Mark Pogharian – VPInvestor Relations David West – CEO and President Bert Alfonso – Sr.VP and CFO

Jonathan Feeney – Wachovia Securities Terry Bivens – Bear Stearns Christen McCracken – ClevelandResearch David Driscoll – Citi Investment Dave Powers-Edward Jones Robert Moskow – Credit Suisse Alexia Howard – SanfordBernstein Kenneth Zaslow – BMO Capital Markets Vincent Andrews – Morgan Stanley Eric Katzman – Deutsche Bank Securities Andrew Lazar – Lehman Brothers David Palmer – UBS Pablo Zuanic – JP Morgan Eric Serotta – Merrill Lynch

I will be your conference operator today. At this time, I would like to welcomeeveryone to the Hershey Company Fourth Quarter 2007 Results Conference Call. (Operator Instructions) I would now like to turn the conference over to Mark Pogharian, Vice President of InvestorRelations.

Welcome to theHershey Company’s Fourth Quarter and Full Year 2007 Conference Call. Dave West, President and CEO; Bert Alfonso,Senior Vice President and CFO; and I will represent Hershey on this morning’scall. We welcome those ofyou listening via the webcast. Let meremind everyone listening that today’s conference call may contain statementswhich are forward looking. Thesestatements are based on current expectations which are subject to risk anduncertainty. Actual results may varymaterially from those contained in the forward looking statements because thefactors such as those lifted in this morning’s press release and in our 10-Kfor 2006 File with the SEC. If you have not seenthe press release, a copy is posted on our corporate web-site, www.hersheys.com in the Investor Relationsection. Included in the press releaseare consolidated balance sheets and the summary of consolidated statements ofincome prepared in accordance with GAAP as well as our performance summary ofconsolidated statements of income quantitative reconciled to GAAP. As we have said inthe press release, the company uses these non-GAAP measures as key metrics forevaluating performance internally. Thesenon-GAAP measures are not intended to replace the presentation of FinancialResults in accordance with GAAP, rather the company believes the presentationof earnings excluding certain items provide additional information to investorsto facilitate the comparison of past and present operations. We will discuss ourFourth Quarter and Full Year results excluding the net pre-tax charges associatedwith the Global Supply Transformation Program and Business Realignment andImpairment Charges in Brazilrecorded in 2007 and the 2005 Business Initiative recorded in 2005 and2006. These net-free tax charges were $95.9million in the Fourth Quarter 2007 and $5.6 million in the Fourth Quarter of2006. Our discussion of the year’s dateresults and any future projections will also exclude the impact of net chargesrelated to these business realignment and initiative. With that, let meturn the call over to Bert Alfonso.

The net sales inearnings per share results for the Full Year 2007 were in line with the outlookwe provided during the last conference call. Specifically, consolidated net sales in the Fourth Quarter of $1.34billion increased 0.4% versus the prior year. Diluted EPS from operations of $0.54 declined at 19% primarily due tohigher commodity costs, increased consumer investment spending on favorable mixand higher SG&A costs related to our international expansion. This brings fullyear performance to a 0.1% increase in net sales and a 12% decline in EPSdiluted from operations. Net sales forthe quarter excluding the benefit of the Godrich Hershey Business in India were downat 1.1%. This primarily reflects a netdecline in US volumes which are more than offset gains in Artisan andInternational businesses. Outside the US, ourbusinesses grew at 39% in the quarter including Godrich. As anticipated during the Third QuarterConference Call, shipments to key distributors were soft in the Fourth Quarterwhich impacted our results. Importantly, as weexited the year, inventory levels are key distributors had declined. This should lead the shipments and retailtakeaway patterns that are more closely aligned in 2008. For the Full Year, net sales were even with2006 and excluding Godrich Hershey Business, sales decreased about 1%. Turning now toMarket Place Performance, Hershey’s US retail takeaway in the quarterwas ahead of shipments. Consumertakeaway for the 12 weeks ending December 30th and channels that account forover 80% of our retail business was up to 0.9%. As a reminder, these channels include food, drug, mass, includingWal-Mart and convenient stores. In the FDMxC classesof trade retail takeaway declined 2.1% resulting in a share loss of 1.4 pointsin the latest 12 weeks. Takeaway withinour core chocolate franchises, Reese’s, Hershey’s, Kisses and KitKat wasnegatively impacted by a lower than expected by performance on Kisses. Excluding Kisses, retail takeaway and FDMxCincreased 2.1% during…

2007 certainly was adifficult year, to sum it up, accelerating commodity costs primarily dairy, wasone of the toughest issues we faced. While we expected dairy costs to be higher year-over-year, the rate atwhich it accelerated within the Second Quarter surprised both the market andus. Beyond dairy, themarket is rather on materials increased significantly later in 2007 and willresult in significant increases again in 2008. Increases of this magnitude in back to back years represent achallenging operating environment. Ourglobal supply chain transformation program, which we instituted and announcedin February 2007 prior to the run up in commodity cost is on track. The savings fromthis program as we initially indicated represent the fuel for reinvestment todrive program growth. Despite theunprecedented increase within our input cost basket, we remained committed tothis investment spending. This decisionwill obviously impact the bottom line in 2008, but it is the right decision forthe long-term part of the business. Throughout 2007, competitive activity intensified in the form of bothinnovation and spending. The activitywas strongest in refreshment in the premium and trade up chocolatesegments. This came at the time when we weretransitioning our portfolio with less than normal levels of innovation andhigher amounts of discontinued items. As 2008 begins, we are operating under the assumption thatcompetitive activity will remain at current level. So, overall we are not pleased with Full Year2007 market place performance and financial results. However, we did make progress in areas thatwill benefit Hershey in the long term. Specifically, the global supply chain transformation is well under way. The program will generate the savings anticipated, enablingus to reinvestment in our business. Itwill also give us a manufacturing flexibility that will allow it to come tomarket with products and packaging that we could not previously make in a costeffective manner. We have also made goodprogress within our…

(Operator Instructions) Your first question comes from Jonathan Feeney with WachoviaSecurities. Jonathan Feeney –Wachovia Securities: Dave, with all your general environment of inflation outthere, I know you have mentioned some items on your cost basket, but how areothers in the industry – your pricing,because it seems like most food items are pricing up pretty dramatically andeven if I was at the measures data through chocolate pricing in the categoriesup strong in there, are you having those conversations with retailers and ifthere is any thought of …and because you have these pervasive costs that areactually covered with less severe for maybe your company and then, some of theother more brand-based company that is out there. You can get some of room in marching back there?

John I cannot comment specifically on any price-relatedissues. The category remains competitiveas I mentioned in my remarks, particularly innovation and spending andmerchandising and it is a tough market, but I am not going to give you specificsabout pricing. Jonathan Feeney –Wachovia Securities: The convenience channel you have mentioned, that seem to beparticularly competitive. Is there anything that was done in the past, particularly, through that channel or certainexcuse through that channel that have made that difficult, that may havebottomed and make it easier for the company to grow next year?

I think there a couple of things in the convenience channel,we certainly are deploying two for 2008. First is retail coverage, we certainly have expanded our retail coveragewith part time sales merchandises that are going to be focused on theconvenience channel. We will be muchmore active in making sure that we get core distribution in all our items inthe right places and we have a much better merchandising program of key eventsin 2008. In 2007 we still have an impact of some of discontinueditems and we did not participate fully in the refreshment growth that occurredin the category, but as we go forward, we are really focused on execution atthe convenience store shelf. Jonathan Feeney –Wachovia Securities: Finally, in your balance sheets, they are extremely strongright now, I was little surprised to hear that there was not much stock orpurchase activity in the Fourth Quarter. Is there something you are saving enough money for or is that something,I presume more aggressively through the course of 2008?

John in the Fourth Quarter as you are aware, we had a fewnews items going on, so we will pretty much watch out on that so we were notactive to participants in the market in Fourth Quarter. We still have a $100 million left on theshare repurchased that we had out there. Obviously, this is a topic for Board level discussion, we are engagedwith the new board and the conversation around the capital structure and thatconversation is ongoing.

Your next question comes from Terry Bivens with Bear Stearns.

Dave, question on marketing. I was not a marketing major but it seems to me, one of thedisappointments that Hershey has experienced over the past couple of years isyou have had this really rapid growth in Dark Chocolate, and the company wasnot able to forge the market share there that you had in the generalmarket. Looking back, why do you thinkthat was? Did you underestimate how hardthe competitors would come in, and most importantly how do you think that getskind a back on track?

Well, Terry that is very interesting. I think that we do have a very good share ofsolid dark chocolate. The normalHershey’s special dark bar, extra dark products have done very well. I think what is happening and there is ablurring obviously of premium and trade up. Some of those products are dark or richer and more indulgent, that isthe area where we have not played, as well as, a consumer looks to trade up fromthe experience standpoint of Cacao Reserve last year was an entry that we madeinto that area. We feel good about the progress that we made on Cacao Reservebut we just do not have the skill in that segment and that was Hershey’s Blissand the Starbucks launch that we have coming this year. It gives us scale and the ability to playtowards our strengths, which is retail coverage, category management, and we dobelieve that the Hershey brand with Hershey’s Bliss can play in thatspace. We are very excited about theproduct offering.

Your next question comes from Christine McCracken with ClevelandResearch. Christen McCracken – Cleveland Research: I guess to your last comment on “on the Bliss and Starbucks.” Do you feel that with those editions that youare actually going to get to a size that gives you the capability to get moreinvolved in the category management because the sounds at least from the retailcommunity is that they are actually maybe changing the way they handle managingthe category. What gives you the insightor have you had those discussions that you get more involved in managing, kindof that premium and super premium effort at retail, maybe you can give us alittle more color around that.

Well Christine, we are the category of captain in just aboutevery major account in the aisle in confectionary. So we are involved in those conversations,although, it is very difficult to be involved in actively managing that part ofthe category, when we frankly do not have a lot, we do not have a lot of itemsor scale. But those items or scale, obviously, we will continue tocategory captain and we have been involved in the dialogue all along. We just have more breath and portfolio scalebringing into the market place right now.

Then just on Cacao Reserve, you have mentioned that you madea lot of progress there, but it seems there is a lot of discounting on thatproduct lately. Is that part of thestrategy maybe to develop the brands to get more awareness, I mean, how are youmanaging that branch to solidify your presence in premium and super premium?

Actually, we are very pleased with the household trialpenetration that we got and the repeat rate has been very good on some of thenew Cacao Reserve items, we are the number one dark chocolate in consumer portsunder the Cacao Reserve brand. So, weare please with the product that we have made from a consumer standpoint. I think what you maybe thinking in the market place from adiscounting standpoint is likely going to be -- as we rotate to the portfolio,we launched the number of items in 2007, and some of them were very wellreceived by the consumers. And there arecouple of forms where we launched that were not, and those were rotatingthrough the system right now and getting them out of the shelf when we comeback in with truffles and anything squares that are a little bit more alignwith what the consumer and that segment wants. So, we did learn a lot as we went through 2007 on CacaoReserve. Portfolio will change,somewhat, it is will be more in line, I think, with what consumers are playingback to us that they want and we are excited about going forward and it nowhas… as you bring Bliss, as trading up on Hershey’s signatures into thecategory. Cacao reserve does not stand-alone. It becomes something that we now have theability to do in broader scale, and the global supply chain transformation, aswe get further down the road with our facility monitoring Mexico. We have the ability to make items that Ithink that are a little bit more unique and in different packaging than we havemade before.

And finally on these competitive activity and kind of ageneral everyday business, I am wondering. Do you see any change to that? Hasthere been any shift from a competitive stand point from your competitors, Iguess, and in terms of their plans or their level of discounting, or is it justthis constant ongoing struggle that you are going to have in that largest partof your business? Why are you kind ahurting yourself? Why does not that thecategory get more disciplined?

Christine, I think is that the category traditionally is onethat really drives around innovation and merchandising, and frankly, we did nothave any particularly good merchandizing program because we do not have thetype of innovation that we needed in 2007. So, we are very focused as we spoke of forwarding 2008 around theinnovation that we have, particularly in trade up and in premium. But also importantly, in terms of the retailinvestment, we have made to improve our merchandising, and a bettermerchandising calendar that is really what is going to drive the change, Ithink, in terms of our share of merchandising, and it is really left around theanything round the promotion. It is reallymore of a “Do you have something to promote?”.

For our next question, comes from David Driscoll-CitiInvestment David Driscoll – CitiInvestment: These is really going to go down here as a quite a disasterfor Hershey. In 2007, you lose 270 basispoints of operating margins in 2008, and another 200 basis points, in two yearswe are going to be down almost 500 basis points. Dave, I got to go back to the pricing side, thisseems to be an unprecedented period of gross inflation, your margins aregetting absolutely hammered and we are not hearing anything out of you guys onpricing. Can the category. I understand you do not want to announce futureprice increases before they come, but historically this category has beenextremely good about getting price increases because of the inelasticity ofdemand. Has something changed here? Is there some reason why we should believethat it is not possible to get pricing?

David I am not going to comment specifically onpricing. It is an unprecedented run upand cross over the couple of years. Weare working very hard at getting our gross margins in line. Any number of letters, the global supply chaintransformation based productivity but I am not going to comment on anythingabout pricing policy. David Driscoll – CitiInvestment: Even for the category or just the historicalperspective. I mean, has anything changedin there that you would want to call out for us?

I am not going to comment again on pricing David, it is notappropriate for me to do that, but the category growth rate last year was again3.5% and that has been—historically the category is growing in that 2.5% to3.5% range. The biggest difference for us in 2007 is that we did notdrive the growth. And we have to get ourprograms and our people align to drive, to grow in the category, and thatgrowth came in premium, and it came in trade up, and it came in refreshmentwhere we did not just participate as we should, and that is really where we arefocus on. Making sure we have theappropriate programs to participate in the category growth. So, the fundamental growth rate in the category remainspretty good and for us, it is a matter of gaining share rather than loosingshare. David Driscoll – CitiInvestment: Just a final question, you for a long time defended the longterm growth model of the business at 3% to 4% top line and 9% to 11% at thebottom line, so it is going to be a tough day for share holders of thecompany. You have only given perspectiveon 2008, can you give us some thoughts as to what you believe the long-termmodel can and should be.

David I had mentioned back in October that is currentlyunder review. It is certainly is a boardlevel conversation that is already underway. The management team of the company has already had thoseconversations. They are on their waywith the board. We will communicatesomething to you out here in second quarter on a long-term outlook, obviouslygiven the investment required in the business that we feel from a consumer’sstandpoint as well as the current cost environment. We are looking very closely at that growthalgorithm.

Your next question comes from Dave Powers with Edward Jones Dave Powers – EdwardJones: Couple of questions for you Dave, regarding your operation andimproving initiative, what are you guys doing to improve on those in terms ofbeing -- How do you see the benefits impacting the company?

In terms of the productivity programs that we have underway,they are really too full and I think we have talked to them on the earliercomments. The supply changetransformation is very focused on a flexibility of our plans and theconcentration of our manufacturing resources that will provide not only greaterproduct and package capabilities but also lower costs. We do have a full program of base productivity where we lookat all of the other parts of our business, and are more focused on those thanever, given the cost environment. Interms of six months specifically we do look at (inaudible) in our business anduse it as a tool the same as we would, any of the productivity tools that weuse. Dave Powers – EdwardJones: Are you guys using or to measure result in terms of like, OEEor -- what is important to you, so you see how your core business is running?

We do not comment specifically on the metrics that we useand within our supply chain, we do have a set of metrics that we measureourselves against to make sure that we are achieving the savings and theproductivity targets that we have for ourselves internally. Dave Powers – EdwardJones: And going forward regarding your operation initiative, whatsystem of solutions are you putting in place to accelerate this initiative?

In terms of initiatives, we are continuing with the plansthat we have put in place. We are makingthe progress that we expect. I hadmentioned that all of the savings targets over the next couple of years that weput out in the market place. We believe areachievable at this stage and the rangers remain exactly as we had anticipatedwhen we started the project. We aremaking the progress and moving forward on that regard. Dave Powers – EdwardJones: You have been telling this after quite sometimes and over thelast two years your stock is down 80% minimum, I mean, you talked about whatmetrics are measuring it, everything is very vague. The shareholders on this call want to hearwhat you, David West, are going to be doing in terms of “how do you measure yourself?” And that is very critical to investors whowant to buy you stock. Return on thoseassets is very important to most CEO, OEE is extremely most important to CEO’s,how are you guys measuring yourself so we know whether you are doing the rightjob?

This is Bert Alfonso, it was not David, and I just did notwant cause confusion for you. We holdourselves to the measures that are common within the market place. Certainly all the financial measure that wetalked about in our press release are critical measures for us and on theoperating side, we use a different set of measures, more margin related andcost per production related.

Cost per production, okay. How do you see those benefits impacting your bottom line?

They benefit us in terms of how much we can offset therising cost within our business. I had alreadymentioned previously in the comments, our savings from the supply chain transformationare targeted to achieve $172,190 million of savings between now and 2010. We believe that we are firmly on track toachieve those, and as already said, we do look for productivity across thebusiness not just in the supply chain.

Okay, and going forward to my final question. What is your number one goal to accomplishthis year in terms of reducing cost improving throughput through out all yourplans? How do you plan throughput throwall your plans to make sure you are getting the right product, to the rightcostumers at the right time at the right price?

In terms of the number one objective, obviously is toachieve the cost that we have planed for 2008, but there are number ofvariables that affect that. You aretalking throughput that is more about our marketing programs and our ability toincrease our sales, so obviously there are some relationships, but purely froman operational view.

You know, when I say throughput, I am not talking aboutmarketing and sales. I am talking aboutthroughput to your plans. How you are improving,that is why I was asking about OEE earlier throughput to your plans to makesure you are maximizing your assets and making sure you are getting the rightreturn on in all your internal investments.

Clearly, we are focus on having the best cost profile thatwe can. Honestly! I am not sure where are you going in terms oftrying to pin us down to one measure?

We gave a lot of detail back in February about metricsrelated and passing the utilization and you and I can follow up after the callon that.

Your next question comes from Robert Moskow with CreditSuisse Robert Moskow – CreditSuisse: Dave, I wanted to know, are you comfortable with the managementteam and the restructuring that you have done over the past couple ofmonths. Do you feel like you have theright people in place or are you going outside and trying to bring more spacesin at top levels, and if so, if you are doing any hiring, are you having anytrouble persuading people to come to Hershey in the midst of this challengingtime for the company?

Rob, I am very pleased to the management team that we havein place. We use our internal successionmanagement plan to fill 40 roles in the latter part of the last year. The CFOrole, the global chief marketing officer as well, the head of International NorthAmerican commercial group, we have made some changes in early December to theway we are working through global marketing and innovation, and some of the brandingwork. Clearly, our 2007 results would bear. It was not working to the way that we would likedto have, so we did make some changes in global marketing and innovation. We are very please with the team that we havein place. We have two open spots on my staff. The Senior Vice President of HR has announcedher retirement and she is obviously helping through transition until that spotis filled. And then we also have GlobalSupply Chain job open, both of those are active searches internal and external, and at this point in time I would tellyou -- based on the prospects for the company, the opportunity to work with thekind of brands that we have. We are nothaving any issues getting a list of candidates that we are happy with.

Okay, and lastly, when you come back to us in Second Quarter,I guess my first question is how long have you been working on this revisedplan and thinking about changing your growth algorithm? Why can’t we hear about this today? What are you still analyzing? And then secondly, you say you are assessingyour marginal structure but the guidance already implies another 200 basis pointdecline in margins to 15.5. We have notseen those kinds of levels since 2001. So isn’t your margin structure already adjusted?

Rob, I think that the answer to your question -- when wetalked back in October on the call and Ricky just announced that he was goingto retire, we have talked about coming back to you in January with a view to thelong-term growth model. Obviously if youthink the change since then, we are in the process of finalizing some of thosethings at the board level and those conversations that obviously needs tohappen first before we can communicate with you. Clearly, the operating margin structure and the reductionobviously we had in 2007 is that we are calling for year 2008 reflect the needsfor us to make the necessary investment in the business, in the US marketplace, in the core brands as well as in the trade up and premium space and alsointernationally. We will have a littlebit more flavor for you but I think what you need from us is that we are goingto make the necessary investments in the long-term and help with the business. The work has been underway, and we will continue to reviewthat management and board level and be back sometime in the second quarter.

I guess my question is, do you feel like you have a goodidea of what you are going to do to improve the operations of the company. And then it is just a matter of the new boardmembers being in place anytime they get in front of them of they time to getcomfortable or do you feel like you have these plans already in place? And now it is just a matter of getting infront of the new people that are involved, or things changing and you are stillanalyzing what to do?

Well, we are clearly not standing still. We have a global supply chain transformation whichis a large project the company has ever undergone and that one inunderway. We have done the jointventures in manufacturing in Chinaand India. We are going to invest in those businesses;we have Starbucks and Bliss, so we clearly have a number of key initiativeswhich are aimed at improving the results of the business. A couple of things that I did mention today is I said forexample, the Kisses brand. There aresome things in the portfolio that are not working as well as we want them to,some of them are specifically brands and others might be segments of businessthat were looking at, and that work as I said, back in October had alreadybegun and as part of the long-term growth algorithm, as well as, capitalstructure, et cetera. When have begun those conversations with the new boardand we are going to continue to work it through at that level, and that is theappropriate way for us to go about it.

Your next question comes from Alexia Howard with SanfordBernstein Alexia Howard – Sanford Bernstein: A couple of quick ones, can I ask about some of the non-corebusinesses that you have? I am thinking particularly about the Monolower(ph) acquisition and perhaps some of the Four A’sin to more snacking categories, like cookies and so on. Can you give us a quick updates on wherethose stand and what the plan is for those. I understand that the Monolower(ph) business was a quite disappointingin margins for a while plus the acquisition and cookies, the four-A in there hasbeen somewhat challenging and getting growth in that. Is the idea to really focus back on the corechocolate portfolio and spend most of your investment dollars going forward onthat part of the business?

We generally do not comment or speculate on any acquisitionsor divestance for that matter. Withrespect to the businesses that you mentioned, we regularly look at a portfolioanalysis and we are in the process of that, and it is a part of a work that weare doing that Dave had already mentioned to discuss these with the board. The core businesses refocus strictly with in the chocolateside of the business, yes! We areclearly putting more resources of what has been put in to chocolate againstthose core brands, as we focus more on reviving Hershey’s and Reese’s, Kisses andKitKat. So I would not comment what theexact plans are for those business, although, I would say that yes! It is a regular part of our practice to lookat our portfolio breath, and have those discussions with the board

Just finally coming back to general sales, bouncing back tobetween 3% and 4% this year is quite a decent step up from working within overthe last couple of years. Given thesimilar levels of competition and that has clearly been an issue since late2006, and some of the market dynamics out there, can you give us quick two orthree top items of what gives you the confidence that things can bereinvigorated these year on the top line.

Yes! We are much moreconfident in our ability to compete in the trade up and premium space whichdrove a lot of the category growth last year with the Hershey’s Bliss and Starbuckslaunched. We have a better merchandising program supported by retailcoverage which is 20% more people than we had last year, and as we got 2008 weare shipping much more towards, the consumption pattern in the US. Do you remember in the vital part of theyear, we had some distributor inventory productions? So that will cover the US and then globallywe continue to get good growth, we have five months of – or in the acquisition,we made that in May of last year and we expect to get some good growth in Chinaand other markets as well.

For our next question comes from Kenneth Zaslow with BMOCapital Markets Kenneth Zaslow – BMOCapital Markets: Couple of quick ones right after that, the 3% to 4% that isinternal or that is including acquisition, it sounds like it is includingacquisitions?

It includes the just the stab period of the -- acquisition Kenneth Zaslow – BMOCapital Markets: Maybe I missed this but you said that the commodity increasefor 2008 will be similar to 2007. Whatwas the commodity increase in 2007.

I believe we have said in the past that -- of the marginimpact, it was the majority of that around 220 basis points. Kenneth Zaslow – BMOCapital Markets: So that is still exactly what happened in ’07?

That is what happened in 2007, and similar levels in 2008. Kenneth Zaslow – BMOCapital Markets: Okay, in terms of when you are assessing the margin structure,does that mean that ‘09 could potentially be another down year or is 2008 thebottom of the way you think EPS growth would be?

Our comment about assessing the margin structure is beyondthe goal of supply chain transformation. We clearly know that we need to generate a significant amount ofproductivity through out the P&L given the input cost environment that weare in. So I would not read it toanything other than us making sure that we have a full assessment of where our productivityis going to come from going forward. Kenneth Zaslow – BMOCapital Markets: Does this mean that your margin can contract beginning ‘09and then we haven’t reached the bottom on your margin structure yet then, is itnot that the implication?

I am not going to project for beyond what we already told youhere on a call today, that comment, specifically, is intended for you tounderstand how aggressively we are looking through our P&L in our business,to make sure that we have the appropriate levels of productivity in this costenvironment. Kenneth Zaslow – BMOCapital Markets: My last question is, since 2003 Hershey has added about $ 1billion with the sales, but your EPS is essentially the same as 2003. How are you changing the way you look at incrementalsales and how does that, because again you have created these billion dollarsof incremental sales and yet, your EPS is right back to 2003 level. What is changing in how you assessincremental sales?

I think one thing that you need to focus on what ishappening in the cost input between 2003 and 2008, when you talk about theincremental sales and the gross margin obviously is associated with that. And, some of the sales that we have added hasbeen more global, which are going to come at a lower margin. Those would be the two factors I would askyou to think about. When it comes toincremental sales, we would probably talk specifically that some of the USinnovation was not nearly as incremental as we would have liked it to have been,but beyond that and those would be the factors that I would have you consider. Kenneth Zaslow – BMOCapital Markets: Other package income has also experienced the highercommodities and they are not having such the divergence between sales inEPS. And, again I am not trying to kickyou way down. I understand thecommodities, but are there other internal issues that, that could be correctedand changed that would not have this issue repeat, aside from the commodityissue?

I think the other issue that the only other thing I wouldsay is that we are investing aggressively behind our brands.

Your next question comes from Vincent Andrews with MorganStanley.

I just have more a philosophical question? I guess now that most of the other questionshave been answered, but it seems like your competition has really taken you bysurprise over the last couple of years and you are still in a very defensivestance, trying to get back to zero on a lot of levels and what point in the --to look beyond, just trying to defend yourself and perhaps come up with thingsthat will in turn take your competition by surprise and really put you in amore offensive mode from a competitive perspective.

I would say it is less about the competition, it is moreabout consumer and the way we approached innovation and insights, took us to aplace that we made a choice back in 2004 and 2005 to expand our portfolio andadjacencies. That proves to not benearly as incremental nor to us as we would have liked. At the same time within the category, aconsumer needs more changing in their demands, we are changing with respect topremium chocolate and trading up in chocolate and we did not meet that mergingconsumer demand and the same with refreshment. We did not meet some of the emerging consumer demands there,so we are much more focused on consumer demand and insights right now than wewould have been in our innovation portfolio in the past. Clearly, some of our competitors did a better job in certainareas in meeting some of that consumer needs and we did not. It is less about what the competition hasdone to us it is more about what we did not do with the consumer and believe me,we have a laser-like focus on that consumer insight right now and those aresome of the things we have we have talked about in terms of changing theportfolio.

Your next question comes from Eric Katzman with Deutsche Bank. Eric Katzman – Deutsche Bank Securities: I cannot believe it, but I actually do have somequestions. Did you say how much the costbasket, however, you want to define that, was up in ‘07 in percentage terms? Did I miss that?

What we said was that our expectation in ’08 was that wewould have a similar level of cost increase as we did in ’07. Taking it back to the ’07 numbers, just toget you grounded, in ’07 gross margin decline was 220 basis points and theproductivity was offsetting a 240 basis point commodity cost increase.

Are we then able to calculate, because most of the companiesin the business have said our cost basket in ’07 was up 7% or 10%, so I am justtrying to get a better feel as to what that percent increase is, kind of whereyou are versus the group, let as say, average.

We have not talked about it; we did not talk about it thatway. We have talked about it much morein terms of the gross margin impact and you know 200 basis points of gross margincontraction, along the way and that you can convert that if you like, but we asimilar amount of commodity plus pressure this year. It might not be on the same parts of theinput basket as it was in 2007, but overall, the grain complexes are up, theywere up markedly in ’07 and we still have of that spill over in the FirstQuarter of 2008 and it fuels up, et cetera, et cetera, so maybe it is adifferent part of the basket, but it is pretty much the same kind of anincrease.

Just a follow up in to your last point David, which I feltwas very accurate and right on point, in terms of R&D and innovations andthat is in many ways were the company has stumbled. The argument was always made there that likeAmericans just want a Hershey, sweet type of milk chocolate product and thatthey want what it is coming out of, let us say, more indulgent European-typechocolate, but the company always have the ability , in terms of R&D tomake it, if they wanted to and I guess we do not get much visibility intoR&D there and it is not normally something that we have to focus in on, butit seems to me that, that is a pretty critical component and I guess, I do notknow if the Second Quarter, is it going to be a meeting or if it is just aconference call, but it seems to me that we have to get pretty comfortable thatthe R&D pipeline is really going to be resurrected. It sounds like across most of the portfolio.

Our intention is to meet live and not do a conference call,as we come forward with this Eric, but you are right on target on a number ofthings. We have the ability to changethe flavor profile of the chocolate. Wehave not always had within our manufacturing infrastructure, the ability tochange package formats and piece, sizes and shapes, et cetera. That is one of the things that the Global Supply Chain Transformationenables us to do, which certainly will give us a lot more possibilities withmeeting with consumer needs and insights, but we are clearly in our profilein’03, ‘04 and ‘05 was much more around providing variety to the consumers,varieties of the brands that we already have and that proved of not beingmerely as incremental or sustainable, as we have initially liked it to havebeen. We are really now focusing on consumer insights and back tothe consumer demand, trying to find the white spaces and some of our brands and some of the packthat needs to be repositioned, because they have lost some of that relevancewith consumers over time.

And, that is what you are pointing to last call as supposedto a price repositioning.

Correct, it is a clearly a price value repositioning. Some of our brands, frankly the consumers haveother all alternatives and they are making a choice that they are willing topay a little more for something else. Wehave got fundamentally some of the best brands in the category. We got with Hershey’s Kisses, the Hersheybrand itself Reese’s, those brands can and should play with all of the consumerneeds, tapes that are out there. We needto do a better job, be it product packaging, positioning on those corebrands. The network is under way withwork with a feverish pace that you would expect it should.

Your next question comes from Andrew Lazar with LehmanBrothers. Andrew Lazar - Lehman Brothers I guess Dave, what I am trying to better determine iswhether the investment levels you are talking about for ‘08 and the associatedlower EPS year-over-year, whether those are actually enough and if so, why doyou feel that is the case? It comes downto obviously the marketing levels that you are looking to apply, even if youtake the difference between where estimates, where and where they are now goingto be for ‘08. Even if all of thatincremental was applied, specifically only to advertising, maybe that takes therate of advertising as a percent of sales up, maybe to 5% or so and maybe thatis enough, I do not know, but I know some of that, obviously is going to beapplied to non-advertising consumer spend and maybe some of it is just to coverinput cost during the year and things like that. I guess I am trying to get a sense of what isthe right level of marketing spend and do you think that ‘08 is a year whereyou get all the way there, or is it a wait and see and there might be more thatis needed as you go on to ’09 and beyond?

I rather say it is a very, very good question and the onethat we continually evaluate and resolute. When you think about what we did in 2003, 2004, 2005 at LimitedEdition. The Limited Edition was a knownproduct, was in slightly new form. Therewas not a lot of need to communicate that to the consumers, as long as you gotit appropriately merchandised and as we look back on that, timeframe, we arenot ingesting in the core brand, to the same extent. We are allowing the Limited Edition to carrysome of that news to market. As we get to trade up in premium, where we need tocommunicate to the user, a new use education, a new precious in cue, a newpackaging format, clearly that is going to cost us of more from a consumerstandpoint and also, were fundamentally are back to the core, particularly,when you think about our C-Store and most or our business and we got some greatcore franchises. The challenge for us is not only the level of spending, buthow well we spend it. Our Reese’sspending last year worked phenomenally well. You could argue that our Kisses spending did it. You look at the Kisses brand and what happento the Kisses brand in Fourth Quarter, while we had spending, we did not getthe results. We want it, because theproduct is just not positioned the way it needs to be and we need to work onthat. We clearly are investing more on the brands. We did it in ’07, we are going to do it againin ’08 and we will continue to evaluate that, but we do feel much better aboutourselves, where we are from a brand spending in going into ’08. Clearly, I loved to not have the commodityhad it went to fight into, but that is the reality. The market place, what we need to do is rightto business long term, so we were back into over time, but to take a little bitmore insights, in terms of how we are thinking of positioning and spending. Right now, the guidance for ’08 is the best Ican to give you.

Your next question comes from David Palmer with UBS.

I am curious, I guess building on some of these questionsabout innovation. I wanted to focus onthe C-store channel and single-serve innovation, in particular, obviously itpulled back somewhat and some of your non-chocolate categories, but I amperhaps more concerned with the closure of core innovation in single-served,perhaps has not really moved the needle, as much as you would hoped in recentyears. As well as I am thinking aboutKissables and Take 5. I am wondering,away from premium, what you are perhaps thinking and doing differently with thelikes of Reese’s Whipps and future innovation that might hit this channel insingle-served, that would make these more incremental and sustainable in yourmind.

Actually, in convenience stores, our chocolate brands, ourchocolate takeaway was actually up a little more a percent, during the year, sofor 2007. We did grow our chocolatebusiness in the convenience store and Reese’s Whipps and Reese’s Crispy Crunchyare clearly good examples of that. Whatwe have going in 2008 in convenience is much better merchandising against ourcore brands. Rather than LimitedEditions being the vehicle for merchandising, it is much more on the core andhaving significantly more retail help, of getting the shelf right, getting thedistribution levels up are the two things that in 2008 are going to certainlyhelp us.

Dave when you reflect back on some of these biggerinnovations, bigger steps perhaps you think back and think perhaps we shouldhave spent more on marketing or maybe there is something on the taste profileand you are testing that you could have done differently. Is there any learning that you can share withus about ways that you could make your bigger, riskier innovations, have ahigher hit rate and more incremental?

We do have a lot of learning, particularly on some of thebrands that you talked about and again it comes back to positioning, consumerinsight and what benefits the brand brings and what needed their meeting. We do have some lessons learned there on someof those brands, but realistically, for us right now on 2008, we are focused onthose core brands in convenience stores, because we need to do a better job onexecuting the against the core. We havebetter programs against them and that is where we are going to win in 2008.

I remember Rick used to talk about, perhaps, there was aparalysis through over analysis and that you wanted to get the organization movingfaster with innovation. Is there now athinking, perhaps, there was not enough homework done on some of the thingsthat were pushed at the market, in some way, that you are thinking goingforward?

I do not think it was speed issue, in terms of gettingthings to the market too fast. I do notthink that clearly is not it. I think welaunched a large amount of new news and that new news does not prove to benearly as incremental and the challenge we had that so much new news going inthe market at the same time is as that new news flows, you then have to take itall back out and one of the drags that we have in 2007 and in the latter partof 2006 was really a lot of that innovations as it slowed, it came back in formof either returns or just sat on the shelves longer that we would have likedand it just locked up the system and therefore the core brands did not get thekind of attention that we would like them to have. But, as they are going forward, our approachinnovation will be very different and we will look forward to sharing that withyou over time.

I guess I will let you have the last word, but I am justtrying to figure out, what reason you would present if there is like one top onthe list type reason that this core, single-served type innovations that youinevitably have, the Reese’s Whipps-type stuff. Why should it be more incremental and sustainable than the steps we haveseen in the last few years? If you haveany file comments on that, I just leave it there.

I think about what we done with Reese’s brand, with Reese’sCrispy Crunchy, new form and texture of the Reese’s brand, Reese’s Whipps witha lower fat claim on that big brand. That is a very different approach on Reese’s then, I am just going tohave another line extension inside-out Reese’s couple, dark chocolate thatcomes in and out. Again, having a muchmore targeted, focused benefit that we are bringing on those brands versus justanother flavor line extension that kind of goes into the system and comes backout. We did that on Reese’s on 2007 andwe will do that on other brands as we go forward.

Your next question comes from Pablo Zuanic with JP Morgan.

One question first for Bert and then, one for youDavid. Bert, in terms of the guidancefor 2008, I do not know if you told us, we usually with margins down to 200 to250 basis points, but what is the algorithm there within gross margins and SG&A. Are you implying that gross margins are goingto be down to 200 basis points and change SG&A the sales will be flat? What is the mix there, that you are assumingin your guidance?

We actually did not comment exactly on gross margin and wedid comment on commodity impact that we expect between net sales and grossmargin. SG&A clearly we said wouldbe increasing and the factors that drive those are the full year impact of theretail sale force increase. We do havemore behind our sales and marketing, as well as, innovation pieces andadvertising is going up, as well. Ithink we mentioned what that percentage was, so a most specific comment on themovement of gross margin, other than the commodities and a lot of the off settingimpact that we have from productivity and absolutely a lot more investment inSG&A.

I guess, one for Dave, in getting to the terms and idea, Iam trying to understand marketing spending, but we look at Wrigley and they spent11% of our sales advertising and I guess the more that you are moving to singleserves away from package candy and I suppose you will continue thatstrategy. There is a need to moveclosure to Wrigley, 11% and a 2%, I know it was touched on before, but what isthe big difference between chocolate and gum if you are pushing in to singleserves. I assume single serves impliesmore impulse purchases and as a result, on top of my mind, being needed by theconsumers. Hence, a little bit moreadvertising would be needed. Can youback to that, please?

Pablo, I think a single serve is a very profitable part ofour business, but here we have a very large seasonal business, very largepackage candy business and clearly trade up and premium are going to be in theaisle, not necessarily in the ends of consumable version and so, therefore,those parts of the portfolio tend to move much more based on merchandisingfeature and display. Therefore, thereare more trade promotion intensive than certainly the front end would be and westill have a very large part of our portfolio in our scale is in the aisle andwe need to win on that part of our business. Therefore, the model will tend to be different versus a strictlyinconsumable kind of a business. Pablo Zuanic – JPMorgan: One last Dave, if I may, I am just trying to get a goodsense, in terms of the niches of business within the premium and trade up onwhat you call the main stream. Can yougive as a sense, it seems if the market is still up 3%, that obviously premiumand trade has cannibalized the core. Give us a sense, in terms of what is your market share, in each of thosetwo segments, premium trade up and where are you, in terms of core and is itfair to say that the share loss has been really mixed related. That your share remains and has been stable,can you walked us through that? Anycaller here would help.

I am not going to give you specific shares, I will tell youthat the growth rates of the premium and trade up are certainly higher than thecategory average. The growth that hascome in premium and trade up would certainly from our competitors who tookadvantage, much more so, than we did. Aswe looked at 2008, we need to grow in those growing segments of the categorythat are growing in a much more rapid pace. The largest part of the category is still in the everyday business andthat is also where I think we have the most work to do, to make sure that weare properly positioned and giving the consumers the right benefits and gettingthe right price value equation there.

Your next question comes from Eric Serotta with Merrill Lynch.

Most of my questions have been answered. I will just follow-up off line.

You have a follow-up question from Robert Moskow with CreditSuisse.

Hey Bert, in your topic spending for a week, how much isthat spending is for the restructuring plan and how much is core? - Credit Suisse: Hey Bert, in your topic spending for a week, how much isthat spending is for the restructuring plan and how much is core?

A larger portion is related to the restructuring andfrankly, the CAPEX next year is higher, breath primarily a shift, from thisyear to next year. It does not affectthe progress that we are making on the supply change transformation, but it doesreflects the certain decisions that we made in terms on how we paced thecapital addition. The majority isrelated to that and obviously, included in that is the Monetary facility, whichis a sizeable investment.

You mean that the majority of the increase or the majorityof the overall spending as restructuring?

Majority of the overall.

Your next question comes from David Driscoll of CitiInvestment. David Driscoll – CitiInvestment: Can you comment on the place fixing allegations in Canada and the corresponding issue that might bearriving here in the United States. Is there any comments that you could make to us about what is happeningon this?

In view of the ongoing investigation by the CompetitionBureau in Canada,we cannot comment on specific allegations. We can tell you that we continue to cooperate fully with theinvestigating authority in Canada. We will cooperate fully in any active USinvestigations. We have not been askedto provide information related to this matter in the US,so therefore, we do not have any details and we are really not able to provideany additional information on the US matter.

There are no further questions at this time, are there anyclosing remarks?

Thank you for joining us with today call, Bert Alfonso and Iwill now be available later this morning for any follow-up questions you mayhave. Thank you.

This concludes today’s the Hershey Company Fourth Quarter2007 Result Conference Call.