UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

~~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 ~~October 4, 2015~~April 3, 2016



¨	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	¨	Smaller reporting company	¨
~~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~~registrant’s classes of common stock as of the latest practicable date.

Common Stock, $1one dollar par ~~value – 156,173,507~~value—152,753,106 shares, as of ~~October 23, 2015.~~April 22, 2016.

Class B Common Stock, $1one dollar par ~~value –~~ value—60,619,777 shares, as of ~~October 23, 2015.~~April 22, 2016.

THE HERSHEY COMPANY

Quarterly Report on Form 10-Q

For the Period Ended April 3, 2016

~~INDEX~~

TABLE OF CONTENTS




~~Part~~PART I. ~~Financial Information~~FINANCIAL INFORMATION	~~Page Number~~
	3
Item 1. Financial Statements		3

Consolidated Statements of Income for the Three ~~and Nine~~ Months Ended ~~October 4,~~April 3, 2016 and April 5, 2015 ~~and September 28, 2014~~		3

Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~October 4,~~April 3, 2016 and April 5, 2015 ~~and September 28, 2014~~		4

Consolidated Balance Sheets ~~at October 4, 2015~~as of April 3, 2016 and December 31, ~~2014~~2015		5

Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~October 4,~~April 3, 2016 and April 5, 2015 ~~and September 28, 2014~~		6

Consolidated Statement of Stockholders' Equity for the ~~Nine~~Three Months Ended ~~October 4, 2015~~April 3, 2016		7

Notes to Unaudited Consolidated Financial Statements		8

Item 2. ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations		3027

Item 3. Quantitative and Qualitative Disclosures About Market Risk		4441

Item 4. Controls and Procedures		4541

~~Part II. Other Information~~	46

~~Item 1.~~PART II. OTHER INFORMATION		43
Item1. Legal Proceedings		4643

Item 1A. Risk Factors		4643

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4643
Item 3. Defaults Upon Senior Securities		43
Item 4. Mine Safety Disclosures		43
Item 5. Other Information		43
Item 6. Exhibits		4644

Signatures		45

PART I -— FINANCIAL INFORMATION

Item 1. Financial ~~Statements~~Statements.

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)

Three Months Ended Nine Months Ended
October 4,
2015 September 28,
2014 October 4,
2015 September 28,
2014
Net sales $ 1,960,779
$ 1,961,578
$ 5,477,404
$ 5,411,741
Costs and expenses:
Cost of sales 1,068,715
1,101,441
2,949,089
2,962,640
Selling, marketing and administrative 500,306
485,097
1,469,861
1,379,843
Goodwill impairment 30,991
—
280,802
—
Business realignment charges 57,753
16,372
82,972
20,544
Total costs and expenses 1,657,765
1,602,910
4,782,724
4,363,027
Operating profit 303,014
358,668
694,680
1,048,714
Interest expense, net 46,967
20,773
85,046
62,792
Other (income) expense, net 9,409
(7,528 ) 4,328
1,448
Income before income taxes 246,638
345,423
605,306
984,474
Provision for income taxes 91,867
121,682
305,739
340,070
Net income $ 154,771
$ 223,741
$ 299,567
$ 644,404

Net income per share – basic:
Common stock $ 0.73
$ 1.03
$ 1.40
$ 2.97
Class B common stock $ 0.66
$ 0.94
$ 1.27
$ 2.68

Net income per share – diluted:
Common stock $ 0.70
$ 1.00
$ 1.35
$ 2.86
Class B common stock $ 0.66
$ 0.94
$ 1.28
$ 2.67

Dividends paid per share:
Common stock $ 0.583
$ 0.535
$ 1.653
$ 1.505
Class B common stock $ 0.530
$ 0.486
$ 1.502
$ 1.356

~~See Notes to Unaudited Consolidated Financial Statements.~~

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

~~(unaudited)~~

Three Months Ended Nine Months Ended
October 4,
2015 September 28,
2014 October 4,
2015 September 28,
2014
Net income $ 154,771
$ 223,741
$ 299,567
$ 644,404
Other comprehensive income, net of tax:
Foreign currency translation adjustments (26,631 ) (17,321 ) (51,681 ) (12,016 )
Pension and post-retirement benefit plans 9,969
3,624
20,896
10,784
Cash flow hedges:
(Losses) gains on cash flow hedging derivatives (43,914 ) (932 ) 21,023
26,849
Reclassification adjustments (6,214 ) (15,544 ) (17,711 ) (35,566 )
Total other comprehensive loss, net of tax (66,790 ) (30,173 ) (27,473 ) (9,949 )
Total comprehensive income $ 87,981
$ 193,568
272,094
634,455
Comprehensive (gain) loss attributable to noncontrolling interests (820 ) —
2,111
—
Comprehensive income attributable to The Hershey Company $ 87,161
$ 193,568
$ 274,205
$ 634,455



	Three Months Ended
	April 3, 2016			April 5, 2015
Net sales	$	1,828,812		$	1,937,800
Costs and expenses:
Cost of sales	1,011,436			1,036,957
Selling, marketing and administrative	471,734			514,010
Business realignment charges	6,133			2,667
Total costs and expenses	1,489,303			1,553,634
Operating profit	339,509			384,166
Interest expense, net	21,005			19,202
Other (income) expense, net	(21,225		)	(9,840		)
Income before income taxes	339,729			374,804
Provision for income taxes	109,897			130,067
Net income	$	229,832		$	244,737

Net income per share—basic:
Common stock	$	1.09		$	1.14
Class B common stock	$	0.99		$	1.04

Net income per share—diluted:
Common stock	$	1.06		$	1.10
Class B common stock	$	0.99		$	1.03

Dividends paid per share:
Common stock	$	0.583		$	0.535
Class B common stock	$	0.530		$	0.486

See Notes to Unaudited Consolidated Financial Statements.

THE HERSHEY COMPANY

CONSOLIDATED ~~BALANCE SHEETS~~
STATEMENTS OF COMPREHENSIVE INCOME

(in ~~thousands except share data)~~thousands)

(unaudited)

October 4,
2015 December 31,
2014
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 343,913
$ 374,854
Short-term investments —
97,131
Accounts receivable – trade, net 760,789
596,940
Inventories 813,583
801,036
Deferred income taxes 99,628
100,515
Prepaid expenses and other 191,417
276,571
Total current assets 2,209,330
2,247,047
Property, plant and equipment, net 2,187,736
2,151,901
Goodwill 689,684
792,955
Other intangible assets 388,747
294,841
Other assets 155,123
142,772
Total assets $ 5,630,620
$ 5,629,516
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 448,599
$ 482,017
Accrued liabilities 807,621
813,513
Accrued income taxes 40,619
4,616
Short-term debt 687,981
384,696
Current portion of long-term debt 250,421
250,805
Total current liabilities 2,235,241
1,935,647
Long-term debt 1,830,186
1,548,963
Other long-term liabilities 504,972
526,003
Deferred income taxes 123,095
99,373
Total liabilities 4,693,494
4,109,986

Stockholders' equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none at October 4, 2015 and December 31, 2014, respectively —
—
Common stock, shares issued: 299,281,967 and
    299,281,967 at October 4, 2015 and December 31, 2014, respectively
299,281
299,281
Class B common stock, shares issued: 60,619,777 and
    60,619,777 at October 4, 2015 and December 31, 2014, respectively
60,620
60,620
Additional paid-in capital 771,074
754,186
Retained earnings 5,807,281
5,860,784
Treasury – common stock shares, at cost: 143,155,476 and
    138,856,786 at October 4, 2015 and December 31, 2014, respectively
(5,665,708 ) (5,161,236 )
Accumulated other comprehensive loss (383,935 ) (358,573 )
The Hershey Company stockholders’ equity 888,613
1,455,062
Noncontrolling interests in subsidiaries 48,513
64,468
Total stockholders' equity 937,126
1,519,530
Total liabilities and stockholders' equity $ 5,630,620
$ 5,629,516



	Three Months Ended
	April 3, 2016			April 5, 2015
Net income	$	229,832		$	244,737
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	12,166			(27,718		)
Pension and post-retirement benefit plans	5,101			5,461
Cash flow hedges:
Losses on cash flow hedging derivatives	(22,144		)	(26,092		)
Reclassification adjustments	(4,912		)	(399		)
Total other comprehensive loss, net of tax	(9,789		)	(48,748		)
Total comprehensive income	$	220,043		$	195,989
Comprehensive loss attributable to noncontrolling interests	1,076			3,509
Comprehensive income attributable to The Hershey Company	$	221,119		$	199,498

See Notes to Unaudited Consolidated Financial Statements.

THE HERSHEY COMPANY

CONSOLIDATED ~~STATEMENTS OF CASH FLOWS~~
BALANCE SHEETS

(in ~~thousands)~~

~~(unaudited)~~thousands, except share data)

Nine Months Ended
October 4,
2015 September 28,
2014
Operating Activities
Net income $ 299,567
$ 644,404
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 182,855
153,006
Stock-based compensation expense 39,989
41,759
Excess tax benefits from stock-based compensation (22,966 ) (46,222 )
Deferred income taxes (10,385 ) (10,031 )
Non-cash business realignment and impairment charges 283,469
13,340
Contributions to pension and other benefit plans (45,187 ) (41,446 )
Loss on early extinguishment of debt 28,326
—
Write-down of equity investments 13,895
—
Changes in assets and liabilities, net of effects from business acquisitions and divestitures:
Accounts receivable - trade (186,156 ) (217,114 )
Inventories (2,064 ) (165,205 )
Accounts payable and accrued liabilities (55,890 ) (23,053 )
Other assets and liabilities 62,411
37,995
Net cash provided by operating activities 587,864
387,433
Investing Activities
Capital additions (220,782 ) (214,259 )
Capitalized software additions (17,111 ) (18,007 )
Proceeds from sales of property, plant and equipment 1,184
655
Proceeds from sale of business 32,408
—
Equity investments in tax credit qualifying partnerships (3,775 ) —
Business acquisitions, net of cash and cash equivalents acquired (218,654 ) (362,447 )
Sale (purchase) of short-term investments 95,316
(98,309 )
Net cash used in investing activities (331,414 ) (692,367 )
Financing Activities
Net increase in short-term debt 336,851
381,352
Long-term borrowings 599,031
1,348
Repayment of long-term debt (351,042 ) (1,075 )
Cash dividends paid (353,070 ) (325,156 )
Exercise of stock options 63,623
100,526
Excess tax benefits from stock-based compensation 22,966
46,222
Contributions from noncontrolling interest —
2,940
Purchase of noncontrolling interest (38,270 ) —
Repurchase of common stock (567,480 ) (542,643 )
Net cash used in financing activities (287,391 ) (336,486 )
Decrease in cash and cash equivalents (30,941 ) (641,420 )
Cash and cash equivalents, beginning of period 374,854
1,118,508
Cash and cash equivalents, end of period $ 343,913
$ 477,088
Supplemental Disclosure
Interest paid (excluding loss on early extinguishment of debt in 2015) $ 71,124
$ 73,002
Income taxes paid $ 256,610
$ 278,775



	April 3, 2016			December 31, 2015
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	285,958		$	346,529
Accounts receivable—trade, net	544,027			599,073
Inventories	770,382			750,970
Prepaid expenses and other	172,551			152,026
Total current assets	1,772,918			1,848,598
Property, plant and equipment, net	2,230,071			2,240,460
Goodwill	690,654			684,252
Other intangibles	375,309			379,305
Other assets	185,104			155,366
Deferred income taxes	51,784			36,390
Total assets	$	5,305,840		$	5,344,371
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	436,343		$	474,266
Accrued liabilities	769,793			856,967
Accrued income taxes	110,256			23,243
Short-term debt	520,564			363,513
Current portion of long-term debt	500,016			499,923
Total current liabilities	2,336,972			2,217,912
Long-term debt	1,571,388			1,557,091
Other long-term liabilities	465,523			468,718
Deferred income taxes	52,604			53,188
Total liabilities	4,426,487			4,296,909

Stockholders’ equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none at April 3, 2016 and December 31, 2015, respectively	—			—
Common stock, shares issued: 299,281,967 at April 3, 2016 and 299,281,967 at December 31, 2015, respectively	299,281			299,281
Class B common stock, shares issued: 60,619,777 at April 3, 2016 and 60,619,777 at December 31, 2015, respectively	60,620			60,620
Additional paid-in capital	792,620			783,877
Retained earnings	6,005,068			5,897,603
Treasury—common stock shares, at cost: 145,772,541 at April 3, 2016 and 143,124,384 at December 31, 2015, respectively	(5,946,412		)	(5,672,359		)
Accumulated other comprehensive loss	(379,738		)	(371,025		)
The Hershey Company stockholders’ equity	831,439			997,997
Noncontrolling interests in subsidiaries	47,914			49,465
Total stockholders’ equity	879,353			1,047,462
Total liabilities and stockholders’ equity	$	5,305,840		$	5,344,371

See Notes to Unaudited Consolidated Financial Statements.

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Three Months Ended
	April 3, 2016			April 5, 2015
Operating Activities
Net income	$	229,832		$	244,737
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	59,913			58,338
Stock-based compensation expense	11,678			13,889
Excess tax benefits from stock-based compensation	(6,091		)	(17,066		)
Deferred income taxes	(3,409		)	(11,577		)
Non-cash business realignment and impairment charges	—			4,934
Contributions to pension and other benefits plans	(8,839		)	(5,307		)
Write-down of equity investments	5,593			—
Gain on settlement of SGM liability (see Note 2)	(26,650		)	—
Changes in assets and liabilities, net of effects from business acquisitions and divestitures:
Accounts receivable—trade, net	55,046			(5,965		)
Inventories	(19,412		)	79,220
Accounts payable and accrued liabilities	(106,279		)	(124,585		)
Other assets and liabilities	65,733			22,615
Net cash provided by operating activities	257,115			259,233
Investing Activities
Capital additions	(33,607		)	(57,781		)
Capitalized software additions	(7,832		)	(4,954		)
Proceeds from sales of property, plant and equipment	1,934			214
Proceeds from sale of business	—			32,408
Equity investments in tax credit qualifying partnerships	(9,672		)	—
Business acquisitions, net of cash and cash equivalents acquired	—			(218,952		)
Net cash used in investing activities	(49,177		)	(249,065		)
Financing Activities
Net increase in short-term debt	153,863			288,946
Long-term borrowings	—			944
Repayment of long-term debt	—			(328		)
Payment of SGM liability (see Note 2)	(35,762		)	—
Cash dividends paid	(122,367		)	(114,381		)
Exercise of stock options	30,890			37,925
Excess tax benefits from stock-based compensation	6,091			17,066
Repurchase of common stock	(303,950		)	(306,673		)
Net cash used in financing activities	(271,235		)	(76,501		)
Effect of exchange rate changes on cash and cash equivalents	2,726			(2,831		)
Decrease in cash and cash equivalents	(60,571		)	(69,164		)
Cash and cash equivalents, beginning of period	346,529			374,854
Cash and cash equivalents, end of period	$	285,958		$	305,690
Supplemental Disclosure
Interest paid	$	27,786		$	27,745
Income taxes paid	29,574			17,845

See Notes to Unaudited Consolidated Financial Statements.

THE HERSHEY COMPANY

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

Preferred
Stock Common
Stock Class B
Common
Stock Additional
Paid-in
Capital Retained
Earnings Treasury
Common
Stock Accumulated Other
Comprehensive
Loss Noncontrolling
Interests in
Subsidiaries Total
Stockholders’
Equity
Balance, December 31, 2014 $ —
$ 299,281
$ 60,620
$ 754,186
$ 5,860,784
$ (5,161,236 ) $ (358,573 ) $ 64,468
$ 1,519,530
Net income 299,567
299,567
Other comprehensive income (loss) (25,362 ) (2,111 ) (27,473 )
Dividends:
Common stock, $1.653 per share (262,019 ) (262,019 )
Class B common stock, $1.502 per share (91,051 ) (91,051 )
Stock-based compensation 38,227
38,227
Exercise of stock options and incentive-based transactions 7,896
63,008
70,904
Repurchase of common stock (567,480 ) (567,480 )
Impact of reclassification to and purchase of redeemable noncontrolling interest (29,235 ) (13,428 ) (42,663 )
Income attributed to noncontrolling interest (416 ) (416 )
Balance, October 4, 2015 $ —
$ 299,281
$ 60,620
$ 771,074
$ 5,807,281
$ (5,665,708 ) $ (383,935 ) $ 48,513
$ 937,126



	Preferred Stock		Common Stock		Class B Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Common Stock			Accumulated Other Comprehensive Loss			Noncontrolling Interests in Subsidiaries			Total Stockholders’ Equity
Balance, December 31, 2015	$	—	$	299,281	$	60,620	$	783,877		$	5,897,603		$	(5,672,359	)	$	(371,025	)	$	49,465		$	1,047,462
Net income										229,832												229,832
Other comprehensive loss																(8,713		)	(1,076		)	(9,789		)
Dividends:
Common Stock, $0.583 per share										(90,238		)										(90,238		)
Class B Common Stock, $0.53 per share										(32,129		)										(32,129		)
Stock-based compensation							11,693															11,693
Exercise of stock options and incentive-based transactions							(2,950		)				29,897									26,947
Repurchase of common stock													(303,950		)							(303,950		)
Net loss attributable to noncontrolling interests																			(475		)	(475		)
Balance, April 3, 2016	$	—	$	299,281	$	60,620	$	792,620		$	6,005,068		$	(5,946,412	)	$	(379,738	)	$	47,914		$	879,353

See Notes to Unaudited Consolidated Financial Statements.

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited consolidated financial statements provided in this report include the accounts of The Hershey Company (the “Company,” “Hershey,” “we” or “us”) 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.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not contain certain information and disclosures required by GAAP for comprehensive 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 have included all adjustments (consisting only of normal recurring accruals) that we believe are considered necessary for a fair presentation.

Operating results for the quarter ended ~~October 4, 2015~~April 3, 2016 may not be indicative of the results that may be expected for the year ending December 31, ~~2015~~2016 because of seasonal effects on our business. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2014~~2015 (our ~~“2014~~“2015 Annual Report on Form 10-K”), which provides a more complete understanding of our accounting policies, financial position, operating results and other matters.

~~Other (Income) Expense, net~~Reclassifications

In the second quarter of 2015, we began presenting a new non-operating "other (income) expense, net" classification to report certain gains and losses associated with activities not directly related to our core operations. For the three and nine month periods ended September 28, 2014, weCertain prior period amounts have been reclassified ~~from selling, marketing and administrative expenses to other (income) expense, net total net gains of $7,528 and net losses of $1,448, respectively,~~ to conform to ~~the~~ current year presentation. ~~After considering these reclassifications,~~Specifically, this includes amounts ~~reflected~~presented in ~~other~~our “other (income) expense, ~~net include~~net” caption included in our Consolidated Statements of Income and the ~~following:~~

Three Months Ended Nine Months Ended
October 4,
2015 September 28,
2014 October 4,
2015 September 28,
2014
Gain on sale of non-core trademark $ —
$ —
$ (9,950 ) $ —
Write-down of equity investments in partnerships qualifying for tax credits (see Note 13) 9,249
—
13,893
—
Foreign currency exchange (gain) loss relating to strategy to cap Shanghai Golden Monkey acquisition price as denominated in U.S. dollars —
(7,565 ) —
5,544
Gain on acquisition of controlling interest in Lotte Shanghai Food Company —
—
—
(4,628 )
Other losses, net 160
37
385
532
Total $ 9,409
$ (7,528 ) $ 4,328
$ 1,448
“effect of exchange rate changes on cash and cash equivalents” included in our Consolidated Statements of Cash Flows.

Recent Accounting Pronouncements

In ~~May 2014,~~March 2016, the Financial Accounting Standards Board ~~(“FASB”~~("FASB") issued Accounting Standards Update ~~(“ASU”~~("ASU") No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU is part of the FASB's simplification initiative. The areas for simplification in this ASU involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods, with early adoption permitted. We are currently evaluating the impact that the adoption of ASU 2016-09 will have on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU will require lesses to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. This ASU also requires certain quantitative and qualitative disclosures. Accounting guidance for lessors is largely unchanged. The amendments should be applied on a modified retrospective basis. ASU 2016-02 is effective for us beginning January 1, 2019. We are beginning to evaluate the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard was originally effective for us on January 1, 2017; however, in July 2015 the FASB decided to defer the effective date by one year. Early application is not permitted, but reporting entities may choose to

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

adopt the standard as of the original effective date. The standard permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating the effect that ASU No. 2014-09 will have on our consolidated financial statements and related disclosures, our transition date and transition method.

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~In April 2015, the FASB issued ASU No. 2015-03,~~ ~~Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. ASU No. 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the~~

balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. Retrospective application is required and early adoption is permitted. The adoption of ASU No. 2015-03 is not expected to have a significant impact on our consolidated financial statements or related disclosures.

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

2. BUSINESS ACQUISITIONS AND DIVESTITURES

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

2016 Activity

Ripple Brand Collective, LLC

On April 26, 2016, we completed the acquisition of all of the outstanding shares of Ripple Brand Collective, LLC, a privately held company based in Congers, New York that owns the barkTHINS mass premium chocolate snacking brand. The barkTHINS brand is largely sold in the United States in take-home resealable packages and is available in the club channel, as well as select natural and conventional grocers.

Shanghai Golden Monkey (“SGM”)

On February 3, 2016, we completed the purchase of the remaining 20% of the outstanding shares of SGM for cash consideration totaling $35,762, pursuant to a new agreement entered into during the fourth quarter of 2015 with the SGM selling shareholders which revised the originally-agreed purchase price for these shares. For accounting purposes, we treated the acquisition as if we had acquired 100% at the initial acquisition date in 2014 and financed the payment for the remaining 20% of the outstanding shares. Therefore, the cash settlement of the liability for the purchase of these remaining shares is reflected within the financing section of the Unaudited Consolidated Statements of Cash Flows.

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

2015 Acquisition

KRAVE Pure Foods

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

Total purchase consideration ~~includes~~included cash consideration ~~paid to date~~ of $220,016, as well as agreement to pay additional cash consideration of up to $20,000 to the Krave shareholders if certain defined targets related to net sales and gross profit margin are met or exceeded during the twelve-month periods ending December 31, 2015 or March 31, 2016. The fair value of the contingent cash consideration ~~estimated to be~~was appropriately classified as a liability of $16,800 as of the acquisition ~~date, was recorded~~date. Based on revised targets in ~~accrued liabilities in~~a subsequent agreement with the ~~Consolidated Balance Sheet. During the third quarter of 2015,~~Krave shareholders, the fair value ~~of the contingent consideration~~ was reduced over the second and third quarters of 2015 to ~~$12,000,~~$10,000, with the adjustment to fair value recorded within selling, marketing and administrative expenses. The remaining $10,000 was paid in December 2015.

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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



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

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

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

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~Updates to 2014 Acquisitions~~

A more complete description of our acquisition activity for the year ended December 31, 2014 can be found in Note 2 to the Consolidated Financial Statements included in our 2014 Annual Report on Form 10-K.

~~Shanghai Golden Monkey Food Joint Stock Co., Ltd. (“SGM”)~~

At December 31, 2014, we had recorded a receivable of $37,860, reflecting our best estimate of the amount due from the selling SGM shareholders for the working capital and net debt adjustments. In addition, at December 31, 2014, we had recorded a liability of $100,067, reflecting the value of the future payment to be made to the SGM shareholders for the remaining 20% of the outstanding shares of SGM. Such amounts were recorded in the Consolidated Balance Sheets within prepaid expenses and other and accrued liabilities, respectively.

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

During the third quarter, we continued our procedures to assess the quality of acquired trade accounts receivable. We also undertook procedures to further evaluate and quantify outstanding pre-acquisition trade promotion commitments to distributors, as well as allowances for returns and discounts related to excess and unsalable inventory held at distributors and sales branches as of the acquisition date. In addition, we concluded on our procedures to estimate the value of pre-acquisition indirect tax contingencies. As a result of these procedures, during the third quarter, we increased the value of acquired goodwill by $16,599, with the corresponding offset principally represented by the establishment of additional opening balance sheet liabilities for the aforementioned commitments and contingencies.

Based on all of the information obtained through the procedures noted previously, we updated our estimates of the acquisition-date fair values of the net assets acquired as of September 26, 2015, the conclusion of the one-year measurement period. Any subsequent revisions to the valuation of net assets will be reflected in current results. A roll-forward of the estimated acquisition-date fair values at December 31, 2014 to the final acquisition-date fair values as of September 26, 2015, the conclusion of the one-year measurement period, is as follows:

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


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

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~Goodwill impairment - SGM reporting unit~~

As discussed in the second quarter, since the initial acquisition in 2014, the SGM business has performed below expectations, with net sales and earnings levels well below pre-acquisition levels. In addition, as part of our ongoing integration process, we continued to assess the quality of SGM’s accounts receivable and existing distributor networks. Based on the declining performance levels and the results of our assessment to date, we determined that an interim impairment test of the SGM reporting unit was required by U.S. generally accepted accounting principles. We performed the first step of this test as of July 5, 2015 using an income approach based on our estimates of future performance scenarios for the business. The results of this test indicated that the fair value of the reporting unit was less than the carrying amount as of the measurement date, suggesting that a goodwill impairment was probable, which required us to perform a second step analysis to confirm that an impairment exists and to determine the amount of the impairment based on our reassessed value of the reporting unit. Although preliminary, as a result of this reassessment, in the second quarter of 2015 we recorded an estimated $249,811 non-cash goodwill impairment charge, representing a write-down of all of the goodwill related to the SGM reporting unit as of July 5, 2015.

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

The timing and terms of the acquisition of the remaining 20% of SGM will be informed by the results of our ongoing negotiation, and we are evaluating all potential options to protect the Company's interests. Going forward, we continue to evaluate SGM's cost structure as well as alternative integration scenarios to improve performance to enable us to implement upon our strategy of leveraging the Golden Monkey's sales force and distributor network to expand sales of our Hershey's products in the China marketplace.

~~Goodwill impairment - China chocolate reporting unit~~

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

~~The Allan Candy Company Limited (“Allan”)~~

During the nine months ended October 4, 2015, we increased goodwill by $1,820 to recognize revisions to the preliminary fair value of net assets acquired. The purchase price allocation for Allan was concluded in the second quarter of 2015.

~~Pro forma results of operations have not been presented for the above-mentioned acquisitions, as the impact on our consolidated financial statements is not considered to be material.~~

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

2015 Divestiture

~~Mauna Loa Macadamia Nut Corporation (“Mauna Loa”)~~

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

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

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

3. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying value of goodwill by reportable segment for the ~~nine~~three months ended ~~October 4, 2015~~April 3, 2016 are as follows:

North America International and Other Total
Balance at December 31, 2014 $ 533,349
$ 259,606
$ 792,955
Acquired during the period 147,334
—
147,334
Purchase price allocation adjustments 1,575
46,203
47,778
Impairment —
(280,802 ) (280,802 )
Foreign currency translation (15,094 ) (2,487 ) (17,581 )
Balance at October 4, 2015 $ 667,164
$ 22,520
$ 689,684



	North America		International and Other			Total
Balance at December 31, 2015	$	662,083	$	22,169		$	684,252
Foreign currency translation	6,471		(69		)	6,402
Balance at April 3, 2016	$	668,554	$	22,100		$	690,654

~~The $280,802 impairment charge noted above resulted from our reassessment of the valuation of the SGM business, coupled with the write-down of goodwill attributed to the China chocolate business~~

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in ~~connection with the SGM acquisition. See Note 2 for additional information.~~thousands, except share data or if otherwise indicated)

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


	October 4, 2015			December 31, 2014			April 3, 2016			December 31, 2015
Intangible assets not subject to amortization:
Trademarks	$	43,962		$	45,000		43,738			43,775
Intangible assets subject to amortization:
Trademarks, customer relationships, patents and other finite-lived intangibles	395,365			295,375			393,146			390,900
Less: accumulated amortization	(50,580		)	(45,534		)	(61,575		)	(55,370		)
Total other intangible assets	$	388,747		$	294,841		$	375,309		$	379,305

Total amortization expense for the ~~nine~~three months ended ~~October 4,~~April 3, 2016 and April 5, 2015 was $5,180 and ~~September 28, 2014 was $16,469 and $7,586,~~$5,014, respectively.

4. ~~DEBT~~SHORT AND ~~FINANCING ARRANGEMENTS~~LONG-TERM DEBT

Short-term Debt

As a source of short-term financing, we utilize cash on hand and commercial paper or bank loans with an original maturity of three months or less. We maintain a $1.0 billion unsecured revolving credit facility, which currently expires in November ~~2019. At October 4, 2015, we had outstanding commercial paper totaling $345,969, at a weighted average interest rate~~2020. The agreement also includes an option to increase borrowings by an additional $400,000 with the consent of ~~0.15%. At December 31, 2014, we had outstanding commercial paper totaling $54,995, at a weighted average interest rate of 0.09%.~~the lenders.

The credit agreement contains certain financial and other covenants, customary representations, warranties and events of default. As of ~~October 4, 2015,~~April 3, 2016, we were in compliance with all covenants pertaining to the credit agreement, and we had no significant compensating balance agreements that legally restricted these funds. For more information, refer to the Consolidated Financial Statements included in our ~~2014~~2015 Annual Report on Form 10-K.

In addition to the revolving credit facility, we maintain lines of credit with domestic and international commercial banks. We had short-term foreign bank loans against these lines of credit for ~~$342,012~~$219,622 and ~~$329,701 at October 4, 2015~~$313,520 in April 3, 2016 and December 31, ~~2014,~~2015, respectively. Commitment fees relating to our revolving credit facility and lines of credit are not material.

At April 3, 2016, we had outstanding commercial paper totaling $300,942, at a weighted average interest rate of 0.39%. At December 31, 2015, we had outstanding commercial paper totaling $49,993, at a weighted average interest rate of 0.40%.

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Long-term Debt

In August 2015, we repaid $250,000 of 4.85% Notes due in 2015 at maturity with commercial paper. Also in August 2015, we issued $300,000 of 1.60% Notes due in 2018 and $300,000 of 3.20% Notes due in 2025 (the “Notes”), using the proceeds from these Notes to fund the cash tender offer, noted below, and for other general corporate purposes, including the repayment of a portion of our commercial paper borrowings. The Notes were issued under a shelf registration statement on Form S-3 filed in June 2015 that registered an indeterminate amount ofLong-term debt ~~securities.~~

In August 2015, we paid $100,165 to repurchase $71,646 of our long-term debt as part of a cash tender offer, consisting of $15,285 of our 8.80% Debentures due in 2021 and $56,361 of our 7.20% Debentures due in 2027. As a resultconsisted of the ~~repurchase, we recorded within interest expense a pre-tax loss on early extinguishment of debt of $28,326, representing the premiums and fees paid for the tender offer.~~following:

In connection with the tender offer, we terminated interest rate swaps with notional amounts totaling $100,000, which were designated as fair value hedges for the $100,000 of 8.80% Debentures due in 2021. The portion of the gain upon termination that related to the tendered bonds, or $278, was recognized currently as a component of the loss on early extinguishment of debt, while the remaining gain of $1,539 will be amortized to interest expense over the remaining term of the outstanding bonds.



	April 3, 2016		December 31, 2015
5.45% Notes due 2016	250,000		250,000
1.50% Notes due 2016	250,000		250,000
1.60% Notes due 2018	300,000		300,000
4.125% Notes due 2020	350,000		350,000
8.8% Debentures due 2021	84,715		84,715
2.625% Notes due 2023	250,000		250,000
3.20% Notes due 2025	300,000		300,000
7.2% Debentures due 2027	193,639		193,639
Other obligations, net of debt issuance costs and unamortized debt discount	93,050		78,660
Total long-term debt	2,071,404		2,057,014
Less—current portion	500,016		499,923
Long-term portion	$	1,571,388	$	1,557,091

Interest Expense

Net interest expense consisted of the following:


	Three Months Ended						Nine Months Ended						Three Months Ended
	October 4, 2015			September 28, 2014			October 4, 2015			September 28, 2014			April 3, 2016			April 5, 2015
Interest expense	$	22,590		$	23,441		$	68,874		$	69,839		$	23,525		$	23,024
Loss on extinguishment of debt	28,326			—			28,326			—
Less: Capitalized interest													(2,175		)	(3,017		)
Interest expense													21,350			20,007
Interest income	(878		)	(1,125		)	(2,840		)	(3,209		)	(345		)	(805		)
Capitalized interest	(3,071		)	(1,543		)	(9,314		)	(3,838		)
Interest expense, net	$	46,967		$	20,773		$	85,046		$	62,792		$	21,005		$	19,202

5. ~~FINANCIAL~~DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASUREMENTS

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

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

We also use derivatives that do not qualify for hedge accounting treatment. We account for such derivatives at market value with the resulting gains and losses reflected in the income statement. We do not hold or issue derivative instruments for trading or speculative purposes.

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

Commodity Price Risk

We enter into commodities futures and options contracts and other commodity derivative instruments to reduce the effect of future price fluctuations associated with the purchase of raw materials, energy requirements and transportation services. We generally hedge commodity price risks for 3- to 24-month periods. ~~The~~Through 2015, we designated the majority of our commodity derivative instruments ~~meet hedge accounting requirements and are designated~~ as cash flow ~~hedges.~~hedges under the hedge accounting requirements. We account for the effective portion of mark-to-market gains and losses on commodity derivative instruments in other comprehensive income, to be recognized in cost of sales in the same period that we record the hedged raw material requirements in cost of sales. The ineffective portion of gains and losses is recorded currently in

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

cost of sales. Cocoa commodity derivatives did not qualify for hedge accounting treatment as of the beginning of the third quarter of 2015. Therefore, changes in the fair value of these derivatives were recorded as incurred within cost of sales for the third and fourth quarters of 2015.

Effective July 6, 2015 for cocoa commodity derivatives and January 1, 2016 for other commodity derivatives, we are no longer electing to designate any of our existing or new cocoa or other commodity derivatives for hedge accounting treatment. Additionally, we have revised our definition of segment income to exclude gains and losses on commodity derivatives until the related inventory is sold. This change to our definition of segment income will continue to reflect the derivative gains and losses with the underlying economic exposure being hedged and thereby eliminate the mark-to-market volatility within our reported segment income.

Foreign Exchange Price Risk

We are exposed to foreign currency exchange rate risk related to our international operations, including non-functional currency intercompany debt and other non-functional currency transactions of certain subsidiaries. Principal currencies hedged include the euro, Canadian dollar, Malaysian ringgit, Swiss franc, Chinese renminbi, Japanese yen, ~~Mexican peso~~ and Brazilian real. We typically utilize foreign currency forward exchange contracts and options to hedge these exposures for ~~periods ranging from 3~~3- to ~~24 months.~~24-month periods. The contracts are either designated as cash flow hedges or are undesignated. The net notional amount of foreign exchange contracts accounted for as cash flow hedges was ~~$14,532~~$53,646 at ~~October 4, 2015~~April 3, 2016 and ~~$22,725~~$10,752 at December 31, ~~2014.~~2015. The effective portion of the changes in fair value on these contracts is recorded in other comprehensive income and reclassified into earnings in the same period in which the hedged transactions affect earnings. The net notional amount of foreign exchange contracts that are not designated as accounting hedges was $2,791 at ~~October 4, 2015~~April 3, 2016 and ~~$4,144~~$2,791 at December 31, ~~2014.~~2015. The change in fair value on these instruments is recorded directly in cost of sales or selling, marketing and administrative expense, depending on the nature of the underlying exposure.

Interest Rate Risk

In order to manage interest rate exposure, ~~from time to time~~ we enter into interest rate swap agreements ~~that effectively convert variable~~to protect against unfavorable interest rate changes relating to forecasted debt ~~to a fixed interest rate.~~transactions. These swaps are designated as cash flow hedges, with gains and losses deferred in other comprehensive income to be recognized as an adjustment to interest expense in the same period that the hedged interest payments affect earnings. The notional amount of interest rate derivative instruments in cash flow hedging relationships was $500,000 at ~~October 4, 2015~~April 3, 2016 and ~~$750,000~~$500,000 at December 31, ~~2014.~~2015.

We also manage our targeted mix of fixed and floating rate debt with debt issuances and by entering into fixed-to-floating interest rate swaps in order to mitigate fluctuations in earnings and cash flows that may result from interest rate volatility. These swaps are designated as fair value hedges, for which the gain or loss on the derivative and the offsetting loss or gain on the hedged item are recognized in current earnings as interest expense (income), net. The notional amount, interest ~~rate~~payment and maturity date of these swaps generally match the principal, interest payment and maturity date of the related debt, and the swaps are valued using observable benchmark rates (Level 2 valuation). The notional amount of interest rate derivative instruments in fair value hedge relationships was $350,000 at ~~October 4, 2015 and $450,000~~April 3, 2016. We had $350,000 derivative instruments in fair value hedge relationships at December 31, ~~2014.~~2015.

Equity Price Risk

We are exposed to market price changes in certain broad market indices related to our deferred compensation obligations to our employees. We use equity swap contracts to hedge the portion of the exposure that is linked to market-level equity returns. These contracts are not designated as hedges for accounting purposes and are entered into for ~~periods of 3~~3- to ~~12 months.~~12-month periods. The change in fair value of these derivatives is recorded in selling, marketing and administrative expense, together with the change in the related liabilities. The notional amount of the contracts outstanding at April 3, 2016 was ~~$23,277 and $26,417 at October 4, 2015 and December 31, 2014, respectively.~~$22,672.

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Fair Value

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

Level 1 – Based on unadjusted quoted prices for identical assets or liabilities in an active market.

Level 2 – Based on observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3 – Based on unobservable inputs that reflect the entity's own assumptions about the assumptions that a market participant would use in pricing the asset or liability.

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

The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheet on a recurring basis as of ~~October 4, 2015~~April 3, 2016 and December 31, ~~2014:~~2015:


	October 4, 2015				December 31, 2014				April 3, 2016				December 31, 2015
	Assets (1)		Liabilities (1)		Assets (1)		Liabilities (1)		Assets (1)		Liabilities (1)		Assets (1)		Liabilities (1)
Derivatives designated as cash flow hedging instruments:
Commodities futures and options (2)	$	—	$	767	$	—	$	9,944	$	—	$	—	$	—	$	479
Foreign exchange contracts (3)	1,792		883		2,196		2,447		345		4,132		367		475
Interest rate swap agreements (4)	—		46,095		—		29,505		—		70,092		—		40,299
Cross-currency swap agreement (5)	—		—		2,016		—
	1,792		47,745		4,212		41,896		345		74,224		367		41,253
Derivatives designated as fair value hedging instruments:
Interest rate swap agreements (4)	13,952		—		1,746		—		16,236		—		4,313		—

Derivatives not designated as hedging instruments:
Commodities futures and options (2)									—		13,678		—		1,574
Deferred compensation derivatives ~~(6)~~(5)	—		1,404		1,074		—		403		—		1,198		—
Foreign exchange contracts (3)	56		—		4,049		2,334		—		172		69		—
	56		1,404		5,123		2,334		403		13,850		1,267		1,574
Total	$	15,800	$	49,149	$	11,081	$	44,230	$	16,984	$	88,074	$	5,947	$	42,827


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

(2)

The fair value of commodities futures and options contracts is based on quoted market prices and is, therefore, categorized as Level 1 within the fair value hierarchy. As of ~~October 4, 2015, accrued~~April 3, 2016, liabilities ~~reflects~~include the net of assets of ~~$63,953~~$56,866 and ~~accrued~~ liabilities of ~~$64,720~~$68,030 associated with cash transfers receivable or payable on commodities futures contracts reflecting the change in quoted market prices on the last trading day for the period. The comparable amounts reflected on a net basis in ~~accrued~~ liabilities at December 31, ~~2014~~2015 were assets of ~~$51,225~~$54,090 and ~~accrued~~ liabilities of ~~$56,840. At December 31, 2014, the amount reflected in accrued liabilities also included the fair value of options contracts and other non-exchange traded derivative instruments.~~$54,860.

(3)

The fair value of foreign currency forward exchange contracts is the difference between the contract and current market foreign currency exchange rates at the end of the period. We estimate the fair value of foreign currency forward exchange contracts on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences. These contracts are classified as Level 2 within the fair value hierarchy.

(4)

The fair value of interest rate swap agreements represents the difference in the present value of cash flows calculated at the contracted interest rates and at current market interest rates at the end of the period. We calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the same or similar financial instruments. Such contracts are categorized as Level 2 within the fair value hierarchy.

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the same or similar financial instruments. Such contracts are categorized as Level 2 within the fair value hierarchy.


(5)	The fair value of the cross-currency swap agreement is categorized as Level 2 within the fair value hierarchy and is estimated based on the difference between the contract and current market foreign currency exchange rates at the end of the period. The cross-currency swap was settled in the third quarter of 2015, commensurate with our purchase of the noncontrolling interest of Hershey do Brazil.


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

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~Fair Value of~~ Other Financial Instruments

The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and short-term debt approximated fair value as of ~~October 4, 2015~~April 3, 2016 and December 31, ~~2014~~2015 because of the relatively short maturity of these instruments.

~~The carrying value of long-term debt, including the current portion, was $2,080,607 as of October 4, 2015, compared with a fair value of $2,231,635.~~ The estimated fair value of our long-term debt is based on quoted market prices for similar debt issues and is, therefore, classified as Level 2 within the valuation hierarchy. The fair values and carrying values of long-term debt, including the current portion, was as follows:



	Fair Value				Carrying Value
	April 3, 2016		December 31, 2015		April 3, 2016		December 31, 2015
Current portion of long-term debt	$	504,835	$	509,580	$	500,016	$	499,923
Long-term debt	1,733,643		1,668,379		1,571,388		1,557,091
Total	$	2,238,478	$	2,177,959	$	2,071,404	$	2,057,014

Income Statement Impact of Derivative Instruments

The effect of derivative instruments on the Consolidated Statements of Income for the three months ended ~~October 4,~~April 3, 2016 and April 5, 2015 ~~and September 28, 2014~~ was as follows:

Non-designated Hedges Cash Flow Hedges

Gains (losses) recognized in income (a) Gains (losses) recognized in accumulated other comprehensive income (“OCI”) (effective portion) Gains (losses) reclassified from accumulated OCI into income (effective portion) (b) Gains recognized in income (ineffective portion) (c)
2015 2014 2015 2014 2015 2014 2015 2014
Commodities futures and options $ —
$ 393
$ (34,571 ) $ 3,256
$ 11,000
$ 27,000
$ 1,288
$ 2,553
Foreign exchange contracts 750
7,033
662
(612 ) 185
(361 ) —
—
Interest rate swap agreements —
—
(36,187 ) (4,661 ) (1,166 ) (1,114 ) —
—
Deferred compensation derivatives (1,403 ) 371
—
—
—
—
—
—
Total $ (653 ) $ 7,797
$ (70,096 ) $ (2,017 ) $ 10,019
$ 25,525
$ 1,288
$ 2,553


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

~~(b)~~

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


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

~~THE HERSHEY COMPANY~~



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

	2016			2015			2016			2015			2016			2015			2016		2015
Commodities futures and options	$	(38,941	)	$	(2,777	)	$	—		$	(15,098	)	$	9,730		$	1,200		$	—	$	(287	)
Foreign exchange contracts	(204		)	(67		)	(4,116		)	1,240			(261		)	341			—		—
Interest rate swap agreements	—			—			(29,793		)	(28,354		)	(1,560		)	(1,189		)	—		—
Deferred compensation derivatives	403			172			—			—			—			—			—		—
Total	$	(38,742	)	$	(2,672	)	$	(33,909	)	$	(42,212	)	$	7,909		$	352		$	—	$	(287	)

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~The effect of derivative instruments on the Consolidated Statements of Income for the nine months ended October 4, 2015 and September 28, 2014 was as follows:~~

Non-designated Hedges Cash Flow Hedges

Gains (losses) recognized in income (a) Gains (losses) recognized in accumulated other comprehensive income (“OCI”) (effective portion) Gains (losses) reclassified from accumulated OCI into income (effective portion) (b) Gains recognized in income (ineffective portion) (c)
2015 2014 2015 2014 2015 2014 2015 2014
Commodities futures and options $ (2,777 ) $ 2,732
$ 62,619
$ 62,523
$ 31,300
$ 55,300
$ 2,142
$ 2,461
Foreign exchange contracts 474
(1,759 ) 158
(301 ) 273
3,536
—
—
Interest rate swap agreements —
—
(28,184 ) (19,998 ) (3,479 ) (3,351 ) —
—
Deferred compensation derivatives (1,024 ) 1,909
—
—
—
—
—
—
Total $ (3,327 ) $ 2,882
$ 34,593
$ 42,224
$ 28,094
$ 55,485
$ 2,142
$ 2,461


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

(b)

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


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

The amount of net gains on cash flow hedging derivatives, including interest rate swap agreements, foreign currency forward exchange contracts, and commodities futures and options contracts, expected to be reclassified into income in the next 12 months was approximately $9,506 after tax as of ~~October 4, 2015. This amount was primarily associated with commodities futures contracts.~~

~~Fair Value Hedges~~

~~For the nine months ended October 4, 2015, we recognized a net pretax benefit to interest expense of $5,597 relating to our fixed-to-floating interest rate swap arrangements.~~

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

The amount of net gains on derivative instruments, including interest rate swap agreements, foreign currency forward exchange contracts and options, commodities futures and options contracts, and other commodity derivative instruments expected to be reclassified into earnings in the next 12 months was approximately $6,112 after tax as of April 3, 2016. This amount was primarily associated with commodities futures contracts.

Fair Value Hedges

For the three months ended April 3, 2016 and April 5, 2015, we recognized a net pretax benefit to interest expense of $1,317 and $2,095 relating to our fixed-to-floating interest swap arrangements.

6. NONCONTROLLING INTERESTS IN SUBSIDIARIES

We currently own a 50% controlling interest in Lotte Shanghai Food Company (“LSFC”), a joint venture established in 2007 in China for the purpose of manufacturing and selling product to the venture partners.

At December 31, 2014, we owned a 51% 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. At the end of 2014, per the terms of the prevailing quotaholder’s agreement, Bauducco provided notice of its intent to sell its 49% interest to us at an amount equal to fair value.

Because the noncontrolling interest held by Bauducco was redeemable as a result of the put right, the balance sheet presentation of the noncontrolling interest during 2015 was revised to be reflected as a redeemable noncontrolling interest. The balance was increased in the first three quarters of 2015 by a total of $33,915, in order to reflect the balance at its redemption value based on the internal valuation for the business. The offset of this adjustment was recorded to additional paid in capital. We purchased the remaining 49% interest in Hershey do Brasil in September. As a result, the redeemable noncontrolling interest is no longer reported on our balance sheet as of October 4, 2015.

A roll-forward showing the ~~2015~~2016 activity relating to the noncontrolling ~~interests and redeemable noncontrolling~~ interest follows:

Noncontrolling Interests Redeemable Noncontrolling Interest
Balance, December 31, 2014 $ 64,468
$ —
Reclassification from Total Equity to Redeemable Noncontrolling Interest (13,428 ) 13,428
Net loss attributable to noncontrolling interests (1) (416 ) (4,393 )
Other comprehensive loss - foreign currency translation adjustments (2,111 ) (2,334 )
Adjustment to redemption value —
33,915
Other —
(2,346 )
Purchase of redeemable noncontrolling interest —
(38,270 )
Balance, October 4, 2015 $ 48,513
$ —



	Noncontrolling Interests
Balance, December 31, 2015	$	49,465
Net loss attributable to noncontrolling interests (1)	(475		)
Other comprehensive loss - foreign currency translation adjustments	(1,076		)
Balance, April 3, 2016	$	47,914

(1) Amounts are not considered significant and are presented within selling, marketing and administrative expenses.

7. COMPREHENSIVE INCOME

A summary of the components of comprehensive income is as follows:



Three Months Ended April 3, 2016	Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
Net income							$	229,832
Other comprehensive income (loss):
Foreign currency translation adjustments	$	12,166		$	—		12,166
Pension and post-retirement benefit plans (a)	8,680			(3,579		)	5,101
Cash flow hedges:
Losses on cash flow hedging derivatives	(33,909		)	11,765			(22,144		)
Reclassification adjustments (b)	(7,909		)	2,997			(4,912		)
Total other comprehensive loss	$	(20,972	)	$	11,183		(9,789		)
Total comprehensive income							$	220,043
Comprehensive loss attributable to noncontrolling interests							1,076
Comprehensive income attributable to The Hershey Company							$	221,119

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

~~7. COMPREHENSIVE INCOME~~

~~A summary of the components of comprehensive income is as follows:~~

Three Months Ended Three Months Ended
October 4, 2015 September 28, 2014

Pre-Tax
Amount

Tax (Expense)
Benefit

After-Tax
Amount

Pre-Tax
Amount

Tax (Expense)
Benefit

After-Tax
Amount
Net income $ 154,771
$ 223,741
Other comprehensive income (loss):
Foreign currency translation adjustments $ (26,631 ) $ —
(26,631 ) $ (17,321 ) $ —
(17,321 )
Pension and post-retirement benefit plans (a) 15,962
(5,993 ) 9,969
5,851
(2,227 ) 3,624
Cash flow hedges:
Losses on cash flow hedging derivatives (70,096 ) 26,182
(43,914 ) (2,017 ) 1,085
(932 )
Reclassification adjustments (b) (10,019 ) 3,805
(6,214 ) (25,525 ) 9,981
(15,544 )
Total other comprehensive loss $ (90,784 ) $ 23,994
(66,790 ) $ (39,012 ) $ 8,839
(30,173 )
Total comprehensive income $ 87,981
$ 193,568
Comprehensive gain attributable to noncontrolling interests (820 ) —
Comprehensive income attributable to The Hershey Company $ 87,161
$ 193,568


	Nine Months Ended									Nine Months Ended
	October 4, 2015									September 28, 2014
	Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount			Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
Three Months Ended April 5, 2015																			Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
Net income							$	299,567								$	644,404								$	244,737
Other comprehensive income (loss):
Other comprehensive loss:
Foreign currency translation adjustments	$	(51,681	)	$	—		(51,681		)	$	(12,016	)	$	—		(12,016		)	$	(27,718	)	$	—		(27,718		)
Pension and post-retirement benefit plans (a)	32,776			(11,880		)	20,896			17,386			(6,602		)	10,784			8,662			(3,201		)	5,461
Cash flow hedges:
Gains on cash flow hedging derivatives	34,593			(13,570		)	21,023			42,224			(15,375		)	26,849
Losses on cash flow hedging derivatives																			(42,212		)	16,120			(26,092		)
Reclassification adjustments (b)	(28,094		)	10,383			(17,711		)	(55,485		)	19,919			(35,566		)	(352		)	(47		)	(399		)
Total other comprehensive loss	$	(12,406	)	$	(15,067	)	(27,473		)	$	(7,891	)	$	(2,058	)	(9,949		)	$	(61,620	)	$	12,872		(48,748		)
Total comprehensive income							$	272,094								$	634,455								$	195,989
Comprehensive loss attributable to noncontrolling interests							2,111									—									3,509
Comprehensive income attributable to The Hershey Company							$	274,205								$	634,455								$	199,498


(a)	These amounts are included in the computation of net periodic benefit costs. For more information, see Note 11.


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

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



	April 3, 2016			December 31, 2015
Foreign currency translation adjustments	$	(87,994	)	$	(101,236	)
Pension and post-retirement benefit plans, net of tax	(249,547		)	(254,648		)
Cash flow hedges, net of tax	(42,197		)	(15,141		)
Total accumulated other comprehensive loss	$	(379,738	)	$	(371,025	)

8. OTHER (INCOME) EXPENSE, NET

In the second quarter of 2015, we began presenting a new non-operating "other (income) expense, net" classification to report certain gains and losses associated with activities not directly related to our core operations. For the three months ended April 5, 2015, we reclassified from selling, marketing and administrative expenses to other (income) expense, net total net gains of $9,840 to conform to the current year presentation. After considering these reclassifications, amounts reflected in other (income) expense, net include the following:



	Three Months Ended
	April 3, 2016			April 5, 2015
Write-down of equity investments in partnerships qualifying for tax credits (see Note 9)	$	5,593		$	—
Settlement of Shanghai Golden Monkey liability (see Note 2)	(26,650		)	—
Gain on sale of non-core trademark	—			(9,950		)
Other (income) expense, net	(168		)	110
Total	$	(21,225	)	$	(9,840	)

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

October 4,
2015 December 31,
2014
Foreign currency translation adjustments $ (93,251 ) $ (43,681 )
Pension and post-retirement benefit plans, net of tax (263,754 ) (284,650 )
Cash flow hedges, net of tax (26,930 ) (30,242 )
Total accumulated other comprehensive loss $ (383,935 ) $ (358,573 )

~~8. EARNINGS PER SHARE~~

~~We compute basic and diluted earnings per share based on the weighted-average number of shares of Common Stock and Class B Common Stock outstanding as follows:~~

Three Months Ended Nine Months Ended
October 4,
2015 September 28,
2014 October 4,
2015 September 28,
2014
Net income $ 154,771
$ 223,741
$ 299,567
$ 644,404
Weighted-average shares – basic:
Common stock 158,111
161,253
159,058
162,330
Class B common stock 60,620
60,620
60,620
60,620
Total weighted-average shares – basic: 218,731
221,873
219,678
222,950
Effect of dilutive securities:
Employee stock options 1,192
1,705
1,406
1,985
Performance and restricted stock units 152
299
238
358
Weighted-average shares – diluted 220,075
223,877
221,322
225,293
Earnings per share – basic:
Common stock $ 0.73
$ 1.03
$ 1.40
$ 2.97
Class B common stock $ 0.66
$ 0.94
$ 1.27
$ 2.68
Earnings per share – diluted:
Common stock $ 0.70
$ 1.00
$ 1.35
$ 2.86
Class B common stock $ 0.66
$ 0.94
$ 1.28
$ 2.67
9. INCOME TAXES

The ~~Class B Common Stock~~majority of our taxable income is ~~convertible into Common Stock on a share for share basis~~generated in the U.S. and taxed at ~~any time.~~the U.S. statutory rate of 35%. 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.

~~The earnings per share calculations~~effective tax rates for the three months ended ~~October 4,~~April 3, 2016 and April 5, 2015 were 32.3% and ~~September 28, 2014 exclude 2,552~~34.7%, respectively. The 2016 effective tax rate benefited from the impacts of non-taxable income related to the settlement of the SGM liability and ~~1,510 stock options, respectively, that would have~~income tax benefits from historic and energy tax credits, which were partially offset by the valuation allowance recorded against current year SGM operating losses.

Hershey and its subsidiaries file tax returns in the U.S., including various state and local returns, and in foreign jurisdictions. We believe adequate provision has been ~~antidilutive.~~ made for all income tax uncertainties. We are routinely audited by taxing authorities in our filing jurisdictions, and a number of these audits are currently underway. We reasonably expect reductions in the liability for unrecognized tax benefits of approximately $6,433 within the next 12 months because of the expiration of statutes of limitations and settlement of tax audits.

Investments in Partnerships Qualifying for Tax Credits

The ~~earnings per share calculations~~Company continued to invest in partnerships which make equity investments in projects eligible to receive federal historic and energy tax credits. The investments are accounted for under the ~~nine~~equity method and reported within other assets in our Consolidated Balance Sheets. The tax credits, when realized, are recognized as a reduction of tax expense, at which time the corresponding equity investment is written-down to reflect the remaining value of the future benefits to be realized. For the three months ended ~~October 4, 2015~~April 3, 2016, we recognized investment tax credits and ~~September 28, 2014 exclude 2,660~~related outside basis difference benefit totaling $6,618 and ~~1,510 stock options, respectively, that would have been antidilutive.~~wrote-down the equity investment by $5,593 to reflect the realization of these benefits. The equity investment write-down is reflected within other (income) expense, net in the Consolidated Statements of Income.

9.10. BUSINESS REALIGNMENT ACTIVITIES

~~On June 19,~~ 2015 Productivity Initiative

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

The 2015 Productivity Initiative ~~commenced during~~was executed throughout the third ~~quarter~~ and ~~will result~~fourth quarters of 2015, resulting in a net reduction of approximately 300 positions, with the majority of the departures taking place by the end of 2015. ~~During~~For the three ~~and nine~~ months ended ~~October 4, 2015,~~April 3, 2016, we incurred charges ~~of $64,268 and $90,322, respectively,~~totaling $1,458, representing ~~employee~~adjustments to estimated severance ~~and related separation~~ benefits as well as incremental third-party costs related to the design and implementation of the new organizational structure. ~~Total pre-tax charges and~~Since the program's inception, we have incurred total costs ~~for this program are expected to be approximately $120 million, the majority~~ of ~~which are~~

~~cash. This does not include~~$107,211, including a ~~possible~~ pension settlement ~~loss if substantial~~charge of $10,178 recorded in the fourth quarter of 2015, relating to lump sum withdrawals by employees retiring or leaving the Company as a result of this program.

Total pre-tax charges and costs for this program are ~~made during~~currently expected to be approximately $110 million, the ~~remainder~~majority of which are cash. This excludes the ~~year. Possible~~ pension settlement ~~losses would result~~cost recorded in ~~a non-cash charge for the Company.~~2015 and any additional pension settlement costs that could be triggered by additional lump sum withdrawals in 2016. The remaining costs for the 2015 Productivity Initiative are expected to be incurred over the next ~~three~~two quarters.

~~The tables below provide details~~China structure optimization

During the first quarter of 2016, we initiated the process of optimizing the China business and workforce structure and incurred initial costs totaling $12,972, relating primarily to severance and other third party charges. In addition, given the challenges impacting the retail landscape in China, we continue to assess the impact of potential excess capacity on operational efficiencies as well as the carrying value of our long-lived assets in the region.

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Other international programs

Costs incurred for ~~charges incurred across all restructuring and cost reduction activities during~~ the three ~~and nine month periods~~months ended ~~October 4,~~April 5, 2015 ~~and September 28, 2014.~~

Three Months Ended Nine Months Ended
October 4,
2015 September 28,
2014 October 4,
2015 September 28,
2014
Employee related costs $ 57,753
$ —
$ 80,305
$ 93
Asset related costs 1,329
—
5,905
—
Other exit costs, including Mauna Loa divestiture —
16,372
2,667
20,544
Other implementation costs 8,381
—
12,551
—
Total charges associated with business realignment initiatives $ 67,463
$ 16,372
$ 101,428
$ 20,637

~~Asset related charges presented in the table above represent~~relate principally to accelerated depreciation and amortization ~~charges relating to~~and employee severance costs for a ~~program~~couple of programs commenced in 2014 to rationalize certain non-U.S. manufacturing and distribution ~~activities.~~activities and to establish our own sales and distribution teams in Brazil in connection with our exit from the Bauducco joint venture.

~~The other exit costs in 2014 include $13,340 relating to the write-down of an indefinite-lived trademark based on the estimated sales value~~Expenses recorded for Mauna Loa, which was divested in 2015, as well as costs relating to the demolition of the Company's former manufacturing facility, representing the final phase of the Project Next Century Program. This program was substantially complete as of December 31, 2014.

~~Charges relating to our~~ business realignment ~~initiatives are~~activities during the three months ended April 3, 2016 and April 5, 2015 were classified ~~in our Consolidated Statements of Income~~ as follows:

Three Months Ended Nine Months Ended
October 4,
2015 September 28,
2014 October 4,
2015 September 28,
2014
Cost of sales $ 2,529
$ —
$ 5,205
$ 93
Selling, marketing and administrative 7,181
—
13,251
—
Business realignment charges:
Business realignment and productivity initiatives 57,753
3,032
80,305
7,204
Divestiture of Mauna Loa (see Note 2) —
13,340
2,667
13,340
Total business realignment charges 57,753
16,372
82,972
20,544
Total charges associated with business realignment initiatives $ 67,463
$ 16,372
$ 101,428
$ 20,637



	Three Months Ended
	April 3, 2016			April 5, 2015
Cost of sales:
China structure optimization	$	(487	)	$	—
Other international restructuring programs	—			1,348
Total cost of sales	(487		)	1,348
Selling, marketing and administrative:
2015 productivity initiative	2,752			—
China structure optimization	6,032
Other international restructuring programs	—			1,125
Total selling, marketing and administrative	8,784			1,125
Business realignment charges:
2015 productivity initiative	(1,294		)	—
China integration initiative	7,427			—
Divestiture of Mauna Loa (see Note 2)	—			2,667
Total business realignment charges	6,133			2,667
Total charges associated with business realignment activities	$	14,430		$	5,140

~~Segment~~

The costs and related benefits to be derived from the 2015 Productivity Initiative relate primarily to the North American segment, while the costs and related benefits of the China integration initiative and other international programs relate primary to the International and Other segment. However, segment operating results do not include business realignment and related charges because we evaluate segment performance excluding such charges.

The following table ~~summarizes our business realignment~~presents the liability activity for ~~the nine months ended October 4, 2015:~~employee related costs qualifying as exit and disposal costs:

Employee related costs Other exit costs Other implementation costs Total
Liability balance at December 31, 2014 $ 79
$ —
$ —
$ 79
2015 business realignment charges 80,305
—
6,785
87,090
Cash payments (11,106 ) —
(2,985 ) (14,091 )
Other, net 710
—
—
710
Liability balance at October 4, 2015 $ 69,988
$ —
$ 3,800
$ 73,788



	Total
Liability balance at December 31, 2015	$	16,310
2016 business realignment charges	6,133
Cash payments	(6,918		)
Other, net	(161		)
Liability balance at April 3, 2016	$	15,364

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

The charges reflected in the liability roll-forward above do not include items charged directly to expense, such as accelerated depreciation and amortization and the loss on the Mauna Loa divestiture and certain of the ~~administrative~~third-party charges associated with ~~the 2015 initiative,~~various programs, as those items are not reflected in the business realignment liability in our Consolidated Balance Sheets.

~~10.~~

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

11. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

The components of net periodic benefit cost for the first quarter were as follows:



	Pension Benefits						Other Benefits
	Three Months Ended						Three Months Ended
	April 3, 2016			April 5, 2015			April 3, 2016			April 5, 2015
Service cost	$	5,884		$	7,423		$	74		$	172
Interest cost	10,835			11,305			2,436			2,588
Expected return on plan assets	(14,541		)	(17,381		)	—			—
Amortization of prior service (credit) cost	(262		)	(291		)	144			153
Amortization of net loss	8,807			8,072			(12		)	—
Total net periodic benefit cost	$	10,723		$	9,128		$	2,642		$	2,913

We made contributions of $1,175 and $7,664 to the pension plans and other benefits plans, respectively, during the first quarter of 2016. In the first quarter of 2015, we made contributions of $851 and $4,456 to our pension plans and other benefits plans, respectively. The contributions in 2016 and 2015 also included benefit payments from our non-qualified pension plans and post-retirement benefit plans.

For 2016, there are no significant minimum funding requirements for our domestic pension plans; however, we expect to make additional contributions of approximately $18,500 to maintain the funded status. Planned voluntary funding of our non-domestic pension plans in 2016 is not material.

12. STOCK COMPENSATION PLANS

We have various stock-based compensation programs under which awards, including stock options, performance stock units (“PSUs”) and performance stock, stock appreciation rights, restricted stock units (“RSUs”) and restricted stock may be granted to employees, non-employee directors and certain service providers upon whom the successful conduct of our business is dependent. These programs and the accounting treatment related thereto are described in Note 10 to the Consolidated Financial Statements included in our ~~2014~~2015 Annual Report on Form 10-K.

For the periods presented, compensation expense for all types of stock-based compensation programs and the related income tax benefit recognized were as follows:


	Three Months Ended				Nine Months Ended				Three Months Ended
	October 4, 2015		September 28, 2014		October 4, 2015		September 28, 2014		April 3, 2016		April 5, 2015
Pre-tax compensation expense	$	13,374	$	14,062	$	39,989	$	41,759	$	11,678	$	13,889
Related income tax benefit	$	4,334	$	4,907	$	13,676	$	14,407	4,087		4,861

Compensation costs for stock compensation plans are primarily included in selling, marketing and administrative expense. As of ~~October 4, 2015,~~April 3, 2016, total stock-based compensation cost related to non-vested awards not yet recognized was ~~$67,520~~$99,775 and the weighted-average period over which this amount is expected to be recognized was approximately ~~2.2~~2.3 years.

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Stock Options

A summary of activity relating to grants of stock options for the period ended ~~October 4, 2015~~April 3, 2016 is as follows:


Stock Options	Shares		Weighted-Average Exercise Price (per share)	Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value		Shares		Weighted-Average Exercise Price (per share)	Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at beginning of the period	7,319,377		$66.69	6.3 years			6,842,563		$75.48	5.8 years
Granted	1,315,625		$105.51				1,326,045		$90.38
Exercised	(1,275,257	)	$52.28				(583,269	)	$54.65
Forfeited	(247,868	)	$89.85				(96,163	)	$104.33
Outstanding as of October 4, 2015	7,111,877		$75.66	6.1 years	$	146,443
Options exercisable as of October 4, 2015	4,135,751		$61.25	4.8 years	130,816
Outstanding as of April 3, 2016							7,489,176		$79.34	6.6 years	$	114,827
Options exercisable as of April 3, 2016							4,596,241		$68.79	5.1 years	$	112,614

The weighted-average fair value of options granted was ~~$19.18 per share~~$11.42 and ~~$21.54~~$19.31 per share for the periods ended ~~October 4,~~April 3, 2016 and April 5, 2015, ~~and September 28, 2014,~~ respectively. The fair value was estimated on the date of grant using a Black-Scholes option-pricing model and the following weighted-average assumptions:


	Nine Months Ended				Three Months Ended
	October 4, 2015		September 28, 2014		April 3, 2016		April 5, 2015
Dividend yields	2.0	%	2.0	%	2.4	%	2.0	%
Expected volatility	20.2	%	22.3	%	16.8	%	20.8	%
Risk-free interest rates	1.9	%	2.1	%	1.5	%	1.9	%
Expected lives in years	6.6		6.7		6.8		6.7

The total intrinsic value of options exercised was ~~$60,425~~$20,348 and ~~$110,329~~$39,606 for the periods ended ~~October 4,~~April 3, 2016 and April 5, 2015, respectively.

Performance Stock Units and ~~September 28, 2014, respectively.~~Restricted Stock Units

A summary of activity relating to grants of PSUs and RSUs for the period ended April 3, 2016 is as follows:



Performance Stock Units and Restricted Stock Units	Number of units		Weighted-average grant date fair value for equity awards (per unit)
Outstanding at beginning of year	495,207		$106.40
Granted	483,678		$92.88
Performance assumption change	(16,056	)	$97.33
Vested	(179,866	)	$95.78
Forfeited	(10,056	)	$95.07
Outstanding as of April 3, 2016	772,907		$102.24

The table above excludes PSU awards for 6,893 units as of April 3, 2016 and 20,586 units as of December 31, 2015 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 non-employee directors. In addition, the table provides assumptions used to determine the fair value of the market-based total shareholder return component using the Monte Carlo simulation model on the date of grant.

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

~~Performance Stock Units and Restricted Stock Units~~

~~A summary of activity relating to grants of PSUs and RSUs for the period ended October 4, 2015 is as follows:~~

Performance Stock Units and Restricted Stock Units Number of Units Weighted-average grant date fair value for equity awards or market value for liability awards (per unit)
Outstanding at beginning of year 904,306
$94.48
Granted 315,443
$107.53
Performance assumption change (259,577 ) $105.93
Vested (398,559 ) $73.63
Forfeited (31,328 ) $112.15
Outstanding as of October 4, 2015 530,285
$106.42

~~The table above excludes PSU awards for 25,462 units as of December 31, 2014 and 20,993 units as of October 4, 2015 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 during the periods indicated for potential future distribution to employees and directors. 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 a Monte Carlo simulation model on the date of grant:


	Nine Months Ended				Three Months Ended
	October 4, 2015		September 28, 2014		April 3, 2016			April 5, 2015
Units granted	315,443		308,980		483,678			266,099
Weighted-average fair value at date of grant (per unit)	$107.53		$116.90
Weighted-average fair value at date of grant					$	92.88		$	109.35
Monte Carlo simulation assumptions:
Estimated values (per unit)	$61.22		$80.95
Estimated values					$	38.02		$	61.22
Dividend yields	2.0	%	1.8	%	2.5		%	2.0		%
Expected volatility	14.9	%	15.5	%	17.0		%	14.9		%

The intrinsic value of share-based liabilities paid, combined with the fair value of shares vested, totaled ~~$40,220~~$16,181 and ~~$57,001~~$37,464 for the periods ended ~~October 4,~~April 3, 2016 and April 5, 2015, ~~and September 28, 2014,~~ respectively.

Deferred PSUs, deferred RSUs and deferred stock units representing directors’ fees totaled ~~503,557~~474,483 units as of ~~October 4, 2015.~~April 3, 2016. Each unit is equivalent to one share of the Company’s Common Stock.

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~11. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS~~

~~Components of net periodic benefit cost for the third quarter were as follows:~~

Pension Benefits Other Benefits
Three Months Ended Three Months Ended
October 4,
2015 September 28,
2014 October 4,
2015 September 28,
2014
Service cost $ 7,068
$ 6,670
$ 135
$ 177
Interest cost 11,025
12,218
2,516
2,927
Expected return on plan assets (17,146 ) (18,519 ) —
—
Amortization of prior service (credit) cost (294 ) (167 ) 151
154
Amortization of net actuarial loss (gains) 7,595
5,838
(11 ) (36 )
Administrative expenses 229
193
48
23
Net periodic benefit cost 8,477
6,233
2,839
3,245
Settlement loss 2,583
—
—
—
Total amount reflected in earnings $ 11,060
$ 6,233
$ 2,839
$ 3,245

We made contributions of $29,349 and $5,174 to the pension plans and other benefits plans, respectively, during the third quarter of 2015. In the third quarter of 2014, we made contributions of $24,696 and $4,105 to our pension plans and other benefits plans, respectively. These contribution amounts also include benefit payments from our unfunded, non-qualified pension plans and post-retirement benefit plans.

~~Components of net periodic benefit cost for the year-to-date periods were as follows:~~

Pension Benefits Other Benefits
Nine Months Ended Nine Months Ended
October 4,
2015 September 28,
2014 October 4,
2015 September 28,
2014
Service cost $ 21,301
$ 20,003
$ 406
$ 530
Interest cost 33,187
36,643
7,617
8,778
Expected return on plan assets (51,685 ) (55,537 ) —
—
Amortization of prior service (credit) cost (881 ) (501 ) 457
462
Amortization of net actuarial loss (gains) 22,899
17,511
(40 ) (107 )
Administrative expenses 737
586
92
78
Net periodic benefit cost 25,558
18,705
8,532
9,741
Settlement loss 2,583
—
—
—
Total amount reflected in earnings $ 28,141
$ 18,705
$ 8,532
$ 9,741

We made contributions of $30,685 and $14,502 to the pension plans and other benefits plans, respectively, during the first nine months of 2015. In the first nine months of 2014, we made contributions of $26,669 and $14,777 to our pension plans and other benefits plans, respectively. These contribution amounts also include benefit payments from our unfunded, non-qualified pension plans and post-retirement benefit plans.

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~12.~~13. SEGMENT INFORMATION

Our ~~current reporting~~organizational structure is designed to ensure continued focus on North America, coupled with an emphasis on accelerating growth in our focus international markets, as we transform into a more global company. Our business is organized around geographic regions, ~~and strategic business units. It is designed to enable~~which enables us to build processes for repeatable success in our global markets. The Presidents of our geographic regions, along with the Senior Vice President responsible for our Global Retail and Licensing business, are accountable for delivering our annual financial plans and report into our ~~Chief Executive Officer,~~CEO, who serves as our Chief Operating Decision Maker (“CODM”), so we have defined our operating segments on a geographic basis. Our North America business currently generates over ~~85%~~89% of our consolidated revenue and none of our other geographic regions are individually significant.

We Therefore, we currently define our reportable segments as follows:

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

International and Other - This segment includes all other countries where The Hershey Company currently manufactures, imports, markets, sells or distributes chocolate ~~sugar~~and non-chocolate confectionery and other products. ~~Currently, this includes our~~We currently have operations and manufacture product in China, Mexico, Brazil and ~~Puerto Rico, as well as~~India, primarily for consumers in these markets, and also distribute and sell confectionery products in export markets of Asia, Latin America, Middle East, Europe, Africa ~~the Middle East~~ and ~~Asia, primarily China, India, Korea, Japan and the Philippines; along with exports to these~~other regions. ~~While a minor component, this~~This segment also includes our global retail operations, including Hershey's Chocolate World stores in Hershey, Pennsylvania, New York City, Chicago, Las Vegas, Shanghai, Niagara Falls (Ontario), Dubai, and Singapore, as well as operations associated with licensing the use of certain of the Company's trademarks and products to third parties around the world.

For segment reporting purposes, we use “segment income” to evaluate segment performance and allocate resources. Segment income excludes unallocated general corporate administrative expenses, ~~as well as charges associated with~~unallocated mark-to-market gains and losses on commodity derivatives, business realignment ~~activities, goodwill~~and impairment charges, ~~acquisition-related~~acquisition integration costs, the non-service related portion of pension expense and other unusual gains or losses that are not part of our measurement of segment performance. These items of our operating income are managed centrally at the corporate level and are excluded from the measure of segment income reviewed by the ~~CODM.~~CODM as well the measure of segment performance used for incentive compensation purposes.

Accounting policies associated with our operating segments are generally the same as those described in Note 1 to the Consolidated Financial Statements included in our ~~2014~~2015 Annual Report on Form ~~10-K.~~10-K, with the exception of our accounting methodology for commodities derivatives. As discussed in Note 5, derivatives used to manage commodity price risk are not designated for hedge accounting treatment. These derivatives are recognized at fair market value with the resulting realized and unrealized losses recognized in unallocated derivative gains (losses) outside of the

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

reporting segment results. The gains and losses are subsequently recognized in the operating results of the segments in the period in which the underlying transaction being economically hedged is included in earnings.

Certain manufacturing, warehousing, distribution and other activities supporting our global operations are integrated to maximize efficiency and productivity. As a result, assets and capital expenditures are not managed on a segment basis and are not included in the information reported to the CODM for the purpose of evaluating performance or allocating resources. We disclose depreciation and amortization that is generated by segment-specific assets, since these amounts are included within the measure of segment income reported to the CODM.

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Our segment net sales and earnings were as follows:


		Three Months Ended						Nine Months Ended						Three Months Ended
		October 4, 2015			September 28, 2014			October 4, 2015			September 28, 2014			April 3, 2016			April 5, 2015
Net sales:	Net sales:
North America	North America	$	1,733,869		$	1,693,903		$	4,840,438		$	4,727,479		$	1,633,471		$	1,706,995
International and Other	International and Other	226,910			267,675			636,966			684,262			195,341			230,805
Total	Total	$	1,960,779		$	1,961,578		5,477,404			5,411,741			$	1,828,812		$	1,937,800

Segment income (loss):
Segment income:
North America	North America	$	546,080		$	488,902		$	1,561,053		$	1,433,339		$	529,390		$	554,306
International and Other	International and Other	(13,509		)	16,050			(79,754		)	21,187			(13,233		)	(21,759		)
Total segment income	Total segment income	532,571			504,952			1,481,299			1,454,526			516,157			532,547
Unallocated corporate expense (1)	Unallocated corporate expense (1)	117,695			124,551			383,160			376,894			122,171			138,672
Goodwill impairment		30,991			—			280,802			—
Charges associated with business realignment initiatives		67,463			16,372			101,428			20,637
Non-service related pension expense (income)		4,049			(463		)	6,976			(1,383		)
Acquisition and integration costs		9,359			5,824			14,253			9,664
Unallocated mark-to-market losses on commodity derivatives (2)														34,946			—
Charges associated with business realignment activities														14,430			5,140
Non-service related pension expense														5,101			1,996
Acquisition integration costs														—			2,573
Operating profit	Operating profit	303,014			358,668			694,680			1,048,714			339,509			384,166
Interest expense, net	Interest expense, net	46,967			20,773			85,046			62,792			21,005			19,202
Other (income) expense, net	Other (income) expense, net	9,409			(7,528		)	4,328			1,448			(21,225		)	(9,840		)
Income before income taxes	Income before income taxes	$	246,638		$	345,423		$	605,306		$	984,474		$	339,729		$	374,804

(1)

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


(2)	Reflects gains and losses on commodity derivative instruments that are excluded from segment income until the related inventory is sold.

~~Depreciation and amortization expense included~~The activity within ~~segment income presented above is as follows:~~

the unallocated mark-to-market gains (losses) on commodity derivatives for the quarter ended April 3, 2016 included:

Three Months Ended Nine Months Ended
October 4,
2015 September 28, 2014 October 4,
2015 September 28, 2014
North America $ 38,887
$ 37,263
$ 113,837
$ 108,713
International and Other 13,993
6,653
34,136
18,286
Corporate, including business realignment 11,174
8,957
34,882
26,007
Total $ 64,054
$ 52,873
$ 182,855
$ 153,006

~~13. INCOME TAXES~~



	Three Months Ended
	April 3, 2016
Net losses on mark-to-market valuation of unallocated commodity derivative positions	$	(38,941	)
Net losses on commodity derivative positions allocated to segment income	(3,995		)
Net losses on mark-to-market valuation of commodity derivative positions remaining in unallocated derivative gains (losses)	$	(34,946	)

~~The majority~~Based on our forecasts of ~~our taxable income is generated~~the timing of the recognition of the underlying hedged items, we expect to reclassify losses on commodity derivatives of $13.6 million after tax to segment operating results in the U.S. and taxed at the U.S. statutory rate of 35%. The effective tax rates for the nine months ended October 4, 2015 and September 28, 2014 were 50.5% and 34.5%, respectively. Adjusting for the impact of the non-deductible goodwill impairment charge discussed in Note 2, the 2015 year-to-date effective income tax rate was 34.5%, comparable to 2014. The 2015 rate reflects $29,222 of income tax benefit from historic and energy tax credits, as noted below; however, this benefit was offset by the impact of an unfavorable mix of foreign to U.S. earnings during the period, as well as a $9,375 valuation allowance taken against the SGM deferred tax assets related to net operating losses. Given the current and projected pre-tax losses generated by SGM, we do not expect to be able to utilize these net operating losses within the allowed carry-forward period.

Hershey and its subsidiaries file tax returns in the U.S., including various state and local returns, and in other foreign jurisdictions. We believe adequate provision has been made for all income tax uncertainties. We are routinely audited by taxing authorities in our filing jurisdictions, and a number of these audits are currently underway. We reasonably expect reductions in the liability for unrecognized tax benefits of approximately $4,555 within the next ~~12 months because of the expiration of statutes of limitations and settlements of tax audits.~~twelve months.

~~Investments in Partnerships Qualifying for Tax Credits~~

In the second quarter of 2015, the Company began making investments in partnership entities which make equity investments in projects eligible to receive federal historic and energy tax credits. The investments are accounted for under the equity method and reported within other assets in our Consolidated Balance Sheets. The tax credits, when realized, are recognized as a reduction of tax expense, at which time the corresponding equity investment is written-down to reflect the remaining value of the future benefits to be realized. For the nine months ended October 4, 2015, we recognized investment tax credits and related tax depreciation benefit totaling $29,222, and we wrote-down the equity investment by $13,893 to reflect the realization of these benefits. The equity investment write-down is reflected within other (income) expense, net in the Consolidated Statements of Income.

~~14. INVENTORIES~~

We value the majority of our U.S. 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:

October 4,
2015 December 31,
2014
Raw materials $ 335,054
$ 377,620
Goods in process 87,905
63,916
Finished goods 604,225
531,608
Inventories at FIFO 1,027,184
973,144
Adjustment to LIFO (213,601 ) (172,108 )
Total inventories $ 813,583
$ 801,036

~~15. PROPERTY, PLANT AND EQUIPMENT~~

~~Major classes of property, plant and equipment were as follows:~~

October 4,
2015 December 31,
2014
Land $ 95,847
$ 95,913
Buildings 1,073,757
1,031,050
Machinery and equipment 2,887,897
2,863,559
Construction in progress 401,778
338,085
Property, plant and equipment, gross 4,459,279
4,328,607
Accumulated depreciation (2,271,543 ) (2,176,706 )
Property, plant and equipment, net $ 2,187,736
$ 2,151,901

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

~~16.~~Depreciation and amortization expense included within segment income presented above is as follows:



	Three Months Ended
	April 3, 2016		April 5, 2015
North America	$	38,942	$	35,440
International and Other	10,923		11,124
Corporate	10,048		11,774
Total	$	59,913	$	58,338

14. TREASURY STOCK ACTIVITY

A summary of our treasury stock activity is as follows:

Nine Months Ended October 4, 2015
Shares Dollars
In thousands
Shares repurchased under pre-approved share repurchase programs 4,209,112
$ 402,548
Shares repurchased to replace Treasury Stock issued for stock options
and incentive compensation 1,603,838
164,932
Total share repurchases 5,812,950
567,480
Shares issued for stock options and incentive compensation (1,514,260 ) (63,008 )
Net change 4,298,690
$ 504,472



	Three Months Ended April 3, 2016
	Shares		Dollars
			In thousands
Shares repurchased in the open market under pre-approved share repurchase programs	3,366,761		$	303,950
Shares issued for stock options and incentive compensation	(718,604	)	(29,897		)
Net change	2,648,157		$	274,053

The $250 million share repurchase program approved by our Board of Directors in February ~~2014~~2015 was completed in the first quarter of ~~2015.~~ 2016.

In February ~~2015,~~2016, our Board of Directors approved an additional ~~$250~~$500 million authorization to repurchase shares of our Common Stock. As of ~~October 4, 2015, $20~~April 3, 2016, $216 million remained available for repurchases of our Common Stock under this program. We are authorized to purchase our outstanding shares in open market and privately negotiated transactions. The program has no expiration date and acquired shares of Common Stock will be held as treasury shares. Purchases under approved share repurchase authorizations are in addition to our practice of buying back shares sufficient to offset those issued under incentive compensation plans.

~~17.~~15. CONTINGENCIES

~~In 2007, the Competition Bureau of Canada began an inquiry into alleged violations of the Canadian~~ ~~Competition Act~~We are subject to various pending or threatened legal proceedings and claims that arise in the ~~sale~~ordinary course of our business. While it is not feasible to predict or determine the outcome of such proceedings and ~~supply of chocolate products sold~~claims with certainty, in ~~Canada between 2002~~our opinion these matters, both individually and 2008 by members of the confectionery industry, including Hershey Canada, Inc. The U.S. Department of Justice also notified the Company in 2007 that it had opened an inquiry, but has not requested any information or documents.

~~Subsequently, 13 civil lawsuits were filed in Canada and 91 civil lawsuits were filed~~ in the ~~United States against~~aggregate, are not expected to have a material effect on our financial condition, results of operations or cash flows.

the Company. The lawsuits were instituted on behalf of direct purchasers of our products as well as indirect purchasers that purchase our products for use or for resale. Several other chocolate and confectionery companies were named as defendants in these lawsuits as they also were the subject of investigations and/or inquiries by the government entities referenced above. The cases sought recovery for losses suffered as a result of alleged conspiracies in restraint of trade in connection with the pricing practices of the defendants.

The Canadian civil cases were settled in 2012. Hershey Canada, Inc. reached a settlement agreement with the Competition Bureau of Canada through their Leniency Program with regard to an inquiry into alleged violations of the Canadian ~~Competition Act~~ in the sale and supply of chocolate products sold in Canada by members of the confectionery industry. On June 21, 2013, Hershey Canada, Inc. pleaded guilty to one count of price fixing related to communications with competitors in Canada in 2007 and paid a fine of approximately $4.0 million. Hershey Canada, Inc. had promptly reported the conduct to the Competition Bureau, cooperated fully with its investigation and did not implement the planned price increase that was the subject of the 2007 communications.

With regard to the U.S. lawsuits, the Judicial Panel on Multidistrict Litigation assigned the cases to the U.S. District Court for the Middle District of Pennsylvania (the “District Court”). Plaintiffs sought actual and treble damages against the Company and other defendants based on an alleged overcharge for certain, or in some cases all, chocolate products sold in the U.S. between December 2002 and December 2007, and certain plaintiff groups alleged damages that extended beyond the alleged conspiracy period. The lawsuits had been proceeding on different scheduling tracks for different groups of plaintiffs.

On February 26, 2014, the District Court granted summary judgment to the Company in the cases brought by the direct purchaser plaintiffs that had not sought class certification as well as those that had been certified as a class. The direct purchaser plaintiffs appealed the District Court's decision to the United States Court of Appeals for the Third Circuit (“Third Circuit”) in May 2014. On September 15, 2015, the Third Circuit affirmed the District Court's summary judgment decision.

The remaining plaintiff groups - the putative class plaintiffs that purchased product indirectly for resale, the putative class plaintiffs that purchased product indirectly for use, and direct purchaser Associated Wholesale Grocers, Inc. - dismissed their

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

cases with prejudice, subject to reinstatement if the Third Circuit were to reverse the District Court’s summary judgment decision. The District Court entered judgment closing the case on April 17, 2014. Given the Third Circuit's recent affirmation of the District Court's summary judgment decision, we do not anticipate these cases being reinstated.

Competition and antitrust law investigations can be lengthy and violations are subject to civil and/or criminal fines and other sanctions. Class action civil antitrust lawsuits are expensive to defend and could result in significant judgments, including in some cases, payment of treble damages and/or attorneys' fees to the successful plaintiff. Additionally, negative publicity involving these proceedings could affect our Company's brands and reputation, possibly resulting in decreased demand for our products. These possible consequences, in our opinion, are currently not expected to materially impact our financial position or liquidity, but could materially impact our results of operations and cash flows in the period in which any fines, settlements or judgments are accrued or paid, respectively.

16. EARNINGS PER SHARE

We compute basic earnings per share for Common Stock and Class B common stock using the two-class method. The Class B common stock is convertible into Common Stock on a share-for-share basis at any time. With respect to dividend rights, the Common Stock holders are entitled to cash dividends 10% higher than those declared and paid on the Class B common stock. The computation of diluted earnings per share for Common Stock assumes the conversion of Class B common stock using the if-converted method, while the diluted earnings per share of Class B common stock does not assume the conversion of those shares.

We compute basic and diluted earnings per share based on the weighted-average number of shares of Common Stock and Class B common stock outstanding as follows:



	Three Months Ended
	April 3, 2016					April 5, 2015
	Common Stock		Class B Common Stock			Common Stock		Class B Common Stock
Basic earnings per share:
Numerator:
Allocation of distributed earnings (cash dividends paid)	$	90,238	$	32,129		$	84,920	$	29,461
Allocation of undistributed earnings	79,376		28,089			97,066		33,290
Total earnings—basic	$	169,614	$	60,218		$	181,986	$	62,751

Denominator (shares in thousands):
Total weighted-average shares—basic	155,675		60,620			160,024		60,620

Earnings Per Share—basic	$	1.09	$	0.99		$	1.14	$	1.04

Diluted earnings per share:
Numerator:
Allocation of total earnings used in basic computation	$	169,614	$	60,218		$	181,986	$	62,751
Reallocation of total earnings as a result of conversion of Class B common stock to Common stock	60,218		—			62,751		—
Reallocation of undistributed earnings	—		(158		)	—		(318		)
Total earnings—diluted	$	229,832	$	60,060		$	244,737	$	62,433

Denominator (shares in thousands):
Number of shares used in basic computation	155,675		60,620			160,024		60,620
Weighted-average effect of dilutive securities:
Conversion of Class B common stock to Common shares outstanding	60,620		—			60,620		—
Employee stock options	1,005		—			1,687		—
Performance and restricted stock options	187		—			388		—
Total weighted-average shares—diluted	217,487		60,620			222,719		60,620

Earnings Per Share—diluted	$	1.06	$	0.99		$	1.10	$	1.03

The earnings per share calculations for the three months ended April 3, 2016 and April 5, 2015 excluded 3,680 and 2,545, respectively, of stock options that would have ~~no other material pending legal proceedings, other than ordinary routine litigation incidental to our~~been antidilutive.

THE HERSHEY COMPANY

~~business.~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

17. SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of certain Consolidated Balance Sheet accounts are as follows:



Inventories:	April 3, 2016			December 31, 2015
Raw materials	$	335,838		$	353,451
Goods in process	107,055			67,745
Finished goods	516,365			534,983
Inventories at FIFO	959,258			956,179
Adjustment to LIFO	(188,876		)	(205,209		)
Total inventories	$	770,382		$	750,970



Property, plant and equipment:	April 3, 2016			December 31, 2015
Land	$	96,893		$	96,666
Buildings	1,217,106			1,084,958
Machinery and equipment	2,945,966			2,886,723
Construction in progress	285,761			448,956
Property, plant and equipment, gross	4,545,726			4,517,303
Accumulated depreciation	(2,315,655		)	(2,276,843		)
Property, plant and equipment, net	$	2,230,071		$	2,240,460



Other assets:	April 3, 2016		December 31, 2015
Capitalized software, net	$	69,726	$	68,004
Income tax receivable	1,474		1,428
Other non-current assets	113,904		85,934
Total other assets	$	185,104	$	155,366



Accrued liabilities:	April 3, 2016		December 31, 2015
Payroll, compensations and benefits	$	162,465	$	215,638
Advertising and promotion	351,561		337,945
Due to SGM shareholders	—		72,025
Other	255,767		231,359
Total accrued liabilities	$	769,793	$	856,967



Other long-term liabilities:	April 3, 2016		December 31, 2015
Post-retirement benefits liabilities	$	229,832	$	231,412
Pension benefits liabilities	124,740		122,681
Other	110,951		114,625
Total other long-term liabilities	$	465,523	$	468,718

Item 2. ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Management's Discussion and Analysis (“MD&A”) is intended to provide an understanding of Hershey's financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. The MD&A should be read in conjunction with our Consolidated Financial Statements and accompanying notes. This discussion 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 the Risk Factors and other information contained in our ~~2014~~2015 Annual Report on Form 10-K for information concerning the key risks to achieving future performance goals.

The MD&A is organized in the following sections:

Overview and Outlook

Non-GAAP Information

Consolidated Results of Operations

Segment Results

Liquidity and Capital Resources

~~Overview and Outlook~~

OVERVIEW AND OUTLOOK

Our ~~2015 third~~2016 first quarter net sales totaled ~~$1,960.8~~$1,828.8 million, ~~comparable with~~a decline of 5.6% versus our ~~2014 third~~2015 first quarter sales of ~~$1,961.6~~$1,937.8 million. Excluding a ~~2.0%~~1.2% impact from unfavorable foreign currency exchange rates, our net sales ~~increased 2.0%,~~decreased 4.4%. The decline was driven by lower North America volumes due primarily to a shorter Easter season in 2016 and lower non-seasonal activity as greater levels of innovation and in-store merchandising are anticipated over the remainder of the year, coupled with ~~the increase reflecting positive~~lower net sales in China, as we had anticipated. In addition, net price realization ~~resulting from~~was slightly unfavorable, as the ~~U.S.~~benefit of price ~~increase in mid-2014 and incremental revenue from recent acquisitions. However, these benefits were partially~~realization on our seasonal confectionery products was more than offset by ~~lower U.S. volumes resulting from volume elasticity related to the aforementioned price increase as well as the unfavorable performance~~increased levels of our China chocolate business. The net sales and earnings of our China business continued to be adversely impacted by macroeconomic challenges and changing consumer shopping behavior. North America net sales were slightly less than expectations due to lower consumer retail trips and a decline in merchandising and programming at some retailers that impacted many snack categories.direct trade.

Our reported gross margin ~~increased 170~~decreased 180 basis points in the ~~third~~first quarter of ~~2015,~~2016, primarily driven by ~~the benefits~~mark-to-market losses on commodity derivatives since we are no longer electing to designate any of ~~positive price realization and supply chain productivity and other cost savings initiatives, partially offset by higher~~our existing or new commodity ~~costs and unfavorable sales mix.~~derivatives for hedge accounting treatment. Our non-GAAP gross margin (as defined ~~on page 34)~~in the Non-GAAP Information section of this MD&A) increased ~~220~~20 basis points in the ~~third~~first quarter of ~~2015. Total advertising~~2016 as a result of supply chain productivity and ~~related consumer marketing expense was in line with the year ago period~~cost savings initiatives as increases in North America were offset by planned reductions in international spending. Selling, marketing and administrative expenses, excluding advertising and related consumer marketing, increased 5.5%; however, excluding incremental impact of acquisitions and divestitures, selling, marketing and administrative expenses, excluding advertising and related consumer marketing, was flat relative to 2014,well as ~~we remain focused on non-essential spending and continue to leverage existing resources.~~lower commodity costs.

In ~~June, we announced a new productivity initiative intended to simplify~~ the ~~organizational structure to enhance our ability to rapidly anticipate and respond to the changing demands of the global consumer. In the third~~fourth quarter ~~and nine month periods~~ of 2015, we ~~incurred charges totaling $64.3 million and $90.3 million, respectively, representing employee severance and related separation benefits as well as incremental third-party costs related to~~reached an agreement with the design and implementation of the new organizational structure. We currently estimate total pre-tax charges and costs for the program to be approximately $120 million, the majority of which are cash. The remaining costs for this program are expected to be incurred over the next three quarters. This program is on track and we currently expect annual pre-tax savings to be at the high end of the $65 million to $75 million.

~~As discussed in the second quarter, since the initial acquisition in 2014, our~~ Shanghai Golden Monkey (“SGM”) ~~business has performed below expectations, with net sales and earnings levels well below pre-acquisition levels. In addition, as part of our ongoing integration process, we continued~~selling shareholders to ~~assess~~reduce the quality of SGM’s accounts receivable and existing distributor networks. Based on the declining performance levels and the results of our assessment to date, we determined that an interim impairment test of the SGM reporting unit was required by U.S. generally accepted accounting principles. We performed the first step of this test as of July 5, 2015 using an income approach based on our estimates of future performance scenariosoriginally-agreed purchase price for the business. The results of this test indicated that the fair value of the reporting unit was less than the carrying amount as of the measurement date, suggesting that a goodwill impairment was probable, which required us to perform a second step analysis to confirm that an impairment exists and to determine the amount of the impairment based on our reassessed value of the reporting unit. Although preliminary, as a result of this reassessment, in the second quarter of 2015 we recorded an

estimated $249.8 million non-cash goodwill impairment charge, representing a write-down of all of the goodwill related to the SGM reporting unit as of July 5, 2015. During the third quarter, we updated our estimates of the acquisition-date fair values of the net assets acquired, which increased the value of acquired goodwill by $16.6 million. We also finalized the impairment test of the goodwill relating to the SGM reporting unit, which resulted in a write-off of this additional goodwill, for a total impairment of $266.4 million. During the third quarter, we also wrote-off $14.4 million of goodwill that resulted from the SGM acquisition and was assigned to our existing China chocolate business, as this reporting unit was expected to benefit from acquisition synergies relating to the sale of Golden Monkey-branded product through its Tier 1 and hypermarket distributor networks. This goodwill impairment was driven by the continued declining performance in our China chocolate business through the third quarter, as a result of macroeconomic challenges and changing consumer shopping behavior mentioned previously.

~~The timing and terms of the acquisition of~~ the remaining 20% of SGM, ~~will be informed by the results of our ongoing negotiation,~~ and we completed the purchase on February 3, 2016. We are ~~evaluating all potential options~~directing our efforts currently on executing an integration plan that is focused on the optimal structure for top-line growth.

Building on our snacks strategy, in late April 2016, we purchased Ripple Brand Collective, LLC, a privately held company that owns the barkTHINS mass premium chocolate snacking brand. Since its launch in 2013, barkTHINS has quickly become a favorite snack brand due to ~~protect~~its commitment to using simple ingredients, fair trade cocoa and non-GMO certification. barkTHINS is a very attractive and uniquely crafted brand that essentially created the ~~Company's interests. Going forward, we continue~~chocolate “thins” category, a new form of chocolate snacking. We anticipate building barkTHINS by leveraging Hershey’s scale at retail.

We expect total consolidated net sales to ~~evaluate SGM's cost structure~~accelerate over the remainder of the year driven by core brands and innovation. Our new products will bring variety and news to the category such as ~~well as alternative integration scenarios to improve performance to~~Reese's Snack Mix, Hershey's Snack Bites, Cadbury chocolates targeting the mass premium market, Reese's white minis and Kit Kat big Kat. We believe these investments should enable us to ~~implement upon our strategy of leveraging Golden Monkey's sales force and distributor network~~continue to ~~expand sales~~gain share in the U.S. market. Additionally, new advertising campaigns on many of our key brands, including Hershey's ~~products~~, Kit Kat and Ice Breakers will begin in the ~~China marketplace.~~second quarter.

Our third quarter reported operating profit declined by 15.5% due principally to the aforementioned non-cash goodwill impairment charges and charges related to the productivity initiative, coupled with higher selling and administrative expense resulting from recent acquisitions. On a non-GAAP basis, our operating profit increased by 9.1%. Our third quarter reported net income and earnings per share-diluted decreased by 30.8% and 30.0%, respectively, as a result of the lower operating profit, combined with $28.3 million in incremental interest charges relating to the loss on early extinguishment of debt. Our third quarter non-GAAP net income and earnings per share-diluted increased by 9.8% and 11.4%, respectively.

We currently estimate ~~full-year 2015~~full year 2016 constant currency net sales ~~to be in line with 2014 full-year net sales, including an approximate 1.0%~~growth of approximately 2.5%, which includes a 0.5% net benefit from ~~recent~~ acquisitions and ~~divestitures and an~~divestitures. The Company expects a 1.0% unfavorable impact ~~of at least 1.5%~~ from foreign currency exchange rates. Excluding ~~the~~ unfavorable ~~impact of~~ foreign currency exchange ~~our 2015~~rates and the barkTHINS acquisition, full-year net sales are expected to increase ~~approximately 1.5%~~about 2.0%. This is less than the previous estimate of 3.0%, primarily due to ~~2.0%.~~lower than expected non-seasonal growth over the remainder of the year. The Company expects gross margin, as determined on a non-GAAP basis, to be slightly below 2015 levels due to unfavorable sales mix. We expect ~~full-year reported gross margin expansion of approximately 125 basis points, as solid North American gains, driven~~to exceed our initial 2016 productivity and cost savings target by ~~price realization,~~$10 million to $15 million, and we will ~~be partially offset by unfavorable impacts from weaker international results to-date and higher international trade promotion rates. In the fourth quarter, our North America~~continue to invest in advertising and related consumer marketing, ~~is expected~~including a greater shift to ~~accelerate~~digital and our investment in consumer and customer programming will also be up markedly, compared to both the third quarter of 2015 and the fourth quarter of 2014. These initiatives will support the seasonal business as well as our ~~Reese’s~~ ~~NCAA College Game Day promotion and new products such as~~ ~~Hershey’s Kisses Deluxe~~ ~~and~~ ~~Brookside~~ ~~dark chocolate fruit and nut bars. We believe this activity will lead to sequential improvement in U.S. marketplace performance in the fourth quarter. Additionally,~~mobile communications. As a result, we expect the aforementioned productivity initiative to benefit our full-year 2015 results by approximately $25 million, versus the previous estimate of $10 million to $15 million. Overall, the impacts of positive price realization and gross margin expansion, offset by charges relating to the goodwill impairment and 2015 productivity initiative are expect to result in full-year reported earnings per share-diluted in the $2.22 to $2.34 range. Wecurrently expect adjusted earnings per share-diluted for 2016 to increase 3.0% to 4.0%, including barkTHINS dilution of $0.05 to $0.06 per share, and be atin the ~~low end of the previously provided 3%~~$4.24 to ~~5% range, or approximately $4.10 per share-diluted, including dilution from acquisitions and divestitures of around $0.35 per share.~~$4.28 range.

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

~~Non-GAAP Information~~NON-GAAP INFORMATION

The comparability of certain of our financial measures is impacted by unallocated mark-to-market gains and losses on commodity derivatives, business realignment charges, ~~including the 2015 productivity initiative; asset impairment charges;~~ costs relating to ~~business and asset~~the integration of acquisitions, ~~and disposals; loss on early extinguishment of debt, and~~ non-service related components of our pension expense ~~(income).~~ ("NSRPE"), and other non-recurring gains and losses.

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

Reconciliation of Certain Non-GAAP Financial Measures
Consolidated results Three Months Ended Nine Months Ended
In thousands except per share data October 4,
2015 September 28,
2014 October 4,
2015 September 28,
2014
Reported gross profit $ 892,064
$ 860,137
$ 2,528,315
$ 2,449,101
Other business realignment charges 2,529
—
5,205
93
Acquisition and integration costs 6,035
—
6,343
—
NSRPE(I) 628
(671 ) 1,887
(2,013 )
Non-GAAP gross profit $ 901,256
$ 859,466
$ 2,541,750
$ 2,447,181
Reported operating profit $ 303,014
$ 358,668
$ 694,680
$ 1,048,714
2015 productivity initiative 64,268
—
90,322
—
Other business realignment charges 3,195
3,032
8,439
7,297
Acquisition and integration costs 9,359
5,824
14,253
9,664
NSRPE(I) 4,049
(463 ) 6,976
(1,383 )
Goodwill impairment 30,991
—
280,802
—
Loss on Mauna Loa divestiture —
13,340
2,667
13,340
Non-GAAP operating profit $ 414,876
$ 380,401
$ 1,098,139
$ 1,077,632
Reported interest expense, net $ 46,967
$ 20,773
$ 85,046
$ 62,792
Loss on early extinguishment of debt 28,326
—
28,326
—
Acquisition and integration benefits —
(390 ) —
(1,109 )
Non-GAAP interest expense, net $ 18,641
$ 21,163
$ 56,720
$ 63,901
Reported other (income) expense, net $ 9,409
$ (7,528 ) $ 4,328
$ 1,448
Acquisition and integration costs (benefits) —
(7,565 ) —
1,335
Gain on sale of trademark —
—
9,950
—
Non-GAAP other (income) expense, net $ 9,409
$ 37
$ 14,278
$ 113
Reported provision for income taxes $ 91,867
$ 121,682
$ 305,739
$ 340,070
2015 productivity initiative 23,166
—
31,442
—
Other business realignment charges 958
1,591
1,933
2,499
Acquisition and integration costs (benefits) 1,300
(3,034 ) 2,959
2,404
NSRPE(I) 1,560
(133 ) 2,725
(403 )
Loss on early extinguishment of debt 10,735
—
10,735
—
Gain on sale of trademark —
—
(3,662 ) —
Loss on Mauna Loa divestiture —
4,896
2,620
4,896
Non-GAAP provision for income taxes $ 129,586
$ 125,002
$ 354,491
$ 349,466
Reported net income $ 154,771
$ 223,741
$ 299,567
$ 644,404
2015 productivity initiative 41,102
—
58,880
—
Other business realignment charges 2,237
1,441
6,506
4,798
Acquisition and integration costs 8,059
903
11,294
7,486
NSRPE(I) 2,489
(330 ) 4,251
(980 )
Goodwill impairment 30,991
—
280,802
—
Loss on early extinguishment of debt 17,591
—
17,591
—
Gain on sale of trademark —
—
(6,288 ) —
Loss on Mauna Loa divestiture —
8,444
47
8,444
Non-GAAP net income $ 257,240
$ 234,199
$ 672,650
$ 664,152
Reported EPS - Diluted $ 0.70
$ 1.00
$ 1.35
$ 2.86
2015 productivity initiative 0.19
—
0.27
—
Other business realignment charges 0.01
0.01
0.03
0.02
Acquisition and integration costs 0.03
—
0.04
0.03
NSRPE(I) 0.01
—
0.02
—
Loss on Mauna Loa divestiture —
0.04
—
0.04
Gain on sale of trademark —
—
(0.03 ) —
Goodwill impairment 0.15
—
1.28
—
Loss on early extinguishment of debt 0.08
—
0.08
—
Non-GAAP EPS - Diluted $ 1.17
$ 1.05
$ 3.04
$ 2.95



Reconciliation of Certain Non-GAAP Financial Measures
Consolidated results	Three Months Ended
In thousands except per share data	April 3, 2016			April 5, 2015
Reported gross profit	$	817,376		$	900,843
Derivative mark-to-market losses	34,946			—
Business realignment activities	(487		)	1,348
Acquisition integration costs	—			134
NSRPE	3,241			761
Non-GAAP gross profit	$	855,076		$	903,086

Reported operating profit	$	339,509		$	384,166
Derivative mark-to-market losses	34,946			—
Business realignment activities	14,430			5,140
Acquisition integration costs	—			2,573
NSRPE	5,101			1,996
Non-GAAP operating profit	$	393,986		$	393,875

Reported provision for income taxes	$	109,897		$	130,067
Derivative mark-to-market losses	13,245			—
Business realignment activities	3,538			3,068
Acquisition integration costs	—			842
NSRPE	1,953			782
Gain on sale of trademark	—			(3,662		)
Non-GAAP provision for income taxes	$	128,633		$	131,097

Reported net income	$	229,832		$	244,737
Derivative mark-to-market losses	21,701			—
Business realignment activities	10,860			2,072
Acquisition integration costs	—			1,731
NSRPE	3,148			1,214
Settlement of SGM liability	(26,650		)	—
Gain on sale of trademark	—			(6,288		)
Non-GAAP net income	$	238,891		$	243,466

Reported EPS - Diluted	$	1.06		$	1.10
Derivative mark-to-market losses	0.10			—
Business realignment activities	0.05			0.01
Acquisition integration costs	—			0.01
NSRPE	0.01			—
Settlement of SGM liability	(0.12		)	—
Gain on sale of trademark	—			(0.03		)
Non-GAAP EPS - Diluted	$	1.10		$	1.09

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


	Three Months Ended				Nine Months Ended				Three Months Ended
	October 4, 2015		September 28, 2014		October 4, 2015		September 28, 2014		April 3, 2016		April 5, 2015
As reported gross margin	45.5	%	43.8	%	46.2	%	45.3	%	44.7	%	46.5	%
Non-GAAP gross margin (1)	46.0	%	43.8	%	46.4	%	45.2	%	46.8	%	46.6	%

As reported operating profit margin	15.5	%	18.3	%	12.7	%	19.4	%	18.6	%	19.8	%
Non-GAAP operating profit margin (2)	21.2	%	19.4	%	20.0	%	19.9	%	21.5	%	20.3	%

As reported effective tax rate	37.2	%	35.2	%	50.5	%	34.5	%	32.3	%	34.7	%
Non-GAAP effective tax rate (3)	33.5	%	34.8	%	34.5	%	34.5	%	35.0	%	35.0	%


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


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


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

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

~~2015 productivity initiative~~Mark-to-Market Losses on Commodity Derivatives

~~In June 2015,~~Commensurate with our discontinuance of hedge accounting treatment for commodity derivatives, we ~~announced~~are adjusting the mark-to-market losses on such commodity derivatives, until such time that the related inventory is sold. Since we often purchase commodity contracts to price inventory requirements in future years, we make this adjustment to facilitate the year-over-year comparison of cost of sales on a ~~new productivity initiative, which is intended to move decision making closer to~~basis that reflects the ~~customer~~derivative gains and losses with the consumer, to enable a more enterprise-wide approach to innovation, to more swiftly advance our knowledge agenda, and to provide for a more efficient cost structure, while ensuring that we effectively allocate resources to future growth areas. The project is intended to simplify the organizational structure to enhance the Company's ability to rapidly anticipate and respond to the changing demands of the global consumer. We recorded pre-tax charges related to this program of $64.3 million and $90.3 millionunderlying economic exposure being hedged for the period. For the three ~~and nine~~ months ended ~~October 4, 2015, respectively. See Note 9 to the Unaudited Consolidated Financial Statements for more information.~~April 3, 2016, unallocated mark-to-market losses on derivative commodities totaled $34.9 million.

~~Other business~~Business realignment activities

We periodically undertake restructuring and cost reduction activities as part of ongoing efforts to enhance long-term profitability. For the three months ended April 3, 2016 and ~~nine month periods ended October 4,~~April 5, 2015, we ~~recorded pre-tax charges of $3.2~~incurred $14.4 million and ~~$8.4~~$5.1 million, respectively, ~~relating to programs commenced in 2014 to rationalize certain non-U.S. manufacturing and distribution activities. For the three and nine months ended September 28, 2014, we incurred~~of pre-tax ~~charges of $3.0 million and $7.3 million, respectively, primarily relating~~business realignment charges. See Note 10 to the ~~demolition of the Company's former manufacturing facility, representing the final phase of the Project Next Century Program. This program was substantially complete as of December 31, 2014.~~Consolidated Financial Statements for more information.

Acquisition ~~and~~ integration costs

For the three ~~and nine month periods~~months ended ~~October 4,~~April 5, 2015, we incurred pre-tax costs related to ~~the~~ integration of the 2014 acquisitions of ~~Shanghai Golden Monkey~~SGM and Allan Candy ~~and the 2015 acquisition of Krave~~ totaling ~~$9.4~~$2.6 million ~~and $14.3 million, respectively,~~ as we ~~incorporate~~were incorporating these businesses into our operating practices and information systems. This includes charges incurred in the third quarter to write-down approximately $5.7 million of expired or near-expiration work-in-process inventory at SGM, in connection with the implementation of our global quality standards and practices. In addition, integration costs for the quarter were benefited by a $5.0 million reduction in the fair value of contingent consideration expected to be paid to the Krave shareholders. For the three and nine months ended September 28, 2014, we incurred pre-tax acquisition and integration benefits of $2.1 million and charges of $9.9 million, respectively.

Non-service related pension expense ~~(income)~~

Non-service-related pension expense ~~(income)~~ includes interest costs, the expected return on pension plan assets, the amortization of actuarial gains and losses, and certain curtailment and settlement losses or credits. The non-service-related pension expense ~~(income)~~ can fluctuate from year-to-year as a result of changes in market interest rates and market returns on pension plan assets. We believe that the service cost component of our total pension benefit costs closely reflects the operating costs ofto our business and provides for a better comparison of our operating results from year-to-year. Therefore,

we exclude the non-service-related pension expense ~~(income)~~ from our internal performance measures. Our most significant defined benefit pension plans were closed to most new participants in 2007, resulting in ongoing service costs that are stable and predictable. We recorded pre-tax non-service related pension expense of ~~$4.0~~$5.1 million and ~~$7.0~~$2.0 million for the three ~~and nine~~ months ended ~~October 4,~~April 3, 2016 and April 5, 2015, ~~respectively. We recorded pre-tax non-service related pension income of $0.4 million and $1.4 million for the three and nine months ended September 28, 2014,~~ respectively.

~~Loss on Mauna Loa divestiture~~

Settlement of SGM liability

In ~~December 2014,~~the fourth quarter of 2015, we ~~entered into~~reached an agreement with the SGM selling shareholders to ~~sell Mauna Loa, at which time~~reduce the ~~entity was recorded as held~~originally-agreed purchase price for ~~sale at its estimated sales value. The transaction closed in~~the remaining 20% of SGM, and we completed the purchase on February 3, 2016. In the first quarter of ~~2015, resulting in the recording of an additional loss on sale of $2.7 million, based on updates to the selling expenses and tax benefits. In the three and nine months ended September 28, 2014,~~2016, we recorded a ~~$13.3~~$26.7 million ~~expense to write-down an indefinite-lived trademark based on the estimated sales value for Mauna Loa.~~

~~Goodwill impairment~~

As discussed in Note 2 to the unaudited consolidated financial statements, in the second quarter of 2015, we recorded an estimated $249.8 million non-cash goodwill impairment charge, representing a write-down of all of the goodwill related to the SGM reporting unit. In the third quarter of 2015, we finalized the SGM goodwill assessment, resulting in an additional $16.6 million impairment charge. During the third quarter, we also recorded a $14.4 million goodwill impairment chargegain relating to the ~~portion~~settlement of ~~goodwill that was allocated~~the SGM liability, representing the net carrying amount of the recorded liability in excess of the cash paid to ~~our China chocolate reporting unit.~~

~~Loss on early extinguishment~~settle the obligation for the remaining 20% of ~~debt~~

~~During~~ the third quarter of 2015, we recorded within interest expense a pre-tax loss on early extinguishment of debt of $28.3 million relating to a cash tender offer. See Note 4 to the unaudited consolidated financial statements for further information.outstanding shares.

Gain on sale of trademark

~~During the first quarter of~~In 2015, we recorded a ~~$9.9~~$10.0 million gain relating to the sale of a non-core trademark.

~~2015~~

Constant Currency Net Sales Growth

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

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



	Three Months Ended April 3, 2016
	Percentage Change as Reported		Impact of Foreign Currency Exchange		Percentage Change on Constant Currency Basis
North America segment
Canada	(7.3	)%	(9.3	)%	2.0	%
Total North America segment	(4.3	)%	(0.4	)%	(3.9	)%

International and Other segment
Mexico	(13.8	)%	(18.0	)%	4.2	%
Brazil	(21.8	)%	(31.4	)%	9.6	%
India	(38.5	)%	(5.1	)%	(33.4	)%
Greater China	(39.2	)%	(2.6	)%	(36.6	)%
Total International and Other segment	(15.4	)%	(7.3	)%	(8.1	)%

Total Company	(5.6	)%	(1.2	)%	(4.4	)%

2016 Outlook

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

2015
(Projected)

2014
Reported EPS – Diluted $2.22 ‑ $2.34 $3.77
Acquisition integration and transaction charges 0.08 ‑ 0.10 0.05
Business realignment charges
2015 productivity initiative 0.35 —
Other international programs 0.04 - 0.05 0.03
Non-service related pension expense (income) 0.04 - 0.05 (0.01)
Goodwill impairment 1.28 0.06
Loss on sale of Mauna Loa — 0.08
Gain on sale of trademark (0.03) —
Loss on early extinguishment of debt 0.08 —
Adjusted EPS – Diluted $4.10 ‑ $4.18 $3.98



	2016 (Projected)	2015
Reported EPS – Diluted	$4.16 - $4.23	$2.32
Business realignment activities	0.08 - 0.09	0.36
Acquisition integration costs	0.03 - 0.04	0.05
Non-service related pension expense	0.06 - 0.07	0.05
Settlement of SGM liability	(0.12)	—
Goodwill / intangible asset impairment	—	1.28
Loss on early extinguishment of debt	—	0.09
Gain on sale of trademark	—	(0.03)
Adjusted EPS – Diluted	$4.24 - $4.28	$4.12

Our 2016 projected earnings per share-diluted, as presented above, does not include the impact of mark-to-market gains and losses on our commodity derivative contracts that will be reflected within corporate unallocated expenses in our segment results until the related inventory is sold, pursuant to our revised accounting policy for commodity derivatives as discussed in Note 5 to the Unaudited Consolidated Financial Statements.

~~Consolidated Results of Operations~~CONSOLIDATED RESULTS OF OPERATIONS

Three Months Ended Nine Months Ended
October 4,
2015 September 28,
2014 Percent Change Increase (Decrease) October 4,
2015 September 28,
2014 Percent Change Increase (Decrease)
In millions except per share amounts
Net sales $ 1,960.8
$ 1,961.5
— % $ 5,477.4
$ 5,411.7
1.2 %
Cost of sales 1,068.7
1,101.4
(3.0 )% 2,949.1
2,962.6
(0.5 )%
Gross profit 892.1
860.1
3.7 % 2,528.3
2,449.1
3.2 %
Gross margin 45.5 % 43.8 % 46.2 % 45.3 %
Selling, marketing and administrative (“SM&A”) expense 500.3
485.1
3.1 % 1,469.8
1,379.8
6.5 %
SM&A expense as a percent of sales 25.5 % 24.7 % 26.8 % 25.5 %
Goodwill impairment charge 31.0
—
NM
280.8
—
NM
Business realignment charges 57.8
16.3
252.8 % 83.0
20.6
303.9 %
Operating profit 303.0
358.7
(15.5 )% 694.7
1,048.7
(33.8 )%
Operating profit margin 15.5 % 18.3 % 12.7 % 19.4 %
Interest expense, net 47.0
20.8
126.1 % 85.1
62.8
35.4 %
Other (income) expense, net 9.4
(7.5 ) (225.0 )% 4.3
1.4
198.9 %
Provision for income taxes 91.8
121.7
(24.5 )% 305.7
340.1
(10.1 )%
Effective income tax rate 37.2 % 35.2 % 50.5 % 34.5 %
Net income $ 154.8
$ 223.7
(30.8 )% $ 299.6
$ 644.4
(53.5 )%
Net income per share–diluted $ 0.70
$ 1.00
(30.0 )% $ 1.35
$ 2.86
(52.8 )%

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

~~NM - not meaningful~~



	Three Months Ended
	April 3, 2016			April 5, 2015			Percent Change
In millions of dollars except per share amounts
Net Sales	$	1,828.8		$	1,937.8		(5.6	)%
Cost of Sales	1,011.4			1,037.0			(2.5	)%
Gross Profit	817.4			900.8			(9.3	)%
Gross Margin	44.7		%	46.5		%
SM&A Expense	471.7			514.0			(8.2	)%
SM&A Expense as a percent of net sales	25.8		%	26.5		%
Business Realignment Charges	6.1			2.6			134.6	%
Operating Profit	339.5			384.2			(11.6	)%
Operating Profit Margin	18.6		%	19.8		%
Interest Expense, Net	21.0			19.2			9.4	%
Other (Income) Expense, Net	(21.2		)	(9.8		)	116.3	%
Provision for Income Taxes	109.9			130.1			(15.5	)%
Effective Income Tax Rate	32.3		%	34.7		%
Net Income	$	229.8		$	244.7		(6.1	)%
Net Income Per Share—Diluted	$	1.06		$	1.10		(3.6	)%

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

Results of Operations - ~~Third~~First Quarter ~~2015~~2016 vs. ~~Third~~First Quarter ~~2014~~2015

Net Sales

Net sales ~~remained flat~~decreased 5.6% in ~~the third quarter of~~2016 compared with 2015, compared to the same period of 2014. Favorable price realization, primarily in the U.S., increased net sales by 5.8% and net acquisitions and divestitures increased net sales by 0.5%. These increases were offset byreflecting volume declines ~~due primarily to elasticity relating to the previously announced price increase in the U.S. coupled with lower sales in China, which reduced net sales by~~of 4.3% ~~as well as by the~~, an unfavorable impact from foreign currency exchange rates of ~~2.0%.~~1.2% and unfavorable net price realization of 0.5%, partially offset by a 0.4% benefit from net acquisitions and divestitures. The volume decline was driven by lower North America volumes due primarily to a shorter Easter season in 2016 and lower non-seasonal activity as greater levels of innovation and in-store merchandising are anticipated over the remainder of the year, coupled with lower net sales in China. The unfavorable net price realization was attributed to increased levels of direct trade, which more than offset favorable price realization on seasonal products. Excluding foreign currency, our net sales ~~increased 2.0%~~decreased 4.4% in ~~the quarter.~~2016.

Key U.S. Marketplace Metrics

For the 12-week period ended October 3, 2015, our U.S. candy, mint and gum (“CMG”) retail takeaway increased 0.3%, while Hershey's market share declined 0.4%, in 2015 compared with the same period of 2014. We believe the third quarter marketplace performance was pressured by lower consumer trips and a decline of in-store merchandising and programming at some retailers.



For the 12 week period ended	April 3, 2016		April 5, 2015
Hershey's Consumer Takeaway Increase	8.2	%	4.6	%
Hershey's Market Share (Decrease) Increase	(0.1	)	0.2

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, and convenience store channels, plus Wal-Mart Stores, Inc., partial dollar, club and military channels.

These metrics are based on measured market scanned purchases as reported by Nielsen and provide a means to assess our retail takeaway and market position relative to the overall category. In 2016, our performance benefited from an an earlier Easter, which fell one week earlier than in the prior year. Our chocolate market share increased by 0.1 points in the first quarter of 2016. However, this was offset by unfavorable non-chocolate candy performance, resulting in a market share decline of 0.1 points in the first quarter. In addition, Hershey's and Reese's snack mix items are not included in the CMG database as Nielsen captures this within salty snacks.

Cost of Sales and Gross Margin

Cost of sales decreased ~~by 3.0%~~2.5% in ~~the third quarter of 2015~~2016 compared ~~to the same period of 2014.~~with 2015. Volume declines and supply chain productivity reduced cost of sales by ~~7.3%~~approximately 8%. These ~~reductions~~declines were ~~partially~~substantially offset by commodity mark-to-market losses and higher supply chain ~~commodity and input~~ costs, as well as unfavorable sales mix, which together increased cost of sales by approximately 3.4%. In addition, 2015 cost of sales was impacted by charges of $9.2 million, including acquisition and integration costs of $6.1 million, other business realignment charges of $2.5 million and non-service related pension expense of $0.6 million, which collectively increased cost of sales by approximately ~~0.9%~~5%. ~~In comparison,~~As described in Note 5, our commodity derivative instruments are no longer designated for hedge accounting treatment and, as a result, the changes in fair market value are recognized currently in cost of ~~sales benefited by $0.7 million in non-service related pension income in the third quarter of 2014.~~sales.

Gross margin ~~increased~~decreased by ~~170~~180 basis points in ~~the third quarter of 2015~~2016 compared ~~to the same period of 2014. Favorable net price realization,~~with 2015. Commodity mark-to-market losses and higher supply chain costs reduced gross margin by approximately 330 basis points. The declines were partially offset by supply chain productivity and ~~other~~ cost savings initiatives as well as slightly lower commodity costs, which collectively improved gross margin by ~~370 basis points. However, these benefits were partially offset by higher supply chain and commodity costs, which together reduced gross margin by approximately~~ 150 basis points. On a non-GAAP basis, excluding the commodities mark-to-market losses as well as business realignment ~~and acquisition integration~~ charges, ~~2015~~2016 gross margin increased by ~~220~~20 basis points.

Selling, Marketing and Administrative ~~Expense~~

~~Total selling,~~Selling, marketing and administrative (“SM&A”) expenses ~~increased by 3.1%~~decreased $42.3 million or 8.2% in 2016, due primarily to a 9.8% decline in advertising and related consumer marketing expense. North America new product launches, as well as merchandising and display activity, are expected to accelerate in the ~~third quarter~~remainder of ~~2015 compared to the same period of 2014.~~2016 and be supported by advertising and related consumer marketing expense, which should increase at a percentage rate greater than net sales growth. Excluding these advertising and related consumer marketing costs, ~~which declined 0.4% during the quarter, the third quarter~~ selling and administrative expenses ~~increased~~for 2016 decreased by ~~5.5%~~7.3% as compared to 2015, due to savings from the ~~same period of 2014. This increase~~2015 Productivity Initiative as well as our continued focus on non-essential spending. SM&A expenses in ~~selling and administrative expenses was primarily driven~~2016 were also impacted by ~~incremental increases from acquired businesses. There were $13.9 million in~~charges for business realignment ~~charges included in selling, marketing and administrative expenses in the third quarter~~activities of 2015, including charges of $6.5 million attributed to the 2015 productivity initiative, non-service related pension expense of $3.4 million, acquisition and integration costs of $3.3 million and other business realignment charges of $0.7 million. In the comparable period of 2014, total business realignment charges included in selling, marketing and administrative expenses were $6.0 million, including acquisition and integration costs of $5.8$8.8 million and non-service related pension expense of ~~$0.2~~$1.9 million.

~~Goodwill Impairment~~

~~As discussed in the Overview~~ In 2015, SM&A expenses included $3.6 million for business realignment activities and Outlook section as well as Note 2 to the unaudited consolidated financial statements, the SGM business has continued to perform below expectations, with net sales and earnings levels well below pre-acquisition levels, and in the second quarter we recorded an estimated goodwill impairment chargenon-service related pension expense of $249.8 million relating to the SGM reporting unit. During the third quarter, we updated our estimates of the acquisition-date fair values of the net assets acquired, which increased the value of acquired goodwill by $16.6$1.2 million. We also finalized the impairment test of the goodwill relating to the SGM reporting unit, which resulted in an additional $16.6 million write-off of this increase to goodwill. During the third quarter, we also wrote off $14.4 million of goodwill that resulted from the SGM acquisition and was assigned to our existing China chocolate business, as this reporting unit was expected to benefit from acquisition synergies relating to the sale of Golden Monkey-branded product through its Tier 1 and hypermarket distributor networks. This goodwill impairment was driven by the continued declining performance in our China chocolate business through the third quarter, as a result of macroeconomic challenges and changing consumer shopping behavior mentioned previously.

The assessment of the valuation of goodwill and other long-lived assets is based on management estimates and assumptions, as discussed in our critical accounting policies included in our Annual Report on Form 10-K for the year ended December 31, 2014. These current estimates and assumptions are subject to change due to changing economic and competitive conditions.

Business Realignment Charges

In the ~~third quarter~~first three months of ~~2015~~2016 and ~~2014,~~2015, we recorded total business realignment charges of ~~$57.8~~$6.1 million and ~~$16.3~~$2.6 million, respectively. The 2016 charges related primarily to severance and other third party expenses attributed to the optimization of the China business and workforce structure that commenced in the first quarter of 2016. The 2015 charges ~~relate primarily~~were related to the ~~2015 productivity initiative intended to simplify the Company's organizational structure to enhance our ability to rapidly anticipate and respond to the changing demands~~divestiture of the global consumer. Further information on this program is provided in the Overview and Outlook section and Note 9 to the unaudited consolidated financial statements. The third quarter 2014 charges primarily related to an impairment charge for a non-chocolate brand as well as costs associated with the demolition of the former manufacturing facility in Hershey, Pennsylvania, representing the final stages of the Project Next Century program.Mauna Loa business.

Operating Profit and Operating Profit Margin

Operating profit decreased ~~15.5%~~11.6% in ~~the third quarter of 2015~~2016 compared with ~~the third quarter of 2014,~~2015 due primarily to ~~the goodwill impairment charges,~~lower gross profit as well as higher business realignment charges, ~~and higher selling, marketing and administrative costs,~~ offset in part by the ~~higher gross profit.~~lower SM&A expenses.

Operating profit margin decreased to ~~15.5% for the third quarter of~~18.6% in 2016 from 19.8% in 2015 ~~from 18.3% for the third quarter of 2014,~~ due to the ~~goodwill impairment charges,~~lower gross margin and higher ~~level of selling, marketing and administrative expenses as a percent of sales, as well as the higher level of~~ business realignment charges.

On a non-GAAP basis, ~~2015 third quarter~~2016 operating profit ~~increased by 9.1%,~~was flat, while ~~third quarter~~ operating profit margin ~~increased to 21.2% from 19.4%.~~improved 120 basis points, as compared with the same period of 2015.

Interest Expense, Net

Net interest expense was ~~$26.2~~$1.8 million higher in ~~the third quarter of 2015~~2016 than in ~~the comparable period of 2014,~~2015 due primarily to the premium paid to repurchase long-term debt as part of a cash tender offer. See Note 4 for additional detail on the tender offer. Excluding the impact of the loss on the early extinguishment of debt, the net interest expense declined as a result of higherlower capitalized interest expense ~~coupled with savings resulting from fixed-to-floating~~and lower interest ~~rate swap agreements put in place towards the end of 2014.~~income.

Other (Income) Expense, Net

Other (income) expense, net ~~reflects certain gains and losses associated with activities not directly related~~was $11.4 million higher in 2016 than in 2015, primarily attributed to ~~our core operations. Other (income) expense, net reflected a net expense~~the $26.7 million settlement of ~~$9.4 million~~the Shanghai Golden Monkey liability in ~~the third quarter of 2015 compared to net gain of $7.5 million in the third quarter of 2014, due primarily to the~~2016, partially offset by write-down of equity investments qualifying for federal historic and energy tax credits. ~~As discussed in Note 13,~~In 2015, other (income) expense, included the ~~equity investment value is recovered as~~gain on the ~~benefit from the tax credits is realized. The net gain recorded in the third quarter~~sale of ~~2014 primarily reflected the foreign exchange gain related to our strategy to cap the U.S. denominated acquisition price of SGM.~~a non-core trademark.

Income Taxes and Effective Tax Rate

Our effective income tax rate was ~~37.2%~~32.3% for ~~the third quarter of 2015~~2016 compared with ~~35.2%~~34.7% for 2015. The 2016 rate reflects the ~~third quarter~~impacts of ~~2014. The 2015 tax rate was impacted by~~non-taxable income related to the ~~non-deductible goodwill impairment charges referenced previously. Excluding the impact~~settlement of the ~~goodwill impairment charge,~~SGM liability and the ~~2015 effective~~ income tax ~~rate for the third quarter was 33.1%, which is lower than the third quarter rate of 2014, due to the~~ benefit offrom historic and energy tax credits, ~~realized from the investment tax strategy initiated in the second quarter of 2015,~~which were partially offset ~~in part~~ by the valuation allowance recorded against ~~the~~current year SGM ~~net~~ operating ~~loss carryforwards and the unfavorable mix of foreign versus U.S. earnings.~~losses.

Net Income and Net Income Per Share

Net income ~~in the third quarter of 2015~~ decreased ~~$69.0~~$14.9 million, or 30.8%, while earnings per share-diluted ("EPS") in the third quarter of 2015 decreased $0.30, or 30.0%, compared with the third quarter of 2014. The decreases in 2015 net income and EPS were primarily driven by the goodwill impairment charges, coupled with higher selling and administrative expenses and business realignment charges, as noted above.

On a non-GAAP basis, net income for the third quarter of 2015 increased $23.0 million, or 9.8%, and EPS increased $0.12, or 11.4%, as compared with the third quarter of 2014. The increases in 2015 non-GAAP net income and EPS were primarily driven by gross margin expansion.

~~Results of Operations - First Nine Months 2015 vs. First Nine Months 2014~~

~~Net Sales~~

Net sales increased 1.2% in the first nine months of 2015 over the comparable period of 2014, driven by favorable net price realization of 4.5% and a 1.2% benefit from net acquisitions and divestitures, substantially offset by volume declines which reduced net sales by approximately 3.0% as well as the unfavorable impact from foreign currency exchange rates of 1.5%. Excluding foreign currency, our net sales increased 2.7% in the first nine months of 2015. The favorable net price realization, primarily in the U.S., was attributed to the price increase announced in mid-2014. The volume declines were primarily related to volume elasticity relating to the pricing action in the U.S. coupled with with lower sales in China.

~~Key U.S. Marketplace Metrics~~

For the 40-week period ended October 3, 2015, our U.S. candy, mint and gum (“CMG”) retail takeaway remained flat. For the 40-week period ended October 3, 2015, our U.S. market share was an industry leading 31.2%, consistent with the same period of 2014. Consumer takeaway and 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, and convenience store channels, plus Wal-Mart Stores, Inc., partial dollar, club and military channels.

~~Cost of Sales and Gross Margin~~

Cost of sales decreased by 0.5% in the first nine months of 2015 compared to the same period of 2014. Supply chain productivity and volume declines reduced cost of sales by approximately 5.6%. These declines were substantially offset by higher supply chain and commodity costs, and unfavorable sales mix, which increased total cost of sales by approximately 4.6%. In addition, cost of sales was impacted by business realignment charges of $13.4 million, including acquisition and integration costs of $6.3 million, other business realignment charges of $5.2 million and non-service related pension expense of $1.9 million, which collectively increased cost of sales by approximately 0.5%. In comparison, cost of sales benefited by $1.9 million in the third quarter of 2014, primarily due to non-service related pension income.

Gross margin increased by 90 basis points in the first nine months of 2015 compared to the same period of 2014. Favorable net price realization as well as supply chain productivity and other cost savings initiatives collectively improved gross margin by 280 basis points. However, these benefits were substantially offset by higher commodity and other input costs, which reduced gross margin by approximately 160 basis points. On a non-GAAP basis, excluding the business realignment and acquisition integration charges, 2015 gross margin increased by 120 basis points.

~~Selling, Marketing and Administrative Expense~~

Total selling, marketing and administrative expenses increased by 6.5% in the first nine months of 2015 compared to the same period of 2014. Advertising and related consumer marketing expense increased 1.5% during this period. Excluding these advertising and related consumer marketing costs, selling and administrative expenses for the first nine months of 2015 increased by 9.5% as compared to the same period of 2014, driven by incremental increases from acquired businesses, as well as additional continued investments in route-to-market capabilities and knowledge-based consumer insights. There were $26.2 million in business realignment charges included in selling, marketing and administrative expenses in the first nine months of 2015, including charges of $10.0 million attributed to the 2015 productivity initiative, acquisition and integration costs of $7.9 million, non-service related pension expense of $5.1 million and other business realignment charges of $3.2 million. In the comparable period of 2014, total business realignment charges included in selling, marketing and administrative expenses were $10.3 million, including acquisition and integration costs of $9.7 million and non-service related pension expense of $0.6 million.

~~Goodwill Impairment~~

As noted previously, we finalized the impairment test of the goodwill relating to the SGM reporting unit, which resulted in a write-off of the additional goodwill recognized in the third quarter of $16.6 million, for total impairment for the nine month period of $266.4 million. During the third quarter, we also wrote off $14.4 million of goodwill that resulted from the SGM acquisition and was assigned to our existing China chocolate business, as this reporting unit was expected to benefit from acquisition synergies relating to the sale of Golden Monkey-branded product through its Tier 1 and hypermarket distributor networks. This goodwill impairment was driven by the continued declining performance in our China chocolate business through the third quarter, as a result of macroeconomic challenges and changing consumer shopping behavior mentioned previously.

~~Business Realignment Charges~~

In the first nine months of 2015 and 2014, we recorded total business realignment charges of $83.0 million and $20.6 million, respectively. The 2015 charges primarily related to the aforementioned productivity initiative that commenced in the second quarter of 2015, while the 2014 charges mainly related to an impairment charge relating to a non-chocolate brand as well as the costs associated with the demolition of the former manufacturing facility in Hershey, Pennsylvania.

~~Operating Profit and Operating Profit Margin~~

Operating profit decreased 33.8% in the first nine months of 2015 compared with the comparable period of 2014, due primarily to the goodwill impairment charges, higher selling, marketing and administrative costs and business realignment charges, offset in part by the higher gross profit.

Operating profit margin decreased to 12.7% for the first nine months of 2015 from 19.4% for the comparable period of 2014, due to the goodwill impairment charges, higher selling, marketing and administrative expenses as a percent of sales, and higher business realignment charges.

~~On a non-GAAP basis, operating profit for the first nine months of 2015 increased by 1.9%, while operating profit margin increased marginally to 20.0% from 19.9%.~~

~~Interest Expense, Net~~

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

~~Other (Income) Expense, Net~~

Other (income) expense, net reflected a net expense of $4.3 million in the first nine months of 2015 compared to a net expense of $1.4 million in the comparable period of 2014. The 2015 net expense was related to the write-down of equity investments qualifying for tax credits, substantially offset by a gain on the sale of a non-core trademark. The 2014 net expense reflected the foreign exchange loss related to our strategy to cap the U.S. denominated acquisition price of SGM, offset in part by the gain realized on the acquisition of a controlling interest in LSFC. See further details in Note 1 to the unaudited consolidated financial statements.

~~Income Taxes and Effective Tax Rate~~

Our effective income tax rate was 50.5% for the first nine months of 2015 compared with 34.5% for the comparable period of 2014. The 2015 tax rate was significantly impacted by the non-deductible goodwill impairment charges. Excluding the impact of the goodwill impairment charge, the 2015 effective income tax rate was comparable to the 2014 rate. While the 2015 rate benefited from tax credits realized from the investment tax strategy initiated in the second quarter of 2015, this was offset by the valuation allowance recorded against the SGM net operating loss carryforwards and the unfavorable mix of foreign versus U.S. earnings.

~~Net Income and Net Income Per Share~~

~~Net income in the first nine months of 2015 decreased $344.8 million, or 53.5%~~6.1%, while earnings per share-diluted (“EPS”) decreased $0.04, or 3.6%, in ~~the first nine months of 2015 decreased $1.51, or 52.8%,~~2016 compared with ~~the first nine months of 2014.~~2015. The decreases in both net income and EPS were driven by ~~the goodwill impairment charges,~~lower gross profit as well as higher ~~selling, marketing and administrative expenses and~~ business realignment charges, as noted above. Our 2016 EPS also benefited from lower weighted-average shares outstanding, as a result of share repurchases pursuant to our Board-approved repurchase programs.

On a non-GAAP basis, net income ~~for the first nine months of 2015 increased $8.5~~decreased $4.6 million in 2016, or ~~1.3%~~1.9%, and EPS increased ~~$0.09,~~$0.01, or ~~3.1%~~0.9%, as compared with ~~the comparable period of 2014.~~2015. The ~~increases~~changes in ~~2015~~2016 non-GAAP net income and EPS were primarily driven by gross margin expansion and the impact of other (income) expense, net. Our 2016 EPS also benefited from lower ~~net interest expense.~~weighted-average shares outstanding, as noted above.

~~Segment Results~~SEGMENT RESULTS

The summary that follows provides a discussion of the results of operations of our two reportable segments: North America and International and Other. The segments reflect our operations on a geographic basis. For segment reporting purposes, we use “segment income” to evaluate segment performance and allocate resources. Segment income excludes unallocated general corporate administrative expenses, unallocated mark-to-market gains and losses on commodity derivatives, as well as ~~charges associated with~~ business realignment ~~initiatives, goodwill~~and impairment charges, ~~acquisition-related~~acquisition integration costs, the non-service related portion of pension expense and other unusual gains or losses that are not part of our measurement of segment performance. These items of our operating income are managed centrally at the corporate level and are excluded from the measure of segment income reviewed by the CODM and used for internal management reporting and performance evaluation. Segment income and segment income margin, which are presented in the segment discussion that follows, are non-GAAP measures and do not purport to be alternatives to operating income as a measure of operating performance. We believe that these measures are useful to investors and other users of our financial information in evaluating ongoing operating profitability as well as in evaluating operating performance in relation to our competitors, as they exclude the activities that are not integral to our ongoing operations. For further information, see the Non-GAAP Information section at the beginning of this Item 2.

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


		Three Months Ended						Nine Months Ended						Three Months Ended
		October 4, 2015			September 28, 2014			October 4, 2015			September 28, 2014			April 3, 2016			April 5, 2015
Net sales:

Net Sales:
North America	North America	$	1,733,869		$	1,693,903		$	4,840,438		$	4,727,479		$	1,633,471		$	1,706,995
International and Other	International and Other	226,910			267,675			636,966			684,262			195,341			230,805
Total	Total	$	1,960,779		$	1,961,578		5,477,404			5,411,741			$	1,828,812		$	1,937,800

Segment income:
Segment Income (Loss):
North America	North America	$	546,080		$	488,902		$	1,561,053		$	1,433,339		$	529,390		$	554,306
International and Other	International and Other	(13,509		)	16,050			(79,754		)	21,187			(13,233		)	(21,759		)
Total segment income	Total segment income	532,571			504,952			1,481,299			1,454,526			516,157			532,547
Unallocated corporate expense (1)	Unallocated corporate expense (1)	117,695			124,551			383,160			376,894			122,171			138,672
Goodwill impairment		30,991			—			280,802			—
Charges associated with business realignment initiatives		67,463			16,372			101,428			20,637
Non-service related pension expense (income)		4,049			(463		)	6,976			(1,383		)
Acquisition and integration costs		9,359			5,824			14,253			9,664
Unallocated mark-to-market losses on commodity derivatives (2)														34,946			—
Charges associated with business realignment activities														14,430			5,140
Non-service related pension expense														5,101			1,996
Acquisition integration costs														—			2,573
Operating profit	Operating profit	303,014			358,668			694,680			1,048,714			339,509			384,166
Interest expense, net	Interest expense, net	46,967			20,773			85,046			62,792			21,005			19,202
Other (income) expense, net	Other (income) expense, net	9,409			(7,528		)	4,328			1,448			(21,225		)	(9,840		)
Income before income taxes	Income before income taxes	$	246,638		$	345,423		$	605,306		$	984,474		$	339,729		$	374,804

(1)


(2)	Reflects gains and losses on commodity derivative instruments that are excluded from segment income until the related inventory is sold.

North America

The North America segment is responsible for our chocolate and ~~sugar~~non-chocolate confectionery market position, as well as our grocery and growing snacks ~~and adjacencies~~ market ~~position,~~positions, in the United States and Canada. This includes developing and growing our business in chocolate ~~sugar~~and non-chocolate confectionery, ~~refreshment, snack,~~ pantry, food service and other snacking product lines. North America accounted for 89.3% and 88.1% of our net sales for the three months ended April 3, 2016 and April 5, 2015, respectively. North America results for the three ~~and nine~~ months ended ~~October 4,~~April 3, 2016 and April 5, 2015 ~~and September 28, 2014~~ were as follows:


	Three Months Ended								Nine Months Ended								Three Months Ended
	October 4, 2015			September 28, 2014			Percent / Point Change		October 4, 2015			September 28, 2014			Percent / Point Change		April 3, 2016			April 5, 2015			Percent Change
In millions of dollars
Net sales	$	1,733.9		$	1,693.9		2.4	%	$	4,840.4		$	4,727.5		2.4	%	$	1,633.5		$	1,707.0		(4.3	)%
Segment income	546.1			488.9			11.7	%	1,561.1			1,433.3			8.9	%	529.4			554.3			(4.5	)%
Segment margin	31.5		%	28.9		%			32.3		%	30.3		%			32.4		%	32.5		%

Results of Operations - ~~Third~~First Quarter ~~2015~~2016 vs. ~~Third~~First Quarter ~~2014~~2015

Net sales of our North America segment ~~increased $40.0~~decreased $73.5 million or ~~2.4%~~4.3% in ~~the third quarter of 2015~~2016 compared to ~~the same period~~2015, reflecting volume declines of ~~2014, reflecting~~3.7%, unfavorable net price realization of ~~6.9% and a net benefit from acquisitions and divestitures of 0.3%, partially offset by a volume decline of 3.7%~~0.7% and an unfavorable impact from foreign currency exchange rates that reduced net sales by ~~approximately 1.1%~~0.4%, partially offset by the favorable net impact of acquisitions and divestitures of 0.5%. The volume decline was due principally to elasticity related to the 2014 pricing action, as well as lower levels of merchandising and programming at certain retailers that impacted many snack categories. Our Canada operations were unfavorably impacted by the stronger U.S. dollar.

~~Our North America segment income increased $57.2 million or 11.7% in the third quarter of 2015 compared to the same period of 2014, driven by gross margin expansion,~~ primarily due to ~~pricing.~~

~~Results~~a shorter Easter season in 2016 and lower non-seasonal activity as greater levels of ~~Operations - First Nine Months 2015 vs. First Nine Months 2014~~

~~Net sales~~innovation and in-store merchandising are anticipated over the remainder of ~~our North America segment increased $112.9 million or 2.4% in~~ the ~~first nine months of 2015 compared to the same period of 2014, reflecting~~year. The unfavorable net price realization was attributed to increased levels of ~~5.6% and a net benefit from acquisitions and divestitures of 0.3%, partially~~direct trade, which more than offset by a volume decline of 2.7% as well as the unfavorable impact from foreign currency exchange rates that reduced net sales by approximately 0.8%. The volume decline was due to elasticity related to the 2014 pricing action.favorable price realization on seasonal products. Our Canada operations were impacted by the stronger U.S. dollar, which drove the unfavorable foreign currency impact.

Our North America segment income ~~increased $127.8~~decreased $24.9 million or ~~8.9%~~4.5% in 2016 compared to 2015, driven by lower sales. Advertising and related consumer marketing expense declined 6.6% versus the first ~~nine months~~quarter of 2015 ~~compared to the same period of 2014, principally~~ due to favorable price realization and supply chain productivity, which offset volume declines, input cost increases, and higher advertising, consumer promotions and marketing spending. The advertising, consumer promotion and marketing expenses increased 4.5% in the 2015 period due to additional investments in route-to-market capabilities and consumer insights.timing.

International and Other

The International and Other segment includes all other countries where we currently manufacture, import, market, sell or distribute chocolate ~~sugar~~and non-chocolate confectionery and other products. ~~Currently, this includes our~~We currently have operations and manufacture product in China, Mexico, Brazil and India, primarily for consumers in these markets, and also distribute and sell confectionery products in export markets of Asia, Latin America, Middle East, Europe, Africa and ~~the Middle East, along with exports to these~~other regions. ~~While a minor component, this~~This segment also includes our global retail operations, including Hershey’s Chocolate World stores in Hershey, Pennsylvania, New York City, Chicago, Las Vegas, Shanghai, Niagara Falls (Ontario), Dubai and Singapore, as well as operations associated with licensing the use of certain trademarks and products to third parties around the world. International and Other accounted for 10.7% and 11.9% of our net sales for the three months ended April 3, 2016 and April 5, 2015, respectively. International and Other results for the three ~~and nine~~ months ended ~~October 4,~~April 3, 2016 and April 5, 2015 ~~and September 28, 2014~~ were as follows:


	Three Months Ended								Nine Months Ended								Three Months Ended
	October 4, 2015			September 28, 2014			Percent / Point Change		October 4, 2015			September 28, 2014			Percent / Point Change		April 3, 2016			April 5, 2015			Percent Change
In millions of dollars
Net sales	$	226.9		$	267.7		(15.2	)%	$	637.0		$	684.3		(6.9	)%	$	195.3		$	230.8		(15.4	)%
Segment (loss) income	(13.5		)	16.1			NM		(79.8		)	21.2			NM
Segment loss																	(13.2		)	(21.8		)	(39.4	)%
Segment margin	(5.9		)%	6.0		%			(12.5		)%	3.1		%			(6.8		)%	(9.4		)%

Results of Operations - ~~Third~~First Quarter ~~2015~~2016 vs. ~~Third~~First Quarter ~~2014~~2015

Net sales of our International and Other segment decreased ~~$40.8~~$35.5 million or ~~15.2%~~15.4% in ~~the third quarter of 2015~~2016 compared to ~~same period of 2014. Overall, the segment's net sales decrease reflected~~2015, reflecting volume declines of ~~8.7%~~8.4%, anthe unfavorable impact from foreign currency exchange rates of ~~7.9%~~7.3% and the unfavorable impact from the Mauna Loa divestiture of 0.7%, ~~and unfavorable~~partially offset by favorable net price realization ~~which reduced net sales by approximately 0.9%~~of 1.0%. ~~These factors were partially offset by incremental revenue from the acquisition of SGM, which added 2.3% to 2015 net sales, albeit a significantly lower level of growth than had been anticipated.~~ Excluding ~~SGM and~~ the unfavorable impact of foreign currency exchange rates, the net sales of our International and Other segment declined by approximately ~~9.6%, due primarily to~~8.1%.

The net sales decline was driven lower net sales in China as well as the discontinuance of ~~chocolate~~the edible oil products in ~~China.~~India. China net sales declined, as expected, by approximately 35% in the first quarter of 2016 as sell-in related to Chinese New Year items was lower than in the same period of 2015, reflecting the challenging macroeconomic environment and competitive activity. In the ~~third~~first quarter of 2016, China chocolate category growth in China increased about 4%, which is less than historical growth rates. We believe the category continues to be impacted by macroeconomic challenges and trends that are affecting consumer shopping behavior and accelerated e-commerce and on-line purchases of broader consumer staples, which combined are leading to lower trips in Tier 1 hypermarkets, where the majority of our chocolateretail sales ~~are derived, and impacting the impulse orientated chocolate category. Our third quarter chocolate retail takeaway in China~~ declined by ~~approximately 14%, resulting in a market share decline in China of 1.7%~~about 10%.

~~On a constant currency basis, net sales in our focus markets of Mexico and Brazil increased versus the comparable period of 2014.~~ Constant currency net sales in ~~India declined due to the planned discontinuance of edible oil products in the third quarter; however, core brand sales in India~~Mexico and Brazil increased ~~on a constant currency basis.~~nearly 6% driven by solid Hershey's marketplace performance.

Our International and Other segment loss ~~was $13.5~~decreased by $8.6 million in the ~~third~~first quarter of ~~2015~~2016 compared to ~~segment~~2015. Combined income ~~of $16.1 million~~ in Latin America and export markets improved versus the ~~same period of 2014. The decline~~prior year; however, this was ~~primarily attributable to~~more than offset by lower ~~chocolate net~~ sales ~~in China and SGM dilution on the lower than anticipated sales levels.~~

~~Results of Operations - First Nine Months 2015 vs. First Nine Months 2014~~

Net sales of our International and Other segment decreased $47.3 million or 6.9% in the first nine months of 2015 compared to same period of 2014, reflecting unfavorable impact from foreign currency exchange rates which reduced net sales by approximately 6.3%, volume declines of 4.9%, and unfavorable price realization of 3.1%, substantially offset by incremental revenue from the acquisition of SGM representing an increase of 7.4% to 2015 net sales. Excluding SGM and the unfavorable impact of foreign currency exchange rates, the net sales of our International and Other segment declined by approximately 8.0%. The unfavorable net price realization was impacted by higher trade promotion activities and returns and allowancesmix in ~~our China business, driven by second quarter trade inventory destocking at distributors as of a result of poor Chinese New Year sell through.~~

Performance in our focus markets of Mexico and Brazil improved and, on a constant currency basis, net sales in the first nine months of 2015 in these countries increased by approximately 10% and 5%, respectively, versus the comparable period of 2014. Constant currency net sales in India declined due to the planned discontinuance of edible oil products.

Our International and Other segment loss was $79.8 million in the third quarter of 2015 compared to segment income of $21.2 million the same period of 2014. The decline was primarily attributable to lower net sales in China, coupled with increased levels of investment in go-to-market capabilities within our key focus markets as well as higher depreciation and amortization expense relating to recent acquisitions.China.

Unallocated Corporate Items

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

In the ~~third~~first quarter ~~of 2015,~~2016, unallocated corporate items totaled ~~$117.7~~$122.2 million ~~relatively comparable~~compared to ~~$124.6~~$138.7 million in 2015, with the ~~same period of 2014. In~~reduction due primarily to cost savings from the ~~first nine months of~~ 2015 ~~unallocated corporate items totaled $383.2 million, relatively comparable to $376.9 million in the first nine months of 2014.~~Productivity Initiative discussed previously.

Liquidity and Capital Resources

Historically, our primary source of liquidity has been cash generated from operations. Domestic seasonal working capital needs, which typically peak during the summer months, are generally met by utilizing cash on hand, bank borrowings or the issuance of commercial paper. Commercial paper may also 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.

At ~~October 4,~~April 3, 2016 , our cash and cash equivalents totaled $286.0 million. At December 31, 2015, our cash and cash equivalents totaled ~~$343.9~~$346.5 million. ~~In total, our~~Our cash and cash equivalents ~~including short-term investments held at December 31, 2014, declined $128.0 million~~ during the first ~~nine~~three months of ~~2015~~2016 declined $60.5 million compared to the 2015 year-end balance ~~of $472.0 million at December 31, 2014,~~ as a result of the sources and uses of cash outlined in the discussion that follows.

Approximately ~~half~~two-thirds of the balance of our cash and cash equivalents ~~and short term investments~~ at ~~October 4, 2015~~April 3, 2016 was held by subsidiaries domiciled outside of the United States. If these amounts held outside of the ~~U.S.~~United States were to be repatriated, under current law they would be subject to U.S. federal income taxes, less applicable foreign tax credits. However, our intent is to permanently reinvest these funds outside of the ~~U.S.~~United States. The cash that our foreign subsidiaries hold for indefinite reinvestment is expected to be used to finance foreign operations and investments. We believe we have sufficient liquidity to satisfy our cash needs, including our cash needs in the United States.

We generated net cash from operating activities of ~~$587.9~~$257.1 million in the first ~~nine~~three months of ~~2015, an increase~~2016, a decrease of ~~$200.4~~$2.1 million compared to ~~$387.4~~$259.2 million generated in the same period of ~~2014.~~2015. The ~~increase~~decrease in net cash from operating activities was mainly driven by the following factors:

Working capital (comprised of trade accounts receivable, inventory and accounts payable) ~~consumed~~used cash of ~~$221~~$4 million in the ~~2015~~2016 period, while it ~~consumed~~generated cash of ~~$341~~$36 million during the same period of ~~2014.~~2015. This resulted in ~~$120~~$40 million of ~~higher~~lower cash flow in the ~~2015~~2016 period relative to ~~2014,~~2015, which is driven by ~~lower~~a higher inventory ~~purchases~~balance in the ~~2015~~2016 period ~~since certain raw material inventory had been built up at the preceding year-end to take advantage~~in anticipation of ~~favorable pricing.~~

~~Other accrued liabilities used $42 million less cash~~upcoming product launches, partially offset by a lower trade accounts receivable balance in the ~~2015~~2016 period ~~versus 2014, primarily~~ due to lower sales.

Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation expense, excess tax benefit from stock-based compensation, deferred income taxes, business realignment and impairment charges, write-down of equity investments and the ~~increase~~gain on settlement of SGM liability) resulted in $22 million of lower cash flow in the ~~restructuring accrual relating~~2016 period relative to 2015.

These decreases were partially offset by the ~~2015 productivity initiative.~~following net cash inflow:

The impact of our hedging activities ~~positively~~unfavorably impacted cash flow by ~~$26~~$10 million in the ~~2015~~2016 period versus a $59 million unfavorable ~~$5 million~~ impact in the ~~2014~~2015 period. This primarily reflects ~~the impact of non-cash gains and losses amortized to income from accumulated other comprehensive income, coupled with the cash flow impact of~~ market gains and losses on our commodity futures. Our cash receipts typically ~~increase~~decrease when futures market prices are ~~increasing.~~decreasing.

Net cash used in investing activities totaled ~~$331.4~~$49.2 million in the first ~~nine~~three months of ~~2015,~~2016, compared to ~~$692.4~~$249.1 million in the same period of ~~2014.~~2015. The variance of $199.9 million was driven by 2015 activity that related to the ~~size of acquisitions made in the respective periods, with SGM in 2014 for $362 million compared to~~ Krave ~~in 2015~~acquisition for $219 ~~million. In addition, we received~~million, partially offset by net proceeds of ~~$95~~$32 million ~~in the 2015 period~~ from the sale of ~~short-term investments that were initially purchased in the 2014 period.~~Mauna Loa. Further details regarding our acquisition and disposition activity are provided in Note 2 to the ~~unaudited consolidated financial statements. Capital~~Unaudited Consolidated Financial Statements. For the full year 2016, we expect capital expenditures, including capitalized software, ~~were comparable on a year-over-year basis. We expect total capital expenditures in 2015 of approximately $350~~to approximate $285 million ~~which is less than previous estimates due~~ to ~~lower capital requirements related to the Johor, Malaysia project, currently estimated at approximately $80~~$295 million.

WeNet cash used ~~cash~~ in financing activities ~~of $287.4~~totaled $271.2 million in the first ~~nine~~three months of ~~2015, which was $49.1~~2016, compared to $76.5 million ~~less than we used~~ in the same period of ~~2014. During the 2015 period, higher proceeds from the issuance~~2015. The variance of ~~debt net of debt repayments drove~~$194.7 million was primarily driven by a ~~$248 million increase~~reduction in 2015 cash flow versus the 2014 period. This increase was more than offset by higher dividend payments, higher payments for stock repurchases, the purchase of our Brazil noncontrolling interest, lower U.S. commercial paper and otherforeign short-term borrowings in ~~our international businesses,~~2016 of approximately $90 million, $36 million used to purchase the remaining 20% of SGM on February 3, 2016 and ~~lower~~$18 million less in proceeds from the exercise of stock ~~options in 2015, which collectively reduced cash flow by $199 million compared to the 2014 period.~~options.

Recent Accounting Pronouncements

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

Safe Harbor Statement

We are subject to changing economic, competitive, regulatory and technological risks and uncertainties that could have a material impact on our business, financial condition or results of 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 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 manufacturing operations or supply chain could impair our ability to produce or deliver finished products, resulting in a negative impact on our operating results;

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

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;

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

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

~~Future developments related~~We might not be able to ~~civil antitrust lawsuits~~hire, engage and retain the ~~possible investigation by government regulators of alleged pricing practices by members of the confectionery industry in the United States could negatively impact~~talented global workforce we need to drive our ~~reputation and our operating results;~~growth strategies; and

Such other matters as discussed in our ~~2014~~2015 Annual Report on Form 10-K.

We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date this Quarterly Report on Form 10-Q is filed.

Item 3. ~~Quantitative and Qualitative Disclosures About Market Risk~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The total notional amount of interest rate swaps outstanding was $850 million at ~~October 4, 2015~~April 3, 2016 and December 31, ~~2014 was $850 million and $1.2 billion,~~2015, respectively. The notional amount ~~included~~includes $350 million ~~and $450 million at October 4, 2015 and December 31, 2014, respectively,~~ of fixed-to-floating interest rate swaps which convert a comparable amount of fixed-rate debt to variable rate ~~debt.~~debt at April 3, 2016 and December 31, 2015, respectively. A hypothetical 100 basis point increase in interest rates applied to this now variable rate debt as of ~~October 4, 2015~~April 3, 2016 would have increased interest expense by approximately ~~$2.7~~$0.9 million for the first ~~nine~~three months of ~~2015~~2016 and ~~$4.6~~$3.6 million for the full year ~~2014.~~2015.

We consider our current risk related to market fluctuations in interest rates on our remaining debt portfolio, excluding fixed-rate debt converted to variable with fixed-to-floating instruments, to be minimal since this debt is largely long-term and fixed-rate in nature. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. A 100 basis point increase in market interest rates would decrease the fair value of our fixed-rate long-term debt at ~~October 4, 2015~~April 3, 2016 and December 31, ~~2014~~2015 by approximately $75 million and ~~$57~~$76 million, respectively. However, since we currently have no plans to repurchase our outstanding fixed-rate instruments before their maturities, the impact of market interest rate fluctuations on our long-term debt does not affect our results of operations or financial position.

The potential decline in fair value of foreign currency forward exchange contracts resulting from a hypothetical near-term adverse change in market rates of 10% was ~~$3.7~~$10.0 million as of ~~October 4, 2015~~April 3, 2016 and ~~$7.0~~$3.2 million as of December 31, ~~2014. The market risk resulting from~~2015. Our open commodity contracts had a ~~hypothetical adverse market price movement of 10%, based on the estimated average fair~~notional value of ~~net commodity positions at four dates prior to the end of each period presented, increased to $65.6~~$552.6 million as of ~~October 4, 2015 from $50.7~~April 3, 2016 and $374.8 million as of December 31, ~~2014. The market risk reflects~~2015. At the end of the first quarter of 2016, the potential ~~loss~~change in ~~future earnings resulting from~~fair value of commodity derivative instruments, assuming a 10% decrease in the ~~hypothetical adverse market~~underlying commodity price, ~~movement.~~would have increased our net unrealized losses by $55.3 million, generally offset by a reduction in the cost of the underlying commodity purchases.

Other than as described above, market risks have not changed significantly from those described in our ~~2014~~2015 Annual Report on Form 10-K.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

~~Disclosure~~We have established disclosure controls and procedures ~~are controls~~(as defined in Rules 13a-15(e) and ~~other procedures that are~~15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to ensure that information required to be disclosed in our reports filed or submitted under the ~~Securities~~ Exchange Act ~~of 1934 (the “Exchange Act”)~~ is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange ~~Commission's~~Commission’s rules and ~~forms. Disclosure controls~~forms, and ~~procedures include, without limitation, controls and procedures designed to ensure that~~such information ~~required to be disclosed in our reports filed under the Exchange Act~~ is accumulated and communicated to management, including ~~the Company's~~our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Rule 13a-15 under the Exchange Act. This evaluation was carried out under the supervision and Management, with the participation of the ~~Company's management, including our~~ Chief Executive Officer and Chief Financial ~~Officer.~~Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of April 3, 2016. Based ~~upon that~~on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that ~~the Company's~~our disclosure controls and procedures ~~are~~were effective as of April 3, 2016.

Changes in Internal Controls Over Financial Reporting

During the ~~end~~fourth quarter of ~~the period covered by this Quarterly Report on Form 10-Q. There has been no change during the most recent~~ fiscal ~~quarter~~2015, we identified and disclosed a material weakness in our internal control over financial reporting ~~identified~~related to hedge accounting compliance for cocoa commodity derivatives. The material weakness arose in ~~connection~~the quarter ended October 4, 2015, and was the result of changes the Company made in the third quarter of fiscal 2015 to its hedging program and related controls. Specifically, the control designed to monitor compliance with the ~~evaluation~~Company's hedge documentation, pursuant to the provisions of FASB ASC Topic 815, Derivatives and Hedging (ASC 815), did not operate as designed during the third and fourth quarters of fiscal 2015. As a result, instances of non-compliance with our hedging program related to cocoa derivatives occurred and were not detected timely and, therefore, we did not meet the technical requirements to qualify for cash flow hedge accounting treatment under ASC 815. The material weakness resulted in an immaterial error in cost of goods sold and accumulated other comprehensive income in the Company's financial statements as of and for the quarter ended October 4, 2015.

As disclosed previously, effective January 1, 2016, the Company is no longer designating any of its existing or future purchases of cocoa or other commodity derivatives as cash flow hedges and is not electing to qualify for hedge accounting treatment. As a result, the controls associated with monitoring compliance with ASC 815 to qualify for hedge accounting are no longer relevant for our commodity hedges; therefore, there is no need for remediation of the material weakness.

Except as noted above, there were no other changes in our internal control over financial reporting during the quarter ended April 3, 2016 that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

PART II -— OTHER INFORMATION

Item ~~1 -~~1. Legal ~~Proceedings~~Proceedings.

Information on legal proceedings is included in Note 1715 to the Unaudited Consolidated Financial Statements.

Item ~~1A -~~1A. Risk ~~Factors~~Factors.

Risk Factors as of ~~October 4, 2015~~April 3, 2016 have not changed materially from those described in Part 1, Item 1A, “Risk Factors,” of our ~~2014~~2015 Annual Report on Form 10-K.

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

Issuer Purchases of Equity Securities

The following table shows the purchases of shares of Common Stock made by or on behalf of Hershey, or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended), of Hershey, for each fiscal month in the three months ended ~~October 4, 2015:~~April 3, 2016:

Period
Total Number
of Shares
Purchased (1)

Average Price
Paid
per Share

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

Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans or
Programs (2)
(in thousands of dollars)
July 6 through August 2 —
$ —
—
$ 250,000
August 3 through August 30 1,834,641
$ 90.10
1,656,069
$ 101,037
August 31 through October 4 972,715
$ 88.94
908,715
$ 20,249
Total 2,807,356
$ 89.70
2,564,784



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
					(in thousands of dollars)
January 1 through January 31	—	$	—	—	$	20,249
February 1 through February 28	1,930,500	$	89.65	1,930,500	$	347,016
February 29 through April 3	1,436,261	$	90.33	1,436,261	$	216,295
Total	3,366,761	$	89.93	3,366,761

(1)

All of the shares of Common Stock purchased during the three months ended ~~October 4, 2015~~April 3, 2016 were purchased in open market transactions. ~~We purchased 242,572~~During the three months ended April 3, 2016, no shares of Common Stock ~~during the three months ended October 4, 2015~~were purchased in connection with our practice of buying back shares sufficient to offset those issued under incentive compensation plans.

(2)

In February ~~2014,~~2015, our Board of Directors approved a $250 million share repurchase authorization. This program was completed in the first quarter of ~~2015.~~2016. In February ~~2015,~~2016, our Board of Directors approved an additional ~~$250~~$500 million share repurchase authorization. As of ~~October 4, 2015, $20~~April 3, 2016, approximately $216 million remained available for repurchases of our Common Stock under this program. The share repurchase program does not have an expiration date.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item ~~6 - Exhibits~~6. Exhibits.

~~See the Exhibit Index~~The following ~~the signature page to~~exhibits are filed as part of this Quarterly Report on Form ~~10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.~~10-Q:



Exhibit Number		Description
10.1		Form of Notice of Special Award of Restricted Stock Units (3-year cliff vest) is incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 18, 2016.⁺
10.2		Form of Notice of Special Award of Restricted Stock Units (pro-rata vest).*⁺
10.3		Form of Notice of Award of Restricted Stock Units.*⁺
10.4		Form of Notice of Award of Performance Stock Units.*⁺
10.5		Terms and Conditions of Nonqualified Stock Option Awards under the Equity and Incentive Compensation Plan.*⁺
10.6		Employee Confidentiality and Restrictive Covenant Agreement, amended as of February 15, 2016.*⁺
12.1		Computation of Ratio of Earnings to Fixed Charges.*
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 Patricia A. Little, 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 Patricia A. Little, 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

*		Filed herewith
**		Furnished herewith
+		Management contract, compensatory plan or arrangement

~~SIGNATURES~~

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: ~~October 30, 2015~~April 29, 2016		/s/ Patricia A. Little
		Patricia A. Little
		Senior Vice President, Chief Financial Officer
		(Principal Financial Officer)

Date: ~~October 30, 2015~~April 29, 2016		/s/ Javier H. Idrovo
		Javier H. Idrovo
		Chief Accounting Officer
		(Principal Accounting Officer)



~~EXHIBIT INDEX~~

~~Exhibit 3.1~~	~~By-laws of The Hershey Company, is incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed April 2, 2015~~
~~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 Patricia A. Little, 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 Patricia A. Little, 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~~



	October 4, 2015			December 31, 2014
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	343,913		$	374,854
Short-term investments	—			97,131
Accounts receivable – trade, net	760,789			596,940
Inventories	813,583			801,036
Deferred income taxes	99,628			100,515
Prepaid expenses and other	191,417			276,571
Total current assets	2,209,330			2,247,047
Property, plant and equipment, net	2,187,736			2,151,901
Goodwill	689,684			792,955
Other intangible assets	388,747			294,841
Other assets	155,123			142,772
Total assets	$	5,630,620		$	5,629,516
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	448,599		$	482,017
Accrued liabilities	807,621			813,513
Accrued income taxes	40,619			4,616
Short-term debt	687,981			384,696
Current portion of long-term debt	250,421			250,805
Total current liabilities	2,235,241			1,935,647
Long-term debt	1,830,186			1,548,963
Other long-term liabilities	504,972			526,003
Deferred income taxes	123,095			99,373
Total liabilities	4,693,494			4,109,986

Stockholders' equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none at October 4, 2015 and December 31, 2014, respectively	—			—
Common stock, shares issued: 299,281,967 and 299,281,967 at October 4, 2015 and December 31, 2014, respectively	299,281			299,281
Class B common stock, shares issued: 60,619,777 and 60,619,777 at October 4, 2015 and December 31, 2014, respectively	60,620			60,620
Additional paid-in capital	771,074			754,186
Retained earnings	5,807,281			5,860,784
Treasury – common stock shares, at cost: 143,155,476 and 138,856,786 at October 4, 2015 and December 31, 2014, respectively	(5,665,708		)	(5,161,236		)
Accumulated other comprehensive loss	(383,935		)	(358,573		)
The Hershey Company stockholders’ equity	888,613			1,455,062
Noncontrolling interests in subsidiaries	48,513			64,468
Total stockholders' equity	937,126			1,519,530
Total liabilities and stockholders' equity	$	5,630,620		$	5,629,516



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



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



	Noncontrolling Interests			Redeemable Noncontrolling Interest
Balance, December 31, 2014	$	64,468		$	—
Reclassification from Total Equity to Redeemable Noncontrolling Interest	(13,428		)	13,428
Net loss attributable to noncontrolling interests (1)	(416		)	(4,393		)
Other comprehensive loss - foreign currency translation adjustments	(2,111		)	(2,334		)
Adjustment to redemption value	—			33,915
Other	—			(2,346		)
Purchase of redeemable noncontrolling interest	—			(38,270		)
Balance, October 4, 2015	$	48,513		$	—



	Employee related costs			Other exit costs		Other implementation costs			Total
Liability balance at December 31, 2014	$	79		$	—	$	—		$	79
2015 business realignment charges	80,305			—		6,785			87,090
Cash payments	(11,106		)	—		(2,985		)	(14,091		)
Other, net	710			—		—			710
Liability balance at October 4, 2015	$	69,988		$	—	$	3,800		$	73,788



Performance Stock Units and Restricted Stock Units	Number of Units		Weighted-average grant date fair value for equity awards or market value for liability awards (per unit)
Outstanding at beginning of year	904,306		$94.48
Granted	315,443		$107.53
Performance assumption change	(259,577	)	$105.93
Vested	(398,559	)	$73.63
Forfeited	(31,328	)	$112.15
Outstanding as of October 4, 2015	530,285		$106.42



	Nine Months Ended October 4, 2015
	Shares		Dollars
			In thousands
Shares repurchased under pre-approved share repurchase programs	4,209,112		$	402,548
Shares repurchased to replace Treasury Stock issued for stock options and incentive compensation	1,603,838		164,932
Total share repurchases	5,812,950		567,480
Shares issued for stock options and incentive compensation	(1,514,260	)	(63,008		)
Net change	4,298,690		$	504,472




	2015 (Projected)	2014
Reported EPS – Diluted	$2.22 ‑ $2.34	$3.77
Acquisition integration and transaction charges	0.08 ‑ 0.10	0.05
Business realignment charges
2015 productivity initiative	0.35	—
Other international programs	0.04 - 0.05	0.03
Non-service related pension expense (income)	0.04 - 0.05	(0.01)
Goodwill impairment	1.28	0.06
Loss on sale of Mauna Loa	—	0.08
Gain on sale of trademark	(0.03)	—
Loss on early extinguishment of debt	0.08	—
Adjusted EPS – Diluted	$4.10 ‑ $4.18	$3.98