THE HERSHEY COMPANY CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) 2017 2016 For the years ended December 31, 2018 7,791,069 $ 7,515,426 S Net sales 7,440,181 4,270,642 3,169,539 1,891,305 4,204 18,857 1,255,173 90,143 65,549 1,099,481 379,437 720,044 Cost of sales 4,215,744 3,575,325 1,874,829 57,729 19,103 1,623,664 138,837 74,766 1,410,061 239,010 1,171,051 4,060,050 3,455,376 1,885,492 208,712 47,763 1,313,409 98,282 104,459 1,110,668 354,131 756,537 (26,444) Gross profit Selling, marketing and administrative expense Long-lived and 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 including noncontrolling interest Less: Net loss attributable to noncontrolling interest Net income attributable to The Hershey Company (6,511) 1,177,562 $ 782,981 S 720,044 Net income per share -basic: 5.76 $ 5.24 $ 3.79 S 3.44 S Common stock 3.45 Class B common stock 3.15 Net income per share-diluted: 5.58 $ 5.22 $ 3.66 S 3.44 S Common stock 3.34 Class B common stock 3.14 Dividends paid per share: 2.756 S 2.504 $ 2.402 2.184 Common stock 2.548 S 2.316 S Class B common stock See Notes to Consolidated Financial Statements. THE HERSHEY COMPANY CONSOLIDATED BALANCE SHEETS (in thousands, except share data) 2018 December 31 ASSETS Current assets: 2017 Cash and cash equivalents S 587,998 380,179 588,262 752,836 280,633 2,001,910 2,106,697 821,061 369,156 251,879 3,023 S 7,703,020 $ 5,553,726 Accounts receivable-trade, net 594,145 784,879 272,159 2,239,181 2,130,294 1,801,103 1,278,292 252,984 1,166 Inventories Prepaid expenses and other Total current assets Property, plant and equipment, net Goodwill Other intangibles Other assets Deferred income tax Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: payable S 502,314 S 523,229 676,134 17,723 559,359 300,098 2,076,543 2,061,023 438,939 45,656 4,622,161 Accounts Accrued liabilities Accrued income taxes Short-term debt Current portion of long-term debt 679,163 33,773 1,197,929 5,387 2,418,566 3,254,280 446,048 176,860 6,295,754 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 2018 and 2017 Common stock, shares issued: 299,287,967 in 2018 and 299,281,967 in 2017 Class B common stock, shares issued: 60,613,777 in 2018 and 60,619,777 in 2017 299,287 60,614 299,281 60,620 THE HERSHEY COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the years ended December 31 2018 2017 2016 Operating Activities 71,05 S 756,537 $ Net income including noncontrolling interest Adjustments to reconcile net income to net cash provided by operating activities: 720,044 295,144 49,286 36,255 57,729 50,329 301,837 54,785 (38,097) Depreciation and amortization Stock-based compensation expense Deferred income taxes Impairment of long-lived and intangible assets (see Notes 3 and 7) Write-down of equity investments Gain on settlement of SGM liability (see Note 2) 261,853 51,061 43,482 (26,650) 51,375 66,209 37,278 77,291 er Changes in assets and liabilities, net of business acquisitions and divestitures: 8,585 (12,746) (39,899) (100,252) Accounts receivable trade, net Inventories Prepaid expenses and other current assets Accounts payable and accrued liabilities (6,881) (71,404) 21,096 (42,955) (63,467) (52,960) Accrued income taxes Contributions to Other assets and liabilities 75,568 (25,864) (2,471) 1,599,993 (71,027) (56,433) 49,761 pension and other benefit plans 16,443 Net cash provided by operating activities 1,249,515 1,013,428 Investing Activities Capital additions (including software) Proceeds from sales of property, plant and equipment and other long-lived assets Proceeds from sales of businesses, net of cash and cash equivalents divested Equity investments in tax credit qualifying partnerships Business acquisitions, net of cash and cash equivalents acquired (328,601) 49,759 167,048 (52,641) (1,338,459) (1,502,894) (257,675) (269,476) (78,598) (44,255) (285,374) (595,454) Net cash used in investing activities Financing Activities (328,664) 645,805 1,199,845 (910,844) (72,000) 275,607 Net increase (decrease) in short-term debt Long-term borrowings Repayment of long-term debt Repayment of tax receivable obligation 792,953 In 2018, 2017 and 2016, approximately 28%, 29% 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 ("SM8A") represents costs incurred in generating revenues and in managing our business. Such costs include advertising and other marketing expenses, selling expenses, research and development costs, administrative and other indirect overhead costs, amortization of capitalized software and intangible assets and depreciation of administrative facilities. Research and development costs, charged to expense as incurred, totaled $38,521 in 2018, $45,850 in 2017 and $47,268 in 2016. Advertising expense is also charged to expense as incurred and totaled $479,908 in 2018, $541,293 in 2017 and $521,479 in 2016. Prepaid advertising expense was $594 and $56 as of December 31, 2018 and 2017, 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 McLane Company, Inc. and Target Corporation, two customers served principally by our North America segment. As of December 31, 2018 McLane Company, Inc. accounted for approximately 26% of our total accounts receivable. 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 for bad debts and anticipated discounts of $24,610 and $41,792 at December 31, 2018 and 2017, 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, 2018, approximately 60% 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 were valued at the lower of first-in, first-out ("FIFo") cost or net realizable value. LIFO cost of inventories valued using the LIFO method was $466,911 as of December 31, 2018 and $443,492 as of December 31, 2017, The adjustment to LIFO, as shown in Note 17, approximates the excess of replacement cost over the stated LIFO inventory value. The net impact of LIFO acquisitions and liquidations was not material to 2018, 2017 or 2016 3.Use the financial statements for the Hershey Company to answer this question. Calculate earnings before unusual items for the Hershey Company. Earnings before unusual items is the after-tax income that the Hershey Company would report if it did not report any atypical items in that fiscal year. For the Hershey Company, the atypical item is business realignment and impairment charges.* THE HERSHEY COMPANY CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) 2017 2016 For the years ended December 31, 2018 7,791,069 $ 7,515,426 S Net sales 7,440,181 4,270,642 3,169,539 1,891,305 4,204 18,857 1,255,173 90,143 65,549 1,099,481 379,437 720,044 Cost of sales 4,215,744 3,575,325 1,874,829 57,729 19,103 1,623,664 138,837 74,766 1,410,061 239,010 1,171,051 4,060,050 3,455,376 1,885,492 208,712 47,763 1,313,409 98,282 104,459 1,110,668 354,131 756,537 (26,444) Gross profit Selling, marketing and administrative expense Long-lived and 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 including noncontrolling interest Less: Net loss attributable to noncontrolling interest Net income attributable to The Hershey Company (6,511) 1,177,562 $ 782,981 S 720,044 Net income per share -basic: 5.76 $ 5.24 $ 3.79 S 3.44 S Common stock 3.45 Class B common stock 3.15 Net income per share-diluted: 5.58 $ 5.22 $ 3.66 S 3.44 S Common stock 3.34 Class B common stock 3.14 Dividends paid per share: 2.756 S 2.504 $ 2.402 2.184 Common stock 2.548 S 2.316 S Class B common stock See Notes to Consolidated Financial Statements. THE HERSHEY COMPANY CONSOLIDATED BALANCE SHEETS (in thousands, except share data) 2018 December 31 ASSETS Current assets: 2017 Cash and cash equivalents S 587,998 380,179 588,262 752,836 280,633 2,001,910 2,106,697 821,061 369,156 251,879 3,023 S 7,703,020 $ 5,553,726 Accounts receivable-trade, net 594,145 784,879 272,159 2,239,181 2,130,294 1,801,103 1,278,292 252,984 1,166 Inventories Prepaid expenses and other Total current assets Property, plant and equipment, net Goodwill Other intangibles Other assets Deferred income tax Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: payable S 502,314 S 523,229 676,134 17,723 559,359 300,098 2,076,543 2,061,023 438,939 45,656 4,622,161 Accounts Accrued liabilities Accrued income taxes Short-term debt Current portion of long-term debt 679,163 33,773 1,197,929 5,387 2,418,566 3,254,280 446,048 176,860 6,295,754 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 2018 and 2017 Common stock, shares issued: 299,287,967 in 2018 and 299,281,967 in 2017 Class B common stock, shares issued: 60,613,777 in 2018 and 60,619,777 in 2017 299,287 60,614 299,281 60,620 THE HERSHEY COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the years ended December 31 2018 2017 2016 Operating Activities 71,05 S 756,537 $ Net income including noncontrolling interest Adjustments to reconcile net income to net cash provided by operating activities: 720,044 295,144 49,286 36,255 57,729 50,329 301,837 54,785 (38,097) Depreciation and amortization Stock-based compensation expense Deferred income taxes Impairment of long-lived and intangible assets (see Notes 3 and 7) Write-down of equity investments Gain on settlement of SGM liability (see Note 2) 261,853 51,061 43,482 (26,650) 51,375 66,209 37,278 77,291 er Changes in assets and liabilities, net of business acquisitions and divestitures: 8,585 (12,746) (39,899) (100,252) Accounts receivable trade, net Inventories Prepaid expenses and other current assets Accounts payable and accrued liabilities (6,881) (71,404) 21,096 (42,955) (63,467) (52,960) Accrued income taxes Contributions to Other assets and liabilities 75,568 (25,864) (2,471) 1,599,993 (71,027) (56,433) 49,761 pension and other benefit plans 16,443 Net cash provided by operating activities 1,249,515 1,013,428 Investing Activities Capital additions (including software) Proceeds from sales of property, plant and equipment and other long-lived assets Proceeds from sales of businesses, net of cash and cash equivalents divested Equity investments in tax credit qualifying partnerships Business acquisitions, net of cash and cash equivalents acquired (328,601) 49,759 167,048 (52,641) (1,338,459) (1,502,894) (257,675) (269,476) (78,598) (44,255) (285,374) (595,454) Net cash used in investing activities Financing Activities (328,664) 645,805 1,199,845 (910,844) (72,000) 275,607 Net increase (decrease) in short-term debt Long-term borrowings Repayment of long-term debt Repayment of tax receivable obligation 792,953 In 2018, 2017 and 2016, approximately 28%, 29% 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 ("SM8A") represents costs incurred in generating revenues and in managing our business. Such costs include advertising and other marketing expenses, selling expenses, research and development costs, administrative and other indirect overhead costs, amortization of capitalized software and intangible assets and depreciation of administrative facilities. Research and development costs, charged to expense as incurred, totaled $38,521 in 2018, $45,850 in 2017 and $47,268 in 2016. Advertising expense is also charged to expense as incurred and totaled $479,908 in 2018, $541,293 in 2017 and $521,479 in 2016. Prepaid advertising expense was $594 and $56 as of December 31, 2018 and 2017, 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 McLane Company, Inc. and Target Corporation, two customers served principally by our North America segment. As of December 31, 2018 McLane Company, Inc. accounted for approximately 26% of our total accounts receivable. 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 for bad debts and anticipated discounts of $24,610 and $41,792 at December 31, 2018 and 2017, 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, 2018, approximately 60% 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 were valued at the lower of first-in, first-out ("FIFo") cost or net realizable value. LIFO cost of inventories valued using the LIFO method was $466,911 as of December 31, 2018 and $443,492 as of December 31, 2017, The adjustment to LIFO, as shown in Note 17, approximates the excess of replacement cost over the stated LIFO inventory value. The net impact of LIFO acquisitions and liquidations was not material to 2018, 2017 or 2016 3.Use the financial statements for the Hershey Company to answer this question. Calculate earnings before unusual items for the Hershey Company. Earnings before unusual items is the after-tax income that the Hershey Company would report if it did not report any atypical items in that fiscal year. For the Hershey Company, the atypical item is business realignment and impairment charges.*