SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2019

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 primarily 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 89% 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, Niagara Falls (Ontario) 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-related costs 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,	2019			2018			2017
Net sales:
North America	$	7,081,764		$	6,901,607		$	6,621,173
International and Other	904,488			889,462			894,253
Total	$	7,986,252		$	7,791,069		$	7,515,426

Segment income:
North America	$	2,125,861		$	2,020,082		$	2,044,218
International and Other	95,702			73,762			11,532
Total segment income	2,221,563			2,093,844			2,055,750
Unallocated corporate expense (1)	533,632			486,716			499,251
Unallocated mark-to-market gains on commodity derivatives	(28,651		)	(168,263		)	(35,292		)
Long-lived and intangible asset impairment charges (see Note 6)	112,485			57,729			208,712
Costs associated with business realignment activities (see Note 9)	9,238			51,827			69,359
Acquisition-related costs (see Note 2)	10,196			44,829			311
Gain on sale of other assets (see Note 8)	(11,289		)	(2,658		)	—
Operating profit	1,595,952			1,623,664			1,313,409
Interest expense, net	144,125			138,837			98,282
Other (income) expense, net	71,043			74,766			104,459
Income before income taxes	$	1,380,784		$	1,410,061		$	1,110,668

(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.

Activity within the unallocated mark-to-market (gains) losses on commodity derivatives is as follows:



For the years ended December 31,	2019			2018			2017
Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in income	$	(35,488	)	$	(69,379	)	$	55,734
Net gains (losses) on commodity derivative positions reclassified from unallocated to segment income	6,837			(98,884		)	(91,026		)
Net gains on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative (gains) losses	$	(28,651	)	$	(168,263	)	$	(35,292	)

As of December 31, 2019, the cumulative amount of mark-to-market gains on commodity derivatives that have been recognized in our consolidated cost of sales and not yet allocated to reportable segments was $68,969. Based on our forecasts of the timing of the recognition of the underlying hedged items, we expect to reclassify net pretax gains on commodity derivatives of $39,839 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,	2019		2018		2017
North America	$	220,513	$	205,340	$	171,265
International and Other	29,289		35,656		42,542
Corporate (1)	41,742		54,148		48,046
Total	$	291,544	$	295,144	$	261,853


(1)	Corporate includes non-cash asset-related accelerated depreciation and amortization related to business realignment activities, as discussed in Note 9. Such amounts are not included within our measure of segment income.

Additional geographic information is as follows:



For the years ended December 31,	2019		2018		2017
Net sales:
United States	$	6,722,617	$	6,535,675	$	6,263,703
Other	1,263,635		1,255,394		1,251,723
Total	$	7,986,252	$	7,791,069	$	7,515,426

Long-lived assets:
United States	$	1,717,606	$	1,668,186	$	1,575,496
Other	435,533		462,108		531,201
Total	$	2,153,139	$	2,130,294	$	2,106,697

In conjunction with recent acquisitions, in 2018 we introduced our snacks portfolio, an additional product line represented by ready-to-eat popcorn, baked snacks, meat snack products and other better-for-you snacks. Net sales related to our snacks portfolio in 2017 was immaterial. Additional product line information is as follows:



For the year ended December 31,	2019		2018
Net sales:
Confectionery and confectionery-based portfolio	$	7,553,954	$	7,453,364
Snacks portfolio	432,298		337,705
Total	$	7,986,252	$	7,791,069