UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~September 30, 2012~~March 31, 2013



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

For the transition period

from ______to_______

Commission file number 1-183

THE HERSHEY COMPANY

(Exact name of registrant as specified in its charter)



Delaware		23-0691590
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
100 Crystal A Drive, Hershey, PA 17033
(Address of principal executive offices) (Zip Code)
717-534-4200
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer x		Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock, $1 par value – ~~162,571,954~~163,101,614 shares, as of ~~October~~April 19, ~~2012.~~2013. Class B Common Stock,
$1 par value – ~~60,629,917~~60,628,572 shares, as of ~~October~~April 19, ~~2012.~~2013.

THE HERSHEY COMPANY
INDEX




Part I. Financial Information	Page Number

Item 1. Consolidated Financial Statements (Unaudited)	3

Consolidated Statements of Income
Three months ended ~~September 30,~~March 31, 2013 and April 1, 2012 ~~and October 2, 2011~~	3

Consolidated Statements of Comprehensive Income
Three months ended ~~September 30,~~March 31, 2013 and April 1, 2012 ~~and October 2, 2011~~	4

~~Consolidated Statements of Income~~
~~Nine months ended September 30, 2012 and October 2, 2011~~	5

~~Consolidated Statements of Comprehensive Income~~
~~Nine months ended September 30, 2012 and October 2, 2011~~	6

Consolidated Balance Sheets
~~September 30, 2012~~March 31, 2013 and December 31, ~~2011~~2012	75

Consolidated Statements of Cash Flows
~~Nine~~Three months ended ~~September 30,~~March 31, 2013 and April 1, 2012 ~~and October 2, 2011~~	86

Notes to Consolidated Financial Statements	97

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition	2420

Item 3. Quantitative and Qualitative Disclosures About Market Risk	3326

Part II. Other Information	3427

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3427

Item 6. Exhibits	3427

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)


	For the Three Months Ended				For the Three Months Ended
	September 30, 2012		October 2, 2011		March 31, 2013		April 1, 2012
Net Sales	$	1,746,709	$	1,624,249	$	1,827,426	$	1,732,064
Costs and Expenses:
Cost of Sales	1,003,952		944,068
Cost of sales					978,089		988,668
Selling. marketing and administrative	420,972		356,878		450,669		405,562
Business realignment and impairment charges, net	20,055		2,187		6,851		3,304
Total costs and expenses	1,444,979		1,303,133		1,435,609		1,397,534
Income before Interest and Income Taxes	301,730		321,116		391,817		334,530
Interest expense, net	24,535		23,041		23,633		24,024
Income before Income Taxes	277,195		298,075		368,184		310,506
Provision for income taxes	100,479		101,380		126,278		111,855
Net Income	$	176,716	$	196,695	$	241,906	$	198,651
Earnings Per Share - Basic - Class B Common Stock	$	.73	$	.81	$	1.00	$	.82
Earnings Per Share - Diluted - Class B Common Stock	$	.73	$	.80	$	0.99	$	.81
Earnings Per Share - Basic - Common Stock	$	.80	$	.89	$	1.11	$	.91
Earnings Per Share - Diluted - Common Stock	$	.77	$	.86	$	1.06	$	.87
Average Shares Outstanding - Basic - Common Stock	164,686		165,917		163,776		164,603
Average Shares Outstanding - Basic - Class B Common Stock	60,630		60,632		60,629		60,631
Average Shares Outstanding - Diluted	228,608		229,849		227,706		228,655
Cash Dividends Paid Per Share:
Common Stock	$	.380	$	.3450	$	.42	$	.380
Class B Common Stock	$	.344	$	.3125	$	.38	$	.344

The accompanying notes are an integral part of these consolidated financial statements.

THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands of dollars)


	For the Three Months Ended						For the Three Months Ended
	September 30, 2012			October 2, 2011			March 31, 2013			April 1, 2012
Net Income	$	176,716		$	196,695		$	241,906		$	198,651

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	10,815			(37,826		)	123			12,739
Pension and post-retirement benefit plans	(853		)	5,185			6,769			5,993
Cash flow hedges:
Gains (losses) on cash flow hedging derivatives	35,682			(46,772		)
(Losses) gains on cash flow hedging derivatives							(1,773		)	10,005
Reclassification adjustments	14,644			(7,025		)	3,617			17,291
Total other comprehensive income (loss), net of tax	60,288			(86,438		)
Total other comprehensive income, net of tax							8,736			46,028
Comprehensive Income	$	237,004		$	110,257		$	250,642		$	244,679

The accompanying notes are an integral part of these consolidated financial statements.

THE HERSHEY COMPANY
CONSOLIDATED ~~STATEMENTS OF INCOME~~BALANCE SHEETS
(in thousands ~~except per share amounts)~~of dollars)

For the Nine Months Ended
September 30,
2012 October 2,
2011
Net Sales $ 4,893,217
$ 4,513,643
Costs and Expenses:
Cost of Sales 2,788,543
2,612,957
Selling. marketing and administrative 1,217,939
1,080,594
Business realignment and impairment charges (credits), net 28,204
(5,927 )
Total costs and expenses 4,034,686
3,687,624
Income before Interest and Income Taxes 858,531
826,019
Interest expense, net 72,903
70,869
Income before Income Taxes 785,628
755,150
Provision for income taxes 274,576
268,321
Net Income $ 511,052
$ 486,829
Earnings Per Share - Basic - Class B Common Stock $ 2.11
$ 2.00
Earnings Per Share - Diluted - Class B Common Stock $ 2.09
$ 1.98
Earnings Per Share - Basic - Common Stock $ 2.33
$ 2.20
Earnings Per Share - Diluted - Common Stock $ 2.23
$ 2.12
Average Shares Outstanding - Basic - Common Stock 164,766
166,223
Average Shares Outstanding - Basic - Class B Common Stock 60,630
60,649
Average Shares Outstanding - Diluted 228,701
230,114
Cash Dividends Paid Per Share:
Common Stock $ 1.140
$ 1.0350
Class B Common Stock $ 1.032
$ .9375



ASSETS	March 31, 2013			December 31, 2012
Current Assets:
Cash and cash equivalents	$	730,096		$	728,272
Accounts receivable - trade	516,593			461,383
Inventories	626,643			633,262
Deferred income taxes	119,812			122,224
Prepaid expenses and other	186,877			168,344
Total current assets	2,180,021			2,113,485
Property, Plant and Equipment, at cost	3,624,875			3,560,626
Less-accumulated depreciation and amortization	(1,919,488		)	(1,886,555		)
Net property, plant and equipment	1,705,387			1,674,071
Goodwill	585,735			588,003
Other Intangibles	210,071			214,713
Deferred Income Taxes	16,793			12,448
Other Assets	147,623			152,119
Total assets	$	4,845,630		$	4,754,839
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	412,319		$	441,977
Accrued liabilities	620,420			650,906
Accrued income taxes	105,922			2,329
Short-term debt	100,552			118,164
Current portion of long-term debt	252,854			257,734
Total current liabilities	1,492,067			1,471,110
Long-term Debt	1,539,800			1,530,967
Other Long-term Liabilities	666,175			668,732
Deferred Income Taxes	35,024			35,657
Total liabilities	3,733,066			3,706,466
Stockholders' Equity:
The Hershey Company Stockholders’ Equity
Preferred Stock, shares issued: none in 2013 and 2012	—			—
Common Stock, shares issued: 299,273,172 in 2013 and 299,272,927 in 2012	299,272			299,272
Class B Common Stock, shares issued: 60,628,572 in 2013 and 60,628,817 in 2012	60,629			60,629
Additional paid-in capital	608,656			592,975
Retained earnings	5,177,919			5,027,617
Treasury-Common Stock shares at cost: 136,294,479 in 2013 and 136,115,714 in 2012	(4,669,703		)	(4,558,668		)
Accumulated other comprehensive loss	(376,339		)	(385,076		)
The Hershey Company stockholders’ equity	1,100,434			1,036,749
Noncontrolling interests in subsidiaries	12,130			11,624
Total stockholders' equity	1,112,564			1,048,373
Total liabilities and stockholders' equity	$	4,845,630		$	4,754,839

The accompanying notes are an integral part of these consolidated balance sheets.

THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)



	For the Three Months Ended
	March 31, 2013			April 1, 2012
Cash Flows Provided from (Used by) Operating Activities
Net Income	$	241,906		$	198,651
Adjustments to Reconcile Net Income to Net Cash
Provided from Operations:
Depreciation and amortization	48,748			54,868
Stock-based compensation expense	12,454			11,535
Excess tax benefits from stock-based compensation	(28,088		)	(10,566		)
Deferred income taxes	(7,793		)	(954		)
Non-cash business realignment and impairment charges	—			9,104
Contributions to pension and other benefit plans	(6,114		)	(6,331		)
Changes in assets and liabilities, net of effects from business acquisitions:
Accounts receivable - trade	(55,210		)	(91,631		)
Inventories	(2,181		)	(21,364		)
Accounts payable	(6,497		)	(16,673		)
Other assets and liabilities	95,955			149,163
Net Cash Flows Provided from Operating Activities	293,180			275,802
Cash Flows Provided from (Used by) Investing Activities
Capital additions	(90,592		)	(88,487		)
Capitalized software additions	(3,119		)	(3,240		)
Proceeds from sales of property, plant and equipment	420			—
Loan to affiliate	—			(9,000		)
Business acquisitions	—			(172,856		)
Net Cash Flows Used by Investing Activities	(93,291		)	(273,583		)
Cash Flows Provided from (Used by) Financing Activities
Net (decrease) increase in short-term debt	(18,520		)	108,629
Long-term borrowings	1,543			49
Repayment of long-term debt	(41		)	(1,513		)
Cash dividends paid	(91,604		)	(83,533		)
Exercise of stock options	85,043			54,111
Excess tax benefits from stock-based compensation	28,088			10,566
Contributions from noncontrolling interests	1,470			1,470
Repurchase of Common Stock	(204,044		)	(218,345		)
Net Cash Flows Used by Financing Activities	(198,065		)	(128,566		)
Increase (decrease) in Cash and Cash Equivalents	1,824			(126,347		)
Cash and Cash Equivalents, beginning of period	728,272			693,686
Cash and Cash Equivalents, end of period	$	730,096		$	567,339

Interest Paid	$	29,183		$	31,393
Income Taxes Paid	$	74		$	7,583

The accompanying notes are an integral part of these consolidated financial statements.

~~THE HERSHEY COMPANY~~
~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~
~~(in thousands of dollars)~~

For the Nine Months Ended
September 30,
2012 October 2,
2011
Net Income $ 511,052
$ 486,829

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 12,477
(24,219 )
Pension and post-retirement benefit plans 11,755
13,241
Cash flow hedges:
Gains (losses) on cash flow hedging derivatives 34,913
(51,058 )
Reclassification adjustments 47,947
(15,157 )
Total other comprehensive income (loss), net of tax 107,092
(77,193 )
Comprehensive Income $ 618,144
$ 409,636

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~THE HERSHEY COMPANY~~
~~CONSOLIDATED BALANCE SHEETS~~
~~(in thousands of dollars)~~

ASSETS September 30,
2012 December 31,
2011
Current Assets:
Cash and cash equivalents $ 466,235
$ 693,686
Accounts receivable - trade 649,328
399,499
Inventories 726,492
648,953
Deferred income taxes 103,438
136,861
Prepaid expenses and other 190,462
167,559
Total current assets 2,135,955
2,046,558
Property, Plant and Equipment, at cost 3,587,568
3,588,558
Less-accumulated depreciation and amortization (1,969,390 ) (2,028,841 )
Net property, plant and equipment 1,618,178
1,559,717
Goodwill 594,854
516,745
Other Intangibles 220,223
111,913
Deferred Income Taxes 13,727
38,544
Other Assets 154,845
138,722
Total assets $ 4,737,782
$ 4,412,199
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 435,283
$ 420,017
Accrued liabilities 644,959
612,186
Accrued income taxes 12,631
1,899
Short-term debt 208,352
42,080
Current portion of long-term debt 251,729
97,593
Total current liabilities 1,552,954
1,173,775
Long-term Debt 1,515,757
1,748,500
Other Long-term Liabilities 636,339
617,276
Deferred Income Taxes 35,770
—
Total liabilities 3,740,820
3,539,551
Stockholders' Equity:
The Hershey Company Stockholders’ Equity
Preferred Stock, shares issued: none in 2012 and 2011 —
—
Common Stock, shares issued: 299,271,827 in 2012 and 299,269,702 in 2011 299,271
299,269
Class B Common Stock, shares issued: 60,629,917 in 2012 and
60,632,042 in 2011
60,630
60,632
Additional paid-in capital 567,976
490,817
Retained earnings 4,960,822
4,699,597
Treasury-Common Stock shares at cost: 136,714,186 in 2012 and
134,695,826 in 2011
(4,572,198 ) (4,258,962 )
Accumulated other comprehensive loss (335,239 ) (442,331 )
The Hershey Company stockholders’ equity 981,262
849,022
Noncontrolling interests in subsidiaries 15,700
23,626
Total stockholders' equity 996,962
872,648
Total liabilities and stockholders' equity $ 4,737,782
$ 4,412,199

~~The accompanying notes are an integral part of these consolidated balance sheets.~~

~~THE HERSHEY COMPANY~~
~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~
~~(in thousands of dollars)~~

For the Nine Months Ended
September 30,
2012 October 2,
2011
Cash Flows Provided from (Used by) Operating Activities
Net Income $ 511,052
$ 486,829
Adjustments to Reconcile Net Income to Net Cash
Provided from Operations:
Depreciation and amortization 162,848
157,561
Stock-based compensation expense, net of tax of $13,115 and
$10,963, respectively
24,249
19,831
Excess tax benefits from exercise of stock options (28,190 ) (9,561 )
Deferred income taxes 12,189
(6,199 )
Gain on sale of trademark licensing rights, net of tax of $5,962 —
(11,072 )
Business realignment and impairment charges, net of tax of $24,843 and $8,104, respectively 43,540
13,335
Contributions to pension plans (4,618 ) (3,871 )
Changes in assets and liabilities, net of effects from business acquisitions:
Accounts receivable - trade (238,415 ) (230,684 )
Inventories (84,302 ) (125,533 )
Accounts payable 38,206
51,882
Other assets and liabilities 169,348
(85,289 )
Net Cash Flows Provided from Operating Activities 605,907
257,229
Cash Flows Provided from (Used by) Investing Activities
Capital additions (200,988 ) (251,206 )
Capitalized software additions (12,990 ) (14,390 )
Proceeds from sales of property, plant and equipment 392
260
Proceeds from sales of trademark licensing rights —
20,000
Loan to affiliate (16,000 ) —
Business acquisitions (172,856 ) (5,750 )
Net Cash Flows Used by Investing Activities (402,442 ) (251,086 )
Cash Flows Provided from (Used by) Financing Activities
Net increase in short-term debt 170,121
13,082
Long-term borrowings 1,722
478
Repayment of long-term debt (98,398 ) (254,756 )
Proceeds from lease financing agreement —
47,601
Cash dividends paid (249,827 ) (228,391 )
Exercise of stock options 227,764
171,629
Excess tax benefits from exercise of stock options 28,190
9,561
Net payments to noncontrolling interests (12,928 ) —
Repurchase of Common Stock (497,560 ) (357,650 )
Net Cash Flows Used by Financing Activities (430,916 ) (598,446 )
Decrease in Cash and Cash Equivalents (227,451 ) (592,303 )
Cash and Cash Equivalents, beginning of period 693,686
884,642
Cash and Cash Equivalents, end of period $ 466,235
$ 292,339

Interest Paid $ 82,088
$ 84,050
Income Taxes Paid $ 233,652
$ 223,991

~~The accompanying notes are an integral part of these consolidated financial statements.~~

THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

Our unaudited consolidated financial statements provided in this report include the accounts of the Company and our majority-owned subsidiaries and entities in which we have a controlling financial interest after the elimination of intercompany accounts and transactions. We have a controlling financial interest if we own a majority of the outstanding voting common stock and the noncontrolling shareholders do not have substantive participating rights, or we have significant control over an entity through contractual or economic interests in which we are the primary beneficiary. We prepared these statements in accordance with the instructions to Form 10-Q. The financial statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim reporting. These statements do not include all of the information and footnotes required by GAAP for complete financial statements.

Our significant interim accounting policies include the recognition of a pro-rata share of certain estimated annual amounts primarily for raw material purchase price variances, advertising expense, incentive compensation expenses and the effective income tax rate.

We included all adjustments (consisting only of normal recurring accruals) which we believe were considered necessary for a fair presentation. We reclassified certain prior year amounts to conform to the 2013 presentation. An adjustment was made to the Consolidated Statement of Cash Flows for the three months ended April 1, 2012, ~~presentation.~~ to reflect a loan to affiliate of $9.0 million in Net Cash Used by Investing Activities. This adjustment resulted in a corresponding reduction to Net Cash Used by Financing Activities.

Operating results for the ~~nine~~three months ended ~~September 30, 2012~~March 31, 2013 may not be indicative of the results that may be expected for the year ending December 31, ~~2012~~2013, because of the seasonal effects of our business. For more information, refer to the consolidated financial statements and notes included in our ~~2011~~2012 Annual Report on Form 10-K.

2. BUSINESS ACQUISITIONS

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

In January 2012, we acquired all of the outstanding stock of Brookside Foods Ltd. ~~("Brookside"~~(“Brookside”), a privately held confectionery company based in Abbottsford, British Columbia, Canada. ~~Brookside has~~As part of this transaction, we acquired two production facilities located in British Columbia and Quebec. The Brookside product line is primarily sold in the U.S. and Canada in a take home re-sealable pack type. ~~At the time of the acquisition, annual net sales of the business were approximately~~ ~~$90 million. The business complements our position in North America and we expect to make investments in manufacturing capabilities and conduct market research that will enable future growth.~~

~~Our financial statements reflect the preliminary accounting for the Brookside acquisition.~~ The purchase price for the acquisition was approximately $172.9 million. ~~The preliminary purchase price allocation of the Brookside acquisition is as follows:~~

In thousands of dollars
Purchase Price Allocation ⁽¹⁾
Estimated Useful Life
Goodwill $ 65,426
Indefinite
Trademarks 60,253
25
Other intangibles⁽²⁾
50,928
6 to 17
Other assets, net of liabilities assumed 23,468

Non-current deferred tax liabilities (27,219 )
Purchase Price $ 172,856


~~(1)~~	~~The purchase price allocation is preliminary primarily due to ongoing analysis to determine working capital adjustments. We expect to finalize the purchase price allocation by the end of 2012.~~


~~(2)~~	~~Includes customer relationships, patents and covenants not to compete.~~

The excess purchase price over the estimated value of the net tangible and identifiable intangible assets was recorded to goodwill. The goodwill is not expected to be deductible for tax purposes.

~~In February 2011, we acquired a~~ ~~49%~~ ~~interest in Tri-US, Inc. of Boulder, Colorado, a company that manufactures, markets and sells nutritional beverages under the “mix1” brand name. We invested~~ ~~$5.8 million~~ ~~and accounted for this investment using the equity method until January 2012. In January 2012, we made an additional investment of~~ ~~$6.0 million~~ ~~in Tri-US, Inc., resulting in a controlling ownership interest of approximately~~ ~~69%. Our financial statements reflect the accounting for the acquisition of the controlling interest in Tri-US, Inc. Total liabilities recorded were~~ ~~$1.3 million. The amounts of goodwill and other intangibles acquired were~~ ~~$7.2 million~~ ~~and~~ ~~$1.4 million, respectively.~~

We included results subsequent to the acquisition ~~dates~~date in the consolidated financial statements. If we had included the results of the ~~acquisitions~~acquisition in the consolidated financial statements for each of the periods presented, the effect would not have been material.

3. NONCONTROLLING INTERESTS IN SUBSIDIARIES

In May 2007, we entered into an agreement with Godrej Beverages and Foods, Ltd., a consumer goods, confectionery and food company, to manufacture and distribute confectionery products, snacks and beverages across India. Under the agreement, we owned a 51% controlling interest in Godrej Hershey Ltd. The noncontrolling interests in Godrej Hershey Ltd. were included in the equity section of the Consolidated Balance Sheets. In September 2012, we acquired the remaining 49% interest in Godrej Hershey Ltd. for approximately $~~15.9~~15.8 million. Since the Company had a controlling interest in Godrej Hershey Ltd., the ~~transaction~~difference between the amount paid and the carrying amount of the noncontrolling interest of $10.3 million was recorded inas a reduction to additional paid-in capital and the noncontrolling interest in Godrej Hershey Ltd. was eliminated as of September 30, ~~2012. Payments to noncontrolling interests associated with Godrej Hershey Ltd. were partially offset by equity contributions of~~ 2012~~$2.9 million~~.

We own a 51% ~~by the noncontrolling interests~~controlling interest in Hershey do Brasil under a cooperative agreement with Pandurata Netherlands B.V. (“Bauducco”), a leading manufacturer of baked goods in Brazil whose primary brand is Bauducco. During the first

quarters of 2013 and 2012, the Company and Bauducco each contributed cash of approximately $1.5 million to Hershey do Brasil. The noncontrolling interest in Hershey do Brasil is included in the equity section of the Consolidated Balance Sheets.

The ~~decrease~~increase in noncontrolling interests in subsidiaries from $~~23.6~~11.6 million as of December 31, ~~2011~~2012 to $~~15.7~~12.1 million as of ~~September 30, 2012~~March 31, 2013, reflected the impact of the ~~acquisition of the remaining 49% interest in Godrej Hershey Ltd. in September 2012 and the noncontrolling interests' share of losses of the entities,~~cash contributed by Bauducco. These increases were partially offset by the ~~adjustment to record~~impact of the ~~additional investment in Tri-US, Inc. in January 2012. The~~ noncontrolling interests’ share of losses of these entities, as well as the impact of currency translation adjustments. The share of losses pertaining to the noncontrolling interests in subsidiaries ~~increased income by~~was $~~10.4~~1.1 million for the ~~nine~~three months ended ~~September 30, 2012~~March 31, 2013 and by $~~5.0~~4.0 million for the ~~nine~~three months ended ~~October 2, 2011~~April 1, 2012 ~~and~~. This was ~~included~~reflected in selling, marketing and administrative expenses.

4. STOCK COMPENSATION PLANS

The Hershey Company Equity and Incentive Compensation Plan (“EICP”) is the plan under which grants using shares for compensation and incentive purposes are made. The following table summarizes our stock compensation costs:


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
In millions of dollars	September 30, 2012		October 2, 2011		September 30, 2012		October 2, 2011		March 31, 2013		April 1, 2012
Total compensation amount charged against income for stock options, performance stock units (“PSUs”) and restricted stock units ("RSUs")	$	12.8	$	6.8	$	37.4	$	30.8	$	12.5	$	11.5
Total income tax benefit recognized in the Consolidated Statements of Income for share-based compensation	$	4.6	$	2.3	$	13.1	$	11.0	$	4.3	$	4.1

The increase in share-based compensation expense for the ~~third~~first quarter of ~~2012 resulted primarily from certain adjustments associated with accounting for performance stock units. The~~2013 was driven by an increase in ~~share-based~~the compensation ~~expense for~~amount upon which the ~~first nine months~~number of ~~2012 resulted primarily from the forfeiture of unvested~~stock-based awards ~~due to participant changes during the second quarter of 2011.~~granted in 2013 was based.

Stock Options

A summary of the status of our stock options as of ~~September 30, 2012~~March 31, 2013, and the change during ~~2012~~2013 is presented below:


	For the Nine Months Ended September 30, 2012				For the Three Months Ended March 31, 2013
Stock Options	Shares		Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term	Shares		Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term
Outstanding at beginning of the period	14,540,442		$44.86	5.6 years	10,553,914		$48.08	6.1 years
Granted	2,101,495		$60.84		1,722,194		$81.66
Exercised	(5,084,493	)	$44.64		(1,921,544	)	$45.00
Forfeited	(197,697	)	$52.10		(34,704	)	$64.54
Outstanding as of September 30, 2012	11,359,747		$47.79	6.3 years
Options exercisable as of September 30, 2012	6,059,297		$45.51	4.5 years
Outstanding as of March 31, 2013					10,319,860		$54.22	6.8 years
Options exercisable as of March 31, 2013					5,585,086		$46.02	5.1 years


	For the Nine Months Ended		For the Three Months Ended
	September 30, 2012	October 2, 2011	March 31, 2013	April 1, 2012
Weighted-average fair value of options granted (per share)	$10.59	$9.98	$14.40	$10.53
Intrinsic value of options exercised (in millions of dollars)	$108.2	$75.3	$69.1	$27.1

We estimated the fair value of each stock option grant on the date of the grant using a Black-Scholes option-pricing model and the weighted-average assumptions set forth in the following table:


	For the Nine Months Ended		For the Three Months Ended
	September 30, 2012	October 2, 2011	March 31, 2013		April 1, 2012
Dividend yields	2.4%	2.7%	2.2	%	2.4	%
Expected volatility	22.4%	22.6%	22.2	%	22.4	%
Risk-free interest rates	1.5%	2.8%	1.4	%	1.5	%
Expected lives in years	6.6	6.6	6.6		6.6

As of ~~September 30, 2012~~March 31, 2013, the aggregate intrinsic value of options outstanding was $~~271.1~~312.1 million and the aggregate intrinsic value of options exercisable was $~~158.4~~214.7 million.

As of ~~September 30, 2012~~March 31, 2013, there was $~~24.9~~35.9 million of total unrecognized compensation cost related to non-vested stock option compensation arrangements granted under our stock option plans. That cost is expected to be recognized over a weighted-average period of ~~2.25~~2.0 years ~~years.~~.

Performance Stock Units and Restricted Stock Units

A summary of the status of our PSUs and RSUs as of ~~September 30, 2012~~March 31, 2013, and the change during ~~2012~~2013 is presented below:


Performance Stock Units and Restricted Stock Units	For the Nine Months Ended September 30, 2012		Weighted-average grant date fair value for equity awards or market value for liability awards	For the Three Months Ended March 31, 2013		Weighted-average grant date fair value for equity awards or market value for liability awards
Outstanding at beginning of year	1,740,479		$48.70	1,720,577		$56.71
Granted	445,892		$64.07	337,797		$87.70
Performance assumption change	216,375		$58.94
Vested	(589,430	)	$42.80	(656,832	)	$49.05
Forfeited	(80,811	)	$56.54	(11,948	)	$59.15
Outstanding as of September 30, 2012	1,732,505		$56.06
Outstanding as of March 31, 2013				1,389,594		$70.00

The table above excludes PSU awards for ~~71,676~~40,812 units as of December 31, ~~2011~~2012 and ~~42,004~~30,713 units as of ~~September 30, 2012~~March 31, 2013 for which the measurement date has not yet occurred for accounting purposes.

The following table sets forth information about the fair value of the PSUs and RSUs granted for potential future distribution to employees and directors during the year. In addition, the table provides assumptions used to determine the fair value of the market-based total shareholder return component of the PSU grants using ~~the~~a Monte Carlo simulation model on the date of grant:


	For the Nine Months Ended						For the Three Months Ended
	September 30, 2012			October 2, 2011			March 31, 2013			April 1, 2012
Units granted	445,892			508,877			337,797			374,229
Weighted-average fair value at date of grant	$	64.07		$	52.23		$	87.70		$	62.98
Monte Carlo simulation assumptions:
Estimated values	$	35.62		$	37.79		$	55.49		$	35.62
Dividend yields	2.5		%	2.7		%	2.0		%	2.5		%
Expected volatility	20.0		%	28.8		%	17.1		%	20.0		%

As of ~~September 30, 2012~~March 31, 2013, there was $~~43.1~~57.0 million of unrecognized compensation cost relating to non-vested PSUs and RSUs. We expect to recognize that cost over a weighted-average period of 2.1 years.

For the Nine Months Ended
September 30,
2012 October 2,
2011
Intrinsic value of share-based liabilities paid, combined with the fair value of shares vested (in millions of dollars) $ 36.2
$ 34.3



	For the Three Months Ended
	March 31, 2013		April 1, 2012
Intrinsic value of share-based liabilities paid, combined with the fair value of shares vested (in millions of dollars)	$	53.6	$	32.8

The higher amount in 2013 was primarily due to the higher stock price at distribution in the first quarter of 2013 compared with first quarter of 2012.

Deferred performance stock units, deferred restricted stock units, and directors’ fees and accumulated dividend amounts representing deferred stock units totaled ~~616,796~~598,261 units as of ~~September 30, 2012~~March 31, 2013. Each unit is equivalent to one share of the Company’s Common Stock.

No stock appreciation rights were outstanding as of ~~September 30, 2012~~March 31, 2013.

For more information on our stock compensation plans, refer to the consolidated financial statements and notes included in our ~~2011~~2012 Annual Report on Form 10-K and our proxy statement for the ~~2012~~2013 annual meeting of stockholders.

5. INTEREST EXPENSE

Net interest expense consisted of the following:


	For the Nine Months Ended						For the Three Months Ended
	September 30, 2012			October 2, 2011			March 31, 2013			April 1, 2012
In thousands of dollars
Interest expense	$	79,893		$	78,191		$	24,658		$	26,945
Interest income	(1,935		)	(1,976		)	(708		)	(646		)
Capitalized interest	(5,055		)	(5,346		)	(317		)	(2,275		)
Interest expense, net	$	72,903		$	70,869		$	23,633		$	24,024

6. BUSINESS REALIGNMENT AND IMPAIRMENT CHARGES

In June 2010, we announced Project Next Century (the “Next Century program”) as part of our ongoing efforts to create an advantaged supply chain and competitive cost structure. As part of the program, production was to transition from the Company's century-old facility at 19 East Chocolate Avenue in Hershey, Pennsylvania, to an expanded West Hershey facility, which was ~~built~~initially constructed in 1992. Production from the 19 East Chocolate Avenue plant, as well as a portion of the workforce, has transitioned to the West Hershey facility.

~~The forecast for~~We estimate that the Next Century program will incur total pre-tax charges and non-recurring project implementation costs ~~has been increased from a range of~~ ~~$160 million~~ to ~~$180 million~~ ~~to a range~~ of $190 million to $200 million due to a pension settlement loss recorded during the third quarter of 2012 and an additional pension settlement loss expected to be recorded during the fourth quarter of 2012. Pension settlement losses are non-cash charges for the Company.. This estimate includes $170 million to $180 million in pre-tax business realignment and impairment charges and approximately $20.0 million in project implementation and start-up costs. Total costs of $76.3 million were recorded in 2012, total costs of $43.4 million were recorded in 2011 and total costs of $53.9 million were recorded in 2010.

~~Property associated with a former manufacturing facility with a carrying value of~~ ~~$4.0 million~~ ~~was being held for sale as of~~ ~~September 30, 2012. The fair value of this property was estimated based on expected sales proceeds.~~

Business realignment and impairment charges ~~and credits~~ recorded during the three-month ~~and nine-month~~ periods ended ~~September 30, 2012~~March 31, 2013 and ~~October 2, 2011~~April 1, 2012 were as follows:


	For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
	September 30, 2012		October 2, 2011		September 30, 2012		October 2, 2011			March 31, 2013		April 1, 2012
In thousands of dollars
Cost of sales – Next Century program	$	5,158	$	9,464	$	38,041	$	23,346		$	127	$	19,454
Selling, marketing and administrative – Next Century program	587		1,868		2,138		4,020			6		813
Business realignment and impairment charges (credits), net
Next Century program
Plant closure expenses	6,938		1,600		14,173		3,727			6,851		2,490
Pension settlement loss	13,117		—		13,117		—
Employee separation costs (credits)	—		587		914		(9,654		)	—		814
Total business realignment and impairment charges (credits), net	20,055		2,187		28,204		(5,927		)
Total business realignment and impairment charges, net										6,851		3,304
Total business realignment and impairment charges	$	25,800	$	13,519	$	68,383	$	21,439		$	6,984	$	23,571

Next Century Program

A charge of $~~5.2~~0.1 million was recorded in cost of sales during the ~~third~~first quarter of 2013 related primarily to start-up costs associated with the Next Century program. Expenses of $6.9 million were recorded in the first quarter of 2013 primarily related to costs associated with the demolition of a former manufacturing facility.

A charge of $19.5 million was recorded in cost of sales during the first quarter of 2012 related primarily to the accelerated depreciation of fixed assets over a reduced remaining useful life and start-up costs associated with the Next Century program. A charge of $~~0.6 million~~ ~~was recorded in selling, marketing and administrative expenses in the third quarter of 2012 related primarily to project administration for the Next Century program. Expenses of~~ ~~$6.9 million~~ were recorded in the third quarter of 2012 primarily related to costs associated with the closure of a manufacturing facility and the relocation of production lines. The level of lump sum withdrawals during the first nine months of 2012 from one of the Company's pension plans by employees retiring or leaving the Company resulted in a non-cash pension settlement loss of ~~$13.1 million~~ ~~recorded in the third quarter of 2012.~~

~~A charge of~~ ~~$38.0 million~~ was recorded in cost of sales during the first nine months of 2012 related primarily to start-up costs associated with the Next Century program and accelerated depreciation of fixed assets over a reduced estimated remaining useful life. A charge of ~~$2.1~~0.8 million was recorded in selling, marketing and administrative expenses in the first ~~nine months~~quarter of 2012 ~~related primarily to project administration for the Next Century program. Expenses of~~ ~~$14.2 million~~ were recorded during the first nine months of 2012 primarily related to costs associated with the closure of a manufacturing facility and the relocation of production lines. Employee separation costs of ~~$0.9 million~~ ~~for the Next Century program in the first nine months of 2012 were related to expected voluntary and involuntary terminations.~~

~~A charge of~~ ~~$9.5 million~~ was recorded in cost of sales during the third quarter of 2011 related primarily to the accelerated depreciation of fixed assets over a reduced remaining useful life and start-up costs associated with the Next Century program. A charge of ~~$1.9 million~~ ~~was recorded in selling, marketing and administrative expenses in the third quarter of 2011~~ related primarily to project administration for the Next Century program. Plant closure expenses of $~~1.6~~2.5 million were recorded in the ~~third~~first quarter of ~~2011~~2012 primarily related to costs associated with the relocation of production lines. Employee separation costs were $~~0.6~~0.8 million for the Next Century program in the ~~third~~first quarter of ~~2011,~~2012, reflecting expected costs related to voluntary and involuntary terminations.

~~A charge of~~ ~~$23.3 million~~ was recorded in cost of sales during the first nine months of 2011 related to accelerated depreciation of fixed assets over a reduced remaining useful life associated with the Next Century program. A charge of ~~$4.0 million~~ ~~was recorded in selling, marketing and administrative expenses during the first nine months of 2011 for project administration. Plant closure expenses of~~ ~~$3.7 million~~ ~~were recorded during the first nine months of 2011 primarily related to costs associated with the relocation of production lines. Employee separation costs were reduced by~~ ~~$9.7 million~~ ~~during the first nine months of 2011 which consisted of an~~ ~~$11.3 million~~ ~~credit reflecting lower expected costs related to voluntary and involuntary terminations at the two manufacturing facilities and a net benefits curtailment loss of~~ ~~$1.6 million~~ ~~also related to the employee terminations.~~

The ~~September 30, 2012~~March 31, 2013 liability balance relating to the Next Century program was $~~10.9~~4.3 million for estimated building remediation and employee separation costs which were recorded in 2010 and 2011. During the first ~~nine~~three months of ~~2012,~~2013, we made payments against the liabilities of $~~9.4~~3.2 million primarily related to employee separation costs.

1411

7. EARNINGS PER SHARE

We compute Basic and Diluted Earnings Per Share based on the weighted-average number of shares of the Common Stock and the Class B Common Stock outstanding as follows:


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
	September 30, 2012		October 2, 2011		September 30, 2012		October 2, 2011		March 31, 2013		April 1, 2012
In thousands except per share amounts
Net income	$	176,716	$	196,695	$	511,052	$	486,829	$	241,906	$	198,651
Weighted-average shares - Basic
Common Stock	164,686		165,917		164,766		166,223		163,776		164,603
Class B Common Stock	60,630		60,632		60,630		60,649		60,629		60,631
Total weighted- average shares - Basic	225,316		226,549		225,396		226,872		224,405		225,234
Effect of dilutive securities:
Employee stock options	2,641		2,580		2,641		2,564		2,584		2,663
Performance and restricted stock units	651		720		664		678		717		758
Weighted-average shares - Diluted	228,608		229,849		228,701		230,114		227,706		228,655
Earnings Per Share - Basic
Class B Common Stock	$	0.73	$	0.81	$	2.11	$	2.00	$	1.00	$	0.82
Common Stock	$	0.80	$	0.89	$	2.33	$	2.20	$	1.11	$	0.91
Earnings Per Share - Diluted
Class B Common Stock	$	0.73	$	0.80	$	2.09	$	1.98	$	0.99	$	0.81
Common Stock	$	0.77	$	0.86	$	2.23	$	2.12	$	1.06	$	0.87

The Class B Common Stock is convertible into Common Stock on a share for share basis at any time. The calculation of earnings per share-diluted for the Class B Common Stock was performed using the two-class method and the calculation of earnings per share-diluted for the Common Stock was performed using the if-converted method.

For the Three Months Ended

For the Nine Months Ended

For the Three Months Ended

September 30,
2012

October 2,
2011

September 30,
2012

October 2,
2011

March 31,
2013

April 1,
2012

In millions

Stock options excluded from diluted earnings per share calculations because the effect would have been antidilutive

—

1.6

3.5

6.9

1.8

3.5

8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We account for derivative instruments in accordance with Financial Accounting Standards Board accounting standards which require us to recognize all derivative instruments at fair value. We classify derivatives as assets or liabilities on the balance sheet. As of ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011~~2012, all of our derivative instruments were classified as cash flow hedges.

1512

The fair value of derivative instruments in the Consolidated Balance Sheet as of ~~September 30, 2012~~March 31, 2013 was as follows:


Balance Sheet Caption	Interest Rate Swap Agreements		Foreign Exchange Forward Contracts and Options		Commodities Futures and Options Contracts		Interest Rate Swap Agreements		Foreign Exchange Forward Contracts and Options		Commodities Futures and Options Contracts
In thousands of dollars
Prepaid expense and other current assets	$	—	$	1,914	$	8,188	$	—	$	1,481	$	2,610
Other long-term assets	$	—	$	276	$	—	$	3,414	$	—	$	—
Accrued liabilities	$	13,113	$	2,260	$	—	$	73	$	817	$	—
Other long-term liabilities	$	2,365	$	196	$	—

The fair value of derivative instruments in the Consolidated Balance Sheet as of December 31, ~~2011~~2012 was as follows:


Balance Sheet Caption	Foreign Exchange Forward Contracts and Options		Commodities Futures and Options Contracts		Interest Rate Swap Agreements		Foreign Exchange Forward Contracts and Options		Commodities Futures and Options Contracts
In thousands of dollars
Prepaid expense and other current assets	$	3,954	$	3,929	$	—	$	2,119	$	—
Accrued liabilities	$	5,297	$	2,103	$	12,502	$	917	$	2,010
Other long-term liabilities	$	12	$	—	$	922	$	—	$	—

The fair value of the interest rate swap agreements represents the difference in the present values 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.

The fair value of foreign exchange forward contracts and options is the amount of 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 exchange forward contracts and options on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences. As of ~~September 30, 2012~~March 31, 2013, the fair value of foreign exchange forward contracts with gains totaled $~~2.2~~1.5 million and the fair value of foreign exchange forward contracts with losses totaled $~~2.5~~0.8 million.

As of ~~September 30, 2012~~March 31, 2013, prepaid expense and other current assets associated with commodities futures and options contracts were associated with ~~the fair value of commodity derivative instruments and~~ cash transfers receivable on commodities futures contracts reflecting the change in quoted market prices on the last trading day for the period. We make or receive cash transfers to or from commodity futures brokers on a daily basis reflecting changes in the value of futures contracts on the IntercontinentalExchange or various other exchanges. These changes in value represent unrealized gains and losses.

The effect of derivative instruments on the Consolidated Statements of Income for the three months ended March 31, 2013 was as follows:



Cash Flow Hedging Derivatives	Interest Rate Swap Agreements			Foreign Exchange Forward Contracts and Options			Commodities Futures and Options Contracts
In thousands of dollars
Gains (losses) recognized in other comprehensive income (“OCI”) (effective portion)	$	7,733		$	(1,507	)	$	(9,320	)
Gains (losses) reclassified from accumulated OCI into income (effective portion) (a)	$	(912	)	$	869		$	(5,800	)
Gains (losses) recognized in income (ineffective portion) (b)	$	(428	)	$	—		$	388

1613

The effect of derivative instruments on the Consolidated Statements of Income for the ~~nine~~three months ended ~~September 30,~~April 1, 2012 was as follows:

Cash Flow Hedging Derivatives Interest Rate Swap Agreements Foreign Exchange Forward Contracts and Options Commodities Futures and Options Contracts
In thousands of dollars
Gains (losses) recognized in other comprehensive income (“OCI”) (effective portion) $ (15,477 ) $ 3,249
$ 70,129
Gains (losses) reclassified from accumulated OCI into income (effective portion) (a) $ (2,646 ) $ (2,563 ) $ (72,000 )
Gains (losses) recognized in income (ineffective portion) (b) $ —
$ —
$ 2,465

~~The effect of derivative instruments on the Consolidated Statements of Income for the nine months ended~~ ~~October 2, 2011~~ ~~was as follows:~~


Cash Flow Hedging Derivatives	Interest Rate Swap Agreements		Foreign Exchange Forward Contracts and Options			Commodities Futures and Options Contracts			Interest Rate Swap Agreements			Foreign Exchange Forward Contracts and Options			Commodities Futures and Options Contracts
In thousands of dollars
Gains (losses) recognized in other comprehensive income (“OCI”) (effective portion)	$	7,856	$	(21,786	)	$	(69,750	)	$	—		$	1,669		$	14,825
Gains (losses) reclassified from accumulated OCI into income (effective portion) (a)	$	1,558	$	723		$	22,400		$	(924	)	$	(1,100	)	$	(26,000	)
Gains (losses) recognized in income (ineffective portion) (b)	$	—	$	—		$	(691	)	$	—		$	—		$	651

(a)

Gains (losses) reclassified from accumulated OCI into earnings were included in cost of sales for commodities futures and options contracts and for foreign exchange forward contracts and options designated as hedges of ~~intercompany~~ purchases of inventory. Other gains and losses for foreign exchange forward contracts and options were included in selling, marketing and administrative expenses. Gains (losses) reclassified from accumulated OCI into earnings were included in interest expense for interest rate swap agreements.


(b)	Gains (losses) recognized in earnings were included in cost of ~~sales.~~sales for commodities futures and options contracts and in interest expense for interest rate swap agreements.

All gains (losses) ~~recognized in earnings were~~ related to the ineffective portion of the hedging ~~relationship.~~relationship were recognized in earnings. We recognized no components of gains and losses on cash flow hedging derivatives in income due to excluding such components from the hedge effectiveness assessment.

The amount of net losses on cash flow hedging derivatives, including interest rate swap agreements, foreign exchange forward contracts and options, and commodities futures and options contracts, expected to be reclassified into earnings in the next twelve months was approximately $~~6.1~~12.3 million after tax as of ~~September 30, 2012~~March 31, 2013. This amount was primarily associated with commodities futures and options contracts.

For more information, refer to the consolidated financial statements and notes included in our ~~2011~~2012 Annual Report on Form 10-K.

9. COMPREHENSIVE INCOME

A summary of the components of comprehensive income (loss) is as follows:

For the Three Months Ended
September 30, 2012

Pre-Tax
Amount

Tax (Expense)
Benefit

After-Tax
Amount
In thousands of dollars
Net income $ 176,716
Other comprehensive income (loss):
Foreign currency translation adjustments $ 10,815
—
10,815
Pension and post-retirement benefit plans (1,425 ) 572
(853 )
Cash flow hedges:
Gains on cash flow hedging derivatives 58,797
(23,115 ) 35,682
Reclassification adjustments 23,233
(8,589 ) 14,644
Total other comprehensive income $ 91,420
$ (31,132 ) 60,288
Comprehensive income $ 237,004

For the Three Months Ended
October 2, 2011

Pre-Tax
Amount

Tax (Expense)
Benefit

After-Tax
Amount
In thousands of dollars
Net income $ 196,695
Other comprehensive income (loss):
Foreign currency translation adjustments $ (37,826 ) $ —
(37,826 )
Pension and post-retirement benefit plans 8,178
(2,993 ) 5,185
Cash flow hedges:
Losses on cash flow hedging derivatives (78,216 ) 31,444
(46,772 )
Reclassification adjustments (11,504 ) 4,479
(7,025 )
Total other comprehensive loss $ (119,368 ) $ 32,930
(86,438 )
Comprehensive income $ 110,257


	For the Nine Months Ended September 30, 2012							For the Three Months Ended March 31, 2013
	Pre-Tax Amount		Tax (Expense) Benefit			After-Tax Amount		Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
In thousands of dollars
Net income						$	511,052							$	241,906

Other comprehensive income (loss):
Foreign currency translation adjustments	$	12,477	$	—		12,477		$	123		—			123
Pension and post-retirement benefit plans	18,958		(7,203		)	11,755
Pension and post-retirement benefit plans (a)								10,803			(4,034		)	6,769
Cash flow hedges:
Gains on cash flow hedging derivatives	57,901		(22,988		)	34,913
Reclassification adjustments	77,209		(29,262		)	47,947
Losses on cash flow hedging derivatives								(3,094		)	1,321			(1,773		)
Reclassification adjustments (b)								5,843			(2,226		)	3,617

Total other comprehensive income	$	166,545	$	(59,453	)	107,092		$	13,675		$	(4,939	)	8,736

Comprehensive income						$	618,144							$	250,642

1814


	For the Nine Months Ended October 2, 2011									For the Three Months Ended April 1, 2012
	Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount			Pre-Tax Amount		Tax (Expense) Benefit			After-Tax Amount
In thousands of dollars
Net income							$	486,829							$	198,651

Other comprehensive income (loss):
Foreign currency translation adjustments	$	(24,219	)	$	—		(24,219		)	$	12,739	$	—		12,739
Pension and post-retirement benefit plans	21,670			(8,429		)	13,241
Pension and post-retirement benefit plans (a)										9,730		(3,737		)	5,993
Cash flow hedges:
Losses on cash flow hedging derivatives	(83,680		)	32,622			(51,058		)
Reclassification adjustments	(24,681		)	9,524			(15,157		)
Total other comprehensive loss	$	(110,910	)	$	33,717		(77,193		)
Gains on cash flow hedging derivatives										16,494		(6,489		)	10,005
Reclassification adjustments (b)										28,024		(10,733		)	17,291

Total other comprehensive income										$	66,987	$	(20,959	)	46,028

Comprehensive income							$	409,636							$	244,679


(a)	These amounts are included in the computation of net periodic benefit costs. For more information, see Note 15. Pension and Other Post-Retirement Benefit Plans.


(b)	For information on the presentation of reclassification adjustments for cash flow hedges on the Consolidated Statements of Income, see Note 8. Derivative Instruments and Hedging Activities.

The components of accumulated other comprehensive income (loss) as shown on the Consolidated Balance Sheets are as follows:


	September 30, 2012			December 31, 2011			March 31, 2013			December 31, 2012
In thousands of dollars
Foreign currency translation adjustments	$	13,936		$	1,459		$	9,296		$	9,173
Pension and post-retirement benefit plans, net of tax	(344,648		)	(356,403		)	(359,268		)	(366,037		)
Cash flow hedges, net of tax	(4,527		)	(87,387		)	(26,367		)	(28,212		)
Total accumulated other comprehensive loss	$	(335,239	)	$	(442,331	)	$	(376,339	)	$	(385,076	)

10. INVENTORIES

We value the majority of our inventories under the last-in, first-out (“LIFO”) method and the remaining inventories at the lower of first-in, first-out (“FIFO”) cost or market. Inventories were as follows:


	September 30, 2012			December 31, 2011			March 31, 2013			December 31, 2012
In thousands of dollars
Raw materials	$	272,372		$	241,812		$	250,875		$	256,969
Goods in process	95,591			91,956			89,031			78,292
Finished goods	568,579			482,095			440,062			496,981
Inventories at FIFO	936,542			815,863			779,968			832,242
Adjustment to LIFO	(210,050		)	(166,910		)	(153,325		)	(198,980		)
Total inventories	$	726,492		$	648,953		$	626,643		$	633,262

The ~~increase~~decrease in raw material inventories as of ~~September 30, 2012~~March 31, 2013 ~~reflected higher~~was due to lower ingredient costs in ~~2012 and~~2013 along with the seasonal timing of deliveries to support manufacturing requirements. The increase in goods in process inventories as of March 31, 2013 was principally the result of higher levels of cocoa products needed to support manufacturing requirements. Finished goods inventories were ~~higher~~lower as of ~~September 30,~~March 31, 2013 primarily due to lower seasonal inventories and lower costs in 2013. The change in the adjustment to LIFO amount from December 31, 2012 to March 31, 2013 was primarily due to ~~higher~~lower ingredient costs in ~~2012 and increases to support anticipated sales levels of everyday and seasonal items, in addition to the introduction of new products.~~2013.

11. 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. Our five-year unsecured revolving credit agreement contains certain financial and other covenants, customary representations, warranties and events of default. As of ~~September 30, 2012~~March 31, 2013, we complied with all covenants pertaining to the credit agreement. There were no significant compensating balance agreements that legally restricted these funds. For more information, refer to the consolidated financial statements and notes included in our ~~2011~~2012 Annual Report on Form 10-K.

12. ~~LONG-TERM DEBT~~

In May 2009, we filed a shelf registration statement on Form S-3 that registered an indeterminate amount of debt securities. This registration statement was effective immediately upon filing under Securities and Exchange Commission regulations governing “well-known seasoned issuers” (the “WKSI Registration Statement”). In September 2011, we repaid ~~$250 million~~ of ~~5.3%~~ ~~Notes due in 2011. In November 2011, we issued~~ ~~$250 million~~ of ~~1.5%~~ ~~Notes due in 2016. The Notes were issued under the WKSI Registration Statement.~~

The May 2009 WKSI Registration Statement expired in May 2012. Accordingly, in May 2012, we filed a new registration statement on Form S-3 to replace the May 2009 WKSI Registration Statement. The May 2012 WKSI Registration Statement registered an indeterminate amount of debt securities and was effective immediately.

~~13.~~ FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximated fair value as of ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011~~2012, because of the relatively short maturity of these instruments.

The carrying value of long-term debt, including the current portion, was $~~1,767.5~~1,792.7 million as of ~~September 30, 2012~~March 31, 2013, compared with a fair value of $~~2,061.4~~2,034.7 million, based on quoted market prices for the same or similar debt issues.

Interest Rate Swaps

In order to minimize financing costs and to manage interest rate exposure, the Company, from time to time, enters into interest rate swap agreements. In April 2012, the Company entered into forward starting interest rate swap agreements to hedge interest rate exposure related to the anticipated $250 million of term financing expected to be executed during 2013 to repay $250 million of 5.0% Notes maturing in April 2013. The weighted-average fixed rate on these forward starting swap agreements was 2.4%. In May 2012, the Company entered into forward starting interest rate swap agreements to hedge interest rate exposure related to the anticipated $250 million of term financing expected to be executed during 2015 to repay $250 million of 4.85% Notes maturing in August 2015. The weighted-average fixed rate on these forward starting swap agreements was 2.7%.

The forward starting swap agreements entered into in April 2012 matured in March 2013, resulting in a realized loss of approximately $9.5 million. The loss on the swap agreements will be amortized as an increase to interest expense over the term of the anticipated $250 million of term financing expected to be executed in 2013. Also in March 2013, we entered into forward starting swap agreements to continue to hedge interest rate exposure related to the term financing expected to be executed in 2013. The weighted-average fixed rate on the forward starting swap agreements is 2.1%.

The fair value of interest rate swap agreements was a ~~liability~~net asset of $~~15.5~~3.3 million as of ~~September 30, 2012~~March 31, 2013. The Company's risk related to interest rate swap agreements is limited to the cost of replacing such agreements at prevailing market rates. For more information, see Note 8. Derivative Instruments and Hedging Activities.

Foreign Exchange Forward Contracts

The following table summarizes our foreign exchange activity:

September 30, 2012

March 31, 2013

Contract Amount

Primary Currencies

Contract Amount

Primary Currencies

In millions of dollars

Foreign exchange forward contracts to purchase foreign currencies

25.7

Euros

British pound sterling

25.1

Euros

British pound sterling

Foreign exchange forward contracts to sell foreign currencies

63.9

Canadian dollars

46.9

Canadian dollars

Our foreign exchange forward contracts mature in ~~2012~~2013 and ~~2013.~~2014. For more information, see Note 8. Derivative Instruments and Hedging Activities.

~~14.~~13. FAIR VALUE ACCOUNTING

We use certain derivative instruments, from time to time, to manage interest rate, foreign currency exchange rate and commodity market price risk exposures, all of which are recorded at fair value based on quoted market prices or rates.

A summary of our cash flow hedging derivative assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2012~~March 31, 2013, is as follows:


Description	Fair Value as of September 30, 2012		Quoted Prices in Active Markets of Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value as of March 31, 2013		Quoted Prices in Active Markets of Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
In thousands of dollars
Assets
Cash flow hedging derivatives	$	10,378	$	8,188	$	2,190	$	—	$	49,720	$	44,825	$	4,895	$	—
Liabilities
Cash flow hedging derivatives	$	17,934	$	—	$	17,934	$	—	$	43,105	$	42,215	$	890	$	—

As of ~~September 30, 2012~~March 31, 2013, cash flow hedging derivative Level 1 assets were related to ~~the fair value of commodity derivative instruments and~~ cash transfers receivable on commodities futures contracts with gains reflecting the change in quoted market prices on the last trading day for the period. As of March 31, 2013, cash flow hedging derivative Level 1 liabilities were related to cash transfers payable on commodities futures contracts with losses resulting from the change in quoted market prices on the last trading day for the period. We make or receive cash transfers to or from commodity futures brokers on a daily basis reflecting changes in the value of futures contracts on the IntercontinentalExchange or various other exchanges. These changes in value represent unrealized gains and losses.

As of ~~September 30, 2012~~March 31, 2013, cash flow hedging derivative Level 2 assets were related to the fair value of interest rate swap agreements and foreign exchange forward contracts and options with gains. Cash flow hedging Level 2 liabilities were related to the fair value of foreign exchange forward contracts and options and interest rate swap agreements ~~and foreign exchange forward contracts~~ with losses. The fair value of the interest rate swap agreements represents the difference in the present values 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. The fair value of foreign exchange forward contracts and options is the amount of 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 exchange forward contracts and options on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences. For more information, see Note 8. Derivative Instruments and Hedging Activities and refer to the consolidated financial statements and notes included in our ~~2011~~2012 Annual Report on Form 10-K.

A summary of our cash flow hedging derivative assets and liabilities measured at fair value on a recurring basis as of December 31, ~~2011~~2012, is as follows:


Description	Fair Value as of December 31, 2011		Quoted Prices in Active Markets of Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value as of December 31, 2012		Quoted Prices in Active Markets of Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
In thousands of dollars
Assets
Cash flow hedging derivatives	$	7,883	$	3,929	$	3,954	$	—	$	39,175	$	37,056	$	2,119	$	—
Liabilities
Cash flow hedging derivatives	$	7,412	$	2,103	$	5,309	$	—	$	53,407	$	39,066	$	14,341	$	—

As of December 31, ~~2011~~2012, cash flow hedging derivative Level 1 assets were primarily related to cash transfers receivable on commodities futures contracts with gains reflecting the change in quoted market prices on the last trading day for the period. As of December 31, ~~2011~~2012, cash flow hedging derivative Level 1 liabilities were primarily related to cash transfers payable on commodities futures contracts with losses resulting from the ~~fair value of commodity derivative instruments.~~change in quoted market prices on the last trading day for the period.

As of December 31, ~~2011~~2012, cash flow hedging derivative Level 2 assets were related to the fair value of foreign exchange forward contracts and options with gains. Cash flow hedging Level 2 liabilities were related to the fair value of interest rate swap agreements and foreign exchange forward contracts and options with losses.

2117

~~15.~~14. INCOME TAXES

The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing jurisdictions include the United States (federal and state), Canada and Mexico. ~~During the fourth quarter 2009,~~We are no longer subject to U.S. federal income tax examinations by the U.S. Internal Revenue Service (“IRS”) for years prior to 2009. During the first quarter of 2013, the IRS commenced its ~~audit~~audits of our U.S. income tax returns for ~~2007 and 2008 which was concluded during~~ the ~~second quarter of 2012.~~years 2009 through 2011. Tax examinations by various state taxing authorities could generally be conducted for years beginning in ~~2007.~~2008. We are no longer subject to Canadian federal income tax examinations by the Canada Revenue Agency (“CRA”) ~~and Mexican federal income tax examinations by Servicio de Administracion Tributaria (“SAT”)~~ for years before ~~2004.~~2006. During the third quarter of 2010, the CRA commenced its audit of our Canadian income tax returns for the years 2006 through 2009. We are no longer subject to Mexican federal income tax examinations by Servicio de Administracion Tributaria (“SAT”) for years before 2008. U.S., Canadian and Mexican federal audit issues typically involve the timing of deductions and transfer pricing adjustments. We work with the IRS, the CRA and the SAT to resolve proposed audit adjustments and to minimize the amount of adjustments. We do not anticipate that any potential tax adjustments will have a significant impact on our financial position or results of operations.

We reasonably expect reductions in the liability for unrecognized tax benefits of approximately $~~10.3~~6.6 million within the next 12 months because of the expiration of statutes of limitations and settlements of tax audits.

~~16.~~15. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

Components of net periodic benefit cost consisted of the following:


	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	For the Three Months Ended												For the Three Months Ended
	September 30, 2012			October 2, 2011			September 30, 2012			October 2, 2011			March 31, 2013			April 1, 2012			March 31, 2013			April 1, 2012
In thousands of dollars
Service cost	$	7,576		$	7,507		$	293		$	333		$	7,968		$	7,768		$	289		$	281
Interest cost	12,665			13,147			3,316			3,744			11,074			12,604			2,785			3,424
Expected return on plan assets	(18,222		)	(19,640		)	—			—			(18,384		)	(18,230		)	—			—
Amortization of prior service cost (credit)	182			231			156			(63		)
Amortization of prior service cost													106			183			155			155
Recognized net actuarial loss (gain)	9,895			6,693			(25		)	(18		)	10,158			9,777			(5		)	(17		)
Administrative expenses	137			134			22			110			112			138			14			31
Net periodic benefit cost	12,233			8,072			3,762			4,106			$	11,034		$	12,240		$	3,238		$	3,874
Settlement loss	13,117			—			—			—
Curtailment credit	—			(7		)	—			—
Total amount reflected in earnings	$	25,350		$	8,065		$	3,762		$	4,106

We made contributions of $~~2.9~~0.4 million and $5.7 million to the pension plans and other benefits plans, respectively, during the ~~third~~first quarter of ~~2012.~~2013. In the ~~third~~first quarter of ~~2011,~~2012, we made contributions of $~~1.3~~1.1 million and $~~5.4~~5.2 million to our pension and other benefits plans, respectively. The ~~$5.4 million~~ ~~of contributions to other benefits plans reflected a reimbursement of~~ ~~$0.2 million~~ ~~received during the third quarter of 2011 related to the Early Retiree Reinsurance Program, a one-time government program providing reimbursement for a portion of pre-65 healthcare benefit costs. The~~ contributions in ~~2012~~2013 and ~~2011~~2012 also included benefit payments from our non-qualified pension plans and post-retirement benefit plans.

~~The pension settlement loss in 2012 and the curtailment credit recorded in the third quarter of 2011 related to the Next Century program.~~

~~Components of net periodic benefit cost consisted of the following:~~

Pension Benefits Other Benefits
For the Nine Months Ended
September 30,
2012 October 2,
2011 September 30,
2012 October 2, 2011
In thousands of dollars
Service cost $ 22,722
$ 22,544
$ 879
$ 1,000
Interest cost 37,980
39,752
9,942
11,232
Expected return on plan assets (54,634 ) (58,675 ) —
—
Amortization of prior service cost (credit) 545
692
465
(190 )
Recognized net actuarial loss (gain) 29,673
20,779
(75 ) (54 )
Administrative expenses 437
550
117
211
Net periodic benefit cost 36,723
25,642
11,328
12,199
Settlement loss 13,117
—
—
—
Curtailment loss (credit) —
1,826
—
(174 )
Total amount reflected in earnings $ 49,840
$ 27,468
$ 11,328
$ 12,025

~~We made contributions of~~ ~~$4.6 million~~ ~~and~~ ~~$16.7 million~~ ~~to the pension plans and other benefits plans, respectively, during the first nine months of 2012. During the first nine months of 2011, we made contributions of~~ ~~$3.9 million~~ ~~and~~ ~~$15.7 million~~ ~~to our pension and other benefits plans, respectively. The~~ ~~$15.7 million~~ ~~of contributions to the other benefits plans reflected a reimbursement of~~ ~~$0.8 million~~ received during 2011 relating to the Early Retiree Reinsurance Program, a one-time government program providing reimbursement for a portion of pre-65 health care benefit costs. The contributions in 2012 and 2011 also included benefit payments from our non-qualified pension plans and post-retirement benefit plans.

The pension settlement loss in 2012 and the pension curtailment loss and other benefits curtailment credit recorded in the first nine months of 2011 related to the Next Century program which is described in more detail in Note 6. Business Realignment and Impairment Charges.

For ~~2012,~~2013, there are no significant minimum funding requirements for our pension plans and planned voluntary funding of our pension plans in ~~2012~~2013 is not material.

For more information, refer to the consolidated financial statements and notes included in our ~~2011~~2012 Annual Report on Form 10-K.

~~17.~~

16. SHARE REPURCHASES

Repurchases and Issuances of Common Stock

A summary of cumulative share repurchases and issuances is as follows:


	For the Nine Months Ended September 30, 2012					For the Three Months Ended March 31, 2013
	Shares		Dollars			Shares		Dollars
In thousands
Shares repurchased in the open market under pre-approved share repurchase programs	2,054		$	124,931		—		$	—
Shares repurchased to replace Treasury Stock issued for stock options and incentive compensation	5,411		372,629			2,511		204,044
Total share repurchases	7,465		497,560			2,511		204,044
Shares issued for stock options and incentive compensation	(5,447	)	(184,324		)	(2,332	)	(93,009		)
Net change	2,018		$	313,236		179		$	111,035

In April 2011, our Board of Directors approved a $250 million share repurchase program. As of ~~September 30, 2012~~March 31, 2013, $125.1 million remained available for repurchases of our Common Stock.

2319

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

SUMMARY OF OPERATING RESULTS

Analysis of Selected Items from Our Income Statement


	For the Three Months Ended								For the Nine Months Ended								For the Three Months Ended
	September 30, 2012			October 2, 2011			Percent Change Increase (Decrease)		September 30, 2012			October 2, 2011			Percent Change Increase (Decrease)		March 31, 2013			April 1, 2012			Percent Change Increase (Decrease)
In millions except per share amounts	In millions except per share amounts																In millions except per share amounts
Net Sales	$	1,746.7		$	1,624.3		7.5	%	$	4,893.2		$	4,513.6		8.4	%	$	1,827.4		$	1,732.1		5.5	%
Cost of Sales	1,003.9			944.1			6.3		2,788.5			2,612.9			6.7		978.1			988.7			(1.1	)
Gross Profit	742.8			680.2			9.2		2,104.7			1,900.7			10.7		849.3			743.4			14.3
Gross Margin	42.5		%	41.9		%			43.0		%	42.1		%			46.5		%	42.9		%
SM&A Expense	421.0			356.9			18.0		1,218.0			1,080.6			12.7		450.7			405.6			11.1
SM&A Expense as a percent of sales	24.1		%	22.0		%			24.9		%	23.9		%			24.7		%	23.4		%
Business Realignment and Impairment Charges (Credits), net	20.1			2.2			817.0		28.2			(5.9		)	575.9
Business Realignment and Impairment Charges, net																	6.8			3.3			107.4
EBIT	301.7			321.1			(6.0	)	858.5			826.0			3.9		391.8			334.5			17.1
EBIT Margin	17.3		%	19.8		%			17.5		%	18.3		%			21.4		%	19.3		%
Interest Expense, net	24.5			23.0			6.5		72.9			70.9			2.9		23.6			24.0			(1.6	)
Provision for Income Taxes	100.5			101.4			(0.9	)	274.6			268.3			2.3		126.3			111.8			12.9
Effective Income Tax Rate	36.2		%	34.0		%			34.9		%	35.5		%			34.3		%	36.0		%
Net Income	$	176.7		$	196.7		(10.2	)	$	511.0		$	486.8		5.0		$	241.9		$	198.7		21.8
Net Income Per Share-Diluted	$	0.77		$	0.86		(10.5	)	$	2.23		$	2.12		5.2		$	1.06		$	0.87		21.8

Results of Operations - ~~Third~~First Quarter ~~2012~~2013 vs. ~~Third~~First Quarter ~~2011~~2012

U.S. Price Increases

In March 2011, we announced a weighted-average increase in wholesale prices of approximately 9.7% across the majority of our U.S., Puerto Rico and export portfolio, effective immediately. The price increase applied to our instant consumable, multi-pack, packaged candy and grocery lines. Direct buying customers were able to purchase transitional amounts of product into May and seasonal net price realization was not expected until Easter 2012.

Usually there is a time lag between the effective date of list price increases and the impact of the price increases on net sales. The impact of price increases is often delayed because we honor previous commitments to planned consumer and customer promotions and merchandising events that occur subsequent to the effective date of the price increases. In addition, promotional allowances may be increased subsequent to the effective date, delaying or partially offsetting the impact of price increases on net sales.

Net Sales

Net sales increased ~~7.5%~~5.5% in the ~~third~~first quarter of ~~2012~~2013 over the comparable period of ~~2011~~2012 due primarily to sales volume increases of 5.3% and net price realization of ~~3.9% and sales volume increases of 2.1%~~0.5%. Sales volume increases were primarily associated with higher sales of Brookside products reflecting expanded distribution in the United States, along with incremental sales offrom new products, also primarily in the United States. Unfavorable foreign currency exchange rates reduced net sales by ~~0.8%~~0.3%. ~~Net sales attributable to Brookside contributed 2.3% to the increase.~~

2420

Key Marketplace Metrics

For the twelve-week period ending ~~October 6, 2012,~~March 23, 2013, consumer takeaway increased ~~5.9%~~9.4% in ~~2012~~2013 compared with the same period of ~~2011.~~2012. Excluding the impact of Easter seasonal sales, consumer takeaway increased 8.6%. Market share in measured channels increased by ~~1.1~~1.4 share points in the twelve-week period ending ~~October 6, 2012~~March 23, 2013 compared with the same period of ~~2011.~~2012. Consumer takeaway and the change in market share are provided for channels of distribution accounting for approximately 90% of our U.S. confectionery retail business. These channels of distribution primarily include food, drug, mass merchandisers, including Wal-Mart Stores, Inc., and convenience stores.

Cost of Sales and Gross Margin

Cost of sales ~~increased~~decreased by approximately ~~6.3%~~1.1% in the ~~third~~first quarter of ~~2012~~2013 due to ~~higher~~lower input ~~and~~costs, supply chain ~~costs, along with the impact of~~productivity and a favorable sales ~~volume increases,~~mix, which together ~~increased~~decreased total cost of sales by approximately ~~5.9%~~6.5%. AnThese decreases were substantially offset by higher costs associated with sales volume increases and supply chain cost inflation, resulting in a total increase to cost of sales of ~~2.7% resulted from the Brookside acquisition. Supply chain productivity improvements reduced cost of sales by approximately 1.9%~~7.2%. Business realignment and impairment charges of ~~$5.2~~$0.1 million were included in cost of sales in the ~~third~~first quarter of ~~2012~~2013 compared with ~~$9.5~~$19.5 million in the ~~third~~first quarter of ~~2011,~~2012, resulting in a reduction in cost of sales of ~~0.5%~~2.0%.

Gross margin increased by ~~0.6~~3.6 percentage points in the ~~third~~first quarter of ~~2012~~2013 primarily as a result of ~~price realization and~~lower input costs, supply chain productivity improvements and price realization, which together improved gross margin by ~~3.0~~4.0 percentage points. These improvements were ~~substantially~~somewhat offset by ~~higher input,~~ supply chain cost inflation which reduced gross margin by approximately 1.4 percentage points. The impact of lower business realignment and ~~product obsolescence costs~~impairment charges recorded in the first quarter of ~~approximately 2.4~~2013 compared with the same period of 2012 increased gross margin by 1.1 percentage points.

Selling, Marketing and Administrative

Selling, marketing and administrative expenses increased by ~~18.0%~~11.1% in the ~~third~~first quarter of ~~2012~~2013 primarily due to higher marketing and employee-related expenses, increased legal fees and incentive compensation costs. These increases were partially offset by lower costs ~~and expenses~~ associated with the integration of business ~~acquisitions. Selling, marketing and administrative costs~~acquisitions in the ~~third~~first quarter of ~~2011 were reduced by a $17.0 million gain on~~2013 compared with the ~~sale~~first quarter of ~~certain trademark licensing rights.~~2012. Advertising costs in the ~~third~~first quarter of ~~2012~~2013 increased by ~~12.1%~~21.7% from the same period in ~~2011.~~

~~Business realignment charges of $0.6 million were included in selling, marketing and administrative expenses in the third quarter of~~ 2012. ~~Business realignment charges of $1.9 million were included in selling, marketing and administrative expenses in the third quarter of 2011.~~

Business Realignment and Impairment Charges

Business realignment and impairment charges of ~~$20.1~~$6.8 million associated with the Next Century program were recorded in the ~~third~~first quarter of ~~2012. The 2012~~2013. These charges were primarily associated with ~~a non-cash pension settlement loss of $13.1 million and charges associated with~~costs for the ~~closure~~demolition of a former manufacturing facility.

Business realignment and impairment charges of ~~$2.2~~$3.3 million were recorded in the ~~third~~first quarter of ~~2011~~2012 associated with the Next Century program. The ~~2011~~2012 charges were primarily associated with ~~asset retirement costs~~the relocation and ~~employee separation expenses.~~start-up of production lines.

Income Before Interest and Income Taxes and EBIT Margin

EBIT ~~decreased~~increased in the ~~third~~first quarter of 2013 compared with the first quarter of 2012 ~~compared with the third quarter of 2011~~ as a result of an increase in gross profit and lower business realignment charges, partially offset by higher selling, marketing and administrative ~~expenses and business realignment charges which more than offset an increase in gross profit.~~expenses. Net pre-tax business realignment and impairment charges of ~~$25.8~~$7.0 million were recorded in the ~~third~~first quarter of ~~2012.~~2013. Net pre-tax business realignment and impairment charges of ~~$13.5~~$23.6 million were recorded in the ~~third~~first quarter of ~~2011.~~2012.

EBIT margin ~~decreased~~increased from ~~19.8%~~19.3% for the ~~third quarter of 2011 to 17.3% for the third~~first quarter of 2012 to 21.4% for the first quarter of 2013 due to ~~higher selling, marketing~~the increase in gross margin and ~~administrative expenses and higher~~lower business realignment charges as a percent of sales, partially offset ~~partially~~ by ~~the increase in gross margin.~~higher selling, marketing and administrative expenses as a percent of sales.

Interest Expense, Net

Net interest expense was ~~higher~~lower in the ~~third~~first quarter of ~~2012~~2013 than the comparable period of ~~2011 primarily reflecting the impact of higher short-term borrowings.~~2012 as lower interest expense associated with long-term borrowings was substantially offset by lower capitalized interest.

2521

Income Taxes and Effective Tax Rate

Our effective income tax rate was ~~36.2%~~34.3% for the ~~third~~first quarter of ~~2012~~2013 compared with ~~34.0%~~36.0% for the ~~third~~first quarter of ~~2011.~~2012. The ~~increase~~decrease was associated with the ~~changes to Pennsylvania state~~2013 tax ~~legislation enacted in the third quarter~~law reinstatement of ~~2012, the impact of other~~expiring tax benefits, non-recurring discrete ~~tax~~ items ~~recognized in third quarter of 2012 compared with 2011,~~ and ~~the impact of the mix~~a favorable shift of income ~~among various~~to jurisdictions having lower tax ~~jurisdictions.~~rates.

Net Income and Net Income Per Share

Earnings per share-diluted in the ~~third~~first quarter of ~~2012 decreased $0.09 as~~2013 increased $0.19, or 21.8%, compared with the ~~third~~first quarter of ~~2011.~~2012. Net income was reduced by ~~$16.5~~$4.3 million, or $0.02 per share-diluted, in the first quarter of 2013, and was reduced by $14.9 million, or $0.07 per share-diluted, in the ~~third~~first quarter of 2012 as a result of business realignment and impairment charges. ~~Closing and integration costs for the Brookside acquisition reduced net income by $3.5 million, or $0.02 per share-diluted, in the third quarter of 2012.~~ Net income was reduced by ~~$2.7~~$0.5 million, in the first quarter of 2013 and was reduced by $3.8 million, or $0.01 per share-diluted, ~~related~~in the first quarter of 2012 due to ~~higher~~integration costs for business acquisitions. Net income was reduced by $1.8 million, or $0.01 per share-diluted, in the first quarter of 2013, and was reduced by $2.6 million, or $0.01 per share-diluted, in the first quarter of 2012 by non-service related pension ~~expenses in the third quarter of 2012 compared with 2011.~~expenses. Excluding the impact of business realignment and impairment charges, business acquisition costs and non-service related pension expenses, earnings per share-diluted increased ~~$0.03~~$0.13 per share, or ~~3.6%~~13.5%, in ~~2012~~2013 compared with ~~2011.~~

~~Results of Operations - First Nine Months 2012 vs. First Nine Months 2011~~

~~Net Sales~~

Net sales increased 8.4% for the first nine months of 2012 over the comparable period of 2011 due primarily to net price realization of 6.8% as well as sales volume increases of 0.6%. The increase was partially offset by the impact of unfavorable foreign currency exchange rates which reduced net sales by 0.8%. Net sales attributable to Brookside contributed 1.8% to the increase in net sales.

~~Key Marketplace Metrics~~

For the year-to-date period ended October 6, 2012, consumer takeaway increased 5.2% compared with the same period of 2011. Market share in measured channels increased 0.4 share points in the year-to-date period ended October 6, 2012 compared with the same period of 2011. Consumer takeaway and the change in market share are provided for measured channels of distribution accounting for approximately 90% of our U.S. confectionery retail business. These channels of distribution primarily include food, drug, mass merchandisers, including Wal-Mart Stores, Inc., and convenience stores.

~~Cost of Sales and Gross Margin~~

Cost of sales increased by approximately 6.7% in the first nine months of 2012 primarily due to higher input and supply chain costs, along with the impact of an unfavorable sales mix, which together increased total cost of sales by about 5.6%. An increase in cost of sales of 2.0% resulted from the Brookside acquisition. Supply chain productivity improvements reduced cost of sales by approximately 2.1%. Business realignment and impairment charges of $38.0 million were included in cost of sales in the first nine months of 2012 compared with $23.3 million included in the comparable period of 2011, resulting in an increase to cost of sales of 0.6%.

Gross margin increased by 0.9 percentage points for the first nine months of 2012 primarily as a result of price realization and supply chain productivity improvements, which together improved gross margin by 4.5 percentage points. These improvements were partially offset by higher input, supply chain and product obsolescence costs of approximately 3.2 percentage points. The impact of higher business realignment and impairment charges recorded in the first nine months of 2012 compared with the same period of 2011 reduced gross margin by 0.3 percentage points.

~~Selling, Marketing and Administrative~~

Selling, marketing and administrative expenses increased by 12.7% in the first nine months of 2012 primarily due to increased advertising and marketing research expenses, higher employee-related expenses, increased incentive compensation costs and expenses associated with business acquisitions. In addition, selling, marketing and administrative expenses in the first nine months of 2011 were reduced by a $17.0 million gain on the sale of certain trademark licensing rights. The increases in the first nine months of 2012 were partially offset by lower costs associated with legal fees and contingencies compared with the first nine months of 2011. Advertising costs in the first nine months of 2012 increased by 12.1% from the same period in 2011.

Business realignment charges of $2.1 million were included in selling, marketing and administrative expenses in the first nine months of 2012. Business realignment charges of $4.0 million were included in selling, marketing and administrative expenses in the first nine months of 2011.

~~Business Realignment and Impairment Charges (Credits)~~

Business realignment and impairment charges of $28.2 million associated with the Next Century program were recorded in the first nine months of 2012. The 2012 charges were primarily associated with the relocation and start up of production lines and the closure of a manufacturing facility, in addition to the pension settlement loss recorded in the third quarter of 2012.

Net pre-tax business realignment and impairment credits of $5.9 million were recorded in the first nine months of 2011 associated with the Next Century program. The 2011 credits were primarily associated with a reduction of employee separation expense of $9.7 million, partially offset by asset retirement costs.

~~Income Before Interest and Income Taxes and EBIT Margin~~

EBIT increased in the first nine months of 2012 compared with the first nine months of 2011 as a result of higher gross profit, partially offset by higher selling, marketing and administrative expenses. Net pre-tax business realignment and impairment charges of $68.4 million were recorded in the first nine months of 2012. Net pre-tax business realignment and impairment charges of $21.4 million were recorded in the first nine months of 2011.

EBIT margin decreased from 18.3% for the first nine months of 2011 to 17.5% for the first nine months of 2012 as higher selling, marketing and administrative expenses and business realignment and impairment charges as a percent of sales more than offset the increase in gross margin.

~~Interest Expense, Net~~

Net interest expense was slightly higher in the first nine months of 2012 than the comparable period of 2011, primarily reflecting increased interest expense associated with higher short-term borrowings.

~~Income Taxes and Effective Tax Rate~~

Our effective income tax rate was 34.9% for the first nine months of 2012 compared with 35.5% for the first nine months of 2011. Excluding the impact of tax rates associated with business realignment and impairment charges, we expect our income tax rate for the full year 2012 to be slightly less than 35.0%.

~~Net Income and Net Income Per Share~~

Earnings per share-diluted for the first nine months of 2012 were $2.23 compared with $2.12 for the first nine months of 2011. Net income was reduced by $43.5 million, or $0.19 per share-diluted, in the first nine months of 2012 as a result of business realignment and impairment charges. Net income was reduced by $8.3 million, or $0.04 per share-diluted, in the first nine months of 2012 as a result of closing and integration costs for the Brookside acquisition. Net income was reduced by $8.0 million, or $0.04 per share-diluted, related to higher non-service related pension expenses in the first nine months of 2012 compared with 2011. Excluding the impact of business realignment and impairment charges, business acquisition costs and non-service related pension expenses, earnings per share-diluted increased $0.37 per share, or 17.4%, in 2012 compared with 2011.

Liquidity and Capital Resources

Historically, our major source of financing has been cash generated from operations. Domestic seasonal working capital needs, which typically peak during the summer months, generally have been met by utilizing cash on hand and issuing commercial paper. Commercial paper also may be issued, from time to time, to finance ongoing business transactions, such as the repayment of long-term debt, business acquisitions and for other general corporate purposes. During the first ~~nine~~three months of ~~2012,~~2013, cash and cash equivalents ~~decreased~~increased by ~~$227.5~~$1.8 million to ~~$466.2 million.~~

Cash provided from operations, cash on hand at the beginning of the period, short-term borrowings and other cash inflows, primarily associated with the exercise of stock options, during the first nine months of 2012 were sufficient to fund the repurchase of Common Stock of $497.6 million, business acquisitions of $172.9 million, capital additions and capitalized software expenditures of $214.0 million and dividend payments of $249.8$730.1 million.

Net cash provided from operating activities was ~~$605.9~~$293.2 million in ~~2012~~2013 and ~~$257.2~~$275.8 million in ~~2011.~~2012. The increase was primarily the result of the change in cash provided from (used by) ~~other assets and liabilities, the impact of business realignment and impairment charges,~~working capital and higher net income in ~~2012.~~2013. These increases were substantially offset by a decrease in cash provided by other assets and liabilities, an increase in cash used by excess tax benefits from stock-based compensation, and reduced cash provided from non-cash business realignment charges and depreciation and amortization. Cash provided from changes in other assets and liabilities was ~~$169.3~~$96.0 million for the first ~~nine~~three months of ~~2012~~2013 compared with ~~cash used of $85.3~~$149.2 million for the same period of ~~2011.~~2012. The ~~increase~~decrease in the amount of cash provided from other assets and liabilities from ~~2011~~2012 to ~~2012~~2013 primarily reflected the effect of hedging transactions of ~~$250.0~~$68.7 million. Cash used by working capital was ~~$284.5~~$63.9 million in ~~2012~~2013 compared with ~~$304.3~~$129.7 million in ~~2011.~~2012. The decrease in cash used by working capital was principally ~~related to~~associated with changes in ~~raw material~~cash used by trade accounts receivable and ~~finished goods~~ inventories in ~~2012~~2013 compared with 2011. This was offset somewhat by an increase in accounts receivable resulting from higher sales in 2012 compared with 2011, along with a decrease in accounts payable in 2012 compared with 2011, primarily associated with capital and manufacturing expenditures.2012.

During the first ~~nine~~three months of 2012, the Company acquired Brookside for approximately $172.9 million. Also during the first ~~nine~~three months of 2012, the ~~Company loaned $16.0~~$9.0 million loan to an affiliate ~~to finance~~was associated with financing the expansion of ~~its~~capacity under our manufacturing ~~capacity.~~

~~In May 2007, we entered into an~~ agreement in China with Godrej Beverages and Foods, Ltd., a consumer goods, confectionery and food company, to manufacture and distribute confectionery products, snacks and beverages across India. Under the agreement, we owned a 51% controlling interest in Godrej Hershey Ltd. In September 2012, we acquired the remaining 49% interest in Godrej Hershey Ltd. for approximately $15.9 million reflected in net payments to noncontrolling interests. Since theLotte Confectionery Company had a controlling interest in Godrej Hershey Ltd., the transaction was recorded in additional paid-in capital and the noncontrolling interest in Godrej Hershey Ltd. was eliminated as of September 30, 2012. Payments to noncontrolling interests associated with Godrej Hershey Ltd. were partially offset by equity contributions of $2.9 million by the noncontrolling interests in Hershey do Brasil.

During the third quarter 2011, the Company recorded an $11.1 million gain, net of tax, on the sale of trademark licensing rights. We received net proceeds of $20.0 million from this sale. Additionally, we entered into a sale and leasing agreement for the 19 East Chocolate Avenue manufacturing facility. Based on the leasing agreement, we are deemed to be the "owner" of the property for accounting purposes. We received net proceeds of $47.6 million and recorded a lease financing obligation of $50.0 million under the leasing agreement.LTD.

Interest paid was ~~$82.1~~$29.2 million during the first ~~nine~~three months of ~~2012~~2013 versus ~~$84.1~~$31.4 million for the comparable period of ~~2011.~~2012. The decrease in interest paid in ~~2012~~2013 was due to ~~timing of long-term interest payments.~~the lower outstanding debt balance in 2013. Income taxes paid were ~~$233.7~~$0.1 million during the first ~~nine~~three months of ~~2012~~2013 versus ~~$224.0~~$7.6 million for the comparable period of ~~2011.~~2012. The ~~increase~~decrease in taxes paid in ~~2012~~2013 was primarily related to the ~~impact~~receipt of ~~higher annualized taxable income~~a tax refund resulting from a loss on the sale of a former manufacturing facility in ~~2012 compared with 2011.~~Canada.

The ratio of current assets to current liabilities was ~~1.4:~~1.5:1.0 as of ~~September 30, 2012~~March 31, 2013 and ~~1.7:~~1.4:1.0 as of December 31, ~~2011.~~2012. The capitalization ratio (total short-term and long-term debt as a percent of stockholders' equity, short-term and long-term debt) decreased to ~~67%~~63% as of ~~September 30, 2012~~March 31, 2013 from ~~68%~~65% as of December 31, ~~2011.~~2012.

Generally, our short-term borrowings are in the form of commercial paper or bank loans with an original maturity of three months or less. As of ~~September 30, 2012,~~March 31, 2013, we had no commercial paper ~~borrowings of $50.0 million.~~borrowings.

2822

Outlook

The outlook section contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially. Refer to the Safe Harbor Statement below as well as Risk Factors and other information contained in our ~~2011~~2012 Annual Report on Form 10-K for information concerning the key risks to achieving future performance goals.

Our results for the first ~~nine~~three months of ~~2012~~2013 were strong and we expect to continue our marketplace momentum. The ~~economic~~overall macroeconomic environment ~~is expected to continue~~appears to be ~~challenging during the remainder of 2012.~~improving, but it is difficult to predict consumer sentiment and purchasing patterns. We will continue to remain focused on building brands in both the U.S. and key international markets and will make incremental investments in our brands and business capabilities. We have planned merchandising and programming events during the remainder of the year and will work closely with retail customers and monitor our brand performance. We will continue with the distribution and rollout of ~~Jolly Rancher Crunch 'N Chew~~ ~~candy,~~ ~~Rolo~~ ~~minis,~~ ~~Ice Breakers Duo~~ ~~mints and~~ ~~Hershey'sSimplePleasures~~ ~~candy.~~

Advertising expense increased 12.1% in the first nine months of 2012, compared with the first nine months of 2011. For the full year, we now expect advertising to increase 13% to 15% versus the prior year, supporting core brands in both the U.S. and key international markets, new product launches, and new advertising campaigns on the ~~Jolly Rancher~~ ~~and~~ ~~Rolo~~ ~~brands.~~

~~Excluding the Brookside acquisition, we expect organic sales volume growth to~~We continue to ~~improve in the fourth quarter and be up for the full-year 2012. Including a 1.75 to 2.0 percentage point benefit from net sales for Brookside at current exchange rates, we now~~ expect ~~full-year~~2013 net sales growth of ~~about 8%~~5% to 9%7%, including the impact of foreign currency exchange rates.

In 2012, the Company expects reported earnings per share-diluted of $2.87 to $2.92. Reported earnings per share-diluted includes anticipated business realignment and impairment charges of $0.23 to $0.24 per share-diluted related to the Next Century program and non-service related pension expenses of $0.06 per share-diluted. Reported gross margin, reported EBIT margin and reported earnings per share-diluted Net sales will be ~~impacted~~driven primarily by ~~these charges~~core brand volume growth, the U.S. launch of the Brookside product line in the food, drug and ~~expenses~~mass channels, as well as the introduction of new products such as Kit Kat minis, Twizzlers Bites and Jolly Rancher Bites. In key international markets such as China, we will extend our portfolio of products with the introduction of Hershey's Kisses Deluxe and build our sales of Hershey's chocolate products in ~~addition~~instant consumable and take home pack types, which were introduced in the fourth quarter of 2012. In Brazil, manufacturing capacity was increased to ~~closing~~support geographic expansion of Hershey's Mais, a chocolate-covered wafer product.

We have good visibility into our cost structure and ~~integration costs related to the Brookside acquisition estimated at $0.04 to $0.05 per share-diluted. We now~~we expect ~~reported~~ gross margin to increase ~~from 120 to 140 basis points~~ in ~~2012.~~

~~We do not expect a material change to our full-year inflation outlook. We continue to expect that input~~2013, driven by productivity, cost savings initiatives and lower costs ~~in 2012 will be higher than last year. As a result of our strong results~~ for ~~the first nine months and further visibility into our full-year cost structure,~~certain major raw materials. Therefore, we now expect 2013 gross margin on a reported basis to increase 260 to 280 basis points and we now expect expansion of adjusted gross margin to be 190 to 210 basis points.

Considering this financial flexibility, we expect to accelerate our investments in 2013 for advertising, go-to-market capabilities and expansion of ~~120~~our Insights Driven Performance initiatives. Advertising is expected to ~~140 basis points compared with~~increase approximately 20% versus last year, driven by net price realization, strong productivity and cost savings. Therefore, considering our results for the first nine months and planned investments in advertising, market research, category management and selling capabilities during the remainder of the year, particularly in our international markets, we now expect adjusted earnings per share-diluted for 2012 to be in the range of $3.22 to $3.25, a 14% to 15% increase over 2011. This is greater than our previous estimate of a 12% to 14% increase.

As we look to 2013, we assume the economic environment for retailers and consumers will continue to be challenging. However, we believe the investments we've made have resulted in a business model that is more efficient and effective, enabling us to deliver predictable, consistent and achievable marketplace and financial performance. Therefore, we expect 2013 net sales growth to be within our 5% to 7% long-term target, including the impact of foreign currency exchange rates, as we continue to focusyear. Advertising spending on core U.S. brands is expected to increase by approximately the same percentage as in 2012. Incremental advertising in 2013 will support the expanded distribution of Brookside products and innovation in both the U.S. and international markets, including increased advertising for the Hershey's brand in China.

We expect to continue investments in 2013 to build on the go-to-market capabilities established over the last few years, as well as the consumer insights work underway in key international ~~markets.~~markets for our five global brands, Hershey's, Reese's, Hershey's Kisses, Jolly Rancher and Ice Breakers, that we believe can gain strong consumer acceptance around the world. Additionally, we will ~~leverage Hershey's scale at retail as~~continue to invest in international selling and marketing functions and support new product introductions with increased levels of consumer promotion and sampling to drive trial and repeat purchases. As a result, we ~~launch Brookside branded products~~anticipate that earnings per share-diluted in the broader U.S. food, drug and mass merchandiser channels. We remain focused on gross margin. We have solid productivity and cost savings initiatives in place and, while early in the planning cycle, we do not expect input cost inflation next year. Therefore, we expectaccordance with GAAP will increase 22% to ~~achieve gross margin expansion~~24% in 2013 ~~and growth~~compared with 2012. Growth in adjusted earnings per share-diluted ~~in the 8%~~is now expected to ~~10% range, consistent with our long-term target,~~be about 12%, as reflected in the reconciliation of reported to adjusted earnings per share-diluted projections ~~for 2013 on page 30.~~provided below.

NOTE: In the Outlook above, the Company has provided income measures excluding certain items, in addition to net income determined in accordance with GAAP. These non-GAAP financial measures are used in evaluating results of operations for internal purposes. These non-GAAP measures are not intended to replace the presentation of financial results in accordance with GAAP. Rather, the Company believes exclusion of such items provides additional information to investors to facilitate the comparison of past and present operations.

In ~~2011,~~2012, the Company recorded ~~GAAP~~pre-tax acquisition closing and integration costs of $13.4 million, or $0.04 per share-diluted, related to the Brookside acquisition. In 2012, the Company recorded charges of ~~$49.2~~$76.3 million, or ~~$0.13~~$0.22 per share-diluted, attributable to the Next Century program and ~~the global supply chain transformation program. Additionally, in the third quarter of 2011, the Company recorded a pre-tax gain of $17.0~~$7.5 million, or ~~$0.05~~$0.03 per share-diluted, ~~from~~of non-cash impairment charges associated with the ~~sale~~discontinuation of ~~trademark licensing rights.~~the Tri-US, Inc. nutritional beverages business. Non-service related pension expense of ~~$2.8~~$20.6 million, or ~~$0.01~~$0.06 per share-diluted, was recorded in ~~2011.~~2012.

In ~~2012,~~2013, the Company expects ~~acquisition closing and integration costs related to the Brookside acquisition to be $0.04 to $0.05 per share-diluted. The Company also expects~~ to record ~~total GAAP~~ charges of about ~~$80~~$10 million to ~~$85~~$15 million, or ~~$0.23~~$0.03 to ~~$0.24~~$0.05 per share-diluted, attributable to the Next Century program. Non-service related pension expenses are expected to be ~~$0.06 per share-diluted in 2012.~~

~~In 2013, the Company expects to record acquisition closing and integration costs of $0.01 per share-diluted. The Company expects to record GAAP charges of about $10 million to $15~~$13.2 million, or ~~$0.02 to~~ $0.04 ~~per share-diluted, attributable to the Next Century program. Non-service related pension expenses are expected to be $0.06~~ per share-diluted, in 2013.

Below is a reconciliation of ~~2011~~2012 and projected ~~2012 and~~ 2013 earnings per share-diluted in accordance with GAAP to non-GAAP ~~2011~~2012 adjusted earnings per share-diluted and projected adjusted earnings per share-diluted for ~~2012 and~~ 2013:


	2011	2012 (Projected)	2013 (Projected)	2012		2013 (Projected)
Reported EPS-Diluted	$2.74	$2.87 - $2.92	$3.37 - $3.49	$	2.89	$3.52 - $3.58
Acquisition closing and integration charges	—	0.04 - 0.05	0.01	0.04		—
Gain on sale of trademark licensing rights	(0.05)	—	—
Total Business Realignment and Impairment Charges	0.13	0.23 - 0.24	0.02 - 0.04	0.25		0.03 - 0.05
Non-service related pension expenses	0.01	0.06	0.06	0.06		0.04
Adjusted EPS-Diluted	$2.83	$3.22 - $3.25	$3.48 - $3.58	$	3.24	$3.61 - $3.65

~~Outlook for Project Next Century~~

In June 2010, we announced the Next Century program as part of our ongoing efforts to create an advantaged supply chain and competitive cost structure. We now expect total pre-tax charges and non-recurring project implementation costs for the Next Century program of $190 million to $200 million due to the $13.1 million pension settlement loss recorded during the third quarter of 2012 and the pension settlement loss expected to be recorded during the fourth quarter of 2012. The pension settlement losses are non-cash charges for the Company.

During 2012, we now expect to record $80 million to $85 million in program charges. During 2012, we expect capital expenditures for the Next Century program to be approximately $65 million to $70 million. Depreciation and amortization for 2012 is estimated to be $200 million, excluding accelerated depreciation of approximately $20 million related to the Next Century program. The Next Century program is expected to provide annual cost savings from efficiency improvements of $65 million to $80 million.

Safe Harbor Statement

We are subject to changing economic, competitive, regulatory and technological risks and uncertainties because of the nature of our operations. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we note the following factors that, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions that we have discussed directly or implied in this report. Many of the forward-looking statements contained in this report may be identified by the use of words such as “intend,” “believe,” “expect,” “anticipate,” “should,” “planned,” “projected,” “estimated,” and “potential,” among others.

The factors that could cause our actual results to differ materially from the results projected in our forward-looking statements include, but are not limited to the following:

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

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

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

Market demand for new and existing products could decline;

Increased marketplace competition could hurt our business;

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

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

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

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

~~Risks~~International operations could fluctuate unexpectedly and ~~uncertainties related to our international operations and related growth targets could~~ adversely impact our business;

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

Future developments related to the investigation by government regulators of alleged pricing practices by members of the confectionery industry and civil antitrust lawsuits in the United States could negatively impact our reputation ~~the regulatory environment under which we operate,~~ and our operating results;

Pension costs or funding requirements could increase at a higher than anticipated rate;

~~Annual savings from initiatives to transform our supply chain and advance our value-enhancing strategy may be less than we expect;~~ and

Such other matters as discussed in our Annual Report on Form 10-K for ~~2011.~~2012.

3225

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The potential net loss in fair value of interest rate swap agreements of ten percent resulting from a hypothetical near-term adverse change in market rates was ~~$10.8~~$11.4 million as of ~~September 30,~~March 31, 2013 and was $11.0 million as of December 31, 2012. The potential net loss in fair value of foreign exchange forward contracts and options resulting from a hypothetical near-term adverse change in market rates of ten percent was ~~$9.7~~$7.8 million as of ~~September 30, 2012~~March 31, 2013 and was ~~$19.4~~$7.9 million as of December 31, ~~2011.~~2012. The market risk resulting from a hypothetical adverse market price movement of ten percent associated with the estimated average fair value of net commodity positions ~~decreased~~increased from ~~$41.3~~$4.4 million as of December 31, ~~2011,~~2012, to ~~$5.3~~$6.1 million as of ~~September 30, 2012.~~March 31, 2013. Market risk represents ten percent of the estimated average fair value of net commodity positions at four dates prior to the end of each period.

3326

PART II - OTHER INFORMATION

Items 1, 1A, 3, 4 and 5 have been omitted as not applicable.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Period
(a) Total Number
of Shares
Purchased

(b) Average Price
Paid
per Share

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

(d) Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans or
Programs
(in thousands of dollars)
July 2 through
July 29, 2012
—
—
— $ 125,069

July 30 through
August 26, 2012
3,565,080
72.17
— $ 125,069

August 27 through
September 30, 2012
302,000
72.55
— $ 125,069

Total 3,867,080
72.20
—



Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
					(in thousands of dollars)
January 1 through January 27, 2013	—	—		—	$	125,069

January 28 through February 24, 2013	1,085,966	$	80.74	—	$	125,069

February 25 through March 31, 2013	1,424,700	$	81.68	—	$	125,069

Total	2,510,666	$	81.27	—

In April 2011, our Board of Directors approved a new $250 million share repurchase program. As of ~~September 30, 2012,~~March 31, 2013, $125.1 million remained available for repurchases of our Common Stock.

~~Item 4 - Reserved~~

Item 6 - Exhibits

The following items are attached or incorporated herein by reference:



Exhibit Number		Description
10.1		Employee Confidentiality and Restrictive Covenant Agreement, amended as of February 18, 2013, is attached hereto and filed as Exhibit 10.1.
12.1		Statement showing computation of ratio of earnings to fixed charges for the ~~nine~~three months ended ~~September 30, 2012~~March 31, 2013 and ~~October 2, 2011.~~April 1, 2012.
31.1		Certification of John P. Bilbrey, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Humberto P. Alfonso, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of John P. Bilbrey, Chief Executive Officer, and Humberto P. Alfonso, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase

3427

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

THE HERSHEY COMPANY

(Registrant)



Date: ~~November 7, 2012~~May 8, 2013	/s/Humberto P. Alfonso
	Humberto P. Alfonso
	Chief Financial Officer

Date: ~~November 7, 2012~~May 8, 2013	/s/Richard M. McConville
	Richard M. McConville
	Chief Accounting Officer

3528



EXHIBIT INDEX
Exhibit 10.1	Employee Confidentiality and Restrictive Covenant Agreement, amended as of February 18, 2013
Exhibit 12.1	Computation of Ratio of Earnings to Fixed Charges
Exhibit 31.1	Certification of John P. Bilbrey, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Humberto P. Alfonso, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certification of John P. Bilbrey, Chief Executive Officer, and Humberto P. Alfonso, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INS	XBRL Instance Document
Exhibit 101.SCH	XBRL Taxonomy Extension Schema
Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase
Exhibit 101.LAB	XBRL Taxonomy Extension Label Linkbase
Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Linkbase
Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase

3629



In thousands of dollars	Purchase Price Allocation ⁽¹⁾			Estimated Useful Life
Goodwill	$	65,426		Indefinite
Trademarks	60,253			25
Other intangibles⁽²⁾	50,928			6	to	17
Other assets, net of liabilities assumed	23,468
Non-current deferred tax liabilities	(27,219		)
Purchase Price	$	172,856