STOCK COMPENSATION PLAN

9 Months Ended

Sep. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK COMPENSATION PLANS

STOCK COMPENSATION PLANS

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

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

The increase in share-based compensation expense for the third quarter of 2012 resulted primarily from certain adjustments associated with accounting for performance stock units. The increase in share-based compensation expense for the first nine months of 2012 resulted primarily from the forfeiture of unvested awards due to participant changes during the second quarter of 2011.

Stock Options

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

	For the Nine Months Ended September 30, 2012
Stock Options	Shares		Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term
Outstanding at beginning of the period	14,540,442		$44.86	5.6 years
Granted	2,101,495		$60.84
Exercised	(5,084,493	)	$44.64
Forfeited	(197,697	)	$52.10
Outstanding as of September 30, 2012	11,359,747		$47.79	6.3 years
Options exercisable as of September 30, 2012	6,059,297		$45.51	4.5 years

	For the Nine Months Ended
	September 30, 2012	October 2, 2011
Weighted-average fair value of options granted (per share)	$10.59	$9.98
Intrinsic value of options exercised (in millions of dollars)	$108.2	$75.3

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

	For the Nine Months Ended
	September 30, 2012	October 2, 2011
Dividend yields	2.4%	2.7%
Expected volatility	22.4%	22.6%
Risk-free interest rates	1.5%	2.8%
Expected lives in years	6.6	6.6

As of September 30, 2012, the aggregate intrinsic value of options outstanding was $271.1 million and the aggregate intrinsic value of options exercisable was $158.4 million.

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

Performance Stock Units and Restricted Stock Units

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

Performance Stock Units and Restricted Stock Units	For the Nine Months Ended September 30, 2012		Weighted-average grant date fair value for equity awards or market value for liability awards
Outstanding at beginning of year	1,740,479		$48.70
Granted	445,892		$64.07
Performance assumption change	216,375		$58.94
Vested	(589,430	)	$42.80
Forfeited	(80,811	)	$56.54
Outstanding as of September 30, 2012	1,732,505		$56.06

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

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

	For the Nine Months Ended
	September 30, 2012			October 2, 2011
Units granted	445,892			508,877
Weighted-average fair value at date of grant	$	64.07		$	52.23
Monte Carlo simulation assumptions:
Estimated values	$	35.62		$	37.79
Dividend yields	2.5		%	2.7		%
Expected volatility	20.0		%	28.8		%

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

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

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

No stock appreciation rights were outstanding as of September 30, 2012.

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