Item 1. Financial Statements.

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)

												Three Months Ended
																		April 2, 2023						April 3, 2022
Net sales																		$	2,987,614					$	2,666,221
Cost of sales																		1,605,292						1,420,741
Gross profit																		1,382,322						1,245,480
Selling, marketing and administrative expense																		581,587						524,216
Business realignment costs																		811						274
Operating profit																		799,924						720,990
Interest expense, net																		37,685						33,179
Other (income) expense, net																		2,983						10,407
Income before income taxes																		759,256						677,404
Provision for income taxes																		172,071						143,926
Net income																		$	587,185					$	533,478
Net income per share—basic:
Common stock																		$	2.94					$	2.66
Class B common stock																		$	2.67					$	2.42
Net income per share—diluted:
Common stock																		$	2.85					$	2.57
Class B common stock																		$	2.66					$	2.41
Dividends paid per share:
Common stock																		$	1.036					$	0.901
Class B common stock																		$	0.942					$	0.819

See Notes to Unaudited Consolidated Financial Statements.

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

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

												For the Three Months Ended
																		April 2, 2023																		April 3, 2022
																																										Pre-Tax Amount						Tax (Expense) Benefit						After-Tax Amount						Pre-Tax Amount						Tax (Expense) Benefit						After-Tax Amount
Net income																																																						$	587,185																	$	533,478
Other comprehensive income, net of tax:
Foreign currency translation adjustments:
Foreign currency translation (losses) gains during period																																										$	8,940					$	—					8,940						$	14,419					$	—					14,419
Pension and post-retirement benefit plans:
Net actuarial (loss) gain and service cost																																										19						2						21						(6,474)						(568)						(7,042)
Reclassification to earnings																																										3,227						(774)						2,453						3,960						(950)						3,010
Cash flow hedges:
Gains (losses) on cash flow hedging derivatives																																										1,448						541						1,989						(5,924)						874						(5,050)
Reclassification to earnings																																										2,007						(1,084)						923						2,596						(727)						1,869
Total other comprehensive income, net of tax																																										$	15,641					$	(1,315)					14,326						$	8,577					$	(1,371)					7,206
Comprehensive income																																																						$	601,511																	$	540,684

See Notes to Unaudited Consolidated Financial Statements.

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

THE HERSHEY COMPANY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

						April 2, 2023						December 31, 2022
						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents						$	460,346					$	463,889
Accounts receivable—trade, net						856,841						711,203
Inventories						1,180,367						1,173,119
Prepaid expenses and other						228,546						272,195
Total current assets						2,726,100						2,620,406
Property, plant and equipment, net						2,822,238						2,769,702
Goodwill						2,607,833						2,606,956
Other intangibles						1,947,584						1,966,269
Other non-current assets						964,993						944,989
Deferred income taxes						42,770						40,498
Total assets						$	11,111,518					$	10,948,820
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable						$	1,004,907					$	970,558
Accrued liabilities						780,195						832,518
Accrued income taxes						135,071						6,710
Short-term debt						603,089						693,790
Current portion of long-term debt						758,086						753,578
Total current liabilities						3,281,348						3,257,154
Long-term debt						3,341,375						3,343,977
Other long-term liabilities						712,143						719,742
Deferred income taxes						318,287						328,403
Total liabilities						7,653,153						7,649,276
Stockholders’ equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none in 2023 and 2022						—						—
Common stock, shares issued: 164,439,248 at April 2, 2023 and 163,439,248 at December 31, 2022						164,439						163,439
Class B common stock, shares issued: 57,113,777 at April 2, 2023 and 58,113,777 at December 31, 2022						57,114						58,114
Additional paid-in capital						1,285,412						1,296,572
Retained earnings						3,970,562						3,589,781
Treasury—common stock shares, at cost: 17,179,435 at April 2, 2023 and 16,588,308 at December 31, 2022						(1,781,155)						(1,556,029)
Accumulated other comprehensive loss						(238,007)						(252,333)
Total stockholders’ equity						3,458,365						3,299,544
Total liabilities and stockholders’ equity						$	11,111,518					$	10,948,820

See Notes to Unaudited Consolidated Financial Statements.

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

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

			Three Months Ended
			April 2, 2023						April 3, 2022
Operating Activities
Net income			$	587,185					$	533,478
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			98,199						91,036
Stock-based compensation expense			18,992						15,337
Deferred income taxes			(11,250)						5,064
Write-down of equity investments			—						12,592
Other			22,347						24,043
Changes in assets and liabilities:
Accounts receivable—trade, net			(140,962)						(189,621)
Inventories			(3,263)						(37,320)
Prepaid expenses and other current assets			(172)						(11,251)
Accounts payable and accrued liabilities			16,054						98,027
Accrued income taxes			174,201						127,258
Contributions to pension and other benefit plans			(6,532)						(8,458)
Other assets and liabilities			598						(3,718)
Net cash provided by operating activities			755,397						656,467
Investing Activities
Capital additions (including software)			(176,093)						(141,063)
Equity investments in tax credit qualifying partnerships			(12,309)						(22,503)
Other investing activities			85						(400)
Net cash used in investing activities			(188,317)						(163,966)
Financing Activities
Net decrease in short-term debt			(90,700)						(65,640)
Repayment of long-term debt and finance leases			(1,187)						(1,050)
Cash dividends paid			(207,356)						(181,084)
Repurchase of common stock			(239,910)						(203,350)
Proceeds from exercised stock options			15,194						16,711
Taxes withheld and paid on employee stock awards			(28,289)						(29,041)
Net cash used in financing activities			(552,248)						(463,454)
Effect of exchange rate changes on cash and cash equivalents			(18,375)						(20,258)
Net (decrease) increase in cash and cash equivalents			(3,543)						8,789
Cash and cash equivalents, beginning of period			463,889						329,266
Cash and cash equivalents, end of period			$	460,346					$	338,055
Supplemental Disclosure
Interest paid			$	32,987					$	24,782
Income taxes paid			12,279						10,023

See Notes to Unaudited Consolidated Financial Statements.

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

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

(in thousands)

(unaudited)

						Preferred Stock						Common Stock						Class B Common Stock						Additional Paid-in Capital						Retained Earnings						Treasury Common Stock						Accumulated Other Comprehensive (Loss) Income												Total Stockholders’ Equity
Balance, December 31, 2022						$	—					$	163,439					$	58,114					$	1,296,572					$	3,589,781					$	(1,556,029)					$	(252,333)											$	3,299,544
Net income																														587,185																								587,185
Other comprehensive income																																										14,326												14,326
Dividends (including dividend equivalents):
Common Stock, $1.036 per share																														(152,603)																								(152,603)
Class B Common Stock, $0.942 per share																														(53,801)																								(53,801)
Conversion of Class B Common Stock into Common Stock												1,000						(1,000)																																				—
Stock-based compensation																								18,948																														18,948
Exercise of stock options and incentive-based transactions																								(30,108)												17,013																		(13,095)
Repurchase of common stock (including excise tax)																																				(242,139)																		(242,139)
Balance, April 2, 2023						$	—					$	164,439					$	57,114					$	1,285,412					$	3,970,562					$	(1,781,155)					$	(238,007)											$	3,458,365

						Preferred Stock						Common Stock						Class B Common Stock						Additional Paid-in Capital						Retained Earnings						Treasury Common Stock						Accumulated Other Comprehensive (Loss) Income												Total Stockholders’ Equity
Balance, December 31, 2021						$	—					$	160,939					$	60,614					$	1,260,331					$	2,719,936					$	(1,195,376)					$	(249,215)											$	2,757,229
Net income																														533,478																								533,478
Other comprehensive income																																										7,206												7,206
Dividends (including dividend equivalents):
Common Stock, $0.901 per share																														(133,174)																								(133,174)
Class B Common Stock, $0.819 per share																														(48,824)																								(48,824)
Conversion of Class B Common Stock into Common Stock												1,000						(1,000)																																				—
Stock-based compensation																								15,314																														15,314
Exercise of stock options and incentive-based transactions																								(32,405)												20,075																		(12,330)
Repurchase of common stock																																				(203,350)																		(203,350)
Balance, April 3, 2022						$	—					$	161,939					$	59,614					$	1,243,240					$	3,071,416					$	(1,378,651)					$	(242,009)											$	2,915,549

See Notes to Unaudited Consolidated Financial Statements.

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited consolidated financial statements provided in this report include the accounts of The Hershey Company (the “Company,” “Hershey,” “we” or “us”) and our majority-owned subsidiaries and entities in which we have a controlling financial interest after the elimination of intercompany accounts and transactions. We have a controlling financial interest if we own a majority of the outstanding voting common stock and minority shareholders do not have substantive participating rights, we have significant control through contractual or economic interests in which we are the primary 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 April 2, 2023 may not be indicative of the results that may be expected for the year ending December 31, 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, 2022 (our “2022 Annual Report on Form 10-K”), which provides a more complete understanding of our accounting policies, financial position, operating results and other matters.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to provide temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. Entities may apply this ASU upon issuance through December 31, 2022 on a prospective basis. We early adopted the provisions of this ASU in the first quarter of 2022. Adoption of the new standard did not have a material impact on our consolidated financial statements.

In September 2022, the 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 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

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Contracts with Customers (Topic 606) rather than adjust them to fair value at the acquisition date. ASU 2021-08 is effective for annual periods beginning after December 15, 2022 and interim periods within those annual periods. This ASU should be applied prospectively to business combinations occurring on or after the date of adoption. As a result, we adopted the provisions of this ASU in the first quarter of 2023. This new standard will be applied in relevant future acquisitions.

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2023, the FASB issued ASU No. 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in tax credit structures using the proportional amortization method. This ASU allows entities to elect the proportional amortization method for all tax equity investments, regardless of 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 investments in which it still expects to receive tax credits or other income tax benefits as of the beginning of the earliest period presented. ASU 2023-02 is effective for annual periods beginning after December 15, 2023 and interim periods within those annual periods. We are currently evaluating the impact of the new standard on our 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.

2. BUSINESS ACQUISITIONS

Manufacturing Capacity

On April 14, 2023, we entered into a definitive agreement to acquire certain assets that provide additional manufacturing capacity from Weaver Popcorn Manufacturing, Inc., a leader in the production and co-packing of microwave popcorn and ready-to-eat popcorn, and a co-manufacturer of the Company’s SkinnyPop brand. Through the transaction, the Company will mainly acquire property, plant and equipment, as well as leased manufacturing facilities in Indiana and Pennsylvania. The purchase consideration totaled approximately $164,000 and will be financed with cash on hand and short-term borrowings. The acquisition is subject to customary regulatory approvals and is expected to close during the second quarter of 2023.

Pretzels Inc.

On December 14, 2021, we completed the acquisition of Pretzels Inc. (“Pretzels”), previously a privately held company that manufactures and sells pretzels and other salty snacks for other branded products and private labels in the United States. Pretzels is an industry leader in the pretzel category with a product portfolio that includes filled, gluten free and seasoned pretzels, as well as extruded snacks that complements Hershey’s snacks portfolio. Based in Bluffton, Indiana, Pretzels operates three manufacturing locations in Indiana and 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 Pretzels acquisition were immaterial.

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

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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 was determined as the excess of the purchase price over the fair value of the net assets acquired (including the identifiable intangible assets). A portion of goodwill derived from this acquisition is deductible for tax 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 Pretzels’ products.

Other intangible assets include trademarks valued at $5,700 and customer relationships valued at $20,400. Trademarks were assigned an estimated useful life of five years and customer relationships were assigned an estimated useful life of 19 years.

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 snack food products to retailers and distributors in the United States, with Dot’s Homestyle Pretzels snacks as its primary product. Dot’s is the fastest-growing scale brand in the pretzel category and complements Hershey’s snacks portfolio. The cash consideration paid for Dot’s totaled $891,169 and consisted of cash on hand and short-term borrowings. Acquisition-related costs for the Dot’s acquisition were immaterial.

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

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired (including the identifiable intangible assets). The goodwill derived from this acquisition is deductible for tax purposes 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.

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.

3. GOODWILL AND INTANGIBLE ASSETS

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

						North America Confectionery						North America Salty Snacks						International						Total
Balance at December 31, 2022						$	2,018,430					$	571,770					$	16,756					$	2,606,956
Foreign currency translation						43						—						834						877
Balance at April 2, 2023						$	2,018,473					$	571,770					$	17,590					$	2,607,833

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

						April 2, 2023												December 31, 2022
						Gross Carrying Amount						Accumulated Amortization						Gross Carrying Amount						Accumulated Amortization
Intangible assets subject to amortization:
Trademarks						$	1,701,953					$	(202,045)					$	1,701,932					$	(190,045)
Customer-related						513,201						(100,650)						513,188						(93,495)
Patents						8,056						(8,056)						8,053						(8,053)
Total						2,223,210						(310,751)						2,223,173						(291,593)
Intangible assets not subject to amortization:
Trademarks						35,125												34,689
Total other intangible assets						$	1,947,584											$	1,966,269

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Total amortization expense for the three months ended April 2, 2023 and April 3, 2022 was $19,177 and $19,859, respectively.

4. SHORT AND LONG-TERM DEBT

Short-term Debt

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

The credit agreements governing the prior credit facility and the new credit facility contains certain financial and other covenants, customary representations, warranties and events of default. As of April 2, 2023, we were in compliance with all covenants pertaining to the prior credit facility, and we had no significant compensating balance agreements that legally restricted these funds. For more information, refer to the Consolidated Financial Statements included in our 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. Commitment fees relating to our revolving credit facility and lines of credit are not material. Short-term debt consisted of the following:

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

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

THE HERSHEY COMPANY

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

Interest Expense

Net interest expense consists of the following:

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

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

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 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 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 of $172,299 as of April 2, 2023 and $243,009 as of December 31, 2022.

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 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 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 $30,781 at April 2, 2023 and $59,448 at December 31, 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 $19,172 at April 2, 2023 and $1,843 at December 31, 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

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

Equity Price Risk

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

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

marketing and administrative expense, together with the change in the related liabilities. The notional amount of the contracts outstanding at April 2, 2023 and December 31, 2022 was $20,224 and $18,803, respectively.

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

						April 2, 2023												December 31, 2022
						Assets (1)						Liabilities (1)						Assets (1)						Liabilities (1)
Derivatives designated as cash flow hedging instruments:
Foreign exchange contracts						$	2,101					$	1,330					$	3,921					$	261
Interest rate swap agreements						3,173						—						—						—
						5,274						1,330						3,921						261
Derivatives not designated as hedging instruments:
Commodities futures and options (2)						2,261						—						685						662
Deferred compensation derivatives						1,273						—						1,222						—
Foreign exchange contracts						382						—						246						—
						3,916						—						2,153						662
Total						$	9,190					$	1,330					$	6,074					$	923

(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.

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

Income Statement Impact of Derivative Instruments

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

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

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

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

(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.

The amount of pre-tax net losses on derivative instruments, including interest rate swap agreements and foreign currency forward exchange contracts expected to be reclassified into earnings in the next 12 months was approximately $10,305 as of April 2, 2023. This amount is primarily associated with interest rate swap agreements.

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 own assumptions about the assumptions that a market participant would use in pricing the asset or liability.

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

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

						Assets (Liabilities)
						Level 1						Level 2						Level 3						Total
April 2, 2023:
Derivative Instruments:
Assets:
Foreign exchange contracts (1)						$	—					$	2,483					$	—					$	2,483
Interest rate swap agreements (2)						—						3,173						—						3,173
Deferred compensation derivatives (3)						$	—					$	1,273					$	—					$	1,273
Commodities futures and options (4)						$	2,261					$	—					$	—					$	2,261
Liabilities:
Foreign exchange contracts (1)						$	—					$	1,330					$	—					$	1,330
December 31, 2022:
Assets:
Foreign exchange contracts (1)						$	—					$	4,167					$	—					$	4,167
Deferred compensation derivatives (2)						$	—					$	1,222					$	—					$	1,222
Commodities futures and options (4)						$	685					$	—					$	—					$	685
Liabilities:
Foreign exchange contracts (1)						$	—					$	261					$	—					$	261
Commodities futures and options (4)						$	662					$	—					$	—					$	662

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

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

Table of Contents			The Hershey Company | Q1 2023 Form 10-Q | Page 15

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

Other Financial Instruments

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

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

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

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.

In connection with the acquisitions of Pretzels and Dot’s in December 2021 and 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 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 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 estimated incremental borrowing rate is derived from information available at the lease commencement date.

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

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

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

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

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

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

						April 2, 2023						December 31, 2022
Weighted-average remaining lease term (years)
Operating leases						14.9						15.0
Finance leases						27.2						27.7
Weighted-average discount rate
Operating leases						3.4		%				3.2		%
Finance leases						6.1		%				6.1		%

Supplemental balance sheet information related to leases were as follows:

Leases						Classification						April 2, 2023						December 31, 2022
Assets
Operating lease ROU assets						Other non-current assets						$	321,284					$	326,472
Finance lease ROU assets, at cost						Property, plant and equipment, gross						87,117						86,703
Accumulated amortization						Accumulated depreciation						(15,405)						(14,543)
Finance lease ROU assets, net						Property, plant and equipment, net						71,712						72,160
Total leased assets												$	392,996					$	398,632
Liabilities
Current
Operating						Accrued liabilities						$	32,842					$	31,787
Finance						Current portion of long-term debt						4,824						4,285
Non-current
Operating						Other long-term liabilities						289,351						294,849
Finance						Long-term debt						69,495						69,194
Total lease liabilities												$	396,512					$	400,115

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

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

						Three Months Ended
						April 2, 2023						April 3, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases						$	11,281					$	11,896
Operating cash flows from finance leases						1,100						1,017
Financing cash flows from finance leases						1,183						1,050
ROU assets obtained in exchange for lease liabilities:
Operating leases						$	3,735					$	10,266
Finance leases						292						473

8. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

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

Additionally, we acquire ownership interests in emerging snacking businesses and startup companies, which vary in method of accounting based on 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.

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

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

9. BUSINESS REALIGNMENT ACTIVITIES

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

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

Costs recorded by program during the three months ended April 2, 2023 and April 3, 2022 related to these activities were as follows:

												Three Months Ended
																		April 2, 2023						April 3, 2022
International Optimization Program:
Severance and employee benefit costs																		$	811					$	280
Other program costs																		1,538						1,001
Total																		$	2,349					$	1,281

Amounts classified as liabilities qualifying as exit and disposal costs primarily represent employee-related and certain third-party service provider charges, however, such amounts at April 2, 2023 are not significant.

2020 International Optimization Program

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

The International Optimization Program is expected to be completed by the end of 2023, with total pre-tax costs anticipated to be $50,000 to $75,000. Cash costs are expected to be $40,000 to $65,000, primarily related to workforce reductions of approximately 350 positions outside of the United States, costs to consolidate and relocate production, and third-party costs incurred to execute these activities. The costs and related benefits of the International Optimization Program relate to the International segment. However, segment operating results do not include these business realignment expenses because we evaluate segment performance excluding such costs.

For the three months ended April 2, 2023 and April 3, 2022, we recognized total costs associated with the International Optimization Program of $2,349 and $1,281, respectively. These charges predominantly included third-party charges in support of our initiative to transform our China operating model, as well as severance and employee benefit costs. Since inception, we have incurred pre-tax charges to execute the program totaling $52,708.

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

10. INCOME TAXES

The majority of our taxable income is generated in the United States and taxed at the United States statutory rate of 21%. The effective tax rates for the three months ended April 2, 2023 and April 3, 2022 were 22.7% and 21.2%, respectively. Relative to the statutory rate, the 2023 effective tax rate was primarily impacted by state taxes, partially offset by employee share-based payments.

The Company and its subsidiaries file tax returns in the United States, including various state and local returns, and in other foreign jurisdictions. We are routinely audited by taxing authorities in our filing jurisdictions, and a number of these disputes are currently underway, including multi-year controversies at various stages of review, negotiation and litigation in Mexico, China, Canada and the United States. The outcome of tax audits cannot be predicted with certainty, including the timing of resolution or potential settlements. If any issues addressed in our tax audits are 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 $22,796 within the next 12 months because of the expiration of statutes of limitations and settlements of tax audits.

Inflation Reduction Act

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

11. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

Net Periodic Benefit Cost

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

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

We made contributions of $833 and $5,699 to the pension plans and other benefits plans, respectively, during the first three months of 2023. In the first three months of 2022, we made contributions of $3,467 and $4,991 to our pension plans and other benefit plans, respectively. The contributions in 2023 and 2022 also included benefit payments from our non-qualified pension plans and post-retirement benefit plans.

The non-service cost components of net periodic benefit cost 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).

Table of Contents			The Hershey Company | Q1 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)

12. STOCK COMPENSATION PLANS

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 awards to employees, non-employee directors and certain service providers upon whom the successful conduct of our business is 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 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 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 accrued liabilities until paid.

Awards to employees eligible for retirement prior to the award becoming fully vested are amortized to expense over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award. In addition, historical data is used to estimate forfeiture rates and record share-based compensation expense only for those awards that are expected to vest.

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

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

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

Stock Options

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

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

Stock Options			Shares			Weighted-Average Exercise Price (per share)			Weighted-Average Remaining Contractual Term			Aggregate Intrinsic Value
Outstanding at beginning of the period			976,634			$104.36			3.8 years
Granted			5,215			$240.90
Exercised			(149,320)			$102.78
Outstanding as of April 2, 2023			832,529			$105.50			3.9 years			$	123,975
Options exercisable as of April 2, 2023			806,474			$103.28			3.7 years			$	121,886

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

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

The total intrinsic value of options exercised was $20,566 and $18,814 for the periods ended April 2, 2023 and April 3, 2022, respectively.

Performance Stock Units and Restricted Stock Units

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

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

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

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

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

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

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

(1)Reflects the net number of PSUs above and below target levels based on the performance metrics.

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

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

The fair value of shares vested totaled $97,304 and $97,803 for the periods ended April 2, 2023 and April 3, 2022, respectively.

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

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

13. SEGMENT INFORMATION

The Company reports its operations through three reportable segments: (i) North America Confectionery, (ii) North America Salty Snacks and (iii) International. This organizational structure aligns with how our Chief Operating Decision Maker (“CODM”) manages our business, including resource allocation and performance assessment, and further aligns with our product categories and the key markets we serve.

• North America Confectionery – This segment is responsible for our traditional chocolate and non-chocolate confectionery market position in the United States and Canada. This includes 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 snacks.

• International – International 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 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.

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-related costs and other unusual gains or losses that are not part of our measurement of segment performance. These 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.

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

Certain manufacturing, warehousing, distribution and other activities supporting our global operations are integrated to maximize efficiency and productivity. As a result, assets and capital expenditures are not managed on a segment basis and are not included in the information reported to the CODM for the purpose of evaluating performance or allocating resources. We disclose depreciation and amortization that is generated by segment-specific assets, since these amounts are included within the measure of segment income reported to the CODM.

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Our segment net sales and earnings were as follows:

												Three Months Ended
																		April 2, 2023						April 3, 2022
Net sales:
North America Confectionery																		$	2,452,165					$	2,217,044
North America Salty Snacks																		269,985						226,122
International																		265,464						223,055
Total																		$	2,987,614					$	2,666,221
Segment income:
North America Confectionery																		$	887,750					$	781,885
North America Salty Snacks																		46,792						21,301
International																		55,049						41,979
Total segment income																		989,591						845,165
Unallocated corporate expense (1)																		177,074						150,273
Unallocated mark-to-market losses (gains) on commodity derivatives																		10,244						(27,379)
Costs associated with business realignment activities (see Note 9)																		2,349						1,281
Operating profit																		799,924						720,990
Interest expense, net (see Note 4)																		37,685						33,179
Other (income) expense, net (see Note 17)																		2,983						10,407
Income before income taxes																		$	759,256					$	677,404

(1)Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance, and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense, (d) acquisition-related costs, and (e) other gains or losses that are not integral to segment performance.

Activity within the unallocated mark-to-market adjustment for commodity derivatives is as follows:

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

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

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

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

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

14. TREASURY STOCK ACTIVITY

A summary of our treasury stock activity is as follows:

			Three Months Ended
			April 2, 2023
			Shares						Dollars
									In thousands
Milton Hershey School Trust repurchase			1,000,000						$	239,910
Shares issued for stock options and incentive compensation			(408,873)						(17,013)
Total net share repurchases			591,127						222,897
Excise tax associated with net share repurchases (1)			—						2,229
Net change			591,127						$	225,126

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

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

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

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

In July 2018, our Board of Directors approved a $500 million share repurchase authorization to repurchase shares of our Common Stock. In May 2021, our Board of Directors approved an additional $500 million share repurchase authorization. As a result of the February 2023 Stock Purchase Agreement with Hershey Trust Company, as trustee for the School Trust, the July 2018 share repurchase authorization was completed and as of April 2, 2023, approximately $370 million 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 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.

15. CONTINGENCIES

The Company is subject to certain legal proceedings and claims arising out of the ordinary course of our 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.

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

16. EARNINGS PER SHARE

We compute basic earnings per share for Common Stock and Class B common stock using the two-class method. The Class B common stock is convertible into Common Stock on a share-for-share basis at any time. The computation of diluted earnings per share for Common Stock assumes the conversion of Class B common stock using the if-converted method, while the diluted earnings per share of Class B common stock does not assume the conversion of those shares.

						Three Months Ended
						April 2, 2023												April 3, 2022
						Common Stock						Class B Common Stock						Common Stock						Class B Common Stock
Basic earnings per share:
Numerator:
Allocation of distributed earnings (cash dividends paid)						$	153,555					$	53,801					$	132,260					$	48,824
Allocation of undistributed earnings						281,044						98,785						257,226						95,168
Total earnings—basic						$	434,599					$	152,586					$	389,486					$	143,992
Denominator (shares in thousands):
Total weighted-average shares—basic						147,746						57,114						146,464						59,614
Earnings Per Share—basic						$	2.94					$	2.67					$	2.66					$	2.42
Diluted earnings per share:
Numerator:
Allocation of total earnings used in basic computation						$	434,599					$	152,586					$	389,486					$	143,992
Reallocation of total earnings as a result of conversion of Class B common stock to Common stock						152,586						—						143,992						—
Reallocation of undistributed earnings						—						(481)						—						(562)
Total earnings—diluted						$	587,185					$	152,105					$	533,478					$	143,430
Denominator (shares in thousands):
Number of shares used in basic computation						147,746						57,114						146,464						59,614
Weighted-average effect of dilutive securities:
Conversion of Class B common stock to Common shares outstanding						57,114						—						59,614						—
Employee stock options						503						—						599						—
Performance and restricted stock units						474						—						593						—
Total weighted-average shares—diluted						205,837						57,114						207,270						59,614
Earnings Per Share—diluted						$	2.85					$	2.66					$	2.57					$	2.41

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

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(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
															April 2, 2023						April 3, 2022
Write-down of equity investments in partnerships qualifying for historic and renewable energy tax credits (see Note 8)															$	—					$	12,592
Non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans (see Note 11)															3,211						(2,182)
Other (income) expense, net															(228)						(3)
Total															$	2,983					$	10,407

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

18. SUPPLEMENTAL BALANCE SHEET INFORMATION

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

						April 2, 2023						December 31, 2022
Inventories:
Raw materials						$	417,847					$	372,612
Goods in process						186,448						137,298
Finished goods						851,724						855,217
Inventories at First In First Out						1,456,019						1,365,127
Adjustment to Last In First Out						(275,652)						(192,008)
Total inventories						$	1,180,367					$	1,173,119
Prepaid expenses and other:
Prepaid expenses						$	112,492					$	143,888
Other current assets						116,054						128,307
Total prepaid expenses and other						$	228,546					$	272,195
Property, plant and equipment:
Land						$	156,401					$	155,963
Buildings						1,546,676						1,545,053
Machinery and equipment						3,606,174						3,592,251
Construction in progress						512,450						416,220
Property, plant and equipment, gross						5,821,701						5,709,487
Accumulated depreciation						(2,999,463)						(2,939,785)
Property, plant and equipment, net						$	2,822,238					$	2,769,702
Other non-current assets:
Pension						$	53,463					$	53,495
Capitalized software, net						330,035						320,034
Operating lease ROU assets						321,284						326,472
Investments in unconsolidated affiliates						145,338						133,029
Other non-current assets						114,873						111,959
Total other non-current assets						$	964,993					$	944,989

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

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

The components of certain liability and stockholders’ equity accounts included within our Consolidated Balance Sheets are as follows:
						April 2, 2023						December 31, 2022
Accounts payable:
Accounts payable—trade						$	697,433					$	636,472
Supplier finance program obligations						120,277						105,293
Other						187,197						228,793
Total accounts payable						$	1,004,907					$	970,558
Accrued liabilities:
Payroll, compensation and benefits						$	179,912					$	293,865
Advertising, promotion and product allowances						374,853						337,024
Operating lease liabilities						32,842						31,787
Other						192,588						169,842
Total accrued liabilities						$	780,195					$	832,518
Other long-term liabilities:
Post-retirement benefits liabilities						$	143,746					$	147,174
Pension benefits liabilities						25,776						27,696
Operating lease liabilities						289,351						294,849
Other						253,270						250,023
Total other long-term liabilities						$	712,143					$	719,742
Accumulated other comprehensive loss:
Foreign currency translation adjustments						$	(101,424)					$	(110,364)
Pension and post-retirement benefit plans, net of tax						(115,781)						(118,254)
Cash flow hedges, net of tax						(20,802)						(23,715)
Total accumulated other comprehensive loss						$	(238,007)					$	(252,333)

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