Edgar Filing: HERSHEY CO

2014_Form_10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2014

¨ 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)

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

Common Stock, one dollar par value—$14,349,963,182 as of June 27, 2014.

Class B Common Stock, one dollar par value—$752,584 as of June 27, 2014. While the Class B Common Stock is not listed for public trading on any exchange or market system, shares of that class are convertible into shares of Common Stock at any time on a share-for-share basis. The market value indicated is calculated based on the closing price of the Common Stock on the New York Stock Exchange on June 27, 2014.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

Common Stock, one dollar par value—160,208,263 shares, as of February 6, 2015.

Class B Common Stock, one dollar par value—60,619,777 shares, as of February 6, 2015.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2015 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.

PART I


Item 1.	BUSINESS

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

Reportable Segments

We operate under a matrix reporting structure designed to ensure continued focus on North America, coupled with an emphasis on accelerating growth in our international markets, as we continue to transform into a more global company. Our business is organized around geographic regions and strategic business units. It is designed to enable us to build processes for repeatable success in our global markets. The Presidents of our geographic regions, along with the Senior Vice President responsible for our Global Retail and Licensing business, are accountable for delivering our annual financial plans and report into our CEO, who serves as our Chief Operating Decision Maker (“CODM”), so we have defined our operating segments on a geographic basis. Because our North America business currently generates over 85% of our consolidated revenue and none of our other geographic regions are individually significant, we have historically presented our business as one reportable segment. However, given the recent growth in our international business, combined with the September 2014 acquisition of Shanghai Golden Monkey, we have elected to begin reporting our operations within two segments, North America and International and Other, to provide additional transparency into our operations outside of North America. We have defined our reportable segments as follows:


•	North America - This segment is responsible for our chocolate and sugar confectionery market position in the United States and Canada. This includes developing and growing our business in chocolate, sugar confectionery, refreshment, snack, pantry and food service product lines.

•

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

Across our business, we also focus on growth within our three strategic business units - Chocolate, Sweets and Refreshments and Snacks and Adjacencies. These strategic business units focus on specific components of our product line and are responsible for building and leveraging the Company’s global brands and disseminating best demonstrated practices around the world. All of our products are marketed and distributed through our existing geographic go-to-market platforms.

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

Business Acquisitions

In September 2014, we completed the acquisition of 80% of the outstanding shares of Shanghai Golden Monkey Food Joint Stock Co., Ltd. (“SGM”), a confectionery company based in Shanghai, China. SGM operates through six production facilities located in China, and the Golden Monkey product line is primarily sold through traditional trade channels.

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

In January 2012, we acquired all of the outstanding stock of Brookside Foods Ltd. (“Brookside”), a privately held confectionery company based in Abbottsford, British Columbia, Canada. As part of this transaction, we acquired two production facilities located in British Columbia and Quebec and expanded our product line to include Brookside’s chocolate covered, fruit-flavored confectionery products.

Products

Our principal confectionery offerings include chocolate and sugar confectionery products; gum and mint refreshment products; pantry items, such as baking ingredients, toppings and beverages; and snack items such as spreads.

•

Within our North America markets, our product portfolio includes a wide variety of chocolate offerings marketed and sold under the renowned brands of Hershey’s, Reese’s, and Kisses, along with other popular chocolate and sugar confectionery brands such as Jolly Rancher, Almond Joy, Brookside, Good & Plenty, Heath, Kit Kat, Lancaster, Payday, Rolo, Twizzlers, Whoppers and York. We also offer premium chocolate products, primarily in the U.S., through the Scharffen Berger and Dagoba brands. Our refreshment products including Ice Breakers mints and chewing gum, Breathsavers mints, and Bubble Yum bubble gum. Our pantry and snack items that are principally sold in North America include baking products and toppings and sundae syrups sold under the Hershey’s, Reese’s and Heath brands, as well as our new family of Hershey’s and Reese’s chocolate spreads.

•

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

Principal Customers and Marketing Strategy

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

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

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

In conjunction with our sales and marketing efforts, our efficient product distribution network helps us maintain sales growth and provide superior customer service. We plan optimum stock levels and work with our customers to set reasonable delivery times. Our distribution network provides for the efficient shipment of our products from our manufacturing plants to strategically located distribution centers. We primarily use common carriers to deliver our products from these distribution points to our customers.

Raw Materials and Pricing

Cocoa products, including cocoa liquor, cocoa butter and cocoa powder processed from cocoa beans, are the most significant raw materials we use to produce our chocolate products. These cocoa products are purchased directly from third-party suppliers, who source cocoa beans that are grown principally in Far Eastern, West African and South American equatorial regions. West Africa accounts for approximately 72% of the world’s supply of cocoa beans.

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

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

We change prices and weights of our products when necessary to accommodate changes in input costs, the competitive environment and profit objectives, while at the same time maintaining consumer value. Price increases and weight changes help to offset increases in our input costs, including raw and packaging materials, fuel, utilities, transportation and employee benefits. When we implement price increases, as we did in July 2014 in North America, there is usually a time lag between the effective date of the list price increases and the impact of the price increases on net sales, in part because we honor previous commitments to planned consumer and customer promotions and merchandising events subsequent to the effective date of the price increases. In addition, promotional allowances may be increased subsequent to the effective date, delaying or partially offsetting the impact of price increases on net sales.

Competition

Many of our brands enjoy wide consumer acceptance and are among the leading brands sold in the marketplace in North America and certain markets in Latin America. We sell our brands in highly competitive markets with many other global multinational, national, regional and local firms. Some of our competitors are large companies with significant resources and substantial international operations. Competition in our product categories is based on product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing, promotional activity, the ability to identify and satisfy consumer preferences, as well as convenience and service.

Seasonality and Backlog

Our sales are typically higher during the third and fourth quarters of the year, representing seasonal and holiday-related sales patterns. We manufacture primarily for stock and typically fill customer orders within a few days of receipt. Therefore, the backlog of any unfilled orders is not material to our total annual sales.

Trademarks, Service Marks and License Agreements

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

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



Company	Brand	Location	Requirements

Kraft Foods Ireland Intellectual Property Limited	York Peter Paul Almond Joy Peter Paul Mounds	Worldwide	None
Cadbury UK Limited	Cadbury Caramello	United States	Minimum sales requirement exceeded in 2014

Société des Produits Nestlé SA	Kit Kat Rolo	United States	Minimum unit volume sales exceeded in 2014

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

Research and Development

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

Food Quality and Safety Regulation

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

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

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

Environmental Considerations

We made routine operating and capital expenditures during 2014 to comply with environmental laws and regulations. These expenditures were not material with respect to our results of operations, capital expenditures or competitive position.

Employees

As of December 31, 2014, we employed approximately 20,800 full-time and 1,650 part-time employees worldwide. Our employee headcount has increased compared to prior years due mainly to recent acquisitions, most notably SGM. Collective bargaining agreements covered approximately 5,750 employees. During 2015, agreements are expected to be negotiated for certain employees at four facilities outside of the United States, comprising approximately 64% of total employees under collective bargaining agreements. We believe that our employee relations are good.

Financial Information by Geographic Area

Our principal operations and markets are located in the United States. The percentage of total consolidated net sales for our businesses outside of the United States was 17.5% for 2014, 16.6% for 2013 and 16.2% for 2012. The percentage of total consolidated assets outside of the United States was 35.4% as of December 31, 2014 and 19.4% as of December 31, 2013.

Corporate Social Responsibility

Our founder, Milton S. Hershey, established an enduring model of responsible citizenship while creating a successful business. Driving sustainable business practices, making a difference in our communities and operating with the highest integrity are vital parts of our heritage. Milton Hershey School, established by Milton and Catherine Hershey, lies at the center of our unique heritage. Mr. Hershey donated and bequeathed almost his entire fortune to Milton Hershey School, which remains our primary beneficiary and provides a world-class education and nurturing home to nearly 2,000 children in need annually. We continue Milton Hershey's legacy of commitment to consumers, community and children by providing high-quality products while conducting our business in a socially responsible and environmentally sustainable manner.

In 2014, we published our third full corporate social responsibility (“CSR”) report, which provided an update on the progress we have made in advancing the priorities that were discussed in our last CSR report. The report outlined how we performed against the identified performance indicators and unveiled our new CSR framework, titled Shared Goodness.

The safety and health of our employees, and the safety and quality of our products, are at the core of our operations and are areas of ongoing focus. Our over-arching safety goal is to consistently achieve best in class safety performance. We continue to invest in our quality management systems to ensure that product quality and food safety remain top priorities. We carefully monitor and rigorously enforce our high standards of excellence for superior quality, consistency, taste and food safety.

In 2014, Hershey was recognized for its environmental, social and governance performance by being named to both the Dow Jones Sustainability World Index and the North America Index. Hershey is one of only 13 companies from the Food, Beverage and Tobacco Industry recognized in the Dow Jones Sustainability World Index and ranked in at least the 90th percentile in this evaluation of economic, environmental and social criteria. The Dow Jones Sustainability World Index tracks the performance of the top 10% of the 2,500 largest companies in the S&P Global Broad Market Index that lead the field in terms of sustainability.

We have committed to minimizing our impact on the environment, regularly reviewing the ways in which we manage our operations and secure our supply of raw materials. Eleven of our facilities, including six manufacturing sites, have achieved zero-waste-to-landfill status. At the beginning of 2014, we reset our environmental goals, as we had achieved many of them ahead of schedule. We now have goals to reduce our environmental impact through efforts such as reducing waste, increasing recycling rates and using water more efficiently.

We focus on promoting fair and ethical business dealings. A condition of doing business with us is compliance with our Supplier Code of Conduct, which outlines our expectations with regard to our suppliers' commitment to legal compliance and business integrity, social and working conditions, food safety and the environment.

We continue our leadership role in supporting programs to improve the lives of cocoa farming families through a variety of initiatives. In 2014, we announced our role as a founding member of CocoaAction, a new strategy to align the cocoa sustainability efforts of the world’s largest cocoa and chocolate companies. This new level of coordination and commitment seeks to build a rejuvenated and economically viable cocoa sector for at least 300,000 cocoa farmers

in Cote d’Ivoire and Ghana by 2020. Our 21st Century Cocoa Strategy aims to impact more than two million West Africans by 2017 through public/private programs as well as through Hershey initiatives, including CocoaLink, a first-of-its kind approach that uses mobile technology to deliver practical information on agricultural and social programs to rural cocoa farmers. It is our goal to source 100% certified cocoa for our global chocolate product lines by 2020, assuming adequate supply. We are progressing ahead of schedule as during 2014, 30% of the cocoa we sourced globally was certified. Our active engagement and financial support also continues for the World Cocoa Foundation and the International Cocoa Initiative.

Our employees share their time and resources generously in their communities. Both directly and through the United Way, we contribute to hundreds of agencies that deliver much needed services and resources. In 2014, Hershey donated more than $8 million in cash and product to worthy causes, including more than $3 million through our United Way Campaign. In 2014, we expanded our annual week of volunteerism, Good to Give Back Week, around the world. More than 1,700 employees volunteered with a variety of causes, and over 600 employees in Hershey, Pennsylvania partnered with the nonprofit Stop Hunger Now to pack 210,000 meals for families in need.

Our Company was founded on an enduring social mission – helping children in need. In North America, we are proud of our Project Fellowship program where employees partner with student homes at the Milton Hershey School, and our longstanding partnership with Children’s Miracle Network Hospitals. Around the world our employees are supporting local programs, such as an orphanage for special needs children in the Philippines and a children's burn center in Guadalajara, Mexico.

We have also initiated efforts to align our global citizenship priorities with our business expertise in manufacturing high quality food. We are working with the non-profit organization Project Peanut Butter to advance the treatment of severe malnutrition, the single largest cause of child death in the world today, through the production of locally produced, peanut-based, ready-to-use therapeutic foods. Hershey has sponsored a new manufacturing facility and feeding clinic and donated significant employee time and expertise to expand this program to Ghana.

Our commitment to CSR is yielding powerful results. As we expand into new markets and build upon our leadership in North America, we are convinced that our values and heritage will be fundamental to our continuing success.

Available Information

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

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


Item 1A.	RISK FACTORS

Cautionary Note Regarding Forward-Looking Statements

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

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

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

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

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

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



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

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

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

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

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

In North America, we announced a weighted average price increase in July 2014 of approximately 8% across our instant consumable, multi-pack, packaged candy and grocery lines to help offset part of the significant increases in our input costs, including raw materials, packaging, fuel, utilities and transportation, which we expect to incur in the future. While the increase was effective immediately, direct buying customers were given an opportunity to purchase transitional amounts of product at price points prior to the increase during the immediately following four-week period, and the increase is not expected to benefit seasonal sales until Halloween 2015. Accordingly, we expect that the majority of the financial benefit from this pricing action will impact earnings in 2015.

Market demand for new and existing products could decline.

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



Ÿ	Effective retail execution;
Ÿ	Appropriate advertising campaigns and marketing programs;
Ÿ	Our ability to secure adequate shelf space at retail locations;
Ÿ	Our ability to drive innovation and maintain a strong pipeline of new products in the confectionery and broader snacking categories;
Ÿ	Changes in product category consumption;
Ÿ	Our response to consumer demographics and trends; and
Ÿ	Consumer health concerns, including obesity and the consumption of certain ingredients.

There continue to be competitive product and pricing pressures in these markets, as well as challenges in maintaining profit margins. We must maintain mutually beneficial relationships with our key customers, including retailers and distributors, to compete effectively. Our largest customer, McLane Company, Inc., accounted for approximately 25% of our total net sales in 2014. McLane Company, Inc. is one of the largest wholesale distributors in the United States to convenience stores, drug stores, wholesale clubs and mass merchandisers, including Wal-Mart Stores, Inc.

Increased marketplace competition could hurt our business.

The global confectionery packaged goods industry is intensely competitive and consolidation in this industry continues. Some of our competitors are large companies that have significant resources and substantial international operations. In 2014, we also experienced increased levels of in-store activity for other snack items, which pressured confectionery category growth. In order to protect our existing market share or capture increased market share in this highly competitive retail environment, we may be required to increase expenditures for promotions and advertising, and must continue to introduce and establish new products. Due to inherent risks in the marketplace associated with advertising and new product introductions, including uncertainties about trade and consumer acceptance, increased expenditures may not prove successful in maintaining or enhancing our market share and could result in lower sales and profits. In addition, we may incur increased credit and other business risks because we operate in a highly competitive retail environment.

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

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



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

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

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

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

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

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

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

Our operations are impacted by consumer spending levels and impulse purchases which are affected by general macroeconomic conditions, consumer confidence, employment levels, the availability of consumer credit and interest rates on that credit, consumer debt levels, energy costs and other factors. Volatility in food and energy costs, sustained global recessions, rising unemployment and declines in personal spending could adversely impact our revenues, profitability and financial condition.

Changes in financial market conditions may make it difficult to access credit markets on commercially acceptable terms, which may reduce liquidity or increase borrowing costs for our Company, our customers and our suppliers. A significant reduction in liquidity could increase counterparty risk associated with certain suppliers and service

providers, resulting in disruption to our supply chain and/or higher costs, and could impact our customers, resulting in a reduction in our revenue, or a possible increase in bad debt expense.

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

In 2014, we derived approximately 18% of our net sales from customers located outside of the United States, versus 17% in 2013 and 16% in 2012. Additionally, 35% of our total consolidated assets were located outside of the United States as of December 31, 2014. As part of our global growth strategy, we are increasing our investments outside of the United States, particularly in Mexico, Brazil, India and China. As a result, we are subject to risks and uncertainties relating to international sales and operations, including:



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

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

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

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

We invest in industry standard security technology to protect the Company’s data and business processes against risk of data security breach and cyber attack. Our data security management program includes identity, trust, vulnerability and threat management business processes as well as adoption of standard data protection policies. We measure our data security effectiveness through industry accepted methods and remediate significant findings. Additionally, we certify our major technology suppliers and any outsourced services through accepted security certification standards. We maintain and routinely test backup systems and disaster recovery, along with external network security penetration testing by an independent third party as part of our business continuity preparedness. We also have processes in place to prevent disruptions resulting from the implementation of new software and systems of the latest technology.

While we believe that our security technology and processes provide adequate measures of protection against security breaches and in reducing cybersecurity risks, disruptions in or failures of information technology systems are possible

and could have a negative impact on our operations or business reputation. Failure of our systems, including failures due to cyber attacks that would prevent the ability of systems to function as intended, could cause transaction errors, loss of customers and sales, and could have negative consequences to our Company, our employees, and those with whom we do business.

Future developments related to civil antitrust lawsuits and the possible investigation by government regulators of alleged pricing practices by members of the confectionery industry in the United States could negatively impact our reputation and our operating results.

We are a defendant in a number of civil antitrust lawsuits in the United States, including individual, class and putative class actions brought against us by purchasers of our products. The U.S. Department of Justice also notified the Company in 2007 that it had opened an inquiry into certain alleged pricing practices by members of the confectionery industry, but has not requested any information or documents. Additional information about these proceedings is contained in Note 13 to the Consolidated Financial Statements.

Competition and antitrust law investigations can be lengthy and violators 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, currently are 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.


Item 1B.	UNRESOLVED STAFF COMMENTS

None.


Item 2.	PROPERTIES

Our principal properties include the following:



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

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


(2)	The Malaysia plant is currently under construction, with distribution expected to commence in the second half of 2015.

In addition to the locations indicated above, we also own or lease several other properties and buildings worldwide which we use for manufacturing, sales, distribution and administrative functions. Our facilities are well maintained

and generally have adequate capacity to accommodate seasonal demands, changing product mixes and certain additional growth. We continually improve our facilities to incorporate the latest technologies. The largest facilities are located in Hershey and Lancaster, Pennsylvania; Monterrey, Mexico; and Stuarts Draft, Virginia. The U.S., Canada and Mexico facilities in the table above primarily support our North America segment, while the China and Malaysia facilities primarily serve our International and Other segment. As discussed in Note 11 to the Consolidated Financial Statements, we do not manage our assets on a segment basis given the integration of certain manufacturing, warehousing, distribution and other activities in support of our global operations.


Item 3.	LEGAL PROCEEDINGS

The Company is subject to certain legal proceedings and claims arising out of the ordinary course of our business, which cover a wide range of matters including antitrust and trade regulation, product liability, advertising, contracts, environmental issues, patent and trademark matters, labor and employment matters and tax. See Note 13 to the Consolidated Financial Statements for information on certain legal proceedings for which there are contingencies.


Item 4.	MINE SAFETY DISCLOSURES

Not applicable.

SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company, their positions and, as of February 6, 2015, their ages are set forth below.



Name	Age	Positions Held During the Last Five Years
Humberto P. Alfonso	57	President, International (May 2013); Executive Vice President, Chief Financial Officer and Chief Administrative Officer (September 2011); Senior Vice President, Chief Financial Officer (July 2007)
John P. Bilbrey	58	President and Chief Executive Officer (June 2011); Executive Vice President, Chief Operating Officer (November 2010); Senior Vice President, President Hershey North America (December 2007)
Michele G. Buck	53	President, North America (May 2013); Senior Vice President, Chief Growth Officer (September 2011); Senior Vice President, Global Chief Marketing Officer (December 2007)
Richard M. McConville	61	Interim Principal Financial Officer (January 2015) and Vice President, Chief Accounting Officer (July 2012); Corporate Controller (June 2011); Director, International Controller, International Commercial Group (April 2007)
Terence L. O’Day	65	Senior Vice President, Chief Supply Chain Officer (May 2013); Senior Vice President, Global Operations (December 2008)
Leslie M. Turner ⁽¹⁾	57	Senior Vice President, General Counsel and Secretary (July 2012)
Kevin R. Walling ⁽²⁾	49	Senior Vice President, Chief Human Resources Officer (November 2011); Senior Vice President, Chief People Officer (June 2011)
D. Michael Wege	52	Senior Vice President, Chief Growth and Marketing Officer (May 2013); Senior Vice President, Chief Commercial Officer (September 2011); Senior Vice President, Chocolate Strategic Business Unit (December 2010);Vice President, U.S. Chocolate (April 2008)
Waheed Zaman ⁽³⁾	54	Senior Vice President, Chief Corporate Strategy and Administrative Officer (August 2013); Senior Vice President, Chief Administrative Officer (April 2013)

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


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


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

(3)

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

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

PART II


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

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

The closing price of our Common Stock on December 31, 2014, was $103.93. There were 33,689 stockholders of record of our Common Stock and 6 stockholders of record of our Class B Stock as of December 31, 2014.

We paid $440.4 million in cash dividends on our Common Stock and Class B Stock in 2014 and $393.8 million in 2013. The annual dividend rate on our Common Stock in 2014 was $2.04 per share.

Information regarding dividends paid and the quarterly high and low market prices for our Common Stock and dividends paid for our Class B Stock for the two most recent fiscal years is disclosed in Note 16 to the Consolidated Financial Statements.

On January 29, 2015, our Board declared a quarterly dividend of $0.535 per share of Common Stock payable on March 16, 2015, to stockholders of record as of February 25, 2015. It is the Company’s 341st consecutive quarterly Common Stock dividend. A quarterly dividend of $0.486 per share of Class B Stock also was declared.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Issuer Purchases of Equity Securities

The following table shows the purchases of shares of Common Stock made by or on behalf of Hershey, or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of Hershey, for each fiscal month in the three months ended December 31, 2014:



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)
September 29 through October 26, 2014	100,000	$	93.30	—	$	175,001
October 27 through November 23, 2014	100,000	$	95.58	—	$	175,001
November 24 through December 31, 2014	152,860	$	99.60	22,860	$	172,797
Total	352,860	$	96.68	22,860


(1)	All of the shares of Common Stock purchased during the three months ended December 31, 2014 were purchased in open market transactions. We purchased 330,000 shares of Common Stock during the three months ended December 31, 2014 in connection with our practice of buying back shares sufficient to offset those issued under incentive compensation plans.


(2)	In February 2014, our Board of Directors approved a $250 million share repurchase authorization. As of December 31, 2014, $172.8 million remained available for repurchases of our Common Stock under this program. The share repurchase program does not have an expiration date.

Stockholder Return Performance Graph

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

*Hypothetical $100 invested on December 31, 2009 in Hershey Common Stock, S&P 500 Index and S&P 500 Packaged Foods Index, assuming reinvestment of dividends.


Item 6.	SELECTED FINANCIAL DATA

FIVE-YEAR CONSOLIDATED FINANCIAL SUMMARY

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



	2014		2013		2012		2011			2010
Summary of Operations
Net Sales	$	7,421,768	$	7,146,079	$	6,644,252	$	6,080,788		$	5,671,009
Cost of Sales	$	4,085,602	3,865,231		3,784,370		3,548,896			3,255,801
Selling, Marketing and Administrative	$	1,900,970	1,922,508		1,703,796		1,477,750			1,426,477
Business Realignment and Impairment Charges (Credits), Net	$	45,621	18,665		44,938		(886		)	83,433
Interest Expense, Net	$	83,532	88,356		95,569		92,183			96,434
Provision for Income Taxes	$	459,131	430,849		354,648		333,883			299,065
Net Income	$	846,912	820,470		660,931		628,962			509,799
Net Income Per Share:
—Basic—Common Stock	$	3.91	3.76		3.01		2.85			2.29
—Diluted—Common Stock	$	3.77	3.61		2.89		2.74			2.21
—Basic—Class B Stock	$	3.54	3.39		2.73		2.58			2.08
—Diluted—Class B Stock	$	3.52	3.37		2.71		2.56			2.07
Weighted-Average Shares Outstanding:
—Basic—Common Stock	161,935		163,549		164,406		165,929			167,032
—Basic—Class B Stock	60,620		60,627		60,630		60,645			60,708
—Diluted	224,837		227,203		228,337		229,919			230,313
Dividends Paid on Common Stock	$	328,752	294,979		255,596		228,269			213,013
Per Share	$	2.04	1.81		1.56		1.38			1.28
Dividends Paid on Class B Stock	$	111,662	98,822		85,610		75,814			70,421
Per Share	$	1.842	1.63		1.41		1.25			1.16
Depreciation	$	176,312	166,544		174,788		188,491			169,677
Amortization	$	35,220	34,489		35,249		27,272			27,439
Advertising	$	570,223	582,354		480,016		414,171			391,145
Year-End Position and Statistics
Capital Additions	$	345,947	323,551		258,727		323,961			179,538
Total Assets	$	5,629,516	5,357,488		4,754,839		4,407,094			4,267,627
Short-term Debt and Current Portion of Long-term Debt	$	635,501	166,875		375,898		139,673			285,480
Long-term Portion of Debt	$	1,548,963	1,795,142		1,530,967		1,748,500			1,541,825
Stockholders’ Equity	$	1,519,530	1,616,052		1,048,373		880,943			945,896
Full-time Employees	20,800		12,600		12,100		11,800			11,300
Stockholders’ Data
Outstanding Shares of Common Stock and Class B Stock at Year-end	221,045		223,895		223,786		225,206			227,030
Market Price of Common Stock at Year-end	$	103.93	97.23		72.22		61.78			47.15
Price Range During Year (high)	$	108.07	100.90		74.64		62.26			52.10
Price Range During Year (low)	$	88.15	73.51		59.49		46.24			35.76


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

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

The MD&A is organized in the following sections:


•	Overview and Outlook


•	Non-GAAP Information


•	Consolidated Results of Operations


•	Segment Results


•	Financial Condition


•	Critical Accounting Policies and Estimates

OVERVIEW AND OUTLOOK

We are the largest producer of quality chocolate in North America and a global leader in chocolate and sugar confectionery. We market, sell and distribute our products under more than 80 brand names in approximately 70 countries worldwide. As of December 31, 2014, we began reporting our operations through two segments: North America and International and Other.

In 2014, we continued to make progress against our strategic initiatives:


•	Our U.S. business increased its overall candy, mint and gum (“CMG”) market share to 31.4%, an increase of 0.3 share points versus 2013.


•	We acquired Shanghai Golden Monkey, more than doubling our presence in China.


•	We expanded into snacks and adjacencies with the launch of Hershey’s Spreads and the related Snacksters Graham Dippers.


•	We sourced 30% of our cocoa needs from certified and sustainable cocoa farms, putting us in a solid position to deliver on our goal of sourcing 100% certified cocoa by 2020.

However, 2014 also presented some challenges. In our U.S. markets, we believe lower retail store traffic and changes in consumer spending patterns impacted how consumers shopped for snacks, while a number of our international markets continued to experience macroeconomic headwinds. Despite these challenges, our 2014 net sales and net income growth of 3.9% and 3.2%, respectively, reflects solid performance.

For the full year 2014, our U.S. CMG retail takeaway increase of 2.7% was about one full percentage point greater than the category growth rate. However, throughout the year, retail store traffic and consumer trips were irregular. Additionally, increased levels of distribution and in-store activity of items such as salty, bakery and meat snacks, by both mainstream and newer contemporary niche manufacturers, were prevalent throughout the year and drove broader snacking category growth in 2014, which we believe adversely impacted purchases of non-seasonal candy products.

Our 2014 international net sales increased nearly 15%, including a 2.7% unfavorable impact of foreign currency exchange rates and net sales contribution of approximately 7%, or $54 million, from Shanghai Golden Monkey Food Joint Stock Co., Ltd. (“SGM”). Excluding SGM and the unfavorable foreign currency exchange impact, our international net sales increased approximately 10%.

Our 2014 results were also impacted by increasing commodity and other input costs. In North America, we announced a weighted average price increase in July 2014 of approximately 8% across our instant consumable, multi-pack, packaged candy and grocery lines to help offset part of the significant increases in our input costs, including raw

materials, packaging, fuel, utilities and transportation, which we expect to incur in the future. While the increase was effective immediately, direct buying customers were given an opportunity to purchase transitional amounts of product at price points prior to the increase during the immediately following four-week period, and the increase is not expected to benefit seasonal sales until Halloween 2015. Therefore, this action did not materially benefit our 2014 results, but should be beneficial to our 2015 earnings.

Entering 2015, we are focused on accelerating growth and we have a solid line-up of new products that will bring variety, news and excitement to the category. In addition to the fourth quarter carryover benefit from Brookside Crunchy Clusters and Reese’s Spreads take home jar, we are also launching Kit Kat White Minis, Hershey’s Caramels, Ice Breakers Cool Blasts Chews, Reese’s Spreads Snacksters Graham Dippers and some other yet-to-be-announced new candy and snacking products. These launches will be supported with higher levels of advertising and in-store merchandising and programming that should enable us to mitigate the impact of volume elasticity related to the 2014 price increase and compete effectively across the CMG and broader snack categories. Additionally, we expect advertising, including a greater shift to digital and mobile communication, to increase at a rate greater than net sales growth.

We currently estimate full year 2015 net sales growth of 5.5% to 7.5%, including the impact of foreign currency exchange rates and a net contribution from acquisitions and divestitures of approximately 2.5%. This reflects our expectation for continued macroeconomic headwinds in international markets and slowly improving U.S. non-seasonal trends. In addition, we now anticipate foreign currency exchange impacts to be greater than our previous estimate and to have an unfavorable impact of approximately 1% on full year net sales growth.

We continue to focus on growth initiatives and margin-enhancing opportunities in addition to normal productivity gains. With the conclusion of the Project Next Century (“PNC”) program, in 2015 we will begin to focus on the opportunities that exist for future incremental increases in productivity and costs savings. A portion of any potential savings from this assessment would be reinvested in initiatives to accelerate revenue growth. We continue to have good visibility into our cost structure, with the exception of dairy products which cannot be effectively hedged. We currently expect 2015 gross margin to increase approximately 135 to 145 basis points driven by the 2014 pricing action and productivity. Therefore, we expect 2015 growth in earnings per share-diluted in a range of 10% to 13%, including net dilution from acquisitions and divestitures of $0.03 to $0.05 per share. We expect growth in adjusted earnings per share-diluted of 8% to 10%, as reflected in the reconciliation of reported to adjusted projections for 2015 provided below.

NON-GAAP INFORMATION

The following table provides a reconciliation of projected 2015 earnings per share-diluted and 2014 and 2013 earnings per share-diluted, each prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), to non-GAAP projected adjusted earnings per share-diluted for 2015 and adjusted earnings per share-diluted for 2014 and 2013:



	2015 (Projected)	2014	2013
Reported EPS-Diluted	$4.14 - $4.25	$3.77	$3.61
Acquisition integration and transaction charges	0.05 - 0.06	0.05	0.03
Business realignment charges, including PNC	0.04 - 0.05	0.03	0.05
Non-service related pension expense (income)	0.04 - 0.05	(0.01)	0.03
India impairment charge	—	0.06	—
Loss on anticipated sale of Mauna Loa	—	0.08	—
Adjusted EPS-Diluted	$4.30 - $4.38	$3.98	$3.72

For the non-GAAP adjusted earnings per share-diluted measure presented above, we have provided (1) the most directly comparable GAAP measure; (2) a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure; (3) an explanation of why our management believes this non-GAAP measure provides useful information to investors; and (4) additional purposes for which we use this non-GAAP measure.

We believe that the disclosure of adjusted earnings per share-diluted provides investors with a better comparison of our year-to-year operating results. We exclude the effects of certain items from earnings per share-diluted when we evaluate key measures of our performance internally, and in assessing the impact of known trends and uncertainties on our business. We also believe that excluding the effects of these items provides a more balanced view of the underlying dynamics of our business.

Adjusted earnings per share-diluted excludes the impacts of acquisition integration and transaction costs; charges and non-cash impairments associated with our business realignment initiatives; the non-cash goodwill impairment charge relating to our India business; the estimated loss on the anticipated sale of our Mauna Loa business; and 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) may be quite volatile from year-to-year as a result of changes in market interest rates and market returns on pension plan assets. Therefore, we have excluded non-service-related pension expense (income) from our internal performance measures, and we believe that adjusted earnings per share-diluted, excluding non-service-related pension expense (income), will provide investors with a better understanding of the underlying profitability of our ongoing business. We believe that the service cost component of our total pension benefit costs closely reflects the operating costs of our business and provides for a better comparison of our operating results from year-to-year. 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.

CONSOLIDATED RESULTS OF OPERATIONS



										Percent / Point Change
For the years ended December 31,	2014			2013			2012			2014 vs 2013		2013 vs 2012
In millions of dollars except per share amounts
Net Sales	$	7,421.8		$	7,146.0		$	6,644.3		3.9	%	7.6	%
Cost of Sales	4,085.6			3,865.2			3,784.4			5.7	%	2.1	%
Gross Profit	3,336.2			3,280.8			2,859.9			1.7	%	14.7	%
Gross Margin	45.0		%	45.9		%	43.0		%
SM&A Expense	1,901.0			1,922.5			1,703.8			(1.1	)%	12.8	%
SM&A Expense as a percent of net sales	25.6		%	26.9		%	25.6		%
Business Realignment and Impairment Charges, Net	45.6			18.6			45.0			144.4	%	(58.5	)%
EBIT	1,389.6			1,339.7			1,111.1			3.7	%	20.6	%
EBIT Margin	18.7		%	18.7		%	16.7		%
Interest Expense, Net	83.6			88.4			95.6			(5.5	)%	(7.5	)%
Provision for Income Taxes	459.1			430.8			354.6			6.6	%	21.5	%
Effective Income Tax Rate	35.2		%	34.4		%	34.9		%
Net Income	$	846.9		$	820.5		$	660.9		3.2	%	24.1	%
Net Income Per Share—Diluted	$	3.77		$	3.61		$	2.89		4.4	%	24.9	%

Net Sales

2014 compared with 2013

Net sales increased 3.9% in 2014 compared with 2013, reflecting volume growth of 4.4% and favorable net price realization of 0.2%, offset in part by an unfavorable impact from foreign currency exchange rates which reduced net sales by approximately 0.7%. The volume growth was driven by incremental sales of new products in our North America and International and Other segments, coupled with almost 1% of growth from the recent SGM acquisition. The pricing benefit from the mid-year price increase was largely offset by higher trade promotions and lower core volumes associated with near-term volume elasticity related to the price increase. As discussed previously, we expect the 2014 pricing action to be more impactful to our 2015 results.

2013 compared with 2012

Net sales increased 7.6% in 2013 compared with 2012, reflecting volume increases of 7.8% and nominal price realization of 0.1%, offset in part by an unfavorable impact from foreign currency exchange rates which reduced net sales by approximately 0.3%. Higher sales of Brookside products contributed approximately 1.3% to the net sales increase.

Key U.S. Marketplace Metrics



For the 52 weeks ended December 31,	2014		2013		2012
Hershey's Consumer Takeaway Increase	2.7	%	6.3	%	5.7	%
Hershey's Market Share Increase	0.3		1.1		0.6

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. Hershey's Spreads, the jar and instant consumable pack types, is not captured in the U.S. CMG database referenced herein, as Nielsen captures this within grocery items.

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 2014, the category and Hershey growth rates were below historical levels as retail store traffic and consumer trips were irregular during the year. Additionally, increased levels of distribution and in-store activity of items such as salty, bakery and meat snacks, by both mainstream and newer contemporary niche manufacturers, were prevalent throughout the year and drove broader snacking category growth in 2014. Despite these market dynamics, for the full year 2014, our U.S. CMG retail takeaway increased 2.7%, which exceeded the category growth rate of 1.8%, and our market share increased by 30 basis points.

Cost of Sales and Gross Margin

2014 compared with 2013

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

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

2013 compared with 2012

Cost of sales increased 2.1% in 2013 compared with 2012. The impact of sales volume increases and supply chain cost inflation together increased cost of sales by approximately 9.4%. Lower input costs, supply chain productivity improvements and a favorable sales mix reduced cost of sales by approximately 6.3%. Business realignment and impairment charges of $0.4 million were included in cost of sales in 2013, compared with $36.4 million in the prior year, benefiting 2013 cost of sales by 1.0%.

Gross margin increased by 290 basis points in 2013 compared with 2012. Reduced input costs, supply chain productivity improvements, a favorable sales mix and lower fixed costs as a percent of sales together improved gross margin by 390 basis points. These improvements were partially offset by supply chain cost inflation which reduced gross margin by 160 basis points. The impact of lower business realignment and impairment charges recorded in 2013 compared with 2012 benefited 2013 gross margin by 60 basis points.

Selling, Marketing and Administrative

2014 compared with 2013

Selling, marketing and administrative (“SM&A”) expenses decreased $21.5 million or 1.1% in 2014. This includes a 3.1% reduction in advertising and related consumer marketing expenses due to the timing of new product launches, a reduction in media production costs and a decision to shift resources to other more productive areas. Excluding advertising and related consumer marketing expenses, selling and administrative expenses were relatively flat compared to 2013 due to lower incentive compensation costs and discretionary cost containment efforts, offset in part by higher employee-related costs, including additional headcount in our China business and additional focused selling resources, as well as transaction costs associated with the acquisition of SGM. Selling and administrative expenses in 2014 also benefited from the $4.6 million gain recorded in the first quarter on the Lotte Shanghai Food Company (“LSFC”) acquisition and the $5.6 million in foreign currency gains realized on forward contracts related to the manufacturing facility under construction in Johor, Malaysia.

2013 compared with 2012

SM&A expenses increased $218.7 million or 12.8% in 2013. Contributing to the overall increase was a 19.7% increase in advertising, consumer promotions and other marketing expenses to support core brands and the introduction of new products in the U.S. and international markets. Excluding the advertising and related consumer marketing costs, selling and administrative expenses increased 8.8% primarily as a result of higher employee-related expenses, increased incentive compensation costs, legal fees and increased marketing research expenses, along with the write-off of certain assets associated with the remodeling of increased office space. There were minimal business realignment charges included in SM&A in 2013 compared with $2.5 million in 2012.

Business Realignment and Impairment Charges

Business realignment and impairment charges recorded during 2014, 2013 and 2012 were as follows:



For the years ended December 31,	2014		2013		2012
In millions of dollars
Cost of sales - Next Century and other programs	$	1.6	$	0.4	$	36.4
Selling, marketing and administrative - Next Century and other programs	2.9		—		2.4
Business realignment and impairment charges:
Next Century program:
Pension settlement loss	—		—		15.8
Plant closure expenses	7.5		16.3		20.8
Employee separation costs	—		—		0.9
Planned divestiture of Mauna Loa	22.3		—		—
India impairment	15.9		—		—
India voluntary retirement program	—		2.3		—
Tri-US, Inc. asset impairment charges	—		—		7.5
Total business realignment and impairment charges	45.7		18.6		45.0
Total charges associated with business realignment initiatives and impairment	$	50.2	$	19.0	$	83.8

Next Century Program

In June 2010, we announced Project Next Century (the “Next Century program”) as part of our ongoing efforts to create an advantaged supply chain and competitive cost structure. As part of the program, production was transitioned from the Company's century-old facility at 19 East Chocolate Avenue in Hershey, Pennsylvania, to an expanded West Hershey facility, which was built in 1992. The Next Century program is essentially complete as of December 31, 2014. Project-to-date costs totaled $197.9 million through December 31, 2014, in line with our estimates of total pre-tax charges and non-recurring project implementation costs of $190 million to $200 million.

In 2014 and 2013, plant closure expenses were primarily related to costs associated with the demolition of the former manufacturing facility.

In 2012, charges relating to the Next Century program included the following: $36.4 million recorded in cost of sales related primarily to start-up costs and accelerated depreciation of fixed assets over the reduced estimated remaining useful lives; $2.4 million recorded in selling, marketing and administrative expense for project administration; business realignment charges of $15.8 million relating to a non-cash pension settlement loss resulting from lump sum withdrawals by employees retiring or leaving the Company, primarily in connection with the Next Century program; and $20.8 million primarily related to costs associated with the closure of a manufacturing facility and the relocation of production lines.

Planned divestiture of Mauna Loa

In December 2014, we entered into an agreement to sell the Mauna Loa Macadamia Nut Corporation. In connection with the anticipated sale, we have recorded an estimated loss of $22.3 million to reflect the disposal entity at fair value, less an estimate of the selling costs. See Note 2 to the Consolidated Financial Statements for additional information.

India impairment

In connection with our annual goodwill and other intangible asset impairment testing, in December 2014, we recorded non-cash goodwill and trademark impairment charges totaling $15.9 million associated with our business in India. See Note 3 to the Consolidated Financial Statements for additional information.

Other international restructuring programs

During 2014, we implemented restructuring programs at several non-U.S. entities to rationalize select manufacturing and distribution activities, resulting in severance and accelerated depreciation costs of $4.5 million. These costs are recorded within cost of sales and selling, marketing and administrative costs. We expect to incur approximately $3.7 million of additional accelerated depreciation in 2015; other remaining costs relating to these programs are not expected to be significant.

Tri-US, Inc. impairment charges

In December 2012, the board of directors of Tri-US, Inc., a company that manufactured, marketed and sold nutritional beverages in which we held a controlling ownership interest, decided to cease operations as a result of operational difficulties, quality issues and competitive constraints. It was determined that investments necessary to continue the business would not generate sufficient return. Accordingly, in December 2012, the Company recorded non-cash impairment charges of approximately $7.5 million, primarily associated with the write off of goodwill and other intangible assets. These charges excluded the portion of the losses attributable to the noncontrolling interests.

Income Before Interest and Income Taxes ("EBIT") and EBIT Margin

2014 compared with 2013

EBIT increased 3.7% in 2014 compared with 2013 due primarily to the higher level of gross profit and lower overall selling, marketing and administrative costs, offset in part by the higher business realignment and impairment charges in 2014, as discussed above.

EBIT margin was 18.7% in 2014 and 2013, respectively. While gross margin declined by 90 basis points in 2014, this was offset by a lower level of SM&A expense as a percent of sales, which was favorable by 130 basis points in 2014.

2013 compared with 2012

EBIT increased in 2013 compared with 2012 as a result of higher gross profit and lower business realignment charges, partially offset by higher selling, marketing and administrative expenses. Pre-tax net business realignment and impairment charges of $19.1 million were recorded in 2013 compared with $83.8 million recorded in 2012.

EBIT margin increased from 16.7% in 2012 to 18.7% in 2013 as a result of higher gross margin and lower business realignment charges, partially offset by higher SM&A expenses as a percent of sales. The net impact of business realignment, impairment and acquisition charges recorded in 2013 reduced EBIT margin by 30 basis points, while business realignment and impairment charges recorded in 2012 reduced EBIT margin by 130 basis point.

Interest Expense, Net

2014 compared with 2013

Net interest expense was $4.8 million lower in 2014 than in 2013 due primarily to a greater level of capitalized interest in 2014 as well as higher interest income earned on short-term investments.

2013 compared with 2012

Net interest expense in 2013 was $7.2 million lower than in 2012 primarily as a result of lower short-term borrowings, partially offset by a decrease in capitalized interest and higher interest expense on long-term debt.

Income Taxes and Effective Tax Rate

2014 compared with 2013

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

2013 compared with 2012

Our effective income tax rate was 34.4% for 2013 compared with 34.9% for 2012. The decrease in the effective income tax rate in 2013 reflected lower state income taxes, which were higher in 2012 as a result of the impact of certain state tax legislation, and an increase in deductions associated with certain foreign tax jurisdictions, partly offset by a higher benefit in 2012 resulting from the completion of tax audits.

Net Income and Net Income Per Share

2014 compared with 2013

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

2013 compared with 2012

Net income increased $159.6 million, or 24.1%, while EPS-diluted increased $0.72, or 24.9%, in 2013 compared with 2012. The increases in both net income and EPS were driven by higher sales, lower input costs, favorable sales mix and lower business realignment and impairment charges.

SEGMENT RESULTS

The summary that follows provides a discussion of the results of operations of our two reportable segments: North America and International and Other. The segments reflect our operations on a geographic basis. For segment reporting purposes, we use “segment income” to evaluate segment performance and allocate resources. Segment income excludes unallocated general corporate administrative expenses, as well as business realignment and impairment charges, acquisition-related 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 Disclosures at the beginning of this Item 7.

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



For the years ended December 31,	2014			2013		2012
In millions of dollars
Net Sales:
North America	$	6,352.7		$	6,200.1	$	5,812.7
International and Other	1,069.1			946.0		831.6
Total	$	7,421.8		$	7,146.1	$	6,644.3

Segment Income:
North America	$	1,916.2		$	1,862.6	$	1,656.1
International and Other	40.0			44.6		51.4
Total segment income	1,956.2			1,907.2		1,707.5
Unallocated corporate expense (1)	503.4			533.5		478.6
Business realignment and impairment charges	50.2			19.1		83.8
Non-service related pension	(1.8		)	10.9		20.6
Acquisition and integration costs	14.8			4.0		13.4
Income before interest and income taxes	1,389.6			1,339.7		1,111.1
Interest expense, net	83.6			88.4		95.6
Income before income taxes	$	1,306.0		$	1,251.3	$	1,015.5

(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.

North America

The North America segment is responsible for our chocolate and sugar confectionery market position in the United States and Canada. This includes developing and growing our business in chocolate, sugar confectionery, refreshment, snack, pantry and food service product lines. North America accounted for 85.6%, 86.8% and 87.5% of our net sales in 2014, 2013 and 2012, respectively. North America results for the years ended December 31, 2014, 2013 and 2012 were as follows:



										Percent / Point Change
For the years ended December 31,	2014			2013			2012			2014 vs 2013		2013 vs 2012
In millions of dollars
Net sales	$	6,352.7		$	6,200.1		$	5,812.7		2.5	%	6.7	%
Segment income	1,916.2			1,862.6			1,656.1			2.9	%	12.5	%
Segment margin	30.2		%	30.0		%	28.5		%

2014 compared with 2013

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

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

2013 compared with 2012

Net sales of our North America segment increased $387.4 million or 6.7% in 2013 compared to 2012, reflecting volume growth of 6.4%, positive net price realization of 0.5% and an unfavorable impact from foreign currency exchange rates of 0.2%. Higher sales of Brookside products contributed 1.4% to the 2013 net sales increase for the segment.

Our North America segment income increased $206.5 million or 12.5% in 2013 compared to 2012, principally due to higher sales volumes, positive sales mix and lower commodity input costs. However, advertising, consumer promotions and marketing expenses increased 15.0% to support core brands and the introduction of new products, which offset some of the increase. Additionally, segment expenses were higher as a result of increased employee-related, incentive compensation and marketing research expenses.

International and Other

The International and Other segment includes all other countries where we currently manufacture, import, market, sell or distribute chocolate, sugar confectionery and other products. Currently, this includes our operations in Asia, Latin America, Europe, Africa, and the Middle East, along with exports to these regions. While a minor component, this segment also includes our global retail operations, including Hershey’s Chocolate World stores in Hershey, Pennsylvania, New York City, Chicago, Las Vegas, Shanghai, Niagara Falls (Ontario), Dubai and Singapore, as well as operations associated with licensing the use of certain trademarks and products to third parties around the world. International and Other accounted for 14.4%, 13.2% and 12.5% of our net sales in 2014, 2013 and 2012, respectively. International and Other results for the years ended December 31, 2014, 2013 and 2012 were as follows:



										Percent / Point Change
For the years ended December 31,	2014			2013			2012			2014 vs 2013		2013 vs 2012
In millions of dollars
Net sales	$	1,069.1		$	946.0		$	831.6		13.0	%	13.8	%
Segment income	40.0			44.6			51.4			(10.3	)%	(13.2	)%
Segment margin	3.7		%	4.7		%	6.2		%

2014 compared with 2013

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

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

2013 compared with 2012

Net sales of our International and Other segment increased $114.4 million or 13.8% in 2013 compared to 2012, reflecting volume growth of 17.0%, unfavorable net price realization of 2.4%, and an unfavorable impact from foreign currency exchange rates that reduced net sales by approximately 0.9%. The sales volume increase was primarily due to sales growth in China, Mexico and Brazil, while the unfavorable price realization reflects increased trade promotions and allowances, particularly in China and Mexico where we have made additional investments to drive sales volume growth.

Our International and Other segment income decreased $6.8 million or 13.2% in 2013 compared to 2012, as the benefit from higher sales volume and improved gross margins was more than offset by a 44.8% higher investment in advertising, consumer promotions and marketing expenses to support core brands and the introduction of new products in our international markets. The most significant portion of this investment was focused on our China and Mexico markets.

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 2014, unallocated corporate items totaled $503.4 million compared to $533.5 million in 2013, with the reduction driven by lower incentive compensation expense as well as discretionary cost containment measures intended to mitigate the higher commodity and other input costs in 2014.

In 2013, unallocated corporate items totaled $533.5 million compared to $478.6 million in 2012, with the increase primarily a result of higher salaries, benefits and incentive compensation, higher spending on outside services and consulting, and higher legal fees and accruals.

FINANCIAL CONDITION

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

Cash Flow Summary

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



In millions of dollars	2014			2013			2012
Net cash provided by (used in):
Operating activities	$	838.2		$	1,188.4		$	1,094.8
Investing activities	(862.6		)	(351.6		)	(473.4		)
Financing activities	(719.3		)	(446.6		)	(586.9		)
Increase (decrease) in cash and cash equivalents	(743.7		)	390.2			34.5

Operating activities

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

Cash provided by operating activities in 2014 decreased $350.2 million relative to 2013. This decline was driven by the following factors:

•

Working capital (comprised of accounts receivable, inventory and accounts payable) consumed cash of $169 million in 2014 compared to $29 million in 2013. Higher sales volumes late in the year and slightly higher accounts receivable days sales outstanding drove higher accounts receivable balances, while bulk purchases of certain ingredients at favorable pricing resulted in higher inventory balances.

•

The impact of our hedging activities unfavorably impacted cash flow by $78 million in 2014 versus a positive $101 million impact in 2013. This 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 outlays typically increase when futures market prices are decreasing.


•	Lower incentive accruals and advertising and promotion accruals drove additional reductions in 2014 operating cash flow relative to 2013.

Partially offsetting these declines were higher net earnings adjusted for non-cash items (depreciation and amortization, stock-based compensation, deferred income taxes, impairments and loss on disposal of business) resulting from higher sales volumes during the year.

Cash provided by operating activities in 2013 increased $93.6 million as compared to 2012, primarily due to increased net earnings in 2013, partly offset by a $27 million incrementally higher investment in working capital to support the higher sales volumes. Derivative activities had a similar impact on 2013 and 2012 operating cash flow.

Pension and Post-Retirement Activity. We recorded net periodic benefit costs of $38.2 million, $55.8 million, and

$83.5 million in 2014, 2013, and 2012, respectively, relating to our benefit plans (including our defined benefit and other post retirement plans). The main drivers of fluctuations in expense from year to year are assumptions in formulating our long-term estimates, including discount rates used to value plan obligations, expected returns on plan assets, the service and interest costs, and the amortization of actuarial gains and losses, as well as a $20 million settlement loss in 2012 relating largely to the Next Century program.

The funded status of our qualified defined benefit pension plans is dependent upon many factors, including returns on invested assets, the level of market interest rates and the level of funding. We contribute cash to our plans at our discretion, subject to applicable regulations and minimum contribution requirements. Cash contributions to our pension and post retirement plans totaled $53.1 million, $57.2 million and $44.2 million in 2014, 2013 and 2012,

respectively.

Investing activities

Our principal uses of cash for investment purposes relate to purchases of property, plant and equipment and capitalized software, purchases of short-term investments and acquisitions of businesses, partially offset by proceeds from sales of property, plant and equipment. We used cash of $862.6 million for investing activities in 2014 compared to $351.6 million in 2013, with the increase driven by 2014 business acquisitions and the purchase of short term investments. We used cash of $473.4 million for investing activities in 2012, which exceeded the use in 2013 due mainly to the 2012 Brookside acquisition.

Primary investing activities include the following:

•

Capital spending. Capital expenditures, primarily to support capacity expansion, innovation, and cost savings, were $345.9 million in 2014, $323.6 million in 2013 and $258.7 million in 2012. Our 2014 expenditures include $115 million relating to the construction of a manufacturing facility in Malaysia, compared to $40 million in 2013. Capital expenditures in 2013 and 2012 included $11.8 million and $74.7 million, respectively, relating to the Next Century program. Capitalized software additions were primarily related to ongoing enhancements of our information systems. We expect 2015 capital expenditures, including capitalized software, to approximate $375 million to $400 million, of which $90 million to $110 million relates to the facility in Malaysia.

•

Acquisitions. In 2014, we spent $396.3 million to acquire three businesses, including $379.7 million for SGM and $26.6 million for Allan, partially offset by net cash received of $10.0 million relating to the LSFC acquisition, whereby cash acquired in the transaction exceeded the $5.6 million paid for the controlling interest. In 2012, we acquired Brookside for approximately $172.9 million. See Note 2 to the Consolidated Financial Statements for additional information regarding our recent acquisitions.

Financing activities

Our cash flow from financing activities generally relates to the use of cash for purchases of our Common Stock and payment of dividends, offset by net borrowing activity and proceeds from the exercise of stock options. We used cash of $719.3 million for financing activities in 2014 compared to $446.6 million in 2013, with the increase due mainly to higher dividend payments and share repurchases, offset in part by higher short term borrowings. We used cash of $586.9 million for financing activities in 2012, which exceeded the use in 2013 primarily due to higher share repurchases, offset in part by higher proceeds from the exercise of stock options and lower dividend payments.

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

•

Short-term borrowings, net. In addition to utilizing cash on hand, we use short-term borrowings (commercial paper and bank borrowings) to fund seasonal working capital requirements and ongoing business needs. In 2014, we generated additional cash flow from the issuance of $55.0 million in commercial paper, as well as incrementally higher borrowings at certain of our international businesses in support of sales growth.


•	Long-term debt borrowings and repayments. In 2013, we repaid $250 million of 5.0% Notes due in 2013 and issued $250 million of 2.625% Notes due in 2023. In August 2012, we repaid $92.5 million of 6.95% Notes due in 2012.

•

Share repurchases. We repurchase shares of Common Stock to offset the dilutive impact of treasury shares issued under our equity compensation plans. The value of these share repurchases in a given period varies based on the volume of stock options exercised and our market price. In addition, we periodically repurchase shares of Common Stock pursuant to Board-authorized programs intended to drive additional stockholder value. In 2014, we used $202.3 million to purchase 2.1 million shares pursuant to authorized programs, while we had no share repurchases under these programs in 2013. In 2012, we repurchased 2.1 million shares for $124.9 million pursuant to authorized programs. As of December 31, 2014, approximately $173 million

remained available under the $250 million share repurchase authorization approved by the Board in February 2014.


•	Dividend payments. Total dividend payments to holders of our Common Stock and Class B Common Stock were $440.4 million in 2014, $393.8 million in 2013 and $341.2 million in 2012. Dividends per share of Common Stock increased 13% to $2.04 per share in 2014 compared to $1.81 per share in 2013, while dividends per share of Class B Common Stock increased 13%.


•	Proceeds from the exercise of stock options, including tax benefits. We received $175.8 million from employee exercises of stock options, including excess tax benefits, in 2014, as compared to $195.7 million in 2013 and $295.5 million in 2012. Variances are driven by the number of shares exercised and the share price at the date of grant.


•	Other. In September 2012, we acquired the remaining 49% interest in Godrej Hershey Ltd. for approximately $15.8 million. Since May of 2007, we had owned a 51% controlling interest on the basis of an agreement with Godrej Beverages and Foods, Ltd., a consumer goods, confectionery and food company, to manufacture and distribute confectionery products, snacks and beverages across India.

Liquidity and Capital Resources

At December 31, 2014, our cash and cash equivalents totaled $374.9 million, and we held short-term investments in the form of term deposits with original maturities of one-year totaling $97.1 million. In total, our cash and short-term investments declined $646.5 million compared to the 2013 year-end balance of $1.1 billion as a result of the net uses of cash outlined in the previous discussion.

Approximately half of the balance of our cash, cash equivalents and short term investments at December 31, 2014 was held by subsidiaries domiciled outside of the United States. If these amounts held outside of the United States were to be repatriated, under current law, they would be subject to U.S. federal income taxes, less applicable foreign tax credits. However, our intent is to permanently reinvest these funds outside of the United States. The cash that our foreign subsidiaries hold for indefinite reinvestment is expected to be used to finance foreign operations and investments. We believe we have sufficient liquidity to satisfy our cash needs, including our cash needs in the United States.

We maintain debt levels we consider prudent based on our cash flow, interest coverage ratio and percentage of debt to capital. We use debt financing to lower our overall cost of capital which increases our return on stockholders’ equity. Our total debt was $2.2 billion at December 31, 2014 and $2.0 billion at December 31, 2013. Our total debt increased in 2014 mainly due to the increase in commercial paper outstanding, additional debt assumed in the SGM acquisition and additional short-term borrowings used to fund growth in our existing China operations.

In October 2011, we entered into a five-year agreement establishing an unsecured revolving credit facility to borrow up to $1.1 billion, with an option to increase borrowings by an additional $400 million with the consent of the lenders. In November 2013, this agreement was amended to reduce the amount of borrowings available under the unsecured revolving credit facility to $1.0 billion, maintain the option to increase borrowings by an additional $400 million with the consent of the lenders, and extend the termination date to November 2018. In November 2014, the termination date of this agreement was extended an additional year to November 2019. As of December 31, 2014, $1.0 billion was available to borrow under the agreement and no borrowings were outstanding. The unsecured revolving credit agreement contains certain financial and other covenants, customary representations, warranties and events of default. We were in compliance with all covenants as of December 31, 2014. We may use these funds for general corporate purposes, including commercial paper backstop and business acquisitions.

In addition to the revolving credit facility, we maintain lines of credit in various currencies with domestic and international commercial banks. As of December 31, 2014, we had available capacity of $117.9 million under these lines of credit.

Furthermore, we have a current shelf registration statement filed with the United States Securities and Exchange Commission that allows for the issuance of an indeterminate amount of debt securities. Proceeds from the debt issuances and any other offerings under the current registration statement may be used for general corporate

requirements, including reducing existing borrowings, financing capital additions, and funding contributions to our pension plans, future business acquisitions and working capital requirements.

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

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

Equity Structure

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

Hershey Trust Company, as trustee for the benefit of Milton Hershey School, maintains voting control over The Hershey Company. In addition, Hershey Trust Company currently has three representatives who are members of the Company's Board, one of whom is the Chairman of the Board. These representatives, from time to time in performing their responsibilities on the Company’s Board, may exercise influence with regard to the ongoing business decisions of our Board or management. Hershey Trust Company, as trustee for the benefit of Milton Hershey School, in its role as controlling stockholder of the Company, has indicated it intends to retain its controlling interest in The Hershey Company and that the Company Board, and not the Hershey Trust Company board, is solely responsible and accountable for the Company’s management and performance.

Pennsylvania law requires that the Office of Attorney General be provided advance notice of any transaction that would result in Hershey Trust Company, as trustee for the benefit of Milton Hershey School, no longer having voting control of the Company. The law provides specific statutory authority for the Attorney General to intercede and petition the Court having jurisdiction over the Hershey Trust Company, as trustee for the benefit of Milton Hershey School, to stop such a transaction if the Attorney General can prove that the transaction is unnecessary for the future economic viability of the Company and is inconsistent with investment and management considerations under fiduciary obligations. This legislation makes it more difficult for a third party to acquire a majority of our outstanding voting stock and thereby may delay or prevent a change in control of the Company.

Guarantees and Other Off-Balance Sheet Arrangements

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

Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2014:



	Payments due by Period
	In millions of dollars
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term debt	$	1,799.8	$	250.8	$	507.8	$	2.1	$	1,039.1
Interest expense (1)	491.1		73.7		117.3		106.7		193.4
Lease obligations (2)	56.2		28.2		23.0		4.1		0.9
Minimum pension plan funding obligations (3)	11.9		1.1		3.6		4.8		2.4
Unconditional purchase obligations (4)	2,122.3		1,298.8		756.7		66.8		—
Other (5)	100.2		100.2		—		—		—
Total Obligations	$	4,581.5	$	1,752.8	$	1,408.4	$	184.5	$	1,235.8

(1) Includes the net interest payments on fixed and variable rate debt and associated interest rate swaps. Interest associated with variable rate debt was forecasted using the LIBOR forward curve as of December 31, 2014.

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

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

(4) Purchase obligations consist primarily of fixed commitments for the purchase of raw materials to be utilized in the normal course of business. Amounts presented included fixed price forward contracts and unpriced contracts that were valued using market prices as of December 31, 2014. The amounts presented in the table do not include items already recorded in accounts payable or accrued liabilities at year-end 2014, nor does the table reflect cash flows we are likely to incur based on our plans, but are not obligated to incur. Such amounts are part of normal operations and are reflected in historical operating cash flow trends. We do not believe such purchase obligations will adversely affect our liquidity position.

(5) Represents liability to purchase the remaining 20% of the outstanding shares of SGM. See Note 2 to the Consolidated Financial Statements for additional details.

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

Plant Construction Obligations

In December 2013, we entered into an agreement for the construction of a new confectionery manufacturing plant in Malaysia. The total cost of construction is expected to be approximately $265 to $275 million. The plant is expected to begin operations in the second half of 2015.

Asset Retirement Obligations

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

available to apply an expected present value technique. We expect to maintain the facilities with repairs and maintenance activities that would not involve or require the removal of significant quantities of asbestos.

Income Tax Obligations

Liabilities for unrecognized income tax benefits are excluded from the table above as we are unable to reasonably predict the ultimate amount or timing of a settlement of these potential liabilities. See Note 7 to our Consolidated Financial Statements for more information.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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



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

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

Accrued Liabilities for Trade Promotion Activities

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

Our trade promotional costs totaled $1,125.5 million, $995.7 million and $949.3 million in 2014, 2013 and 2012, respectively. The estimated costs of these programs are reasonably likely to change in the future due to changes in trends with regard to customer and consumer participation, particularly for new programs and for programs related to the introduction of new products. Differences between estimated expense and actual program performance are recognized as a change in estimate in a subsequent period and are normally not significant. Over the three-year period ended December 31, 2014, actual promotional costs have not deviated from the estimated amount for a given year by more than approximately 3%.

Pension and Other Post-Retirement Benefits Plans

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

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

The net periodic benefit costs relating to our pension and OPEB plans were as follows:



For the years ended December 31,	2014			2013			2012
In millions of dollars
Pension plans
Service cost and amortization of prior service cost (1)	$	26.3		$	31.8		$	31.6
Interest cost, expected return on plan assets and amortization of net loss	(1.9		)	11.2			16.7
Administrative expenses	0.8			0.7			0.5
Curtailment and settlement loss (credit)	—			(0.4		)	19.7
Net periodic pension benefit cost	$	25.2		$	43.3		$	68.5
OPEB plans
Net periodic other post-retirement benefit cost	$	13.0		$	12.5		$	15.1

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

Actuarial gains and losses may arise when actual experience differs from assumed experience or when we revise the actuarial assumptions used to value the plans’ obligations. We only amortize the unrecognized net actuarial gains and losses in excess of 10% of a respective plan’s projected benefit obligation, or the fair market value of assets, if greater. The estimated recognized net actuarial loss component of net periodic pension benefit expense for 2015 is $32.3 million. The 2014 recognized net actuarial loss component of net periodic pension benefit expense was $23.4 million. Projections beyond 2014 are dependent on a variety of factors such as changes to the discount rate and the actual return on pension plan assets.

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



	2014		2013		2012
Pension plans
Expense discount rate	4.5	%	3.7	%	4.5	%
Benefit obligation discount rate	3.7	%	4.5	%	3.7	%
Expected return on plan assets	7.0	%	7.75	%	8.0	%
Expected rate of salary increases	4.0	%	4.0	%	4.1	%
OPEB plans
Expense discount rate	4.5	%	3.7	%	4.5	%
Benefit obligation discount rate	3.7	%	4.5	%	3.7	%

To determine the expected return on our pension plan assets, we consider the current asset allocations, as well as historical and expected returns on the categories of plan assets. The historical average return over the 27 years prior to December 31, 2014 was approximately 8.7%. The actual return on assets was 8.4%, 16.7% and 13.2% for the years ended December 31, 2014, 2013 and 2012, respectively. Our investment policies specify ranges of allocation percentages for each asset class. The current estimated asset return is based upon the following targeted asset allocation for our domestic pension plans:



	Target Allocation Range
Asset Class	2014	2013
Equity securities	40% – 60%	55% – 75%
Debt securities	40% – 60%	25% – 45%
Cash and certain other investments	0% – 5%	0% – 5%

Our expected return on plan assets has been reduced to reflect the lower proportion of plan assets allocated to equity securities.

Sensitivity of Assumptions

Since pension and OPEB liabilities are measured on a discounted basis, the discount rate impacts our plan obligations and expenses. The discount rate used for our pension and OPEB plans is based on a yield curve constructed from a portfolio of high-quality bonds for which the timing and amount of cash flows approximate the estimated payouts of the plans. A 100 basis point decline in the weighted average pension discount rate would increase net periodic pension benefit expense by approximately $4.5 million. A decrease in the OPEB discount rate by 100 basis points would decrease annual OPEB expense by approximately $1.3 million. For the OPEB plans, a decrease in the discount rate assumption would result in a decrease in benefit cost because of the lower interest cost, which would more than offset the impact of the lower discount rate assumption on the post-retirement benefit obligation.

The expected return on plan assets assumption impacts our defined benefit expense, since certain of our defined benefit pension plans are partially funded. For 2015, we reduced the expected rate of return assumption to 6.3% from the 7.0% assumption used in 2014, to reflect the revised target equity allocation of 50%. The process for setting the expected rates of return is described in Note 9 to the Consolidated Financial Statements. A 100 basis point decrease or increase in the rate of return for pension assets would correspondingly increase or decrease annual net periodic pension benefit expense by approximately $10.6 million.

For year-end 2014, we adopted the Society of Actuaries updated RP-2014 mortality tables with MP-2014 generational projection scales; however, adoption of these tables did not have a significant impact on our pension obligations or net period benefit cost since our primary plans are cash balance plans and most participants take lump-sum settlements upon retirement.

Funding

We fund domestic pension liabilities in accordance with the limits imposed by ERISA, federal income tax laws and the funding requirements of the Pension Protection Act of 2006. We fund non-domestic pension liabilities in accordance with laws and regulations applicable to those plans. For 2014 and 2013, minimum funding requirements for the plans were not material. However, we made contributions of $29.4 million in 2014 and $32.3 million in 2013, including $22.0 million in 2014 and $25.0 million in 2013 to improve the funded status of our domestic plans as well as contributions to pay benefits under our non-qualified pension plans in both years. These contributions were fully tax deductible. For 2015, minimum funding requirements for our pension plans are approximately $1.1 million and we expect to make additional contributions of approximately $23.6 million to improve the funded status of our domestic plans.

Goodwill and Other Intangible Assets

Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually or more often if indicators of a potential impairment are present. Our annual impairment tests are conducted at the beginning of the fourth quarter. Our 2014 analysis excluded goodwill and other intangible assets related to the SGM acquisition that was completed on September 26, 2014, just prior to our annual testing date.

We use a two-step process to quantitatively evaluate goodwill for impairment. In the first step, we compare the fair value of each reporting unit with the carrying amount of the reporting unit, including goodwill. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, we complete a second step to determine the amount of the goodwill impairment that we should record. In the second step, we determine an implied fair value of the reporting unit’s goodwill by allocating the reporting unit’s fair value to all of its assets and liabilities other than goodwill (including any unrecognized intangible assets). We compare the resulting implied fair value of the goodwill to the carrying amount and record an impairment charge for the difference. We test individual indefinite-lived intangible assets by comparing the estimated fair value with the book values of each asset.

We determine the fair value of our reporting units and indefinite-lived intangible assets using an income approach. Under the income approach, we calculate the fair value of our reporting units and indefinite-lived intangible assets based on the present value of estimated future cash flows. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate the future cash flows used to measure fair value. Our estimates of future cash flows consider past performance, current and anticipated market conditions and internal projections and operating plans which incorporate estimates for sales growth and profitability, and cash flows associated with taxes and capital spending. Additional assumptions include forecasted growth rates, estimated

discount rates, which may be risk-adjusted for the operating market of the reporting unit, and estimated royalty rates that would be charged for comparable branded licenses. We believe such assumptions also reflect current and anticipated market conditions and are consistent with those that would be used by other marketplace participants for similar valuation purposes. Such assumptions are subject to change due to changing economic and competitive conditions.

At December 31, 2014, the book value of our goodwill totaled $793 million and related to six reporting units (including SGM which was excluded from 2014 testing as noted above). The percentage of excess fair value over carrying value was at least 50% for each of our tested reporting units, with the exception of our India reporting unit, whose estimated fair value approximated its carrying value. As a result and given the sensitivity of the India impairment analysis to changes in the underlying assumptions, we performed a step two analysis which indicated a goodwill impairment of $11.4 million. Our 2014 annual test of indefinite-lived intangible assets resulted in a $4.5 million pre-tax write-down of a trademark, also associated with the India business. These impairment charges were recorded in the fourth quarter.

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

No additional impairments were indicated by the results of our annual testing in 2014 or 2013. However, in connection with the anticipated sale of our Mauna Loa business (as discussed in Note 2 to the Consolidated Financial Statements), during the third and fourth quarters of 2014, we recorded estimated impairment charges totaling $18.5 million to write-down goodwill and an indefinite-lived trademark intangible asset, based on the valuation of these assets as implied by the agreed-upon sales price.

Commodities Futures and Options Contracts

As discussed in Note 1 and Note 5 to the Consolidated Financial Statements, we use derivative financial instruments to manage a number of our market risks. Specifically, we use commodities futures and options contracts, in combination with forward purchasing of cocoa products and other commodities, to manage our commodity price risk, which represents a significant market risk exposure for us. Because commodity costs comprise a significant portion of our cost of sales, we typically apply hedge accounting to our commodity derivative instruments to enable us to reduce the effect of future price increases and provide visibility to future costs.

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

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



For the years ended December 31,	2014			2013			2012
In millions of dollars
Net gains (losses) deferred to AOCI for commodity cash flow hedging derivatives	$	(11.2	)	$	84.7		$	12.8
Gains (losses) reclassified from AOCI to earnings	68.5			(8.4		)	(90.9		)
Hedge ineffectiveness gains recognized in income, before tax	2.5			3.2			0.7

Income Taxes

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

We apply a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax benefit that has a greater than 50% likelihood of being ultimately realized upon settlement. Future changes in judgments and estimates related to the expected ultimate resolution of uncertain tax positions will affect income in the quarter of such change. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax benefits reflect the most likely outcome. Accrued interest and penalties related to unrecognized tax benefits are included in income tax expense. We adjust these unrecognized tax benefits, as well as the related interest, in light of changing facts and circumstances, such as receiving audit assessments or clearing of an item for which a reserve has been established. Settlement of any particular position could require the use of cash. Favorable resolution would be recognized as a reduction to our effective income tax rate in the period of resolution.

We believe it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, net of valuation allowances. Valuation allowances are recorded for deferred income taxes when it is more likely than not that a tax benefit will not be realized. Valuation allowances are primarily associated with temporary differences related to advertising and promotions, as well as tax loss carryforwards from operations in various foreign tax jurisdictions.


Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

Interest Rate Risk

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

The total notional amount of interest rate swaps outstanding at December 31, 2014 and 2013 was $1.2 billion and $250 million, respectively. The notional amount at December 31, 2014, includes $450 million of fixed-to-floating interest rate swaps which convert a comparable amount of fixed-rate debt to variable rate debt. A hypothetical 100 basis point increase in interest rates applied to this now variable rate debt as of December 31, 2014 would have increased interest expense by approximately $4.6 million for the full year 2014. We had minimal variable rate interest exposure as of December 31, 2013.

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 2014 year-end fair value of our fixed-rate long-term debt by approximately $83 million. However, since we currently have no plans to repurchase our outstanding fixed-rate instruments before their maturities, the impact of market interest rate fluctuations on our long-term debt does not affect our results of operations or financial position.

Foreign Currency Exchange Rate Risk

We are exposed to currency fluctuations related to manufacturing or selling products in currencies other than the U.S. dollar. We may enter into foreign currency forward exchange contracts and options to reduce fluctuations in our long or short currency positions relating primarily to purchase commitments or forecasted purchases for equipment, raw materials and finished goods denominated in foreign currencies. We also may hedge payment of forecasted intercompany transactions with our subsidiaries outside of the United States. We generally hedge foreign currency price risks for periods from 3 to 24 months.

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



December 31,	2014			2013
	Contract Amount		Primary Currencies	Contract Amount		Primary Currencies
In millions of dollars
Foreign currency forward exchange contracts to purchase foreign currencies	$	21.9	Euros	$	158.4	Malaysian ringgits Swiss francs Euros
Foreign currency forward exchange contracts to sell foreign currencies	$	48.8	Canadian dollars Brazilian reals Japanese yen	$	2.8	Japanese yen

In 2013, foreign currency forward exchange contracts for the purchase of Malaysian ringgits and certain other currencies were associated with the construction of the manufacturing facility in Malaysia.

The fair value of foreign currency forward exchange contracts represents the difference between the contracted and current market foreign currency exchange rates at the end of the period. We estimate the fair value of foreign currency forward exchange contracts on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences. At December 31, 2014 and 2013, the net fair value of these instruments was an asset of $1.5 million and $3.2 million, respectively. Assuming an unfavorable 10% change in year-end foreign currency exchange rates, the fair value of these instruments would have declined by $7.0 million and $12.9 million, respectively. Our risk related to foreign currency forward exchange contracts is limited to the cost of replacing the contracts at prevailing market rates.

Commodities—Price Risk Management and Futures Contracts

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



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

We use futures and options contracts and other commodity derivative instruments in combination with forward purchasing of cocoa products, sugar, corn sweeteners, natural gas and certain dairy products primarily to reduce the risk of future price increases and provide visibility to future costs. Currently, active futures contracts are not available for use in pricing our other major raw material requirements, primarily peanuts and almonds. We attempt to minimize the effect of future price fluctuations related to the purchase of raw materials by using forward purchasing to cover future manufacturing requirements generally for 3 to 24 months. However, the dairy futures markets are not as developed as many of the other commodities futures markets and, therefore, it is difficult to hedge our costs for dairy products by entering into futures contracts or other derivative instruments to extend coverage for long periods of time. We use diesel swap futures contracts to minimize price fluctuations associated with our transportation costs. Our commodity procurement practices are intended to reduce the risk of future price increases and provide visibility to future costs, but also may potentially limit our ability to benefit from possible price decreases. Our costs for major raw materials will not necessarily reflect market price fluctuations primarily because of our forward purchasing and hedging practices.

During 2014, average cocoa futures contract prices increased compared with 2013 and traded in a range between $1.25 and $1.45 per pound, based on the Intercontinental Exchange futures contract. Cocoa production was higher in 2014 and global demand was slightly higher, which produced a small surplus in cocoa supplies over the past year. Despite the small increase in global cocoa inventories, prices remained elevated in response to concerns over the future balance of global cocoa supply and demand.

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




	Cocoa Futures Contract Prices (dollars per pound)
	2014		2013		2012		2011		2010
Annual Average	$	1.36	$	1.09	$	1.07	$	1.34	$	1.36
High	1.45		1.26		1.17		1.55		1.53
Low	1.25		0.97		1.00		0.99		1.26

Source: International Cocoa Organization Quarterly Bulletin of Cocoa Statistics

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

During 2014, prices for fluid dairy milk ranged from a low of $0.22 per pound to a high of $0.26 per pound, on a class II fluid milk basis. Dairy prices reached historically high levels during 2014, driven by increased imports by China and supply challenges due to the 2013 drought in New Zealand.

The price of sugar is subject to price supports under U.S. farm legislation. Such legislation establishes import quotas and duties to support the price of sugar. As a result, sugar prices paid by users in the United States are currently higher than prices on the world sugar market. In 2014, U.S. sugar producers filed an Anti-dumping suit against Mexico, which reduced sugar imports from Mexico. As a result, refined sugar prices increased compared to 2013, trading higher in a range from $0.31 to $0.42 per pound.

Peanut prices in the United States began the year around $0.49 per pound and closed the year at $0.53 per pound. Peanut supply is ample to support U.S. demand heading into 2015. Almond prices began the year at $3.69 per pound and increased to $4.39 per pound during 2014. The third consecutive year of droughts in California had a negative impact on yields, with the 2014 crop estimated to be 10% lower than 2013.

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

Commodity Position Sensitivity Analysis

The following sensitivity analysis reflects our market risk to a hypothetical adverse market price movement of 10%, based on our net commodity positions at four dates spaced equally throughout the year. Our net commodity positions consist of the amount of futures contracts we hold over or under the amount of futures contracts we need to price unpriced physical forward contracts for the same commodities (our “requirements”). Inventories, fixed-price forward contracts and anticipated purchases not yet under contract are not included in the sensitivity analysis calculations. The fair values of net commodity positions reflect quoted market prices or estimated future prices, including estimated carrying costs corresponding with the future delivery period. The market risk noted below reflects the potential loss in future earnings resulting from the hypothetical adverse market price movement.



For the years ended December 31,	2014					2013
	Fair Value			Market Risk (Hypothetical 10% Change)		Fair Value			Market Risk (Hypothetical 10% Change)
In millions of dollars
Highest position of futures contracts held over (under) requirements	$	(362.7	)	$	36.3	$	(29.3	)	$	2.9
Lowest position of futures contracts held over (under) requirements	(612.9		)	61.3		(249.4		)	24.9
Average of futures contracts held over (under) requirements	(506.6		)	50.7		(105.6		)	10.6

The negative positions primarily resulted as our requirements exceeded the amount of commodities futures that we held at certain points in time during the years.


Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



		PAGE

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Responsibility for Financial Statements		42
Report of Independent Registered Public Accounting Firm		43
Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012		45
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012		46
Consolidated Balance Sheets as of December 31, 2014 and 2013		47
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012		48
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014, 2013 and 2012		49
Notes to Consolidated Financial Statements		50

RESPONSIBILITY FOR FINANCIAL STATEMENTS

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

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

The 2014, 2013 and 2012 financial statements have been audited by KPMG LLP, an independent registered public accounting firm. KPMG LLP's report on our financial statements and internal controls over financial reporting is included on page 43.

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



/s/ JOHN P. BILBREY		/s/ RICHARD M. MCCONVILLE
John P. Bilbrey Chief Executive Officer		Richard M. McConville Interim Principal Financial Officer

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

The Hershey Company:

We have audited the accompanying consolidated balance sheets of The Hershey Company and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, cash flows and stockholders’ equity for each of the years in the three-year period ended December 31, 2014. In connection with our audits of the consolidated financial statements, we also have audited the related consolidated financial statement schedule. We also have audited the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Company’s management is responsible for these consolidated financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule, and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Hershey Company and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

Also in our opinion, The Hershey Company and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Management excluded Shanghai Golden Monkey Food Joint Stock Co., Ltd., an entity acquired during 2014, from its assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2014. This entity’s net sales and assets excluded from management's assessment of internal control represented 0.7% and 4.7% of the Company’s total net sales and total assets, respectively, for the year ended December 31, 2014. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Shanghai Golden Monkey Food Joint Stock Co., Ltd.

/s/ KPMG LLP

New York, New York

February 20, 2015

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)



For the years ended December 31,	2014		2013		2012
Net sales	$	7,421,768	$	7,146,079	$	6,644,252
Costs and expenses:
Cost of sales	4,085,602		3,865,231		3,784,370
Selling, marketing and administrative	1,900,970		1,922,508		1,703,796
Business realignment and impairment charges	45,621		18,665		44,938
Total costs and expenses	6,032,193		5,806,404		5,533,104
Income before interest and income taxes	1,389,575		1,339,675		1,111,148
Interest expense, net	83,532		88,356		95,569
Income before income taxes	1,306,043		1,251,319		1,015,579
Provision for income taxes	459,131		430,849		354,648
Net income	$	846,912	$	820,470	$	660,931

Net income per share—basic:
Common stock	$	3.91	$	3.76	$	3.01
Class B common stock	$	3.54	$	3.39	$	2.73

Net income per share—diluted:
Common stock	$	3.77	$	3.61	$	2.89
Class B common stock	$	3.52	$	3.37	$	2.71

Dividends paid per share:
Common stock	$	2.040	$	1.81	$	1.560
Class B common stock	$	1.842	$	1.63	$	1.412

See Notes to Consolidated Financial Statements.

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)



For the years ended December 31,	2014			2013			2012
Net income	$	846,912		$	820,470		$	660,931
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(26,851		)	(26,003		)	7,714
Pension and post-retirement benefit plans	(85,016		)	166,403			(9,634		)
Cash flow hedges:
(Losses) gains on cash flow hedging derivatives	(37,077		)	72,334			(868		)
Reclassification adjustments	(43,062		)	5,775			60,043
Total other comprehensive (loss) income, net of tax	(192,006		)	218,509			57,255
Comprehensive income	$	654,906		$	1,038,979		$	718,186

See Notes to Consolidated Financial Statements.

THE HERSHEY COMPANY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



December 31,	2014			2013
ASSETS
Current assets:
Cash and cash equivalents	$	374,854		$	1,118,508
Short-term investments	97,131			—
Accounts receivable—trade, net	596,940			477,912
Inventories	801,036			659,541
Deferred income taxes	100,515			52,511
Prepaid expenses and other	276,571			178,862
Total current assets	2,247,047			2,487,334
Property, plant and equipment, net	2,151,901			1,805,345
Goodwill	792,955			576,561
Other intangibles	294,841			195,244
Other assets	142,772			293,004
Total assets	$	5,629,516		$	5,357,488
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	482,017		$	461,514
Accrued liabilities	813,513			699,722
Accrued income taxes	4,616			79,911
Short-term debt	384,696			165,961
Current portion of long-term debt	250,805			914
Total current liabilities	1,935,647			1,408,022
Long-term debt	1,548,963			1,795,142
Other long-term liabilities	526,003			434,068
Deferred income taxes	99,373			104,204
Total liabilities	4,109,986			3,741,436
Stockholders’ equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none in 2014 and 2013	—			—
Common stock, shares issued: 299,281,967 in 2014 and 299,281,527 in 2013	299,281			299,281
Class B common stock, shares issued: 60,619,777 in 2014 and 60,620,217 in 2013	60,620			60,620
Additional paid-in capital	754,186			664,944
Retained earnings	5,860,784			5,454,286
Treasury—common stock shares, at cost: 138,856,786 in 2014 and 136,007,023 in 2013	(5,161,236		)	(4,707,730		)
Accumulated other comprehensive loss	(358,573		)	(166,567		)
The Hershey Company stockholders’ equity	1,455,062			1,604,834
Noncontrolling interests in subsidiaries	64,468			11,218
Total stockholders’ equity	1,519,530			1,616,052
Total liabilities and stockholders’ equity	$	5,629,516		$	5,357,488

See Notes to Consolidated Financial Statements.

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



For the years ended December 31,	2014			2013			2012
Operating Activities
Net income	$	846,912		$	820,470		$	660,931
Adjustments to reconcile net income to net cash provided from operations:
Depreciation and amortization	211,532			201,033			210,037
Stock-based compensation expense	54,068			53,967			50,482
Excess tax benefits from stock-based compensation	(53,497		)	(48,396		)	(33,876		)
Deferred income taxes	18,796			7,457			13,785
Non-cash business realignment and impairment charges	39,988			—			38,144
Contributions to pension and other benefits plans	(53,110		)	(57,213		)	(44,208		)
Changes in assets and liabilities, net of effects from business acquisitions and divestitures:
Accounts receivable—trade, net	(67,464		)	(16,529		)	(50,470