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 are regularly the target of attempted cyber and other security threats. Therefore, we continuously monitor and update our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. 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 have been subject to cyber attacks and other security breaches, these incidents did not have a significant impact on our business operations. We believe our security technology tools and processes provide adequate measures of protection against security breaches and in reducing cybersecurity risks. Nevertheless, despite continued vigilance in these areas, 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. This in turn could have a negative impact on our financial condition and results or operations. In addition, the cost to remediate any damages to our information technology systems suffered as a result of a cyber attack could be significant.

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

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 new or existing senior management positions as 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.

Risks Related to the Industry in Which We Operate

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, corn products, dairy products, peanuts, almonds, natural gas and diesel fuel.

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

•Commodity market fluctuations;

•Currency exchanges rates;

•Imbalances between supply and demand;

•The effects of climate change and extreme weather on crop yield and quality;

•Speculative influences;

•Trade agreements among producing and consuming nations;

•Supplier compliance with commitments;

•Import/export requirements for raw materials and finished goods;

•Political unrest in producing countries;

•Introduction of living income premiums or similar requirements; and

•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, freight, 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.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 10

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:

•Effective retail execution;

•Appropriate advertising campaigns and marketing programs;

•Our ability to secure adequate shelf space at retail locations;

•Our ability to drive sustainable innovation and maintain a strong pipeline of new products in the confectionery and broader snacking categories;

•Changes in product category consumption;

•Our response to consumer demographics and trends, including but not limited to, trends relating to store trips and the impact of the growing digital commerce channel; and

•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 31% of our total net sales in 2020. 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.

Risks Related to Strategic Initiatives

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.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 11

In 2020, we successfully completed the divestitures of Krave and the Scharffen Berger and Dagoba brands as we better prioritize resources against assets and brands that fit our business model and scale capabilities. Additionally, over the last several years, we have continued to invest in our snacks portfolio, specifically with the acquisitions of ONE Brands, LLC in September 2019, Pirate Brands in October 2018 and Amplify Snack Brands, Inc. in January 2018, respectively. While we believe significant operating synergies can be obtained in connection with these acquisitions, achievement of these synergies will be driven by our ability to successfully leverage Hershey's resources, expertise, capability-building, distribution locations and customer base. In addition, these acquisitions are important steps in our journey to expand our breadth in snacking, as they should enable us to bring scale and category management capabilities to a key sub-segment of the warehouse snack aisle. If we are unable to successfully couple Hershey’s scale and expertise in brand building with ONE Brands, Pirate Brands and Amplify's existing operations, it may impact our ability to expand our snacking footprint at our desired pace.

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

In 2020, 2019 and 2018, respectively, we derived approximately 13.6%, 15.8% and 16.1% of our net sales from customers located outside of the United States. Additionally, approximately 20% of our total long-lived assets were located outside of the United States as of December 31, 2020. As part of our strategy, we have made investments outside of the United States, particularly in Canada, Malaysia, Mexico, Brazil and India. As a result, we are subject to risks and uncertainties relating to international sales and operations, including:

•The inability to manage operational stability and business resiliency within our international markets due to unforeseen global economic and environmental changes resulting in business interruption, supply constraints, inflation, deflation or decreased demand;

•The inability to establish, develop and achieve market acceptance of our global brands in international markets;

•Difficulties and costs associated with compliance and enforcement of remedies under a wide variety of complex laws, treaties and regulations;

•Unexpected changes in regulatory environments;

•Political and economic instability, including the possibility of civil unrest, terrorism, mass violence or armed conflict;

•Nationalization of our properties by foreign governments;

•Tax rates that may exceed those in the United States and earnings that may be subject to withholding requirements and incremental taxes upon repatriation;

•Potentially negative consequences from changes in tax laws;

•The imposition of tariffs, quotas, trade barriers, other trade protection measures and import or export licensing requirements;

•Increased costs, disruptions in shipping or reduced availability of freight transportation;

•The impact of currency exchange rate fluctuations between the U.S. dollar and foreign currencies;

•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

•Failure to recruit, retain and build a talented and engaged global workforce.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 12

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~~Recently introduced strategic initiatives include our efforts to continue to expand our presence in digital commerce, to transform our manufacturing, commercial and corporate operations through digital technologies and to enhance our data analytics capabilities to develop new commercial insights. If we are not able to capture our share of the expanding digital commerce market, if we do not adequately leverage technology to improve operating efficiencies or if we are unable to develop the data analytics capabilities needed to generate actionable commercial insights, our business performance may be impacted, which may negatively impact our financial condition and results of operations.

Additionally, from time to time we implement business realignment activities to support key strategic initiatives designed to maintain long-term sustainable growth, such as the International Optimization Program, which we commenced in the fourth quarter of 2020 and the Margin for Growth Program we commenced in the first quarter of ~~2017.~~2017 and subsequently completed in mid-2020. 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.

Risks Related to Governmental and Regulatory Changes

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, import/export requirements 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, broad political instability, rising unemployment, pandemic outbreak of disease, climate change, weather, natural and other disasters 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.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 13

Risks Related to Digital Transformation, Cybersecurity and Data Privacy

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

We are regularly the target of attempted cyber and other security threats. Therefore, we continuously monitor and update our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. 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 resiliency preparedness. We also have processes in place to prevent disruptions resulting from our implementation of new software and systems.

Complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations.

We rely extensively on information systems and technology to manage our business and summarize operating results. We are in the process of a multi-year implementation of a new global enterprise resource planning (“ERP”) system. This ERP system will replace our existing operating and financial systems. The ERP system is designed to accurately maintain the Company’s financial records, enhance operational functionality and provide timely information to the Company’s management team related to the operation of the business. The ERP system implementation process has required, and will continue to require, the investment of significant personnel and financial resources. We may not be able to successfully implement the ERP system without experiencing further delays, increased costs and other difficulties. We selectively paused certain aspects of the ERP system implementation due to resource constraints and challenges associated with the critical design phase during these uncertain times. We expect this to delay our overall ERP implementation by approximately one year. If we are unable to successfully design and implement the new ERP system as planned, our financial positions, results of operations and cash flows could be negatively impacted. Additionally, if we do not effectively implement the ERP system as planned or the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess those controls adequately could be further delayed.

Item 1B. UNRESOLVED STAFF COMMENTS

None.


~~Item 1B.~~ Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 14			~~UNRESOLVED STAFF COMMENTS~~

~~None.~~


~~Item 2.~~	~~PROPERTIES~~ 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

Hazleton, 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~~Kennesaw, Georgia

Distribution

~~Own~~⁽¹⁾

Lease

~~Mexico~~

Hershey, Pennsylvania

Corporate administrative

Lease

New York, New York

Retail

Lease

Canada

Brantford, Ontario

Distribution

Lease

Mexico

Monterrey, Mexico

Manufacturing—confectionery products

Own

~~China~~

~~Shanghai, China~~El Salto, Mexico

Manufacturing—confectionery products and pantry items

Own

Malaysia

Johor, Malaysia

Manufacturing—confectionery products

Own

~~(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.~~

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~~regularly improve our facilities to incorporate the latest technologies. The largest facilities are located in Hershey, Lancaster and ~~Lancaster,~~Hazleton, Pennsylvania; Monterrey and El Salto, 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~~facility primarily ~~serve~~serves our International and Other segment. As discussed in Note 1113 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~~ 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 trade regulation, product liability, advertising, contracts, environmental issues, patent and trademark matters, labor and employment matters, human and workplace rights matters and tax. While it is not feasible to predict or determine the 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 our financial condition, results of operations or cash flows.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.


~~Item 4.~~ Table of Contents			~~MINE SAFETY DISCLOSURES~~The Hershey Company \| 2020 Form 10-K \| Page 15

~~Not applicable.~~

SUPPLEMENTAL ITEM. INFORMATION ABOUT OUR EXECUTIVE OFFICERS ~~OF THE REGISTRANT~~

The executive officers of the Company, their positions and, as of February ~~16, 2018,~~12, 2021, their ages are set forth below.

Name

Age

Positions Held During the Last Five Years

Michele G. Buck

5659

Chairman of the Board, President and Chief Executive Officer (October 2019); President and Chief Executive Officer (March 2017); Executive Vice President, Chief Operating Officer (June 2016); President, North America (May 2013)

Charles R. Raup

President, U.S. (January 2020); ~~Senior~~ Vice President, ~~Chief Growth Officer (September 2011)~~U.S. CMG (June 2018); Vice President and General Manager, Chocolate (August 2017); Vice President and General Manager, Mexico (October 2015); Vice President, Emerging Brands (November 2014)

~~Javier H. Idrovo~~Jason Reiman

5049

~~Chief Accounting Officer (August 2015); Senior Vice President, Finance and Planning (September 2011)~~

~~Patricia A. Little~~ ⁽¹⁾

~~Senior Vice President, Chief Financial Officer (March 2015)~~

~~Terence L. O’Day~~

~~Senior Vice President, Chief Product Supply and Technology Officer (March 2017);~~ Senior Vice President, Chief Supply Chain Officer (June 2019); Vice President, Supply Chain Operations (August 2018); Vice President, US Supply Chain Operations (July 2017); Vice President, International Operations (May ~~2013)~~2017); Vice President, AEMA Supply Chain Operations (October 2015); President, Global Logistics Excellence (January 2013)

Kristen J. Riggs

Senior Vice President, ~~Global Operations (December 2008)~~Chief Growth Officer (January 2020); Vice President, Innovation and Strategic Growth Platforms (September 2019); Vice President, Commercial Planning (June 2018); Vice President, Brand Commercialization (July 2017); Senior Director, Reese’s (October 2015); Team Lead, Sam’s Club (September 2013)

~~Todd W. Tillemans~~ ⁽²⁾

Christopher M. Scalia

5645

~~President, U.S. (April 2017)~~

~~Leslie M. Turner~~

~~Senior Vice President, General Counsel and Corporate Secretary (July 2012)~~

~~Kevin R. Walling~~

Senior Vice President, Chief Human Resources Officer ~~(November 2011)~~(January 2020); Vice President, Global Human Resources (March 2018); Vice President, Talent, HR Operations and Analytics (December 2014)

~~Mary Beth West~~ ⁽³⁾Steven E. Voskuil (1)

5552

Senior Vice President, Chief ~~Growth~~Financial Officer and Chief Accounting Officer (November 2019); Senior Vice President, Chief Financial Officer (May ~~2017)~~2019)

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


~~(1)~~	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)~~	~~Mr. Tillemans was elected President, U.S. effective April 3, 2017. Prior to joining our Company he was President, Customer Development U.S. at Unilever N.V. (December 2012).~~


~~(3)~~	Ms. West was elected Senior Vice President, Chief Growth Officer effective May 1, 2017. Prior to joining our Company she was Executive Vice President, Chief Customer and Marketing Officer at J.C. Penney (June 2015) and Executive Vice President, Chief Category and Marketing Officer at Mondelez Global Inc. (October 2012).

(1) Mr. Voskuil was elected Senior Vice President, Chief Financial Officer effective May 13, 2019. Prior to joining our Company he was Senior Vice President and Chief Financial Officer at Avanos Medical, Inc. (November 2014).

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


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 16

PART II


~~Item 5.~~	~~MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~ 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, ~~2017,~~2020, was ~~$113.51.~~$152.33. There were ~~28,336~~25,253 stockholders of record of our Common Stock and 6 stockholders of record of our Class B Stock as of December 31, ~~2017.~~2020.

We paid ~~$526.3~~$640.7 million in cash dividends on our Common Stock and Class B Stock in ~~2017~~2020 and ~~$499.5~~$610.3 million in ~~2016.~~2019. The annual dividend rate on our Common Stock in ~~2017~~2020 was ~~$2.548~~$3.154 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 Common Stock for the two most recent fiscal years is disclosed in Note 1719 to the Consolidated Financial Statements.

On ~~January 31, 2018,~~February 2, 2021, our Board declared a quarterly dividend of ~~$0.656~~$0.804 per share of Common Stock payable on March 15, ~~2018,~~2021, to stockholders of record as of February ~~23, 2018.~~19, 2021. It is the Company’s ~~353rd~~365th consecutive quarterly Common Stock dividend. A quarterly dividend of ~~$0.596~~$0.731 per share of Class B Stock also was declared.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Issuer Purchases of Equity Securities

~~There were no purchases of our Common Stock during the three months ended December 31, 2017.~~

In ~~January 2016,~~July 2018, our Board of Directors approved a $500 million share repurchase authorization. As of December 31, ~~2017,~~2020, approximately ~~$100~~$260 million remained available for repurchases of our Common Stock under this program. ~~In October 2017, our Board of Directors approved an additional $100 million~~The share repurchase ~~authorization, to commence after the existing 2016 authorization is completed. Neither the 2016 nor the 2017 share repurchase programs~~program does not have an expiration date.

In ~~August 2017,~~November 2018, the Company entered into a Stock Purchase Agreement with Hershey Trust Company, as trustee for the ~~Milton Hershey School~~ Trust, ~~(the “Trust”),~~ pursuant to which the Company ~~agreed to purchase 1,500,000~~purchased 450,000 shares of the Company’s common stock from the Trust at a price equal to ~~$106.01~~$106.30 per share, for a total purchase price of ~~$159~~$47.8 million.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 17

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, ~~2012~~2015 in stock or index, including reinvestment of dividends.


	December 31,
Company/Index	2015		2016		2017		2018		2019		2020
The Hershey Company	$	100	$	119	$	133	$	130	$	182	$	192
S&P 500 Index	$	100	$	112	$	136	$	130	$	171	$	203
S&P 500 Packaged Foods Index	$	100	$	109	$	111	$	90	$	118	$	123

December 31,
Company/Index 2012 2013 2014 2015 2016 2017
The Hershey Company $ 100
$ 137
$ 150
$ 132
$ 157
$ 176
S&P 500 Index $ 100
$ 132
$ 150
$ 153
$ 171
$ 208
S&P 500 Packaged Foods Index $ 100
$ 126
$ 146
$ 156
$ 164
$ 186

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


~~Item 6.~~ Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 18			~~SELECTED FINANCIAL DATA~~

Item 6. SELECTED FINANCIAL DATA

FIVE-YEAR CONSOLIDATED FINANCIAL SUMMARY

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


	2020		2019	2018	2017	2016
Summary of Operations
Net sales	$	8,149,719	7,986,252	7,791,069	7,515,426	7,440,181
Cost of sales	$	4,448,450	4,363,774	4,215,744	4,060,050	4,270,642
Selling, marketing and administrative	$	1,890,925	1,905,929	1,874,829	1,885,492	1,891,305
Goodwill, long-lived & intangible asset impairment charges	$	9,143	112,485	57,729	208,712	4,204
Business realignment costs	$	18,503	8,112	19,103	47,763	18,857
Interest expense, net	$	149,374	144,125	138,837	98,282	90,143
Provision for income taxes	$	219,584	234,032	239,010	354,131	379,437
Net income attributable to The Hershey Company	$	1,278,708	1,149,692	1,177,562	782,981	720,044
Net income per share:
—Basic—common stock	$	6.30	5.64	5.76	3.79	3.45
—Diluted—common stock	$	6.11	5.46	5.58	3.66	3.34
—Basic—Class B stock	$	5.72	5.12	5.24	3.44	3.15
—Diluted—Class B stock	$	5.71	5.10	5.22	3.44	3.14
Weighted-average shares outstanding:
—Basic—common stock	147,832		148,841	149,379	151,625	153,519
—Basic—Class B stock	60,614		60,614	60,614	60,620	60,620
—Diluted—common stock	209,414		210,702	210,989	213,742	215,304
Dividends paid on common stock	$	466,777	445,618	412,491	387,466	369,292
Per share	$	3.154	2.990	2.756	2.548	2.402
Dividends paid on Class B stock	$	173,719	164,627	151,789	140,394	132,394
Per share	$	2.866	2.716	2.504	2.316	2.184
Depreciation	$	219,021	218,096	231,012	211,592	231,735
Amortization	$	75,886	73,448	64,132	50,261	70,102
Advertising	$	516,936	513,302	479,908	541,293	521,479
Year-End Position and Statistics
Capital additions (including software)	$	441,626	318,192	328,601	257,675	269,476
Total assets	$	9,131,845	8,140,395	7,703,020	5,553,726	5,524,333
Short-term debt and current portion of long-term debt	$	512,870	735,672	1,203,316	859,457	632,714
Long-term portion of debt	$	4,089,755	3,530,813	3,254,280	2,061,023	2,347,455
Stockholders’ equity	$	2,237,883	1,744,994	1,407,266	931,565	827,687
Full-time employees	15,200		14,520	14,930	15,360	16,300
Stockholders’ Data
Outstanding shares of common stock and Class B common stock at year-end	208,227		208,829	209,729	210,861	212,260
Market price of common stock at year-end	$	152.33	146.98	107.18	113.51	103.43
Price range during year (high)	$	160.95	161.40	114.06	115.96	113.89
Price range during year (low)	$	111.43	104.30	89.54	102.87	83.32

2017 2016 2015 2014 2013
Summary of Operations
Net Sales $ 7,515,426
7,440,181
7,386,626
7,421,768
7,146,079
Cost of Sales $ 4,070,907
4,282,290
4,003,951
4,085,602
3,865,231
Selling, Marketing and Administrative $ 1,913,403
1,915,378
1,969,308
1,900,970
1,922,508
Goodwill, Indefinite and Long-Lived Asset Impairment Charges $ 208,712
4,204
280,802
15,900
—
Business Realignment Costs $ 47,763
32,526
94,806
29,721
18,665
Interest Expense, Net $ 98,282
90,143
105,773
83,532
88,356
Provision for Income Taxes $ 354,131
379,437
388,896
459,131
430,849
Net Income Attributable to The Hershey Company $ 782,981
720,044
512,951
846,912
820,470
Net Income Per Share:
—Basic—Common Stock $ 3.79
3.45
2.40
3.91
3.76
—Diluted—Common Stock $ 3.66
3.34
2.32
3.77
3.61
—Basic—Class B Stock $ 3.44
3.15
2.19
3.54
3.39
—Diluted—Class B Stock $ 3.44
3.14
2.19
3.52
3.37
Weighted-Average Shares Outstanding:
—Basic—Common Stock 151,625
153,519
158,471
161,935
163,549
—Basic—Class B Stock 60,620
60,620
60,620
60,620
60,627
—Diluted—Common Stock 213,742
215,304
220,651
224,837
227,203
Dividends Paid on Common Stock $ 387,466
369.292
352,953
328,752
294,979
Per Share $ 2.548
2.402
2.236
2.040
1.810
Dividends Paid on Class B Stock $ 140,394
132,394
123,179
111,662
98,822
Per Share $ 2.316
2.184
2.032
1.842
1.630
Depreciation $ 211,592
231,735
197,054
176,312
166,544
Amortization $ 50,261
70,102
47,874
35,220
34,489
Advertising $ 541,293
521,479
561,644
570,223
582,354
Year-End Position and Statistics
Capital Additions (including software) $ 257,675
269,476
356,810
370,789
350,911
Total Assets $ 5,553,726
5,524,333
5,344,371
5,622,870
5,349,724
Short-term Debt and Current Portion of Long-term Debt $ 859,457
632,714
863,436
635,501
166,875
Long-term Portion of Debt $ 2,061,023
2,347,455
1,557,091
1,542,317
1,787,378
Stockholders’ Equity $ 931,565
827,687
1,047,462
1,519,530
1,616,052
Full-time Employees 15,360
16,300
19,060
20,800
12,600
Stockholders’ Data
Outstanding Shares of Common Stock and Class B Stock at Year-end 210,861
212,260
216,777
221,045
223,895
Market Price of Common Stock at Year-end $ 113.51
103.43
89.27
103.93
97.23
Price Range During Year (high) $ 115.96
113.89
110.78
108.07
100.90
Price Range During Year (low) $ 102.87
83.32
83.58
88.15
73.51


~~Item 7.~~ Table of Contents			~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~The Hershey Company \| 2020 Form 10-K \| Page 19

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:

•Business Model and Growth Strategy

•Overview

~~Non-GAAP Information~~•Trends Affecting Our Business

•Consolidated Results of Operations

•Segment Results

•Liquidity and Capital Resources

•Critical Accounting Policies and Estimates

BUSINESS MODEL AND GROWTH STRATEGY

We are the largest producer of quality chocolate in North America, a leading snack maker in the United States and a global leader in chocolate and non-chocolate confectionery. We report our operations through two segments: North America and International and Other.

Our vision is to be an innovative snacking powerhouse. We aspire to be a leader in meeting consumers' evolving snacking needs while strengthening the capabilities that drive our growth. We are focused on four strategic imperatives to ensure the Company's success now and in the future:

•Drive Core Confection Business and Broaden Participation in Snacking. We continue to be the undisputed leader in U.S. confection by taking actions to deepen our consumer connections and utilize our beloved brands to deliver meaningful innovation, while also diversifying our portfolio to capture profitable and incremental growth across the broader snacking continuum.

◦Our products frequently play an important role in special moments among family and friends. Seasons are an important part of our business model and for consumers, they are highly anticipated, cherished times, centered around traditions. For us, it’s an opportunity for our brands to be part of many connections during the year when family and friends gather.

◦Innovation is an important lever in this variety seeking category and we are leveraging work from our proprietary demand landscape analytical tool to shape our future innovation and make it more impactful. We are becoming more disciplined in our focus on platform innovation, which should enable sustainable growth over time and significant extensions to our core.

◦To expand our breadth in snacking, we are focused on expanding the boundaries of our core confection brands to capture new snacking occasions and increasing our exposure into new snack categories through acquisitions. Our expansion into snacking is being fueled by the recent acquisitions of ONE Brands in September 2019, Pirate Brands in October 2018 and Amplify in January 2018.

•Deliver Profitable International Growth. We are focused on ensuring that we efficiently allocate our resources to the areas with the highest potential for profitable growth. We have reset our international investment strategy, while holding fast to our belief that our targeted emerging market strategy will deliver long-term, profitable growth. The uncertain macroeconomic environment in many of these markets is expected to continue and we aim to ensure our investments in these international markets are appropriate relative to the size of the opportunity.


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•Expand Competitive Advantage Through Differentiated Capabilities. In order to generate actionable insights, we must acquire, integrate, access and utilize vast sources of the right data in an effective manner. We are working to leverage our advanced data and analytical techniques to gain a deep understanding of our consumers, our customers, our shoppers, our end-to-end supply chain, our retail environment and key economic drivers at both a macro and precision level, including digital transformation and new media models. In addition, we are in the process of transforming our supply chain capabilities and enterprise resource planning system, which will enable employees to work more efficiently and effectively.

•Responsibly Manage Our Operations to Ensure the Long-Term Sustainability of Our Business, Our Planet and Our People. We are a purpose-driven company and for more than a century, our iconic brands have been built on a foundation of community investment and connections between people around the world. We could not have achieved this without our remarkable employees who make our purpose a reality. We believe our long-standing values make our Company a special place to work.

◦We believe our employees are among our most important resources and are critical to our continued success. Our annual Many Voices, One Hershey survey reaches all of our employees around the world to solicit their thoughts on the Company's direction and their place in it. Post-survey action planning has resulted in changes to our decision-making processes and significantly improved annual survey scores over time. We also use surveys throughout the year to engage our employees on the Company's strategy, initiatives and leadership.

◦Our diverse and inclusive culture makes the difference across all areas of the business. Our gender representation includes women occupying many of the top positions in the Company, including Chief Executive Officer and Chairman of the Board, and Chief Growth Officer, and approximately 50% representation across the Company. Across the salaried workforce in the United States, we paid women $1.00 on the dollar compared to men.

◦We have made strong progress on our environmental, social and governance ("ESG") priorities and continue to elevate these ESG initiatives for a greater global impact. While we focus on sustainability and social impact across our value chain, we continue to improve and focus on the lives of cocoa farmers and cocoa communities, the environmental priorities of climate change and the role of packaging in our business, responsibly and sustainably sourcing the inputs to our products and increasing investments in human rights and diversity initiatives and growing diverse representation across the organization.

OVERVIEW

Hershey is a global confectionery leader known for bringing goodness to the world through chocolate, sweets, mints, gum and other great tasting snacks. We are the largest producer of quality chocolate in North America, a leading snack maker in the United States and a global leader in chocolate and non-chocolate confectionery. We market, sell and distribute our products under more than 90 brand names in approximately 85 countries worldwide.

Our principal 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, popcorn and protein bars and cookies.

Business Acquisitions and Divestitures

In October 2020, we entered into a definitive agreement to divest Lotte Shanghai Foods Co., Ltd. ("LSFC"). The sale of LSFC was completed in January 2021 and was previously included within the International and Other segment results in our consolidated financial statements. Additionally, during the second quarter of 2020, we completed the divestitures of Krave and the Scharffen Berger and Dagoba brands, all of which were previously included within the North America segment results in our consolidated financial statements.

In September 2019, we completed the acquisition of ONE Brands, previously a privately held company that sells a line of low-sugar, high-protein nutrition bars to retailers and distributors in the United States, with the ONE Bar as its primary product. The acquisition complements our existing snacking businesses acquired in 2018.

In October 2018, we completed the acquisition of Pirate Brands, which includes the Pirate's Booty, Smart Puffs and Original Tings brands, from B&G Foods, Inc. Pirate Brands offers baked, trans fat free and gluten free snacks and is available in a wide range of food distribution channels in the United States.


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In January 2018, we completed the acquisition of all of the outstanding shares of Amplify, a publicly traded company based in Austin, Texas that owns several popular better-for-you snack brands such as SkinnyPop, Oatmega and Paqui. The acquisition enables us to capture more consumer snacking occasions by creating a broader portfolio of brands.

TRENDS AFFECTING OUR BUSINESS

On March 11, 2020, the World Health Organization designated the novel coronavirus, COVID-19, as a global pandemic. COVID-19 was first detected in Wuhan City, Hubei Province, China and continued to spread, significantly impacting various markets around the world, including the U.S. Various policies and initiatives have been implemented to reduce the global transmission of COVID-19.

Local, state and national governments continue to emphasize the importance of food supply during this pandemic and asked that food manufacturers and retailers remain open to meet the needs of our communities. Employee safety is our first priority, and as a result, we put preparedness plans in place at our manufacturing facilities. Our manufacturing facilities are currently open; however, we have adjusted shift schedules, enforced social distancing, increased sanitation and adjusted time and attendance policies for worker absenteeism. Our sales teams continue to support community food supplies, while adhering to social distancing guidelines, implementing flexible hours, reducing person-to-person interaction and increasing safety measures. At the onset of the pandemic, the Company temporarily closed all Hershey's Chocolate World stores in the U.S. (3 locations), Niagara Falls (Ontario) and Singapore; however, since July, all locations were re-opened on a limited capacity basis with increased safety measures and enforced social distancing.

In June, we commenced a phased in approach to reopen our corporate headquarters in Hershey, Pennsylvania and other select offices with increased safety protocols. We have successfully onboarded several teams; however, occupancy levels remain low as we continue to monitor the latest COVID-19 related public health and government guidance. As a result, a majority of our office-based employees continue to work remotely where possible. We have crisis management teams in place to monitor the continually evolving situation and recommending risk mitigation actions as deemed necessary. To date, there has been minimal disruption to our supply chain network, including the supply of our ingredients, packaging or other sourced materials, though it is possible that more significant disruptions could occur if the COVID-19 pandemic continues to impact markets around the world. We are also working closely with our business units, contract manufacturers, distributors, contractors and other external business partners to minimize the potential impact on our business.

We believe we have sufficient liquidity to satisfy our cash needs; however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. Our most recent liquidity measures include the $1 billion Notes issuance in May 2020 with varying rates ranging from 0.900% to 2.650% and maturity dates ranging from 2025 to 2050. Additionally, we continue to limit discretionary spending across the organization and re-prioritize our capital projects amid the COVID-19 pandemic. We plan to move forward with our new global ERP system implementation and supply chain capacity projects, as these investments are of strategic importance to our long-term growth. However, as previously announced, we did selectively pause certain aspects of the ERP system implementation due to resource constraints and challenges associated with the critical design phase during these uncertain times. We expect this to delay our overall ERP implementation by approximately one year.

In late May and early June, many state governments began a phased reopening of their economies. These phased approaches promoted limited food service offerings, outdoor dining, increased travel and the reopening of retailing establishments while imposing new guidelines and enhanced safety measures, including social distancing and face mask protocols. As a result, we experienced an increase in our net sales and income during 2020. Unfavorable impacts from COVID-19 were primarily limited to our International and Other segment (see Segment Results included in this MD&A). We believe the financial impacts from COVID-19 are temporary in nature and do not significantly affect our business model and growth strategy.

While recent reopening approaches have made a short-term positive impact on local and state economies and the U.S. unemployment rate, certain states have modified reopening plans as new cases of COVID-19 have led to new trends in outbreaks and hotspots. Based on the length and severity of COVID-19, including the distribution of vaccinations, we may experience continued volatility in retail foot traffic, consumer shopping and consumption behavior. We will


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continue to evaluate the nature and extent of these potential impacts to our business, consolidated results of operations, segment results, liquidity and capital resources.

CONSOLIDATED RESULTS OF OPERATIONS


										Percent Change
For the years ended December 31,	2020			2019			2018			2020 vs 2019		2019 vs 2018
In millions of dollars except per share amounts
Net sales	$	8,149.7		$	7,986.3		$	7,791.1		2.0	%	2.5	%
Cost of sales	4,448.5			4,363.8			4,215.7			1.9	%	3.5	%
Gross profit	3,701.2			3,622.5			3,575.4			2.2	%	1.3	%
Gross margin	45.4		%	45.4		%	45.9		%
SM&A expense	1,890.9			1,905.9			1,874.8			(0.8)	%	1.7	%
SM&A expense as a percent of net sales	23.2		%	23.9%			24.1%
Long-lived and intangible asset impairment charges	9.1			112.5			57.7			(91.9)	%	94.9	%
Business realignment costs	18.5			8.1			19.1			128.1	%	(57.5)	%
Operating profit	1,782.7			1,596.0			1,623.8			11.7	%	(1.7)	%
Operating profit margin	21.9		%	20.0		%	20.8		%
Interest expense, net	149.4			144.1			138.8			3.6	%	3.8	%
Other (income) expense, net	138.3			71.1			74.8			94.7	%	(5.0)	%
Provision for income taxes	219.6			234.0			239.0			(6.2)	%	(2.1)	%
Effective income tax rate	14.7		%	16.9		%	17.0		%
Net income including noncontrolling interest	1,275.4			1,146.8			1,171.2			11.2	%	(2.1)	%
Less: Net loss attributable to noncontrolling interest	(3.3)			(2.9)			(6.5)			12.1	%	(54.8)	%
Net income attributable to The Hershey Company	$	1,278.7		$	1,149.7		$	1,177.7		11.2	%	(2.4)	%
Net income per share—diluted	$	6.11		$	5.46		$	5.58		11.9	%	(2.2)	%

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

Net Sales

2020 compared with 2019

Net sales increased 2.0% in 2020 compared with 2019, reflecting a favorable price realization of 2.3% due to higher prices on certain products and a 0.5% benefit from net acquisitions and divestitures (predominantly driven by the 2019 acquisition of ONE Brands, partially offset by the 2020 divestitures of Krave and the Scharffen Berger and Dagoba brands). These increases were partially offset by an unfavorable impact from foreign currency exchange rates of 0.5% and a volume decrease of 0.3% due to the impact of COVID-19 on sales in our international markets, as well as declines in owned retail and world travel retail and elasticity-driven impacts due to price increases on certain products.

2019 compared with 2018

Net sales increased 2.5% in 2019 compared with 2018, reflecting a favorable price realization of 1.7% due to higher prices on certain products, a 1.0% benefit from net acquisitions and divestitures (predominantly driven by the 2019 acquisition of ONE Brands and the 2018 acquisition of Pirate Brands, partially offset by 2018 divestitures) and a volume increase of 0.1%, partially offset by an unfavorable impact from foreign currency exchange rates of 0.3%. Excluding foreign currency, our 2019 net sales increased 2.8%. Consolidated volumes increased due to solid marketplace growth in select international markets.


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Key U.S. Marketplace Metrics

For the full year 2020, our total U.S. retail takeaway increased 5.3% in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores), which includes candy, mint, gum, salty snacks, meat snacks and grocery items. Our U.S. candy, mint and gum ("CMG") consumer takeaway increased 4.9%, resulting in a CMG market share gain of approximately 159 basis points.

The CMG consumer takeaway and market share information reflect 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 Information Resources, Incorporated ("IRI"), the Company's market insights and analytics provider, and provide a means to assess our retail takeaway and market position relative to the overall category.

Cost of Sales and Gross Margin

2020 compared with 2019

Cost of sales increased 1.9% in 2020 compared with 2019. The increase in cost of sales was attributed to higher freight and logistics costs and additional plant costs, specifically, PPE costs, increased sanitation and wage incentives associated with COVID-19. Additionally, the increase was driven by an incremental $28.9 million of unfavorable mark-to-market activity on our commodity derivative instruments. These derivative instruments are intended to economically hedge future years' commodity purchases; however, they were significantly impacted by financial market volatility during 2020. These drivers were partially offset by favorable price realization and favorable supply chain productivity

Gross margin remained the same in 2020 compared with 2019. Increases were driven by the higher freight and logistics costs, additional plant costs, and unfavorable year-over-year mark-to-market impact from commodity derivative instruments. These factors were offset by favorable price realization and supply chain productivity.

2019 compared with 2018

Cost of sales increased 3.5% in 2019 compared with 2018. The increase was driven by higher freight and logistics costs, additional plant costs, and an incremental $33.9 million unfavorable impact from marking-to-market our commodity derivative instruments intended to economically hedge future years' commodity purchases. These drivers were partially offset by favorable supply chain productivity.

Gross margin decreased by 50 basis points in 2019 compared with 2018. The decrease was driven primarily by to the higher freight and logistics costs, additional plant costs, and the unfavorable year-over-year mark-to-market impact from commodity derivative instruments. These factors were partially offset by supply chain productivity, price realization, and favorable product mix.

Selling, Marketing and Administrative

2020 compared with 2019

Selling, marketing and administrative (“SM&A”) expenses decreased $15.0 million or 0.8% in 2020. Total advertising and related consumer marketing expenses decreased 2.0% driven by media cost efficiencies and select brand investment optimization related to COVID-19 in International and Other segments. SM&A expenses, excluding advertising and related consumer marketing, decreased approximately 0.1% in 2020 due to savings in travel and meeting expenses related to COVID-19 travel restrictions and project timing shifts.

2019 compared with 2018

SM&A expenses increased $31.1 million or 1.7% in 2019. Total advertising and related consumer marketing expenses increased 4.2% driven by advertising increases in North America. SM&A expenses, excluding advertising and related consumer marketing, increased approximately 0.2% in 2019 due to incremental expenses from Pirate Brands and ONE Brands, as well as higher employee related compensation, which more than offset reductions in our base spending from the Margin for Growth Program.


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Long-Lived and Intangible Asset Impairment Charges

We recorded the following impairment charges:


For the year ended December 31,	2020		2019		2018
In millions of dollars
Adjustment to disposal group (1)	$	6.2	$	2.7	$	57.7
Other asset write-down (2)	2.9		—		—
Customer relationship and trademark intangible assets (3)	—		100.1		—
Other long-lived assets not held for sale (4)	—		9.7		—
Long-lived and intangible asset impairment charges	$	9.1	$	112.5	$	57.7

(1)In connection with our disposal group classified as held for sale, during 2020 and 2019, we recorded impairment charges to adjust long-lived asset values. The fair value of the disposal group was supported by potential sales prices with third-party buyers. The sale of the LSFC joint venture (disposal group) was completed in January 2021. In 2018, we recorded impairment charges totaling $57.7 million to adjust the long-lived asset values within certain disposal groups, including the Shanghai Golden Monkey ("SGM") and Tyrrells businesses, the LSFC joint venture and other assets. These charges represent the excess of the disposal groups' carrying values, including the related currency translation adjustment amounts realized or to be realized upon completion of the sales, over the sales values less costs to sell for the respective businesses. The fair values of the disposal groups were supported by the sales prices paid by third-party buyers or estimated sales prices based on marketing of the disposal group, when the sale has not yet been completed. The sales of SGM and Tyrrells were both completed in July 2018.

(2)In connection with a previous sale, the Company wrote-down certain receivables deemed uncollectible.

(3)During the fourth quarter of 2019, we recorded impairment charges to write down customer relationship and trademark intangible assets associated with Krave. These charges were determined by comparing the fair value of the asset group to its carrying value. We used various valuation techniques to determine fair value, with the primary techniques being discounted cash flow analysis and relief-from-royalty valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy.

(4)During 2019, we recorded impairment charges predominantly comprised of select long-lived assets that had not yet met the held for sale criteria. The fair value of these assets was supported by potential sales prices with third-party buyers and market analysis.

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 Activities

We periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies. In 2020, 2019 and 2018, we recorded business realignment costs of $18.5 million, $8.1 million and $19.1 million, respectively. The 2020 costs related primarily to the International Optimization Program, a program focused on optimizing our China operating model to improve our operational efficiency and provide for a strong, sustainable and simplified base going forward. The 2019 and 2018 costs related primarily to the Margin for Growth Program, a program focused on improving global efficiency and effectiveness, optimizing the Company’s supply chain, streamlining the Company’s operating model and reducing administrative expenses to generate long-term savings. Costs associated with business realignment activities are classified in our Consolidated Statements of Income as described in Note 9 to the Consolidated Financial Statements.


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Operating Profit and Operating Profit Margin

2020 compared with 2019

Operating profit increased 11.7% in 2020 compared with 2019 due primarily to higher gross profit, lower SM&A and lower impairment charges, partially offset by higher business realignment costs in the 2020 period, as noted above. Operating profit margin increased to 21.9% in 2020 from 20.0% in 2019 driven by these same factors.

2019 compared with 2018

Operating profit decreased 1.7% in 2019 compared with 2018 due primarily to higher impairment charges and higher SM&A, partially offset by higher gross profit and lower business realignment costs in the 2019 period, as noted above. Operating profit margin decreased to 20.0% in 2019 from 20.8% in 2018 driven by these same factors.

Interest Expense, Net

2020 compared with 2019

Net interest expense was $5.2 million higher in 2020 than in 2019. The increase was due to higher long-term debt balances in 2020 versus 2019, specifically due to $1.0 billion of notes issued in October 2019 and $1.0 billion of notes issued in May 2020.

2019 compared with 2018

Net interest expense was $5.3 million higher in 2019 than in 2018. The increase was due to a higher average long-term debt balance in 2019 versus 2018.

Other (Income) Expense, Net

2020 compared with 2019

Other (income) expense, net totaled an expense of $138.3 million in 2020 versus an expense of $71.1 million in 2019. The increase in the net expense was primarily due to higher write-downs on equity investments qualifying for federal solar tax credits, partially offset by lower non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans during 2020 compared to the 2019 period.

2019 compared with 2018

Other (income) expense, net totaled an expense of $71.1 million in 2019 versus an expense of $74.8 million 2018. The decrease in the net expense was primarily due to lower other non-operating losses during 2019 compared to the 2018 period.

Income Taxes and Effective Tax Rate

2020 compared with 2019

Our effective income tax rate was 14.7% for 2020 compared with 16.9% for 2019. Relative to the 21% statutory rate, the 2020 effective tax rate benefited from investment tax credits and the benefit of employee share-based payments, partially offset by state taxes. The 2019 effective rate, relative to the 21% statutory rate was impacted by changes to foreign valuation allowances, a favorable foreign rate differential, investment tax credits and the benefit of employee share-based payment, which were partially offset by the impact of state taxes.

2019 compared with 2018

Our effective income tax rate was 16.9% for 2019 compared with 17.0% for 2018. Relative to the 21% statutory rate, the 2019 effective tax rate was impacted by changes to foreign valuation allowances, a favorable foreign rate differential, investment tax credits and the benefit of employee share-based payments, which were partially offset by the impact of state taxes. The 2018 effective rate, relative to the 21% statutory rate, benefited from a favorable foreign rate differential and investment tax credits, which were partially offset by the impact of state taxes.


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Net Income attributable to The Hershey Company and Earnings Per Share-diluted

2020 compared with 2019

Net income increased $129.0 million, or 11.2%, while EPS-diluted increased $0.65, or 11.9%, in 2020 compared with 2019. The increase in both net income and EPS-diluted was driven primarily by higher gross profit, lower SM&A, lower impairment charges, and lower income taxes in 2020, partially offset by higher other income and expenses, higher business realignment costs, and higher interest expense. Our 2020 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.

2019 compared with 2018

Net income decreased $27.9 million, or 2.4%, while EPS-diluted decreased $0.12, or 2.2%, in 2019 compared with 2018. The decrease in both net income and EPS-diluted was driven primarily by higher impairment charges and SM&A in 2019, partially offset by higher gross profit, lower business realignment costs and lower income taxes. Our 2019 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.


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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, unallocated mark-to-market gains and losses on commodity derivatives, business realignment and impairment charges, acquisition-related costs 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 directly attributable to our ongoing segment operations.

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


For the years ended December 31,	2020		2019		2018
In millions of dollars
Net Sales:
North America	$	7,416.7	$	7,081.8	$	6,901.6
International and Other	733.0		904.5		889.5
Total	$	8,149.7	$	7,986.3	$	7,791.1

Segment Income:
North America	$	2,321.8	$	2,125.9	$	2,020.1
International and Other	28.6		95.7		73.8
Total segment income	2,350.4		2,221.6		2,093.9
Unallocated corporate expense (1)	520.7		532.6		528.9
Unallocated mark-to-market losses (gains) on commodity derivatives (2)	6.4		(28.6)		(168.3)
Long-lived and intangible asset impairment charges	9.1		112.5		57.8
Costs associated with business realignment activities	31.5		9.2		51.8


Operating profit	1,782.7		1,595.9		1,623.7
Interest expense, net	149.4		144.1		138.8
Other (income) expense, net	138.3		71.0		74.8
Income before income taxes	$	1,495.0	$	1,380.8	$	1,410.1

(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, (d) acquisition-related costs, and (e) other gains or losses that are not integral to segment performance.

(2)Net losses (gains) on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative losses (gains). See Note 13 to the Consolidated Financial Statements.


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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 91.0%, 88.7% and 88.6% of our net sales in 2020, 2019 and 2018, respectively. North America results for the years ended December 31, 2020, 2019 and 2018 were as follows:


										Percent Change
For the years ended December 31,	2020			2019			2018			2020 vs 2019		2019 vs 2018
In millions of dollars
Net sales	$	7,416.7		$	7,081.8		$	6,901.6		4.7	%	2.6	%
Segment income	2,321.8			2,125.9			2,020.1			9.2	%	5.2	%
Segment margin	31.3		%	30.0		%	29.3		%

2020 compared with 2019

Net sales of our North America segment increased $334.9 million or 4.7% in 2020 compared to 2019, reflecting favorable price realization of 2.8% attributed to higher prices on certain products, a volume increase of 1.4% due to an increase in everyday core U.S. confection brands and our snacks portfolio and a 0.6% benefit from net acquisitions and divestitures (predominantly driven by the 2019 acquisition of ONE Brands, partially offset by the 2020 divestitures of Krave and the Scharffen Berger and Dagoba brands). These increases were partially offset by an unfavorable impact from foreign currency exchange rates of 0.1%.

Our North America segment income increased $195.9 million or 9.2% in 2020 compared to 2019, primarily due to favorable price realization and volume increases, partially offset by higher supply chain-related costs, specifically, PPE costs, increased sanitation and wage incentives associated with COVID-19.

2019 compared with 2018

Net sales of our North America segment increased $180.2 million or 2.6% in 2019 compared to 2018, reflecting a favorable price realization of 2.0% attributed to higher prices on certain products and a benefit from net impact of acquisitions and divestitures of 1.4%. This was partially offset by a volume decrease of 0.7% and an unfavorable impact from foreign currency exchange rates of 0.1%. Our volume decline was driven primarily by pricing elasticity, as well as the introduction of new packaging formats during 2019. Excluding the Amplify, Pirate Brands and ONE Brands acquisitions and Tyrrells divestiture, our North America segment net sales increased 1.2%.

Our North America segment income increased $105.8 million or 5.2% in 2019 compared to 2018, primarily due to favorable price realization, favorable sales mix and favorable commodity costs, partially offset by higher freight and logistics costs, higher supply chain-related costs and higher advertising expense.


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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, Las Vegas, Niagara Falls (Ontario) 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 9.0%, 11.3% and 11.4% of our net sales in 2020, 2019 and 2018, respectively. International and Other results for the years ended December 31, 2020, 2019 and 2018 were as follows:


										Percent Change
For the years ended December 31,	2020			2019			2018			2020 vs 2019		2019 vs 2018
In millions of dollars
Net sales	$	733.0		$	904.5		$	889.5		(19.0)	%	1.7	%
Segment income	28.6			95.7			73.8			(70.1)	%	29.7	%
Segment margin	3.9		%	10.6		%	8.3		%

2020 compared with 2019

Net sales of our International and Other segment decreased $171.5 million or 19.0% in 2020 compared to 2019, reflecting a volume decrease of 13.7%, an unfavorable impact from foreign currency exchange rates of 4.1% and an unfavorable price realization of 1.2%. The volume declines were attributed to significant sales declines in Mexico and China, where net sales declined by 24.6% and 46.0%, respectively, due to the implementation of quarantine protocols by local governments to mitigate the spread of COVID-19. Furthermore, net sales declines in China were also attributable to the commencement of the International Optimization Program.

Our International and Other segment also includes licensing, owned retail and world travel retail, where net sales declined approximately 31.2% during 2020. At the onset of the pandemic, the Company temporarily closed all Hershey's Chocolate World stores in the U.S. (3 locations), Niagara Falls (Ontario) and Singapore; however, as of July, all locations were re-opened on a limited capacity basis with increased safety measures and enforced social distancing.

Our International and Other segment generated income of $28.6 million in 2020 compared to $95.7 million in 2019. This decrease was driven by the lower level of net sales associated with the COVID-19 disruption.

2019 compared with 2018

Net sales of our International and Other segment increased $15.0 million or 1.7% in 2019 compared to 2018, reflecting a volume increase of 5.7%, partially offset by a 2.2% reduction in net sales primarily from the divestiture of SGM, an unfavorable impact from foreign currency exchange rates of 1.5%, and unfavorable price realization of 0.3%. Excluding the divestiture of SGM and unfavorable foreign currency exchange rates, our International and Other segment net sales increased 5.4%. The volume increase was primarily attributed to solid marketplace growth in Mexico, India and Regional Markets where net sales increased by 6.7%, 4.9% and 4.5%, respectively. The unfavorable net price realization was driven by increased levels of trade promotional spending compared to the prior year.

Our International and Other segment generated income of $95.7 million in 2019 compared to $73.8 million in 2018, with the improvement primarily resulting from our efforts to drive sustainable gross margin improvements as we executed our Margin for Growth program and optimized the product portfolio across various international markets. Additionally, segment income benefited from continued growth across Mexico, India, China and Regional Markets, as well as our licensing and world travel retail business.


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Unallocated Corporate Expense

Unallocated corporate 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.

Unallocated corporate expense totaled $520.7 million in 2020 as compared to $532.6 million in 2019 primarily driven by savings in travel and meeting expenses related to COVID-19 travel restrictions and project timing shifts. In 2019, unallocated corporate expense increased $3.7 million from $528.9 million in 2018 primarily driven by compensation related expenses, partially offset by acquisition-related costs.

LIQUIDITY AND CAPITAL RESOURCES

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, 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 amounts of cash from operations and remain in a strong financial position, with sufficient liquidity available for capital reinvestment, strategic acquisitions and the payment of dividends.

Cash Flow Summary

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


In millions of dollars	2020		2019		2018
Net cash provided by (used in):
Operating activities	$	1,699.6	$	1,763.9	$	1,599.9
Investing activities	(531.3)		(780.5)		(1,502.9)
Financing activities	(499.2)		(1,081.4)		116.1
Effect of exchange rate changes on cash and cash equivalents	(7.0)		3.3		(5.3)
Less: Cash classified as assets held for sale (see Note 8)	(11.4)		—		—
Increase (decrease) in cash and cash equivalents	$	650.7	$	(94.7)	$	207.8

Operating activities

Our principal source of liquidity is cash flow from operations. 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 2020 decreased $64.3 million relative to 2019. This decrease was driven by the following factors:

•Net working capital (comprised of trade accounts receivable, inventory, accounts payable and accrued liabilities) consumed cash of $166 million in 2020 and generated cash of $60 million in 2019. This $226 million fluctuation was mainly driven by a higher year-over-year build up of U.S. inventories to satisfy product requirements and maintain sufficient levels to accommodate customer requirements, as well as an increase in cash used by accounts receivable due to an increase in sales of U.S. seasonal products.

•The decrease in cash provided by operating activities was partially offset by the following net cash inflows:

◦Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation, deferred income taxes, long-lived and intangible asset charges, write-down of equity investments and other charges) resulted in $207 million of higher cash flow in 2020 relative to 2019.


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Cash provided by operating activities in 2019 increased $164.0 million relative to 2018. This increase was driven by the following factors:

•Net working capital (comprised of trade accounts receivable, inventory, accounts payable and accrued liabilities) generated cash of $60 million in 2019 and consumed cash of $104 million in 2018. This $164 million fluctuation was mainly driven by higher cash receipts prior to year-end 2019, the timing of vendor and supplier payments, as well as higher accrued incentive compensation related to annual performance that was paid in the first quarter of 2020.

•Prepaid expenses and other current assets generated cash of $14 million in 2019, compared to a use of cash of $40 million in 2018. This $54 million fluctuation was mainly driven by the timing of payments on commodity futures. In addition, in 2019, the volume of commodity futures held, which require margin deposits, was lower compared to 2018. We utilize commodity futures contracts to economically manage the risk of future price fluctuations associated with our purchase of raw materials.

•The increase in cash provided by operating activities was partially offset by the following net cash outflows:

◦Income taxes used cash of $9 million in 2019, compared to cash generated of $76 million in 2018. This $85 million fluctuation was mainly due to the variance in actual tax expense for 2019 relative to the timing of quarterly estimated tax payments, which resulted in a lower taxes payable position at the end of 2019 compared to 2018.

◦Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation, deferred income taxes, long-lived and intangible asset charges, write-down of equity investments and other charges) resulted in $2 million of lower cash flow in 2019 relative to 2018.

Pension and Post-Retirement Activity. We recorded net periodic benefit costs of $34.5 million, $41.4 million and $42.1 million in 2020, 2019 and 2018, 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 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 $11.7 million, $20.1 million and $25.9 million in 2020, 2019 and 2018, respectively.

Investing activities

Our principal uses of cash for investment purposes relate to purchases of property, plant and equipment and capitalized software, as well as acquisitions of businesses, partially offset by proceeds from sales of property, plant and equipment. We used cash of $531.3 million for investing activities in 2020 compared to $780.5 million in 2019, with the decrease in cash spend driven by less acquisition activity. We used cash of $1,502.9 million for investing activities in 2018, and the decrease in 2019 in cash spend was driven by less acquisition and divestiture activity.

Primary investing activities include the following:

•Capital spending. Capital expenditures, including capitalized software, primarily to support our ERP system implementation, capacity expansion, innovation and cost savings, were $441.6 million in 2020, $318.2 million in 2019 and $328.6 million in 2018. Our 2020 expenditures were substantially higher than 2019 expenditures due to progress on our key strategic projects, however, 2020 expenditures were below original expectations due to a selective pause on certain aspects of our ERP system implementation. Our 2019 expenditures were relatively in line with 2018 expenditures. We expect 2021 capital expenditures, including capitalized software, to approximate $550 million. The increase in our 2021 capital expenditures is largely driven by the continuation of our ERP system implementation, as well as our supply chain capacity projects which focus on additional capacity for our largest and fastest growing brands, building agile fulfillment and customization capabilities and investing in new


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data and technology within our supply chain to enhance visibility and automation. We will continue to evaluate and re-prioritize our capital projects amid the COVID-19 pandemic.

•Proceeds from sales of property, plant and equipment and other long-lived assets. During 2020, proceeds from the sale of property, plant and equipment and other long-lived assets was minimal. During 2019, we generated $28.1 million of proceeds from the sale of property, plant and equipment and other long-lived assets. This included the sale of select Pennsylvania facilities and land for sales proceeds of approximately $27.6 million, resulting in a gain on the sale of $11.3 million. During 2018, we generated $49.8 million of proceeds from the sale of property, plant and equipment and other long-lived assets. This included sales of select China facilities that were taken out of operation in connection with the Operational Optimization Program. Proceeds from the sale of these facilities totaled $27.5 million, resulting in a gain of $6.6 million. Additionally, we sold licensing rights for a non-core trademark relating to a brand marketed outside of the U.S. for $13.0 million, resulting in a gain of $2.7 million.

•Proceeds from the sales of businesses. In 2020 and 2019, we had minimal or no proceeds from the sales of businesses. In 2018, we sold the Tyrrells and SGM businesses. Collectively, the proceeds from the sales of these businesses, net of cash divested, totaled approximately $167.0 million.

•Business acquisitions. In 2020, we had no acquisition activity. In 2019, we spent $402.2 million to acquire ONE Brands. In 2018, we spent $915 million to acquire Amplify and $423 million to acquire Pirate Brands.

•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 $87.2 million in 2020, $80.2 million in 2019 and $52.6 million in 2018 in projects qualifying for tax credits.

•Other investing activities. In 2020 and 2019, we made minority investments in emerging snacking businesses that qualify as cost method investments.

Financing activities

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. Financing activities in 2020 used cash by $499.2 million, compared to cash used of $1,081.4 million in 2019. We generated cash of $116.1 million for financing activities in 2018, primarily to fund acquisition activity.

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 2020, we generated cash flow of $41.8 million due to an increase in short-term foreign bank borrowings. In 2019, we used $1.2 billion to reduce short-term commercial paper borrowings and short-term foreign borrowings. We utilized the proceeds from the issuance of long-term debt in October 2019 to repay outstanding commercial paper used to fund the ONE Brands acquisition. In 2018, we generated cash flow of $645.8 million through the issuance of short-term commercial paper, partially offset by a reduction in short-term foreign bank borrowings. We utilized the proceeds from the issuance of commercial paper to fund the Amplify acquisition and repay Amplify's outstanding debt owed under its existing credit agreement. A portion of the commercial paper borrowings used to fund the Amplify acquisition were subsequently refinanced with the proceeds of new notes issued during the second quarter of 2018, as discussed below.

•Long-term debt borrowings and repayments. In May 2020, we issued $300 million of 0.900% Notes due in 2025, $350 million of 1.700% Notes due in 2030 and $350 million of 2.650% Notes due in 2050 (the "2020 Notes"). Proceeds from the issuance of the 2020 Notes, net of discounts and issuance costs, totaled $989.9 million. Additionally, in May 2020 and December 2020, we repaid $350 million of 2.900% Notes and $350 million of 4.125% Notes due upon their maturities. In October 2019, we issued $300 million of 2.05% Notes due in 2024, $300 million of 2.45% Notes due in 2029 and $400 million of 3.125% Notes due in 2049 (the "2019 Notes"). Proceeds from the issuance of the 2019 Notes, net of discounts and issuance costs, totaled $990.3 million. In May 2018, we issued $350 million of 2.90% Notes due in 2020, $350 million of 3.10% Notes due in 2021 and $500


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million of 3.375% Notes due in 2023 (the "2018 Notes"). Proceeds from the issuance of the 2018 Notes, net of discounts and issuance costs, totaled $1,193.8 million. In 2018, we repaid $300 million of 1.60% Notes due upon their maturity. Additionally, in August 2018, we repaid a portion of the commercial paper borrowings that had been used to fund the Amplify acquisition.

•Tax receivable obligation. In connection with the Amplify acquisition, the Company agreed to make payments to the counterparty of a tax receivable agreement. In 2018, we paid $72.0 million to settle the tax receivable obligation.

•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. In 2020, we used cash for total share repurchases of $211.2 million that included purchases pursuant to authorized programs; this included $150.0 million to purchase 1.0 million shares. In 2019, we used cash for total share repurchases of $527.2 million that included purchases pursuant to authorized programs; this included $150.0 million to purchase 1.4 million shares. In 2018, we used cash for total share repurchases of $247.5 million, which included a privately negotiated repurchase transaction with Hershey Trust Company, as trustee for the Trust, to purchase 450 thousand shares for $47.8 million. In October 2017, our Board of Directors approved a $100 million share repurchase authorization. This program was completed in the first quarter of 2019. In July 2018, our Board of Directors approved an additional $500 million share repurchase authorization. As of December 31, 2020, approximately $260 million remained available for repurchases of our Common Stock under this program. The share repurchase program does not have an expiration date. We expect 2021 share repurchases to return to a more traditional buyback strategy.

•Dividend payments. Total dividend payments to holders of our Common Stock and Class B Common Stock were $640.7 million in 2020, $610.3 million in 2019 and $562.5 million in 2018. Dividends per share of Common Stock increased 5.5% to $3.154 per share in 2020 compared to $2.990 per share in 2019, while dividends per share of Class B Common Stock increased 5.5% in 2020. Details regarding our 2020 cash dividends paid to stockholders are as follows:


	Quarter Ended
In millions of dollars except per share amounts	March 29, 2020		June 28, 2020		September 27, 2020		December 31, 2020
Dividends paid per share – Common stock	$	0.773	$	0.773	$	0.804	$	0.804
Dividends paid per share – Class B common stock	$	0.702	$	0.702	$	0.731	$	0.731
Total cash dividends paid	$	157.8	$	156.5	$	163.7	$	162.7
Declaration date	January 28, 2020		April 21, 2020		July 8, 2020		November 6, 2020
Record date	February 21, 2020		May 22, 2020		August 21, 2020		November 20, 2020
Payment date	March 16, 2020		June 15, 2020		September 15, 2020		December 15, 2020


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~~Financial Condition~~Cost of Sales and Gross Margin

~~Critical Accounting Policies~~2020 compared with 2019

Cost of sales increased 1.9% in 2020 compared with 2019. The increase in cost of sales was attributed to higher freight and ~~Estimates~~logistics costs and additional plant costs, specifically, PPE costs, increased sanitation and wage incentives associated with COVID-19. Additionally, the increase was driven by an incremental $28.9 million of unfavorable mark-to-market activity on our commodity derivative instruments. These derivative instruments are intended to economically hedge future years' commodity purchases; however, they were significantly impacted by financial market volatility during 2020. These drivers were partially offset by favorable price realization and favorable supply chain productivity

~~BUSINESS MODEL AND GROWTH STRATEGY~~2019 compared with 2018

~~We are~~Cost of sales increased 3.5% in 2019 compared with 2018. The increase was driven by higher freight and logistics costs, additional plant costs, and an incremental $33.9 million unfavorable impact from marking-to-market our commodity derivative instruments intended to economically hedge future years' commodity purchases. These drivers were partially offset by favorable supply chain productivity.

Gross margin decreased by 50 basis points in 2019 compared with 2018. The decrease was driven primarily by to the ~~largest producer of quality chocolate~~higher freight and logistics costs, additional plant costs, and the unfavorable year-over-year mark-to-market impact from commodity derivative instruments. These factors were partially offset by supply chain productivity, price realization, and favorable product mix.

Selling, Marketing and Administrative

2020 compared with 2019

2019 compared with 2018

SM&A expenses increased $31.1 million or 1.7% in 2019. Total advertising and related consumer marketing expenses increased 4.2% driven by advertising increases in North ~~America,~~America. SM&A expenses, excluding advertising and related consumer marketing, increased approximately 0.2% in 2019 due to incremental expenses from Pirate Brands and ONE Brands, as well as higher employee related compensation, which more than offset reductions in our base spending from the Margin for Growth Program.


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Long-Lived and Intangible Asset Impairment Charges

We recorded the following impairment charges:


For the year ended December 31,	2020		2019		2018
In millions of dollars
Adjustment to disposal group (1)	$	6.2	$	2.7	$	57.7
Other asset write-down (2)	2.9		—		—
Customer relationship and trademark intangible assets (3)	—		100.1		—
Other long-lived assets not held for sale (4)	—		9.7		—
Long-lived and intangible asset impairment charges	$	9.1	$	112.5	$	57.7

(2)In connection with a ~~leading snack maker~~previous sale, the Company wrote-down certain receivables deemed uncollectible.

Business Realignment Activities


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Operating Profit and Operating Profit Margin

2020 compared with 2019

Operating profit increased 11.7% in 2020 compared with 2019 due primarily to higher gross profit, lower SM&A and lower impairment charges, partially offset by higher business realignment costs in the ~~United States~~2020 period, as noted above. Operating profit margin increased to 21.9% in 2020 from 20.0% in 2019 driven by these same factors.

2019 compared with 2018

Interest Expense, Net

2020 compared with 2019

2019 compared with 2018

Net interest expense was $5.3 million higher in 2019 than in 2018. The increase was due to a ~~global leader~~higher average long-term debt balance in ~~chocolate~~2019 versus 2018.

Other (Income) Expense, Net

2020 compared with 2019

Other (income) expense, net totaled an expense of $138.3 million in 2020 versus an expense of $71.1 million in 2019. The increase in the net expense was primarily due to higher write-downs on equity investments qualifying for federal solar tax credits, partially offset by lower non-service cost components of net periodic benefit cost relating to pension and ~~non-chocolate confectionery known for bringing goodness~~other post-retirement benefit plans during 2020 compared to the ~~world through chocolate, sweets, mints~~2019 period.

2019 compared with 2018

Income Taxes and Effective Tax Rate

2020 compared with 2019

2019 compared with 2018


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Net Income attributable to The Hershey Company and Earnings Per Share-diluted

2020 compared with 2019

Net income increased $129.0 million, or 11.2%, while EPS-diluted increased $0.65, or 11.9%, in 2020 compared with 2019. The increase in both net income and EPS-diluted was driven primarily by higher gross profit, lower SM&A, lower impairment charges, and lower income taxes in 2020, partially offset by higher other ~~great tasting snacks. We market, sell~~income and ~~distribute~~expenses, higher business realignment costs, and higher interest expense. Our 2020 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our ~~products under more than 80 brand names~~Board-approved repurchase programs.

2019 compared with 2018

Net income decreased $27.9 million, or 2.4%, while EPS-diluted decreased $0.12, or 2.2%, in ~~approximately 80 countries worldwide. We report~~2019 compared with 2018. The decrease in both net income and EPS-diluted was driven primarily by higher impairment charges and SM&A in 2019, partially offset by higher gross profit, lower business realignment costs and lower income taxes. Our 2019 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.


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SEGMENT RESULTS

The summary that follows provides a discussion of the results of operations ~~through~~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, unallocated mark-to-market gains and losses on commodity derivatives, business realignment and impairment charges, acquisition-related costs 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 ~~we have a set of differentiated capabilities~~ that ~~when integrated, can create advantage in the marketplace. Our focus on the following key elements~~these measures are useful to investors and other users of our ~~strategy should enable us~~financial information in evaluating ongoing operating profitability as well as in evaluating operating performance in relation to ~~deliver top-tier growth~~our competitors, as they exclude the activities that are not directly attributable to our ongoing segment operations.

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


For the years ended December 31,	2020		2019		2018
In millions of dollars
Net Sales:
North America	$	7,416.7	$	7,081.8	$	6,901.6
International and Other	733.0		904.5		889.5
Total	$	8,149.7	$	7,986.3	$	7,791.1

Segment Income:
North America	$	2,321.8	$	2,125.9	$	2,020.1
International and Other	28.6		95.7		73.8
Total segment income	2,350.4		2,221.6		2,093.9
Unallocated corporate expense (1)	520.7		532.6		528.9
Unallocated mark-to-market losses (gains) on commodity derivatives (2)	6.4		(28.6)		(168.3)
Long-lived and intangible asset impairment charges	9.1		112.5		57.8
Costs associated with business realignment activities	31.5		9.2		51.8


Operating profit	1,782.7		1,595.9		1,623.7
Interest expense, net	149.4		144.1		138.8
Other (income) expense, net	138.3		71.0		74.8
Income before income taxes	$	1,495.0	$	1,380.8	$	1,410.1

(1)Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance and ~~industry-leading shareholder returns.~~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, (d) acquisition-related costs, and (e) other gains or losses that are not integral to segment performance.

(2)Net losses (gains) on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative losses (gains). See Note 13 to the Consolidated Financial Statements.

~~Reignite Core Confection and Expand Breadth in Snacking~~. We are taking actions in an effort to deepen our consumer connections, deliver meaningful innovation and reinvent the shopping experience, while also pursuing opportunities to diversify our portfolio and establish a strong presence across snacking.


◦ Table of Contents			We are a part of special meaningful moments with family and friends. Seasons are an important part of our business model and for consumers, they are highly anticipated, cherished special times, centered around traditions. For us, it’s an opportunity for our brands to be part of many connections during the year when family and friends gather.The Hershey Company \| 2020 Form 10-K \| Page 28


◦	Innovation is an important lever in this variety seeking category and we are leveraging some exciting work from our proprietary demand landscape to shape our future innovation and make it more impactful. We are becoming more disciplined in our relentless focus on platform innovation, which enables sustainable growth over time and significant extensions to our core.


◦	Through our shopper insights, we are currently working with our retail partners on in-aisle strategy that will breathe life into the center of the store and transform the shopping experience by improving paths to purchase, stopping power, navigation, engagement and conversion. We have also responded to the changing retail environment by investing in e-commerce capabilities.


◦	To expand our breadth in snacking, we are focused on expanding the boundaries of our core confection brands to capture new snacking occasions and increasing our exposure into new snack categories through acquisitions.

~~Reallocate Resources to Expand Margins and Fuel Growth.~~ We are focused on ensuring that we allocate our resources efficiently to the areas with the highest potential for profitable growth. We believe this will enable significant margin expansion and position us in the top quartile related to operating income margin.


◦	We have reset our international investment, while we still believe strongly that our targeted emerging markets will provide long-term growth. The uncertain macroeconomic environment in many of these markets is expected to continue and our investments in these international markets need to be relative to the size of the opportunity.


◦	We have heightened our selling, marketing and administrative expense discipline within the Company in an effort to make improvements without jeopardizing our topline growth. Our expectation is that advertising and related marketing expense will grow roughly in line with sales.


◦	~~We will continue cost of goods sold optimization through pricing and programs like network supply chain optimization and lean manufacturing.~~

~~Strengthen Capabilities & Leverage Technology for Commercial Advantage~~. The world is changing fast and so is the data on which we rely to make decisions. In order to generate insights, we must acquire, integrate and access vast sources of the right data in an effective manner. We are working to leverage our advanced analytical techniques which will give us a deep understanding of consumers, our shoppers, our end-to-end supply chain, our retail environment and macroeconomic factors at both a broad and precision level. In addition, we are in the process of transforming our enterprise resource planning system which will allow employees to work more efficiently and effectively.

North America

~~OVERVIEW~~

The ~~Overview presented below~~North America segment is ~~an executive-level summary highlighting the key trends~~responsible for our chocolate and ~~measures on which the Company’s management focuses in evaluating its financial condition~~non-chocolate confectionery market position, as well as our grocery and operating performance. Certain earnings and performance measures within the Overview include financial information determined on a non-GAAP basis, which aligns with how management internally evaluates the Company's results of operations, determines incentive compensation, and assesses the impact of known trends and uncertainties on the business. A detailed reconciliation of the non-GAAP financial measures referenced herein to their nearest comparable GAAP financial measures follows this summary. For a detailed analysis of the Company's operations prepared in accordance with accounting principles generally acceptedgrowing snacks market positions, in the United States ofand Canada. This includes developing and growing our business in chocolate and non-chocolate confectionery, pantry, food service and other snacking product lines. North America ~~("GAAP")~~accounted for 91.0%, ~~referred to as "reported" herein, refer to the discussion~~88.7% and ~~analysis in the Consolidated Results~~88.6% of ~~Operations.~~

In 2017, we made solid progress on our strategic initiatives, including strengthening our core chocolate brands, positioning our snacks business for success and generating operating profit margin expansion. These initiatives will benefit the Company over the long term and enable us to achieve our sales and earnings per share-diluted ("EPS") targets. We continued to generate solid operating cash flow, totaling approximately $1.2 billion in 2017, which affords the Company significant financial flexibility. The recent acquisition of Amplify is an important step in our journey to expand our breadth in snacking as it should enable us to bring scale and category management capabilities to a key sub-segment of the warehouse snack aisle.

~~Our full year 2017 net sales totaled $7,515.4 million, an increase of 1.0%, versus $7,440.2 million for the comparable period of 2016. Excluding a 0.2% impact from favorable foreign exchange rates,~~ our net sales ~~increased 0.8%. Net sales growth was driven by lower levels of trade promotional spending~~ in ~~both the~~2020, 2019 and 2018, respectively. North America ~~and International and Other segments, as well as higher sales volume in North America, primarily from 2017 innovation and new launches, including~~ ~~Hershey's Cookie Layer Crunch~~, ~~Hershey's Gold~~ ~~and~~ ~~Hershey's~~ ~~and~~ ~~Reese's~~ ~~Popped Snack Mix and Chocolate Dipped Pretzels.~~

Our reported gross margin was 45.8% for the full year 2017, an increase of 340 basis points compared to the full year 2016. Our 2017 non-GAAP gross margin of 45.6% was on par with the prior year margin, as the benefits from supply chain productivity and cost savings initiatives, as well as lower input costs, were offset by higher freight rates and increased levels of manufacturing and distribution costs associated with an effort to maintain customer service targets at fast growing retail customers.

Our full year 2017 reported net income and EPS-diluted totaled $783.0 million and $3.66, respectively, compared to the full year 2016 reported net income and EPS-diluted of $720.0 million and $3.34, respectively. From a non-GAAP perspective, full year 2017 adjusted net income was $1,016.9 million, an increase of 7.2% versus $948.5 million in 2016. Our adjusted EPS-diluted for the full year 2017 was $4.76 compared to $4.41 for the same period of 2016, an increase of 7.9%.

~~NON-GAAP INFORMATION~~

The comparability of certain of our financial measures is impacted by unallocated mark-to-market (gains) losses on commodity derivatives, costs associated with business realignment activities, costs relating to the integration of acquisitions, non-service related components of our pension expense ("NSRPE"), impairment of goodwill, indefinite and long-lived assets, 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 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
Consolidated results For the years ended December 31,
In thousands except per share data 2017 2016 2015
Reported gross profit $ 3,444,519
$ 3,157,891
$ 3,382,675
Derivative mark-to-market (gains) losses (35,292 ) 163,238
—
Business realignment activities 5,147
58,106
8,801
Acquisition integration costs —
—
7,308
NSRPE 11,125
11,953
2,516
Non-GAAP gross profit $ 3,425,499
$ 3,391,188
$ 3,401,300

Reported operating profit $ 1,274,641
$ 1,205,783
$ 1,037,759
Derivative mark-to-market (gains) losses (35,292 ) 163,238
—
Business realignment activities 69,359
107,571
120,975
Acquisition integration costs 311
6,480
20,899
NSRPE 35,028
27,157
18,079
Goodwill, indefinite and long-lived asset impairment charges 208,712
4,204
280,802
Non-GAAP operating profit $ 1,552,759
$ 1,514,433
$ 1,478,514

Reported provision for income taxes $ 354,131
$ 379,437
$ 388,896
Derivative mark-to-market (gains) losses* (4,746 ) 20,500
—
Business realignment activities* 17,903
19,138
41,648
Acquisition integration costs* 118
2,456
8,264
NSRPE* 13,258
10,283
6,955
Goodwill, indefinite and long-lived asset impairment charges* 23,292
1,157
—
Impact of U.S. tax reform (32,467 ) —
—
Loss on early extinguishment of debt* —
—
10,736
Gain on sale of trademark* —
—
(3,652 )
Non-GAAP provision for income taxes $ 371,489
$ 432,971
$ 452,847

Reported net income $ 782,981
$ 720,044
$ 512,951
Derivative mark-to-market (gains) losses (30,546 ) 142,738
—
Business realignment activities 51,456
88,433
79,327
Acquisition integration costs 193
4,024
14,196
NSRPE 21,770
16,874
11,124
Goodwill, indefinite and long-lived asset impairment charges 185,420
3,047
280,802
Impact of U.S. tax reform 32,467
—
—
Noncontrolling interest share of business realignment and impairment charges (26,795 ) —
—
Settlement of SGM liability —
(26,650 ) —
Loss on early extinguishment of debt —
—
17,591
Gain on sale of trademark —
—
(6,298 )
Non-GAAP net income $ 1,016,946
$ 948,510
$ 909,693

For the years ended December 31,
2017 2016 2015
Reported EPS - Diluted $ 3.66
$ 3.34
$ 2.32
Derivative mark-to-market (gains) losses (0.14 ) 0.66
—
Business realignment activities 0.25
0.42
0.36
Acquisition integration costs —
0.02
0.05
NSRPE 0.09
0.08
0.05
Goodwill, indefinite and long-lived asset impairment charges 0.87
0.01
1.28
Impact of U.S. tax reform 0.15
—
—
Noncontrolling interest share of business realignment and impairment charges (0.12 ) —
—
Settlement of SGM liability —
(0.12 ) —
Loss on early extinguishment of debt —
—
0.09
Gain on sale of trademark —
—
(0.03 )
Non-GAAP EPS - Diluted $ 4.76
$ 4.41
$ 4.12

* The tax effect for each adjustment is determined by calculating the tax impact of the adjustment on the Company's quarterly effective tax rate.

~~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,
2017 2016 2015
As reported gross margin 45.8 % 42.4 % 45.8 %
Non-GAAP gross margin (1) 45.6 % 45.6 % 46.0 %

As reported operating profit margin 17.0 % 16.2 % 14.0 %
Non-GAAP operating profit margin (2) 20.7 % 20.4 % 20.0 %

As reported effective tax rate 31.9 % 34.5 % 43.1 %
Non-GAAP effective tax rate (3) 26.7 % 31.3 % 33.2 %


~~(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).

~~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:~~

~~Mark-to-market (gains) losses on commodity derivatives~~

The mark-to-market (gains) losses on commodity derivatives are recorded as unallocated and excluded from adjusted results until such time as the related inventory is sold, at which time the corresponding (gains) losses are reclassified from unallocated to segment income. 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 basis that matches the derivative gains and losses with the underlying economic exposure being hedged for the period. For the years ended December 31, 2017 and 2016, the net adjustment recognized within unallocated was a gain of $35.3 million and a loss of $163.2 million, respectively. See Note 11 to the Consolidated Financial Statements for more information.

~~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, 2017, 2016 and 2015, we incurred $69.4 million, $107.6 million and $121.0 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 years ended December 31, 2017 and 2016, we incurred expenses totaling $0.3 million and $6.5 million, respectively, related to integration of the 2016 acquisition of Ripple Brand Collective, LLC, as we incorporated this business into our operating practices and 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 incorporated these businesses into our operating practices and information systems. 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 2015 were offset by a $6.8 million reduction in the fair value of contingent consideration paid to the Krave shareholders.

~~Non-service related pension expense~~

NSRPE 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. NSRPE can fluctuate from 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. Therefore, we exclude NSRPE from our internal performance measures. Our most significant defined benefit pension plans have been closed to new participants for a number of years, resulting in ongoing service costs that are stable and predictable. We recorded pre-tax NSRPE of $35.0 million, $27.2 million and $18.1 million for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015, respectively.~~2018 were as follows:


										Percent Change
For the years ended December 31,	2020			2019			2018			2020 vs 2019		2019 vs 2018
In millions of dollars
Net sales	$	7,416.7		$	7,081.8		$	6,901.6		4.7	%	2.6	%
Segment income	2,321.8			2,125.9			2,020.1			9.2	%	5.2	%
Segment margin	31.3		%	30.0		%	29.3		%

~~Goodwill, indefinite and long-lived asset impairment charges~~

For the year ended December 31, 2017, we incurred $208.7 million of pre-tax long-lived asset impairment charges related to certain business realignment activities. This includes a write-down of certain intangible assets that had been recognized in connection with the 2014 SGM acquisition and write-down of property, plant and equipment. For the year ended December 31, 2016, 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.

~~Impact of U.S. tax reform~~

In connection with the enactment of U.S. tax reform in December 2017, we recorded a net charge of $32.5 million during the fourth quarter of 2017, which includes the estimated impact of the one-time mandatory tax on previously deferred earnings of non-U.S. subsidiaries offset in part by the benefit from revaluation of net deferred tax liabilities based on the new lower corporate income tax rate.

~~Noncontrolling interest share of business realignment and impairment charges~~

Certain of the business realignment and impairment charges recorded in connection with the Margin for Growth Program related to Lotte Shanghai Foods Co., Ltd., a joint venture in which we own a 50% controlling interest. Therefore, we have also adjusted for the portion of these charges included within the loss attributed to the non-controlling interest.

~~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 we completed the purchase on February 3, 2016. In the first quarter of 2016, we recorded a $26.7 million gain relating to the settlement of the SGM liability, representing the net carrying amount of the recorded liability in excess of the cash paid to settle the obligation for the remaining 20% of the outstanding shares.

~~Loss on early extinguishment of debt~~

During the third quarter of 2015, we recorded a $28.3 million loss on the early extinguishment of debt relating to a cash tender offer. See Note 4 to the Consolidated Financial Statements for further information.

~~Gain on sale of trademark~~

~~During 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.

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.

~~The following tables set forth a reconciliation between reported and constant currency growth rates for the years ended December 31, 2017 and 2016:~~

For the Year Ended December 31, 2017
Percentage Change as Reported Impact of Foreign Currency Exchange Percentage Change on Constant Currency Basis
North America segment
Canada 6.3 % 2.1 % 4.2 %
Total North America segment 1.3 % 0.1 % 1.2 %

International and Other segment
Mexico 9.7 % (1.1 )% 10.8 %
Brazil 19.9 % 9.4 % 10.5 %
India 17.0 % 3.2 % 13.8 %
Greater China (18.1 )% (0.8 )% (17.3 )%
Total International and Other segment (1.4 )% 0.6 % (2.0 )%

Total Company 1.0 % 0.2 % 0.8 %

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 %

~~CONSOLIDATED RESULTS OF OPERATIONS~~

Percent Change
For the years ended December 31, 2017 2016 2015 2017 vs 2016 2016 vs 2015
In millions of dollars except per share amounts
Net Sales $ 7,515.4
$ 7,440.2
$ 7,386.6
1.0 % 0.7 %
Cost of Sales 4,070.9
4,282.3
4,003.9
(4.9 )% 7.0 %
Gross Profit 3,444.5
3,157.9
3,382.7
9.1 % (6.6 )%
Gross Margin 45.8 % 42.4 % 45.8 %
SM&A Expense 1,913.4
1,915.4
1,969.3
(0.1 )% (2.7 )%
SM&A Expense as a percent of net sales 25.5 % 25.7 % 26.7 %
Goodwill, Indefinite and Long-Lived Asset Impairment Charges 208.7
4.2
280.8
NM
NM
Business Realignment Costs 47.8
32.5
94.8
46.8 % (65.7 )%
Operating Profit 1,274.6
1,205.8
1,037.8
5.7 % 16.2 %
Operating Profit Margin 17.0 % 16.2 % 14.0 %
Interest Expense, Net 98.3
90.2
105.8
9.0 % (14.8 )%
Other (Income) Expense, Net 65.7
16.2
30.1
306.5 % (46.4 )%
Provision for Income Taxes 354.1
379.4
388.9
(6.7 )% (2.4 )%
Effective Income Tax Rate 31.9 % 34.5 % 43.1 %
Net Income Including Noncontrolling Interest 756.5
720.0
513.0
5.1 % 40.4 %
Less: Net Loss Attributable to Noncontrolling Interest (26.4 ) —
—
NM
NM
Net Income Attributable to The Hershey Company $ 783.0
$ 720.0
$ 513.0
8.7 % 40.4 %
Net Income Per Share—Diluted $ 3.66
$ 3.34
$ 2.32
9.6 % 44.0 %

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

~~Net Sales~~

~~2017~~2020 compared with ~~2016~~2019

Net sales of our North America segment increased ~~1.0%~~$334.9 million or 4.7% in ~~2017~~2020 compared ~~with 2016,~~to 2019, reflecting favorable price realization of ~~0.7%, a benefit from acquisitions of 0.3%, and a favorable impact from foreign currency exchange rates of 0.2%, partially offset by~~2.8% attributed to higher prices on certain products, a volume ~~decrease~~increase of ~~0.2%. Excluding foreign currency,~~1.4% due to an increase in everyday core U.S. confection brands and our net sales increased 0.8% in 2017. The favorable net price realization was attributed to lower levels of trade promotional spending in both the North America and International and Other segments versus the prior year. Consolidated volume decreased as a result of lower sales volume in the International and Other segment, primarily attributed to our China business and the softness in the modern trade channel coupled with a focus on optimizing our product offerings. These volume decreases were partially offset by higher sales volume in North America, specifically from 2017 innovation and new launches, including ~~Hershey's Cookie Layer Crunch~~, ~~Hershey's Gold~~ ~~and~~ ~~Hershey's~~ ~~and~~ ~~Reese's~~ ~~Popped Snack Mix and Chocolate Dipped Pretzels.~~

~~2016 compared with 2015~~

~~Net sales increased 0.7% in 2016 compared with 2015, reflecting volume increases of 0.8%~~snacks portfolio and a 0.6% benefit from net acquisitions and divestitures (predominantly driven by the 2019 acquisition of ONE Brands, partially offset by the 2020 divestitures of Krave and the Scharffen Berger and Dagoba brands). These increases were partially offset by an unfavorable impact from foreign currency exchange rates of ~~0.7%~~0.1%.

2019 compared with 2018

Net sales of our North America segment increased $180.2 million or 2.6% in 2019 compared to 2018, reflecting a favorable price realization of 2.0% attributed to higher prices on certain products and a benefit from net impact of acquisitions and divestitures of 1.4%. ~~Excluding~~This was partially offset by a volume decrease of 0.7% and an unfavorable impact from foreign currency exchange rates of 0.1%. Our volume decline was driven primarily by pricing elasticity, as well as the introduction of new packaging formats during 2019. Excluding the Amplify, Pirate Brands and ONE Brands acquisitions and Tyrrells divestiture, our North America segment net sales increased 1.2%.


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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, Las Vegas, Niagara Falls (Ontario) 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 9.0%, 11.3% and 11.4% of our net sales ~~increased 1.4%~~ in ~~2016. The~~2020, 2019 and 2018, respectively. International and Other results for the years ended December 31, 2020, 2019 and 2018 were as follows:


										Percent Change
For the years ended December 31,	2020			2019			2018			2020 vs 2019		2019 vs 2018
In millions of dollars
Net sales	$	733.0		$	904.5		$	889.5		(19.0)	%	1.7	%
Segment income	28.6			95.7			73.8			(70.1)	%	29.7	%
Segment margin	3.9		%	10.6		%	8.3		%

2020 compared with 2019

Net sales of our International and Other segment decreased $171.5 million or 19.0% in 2020 compared to 2019, reflecting a volume ~~improvement was primarily driven by new chocolate~~decrease of 13.7%, an unfavorable impact from foreign currency exchange rates of 4.1% 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~~an unfavorable price realization of 1.2%. The volume declines were attributed to significant sales declines in Mexico and China, where net sales declined by 24.6% and 46.0%, respectively, due to the implementation of quarantine protocols by local governments to mitigate the spread of COVID-19. Furthermore, net sales declines in China were also attributable to the commencement of the International Optimization Program.

2019 compared with 2018


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Unallocated Corporate Expense

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Summary

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


In millions of dollars	2020		2019		2018
Net cash provided by (used in):
Operating activities	$	1,699.6	$	1,763.9	$	1,599.9
Investing activities	(531.3)		(780.5)		(1,502.9)
Financing activities	(499.2)		(1,081.4)		116.1
Effect of exchange rate changes on cash and cash equivalents	(7.0)		3.3		(5.3)
Less: Cash classified as assets held for sale (see Note 8)	(11.4)		—		—
Increase (decrease) in cash and cash equivalents	$	650.7	$	(94.7)	$	207.8

Operating activities

Our principal source of liquidity is cash flow from operations. 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 ~~significantly lower levels~~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 2020 decreased $64.3 million relative to 2019. This decrease was driven by the following factors:

•Net working capital (comprised of trade ~~spending~~accounts receivable, inventory, accounts payable and accrued liabilities) consumed cash of $166 million in 2020 and generated cash of $60 million in 2019. This $226 million fluctuation was mainly driven by a higher year-over-year build up of U.S. inventories to satisfy product requirements and maintain sufficient levels to accommodate customer requirements, as well as an increase in cash used by accounts receivable due to an increase in sales of U.S. seasonal products.

•The decrease in cash provided by operating activities was partially offset by the following net cash inflows:


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Cash provided by operating activities in 2019 increased $164.0 million relative to 2018. This increase was driven by the following factors:

•The increase in cash provided by operating activities was partially offset by the following net cash outflows:

◦Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation, deferred income taxes, long-lived and intangible asset charges, write-down of equity investments and other charges) resulted in $2 million of lower cash flow in 2019 relative to 2018.

Pension and Post-Retirement Activity. We recorded net periodic benefit costs of $34.5 million, $41.4 million and $42.1 million in 2020, 2019 and 2018, 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 ~~discounts~~on plan assets, the service and ~~allowances.~~interest costs and the amortization of actuarial gains and losses.

Investing activities

~~Key U.S. Marketplace Metrics~~Our principal uses of cash for investment purposes relate to purchases of property, plant and equipment and capitalized software, as well as acquisitions of businesses, partially offset by proceeds from sales of property, plant and equipment. We used cash of $531.3 million for investing activities in 2020 compared to $780.5 million in 2019, with the decrease in cash spend driven by less acquisition activity. We used cash of $1,502.9 million for investing activities in 2018, and the decrease in 2019 in cash spend was driven by less acquisition and divestiture activity.

~~For~~Primary investing activities include the ~~full year 2017,~~following:

•Capital spending. Capital expenditures, including capitalized software, primarily to support our ~~U.S. candy, mint~~ERP system implementation, capacity expansion, innovation and ~~gum ("CMG") consumer takeaway increased 1.6%, which was~~cost savings, were $441.6 million in 2020, $318.2 million in 2019 and $328.6 million in 2018. Our 2020 expenditures were substantially higher than 2019 expenditures due to progress on our key strategic projects, however, 2020 expenditures were below original expectations due to a selective pause on certain aspects of our ERP system implementation. Our 2019 expenditures were relatively in line with 2018 expenditures. We expect 2021 capital expenditures, including capitalized software, to approximate $550 million. The increase in our 2021 capital expenditures is largely driven by the ~~category increase,~~continuation of our ERP system implementation, as well as our supply chain capacity projects which focus on additional capacity for our largest and fastest growing brands, building agile fulfillment and customization capabilities and investing in new


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data and technology within our supply chain to enhance visibility and automation. We will continue to evaluate and re-prioritize our capital projects amid the COVID-19 pandemic.

•Other investing activities. In 2020 and 2019, we made minority investments in emerging snacking businesses that qualify as cost method investments.

Financing activities

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


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•Dividend payments. Total dividend payments to holders of our Common Stock and Class B Common Stock were $640.7 million in 2020, $610.3 million in 2019 and $562.5 million in 2018. Dividends per share of ~~30.6%. The CMG consumer takeaway~~Common Stock increased 5.5% to $3.154 per share in 2020 compared to $2.990 per share in 2019, while dividends per share of Class B Common Stock increased 5.5% in 2020. Details regarding our 2020 cash dividends paid to stockholders are as follows:


	Quarter Ended
In millions of dollars except per share amounts	March 29, 2020		June 28, 2020		September 27, 2020		December 31, 2020
Dividends paid per share – Common stock	$	0.773	$	0.773	$	0.804	$	0.804
Dividends paid per share – Class B common stock	$	0.702	$	0.702	$	0.731	$	0.731
Total cash dividends paid	$	157.8	$	156.5	$	163.7	$	162.7
Declaration date	January 28, 2020		April 21, 2020		July 8, 2020		November 6, 2020
Record date	February 21, 2020		May 22, 2020		August 21, 2020		November 20, 2020
Payment date	March 16, 2020		June 15, 2020		September 15, 2020		December 15, 2020

•Proceeds from the exercise of stock options, including tax benefits. We received $25.5 million from employee exercises of stock options, net of employee taxes withheld from share-based awards in 2020. We received $240.8 million and ~~market~~$63.3 million in 2019 and 2018, respectively. Variances are driven primarily by the number of shares exercised and the share ~~information reflect measured channels~~price at the date 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 Information Resources, Incorporated ("IRI"), the Company's market insights and analytics provider, and provide a means to assess our retail takeaway and market position relative to the overall category. The amounts presented above are solely for the U.S. CMG category which does not include revenue from our snack mixes and grocery items. For the full year 2017, our U.S. retail takeaway increased 1.2% in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores), which includes candy, mint, gum, salty snacks, snack bars, meat snacks and grocery items.grant.


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Cost of Sales and Gross Margin

~~2017~~2020 compared with ~~2016~~2019

Cost of sales ~~decreased 4.9%~~increased 1.9% in ~~2017~~2020 compared with ~~2016.~~2019. The ~~reduction~~increase in cost of sales was attributed to higher freight and logistics costs and additional plant costs, specifically, PPE costs, increased sanitation and wage incentives associated with COVID-19. Additionally, the increase was driven by ~~lower commodity costs coupled with~~ an incremental ~~$116.0~~$28.9 million of unfavorable mark-to-market activity on our commodity derivative instruments. These derivative instruments are intended to economically hedge future years' commodity purchases; however, they were significantly impacted by financial market volatility during 2020. These drivers were partially offset by favorable price realization and favorable supply chain productivity

2019 compared with 2018

Cost of sales increased 3.5% in 2019 compared with 2018. The increase was driven by higher freight and logistics costs, additional plant costs, and an incremental $33.9 million unfavorable impact from marking-to-market our commodity derivative instruments intended to economically hedge future years' commodity ~~purchases, a $53.0 million decrease in business realignment costs, and~~purchases. These drivers were partially offset by favorable supply chain ~~productivity and cost savings initiatives. These benefits were offset~~productivity.

Gross margin decreased by 50 basis points in ~~part~~2019 compared with 2018. The decrease was driven primarily by to the higher freight and ~~warehousing~~logistics costs, additional plant costs, and ~~unfavorable manufacturing variances.~~

~~Gross margin increased by 340 basis points in 2017 compared with 2016. Lower commodity costs coupled with~~ the ~~favorable~~unfavorable year-over-year mark-to-market impact from commodity derivative instruments, lower business realignment costs, and supply chain productivity contributed to the improvement in gross margin. However, higher supply chain costs and unfavorable product mix partially offset the increase in 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.

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, butinstruments. These factors were partially offset by supply chain productivity, price realization, and ~~cost savings initiatives.~~

favorable product mix.

Selling, Marketing and Administrative

~~2017~~2020 compared with ~~2016~~2019

Selling, marketing and administrative (“SM&A”) expenses decreased ~~$2.0~~$15.0 million or ~~0.1%~~0.8% in 2017. Advertising and related consumer marketing expense remaining consistent with 2016 levels, as higher spending by the North America segment was offset by reduced spending by the International and Other segment. While 2017 SM&A benefited from costs savings and efficiency initiatives, lower business realignment costs, and lower acquisition integration costs, these savings were offset in part by higher pension settlement charges and higher costs related to acquisition due diligence activities and the implementation of our new enterprise resource planning system.

~~2016 compared with 2015~~

~~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~~2020. Total advertising and related consumer marketing expenses decreased 2.0% driven by media cost efficiencies and select brand investment optimization related to COVID-19 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~~segments. SM&A expenses, excluding advertising and related consumer marketing, ~~costs, selling~~decreased approximately 0.1% in 2020 due to savings in travel and ~~administrative~~meeting expenses ~~for 2016 decreased by 2.0% as~~related to COVID-19 travel restrictions and project timing shifts.

2019 compared ~~to 2015 as a result of our continued focus on reducing non-essential spending.~~ with 2018

SM&A expenses increased $31.1 million or 1.7% in ~~2016 were also impacted~~2019. Total advertising and related consumer marketing expenses increased 4.2% driven by ~~business realignment costs of $18.6 million, NSRPE of $15.2 million and acquisition and integration costs of $6.5 million. In 2015,~~advertising increases in North America. SM&A expenses, ~~included business realignment costs of $17.4 million, NSRPE of $15.6 million~~excluding advertising and ~~acquisition~~related consumer marketing, increased approximately 0.2% in 2019 due to incremental expenses from Pirate Brands and ~~integration costs of $13.6 million.~~ONE Brands, as well as higher employee related compensation, which more than offset reductions in our base spending from the Margin for Growth Program.

~~Goodwill, Indefinite~~


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Long-Lived and ~~Long-Lived~~Intangible Asset Impairment Charges

We recorded the following impairment charges:


For the year ended December 31,	2020		2019		2018
In millions of dollars
Adjustment to disposal group (1)	$	6.2	$	2.7	$	57.7
Other asset write-down (2)	2.9		—		—
Customer relationship and trademark intangible assets (3)	—		100.1		—
Other long-lived assets not held for sale (4)	—		9.7		—
Long-lived and intangible asset impairment charges	$	9.1	$	112.5	$	57.7

(1)In ~~2017,~~connection with our disposal group classified as held for sale, during 2020 and 2019, we recorded impairment charges to adjust long-lived asset values. The fair value of the disposal group was supported by potential sales prices with third-party buyers. The sale of the LSFC joint venture (disposal group) was completed in January 2021. In 2018, we recorded impairment charges totaling ~~$106.0~~$57.7 million to ~~write-down distributor~~adjust the long-lived asset values within certain disposal groups, including the Shanghai Golden Monkey ("SGM") and Tyrrells businesses, the LSFC joint venture and other assets. These charges represent the excess of the disposal groups' carrying values, including the related currency translation adjustment amounts realized or to be realized upon completion of the sales, over the sales values less costs to sell for the respective businesses. The fair values of the disposal groups were supported by the sales prices paid by third-party buyers or estimated sales prices based on marketing of the disposal group, when the sale has not yet been completed. The sales of SGM and Tyrrells were both completed in July 2018.

(2)In connection with a previous sale, the Company wrote-down certain receivables deemed uncollectible.

(4)During 2019, we recorded impairment charges predominantly comprised of select long-lived assets that had ~~been recognized in connection~~not yet met the held for sale criteria. The fair value of these assets was supported by potential sales prices with ~~the 2014 SGM acquisition~~third-party buyers and ~~wrote-down property, plant and equipment by $102.7 million.~~

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.

In 2015, we recorded goodwill impairment charges totaling $280.8 million resulting from our 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 from September 2014.market analysis.

Business Realignment Activities

We ~~are currently pursuing several~~periodically undertake business realignment activities designed to increase our efficiency and focus our business ~~behind~~in support of our key growth strategies. ~~Costs~~In 2020, 2019 and 2018, we recorded ~~for~~ business realignment ~~activities during 2017, 2016~~costs of $18.5 million, $8.1 million and ~~2015 are as follows:~~

For the years ended December 31, 2017 2016 2015
In millions of dollars
Margin for Growth Program:
Severance $ 32.6
$ —
$ —
Accelerated depreciation 6.9
—
—
Other program costs 16.4
—
—
Operational Optimization Program:
Severance $ 13.8
$ 17.9
$ —
Accelerated depreciation —
48.6
—
Other program costs (0.3 ) 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
Accelerated depreciation and amortization —
—
5.9
Mauna Loa divestiture —
—
2.7
Total $ 69.4
$ 107.6
$ 121.0

~~Costs associated with business realignment activities are classified in our Consolidated Statements of Income as described in Note 7~~$19.1 million, respectively. The 2020 costs related primarily to the ~~Consolidated Financial Statements.~~

International Optimization Program, a program focused on optimizing our China operating model to improve our operational efficiency and provide for a strong, sustainable and simplified base going forward. The 2019 and 2018 costs related primarily to the Margin for Growth Program,

~~In February 2017, the Company's Board of Directors unanimously approved several initiatives under~~ a ~~single~~ program ~~designed to drive continued net sales, operating income and earnings per-share diluted growth over the next several years. This program will focus~~focused on improving global efficiency and effectiveness, optimizing the Company’s supply chain, streamlining the Company’s operating model and reducing administrative expenses to generate long-term savings.

The Company estimates that the “Margin for Growth” program will result in total pre-tax charges of $375 million to $425 million from 2017 to 2019. This estimate includes plant and office closure expenses of $100 million to $115 million, net intangible asset impairment charges of $100 million to $110 million, employee separation costs of $80 million to $100 million, contract termination costs of approximately $25 million, and otherCosts associated with business realignment ~~costs of $70 million to $75 million. The cash portion of the total charge is estimated to be $150 million to $175 million. At the conclusion of the program~~activities are classified in 2019, ongoing annual savings are expected to be approximately $150 million to $175 million. The Company expects that implementation of the program will reduce its global workforce by approximately 15%, with a majority of the reductions coming from hourly headcount positions outside of the United States.

~~The program includes an initiative to optimize the manufacturing operations supporting~~ our China business. We deemed this to be a triggering event requiring us to test our China long-lived asset group for impairment by first determining whether the carrying value of the asset group was recovered by our current estimates of future cash flows associated with the asset group. Because this assessment indicated that the carrying value was not recoverable, we calculated an impairment loss as the excess of the asset group's carrying value over its fair value. The resulting impairment loss was allocated to the asset group's long-lived assets. Therefore, as a result of this testing, during the first quarter of 2017, we recorded impairment charges totaling $208.7 million, with $106.0 million representing the

portion of the impairment loss that was allocated to the distributor relationship and trademark intangible assets that had been recognized in connection with the 2014 SGM acquisition and $102.7 million representing the portion of the impairment loss that was allocated to property, plant and equipment. These impairment charges are recorded in the long-lived asset impairment charges caption within the Consolidated Statements of ~~Operations.~~

~~During 2017, we recognized estimated employee severance totaling $32.6 million. These charges relate largely to our initiative to improve the cost structure of our China business,~~Income as well as our initiative to further streamline our corporate operating model. We also recognized non-cash, asset-related incremental depreciation expense totaling $6.9 million as part of optimizing the North America supply chain. During 2017, we also recognized other program costs totaling $16.4 million. These charges relate primarily to third-party charges for our initiative of improving global efficiency and effectiveness.

~~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~~described in ~~China and North America.~~

For the year ended December 31, 2017, we incurred pre-tax costs totaling $13.5 million, primarily related to employee severance associated with the workforce planning efforts within North America. We currently expect to incur additional cash costs of approximately $8 million over the next twelve months to complete this program.

~~2015 Productivity Initiative~~

~~In mid-2015, we initiated a productivity initiative (the “2015 Productivity Initiative”) intended to move decision making closer~~Note 9 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 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.Consolidated Financial Statements.

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. The 2015 Productivity Initiative was completed during the third quarter 2016. We incurred total costs of $125 million relating to this program, including pension settlement 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 program.

~~Other international restructuring programs~~


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Costs incurred for the year ended December 31, 2015 related principally to accelerated depreciation and amortization and employee severance costs for minor 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 exit from the Bauducco joint venture.

Operating Profit and Operating Profit Margin

~~2017~~2020 compared with ~~2016~~2019

Operating profit increased ~~5.7%~~11.7% in ~~2017~~2020 compared with ~~2016~~2019 due primarily to higher gross profit, ~~and slightly~~ lower SM&A ~~expenses,~~and lower impairment charges, partially offset by higher business realignment costs in the 2020 period, as ~~discussed previously.~~noted above. Operating profit margin increased to ~~17.0%~~21.9% in ~~2017~~2020 from ~~16.2%~~20.0% in ~~2016~~2019 driven by ~~the improvement in gross margin.~~these same factors.

~~2016~~2019 compared with ~~2015~~2018

Operating profit ~~increased 16.2%~~decreased 1.7% in ~~2016~~2019 compared with ~~2015~~2018 due primarily to ~~lower goodwill and intangible asset~~higher impairment charges ~~lower~~and higher SM&A, ~~costs~~partially offset by higher gross profit and lower business realignment costs ~~offset~~ in ~~part by~~ the ~~lower gross profit.~~2019 period, as noted above. Operating profit margin ~~increased~~decreased to ~~16.2%~~20.0% in ~~2016~~2019 from ~~14.0%~~20.8% in ~~2015 due primarily to~~2018 driven by these same factors.

Interest Expense, Net

~~2017~~2020 compared with ~~2016~~2019

Net interest expense was ~~$8.1~~$5.2 million higher in ~~2017~~2020 than in ~~2016.~~2019. The increase was due to higher ~~levels of~~ long-term debt ~~outstanding~~balances in 2020 versus 2019, specifically due to $1.0 billion of notes issued in October 2019 and ~~higher interest rates on commercial paper during the 2017 period, as well as a decreased benefit from the fixed to floating swaps.~~$1.0 billion of notes issued in May 2020.

~~2016~~2019 compared with ~~2015~~2018

Net interest expense was ~~$15.6~~$5.3 million ~~lower~~higher in ~~2016~~2019 than in ~~2015, as the 2015 amount included the premium paid~~2018. The increase was due to ~~repurchase~~a higher average long-term debt ~~as part of a cash tender offer. This decrease was partially offset by lower capitalized interest expense and lower interest income.~~balance in 2019 versus 2018.

Other (Income) Expense, Net

~~2017~~2020 compared with ~~2016~~2019

Other (income) expense, net totaled an expense of ~~$65.7~~$138.3 million in ~~2017~~2020 versus an expense of ~~$16.2~~$71.1 million ~~2016. In 2017 we recognized a $66.2 million write-down~~in 2019. The increase in the net expense was primarily due to higher write-downs on equity investments qualifying for federal ~~historic and energy~~solar tax credits, partially offset by lower non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans during 2020 compared to ~~a $43.5 million write down in 2016. Additionally, 2016 was offset by an extinguishment gain of $26.7 million related to~~ the ~~settlement of the SGM liability.~~2019 period.

~~2016~~2019 compared with ~~2015~~2018

Other (income) expense, net totaled an expense of ~~$16.2~~$71.1 million in ~~2016~~2019 versus an expense of ~~$30.1~~$74.8 million ~~in 2015.~~2018. The decrease in the net expense was primarily due to lower other non-operating losses during 2019 compared to the ~~$26.7 million settlement of the SGM liability in 2016, partially offset by an increase in the write-down of equity investments qualifying for federal historic and energy tax credits.~~2018 period.

Income Taxes and Effective Tax Rate

~~2017~~2020 compared with ~~2016~~2019

Our effective income tax rate was ~~31.9%~~14.7% for ~~2017~~2020 compared with ~~34.5%~~16.9% for ~~2016.~~2019. Relative to the 21% statutory rate, the ~~2017~~2020 effective tax rate ~~was impacted by a favorable foreign rate differential relating to foreign operations and cocoa procurement,~~benefited from investment tax credits and the benefit of ~~ASU 2016-09~~employee share-based payments, partially offset by state taxes. The 2019 effective rate, relative to the 21% statutory rate was impacted by changes to foreign valuation allowances, a favorable foreign rate differential, investment tax credits and the benefit of employee share-based payment, which were partially offset by the impact of state taxes.

2019 compared with 2018

Our effective income tax rate was 16.9% for 2019 compared with 17.0% for 2018. Relative to the ~~accounting~~21% statutory rate, the 2019 effective tax rate was impacted by changes to foreign valuation allowances, a favorable foreign rate differential, investment tax credits and the benefit of employee share-based payments, which were partially offset by the impact of ~~U.S. tax reform and non-benefited costs resulting from the Margin for Growth Program.~~state taxes. The ~~2016~~2018 effective rate, ~~benefited from the impact of non-taxable income related~~relative to the ~~settlement of the SGM liability and investment tax credits.~~

~~2016 compared with 2015~~

~~Our effective income tax rate was 34.5% for 2016 compared with 43.1% for 2015. Relative to the~~21% statutory rate, ~~the 2016 effective tax rate was impacted by greater benefits~~benefited from ~~manufacturing deductions, research and development and investment tax credits, and~~ a favorable foreign rate differential ~~relating to our cocoa procurement operations.~~and investment tax credits, which were partially offset by the impact of state taxes.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 26

Net Income attributable to The Hershey Company and Earnings Per Share-diluted

~~2017~~2020 compared with ~~2016~~2019

Net income increased ~~$62.9~~$129.0 million, or ~~8.7%~~11.2%, while EPS-diluted increased ~~$0.32,~~$0.65, or ~~9.6%~~11.9%, in ~~2017~~2020 compared with ~~2016.~~2019. The increase in both net income and EPS-diluted ~~were~~was driven primarily by higher gross profit, lower SM&A, lower impairment charges, and lower income taxes ~~partly~~in 2020, partially offset by ~~the long-lived asset impairment charges and~~ higher write-downs relating to tax credit investments, as noted above. Our 2017 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases, including a current year repurchase from the Milton Hershey School Trust and prior year repurchases pursuant to our Board-approved repurchase programs.

~~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~~other income and ~~EPS-diluted were driven by the lower goodwill and intangible asset impairment charges, lower SM&A costs and lower~~expenses, higher business realignment costs, ~~as noted above.~~and higher interest expense. Our ~~2016~~2020 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.

2019 compared with 2018


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 27

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, unallocated mark-to-market gains and losses on commodity derivatives, business realignment and impairment charges, ~~acquisition integration~~acquisition-related costs and ~~NSRPE~~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 directly attributable to our ongoing segment operations. ~~For further information, see the Non-GAAP Information section of this MD&A.~~

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


For the years ended December 31,	2020		2019		2018
In millions of dollars
Net Sales:
North America	$	7,416.7	$	7,081.8	$	6,901.6
International and Other	733.0		904.5		889.5
Total	$	8,149.7	$	7,986.3	$	7,791.1

Segment Income:
North America	$	2,321.8	$	2,125.9	$	2,020.1
International and Other	28.6		95.7		73.8
Total segment income	2,350.4		2,221.6		2,093.9
Unallocated corporate expense (1)	520.7		532.6		528.9
Unallocated mark-to-market losses (gains) on commodity derivatives (2)	6.4		(28.6)		(168.3)
Long-lived and intangible asset impairment charges	9.1		112.5		57.8
Costs associated with business realignment activities	31.5		9.2		51.8


Operating profit	1,782.7		1,595.9		1,623.7
Interest expense, net	149.4		144.1		138.8
Other (income) expense, net	138.3		71.0		74.8
Income before income taxes	$	1,495.0	$	1,380.8	$	1,410.1

(2)Net losses (gains) on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative losses (gains). See Note 13 to the Consolidated Financial Statements.

For the years ended December 31, 2017 2016 2015
In millions of dollars
Net Sales:
North America $ 6,621.2
$ 6,533.0
$ 6,468.1
International and Other 894.3
907.2
918.5
Total $ 7,515.4
$ 7,440.2
$ 7,386.6

Segment Income (Loss):
North America $ 2,045.6
$ 2,041.0
$ 2,074.0
International and Other 11.5
(29.1 ) (98.1 )
Total segment income 2,057.1
2,011.9
1,975.9
Unallocated corporate expense (1) 504.3
497.4
497.4
Unallocated mark-to-market (gains) losses on commodity derivatives (2) (35.3 ) 163.2
—
Goodwill, indefinite and long-lived asset impairment charges 208.7
4.2
280.8
Costs associated with business realignment activities 69.4
107.6
121.0
Non-service related pension expense 35.0
27.2
18.1
Acquisition and integration costs 0.3
6.5
20.9
Operating profit 1,274.6
1,205.8
1,037.7
Interest expense, net 98.3
90.1
105.8
Other (income) expense, net 65.7
16.2
30.1
Income before income taxes $ 1,110.7
$ 1,099.5
$ 901.8


~~(1)~~ Table of Contents			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.The Hershey Company \| 2020 Form 10-K \| Page 28


~~(2)~~	~~Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative (gains) losses. See Note 11 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 ~~88.1%~~91.0%, ~~87.8%~~88.7% and ~~87.6%~~88.6% of our net sales in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively. North America results for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~2018 were as follows:


										Percent Change
For the years ended December 31,	2020			2019			2018			2020 vs 2019		2019 vs 2018
In millions of dollars
Net sales	$	7,416.7		$	7,081.8		$	6,901.6		4.7	%	2.6	%
Segment income	2,321.8			2,125.9			2,020.1			9.2	%	5.2	%
Segment margin	31.3		%	30.0		%	29.3		%

Percent Change
For the years ended December 31, 2017 2016 2015 2017 vs 2016 2016 vs 2015
In millions of dollars
Net sales $ 6,621.2
$ 6,533.0
$ 6,468.1
1.3 % 1.0 %
Segment income 2,045.6
2,041.0
2,074.0
0.2 % (1.6 )%
Segment margin 30.9 % 31.2 % 32.1 %

~~2017~~2020 compared with ~~2016~~2019

Net sales of our North America segment increased ~~$88.2~~$334.9 million or ~~1.3%~~4.7% in ~~2017~~2020 compared to ~~2016,~~2019, reflecting favorable price realization of 2.8% attributed to higher prices on certain products, a volume increase of 1.4% due to an increase in everyday core U.S. confection brands and our snacks portfolio and a 0.6% benefit from net acquisitions and divestitures (predominantly driven by ~~increased volume~~the 2019 acquisition of ~~0.5% due to a longer Easter season, as well as 2017 innovation, specifically,~~ ~~Hershey's Cookie Layer Crunch~~,ONE Brands, partially offset by the 2020 divestitures of Krave and the ~~launch of~~ ~~Hershey's Gold~~Scharffen Berger and ~~Hershey's~~ ~~and~~ ~~Reese's~~ ~~Popped Snack Mix and Chocolate Dipped Pretzels. Additionally, the barkTHINS brand acquisition contributed 0.3%~~Dagoba brands). ~~Net price realization increased~~These increases were partially offset by ~~0.4% due to decreased levels of trade promotional spending. Excluding the favorable~~an unfavorable impact offrom foreign currency exchange rates of 0.1%~~, the net sales of our North America segment increased by approximately 1.2%~~.

Our North America segment income increased ~~$4.6~~$195.9 million or ~~0.2%~~9.2% in ~~2017~~2020 compared to ~~2016, driven by higher gross profit,~~2019, primarily due to favorable price realization and volume increases, partially offset by ~~investments in greater levels of advertising expense~~higher supply chain-related costs, specifically, PPE costs, increased sanitation and ~~go-to-market capabilities, as well as unfavorable manufacturing variances and higher freight and warehousing costs.~~wage incentives associated with COVID-19.

~~2016~~2019 compared with ~~2015~~2018

Net sales of our North America segment increased ~~$64.9~~$180.2 million or ~~1.0%~~2.6% in ~~2016~~2019 compared to ~~2015,~~2018, reflecting ~~volume increases~~a favorable price realization of ~~1.4%~~2.0% attributed to higher prices on certain products and ~~the favorable~~a benefit from net impact of acquisitions and divestitures of ~~0.7%,~~1.4%. This was partially offset by ~~unfavorable net price realization~~a volume decrease of ~~0.9%~~0.7% and an unfavorable impact from foreign currency exchange rates ~~that reduced~~of 0.1%. Our volume decline was driven primarily by pricing elasticity, as well as the introduction of new packaging formats during 2019. Excluding the Amplify, Pirate Brands and ONE Brands acquisitions and Tyrrells divestiture, our North America segment 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.1.2%.

Our North America segment income ~~decreased $33.0~~increased $105.8 million or ~~1.6%~~5.2% in ~~2016~~2019 compared to ~~2015, driven by lower gross margin as higher trade promotional spending~~2018, primarily due to favorable price realization, favorable sales mix and ~~higher supply chain~~favorable commodity costs, ~~were only~~ partially offset by ~~the benefit from~~higher freight and logistics costs, higher supply ~~chain productivity~~chain-related costs and ~~cost savings initiatives.~~higher advertising expense.


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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, Las Vegas, 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 ~~11.9%~~9.0%, ~~12.2%~~11.3% and ~~12.4%~~11.4% of our net sales in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively. International and Other results for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~2018 were as follows:


										Percent Change
For the years ended December 31,	2020			2019			2018			2020 vs 2019		2019 vs 2018
In millions of dollars
Net sales	$	733.0		$	904.5		$	889.5		(19.0)	%	1.7	%
Segment income	28.6			95.7			73.8			(70.1)	%	29.7	%
Segment margin	3.9		%	10.6		%	8.3		%

Percent Change
For the years ended December 31, 2017 2016 2015 2017 vs 2016 2016 vs 2015
In millions of dollars
Net sales $ 894.3
$ 907.2
$ 918.5
(1.4 )% (1.2 )%
Segment income (loss) 11.5
(29.1 ) (98.1 ) NM
NM
Segment margin 1.3 % (3.2 )% (10.7 )%

~~2017~~2020 compared with ~~2016~~2019

Net sales of our International and Other segment decreased ~~$12.9~~$171.5 million or ~~1.4%~~19.0% in ~~2017~~2020 compared to ~~2016,~~2019, reflecting a volume ~~declines~~decrease of ~~4.7%~~13.7%, ~~partially offset by favorable price realization of 2.7% and a favorable~~an unfavorable impact from foreign currency exchange rates of ~~0.6%~~4.1% and an unfavorable price realization of 1.2%. ~~Excluding the unfavorable impact of foreign currency exchange rates, the~~The volume declines were attributed to significant sales declines in Mexico and China, where net sales declined by 24.6% and 46.0%, respectively, due to the implementation of ~~our~~quarantine protocols by local governments to mitigate the spread of COVID-19. Furthermore, net sales declines in China were also attributable to the commencement of the International Optimization Program.

Our International and Other segment ~~decreased by~~also includes licensing, owned retail and world travel retail, where net sales declined approximately ~~2.0%.~~

~~The volume decrease is primarily attributed to our China business, driven by softness~~31.2% during 2020. At the onset of the pandemic, the Company temporarily closed all Hershey's Chocolate World stores in the ~~modern trade channel coupled~~U.S. (3 locations), Niagara Falls (Ontario) and Singapore; however, as of July, all locations were re-opened on a limited capacity basis with a focus on optimizing our product offerings. The favorable net price realization was driven by higher prices in select markets, as well as reduced levels of trade promotional spending, which declined significantly compared to the prior year. Constant currency net sales in Mexicoincreased safety measures and ~~Brazil increased by 10.8% and 10.5%, respectively, driven by solid chocolate marketplace performance. India also experienced constant currency net sales growth of 13.8%.~~enforced social distancing.

Our International and Other segment generated income of ~~$11.5~~$28.6 million in ~~2017~~2020 compared to ~~a loss of $29.1~~$95.7 million in ~~2016 due to benefits from reduced trade promotional spending and~~2019. This decrease was driven by the lower ~~operating expenses in China as a result~~level of ~~our Margin for Growth Program. Additionally, segment income benefited from~~net sales associated with the ~~improved combined income in Latin America and export markets versus the prior year.~~COVID-19 disruption.

~~2016~~2019 compared with ~~2015~~2018

Net sales of our International and Other segment ~~decreased $11.3~~increased $15.0 million or ~~1.2%~~1.7% in ~~2016~~2019 compared to ~~2015,~~2018, reflecting a volume increase of 5.7%, partially offset by a 2.2% reduction in net sales primarily from the divestiture of SGM, an unfavorable impact from foreign currency exchange rates of ~~4.4%~~1.5%, ~~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%~~0.3%. Excluding the divestiture of SGM and unfavorable ~~impact of~~ foreign currency exchange rates, ~~the net sales of~~ our International and Other segment net sales increased 5.4%. The volume increase was primarily attributed to solid marketplace growth in Mexico, India and Regional Markets where net sales increased by ~~approximately 3.2%.~~

6.7%, 4.9% and 4.5%, respectively. The ~~favorable~~unfavorable net price realization was driven by ~~lower direct~~increased levels of trade ~~expense as well as lower returns, discounts and allowances in China, which declined significantly~~promotional spending 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.

Our International and Other segment ~~loss decreased $69.0~~generated income of $95.7 million in ~~2016~~2019 compared to ~~2015. Combined~~$73.8 million in 2018, with the improvement primarily resulting from our efforts to drive sustainable gross margin improvements as we executed our Margin for Growth program and optimized the product portfolio across various international markets. Additionally, segment income ~~in Latin America and export markets improved versus the prior year and performance in China~~ benefited from ~~lower direct trade~~continued growth across Mexico, India, China and ~~returns, discounts~~Regional Markets, as well as our licensing and ~~allowances that were significantly lower than the prior year.~~world travel retail business.


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Unallocated Corporate Expense

Unallocated corporate expense totaled ~~$504.3~~$520.7 million in ~~2017,~~2020 as compared to ~~$497.4~~$532.6 million in ~~2016. While we realized~~2019 primarily driven by savings in ~~2017~~travel and meeting expenses related to COVID-19 travel restrictions and project timing shifts. In 2019, unallocated corporate expense increased $3.7 million from ~~our productivity and cost savings initiatives, these savings were more than~~$528.9 million in 2018 primarily driven by compensation related expenses, partially offset by higher costs related to the multi-year implementation of our enterprise resource planning system, as well as higher due diligence costs related to merger and acquisition activity. Unallocated corporate expense in 2016 was consistent with 2015 levels, as savings realized from our productivity and cost savings initiatives were offset by higher employee-related costs and an increase in corporate depreciation and amortization.acquisition-related costs.

~~FINANCIAL CONDITION~~LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Summary

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


In millions of dollars	2017			2016			2015			In millions of dollars	2020		2019		2018
Net cash provided by (used in):										Net cash provided by (used in):
Operating activities	$	1,249.5		$	1,013.4		$	1,256.3		Operating activities	$	1,699.6	$	1,763.9	$	1,599.9
Investing activities	(328.6		)	(595.4		)	(477.2		)	Investing activities	(531.3)		(780.5)		(1,502.9)
Financing activities	(843.8		)	(464.4		)	(797.0		)	Financing activities	(499.2)		(1,081.4)		116.1
Effect of exchange rate changes on cash and cash equivalents	6.1			(3.1		)	(10.4		)	Effect of exchange rate changes on cash and cash equivalents	(7.0)		3.3		(5.3)
Less: Cash classified as assets held for sale (see Note 8)										Less: Cash classified as assets held for sale (see Note 8)	(11.4)		—		—
Increase (decrease) in cash and cash equivalents	83.2			(49.5		)	(28.3		)	Increase (decrease) in cash and cash equivalents	$	650.7	$	(94.7)	$	207.8

Operating activities

Cash provided by operating activities in ~~2017 increased $236.1~~2020 decreased $64.3 million relative to ~~2016.~~2019. This ~~increase~~decrease was driven by the following factors:

•The decrease in cash provided by operating activities was partially offset by the following net cash inflows:

◦Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation, deferred income taxes, ~~goodwill, indefinite~~long-lived and ~~long-lived~~intangible asset charges, write-down of equity investments ~~the gain on settlement of the SGM liability~~ and other charges) ~~contributed $329~~resulted in $207 million of ~~additional~~higher cash flow in ~~2017~~2020 relative to ~~2016.~~2019.


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Cash provided by operating activities in 2019 increased $164.0 million relative to 2018. This increase was driven by the following factors:

•Prepaid expenses and other current assets generated cash of ~~$18~~$14 million in ~~2017,~~2019, compared to a use of cash of ~~$43~~$40 million in ~~2016.~~2018. This ~~$61~~$54 million fluctuation was mainly driven by the timing of payments on commodity futures. In addition, in ~~2017,~~2019, the volume of commodity futures held, which require margin deposits, was lower compared to ~~2016.~~2018. We utilize commodity futures contracts to economically manage the risk of future price fluctuations associated with our purchase of raw materials.

•The increase in cash provided by operating activities was partially offset by the following net cash outflows:

◦

Working capital (comprised of trade accounts receivable, inventory, accounts payable and accrued liabilities) consumed cash of $131 million in 2017 and $28 million in 2016. This $103 million fluctuation was mainly due to a higher year-over-year build up of U.S. inventories to satisfy product requirements and maintain sufficient levels to accommodate customer requirements, coupled with a higher investment in inventory in Mexico and India, driven by volume growth in those markets.


◦	The use of cash for income taxes increased $70 million, mainly due to the variance in actual tax expense for 2017 relative to the timing of quarterly estimated tax payments, which resulted in a higher prepaid tax position at the end of 2017 compared to 2016.

~~Cash provided by operating activities in 2016 decreased $242.9 million relative to 2015. This decrease was driven by the following factors:~~

~~Working capital (comprised of trade accounts receivable, inventory, accounts payable and accrued liabilities) consumed~~◦Income taxes used cash of ~~$28~~$9 million in 2016, while it generated cash of $37 million in 2015. This $65 million fluctuation was mainly driven by an $87 million payment to settle an interest rate swap in connection with the issuance of new debt in August 2016.

~~Prepaid expenses and other current assets consumed cash of $43 million in 2016,~~2019, compared to cash generated of ~~$118~~$76 million in ~~2015.~~2018. This ~~$161~~$85 million fluctuation was mainly ~~driven by higher~~due to the variance in actual tax expense for 2019 relative to the timing of quarterly estimated tax payments, ~~on commodity futures contracts~~which resulted in ~~2016 as~~a lower taxes payable position at the ~~market price~~end of ~~cocoa declined, versus receipts in the 2015 period. We utilize commodity futures contracts~~2019 compared to ~~economically manage the risk of future price fluctuations associated with our purchase of raw materials.~~2018.

◦Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation, deferred income taxes, ~~goodwill, indefinite~~long-lived and ~~long-lived~~intangible asset charges, write-down of equity investments ~~the gain on settlement of the SGM liability~~ and other charges) ~~decreased~~resulted in $2 million of lower cash flow ~~by $37 million~~ in ~~2016~~2019 relative to ~~2015.~~2018.

Pension and Post-Retirement Activity. We recorded net periodic benefit costs of ~~$59.7~~$34.5 million, ~~$72.8~~$41.4 million and ~~$66.8~~$42.1 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, 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 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 ~~$56.4~~$11.7 million, ~~$41.7~~$20.1 million and ~~$53.3~~$25.9 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~

2018, respectively.

Investing activities

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~~as well as acquisitions of businesses, partially offset by proceeds from sales of property, plant and ~~equipment and short-term investments.~~equipment. We used cash of ~~$328.6~~$531.3 million for investing activities in ~~2017~~2020 compared to ~~$595.4~~$780.5 million in ~~2016,~~2019, with the decrease in cash spend driven by less ~~business~~ acquisition ~~activity in 2017 compared to 2016.~~activity. We used cash of ~~$477.2~~$1,502.9 million for investing activities in ~~2015, which~~2018, and the decrease in 2019 in cash spend was ~~primarily~~ driven by ~~lower business~~less acquisition ~~investment~~ and ~~sales of short-term investments relative to 2017 and 2016.~~

divestiture activity.

Primary investing activities include the following:

•Capital spending. Capital expenditures, including capitalized software, primarily to support our ERP system implementation, capacity expansion, innovation and cost savings, were ~~$257.7~~$441.6 million in ~~2017, $269.5~~2020, $318.2 million in ~~2016~~2019 and ~~$356.8~~$328.6 million in ~~2015.~~2018. Our ~~2015~~2020 expenditures ~~included approximately $80 million relating~~were substantially higher than 2019 expenditures due to ~~the Malaysia plant construction. Capitalized software additions~~progress on our key strategic projects, however, 2020 expenditures were ~~primarily related~~below original expectations due to ~~ongoing enhancements~~a selective pause on certain aspects of our ~~information systems.~~ERP system implementation. Our 2019 expenditures were relatively in line with 2018 expenditures. We expect ~~2018~~2021 capital expenditures, including capitalized software, to approximate ~~$330 million to $350~~$550 million. The increase in our ~~2018~~2021 capital expenditures ~~compared to 2017 and 2016 relates to increases in our U.S. core chocolate brand capacity, investing capabilities as part~~is largely driven by the continuation of our ~~enterprise resource planning~~ERP system implementation, as well as our supply chain capacity projects which focus on additional capacity for our largest and ~~incremental capital expenditures associated with our acquisition of Amplify.~~fastest growing brands, building agile fulfillment and customization capabilities and investing in new


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~~Acquisitions~~

data and ~~divestitures~~technology within our supply chain to enhance visibility and automation. We will continue to evaluate and re-prioritize our capital projects amid the COVID-19 pandemic.

•Proceeds from sales of property, plant and equipment and other long-lived assets. We had no acquisition or divestiture activity in 2017. In 2016, we spent $285.4 million to acquire Ripple Brand Collective, LLC. In 2015, we spent $218.7 million to acquire Krave, partially offset by net cash received of $32 millionDuring 2020, proceeds from the sale of ~~Mauna Loa.~~

property, plant and equipment and other long-lived assets was minimal. During 2019, we generated $28.1 million of proceeds from the sale of property, plant and equipment and other long-lived assets. This included the sale of select Pennsylvania facilities and land for sales proceeds of approximately $27.6 million, resulting in a gain on the sale of $11.3 million. During 2018, we generated $49.8 million of proceeds from the sale of property, plant and equipment and other long-lived assets. This included sales of select China facilities that were taken out of operation in connection with the Operational Optimization Program. Proceeds from the sale of these facilities totaled $27.5 million, resulting in a gain of $6.6 million. Additionally, we sold licensing rights for a non-core trademark relating to a brand marketed outside of the U.S. for $13.0 million, resulting in a gain of $2.7 million.

•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 ~~$78.6~~$87.2 million in ~~2017, $44.3~~2020, $80.2 million in ~~2016~~2019 and ~~$30.7~~$52.6 million in ~~2015~~2018 in projects qualifying for tax credits.

~~Short-term~~•Other investing activities. In 2020 and 2019, we made minority investments~~. We had no short-term investment activity~~ in ~~2017 or 2016. In 2015, we received proceeds of $95 million from the sale of short-term~~emerging snacking businesses that qualify as cost method investments.

Financing activities

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. WeFinancing activities in 2020 used cash by $499.2 million, compared to cash used of ~~$843.8~~$1,081.4 million in 2019. We generated cash of $116.1 million for financing activities in ~~2017 compared to $464.4 million in 2016. We used cash of $797.0 million for financing activities in 2015,~~2018, primarily to fund ~~dividend payments and share repurchases.~~acquisition activity.

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 ~~2017,~~2020, we generated cash flow of $41.8 million due to an increase in short-term foreign bank borrowings. In 2019, we used ~~$81.4 million~~$1.2 billion to reduce short-term commercial paper borrowings and short-term foreign borrowings. We utilized the proceeds from the issuance of long-term debt in October 2019 to repay outstanding commercial paper used to fund the ONE Brands acquisition. In ~~2016,~~2018, we generated cash flow of ~~$275.6~~$645.8 million through the issuance of short-term commercial paper, ~~borrowings,~~ partially offset by ~~payments~~a reduction in short-term foreign bank borrowings. ~~In 2015, we generated cash flow~~We utilized the proceeds from the issuance of ~~$10.7 million~~commercial paper to fund the Amplify acquisition and repay Amplify's outstanding debt owed under its existing credit agreement. A portion of the commercial paper borrowings used to fund the Amplify acquisition were subsequently refinanced with the proceeds of new notes issued during the second quarter of 2018, as ~~a result of higher borrowings at certain of our international businesses.~~

discussed below.

•Long-term debt borrowings and repayments. In ~~2017, we had minimal incremental long-term borrowings and no repayment activity. In 2016, we used $500 million to repay long-term debt. Additionally, in 2016,~~May 2020, we issued ~~$500~~$300 million of ~~2.30%~~0.900% Notes due in ~~2026~~2025, $350 million of 1.700% Notes due in 2030 and $350 million of 2.650% Notes due in 2050 (the "2020 Notes"). Proceeds from the issuance of the 2020 Notes, net of discounts and issuance costs, totaled $989.9 million. Additionally, in May 2020 and December 2020, we repaid $350 million of 2.900% Notes and $350 million of 4.125% Notes due upon their maturities. In October 2019, we issued $300 million of 2.05% Notes due in 2024, $300 million of 2.45% Notes due in 2029 and $400 million of 3.125% Notes due in 2049 (the "2019 Notes"). Proceeds from the issuance of the 2019 Notes, net of discounts and issuance costs, totaled $990.3 million. In May 2018, we issued $350 million of 2.90% Notes due in 2020, $350 million of 3.10% Notes due in 2021 and $500


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million of 3.375% Notes due in ~~2046.~~2023 (the "2018 Notes"). Proceeds from the issuance of the 2018 Notes, net of discounts and issuance costs, totaled $1,193.8 million. In ~~2015,~~2018, 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~~repaid $300 million of 1.60% Notes due upon their maturity. Additionally, in August 2018, ~~and $300~~we repaid a portion of the commercial paper borrowings that had been used to fund the Amplify acquisition.

to settle the tax receivable obligation.

•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. WeIn 2020, we used cash for total share repurchases of ~~$300.3~~$211.2 million ~~in 2017,~~that included purchases pursuant to authorized programs; this included $150.0 million to purchase 1.0 million shares. In 2019, we used cash for total share repurchases of $527.2 million that included purchases pursuant to authorized programs; this included $150.0 million to purchase 1.4 million shares. In 2018, we used cash for total share repurchases of $247.5 million, which included a privately negotiated repurchase transaction with ~~the Milton~~ Hershey ~~School~~Trust Company, as trustee for the Trust, to purchase ~~1.5 million~~450 thousand shares for ~~$159.0~~$47.8 million. We used cash for total share repurchases of $592.6 million in 2016, which included purchases pursuant to authorized programs of $420.2 million to purchase 4.6 million shares in 2016. We used cash for total share repurchases of $582.5 million in 2015, which included purchases pursuant to authorized programs of $402.5 million to purchase 4.2 million shares. As of December 31, 2017, approximately $100 million remained available under the $500 million share repurchase authorization approved by the Board in January 2016. In October 2017, our Board of Directors

approved ~~an additional~~a $100 million share repurchase ~~authorization,~~authorization. This program was completed in the first quarter of 2019. In July 2018, our Board of Directors approved an additional $500 million share repurchase authorization. As of December 31, 2020, approximately $260 million remained available for repurchases of our Common Stock under this program. The share repurchase program does not have an expiration date. We expect 2021 share repurchases to ~~commence after the existing 2016 authorization is completed.~~return to a more traditional buyback strategy.

•Dividend payments. Total dividend payments to holders of our Common Stock and Class B Common Stock were ~~$526.3~~$640.7 million in ~~2017, $499.5~~2020, $610.3 million in ~~2016~~2019 and ~~$476.1~~$562.5 million in ~~2015.~~2018. Dividends per share of Common Stock increased ~~6.1%~~5.5% to ~~$2.548~~$3.154 per share in ~~2017~~2020 compared to ~~$2.402~~$2.990 per share in ~~2016,~~2019, while dividends per share of Class B Common Stock increased ~~6.0%~~5.5% in ~~2017.~~

2020. Details regarding our 2020 cash dividends paid to stockholders are as follows:


	Quarter Ended
In millions of dollars except per share amounts	March 29, 2020		June 28, 2020		September 27, 2020		December 31, 2020
Dividends paid per share – Common stock	$	0.773	$	0.773	$	0.804	$	0.804
Dividends paid per share – Class B common stock	$	0.702	$	0.702	$	0.731	$	0.731
Total cash dividends paid	$	157.8	$	156.5	$	163.7	$	162.7
Declaration date	January 28, 2020		April 21, 2020		July 8, 2020		November 6, 2020
Record date	February 21, 2020		May 22, 2020		August 21, 2020		November 20, 2020
Payment date	March 16, 2020		June 15, 2020		September 15, 2020		December 15, 2020

•Proceeds from the exercise of stock options, including tax benefits. We received ~~$63.3~~$25.5 million from employee exercises of stock options, net of employee taxes withheld from share-based awards in ~~2017, as compared to $94.8~~2020. We received $240.8 million and $63.3 million in ~~2016~~2019 and ~~$55.7 million in 2015.~~2018, respectively. Variances are driven primarily by the number of shares exercised and the share price at the date of grant.


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~~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 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~~Financial Condition

At December 31, ~~2017,~~2020, our cash and cash equivalents totaled ~~$380.2 million.~~$1.1 billion. At December 31, ~~2016,~~2019, our cash and cash equivalents totaled ~~$297.0~~$493.3 million. Our cash and cash equivalents at the end of ~~2017~~2020 increased ~~$83.2~~$650.7 million compared to the ~~2016~~2019 year-end ~~balance~~balance. This increase was predominantly due to our $1 billion 2020 Notes issuance in May 2020 as ~~a result~~we intend to mitigate any potential COVID-19 risks, partially offset by the repayment of $350 million Notes that matured in May 2020 and $350 million Notes that matured in December 2020. Additional detail regarding the net sources of ~~net~~ cash are outlined in the ~~previous~~following discussion.

Approximately ~~75%~~35% of the balance of our cash and cash equivalents at December 31, ~~2017~~2020 was held by subsidiaries domiciled outside of the United States. ~~The~~During 2020, previously undistributed earnings of certain international subsidiaries were no longer considered indefinitely reinvested; however, the Company had previously recognized ~~the~~a one-time U.S. repatriation tax due under U.S. tax reform, and as a result, ~~repatriation~~only an immaterial amount of ~~these amounts would not be subject to additional U.S. federal income~~withholding tax ~~but would be subject to applicable withholding taxes in~~was recognized. For the ~~relevant jurisdiction. Our intent is to permanently reinvest these funds outside~~remainder of the ~~United States. The~~Company’s cash ~~that our foreign~~held by international subsidiaries, ~~hold for indefinite reinvestment is expected~~we intend to ~~be used~~continue to ~~finance foreign operations and investments.~~reinvest the undistributed earnings indefinitely. 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 ~~$2.9~~$4.6 billion at December 31, ~~2017~~2020 and ~~$3.0~~$4.3 billion at December 31, ~~2016.~~2019. Our total debt ~~decreased slightly~~increased in ~~2017 as we reduced~~2020 mainly due to our ~~commercial paper~~$1 billion 2020 Notes issuance in May 2020, partially offset by the repayment of $350 million Notes that matured in May 2020 and ~~short-term foreign borrowings.~~$350 million Notes that matured in December 2020.

As a source of short-term financing, we maintain a ~~$1.0~~$1.5 billion unsecured revolving credit facility with anthe option to increase borrowings by an additional ~~$400~~$500 million with the consent of the lenders. As of December 31, ~~2017,~~2020, the termination date of this agreement is ~~November 2020.~~July 2, 2024, however, we may extend the termination date for up to two additional one-year periods upon notice to the administrative agent under the facility. We may use these funds for general corporate purposes, including commercial paper backstop and business acquisitions. As of December 31, ~~2017,~~2020, we had ~~$551 million~~$1.5 billion of available capacity under the 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, ~~2017.~~2020.

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, ~~2017,~~2020, we had available capacity of ~~$329~~$193 million under these lines of credit.

On January 8, 2018, we entered into an additional credit facility under which the Company may borrow up to $1.5 billion on an unsecured, revolving basis. Funds borrowed may be used for general corporate purposes, including commercial paper backstop and acquisitions. This facility is scheduled to expire on January 7, 2019.

Furthermore, we have a current shelf registration statement filed with the 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.


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Equity Structure

We have two classes of stock outstanding – Common Stock and Class B 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 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~~three representatives of Hershey Trust Company currently ~~serves~~serve as ~~a member~~members of the Company's Board. In performing ~~his~~their responsibilities on the Company’s Board, ~~this representative~~these representatives 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 ~~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. 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 ~~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 having jurisdiction over Hershey Trust Company, as trustee for the ~~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.

Guarantees and Other Off-Balance Sheet Arrangements

We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, 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, ~~2017:~~2020:


	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		Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term notes (excluding capital leases obligations)	$	2,278.4	$	300.1	$	350.0	$	84.7	$	1,543.6
Long-term notes (excluding finance lease obligations)											Long-term notes (excluding finance lease obligations)	$	4,478.3	$	434.7	$	750.0	$	900.0	$	2,393.6
Interest expense (1)	725.3		78.4		148.9		107.2		390.8		Interest expense (1)	1,338.4		121.7		213.3		168.0		835.4
Operating lease obligations (2)	254.3		16.2		31.5		24.2		182.4		Operating lease obligations (2)	281.7		43.8		49.8		27.9		160.2
Capital lease obligations (3)	193.5		3.4		7.0		7.8		175.3
Finance lease obligations (3)											Finance lease obligations (3)	191.3		8.6		12.1		9.4		161.2
Minimum pension plan funding obligations (4)	17.8		1.6		6.4		6.5		3.3		Minimum pension plan funding obligations (4)	10.5		1.7		3.4		3.6		1.8
Unconditional purchase obligations (5)	1,646.6		1,359.7		283.7		3.2		—		Unconditional purchase obligations (5)	1,883.4		1,548.9		331.5		3.0		—
Total obligations	$	5,115.9	$	1,759.4	$	827.5	$	233.6	$	2,295.4	Total obligations	$	8,183.6	$	2,159.4	$	1,360.1	$	1,111.9	$	3,552.2

(1) Includes the net interest payments on fixed rate debt associated with long-term notes.

(2) Includes the minimum rental commitments (including imputed interest) under non-cancelable operating leases primarily for offices, retail stores, warehouses and distribution facilities.

(3) Includes the minimum rental commitments (including ~~interest expense)~~imputed interest) under non-cancelable ~~capital~~finance leases primarily for offices and warehouse ~~facilities.~~facilities, as well as vehicles.

(4) 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


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pension liabilities in accordance with laws and regulations applicable to those plans. For more information, see Note 911 to the Consolidated Financial Statements.

(5) 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, ~~2017.~~2020. The amounts presented in the table do not include items already recorded in accounts payable or accrued liabilities at year-end ~~2017,~~2020, 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. We 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 810 to the Consolidated Financial Statements for more information.

Recent Accounting Pronouncements

Information on recently adopted and 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	~~Income Taxes~~

•Accrued Liabilities for Trade Promotion Activities

•Pension and Other Post-Retirement Benefits Plans

•Business Acquisitions, Valuation and Impairment of Goodwill and Other Intangible Assets

•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 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,


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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 $1,133.2 million, $1,157.4 million and $1,122.3 million in 2017, 2016 and 2015, respectively.~~ The estimated costs of these programs are reasonably likely to change in ~~the~~ future periods 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, 2017,~~During 2020, 2019, and 2018, actual annual promotional costs have not deviated from the estimated amount ~~for a given year~~ by more than 3%2%. Our trade promotion and consumer incentive accrued liabilities totaled $195.6 million and $181.0 million at December 31, 2020 and 2019, respectively.

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 911 to the Consolidated Financial Statements.

Pension Plans

Changes in certain assumptions could significantly affect pension expense and benefit obligations, particularly the estimated long-term rate of return on plan assets and the discount rates used to 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 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 ~~2018,~~2020, we decreased the expected return on plan assets assumption ~~is 5.8%, which was~~to 4.8% from the ~~same percentage~~5.3% assumption used during ~~2017.~~2019. The historical average return (compounded annually) over the 20 years prior to December 31, ~~2017~~2020 was approximately ~~6.2%~~6.0%.

As of December 31, ~~2017,~~2020, our primary plans had cumulative unrecognized investment and actuarial losses of approximately ~~$345~~$281 million. We 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 plan assets. These unrecognized net losses may increase future pension expense if not offset by (i) actual investment returns that exceed the expected long-term rate of investment returns, (ii) other factors, including reduced pension liabilities arising from higher discount rates used to calculate pension obligations or (iii) other

actuarial gains when actual plan experience is favorable as compared to the assumed experience. A 100 basis point decrease or increase in the long-term rate of return on pension assets would correspondingly increase or decrease annual net periodic pension benefit expense by approximately $10 million.

•Discount rate. Prior to December 31, 2017, the service and interest cost components of net periodic benefit cost were determined utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. Beginning in 2018, we ~~have~~ elected to utilize a full yield curve approach in the estimation of service and interest costs by applying the specific spot rates along ~~that~~the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. We made this change to provide a more precise measurement of service and interest costs by improving the correlation between the projected cash flows to the corresponding spot rates along the yield curve. ~~Compared to the method used in 2017, we expect this change to result in lower pension and other post-retirement benefit expense of approximately $6 million in 2018.~~ This change ~~will have no impact on~~does not affect the measurement of our pension and


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other post-retirement benefit liabilities ~~and will be~~but generally results in lower benefit expense in periods when the yield curve is upward sloping, which was the case in 2018. We accounted for ~~prospectively~~this change as a change in accounting ~~estimate.~~

estimate and, accordingly, accounted for it on a prospective basis starting in 2018.

A 100 basis point decrease (increase) in the weighted-average pension discount rate would increase (decrease) annual net periodic pension benefit expense by approximately $4$7 million and the December 31, ~~2017~~2020 pension liability would increase by approximately ~~$100~~$108 million or decrease by approximately ~~$85~~$91 million, respectively.

Pension expense for defined benefit pension plans is expected to be approximately ~~$13~~$6 million in ~~2018.~~2021. Pension expense beyond ~~2018~~2021 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:~~obligations:

•Discount rate. The determination of the discount rate used to calculate the benefit obligations of the OPEB plans is discussed in the pension plans section above. A 100 basis point decrease (increase) in the discount rate assumption for these plans would not be material to the OPEB plans' consolidated expense and the December 31, ~~2017~~2020 benefit liability would increase by approximately ~~$26~~$27 million or decrease by approximately $22 million, respectively.

~~Healthcare cost trend rate. The healthcare cost trend rate is based on a combination~~Business Acquisitions, Valuation and Impairment of inputs including our recent claims history and insights from external advisers regarding recent developments in the healthcare marketplace, as well as projections of future trends in the marketplace. See Note 9 to the Consolidated Financial Statements for disclosure of the effects of a one percentage point change in the healthcare cost trend rate.

Goodwill and Other Intangible Assets

We use the acquisition method of accounting for business acquisitions. Under the acquisition method, the results of operations of the acquired business have been included in the consolidated financial statements since the respective dates of the acquisitions. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is often required in estimating the fair value of assets acquired, particularly intangible assets. As a result, we normally obtain the assistance of a third-party valuation specialist in estimating fair values of tangible and intangible assets. The fair value estimates are based on available historical information and on expectations and assumptions about the future, considering the perspective of marketplace participants. While management believes those expectations and assumptions are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.

Goodwill and indefinite-lived intangible assets are not amortized, but instead, 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 test goodwill for impairment by performing either a qualitative or quantitative assessment. If we choose to perform a qualitative assessment, we evaluate economic, industry and company-specific factors 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, a quantitative test is then performed. Otherwise, no further testing is required. For those reporting units tested using a quantitative approach, 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, impairment is indicated, requiring recognition of a goodwill impairment charge for the differential (up to the carrying value of goodwill). We test individual indefinite-lived intangible assets by comparing the estimated fair values 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


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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.

Results of Impairment Tests

At December 31, ~~2017,~~2020, the net book value of our goodwill totaled $821.1 million and related to five reporting units. Based on our most recent quantitative testing, all of our reporting units had a percentage of excess fair value over carrying value of at least 100%. Therefore, as$1,988.2 million. As it relates to our ~~2017~~2020 annual testing performed at the beginning of the fourth quarter, we tested ~~all five~~one reporting unit using a quantitative assessment. We tested our remaining reporting units using a qualitative assessment and determined that no quantitative testing was deemed necessary. Based on our testing, all of our reporting units had an excess fair value well over the their respective carrying values. There were no other events or circumstances that would indicate that impairment may exist. We had no goodwill impairment charges in 2020, 2019 or 2018.

In ~~February 2017,~~2019, sales and operating performance associated with our Krave business were below expectations. In the fourth quarter of 2019, as part of a strategic review initiated by our leadership team, we ~~commenced~~updated our strategic forecast which projected underperformance related to the ~~Margin for Growth Program which includes~~Krave business primarily due to mainstream brands driving category volume and an ~~initiative to optimize~~increase in the ~~manufacturing operations supporting our China business.~~overall competitive landscape. We deemed this to be a triggering event requiring us to test our ~~China~~Krave long-lived asset group for ~~impairment by first determining whether the carrying value of the asset group was recovered by~~impairment. Based on our ~~current estimates of future cash flows associated with the asset group. Because this~~ assessment, ~~indicated~~we determined that the carrying value was not recoverable weand calculated an impairment loss as the excess of the asset group's carrying value over its fair value. ~~The resulting impairment loss was allocated to the asset group's long-lived assets.~~ Therefore, as a result of this testing, during the ~~first~~fourth quarter of ~~2017,~~2019, we recorded an impairment charge totaling ~~$105.9~~$100.1 million ~~representing~~to write down the ~~portion~~long-lived asset group, which predominantly consisted of ~~the impairment loss that was allocated to the distributor~~customer relationship and trademark intangible ~~assets that had been recognized in connection with the 2014 SGM acquisition.~~assets.

In 2016, in connection with our 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.

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 connection with the SGM acquisition. As a result of declining performance levels and our post-acquisition assessment, we determined that GAAP required an interim impairment test of the SGM reporting 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. As of the date of our original impairment test, 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. As of the date of our original impairment test, 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.

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~~authorities; 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.


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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~~

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 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 December 2020, our fixed-to-floating interest rate swap matured in connection with the repayment of certain long-term debt upon its maturity. Therefore, as of December 31, 2020, we had no interest rate swap derivative instruments in a fair value hedging relationship. The total notional amount of interest rate swaps outstanding at December 31, ~~2017 and 2016~~2019 was $350 million. The notional amount relates to fixed-to-floating interest rate swaps which convert a comparable amount of fixed-rate debt to variable rate debt at December 31, ~~2017 and 2016.~~2019. A hypothetical 100 basis point increase in interest rates applied to this ~~now~~ variable-rate debt ~~as of~~through its December ~~31, 2017~~2020 maturity would have increased interest expense by approximately ~~$3.5~~$3.2 million for the year 2020 and ~~$3.6~~$3.5 million for the full year ~~2017~~2019.

In addition, the total amount of short-term debt, net of cash, amounted to net cash of $1.1 billion and ~~2016, respectively.~~$461 million, respectively, at December 31, 2020 and 2019. A hypothetical 100 basis point increase in interest rates applied to this variable-rate short-term debt as of December 31, 2020 would have changed interest expense by approximately $8.6 million for the full year 2020 and $4.3 million for the full year 2019.

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, ~~2017~~2020 and December 31, ~~2016~~2019 by approximately ~~$134~~$357 million and ~~$142~~$246 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.

In order to manage interest rate exposure, in previous years we utilized interest rate swap agreements to protect against unfavorable interest rate changes relating to forecasted debt transactions. These swaps, which were settled upon issuance of the related debt, were designated as cash flow hedges and the gains and losses that were deferred in other comprehensive income are being recognized as an adjustment to interest expense over the same period that the hedged interest payments affect earnings. During 2016, we had one interest rate swap agreement in a cash flow hedging relationship with a notional amount of $500 million, which was settled in connection with the issuance of debt in August 2016, resulting in a payment of approximately $87 million which is reflected as an operating cash flow within the Consolidated Statement of Cash Flows.


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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 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 12 months.

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


December 31,	2017			2016			December 31,	2020			2019
	Contract Amount		Primary Currencies	Contract Amount		Primary Currencies		Contract Amount		Primary Currencies	Contract Amount		Primary Currencies
In millions of dollars							In millions of dollars
Foreign currency forward exchange contracts to purchase foreign currencies	$	19.5	Euros	$	9.4	Euros	Foreign currency forward exchange contracts to purchase foreign currencies	$	45.4	Euros Malaysian ringgit Swiss Franc	$	110.8	Euros British pound Malaysian ringgit
Foreign currency forward exchange contracts to sell foreign currencies	$	158.2	Canadian dollars Brazilian reals Japanese yen	$	80.4	Canadian dollars Brazilian reals Japanese yen	Foreign currency forward exchange contracts to sell foreign currencies	$	178.0	Canadian dollars Brazilian reals Mexican peso Japanese yen British pound	$	125.8	Canadian dollars 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, ~~2017~~2020 and ~~2016,~~2019, the net fair value of these instruments was a liability of ~~$1.0~~$3.1 million and an asset of ~~$1.4~~$1.0 million, respectively. ~~Assuming~~In addition, assuming an

unfavorable 10% change in year-end foreign currency exchange rates, the fair value of these instruments would have declined by ~~$19.7~~$25.6 million and ~~$9.6~~$55.4 million, ~~respectively.~~respectively, generally offset by a reduction in foreign exchange associated with our transactional activities.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 42

Commodities—Price Risk Management and Futures Contracts

Our most significant raw material requirements include cocoa products, sugar, corn products, 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.~~

•Commodity market fluctuations;

•Foreign currency exchange rates;

•Imbalances between supply and demand;

•The effects of climate change and extreme weather on crop yield and quality;

•Speculative influences;

•Trade agreements among producing and consuming nations;

•Supplier compliance with commitments;

•Import/export requirements for raw materials and finished goods;

•Political unrest in producing countries;

•Introduction of living income premiums or similar requirements; and

•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,~~products, certain dairy products, natural gas and ~~certain dairy products~~diesel fuel primarily to ~~reduce the risk of future~~mitigate price ~~increases~~volatility and provide visibility to future ~~costs.~~costs within our supply chain. 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 raw material and energy price fluctuations ~~related to the purchase of raw materials~~ by using derivatives and forward purchasing to cover future manufacturing requirements generally for 3 to 24 months. However, dairy futures liquidity is not as developed as many of the other ~~commodities~~commodity futures markets and, therefore, it can be difficult to hedge ~~our~~dairy costs for ~~dairy products by entering into futures contracts or other derivative instruments to extend coverage for long~~extended periods of time. We use diesel ~~swap~~fuel futures ~~contracts~~ to minimize price fluctuations associated with our transportation costs. Our commodity procurement practices are intended to ~~reduce the risk of future~~mitigate price ~~increases~~volatility 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.

Cocoa Products

During ~~2017,~~2020, average cocoa futures contract prices ~~decreased~~increased compared with ~~2016~~2019 and traded in a range between ~~$0.87~~$1.00 and ~~$0.99~~$1.29 per pound, based on the Intercontinental Exchange futures contract. ~~Cocoa~~While global production ~~was higher during the 2016 to 2017 crop year and outpaced the increases in global~~declined slightly, demand ~~which led~~reduced to a ~~rebuild~~greater extent leading to a modest global surplus and accompanying increase in ~~global cocoa stocks over~~overall stocks. During the ~~past year. As a result, cocoa~~first half of the year prices declined ~~in 2017 versus 2016 due to excess~~amidst an expectation of strong future supply ~~relative to demand.~~and concerns around the demand outlook. Strong West African production remains the consensus, though the demand picture has been unclear given broad-based quarantine measures. 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)
	2017		2016		2015		2014		2013			2020		2019		2018		2017		2016
Annual Average	$	0.91	$	1.29	$	1.40	$	1.36	$	1.09	Annual Average	$	1.11	$	1.03	$	1.06	$	0.91	$	1.29
High	0.99		1.38		1.53		1.45		1.26		High	1.29		1.14		1.23		0.99		1.38
Low	0.87		1.03		1.28		1.25		0.97		Low	1.00		0.90		0.88		0.87		1.03

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of The Hershey Company

Opinion on the Financial Statements

We have audited the accompanying consolidated balance ~~sheet~~sheets of The Hershey Company (the Company) as of December 31, ~~2017,~~2020 and 2019, the related consolidated statements of income, comprehensive income, cash flows, and stockholders' equity for each of the ~~year~~three years in the period ended December 31, ~~2017,~~2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, ~~2017,~~2020 and 2019, and the results of its operations and its cash flows for each of the ~~year~~three years in the period ended December 31, ~~2017,~~2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, ~~2017,~~2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February ~~27, 2018~~17, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our ~~audit.~~audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our ~~audit~~audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our ~~audit~~audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our ~~audit~~audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our ~~audit provides~~audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.



Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 46


Valuation of Accrued Liabilities for Trade Promotion Activities

Description of the Matter						The unsettled portion of the Company’s obligation for trade promotion activities at December 31, 2020 was $195.6 million. As discussed in Note 1 of the consolidated financial statements, the Company promotes its products through programs such as, but not limited to, discounts, coupons, rebates, in-store display incentives, and volume-based incentives. The Company recognizes the estimated costs of these trade promotion activities as a component of variable consideration when determining the transaction price. The unsettled portion of the Company’s obligation for trade promotion activities is included in accrued liabilities in the consolidated balance sheet. Auditing management’s calculation of the unsettled portion of the Company’s obligation for trade promotion activities was highly subjective and required significant judgment as a result of the nature of the required estimates and assumptions. In particular, the estimates required an analysis of the programs offered, expectations regarding customer and consumer participation, historical sales and payment trends, and experience with payment patterns associated with similar programs offered in the past. The estimated cost of these programs is sensitive 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.
How We Addressed the Matter in Our Audit						We obtained an understanding, evaluated the design, and tested the operating effectiveness of the controls related to the Company’s calculation of the accrued liabilities for trade promotion activities. For example, we tested controls over management’s review of the completeness of the promotional activities as well as the significant assumptions and the data inputs utilized in the calculations. To test the unsettled portion of the Company’s obligation for trade promotion activities, we performed audit procedures that included, among others, assessing (1) the expected value estimation methodology used by management, (2) whether all material trade promotion activities were properly included in management’s estimate, and (3) the significant assumptions discussed above and the underlying data used in its analyses. Specifically, when evaluating the significant assumptions, we compared them to historical trends, third party data, and assumptions used in prior periods, and inspected management’s retrospective review of actual trade promotion activities compared to previous estimates. We also performed sensitivity analyses of significant assumptions to evaluate the changes in the estimate that would result from changes in the assumptions.


/s/ ERNST & YOUNG LLP

We have served as the Company‘s auditor since 2016.

Philadelphia, Pennsylvania
February ~~27, 2018~~17, 2021


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 47

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of The Hershey Company

Opinion on Internal Control over Financial Reporting

We have audited The Hershey Company’s internal control over financial reporting as of December 31, ~~2017,~~2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, The Hershey Company (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2017,~~2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance ~~sheet~~sheets of ~~The Hershey~~the Company ~~(the Company)~~ as of December 31, ~~2017,~~2020 and 2019, the related consolidated statements of income, comprehensive income, cash flows, and stockholders' equity for each of the ~~year~~three years in the period ended December 31, ~~2017,~~2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated February ~~27, 2018~~17, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 48

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



/s/ ERNST & YOUNG LLP

~~Philadelphia, Pennsylvania~~
~~February 27, 2018~~

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~The Board of Directors and Stockholders~~

~~The Hershey Company:~~

We have audited the accompanying consolidated balance sheet of The Hershey Company and subsidiaries (the “Company”) as of December 31, 2016, and the related consolidated statements of income, comprehensive income, cash flows and stockholders’ equity for each of the years in the two-year period ended December 31, 2016. In connection with our audits of the consolidated financial statements, we also have audited the related consolidated financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Hershey Company and subsidiaries as of December 31, 2016, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



~~/s/ KPMG LLP~~Philadelphia, Pennsylvania
February 17, 2021

~~New York, New York~~
~~February 21, 2017, except for the classification adjustments to the Consolidated Statements~~Table of ~~Cash Flows related to the adoption of Accounting Standards Update 2016-09,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,~~ ~~described in Note 1, as to which the date is February 27, 2018~~Contents			The Hershey Company \| 2020 Form 10-K \| Page 49

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)


For the years ended December 31,	2020		2019		2018
Net sales	$	8,149,719	$	7,986,252	$	7,791,069
Cost of sales	4,448,450		4,363,774		4,215,744
Gross profit	3,701,269		3,622,478		3,575,325
Selling, marketing and administrative expense	1,890,925		1,905,929		1,874,829
Long-lived and intangible asset impairment charges	9,143		112,485		57,729

Business realignment costs	18,503		8,112		19,103
Operating profit	1,782,698		1,595,952		1,623,664
Interest expense, net	149,374		144,125		138,837
Other (income) expense, net	138,327		71,043		74,766
Income before income taxes	1,494,997		1,380,784		1,410,061
Provision for income taxes	219,584		234,032		239,010
Net income including noncontrolling interest	1,275,413		1,146,752		1,171,051
Less: Net loss attributable to noncontrolling interest	(3,295)		(2,940)		(6,511)
Net income attributable to The Hershey Company	$	1,278,708	$	1,149,692	$	1,177,562

Net income per share—basic:
Common stock	$	6.30	$	5.64	$	5.76
Class B common stock	$	5.72	$	5.12	$	5.24

Net income per share—diluted:
Common stock	$	6.11	$	5.46	$	5.58
Class B common stock	$	5.71	$	5.10	$	5.22

Dividends paid per share:
Common stock	$	3.154	$	2.990	$	2.756
Class B common stock	$	2.866	$	2.716	$	2.504

For the years ended December 31, 2017 2016 2015
Net sales $ 7,515,426
$ 7,440,181
$ 7,386,626
Cost of sales 4,070,907
4,282,290
4,003,951
Gross profit 3,444,519
3,157,891
3,382,675
Selling, marketing and administrative expense 1,913,403
1,915,378
1,969,308
Long-lived asset impairment charges 208,712
—
—
Goodwill and indefinite-lived intangible asset impairment charges —
4,204
280,802
Business realignment costs 47,763
32,526
94,806
Operating profit 1,274,641
1,205,783
1,037,759
Interest expense, net 98,282
90,143
105,773
Other (income) expense, net 65,691
16,159
30,139
Income before income taxes 1,110,668
1,099,481
901,847
Provision for income taxes 354,131
379,437
388,896
Net income including noncontrolling interest 756,537
720,044
512,951
Less: Net loss attributable to noncontrolling interest (26,444 ) —
—
Net income attributable to The Hershey Company $ 782,981
$ 720,044
$ 512,951

Net income per share—basic:
Common stock $ 3.79
$ 3.45
$ 2.40
Class B common stock $ 3.44
$ 3.15
$ 2.19

Net income per share—diluted:
Common stock $ 3.66
$ 3.34
$ 2.32
Class B common stock $ 3.44
$ 3.14
$ 2.19

Dividends paid per share:
Common stock $ 2.548
$ 2.402
$ 2.236
Class B common stock $ 2.316
$ 2.184
$ 2.032

See Notes to Consolidated Financial Statements.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 50

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)


	For the years ended December 31,
	2020						2019						2018
	Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount		Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount		Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount
Net income including noncontrolling interest					$	1,275,413					$	1,146,752					$	1,171,051
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Foreign currency translation (losses) gains during period	$	(13,767)	$	0	(13,767)		$	13,141	$	0	13,141		$	(31,143)	$	0	(31,143)
Reclassification to earnings due to the sale of businesses	0		0		0		0		0		0		25,131		0		25,131
Pension and post-retirement benefit plans:
Net actuarial (loss) gain and prior service cost	(39,455)		9,351		(30,104)		(9,315)		2,273		(7,042)		(39,724)		10,120		(29,604)
Reclassification of tax effects relating to U.S. tax reform	0		0		0		0		0		0		0		(36,535)		(36,535)
Reclassification to earnings	33,326		(8,240)		25,086		31,341		(8,256)		23,085		40,421		(9,986)		30,435
Cash flow hedges:
(Losses) gains on cash flow hedging derivatives	(780)		1,880		1,100		(2,515)		857		(1,658)		5,822		(86)		5,736
Reclassification of tax effects relating to U.S. tax reform	0		0		0		0		0		0		0		(11,121)		(11,121)
Reclassification to earnings	7,779		(3,156)		4,623		8,404		(2,949)		5,455		5,573		(2,677)		2,896
Total other comprehensive (loss) income, net of tax	$	(12,897)	$	(165)	(13,062)		$	41,056	$	(8,075)	32,981		$	6,080	$	(50,285)	(44,205)
Total comprehensive income including noncontrolling interest					$	1,262,351					$	1,179,733					$	1,126,846
Comprehensive loss attributable to noncontrolling interest					(2,241)						(2,773)						(7,682)
Comprehensive income attributable to The Hershey Company					$	1,264,592					$	1,182,506					$	1,134,528

For the years ended December 31,
2017 2016 2015
Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount
Net income including noncontrolling interest $ 756,537
$ 720,044
$ 512,951
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments $ 19,616
$ —
19,616
$ (13,041 ) $ —
(13,041 ) $ (59,707 ) $ —
(59,707 )
Pension and post-retirement benefit plans:
Net actuarial gain (loss) and prior service cost 28,718
(10,883 ) 17,835
20,304
(7,776 ) 12,528
(5,559 ) 2,002
(3,557 )
Reclassification to earnings 46,305
(26,497 ) 19,808
56,604
(21,653 ) 34,951
52,469
(18,910 ) 33,559
Cash flow hedges:
Gains (losses) on cash flow hedging derivatives (4,931 ) 73
(4,858 ) (52,708 ) 18,701
(34,007 ) 61,839
(23,520 ) 38,319
Reclassification to earnings 14,434
(3,853 ) 10,581
(16,482 ) 7,524
(8,958 ) (36,634 ) 13,416
(23,218 )
Total other comprehensive income (loss), net of tax $ 104,142
$ (41,160 ) 62,982
$ (5,323 ) $ (3,204 ) (8,527 ) $ 12,408
$ (27,012 ) (14,604 )
Total comprehensive income including noncontrolling interest $ 819,519
$ 711,517
$ 498,347
Comprehensive loss attributable to noncontrolling interest (25,604 ) (3,664 ) (2,152 )
Comprehensive income attributable to The Hershey Company $ 845,123
$ 715,181
$ 500,499

See Notes to Consolidated Financial Statements.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 51

THE HERSHEY COMPANY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


December 31,	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	1,143,987	$	493,262
Accounts receivable—trade, net	615,233		568,509
Inventories	964,207		815,251

Prepaid expenses and other	254,478		240,080
Total current assets	2,977,905		2,117,102
Property, plant and equipment, net	2,285,255		2,153,139
Goodwill	1,988,215		1,985,955
Other intangibles	1,295,214		1,341,166
Other non-current assets	555,887		512,000
Deferred income taxes	29,369		31,033
Total assets	$	9,131,845	$	8,140,395
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	580,058	$	550,828
Accrued liabilities	781,766		702,372
Accrued income taxes	17,051		19,921
Short-term debt	74,041		32,282
Current portion of long-term debt	438,829		703,390
Total current liabilities	1,891,745		2,008,793
Long-term debt	4,089,755		3,530,813
Other long-term liabilities	683,434		655,777
Deferred income taxes	229,028		200,018
Total liabilities	6,893,962		6,395,401

Stockholders’ equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: NaN in 2020 and 2019	0		0
Common stock, shares issued: 160,939,248 in 2020 and 2019	160,939		160,939
Class B common stock, shares issued: 60,613,777 in 2020 and 2019	60,614		60,614
Additional paid-in capital	1,191,200		1,142,210
Retained earnings	1,928,673		1,290,461
Treasury—common stock shares, at cost: 13,325,898 in 2020 and 12,723,592 in 2019	(768,992)		(591,036)
Accumulated other comprehensive loss	(338,082)		(323,966)
Total—The Hershey Company stockholders’ equity	2,234,352		1,739,222
Noncontrolling interest in subsidiary	3,531		5,772
Total stockholders’ equity	2,237,883		1,744,994
Total liabilities and stockholders’ equity	$	9,131,845	$	8,140,395

December 31, 2017 2016
ASSETS
Current assets:
Cash and cash equivalents $ 380,179
$ 296,967
Accounts receivable—trade, net 588,262
581,381
Inventories 752,836
745,678
Prepaid expenses and other 280,633
192,752
Total current assets 2,001,910
1,816,778
Property, plant and equipment, net 2,106,697
2,177,248
Goodwill 821,061
812,344
Other intangibles 369,156
492,737
Other assets 251,879
168,365
Deferred income taxes 3,023
56,861
Total assets $ 5,553,726
$ 5,524,333
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 523,229
$ 522,536
Accrued liabilities 676,134
750,986
Accrued income taxes 17,723
3,207
Short-term debt 559,359
632,471
Current portion of long-term debt 300,098
243
Total current liabilities 2,076,543
1,909,443
Long-term debt 2,061,023
2,347,455
Other long-term liabilities 438,939
400,161
Deferred income taxes 45,656
39,587
Total liabilities 4,622,161
4,696,646

Stockholders’ equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none in 2017 and 2016 —
—
Common stock, shares issued: 299,281,967 in 2017 and 2016 299,281
299,281
Class B common stock, shares issued: 60,619,777 in 2017 and 2016 60,620
60,620
Additional paid-in capital 924,978
869,857
Retained earnings 6,371,082
6,115,961
Treasury—common stock shares, at cost: 149,040,927 in 2017 and 147,642,009 in 2016 (6,426,877 ) (6,183,975 )
Accumulated other comprehensive loss (313,746 ) (375,888 )
Total—The Hershey Company stockholders’ equity 915,338
785,856
Noncontrolling interest in subsidiary 16,227
41,831
Total stockholders’ equity 931,565
827,687
Total liabilities and stockholders’ equity $ 5,553,726
$ 5,524,333

See Notes to Consolidated Financial Statements.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 52

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


For the years ended December 31,	2020		2019		2018
Operating Activities
Net income including noncontrolling interest	$	1,275,413	$	1,146,752	$	1,171,051
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	294,907		291,544		295,144
Stock-based compensation expense	57,584		51,899		49,286
Deferred income taxes	26,880		(15,072)		36,255
Impairment of long-lived and intangible assets (see Note 6)	9,143		112,485		57,729

Write-down of equity investments	125,579		50,457		50,329

Other	113,470		57,426		37,278
Changes in assets and liabilities, net of business acquisitions and divestitures:
Accounts receivable—trade, net	(55,537)		40,252		8,585
Inventories	(151,918)		(21,194)		(12,746)
Prepaid expenses and other current assets	2,493		13,593		(39,899)
Accounts payable and accrued liabilities	41,470		41,101		(100,252)
Accrued income taxes	(16,158)		(9,544)		75,568
Contributions to pension and other benefit plans	(11,671)		(20,134)		(25,864)
Other assets and liabilities	(11,998)		24,308		(2,471)
Net cash provided by operating activities	1,699,657		1,763,873		1,599,993
Investing Activities
Capital additions (including software)	(441,626)		(318,192)		(328,601)
Proceeds from sales of property, plant and equipment and other long-lived assets	1,107		28,131		49,759
Proceeds from sales of businesses, net of cash and cash equivalents divested	0		0		167,048
Equity investments in tax credit qualifying partnerships	(87,211)		(80,230)		(52,641)
Business acquisitions, net of cash and cash equivalents acquired	0		(402,160)		(1,338,459)
Other investing activities	(3,550)		(8,029)		0

Net cash used in investing activities	(531,280)		(780,480)		(1,502,894)
Financing Activities
Net increase (decrease) in short-term debt	41,759		(1,168,205)		645,805
Long-term borrowings, net of debt issuance costs	989,876		989,618		1,199,845
Repayment of long-term debt and finance leases	(704,467)		(6,151)		(910,844)
Repayment of tax receivable obligation	0		0		(72,000)

Cash dividends paid	(640,732)		(610,312)		(562,521)
Repurchase of common stock	(211,196)		(527,211)		(247,500)
Exercise of stock options	25,532		240,806		63,323

Net cash (used in) provided by financing activities	(499,228)		(1,081,455)		116,108
Effect of exchange rate changes on cash and cash equivalents	(6,990)		3,326		(5,388)
Increase (decrease) in cash and cash equivalents, including cash classified as held for sale	662,159		(94,736)		207,819
Less: Increase in cash and cash equivalents classified as held for sale (see Note 8)	(11,434)		0		0
Net increase (decrease) in cash and cash equivalents	650,725		(94,736)		207,819
Cash and cash equivalents, beginning of period	493,262		587,998		380,179
Cash and cash equivalents, end of period	$	1,143,987	$	493,262	$	587,998
Supplemental Disclosure
Interest paid	$	150,930	$	139,504	$	132,486
Income taxes paid	215,491		238,067		118,842

For the years ended December 31, 2017 2016 2015
Operating Activities
Net income including noncontrolling interest $ 756,537
$ 720,044
$ 512,951
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 261,853
301,837
244,928
Stock-based compensation expense 51,061
54,785
51,533
Deferred income taxes 18,582
(38,097 ) (38,537 )
Impairment of goodwill, indefinite and long-lived assets (see Notes 3 and 7) 208,712
4,204
280,802
Loss on early extinguishment of debt (see Note 4) —
—
28,326
Write-down of equity investments 66,209
43,482
39,489
Gain on settlement of SGM liability (see Note 2) —
(26,650 ) —
Other 77,291
51,375
28,467
Changes in assets and liabilities, net of business acquisitions and divestitures:
Accounts receivable—trade, net (6,881 ) 21,096
(24,440 )
Inventories (71,404 ) 13,965
52,049
Prepaid expenses and other current assets 18,214
(42,955 ) 118,007
Accounts payable and accrued liabilities (52,960 ) (63,467 ) 9,574
Accrued income taxes (71,027 ) (937 ) 36,848
Contributions to pension and other benefit plans (56,433 ) (41,697 ) (53,273 )
Other assets and liabilities 49,761
16,443
(30,413 )
Net cash provided by operating activities 1,249,515
1,013,428
1,256,311
Investing Activities
Capital additions (including software) (257,675 ) (269,476 ) (356,810 )
Proceeds from sales of property, plant and equipment 7,609
3,651
1,205
Proceeds from sale of business —
—
32,408
Equity investments in tax credit qualifying partnerships (78,598 ) (44,255 ) (30,720 )
Business acquisitions, net of cash and cash equivalents acquired —
(285,374 ) (218,654 )
Sale of short-term investments —
—
95,316
Net cash used in investing activities (328,664 ) (595,454 ) (477,255 )
Financing Activities
Net (decrease) increase in short-term debt (81,426 ) 275,607
10,720
Long-term borrowings 954
792,953
599,031
Repayment of long-term debt —
(500,000 ) (355,446 )
Payment of SGM liability (see Note 2) —
(35,762 ) —
Cash dividends paid (526,272 ) (499,475 ) (476,132 )
Repurchase of common stock (300,312 ) (592,550 ) (582,623 )
Exercise of stock options 63,288
94,831
55,703
Other —
—
(48,270 )
Net cash used in financing activities (843,768 ) (464,396 ) (797,017 )
Effect of exchange rate changes on cash and cash equivalents 6,129
(3,140 ) (10,364 )
Increase (decrease) in cash and cash equivalents 83,212
(49,562 ) (28,325 )
Cash and cash equivalents, beginning of period 296,967
346,529
374,854
Cash and cash equivalents, end of period $ 380,179
$ 296,967
$ 346,529
Supplemental Disclosure
Interest paid (excluding loss on early extinguishment of debt in 2015) $ 101,874
$ 90,951
$ 88,448
Income taxes paid 351,832
425,539
368,926

See Notes to Consolidated Financial Statements.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 53

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

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, 2015 $ —
$ 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
Other comprehensive loss (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 )
Stock-based compensation 50,722
50,722
Exercise of stock options and incentive-based transactions 8,204
71,500
79,704
Repurchase of common stock (582,623 ) (582,623 )
Impact of reclassifications to and purchase of redeemable noncontrolling interest (29,235 ) (13,428 ) (42,663 )
Earnings of noncontrolling interests 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
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 interest (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
Net income (loss) 782,981
(26,444 ) 756,537
Other comprehensive income 62,142
840
62,982
Dividends (including dividend equivalents):
Common Stock, $2.548 per share (387,466 ) (387,466 )
Class B Common Stock, $2.316 per share (140,394 ) (140,394 )
Stock-based compensation 49,243
49,243
Exercise of stock options and incentive-based transactions 5,878
57,410
63,288
Repurchase of common stock (300,312 ) (300,312 )
Balance, December 31, 2017 $ —
$ 299,281
$ 60,620
$ 924,978
$ 6,371,082
$ (6,426,877 ) $ (313,746 ) $ 16,227
$ 931,565


	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, 2018	$	0	$	299,281	$	60,620	$	924,978	$	6,371,082	$	(6,426,877)	$	(313,746)	$	16,227	$	931,565
Net income (loss)									1,177,562						(6,511)		1,171,051
Other comprehensive income (loss)													4,622		(1,171)		3,451
Dividends (including dividend equivalents):
Common Stock, $2.756 per share									(412,491)								(412,491)
Class B Common Stock, $2.504 per share									(151,789)								(151,789)
Conversion of Class B Common Stock into Common Stock			6		(6)												0
Stock-based compensation							49,656										49,656
Exercise of stock options and incentive-based transactions							7,571				55,752						63,323
Repurchase of common stock											(247,500)						(247,500)
Reclassification of tax effects relating to U.S. tax reform									47,656				(47,656)				0
Balance, December 31, 2018	0		299,287		60,614		982,205		7,032,020		(6,618,625)		(356,780)		8,545		1,407,266
Net income (loss)									1,149,692						(2,940)		1,146,752
Other comprehensive income													32,814		167		32,981
Dividends (including dividend equivalents):
Common Stock, $2.990 per share									(445,618)								(445,618)
Class B Common Stock, $2.716 per share									(164,627)								(164,627)
Stock-based compensation							50,732										50,732
Exercise of stock options and incentive-based transactions							109,273				131,533						240,806
Repurchase of common stock											(527,211)						(527,211)
Retirement of treasury common stock			(138,348)						(6,284,919)		6,423,267						0
Impact of ASU 2016-02 related to leases									3,913								3,913
Balance, December 31, 2019	0		160,939		60,614		1,142,210		1,290,461		(591,036)		(323,966)		5,772		1,744,994
Net income (loss)									1,278,708						(3,295)		1,275,413
Other comprehensive (loss) income													(14,116)		1,054		(13,062)
Dividends (including dividend equivalents):
Common Stock, $3.154 per share									(466,777)								(466,777)
Class B Common Stock, $2.866 per share									(173,719)								(173,719)
Stock-based compensation							56,698										56,698
Exercise of stock options and incentive-based transactions							(7,708)				33,240						25,532
Repurchase of common stock											(211,196)						(211,196)

Balance, December 31, 2020	$	0	$	160,939	$	60,614	$	1,191,200	$	1,928,673	$	(768,992)	$	(338,082)	$	3,531	$	2,237,883

See Notes to Consolidated Financial Statements.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 54

THE HERSHEY COMPANY

NOTES TO 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~~ (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 8090 brands worldwide including such iconic brand names as Hershey’s, Reese’s, Kisses, Jolly Rancher and Ice Breakers, which are marketed, sold and distributed in approximately 8085 countries worldwide. ~~Hershey~~Hershey's structure is ~~focused~~designed to ensure continued focus on ~~growing its presence~~North America, coupled with an emphasis on profitable growth in ~~key~~our focus international ~~markets while continuing to build its competitive advantage in North America.~~markets. The Company currently operates through ~~two~~2 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.~~13.

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 in 2016 and 2015 was not considered significant and was recorded within selling, marketing and administrative expense in the Consolidated Statements of Income. See Note 12 for additional information on our noncontrolling interest. We use the equity method of accounting when we have a 20% to 50% interest in other companies and exercise significant influence. See Note 14 for information on our noncontrolling interest. In addition, we 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. See Note 810 for additional information on our equity investments in partnership entities qualifying for tax credits. Other investments that are not controlled, and over which we do not have the ability to exercise significant influence, are accounted for under the cost method. Both equity and cost method investments are included as Other non-current assets in the Consolidated Balance Sheets.

COVID-19

On March 11, 2020, the World Health Organization designated coronavirus disease 2019 ("COVID-19") as a global pandemic. We continue to actively monitor COVID-19 and its potential impact on our operations and financial results. Employee health and safety remains our first priority while we continue our efforts to support community food supplies. To date, there has been minimal disruption to our supply chain network, and all our manufacturing plants are currently open. We are also working closely with our business units, contract manufacturers, distributors, contractors and other external business partners to minimize the potential impact on our business.

In late May and early June, many state governments began a phased reopening of their economies. These phased approaches promoted limited food service offerings, outdoor dining, increased travel and the reopening of retailing establishments while adhering to new guidelines and enhanced safety measures, including social distancing and face mask protocols. As a result, we experienced an increase in our net sales and earnings per share during 2020. We believe the financial impacts from COVID-19 are temporary in nature and do not significantly affect our business model and growth strategy.

While recent reopening approaches have made a short-term positive impact on local and state economies and the United States unemployment rate, certain states have modified reopening plans as new cases of COVID-19 have led to new trends in outbreaks and hotspots.

The ultimate impact that COVID-19 will have on our consolidated financial statements remains uncertain and ultimately will be dictated by the length and severity of the pandemic, as well as the economic recovery and federal, state and local government actions taken in response, including the distribution of vaccinations. We will continue to evaluate the nature and extent of these potential impacts to our business and consolidated financial statements.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 55

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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.

Revenue Recognition

~~We record sales when all~~The majority of our revenue contracts represent a single performance obligation related to 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.~~

fulfillment of customer orders for the purchase of our products, including chocolate, sweets, mints and other grocery and snack offerings. Net sales ~~include revenue from~~reflect the ~~sale of finished goods and royalty income, net of allowances~~transaction prices for these contracts based on our selling list price which is then reduced by estimated costs for trade ~~promotions,~~promotional programs, consumer ~~coupon programs and other sales~~ incentives, and allowances and discounts associated with aged or potentially unsaleable products. ~~Trade promotions~~We recognize revenue at the point in time that control of the ordered product(s) is transferred to the customer, which is typically upon delivery to the customer or other customer-designated delivery point. Amounts billed and due from our customers are classified as accounts receivables on the balance sheet and require payment on a short-term basis.

Our trade promotional programs and consumer incentives are used to promote our products and include, but are not limited to, discounts, coupons, rebates, in-store display incentives, and volume-based incentives. The estimated costs associated with these programs and incentives are based upon our analysis of the programs offered, expectations regarding customer and consumer participation, historical sales ~~incentives primarily include reduced price features,~~and payment trends, and our experience with payment patterns associated with similar programs offered in the past. The estimated costs of these programs are reasonably likely to change in future periods 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. During 2020, 2019 and 2018, actual promotional costs have not deviated from the estimated amount by more than 2%. The Company’s unsettled portion remaining in accrued liabilities at year-end for these activities was $195,563 and $180,959 at December 31, 2020 and 2019, respectively.

~~THE HERSHEY COMPANY~~

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

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

~~merchandising displays,~~We also recognize a minor amount of royalty income (less than 1% of our consolidated net sales) from sales-based licensing arrangements, pursuant to which revenue is recognized as the third-party licensee sales ~~growth incentives, new item allowances~~occur. Shipping and ~~cooperative advertising.~~handling costs incurred to deliver product to the customer are recorded within cost of sales. Sales, ~~use, value-added~~value add and other ~~excise~~ taxes we collect concurrent with revenue producing activities are ~~not recognized in~~excluded from revenue.

The majority of our products are confectionery or confectionery-based and, therefore, exhibit similar economic characteristics, as they are based on similar ingredients and are marketed and sold through the same channels to the same customers. In ~~2017, 2016~~connection with our recent acquisitions, we have expanded our portfolio of snacking products, which also exhibit similar economic characteristics to our confectionery products and ~~2015,~~are sold through the same channels to the same customers. See Note 13 for revenues reported by geographic segment, which is consistent with how we organize and manage our operations, as well as product line net sales information.

In 2020, 2019 and 2018, approximately ~~29%~~31%, ~~25%~~30% and ~~26%~~28%, 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.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 56

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Cost of Sales

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 costs, administrative and other indirect overhead costs, amortization of capitalized software and intangible assets and depreciation of administrative facilities. Research and development costs, charged to expense as incurred, totaled ~~$45,850~~$37,577 in ~~2017, $47,268~~2020, $37,146 in ~~2016~~2019 and ~~$49,281~~$38,521 in ~~2015.~~2018. Advertising expense is also charged to expense as incurred and totaled ~~$541,293~~$516,936 in ~~2017, $521,479~~2020, $513,302 in ~~2016~~2019 and ~~$561,644~~$479,908 in ~~2015.~~2018. Prepaid advertising expense was ~~$56~~$705 and ~~$651~~$242 as of December 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

Cash Equivalents

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~~concentration of credit risk ~~are~~is associated with McLane Company, Inc. ~~and Target Corporation, two customers~~, one customer served principally by our North America segment. As of December 31, ~~2017,~~2020, McLane Company, Inc. accounted for approximately 24% of our total accounts receivable. ~~Target Corporation accounted for approximately 11% of our total accounts receivable as of December 31, 2017.~~ 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 for bad debts and anticipated discounts of ~~$41,792~~$24,975 and ~~$40,153~~$24,966 at December 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

Inventories

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, ~~2017,~~2020, approximately ~~59%~~63% of our inventories, representing the majority of our United States ("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~~were valued at the lower of first-in, first-out (“FIFO”) cost or ~~market.~~net realizable value. LIFO cost of inventories valued using the LIFO method was ~~$443,492~~$606,282 as of December 31, ~~2017~~2020 and ~~$402,919~~$501,459 as of December 31, ~~2016.~~2019. The adjustment to LIFO, as shown in Note ~~16,~~18, approximates the excess of replacement cost over the stated LIFO inventory value. The net impact of LIFO acquisitions and liquidations was not material to ~~2017, 2016~~2020, 2019 or ~~2015.~~

~~THE HERSHEY COMPANY~~

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

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

2018.

Property, Plant and Equipment

Property, plant and equipment is 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. At December 31, ~~2017~~2020 and December 31, ~~2016,~~2019, property, plant and equipment ~~includes~~included assets under ~~capital~~finance lease arrangements with net book values totaling ~~$116,843~~$88,065 and ~~$104,503,~~$93,917, respectively. Total depreciation expense for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~2018 was ~~$211,592, $231,735~~$219,021, $218,096 and ~~$197,054,~~$231,012, respectively, and ~~includes~~included depreciation on assets recorded under ~~capital~~finance lease arrangements. 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.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 57

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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.

Computer Software

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 ~~$104,881~~$187,673 and ~~$95,301~~$153,842 at December 31, ~~2017~~2020 and ~~2016,~~2019, respectively. We amortize software costs using the straight-line method over the expected life of the software, generally 3 to 7 years. Accumulated amortization of capitalized software was ~~$296,042~~$360,579 and ~~$322,807~~$338,449 as of ~~December 31, 2017~~2020 and ~~2016,~~2019, 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.

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 test goodwill for impairment by performing either a qualitative or quantitative assessment. If we choose to perform a qualitative assessment, we evaluate economic, industry and company-specific factors 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, a quantitative test is then performed. Otherwise, no further testing is required. For those reporting units tested using a quantitative approach, 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, impairment is indicated, requiring recognition of a goodwill impairment charge for the differential (up to the carrying value of goodwill). We test individual indefinite-lived intangible assets by comparing the estimated fair values 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)~~

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,~~acquisitions. The weighted-average amortization period for our finite-lived intangible assets is approximately 32 years, which ~~are amortized over estimated useful lives of approximately 25 years, 15 years, and 5 years, respectively.~~is primarily driven by recently acquired trademarks. If certain events or changes in operating conditions indicate that the carrying value of these assets, or related asset groups, may not be recoverable, we perform an


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THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

impairment assessment and may adjust the remaining useful lives. See Note 3 for additional information regarding the results of impairment tests.

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~~Consolidated Balance Sheets 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 have designated it and it qualified as part of a hedging relationship, as noted below:

•Changes in the fair value of a derivative that is designated as a cash flow hedge are recorded in accumulated other comprehensive income (“AOCI”) to the extent effective and reclassified into earnings in the same period or periods during which the transaction hedged by that derivative also affects earnings.

•Changes in the fair value of a derivative that is designated as a fair value hedge, along with the offsetting loss or gain on the hedged asset or liability that is attributable to the risk being hedged, are recorded in earnings, thereby reflecting in earnings the net extent to which the hedge is not effective in achieving offsetting changes in fair value.

•Changes in the fair value of a derivative not designated as a hedging instrument are recognized in earnings in cost of sales or SM&A, consistent with the related exposure.

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.

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

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for defined benefit pension plans and other post-retirement plans. ASU 2018-14 is effective for annual periods beginning after December 15, 2020, with early adoption permitted. The amendments in this ASU should be applied on a retrospective basis to all periods presented. We elected to early adopt the provisions of this ASU in the fourth quarter of 2019. Adoption of the new standard did not have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 is effective for annual periods beginning after December 15, 2019 and interim


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

~~Reclassifications~~

~~Certain prior period amounts have been reclassified~~periods within those annual periods. The amendments in this ASU should be applied on a modified retrospective basis to ~~conform to current year presentation. Specifically, this includes amounts reclassified to conform to the current year presentation in the Consolidated Statements of Cash Flows.~~

~~Recent Accounting Pronouncements~~

~~Recently Adopted Accounting Pronouncements~~

~~In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~.all periods presented. We adopted the provisions of this ASU in the first quarter of 2017. This update principally affects the recognition of excess tax benefits and deficiencies and the cash flow classification of share-based compensation-related transactions. The requirement to recognize excess tax benefits and deficiencies as income tax expense or benefit in the income statement was applied prospectively, with a benefit of $11,745 recognized during the year ended December 31, 2017. Additionally, within the Consolidated Statement of Cash Flows, the impact2020. Adoption of the ~~adoption resulted in~~new standard did not have a $24,901 increase in net cash flow from operating activities and a corresponding decrease in net cash flow from financing activities for the year ended December 31, 2017. These classification requirements were adopted retrospectively to the Consolidated Statement of Cash Flows. As a result, for the year ended December 31, 2016, thematerial impact resulted in a $29,953 increase in net cash flow from operating activities and a corresponding $29,953 decrease in net cash flow from financing activities. For the year ended December 31, 2015, the impact resulted in a $41,855 increase in net cash flow from operating activities and a corresponding $41,855 decrease in net cash flow from financing activities.on our consolidated financial statements.

In ~~January 2017,~~August 2018, the FASB issued ASU No. ~~2017-04,~~ ~~Intangibles-Goodwill and Other~~2018-13, Fair Value Measurement (Topic ~~350): Simplifying~~820), Disclosure Framework-Changes to the ~~Test~~Disclosure Requirements for ~~Goodwill Impairment~~Fair Value Measurement. This ASU ~~eliminated Step 2 from~~modifies the ~~goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount~~disclosure requirements for fair value measurements by ~~which a reporting unit’s carrying value exceeds its fair value.~~removing, modifying or adding certain disclosures. ASU ~~2017-04~~2018-13 is effective for annual ~~or any interim goodwill impairment tests in fiscal years~~periods beginning after December 15, ~~2019. Entities are permitted~~2019 and interim periods within those annual periods, with early adoption permitted. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to ~~adopt~~develop Level 3 fair value measurements, and the ~~standard early~~narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual ~~goodwill impairment tests performed~~period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. We adopted the provisions of this ASU in the first quarter of 2020. Adoption of the new standard did not have a material impact on ~~testing dates~~our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after ~~January 1, 2017.~~December 15, 2019 and interim periods within those annual periods, with early adoption permitted. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We ~~early-adopted~~adopted the provisions of this ASU in the first quarter of 2020 on a prospective basis. Adoption of the new standard did not have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We adopted the provisions of this ASU in the fourth quarter of ~~2017 in conjunction with our annual impairment testing. The adoption had no~~2020. Adoption of the new standard did not have a material impact on our ~~Consolidated Financial Statements.~~consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In ~~May 2014,~~March 2020, the FASB issued 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 revenue when it transfers promised goods or services to 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 enable users to understand the nature, amount, timing and uncertainty of revenue 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 as2020-04, Reference Rate Reform (Topic 848): Facilitation of the ~~original effective date.~~Effects of Reference Rate Reform on Financial Reporting. The ~~standard permits~~ASU is intended to provide temporary optional expedients and exceptions to the ~~use of either~~GAAP guidance on contract modifications and hedge accounting to ease the ~~full retrospective or modified retrospective~~financial reporting burdens related to the expected market transition ~~method.~~from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. Entities may apply this ASU upon issuance through December 31, 2022 on a prospective basis. We ~~have concluded our assessment~~are currently evaluating the impact of the new standard and will be adopting the provisions of this ASU in the first quarter of 2018 utilizing the modified retrospective transition method. The adoption of the new standard will not have a material impact on our Consolidated Financial Statements.

~~In February 2016, the FASB issued ASU No. 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. ~~Based on our assessment to date, we expect adoption of this standard to result in a material increase in lease-related assets and~~

~~THE HERSHEY COMPANY~~

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

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

~~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 March 2017, the FASB issued ASU No. 2017-07,~~ ~~Compensation-Retirement Benefits (Topic 715)~~. This ASU will require an employer to report the service cost component of net benefit cost in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if presented, or disclosed separately. In addition, only the service cost component may be eligible for capitalization where applicable. The amendments should be applied on a retrospective basis. ASU 2017-07 is effective for us beginning January 1, 2018, with early adoption permitted as of the beginning of a financial year. We will adopt the provisions of this ASU in the first quarter of 2018. Adoption of the new standard will only impact classification within our Consolidated Statements of Income.

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~, which amends ASC 815. The purpose of this ASU is to better align accounting rules with a company’s risk management activities and financial reporting for hedging relationships, better reflect economic results of hedging in financial statements, simplify hedge accounting requirements and improve the disclosures of hedging arrangements. The amendment should be applied using the modified retrospective transition method. ASU 2017-12 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoption permitted. We intend to adopt the provisions of this ASU in the first quarter of 2018. We believe the adoption of the new standard will not have a material impact on our Consolidated Financial Statements.

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.


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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 acquisition is allocated to the assets acquired and liabilities assumed.

~~2016~~In conjunction with acquisitions noted below, we used various valuation techniques to determine fair value of the assets acquired, with the primary techniques being discounted cash flow analysis, relief-from-royalty, a form of the multi-period excess earnings and the with-and-without valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Inputs to these valuation approaches require significant judgment including: (i) forecasted sales, growth rates and customer attrition rates, (ii) forecasted operating margins, (iii) royalty rates and discount rates used to present value future cash flows, (iv) the amount of synergies expected from the acquisition, (v) the economic useful life of assets and, (vi) the evaluation of historical tax positions. In certain acquisitions, historical data is limited, therefore, we base our estimates and assumptions on budgets, business plans, economic projections, anticipated future cash flows and marketplace data.

2020 Activity

~~Ripple Brand Collective,~~During the second quarter of 2020, we completed the divestitures of KRAVE Pure Foods, Inc. ("Krave") and the Scharffen Berger and Dagoba brands, all of which were previously included within the North America segment results in our consolidated financial statements. Total proceeds from the divestitures and the impact on our Consolidated Statements of Income, both individually and on an aggregate basis, were immaterial.

2019 Activity

ONE Brands, LLC

On ~~April 26, 2016,~~September 23, 2019, we completed the acquisition of ~~all of the outstanding shares of Ripple Brand Collective,~~ONE Brands, LLC ("ONE Brands"), previously a privately held company that ~~owned the~~ ~~barkTHINS~~ ~~mass premium chocolate snacking brand. The~~ ~~barkTHINS~~ ~~brand is largely sold~~sells a line of low-sugar, high-protein nutrition bars to retailers and distributors in the United States, with the ONE Bar as its primary product. The purchase consideration for ONE Brands totaled $402,160 and consisted of cash on hand and short-term borrowings. Acquisition-related costs for the ONE Brands acquisition were immaterial.

The acquisition has been accounted for as a purchase and, accordingly, ONE Brands' results of operations have been included within the North America segment results in ~~take-home resealable packages and is available in~~our consolidated financial statements since the ~~club channel, as well as select natural and conventional grocers.~~

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



Goodwill	$	180,065
Other intangible assets	206,800
Other assets acquired, primarily current assets	25,435
Other liabilities assumed, primarily current liabilities	(10,140)
Net assets acquired	$	402,160

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

The purchase price allocation presented above has been finalized as of the first quarter of 2020 and includes an immaterial amount of measurement period adjustments. The measurement period adjustments to the initial allocation were based on more detailed information obtained about the specific assets acquired and liabilities assumed.

Goodwill ~~is calculated~~was determined as the excess of the purchase price over the fair value of the net assets ~~acquired.~~acquired (including the identifiable intangible assets). The goodwill ~~resulting~~derived from ~~the~~this acquisition is ~~attributable primarily~~expected to be deductible for tax purposes and reflects the value of leveraging our brand building expertise, ~~consumer insights,~~ supply chain capabilities and retail relationships to accelerate growth and access to ~~barkTHINS~~the portfolio of ONE Brands 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.


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THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Other intangible assets include trademarks valued at $144,900, customer relationships valued at $58,800 and covenants not to compete valued at $3,100. Trademarks were assigned an estimated useful life of 33 years, customer relationships were assigned estimated useful lives ranging from 17 to 19 years and covenants not to compete were assigned an estimated useful life of 4 years.

~~Shanghai Golden Monkey~~2018 Activity

~~In September 2014,~~Pirate Brands

On October 17, 2018, we completed the acquisition of ~~80%~~Pirate Brands, which includes the Pirate's Booty, Smart Puffs and Original Tings brands, from B&G Foods, Inc. Pirate Brands offers baked, trans fat free and gluten free snacks and is available in a wide range of food distribution channels in the United States. The purchase consideration for Pirate Brands totaled $423,002 and consisted of short-term borrowings and cash on hand. Acquisition-related costs for the Pirate Brands acquisition were immaterial.

The acquisition has been accounted for as a purchase and, accordingly, Pirate Brands' results of operations have been included within the North America segment results in our consolidated financial statements since the date of acquisition. The purchase price allocation presented below has been finalized as of the ~~outstanding shares~~end 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 complemented our traditional China chocolate business that has historically been primarily distributed through Tier 1 or hypermarket channels.

~~On 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 with the selling SGM shareholders 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 the outstanding shares. Therefore, the cash settlement of the liability for the purchase of these remaining shares is reflected within the financing section of the Consolidated Statements of Cash Flows.

The final settlement also resulted in an extinguishment gain of $26,650 representing the net carrying amount of the recorded liability in excess of the cash paid to settle the obligation for the remaining 20% of the outstanding shares. This gain is recorded within non-operating other (income) expense, net within the Consolidated Statements of Income.

~~2015 Activity~~

~~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~~, a leading all-natural brand of premium 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.

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 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.

2018. The purchase consideration was allocated to assets acquired and liabilities assumed based on their respective fair values as follows:


Inventories	$	4,663
Property, plant and equipment, net	48
Goodwill	129,991
Other intangible assets	289,300
Accrued liabilities	(1,000)
Net assets acquired	$	423,002

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 was ~~calculated~~determined as the excess of the purchase price over the fair value of the net assets ~~acquired.~~acquired (including the identifiable intangible assets). The goodwill ~~resulting~~derived from ~~the~~this acquisition ~~was 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~~ ~~products. The recorded goodwill~~ is ~~not~~ expected to be deductible for tax ~~purposes.~~purposes and reflects the value of leveraging the Company's resources to expand the distribution locations and customer base for the Pirate Brands' products.

Other intangible assets includes trademarks valued at $272,000 and customer relationships valued at $17,300. Trademarks were assigned estimated useful lives of 45 years and customer relationships were assigned estimated useful lives ranging from 16 to 18 years.


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THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Amplify Snack Brands, Inc.

~~Mauna Loa~~

On January 31, 2018, we completed the acquisition of all of the outstanding shares of Amplify Snack Brands, Inc. (“Amplify”), previously a publicly traded company based in Austin, Texas that owns several popular better-for-you snack brands such as SkinnyPop, Oatmega and Paqui. Amplify's anchor brand, SkinnyPop, is a market-leading ready-to-eat popcorn brand and is available in a wide range of food distribution channels in the United States. Total consideration of $968,781 included payment of $12.00 per share for Amplify's outstanding common stock (for a total of $907,766), as well as payment of Amplify's transaction-related expenses, including accelerated equity compensation, consultant fees and other deal costs. The business enables us to capture more consumer snacking occasions by contributing a new portfolio of brands.

The acquisition has been accounted for as a purchase and, accordingly, Amplify's results of operations have been included within the North America segment results in our consolidated financial statements since the date of acquisition. The purchase price allocation presented below has been finalized as of the end of the fourth quarter of 2018. The purchase consideration, net of cash acquired totaling $53,324, was allocated to assets acquired and liabilities assumed based on their respective fair values as follows:


Accounts receivable	$	40,763
Other current assets	34,593
Property, plant and equipment, net	67,989
Goodwill	966,389
Other intangible assets	682,000
Other non-current assets	1,049
Accounts payable	(32,394)
Accrued liabilities	(132,519)
Current debt	(610,844)
Other current liabilities	(2,931)
Non-current deferred income taxes	(93,489)
Other long-term liabilities	(5,149)
Net assets acquired	$	915,457

In ~~December 2014, we entered into an~~connection with the acquisition, the Company agreed to pay in full all outstanding debt owed by Amplify under its existing credit agreement as of January 31, 2018, as well as the amount due under Amplify's existing tax receivable obligation. The Company funded the acquisition and repayment of the acquired debt utilizing proceeds from the issuance of commercial paper.

Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired (including the identifiable intangible assets) and is not expected to ~~sell~~be deductible for tax purposes. The goodwill that resulted from the ~~Mauna Loa Macadamia Nut Corporation (“Mauna Loa”), a business that had historically been reported within our North America segment.~~ acquisition is attributable primarily to cost-reduction synergies as Amplify leverages Hershey's resources, expertise and capability-building.

Other intangible assets includes trademarks valued at $648,000 and customer relationships valued at $34,000. Trademarks were assigned estimated useful lives ranging from 28 to 38 years and customer relationships were assigned estimated useful lives ranging from 14 to 18 years.

The ~~transaction closed in~~Company incurred acquisition-related costs of $20,577 related to the acquisition of Amplify, the majority of which were incurred during the first quarter of ~~2015, resulting in proceeds, net~~2018. Acquisition-related costs consisted primarily of ~~selling expenses~~legal fees, consultant fees, valuation fees and ~~an estimated working capital adjustment, of $32,408. The sale of Mauna Loa resulted~~other deal costs and are recorded 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~~marketing and ~~tax benefits. The loss on the sale is reflected~~administrative expense caption within ~~business realignment costs in~~ the Consolidated Statements of Income.


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THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

3. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying value of goodwill by reportable segment for the years ended December 31, ~~2017~~2020 and ~~2016~~2019 are as follows:


	North America		International and Other		Total
Goodwill	$	1,787,818	$	375,633	$	2,163,451
Accumulated impairment loss	(4,973)		(357,375)		(362,348)
Balance at January 1, 2019	1,782,845		18,258		1,801,103
Acquired during the period	178,179		0		178,179
Measurement period adjustments	1,061		0		1,061

Foreign currency translation	5,381		231		5,612
Balance at December 31, 2019	1,967,466		18,489		1,985,955

Measurement period adjustments (see Note 2)	825		0		825

Foreign currency translation	2,154		(719)		1,435
Balance at December 31, 2020	$	1,970,445	$	17,770	$	1,988,215

North America International and Other Total
Goodwill $ 667,056
$ 379,544
$ 1,046,600
Accumulated impairment loss (4,973 ) (357,375 ) (362,348 )
Balance at January 1, 2016 662,083
22,169
684,252
Acquired during the period (see Note 2) 128,110
—
128,110
Foreign currency translation 1,997
(2,015 ) (18 )
Balance at December 31, 2016 792,190
20,154
812,344
Foreign currency translation 7,739
978
8,717
Balance at December 31, 2017 $ 799,929
$ 21,132
$ 821,061

We had no0 goodwill impairment charges in ~~2017~~2020, 2019 or ~~2016.~~ 2018.

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


December 31,	2020				2019
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Intangible assets subject to amortization:
Trademarks	$	1,211,086	$	(104,939)	$	1,212,172	$	(73,262)
Customer-related	204,101		(49,616)		207,749		(40,544)
Patents	8,556		(8,542)		16,711		(16,525)

Total	1,423,743		(163,097)		1,436,632		(130,331)

Intangible assets not subject to amortization:
Trademarks	34,568				34,865
Total other intangible assets	$	1,295,214			$	1,341,166

In ~~2015,~~2019, sales and operating performance associated with our Krave business were below expectations. In the fourth quarter of 2019, as part of a strategic review initiated by our leadership team, we ~~recorded goodwill~~updated our strategic forecast which projected under performance related to the Krave business primarily due to mainstream brands driving category volume and an increase in the overall competitive landscape. We deemed this to be a triggering event requiring us to test our Krave long-lived asset group for impairment. Based on our assessment, we determined that the carrying value was not recoverable and calculated an impairment ~~charges totaling $280,802, which resulted from our interim reassessment~~loss as the excess of the ~~valuation of the SGM business, coupled with a write-down of goodwill attributed to the China chocolate business in connection with the SGM acquisition, as discussed below.~~

In 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 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 theasset group's carrying value over its 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,value. Therefore, as a result of this ~~reassessment, in~~testing, during the ~~second~~fourth quarter of ~~2015~~2019, we recorded an ~~estimated $249,811 non-cash goodwill~~ impairment charge ~~representing a write-down of all of~~totaling $100,131 to write down 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. 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. 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, which predominantly consisted of customer relationship and ~~no impairment was indicated.~~trademark intangible assets.

In connection with the 2014 SGM acquisition, we assigned approximately $15,000 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 $14,393, representing the full value of goodwill attributed to this reporting unit as of October 4, 2015.


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THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

December 31, 2017 2016
Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Intangible assets subject to amortization:
Trademarks $ 277,473
$ (37,510 ) $ 317,023
$ (30,458 )
Customer-related 128,182
(34,659 ) 200,409
(36,482 )
Patents 17,009
(15,975 ) 16,426
(13,700 )
Total 422,664
(88,144 ) 533,858
(80,640 )

Intangible assets not subject to amortization:
Trademarks 34,636
39,519

Total other intangible assets $ 369,156
$ 492,737

As discussed in Note 7, in February 2017, we commenced the Margin for Growth Program which includes an initiative to optimize the manufacturing operations supporting our China business. We deemed this to be a triggering event requiring us to test our China long-lived asset group for impairment by first determining whether the carrying value of the asset group was recovered by our current estimates of future cash flows associated with the asset group. Because this assessment indicated that the carrying value was not recoverable, we calculated an impairment loss as the excess of the asset group's carrying value over its fair value. The resulting impairment loss was allocated to the asset group's long-lived assets. Therefore, as a result of this testing, during the first quarter of 2017, we recorded an impairment charge totaling $105,992 representing the portion of the impairment loss that was allocated to the distributor relationship and trademark intangible assets that had been recognized in connection with the 2014 SGM acquisition.

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.

Total amortization expense for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~2018 was ~~$23,376, $26,687~~$46,472, $46,690 and ~~$22,306,~~$38,555, respectively.

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


Year ending December 31,	2021		2022		2023		2024		2025
Amortization expense	$	46,329	$	46,315	$	46,121	$	45,540	$	45,540

Year ending December 31, 2018 2019 2020 2021 2022
Amortization expense $ 20,529
$ 19,599
$ 19,360
$ 19,345
$ 19,345

4. SHORT AND LONG-TERM DEBT

Short-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~~$1.5 billion unsecured revolving credit facility ~~which currently expires in November 2020. This agreement also includes an~~with the option to increase borrowings by an additional ~~$400~~$500 million with the consent of the lenders. This facility is scheduled to expire on July 2, 2024; however, we may extend the termination date for up to two additional one-year periods upon notice to the administrative agent under the facility.

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, ~~2017,~~2020, we ~~complied~~are in compliance with all ~~customary~~ affirmative and negative covenants and the financial covenant pertaining to our credit agreement. There were no significant compensating balance agreements that legally restricted these funds.

~~THE HERSHEY COMPANY~~

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

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

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 ~~$440,148~~$266,935 at December 31, ~~2017~~2020 and ~~$504,237~~$390,299 at December 31, ~~2016.~~2019. 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 ~~$110,684~~$74,041 at December 31, ~~2017~~2020 and ~~$158,805~~$32,282 at December 31, ~~2016.~~2019. Commitment fees relating to our revolving credit facility and lines of credit are not material.

At December 31, ~~2017,~~2020 and 2019, we had 0 outstanding commercial ~~paper totaling $448,675, at a weighted average interest rate of 1.4%. At December 31, 2016, we had outstanding commercial paper totaling $473,666, at a weighted average interest rate of 0.6%.~~paper.

The maximum amount of short-term borrowings outstanding during ~~2017~~2020 and 2019 was ~~$815,588.~~$944,944 and $1,275,430, respectively. The weighted-average interest rate on short-term borrowings outstanding was ~~1.7%~~1.2% as of December 31, ~~2017~~2020 and ~~1.0%~~2.4% as of December 31, ~~2016.~~2019.


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THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Long-term Debt

Long-term debt consisted of the following:


December 31,	Maturity Date	2020		2019
2.900% Notes (1)	May 15, 2020	$	0	$	350,000
4.125% Notes (1)	December 1, 2020	0		350,000
8.800% Debentures	February 15, 2021	84,715		84,715
3.100% Notes	May 15, 2021	350,000		350,000
2.625% Notes	May 1, 2023	250,000		250,000
3.375% Notes	May 15, 2023	500,000		500,000
2.050% Notes (3)	November 15, 2024	300,000		300,000
0.900% Notes (2)	June 1, 2025	300,000		0
3.200% Notes	August 21, 2025	300,000		300,000
2.300% Notes	August 15, 2026	500,000		500,000
7.200% Debentures	August 15, 2027	193,639		193,639
2.450% Notes (3)	November 15, 2029	300,000		300,000
1.700% Notes (2)	June 1, 2030	350,000		0
3.375% Notes	August 15, 2046	300,000		300,000
3.125% Notes (3)	November 15, 2049	400,000		400,000
2.650% Notes (2)	June 1, 2050	350,000		0
Finance lease obligations (see Note 7)		80,755		79,643
Net impact of interest rate swaps, debt issuance costs and unamortized debt discounts		(30,525)		(23,794)
Total long-term debt		4,528,584		4,234,203
Less—current portion		438,829		703,390
Long-term portion		$	4,089,755	$	3,530,813

December 31, 2017 2016
1.60% Notes due 2018 $ 300,000
$ 300,000
4.125% Notes due 2020 350,000
350,000
8.8% Debentures due 2021 84,715
84,715
2.625% Notes due 2023 250,000
250,000
3.20% Notes due 2025 300,000
300,000
2.30% Notes due 2026 500,000
500,000
7.2% Debentures due 2027 193,639
193,639
3.375% Notes due 2046 300,000
300,000
Capital lease obligations 99,194
83,619
Net impact of interest rate swaps, debt issuance costs and unamortized debt discounts (16,427 ) (14,275 )
Total long-term debt 2,361,121
2,347,698
Less—current portion 300,098
243
Long-term portion $ 2,061,023
$ 2,347,455

(1)In ~~September 2016,~~May 2020, we repaid ~~$250,000~~$350,000 of ~~5.45%~~2.900% Notes due ~~in 2016~~ upon their maturity. In ~~November 2016,~~December 2020, we repaid ~~$250,000~~$350,000 of ~~1.50%~~4.125% Notes due upon their maturity.

(2)During the second quarter of 2020, we issued $300,000 of 0.900% Notes due in ~~2016 upon their maturity. In August 2016, we issued $500,000~~2025, $350,000 of ~~2.30%~~1.700% Notes due in ~~2026~~2030 and ~~$300,000~~$350,000 of ~~3.375%~~2.650% Notes due in ~~2046~~2050 (the ~~"Notes"~~"2020 Notes"). Proceeds from the issuance of the 2020 Notes, net of discounts and issuance costs, totaled ~~$792,953.~~$989,876. The 2020 Notes were issued under a shelf registration statement on Form S-3 filed in ~~June 2015~~May 2018 that registered an indeterminate amount of debt securities.

(3)In ~~August 2015,~~October 2019, we ~~paid $100,165 to repurchase $71,646~~issued $300,000 of ~~our long-term debt as part of a cash tender offer, consisting of $15,285 of our 8.80% Debentures~~2.05% Notes due in ~~2021 and $56,361~~2024, $300,000 of ~~our 7.20% Debentures~~2.45% Notes due in ~~2027. We used a portion~~2029 and $400,000 of 3.125% Notes due in 2049 (the "2019 Notes"). Proceeds from the issuance of the ~~proceeds from the~~2019 Notes, net of discounts and issuance costs, totaled $990,337. The 2019 Notes were issued under a shelf registration statement on Form S-3 filed in ~~August 2015 to fund the repurchase. As a result~~May 2018 that registered an indeterminate amount of ~~the repurchase, we recorded interest expense of $28,326 which represented the premium paid for the tender offer as well as the write-off of the related unamortized~~ debt discount and debt issuance costs. Upon extinguishment of the debt, we unwound the fixed-to-floating interest rate swaps related to the tendered bonds and recognized a gain of $278 currently in interest expense resulting from the hedging instruments.

~~THE HERSHEY COMPANY~~

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

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

securities.

Aggregate annual maturities of our long-term Notes (excluding ~~capital~~finance lease obligations and net impact of interest rate swaps, debt issuance costs and unamortized debt discounts) are as follows for the years ending December 31:


2018	$	300,098
2019	—
2020	350,000
2021	84,715		2021	$	434,715
2022	—		2022	0
2023			2023	750,000
2024			2024	300,000
2025			2025	600,000
Thereafter	1,543,639		Thereafter	2,393,639

Our debt is principally unsecured and of equal priority. None of our debt is convertible into our Common Stock.


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 66

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Interest Expense

Net interest expense consists of the following:


For the years ended December 31,	2020		2019		2018
Interest expense	$	160,204	$	157,707	$	151,950
Capitalized interest	(6,733)		(5,585)		(5,092)
Interest expense	153,471		152,122		146,858
Interest income	(4,097)		(7,997)		(8,021)
Interest expense, net	$	149,374	$	144,125	$	138,837

For the years ended December 31, 2017 2016 2015
Interest expense $ 104,232
$ 97,851
$ 93,520
Capitalized interest (4,166 ) (5,903 ) (12,537 )
Loss on extinguishment of debt —
—
28,326
Interest expense 100,066
91,948
109,309
Interest income (1,784 ) (1,805 ) (3,536 )
Interest expense, net $ 98,282
$ 90,143
$ 105,773

5. DERIVATIVE INSTRUMENTS

We are exposed to market risks arising principally from changes in foreign currency exchange rates, interest rates and commodity prices. We use certain derivative instruments to manage these risks. These include interest rate swaps to manage interest rate risk, foreign currency forward exchange contracts to manage foreign currency exchange rate risk, and commodities futures and options contracts to manage commodity market price risk exposures.

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 exchanged-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.

Commodity Price Risk

We enter into commodities futures and options contracts and other commodity derivative instruments to reduce the effect of future price fluctuations associated with the purchase of raw materials, energy requirements and transportation services. We generally hedge commodity price risks for 3- to 24-month periods. Our open commodity derivative contracts had a notional value of ~~$405,288~~$279,843 as of December 31, ~~2017~~2020 and ~~$739,374~~$589,662 as of December 31, ~~2016.~~

2019.

Derivatives used to manage commodity price risk are not designated for hedge accounting treatment. Therefore, the changes in fair value of these derivatives are recorded as incurred within cost of sales. As discussed in Note ~~11,~~13, we define our segment income to exclude gains and losses on commodity derivatives until the related inventory is sold, at which time the related gains and losses are reflected within segment income. This enables us to continue to align 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.

~~THE HERSHEY COMPANY~~

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

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

Foreign Exchange Price Risk

We are exposed to foreign currency exchange rate risk related to our international operations, including non-functional currency intercompany debt and other non-functional currency transactions of certain subsidiaries. Principal currencies hedged include the euro, Canadian dollar, Japanese yen, British pound, Brazilian real, Malaysian ringgit, Mexican peso and ~~Brazilian real.~~Swiss franc. We typically utilize foreign currency forward exchange contracts to hedge these exposures for periods ranging from 3 to 12 months. The contracts are either designated as cash flow hedges or are undesignated. The net notional amount of foreign exchange contracts accounted for as cash flow hedges was ~~$135,962~~$130,131 at December 31, ~~2017~~2020 and ~~$68,263~~$65,826 at December 31, ~~2016.~~2019. The effective portion of the changes in fair value on these contracts is recorded in other comprehensive income and reclassified into earnings in the same period in which the hedged transactions affect earnings. The net notional amount of foreign exchange contracts that are not designated as accounting hedges was ~~$2,791~~$2,519 at December 31, ~~2017~~2020 and $50,831 at December 31, ~~2016, respectively.~~2019. The change in fair value on these instruments is recorded directly in cost of sales or selling, marketing and administrative expense, depending on the nature of the underlying exposure.


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THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Interest Rate Risk

We manage our targeted mix of fixed and floating rate debt with debt issuances and by entering into fixed-to-floating interest rate swaps in order to mitigate fluctuations in earnings and cash flows that may result from interest rate volatility. These swaps are designated as fair value hedges, for which the gain or loss on the derivative and the offsetting loss or gain on the hedged item are recognized in current earnings as interest expense (income), net. WeIn December 2020, our fixed-to-floating interest rate swap matured in connection with the repayment of certain long-term debt upon its maturity (see Note 4). Therefore, as of December 31, 2020, we had 0 interest rate swap derivative instruments in a fair value hedging relationship. As of December 31, 2019, we had one interest rate swap derivative instrument in a fair value hedging relationship with a notional amount of ~~$350,000 at December 31, 2017 and 2016.~~$350,000.

In order to manage interest rate exposure, in previous years we utilized interest rate swap agreements to protect against unfavorable interest rate changes relating to forecasted debt transactions. These swaps, which were settled upon issuance of the related debt, were designated as cash flow hedges and the gains and losses that were deferred in other comprehensive income are being recognized as an adjustment to interest expense over the same period that the hedged interest payments affect earnings. During 2016, we had one interest rate swap agreement in a cash flow hedging relationship with a notional amount of $500,000, which was settled in connection with the issuance of debt in August 2016, resulting in a payment of approximately $87,000 which is reflected as an operating cash flow within the Consolidated Statement of Cash Flows.

Equity Price Risk

We are exposed to market price changes in certain broad market indices related to our deferred compensation obligations to our employees. To mitigate this risk, we use equity swap contracts to hedge the portion of the exposure that is linked to market-level equity returns. These contracts are not designated as hedges for accounting purposes and are entered into for periods of 3 to 12 months. The change in fair value of these derivatives is recorded in selling, marketing and administrative expense, together with the change in the related liabilities. The notional amount of the contracts outstanding at December 31, ~~2017~~2020 and ~~2016~~2019 was ~~$25,246~~$30,194 and ~~$22,099,~~$28,187, respectively.

The following table presents the classification of derivative assets and liabilities within the Consolidated Balance Sheets as of December 31, 2020 and 2019:


December 31,	2020				2019
	Assets (1)		Liabilities (1)		Assets (1)		Liabilities (1)
Derivatives designated as cash flow hedging instruments:

Foreign exchange contracts	$	2,388	$	5,522	$	1,235	$	1,779



Derivatives designated as fair value hedging instruments:
Interest rate swap agreements	0		0		555		0

Derivatives not designated as hedging instruments:
Commodities futures and options (2)	3,299		1,648		9,080		626
Deferred compensation derivatives	3,630		0		2,557		0
Foreign exchange contracts	176		93		1,496		0
	7,105		1,741		13,133		626
Total	$	9,493	$	7,263	$	14,923	$	2,405

(1)Derivatives assets are classified on our Consolidated Balance Sheets within prepaid expenses and other as well as other non-current assets. Derivative liabilities are classified on our Consolidated Balance Sheets within accrued liabilities and other long-term liabilities.

(2)As of December 31, 2020, amounts reflected on a net basis in assets were assets of $32,674 and liabilities of $29,376, which are associated with cash transfers receivable or payable on commodities futures contracts reflecting the change in quoted market prices on the last trading day for the period. The comparable amounts


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THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

~~The following table presents~~reflected on a net basis in assets at December 31, 2019 were assets of $46,075 and liabilities of $37,606. At December 31, 2020 and 2019, the ~~classification of derivative~~remaining amount reflected in assets and liabilities ~~within~~related to the ~~Consolidated Balance Sheets as~~fair value of ~~December 31, 2017 and 2016:~~other non-exchange traded derivative instruments, respectively.

December 31, 2017 2016
Assets (1) Liabilities (1) Assets (1) Liabilities (1)
Derivatives designated as cash flow hedging instruments:
Foreign exchange contracts $ 423
$ 1,427
$ 2,229
$ 809

Derivatives designated as fair value hedging instruments:
Interest rate swap agreements —
1,897
1,768
—

Derivatives not designated as hedging instruments:
Commodities futures and options (2) 390
3,054
2,348
10,000
Deferred compensation derivatives 1,581
—
717
—
Foreign exchange contracts 31
—
—
16
2,002
3,054
3,065
10,016
Total $ 2,425
$ 6,378
$ 7,062
$ 10,825


~~(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.

~~(2)~~

As of December 31, 2017, amounts reflected on a net basis in liabilities were assets of $48,505 and liabilities of $50,179, which are associated with cash transfers receivable or payable on commodities futures contracts reflecting the change in quoted market prices on the last trading day for the period. The comparable amounts reflected on a net basis in liabilities at December 31, 2016 were assets of $140,885 and liabilities of $150,872. At December 31, 2017 and 2016, the remaining amount reflected in assets and liabilities related to the fair value of other non-exchange traded derivative instruments, respectively.

Income Statement Impact of Derivative Instruments

The effect of derivative instruments on the Consolidated Statements of Income for the years ended December 31, ~~2017~~2020 and ~~December 31, 2016~~2019 was as follows:


	Non-designated Hedges				Cash Flow Hedges
	Gains (losses) recognized in income (a)				Gains (losses) recognized in other comprehensive income (“OCI”)				Gains (losses) reclassified from AOCI into income (b)
	2020		2019		2020		2019		2020		2019
Commodities futures and options	$	6,593	$	35,488	$	0	$	0	$	0	$	0
Foreign exchange contracts	(1,584)		410		(780)		(2,515)		1,810		939
Interest rate swap agreements	0		0		0		0		(9,589)		(9,343)
Deferred compensation derivatives	4,934		6,738		0		0		0		0
Total	$	9,943	$	42,636	$	(780)	$	(2,515)	$	(7,779)	$	(8,404)

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)

2017 2016 2017 2016 2017 2016
Commodities futures and options $ (55,734 ) $ (171,753 ) $ —
$ —
$ (1,774 ) $ 30,783
Foreign exchange contracts (23 ) (46 ) (4,931 ) (5,485 ) (3,180 ) (5,625 )
Interest rate swap agreements —
—
—
(47,223 ) (9,480 ) (8,676 )
Deferred compensation derivatives 4,497
2,203
—
—
—
—
Total $ (51,260 ) $ (169,596 ) $ (4,931 ) $ (52,708 ) $ (14,434 ) $ 16,482

(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.

~~THE HERSHEY COMPANY~~

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

~~(amounts~~(b)Gains (losses) reclassified from AOCI into income for foreign currency forward exchange contracts were included in ~~thousands, except share data or if otherwise indicated)~~selling, marketing and administrative expenses. Losses reclassified from AOCI into income for interest rate swap agreements were included in interest expense.


~~(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.

~~(b)~~

Gains (losses) reclassified from AOCI into income were included in cost of sales for commodities futures and options contracts and for foreign currency forward exchange contracts designated as hedges of purchases of inventory or other productive assets. Other gains (losses) for foreign currency forward exchange contracts were included in selling, marketing and administrative expenses. Losses reclassified from AOCI into income for interest rate swap agreements were included in interest expense.

The amount of pretax net losses on derivative instruments, including interest rate swap agreements and foreign currency forward exchange contracts expected to be reclassified into earnings in the next 12 months was approximately ~~$10,484~~$4,060 as of December 31, ~~2017.~~2020. This amount ~~was~~is primarily associated with interest rate swap agreements.

Fair Value ~~Hedges~~Hedging Relationships

The following table presents amounts that were recorded on the Consolidated Balance Sheets related to cumulative basis adjustments for interest rate swap derivatives designated as fair value accounting hedges as of December 31, 2020 and 2019.


Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included	Carrying Amount of the Hedged Liability				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount Assets
	2020		2019		2020		2019
Long-term debt	$	0	$	(349,445)	$	0	$	555

For the years ended December 31, ~~2017~~2020 and ~~2016,~~2019, we recognized a net pretax benefit to interest expense of ~~$2,660~~$3,186 and ~~$4,365~~net incremental interest expense of $1,829, respectively, relating to our fixed-to-floating interest rate swap arrangements.


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THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

6. FAIR VALUE MEASUREMENTS

Accounting guidance on fair value measurements requires that financial assets and liabilities be classified and disclosed in one of the following categories of the fair value hierarchy:



Level 1 – Based on unadjusted quoted prices for identical assets or liabilities in an active market.
Level 2 – Based on observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3 – Based on unobservable inputs that reflect the entity's own assumptions about the assumptions that a market participant would use in pricing the asset or liability.

We did ~~not~~0t have any ~~level~~Level 3 financial assets or liabilities, nor were there any transfers between levels during the periods presented.

The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheets on a recurring basis as of December 31, 2020 and 2019:


	Assets (Liabilities)
	Level 1		Level 2		Level 3		Total
December 31, 2020:
Derivative Instruments:
Assets:
Foreign exchange contracts (1)	$	0	$	2,564	$	0	$	2,564

Deferred compensation derivatives (3)	0		3,630		0		3,630
Commodities futures and options (4)	3,299		0		0		3,299
Liabilities:
Foreign exchange contracts (1)	0		5,615		0		5,615


Commodities futures and options (4)	1,648		0		0		1,648
December 31, 2019:
Assets:
Foreign exchange contracts (1)	$	0	$	2,731	$	0	$	2,731
Interest rate swap agreements (2)	0		555		0		555
Deferred compensation derivatives (3)	0		2,557		0		2,557
Commodities futures and options (4)	9,080		0		0		9,080
Liabilities:
Foreign exchange contracts (1)	0		1,779		0		1,779


Commodities futures and options (4)	626		0		0		626

(1)The fair value of foreign currency forward exchange contracts is the difference between the contract 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.

(2)The fair value of interest rate swap agreements represents the difference in the present value of cash flows calculated at the contracted interest rates and at current market interest rates at the end of the period. We calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the same or similar financial instruments.

(3)The fair value of deferred compensation derivatives is based on quoted prices for market interest rates and a broad market equity index.

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


Table of Contents			The Hershey Company \| 2020 Form 10-K \| Page 70

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

~~The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheet on a recurring basis as of December 31, 2017 and 2016:~~

Assets (Liabilities)
Level 1 Level 2 Level 3 Total
December 31, 2017:
Derivative Instruments:
     Assets:
           Foreign exchange contracts (1) $ —
$ 454
$ —
$ 454
           Deferred compensation derivatives (3) —
1,581
—
1,581
           Commodities futures and options (4) 390
—
—
390
     Liabilities:
            Foreign exchange contracts (1) —
1,427
—
1,427
            Interest rate swap agreements (2) —
1,897
—
1,897
            Commodities futures and options (4) 3,054
—
—
3,054
December 31, 2016:
     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
           Commodities futures and options (4) 10,000
—
—
10,000

~~(1)~~

The fair value of foreign currency forward exchange contracts is the difference between the contract 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.


~~(2)~~	The fair value of interest rate swap agreements represents the difference in the present value of cash flows calculated at the contracted interest rates and at current market interest rates at the end of the period. We calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the same or similar financial instruments.


~~(3)~~	~~The fair value of deferred compensation derivatives is based on quoted prices for market interest rates and a broad market equity index.~~


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

Other Financial Instruments

The carrying amounts of cash and cash equivalents, ~~short-term investments,~~ accounts receivable, accounts payable and short-term debt approximated fair values as of December 31, ~~2017~~2020 and December 31, ~~2016~~2019 because of the relatively short maturity of these instruments.

The estimated fair value of our long-term debt is based on quoted market prices for similar debt issues and is, therefore, classified as Level 2 within the valuation hierarchy. The fair values and carrying values of long-term debt, including the current portion, were as follows:

~~THE HERSHEY COMPANY~~

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

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


	Fair Value				Carrying Value					Fair Value				Carrying Value
At December 31,	2017		2016		2017		2016		At December 31,	2020		2019		2020		2019
Current portion of long-term debt	$	299,430	$	243	$	300,098	$	243	Current portion of long-term debt	$	443,215	$	712,863	$	438,829	$	703,390
Long-term debt	2,113,296		2,379,054		2,061,023		2,347,455		Long-term debt	4,479,499		3,656,540		4,089,755		3,530,813
Total	$	2,412,726	$	2,379,297	$	2,361,121	$	2,347,698	Total	$	4,922,714	$	4,369,403	$	4,528,584	$	4,234,203



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



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.~~



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.~~



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;~~
Ÿ	~~Operational and/or financial instability of key suppliers, and other vendors or service providers; and~~
Ÿ	~~Suboptimal production planning which could impact our ability to cost-effectively meet product demand.~~



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~~ Table 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;~~
ŸContents	The ~~imposition of tariffs, quotas, trade barriers, other trade protection measures and import or export licensing requirements;~~
ŸHershey Company \| 2020 Form 10-K \| Page 9	~~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.~~


☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


~~Item 1.~~ Table of Contents			~~BUSINESS~~The Hershey Company \| 2020 Form 10-K \| Page 1



	December 31,
Company/Index	2012		2013		2014		2015		2016		2017
The Hershey Company	$	100	$	137	$	150	$	132	$	157	$	176
S&P 500 Index	$	100	$	132	$	150	$	153	$	171	$	208
S&P 500 Packaged Foods Index	$	100	$	126	$	146	$	156	$	164	$	186



Reconciliation of Certain Non-GAAP Financial Measures
Consolidated results	For the years ended December 31,
In thousands except per share data	2017			2016			2015
Reported gross profit	$	3,444,519		$	3,157,891		$	3,382,675
Derivative mark-to-market (gains) losses	(35,292		)	163,238			—
Business realignment activities	5,147			58,106			8,801
Acquisition integration costs	—			—			7,308
NSRPE	11,125			11,953			2,516
Non-GAAP gross profit	$	3,425,499		$	3,391,188		$	3,401,300

Reported operating profit	$	1,274,641		$	1,205,783		$	1,037,759
Derivative mark-to-market (gains) losses	(35,292		)	163,238			—
Business realignment activities	69,359			107,571			120,975
Acquisition integration costs	311			6,480			20,899
NSRPE	35,028			27,157			18,079
Goodwill, indefinite and long-lived asset impairment charges	208,712			4,204			280,802
Non-GAAP operating profit	$	1,552,759		$	1,514,433		$	1,478,514

Reported provision for income taxes	$	354,131		$	379,437		$	388,896
Derivative mark-to-market (gains) losses*	(4,746		)	20,500			—
Business realignment activities*	17,903			19,138			41,648
Acquisition integration costs*	118			2,456			8,264
NSRPE*	13,258			10,283			6,955
Goodwill, indefinite and long-lived asset impairment charges*	23,292			1,157			—
Impact of U.S. tax reform	(32,467		)	—			—
Loss on early extinguishment of debt*	—			—			10,736
Gain on sale of trademark*	—			—			(3,652		)
Non-GAAP provision for income taxes	$	371,489		$	432,971		$	452,847

Reported net income	$	782,981		$	720,044		$	512,951
Derivative mark-to-market (gains) losses	(30,546		)	142,738			—
Business realignment activities	51,456			88,433			79,327
Acquisition integration costs	193			4,024			14,196
NSRPE	21,770			16,874			11,124
Goodwill, indefinite and long-lived asset impairment charges	185,420			3,047			280,802
Impact of U.S. tax reform	32,467			—			—
Noncontrolling interest share of business realignment and impairment charges	(26,795		)	—			—
Settlement of SGM liability	—			(26,650		)	—
Loss on early extinguishment of debt	—			—			17,591
Gain on sale of trademark	—			—			(6,298		)
Non-GAAP net income	$	1,016,946		$	948,510		$	909,693



	For the Year Ended December 31, 2017
	Percentage Change as Reported		Impact of Foreign Currency Exchange		Percentage Change on Constant Currency Basis
North America segment
Canada	6.3	%	2.1	%	4.2	%
Total North America segment	1.3	%	0.1	%	1.2	%

International and Other segment
Mexico	9.7	%	(1.1	)%	10.8	%
Brazil	19.9	%	9.4	%	10.5	%
India	17.0	%	3.2	%	13.8	%
Greater China	(18.1	)%	(0.8	)%	(17.3	)%
Total International and Other segment	(1.4	)%	0.6	%	(2.0	)%

Total Company	1.0	%	0.2	%	0.8	%



	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	%


~~Item 8.~~ Table of Contents			~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~The Hershey Company \| 2020 Form 10-K \| Page 44



~~Responsibility for Financial Statements~~	48
Report of Independent Registered Public Accounting Firm	4946
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting		48
Consolidated Statements of Income for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~ 2018		5350
Consolidated Statements of Comprehensive Income for the years ended December 31, ~~2017, 2016~~ 2020, 2019 and ~~2015~~ 2018		5451
Consolidated Balance Sheets as of December 31, ~~2017~~2020 and ~~2016~~2019		5552
Consolidated Statements of Cash Flows for the years ended December 31, ~~2017, 2016~~ 20 20, 2019 and ~~2015~~ 2018		5653
Consolidated Statements of Stockholders’ Equity for the years ended December 31, ~~2017, 2016~~2 020, 2019 and ~~2015~~ 2018		5754
Notes to Consolidated Financial Statements		5855
Note 1 - Summary of Significant Accounting Policies		55
Note 2 - Business Acquisitions and Divestitures		61
Note 3 - Goodwill and Intangible Assets		64
Note 4 - Short and Long-Term Debt		65
Note 5 - Derivative Instruments		67
Note 6 - Fair Value Measurements		70
Note 7 - Leases		72
Note 8 - Assets and Liabilities Held for Sale		74
Note 9 - Business Realignment Activities		75
Note 10 - Income Taxes		77
Note 11 - Pension and Other Post-Retirement Benefit Plans		80
Note 12 - Stock Compensation Plans		86
Note 13 - Segment Information		89
Note 14 - Equity and Noncontrolling Interest		91
Note 15 - Commitments and Contingencies		93
Note 16 - Earnings Per Share		94
Note 17 - Other (Income) Expense, Net		96
Note 18 - Supplemental Balance Sheet Information		97
Note 19 - Quarterly Data (Unaudited)		98



~~/s/ MICHELE G. BUCK~~		~~/s/ PATRICIA A. LITTLE~~
~~Michele G. Buck~~ ~~Chief Executive Officer~~ ~~(Principal Executive Officer)~~Table of Contents	The Hershey Company \| 2020 Form 10-K \| Page 45	~~Patricia A. Little~~ ~~Chief Financial Officer~~ ~~(Principal Financial Officer)~~


~~Item 1A.~~	~~RISK FACTORS~~



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	$	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


	2020
Adjustment to disposal group (1)	$	6,200
Other asset write-down (2)	2,943
Long-lived asset impairment charges	$	9,143


	2019
Customer relationship and trademark intangible assets (1)	$	100,131
Other long-lived assets not held for sale (2)	9,629
Adjustment to disposal group (3)	2,725
Long-lived and intangible asset impairment charges	$	112,485


Lease expense	Classification	2020		2019
Operating lease cost	Cost of sales or SM&A (1)	$	44,547	$	42,580
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization (1)	8,202		7,821
Interest on lease liabilities	Interest expense, net	4,475		4,467
Net lease cost (2)		$	57,224	$	54,868


	2020		2019
Weighted-average remaining lease term (years)
Operating leases	12.5		14.3
Finance leases	30.1		31.4

Weighted-average discount rate
Operating leases	3.8	%	3.8	%
Finance leases	5.9	%	6.0	%


Leases	Classification	2020		2019
Assets
Operating lease ROU assets	Other non-current assets	$	224,268	$	220,678

Finance lease ROU assets, at cost	Property, plant and equipment, gross	101,426		101,142
Accumulated amortization	Accumulated depreciation	(13,361)		(7,225)
Finance lease ROU assets, net	Property, plant and equipment, net	88,065		93,917

Total leased assets		$	312,333	$	314,595

Liabilities
Current
Operating	Accrued liabilities	$	36,578	$	29,209
Finance	Current portion of long-term debt	4,868		4,079
Non-current
Operating	Other long-term liabilities	181,871		184,163
Finance	Long-term debt	75,887		75,564
Total lease liabilities		$	299,204	$	293,015


	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	42,568	$	39,910
Operating cash flows from finance leases	$	4,475	$	4,467
Financing cash flows from finance leases	$	4,468	$	4,018

ROU assets obtained in exchange for lease liabilities:
Operating leases	$	38,464	$	27,890
Finance leases	$	3,992	$	7,943


	Total
Liability balance at December 31, 2019	$	9,118
2020 business realignment charges (1)	29,319
Cash payments	(25,689)

Liability balance at December 31, 2020 (reported within accrued liabilities and other long-term liabilities)	$	12,748



	Total
Liability balance at December 31, 2016	$	3,725
2017 business realignment charges (1)	61,872
Cash payments	(26,536		)
Other, net	(69		)
Liability balance at December 31, 2017 (reported within accrued and other long-term liabilities)	$	38,992


	Pension Benefits				Other Benefits
December 31,	2020		2019		2020		2019
Change in benefit obligation
Projected benefit obligation at beginning of year	$	1,105,206	$	1,031,206	$	230,457	$	214,719
Service cost	21,734		20,878		159		151
Interest cost	26,112		35,756		6,029		7,837

Actuarial loss	90,140		89,092		15,218		23,635

Settlement	(52,938)		(21,445)		0		0
Currency translation and other	1,822		2,956		254		589
Benefits paid	(23,238)		(53,237)		(8,809)		(16,474)
Projected benefit obligation at end of year	1,168,838		1,105,206		243,308		230,457
Change in plan assets
Fair value of plan assets at beginning of year	1,053,438		963,861		0		0
Actual return on plan assets	118,812		157,931		0		0
Employer contributions	2,862		3,660		8,809		16,474
Settlement	(52,938)		(21,445)		0		0
Currency translation and other	1,309		2,668		0		0
Benefits paid	(23,238)		(53,237)		(8,809)		(16,474)
Fair value of plan assets at end of year	1,100,245		1,053,438		0		0
Funded status at end of year	$	(68,593)	$	(51,768)	$	(243,308)	$	(230,457)

Amounts recognized in the Consolidated Balance Sheets:
Other assets	$	8,308	$	10,481	$	0	$	0
Accrued liabilities	(6,174)		(3,476)		(19,801)		(19,251)
Other long-term liabilities	(70,727)		(58,773)		(223,507)		(211,206)
Total	$	(68,593)	$	(51,768)	$	(243,308)	$	(230,457)

Amounts recognized in Accumulated Other Comprehensive Income (Loss), net of tax:
Actuarial net (loss) gain	$	(205,193)	$	(216,443)	$	(10,718)	$	444
Net prior service credit (cost)	21,706		27,031		0		(219)
Net amounts recognized in AOCI	$	(183,487)	$	(189,412)	$	(10,718)	$	225



	Pension Plans			Post-Retirement Benefit Plans
Amortization of net actuarial loss	$	26,735		$	—
Amortization of prior service (credit) cost	$	(7,197	)	$	836



Impact of assumed health care cost trend rates	One-Percentage Point Increase		One-Percentage Point Decrease
Effect on total service and interest cost components	$	148	$	(129	)
Effect on accumulated post-retirement benefit obligation	3,133		(2,758		)



Asset Class						Target Asset Allocation
Cash						1%
Equity securities						~~25%~~24%
Fixed income securities						~~49%~~51%
Alternative investments, including real estate, listed infrastructure and other						~~25%~~24%


	Quoted prices in active markets of identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant other unobservable inputs (Level 3)		Investments Using NAV as a Practical Expedient (1)		Total			Quoted prices in active markets of identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant other unobservable inputs (Level 3)		Investments Using NAV as a Practical Expedient (1)		Total
Cash and cash equivalents	$	1,179	$	18,161	$	—	$	730	$	20,070	Cash and cash equivalents	$	613	$	21,287	$	0	$	576	$	22,476
Equity securities:											Equity securities:
Global all-cap (a)	—		—		—		276,825		276,825		Global all-cap (a)	0		0		0		264,909		264,909
Fixed income securities:											Fixed income securities:
U.S. government/agency	—		—		—		239,686		239,686		U.S. government/agency	0		0		0		215,573		215,573
Corporate bonds (b)	—		33,019		—		162,633		195,652		Corporate bonds (b)	0		0		0		155,648		155,648
Collateralized obligations (c)	—		40,350		—		34,538		74,888
International government/corporate bonds (d)	—		—		—		32,447		32,447
International government/corporate bonds (c)											International government/corporate bonds (c)	0		0		0		32,586		32,586
Diversified credit (d)											Diversified credit (d)	0		0		0		160,829		160,829
Alternative investments:											Alternative investments:
Global diversified assets (e)	—		—		—		149,030		149,030		Global diversified assets (e)	0		0		0		117,290		117,290
Global real estate investment trusts (f)	—		—		—		50,213		50,213		Global real estate investment trusts (f)	0		0		0		60,083		60,083
Global infrastructure (g)	—		—		—		47,415		47,415		Global infrastructure (g)	0		0		0		70,851		70,851
Total pension plan assets	$	1,179	$	91,530	$	—	$	993,517	$	1,086,226	Total pension plan assets	$	613	$	21,287	$	0	$	1,078,345	$	1,100,245



	Quoted prices in active markets of identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant other unobservable inputs (Level 3)		Total
Cash and cash equivalents	$	576	$	9,540	$	—	$	10,116
Equity securities:
Global all-cap (a)	20,216		242,214		—		262,430
Fixed income securities:
U.S. government/agency	—		228,648		—		228,648
Corporate bonds (b)	—		199,634		—		199,634
Collateralized obligations (c)	—		50,532		—		50,532
International government/corporate bonds (d)	—		30,928		—		30,928
Alternative investments:
Global diversified assets (e)	—		146,975		—		146,975
Global real estate investment trusts (f)	—		48,000		—		48,000
Global infrastructure (g)	—		46,413		—		46,413
Total pension plan assets	$	20,792	$	1,002,884	$	—	$	1,023,676


~~(1)~~(a)			Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in our Obligations and Funded Status table.



~~(a)~~	This category comprises equity funds that primarily track the MSCI World Index or MSCI All Country World Index.
(b)		This category comprises fixed income funds primarily invested in investment grade and high yield bonds.
(c)		~~This category comprises fixed income funds primarily invested in high quality mortgage-backed securities and other asset-backed obligations.~~
~~(d)~~	This category comprises fixed income funds primarily invested in Canadian and other international bonds.
~~(e)~~(d)		This category comprises fixed income funds primarily invested in high yield bonds, loans, securitized debt, and emerging market debt.
(e)		This category comprises diversified funds invested across alternative asset classes.
(f)		This category comprises equity funds primarily invested in publicly traded real estate securities.
(g)		This category comprises equity funds primarily invested in publicly traded listed infrastructure securities.



l	~~To ensure high correlation between the value of plan assets and liabilities;~~
l	~~To maintain careful control of the risk level within each asset class; and~~
l	~~To focus on a long-term return objective.~~



	Expected Benefit Payments
	2018		2019		2020		2021		2022		2023-2027
Pension Benefits	$	126,392	$	78,614	$	85,804	$	87,159	$	107,005	$	407,769
Other Benefits	20,773		19,026		17,768		16,863		15,767		69,003