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HERSHEY FINANCIAL STATEMENTS FOR FINAL EXAM HERSHEY CONSOLIDATED BALANCE SHEETS In millions As of As of As of Dec 31, Dec 31, Dec 31, ASSETS 2019 2018 2017 Cash & cash equivalents $493 $ 588 $ 380 Accounts receivable, net of allowance of $25 million at 12/31/19, $24 million at 12/31/18, and $42 million at 12/31/17 569 594 588 Inventories 815 785 752 Prepaid expenses and other current assets 240 272 182 Total current assets 2,117 2,239 2,002 Property, plant and equipment, net 2,153 2,130 2,106 Goodwill 1,986 1,801 821 Other intangible assets, net 1,342 1,278 369 Other long-term assets 542 255 256 Total assets $ 8,140 $ 7,703 $5,554 LIABILITIES & STOCKHOLDERS' EQUITY Accounts payable 551 502 $ 523 Advertising payable 181 171 174 Accrued and other liabilities 541 542 521 Debt due within one year 736 1,203 859 Total current liabilities 2,009 2,418 2,077 Long-term debt, less current portion 3,531 3,254 2,061 Pension and postretirement obligations 283 282 267 Other long-term liabilities 572 342 217 Total liabilities 6,395 6,296 4,622 Common stock ($1 par; 1,050 shares authorized; 359.9 million shares issued at 12/31/19, 356.7 million shares issues at 12/31/18 and 355-4 million shares issued at 12/31/17) 360 357 355 Additional paid-in capital 1,142 852 742 Treasury stock (151.1 million shares at 12/31/19, 147.0 million shares at 12/31/18, and 144.5 million shares at 12/31/17) (7,146) (6,619) (6,371) Retained earnings 7,575 7,038 6,430 Accumulated other comprehensive income/(loss) (186) (221) (224) Total stockholders' equity 1,745 1,407 932 Total liabilities & stockholders' equity $ 8,140 $ 7,703 $5,554HERSHEY CONSOLIDATED INCOME STATEMENTS In millions, except per share amounts Year ended Year ended Year ended Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Net sales $7,987 $7,791 $7.515 Cost of goods sold 4,364 4,216 4,060 Gross margin 3,623 3,575 3,455 Selling and administrative expenses 1,393 1,395 1,344 Advertising expense 513 480 541 Asset impairment charges 112 58 209 Business realignment costs 8 19 48 Operating Income 1,597 1,623 1,313 Interest expense, net 144 139 98 Other non-operating income/(expense), net 72 74 104 Income before income taxes 1,381 1,410 1,111 Income tax expense 234 239 354 Net income $ 1,147 $ 1,171 $ 757 Basic earnings per share $ 5.64 $5.76 $ 3.79HERSHEY CONSOLIDATED STATEMENTS OF CASH FLOWS In millions Year ended Year ended Year ended OPERATING ACTIVITIES Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Net Income $ 1,147 $ 1, 171 $ 757 Adjustments to reconcile net income to cash from operations: Depreciation and amortization expense 291 295 261 Stock-based compensation expense 52 49 51 Asset impairment charges 112 58 209 Bad debt expense 159 223 167 Other, net (66) (100) (5) Changes in assets and liabilities: Accounts receivable 25 (6) (7) Inventories (30) (33) (71) Prepaid expenses and other current assets 32 9 18 Accounts payable and other accrued liabilities 58 (3) (124) Other, net 16) (63) '6) Net cash provided by operating activities 1,764 1,600 1,250 INVESTING ACTIVITIES Purchases of PP&E (318) (329) (258) Proceeds from disposals of PP&E 28 50 8 Proceeds from sales of businesses, net of cash divested 167 Equity investments (80) (53) (79) Business acquisitions, net of cash acquired (402) (1,392) Other, net (8) 54 Net cash used in investing activities (780) (1,503) (329) FINANCING ACTIVITIES Net (decrease )/increase in short-term debt (1, 168) 646 (81) Long-term borrowings 990 1,200 Repayment of long-term debt (7) (911) Cash dividends paid (610) (563) (526) Stock repurchases (527) (248) (300) Exercise of employee stock options 241 63 63 Other, net (71) Net cash provided by/(used in) financing activities (1,081) 116 (844) Effect of exchange rates 2 (5) 6 NET INCREASE IN CASH AND CASH EQUIVALENTS (95) 208 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 588 380 297 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 493 $ 588 $380HERSHEY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY In millions) Accumulated Additional Other Total Common Paid-in Treasury Retained Comprehensive Stockholders' Stock Capital Stock Earnings Income Equity Balance, December 31, 2017 $ 355 $ 742 $ (6,371) $ 6,430 (224) $ 932 Net income 1,171 1,171 Exercise of stock options 2 61 63 Stock-based compensation 49 49 Stock repurchased (248) (248) Cash dividends (563) (563) Other comprehensive income 3 3 Balance, December 31, 2018 $ 357 $ 852 $ (6,619) $ 7,038 $ (221) $ 1,407 Net income 1,147 1,147 Exercise of stock options 238 241 Stock-based compensation 52 52 Stock repurchased (527) (527) Cash dividends (610) (610) Other comprehensive income 35 35 Balance, December 31, 2019 $ 360 $ 1,142 $ (7,146) $7,575 $ (186) $ 1,745HERSHEY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS. The Hershey Company together with its wholly owned subsidiaries 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 85 countries worldwide. Hershey's structure is designed to ensure continued focus on North America, coupled with an emphasis on profitable growth in our focus international markets. ACCOUNTS RECEIVABLE. 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 concentration of credit risk is associated with Mclane Company, Inc., one customer served principally by our North America segment. As of December 31, 2019, Mclane Company, Inc. accounted for approximately 24% of our total accounts receivable. Mclane Company is 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. 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. 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, 2019, most of our inventories, representing the majority of our U.S. inventories, were valued under the last-in, first- out method, with the remainder of the inventories valued under first-in, first-out method. The company's LIFO reserve was $169 million at December 31, 2019 and $178 million at December 31, 2018. PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is 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, 2019, 2018 and 2017 was $218 million, $231 million and $212 million, respectively. The components of property, plant and equipment are as follows (in millions): Dec 31, 2019 Dec 31, 2018 Land $ 105 $ 102 Buildings 1,299 1,211 Machinery and equipment 3,120 2,988 Construction in progress 210 280 Total property, plant and equipment, at cost 4,734 4,581 Accumulated depreciation (2,581) (2,451) Property, plant and equipment, net $ 2,153 $ 2,130HERSHEY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2: BUSINESS ACQUISITIONS On September 23, 2019, we completed the acquisition of ONE Brands, LLC, previously a privately held company that sells a line of low-sugar, high-protein nutrition bars to retailers and distributors in the United States, with the ONE Bar as its primary product. The purchase consideration for ONE Brands totaled $402 million. ONE Brands' results of operations have been included within the results in our consolidated financial statements since the date of acquisition. The purchase consideration was allocated to assets acquired and liabilities assumed based on their respective fair values as follows (in millions); Inventories $ 26 Goodwill 178 Other intangible assets 207 Accounts payable (9) Total purchase price $ 402 On October 17, 2018, we completed the acquisition of Pirate Brands, which includes the Pirate's Booty, Smart Puffs and Original Tings brands, from B&G Foods, Inc. Pirate Brands offers baked, trans fat free and gluten free snacks and is available in a wide range of food distribution channels in the United States. The purchase consideration for Pirate Brands totaled $423 million. On January 31, 2018, we completed the acquisition of all of the outstanding shares of Amplify Snack Brands, Inc., previously a publicly traded company based in Austin, Texas that owns several popular better-for- you snack brands such as SkinnyPop, Oatmega and Paqui. Amplify's anchor brand, SkinnyPop, is a market- leading ready-to eat popcom brand and is available in a wide range of food distribution channels in the United States. The total purchase consideration was $969 million. Note 3: GOODWILL AND OTHER INTANGIBLE ASSETS The changes in the carrying value of goodwill for the years ended December 31, 2019 and 2018 are as follows (in millions): Goodwill balance, December 31, 2017 $ 821 Acquisitions - Pirate Brands and Amplify 1,096 Divestiture - Shanghai Golden Monkey (98) Foreign currency translation (18) Goodwill balance, December 31, 2018 $ 1,801 Acquisition - ONE Brands 178 Foreign currency translation 7 Goodwill balance, December 31, 2019 $ 1,986 We had no goodwill impairment charges in 2019, 2018 or 2017.HERSHEY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3: GOODWILL AND OTHER INTANGIBLE ASSETS continued The following table provides the gross carrying amount and accumulated amortization for each major class of our other intangible assets as of December 31, 2019 (in millions): Gross Carrying Accumulated Net Amount Amortization Value INTANGIBLE ASSETS WITH FINITE LIVES Trademarks $ 1,212 $ (73) $ 1,139 Customer relationships 208 (41) 167 Patents 17 (16) INTANGIBLE ASSETS WITH INFINITE LIVES Trademarks 35 35 Total $ 1,472 $ (130) $ 1,342 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. The weighted average amortization period for our finite-lived intangible assets is approximately 33 years, which is primarily driven by recently acquired trademarks. Total amortization expense for the years ended December 31, 2019, 2018 and 2017 was $73 million, $64 million and $49 million, respectively. If certain events or changes in operating conditions indicate that the carrying value of these assets, or related asset groups, may not be recoverable, we perform an impairment assessment and may adjust the remaining useful lives. In 2019, sales and operating performance associated with our KRAVE Pure Foods, Inc. business were below expectations. In the fourth quarter of 2019, as part of a strategic review initiated by our leadership team, we updated our strategic forecast which projected under performance related to the Krave business primarily due to mainstream brands driving category volume and an increase in the overall competitive landscape. We deemed this to be a triggering event requiring us to test our Krave long lived asset group for impairment. Based on our assessment, we determined that the carrying value was not recoverable and calculated an impairment loss as the excess of the asset group's carrying value over its fair value. As a result of this testing, during the fourth quarter of 2019, we recorded an impairment charge totaling $112 million to write down the customer relationship and finite-life trademark intangible assets associated with Krave.HERSHEY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 11: RETIREMENT PLANS DEFINED CONTRIBUTION RETIREMENT 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 are made in cash. Expense associated with the defined contribution plans was $48 million in 2019, $49 million in 2018 and $46 million in 2017. DEFINED BENEFIT RETIREMENT PLANS AND OTHER RETIREE BENEFITS. 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 defined benefits plans that provide pension benefits for most domestic employees hired prior to January 1, 2007. We also sponsor two other post-retirement benefit plans: health care and life insurance. A summary of the changes in benefit obligations, plan assets and funded status of these plans is as follows (in millions): Pension Benefits Other Retiree Benefits Dec 31, 2019 Dec 31, 2018 Dec 31, 2019 Dec 31, 2018 Change in benefit obligation: Benefit obligation, beginning of year $ 1,031 $ 1, 118 $ 215 $ 236 Service cost 21 21 Interest cost 36 32 B 7 Net actuarial loss/(gain) 89 (50) 24 (11) Settlement (21) (61) Currency translation and other 2 (6) Benefits paid (53) (23) (16) (17) Benefit obligation, end of year 1,105 1,031 231 215 Change in plan assets: Fair value of assets, beginning of year 964 1,086 Actual return on plan assets 157 (43) Employer contributions 4 9 16 17 Settlement (21) (61) Currency translation and other (4) Benefits paid (53) (23) (16) (17) Fair value of plan assets, end of year 1,053 964 Funded status at end of year $ (52) $ (67) $ (231) $ (215) Note 15: COMMITMENTS AND 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 obligations related to these facilities.6. Hershey's footnotes state that the company uses LIFO to value the majority of its inventories. a) What would Hershey's Cost of Good Sold have been if the company had instead used FIFO to value all of its inventories? (2 points) b) Did Hershey pay MORE or LESS tax in the most recent year from using LIFO rather than FIFO? How much? Indicate both whether Hershey paid MORE or LESS tax in 2019 and how much more or less. Assume a tax rate of 30%. (2 points) c) Did Hershey pay MORE or LESS tax cumulatively from using LIFO rather than FIFO? How much? Indicate both whether Hershey paid MORE or LESS cumulative tax and how much more or less. Assume a tax rate of 30%. (2 points) 7. Recreate the journal entry (accounts and amounts) that Hershey made related to PP&E purchases during the most recent fiscal year. Assume that all PP&E was purchased with cash. (2 points) 8. Recreate the journal entry (accounts and amounts) that Hershey made to record the most recent fiscal year's depreciation expense. (2 points)