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

This Management’s Discussion and Analysis (“MD&A”) is intended to provide an understanding of 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 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

• Trends Affecting Our Business

• Consolidated Results of Operations

• Segment Results

• Liquidity and Capital Resources

• Safe Harbor Statement

OVERVIEW

Hershey is a global confectionery leader known for making more moments of goodness through chocolate, sweets, mints and other great tasting snacks. We are the largest producer of quality chocolate in North America, a leading 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 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 Company’s SkinnyPop brand.

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TRENDS AFFECTING OUR BUSINESS

During the first nine months of 2023, the rate of inflation has slowed and consumer behaviors have shifted, as negative macroeconomic conditions and future outlook, including fears of a pending recession, have negatively impacted consumer behaviors. Net sales and net income increased during the nine months ended October 1, 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 nine months ended October 1, 2023 (see Results of Operations included in this MD&A).

Furthermore, certain geopolitical events, specifically the conflict between Russia and Ukraine, have increased global economic and political uncertainty. For the nine months ended October 1, 2023, this conflict did not have a material impact on our commodity prices or supply availability. However, we are continuing to monitor for any significant escalation or expansion of economic or supply chain disruptions or broader inflationary costs, which may result in material adverse effects on our results of operations.

As of October 1, 2023, we believe we have sufficient liquidity to satisfy our key strategic initiatives and other material cash requirements in both the short-term and in the long-term; however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can operate effectively during the current economic environment. We continue to monitor our discretionary spending across the organization (see Liquidity and Capital Resources included in this MD&A).

Based on the length and severity of fluctuating levels of inflation, the likelihood of a potential recession, changes in consumer shopping and 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 our business, consolidated results of operations, segment results, liquidity and capital resources.

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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

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

Net Sales

Net sales increased 11.1% in the third quarter of 2023 compared to the same period of 2022. The net sales increase reflects a favorable price realization of 9.8% driven by higher list prices primarily within our North America Confectionery and North America Salty Snacks segments and a 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 resulted in a 0.4% impact.

Key U.S. Marketplace Metrics

For the third quarter of 2023, our total U.S. retail takeaway increased 2.4% in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores), which includes candy, mint, gum, salty snacks and grocery items. Our U.S. candy, mint and gum (“CMG”) consumer takeaway increased 2.5% and experienced a CMG market share decline of approximately 120 basis points. Our Salty consumer takeaway was flat for the third quarter of 2023 and experienced a Salty market share decline of 16 basis points.

The CMG consumer takeaway and market share information 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 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.

Cost of Sales and Gross Margin

Cost of sales increased 3.1% in the third quarter of 2023 compared to the same period of 2022. The increase was driven by 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 mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases, favorable price realization and supply chain productivity.

Gross margin increased by 430 basis points in the third quarter of 2023 compared to the same period of 2022. The increase was driven by favorable year-over-year mark-to-market impact from commodity derivative instruments and favorable price realization These increases were offset by higher logistics and labor costs.

SM&A Expenses

SM&A expenses increased $72.5 million, or 13.1%, in the third quarter of 2023 compared to the same period of 2022. Total advertising and related consumer marketing expenses increased 20.0% driven primarily by North America Confectionery and North America Salty Snacks. SM&A expenses, excluding advertising and related consumer marketing, increased approximately 9.9% in the third quarter of 2023 driven by higher compensation costs and investments in capabilities and technology across segments.

Operating Profit and Operating Profit Margin

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

Interest Expense, Net

Net interest expense was $4.4 million higher in the third quarter of 2023 compared to the same period of 2022. The increase was primarily due to higher rates on long-term debt balances in 2023 versus 2022, specifically related to the $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 was $42.7 million in the third quarter of 2023 versus net expense of $48.1 million in the third quarter of 2022. The decrease in net expense was primarily due to lower write-downs on equity investments qualifying for tax credits in 2023 versus the third quarter of 2022.

Income Taxes and Effective Tax Rate

The effective income tax rate was 20.6% for the third quarter of 2023 compared with 15.6% for the third quarter of 2022. Relative to the 21% statutory rate, the 2023 effective tax rate was impacted by investment tax credits, partially offset by state taxes and tax reserves. Relative to the 21% statutory rate, the 2022 effective tax rate was impacted by investment tax credits, partially offset by state taxes.

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

Net income increased $119.1 million, or 29.8%, while EPS-diluted increased $0.58, or 29.9%, in the third quarter of 2023 compared to the same period of 2022. The increase in both net income and EPS-diluted was driven primarily by higher gross 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 a result of share repurchases pursuant to our Board-approved repurchase programs.

Results of Operations - First Nine Months 2023 vs. First Nine Months 2022

Net Sales

Net sales increased 9.5% in the first nine months of 2023 compared to the same period of 2022, reflecting a favorable price realization of 9.1% primarily due to higher list prices across our reportable segments and a volume increase of 0.4% 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.

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Key U.S. Marketplace Metrics

For the first nine months of 2023, our total U.S. retail takeaway increased 7.5% in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores), which includes candy, mint, gum, salty snacks and grocery items. Our U.S. CMG consumer takeaway increased 7.2% and experienced a CMG market share decline of 96 basis points. Our Salty consumer takeaway increased 10.7% and experienced a Salty market share decline of 1 basis point.

Cost of Sales and Gross Margin

Cost of sales increased 5.0% in the first nine months of 2023 compared to the same period of 2022. The increase was driven by an incremental $28.0 million of unfavorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases, 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.

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

SM&A Expenses

SM&A expenses increased $158.1 million, or 9.8%, in the first nine months of 2023 compared to the same period of 2022. Total advertising and related consumer marketing expenses increased 14.5% driven by increases across reportable segments, primarily North America Confectionery and North America Salty Snacks. SM&A expenses, excluding advertising and related consumer marketing, increased approximately 7.6% in the first nine months of 2023 driven by an increase in compensation costs, investments in capabilities and technology and broad-based marketplace inflation.

Business Realignment Activities

We periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies. During the first nine months of 2023, we recorded business realignment costs of $0.4 million versus $0.3 million in the first nine months of 2022 related to the International Optimization Program. Costs associated with business realignment activities are classified in our Consolidated Statements of Income as described in Note 9 to the Unaudited Consolidated Financial Statements.

Operating Profit and Operating Profit Margin

Operating profit increased 20.9% in the first nine months of 2023 compared to the same period of 2022 predominantly due to higher gross profit, partially offset by higher SM&A expenses, as noted above. Operating profit margin was 24.6% in 2023 and 22.3% in 2022 driven by the same factors noted above that resulted in higher gross margin for the period.

Interest Expense, Net

Net interest expense was $12.1 million higher in the first nine months of 2023 compared to the same period of 2022. The increase was primarily due to higher rates on short-term debt balances in 2023 versus 2022, specifically related to outstanding commercial paper borrowings and higher rates on long-term debt 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 income in 2023 compared to 2022.

Other (Income) Expense, Net

Other (income) expense, net was $130.2 million in the first nine months of 2023 versus expense of $78.2 million in the first nine months of 2022. The increase in net expense was primarily due to higher write-downs on equity investments qualifying for tax credits in 2023 versus the first quarter of 2022 and higher interest and amortization costs due to higher discount rates for pension and other post-retirement benefit plans.

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Income Taxes and Effective Tax Rate

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

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

Net income increased $264.2 million, or 21.2%, while EPS-diluted increased $1.32, or 21.9%, in the first nine months of 2023 compared to the same period of 2022. The increase in both net income and EPS-diluted was driven by higher gross profit, partially offset by higher SM&A expenses, higher income taxes and higher other income and expenses. Our 2023 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases.

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SEGMENT RESULTS

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

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

						Three Months Ended												Nine Months Ended
						October 1, 2023						October 2, 2022						October 1, 2023						October 2, 2022
In millions of dollars
Net Sales:
North America Confectionery						$	2,457.6					$	2,235.6					$	6,902.9					$	6,361.7
North America Salty Snacks						345.2						275.0						887.5						757.4
International						227.2						217.6						717.5						647.8
Total						$	3,030.0					$	2,728.2					$	8,507.9					$	7,766.9
Segment Income:
North America Confectionery						$	847.5					$	706.8					$	2,392.4					$	2,107.6
North America Salty Snacks						57.4						44.5						147.9						103.2
International						31.7						35.4						127.8						108.1
Total segment income						936.6						786.7						2,668.1						2,318.9
Unallocated corporate expense (1)						199.3						179.6						563.0						518.9
Unallocated mark-to-market losses on commodity derivatives (2)						1.8						50.0						5.2						63.5
(Benefits) costs associated with business realignment activities						(0.4)						0.4						3.4						2.4
Operating profit						735.9						556.7						2,096.5						1,734.1
Interest expense, net						39.8						35.4						114.1						102.0
Other (income) expense, net						42.7						48.2						130.2						78.2
Income before income taxes						$	653.4					$	473.1					$	1,852.2					$	1,553.9

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

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

North America Confectionery

The North America Confectionery segment is responsible for our chocolate and non-chocolate confectionery market position 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. While a less significant component, 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 trademarks and products to third parties around the world. North America Confectionery results, which accounted for 81.1% and 81.9% of our net sales for the three months ended October 1, 2023 and October 2, 2022, respectively, were as follows:

						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
Net sales						$	2,457.6					$	2,235.6					9.9		%				$	6,902.9					$	6,361.7					8.5		%
Segment income						847.5						706.8						19.9		%				2,392.4						2,107.6						13.5		%
Segment margin						34.5		%				31.6		%										34.7		%				33.1		%

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

Net sales of our North America Confectionery segment increased $222.0 million, or 9.9%, in the third quarter of 2023 compared to the same period of 2022, reflecting a favorable price realization of 11.1% primarily due to list price increases on certain products across our portfolio. The increase was partially offset by a volume decrease of 1.0% due to a decrease in everyday core U.S. confection brands, and an unfavorable impact from foreign currency exchange rates of 0.2%.

Our North America Confectionery segment also includes licensing and owned retail. This includes our Hershey’s Chocolate World stores in the United States (3 locations), Niagara Falls (Ontario) and Singapore. Our net sales for licensing and owned retail increased approximately 11.6% during the third quarter of 2023 compared to the same period of 2022.

Our North America Confectionery segment income increased $140.7 million, or 19.9%, in the third quarter of 2023 compared to the same period of 2022, primarily due to favorable price realization, partially offset by volume declines, higher supply chain inflation costs, including higher logistics and labor costs, as well as unfavorable product mix.

Results of Operations - First Nine Months 2023 vs. First Nine Months 2022

Net sales of our North America Confectionery segment increased $541.2 million, or 8.5%, in the first nine months of 2023 compared to the same period of 2022, reflecting a favorable price realization of 9.8% due to list price increases on certain products across our portfolio. The increase was partially offset by a volume decrease of 1.0% primarily driven by a decrease in everyday core U.S. confection brands, and an unfavorable impact from foreign currency exchange rates of 0.3%.

Our North America Confectionery segment also includes licensing and owned retail. This includes our Hershey’s Chocolate World stores in the United States (3 locations), Niagara Falls (Ontario) and Singapore. Our net sales for licensing and owned retail increased approximately 14.3% during the first nine months of 2023 compared to the same period of 2022.

Our North America Confectionery segment income increased $284.8 million or 13.5% in the first nine months of 2023 compared to the same period of 2022, primarily due to favorable price realization, partially offset by volume declines, higher supply chain inflation costs, including higher logistics and labor costs, as well as unfavorable product mix.

North America Salty Snacks

The North America Salty Snacks segment is responsible for our grocery and snacks market positions, including our salty snacking products. North America Salty Snacks results, which accounted for 11.4% and 10.1% of our net sales for the three months ended October 1, 2023 and October 2, 2022, respectively, were as follows:

						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
Net sales						$	345.2					$	275.0					25.5		%				$	887.5					$	757.4					17.2		%
Segment income						57.4						44.5						29.0		%				147.9						103.2						43.3		%
Segment margin						16.6		%				16.2		%										16.7		%				13.6		%

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

Net sales of our North America Salty Snacks segment increased $70.2 million, or 25.5%, in the third quarter of 2023 compared to the same period of 2022. This reflects a volume increase of 22.2%, primarily due to Dot’s Homestyle Pretzels and SkinnyPop snacks, and a favorable price realization of 3.3%, due to list price increases on certain products across our portfolio, primarily SkinnyPop snacks.

Our North America Salty Snacks segment income increased $12.9 million, or 29.0%, in the third quarter of 2023 compared to the same period of 2022, primarily due to volume increases on certain products and favorable price realization, partially offset by increased advertising and related consumer marketing costs and additional supply chain expenses related to the voluntary removal of certain Paqui branded items.

Results of Operations - First Nine Months 2023 vs. First Nine Months 2022

Net sales of our North America Salty Snacks segment increased $130.1 million, or 17.2%, in the first nine months of 2023 compared to the same period of 2022, reflecting a volume increase of 10.3%, primarily related to SkinnyPop and Dot’s Homestyle Pretzels snacks, and a favorable price realization of 6.9%, due to list price increases on certain products across our portfolio, primarily Dot’s Homestyle Pretzels and SkinnyPop snacks.

Our North America Salty Snacks segment income increased $44.7 million, or 43.3%, in the first nine months of 2023 compared to the same period of 2022, due to favorable price realization and volume increases, partially offset by increased advertising and related consumer marketing costs and increased supply chain costs, including incremental supply chain expenses incurred in the third quarter of 2023 related to the voluntary removal of certain Paqui branded items.

International

The International segment includes all other countries where we currently manufacture, import, market, sell or distribute chocolate and non-chocolate confectionery and other products. We currently, have operations and manufacture product in Mexico, Brazil, India and Malaysia, primarily for consumers in these regions, and also distribute and sell confectionery products in export markets of Latin America, as well as Europe, Asia, the Middle East and Africa (“AMEA”) and other regions. International results, which accounted for 7.5% and 8.0% of our net sales for the three months ended October 1, 2023 and October 2, 2022, respectively, were as follows:

						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
Net sales						$	227.2					$	217.6					4.4		%				$	717.5					$	647.8					10.8		%
Segment income						31.7						35.4						(10.4)		%				127.8						108.1						18.2		%
Segment margin						14.0		%				16.3		%										17.8		%				16.7		%

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

Net sales of our International segment increased $9.6 million, or 4.4%, in the third quarter of 2023 compared to the same period of 2022, reflecting a favorable impact from foreign currency exchange rates of 5.6%, primarily driven by Mexico and favorable price realization of 4.1%. The increase was partially offset by volume declines of 5.3% across the segment. The net sales increase was primarily driven by Mexico, where net sales increased by 19.0%.

Our International segment generated income of $31.7 million in the third quarter of 2023 compared to $35.4 million in the third quarter of 2022, driven primarily by volume declines and unfavorable product mix, partially offset by favorable price realization and lower supply chain costs.

Results of Operations - First Nine Months 2023 vs. First Nine Months 2022

Net sales of our International segment increased $69.7 million, or 10.8%, in the first nine months of 2023 compared to the same period of 2022, reflecting a favorable price realization of 4.2%, volume increases of 3.4%, primarily attributable to marketplace growth across the segment, and a favorable impact from foreign currency exchange rates of 3.2%, primarily driven by Mexico. The net sales increase was primarily driven by Mexico and Brazil and Latin America, where net sales increased by 19.9% and 12.8%, respectively.

Our International segment generated income of $127.8 million in the first nine months of 2023 compared to $108.1 million in the first nine months of 2022, driven primarily by favorable price realization, volume increases and favorable supply chain costs, partially offset by unfavorable product mix.

Unallocated Corporate Expense

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

In the third quarter of 2023, unallocated corporate expense totaled $199.3 million, as compared to $179.6 million in the third quarter of 2022. The increase was primarily driven by an increase in acquisition and integration related costs, as well as investments in capabilities and technology and higher compensation costs.

In the first nine months of 2023, unallocated corporate expense totaled $563.0 million, as compared to $518.9 million in the first nine months of 2022. The increase was primarily driven by higher acquisition and integration related costs, as well as incremental investments in capabilities and technology and higher compensation costs, partially offset by a loss recognized in the prior year on the sale of non-operating assets.

LIQUIDITY AND CAPITAL RESOURCES

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

At October 1, 2023, our cash and cash equivalents totaled $471.3 million, an increase of $7.4 million compared to the 2022 year-end balance. We believe we have sufficient liquidity to satisfy our cash needs, including our unsecured revolving credit facility which 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. Additional details regarding the net uses of cash are outlined in the following discussion.

Approximately 85% of the balance of our cash and cash equivalents at October 1, 2023 was held by subsidiaries domiciled outside of the United States. A majority of this balance is distributable to the United States without material tax implications, such as withholding tax. We intend to continue to reinvest the remainder of the earnings outside of the United States for which there would be a material tax implication to distributing for the foreseeable future and, therefore, have not recognized additional tax expense on these earnings. We believe that our existing sources of liquidity are adequate to meet anticipated funding needs at comparable risk-based interest rates for the foreseeable future. Acquisition spending and/or share repurchases could potentially increase our debt. Operating cash flow and access to capital markets are expected to satisfy our various short- and long-term cash flow requirements, including acquisitions and capital expenditures.

Cash Flow Summary

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

						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)

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Operating activities

We generated cash of $1,565.6 million from operating activities in the first nine months of 2023, an increase of $5.4 million compared to $1,560.2 million in the same period of 2022. This increase in net cash provided by operating activities was mainly driven by the following factors:

• Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation, deferred income taxes, a write-down of equity investments and other charges) resulted in $314.9 million of higher cash flow in 2023 relative to 2022.

• The increase in cash provided by operating activities was partially offset by the following net cash outflows:

◦In the aggregate, select net working capital items, specifically, trade accounts receivable, inventory, accounts payable and accrued liabilities, consumed cash of $449.6 million in 2023, compared to $212.6 million in 2022. This $237.4 million fluctuation was mainly driven by an increase in cash used by accounts receivable due to an increase in sales of U.S. seasonal products and the timing of vendor and supplier payments.

◦Timing of income tax payments contributed to an increase in operating cash of $83.2 million in 2023, compared to an increase of $125.0 million in 2022. This $41.7 million fluctuation was primarily due to the variance in actual tax expense for 2023 relative to the timing of quarterly estimated tax payments. We paid cash of $264.5 million for income taxes during 2023 compared to $190.7 million in the same period of 2022.

◦Other assets and liabilities consumed cash of $93.7 million in 2023, compared to $67.8 million in 2022. This $26.0 million fluctuation was primarily due to our purchase of an irrevocable group annuity contract to settle a portion of our post retirement benefit obligation, partially offset by the timing of certain prepaid expenses and other current assets.

Investing activities

We used cash of $735.5 million for investing activities in the first nine months of 2023, an increase of $225.5 million compared to $510.0 million in the same period of 2022. This increase in net cash used in investing activities was mainly driven by the following factors:

*•*Capital spending. Capital expenditures, including capitalized software, primarily to support our ERP system implementation, capacity expansion, innovation and cost savings, were $548.6 million in the first nine months of 2023 compared to $360.0 million in the same period of 2022. Expenditures increased due to progress on capacity expansion projects and our ERP system implementation. We expect 2023 capital expenditures, including capitalized software, to approximate $800 million to $850 million. The increase in our 2023 capital expenditures is largely driven by our key strategic initiatives, including core confection capacity expansion and continued investments in a digital infrastructure including the build and upgrade of a new ERP system across the enterprise. We intend to use our existing cash and internally generated funds to meet our 2023 capital requirements.

• Investments in partnerships qualifying for tax credits. We make investments in partnership entities that in turn make equity investments in projects eligible to receive federal historic and renewable energy tax credits. We invested approximately $18.1 million in the first nine months of 2023, compared to $159.7 million in the same period of 2022.

• Business Acquisition. In May 2023, we acquired Weaver for an initial cash purchase price of $165.8 million. Further details regarding our business acquisition activity is provided in Note 2 to the Unaudited Consolidated Financial Statements. In 2022, we had no acquisition activity.

• Other investing activities. In 2023 and 2022, our other investing activities were minimal.

Financing activities

We used cash of $784.4 million for financing activities in the first nine months of 2023, a decrease of $291.6 million compared to $1,076.0 million in the same period of 2022. This decrease in net cash used in financing activities was mainly driven by the following factors:

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*•*Short-term borrowings, net. In addition to utilizing cash on hand, we use short-term borrowings (commercial paper and bank borrowings) to fund seasonal working capital requirements and ongoing business needs. During the first nine months of 2023, we generated cash of $126.1 million predominately through the issuance of short-term commercial paper, as well as an increase in short-term foreign bank borrowings. During the first nine months of 2022, we used cash of $145.6 million to reduce a portion of our short-term commercial paper borrowings originally used to fund our 2021 acquisitions of Dot’s and Pretzels, partially offset by an increase in short-term foreign bank borrowings.

• Long-term debt borrowings and repayments. During the first nine months of 2023, we issued $350 million of 4.250% Notes due in May 2028 and $400 million 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 million. Additionally, in May 2023 we repaid $250 million of 2.625% Notes and $500 million of 3.375% Notes due upon their maturity. During the first nine months of 2022, long-term debt borrowings and repayments were minimal.

• Dividend payments. Total dividend payments to holders of our Common Stock and Class B Common Stock were $651.3 million during the first nine months of 2023, an increase of $83.3 million compared to $568.0 million in the same period of 2022. Details regarding our 2023 cash dividends paid to stockholders are as follows:

						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

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

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

In July 2018, our Board of Directors approved a $500 million share repurchase authorization. In May 2021, our Board of Directors approved an additional $500 million share repurchase authorization. As a result of the February 2023 Stock Purchase Agreement with Hershey Trust Company, as trustee for the School Trust, the July 2018 share repurchase authorization was completed and as of October 1, 2023, approximately $370 million remained available for repurchases under our May 2021 share repurchase authorization. The share repurchase program does not have an expiration date. We expect 2023 share repurchases to be in line with our traditional buyback strategy.

*•*Proceeds from exercised stock options and employee tax withholding. During the first nine months of 2023, we received $24.3 million from employee exercises of stock options and paid $34.1 million of employee taxes withheld from share-based awards. During the first nine months of 2022, we received $30.8 million from employee exercises of stock options and paid $34.7 million of employee taxes withheld from share-based awards. Variances are driven primarily by the number of shares exercised and the share price at the date of grant.

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Recent Accounting Pronouncements

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

Safe Harbor Statement

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

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

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

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

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

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

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

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

• Market demand for new and existing products could decline;

• Increased marketplace competition could hurt our business;

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

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

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

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

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

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

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

• Such other matters as discussed in our 2022 Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarterly periods ended April 2, 2023 and July 3, 2023, and this Quarterly Report on Form 10-Q, including Part II, Item 1A, ”Risk Factors.”

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