NOTICE OF 2017 ANNUAL MEETING
AND PROXY STATEMENT
2016 ANNUAL REPORT
TO STOCKHOLDERS
May 3, 2017
10:00 a.m., Eastern Daylight Time
GIANT Center
550 West Hersheypark Drive
Hershey, Pennsylvania
Michele G. Buck
President and Chief Executive Officer
Dear Stockholder:
March 23, 2017
It is my pleasure to invite you to attend the 2017 Annual Meeting of Stockholders of The Hershey
Company, which will be held at 10:00 a.m., Eastern Daylight Time on Wednesday, May 3, 2017.
Detailed instructions regarding meeting attendance and how to vote your Hershey shares prior to
the meeting can be found in the proxy materials that accompany this letter. Your vote is
extremely important, and I encourage you to review the materials and submit your vote today.
I am honored to serve as the 12th CEO of The Hershey Company. It has been a privilege to work in
partnership with J.P. Bilbrey and I am committed to building upon his record of consistent
financial performance.
There is no company I would rather lead. Hershey products are part of everyday and special
celebrations all around the world. From birthdays to holiday parties, from Halloween to everyday
snacks, Hershey products delight millions of consumers. We have a team of remarkable employees
who support one another to achieve our goals and win in the market. And we remain committed to
operating ethically and building a sustainable future. Bringing goodness to the world is an ideal
we live each day through our brands, our people and our involvement in local communities.
Our business operates in an environment defined by rapidly shifting consumer values. More and
more, people are thoughtful about the food they consume. A vital part of our job is to clearly
understand these shifts and adjust our strategy based on consumers’ desires and tastes. That
includes a commitment to food transparency, responsible sourcing and simple ingredients. Our
connection with our consumers will be key to delivering top-quartile sales growth and growing
share on behalf of our stockholders.
I was pleased with the progression of our business in 2016. After a challenging start to the year,
we did not lose focus. We executed against our plan and we gained momentum as the year
progressed.
During 2016, we had innovation and advertising success. We launched Kit Kat® Big Kat® Bar,
Reese’s Snack Mix, Hershey’s Snack Bites, Reese’s Stuffed With Pieces Candy and Hershey’s Cookie
Layer Crunch Bar as new products. Performance for these new products has been strong. The Kit
Kat® Big Kat® Bar is an example of an instant consumable focus launch combined with new core
brand advertising, which is driving growth of the entire franchise. The marketing mix for these
programs was balanced between direct trade and TV and digital advertising.
Our productivity and cost savings initiatives drove adjusted EBIT margin expansion and adjusted
full-year earnings per share-diluted growth of 7%. Full-year net sales increased 1.4% year over
year in constant currency. Adjusted gross margin declined about 40 basis points, relatively in line
with our original plan for the year. This was driven by a higher trade rate, unfavorable mix and
greater supply chain costs. We continue to generate solid operating cash flow, about $1 billion in
2016, which gives us financial flexibility. Our balance sheet and cash flows remain strong and we
returned $920 million to stockholders through dividends and share repurchases.
As we anticipated, U.S. marketplace performance sequentially improved throughout the year. Our
fourth-quarter U.S. chocolate performance was solid with retail takeaway up 2.9%, resulting in a
chocolate market share gain of 0.9 points. For the full year 2016 our U.S. CMG – candy, mint and
gum – retail takeaway increased 0.3%, which was more than three times the rate of the category,
resulting in a market leading share of 31.2%.
For the full year, our International and Other segment operating profit increased and I’m pleased
with the progression. We continue to experience steady net sales growth generated by our Mexico
and Brazil teams. In Brazil, our growth was fueled by distribution gains in core brands and the
continued rollout of the Hershey’s Milk Chocolate and Hershey’s Special Dark Bars, which
launched in the third quarter. In Mexico, we gained momentum, driven by Hershey’s Kisses
Chocolates. India is one of the fastest growing chocolate markets in the world and the launch of
Brookside Chocolates in November officially marked our debut into India’s growing premium
chocolate category.
Given the macroeconomic challenges, China continues to be a difficult market for many
companies. Numerous categories within the modern trade were sluggish, including chocolate,
where the category declined about 7% for the full year. In the fourth quarter, China chocolate
category sales declined about 4%, the same rate as the second- and third-quarter declines.
Looking to the future, our vision is to be an innovative snacking powerhouse. We are currently the
#2 snacking manufacturer in the United States, with a leading position in confection. Confection
is a high margin, highly responsive category where fueling the top line is a key driver for our
business.
We are working hard to reignite our core confection business and broaden participation in
snacking to capture new snacking users and new usage occasions. I’m excited about our 2017
innovation, our activation plans for Hershey’s Cookie Layer Crunch Bar, and the investments
we’re making in expanding the Reese’s franchise. The targeted and precision-based approach we’ve
taken to growing the Reese’s franchise with Reese’s Crunchy Cookie Cup and expanding into the
hand-to-mouth snacking area via our new Reese’s Crunchers product line should provide
incremental growth to our business.
Our focus is on investing in those areas with the most profitable growth, and increasing the
return on investment against dollars spent, to enable margin expansion. This will provide us with
the fuel needed to invest in strengthening our capabilities and leveraging technology for
commercial advantage and growth.
Hershey remains a purpose driven company. We have a 123-year history of bringing goodness to
the world and one another. I am proud to lead The Hershey Company to its next phase of growth,
and I am excited about the opportunities this new environment is creating for us. We appreciate
your support and dedication as we continue to create opportunities to prosper and build a
sustainable future for our Company.
Thank you for your continued investment in The Hershey Company, and I look forward to seeing
you at the meeting.
Michele G. Buck
Safe Harbor Statement
Please refer to the 2016 Annual Report to Stockholders that accompanies this letter for a discussion
of Risk Factors that could cause future results to differ materially from the forward-looking
statements, expectations and assumptions expressed or implied in this letter to stockholders or
elsewhere. This letter to stockholders is not part of our proxy soliciting material.
John P. Bilbrey
Chairman of the Board
James E. Nevels
Lead Independent Director
March 23, 2017
Doing well by doing good. That’s the cornerstone on which The Hershey Company was built more
than 120 years ago. We believe in bringing goodness to the world in all that we do and that means
continuing our commitments to corporate social responsibility, sustainable sourcing practices, and
community stewardship. More than just a phrase, it’s a legacy passed down by our Company’s
founder, a maxim embedded in the fabric of our nearly 18,000 men and women who come to work
every day and a key component of what makes Hershey the greatest confectionery company in the
world.
It’s no surprise then, that the Board spent a considerable amount of time in 2016 focusing on
legacy. As stewards of the Company, one of our critical responsibilities is to ensure we have
trusted leaders in place to preserve our legacy and continue to build upon it. Faced with pending
changes in both the Board and management, we worked on succession planning throughout 2016
to identify the right leaders to take the Company through its next chapter of success and growth.
The next great chapter in this Company’s history began on March 1, 2017, when Michele Buck
stepped into the role of the Company’s 12th Chief Executive Officer. In her 12 years at Hershey,
Michele has played an integral role in implementing our strategic vision for growth, developing
talented people and championing different ways of working. The Board is pleased to have an
internal candidate of such talent and capability move into this leadership role.
Turning to Board succession, the slate of director candidates recommended for election at this
year’s Annual Meeting of Stockholders consists of a well-qualified, experienced and diverse group
of individuals. In fact, the Company has a storied history of board diversity dating back to 1978
when the first female director was elected to the Board. We are extremely proud that one-third of
our director candidates are women, continuing the mission we embarked upon in 1978 and, more
recently, to increase that important voice on our Board.
Working with the Board, Michele is now entrusted to build upon our legacy while at the same
time executing her vision to transform Hershey into an innovative snacking powerhouse. This
vision continues with strengthening and fortifying our leadership position in the U.S. market,
transforming our international businesses to create a sustainable long-term model, and investing
in the capabilities, technologies and leaders required to achieve success.
As CEO, Michele also becomes the steward of the many initiatives we have underway to bring
goodness to the world. This effort begins at home, with our commitment to an inclusive workplace
that creates opportunity for all our employees. We are proud that Hershey is a diverse company,
committed to working in an ethical and responsible manner, and recognized by the Human Rights
Campaign and other organizations as a great place to work.
It continues to be an exciting time to be part of The Hershey Company. As a Board, we are
confident that the legacy – and the future – of this iconic Company are in the most capable hands.
As always, thank you for your loyalty and continued support.
John P. Bilbrey
James E. Nevels
TABLE OF CONTENTS
NOTICE OF 2017 ANNUAL MEETING OF STOCKHOLDERS
PROXY STATEMENT SUMMARY
2017 Annual Meeting of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting Matters and Board Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Director Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Governance Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROXY STATEMENT
Questions and Answers about the Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meetings and Committees of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal No. 1 – Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Employee Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share Ownership of Directors, Management and Certain Beneficial Owners . . . . . . . . . . . . . . . . . .
Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information about our Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal No. 2 – Ratification of Appointment of Independent Auditors . . . . . . . . . . . . . . . .
Compensation Discussion & Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Role and Philosophy of the Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Setting Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Perquisites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance and Change in Control Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Policies and Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Ownership Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Grants of Plan-Based Awards Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Equity Awards at 2016 Fiscal-Year End Table . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Option Exercises and Stock Vested Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Pension Benefits Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Non-Qualified Deferred Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential Payments upon Termination or Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal No. 3 – Advise on Named Executive Officer Compensation . . . . . . . . . . . . . . . . . .
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Proposal No. 4 – Advise on Frequency of Future Advisory Votes on Named Executive
Officer Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Transactions and Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 ANNUAL REPORT TO STOCKHOLDERS
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental Item. Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . .
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
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Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . .
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Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Item 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Schedule II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Certifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
ii
Notice of 2017 Annual Meeting of
Stockholders
Wednesday, May 3, 2017
10:00 a.m., Eastern Daylight Time
GIANT Center
The 2017 Annual Meeting of Stockholders (the “Annual Meeting”) of The Hershey Company (the “Company”)
will be held on Wednesday, May 3, 2017, beginning at 10:00 a.m., Eastern Daylight Time, at GIANT Center,
550 West Hersheypark Drive, Hershey, Pennsylvania. The purposes of the meeting are as follows:
1. To elect the 12 nominees named in the Proxy Statement to serve as directors of the Company until
the 2018 Annual Meeting of Stockholders;
2. To ratify the appointment of Ernst & Young LLP as the Company’s independent auditors for the
fiscal year ending December 31, 2017;
3. To conduct an advisory vote regarding the compensation of the Company’s named executive officers;
4. To conduct an advisory vote regarding the frequency of future advisory votes on named executive
officer compensation; and
5. To discuss and take action on any other business that is properly brought before the Annual
Meeting.
The Proxy Statement accompanying this Notice of 2017 Annual Meeting of Stockholders describes each of
these items in detail. The Proxy Statement contains other important information that you should read and
consider before you vote.
The Board of Directors of the Company has established the close of business on March 6, 2017 as the record
date for determining the stockholders who are entitled to notice of, and to vote at, the Annual Meeting and
any adjournment or postponement thereof.
The Company is furnishing proxy materials to its stockholders through the Internet as permitted under the
rules of the Securities and Exchange Commission. Under these rules, many of the Company’s stockholders
will receive a Notice of Internet Availability of Proxy Materials instead of a paper copy of the Notice of 2017
Annual Meeting of Stockholders and Proxy Statement, our proxy card, and our Annual Report on Form
10-K. We believe this process gives us the opportunity to serve you more efficiently by making the proxy
materials available quickly online and reducing costs associated with printing and postage. Stockholders
who do not receive a Notice of Internet Availability of Proxy Materials will receive a paper copy of the proxy
materials by mail.
By order of the Board of Directors,
Leslie M. Turner
Senior Vice President,
General Counsel and Secretary
March 23, 2017
Your vote is important. Instructions on how to vote are contained in our Proxy Statement and in
the Notice of Internet Availability of Proxy Materials. Please cast your vote by telephone or over
the Internet as described in those materials. Alternatively, if you requested a copy of the proxy/
voting instruction card by mail, you may mark, sign, date and return the proxy/voting
instruction card in the envelope provided.
Proxy Statement Summary
2017 ANNUAL MEETING OF STOCKHOLDERS
Date and Time: Wednesday, May 3, 2017
10:00 a.m., Eastern Daylight Time
Place:
GIANT Center
550 West Hersheypark Drive
Hershey, Pennsylvania 17033
Record Date:
March 6, 2017
VOTING MATTERS AND BOARD RECOMMENDATIONS
Voting Matter
Board Vote
Recommendation
Page Number with
More Information
Proposal 1: Election of Directors
FOR each nominee
Proposal 2: Ratification of Appointment of
Ernst & Young LLP as Independent
Auditors
Proposal 3: Advise on Named Executive Officer
Compensation
Proposal 4: Advise on Frequency of Future
Advisory Votes on Named Executive
Officer Compensation
FOR
FOR
1 YEAR
22
40
82
83
This Proxy Statement Summary contains highlights of certain information in this Proxy Statement.
Because it is only a summary, it does not contain all the information that you should consider prior to
voting. Please review the complete Proxy Statement and the Company’s 2016 Annual Report on
Form 10-K that accompanies the Proxy Statement for additional information.
1
OUR DIRECTOR NOMINEES
You have the opportunity to vote on the election of the following 12 nominees for director. Additional
information regarding each director nominee’s experience, skills and qualifications to serve as a
member of the Company’s Board of Directors (the “Board”) can be found in the Proxy Statement under
Proposal No. 1 – Election of Directors.
Name
Years on
Board
Age
Position
Independent
Pamela M. Arway
63
John P. Bilbrey**
James W. Brown
Michele G. Buck
Charles A. Davis
Mary Kay Haben
60
65
55
68
60
M. Diane Koken
64
Robert M. Malcolm
64
James M. Mead
71
Anthony J. Palmer
57
7
6
0
0
10
4
0
6
6
6
Thomas J. Ridge
David L. Shedlarz
71
68
10
9
Former President, Japan/
Asia Pacific/Australia
Region, American Express
International, Inc.
Chairman of the Board, The
Hershey Company
Director, Hershey Trust
Company; Member, Board of
Managers, Milton Hershey
School
President and Chief
Executive Officer, The
Hershey Company
Chief Executive Officer,
Stone Point Capital LLC
Former President, North
America, Wm. Wrigley Jr.
Company
Director, Hershey Trust
Company; Member, Board of
Managers, Milton Hershey
School
Former President, Global
Marketing, Sales &
Innovation, Diageo PLC
Founder and Managing
Director, JM Mead, LLC
President, Global Brands
and Innovation, Kimberly-
Clark Corporation
Chairman, Ridge Global,
LLC
Former Vice Chairman,
Pfizer Inc.
Yes
No
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Committee
Memberships*
Audit
Executive
Governance+
Executive+
None
None
Audit+
Executive
Compensation
Governance
None
Compensation
Finance & Risk
Audit
Compensation+
Executive
Compensation
Finance & Risk
Finance & Risk
Governance
Compensation
Executive
Finance & Risk+
*
Compensation = Compensation and Executive Organization Committee
Finance & Risk = Finance and Risk Management Committee
** Mr. Bilbrey retired from the position of President and Chief Executive Officer of the Company effective March 1, 2017
+
Committee Chair
2
GOVERNANCE HIGHLIGHTS
Board Composition
• 12 director nominees; 10 are independent
• Average age of director nominees is 64
• Average tenure of director nominees is 5 years
• 3 new directors/director nominees in 2017
• One-third of director nominees are female
• Highly qualified directors reflect broad mix of business backgrounds, skills and experiences
Corporate Governance
• Separate Chairman of the Board and Chief Executive Officer positions as of March 1, 2017
• Strong Lead Independent Director position
• 4 fully independent Board committees plus an Executive Committee
• Executive session of independent directors held at each regularly-scheduled Board meeting
• Declassified Board – all directors elected annually
• Frequent Board and committee meetings to ensure awareness and alignment
O 13 Board meetings in 2016
O 34 standing committee meetings in 2016
O 4 special committee meetings in 2016
• On average, directors attended 94% of Board and committee meetings held in 2016
• Generally, each committee chair required to step down after 4 consecutive years as chair
• Annual Board and committee self-assessments and discussions with individual directors
• Resignation requirement upon material change in director occupation (subject to acceptance
by the Board)
• Directors generally not nominated for re-election after 72nd birthday
• Strong clawback and anti-hedging policies
• Significant stock ownership requirements for directors and senior executives
• Active role in risk oversight, including separate risk management committee
• Annual advisory vote on named executive officer compensation
O Approximately 95% stockholder approval (based on votes cast) every year
• 2 directors elected by holders of common stock voting separately
3
EXECUTIVE COMPENSATION HIGHLIGHTS
Our executive compensation program is intended to provide competitive compensation based on
performance and contributions to the Company, to incentivize, attract and retain key executives, to
align the interests of our executive officers and our stockholders and to drive stockholder value over the
long term. To achieve these objectives, our executive compensation program includes the following key
features:
• We Pay for Performance by aligning our short- and long-term incentive compensation plans
with business strategies to reward executives who achieve or exceed applicable Company and
business division goals.
O
In 2016, approximately 70% of the target total direct compensation for our Chief
Executive Officer (“CEO”) and, on average, 60% of the target total direct compensation
for our other named executive officers (“NEOs”) was variable and tied to Company
performance.
O Payouts under our annual cash incentive program for 2016 were 100% performance
O
O
based.
50% of the equity awards granted to our NEOs in 2016 took the form of performance
stock units, which will be earned based on achievement of pre-determined performance
goals.
25% of the equity awards granted to our NEOs in 2016 took the form of stock options,
which will only have value to our NEOs to the extent our stock price increases over the
long term.
• We Pay Competitively by targeting total cash compensation and total direct compensation for
each of our NEOs around the 50th percentile of our defined market for talent.
O We regularly review and, as appropriate, make changes to our peer group to ensure it is
representative of our market for talent, our business portfolio, our overall size and our
global footprint.
O We do not provide excessive benefits and perquisites to our executives.
• We Align Our Compensation Program with Stockholder Interests by providing a
significant amount of each NEO’s compensation opportunity in the form of equity and requiring
executive stock ownership.
O Equity grants represented 65% of our CEO’s 2016 target total direct compensation and,
on average, 52% of the 2016 target total direct compensation for our other NEOs.
O
Stock ownership requirements for our NEOs range from 5x salary (for our CEO) to 3x
salary (for NEOs other than our CEO).
CEO Target Total Direct Compensation for 2016
Compensation Element
% of Total
Description
Cash Equity
Salary
Annual Cash Incentive
Long-Term Incentive
14
21
65
Fixed annual cash amount
Variable annual cash payment
✓
✓
Equity awards with 3-4 year vest periods
✓
4
Proxy Statement
The Board of Directors (the “Board”) of The Hershey Company (the “Company,” “we,” or “us”) is
furnishing this Proxy Statement and the accompanying form of proxy in connection with the
solicitation of proxies for the 2017 Annual Meeting of Stockholders of the Company (the “Annual
Meeting”). The Annual Meeting will be held on May 3, 2017, beginning at 10:00 a.m., Eastern Daylight
Time (“EDT”), at GIANT Center, 550 West Hersheypark Drive, Hershey, Pennsylvania 17033.
Important Notice Regarding the Availability of Proxy Materials for the
2017 Annual Meeting of Stockholders to be held on May 3, 2017
The Notice of 2017 Annual Meeting of Stockholders and Proxy Statement, our proxy card,
our Annual Report on Form 10-K and other annual meeting materials are available free of
charge on the Internet at www.proxyvote.com. We intend to begin mailing our Notice of Internet
Availability of Proxy Materials to stockholders on or about March 23, 2017. At that time, we also will
begin mailing paper copies of our proxy materials to stockholders who requested them.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
Q: Who is entitled to attend and vote at the Annual Meeting?
A: You can attend and vote at the Annual Meeting if, as of the close of business on March 6, 2017 (the
“Record Date”), you were a stockholder of record of the Company’s common stock (“Common Stock”)
or Class B common stock (“Class B Common Stock”). As of the Record Date, there were 152,069,763
shares of our Common Stock and 60,619,777 shares of our Class B Common Stock outstanding.
Q: How do I gain admission to the Annual Meeting?
A:
If you are a registered stockholder, you must bring with you the Notice of Internet Availability of
Proxy Materials and a government-issued photo identification (such as a valid driver’s license or
passport) to gain admission to the Annual Meeting. If you did not receive a Notice of Internet
Availability of Proxy Materials because you elected to receive a paper copy of the proxy materials,
please bring the admission ticket printed on the top half of the proxy card supplied with those
materials, together with your government-issued photo identification. If you receive your proxy
materials by email, please call our Investor Relations Department at (800) 539-0261 and request
an admission ticket for the meeting.
If you hold your shares in street name and want to attend the Annual Meeting, you must bring
your government-issued photo identification, together with:
• The Notice of Internet Availability of Proxy Materials you received from your broker, bank
or other holder of record; or
• A letter from your broker, bank or other holder of record indicating that you were the
beneficial owner of Company stock as of the Record Date; or
• Your most recent account statement indicating that you were the beneficial owner of
Company stock as of the Record Date.
5
Q: What is the difference between a registered stockholder and a
stockholder who owns stock in street name?
A:
If you hold shares of Common Stock or Class B Common Stock directly in your name on the books
of the Company’s transfer agent, you are a registered stockholder. If you own your Company shares
indirectly through a broker, bank or other holder of record, then you are a beneficial owner and
those shares are held in street name.
Q: What are the voting rights of each class of stock?
A: Stockholders are entitled to cast one vote for each share of Common Stock held as of the Record
Date, and 10 votes for each share of Class B Common Stock held as of the Record Date. There are
no cumulative voting rights.
Q: Can I vote my shares before the Annual Meeting?
A: Yes. If you are a registered stockholder, there are three ways to vote your shares before the Annual
Meeting:
By Internet (www.proxyvote.com) – Use the Internet to transmit your voting instructions
until 11:59 p.m. EDT on May 2, 2017. Have your Notice of Internet Availability of Proxy
Materials or proxy card available and follow the instructions on the website to vote your
shares.
By telephone (800-690-6903) – Submit your vote by telephone until 11:59 p.m. EDT on
May 2, 2017. Have your Notice of Internet Availability of Proxy Materials or proxy card
available and follow the instructions provided by the recorded message to vote your
shares.
By mail – If you received a paper copy of the proxy materials, you can vote by mail by
filling out the proxy card enclosed with those materials and returning it pursuant to the
instructions set forth on the card. To be valid, proxy cards must be received before the
start of the Annual Meeting.
If your shares are held in street name, your broker, bank or other holder of record may provide you
with a Notice of Internet Availability of Proxy Materials that contains instructions on how to
access our proxy materials and vote online or to request a paper or email copy of our proxy
materials. If you received these materials in paper form, the materials included a voting
instruction card so you can instruct your broker, bank or other holder of record how to vote your
shares.
Please see the Notice of Internet Availability of Proxy Materials or the information your bank,
broker or other holder of record provided you for more information on these voting options.
Q: Can I vote in person at the Annual Meeting instead of by proxy?
A:
If you are a registered stockholder, you can vote at the Annual Meeting any shares that were
registered in your name as the stockholder of record as of the Record Date.
If your shares are held in street name, you cannot vote those shares at the Annual Meeting unless
you have a legal proxy from the holder of record. If you plan to attend and vote your street-name
shares at the Annual Meeting, you should request a legal proxy from your broker, bank or other
holder of record and bring it with you to the Annual Meeting.
6
If you plan to vote at the Annual Meeting, please pick up a ballot at the designated voting booth
upon your arrival. You may then either deposit your ballot in any of the designated ballot boxes
located inside the meeting room before the meeting begins or submit your ballot to a meeting usher
at the time designated during the meeting. Ballots will not be distributed during the meeting.
Shares may not be voted after the polls close.
Whether or not you plan to attend the Annual Meeting, we strongly encourage you to vote your
shares by proxy prior to the Annual Meeting.
Q: Can I revoke my proxy or change my voting instructions once submitted?
A:
If you are a registered stockholder, you can revoke your proxy and change your vote prior to the
Annual Meeting by:
• Sending a written notice of revocation to our Corporate Secretary at 100 Crystal A Drive,
Hershey, Pennsylvania 17033 (the notification must be received by the close of business on
May 2, 2017);
• Voting again by Internet or telephone prior to 11:59 p.m. EDT on May 2, 2017 (only the
latest vote you submit will be counted); or
• Submitting a new properly signed and dated paper proxy card with a later date (your
proxy card must be received before the start of the Annual Meeting).
If your shares are held in street name, you should contact your broker, bank or other holder of
record about revoking your voting instructions and changing your vote prior to the Annual
Meeting.
If you are eligible to vote at the Annual Meeting, you also can revoke your proxy or voting
instructions and change your vote at the Annual Meeting by submitting a written ballot before the
polls close.
Q: What will happen if I submit my proxy but do not vote on a proposal?
A:
If you submit a valid proxy but fail to provide instructions on how you want your shares to be
voted, your proxy will be voted in the manner recommended by the Board on all matters presented
in this Proxy Statement, which is as follows:
• “FOR” the election of all director nominees;
• “FOR” the ratification of the appointment of Ernst & Young LLP as our independent
auditors;
• “FOR” the approval of the compensation of the Company’s named executive officers
(“NEOs”); and
• For “1 YEAR” as the frequency of future advisory votes on NEO compensation.
If any other item is properly presented for a vote at the Annual Meeting, the shares represented by
your properly submitted proxy will be voted at the discretion of the proxies.
7
Q: What will happen if I neither submit my proxy nor vote my shares in
person at the Annual Meeting?
A:
If you are a registered stockholder, your shares will not be voted.
If your shares are held in street name, your broker, bank or other holder of record may vote your
shares on certain “routine” matters. The ratification of independent auditors is currently
considered to be a routine matter. On this matter, your broker, bank or other holder of record can:
• Vote your street-name shares even though you have not provided voting instructions; or
• Choose not to vote your shares.
The other matters you are being asked to vote on are not routine and cannot be voted by your
broker, bank or other holder of record without your instructions. When a broker, bank or other
holder of record is unable to vote shares for this reason, it is called a “broker non-vote.”
Q: How do I vote if I am a participant in one of the Company’s 401(k) Plans?
A:
If you are a participant in either The Hershey Company 401(k) Plan or The Hershey Company
Puerto Rico 401(k) Plan, you may have certain voting rights with respect to shares of our Common
Stock credited to your account in the plan. You do not own these shares. They are owned by the
plan trustee.
Each of the plans provides you with voting rights based on the number of shares of Common Stock
that were constructively invested in your plan account as of the close of business on the Record
Date. We originally contributed these shares to the plan on your behalf as matching or
supplemental retirement contributions. You may vote these shares in much the same way as
registered stockholders vote their shares, but you have an earlier deadline. Your vote must be
received by the plan trustee by 11:59 p.m. EDT on April 28, 2017. You may vote these shares by
following the instructions provided on the Notice of Internet Availability of Proxy Materials and on
the voter website, www.proxyvote.com. If you requested a paper copy of the proxy materials, you
also may vote by mail by signing, dating and returning the proxy/voting instruction card included
with those materials.
The plan trustee will submit one proxy to vote all shares of Common Stock in the plan. The trustee
will vote the shares of Common Stock credited to participants submitting voting instructions in
accordance with their instructions and will vote the shares of Common Stock in the plan for which
no voting instructions were received in the same proportion as the final votes of all participants
who actually voted. Please note that if you do not submit voting instructions for the shares of
Common Stock in your account by the voting deadline, those shares will be included with the other
undirected shares and voted by the trustee as described above. Because the trustee submits one
proxy to vote all shares of Common Stock in the plan, you may not vote plan shares in person at
the Annual Meeting.
Q: How do I vote my shares in the Company’s Automatic Dividend
Reinvestment Service Plan?
A: Computershare, our transfer agent, has arranged for any shares that you hold in the Automatic
Dividend Reinvestment Service Plan to be included in the total registered shares of Common Stock
shown on the Notice of Internet Availability of Proxy Materials or proxy card we have provided
you. By voting these shares, you also will be voting your shares in the Automatic Dividend
Reinvestment Service Plan.
8
Q: What does it mean if I received more than one Notice of Internet
Availability of Proxy Materials or proxy card?
A: You probably have multiple accounts with us and/or brokers, banks or other holders of record. You
should vote all of the shares represented by these Notices/proxy cards. Certain brokers, banks and
other holders of record have procedures in place to discontinue duplicate mailings upon a
stockholder’s request. You should contact your broker, bank or other holder of record for more
information. Additionally, Computershare can assist you if you want to consolidate multiple
registered accounts existing in your name. To contact Computershare, visit their website at
www.computershare.com/investor; or write to P.O. Box 30170, College Station, Texas 77842-3170;
or for overnight delivery, to Computershare, 211 Quality Circle, Suite 210, College Station, Texas
77845; or call:
• (800) 851-4216 Domestic Holders
• (201) 680-6578 Foreign Holders
• (800) 952-9245 Domestic TDD line for hearing impaired
• (312) 588-4110 Foreign TDD line for hearing impaired
Q: How many shares must be present to conduct business at the Annual
Meeting?
A: To carry on the business of the Annual Meeting, a minimum number of shares, constituting a
quorum, must be present, either in person or by proxy.
On most matters, the votes of the holders of the Common Stock and Class B Common Stock are
counted together. However, there are some matters that must be voted on only by the holders of
one class of stock. We will have a quorum for all matters to be voted on at the Annual Meeting if
the following number of votes is present, in person or by proxy:
• For any matter requiring the vote of the Common Stock voting separately: a majority of the
votes of the Common Stock outstanding on the Record Date.
• For any matter requiring the vote of the Class B Common Stock voting separately: a
majority of the votes of the Class B Common Stock outstanding on the Record Date.
• For any matter requiring the vote of the Common Stock and Class B Common Stock voting
together without regard to class: a majority of the votes of the Common Stock and Class B
Common Stock outstanding on the Record Date.
It is possible that we could have a quorum for certain items of business to be voted on at the
Annual Meeting and not have a quorum for other matters. If that occurs, we will proceed with a
vote only on the matters for which a quorum is present.
Q: What vote is required to approve each proposal?
A: Assuming that a quorum is present:
• Proposal No. 1: Election of Directors – the two nominees to be elected by holders of our
Common Stock voting separately as a class who receive the greatest number of votes cast
“FOR,” and the ten nominees to be elected by holders of our Common Stock and Class B
Common Stock voting together who receive the greatest number of votes cast “FOR,” will
be elected as directors.
• Proposal No. 2: Ratification of the Appointment of Ernst & Young LLP as Independent
Auditors – the affirmative vote of the holders of at least a majority of the shares of
Common Stock and Class B Common Stock (voting together as a class) represented at the
Annual Meeting.
9
• Proposal No. 3: Advise on Named Executive Officer Compensation – the affirmative vote of
the holders of at least a majority of the shares of Common Stock and Class B Common
Stock (voting together as a class) represented at the Annual Meeting.
• Proposal No. 4: Advise on the Frequency of Future Advisory Votes on Named Executive
Officer Compensation – You are not being asked to vote “for” or “against” this proposal.
Instead, this proposal asks stockholders to inform us how often we should conduct an
advisory vote on the compensation of our NEOs. You are given the option of selecting
every 1, 2 or 3 years, or abstaining. The frequency that receives the greatest number of
votes from the holders of our Common Stock and Class B Common Stock voting together
will be considered by the Board when determining how often the Company will conduct an
advisory vote on NEO compensation in future years.
Q: Are abstentions and broker non-votes counted in the vote totals?
A: Abstentions are counted as being present and entitled to vote in determining whether a quorum is
present. Shares as to which broker non-votes exist will be counted as present and entitled to vote
in determining whether a quorum is present for any matter requiring the vote of the Common
Stock and Class B Common Stock voting together as a class, but they will not be counted as
present and entitled to vote in determining whether a quorum is present for any matter requiring
the vote of the Common Stock or Class B Common Stock voting separately as a class.
If you mark or vote “abstain” on Proposal Nos. 2 or 3, the abstention will have the effect of being
counted as a vote “AGAINST” the proposal. If you mark or vote “abstain” on Proposal No. 4, your
vote will not be counted as a vote for any of the other three options under that proposal. Broker
non-votes with respect to Proposal Nos. 1-4 are not included in vote totals and will not affect the
outcome of the vote on those proposals.
Q: Who will pay the cost of soliciting votes for the Annual Meeting?
A: We will pay the cost of preparing, assembling and furnishing proxy solicitation and other required
Annual Meeting materials. We do not use a third-party solicitor. It is possible that our directors,
officers and employees might solicit proxies by mail, telephone, telefax, electronically over the
Internet or by personal contact, without receiving additional compensation. We will reimburse
brokers, banks and other nominees, fiduciaries and custodians who nominally hold shares of our
stock as of the Record Date for the reasonable costs they incur furnishing proxy solicitation and
other required Annual Meeting materials to street-name holders who beneficially own those shares
on the Record Date.
10
CORPORATE GOVERNANCE
We have a long-standing commitment to good corporate governance practices. Our corporate
governance policies and other documents establish the high standards of professional and personal
conduct we expect of our Board, members of senior management and all employees, and promote
compliance with various financial, ethical, legal and other obligations and responsibilities.
The business activities of the Company are carried out by our employees under the direction and
supervision of our President and Chief Executive Officer (“CEO”). The Board is responsible for
overseeing these activities. In doing so, each director is required to use his or her business judgment in
the best interests of the Company. The Board’s responsibilities include:
• Reviewing the Company’s performance, strategies and major decisions;
• Overseeing the Company’s compliance with legal and regulatory requirements and the
integrity of its financial statements;
• Overseeing the Company’s policies and practices for identifying, managing and mitigating key
enterprise risks;
• Overseeing management, including reviewing the CEO’s performance and succession planning
for key management roles; and
• Overseeing executive and director compensation, and our compensation program and policies.
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines that, along with the charters of the Board
committees, provide the basic framework for the Board’s operation and role in the governance of the
Company. The guidelines include the Board’s policies regarding director independence, qualifications
and responsibilities, access to management and outside advisors, compensation, continuing education,
oversight of management succession and stockholding requirements. They also provide a process for
directors to annually evaluate the performance of the Board.
The Governance Committee is responsible for overseeing and reviewing the Board’s Corporate
Governance Guidelines at least annually and recommending any proposed changes to the Board for
approval. The Corporate Governance Guidelines are available on the Investors section of our website at
www.thehersheycompany.com.
Code of Ethical Business Conduct
The Board has adopted a Code of Ethical Business Conduct (the “Code of Conduct”) that applies to all
of our directors, officers and employees worldwide. Adherence to this Code of Conduct assures that our
directors, officers and employees are held to the highest standards of integrity. The Code of Conduct
covers areas such as conflicts of interest, insider trading and compliance with laws and regulations.
The Audit Committee oversees the Company’s communication of, and compliance with, the Code of
Conduct. The Code of Conduct, including amendments thereto or waivers granted to a director or
officer, if any, can be viewed on the Investors section of our website at www.thehersheycompany.com.
11
Stockholder and Interested Party Communications with Directors
Stockholders and other interested parties may communicate with our directors in several ways.
Communications regarding accounting, internal accounting controls or auditing matters may be
emailed to the Audit Committee at auditcommittee@hersheys.com or addressed to the Audit Committee
at the following address:
Audit Committee
c/o Corporate Secretary
The Hershey Company
100 Crystal A Drive
P.O. Box 810
Hershey, PA 17033-0810
Stockholders and other interested parties also can submit comments, confidentially and anonymously if
desired, to the Audit Committee by calling the Hershey Concern Line at (800) 362-8321 or by accessing
the Hershey Concern Line website at www.HersheysConcern.com.
Stockholders and other interested parties may contact any of the independent directors, including the
Lead Independent Director, as well as the independent directors as a group, by writing to the specified
party at the address set forth above or by emailing the independent directors (or a specific independent
director, including the Lead Independent Director) at independentdirectors@hersheys.com.
Stockholders and other interested parties may also contact any of the independent directors using the
Hershey Concern Line telephone number or website noted above.
Communications to the Audit Committee, any of the independent directors and the Hershey Concern
Line are processed by the Office of General Counsel. The Office of General Counsel reviews and
summarizes these communications and provides reports to the applicable party on a periodic basis.
Communications regarding any accounting, internal control or auditing matter are reported
immediately to the Audit Committee, as are allegations about our officers. The Audit Committee will
address communications from any interested party in accordance with our Board-approved Procedures
for Submission and Handling of Complaints Regarding Compliance Matters, which are available for
viewing on the Investors section of our website at www.thehersheycompany.com. Solicitations, junk
mail and obviously frivolous or inappropriate communications are not forwarded to the Audit
Committee or the independent directors, but copies are retained and made available to any director
who wishes to review them.
Director Independence
The Board, in consultation with the Governance Committee, determines which of our directors are
independent. The Board has adopted categorical standards for independence that the Board uses in
determining which directors are independent. The Board bases its determination of independence for
each director on the more stringent independence standards applicable to Audit Committee members
regardless of whether such director serves on the Audit Committee. These standards are contained in
the Board’s Corporate Governance Guidelines.
Applying these categorical standards for independence, as well as the independence requirements set forth
in the listing standards of the New York Stock Exchange (the “NYSE Rules”) and the rules and regulations
of the Securities and Exchange Commission (“SEC”), the Board determined that the following directors
recommended for election at the Annual Meeting are independent: Pamela M. Arway, James W. Brown,
Charles A. Davis, Mary Kay Haben, M. Diane Koken, Robert M. Malcolm, James M. Mead,
Anthony J. Palmer, Thomas J. Ridge and David L. Shedlarz. The Board determined that John P. Bilbrey is
not independent because he served as an executive officer of the Company until March 1, 2017, and that
Michele G. Buck is not independent because she is an executive officer of the Company.
12
In making its independence determinations, the Board, in consultation with the Governance
Committee, reviewed the direct and indirect relationships between each director and the Company and
its subsidiaries, as well as the compensation and other payments each director received from or made
to the Company and its subsidiaries.
In making its independence determinations with respect to Ms. Koken and Messrs. Brown and Mead,
the Board considered their roles as current members of the board of directors of Hershey Trust
Company and the board of managers (governing body) of Milton Hershey School, as well as certain
transactions the Company had or may have with these entities.
Hershey Trust Company, as trustee for the trust established by Milton S. and Catherine S. Hershey
that has as its sole beneficiary Milton Hershey School (such trust, the “Milton Hershey School Trust”),
is our controlling stockholder. Hershey Trust Company is in turn owned by the Milton Hershey School
Trust. As such, Hershey Trust Company, Milton Hershey School, the Milton Hershey School Trust and
companies owned by the Milton Hershey School Trust are considered affiliates of the Company under
SEC rules. During 2016, we had a number of transactions with Hershey Trust Company, Milton
Hershey School and companies owned by the Milton Hershey School Trust involving the purchase and
sale of goods and services in the ordinary course of business and the leasing of real estate at market
rates. We have outlined these transactions in greater detail in the section entitled “Certain
Transactions and Relationships.” We have provided information about Company stock owned by
Hershey Trust Company, as trustee for the Milton Hershey School Trust, and by Hershey Trust
Company for its own investment purposes in the section entitled “Information Regarding Our
Controlling Stockholder.”
Ms. Koken and Messrs. Brown and Mead do not receive any compensation from The Hershey Company,
from Hershey Trust Company or from Milton Hershey School other than compensation they receive or
will receive in the ordinary course as members of the board of directors or board of managers of each of
those entities, as applicable. In addition, Ms. Koken and Messrs. Brown and Mead do not participate in
Board decisions in connection with the Company’s transactions with Hershey Trust Company, Milton
Hershey School and companies owned by the Milton Hershey School Trust. The Board therefore
concluded that the positions Ms. Koken and Messrs. Brown and Mead have as members of the board of
directors of Hershey Trust Company and the board of managers of Milton Hershey School do not
impact their independence.
Director Nominations
The Governance Committee is responsible for identifying and recommending to the Board candidates
for Board membership. As our controlling stockholder, Hershey Trust Company, as trustee for the
Milton Hershey School Trust, also may from time to time recommend to the Governance Committee, or
elect outright, individuals to serve on our Board.
In administering its responsibilities, the Governance Committee has not adopted formal selection
procedures, but instead utilizes general guidelines that allow it to adjust the selection process to best
satisfy the objectives established for any director search. The Governance Committee considers director
candidates recommended by any reasonable source, including current directors, management,
stockholders (including Hershey Trust Company, as trustee for the Milton Hershey School Trust) and
other sources. The Governance Committee evaluates all director candidates in the same manner,
regardless of the source of the recommendation. The Governance Committee has established a policy
that it will not recommend a candidate to the full Board until all members of the Governance
Committee have interviewed and approved the candidate for nomination.
13
Occasionally, the Governance Committee engages a paid third-party consultant to assist in identifying
and evaluating director candidates. The Governance Committee has sole authority under its charter to
retain, compensate and terminate these consultants. In 2016, the Governance Committee retained
Egon Zehnder to assist in identifying potential future director candidates as several current directors
approach their 72nd birthday.
Stockholders desiring to recommend or nominate a director candidate must comply with certain
procedures. If you are a stockholder and desire to nominate a director candidate at the 2018 Annual
Meeting of Stockholders of the Company, you must comply with the procedures for nomination set forth
in the section entitled “Information Regarding the 2018 Annual Meeting of Stockholders.” Stockholders
who do not intend to nominate a director at an annual meeting may recommend a director candidate to
the Governance Committee for consideration at any time. Stockholders desiring to do so must submit
their recommendation in writing to The Hershey Company, c/o Corporate Secretary, 100 Crystal A
Drive, Hershey, Pennsylvania 17033-0810, and include in the submission all of the information that
would be required if the stockholder nominated the candidate at an annual meeting. The Governance
Committee may require the nominating stockholder to submit additional information before
considering the candidate.
There were no changes to the procedures relating to stockholder nominations during 2016, and there
have been no changes to such procedures to date in 2017. These procedural requirements are intended
to ensure the Governance Committee has sufficient time and a basis on which to assess potential
director candidates and are not intended to discourage or interfere with appropriate stockholder
nominations. The Governance Committee does not believe that these procedural requirements subject
any stockholder or proposed nominee to unreasonable burdens. The Governance Committee and the
Board reserve the right to change the procedural requirements from time to time and/or to waive some
or all of the requirements with respect to certain nominees, but any such waiver shall not preclude the
Governance Committee from insisting upon compliance with any and all of the above requirements by
any other recommending stockholder or proposed nominees.
THE BOARD OF DIRECTORS
General Oversight
The Board has general oversight responsibility for the Company’s affairs. Although the Board does not
have responsibility for day-to-day management of the Company, Board members stay informed about
the Company’s business through regular meetings, site visits and other periodic interactions with
management. The Board is deeply involved in the Company’s strategic planning process. The Board
also plays an important oversight role in the Company’s leadership development and succession
planning processes.
Composition
The Board is currently comprised of 12 members, each serving a one-year term that expires at the
Annual Meeting. Ten of the 12 director nominees are considered independent under the NYSE Rules
and the Board’s Corporate Governance Guidelines.
14
Leadership Structure
The Company’s governance documents provide the Board with flexibility to select the leadership
structure that is most appropriate for the Company and its stockholders. The Board regularly
evaluates its governance structure and has concluded that the Company and its stockholders are best
served by not having a formal policy regarding whether the same individual should serve as both
Chairman of the Board and CEO. This approach allows the Board to exercise its business judgment in
determining the most appropriate leadership structure in light of the current facts and circumstances
facing the Company, including the composition and tenure of the Board, the tenure of the CEO, the
strength of the Company’s management team, the Company’s recent financial performance, the
Company’s current strategic plan and the current economic environment, among other factors.
Throughout 2016, John P. Bilbrey served as our Chairman of the Board and CEO. The Board believed
that combining the roles of Chairman of the Board and CEO under Mr. Bilbrey’s leadership was in the
best interests of the Company and its stockholders for several reasons:
• Mr. Bilbrey’s strong working relationship and high level of trust with the Board, gained
through more than six years of service as a director;
• Mr. Bilbrey’s deep understanding of Board governance and operations, the result of having
worked with the prior Chairman of the Board and current Lead Independent Director to
develop meeting topics, set meeting schedules and agendas, and ensure efficient
communications among the directors; and
• Mr. Bilbrey’s unparalleled knowledge of the Company and its products, which the Board
believed put him in the best position to lead the Board through the strategic business issues
facing the Company.
Effective March 1, 2017, the Board split the roles of Chairman of the Board and CEO, with
Michele G. Buck assuming responsibility as President and CEO and Mr. Bilbrey transitioning to the
role of Non-Executive Chairman of the Board. The Board believes this leadership structure is the most
appropriate at this time as it enables the Company to continue to leverage Mr. Bilbrey’s knowledge of
the Company and his expertise in Board governance and operations while allowing Ms. Buck to focus
on her new responsibilities as CEO.
The Board also recognizes the importance of strong independent Board leadership. Although no longer
serving as an executive officer of the Company, the Board has determined that Mr. Bilbrey is not
independent at this time due to his prior service as CEO. For that reason, James E. Nevels continues to
serve as Lead Independent Director, a position he has held since April 2, 2015. Having previously
served as Chairman of the Board from February 2009 until his appointment as Lead Independent
Director, Mr. Nevels’s service helps ensure continuity of independent Board leadership as well as
effective communication between the CEO, the Chairman of the Board, and the independent directors.
Under the terms of the Board’s Corporate Governance Guidelines, the Lead Independent Director’s
responsibilities include the following:
• In the absence of the Chairman of the Board, presiding at all Board and stockholder meetings;
• Calling meetings of the independent directors of the Board, in addition to the executive
sessions of independent directors held during each Board meeting;
• Establishing the agenda and presiding at all executive sessions and other meetings of the
independent directors of the Board;
• Communicating with the independent directors of the Board between meetings as necessary or
appropriate;
15
• Serving as a liaison between the Chairman of the Board and the independent directors,
ensuring independent director consensus is communicated to the Chairman of the Board, and
communicating the results of meetings of the independent directors to the Chairman of the
Board and members of management, as appropriate;
• Approving Board meeting agendas and schedules to assure there is sufficient time for
discussion of all agenda items;
• Approving Board meeting materials and other information sent to the Board;
• Evaluating the quality and timeliness of information sent to the Board by the CEO and other
members of management;
• Assisting the Chairman of the Board on matters of Board succession planning and crisis
management;
• Overseeing the evaluation of the CEO;
• Assisting the chair of the Governance Committee with Board and individual director
evaluations; and
• Being available for consultation and direct communication at the request of major
stockholders.
The Board has determined that Mr. Nevels is an independent member of the Board under the NYSE
Rules and the Board’s Corporate Governance Guidelines.
Mr. Nevels is not standing for re-election as a director at the Annual Meeting. Pursuant to the terms of
the Board’s Corporate Governance Guidelines, the independent directors are currently considering
potential candidates from among the other independent members of the Board to replace Mr. Nevels as
Lead Independent Director upon expiration of his term.
In addition to the Lead Independent Director role, the Board has established five standing committees
to assist with its oversight responsibilities: (1) Audit Committee; (2) Compensation and Executive
Organization Committee (“Compensation Committee”); (3) Finance and Risk Management Committee;
(4) Governance Committee; and (5) Executive Committee. Each of the Audit Committee, the
Compensation Committee, the Finance and Risk Management Committee, and the Governance
Committee is comprised entirely of independent directors. Finally, Mr. Mead is a direct representative
of the Company’s largest stockholder. This composition of our Board helps to ensure that boardroom
discussions reflect the views of management, our independent directors and our stockholders.
Board Role in Risk Oversight
Our Board takes an active role in risk oversight. While management is responsible for identifying,
evaluating, managing and mitigating the Company’s exposure to risk, it is the Board’s responsibility to
oversee the Company’s risk management process and to ensure that management is taking appropriate
action to identify, manage and mitigate key risks. The Board administers its risk oversight
responsibilities both through active review and discussion of key risks facing the Company and by
delegating certain risk oversight responsibilities to committees for further consideration and
evaluation.
In August 2009, the Board established the Finance and Risk Management Committee. This committee
was established, in part, to enhance the Board’s oversight of how senior management manages the
material risks facing the Company.
16
The following table summarizes the role of the Board and each of its committees in overseeing risk:
Governing Body
Role in Risk Oversight
Board
• Regularly reviews and evaluates the Company’s strategic plans and
associated risks.
• Oversees the Company’s enterprise risk management (“ERM”)
framework and the overall ERM process.
• Conducts annual succession plan reviews to ensure the Company
maintains appropriate succession plans for members of senior
management.
Audit Committee
• Oversees compliance with legal and regulatory requirements and the
Compensation and
Executive Organization
Committee
Company’s Code of Conduct.
• Oversees risks relating to key accounting policies.
• Reviews internal controls with the Principal Financial Officer,
Principal Accounting Officer and internal auditors.
• Meets regularly with representatives of the Company’s independent
auditors.
• Oversees risks relating to the Company’s compensation program and
policies.
• Oversees the process for conducting annual risk assessments of the
Company’s compensation policies and practices.
• Employs independent compensation consultants to assist in
reviewing the Company’s compensation program, including the
potential risks created by such program.
• Oversees the Company’s succession planning and talent processes
and programs.
Finance and Risk
Management Committee
• Reviews enterprise-level and other key risks identified through the
Company’s ERM process as well as management’s plans to mitigate
those risks.
• Oversees key financial risks.
• Oversees and approves proposed merger and acquisition activities
and related risks.
• Chair meets at least annually with the Audit Committee to discuss
the Company’s risk management programs.
Governance Committee
• Oversees risks relating to the Company’s governance structure and
other corporate governance matters and processes.
• Oversees compliance with key corporate governance documents,
including the Corporate Governance Guidelines and the Insider
Trading Policy.
Executive Committee
• Reviews and approves, through a special committee of independent
directors on the Executive Committee, any related party
transactions between the Company and entities affiliated with the
Company and certain of its directors.
17
The decision to administer the Board’s oversight responsibilities in this manner has an important effect
on the Board’s leadership and committee structure, described in more detail above. The Board believes
that its structure – including a strong Lead Independent Director, 10 of 12 independent directors and
key committees comprised entirely of independent directors – helps to ensure that key strategic
decisions made by senior management, up to and including the CEO, are reviewed and overseen by
independent directors of the Board.
Experiences, Skills and Qualifications
The Governance Committee works with the Board to determine the appropriate characteristics, skills
and experiences that should be possessed by the Board as a whole as well as its individual members.
While the Governance Committee has not established minimum criteria for director candidates, in
general, the Board seeks individuals with skills and backgrounds that will complement those of other
directors and maximize the diversity and effectiveness of the Board as a whole. The Board also seeks
individuals who bring unique and varied perspectives and life experiences to the Board. As such, the
Governance Committee assists the Board by recommending prospective director candidates who will
enhance the overall diversity of the Board. The Board views diversity broadly, taking into consideration
the age, professional experience, race, education, gender and other attributes of its members. In
addition, the Board’s Corporate Governance Guidelines describe the general experiences, qualifications,
attributes and skills sought by the Board of any director nominee, including:
Qualifications, Attributes and Skills
Knowledge and Experience
✓ Integrity
✓ Judgment
✓ Skill
✓ Diversity
✓ Ability to express informed, useful and constructive
views
✓ Experience with business and other organizations of
comparable size
✓ Ability to commit the time necessary to learn our
business and to prepare for and participate actively in
committee meetings and in Board meetings
✓ Experience and how it relates to the experiences of the
other Board members
✓ Overall desirability as an addition to the Board and its
committees
✓ Finance
✓ International business
✓ Marketing
✓ Mergers and acquisitions
✓ Supply chain management
✓ Information technology
✓ Human resources
✓ Consumer products
✓ Government, public policy and regulatory affairs
In addition to evaluating new director candidates, the Governance Committee regularly assesses the
composition of the Board in order to ensure it reflects an appropriate balance of knowledge, skills,
expertise, diversity and independence. As part of this assessment, each director is asked to identify and
assess the particular experiences, skills and other attributes that qualify him or her to serve as a
member of the Board. Based on the most recent assessment of the Board’s composition completed in
February 2017, the Governance Committee and the Board have determined that, in light of the
Company’s current business structure and strategies, the Board has an appropriate mix of director
experiences, skills, qualifications and backgrounds.
A description of the most relevant experiences, skills, attributes and qualifications that qualify each
director nominee to serve as a member of the Board is included in his or her biography.
18
MEETINGS AND COMMITTEES OF THE BOARD
Meetings of the Board of Directors and Director Attendance at Annual Meeting
The Board held 13 meetings in 2016. Each director attended at least 83% of all of the meetings of the
Board and committees of the Board on which he or she served in 2016. Average attendance for all of
these meetings equaled 94%.
In addition, the independent directors meet regularly in executive session at every Board meeting and at
other times as the independent directors deem necessary. These meetings allow the independent directors
to discuss important issues, including the business and affairs of the Company as well as matters
concerning management, without any member of management present. Each executive session is chaired by
the Lead Independent Director. In the absence of the Lead Independent Director, executive sessions are
chaired by an independent director assigned on a rotating basis. Members of the Audit Committee,
Compensation Committee, Finance and Risk Management Committee, and Governance Committee also
meet regularly in executive session.
Directors are expected to attend our annual meetings of stockholders. Ten of the eleven directors
standing for election at the 2016 Annual Meeting of Stockholders of the Company attended that meeting.
Committees of the Board
The Board has established five standing committees. Membership on each of these committees, as of
March 6, 2017, is shown in the following chart:
Name
Audit
Compensation
and Executive
Organization
Finance and
Risk
Management Governance Executive
Chair
Chair
Pamela M. Arway
John P. Bilbrey
Robert F. Cavanaugh
Charles A. Davis
Mary Kay Haben
Robert M. Malcolm
James M. Mead
James E. Nevels
Anthony J. Palmer
Thomas J. Ridge
David L. Shedlarz
Committee Member
* Ex-Officio
Chair
Chair
*
*
Chair
All directors, including committee chairs, served on the respective committees listed above throughout
2016.
The Board’s Corporate Governance Guidelines require that every member of the Audit Committee,
Compensation Committee, Finance and Risk Management Committee, and Governance Committee be
independent.
19
The Board may also from time to time establish committees of limited duration for a special purpose. In
2016, the Board established a special committee to oversee the Company’s CEO search process. This
special committee was chaired by Ms. Arway and included Ms. Haben and Messrs. Malcolm, Mead,
Nevels and Shedlarz as members. The special committee met four times in 2016.
The table below identifies the number of meetings held by each standing committee in 2016, provides a
brief description of the duties and responsibilities of each committee, and provides general information
regarding the location of each committee’s charter:
Committee
Meetings
Audit
9
Duties and
Responsibilities
• Oversee the Company’s financial reporting processes and the integrity of the Company’s
financial statements.
• Oversee the Company’s compliance with legal and regulatory requirements.
• Oversee the performance of the Company’s independent auditors and the internal audit
function.
• Approve all audit and non-audit services and fees.
• Oversee (in consultation with the Finance and Risk Management Committee) the
Company’s risk management processes and policies.
• Review the adequacy of internal controls.
• Review and discuss with management Quarterly Reports on Form 10-Q and Annual
Report on Form 10-K prior to filing with the SEC.
• Review and discuss with management earnings releases.
• Administer the Company’s Procedures for Submission and Handling of Complaints
Regarding Compliance Matters.
General
Information
• The Board has determined that all directors on the Audit Committee are financially
literate. The Board has also determined that Messrs. Davis, Mead and Nevels qualify
as “audit committee financial experts” as defined in SEC regulations and that each has
accounting or related financial management expertise.
• Charter can be viewed on the Investors section of our website
at www.thehersheycompany.com.
• Charter prohibits any member of the Audit Committee from serving on the audit
committees of more than two other public companies unless the Board determines that
such simultaneous service would not impair the ability of the director to effectively
serve on the Committee.
Committee
Compensation and Executive Organization
Meetings
8
Duties and
Responsibilities
• Establish executive officer compensation (other than CEO compensation) and oversee
the compensation program and policies for all executive officers.
• Evaluate the performance of the CEO and make recommendations to the independent
directors of the Board regarding CEO compensation.
• Review and recommend to the Board the form and amount of director compensation.
• Make equity grants under and administer the Company’s Equity and Incentive
Compensation Plan (the “EICP”).
• Establish target award levels and make awards under the annual cash incentive
component of the EICP.
• Monitor executive compensation arrangements for consistency with corporate objectives
and stockholders’ interests.
• Review the executive organization of the Company.
• Monitor the development of personnel available to fill key executive positions as part of
the succession planning process.
General
Information
• Charter can be viewed on the Investors section of our website
at www.thehersheycompany.com.
20
Committee
Finance and Risk Management
Meetings
8
Duties and
Responsibilities
• Oversee management of the Company’s assets, liabilities and risks.
• Review and make recommendations regarding capital projects, acquisitions and
dispositions of assets and changes in capital structure.
• Review the annual budget and monitor performance against operational plans.
• Recommend to the Board the terms of the Company’s principal banking relationships,
credit facilities and commercial paper programs.
• Oversee (in consultation with the Audit Committee) the Company’s risk management
processes and policies.
General
Information
• Charter can be viewed on the Investors section of our website
at www.thehersheycompany.com.
Committee
Governance
Meetings
8
Duties and
Responsibilities
• Review and make recommendations on the composition of the Board and its committees.
• Identify, evaluate and recommend candidates for election to the Board consistent with
the Board’s membership qualifications.
• Review and make recommendations to the Board on corporate governance matters and
policies, including the Board’s Corporate Governance Guidelines.
• Administer the Company’s Related Person Transaction Policy as directed by the Board.
• Evaluate the performance of the Board, its independent committees and each director.
General
Information
• Charter can be viewed on the Investors section of our website
at www.thehersheycompany.com.
Committee
Executive
Meetings
1
Duties and
Responsibilities
• Manage the business and affairs of the Company, to the extent permitted by the
Delaware General Corporation Law, when the Board is not in session.
• Review and approve, through a subcommittee consisting of the independent directors on
the Executive Committee who are not affiliated with Hershey Trust Company, Hershey
Entertainment & Resorts Company and/or Milton Hershey School, or any of their
affiliates, any transaction not in the ordinary course of business between the Company
and any of these entities, unless otherwise provided by the Board or the Corporate
Governance Guidelines.
• Currently, the Corporate Governance Guidelines provide that, unless directed otherwise
by the independent members of the Board who have no affiliation with any of the above
entities, such transactions will be reviewed and approved in advance by a special
committee consisting of the directors elected by the holders of our Common Stock voting
separately, and only in the absence of such directors will the subcommittee of the
Executive Committee approve such transactions.
General
Information
• Charter can be viewed on the Investors section of our website
at www.thehersheycompany.com.
• For more information regarding the review, approval or ratification of related-party
transactions, please refer to the section entitled “Certain Transactions and
Relationships.”
21
PROPOSAL NO. 1 – ELECTION OF DIRECTORS
✓ The Board of Directors unanimously recommends that stockholders
vote FOR each of the nominees for director at the
2017 Annual Meeting
The first proposal to be voted on at the Annual Meeting is the election of 12 directors. If elected, the
directors will hold office until the 2018 Annual Meeting of Stockholders of the Company or until their
successors are elected and qualified.
Election Procedures
We have two classes of common stock outstanding: Common Stock and Class B Common Stock. Under
our certificate of incorporation and by-laws:
• One-sixth of the total number of our directors (which equates presently to two directors) will be
elected by the holders of our Common Stock voting separately as a class. For the 2017 Annual
Meeting, the Board has nominated Mary Kay Haben and Robert M. Malcolm for election by the
holders of our Common Stock voting separately as a class.
• The remaining 10 directors will be elected by the holders of our Common Stock and Class B
Common Stock voting together without regard to class.
With respect to the nominees to be elected by the holders of the Common Stock and the Class B
Common Stock voting together, the nine nominees receiving the greatest number of votes of the
Common Stock and Class B Common Stock will be elected as directors. With respect to the nominees to
be elected by the holders of the Common Stock voting separately as a class, the two nominees receiving
the greatest number of votes of the Common Stock will be elected as directors.
The Board’s Corporate Governance Guidelines provide that directors will generally not be nominated
for re-election after their 72nd birthday. All of the directors standing for election at the 2017 Annual
Meeting satisfied the applicable age requirement at the time of their nomination.
All nominees for election as director have indicated their willingness to serve if elected. If a nominee
becomes unavailable for election for any reason, the proxies will have discretionary authority to vote for
a substitute.
Nominees for Director
The Board unanimously recommends the following nominees for election at the 2017 Annual Meeting.
These nominees were recommended to the Board by the Governance Committee. In making its
recommendation, the Governance Committee considered the experience, qualifications, attributes and
skills of each nominee, as well as each director’s past performance on our Board, as reflected in the
Governance Committee’s annual evaluation of Board and committee performance. This evaluation
considers, among other things, each director’s individual contributions to the Board, the director’s
ability to work collaboratively with other directors and the effectiveness of the Board as a whole.
Mr. Nevels, the current Lead Independent Director, and Mr. Cavanaugh are not standing for
re-election at the Annual Meeting.
On the following pages, we provide certain biographical information about each nominee for director, as
well as information regarding the nominee’s specific experience, qualifications, attributes and skills
that qualify him or her to serve as a director and as a member of the committee(s) of the Board on
which the nominee serves.
22
PAMELA M. ARWAY
Former President, Japan/Asia Pacific/Australia Region, American Express International, Inc., a
global payments, network and travel company, and its subsidiaries (October 2005 to January 2008)
QUALIFICATIONS, ATTRIBUTES AND SKILLS
Throughout her 21-year career with American Express Company, Inc., Ms. Arway gained experience in the
areas of finance, marketing, international business, government affairs, consumer products and human
resources. She is a significant contributor to the Board in each of these areas.
PREVIOUS BUSINESS EXPERIENCE
EDUCATION
• Spent 21 years in positions of increasing
• Bachelor’s degree in languages from Memorial
responsibility at American Express Company, Inc.
and its subsidiaries
CURRENT PUBLIC AND OTHER KEY
DIRECTORSHIPS
• Iron Mountain Incorporated (May 2014 to present)
• DaVita Inc. (July 2009 to present)
University of Newfoundland
• Masters of Business Administration degree from
Queen’s University, Kingston, Ontario, Canada
Director since
May 2010
Age 63
Board Committees
• Governance (Chair)
• Audit
• Executive
JOHN P. BILBREY
Chairman of the Board, The Hershey Company (March 2017 to present)
QUALIFICATIONS, ATTRIBUTES AND SKILLS
Having served as our President and Chief Executive Officer from May 2011 to March 2017, Mr. Bilbrey
has a thorough and comprehensive knowledge of all aspects of the Company’s business. He has extensive
experience in the consumer packaged goods and fast-moving consumer goods categories in the United
States and international markets and has the benefit of having served as both Chief Executive Officer
and Chief Operating Officer of the Company. His leadership within the Company, as well as his
extensive industry and international experience, make Mr. Bilbrey a key contributor to the Board on a
wide range of issues.
Director since
June 2011
Age 60
Board Committees
• Executive (Chair)
PREVIOUS BUSINESS EXPERIENCE
• Chairman of the Board, President and Chief
Executive Officer, The Hershey Company
(April 2015 to March 2017)
• President and Chief Executive Officer, The
Hershey Company (May 2011 to April 2015)
• Executive Vice President, Chief Operating Officer,
The Hershey Company (November 2010 to
May 2011)
• Senior Vice President, President Hershey North
America, The Hershey Company (December 2007
to November 2010)
• Senior Vice President, President International
Commercial Group, The Hershey Company
(November 2005 to December 2007)
• Senior Vice President, President Hershey
International, The Hershey Company
(November 2003 to November 2005)
CURRENT PUBLIC AND OTHER KEY
DIRECTORSHIPS
• Colgate-Palmolive Company (March 2015 to
present)
PAST PUBLIC COMPANY BOARDS
• McCormick & Company, Incorporated
(November 2005 to May 2015)
EDUCATION
• Bachelor’s degree in psychology from Kansas State
University
23
JAMES W. BROWN
Director, Hershey Trust Company; Member, Board of Managers, Milton Hershey School (February
2016 to present)
QUALIFICATIONS, ATTRIBUTES AND SKILLS
One of three representatives of Hershey Trust Company and Milton Hershey School being nominated to serve
on our Board, Mr. Brown will provide valuable perspectives not only as a representative of our largest
stockholder, but also of the school that is its sole beneficiary. In addition, Mr. Brown has significant experience
in government relations, finance and private equity/venture capital. His familiarity with policy and operations
of both Pennsylvania State and U.S. Federal Government and his experience as an investor in and director of
both public and private companies will make him an important addition to our Board on matters of strategy and
risk management.
Director Nominee
Age 65
Board Committees
• None
PREVIOUS BUSINESS EXPERIENCE
• Chief of Staff, United States Senator
Robert P. Casey, Jr. (January 2007 to
February 2016)
• Partner, SCP Private Equity Partners
(January 1996 to December 2006)
• Chief of Staff, Pennsylvania Governor
Robert P. Casey (January 1989 to
December 1994)
CURRENT PUBLIC AND OTHER KEY
DIRECTORSHIPS
• FS Investment Corporation III (February 2016 to
present)
EDUCATION
• Bachelor’s degree, magna cum laude, from
Villanova University
• Juris Doctor degree from the University of Virginia
Law School
MICHELE G. BUCK
President and Chief Executive Officer, The Hershey Company (March 2017 to present)
QUALIFICATIONS, ATTRIBUTES AND SKILLS
On February 21, 2017, the Board, upon the recommendation of the Governance Committee, increased the size of
the Board from 11 to 12 members and elected Ms. Buck as a director to fill the newly created directorship,
effective March 1, 2017. As our President and Chief Executive Officer, Ms. Buck is responsible for all day-to-day
global operations and commercial activities of the Company. Having served at the Company for more than 11
years and as an executive in the consumer packaged goods industry for more than 25 years, Ms. Buck is a
valuable contributor to our Board in the areas of marketing, consumer products, supply chain management and
mergers and acquisitions. Her presence in the boardroom also ensures efficient communication between the
Board and Company management.
PREVIOUS BUSINESS EXPERIENCE
• Executive Vice President, Chief Operating Officer,
The Hershey Company (June 2016 to March 2017)
• President, North America, The Hershey Company
(May 2013 to June 2016)
• Senior Vice President, Chief Growth Officer, The
Hershey Company (September 2011 to May 2013)
• Senior Vice President, Global Chief Marketing
Officer, The Hershey Company (December 2007 to
September 2011)
CURRENT PUBLIC AND OTHER KEY
DIRECTORSHIPS
• New York Life Insurance (November 2013 to
present)
EDUCATION
• Bachelor’s degree from Shippensburg University of
Pennsylvania
• Master’s degree from the University of North
Carolina
CHARLES A. DAVIS
Chief Executive Officer, Stone Point Capital LLC, a global private equity firm (June 2005 to present)
QUALIFICATIONS, ATTRIBUTES AND SKILLS
Having served in the fields of investment banking and private equity for more than 40 years, Mr. Davis brings
extensive experience in finance, investment banking and real estate to our Board, which is of particular
importance in his role as chair of the Audit Committee. His experience as a leader in international business
allows him to bring important insights to the Board as the Company continues to focus on its international
footprint.
PREVIOUS BUSINESS EXPERIENCE
• MMC Capital, Inc., the private equity business
of Marsh & McLennan Companies, Inc.:
O Chairman (January 2002 to May 2005)
O Chief Executive Officer (January 1999 to
May 2005)
O President (April 1998 to December 2002)
CURRENT PUBLIC AND OTHER KEY
DIRECTORSHIPS
• AXIS Capital Holdings Limited (November 2001 to
present)
• The Progressive Corporation (October 1996 to
present)
EDUCATION
• Bachelor’s degree from the University of Vermont
• Masters of Business Administration degree from
Columbia University Graduate School of Business
24
Director since
March 2017
Age 55
Board Committees
• None
Director since
November 2007
Age 68
Board Committees
• Audit (Chair)
• Executive
MARY KAY HABEN
Former President, North America, Wm. Wrigley Jr. Company, a leading confectionery company
(October 2008 to February 2011)
QUALIFICATIONS, ATTRIBUTES AND SKILLS
Throughout Ms. Haben’s 33-year career, she gained extensive experience managing businesses in the consumer
packaged goods industry and developed a track record of growing brands and developing new products. Her
knowledge of and ability to analyze the overall consumer packaged goods industry, evolving market dynamics
and consumers’ relationships with brands make her a valuable contributor to the Board and the Company.
PREVIOUS BUSINESS EXPERIENCE
• Group Vice President and Managing Director,
North America, Wm. Wrigley Jr. Company
(April 2007 to October 2008)
• Held several key positions during 27-year career
with Kraft Foods, Inc., a grocery manufacturing
and processing conglomerate
CURRENT PUBLIC AND OTHER KEY
DIRECTORSHIPS
• Bob Evans Farms, Inc. (August 2012 to present);
currently serves as Lead Independent Director
• Trustee of Equity Residential (July 2011 to present);
currently serves as Chair of the Compensation
Committee
EDUCATION
• Bachelor’s degree, magna cum laude, in business
administration from the University of Illinois
• Masters of Business Administration degree in
marketing from the University of Michigan, Ross
School of Business
Director since
August 2013
Age 60
Board Committees
• Compensation
• Governance
One of two directors nominated for election by the holders of the Common Stock voting separately as a class.
M. DIANE KOKEN
Director, Hershey Trust Company; Member, Board of Managers, Milton Hershey School
(December 2015 to present)
QUALIFICATIONS, ATTRIBUTES AND SKILLS
One of three representatives of Hershey Trust Company and Milton Hershey School being nominated to serve on our
Board, Ms. Koken will be well positioned to bring to our Board valuable insights from our largest stockholder.
Having served as Insurance Commissioner of Pennsylvania for three governors and as President of the National
Association of Insurance Commissioners, Ms. Koken has considerable expertise in the areas of insurance, risk
management and regulatory affairs. Her experience in the areas of legal operations and corporate governance,
developed throughout her 22-year career at a national life insurer that culminated in her serving as Vice President,
General Counsel and Corporate Secretary, will further add to our Board.
Director Nominee
Age 64
Board Committees
• None
PREVIOUS BUSINESS EXPERIENCE
• Commissioner of Insurance in Pennsylvania
(August 1997 to February 2007)
• Provident Mutual Life Insurance Company
(October 1975 to July 1997)
CURRENT PUBLIC AND OTHER KEY
DIRECTORSHIPS
• Capital Blue Cross (December 2011 to present)
• NORCAL Mutual (January 2009 to present)
• Nationwide Corporation; Nationwide Mutual
Insurance Company; Nationwide Mutual Fire
Insurance Company (April 2007 to present)
EDUCATION
• Bachelor’s degree, magna cum laude, in education
from Millersville University
• Juris Doctor degree from Villanova University
School of Law
25
ROBERT M. MALCOLM
Former President, Global Marketing, Sales & Innovation, Diageo PLC, a leading premium drinks
company (June 2002 to December 2008)
QUALIFICATIONS, ATTRIBUTES AND SKILLS
Mr. Malcolm is a globally recognized expert in strategic marketing and is currently Executive in Residence,
Center for Customer Insight and Marketing Solutions, McCombs School of Business, University of Texas. He
brings to the Board significant experience in international business and in the marketing and sales of consumer
products, including consumer packaged goods and fast-moving consumer goods.
PREVIOUS BUSINESS EXPERIENCE
EDUCATION
• Spent 24 years at The Procter & Gamble Company
• Bachelor’s degree in marketing from the University
in positions of increasing responsibility
of Southern California
CURRENT PUBLIC AND OTHER KEY
DIRECTORSHIPS
• American Marketing Association
• Boston Consulting Group (senior advisor)
• Masters of Business Administration degree in
marketing from the University of Southern
California
Director since
December 2011
Age 64
Board Committees
• Compensation
• Finance and Risk
Management
One of two directors nominated for election by the holders of the Common Stock voting separately as a class.
JAMES M. MEAD
Founder and Managing Director, JM Mead, LLC, an economic advisory firm serving the health care
industry (July 2004 to present)
QUALIFICATIONS, ATTRIBUTES AND SKILLS
One of three representatives of Hershey Trust Company and Milton Hershey School being nominated to serve
on our Board, Mr. Mead provides the Board with valuable perspective into the views of our largest stockholder.
In addition, he has extensive experience in finance, marketing, insurance, information technology and risk
management. Having served as a chief executive officer for 20 years, Mr. Mead also brings considerable
leadership experience to the boardroom.
ADDITIONAL POSITIONS
EDUCATION
Director since
April 2011
Age 71
Board Committees
• Compensation
(Chair)
• Audit
• Executive
• Director and President, Hershey Trust Company;
Member, Board of Managers, Milton Hershey
School
• CEO, PinnacleCare International, a private
healthcare advisory and navigation company
(July 2015 to present)
CURRENT PUBLIC AND OTHER KEY
DIRECTORSHIPS
• Capital BlueCross (1984 to present)
• PinnacleCare International (2012 to present)
• Bachelor of Science degree in economics from The
Pennsylvania State University
• Masters of Arts degree in economics from The
Pennsylvania State University
ANTHONY J. PALMER
President, Global Brands and Innovation, Kimberly-Clark Corporation, a manufacturer and
marketer of various personal care and health care products worldwide (April 2012 to present)
QUALIFICATIONS, ATTRIBUTES AND SKILLS
Having spent most of his professional career in the consumer packaged goods industry, Mr. Palmer brings to
our Board substantial experience and insight in several key strategic areas for the Company, including fast-
moving consumer packaged goods, international business, marketing and human resources.
PREVIOUS BUSINESS EXPERIENCE
EDUCATION
• Senior Vice President and Chief Marketing
Officer, Kimberly-Clark Corporation
(October 2006 to March 2012)
• Bachelor’s degree in business marketing from
Monash University in Melbourne, Australia
• Masters of Business Administration degree, with
distinction, from the International Management
Institute, Geneva, Switzerland
26
Director since
April 2011
Age 57
Board Committees
• Compensation
• Finance and Risk
Management
THOMAS J. RIDGE
Chairman, Ridge Global, LLC, a global strategic consulting company (August 2015 to present)
QUALIFICATIONS, ATTRIBUTES AND SKILLS
Mr. Ridge’s background and experiences are invaluable to our Board. As Chairman of Ridge Global, LLC, he
leads a team of international experts that helps businesses and governments address issues such as risk
management, global trade security, technology integration and crisis management. As a partner in Ridge Policy
Group, he provides strategic advice to clients to assist them in navigating the complexities of state and local
government and raising awareness of their products and services that are relevant to government markets. As
twice-elected Governor of Pennsylvania, he earned a reputation for high standards and results and championed
issues such as health care and the environment. As Secretary of the Department of Homeland Security, he
formed a new agency from 22 agencies employing more than 180,000 employees.
ADDITIONAL POSITIONS
PAST PUBLIC COMPANY BOARDS
• Co-founder (with Howard Schmidt), Ridge Schmidt
Cyber, a provider of strategic services to
companies in the area of cyber security
(March 2014 to present)
• Partner, Ridge Policy Group, a bipartisan, full-
service government affairs and issue management
group (April 2010 to present)
PREVIOUS BUSINESS EXPERIENCE
• Chart Acquisition Corp. (July 2011 to August 2015)
• FS Investment Corporation (November 2011 to
February 2014)
• Exelon Corporation (May 2005 to October 2013)
• Brightpoint, Inc. (September 2009 to October 2012)
• Geospatial Holdings, Inc. (April 2010 to May 2012)
EDUCATION
• Bachelor’s degree, cum laude, from Harvard
• Chief Executive Officer, Ridge Global, LLC
University
(July 2006 to July 2015)
• Juris Doctor degree from The Dickinson School of
• Secretary, U.S. Department of Homeland Security
Law of The Pennsylvania State University
Director since
November 2007
Age 71
Board Committees
• Finance and Risk
Management
• Governance
(October 2001 to February 2005)
• Governor, Pennsylvania (1995 to 2001)
CURRENT PUBLIC AND OTHER KEY
DIRECTORSHIPS
• Advaxis, Inc. (August 2015 to present)
• Safety Quick Lighting & Fans Corp.
(November 2014 to present)
• LifeLock, Inc. (March 2010 to present)
DAVID L. SHEDLARZ
Former Vice Chairman, Pfizer Inc., a pharmaceutical, consumer and animal products health
company (July 2005 to December 2007)
QUALIFICATIONS, ATTRIBUTES AND SKILLS
Mr. Shedlarz spent the majority of his professional career with Pfizer. At the time of his retirement in 2007,
Mr. Shedlarz was responsible for operations including the animal health business, finance, accounting, strategic
planning, business development, global sourcing, manufacturing, information systems and human resources,
skills that are particularly valuable to the Board given his role as chair of the Finance and Risk Management
Committee. Mr. Shedlarz also brings to our Board considerable international business and leadership
experience he gained while at Pfizer.
PREVIOUS BUSINESS EXPERIENCE
EDUCATION
• Executive Vice President and Chief Financial
• Bachelor’s degree in economics and mathematics
Officer, Pfizer Inc. (January 1999 to July 2005)
from Oakland/Michigan State University
CURRENT PUBLIC AND OTHER KEY
DIRECTORSHIPS
• Teladoc, Inc. (September 2016 to present)
• Pitney Bowes, Inc. (May 2001 to present)
• Teachers Insurance and Annuity Association
Board of Trustees (March 2007 to present)
• Masters of Business Administration degree in
finance and accounting from the New York
University, Leonard N. Stern School of Business
Director since
August 2008
Age 68
Board Committees
• Finance and Risk
Management (Chair)
• Compensation
• Executive
27
NON-EMPLOYEE DIRECTOR COMPENSATION
The Hershey Company Directors’ Compensation Plan
We maintain a Directors’ Compensation Plan that is designed to:
• Attract and retain highly qualified, non-employee directors; and
• Align the interests of non-employee directors with those of our stockholders by paying a
portion of non-employee compensation in units representing shares of our Common Stock.
Directors who are employees of the Company receive no additional compensation for their service on
our Board. Mr. Bilbrey, our current Chairman of the Board, is the only employee of the Company who
also served as a director during 2016 and thus received no additional compensation for his Board
service.
The Board targets non-employee director compensation at the 50th percentile of compensation paid to
directors at a peer group of companies we call the 2016 Peer Group. Information about the 2016 Peer
Group is included in the section entitled “Setting Compensation” in the Compensation Discussion &
Analysis. Each year, with the assistance of the Compensation Committee and the Compensation
Committee’s compensation consultant, the Board reviews the compensation paid to directors at
companies in the current peer group to determine whether any changes to non-employee director
compensation are warranted.
As a result of its review in December 2015, the Board determined that no changes to non-employee
director compensation were warranted for 2016.
Accordingly, compensation paid to non-employee directors in 2016 was as follows:
Form of Compensation
Annual retainer for other non-employee directors
Annual restricted stock unit (“RSU”) award
Annual fee for Lead Independent Director(1)
Annual fee for chairs of Audit, Compensation, and Finance and
Risk Management Committees(1)
Annual fee for chair of Governance Committee(1)
Payment
($)
100,000
135,000
25,000
15,000
10,000
(1)
Paid in addition to $100,000 annual retainer for non-employee directors.
The Board completed its annual review of non-employee director compensation in December 2016 and
determined that the following changes were warranted for 2017 to ensure that the program remains
aligned to the 50th percentile of compensation paid to directors from our 2016 Peer Group. The Board
elected to increase the annual RSU award from $135,000 to $150,000 and to increase the annual
Governance Committee Chair retainer from $10,000 to $15,000. The Board also elected to increase the
non-employee director stock ownership guidelines, as described below, from four times the annual
retainer to five times the annual retainer. Except for these changes, all other elements of the
non-employee director compensation program described above remain unchanged for 2017.
28
Payment of Annual Retainer, Lead Independent Director Fee and Committee
Chair Fees
The annual retainer and any applicable Lead Independent Director or committee chair fees for all
non-employee directors are paid in quarterly installments on the 15th day of March, June, September
and December, or the prior business day if the 15th is not a business day. Non-employee directors may
elect to receive all or a portion of the annual retainer in cash or in Common Stock. Non-employee
directors may also elect to defer receipt of all or a portion of the retainer, Lead Independent Director
fee or committee chair fees until the date their membership on the Board ends. Lead Independent
Director and committee chair fees that are not deferred are paid only in cash.
Non-employee directors choosing to defer all or a portion of their retainer, Lead Independent Director
fee or committee chair fees may invest the deferred amounts in two ways:
• In a cash account that values the performance of the investment based upon the performance
of one or more third-party investment funds selected by the director from among the mutual
funds or other investment options available to all employees participating in our 401(k) Plan.
Amounts invested in the cash account are paid only in cash.
• In a deferred common stock unit account that we value according to the performance of our
Common Stock, including reinvested dividends. Amounts invested in the deferred common
stock unit account are paid in shares of Common Stock.
Restricted Stock Units
RSUs are granted quarterly to non-employee directors on the first day of January, April, July and
October. In 2016, the number of RSUs granted in each quarter was determined by dividing $33,750 by
the average closing price of a share of our Common Stock on the New York Stock Exchange (“NYSE”)
on the last three trading days preceding the grant date. RSUs awarded to non-employee directors vest
one year after the date of grant, or earlier upon termination of the director’s membership on the Board
by reason of retirement (termination of service from the Board after the director’s 60th birthday), death
or disability, for any reason after a Change in Control as defined in our Executive Benefits Protection
Plan (Group 3A) (“EBPP 3A”), or under such other circumstances as the Board may determine. Vested
RSUs are payable to directors in shares of Common Stock or, at the option of the director, can be
deferred as common stock units under the Directors’ Compensation Plan until the director’s
membership on the Board ends. Dividend equivalent units are credited at regular rates on the RSUs
during the restriction period and, upon vesting of the RSUs, are payable in shares of Common Stock or
deferred as common stock units together with any RSUs the director has deferred.
As of March 6, 2017, Messrs. Davis, Malcolm, Mead, Nevels, Ridge and Shedlarz and Mmes. Arway and
Haben had attained retirement age for purposes of the vesting of RSUs.
Other Compensation, Reimbursements and Programs
The Board occasionally establishes committees of limited duration for special purposes. When a special
committee is established, the Board will determine whether to provide non-employee directors with
additional compensation for service on such committee based on the expected duties of the committee,
the anticipated number and length of any committee meetings, and other factors the Board, in its
discretion, may deem relevant. In 2016, the Board approved payments of $25,000 to Ms. Arway as
Chair and $20,000 to each of Ms. Haben and Messrs. Malcolm, Mead, Nevels and Shedlarz for their
service on the special committee established in connection with the Company’s Chief Executive Officer
search.
29
We reimburse our directors for travel and other out-of-pocket expenses they incur when attending
Board and committee meetings and for minor incidental expenses they incur when performing
directors’ services. We also provide reimbursement for at least one director continuing education
program each year. Directors receive travel accident insurance while traveling on the Company’s
business and receive discounts on the purchase of our products to the same extent and on the same
terms as our employees. Directors also are eligible to participate in the Company’s Gift Matching
Program. Under the Gift Matching Program, the Company will match, upon a director’s request,
contributions made by the director to one or more charitable organizations, on a dollar-for-dollar basis
up to a maximum aggregate contribution of $5,000 annually.
Stock Ownership Guidelines
Pursuant to the Board’s Corporate Governance Guidelines, non-employee directors are expected to own
shares of Common Stock having a value equal to at least five times the annual retainer. Each
non-employee director has until January 1 of the year following his or her fifth anniversary of becoming
a director to satisfy the guideline.
The Compensation Committee reviews the stock ownership guidelines annually to ensure they are aligned
with external market comparisons. Prior to December 2016, non-employee directors were expected to own
shares of Common Stock having a value equal to at least four times the annual retainer. As part of the
annual review completed in December 2016, the Board, upon the recommendation of the Compensation
Committee, elected to increase the non-employee director stock ownership guidelines from four times the
annual retainer to five times the annual retainer. Under the Board’s Corporate Governance Guidelines, each
non-employee director serving on the Board as of the date of the increase has until January 1, 2019 to satisfy
the new stock ownership guidelines. Any non-employee director serving on the Board that had not yet
reached his or her initial compliance date as of the date of the increase has until the second anniversary of
such initial compliance date to satisfy the new stock ownership guidelines.
2016 Director Compensation
The following table and explanatory footnotes provide information with respect to the compensation
paid or provided to non-employee directors during 2016:
Name
Pamela M. Arway
Robert F. Cavanaugh
Charles A. Davis
Mary Kay Haben
Robert M. Malcolm
James M. Mead
James E. Nevels
Anthony J. Palmer
Thomas J. Ridge
David L. Shedlarz
Fees Earned
or Paid in Cash(1)
($)
Stock
Awards(2)
($)
All Other
Compensation(3)
($)
135,000
100,000
115,000
120,000
120,000
135,000
145,000
100,000
100,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
—
Total
($)
275,000
240,000
255,000
260,000
260,000
275,000
285,000
240,000
240,000
270,000
(1)
Includes amounts earned or paid in cash or shares of Common Stock at the election of the director or deferred by the director under
the Directors’ Compensation Plan. Amounts credited as earnings on amounts deferred under the Directors’ Compensation Plan are
based on investment options available to all participants in our 401(k) Plan or our Common Stock and, accordingly, the earnings
credited during 2016 were not considered “above market” or “preferential” earnings.
30
The following table sets forth the portion of fees earned or paid in cash or Common Stock, and the portion deferred with respect to
retainers and fees earned during 2016:
Immediate Payment
Deferred and Investment Election
Value Paid in
Shares of
Common Stock
($)
Number
of Shares
of Common
Stock
(#)
Value
Deferred
to a Cash
Account
($)
Value Deferred
to a Common
Stock Unit
Account
($)
Number of
Deferred
Common Stock
Units
(#)
Name
Pamela M. Arway
Robert F. Cavanaugh
Charles A. Davis
Mary Kay Haben
Robert M. Malcolm
James M. Mead
James E. Nevels
Anthony J. Palmer
Thomas J. Ridge
David L. Shedlarz
Cash
Paid
($)
135,000
100,000
115,000
120,000
120,000
135,000
107,500
—
—
—
—
—
—
37,500
—
100,000
100,000
135,000
—
—
—
—
—
—
—
—
393
1,050
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2)
Represents the dollar amount recognized as expense during 2016 for financial statement reporting purposes with respect to RSUs
awarded to the directors during 2016. RSUs awarded to directors are charged to expense in the Company’s financial statements at
the grant date fair value on each quarterly grant date. The target annual grant date fair value of the RSUs for each director during
2016 was $135,000.
The following table provides information with respect to the number and market value of deferred common stock units and RSUs
held as of December 31, 2016, based on the $103.43 closing price of our Common Stock as reported by NYSE on December 30, 2016,
the last trading day of 2016. The information presented includes the accumulated value of each director’s deferred common stock
units and RSUs. Balances shown below include dividend equivalent units credited in the form of additional common stock units on
retainers and committee chair fees that have been deferred as common stock units and dividend equivalent units credited in the
form of additional common stock units on RSUs.
Name
Pamela M. Arway
Robert F. Cavanaugh
Charles A. Davis
Mary Kay Haben
Robert M. Malcolm
James M. Mead
James E. Nevels
Anthony J. Palmer
Thomas J. Ridge
David L. Shedlarz
Number of
Deferred
Common Stock
Units
(#)
Market Value of
Retainers and
Committee Chair Fees
Deferred to the
Common Stock Unit
Account as of
December 31, 2016
($)
Number of
RSUs
(#)
Market
Value of
RSUs as of
December 31, 2016
($)
—
43,731
—
3,485
—
8,107
—
—
29,942
—
—
4,523,097
—
360,454
—
838,507
—
—
3,096,901
—
1,448
1,448
1,448
1,448
1,448
1,448
1,448
1,448
1,448
1,448
149,767
149,767
149,767
149,767
149,767
149,767
149,767
149,767
149,767
149,767
(3)
Represents the Company match for contributions made by the director to one or more charitable organizations during 2016 under
the Gift Matching Program.
31
SHARE OWNERSHIP OF DIRECTORS, MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to the beneficial ownership of our outstanding
voting securities and stock options by:
• Stockholders who we believe owned more than 5% of our outstanding Common Stock or
Class B Common Stock, as of March 6, 2017; and
• Our directors, director nominees, NEOs and all directors and executive officers as a group, as
of March 6, 2017.
Holder
Hershey Trust Company,
as trustee for the
Milton Hershey School Trust(5)
100 Mansion Road
Hershey, PA 17033
Milton Hershey School(5)
Founders Hall
Hershey, PA 17033
Hershey Trust Company(6)
BlackRock, Inc.(7)
55 East 52nd Street
New York, NY 10055
Vanguard Group, Inc.(8)
100 Vanguard Blvd.
Malvern, PA 19355
Pamela M. Arway*
John P. Bilbrey*
James W. Brown*
Michele G. Buck*
Robert F. Cavanaugh*
Charles A. Davis*
Mary Kay Haben*
M. Diane Koken*
Patricia A. Little
Robert M. Malcolm*
James M. Mead*
James E. Nevels*
Terence L. O’Day
Anthony J. Palmer*
Thomas J. Ridge*
David L. Shedlarz*
Leslie M. Turner
All directors and executive officers as
a group (19 persons)
Common
Stock(1)
Exercisable
Stock
Options(2)
Percent of
Common
Stock(3)
Class B
Common
Stock
Percent
of
Class B
Common
Stock(4)
12,753,521
—
8.4
60,612,012
99.9
149,500
9,680,398
9,042,606
11,125
105,126
—
21,039
1,000
19,103
—
600
—
7,061
700
6,808
34,913
15,458
1,864
18,336
1,918
—
—
—
—
1,000,655
—
109,445
—
—
—
—
22,486
—
—
—
164,179
—
—
—
51,896
285,270
1,665,557
32
**
6.4
6.0
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
**
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
*
**
(1)
(2)
(3)
(4)
Director
Less than 1%
Amounts listed for NEOs and other executive officers include, if applicable, shares of Common Stock allocated by the Company to
the officer’s account in The Hershey Company 401(k) Plan. Amounts listed also include the following RSUs that will vest and be
paid to the following holders within 60 days of March 6, 2017:
Name
Pamela M. Arway
Michele G. Buck
Charles A. Davis
Robert M. Malcolm
James E. Nevels
Terence L. O’Day
Anthony J. Palmer
Thomas J. Ridge
David L. Shedlarz
RSUs
(#)
374
1,289
374
374
374
910
374
374
374
Amounts listed also include shares for which certain of the directors and NEOs share voting and/or investment power with one or
more other persons as follows: Ms. Arway, 10,751 shares owned jointly with her spouse; Mr. Cavanaugh, 1,000 shares owned jointly
with his spouse; Ms. Koken, 600 shares held at Glenmede Trust Company; Mr. Malcolm, 6,687 shares owned jointly with his spouse;
Mr. Nevels, 5,546 shares owned jointly with his spouse and 888 shares owned jointly with another individual; Mr. Palmer, 15,084
shares owned jointly with his spouse; and Mr. Ridge, 1,490 shares owned jointly with his spouse.
This column reflects stock options that were exercisable by the NEOs and the executive officers as a group on March 6, 2017. For
Ms. Little, the column reflects stock options that will become exercisable within 60 days of March 6, 2017.
Based upon 152,069,763 shares of Common Stock outstanding on March 6, 2017.
Based upon 60,619,777 shares of Class B Common Stock outstanding on March 6, 2017.
(5) Hershey Trust Company, as trustee for the Milton Hershey School Trust, has the right at any time to convert its Class B Common
Stock into Common Stock on a share-for-share basis. If on March 6, 2017, Hershey Trust Company, as trustee for the Milton
Hershey School Trust, converted all of its Class B Common Stock into Common Stock, Hershey Trust Company, as trustee for the
Milton Hershey School Trust, would own beneficially 73,365,533 shares of our Common Stock (12,753,521 Common Stock shares
plus 60,612,012 converted Class B Common Stock shares), or 34.5% of the 212,681,775 shares of Common Stock outstanding
following the conversion (calculated as 152,069,763 Common Stock shares outstanding prior to the conversion plus 60,612,012
converted Class B Common Stock shares). For more information about the Milton Hershey School Trust, Hershey Trust Company,
Milton Hershey School and the ownership and voting of these securities, please see the section entitled “Information Regarding Our
Controlling Stockholder.”
(6)
(7)
(8)
Please see the section entitled “Information Regarding Our Controlling Stockholder” for more information about shares of Common
Stock held by Hershey Trust Company as investments.
Information regarding BlackRock, Inc. and its beneficial holdings was obtained from a Schedule 13G/A filed with the SEC on
January 24, 2017. The filing indicated that, as of December 31, 2016, BlackRock, Inc. had sole voting and investment power over
9,680,398 shares of Common Stock. The filing indicated that BlackRock, Inc. is a parent holding company or control person in
accordance with Rule 13d-1(b)(1)(ii)(G) and that various persons have the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of, our Common Stock.
Information regarding Vanguard Group, Inc. and its beneficial holdings was obtained from a Schedule 13G/A filed with the SEC on
February 13, 2017. The filing indicated that, as of December 31, 2016, Vanguard Group, Inc. had sole voting and investment power
over 9,042,606 shares of Common Stock. The filing indicated that Vanguard Group, Inc. is a parent holding company or control
person in accordance with Rule 13d-1(b)(1)(ii)(G) and that various persons have the right to receive or the power to direct the receipt
of dividends from, or the proceeds from the sale of, our Common Stock.
33
Ownership of Other Company Securities
Certain directors and NEOs hold Company securities not reflected in the beneficial ownership table
above because they will not convert, or cannot be converted, to shares of Common Stock within 60 days
of our March 6, 2017 Record Date. These securities include:
• Certain unvested RSUs or deferred common stock units held by our directors and NEOs; and
• Certain unvested stock options held by our NEOs.
The table below shows these holdings as of March 6, 2017. You can find additional information about
RSUs and deferred common stock units held by directors in the Non-Employee Director Compensation
section of this Proxy Statement. You can find additional information about stock options, RSUs and
deferred common stock units held by the NEOs in the Executive Compensation section of this Proxy
Statement.
Holder
Shares Underlying RSUs and
Common Stock Units Not
Beneficially Owned
Shares Underlying
Stock Options Not
Beneficially Owned
Pamela M. Arway*
John P. Bilbrey*
James W. Brown*
Michele G. Buck*
Robert F. Cavanaugh*
Charles A. Davis*
Mary Kay Haben*
M. Diane Koken*
Patricia A. Little
Robert M. Malcolm*
James M. Mead*
James E. Nevels*
Terence L. O’Day
Anthony J. Palmer*
Thomas J. Ridge*
David L. Shedlarz*
Leslie M. Turner
*
Director
1,053
90,579
—
146,595
45,542
1,053
5,296
—
34,671
1,053
9,918
1,053
10,459
1,053
30,996
1,053
72,627
—
—
—
130,007
—
—
—
—
60,364
—
—
—
59,921
—
—
—
68,332
Information Regarding Our Controlling Stockholder
In 1909, Milton S. and Catherine S. Hershey established a trust having as its sole beneficiary Milton
Hershey School, a non-profit school for the full-time care and education of disadvantaged children
located in Hershey, Pennsylvania. Hershey Trust Company, a state-chartered trust company, is trustee
of the Milton Hershey School Trust.
34
In its capacity as trustee for the Milton Hershey School Trust, Hershey Trust Company is our
controlling stockholder. In this capacity, it will have the right to cast 8.4% of all of the votes entitled to
be cast on matters requiring the vote of the Common Stock voting separately and 81.6% of all of the
votes entitled to be cast on matters requiring the vote of the Common Stock and Class B Common Stock
voting together. The board of directors of Hershey Trust Company, with the approval of the board of
managers (governing body) of Milton Hershey School, decides how funds held by Hershey Trust
Company, as trustee for the Milton Hershey School Trust, will be invested. The board of directors of
Hershey Trust Company generally decides how shares of The Hershey Company held by Hershey Trust
Company, as trustee for the Milton Hershey School Trust, will be voted.
As of the Record Date, Hershey Trust Company also held 149,500 shares of our Common Stock as
investments. The board of directors or management of Hershey Trust Company decides how these
shares will be voted.
In all, Hershey Trust Company, as trustee for the Milton Hershey School Trust and as direct owner of
investment shares, will be entitled to vote 12,903,021 shares of our Common Stock and 60,612,012
shares of our Class B Common Stock at the Annual Meeting. Stated in terms of voting power, Hershey
Trust Company will have the right to cast 8.5% of all of the votes entitled to be cast on matters
requiring the vote of the Common Stock voting separately and 81.6% of all of the votes entitled to be
cast on matters requiring the vote of the Common Stock and Class B Common Stock voting together at
the Annual Meeting.
Our certificate of incorporation contains the following important provisions regarding our Class B
Common Stock:
• All holders of Class B Common Stock, including Hershey Trust Company, as trustee for Milton
Hershey School, may convert any of their Class B Common Stock shares into shares of our
Common Stock at any time on a share-for-share basis.
• All shares of Class B Common Stock will automatically be converted to shares of Common
Stock on a share-for-share basis if Hershey Trust Company, as trustee for Milton Hershey
School, or any successor trustee, or Milton Hershey School, as appropriate, ceases to hold more
than 50% of the total Class B Common Stock shares outstanding and at least 15% of the total
Common Stock and Class B Common Stock shares outstanding.
• We must obtain the approval of Hershey Trust Company, as trustee for Milton Hershey
School, or any successor trustee, or Milton Hershey School, as appropriate, before we issue any
Common Stock or take any other action that would deprive Hershey Trust Company, as
trustee for Milton Hershey School, or any successor trustee, or Milton Hershey School, as
appropriate, of the ability to cast a majority of the votes on any matter where the Class B
Common Stock is entitled to vote, either separately as a class or together with any other class.
35
AUDIT COMMITTEE REPORT
To Our Stockholders:
The Audit Committee is currently comprised of four directors, each of whom is considered independent
under the NYSE Rules and the rules and regulations of the SEC. The Board has determined that each
member of the Audit Committee is financially literate and that each of Messrs. Davis, Mead and Nevels
qualifies as an “audit committee financial expert,” as that term is defined under the rules promulgated
by the SEC.
Our role as the Audit Committee is to assist the Board in its oversight of:
• The integrity of the Company’s financial statements;
• The Company’s compliance with legal and regulatory requirements;
• The independent auditors’ qualifications and independence; and
• The performance of the independent auditors and the Company’s internal audit function.
The Audit Committee operates under a written charter that was last reviewed by the Audit Committee
on December 5, 2016.
Our duties as an Audit Committee include overseeing the Company’s management, internal auditors
and independent auditors in their performance of the following functions, for which they are
responsible:
Management
• Preparing the Company’s financial statements;
• Establishing effective financial reporting systems and internal controls and procedures; and
• Reporting on the effectiveness of the Company’s internal control over financial reporting.
Internal Audit Department
• Independently assessing management’s system of internal controls and procedures; and
• Reporting on the effectiveness of that system.
Independent Auditors
• Auditing the Company’s financial statements;
• Expressing an opinion about the financial statements’ conformity with U.S. generally accepted
accounting principles; and
• Annually auditing the effectiveness of the Company’s internal control over financial reporting.
We meet periodically with management, the internal auditors and independent auditors, independently
and collectively, to discuss the quality of the Company’s financial reporting process and the adequacy
and effectiveness of the Company’s internal controls. Prior to the Company filing its Annual Report on
Form 10-K for the year ended December 31, 2016 with the SEC, we also:
• Reviewed and discussed the audited financial statements with management and the
independent auditors;
• Discussed with the independent auditors the matters required to be discussed by applicable
requirements of the Public Company Accounting Oversight Board;
36
• Received the written disclosures and the letter from the independent auditors in accordance
with applicable requirements of the Public Company Accounting Oversight Board regarding
the independent auditors’ communications with the Audit Committee concerning
independence; and
• Discussed with the independent auditors their independence from the Company.
We are not employees of the Company and are not performing the functions of auditors or accountants.
We are not responsible as an Audit Committee or individually to conduct “field work” or other types of
auditing or accounting reviews or procedures or to set auditor independence standards. In carrying out
our duties as Audit Committee members, we have relied on the information provided to us by
management and the independent auditors. Consequently, we do not assure that the audit of the
Company’s financial statements has been carried out in accordance with generally accepted auditing
standards, that the financial statements are presented in accordance with U.S. generally accepted
accounting principles or that the Company’s auditors are in fact “independent.”
Based on the reports and discussions described in this report, and subject to the limitations on our role
and responsibilities as an Audit Committee referred to above and in our charter, we recommended to
the Board that the audited financial statements be included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2016, filed with the SEC on February 21, 2017.
Submitted by the Audit Committee:
Charles A. Davis, Chair
Pamela M. Arway
James M. Mead
James E. Nevels
37
INFORMATION ABOUT OUR INDEPENDENT AUDITORS
The following table sets forth the amount of audit fees, audit-related fees, tax fees and all other fees
billed or expected to be billed by KPMG, LLP (“KPMG”), our independent auditors for the fiscal years
ended December 31, 2016 and December 31, 2015:
Nature of Fees
Audit Fees
Audit-Related Fees(1)
Tax Fees(2)
All Other Fees
Total Fees
2016
($)
2015
($)
5,170,365
5,674,000
85,750
962,073
—
346,500
222,398
—
6,218,188
6,242,898
(1)
Fees associated primarily with services related to due diligence for potential business acquisitions, auditing of carve-out
financial statements and auditing of employee benefit plans.
(2)
Fees pertaining primarily to tax consultation and tax compliance services.
The Audit Committee pre-approves all audit, audit-related and non-audit services performed by the
independent auditors. The Audit Committee is authorized by its charter to delegate to one or more of
its members the authority to pre-approve any audit, audit-related or non-audit services, provided that
the approval is presented to the Audit Committee at its next scheduled meeting.
The Audit Committee pre-approved all services provided by KPMG in 2016.
On April 21, 2016, upon the approval of the Audit Committee, we notified KPMG that it would be
dismissed as our independent auditors effective upon the completion of KPMG’s audit of the Company’s
consolidated financial statements for the fiscal year ending December 31, 2016 (and the effectiveness of
internal control over financial reporting as of December 31, 2016), and the issuance of their report thereon.
The decision to dismiss KPMG was made as part of a competitive bidding process to determine the
Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017.
The audit reports of KPMG on the Company’s consolidated financial statements as of and for the years
ended December 31, 2016 and 2015 did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting principles. The audit reports of
KPMG on the effectiveness of internal control over financial reporting as of December 31, 2016 and 2015
did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope, or accounting principles, except that KPMG’s report indicates that the Company
did not maintain effective internal control over financial reporting as of December 31, 2015, because of the
effect of a material weakness related to the Company’s accounting for cocoa derivative instruments.
During the Company’s two most recent fiscal years ended December 31, 2016 and December 31, 2015,
there were no (1) disagreements with KPMG on any matter of accounting principles or practices, financial
statement disclosures, or auditing scope or procedures, which disagreements, if not resolved to the
satisfaction of KPMG, would have caused KPMG to make reference to the subject matter of the
disagreements in connection with its reports; and (2) events of the type listed in paragraphs (A) through
(D) of Item 304(a)(1)(v) of Regulation S-K, except for the material weakness as described in this paragraph.
38
On June 15, 2016, the Audit Committee appointed Ernst & Young LLP as the Company’s independent
registered public accounting firm for the Company’s fiscal year ending December 31, 2017. During the
Company’s two most recent fiscal years ended December 31, 2016 and 2015, neither the Company nor
anyone acting on its behalf consulted with Ernst & Young LLP regarding either: (i) the application of
accounting principles to a specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company’s financial statements, and neither a written report
nor oral advice was provided to the Company that Ernst & Young LLP concluded was an important
factor considered by the Company in reaching a decision as to the accounting, auditing or financial
reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in
paragraph (a)(1)(iv) of Item 304 of Regulation S-K and the related instructions thereto) or a reportable
event (as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K).
39
PROPOSAL NO. 2 – RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
✓ The Board of Directors unanimously recommends that stockholders vote
FOR ratification of the Audit Committee’s appointment of Ernst &
Young LLP as the Company’s independent auditors for 2017
The Audit Committee has appointed Ernst & Young LLP as the Company’s independent auditors for
2017. Although not required to do so, the Board, upon the Audit Committee’s recommendation, has
determined to submit the Audit Committee’s appointment of Ernst & Young LLP as our independent
auditors to stockholders for ratification as a matter of good corporate governance.
The Audit Committee’s appointment of Ernst & Young LLP as the Company’s independent auditors for
2017 will be considered ratified if a majority of the shares of the Common Stock and Class B Common
Stock (voting together without regard to class) present and entitled to vote at the Annual Meeting are
voted for the proposal. If stockholders do not ratify the appointment of Ernst & Young LLP as the
Company’s independent auditors for 2017, the Audit Committee will reconsider its appointment.
Representatives of both Ernst & Young LLP and KPMG (our independent auditors for the fiscal year
ended December 31, 2016) will attend the Annual Meeting, will have the opportunity to make a
statement, if they so desire, and will respond to questions.
40
COMPENSATION DISCUSSION & ANALYSIS
EXECUTIVE COMPENSATION
This section discusses and analyzes the decisions we made concerning the compensation of our named
executive officers (“NEOs”) for 2016. It also describes the process for determining executive
compensation and the factors considered in determining the amount of compensation awarded to our
NEOs. Our NEOs for 2016 are:
Name
John P. Bilbrey(1)
Patricia A. Little
Chairman of the Board, President and Chief Executive Officer (“CEO”)
Senior Vice President, Chief Financial Officer (“CFO”)
Title
Michele G. Buck(2)
Executive Vice President, Chief Operating Officer (“COO”)
Terence L. O’Day
Leslie M. Turner
Senior Vice President, Chief Supply Chain Officer
Senior Vice President, General Counsel and Secretary
(1) On March 1, 2017, Mr. Bilbrey retired from the position of President and CEO. He continues to serve as Chairman of the Board.
(2) On June 2, 2016, Ms. Buck was promoted from President, North America to Executive Vice President, COO. On March 1, 2017,
Ms. Buck became our President and CEO.
Executive Summary
2016 Highlights
The Hershey Company (the “Company”), headquartered in Hershey, Pa., is a global confectionery
leader known for bringing goodness to the world through its chocolate, sweets, mints and other great-
tasting snacks. We have approximately 17,980 employees around the world who work every day to
deliver delicious, quality products. We have more than 80 brands that drive approximately $7.4 billion
in annual revenues. Building on its core business, the Company is expanding its portfolio to include a
broader range of delicious snacks. The Company remains focused on growing its presence in key
international markets while continuing to extend its competitive advantage in North America.
In January 2016, we announced the following Company expectations, which are substantially reflected
in our 2016 incentive programs:
• Increase constant currency net sales(1) around 3% from 2015; and
• Increase adjusted earnings per share-diluted(2) about 6% from 2015.
(1) While we report our financial results in accordance with U.S. generally accepted accounting principles (“GAAP”), we also use
non-GAAP financial measures within Management’s Discussion and Analysis in the 2016 Annual Report on Form 10-K that
accompanies this Proxy Statement in order to provide additional information to investors to facilitate the comparison of past and
present performance. Some of the financial targets under our short- and long-term incentive programs are also based on non-GAAP
financial measures. Non-GAAP financial measures are used by management in evaluating results of operations internally and in
assessing the impact of known trends and uncertainties on our business, but they are not intended to replace the presentation of
financial results in accordance with GAAP.
Constant currency net sales is a non-GAAP financial measure. To calculate net sales on a constant currency basis, net sales for the
current fiscal year period for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average
rates during the comparable period of the prior fiscal year.
(2) Adjusted earnings per share-diluted is a non-GAAP financial measure. We define adjusted earnings per share-diluted as diluted
earnings per share of the Company’s common stock (“Common Stock”), excluding unallocated mark-to-market losses on commodity
derivatives, costs associated with business realignment activities, costs relating to the integration of acquisitions, non-service related
components of our pension expense (income) (“NSRPE(I)”), goodwill and other intangible asset impairment charges, settlement of the
Shanghai Golden Monkey liability in conjunction with the purchase of the remaining 20% of the outstanding shares of Shanghai
Golden Monkey, the gain realized on the sale of a trademark, costs associated with the early extinguishment of debt and other
non-recurring gains and losses.
41
In April 2016, we lowered our guidance for our expected 2016 constant currency net sales increase to
2.5% and for our expected 2016 adjusted earnings per share-diluted increase to 3% to 4%. See the
section entitled “Annual Incentives” for more information regarding our 2016 annual incentive targets
and related results.
Actual results for 2016 were as follows:
2016 Growth in Net Sales
In millions of dollars
0.7% growth vs. 2015
$7,440
$7,387
$7,500
$7,400
$7,300
$7,200
$7,100
$7,000
2016 Growth in Adjusted Earnings
per Share-Diluted
7% growth vs. 2015
$4.41
$4.12
$4.50
$4.40
$4.30
$4.20
$4.10
$4.00
$3.90
$3.80
$3.70
$3.60
$3.50
2015
2016
2015
2016
While we did not meet our expectations for net sales growth, we exceeded our adjusted earnings per
share-diluted expectations. Because of our mixed financial performance results, our NEOs earned
significantly below-target performance stock unit (“PSU”) payouts and slightly above-target annual
cash incentive awards, as described further in the sections entitled “Long-Term Incentives” and
“Annual Incentives.”
Hershey Has Strong Pay-for-Performance Alignment
The Compensation and Executive Organization Committee (the “Compensation Committee”) of our
Board of Directors (the “Board”) has oversight responsibility for our executive compensation framework
and for aligning our executives’ pay with the Company’s performance. We believe we have a strong
pay-for-performance alignment because a significant portion of each NEO’s target total direct
compensation is tied to the financial performance of the Company as well as shareholder returns.
In 2016, approximately 70% of our CEO’s and 60% of our other NEOs’ target total direct compensation
was variable and tied to Company performance, including a substantial portion tied to shareholder
value. Specifically, 34% of our PSUs were tied to Total Shareholder Return (“TSR”). Combined with the
other financial and strategic metrics that determine our NEOs’ compensation, we have aligned our
executive compensation program with the long-term interests of our stockholders.
42
Over the last three years, we have delivered a TSR of 14%, which is at the bottom of our Financial Peer
Group described in the section entitled “Performance Stock Unit Targets and Results.”
Total Shareholder Return
December 31, 2013 through December 31, 2016
Hershey
14.0%
Financial Peer Group
(Median)
43.6%
S&P 500
29.0%
Because our TSR metric was below threshold for the 2014-2016 PSU cycle, our NEOs received a 0%
payout for this metric, significantly reducing their overall PSU payout, as described in more detail in
the section entitled “Performance Stock Unit Targets and Results.”
Our Stockholders Strongly Approve of Our Pay Practices
Last year, our stockholders overwhelmingly approved our “say-on-pay” resolution, with more than 93%
of the votes cast by the holders of Common Stock and more than 99% of the combined votes cast by the
holders of the Common Stock and Class B Common Stock voting in favor. Our Compensation
Committee believes the results of last year’s “say-on-pay” vote affirmed our stockholders’ support of our
Company’s executive compensation program. Consequentially, our approach to executive compensation
in 2016 was substantially the same as the approach stockholders approved in 2015. In keeping with the
preference expressed by our stockholders at the 2011 Annual Meeting of Stockholders, our Board has
committed to having an annual “say-on-pay” vote as described in Proposal No. 3 – Approval of Named
Executive Officer Compensation on a Non-Binding Advisory Basis. We are asking stockholders to
express a preference for the frequency of the “say-on-pay” vote, pursuant to Section 14A of the
Exchange Act, in this proxy statement.
We believe our compensation and governance policies and practices are significant drivers of our
stockholder support. These policies and practices include:
• Pay for performance. A substantial percentage of each of our NEO’s target total direct
compensation is variable, performance-based compensation.
• Performance measures support strategic objectives. The performance measures we use
for our variable, performance-based compensation reflect strategic and operating objectives,
creating long-term value for our stockholders.
• Appropriate risk-taking. We set performance goals that consider our publicly-announced
financial expectations, which we believe will encourage appropriate risk taking. Our incentive
programs are appropriately capped so as not to encourage excessive risk taking.
• No tax gross-ups. We do not provide tax gross-ups, except for relocation expenses.
43
• “Double-trigger” benefits in the event of a change in control. In the event of a change in
control, the payment of severance benefits and the acceleration of vesting of time-based long-
term incentive awards are “double-trigger” benefits. The severance payments and accelerated
vesting of continuing incentive awards will not occur unless there is also a qualifying
termination of employment upon or within two years following the change in control.
• No re-pricings or exchanges of underwater stock options. Our stockholder-approved
Equity and Incentive Compensation Plan (“EICP”) prohibits re-pricing or exchange of
underwater stock options without stockholder approval.
• Do not provide excessive perquisites. Executive perquisites are kept to a minimal level
relative to a NEO’s total compensation and do not play a significant role in our executive
compensation program.
• Do not provide for the prepayment of dividends on unearned PSUs. Dividends are not
paid on PSU awards during the three-year performance cycle.
• Significant stock ownership guidelines. Our NEOs and other executives are required to
accumulate and hold stock equal to a multiple of base salary. If an executive has not met his or
her ownership requirement in a timely manner, the executive is required to retain a portion of
shares received under long-term incentive awards until the requirements are met.
• Anti-hedging policy. Our NEOs, directors and other insiders are prohibited from entering
into hedging transactions related to our stock.
• Anti-pledging policy. Our NEOs, directors and other insiders are prohibited from entering
into pledging transactions related to our stock.
• Clawbacks and other covenants.
O For the protection of the Company, we require our NEOs to enter into an Employee
Confidentiality and Restrictive Covenant Agreement (“ECRCA”) as a condition of receipt
of long-term incentive awards. Failure to comply with the ECRCA may subject the
employee to cancellation of awards and a requirement to repay amounts received from
awards.
O Under the EICP, when an individual’s actions result in the filing of financial documents
not in compliance with financial reporting requirements, the Company has the right to
recoup or require repayment of an award earned or accrued during the 12-month period
following the first public issuance or filing with the SEC of the financial document not in
compliance with such financial reporting requirement.
The Role and Philosophy of the Compensation Committee
The Compensation Committee has primary responsibility for making compensation decisions for our
NEOs other than our CEO. Our CEO’s compensation is approved by the independent members of the
Board based on the recommendations of the Compensation Committee.
The Compensation Committee operates under a charter approved by the Board. The Compensation
Committee uses information from Mercer (US) Inc. (“Mercer”), the Compensation Committee’s
independent executive compensation consultant, input from our CEO (except for matters regarding his
own pay) and assistance from our Human Resources Department to make decisions and to conduct its
annual review of the Company’s executive compensation program.
44
The Compensation Committee works with a rolling agenda, with its heaviest workload occurring
during the first quarter of the year. During this quarter, decisions are made with respect to annual and
long-term incentives earned based on the prior year’s performance and target compensation levels are
finalized for the current year. The Compensation Committee also reviews and approves this
Compensation Discussion & Analysis. During the second and third quarters, the Compensation
Committee reviews materials relating to peer group composition, tally sheets, competitive pay analysis
and other information that forms the foundation for future decisions. The Compensation Committee
uses the third and fourth quarters to finalize decisions relating to the peer group and compensation
plan design for use in the upcoming year.
The Compensation Committee may, in its discretion, delegate all or a portion of its duties and
responsibilities to a subcommittee of the Compensation Committee and, pursuant to the provisions of
the EICP, may appoint the CEO as a committee of the Board as necessary for the purpose of making
equity grants under the EICP; provided, however, the Compensation Committee may not delegate the
approval of certain transactions to a subcommittee or to the CEO if such transactions involve the
approval or grant of equity-based compensation to an “officer” for purposes of Rule 16b-3 under the
Securities Exchange Act of 1934 (“Exchange Act”) or a “covered employee” for purposes of Section
162(m) of the Internal Revenue Code (“IRC”) unless such subcommittee consists solely of members of
the Compensation Committee who are (i) “Non-Employee Directors” for the purposes of Rule 16b-3
under the Exchange Act, and (ii) “outside directors” for the purposes of Section 162(m) of the IRC.
The philosophy of our executive compensation program is to provide a compelling, dynamic, market-
based total compensation program tied to performance and aligned with our stockholders’ interests.
Our goal is to ensure the Company has the talent it needs to maintain sustained long-term
performance for our stockholders, employees and communities. The guiding principles that help us
achieve this goal are:
• Recruit and retain. Our program is designed to be market competitive and flexible to recruit
and retain top talent for our critical roles.
• Pay for performance. A significant portion of our executives’ compensation is tied to the
performance of our Company, rewarding executives for both short-term and long-term progress
towards our strategic and operational goals.
• Aligned with strategy. Our compensation program is aligned with the strategies of our
Company.
• Aligned with stockholders. Our compensation program, through both design and payouts,
is aligned with the long-term interests of our stockholders.
• Reinforce robust succession planning. Our compensation program plays a key role in
making sure we have the talent we need for long-term success and to deliver our Company
strategies.
• Data-driven decision making. We design our executive compensation program and make
pay decisions considering a balance of information.
45
Compensation Advisor Independence
Under its engagement letter with the Compensation Committee, Mercer has acknowledged that the
firm is retained by and performs its services for the Compensation Committee while working with
management to provide advice, counsel and recommendations that reinforce the Company’s business
strategy, economics, organization and management style. Mercer has provided and continues to provide
services and products to the Company in addition to its work for the Compensation Committee,
including services related to global compensation consulting and surveys for various geographies.
Mercer and its affiliates also provide products and services to the Company that are unrelated to
compensation, including expatriate consulting services (provided by Mercer), international benefits
consulting and claims processing services (provided by Mercer) and coordination of certain third party
health and welfare benefits (coordinated by Marsh). Mercer’s affiliates, Marsh USA Inc. and Marsh
INSCO LLC, provided property and casualty insurance consulting services until June 2016.
The Compensation Committee reviews all fees for services related to executive and director
compensation provided by Mercer to the Compensation Committee, as well as fees for compensation-
related products and services provided to the Company. The decision to engage Mercer for other
services was made by management. Neither the Compensation Committee nor the Board has a role in
the engagement of Mercer or Mercer affiliates that provide products or services to the Company that
are unrelated to compensation; however, the Compensation Committee reviews the fees for such
products and services concurrently with its review of compensation-related fees paid to Mercer.
Fees paid to Mercer and its affiliates for services provided in 2016 related to executive and director
compensation totaled $476,782. Fees paid to Mercer and its affiliates for other services provided in
2016 were as follows:
Compensation-related products and services
Services unrelated to compensation
Total other services
$116,301
$294,401
$410,702
The Compensation Committee also received and discussed with Mercer its letter to the Compensation
Committee addressing factors relevant under the Securities Exchange Commission (“SEC”) and New
York Stock Exchange (“NYSE”) rules in assessing Mercer’s independence from management and
whether Mercer’s work for the Compensation Committee has raised any conflicts of interest, as well as
Mercer’s belief that no conflict of interest exists and that it serves as an independent advisor to the
Compensation Committee. The factors addressed included the extent of any business or personal
relationships with any member of the Compensation Committee or any executive officer of the
Company; Mercer’s and its affiliates’ provision of other services to the Company; the level of fees
received from the Company as a percentage of total revenue of each of Mercer and Mercer’s parent
company; the policies and procedures employed by Mercer to avoid conflicts of interest; and any
ownership of Company stock by individuals employed by Mercer to advise the Compensation
Committee. The Compensation Committee considered these factors before selecting or receiving advice
from Mercer, and after considering these and other factors in their totality, the Compensation
Committee identified no conflicts of interest with respect to Mercer’s advice.
In establishing compensation levels and awards for executive officers other than our CEO, the
Compensation Committee takes into consideration the recommendations of Mercer and the Human
Resources Department, evaluations by our CEO of each officer’s individual performance and Company
performance. The Compensation Committee evaluates director compensation primarily on the basis of
peer group data used for benchmarking director compensation provided by Mercer.
46
Compensation Components
Our executive compensation program includes the following key elements:
Element
Design
Purpose
Key 2016 Actions
Base Salary
Annual Incentive Award
Fixed compensation
component. Reviewed
annually and adjusted as
appropriate.
Intended to attract and
retain executives with
proven skills and
leadership abilities that
will enable us to be
successful.
Variable, performance-
based compensation
component. Payable based
on business results and
individual performance.
Intended to motivate
and reward executives
for successful execution
of strategic priorities.
Long-Term Incentive
Awards
Variable, performance-
based compensation
component. Granted
annually as a combination
of Restricted Stock Units
(“RSUs”), PSUs and stock
options. The value of
amounts actually earned
depend on Company and
stock price performance.
Intended to motivate
and reward executives
for long-term Company
financial performance
and enhanced long-term
stockholder value by
balancing compensation
opportunity and risk,
while encouraging
sustained performance
and retention.
Each NEO received an
increase at the
beginning of the year
consistent with how the
Company sets
compensation as
described below.(1)
Targets as a percentage
of base salary were
established at the
beginning of 2016 for
each NEO.(1) The metric
weightings were
changed in 2016 as
follows: Net Sales(2) –
50% to 45%, Adjusted
Earnings per Share-
Diluted(3) – remained at
40% and Operating Cash
Flow(4) – 10% to 15%.
Targets as a percentage
of base salary were
established at the
beginning of 2016 for
each NEO. In 2016, the
Compensation
Committee approved
changing the equity mix
from 50% stock options
and 50% PSUs to 25%
stock options, 50% PSUs
and 25% RSUs. In
addition, the
Compensation
Committee approved
changing the PSU
metrics and weightings
for the 2016 – 2018
performance cycle as
described in the section
entitled “Long-Term
Incentives.”
(1) Ms. Buck’s base salary and annual incentive award were adjusted when she was promoted to Executive Vice President, COO, as
described further in the sections entitled “Base Salary” and “Annual Incentives.”
(2) Net Sales is measured on a constant currency basis, which is a non-GAAP performance measure. For more information regarding
how we define constant currency net sales, please see footnote (1) in the section entitled “Executive Summary.”
(3)
Adjusted earnings per share-diluted is a non-GAAP performance measure. For more information regarding how we define adjusted
earnings per share-diluted, please see footnote (2) in the section entitled “Executive Summary.”
(4) Operating cash flow is a non-GAAP performance measure. We define operating cash flow as the average of cash from operations less
certain one-time items impacting comparability. For more information regarding our use of non-GAAP performance measures,
please see footnote (1) in the section entitled “Executive Summary.”
47
The following charts illustrate the weighting of base salary, annual incentive awards and long-term
incentive awards at target for our CEO and our other NEOs during 2016:
Target Total Direct Compensation
CEO
Target Total Direct Compensation
Other NEOs
(Average)
RSUs
16%
Salary
14%
Stock Options
16%
PSUs
33%
Annual
Cash Incentive
21%
V
a
ria
ble Performance-Based C o m p e n s
Setting Compensation
n = 70 %
t i o
a
RSUs
13%
Stock
Options
13%
Salary
27%
PSUs
26%
Annual
Cash Incentive
21%
V
a
ria
ble Performance-Based C o m p e n s
o
t i
a
n = 6 0 %
The Compensation Committee’s annual compensation review for 2016 included an analysis of data,
comparing the Company’s executive and director compensation levels against a peer group of publicly-
held consumer products companies. Mercer provides the Compensation Committee with advice, counsel
and recommendations with respect to the composition of the peer group and competitive data used for
benchmarking our compensation program. The Compensation Committee uses this and other
information provided by Mercer to reach an independent recommendation regarding compensation to
be paid to our CEO, directors and other officers. The Compensation Committee’s final recommendation
is then given to the independent directors of our Board for review and final approval.
Before 2015, the Company had two separate peer groups, which we referred to as our Compensation
Peer Group and our Financial Peer Group. Since 2015, the Compensation Committee has utilized one
common peer group. Companies in the peer group used to benchmark executive and director pay levels
for 2016 (the “2016 Peer Group”) are:
Brown-Forman Corporation
Campbell Soup Company
Colgate-Palmolive Company
ConAgra Foods, Inc.
Constellation Brands, Inc.
Dean Foods Company
Dr Pepper Snapple Group, Inc.
General Mills, Inc.
Hormel Foods Corporation
Kellogg Company
McCormick & Company, Inc.
Mead Johnson Nutrition Company
Molson Coors Brewing Company
Mondelez International
The Clorox Company
The J. M. Smucker Company
48
The Compensation Committee selected these companies after reviewing publicly-held companies
offering products/services similar to ours, with annual revenues within a range of approximately
one-half to two and one-half times our annual revenue (with the exception of Mondelez International
whom we also consider a peer company for executive talent) and market capitalization within a
reasonable range of our market capitalization. The 2016 Peer Group was composed of companies with
annual revenues ranging from $3.6 billion to $29.6 billion (as of fiscal year 2015) and market
capitalization ranging from $1.6 billion to $71.3 billion (as of December 31, 2015). Hershey’s fiscal year
2015 revenue of $7.4 billion and December 31, 2015 market capitalization of $19.4 billion were at the
51st and 56th percentiles, respectively. Except for Colgate-Palmolive Company and Mead Johnson
Nutrition Company, all of the companies in our 2016 Peer Group were included in our 2015 Peer
Group. Kraft Foods Group, included in 2015, was not included in the 2016 Peer Group due to a merger
occurring in 2015.
Data from the 2016 Peer Group was supplemented by composite data from consumer products
companies ranging in size from $3 billion to $17 billion in approximate annual sales. This information
was included in three national surveys conducted by Aon Hewitt, Mercer and Towers Watson. The
survey composite data provided us with broader, industry-specific information regarding pay levels at
consumer products companies for our NEOs.
The Compensation Committee reviewed a report summarizing compensation levels at the 25th, 50th and
75th percentiles of the 2016 Peer Group and the survey composite data for positions comparable to those
held by each of our NEOs. The Compensation Committee also reviewed a report comparing the target
total cash compensation (base salary plus target annual incentive) and target total direct compensation
(base salary plus target annual incentive plus target long-term incentive) for each of the NEOs against
these benchmarks. For retention and competitive considerations, the Company targets each NEO’s
total cash compensation and total direct compensation levels around the 50th percentile of the 2016
Peer Group data or survey composite data applicable to his or her position. The Compensation
Committee’s final determinations with respect to base salary, target annual incentive compensation
and target long-term incentive compensation reflect consideration of the Company’s and the NEO’s
performance, internal comparisons and other factors the Compensation Committee deems appropriate.
As a result of these factors, the target total cash compensation and target total direct compensation of
our NEOs in 2016 was generally set around the applicable median.
During 2016, the Compensation Committee received detailed tally sheets prepared by management.
Each tally sheet captures comprehensive compensation, benefits and stock ownership data. The tally
sheets provide the Compensation Committee with a complete picture of each executive’s current and
projected compensation and the amount of each element of compensation or other benefit the executive
would receive in the event of voluntary or involuntary termination, retirement, disability, death, or
upon change in control. The Compensation Committee considers this information, as well as the
benchmark information, when making compensation decisions.
Base Salary
Base salary is the largest fixed component of our executive compensation program and is determined
by considering the relative importance of the position, the competitive marketplace and the individual’s
performance, responsibilities and experience. Salary reviews are generally conducted annually at the
beginning of the year. Each NEO’s base salary is compared to internal and external references. Base
salary adjustments, if any, are made after considering market references, Company performance
against financial goals and individual performance. CEO performance is evaluated by the
Compensation Committee and independent members of the Board. The CEO evaluates the performance
of his direct reports, including all NEOs, and reviews his recommendations for salary adjustments with
the Compensation Committee prior to its approval of the base salary for each NEO. If a NEO has
responsibility for a particular business unit, the business unit’s financial results also will be strongly
considered.
49
On the basis of the foregoing considerations, the Compensation Committee, and all independent
directors in the case of our CEO, approved base salaries for 2016 as follows:
Name
2016
Base Salary
($)
Increase
from 2015
(%)
Percent of Target Total
Direct Compensation
(%)
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
1,236,000
627,000
3.0
4.5
750,000(1)
14.9
587,800
627,000
3.0
4.5
13.8
26.7
23.9
29.9
29.4
(1)
In addition to a merit increase at the beginning of the year to $672,400, Ms. Buck’s base salary was increased to $750,000 effective
June 2, 2016 in connection with her promotion to Executive Vice President, COO. The percent of target total direct compensation for
Ms. Buck is based on a base salary of $716,274, reflecting her target base salary both before and after the June increase.
See Column (c) of the 2016 Summary Compensation Table for information regarding the base salary
earned by each of our NEOs during 2016.
Annual Incentives
Our NEOs are eligible to receive an annual cash incentive award under the One Hershey Incentive
Program (“OHIP”), a program established under our EICP.
The OHIP links the NEO’s payout opportunity to measures he or she can affect most directly. For 2016,
our CEO and all employees reporting directly to him, including the NEOs, had common financial
objectives tied to total Company performance consistent with their responsibility to manage the entire
Company. Total Company performance targets are established in the context of our announced
expectations for financial performance, prior year results and market conditions.
For 2016, our NEOs were eligible to earn individual OHIP awards as follows:
Name
2016 Target One Hershey
Incentive Program
(% of Base Salary)
Percent of Target
Total Direct
Compensation
(%)
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
150
80
90(1)
65
70
20.7
21.3
21.0(1)
19.4
20.6
(1) Ms. Buck’s target was initially set at 85% in January 2016. Upon her promotion to Executive Vice President, COO, Ms. Buck’s
target increased to 90%. The percent of target total direct compensation for Ms. Buck is based on a base salary of $716,274,
reflecting her target base salary both before and after the June increase.
In determining the target OHIP percentage for each of the NEOs, the Compensation Committee, and
the independent directors in the case of our CEO, considered the value of target total cash
compensation against market references. Target total cash compensation levels for each of the NEOs
fall within an appropriate range relative to the median for comparable positions given each
incumbent’s performance, responsibilities and tenure in the role.
50
In general, the final OHIP award is determined by multiplying the NEO’s base salary, the applicable
target percentage and performance scores ranging from 0% to 200% based on Company and individual
performance. The Company performance goals are established at the beginning of each year by the
Compensation Committee. Individual performance goals also are established at that time, or at the
time of hire if later. If performance scores exceed the target objectives, a NEO may receive an OHIP
payout greater than his or her target award value. If performance scores are below the target
objectives, the NEO’s OHIP payout will be below his or her target award value, subject to no award if
performance is below threshold levels.
For 2016, Company financial performance metrics accounted for 65% of each NEO’s target award under
the program. The remaining 35% was based upon individual performance toward achievement of up to
six individual performance goals focused on strategic priorities applicable to the NEO’s position, but
tied to the overall Company’s top priorities for the year.
2016 OHIP Performance Targets and Results
The Company performance targets for the 2016 OHIP were as follows:
• Consolidated net sales(1) of $7.571 billion, a 2.5% increase from 2015;
• Adjusted earnings per share-diluted(2) of $4.37, a 6.0% increase from 2015; and
• Operating cash flow(3) of $1.190 billion, an 8.0% increase from 2015.
Our financial performance during 2016 and the resulting financial performance scores for OHIP were
as follows:
Metric
2016
Target
($)
2016
Actual
($)
Target
Award
(%)
Performance
Score
(%)
Net Sales(1)
7.571 billion 7.455 billion
Adjusted Earnings per Share-Diluted(2)
4.37
4.45
Operating Cash Flow(3)
1.190 billion 1.172 billion
45.00
40.00
15.00
43.50
48.86
14.73
Total One Hershey Incentive Program Company Score
100.00
107.09
(1) Net Sales is measured on a constant currency basis, which is a non-GAAP performance measure. For more information regarding
how we define constant currency net sales, please see footnote (1) in the section entitled “Executive Summary.” The Net Sales
results above differ from those disclosed in our fourth quarter 2016 earnings release as a result of acquisitions made during 2016.
(2)
Adjusted earnings per share-diluted is a non-GAAP performance measure. For more information regarding how we define adjusted
earnings per share-diluted, please see footnote (2) in the section entitled “Executive Summary.” Adjusted Earnings Per Share-
Diluted results above differ from those disclosed in our fourth quarter 2016 earnings release as a result of acquisitions made during
2016.
(3) Operating cash flow is a non-GAAP performance measure. We define operating cash flow as the average of cash from operations less
certain one-time items impacting comparability. For more information regarding our use of non-GAAP performance measures,
please see footnote (1) in the section entitled “Executive Summary.”
We achieved below-target performance in net sales and operating cash flow and above-target
performance in adjusted earnings per share-diluted. As a result, 65% of the 2016 OHIP award for each
NEO was based on the Company performance score of 107.09%. The remainder of the OHIP award was
determined by individual performance ratings.
The individual performance goals for Mr. Bilbrey centered on delivery of the Company’s financial goals,
strategic leadership and succession planning.
51
At the beginning of 2016, Ms. Buck served as our President, North America. On June 2, 2016, Ms. Buck
took on an expanded role of Executive Vice President, COO, while continuing to lead the Company’s
day-to-day North American operations. Her goals and evaluation reflected both roles. Ms. Buck was
responsible for strategic leadership and delivery of the Company’s financial objectives, establishing
future growth pipelines, building critical capabilities and improving the Company’s operations.
Ms. Little, our CFO, had individual performance goals that included building the Company’s global
financial capabilities, delivering continued process improvements and delivering on our strategic plan.
The individual performance goals for Mr. O’Day, Senior Vice President, Chief Supply Chain Officer,
focused on delivering a supply chain network that enables growth and delivering enterprise margin
expansion. For Ms. Turner, Senior Vice President, General Counsel and Secretary, the individual
performance goals included enhancing our global ethics and compliance culture as well as supporting
our CEO and Board on a variety of legal matters.
Following the close of 2016, the Compensation Committee provided the independent directors with an
assessment of Mr. Bilbrey’s 2016 performance and achievement relative to his individual performance
goals. Our financial results were around target despite challenging industry conditions in the category.
Mr. Bilbrey also delivered on his strategic leadership goals, including enabling continued growth
through portfolio expansion, investing in key geographies, capturing significant cost savings, delivering
above-target innovation, succession planning and diversity efforts. Based upon those assessments, the
Compensation Committee recommended, and the Board approved, the individual performance award
and total OHIP payout for Mr. Bilbrey as shown in the table below.
Mr. Bilbrey provided the Compensation Committee with his assessment of each NEO’s 2016
performance and achievement in relation to their performance goals. Based upon those assessments,
Mr. Bilbrey recommended, and the Compensation Committee approved, the individual performance
awards and total OHIP payouts as shown in the table below.
Based upon a 65% weight for the Company financial score of 107.09% of target and a 35% weight for
the individual performance award, our NEOs earned the following 2016 OHIP awards:
Name
Award
Target
(%)
Award
Target(1)
($)
Company
Financial
Performance
Award (65%
Weighting)
($)
Individual
Performance
Award (35%
Weighting)
($)
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
1,853,169
1,289,963
150
80
501,268
90(2)
629,778(2)
65
70
381,898
438,609
348,925
438,379
265,834
305,309
810,762
210,532
275,528
200,496
191,892
2016
OHIP
Award
($)
2,100,725
559,457
713,907
466,330
497,201
(1)
Target award is based upon actual salary received in 2016.
(2) Ms. Buck’s target was initially set at 85% in January 2016. Upon her promotion to Executive Vice President, COO, Ms. Buck’s
target increased to 90%.
The 2016 OHIP payments are included in Column (g) of the 2016 Summary Compensation Table for
each NEO.
52
Long-Term Incentives
We provide long-term incentive opportunities to motivate, retain and reward our NEOs for their
contributions to multi-year performance in achieving strategies and improving long-term share value.
In February of each year, the Compensation Committee awards long-term incentive grants to our
NEOs. Prior to 2016, long-term incentive grants were comprised of PSUs and stock options. In 2016, we
updated our equity mix to include RSUs, increasing the retentive value of our long-term incentive
program.
The Compensation Committee, and the independent directors in the case of our CEO, determines the
value of long-term incentive awards made to each NEO by considering the NEO’s target total direct
compensation against internal and external references. The target award percentages approved in
February 2016, expressed as a percentage of base salary, were:
Name
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
Target Long-
Term Incentive Award
(% of Salary)
Percent of
Target Total
Direct
Compensation
(%)
475
195
230
170
170
65.5
52.0
55.0(1)
50.8
50.0
(1)
The percent of target total direct compensation for Ms. Buck is based on a base salary of $716,274, reflecting her target base salary
both before and after the June increase.
The Compensation Committee values RSUs and PSUs using the closing stock price of the Company’s
Common Stock on the NYSE on the date of grant. The Compensation Committee values stock options
using the value of the stock options at the date of grant as determined for financial reporting purposes
(the Black-Scholes value). Target total direct compensation levels for each of the NEOs fall within an
appropriate range relative to the median for comparable positions given the each incumbent’s,
performance, responsibilities and tenure in the role.
Performance Stock Unit Targets and Results
PSUs are granted to NEOs and other executives in a position to affect the Company’s long-term results.
At the start of each three-year cycle, a contingent target number of PSUs is established for each
executive. This target is expressed as a percentage of the executive’s base salary and is determined as
part of a total compensation package based on the peer group and survey composite benchmarks. The
PSU award generally represents approximately one-half of the recipient’s long-term incentive
compensation target award. Dividends are not paid on PSU awards during the three-year performance
cycle.
2014-2016 PSU Award
The performance objectives for the 2014-2016 performance cycle awarded in 2014 were based upon the
following metrics:
• Three-year relative TSR versus the Financial Peer Group described below;
• Three-year compound annual growth rate (“CAGR”) in organic net sales outside the United
States and Canada;
• Three-year CAGR in adjusted earnings per share-diluted measured against an internal target;
and
53
• Annual (as opposed to three-year) growth in adjusted earnings per share-diluted measured
against an internal target for each year of the three-year performance cycle.
The Compensation Committee selected these metrics to measure performance against internal targets
aligned with our stockholders’ interests and investment returns offered by our peer companies.
Although the Company decided to utilize one common peer group beginning in 2015, PSU cycles prior
to 2015 still utilize our Financial Peer Group. The Financial Peer Group is a high-performing group of
companies with whom we compete for investors in the food and beverage industry. Initially the
Compensation Committee approved a Financial Peer Group of 15 companies with median revenues of
$8.1 billion. As a result of corporate transactions, Hillshire Brands and Kraft Foods Group were
removed from the Financial Peer Group. Therefore, 13 companies remained in the 2014-2016 cycle for
use in assessing our Company’s 2014-2016 TSR.
Companies included in the Financial Peer Group for the 2014-2016 PSU cycle award were:
Brown-Forman Corporation
Campbell Soup Company
ConAgra Foods, Inc.
Constellation Brands, Inc.
Dean Foods Company
Dr Pepper Snapple Group, Inc.
General Mills, Inc.
Hormel Foods Corporation
Kellogg Company
McCormick & Company, Inc.
Molson Coors Brewing Company
Mondelez International
The J. M. Smucker Company
The Compensation Committee approves the annual adjusted earnings per share-diluted target for each
year of the three-year performance cycle at the beginning of the performance year. The annual
component allows the Compensation Committee to establish performance thresholds, targets and
maximums that reflect current business conditions, thus strengthening the link between pay and
performance for each year of the three-year cycle. Payment of any amounts earned, including amounts
based on the annual performance goals, will be made in shares of our Common Stock at the conclusion
of the three-year performance cycle. The maximum award for any participant in a performance cycle is
250% of the contingent target award.
Targets and results for the 2014-2016 performance cycle and the Company’s TSR and financial
performance during the three-year cycle were as follows:
Metric
Target
Actual
Performance
Target
Award
Weighting
(%)
Final
Performance
Score
(%)
Total Shareholder Return
50th Percentile
0th Percentile
50.00
Three-year CAGR in Organic Net
Sales Outside the United States
and Canada
Three-year CAGR in Adjusted
Earnings per Share-Diluted(3)
2014 Adjusted Earnings per
Share-Diluted(3)
2015 Adjusted Earnings per
Share-Diluted(3)
2016 Adjusted Earnings per
Share-Diluted(3)
Total
18.3% CAGR(1)
1.9% CAGR(1)
15.00
10.1% CAGR(1),(2)
8.1% CAGR(1),(2)
15.00
$4.10(1)
$3.98(1)
(10.2% increase)
(7.0% increase)
$4.34
(9.0% increase)
$4.12
(3.5% increase)
$4.37(1)
$4.45(1)
(6.1% increase)
(8.0% increase)
6.66
6.67
6.67
0.00
0.00
4.64
3.10
4.03
8.89
100.00
20.66
54
(1)
Results for our Shanghai Golden Monkey business, our Allan Candy business, our KRAVE business and our barkTHINS business
were excluded from the following metrics, as applicable, as these acquisitions were made in September 2014, December 2014,
March 2015 and April 2016, respectively:
• Three-year CAGR in organic net sales outside the United States and Canada;
• Three-year CAGR in adjusted earnings per share-diluted;
• 2014 adjusted earnings per share-diluted; and
• 2016 adjusted earnings per share-diluted.
(2)
(3)
Results for our Mauna Loa business were excluded from the three-year CAGR in adjusted earnings per share-diluted as the
divestiture was completed in February 2015.
Adjusted earnings per share-diluted is a non-GAAP performance measure. For more information regarding how we define adjusted
earnings per share-diluted, please see footnote (2) in the section entitled “Executive Summary.”
At the conclusion of each three-year and annual performance period, the Compensation Committee
reviews the level of performance achieved and the percentage, if any, of the applicable portion of the
target number of PSUs earned. In determining the final performance cycle score, negative adjustments
may be made by the Compensation Committee to the Company’s performance score to take into account
extraordinary or unusual items occurring during the period. No adjustments were made in determining
the 20.66% performance score or the number of PSUs earned by our NEOs for the 2014-2016
performance cycle.
2015-2017 PSU Award
The performance metrics and weightings for the 2015-2017 performance cycle are the same as the
2014-2016 performance cycle. In 2015, the Company decided to utilize one common peer group for
benchmarking compensation and for measuring financial performance in PSU cycles. The 2015 peer
group originally included 15 companies, all of which were included in the Financial Peer Group used for
the 2014-2016 PSU cycle, except that Hillshire Brands was removed as a result of a corporate
transaction and was replaced by the Clorox Company. Kraft Foods Group was subsequently removed
from the 2015 peer group as a result of a corporate transaction so that the 2015 peer group currently
includes 14 companies. Actual Company results of $4.45 for the 2016 adjusted earnings per share-
diluted metric reflected an 8% increase from 2015 exceeding the 2016 target of $4.37. As a result, 8.89%
of the final award was earned for this metric in the 2015-2017 performance cycle. These PSUs will be
paid at the end of the three-year performance cycle to participating executives who are entitled to
payouts under the terms of the program.
2016-2018 PSU Award
In December 2016, the Committee approved changes to the performance metrics and weightings for the
2016-2018 performance cycle to simplify our program, reduce complexity and improve focus on our
current long-term growth strategies.
The performance objectives for the 2016-2018 performance cycle are based upon the following metrics:
• Three-year relative TSR versus the 2016 Peer Group described above;
• Three-year CAGR in Total Company net sales; and
• Three-year CAGR in adjusted earnings per share-diluted measured against an internal target.
These metrics are weighted 34%, 33% and 33%, respectively.
See Column (e) of the 2016 Summary Compensation Table, Columns (f) through (h) of the 2016 Grants
of Plan-Based Awards Table, Columns (i) and (j) of the Outstanding Equity Awards at 2016 Fiscal-Year
End Table and Columns (d) and (e) of the 2016 Option Exercises and Stock Vested Table for more
information about PSUs awarded to the NEOs.
55
Stock Options
Stock options are an important element of our long-term incentive program, enabling us to align the
interests of NEOs with those of stockholders. In general, stock options are awarded annually to the
Company’s executives as well as to other key managerial employees. Stock options entitle the holder to
purchase a fixed number of shares of Common Stock at a set price during a specified period of time.
The right to exercise the options is subject to a vesting schedule. Because stock options vest over time
and only have value if the price of our Common Stock increases, they encourage efforts to enhance long-
term stockholder value.
The Compensation Committee sets guidelines for the value of stock options to be awarded based on
competitive compensation data. The stock option award represents approximately one-quarter of the
NEO’s long-term incentive compensation target award. In 2016, the target number of stock options
awarded to each NEO was determined by multiplying the NEO’s base salary by one-quarter of his or
her target long-term incentive award percentage divided by the Black-Scholes value of each option on
the grant date. The Black-Scholes option-pricing model is described in Note 10 to the Consolidated
Financial Statements contained in the 2016 Annual Report on Form 10-K that accompanies this Proxy
Statement. The actual number of options awarded may vary from the target level based on each NEO’s
individual performance evaluation.
Stock options vest in equal increments over four years and have a 10-year term. As required by the
EICP, the options have an exercise price equal to the closing market price of the Common Stock on the
NYSE on the date of the award.
See Column (f) of the 2016 Summary Compensation Table, Columns (j) through (l) of the 2016 Grants
of Plan-Based Awards Table, Columns (b) through (f) of the Outstanding Equity Awards at 2016 Fiscal-
Year End Table and Columns (b) and (c) of the 2016 Option Exercises and Stock Vested Table for more
information on stock options awarded to the NEOs.
Restricted Stock Units
In 2016, we updated our long-term incentive program to include RSUs in our annual equity mix. The
Compensation Committee sets guidelines for the value of the annual RSUs to be awarded based on
competitive compensation data. These RSU awards represent approximately one-quarter of the NEO’s
long-term incentive compensation target award. In 2016, the target number of RSUs awarded to each
NEO was determined by multiplying the NEO’s base salary by one-quarter of his or her target long-
term incentive award percentage divided by the closing price of the Company’s Common Stock on the
NYSE on the grant date. The actual number of RSUs awarded may vary from the target level based on
each NEO’s individual performance evaluation. Annual RSUs vest in equal increments over three
years.
The Compensation Committee also awards RSUs to NEOs and other executives from time to time as
special incentives. RSUs also are awarded by the Compensation Committee to replace compensation
forfeited by newly-hired executive officers and by the CEO to employees other than executive officers
from the RSU pool described below. In February 2016, retention RSUs were granted to Mmes. Little,
Buck and Turner, which vest in the event the recipient remains employed by the Company and/or its
subsidiaries as of the third-anniversary of the grant date. In June 2016, retention RSUs were granted
to Mr. O’Day, which vest in the event the recipient remains employed by the Company and/or its
subsidiaries as of the one-year anniversary of the grant date.
See Column (e) of the 2016 Summary Compensation Table, Column (i) of the 2016 Grants of Plan-
Based Awards Table, Columns (g) and (h) of the Outstanding Equity Awards at 2016 Fiscal-Year End
Table and Columns (d) and (e) of the 2016 Option Exercises and Stock Vested Table for more
information about RSUs awarded to the NEOs.
56
Equity Pools
To ensure flexibility in providing awards for recruitment, retention, performance recognition or in
conjunction with a promotion, the Compensation Committee is authorized under the EICP to establish
a stock option pool, a PSU pool, a RSU pool and a separate CEO discretionary equity pool for use by our
CEO for such purposes. The pools are available for approximately 12 months from the date created.
The Compensation Committee determines whether to establish any or all of these pools annually.
Options, PSUs and RSUs remaining in any pool at the end of the period do not carry over to pools
established for a subsequent period. The CEO may not make discretionary awards from any pool to the
NEOs. Awards from the CEO pools and the CEO discretionary equity pool are made monthly according
to an annually pre-determined schedule. The exercise price for the options is based on the closing price
of our Common Stock on the date of the award.
Perquisites
Executive perquisites are kept to a minimal level relative to a NEO’s total compensation and do not
play a significant role in our executive compensation program. The perquisites that we provide, include
personal use of Company aircraft, security services for our CEO, and financial counseling and tax
preparation reimbursement. See the footnotes to Column (i) of the 2016 Summary Compensation Table
for information regarding the perquisites received by our NEOs.
Our CEO and the other NEOs are eligible to participate in our Gift Matching Program on the same
basis as other employees, retirees or their spouses. Through the Gift Matching Program, we match
contributions made to one or more non-profit organizations on a dollar-for-dollar basis up to a
maximum aggregate contribution of $5,000 per employee annually. These matching contributions are
not considered compensation and are not included in Column (i) of the 2016 Summary Compensation
Table.
Retirement Plans
NEOs participate in our tax-qualified defined benefit pension plan (“pension plan”) and tax-qualified
defined contribution 401(k) plan (“401(k) plan”) on the same basis as other salaried employees of the
Company. IRC regulations do not permit the Company to use base salary and other compensation paid
above certain limits to determine the benefits earned by the NEOs under tax-qualified plans. The
Company maintains a defined benefit Supplemental Executive Retirement Plan (“DB SERP”), a defined
contribution Supplemental Executive Retirement Plan (“DC SERP”) and a Deferred Compensation
Plan to provide these and additional benefits that are comparable to those offered by our peers. Under
the provisions of the Deferred Compensation Plan, our NEOs may elect to defer payments from the
DB SERP, DC SERP, OHIP, PSU and RSU awards, but not stock options or base salary.
The DB SERP was closed to new participants in 2006. No new participants have been or will be added
to the DB SERP. NEOs and other senior executives reporting to the CEO not eligible for the DB SERP
are considered by the Compensation Committee for participation in the DC SERP. In comparison, the
DC SERP typically yields a lower benefit than the DB SERP upon retirement. The Company believes
that the DB SERP, DC SERP and Deferred Compensation Plan help, in the aggregate, to attract and
retain executive talent, as similar plans are often components of the executive compensation programs
within our Peer Group. The DC SERP was established as part of our Deferred Compensation Plan and
is not a separate plan.
See the 2016 Pension Benefits Table and accompanying narrative and the 2016 Non-Qualified Deferred
Compensation Table and accompanying narrative for more information regarding the DB SERP,
DC SERP and other retirement benefits.
57
Employment Agreements
The Company entered into an employment agreement with Mr. Bilbrey in August 2012, which provided
for Mr. Bilbrey’s continued employment as President and CEO and continued nomination as a member
of the Board of Directors. In November 2015, the Company and Mr. Bilbrey entered into an amendment
to this employment agreement to reflect revisions to Mr. Bilbrey’s compensation and other benefits as a
result of his election as Chairman of the Board. The employment agreement did not have a specified
term. Under the terms of the employment agreement, in the event Mr. Bilbrey’s employment was
terminated by the Company without Cause or he resigned for Good Reason (in each case as defined in
the employment agreement), Mr. Bilbrey would have been entitled to certain severance benefits. In the
event of his termination after a change in control, Mr. Bilbrey would have been eligible to receive
benefits under the Executive Benefits Protection Plan (Group 3A) (“EBPP 3A”). He was not entitled to
an excise tax gross-up. The employment agreement subjected Mr. Bilbrey to certain non-competition
and non-solicitation covenants under the ECRCA and to compensation recovery (clawback) to the
extent required by applicable law and regulations.
Mr. Bilbrey retired as our President and CEO effective March 1, 2017. In connection with his
retirement, the Company and Mr. Bilbrey entered into a retirement agreement in February 2017 in
order to set forth the benefits Mr. Bilbrey will receive in connection with his retirement. The
retirement agreement supersedes and replaces Mr. Bilbrey’s employment agreement.
In February 2017, the Company entered into an employment agreement with Ms. Buck to reflect the
terms and conditions of her employment as President and CEO, effective March 1, 2017. The terms of
Ms. Buck’s employment agreement are substantially similar to the terms of Mr. Bilbrey’s employment
agreement prior to the November 2015 amendment.
See the section entitled “Potential Payments upon Termination or Change in Control” for information
regarding the payments Mr. Bilbrey and Ms. Buck would have received in the event of an applicable
termination or change in control occurring on December 31, 2016.
Other than as set forth above, we have not entered into employment agreements with any NEO.
Severance and Change in Control Plans
All of the NEOs are covered by our EBPP 3A. The EBPP 3A is intended to help us attract and retain
executive talent and maintain a stable work environment in the event of activity that could potentially
result in a Change in Control. The severance protection provided under the EBPP 3A upon a Change in
Control is based upon a “double trigger.” The terms of the plan generally provide that a covered NEO
whose employment with the Company terminates in qualifying circumstances within two years after a
Change in Control of the Company is entitled to certain severance payments and benefits. The
EBPP 3A also provides severance benefits in the event of involuntary termination without Cause
unrelated to a Change in Control or voluntary termination for Good Reason within two years after
election of a new CEO. Change in Control, Cause and Good Reason are defined in the EBPP 3A.
See the discussion in the section entitled “Potential Payments upon Termination or Change in Control”
for information regarding the payments that would be due to our NEOs under the EBPP 3A in the
event of an applicable termination of employment or a Change in Control.
58
Compensation Policies and Practices
Clawbacks
Under the EICP, when an individual’s actions result in the filing of financial documents not in
compliance with financial reporting requirements, the Company has the right to recoup or require
repayment of an award earned or accrued during the twelve-month period following the first public
issuance or filing with the SEC of the financial document not in compliance with such financial
reporting requirement. Repayment or clawback occurs where the material noncompliance results from
misconduct, the participant’s knowledge or gross negligence in engaging in the misconduct or failing to
prevent the misconduct, or if the participant is one of the individuals subject to automatic forfeiture
under Section 304 of the Sarbanes-Oxley Action of 2002.
In 2008, the Company initiated the execution of the ECRCA by executive officers as a condition for the
receipt of long-term incentive awards and, for new executive officers, also as a condition of employment.
The purpose of the ECRCA is to protect the Company and further align the interests of the executive
officer with those of the Company. The terms of the ECRCA prohibit the executive from misusing or
disclosing the Company’s confidential information, competing with the Company in specific categories
for a period of 12 months following separation from employment, recruiting or soliciting the Company’s
employees, or disparaging the Company’s reputation in any way. For those officers or employees based
outside the U.S., the restrictive covenants and terms may be modified to comply with local laws.
Failure to comply with the provisions of the ECRCA may result in cancellation of the unvested portion
of PSU and RSU awards, cancellation of any unexercised stock options and a requirement for
repayment of amounts received from equity awards during the last year of employment, as well as any
amounts received from the DB SERP or DC SERP.
Tax Considerations
The anticipated cost of the various components of executive compensation is also a factor in the
Compensation Committee’s deliberations. Section 162(m) of the IRC may limit the Company’s ability to
deduct certain compensation in excess of $1 million paid to our CEO or to our other NEOs who are
employed on the last day of the fiscal year (other than officers who served as CFO during the year).
This limitation does not apply to compensation that qualifies as “performance-based” under applicable
Internal Revenue Service (“IRS”) regulations or that is paid after termination of employment. The
Compensation Committee has considered the effect of Section 162(m) of the IRC on the Company’s
executive compensation program. The Compensation Committee exercises discretion in setting base
salaries, structuring incentive compensation awards and in determining payments in relation to levels
of achievement of performance goals. The Compensation Committee believes that the total
compensation program for NEOs should be managed in accordance with the objectives outlined in the
Company’s compensation philosophy and in the best overall interests of the Company’s stockholders.
Accordingly, compensation paid by the Company may not be deductible because such compensation
exceeds the limitations, or does not meet the “performance-based” or other requirements, for
deductibility under Section 162(m) of the IRC.
Section 409A of the IRC specifies certain rules and limitations regarding the operation of our Deferred
Compensation Plan and other retirement programs. Failure to comply with these rules could subject
participants in those plans and programs to additional income tax and interest penalties. We believe
our plans and programs comply with Section 409A of the IRC.
59
Stock Ownership Guidelines
The Compensation Committee believes that requiring NEOs and other executive officers to hold
significant amounts of our Common Stock strengthens their alignment with the interest of our
stockholders and promotes achievement of long-term business objectives. Our executive stock
ownership policy has been in place for more than 20 years. The Compensation Committee reviews
ownership requirements annually to ensure they are aligned with external market comparisons.
Executives with stock ownership requirements have five years from their initial election to their
position to accumulate and hold the minimum number of shares required. For purposes of this
requirement, “shares” include shares of our Common Stock that are owned by the executive, unvested
time-based RSUs, PSUs earned for the annual segments of open performance cycles and vested RSUs
and PSUs that have been deferred by the executive as Common Stock units under our Deferred
Compensation Plan. It is anticipated that executives will hold a significant number of the shares
earned from PSU and RSU awards and the exercise of stock options to satisfy their obligations.
Minimum stockholding requirements for the CEO and the other NEOs are as follows:
Position
Stock Ownership Level
CEO
COO
CFO and Senior Vice Presidents
5 times base salary
4 times base salary
3 times base salary
Other executives subject to stockholding requirements
1 times base salary
The dollar value of shares which must be acquired and held equals a multiple of the individual
executive’s base salary. Stockholding requirements are updated whenever a change in base salary
occurs. Failure to reach the minimum within the five-year period results in a notification letter to the
executive, with a copy to the CEO, and a requirement that future stock option exercises and PSU
payments be settled by retaining at least 50% of the shares of Common Stock received until the
minimum ownership level is attained. The Compensation Committee receives an annual summary of
each individual executive’s ownership status to monitor compliance.
60
COMPENSATION COMMITTEE REPORT
To Our Stockholders:
We have reviewed and discussed with management the Compensation Discussion & Analysis. Based on
that review and discussion, we have recommended to the Board of Directors that the Compensation
Discussion & Analysis be included in this Proxy Statement.
Submitted by the Compensation and Executive Organization Committee of the Board of Directors:
James M. Mead, Chair
Mary Kay Haben
Robert M. Malcolm
Anthony J. Palmer
David L. Shedlarz
The independent members of the Board of Directors who are not members of the Compensation and
Executive Organization Committee join in the Compensation Committee Report with respect to the
approval of Mr. Bilbrey’s compensation.
Pamela M. Arway
Robert F. Cavanaugh
Charles A. Davis
James E. Nevels
Thomas J. Ridge
61
2016 Summary Compensation Table
The following table and explanatory footnotes provide information regarding compensation earned by,
held by, or paid to, individuals holding the positions of Chief (Principal) Executive Officer and Chief
(Principal) Financial Officer during 2016 and the three most highly compensated of our other executive
officers, which collectively comprise our NEOs. The following table provides information with respect to
2016, as well as 2015 and 2014 compensation where required. 2014 information is not provided for
Mmes. Little and Turner because they were not NEOs in 2014.
Name and
Principal
Position(1)
(a)
Mr. Bilbrey
Chairman of the Board,
President and CEO
Ms. Little
Senior Vice President, CFO
Ms. Buck
Executive Vice President, COO
Mr. O’Day
Senior Vice President,
Chief Supply Chain Officer
Ms. Turner
Senior Vice President,
General Counsel and Secretary
Year
(b)
2016
2015
2014
2016
2015
2016
2015
2014
2016
2015
2014
2016
2015
Salary(2)
($)
(c)
Bonus(3)
($)
(d)
Stock
Awards(4)
($)
(e)
Option
Awards(5)
($)
(f)
Change in
Pension
Value
and
Non-Qualified
Deferred
Compensation
Earnings(7)
($)
(h)
Non-
Equity
Incentive
Plan
Compen-
sation(6)
($)
(g)
All
Other
Compen-
sation(8)
($)
(i)
Total
($)
(j)
1,240,753
1,204,616
1,164,462
— 5,031,976 1,470,896 2,100,725
— 3,146,305 2,844,073 1,005,930
— 3,947,534 4,123,889 1,018,395
2,700,403
2,438,084
7,293,845
134,823 12,679,576
170,991 10,809,999
229,276 17,777,401
629,412
482,308
720,352
655,310
642,461
590,061
572,845
567,172
629,412
602,308
— 2,067,059
— 2,172,076
368,695
510,003
356,418
— 6,208,007
685,505
746,418
—
944,845 1,008,038
—
— 1,354,674
538,594
—
695,571
—
— 3,959,690
550,394
—
252,782
485,067
576,407
323,586
765,062
559,457
288,805
713,907
403,015
307,046
466,330
269,435
222,292
497,201
341,376
—
—
832,570
587,394
1,312,980
—
—
—
—
—
194,425
246,579
67,490
73,220
69,596
188,577
168,052
231,604
210,647
196,234
3,819,048
3,699,771
8,898,744
3,150,862
4,284,966
2,852,424
2,033,993
2,293,046
5,620,536
2,455,374
(1) Mr. Bilbrey was Chairman of the Board, President and CEO for the entirety of 2016, retiring from the position of President and
CEO on March 1, 2017. Mr. Bilbrey continues to serve as non-executive Chairman of the Board. Ms. Buck was promoted to
Executive Vice President, COO in June 2016 and served in that position at the end of fiscal 2016. On March 1, 2017, Ms. Buck was
promoted to President and CEO.
(2)
(3)
(4)
Column (c) reflects base salary earned, on an accrual basis, for the years indicated and includes IRC Section 125 deductions
pursuant to The Hershey Company Flexible Benefits Plan and amounts deferred by the NEOs in accordance with the provisions of
the 401(k) plan.
Column (d) indicates that no discretionary bonuses were paid to the NEOs in 2016, 2015 or 2014.
Column (e) shows the aggregate grant date fair value of RSUs and contingent target PSU awards granted to the NEOs in the years
indicated. The assumptions used to determine the grant date fair value of awards listed in Column (e) are set forth in Note 10 to the
Company’s Consolidated Financial Statements included in our 2016 Annual Report on Form 10-K that accompanies this Proxy
Statement. The amounts in Column (e) do not reflect the value of shares actually received or which may be received in the future
with respect to such awards.
For 2016, the amount shown in Column (e) includes the aggregate grant date fair value of contingent target PSU awards for the
2016-2018 performance cycle, the 2016 adjusted earnings per share-diluted component of the 2015-2017 performance cycle and, with
the exception of Ms. Little, the 2016 adjusted earnings per share-diluted component of the 2014-2016 performance cycle.
62
The number of contingent target PSUs awarded in 2016 to each NEO is shown on the 2016 Grants of Plan-Based Awards Table in
Column (g). Assuming the highest level of performance is achieved for each of the PSU awards included in Column (e), the value of
the awards at grant date for each of the NEOs would be as follows:
Name
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
Maximum Value at
Grant Date
($)
8,194,305
7,308,849
7,858,523
1,612,558
1,105,137
1,968,242
1,732,476
1,872,631
1,393,633
1,251,856
1,389,453
1,475,165
1,276,533
Year
2016
2015
2014
2016
2015
2016
2015
2014
2016
2015
2014
2016
2015
(5)
(6)
(7)
The unvested portion of RSU awards is included in the amounts presented in Columns (g) and (h) of the Outstanding Equity
Awards at 2016 Fiscal-Year End Table. The number of shares acquired and value received by the NEOs with respect to PSU and
RSU awards that vested in 2016 is included in Columns (d) and (e) of the 2016 Option Exercises and Stock Vested Table.
Column (f) presents the grant date fair value of stock options awarded to the NEOs for the years indicated and does not reflect the
value of shares actually received or which may be received in the future with respect to such stock options. The assumptions we
made to determine the value of these awards are set forth in Note 10 to the Company’s Consolidated Financial Statements included
in our 2016 Annual Report on Form 10-K that accompanies this Proxy Statement. The number of stock options awarded to each
NEO during 2016 appears in Column (j) of the 2016 Grants of Plan-Based Awards Table.
Column (g) reflects the OHIP payments made to each NEO based upon actual salary received in 2016.
Column (h) reflects the aggregate change in the actuarial present value of the NEO’s retirement benefit under the Company’s
pension plan and the DB SERP. The change in value calculation uses the same discount rate and mortality rate assumptions as the
2015 and 2016 audited financial statements, as applicable, and measures the change in value between the pension plan
measurement date in the 2015 and 2016 audited financial statements. The change in value during a year is primarily driven by
three factors: 1) changes in valuation assumptions; 2) changes in the NEO’s pensionable earnings; and 3) an additional year of
service and age. During 2014, each of these factors contributed significantly to the increase in the pension value. During 2015, the
primary driver of the increase in pension value was the additional year of age and service. The impact of changes in valuation
assumptions and pensionable earnings during 2015 were relatively smaller and mostly offsetting. During 2016, each of the three
factors driving change caused a minor increase to the pension value. The impact when combining each of the three minor increases
resulted in a relatively larger increase to the pension value. The amounts in Column (h) do not reflect amounts paid or that might
be paid to the NEO.
Mmes. Little and Turner and Mr. O’Day participate in the DC SERP rather than the DB SERP. The DC SERP is established under
the Company’s Deferred Compensation Plan. DC SERP contributions for Mmes. Little and Turner and Mr. O’Day are included in
Column (i) as explained in more detail in footnote (8) below.
The NEOs also participate in our non-qualified, non-funded Deferred Compensation Plan under which deferred amounts are
credited with notional earnings based on the performance of one or more third-party investment options available to all participants
in our 401(k) plan. No portion of the notional earnings credited during 2016 was “above market” or “preferential.” Consequently, no
Deferred Compensation Plan earnings are included in amounts reported in Column (h) above. See the 2016 Pension Benefits Table
and the 2016 Non-Qualified Deferred Compensation Table for more information on the benefits payable to the NEOs under the
pension plan, DB SERP and Deferred Compensation Plan.
63
(8)
All other compensation includes amounts as described below:
Retirement Income
Perquisites and Other Benefits
Supple-
mental
401(k)
Match(a)
($)
Supple-
mental
Retirement
Contri-
bution
($)
401(k)
Match
($)
DC SERP
Contribution
($)
Core
Retirement
Contri-
bution(b)
($)
Supple-
mental
Core
Retirement
Contri-
bution(b)
($)
Personal
Use of
Company
Aircraft(c)
($)
Security
Services(d)
($)
Company-
Paid
Financial
Counseling
($)
Name
Year
Reimburse-
ment of
Personal
Tax
Return
Preparation
Fee
($)
Relocation
Expenses
and
Related
Taxes(e)
($)
Attorney
Fees(f)
($)
Mr. Bilbrey
2016 11,925 89,176
2015 11,925 87,882
2014 11,700 154,189
1,034
980
926
—
—
—
—
—
—
—
—
—
—
52,825
8,680
7,479
— 52,561
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
2016 11,925 29,395
9,363
2015 11,925
2016 11,925 38,627
2015 11,925 31,261
2014 11,700 46,692
2016 11,925 26,752
2015 11,925 23,754
2014 11,700 38,285
2016 11,925 31,760
2015 11,925 28,515
—
—
913
859
805
—
—
—
—
—
114,777
59,135
7,950
7,950
19,596
6,242
—
—
—
—
—
107,437
99,110
138,847
121,348
112,334
—
—
—
7,950
7,950
7,800
7,950
7,950
—
—
—
4,325
18,975
—
17,835
15,836
25,523
21,174
19,010
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,400
8,400
8,400
10,782
12,379
10,200
10,200
8,914
8,400
8,400
8,400
15,000
15,000
1,500
1,500
1,500
—
—
1,500
—
1,485
—
1,077
1,049
1,490
1,500
— 14,108
—
—
—
—
—
139,585
—
—
—
8,278
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(a)
(b)
(c)
(d)
(e)
(f)
Employees who earn over the IRS compensation limit and/or defer any portion of their OHIP award are eligible for the Supplemental
401(k) Match, contingent on the employee contributing an amount to the 401(k) plan equal to the annual pre-tax limit established by the
IRS. Messrs. Bilbrey and O’Day and Mmes. Little, Buck, and Turner are eligible to receive a Supplemental 401(k) Match Contribution
equal to 4.5% of the amount by which their eligible earnings (salary and OHIP) exceeds the IRS compensation limit.
As are all new hires of the Company since January 1, 2007, Mmes. Little and Turner and Mr. O’Day are eligible to receive a contribution
to their 401(k) plan account equal to 3% of base salary and OHIP up to the maximum amount permitted by the IRS. We call this
contribution the Core Retirement Contribution (“CRC”). They also are eligible to receive a Supplemental Core Retirement Contribution
(“Supplemental CRC”) equal to 3% of the amount by which their eligible earnings (salary and OHIP) exceeds the IRS compensation limit.
The value of any personal use of Company aircraft by the NEOs is based on the Company’s aggregate incremental per-flight hour cost for
the aircraft used and flight time of the applicable flight. The incremental per-flight hour cost is calculated by reference to fuel,
maintenance (labor and parts), crew, landing and parking expenses.
From time to time the Company provides security services for Mr. Bilbrey when the Company determines that conditions warrant such
services for the safety and protection of Mr. Bilbrey and his family. The amount reported is the Company’s incremental cost for such
services.
For Mr. O’Day, reflects payment for relocation expenses and related taxes incurred in years prior to 2016, but not billed until 2016.
Reflects attorney fees paid or incurred in connection with the negotiation of Mr. Bilbrey’s retirement agreement.
64
2016 Grants of Plan-Based Awards Table
The following table and explanatory footnotes provide information with regard to the potential cash
award that each NEO had the opportunity to earn during 2016 under the OHIP, and with regard to
PSUs, RSUs and stock options awarded to each NEO during 2016, as applicable. The amounts that
were actually earned under the OHIP during 2016 by the NEOs are set forth in Column (g) of the 2016
Summary Compensation Table.
Estimated Possible
Payouts Under
Non-Equity Incentive
Plan Awards(2)
Estimated
Possible
Payouts Under
Equity Incentive
Plan Awards(3)
Thresh-
old
($)
Target
($)
Maximum
($)
Thresh-
old
(#)
Target
(#)
Maxi-
mum
(#)
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units(4)
(#)
All Other
Option
Awards:
Number of
Securities
Under-
lying
Options(5)
(#)
Exercise
or
Base
Price
of Option
Awards(6)
($/Sh)
Grant Date
Fair
Value
of Stock
and
Option
Awards(7)
($)
(f)
51
10
12
(g)
(h)
(i)
(j)
(k)
(l)
36,262 90,655 16,136
128,800
90.39
6,502,872
7,136 17,840 15,060
32,285
90.39
2,435,754
8,710 21,775 59,185
31,210
90.39
6,564,425
Name
(a)
Grant
Date(1)
(b)
(c)
(d)
(e)
Mr. Bilbrey
02/16/2016 6,486 1,853,169 3,706,338
02/16/2016 1,754
501,268 1,002,535
02/16/2016 2,204
629,778 1,259,557
Ms. Little
Ms. Buck
Mr. O’Day
02/16/2016 1,337
—
06/15/2016
381,898
—
763,797
9
— —
6,167 15,418
2,732
— 5,206
22,135
90.39
— 96.05
1,107,420
500,036
—
Ms. Turner
02/16/2016 1,535
438,609
877,218
9
6,528 16,320 36,687
28,335
90.39
4,283,276
(1)
(2)
Column (b) represents the grant date for the PSUs reflected in Columns (f), (g) and (h), the RSUs reflected in Column (i) and the
stock options reflected in Column (j). All awards were made under the EICP.
Columns (c), (d) and (e) represent the threshold, target and maximum potential amounts that each NEO had the opportunity to earn
based on the OHIP targets approved for the NEOs in February 2016 and adjusted for Ms. Buck’s target change in June 2016. All
amounts shown in Columns (c), (d) and (e) are based upon actual salary received in 2016.
The threshold amount is the amount that would have been payable had the minimum individual performance score been achieved
and the Company performance score been zero. The target amount is the amount that would have been payable had the business
and individual performance scores been 100% on all metrics. The maximum amount is the amount that would have been payable
had the maximum score been achieved on all metrics.
(3)
Columns (f), (g) and (h) represent the number of threshold, target and maximum potential PSUs that can be earned for the 2016-
2018 performance cycle and for the 2016 adjusted earnings per share-diluted component of the 2015-2017 performance cycle and,
with the exception of Ms. Little, the 2016 adjusted earnings per share-diluted component of the 2014-2016 performance cycle.
Each PSU represents the value of one share of our Common Stock. The number of PSUs earned for the 2016-2018 performance cycle
and for the 2016 adjusted earnings per share-diluted component of the 2015-2017 and 2014-2016 performance cycles will depend
upon achievement against the metrics explained in the Compensation Discussion & Analysis in the section entitled “Performance
Stock Unit Targets and Results.”
Payment, if any, will be made in shares of the Company’s Common Stock at the conclusion of the three-year performance cycle. The
Compensation Committee will approve the targets for the annual adjusted earnings per share-diluted metrics at the beginning of
each of the three years in the performance cycle. The minimum award as shown in Column (f) is the number of shares payable for
achievement of the threshold level of performance on one of the metrics and the maximum award as shown in Column (h) is the
number of shares payable for achievement of the maximum level of performance on all metrics.
More information regarding PSUs and the 2016 awards can be found in the Compensation Discussion & Analysis and the
Outstanding Equity Awards at 2016 Fiscal-Year End Table.
(4)
Column (i) represents the number of annual RSUs granted to Messrs. Bilbrey and O’Day and Mmes. Little, Buck and Turner on
February 16, 2016. Target RSU awards were determined by multiplying one-quarter of the executive’s long-term incentive target
percentage times his or her 2016 base salary, divided by the closing price of the Company’s Common Stock on the NYSE on the
award date ($90.39) for each NEO. The actual number of RSUs awarded varied from the target level based on the executive’s
performance evaluation for the year ended December 31, 2015. Annual RSU awards vest in thirds over three years.
For Mmes. Little, Buck and Turner, Column (i) also represents the number of retention RSUs granted to each NEO on February 16,
2016. These retention RSU awards will vest in the event the recipient remains employed by the Company and/or its subsidiaries as
of February 16, 2019, the third-anniversary of the grant date.
For Mr. O’Day, the second number in Column (i) represents the number of retention RSUs granted to Mr. O’Day on June 15, 2016.
These retention RSU awards will vest in the event the recipient remains employed by the Company and/or its subsidiaries as of
June 15, 2017, the one-year anniversary of the grant date.
Information on the treatment of RSUs upon retirement, death, disability, termination, or Change in Control can be found in the
section entitled “Potential Payments upon Termination or Change in Control.”
65
(5)
(6)
(7)
Column (j) represents the number of options awarded to each NEO. Target option awards were determined by multiplying
one-quarter of the executive’s long-term incentive target percentage times his or her 2016 base salary, divided by the Black-Scholes
value of (i) $11.42 per option for each NEO. The Black-Scholes value is based on the option exercise price, which is equal to the
closing price of the Company’s Common Stock on the NYSE on the award date. The actual number of options awarded varied from
the target level based on the executive’s performance evaluation for the year ended December 31, 2016.
Stock option awards vest in 25% increments over four years and have a 10-year term. Information on the treatment of stock options
upon retirement, death, disability, termination, or Change in Control can be found in the section entitled “Potential Payments upon
Termination or Change in Control.”
Column (k) presents the exercise price for each option award based upon the closing price of the Company’s Common Stock on the
NYSE on the award date shown in Column (b).
Column (l) presents the aggregate grant date fair value of the target number of PSUs reported in Column (g), the number of RSUs
reported in Column (i) and the number of stock options reported in Column (j), in each case as determined in accordance with
Financial Accounting Standards Board Accounting Standards Codification Topic 718. The assumptions used in determining these
amounts are set forth in Note 10 to the Company’s Consolidated Financial Statements included in our 2016 Annual Report on Form
10-K that accompanies this Proxy Statement.
66
Outstanding Equity Awards at 2016 Fiscal-Year End Table
The following table and explanatory footnotes provide information regarding unexercised stock options
and unvested stock awards held by our NEOs as of December 31, 2016:
Option Awards(1)
Stock Awards
Number of
Securities
Underlying
Unexercised
Options-
Exercisable(2)
(#)
Number of
Securities
Underlying
Unexercised
Options-
Unexercisable(3)
(#)
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested(5)
(#)
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested(5)
($)
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested(4)
(#)
Market
Value
of
Shares
or Units
of Stock
That
Have
Not
Vested(4)
($)
(b)
—
36,821
95,637
157,983
207,370
71,275
25,328
594,414
—
7,207
7,207
—
8,875
23,377
31,740
17,007
80,999
—
6,280
13,367
28,702
49,890
37,875
136,114
—
9,905
12,420
—
22,325
(c)
128,800
110,464
95,638
52,662
—
—
—
387,564
32,285
21,623
53,908
31,210
26,625
23,378
10,580
—
91,793
22,135
18,840
13,368
9,568
—
—
63,911
28,335
29,715
12,420
6,373
76,843
(d)
(e)
(f)
(g)
(h)
(i)
(j)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
90.39 02/15/2026 16,136 1,707,705
105.91 02/16/2025
105.96 02/17/2024
81.73 02/18/2023
60.68 02/20/2022
55.48 05/17/2021
51.42 02/21/2021
—
8,415,375
2,789,197
—
—
—
—
—
— 16,136 1,707,705 108,330 11,204,572
81,363
— 26,967
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
100.65 04/14/2025
90.39 02/15/2026 27,468 2,928,099
—
— 27,468 2,928,099
—
—
105.91 02/16/2025
105.96 02/17/2024
81.73 02/18/2023
60.68 02/20/2022
90.39 02/15/2026 59,185 6,263,667
—
—
—
—
— 59,185 6,263,667
—
—
—
—
—
90.39 02/15/2026
105.91 02/16/2025
105.96 02/17/2024
81.73 02/18/2023
60.68 02/20/2022
51.42 02/21/2021
7,938
—
—
—
—
—
— 7,938
—
834,024
—
—
—
—
—
834,024
105.91 02/16/2025
105.96 02/17/2024
81.73 02/18/2023
90.39 02/15/2026 36,687 3,882,658
—
—
—
— 36,687 3,882,658
—
—
—
—
16,995
5,068
22,063
19,528
6,472
—
—
—
26,000
13,820
4,580
—
—
—
—
18,400
14,743
4,816
—
—
19,559
1,757,793
524,183
2,281,976
2,019,781
669,399
—
—
—
2,689,180
1,429,403
473,709
—
—
—
—
1,903,112
1,524,868
498,119
—
—
2,022,987
Name
(a)
Mr. Bilbrey
Total
Ms. Little
Total
Ms. Buck
Total
Mr. O’Day
Total
Ms. Turner
Total
(1)
Columns (b) through (f) represent information about stock options awarded to each NEO under the EICP. Stock option awards vest
in 25% increments over four years and have a ten-year term. Information on the treatment of stock options upon retirement, death,
disability, termination, or Change in Control can be found in the section entitled “Potential Payments upon Termination or Change
in Control.”
(2) Options listed in Column (b) are vested and may be exercised by the NEO at any time subject to the terms of the stock option.
67
(3) Options listed in Column (c) were not vested as of December 31, 2016. The following table provides information with respect to the
dates on which these options are scheduled to vest, subject to continued employment (or retirement, death or disability), prorating
in the event of severance and possible acceleration in the event of a Change in Control:
Grant
Date
02/16/2016
04/15/2015
02/17/2015
02/18/2014
02/19/2013
Total per NEO
Future
Vesting
Dates
02/16/2017
02/16/2018
02/16/2019
02/16/2020
04/15/2017
04/15/2018
04/15/2019
02/17/2017
02/17/2018
02/17/2019
02/18/2017
02/18/2018
02/19/2017
Number of Options Vesting
Mr. Bilbrey Ms. Little Ms. Buck Mr. O’Day Ms. Turner
32,200
32,200
32,200
32,200
—
—
—
36,821
36,821
36,822
47,819
47,819
52,662
8,071
8,071
8,071
8,072
7,208
7,207
7,208
—
—
—
—
—
—
387,564
53,908
7,802
7,803
7,802
7,803
—
—
—
8,875
8,875
8,875
11,689
11,689
10,580
91,793
5,533
5,534
5,534
5,534
—
—
—
6,280
6,280
6,280
6,684
6,684
9,568
7,083
7,084
7,084
7,084
—
—
—
9,905
9,905
9,905
6,210
6,210
6,373
63,911
76,843
(4)
(5)
Column (g) includes unvested annual RSUs awarded to each NEO in February 2016, which vest ratably over 3 years. For Ms. Little,
Column (g) also includes unvested retention RSUs granted in February 2016, which cliff vest after 3 years and unvested new hire
RSUs granted in April 2015, which vest ratably over 3 years. For Mmes. Buck and Turner, Column (g) also includes unvested
retention RSUs granted in February 2016, which cliff vest after 3 years. For Mr. O’Day, Column (g) also includes unvested retention
RSUs granted in June 2016, which vest after 1 year. Column (h) sets forth the value of the RSUs reported in Column (g) using the
$103.43 closing price per share of our Common Stock on the NYSE on December 30, 2016, the last trading day of 2016. Column
(h) also includes the value of dividend equivalents accrued through December 31, 2016, on the RSUs included in Column (g).
Based on progress to date against the performance metrics established for open PSU performance cycles, the first number in
Column (i) for each NEO is the maximum number of PSUs potentially payable for the 2016-2018 performance cycle ending on
December 31, 2018 and the second number in Column (i) for each NEO is the target number of PSUs potentially payable for the
2015-2017 performance cycle ending on December 31, 2017. The actual number of PSUs earned, if any, will be determined at the
end of each performance cycle and may be fewer or more than the number reflected in Column (i). Column (j) sets forth the value of
PSUs reported in Column (i) using the $103.43 closing price per share of our Common Stock on the NYSE on December 30, 2016,
the last trading day of 2016.
68
2016 Option Exercises and Stock Vested Table
The following table and explanatory footnotes provide information with regard to amounts paid to or
received by our NEOs during 2016 as a result of the exercise of stock options or the vesting of stock
awards:
Name
(a)
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
Option Awards(1)
Stock Awards(2)
Number of
Shares
Acquired on
Exercise
(#)
Value
Realized on
Exercise
($)
Number of
Shares
Acquired on
Vesting
(#)
Value
Realized on
Vesting
($)
(b)
—
—
34,369
—
40,128
(c)
—
—
1,549,963
—
1,017,311
(d)
5,940
4,135(3)
1,446
1,034
960
7,000(4)
(e)
641,223
392,717(3)
156,096
111,620
103,632
823,263(4)
(1)
(2)
(3)
(4)
Column (b) represents the number of stock options exercised by each NEO during 2016, and Column (c) represents the market value
at the time of exercise of the shares purchased less the exercise price paid.
For Messrs. Bilbrey and O’Day and Ms. Buck, the number in Column (d), and for Ms. Turner, the first number in Column (d),
includes the number of PSUs earned from the 2014-2016 performance cycle that ended on December 31, 2016, as determined by the
Compensation Committee, or, in the case of Mr. Bilbrey, by the independent members of our Board. The aggregate results of the
2014-2016 performance cycle exceeded the financial thresholds, but did not meet the financial targets, established at the start of the
performance cycle; therefore, the number of PSUs included in Column (d) reflects payment at 20.66% of target. All of the applicable
NEOs received payment of the award in Common Stock in February 2017. In accordance with the terms of the PSU award
agreement, each PSU represents one share of our Common Stock valued in Column (e) at $107.95 the closing price of our Common
Stock on the NYSE on February 22, 2017, the date the Compensation Committee approved the PSU payment.
For Ms. Little, the number in Column (d) reflects RSUs that were distributed in 2016 from a 2015 award and the number in Column
(e) sets forth the value of such RSUs at vesting on May 15, 2016 and cash credits equivalent to dividends accrued during the vesting
period. Ms. Little elected to defer 100% of this award. As a result, on the vesting date of these RSUs, because the cash credits earned
for the 4,135 shares deferred did not exceed the tax liability associated with those shares, 43 shares were liquidated to cover the tax
liability. The remaining 4,092 shares were credited to Ms. Little’s Deferred Compensation account and she received a cash payment
for the remaining liquidated share value (less cash withheld to meet tax obligations).
For Ms. Turner, the second number in Column (d) reflects RSUs that were distributed in 2016 from a 2012 award and the second
number in Column (e) sets forth the value of such RSUs at vesting on July 9, 2016 and cash credits equivalent to dividends accrued
during the vesting period. Ms. Turner elected to defer 80% of this award and to receive immediate payment in shares of the
Company’s Common Stock for 20% of this award. As a result, on the vesting date of these RSUs, Ms. Turner received immediate
payment of 1,400 RSUs and their respective dividends (less cash and shares withheld to meet tax obligations). Because the cash
credits earned for the 5,600 shares deferred exceeded the tax liability associated with those shares, the 5,600 shares were credited to
Ms. Turner’s Deferred Compensation account and she received a cash payment for the remaining dividend value (less cash withheld
to meet tax obligations).
2016 Pension Benefits Table
Mr. Bilbrey and Ms. Buck are participants in our pension plan and are fully vested in benefits under
that plan. Mr. Bilbrey and Ms. Buck are also eligible to participate in our non-qualified DB SERP. No
benefit is payable under the DB SERP if the executive officer terminates employment prior to age 55 or
if he or she does not have five years of service with the Company. As of December 31, 2016, Mr. Bilbrey
and Ms. Buck had attained age 55 with five years of service and therefore were fully vested in their
respective DB SERP benefits.
69
The combination of the pension and DB SERP plans was designed to provide a benefit upon retirement
at or after reaching age 60 based on a joint and survivor annuity equal to 55% of final average
compensation for an executive with 15 or more years of service (reduced pro rata for each year of
service under 15). Effective January 1, 2007, the benefit payable under the DB SERP to an executive
who was age 50 or over as of January 1, 2007, was reduced by 10%, and the benefit payable to an
executive who had not attained age 50 as of January 1, 2007, was reduced by 20%. As a result, the
benefit payable to Mr. Bilbrey was reduced by 10% and the benefit payable to Ms. Buck was reduced by
20%.
Under the terms of the DB SERP, final average compensation is calculated as the sum of (i) the
average of the highest three calendar years of base salary paid over the last five years of employment
with the Company and (ii) the average of the highest three OHIP awards, paid or deferred, for the last
five years of employment with the Company. The benefit accrued under the DB SERP is payable upon
retirement (subject to the provisions of Section 409A of the IRC) as a lump sum or a life annuity with
50% benefit continuation to the participant’s surviving spouse, or payment may be deferred in
accordance with the provisions of the Company’s Deferred Compensation Plan. The lump sum is equal
to the actuarial present value of the joint and survivor pension earned, reduced by the lump sum value
of the benefits to be paid under the pension plan and the value of the executive’s Social Security
benefits. If the executive terminates employment after age 55 but before age 60, the benefit is reduced
for early retirement at a rate of 5% per year for the period until the executive would have turned 60.
On November 16, 2015, the Company and Mr. Bilbrey entered into an amendment to his existing
employment agreement, the effect of which was to increase, from five to ten years, the duration of the
look-back period for selecting the highest three years of base salary and annual incentive payment used
to calculate Mr. Bilbrey’s final average compensation for determining his benefit under the DB SERP.
The amendment also established the interest rate to be applied to the calculation of amounts payable to
Mr. Bilbrey under the DB SERP as the rate equal to the Lump Sum Interest Rate (as defined in the DB
SERP) as of October 31, 2015.
The following table and explanatory footnote provide information regarding the present value of
benefits accrued under the pension plan and the DB SERP, as applicable, for each NEO as of
December 31, 2016. The amounts shown for the DB SERP reflect the reduction for the present value of
the benefits under the pension plan and Social Security benefits.
Name
(a)
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
Plan Name
(b)
Pension Plan
DB SERP
—
Pension Plan
DB SERP
—
—
Number of Years
Credited
Service
(#)
Present Value of
Accumulated
Benefit(1)
($)
Payments During
Last Fiscal
Year
($)
(d)
184,718
24,683,231
—
137,564
5,411,831
—
—
(e)
—
—
—
—
—
—
—
(c)
13
13
—
12
12
—
—
70
(1)
These amounts have been calculated using discount rate, mortality and other assumptions consistent with those used for financial
reporting purposes as set forth in Note 9 to the Company’s Consolidated Financial Statements included in our 2016 Annual Report
on Form 10-K which accompanies this Proxy Statement. The actual payments would differ due to plan assumptions. The estimated
vested DB SERP benefit, as of December 31, 2016, for Mr. Bilbrey was $24,410,704. The estimated vested DB SERP benefit, as of
December 31, 2016, for Ms. Buck was $5,898,259. The amounts are based on the final average compensation of each eligible
executive officer under the terms of the DB SERP (as modified by Mr. Bilbrey’s amended employment agreement), as of
December 31, 2016, as shown below:
Name
Final Average Compensation
($)
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
3,284,087
—
1,216,194
—
—
2016 Non-Qualified Deferred Compensation Table
Our NEOs are eligible to participate in the Company’s Deferred Compensation Plan. The Deferred
Compensation Plan is a non-qualified, non-funded plan that permits participants to defer compensation
that would otherwise be paid to them currently. The Deferred Compensation Plan is intended to secure
the goodwill and loyalty of participants by enabling them to defer compensation when the participants
deem it beneficial to do so and by providing a vehicle for the Company to make, on a non-qualified
basis, contributions that could not be made on the participants’ behalf to the 401(k) plan. The Company
credits the Deferred Compensation Plan with a specified percentage of compensation for NEOs
participating in the non-qualified DC SERP.
Our NEOs may elect to defer payments to be received from the DB SERP, DC SERP, OHIP, PSU and
RSU awards, but not stock options or base salary. Amounts deferred are fully vested and are credited
to the individual’s account under the Deferred Compensation Plan. Participants elect to receive
payment at termination of employment or some other future date. DB SERP payments designated for
deferral into the Deferred Compensation Plan are not credited as earned but are credited in full upon
the participant’s retirement.
Payments are distributed in a lump sum or in annual installments for up to 15 years. All amounts are
payable in a lump sum following a Change in Control (as such terms is defined in the EICP). All
elections and payments under the Deferred Compensation Plan are subject to compliance with
Section 409A of the IRC, which may limit elections and require a delay in payment of benefits in
certain circumstances.
While deferred, amounts are credited with notional earnings as if they were invested by the participant
in one or more investment options offered by the Deferred Compensation Plan. The investment options
under the Deferred Compensation Plan consist of investment in a deferred common stock unit account
that we value according to the performance of our Common Stock (for awards paid in stock) or in
mutual funds or other investments available to participants in our 401(k) plan (for awards paid in
cash). The participants’ accounts under the Deferred Compensation Plan fluctuate daily, depending
upon performance of the investment options elected.
71
Effective January 1, 2007, we began crediting the deferred compensation accounts of all employees,
including the NEOs, with the amount of employer matching contributions that exceed the limits
established by the IRS for contribution to the 401(k) plan. These amounts are credited in the first
quarter of the year after they are earned. As shown in the footnotes to the 2016 Summary
Compensation Table, these amounts are designated as “Supplemental 401(k) Match” and are included
as “All Other Compensation” in the year earned. These amounts also are included in Column (c) of the
2016 Non-Qualified Deferred Compensation Table in the year earned. With the exception of Ms. Little,
all of the NEOs are fully vested in the Supplemental 401(k) Match credits presented and will be paid at
a future date or at termination of employment, as elected by the executive subject to the provisions of
Section 409A of the IRC. Ms. Little will vest in this benefit upon completion of two years of
employment. If vested, she will receive payment for this benefit at termination of employment subject
to the provisions of Section 409A of the IRC.
Effective January 1, 2007, we began crediting the deferred compensation accounts of all employees
hired on or after January 1, 2007, including eligible NEOs, with the amount of Core Retirement
Contributions that exceed the limits established by the IRS for contribution to the 401(k) plan. These
amounts are credited in the first quarter of the year after they are earned. As shown in the footnotes to
the 2016 Summary Compensation Table, these amounts are designated as “Supplemental Core
Retirement Contribution” and are included as “All Other Compensation” in the year earned. These
amounts also are included in Column (c) of the 2016 Non-Qualified Deferred Compensation Table in
the year earned. Mmes. Little and Turner and Mr. O’Day are eligible for a Supplemental CRC credit for
2016. Ms. Turner and Mr. O’Day are fully vested in this benefit and will receive payment at
termination of employment subject to the provisions of Section 409A of the IRC. Ms. Little will vest in
this benefit upon completion of two years of employment. If vested, she will receive payment for this
benefit at termination of employment subject to the provisions of Section 409A of the IRC.
Mmes. Little and Turner and Mr. O’Day are also eligible to participate in our DC SERP, a part of the
Deferred Compensation Plan. The DC SERP provides annual allocations to the Deferred Compensation
Plan equal to a percentage of compensation determined by the Compensation Committee in its sole
discretion. In order to receive the annual DC SERP allocation, an executive must (i) defer into the
401(k) plan the maximum amount allowed by the Company or the IRS and (ii) be employed on the last
day of the plan year, unless the executive terminates employment after age 55 and completion of five
years of continuous employment preceding termination, dies or becomes disabled. After completing five
years of service with the Company, an executive is vested in 10% increments based on his or her age.
An executive age 46 with five years of service is 10% vested and an executive age 55 with five years of
service is 100% vested. The annual DC SERP allocation for Mmes. Little and Turner and Mr. O’Day is
equal to 12.5% of base salary and OHIP award for the calendar year, whether paid or deferred.
Mr. O’Day is 100% vested in his DC SERP benefit, while Mmes. Little and Turner are 0% vested
because they have not yet completed five years of continuous employment with the Company.
72
The following table and explanatory footnotes provide information relating to the activity in the
Deferred Compensation Plan accounts of the NEOs during 2016 and the aggregate balance of the
accounts as of December 31, 2016:
Name
(a)
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
Executive
Contributions in
Last Fiscal
Year(1)
($)
Registrant
Contributions in
Last Fiscal
Year(2)
($)
Aggregate
Earnings in
Last Fiscal
Year(3)
($)
Aggregate
Withdrawals/
Distributions
($)
Aggregate
Balance at
Last Fiscal
Year-End(4)
($)
(b)
—
379,287
—
—
801,632
(c)
88,937
163,204
38,429
151,519
173,717
(d)
1,313,390
58,186
1,302,335
83,810
442,316
(e)
—
—
—
—
—
(f)
9,394,484
675,417
9,201,259
1,566,387
4,154,530
(1)
(2)
(3)
(4)
Column (b) reflects the value of RSU awards that otherwise would have been received by Mmes. Little and Turner during 2016 and
the value of PSU awards that otherwise would have been received by Ms. Turner had they not been deferred under the Deferred
Compensation Plan.
For Mr. Bilbrey and Ms. Buck, Column (c) reflects the Supplemental 401(k) Match contributions earned for 2016. For Mmes. Little
and Turner and Mr. O’Day, Column (c) reflects the DC SERP, the Supplemental 401(k) Match contributions and the Supplemental
CRC earned for 2016. These contributions are included in Column (i) of the 2016 Summary Compensation Table.
Column (d) reflects the adjustment made to each NEO’s account during 2016 to reflect the performance of the investment options
chosen by the executive. Amounts reported in Column (d) were not required to be reported as compensation in the 2016 Summary
Compensation Table.
Column (f) reflects the aggregate balance credited to each NEO as of December 31, 2016, including the 2016 amounts reflected in
Columns (b), (c) and (d). The following table indicates the portion of the Column (f) balance that reflects amounts disclosed in a
Summary Compensation Table included in proxy statements for years prior to 2016:
Name
Amounts Reported in Previous Years(1)
($)
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
7,027,379
512,214
3,463,701
1,407,297
3,794,064
(1)
This amount reflects the fair market value as of December 31, 2016, of vested PSU, RSU and OHIP awards as well as DC
SERP, Supplemental Match and Supplemental CRC credits. The amounts disclosed in the Summary Compensation Table
included in proxy statements for years prior to 2016 reflect the grant date value of such awards, rather than the fair market
value as of December 31, 2016.
Potential Payments upon Termination or Change in Control
We maintain plans covering our NEOs that will require us to provide incremental compensation in the
event of termination of employment or a Change in Control (as such term is defined in the applicable
governing document), provided certain conditions are met.
The following narrative takes each termination of employment situation – voluntary resignation,
termination for Cause, death, disability, retirement, termination without Cause, and resignation for
Good Reason – and a Change in Control of the Company, and describes the additional amounts, if any,
that the Company would pay or provide to the NEOs, or their beneficiaries, as a result.
73
The narrative below and the amounts shown reflect certain assumptions we have made in accordance
with SEC rules. We have assumed that the termination of employment or Change in Control occurred
on December 31, 2016, and that the value of a share of our Common Stock on that day was $103.43, the
closing price on the NYSE on December 30, 2016, the last trading day of 2016.
In addition, in keeping with SEC rules, the following narrative and amounts do not include payments
and benefits which are not enhanced by a qualifying termination of employment or Change in Control.
These payments and benefits are referred to as “vested benefits” and include:
• Vested benefits accrued under the 401(k) and pension plans;
• Accrued vacation pay, health plan continuation and other similar amounts payable when
employment terminates under programs generally applicable to the Company’s salaried
employees;
• Vested Supplemental 401(k) Match and Supplemental CRC provided to the NEOs on the same
basis as all other employees eligible for Supplemental 401(k) Match and Supplemental CRC;
• Vested benefits accrued under the DB SERP and account balances held under the Deferred
Compensation Plan as previously described in the sections entitled “2016 Pension Benefits
Table” and “2016 Non-Qualified Deferred Compensation Table”; and
• Stock options which have vested and become exercisable prior to termination of employment or
Change in Control.
Voluntary Resignation (other than a Resignation for Good Reason)
We are not obligated to pay amounts over and above vested benefits to a NEO who voluntarily resigns.
Vested stock options may not be exercised after the NEO’s resignation date unless the executive meets
retirement eligibility requirements (separation after attainment of age 55 with at least five years of
continuous service).
Termination for Cause
If we terminate a NEO’s employment for Cause, we are not obligated to pay the executive any amounts
over and above vested benefits. The NEO’s right to exercise vested stock options expires upon
termination for Cause, and amounts otherwise payable under the DB SERP are subject to forfeiture at
the Company’s discretion. In general, a termination will be for Cause if the executive has been
convicted of a felony or has engaged in gross negligence or willful misconduct in the performance of
duties, material dishonesty or a material violation of Company policies, including our Code of Ethical
Business Conduct, or bad faith actions in the performance of duties not in the best interests of the
Company.
Death or Disability
If a NEO dies prior to meeting the vesting requirements under the DB SERP, no benefits are paid. As
of December 31, 2016, Mr. Bilbrey and Ms. Buck were fully vested in their respective DB SERP
benefits and their respective estates would therefore be entitled to a payout of such benefits in the
event of their death.
74
In the event of termination due to disability, long-term disability (“LTD”) benefits are generally payable
until age 65, but may extend for longer if disability benefits begin after age 60, and are offset by other
benefits such as Social Security. The maximum amount of the monthly LTD payments from all sources,
assuming LTD began on December 31, 2016, is set forth in the table below:
Long-Term Disability Benefit
Name
Maximum
Monthly
Amount
($)
Years and
Months Until End
of LTD Benefits
(#)
Total of Payments
($)
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
35,000
25,000
5 years 0 months
8 years 5 months
35,000(3)
9 years 9 months
25,000
25,000
1 year 6 months
5 years 10 months
2,100,000
2,525,000
4,095,000
450,000
1,750,000
Lump Sum
Benefit(1)
($)
—(2)
446,900
718,892
187,383
787,586
(1)
For Ms. Buck, amounts reflect additional DB SERP and pension plan benefits payable at age 65 that are attributable to vesting and
benefit service credited during the disability period. For Mr. O’Day, the amount reflects 18 additional months of Supplemental CRC
and DC SERP credit upon disability. For Ms. Turner, the amount reflects two additional years of Supplemental CRC credit and two
additional years of DC SERP credit and vesting upon disability. For Ms. Little, the amount reflects reflect two additional years of
Supplemental CRC and DC SERP credit and vesting upon disability. In addition to the amounts shown, Ms. Little would become
vested in her 401(k) Match, CRC, Supplemental 401(k) Match and Supplemental CRC.
(2) Mr. Bilbrey would not be entitled to any additional DB SERP or pension plan benefits in the event of termination due to disability.
(3) Ms. Buck’s maximum monthly amount increased from $25,000 to $35,000 effective June 2, 2016 in connection with her promotion to
Executive Vice President, COO.
Treatment of Stock Options upon Retirement, Death or Disability
In the event of retirement, death or disability, vested stock options remain exercisable for a period of
three or five years, not to exceed the option expiration date. The exercise period is based upon the
terms and conditions of the individual grant. Retirement is defined as separation after attainment of
age 55 with at least five years of continuous service.
Options that are not vested at the time of retirement, death or disability will generally vest in full
(subject to the exception described in the following sentence) and the options will remain exercisable for
three or five years following termination, depending on the terms and conditions of the grant. Options
granted in the year of retirement are prorated based upon the number of full calendar months worked
in that year.
75
The following table provides the number of unvested stock options as of December 31, 2016, that would
have become vested and remained exercisable during the three-year or five-year periods following
death or disability, or retirement if applicable, on December 31, 2016, and the value of those options
based on the excess of the fair market value of our Common Stock on December 30, 2016, the last
trading day of 2016, over the applicable option exercise price. As of December 31, 2016, Messrs. Bilbrey,
O’Day and Ms. Buck were considered retirement eligible based on the provisions of all outstanding
option awards. Because Mmes. Little and Turner were not considered retirement eligible as of
December 31, 2016, they would forfeit 53,908 stock options and 76,843 stock options, respectively, upon
voluntary separation.
Name
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
Stock Options
Number(1)
(#)
Value(2)
($)
387,564
2,822,317
53,908
91,793
63,911
76,843
481,108
636,564
496,266
507,783
(1)
(2)
Represents the total number of unvested options as of December 31, 2016.
Reflects the difference between $103.43 the closing price for our Common Stock on the NYSE on December 30, 2016, the last trading
day of 2016, and the exercise price for each option. Options for which the exercise price exceeds $103.43 are not included in the
calculations.
Treatment of RSUs upon Retirement, Death or Disability
Upon retirement, any unvested RSUs are forfeited. Unvested RSUs will vest in full upon death or
disability.
The following table provides the number of unvested RSUs that would have vested on December 31,
2016, if the executive’s employment terminated that day due to death or disability:
Restricted Stock Units
Name
Number(1)
(#)
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
16,136
27,468
59,185
7,938
36,687
Value(2)
($)
1,707,705
2,928,099
6,263,667
834,024
3,882,658
(1)
(2)
Represents the total number of unvested RSUs as of December 31, 2016.
Based on the closing price of $103.43 for our Common Stock on the NYSE on December 30, 2016, the last trading day of 2016, plus
accrued dividend equivalents.
76
Treatment of PSUs upon Retirement, Death or Disability
In the event of retirement, death or disability, any unvested contingent PSUs are prorated based on the
number of full or partial months worked in each of the open PSU cycles. Any remaining unvested
contingent PSUs not prorated are forfeited. The following table provides the total number of contingent
PSUs each NEO would be entitled to if the executive’s employment ended on December 31, 2016 due to
death or disability, or retirement if applicable. As of December 31, 2016, Messrs. Bilbrey and O’Day
and Ms. Buck were considered retirement eligible based on the provisions of all open PSU cycles.
Because Mmes. Little and Turner were not considered retirement eligible as of December 31, 2016,
they would forfeit all of their contingent PSUs upon voluntary separation.
Name
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
Performance Stock Units
Number(1)
(#)
Value(2)
($)
34,766
3,595,847
5,645
8,365
5,930
6,137
583,862
865,192
613,340
634,750
(1)
For the 2014-2016 PSU cycle, amount reflects the total number of contingent PSUs calculated by multiplying the number of
contingent target PSUs by 20.66%, the final performance score for that cycle. For the 2015-2017 and 2016-2018 PSU cycles, amount
reflects the total number of contingent PSUs at target.
(2)
Based on the closing price of $103.43 for our Common Stock on the NYSE on December 30, 2016, the last trading day of 2016.
Termination without Cause; Resignation for Good Reason
Under Mr. Bilbrey’s employment agreement and the EBPP 3A, as applicable, we have agreed to pay
severance benefits if we terminate a NEO’s active employment without Cause or if the NEO resigns
from active employment for Good Reason, in each case as defined in the applicable document.
Severance benefits consist of a lump sum payment calculated as a multiple of base salary and target
OHIP as well as continuation of health and welfare benefits for a set period of time, as shown in the
table below. Additionally, all NEOs would be entitled to receive a pro rata payment of the OHIP award,
if any, earned for the year in which termination occurs.
Plan
Mr. Bilbrey’s employment agreement and participants
in EBPP 3A on or before February 22, 2011
Benefit Entitlement
Severance
Multiple
Health and
Welfare Benefits
2 times
24 months
Participants in EBPP 3A after February 22, 2011
1.5 times
18 months
77
If a NEO has not met retirement eligibility requirements and his or her employment is terminated for
reasons other than for Cause, or if the NEO terminates for Good Reason, he or she will be eligible to
exercise all vested stock options and a prorated portion of his or her unvested stock options held on the
date of separation from service for a period of 120 days following separation. If the NEO is age 55 or
older with five or more years of continuous service and his or her employment is terminated for reasons
other than for Cause, or if the NEO terminates for Good Reason, the NEO will be entitled to exercise
any vested stock options until the earlier of three or five years (based on the provisions of the
individual grant) from the date of termination or the expiration of the options. In addition, if a NEO’s
employment is terminated for reasons other than for Cause, or if the NEO terminates for Good Reason,
the NEO will vest in a prorated portion of any unvested RSUs held on the date of separation from
service.
The following table provides the incremental amounts that would have been payable to each NEO had
his or her employment terminated on December 31, 2016, under circumstances entitling the NEO to
severance benefits as described above:
Name
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
One Hershey
Incentive Program
at Target
($)
Value of Benefits
Continuation(1)
($)
3,708,000
752,400
1,350,000
764,140
658,350
29,424
26,341
38,242
25,558
9,783
Salary
($)
2,472,000
940,500
1,500,000
1,175,600
940,500
Total
($)
6,209,424
1,719,241
2,888,242
1,965,298
1,608,633
(1)
Reflects projected medical, dental, vision and life insurance continuation premiums paid by the Company during the applicable time
period following termination.
For information with respect to stock options and RSUs held by each NEO as of December 31, 2016,
refer to the Outstanding Equity Awards at 2016 Fiscal-Year End Table.
Change in Control
The EBPP 3A provides for the vesting and payment of the following benefits to each of the NEOs upon
a Change in Control:
• An OHIP payment for the year in which the Change in Control occurs, calculated as the
greater of target or the estimated payment based on actual performance through the date of
the Change in Control;
• To the extent not vested, full vesting of benefits accrued under the DB SERP and the Deferred
Compensation Plan; and
• To the extent not vested, full vesting of benefits under the 401(k) and pension plans.
Under our EICP, awards are continued as qualifying replacement awards after a Change in Control,
and therefore, no accelerated vesting or payment will occur for such awards because of the Change in
Control. In the event of termination of employment within two years following the Change in Control
for any reason other than termination for Cause or resignation without Good Reason, the replacement
awards will vest and become payable as described below.
78
The following table and explanatory footnotes provide information with respect to the incremental
amounts that would have vested and become payable on December 31, 2016, if a Change in Control
occurred on that date. All unvested awards would continue as qualifying replacement awards, and
therefore are not included in the table below:
One Hershey
Incentive
Program
Related
Payment(1)
($)
Vesting
of
Stock
Options
($)
Vesting
of
Restricted
Stock
Units
($)
Retirement
and Deferred
Compensation
Benefits(2)
($)
PSU
Related
Payments
($)
Total(3)
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
285,153
285,153
1,795,122
1,795,122
—
—
503,289
503,289
Name
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
(1)
(2)
The amount of the OHIP award earned for 2016 was greater than target. Therefore no incremental amount attributable to that
program would have been payable upon a Change in Control.
Reflects the full vesting value of DB SERP benefits and more favorable early retirement discount factors as provided under the
EBPP 3A. Mr. Bilbrey is fully vested in his unreduced DB SERP benefit so no additional benefit is applicable. Ms. Buck is fully
vested in her DB SERP benefit so the amount includes the value of more favorable early retirement discount factors. For Ms. Little,
the amount includes the vesting of her DC SERP benefit, 401(k), Supplemental Match, CRC and Supplemental CRC. Mr. O’Day is
fully vested in his DC SERP benefit so no additional benefit is applicable. For Ms. Turner, the amount includes the vesting of her
DC SERP benefit.
(3)
For any given executive, the total payments made in the event of termination after a Change in Control would be reduced to the
“safe harbor” limit under IRC Section 280G if such reduction would result in a greater after-tax benefit for the executive.
Termination without Cause or Resignation for Good Reason after Change in Control
If a NEO’s employment is terminated by the Company without Cause or by the NEO for Good Reason
within two years after a Change in Control, we pay severance benefits under the EBPP 3A to assist the
NEO in transitioning to new employment. These severance benefits as of December 31, 2016, consist of:
• A lump sum cash payment equal to two (or, if less, the number of full and fractional years from
the date of termination to the executive’s 65th birthday, but not less than one) times:
O The executive’s base salary; and
O The highest OHIP award payment paid or payable during the three years preceding the
year of the Change in Control (but not less than the OHIP target award for the year of the
termination);
• For replacement PSU awards, full vesting of PSUs for the performance cycle ending in the
year of the Change in Control. The cash payment will be based upon the greater of target or
actual performance through the date of the Change in Control, with each PSU valued at the
highest closing price for our Common Stock during the 60 days prior to the Change in Control;
• For replacement PSU awards, full vesting of outstanding PSUs at target that are in the second
year of the performance cycle and prorated vesting of outstanding PSUs at target that are in
the first year of the performance cycle at the time of the Change in Control;
• For replacement stock options and RSU awards (including accrued cash credits equivalent to
dividends that would have been earned had the executive held Common Stock instead of
RSUs), full vesting of all unvested stock options and RSUs;
79
• Continuation of medical, dental, vision and life benefits for 24 months (or, if less, the number
of months until the executive attains age 65, but not less than 12 months), or payment of the
value of such benefits if continuation is not permitted under the terms of the applicable plan;
• For executives who do not participate in the pension plan, a lump sum equal to the CRC rate
times the sum of their base salary and OHIP earnings times the number of years in their
severance period (two, or, if less, the number of full and fractional years from the date of
termination to the executive’s 65th birthday, but not less than one). IRS limitations imposed on
the 401(k) and pension plans will not apply for this purpose;
• Outplacement services up to $35,000 and reimbursement for financial counseling and tax
preparation services for two years;
• An enhanced matching contribution cash payment equal to the 401(k) matching contribution
rate of 4.5% multiplied by the executive’s base salary and last OHIP payment calculated as if
such amounts were paid during the years in the executive’s severance period. For this purpose,
the IRS limitations imposed on the 401(k) plan do not apply;
• For executives who participate in the DB SERP, an enhanced benefit reflecting an additional
two years of credit; and
• For executives who participate in the DC SERP, an enhanced benefit reflecting a cash
payment equal to the applicable percentage rate multiplied by his or her base salary and last
OHIP payment calculated as if such amounts were paid during the years in the executive’s
severance period.
The following table provides the severance payments and all other amounts that would have vested and
become payable if a Change in Control occurred and the executive’s employment terminated on
December 31, 2016:
Lump Sum
Cash
Severance
Payment
($)
PSU Related
Payments(1)
($)
Vesting
of Stock
Options(2)
($)
Vesting of
RSUs
($)
Value of
Medical and
Other Benefits
Continuation
($)
Value of
Financial
Planning
and
Outplace-
ment(3)
($)
Value of
Enhanced
DB SERP/
DC SERP
and
401(k)
Benefit(4)
($)
Total(5)
($)
7,525,372
3,356,202
2,822,317 1,707,705
2,257,200
765,963
481,108 2,928,099
2,850,000
813,819
636,564 6,263,667
1,133,757
579,643
496,266
834,024
2,166,965
1,094,630
507,783 3,882,658
29,424
35,444
38,242
12,438
13,149
68,000
4,419,735 19,928,755
68,000
451,440
6,987,254
68,000
2,957,388 13,627,680
68,000
68,000
226,752
3,350,880
433,393
8,166,578
Name
Mr. Bilbrey
Ms. Little
Ms. Buck
Mr. O’Day
Ms. Turner
(1)
Amounts reflect vesting of PSUs awarded, as follows:
• For the performance cycle which ended on December 31, 2016, the difference between target and actual performance as of
December 31, 2016, and the difference between a value per PSU of $104.44 the highest closing price for our Common Stock on the
NYSE during the last 60 days of 2016, and a value per PSU of $103.43 the closing price of our Common Stock on the NYSE on
December 30, 2016, the last trading day of 2016;
• For the performance cycle ending December 31, 2017, at target performance, with a value per PSU of $104.44 the highest closing
price for our Common Stock on the NYSE during the last 60 days of 2016; and
• For the performance cycle ending December 31, 2018, one-third of the contingent target units awarded, at target performance,
with a value per PSU of $104.44 the highest closing price for our Common Stock on the NYSE during the last 60 days of 2016.
80
Because Messrs. Bilbrey and O’Day and Ms. Buck were retirement eligible as of December 31, 2016, as of that date they had already
vested in a portion of the PSU awards for the performance cycles ending December 31, 2017 and December 31, 2018. Accordingly,
with respect to these NEOs, the amount for the performance cycle ending December 31, 2017, reflects only (i) an incremental payment
of the portion of the PSU award that would vest upon termination following a Change in Control (i.e. 1/3 of the total award) and (ii) an
incremental benefit equal to the difference between a value per PSU of $104.44 the highest closing price of our Common Stock on the
NYSE during the last 60 days of 2016, and a value per PSU of $103.43 the closing price of our Common Stock on the NYSE on
December 30, 2016, the last trading day of 2016, while the amount for the performance cycle ending December 31, 2018, reflects only
an incremental benefit equal to the difference between a value per PSU of $104.44 and a value per PSU of $103.43.
Reflects the value of unvested options that would vest upon the executive’s employment termination following a Change in Control
based on the excess, if any, of the value of our Common Stock of $103.43 on December 30, 2016, the last trading day of 2016, over
the exercise price for the options. Information regarding unvested options as of December 31, 2016 can be found in the Outstanding
Equity Awards at 2016 Fiscal-Year End Table.
Value of maximum payment for financial planning and tax preparation continuation for two years following termination of
employment plus outplacement services of $35,000.
For Mr. Bilbrey and Ms. Buck, this value reflects the amounts of enhanced DB SERP, 401(k) Match and Supplemental 401(k) Match
over a 24 month period. For Mmes. Little and Turner the value reflects the amounts of DC SERP, CRC, Supplemental CRC, 401(k)
Match and Supplemental 401(k) Match that would have been paid had they remained employees for 24 months after their
termination. For Mr. O’Day, the value reflects the amounts of DC SERP, CRC, Supplemental CRC, 401(k) Match and Supplemental
401(k) Match that would have been paid had he remained an employee for 12 months after his termination.
(2)
(3)
(4)
(5)
For any given executive the total payments made in the event of termination after a Change in Control would be reduced to the
“safe harbor” limit under IRC Section 280G if such reduction would result in a greater after-tax benefit for the executive.
81
PROPOSAL NO. 3 – ADVISE ON NAMED EXECUTIVE
OFFICER COMPENSATION
✓ The Board of Directors unanimously recommends that stockholders
vote FOR approval, on a non-binding advisory basis, of the compensation
of the Company’s named executive officers
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act and related SEC
rules, and as required under Section 14A of the Exchange Act, we are providing stockholders an
opportunity to conduct an advisory vote regarding the compensation of our NEOs as disclosed in this
Proxy Statement.
Prior to submitting your vote, we encourage you to read our Compensation Discussion & Analysis and
the accompanying executive compensation tables for details about our executive compensation
program, including information about the 2016 compensation of our NEOs.
As discussed in more detail in the Compensation Discussion & Analysis, we believe our executive
compensation program is competitive and governed by pay-for-performance principles. We emphasize
compensation opportunities that reward results. Our stock ownership requirements and use of stock-
based incentives reinforce the alignment of the interests of our executives with those of our long-term
stockholders. In doing so, our executive compensation program supports our strategic objectives and
mission.
Accordingly, we ask you to approve the following resolution at the Annual Meeting:
“RESOLVED, that the stockholders of The Hershey Company approve, on an advisory basis, the
compensation paid to the Company’s named executive officers, as disclosed in the Proxy Statement
for the 2017 Annual Meeting of Stockholders pursuant to the SEC’s compensation disclosure rules,
including the Compensation Discussion & Analysis, the Executive Compensation Tables and the
related narrative discussion.”
Because your vote is advisory, it will not be binding upon the Board. However, as noted in the
Compensation Discussion & Analysis, the Compensation Committee and the Board will, as deemed
appropriate, take into account the outcome of the vote when considering future decisions affecting
executive compensation.
The affirmative vote of the holders of at least a majority of the shares of Common Stock and Class B
Common Stock (voting together as a class) represented at the Annual Meeting, in person or by proxy, is
required to approve this proposal.
82
PROPOSAL NO. 4 – ADVISE ON FREQUENCY OF FUTURE
ADVISORY VOTES ON NAMED EXECUTIVE OFFICER
COMPENSATION
✓ The Board of Directors unanimously recommends that stockholders
vote to hold future advisory votes on named executive officer compensation
every 1 YEAR
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act and related SEC
rules, and as required under Section 14A of the Exchange Act, we are providing stockholders an
opportunity to conduct an advisory vote regarding the frequency with which future advisory votes on
the compensation of our NEOs should be held.
At our 2011 Annual Meeting of Stockholders, a majority of stockholders indicated a preference for
holding advisory votes on NEO compensation every year, and we have conducted such an annual vote
since that time. Under Section 14A of the Exchange Act, every six years we are required to provide
stockholders an opportunity to again advise on the frequency with which future votes on NEO
compensation should be held.
After careful consideration, the Board has determined that continuing to conduct an advisory vote on
NEO compensation each year remains the most appropriate policy at this time. The Board believes
such an annual vote best enables stockholders to timely express their views on the Company’s
executive compensation program and policies and assists the Board and the Compensation Committee
in determining current stockholder sentiment. Additionally, conducting an annual advisory vote on
NEO compensation is consistent with our practice of regularly seeking input from stockholders on
corporate governance matters.
You are not being asked to vote “for” or “against” this proposal. Instead, this proposal asks stockholders
to inform us how often we should conduct an advisory vote on the compensation of our NEOs. You may
cast your vote by choosing the option of every 1, 2 or 3 years, or abstaining, in response to the following
resolution:
“RESOLVED, that the option of every 1 year, 2 years or 3 years that receives the highest number
of votes cast for this resolution will be determined to be the preferred frequency with which the
Company is to hold future advisory votes on named executive officer compensation, as disclosed in
the Company’s annual proxy statement pursuant to the SEC’s compensation disclosure rules,
including the Compensation Discussion & Analysis, the Executive Compensation Tables and the
related narrative discussion.”
The frequency that receives the greatest number of votes from the holders of our Common Stock and
Class B Common Stock voting together will be deemed to be stockholders’ preferred frequency for
conducting future advisory votes on NEO compensation. Because your vote is advisory, it will not be
binding upon the Board. However, the Board will, as it deems appropriate, take into account the
outcome of the vote when determining how often the Company will conduct advisory votes on NEO
compensation in future years.
83
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive officers, as well as any person
who is the beneficial owner of more than 10% of our outstanding Common Stock, to file reports with the
SEC and NYSE showing their ownership and changes in ownership of the Company’s securities. Copies
of these reports also must be furnished to us. Based on an examination of these reports and on written
representations provided to us, it is our opinion that all reports for 2016 were timely filed, except for a
Form 4 filed by Thomas J. Ridge on April 21, 2016 reporting the disposition of shares on March 9, 2016.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Item 404 of SEC Regulation S-K requires that we disclose any transaction or series of similar
transactions, or any currently proposed transaction(s), in which (i) the Company was or is to be a
participant, (ii) the amount involved exceeds $120,000 and (iii) any of the following persons had or will
have a direct or indirect material interest:
• Our directors or nominees for director;
• Our executive officers;
• Persons owning more than 5% of any class of our outstanding voting securities; or
• The immediate family members of any of the persons identified in the preceding three bullets.
Policies and Procedures Regarding Transactions with Related Persons
The Board has adopted a written Related Person Transaction Policy that governs the review, approval
or ratification of related person transactions. The Related Person Transaction Policy may be viewed on
the Investors section of our website at www.thehersheycompany.com.
Under the Related Person Transaction Policy, each related person transaction, and any significant
amendment or modification to a related person transaction, must be reviewed and approved or ratified
by a committee of our Board composed solely of independent directors who have no interest in the
transaction. We refer to each such committee as a Reviewing Committee. The Related Person
Transaction Policy also permits the disinterested members of the full Board to act as a Reviewing
Committee.
The Board has designated the Governance Committee as the Reviewing Committee primarily
responsible for the administration of the Related Person Transaction Policy. In addition, the Board has
designated special Reviewing Committees to oversee certain transactions involving the Company and
Hershey Trust Company, Milton Hershey School, the Milton Hershey School Trust and companies
owned by or affiliated with any of the foregoing. Finally, the Related Person Transaction Policy
provides that the Compensation Committee will review and approve, or review and recommend to the
Board for approval, any employment relationship or transaction involving an executive officer of the
Company and any related compensation.
When reviewing, approving or ratifying a related person transaction, the Reviewing Committee will
examine all material facts about the related person’s interest in, or relationship to, the transaction,
including the approximate dollar value of the transaction. If the related person transaction involves an
outside director or nominee for director, the Reviewing Committee also may consider whether the
transaction would compromise the director’s status as an “independent director,” “outside director” or
“non-employee director” under the Board’s Corporate Governance Guidelines, the NYSE Rules, the
Code or the Exchange Act.
84
Transactions with Hershey Trust Company, Milton Hershey School and the
Milton Hershey School Trust
During 2016, there were no transactions with the Company in which any executive officer, director or
nominee for director, or any of their immediate family members, had a direct or indirect material
interest that would need to be disclosed pursuant to Item 404 of SEC Regulation S-K, nor were any
such transactions planned.
In any given year, we may engage in certain transactions with Hershey Trust Company, Milton
Hershey School, the Milton Hershey School Trust and companies owned by or affiliated with any of the
foregoing. These transactions are typically immaterial, ordinary-course transactions that do not
constitute related person transactions. However, from time to time we may also engage in related
person transactions with Hershey Trust Company, Milton Hershey School, the Milton Hershey School
Trust and/or their subsidiaries and affiliates. Under the Board’s Corporate Governance Guidelines, a
special Reviewing Committee normally composed of the directors elected by the holders of the Common
Stock voting separately as a class reviews and makes recommendations to the Board regarding these
transactions. The Corporate Governance Guidelines also authorize the independent directors having no
affiliation with Hershey Trust Company, Milton Hershey School, the Milton Hershey School Trust or
their affiliates to designate a different special Reviewing Committee to review these transactions.
The Company was not a participant in any transactions in 2016, and does not currently contemplate
being a participant in any transactions in 2017, involving Hershey Trust Company, as trustee for the
Milton Hershey School Trust, or any other stockholder owning more than 5% of any class of the
Company’s outstanding voting securities that would need to be disclosed pursuant to Item 404 of SEC
Regulation S-K.
During 2016, we engaged in transactions in the ordinary course of our business with Hershey Trust
Company, Milton Hershey School and companies affiliated with Hershey Trust Company, Milton
Hershey School and the Milton Hershey School Trust. These transactions involved the sale and
purchase of goods and services as well as the leasing of real estate at market rates. The transactions
were primarily with Hershey Entertainment & Resorts Company, a company that is owned by the
Milton Hershey School Trust. All sales and purchases were made on terms and at prices we believe
were generally available in the marketplace and were in amounts that were not material to us or to
Hershey Entertainment & Resorts Company. Therefore, these transactions did not require approval
under our Related Person Transaction Policy.
Although our transactions with Hershey Trust Company, Milton Hershey School and the companies
affiliated with each of the foregoing and with the Milton Hershey School Trust (including Hershey
Entertainment & Resorts Company) are either immaterial or otherwise not required to be disclosed
under Item 404 of SEC Regulation S-K, because of our relationship with these entities, we have elected
to disclose the aggregate amounts of our purchase and sale transactions with these entities for your
information. In this regard:
• Our total sales to these entities in 2016 were approximately $1.5 million; and
• Our total purchases from these entities in 2016 were approximately $3.2 million.
We do not expect the types of transactions or the amount of payments to change materially in 2017.
85
The Company also leases to Hershey Entertainment & Resorts Company a portion of a building owned
and occupied by the Company in Hershey, Pennsylvania. The leased area consists of approximately
67,500 square feet of storage space in the building that is not being utilized currently by the Company.
The lease was first entered into on January 1, 2011, and had a term of one year. The lease permits
Hershey Entertainment & Resorts Company to renew the lease for subsequent one-year terms and, if
space is available, to request an increase in the area occupied. Hershey Entertainment & Resorts
Company has renewed the lease for additional one-year terms each year since 2012. The lease is on
terms we believe are generally available in the marketplace and is not material to us or Hershey
Entertainment & Resorts Company. Rent during 2016 was $288,900 and for 2017 is expected to be
$297,000, which amounts include a pro rata allocation of utilities, insurance, maintenance and other
operating costs.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Ms. Haben and Messrs. Malcolm, Mead, Palmer and Shedlarz served as members of our Compensation
Committee during 2016. None of the members of our Compensation Committee served as one of our
officers or employees during 2016 or at any time in the past, and neither they nor any other director
served as an executive officer of any entity for which any of our executive officers served as a director or
member of its compensation committee.
None of the members of our Compensation Committee has a relationship with us that is required to be
disclosed under Item 404 of SEC Regulation S-K.
Householding of Proxy Materials
OTHER MATTERS
The SEC has adopted rules that allow us to send in a single envelope our Notice of Internet Availability
of Proxy Materials or a single copy of our proxy solicitation and other required annual meeting
materials to two or more stockholders sharing the same address. We may do this only if the
stockholders at that address share the same last name or if we reasonably believe that the stockholders
are members of the same family. If we are sending a Notice of Internet Availability of Proxy Materials,
the envelope must contain a separate notice for each stockholder at the shared address. Each Notice of
Internet Availability of Proxy Materials must contain a unique control number that each stockholder
will use to gain access to our proxy materials and vote online. If we are mailing a paper copy of our
proxy materials, the rules require us to send each stockholder at the shared address a separate proxy
card.
We believe this rule is beneficial both to our stockholders and to the Company. Our printing and
postage costs are lowered anytime we eliminate duplicate mailings to the same household. However,
stockholders at a shared address may revoke their consent to the householding program and receive
their Notice of Internet Availability of Proxy Materials in a separate envelope, or, if they have elected
to receive a full copy of our proxy materials in the mail, receive a separate copy of these materials. If
you have elected to receive paper copies of our proxy materials and want to receive a separate copy of
these materials for our 2017 Annual Meeting, please call our Investor Relations Department, toll free,
at (800) 539-0261. If you consented to the householding program and wish to revoke your consent for
future years, simply call, toll free, (866) 540-7095, or write to Broadridge, Householding Department,
51 Mercedes Way, Edgewood, New York 11717.
86
Information Regarding the 2018 Annual Meeting of Stockholders
The 2018 Annual Meeting of Stockholders is expected to be held on May 2, 2018. To be eligible for
inclusion in the proxy materials for the 2018 Annual Meeting of Stockholders, a stockholder proposal
must be received by our Corporate Secretary by no later than November 23, 2017, and must comply in
all respects with applicable rules of the SEC. Stockholder proposals should be addressed to The
Hershey Company, c/o Corporate Secretary, 100 Crystal A Drive, Hershey, Pennsylvania 17033-0810.
A stockholder may present a proposal not included in our proxy materials from the floor of the 2018
Annual Meeting of Stockholders only if our Corporate Secretary receives notice of the proposal, along
with additional information required by our by-laws, between January 3, 2018 and February 2, 2018.
Notice should be addressed to The Hershey Company, c/o Corporate Secretary, 100 Crystal A Drive,
Hershey, Pennsylvania 17033-0810.
The notice must contain the following additional information:
• The stockholder’s name and address;
• The stockholder’s shareholdings;
• A brief description of the proposal;
• A brief description of any financial or other interest the stockholder has in the proposal; and
• Any additional information that the SEC would require if the proposal were presented in a
proxy statement.
A stockholder may nominate a director from the floor of the 2018 Annual Meeting of Stockholders only
if our Corporate Secretary receives notice of the nomination, along with additional information
required by our by-laws, between January 3, 2018 and February 2, 2018. The notice must contain the
following additional information:
• The stockholder’s name and address;
• A representation that the stockholder is a holder of record of any class of our equity securities;
• A representation that the stockholder intends to make the nomination in person or by proxy at
the meeting;
• A description of any arrangement the stockholder has with the individual the stockholder
plans to nominate and the reason for making the nomination;
• The nominee’s name, address and biographical information;
• The written consent of the nominee to serve as a director if elected; and
• Any additional information regarding the nominee that the SEC would require if the
nomination were included in a proxy statement regardless of whether the nomination may be
included in such proxy statement.
Any stockholder holding 25% or more of the votes entitled to be cast at the 2018 Annual Meeting of
Stockholders is not required to comply with these pre-notification requirements.
By order of the Board of Directors,
March 23, 2017
Leslie M. Turner
Senior Vice President,
General Counsel and Secretary
87
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2016
OR
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
(State or other jurisdiction of
incorporation or organization)
100 Crystal A Drive, Hershey, PA
(Address of principal executive offices)
23-0691590
(I.R.S. Employer Identification No.)
17033
(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
Common Stock, one dollar par value
Name of each exchange on which registered
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
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
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
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
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.
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
Non-accelerated filer
Smaller reporting company
Accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
As of July 1, 2016 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market
value of the voting and non-voting common equity held by non-affiliates was $15,563,409,682. Class B Common Stock is not listed
for public trading on any exchange or market system. However, Class B shares are convertible into shares of Common Stock at any
time on a share-for-share basis. Determination of aggregate market value assumes all outstanding shares of Class B Common Stock
were converted to Common Stock as of July 1, 2016. The market value indicated is calculated based on the closing price of the
Common Stock on the New York Stock Exchange on July 1, 2016 ($111.95 per share).
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—151,794,895 shares, as of February 10, 2017.
Class B Common Stock, one dollar par value—60,619,777 shares, as of February 10, 2017.
Portions of the Proxy Statement for the 2017 Annual Meeting of Stockholders are incorporated by reference into Part III of this
report.
DOCUMENTS INCORPORATED BY REFERENCE
THE HERSHEY COMPANY
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2016
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Supplemental Item Executive Officers of the Registrants
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Signatures
Schedule II
Exhibit Index
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
1
6
10
11
11
11
12
13
15
16
41
44
93
93
95
96
96
96
97
97
98
98
99
100
101
Item 1.
BUSINESS
PART I
The Hershey Company was incorporated under the laws of the State of Delaware on October 24, 1927 as a successor
to a business founded in 1894 by Milton S. Hershey. In this report, the terms “Hershey,” “Company,” “we,” “us” or
“our” mean The Hershey Company and its wholly-owned subsidiaries and entities in which it has a controlling
financial interest, unless the context indicates otherwise.
We are the largest producer of quality chocolate in North America and a global leader in chocolate and non-chocolate
confectionery. We market, sell and distribute our products under more than 80 brand names in approximately 70
countries worldwide.
Reportable Segments
Our organizational structure is designed to ensure continued focus on North America, coupled with an emphasis on
profitable growth in our focus international markets. Our business is organized around geographic regions, which
enables us to build processes for repeatable success in our global markets. As a result, we have defined our operating
segments on a geographic basis, as this aligns with how our Chief Operating Decision Maker (“CODM”) manages our
business, including resource allocation and performance assessment. Our North America business, which generates
approximately 88% of our consolidated revenue, is our only reportable segment. None of our other operating
segments meet the quantitative thresholds to qualify as reportable segments; therefore, these operating segments are
combined and disclosed below as International and Other.
• North America - This segment is responsible for our traditional chocolate and non-chocolate confectionery
market position, as well as our grocery and growing snacks market positions, in the United States and
Canada. This includes developing and growing our business in chocolate and non-chocolate confectionery,
pantry, food service and other snacking product lines.
•
International and Other - International and Other is a combination of all other operating segments that are
not individually material, including those geographic regions where we operate outside of North America.
We currently have operations and manufacture product in China, Mexico, Brazil, India and Malaysia,
primarily for consumers in these regions, and also distribute and sell confectionery products in export markets
of Asia, Latin America, Middle East, Europe, Africa and other regions. This segment also includes our global
retail operations, including Hershey's Chocolate World stores in Hershey, Pennsylvania, New York City, Las
Vegas, Shanghai, Niagara Falls (Ontario), Dubai, and Singapore, as well as operations associated with
licensing the use of certain of the Company's trademarks and products to third parties around the world.
Financial and other information regarding our reportable segments is provided in our Management’s Discussion and
Analysis and Note 11 to the Consolidated Financial Statements.
Business Acquisitions and Divestitures
In April 2016, we completed the acquisition of all of the outstanding shares of Ripple Brand Collective, LLC, a
privately held company based in Congers, New York that owns the barkTHINS mass premium chocolate snacking
brand. The acquisition was undertaken in order to broaden our product offerings in the premium and portable snacking
categories.
In March 2015, we completed the acquisition of all of the outstanding shares of KRAVE Pure Foods, Inc. (“Krave”),
the Sonoma, California based manufacturer of Krave, a leading all-natural brand of premium meat snack products.
The transaction was undertaken to enable us to tap into the rapidly growing meat snacks category and further expand
into the broader snacks space.
In September 2014, we completed the acquisition of 80% of the outstanding shares of Shanghai Golden Monkey Food
Joint Stock Co., Ltd. (“SGM”), a confectionery company based in Shanghai, China, whose product line is primarily
sold through traditional trade channels. The acquisition was undertaken in order to leverage these traditional trade
channels, which complement our traditional China chocolate business that is primarily distributed through Tier 1 or
1
hypermarket channels. We completed the purchase of the remaining 20% of the outstanding shares of SGM on
February 3, 2016.
Products
Our principal product offerings include chocolate and non-chocolate confectionery products; gum and mint
refreshment products; pantry items, such as baking ingredients, toppings and beverages; and snack items such as
spreads, meat snacks, bars and snack bites and mixes.
• Within our North America markets, our product portfolio includes a wide variety of chocolate offerings
marketed and sold under the renowned brands of Hershey’s, Reese’s and Kisses, along with other popular
chocolate and non-chocolate confectionery brands such as Jolly Rancher, Almond Joy, Brookside, Cadbury,
Good & Plenty, Heath, Kit Kat®, Lancaster, Payday, Rolo®, Twizzlers, Whoppers and York. We also offer
premium chocolate products, primarily in the United States, through the Scharffen Berger and Dagoba
brands. Our gum and mint products include Ice Breakers mints and chewing gum, Breathsavers mints and
Bubble Yum bubble gum. Our pantry and snack items that are principally sold in North America include
baking products and toppings and sundae syrups sold under the Hershey’s, Reese’s and Heath brands, as well
as Hershey’s and Reese’s chocolate spreads and snack bites and mixes and Krave meat snack products.
• Within our International and Other markets, we manufacture, market and sell many of these same brands, as
well as other brands that are marketed regionally, such as Golden Monkey confectionery and Munching
Monkey snack products in China, Pelon Pelo Rico confectionery products in Mexico, IO-IO snack products in
Brazil, and Nutrine and Maha Lacto confectionery products and Jumpin and Sofit beverage products in India.
Principal Customers and Marketing Strategy
Our customers are mainly wholesale distributors, chain grocery stores, mass merchandisers, chain drug stores, vending
companies, wholesale clubs, convenience stores, dollar stores, concessionaires and department stores. The majority of
our customers, with the exception of wholesale distributors, resell our products to end-consumers in retail outlets in
North America and other locations worldwide.
In 2016, 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 by facilitating the shipment of our products from our manufacturing
plants to strategically located distribution centers. We primarily use common carriers to deliver our products from
these distribution points to our customers.
Raw Materials and Pricing
Cocoa products, including cocoa liquor, cocoa butter and cocoa powder processed from cocoa beans, are the most
significant raw materials we use to produce our chocolate products. These cocoa products are purchased directly from
third-party suppliers, who source cocoa beans that are grown principally in Far Eastern, West African, Central and
South American regions. West Africa accounts for approximately 70% of the world’s supply of cocoa beans.
Adverse weather, crop disease, political unrest and other problems in cocoa-producing countries have caused price
fluctuations in the past, but have never resulted in the total loss of a particular producing country’s cocoa crop and/or
exports. In the event that a significant disruption occurs in any given country, we believe cocoa from other producing
countries and from current physical cocoa stocks in consuming countries would provide a significant supply buffer.
2
In 2016, we established a trading company in Switzerland that performs all aspects of cocoa procurement, including
price risk management, physical supply procurement and sustainable sourcing oversight. The trading company was
implemented to optimize the supply chain for our cocoa requirements, with a strategic focus on gaining real time
access to cocoa market intelligence. It also provides us with the ability to recruit and retain world class commodities
traders and procurement professionals and enables enhanced collaboration with commodities trade groups, the global
cocoa community and sustainable sourcing resources.
We also use substantial quantities of sugar, Class II and IV dairy products, peanuts, almonds and energy in our
production process. Most of these inputs for our domestic and Canadian operations are purchased from suppliers in
the United States. For our international operations, inputs not locally available may be imported from other countries.
We change prices and weights of our products when necessary to accommodate changes in input costs, the competitive
environment and profit objectives, while at the same time maintaining consumer value. Price increases and weight
changes help to offset increases in our input costs, including raw and packaging materials, fuel, utilities, transportation
costs and employee benefits. When we implement price increases, there is usually a time lag between the effective
date of the list price increases and the impact of the price increases on net sales, in part because we typically honor
previous commitments to planned consumer and customer promotions and merchandising events subsequent to the
effective date of the price increases. In addition, promotional allowances may be increased subsequent to the effective
date, delaying or partially offsetting the impact of price increases on net sales.
Competition
Many of our confectionery brands enjoy wide consumer acceptance and are among the leading brands sold in the
marketplace in North America and certain markets in Latin America. We sell our brands in highly competitive markets
with many other global multinational, national, regional and local firms. Some of our competitors are large companies
with significant resources and substantial international operations. Competition in our product categories is based on
product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing and promotional
activity, the ability to identify and satisfy consumer preferences, as well as convenience and service. In recent years,
we have also experienced increased competition from other snack items, which has pressured confectionery category
growth.
Working Capital, Seasonality and Backlog
Our sales are typically higher during the third and fourth quarters of the year, representing seasonal and holiday-related
sales patterns. We manufacture primarily for stock and typically fill customer orders within a few days of receipt.
Therefore, the backlog of any unfilled orders is not material to our total annual sales. Additional information relating
to our cash flows from operations and working capital practices is provided in our Management’s Discussion and
Analysis.
Trademarks, Service Marks and License Agreements
We own various registered and unregistered trademarks and service marks. The trademarks covering our key product
brands are of material importance to our business. We follow a practice of seeking trademark protection in the United
States and other key international markets where our products are sold. We also grant trademark licenses to third
parties to produce and sell pantry items, flavored milks and various other products primarily under the Hershey’s and
Reese’s brand names.
3
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
Société des Produits Nestlé SA
Huhtamäki Oy affiliate
Research and Development
Cadbury
Caramello
Kit Kat®
Rolo®
Good & Plenty
Heath
Jolly Rancher
Milk Duds
Payday
Whoppers
United States
United States
Minimum sales
requirement
exceeded in 2016
Minimum unit
volume sales
exceeded in 2016
Worldwide
None
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 our supply chain including ingredients, packaging, processes,
products, distribution and the environment to determine where product quality and safety controls are necessary. We
identify risks and establish controls intended to ensure product quality and safety. Various government agencies and
third-party firms as well as our quality assurance staff conduct audits of all facilities that manufacture our products to
assure effectiveness and compliance with our program and applicable laws and regulations.
Environmental Considerations
We make routine operating and capital expenditures to comply with environmental laws and regulations. These annual
expenditures are not material with respect to our results of operations, capital expenditures or competitive position.
4
Employees
As of December 31, 2016, we employed approximately 16,300 full-time and 1,680 part-time employees worldwide.
Collective bargaining agreements covered approximately 5,630 employees. In December 2016, we ratified a new six-
year collective bargaining agreement that covers a significant portion of our unionized workforce. During 2017,
agreements will be negotiated for certain employees at three facilities outside of the United States, comprising
approximately 69% of total employees under collective bargaining agreements. We believe that our employee
relations are generally good.
Financial Information by Geographic Area
Our principal operations and markets are located in the United States. The percentage of total consolidated net sales
for our businesses outside of the United States was 16.7% for 2016, 17.2% for 2015 and 19.2% for 2014. The
percentage of total long-lived assets outside of the United States was 29.8% as of December 31, 2016 and 31.8% as of
December 31, 2015.
Corporate Social Responsibility
Our founder, Milton S. Hershey, established an enduring model of responsible citizenship while creating a successful
business. Driving sustainable business practices, making a difference in our communities and operating with the
highest integrity are vital parts of our heritage. We continue this legacy today by providing high quality products
while conducting our business in a socially responsible and environmentally sustainable manner. Each year we publish
a full corporate social responsibility (“CSR”) report which provides an update on the progress we have made in
advancing our CSR priorities such as food safety, responsible sourcing of ingredients, corporate transparency, our
focus on improving basic nutrition to help children learn and grow and our continued investment in the communities
where we live and work. To learn more about our goals, progress and initiatives, you can access our full CSR report at
www.thehersheycompany.com/social-responsibility.aspx.
Available Information
The Company's website address is www.thehersheycompany.com. We file or furnish annual, quarterly and current
reports, proxy statements and other information with the United States Securities and Exchange Commission (“SEC”).
You may obtain a copy of any of these reports, free of charge, from the Investors section of our website as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an
Internet site that also contains these reports at: www.sec.gov. In addition, copies of the Company's annual report will
be made available, free of charge, on written request to the Company.
We have a Code of Ethical Business Conduct that applies to our Board of Directors (“Board”) and all Company
officers and employees, including, without limitation, our Chief Executive Officer and “senior financial
officers” (including the Chief Financial Officer, Chief Accounting Officer and persons performing similar functions).
You can obtain a copy of our Code of Ethical Business Conduct, as well as our Corporate Governance Guidelines and
charters for each of the Board’s standing committees, from the Investors section of our website. If we change or waive
any portion of the Code of Ethical Business Conduct that applies to any of our directors, executive officers or senior
financial officers, we will post that information on our website.
5
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:
Commodity market fluctuations;
Currency exchange rates;
Imbalances between supply and demand;
The effect of weather on crop yield;
Speculative influences;
Trade agreements among producing and consuming nations;
Supplier compliance with commitments;
Political unrest in producing countries; and
Changes in governmental agricultural programs and energy policies.
6
Although we use forward contracts and commodity futures and options contracts where possible to hedge commodity
prices, commodity price increases ultimately result in corresponding increases in our raw material and energy costs. If
we are unable to offset cost increases for major raw materials and energy, there could be a negative impact on our
financial condition and results of operations.
Price increases may not be sufficient to offset cost increases and maintain profitability or may result in sales
volume declines associated with pricing elasticity.
We may be able to pass some or all raw material, energy and other input cost increases to customers by increasing the
selling prices of our products or decreasing the size of our products; however, higher product prices or decreased
product sizes may also result in a reduction in sales volume and/or consumption. If we are not able to increase our
selling prices or reduce product sizes sufficiently, or in a timely manner, to offset increased raw material, energy or
other input costs, including packaging, direct labor, overhead and employee benefits, or if our sales volume decreases
significantly, there could be a negative impact on our financial condition and results of operations.
Market demand for new and existing products could decline.
We operate in highly competitive markets and rely on continued demand for our products. To generate revenues and
profits, we must sell products that appeal to our customers and to consumers. Our continued success is impacted by
many factors, including the following:
Effective retail execution;
Appropriate advertising campaigns and marketing programs;
Our ability to secure adequate shelf space at retail locations;
Our ability to drive sustainable innovation and maintain a strong pipeline of new products in the
confectionery and broader snacking categories;
Changes in product category consumption;
Our response to consumer demographics and trends, including but not limited to, trends relating to store
trips and the impact of the growing e-commerce channel; and
Consumer health concerns, including obesity and the consumption of certain ingredients.
There continues to be competitive product and pricing pressures in the markets where we operate, as well as
challenges in maintaining profit margins. We must maintain mutually beneficial relationships with our key customers,
including retailers and distributors, to compete effectively. Our largest customer, McLane Company, Inc., accounted
for approximately 25% of our total net sales in 2016. McLane Company, Inc. is one of the largest wholesale
distributors in the United States to convenience stores, drug stores, wholesale clubs and mass merchandisers, including
Wal-Mart Stores, Inc.
Increased marketplace competition could hurt our business.
The global confectionery packaged goods industry is intensely competitive and consolidation in this industry
continues. Some of our competitors are large companies that have significant resources and substantial international
operations. We continue to experience increased levels of in-store activity for other snack items, which has pressured
confectionery category growth. In order to protect our existing market share or capture increased market share in this
highly competitive retail environment, we may be required to increase expenditures for promotions and advertising,
and must continue to introduce and establish new products. Due to inherent risks in the marketplace associated with
advertising and new product introductions, including uncertainties about trade and consumer acceptance, increased
expenditures may not prove successful in maintaining or enhancing our market share and could result in lower sales
and profits. In addition, we may incur increased credit and other business risks because we operate in a highly
competitive retail environment.
7
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:
Natural disaster;
Pandemic outbreak of disease;
Weather;
Fire or explosion;
Terrorism or other acts of violence;
Labor strikes or other labor activities;
Unavailability of raw or packaging materials; and
Operational and/or financial instability of key suppliers, and other vendors or service providers.
We believe that we take adequate precautions to mitigate the impact of possible disruptions. We have strategies and
plans in place to manage disruptive events if they were to occur, including our global supply chain strategies and our
principle-based global labor relations strategy. If we are unable, or find that it is not financially feasible, to effectively
plan for or mitigate the potential impacts of such disruptive events on our manufacturing operations or supply chain,
our financial condition and results of operations could be negatively impacted if such events were to occur.
Our financial results may be adversely impacted by the failure to successfully execute or integrate acquisitions,
divestitures and joint ventures.
From time to time, we may evaluate potential acquisitions, divestitures or joint ventures that align with our strategic
objectives. The success of such activity depends, in part, upon our ability to identify suitable buyers, sellers or
business partners; perform effective assessments prior to contract execution; negotiate contract terms; and, if
applicable, obtain government approval. These activities may present certain financial, managerial, staffing and talent,
and operational risks, including diversion of management’s attention from existing core businesses; difficulties
integrating or separating businesses from existing operations; and challenges presented by acquisitions or joint
ventures which may not achieve sales levels and profitability that justify the investments made. If the acquisitions,
divestitures or joint ventures are not successfully implemented or completed, there could be a negative impact on our
financial condition, results of operations and cash flows.
During 2016, we successfully completed the SGM integration. However, additional challenges remain, including
challenges associated with the macroeconomic environment in China, which could affect our strategy and could have a
negative impact on the results of operations and cash flows of our International and Other reportable segment.
Changes in governmental laws and regulations could increase our costs and liabilities or impact demand for our
products.
Changes in laws and regulations and the manner in which they are interpreted or applied may alter our business
environment. These negative impacts could result from changes in food and drug laws, laws related to advertising and
marketing practices, accounting standards, taxation requirements, competition laws, employment laws and
environmental laws, among others. It is possible that we could become subject to additional liabilities in the future
resulting from changes in laws and regulations that could result in an adverse effect on our financial condition and
results of operations.
Political, economic and/or financial market conditions could negatively impact our financial results.
Our operations are impacted by consumer spending levels and impulse purchases which are affected by general
macroeconomic conditions, consumer confidence, employment levels, the availability of consumer credit and interest
rates on that credit, consumer debt levels, energy costs and other factors. Volatility in food and energy costs, sustained
global recessions, rising unemployment and declines in personal spending could adversely impact our revenues,
profitability and financial condition.
8
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 international operations may not achieve projected growth objectives, which could adversely impact our overall
business and results of operations.
In 2016, we derived approximately 17% of our net sales from customers located outside of the United States,
compared to 17% in 2015 and 19% in 2014. Additionally, approximately 30% of our total long-lived assets were
located outside of the United States as of December 31, 2016. As part of our strategy, we have made investments
outside of the United States, particularly in China, Malaysia, Mexico and Brazil. As a result, we are subject to risks
and uncertainties relating to international sales and operations, including:
Unforeseen global economic and environmental changes resulting in business interruption, supply
constraints, inflation, deflation or decreased demand;
Inability to establish, develop and achieve market acceptance of our global brands in international markets;
Difficulties and costs associated with compliance and enforcement of remedies under a wide variety of
complex laws, treaties and regulations;
Unexpected changes in regulatory environments;
Political and economic instability, including the possibility of civil unrest, terrorism, mass violence or armed
conflict;
Nationalization of our properties by foreign governments;
Tax rates that may exceed those in the United States and earnings that may be subject to withholding
requirements and incremental taxes upon repatriation;
Potentially negative consequences from changes in tax laws;
The imposition of tariffs, quotas, trade barriers, other trade protection measures and import or export
licensing requirements;
Increased costs, disruptions in shipping or reduced availability of freight transportation;
The impact of currency exchange rate fluctuations between the U.S. dollar and foreign currencies;
Failure to gain sufficient profitable scale in certain international markets resulting in an inability to cover
manufacturing fixed costs or resulting in losses from impairment or sale of assets; and
Failure to recruit, retain and build a talented and engaged global workforce.
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.
9
While we believe that our security technology and processes provide adequate measures of protection against security
breaches and in reducing cybersecurity risks, disruptions in or failures of information technology systems are possible
and could have a negative impact on our operations or business reputation. Failure of our systems, including failures
due to cyber attacks that would prevent the ability of systems to function as intended, could cause transaction errors,
loss of customers and sales, and could have negative consequences to our Company, our employees and those with
whom we do business.
We might not be able to hire, engage and retain the talented global workforce we need to drive our growth
strategies.
Our future success depends upon our ability to identify, hire, develop, engage and retain talented personnel across the
globe. Competition for global talent is intense, and we might not be able to identify and hire the personnel we need to
continue to evolve and grow our business. In particular, if we are unable to hire the right individuals to fill new or
existing senior management positions as vacancies arise, our business performance may be impacted.
Activities related to identifying, recruiting, hiring and integrating qualified individuals require significant time and
attention. We may also need to invest significant amounts of cash and equity to attract talented new employees, and we
may never realize returns on these investments.
In addition to hiring new employees, we must continue to focus on retaining and engaging the talented individuals we
need to sustain our core business and lead our developing businesses into new markets, channels and categories. This
may require significant investments in training, coaching and other career development and retention activities. If we
are not able to effectively retain and grow our talent, our ability to achieve our strategic objectives will be adversely
affected, which may impact our financial condition and results of operations.
We may not fully realize the expected costs savings and/or operating efficiencies associated with our strategic
initiatives or restructuring programs, which may have an adverse impact on our business.
We depend on our ability to evolve and grow, and as changes in our business environment occur, we may adjust our
business plans by introducing new strategic initiatives or restructuring programs to meet these changes. From time to
time, we implement business realignment activities to support key strategic initiatives designed to maintain long-term
sustainable growth, such as the production and supply chain network optimization program we commenced in the
second quarter of 2016. These programs are intended to increase our operating effectiveness and efficiency, to reduce
our costs and/or to generate savings that can be reinvested in other areas of our business. We cannot guarantee that we
will be able to successfully implement these strategic initiatives and restructuring programs, that we will achieve or
sustain the intended benefits under these programs, or that the benefits, even if achieved, will be adequate to meet our
long-term growth and profitability expectations, which could in turn adversely affect our business.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
10
Item 2.
PROPERTIES
Our principal properties include the following:
Country
United States
Location
Hershey, Pennsylvania
(2 principal plants)
Type
Manufacturing—confectionery products and pantry items
Lancaster, Pennsylvania Manufacturing—confectionery products
Robinson, Illinois
Manufacturing—confectionery products, and pantry items
Stuarts Draft, Virginia
Manufacturing—confectionery products and pantry items
Edwardsville, Illinois
Distribution
Palmyra, Pennsylvania
Distribution
Ogden, Utah
Distribution
Brantford, Ontario
Distribution
Monterrey, Mexico
Manufacturing—confectionery products
Shanghai, China
Manufacturing—confectionery products
Canada
Mexico
China
Malaysia
Johor, Malaysia
Manufacturing—confectionery products
Status
(Own/
Lease)
Own
Own
Own
Own
Own
Own
Own
Own (1)
Own
Own
Own
(1) We have an agreement with the Ferrero Group for the use of a warehouse and distribution facility of which the Company
has been deemed to be the owner for accounting purposes.
In addition to the locations indicated above, we also own or lease several other properties and buildings worldwide
which we use for manufacturing, sales, distribution and administrative functions. Our facilities are well maintained
and generally have adequate capacity to accommodate seasonal demands, changing product mixes and certain
additional growth. We continually 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 trade regulation, product liability, advertising, contracts, environmental
issues, patent and trademark matters, labor and employment matters and tax. While it is not feasible to predict or
determine the outcome of such proceedings and claims with certainty, in our opinion these matters, both individually
and in the aggregate, are not expected to have a material effect on our financial condition, results of operations or cash
flows.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
11
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their positions and, as of February 10, 2017, their ages are set forth below.
Name
John P. Bilbrey (1) ...............
Age
60
Michele G. Buck (2) ............
55
Javier H. Idrovo .................
49
Patricia A. Little (3) .............
Terence L. O’Day...............
Leslie M. Turner (4) ............
Kevin R. Walling................
D. Michael Wege................
56
67
59
51
54
Waheed Zaman (5)...............
56
Positions Held During the Last Five Years
Chairman of the Board, President and Chief Executive Officer (April 2015);
President and Chief Executive Officer (June 2011)
Executive Vice President, Chief Operating Officer (June 2016); President,
North America (May 2013); Senior Vice President, Chief Growth Officer
(September 2011)
Chief Accounting Officer (August 2015); Senior Vice President, Finance and
Planning (September 2011)
Senior Vice President, Chief Financial Officer (March 2015)
Senior Vice President, Chief Supply Chain Officer (May 2013); Senior Vice
President, Global Operations (December 2008)
Senior Vice President, General Counsel and Secretary (July 2012)
Senior Vice President, Chief Human Resources Officer (November 2011);
Senior Vice President, Chief Administrative Officer (July 2015); Senior Vice
President, Chief Growth and Marketing Officer (May 2013); Senior Vice
President, Chief Commercial Officer (September 2011)
Senior Vice President, Chief Knowledge and Technology Officer
(August 2016); Senior Vice President, Chief Knowledge, Strategy and
Technology Officer (July 2015); Senior Vice President, Chief Corporate
Strategy and Administrative Officer (August 2013); Senior Vice President,
Chief Administrative Officer (April 2013)
There are no family relationships among any of the above-named officers of our Company.
(1) Mr. Bilbrey will retire as President and Chief Executive Officer effective March 1, 2017. He will continue to
serve as Non-Executive Chairman of the Board following his retirement from the Company.
(2) Ms. Buck will become President and Chief Executive Officer effective March 1, 2017.
(3) Ms. Little was elected Senior Vice President, Chief Financial Officer effective March 16, 2015. Prior to joining
our company she was Executive Vice President and Chief Financial Officer of Kelly Services, Inc. (July 2008).
(4) Ms. Turner was elected Senior Vice President, General Counsel and Secretary effective July 9, 2012. Prior to
joining our Company she was Chief Legal Officer of Coca-Cola North America (June 2008).
(5) Mr. Zaman was elected Senior Vice President, Chief Corporate Strategy and Administrative Officer effective
August 6, 2013. Prior to joining our Company he was President and Chief Executive Officer of W&A
Consulting (May 2012); Senior Vice President, Special Assignments of Chiquita Brands International (February
2012); Senior Vice President, Global Product Supply of Chiquita Brands International (October 2007).
Our Executive Officers are generally elected each year at the organization meeting of the Board in May.
12
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, 2016, was $103.43. There were 29,453 stockholders of
record of our Common Stock and 6 stockholders of record of our Class B Stock as of December 31, 2016.
We paid $499.5 million in cash dividends on our Common Stock and Class B Stock in 2016 and $476.1 million in
2015. The annual dividend rate on our Common Stock in 2016 was $2.402 per share.
Information regarding dividends paid and the quarterly high and low market prices for our Common Stock and
dividends paid for our Class B Stock for the two most recent fiscal years is disclosed in Note 17 to the Consolidated
Financial Statements.
On February 3, 2017, our Board declared a quarterly dividend of $0.618 per share of Common Stock payable on
March 15, 2017, to stockholders of record as of February 24, 2017. It is the Company’s 349th consecutive quarterly
Common Stock dividend. A quarterly dividend of $0.562 per share of Class B Stock also was declared.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Issuer Purchases of Equity Securities
The following table shows the purchases of shares of Common Stock made by or on behalf of Hershey, or any
“affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of
Hershey, for each fiscal month in the three months ended December 31, 2016:
Period
Total Number
of Shares
Purchased (1)
Average Price
Paid
per Share
October 3 through October
30
October 31 through
November 27
November 28 through
December 31
1,466,446
—
—
Total
1,466,446
$
$
$
$
95.45
—
—
95.45
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)
— $
100,000
— $
100,000
— $
100,000
—
(1) All of the shares of Common Stock purchased during the three months ended December 31, 2016 were
purchased in open market transactions. We purchased 1,466,446 shares of Common Stock during the three
months ended December 31, 2016 in connection with our practice of buying back shares sufficient to offset
those issued under incentive compensation plans.
(2) In February 2015, our Board approved a $250 million share repurchase authorization. This program was
completed in the first quarter of 2016. In January 2016, our Board approved an additional $500 million share
repurchase authorization. As of December 31, 2016, approximately $100 million remained available for
repurchases of our Common Stock under this program. The share repurchase program does not have an
expiration date.
13
Stockholder Return Performance Graph
The following graph compares our cumulative total stockholder return (Common Stock price appreciation plus
dividends, on a reinvested basis) over the last five fiscal years with the Standard & Poor’s 500 Index and the
Standard & Poor’s Packaged Foods Index.
Comparison of 5 Year Cumulative Total Return*
Among The Hershey Company, the S&P 500 Index,
and the S&P Packaged Foods Index
*$100 invested on December 31, 2011 in stock or index, including reinvestment of dividends.
Company/Index
The Hershey Company
S&P 500 Index
S&P 500 Packaged Foods Index
2011
2012
2013
2014
2015
2016
$
$
$
100
100
100
$
$
$
120
116
110
$
$
$
164
154
144
$
$
$
179
174
161
$
$
$
158
177
189
$
$
$
187
198
206
December 31,
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
14
Item 6.
SELECTED FINANCIAL DATA
FIVE-YEAR CONSOLIDATED FINANCIAL SUMMARY
(All dollar and share amounts in thousands except market price and per share statistics)
2016
2015
2014
2013
2012
Summary of Operations
Net Sales
Cost of Sales
Selling, Marketing and Administrative
Goodwill and Other Intangible Asset Impairment Charges
Business Realignment Costs
Interest Expense, Net
Provision for Income Taxes
Net Income
Net Income Per Share:
—Basic—Common Stock
—Diluted—Common Stock
—Basic—Class B Stock
—Diluted—Class B Stock
Weighted-Average Shares Outstanding:
—Basic—Common Stock
—Basic—Class B Stock
—Diluted
Dividends Paid on Common Stock
Per Share
Dividends Paid on Class B Stock
Per Share
Depreciation
Amortization
Advertising
Year-End Position and Statistics
Capital Additions
Total Assets
Short-term Debt and Current Portion of Long-term Debt
Long-term Portion of Debt
Stockholders’ Equity
Full-time Employees
Stockholders’ Data
Outstanding Shares of Common Stock and Class B Stock at
Year-end
Market Price of Common Stock at Year-end
Price Range During Year (high)
Price Range During Year (low)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
7,440,181
4,282,290
1,915,378
4,204
32,526
90,143
379,437
720,044
3.45
3.34
3.15
3.14
153,519
60,620
215,304
369,292
2.402
132,394
2.184
231,735
70,102
521,479
7,386,626
4,003,951
1,969,308
280,802
94,806
105,773
388,896
512,951
2.40
2.32
2.19
2.19
158,471
60,620
220,651
352,953
2.236
123,179
2.032
197,054
47,874
561,644
7,421,768
4,085,602
1,900,970
15,900
29,721
83,532
459,131
846,912
3.91
3.77
3.54
3.52
161,935
60,620
224,837
328,752
2.040
111,662
1.842
176,312
35,220
570,223
7,146,079
3,865,231
1,922,508
—
18,665
88,356
430,849
820,470
3.76
3.61
3.39
3.37
163,549
60,627
227,203
294,979
1.810
98,822
1.630
166,544
34,489
582,354
6,644,252
3,784,370
1,703,796
7,457
37,481
95,569
354,648
660,931
3.01
2.89
2.73
2.71
164,406
60,630
228,337
255,596
1.560
85,610
1.412
174,788
35,249
480,016
269,476
356,810
370,789
350,911
277,966
5,524,333
5,344,371
5,622,870
5,349,724
4,747,614
632,714
2,347,455
827,687
16,300
863,436
1,557,091
1,047,462
19,060
635,501
1,542,317
1,519,530
20,800
166,875
1,787,378
1,616,052
12,600
375,898
1,523,742
1,048,373
12,100
212,260
216,777
221,045
223,895
223,786
103.43
113.89
83.32
89.27
110.78
83.58
103.93
108.07
88.15
97.23
100.90
73.51
72.22
74.64
59.49
15
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 non-chocolate
confectionery. We market, sell and distribute our products under more than 80 brand names in approximately 70
countries worldwide. We report our operations through two segments: North America and International and Other.
In 2016, we made good progress against our strategic objectives, including a focus on our consumer brand engagement
and continued refinement of our mix of marketing investments. These initiatives, as well as improved analytics,
operating efficiencies and new information technology capabilities, strengthened our business model and positioned
the Company for future growth. We continued to generate solid operating cash flow, totaling approximately $1 billion
in 2016, which affords the Company significant financial flexibility. We are also in the process of conducting a
strategic review of our global cost structure that we believe will result in solid gross and earnings before interest and
taxes ("EBIT") margin expansion once executed.
Our 2016 marketplace performance was similar to the slower growth experienced by other consumer packaged goods
("CPG") companies. Additionally, the U.S. candy, mint and gum ("CMG") category and manufacturers were impacted
by a shorter Easter season and merchandising and display strategies at select customers. For the full year, U.S. CMG
retail takeaway increased 0.4%, lower than the historical average. Our U.S. CMG market share performance improved
in the second half of 2016, resulting in full year market share of 31.2%, including barkTHINS, which is approximately
in line with the prior year. For the full year 2016, our U.S. market share, including CMG, salty snacks, snack bars,
meat snacks, grocery items and barkTHINS, increased approximately 10 basis points.
Our full year 2016 net sales totaled $7,440.2 million, an increase of 0.7% versus $7,386.6 million in 2015. Excluding
a 0.7% impact from unfavorable foreign exchange rates, our net sales increased 1.4%. The increase was driven by
higher North America volumes, largely in products supported by increased promotional programming such as NCAA
March Madness, the Summer Olympics and NCAA Football College Game Day, as well as new product innovation
such as Snack Mix, Snack Bites and Hershey's Cookie Layer Crunch bars. Additionally, our consolidated net sales for
the year ended December 31, 2016 included approximately $35.6 million attributed to barkTHINS. Our full year 2016
net income and earnings per share-diluted (EPS) increased 40.4% and 44.0%, respectively, compared to 2015 results,
which were impacted by significant goodwill impairment charges. Excluding these goodwill impairment charges in
2015 and other items impacting comparability in both periods (as defined in the Non-GAAP Information section of
this MD&A), 2016 adjusted net income increased 4.3%, reflecting the benefits from continued productivity and cost
savings initiatives and a lower effective income tax rate, while adjusted EPS-diluted also benefited from recent share
buybacks, increasing a total of 7.0%.
For 2017, we expect net sales growth of approximately 2% to 3%, which includes a 0.5% net benefit from acquisitions
and a 0.25% unfavorable impact from foreign currency exchange rates. Excluding the unfavorable impact from
16
foreign currency exchange rates, our net sales are expected to increase approximately 2.25% to 3.25%. Our focus is
on the continued rollout of Hershey's Cookie Layer Crunch bars, barkTHINS chocolate distribution gains and other
new products such as Reese's Crunchers candy and Krave meat bars and sticks. We anticipate that these investments
and related consumer marketing plans will accelerate our North America sales growth versus 2016 performance, which
should enable us to outpace the broader food group in this challenging operating environment. Our previously
discussed productivity and cost savings programs are on track, and we will continue to focus on reducing non-essential
spending going into 2017. Additionally, our effective tax rate is expected to be favorable versus 2016 driven by a
favorable international tax mix, tax credits and other incentives, and the adoption of Accounting Standards Update
2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting. As a result, we expect full year 2017 reported EPS-diluted, prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP"), to improve and be in the $4.54 to $4.65
range. From a non-GAAP perspective, we currently expect 2017 adjusted EPS-diluted to increase approximately 7%
to 9% and to be in the $4.72 to $4.81 range. A reconciliation of reported to adjusted projections for 2017 are reflected
in the non-GAAP reconciliations that follow.
NON-GAAP INFORMATION
The comparability of certain of our financial measures is impacted by unallocated mark-to-market losses on
commodity derivatives, costs associated with business realignment activities, costs relating to the integration of
acquisitions, non-service related components of our pension expense (income) ("NSRPE(I)"), goodwill and other
intangible asset impairment charges, settlement of the SGM liability in conjunction with the purchase of the remaining
20% of the outstanding shares of SGM, the gain realized on the sale of a trademark, costs associated with the early
extinguishment of debt and other non-recurring gains and losses.
To provide additional information to investors to facilitate the comparison of past and present performance, we use
non-GAAP financial measures within MD&A that exclude the financial impact of these activities. These non-GAAP
financial measures are used internally by management in evaluating results of operations and determining incentive
compensation, and in assessing the impact of known trends and uncertainties on our business, but they are not intended
to replace the presentation of financial results in accordance with GAAP. A reconciliation of the non-GAAP financial
measures referenced in MD&A to their nearest comparable GAAP financial measures as presented in the Consolidated
Statements of Income is provided below.
17
Reconciliation of Certain Non-GAAP Financial Measures
Consolidated results
In thousands except per share data
Reported gross profit
Derivative mark-to-market losses
Business realignment activities
Acquisition integration costs
NSRPE(I)
Non-GAAP gross profit
Reported operating profit
Derivative mark-to-market losses
Business realignment activities
Acquisition integration costs
NSRPE(I)
Goodwill and other intangible asset impairment charges
Non-GAAP operating profit
Reported provision for income taxes
Derivative mark-to-market losses*
Business realignment activities*
Acquisition integration costs*
NSRPE(I)*
Goodwill and other intangible asset impairment charges*
Loss on early extinguishment of debt*
Gain on sale of trademark*
Non-GAAP provision for income taxes
Reported net income
Derivative mark-to-market losses
Business realignment activities
Acquisition integration costs
NSRPE(I)
Settlement of SGM liability
Goodwill and other intangible asset impairment charges
Loss on early extinguishment of debt
Gain on sale of trademark
Non-GAAP net income
Reported EPS - Diluted
Derivative mark-to-market losses
Business realignment activities
Acquisition integration costs
NSRPE(I)
Settlement of SGM liability
Goodwill and other intangible asset impairment charges
Loss on early extinguishment of debt
Gain on sale of trademark
Non-GAAP EPS - Diluted
$
$
$
$
$
$
$
$
$
$
For the years ended December 31,
2015
2014
2016
3,157,891
163,238
58,106
—
11,953
3,391,188
1,205,783
163,238
107,571
6,480
27,157
4,204
1,514,433
379,437
20,500
19,138
2,456
10,283
1,157
—
—
432,971
720,044
142,738
88,433
4,024
16,874
(26,650)
3,047
—
—
948,510
3.34
0.66
0.42
0.02
0.08
(0.12)
0.01
—
—
4.41
$
$
$
$
$
$
$
$
$
$
3,382,675
—
8,801
7,308
2,516
3,401,300
1,037,759
—
120,975
20,899
18,079
280,802
1,478,514
388,896
—
41,648
8,264
6,955
—
10,736
(3,652)
452,847
512,951
—
79,327
14,196
11,124
—
280,802
17,591
(6,298)
909,693
2.32
—
0.36
0.05
0.05
—
1.28
0.09
(0.03)
4.12
$
$
$
$
$
$
$
$
$
$
3,336,166
—
1,622
—
(2,685)
3,335,103
1,392,261
—
34,290
12,360
(1,834)
15,900
1,452,977
459,131
—
8,593
3,021
(544)
1,565
—
—
471,766
846,912
—
25,697
10,249
(1,290)
—
14,335
—
—
895,903
3.77
—
0.11
0.05
(0.01)
—
0.06
—
—
3.98
* The tax impact is determined by multiplying each pre-tax reconciling adjustment by the applicable statutory income tax rates,
taking into consideration the impact of valuation allowances, as applicable.
18
In the assessment of our results, we review and discuss the following financial metrics that are derived from the
reported and non-GAAP financial measures presented above:
As reported gross margin
Non-GAAP gross margin (1)
As reported operating profit margin
Non-GAAP operating profit margin (2)
As reported effective tax rate
Non-GAAP effective tax rate (3)
For the years ended December 31,
2016
2015
2014
42.4%
45.6%
16.2%
20.4%
34.5%
31.3%
45.8%
46.0%
14.0%
20.0%
43.1%
33.2%
45.0%
44.9%
18.8%
19.6%
35.2%
34.5%
(1) Calculated as non-GAAP gross profit as a percentage of net sales for each period presented.
(2) Calculated as non-GAAP operating profit as a percentage of net sales for each period presented.
(3) Calculated as non-GAAP provision for income taxes as a percentage of non-GAAP income before taxes (calculated as
non-GAAP operating profit minus non-GAAP interest expense, net plus or minus non-GAAP other (income) expense,
net).
Details of the activities impacting comparability that are presented as reconciling items to derive the non-GAAP
financial measures in the tables above are as follows:
Mark-to-market losses on commodity derivatives
Commensurate with our discontinuance of hedge accounting treatment for commodity derivatives, we are adjusting the
mark-to-market losses on such commodity derivatives, until such time as the related inventory is sold. Since we often
purchase commodity contracts to price inventory requirements in future years, we make this adjustment to facilitate the
year-over-year comparison of cost of sales on a basis that matches the derivative gains and losses with the underlying
economic exposure being hedged for the period. For the year ended December 31, 2016, unallocated mark-to-market
losses on commodity derivatives totaled $163.2 million.
Business realignment activities
We periodically undertake restructuring and cost reduction activities as part of ongoing efforts to enhance long-term
profitability. For the years ended December 31, 2016, 2015 and 2014, we incurred $107.6 million, $121.0 million and
$34.3 million, respectively, of pre-tax costs related to business realignment activities. See Note 7 to the Consolidated
Financial Statements for more information.
Acquisition integration costs
For the year ended December 31, 2016, we incurred expenses totaling $6.5 million related to integration of the 2016
acquisition of Ripple Brand Collective, LLC, as we incorporated this business into our operating practices and
information systems. For the year ended December 31, 2015, we incurred costs related to the integration of the 2014
acquisitions of SGM and The Allan Candy Company and the 2015 acquisition of Krave totaling $22.5 million as we
incorporated these businesses into our operating practices and information systems. These 2015 expenses included
charges incurred to write-down approximately $6.4 million of expired or near-expiration work-in-process inventory at
SGM, in connection with the implementation of our global quality standards and practices. In addition, integration
costs for 2015 were offset by a $6.8 million reduction in the fair value of contingent consideration paid to the Krave
shareholders. For the year ended December 31, 2014, we incurred costs of $13.3 million largely related to the
acquisition of SGM, offset by a $4.6 million gain relating to the acquisition of a controlling interest in Lotte Shanghai
Foods Co., Ltd.
19
Non-service related pension expense (income)
NSRPE(I) includes interest costs, the expected return on pension plan assets, the amortization of actuarial gains and
losses, and certain curtailment and settlement losses or credits. NSRPE(I) can fluctuate from year to year as a result of
changes in market interest rates and market returns on pension plan assets. We believe that the service cost component
of our total pension benefit costs closely reflects the operating costs of our business and provides for a better
comparison of our operating results from year to year. Therefore, we exclude NSRPE(I) from our internal
performance measures. Our most significant defined benefit pension plans were closed to most new participants in
2007, resulting in ongoing service costs that are stable and predictable. We recorded pre-tax NSRPE(I) of $27.2
million, $18.1 million and $(1.8) million for the years ended December 31, 2016, 2015 and 2014, respectively.
Settlement of SGM liability
In the fourth quarter of 2015, we reached an agreement with the SGM selling shareholders to reduce the originally-
agreed purchase price for the remaining 20% of SGM, and we completed the purchase on February 3, 2016. In the
first quarter of 2016, we recorded a $26.7 million gain relating to the settlement of the SGM liability, representing the
net carrying amount of the recorded liability in excess of the cash paid to settle the obligation for the remaining 20% of
the outstanding shares.
Goodwill and other intangible asset impairment
As discussed in Note 3 to the Consolidated Financial Statements, in connection with our 2016 annual impairment
testing of other indefinite lived assets, we recognized a trademark impairment charge of $4.2 million primarily
resulting from plans to discontinue a brand sold in India. In the second and third quarters of 2015, we recorded a total
$280.8 million non-cash goodwill impairment charge, representing a write-down of all of the goodwill resulting from
the SGM acquisition, including $14.4 million relating to the portion of goodwill that had been allocated to our China
chocolate reporting unit, based on synergies to be realized by this business. For the year ended December 31, 2014,
we recorded non-cash goodwill and other intangible asset impairment charges totaling $15.9 million associated with
our business in India.
Loss on early extinguishment of debt
During the third quarter of 2015, we recorded a $28.3 million loss on the early extinguishment of debt relating to a
cash tender offer. See Note 4 to the Consolidated Financial Statements for further information.
Gain on sale of trademark
During the first quarter of 2015, we recorded a $9.9 million gain relating to the sale of a non-core trademark.
Constant Currency Net Sales Growth
We present certain percentage changes in net sales on a constant currency basis, which excludes the impact of foreign
currency exchange. This measure is used internally by management in evaluating results of operations and
determining incentive compensation. We believe that this measure provides useful information to investors because it
provides transparency to underlying performance in our net sales by excluding the effect that foreign currency
exchange rate fluctuations have on the year-to-year comparability given volatility in foreign currency exchange
markets.
To present this information for historical periods, current period net sales for entities reporting in other than the U.S.
dollar are translated into U.S. dollars at the average monthly exchange rates in effect during the corresponding period
of the prior fiscal year, rather than at the actual average monthly exchange rates in effect during the current period of
the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies
multiplied by the change in average foreign currency exchange rate between the current fiscal period and the
corresponding period of the prior fiscal year.
20
A reconciliation between reported and constant currency growth rates is provided below:
For the Year Ended December 31, 2016
Percentage Change as
Reported
Impact of Foreign
Currency Exchange
Percentage Change on
Constant Currency
Basis
North America segment
Canada
Total North America segment
International and Other segment
Mexico
Brazil
India
Greater China
Total International and Other segment
Total Company
2017 Outlook
(3.5)%
1.0 %
(8.5)%
15.7 %
(26.6)%
(0.3)%
(1.2)%
0.7 %
(3.0)%
(0.2)%
(16.0)%
(6.0)%
(3.6)%
(4.9)%
(4.4)%
(0.7)%
(0.5)%
1.2 %
7.5 %
21.7 %
(23.0)%
4.6 %
3.2 %
1.4 %
The following table provides a reconciliation of projected 2017 EPS-diluted, prepared in accordance with GAAP, to
projected non-GAAP EPS-diluted for 2017, prepared on a non-GAAP basis, with adjustments consistent to those
discussed previously. The reconciliation of 2016 and 2015 EPS-diluted, prepared in accordance with GAAP, to 2016
and 2015 non-GAAP EPS-diluted is provided below for comparison.
Reported EPS – Diluted
Derivative mark-to-market losses
Business realignment costs
Acquisition and integration costs
Non-service related pension expense
Settlement of SGM liability
Goodwill and other intangible asset impairment charges
Loss on early extinguishment of debt
Gain on sale of trademark
Adjusted EPS – Diluted
2017
(Projected)
$4.54 - $4.65
—
0.10 - 0.12
—
0.06
—
—
—
—
2016
$3.34
0.66
0.42
0.02
0.08
(0.12)
0.01
—
—
$4.72 - $4.81
$4.41
2015
$2.32
—
0.36
0.05
0.05
—
1.28
0.09
(0.03)
$4.12
Our 2017 projected EPS-diluted, as presented above, does not include the impact of mark-to-market gains and losses
on our commodity derivative contracts. Due to the volatility of commodity market prices, it is not possible to forecast
this mark-to-market impact. Pursuant to our revised accounting policy for commodity derivatives as discussed in Note
5 to the Consolidated Financial Statements, we currently reflect changes in the fair value of our commodity derivatives
as incurred within cost of goods sold, with an adjustment within our corporate unallocated expenses to enable us to
present the gains and losses on commodity derivatives within our segment income at the time the related inventory is
sold.
21
CONSOLIDATED RESULTS OF OPERATIONS
For the years ended December 31,
2016
2015
2014
2016 vs 2015
2015 vs 2014
In millions of dollars except per share amounts
Percent Change
Net Sales
Cost of Sales
Gross Profit
Gross Margin
SM&A Expense
$
7,440.2
$
7,386.6
$
7,421.8
4,282.3
3,157.9
4,003.9
3,382.7
4,085.6
3,336.2
42.4%
45.8%
45.0%
0.7 %
7.0 %
(6.6)%
(0.5)%
(2.0)%
1.4 %
1,915.4
1,969.3
1,898.4
(2.7)%
3.7 %
SM&A Expense as a percent of net sales
25.7%
26.7%
25.6%
Goodwill and Other Intangible Asset
Impairment Charges
Business Realignment Costs
Operating Profit
Operating Profit Margin
Interest Expense, Net
Other (Income) Expense, Net
Provision for Income Taxes
Effective Income Tax Rate
Net Income
Net Income Per Share—Diluted
4.2
32.5
280.8
94.8
15.9
29.7
1,205.8
1,037.8
1,392.2
16.2%
14.0%
18.8%
90.2
16.2
379.4
105.8
30.1
388.9
83.5
2.7
459.1
34.5%
43.1%
35.2%
$
$
720.0
3.34
$
$
513.0
2.32
$
$
846.9
3.77
(98.5)%
(65.7)%
16.2 %
(14.7)%
(46.2)%
(2.4)%
40.4 %
44.0 %
NM
219.0 %
(25.5)%
26.6 %
NM
(15.3)%
(39.4)%
(38.5)%
Note: Percentage changes may not compute directly as shown due to rounding of amounts presented above.
NM = not meaningful.
Net Sales
2016 compared with 2015
Net sales increased 0.7% in 2016 compared with 2015, reflecting volume increases of 0.8% and a 0.6% benefit from
net acquisitions and divestitures, partially offset by an unfavorable impact from foreign currency exchange rates of
0.7%. Excluding foreign currency, our net sales increased 1.4% in 2016. The volume improvement was primarily
driven by new chocolate and snacking products in the United States, including Snack Mix, Snack Bites and Hershey's
Cookie Layer Crunch bars. While the North America segment had unfavorable price realization due to increased
levels of trade promotional spending, this was essentially offset by favorable price realization in the International and
Other segment, due to significantly lower levels of trade spending and returns, discounts and allowances.
2015 compared with 2014
Net sales decreased 0.5% in 2015 compared with 2014, reflecting volume declines of 3.4% and an unfavorable impact
from foreign currency exchange rates of 1.6%, substantially offset by favorable net price realization of 3.5% as well as
a 1.0% benefit from net acquisitions and divestitures. The favorable net price realization, primarily in the United
States, was attributed to the price increase announced in mid-2014. The volume declines were attributed to volume
elasticity relating to the pricing action in the United States as well as lower everyday product sales given the
challenging shopper environment in North America, coupled with lower sales in China. Excluding the impact of
foreign currency exchange rates, our net sales increased 1.1% in 2015.
Key U.S. CMG Marketplace Metrics
For the 52 weeks ended December 31,
Hershey's Consumer Takeaway (Decrease) Increase
Hershey's Market Share (Decrease) Increase
22
2016
2015
2014
0.3%
-
2.4%
(0.1)
2.7%
0.3
The consumer takeaway and market share information provided above are for measured channels of distribution
accounting for approximately 90% of our U.S. confectionery retail business. These channels of distribution primarily
include food, drug, mass merchandisers and convenience store channels, plus Wal-Mart Stores, Inc., partial dollar, club
and military channels. These metrics are based on measured market scanned purchases as reported by Nielsen and
provide a means to assess our retail takeaway and market position relative to the overall category.
The amounts presented above are solely for the U.S. CMG category which does not include revenue from our snack
mixes and grocery items. For the full year 2016, our CMG market share, including barkTHINS was 31.2%, about the
same as 2015. Including barkTHINS, CMG, salty snacks, snack bars, meat snacks and grocery items, our full year
U.S. market share increased approximately 10 basis points.
Cost of Sales and Gross Margin
2016 compared with 2015
Cost of sales increased 7.0% in 2016 compared with 2015. Incremental business realignment costs and mark-to-
market losses on commodity derivative instruments increased cost of sales by 5.3%, while the remaining increase was
primarily attributed to higher volume and higher supply chain costs, in part due to higher manufacturing variances and
some incremental fixed costs related to the commencement of manufacturing in the Malaysia facility. As described in
Note 5 to the Consolidated Financial Statements, our commodity derivative instruments are no longer designated for
hedge accounting treatment and, as a result, the changes in fair market value are recognized currently in cost of sales.
Gross margin decreased by 340 basis points in 2016 compared with 2015. Mark-to-market losses on commodity
derivative instruments and incremental depreciation expense related to business realignment activities drove a 300
basis point decline in gross margin. Higher trade promotional spending and supply chain costs also contributed to the
decreased gross margin, but were partially offset by supply chain productivity and cost savings initiatives. On a non-
GAAP basis, excluding the losses on commodity derivative instruments as well as business realignment costs, 2016
adjusted gross margin decreased by 40 basis points.
2015 compared with 2014
Cost of sales decreased 2.0% in 2015 compared with 2014. Supply chain productivity and volume declines reduced
cost of sales by approximately 6.6%. These declines were substantially offset by higher supply chain and commodity
costs, and unfavorable sales mix, which together increased total cost of sales by approximately 4.1%. In addition, cost
of sales was impacted by acquisition and integration costs of $7.3 million, business realignment costs of $8.8 million
and NSRPE of $2.5 million, which collectively increased cost of sales by approximately 0.5%. In comparison, cost of
sales benefited by $1.1 million in 2014, primarily due to NSRPI.
Gross margin increased by 80 basis points in 2015 compared with 2014. Favorable net price realization as well as
supply chain productivity and other cost savings initiatives collectively improved gross margin by 330 basis points.
However, these benefits were substantially offset by higher supply chain and commodity costs as well as unfavorable
sales mix, which collectively reduced gross margin by approximately 250 basis points. On a non-GAAP basis,
excluding the business realignment and acquisition and integration charges, 2015 gross margin increased by 110 basis
points.
Selling, Marketing and Administrative
2016 compared with 2015
Selling, marketing and administrative (“SM&A”) expenses decreased $53.9 million or 2.7% in 2016. Advertising and
related consumer marketing expense decreased 4.0% during this period. We spent less on advertising and related
consumer marketing in our International and Other segment, particularly in the China market, and our spending in
North America declined as our marketing mix models were weighted toward higher trade promotional spending.
Excluding these advertising and related consumer marketing costs, selling and administrative expenses for 2016
decreased by 2.0% as compared to 2015 as a result of our continued focus on reducing non-essential spending. SM&A
expenses in 2016 were also impacted by business realignment costs of $18.6 million, NSRPE of $15.2 million and
acquisition and integration costs of $6.5 million. In 2015, SM&A expenses included business realignment costs of
$17.4 million, NSRPE of $15.6 million and acquisition and integration costs of $13.6 million.
23
2015 compared with 2014
SM&A expenses increased $70.9 million or 3.7% in 2015. Advertising and related consumer marketing expense
increased 1.0% during this period. Excluding these advertising and related consumer marketing costs, selling and
administrative expenses for 2015 increased by 6.7% compared to 2014, driven by incremental increases from acquired
businesses. Excluding the impact of acquisition costs, SM&A expenses for 2015 declined as a result of our continued
focus on reducing non-essential spending. SM&A expenses in 2015 were also impacted by charges of $13.6 million
attributed to the productivity initiative we announced in June 2015, acquisition and integration costs of $13.6 million,
NSRPE of $15.6 million and other business realignment costs of $3.7 million. In 2014, SM&A expenses included
acquisition and integration costs of $12.4 million, other business realignment costs of $2.9 million and NSRPE of $0.9
million.
Goodwill and Other Intangible Asset Impairment Charges
In 2016, in connection with the annual impairment testing of indefinite lived intangible assets, we recognized a
trademark impairment charge of $4.2 million, primarily resulting from plans to discontinue a brand sold in India.
As discussed in Note 3 to the Consolidated Financial Statements, the SGM business performed below expectations
throughout 2015, with net sales and earnings levels well below pre-acquisition levels. As of result of this declining
performance, in the second quarter of 2015 we recorded an estimated goodwill impairment charge of $249.8 million
relating to the SGM reporting unit. During the third quarter of 2015, we updated our estimates of the acquisition-date
fair values of the net assets acquired, which increased the value of acquired goodwill by $16.6 million. We also
finalized the impairment test of the goodwill relating to the SGM reporting unit, which resulted in an additional $16.6
million write-off of this increase to goodwill. During the third quarter of 2015, we also wrote off $14.4 million of
goodwill that resulted from the SGM acquisition and was assigned to our existing China chocolate business, as this
reporting unit was expected to benefit from acquisition synergies relating to the sale of Golden Monkey-branded
product through its Tier 1 and hypermarket distributor networks. This goodwill impairment was driven by the
continued declining performance in our China chocolate business through the third quarter of 2015, as a result of the
macroeconomic challenges mentioned previously, as well as changing consumer shopping behavior in China.
In 2014, the annual impairment testing of our India reporting unit resulted in a $11.4 million goodwill impairment
charge and a $4.5 million write-down of a trademark associated with the India business. These impairment charges
were largely a result of our decision at the time to exit the oils portion of the India business and realign our approach to
regional marketing and distribution in India.
The assessment of the valuation of goodwill and other long-lived assets is based on management estimates and
assumptions, as discussed in our critical accounting policies included in Item 7 of this Annual Report on Form 10-K.
These estimates and assumptions are subject to change due to changing economic and competitive conditions.
24
Business Realignment Activities
We are currently pursuing several business realignment activities designed to increase our efficiency and focus our
business behind key growth strategies. Costs recorded for business realignment activities during 2016, 2015 and 2014
and their classification within the Statements of Income are as follows:
For the years ended December 31,
In millions of dollars
Operational Optimization Program:
Severance
Accelerated depreciation
Other program costs
2015 Productivity Initiative:
Severance
Pension settlement charges
Other program costs
Other international restructuring programs:
Severance
Accelerated depreciation and amortization
Mauna Loa divestiture
Project Next Century
Total
Operational Optimization Program
2016
2015
2014
$
17.9
48.6
21.8
—
13.7
5.6
—
—
—
—
$
— $
—
—
81.3
10.2
14.3
6.6
5.9
2.7
—
$
107.6
$
121.0
$
—
—
—
—
—
—
2.9
—
22.3
9.1
34.3
In the second quarter of 2016, we commenced a program (the “Operational Optimization Program”) to optimize our
production and supply chain network, which includes select facility consolidations. The program encompasses the
continued transition of our China chocolate and SGM operations into a united Golden Hershey platform, including the
integration of the China sales force, as well as workforce planning efforts and the consolidation of production within
certain facilities in China and North America.
We have incurred pre-tax costs of $88 million to date, including non-cash asset-related incremental depreciation costs,
severance and employee benefit costs, costs to consolidate and relocate production, and third-party costs incurred to
execute these activities. We currently expect to incur additional cash costs of approximately $37 million over the next
two years to complete this program. The Operational Optimization Program is expected to drive annual savings of
approximately $52 million by 2018.
2015 Productivity Initiative
In mid-2015, we initiated a productivity initiative (the “2015 Productivity Initiative”) intended to move decision
making closer to the customer and the consumer, to enable a more enterprise-wide approach to innovation, to more
swiftly advance our knowledge agenda, and to provide for a more efficient cost structure, while ensuring that we
effectively allocate resources to future growth areas. Overall, the 2015 Productivity Initiative was undertaken to
simplify the organizational structure to enhance the Company's ability to rapidly anticipate and respond to the
changing demands of the global consumer.
The 2015 Productivity Initiative was executed throughout the third and fourth quarters of 2015, resulting in a net
reduction of approximately 300 positions, with the majority of the departures taking place by the end of 2015. For the
year ended December 31, 2016, we incurred charges totaling $19.3 million, consisting of pension settlement charges,
adjustments to estimated severance benefits and incremental third-party costs related to the design and implementation
of the new organizational structure. The 2015 Productivity Initiative was completed during the third quarter of 2016.
We incurred total costs of $125.0 million relating to this initiative, including pension settlement charges of $13.7
million recorded in 2016 and $10.2 million recorded in 2015 relating to lump sum withdrawals by employees retiring
25
or leaving the Company as a result of this initiative. We have realized approximately $82 million in savings since
inception of the 2015 Productivity Initiative.
Other international restructuring programs
Other costs incurred in connection with business realignment activities for the year ended December 31, 2015 related
principally to accelerated depreciation and amortization and employee severance costs for multiple programs
commenced in 2014 to rationalize certain non-U.S. manufacturing and distribution activities and to establish our own
sales and distribution teams in Brazil in connection with our acquisition of the remaining 49% interest in Hershey do
Brasil Ltda. under a cooperative agreement with Pandurata Netherlands B.V. ("Bauducco").
Mauna Loa divestiture
In December 2014, we entered into an agreement to sell the Mauna Loa Macadamia Nut Corporation (“Mauna Loa”).
As a result of the expected sale, in 2014 we recorded an estimated loss on the anticipated sale of $22.3 million to
reflect the disposal entity at fair value, less an estimate of the selling costs. The sale, completed in the first quarter of
2015, resulted in an additional loss on sale of $2.7 million based on updates to the selling expenses and tax benefits.
Project Next Century
The 2014 costs shown relate primarily to the demolition of the Company’s former manufacturing facility, representing
the final phase of the Project Next Century program. As of December 31, 2014, we have concluded Project Next
Century.
Segment operating results do not include business realignment and related costs, as these initiatives are generally
centrally managed and are not included within our internal measures of segment performance.
Operating Profit and Operating Profit Margin
2016 compared with 2015
Operating profit increased 16.2% in 2016 compared with 2015 due primarily to lower goodwill and intangible asset
impairment charges, lower SM&A costs and lower business realignment costs, offset in part by the lower gross profit.
Operating profit margin increased to 16.2% in 2016 from 14.0% in 2015 due primarily to these same factors.
On a non-GAAP basis, 2016 operating profit and operating profit margin increased 2.4% and 40 basis points,
respectively, reflecting the reduction in total SM&A costs, including advertising and related consumer marketing,
offset in part by higher trade promotional spending.
2015 compared with 2014
Operating profit decreased 25.5% in 2015 compared with 2014 due primarily to the goodwill impairment charges,
higher SM&A costs related to acquisitions as well as higher business realignment costs, offset in part by the higher
gross profit. Operating profit margin decreased to 14.0% in 2015 from 18.8% in 2014 due to the goodwill impairment
charges, higher SM&A expenses as a percent of sales, and higher business realignment costs.
On a non-GAAP basis, 2015 operating profit and operating profit margin increased 1.8% and 40 basis points,
respectively.
26
Interest Expense, Net
2016 compared with 2015
Net interest expense was $15.6 million lower in 2016 than in 2015, as the 2015 amount included the premium paid to
repurchase long-term debt as part of a cash tender offer. This decrease was partially offset by lower capitalized
interest expense and lower interest income.
2015 compared with 2014
Net interest expense was $22.3 million higher in 2015 than in 2014 due primarily to the premium paid to repurchase
long-term debt as part of a cash tender offer. This increase was partially offset by higher capitalized interest expense
coupled with savings resulting from fixed-to-floating interest rate swap agreements put in place toward the end of
2014.
Other (Income) Expense, Net
2016 compared with 2015
Other (income) expense, net was $13.9 million lower in 2016 than 2015, due primarily to the $26.7 million settlement
of the SGM liability in 2016, partially offset by an increase in the write-down of equity investments qualifying for
federal historic and energy tax credits.
2015 compared with 2014
Other (income) expense, net was $27.4 million higher in 2015 than 2014, due primarily to the write-down of equity
investments qualifying for federal historic and energy tax credits, partially offset by the gain on the sale of a non-core
trademark.
Income Taxes and Effective Tax Rate
2016 compared with 2015
Our effective income tax rate was 34.5% for 2016 compared with 43.1% for 2015. The 2015 tax rate was significantly
impacted by the non-deductible goodwill impairment charges. Excluding the impact of the goodwill impairment and
other non-GAAP charges, the 2016 effective income tax rate was 190 basis points lower than the 2015 rate. The 2016
non-GAAP rate reflects greater benefit from manufacturing deductions, research and development and investment tax
credits, and a favorable foreign rate differential relating to our cocoa procurement operations.
2015 compared with 2014
Our effective income tax rate was 43.1% for 2015 compared with 35.2% for 2014. The 2015 tax rate was significantly
impacted by the non-deductible goodwill impairment charges. Excluding the impact of the goodwill impairment and
other non-GAAP charges, the 2015 effective income tax rate was 130 basis points lower than the 2014 rate. The 2015
rate benefited from tax credits realized from the investment tax strategy initiated in the second quarter of 2015, which
was partially offset by the valuation allowance recorded against the SGM net operating loss carryforwards.
Net Income and Net Income Per Share
2016 compared with 2015
Net income increased $207.0 million, or 40.4%, while EPS-diluted increased $1.02, or 44.0%, in 2016 compared with
2015. The increases in both net income and EPS-diluted were driven by the lower goodwill and intangible asset
impairment charges, lower SM&A costs and lower business realignment costs, as noted above. Our 2016 EPS-diluted
also benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-
approved repurchase programs.
On a non-GAAP basis, net income increased $38.8 million in 2016, or 4.3%, and EPS-diluted increased $0.29, or
7.0%, as compared with 2015. The increases in 2016 non-GAAP net income and non-GAAP EPS-diluted were
primarily driven by the lower SM&A expense as well as the lower tax rate.
27
2015 compared with 2014
Net income decreased $333.9 million, or 39.4%, while EPS-diluted decreased $1.45, or 38.5%, in 2015 compared with
2014. The decreases in both net income and EPS-diluted were driven by the goodwill impairment charges, higher
SM&A costs related to acquisitions and higher business realignment costs, as noted above. Our 2015 EPS-diluted
benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-
approved repurchase programs.
On a non-GAAP basis, net income increased $13.8 million in 2015, or 1.5%, and EPS-diluted increased $0.14, or
3.5%, as compared with 2014. The increases in 2015 non-GAAP net income and non-GAAP EPS-diluted were
primarily driven by gross margin expansion and lower net interest expense.
SEGMENT RESULTS
The summary that follows provides a discussion of the results of operations of our two reportable segments: North
America and International and Other. The segments reflect our operations on a geographic basis. For segment
reporting purposes, we use “segment income” to evaluate segment performance and allocate resources. Segment
income excludes unallocated general corporate administrative expenses, unallocated mark-to-market gains and losses
on commodity derivatives, business realignment and impairment charges, acquisition integration costs, NSRPE(I) and
other unusual gains or losses that are not part of our measurement of segment performance. These items of our
operating income are largely managed centrally at the corporate level and are excluded from the measure of segment
income reviewed by the CODM and used for resource allocation and internal management reporting and performance
evaluation. Segment income and segment income margin, which are presented in the segment discussion that follows,
are non-GAAP measures and do not purport to be alternatives to operating income as a measure of operating
performance. We believe that these measures are useful to investors and other users of our financial information in
evaluating ongoing operating profitability as well as in evaluating operating performance in relation to our
competitors, as they exclude the activities that are not integral to our ongoing operations. For further information, see
the Non-GAAP Information section of this MD&A.
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Our segment results, including a reconciliation to our consolidated results, were as follows:
For the years ended December 31,
2016
2015
2014
In millions of dollars
Net Sales:
North America
International and Other
Total
Segment Income (Loss):
North America
International and Other
Total segment income
Unallocated corporate expense (1)
Unallocated mark-to-market losses on commodity
derivatives (2)
Goodwill and other intangible asset impairment charges
Costs associated with business realignment activities
Non-service related pension expense (income)
Acquisition and integration costs
Operating profit
Interest expense, net
Other (income) expense, net
Income before income taxes
$
$
$
$
$
$
6,533.0
907.2
7,440.2
2,041.0
(29.1)
2,011.9
497.4
163.2
4.2
107.6
27.2
6.5
1,205.8
90.1
16.2
$
$
$
6,468.1
918.5
7,386.6
2,074.0
(98.1)
1,975.9
497.4
—
280.8
121.0
18.1
20.9
1,037.7
105.8
30.1
6,352.7
1,069.1
7,421.8
1,916.2
40.0
1,956.2
503.2
—
15.9
34.3
(1.8)
12.4
1,392.2
83.5
2.7
$
1,099.5
$
901.8
$
1,306.0
(1) Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance and human resources, (b) expenses
associated with the oversight and administration of our global operations, including warehousing, distribution and
manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense and (d) other
gains or losses that are not integral to segment performance.
(2) Reflects gains and losses on commodity derivative instruments that are excluded from segment income until the related
inventory is sold. See Note 5 to the Consolidated Financial Statements.
North America
The North America segment is responsible for our chocolate and non-chocolate confectionery market position, as well
as our grocery and growing snacks market positions, in the United States and Canada. This includes developing and
growing our business in chocolate and non-chocolate confectionery, pantry, food service and other snacking product
lines. North America accounted for 87.8%, 87.6% and 85.6% of our net sales in 2016, 2015 and 2014, respectively.
North America results for the years ended December 31, 2016, 2015 and 2014 were as follows:
For the years ended December 31,
2016
2015
2014
2016 vs 2015
2015 vs 2014
Percent / Point Change
In millions of dollars
Net sales
Segment income
Segment margin
2016 compared with 2015
$
6,533.0
$
6,468.1
$
6,352.7
2,041.0
2,074.0
1,916.2
1.0 %
(1.6)%
1.8%
8.2%
31.2%
32.1%
30.2%
Net sales of our North America segment increased $64.9 million or 1.0% in 2016 compared to 2015, reflecting volume
increases of 1.4% and the favorable net impact of acquisitions and divestitures of 0.7%, partially offset by unfavorable
net price realization of 0.9% and an unfavorable impact from foreign currency exchange rates that reduced net sales by
29
approximately 0.2%. Our 2016 North America performance was similar to the slower growth experienced by other
CPG companies. Additionally, the U.S. CMG category and manufacturers were impacted by a shorter Easter season
and merchandising and display strategies at select customers. The segment's volume increase was primarily
attributable to new product introductions, partially offset by lower everyday product sales. The unfavorable net price
realization resulted from increased levels of trade promotional spending necessary to support higher levels of in-store
merchandising and display activity. Our Canada operations were impacted by the stronger U.S. dollar, which drove
the unfavorable foreign currency impact.
Our North America segment income decreased $33.0 million or 1.6% in 2016 compared to 2015, driven by lower
gross margin as higher trade promotional spending and higher supply chain costs were only partially offset by the
benefit from supply chain productivity and cost savings initiatives.
2015 compared with 2014
Net sales of our North America segment increased $115.4 million or 1.8% in 2015 compared to 2014, reflecting net
price realization of 4.8% and the favorable net impact of acquisitions and divestitures of 0.3%, substantially offset by
volume declines of 2.5% and an unfavorable impact from foreign currency exchange rates that reduced net sales by
approximately 0.8%. The volume decline was due to elasticity related to the 2014 pricing action as well as lower
everyday product sales, which were impacted by changing consumer shopping habits, such as channel shifting and e-
commerce, an increase in competitive activity and a proliferation of broader snacking options in the marketplace. Our
Canada operations were impacted by the stronger U.S. dollar, which drove the unfavorable foreign currency impact.
Our North America segment income increased $157.8 million or 8.2% in 2015 compared to 2014, driven by gross
margin expansion, primarily due to favorable price realization and supply chain productivity, which offset volume
declines and input cost increases.
International and Other
The International and Other segment includes all other countries where we currently manufacture, import, market, sell
or distribute chocolate and non-chocolate confectionery and other products. Currently, this includes our operations in
China and other Asia markets, Latin America, Europe, Africa and the Middle East, along with exports to these regions.
While a less significant component, this segment also includes our global retail operations, including Hershey’s
Chocolate World stores in Hershey, Pennsylvania, New York City, Las Vegas, Shanghai, Niagara Falls (Ontario),
Dubai and Singapore, as well as operations associated with licensing the use of certain trademarks and products to
third parties around the world. International and Other accounted for 12.2%, 12.4% and 14.4% of our net sales in
2016, 2015 and 2014, respectively. International and Other results for the years ended December 31, 2016, 2015 and
2014 were as follows:
For the years ended December 31,
2016
2015
2014
2016 vs 2015
2015 vs 2014
Percent / Point Change
In millions of dollars
Net sales
Segment (loss) income
Segment margin
2016 compared with 2015
$
907.2
$
918.5
$
1,069.1
(29.1)
(3.2)%
(98.1)
(10.7)%
40.0
3.7%
(1.2)%
NM
(14.1)%
NM
Net sales of our International and Other segment decreased $11.3 million or 1.2% in 2016 compared to 2015,
reflecting an unfavorable impact from foreign currency exchange rates of 4.4%, volume declines of 3.7% and the
unfavorable impact of net acquisitions and divestitures of 0.1%, substantially offset by favorable net price realization
of 7.0%. Excluding the unfavorable impact of foreign currency exchange rates, the net sales of our International and
Other segment increased by approximately 3.2%.
The favorable net price realization was driven by lower direct trade expense as well as lower returns, discounts and
allowances in China, which declined significantly compared to the prior year. The volume decrease primarily related
to lower sales in India due to the discontinuance of the edible oil business as well as lower sales in our global retail and
licensing business, partially offset by net sales increases in Latin America and select export markets. Constant
30
currency net sales in Mexico and Brazil increased on a combined basis by approximately 13%, driven by solid
chocolate marketplace performance.
Our International and Other segment loss decreased $69.0 million in 2016 compared to 2015. Combined income in
Latin America and export markets improved versus the prior year and performance in China benefited from lower
direct trade and returns, discounts and allowances that were significantly lower than the prior year.
2015 compared with 2014
Net sales of our International and Other segment decreased $150.6 million or 14.1% in 2015 compared to 2014,
reflecting volume declines of 9.0%, an unfavorable impact from foreign currency exchange rates of 6.2% and
unfavorable net price realization of 4.0%, partially offset by incremental revenue from the acquisition of SGM
representing an increase of 5.1% to 2015 net sales. Excluding the unfavorable impact of foreign currency exchange
rates, the net sales of our International and Other segment declined approximately 7.9%.
The net sales decline was driven by volume declines in our China chocolate business. In 2015, chocolate category
growth in China was flat relative to the prior year; however our 2015 chocolate retail takeaway in China declined by
11%, resulting in a market share decline in China of 1.1%.
Performance in our focus markets of Mexico and Brazil improved and, on a constant currency basis, net sales in 2015
in these countries increased by approximately 6% and 3%, respectively, versus 2014. Constant currency net sales in
India declined in 2015, primarily due to the planned discontinuance of edible oil products.
Our International and Other segment loss was $98.1 million in 2015 compared to segment income of $40.0 million in
2014. The decline was primarily attributable to lower net sales of chocolate products in China, coupled with losses at
SGM as that business was also impacted by the uncertain macroeconomic conditions in China as well as incremental
integration-related costs.
Unallocated Corporate Expense
Unallocated corporate expense includes centrally-managed (a) corporate functional costs relating to legal, treasury,
finance and human resources, (b) expenses associated with the oversight and administration of our global operations,
including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash
stock-based compensation expense and (d) other gains or losses that are not integral to segment performance.
Unallocated corporate expense totaled $497.4 million in both 2016 and 2015. Savings realized in 2016 from our
productivity and cost savings initiatives were offset by higher employee-related costs and an increase in corporate
depreciation and amortization. As compared to 2014 unallocated corporate expense of $503.2 million, the reduction
in 2015 expense was driven primarily by the implementation of the 2015 Productivity Initiative discussed previously.
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, repurchases of outstanding shares, the adequacy of available commercial paper and bank lines
of credit, and the ability to attract long-term capital with satisfactory terms. We generate substantial cash from
operations and remain in a strong financial position, with sufficient liquidity available for capital reinvestment,
payment of dividends and strategic acquisitions.
31
Cash Flow Summary
The following table is derived from our Consolidated Statement of Cash Flows:
In millions of dollars
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents
Decrease in cash and cash equivalents
Operating activities
2016
2015
2014
$
$
$
983.5
(595.5)
(434.4)
(3.1)
(49.5)
1,214.5
(477.2)
(755.2)
(10.4)
(28.3)
844.4
(862.6)
(719.3)
(6.2)
(743.7)
Our principal source of liquidity is operating cash flows. Our net income and, consequently, our cash provided by
operations are impacted by sales volume, seasonal sales patterns, timing of new product introductions, profit margins
and price changes. Sales are typically higher during the third and fourth quarters of the year due to seasonal and
holiday-related sales patterns. Generally, working capital needs peak during the summer months. We meet these
needs primarily with cash on hand, bank borrowings or the issuance of commercial paper.
Cash provided by operating activities in 2016 decreased $231.0 million relative to 2015. This decrease was driven by
the following factors:
• Working capital (comprised of trade accounts receivable, inventory, accounts payable and accrued liabilities)
consumed cash of $37 million in 2016, while it generated cash of $57 million in 2015. This $94 million
fluctuation was mainly driven by an $87 million payment to settle an interest rate swap in connection with the
issuance of new debt in August 2016.
•
Prepaid expenses and other current assets consumed cash of $43 million in 2016, while they generated cash of
$118 million in 2015. This $161 million fluctuation was mainly driven by higher payments on commodity
futures contracts in 2016 as the market price of cocoa declined, versus receipts in the 2015 period. As noted
previously, we utilize commodity futures contracts to economically manage the risk of future price
fluctuations associated with our purchase of raw materials.
• Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based
compensation, excess tax benefit from stock-based compensation, deferred income taxes, goodwill and other
intangible asset charges, write-down of equity investments, the gain on settlement of the SGM liability and
other charges) decreased cash flow by $34 million in 2016 relative to 2015.
Cash provided by operating activities in 2015 increased $370.1 million relative to 2014. This increase was driven by
the following factors:
• Working capital (comprised of trade accounts receivable, inventory, accounts payable and accrued liabilities)
generated cash of $57 million in 2015, while it consumed cash of $215 million in 2014. This fluctuation was
mainly driven by lower inventory purchases in the 2015 period, since certain raw material inventory had been
built up at the preceding year-end to take advantage of favorable pricing.
•
Prepaid expenses and other current assets generated cash of $118 million in 2015, while they consumed cash
of $7 million in 2014. This $125 million fluctuation was mainly driven by our hedging activities, which
favorably impacted cash flow by $55 million in 2015 versus an unfavorable impact of $78 million in 2014,
due principally to market gains and losses on our commodity futures contracts. Our cash receipts typically
increase when futures market prices are increasing.
•
2015 cash flow was favorably impacted by approximately $30 million from the timing of tax payments in
2015 compared to 2014.
Pension and Post-Retirement Activity. We recorded net periodic benefit costs of $72.8 million, $66.8 million and
$37.3 million in 2016, 2015 and 2014, respectively, relating to our benefit plans (including our defined benefit and
32
other post retirement plans). The main drivers of fluctuations in expense from year to year are assumptions in
formulating our long-term estimates, including discount rates used to value plan obligations, expected returns on plan
assets, the service and interest costs and the amortization of actuarial gains and losses.
The funded status of our qualified defined benefit pension plans is dependent upon many factors, including returns on
invested assets, the level of market interest rates and the level of funding. We contribute cash to our plans at our
discretion, subject to applicable regulations and minimum contribution requirements. Cash contributions to our
pension and post retirement plans totaled $41.7 million, $53.3 million and $53.1 million in 2016, 2015 and 2014,
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 and short-term investments. We used cash of $595.5 million for investing activities in
2016 compared to $477.2 million in 2015, with the increase driven by additional business acquisition activity. We
used cash of $862.6 million for investing activities in 2014, which was primarily driven by additional business
acquisition activity and purchases of short-term investments.
Primary investing activities include the following:
• Capital spending. Capital expenditures, including capitalized software, primarily to support capacity
expansion, innovation and cost savings, were $269.5 million in 2016, $356.8 million in 2015 and $370.8
million in 2014. The reduction in 2016 was largely due to completion of the Malaysia plant construction
early in the year. Our 2015 and 2014 expenditures included approximately $80 million and $115 million,
respectively, relating to the Malaysia plant construction. Capitalized software additions were primarily
related to ongoing enhancements of our information systems. We expect 2017 capital expenditures, including
capitalized software, to approximate $270 million to $290 million.
• Acquisitions and divestitures. In 2016, we spent $285.4 million to acquire Ripple Brand Collective, LLC. In
2015, we spent $218.7 million to acquire Krave, partially offset by net cash received of $32 million from the
sale of Mauna Loa. In 2014, we spent $396.3 million to acquire three businesses, including $379.7 million for
SGM and $26.6 million for Allan Candy, partially offset by net cash received of $10.0 million relating to the
acquisition of an additional 5.9% interest in Lotte Shanghai Foods Co., Ltd., a joint venture established in
2007 in China, whereby cash acquired in the transaction exceeded the $5.6 million paid for the controlling
interest. See Note 2 to the Consolidated Financial Statements for additional information regarding our recent
acquisitions.
•
•
Investments in partnerships qualifying for tax credits. We make investments in partnership entities that in
turn make equity investments in projects eligible to receive federal historic and energy tax credits. We
invested approximately $13.5 million more in projects qualifying for tax credits in 2016 compared to 2015.
Short-term investments. We had no short-term investment activity in 2016. In 2015, we received proceeds of
$95 million from the sale of short-term investments, which had been purchased in 2014 for approximately
$97 million.
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 $434.4 million for financing activities in 2016 compared to $755.2 million in 2015, with the decrease due mainly to
higher proceeds from the issuance of long-term borrowings, partially offset by the purchase of the remaining 20% of
the outstanding shares of SGM and higher dividend payments in 2016. We used cash of $719.3 million for financing
activities in 2014, primarily to fund dividend payments and share repurchases.
The majority of our financing activity was attributed to the following:
•
Short-term borrowings, net. In addition to utilizing cash on hand, we use short-term borrowings (commercial
paper and bank borrowings) to fund seasonal working capital requirements and ongoing business needs. In
33
2016, we generated cash flow of $275.6 million through short-term commercial paper borrowings, partially
offset by payments in short-term foreign borrowings. In 2015, we generated cash flow of $10.7 million as a
result of higher borrowings at certain of our international businesses. In 2014, we generated additional cash
flow from the issuance of $55.0 million in commercial paper as well as incremental borrowings at certain
international locations in support of sales growth.
•
•
Long-term debt borrowings and repayments. In 2016, we used $500 million to repay long-term debt.
Additionally, in 2016, we issued $500 million of 2.30% Notes due in 2026 and $300 million of 3.375% Notes
due in 2046. In 2015, we used $355 million to repay long-term debt, including $100.2 million to repurchase
$71.6 million of our long-term debt as part of a cash tender offer. Additionally, in 2015, we issued $300
million of 1.60% Notes due in 2018 and $300 million of 3.20% Notes due in 2025. We had no repayment or
issuance activity in 2014.
Share repurchases. We repurchase shares of Common Stock to offset the dilutive impact of treasury shares
issued under our equity compensation plans. The value of these share repurchases in a given period varies
based on the volume of stock options exercised and our market price. In addition, we periodically repurchase
shares of Common Stock pursuant to Board-authorized programs intended to drive additional stockholder
value. We used cash for total share repurchases of $592.6 million in 2016, compared to $582.5 million in
2015. This included purchases pursuant to authorized programs of $420.2 million to purchase 4.6 million
shares in 2016 and $402.5 million to purchase 4.2 million shares in 2015. We used cash for total share
repurchases of $576.8 million in 2014, which included purchases pursuant to authorized programs of $202.3
million to purchase 2.1 million shares. As of December 31, 2016, approximately $100 million remained
available under the $500 million share repurchase authorization approved by the Board in January 2016.
• Dividend payments. Total dividend payments to holders of our Common Stock and Class B Common Stock
were $499.5 million in 2016, $476.1 million in 2015 and $440.4 million in 2014. Dividends per share of
Common Stock increased 7.4% to $2.402 per share in 2016 compared to $2.236 per share in 2015, while
dividends per share of Class B Common Stock increased 7.5% in 2016.
• Proceeds from the exercise of stock options, including tax benefits. We received $124.8 million from
employee exercises of stock options, including excess tax benefits, in 2016, as compared to $97.6 million in
2015 and $175.8 million in 2014. Variances are driven primarily by the number of shares exercised and the
share price at the date of grant.
• Other. In February 2016, we used $35.8 million to purchase the remaining 20% of the outstanding shares of
SGM. In September 2015, we acquired the remaining 49% interest in Hershey do Brasil Ltda. under a
cooperative agreement with Bauducco for approximately $38.3 million. Additionally, in December 2015, we
paid $10.0 million in contingent consideration to the shareholders of Krave.
Liquidity and Capital Resources
At December 31, 2016, our cash and cash equivalents totaled $297.0 million. At December 31, 2015, our cash and
cash equivalents totaled $346.5 million. Our cash and cash equivalents at the end of 2016 declined $49.5 million
compared to the 2015 year-end balance as a result of the net uses of cash outlined in the previous discussion.
Approximately two-thirds of the balance of our cash and cash equivalents at December 31, 2016 was held by
subsidiaries domiciled outside of the United States. If these amounts held outside of the United States were to be
repatriated, under current law they would be subject to U.S. federal income taxes, less applicable foreign tax credits.
However, our intent is to permanently reinvest these funds outside of the United States. The cash that our foreign
subsidiaries hold for indefinite reinvestment is expected to be used to finance foreign operations and investments. We
believe we have sufficient liquidity to satisfy our cash needs, including our cash needs in the United States.
34
We maintain debt levels we consider prudent based on our cash flow, interest coverage ratio and percentage of debt to
capital. We use debt financing to lower our overall cost of capital which increases our return on stockholders’ equity.
Our total debt was $3.0 billion at December 31, 2016 and $2.4 billion at December 31, 2015. Our total debt increased
in 2016 mainly due to the additional debt issued mid-year to repay commercial paper that had been used to fund the
Ripple Brand Collective, LLC acquisition in April 2016.
As a source of short-term financing, we maintain a $1.0 billion unsecured revolving credit facility, with an option to
increase borrowings by an additional $400 million with the consent of the lenders. As of December 31, 2016, the
termination date of this agreement is November 2020. We may use these funds for general corporate purposes,
including commercial paper backstop and business acquisitions. As of December 31, 2016, we had $526 million of
available capacity under the agreement. The unsecured revolving credit agreement contains certain financial and other
covenants, customary representations, warranties and events of default. We were in compliance with all covenants as
of December 31, 2016.
In addition to the revolving credit facility, we maintain lines of credit in various currencies with domestic and
international commercial banks. As of December 31, 2016, we had available capacity of $345.4 million under these
lines of credit.
Furthermore, we have a current shelf registration statement filed with the SEC that allows for the issuance of an
indeterminate amount of debt securities. Proceeds from the debt issuances and any other offerings under the current
registration statement may be used for general corporate requirements, including reducing existing borrowings,
financing capital additions and funding contributions to our pension plans, future business acquisitions and working
capital requirements.
Our ability to obtain debt financing at comparable risk-based interest rates is partly a function of our existing cash-
flow-to-debt and debt-to-capitalization levels as well as our current credit standing.
We believe that our existing sources of liquidity are adequate to meet anticipated funding needs at comparable risk-
based interest rates for the foreseeable future. Acquisition spending and/or share repurchases could potentially
increase our debt. Operating cash flow and access to capital markets are expected to satisfy our various cash flow
requirements, including acquisitions and capital expenditures.
Equity Structure
We have two classes of stock outstanding – Common Stock and Class B Stock. Holders of the Common Stock and the
Class B Stock generally vote together without regard to class on matters submitted to stockholders, including the
election of directors. Holders of the Common Stock have 1 vote per share. Holders of the Class B Stock have 10
votes per share. Holders of the Common Stock, voting separately as a class, are entitled to elect one-sixth of our
Board. With respect to dividend rights, holders of the Common Stock are entitled to cash dividends 10% higher than
those declared and paid on the Class B Stock.
Hershey Trust Company, as trustee for the trust established by Milton S. and Catherine S. Hershey that has as its sole
beneficiary Milton Hershey School (such trust, the "Milton Hershey School Trust"), maintains voting control over The
Hershey Company. In addition, a representative of Hershey Trust Company currently serves as a member of the
Company's Board. In performing his responsibilities on the Company’s Board, this representative may from time to
time exercise influence with regard to the ongoing business decisions of our Board or management. Hershey Trust
Company, as trustee for the Milton Hershey School Trust, in its role as controlling stockholder of the Company, has
indicated it intends to retain its controlling interest in The Hershey Company. The Company's Board, and not the
Hershey Trust Company board, is solely responsible and accountable for the Company’s management and
performance.
Pennsylvania law requires that the Office of Attorney General be provided advance notice of any transaction that
would result in Hershey Trust Company, as trustee for the Milton Hershey School Trust, no longer having voting
control of the Company. The law provides specific statutory authority for the Attorney General to intercede and
petition the court having jurisdiction over Hershey Trust Company, as trustee for the Milton Hershey School Trust, to
stop such a transaction if the Attorney General can prove that the transaction is unnecessary for the future economic
viability of the Company and is inconsistent with investment and management considerations under fiduciary
35
obligations. This legislation makes it more difficult for a third party to acquire a majority of our outstanding voting
stock and thereby may delay or prevent a change in control of the Company.
Guarantees and Other Off-Balance Sheet Arrangements
We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, that
we believe could have a material impact on our financial condition or liquidity.
Contractual Obligations
The following table summarizes our contractual obligations at December 31, 2016:
Contractual Obligations
Long-term debt
Interest expense (1)
Lease obligations (2)
Minimum pension plan funding obligations (3)
Payments due by Period
In millions of dollars
Total
Less than 1
year
1-3 years
3-5 years
More than 5
years
$
2,347.7
$
0.2
$
300.6
$
435.8
$
1,611.1
850.7
248.5
19.6
78.9
11.7
1.2
156.2
26.1
10.3
276.6
769.8
136.5
21.7
5.4
—
479.1
189.0
2.7
—
$
599.4
$
2,281.9
Unconditional purchase obligations (4)
1,558.8
1,282.2
Total obligations
$
5,025.3
$
1,374.2
$
(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, 2016.
(2) Includes the minimum rental commitments under non-cancelable operating leases primarily for offices, retail stores,
warehouses and distribution facilities.
(3) Represents future pension payments to comply with local funding requirements. Our policy is to fund domestic pension
liabilities in accordance with the minimum and maximum limits imposed by the Employee Retirement Income Security Act of 1974
(“ERISA”), federal income tax laws and the funding requirements of the Pension Protection Act of 2006. We fund non-domestic
pension liabilities in accordance with laws and regulations applicable to those plans. For more information, see Note 9 to the
Consolidated Financial Statements.
(4) Purchase obligations consist primarily of fixed commitments for the purchase of raw materials to be utilized in the normal
course of business. Amounts presented included fixed price forward contracts and unpriced contracts that were valued using market
prices as of December 31, 2016. The amounts presented in the table do not include items already recorded in accounts payable or
accrued liabilities at year-end 2016, nor does the table reflect cash flows we are likely to incur based on our plans, but are not
obligated to incur. Such amounts are part of normal operations and are reflected in historical operating cash flow trends. We do not
believe such purchase obligations will adversely affect our liquidity position.
In entering into contractual obligations, we have assumed the risk that might arise from the possible inability of
counterparties to meet the terms of their contracts. We mitigate this risk by performing financial assessments prior to
contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio
of qualified counterparties. Our risk is limited to replacing the contracts at prevailing market rates. We do not expect
any significant losses resulting from counterparty defaults.
Asset Retirement Obligations
We have a number of facilities that contain varying amounts of asbestos in certain locations within the facilities. Our
asbestos management program is compliant with current applicable regulations, which require that we handle or
dispose of asbestos in a specified manner if such facilities undergo major renovations or are demolished. 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.
36
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 8 to the Consolidated
Financial Statements for more information.
Recent Accounting Pronouncements
Information on recently issued accounting standards is included in Note 1 to the Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements requires management to use judgment and make estimates and assumptions.
We believe that our most critical accounting policies and estimates relate to the following:
Accrued Liabilities for Trade Promotion Activities
Pension and Other Post-Retirement Benefits Plans
Goodwill and Other Intangible Assets
Income Taxes
Management has discussed the development, selection and disclosure of critical accounting policies and estimates with
the Audit Committee of our Board. While we base estimates and assumptions on our knowledge of current events and
actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions.
Other significant accounting policies are outlined in Note 1 to the Consolidated Financial Statements.
Accrued Liabilities for Trade Promotion Activities
We promote our products with advertising, trade promotions and consumer incentives. These programs include, but are
not limited to, discounts, coupons, rebates, in-store display incentives and volume-based incentives. We expense
advertising costs and other direct marketing expenses as incurred. We recognize the costs of trade promotion and
consumer incentive activities as a reduction to net sales along with a corresponding accrued liability based on
estimates at the time of revenue recognition. These estimates are based on our analysis of the programs offered,
historical trends, expectations regarding customer and consumer participation, sales and payment trends and our
experience with payment patterns associated with similar programs offered in the past.
Our trade promotional costs totaled $1,157.4 million, $1,122.3 million and $1,125.5 million in 2016, 2015 and 2014,
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, 2016, actual promotional costs have not deviated from the estimated amount for a given year by
more than 3%.
Pension and Other Post-Retirement Benefits Plans
We sponsor various defined benefit pension plans. The primary plans are The Hershey Company Retirement Plan and
The Hershey Company Retirement Plan for Hourly Employees, which are cash balance plans that provide pension
benefits for most U.S. employees hired prior to January 1, 2007. We also sponsor two primary other post-employment
benefit (“OPEB”) plans, consisting of a health care plan and life insurance plan for retirees. The health care plan is
contributory, with participants’ contributions adjusted annually, and the life insurance plan is non-contributory.
For accounting purposes, the defined benefit pension and OPEB plans require assumptions to estimate the projected
and accumulated benefit obligations, including the following variables: discount rate; expected salary increases;
certain employee-related factors, such as turnover, retirement age and mortality; expected return on assets; and health
care cost trend rates. These and other assumptions affect the annual expense and obligations recognized for the
underlying plans. Our assumptions reflect our historical experiences and management's best judgment regarding future
expectations. Our related accounting policies, accounting balances and plan assumptions are discussed in Note 9 to
the Consolidated Financial Statements.
37
Pension Plans
Changes in certain assumptions could significantly affect pension expense and benefit obligations, particularly the
estimated long-term rate of return on plan assets and the discount rates used to calculate such obligations:
• Long-term rate of return on plan assets. The expected long-term rate of return is evaluated on an annual
basis. We consider a number of factors when setting assumptions with respect to the long-term rate of return,
including current and expected asset allocation and historical and expected returns on the plan asset
categories. Actual asset allocations are regularly reviewed and periodically rebalanced to the targeted
allocations when considered appropriate. Investment gains or losses represent the difference between the
expected return estimated using the long-term rate of return and the actual return realized. For 2017, we
reduced the expected return on plan assets assumption to 5.8% from the 6.1% assumption used during 2016,
reflecting lower expected long-term returns due to slowing growth in developed and emerging markets. The
historical average return (compounded annually) over the 20 years prior to December 31, 2016 was
approximately 6.5%.
As of December 31, 2016, our primary plans had cumulative unrecognized investment and actuarial losses of
approximately $418 million. We amortize the unrecognized net actuarial gains and losses in excess of the
corridor amount, which is the greater of 10% of a respective plan’s projected benefit obligation or the fair
market value of plan assets. These unrecognized net losses may increase future pension expense if not offset
by (i) actual investment returns that exceed the expected long-term rate of investment returns, (ii) other
factors, including reduced pension liabilities arising from higher discount rates used to calculate pension
obligations or (iii) other actuarial gains when actual plan experience is favorable as compared to the assumed
experience. A 100 basis point decrease or increase in the long-term rate of return on pension assets would
correspondingly increase or decrease annual net periodic pension benefit expense by approximately $10
million.
• Discount rate. The discount rate used to determine the present value of our future pension obligation at
December 31, 2016 was based on a yield curve constructed from a portfolio of high-quality corporate debt
securities for which the timing and amount of cash flows approximate the estimated benefit payments of the
plans. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. A 100
basis point decline in the weighted-average pension discount rate would increase annual net periodic pension
benefit expense by approximately $7 million and the December 31, 2016 pension liability would increase by
approximately $97 million.
Pension expense for defined benefit pension plans is estimated to approximate $35 million in 2017. Pension expense
beyond 2017 will depend on future investment performance, our contributions to the pension trusts, changes in
discount rates and various other factors related to the covered employees in the plans.
Other Post-Employment Benefit Plans
Changes in significant assumptions could affect consolidated expense and benefit obligations, particularly the discount
rates used to calculate such obligations and the healthcare cost trend rate:
• Discount rate. The determination of the discount rate used to calculate the benefit obligations of the OPEB
plans is discussed in the pension plans section above. If the discount rate assumption for these plans was
reduced by 100 basis points, the impact to the OPEB plans consolidated expense would not be material and
the increase in the December 31, 2016 benefit liability would be approximately $27 million.
• Healthcare cost trend rate. The healthcare cost trend rate is based on a combination of inputs including our
recent claims history and insights from external advisers regarding recent developments in the healthcare
marketplace, as well as projections of future trends in the marketplace. See Note 9 to the Consolidated
Financial Statements for disclosure of the effects of a one percentage point change in the healthcare cost trend
rate.
38
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually or more
often if indicators of a potential impairment are present. Our annual impairment tests are conducted at the beginning
of the fourth quarter.
We test goodwill for impairment by either performing a qualitative assessment or using a two-step quantitative
process. If we choose to perform a qualitative assessment, we evaluate economic, industry and company-specific
factors as an initial step in assessing the fair value of the related reporting unit. If we determine that it is more likely
than not that the fair value of the reporting unit is less than its carrying value, the two-step process is then performed.
Otherwise, no further testing is required. For those reporting units tested using the two-step process, we first compare
the fair value of each reporting unit with the carrying amount of the reporting unit, including goodwill. If the
estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, we complete a second
step to determine the amount of the goodwill impairment that we should record. In the second step, we determine an
implied fair value of the reporting unit’s goodwill by allocating the reporting unit’s fair value to all of its assets and
liabilities other than goodwill (including any unrecognized intangible assets). We compare the resulting implied fair
value of the goodwill to the carrying amount and record an impairment charge for the difference. We test individual
indefinite-lived intangible assets by comparing the estimated fair value with the book values of each asset.
We determine the fair value of our reporting units and indefinite-lived intangible assets using an income approach.
Under the income approach, we calculate the fair value of our reporting units and indefinite-lived intangible assets
based on the present value of estimated future cash flows. Considerable management judgment is necessary to
evaluate the impact of operating and macroeconomic changes and to estimate the future cash flows used to measure
fair value. Our estimates of future cash flows consider past performance, current and anticipated market conditions
and internal projections and operating plans which incorporate estimates for sales growth and profitability, and cash
flows associated with taxes and capital spending. Additional assumptions include forecasted growth rates, estimated
discount rates, which may be risk-adjusted for the operating market of the reporting unit, and estimated royalty rates
that would be charged for comparable branded licenses. We believe such assumptions also reflect current and
anticipated market conditions and are consistent with those that would be used by other marketplace participants for
similar valuation purposes. Such assumptions are subject to change due to changing economic and competitive
conditions.
We also have intangible assets, consisting primarily of certain trademarks, customer-related intangible assets and
patents obtained through business acquisitions, that are expected to have determinable useful lives. The costs of finite-
lived intangible assets are amortized to expense over their estimated lives. Our estimates of the useful lives of finite-
lived intangible assets consider judgments regarding the future effects of obsolescence, demand, competition and other
economic factors. We conduct impairment tests when events or changes in circumstances indicate that the carrying
value of these finite-lived assets may not be recoverable. Undiscounted cash flow analyses are used to determine if an
impairment exists. If an impairment is determined to exist, the loss is calculated based on the estimated fair value of
the assets.
At December 31, 2016, the net book value of our goodwill totaled $812.3 million and related to five reporting units.
As it relates to our annual testing performed at the beginning of the fourth quarter, no additional goodwill impairment
was indicated, and the percentage of excess fair value over carrying value was at least 100% for each of our tested
reporting units.
In 2015, we recorded a $280.8 million impairment charge resulting from our interim reassessment of the valuation of
the SGM business, coupled with the write-down of goodwill attributed to the China chocolate business in connection
with the SGM acquisition. As a result of declining performance levels and our post-acquisition assessment, we
determined that GAAP required an interim impairment test of the SGM reporting unit. We performed the first step of
this test as of July 5, 2015 using an income approach based on our estimates of future performance scenarios for the
business. The results of this test indicated that the fair value of the reporting unit was less than the carrying amount as
of the measurement date, suggesting that a goodwill impairment was probable, which required us to perform a second
step analysis to confirm that an impairment existed and to determine the amount of the impairment based on our
reassessed value of the reporting unit. Although preliminary, as a result of this reassessment, in the second quarter of
2015 we recorded an estimated $249.8 million non-cash goodwill impairment charge, representing a write-down of all
of the goodwill related to the SGM reporting unit as of July 5, 2015. During the third quarter, we increased the value
39
of acquired goodwill by $16.6 million, with the corresponding offset principally represented by the establishment of
additional opening balance sheet liabilities for additional commitments and contingencies that were identified through
our post-acquisition assessment. We also finalized the impairment test of the goodwill relating to the SGM reporting
unit, which resulted in a write-off of this additional goodwill in the third quarter, for a total impairment of $266.4
million. We also tested the other long-lived assets of SGM for recoverability by comparing the sum of the
undiscounted cash flows to the carrying value of the asset group, and no impairment was indicated.
In connection with the 2014 SGM acquisition, we had assigned approximately $15 million of goodwill to our existing
China chocolate business, as this reporting unit was expected to benefit from acquisition synergies relating to the sale
of Golden Monkey-branded product through its Tier 1 and hypermarket distributor networks. As the net sales and
earnings of our China business continued to be adversely impacted by macroeconomic challenges and changing
consumer shopping behavior through the third quarter of 2015, we determined that an interim impairment test of the
goodwill in this reporting unit was also required. We performed the first step of this test in the third quarter of 2015
using an income approach based on our estimates of future performance scenarios for the business. The results of this
test suggested that a goodwill impairment was probable, and the conclusions of the second step analysis resulted in a
write-down of $14.4 million, representing the full value of goodwill attributed to this reporting unit as of October 4,
2015. We also tested the other long-lived assets of the China asset group for recoverability by comparing the sum of
the undiscounted cash flows to the carrying value of the asset group, and no impairment was indicated.
During our 2014 annual testing, the fair value of our India reporting unit approximated its carrying value. As a result
and given the sensitivity of the India impairment analysis to changes in the underlying assumptions, we performed a
step two analysis which indicated a goodwill impairment of $11.4 million. In addition, our 2014 annual test of
indefinite-lived intangible assets resulted in a $4.5 million pre-tax write-down of a trademark, also associated with the
India business. Also in 2014, in connection with the anticipated sale of our Mauna Loa business (as discussed in Note
2 to the Consolidated Financial Statements), during the third and fourth quarters of 2014, we recorded estimated
impairment charges totaling $18.5 million to write-down goodwill and an indefinite-lived trademark intangible asset,
based on the valuation of these assets as implied by the agreed-upon sales price.
Income Taxes
We base our deferred income taxes, accrued income taxes and provision for income taxes upon income, statutory tax
rates, the legal structure of our Company, interpretation of tax laws and tax planning opportunities available to us in
the various jurisdictions in which we operate. We file income tax returns in the U.S. federal jurisdiction and various
state and foreign jurisdictions. We are regularly audited by federal, state and foreign tax authorities, but a number of
years may elapse before an uncertain tax position, for which we have unrecognized tax benefits, is audited and finally
resolved. From time to time, these audits result in assessments of additional tax. We maintain reserves for such
assessments.
We apply a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions.
Accordingly, we recognize the amount of tax benefit that has a greater than 50% likelihood of being ultimately
realized upon settlement. Future changes in judgments and estimates related to the expected ultimate resolution of
uncertain tax positions will affect income in the quarter of such change. While it is often difficult to predict the final
outcome or the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax
benefits reflect the most likely outcome. Accrued interest and penalties related to unrecognized tax benefits are
included in income tax expense. We adjust these unrecognized tax benefits, as well as the related interest, in light of
changing facts and circumstances, such as receiving audit assessments or clearing of an item for which a reserve has
been established. Settlement of any particular position could require the use of cash. Favorable resolution would be
recognized as a reduction to our effective income tax rate in the period of resolution.
We believe it is more likely than not that the results of future operations will generate sufficient taxable income to
realize the deferred tax assets, net of valuation allowances. Our valuation allowances are primarily related to U.S.
capital loss carryforwards and various foreign jurisdictions' net operating loss carryforwards and other deferred tax
assets for which we do not expect to realize a benefit.
40
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We use certain derivative instruments to manage our interest rate, foreign currency exchange rate and commodity price
risks. We monitor and manage these exposures as part of our overall risk management program.
We enter into interest rate swap agreements and foreign currency forward exchange contracts and options for periods
consistent with related underlying exposures. We enter into commodities futures and options contracts and other
derivative instruments for varying periods. These commodity derivative instruments are intended to be, and are
effective as, economic hedges of market price risks associated with anticipated raw material purchases, energy
requirements and transportation costs. We do not hold or issue derivative instruments for trading purposes and are not
a party to any instruments with leverage or prepayment features.
In entering into these contracts, we have assumed the risk that might arise from the possible inability of counterparties
to meet the terms of their contracts. We mitigate this risk by entering into exchange-traded contracts with collateral
posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic
evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. We do not
expect any significant losses from counterparty defaults.
Refer to Note 1 and Note 5 to the Consolidated Financial Statements for further discussion of these derivative
instruments and our hedging policies.
Interest Rate Risk
In order to manage interest rate exposure, we may periodically enter into interest rate swap agreements including
fixed-to-floating interest rate swaps to achieve a desired proportion of variable versus fixed rate debt based on current
and projected market conditions and forward starting interest rate swap agreements to reduce interest volatility
associated with certain anticipated debt issues. When utilized, the notional amount, interest payment and maturity date
of these swaps generally match the principal, interest payment and maturity date of the related debt, and the swaps are
valued using observable benchmark rates.
The total notional amount of interest rate swaps outstanding at December 31, 2016 and 2015 was $350 million and
$850 million, respectively. We had one forward starting interest rate swap agreement in a cash flow hedging
relationship with a notional amount of $500 million at December 31, 2015. This interest rate swap agreement was
settled in connection with the issuance of debt in August 2016, resulting in a payment of approximately $87 million
which is reflected within operating activities in the Consolidated Statement of Cash Flows. The notional amount at
December 31, 2016 and 2015 includes $350 million of fixed-to-floating interest rate swaps that 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, 2016 would have increased interest expense by approximately $3.6 million
for the full year 2016 and 2015, respectively.
We consider our current risk related to market fluctuations in interest rates on our remaining debt portfolio, excluding
fixed-rate debt converted to variable rates with fixed-to-floating instruments, to be minimal since this debt is largely
long-term and fixed-rate in nature. Generally, the fair market value of fixed-rate debt will increase as interest rates fall
and decrease as interest rates rise. A 100 basis point increase in market interest rates would decrease the fair value of
our fixed-rate long-term debt at December 31, 2016 and December 31, 2015 by approximately $142 million and $76
million, respectively. However, since we currently have no plans to repurchase our outstanding fixed-rate instruments
before their maturities, the impact of market interest rate fluctuations on our long-term debt does not affect our results
of operations or financial position.
Foreign Currency Exchange Rate Risk
We are exposed to currency fluctuations related to manufacturing or selling products in currencies other than the U.S.
dollar. We may enter into foreign currency forward exchange contracts and options to reduce fluctuations in our long
or short currency positions relating primarily to purchase commitments or forecasted purchases for equipment, raw
materials and finished goods denominated in foreign currencies. We also may hedge payment of forecasted
intercompany transactions with our subsidiaries outside of the United States. We generally hedge foreign currency
price risks for periods from 3 to 12 months.
41
A summary of foreign currency forward exchange contracts and the corresponding amounts at contracted forward rates
is as follows:
December 31,
2016
2015
Contract
Amount
Primary
Currencies
Contract
Amount
Primary
Currencies
In millions of dollars
Foreign currency forward exchange
contracts to purchase foreign currencies
$
9.4
Euros
$ 19.8
Euros
Foreign currency forward exchange
contracts to sell foreign currencies
$ 80.4
Canadian dollars
Brazilian reals
Japanese yen
$ 11.9
Brazilian reals
Japanese yen
The fair value of foreign currency forward exchange contracts represents the difference between the contracted and
current market foreign currency exchange rates at the end of the period. We estimate the fair value of foreign currency
forward exchange contracts on a quarterly basis by obtaining market quotes of spot and forward rates for contracts
with similar terms, adjusted where necessary for maturity differences. At December 31, 2016 and 2015, the net fair
value of these instruments was an asset of $1.4 million and a liability of $0.1 million, respectively. Assuming an
unfavorable 10% change in year-end foreign currency exchange rates, the fair value of these instruments would have
declined by $9.6 million and $3.2 million, respectively.
Commodities—Price Risk Management and Futures Contracts
Our most significant raw material requirements include cocoa products, sugar, dairy products, peanuts and almonds.
The cost of cocoa products and prices for related futures contracts and costs for certain other raw materials historically
have been subject to wide fluctuations attributable to a variety of factors. These factors include:
Commodity market fluctuations;
Foreign currency exchange rates;
Imbalances between supply and demand;
The effect of weather on crop yield;
Speculative influences;
Trade agreements among producing and consuming nations;
Supplier compliance with commitments;
Political unrest in producing countries; and
Changes in governmental agricultural programs and energy policies.
We use futures and options contracts and other commodity derivative instruments in combination with forward
purchasing of cocoa products, sugar, corn sweeteners, 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, dairy futures liquidity is not as developed
as many of the other commodities futures markets and, therefore, it can be difficult to hedge our costs for dairy
products by entering into futures contracts or other derivative instruments to extend coverage for long periods of time.
We use diesel swap futures contracts to minimize price fluctuations associated with our transportation costs. Our
commodity procurement practices are intended to reduce the risk of future price increases and provide visibility to
future costs, but also may potentially limit our ability to benefit from possible price decreases. Our costs for major
raw materials will not necessarily reflect market price fluctuations primarily because of our forward purchasing and
hedging practices.
During 2016, average cocoa futures contract prices decreased compared with 2015 and traded in a range between
$1.03 and $1.38 per pound, based on the Intercontinental Exchange futures contract. Cocoa production was lower
during the 2015 to 2016 crop year and global demand was slightly higher, which produced a small reduction in global
cocoa stocks over the past year. Despite the slight decrease in global cocoa inventories, prices started to decline in
42
response to expectations that future cocoa supply increases were going to outpace demand and rebuild global stocks
during the subsequent crop year.
The table below shows annual average cocoa futures prices and the highest and lowest monthly averages for each of
the calendar years indicated. The prices reflect the monthly averages of the quotations at noon of the three active
futures trading contracts closest to maturity on the Intercontinental Exchange.
Annual Average
High
Low
Cocoa Futures Contract Prices
(dollars per pound)
2016
2015
2014
2013
2012
$
$
1.29
1.38
1.03
$
1.40
1.53
1.28
1.36
1.45
1.25
$
$
1.09
1.26
0.97
1.06
1.17
1.00
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 2016, prices for fluid dairy milk ranged from a low of $0.13 per pound to a high of $0.15 per pound, on a Class
IV milk basis. Dairy prices were lower than 2015, driven by increased production in Europe and the United States as
well as larger dairy product inventories globally.
The price of sugar is subject to price supports under U.S. farm legislation. Such legislation establishes import quotas
and duties to support the price of sugar. As a result, sugar prices paid by users in the United States are currently higher
than prices on the world sugar market. United States delivered east coast refined sugar prices traded in a range from
$0.33 to $0.39 per pound during 2016.
Peanut prices in the United States began the year around $0.46 per pound and closed the year at $0.65 per pound.
Drought conditions throughout 2016 in the key Southeast peanut growing region resulted in an estimated 5% smaller
crop versus the 2015 crop and drove price increases. Almond prices began the year at $3.53 per pound and decreased
to $2.84 per pound during 2016. Almond supply is ample to support U.S. demand heading into 2017 as the 2016 crop
is expected to be approximately 11% larger than the 2015 crop. (Source: Almond Board of California)
We make or receive cash transfers to or from commodity futures brokers on a daily basis reflecting changes in the
value of futures contracts on the Intercontinental Exchange or various other exchanges. These changes in value
represent unrealized gains and losses. The cash transfers offset higher or lower cash requirements for the payment of
future invoice prices of raw materials, energy requirements and transportation costs.
Commodity Sensitivity Analysis
Our open commodity derivative contracts had a notional value of $739.4 million as of December 31, 2016 and $374.8
million as of December 31, 2015. At the end of 2016, the potential change in fair value of commodity derivative
instruments, assuming a 10% decrease in the underlying commodity price, would have increased our net unrealized
losses in 2016 by $73.9 million, generally offset by a reduction in the cost of the underlying commodity purchases.
43
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Responsibility for Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016, 2015 and 2014
Notes to Consolidated Financial Statements
45
46
48
49
50
51
52
53
44
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 2016, 2015 and 2014 financial statements have been audited by KPMG LLP, an independent registered public
accounting firm. KPMG LLP's report on our financial statements and internal controls over financial reporting is
included herein.
The Audit Committee of the Board of Directors of the Company, consisting solely of independent, non-management
directors, meets regularly with the independent auditors, internal auditors and management to discuss, among other
things, the audit scope and results. KPMG LLP and the internal auditors both have full and free access to the Audit
Committee, with and without the presence of management.
/s/ JOHN P. BILBREY
John P. Bilbrey
Chief Executive Officer
(Principal Executive Officer)
/s/ PATRICIA A. LITTLE
Patricia A. Little
Chief Financial Officer
(Principal Financial Officer)
45
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, 2016 and 2015, 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, 2016.
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, 2016, 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's Annual 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, 2016 and 2015, and the results of
their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in
conformity with U.S. generally accepted accounting principles. Also in our opinion, the related consolidated financial
statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
46
Also in our opinion, The Hershey Company and subsidiaries maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated
Framework (2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
/s/ KPMG LLP
New York, New York
February 21, 2017
47
THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
For the years ended December 31,
2016
2015
Net sales
Cost of sales
Gross profit
Selling, marketing and administrative expense
Goodwill and other intangible asset impairment charges
Business realignment costs
Operating profit
Interest expense, net
Other (income) expense, net
Income before income taxes
Provision for income taxes
Net income
Net income per share—basic:
Common stock
Class B common stock
Net income per share—diluted:
Common stock
Class B common stock
Dividends paid per share:
Common stock
Class B common stock
$
7,440,181
$
7,386,626
$
4,282,290
3,157,891
1,915,378
4,204
32,526
4,003,951
3,382,675
1,969,308
280,802
94,806
2014
7,421,768
4,085,602
3,336,166
1,898,284
15,900
29,721
1,205,783
1,037,759
1,392,261
90,143
16,159
1,099,481
379,437
105,773
30,139
901,847
388,896
720,044
$
512,951
$
83,532
2,686
1,306,043
459,131
846,912
3.45
3.15
3.34
3.14
2.402
2.184
$
$
$
$
$
$
2.40
2.19
2.32
2.19
2.236
2.032
$
$
$
$
$
$
3.91
3.54
3.77
3.52
2.040
1.842
$
$
$
$
$
$
$
See Notes to Consolidated Financial Statements.
48
THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
For the years ended December 31,
2016
Tax
(Expense)
Benefit
Pre-Tax
Amount
After-Tax
Amount
$ 720,044
Pre-Tax
Amount
2015
Tax
(Expense)
Benefit
After-Tax
Amount
$ 512,951
Pre-Tax
Amount
2014
Tax
(Expense)
Benefit
After-Tax
Amount
$ 846,912
Net income
Other comprehensive (loss) income, net
of tax:
Foreign currency translation adjustments
$ (13,041) $
—
(13,041) $ (59,707) $
—
(59,707) $ (26,851) $
—
(26,851)
Pension and post-retirement benefit
plans:
Net actuarial gain (loss) and prior
service cost
Reclassification to earnings
Cash flow hedges:
Gains (losses) on cash flow hedging
derivatives
Reclassification to earnings
Total other comprehensive (loss)
income, net of tax
Total comprehensive income
Comprehensive loss attributable to
noncontrolling interests
Comprehensive income attributable to
The Hershey Company
20,304
56,604
(7,776)
(21,653)
12,528
34,951
(5,559)
2,002
(3,557)
(158,613)
59,004
(99,609)
52,469
(18,910)
33,559
23,252
(8,659)
14,593
(52,708)
(16,482)
18,701
7,524
(34,007)
61,839
(23,520)
38,319
(61,358)
(8,958)
(36,634)
13,416
(23,218)
(67,403)
24,281
24,341
(37,077)
(43,062)
$
(5,323) $
(3,204)
(8,527) $
12,408
$ (27,012)
(14,604) $ (290,973) $
98,967
(192,006)
$ 711,517
3,664
$ 715,181
$ 498,347
2,152
$ 500,499
$ 654,906
—
$ 654,906
See Notes to Consolidated Financial Statements.
49
THE HERSHEY COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
2016
2015
December 31,
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable—trade, net
Inventories
Prepaid expenses and other
Total current assets
Property, plant and equipment, net
Goodwill
Other intangibles
Other assets
Deferred income taxes
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Accrued income taxes
Short-term debt
Current portion of long-term debt
Total current liabilities
Long-term debt
Other long-term liabilities
Deferred income taxes
Total liabilities
Stockholders’ equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none in 2016 and 2015
Common stock, shares issued: 299,281,967 in 2016 and 2015
Class B common stock, shares issued: 60,619,777 in 2016 and 2015
Additional paid-in capital
Retained earnings
Treasury—common stock shares, at cost: 147,642,009 in 2016 and
143,124,384 in 2015
Accumulated other comprehensive loss
Total—The Hershey Company stockholders’ equity
Noncontrolling interests in subsidiaries
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
$
$
$
296,967
581,381
745,678
192,752
1,816,778
2,177,248
812,344
492,737
168,365
56,861
5,524,333
522,536
750,986
3,207
632,471
243
1,909,443
2,347,455
400,161
39,587
4,696,646
—
299,281
60,620
869,857
346,529
599,073
750,970
152,026
1,848,598
2,240,460
684,252
379,305
155,366
36,390
5,344,371
474,266
856,967
23,243
363,513
499,923
2,217,912
1,557,091
468,718
53,188
4,296,909
—
299,281
60,620
783,877
6,115,961
5,897,603
(6,183,975)
(375,888)
785,856
41,831
827,687
5,524,333
$
(5,672,359)
(371,025)
997,997
49,465
1,047,462
5,344,371
See Notes to Consolidated Financial Statements.
50
THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the years ended December 31,
2016
2015
2014
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
720,044
$
512,951
$
846,912
Depreciation and amortization
Stock-based compensation expense
Excess tax benefits from stock-based compensation
Deferred income taxes
Goodwill and other intangible asset impairment charges
Loss on early extinguishment of debt
Write-down of equity investments
Gain on settlement of SGM liability (see Note 2)
Other
Changes in assets and liabilities, net of business acquisitions and divestitures:
Accounts receivable—trade, net
Inventories
Prepaid expenses and other current assets
Accounts payable and accrued liabilities
Contributions to pension and other benefits plans
Other assets and liabilities
Net cash provided by operating activities
Investing Activities
Capital additions (including software)
Proceeds from sales of property, plant and equipment
Proceeds from sale of business
Equity investments in tax credit qualifying partnerships
Business acquisitions, net of cash and cash equivalents acquired
Sale (purchase) of short-term investments
Net cash used in investing activities
Financing Activities
Net increase in short-term debt
Long-term borrowings
Repayment of long-term debt
Payment of SGM liability (see Note 2)
Cash dividends paid
Repurchase of common stock
Exercise of stock options
Excess tax benefits from stock-based compensation
Other
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental Disclosure
Interest paid (excluding loss on early extinguishment of debt in 2015)
Income taxes paid
$
$
301,837
54,785
(22,062)
(38,097)
4,204
—
43,482
(26,650)
51,375
21,096
13,965
(42,955)
(72,295)
(41,697)
16,443
983,475
244,928
51,533
(24,839)
(38,537)
280,802
28,326
39,489
—
28,467
(24,440)
52,049
118,007
29,406
(53,273)
(30,413)
1,214,456
(269,476)
(356,810)
3,651
—
(44,255)
(285,374)
—
(595,454)
275,607
792,953
(500,000)
(35,762)
(499,475)
(592,550)
102,722
22,062
—
(434,443)
(3,140)
(49,562)
346,529
296,967
90,951
425,539
$
$
1,205
32,408
(30,720)
(218,654)
95,316
(477,255)
10,720
599,031
(355,446)
—
(476,132)
(582,623)
72,719
24,839
(48,270)
(755,162)
(10,364)
(28,325)
374,854
346,529
88,448
368,926
$
$
211,532
54,068
(53,497)
18,796
15,900
—
—
—
(11,027)
(67,464)
(88,497)
(7,245)
(59,102)
(53,110)
37,111
844,377
(370,789)
1,612
—
—
(396,265)
(97,131)
(862,573)
117,515
3,051
(1,442)
—
(440,414)
(576,755)
122,306
53,497
2,940
(719,302)
(6,156)
(743,654)
1,118,508
374,854
87,801
384,318
See Notes to Consolidated Financial Statements.
51
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C
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data or if otherwise indicated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Hershey Company together with its wholly-owned subsidiaries and entities in which it has a controlling interest,
(the “Company,” “Hershey,” “we” or “us”) is a global confectionery leader known for its branded portfolio of
chocolate, sweets, mints and other great-tasting snacks. The Company has more than 80 brands worldwide including
such iconic brand names as Hershey’s, Reese’s, Kisses, Jolly Rancher and Ice Breakers, which are marketed, sold and
distributed in approximately 70 countries worldwide. Hershey is focused on growing its presence in key international
markets while continuing to build its competitive advantage in North America. The Company currently operates
through two reportable segments that are aligned with its management structure and the key markets it serves: North
America and International and Other. For additional information on our segment presentation, see Note 11.
Basis of Presentation
Our consolidated financial statements include the accounts of The Hershey Company and its majority-owned or
controlled subsidiaries. Intercompany transactions and balances have been eliminated. We have a controlling
financial interest if we own a majority of the outstanding voting common stock and minority shareholders do not have
substantive participating rights, we have significant control through contractual or economic interests in which we are
the primary beneficiary or we have the power to direct the activities that most significantly impact the entity's
economic performance. Net income (loss) attributable to noncontrolling interests is not significant and is recorded
within selling, marketing and administrative expense in the Consolidated Statements of Income. See Note 12 for
additional information on our noncontrolling interests. We use the equity method of accounting when we have a 20%
to 50% interest in other companies and exercise significant influence. In addition, we use the equity method of
accounting for our investments in partnership entities which make equity investments in projects eligible to receive
federal historic and energy tax credits. See Note 8 for additional information on our equity investments in partnership
entities qualifying for tax credits.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying disclosures. Our significant estimates and
assumptions include, among others, pension and other post-retirement benefit plan assumptions, valuation assumptions
of goodwill and other intangible assets, useful lives of long-lived assets, marketing and trade promotion accruals and
income taxes. These estimates and assumptions are based on management’s best judgment. Management evaluates its
estimates and assumptions on an ongoing basis using historical experience and other factors, including the current
economic environment, and the effects of any revisions are reflected in the consolidated financial statements in the
period that they are determined. As future events and their effects cannot be determined with precision, actual results
could differ significantly from these estimates.
Revenue Recognition
We record sales when all of the following criteria have been met:
A valid customer order with a fixed price has been received;
The product has been delivered to the customer;
There is no further significant obligation to assist in the resale of the product; and
Collectability is reasonably assured.
Net sales include revenue from the sale of finished goods and royalty income, net of allowances for trade promotions,
consumer coupon programs and other sales incentives, and allowances and discounts associated with aged or
potentially unsaleable products. Trade promotions and sales incentives primarily include reduced price features,
53
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
merchandising displays, sales growth incentives, new item allowances and cooperative advertising. Sales, use, value-
added and other excise taxes are not recognized in revenue.
In 2016, 2015 and 2014, approximately 25%, 26% and 25%, respectively, of our consolidated net sales were made to
McLane Company, Inc., one of the largest wholesale distributors in the United States to convenience stores, drug
stores, wholesale clubs and mass merchandisers and the primary distributor of our products to Wal-Mart Stores, Inc.
Cost of Sales
Cost of sales represents costs directly related to the manufacture and distribution of our products. Primary costs
include raw materials, packaging, direct labor, overhead, shipping and handling, warehousing and the depreciation of
manufacturing, warehousing and distribution facilities. Manufacturing overhead and related expenses include salaries,
wages, employee benefits, utilities, maintenance and property taxes.
Selling, Marketing and Administrative Expense
Selling, marketing and administrative expense (“SM&A”) represents costs incurred in generating revenues and in
managing our business. Such costs include advertising and other marketing expenses, selling expenses, research and
development, administrative and other indirect overhead costs, amortization of capitalized software and depreciation
of administrative facilities. Research and development costs, charged to expense as incurred, totaled $47,268 in 2016,
$49,281 in 2015 and $47,554 in 2014. Advertising expense is also charged to expense as incurred and totaled
$521,479 in 2016, $561,644 in 2015 and $570,223 in 2014. Prepaid advertising expense was $651 and $3,924 as of
December 31, 2016 and 2015, respectively.
Cash Equivalents
Cash equivalents consist of highly liquid debt instruments, time deposits and money market funds with original
maturities of three months or less. The fair value of cash and cash equivalents approximates the carrying amount.
Short-term Investments
Short-term investments consist of bank term deposits that have original maturity dates ranging from greater than three
months to twelve months. Short-term investments are carried at cost, which approximates fair value.
Accounts Receivable—Trade
In the normal course of business, we extend credit to customers that satisfy pre-defined credit criteria, based upon the
results of our recurring financial account reviews and our evaluation of current and projected economic conditions.
Our primary concentrations of credit risk are associated with Wal-Mart Stores, Inc. and McLane Company, Inc., two
customers served principally by our North America segment. As of December 31, 2016, McLane Company, Inc.
accounted for approximately 19% of our total accounts receivable. Wal-Mart Stores, Inc. accounted for approximately
14% of our total accounts receivable as of December 31, 2016. No other customer accounted for more than 10% of
our year-end accounts receivable. We believe that we have little concentration of credit risk associated with the
remainder of our customer base. Accounts receivable-trade in the Consolidated Balance Sheets is presented net of
allowances and anticipated discounts of $40,153 and $32,638 at December 31, 2016 and 2015, respectively.
Inventories
Inventories are valued at the lower of cost or market value, adjusted for the value of inventory that is estimated to be
excess, obsolete or otherwise unsaleable. As of December 31, 2016, approximately 54% of our inventories,
representing the majority of our U.S. inventories, were valued under the last-in, first-out (“LIFO”) method. The
remainder of our inventories in the U.S. and inventories for our international businesses are valued at the lower of
first-in, first-out (“FIFO”) cost or market. LIFO cost of inventories valued using the LIFO method was $402,919 as of
December 31, 2016 and $410,865 as of December 31, 2015. The adjustment to LIFO, as shown in Note 16,
approximates the excess of replacement cost over the stated LIFO inventory value. The net impact of LIFO
acquisitions and liquidations was not material to 2016, 2015 or 2014.
54
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives
of the assets, as follows: 3 to 15 years for machinery and equipment; and 25 to 40 years for buildings and related
improvements. Total depreciation expense for the years ended December 31, 2016, 2015 and 2014 was $231,735,
$197,054 and $176,312, respectively. Maintenance and repairs are expensed as incurred. We capitalize applicable
interest charges incurred during the construction of new facilities and production lines and amortize these costs over
the assets’ estimated useful lives.
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. We measure the recoverability of assets to be held and used by a
comparison of the carrying amount of long-lived assets to future undiscounted net cash flows expected to be
generated. If these assets are considered to be impaired, we measure impairment as the amount by which the carrying
amount of the assets exceeds the fair value of the assets. We report assets held for sale or disposal at the lower of the
carrying amount or fair value less cost to sell.
We assess asset retirement obligations on a periodic basis and recognize the fair value of a liability for an asset
retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. We
capitalize associated asset retirement costs as part of the carrying amount of the long-lived asset.
Computer Software
We capitalize costs associated with software developed or obtained for internal use when both the preliminary project
stage is completed and it is probable the software being developed will be completed and placed in service. Capitalized
costs include only (i) external direct costs of materials and services consumed in developing or obtaining internal-use
software, (ii) payroll and other related costs for employees who are directly associated with and who devote time to the
internal-use software project and (iii) interest costs incurred, when material, while developing internal-use software.
We cease capitalization of such costs no later than the point at which the project is substantially complete and ready for
its intended purpose.
The unamortized amount of capitalized software totaled $95,301 and $68,004 at December 31, 2016 and 2015,
respectively. We amortize software costs using the straight-line method over the expected life of the software,
generally 3 to 5 years. Accumulated amortization of capitalized software was $322,807 and $304,057 as of
December 31, 2016 and 2015, respectively. Such amounts are recorded within other assets in the Consolidated
Balance Sheets.
We review the carrying value of software and development costs for impairment in accordance with our policy
pertaining to the impairment of long-lived assets.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually or more
often if indicators of a potential impairment are present. Our annual impairment tests are conducted at the beginning
of the fourth quarter. We test goodwill for impairment by performing a qualitative assessment or using a two-step
quantitative process. If we choose to perform a qualitative assessment, we evaluate economic, industry and company-
specific factors as an initial step in assessing the fair value of the related reporting unit. If we determine that it is more
likely than not that the fair value of the reporting unit is less than its carrying value, the two-step process is then
performed. Otherwise, no further testing is required. For those reporting units tested using the two-step process, we
first 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
55
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
based on the present value of estimated future cash flows. Considerable management judgment is necessary to
evaluate the impact of operating and macroeconomic changes and to estimate the future cash flows used to measure
fair value. Our estimates of future cash flows consider past performance, current and anticipated market conditions
and internal projections and operating plans which incorporate estimates for sales growth and profitability, and cash
flows associated with taxes and capital spending. Additional assumptions include forecasted growth rates, estimated
discount rates, which may be risk-adjusted for the operating market of the reporting unit, and estimated royalty rates
that would be charged for comparable branded licenses. We believe such assumptions also reflect current and
anticipated market conditions and are consistent with those that would be used by other marketplace participants for
similar valuation purposes. Such assumptions are subject to change due to changing economic and competitive
conditions. See Note 3 for additional information regarding the results of impairment tests.
The cost of intangible assets with finite useful lives is amortized on a straight-line basis. Our finite-lived intangible
assets consist primarily of certain trademarks, customer-related intangible assets and patents obtained through business
acquisitions, which are amortized over estimated useful lives of approximately 25 years, 15 years, and 5 years,
respectively. When certain events or changes in operating conditions indicate that the carrying value of these assets
may not be recoverable, we perform an impairment assessment and may adjust the remaining useful lives.
Currency Translation
The financial statements of our foreign entities with functional currencies other than the U.S. dollar are translated into
U.S. dollars, with the resulting translation adjustments recorded as a component of other comprehensive income (loss).
Assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the balance sheet date, while
income and expense items are translated using the average exchange rates during the period.
Derivative Instruments
We use derivative instruments principally to offset exposure to market risks arising from changes in commodity prices,
foreign currency exchange rates and interest rates. See Note 5 for additional information on our risk management
strategy and the types of instruments we use.
Derivative instruments are recognized on the balance sheet at their fair values. When we become party to a derivative
instrument and intend to apply hedge accounting, we designate the instrument for financial reporting purposes as a
cash flow or fair value hedge. The accounting for changes in fair value (gains or losses) of a derivative instrument
depends on whether we have designated it and it qualified as part of a hedging relationship, as noted below:
• Changes in the fair value of a derivative that is designated as a cash flow hedge are recorded in accumulated
other comprehensive income (“AOCI”) to the extent effective and reclassified into earnings in the same
period or periods during which the transaction hedged by that derivative also affects earnings.
• Changes in the fair value of a derivative that is designated as a fair value hedge, along with the offsetting loss
or gain on the hedged asset or liability that is attributable to the risk being hedged, are recorded in earnings,
thereby reflecting in earnings the net extent to which the hedge is not effective in achieving offsetting changes
in fair value.
• Changes in the fair value of a derivative not designated as a hedging instrument are recognized in earnings in
cost of sales or SM&A, consistent with the related exposure.
For derivatives designated as hedges, we assess, both at the hedge's inception and on an ongoing basis, whether they
are highly effective in offsetting changes in fair values or cash flows of hedged items. The ineffective portion, if any,
is recorded directly in earnings. In addition, if we determine that a derivative is not highly effective as a hedge or that
it has ceased to be a highly effective hedge, we discontinue hedge accounting prospectively.
We do not hold or issue derivative instruments for trading or speculative purposes and are not a party to any
instruments with leverage or prepayment features.
Cash flows related to the derivative instruments we use to manage interest, commodity or other currency exposures are
classified as operating activities.
56
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Reclassifications
Certain prior period amounts have been reclassified to conform to current year presentation. Specifically, this includes
amounts reclassified to conform to the current year presentation in the Consolidated Statements of Cash Flows.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers that supersedes most current revenue recognition
guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services. The guidance also requires additional financial statement disclosures that will enable users to
understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. The
new standard was originally effective for us on January 1, 2017; however, in July 2015 the FASB decided to defer the
effective date by one year. Early application is not permitted, but reporting entities may choose to adopt the standard as
of the original effective date. The standard permits the use of either the retrospective or cumulative effect transition
method.
In 2016, we continued our assessment of the new standard with a focus on identifying the performance obligations
included within our revenue arrangements with customers and evaluating our methods of estimating the amount and
timing of variable consideration. Based on our assessment to date, we do not currently expect adoption of the new
standard to have a material impact on our consolidated financial statements. We currently plan to adopt the
requirements of the new standard in the first quarter of 2018 utilizing the cumulative effect transition method. We are
continuing our assessment, which may identify other impacts.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU will require lessees to recognize
a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and
presentation of expenses will depend on classification as a finance or operating lease. This ASU also requires certain
quantitative and qualitative disclosures. Accounting guidance for lessors is largely unchanged. The amendments
should be applied on a modified retrospective basis. ASU 2016-02 is effective for us beginning January 1, 2019. We
are in the process of developing an inventory of our lease arrangements in order to determine the impact that the
adoption of ASU 2016-02 will have on our consolidated financial statements and related disclosures. Based on our
assessment to date, we expect adoption of this standard to result in a material increase in lease-related assets and
liabilities on our consolidated balance sheets; however, we do not expect it to have a significant impact on our
consolidated statements of income or cash flows.
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting. This ASU is part of the FASB's simplification initiative. The areas for
simplification in this ASU involve several aspects of the accounting for share-based payment transactions, including
the income tax consequences, classification of awards as either equity or liabilities and classification on the statement
of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and interim periods
within those annual periods, with early adoption permitted. We are adopting this statement effective January 1, 2017
and we expect the revised classification of excess tax benefits to have a favorable impact on our 2017 net income. We
do not expect it to have a significant impact on our consolidated balance sheets or statements of cash flows.
No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a
material impact on our consolidated financial statements or disclosures.
57
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
2. BUSINESS ACQUISITIONS AND DIVESTITURES
Acquisitions of businesses are accounted for as purchases and, accordingly, the results of operations of the businesses
acquired have been included in the consolidated financial statements since the respective dates of the acquisitions. The
purchase price for each of the acquisitions is allocated to the assets acquired and liabilities assumed.
2016 Acquisition
Ripple Brand Collective, LLC
On April 26, 2016, we completed the acquisition of all of the outstanding shares of Ripple Brand Collective, LLC, a
privately held company based in Congers, New York that owns the barkTHINS mass premium chocolate snacking
brand. The barkTHINS brand is largely sold in the United States in take-home resealable packages and is available in
the club channel, as well as select natural and conventional grocers. Our consolidated net sales for the year ended
December 31, 2016 included approximately $35.6 million attributed to barkTHINS.
The purchase consideration was allocated to assets acquired and liabilities assumed based on their respective fair
values as follows:
Goodwill
Trademarks
Other intangible assets
Other assets, primarily current assets, net of cash acquired totaling $674
Current liabilities
Net assets acquired
$
$
128,110
91,200
60,900
12,375
(7,211)
285,374
Goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. The goodwill
resulting from the acquisition is attributable primarily to the value of leveraging our brand building expertise,
consumer insights, supply chain capabilities and retail relationships to accelerate growth and access to barkTHINS
products. Acquired trademarks were assigned estimated useful lives of 27 years, while other intangibles, including
customer relationships and covenants not to compete, were assigned estimated useful lives ranging from 2 to 14 years.
The recorded goodwill, trademarks and other intangibles are expected to be deductible for tax purposes.
2015 Acquisition
KRAVE Pure Foods
In March 2015, we completed the acquisition of all of the outstanding shares of KRAVE Pure Foods, Inc. (“Krave”),
the Sonoma, California based manufacturer of Krave, a leading all-natural brand of premium meat snack products.
The transaction was undertaken to allow Hershey to tap into the rapidly growing meat snacks category and further
expand into the broader snacks space.
Total purchase consideration included cash consideration of $220,016, as well as agreement to pay additional cash
consideration of up to $20,000 to the Krave shareholders if certain defined targets related to net sales and gross profit
margin are met or exceeded during the twelve-month periods ending December 31, 2015 or March 31, 2016. The fair
value of the contingent cash consideration was classified as a liability of $16,800 as of the acquisition date. Based on
revised targets in a subsequent agreement with the Krave shareholders, the fair value was reduced over the second and
third quarters of 2015 to $10,000, with the adjustment to fair value recorded within selling, marketing and
administrative expenses. The remaining $10,000 was paid in December 2015.
58
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
The purchase consideration was allocated to assets acquired and liabilities assumed based on their respective fair
values as follows:
Goodwill
Trademarks
Other intangible assets
Other assets, primarily current assets, net of cash acquired totaling $1,362
Current liabilities
Non-current deferred tax liabilities
Net assets acquired
$
$
147,089
112,000
17,000
9,465
(2,756)
(47,344)
235,454
Goodwill was calculated as the excess of the purchase price over the fair value of the net assets acquired. The
goodwill resulting from the acquisition was attributable primarily to the value of leveraging our brand building
expertise, consumer insights, supply chain capabilities and retail relationships to accelerate growth and access to Krave
products. The recorded goodwill is not expected to be deductible for tax purposes.
2014 Acquisitions
Shanghai Golden Monkey
On September 26, 2014 (the “Initial Acquisition”), our wholly-owned subsidiary, Hershey Netherlands B.V., acquired
80% of the total outstanding shares of Shanghai Golden Monkey Food Joint Stock Co., Ltd. (“SGM”), a privately held
confectionery company based in Shanghai, China. The Golden Monkey product line is primarily sold in China's
traditional trade channels. The business complements our position in China, and was undertaken to enable us to take
advantage of SGM's distribution and manufacturing capabilities to expand sales of our Hershey products in the China
marketplace. Our consolidated net sales for the year ended December 31, 2014 included approximately $54 million
generated by SGM since the date of acquisition.
The Initial Acquisition was funded by cash consideration of $394,470, subject to working capital and net debt
adjustments. At December 31, 2014, we had recorded a receivable of $37,860, reflecting our current best estimate of
the amount due from the selling SGM shareholders for the working capital and net debt adjustments.
As part of the transaction, Hershey Netherlands B.V. contractually agreed to purchase the remaining 20% of the
outstanding shares of SGM on the one-year anniversary of the Initial Acquisition, subject to the parties obtaining
government and regulatory approvals and satisfaction of other closing conditions. At December 31, 2014, we had
recorded a liability of $100,067, reflecting the acquisition date fair value of the future payment to be made to the SGM
shareholders.
The goodwill that resulted from the SGM acquisition was attributable primarily to the value of providing an
established platform to leverage our brands in the China market, as well as expected synergies and other benefits from
the combined brand portfolios. The recorded goodwill is not deductible for tax purposes.
During 2015, we recorded net increases to acquired goodwill for revisions to the acquired fair value of other assets and
liabilities totaling $49,120, resulting primarily from 1) our procedures to assess the quality of acquired trade accounts
receivable, 2) our procedures to further evaluate and quantify outstanding pre-acquisition trade promotion
commitments to distributors, as well as allowances for returns and discounts related to excess and unsalable inventory
held at distributors and sales branches as of the acquisition date, and 3) our procedures to estimate the value of pre-
acquisition indirect tax contingencies. In addition, we came to an agreement with the selling SGM shareholders to
revise the aforementioned receivable and liability balances to reflect partial settlement of the receivable, whereby the
receivable was adjusted to $8,685 and the liability was adjusted to $76,815.
Based on the updated information obtained throughout 2015, we updated our estimates of the acquisition-date fair
values of the net assets acquired as of September 26, 2015, the conclusion of the one-year measurement period. Any
subsequent revisions to the valuation of acquired net assets have been reflected in current results.
59
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
A roll-forward of the estimated acquisition-date fair values at December 31, 2014 to the final acquisition-date fair
values as of September 26, 2015, the conclusion of the one-year measurement period, is as follows:
In millions of dollars
Accounts receivable - trade
Inventories
Other current assets
Property, plant and equipment
Goodwill
Other intangible assets
Other non-current assets
Current liabilities assumed
Short-term debt assumed
Other non-current liabilities assumed, principally deferred taxes
Net assets acquired
Acquisition date purchase price allocation*
At 9/26/15
Adjustments
At 12/31/14
46
$
$
42
37
112
235
145
35
(54)
(105)
(52)
441
(26) $
(1)
6
2
49
—
(3)
(20)
—
(2)
20
41
43
114
284
145
32
(74)
(105)
(54)
446
$
$
* Note that the final opening balance sheet value of goodwill presented in the schedule above differs from total write-off of
$280.8 million due to changes in foreign currency exchange rates since the date of acquisition (see Note 3).
On February 3, 2016, we completed the purchase of the remaining 20% of the outstanding shares of SGM for cash
consideration totaling $35,762, pursuant to a new agreement entered into during the fourth quarter of 2015 with the
selling SGM shareholders which revised the originally-agreed purchase price for these shares. For accounting
purposes, we treated the acquisition as if we had acquired 100% at the initial acquisition date in 2014 and financed the
payment for the remaining 20% of the outstanding shares. Therefore, the cash settlement of the liability for the
purchase of these remaining shares is reflected within the financing section of the Consolidated Statements of Cash
Flows.
The final settlement also resulted in an extinguishment gain of $26,650 representing the net carrying amount of the
recorded liability in excess of the cash paid to settle the obligation for the remaining 20% of the outstanding shares.
This gain is recorded within non-operating other (income) expense, net within the Consolidated Statements of Income.
The Allan Candy Company Limited
In December 2014, our wholly-owned subsidiary, Hershey Canada Inc., completed the acquisition of all of the
outstanding shares of The Allan Candy Company Limited (“Allan”) for cash consideration of approximately $27,376.
Allan is headquartered in Ontario, Canada and manufactures certain non-chocolate products on behalf of Hershey, in
addition to manufacturing and distributing its own branded products, principally in Canada. The preliminary purchase
price allocation includes fixed assets of $10,897, goodwill of $6,996, other intangible assets of $8,092, and other net
assets of $1,391. During the first half of 2015, we increased goodwill by $1,820 to recognize revisions to the
preliminary fair value of net assets acquired.
Lotte Shanghai Food Company
In March 2014, we acquired an additional 5.9% interest in Lotte Shanghai Foods Co., Ltd. (“LSFC”), a joint venture
established in 2007 in China for the purpose of manufacturing and selling product to the venture partners. For this
additional interest, we paid $5,580 in cash, increasing our ownership from 44.1% to 50%. At the same time, we also
amended the LSFC shareholders' agreement resulting in our operational control over the venture. With the additional
operational control, we reassessed our involvement with LSFC and concluded that we have a controlling financial
interest. Therefore, we consolidated the venture as of the March 2014 acquisition date. We had previously accounted
for our investment in LSFC using the equity method.
Total consideration transferred was approximately $99,161, including the $5,580 cash consideration paid, the
estimated fair value of our previously held equity interest of $43,857 and the estimated fair value of the remaining
noncontrolling interest in LSFC of $49,724, which fair values were determined using a market-based approach. The
fair value of the LSFC assets acquired and liabilities assumed on the acquisition date was $99,449, including fixed
assets of $106,253, short-term debt obligations of $13,292 and other net assets of $6,488.
60
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
We recognized a gain of approximately $4,627 in connection with this transaction, primarily related to the
remeasurement of the fair value of our equity interest immediately before the business combination. The gain is
included in other (income) expense, net within our Consolidated Statement of Income for the year ended December 31,
2014. Additionally, cash acquired in the transaction exceeded the $5,580 paid for the controlling interest by $10,035,
resulting in a positive cash impact from the acquisition as presented in the Consolidated Statement of Cash Flows for
the year ended December 31, 2014.
Pro Forma Presentation and Acquisition Costs
Pro forma results of operations have not been presented for these aforementioned acquisitions, as the impact to our
consolidated financial statements was not material. In 2014, we incurred net acquisition-related costs primarily related
to the SGM acquisition of $13,270. These costs primarily consisted of third-party advisory fees and are recorded
within selling, marketing and administrative costs in the Consolidated Statements of Income, with the exception of the
2014 costs reflecting net foreign currency exchange losses relating to our strategy to cap the SGM acquisition price as
denominated in U.S. dollars, which are recorded within other (income) expense, net. Acquisition costs incurred in
2016 and 2015 were not significant.
2015 Divestiture
In December 2014, we entered into an agreement to sell the Mauna Loa Macadamia Nut Corporation (“Mauna Loa”),
a business that had historically been reported within our North America segment. The transaction closed in the first
quarter of 2015, resulting in proceeds, net of selling expenses and an estimated working capital adjustment, of
approximately $32,400. As a result of the expected sale, in 2014, we recorded an estimated loss on the anticipated sale
of $22,256 to reflect the disposal entity at fair value, less an estimate of the selling costs. This amount included
impairment charges totaling $18,531 to write down goodwill and the indefinite-lived trademark intangible asset, based
on the valuation of these assets as implied by the agreed-upon sales price. The sale of Mauna Loa resulted in the
recording of an additional loss on sale of $2,667 in the first quarter of 2015, based on updates to the selling expenses
and tax benefits. The loss on the sale is reflected within business realignment costs in the Consolidated Statements of
Income.
3. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying value of goodwill by reportable segment for the years ended December 31, 2016 and 2015
are as follows:
Goodwill
Accumulated impairment loss
Balance at January 1, 2015
Acquired during the period (see Note 2)
Impairment
Purchase price allocation adjustments
Foreign currency translation
Balance at December 31, 2015
Acquired during the period (see Note 2)
Foreign currency translation
Balance at December 31, 2016
North America
International
and Other
Total
$
$
538,322
(4,973)
533,349
147,089
—
1,820
(20,175)
662,083
128,110
1,997
$
792,190
$
$
336,179
(76,573)
259,606
—
(280,802)
46,203
(2,838)
22,169
—
(2,015)
20,154
$
874,501
(81,546)
792,955
147,089
(280,802)
48,023
(23,013)
684,252
128,110
(18)
812,344
The $280,802 impairment charge recorded in 2015 resulted from our interim reassessment of the valuation of the SGM
business, coupled with the write-down of goodwill attributed to the China chocolate business in connection with the
SGM acquisition, as discussed below.
In the second quarter of 2015, since the SGM business had been performing below expectations, with net sales and
earnings levels well below pre-acquisition levels, we performed an interim impairment test of the SGM reporting unit
61
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
as of July 5, 2015 using an income approach based on our estimates of future performance scenarios for the business.
The results of this test indicated that the fair value of the reporting unit was less than the carrying amount as of the
measurement date, suggesting that a goodwill impairment was probable, which required us to perform a second step
analysis to confirm that an impairment exists and to determine the amount of the impairment based on our reassessed
value of the reporting unit. Although preliminary, as a result of this reassessment, in the second quarter of 2015 we
recorded an estimated $249,811 non-cash goodwill impairment charge, representing a write-down of all of the
goodwill related to the SGM reporting unit as of July 5, 2015. During the third quarter of 2015, we increased the value
of acquired goodwill by $16,599, with the corresponding offset principally represented by the establishment of
additional opening balance sheet liabilities (see Note 2). We also finalized the impairment test of the goodwill
relating to the SGM reporting unit, which resulted in a write-off of this additional goodwill in the third quarter, for a
total impairment of $266,409. At this time, we also tested the other long-lived assets of SGM for recoverability by
comparing the sum of the undiscounted cash flows to the carrying value of the asset group, and no impairment was
indicated.
In connection with the 2014 SGM acquisition, we assigned approximately $15 million of goodwill to our existing
China chocolate business, as this reporting unit was expected to benefit from acquisition synergies relating to the sale
of Golden Monkey-branded product through its Tier 1 and hypermarket distributor networks. As the net sales and
earnings of our China business continued to be adversely impacted by macroeconomic challenges and changing
consumer shopping behavior through the third quarter of 2015, we determined that an interim impairment test of the
goodwill in this reporting unit was also required. We performed the first step of this test in the third quarter of 2015
using an income approach based on our estimates of future performance scenarios for the business. The results of this
test suggested that a goodwill impairment was probable, and the conclusions of the second step analysis resulted in a
write-down of $14,393, representing the full value of goodwill attributed to this reporting unit as of October 4, 2015.
In 2014, the annual impairment testing of our India reporting unit resulted in a $11,400 goodwill impairment charge
and a $4,500 pre-tax write-down of a trademark associated with the India business. These impairment charges were
largely a result of our decision to exit the oils portion of the India business and realign our approach to regional
marketing and distribution in India.
The following table provides the gross carrying amount and accumulated amortization for each major class of
intangible asset:
December 31,
2016
2015
Intangible assets subject to amortization:
Trademarks
Customer-related
Patents
Total
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
$
317,023
$
200,409
16,426
533,858
(30,458) $
(36,482)
(13,700)
(80,640)
227,511
$
146,532
16,857
390,900
(16,246)
(26,643)
(12,481)
(55,370)
Intangible assets not subject to amortization:
Trademarks
Total other intangible assets
39,519
$
492,737
43,775
$
379,305
In connection with our annual impairment testing of indefinite lived intangible assets for 2016, we recognized a
trademark impairment charge of $4,204, primarily resulting from plans to discontinue a brand sold in India.
Total amortization expense for the years ended December 31, 2016, 2015 and 2014 was $26,687, $22,306 and
$10,849, respectively.
62
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Amortization expense for the next five years, based on current intangible balances, is estimated to be as follows:
Year ending December 31,
Amortization expense
2017
2018
2019
2020
2021
$
28,780
$
27,240
$
27,133
$
26,894
$
26,862
4. SHORT AND LONG-TERM DEBT
Short-term Debt
As a source of short-term financing, we utilize cash on hand and commercial paper or bank loans with an original
maturity of three months or less. We maintain a $1.0 billion unsecured revolving credit facility, which currently
expires in November 2020. This agreement also includes an option to increase borrowings by an additional $400,000
with the consent of the lenders. On June 16, 2016, we entered into an additional unsecured revolving credit facility
that provided for borrowings up to $500,000. We terminated this facility, which was scheduled to expire on June 15,
2017, effective October 24, 2016.
The unsecured committed revolving credit agreement contains a financial covenant whereby the ratio of (a) pre-tax
income from operations from the most recent four fiscal quarters to (b) consolidated interest expense for the most
recent four fiscal quarters may not be less than 2.0 to 1.0 at the end of each fiscal quarter. The credit agreement also
contains customary representations, warranties and events of default. Payment of outstanding advances may be
accelerated, at the option of the lenders, should we default in our obligation under the credit agreement. As of
December 31, 2016, we complied with all customary affirmative and negative covenants and the financial covenant
pertaining to our credit agreement. There were no significant compensating balance agreements that legally restricted
these funds.
In addition to the revolving credit facility, we maintain lines of credit with domestic and international commercial
banks. Our credit limit in various currencies was $504,237 at December 31, 2016 and $516,916 at December 31,
2015. These lines permit us to borrow at the respective banks’ prime commercial interest rates, or lower. We had
short-term foreign bank loans against these lines of credit for $158,805 at December 31, 2016 and $313,520 at
December 31, 2015. Commitment fees relating to our revolving credit facility and lines of credit are not material.
At December 31, 2016, we had outstanding commercial paper totaling $473,666, at a weighted average interest rate of
0.6%. At December 31, 2015, we had outstanding commercial paper totaling $49,993, at a weighted average interest
rate of 0.4%.
The maximum amount of short-term borrowings outstanding during 2016 was $997,120. The weighted-average
interest rate on short-term borrowings outstanding was 1.0% as of December 31, 2016 and 3.0% as of December 31,
2015.
63
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Long-term Debt
Long-term debt consisted of the following:
December 31,
5.45% Notes due 2016
1.50% Notes due 2016
1.60% Notes due 2018
4.125% Notes due 2020
8.8% Debentures due 2021
2.625% Notes due 2023
3.20% Notes due 2025
2.30% Notes due 2026
7.2% Debentures due 2027
3.375% Notes due 2046
Lease obligations
Net impact of interest rate swaps, debt issuance costs and unamortized debt
discounts
Total long-term debt
Less—current portion
Long-term portion
2016
2015
$
— $
—
300,000
350,000
84,715
250,000
300,000
500,000
193,639
300,000
83,619
250,000
250,000
300,000
350,000
84,715
250,000
300,000
—
193,639
—
82,747
(14,275)
2,347,698
243
(4,087)
2,057,014
499,923
$
2,347,455
$
1,557,091
In September 2016, we repaid $250,000 of 5.45% Notes due in 2016 upon their maturity. In November 2016, we
repaid $250,000 of 1.50% Notes due in 2016 upon their maturity. In August 2016, we issued $500,000 of 2.30% Notes
due in 2026 and $300,000 of 3.375% Notes due in 2046 (the "Notes"). Proceeds from the issuance of the Notes, net of
discounts and issuance costs, totaled $792,953. The Notes were issued under a shelf registration statement on Form
S-3 filed in June 2015 that registered an indeterminate amount of debt securities.
In August 2015, we paid $100,165 to repurchase $71,646 of our long-term debt as part of a cash tender offer,
consisting of $15,285 of our 8.80% Debentures due in 2021 and $56,361 of our 7.20% Debentures due in 2027. We
used a portion of the proceeds from the Notes issued in August 2015 to fund the repurchase. As a result of the
repurchase, we recorded interest expense of $28,326 which represented the premium paid for the tender offer as well
as the write-off of the related unamortized debt discount and debt issuance costs. Upon extinguishment of the debt, we
unwound the fixed-to-floating interest rate swaps related to the tendered bonds and recognized a gain of $278 currently
in interest expense resulting from the hedging instruments.
Aggregate annual maturities of long-term debt are as follows for the years ending December 31:
2017
2018
2019
2020
2021
Thereafter
$
243
300,279
367
350,462
85,279
1,611,068
Our debt is principally unsecured and of equal priority. None of our debt is convertible into our Common Stock.
64
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Interest Expense
Net interest expense consisted of the following:
For the years ended December 31,
2016
2015
2014
Interest expense
Capitalized interest
Loss on extinguishment of debt
Interest expense
Interest income
Interest expense, net
5. DERIVATIVE INSTRUMENTS
$
$
97,851
(5,903)
—
91,948
(1,805)
90,143
$
$
93,520
(12,537)
28,326
109,309
(3,536)
105,773
$
$
93,777
(6,179)
—
87,598
(4,066)
83,532
We are exposed to market risks arising principally from changes in foreign currency exchange rates, interest rates and
commodity prices. We use certain derivative instruments to manage these risks. These include interest rate swaps to
manage interest rate risk, foreign currency forward exchange contracts and options to manage foreign currency
exchange rate risk, and commodities futures and options contracts to manage commodity market price risk exposures.
In entering into these contracts, we have assumed the risk that might arise from the possible inability of counterparties
to meet the terms of their contracts. We mitigate this risk by entering into exchanged-traded contracts with collateral
posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic
evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. We do not
expect any significant losses from counterparty defaults.
Commodity Price Risk
We enter into commodities futures and options contracts and other commodity derivative instruments to reduce the
effect of future price fluctuations associated with the purchase of raw materials, energy requirements and
transportation services. We generally hedge commodity price risks for 3- to 24-month periods. Our open commodity
derivative contracts had a notional value, assuming year-end market prices, of $739,374 as of December 31, 2016 and
$374,873 as of December 31, 2015. Through 2015, we designated the majority of our commodity derivative
instruments as cash flow hedges under the hedge accounting requirements. Under hedge accounting, we account for
the effective portion of mark-to-market gains and losses on commodity derivative instruments in other comprehensive
income, to be recognized in cost of sales in the same period that we record the hedged raw material requirements in
cost of sales. The ineffective portion of gains and losses is recorded currently in cost of sales.
Effective July 6, 2015 for cocoa commodity derivatives and January 1, 2016 for other commodity derivatives, we
discontinued the designation of any of our existing or new cocoa or other commodity derivatives for hedge accounting
treatment. Since such dates, changes in the fair value of these derivatives have been recorded as incurred within cost
of sales. Effective as of such dates, we also revised our definition of segment income to exclude gains and losses on
commodity derivatives until the related inventory is sold. This change to our definition of segment income enables us
to continue to align the derivative gains and losses with the underlying economic exposure being hedged and thereby
eliminate the mark-to-market volatility within our reported segment income.
Foreign Exchange Price Risk
We are exposed to foreign currency exchange rate risk related to our international operations, including non-functional
currency intercompany debt and other non-functional currency transactions of certain subsidiaries. Principal
currencies hedged include the euro, Canadian dollar, Japanese yen, and Brazilian real. We typically utilize foreign
currency forward exchange contracts and options to hedge these exposures for periods ranging from 3 to 12 months.
The contracts are either designated as cash flow hedges or are undesignated. The net notional amount of foreign
exchange contracts accounted for as cash flow hedges was $68,263 at December 31, 2016 and $10,752 at
December 31, 2015. The effective portion of the changes in fair value on these contracts is recorded in other
comprehensive income and reclassified into earnings in the same period in which the hedged transactions affect
earnings. The net notional amount of foreign exchange contracts that are not designated as accounting hedges was
65
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
$2,791 at December 31, 2016 and December 31, 2015, respectively. The change in fair value on these instruments is
recorded directly in cost of sales or selling, marketing and administrative expense, depending on the nature of the
underlying exposure.
Interest Rate Risk
In order to manage interest rate exposure, from time to time we enter into interest rate swap agreements to protect
against unfavorable interest rate changes relating to forecasted debt transactions. These swaps are designated as cash
flow hedges, with gains and losses deferred in other comprehensive income to be recognized as an adjustment to
interest expense in the same period that the hedged interest payments affect earnings. We had one interest rate swap
agreement in a cash flow hedging relationship with a notional amount of $500,000 at December 31, 2015. This
interest rate swap agreement was settled in connection with the issuance of debt in August 2016, resulting in a
payment of approximately $87,000 which is reflected as an operating cash flow within the Consolidated Statement of
Cash Flows.
We also manage our targeted mix of fixed and floating rate debt with debt issuances and by entering into fixed-to-
floating interest rate swaps in order to mitigate fluctuations in earnings and cash flows that may result from interest
rate volatility. These swaps are designated as fair value hedges, for which the gain or loss on the derivative and the
offsetting loss or gain on the hedged item are recognized in current earnings as interest expense (income), net. We had
one interest rate derivative instrument in a fair value hedging relationship with a notional amount of $350,000 at
December 31, 2016 and 2015.
Equity Price Risk
We are exposed to market price changes in certain broad market indices related to our deferred compensation
obligations to our employees. To mitigate this risk, we use equity swap contracts to hedge the portion of the exposure
that is linked to market-level equity returns. These contracts are not designated as hedges for accounting purposes and
are entered into for periods of 3 to 12 months. The change in fair value of these derivatives is recorded in selling,
marketing and administrative expense, together with the change in the related liabilities. The notional amount of the
contracts outstanding at December 31, 2016 was $22,099.
66
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
The following table presents the classification of derivative assets and liabilities within the Consolidated Balance
Sheets as of December 31, 2016 and 2015:
December 31,
2016
2015
Assets (1)
Liabilities (1)
Assets (1)
Liabilities (1)
Derivatives designated as cash flow hedging
instruments:
Commodities futures and options (2)
$
— $
— $
— $
Foreign exchange contracts
Interest rate swap agreements
Derivatives designated as fair value hedging
instruments:
Interest rate swap agreements
Derivatives not designated as hedging
instruments:
Commodities futures and options (2)
Deferred compensation derivatives
Foreign exchange contracts
Total
$
2,229
—
2,229
1,768
2,348
717
—
3,065
7,062
809
—
809
—
10,000
—
16
10,016
4,313
—
367
—
367
—
1,198
69
1,267
479
475
40,299
41,253
1,574
—
—
1,574
42,827
$
10,825
$
5,947
$
(1) Derivatives assets are classified on our balance sheet within prepaid expenses and other as well as other assets.
Derivative liabilities are classified on our balance sheet within accrued liabilities and other long-term liabilities.
(2) As of December 31, 2016, assets and liabilities include the net of assets of $140,885 and liabilities of $150,872
associated with cash transfers receivable or payable on commodities futures contracts reflecting the change in
quoted market prices on the last trading day for the period. The comparable amounts reflected on a net basis in
liabilities at December 31, 2015 were assets of $54,090 and liabilities of $54,860. At December 31, 2016 and
2015, the remaining amount reflected in assets and liabilities related to the fair value of other non-exchange
traded derivative instruments, respectively.
67
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Income Statement Impact of Derivative Instruments
The effect of derivative instruments on the Consolidated Statements of Income for the years ended December 31, 2016
and December 31, 2015 was as follows:
Non-designated
Hedges
Gains (losses)
recognized in income
(a)
Gains (losses)
recognized in other
comprehensive
income (“OCI”)
(effective portion)
Cash Flow Hedges
Gains (losses)
reclassified from
accumulated OCI
into income
(effective portion)
(b)
Gains recognized
in income
(ineffective
portion) (c)
2016
2015
2016
2015
2016
2015
2016
2015
Commodities futures and
options
Foreign exchange contracts
Interest rate swap agreements
Deferred compensation
derivatives
Total
$(171,753) $(2,777) $
(5,485)
487
— (47,223)
— $ 84,382
(155)
(22,388)
$ 30,783
(5,625)
(8,676)
956
(4,922)
(46)
—
$ 40,600
$ — $
987
2,203
—
$(169,596) $(2,117) $ (52,708) $ 61,839
173
—
—
—
$ 16,482
$ 36,634
$ — $
—
—
—
—
—
—
987
(a) Gains (losses) recognized in income for non-designated commodities futures and options contracts were included
in cost of sales. Gains (losses) recognized in income for non-designated foreign currency forward exchange
contracts and deferred compensation derivatives were included in selling, marketing and administrative expenses.
(b) Gains (losses) reclassified from AOCI into income were included in cost of sales for commodities futures and
options contracts and for foreign currency forward exchange contracts designated as hedges of purchases of
inventory or other productive assets. Other gains (losses) for foreign currency forward exchange contracts were
included in selling, marketing and administrative expenses. Losses reclassified from AOCI into income for
interest rate swap agreements were included in interest expense.
(c) Gains representing hedge ineffectiveness were included in cost of sales for commodities futures and options
contracts.
The amount of pretax net losses on derivative instruments, including interest rate swap agreements, foreign currency
forward exchange contracts and options, commodities futures and options contracts, and other commodity derivative
instruments expected to be reclassified into earnings in the next 12 months was approximately $7,824 as of
December 31, 2016. This amount was primarily associated with interest rate swap agreements.
Fair Value Hedges
For the years ended December 31, 2016 and 2015, we recognized a net pretax benefit to interest expense of $4,365 and
$6,905 relating to our fixed-to-floating interest swap arrangements.
6. FAIR VALUE MEASUREMENTS
Accounting guidance on fair value measurements requires that financial assets and liabilities be classified and
disclosed in one of the following categories of the fair value hierarchy:
Level 1 – Based on unadjusted quoted prices for identical assets or liabilities in an active market.
Level 2 – Based on observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3 – Based on unobservable inputs that reflect the entity's own assumptions about the assumptions that a market
participant would use in pricing the asset or liability.
We did not have any level 3 financial assets or liabilities, nor were there any transfers between levels during the
periods presented.
68
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheet
on a recurring basis as of December 31, 2016 and 2015:
Assets (Liabilities)
Level 1
Level 2
Level 3
Total
December 31, 2016:
Derivative Instruments:
Assets:
Foreign exchange contracts (1)
$
— $
2,229
$
— $
Interest rate swap agreements (2)
Deferred compensation derivatives (3)
Commodities futures and options (4)
Liabilities:
Foreign exchange contracts (1)
Interest rate swap agreements (2)
Commodities futures and options (4)
December 31, 2015:
Assets:
—
—
2,348
—
—
10,000
1,768
717
—
825
—
—
—
—
—
—
—
—
Foreign exchange contracts (1)
$
— $
436
$
— $
Interest rate swap agreements (2)
Deferred compensation derivatives (3)
Liabilities:
Foreign exchange contracts (1)
Interest rate swap agreements (2)
—
—
—
—
Commodities futures and options (4)
2,053
4,313
1,198
475
40,299
—
—
—
—
—
—
2,229
1,768
717
2,348
825
—
10,000
436
4,313
1,198
475
40,299
2,053
(1) The fair value of foreign currency forward exchange contracts is the difference between the contract and
current market foreign currency exchange rates at the end of the period. We estimate the fair value of foreign
currency forward exchange contracts on a quarterly basis by obtaining market quotes of spot and forward
rates for contracts with similar terms, adjusted where necessary for maturity differences.
(2) The fair value of interest rate swap agreements represents the difference in the present value of cash flows
calculated at the contracted interest rates and at current market interest rates at the end of the period. We
calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the
same or similar financial instruments.
(3) The fair value of deferred compensation derivatives is based on quoted prices for market interest rates and a
broad market equity index.
(4) The fair value of commodities futures and options contracts is based on quoted market prices.
Other Financial Instruments
The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and
short-term debt approximated fair values as of December 31, 2016 and December 31, 2015 because of the relatively
short maturity of these instruments.
69
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
The estimated fair value of our long-term debt is based on quoted market prices for similar debt issues and is,
therefore, classified as Level 2 within the valuation hierarchy. The fair values and carrying values of long-term debt,
including the current portion, were as follows:
Fair Value
Carrying Value
At December 31,
2016
2015
2016
Current portion of long-term debt
$
243
Long-term debt
Total
Other Fair Value Measurements
2,379,054
2,379,297
$
$
509,580
$
243
1,668,379
2,177,959
2,347,455
2,347,698
$
$
2015
499,923
1,557,091
2,057,014
In addition to assets and liabilities that are recorded at fair value on a recurring basis, GAAP requires that, under
certain circumstances, we also record assets and liabilities at fair value on a nonrecurring basis. Generally, assets are
recorded at fair value on a nonrecurring basis as a result of impairment charges. As discussed in Note 3, we
conducted an interim impairment test on the goodwill generated by the SGM acquisition, which resulted in impairment
charges totaling $280,802. In 2016 and 2014, as discussed in Note 3, in connection with our annual impairment
testing of goodwill and indefinite-lived intangible assets, we recorded impairment charges totaling $4,204 and
$15,900, respectively. These charges were determined by comparing the fair value of the assets to their carrying value.
The fair value of the assets was derived using discounted cash flow analyses based on Level 3 inputs.
As discussed in Note 2, in connection with the planned Mauna Loa divestiture, we classified the net assets as held for
sale as of December 31, 2014, resulting in a write down of $18,531 based upon the agreed-upon sales price and related
transaction costs. The loss was calculated based on Level 3 inputs and included in 2014 earnings.
7. BUSINESS REALIGNMENT ACTIVITIES
We are currently pursuing several business realignment activities designed to increase our efficiency and focus our
business behind our key growth strategies. Costs recorded in 2016, 2015 and 2014 related to these activities are as
follows:
For the years ended December 31,
Operational Optimization Program:
Severance
Accelerated depreciation
Other program costs
2015 Productivity Initiative:
Severance
Pension settlement charges
Other program costs
Other international restructuring programs:
Severance
Accelerated depreciation and amortization
Mauna Loa Divestiture (see Note 2)
Project Next Century
Total
2016
2015
2014
$
17,872
$
48,590
21,831
—
13,669
5,609
—
—
—
— $
—
—
81,290
10,178
14,285
6,651
5,904
2,667
—
107,571
$
—
120,975
$
$
—
—
—
—
—
—
2,947
—
22,256
9,087
34,290
The costs and related benefits of the Operational Optimization Program relate approximately 25% to the North
America segment and 75% to the International and Other segment. The costs and related benefits to be derived from
the 2015 Productivity Initiative relate primarily to the North American segment, while the costs and related benefits of
the other international programs relate primary to the International and Other segment. However, segment operating
70
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
results do not include these business realignment expenses because we evaluate segment performance excluding such
costs.
2016 Operational Optimization Program
In the second quarter of 2016, we commenced a program (the “Operational Optimization Program”) to optimize our
production and supply chain network, which includes select facility consolidations. The program encompasses the
continued transition of our China chocolate and SGM operations into a united Golden Hershey platform, including the
integration of the China sales force, as well as workforce planning efforts and the consolidation of production within
certain facilities in China and North America.
We have incurred pre-tax costs of $88,293 to date, including non-cash asset-related incremental depreciation costs,
severance and employee benefit costs, costs to consolidate and relocate production, and third-party costs incurred to
execute these activities. We currently expect to incur additional cash costs of approximately $37 million over the next
two years to complete this program.
2015 Productivity Initiative
In mid-2015, we initiated a productivity initiative (the “2015 Productivity Initiative”) intended to move decision
making closer to the customer and the consumer, to enable a more enterprise-wide approach to innovation, to more
swiftly advance our knowledge agenda, and to provide for a more efficient cost structure, while ensuring that we
effectively allocate resources to future growth areas. Overall, the 2015 Productivity Initiative was undertaken to
simplify the organizational structure to enhance the Company's ability to rapidly anticipate and respond to the
changing demands of the global consumer.
The 2015 Productivity Initiative was executed throughout the third and fourth quarters of 2015, resulting in a net
reduction of approximately 300 positions, with the majority of the departures taking place by the end of 2015. For the
year ended December 31, 2016, we incurred charges totaling $19,278, representing pension settlement charges,
adjustments to estimated severance benefits and incremental third-party costs related to the design and implementation
of the new organizational structure. The 2015 Productivity Initiative was completed during the third quarter 2016. We
incurred total costs of $125,031 relating to this program, including pension settlement charges of $13,669 recorded in
2016 and $10,178 recorded in 2015 relating to lump sum withdrawals by employees retiring or leaving the Company
as a result of this program.
Other international restructuring programs
Costs incurred for the year ended December 31, 2015 related principally to accelerated depreciation and amortization
and employee severance costs for a couple of programs commenced in 2014 to rationalize certain non-U.S.
manufacturing and distribution activities and to establish our own sales and distribution teams in Brazil in connection
with our exit from the Bauducco joint venture.
Project Next Century
The 2014 costs shown relate primarily to the demolition of the Company’s former manufacturing facility, representing
the final phase of the Project Next Century program. As of December 31, 2014, we have concluded the Project Next
Century.
Total costs associated with business realignment activities are classified in our Consolidated Statements of Income as
follows:
For the years ended December 31,
2016
2015
2014
Cost of sales
Selling, marketing and administrative expense
Business realignment costs
Total costs associated with business realignment activities
$
$
58,106
$
8,801
$
16,939
32,526
17,368
94,806
107,571
$
120,975
$
1,622
2,947
29,721
34,290
71
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
The following table presents the liability activity for employee-related costs qualifying as exit and disposal costs for
the year ended December 31, 2016:
Liability balance at December 31, 2015
2016 business realignment charges (1)
Cash payments
Other, net
Liability balance at December 31, 2016 (reported within accrued liabilities)
Total
16,310
18,857
(31,522)
80
3,725
$
$
(1) The costs reflected in the liability roll-forward above do not include items charged directly to expense, such as
accelerated depreciation and amortization and the loss on the Mauna Loa divestiture and certain of the third-
party charges associated with various programs, as those items are not reflected in the business realignment
liability in our Consolidated Balance Sheets.
8. INCOME TAXES
The components of income (loss) before income taxes are as follows:
For the years ended December 31,
Domestic
Foreign
Income before income taxes
2016
2015
2014
$
$
1,395,440
(295,959)
1,099,481
$
$
1,357,618
(455,771)
901,847
$
$
1,320,738
(14,695)
1,306,043
The components of our provision for income taxes are as follows:
For the years ended December 31,
2016
2015
2014
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
$
391,705
$
409,060
$
385,642
51,706
(25,877)
417,534
(7,706)
(452)
(29,939)
(38,097)
379,437
$
47,978
(29,605)
427,433
(31,153)
(2,346)
(5,038)
(38,537)
388,896
52,331
2,362
440,335
20,649
2,725
(4,578)
18,796
$
459,131
Total provision for income taxes
$
The income tax benefit associated with stock-based compensation of $17,814 and $24,839 for the years ended
December 31, 2016 and 2015, respectively, reduced accrued income taxes on the Consolidated Balance Sheets. We
credited additional paid-in capital to reflect the net excess income tax benefits.
72
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Deferred taxes reflect temporary differences between the tax basis and financial statement carrying value of assets and
liabilities. The significant temporary differences that comprised the deferred tax assets and liabilities are as follows:
December 31,
Deferred tax assets:
Post-retirement benefit obligations
Accrued expenses and other reserves
Stock-based compensation
Derivative instruments
Pension
Lease financing obligation
Accrued trade promotion reserves
Net operating loss carryforwards
Capital loss carryforwards
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Property, plant and equipment, net
Acquired intangibles
Inventories
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)
Included in:
Non-current deferred tax assets, net
Non-current deferred tax liabilities, net
Net deferred tax assets (liabilities)
2016
2015
$
90,584
$
141,228
48,500
44,010
14,662
18,950
50,463
143,085
38,691
14,452
604,625
(235,485)
369,140
202,300
113,074
27,608
8,884
351,866
17,274
56,861
(39,587)
17,274
$
$
$
$
95,763
163,908
46,665
8,858
28,940
18,947
36,501
99,155
44,546
14,444
557,727
(207,055)
350,672
218,729
120,420
20,063
8,258
367,470
(16,798)
36,390
(53,188)
(16,798)
We believe that it is more likely than not that the results of future operations will generate sufficient taxable income to
realize the net deferred tax assets. Changes in deferred tax assets for net operating loss carryforwards resulted
primarily from current year losses in foreign jurisdictions. Changes in deferred tax assets for derivative instruments
resulted primarily from the tax impact of our payment to settle an interest rate swap in 2016.
The valuation allowances as of December 31, 2016 and 2015 are primarily related to U.S. capital loss carryforwards
and various foreign jurisdictions' net operating loss carryforwards and other deferred tax assets that we do not expect
to realize.
73
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
The following table reconciles the federal statutory income tax rate with our effective income tax rate:
For the years ended December 31,
Federal statutory income tax rate
Increase (reduction) resulting from:
State income taxes, net of Federal income tax benefits
Qualified production income deduction
Business realignment and impairment charges and gain on sale of
trademark licensing rights
Foreign rate differences
Historic and solar tax credits
Other, net
Effective income tax rate
2016
2015
2014
35.0%
35.0%
35.0%
3.4
(3.8 )
0.4
3.6
(3.3)
(0.8 )
4.2
(4.4 )
10.8
2.2
(3.3)
(1.4 )
34.5%
43.1%
3.0
(2.4)
0.7
(0.1)
—
(1.0)
35.2%
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
December 31,
Balance at beginning of year
Additions for tax positions taken during prior years
Reductions for tax positions taken during prior years
Additions for tax positions taken during the current year
Settlements
Expiration of statutes of limitations
Balance at end of year
2016
2015
$
33,411
$
2,804
(4,080)
9,100
—
(5,233)
36,002
$
$
32,230
1,122
(2,112)
6,623
(702)
(3,750)
33,411
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $27,691 as of
December 31, 2016 and $25,947 as of December 31, 2015.
We report accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized a
net tax benefit of $75 in 2016, a net tax expense of $1,153 in 2015 and a net tax benefit of $9,082 in 2014 for interest
and penalties. Accrued net interest and penalties were $3,716 as of December 31, 2016 and $3,791 as of December 31,
2015.
We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. A number of
years may elapse before an uncertain tax position, for which we have unrecognized tax benefits, is audited and finally
resolved. 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. We adjust these
unrecognized tax benefits, as well as the related interest, in light of changing facts and circumstances. 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.
The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing jurisdictions
include the United States (federal and state), Canada, China and Mexico. U.S., Canadian, Chinese and Mexican
federal audit issues typically involve the timing of deductions and transfer pricing adjustments. Tax examinations by
the U.S. Internal Revenue Service and various state taxing authorities could be conducted for years beginning in 2013.
We are no longer subject to Canadian federal income tax examinations by the Canada Revenue Agency (“CRA”) for
years before 2007. In 2013, the CRA concluded its audit for 2007 through 2009 and issued a letter to us indicating
proposed adjustments primarily associated with business realignment charges and transfer pricing. In 2014, the CRA
withdrew the proposed adjustments related to business realignment charges and transfer pricing of inventory, and we
paid a $1,600 assessment related to other cross-border adjustments. Also in 2014, the CRA concluded its audit for
2010 through 2012 and issued a letter to us indicating proposed transfer pricing adjustments, and we paid a $612
assessment. We provided notice to the U.S. Competent Authority and the CRA provided notice to the Canada
74
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Competent Authority of the likely need for their assistance to resolve the adjustments for 2007 through 2012.
Accordingly, as of December 31, 2016, we recorded a non-current receivable of approximately $1,449 associated with
the anticipated resolution of the adjustments by the Competent Authority of each country. In the fourth quarter of
2016, the CRA commenced its audit of our Canadian income tax returns for 2014 through May 2015.
We are no longer subject to Chinese federal income tax examinations by the China State Administration of Taxation
("China SAT") for years before 2011. We are no longer subject to Mexican federal income tax examinations by the
Servicio de Administracion Tributaria (“Mexico SAT”) for years before 2010. We work with the IRS, the CRA, the
China SAT and the Mexico SAT to resolve proposed audit adjustments and to minimize the amount of adjustments.
We do not anticipate that any potential tax adjustments will have a significant impact on our financial position or
results of operations.
We reasonably expect reductions in the liability for unrecognized tax benefits of approximately $4,160 within the next
12 months because of the expiration of statutes of limitations and settlements of tax audits.
As of December 31, 2016, we had approximately $291,387 of undistributed earnings of our international subsidiaries.
We intend to continue to reinvest earnings outside the United States for the foreseeable future and, therefore, have not
recognized any U.S. tax expense on these earnings. It is not practicable for us to determine the amount of
unrecognized U.S. tax expense on these reinvested international earnings.
Investments in Partnerships Qualifying for Tax Credits
In 2016, we continued to invest in partnerships which make equity investments in projects eligible to receive federal
historic and energy tax credits. The investments are accounted for under the equity method and reported within other
assets in our Consolidated Balance Sheets. The tax credits, when realized, are recognized as a reduction of tax
expense, at which time the corresponding equity investment is written-down to reflect the remaining value of the
future benefits to be realized. For the years ended December 31, 2016 and 2015, we recognized investment tax credits
and related outside basis difference benefit totaling $52,342 and $43,437, respectively, and we wrote-down the equity
investment by $43,482 and $39,489, respectively, to reflect the realization of these benefits. The equity investment
write-down is reflected within other (income) expense, net in the Consolidated Statements of Income.
9. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
We sponsor a number of defined benefit pension plans. The primary plans are The Hershey Company Retirement Plan
and The Hershey Company Retirement Plan for Hourly Employees. These are cash balance plans that provide pension
benefits for most domestic employees hired prior to January 1, 2007. We also sponsor two post-retirement benefit
plans: health care and life insurance. The health care plan is contributory, with participants’ contributions adjusted
annually. The life insurance plan is non-contributory.
75
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Obligations and Funded Status
A summary of the changes in benefit obligations, plan assets and funded status of these plans is as follows:
December 31,
Change in benefit obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Plan amendments
Actuarial (gain) loss
Curtailment
Settlement
Divestiture
Currency translation and other
Benefits paid
Projected benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Settlement
Divestiture
Currency translation and other
Benefits paid
Fair value of plan assets at end of year
Funded status at end of year
Amounts recognized in the Consolidated Balance
Sheets:
Other assets
Accrued liabilities
Other long-term liabilities
Total
Amounts recognized in Accumulated Other
Comprehensive Income (Loss), net of tax:
Actuarial net (loss) gain
Net prior service credit (cost)
Net amounts recognized in AOCI
Pension Benefits
Other Benefits
2016
2015
2016
2015
$ 1,169,424
23,075
41,875
(43,065)
15,804
—
(59,784)
—
1,416
(30,427)
1,118,318
1,041,902
49,012
21,580
(59,784)
—
1,393
(30,427)
1,023,676
(94,642)
$ 1,260,895
28,300
44,179
67
(51,064)
(2,693)
(57,193)
(4,047)
(11,456)
(37,564)
1,169,424
1,136,943
(19,804)
32,898
(57,193)
(2,485)
(10,893)
(37,564)
1,041,902
$ (127,522)
$ 255,617
299
9,731
—
(2,998)
—
—
—
314
(20,117)
242,846
—
—
20,117
—
—
—
(20,117)
—
$ (242,846)
$ 294,064
542
10,187
—
(26,887)
292
—
—
(2,206)
(20,375)
255,617
—
—
20,375
—
—
—
(20,375)
—
$ (255,617)
— $
$
39
(4,841)
(28,994)
(122,681)
(65,687)
(94,642) $ (127,522)
— $
—
(24,205)
(231,412)
$ (242,846) $ (255,617)
(22,576)
(220,270)
$
$
$
$ (243,228) $ (264,570)
4,267
$ (214,868) $ (260,303)
28,360
$
$
9,264
(1,565)
7,699
$
$
7,574
(1,919)
5,655
The accumulated benefit obligation for all defined benefit pension plans was $1,081,261 as of December 31, 2016 and
$1,129,052 as of December 31, 2015.
76
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Plans with accumulated benefit obligations in excess of plan assets were as follows:
December 31,
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Net Periodic Benefit Cost
2016
2015
$
1,118,294
$
1,081,254
1,023,613
1,110,232
1,081,002
985,111
The components of net periodic benefit cost were as follows:
For the years ended December 31,
Amounts recognized in net
periodic benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service
(credit) cost
Amortization of net loss (gain)
Curtailment credit
Settlement loss
Pension Benefits
Other Benefits
2016
2015
2014
2016
2015
2014
$ 23,075
$ 28,300
$
26,935
$
299
$
542
$
706
41,875
(58,820)
44,179
(68,830)
48,886
(74,080)
9,731
—
(1,555)
34,940
—
22,657
(1,178)
30,510
(688)
23,067
(667)
23,360
—
—
575
(13)
—
—
10,187
11,696
—
611
(57)
204
—
—
616
(141)
—
—
Total net periodic benefit cost
$ 62,172
$
55,360
$
24,434
$ 10,592
$ 11,487
$ 12,877
Change in plan assets and benefit
obligations recognized in AOCI,
pre-tax
Actuarial net (gain) loss
Prior service (credit) cost
$ (31,772)
(41,517)
$ (21,554) $
1,748
99,136
833
$ (3,047)
(572)
$ (26,270)
(834)
$ 36,021
(629)
Total recognized in other
comprehensive (income) loss, pre-
tax
Net amounts recognized in periodic
benefit cost and AOCI
$ (73,289)
$ (19,806)
$
99,969
$ (3,619)
$ (27,104)
$ 35,392
$ (11,117) $
35,554
$ 124,403
$
6,973
$ (15,617) $ 48,269
Amounts expected to be amortized from AOCI into net periodic benefit cost during 2017 are as follows:
Amortization of net actuarial loss (gain)
Amortization of prior service (credit) cost
Assumptions
Pension Plans
Post-Retirement
Benefit Plans
$
$
33,567
$
(5,822) $
(1)
747
The weighted-average assumptions used in computing the benefit obligations were as follows:
December 31,
Discount rate
Rate of increase in compensation levels
Pension Benefits
Other Benefits
2016
2015
2016
2015
3.8%
3.8%
4.0%
3.8%
3.8%
N/A
4.0%
N/A
77
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
The weighted-average assumptions used in computing net periodic benefit cost were as follows:
For the years ended December 31,
2016
2015
2014
2016
2015
2014
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
4.0%
6.1%
3.8%
3.7%
6.3%
4.1%
4.5%
7.0%
4.0%
4.0%
N/A
N/A
3.7%
N/A
N/A
4.5%
N/A
N/A
Pension Benefits
Other Benefits
The Company’s discount rate assumption is determined by developing a yield curve based on high quality corporate
bonds with maturities matching the plans’ expected benefit payment streams. The plans’ expected cash flows are then
discounted by the resulting year-by-year spot rates. We base the asset return assumption on current and expected asset
allocations, as well as historical and expected returns on the plan asset categories.
For purposes of measuring our post-retirement benefit obligation at December 31, 2016, we assumed a 7.0% annual
rate of increase in the per capita cost of covered health care benefits for 2017, grading down to 5.0% by 2021. For
measurement purposes as of December 31, 2015, we assumed a 6.5% pre-65 and a 7.3% post-65 annual rate of
increase in the per capita cost of covered health care benefits for 2016, grading down to 5.0% by 2019. Assumed
health care cost trend rates could have a significant effect on the amounts reported for the post-retirement health care
plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:
Impact of assumed health care cost trend rates
Effect on total service and interest cost components
$
Effect on accumulated post-retirement benefit obligation
One-Percentage
Point Increase
One-Percentage
Point Decrease
151
$
3,858
(132)
(3,373)
The valuations and assumptions reflect adoption of the Society of Actuaries updated RP-2014 mortality tables with
MP-2016 generational projection scales, which we adopted as of December 31, 2016. Adoption of the updated scale
did not have a significant impact on our current pension obligations or net period benefit cost since our primary plans
are cash balance plans and most participants take lump-sum settlements upon retirement.
Plan Assets
We broadly diversify our pension plan assets across public equity, fixed income, diversified credit strategies and
diversified alternative strategies asset classes. Our target asset allocation for our major domestic pension plans as of
December 31, 2016 was as follows:
Asset Class
Cash
Equity securities
Fixed income securities
Alternative investments, including real estate, listed infrastructure and other
Target Asset Allocation
1%
25%
49%
25%
As of December 31, 2016, actual allocations were consistent with the targets and within our allowable ranges. We
expect the level of volatility in pension plan asset returns to be in line with the overall volatility of the markets within
each asset class.
78
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
The following table sets forth by level, within the fair value hierarchy (as defined in Note 6), pension plan assets at
their fair values as of December 31, 2016:
Cash and cash equivalents
$
576
$
9,540
$
— $
10,116
Quoted prices in
active markets of
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant other
unobservable
inputs (Level 3)
Total
Equity securities:
Global all-cap (a)
Fixed income securities:
U.S. government/agency
Corporate bonds (b)
Collateralized obligations (c)
International government/corporate
bonds (d)
Alternative investments:
Global diversified assets (e)
Global real estate investment trusts (f)
Global infrastructure (g)
20,216
242,214
—
—
—
—
—
—
—
228,648
199,634
50,532
30,928
146,975
48,000
46,413
—
—
—
—
—
—
—
—
262,430
228,648
199,634
50,532
30,928
146,975
48,000
46,413
Total pension plan assets
$
20,792
$
1,002,884
$
— $
1,023,676
The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair values as of
December 31, 2015:
Cash and cash equivalents
$
1,763
$
30,389
$
— $
32,152
Quoted prices in
active markets of
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant other
unobservable
inputs (Level 3)
Total
Equity securities:
U.S. all-cap (h)
International all-cap (i)
Global all-cap (a)
Fixed income securities:
U.S. government/agency
Corporate bonds (b)
Collateralized obligations (c)
International government/corporate
bonds (d)
—
108,862
73,157
117,378
101,476
32,532
138,367
3,118
196,063
120,136
37,748
8,157
31,917
40,839
—
—
—
—
—
—
—
138,367
111,980
269,220
237,514
139,224
40,689
72,756
Total pension plan assets
$
467,085
$
574,817
$
— $
1,041,902
79
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
This category comprises equity funds that primarily track the MSCI World Index or MSCI All Country World
Index.
(a)
(b) This category comprises fixed income funds primarily invested in investment grade and high yield bonds.
This category comprises fixed income funds primarily invested in high quality mortgage-backed securities and
other asset-backed obligations.
(c)
(d) This category comprises fixed income funds primarily invested in Canadian and other international bonds.
(e) This category comprises diversified funds invested across alternative asset classes.
(f) This category comprises equity funds primarily invested in publicly traded real estate securities.
(g) This category comprises equity funds primarily invested in publicly traded listed infrastructure securities.
(h) This category comprises equity funds that track the Russell 3000 index.
(i) This category comprises equity funds that track the MSCI World Ex-US index.
The fair value of the Level 1 assets was based on quoted prices in active markets for the identical assets. The fair
value of the Level 2 assets was determined by management based on an assessment of valuations provided by asset
management entities and was calculated by aggregating market prices for all underlying securities.
Investment objectives for our domestic plan assets are:
To ensure high correlation between the value of plan assets and liabilities;
To maintain careful control of the risk level within each asset class; and
To focus on a long-term return objective.
We believe that there are no significant concentrations of risk within our plan assets as of December 31, 2016. We
comply with the rules and regulations promulgated under the Employee Retirement Income Security Act of 1974
(“ERISA”) and we prohibit investments and investment strategies not allowed by ERISA. We do not permit direct
purchases of our Company’s securities or the use of derivatives for the purpose of speculation. We invest the assets of
non-domestic plans in compliance with laws and regulations applicable to those plans.
Cash Flows and Plan Termination
Our policy is to fund domestic pension liabilities in accordance with the limits imposed by the 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.
We made total contributions to the pension plans of $21,580 during 2016, including contributions of $18,000 to
maintain the funded status of our domestic plans. In 2015, we made total contributions of $32,898 to the pension
plans. For 2017, minimum funding requirements for our pension plans are approximately $1,158.
Total benefit payments expected to be paid to plan participants, including pension benefits funded from the plans and
other benefits funded from Company assets, are as follows:
Expected Benefit Payments
Pension Benefits
Other Benefits
2017
2018
2019
2020
2021
2022-2026
$
96,972
$
69,299
$
73,438
$
78,863
$
79,714
$
423,587
22,593
20,546
18,813
17,642
16,698
71,616
During the third quarter of 2016, the Company’s Board Compensation and Executive Organization Committee
approved the termination of the Hershey Company Puerto Rico Hourly Pension Plan with an effective date of
December 31, 2016. It is expected to take 15 to 18 months from the date of the approved amendment to complete the
termination of this plan. The net pension liability for this plan of $5,082 as of December 31, 2016 will be settled
through either lump sum payments or purchased annuities.
80
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Multiemployer Pension Plan
During 2016, we exited a facility as part of the 2016 Operational Optimization Program (see Note 7) and no longer
participate in the BCTGM Union and Industry Canadian Pension Plan, a trustee-managed multiemployer defined
benefit pension plan. Our obligation during the term of the collective bargaining agreement was limited to remitting
the required contributions to the plan and contributions made were not significant during 2014 through 2016.
Savings Plans
The Company sponsors several defined contribution plans to provide retirement benefits to employees. Contributions
to The Hershey Company 401(k) Plan and similar plans for non-domestic employees are based on a portion of eligible
pay up to a defined maximum. All matching contributions were made in cash. Expense associated with the defined
contribution plans was $43,545 in 2016, $44,285 in 2015 and $46,064 in 2014.
10. STOCK COMPENSATION PLANS
Share-based grants for compensation and incentive purposes are made pursuant to the Equity and Incentive
Compensation Plan (“EICP”). The EICP provides for grants of one or more of the following stock-based
compensation awards to employees, non-employee directors and certain service providers upon whom the successful
conduct of our business is dependent:
Non-qualified stock options (“stock options”);
Performance stock units (“PSUs”) and performance stock;
Stock appreciation rights;
Restricted stock units (“RSUs”) and restricted stock; and
Other stock-based awards.
As of December 31, 2016, 68.5 million shares were authorized and approved by our stockholders for grants under the
EICP. The EICP also provides for the deferral of stock-based compensation awards by participants if approved by the
Compensation and Executive Organization Committee of our Board and if in accordance with an applicable deferred
compensation plan of the Company. Currently, the Compensation and Executive Organization Committee has
authorized the deferral of PSU and RSU awards by certain eligible employees under the Company’s Deferred
Compensation Plan. Our Board has authorized our non-employee directors to defer any portion of their cash retainer,
committee chair fees and RSUs awarded after 2007 that they elect to convert into deferred stock units under our
Directors’ Compensation Plan.
At the time stock options are exercised or RSUs and PSUs become payable, common stock is issued from our
accumulated treasury shares. Dividend equivalents are credited on RSUs on the same date and at the same rate as
dividends are paid on Hershey’s common stock. These dividend equivalents are charged to retained earnings.
For the periods presented, compensation expense for all types of stock-based compensation programs and the related
income tax benefit recognized were as follows:
For the years ended December 31,
Pre-tax compensation expense
Related income tax benefit
2016
2015
2014
$ 54,785
$ 51,533
$ 54,068
17,148
17,109
18,653
Compensation costs for stock compensation plans are primarily included in selling, marketing and administrative
expense. As of December 31, 2016, total stock-based compensation cost related to non-vested awards not yet
recognized was $60,963 and the weighted-average period over which this amount is expected to be recognized was
approximately 2.2 years.
81
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Stock Options
The exercise price of each stock option awarded under the EICP equals the closing price of our Common Stock on the
New York Stock Exchange on the date of grant. Each stock option has a maximum term of 10 years. Grants of stock
options provide for pro-rated vesting, typically over a four year period. Expense for stock options is based on grant
date fair value and recognized on a straight-line method over the vesting period.
A summary of activity relating to grants of stock options for the year ended December 31, 2016 is as follows:
Stock Options
Outstanding at beginning of the period
Granted
Exercised
Forfeited
Outstanding as of December 31, 2016
Options exercisable as of December 31, 2016
Weighted-
Average
Exercise Price
(per share)
$75.48
$90.73
$58.72
$98.72
$82.67
$72.15
Shares
6,842,563
1,356,440
(1,762,827)
(244,168)
6,192,008
3,498,601
Weighted-
Average
Remaining
Contractual
Term
5.8 years
Aggregate
Intrinsic Value
6.2 years
4.6 years
$
$
121,202
103,865
The weighted-average fair value of options granted was $11.46, $18.99 and $21.50 per share in 2016, 2015 and 2014,
respectively. The fair value was estimated on the date of grant using a Black-Scholes option-pricing model and the
following weighted-average assumptions:
For the years ended December 31,
2016
2015
2014
Dividend yields
Expected volatility
Risk-free interest rates
Expected term in years
2.4%
16.8%
1.5%
6.8
2.1%
20.7%
1.9%
6.7
2.0%
22.3%
2.1%
6.7
“Dividend yields” means the sum of dividends declared for the four most recent quarterly periods,
divided by the average price of our Common Stock for the comparable periods;
“Expected volatility” means the historical volatility of our Common Stock over the expected term of
each grant;
“Risk-free interest rates” means the U.S. Treasury yield curve rate in effect at the time of grant for
periods within the contractual life of the stock option; and
“Expected term” means the period of time that stock options granted are expected to be outstanding
based primarily on historical data.
The total intrinsic value of options exercised was $73,944, $66,161 and $133,948 in 2016, 2015 and 2014,
respectively.
As of December 31, 2016, there was $16,372 of total unrecognized compensation cost related to non-vested stock
option awards granted under the EICP, which we expect to recognize over a weighted-average period of 2.4 years.
82
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
The following table summarizes information about stock options outstanding as of December 31, 2016:
Options Outstanding
Options Exercisable
Number
Outstanding as
of 12/31/16
1,825,259
2,208,766
2,157,983
6,192,008
Weighted-
Average
Remaining
Contractual
Life in Years
3.5
7.5
7.1
6.2
Weighted-
Average
Exercise Price
Number
Exercisable as of
12/31/16
Weighted-
Average
Exercise Price
$51.27
$86.58
$105.22
$82.67
1,825,259
730,253
943,089
3,498,601
$51.27
$81.66
$105.20
$72.15
Range of Exercise Prices
$33.40 - $60.68
$60.69 - $90.39
$90.40 - $111.76
$33.40 - $111.76
Performance Stock Units and Restricted Stock Units
Under the EICP, we grant PSUs to selected executives and other key employees. Vesting is contingent upon the
achievement of certain performance objectives. We grant PSUs over 3-year performance cycles. If we meet targets
for financial measures at the end of the applicable 3-year performance cycle, we award a resulting number of shares of
our Common Stock to the participants. For PSUs granted, the target award is a combination of a market-based total
shareholder return and performance-based components. The performance scores for 2014 through 2016 grants of
PSUs can range from 0% to 250% of the targeted amounts.
We recognize the compensation cost associated with PSUs ratably over the 3-year term. Compensation cost is based
on the grant date fair value because the grants can only be settled in shares of our Common Stock. The grant date fair
value of PSUs is determined based on the Monte Carlo simulation model for the market-based total shareholder return
component and the closing market price of the Company’s Common Stock on the date of grant for performance-based
components.
In 2016, 2015 and 2014, we awarded RSUs to certain executive officers and other key employees under the EICP. We
also awarded RSUs quarterly to non-employee directors.
We recognize the compensation cost associated with employee RSUs over a specified award vesting period based on
the grant date fair value or year-end market value of our Common Stock. We recognize expense for employee RSUs
based on the straight-line method. We recognize the compensation cost associated with non-employee director RSUs
ratably over the vesting period.
A summary of activity relating to grants of PSUs and RSUs for the period ended December 31, 2016 is as follows:
Performance Stock Units and Restricted Stock Units
Number of units
Weighted-average grant date fair value
for equity awards (per unit)
Outstanding at beginning of year
Granted
Performance assumption change
Vested
Forfeited
Outstanding at end of year
495,207
545,750
79,889
(239,270)
(53,348)
828,228
$106.40
$93.55
$92.43
$94.59
$98.93
$102.66
The table above excludes PSU awards for 6,410 units as of December 31, 2016 and 20,586 units as of December 31,
2015 for which the measurement date has not yet occurred for accounting purposes.
The following table sets forth information about the fair value of the PSUs and RSUs granted for potential future
distribution to employees and non-employee directors. In addition, the table provides assumptions used to determine
the fair value of the market-based total shareholder return component using the Monte Carlo simulation model on the
date of grant.
83
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
For the years ended December 31,
Units granted
Weighted-average fair value at date of grant
Monte Carlo simulation assumptions:
Estimated values
Dividend yields
Expected volatility
$
$
2016
545,750
93.55
38.02
2.5%
17.0%
$
$
2015
381,407
104.68
61.22
2.0%
14.9%
$
$
2014
331,788
115.57
80.95
1.8%
15.5%
“Estimated values” means the fair value for the market-based total shareholder return component of
each PSU at the date of grant using a Monte Carlo simulation model;
“Dividend yields” means the sum of dividends declared for the four most recent quarterly periods,
divided by the average price of our Common Stock for the comparable periods;
“Expected volatility” means the historical volatility of our Common Stock over the expected term of
each grant.
The fair value of shares vested totaled $22,062, $46,113 and $57,360 in 2016, 2015 and 2014, respectively.
Deferred PSUs, deferred RSUs and deferred stock units representing directors’ fees totaled 483,465 units as of
December 31, 2016. Each unit is equivalent to one share of the Company’s Common Stock.
11. SEGMENT INFORMATION
Our organizational structure is designed to ensure continued focus on North America, coupled with an emphasis on
profitable growth in our focus international markets. Our business is organized around geographic regions, which
enables us to build processes for repeatable success in our global markets. As a result, we have defined our operating
segments on a geographic basis, as this aligns with how our Chief Operating Decision Maker (“CODM”) manages our
business, including resource allocation and performance assessment. Our North America business, which generates
approximately 88% of our consolidated revenue, is our only reportable segment. None of our other operating
segments meet the quantitative thresholds to qualify as reportable segments; therefore, these operating segments are
combined and disclosed below as International and Other.
• North America - This segment is responsible for our traditional chocolate and non-chocolate confectionery
market position, as well as our grocery and growing snacks market positions, in the United States and
Canada. This includes developing and growing our business in chocolate and non-chocolate confectionery,
pantry, food service and other snacking product lines.
•
International and Other - International and Other is a combination of all other operating segments that are
not individually material, including those geographic regions where we operate outside of North America.
We currently have operations and manufacture product in China, Mexico, Brazil, India and Malaysia,
primarily for consumers in these regions, and also distribute and sell confectionery products in export markets
of Asia, Latin America, Middle East, Europe, Africa and other regions. This segment also includes our global
retail operations, including Hershey's Chocolate World stores in Hershey, Pennsylvania, New York City, Las
Vegas, Shanghai, Niagara Falls (Ontario), Dubai, and Singapore, as well as operations associated with
licensing the use of certain of the Company's trademarks and products to third parties around the world.
For segment reporting purposes, we use “segment income” to evaluate segment performance and allocate resources.
Segment income excludes unallocated general corporate administrative expenses, unallocated mark-to-market gains
and losses on commodity derivatives, business realignment and impairment charges, acquisition integration costs, the
non-service related portion of pension expense and other unusual gains or losses that are not part of our measurement
of segment performance. These items of our operating income are managed centrally at the corporate level and are
excluded from the measure of segment income reviewed by the CODM as well the measure of segment performance
used for incentive compensation purposes.
Accounting policies associated with our operating segments are generally the same as those described in Note 1.
84
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Certain manufacturing, warehousing, distribution and other activities supporting our global operations are integrated to
maximize efficiency and productivity. As a result, assets and capital expenditures are not managed on a segment basis
and are not included in the information reported to the CODM for the purpose of evaluating performance or allocating
resources. We disclose depreciation and amortization that is generated by segment-specific assets, since these amounts
are included within the measure of segment income reported to the CODM.
Our segment net sales and earnings were as follows:
For the years ended December 31,
Net sales:
North America
International and Other
Total
Segment income (loss):
North America
International and Other
Total segment income
Unallocated corporate expense (1)
Unallocated mark-to-market losses on commodity
derivatives (2)
Goodwill and other intangible asset impairment charges
Costs associated with business realignment activities
Non-service related pension expense (income)
Acquisition and integration costs
Operating profit
Interest expense, net
Other (income) expense, net
Income before income taxes
$
$
$
2016
2015
2014
$
$
$
6,532,988
907,193
7,440,181
2,040,995
(29,139)
2,011,856
497,423
163,238
4,204
107,571
27,157
6,480
$
$
$
6,468,158
918,468
7,386,626
2,073,967
(98,067)
1,975,900
497,386
—
280,802
120,975
18,079
20,899
6,352,729
1,069,039
7,421,768
1,916,207
40,004
1,956,211
503,234
—
15,900
34,290
(1,834)
12,360
1,205,783
1,037,759
1,392,261
90,143
16,159
105,773
30,139
83,532
2,686
$
1,099,481
$
901,847
$
1,306,043
(1) Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance, and human resources,
(b) expenses associated with the oversight and administration of our global operations, including warehousing,
distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based
compensation expense, and (d) other gains or losses that are not integral to segment performance.
(2) Reflects gains and losses on commodity derivative instruments that are excluded from segment income until the
related inventory is sold. See Note 5.
Activity within the unallocated mark-to-market (gains) losses on commodity derivatives for the year ended
December 31, 2016 included:
For the year ended December 31,
Net losses on mark-to-market valuation of unallocated commodity derivative positions
Net losses on commodity derivative positions allocated to segment income
Net losses on mark-to-market valuation of commodity derivative positions remaining in
unallocated derivative (gains) losses
$
$
2016
171,753
8,515
163,238
Based on our forecasts of the timing of the recognition of the underlying hedged items, we expect to reclassify net
pretax losses on commodity derivatives of $88.3 million to segment operating results in the next twelve months.
85
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Depreciation and amortization expense included within segment income presented above is as follows:
For the years ended December 31,
North America
International and Other
Corporate (1)
Total
2016
2015
2014
$
$
162,211
$
153,185
$
50,753
88,873
46,342
45,401
301,837
$
244,928
$
146,475
28,463
36,594
211,532
(1) Corporate includes non-cash asset-related accelerated depreciation and amortization related to business
realignment activities, as discussed in Note 7. Such amounts are not included within our measure of segment
income.
Additional geographic information is as follows:
Net sales:
United States
Other
Total
Long-lived assets:
United States
Other
Total
2016
2015
2014
$
$
$
$
6,196,723
1,243,458
7,440,181
1,528,255
648,993
2,177,248
$
$
$
$
6,116,490
1,270,136
7,386,626
1,528,723
711,737
2,240,460
$
$
$
$
5,996,564
1,425,204
7,421,768
1,477,455
674,446
2,151,901
12. EQUITY AND NONCONTROLLING INTERESTS
We had 1,055,000,000 authorized shares of capital stock as of December 31, 2016. Of this total, 900,000,000 shares
were designated as Common Stock, 150,000,000 shares were designated as Class B Stock and 5,000,000 shares were
designated as Preferred Stock. Each class has a par value of one dollar per share.
Changes in the outstanding shares of Common Stock for the past three years were as follows:
For the years ended December 31,
Shares issued
Treasury shares at beginning of year
Stock repurchases:
Repurchase programs
Stock-based compensation programs
Stock issuances:
Stock-based compensation programs
Treasury shares at end of year
Net shares outstanding at end of year
2016
2015
2014
359,901,744
(143,124,384)
359,901,744
(138,856,786)
359,901,744
(136,007,023)
(4,640,964)
(1,820,766)
(4,209,112)
(1,776,838)
(2,135,268)
(3,676,513)
1,944,105
(147,642,009)
212,259,735
1,718,352
(143,124,384)
216,777,360
2,962,018
(138,856,786)
221,044,958
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. The holders of Common Stock have 1 vote per share
and the holders of Class B Stock have 10 votes per share. However, the Common Stock holders, voting separately as a
class, are entitled to elect one-sixth of the Board. With respect to dividend rights, the Common Stock holders are
entitled to cash dividends 10% higher than those declared and paid on the Class B Stock.
86
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Class B Stock can be converted into Common Stock on a share-for-share basis at any time. During 2016 and 2015, no
shares of Class B Stock were converted into Common Stock. During 2014, 440 shares were converted.
Hershey Trust Company
Hershey Trust Company, as trustee for the benefit of Milton Hershey School and as direct owner of investment shares,
held 12,903,021 shares of our Common Stock as of December 31, 2016. As trustee for the benefit of Milton Hershey
School, Hershey Trust Company held 60,612,012 shares of the Class B Stock as of December 31, 2016, and was
entitled to cast approximately 80% of all of the votes entitled to be cast on matters requiring the vote of both classes of
our common stock voting together. Hershey Trust Company, as trustee for the benefit of Milton Hershey School, or
any successor trustee, or Milton Hershey School, as appropriate, must approve any issuance of shares of Common
Stock or other action that would result in it not continuing to have voting control of our Company.
Noncontrolling Interests in Subsidiaries
We currently own a 50% controlling interest in Lotte Shanghai Foods Co., Ltd. (“LSFC”), a joint venture established
in 2007 in China for the purpose of manufacturing and selling product to the venture partners.
A roll-forward showing the 2016 activity relating to the noncontrolling interest follows:
Balance, December 31, 2015
Net loss attributable to noncontrolling interests (1)
Other comprehensive loss - foreign currency translation adjustments
Balance, December 31, 2016
Noncontrolling
Interests
$
$
49,465
(3,970)
(3,664)
41,831
(1) Amounts are not considered significant and are presented within selling, marketing and administrative expenses.
13. COMMITMENTS AND CONTINGENCIES
We enter into certain obligations for the purchase of raw materials. These obligations are primarily in the form of
forward contracts for the purchase of raw materials from third-party brokers and dealers. These contracts minimize the
effect of future price fluctuations by fixing the price of part or all of these purchase obligations. Total obligations
consisted of fixed price contracts for the purchase of commodities and unpriced contracts that were valued using
market prices as of December 31, 2016.
The cost of commodities associated with the unpriced contracts is variable as market prices change over future
periods. We mitigate the variability of these costs to the extent that we have entered into commodities futures contracts
or other commodity derivative instruments to hedge our costs for those periods. Increases or decreases in market prices
are offset by gains or losses on commodities futures contracts or other commodity derivative instruments. Taking
delivery of and making payments for the specific commodities for use in the manufacture of finished goods satisfies
our obligations under the forward purchase contracts. For each of the three years in the period ended December 31,
2016, we satisfied these obligations by taking delivery of and making payment for the specific commodities.
As of December 31, 2016, we had entered into agreements for the purchase of raw materials with various suppliers.
Subject to meeting our quality standards, the purchase obligations covered by these agreements were as follows as of
December 31, 2016:
In millions of dollars
Purchase obligations
2017
2018
2019
2020
$
1,282.2 $
240.5 $
36.0 $
—
We also have commitments under various operating lease arrangements. Future minimum payments under lease
arrangements with a remaining term in excess of one year were as follows as of December 31, 2016:
In millions of dollars
2017
2018
2019
2020
2021
Thereafter
Future minimum rental payments
$
11.7 $
13.7 $
12.4 $
10.9 $
10.8 $
189.0
87
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
Future minimum rental payments reflect commitments under non-cancelable operating leases primarily for offices,
retail stores, warehouse and distribution facilities. Total rent expense for the years ended December 31, 2016, 2015
and 2014 was $20,330, $19,754 and $21,423, respectively, including short-term rentals.
Environmental contingencies
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. 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.
Legal contingencies
We are subject to various pending or threatened legal proceedings and claims that arise in the ordinary course of our
business. While it is not feasible to predict or determine the outcome of such proceedings and claims with certainty, in
our opinion these matters, both individually and in the aggregate, are not expected to have a material effect on our
financial condition, results of operations or cash flows.
88
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
14. EARNINGS PER SHARE
We compute basic earnings per share for Common Stock and Class B common stock using the two-class method. The
Class B common stock is convertible into Common Stock on a share-for-share basis at any time. The computation of
diluted earnings per share for Common Stock assumes the conversion of Class B common stock using the if-converted
method, while the diluted earnings per share of Class B common stock does not assume the conversion of those shares.
We compute basic and diluted earnings per share based on the weighted-average number of shares of Common Stock
and Class B common stock outstanding as follows:
For the years ended December 31,
2016
2015
2014
Common
Stock
Class B
Common
Stock
Common
Stock
Class B
Common
Stock
Common
Stock
Class B
Common
Stock
Basic earnings per share:
Numerator:
Allocation of distributed earnings (cash
dividends paid)
$ 367,081
$ 132,394
$ 352,953
$ 123,179
$ 328,752
$ 111,662
Allocation of undistributed earnings
162,299
58,270
27,324
9,495
303,801
102,697
Total earnings—basic
$ 529,380
$ 190,664
$ 380,277
$ 132,674
$ 632,553
$ 214,359
Denominator (shares in thousands):
Total weighted-average shares—basic
153,519
60,620
158,471
60,620
161,935
60,620
Earnings Per Share—basic
$
3.45
$
3.15
$
2.40
$
2.19
$
3.91
$
3.54
Diluted earnings per share:
Numerator:
Allocation of total earnings used in basic
computation
Reallocation of total earnings as a result
of conversion of Class B common stock
to Common stock
Reallocation of undistributed earnings
$ 529,380
$ 190,664
$ 380,277
$ 132,674
$ 632,553
$ 214,359
190,664
—
—
(324)
132,674
—
—
(69)
214,359
—
—
(1,071)
Total earnings—diluted
$ 720,044
$ 190,340
$ 512,951
$ 132,605
$ 846,912
$ 213,288
Denominator (shares in thousands):
Number of shares used in basic
computation
Weighted-average effect of dilutive
securities:
Conversion of Class B common stock
to Common shares outstanding
Employee stock options
Performance and restricted stock
options
153,519
60,620
158,471
60,620
161,935
60,620
60,620
964
201
—
—
—
60,620
1,335
225
—
—
—
60,620
1,920
362
—
—
—
Total weighted-average shares—diluted
215,304
60,620
220,651
60,620
224,837
60,620
Earnings Per Share—diluted
$
3.34
$
3.14
$
2.32
$
2.19
$
3.77
$
3.52
The earnings per share calculations for the years ended December 31, 2016, 2015 and 2014 excluded 3,680, 2,660 and
1,510 stock options, respectively, that would have been antidilutive.
89
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
15. OTHER (INCOME) EXPENSE, NET
Other (income) expense, net reports certain gains and losses associated with activities not directly related to our core
operations. A summary of the components of other (income) expense, net is as follows:
For the years ended December 31,
2016
2015
2014
Write-down of equity investments in partnerships qualifying for tax
credits
$
Settlement of SGM liability (see Note 2)
Foreign currency exchange loss relating to strategy to cap SGM
acquisition price as denominated in U.S. dollars
Gain on acquisition of controlling interest in LSFC
Gain on sale of non-core trademark
Other (income) expense, net
Total
$
43,482
(26,650)
—
—
—
(673)
16,159
$
39,489
$
—
—
—
(9,950)
600
$
30,139
$
—
—
6,722
(4,627)
—
591
2,686
90
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
16. SUPPLEMENTAL BALANCE SHEET INFORMATION
The components of certain Consolidated Balance Sheet accounts are as follows:
December 31,
Inventories:
Raw materials
Goods in process
Finished goods
Inventories at FIFO
Adjustment to LIFO
Total inventories
Property, plant and equipment:
Land
Buildings
Machinery and equipment
Construction in progress
Property, plant and equipment, gross
Accumulated depreciation
Property, plant and equipment, net
Other assets:
Capitalized software, net
Income tax receivable
Other non-current assets
Total other assets
Accrued liabilities:
Payroll, compensation and benefits
Advertising and promotion
Due to SGM shareholders
Other
Total accrued liabilities
Other long-term liabilities:
Post-retirement benefits liabilities
Pension benefits liabilities
Other
Total other long-term liabilities
Accumulated other comprehensive loss:
Foreign currency translation adjustments
Pension and post-retirement benefit plans, net of tax
Cash flow hedges, net of tax
Total accumulated other comprehensive loss
91
2016
2015
315,239
$
88,490
528,587
932,316
(186,638)
745,678
$
103,865
$
1,238,634
3,001,552
230,987
4,575,038
(2,397,790)
2,177,248
$
353,451
67,745
534,983
956,179
(205,209)
750,970
96,666
1,084,958
2,886,723
448,956
4,517,303
(2,276,843)
2,240,460
95,301
$
1,449
71,615
68,004
1,428
85,934
168,365
$
155,366
240,080
$
358,573
—
152,333
750,986
$
220,270
$
65,687
114,204
400,161
$
215,638
337,945
72,025
231,359
856,967
231,412
122,681
114,625
468,718
(110,613) $
(207,169)
(58,106)
(375,888) $
(101,236)
(254,648)
(15,141)
(371,025)
$
$
$
$
$
$
$
$
$
$
$
$
THE HERSHEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)
17. QUARTERLY DATA (Unaudited)
Summary quarterly results were as follows:
Year 2016
Net sales
Gross profit
Net income
Common stock:
Net income per share—Basic(a)
Net income per share—Diluted(a)
Dividends paid per share
Class B common stock:
Net income per share—Basic(a)
Net income per share—Diluted(a)
Dividends paid per share
Market price—common stock:
High
Low
Year 2015
Net sales
Gross profit
Net income (loss)
Common stock:
First
Second
Third
Fourth
$
1,828,812
$
1,637,671
$
2,003,454
$
1,970,244
817,376
229,832
747,398
145,956
850,848
227,403
742,269
116,853
1.09
1.06
0.583
0.99
0.99
0.530
93.71
83.32
0.70
0.68
0.583
0.64
0.64
0.530
1.09
1.06
0.618
0.99
0.99
0.562
0.56
0.55
0.618
0.51
0.51
0.562
113.49
89.60
113.89
94.64
104.44
94.63
First
Second
Third(b)
Fourth(b)
$
1,937,800
$
1,578,825
$
1,960,779
$
1,909,222
900,843
244,737
735,408
(99,941)
868,706
140,266
877,718
227,889
Net income (loss) per share—Basic(a)
Net income (loss) per share—Diluted(a)
Dividends paid per share
Class B common stock:
Net income (loss) per share—Basic(a)
Net income (loss) per share—Diluted(a)
Dividends paid per share
Market price—common stock:
1.14
1.10
0.535
1.04
1.03
0.486
(0.47)
(0.47)
0.535
(0.42)
(0.42)
0.486
High
Low
110.78
98.52
101.74
87.86
0.66
0.64
0.583
0.60
0.60
0.530
94.31
85.13
1.08
1.04
0.583
0.98
0.98
0.530
97.07
83.58
(a) Quarterly income per share amounts do not total to the annual amount due to changes in weighted-average shares outstanding
during the year, as well as the impact of excluding dilutive securities in the period in which there was a net loss.
(b) In 2015, the Company identified a material weakness in its internal control over financial reporting related to hedge accounting
compliance for cocoa commodity derivatives. As a result, hedge accounting treatment for cocoa commodity derivatives was
disallowed for the third and fourth quarters of 2015; therefore the impact of changes in fair value of the cocoa commodity
futures outstanding during these periods should have been recorded within cost of sales as incurred, instead of deferred within
AOCI. Such gains (losses) totaled $(23,358) for the third quarter of 2015 and an essentially offsetting amount for the fourth
quarter of 2015. The amounts presented above for the third and fourth quarters of 2015 reflect the impact of reclassifying
these gains (losses) deferred within AOCI to cost of sales for the respective periods.
92
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of December 31, 2016.
Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were effective as of December 31, 2016.
Design and Evaluation of Internal Control Over Financial Reporting
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information
required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and
forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the Company’s reports filed under the Exchange Act is accumulated and
communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
Management's report on the Company's internal control over financial reporting appears on the following page. There
were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2016 that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
93
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of The Hershey Company is responsible for establishing and maintaining adequate internal control
over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control
system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding
the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.
The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, assessed
the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. In making this
assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in Internal Control–Integrated Framework (2013 edition). Based on this
assessment, management concluded that, as of December 31, 2016, the Company’s internal control over financial
reporting was effective based on those criteria.
The Company’s independent auditors have audited, and reported on, the Company’s internal control over financial
reporting as of December 31, 2016.
/s/ JOHN P. BILBREY
John P. Bilbrey
Chief Executive Officer
(Principal Executive Officer)
/s/ PATRICIA A. LITTLE
Patricia A. Little
Chief Financial Officer
(Principal Financial Officer)
94
Item 9B. OTHER INFORMATION
None.
95
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information regarding executive officers of the Company required by Item 401 of SEC Regulation S-K is
incorporated herein by reference from the disclosure included under the caption “SUPPLEMENTAL ITEM.
EXECUTIVE OFFICERS OF THE REGISTRANT” at the end of Part I of this Annual Report on Form 10-K.
The information required by Item 401 of SEC Regulation S-K concerning the directors and nominees for director of
the Company, together with a discussion of the specific experience, qualifications, attributes and skills that led the
Board to conclude that the director or nominee should serve as a director at this time, will be located in the Proxy
Statement in the section entitled “PROPOSAL NO. 1 – ELECTION OF DIRECTORS,” which information is
incorporated herein by reference.
Information regarding the identification of the Audit Committee as a separately-designated standing committee of the
Board and information regarding the status of one or more members of the Audit Committee as an “audit committee
financial expert” will be located in the Proxy Statement in the section entitled “MEETINGS AND COMMITTEES OF
THE BOARD – Committees of the Board,” which information is incorporated herein by reference.
Reporting of any inadvertent late filings under Section 16(a) of the Securities Exchange Act of 1934, as amended, will
be located in the Proxy Statement in the section entitled “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE,” which information is incorporated herein by reference.
Information regarding our Code of Ethical Business Conduct applicable to our directors, officers and employees is
located in Part I of this Annual Report on Form 10-K, under the heading “Available Information.”
Item 11. EXECUTIVE COMPENSATION
Information regarding the compensation of each of our named executive officers, including our Chief Executive
Officer, will be located in the Proxy Statement in the section entitled “COMPENSATION DISCUSSION &
ANALYSIS,” which information is incorporated herein by reference. Information regarding the compensation of our
directors will be located in the Proxy Statement in the section entitled “NON-EMPLOYEE DIRECTOR
COMPENSATION,” which information is incorporated herein by reference.
The information required by Item 407(e)(4) of SEC Regulation S-K will be located in the Proxy Statement in the
section entitled “COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION,” which
information is incorporated herein by reference.
The information required by Item 407(e)(5) of SEC Regulation S-K will be located in the Proxy Statement in the
section entitled “Compensation Committee Report,” which information is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information concerning ownership of our voting securities by certain beneficial owners, individual nominees for
director, the named executive officers, including persons serving as our Chief Executive Officer and Chief Financial
Officer, and directors and executive officers as a group, will be located in the Proxy Statement in the section entitled
“SHARE OWNERSHIP OF DIRECTORS, MANAGEMENT AND CERTAIN BENEFICIAL OWNERS,” which
information is incorporated herein by reference.
Information regarding all of the Company’s equity compensation plans will be located in the Proxy Statement in the
section entitled “EQUITY COMPENSATION PLAN INFORMATION,” which information is incorporated herein by
reference.
96
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information regarding transactions with related persons will be located in the Proxy Statement in the section entitled
“CERTAIN TRANSACTIONS AND RELATIONSHIPS,” which information is incorporated herein by reference.
Information regarding director independence will be located in the Proxy Statement in the section entitled
“CORPORATE GOVERNANCE – Director Independence,” which information is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information regarding “Principal Accounting Fees and Services,” including the policy regarding pre-approval of audit
and non-audit services performed by our Company’s independent auditors, will be located in the Proxy Statement in
the section entitled “INFORMATION ABOUT OUR INDEPENDENT AUDITORS,” which information is
incorporated herein by reference.
97
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15(a)(1): Financial Statements
The audited consolidated financial statements of The Hershey Company and its subsidiaries and the Report of
Independent Registered Public Accounting Firm thereon, as required to be filed, are located under Item 8 of this
Annual Report on Form 10-K.
Item 15(a)(2): Financial Statement Schedule
Schedule II—Valuation and Qualifying Accounts for The Hershey Company and its subsidiaries for the years ended
December 31, 2016, 2015 and 2014 is filed as part of this Annual Report on Form 10-K as required by Item 15(c).
We omitted other schedules because they are not applicable or the required information is set forth in the consolidated
financial statements or notes thereto.
Item 15(a)(3): Exhibits
The information called for by this Item is incorporated by reference from the Exhibit Index included in this Annual
Report on Form 10-K.
Item 16. FORM 10-K SUMMARY
None.
98
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 21st day of
February, 2017.
SIGNATURES
By:
THE HERSHEY COMPANY
(Registrant)
/S/ PATRICIA A. LITTLE
Patricia A. Little
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Company and in the capacities and on the date indicated.
Signature
Title
Date
/S/ JOHN P. BILBREY
John P. Bilbrey
Chief Executive Officer and Director
(Principal Executive Officer)
February 21, 2017
/S/ PATRICIA A. LITTLE
Chief Financial Officer
February 21, 2017
Patricia A. Little
(Principal Financial Officer)
/S/ JAVIER H. IDROVO
Chief Accounting Officer
February 21, 2017
Javier H. Idrovo
(Principal Accounting Officer)
/S/ PAMELA M. ARWAY
Pamela M. Arway
/S/ ROBERT F. CAVANAUGH
Robert F. Cavanaugh
/S/ CHARLES A. DAVIS
Charles A. Davis
/S/ MARY KAY HABEN
Mary Kay Haben
/S/ ROBERT M. MALCOLM
Robert M. Malcolm
/S/ JAMES M. MEAD
James M. Mead
/S/ JAMES E. NEVELS
James E. Nevels
/S/ ANTHONY J. PALMER
Anthony J. Palmer
Director
Director
Director
Director
Director
Director
Director
Director
/S/ THOMAS J. RIDGE
Director
Thomas J. Ridge
/S/ DAVID L. SHEDLARZ
David L. Shedlarz
Director
99
February 21, 2017
February 21, 2017
February 21, 2017
February 21, 2017
February 21, 2017
February 21, 2017
February 21, 2017
February 21, 2017
February 21, 2017
February 21, 2017
THE HERSHEY COMPANY AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2016, 2015 and 2014
Schedule II
Additions
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Charged
to Other
Accounts
Deductions
from
Reserves
Balance
at End
of Period
Description
In thousands of dollars
For the year ended December 31, 2016
Allowances deducted from assets
Accounts receivable—trade, net (a)
$
32,638
$ 174,314
$
Valuation allowance on net deferred taxes (b)
Inventory obsolescence reserve (c)
207,055
22,632
28,430
30,053
Total allowances deducted from assets
$ 262,325
$ 232,797
$
For the year ended December 31, 2015
Allowances deducted from assets
Accounts receivable—trade, net (a)
$
15,885
$ 172,622
$
Valuation allowance on net deferred taxes (b)
Inventory obsolescence reserve (c)
147,223
11,748
59,832
32,434
Total allowances deducted from assets
$ 174,856
$ 264,888
$
For the year ended December 31, 2014
Allowances deducted from assets
Accounts receivable—trade, net (a)
$
14,329
$ 153,652
$
Valuation allowance on net deferred taxes (b)
Inventory obsolescence reserve (c)
87,159
564
60,064
24,660
Total allowances deducted from assets
$ 102,052
$ 238,376
$
— $ (166,799) $
—
40,153
235,485
—
20,043
— $ (199,441) $ 295,681
—
(32,642)
— $ (155,869) $
—
32,638
207,055
—
22,632
— $ (177,419) $ 262,325
—
(21,550)
— $ (152,096) $
—
15,885
147,223
—
11,748
— $ (165,572) $ 174,856
—
(13,476)
(a) Includes allowances for doubtful accounts, anticipated discounts and write-offs of uncollectible accounts
receivable.
(b) Includes adjustments to the valuation allowance for deferred tax assets that we do not expect to realize.
(c) Includes adjustments to the inventory reserve, transfers, disposals and write-offs of obsolete inventory.
100
Exhibit
Number
2.1
3.1
3.2
4.1
10.1(a)
10.1(b)
10.1(c)
10.2
10.3
10.4(a)
10.4(b)
10.5(a)
EXHIBIT INDEX
Description
Share Purchase Agreement by and among Shanghai Golden Monkey Food Joint Stock Co., Ltd., various
shareholders thereof and Hershey Netherlands B.V., a wholly-owned subsidiary of the Company, as of December
18, 2013, is incorporated by reference from Exhibit 2.1 to the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2013.
The Company’s Restated Certificate of Incorporation, as amended, is incorporated by reference from Exhibit 3 to
the Company’s Quarterly Report on Form 10-Q for the quarter ended April 3, 2005.
The Company's By-laws, as amended and restated as of April 1, 2015, are incorporated by reference from Exhibit
3.1 to the Company’s Current Report on Form 8-K filed April 2, 2015.
The Company has issued certain long-term debt instruments, no one class of which creates indebtedness exceeding
10% of the total assets of the Company and its subsidiaries on a consolidated basis. These classes consist of the
following:
1) 1.600% Notes due 2018
2) 4.125% Notes due 2020
3) 8.8% Debentures due 2021
4) 2.625% Notes due 2023
5) 3.200% Notes due 2025
6) 2.300% Notes due 2026
7) 7.2% Debentures due 2027
8) 3.375% Notes due 2046
9) Other Obligations
The Company undertakes to furnish copies of the agreements governing these debt instruments to the Securities
and Exchange Commission upon its request.
Kit Kat® and Rolo® License Agreement (the “License Agreement”) between the Company and Rowntree
Mackintosh Confectionery Limited is incorporated by reference from Exhibit 10(a) to the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 1980.
Amendment to the License Agreement is incorporated by reference from Exhibit 19 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended July 3, 1988.
Assignment of the License Agreement by Rowntree Mackintosh Confectionery Limited to Société des Produits
Nestlé SA as of January 1, 1990 is incorporated by reference from Exhibit 19 to the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 1990.
Peter Paul/York Domestic Trademark & Technology License Agreement between the Company and Cadbury
Schweppes Inc. (now Kraft Foods Ireland Intellectual Property Limited) dated August 25, 1988, is incorporated by
reference from Exhibit 2(a) to the Company’s Current Report on Form 8-K dated September 8, 1988.
Cadbury Trademark & Technology License Agreement between the Company and Cadbury Limited (now Cadbury
UK Limited) dated August 25, 1988, is incorporated by reference from Exhibit 2(a) to the Company’s Current
Report on Form 8-K dated September 8, 1988.
Trademark and Technology License Agreement between Huhtamäki and the Company dated December 30, 1996, is
incorporated by reference from Exhibit 10 to the Company’s Current Report on Form 8-K filed February 26, 1997.
Amended and Restated Trademark and Technology License Agreement between Huhtamäki and the Company is
incorporated by reference from Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
Five Year Credit Agreement dated as of October 14, 2011, among the Company and the banks, financial institutions
and other institutional lenders listed on the respective signature pages thereof (“Lenders”), Bank of America, N.A.,
as administrative agent for the Lenders, JPMorgan Chase Bank, N.A., as syndication agent, Citibank, N.A. and
PNC Bank, National Association, as documentation agents, and Bank of America Merrill Lynch, J.P. Morgan
Securities LLC, Citigroup Global Markets, Inc. and PNC Capital Markets LLC, as joint lead arrangers and joint
book managers, is incorporated by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K filed
October 20, 2011.
101
10.5(b)
10.6
10.7(a)
10.7(b)
10.8
10.9
10.10(a)
10.10(b)
10.11(a)
10.11(b)
10.11(c)
10.12(a)
10.12(b)
10.13(a)
10.13(b)
10.14
10.15
10.16(a)
10.16(b)
10.17
10.18
10.19
10.20
Amendment No. 1 to Credit Agreement dated as of November 12, 2013, among the Company, the banks, financial
institutions and other institutional lenders who are parties to the Five Year Credit Agreement and Bank of America,
N.A., as agent, is incorporated by reference from Exhibit 10.6 to the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2013.
364 Day Credit Agreement, dated as of June 16, 2016, among the Company and Citibank, N.A, as lender and
administrative agent, is incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed June 17, 2016.
Master Innovation and Supply Agreement between the Company and Barry Callebaut, AG, dated July 13, 2007, is
incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 19, 2007.
First Amendment to Master Innovation and Supply Agreement between the Company and Barry Callebaut, AG,
dated April 14, 2011, is incorporated by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form
10-Q for the quarter ended July 3, 2011.
Supply Agreement for Monterrey, Mexico, between the Company and Barry Callebaut, AG, dated July 13, 2007, is
incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed July 19, 2007.
The Company’s Equity and Incentive Compensation Plan, amended and restated February 22, 2011, and approved
by our stockholders on April 28, 2011, is incorporated by reference from Appendix B to the Company’s proxy
statement filed March 15, 2011.+
Form of Notice of Award of Restricted Stock Units (pre-February 15, 2016 version) is incorporated by reference
from Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.+
Form of Notice of Award of Restricted Stock Units (effective February 15, 2016).*+
Form of Notice of Special Award of Restricted Stock Units (pro-rata vest, pre-February 15, 2016 version) is
incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 16, 2011.+
Form of Notice of Special Award of Restricted Stock Units (pro-rata vest, effective February 15, 2016) is
incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 17, 2016.+
Form of Notice of Special Award of Restricted Stock Units (3-year cliff vest) is incorporated by reference from
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 18, 2016.+
Terms and Conditions of Nonqualified Stock Option Awards under the Equity and Incentive Compensation Plan
(pre-February 15, 2016 version) is incorporated by reference from Exhibit 10.2 to the Company’s Current Report
on Form 8-K filed February 24, 2012.+
Terms and Conditions of Nonqualified Stock Option Awards under the Equity and Incentive Compensation Plan
(effective February 15, 2016).*+
Form of Notice of Award of Performance Stock Units (pre-February 15, 2016 version) is incorporated by reference
from Exhibit 10.1 to the Company's Current Report on Form 8-K filed February 24, 2012.+
Form of Notice of Award of Performance Stock Units (effective February 15, 2016).*+
The Long-Term Incentive Program Participation Agreement is incorporated by reference from Exhibit 10.2 to the
Company's Current Report on Form 8-K filed February 18, 2005.+
The Company’s Deferred Compensation Plan, Amended and Restated as of June 27, 2012, is incorporated by
reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2012.+
The Company’s Supplemental Executive Retirement Plan, Amended and Restated as of October 2, 2007, is
incorporated by reference from Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2007.+
First Amendment to the Company’s Supplemental Executive Retirement Plan, Amended and Restated as of
October 2, 2007, is incorporated by reference from Exhibit 10.5 to the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2008.+
The Company’s Compensation Limit Replacement Plan, Amended and Restated as of January 1, 2009, is
incorporated by reference from Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2008.+
The Company’s Executive Benefits Protection Plan (Group 3A), Amended and Restated as of June 27, 2012, is
incorporated by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended July 1, 2012.+
The Company's Executive Benefits Protection Plan (Group 3), Amended and Restated as of June 27, 2012, is
incorporated by reference from Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2016.+
Executive Confidentiality and Restrictive Covenant Agreement, adopted as of February 16, 2009, is incorporated
by reference from Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2008.+
102
10.21(a)
10.21(b)
10.22(a)
10.22(b)
10.23
12.1
16.1
21.1
23.1
31.1
31.2
32.1
101.INS
Employee Confidentiality and Restrictive Covenant Agreement, amended as of February 18, 2013, is incorporated
by reference from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2013.+
Employee Confidentiality and Restrictive Covenant Agreement, amended as of October 10, 2016.*+
Executive Employment Agreement with John P. Bilbrey, dated as of August 7, 2012, is incorporated by reference
from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 2012.+
First Amendment to Executive Employment Agreement, dated as of November 16, 2015, by and between the
Company and John P. Bilbrey is incorporated by reference from Exhibit 10.1 to the Company's Current Report on
Form 8-K filed November 19, 2015.+
The Company’s Directors’ Compensation Plan, Amended and Restated as of December 2, 2008, is incorporated by
reference from Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2008.
Computation of ratio of earnings to fixed charges statement.*
Letter from KPMG, LLP, dated April 27, 2016, regarding dismissal as the Company’s independent registered
public accounting firm is incorporated by reference from Exhibit 16.1 to the Company’s Current Report on Form 8-
K filed April 27, 2016.
Subsidiaries of the Registrant.*
Consent of Independent Registered Public Accounting Firm.*
Certification of John P. Bilbrey, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
Certification of Patricia A. Little, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
Certification of John P. Bilbrey, Chief Executive Officer, and Patricia A. Little, Chief Financial Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.**
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
*
**
+
Filed herewith
Furnished herewith
Management contract, compensatory plan or arrangement
103
Exhibit 31.1
I, John P. Bilbrey, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of The Hershey Company;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
/s/ JOHN P. BILBREY
John P. Bilbrey
Chief Executive Officer
February 21, 2017
104
Exhibit 31.2
I, Patricia A. Little, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of The Hershey Company;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
/S/ PATRICIA A. LITTLE
Patricia A. Little
Chief Financial Officer
February 21, 2017
105
CERTIFICATION
Exhibit 32.1
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of The Hershey Company (the
“Company”) hereby certify that the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the
“Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of
1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: February 21, 2017
/s/ JOHN P. BILBREY
John P. Bilbrey
Chief Executive Officer
Date: February 21, 2017
/s/ PATRICIA A. LITTLE
Patricia A. Little
Chief Financial Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by
Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
106
Directors and Officers as of March 23, 2017
John P. Bilbrey
Chairman of the Board
The Hershey Company
James E. Nevels
Lead Independent Director
The Hershey Company Chairman
The Swarthmore Group
Philadelphia, PA
Pamela M. Arway
Former Executive
American Express Company, Inc.
New York, NY
Michele G. Buck
President and Chief Executive Officer
The Hershey Company
DIRECTORS
Robert F. Cavanaugh
Former Chief Executive Officer
ValueRock Investment Partners
Irvine, CA
Charles A. Davis
Chief Executive Officer
Stone Point Capital LLC
Greenwich, CT
Mary Kay Haben
Former President
North America
Wm. Wrigley Jr. Company
Chicago, IL
Robert M. Malcolm
Former President,
Global Marketing, Sales & Innovation
Diageo PLC
London, UK
COMMITTEES
James M. Mead
Founder and Managing Director
JM Mead, LLC
Camp Hill, PA
Anthony J. Palmer
President
Global Brands and Innovation
Kimberly-Clark Corporation
Dallas, TX
Thomas J. Ridge
Chairman
Ridge Global, LLC
Washington, DC
David L. Shedlarz
Former Vice Chairman
Pfizer Inc.
New York, NY
Audit
Charles A. Davis, Chair
Pamela M. Arway
James M. Mead
James E. Nevels
Compensation and
Executive Organization
James E. Mead, Chair
Mary Kay Haben
Robert M. Malcolm
Anthony J. Palmer
David L. Shedlarz
Finance and Risk
Management
David L. Shedlarz, Chair
Robert F. Cavanaugh
Robert M. Malcolm
Anthony J. Palmer
Thomas J. Ridge
Governance
Pamela M. Arway, Chair
Robert F. Cavanaugh
Mary Kay Haben
James E. Nevels
Thomas J. Ridge
Executive
John P. Bilbrey, Chair
Pamela M. Arway
Charles A. Davis
James M. Mead
James E. Nevels
David L. Shedlarz
Michele G. Buck
President and Chief Executive Officer
Javier H. Idrovo
Vice President
Chief Accounting Officer
Patricia A. Little
Senior Vice President
Chief Financial Officer
OFFICERS
Terence L. O’Day
Senior Vice President
Chief Product Supply and
Technology Officer
Steven Schiller
President, International
Leslie M. Turner
Senior Vice President
General Counsel and Secretary
Kevin R. Walling
Senior Vice President
Chief Human Resources Officer
D. Michael Wege
Senior Vice President
Chief Administrative Officer
Waheed Zaman
Senior Vice President
Chief Knowledge,
Strategy and Technology Officer
Transfer Agent and Registrar
Investor Relations Contact / Financial Information
STOCKHOLDER INFORMATION
Computershare
Standard Delivery:
P.O. Box 30170, College Station, TX 77842-3170
Overnight Delivery:
211 Quality Circle, Suite 210,
College Station, TX 77845
Domestic Holders: (800) 851-4216
Foreign Holders: (201) 680-6578
Hearing Impaired (Domestic): (800) 952-9245
Hearing Impaired (Foreign): (312) 558-4110
www.computershare.com/investor
Mark K. Pogharian
Vice President, Investor Relations, India & EMEA
100 Crystal A Drive
P. O. Box 810
Hershey, PA 17033-0810
(800) 539-0261
www.thehersheycompany.com
DIRECTIONS AND GENERAL INFORMATION
REGARDING ANNUAL MEETING
May 3, 2017
10:00 a.m. Eastern Daylight Time
GIANT Center
550 West Hersheypark Drive
Hershey, PA
The doors to GIANT Center will open at 8:30 a.m. Please note the only entrance to the meeting will be at the rear
entrance of GIANT Center and transportation from the parking area will be available. There will be designated seating
for those using wheelchairs or requiring special assistance.
Scranton
Wilkes-Barre
• Traveling South on I-81
Take exit 80 and follow Route 743 South to Hershey.
Follow Route 743 South / Hersheypark Drive to GIANT
Center. Follow signs for parking.
78
• Traveling North on I-81
Allentown
Reading
Hershey, PA
Harrisburg
Gettysburg
Lancaster
76
322
N
Philadelphia
Wilmington
83
MD
95
Baltimore
Washington, DC
DE
Take exit 77 and follow Route 39 East to Hershey.
Continue to GIANT Center. Follow signs for parking.
• Traveling West on the PA Turnpike (I-76)
Take exit 266. Turn left on Route 72 North. Follow Route
72 North to Route 322 West. Follow Route 322 West into
Hershey. Stay straight as Route 322 West becomes
Hersheypark Drive / Route 39 West. Continue to GIANT
Center. Follow signs for parking.
• Traveling East on PA Turnpike (I-76)
Take exit 247. Take I-283 North to exit 3 and follow Route 322 East to Hershey. Take
the Hersheypark Drive / Route 39 West exit. Follow Route 39 to GIANT Center. Follow
signs for parking.
• Traveling North on I-83
Approaching Harrisburg, follow signs to continue on I-83 North. Follow I-83 North to
Route 322 East to Hershey. Take the Hersheypark Drive / Route 39 West exit. Follow
Route 39 to GIANT Center. Follow signs for parking.
Everyone will walk through a magnetometer and is subject to further inspection. All handbags and packages
will be inspected. Weapons and sharp objects (such as pocketknives and scissors), cell phones, pagers,
cameras and recording devices will not be permitted inside the meeting room.
HERSHEY’S CHOCOLATE WORLD Attraction will be open from 9:00 a.m. to 6:00 p.m. on the day of the
Annual Meeting and we are offering stockholders a special 25% discount on selected items on that date. You
will need to show your admission ticket at HERSHEY’S CHOCOLATE WORLD Attraction on the day of the
meeting to receive the special discount.