THE HERSHEY COMPANY

Quarterly Report on Form 10-Q

For the Period Ended October 1, ~~2017~~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~~, 2023 and October 2 ~~2016~~, 2022		32
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended October 1 ~~2017~~, 2023 and ~~October~~Oct ober 2 ~~2016~~, 2022		43
Consolidated Balance Sheets as of October 1 ~~2017~~, 2023 and December 31, ~~2016~~2022		54
Consolidated Statements of Cash Flows for the Nine Months Ended October 1 ~~2017~~, 2023 and October 2 ~~2016~~, 2022		65
Consolidated ~~Statement~~Statements of ~~Stockholders'~~Stockholders’ Equity for the Three and Nine Months Ended ~~October~~Octo ber 1 ~~2017~~, 2023 and Octo ber 2 , 2022		76
Notes to Unaudited Consolidated Financial Statements		8
Note 1 - Summary of Significant Accounting Policies		8
Note 2 - Business Acquisitions		9
Note 3 - Goodwill and Intangible Assets		11
Note 4 - Short and Long-Term Debt		12
Note 5 - Derivative Instruments		13
Note 6 - Fair Value Measurements		16
Note 7 - Leases		18
Note 8 - Investments in Unconsolidated Affiliates		21
Note 9 - Business Realignment Activities		21
Note 10 - Income Taxes		22
Note 11 - Pension and Other Post-Retirement Benefit Plans		23
Note 12 - Stock Compensation Plans		24
Note 13 - Segment Information		27
Note 14 - Treasury Stock Activity		30
Note 15 - Contingencies		30
Note 16 - Earnings Per Share		32
Note 17 - Other (Income) Expense, Net		34
Note 18 - Related Party Transactions		34
Note 19 - Supplemental Balance Sheet Information		35
Item 2. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations		3037
Item 3. Quantitative and Qualitative Disclosures About Market Risk		4847
Item 4. Controls and Procedures		48

PART II. OTHER INFORMATION	49
~~Item1.~~Item 1. Legal Proceedings		49
Item 1A. Risk Factors		49
Item 2. Unregistered Sales of Equity Securities ~~and~~ ,Use of ~~Proceeds~~Proceed s, and Issuer Purchase s of Equity S ecuritie s		49
Item 3. Defaults Upon Senior Securities		49
Item 4. Mine Safety Disclosures		49
Item 5. Other Information		49
Item 6. Exhibits		5051

Signatures	5152


Table of Contents			The Hershey Company \| Q3 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				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Net sales	$	3,029,987	$	2,728,153	$	8,507,881	$	7,766,956
Cost of sales	1,669,734		1,619,653		4,633,207		4,412,977
Gross profit	1,360,253		1,108,500		3,874,674		3,353,979
Selling, marketing and administrative expense	624,304		551,880		1,777,695		1,619,564


Business realignment costs	—		—		441		274
Operating profit	735,949		556,620		2,096,538		1,734,141
Interest expense, net	39,755		35,378		114,101		101,970
Other (income) expense, net	42,781		48,157		130,248		78,222
Income before income taxes	653,413		473,085		1,852,189		1,553,949
Provision for income taxes	134,836		73,598		339,444		305,428


Net income	$	518,577	$	399,487	$	1,512,745	$	1,248,521

Net income per share—basic:
Common stock	$	2.60	$	2.00	$	7.56	$	6.23
Class B common stock	$	2.36	$	1.82	$	6.93	$	5.67

Net income per share—diluted:
Common stock	$	2.52	$	1.94	$	7.36	$	6.04
Class B common stock	$	2.36	$	1.81	$	6.91	$	5.65

Dividends paid per share:
Common stock	$	1.192	$	1.036	$	3.264	$	2.838
Class B common stock	$	1.083	$	0.942	$	2.967	$	2.580

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 \| Q3 2023 Form 10-Q \| Page 2

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	For the Three Months Ended												For the Nine Months Ended
	October 1, 2023						October 2, 2022						October 1, 2023						October 2, 2022
	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					$	518,577					$	399,487					$	1,512,745					$	1,248,521
Other comprehensive income, net of tax:
Foreign currency translation adjustments:
Foreign currency translation gains (losses) during period	$	(12,461)	$	—	(12,461)		$	(13,511)	$	—	(13,511)		$	8,875	$	—	8,875		$	(15,851)	$	—	(15,851)

Pension and post-retirement benefit plans:
Net actuarial gain (loss) and service cost	(35,109)		8,417		(26,692)		(27,909)		6,704		(21,205)		(34,185)		8,239		(25,946)		(66,720)		13,895		(52,825)
Reclassification to earnings	5,174		(1,242)		3,932		6,904		(1,657)		5,247		16,062		(3,855)		12,207		20,345		(4,883)		15,462
Cash flow hedges:
Gains (losses) on cash flow hedging derivatives	2,945		(1,365)		1,580		891		(706)		185		(538)		(3,096)		(3,634)		245		(1,343)		(1,098)
Reclassification to earnings	4,198		(163)		4,035		2,258		(643)		1,615		13,451		(3,267)		10,184		9,143		(1,666)		7,477
Total other comprehensive income (loss), net of tax	$	(35,253)	$	5,647	(29,606)		$	(31,367)	$	3,698	(27,669)		$	3,665	$	(1,979)	1,686		$	(52,838)	$	6,003	(46,835)


Comprehensive income					$	488,971					$	371,818					$	1,514,431					$	1,201,686

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 \| Q3 2023 Form 10-Q \| Page 3

THE HERSHEY COMPANY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	October 1, 2023		December 31, 2022
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	471,252	$	463,889
Accounts receivable—trade, net	1,127,728		711,203
Inventories	1,347,820		1,173,119

Prepaid expenses and other	243,617		272,195
Total current assets	3,190,417		2,620,406
Property, plant and equipment, net	3,156,064		2,769,702
Goodwill	2,693,182		2,606,956
Other intangibles	1,907,371		1,966,269
Other non-current assets	950,395		944,989
Deferred income taxes	38,242		40,498
Total assets	$	11,935,671	$	10,948,820
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,085,016	$	970,558
Accrued liabilities	968,926		832,518
Accrued income taxes	54,864		6,710
Short-term debt	819,880		693,790
Current portion of long-term debt	7,791		753,578
Total current liabilities	2,936,477		3,257,154
Long-term debt	4,086,087		3,343,977
Other long-term liabilities	641,801		719,742
Deferred income taxes	303,666		328,403
Total liabilities	7,968,031		7,649,276

Stockholders’ equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none in 2023 and 2022	—		—
Common stock, shares issued: 166,938,702 at October 1, 2023 and 163,439,248 at December 31, 2022	166,939		163,439
Class B common stock, shares issued: 54,613,514 at October 1, 2023 and 58,113,777 at December 31, 2022	54,614		58,114
Additional paid-in capital	1,321,533		1,296,572
Retained earnings	4,451,463		3,589,781
Treasury—common stock shares, at cost: 17,063,009 at October 1, 2023 and 16,588,308 at December 31, 2022	(1,776,262)		(1,556,029)
Accumulated other comprehensive loss	(250,647)		(252,333)


Total stockholders’ equity	3,967,640		3,299,544
Total liabilities and stockholders’ equity	$	11,935,671	$	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 \| Q3 2023 Form 10-Q \| Page 4

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended
	October 1, 2023		October 2, 2022
Operating Activities
Net income	$	1,512,745	$	1,248,521
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	303,096		279,082
Stock-based compensation expense	56,351		50,640
Deferred income taxes	(16,539)		(9,751)


Write-down of equity investments	115,418		70,754

Other	75,677		92,632
Changes in assets and liabilities, net of business acquisition:
Accounts receivable—trade, net	(409,688)		(259,064)
Inventories	(168,110)		(201,425)
Prepaid expenses and other current assets	(12,937)		(40,565)
Accounts payable and accrued liabilities	128,178		248,230
Accrued income taxes	83,227		124,965
Contributions to pension and other benefit plans	(21,073)		(16,639)
Other assets and liabilities	(80,804)		(27,186)
Net cash provided by operating activities	1,565,541		1,560,194
Investing Activities
Capital additions (including software)	(548,600)		(359,993)


Equity investments in tax credit qualifying partnerships	(18,132)		(159,713)
Business acquisitions, net of cash and cash equivalents acquired	(165,818)		—
Other investing activities	(2,993)		9,730

Net cash used in investing activities	(735,543)		(509,976)
Financing Activities
Net increase (decrease) in short-term debt	126,090		(145,552)
Long-term borrowings, net of debt issuance costs	744,092		—
Repayment of long-term debt and finance leases	(753,545)		(3,321)


Cash dividends paid	(651,266)		(567,989)
Repurchase of common stock	(239,910)		(355,271)
Proceeds from exercised stock options	24,254		30,824
Taxes withheld and paid on employee stock awards	(34,080)		(34,722)

Net cash used in financing activities	(784,365)		(1,076,031)
Effect of exchange rate changes on cash and cash equivalents	(38,270)		24,288


Net increase (decrease) in cash and cash equivalents	7,363		(1,525)
Cash and cash equivalents, beginning of period	463,889		329,266
Cash and cash equivalents, end of period	$	471,252	$	327,741
Supplemental Disclosure
Interest paid	$	111,678	$	90,787
Income taxes paid	264,497		190,724

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 \| Q3 2023 Form 10-Q \| Page 5

~~THE~~

HERSHEY COMPANY

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended October 1, 2023 and October 2, 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		Total Stockholders’ Equity
Balance, July 2, 2023	$	—	$	166,939	$	54,614	$	1,301,247	$	4,171,010	$	(1,777,984)	$	(221,041)	$	3,694,785
Net income									518,577						518,577
Other comprehensive loss													(29,606)		(29,606)
Dividends (including dividend equivalents):
Common Stock, $1.192 per share									(178,978)						(178,978)
Class B Common Stock, $1.083 per share									(59,146)						(59,146)
Conversion of Class B Common Stock into Common Stock			—		—										—
Stock-based compensation							20,884								20,884
Exercise of stock options and incentive-based transactions							(598)				1,705				1,107
Repurchase of common stock (including excise tax)											17				17




Balance, October 1, 2023	$	—	$	166,939	$	54,614	$	1,321,533	$	4,451,463	$	(1,776,262)	$	(250,647)	$	3,967,640


	Preferred Stock		Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Common Stock		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
Balance, July 3, 2022	$	—	$	163,439	$	58,114	$	1,258,091	$	3,208,598	$	(1,528,121)	$	(268,381)	$	2,891,740
Net income									399,487						399,487
Other comprehensive loss													(27,669)		(27,669)
Dividends (including dividend equivalents):
Common Stock, $1.036 per share									(152,144)						(152,144)
Class B Common Stock, $0.942 per share									(54,743)						(54,743)

Stock-based compensation							18,132								18,132
Exercise of stock options and incentive-based transactions							4,239				4,038				8,277




Balance, October 2, 2022	$	—	$	163,439	$	58,114	$	1,280,462	$	3,401,198	$	(1,524,083)	$	(296,050)	$	3,083,080

See Notes to Unaudited Consolidated Financial Statements.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 6

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended October 1, 2023 and October 2, 2022

(in thousands)

(unaudited)


	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									1,512,745						1,512,745
Other comprehensive income													1,686		1,686
Dividends (including dividend equivalents):
Common Stock, $3.264 per share									(484,314)						(484,314)
Class B Common Stock, $2.967 per share									(166,749)						(166,749)
Conversion of Class B Common Stock into Common Stock			3,500		(3,500)										—
Stock-based compensation							56,644								56,644
Exercise of stock options and incentive-based transactions							(31,683)				21,858				(9,825)
Repurchase of common stock (including excise tax)											(242,091)				(242,091)




Balance, October 1, 2023	$	—	$	166,939	$	54,614	$	1,321,533	$	4,451,463	$	(1,776,262)	$	(250,647)	$	3,967,640


	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									1,248,521						1,248,521
Other comprehensive loss													(46,835)		(46,835)
Dividends (including dividend equivalents):
Common Stock, $2.838 per share									(414,869)						(414,869)
Class B Common Stock, $2.58 per share									(152,390)						(152,390)
Conversion of Class B Common Stock into Common Stock			2,500		(2,500)										—
Stock-based compensation							50,592								50,592
Exercise of stock options and incentive-based transactions							(30,461)				26,564				(3,897)
Repurchase of common stock											(355,271)				(355,271)




Balance, October 2, 2022	$	—	$	163,439	$	58,114	$	1,280,462	$	3,401,198	$	(1,524,083)	$	(296,050)	$	3,083,080

See Notes to Unaudited Consolidated Financial Statements.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 7

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~~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,~~September 2022, the ~~Financial~~FASB issued ASU No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations. This ASU requires a buyer in a supplier finance program to disclose qualitative and 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 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 early adoption permitted. This ASU should be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on rollforward information, which should be applied prospectively. We early adopted provisions of this ASU in the fourth quarter of 2022, with the exception of the amendment on rollforward information, which will be adopted in the fourth quarter of 2023. As a result of the adoption of this new standard, we made the required disclosures in the consolidated financial statements.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting ~~Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,~~ for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers~~, which outlines a single comprehensive model for entities~~ (Topic 606) rather than adjust them 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 reflectsfair value at 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 originallyacquisition date. ASU 2021-08 is effective for usannual periods beginning after December 15, 2022 and interim periods within those annual periods. This ASU should be applied prospectively to business combinations occurring on ~~January 1, 2017; however, in July 2015~~or after the ~~FASB decided to defer~~date of adoption. As a result, we adopted the ~~effective date by one year. Early application is not permitted, but reporting entities may choose to adopt the standard as~~provisions of ~~the original effective date. The standard permits the use of either the full retrospective or modified retrospective transition method.~~

We have substantially completed our assessment of the new standard and we do 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 standardthis ASU in the first quarter of ~~2018 utilizing~~2023. This new standard was not applicable to the ~~modified retrospective transition method.~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842).~~ ~~This ASU~~May 2023 acquisition (as discussed in Note 2); however, will require lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. This ASU also requires certain quantitative and qualitative disclosures. Accounting guidance for lessors is largely unchanged. The amendments should be applied ~~on a modified retrospective basis. ASU 2016-02 is effective for us beginning January 1, 2019. We are~~ in the process of developing an inventory of our lease arrangements in order to determine the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and related disclosures. Based on our assessment to date, we expect adoption of this standard to result in a material increase 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.relevant future acquisitions.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 8

THE HERSHEY COMPANY

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

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

Recently Issued Accounting Pronouncements Not Yet Adopted

In March ~~2016,~~2023, the FASB issued ASU No. ~~2016-09,~~ ~~Compensation—Stock Compensation~~2023-02, Investments - Equity Method and Joint Ventures (Topic ~~718)~~323): ~~Improvements~~Accounting for Investments in tax credit structures using the proportional amortization method. This ASU allows entities to ~~Employee Share-Based Payment Accounting. We adopted~~elect the ~~provisions~~proportional amortization method for all tax equity investments, regardless of ~~this~~how the tax credits are received as long as certain criteria are met. This ASU may be applied in a modified retrospective or retrospective basis and an entity must evaluate the ~~first quarter of 2017. This update principally affects the recognition of excess~~investments in which it still expects to receive 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~~credits or other income tax expense or benefit 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.

~~In March 2017, the FASB issued ASU No. 2017-07,~~ ~~Compensation-Retirement Benefits (Topic 715)~~. This ASU will require an employer to report the service cost component of net benefit cost in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost 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 component may be eligible for capitalization where applicable. The amendments should be applied on a retrospective basis. ASU 2017-07 is effective for us beginning January 1, 2018, with early adoption permittedbenefits 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 of businesses are accounted for as purchases and, accordingly, the results of operations of the businesses acquired have been included in the consolidated financial statements since the respective dates of the acquisitions. The purchase price for each of the acquisitions is allocated to the assets acquired and liabilities assumed.Manufacturing Capacity

~~2016 Acquisition~~

~~Ripple Brand Collective, LLC~~

On ~~April 26, 2016,~~May 31, 2023, we completed the acquisition of ~~all~~certain assets that provide additional manufacturing capacity from Weaver Popcorn Manufacturing, Inc. (“Weaver”), a leader in the production and co-packing of microwave popcorn and ready-to-eat popcorn, and former co-manufacturer of the ~~outstanding shares~~Company’s SkinnyPop brand. The initial cash consideration paid for Weaver totaled $165,818 and consisted of ~~Ripple Brand Collective, LLC,~~cash on hand and short-term borrowings. Acquisition-related costs for the Weaver acquisition were immaterial.

The acquisition has been accounted for as a business combination and, accordingly, Weaver has been included within the North America Salty Snacks segment from the date of acquisition. The preliminary purchase consideration was allocated to assets acquired and liabilities assumed based on their respective fair values and consisted of $85,231 to goodwill, $79,136 to property, plant and equipment, net and $1,451 to other net assets acquired. We are in the process of evaluating additional information necessary to finalize the valuation of assets acquired and liabilities assumed as of the acquisition date including, but not limited to, post-closing adjustments. The final fair value determination is not expected to result in material adjustments to our preliminary purchase price allocation, including goodwill. We expect to finalize the purchase price allocation by the end of 2023.

Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired. The goodwill derived from this acquisition is deductible for tax purposes and reflects the value of leveraging our supply chain capabilities to accelerate growth and access to our portfolio of salty snacks products.

Pretzels Inc.

On December 14, 2021, we completed the acquisition of 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 \| Q3 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 $ 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 \| Q3 2023 Form 10-Q \| Page 10

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 months ended October 1, ~~2017~~2023 are as follows:


	North America Confectionery		North America Salty Snacks		International		Total
Balance at December 31, 2022	$	2,018,430	$	571,771	$	16,755	$	2,606,956
Acquired during the period (see Note 2)	—		85,231		—		85,231


Foreign currency translation	(154)		—		1,149		995
Balance at October 1, 2023	$	2,018,276	$	657,002	$	17,904	$	2,693,182


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 11

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~~STATEMENTS—(Continued)

(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:

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

As discussed 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.


	October 1, 2023				December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Intangible assets subject to amortization:
Trademarks	$	1,701,863	$	(227,276)	$	1,701,932	$	(190,045)
Customer-related	513,142		(115,697)		513,188		(93,495)
Patents	8,041		(8,041)		8,053		(8,053)

Total	2,223,046		(351,014)		2,223,173		(291,593)

Intangible assets not subject to amortization:
Trademarks	35,339				34,689
Total other intangible assets	$	1,907,371			$	1,966,269

Total amortization expense for the three months ended October 1, ~~2017~~2023 and October 2, ~~2016~~2022 was ~~$5,410~~$19,882 and ~~$7,666,~~$19,909, respectively. Total amortization expense for the nine months ended October 1, ~~2017~~2023 and October 2, ~~2016~~2022 was ~~$17,968~~$59,620 and ~~$18,811,~~$59,827, 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 a ~~$1.0~~$1.35 billion unsecured revolving credit facility ~~which currently expires in November 2020. This agreement also includes an~~with the option to increase borrowings by an additional ~~$400~~$500 million with the consent of the lenders. The 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.

The credit ~~agreement contains~~agreements governing the credit facility contain certain financial and other covenants, customary representations, warranties and events of default. As of October 1, ~~2017,~~2023, we were in compliance with all covenants pertaining to the credit ~~agreement,~~facility, and we had no significant compensating balance agreements that legally restricted access to 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%.


	October 1, 2023			December 31, 2022
Short-term foreign bank borrowings against lines of credit	$	181,988		$	135,555
U.S. commercial paper	637,892			558,235
Total short-term debt	$	819,880		$	693,790
Weighted average interest rate on outstanding commercial paper	5.4		%	4.3		%


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 12

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:


Debt Type and Rate	Maturity Date	October 1, 2023		December 31, 2022
2.625% Notes (1)	May 1, 2023	—		250,000
3.375% Notes (1)	May 15, 2023	—		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
4.250% Notes (2)	May 4, 2028	350,000		—
2.450% Notes	November 15, 2029	300,000		300,000
1.700% Notes	June 1, 2030	350,000		350,000
4.500% Notes (2)	May 4, 2033	400,000		—
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)		72,696		73,479
Net impact of interest rate swaps, debt issuance costs and unamortized debt discounts		(22,457)		(19,563)
Total long-term debt		4,093,878		4,097,555
Less—current portion		7,791		753,578
Long-term portion		$	4,086,087	$	3,343,977

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
(1) In May 2023, we repaid $250,000 of 2.625% Notes and $500,000 of 3.375% Notes due upon their maturity.

(2) During the second quarter of 2023, we issued $350,000 of 4.250% Notes due in May 2028 and $400,000 of 4.500% Notes due in May 2033 (the “2023 Notes”). Proceeds from the issuance of the 2023 Notes, net of discounts and issuance costs, totaled $744,092. The 2023 Notes were issued under a shelf registration on Form S-3 filed in May 2021 that registered an indeterminate amount of debt securities.

Interest Expense

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


	Three Months Ended				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Interest expense	$	45,776	$	38,520	$	132,175	$	109,526
Capitalized interest	(3,932)		(2,487)		(10,720)		(6,155)
Interest expense	41,844		36,033		121,455		103,371
Interest income	(2,089)		(655)		(7,354)		(1,401)
Interest expense, net	$	39,755	$	35,378	$	114,101	$	101,970


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 13

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~~$155,320 as of October 1, ~~2017~~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~~$76,824 at October 1, ~~2017~~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~~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.

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, marketing and administrative expense, together with the change in the related liabilities. The notional amount of the contracts outstanding at October 1, ~~2017~~2023 and December 31, ~~2016~~2022 was ~~$24,164~~$23,641 and ~~$22,099,~~$18,803, respectively.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 14

THE HERSHEY COMPANY

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

(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~~2023 and December 31, ~~2016:~~2022:


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

Foreign exchange contracts	$	3,080	$	3,022	$	3,921	$	261






Derivatives not designated as hedging instruments:
Commodities futures and options (2)	874		3,861		685		662
Deferred compensation derivatives	1,776		—		1,222		—
Foreign exchange contracts	116		59		246		—
	2,766		3,920		2,153		662
Total	$	5,846	$	6,942	$	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 October 1, 2023, amounts reflected on a net basis in liabilities were assets of $36,052 and liabilities of $36,023, 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 October 1, 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~~2023 and October 2, ~~2016~~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	$	17,103	$	(14,044)	$	—	$	—	$	—	$	—
Foreign exchange contracts	(583)		(39)		2,945		891		(1,924)		421
Interest rate swap agreements	—		—		—		—		(2,274)		(2,679)
Deferred compensation derivatives	(1,103)		(1,098)		—		—		—		—
Total	$	15,417	$	(15,181)	$	2,945	$	891	$	(4,198)	$	(2,258)


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 15

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)~~

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~~2023 and October 2, ~~2016~~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	$	52	$	28,027	$	—	$	—	$	—	$	—
Foreign exchange contracts	359		(173)		(3,711)		245		(196)		(956)
Interest rate swap agreements	—		—		3,173		—		(13,255)		(8,187)
Deferred compensation derivatives	1,776		(6,142)		—		—		—		—
Total	$	2,187	$	21,712	$	(538)	$	245	$	(13,451)	$	(9,143)

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 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.


~~(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)~~

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~~$17,930 as of October 1, ~~2017.~~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.


Table of Contents			The Hershey Company \| Q3 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 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~~2023 and December 31, ~~2016:~~2022:


	Assets / Liabilities
	Level 1		Level 2		Level 3		Total
October 1, 2023:
Derivative Instruments:
Assets:
Foreign exchange contracts (1)	$	—	$	1,390	$	—	$	1,390

Deferred compensation derivatives (2)	$	—	$	1,103	$	—	$	1,103
Commodities futures and options (3)	$	874	$	—	$	—	$	874
Liabilities:
Foreign exchange contracts (1)	$	—	$	5,561	$	—	$	5,561


Commodities futures and options (3)	$	3,861	$	—	$	—	$	3,861
December 31, 2022:
Assets:
Foreign exchange contracts (1)	$	—	$	4,167	$	—	$	4,167

Deferred compensation derivatives (2)	$	—	$	1,222	$	—	$	1,222
Commodities futures and options (3)	$	685	$	—	$	—	$	685
Liabilities:
Foreign exchange contracts (1)	$	—	$	261	$	—	$	261


Commodities futures and options (3)	$	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.

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)~~

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.


~~(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~~(2)The fair value of deferred compensation derivatives is based on quoted prices for market interest rates and a broad market equity index.

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~(3)The fair value of commodities futures and options contracts is based on quoted market prices.

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

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~~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
	October 1, 2023		December 31, 2022		October 1, 2023		December 31, 2022
Current portion of long-term debt	$	7,791	$	749,345	$	7,791	$	753,578
Long-term debt	3,499,711		2,854,165		4,086,087		3,343,977
Total	$	3,507,502	$	3,603,510	$	4,093,878	$	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~~


Table of Contents			The Hershey Company \| Q3 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)

In connection with the acquisition of ~~impairment charges. During the first quarter of 2017,~~Weaver in May 2023, as discussed in Note 7,2, we ~~recorded impairment charges totaling $105,992~~used valuation techniques to ~~write-down distributor relationship and trademark intangible assets that had been recognized~~determine fair value, with the primary technique being the cost approach to value personal property, which uses significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Additionally, in connection with the ~~2014 SGM acquisition~~acquisitions of Pretzels and ~~wrote-down property, plant~~Dot’s in December 2021 and ~~equipment~~subsequent measurement period adjustments through the third quarter of 2022, as discussed in Note 2, we used various valuation techniques to determine fair value, with the primary techniques being discounted cash flow analysis and 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 \| Q3 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)

The components of lease expense for the three months ended October 1, 2023 and October 2, 2022 were as follows:


		Three Months Ended
Lease expense	Classification	October 1, 2023		October 2, 2022
Operating lease cost	Cost of sales or SM&A (1)	$	12,101	$	11,812
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization (1)	1,849		1,539
Interest on lease liabilities	Interest expense, net	1,095		1,030
Net lease cost (2)		$	15,045	$	14,381

The components of lease expense for the nine months ended October 1, 2023 and October 2, 2022 were as follows:


		Nine Months Ended
Lease expense	Classification	October 1, 2023		October 2, 2022
Operating lease cost	Cost of sales or SM&A (1)	$	36,464	$	37,309
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization (1)	5,545		4,989
Interest on lease liabilities	Interest expense, net	3,287		3,083
Net lease cost (2)		$	45,296	$	45,381

(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:


	October 1, 2023		December 31, 2022
Weighted-average remaining lease term (years)
Operating leases	14.5		15.0
Finance leases	27.3		27.7

Weighted-average discount rate
Operating leases	3.5	%	3.2	%
Finance leases	6.2	%	6.1	%


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 19

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Supplemental balance sheet information related to leases were as follows:


Leases	Classification	October 1, 2023		December 31, 2022
Assets
Operating lease ROU assets	Other non-current assets	$	315,524	$	326,472

Finance lease ROU assets, at cost	Property, plant and equipment, gross	86,129		86,703
Accumulated amortization	Accumulated depreciation	(18,570)		(14,543)
Finance lease ROU assets, net	Property, plant and equipment, net	67,559		72,160

Total leased assets		$	383,083	$	398,632

Liabilities
Current
Operating	Accrued liabilities	$	34,320	$	31,787
Finance	Current portion of long-term debt	4,659		4,285
Non-current
Operating	Other long-term liabilities	283,967		294,849
Finance	Long-term debt	68,037		69,194
Total lease liabilities		$	390,983	$	400,115

The maturity of our lease liabilities as of October 1, 2023 were as follows:


	Operating leases		Finance leases		Total
2023 (rest of year)	$	11,317	$	2,300	$	13,617
2024	44,184		8,515		52,699
2025	30,800		6,471		37,271
2026	26,212		4,257		30,469
2027	25,653		4,065		29,718
Thereafter	267,948		142,022		409,970
Total lease payments	406,114		167,630		573,744
Less: Imputed interest	87,827		94,934		182,761
Total lease liabilities	$	318,287	$	72,696	$	390,983

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


	Nine Months Ended
	October 1, 2023		October 2, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	33,872	$	34,528
Operating cash flows from finance leases	3,287		3,083
Financing cash flows from finance leases	3,540		3,336

ROU assets obtained in exchange for lease liabilities:
Operating leases	$	16,857	$	6,629
Finance leases	993		4,192


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 20

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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 $126,325 and $133,029 as of October 1, 2023 and December 31, 2022, respectively.

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				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Cost of sales	$	(506)	$	(1)	$	527	$	3
Selling, marketing and administrative expense	80		394		2,472		2,096
Business realignment costs	—		—		441		274
(Benefits) costs associated with business realignment activities	$	(426)	$	393	$	3,440	$	2,373

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


	Three Months Ended				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
International Optimization Program:
Severance and employee benefit costs	$	—	$	2	$	441	$	287
Other program costs	(426)		391		2,999		2,086



Total	$	(426)	$	393	$	3,440	$	2,373

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

~~The~~Amounts classified as liabilities qualifying as exit and disposal costs primarily represent employee-related and ~~related benefits to be derived from the Margin for Growth Program relate approximately 85% to the North America segment and 15% to the International and Other segment for the three months ended~~certain third-party service provider charges, however, such amounts at October 1, ~~2017.~~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.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 21

THE HERSHEY COMPANY

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

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

The International Optimization Program was originally expected to total pre-tax costs of $50,000 to $75,000, with cash costs in the range of $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 45% to the North America segment and 55% to~~of 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. was completed in 2023.

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 forFor the nine months ended October 1, ~~2017 as part~~2023 and October 2, 2022, we recognized total costs associated with the International Optimization Program of ~~optimizing the North America supply chain. During the three~~$3,440 and ~~nine months ended October 1, 2017, we also recognized other program costs totaling $5,013 and $16,216,~~$2,373, respectively. These charges ~~relate primarily to~~predominantly included third-party charges ~~for~~in support of 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~~transform our China ~~chocolate and SGM operations into a united~~ ~~Golden Hershey~~ ~~platform, including the integration of the China sales force,~~operating model, as well as ~~workforce planning efforts~~severance and employee benefit costs. Since inception, we have incurred pre-tax charges to execute the ~~consolidation of production within certain facilities in China and North America.~~program totaling $53,799.

During the three months ended October 1, 2017, we recognized 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 to incur additional cash costs of approximately $9,000 over the next 18 months to complete this program.

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(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 months ended October 1, ~~2017~~2023 and October 2, ~~2016~~2022 were ~~32.4%~~18.3% and ~~33.0%~~19.7%, 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~~employee share-based payments partially offset by ~~non-benefited costs resulting from the Margin for Growth Program.~~ state taxes and tax reserves.

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, 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~~$24,628 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. For the nine months ended October 1, 2023, the tax-related provisions of the IRA did not have a material impact on our consolidated financial statements, including our annual effective tax rate, or on our liquidity.


Table of Contents			The Hershey Company \| Q3 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)

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 October 1, 2023 and October 2, 2022 were as follows:


	Pension Benefits						Other Benefits							Pension Benefits				Other Benefits
	Three Months Ended						Three Months Ended							Three Months Ended				Three Months Ended
	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016				October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Service cost	$	5,262		$	5,794		$	66		$	75		Service cost	$	3,747	$	4,028	$	57	$	80
Interest cost	10,320			10,130			2,214			2,435			Interest cost	10,259		8,810		1,794		1,154
Expected return on plan assets	(14,390		)	(14,700		)	—			—			Expected return on plan assets	(12,275)		(11,973)		—		—
Amortization of prior service (credit) cost	(1,455		)	(262		)	187			144
Amortization of net loss	8,526			8,803			(1		)	(4		)
Amortization of prior service credit													Amortization of prior service credit	(1,414)		(1,413)		(13)		—
Amortization of net loss (gain)													Amortization of net loss (gain)	4,974		4,563		(242)		26
Settlement loss	17,043			3,147			—			—			Settlement loss	943		3,728		926		—
Total net periodic benefit cost	$	25,306		$	12,912		$	2,466		$	2,650		Total net periodic benefit cost	$	6,234	$	7,743	$	2,522	$	1,260

We made contributions of ~~$31,512~~$987 and ~~$6,922~~$5,314 to the pension plans and other benefits plans, respectively, during the third quarter of ~~2017.~~2023. In the third quarter of ~~2016,~~2022, we made contributions of ~~$18,549~~$824 and ~~$7,473~~$1,484 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 components of net periodic benefit cost for the ~~year-to-date periods~~nine months ended October 1, 2023 and October 2, 2022 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


	Pension Benefits				Other Benefits
	Nine Months Ended				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Service cost	$	11,269	$	13,639	$	166	$	238
Interest cost	30,819		20,438		5,984		3,467
Expected return on plan assets	(37,041)		(36,788)		—		—
Amortization of prior service credit	(4,243)		(4,238)		(13)		—
Amortization of net loss	14,961		10,402		(901)		77
Settlement loss	5,332		14,104		926		—
Total net periodic benefit cost	$	21,097	$	17,557	$	6,162	$	3,782

We made contributions of ~~$36,497~~$4,849 and ~~$21,386~~$16,224 to the pension plans and other benefits plans, respectively, during the first nine months of ~~2017.~~2023. In the first nine months of ~~2016,~~2022, we made contributions of ~~$20,385~~$4,580 and ~~$22,181~~$12,059 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.

~~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 \| Q3 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)

The non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans is reflected within other (income) expense, net in the Consolidated Statements of Income (see Note 17).

During the ~~third quarter~~first nine months of ~~2017,~~2023, we recognized pension settlement charges in our hourly retirement plan due to lump sum withdrawals by employees retiring or leaving the Company. The non-cash settlement charges, which represent the acceleration of a portion of the respective plan’s accumulated unrecognized actuarial loss, were triggered when the 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.costs. In connection with ~~these~~the third quarter 2023 settlements, the related plan assets and liabilities were remeasured ~~at September 1, 2017~~ using a discount rate as of ~~3.44%, compared to 3.81%~~the remeasurement date that was 53 basis points higher than the rate as of December 31, ~~2016~~2022 and an expected rate of return on plan assets of ~~5.8%.~~6.3%, which was consistent with the rate as of December 31, 2022.

Annuitization of Other Post Employment Benefits

~~During~~On August 21, 2023, the ~~three~~Hershey Employee Benefits Committee approved the purchase of an irrevocable group annuity contract with an insurance company for eligible retirees of The Hershey Company Retiree Medical 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~~Life Insurance Plan to cover their medical benefits. On August 31, 2023, we paid $88,689 for the ~~Company as~~irrevocable group annuity contract. As a result of this transaction, we remeasured the ~~2015 Productivity Initiative.~~projected benefit obligation and recognized a $926 non-cash pre-tax settlement charge during the quarter ended October 1, 2023.

~~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~~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.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 24

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in ~~our 2016 Annual Report on Form 10-K.~~thousands, except share data or if otherwise indicated)

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				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Pre-tax compensation expense	$	20,511	$	18,079	$	56,351	$	50,640
Related income tax benefit	4,173		2,990		10,481		9,925

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,~~2023, total stock-based compensation ~~cost~~expense related to non-vested awards not yet recognized was ~~$71,908~~$94,733 and the weighted-average period over which this amount is expected to be recognized was approximately ~~2.2~~1.9 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.

A summary of activity relating to grants of stock options for the period ended October 1, ~~2017~~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 year	976,634	$104.36	3.8 years
Granted	5,215	$240.90
Exercised	(238,117)	$103.17


Outstanding as of October 1, 2023	743,732	$105.70	3.5 years	$	70,417
Options exercisable as of October 1, 2023	717,677	$103.21	3.3 years	$	69,525

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~~2023 and October 2, ~~2016,~~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


	Nine Months Ended
	October 1, 2023		October 2, 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~~$34,060 and ~~$70,009~~$36,362 for the periods ended October 1, ~~2017~~2023 and October 2, ~~2016,~~2022, respectively.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 25

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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 nine months ended October 1, 2023 and October 2, 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 nine months ended October 1, 2023 and October 2, 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- 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~~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	293,256	$249.46
Performance assumption change (1)	43,898	$224.47
Vested	(429,751)	$172.42
Forfeited	(21,345)	$204.92
Outstanding as of October 1, 2023	1,027,737	$206.49

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~~above and below target levels based on the performance metrics.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 26

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in ~~a prior period for which the measurement (grant) date occurred for accounting purposes in 2017.~~thousands, except share data or if otherwise indicated)

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.


	Nine Months Ended
	October 1, 2023			October 2, 2022
Units granted	293,256			305,109
Weighted-average fair value at date of grant	$	249.46		$	211.29
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~~$103,600 and ~~$19,673~~$103,081 for the periods ended October 1, ~~2017~~2023 and October 2, ~~2016,~~2022, respectively.

Deferred PSUs, deferred RSUs and deferred stock units representing directors’ fees totaled ~~369,037~~261,654 units as of October 1, ~~2017.~~2023. Each unit is equivalent to one share of the Company’s Common Stock.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 27

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 \| Q3 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)

Our segment net sales and earnings were as follows:


	Three Months Ended				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Net sales:
North America Confectionery	$	2,457,647	$	2,235,550	$	6,902,891	$	6,361,695
North America Salty Snacks	345,182		275,024		887,532		757,443
International	227,158		217,579		717,458		647,818
Total	$	3,029,987	$	2,728,153	$	8,507,881	$	7,766,956

Segment income:
North America Confectionery	$	847,469	$	706,815	$	2,392,397	$	2,107,564
North America Salty Snacks	57,389		44,516		147,934		103,250
International	31,688		35,379		127,838		108,058
Total segment income	936,546		786,710		2,668,169		2,318,872
Unallocated corporate expense (1)	199,270		179,632		562,974		518,834
Unallocated mark-to-market losses on commodity derivatives	1,753		50,065		5,217		63,524

(Benefits) costs associated with business realignment activities (see Note 9)	(426)		393		3,440		2,373


Operating profit	735,949		556,620		2,096,538		1,734,141
Interest expense, net (see Note 4)	39,755		35,378		114,101		101,970
Other (income) expense, net (see Note 17)	42,781		48,157		130,248		78,222
Income before income taxes	$	653,413	$	473,085	$	1,852,189	$	1,553,949

(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				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in income	$	(17,103)	$	14,044	$	(52)	$	(28,027)
Net gains on commodity derivative positions reclassified from unallocated to segment income	18,856		36,021		5,269		91,551
Net losses on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative (gains) losses	$	1,753	$	50,065	$	5,217	$	63,524

As of October 1, ~~2017,~~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.~~$3,515. 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~~$1,502 to segment operating results in the next twelve months.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 29

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				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
North America Confectionery	$	59,921	$	56,678	$	176,604	$	170,025
North America Salty Snacks	19,779		17,444		55,622		51,106
International	5,919		5,929		17,597		17,510
Corporate	17,690		14,149		53,273		40,441
Total	$	103,309	$	94,200	$	303,096	$	279,082

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


	Three Months Ended				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Net sales:
United States	$	2,683,348	$	2,392,590	$	7,459,710	$	6,793,283
All other countries	346,639		335,563		1,048,171		973,673
Total	$	3,029,987	$	2,728,153	$	8,507,881	$	7,766,956

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:


	Nine Months Ended October 1, 2023

	Shares	Dollars
		In thousands

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


Shares issued for stock options and incentive compensation	(525,299)	(21,858)
Total net share repurchases	474,701	218,052
Excise tax associated with net share repurchases (1)	—	2,181
Net change	474,701	$	220,233

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,~~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 October 1, 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.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 30

THE HERSHEY COMPANY

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

(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 \| Q3 2023 Form 10-Q \| Page 31

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~~In May 2023, 2,500,000 shares of Class B Common Stock ~~holders are entitled~~were converted to ~~cash dividends 10% higher than those declared and paid on~~Common Stock by Hershey Trust Company, as trustee for the ~~Class B common stock.~~School Trust. 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.

~~THE HERSHEY COMPANY~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(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											Three Months Ended
	October 1, 2017					October 2, 2016						October 1, 2023				October 2, 2022
	Common Stock		Class B Common Stock			Common Stock		Class B Common Stock				Common Stock		Class B Common Stock		Common Stock		Class B Common Stock
Basic earnings per share:											Basic earnings per share:
Numerator:											Numerator:
Allocation of distributed earnings (cash dividends paid)	$	99,588	$	36,129		$	94,498	$	34,068		Allocation of distributed earnings (cash dividends paid)	$	178,573	$	59,146	$	152,262	$	54,743
Allocation of undistributed earnings	100,892		36,694			72,691		26,146			Allocation of undistributed earnings	211,085		69,773		141,630		50,852
Total earnings—basic	$	200,480	$	72,823		$	167,189	$	60,214		Total earnings—basic	$	389,658	$	128,919	$	293,892	$	105,595

Denominator (shares in thousands):											Denominator (shares in thousands):
Total weighted-average shares—basic	151,418		60,620			153,259		60,620			Total weighted-average shares—basic	150,116		54,614		147,169		58,114

Earnings Per Share—basic	$	1.32	$	1.20		$	1.09	$	0.99		Earnings Per Share—basic	$	2.60	$	2.36	$	2.00	$	1.82

Diluted earnings per share:											Diluted earnings per share:
Numerator:											Numerator:
Allocation of total earnings used in basic computation	$	200,480	$	72,823		$	167,189	$	60,214		Allocation of total earnings used in basic computation	$	389,658	$	128,919	$	293,892	$	105,595
Reallocation of total earnings as a result of conversion of Class B common stock to Common stock	72,823		—			60,214		—			Reallocation of total earnings as a result of conversion of Class B common stock to Common stock	128,919		—		105,595		—
Reallocation of undistributed earnings	—		(239		)	—		(160		)	Reallocation of undistributed earnings	—		(264)		—		(251)
Total earnings—diluted	$	273,303	$	72,584		$	227,403	$	60,054		Total earnings—diluted	$	518,577	$	128,655	$	399,487	$	105,344

Denominator (shares in thousands):											Denominator (shares in thousands):
Number of shares used in basic computation	151,418		60,620			153,259		60,620			Number of shares used in basic computation	150,116		54,614		147,169		58,114
Weighted-average effect of dilutive securities:											Weighted-average effect of dilutive securities:
Conversion of Class B common stock to Common shares outstanding	60,620		—			60,620		—			Conversion of Class B common stock to Common shares outstanding	54,614		—		58,114		—
Employee stock options	1,002		—			1,062		—			Employee stock options	400		—		561		—
Performance and restricted stock units	352		—			220		—			Performance and restricted stock units	358		—		430		—
Total weighted-average shares—diluted	213,392		60,620			215,161		60,620			Total weighted-average shares—diluted	205,488		54,614		206,274		58,114

Earnings Per Share—diluted	$	1.28	$	1.20		$	1.06	$	0.99		Earnings Per Share—diluted	$	2.52	$	2.36	$	1.94	$	1.81

The earnings per share calculations for the three months ended October 1, ~~2017~~2023 and October 2, ~~2016~~2022 excluded ~~2,374~~8 and ~~2,921, respectively, of~~4 stock options (in thousands), respectively, that would have been antidilutive.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 32

THE HERSHEY COMPANY

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

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


	Nine Months Ended											Nine Months Ended
	October 1, 2017					October 2, 2016						October 1, 2023				October 2, 2022
	Common Stock		Class B Common Stock			Common Stock		Class B Common Stock				Common Stock		Class B Common Stock		Common Stock		Class B Common Stock
Basic earnings per share:											Basic earnings per share:
Numerator:											Numerator:
Allocation of distributed earnings (cash dividends paid)	$	287,580	$	104,265		$	273,380	$	98,326		Allocation of distributed earnings (cash dividends paid)	$	484,517	$	166,749	$	415,599	$	152,390
Allocation of undistributed earnings	154,128		55,875			170,458		61,027			Allocation of undistributed earnings	644,062		217,417		498,070		182,462
Total earnings—basic	$	441,708	$	160,140		$	443,838	$	159,353		Total earnings—basic	$	1,128,579	$	384,166	$	913,669	$	334,852

Denominator (shares in thousands):											Denominator (shares in thousands):
Total weighted-average shares—basic	152,004		60,620			153,943		60,620			Total weighted-average shares—basic	149,307		55,447		146,557		59,058

Earnings Per Share—basic	$	2.91	$	2.64		$	2.88	$	2.63		Earnings Per Share—basic	$	7.56	$	6.93	$	6.23	$	5.67

Diluted earnings per share:											Diluted earnings per share:
Numerator:											Numerator:
Allocation of total earnings used in basic computation	$	441,708	$	160,140		$	443,838	$	159,353		Allocation of total earnings used in basic computation	$	1,128,579	$	384,166	$	913,669	$	334,852
Reallocation of total earnings as a result of conversion of Class B common stock to Common stock	160,140		—			159,353		—			Reallocation of total earnings as a result of conversion of Class B common stock to Common stock	384,166		—		334,852		—
Reallocation of undistributed earnings	—		(401		)	—		(347		)	Reallocation of undistributed earnings	—		(931)		—		(954)
Total earnings—diluted	$	601,848	$	159,739		$	603,191	$	159,006		Total earnings—diluted	$	1,512,745	$	383,235	$	1,248,521	$	333,898

Denominator (shares in thousands):											Denominator (shares in thousands):
Number of shares used in basic computation	152,004		60,620			153,943		60,620			Number of shares used in basic computation	149,307		55,447		146,557		59,058
Weighted-average effect of dilutive securities:											Weighted-average effect of dilutive securities:
Conversion of Class B common stock to Common shares outstanding	60,620		—			60,620		—			Conversion of Class B common stock to Common shares outstanding	55,447		—		59,058		—
Employee stock options	1,165		—			1,013		—			Employee stock options	457		—		582		—
Performance and restricted stock units	334		—			182		—			Performance and restricted stock units	402		—		470		—
Total weighted-average shares—diluted	214,123		60,620			215,758		60,620			Total weighted-average shares—diluted	205,613		55,447		206,667		59,058

Earnings Per Share—diluted	$	2.81	$	2.64		$	2.80	$	2.62		Earnings Per Share—diluted	$	7.36	$	6.91	$	6.04	$	5.65

The earnings per share calculations for the nine months ended October 1, ~~2017~~2023 and October 2, ~~2016~~2022 excluded ~~2,374~~12 and ~~3,680, respectively, of~~4 stock options (in thousands), respectively, that would have been antidilutive.

~~16.~~


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 33

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Write-down of equity investments in partnerships qualifying for historic and renewable energy tax credits (see Note 8)	$	38,058	$	43,314	$	115,418	$	70,754
Non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans (see Note 11)	4,952		4,895		15,824		7,462

Other (income) expense, net	(229)		(52)		(994)		6
Total	$	42,781	$	48,157	$	130,248	$	78,222

18. RELATED PARTY TRANSACTIONS

Hershey Trust Company, as trustee for the trust established by Milton S. and Catherine S. Hershey that has as its sole beneficiary for the School Trust, maintains voting control over The Hershey Company.

In any given year, we may engage in certain transactions with Hershey Trust Company, Milton Hershey School, the Milton Hershey School Trust and companies owned by and/or affiliated with any of the foregoing. Most transactions with these related parties are immaterial and do not require disclosure, but certain transactions are more significant in nature and have been deemed material for disclosure.

A summary of material related party transactions with Hershey Trust Company and/or its affiliates for the nine months ended October 1, 2023 and October 2, 2022 is as follows:

Stock Purchase Agreement

In February 2023 and February 2022, the Company entered into Stock Purchase Agreements with Hershey Trust Company, as trustee for the School Trust, pursuant to which the Company purchased shares of its Common Stock from the School Trust (see Note 14).

Sale and Donation of Property, Plant and Equipment

In May 2022, the Company entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with Hershey Trust Company, as trustee for the School Trust, pursuant to which the Company agreed to sell certain real and personal property consisting of approximately six acres of land located in Hershey, Pennsylvania, together with portions of a building located on the land. Additionally, in June 2022, the Company entered into a Donation Agreement with Hershey Trust Company, as trustee for The M.S. Hershey Foundation, pursuant to which the Company agreed to donate a portion of the building concurrently with the closing of the Purchase Agreement. The sale and donation transactions closed in June 2022. Total proceeds from the sale were approximately $6,300 (net of transaction and closing costs), resulting in a loss of $13,568, which was recorded in the SM&A expense caption within the Consolidated Statements of Income. The fair values of the disposed assets were supported by a proposed sales price submitted by a third-party buyer received prior to executing the Purchase Agreement.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 34

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.~~19. SUPPLEMENTAL BALANCE SHEET INFORMATION

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


	October 1, 2023		December 31, 2022
Inventories:
Raw materials	$	469,455	$	372,612
Goods in process	184,397		137,298
Finished goods	969,620		855,217
Inventories at First In First Out	1,623,472		1,365,127
Adjustment to Last In First Out	(275,652)		(192,008)
Total inventories	$	1,347,820	$	1,173,119

Prepaid expenses and other:
Prepaid expenses	$	133,265	$	143,888

Other current assets	110,352		128,307
Total prepaid expenses and other	$	243,617	$	272,195

Property, plant and equipment:
Land	$	159,701	$	155,963
Buildings	1,618,136		1,545,053
Machinery and equipment	3,836,925		3,592,251
Construction in progress	618,631		416,220
Property, plant and equipment, gross	6,233,393		5,709,487
Accumulated depreciation	(3,077,329)		(2,939,785)
Property, plant and equipment, net	$	3,156,064	$	2,769,702

Other non-current assets:
Pension	$	42,754	$	53,495
Capitalized software, net	345,198		320,034

Operating lease ROU assets	315,524		326,472
Investments in unconsolidated affiliates	126,325		133,029
Other non-current assets	120,594		111,959
Total other non-current assets	$	950,395	$	944,989


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 35

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:
	October 1, 2023		December 31, 2022
Accounts payable:
Accounts payable—trade	$	675,389	$	636,472
Supplier finance program obligations	149,533		105,293
Other	260,094		228,793
Total accounts payable	$	1,085,016	$	970,558

Accrued liabilities:
Payroll, compensation and benefits	$	245,975	$	293,865
Advertising, promotion and product allowances	384,872		337,024
Operating lease liabilities	34,320		31,787

Other	303,759		169,842
Total accrued liabilities	$	968,926	$	832,518

Other long-term liabilities:
Post-retirement benefits liabilities	$	77,995	$	147,174
Pension benefits liabilities	27,515		27,696
Operating lease liabilities	283,967		294,849
Other	252,324		250,023
Total other long-term liabilities	$	641,801	$	719,742

Accumulated other comprehensive loss:
Foreign currency translation adjustments	$	(101,489)	$	(110,364)
Pension and post-retirement benefit plans, net of tax	(131,993)		(118,254)
Cash flow hedges, net of tax	(17,165)		(23,715)
Total accumulated other comprehensive loss	$	(250,647)	$	(252,333)


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 36

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 (“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 May 31, 2023, we completed the acquisition of ~~America ("GAAP"~~certain assets that provide additional manufacturing capacity from Weaver Popcorn Manufacturing, Inc. (“Weaver”), ~~referred to as "reported" herein, refer to the discussion and analysis~~a leader in the ~~Consolidated Results~~production and co-packing of ~~Operations.~~microwave popcorn and ready-to-eat popcorn, and former co-manufacturer of the Company’s SkinnyPop brand.

~~OVERVIEW AND OUTLOOK~~

~~Our third quarter 2017 net sales totaled $2,033.1 million, an increase~~


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 37

TRENDS AFFECTING OUR BUSINESS

During the first nine months of ~~1.5%, versus $2,003.5 million for~~2023, the ~~comparable period~~rate of ~~2016. Excluding~~inflation has slowed and consumer behaviors have shifted, as negative macroeconomic conditions and future outlook, including fears of a ~~0.4% impact from favorable foreign exchange rates, our net sales increased 1.1%.~~pending recession, have negatively impacted consumer behaviors. Net sales ~~growth was driven by 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.~~

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, as well as lower input costs, being more than offset by higher freight rates 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) totaled $273.3 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%. The impact of foreign currency exchange rates is expected to be minimal versus a prior estimate of 0.25% unfavorable impact. We currently expect full-year 2017 reported EPS-diluted 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 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 assetsincreased during the ~~three~~nine months ended October 1, ~~2017. However,~~2023; however, this was primarily driven by price realization and minimal volume increases. Additionally, we continued to experience corresponding incremental costs and gross margin pressures during the long-lived asset impairment charge 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 threenine months ended October 1, ~~2017~~2023 (see Results of Operations included in this MD&A).

Furthermore, certain geopolitical events, specifically the conflict between Russia and ~~October 2, 2016, the net unallocated mark-to-market adjustment on commodity derivatives totaled pre-tax gains of $22.0 million~~Ukraine, have increased global economic and ~~losses of $35.8 million, respectively.~~political uncertainty. For the nine months ended October 1, ~~2017 and October 2, 2016, the net unallocated mark-to-market adjustment~~2023, this conflict did not have a material impact on our commodity ~~derivatives totaled pre-tax gains~~prices or supply availability. However, we are continuing to monitor for any significant escalation or expansion of ~~$27.5 million and losses~~economic or supply chain disruptions or broader inflationary costs, which may result in material adverse effects on our results of ~~$30.9 million, respectively.~~operations.

~~Business realignment activities~~

~~We periodically undertake restructuring and cost reduction activities as part~~As of ~~ongoing efforts to enhance long-term profitability. For the three months ended~~ October 1, ~~2017~~2023, we believe we have sufficient liquidity to satisfy our key strategic initiatives and ~~October 2, 2016,~~other material cash requirements in both the short-term and in the long-term; however, we ~~incurred $8.3 million~~continue to evaluate and ~~$28.0 million, respectively, of pre-tax costs related~~take action, as necessary, to preserve adequate liquidity and ensure that our 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~~can operate effectively during the ~~three~~current economic environment. We continue to monitor our discretionary spending across the organization (see Liquidity and ~~nine months ended October 1, 2017~~Capital Resources included in this MD&A).

Based on the length and ~~2016 relate to~~severity of fluctuating levels of inflation, the ~~integration~~likelihood 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~~potential recession, changes in ~~market interest rates~~consumer shopping and ~~market returns~~consumption behavior, and changes in geopolitical events, including the ongoing conflict between Russia and Ukraine and the recent conflict in the Gaza Strip, we may experience increasing supply chain costs, higher inflation and other impacts to our business. We will continue to evaluate the nature and extent of these potential and evolving impacts 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~~consolidated 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.~~liquidity and capital resources.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 38

CONSOLIDATED RESULTS OF OPERATIONS


	Three Months Ended								Nine Months Ended
	October 1, 2023			October 2, 2022			Percent Change		October 1, 2023			October 2, 2022			Percent Change
In millions of dollars except per share amounts
Net sales	$	3,030.0		$	2,728.2		11.1	%	$	8,507.9		$	7,767.0		9.5	%
Cost of sales	1,669.7			1,619.7			3.1	%	4,633.2			4,413.0			5.0	%
Gross profit	1,360.3			1,108.5			22.7	%	3,874.7			3,354.0			15.5	%
Gross margin	44.9		%	40.6		%			45.5		%	43.2		%
Selling, marketing & administrative (“SM&A”) expenses	624.4			551.9			13.1	%	1,777.8			1,619.6			9.8	%
SM&A expense as a percent of net sales	20.6		%	20.2		%			20.9		%	20.9		%

Business realignment activities	—			—			NM		0.4			0.3			60.9	%
Operating profit	735.9			556.6			32.2	%	2,096.5			1,734.1			20.9	%
Operating profit margin	24.3		%	20.4		%			24.6		%	22.3		%
Interest expense, net	39.8			35.4			12.4	%	114.1			102.0			11.9	%
Other (income) expense, net	42.7			48.1			(11.2)	%	130.2			78.2			66.5	%
Provision for income taxes	134.8			73.6			83.2	%	339.5			305.4			11.1	%
Effective income tax rate	20.6%			15.6%					18.3%			19.7%


Net income	$	518.6		$	399.5		29.8	%	$	1,512.7		$	1,248.5		21.2	%
Net income per share—diluted	$	2.52		$	1.94		29.9	%	$	7.36		$	6.04		21.9	%

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

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~~2023 vs. Third Quarter ~~2016~~2022

Net Sales

Net sales increased ~~1.5%~~11.1% in the third quarter of ~~2017~~2023 compared to the same period of ~~2016, reflecting volume increases of 0.7%,~~2022. The net sales increase reflects a favorable price realization of ~~0.4%~~9.8% driven by higher list prices primarily within our North America Confectionery and North America Salty Snacks segments and a ~~favorable impact from foreign~~volume increase of 0.9% driven primarily by an increase in everyday core North America Salty Snacks brands, partially offset by decreases in everyday core U.S. brands and International brands. Foreign currency exchange rates ofresulted in a 0.4%~~. Excluding foreign currency, our net sales increased 1.1% in~~ impact.

Key U.S. Marketplace Metrics

For the third quarter of ~~2017. Consolidated volumes~~2023, our total U.S. retail takeaway increased ~~as a result of higher sales volume~~2.4% in the ~~North America segment,~~expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores), which ~~benefited from core brand growth~~includes candy, mint, gum, salty snacks and ~~innovation, including~~ ~~Hershey's Cookie Layer Crunch~~,grocery items. Our U.S. candy, mint and gum (“CMG”) consumer takeaway increased 2.5% and experienced a CMG market share decline of approximately 120 basis points. Our Salty consumer takeaway was flat for the ~~launch~~third quarter of ~~Hershey's~~2023 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 )

experienced a Salty market share decline of 16 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~~Circana, 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 3.1% in the third quarter of ~~2017~~2023 compared to the same period of ~~2016.~~2022. The ~~improvement~~increase was driven by ~~an incremental $57.7~~higher sales volume and higher supply chain costs, including higher logistics and labor costs. The increase


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was partially offset by $31.1 million of favorable ~~impact from marking-to-market~~mark-to-market activity on our commodity derivative instruments intended to economically hedge future ~~years'~~years’ commodity purchases, ~~a $24.3 million decrease in business realignment costs,~~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 by ~~370~~430 basis points in the third quarter of ~~2017~~2023 compared to the same period of ~~2016. Favorable~~2022. The increase was driven by favorable year-over-year mark-to-market impact from commodity derivative instruments ~~lower commodity~~ and ~~business realignment costs,~~favorable price realization These increases were offset by higher logistics and ~~supply chain productivity contributed to the improvement in gross margin. However, higher supply chain costs partially offset the increase in gross margin.~~labor costs.

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

~~Selling, marketing and administrative (“~~SM~~&A”)~~&A expenses increased ~~$22.7~~$72.5 million, or ~~4.8%~~13.1%, in the third 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 20.0% driven primarily by North America Confectionery and ~~administrative~~North America Salty Snacks. SM&A expenses, ~~for 2017~~excluding advertising and 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~~approximately 9.9% in ~~go-to-market capabilities, partially offset by costs savings and efficiency initiatives.~~

~~Business Realignment Activities~~

In the third quarter of ~~2017~~2023 driven by higher compensation costs and ~~2016, we recorded business realignment costs of $4.0 million~~investments in capabilities and $2.3 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.technology across segments.

Operating Profit and Operating Profit Margin

Operating profit ~~increased 17.4%~~was $735.9 million in the third quarter of ~~2017~~2023 compared to $556.6 million in the same period of ~~2016~~2022 predominantly due ~~primarily~~ to ~~the~~ higher gross ~~margin~~profit, partially offset by higher SM&A expenses, as ~~discussed~~noted above. Operating profit margin increased to ~~21.6%~~24.3% in ~~2017~~2023 from ~~18.7%~~20.4% in ~~2016 also~~2022 driven by the ~~improvement~~same factors noted above that resulted in higher gross ~~margin.~~margin for the period.

Interest Expense, Net

Net interest expense was ~~$0.2~~$4.4 million higher in the third quarter of ~~2017~~2023 compared to the same period of ~~2016.~~2022. The increase was primarily due to higher ~~interest~~ rates on ~~higher levels of short-term~~long-term debt ~~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~~balances in 2023 versus 2022, specifically related to the ~~2016 quarter.~~$350 million 4.25% Notes and $400 million 4.50% Notes issued in May 2023. The increase was partially offset by higher interest income.

Other (Income) Expense, Net

Other (income) expense, net ~~totaled $13.6~~was $42.7 million in the third quarter of ~~2017 compared~~2023 versus net expense of $48.1 million in the third 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 and energy~~ tax ~~credits.~~

credits in 2023 versus the third quarter of 2022.

Income Taxes and Effective Tax Rate

~~Our~~The effective income tax rate was ~~31.6%~~20.6% for the third quarter of ~~2017~~2023 compared ~~to 30.6%~~with 15.6% for the ~~same period~~third quarter of ~~2016.~~2022. Relative to the 21% statutory rate, the ~~2017~~2023 effective tax rate was impacted by ~~favorable foreign rate differential relating to our cocoa procurement operations and~~ investment tax credits, ~~which were~~ partially offset by ~~non-benefited costs resulting from~~state taxes and tax reserves. Relative to the ~~Margin for Growth Program. The 2016~~21% statutory rate, the 2022 effective tax rate ~~benefited from a one time~~was impacted by investment tax ~~return amendment for research and development~~ credits, ~~and other tax deductions.~~partially offset by state taxes.

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

Net income increased ~~$45.9~~$119.1 million, or ~~20.2%~~29.8%, while EPS-diluted increased ~~$0.22,~~$0.58, or ~~20.8%~~29.9%, in the third 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 and lower other income and expenses, partially offset by higher SM&A expenses and higher income taxes. Our 2023 EPS-diluted also benefited from lower weighted-average shares outstanding as ~~discussed above.~~a result of share repurchases pursuant to our Board-approved repurchase programs.

Results of Operations - First Nine Months ~~2017~~2023 vs. First Nine Months ~~2016~~2022

Net Sales

Net sales increased ~~1.9%~~9.5% in the first nine months of ~~2017~~2023 compared to the same period of ~~2016,~~2022, reflecting a favorable price realization of ~~0.8%, volume increases of 0.7%~~9.1% primarily due to higher list prices across our reportable segments and a volume increase of 0.4% ~~benefit from acquisitions.~~driven by increases in everyday core brands within the North America Salty Snacks and International segments, partially offset by a decrease in everyday core U.S. brands. There was no impact from foreign currency exchange ~~rates during~~rates.


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Key U.S. Marketplace Metrics

For the ~~period. The favorable net price realization was attributed to lower levels~~first nine months of ~~trade promotional spending~~2023, our total U.S. retail takeaway increased 7.5% in ~~both~~ the ~~North America~~expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores), which includes candy, mint, gum, salty snacks and ~~International~~grocery items. Our U.S. CMG consumer takeaway increased 7.2% and ~~Other segments versus the prior year.~~ ~~Consolidated volumes~~experienced a CMG market share decline of 96 basis points. Our Salty consumer takeaway increased as10.7% and experienced a ~~result~~Salty market share decline 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 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.1 basis point.

Cost of Sales and Gross Margin

Cost of sales ~~decreased 2.9%~~increased 5.0% in the first nine months of ~~2017~~2023 compared to the same period of ~~2016.~~2022. The ~~improvement~~increase was driven by ~~lower commodity costs, including~~ an incremental ~~$58.3~~$28.0 million ~~favorable impact from marking-to-market~~of unfavorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future ~~years'~~years’ commodity purchases, ~~a $51.5 million year-over-year decrease in business realignment~~higher sales volume and higher supply chain costs, including higher logistics and labor costs. The increase was partially offset by favorable price realization and supply chain productivity. ~~These benefits were offset in part by unfavorable manufacturing variances and higher freight and warehousing costs.~~

Gross margin increased by ~~260~~230 basis points in the first nine months of ~~2017~~2023 compared to the same period of ~~2016,~~2022. The increases were driven by ~~lower commodity~~favorable price realization and ~~business realignment costs, and supply chain productivity. However, the~~volume increases. The increase ~~in gross margin~~ was partially offset by unfavorable year-over-year mark-to-market impact from commodity derivative instruments, higher supply chain ~~costs.~~inflation costs, including higher logistics and labor costs and unfavorable product mix.

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

~~Selling, marketing and administrative (“~~SM~~&A”)~~&A expenses ~~decreased $3.8~~increased $158.1 million, or ~~0.3%~~9.8%, in the first nine months of ~~2017. Advertising and related consumer marketing expense increased 1.1% during this period. Excluding these~~2023 compared to the same period of 2022. Total advertising and related consumer marketing ~~costs, selling~~expenses increased 14.5% driven by increases across reportable segments, primarily North America Confectionery and ~~administrative~~North America Salty Snacks. SM&A 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~~excluding advertising and ~~efficiency initiatives, partially offset by higher pension settlement charges and investments~~related consumer marketing, increased approximately 7.6% 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~~2023 driven by an increase in ~~connection with the 2014 SGM acquisition~~compensation costs, investments in capabilities and ~~write-down of property, plant~~technology and ~~equipment. See Note 7 to the Unaudited Consolidated Financial Statements.~~

broad-based marketplace inflation.

Business Realignment Activities

InWe periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies. During the first nine months of ~~2017 and 2016,~~2023, we recorded business realignment costs of ~~$50.0~~$0.4 million ~~and $30.6~~versus $0.3 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~~nine months of ~~2017. The 2016 costs~~2022 related ~~primarily~~ to the ~~Operational~~International Optimization ~~Program,~~Program. 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 ~~decreased 3.1%~~increased 20.9% in the first nine months of ~~2017~~2023 compared to the same period of ~~2016~~2022 predominantly due ~~primarily~~ to ~~the long-lived asset impairment charges and~~ higher ~~business realignment costs,~~gross profit, partially offset by higher ~~gross margin and lower~~ SM&A expenses, as ~~discussed~~noted above. Operating profit margin ~~decreased to 17.0%~~was 24.6% in ~~2017 from 17.8%~~2023 and 22.3% in ~~2016~~2022 driven by ~~these~~the same ~~factors.~~factors noted above that resulted in higher gross margin for the period.

Interest Expense, Net

Net interest expense was ~~$5.7~~$12.1 million higher in the first nine months of ~~2017~~2023 compared to the same period of ~~2016.~~2022. The increase was primarily due to higher ~~levels of~~rates on short-term debt balances in 2023 versus 2022, specifically related to outstanding commercial paper borrowings and higher rates on long-term debt ~~outstanding~~balances in 2023 versus 2022, specifically related to the $350 million 4.25% and $400 million 4.50% Notes issued in May 2023. The increase was partially offset by 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~~income in 2023 compared to ~~the 2016 period.~~2022.

Other (Income) Expense, Net

Other (income) expense, net ~~totaled expense of $23.6~~was $130.2 million ~~during~~in the first nine months of ~~2017~~2023 versus expense of ~~$8.7~~$78.2 million ~~for~~in the ~~same period~~first nine months of ~~2016. In 2017 we recognized a $24.0 million write-down~~2022. The increase in net expense was primarily due to higher write-downs on equity investments qualifying for ~~federal historic and energy~~ tax credits ~~compared to a $35.9 million write down~~ in 2023 versus the first ~~nine month~~quarter of ~~2016. Additionally, 2016 was offset by an extinguishment gain of $26.7 million related~~2022 and higher interest and amortization costs due to ~~the settlement of the SGM liability.~~higher discount rates for pension and other post-retirement benefit plans.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 41

Income Taxes and Effective Tax Rate

Our effective income tax rate was ~~32.4%~~18.3% for the first nine months of ~~2017~~2023 compared with ~~33.0%~~19.7% for the ~~same period~~first nine months of ~~2016.~~2022. Relative to the 21% statutory rate, the ~~2017~~2023 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~~employee share-based payments 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~~state taxes and tax reserves. Relative to the ~~settlement of~~21% statutory rate, the ~~SGM liability and~~2022 effective tax rate was impacted by investment tax ~~credits.~~credits, partially offset by state taxes.

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

Net income ~~decreased $1.3~~increased $264.2 million, or ~~0.2%~~21.2%, while EPS-diluted increased ~~$0.01,~~$1.32, or ~~0.4%~~21.9%, in the first nine months of ~~2017~~2023 compared to the same period of ~~2016.~~2022. The ~~decrease~~increase in both net income and EPS-diluted was driven by ~~the long-lived asset impairment charges~~higher gross profit, partially offset by higher SM&A expenses, higher income taxes and higher ~~business realignment costs,~~other income and expenses. Our 2023 EPS-diluted also benefited from lower weighted-average shares outstanding as ~~noted above, whereas, the increase in EPS was driven by lower diluted shares outstanding.~~a result of share repurchases.


Table of Contents			The Hershey Company \| Q3 2023 Form 10-Q \| Page 42



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



	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	)


~~(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.~~


	Nine Months Ended
In millions of dollars	October 1, 2023		October 2, 2022
Net cash provided by (used in):
Operating activities	$	1,565.6	$	1,560.2
Investing activities	$	(735.5)	$	(510.0)
Financing activities	$	(784.4)	$	(1,076.0)
Effect of exchange rate changes on cash and cash equivalents	$	(38.3)	$	24.3

Net change in cash and cash equivalents	$	7.4	$	(1.5)


◦	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.


	Quarter Ended
In millions of dollars except per share amounts	April 2, 2023		July 2, 2023		October 1, 2023
Dividends paid per share – Common stock	$	1.036	$	1.036	$	1.192
Dividends paid per share – Class B common stock	$	0.942	$	0.942	$	1.083
Total cash dividends paid	$	207.4	$	206.1	$	237.8
Declaration date	January 31, 2023		April 25, 2023		July 27, 2023
Record date	February 17, 2023		May 19, 2023		August 18, 2023
Payment date	March 15, 2023		June 15, 2023		September 15, 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	—



Exhibit Number						Description
~~10.1~~3.1						~~Stock Purchase Agreement, dated August 24, 2017, between Milton Hershey School Trust, by its trustee, Hershey Trust Company, and~~ The ~~Hershey Company~~Company’s Restated Certificate of Incorporation, as amended, is incorporated by reference from Exhibit ~~10.1~~3 to the ~~Company's Current~~Company’s Quarterly Report on Form ~~8-K filed August 28, 2017.~~10-Q for the quarter ended April 3, 2005.
~~12.1~~3.2						~~Computation~~The Company's By-laws, as amended and restated as of ~~Ratio of Earnings~~February 21, 2017, are incorporated by reference from Exhibit 3.2 to ~~Fixed Charges.~~the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.*
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 October 1, 2023, formatted in Inline XBRL and contained in Exhibit 101.
*
*						Filed herewith
**						Furnished herewith