SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2016

Segment Reporting [Abstract]

Segment Information

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.

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,	2016			2015			2014
Net sales:
North America	$	6,532,988		$	6,468,158		$	6,352,729
International and Other	907,193			918,468			1,069,039
Total	$	7,440,181		$	7,386,626		$	7,421,768
Segment income (loss):
North America	$	2,040,995		$	2,073,967		$	1,916,207
International and Other	(29,139		)	(98,067		)	40,004
Total segment income	2,011,856			1,975,900			1,956,211
Unallocated corporate expense (1)	497,423			497,386			503,234
Unallocated mark-to-market losses on commodity derivatives (2)	163,238			—			—
Goodwill and other intangible asset impairment charges	4,204			280,802			15,900
Costs associated with business realignment activities	107,571			120,975			34,290
Non-service related pension expense (income)	27,157			18,079			(1,834		)
Acquisition and integration costs	6,480			20,899			12,360
Operating profit	1,205,783			1,037,759			1,392,261
Interest expense, net	90,143			105,773			83,532
Other (income) expense, net	16,159			30,139			2,686
Income before income taxes	$	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,	2016
Net losses on mark-to-market valuation of unallocated commodity derivative positions	$	171,753
Net losses on commodity derivative positions allocated to segment income	8,515
Net losses on mark-to-market valuation of commodity derivative positions remaining in unallocated derivative (gains) losses	$	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.

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

For the years ended December 31,	2016		2015		2014
North America	$	162,211	$	153,185	$	146,475
International and Other	50,753		46,342		28,463
Corporate (1)	88,873		45,401		36,594
Total	$	301,837	$	244,928	$	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:

	2016		2015		2014
Net sales:
United States	$	6,196,723	$	6,116,490	$	5,996,564
Other	1,243,458		1,270,136		1,425,204
Total	$	7,440,181	$	7,386,626	$	7,421,768
Long-lived assets:
United States	$	1,528,255	$	1,528,723	$	1,477,455
Other	648,993		711,737		674,446
Total	$	2,177,248	$	2,240,460	$	2,151,901