THE HERSHEY COMPANY

Quarterly Report on Form 10-Q

For the Period Ended ~~October 1, 2017~~April 2, 2023

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION		32
Item 1. Financial Statements		32
Consolidated Statements of Income for the Three ~~and Nine~~ Months Ended ~~October 1, 2017~~April 2, 202 3 and ~~October~~ April 3, 202 2 ~~2016~~		32
Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~October 1, 2017~~April 2, 202 3 and ~~October~~ April 3, 202 2 ~~2016~~		43
Consolidated Balance Sheets as of ~~October 1, 2017~~April 2, 202 3 and December 31, ~~2016~~202 2		54
Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~October 1, 2017~~April 2, 202 3 and ~~October~~ April 3, 202 2 ~~2016~~		65
Consolidated Statement s of ~~Stockholders'~~Stockholders’ Equity for the ~~Nine~~ Three Months Ended ~~October 1, 2017~~April 2, 202 3 and April 3, 202 2		76
Notes to Unaudited Consolidated Financial Statements		87
Note 1 - Summary of Significant Accounting Policies		7
Note 2 - Business Acquisitions		8
Note 3 - Goodwill and Intangible Assets		10
Note 4 - Short and Long-Term Debt		11
Note 5 - Derivative Instruments		12
Note 6 - Fair Value Measurements		15
Note 7 - Leases		16
Note 8 - Investments in Unconsolidated Affiliates		18
Note 9 - Business Realignment Activities		18
Note 10 - Income Taxes		19
Note 11 - Pension and Other Post-Retirement Benefit Plans		20
Note 12 - Stock Compensation Plans		21
Note 13 - Segment Information		23
Note 14 - Treasury Stock Activity		26
Note 15 - Contingencies		27
Note 16 - Earnings Per Share		28
Note 17 - Other (Income) Expense, Net		29

Note 1 8 - Supplemental Balance Sheet Information		30
Item 2. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations		3032
Item 3. Quantitative and Qualitative Disclosures About Market Risk		4843
Item 4. Controls and Procedures		4844

PART II. OTHER INFORMATION	4945
~~Item1.~~Item 1. Legal Proceedings		4945
Item 1A. Risk Factors		4945
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4945
Item 3. Defaults Upon Senior Securities		4945
Item 4. Mine Safety Disclosures		4946
Item 5. Other Information		4946
Item 6. Exhibits		5046

Signatures	5147


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended
		April 2, 2023		April 3, 2022
Net sales		$	2,987,614	$	2,666,221
Cost of sales		1,605,292		1,420,741
Gross profit		1,382,322		1,245,480
Selling, marketing and administrative expense		581,587		524,216


Business realignment costs		811		274
Operating profit		799,924		720,990
Interest expense, net		37,685		33,179
Other (income) expense, net		2,983		10,407
Income before income taxes		759,256		677,404
Provision for income taxes		172,071		143,926


Net income		$	587,185	$	533,478

Net income per share—basic:
Common stock		$	2.94	$	2.66
Class B common stock		$	2.67	$	2.42

Net income per share—diluted:
Common stock		$	2.85	$	2.57
Class B common stock		$	2.66	$	2.41

Dividends paid per share:
Common stock		$	1.036	$	0.901
Class B common stock		$	0.942	$	0.819

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Net sales $ 2,033,121
$ 2,003,454
$ 5,575,790
$ 5,469,937
Cost of sales 1,092,899
1,152,606
2,965,798
3,054,315
Gross profit 940,222

850,848
2,609,992
2,415,622
Selling, marketing and administrative expense 497,182
474,494
1,404,970
1,408,759
Long-lived asset impairment charges —
—
208,712
—
Business realignment costs 4,020
2,330
50,018
30,568
Operating profit 439,020
374,024
946,292
976,295
Interest expense, net 24,589
24,387
72,456
66,730
Other (income) expense, net 13,630
21,800
23,557
8,703
Income before income taxes 400,801
327,837
850,279
900,862
Provision for income taxes 126,788
100,434
275,291
297,671
Net income including noncontrolling interest 274,013
227,403
574,988
603,191
Less: Net income (loss) attributable to noncontrolling interest 710
—
(26,860 ) —
Net income attributable to The Hershey Company $ 273,303
$ 227,403
$ 601,848
$ 603,191

Net income per share—basic:
Common stock $ 1.32
$ 1.09
$ 2.91
$ 2.88
Class B common stock $ 1.20
$ 0.99
$ 2.64
$ 2.63

Net income per share—diluted:
Common stock $ 1.28
$ 1.06
$ 2.81
$ 2.80
Class B common stock $ 1.20
$ 0.99
$ 2.64
$ 2.62

Dividends paid per share:
Common stock $ 0.656
$ 0.618
$ 1.892
$ 1.784
Class B common stock $ 0.596
$ 0.562
$ 1.720
$ 1.622

See Notes to Unaudited Consolidated Financial Statements.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 2

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	For the Three Months Ended
		April 2, 2023	April 3, 2022
				Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount		Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount
Net income								$	587,185					$	533,478
Other comprehensive income, net of tax:
Foreign currency translation adjustments:
Foreign currency translation (losses) gains during period				$	8,940	$	—	8,940		$	14,419	$	—	14,419

Pension and post-retirement benefit plans:
Net actuarial (loss) gain and service cost				19		2		21		(6,474)		(568)		(7,042)
Reclassification to earnings				3,227		(774)		2,453		3,960		(950)		3,010
Cash flow hedges:
Gains (losses) on cash flow hedging derivatives				1,448		541		1,989		(5,924)		874		(5,050)
Reclassification to earnings				2,007		(1,084)		923		2,596		(727)		1,869
Total other comprehensive income, net of tax				$	15,641	$	(1,315)	14,326		$	8,577	$	(1,371)	7,206


Comprehensive income								$	601,511					$	540,684

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount
Net income including noncontrolling interest $ 274,013
$ 227,403
$ 574,988
$ 603,191
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments $ 9,605
$ —
9,605
$ (8,533 ) $ —
(8,533 ) $ 27,878
$ —
27,878
$ 5,053
$ —
5,053
Pension and post-retirement benefit plans:
Net actuarial loss and prior service cost (9,200 ) 3,487
(5,713 ) 68
(54 ) 14
(9,396 ) 3,561
(5,835 ) (29,738 ) 11,296
(18,442 )
Reclassification to earnings 24,300
(8,941 ) 15,359
11,828
(4,447 ) 7,381
38,544
(22,636 ) 15,908
46,133
(17,807 ) 28,326
Cash flow hedges:
Losses on cash flow hedging derivatives (1,339 ) 761
(578 ) 1,354
(210 ) 1,144
(3,545 ) 1,643
(1,902 ) (53,627 ) 18,838
(34,789 )
Reclassification to earnings 1,962
(1,380 ) 582
(2,288 ) 1,390
(898 ) 7,374
(3,827 ) 3,547
(14,064 ) 6,079
(7,985 )
Total other comprehensive income (loss), net of tax $ 25,328
$ (6,073 ) 19,255
$ 2,429
$ (3,321 ) (892 ) $ 60,855
$ (21,259 ) 39,596
$ (46,243 ) $ 18,406
(27,837 )
Total comprehensive income including noncontrolling interest $ 293,268
$ 226,511
$ 614,584
$ 575,354
Comprehensive income (loss) attributable to noncontrolling interest 1,029
(751 ) (26,125 ) (2,040 )
Comprehensive income attributable to The Hershey Company $ 292,239
$ 227,262
$ 640,709
$ 577,394

See Notes to Unaudited Consolidated Financial Statements.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 3

THE HERSHEY COMPANY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	April 2, 2023		December 31, 2022
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	460,346	$	463,889
Accounts receivable—trade, net	856,841		711,203
Inventories	1,180,367		1,173,119

Prepaid expenses and other	228,546		272,195
Total current assets	2,726,100		2,620,406
Property, plant and equipment, net	2,822,238		2,769,702
Goodwill	2,607,833		2,606,956
Other intangibles	1,947,584		1,966,269
Other non-current assets	964,993		944,989
Deferred income taxes	42,770		40,498
Total assets	$	11,111,518	$	10,948,820
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,004,907	$	970,558
Accrued liabilities	780,195		832,518
Accrued income taxes	135,071		6,710
Short-term debt	603,089		693,790
Current portion of long-term debt	758,086		753,578
Total current liabilities	3,281,348		3,257,154
Long-term debt	3,341,375		3,343,977
Other long-term liabilities	712,143		719,742
Deferred income taxes	318,287		328,403
Total liabilities	7,653,153		7,649,276

Stockholders’ equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none in 2023 and 2022	—		—
Common stock, shares issued: 164,439,248 at April 2, 2023 and 163,439,248 at December 31, 2022	164,439		163,439
Class B common stock, shares issued: 57,113,777 at April 2, 2023 and 58,113,777 at December 31, 2022	57,114		58,114
Additional paid-in capital	1,285,412		1,296,572
Retained earnings	3,970,562		3,589,781
Treasury—common stock shares, at cost: 17,179,435 at April 2, 2023 and 16,588,308 at December 31, 2022	(1,781,155)		(1,556,029)
Accumulated other comprehensive loss	(238,007)		(252,333)


Total stockholders’ equity	3,458,365		3,299,544
Total liabilities and stockholders’ equity	$	11,111,518	$	10,948,820

October 1, 2017 December 31, 2016
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 275,056
$ 296,967
Accounts receivable—trade, net 742,832
581,381
Inventories 938,187
745,678
Prepaid expenses and other 258,379
192,752
Total current assets 2,214,454
1,816,778
Property, plant and equipment, net 2,050,124
2,177,248
Goodwill 822,348
812,344
Other intangibles 375,455
492,737
Other assets 174,611
168,365
Deferred income taxes 18,485
56,861
Total assets $ 5,655,477
$ 5,524,333
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 529,442
$ 522,536
Accrued liabilities 673,435
750,986
Accrued income taxes 19,109
3,207
Short-term debt 815,588
632,471
Current portion of long-term debt 300,096
243
Total current liabilities 2,337,670
1,909,443
Long-term debt 2,054,132
2,347,455
Other long-term liabilities 402,396
400,161
Deferred income taxes 22,303
39,587
Total liabilities 4,816,501
4,696,646

Stockholders’ equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none at October 1, 2017 and December 31, 2016 —
—
Common stock, shares issued: 299,281,967 at October 1, 2017 and December 31, 2016 299,281
299,281
Class B common stock, shares issued: 60,619,777 at October 1, 2017 and December 31, 2016 60,620
60,620
Additional paid-in capital 910,246
869,857
Retained earnings 6,325,011
6,115,961
Treasury—common stock shares, at cost: 149,232,801 at October 1, 2017 and 147,642,009 at December 31, 2016 (6,434,861 ) (6,183,975 )
Accumulated other comprehensive loss (337,027 ) (375,888 )
Total—The Hershey Company stockholders’ equity 823,270
785,856
Noncontrolling interest in subsidiary 15,706
41,831
Total stockholders’ equity 838,976
827,687
Total liabilities and stockholders’ equity $ 5,655,477
$ 5,524,333

See Notes to Unaudited Consolidated Financial Statements.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 4

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended
	April 2, 2023		April 3, 2022
Operating Activities
Net income	$	587,185	$	533,478
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	98,199		91,036
Stock-based compensation expense	18,992		15,337
Deferred income taxes	(11,250)		5,064


Write-down of equity investments	—		12,592

Other	22,347		24,043
Changes in assets and liabilities:
Accounts receivable—trade, net	(140,962)		(189,621)
Inventories	(3,263)		(37,320)
Prepaid expenses and other current assets	(172)		(11,251)
Accounts payable and accrued liabilities	16,054		98,027
Accrued income taxes	174,201		127,258
Contributions to pension and other benefit plans	(6,532)		(8,458)
Other assets and liabilities	598		(3,718)
Net cash provided by operating activities	755,397		656,467
Investing Activities
Capital additions (including software)	(176,093)		(141,063)


Equity investments in tax credit qualifying partnerships	(12,309)		(22,503)

Other investing activities	85		(400)

Net cash used in investing activities	(188,317)		(163,966)
Financing Activities
Net decrease in short-term debt	(90,700)		(65,640)

Repayment of long-term debt and finance leases	(1,187)		(1,050)


Cash dividends paid	(207,356)		(181,084)
Repurchase of common stock	(239,910)		(203,350)
Proceeds from exercised stock options	15,194		16,711
Taxes withheld and paid on employee stock awards	(28,289)		(29,041)

Net cash used in financing activities	(552,248)		(463,454)
Effect of exchange rate changes on cash and cash equivalents	(18,375)		(20,258)


Net (decrease) increase in cash and cash equivalents	(3,543)		8,789
Cash and cash equivalents, beginning of period	463,889		329,266
Cash and cash equivalents, end of period	$	460,346	$	338,055
Supplemental Disclosure
Interest paid	$	32,987	$	24,782
Income taxes paid	12,279		10,023

Nine Months Ended
October 1, 2017 October 2, 2016
Operating Activities
Net income including noncontrolling interests $ 574,988
$ 603,191
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 194,313
241,901
Stock-based compensation expense 37,966
40,699
Deferred income taxes (14,859 ) (12,703 )
Impairment of long-lived assets (see Note 7) 208,712
—
Write-down of equity investments 23,999
35,862
Gain on settlement of SGM liability (see Note 2) —
(26,650 )
Other 60,129
42,499
Changes in assets and liabilities, net of business acquisitions:
Accounts receivable—trade, net (161,451 ) (157,142 )
Inventories (192,509 ) (83,221 )
Prepaid expenses and other current assets (33,581 ) (44,254 )
Accounts payable and accrued liabilities (15,380 ) (126,966 )
Accrued income taxes 18,849
1,128
Contributions to pension and other benefits plans (57,883 ) (42,566 )
Other assets and liabilities (17,394 ) (21,018 )
Net cash provided by operating activities 625,899
450,760
Investing Activities
Capital additions (including software) (148,923 ) (168,225 )
Proceeds from sales of property, plant and equipment 1,758
3,032
Equity investments in tax credit qualifying partnerships (39,977 ) (35,395 )
Business acquisitions, net of cash and cash equivalents acquired —
(285,374 )
Net cash used in investing activities (187,142 ) (485,962 )
Financing Activities
Net increase in short-term debt 173,110
250,573
Long-term borrowings —
792,923
Repayment of long-term debt (204 ) (250,000 )
Payment of SGM liability (see Note 2) —
(35,762 )
Cash dividends paid (391,845 ) (371,706 )
Repurchase of common stock (300,312 ) (452,580 )
Exercise of stock options 53,532
88,093
Net cash (used in) provided by financing activities (465,719 ) 21,541
Effect of exchange rate changes on cash and cash equivalents 5,051
465
Decrease in cash and cash equivalents (21,911 ) (13,196 )
Cash and cash equivalents, beginning of period 296,967
346,529
Cash and cash equivalents, end of period $ 275,056
$ 333,333
Supplemental Disclosure
Interest paid $ 81,497
$ 72,925
Income taxes paid 271,412
306,580

See Notes to Unaudited Consolidated Financial Statements.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 5

THE HERSHEY COMPANY

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended April 2, 2023 and April 3, 2022

(in thousands)

(unaudited)

Preferred Stock Common Stock Class B Common Stock Additional Paid-in Capital Retained Earnings Treasury Common Stock Accumulated Other Comprehensive Income (Loss) Noncontrolling Interest in Subsidiary Total Stockholders’ Equity
Balance, December 31, 2016 $ —
$ 299,281
$ 60,620
$ 869,857
$ 6,115,961
$ (6,183,975 ) $ (375,888 ) $ 41,831
$ 827,687
Net income (loss) 601,848
(26,860 ) 574,988
Other comprehensive income 38,861
735
39,596
Dividends (including dividend equivalents):
Common Stock, $1.892 per share (288,533 ) (288,533 )
Class B Common Stock, $1.720 per share (104,265 ) (104,265 )
Stock-based compensation 36,283
36,283
Exercise of stock options and incentive-based transactions 4,106
49,426
53,532
Repurchase of common stock (300,312 ) (300,312 )
Balance, October 1, 2017 $ —
$ 299,281
$ 60,620
$ 910,246
$ 6,325,011
$ (6,434,861 ) $ (337,027 ) $ 15,706
$ 838,976


	Preferred Stock		Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Common Stock		Accumulated Other Comprehensive (Loss) Income		Total Stockholders’ Equity
Balance, December 31, 2022	$	—	$	163,439	$	58,114	$	1,296,572	$	3,589,781	$	(1,556,029)	$	(252,333)	$	3,299,544
Net income									587,185						587,185
Other comprehensive income													14,326		14,326
Dividends (including dividend equivalents):
Common Stock, $1.036 per share									(152,603)						(152,603)
Class B Common Stock, $0.942 per share									(53,801)						(53,801)
Conversion of Class B Common Stock into Common Stock			1,000		(1,000)										—
Stock-based compensation							18,948								18,948
Exercise of stock options and incentive-based transactions							(30,108)				17,013				(13,095)
Repurchase of common stock (including excise tax)											(242,139)				(242,139)




Balance, April 2, 2023	$	—	$	164,439	$	57,114	$	1,285,412	$	3,970,562	$	(1,781,155)	$	(238,007)	$	3,458,365


	Preferred Stock		Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Common Stock		Accumulated Other Comprehensive (Loss) Income		Total Stockholders’ Equity
Balance, December 31, 2021	$	—	$	160,939	$	60,614	$	1,260,331	$	2,719,936	$	(1,195,376)	$	(249,215)	$	2,757,229
Net income									533,478						533,478
Other comprehensive income													7,206		7,206
Dividends (including dividend equivalents):
Common Stock, $0.901 per share									(133,174)						(133,174)
Class B Common Stock, $0.819 per share									(48,824)						(48,824)
Conversion of Class B Common Stock into Common Stock			1,000		(1,000)										—
Stock-based compensation							15,314								15,314
Exercise of stock options and incentive-based transactions							(32,405)				20,075				(12,330)
Repurchase of common stock											(203,350)				(203,350)




Balance, April 3, 2022	$	—	$	161,939	$	59,614	$	1,243,240	$	3,071,416	$	(1,378,651)	$	(242,009)	$	2,915,549

See Notes to Unaudited Consolidated Financial Statements.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 6

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except share data or if otherwise indicated)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited consolidated financial statements provided in this report include the accounts of The Hershey Company (the “Company,” “Hershey,” “we” or “us”) and our majority-owned subsidiaries and entities in which we have a controlling financial interest after the elimination of intercompany accounts and transactions. We have a controlling financial interest if we own a majority of the outstanding voting common stock and ~~the noncontrolling~~minority shareholders do not have substantive participating rights, or we have significant control ~~over an entity~~ through contractual or economic interests in which we are the primary ~~beneficiary.~~beneficiary or we have the power to direct the activities that most significantly impact the entity’s economic performance. We use the equity method of accounting when we have a 20% to 50% interest in other companies and exercise significant influence. Other investments that are not controlled, and over which we do not have the ability to exercise significant influence, are accounted for under the cost method. Both equity and cost method investments are included as Other non-current assets in the Consolidated Balance Sheets.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not contain certain information and disclosures required by GAAP for comprehensive financial statements. The financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in our opinion, necessary for a fair presentation of the results of operations, financial position, and cash flows for the indicated periods.

Operating results for the quarter ended ~~October 1, 2017~~April 2, 2023 may not be indicative of the results that may be expected for the year ending December 31, ~~2017~~2023 because of seasonal effects on our business. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2022 (our ~~“2016~~“2022 Annual Report on Form 10-K”), which provides a more complete understanding of our accounting policies, financial position, operating results and other matters.

~~Reclassifications~~

Certain prior period amounts have been reclassified to conform to current year presentation. Specifically, this includes amounts reclassified to conform to the current year presentation in the Consolidated Statements of Cash Flows.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In ~~May 2014,~~March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2014-09,~~ ~~Revenue from Contracts with Customers~~, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that supersedes most current revenue recognition guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. The new standard was originally effective for us on January 1, 2017; however, in July 2015 the FASB decided to defer the effective date by one year. Early application is not permitted, but reporting entities may choose to adopt the standard as2020-04, Reference Rate Reform (Topic 848): Facilitation of the ~~original effective date.~~Effects of Reference Rate Reform on Financial Reporting. The ~~standard permits~~ASU is intended to provide temporary optional expedients and exceptions to the ~~use~~GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. Entities may apply this ASU upon issuance through December 31, 2022 on a prospective basis. We early adopted the provisions of ~~either~~this ASU in the ~~full retrospective or modified retrospective transition method.~~

~~We have substantially completed our assessment~~first quarter of 2022. Adoption of the new standard ~~and we do~~did not ~~expect our adoption of the new standard to~~ have a material impact on our consolidated financial statements. ~~We intend to adopt the requirements of the new standard in the first quarter of 2018 utilizing the modified retrospective transition method.~~

In ~~February 2016,~~September 2022, the FASB issued ASU No. ~~2016-02,~~ ~~Leases (Topic 842)~~2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations. This ASU ~~will require lessees~~requires a buyer in a supplier finance program to ~~recognize a right-of-use asset~~disclose qualitative and ~~lease liability~~quantitative information about the program including the program’s nature, activity during the period, changes from period to period and potential magnitude. ASU 2022-04 is effective for ~~all leases~~annual periods beginning after December 15, 2022 and interim periods within those annual periods. A rollforward of obligations during the annual period, including the amount of obligations confirmed and obligations subsequently paid, is effective for annual periods beginning after December 15, 2023 with ~~terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease.~~early adoption permitted. This ASU ~~also requires certain quantitative and qualitative disclosures. Accounting guidance for lessors is largely unchanged. The amendments~~ should be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on ~~a modified retrospective basis.~~rollforward information, which should be applied prospectively. We early adopted provisions of this ASU ~~2016-02 is effective for us beginning January 1, 2019. We are~~ in the ~~process~~fourth quarter of ~~developing an inventory~~2022, with the exception of ~~our lease arrangements~~the amendment on rollforward information, which will be adopted in ~~order to determine~~ the ~~impact that~~fourth quarter of 2023. As a result of the adoption of ~~ASU 2016-02 will have on our~~this new standard, we made the required disclosures in the consolidated financial ~~statements~~statements.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and ~~related disclosures. Based on our assessment~~Contract Liabilities from Contracts with Customers. This ASU requires an acquirer to ~~date, we expect adoption of this standard to result~~recognize and measure contract assets and contract liabilities acquired in a ~~material increase~~business combination in ~~lease-related assets and liabilities on our Consolidated Balance Sheets; however, we do not expect it to have a significant impact on our Consolidated Statements of Income or Cash Flows.~~accordance with Revenue from


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 7

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL ~~STATEMENTS~~STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

~~In March 2016,~~Contracts with Customers (Topic 606) rather than adjust them to fair value at the ~~FASB issued~~acquisition date. ASU ~~No. 2016-09,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements~~2021-08 is effective for annual periods beginning after December 15, 2022 and interim periods within those annual periods. This ASU should be applied prospectively to ~~Employee Share-Based Payment Accounting. We~~business combinations occurring on or after the date of adoption. As a result, we adopted the provisions of this ASU in the first quarter of ~~2017.~~2023. This update principally affects the recognition of excess tax benefits and deficiencies and the cash flow classification of share-based compensation-related transactions. The requirement to recognize excess tax benefits and deficiencies as income tax expense or benefitnew standard will be applied in the income statement was applied prospectively, with a benefit of $7,927 recognized during the nine months ended October 1, 2017. Additionally, within the Consolidated Statement of Cash Flows, the impact of the adoption resulted in a $19,916 increase in net cash flow from operating activities and a corresponding decrease in net cash flow from financing activities for the nine months ended October 1, 2017. These classification requirements were adopted retrospectively to the Consolidated Statement of Cash Flows for the nine months ended October 2, 2016, resulting in a $28,221 increase in net cash flow from operating activities and a corresponding $28,221 decrease in net cash flow from financing activities.relevant future acquisitions.

Recently Issued Accounting Pronouncements Not Yet Adopted

In March ~~2017,~~2023, the FASB issued ASU No. ~~2017-07,~~ ~~Compensation-Retirement Benefits~~2023-02, Investments - Equity Method and Joint Ventures (Topic ~~715)~~. 323): Accounting for Investments in tax credit structures using the proportional amortization method. This ASU ~~will require an employer~~allows entities to ~~report~~elect the ~~service cost component~~proportional amortization method for all tax equity investments, regardless of ~~net benefit cost in~~how the ~~same line item~~tax credits are received as ~~other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost~~long as certain criteria are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if presented, or disclosed separately. In addition, only the service cost componentmet. This ASU may be ~~eligible for capitalization where applicable. The amendments should be~~ applied onin a modified retrospective ~~basis. ASU 2017-07 is effective for us beginning January 1, 2018, with early adoption permitted~~or retrospective basis and an entity must evaluate the investments in which it still expects to receive tax credits or other income tax benefits as of the beginning of ~~a financial year. We currently plan to adopt~~ the ~~requirements of the new standard in the first quarter of 2018 and expect the adoption to impact only classification within our Consolidated Statement of Income.~~

~~In August 2017, the FASB issued~~earliest period presented. ASU ~~No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~, which amends ASC 815. The purpose of this ASU is to better align accounting rules with a company’s risk management activities and financial reporting for hedging relationships, better reflect economic results of hedging in financial statements, simplify hedge accounting requirements and improve the disclosures of hedging arrangements. The amendment should be applied using the modified retrospective transition method. ASU 2017-122023-02 is effective for annual periods beginning after December 15, ~~2018~~2023 and interim periods within those annual ~~periods, with early adoption permitted.~~periods. We are currently ~~plan to adopt~~evaluating the ~~requirements~~impact of the new standard ~~in the first quarter of 2018. We do not expect it to have a significant impact~~ on our ~~Consolidated Financial Statements.~~consolidated financial statements and related disclosures.

No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our consolidated financial statements or disclosures.

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

2. BUSINESS ACQUISITIONS

~~Acquisitions~~Manufacturing Capacity

On April 14, 2023, we entered into a definitive agreement to acquire certain assets that provide additional manufacturing capacity from Weaver Popcorn Manufacturing, Inc., a leader in the production and co-packing of ~~businesses are accounted for as purchases~~microwave popcorn and ~~accordingly, the results of operations~~ready-to-eat popcorn, and a co-manufacturer of the ~~businesses acquired have been included~~Company’s SkinnyPop brand. Through the transaction, the Company will mainly acquire property, plant and equipment, as well as leased manufacturing facilities in ~~the consolidated financial statements since the respective dates of the acquisitions.~~Indiana and Pennsylvania. The purchase ~~price for each~~consideration totaled approximately $164,000 and will be financed with cash on hand and short-term borrowings. The acquisition is subject to customary regulatory approvals and is expected to close during the second quarter of ~~the acquisitions is allocated to the assets acquired and liabilities assumed.~~2023.

~~2016 Acquisition~~Pretzels Inc.

~~Ripple Brand Collective, LLC~~

On ~~April 26, 2016,~~December 14, 2021, we completed the acquisition of ~~all of the outstanding shares of Ripple Brand Collective, LLC,~~Pretzels Inc. (“Pretzels”), previously a privately held company ~~based in Congers, New York~~ that ~~owns the~~ ~~barkTHINS~~ ~~mass premium chocolate snacking brand. The~~ ~~barkTHINS~~ ~~brand is largely sold~~manufactures and sells pretzels and other salty snacks for other branded products and private labels in the United ~~States in take-home resealable packages and~~States. Pretzels is ~~available~~an industry leader in the ~~club channel,~~pretzel category with a product portfolio that includes filled, gluten free and seasoned pretzels, as well as ~~select natural~~extruded snacks that complements Hershey’s snacks portfolio. Based in Bluffton, Indiana, Pretzels operates three manufacturing locations in Indiana and ~~conventional grocers. Our consolidated net sales~~Kansas. Pretzels provides Hershey deep pretzel category and product expertise and the manufacturing capabilities to support brand growth and future pretzel innovation. The cash consideration paid for Pretzels totaled $304,334 and consisted of cash on hand and short-term borrowings. Acquisition-related costs for the ~~year ended December 31, 2016~~Pretzels acquisition were immaterial.

The acquisition has been accounted for as a business combination and, accordingly, Pretzels has been included ~~approximately $35,600 attributed to~~ ~~barkTHINS~~.

within the North America Salty Snacks segment from the date of acquisition. The purchase consideration was allocated to assets acquired and liabilities assumed based on their respective fair values as follows:


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 8

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

Goodwill $ 128,110
Trademarks 91,200
Other intangible assets 60,900
Other assets, primarily current assets, net of cash acquired totaling $674 12,375
Current liabilities (7,211 )
Net assets acquired $ 285,374



Goodwill	$	166,191
Other intangible assets	26,100
Current assets acquired	30,835
Property, plant and equipment, net	100,716
Other non-current assets, primarily operating lease ROU assets	111,787
Deferred income taxes	773
Current liabilities acquired	(22,713)
Other long-term liabilities, primarily operating lease liabilities	(109,355)
Net assets acquired	$	304,334

The purchase price allocation presented above has been finalized as of the third quarter of 2022. The measurement period adjustments to the initial allocation were immaterial and based on more detailed information obtained about the specific assets acquired and liabilities assumed, specifically, post-closing adjustments to the working capital acquired including certain holdbacks.

Goodwill ~~is calculated~~was determined as the excess of the purchase price over the fair value of the net assets ~~acquired. The~~acquired (including the identifiable intangible assets). A portion of goodwill ~~resulting~~derived from ~~the~~this acquisition is ~~attributable primarily to~~deductible for tax purposes and reflects the value of leveraging our brand building expertise, ~~consumer insights,~~ supply chain capabilities and retail relationships to accelerate growth and access to ~~barkTHINS~~the portfolio of Pretzels’ products. ~~Acquired~~

Other intangible assets include trademarks valued at $5,700 and customer relationships valued at $20,400. Trademarks were assigned an estimated useful ~~lives~~life of 27five years ~~while other intangibles, including~~and customer relationships ~~and covenants not to compete,~~ were assigned an estimated useful ~~lives ranging from 2 to 14~~life of 19 years. ~~The recorded goodwill, trademarks~~

Dot's Pretzels, LLC

On December 13, 2021, we completed the acquisition of Dot’s Pretzels, LLC (“Dot’s”), previously a privately held company that produces and sells pretzels and other ~~intangibles are expected~~snack food products to beretailers and distributors in the United States, with Dot’s Homestyle Pretzels snacks as its primary product. Dot’s is the fastest-growing scale brand in the pretzel category and complements Hershey’s snacks portfolio. The cash consideration paid for Dot’s totaled $891,169 and consisted of cash on hand and short-term borrowings. Acquisition-related costs for the Dot’s acquisition were immaterial.

The acquisition has been accounted for as a business combination and, accordingly, Dot’s has been included within the North America Salty Snacks segment from the date of acquisition. The purchase consideration was allocated to assets acquired and liabilities assumed based on their respective fair values as follows:


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 9

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)



Goodwill	$	284,427
Other intangible assets	543,100
Current assets acquired	51,121
Property, plant and equipment, net	40,266
Other non-current assets	2,201
Other liabilities assumed, primarily current liabilities	(29,946)
Net assets acquired	$	891,169

The purchase price allocation presented above has been finalized as of the third quarter of 2022. The measurement period adjustments to the initial allocation were immaterial and based on more detailed information obtained about the specific assets acquired and liabilities assumed, specifically, the refinement of certain assumptions in the value of customer relationships based on an analysis of historical customer-specific data and post-closing adjustments to the working capital acquired including certain holdbacks.

Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired (including the identifiable intangible assets). The goodwill derived from this acquisition is deductible for tax ~~purposes.~~purposes and reflects the value of leveraging our brand building expertise, supply chain capabilities and retail relationships to accelerate growth and access to the portfolio of Dot’s products.

~~Shanghai Golden Monkey (“SGM”)~~Other intangible assets include trademarks valued at $336,600 and customer relationships valued at $206,500. Trademarks were assigned an estimated useful life of 33 years and customer relationships were assigned an estimated useful life of 18 years.

On February 3, 2016, we completed the purchase of the remaining 20% of the outstanding shares of SGM for cash consideration totaling $35,762, pursuant to a new agreement entered into during the fourth quarter of 2015 with the SGM selling shareholders which revised the originally-agreed purchase price for these shares. For accounting purposes, we treated the acquisition as if we had acquired 100% at the initial acquisition date in 2014 and financed the payment for the remaining 20% of the outstanding shares. Therefore, the cash settlement of the liability for the purchase of these remaining shares is reflected within the financing section of the Unaudited Consolidated Statements of Cash Flows.

The final settlement also resulted in an extinguishment gain of $26,650 representing the net carrying amount of the recorded liability in excess of the cash paid to settle the obligation for the remaining 20% of the outstanding shares. This gain is recorded within non-operating other (income) expense, net within the Unaudited Consolidated Statements of Income.

3. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying value of goodwill by reportable segment for the ~~nine~~three months ended ~~October 1, 2017~~April 2, 2023 are as follows:


	North America Confectionery		North America Salty Snacks		International		Total
Balance at December 31, 2022	$	2,018,430	$	571,770	$	16,756	$	2,606,956



Foreign currency translation	43		—		834		877
Balance at April 2, 2023	$	2,018,473	$	571,770	$	17,590	$	2,607,833

North America International and Other Total
Balance at December 31, 2016 $ 792,190
$ 20,154
$ 812,344
Foreign currency translation 8,401
1,603
10,004
Balance at October 1, 2017 800,591
21,757
822,348

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

The following table provides the gross carrying amount and accumulated amortization for each major class of intangible asset:


	April 2, 2023				December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Intangible assets subject to amortization:
Trademarks	$	1,701,953	$	(202,045)	$	1,701,932	$	(190,045)
Customer-related	513,201		(100,650)		513,188		(93,495)
Patents	8,056		(8,056)		8,053		(8,053)

Total	2,223,210		(310,751)		2,223,173		(291,593)

Intangible assets not subject to amortization:
Trademarks	35,125				34,689
Total other intangible assets	$	1,947,584			$	1,966,269


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 10

October 1, 2017 December 31, 2016
Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Intangible assets subject to amortization:
Trademarks $ 272,599
$ (34,516 ) $ 317,023
$ (30,458 )
Customer-related 128,722
(33,069 ) 200,409
(36,482 )
Patents 17,059
(15,562 ) 16,426
(13,700 )
Total 418,380
(83,147 ) 533,858
(80,640 )

Intangible assets not subject to amortization:
Trademarks 40,222
39,519

Total other intangible assets $ 375,455
$ 492,737

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~As discussed~~(amounts in Note 7, in February 2017, we commenced the Margin for Growth Program which includes an initiative to optimize the manufacturing operations supporting our China business. We deemed this to be a triggering event requiring us to test our China long-lived asset group for impairment by first determining whether the carrying value of the asset group was recovered by our current estimates of future cash flows associated with the asset group. Because this assessment indicated that the carrying value was not recoverable, we calculated an impairment loss as the excess of the asset group's carrying value over its fair value. The resulting impairment loss was allocated to the asset group's long-lived assets. Therefore, as a result of this testing, during the first quarter of 2017, we recorded an impairment charge totaling $105,992 representing the portion of the impairment loss that was allocated to the distributor relationship and trademark intangible assets that had been recognized in connection with the 2014 SGM acquisition.thousands, except share data or if otherwise indicated)

Total amortization expense for the three months ended ~~October 1, 2017~~April 2, 2023 and ~~October 2, 2016~~April 3, 2022 was ~~$5,410~~$19,177 and ~~$7,666, respectively. Total amortization expense for the nine months ended October 1, 2017 and October 2, 2016 was $17,968 and $18,811,~~$19,859, respectively.

4. SHORT AND LONG-TERM DEBT

Short-term Debt

As a source of short-term financing, we utilize cash on hand and commercial paper or bank loans with an original maturity of three months or less. ~~We maintain~~As of April 2, 2023, we maintained a ~~$1.0~~$1.5 billion unsecured revolving credit facility (the “prior credit facility”). On April 26, 2023, we terminated the prior credit facility, which ~~currently expires~~was scheduled to expire in ~~November 2020. This agreement also includes an~~July 2024, and entered into a new unsecured revolving credit facility (the “new credit facility”). The new credit facility allows the Company to borrow up to $1.35 billion with the option to increase borrowings by an additional ~~$400~~$500 million with the consent of the lenders. The new credit facility is scheduled to expire on April 26, 2028; however, we may extend the termination date for up to two additional one-year periods upon notice to the administrative agent under the facility.

The credit ~~agreement~~agreements governing the prior credit facility and the new credit facility contains certain financial and other covenants, customary representations, warranties and events of default. As of ~~October 1, 2017,~~April 2, 2023, we were in compliance with all covenants pertaining to the prior credit ~~agreement,~~facility, and we had no significant compensating balance agreements that legally restricted these funds. For more information, refer to the Consolidated Financial Statements included in our ~~2016~~2022 Annual Report on Form 10-K.

In addition to the revolving credit facility, we maintain lines of credit with domestic and international commercial banks. ~~We had short-term foreign bank loans against these lines of credit for $175,279 at October 1, 2017 and $158,805 at December 31, 2016.~~ Commitment fees relating to our revolving credit facility and lines of credit are not material. Short-term debt consisted of the following:

At October 1, 2017, we had outstanding commercial paper totaling $640,309, at a weighted average interest rate of 1.2%. At December 31, 2016, we had outstanding commercial paper totaling $473,666, at a weighted average interest rate of 0.6%.


	April 2, 2023			December 31, 2022
Short-term foreign bank borrowings against lines of credit	$	143,081		$	135,555
U.S. commercial paper	460,008			558,235
Total short-term debt	$	603,089		$	693,790
Weighted average interest rate on outstanding commercial paper	4.8		%	4.3		%


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 11

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL ~~STATEMENTS~~STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

Long-term Debt

Long-term debt consisted of the following:

December 31, October 1, 2017 December 31, 2016
1.60% Notes due 2018 300,000
300,000
4.125% Notes due 2020 350,000
350,000
8.8% Debentures due 2021 84,715
84,715
2.625% Notes due 2023 250,000
250,000
3.20% Notes due 2025 300,000
300,000
2.30% Notes due 2026 500,000
500,000
7.2% Debentures due 2027 193,639
193,639
3.375% Notes due 2046 300,000
300,000
Lease obligations 86,201
83,619
Net impact of interest rate swaps, debt issuance costs and unamortized debt discounts (10,327 ) (14,275 )
Total long-term debt 2,354,228
2,347,698
Less—current portion 300,096
243
Long-term portion $ 2,054,132
$ 2,347,455


Debt Type and Rate	Maturity Date	April 2, 2023		December 31, 2022
2.625% Notes	May 1, 2023	250,000		250,000
3.375% Notes	May 15, 2023	500,000		500,000
2.050% Notes	November 15, 2024	300,000		300,000
0.900% Notes	June 1, 2025	300,000		300,000
3.200% Notes	August 21, 2025	300,000		300,000
2.300% Notes	August 15, 2026	500,000		500,000
7.200% Debentures	August 15, 2027	193,639		193,639
2.450% Notes	November 15, 2029	300,000		300,000
1.700% Notes	June 1, 2030	350,000		350,000
3.375% Notes	August 15, 2046	300,000		300,000
3.125% Notes	November 15, 2049	400,000		400,000
2.650% Notes	June 1, 2050	350,000		350,000
Finance lease obligations (see Note 7)		74,319		73,479
Net impact of interest rate swaps, debt issuance costs and unamortized debt discounts		(18,497)		(19,563)
Total long-term debt		4,099,461		4,097,555
Less—current portion		758,086		753,578
Long-term portion		$	3,341,375	$	3,343,977

Interest Expense

Net interest expense ~~consisted~~consists of the following:


	Three Months Ended
		April 2, 2023		April 3, 2022
Interest expense		$	42,506	$	35,371
Capitalized interest		(3,067)		(1,835)
Interest expense		39,439		33,536
Interest income		(1,754)		(357)
Interest expense, net		$	37,685	$	33,179


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 12

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Interest expense $ 25,955
$ 25,882
$ 76,208
$ 72,404
Capitalized interest (1,033 ) (1,141 ) (2,892 ) (4,702 )
Interest expense 24,922
24,741
73,316
67,702
Interest income (333 ) (354 ) (860 ) (972 )
Interest expense, net $ 24,589
$ 24,387
$ 72,456
$ 66,730

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

5. DERIVATIVE INSTRUMENTS

We are exposed to market risks arising principally from changes in foreign currency exchange rates, interest rates and commodity prices. We use certain derivative instruments to manage these risks. These include interest rate swaps to manage interest rate risk, foreign currency forward exchange contracts ~~and options~~ to manage foreign currency exchange rate risk, and commodities futures and options contracts to manage commodity market price risk exposures.

In entering into these contracts, we have assumed the risk that might arise from the possible inability of counterparties to meet the terms of their contracts. We mitigate this risk by entering into ~~exchanged-traded~~exchange-traded contracts with collateral posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. We do not expect any significant losses from counterparty defaults.

Commodity Price Risk

We enter into commodities futures and options contracts and other commodity derivative instruments to reduce the effect of future price fluctuations associated with the purchase of raw materials, energy requirements and transportation services. We generally hedge commodity price risks for 3- to 24-month periods. Our open commodity derivative contracts had a notional value ~~assuming period-end market prices,~~ of ~~$408,983~~$172,299 as of ~~October 1, 2017~~April 2, 2023 and ~~$739,374~~$243,009 as of December 31, ~~2016.~~2022.

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

Derivatives used to manage commodity price risk are not designated for hedge accounting treatment. Therefore, the changes in fair value of these derivatives are recorded as incurred within cost of sales. As discussed in Note ~~11,~~13, we define our segment income to exclude gains and losses on commodity derivatives until the related inventory is sold, at which time the related gains and losses are reflected within segment income. This enables us to continue to align the derivative gains and losses with the underlying economic exposure being hedged and thereby eliminate the mark-to-market volatility within our reported segment income.

Foreign Exchange Price Risk

We are exposed to foreign currency exchange rate risk related to our international operations, including non-functional currency intercompany debt and other non-functional currency transactions of certain subsidiaries. Principal currencies hedged include the euro, Canadian dollar, Japanese yen, British pound, Brazilian real, Malaysian ringgit, Mexican peso and ~~Brazilian real.~~Swiss franc. We typically utilize foreign currency forward exchange contracts to hedge these exposures for periods ranging from 3 to 12 months. The contracts are either designated as cash flow hedges or are undesignated. The net notional amount of foreign exchange contracts accounted for as cash flow hedges was ~~$107,507~~$30,781 at ~~October 1, 2017~~April 2, 2023 and ~~$68,263~~$59,448 at December 31, ~~2016.~~2022. The effective portion of the changes in fair value on these contracts is recorded in other comprehensive income and reclassified into earnings in the same period in which the hedged transactions affect earnings. The net notional amount of foreign exchange contracts that are not designated as accounting hedges was ~~$2,791~~$19,172 at ~~October 1, 2017~~April 2, 2023 and $1,843 at December 31, ~~2016.~~2022. The change in fair value on these instruments is recorded directly in cost of sales or selling, marketing and administrative expense, depending on the nature of the underlying exposure.

Interest Rate Risk

We manage our targeted mix of fixed and floating rate debt with debt issuances and by entering into fixed-to-floating interest rate swaps in order to mitigate fluctuations in earnings and cash flows that may result from interest rate volatility. These swaps are designated as fair value hedges, for which the gain or loss on the derivative and the offsetting loss or gain on the hedged item are recognized in current earnings as interest expense (income), net. At October 1, 2017 and December 31, 2016, we had interest rate derivative instruments in fair value hedging relationships with a total notional amount of $350,000.

In order to manage interest rate exposure, ~~in previous years~~from time to time, we ~~utilized~~enter into interest rate swap agreements to protect against unfavorable interest rate changes relating to forecasted debt transactions. These swaps, which ~~were~~are settled upon issuance of the related debt, ~~were~~are designated as cash flow hedges and the gains and losses that ~~were~~are deferred in other comprehensive income are being recognized as an adjustment to interest expense over the same period that the hedged interest payments affect earnings. We had interest rate swap agreements in a cash flow hedging relationship with a notional amount of $750,000 at April 2, 2023 and none at December 31, 2022.

Equity Price Risk

We are exposed to market price changes in certain broad market indices related to our deferred compensation obligations to our employees. To mitigate this risk, we use equity swap contracts to hedge the portion of the exposure that is linked to market-level equity returns. These contracts are not designated as hedges for accounting purposes and are entered into for periods of 3 to 12 months. The change in fair value of these derivatives is recorded in selling,


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 13

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

marketing and administrative expense, together with the change in the related liabilities. The notional amount of the contracts outstanding at ~~October 1, 2017~~April 2, 2023 and December 31, ~~2016~~2022 was ~~$24,164~~$20,224 and ~~$22,099,~~$18,803, respectively.

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

The following table presents the classification of derivative assets and liabilities within the Consolidated Balance Sheets as of ~~October 1, 2017~~April 2, 2023 and December 31, ~~2016:~~2022:


	April 2, 2023				December 31, 2022
	Assets (1)		Liabilities (1)		Assets (1)		Liabilities (1)
Derivatives designated as cash flow hedging instruments:

Foreign exchange contracts	$	2,101	$	1,330	$	3,921	$	261
Interest rate swap agreements	3,173		—		—		—
	5,274		1,330		3,921		261




Derivatives not designated as hedging instruments:
Commodities futures and options (2)	2,261		—		685		662
Deferred compensation derivatives	1,273		—		1,222		—
Foreign exchange contracts	382		—		246		—
	3,916		—		2,153		662
Total	$	9,190	$	1,330	$	6,074	$	923

December 31, October 1, 2017 December 31, 2016
Assets (1) Liabilities (1) Assets (1) Liabilities (1)
Derivatives designated as cash flow hedging instruments:
Foreign exchange contracts $ 421
$ 4,216
$ 2,229
$ 809

Derivatives designated as fair value hedging instruments:
Interest rate swap agreements 4,571
—
1,768
—

Derivatives not designated as hedging instruments:
Commodities futures and options (2) 6,222
295
2,348
10,000
Deferred compensation derivatives 994
—
717
—
Foreign exchange contracts 14
—
—
16
7,230
295
3,065
10,016
Total $ 12,222
$ 4,511
$ 7,062
$ 10,825

(1)Derivative assets are classified on our Consolidated Balance Sheets within prepaid expenses and other as well as other non-current assets. Derivative liabilities are classified on our Consolidated Balance Sheets within accrued liabilities and other long-term liabilities.


~~(1)~~	Derivatives assets are classified on our balance sheet within prepaid expenses and other as well as other assets. Derivative liabilities are classified on our balance sheet within accrued liabilities and other long-term liabilities.

~~(2)~~

As of October 1, 2017, assets and liabilities include the net of assets of $38,963 and liabilities of $33,780 associated with cash transfers receivable or payable on commodities futures contracts reflecting the change in quoted market prices on the last trading day for the period. The comparable amounts reflected on a net basis in liabilities at December 31, 2016 were assets of $140,885 and liabilities of $150,872. At October 1, 2017 and December 31, 2016, the remaining amount reflected in assets and liabilities relates to the fair value of other non-exchange traded derivative instruments, respectively.

(2)As of April 2, 2023, amounts reflected on a net basis in liabilities were assets of $23,357 and liabilities of $21,415, which are associated with cash transfers receivable or payable on commodities futures contracts reflecting the change in quoted market prices on the last trading day for the period. The comparable amounts reflected on a net basis in liabilities at December 31, 2022 were assets of $25,308 and liabilities of $25,296. At April 2, 2023 and December 31, 2022, the remaining amount reflected in assets and liabilities related to the fair value of other non-exchange traded derivative instruments, respectively.

Income Statement Impact of Derivative Instruments

The effect of derivative instruments on the Consolidated Statements of Income for the three months ended ~~October 1, 2017~~April 2, 2023 and ~~October 2, 2016~~April 3, 2022 was as follows:


	Non-designated Hedges				Cash Flow Hedges
	Gains (losses) recognized in income (a)				Gains (losses) recognized in other comprehensive income (“OCI”)				Gains (losses) reclassified from accumulated OCI (“AOCI”) into income (b)
	2023		2022		2023		2022		2023		2022
Commodities futures and options	$	(10,614)	$	50,825	$	—	$	—	$	—	$	—
Foreign exchange contracts	369		(20)		(1,725)		(5,924)		762		203
Interest rate swap agreements	—		—		3,173		—		(2,769)		(2,799)
Deferred compensation derivatives	1,273		(800)		—		—		—		—
Total	$	(8,972)	$	50,005	$	1,448	$	(5,924)	$	(2,007)	$	(2,596)

(a)Gains (losses) recognized in income for non-designated commodities futures and options contracts were included in cost of sales. Gains (losses) recognized in income for non-designated foreign currency forward exchange contracts and deferred compensation derivatives were included in selling, marketing and administrative expenses.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 14

Non-designated Hedges Cash Flow Hedges

Gains (losses) recognized in income (a) Losses recognized in other comprehensive income (“OCI”) (effective portion) Gains (losses) reclassified from accumulated OCI into income (effective portion) (b)

2017 2016 2017 2016 2017 2016
Commodities futures and options $ (2,445 ) $ (37,246 ) $ —
$ —
$ (488 ) $ 7,780
Foreign exchange contracts 11
(27 ) (1,339 ) 1,628
869
(2,659 )
Interest rate swap agreements —
—
—
(274 ) (2,343 ) (2,833 )
Deferred compensation derivatives 349
665
—
—
—
—
Total $ (2,085 ) $ (36,608 ) $ (1,339 ) $ 1,354
$ (1,962 ) $ 2,288

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL ~~STATEMENTS~~STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)


~~(a)~~	Gains (losses) recognized in income for non-designated commodities futures and options contracts were included in cost of sales. Gains (losses) recognized in income for non-designated foreign currency forward exchange contracts and deferred compensation derivatives were included in selling, marketing and administrative expenses.

~~(b)~~

(b)Gains (losses) reclassified from AOCI into income were included in cost of sales for commodities futures and options contracts and for foreign currency forward exchange contracts designated as hedges of purchases of inventory or other productive assets. Other gains (losses) for foreign currency forward exchange contracts were included in selling, marketing and administrative expenses. Losses reclassified from AOCI into income for interest rate swap agreements were included in interest expense.

~~The effect of derivative instruments on the Consolidated Statements of Income~~ for ~~the nine months ended October 1, 2017~~foreign currency forward exchange contracts were included in selling, marketing and ~~October 2, 2016 was as follows:~~administrative expenses. Losses reclassified from AOCI into income for interest rate swap agreements were included in interest expense.

Non-designated Hedges Cash Flow Hedges

Gains (losses) recognized in income (a) Losses recognized in other comprehensive income (“OCI”) (effective portion) Gains (losses) reclassified from accumulated OCI into income (effective portion) (b)

2017 2016 2017 2016 2017 2016
Commodities futures and options $ (40,500 ) $ (37,176 ) $ —
$ —
$ (1,325 ) $ 23,648
Foreign exchange contracts (40 ) (484 ) (3,545 ) (6,404 ) 1,087
(3,681 )
Interest rate swap agreements —
—
—
(47,223 ) (7,136 ) (5,903 )
Deferred compensation derivatives 994
1,486
—
—
—
—
Total $ (39,546 ) $ (36,174 ) $ (3,545 ) $ (53,627 ) $ (7,374 ) $ 14,064


~~(a)~~	Gains (losses) recognized in income for non-designated commodities futures and options contracts were included in cost of sales. Gains (losses) recognized in income for non-designated foreign currency forward exchange contracts and deferred compensation derivatives were included in selling, marketing and administrative expenses.

~~(b)~~

Gains (losses) reclassified from AOCI into income were included in cost of sales for commodities futures and options contracts and for foreign currency forward exchange contracts designated as hedges of purchases of inventory or other productive assets. Other gains (losses) for foreign currency forward exchange contracts were included in selling, marketing and administrative expenses. Losses reclassified from AOCI into income for interest rate swap agreements were included in interest expense.

The amount of ~~pretax~~pre-tax net losses on derivative instruments, including interest rate swap agreements and foreign currency forward exchange contracts ~~and options, commodities futures and options contracts, and other commodity derivative instruments~~ expected to be reclassified ~~from AOCI~~ into earnings in the next 12 months was approximately ~~$13,299~~$10,305 as of ~~October 1, 2017.~~April 2, 2023. This amount is primarily associated with ~~deferred losses relating to~~ interest rate swap agreements.

~~Fair Value Hedges~~

For the three months ended October 1, 2017 and October 2, 2016, we recognized a net pretax benefit to interest expense of $573 and $1,022 relating to our fixed-to-floating interest swap arrangements. For the nine months ended October 1, 2017 and October 2, 2016, we recognized a net pretax benefit to interest expense of $2,203 and $3,477 relating to our fixed-to-floating interest swap arrangements.

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

6. FAIR VALUE MEASUREMENTS

Accounting guidance on fair value measurements requires that financial assets and liabilities be classified and disclosed in one of the following categories of the fair value hierarchy:



Level 1 – Based on unadjusted quoted prices for identical assets or liabilities in an active market.
Level 2 – Based on observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3 – Based on unobservable inputs that reflect the ~~entity's~~entity’s own assumptions about the assumptions that a market participant would use in pricing the asset or liability.

We did not have any ~~level~~Level 3 financial assets or liabilities, nor were there any transfers between levels during the periods presented.

The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheets on a recurring basis as of ~~October 1, 2017~~April 2, 2023 and December 31, ~~2016:~~2022:


	Assets (Liabilities)
	Level 1		Level 2		Level 3		Total
April 2, 2023:
Derivative Instruments:
Assets:
Foreign exchange contracts (1)	$	—	$	2,483	$	—	$	2,483
Interest rate swap agreements (2)	—		3,173		—		3,173
Deferred compensation derivatives (3)	$	—	$	1,273	$	—	$	1,273
Commodities futures and options (4)	$	2,261	$	—	$	—	$	2,261
Liabilities:
Foreign exchange contracts (1)	$	—	$	1,330	$	—	$	1,330



December 31, 2022:
Assets:
Foreign exchange contracts (1)	$	—	$	4,167	$	—	$	4,167

Deferred compensation derivatives (2)	$	—	$	1,222	$	—	$	1,222
Commodities futures and options (4)	$	685	$	—	$	—	$	685
Liabilities:
Foreign exchange contracts (1)	$	—	$	261	$	—	$	261


Commodities futures and options (4)	$	662	$	—	$	—	$	662

(1)The fair value of foreign currency forward exchange contracts is the difference between the contract and current market foreign currency exchange rates at the end of the period. We estimate the fair value of foreign currency forward exchange contracts on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences.

(2)The fair value of interest rate swap agreements represents the difference in the present value of cash flows calculated at the contracted interest rates and at current market interest rates at the end of the period. We calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the same or similar financial instruments.

Level 1 Level 2 Level 3 Total
October 1, 2017:
Derivative Instruments:
     Assets:
           Foreign exchange contracts (1) $ —
$ 435
$ —
$ 435
           Interest rate swap agreements (2) —
4,571
—
4,571
           Deferred compensation derivatives (3) —
994
—
994
           Commodities futures and options (4) 6,222
—
—
6,222
     Liabilities:
            Foreign exchange contracts (1) —
4,216
—
4,216
            Commodities futures and options (4) 295
—
—
295
December 31, 2016:
     Assets:
           Foreign exchange contracts (1) $ —
$ 2,229
$ —
$ 2,229
           Interest rate swap agreements (2) —
1,768
—
1,768
           Deferred compensation derivatives (3) —
717
—
717
           Commodities futures and options (4) 2,348
—
—
2,348
     Liabilities:
           Foreign exchange contracts (1) —
825
—
825
           Commodities futures and options (4) 10,000
—
—
10,000


~~(1)~~ Table of Contents			The fair value of foreign currency forward exchange contracts is the difference between the contract and current market foreign currency exchange rates at the end of the period. We estimate the fair value of foreign currency forward exchange contracts on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences.Hershey Company \| Q1 2023 Form 10-Q \| Page 15


~~(2)~~	The fair value of interest rate swap agreements represents the difference in the present value of cash flows calculated at the contracted interest rates and at current market interest rates at the end of the period. We calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the same or similar financial instruments.


~~(3)~~	~~The fair value of deferred compensation derivatives is based on quoted prices for market interest rates and a broad market equity index.~~


~~(4)~~	~~The fair value of commodities futures and options contracts is based on quoted market prices.~~

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL ~~STATEMENTS~~STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

(3)The fair value of deferred compensation derivatives is based on quoted prices for market interest rates and a broad market equity index.

(4)The fair value of commodities futures and options contracts is based on quoted market prices.

Other Financial Instruments

The carrying amounts of cash and cash equivalents, ~~short-term investments,~~ accounts receivable, accounts payable and short-term debt approximated fair values as of ~~October 1, 2017~~April 2, 2023 and ~~October 2, 2016~~December 31, 2022 because of the relatively short maturity of these instruments.

The estimated fair value of our long-term debt is based on quoted market prices for similar debt issues and is, therefore, classified as Level 2 within the valuation hierarchy. The fair values and carrying values of long-term debt, including the current portion, were as follows:


	Fair Value				Carrying Value
	April 2, 2023		December 31, 2022		April 2, 2023		December 31, 2022
Current portion of long-term debt	$	756,114	$	749,345	$	758,086	$	753,578
Long-term debt	2,937,295		2,854,165		3,341,375		3,343,977
Total	$	3,693,409	$	3,603,510	$	4,099,461	$	4,097,555

Fair Value Carrying Value
October 1, 2017 December 31, 2016 October 1, 2017 December 31, 2016
Current portion of long-term debt $ 300,348
$ 243
$ 300,096
$ 243
Long-term debt 2,114,276
2,379,054
2,054,132
2,347,455
Total $ 2,414,624
$ 2,379,297
$ 2,354,228
$ 2,347,698

Other Fair Value Measurements

In addition to assets and liabilities that are recorded at fair value on a recurring basis, GAAP requires that, under certain circumstances, we also record assets and liabilities at fair value on a nonrecurring basis. ~~Generally, assets are recorded at fair value on a nonrecurring basis as a result~~

In connection with the acquisitions of ~~impairment charges. During~~Pretzels and Dot’s in December 2021 and subsequent measurement period adjustments through the ~~first~~third quarter of ~~2017,~~2022, as discussed in Note 7,2, we ~~recorded impairment charges totaling $105,992~~used various valuation techniques to ~~write-down distributor relationship and trademark intangible assets that had been recognized in connection~~determine fair value, with the ~~2014 SGM acquisition~~primary techniques being discounted cash flow analysis and ~~wrote-down property, plant and equipment~~the relief-from-royalty, a form of the multi-period excess earnings, which use significant unobservable inputs, or Level 3 inputs, as defined by ~~$102,720. These charges were determined by comparing~~ the fair value hierarchy.

7. LEASES

We lease office and retail space, warehouse and distribution facilities, land, vehicles, and equipment. We determine if an agreement is or contains a lease at inception. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet.

Right-of-use (“ROU”) assets represent our right to ~~their carrying value.~~use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are based on the estimated present value of lease payments over the lease term and are recognized at the lease commencement date.

As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate in determining the present value of lease payments. The ~~fair~~estimated incremental borrowing rate is derived from information available at the lease commencement date.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. A limited number of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements generally do not contain residual value guarantees or material restrictive covenants.

For real estate, equipment and vehicles that support selling, marketing and general administrative activities, the Company accounts for the lease and non-lease components as a single lease component. These asset categories comprise the majority of our leases. The lease and non-lease components of real estate and equipment leases supporting production activities are not accounted for as a single lease component. Consideration for such contracts are allocated to the lease and non-lease components based upon relative standalone prices either observable or estimated if observable prices are not readily available.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 16

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

The components of lease expense for the three months ended April 2, 2023 and April 3, 2022 were as follows:


		Three Months Ended
Lease expense	Classification	April 2, 2023		April 3, 2022
Operating lease cost	Cost of sales or SM&A (1)	$	12,043	$	12,787
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization (1)	1,862		1,682
Interest on lease liabilities	Interest expense, net	1,100		1,017
Net lease cost (2)		$	15,005	$	15,486

(1)Supply chain-related amounts were included in cost of sales.

(2)Net lease cost does not include short-term leases, variable lease costs or sublease income, all of which are immaterial.

Information regarding our lease terms and discount rates were as follows:


	April 2, 2023		December 31, 2022
Weighted-average remaining lease term (years)
Operating leases	14.9		15.0
Finance leases	27.2		27.7

Weighted-average discount rate
Operating leases	3.4	%	3.2	%
Finance leases	6.1	%	6.1	%

Supplemental balance sheet information related to leases were as follows:


Leases	Classification	April 2, 2023		December 31, 2022
Assets
Operating lease ROU assets	Other non-current assets	$	321,284	$	326,472

Finance lease ROU assets, at cost	Property, plant and equipment, gross	87,117		86,703
Accumulated amortization	Accumulated depreciation	(15,405)		(14,543)
Finance lease ROU assets, net	Property, plant and equipment, net	71,712		72,160

Total leased assets		$	392,996	$	398,632

Liabilities
Current
Operating	Accrued liabilities	$	32,842	$	31,787
Finance	Current portion of long-term debt	4,824		4,285
Non-current
Operating	Other long-term liabilities	289,351		294,849
Finance	Long-term debt	69,495		69,194
Total lease liabilities		$	396,512	$	400,115


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 17

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

The maturity of our lease liabilities as of April 2, 2023 were as follows:


	Operating leases		Finance leases		Total
2023 (rest of year)	$	32,462	$	6,722	$	39,184
2024	41,087		8,254		49,341
2025	27,794		6,215		34,009
2026	23,698		4,054		27,752
2027	23,770		4,065		27,835
Thereafter	264,559		142,021		406,580
Total lease payments	413,370		171,331		584,701
Less: Imputed interest	91,177		97,012		188,189
Total lease liabilities	$	322,193	$	74,319	$	396,512

Supplemental cash flow and other information related to leases were as follows:


	Three Months Ended
	April 2, 2023		April 3, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	11,281	$	11,896
Operating cash flows from finance leases	1,100		1,017
Financing cash flows from finance leases	1,183		1,050

ROU assets obtained in exchange for lease liabilities:
Operating leases	$	3,735	$	10,266
Finance leases	292		473

8. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

We invest in partnerships that make equity investments in projects eligible to receive federal historic and renewable energy tax credits. The tax credits, when realized, are recognized as a reduction of tax expense under the flow-through method, at which time the corresponding equity investment is written-down to reflect the remaining value of the ~~assets were derived using a combination~~future benefits to be realized. The equity investment write-down is reflected within other (income) expense, net in the Consolidated Statements of ~~an estimated market liquidation approach~~Income (see Note 17).

Additionally, we acquire ownership interests in emerging snacking businesses and ~~discounted cash flow analyses~~startup companies, which vary in method of accounting based on ~~Level 3 inputs.~~our percentage of ownership and ability to exercise significant influence over decisions relating to operating and financial affairs. These investments afford the Company the rights to distribute brands that the Company does not own to third-party customers primarily in North America. Net sales and expenses of our equity method investees are not consolidated into our financial statements; rather, our proportionate share of earnings or losses are recorded on a net basis within other (income) expense, net in the Consolidated Statements of Income.

7.Both equity and cost method investments are reported within other non-current assets in our Consolidated Balance Sheets. We regularly review our investments and adjust accordingly for capital contributions, dividends received and other-than-temporary impairments. Total investments in unconsolidated affiliates were $145,338 and $133,029 as of April 2, 2023 and December 31, 2022, respectively.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 18

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

9. BUSINESS REALIGNMENT ACTIVITIES

We ~~are currently pursuing several~~periodically undertake business realignment activities designed to increase our efficiency and focus our business ~~behind~~in support of our key growth strategies. Costs associated with business realignment activities are classified in our Consolidated Statements of Income as follows:


	Three Months Ended
		April 2, 2023		April 3, 2022
Cost of sales		$	1,050	$	27
Selling, marketing and administrative expense		488		980
Business realignment costs		811		274
Costs associated with business realignment activities		$	2,349	$	1,281

Costs recorded by program during the three ~~and nine~~ months ended ~~October 1, 2017~~April 2, 2023 and ~~October 2, 2016~~April 3, 2022 related to these activities ~~are~~were as follows:


	Three Months Ended
		April 2, 2023		April 3, 2022
International Optimization Program:
Severance and employee benefit costs		$	811	$	280
Other program costs		1,538		1,001



Total		$	2,349	$	1,281

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Margin for Growth Program:
Severance $ 2,876
$ —
$ 33,331
$ —
Accelerated depreciation —
—
6,873
—
Other program costs 5,013
—
16,216
—
Operational Optimization Program:
Accelerated depreciation and amortization —
24,470
—
57,948
Severance —
87
13,828
17,442
Other program costs 368
414
(549 ) 9,822
2015 Productivity Initiative:
Pension settlement charge —
—
—
13,669
Severance —
2,243
—
(543 )
Other program costs —
748
—
6,149
Total business realignment costs $ 8,257
$ 27,962
$ 69,699
$ 104,487
Amounts classified as liabilities qualifying as exit and disposal costs primarily represent employee-related and certain third-party service provider charges, however, such amounts at April 2, 2023 are not significant.

2020 International Optimization Program

In the fourth quarter of 2020, we commenced a program (“International Optimization Program”) to streamline resources and investments in select international markets, including the optimization of our China operating model that will improve our operational efficiency and provide for a strong, sustainable and simplified base going forward.

The International Optimization Program is expected to be completed by the end of 2023, with total pre-tax costs anticipated to be $50,000 to $75,000. Cash costs are expected to be $40,000 to $65,000, primarily related to workforce reductions of approximately 350 positions outside of the United States, costs to consolidate and relocate production, and third-party costs incurred to execute these activities. The costs and related benefits ~~to be derived from the Margin for Growth Program relate approximately 85% to the North America segment and 15% to~~of the International ~~and Other segment for the three months ended October 1, 2017.~~

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

The costs and related benefits to be derived from the Margin for Growth Program relate approximately 45% to the North America segment and 55% to the International and Other segment for the nine months ended October 1, 2017. The costs and related benefits to be derived from the Operational Optimization Program ~~primarily~~ relate to the ~~North America segment in 2017 and to the~~ International ~~and Other segment in 2016. The costs and related benefits to be derived from the 2015 Productivity Initiative relate primarily to the North American~~ segment. However, segment operating results do not include these business realignment expenses because we evaluate segment performance excluding such costs.

~~Margin for Growth Program~~

In February 2017, the Company's Board of Directors unanimously approved several initiatives under a single program designed to drive continued net sales, operating income and earnings per-share diluted growth over the next several years. This program will focus on improving global efficiency and effectiveness, optimizing the Company’s supply chain, streamlining the Company’s operating model and reducing administrative expenses to generate long-term savings.

The Company estimates that the “Margin for Growth” program will result in total pre-tax charges of $375,000 to $425,000 over the next three years. This estimate includes plant and office closure expenses of $100,000 to $115,000, net intangible asset impairment charges of $100,000 to $110,000, employee separation costs of $80,000 to $100,000, contract termination costs of approximately $25,000, and other business realignment costs of $70,000 to $75,000. The cash portion of the total charge is estimated to be $175,000 to $200,000. At the conclusion of the program in 2019, ongoing annual savings are expected to be approximately $150,000 to $175,000. The Company expects that implementation of the program will reduce its global workforce by approximately 15%, with a majority of the reductions coming from hourly headcount positions outside of the United States.

The program includes an initiative to optimize the manufacturing operations supporting our China business. We deemed this to be a triggering event requiring us to test our China long-lived asset group for impairment by first determining whether the carrying value of the asset group was recovered by our current estimates of future cash flows associated with the asset group. Because this assessment indicated that the carrying value was not recoverable, we calculated an impairment loss as the excess of the asset group's carrying value over its fair value. The resulting impairment loss was allocated to the asset group's long-lived assets. Therefore, as a result of this testing, during the first quarter of 2017, we recorded impairment charges totaling $208,712, with $105,992 representing the portion of the impairment loss that was allocated to the distributor relationship and trademark intangible assets that had been recognized in connection with the 2014 SGM acquisition and $102,720 representing the portion of the impairment loss that was allocated to property, plant and equipment. These impairment charges are recorded in the long-lived asset impairment charges caption within the Consolidated Statements of Operations.

During the three and nine months ended October 1, 2017, we recognized estimated employee severance totaling $2,876 and $33,331, respectively. These charges relate largely to our initiative to improve the cost structure of our China business, as well as our initiative to further streamline our corporate operating model. We also recognized non-cash, asset-related incremental depreciation expense totaling $6,873 for the nine months ended October 1, 2017 as part of optimizing the North America supply chain. During the three and nine months ended October 1, 2017, we also recognized other program costs totaling $5,013 and $16,216, respectively. These charges relate primarily to third-party charges for our initiative of improving global efficiency and effectiveness.

~~2016 Operational Optimization Program~~

In the second quarter of 2016, we commenced a program (the “Operational Optimization Program”) to optimize our production and supply chain network, which includes select facility consolidations. The program encompasses the continued transition of our China chocolate and SGM operations into a united ~~Golden Hershey~~ ~~platform, including the integration of the China sales force, as well as workforce planning efforts and the consolidation of production within certain facilities in China and North America.~~

~~During~~For the three months ended ~~October 1, 2017,~~April 2, 2023 and April 3, 2022, we recognized total costs ~~of $368. During the nine months ended October 1, 2017, we recognized costs of $13,279 primarily related to employee severance~~ associated with the ~~workforce planning efforts within North America. We currently expect~~International Optimization Program of $2,349 and $1,281, respectively. These charges predominantly included third-party charges in support of our initiative to ~~incur additional cash costs of approximately $9,000 over~~transform our China operating model, as well as severance and employee benefit costs. Since inception, we have incurred pre-tax charges to execute the ~~next 18 months to complete this program.~~program totaling $52,708.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 19

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL ~~STATEMENTS~~STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

During the first quarter of 2017, we reclassified property, plant and equipment and land use rights with a total book value of $20,303 to prepaid and other current assets within the Consolidated Balance Sheets. These represent select China facilities that were taken out of operation in connection with this program and are currently being marketed for sale.

~~2015 Productivity Initiative~~

In mid-2015, we initiated a productivity initiative (the “2015 Productivity Initiative”) intended to move decision making closer to the customer and the consumer, to enable a more enterprise-wide approach to innovation, to more swiftly advance our knowledge agenda, and to provide for a more efficient cost structure, while ensuring that we effectively allocate resources to future growth areas. Overall, the 2015 Productivity Initiative was undertaken to simplify the organizational structure to enhance the Company's ability to rapidly anticipate and respond to the changing demands of the global consumer.

The 2015 Productivity Initiative was executed throughout the third and fourth quarters of 2015, resulting in a net reduction of approximately 300 positions, with the majority of the departures taking place by the end of 2015. The 2015 Productivity Initiative was completed during the third quarter 2016. We incurred total costs of $125,031 relating to this program, including pension settlement charges of $13,669 recorded through the nine months ended October 2, 2016 relating to lump sum withdrawals by employees retiring or leaving the Company as a result of this program.

~~Costs associated with business realignment activities are classified in our Consolidated Statements of Income for the three and nine months ended October 1, 2017 and October 2, 2016 as follows:~~

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Cost of sales $ 213
$ 24,470
$ 6,475
$ 57,948
Selling, marketing and administrative expense 4,024
1,162
13,206
15,971
Business realignment costs 4,020
2,330
50,018
30,568
Costs associated with business realignment activities $ 8,257
$ 27,962
$ 69,699
$ 104,487

~~The following table presents the liability activity for costs qualifying as exit and disposal costs:~~

Total
Liability balance at December 31, 2016 $ 3,725
2017 business realignment charges (1) 61,253
Cash payments (23,742 )
Other, net (69 )
Liability balance at October 1, 2017 (reported within accrued and other long-term liabilities) $ 41,167

~~(1)~~

The costs reflected in the liability roll-forward represents employee-related and third-party service provider charges. These costs do not include items charged directly to expense, such as accelerated depreciation and amortization and certain of the third-party charges associated with various programs, as those items are not reflected in the business realignment liability in our Consolidated Balance Sheets.

8.10. INCOME TAXES

The majority of our taxable income is generated in the ~~U.S.~~United States and taxed at the ~~U.S.~~United States statutory rate of ~~35%~~21%. The effective tax rates for the ~~nine~~three months ended ~~October 1, 2017~~April 2, 2023 and ~~October 2, 2016~~April 3, 2022 were ~~32.4%~~22.7% and ~~33.0%~~21.2%, respectively. Relative to the statutory rate, the ~~2017~~2023 effective tax rate was primarily impacted by ~~a favorable foreign rate differential relating to foreign operations and cocoa procurement, investment tax credits and the benefit of ASU 2016-09, which were~~state taxes, partially offset by ~~non-benefited costs resulting from the Margin for Growth Program.~~ employee share-based payments.

The ~~2016 effective rate benefited from the impact of non-taxable income related to the settlement of the SGM liability and investment tax credits.~~

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

~~Hershey~~Company and its subsidiaries file tax returns in the ~~U.S.,~~United States, including various state and local returns, and in other foreign jurisdictions. ~~We believe adequate provision has been made for all income tax uncertainties.~~ We are routinely audited by taxing authorities in our filing jurisdictions, and a number of these disputes are currently underway, including multi-year controversies at various stages of review, negotiation and litigation in Mexico, China, Canada and the United States. The outcome of tax audits cannot be predicted with certainty, including the timing of resolution or potential settlements. If any issues addressed in our tax audits are ~~currently underway.~~resolved in a manner not consistent with management’s expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs. Based on our current assessments, we believe adequate provision has been made for all income tax uncertainties. We reasonably expect reductions in the liability for unrecognized tax benefits of approximately ~~$7,191~~$22,796 within the next 12 months because of the expiration of statutes of limitations and settlements of tax audits.

Inflation Reduction Act

9.On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law. The IRA enacted a 15% corporate minimum tax on certain corporations and an excise tax on share repurchases after December 31, 2022, and created and extended certain energy-related tax credits and incentives. We currently do not expect the tax-related provisions of the IRA to have a material impact on our consolidated financial statements, including our annual effective tax rate, or on our liquidity. We will continue to monitor and assess the impact the IRA may have on our business and financial results.

11. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

Net Periodic Benefit Cost

The components of net periodic benefit cost for the ~~third quarter~~three months ended April 2, 2023 and April 3, 2022 were as follows:

Pension Benefits Other Benefits
Three Months Ended Three Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Service cost $ 5,262
$ 5,794
$ 66
$ 75
Interest cost 10,320
10,130
2,214
2,435
Expected return on plan assets (14,390 ) (14,700 ) —
—
Amortization of prior service (credit) cost (1,455 ) (262 ) 187
144
Amortization of net loss 8,526
8,803
(1 ) (4 )
Settlement loss 17,043
3,147
—
—
Total net periodic benefit cost $ 25,306
$ 12,912
$ 2,466
$ 2,650


	Pension Benefits				Other Benefits
	Three Months Ended				Three Months Ended
	April 2, 2023		April 3, 2022		April 2, 2023		April 3, 2022
Service cost	$	3,753	$	4,853	$	54	$	78
Interest cost	10,272		5,365		2,093		1,155
Expected return on plan assets	(12,381)		(12,662)		—		—
Amortization of prior service credit	(1,414)		(1,413)		—		—
Amortization of net loss	4,967		2,731		(326)		26
Settlement loss	—		2,616		—		—
Total net periodic benefit cost	$	5,197	$	1,490	$	1,821	$	1,259

We made contributions of ~~$31,512~~$833 and ~~$6,922~~$5,699 to the pension plans and other benefits plans, respectively, during the ~~third quarter~~first three months of ~~2017.~~2023. In the ~~third quarter~~first three months of ~~2016,~~2022, we made contributions of ~~$18,549~~$3,467 and ~~$7,473~~$4,991 to our pension plans and other ~~benefits~~benefit plans, respectively. The contributions in ~~2017~~2023 and ~~2016~~2022 also included benefit payments from our non-qualified pension plans and post-retirement benefit plans.

The non-service cost components of net periodic benefit cost ~~for the year-to-date periods were as follows:~~

Pension Benefits Other Benefits
Nine Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Service cost $ 15,487
$ 17,377
$ 197
$ 224
Interest cost 30,819
31,914
6,626
7,300
Expected return on plan assets (43,088 ) (44,073 ) —
—
Amortization of prior service (credit) cost (4,366 ) (785 ) 560
432
Amortization of net loss (gain) 25,308
26,411
(1 ) (10 )
Settlement loss 17,043
20,085
—
—
Total net periodic benefit cost $ 41,203
$ 50,929
$ 7,382
$ 7,946

~~We made contributions of $36,497 and $21,386~~relating to ~~the~~ pension ~~plans~~ and other benefits plans, respectively, during the first nine months of 2017. In the first nine months of 2016, we made contributions of $20,385 and $22,181 to our pension plans and other benefits plans, respectively. The contributions in 2017 and 2016 also included benefit payments from our non-qualified pension plans and post-retirement benefit ~~plans.~~plans is reflected within other (income) expense, net in the Consolidated Statements of Income (see Note 17).

~~For 2017, there are no significant minimum funding requirements for our domestic pension plans and planned voluntary funding of our non-domestic pension plans in 2017 is not material.~~


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 20

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL ~~STATEMENTS~~STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

During the third quarter of 2017, cumulative lump sum distributions from our supplemental executive retirement plan exceeded the plan’s anticipated annual service and interest costs, triggering the recognition of non-cash pension settlement charges due to the acceleration of a portion of the accumulated unrecognized actuarial loss. In addition, settlement charges were also triggered in the pension plan benefiting our employees in Puerto Rico as a result of lump sum distributions and the purchase of annuity contracts relating to the termination of this plan. In connection with these settlements, the related plan assets and liabilities were remeasured at September 1, 2017 using a discount rate of 3.44%, compared to 3.81% as of December 31, 2016 and an expected rate of return on plan assets of 5.8%.

During the three and nine months ended October 2, 2016, settlement charges in our salaried defined benefit pension plan were triggered by lump sum withdrawals by employees retiring or leaving the Company as a result of the 2015 Productivity Initiative.

~~10.~~12. STOCK COMPENSATION PLANS

~~We have various~~Share-based grants for compensation and incentive purposes are made pursuant to the Equity and Incentive Compensation Plan (“EICP”). The EICP provides for grants of one or more of the following stock-based compensation ~~programs under which~~ awards ~~including stock options, performance stock units (“PSUs”) and performance stock, stock appreciation rights, restricted stock units (“RSUs”) and restricted stock may be granted~~ to employees, non-employee directors and certain service providers upon whom the successful conduct of our business is ~~dependent. These programs~~dependent:

•Non-qualified stock options (“stock options”);

•Performance stock units (“PSUs”) and performance stock;

•Stock appreciation rights;

•Restricted stock units (“RSUs”) and restricted stock; and

•Other stock-based awards.

The EICP also provides for the ~~accounting treatment related thereto~~deferral of stock-based compensation awards by participants if approved by the Compensation and Human Capital Committee of our Board and if in accordance with an applicable deferred compensation plan of the Company. Currently, the Compensation and Human Capital Committee has authorized the deferral of PSU and RSU awards by certain eligible employees under the Company’s Deferred Compensation Plan. Our Board has authorized our non-employee directors to defer any portion of their cash retainer, committee chair fees and RSUs awarded that they elect to convert into deferred stock units under our Directors’ Compensation Plan.

At the time stock options are ~~described~~exercised or PSUs and RSUs become payable, Common Stock is issued from our accumulated treasury shares. Dividend equivalents are credited on RSUs on the same date and at the same rate as dividends paid on our Common Stock. Dividend equivalents are charged to retained earnings and included in ~~Note 10~~accrued liabilities until paid.

Awards to employees eligible for retirement prior to the ~~Consolidated Financial Statements included in our 2016 Annual Report on Form 10-K.~~award becoming fully vested are amortized to expense over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award. In addition, historical data is used to estimate forfeiture rates and record share-based compensation expense only for those awards that are expected to vest.

For the periods presented, compensation expense for all types of stock-based compensation programs and the related income tax benefit recognized were as follows:

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Pre-tax compensation expense $ 13,409
$ 14,491
$ 37,966
$ 40,699
Related income tax benefit 4,076
4,406
11,124
13,186


	Three Months Ended
		April 2, 2023		April 3, 2022
Pre-tax compensation expense		$	18,992	$	15,337
Related income tax benefit		4,330		3,251

Compensation ~~costs~~expenses for ~~stock-based~~stock compensation plans are primarily included in ~~selling, marketing and administrative~~SM&A expense. As of ~~October 1, 2017,~~April 2, 2023, total stock-based compensation ~~cost~~expense related to non-vested awards not yet recognized was ~~$71,908~~$130,091 and the weighted-average period over which this amount is expected to be recognized was approximately 2.2 years.

Stock Options

The exercise price of each stock option awarded under the EICP equals the closing price of our Common Stock on the New York Stock Exchange on the date of grant. Each stock option has a maximum term of 10 years. Grants of stock options provide for pro-rated vesting, typically over a four-year period.Expense for stock options is based on grant date fair value and recognized on a straight-line method over the vesting period, net of estimated forfeitures.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 21

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

A summary of activity relating to grants of stock options for the period ended ~~October 1, 2017~~April 2, 2023 is as follows:


Stock Options	Shares	Weighted-Average Exercise Price (per share)	Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at beginning of the period	976,634	$104.36	3.8 years
Granted	5,215	$240.90
Exercised	(149,320)	$102.78


Outstanding as of April 2, 2023	832,529	$105.50	3.9 years	$	123,975
Options exercisable as of April 2, 2023	806,474	$103.28	3.7 years	$	121,886

Stock Options Shares Weighted-Average
Exercise Price (per share) Weighted-Average Remaining
Contractual Term Aggregate Intrinsic Value
Outstanding as of December 31, 2016 6,192,008
$ 82.67
6.2 years
Granted 1,086,175
$ 108.05

Exercised (966,532 ) $ 69.95

Forfeited (219,456 ) $ 103.08

Outstanding as of October 1, 2017 6,092,195
$ 88.47
6.0 years $ 115,872
Options exercisable as of October 1, 2017 3,848,894
$ 80.96
4.5 years $ 101,692

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

The weighted-average fair value of options granted was ~~$15.77~~$57.65 and ~~$11.46~~$37.28 per share for the periods ended ~~October 1, 2017~~April 2, 2023 and ~~October 2, 2016,~~April 3, 2022, respectively. The fair value was estimated on the date of grant using a Black-Scholes option-pricing model and the following weighted-average assumptions:

Nine Months Ended
October 1, 2017 October 2, 2016
Dividend yields 2.4 % 2.4 %
Expected volatility 17.2 % 16.8 %
Risk-free interest rates 2.2 % 1.5 %
Expected term in years 6.8
6.8


	Three Months Ended
	April 2, 2023		April 3, 2022
Dividend yields	1.7	%	1.9	%
Expected volatility	20.9	%	21.1	%
Risk-free interest rates	4.1	%	1.9	%
Expected term in years	6.3		6.3

The total intrinsic value of options exercised was ~~$38,845~~$20,566 and ~~$70,009~~$18,814 for the periods ended ~~October 1, 2017~~April 2, 2023 and ~~October 2, 2016,~~April 3, 2022, respectively.

Performance Stock Units and Restricted Stock Units

Under the EICP, we grant PSUs to select executives and other key employees. Vesting is contingent upon the achievement of certain performance objectives. We grant PSUs over three-year performance cycles. If we meet targets for financial measures at the end of the applicable three-year performance cycle, we award a resulting number of shares of our Common Stock to the participants. The number of shares may be increased to the maximum or reduced to the minimum threshold based on the results of these performance metrics in accordance with the terms established at the time of the award.

For PSUs granted, the target award is a combination of a market-based total shareholder return and performance-based components. For market-based condition components, market volatility and other factors are taken into consideration in determining the grant date fair value and the related compensation expense is recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided. For performance-based condition components, we estimate the probability that the performance conditions will be achieved each quarter and adjust compensation expenses accordingly. The performance scores of PSU grants during the three months ended April 2, 2023 and April 3, 2022 can range from 0% to 250% of the targeted amounts.

We recognize the compensation expenses associated with PSUs ratably over the three-year term. Compensation expenses are based on the grant date fair value because the grants can only be settled in shares of our Common Stock. The grant date fair value of PSUs is determined based on the Monte Carlo simulation model for the market-based total shareholder return component and the closing market price of the Company’s Common Stock on the date of grant for performance-based components.

During the three months ended April 2, 2023 and April 3, 2022, we awarded RSUs to certain executive officers and other key employees under the EICP. We also awarded RSUs to non-employee directors.

We recognize the compensation expenses associated with employee RSUs over a specified award vesting period based on the grant date fair value of our Common Stock. We recognize expense for employee RSUs based on the straight-


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 22

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

line method. The compensation expenses associated with non-employee director RSUs is recognized ratably over the vesting period, net of estimated forfeitures.

A summary of activity relating to grants of PSUs and RSUs for the period ended ~~October 1, 2017~~April 2, 2023 is as follows:


Performance Stock Units and Restricted Stock Units	Number of units	Weighted-average grant date fair value for equity awards (per unit)
Outstanding at beginning of year	1,141,679	$181.91
Granted	278,578	$249.74
Performance assumption change (1)	75,977	$295.81
Vested	(404,264)	$171.93
Forfeited	(6,004)	$192.57
Outstanding as of April 2, 2023	1,085,967	$210.94

Performance Stock Units and Restricted Stock Units Number of units
Weighted-average grant date fair value
for equity awards (per unit)
Outstanding as of December 31, 2016 828,228
$102.66
Granted 441,634
$111.00
Performance assumption change 23,780
$101.40
Vested (242,011 ) $111.19
Forfeited (125,782 ) $107.73
Outstanding as of October 1, 2017 925,849
$102.36

~~The table above includes 6,410 units~~(1)Reflects the net number of PSUs ~~awarded to participants in a prior period for which~~above and below target levels based on the ~~measurement (grant) date occurred for accounting purposes in 2017.~~performance metrics.

The following table sets forth information about the fair value of the PSUs and RSUs granted for potential future distribution to employees and non-employee directors. In addition, the table provides assumptions used to determine the fair value of the market-based total shareholder return component using the Monte Carlo simulation model on the date of grant.


	Three Months Ended
	April 2, 2023			April 3, 2022
Units granted	278,578			285,563
Weighted-average fair value at date of grant	$	249.74		$	210.42
Monte Carlo simulation assumptions:
Estimated values	$	118.90		$	100.41
Dividend yields	1.7		%	1.8		%
Expected volatility	19.2		%	25.3		%

Nine Months Ended
October 1, 2017 October 2, 2016
Units granted 441,634
531,019
Weighted-average fair value at date of grant $ 111.00
$ 93.47
Monte Carlo simulation assumptions:
Estimated values $ 46.85
$ 38.02
Dividend yields 2.3 % 2.5 %
Expected volatility 20.4 % 17.0 %

The fair value of shares vested totaled ~~$26,097~~$97,304 and ~~$19,673~~$97,803 for the periods ended ~~October 1, 2017~~April 2, 2023 and ~~October 2, 2016,~~April 3, 2022, respectively.

Deferred PSUs, deferred RSUs and deferred stock units representing directors’ fees totaled ~~369,037~~270,694 units as of ~~October 1, 2017.~~April 2, 2023. Each unit is equivalent to one share of the Company’s Common Stock.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 23

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL ~~STATEMENTS~~STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

~~11.~~13. SEGMENT INFORMATION

~~Our~~The Company reports its operations through three reportable segments: (i) North America Confectionery, (ii) North America Salty Snacks and (iii) International. This organizational structure is designed to ensure continued focus on North America, coupled with an emphasis on profitable growth in our focus international markets. Our business is organized around geographic regions, which enables us to build processes for repeatable success in our global markets. As a result, we have defined our operating segments on a geographic basis, as this aligns with how our Chief Operating Decision Maker (“CODM”) manages our business, including resource allocation and performance ~~assessment. Our~~ assessment, and further aligns with our product categories and the key markets we serve.

•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~~ - Confectionery – 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, gum and refreshment products, protein bars, spreads, snack bites and mixes, as well as pantry and food service lines. This segment also includes our retail operations, including Hershey’s Chocolate World stores in Hershey, Pennsylvania; New York, New York; Las Vegas, Nevada; 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.

•North America Salty Snacks– This segment is responsible for our salty snacking products in the United States. This includes ready-to-eat popcorn, baked and trans fat free snacks, pretzels and other ~~snacking product lines.~~

snacks.

•International ~~and Other~~ - – International ~~and Other~~ is a combination of all other operating segments that are not individually material, including those geographic regions where we operate outside of North America. We currently have operations and manufacture product in ~~China,~~ Mexico, Brazil, India and Malaysia, primarily for consumers in these regions, and also distribute and sell confectionery products in export markets of Asia, Latin America, Middle East, Europe, Africa and other regions. This segment also includes our global retail operations, including Hershey's Chocolate World stores in Hershey, Pennsylvania, New York City, Las Vegas, Shanghai, Niagara Falls (Ontario), Dubai, and Singapore, as well as operations associated with licensing the use of certain of the Company's trademarks and products to third parties around the world.

For segment reporting purposes, we use “segment income” to evaluate segment performance and allocate resources. Segment income excludes unallocated general corporate administrative expenses, unallocated mark-to-market gains and losses on commodity derivatives, business realignment and impairment charges, ~~acquisition integration~~acquisition-related costs ~~the non-service related portion of pension expense~~ and other unusual gains or losses that are not part of our measurement of segment performance. These ~~components~~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 as 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 to the Consolidated Financial Statements included in our 2016 Annual Report on Form 10-K.~~

As discussed in Note 5, derivatives used to manage commodity price risk are not designated for hedge accounting treatment. These derivatives are recognized at fair market value with the resulting realized and unrealized (gains) losses recognized in unallocated derivative (gains) losses outside of the reporting segment results until the related inventory is sold, at which time the related gains and losses are reallocated to segment income. This enables us to align the derivative gains and losses with the underlying economic exposure being hedged and thereby eliminate the mark-to-market volatility within our reported segment income.

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.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 24

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL ~~STATEMENTS~~STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

Our segment net sales and earnings were as follows:


	Three Months Ended
		April 2, 2023		April 3, 2022
Net sales:
North America Confectionery		$	2,452,165	$	2,217,044
North America Salty Snacks		269,985		226,122
International		265,464		223,055
Total		$	2,987,614	$	2,666,221

Segment income:
North America Confectionery		$	887,750	$	781,885
North America Salty Snacks		46,792		21,301
International		55,049		41,979
Total segment income		989,591		845,165
Unallocated corporate expense (1)		177,074		150,273
Unallocated mark-to-market losses (gains) on commodity derivatives		10,244		(27,379)

Costs associated with business realignment activities (see Note 9)		2,349		1,281


Operating profit		799,924		720,990
Interest expense, net (see Note 4)		37,685		33,179
Other (income) expense, net (see Note 17)		2,983		10,407
Income before income taxes		$	759,256	$	677,404

(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, (d) acquisition-related costs, and (e) other gains or losses that are not integral to segment performance.

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Net sales:
North America $ 1,792,377
$ 1,764,528
$ 4,946,537
$ 4,842,840
International and Other 240,744
238,926
629,253
627,097
Total $ 2,033,121
$ 2,003,454
$ 5,575,790
$ 5,469,937

Segment income (loss):
North America $ 554,578
$ 563,946
$ 1,568,098
$ 1,519,059
International and Other 16,400
4,284
26,491
(12,411 )
Total segment income 570,978
568,230
1,594,589
1,506,648
Unallocated corporate expense (1) 124,115
121,828
366,938
370,622
Unallocated mark-to-market (gains) losses on commodity derivatives (21,954 ) 35,791
(27,486 ) 30,851
Long-lived asset impairment charges —
—
208,712
—
Costs associated with business realignment activities 8,257
27,962
69,699
104,487
Non-service related pension expense 21,540
6,360
30,123
20,666
Acquisition and integration costs —
2,265
311
3,727
Operating profit 439,020
374,024
946,292
976,295
Interest expense, net 24,589
24,387
72,456
66,730
Other (income) expense, net 13,630
21,800
23,557
8,703
Income before income taxes $ 400,801
$ 327,837
$ 850,279
$ 900,862

~~(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~~adjustment for commodity derivatives is as follows:

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Net losses on mark-to-market valuation of commodity derivative positions recognized in income $ 2,445
$ 37,246
$ 40,500
$ 37,176
Net losses on commodity derivative positions reclassified from unallocated to segment income (24,399 ) (1,455 ) (67,986 ) (6,325 )
Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative (gains) losses $ (21,954 ) $ 35,791
$ (27,486 ) $ 30,851


	Three Months Ended
		April 2, 2023		April 3, 2022
Net losses (gains) on mark-to-market valuation of commodity derivative positions recognized in income		$	10,614	$	(50,825)
Net (losses) gains on commodity derivative positions reclassified from unallocated to segment income		(370)		23,446
Net losses (gains) on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative (gains) losses		$	10,244	$	(27,379)

As of ~~October 1, 2017,~~April 2, 2023, the cumulative amount of mark-to-market ~~losses~~gains on commodity derivatives that have been recognized in our consolidated cost of sales and not yet allocated to reportable segments was ~~$135,538.~~$1,511. Based on our forecasts of the timing of the recognition of the underlying hedged items, we expect to reclassify net pre-tax ~~losses~~gains on commodity derivatives of ~~$93,814~~$14,874 to segment operating results in the next twelve months.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 25

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL ~~STATEMENTS~~STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

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


	Three Months Ended
		April 2, 2023			April 3, 2022
North America Confectionery		$	56,722		$	55,908
North America Salty Snacks				17,580			16,679
International		6,058			5,660
Corporate		17,839			12,789
Total		$	98,199		$	91,036

Additional information regarding our net sales disaggregated by geographical region is as follows:


	Three Months Ended
		April 2, 2023			April 3, 2022
Net sales:
United States			$	2,617,923		$	2,340,646
All other countries			369,691			325,575
Total			$	2,987,614		$	2,666,221

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
North America $ 42,544
$ 41,592
$ 125,532
$ 120,378
International and Other 9,397
13,515
32,110
37,523
Corporate (1) 10,293
30,015
36,671
84,000
Total $ 62,234
$ 85,122
$ 194,313
$ 241,901


~~(1)~~	Corporate includes non-cash asset-related accelerated depreciation and amortization related to business realignment activities, as discussed in Note 7. Such amounts are not included within our measure of segment income.

~~12.~~14. TREASURY STOCK ACTIVITY

A summary of our treasury stock activity is as follows:


	Three Months Ended
	April 2, 2023
	Shares	Dollars
		In thousands

Milton Hershey School Trust repurchase	1,000,000	$	239,910


Shares issued for stock options and incentive compensation	(408,873)	(17,013)
Total net share repurchases	591,127	222,897
Excise tax associated with net share repurchases (1)	—	2,229
Net change	591,127	$	225,126

Nine Months Ended October 1, 2017
Shares Dollars
In thousands
Shares repurchased in the open market under pre-approved share repurchase programs —
$ —
Milton Hershey School Trust repurchase 1,500,000
159,015
Shares repurchased to replace Treasury Stock issued for stock options and incentive compensation 1,278,675
141,297
Total share repurchases 2,778,675
300,312
Shares issued for stock options and incentive compensation (1,187,883 ) $ (49,426 )
Net change 1,590,792
$ 250,886

(1)A corresponding liability for excise tax associated with net share repurchases is classified on our Consolidated Balance Sheets within accrued liabilities.

In ~~August 2017,~~February 2023, the Company entered into a Stock Purchase Agreement with Hershey Trust Company, as trustee for the Milton Hershey School Trust (the ~~“Trust”~~“School Trust”), pursuant to which the Company ~~agreed to purchase 1,500,000~~purchased 1,000,000 shares of the Company’s ~~common stock~~Common Stock from the School Trust at a price equal to ~~$106.01~~$239.91 per share, for a total purchase price of ~~$159,015.~~$239,910.

In ~~January 2016,~~February 2022, the Company entered into a Stock Purchase Agreement with Hershey Trust Company, as trustee for the School Trust, pursuant to which the Company purchased 1,000,000 shares of the Company’s Common Stock from the School Trust at a price equal to $203.35 per share, for a total purchase price of $203,350.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 26

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

In July 2018, our Board of Directors approved a ~~$500,000~~$500 million share repurchase authorization to repurchase shares of our Common Stock. ~~As of October 1, 2017, $100,000 remained available for repurchases of our Common Stock under this program.~~ In ~~October 2017,~~May 2021, our Board of Directors approved an additional ~~$100,000~~$500 million share repurchase authorization. As a result of the February 2023 Stock Purchase Agreement with Hershey Trust Company, as trustee for the School Trust, the July 2018 share repurchase authorization ~~to commence after the existing 2016 authorization is completed.~~was completed and as of April 2, 2023, approximately $370 million remains available for repurchases under our May 2021 share repurchase authorization. We are authorized to purchase our outstanding shares in open market and privately negotiated transactions. The ~~programs have~~program has no expiration date and acquired shares of Common Stock will be held as treasury shares. Purchases under approved share repurchase authorizations are in addition to our practice of buying back shares sufficient to offset those issued under incentive compensation plans.

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

~~13. NONCONTROLLING INTEREST~~

We currently own a 50% controlling interest in Lotte Shanghai Foods Co., Ltd. (“LSFC”), a joint venture established in 2007 in China for the purpose of manufacturing and selling product to the venture partners.

~~A roll-forward showing the 2017 activity relating to the noncontrolling interest follows:~~

Noncontrolling Interest
Balance, December 31, 2016 $ 41,831
Net loss attributable to noncontrolling interest (26,860 )
Other comprehensive income - foreign currency translation adjustments 735
Balance, October 1, 2017 $ 15,706
15. CONTINGENCIES

The 2017 net loss attributable to the noncontrolling interest reflects the 50% allocation of LSFC-related business realignment and impairment costs (see Note 7). For the nine months ended October 2, 2016, the net loss attributable to noncontrolling interests totaled $798, which was presented within selling, marketing and administrative expense in the Consolidated Statements of Income since the amount was not considered significant.

~~14. CONTINGENCIES~~

~~We are~~Company is subject to ~~various pending or threatened~~certain legal proceedings and claims ~~that arise in~~arising out of the ordinary course of our ~~business.~~business, which cover a wide range of matters including trade regulation, product liability, advertising, contracts, environmental issues, patent and trademark matters, labor and employment matters, human and workplace rights matters and tax. While it is not feasible to predict or determine the outcome of such proceedings and claims with certainty, in our opinion these matters, both individually and in the aggregate, are not expected to have a material effect on our financial condition, results of operations or cash flows.

~~15.~~


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 27

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

16. EARNINGS PER SHARE

We compute basic earnings per share for Common Stock and Class B common stock using the two-class method. The Class B common stock is convertible into Common Stock on a share-for-share basis at any time. ~~With respect to dividend rights, the Common Stock holders are entitled to cash dividends 10% higher than those declared and paid on the Class B common stock.~~ The computation of diluted earnings per share for Common Stock assumes the conversion of Class B common stock using the if-converted method, while the diluted earnings per share of Class B common stock does not assume the conversion of those shares.


	Three Months Ended
	April 2, 2023				April 3, 2022
	Common Stock		Class B Common Stock		Common Stock		Class B Common Stock
Basic earnings per share:
Numerator:
Allocation of distributed earnings (cash dividends paid)	$	153,555	$	53,801	$	132,260	$	48,824
Allocation of undistributed earnings	281,044		98,785		257,226		95,168
Total earnings—basic	$	434,599	$	152,586	$	389,486	$	143,992

Denominator (shares in thousands):
Total weighted-average shares—basic	147,746		57,114		146,464		59,614

Earnings Per Share—basic	$	2.94	$	2.67	$	2.66	$	2.42

Diluted earnings per share:
Numerator:
Allocation of total earnings used in basic computation	$	434,599	$	152,586	$	389,486	$	143,992
Reallocation of total earnings as a result of conversion of Class B common stock to Common stock	152,586		—		143,992		—
Reallocation of undistributed earnings	—		(481)		—		(562)
Total earnings—diluted	$	587,185	$	152,105	$	533,478	$	143,430

Denominator (shares in thousands):
Number of shares used in basic computation	147,746		57,114		146,464		59,614
Weighted-average effect of dilutive securities:
Conversion of Class B common stock to Common shares outstanding	57,114		—		59,614		—
Employee stock options	503		—		599		—
Performance and restricted stock units	474		—		593		—
Total weighted-average shares—diluted	205,837		57,114		207,270		59,614

Earnings Per Share—diluted	$	2.85	$	2.66	$	2.57	$	2.41

The earnings per share calculations for the three months ended April 2, 2023 and April 3, 2022 excluded 8 and 4 stock options (in thousands), respectively, that would have been antidilutive.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 28

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL ~~STATEMENTS~~STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

~~We compute basic and diluted earnings per share based on the weighted-average number of shares of Common Stock and Class B common stock outstanding as follows:~~

Three Months Ended
October 1, 2017 October 2, 2016
Common Stock Class B Common Stock Common Stock Class B Common Stock
Basic earnings per share:
Numerator:
Allocation of distributed earnings (cash dividends paid) $ 99,588
$ 36,129
$ 94,498
$ 34,068
Allocation of undistributed earnings 100,892
36,694
72,691
26,146
Total earnings—basic $ 200,480
$ 72,823
$ 167,189
$ 60,214

Denominator (shares in thousands):
Total weighted-average shares—basic 151,418
60,620
153,259
60,620

Earnings Per Share—basic $ 1.32
$ 1.20
$ 1.09
$ 0.99

Diluted earnings per share:
Numerator:
Allocation of total earnings used in basic computation $ 200,480
$ 72,823
$ 167,189
$ 60,214
Reallocation of total earnings as a result of conversion of Class B common stock to Common stock 72,823
—
60,214
—
Reallocation of undistributed earnings —
(239 ) —
(160 )
Total earnings—diluted $ 273,303
$ 72,584
$ 227,403
$ 60,054

Denominator (shares in thousands):
Number of shares used in basic computation 151,418
60,620
153,259
60,620
Weighted-average effect of dilutive securities:
Conversion of Class B common stock to Common shares outstanding 60,620
—
60,620
—
Employee stock options 1,002
—
1,062
—
Performance and restricted stock units 352
—
220
—
Total weighted-average shares—diluted 213,392
60,620
215,161
60,620

Earnings Per Share—diluted $ 1.28
$ 1.20
$ 1.06
$ 0.99

The earnings per share calculations for the three months ended October 1, 2017 and October 2, 2016 excluded 2,374 and 2,921, respectively, of stock options (in thousands) that would have been antidilutive.

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(amounts in thousands, except share data or if otherwise indicated)~~

Nine Months Ended
October 1, 2017 October 2, 2016
Common Stock Class B Common Stock Common Stock Class B Common Stock
Basic earnings per share:
Numerator:
Allocation of distributed earnings (cash dividends paid) $ 287,580
$ 104,265
$ 273,380
$ 98,326
Allocation of undistributed earnings 154,128
55,875
170,458
61,027
Total earnings—basic $ 441,708
$ 160,140
$ 443,838
$ 159,353

Denominator (shares in thousands):
Total weighted-average shares—basic 152,004
60,620
153,943
60,620

Earnings Per Share—basic $ 2.91
$ 2.64
$ 2.88
$ 2.63

Diluted earnings per share:
Numerator:
Allocation of total earnings used in basic computation $ 441,708
$ 160,140
$ 443,838
$ 159,353
Reallocation of total earnings as a result of conversion of Class B common stock to Common stock 160,140
—
159,353
—
Reallocation of undistributed earnings —
(401 ) —
(347 )
Total earnings—diluted $ 601,848
$ 159,739
$ 603,191
$ 159,006

Denominator (shares in thousands):
Number of shares used in basic computation 152,004
60,620
153,943
60,620
Weighted-average effect of dilutive securities:
Conversion of Class B common stock to Common shares outstanding 60,620
—
60,620
—
Employee stock options 1,165
—
1,013
—
Performance and restricted stock units 334
—
182
—
Total weighted-average shares—diluted 214,123
60,620
215,758
60,620

Earnings Per Share—diluted $ 2.81
$ 2.64
$ 2.80
$ 2.62

The earnings per share calculations for the nine months ended October 1, 2017 and October 2, 2016 excluded 2,374 and 3,680, respectively, of stock options (in thousands) that would have been antidilutive.

~~16.~~17. OTHER (INCOME) EXPENSE, NET

Other (income) expense, net reports certain gains and losses associated with activities not directly related to our core operations. A summary of the components of other (income) expense, net is as follows:


	Three Months Ended
		April 2, 2023		April 3, 2022
Write-down of equity investments in partnerships qualifying for historic and renewable energy tax credits (see Note 8)		$	—	$	12,592
Non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans (see Note 11)		3,211		(2,182)

Other (income) expense, net		(228)		(3)
Total		$	2,983	$	10,407


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 29

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Write-down of equity investments in partnerships qualifying for tax credits $ 13,736
$ 20,801
$ 23,999
$ 35,862
Settlement of SGM liability (see Note 2) —
—
—
(26,650 )
Other (income) expense, net (106 ) 999
(442 ) (509 )
Total $ 13,630
$ 21,800
$ 23,557
$ 8,703

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL ~~STATEMENTS~~STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

~~17.~~18. SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of certain asset accounts included within our Consolidated Balance ~~Sheet accounts~~Sheets are as follows:


	April 2, 2023		December 31, 2022
Inventories:
Raw materials	$	417,847	$	372,612
Goods in process	186,448		137,298
Finished goods	851,724		855,217
Inventories at First In First Out	1,456,019		1,365,127
Adjustment to Last In First Out	(275,652)		(192,008)
Total inventories	$	1,180,367	$	1,173,119

Prepaid expenses and other:
Prepaid expenses	$	112,492	$	143,888

Other current assets	116,054		128,307
Total prepaid expenses and other	$	228,546	$	272,195

Property, plant and equipment:
Land	$	156,401	$	155,963
Buildings	1,546,676		1,545,053
Machinery and equipment	3,606,174		3,592,251
Construction in progress	512,450		416,220
Property, plant and equipment, gross	5,821,701		5,709,487
Accumulated depreciation	(2,999,463)		(2,939,785)
Property, plant and equipment, net	$	2,822,238	$	2,769,702

Other non-current assets:
Pension	$	53,463	$	53,495
Capitalized software, net	330,035		320,034

Operating lease ROU assets	321,284		326,472
Investments in unconsolidated affiliates	145,338		133,029
Other non-current assets	114,873		111,959
Total other non-current assets	$	964,993	$	944,989


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 30

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in thousands, except share data or if otherwise indicated)

October 1, 2017 December 31, 2016
Inventories:
Raw materials $ 292,976
$ 315,239
Goods in process 102,292
88,490
Finished goods 724,754
528,587
Inventories at FIFO 1,120,022
932,316
Adjustment to LIFO (181,835 ) (186,638 )
Total inventories $ 938,187
$ 745,678

Property, plant and equipment:
Land $ 108,173
$ 103,865
Buildings 1,200,194
1,238,634
Machinery and equipment 2,910,916
3,001,552
Construction in progress 191,805
230,987
Property, plant and equipment, gross 4,411,088
4,575,038
Accumulated depreciation (2,360,964 ) (2,397,790 )
Property, plant and equipment, net $ 2,050,124
$ 2,177,248

Other assets:
Capitalized software, net $ 99,329
$ 95,301
Income tax receivable —
1,449
Other non-current assets 75,282
71,615
Total other assets $ 174,611
$ 168,365

Accrued liabilities:
Payroll, compensation and benefits $ 181,167
$ 240,080
Advertising and promotion 320,788
358,573
Other 171,480
152,333
Total accrued liabilities $ 673,435
$ 750,986

Other long-term liabilities:
Post-retirement benefits liabilities $ 213,986
$ 220,270
Pension benefits liabilities 67,681
65,687
Other 120,729
114,204
Total other long-term liabilities $ 402,396
$ 400,161

Accumulated other comprehensive loss:
Foreign currency translation adjustments $ (83,470 ) $ (110,613 )
Pension and post-retirement benefit plans, net of tax (197,095 ) (207,169 )
Cash flow hedges, net of tax (56,462 ) (58,106 )
Total accumulated other comprehensive loss $ (337,027 ) $ (375,888 )


The components of certain liability and stockholders’ equity accounts included within our Consolidated Balance Sheets are as follows:
	April 2, 2023		December 31, 2022
Accounts payable:
Accounts payable—trade	$	697,433	$	636,472
Supplier finance program obligations	120,277		105,293
Other	187,197		228,793
Total accounts payable	$	1,004,907	$	970,558

Accrued liabilities:
Payroll, compensation and benefits	$	179,912	$	293,865
Advertising, promotion and product allowances	374,853		337,024
Operating lease liabilities	32,842		31,787

Other	192,588		169,842
Total accrued liabilities	$	780,195	$	832,518

Other long-term liabilities:
Post-retirement benefits liabilities	$	143,746	$	147,174
Pension benefits liabilities	25,776		27,696
Operating lease liabilities	289,351		294,849
Other	253,270		250,023
Total other long-term liabilities	$	712,143	$	719,742

Accumulated other comprehensive loss:
Foreign currency translation adjustments	$	(101,424)	$	(110,364)
Pension and post-retirement benefit plans, net of tax	(115,781)		(118,254)
Cash flow hedges, net of tax	(20,802)		(23,715)
Total accumulated other comprehensive loss	$	(238,007)	$	(252,333)


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 31

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ~~OPERATIONS.~~OPERATIONS

This ~~Management's~~Management’s Discussion and Analysis (“MD&A”) is intended to provide an understanding of ~~Hershey's~~Hershey’s financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. The MD&A should be read in conjunction with our Unaudited Consolidated Financial Statements and accompanying notes. This discussion contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially. Refer to the Safe Harbor Statement below as well as the Risk Factors and other information contained in our ~~2016~~2022 Annual Report on Form 10-K for information concerning the key risks to achieving future performance goals.

The MD&A is organized in the following sections:

•Overview ~~and Outlook~~

~~Non-GAAP Information~~•Trends Affecting Our Business

•Consolidated Results of Operations

•Segment Results

•Liquidity and Capital Resources

•Safe Harbor Statement

~~The Overview~~

OVERVIEW

Hershey is a global confectionery leader known for making more moments of goodness through chocolate, sweets, mints and ~~Outlook presented below is an executive-level summary highlighting~~other great tasting snacks. We are the ~~key trends and measures on which the Company’s management focuses~~largest producer of quality chocolate in ~~evaluating its financial condition and operating performance. Certain earnings and performance measures within the Overview and Outlook include financial information determined on~~North America, a non-GAAP basis, which aligns with how management internally evaluates the Company's results of operations, determines incentive compensation, and assesses the impact of known trends and uncertainties on the business. A detailed reconciliation of the non-GAAP financial measures referenced herein to their nearest comparable GAAP financial measures follows this summary. For a detailed analysis of the Company's operations prepared in accordance with accounting principles generally acceptedleading snack maker in the United States ~~of America ("GAAP"~~(“U.S.”) and a global leader in chocolate and non-chocolate confectionery. We market, sell and distribute our products under more than 100 brand names in approximately 80 countries worldwide.

Our principal product offerings include chocolate and non-chocolate confectionery products; gum and mint refreshment products and protein bars; pantry items, such as baking ingredients, toppings and beverages; and snack items such as spreads, bars, and snack bites and mixes, popcorn and pretzels.

Business Acquisitions

On April 14, 2023, we entered into a definitive agreement to acquire certain assets that provide additional manufacturing capacity from Weaver Popcorn Manufacturing, Inc., ~~referred to as "reported" herein, refer to the discussion and analysis~~a leader in the ~~Consolidated Results~~production and co-packing of ~~Operations.~~

~~OVERVIEW AND OUTLOOK~~

~~Our third quarter 2017 net sales totaled $2,033.1 million, an increase~~microwave popcorn and ready-to-eat popcorn, and a co-manufacturer of ~~1.5%, versus $2,003.5 million for~~ the ~~comparable period of 2016. Excluding a 0.4% impact from favorable foreign exchange rates, our net sales increased 1.1%. Net sales growth was driven by~~Company’s SkinnyPop brand. Through the ~~North America segment, which benefited from core brand growth~~transaction, the Company will mainly acquire property, plant and ~~innovation, including~~ ~~Hershey's Cookie Layer Crunch, and the launch of~~ ~~Hershey's~~ ~~and~~ ~~Reese's~~ ~~Popped Snack Mix and Chocolate Dipped Pretzels.~~

Our reported gross margin was 46.2% in the third quarter of 2017, an increase of 370 basis points compared to the third quarter of 2016. Our non-GAAP gross margin decreased 30 basis points in the third quarter of 2017, with the benefits from supply chain productivity and cost savings initiatives,equipment, as well as ~~lower input costs, being more than offset by higher freight rates~~leased manufacturing facilities in Indiana and ~~increased levels of manufacturing and distribution costs associated with an effort to maintain customer service targets at fast growing retail customers.~~

~~Our third quarter 2017 reported net income and earnings per share-diluted (EPS)~~Pennsylvania. The purchase consideration totaled ~~$273.3~~approximately $164 million and $1.28, respectively, compared to the third quarter 2016 reported net income and EPS-diluted of $227.4 million and $1.06, respectively. From a non-GAAP perspective, third quarter 2017 adjusted net income was $283.6 million, an increase of 2.3% versus $277.3 million in 2016. Our adjusted EPS-diluted for the third quarter of 2017 was $1.33 compared to $1.29 for the same period of 2016, with this 3.1% increase attributable to the same factors driving the increase in non-GAAP net income.

Over the remainder of the year, our outlook remains unchanged and we are focused on executing the priorities we outlined earlier this year. Our seasonal business and programs are on track and the upcoming launch of ~~Hershey's Gold, a caramelized creme with peanuts and pretzels, should enable us to deliver on our objectives.~~

~~We currently estimate that full-year 2017 net sales growth~~ will be ~~approximately 1.25%.~~financed with cash on hand and short-term borrowings. The ~~impact of foreign currency exchange rates~~acquisition is subject to customary regulatory approvals and is expected to ~~be minimal versus~~close during the second quarter of 2023.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 32

TRENDS AFFECTING OUR BUSINESS

Demand for consumer goods has remained strong during the first three months of 2023, with continued positive consumer patterns identified for our products; however, negative macroeconomic conditions, including inflation on inputs to consumer products, labor shortages and demand outpacing supply, have resulted in continued broad-based supply chain disruptions across the U.S. and globally. As a ~~prior estimate of 0.25% unfavorable impact. We currently expect full-year 2017 reported EPS-diluted~~result, we continued to ~~be in the $3.54 to $3.68 range. From a non-GAAP perspective, we~~

~~expect 2017 adjusted EPS-diluted to be towards the high end of our outlook of $4.72 to $4.81, an increase of 7% to 9%, primarily due to strong productivity~~experience corresponding incremental costs and cost savings initiatives, as well as a lower effective tax rate. The reduction in our full-year 2017 effective tax rate is primarily driven by a favorable foreign rate differential and benefit from tax credits, as well as the adoption of ASU 2016-09 for the accounting of employee share-based payments. A reconciliation of reported to adjusted projections for 2017 are reflected in the non-GAAP reconciliations that follow.

~~NON-GAAP INFORMATION~~

The comparability of certain of our financial measures is impacted by unallocated mark-to-market (gains) losses on commodity derivatives, costs associated with business realignment activities, costs relating to the integration of acquisitions, non-service related components of our pension expense ("NSRPE"), impairment of long-lived assets, and settlement of the SGM liability in conjunction with the purchase of the remaining 20% of the outstanding shares of SGM.

To provide additional information to investors to facilitate the comparison of past and present performance, we use non-GAAP financial measures within MD&A that exclude the financial impact of these activities. These non-GAAP financial measures are used internally by management in evaluating results of operations and determining incentive compensation, and in assessing the impact of known trends and uncertainties on our business, but they are not intended to replace the presentation of financial results in accordance with GAAP. A reconciliation of the non-GAAP financial measures referenced in MD&A to their nearest comparable GAAP financial measures as presented in the Consolidated Statements of Income is provided below.

Reconciliation of Certain Non-GAAP Financial Measures
Consolidated results Three Months Ended Nine Months Ended
In thousands except per share data October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Reported gross profit $ 940,222
$ 850,848
$ 2,609,992
$ 2,415,622
Derivative mark-to-market (gains) losses (21,954 ) 35,791
(27,486 ) 30,851
Business realignment activities 213
24,470
6,475
57,948
NSRPE 2,779
2,620
8,344
9,132
Non-GAAP gross profit $ 921,260
$ 913,729
$ 2,597,325
$ 2,513,553

Reported operating profit $ 439,020
$ 374,024
$ 946,292
$ 976,295
Derivative mark-to-market (gains) losses (21,954 ) 35,791
(27,486 ) 30,851
Business realignment activities 8,257
27,962
69,699
104,487
Acquisition integration costs —
2,265
311
3,727
NSRPE 21,540
6,360
30,123
20,666
Long-lived asset impairment charges —
—
208,712
—
Non-GAAP operating profit $ 446,863
$ 446,402
$ 1,227,651
$ 1,136,026

Reported provision for income taxes $ 126,788
$ 100,434
$ 275,291
$ 297,671
Derivative mark-to-market (gains) losses * (3,078 ) 13,566
(2,726 ) 11,694
Business realignment activities* 1,112
5,576
18,312
16,409
Acquisition integration costs* —
859
118
1,413
NSRPE* 8,171
2,432
11,440
7,900
Long-lived asset impairment charges** (8,710 ) —
29,264
—
Non-GAAP provision for income taxes $ 124,283
$ 122,867
$ 331,699
$ 335,087

Reported net income $ 273,303
$ 227,403
$ 601,848
$ 603,191
Derivative mark-to-market (gains) losses (18,876 ) 22,225
(24,760 ) 19,157
Business realignment activities 7,145
22,386
51,387
88,073
Acquisition integration costs —
1,406
193
2,314
NSRPE 13,369
3,928
18,683
12,766
Long-lived asset impairment charges 8,710
—
179,448
—
Noncontrolling interest share of business realignment and impairment charges (5 ) —
(27,967 ) —
Settlement of SGM liability —
—
—
(26,650 )
Non-GAAP net income $ 283,646
$ 277,348
$ 798,832
$ 698,851

Reported EPS - Diluted $ 1.28
$ 1.06
$ 2.81
$ 2.80
Derivative mark-to-market (gains) losses (0.08 ) 0.10
(0.11 ) 0.09
Business realignment activities 0.03
0.10
0.24
0.40
Acquisition integration costs —
0.01
—
0.01
NSRPE 0.06
0.02
0.08
0.06
Long-lived asset impairment charges 0.04
—
0.84
—
Noncontrolling interest share of business realignment and impairment charges —
—
(0.13 ) —
Settlement of SGM liability —
—
—
(0.12 )
Non-GAAP EPS - Diluted $ 1.33
$ 1.29
$ 3.73
$ 3.24

* The tax effect for each adjustment is determined by calculating the tax impact of the adjustment on the Company's quarterly effective tax rate.

** There were no pre-tax impairment charges associated with long-lived assetsgross margin pressures during the three months ended ~~October 1, 2017.~~April 2, 2023 (see Results of Operations included in this MD&A). We are continuing to work closely with our business units, contract manufacturers, distributors, contractors and other external business partners to minimize the potential impact on our business.

In addition to broad-based supply chain disruptions, certain geopolitical events, specifically the conflict between Russia and Ukraine, have increased global economic and political uncertainty. For the three months ended April 2, 2023, this conflict did not have a material impact on our commodity prices or supply availability. However, we are continuing to monitor for any significant escalation or expansion of economic or supply chain disruptions or broader inflationary costs, which may result in material adverse effects on our results of operations.

Net sales and net income increased during the ~~long-lived asset impairment charge~~three months ended April 2, 2023, which was primarily driven by strong everyday performance on our core U.S. confection brands and salty snack brands (see Segment Results included in this MD&A), partially offset by the aforementioned supply chain disruptions and gross margin pressures. As of April 2, 2023, we believe we have sufficient liquidity to satisfy our key strategic initiatives and other material cash requirements in both the short-term and in the long-term; however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can operate effectively during the current economic environment. We continue to monitor our discretionary spending across the organization (see Liquidity and Capital Resources included in this MD&A).

Based on the length and severity of broad-based supply chain disruptions, fluctuating levels of inflation, changes in consumer shopping and consumption behavior, and the conflict between Russia and Ukraine, we may experience increasing supply chain costs and higher inflation. We will continue to evaluate the nature and extent of these potential and evolving impacts on our business, consolidated results of operations, segment results, liquidity and capital resources.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 33

CONSOLIDATED RESULTS OF OPERATIONS


	Three Months Ended
		April 2, 2023			April 3, 2022			Percent Change
In millions of dollars except per share amounts
Net sales		$	2,987.6		$	2,666.2		12.1	%
Cost of sales		1,605.3			1,420.7			13.0	%
Gross profit		1,382.3			1,245.5			11.0	%
Gross margin		46.3		%	46.7		%
Selling, marketing & administrative (“SM&A”) expenses		581.6			524.2			10.9	%
SM&A expense as a percent of net sales		19.5		%	19.7		%

Business realignment activities		0.8			0.3			196.0	%
Operating profit		799.9			721.0			10.9	%
Operating profit margin		26.8		%	27.0		%
Interest expense, net		37.7			33.2			13.6	%
Other (income) expense, net		2.9			10.4			(71.3)	%
Provision for income taxes		172.1			143.9			19.6	%
Effective income tax rate		22.7%			21.2%


Net income		$	587.2		$	533.5		10.1	%
Net income per share—diluted		$	2.85		$	2.57		10.9	%

NOTE: Percentage changes may not compute directly as shown due to rounding of amounts presented above.
NM = not meaningful

Results of Operations - First Quarter 2023 vs. First Quarter 2022

Net Sales

Net sales increased 12.1% in the first quarter of 2017 was not treated as a discrete tax item. Therefore, the tax impact was included in the estimated annual effective tax rate resulting in an EPS-diluted impact for each of the quarters throughout 2017.

~~In the assessment of our results, we review and discuss the following financial metrics that are derived from the reported and non-GAAP financial measures presented above:~~

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
As reported gross margin 46.2 % 42.5 % 46.8 % 44.2 %
Non-GAAP gross margin (1) 45.3 % 45.6 % 46.6 % 46.0 %

As reported operating profit margin 21.6 % 18.7 % 17.0 % 17.8 %
Non-GAAP operating profit margin (2) 22.0 % 22.3 % 22.0 % 20.8 %

As reported effective tax rate 31.6 % 30.6 % 32.4 % 33.0 %
Non-GAAP effective tax rate (3) 30.4 % 30.7 % 29.3 % 32.4 %


~~(1)~~	~~Calculated as non-GAAP gross profit as a percentage of net sales for each period presented.~~


~~(2)~~	~~Calculated as non-GAAP operating profit as a percentage of net sales for each period presented.~~


~~(3)~~	Calculated as non-GAAP provision for income taxes as a percentage of non-GAAP income before taxes (calculated as non-GAAP operating profit minus non-GAAP interest expense, net plus or minus non-GAAP other (income) expense, net).

~~Details of the activities impacting comparability that are presented as reconciling items to derive the non-GAAP financial measures in the tables above are as follows:~~

~~Mark-to-market (gains) losses on commodity derivatives~~

Commensurate with our discontinuance of hedge accounting treatment for commodity derivatives, we are adjusting the mark-to-market losses (gains) on such commodity derivatives, until such time as the related inventory is sold. Since we often purchase commodity contracts to price inventory requirements in future years, we make this adjustment to facilitate the year-over-year comparison of cost of sales on a basis that matches the derivative gains and losses with the underlying economic exposure being hedged for the period. For the three months ended October 1, 2017 and October 2, 2016, the net unallocated mark-to-market adjustment on commodity derivatives totaled pre-tax gains of $22.0 million and losses of $35.8 million, respectively. For the nine months ended October 1, 2017 and October 2, 2016, the net unallocated mark-to-market adjustment on commodity derivatives totaled pre-tax gains of $27.5 million and losses of $30.9 million, respectively.

~~Business realignment activities~~

We periodically undertake restructuring and cost reduction activities as part of ongoing efforts to enhance long-term profitability. For the three months ended October 1, 2017 and October 2, 2016, we incurred $8.3 million and $28.0 million, respectively, of pre-tax costs related to business realignment activities. For the nine months ended October 1, 2017 and October 2, 2016, we incurred $69.7 million and $104.5 million, respectively, of pre-tax costs related to business realignment activities. See Note 7 to the Consolidated Financial Statements for more information.

~~Acquisition integration costs~~

Costs incurred during the three and nine months ended October 1, 2017 and 2016 relate to the integration of the 2016 acquisition of Ripple Brand Collective, LLC as we incorporate this business into our operating practices and information systems.

~~Non-service related pension expense~~

NSRPE includes interest costs, the expected return on pension plan assets, the amortization of actuarial gains and losses, and certain curtailment and settlement losses or credits. NSRPE can fluctuate from year to year as a result of changes in market interest rates and market returns on pension plan assets. We believe that the service cost component of our total pension benefit costs closely reflects the operating costs of our business and provides for a better comparison of our operating results from year to year. Therefore, we exclude NSRPE from our internal performance measures. Our most significant defined benefit pension plans have been closed to new participants for a number of years, resulting in ongoing service costs that are stable and predictable. We recorded pre-tax NSRPE of $21.5 million and $6.4 million, respectively, for the three months ended October 1, 2017 and October 2, 2016, respectively. We recorded pre-tax NSRPE of $30.1 million and $20.7 million, respectively, for the nine months ended October 1, 2017 and October 2, 2016, respectively.

~~Long-lived asset impairment charges~~

For the nine months ended October 1, 2017, we incurred $208.7 million of pre-tax long-lived asset impairment charges related to certain business realignment activities. This includes a write-down of certain intangible assets that had been recognized in connection with the 2014 SGM acquisition and write-down of property, plant and equipment. See Note 7 to the Consolidated Financial Statements for more information.

~~Noncontrolling interest share of business realignment and impairment charges~~

Certain of the business realignment and impairment charges recorded in connection with the Margin for Growth Program related to Lotte Shanghai Foods Co., Ltd., a joint venture in which we own a 50% controlling interest. Therefore, we have also adjusted for the portion of these charges included within the loss attributed to the non-controlling interest.

~~Settlement of SGM liability~~

In the fourth quarter of 2015, we reached an agreement with the SGM selling shareholders to reduce the originally-agreed purchase price for the remaining 20% of SGM, and we completed the purchase on February 3, 2016. In the first quarter of 2016, we recorded a $26.7 million gain relating to the settlement of the SGM liability, representing the net carrying amount of the recorded liability in excess of the cash paid to settle the obligation for the remaining 20% of the outstanding shares.

~~Constant Currency Net Sales Growth~~

We present certain percentage changes in net sales on a constant currency basis, which excludes the impact of foreign currency exchange. This measure is used internally by management in evaluating results of operations and determining incentive compensation. We believe that this measure provides useful information to investors because it provides transparency to underlying performance in our net sales by excluding the effect that foreign currency exchange rate fluctuations have on the year-to-year comparability given volatility in foreign currency exchange markets.

To present this information for historical periods, current period net sales for entities reporting in other than the U.S. dollar are translated into U.S. dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rates in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.

~~A reconciliation between reported and constant currency growth rates is provided below:~~

Three Months Ended October 1, 2017
Percentage Change as Reported Impact of Foreign Currency Exchange Percentage Change on Constant Currency Basis
North America segment
Canada 12.1 % 4.6 % 7.5 %
Total North America segment 1.6 % 0.3 % 1.3 %

International and Other segment
Mexico 15.5 % 5.9 % 9.6 %
Brazil 6.4 % 3.1 % 3.3 %
India 20.9 % 4.9 % 16.0 %
Greater China (7.3 )% (0.2 )% (7.1 )%
Total International and Other segment 0.8 % 1.3 % (0.5 )%

Total Company 1.5 % 0.4 % 1.1 %

Nine Months Ended October 1, 2017
Percentage Change as Reported Impact of Foreign Currency Exchange Percentage Change on Constant Currency Basis
North America segment
Canada 8.3 % 1.0 % 7.3 %
Total North America segment 2.1 % — % 2.1 %

International and Other segment
Mexico 9.4 % (3.7 )% 13.1 %
Brazil 20.7 % 13.0 % 7.7 %
India 13.9 % 3.0 % 10.9 %
Greater China (11.2 )% (1.6 )% (9.6 )%
Total International and Other segment 0.3 % 0.3 % — %

Total Company 1.9 % — % 1.9 %

~~2017 Outlook~~

The following table provides a reconciliation of projected 2017 EPS-diluted, prepared in accordance with GAAP, to projected non-GAAP EPS-diluted for 2017, prepared on a non-GAAP basis, with adjustments consistent to those discussed previously. The reconciliation of 2016 EPS-diluted, prepared in accordance with GAAP, to 2016 non-GAAP EPS-diluted is provided below for comparison.

2017 (Projected) 2016
Reported EPS – Diluted $3.54 - $3.68 $3.34
Derivative mark-to-market losses — 0.66
Business realignment costs (including Margin for Growth Program costs) 0.16 - 0.21 0.42
Acquisition and integration costs — 0.02
Non-service related pension expense 0.10 0.08
Settlement of SGM liability — (0.12)
Long-lived asset impairment charges 0.87 0.01
Adjusted EPS – Diluted $4.72 - $4.81 $4.41

Our 2017 projected EPS-diluted, as presented above, does not include the impact of mark-to-market gains and losses on our commodity derivative contracts that will be reflected within corporate unallocated expenses in our segment results until the related inventory is sold, since we are not able to forecast the impact of the market changes.

~~CONSOLIDATED RESULTS OF OPERATIONS~~

Three Months Ended Percent Nine Months Ended Percent
October 1, 2017 October 2, 2016 Change October 1, 2017 October 2, 2016 Change
In millions of dollars except per share amounts
Net Sales $ 2,033.1
$ 2,003.5
1.5 % $ 5,575.8
$ 5,469.9
1.9 %
Cost of Sales 1,092.9
1,152.6
(5.2 )% 2,965.8
3,054.3
(2.9 )%
Gross Profit 940.2
850.8
10.5 % 2,610.0
2,415.6
8.0 %
Gross Margin 46.2 % 42.5 % 46.8 % 44.2 %
SM&A Expense 497.2
474.5
4.8 % 1,405.0
1,408.8
(0.3 )%
SM&A Expense as a percent of net sales 24.5 % 23.7 % 25.2 % 25.8 %
Long-lived Asset Impairment Charges —
—
— % 208.7
—
NM
Business Realignment Costs 4.0
2.3
72.5 % 50.0
30.6
63.6 %
Operating Profit 439.0
374.0
17.4 % 946.3
976.3
(3.1 )%
Operating Profit Margin 21.6 % 18.7 % 17.0 % 17.8 %
Interest Expense, Net 24.6
24.4
0.8 % 72.5
66.7
8.6 %
Other (Income) Expense, Net 13.6
21.8
(37.5 )% 23.6
8.7
NM
Provision for Income Taxes 126.8
100.4
26.2 % 275.3
297.7
(7.5 )%
Effective Income Tax Rate 31.6 % 30.6 % 32.4 % 33.0 %
Net Income Including Noncontrolling Interest 274.0
227.4
20.5 % 575.0
603.2
(4.7 )%
Less: Net Gain (Loss) Attributable to Noncontrolling Interest 0.7
—
NM
(26.9 ) —
NM
Net Income Attributable to The Hershey Company $ 273.3
$ 227.4
20.2 % $ 601.8
$ 603.2
(0.2 )%
Net Income Per Share—Diluted $ 1.28
$ 1.06
20.8 % $ 2.81
$ 2.80
0.4 %

Note: Percentage changes may not compute directly as shown due to rounding of amounts presented above.
NM = not meaningful.

~~Results of Operations - Third Quarter 2017 vs. Third Quarter 2016~~

~~Net Sales~~

~~Net sales increased 1.5% in the third quarter of 2017~~2023 compared to the same period of ~~2016,~~2022, reflecting ~~volume increases of 0.7%,~~a favorable price realization of ~~0.4%~~8.9% primarily due to higher list prices, primarily within our North America Confectionery and North America Salty Snacks segments and a ~~favorable~~volume increase of 3.3% driven by increased consumer demand across reportable segments. These increases were partially offset by an unfavorable impact from foreign currency exchange rates of ~~0.4%~~0.1%. Excluding foreign currency, our net sales increased 1.1% in the third quarter of 2017. Consolidated volumes increased as a result of higher sales volume in the North America segment, which benefited from core brand growth and innovation, including ~~Hershey's Cookie Layer Crunch, and the launch of~~ ~~Hershey's~~ ~~and~~ ~~Reese's~~ Popped Snack Mix and Chocolate Dipped Pretzels. These volume increases were partially offset by volume declines in our International and Other segment, where growth, driven by measured investments in Mexico, Brazil and India, was more than offset by declines in China. Favorable net price realization was attributed to higher prices in select markets within our International and Other segment versus the prior year.

Key U.S. ~~CMG~~ Marketplace Metrics

For the 12 week period ended October 8, 2017 October 8, 2016
Hershey's Consumer Takeaway Increase (Decrease) 1.4 % (0.4 )%
Hershey's Market Share Decrease (0.3 ) (0.1 )

For the first quarter of 2023, our total U.S. retail takeaway increased 12.7% in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores), which includes candy, mint, gum, salty snacks and grocery items. Our U.S. candy, mint and gum (“CMG”) consumer takeaway increased 12.3% and experienced a CMG market share decline of approximately 70 basis points.

The CMG consumer takeaway and market share information ~~provided for the twelve week period above are for~~reflects measured channels of distribution accounting for approximately 90% of our U.S. confectionery retail business. These channels of distribution primarily include food, drug, mass merchandisers, and convenience store channels, plus Wal-Mart Stores, Inc., partial dollar, club and military channels. These metrics are based on measured market scanned purchases as reported by ~~Nielsen~~Information Resources, Incorporated (“IRI”), the Company’s market insights and analytics provider, and provide a means to assess our retail takeaway and market position relative to the overall category. In 2017, takeaway improved relative to the prior year mainly driven by core brand growth and innovation. The amounts presented above are solely for the U.S. CMG category which does not include revenue from our snack mixes and grocery items.

Cost of Sales and Gross Margin

Cost of sales ~~decreased 5.2%~~increased 13.0% in the ~~third~~first quarter of ~~2017~~2023 compared to the same period of ~~2016.~~2022. The ~~improvement~~increase was driven by higher sales volume, higher supply chain inflation costs, including higher logistics and labor costs and an incremental ~~$57.7~~$61.4 million ~~favorable impact from marking-to-market~~of unfavorable mark-to-market activity on our commodity derivative instruments intended


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 34

to economically hedge future ~~years'~~years’ commodity ~~purchases, a $24.3 million decrease in business realignment costs,~~purchases. The increase was partially offset by favorable price realization and supply chain ~~productivity and cost savings initiatives. These benefits were offset in part by unfavorable manufacturing variances and higher freight and warehousing costs.~~productivity.

Gross margin ~~increased~~decreased by ~~370~~40 basis ~~points~~points in the ~~third~~first quarter of ~~2017~~2023 compared to the same period of ~~2016. Favorable~~2022. The decrease was driven by unfavorable year-over-year mark-to-market impact from commodity derivative instruments, ~~lower commodity and business realignment costs, and supply chain productivity contributed to the improvement in gross margin. However,~~ higher supply chain inflation costs, ~~partially~~including higher logistics and labor costs, and unfavorable product mix. These declines were offset ~~the increase in gross margin.~~by favorable price realization and volume increases.

~~Selling, Marketing and Administrative~~SM&A Expenses

~~Selling, marketing and administrative (“~~SM~~&A”)~~&A expenses increased ~~$22.7~~$57.4 million, or ~~4.8%~~10.9%, in the ~~third~~first quarter of ~~2017. Advertising and related consumer marketing expense increased 3.7% during this period. Excluding these~~2023 compared to the same period of 2022. Total advertising and related consumer marketing ~~costs, selling~~expenses increased 8.8% driven by advertising increases across reportable segments. SM&A expenses, excluding advertising and ~~administrative expenses for 2017~~related consumer marketing, increased by 5.4% as compared to 2016. SM&A was impacted by pension settlement charges and higher costs associated with business realignment programs and investments in go-to-market capabilities, partially offset by costs savings and efficiency initiatives.

~~Business Realignment Activities~~

In the third quarter of 2017 and 2016, we recorded business realignment costs of $4.0 million and $2.3 million, respectively. The 2017 costs related primarily to severance and other program costs associated with the Margin for Growth Program that commencedapproximately 12.1% in the first quarter of ~~2017. The 2016~~2023 driven by an increase in acquisition and integration related costs, as well as higher compensation costs, investments in capabilities and technology and broad-based marketplace inflation.

Business Realignment Activities

We periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies. In the first quarter of 2023, we recorded $0.8 million business realignment costs versus costs of $0.3 million in the first quarter of 2022 related ~~primarily~~ to the ~~Operational~~International Optimization ~~Program,~~Program. This program is focused on optimizing our China operating model to improve our operational efficiency and provide for a strong, sustainable and simplified base going forward. Costs associated with business realignment activities are classified in our Consolidated Statements of Income as described in Note 79 to the Unaudited Consolidated Financial Statements.

Operating Profit and Operating Profit Margin

Operating profit ~~increased 17.4%~~was $799.9 million in the ~~third~~first quarter of ~~2017~~2023 compared to $721.0 million in the same period of 2022 predominantly due to higher gross profit, partially offset by higher SM&A expenses, as noted above. Operating profit margin decreased to 26.8% in 2023 from 27.0% in 2022 driven by the same factors noted above that resulted in lower gross margin for the period.

Interest Expense, Net

Net interest expense was $4.5 million higher in the first quarter of 2023 compared to the same period of ~~2016 due primarily to the higher gross margin as discussed above. Operating profit margin increased to 21.6% in 2017 from 18.7% in 2016 also driven by the improvement in gross margin.~~

~~Interest Expense, Net~~

~~Net interest expense was $0.2 million higher in the third quarter of 2017 compared to the same period of 2016.~~2022. The increase was primarily due to higher ~~interest~~ rates on ~~higher levels of~~ short-term debt balances in 2023 versus 2022, specifically related to outstanding ~~during the 2017 quarter, as well as a decreased benefit on the fixed to floating swaps during the third quarter of 2017 as compared to the 2016 quarter.~~commercial paper borrowings.

Other (Income) Expense, Net

Other (income) expense, net ~~totaled $13.6~~was $2.9 million in the ~~third~~first quarter of ~~2017 compared~~2023 versus net expense of $10.4 million in the first quarter of 2022. The decrease in net expense was primarily due to ~~$21.8 million for the same period of 2016, driven in both periods by the write-down~~lower write-downs on equity investments qualifying for ~~federal historic~~tax credits in 2023 versus the first quarter of 2022 and ~~energy tax credits.~~

higher non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans.

Income Taxes and Effective Tax Rate

~~Our~~The effective income tax rate was ~~31.6%~~22.7% for the ~~third~~first quarter of ~~2017~~2023 compared ~~to 30.6%~~with 21.2% for the ~~same period~~first quarter of ~~2016.~~2022. Relative to the 21% statutory rate, the ~~2017~~2023 effective tax rate was impacted by ~~favorable foreign~~state taxes, partially offset by employee share-based payments. Relative to the 21% statutory rate, ~~differential relating to our cocoa procurement operations and~~the 2022 effective tax rate was impacted by state taxes, partially offset by investment tax credits ~~which were partially offset by non-benefited costs resulting from~~and the ~~Margin for Growth Program. The 2016 tax rate benefited from a one time tax return amendment for research and development credits and other tax deductions.~~benefit of employee share-based payments.

Net Income Attributable to The Hershey Company and Earnings Per Share-diluted

Net income increased ~~$45.9~~$53.7 million, or ~~20.2%~~10.1%, while EPS-diluted increased ~~$0.22,~~$0.28, or ~~20.8%~~10.9%, in the ~~third~~first quarter of ~~2017~~2023 compared to the same period of ~~2016.~~2022. The ~~increases~~increase in both net income and EPS-diluted ~~were~~was driven primarily by ~~the~~ higher gross ~~margin~~profit, partially offset by higher SM&A expenses and higher income taxes, as ~~discussed~~noted above.

~~Results of Operations - First Nine Months 2017 vs. First Nine Months 2016~~

~~Net Sales~~

~~Net sales increased 1.9% in the first nine months of 2017 compared to the same period of 2016, reflecting favorable price realization of 0.8%, volume increases of 0.7% and a 0.4% benefit~~ Our 2023 EPS-diluted also benefited from ~~acquisitions. There was no impact from foreign currency exchange rates during the period. The favorable net price realization was attributed to~~ lower ~~levels of trade promotional spending in both the North America and International and Other segments versus the prior year.~~ ~~Consolidated volumes increased~~weighted-average shares outstanding as a result of higher sales volume in North America, specifically from core brand growth throughout 2017 and innovation, including new product launches and stand-up packaging. These volume increases were partially offset by volume declines inshare repurchases pursuant to our ~~International and Other segment, where growth, driven by measured investments in Mexico, Brazil and India, was more than offset by declines in China.~~Board-approved repurchase programs.

~~Cost of Sales and Gross Margin~~

Cost of sales decreased 2.9% in the first nine months of 2017 compared to the same period of 2016. The improvement was driven by lower commodity costs, including an incremental $58.3 million favorable impact from marking-to-market our commodity derivative instruments intended to economically hedge future years' commodity purchases, a $51.5 million year-over-year decrease in business realignment costs, and supply chain productivity. These benefits were offset in part by unfavorable manufacturing variances and higher freight and warehousing costs.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 35

Gross margin increased by 260 basis points in the first nine months of 2017 compared to the same period of 2016, driven by lower commodity and business realignment costs, and supply chain productivity. However, the increase in gross margin was partially offset by higher supply chain costs.

~~Selling, Marketing and Administrative~~

Selling, marketing and administrative (“SM&A”) expenses decreased $3.8 million or 0.3% in the first nine months of 2017. Advertising and related consumer marketing expense increased 1.1% during this period. Excluding these advertising and related consumer marketing costs, selling and administrative expenses for 2017 decreased by 1.0% as compared to 2016. SM&A benefited from lower costs relating to business realignment activities as well as costs savings and efficiency initiatives, partially offset by higher pension settlement charges and investments in go-to-market capabilities.

~~Long-lived Asset Impairment Charges~~

In the first nine months of 2017, we recorded long-lived asset impairment charges of $208.7 million. This relates to a first quarter write-down of certain intangible assets that had been recognized in connection with the 2014 SGM acquisition and write-down of property, plant and equipment. See Note 7 to the Unaudited Consolidated Financial Statements.

~~Business Realignment Activities~~

In the first nine months of 2017 and 2016, we recorded business realignment costs of $50.0 million and $30.6 million, respectively. The 2017 costs related primarily to severance and other program costs associated with the Margin for Growth Program that commenced in the first quarter of 2017. The 2016 costs related primarily to the Operational Optimization Program, as described in Note 7 to the Unaudited Consolidated Financial Statements.

~~Operating Profit and Operating Profit Margin~~

Operating profit decreased 3.1% in the first nine months of 2017 compared to the same period of 2016 due primarily to the long-lived asset impairment charges and higher business realignment costs, partially offset by higher gross margin and lower SM&A expenses, as discussed above. Operating profit margin decreased to 17.0% in 2017 from 17.8% in 2016 driven by these same factors.

~~Interest Expense, Net~~

Net interest expense was $5.7 million higher in the first nine months of 2017 compared to the same period of 2016. The increase was due to higher levels of long-term debt outstanding and higher interest rates on commercial paper during the 2017 period, as well as a decreased benefit from the fixed to floating swaps during the nine months of 2017 as compared to the 2016 period.

~~Other (Income) Expense, Net~~

Other (income) expense, net totaled expense of $23.6 million during the first nine months of 2017 versus expense of $8.7 million for the same period of 2016. In 2017 we recognized a $24.0 million write-down on equity investments qualifying for federal historic and energy tax credits, compared to a $35.9 million write down in the first nine month of 2016. Additionally, 2016 was offset by an extinguishment gain of $26.7 million related to the settlement of the SGM liability.

~~Income Taxes and Effective Tax Rate~~

Our effective income tax rate was 32.4% for the first nine months of 2017 compared with 33.0% for the same period of 2016. Relative to the statutory rate, the 2017 effective tax rate was impacted by a favorable foreign rate differential relating to foreign operations and cocoa procurement, investment tax credits and the benefit of ASU 2016-09, which were partially offset by non-benefited costs resulting from the Margin for Growth Program. The 2016 effective rate benefited from the impact of non-taxable income related to the settlement of the SGM liability and investment tax credits.

~~Net Income attributable to The Hershey Company and Earnings Per Share-diluted~~

Net income decreased $1.3 million, or 0.2%, while EPS-diluted increased $0.01, or 0.4%, in the first nine months of 2017 compared to the same period of 2016. The decrease in net income was driven by the long-lived asset impairment charges and higher business realignment costs, as noted above, whereas, the increase in EPS was driven by lower diluted shares outstanding.

SEGMENT RESULTS

The summary that follows provides a discussion of the results of operations of our ~~two~~three reportable segments: North America Confectionery, North America Salty Snacks and ~~International and Other. The segments reflect our operations on a geographic basis.~~International. For segment reporting purposes, we use “segment income” to evaluate segment performance and allocate resources. Segment income excludes unallocated general corporate administrative expenses, unallocated mark-to-market gains and losses on commodity derivatives, business realignment and impairment charges, ~~acquisition integration~~acquisition-related costs and ~~NSRPE~~other unusual gains or losses that are not part of our measurement of segment performance. These items of our operating income are largely managed centrally at the corporate level and are excluded from the measure of segment income reviewed by the ~~CODM~~Chief Operating Decision Maker and used for resource allocation and internal management reporting and performance evaluation. Segment income and segment income margin, which are presented in the segment discussion that follows, are non-GAAP measures and do not purport to be alternatives to operating income as a measure of operating performance. We believe that these measures are useful to investors and other users of our financial information in evaluating ongoing operating profitability as well as in evaluating operating performance in relation to our competitors, as they exclude the activities that are not ~~integral~~directly attributable to our ongoing segment operations. ~~For further information, see the Non-GAAP Information section of this MD&A.~~

Our segment results, including a reconciliation to our consolidated results, were as follows:


	Three Months Ended
		April 2, 2023		April 3, 2022
In millions of dollars
Net Sales:
North America Confectionery		$	2,452.2	$	2,217.0
North America Salty Snacks		270.0		226.1
International		265.4		223.1
Total		$	2,987.6	$	2,666.2

Segment Income:
North America Confectionery		$	887.8	$	781.9
North America Salty Snacks		46.8		21.3
International		55.0		42.0
Total segment income		989.6		845.2
Unallocated corporate expense (1)		177.1		150.3
Unallocated mark-to-market losses (gains) on commodity derivatives (2)		10.2		(27.4)

Costs associated with business realignment activities		2.3		1.3
Operating profit		800.0		721.0
Interest expense, net		37.7		33.2
Other (income) expense, net		3.0		10.4
Income before income taxes		$	759.3	$	677.4

(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, (d) acquisition-related costs and (e) other gains or losses that are not integral to segment performance.

(2)Net losses (gains) on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative losses (gains). See Note 13 to the Unaudited Consolidated Financial Statements.

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Net Sales:
North America $ 1,792,377
$ 1,764,528
$ 4,946,537
$ 4,842,840
International and Other 240,744
238,926
629,253
627,097
Total $ 2,033,121
$ 2,003,454
$ 5,575,790
$ 5,469,937

Segment Income (Loss):
North America $ 554,578
$ 563,946
$ 1,568,098
$ 1,519,059
International and Other 16,400
4,284
26,491
(12,411 )
Total segment income 570,978
568,230
1,594,589
1,506,648
Unallocated corporate expense (1) 124,115
121,828
366,938
370,622
Unallocated mark-to-market (gains) losses on commodity derivatives (2) (21,954 ) 35,791
(27,486 ) 30,851
Long-lived asset impairment charges —
—
208,712
—
Costs associated with business realignment activities 8,257
27,962
69,699
104,487
Non-service related pension expense 21,540
6,360
30,123
20,666
Acquisition and integration costs —
2,265
311
3,727
Operating profit 439,020
374,024
946,292
976,295
Interest expense, net 24,589
24,387
72,456
66,730
Other (income) expense, net 13,630
21,800
23,557
8,703
Income before income taxes $ 400,801
$ 327,837
$ 850,279
$ 900,862


~~(1)~~ Table of Contents			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.The Hershey Company \| Q1 2023 Form 10-Q \| Page 36


~~(2)~~	~~Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative (gains) losses. See Note 11 to the Consolidated Financial Statements.~~

North America Confectionery

The North America Confectionery segment is responsible for our 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~~gum and ~~other snacking product lines. North America accounted for 88.2%~~refreshment products, protein bars, spreads, snack bites and 88.1% of our net sales for the three months ended October 1, 2017 and October 2, 2016, respectively. North America results for the three and nine months ended October 1, 2017 and October 2, 2016 were as follows:

Three Months Ended Percent Nine Months Ended Percent

October 1, 2017 October 2, 2016 Change October 1, 2017 October 2, 2016 Change
In millions of dollars
Net sales $ 1,792.4
$ 1,764.5
1.6 % $ 4,946.5
$ 4,842.8
2.1 %
Segment income 554.6
563.9
(1.7 )% 1,568.1
1,519.1
3.2 %
Segment margin 30.9 % 32.0 % 31.7 % 31.4 %

~~Results of Operations - Third Quarter 2017 vs. Third Quarter 2016~~

~~Net sales of our North America segment increased $27.9 million or 1.6% in 2017 compared to 2016, driven by increased volume of 1.6% due to core brand growth and innovation, specifically,~~ ~~Hershey's Cookie Layer Crunch, and the launch of~~ ~~Hershey's~~ ~~and~~ ~~Reese's~~ Popped Snack Mix and Chocolate Dipped Pretzels. Net price realization decreased by 0.3% due to increased levels of trade promotional spending. Excluding the favorable impact of foreign currency exchange rates of 0.3%, the net sales of our North America segment increased by approximately 1.3%.

~~Our North America segment income decreased $9.3 million or 1.7% in 2017 compared to 2016, driven by investments in greater levels of advertising expense and go-to-market capabilities,~~mixes, as well as ~~unfavorable manufacturing variances~~pantry and ~~higher freight and warehousing costs.~~

~~Results of Operations - First Nine Months 2017 vs. First Nine Months 2016~~

Net sales of our North America segment increased $103.7 million or 2.1% in 2017 compared to 2016, driven by increased volume of 1.3% due to core brand growth throughout 2017 and innovation, specifically, new product launches. Additionally, the ~~barkTHINS~~ ~~brand acquisition contributed 0.4%. Net price realization increased by 0.4% due to decreased levels of trade promotional spending. There was no foreign currency exchange rate impact during the period.~~

Our North America segment income increased $49.0 million or 3.2% in 2017 compared to 2016, driven by higher gross profit, partially offset by investments in greater levels of selling expense and go-to-market capabilities and increased depreciation and amortization resulting from the recent ~~barkTHINS~~ ~~brand acquisition.~~

~~International and Other~~

The International and Other segment includes all other countries where we currently manufacture, import, market, sell or distribute chocolate and non-chocolate confectionery and other products. Currently, this includes our operations in China and other Asia markets, Latin America, Europe, Africa and the Middle East, along with exports to these regions.food service lines. While a less significant component, this segment also includes our ~~global~~ retail operations, including Hershey’s Chocolate World stores in Hershey, ~~Pennsylvania,~~Pennsylvania; New York, ~~City,~~New York; Las Vegas, ~~Shanghai,~~Nevada; Niagara Falls (Ontario)~~, Dubai~~ and Singapore, as well as operations associated with licensing the use of certain trademarks and products to third parties around the world. ~~International and Other~~North America Confectionery results, which accounted for ~~11.8%~~82.1% and ~~11.9%~~83.1% of our net sales for the three months ended ~~October 1, 2017~~April 2, 2023 and ~~October 2, 2016, respectively. International and Other results for the three and nine months ended October 1, 2017 and October 2, 2016~~April 3, 2022, respectively, were as follows:


	Three Months Ended
		April 2, 2023			April 3, 2022			Percent Change
In millions of dollars
Net sales		$	2,452.2		$	2,217.0		10.6	%
Segment income		887.8			781.9			13.5	%
Segment margin		36.2		%	35.3		%

Three Months Ended Percent Nine Months Ended Percent

October 1, 2017 October 2, 2016 Change October 1, 2017 October 2, 2016 Change
In millions of dollars
Net sales $ 240.7
$ 238.9
0.8 % $ 629.3
$ 627.1
0.3 %
Segment income (loss) 16.4
4.3
282.8 % 26.5
(12.4 ) NM
Segment margin 6.8 % 1.8 % 4.2 % (2.0 )%

Results of Operations - ~~Third~~First Quarter ~~2017~~2023 vs. ~~Third~~First Quarter ~~2016~~2022

Net sales of our North America Confectionery segment increased $235.2 million, or 10.6%, in the first quarter of 2023 compared to the same period of 2022, reflecting a favorable price realization of 9.5% primarily due to list price increases on certain products across our portfolio and a volume increase of 1.4% due to an increase in everyday core U.S. confection brands. These increases were partially offset by an unfavorable impact from foreign currency exchange rates of 0.3%.

Our North America Confectionery segment also includes licensing and owned retail. This includes our Hershey’s Chocolate World stores in the United States (3 locations), Niagara Falls (Ontario) and Singapore. Our net sales for licensing and owned retail increased approximately 21.6% during the first quarter of 2023 compared to the same period of 2022.

Our North America Confectionery segment income increased $105.9 million, or 13.5%, in the first quarter of 2023 compared to the same period of 2022, primarily due to favorable price realization and volume increases, partially offset by higher supply chain inflation costs, including higher logistics and labor costs, as well as unfavorable product mix.


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North America Salty Snacks

The North America Salty Snacks segment is responsible for our grocery and snacks market positions, including our salty snacking products. North America Salty Snacks results, which accounted for 9.0% and 8.5% of our net sales for the three months ended April 2, 2023 and April 3, 2022, respectively, were as follows:


	Three Months Ended
		April 2, 2023			April 3, 2022			Percent Change
In millions of dollars
Net sales		$	270.0		$	226.1		19.4	%
Segment income		46.8			21.3			119.7	%
Segment margin		17.3		%	9.4		%

Results of Operations - First Quarter 2023 vs. First Quarter 2022

Net sales of our North America Salty Snacks segment increased $43.9 million, or 19.4%, in the first quarter of 2023 compared to the same period of 2022. This increase reflects a favorable price realization of 10.9% due to list price increases on certain products across our portfolio, primarily SkinnyPop and Dot’s Homestyle Pretzels snacks, and a volume increase of 8.5% driven primarily by SkinnyPop snacks.

Our North America Salty Snacks segment income increased $25.5 million, or 119.7%, in the first quarter of 2023 compared to the same period of 2022, primarily due to favorable price realization, volume increases and favorable freight costs, partially offset by higher supply chain costs.

International

The International segment includes all other countries where we currently manufacture, import, market, sell or distribute chocolate and non-chocolate confectionery and other products. We currently, have operations and manufacture product in Mexico, Brazil, India and Malaysia, primarily for consumers in these regions, and also distribute and sell confectionery products in export markets of Latin America, as well as Europe, Asia, the Middle East and Africa (“AMEA”) and other regions. International results, which accounted for 8.9% and 8.4% of our net sales for the three months ended April 2, 2023 and April 3, 2022, respectively, were as follows:


	Three Months Ended
		April 2, 2023			April 3, 2022			Percent Change
In millions of dollars
Net sales		$	265.4		$	223.1		19.0	%
Segment income		55.0			42.0			31.0	%
Segment margin		20.7		%	18.8		%

Results of Operations - First Quarter 2023 vs. First Quarter 2022

Net sales of our International ~~and Other~~ segment increased ~~$1.8~~$42.3 million, or ~~0.8%~~19.0%, in ~~2017~~the first quarter of 2023 compared to ~~2016,~~the same period of 2022, reflecting ~~favorable price realization~~a volume increase of ~~4.7% and~~17.4%, a favorable impact from foreign currency exchange rates of ~~1.3%, partially offset by volume declines of 5.2%. Excluding the~~1.5% and a favorable ~~impact of foreign currency exchange rates, the net sales of our International and Other segment decreased by approximately 0.5%.~~

~~The favorable net~~ price realization ~~was driven by higher prices in select markets, as well as reduced levels~~ of trade promotional spending, which declined significantly compared to the prior year. Constant currency net sales in Mexico and Brazil increased by 9.6% and 3.3%, respectively, driven by solid chocolate marketplace performance. India also experienced constant currency net sales growth of 16.0%0.1%. The volume ~~decrease is~~increase was primarily ~~attributed~~attributable to ~~our China business, driven~~solid marketplace growth in Brazil, India and Mexico, where net sales increased by ~~softness in the modern trade channel coupled with a focus on optimizing our product offerings.~~27.7%, 24.2% and 18.2%, respectively.

Our International ~~and Other~~ segment generated income of ~~$16.4~~$55.0 million in ~~2017~~the first quarter of 2023 compared to ~~$4.3~~$42.0 million in ~~2016,~~the first quarter of 2022, driven primarily by ~~reduced trade promotional spending and lower operating expenses in China as a result of our Margin for Growth Program.~~

~~Results of Operations - First Nine Months 2017 vs. First Nine Months 2016~~

~~Net sales of our International and Other segment increased $2.2 million or 0.3% in 2017 compared to 2016, reflecting~~ favorable price realization ~~of 3.8%, favorable impact from foreign currency exchange rates of 0.3%,~~and volume increases, partially offset by ~~volume declines of 3.8%. Excluding the favorable impact of foreign currency exchange rates, the net sales of our International~~higher freight and ~~Other segment were flat.~~logistics costs.

The favorable net price realization was driven by reduced levels of trade promotional spending, which declined significantly compared to the prior year, as well as higher prices in select markets. Constant currency net sales in Mexico and Brazil increased by 13.1% and 7.7%, respectively, driven by solid chocolate marketplace performance. India also experienced constant currency net sales growth of 10.9%. The volume decrease is primarily attributed to our China business, driven by softness in the modern trade channel coupled with a focus on optimizing our product offerings.

Our International and Other segment generated income of $26.5 million in 2017 compared to a loss of $12.4 million in 2016 due to improved combined income in Latin America and export markets versus the prior year. Additionally, segment income benefited from reduced trade promotional spending and lower operating expenses in China as a result of our Margin for Growth Program.


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Unallocated Corporate Expense

Unallocated corporate expense 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, (d) acquisition-related costs and ~~(d)~~(e) other gains or losses that are not integral to segment performance.

In the ~~third~~first quarter of ~~2017,~~2023, unallocated corporate expense totaled ~~$124.1~~$177.1 million, as compared to ~~$121.8~~$150.3 million in the ~~same period~~first quarter of ~~2016,~~2022. The increase was primarily ~~due to~~driven by an increase in acquisition and integration related costs, as well as higher ~~employee related costs. In the first nine months of 2017, unallocated corporate expense totaled $366.9 million, as compared to $370.6 million~~compensation costs, investments in ~~the same period of 2016, primarily due to savings realized in 2017 from our productivity~~capabilities and ~~cost savings initiatives.~~technology and broad-based marketplace inflation.

~~Liquidity and Capital Resources~~LIQUIDITY AND CAPITAL RESOURCES

Historically, our primary source of liquidity has been cash generated from operations. Domestic seasonal working capital needs, which typically peak during the summer months, are generally met by utilizing cash on hand, bank borrowings or the issuance of commercial paper. Commercial paper may also be issued, from time to time, to finance ongoing business transactions, such as the repayment of long-term debt, business acquisitions and for other general corporate purposes.

At ~~October 1, 2017,~~April 2, 2023, our cash and cash equivalents totaled ~~$275.1 million. At December 31, 2016, our cash and cash equivalents totaled $297.0 million. Our cash and cash equivalents during the first nine months~~$460.3 million, a decrease of ~~2017 declined $21.9~~$3.5 million compared to the ~~2016~~2022 year-end ~~balance as a result of~~balance. Additional detail regarding the net uses of cash are outlined in the following discussion. Additionally, at April 2, 2023, we had outstanding short- and long-term debt totaling $4.7 billion, of which $758.1 million was classified as the current portion of long-term debt. Of the $758.1 million, $500 million of 3.375% Notes are due upon maturity on May 1, 2023 and $250 million of 2.625% Notes are due upon maturity on May 15, 2023. We believe we can satisfy these debt obligations with cash generated from our operations, issuing new debt, and/or by borrowing on our unsecured revolving credit facility.

Approximately ~~80%~~90% of the balance of our cash and cash equivalents at ~~October 1, 2017~~April 2, 2023 was held by subsidiaries domiciled outside of the United States. ~~If these amounts held~~A majority of this balance is distributable to the United States without material tax implications, such as withholding tax. We intend to continue to reinvest the remainder of the earnings outside of the United States ~~were to be repatriated, under current law they~~for which there would be ~~subject~~a material tax implication to ~~U.S. federal income taxes, less applicable foreign~~distributing for the foreseeable future and, therefore, have not recognized additional tax ~~credits. However, our intent is to permanently reinvest~~expense on these ~~funds outside of the United States. The cash~~earnings. We believe that our ~~foreign subsidiaries hold~~existing sources of liquidity are adequate to meet anticipated funding needs at comparable risk-based interest rates for ~~indefinite reinvestment is~~the foreseeable future. Acquisition spending and/or share repurchases could potentially increase our debt. Operating cash flow and access to capital markets are expected ~~to be used to finance foreign operations and investments. We believe we have sufficient liquidity~~ to satisfy our various short- and long-term cash ~~needs,~~flow requirements, including ~~our cash needs in the United States.~~acquisitions and capital expenditures.

Cash Flow Summary

The following table is derived from our Consolidated ~~Statement~~Statements of Cash Flows:


	Three Months Ended
In millions of dollars	April 2, 2023		April 3, 2022
Net cash provided by (used in):
Operating activities	$	755.4	$	656.5
Investing activities	(188.3)		(164.0)
Financing activities	(552.2)		(463.5)
Effect of exchange rate changes on cash and cash equivalents	(18.4)		(20.2)

Net change in cash and cash equivalents	$	(3.5)	$	8.8


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 39

Nine Months Ended
In millions of dollars October 1, 2017 October 2, 2016
Net cash provided by (used in):
Operating activities $ 625.9
$ 450.8
Investing activities (187.1 ) (486.0 )
Financing activities (465.7 ) 21.5
Effect of exchange rate changes on cash and cash equivalents 5.0
0.5
Decrease in cash and cash equivalents $ (21.9 ) $ (13.2 )

Operating activities

We generated ~~net~~ cash of $755.4 million from operating activities ~~of $625.9 million~~ in the first ~~nine~~three months of ~~2017,~~2023, an increase of ~~$175.1~~$98.9 million compared to ~~$450.8~~$656.5 million in the same period of ~~2016.~~2022. This increase in net cash ~~from~~provided by operating activities was mainly driven by the following factors:

•Timing of income tax payments contributed to an increase in operating cash of $174.2 million in 2023, compared to $127.3 million in 2022. This $46.9 million fluctuation was primarily due to the variance in actual tax expense for 2023 relative to the timing of quarterly estimated tax payments. We paid cash of $12.3 million for income taxes during 2023 compared to $10.0 million in the same period of 2022.

•Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation, deferred income taxes, ~~long-lived asset impairment charges,~~a write-down of equity investments ~~the gain on settlement of the SGM liability~~ and other charges) resulted in ~~an incremental $160.4~~$33.9 million of higher cash flow in ~~the 2017 period~~2023 relative to ~~the same period of 2016.~~2022.

Working capital (comprised of trade accounts receivable, inventory, accounts payable and accrued liabilities) used cash of $369.3 million in the 2017 period compared to $367.3 million during the same period of 2016. This $2.0 million unfavorable fluctuation was mainly driven by:


◦	Increase in cash used by inventories of $109.3 million, due to a higher year-over-year build up of U.S. inventories to satisfy seasonal product requirements and maintain sufficient levels to accommodate customer requirements, coupled with a higher investment in inventory in Brazil and Mexico, driven by volume growth in those markets.

~~The decrease in working capital was partially offset by the following net cash inflow:~~

◦

Reduction in cash used by accounts payable and accrued liabilities of $111.6 million, due to the timing of payments for trade-related and other accounts payables, as well as an increase in our liability for business realignment activities (see Note 7 to the Consolidated Financial Statements for more information). Additionally, derivative activity in 2016 included an $87 million payment to settle an interest rate swap in connection with the issuance of new debt in August 2016.

Investing activities

We used ~~net~~ cash of $188.3 million for investing activities ~~of $187.1 million~~ in the first ~~nine~~three months of ~~2017, a decrease~~2023, an increase of ~~$298.9~~$24.3 million compared to ~~$486.0~~$164.0 million in the same period of ~~2016.~~2022. This ~~decrease~~increase in net cash used in investing activities was mainly driven by the following factors:

•Capital spending. ~~We spent $19.3 million less for property, plant and equipment,~~Capital expenditures, including capitalized software, ~~during~~primarily to support our ERP system implementation, capacity expansion, innovation and cost savings, were $176.1 million in the first ~~nine~~three months of ~~2017~~2023 compared to $141.1 million in the same period of ~~2016. For the full year 2017, we~~2022. Expenditures increased due to progress on capacity expansion projects and our ERP system implementation. We expect 2023 capital expenditures, including capitalized software, to approximate ~~$260~~$800 million to ~~$275~~$900 million.

The increase in our 2023 capital expenditures is largely driven by our key strategic initiatives, including core confection capacity expansion and continued investments in a digital infrastructure including the build and upgrade of a new ERP system across the enterprise. We intend to use our existing cash and internally generated funds to meet our 2023 capital requirements.

•Investments in partnerships qualifying for tax credits. We make investments in partnership entities that in turn make equity investments in projects eligible to receive federal historic and renewable energy tax credits. We invested approximately ~~$4.6 million more in projects qualifying for tax credits during the first nine months of 2017 compared to the same period of 2016.~~

~~Business acquisitions~~. In April 2016, we acquired Ripple Brand Collective, LLC for $285 million. Further details regarding our business acquisition activity are provided in Note 2 to the Unaudited Consolidated Financial Statements.

~~Financing activities~~

~~We used net cash for financing activities of $465.7~~$12.3 million in the first ~~nine~~three months of ~~2017,~~2023, compared to ~~net cash generated of $21.5~~$22.5 million in the same period of ~~2016.~~2022.

Financing activities

We used cash of $552.2 million for financing activities in the first three months of 2023, an increase of $88.7 million compared to $463.5 million in the same period of 2022. This ~~$487.2 million incremental change~~increase in net cash ~~for~~used in financing activities was mainly driven by the following factors:

•Short-term borrowings, net. In addition to utilizing cash on hand, we use short-term borrowings (commercial paper and bank borrowings) to fund seasonal working capital requirements and ongoing business needs. During the first ~~nine~~three months of ~~2017,~~2023, we ~~generated~~used cash ~~flow~~ of ~~$173~~$90.7 million ~~primarily from proceeds on~~to reduce a portion of our short-term commercial paper ~~issuances. During the first nine months of 2016, we generated cash flow of $345 million from proceeds on short-term commercial paper issuances,~~borrowings , partially offset by ~~a $97 million reduction~~an increase in short-term foreign bank borrowings.

During the first three months of 2022, we used cash of $65.6 million to reduce a portion of our short-term commercial paper borrowings originally used to fund our 2021 acquisitions of Dot’s and Pretzels, partially offset by an increase in short-term foreign bank borrowings.

•Long-term debt borrowings and repayments. ~~We had no long-term issuance or repayment activity during the first nine months of 2017.~~ During the first ~~nine~~three months of ~~2016, we used $250 million to repay long-term debt. Additionally, in 2016, we issued $500 million of 2.30% Notes due in 2026~~2023 and ~~$300 million of 3.375% Notes due in 2046.~~

~~Share repurchases. We used cash for total share repurchases of $300.3 million during~~ the first ~~nine~~three months of ~~2017 pursuant to our practice of replenishing shares issued for stock options~~2022, long-term debt borrowings and incentive compensation. Additionally, our 2017 share repurchases included a privately negotiated repurchase transaction with the Milton Hershey School Trust. We used cash for total share repurchases of $452.6 million during the first nine months of 2016, which included shares repurchased in the open market under pre-approved share repurchase programs. In October 2017, our Board of Directors approved an additional $100 million share repurchase authorization, to commence after the existing 2016 authorization is completed.

repayments were minimal.

•Dividend payments. Total dividend payments to holders of our Common Stock and Class B Common Stock were ~~$391.8~~$207.4 million during the first ~~nine~~three months of ~~2017,~~2023, an increase of ~~$20.1~~$26.3 million compared to ~~$371.7~~$181.1 million in the same period of ~~2016.~~2022. Details regarding our 2023 cash dividends paid to stockholders are as follows:


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Quarter Ended

In millions of dollars except per share amounts

April 2, 2023

Dividends paid per share – Common stock

1.036

Dividends paid per share – Class B common stock

0.942

Total cash dividends paid

207.4

Declaration date

January 31, 2023

Record date

February 17, 2023

Payment date

March 15, 2023

•Share repurchases. We repurchase shares of Common Stock to offset the dilutive impact of treasury shares issued under our equity compensation plans. The value of these share repurchases in a given period varies based on the volume of stock options exercised and our market price. In addition, we periodically repurchase shares of Common Stock pursuant to Board-authorized programs intended to drive additional stockholder value. Details regarding our share repurchases are as follows:

In February 2023, the Company entered into a Stock Purchase Agreement with Hershey Trust Company, as trustee for the Milton Hershey School Trust (the “School Trust”), pursuant to which the Company purchased 1,000,000 shares of the Company’s Common Stock from the Milton Hershey School Trust at a price equal to $239.91 per share, for a total purchase price of $239.9 million.

In February 2022, the Company entered into a Stock Purchase Agreement with Hershey Trust Company, as trustee for the School Trust, pursuant to which the Company purchased 1,000,000 shares of the Company’s Common Stock from the Milton Hershey School Trust at a price equal to $203.35 per share, for a total purchase price of $203.4 million.

In July 2018, our Board of Directors approved a $500 million share repurchase authorization. In May 2021, our Board of Directors approved an additional $500 million share repurchase authorization. As a result of the February 2023 Stock Purchase Agreement with Hershey Trust Company, as trustee for the School Trust, the July 2018 share repurchase authorization was completed and as of April 2, 2023, approximately $370 million remained available for repurchases under our May 2021 share repurchase authorization. The share repurchase program does not have an expiration date. We expect 2023 share repurchases to be in line with our traditional buyback strategy.

•Proceeds from exercised stock options and employee tax withholding. During the ~~exercise~~first three months of ~~stock options.~~ We2023, we received ~~$53.5~~$15.2 million from employee exercises of stock options ~~net of payments~~and paid $28.3 million of employee taxes withheld from share-based ~~awards, during~~awards. During the first ~~nine~~three months of ~~2017, a decrease~~2022, we received $16.7 million from employee exercises of ~~$34.6~~stock options and paid $29.0 million ~~compared to $88.1 million in~~of employee taxes withheld from share-based awards. Variances are driven primarily by the ~~same period~~number of ~~2016.~~

shares exercised and the share price at the date of grant.

~~Other.~~ ~~In February 2016, we used $35.8 million to purchase the remaining 20% of the outstanding shares of SGM.~~

Recent Accounting Pronouncements

Information on recently adopted and ~~recently~~ issued accounting standards is included in Note 1 to the Unaudited Consolidated Financial Statements.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 41

Safe Harbor Statement

We are subject to changing economic, competitive, regulatory and technological risks and uncertainties that could have a material impact on our business, financial condition or results of operations. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we note the following factors that, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions that we have discussed directly or implied in this ~~report.~~Quarterly Report on Form 10-Q. Many of ~~the~~these forward-looking statements ~~contained in this report may~~can be identified by the use of words such as ~~“intend,~~“anticipate,” “assume,” “believe,” “continue,” “estimate,” “expect,” ~~“anticipate,~~“forecast,” “future,” “intend,” “plan,” “potential,” “predict,” “project,” “strategy,” “target” and similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “should,” ~~“planned,” “projected,” “estimated,”~~“will” and ~~“potential,~~“would,” among others.

The factors that could cause our actual results to differ materially from the results projected in our forward-looking statements include, but are not limited to the following:

~~Issues~~

•Our Company’s reputation or brand image might be impacted as a result of issues or concerns ~~related~~relating to the quality and safety of our products, ingredients or packaging, human and workplace rights, and other environmental, social or governance matters, which in turn could ~~cause a product recall and/or~~ result in ~~harm to the Company's reputation,~~litigation or otherwise negatively ~~impacting~~impact our operating results;

~~Increases in raw material and energy costs along with the availability of adequate supplies of raw materials could affect future financial results;~~

~~Price increases may not be sufficient to offset cost increases and maintain profitability or may result in sales volume declines associated with pricing elasticity;~~

~~Market demand for new and existing products could decline;~~

~~Increased marketplace competition could hurt our business;~~

•Disruption to our manufacturing operations or supply chain could impair our ability to produce or deliver finished products, resulting in a negative impact on our operating results;

~~Our financial results may be adversely impacted by the failure to successfully execute or integrate acquisitions, divestitures and joint ventures;~~

~~Changes in governmental laws and regulations could increase our costs and liabilities or impact demand for our products;~~

~~Political, economic and/or financial market conditions could negatively impact our financial results;~~

~~Our international operations may not achieve projected growth objectives, which could adversely impact our overall business and results of operations;~~

~~Disruptions, failures or security breaches of our information technology infrastructure could have a negative impact on our operations;~~

•We might not be able to hire, engage and retain the talented global workforce we need to drive our growth strategies;

•Risks associated with climate change and other environmental impacts, and increased focus and evolving views of our customers, stockholders and other stakeholders on climate change issues, could negatively affect our business and operations;

•Increases in raw material and energy costs along with the availability of adequate supplies of raw materials could affect future financial results;

•Price increases may not be sufficient to offset cost increases and maintain profitability or may result in sales volume declines associated with pricing elasticity;

•Market demand for new and existing products could decline;

•Increased marketplace competition could hurt our business;

•Our financial results may be adversely impacted by the failure to successfully execute or integrate acquisitions, divestitures and joint ventures;

•Our international operations may not achieve projected growth objectives, which could adversely impact our overall business and results of operations;

•We may not fully realize the expected ~~costs~~cost savings and/or operating efficiencies associated with our strategic initiatives or restructuring programs, which may have an adverse impact on our business;

•Changes in governmental laws and regulations could increase our costs and liabilities or impact demand for our products;

•Political, economic and/or financial market conditions, including impacts on our business arising from the conflict between Russia and Ukraine, could negatively impact our financial results;


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 42

•Disruptions, failures or security breaches of our information technology infrastructure could have a negative impact on our operations;

•Complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations; and

•Such other matters as discussed in our ~~2016~~2022 Annual Report on Form ~~10-K.~~10-K and this Quarterly Report on Form 10-Q, including Part II, Item 1A, ”Risk Factors.”

We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date this Quarterly Report on Form 10-Q is filed.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET ~~RISK.~~RISK

The total ~~notional~~ amount of ~~interest rate swaps outstanding was $350~~short-term debt, net of cash, amounted to net debt of $142.7 million and net debt of $230.0 million, at ~~October 1, 2017~~April 2, 2023 and December 31, ~~2016. The notional amount relates to fixed-to-floating interest rate swaps which convert a comparable amount of fixed-rate debt to variable rate debt at October 1, 2017 and December 31, 2016.~~2022, respectively. A hypothetical 100 basis point increase in interest rates applied to this ~~now variable rate~~variable-rate short-term debt as of ~~October 1, 2017~~April 2, 2023 would have ~~increased~~changed interest expense by approximately ~~$2.7~~$0.4 million for the first ~~nine~~three months of ~~2017~~2023 and ~~$3.6~~$4.5 million for ~~the full year 2016.~~2022.

We consider our current risk related to market fluctuations in interest rates on our remaining debt portfolio, excluding fixed-rate debt converted to variable rates with fixed-to-floating instruments, to be minimal since this debt is largely long-term and fixed-rate in nature. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. A 100 basis point increase in market interest rates would decrease the fair value of our fixed-rate long-term debt at ~~October 1, 2017~~April 2, 2023 and December 31, ~~2016~~2022 by approximately ~~$137~~$208 million and ~~$142~~$187 million, respectively. However, since we currently have no plans to repurchase our outstanding fixed-rate instruments before their maturities, the impact of market interest rate fluctuations on our long-term debt does not affect our results of operations or financial position.

The potential decline in fair value of foreign currency forward exchange contracts resulting from a hypothetical near-term adverse change in market rates of 10% was ~~$17.6~~$15.0 million as of ~~October 1, 2017~~April 2, 2023 and ~~$9.6~~$18.4 million as of December 31, ~~2016.~~ 2022, generally offset by a reduction in foreign exchange associated with our transactional activities.

Our open commodity derivative contracts had a notional value ~~assuming period-end market prices,~~ of ~~$408.9~~$172.3 million as of ~~October 1, 2017~~April 2, 2023 and ~~$739.4~~$243.0 million as of December 31, ~~2016.~~2022. At the end of the ~~third~~first quarter of ~~2017,~~2023, the potential change in fair value of commodity derivative instruments, assuming a 10% decrease in the underlying commodity price, would have increased our net unrealized losses by ~~$40.9~~$16.4 million, generally offset by a reduction in the cost of the underlying commodity purchases.

Other than as described above, market risks have not changed significantly from those described in our ~~2016~~2022 Annual Report on Form 10-K.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 43

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of ~~October 1, 2017.~~April 2, 2023. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~October 1, 2017.~~April 2, 2023.

We rely extensively on information systems and technology to manage our business and summarize operating results. We are in the process of a multi-year implementation of a new global enterprise resource planning (“ERP”) system, which will replace our existing operating and financial systems. The ERP system is designed to accurately maintain the Company’s financial records, enhance operational functionality and provide timely information to the Company’s management team related to the operation of the business. The implementation is expected to occur in phases over the next several years. During the third quarter of 2022, we completed the implementation of our new ERP system for one operating segment which is included in our International segment. The portion of the transition to the new ERP system which we have completed to date did not result in significant changes in our internal control over financial reporting. However, as the next phases of the updated processes are rolled out in connection with the ERP implementation, we will give appropriate consideration to whether these process changes necessitate changes in the design of and testing for effectiveness of internal controls over financial reporting.

There have been no changes in our internal control over financial reporting during the quarter ended ~~October 1, 2017~~April 2, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 44

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

Information on legal proceedings is included in Note 1415to the Unaudited Consolidated Financial Statements.

Item 1A. Risk Factors.

When evaluating an investment in our Common Stock, investors should consider carefully, among other things, the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” of our ~~2016~~2022 Annual Report on Form 10-K ~~the risk factor previously disclosed in Part II, Item 1A, "Risk Factors," of our Quarterly Report on Form 10-Q for the quarter ended July 2, 2017,~~ and the information contained in this Quarterly Report on Form 10-Q and our other reports and registration statements filed with the SEC. ~~There have been no material changes in our risk factors since the filing of our Quarterly Report on Form 10-Q for the quarter ended July 2, 2017.~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

The following table shows the purchases of shares of Common Stock made by or on behalf of Hershey, or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of Hershey, for each fiscal month in the three months ended ~~October 1, 2017:~~April 2, 2023:

Period Total Number
of Shares
Purchased (1) Average Price
Paid
per Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (2) Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans or
Programs (2)
(in thousands of dollars)
July 3 through July 30 —
$ —
—
$ 100,000
July 31 through August 27 392,000
$ 105.37
—
$ 100,000
August 28 through October 1 1,500,000
$ 106.01
—
$ 100,000
Total 1,892,000
$ 105.88
—


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
					(in thousands of dollars)
January 1 through January 29	—	$	—	—	$	609,983
January 30 through February 26	1,000,000	$	239.91	—	$	370,073
February 27 through April 2	—	$	—	—	$	370,073
Total	1,000,000	$	239.91	—

(1) During the three months ended ~~October 1, 2017, 392,000~~April 2, 2023, no shares of Common Stock were purchased in open market transactions in connection with our ~~practice of buying~~standing authorization to buy back shares sufficient to offset those issued under incentive compensation ~~plans. Additionally,~~plans, which authorization does not have a dollar or share limit and is not included in our ~~2017~~ share ~~repurchases included 1,500,000 shares repurchased under~~repurchase authorizations described in the following note (2). In February 2023, the Company entered into a ~~privately negotiated repurchase transaction~~Stock Purchase Agreement with Hershey Trust Company, as trustee for the Milton Hershey School ~~Trust.~~Trust, pursuant to which the Company purchased 1,000,000 shares of the Company’s Common Stock from the Milton Hershey School Trust at a price equal to $239.91 per share, for a total purchase price of $239.9 million.

(2) In ~~January 2016,~~July 2018, our Board of Directors approved a $500 million share repurchase authorization. ~~As of October 1, 2017, approximately $100 million remained available for repurchases of our Common Stock under this program.~~ In ~~October 2017,~~May 2021, our Board of Directors approved an additional ~~$100~~$500 million share repurchase ~~authorization (excluded from~~authorization. As a result of the ~~table above), to commence after~~February 2023 Stock Purchase Agreement with Hershey Trust Company, as trustee for the ~~existing 2016 authorization is completed. Neither~~Milton Hershey School Trust, the ~~2016 or 2017~~July 2018 share repurchase ~~authorizations has~~authorization program was completed and as of April 2, 2023 approximately $370 million remains available for repurchase under the May 2021 share repurchase authorization. The share repurchase program does not have an expiration date.


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 45

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

The following exhibits are filed as part of this Quarterly Report on Form 10-Q:



Exhibit Number		Description
3.1		The Company’s Restated Certificate of Incorporation, as amended, is incorporated by reference from Exhibit 3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 3, 2005.
3.2		The Company's By-laws, as amended and restated as of February 21, 2017, are incorporated by reference from Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
10.1		Stock Purchase Agreement, dated ~~August 24, 2017,~~February 13, 2023, between Milton Hershey School Trust, by its trustee, Hershey Trust Company, and The Hershey Company, is incorporated by reference from Exhibit 10.1 to the ~~Company's~~Company’s Current Report on Form 8-K filed ~~August 28, 2017.~~February 15, 2023.
~~12.1~~31.1		~~Computation of Ratio of Earnings to Fixed Charges.~~*
~~31.1~~	Certification of Michele G. Buck, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2		Certification of ~~Patricia A. Little,~~Steven E. Voskuil, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1		Certification of Michele G. Buck, Chief Executive Officer, and ~~Patricia A. Little,~~Steven E. Voskuil, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase
104		The cover page from the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2023, formatted in Inline XBRL and contained in Exhibit 101.
*
*		Filed herewith
**		Furnished herewith


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 46

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

THE HERSHEY COMPANY

(Registrant)

Date:

April 27, 2023

~~THE HERSHEY COMPANY~~

~~(Registrant)~~

~~Date:~~

~~October 27, 2017~~

/s/ ~~Patricia A. Little~~Steven E. Voskuil

~~Patricia A. Little~~Steven E. Voskuil

Senior Vice President, Chief Financial Officer

(Principal Financial Officer)

Date:

~~October~~April 27, ~~2017~~2023

/s/ ~~Javier H. Idrovo~~Jennifer L. McCalman

~~Javier H. Idrovo~~Jennifer L. McCalman

Vice President, Chief Accounting Officer

(Principal Accounting Officer)


Table of Contents			The Hershey Company \| Q1 2023 Form 10-Q \| Page 47



Delaware						23-0691590
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
~~100 Crystal A Drive, Hershey, PA~~ ~~17033~~
~~(Address of principal executive offices)~~ ~~(Zip Code)~~
~~717-534-4200~~
~~(Registrant’s telephone number, including area code)~~
~~Not Applicable~~
~~(Former name, former address and former fiscal year, if changed since last report)~~



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Three Months Ended				Nine Months Ended
	October 1, 2017		October 2, 2016		October 1, 2017			October 2, 2016
Net sales	$	2,033,121	$	2,003,454	$	5,575,790		$	5,469,937
Cost of sales	1,092,899		1,152,606		2,965,798			3,054,315
Gross profit	940,222		850,848		2,609,992			2,415,622
Selling, marketing and administrative expense	497,182		474,494		1,404,970			1,408,759
Long-lived asset impairment charges	—		—		208,712			—
Business realignment costs	4,020		2,330		50,018			30,568
Operating profit	439,020		374,024		946,292			976,295
Interest expense, net	24,589		24,387		72,456			66,730
Other (income) expense, net	13,630		21,800		23,557			8,703
Income before income taxes	400,801		327,837		850,279			900,862
Provision for income taxes	126,788		100,434		275,291			297,671
Net income including noncontrolling interest	274,013		227,403		574,988			603,191
Less: Net income (loss) attributable to noncontrolling interest	710		—		(26,860		)	—
Net income attributable to The Hershey Company	$	273,303	$	227,403	$	601,848		$	603,191

Net income per share—basic:
Common stock	$	1.32	$	1.09	$	2.91		$	2.88
Class B common stock	$	1.20	$	0.99	$	2.64		$	2.63

Net income per share—diluted:
Common stock	$	1.28	$	1.06	$	2.81		$	2.80
Class B common stock	$	1.20	$	0.99	$	2.64		$	2.62

Dividends paid per share:
Common stock	$	0.656	$	0.618	$	1.892		$	1.784
Class B common stock	$	0.596	$	0.562	$	1.720		$	1.622



	October 1, 2017			December 31, 2016
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	275,056		$	296,967
Accounts receivable—trade, net	742,832			581,381
Inventories	938,187			745,678
Prepaid expenses and other	258,379			192,752
Total current assets	2,214,454			1,816,778
Property, plant and equipment, net	2,050,124			2,177,248
Goodwill	822,348			812,344
Other intangibles	375,455			492,737
Other assets	174,611			168,365
Deferred income taxes	18,485			56,861
Total assets	$	5,655,477		$	5,524,333
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	529,442		$	522,536
Accrued liabilities	673,435			750,986
Accrued income taxes	19,109			3,207
Short-term debt	815,588			632,471
Current portion of long-term debt	300,096			243
Total current liabilities	2,337,670			1,909,443
Long-term debt	2,054,132			2,347,455
Other long-term liabilities	402,396			400,161
Deferred income taxes	22,303			39,587
Total liabilities	4,816,501			4,696,646

Stockholders’ equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none at October 1, 2017 and December 31, 2016	—			—
Common stock, shares issued: 299,281,967 at October 1, 2017 and December 31, 2016	299,281			299,281
Class B common stock, shares issued: 60,619,777 at October 1, 2017 and December 31, 2016	60,620			60,620
Additional paid-in capital	910,246			869,857
Retained earnings	6,325,011			6,115,961
Treasury—common stock shares, at cost: 149,232,801 at October 1, 2017 and 147,642,009 at December 31, 2016	(6,434,861		)	(6,183,975		)
Accumulated other comprehensive loss	(337,027		)	(375,888		)
Total—The Hershey Company stockholders’ equity	823,270			785,856
Noncontrolling interest in subsidiary	15,706			41,831
Total stockholders’ equity	838,976			827,687
Total liabilities and stockholders’ equity	$	5,655,477		$	5,524,333



	Preferred Stock		Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings			Treasury Common Stock			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest in Subsidiary			Total Stockholders’ Equity
Balance, December 31, 2016	$	—	$	299,281	$	60,620	$	869,857	$	6,115,961		$	(6,183,975	)	$	(375,888	)	$	41,831		$	827,687
Net income (loss)									601,848									(26,860		)	574,988
Other comprehensive income															38,861			735			39,596
Dividends (including dividend equivalents):
Common Stock, $1.892 per share									(288,533		)										(288,533		)
Class B Common Stock, $1.720 per share									(104,265		)										(104,265		)
Stock-based compensation							36,283														36,283
Exercise of stock options and incentive-based transactions							4,106					49,426									53,532
Repurchase of common stock												(300,312		)							(300,312		)
Balance, October 1, 2017	$	—	$	299,281	$	60,620	$	910,246	$	6,325,011		$	(6,434,861	)	$	(337,027	)	$	15,706		$	838,976



Goodwill	$	128,110
Trademarks	91,200
Other intangible assets	60,900
Other assets, primarily current assets, net of cash acquired totaling $674	12,375
Current liabilities	(7,211		)
Net assets acquired	$	285,374



	North America		International and Other		Total
Balance at December 31, 2016	$	792,190	$	20,154	$	812,344
Foreign currency translation	8,401		1,603		10,004
Balance at October 1, 2017	800,591		21,757		822,348



December 31,	October 1, 2017			December 31, 2016
1.60% Notes due 2018	300,000			300,000
4.125% Notes due 2020	350,000			350,000
8.8% Debentures due 2021	84,715			84,715
2.625% Notes due 2023	250,000			250,000
3.20% Notes due 2025	300,000			300,000
2.30% Notes due 2026	500,000			500,000
7.2% Debentures due 2027	193,639			193,639
3.375% Notes due 2046	300,000			300,000
Lease obligations	86,201			83,619
Net impact of interest rate swaps, debt issuance costs and unamortized debt discounts	(10,327		)	(14,275		)
Total long-term debt	2,354,228			2,347,698
Less—current portion	300,096			243
Long-term portion	$	2,054,132		$	2,347,455



	Total
Liability balance at December 31, 2016	$	3,725
2017 business realignment charges (1)	61,253
Cash payments	(23,742		)
Other, net	(69		)
Liability balance at October 1, 2017 (reported within accrued and other long-term liabilities)	$	41,167



Performance Stock Units and Restricted Stock Units	Number of units		Weighted-average grant date fair value for equity awards (per unit)
Outstanding as of December 31, 2016	828,228		$102.66
Granted	441,634		$111.00
Performance assumption change	23,780		$101.40
Vested	(242,011	)	$111.19
Forfeited	(125,782	)	$107.73
Outstanding as of October 1, 2017	925,849		$102.36



	Nine Months Ended October 1, 2017
	Shares		Dollars
			In thousands
Shares repurchased in the open market under pre-approved share repurchase programs	—		$	—
Milton Hershey School Trust repurchase	1,500,000		159,015
Shares repurchased to replace Treasury Stock issued for stock options and incentive compensation	1,278,675		141,297
Total share repurchases	2,778,675		300,312
Shares issued for stock options and incentive compensation	(1,187,883	)	$	(49,426	)
Net change	1,590,792		$	250,886



	Noncontrolling Interest
Balance, December 31, 2016	$	41,831
Net loss attributable to noncontrolling interest	(26,860		)
Other comprehensive income - foreign currency translation adjustments	735
Balance, October 1, 2017	$	15,706



Reconciliation of Certain Non-GAAP Financial Measures
Consolidated results	Three Months Ended					Nine Months Ended
In thousands except per share data	October 1, 2017			October 2, 2016		October 1, 2017			October 2, 2016
Reported gross profit	$	940,222		$	850,848	$	2,609,992		$	2,415,622
Derivative mark-to-market (gains) losses	(21,954		)	35,791		(27,486		)	30,851
Business realignment activities	213			24,470		6,475			57,948
NSRPE	2,779			2,620		8,344			9,132
Non-GAAP gross profit	$	921,260		$	913,729	$	2,597,325		$	2,513,553

Reported operating profit	$	439,020		$	374,024	$	946,292		$	976,295
Derivative mark-to-market (gains) losses	(21,954		)	35,791		(27,486		)	30,851
Business realignment activities	8,257			27,962		69,699			104,487
Acquisition integration costs	—			2,265		311			3,727
NSRPE	21,540			6,360		30,123			20,666
Long-lived asset impairment charges	—			—		208,712			—
Non-GAAP operating profit	$	446,863		$	446,402	$	1,227,651		$	1,136,026

Reported provision for income taxes	$	126,788		$	100,434	$	275,291		$	297,671
Derivative mark-to-market (gains) losses *	(3,078		)	13,566		(2,726		)	11,694
Business realignment activities*	1,112			5,576		18,312			16,409
Acquisition integration costs*	—			859		118			1,413
NSRPE*	8,171			2,432		11,440			7,900
Long-lived asset impairment charges**	(8,710		)	—		29,264			—
Non-GAAP provision for income taxes	$	124,283		$	122,867	$	331,699		$	335,087

Reported net income	$	273,303		$	227,403	$	601,848		$	603,191
Derivative mark-to-market (gains) losses	(18,876		)	22,225		(24,760		)	19,157
Business realignment activities	7,145			22,386		51,387			88,073
Acquisition integration costs	—			1,406		193			2,314
NSRPE	13,369			3,928		18,683			12,766
Long-lived asset impairment charges	8,710			—		179,448			—
Noncontrolling interest share of business realignment and impairment charges	(5		)	—		(27,967		)	—
Settlement of SGM liability	—			—		—			(26,650		)
Non-GAAP net income	$	283,646		$	277,348	$	798,832		$	698,851

Reported EPS - Diluted	$	1.28		$	1.06	$	2.81		$	2.80
Derivative mark-to-market (gains) losses	(0.08		)	0.10		(0.11		)	0.09
Business realignment activities	0.03			0.10		0.24			0.40
Acquisition integration costs	—			0.01		—			0.01
NSRPE	0.06			0.02		0.08			0.06
Long-lived asset impairment charges	0.04			—		0.84			—
Noncontrolling interest share of business realignment and impairment charges	—			—		(0.13		)	—
Settlement of SGM liability	—			—		—			(0.12		)
Non-GAAP EPS - Diluted	$	1.33		$	1.29	$	3.73		$	3.24



	Three Months Ended October 1, 2017
	Percentage Change as Reported		Impact of Foreign Currency Exchange		Percentage Change on Constant Currency Basis
North America segment
Canada	12.1	%	4.6	%	7.5	%
Total North America segment	1.6	%	0.3	%	1.3	%

International and Other segment
Mexico	15.5	%	5.9	%	9.6	%
Brazil	6.4	%	3.1	%	3.3	%
India	20.9	%	4.9	%	16.0	%
Greater China	(7.3	)%	(0.2	)%	(7.1	)%
Total International and Other segment	0.8	%	1.3	%	(0.5	)%

Total Company	1.5	%	0.4	%	1.1	%



	2017 (Projected)	2016
Reported EPS – Diluted	$3.54 - $3.68	$3.34
Derivative mark-to-market losses	—	0.66
Business realignment costs (including Margin for Growth Program costs)	0.16 - 0.21	0.42
Acquisition and integration costs	—	0.02
Non-service related pension expense	0.10	0.08
Settlement of SGM liability	—	(0.12)
Long-lived asset impairment charges	0.87	0.01
Adjusted EPS – Diluted	$4.72 - $4.81	$4.41



	Three Months Ended						Percent		Nine Months Ended						Percent
	October 1, 2017			October 2, 2016			Change		October 1, 2017			October 2, 2016			Change
In millions of dollars except per share amounts
Net Sales	$	2,033.1		$	2,003.5		1.5	%	$	5,575.8		$	5,469.9		1.9	%
Cost of Sales	1,092.9			1,152.6			(5.2	)%	2,965.8			3,054.3			(2.9	)%
Gross Profit	940.2			850.8			10.5	%	2,610.0			2,415.6			8.0	%
Gross Margin	46.2		%	42.5		%			46.8		%	44.2		%
SM&A Expense	497.2			474.5			4.8	%	1,405.0			1,408.8			(0.3	)%
SM&A Expense as a percent of net sales	24.5		%	23.7		%			25.2		%	25.8		%
Long-lived Asset Impairment Charges	—			—			—	%	208.7			—			NM
Business Realignment Costs	4.0			2.3			72.5	%	50.0			30.6			63.6	%
Operating Profit	439.0			374.0			17.4	%	946.3			976.3			(3.1	)%
Operating Profit Margin	21.6		%	18.7		%			17.0		%	17.8		%
Interest Expense, Net	24.6			24.4			0.8	%	72.5			66.7			8.6	%
Other (Income) Expense, Net	13.6			21.8			(37.5	)%	23.6			8.7			NM
Provision for Income Taxes	126.8			100.4			26.2	%	275.3			297.7			(7.5	)%
Effective Income Tax Rate	31.6		%	30.6		%			32.4		%	33.0		%
Net Income Including Noncontrolling Interest	274.0			227.4			20.5	%	575.0			603.2			(4.7	)%
Less: Net Gain (Loss) Attributable to Noncontrolling Interest	0.7			—			NM		(26.9		)	—			NM
Net Income Attributable to The Hershey Company	$	273.3		$	227.4		20.2	%	$	601.8		$	603.2		(0.2	)%
Net Income Per Share—Diluted	$	1.28		$	1.06		20.8	%	$	2.81		$	2.80		0.4	%

Note: Percentage changes may not compute directly as shown due to rounding of amounts presented above.
NM = not meaningful.



For the 12 week period ended	October 8, 2017		October 8, 2016
Hershey's Consumer Takeaway Increase (Decrease)	1.4	%	(0.4	)%
Hershey's Market Share Decrease	(0.3	)	(0.1	)