage our commodity price risk, which represents a significant market risk exposure for us.

We have historically applied hedge accounting to our commodity derivative instruments. In order to qualify for hedge accounting, a specified level of hedging effectiveness between the derivative instrument and the item being hedged must exist at inception and throughout the hedged period. We must formally document the nature of and relationship between the derivative and the hedged item, as well as our risk management objectives, strategies for undertaking the hedge transaction and method of assessing hedge effectiveness. We must also maintain certain operational processes and controls that support the conduct of our commodities hedging program. Additionally, since these are typically hedges of forecasted transactions, the significant characteristics and expected terms of the forecasted transactions must be specifically identified, and it must be probable that the forecasted transactions will occur. If it is no longer probable that a hedged forecasted transaction will occur, we would recognize the gain or loss related to the derivative in earnings.

Because we generally have designated these commodity future and option contracts as derivative instruments in cash flow hedging relationships, our mark-to-market gains (losses) were deferred to accumulated other comprehensive income (“AOCI”). The amounts deferred and reclassified from AOCI were as follows:

For the years ended December 31, 2015 2014 2013
In millions of dollars
Net gains (losses) deferred to AOCI for commodity cash flow hedging derivatives $ 84.4
$ (11.2 ) $ 84.7
Gains (losses) reclassified from AOCI to earnings 40.6
68.5
(8.4 )
Hedge ineffectiveness gains recognized in income, before tax 1.0
2.5
3.2

As discussed in Item 9A. Controls and Procedures, our cocoa commodity derivatives did not qualify for hedge accounting treatment as of the beginning of the third quarter of 2015. Therefore, changes in the fair value of cocoa commodity derivatives for the third and fourth quarters of 2015 were recorded as incurred within cost of sales in the income statement.

Effective January 1, 2016, we are no longer electing to designate any of our existing or new cocoa or other commodity derivatives for hedge accounting treatment. Additionally, we have revised our definition of segment income and redefined non-GAAP income and earnings per share measures to exclude gains and losses on commodity derivatives until the related inventory is sold. This change to our definition of segment income and non-GAAP income and non-GAAP earnings per share will continue to reflect the derivative gains and losses with the underlying economic exposure being hedged and thereby eliminate the mark-to-market volatility within our reported segment income as well as non-GAAP income and non-GAAP earnings per share.

Income Taxes

We base our deferred income taxes, accrued income taxes and provision for income taxes upon income, statutory tax rates, the legal structure of our Company, interpretation of tax laws and tax planning opportunities available to us in the various jurisdictions in which we operate. We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. We are regularly audited by federal, state and foreign tax authorities, but a number of years may elapse before an uncertain tax position, for which we have unrecognized tax benefits, is audited and finally resolved. From time to time, these audits result in assessments of additional tax. We maintain reserves for such assessments.

We apply a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax benefit that has a greater than 50% likelihood of being ultimately realized upon settlement. Future changes in judgments and estimates related to the expected ultimate resolution of uncertain tax positions will affect income in the quarter of such change. While it is often difficult to predict the final

outcome or the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax benefits reflect the most likely outcome. Accrued interest and penalties related to unrecognized tax benefits are included in income tax expense. We adjust these unrecognized tax benefits, as well as the related interest, in light of changing facts and circumstances, such as receiving audit assessments or clearing of an item for which a reserve has been established. Settlement of any particular position could require the use of cash. Favorable resolution would be recognized as a reduction to our effective income tax rate in the period of resolution.

We believe it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, net of valuation allowances. Our valuation allowances are primarily related to U.S. capital loss carryforwards and various foreign jurisdictions' net operating loss carryforwards and other deferred tax assets for which we do not expect to realize a benefit.


Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We use certain derivative instruments to manage our interest rate, foreign currency exchange rate and commodity price risks. We monitor and manage these exposures as part of our overall risk management program.

We enter into interest rate swap agreements and foreign currency forward exchange contracts and options for periods consistent with related underlying exposures. We enter into commodities futures and options contracts and other derivative instruments for varying periods. These commodity derivative instruments are intended to be, and are effective as, economic hedges of market price risks associated with anticipated raw material purchases, energy requirements and transportation costs. We do not hold or issue derivative instruments for trading purposes and are not a party to any instruments with leverage or prepayment features.

In entering into these contracts, we have assumed the risk that might arise from the possible inability of counterparties to meet the terms of their contracts. We mitigate this risk by entering into exchange-traded contracts with collateral posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. We do not expect any significant losses from counterparty defaults.

Refer to Note 1 and Note 5 to the Consolidated Financial Statements for further discussion of these derivative instruments and our hedging policies.

Interest Rate Risk

In order to manage interest rate exposure, we may periodically enter into interest rate swap ~~agreements. We are currently using forward starting interest rate swap~~ agreements ~~to reduce interest volatility associated with certain anticipated debt issues and~~including fixed-to-floating interest rate swaps to achieve a desired proportion of variable versus fixed rate debt based on current and projected market ~~conditions. The~~conditions and forward starting interest rate swap agreements to reduce interest volatility associated with certain anticipated debt issues. When utilized, the notional amount, interest payment and maturity date of these swaps generally match the principal, interest payment and maturity date of the related debt, and the swaps are valued using observable benchmark rates.

The total notional amount of interest rate swaps outstanding at December 31, 2016 and 2015 was $350 million and ~~2014 was~~ $850 million, ~~and $1.2 billion,~~ respectively. We had one forward starting interest rate swap agreement in a cash flow hedging relationship with a notional amount of $500 million at December 31, 2015. This interest rate swap agreement was settled in connection with the issuance of debt in August 2016, resulting in a payment of approximately $87 million which is reflected within operating activities in the Consolidated Statement of Cash Flows. The notional amount at December 31, 2016 and 2015 includes $350 million of fixed-to-floating interest rate swaps ~~which~~that convert a comparable amount of fixed-rate debt to ~~variable rate~~variable-rate debt. A hypothetical 100 basis point increase in interest rates applied to this now ~~variable rate~~variable-rate debt as of December 31, ~~2015~~2016 would have increased interest expense by approximately $3.6 million for the full year 2016 and 2015, ~~and $4.6 million for the full year 2014.~~respectively.

We consider our current risk related to market fluctuations in interest rates on our remaining debt portfolio, excluding fixed-rate debt converted to variable rates with fixed-to-floating instruments, to be minimal since this debt is largely long-term and fixed-rate in nature. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. A 100 basis point increase in market interest rates would decrease the fair value of our fixed-rate long-term debt at December 31, ~~2015~~2016 and December 31, ~~2014~~2015 by approximately ~~$76~~$142 million and ~~$57~~$76 million, respectively. However, since we currently have no plans to repurchase our outstanding fixed-rate instruments before their maturities, the impact of market interest rate fluctuations on our long-term debt does not affect our results of operations or financial position.

Foreign Currency Exchange Rate Risk

We are exposed to currency fluctuations related to manufacturing or selling products in currencies other than the U.S. dollar. We may enter into foreign currency forward exchange contracts and options to reduce fluctuations in our long or short currency positions relating primarily to purchase commitments or forecasted purchases for equipment, raw materials and finished goods denominated in foreign currencies. We also may hedge payment of forecasted intercompany transactions with our subsidiaries outside of the United States. We generally hedge foreign currency price risks for periods from 3 to 2412 months.

A summary of foreign currency forward exchange contracts and the corresponding amounts at contracted forward rates is as follows:


December 31,	2015			2014			2016			2015
	Contract Amount		Primary Currencies	Contract Amount		Primary Currencies	Contract Amount		Primary Currencies	Contract Amount		Primary Currencies
In millions of dollars
Foreign currency forward exchange contracts to purchase foreign currencies	$	19.8	Euros	$	21.9	Euros	$	9.4	Euros	$	19.8	Euros
Foreign currency forward exchange contracts to sell foreign currencies	$	11.9	Brazilian reals Japanese yen	$	48.8	Canadian dollars Brazilian reals Japanese yen	$	80.4	Canadian dollars Brazilian reals Japanese yen	$	11.9	Brazilian reals Japanese yen

The fair value of foreign currency forward exchange contracts represents the difference between the contracted and current market foreign currency exchange rates at the end of the period. We estimate the fair value of foreign currency forward exchange contracts on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences. At December 31, ~~2015~~2016 and ~~2014,~~2015, the net fair value of these instruments was an asset of $1.4 million and a liability of $0.1 ~~million and an asset of $1.5~~ million, respectively. Assuming an unfavorable 10% change in year-end foreign currency exchange rates, the fair value of these instruments would have declined by ~~$3.2~~$9.6 million and ~~$7.0~~$3.2 million, respectively.

Commodities—Price Risk Management and Futures Contracts

Our most significant raw material requirements include cocoa products, sugar, dairy products, peanuts and almonds. The cost of cocoa products and prices for related futures contracts and costs for certain other raw materials historically have been subject to wide fluctuations attributable to a variety of factors. These factors include:



l	Commodity market fluctuations;
l	Foreign currency exchange rates;
l	Imbalances between supply and demand;
l	The effect of weather on crop yield;
l	Speculative influences;
l	Trade agreements among producing and consuming nations;
l	Supplier compliance with commitments;
l	Political unrest in producing countries; and
l	Changes in governmental agricultural programs and energy policies.

We use futures and options contracts and other commodity derivative instruments in combination with forward purchasing of cocoa products, sugar, corn sweeteners, natural gas and certain dairy products primarily to reduce the risk of future price increases and provide visibility to future costs. Currently, active futures contracts are not available for use in pricing our other major raw material requirements, primarily peanuts and almonds. We attempt to minimize the effect of future price fluctuations related to the purchase of raw materials by using forward purchasing to cover future manufacturing requirements generally for 3 to 24 months. However, ~~the~~ dairy futures ~~markets are~~liquidity is not as developed as many of the other commodities futures markets and, therefore, it iscan be difficult to hedge our costs for dairy products by entering into futures contracts or other derivative instruments to extend coverage for long periods of time.

We use diesel swap futures contracts to minimize price fluctuations associated with our transportation costs. Our commodity procurement practices are intended to reduce the risk of future price increases and provide visibility to future costs, but also may potentially limit our ability to benefit from possible price decreases. Our costs for major raw materials will not necessarily reflect market price fluctuations primarily because of our forward purchasing and hedging practices.

During ~~2015,~~2016, average cocoa futures contract prices ~~increased~~decreased compared with ~~2014~~2015 and traded in a range between ~~$1.28~~$1.03 and ~~$1.53~~$1.38 per pound, based on the Intercontinental Exchange futures contract. Cocoa production was ~~higher in~~lower during the 2015 to 2016 crop year and global demand was slightly higher, which produced a small ~~surplus~~reduction in global cocoa ~~supplies~~stocks over the past year. Despite the ~~small increase~~slight decrease in global cocoa inventories, prices ~~remained elevated~~started to decline in

response to ~~concerns over the~~expectations that future ~~balance of global~~ cocoa supply increases were going to outpace demand and ~~demand.~~rebuild global stocks during the subsequent crop year.

The table below shows annual average cocoa futures prices and the highest and lowest monthly averages for each of the calendar years indicated. The prices reflect the monthly averages of the quotations at noon of the three active futures trading contracts closest to maturity on the Intercontinental Exchange.



	Cocoa Futures Contract Prices (dollars per pound)										Cocoa Futures Contract Prices (dollars per pound)
	2015		2014		2013		2012		2011		2016		2015		2014		2013		2012
Annual Average	$	1.40	$	1.36	$	1.09	$	1.07	$	1.34	$	1.29	$	1.40	$	1.36	$	1.09	$	1.06
High	1.53		1.45		1.26		1.17		1.55		1.38		1.53		1.45		1.26		1.17
Low	1.28		1.25		0.97		1.00		0.99		1.03		1.28		1.25		0.97		1.00

Our costs for cocoa products will not necessarily reflect market price fluctuations because of our forward purchasing and hedging practices, premiums and discounts reflective of varying delivery times, and supply and demand for our specific varieties and grades of cocoa liquor, cocoa butter and cocoa powder. As a result, the average futures contract prices are not necessarily indicative of our average costs.

During ~~2015,~~2016, prices for fluid dairy milk ranged from a low of ~~$0.15~~$0.13 per pound to a high of ~~$0.18~~$0.15 per pound, on a ~~class II fluid~~Class IV milk basis. Dairy prices were lower than ~~2014,~~2015, driven by increased production in Europe and the United States as well as larger dairy product inventories globally.

The price of sugar is subject to price supports under U.S. farm legislation. Such legislation establishes import quotas and duties to support the price of sugar. As a result, sugar prices paid by users in the United States are currently higher than prices on the world sugar market. In 2015, as part of an anti-dumping case against Mexican sugar producers, the U.S. Government determined that Mexico was dumping sugar into the U.S. market. As a result of the case, the U.S. and Mexican governments signed a suspension agreement which will limit sugar exports from Mexico to the U.S. and cause U.S. sugar prices to trade $0.03 to $0.05 per pound higher than prior to the case. U.S.United States delivered east coast refined sugar prices traded in a range from ~~$0.36~~$0.33 to ~~$0.40~~$0.39 per pound during ~~2015.~~2016.

Peanut prices in the ~~U.S.~~United States began the year around ~~$0.52~~$0.46 per pound and closed the year at ~~$0.46~~$0.65 per pound. ~~Peanut~~Drought conditions throughout 2016 in the key Southeast peanut growing region resulted in an estimated 5% smaller crop versus the 2015 crop and drove price increases. Almond prices began the year at $3.53 per pound and decreased to $2.84 per pound during 2016. Almond supply is ample to support U.S. demand heading into ~~2016. Almond prices began~~2017 as the ~~year at $4.34 per pound and decreased to $4.04 per pound during 2015. The fourth consecutive year of drought in California had a negative impact on yields, with the 2015~~2016 crop ~~estimated~~is expected to be approximately ~~5% lower~~11% larger than ~~2014.~~the 2015 crop. (Source: Almond Board of California)

We make or receive cash transfers to or from commodity futures brokers on a daily basis reflecting changes in the value of futures contracts on the Intercontinental Exchange or various other exchanges. These changes in value represent unrealized gains and losses. The cash transfers offset higher or lower cash requirements for the payment of future invoice prices of raw materials, energy requirements and transportation costs.

Commodity Sensitivity Analysis

Our open commodity derivative contracts had a notional value of $739.4 million as of December 31, 2016 and $374.8 million as of December 31, ~~2015 and $347.5 million as of December 31, 2014.~~2015. At the end of ~~2015,~~2016, the potential change in fair value of commodity derivative instruments, assuming a 10% decrease in the underlying commodity price, would have increased our net unrealized losses in ~~2015~~2016 by ~~$37.5~~$73.9 million, generally offset by a reduction in the cost of the underlying commodity purchases.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The Hershey Company is responsible for the financial statements and other financial information contained in this report. We believe that the financial statements have been prepared in conformity with U.S. generally accepted accounting principles appropriate under the circumstances to reflect in all material respects the substance of applicable events and transactions. In preparing the financial statements, it is necessary that management make informed estimates and judgments. The other financial information in this annual report is consistent with the financial statements.

We maintain a system of internal accounting controls designed to provide reasonable assurance that financial records are reliable for purposes of preparing financial statements and that assets are properly accounted for and safeguarded. The concept of reasonable assurance is based on the recognition that the cost of the system must be related to the benefits to be derived. We believe our system provides an appropriate balance in this regard. We maintain an Internal Audit Department which reviews the adequacy and tests the application of internal accounting controls.

The 2016, 2015 ~~2014~~ and ~~2013~~2014 financial statements have been audited by KPMG LLP, an independent registered public accounting firm. KPMG LLP's report on our financial statements and internal controls over financial reporting is included ~~on page 48.~~herein.

The Audit Committee of the Board of Directors of the Company, consisting solely of independent, non-management directors, meets regularly with the independent auditors, internal auditors and management to discuss, among other things, the audit scope and results. KPMG LLP and the internal auditors both have full and free access to the Audit Committee, with and without the presence of management.

The Board of Directors and Stockholders

The Hershey Company:

Also in our opinion, ~~because of the effect of the aforementioned material weakness on the achievement of the objectives of the control criteria,~~ The Hershey Company and subsidiaries ~~has not~~ maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2015,~~2016, based on criteria established in Internal ~~Control-Integrated~~Control – Integrated Framework ~~(2013)~~(2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway ~~Commission.~~Commission (COSO).

/s/ KPMG LLP

New York, New York

February ~~26, 2016~~21, 2017

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See Notes to Consolidated Financial Statements.

THE HERSHEY COMPANY

NOTES TO ~~UNAUDITED~~ CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except share data or if otherwise indicated)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

The Hershey Company together with its wholly-owned subsidiaries and entities in which it has a controlling interest,(the “Company,” “Hershey,” “we” or “us”) is a global confectionery leader known for its branded portfolio of chocolate, sweets, mints and other great-tasting snacks. The Company has more than 80 brands worldwide including such iconic brand names as Hershey’s, Reese’s, ~~Hershey’s~~ Kisses, Jolly Rancher and Ice Breakers, which are marketed, sold and distributed in approximately 70 countries worldwide. Hershey is focused on growing its presence in key international markets while continuing to build its competitive advantage in North America. The Company currently operates through two reportable segments that are aligned with its management structure and the key markets it serves: North America and International and Other. For additional information on our segment presentation, see Note 11.

Basis of Presentation

Our consolidated financial statements include the accounts of The Hershey Company and its majority-owned or controlled subsidiaries. Intercompany transactions and balances have been eliminated. We have a controlling financial interest if we own a majority of the outstanding voting common stock and minority shareholders do not have substantive participating rights, we have significant control through contractual or economic interests in which we are the primary beneficiary or we have the power to direct the activities that most significantly impact the entity's economic performance. Net income (loss) attributable to noncontrolling interests is not significant and is recorded within selling, marketing and administrative expense in the Consolidated Statements of Income. See Note 12 for additional information on our noncontrolling interests. We use the equity method of accounting when we have a 20% to 50% interest in other companies and exercise significant influence. ~~Additionally, in 2015~~In addition, we ~~began making~~use the equity method of accounting for our investments in partnership entities which make equity investments in projects eligible to receive federal historic and energy tax ~~credits which are accounted for using the equity method.~~credits. See Note 78 for additional information on our equity investments in partnership entities qualifying for tax credits. ~~We held no equity investments at December 31, 2014.~~

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“~~U.S.~~ GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. Our significant estimates and assumptions include, among others, pension and other post-retirement benefit plan assumptions, valuation assumptions of goodwill and other intangible assets, useful lives of long-lived assets, marketing and trade promotion accruals and income taxes. These estimates and assumptions are based on management’s best judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and the effects of any revisions are reflected in the consolidated financial statements in the period that they are determined. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

We record sales when all of the following criteria have been met:



l	A valid customer order with a fixed price has been received;
l	The product has been delivered to the customer;
l	There is no further significant obligation to assist in the resale of the product; and
l	Collectability is reasonably assured.

Net sales include revenue from the sale of finished goods and royalty income, net of allowances for trade promotions, consumer coupon programs and other sales incentives, and allowances and discounts associated with aged or potentially unsaleable products. Trade promotions and sales incentives primarily include reduced price features,

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

merchandising displays, sales growth incentives, new item allowances and cooperative advertising. Sales, use, value-added and other excise taxes are not recognized in revenue.

In 2016, 2015 and 2014, approximately 25%, 26% and ~~2013, approximately 26%,~~ 25% ~~and 26%~~, respectively, of our consolidated net sales were made to McLane Company, Inc., one of the largest wholesale distributors in the United States to convenience stores, drug stores, wholesale clubs and mass merchandisers and the primary distributor of our products to Wal-Mart Stores, Inc.

Cost of sales represents costs directly related to the manufacture and distribution of our products. Primary costs include raw materials, packaging, direct labor, overhead, shipping and handling, warehousing and the depreciation of manufacturing, warehousing and distribution facilities. Manufacturing overhead and related expenses include salaries, wages, employee benefits, utilities, maintenance and property taxes.

Selling, Marketing and Administrative Expense

Selling, marketing and administrative expense (“SM&A”) represents costs incurred in generating revenues and in managing our business. Such costs include advertising and other marketing expenses, selling expenses, research and development, administrative and other indirect overhead costs, amortization of capitalized software and depreciation of administrative facilities. Research and development costs, charged to expense as incurred, totaled $47,268 in 2016, $49,281 in 2015 and $47,554 in ~~2014 and $47,636 in 2013.~~2014. Advertising expense is also charged to expense as incurred and totaled $521,479 in 2016, $561,644 in 2015 and $570,223 in ~~2014 and $582,354 in 2013.~~2014. Prepaid advertising expense was ~~$3,924~~$651 and ~~$8,193~~$3,924 as of December 31, ~~2015~~2016 and ~~2014,~~2015, respectively.

Cash equivalents consist of highly liquid debt instruments, time deposits and money market funds with original maturities of three months or less. The fair value of cash and cash equivalents approximates the carrying amount.

Short-term Investments

Short-term investments consist of bank term deposits that have original maturity dates ranging from greater than three months to twelve months. Short-term investments are carried at cost, which approximates fair value.

Accounts Receivable—Trade

In the normal course of business, we extend credit to customers that satisfy pre-defined credit criteria, based upon the results of our recurring financial account reviews and our evaluation of current and projected economic conditions. Our primary concentrations of credit risk are associated with Wal-Mart Stores, Inc. and McLane Company, Inc., two customers served principally by our North America segment. As of December 31, ~~2015,~~2016, McLane Company, Inc. accounted for approximately 19% of our total accounts receivable. Wal-Mart Stores, Inc. accounted for approximately 14% of our total accounts receivable as of December 31, ~~2015.~~2016. No other customer accounted for more than 10% of our year-end accounts receivable. We believe that we have little concentration of credit risk associated with the remainder of our customer base. Accounts receivable-trade in the Consolidated Balance Sheets is presented net of allowances and anticipated discounts of ~~$32,638~~$40,153 and ~~$15,885~~$32,638 at December 31, ~~2015~~2016 and ~~2014,~~2015, respectively.

Inventories are valued at the lower of cost or market value, adjusted for the value of inventory that is estimated to be excess, obsolete or otherwise unsaleable. As of December 31, ~~2015,~~2016, approximately ~~55%~~54% of our inventories, representing the majority of our U.S. inventories, were valued under the last-in, first-out (“LIFO”) method. The remainder of our inventories in the U.S. and inventories for our international businesses are valued at the lower of first-in, first-out (“FIFO”) cost or market. LIFO cost of inventories valued using the LIFO method was $402,919 as of December 31, 2016 and $410,865 as of December 31, ~~2015 and $430,094 as of December 31, 2014.~~2015. The adjustment to LIFO, as shown in Note ~~15,~~16, approximates the excess of replacement cost over the stated LIFO inventory value. The net impact of LIFO acquisitions and liquidations was not material to 2016, 2015 ~~2014~~ or ~~2013.~~2014.

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

Property, Plant and Equipment

Property, plant and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets, as follows: 3 to 15 years for machinery and equipment; and 25 to 40 years for buildings and related improvements. Total depreciation expense for the years ended December 31, 2016, 2015 and 2014 was $231,735, $197,054 and $176,312, respectively. Maintenance and repairs are expensed as incurred. We capitalize applicable interest charges incurred during the construction of new facilities and production lines and amortize these costs over the assets’ estimated useful lives.

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We measure the recoverability of assets to be held and used by a comparison of the carrying amount of long-lived assets to future undiscounted net cash flows expected to be generated. If these assets are considered to be impaired, we measure impairment as the amount by which the carrying amount of the assets exceeds the fair value of the assets. We report assets held for sale or disposal at the lower of the carrying amount or fair value less cost to sell.

We assess asset retirement obligations on a periodic basis and recognize the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. We capitalize associated asset retirement costs as part of the carrying amount of the long-lived asset.

We capitalize costs associated with software developed or obtained for internal use when both the preliminary project stage is completed and it is probable the software being developed will be completed and placed in service. Capitalized costs include only (i) external direct costs of materials and services consumed in developing or obtaining internal-use software, (ii) payroll and other related costs for employees who are directly associated with and who devote time to the internal-use software project and (iii) interest costs incurred, when material, while developing internal-use software. We cease capitalization of such costs no later than the point at which the project is substantially complete and ready for its intended purpose.

The unamortized amount of capitalized software totaled ~~$68,004~~$95,301 and ~~$63,252~~$68,004 at December 31, ~~2015~~2016 and ~~2014,~~2015, respectively. We amortize software costs using the straight-line method over the expected life of the software, generally 3 to 5 years. Accumulated amortization of capitalized software was ~~$304,057~~$322,807 and ~~$300,698~~$304,057 as of December 31, ~~2015~~2016 and ~~2014,~~2015, respectively. Such amounts are recorded within other assets in the Consolidated Balance Sheets.

We review the carrying value of software and development costs for impairment in accordance with our policy pertaining to the impairment of long-lived assets. ~~Generally, we measure impairment under the following circumstances:~~

Goodwill and Other Intangible Assets

Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually or more often if indicators of a potential impairment are present. Our annual impairment tests are conducted at the beginning of the fourth quarter. We ~~use~~test goodwill for impairment by performing a qualitative assessment or using a two-step quantitative process. If we choose to perform a qualitative assessment, we evaluate economic, industry and company-specific factors as an initial step in assessing the fair value of the related reporting unit. If we determine that it is more likely than not that the fair value of the reporting unit is less than its carrying value, the two-step process ~~to quantitatively evaluate goodwill for impairment. In~~is then performed. Otherwise, no further testing is required. For those reporting units tested using the two-step process, we first ~~step, we~~ compare the fair value of each reporting unit with the carrying amount of the reporting unit, including goodwill. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, we complete a second step to determine the amount of the goodwill impairment that we should record. In the second step, we determine an implied fair value of the reporting unit’s goodwill by allocating the reporting unit’s fair value to all of its assets and liabilities other than goodwill (including any unrecognized intangible assets). We compare the resulting

~~THE HERSHEY COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

implied fair value of the goodwill to the carrying amount and record an impairment charge for the difference. We test individual indefinite-lived intangible assets by comparing the estimated fair value with the book values of each asset.

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

based on the present value of estimated future cash flows. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate the future cash flows used to measure fair value. Our estimates of future cash flows consider past performance, current and anticipated market conditions and internal projections and operating plans which incorporate estimates for sales growth and profitability, and cash flows associated with taxes and capital spending. Additional assumptions include forecasted growth rates, estimated discount rates, which may be risk-adjusted for the operating market of the reporting unit, and estimated royalty rates that would be charged for comparable branded licenses. We believe such assumptions also reflect current and anticipated market conditions and are consistent with those that would be used by other marketplace participants for similar valuation purposes. Such assumptions are subject to change due to changing economic and competitive conditions. See Note 3 for additional information regarding the results of impairment tests.

The cost of intangible assets with finite useful lives is amortized on a straight-line basis. Our finite-lived intangible assets consist primarily of certain trademarks, customer-related intangible assets and patents obtained through business acquisitions, which are amortized over estimated useful lives of approximately 25 years, 15 years, and 5 years, respectively. When certain events or changes in operating conditions indicate that the carrying value of these assets may not be recoverable, we perform an impairment assessment and may adjust the remaining useful lives.

Currency Translation

The financial statements of our foreign entities with functional currencies other than the U.S. dollar are translated into U.S. dollars, with the resulting translation adjustments recorded as a component of other comprehensive income (loss). Assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the balance sheet date, while income and expense items are translated using the average exchange rates during the period.

Derivative Instruments

We use derivative instruments principally to offset exposure to market risks arising from changes in commodity prices, foreign currency exchange rates and interest rates. See Note 5 for additional information on our risk management strategy and the types of instruments we use.

Derivative instruments are recognized on the balance sheet at their fair values. When we become party to a derivative instrument and intend to apply hedge accounting, we designate the instrument for financial reporting purposes as a cash flow or fair value hedge. The accounting for changes in fair value (gains or losses) of a derivative instrument depends on whether we ~~had~~have designated it and it qualified as part of a hedging relationship, as noted below:

For derivatives designated as hedges, we assess, both at the hedge's inception and on an ongoing basis, whether they are highly effective in offsetting changes in fair values or cash flows of hedged items. The ineffective portion, if any, is recorded directly in earnings. In addition, if we determine that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, we discontinue hedge accounting prospectively.

We do not hold or issue derivative instruments for trading or speculative purposes and are not a party to any instruments with leverage or prepayment features.

~~THE HERSHEY COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

Cash flows related to the derivative instruments we use to manage interest, commodity or other currency exposures are classified as operating activities.

~~Other (Income) Expense, net~~

THE HERSHEY COMPANY

In the second quarter of 2015, we began presenting a new non-operating "other (income) expense, net" classification to report certain gains and losses associated with activities not directly related to our core operations. For the years ended December 31, 2014 and 2013, we reclassified from selling, marketing and administrative expenses to other (income) expense, net total net expense of $2,686 and income of $1,624, respectively, to conform to the current year presentation. After considering these reclassifications, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts ~~reflected~~ in ~~other (income) expense, net include the following:~~

thousands, except share data or if otherwise indicated)

Year Ended
December 31,
2015 December 31,
2014 December 31,
2013
Gain on sale of non-core trademark $ (9,950 ) $ —
$ —
Write-down of equity investments in partnerships qualifying for historic tax credits (see Note 7) 39,489
—
—
Foreign currency exchange loss relating to strategy to cap Shanghai Golden Monkey acquisition price as denominated in U.S. dollars —
6,722
—
Gain on acquisition of controlling interest in Lotte Shanghai Food Company —
(4,628 ) —
Other losses (gains), net 600
592
(1,624 )
Total $ 30,139
$ 2,686
$ (1,624 )

Reclassifications

Certain prior period amounts have been reclassified to conform to current year presentation. Specifically, this includes amounts ~~presented~~reclassified to conform to the current year presentation in ~~our “other (income) expense, net” caption included in our Consolidated Statements of Income and~~ the ~~“effect of exchange rate changes on cash and cash equivalents” included in our~~ Consolidated Statements of Cash Flows.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that supersedes most current revenue recognition guidance. This guidance requires an entity to recognize ~~the amount of~~ revenue ~~to which~~when it ~~expects to be entitled for the transfer of~~transfers promised goods or services to ~~customers. ASU No. 2014-09~~customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional financial statement disclosures that will ~~replace most existing~~enable users to understand the nature, amount, timing and uncertainty of revenue ~~recognition guidance in U.S. GAAP when it becomes effective.~~and cash flows relating to customer contracts. The new standard was originally effective for us on January 1, 2017; however, in July 2015 the FASB decided to defer the effective date by one year. Early application is not permitted, but reporting entities may choose to adopt the standard as of the original effective date. The standard permits the use of either the retrospective or cumulative effect transition method.

In 2016, we continued our assessment of the new standard with a focus on identifying the performance obligations included within our revenue arrangements with customers and evaluating our methods of estimating the amount and timing of variable consideration. Based on our assessment to date, we do not currently expect adoption of the new standard to have a material impact on our consolidated financial statements. We currently plan to adopt the requirements of the new standard in the first quarter of 2018 utilizing the cumulative effect transition method. We are ~~currently evaluating~~continuing our assessment, which may identify other impacts.

In February 2016, the ~~effect that~~FASB issued ASU No. ~~2014-09~~2016-02, Leases (Topic 842). This ASU will require lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. This ASU also requires certain quantitative and qualitative disclosures. Accounting guidance for lessors is largely unchanged. The amendments should be applied on a modified retrospective basis. ASU 2016-02 is effective for us beginning January 1, 2019. We are in the process of developing an inventory of our lease arrangements in order to determine the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and related ~~disclosures,~~disclosures. Based on our ~~transition~~assessment to date, we expect adoption of this standard to result in a material increase in lease-related assets and ~~transition method.~~liabilities on our consolidated balance sheets; however, we do not expect it to have a significant impact on our consolidated statements of income or cash flows.

In ~~April 2015,~~March 2016, the FASB issued ASU No. ~~2015-03,~~2016-09, ~~Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. ASU No. 2015-03 requires that debt issuance costs related~~Compensation—Stock Compensation (Topic 718): Improvements to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015, with early adoption permitted. Management elected to early adopt this new guidance effective for the year ended December 31, 2015, and has applied changes retrospectively to all periods presented. Adoption of this ASU did not materially impact our consolidated financial statements or related disclosures.

~~In November 2015, the FASB issued ASU 2015-17,~~ ~~Income Taxes (Topic 740)~~Employee Share-Based Payment Accounting. This ASU ~~simplifies~~is part of the ~~presentation~~FASB's simplification initiative. The areas for simplification in this ASU involve several aspects of ~~deferred~~the accounting for share-based payment transactions, including the income ~~taxes by requiring that deferred~~ tax ~~assets~~consequences, classification of awards as either equity or liabilities and ~~liabilities be classified as non-current in a classified~~classification on the statement of ~~financial position. This~~cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods, with early adoption permitted. ~~Management elected~~We are adopting this statement effective January 1, 2017 and we expect the revised classification of excess tax benefits to ~~early adopt this~~

~~THE HERSHEY COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(amounts in thousands, except share data~~have a favorable impact on our 2017 net income. We do not expect it to have a significant impact on our consolidated balance sheets or ~~if otherwise indicated)~~

~~new guidance effect for the year ended December 31, 2015 on a prospective basis. Prior period balances have not been adjusted.~~statements of cash flows.

No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our consolidated financial statements or disclosures.

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

2. BUSINESS ACQUISITIONS AND DIVESTITURES

Acquisitions of businesses are accounted for as purchases and, accordingly, the results of operations of the businesses acquired have been included in the consolidated financial statements since the respective dates of the acquisitions. The purchase price for each of the acquisitions is allocated to the assets acquired and liabilities assumed.

2016 Acquisition

Ripple Brand Collective, LLC

On April 26, 2016, we completed the acquisition of all of the outstanding shares of Ripple Brand Collective, LLC, a privately held company based in Congers, New York that owns the barkTHINS mass premium chocolate snacking brand. The barkTHINS brand is largely sold in the United States in take-home resealable packages and is available in the club channel, as well as select natural and conventional grocers. Our consolidated net sales for the year ended December 31, 2016 included approximately $35.6 million attributed to barkTHINS.

The purchase consideration was allocated to assets acquired and liabilities assumed based on their respective fair values as follows:



Goodwill	$	128,110
Trademarks	91,200
Other intangible assets	60,900
Other assets, primarily current assets, net of cash acquired totaling $674	12,375
Current liabilities	(7,211		)
Net assets acquired	$	285,374

Goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. The goodwill resulting from the acquisition is attributable primarily to the value of leveraging our brand building expertise, consumer insights, supply chain capabilities and retail relationships to accelerate growth and access to barkTHINS products. Acquired trademarks were assigned estimated useful lives of 27 years, while other intangibles, including customer relationships and covenants not to compete, were assigned estimated useful lives ranging from 2 to 14 years. The recorded goodwill, trademarks and other intangibles are expected to be deductible for tax purposes.

2015 Acquisition

KRAVE Pure Foods

In March 2015, we completed the acquisition of all of the outstanding shares of KRAVE Pure Foods, Inc. (“Krave”), the Sonoma, California based manufacturer of ~~KRAVE jerky,~~Krave, a leading all-natural ~~snack~~ brand of premium ~~jerky~~meat snack products. The transaction was undertaken to allow Hershey to tap into the rapidly growing meat snacks category and further expand into the broader snacks space. ~~Krave is headquartered in Sonoma, California and generated 2014 annual sales of approximately $35 million.~~

Total purchase consideration included cash consideration of $220,016, as well as agreement to pay additional cash consideration of up to $20,000 to the Krave shareholders if certain defined targets related to net sales and gross profit margin are met or exceeded during the twelve-month periods ending December 31, 2015 or March 31, 2016. The fair value of the contingent cash consideration was ~~appropriately~~ classified as a liability of $16,800 as of the acquisition date. Based on revised targets in a subsequent agreement with the Krave shareholders, the fair value was reduced over the second and third quarters of 2015 to $10,000, with the adjustment to fair value recorded within selling, marketing and administrative expenses. The remaining $10,000 was paid in December 2015.

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

The purchase consideration was allocated to assets acquired and liabilities assumed based on their respective fair values as follows:



Goodwill	$	147,089
Trademarks	112,000
Other intangible assets	17,000
Other assets, primarily current assets, net of cash acquired totaling $1,362	9,465
Current liabilities	(2,756		)
Non-current deferred tax liabilities	(47,344		)
Net assets acquired	$	235,454

Goodwill iswas calculated as the excess of the purchase price over the fair value of the net assets acquired. The goodwill resulting from the acquisition iswas attributable primarily to the value of leveraging our brand building expertise, consumer insights, supply chain capabilities and retail relationships to accelerate growth and access to ~~KRAVE~~Krave products. The recorded goodwill is not expected to be deductible for tax purposes. ~~The purchase price allocation for Krave was concluded in the third quarter of 2015.~~

Acquired trademarks were assigned estimated useful lives of 22 years, while other intangibles, including customer relationships and covenants not to compete, were assigned estimated useful lives ranging from 5 to 16 years.

~~THE HERSHEY COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

2014 Acquisitions

Shanghai Golden Monkey

On September 26, 2014 (the “Initial Acquisition”), our wholly-owned subsidiary, Hershey Netherlands B.V., ~~completed the acquisition of~~acquired 80% of the total outstanding shares of Shanghai Golden Monkey Food Joint Stock Co., Ltd. (“SGM”), a privately held confectionery company based in Shanghai, ~~China operating through six production facilities located in~~ China. The Golden Monkey product line is primarily sold in China's traditional trade channels. The business complements our position in China, and was undertaken to enable us to take advantage of SGM's distribution and manufacturing capabilities to expand sales of our Hershey products in the China marketplace. Our consolidated net sales for the year ended December 31, 2014 included approximately $54 million generated by SGM since the date of acquisition.

The Initial Acquisition was funded by cash consideration of $394,470, subject to working capital and net debt adjustments. At December 31, 2014, we had recorded a receivable of $37,860, reflecting our current best estimate of the amount due from the selling SGM shareholders for the working capital and net debt adjustments. ~~Such amount is reflected within prepaid expenses and other in the Consolidated Balance Sheet.~~

As part of the transaction, Hershey Netherlands B.V. contractually agreed to purchase the remaining 20% of the outstanding shares of SGM on the one-year anniversary of the Initial Acquisition, subject to the parties obtaining government and regulatory approvals and satisfaction of other closing conditions. At December 31, 2014, we had recorded a liability of $100,067, reflecting the acquisition date fair value of the future payment to be made to the SGM shareholders. ~~This liability is included within accrued liabilities in the Consolidated Balance Sheet.~~

The goodwill that resulted from the SGM acquisition was attributable primarily to the value of providing an established platform to leverage our brands in the China market, as well as expected synergies and other benefits from the combined brand portfolios. The recorded goodwill is not deductible for tax purposes. ~~Acquired distribution channel relationships and trademarks were assigned estimated useful lives of 16 years and 22 years, respectively.~~

During ~~the first quarter of~~ 2015, we ~~came~~recorded net increases to an agreement with the selling SGM shareholders to revise the aforementioned receivable and liability balances to reflect partial settlement of the receivable. As a result, in the first quarter, the receivable was adjusted to $8,685 and the liability was adjusted to $76,815. Additionally, during the first quarter of 2015,acquired goodwill ~~was increased by $6,623 to recognize~~for revisions to the ~~estimated~~acquired fair value of other assets and liabilities ~~acquired in the acquisition. During the second quarter, based on~~totaling $49,120, resulting primarily from 1) our ~~ongoing~~ procedures to assess the quality of acquired trade accounts receivable, we recorded an additional adjustment to increase goodwill by $25,898 to reflect bad debt allowance for an additional amount of trade receivables considered to be uncollectible as of the acquisition date.

~~During the third quarter of 2015, we continued~~2) our ~~procedures to assess the quality of acquired trade accounts receivable. We also undertook~~ procedures to further evaluate and quantify outstanding pre-acquisition trade promotion commitments to distributors, as well as allowances for returns and discounts related to excess and unsalable inventory held at distributors and sales branches as of the acquisition ~~date. In addition, we concluded on~~date, and 3) our procedures to estimate the value of pre-acquisition indirect tax contingencies. ~~As a result of these procedures, during the third quarter,~~In addition, we ~~increased the value of acquired goodwill by $16,599,~~came to an agreement with the ~~corresponding offset principally represented by the establishment of additional opening balance sheet liabilities for~~selling SGM shareholders to revise the aforementioned ~~commitments~~receivable and ~~contingencies.~~liability balances to reflect partial settlement of the receivable, whereby the receivable was adjusted to $8,685 and the liability was adjusted to $76,815.

~~THE HERSHEY COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

Based on ~~all of~~ the updated information obtained ~~through the procedures noted previously,~~throughout 2015, we updated our estimates of the acquisition-date fair values of the net assets acquired as of September 26, 2015, the conclusion of the one-year measurement period. ~~Subsequent~~Any subsequent revisions to the valuation of acquired net assets have been reflected in current results.

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

A roll-forward of the estimated acquisition-date fair values at December 31, 2014 to the final acquisition-date fair values as of September 26, 2015, the conclusion of the one-year measurement period, is as follows:



	Acquisition date purchase price allocation*
In millions of dollars	At 12/31/14			Adjustments			At 9/26/15
Accounts receivable - trade	$	46		$	(26	)	$	20
Inventories	42			(1		)	41
Other current assets	37			6			43
Property, plant and equipment	112			2			114
Goodwill	235			49			284
Other intangible assets	145			—			145
Other non-current assets	35			(3		)	32
Current liabilities assumed	(54		)	(20		)	(74		)
Short-term debt assumed	(105		)	—			(105		)
Other non-current liabilities assumed, principally deferred taxes	(52		)	(2		)	(54		)
Net assets acquired	$	441					$	446


*	Note that the final opening balance sheet value of goodwill presented in the schedule above differs from total write-off of $280.8 million due to changes in foreign currency exchange rates since the date of ~~acquisition.~~acquisition (see Note 3).

InOn February 3, 2016, we completed the purchase of the remaining 20% of the outstanding shares of SGM for cash consideration totaling $35,762, pursuant to a new agreement entered into during the fourth quarter of 2015 ~~we entered into a new agreement~~ with the selling SGM shareholders ~~to reduce~~which revised the originally-agreed purchase price for these shares. For accounting purposes, we treated the acquisition as if we had acquired 100% at the initial acquisition date in 2014 and financed the payment for the remaining 20% of ~~SGM to approximately $36 million. We completed~~the outstanding shares. Therefore, the cash settlement of the liability for the purchase ~~on February 3, 2016. We are directing our efforts currently on developing an integration plan that~~of these remaining shares is ~~focused on~~reflected within the ~~optimal structure for top-line growth.~~

~~Goodwill impairment - SGM reporting unit~~

As discussed in the second quarter of 2015, since its initial acquisition in 2014, the SGM business has performed below expectations, with net sales and earnings levels well below pre-acquisition levels. In addition, as part of our ongoing integration process, we continued to assess the quality of SGM’s accounts receivable and existing distributor networks. Based on the declining performance levels and the results of our assessment to date, we determined that an interim impairment testfinancing section of the ~~SGM reporting unit was required by U.S. generally accepted accounting principles. We performed~~Consolidated Statements of Cash Flows.

The final settlement also resulted in an extinguishment gain of $26,650 representing the first step of this test as of July 5, 2015 using an income approach based on our estimates of future performance scenarios for the business. The results of this test indicated that the fair value of the reporting unit was less than thenet carrying ~~amount as of the measurement date, suggesting that a goodwill impairment was probable, which required us to perform a second step analysis to confirm that an impairment exists and to determine the~~ amount of the ~~impairment based on our reassessed value~~recorded liability in excess of the ~~reporting unit. Although preliminary, as a result of this reassessment, in~~cash paid to settle the ~~second quarter of 2015 we recorded an estimated $249,811 non-cash goodwill impairment charge, representing a write-down of all~~obligation for the remaining 20% of the ~~goodwill related to~~outstanding shares. This gain is recorded within non-operating other (income) expense, net within the ~~SGM reporting unit as~~Consolidated Statements of ~~July 5, 2015.~~

As noted above, during the third quarter, we increased the value of acquired goodwill by $16,599, with the corresponding offset principally represented by the establishment of additional opening balance sheet liabilities for the aforementioned commitments and contingencies. We also finalized the impairment test of the goodwill relating to the SGM reporting unit, which resulted in a write-off of this additional goodwill in the third quarter, for a total impairment of $266,409. We also tested the other long-lived assets of SGM for recoverability by comparing the sum of the undiscounted cash flows to the carrying value of the asset group, and no impairment was indicated.

~~THE HERSHEY COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

~~Goodwill impairment - China chocolate reporting unit~~

In connection with the SGM acquisition, we assigned approximately $15 million of goodwill to our existing China chocolate business, as this reporting unit was expected to benefit from acquisition synergies relating to the sale of Golden Monkey-branded product through its Tier 1 and hypermarket distributor networks. As the net sales and earnings of our China business continued to be adversely impacted by macroeconomic challenges and changing consumer shopping behavior through the third quarter, we determined that an interim impairment test of the goodwill in this reporting unit was also required. We performed the first step of this test in the third quarter of 2015 using an income approach based on our estimates of future performance scenarios for the business. The results of this test suggested that a goodwill impairment was probable, and the conclusions of the second step analysis resulted in a write-down of $14,393, representing the full value of goodwill attributed to this reporting unit as of October 4, 2015.Income.

The Allan Candy Company Limited

In December 2014, our wholly-owned subsidiary, Hershey Canada Inc., completed the acquisition of all of the outstanding shares of The Allan Candy Company Limited (“Allan”) for cash consideration of approximately ~~$27,376, subject to a working capital adjustment.~~$27,376. Allan is headquartered in Ontario, Canada and manufactures certain non-chocolate products on behalf of Hershey, in addition to manufacturing and distributing its own branded products, principally in Canada. The preliminary purchase price allocation includes fixed assets of $10,897, goodwill of $6,996, other intangible assets of $8,092, and other net assets of $1,391. ~~Other intangibles include customer relationships and trademarks with estimated useful lives ranging from 3 to 19 years.~~

During the first half of 2015, we increased goodwill by $1,820 to recognize revisions to the preliminary fair value of net assets acquired. ~~The purchase price allocation for Allan was concluded in the second quarter of 2015.~~

Lotte Shanghai Food Company

In March 2014, we acquired an additional 5.9% interest in Lotte Shanghai ~~Food Company~~Foods Co., Ltd. (“LSFC”), a joint venture established in 2007 in China for the purpose of manufacturing and selling product to the venture partners. For this additional interest, we paid $5,580 in cash, increasing our ownership from 44.1% to 50%. At the same time, we also amended the LSFC shareholders' agreement resulting in our operational control over the venture. With the additional operational control, we reassessed our involvement with LSFC and concluded that we have a controlling financial interest. Therefore, we consolidated the venture as of the March 2014 acquisition date. We had previously accounted for our investment in LSFC using the equity method.

Total consideration transferred was approximately $99,161, including the $5,580 cash consideration paid, the estimated fair value of our previously held equity interest of $43,857 and the estimated fair value of the remaining noncontrolling interest in LSFC of $49,724, which fair values were determined using a market-based approach. The fair value of the LSFC assets acquired and liabilities assumed on the acquisition date was $99,449, including fixed assets of $106,253, short-term debt obligations of $13,292 and other net assets of $6,488.

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

We recognized a gain of approximately $4,627 in connection with this transaction, primarily related to the remeasurement of the fair value of our equity interest immediately before the business combination. The gain is included in other (income) expense, net within our Consolidated Statement of Income for the year ended December 31, 2014. Additionally, cash acquired in the transaction exceeded the $5,580 paid for the controlling interest by $10,035, resulting in a positive cash impact from the acquisition as presented in the Consolidated Statement of Cash Flows for the year ended December 31, 2014.

Pro Forma Presentation and Acquisition Costs

Pro forma results of operations have not been presented for these aforementioned acquisitions, as the impact to our consolidated financial statements was not ~~expected to be~~ material. In 2014, ~~and 2013,~~ we incurred net acquisition-related costs primarily related to the SGM acquisition of ~~$13,270 and $4,072, respectively.~~$13,270. These costs primarily ~~consist~~consisted of third-party advisory fees and are recorded within selling, marketing and administrative costs in the Consolidated Statements of Income, with the exception of the 2014 costs reflecting net foreign currency exchange losses relating to our strategy to cap the SGM acquisition price as denominated in U.S. dollars, which are recorded within other (income) expense, net. Acquisition costs incurred in 2016 and 2015 were not significant.

~~THE HERSHEY COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

2015 Divestiture

In December 2014, we entered into an agreement to sell the Mauna Loa Macadamia Nut Corporation (“Mauna Loa”)., a business that had historically been reported within our North America segment. The transaction closed in the first quarter of 2015, resulting in proceeds, net of selling expenses and an estimated working capital adjustment, of approximately $32,400. As a result of the expected sale, in 2014, we recorded an estimated loss on the anticipated sale of $22,256 to reflect the disposal entity at fair value, less an estimate of the selling costs. This amount included impairment charges totaling $18,531 to write down goodwill and the indefinite-lived trademark intangible asset, based on the valuation of these assets as implied by the agreed-upon sales price. The sale of Mauna Loa resulted in the recording of an additional loss on sale of $2,667 in the first quarter of 2015, based on updates to the selling expenses and tax benefits. The loss on the sale is reflected within business realignment ~~and impairment~~ costs in the Consolidated Statements of Income.

Mauna Loa had historically been reported within our North America segment. Its operations were not material to our annual net sales, net income or earnings per share. Amounts classified as assets and liabilities held for sale at December 31, 2014 were presented within prepaid expenses and other assets and accrued liabilities, respectively, and included the following:

Assets held for sale
Inventories $ 21,489
Prepaid expenses and other 173
Property, plant and equipment, net 12,691
Other intangibles 12,705
$ 47,058
Liabilities held for sale
Accounts payable and accrued liabilities $ 3,726
Other long-term liabilities 9,029
$ 12,755

3. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying value of goodwill by reportable segment for the years ended December 31, ~~2015~~2016 and ~~2014~~2015 are as follows:

~~As discussed in Note 1, we perform our annual impairment test of goodwill and other indefinite-lived intangible assets at the beginning of the fourth quarter.~~ The $280,802 impairment charge recorded in 2015 resulted from our interim

~~THE HERSHEY COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

reassessment of the valuation of the SGM business, coupled with the write-down of goodwill attributed to the China chocolate business in connection with the SGM ~~acquisition. See~~acquisition, as discussed below.

In the second quarter of 2015, since the SGM business had been performing below expectations, with net sales and earnings levels well below pre-acquisition levels, we performed an interim impairment test of the SGM reporting unit

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

as of July 5, 2015 using an income approach based on our estimates of future performance scenarios for the business. The results of this test indicated that the fair value of the reporting unit was less than the carrying amount as of the measurement date, suggesting that a goodwill impairment was probable, which required us to perform a second step analysis to confirm that an impairment exists and to determine the amount of the impairment based on our reassessed value of the reporting unit. Although preliminary, as a result of this reassessment, in the second quarter of 2015 we recorded an estimated $249,811 non-cash goodwill impairment charge, representing a write-down of all of the goodwill related to the SGM reporting unit as of July 5, 2015. During the third quarter of 2015, we increased the value of acquired goodwill by $16,599, with the corresponding offset principally represented by the establishment of additional opening balance sheet liabilities (see Note 22). We also finalized the impairment test of the goodwill relating to the SGM reporting unit, which resulted in a write-off of this additional goodwill in the third quarter, for ~~additional information.~~a total impairment of $266,409. At this time, we also tested the other long-lived assets of SGM for recoverability by comparing the sum of the undiscounted cash flows to the carrying value of the asset group, and no impairment was indicated.

In 2014, the annual impairment testing of our India reporting unit resulted in a $11,400 goodwill impairment charge and a $4,500 pre-tax write-down of a trademark associated with the India business. These impairment charges were largely a result of our decision to exit the oils portion of the India business and realign our approach to regional marketing and distribution in India.

Our remaining goodwill is currently attributed to seven reporting units. For step one of our 2015 annual test, the percentage of excess fair value over carrying value was at least 50% for each of our seven tested reporting units, with the exception of our Krave reporting unit, representing a recently acquired business whose estimated fair value approximated its carrying value.

The following table provides the gross carrying amount and accumulated amortization for each major class of intangible asset:

In connection with our annual impairment testing of indefinite lived intangible assets for 2016, we recognized a trademark impairment charge of $4,204, primarily resulting from plans to discontinue a brand sold in India.

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

Amortization expense for the next five years, based on current intangible balances, is estimated to be as follows:

4. SHORT AND LONG-TERM DEBT

As a source of short-term financing, we utilize cash on hand and commercial paper or bank loans with an original maturity of three months or less. We maintain a $1.0 billion unsecured revolving credit facility, which currently expires in November 2020. ~~The~~This agreement also includes an option to increase borrowings by an additional $400,000 with the consent of the lenders. On June 16, 2016, we entered into an additional unsecured revolving credit facility that provided for borrowings up to $500,000. We terminated this facility, which was scheduled to expire on June 15, 2017, effective October 24, 2016.

The unsecured committed revolving credit agreement contains a financial covenant whereby the ratio of (a) pre-tax income from operations from the most recent four fiscal quarters to (b) consolidated interest expense for the most recent four fiscal quarters may not be less than 2.0 to 1.0 at the end of each fiscal quarter. The credit agreement also contains customary representations, warranties and events of default. Payment of outstanding advances may be accelerated, at the option of the lenders, should we default in our obligation under the credit agreement. As of December 31, ~~2015,~~2016, we complied with all customary affirmative and negative covenants and the financial covenant

~~THE HERSHEY COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

pertaining to our credit agreement. There were no significant compensating balance agreements that legally restricted these funds.

In addition to the revolving credit facility, we maintain lines of credit with domestic and international commercial banks. Our credit limit in various currencies was $504,237 at December 31, 2016 and $516,916 ~~in 2015 and $447,629 in 2014.~~at December 31, 2015. These lines permit us to borrow at the respective banks’ prime commercial interest rates, or lower. We had short-term foreign bank loans against these lines of credit for ~~$313,520 and $329,701 in~~$158,805 at December 31, ~~2015~~2016 and $313,520 at December 31, ~~2014, respectively.~~2015. Commitment fees relating to our revolving credit facility and lines of credit are not material.



Delaware	23-0691590
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

100 Crystal A Drive, Hershey, PA	17033
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (717) 534-4200

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of each exchange on which registered
Common Stock, one dollar par value	New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of class
Class B Common Stock, one dollar par value


In millions of dollars	2015			2014			2013			2016			2015			2014
Net cash provided by (used in):
Operating activities	$	1,214.5		$	844.4		$	1,191.4		$	983.5		$	1,214.5		$	844.4
Investing activities	(477.2		)	(862.6		)	(351.6		)	(595.5		)	(477.2		)	(862.6		)
Financing activities	(755.2		)	(719.3		)	(446.6		)	(434.4		)	(755.2		)	(719.3		)
Effect of exchange rate changes on cash and cash equivalents	(10.4		)	(6.2		)	(3.0		)	(3.1		)	(10.4		)	(6.2		)
Increase (decrease) in cash and cash equivalents	(28.3		)	(743.7		)	390.2
Decrease in cash and cash equivalents										(49.5		)	(28.3		)	(743.7		)


	Payments due by Period										Payments due by Period
	In millions of dollars										In millions of dollars
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term debt	$	2,057.0	$	499.9	$	300.4	$	350.8	$	905.9	$	2,347.7	$	0.2	$	300.6	$	435.8	$	1,611.1
Interest expense (1)	457.3		73.6		118.2		111.8		153.7		850.7		78.9		156.2		136.5		479.1
Lease obligations (2)	28.2		12.6		13.3		1.6		0.7		248.5		11.7		26.1		21.7		189.0
Minimum pension plan funding obligations (3)	12.1		0.8		4.7		4.4		2.2		19.6		1.2		10.3		5.4		2.7
Unconditional purchase obligations (4)	2,333.4		1,343.1		967.9		22.4		—		1,558.8		1,282.2		276.6		—		—
Total obligations	$	4,888.0	$	1,930.0	$	1,404.5	$	491.0	$	1,062.5	$	5,025.3	$	1,374.2	$	769.8	$	599.4	$	2,281.9



		~~PAGE~~

~~INDEX TO CONSOLIDATED FINANCIAL STATEMENTS~~
Responsibility for Financial Statements		4745
Report of Independent Registered Public Accounting Firm		4846
Consolidated Statements of Income for the years ended December 31, 2016, 2015 ~~2014~~ and ~~2013~~2014		5048
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 ~~2014~~ and ~~2013~~2014		5149
Consolidated Balance Sheets as of December 31, ~~2015~~2016 and ~~2014~~2015		5250
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 ~~2014~~ and ~~2013~~2014		5351
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016, 2015 ~~2014~~ and ~~2013~~2014		5452
Notes to Consolidated Financial Statements		5553



/s/ JOHN P. BILBREY		/s/ PATRICIA A. LITTLE
John P. Bilbrey Chief Executive Officer (Principal Executive Officer)		Patricia A. Little Chief Financial Officer (Principal Financial Officer)



PART I
Item 1.	Business	1
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	10
Item 2.	Properties	11
Item 3.	Legal Proceedings	11
Item 4.	Mine Safety Disclosures	11
Supplemental Item	Executive Officers of the Registrants	12
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6.	Selected Financial Data	15
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 8.	Financial Statements and Supplementary Data	44
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	93
Item 9A.	Controls and Procedures	93
Item 9B.	Other Information	95
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	96
Item 11.	Executive Compensation	96
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	96
Item 13.	Certain Relationships and Related Transactions, and Director Independence	97
Item 14.	Principal Accountant Fees and Services	97
PART IV
Item 15.	Exhibits, Financial Statement Schedules	98
Item 16.	Form 10-K Summary	98
Signatures		99
Schedule II		100
Exhibit Index		101




	2016 (Projected)	2015	2014
Reported EPS – Diluted	$4.18 - $4.23	$2.32	$3.77
Business realignment charges
2015 Productivity Initiative	0.07 - 0.08	0.32	—
Other international programs	—	0.04	0.03
Acquisition and integration costs	0.02 - 0.03	0.05	0.05
Non-service related pension expense (income)	0.06 - 0.07	0.05	(0.01)
Goodwill / intangible asset impairment	—	1.28	0.06
Loss on early extinguishment of debt	—	0.09	—
Loss on sale of Mauna Loa	—	—	0.08
Gain on sale of trademark	—	(0.03)	—
Adjusted EPS – Diluted	$4.36 - $4.38	$4.12	$3.98


	Preferred Stock		Common Stock		Class B Common Stock			Additional Paid-in Capital			Retained Earnings			Treasury Common Stock			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests in Subsidiaries			Total Stockholders’ Equity			Preferred Stock		Common Stock		Class B Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Common Stock			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests in Subsidiaries			Total Stockholders’ Equity
Balance, January 1, 2013	$	—	$	299,272	$	60,629		$	592,975		$	5,027,617		$	(4,558,668	)	$	(385,076	)	$	11,624		$	1,048,373
Balance, January 1, 2014																										$	—	$	299,281	$	60,620	$	664,944		$	5,454,286		$	(4,707,730	)	$	(166,567	)	$	11,218		$	1,616,052
Net income											820,470												820,470												846,912												846,912
Other comprehensive income																	218,509						218,509
Other comprehensive loss																																									(192,006		)				(192,006		)
Dividends:
Common stock, $1.81 per share											(294,979		)										(294,979		)
Class B common stock, $1.63 per share											(98,822		)										(98,822		)
Common Stock, $2.04 per share																																			(328,752		)										(328,752		)
Class B Common Stock, $1.842 per share																																			(111,662		)										(111,662		)
Conversion of Class B common stock into common stock			9		(9		)																—					—		—																	—
Stock-based compensation								52,465															52,465									52,870															52,870
Exercise of stock options and incentive-based transactions								19,504						156,502									176,006									36,372						123,249									159,621
Repurchase of common stock														(305,564		)							(305,564		)													(576,755		)							(576,755		)
Earnings of and contributions from noncontrolling interests, net																				(406		)	(406		)
Balance, December 31, 2013	—		299,281		60,620			664,944			5,454,286			(4,707,730		)	(166,567		)	11,218			1,616,052
Net income											846,912												846,912
Other comprehensive income																	(192,006		)				(192,006		)
Dividends:
Common stock, $2.04 per share											(328,752		)										(328,752		)
Class B common stock, $1.842 per share											(111,662		)										(111,662		)
Stock-based compensation								52,870															52,870
Exercise of stock options and incentive-based transactions								36,372						123,249									159,621
Repurchase of common stock														(576,755		)							(576,755		)
Acquisition of Lotte Shanghai Food Company																				49,724			49,724
Acquisition of Lotte Shanghai Foods Co., Ltd.																																												49,724			49,724
Earnings of and contributions from noncontrolling interests, net																				3,526			3,526																					3,526			3,526
Balance, December 31, 2014	—		299,281		60,620			754,186			5,860,784			(5,161,236		)	(358,573		)	64,468			1,519,530			—		299,281		60,620		754,186			5,860,784			(5,161,236		)	(358,573		)	64,468			1,519,530
Net income											512,951												512,951												512,951												512,951
Other comprehensive loss																	(12,452		)	(2,152		)	(14,604		)																(12,452		)	(2,152		)	(14,604		)
Dividends:
Common stock, $2.236 per share											(352,953		)										(352,953		)
Class B common stock, $2.032 per share											(123,179		)										(123,179		)
Common Stock, $2.236 per share																																			(352,953		)										(352,953		)
Class B Common Stock, $2.032 per share																																			(123,179		)										(123,179		)
Stock-based compensation								50,722															50,722									50,722															50,722
Exercise of stock options and incentive-based transactions								8,204						71,500									79,704									8,204						71,500									79,704
Repurchase of common stock														(582,623		)							(582,623		)													(582,623		)							(582,623		)
Impact of reclassification to and purchase of redeemable noncontrolling interest								(29,235		)										(13,428		)	(42,663		)							(29,235		)										(13,428		)	(42,663		)
Earnings of noncontrolling interests																				577			577																					577			577
Balance, December 31, 2015	$	—	$	299,281	$	60,620		$	783,877		$	5,897,603		$	(5,672,359	)	$	(371,025	)	$	49,465		$	1,047,462		—		299,281		60,620		783,877			5,897,603			(5,672,359		)	(371,025		)	49,465			1,047,462
Net income																																			720,044												720,044
Other comprehensive loss																																									(4,863		)	(3,664		)	(8,527		)
Dividends (including dividend equivalents):
Common Stock, $2.402 per share																																			(369,292		)										(369,292		)
Class B Common Stock, $2.184 per share																																			(132,394		)										(132,394		)
Stock-based compensation																																54,429															54,429
Exercise of stock options and incentive-based transactions																																31,551						80,934									112,485
Repurchase of common stock																																						(592,550		)							(592,550		)
Loss of noncontrolling interests																																												(3,970		)	(3,970		)
Balance, December 31, 2016																										$	—	$	299,281	$	60,620	$	869,857		$	6,115,961		$	(6,183,975	)	$	(375,888	)	$	41,831		$	827,687



l	~~When internal-use computer software is not expected to provide substantive service potential;~~
l	~~When a significant change occurs in the extent or manner in which the software is used or is expected to be used;~~
l	~~When a significant change is made or will be made to the software program; and~~
l	~~When the costs of developing or modifying internal-use computer software significantly exceed the amount originally expected to develop or modify the software.~~



	Year Ended
	December 31, 2015			December 31, 2014			December 31, 2013
Gain on sale of non-core trademark	$	(9,950	)	$	—		$	—
Write-down of equity investments in partnerships qualifying for historic tax credits (see Note 7)	39,489			—			—
Foreign currency exchange loss relating to strategy to cap Shanghai Golden Monkey acquisition price as denominated in U.S. dollars	—			6,722			—
Gain on acquisition of controlling interest in Lotte Shanghai Food Company	—			(4,628		)	—
Other losses (gains), net	600			592			(1,624		)
Total	$	30,139		$	2,686		$	(1,624	)



Assets held for sale
Inventories	$	21,489
Prepaid expenses and other	173
Property, plant and equipment, net	12,691
Other intangibles	12,705
	$	47,058
Liabilities held for sale
Accounts payable and accrued liabilities	$	3,726
Other long-term liabilities	9,029
	$	12,755


Year ending December 31,	2016		2017		2018		2019		2020		2017		2018		2019		2020		2021
Amortization expense	$	21,928	$	21,546	$	20,006	$	19,899	$	19,660	$	28,780	$	27,240	$	27,133	$	26,894	$	26,862



2017	$	243
2018	300,279
2019	367
2020	350,462
2021	85,279
Thereafter	1,611,068



2016	$	499,923
2017	120
2018	300,279
2019	367
2020	350,462
Thereafter	905,863


(1)	Derivatives assets are classified on our balance sheet within prepaid expenses and other as well as other assets. Derivative liabilities are classified on our balance sheet within accrued liabilities and other long-term liabilities.



	Non-designated Hedges						Cash Flow Hedges
	Non-designated Hedges						Cash Flow Hedges
	Gains (losses) recognized in income (a)						Gains (losses) recognized in other comprehensive income (“OCI”) (effective portion)						Gains (losses) reclassified from accumulated OCI into income (effective portion) (b)						Gains recognized in income (ineffective portion) (c)

	2016			2015			2016			2015			2016			2015			2016		2015
Commodities futures and options	$	(171,753	)	$	(2,777	)	$	—		$	84,382		$	30,783		$	40,600		$	—	$	987
Foreign exchange contracts	(46		)	487			(5,485		)	(155		)	(5,625		)	956			—		—
Interest rate swap agreements	—			—			(47,223		)	(22,388		)	(8,676		)	(4,922		)	—		—
Deferred compensation derivatives	2,203			173			—			—			—			—			—		—
Total	$	(169,596	)	$	(2,117	)	$	(52,708	)	$	61,839		$	16,482		$	36,634		$	—	$	987


(a)	Gains (losses) recognized in income for non-designated commodities futures and options contracts were included in cost of sales. Gains (losses) recognized in income for non-designated foreign currency forward exchange contracts and deferred compensation derivatives were included in selling, marketing and administrative expenses.


(c)	Gains representing hedge ineffectiveness were included in cost of sales for commodities futures and options contracts.



	Assets (Liabilities)
	Level 1		Level 2		Level 3		Total
December 31, 2016:
Derivative Instruments:
Assets:
Foreign exchange contracts (1)	$	—	$	2,229	$	—	$	2,229
Interest rate swap agreements (2)	—		1,768		—		1,768
Deferred compensation derivatives (3)	—		717		—		717
Commodities futures and options (4)	2,348		—		—		2,348
Liabilities:
Foreign exchange contracts (1)	—		825		—		825
Interest rate swap agreements (2)	—		—		—		—
Commodities futures and options (4)	10,000		—		—		10,000
December 31, 2015:
Assets:
Foreign exchange contracts (1)	$	—	$	436	$	—	$	436
Interest rate swap agreements (2)	—		4,313		—		4,313
Deferred compensation derivatives (3)	—		1,198		—		1,198
Liabilities:
Foreign exchange contracts (1)	—		475		—		475
Interest rate swap agreements (2)	—		40,299		—		40,299
Commodities futures and options (4)	2,053		—		—		2,053


~~(5)~~	The fair value of the cross-currency swap agreement is categorized as Level 2 within the fair value hierarchy and is estimated based on the difference between the contract and current market foreign currency exchange rates at the end of the period.


~~(6)~~(3)	The fair value of deferred compensation derivatives is based on quoted prices for market interest rates and a broad market equity ~~index and is, therefore, categorized as Level 2 within the~~index.


(4)	The fair value ~~hierarchy.~~of commodities futures and options contracts is based on quoted market prices.


		Fair Value				Carrying Value				Fair Value				Carrying Value
At December 31,	At December 31,	2015		2014		2015		2014		2016		2015		2016		2015
Current portion of long-term debt	Current portion of long-term debt	$	509,580	$	257,280	$	499,923	$	250,805	$	243	$	509,580	$	243	$	499,923
Long-term debt	Long-term debt	1,668,379		1,715,662		1,557,091		1,542,317		2,379,054		1,668,379		2,347,455		1,557,091
Total	Total	$	2,177,959	$	1,972,942	$	2,057,014	$	1,793,122	2,379,297		$	2,177,959	2,347,698		$	2,057,014


~~(a)~~	Gains (losses) recognized in income for non-designated commodities futures and options contracts were included in cost of sales. Gains (losses) recognized in income for non-designated foreign currency forward exchange contracts and deferred compensation derivatives were included in selling, marketing and administrative expenses.


~~(c)~~	~~Gains representing hedge ineffectiveness were included in cost of sales for commodities futures and options contracts.~~



	Total
Liability balance at December 31, 2015	$	16,310
2016 business realignment charges (1)	18,857
Cash payments	(31,522		)
Other, net	80
Liability balance at December 31, 2016 (reported within accrued liabilities)	$	3,725


(1)	The costs reflected in the liability roll-forward above do not include items charged directly to expense, such as accelerated depreciation and amortization and the loss on the Mauna Loa divestiture and certain of the third-party charges associated with various programs, as those items are not reflected in the business realignment liability in our Consolidated Balance Sheets.



For the year ended December 31, 2015	Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
Net income							$	512,951
Other comprehensive income (loss):
Foreign currency translation adjustments	$	(59,707	)	$	—		(59,707		)
Pension and post-retirement benefit plans (a)	46,910			(16,908		)	30,002
Cash flow hedges:
Gains on cash flow hedging derivatives	61,839			(23,520		)	38,319
Reclassification adjustments (b)	(36,634		)	13,416			(23,218		)
Total other comprehensive income (loss)	$	12,408		$	(27,012	)	(14,604		)
Total comprehensive income							$	498,347
Comprehensive loss attributable to noncontrolling interests							2,152
Comprehensive income attributable to The Hershey Company							$	500,499



For the year ended December 31, 2014	Pre-Tax Amount			Tax (Expense) Benefit		After-Tax Amount
Net income						$	846,912
Other comprehensive loss:
Foreign currency translation adjustments	$	(26,851	)	$	—	(26,851		)
Pension and post-retirement benefit plans (a)	(135,361		)	50,345		(85,016		)
Cash flow hedges:
Losses on cash flow hedging derivatives	(61,358		)	24,281		(37,077		)
Reclassification adjustments (b)	(67,403		)	24,341		(43,062		)
Total other comprehensive loss	$	(290,973	)	$	98,967	(192,006		)
Total comprehensive income						$	654,906



For the year ended December 31, 2013	Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
Net income							$	820,470
Other comprehensive income (loss):
Foreign currency translation adjustments	$	(26,003	)	$	—		(26,003		)
Pension and post-retirement benefit plans (a)	265,015			(98,612		)	166,403
Cash flow hedges:
Gains on cash flow hedging derivatives	116,329			(43,995		)	72,334
Reclassification adjustments (b)	9,365			(3,590		)	5,775
Total other comprehensive income	$	364,706		$	(146,197	)	218,509
Total comprehensive income							$	1,038,979


~~(a)~~	~~These amounts are included in the computation of net periodic benefit costs. For more information, see Note 9.~~


~~(b)~~	~~For information on the presentation of reclassification adjustments for cash flow hedges on the Consolidated Statements of Income, see Note 5.~~



	Employee related costs			Other exit costs		Other implementation costs			Total
Liability balance at December 31, 2014	$	79		$	—	$	—		$	79
2015 business realignment charges	81,961			—		6,785			88,746
Cash payments	(65,336		)	—		(6,785		)	(72,121		)
Other, net	(394		)	—		—			(394		)
Liability balance at December 31, 2015	$	16,310		$	—	$	—		$	16,310


	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
December 31,	2015			2014			2015			2014			2016			2015			2016			2015
Change in benefit obligation
Projected benefits obligation at beginning of year	$	1,260,895		$	1,120,492		$	294,064		$	270,937
Projected benefit obligation at beginning of year													$	1,169,424		$	1,260,895		$	255,617		$	294,064
Service cost	28,300			26,935			542			706			23,075			28,300			299			542
Interest cost	44,179			48,886			10,187			11,696			41,875			44,179			9,731			10,187
Plan amendments	67			168			—			—			(43,065		)	67			—			—
Actuarial (gain) loss	(51,064		)	134,902			(26,887		)	35,688			15,804			(51,064		)	(2,998		)	(26,887		)
Curtailment	(2,693		)	—			292			—			—			(2,693		)	—			292
Settlement	(57,193		)	—			—			—			(59,784		)	(57,193		)	—			—
Divestiture	(4,047		)	—			—			—			—			(4,047		)	—			—
Currency translation and other	(11,456		)	(6,204		)	(2,206		)	(1,264		)	1,416			(11,456		)	314			(2,206		)
Benefits paid	(37,564		)	(64,284		)	(20,375		)	(23,699		)	(30,427		)	(37,564		)	(20,117		)	(20,375		)
Projected benefits obligation at end of year	1,169,424			1,260,895			255,617			294,064
Projected benefit obligation at end of year													1,118,318			1,169,424			242,846			255,617
Change in plan assets
Fair value of plan assets at beginning of year	1,136,943			1,091,985			—			—			1,041,902			1,136,943			—			—
Actual return on plan assets	(19,804		)	85,921			—			—			49,012			(19,804		)	—			—
Employer contributions	32,898			29,409			20,375			23,699			21,580			32,898			20,117			20,375
Settlement	(57,193		)	—			—			—			(59,784		)	(57,193		)	—			—
Divestiture	(2,485		)	—			—			—			—			(2,485		)	—			—
Currency translation and other	(10,893		)	(6,088		)	—			—			1,393			(10,893		)	—			—
Benefits paid	(37,564		)	(64,284		)	(20,375		)	(23,699		)	(30,427		)	(37,564		)	(20,117		)	(20,375		)
Fair value of plan assets at end of year	1,041,902			1,136,943			—			—			1,023,676			1,041,902			—			—
Funded status at end of year	$	(127,522	)	$	(123,952	)	$	(255,617	)	$	(294,064	)	$	(94,642	)	$	(127,522	)	$	(242,846	)	$	(255,617	)

Amounts recognized in the Consolidated Balance Sheets:
Other assets	$	—		$	25		$	—		$	—		$	39		$	—		$	—		$	—
Accrued liabilities	(4,841		)	(9,054		)	(24,205		)	(25,214		)	(28,994		)	(4,841		)	(22,576		)	(24,205		)
Other long-term liabilities	(122,681		)	(114,923		)	(231,412		)	(268,850		)	(65,687		)	(122,681		)	(220,270		)	(231,412		)
Total	$	(127,522	)	$	(123,952	)	$	(255,617	)	$	(294,064	)	$	(94,642	)	$	(127,522	)	$	(242,846	)	$	(255,617	)

Amounts recognized in Accumulated Other Comprehensive Income (Loss), net of tax:
Actuarial net (loss) gain	$	(264,570	)	$	(279,625	)	$	7,574		$	(7,936	)	$	(243,228	)	$	(264,570	)	$	9,264		$	7,574
Net prior service credit (cost)	4,267			5,341			(1,919		)	(2,430		)	28,360			4,267			(1,565		)	(1,919		)
Net amounts recognized in AOCI	$	(260,303	)	$	(274,284	)	$	5,655		$	(10,366	)	$	(214,868	)	$	(260,303	)	$	7,699		$	5,655


	Pension Plans			Post-Retirement Benefit Plans			Pension Plans			Post-Retirement Benefit Plans
Amortization of net actuarial loss (gain)	$	35,230		$	(49	)	$	33,567		$	(1	)
Amortization of prior service (credit) cost	$	(1,046	)	$	575		$	(5,822	)	$	747