UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended July ~~4, 2021~~3, 2022


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

For the transition period from ______to_______

Commission file number 1-183

THE HERSHEY COMPANY

(Exact name of registrant as specified in its charter)


Delaware						23-0691590
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

19 East Chocolate Avenue, Hershey, PA 17033

(Address of principal executive offices and Zip Code)

(717) 534-4200

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, one dollar par value

HSY

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Common Stock, one dollar par value—~~145,425,767~~146,869,652 shares, as of July ~~23, 2021.~~22, 2022.

Class B Common Stock, one dollar par value—~~60,613,777~~58,113,777 shares, as of July ~~23, 2021.~~22, 2022.

THE HERSHEY COMPANY

Quarterly Report on Form 10-Q

For the Period Ended July ~~4, 2021~~3, 2022

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION						2
Item 1. Financial Statements						2
Consolidated Statements of Income for the Three and Six Months Ended July ~~4, 2021~~3, 2022 and ~~June 28~~July ~~, 2020~~ 4, 2021						2
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended July 3, 2022 and July 4, 2021 ~~and~~ ~~June 28, 2020~~						3
Consolidated Balance Sheets as of July ~~4, 2021~~3, 2022 and December 31, ~~2020~~2021						4
Consolidated Statements of Cash Flows for the Six Months Ended July 3, 2022 and July 4, 2021 ~~and~~ ~~June 28, 2020~~						5
Consolidated Statement of ~~Stockholders'~~Stockholders’ Equity for the Three and Six Months Ended July 3, 2022 and July 4, 2021 ~~and~~ ~~June 28, 2020~~						6
Notes to Unaudited Consolidated Financial Statements						8
Note 1 - Summary of Significant Accounting Policies						8
Note 2 - Business A ~~cquisition~~Acquisitions and Divestiture s						9
Note 3 - Goodwill and Intangible Assets						1012
Note 4 - Short and Long-Term Debt						1012
Note 5 - Derivative Instruments						1213
Note 6 - Fair Value Measurements						1516
Note 7 - Leases						1618
Note 8 - Investments in Unconsolidated Affiliates						1921
Note 9 - Business Realignment Activities						1921
Note 10 - Income Taxes						2122
Note 11 - Pension and Other Post-Retirement Benefit Plans						2223
Note 12 - Stock Compensation Plans						2324
Note 13 - Segment Information						26
Note 14 - Treasury Stock Activity						29
Note 15 - ~~Noncontrolling Interest~~Contingencies						29
Note 16 ~~- Contingencies~~						29
~~Note 17~~ - Earnings Per Share						30
Note 1817 - Other (Income) Expense, Net						32
Note 1918 - Related Party Transactions						32
Note 1 9 - Supplemental Balance Sheet Information						33
Item 2. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations						34
Item 3. Quantitative and Qualitative Disclosures About Market Risk						47
~~Item 4. Controls and Procedures~~						48
~~PART II. OTHER INFORMATION~~ Item 4. Controls and Procedures						49
PART II. OTHER INFORMATION						50
Item 1. Legal Proceedings						4950
Item 1A. Risk Factors						4950
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						4950
Item 3. Defaults Upon Senior Securities						4950
Item 4. Mine Safety Disclosures						49
~~Item 5. Other Information~~						49
~~Item 6. Exhibits~~						50
Item 5. Other Information						50
Item 6. Exhibits						51
Signatures						5152


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Net sales	Net sales	$	1,989,422	$	1,707,329	$	4,285,370	$	3,744,646	Net sales	$	2,372,582	$	1,989,422	$	5,038,803	$	4,285,370
Cost of sales	Cost of sales	1,063,977		914,777		2,310,974		2,085,472		Cost of sales	1,372,583		1,063,977		2,793,324		2,310,974
Gross profit	Gross profit	925,445		792,552		1,974,396		1,659,174		Gross profit	999,999		925,445		2,245,479		1,974,396
Selling, marketing and administrative expense	Selling, marketing and administrative expense	467,629		408,949		962,294		884,333		Selling, marketing and administrative expense	543,468		467,629		1,067,684		962,294
Long-lived asset impairment charges		0		1,600		0		9,143

Business realignment costs (benefits)		1,141		(1,370)		2,383		(475)

Business realignment costs										Business realignment costs	—		1,141		274		2,383
Operating profit	Operating profit	456,675		383,373		1,009,719		766,173		Operating profit	456,531		456,675		1,177,521		1,009,719
Interest expense, net	Interest expense, net	31,065		38,079		67,501		74,334		Interest expense, net	33,413		31,065		66,592		67,501
Other (income) expense, net	Other (income) expense, net	7,194		11,217		9,608		22,750		Other (income) expense, net	19,658		7,194		30,065		9,608
Income before income taxes	Income before income taxes	418,416		334,077		932,610		669,089		Income before income taxes	403,460		418,416		1,080,864		932,610
Provision for income taxes	Provision for income taxes	117,186		66,035		234,509		132,264		Provision for income taxes	87,904		117,186		231,830		234,509
Net income including noncontrolling interest	Net income including noncontrolling interest	301,230		268,042		698,101		536,825		Net income including noncontrolling interest	315,556		301,230		849,034		698,101
Less: Net (loss) gain attributable to noncontrolling interest		0		(859)		1,072		(3,213)
Less: Net gain attributable to noncontrolling interest										Less: Net gain attributable to noncontrolling interest	—		—		—		1,072
Net income attributable to The Hershey Company	Net income attributable to The Hershey Company	$	301,230	$	268,901	$	697,029	$	540,038	Net income attributable to The Hershey Company	$	315,556	$	301,230	$	849,034	$	697,029

Net income per share—basic:	Net income per share—basic:									Net income per share—basic:
Common stock	Common stock	$	1.50	$	1.33	$	3.46	$	2.66	Common stock	$	1.57	$	1.50	$	4.24	$	3.46
Class B common stock	Class B common stock	$	1.36	$	1.21	$	3.14	$	2.41	Class B common stock	$	1.44	$	1.36	$	3.85	$	3.14

Net income per share—diluted:	Net income per share—diluted:									Net income per share—diluted:
Common stock	Common stock	$	1.45	$	1.29	$	3.35	$	2.58	Common stock	$	1.53	$	1.45	$	4.10	$	3.35
Class B common stock	Class B common stock	$	1.36	$	1.20	$	3.13	$	2.41	Class B common stock	$	1.44	$	1.36	$	3.84	$	3.13

Dividends paid per share:	Dividends paid per share:									Dividends paid per share:
Common stock	Common stock	$	0.804	$	0.773	$	1.608	$	1.546	Common stock	$	0.901	$	0.804	$	1.802	$	1.608
Class B common stock	Class B common stock	$	0.731	$	0.702	$	1.462	$	1.404	Class B common stock	$	0.819	$	0.731	$	1.638	$	1.462

See Notes to Unaudited Consolidated Financial Statements.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 2

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


		For the Three Months Ended												For the Six Months Ended																		For the Three Months Ended																		For the Six Months Ended
		July 4, 2021						June 28, 2020						July 4, 2021						June 28, 2020												July 3, 2022									July 4, 2021									July 3, 2022									July 4, 2021
		Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount		Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount		Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount		Pre-Tax Amount			Tax (Expense) Benefit				After-Tax Amount					Pre-Tax Amount		Tax (Expense) Benefit			After-Tax Amount				Pre-Tax Amount		Tax (Expense) Benefit			After-Tax Amount				Pre-Tax Amount		Tax (Expense) Benefit			After-Tax Amount				Pre-Tax Amount		Tax (Expense) Benefit	After-Tax Amount
Net income including noncontrolling interest	Net income including noncontrolling interest					$	301,230					$	268,042					$	698,101								$	536,825	Net income including noncontrolling interest								$	315,556								$	301,230								$	849,034						$	698,101
Other comprehensive income (loss), net of tax:
Other comprehensive income, net of tax:																						Other comprehensive income, net of tax:
Foreign currency translation adjustments:	Foreign currency translation adjustments:																							Foreign currency translation adjustments:
Foreign currency translation gains (losses) during period		$	12,996	$	0	12,996		$	3,052	$	0	3,052		$	14,194	$	0	14,194		$	(48,292)		$	0			(48,292)
Foreign currency translation (losses) gains during period																						Foreign currency translation (losses) gains during period			$	(16,758)				$	—		(16,758)		$	12,996			$	—		12,996		$	(2,340)			$	—		(2,340)		$	14,194			$	—		14,194
Reclassification to earnings due to the sale of businesses	Reclassification to earnings due to the sale of businesses	0		0		0		0		0		0		5,210		0		5,210		0			0				0		Reclassification to earnings due to the sale of businesses			—		—			—				—		—			—				—		—			—				5,210		—	5,210
Pension and post-retirement benefit plans:	Pension and post-retirement benefit plans:																							Pension and post-retirement benefit plans:
Net actuarial gain and service cost		18,481		(4,399)		14,082		(16,685)		3,954		(12,731)		20,705		(4,928)		15,777		(16,685)			3,954				(12,731)
Net actuarial (loss) gain and service cost																						Net actuarial (loss) gain and service cost			(32,337)					7,758			(24,579)		18,481				(4,399)			14,082		(38,811)				7,191			(31,620)		20,705				(4,928)			15,777
Reclassification to earnings	Reclassification to earnings	8,936		(2,201)		6,735		8,542		(2,183)		6,359		15,789		(4,068)		11,721		13,297			(2,731)				10,566		Reclassification to earnings			9,481		(2,275)			7,206				8,936		(2,201)			6,735				13,441		(3,226)			10,215				15,789		(4,068)	11,721
Cash flow hedges:	Cash flow hedges:																							Cash flow hedges:
(Losses) gains on cash flow hedging derivatives		(6,344)		(446)		(6,790)		675		838		1,513		(7,979)		(159)		(8,138)		6,056			(268)				5,788
Gains (losses) on cash flow hedging derivatives																						Gains (losses) on cash flow hedging derivatives			5,278					(1,511)			3,767		(6,344)				(446)			(6,790)		(646)				(637)			(1,283)		(7,979)				(159)			(8,138)
Reclassification to earnings	Reclassification to earnings	5,681		158		5,839		1,205		(817)		388		8,818		(382)		8,436		3,297			(1,930)				1,367		Reclassification to earnings			4,289		(296)			3,993				5,681		158			5,839				6,885		(1,023)			5,862				8,818		(382)	8,436
Total other comprehensive income (loss), net of tax		$	39,750	$	(6,888)	32,862		$	(3,211)	$	1,792	(1,419)		$	56,737	$	(9,537)	47,200		$	(42,327)		$	(975)			(43,302)
Total other comprehensive income, net of tax																						Total other comprehensive income, net of tax			$	(30,047)				$	3,676		(26,371)		$	39,750			$	(6,888)		32,862		$	(21,471)			$	2,305		(19,166)		$	56,737			$	(9,537)		47,200
Total comprehensive income including noncontrolling interest	Total comprehensive income including noncontrolling interest					$	334,092					$	266,623					$	745,301								$	493,523	Total comprehensive income including noncontrolling interest								$	289,185								$	334,092								$	829,868						$	745,301
Comprehensive (loss) income attributable to noncontrolling interest	Comprehensive (loss) income attributable to noncontrolling interest					(8)						(826)						6,326									(3,288)		Comprehensive (loss) income attributable to noncontrolling interest								—									(8)									—							6,326
Comprehensive income attributable to The Hershey Company	Comprehensive income attributable to The Hershey Company					$	334,100					$	267,449					$	738,975								$	496,811	Comprehensive income attributable to The Hershey Company								$	289,185								$	334,100								$	829,868						$	738,975

See Notes to Unaudited Consolidated Financial Statements.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 3

THE HERSHEY COMPANY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


		July 4, 2021		December 31, 2020			July 3, 2022		December 31, 2021
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	426,201	$	1,143,987	Cash and cash equivalents	$	339,722	$	329,266
Accounts receivable—trade, net	Accounts receivable—trade, net	532,401		615,233		Accounts receivable—trade, net	654,399		671,464
Inventories	Inventories	1,060,422		964,207		Inventories	1,208,239		988,511

Prepaid expenses and other	Prepaid expenses and other	200,157		254,478		Prepaid expenses and other	226,105		256,965
Total current assets	Total current assets	2,219,181		2,977,905		Total current assets	2,428,465		2,246,206
Property, plant and equipment, net	Property, plant and equipment, net	2,341,825		2,285,255		Property, plant and equipment, net	2,590,826		2,586,187
Goodwill	Goodwill	2,166,446		1,988,215		Goodwill	2,616,497		2,633,174
Other intangibles	Other intangibles	1,509,435		1,295,214		Other intangibles	2,007,748		2,037,588
Other non-current assets	Other non-current assets	612,614		555,887		Other non-current assets	904,822		868,203
Deferred income taxes	Deferred income taxes	34,362		29,369		Deferred income taxes	40,516		40,873
Total assets	Total assets	$	8,883,863	$	9,131,845	Total assets	$	10,588,874	$	10,412,231
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	615,641	$	580,058	Accounts payable	$	876,193	$	692,338
Accrued liabilities	Accrued liabilities	708,292		781,766		Accrued liabilities	736,685		855,638
Accrued income taxes	Accrued income taxes	52,035		17,051		Accrued income taxes	20,543		3,070
Short-term debt	Short-term debt	207,564		74,041		Short-term debt	914,916		939,423
Current portion of long-term debt	Current portion of long-term debt	3,470		438,829		Current portion of long-term debt	752,573		2,844
Total current liabilities	Total current liabilities	1,587,002		1,891,745		Total current liabilities	3,300,910		2,493,313
Long-term debt	Long-term debt	4,095,200		4,089,755		Long-term debt	3,340,472		4,086,627
Other long-term liabilities	Other long-term liabilities	671,601		683,434		Other long-term liabilities	764,041		787,058
Deferred income taxes	Deferred income taxes	256,167		229,028		Deferred income taxes	291,711		288,004
Total liabilities	Total liabilities	6,609,970		6,893,962		Total liabilities	7,697,134		7,655,002

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
The Hershey Company stockholders’ equity	The Hershey Company stockholders’ equity					The Hershey Company stockholders’ equity
Preferred stock, shares issued: NaN in 2021 and 2020		0		0
Common stock, shares issued: 160,939,248 at July 4, 2021 and December 31, 2020		160,939		160,939
Class B common stock, shares issued: 60,613,777 at July 4, 2021 and December 31, 2020		60,614		60,614
Preferred stock, shares issued: none in 2022 and 2021						Preferred stock, shares issued: none in 2022 and 2021	—		—
Common stock, shares issued: 163,439,248 at July 3, 2022 and 160,939,248 at December 31, 2021						Common stock, shares issued: 163,439,248 at July 3, 2022 and 160,939,248 at December 31, 2021	163,439		160,939
Class B common stock, shares issued: 58,113,777 at July 3, 2022 and 60,613,777 at December 31, 2021						Class B common stock, shares issued: 58,113,777 at July 3, 2022 and 60,613,777 at December 31, 2021	58,114		60,614
Additional paid-in capital	Additional paid-in capital	1,218,708		1,191,200		Additional paid-in capital	1,258,091		1,260,331
Retained earnings	Retained earnings	2,301,805		1,928,673		Retained earnings	3,208,598		2,719,936
Treasury—common stock shares, at cost: 15,528,828 at July 4, 2021 and 13,325,898 at December 31, 2020		(1,180,881)		(768,992)
Treasury—common stock shares, at cost: 16,581,634 at July 3, 2022 and 15,444,011 at December 31, 2021						Treasury—common stock shares, at cost: 16,581,634 at July 3, 2022 and 15,444,011 at December 31, 2021	(1,528,121)		(1,195,376)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(296,136)		(338,082)		Accumulated other comprehensive loss	(268,381)		(249,215)
Total—The Hershey Company stockholders’ equity		2,265,049		2,234,352
Noncontrolling interest in subsidiary		8,844		3,531

Total stockholders’ equity	Total stockholders’ equity	2,273,893		2,237,883		Total stockholders’ equity	2,891,740		2,757,229
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	8,883,863	$	9,131,845	Total liabilities and stockholders’ equity	$	10,588,874	$	10,412,231

See Notes to Unaudited Consolidated Financial Statements.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 4

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


		Six Months Ended					Six Months Ended
		July 4, 2021		June 28, 2020			July 3, 2022		July 4, 2021
Operating Activities	Operating Activities					Operating Activities
Net income including noncontrolling interest	Net income including noncontrolling interest	$	698,101	$	536,825	Net income including noncontrolling interest	$	849,034	$	698,101
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	153,929		142,524		Depreciation and amortization	184,882		153,929
Stock-based compensation expense	Stock-based compensation expense	32,482		25,490		Stock-based compensation expense	32,561		32,482
Deferred income taxes	Deferred income taxes	5,789		3,309		Deferred income taxes	7,388		5,789
Impairment of long-lived assets		0		9,143

Write-down of equity investments	Write-down of equity investments	7,771		18,550		Write-down of equity investments	27,440		7,771

Other	Other	51,355		27,311		Other	66,235		51,355
Changes in assets and liabilities, net of business acquisitions and divestitures:	Changes in assets and liabilities, net of business acquisitions and divestitures:					Changes in assets and liabilities, net of business acquisitions and divestitures:
Accounts receivable—trade, net	Accounts receivable—trade, net	88,945		11,794		Accounts receivable—trade, net	19,216		88,945
Inventories	Inventories	(68,968)		(194,396)		Inventories	(220,071)		(68,968)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	14,432		15,730		Prepaid expenses and other current assets	(3,588)		14,432
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	(33,238)		(19,304)		Accounts payable and accrued liabilities	123,335		(33,238)
Accrued income taxes	Accrued income taxes	68,317		65,169		Accrued income taxes	51,927		68,317
Contributions to pension and other benefit plans	Contributions to pension and other benefit plans	(9,338)		(8,333)		Contributions to pension and other benefit plans	(14,331)		(9,338)
Other assets and liabilities	Other assets and liabilities	8,075		(19,765)		Other assets and liabilities	(10,255)		8,075
Net cash provided by operating activities	Net cash provided by operating activities	1,017,652		614,047		Net cash provided by operating activities	1,113,773		1,017,652
Investing Activities	Investing Activities					Investing Activities
Capital additions (including software)	Capital additions (including software)	(227,607)		(185,784)		Capital additions (including software)	(240,960)		(227,607)

Equity investments in tax credit qualifying partnerships	Equity investments in tax credit qualifying partnerships	(57,445)		(26,392)		Equity investments in tax credit qualifying partnerships	(116,191)		(57,445)
Business acquisitions, net of cash and cash equivalents acquired	Business acquisitions, net of cash and cash equivalents acquired	(418,191)		0		Business acquisitions, net of cash and cash equivalents acquired	—		(418,191)
Other investing activities	Other investing activities	3,123		2,374		Other investing activities	6,166		3,123

Net cash used in investing activities	Net cash used in investing activities	(700,120)		(209,802)		Net cash used in investing activities	(350,985)		(700,120)
Financing Activities	Financing Activities					Financing Activities
Net increase in short-term debt		137,027		166,017
Long-term borrowings, net of debt issuance costs		0		989,876
Net (decrease) increase in short-term debt						Net (decrease) increase in short-term debt	(24,507)		137,027

Repayment of long-term debt and finance leases	Repayment of long-term debt and finance leases	(436,957)		(352,104)		Repayment of long-term debt and finance leases	(2,473)		(436,957)

Cash dividends paid	Cash dividends paid	(324,304)		(314,279)		Cash dividends paid	(360,984)		(324,304)
Repurchase of common stock	Repurchase of common stock	(434,346)		(211,196)		Repurchase of common stock	(355,271)		(434,346)
Exercise of stock options		16,889		17,544
Proceeds from exercised stock options						Proceeds from exercised stock options	21,770		31,749
Taxes withheld and paid on employee stock awards						Taxes withheld and paid on employee stock awards	(33,940)		(14,860)

Net cash (used in) provided by financing activities		(1,041,691)		295,858
Net cash used in financing activities						Net cash used in financing activities	(755,405)		(1,041,691)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(5,061)		(17,351)		Effect of exchange rate changes on cash and cash equivalents	3,073		(5,061)
(Decrease) increase in cash and cash equivalents, including cash classified as held for sale		(729,220)		682,752
Less: Decrease (increase) in cash and cash equivalents classified as held for sale		11,434		(10,683)
Net (decrease) increase in cash and cash equivalents		(717,786)		672,069
Increase (decrease) in cash and cash equivalents, including cash classified as held for sale						Increase (decrease) in cash and cash equivalents, including cash classified as held for sale	10,456		(729,220)
Less: Increase in cash and cash equivalents classified as held for sale						Less: Increase in cash and cash equivalents classified as held for sale	—		11,434
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	10,456		(717,786)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	1,143,987		493,262		Cash and cash equivalents, beginning of period	329,266		1,143,987
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	426,201	$	1,165,331	Cash and cash equivalents, end of period	$	339,722	$	426,201
Supplemental Disclosure	Supplemental Disclosure					Supplemental Disclosure
Interest paid	Interest paid	$	68,345	$	74,944	Interest paid	$	61,657	$	68,345
Income taxes paid	Income taxes paid	139,078		71,633		Income taxes paid	172,888		139,078

See Notes to Unaudited Consolidated Financial Statements.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 5

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended July 3, 2022 and July 4, 2021 ~~and June 28, 2020~~

(in thousands)

(unaudited)


		Preferred Stock		Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Common Stock		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests in Subsidiaries		Total Stockholders’ Equity			Preferred Stock		Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Common Stock		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
Balance, April 4, 2021		0		$	160,939	$	60,614	$	1,195,748	$	2,162,464	$	(994,765)	$	(329,006)	$	8,852	$	2,264,846
Balance, April 3, 2022																				Balance, April 3, 2022	$	—	$	161,939	$	59,614	$	1,243,240	$	3,071,416	$	(1,378,651)	$	(242,009)	$	2,915,549
Net income	Net income									301,230						0		301,230		Net income									315,556						315,556
Other comprehensive income (loss)														32,870		(8)		32,862
Other comprehensive loss																				Other comprehensive loss													(26,372)		(26,372)
Dividends (including dividend equivalents):	Dividends (including dividend equivalents):																			Dividends (including dividend equivalents):
Common Stock, $0.804 per share										(117,581)								(117,581)
Class B Common Stock, $0.731 per share										(44,308)								(44,308)

Common Stock, $0.901 per share																				Common Stock, $0.901 per share									(129,551)						(129,551)
Class B Common Stock, $0.819 per share																				Class B Common Stock, $0.819 per share									(48,823)						(48,823)
Conversion of Class B Common Stock into Common Stock																				Conversion of Class B Common Stock into Common Stock			1,500		(1,500)										—
Stock-based compensation	Stock-based compensation							17,121										17,121		Stock-based compensation							17,146								17,146
Exercise of stock options and incentive-based transactions	Exercise of stock options and incentive-based transactions							5,839				7,871						13,710		Exercise of stock options and incentive-based transactions							(2,295)				2,451				156
Repurchase of common stock	Repurchase of common stock											(193,987)						(193,987)		Repurchase of common stock											(151,921)				(151,921)

Balance, July 4, 2021		$	0	$	160,939	$	60,614	$	1,218,708	$	2,301,805	$	(1,180,881)	$	(296,136)	$	8,844	$	2,273,893
Balance, July 3, 2022																				Balance, July 3, 2022	$	—	$	163,439	$	58,114	$	1,258,091	$	3,208,598	$	(1,528,121)	$	(268,381)	$	2,891,740

Preferred
Stock Common
Stock Class B
Common
Stock Additional
Paid-in
Capital Retained
Earnings Treasury
Common
Stock Accumulated Other
Comprehensive
Income (Loss) Noncontrolling
Interests in
Subsidiaries Total
Stockholders’
Equity
Balance, March 29, 2020 0 $ 160,939 $ 60,614 $ 1,153,130 $ 1,404,453 $ (742,164) $ (365,741) $ 3,310 $ 1,674,541
Net income (loss) 268,901 (859) 268,042
Other comprehensive (loss) income (1,452) 33 (1,419)
Dividends (including dividend equivalents):
Common Stock, $0.773 per share (114,260) (114,260)
Class B Common Stock, $0.702 per share (42,551) (42,551)
Stock-based compensation 12,612 12,612
Exercise of stock options and incentive-based transactions (3,864) 5,008 1,144
Repurchase of common stock (42,020) (42,020)
Balance, June 28, 2020 $ 0 $ 160,939 $ 60,614 $ 1,161,878 $ 1,516,543 $ (779,176) $ (367,193) $ 2,484 $ 1,756,089


	Preferred Stock		Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Common Stock		Accumulated Other Comprehensive (Loss) Income		Noncontrolling Interests in Subsidiaries		Total Stockholders’ Equity
Balance, April 4, 2021	$	—	$	160,939	$	60,614	$	1,195,748	$	2,162,464	$	(994,765)	$	(329,006)	$	8,852	$	2,264,846
Net income									301,230						—		301,230
Other comprehensive income													32,870		(8)		32,862
Dividends (including dividend equivalents):
Common Stock, $0.804 per share									(117,581)								(117,581)
Class B Common Stock, $0.731 per share									(44,308)								(44,308)

Stock-based compensation							17,121										17,121
Exercise of stock options and incentive-based transactions							5,839				7,871						13,710
Repurchase of common stock											(193,987)						(193,987)



Balance, July 4, 2021	$	—	$	160,939	$	60,614	$	1,218,708	$	2,301,805	$	(1,180,881)	$	(296,136)	$	8,844	$	2,273,893

See Notes to Unaudited Consolidated Financial Statements.


Table of Contents			The Hershey Company \| Q2 2022 Form 10-Q \| Page 6

THE HERSHEY COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Six Months Ended July 3, 2022 and July 4, 2021

(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, 2021	$	—	$	160,939	$	60,614	$	1,260,331	$	2,719,936	$	(1,195,376)	$	(249,215)	$	2,757,229
Net income									849,034						849,034
Other comprehensive income													(19,166)		(19,166)
Dividends (including dividend equivalents):
Common Stock, $1.802 per share									(262,725)						(262,725)
Class B Common Stock, $1.638 per share									(97,647)						(97,647)
Conversion of Class B Common Stock into Common Stock			2,500		(2,500)										—
Stock-based compensation							32,460								32,460
Exercise of stock options and incentive-based transactions							(34,700)				22,526				(12,174)
Repurchase of common stock											(355,271)				(355,271)




Balance, July 3, 2022	$	—	$	163,439	$	58,114	$	1,258,091	$	3,208,598	$	(1,528,121)	$	(268,381)	$	2,891,740


	Preferred Stock		Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Common Stock		Accumulated Other Comprehensive Loss		Noncontrolling Interests in Subsidiaries		Total Stockholders’ Equity
Balance, December 31, 2020	$	—	$	160,939	$	60,614	$	1,191,200	$	1,928,673	$	(768,992)	$	(338,082)	$	3,531	$	2,237,883
Net income									697,029						1,072		698,101
Other comprehensive income													41,946		5,254		47,200
Dividends (including dividend equivalents):
Common Stock, $1.608 per share									(235,280)								(235,280)
Class B Common Stock, $1.462 per share									(88,617)								(88,617)

Stock-based compensation							33,076										33,076
Exercise of stock options and incentive-based transactions							(5,568)				22,457						16,889
Repurchase of common stock											(434,346)						(434,346)



Divestiture of noncontrolling interest															(1,013)		(1,013)
Balance, July 4, 2021	$	—	$	160,939	$	60,614	$	1,218,708	$	2,301,805	$	(1,180,881)	$	(296,136)	$	8,844	$	2,273,893

See Notes to Unaudited Consolidated Financial Statements.


Table of Contents			The Hershey Company \| Q2 ~~2021 Form 10-Q \| Page 6~~

~~THE HERSHEY COMPANY~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~For the Six Months Ended July 4, 2021 and June 28, 2020~~

~~(in thousands)~~

~~(unaudited)~~

Preferred
Stock Common
Stock Class B
Common
Stock Additional
Paid-in
Capital Retained
Earnings Treasury
Common
Stock Accumulated Other
Comprehensive
Income (Loss) Noncontrolling
Interests in
Subsidiaries Total
Stockholders’
Equity
Balance, December 31, 2020 0 $ 160,939 $ 60,614 $ 1,191,200 $ 1,928,673 $ (768,992) $ (338,082) $ 3,531 $ 2,237,883
Net income 697,029 1,072 698,101
Other comprehensive income 41,946 5,254 47,200
Dividends (including dividend equivalents):
Common Stock, $1.608 per share (235,280) (235,280)
Class B Common Stock, $1.462 per share (88,617) (88,617)
Stock-based compensation 33,076 33,076
Exercise of stock options and incentive-based transactions (5,568) 22,457 16,889
Repurchase of common stock (434,346) (434,346)
Divestiture of noncontrolling interest (1,013) (1,013)
Balance, July 4, 2021 $ 0 $ 160,939 $ 60,614 $ 1,218,708 $ 2,301,805 $ (1,180,881) $ (296,136) $ 8,844 $ 2,273,893

Preferred
Stock Common
Stock Class B
Common
Stock Additional
Paid-in
Capital Retained
Earnings Treasury
Common
Stock Accumulated Other
Comprehensive
Income (Loss) Noncontrolling
Interests in
Subsidiaries Total
Stockholders’
Equity
Balance, December 31, 2019 0 $ 160,939 $ 60,614 $ 1,142,210 $ 1,290,461 $ (591,036) $ (323,966) $ 5,772 $ 1,744,994
Net income (loss) 540,038 (3,213) 536,825
Other comprehensive loss (43,227) (75) (43,302)
Dividends (including dividend equivalents):
Common Stock, $1.546 per share (228,854) (228,854)
Class B Common Stock, $1.404 per share (85,102) (85,102)
Stock-based compensation 25,180 25,180
Exercise of stock options and incentive-based transactions (5,512) 23,056 17,544
Repurchase of common stock (211,196) (211,196)
Balance, June 28, 2020 $ 0 $ 160,939 $ 60,614 $ 1,161,878 $ 1,516,543 $ (779,176) $ (367,193) $ 2,484 $ 1,756,089

~~See Notes to Unaudited Consolidated Financial Statements.~~


~~Table of Contents~~			~~The Hershey Company \| Q2 2021~~2022 Form 10-Q \| Page 7

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited consolidated financial statements provided in this report include the accounts of The Hershey Company (the “Company,” “Hershey,” “we” or “us”) and our majority-owned subsidiaries and entities in which we have a controlling financial interest after the elimination of intercompany accounts and transactions. We have a controlling financial interest if we own a majority of the outstanding voting common stock and 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~~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 July ~~4, 2021~~3, 2022 may not be indicative of the results that may be expected for the year ending December 31, ~~2021~~2022 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, ~~2020~~2021 (our ~~“2020~~“2021 Annual Report on Form 10-K”), which provides a more complete understanding of our accounting policies, financial position, operating results and other matters.

COVID-19

On March 11, 2020, the World Health Organization designated coronavirus disease 2019 ~~("COVID-19"~~(“COVID-19”) as a global pandemic. We continue to actively monitor COVID-19 and its potential impact on our operations and financial results. Employee health and safety remains our first priority while we continue our efforts to support community food supplies. Since the onset of COVID-19, there has been minimal disruption to our supply chain network, and all our manufacturing plants are currently open. However, beginning in 2021 and continuing into 2022, ongoing strong demand for consumer goods and the effects of COVID-19 mitigation strategies have led to broad-based supply chain disruptions across the U.S. and globally, including inflation on many consumer products, labor shortages and demand outpacing supply. We ~~are also working~~continue to work closely with our business units, contract manufacturers, distributors, contractors and other external business partners to minimize the potential impact on our business.

The ultimate impact that COVID-19 will have on our consolidated financial statements remains uncertain and ultimately will be dictated by the length and severity of the pandemic, including broad-based supply chain disruptions, rising levels of inflation, the spread of COVID-19 variants or ~~potential~~ resurgences, as well as the economic recovery and actions taken in response by local, state and national governments around the world, including the distribution of vaccinations. We will continue to evaluate the nature and extent of these potential and evolving impacts to our business and consolidated financial statements.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In ~~December 2019,~~March 2020, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued Accounting Standards Update ~~("ASU"~~(“ASU”) ~~No. 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~. This ASU is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We adopted the


~~Table of Contents~~			~~The Hershey Company \| Q2 2021 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)~~

~~provisions of this ASU in the fourth quarter of 2020. Adoption of the new standard did not have a material impact on our consolidated financial statements.~~

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

~~In March 2020, the FASB issued 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


Table of Contents			The Hershey Company \| Q2 2022 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)

rates. Entities may apply this ASU upon issuance through December 31, 2022 on a prospective basis. We ~~are currently evaluating~~early adopted the ~~impact~~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~~statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and ~~related disclosures.~~Contract Liabilities from Contracts with Customers. This ASU requires an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (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. Evaluation of this new standard is dependent on multiple circumstances including the timing and complexity of completed business combinations. As a result, we intend to adopt the provisions of this ASU in the first quarter of 2023.

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 ~~ACQUISITION~~ACQUISITIONS AND ~~DIVESTITURES~~DIVESTITURE

2021 Activity

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 3 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 initial 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:


	Initial Allocation (1)		Adjustments		Updated Allocation
Goodwill	$	165,301	$	890	$	166,191
Other intangible assets	32,100		(6,000)		26,100
Current assets acquired	30,717		118		30,835
Property, plant and equipment, net	96,099		4,617		100,716
Other non-current assets, primarily operating lease ROU assets	111,787		—		111,787
Deferred income taxes	541		232		773
Current liabilities assumed	(22,713)		—		(22,713)
Other long-term liabilities, primarily operating lease liabilities	(109,355)		—		(109,355)
Net assets acquired	$	304,477	$	(143)	$	304,334

(1) As reported in the Company’s 2021 Annual Report on Form 10-K.


Table of Contents			The Hershey Company \| Q2 2022 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)

The purchase price allocation presented above is preliminary. The measurement period adjustments to the initial allocation are based on more detailed information obtained about the specific assets acquired. We are in the process of evaluating additional information necessary to finalize the valuation of assets acquired and liabilities assumed as of the acquisition date including, but not limited to, post-closing adjustments to the working capital acquired including certain holdbacks. The final fair value determination could result in material adjustments to the values presented in the preliminary purchase price allocation, including other intangible assets, goodwill and the related tax impact of such adjustments. We expect to finalize the purchase price allocation by the end of the third quarter of 2022.

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 expected to be 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 initial cash consideration paid for Dot’s totaled $894,166 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:


	Initial Allocation (1)		Adjustments		Updated Allocation
Goodwill	$	303,345	$	(14,960)	$	288,385
Other intangible assets	526,300		16,800		543,100
Current assets acquired	51,121		—		51,121
Property, plant and equipment, net	39,256		1,010		40,266
Other non-current assets	2,201		—		2,201
Other liabilities assumed, primarily current liabilities	(28,057)		(2,850)		(30,907)
Net assets acquired	$	894,166	$	—	$	894,166

(1) As reported in the Company’s 2021 Annual Report on Form 10-K.

The purchase price allocation presented above is preliminary. The measurement period adjustments, specifically to other intangible assets and resulting impact on the valuation of goodwill, are principally related to the refinement of certain assumptions in the value of customer relationships based on an analysis of historical customer-specific data. The remaining measurement period adjustments to the initial allocation are based on more detailed information obtained about the specific assets acquired and liabilities assumed. We are in the process of evaluating additional information necessary to finalize the valuation of assets acquired and liabilities assumed as of the acquisition date including, but not limited to, post-closing adjustments to the working capital acquired including certain holdbacks. The final fair value determination could result in material adjustments to the values presented in the preliminary purchase price allocation, including other intangible assets and goodwill. We expect to finalize the purchase price allocation by the end of the third quarter of 2022.


Table of Contents			The Hershey Company \| Q2 2022 Form 10-Q \| Page 10

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Goodwill 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 expected to be 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.

Lily's Sweets, LLC

On June 25, 2021, we completed the acquisition of ~~Lily's~~Lily’s Sweets, LLC ~~("Lily's"~~(“Lily’s”), previously a privately held company that sells a line of sugar-free and low-sugar confectionery foods to retailers and distributors in the United States and Canada. ~~Lily's~~Lily’s products include dark and milk chocolate style bars, baking chips, peanut butter cups and other confection products that complement Hershey’s confectionery and confectionery-based portfolio. The ~~initial~~ cash consideration paid for ~~Lily's~~Lily’s totaled ~~$418,191~~$422,210 and the Company may be required to pay additional cash consideration if certain defined targets related to net sales and gross margin ~~are~~were exceeded during the period offrom the closing date through December 31, 2021. As of the acquisition date, the estimated fair value of the contingent consideration obligation was classified as a liability of $5,000 and was determined using a scenario-based analysis on forecasted future results. Based on financial results through December 31, 2021, the fair value was reduced during the fourth quarter of 2021 to $1,250, with the adjustment to fair value recorded in the selling, marketing and administrative (“SM&A”) expense caption within the Consolidated Statements of Income. We paid this contingent consideration during the second quarter of 2022. Acquisition-related costs for the ~~Lily's~~Lily’s acquisition were immaterial.

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


Goodwill	$	~~174,516~~175,826
Other intangible assets	235,800
Other assets acquired, primarily current assets	~~30,383~~33,092
Other liabilities assumed, primarily current liabilities	(9,620)
Deferred income taxes	(7,888)
Net assets acquired	$	~~423,191~~427,210

The purchase price allocation presented above ~~is preliminary. We are in~~has been finalized as of the ~~process~~fourth quarter of ~~refining~~2021 and includes an immaterial amount of measurement period adjustments. The measurement period adjustments to the ~~valuation of~~initial allocation were based on more detailed information obtained about the specific assets acquired ~~assets~~ and liabilities ~~including goodwill, and expect to finalize the purchase price allocation by the end of 2021.~~assumed.

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 majority of goodwill derived from this acquisition is expected to be 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 ~~Lily's~~Lily’s products.


~~Table of Contents~~			~~The Hershey Company \| Q2 2021 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)~~

Other intangible assets include trademarks valued at $151,600 and customer relationships valued at $84,200. Trademarks were assigned an estimated useful life of 33 years and customer relationships were assigned estimated useful lives ranging from 17 to 18 years.

Lotte Shanghai Foods Co., Ltd.

In January 2021, we completed the divestiture of Lotte Shanghai Foods Co., Ltd. ~~("LSFC")~~, which was previously included within the International ~~and Other~~ segment results in our consolidated financial statements. Total proceeds from the divestiture and the impact on our consolidated financial statements were immaterial and were recorded in the ~~selling, marketing and administrative ("~~SM~~&A")~~&A expense caption within the Consolidated Statements of Income.

~~2020 Activity~~


Table of Contents			The Hershey Company \| Q2 2022 Form 10-Q \| Page 11

~~During the second quarter of 2020, we completed the divestitures of KRAVE Pure Foods, Inc. and the~~
~~Scharffen Berger~~ ~~and~~ ~~Dagoba~~ ~~brands, all of which were previously included within the North America segment results~~

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(amounts in ~~our consolidated financial statements. Total proceeds from the divestitures and the impact on our Consolidated Statements of Income, both individually and on an aggregate basis, were immaterial.~~thousands, except share data or if otherwise indicated)

3. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying value of goodwill by reportable segment for the six months ended July ~~4, 2021~~3, 2022 are as follows:
North America International
and Other Total
Balance at December 31, 2020 $ 1,970,445 $ 17,770 $ 1,988,215
Acquired during the period (see Note 2)
174,516 0 174,516
Foreign currency translation 3,876 (161) 3,715
Balance at July 4, 2021 $ 2,148,837 $ 17,609 $ 2,166,446


	North America Confectionery		North America Salty Snacks		International		Total
Balance at December 31, 2021	$	2,026,006	$	589,798	$	17,370	$	2,633,174

Measurement period adjustments (see Note 2)	—		(14,070)		—		(14,070)

Foreign currency translation	(2,196)		—		(411)		(2,607)
Balance at July 3, 2022	$	2,023,810	$	575,728	$	16,959	$	2,616,497

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


		July 4, 2021				December 31, 2020					July 3, 2022				December 31, 2021
		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Intangible assets subject to amortization:	Intangible assets subject to amortization:									Intangible assets subject to amortization:
Trademarks	Trademarks	$	1,364,454	$	(122,567)	$	1,211,086	$	(104,939)	Trademarks	$	1,703,938	$	(166,207)	$	1,705,390	$	(141,760)
Customer-related	Customer-related	289,467		(56,495)		204,101		(49,616)		Customer-related	514,807		(79,641)		504,667		(65,131)
Patents	Patents	8,848		(8,848)		8,556		(8,542)		Patents	8,458		(8,458)		8,623		(8,623)

Total	Total	1,662,769		(187,910)		1,423,743		(163,097)		Total	2,227,203		(254,306)		2,218,680		(215,514)

Intangible assets not subject to amortization:	Intangible assets not subject to amortization:									Intangible assets not subject to amortization:
Trademarks	Trademarks	34,576				34,568				Trademarks	34,851				34,422
Total other intangible assets	Total other intangible assets	$	1,509,435			$	1,295,214			Total other intangible assets	$	2,007,748			$	2,037,588

Total amortization expense for the three months ended July 3, 2022 and July 4, 2021 was $20,060 and ~~June 28, 2020 was~~ $11,635, ~~and $11,580,~~ respectively. Total amortization expense for the six months ended July 3, 2022 and July 4, 2021 was $39,918 and ~~June 28, 2020 was~~ $23,256, ~~and $23,220,~~ respectively. In 2022, our amortization expense increased as a result of our 2021 business combination activity (see Note 2).

4. SHORT AND LONG-TERM DEBT

Short-term Debt

As a source of short-term financing, we utilize cash on hand and commercial paper or bank loans with an original maturity of three months or less. We maintain a $1.5 billion unsecured revolving credit facility with the option to


~~Table of Contents~~			~~The Hershey Company \| Q2 2021 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)~~

increase borrowings by an additional $500 million with the consent of the lenders. This facility is scheduled to expire on July 2, 2024; however, we may extend the termination date for up to ~~two~~2 additional one-year periods upon notice to the administrative agent under the facility.

The credit agreement contains certain financial and other covenants, customary representations, warranties and events of default. As of July ~~4, 2021,~~3, 2022, we were in compliance with all covenants pertaining to the credit agreement, 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 ~~2020~~2021 Annual Report on Form 10-K.


Table of Contents			The Hershey Company \| Q2 2022 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)

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:


		July 4, 2021			December 31, 2020			July 3, 2022			December 31, 2021
Short-term foreign bank borrowings against lines of credit	Short-term foreign bank borrowings against lines of credit	$	57,574		$	74,041	Short-term foreign bank borrowings against lines of credit	$	130,919		$	119,038
U.S. commercial paper	U.S. commercial paper	149,990			0		U.S. commercial paper	783,997			820,385
Total short-term debt	Total short-term debt	$	207,564		$	74,041	Total short-term debt	$	914,916		$	939,423
Weighted average interest rate on outstanding commercial paper	Weighted average interest rate on outstanding commercial paper	0.1		%	N/A		Weighted average interest rate on outstanding commercial paper	1.5		%	0.1		%

Long-term Debt

Long-term debt consisted of the following:


Debt Type and Rate	Debt Type and Rate	Maturity Date	July 4, 2021		December 31, 2020		Debt Type and Rate	Maturity Date	July 3, 2022		December 31, 2021
8.800% Debentures (1)		February 15, 2021	$	0	$	84,715
3.100% Notes (2)		May 15, 2021	0		350,000
2.625% Notes	2.625% Notes	May 1, 2023	250,000		250,000		2.625% Notes	May 1, 2023	250,000		250,000
3.375% Notes	3.375% Notes	May 15, 2023	500,000		500,000		3.375% Notes	May 15, 2023	500,000		500,000
2.050% Notes	2.050% Notes	November 15, 2024	300,000		300,000		2.050% Notes	November 15, 2024	300,000		300,000
0.900% Notes	0.900% Notes	June 1, 2025	300,000		300,000		0.900% Notes	June 1, 2025	300,000		300,000
3.200% Notes	3.200% Notes	August 21, 2025	300,000		300,000		3.200% Notes	August 21, 2025	300,000		300,000
2.300% Notes	2.300% Notes	August 15, 2026	500,000		500,000		2.300% Notes	August 15, 2026	500,000		500,000
7.200% Debentures	7.200% Debentures	August 15, 2027	193,639		193,639		7.200% Debentures	August 15, 2027	193,639		193,639
2.450% Notes	2.450% Notes	November 15, 2029	300,000		300,000		2.450% Notes	November 15, 2029	300,000		300,000
1.700% Notes	1.700% Notes	June 1, 2030	350,000		350,000		1.700% Notes	June 1, 2030	350,000		350,000
3.375% Notes	3.375% Notes	August 15, 2046	300,000		300,000		3.375% Notes	August 15, 2046	300,000		300,000
3.125% Notes	3.125% Notes	November 15, 2049	400,000		400,000		3.125% Notes	November 15, 2049	400,000		400,000
2.650% Notes	2.650% Notes	June 1, 2050	350,000		350,000		2.650% Notes	June 1, 2050	350,000		350,000
Finance lease obligations (see Note 7)	Finance lease obligations (see Note 7)		79,603		80,755		Finance lease obligations (see Note 7)		70,622		69,146
Net impact of interest rate swaps, debt issuance costs and unamortized debt discounts	Net impact of interest rate swaps, debt issuance costs and unamortized debt discounts		(24,572)		(30,525)		Net impact of interest rate swaps, debt issuance costs and unamortized debt discounts		(21,216)		(23,314)
Total long-term debt	Total long-term debt		4,098,670		4,528,584		Total long-term debt		4,093,045		4,089,471
Less—current portion	Less—current portion		3,470		438,829		Less—current portion		752,573		2,844
Long-term portion	Long-term portion		$	4,095,200	$	4,089,755	Long-term portion		$	3,340,472	$	4,086,627

Interest Expense

~~(1)In February 2021, we repaid $84,715~~Net interest expense consists of ~~8.800% Debentures due upon their maturity.~~the following:


	Three Months Ended				Six Months Ended
	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Interest expense	$	35,635	$	34,768	$	71,006	$	73,531
Capitalized interest	(1,833)		(3,084)		(3,668)		(4,801)
Interest expense	33,802		31,684		67,338		68,730
Interest income	(389)		(619)		(746)		(1,229)
Interest expense, net	$	33,413	$	31,065	$	66,592	$	67,501

~~(2)In May 2021, we repaid $350,000 of 3.100% Notes due upon their maturity.~~


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 1113

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

~~Interest Expense~~

~~Net interest expense consists of the following:~~
Three Months Ended Six Months Ended
July 4, 2021 June 28, 2020 July 4, 2021 June 28, 2020
Interest expense $ 34,768 $ 40,520 $ 73,531 $ 79,776
Capitalized interest (3,084) (1,664) (4,801) (3,081)
Interest expense 31,684 38,856 68,730 76,695
Interest income (619) (777) (1,229) (2,361)
Interest expense, net $ 31,065 $ 38,079 $ 67,501 $ 74,334

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 ~~exchanged-traded~~exchange-traded contracts with collateral posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. We do not expect any significant losses from counterparty defaults.

Commodity Price Risk

We enter into commodities futures and options contracts and other commodity derivative instruments to reduce the effect of future price fluctuations associated with the purchase of raw materials, energy requirements and transportation services. We generally hedge commodity price risks for 3- to 24-month periods. Our open commodity derivative contracts had a notional value of ~~$387,871~~$479,441 as of July ~~4, 2021~~3, 2022 and ~~$279,843~~$313,200 as of December 31, ~~2020.~~2021.

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 ~~$183,136~~$111,898 at July ~~4, 2021~~3, 2022 and ~~$130,131~~$94,623 at December 31, ~~2020.~~2021. 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 ~~$1,775~~$358 at July ~~4, 2021~~3, 2022 and ~~$2,519~~$2,993 at December 31, ~~2020.~~2021. 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.


~~Table of Contents~~			~~The Hershey Company \| Q2 2021 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)~~

Interest Rate Risk

We manage our targeted mix of fixed and floating rate debt with debt issuances and by entering into fixed-to-floating interest rate swaps in order to mitigate fluctuations in earnings and cash flows that may result from interest rate volatility. These swaps are designated as fair value hedges, for which the gain or loss on the derivative and the offsetting loss or gain on the hedged item are recognized in current earnings as interest expense (income), net. In December 2020, our fixed-to-floating interest rate swap matured in connection with the repayment of certain long-term debt upon its maturity. Therefore, as of July 4, 2021 and December 31, 2020, we had 0 open interest rate swap derivative instruments in a fair value hedging relationship.

In order to manage interest rate exposure, in previous years we utilized interest rate swap agreements to protect against unfavorable interest rate changes relating to forecasted debt transactions. These swaps, which were settled upon issuance of the related debt, were designated as cash flow hedges and the gains and losses that were deferred in other comprehensive income are being recognized as an adjustment to interest expense over the same period that the hedged interest payments affect earnings.

Equity Price Risk

We are exposed to market price changes in certain broad market indices related to our deferred compensation obligations to our employees. To mitigate this risk, we use equity swap contracts to hedge the portion of the exposure that is linked to market-level equity returns. These contracts are not designated as hedges for accounting purposes and are entered into for periods of 3 to 12 months. The change in fair value of these derivatives is recorded in selling, marketing and administrative expense, together with the change in the related liabilities. The notional amount of the contracts outstanding at July ~~4, 2021~~3, 2022 and December 31, ~~2020~~2021 was ~~$22,882~~$23,934 and ~~$30,194,~~$24,975, respectively.


Table of Contents			The Hershey Company \| Q2 2022 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)

The following table presents the classification of derivative assets and liabilities within the Consolidated Balance Sheets as of July ~~4, 2021~~3, 2022 and December 31, ~~2020:~~2021:


		July 4, 2021				December 31, 2020					July 3, 2022				December 31, 2021
		Assets (1)		Liabilities (1)		Assets (1)		Liabilities (1)			Assets (1)		Liabilities (1)		Assets (1)		Liabilities (1)
Derivatives designated as cash flow hedging instruments:	Derivatives designated as cash flow hedging instruments:									Derivatives designated as cash flow hedging instruments:

Foreign exchange contracts	Foreign exchange contracts	$	43	$	8,012	$	2,388	$	5,522	Foreign exchange contracts	$	5,144	$	2,175	$	2,949	$	711

Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:									Derivatives not designated as hedging instruments:
Commodities futures and options (2)	Commodities futures and options (2)	170		3,895		3,299		1,648		Commodities futures and options (2)	1,542		5,646		2,423		1,376
Deferred compensation derivatives	Deferred compensation derivatives	1,956		0		3,630		0		Deferred compensation derivatives	—		4,244		2,412		—
Foreign exchange contracts	Foreign exchange contracts	565		0		176		93		Foreign exchange contracts	269		118		550		—
		2,691		3,895		7,105		1,741			1,811		10,008		5,385		1,376
Total	Total	$	2,734	$	11,907	$	9,493	$	7,263	Total	$	6,955	$	12,183	$	8,334	$	2,087

(1)~~Derivatives~~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 July ~~4, 2021,~~3, 2022, amounts reflected on a net basis in liabilities were assets of ~~$51,073~~$44,546 and liabilities of ~~$54,087,~~$50,192, 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 ~~assets~~liabilities at December 31, ~~2020~~2021 were assets of ~~$32,674~~$31,774 and liabilities of ~~$29,376.~~$32,701. At July ~~4, 2021~~3, 2022 and December 31, ~~2020,~~2021, 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 July 3, 2022 and July 4, 2021 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)
	2022		2021		2022		2021		2022		2021
Commodities futures and options	$	(8,754)	$	16,877	$	—	$	—	$	—	$	—
Foreign exchange contracts	(114)		435		5,278		(6,344)		(1,580)		(2,972)
Interest rate swap agreements	—		—		—		—		(2,709)		(2,709)
Deferred compensation derivatives	(4,244)		1,956		—		—		—		—
Total	$	(13,112)	$	19,268	$	5,278	$	(6,344)	$	(4,289)	$	(5,681)


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 1315

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

~~Income Statement Impact of Derivative Instruments~~

~~The effect of derivative instruments on the Consolidated Statements of Income for the three months ended July 4, 2021 and June 28, 2020 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)
2021 2020 2021 2020 2021 2020
Commodities futures and options $ 16,877 $ 2,624 $ 0 $ 0 $ 0 $ 0
Foreign exchange contracts 435 (554) (6,344) 675 (2,972) 1,138
Interest rate swap agreements 0 0 0 0 (2,709) (2,343)
Deferred compensation derivatives 1,956 4,626 0 0 0 0
Total $ 19,268 $ 6,696 $ (6,344) $ 675 $ (5,681) $ (1,205)

The effect of derivative instruments on the Consolidated Statements of Income for the six months ended July 3, 2022 and July 4, 2021 ~~and June 28, 2020~~ was as follows:


		Non-designated Hedges				Cash Flow Hedges								Non-designated Hedges			Cash Flow Hedges
		Gains (losses) recognized in income (a)				Gains (losses) recognized in OCI				Gains (losses) reclassified from AOCI into income (b)					Gains (losses) recognized in income (a)				Gains (losses) recognized in other comprehensive income (“OCI”)				Gains (losses) reclassified from accumulated OCI (“AOCI”) into income (b)
		2021		2020		2021		2020		2021		2020					2022		2021		2022		2021		2022		2021
Commodities futures and options	Commodities futures and options	$	30,556	$	(74,468)	$	0	$	0	$	0	$	0			Commodities futures and options	$	42,071	$	30,556	$	—	$	—	$	—	$	—
Foreign exchange contracts	Foreign exchange contracts	573		(3,876)		(7,979)		6,056		(3,144)		1,390				Foreign exchange contracts	(134)		573		(646)		(7,979)		(1,377)		(3,144)
Interest rate swap agreements	Interest rate swap agreements	0		0		0		0		(5,674)		(4,687)				Interest rate swap agreements	—		—		—		—		(5,508)		(5,674)
Deferred compensation derivatives	Deferred compensation derivatives	3,510		(1,133)		0		0		0		0				Deferred compensation derivatives	(5,044)		3,510		—		—		—		—
Total	Total	$	34,639	$	(79,477)	$	(7,979)	$	6,056	$	(8,818)	$	(3,297)			Total	$	36,893	$	34,639	$	(646)	$	(7,979)	$	(6,885)	$	(8,818)

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

(b)Gains (losses) reclassified from AOCI into income for foreign currency forward exchange contracts were included in selling, marketing and administrative expenses. Losses reclassified from AOCI into income for interest rate swap agreements were included in interest expense.

The amount of ~~pretax~~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 ~~$19,317~~$8,048 as of July ~~4, 2021.~~3, 2022. This amount is primarily associated with interest rate swap agreements.

~~Fair Value Hedging Relationships~~

For the three and six months ended July 4, 2021, we had 0 interest rate swap derivative instruments in a fair value hedging relationship. For the three and six months ended June 28, 2020, we recognized a net pretax benefit to interest expense of $608 and $759, respectively, relating to our fixed-to-floating interest swap arrangements.


~~Table of Contents~~			~~The Hershey Company \| Q2 2021 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)~~

6. FAIR VALUE MEASUREMENTS

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


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

We did 0tnot have any Level 3 financial assets or liabilities, nor were there any transfers between levels during the periods presented.


Table of Contents			The Hershey Company \| Q2 2022 Form 10-Q \| Page 16

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheets on a recurring basis as of July ~~4, 2021~~3, 2022 and December 31, ~~2020:~~2021:


		Assets (Liabilities)									Assets (Liabilities)
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
July 4, 2021:
July 3, 2022:										July 3, 2022:
Derivative Instruments:	Derivative Instruments:									Derivative Instruments:
Assets:										Assets:
Foreign exchange contracts (1)										Foreign exchange contracts (1)	$	—	$	5,413	$	—	$	5,413

Commodities futures and options (3)										Commodities futures and options (3)	1,542		—		—		1,542
Liabilities:										Liabilities:
Foreign exchange contracts (1)										Foreign exchange contracts (1)	—		2,293		—		2,293

Deferred compensation derivatives (2)										Deferred compensation derivatives (2)	—		4,244		—		4,244
Commodities futures and options (3)										Commodities futures and options (3)	5,646		—		—		5,646
December 31, 2021:										December 31, 2021:
Assets:	Assets:									Assets:
Foreign exchange contracts (1)	Foreign exchange contracts (1)	$	0	$	608	$	0	$	608	Foreign exchange contracts (1)	$	—	$	3,499	$	—	$	3,499

Deferred compensation derivatives (2)	Deferred compensation derivatives (2)	0		1,956		0		1,956		Deferred compensation derivatives (2)	—		2,412		—		2,412
Commodities futures and options (3)	Commodities futures and options (3)	170		0		0		170		Commodities futures and options (3)	2,423		—		—		2,423
Liabilities:	Liabilities:									Liabilities:
Foreign exchange contracts (1)	Foreign exchange contracts (1)	0		8,012		0		8,012		Foreign exchange contracts (1)	—		711		—		711

Commodities futures and options (3)	Commodities futures and options (3)	3,895		0		0		3,895		Commodities futures and options (3)	1,376		—		—		1,376
December 31, 2020:
Assets:
Foreign exchange contracts (1)		$	0	$	2,564	$	0	$	2,564

Deferred compensation derivatives (2)		0		3,630		0		3,630
Commodities futures and options (3)		3,299		0		0		3,299
Liabilities:
Foreign exchange contracts (1)		0		5,615		0		5,615

Commodities futures and options (3)		1,648		0		0		1,648

(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 deferred compensation derivatives is based on quoted prices for market interest rates and a broad market equity index.

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


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 1517

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Other Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximated fair values as of July ~~4, 2021~~3, 2022 and December 31, ~~2020~~2021 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					Fair Value				Carrying Value
		July 4, 2021		December 31, 2020		July 4, 2021		December 31, 2020			July 3, 2022		December 31, 2021		July 3, 2022		December 31, 2021
Current portion of long-term debt	Current portion of long-term debt	$	3,470	$	443,215	$	3,470	$	438,829	Current portion of long-term debt	$	754,596	$	2,844	$	752,573	$	2,844
Long-term debt	Long-term debt	4,338,773		4,479,499		4,095,200		4,089,755		Long-term debt	3,021,621		4,274,304		3,340,472		4,086,627
Total	Total	$	4,342,243	$	4,922,714	$	4,098,670	$	4,528,584	Total	$	3,776,217	$	4,277,148	$	4,093,045	$	4,089,471

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 ~~acquisition~~acquisitions of ~~Lily's in the second quarter of~~Pretzels, Dot’s and Lily’s during 2021, 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, ~~and~~ a form of the multi-period excess earnings, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy.

During the six months ended July 3, 2022 and July 4, 2021, we recorded 0no impairment charges. ~~During the six months ended June 28, 2020, we recorded the following impairment charges, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy:~~


	~~2020~~
~~Adjustment to disposal group (1)~~	$	~~6,200~~
~~Other asset write-down (2)~~	~~2,943~~
~~Long-lived asset impairment charges~~	$	~~9,143~~

~~(1)~~In connection with the sale of the LSFC joint venture (disposal group previously classified as held for sale), we recorded impairment charges to adjust long-lived asset values. The fair value of the disposal group was supported by potential sales prices with third-party buyers. The sale of the LSFC joint venture was completed in January 2021.

~~(2)In connection with a previous sale, the Company wrote-down certain receivables deemed uncollectible.~~

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"~~(“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.


~~Table of Contents~~			~~The Hershey Company \| Q2 2021 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)~~

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 ~~component~~ 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 \| Q2 2022 Form 10-Q \| Page 18

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

The components of lease expense for the three months ended July 3, 2022 and July 4, 2021 ~~and June 28, 2020~~ were as follows:


		Three Months Ended
Lease expense	Classification	July 3, 2022		July 4, 2021
Operating lease cost	Cost of sales or SM&A (1)	$	12,710	$	11,088
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization (1)	1,768		1,999
Interest on lease liabilities	Interest expense, net	1,036		1,109
Net lease cost (2)		$	15,514	$	14,196

Three Months Ended
Lease expense Classification July 4, 2021 June 28, 2020
Operating lease cost Cost of sales or SM&A (1) $ 11,088 $ 10,673
Finance lease cost:
Amortization of ROU assets Depreciation and amortization (1) 1,999 1,949
Interest on lease liabilities Interest expense, net 1,109 1,112
Net lease cost (2) $ 14,196 $ 13,734

The components of lease expense for the six months ended July 3, 2022 and July 4, 2021 ~~and June 28, 2020~~ were as follows:
Six Months Ended
Lease expense Classification July 4, 2021 June 28, 2020
Operating lease cost Cost of sales or SM&A (1) $ 22,554 $ 21,217
Finance lease cost:
Amortization of ROU assets Depreciation and amortization (1) 4,061 3,979
Interest on lease liabilities Interest expense, net 2,221 2,234
Net lease cost (2) $ 28,836 $ 27,430


		Six Months Ended
Lease expense	Classification	July 3, 2022		July 4, 2021
Operating lease cost	Cost of sales or SM&A (1)	$	25,497	$	22,554
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization (1)	3,450		4,061
Interest on lease liabilities	Interest expense, net	2,053		2,221
Net lease cost (2)		$	31,000	$	28,836

(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:


		July 4, 2021		December 31, 2020			July 3, 2022		December 31, 2021
Weighted-average remaining lease term (years)	Weighted-average remaining lease term (years)					Weighted-average remaining lease term (years)
Operating leases	Operating leases	12.8		12.5		Operating leases	15.2		15.4
Finance leases	Finance leases	30.3		30.1		Finance leases	29.1		30.0

Weighted-average discount rate	Weighted-average discount rate					Weighted-average discount rate
Operating leases	Operating leases	3.7	%	3.8	%	Operating leases	3.1	%	3.1	%
Finance leases	Finance leases	5.9	%	5.9	%	Finance leases	6.1	%	6.1	%


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 1719

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Supplemental balance sheet information related to leases were as follows:


Leases	Leases	Classification	July 4, 2021		December 31, 2020		Leases	Classification	July 3, 2022		December 31, 2021
Assets	Assets						Assets
Operating lease ROU assets	Operating lease ROU assets	Other non-current assets	$	206,068	$	224,268	Operating lease ROU assets	Other non-current assets	$	337,311	$	351,712

Finance lease ROU assets, at cost	Finance lease ROU assets, at cost	Property, plant and equipment, gross	99,939		101,426		Finance lease ROU assets, at cost	Property, plant and equipment, gross	85,347		89,190
Accumulated amortization	Accumulated amortization	Accumulated depreciation	(16,287)		(13,361)		Accumulated amortization	Accumulated depreciation	(13,512)		(16,694)
Finance lease ROU assets, net	Finance lease ROU assets, net	Property, plant and equipment, net	83,652		88,065		Finance lease ROU assets, net	Property, plant and equipment, net	71,835		72,496

Total leased assets	Total leased assets		$	289,720	$	312,333	Total leased assets		$	409,146	$	424,208

Liabilities	Liabilities						Liabilities
Current	Current						Current
Operating	Operating	Accrued liabilities	$	28,559	$	36,578	Operating	Accrued liabilities	$	32,468	$	36,292
Finance	Finance	Current portion of long-term debt	4,188		4,868		Finance	Current portion of long-term debt	3,272		3,564
Non-current	Non-current						Non-current
Operating	Operating	Other long-term liabilities	172,352		181,871		Operating	Other long-term liabilities	302,954		310,899
Finance	Finance	Long-term debt	75,415		75,887		Finance	Long-term debt	67,350		65,582
Total lease liabilities	Total lease liabilities		$	280,514	$	299,204	Total lease liabilities		$	406,044	$	416,337

The maturity of our lease liabilities as of July ~~4, 2021~~3, 2022 were as follows:


		Operating leases		Finance leases		Total			Operating leases		Finance leases		Total
2021 (rest of year)		$	20,512	$	4,349	$	24,861
2022		28,643		7,391		36,034
2022 (rest of year)								2022 (rest of year)	$	21,113	$	3,758	$	24,871
2023	2023	20,818		5,285		26,103		2023	40,199		6,495		46,694
2024	2024	15,748		4,709		20,457		2024	37,171		5,560		42,731
2025	2025	14,200		4,741		18,941		2025	26,070		4,397		30,467
2026								2026	22,271		4,025		26,296
Thereafter	Thereafter	160,392		161,625		322,017		Thereafter	284,609		146,085		430,694
Total lease payments	Total lease payments	260,313		188,100		448,413		Total lease payments	431,433		170,320		601,753
Less: Imputed interest	Less: Imputed interest	59,402		108,497		167,899		Less: Imputed interest	96,011		99,698		195,709
Total lease liabilities	Total lease liabilities	$	200,911	$	79,603	$	280,514	Total lease liabilities	$	335,422	$	70,622	$	406,044

~~As of July 4, 2021, the Company had entered in an additional lease~~Supplemental cash flow and other information related to leases were as a lessee, primarily for real estate. This lease has not yet commenced and will result in ROU assets and corresponding lease liabilities of approximately $20,000. This lease is expected to commence during the second half of 2021, with a lease term of approximately 8 years.

follows:


	Six Months Ended
	July 3, 2022		July 4, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	23,783	$	21,773
Operating cash flows from finance leases	2,053		2,221
Financing cash flows from finance leases	2,473		2,240

ROU assets obtained in exchange for lease liabilities:
Operating leases	$	6,317	$	6,190
Finance leases	4,192		436


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 1820

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

~~Supplemental cash flow and other information related to leases were as follows:~~
Six Months Ended
July 4, 2021 June 28, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 21,773 $ 21,335
Operating cash flows from finance leases 2,221 2,234
Financing cash flows from finance leases 2,240 2,105
ROU assets obtained in exchange for lease liabilities:
Operating leases $ 6,190 $ 20,814
Finance leases 436 2,076

8. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

We invest in partnerships ~~which~~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 1817).

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 ~~was $81,606~~were $139,731 and ~~$52,351~~$93,089 as of July ~~4, 2021~~3, 2022 and December 31, ~~2020,~~2021, respectively.

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 Six Months Ended
July 4, 2021 June 28, 2020 July 4, 2021 June 28, 2020
Cost of sales $ 1,042 $ 0 $ 5,037 $ 0
Selling, marketing and administrative expense 1,286 2,645 2,976 2,645
Business realignment costs (benefits) 1,141 (1,370) 2,383 (475)
Costs associated with business realignment activities $ 3,469 $ 1,275 $ 10,396 $ 2,170


~~Table of Contents~~			~~The Hershey Company \| Q2 2021 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)~~


	Three Months Ended				Six Months Ended
	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Cost of sales	$	(23)	$	1,042	$	4	$	5,037
Selling, marketing and administrative expense	722		1,286		1,702		2,976
Business realignment costs	—		1,141		274		2,383
Costs associated with business realignment activities	$	699	$	3,469	$	1,980	$	10,396

Costs recorded by program during the three and six months ended July 3, 2022 and July 4, 2021 ~~and June 28, 2020~~ related to these activities were as follows:


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
International Optimization Program:	International Optimization Program:									International Optimization Program:
Severance		$	1,198	$	0	$	2,822	$	0
Severance and employee benefit costs										Severance and employee benefit costs	$	5	$	1,198	$	285	$	2,822
Other program costs	Other program costs	2,271		0		7,574		0		Other program costs	694		2,271		1,695		7,574
Margin for Growth Program:
Severance		0		(1,410)		0		(653)
Other program costs		0		2,685		0		2,823

Total	Total	$	3,469	$	1,275	$	10,396	$	2,170	Total	$	699	$	3,469	$	1,980	$	10,396

~~The following table presents the liability activity for costs~~Amounts classified as liabilities qualifying as exit and disposal costs ~~for the six months ended July 4, 2021:~~


	~~Total~~
~~Liability balance at December 31, 2020 (1)~~	$	~~12,748~~
~~2021 business realignment charges (2)~~	~~4,700~~
~~Cash payments~~	~~(14,913)~~

~~Liability balance at July 4, 2021 (1)~~	$	~~2,535~~

~~(1)The liability balances reflected above are reported within accrued liabilities and other long-term liabilities.~~

~~(2)The costs reflected in the liability roll-forward~~primarily represent employee-related and certain third-party service provider ~~charges.~~charges, however, such amounts at July 3, 2022 are not significant.

2020 International Optimization Program

In the fourth quarter of 2020, we commenced a program ("(“International Optimization ~~Program"~~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 mid-2022,~~in early 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


Table of Contents			The Hershey Company \| Q2 2022 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)

Program relate to the International ~~and Other~~ segment. However, segment operating results do not include these business realignment expenses because we evaluate segment performance excluding such costs.

For the ~~three and~~ six months ended July 3, 2022 and July 4, 2021, we recognized total costs associated with the International Optimization Program of ~~$3,469~~$1,980 and $10,396, 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 ~~$39,739.~~

~~Margin for Growth Program~~

In the first quarter of 2017, the Company's Board of Directors ("Board") unanimously approved several initiatives under a single program focused on improving global efficiency and effectiveness, optimizing the Company’s supply chain, streamlining the Company’s operating model and reducing administrative expenses to generate long-term savings. This project was completed in mid-2020.

For the three and six months ended June 28, 2020, we recognized total costs associated with the Margin for Growth Program of $1,275 and $2,170, respectively. These charges included employee severance, largely relating to initiatives to improve the cost structure of our corporate operating model as part of optimizing our global supply chain. In addition, we incurred other program costs, which related primarily to third-party charges in support of our initiative to improve global efficiency and effectiveness.


~~Table of Contents~~			~~The Hershey Company \| Q2 2021 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)~~

The costs and related benefits of the Margin for Growth Program relate approximately 63% to the North America segment and 37% to the International and Other segment. However, segment operating results do not include these business realignment expenses because we evaluate segment performance excluding such costs.$47,922.

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 six months ended July 3, 2022 and July 4, 2021 were 21.4% and ~~June 28, 2020 were~~ 25.1% ~~and 19.8%~~, respectively. Relative to the statutory rate, the ~~2021~~2022 effective tax rate was impacted by ~~incremental~~state taxes, tax reserves ~~incurred as a result of an adverse ruling in connection with a non-U.S. tax litigation matter as well as state taxes,~~and unfavorable foreign rate differential, partially offset by investment tax credits and the benefit of 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 Malaysia, 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. ~~During the second quarter of 2021, we recorded incremental tax reserves as a result of an adverse ruling in connection with a non-U.S. tax litigation matter.~~ 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 ~~$22,387~~$14,970 within the next 12 months because of the expiration of statutes of limitations and settlements of tax audits.

American Rescue Plan Act

On March 11, 2021, the American Rescue Plan Act ~~("ARPA"~~(“ARPA”) was signed into law. The ARPA strengthens and extends certain federal programs enacted through the ~~CARES~~Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and other COVID-19 relief measures, and establishes new federal programs, including provisions on taxes, healthcare and unemployment benefits. The ARPA did not have a material impact on our consolidated financial statements for the six months ended July 4, 2021.

Coronavirus Aid, Relief, and Economic Security Act

On March 27, 2020, the ~~Coronavirus Aid, Relief, and Economic Security (“CARES”)~~CARES Act was signed into law. The CARES Act provides a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants and investments. The CARES Act did not have a material impact on our consolidated financial statements for the six months ended July 4, ~~2021 and June 28, 2020.~~2021.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 2122

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

11. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

Net Periodic Benefit Cost

The components of net periodic benefit cost for the three months ended July 3, 2022 and July 4, 2021 ~~and June 28, 2020~~ were as follows:


		Pension Benefits				Other Benefits					Pension Benefits				Other Benefits
		Three Months Ended				Three Months Ended					Three Months Ended				Three Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Service cost	Service cost	$	5,433	$	5,411	$	45	$	41	Service cost	$	4,758	$	5,433	$	80	$	45
Interest cost	Interest cost	4,536		6,966		965		1,505		Interest cost	6,263		4,536		1,158		965
Expected return on plan assets	Expected return on plan assets	(12,193)		(13,142)		0		0		Expected return on plan assets	(12,153)		(12,193)		—		—
Amortization of prior service (credit) cost		(1,535)		(1,824)		0		75
Amortization of net loss (gain)		5,604		6,582		0		(10)
Amortization of prior service credit										Amortization of prior service credit	(1,412)		(1,535)		—		—
Amortization of net loss										Amortization of net loss	3,108		5,604		25		—
Settlement loss	Settlement loss	4,932		3,653		0		0		Settlement loss	7,760		4,932		—		—
Total net periodic benefit cost	Total net periodic benefit cost	$	6,777	$	7,646	$	1,010	$	1,611	Total net periodic benefit cost	$	8,324	$	6,777	$	1,263	$	1,010

We made contributions of ~~$325~~$289 and ~~$4,000~~$5,584 to the pension plans and other benefits plans, respectively, during the second quarter of ~~2021.~~2022. In the second quarter of ~~2020,~~2021, we made contributions of ~~$248~~$325 and ~~$3,976~~$4,000 to our pension plans and other benefit plans, respectively. The contributions in ~~2021~~2022 and ~~2020~~2021 also included benefit payments from our non-qualified pension plans and post-retirement benefit plans.

The components of net periodic benefit cost for the six months ended July 3, 2022 and July 4, 2021 ~~and June 28, 2020~~ were as follows:


		Pension Benefits				Other Benefits					Pension Benefits				Other Benefits
		Six Months Ended				Six Months Ended					Six Months Ended				Six Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Service cost	Service cost	$	10,922	$	10,843	$	90	$	80	Service cost	$	9,611	$	10,922	$	158	$	90
Interest cost	Interest cost	8,726		13,956		1,929		3,012		Interest cost	11,628		8,726		2,313		1,929
Expected return on plan assets	Expected return on plan assets	(24,612)		(26,310)		0		0		Expected return on plan assets	(24,815)		(24,612)		—		—
Amortization of prior service (credit) cost		(3,071)		(3,651)		0		150
Amortization of net loss (gain)		11,420		13,164		0		(19)
Amortization of prior service credit										Amortization of prior service credit	(2,825)		(3,071)		—		—
Amortization of net loss										Amortization of net loss	5,839		11,420		51		—
Settlement loss	Settlement loss	7,440		3,653		0		0		Settlement loss	10,376		7,440		—		—
Total net periodic benefit cost	Total net periodic benefit cost	$	10,825	$	11,655	$	2,019	$	3,223	Total net periodic benefit cost	$	9,814	$	10,825	$	2,522	$	2,019

We made contributions of ~~$1,183~~$3,756 and ~~$8,155~~$10,575 to the pension plans and other benefits plans, respectively, during the first six months of ~~2021.~~2022. In the first six months of ~~2020,~~2021, we made contributions of ~~$1,005~~$1,183 and ~~$7,328~~$8,155 to our pension plans and other benefit plans, respectively. The contributions in ~~2021~~2022 and ~~2020~~2021 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 1817).


~~Table of Contents~~			~~The Hershey Company \| Q2 2021 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)~~

During the first ~~and second quarters~~six months of ~~2021,~~2022, we recognized pension settlement charges in our hourly retirement plan ~~due to lump sum withdrawals by employees retiring or leaving the Company. In addition, we recognized pension settlement charges in our~~and salaried retirement plan ~~during the second quarter of 2021~~ due to lump sum withdrawals by employees retiring or leaving the Company. The non-cash settlement charges, which represent the acceleration of a portion of the respective plan’s accumulated unrecognized actuarial loss, were triggered when the cumulative lump sum distributions exceeded the ~~plan's~~plan’s anticipated annual service and interest costs. In connection with the second quarter ~~2021~~2022 settlements, the related plan assets and liabilities were remeasured using a discount rate as of the remeasurement date that was 34204 basis points higher than the rate as of December 31, ~~2020~~2021 and an expected rate of return on plan assets of ~~4.8%~~5.8%.


Table of Contents			The Hershey Company \| Q2 2022 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)

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"~~options”);

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

•Stock appreciation rights;

•Restricted stock units ~~("RSUs"~~(“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 ~~Executive Organization~~Human Capital Committee of our Board and if in accordance with an applicable deferred compensation plan of the Company. Currently, the Compensation and ~~Executive Organization~~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				Six Months Ended					Three Months Ended				Six Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Pre-tax compensation expense	Pre-tax compensation expense	$	16,826	$	12,915	$	32,482	$	25,490	Pre-tax compensation expense	$	17,224	$	16,826	$	32,561	$	32,482
Related income tax benefit	Related income tax benefit	4,500		2,492		8,023		4,894		Related income tax benefit	3,684		4,500		6,935		8,023

Compensation expenses for stock compensation plans are primarily included in selling, marketing and administrative expense. As of July ~~4, 2021,~~3, 2022, total stock-based compensation expense related to non-vested awards not yet recognized was ~~$101,018~~$102,149 and the weighted-average period over which this amount is expected to be recognized was approximately ~~2.2~~2.0 years.


~~Table of Contents~~			~~The Hershey Company \| Q2 2021 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)~~

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 \| Q2 2022 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)

A summary of activity relating to grants of stock options for the period ended July ~~4, 2021~~3, 2022 is as follows:


Stock Options	Stock Options	Shares	Weighted-Average Exercise Price (per share)	Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value		Stock Options	Shares	Weighted-Average Exercise Price (per share)	Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at beginning of the period	Outstanding at beginning of the period	1,839,811	$99.72	4.8 years			Outstanding at beginning of the period	1,332,956	$102.78	4.4 years
Granted	Granted	32,155	$147.98				Granted	4,025	$202.03
Exercised	Exercised	(338,047)	$96.46				Exercised	(225,811)	$97.25
Forfeited	Forfeited	(3,009)	$102.58				Forfeited	(3,858)	$102.97
Outstanding as of July 4, 2021		1,530,910	$101.44	4.6 years	$	111,076
Options exercisable as of July 4, 2021		1,344,804	$100.00	4.3 years	$	99,512
Expired							Expired	(1,873)	$103.07
Outstanding as of July 3, 2022							Outstanding as of July 3, 2022	1,105,439	$104.26	4.1 years	$	129,044
Options exercisable as of July 3, 2022							Options exercisable as of July 3, 2022	1,067,113	$102.53	4.0 years	$	126,416

The weighted-average fair value of options granted was ~~$24.12~~$37.28 and ~~$21.31~~$24.12 per share for the periods ended July 3, 2022 and July 4, 2021, ~~and June 28, 2020,~~ respectively. The fair value was estimated on the date of grant using a Black-Scholes option-pricing model and the following weighted-average assumptions:


		Six Months Ended					Six Months Ended
		July 4, 2021		June 28, 2020			July 3, 2022		July 4, 2021
Dividend yields	Dividend yields	2.2	%	2.1	%	Dividend yields	1.9	%	2.2	%
Expected volatility	Expected volatility	21.8	%	17.5	%	Expected volatility	21.1	%	21.8	%
Risk-free interest rates	Risk-free interest rates	1.0	%	1.3	%	Risk-free interest rates	1.9	%	1.0	%
Expected term in years	Expected term in years	6.3		6.7		Expected term in years	6.3		6.3

The total intrinsic value of options exercised was ~~$21,453~~$24,870 and ~~$23,597~~$21,453 for the periods ended July 3, 2022 and July 4, 2021, ~~and June 28, 2020,~~ respectively.

Performance Stock Units and Restricted Stock Units

Under the EICP, we grant PSUs to ~~selected~~select executives and other key employees. Vesting is contingent upon the achievement of certain performance objectives. We grant PSUs over ~~3-year~~three-year performance cycles. If we meet targets for financial measures at the end of the applicable ~~3-year~~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 six months ended July 3, 2022 and July 4, 2021 ~~and June 28, 2020~~ can range from 0% to 250% of the targeted amounts.


~~Table of Contents~~			~~The Hershey Company \| Q2 2021 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)~~

We recognize the compensation expenses associated with PSUs ratably over the ~~3-year~~three-year term. Compensation expenses isare 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 six months ended July 3, 2022 and July 4, 2021, ~~and June 28, 2020,~~ we awarded RSUs to certain executive officers and other key employees under the EICP. We also awarded RSUs to non-employee directors.


Table of Contents			The Hershey Company \| Q2 2022 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)

We recognize the compensation expenses associated with employee RSUs over a specified award vesting period based on the grant date fair value of our Common Stock. We recognize expense for employee RSUs based on the ~~straight-line~~straight- line method. The compensation expenses associated with non-employee director RSUs is recognized ratably over the vesting period, net of estimated forfeitures.

A summary of activity relating to grants of PSUs and RSUs for the period ended July ~~4, 2021~~3, 2022 is as follows:


Performance Stock Units and Restricted Stock Units	Performance Stock Units and Restricted Stock Units	Number of units	Weighted-average grant date fair value for equity awards (per unit)	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	Outstanding at beginning of year	1,053,332	$135.11	Outstanding at beginning of year	1,303,521	$146.96
Granted	Granted	382,841	$153.39	Granted	294,729	$210.80
Performance assumption change (1)	Performance assumption change (1)	144,722	$142.56	Performance assumption change (1)	61,517	$283.27
Vested	Vested	(308,664)	$115.57	Vested	(492,589)	$129.59
Forfeited	Forfeited	(35,938)	$124.56	Forfeited	(17,106)	$154.43
Outstanding as of July 4, 2021		1,236,293	$146.11
Outstanding as of July 3, 2022				Outstanding as of July 3, 2022	1,150,072	$181.14

(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.


		Six Months Ended							Six Months Ended
		July 4, 2021			June 28, 2020				July 3, 2022			July 4, 2021
Units granted	Units granted	382,841			326,283			Units granted	294,729			382,841
Weighted-average fair value at date of grant	Weighted-average fair value at date of grant	$	153.39		$	163.30		Weighted-average fair value at date of grant	$	210.80		$	153.39
Monte Carlo simulation assumptions:	Monte Carlo simulation assumptions:							Monte Carlo simulation assumptions:
Estimated values	Estimated values	$	66.44		$	80.08		Estimated values	$	100.41		$	66.44
Dividend yields	Dividend yields	2.2		%	2.0		%	Dividend yields	1.8		%	2.2		%
Expected volatility	Expected volatility	26.4		%	17.3		%	Expected volatility	25.3		%	26.4		%

The fair value of shares vested totaled ~~$46,352~~$100,292 and ~~$41,874~~$46,352 for the periods ended July 3, 2022 and July 4, 2021, ~~and June 28, 2020,~~ respectively.

Deferred PSUs, deferred RSUs and deferred stock units representing directors’ fees totaled ~~263,269~~264,911 units as of July ~~4, 2021.~~3, 2022. Each unit is equivalent to 1 share of the Company’s Common Stock.

13. SEGMENT INFORMATION

The Company reports its operations through 3 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.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 2526

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

~~13. SEGMENT INFORMATION~~

Our organizational structure is designed to ensure continued focus on North America, coupled with an emphasis on profitable growth in our focus international markets. Our business is primarily organized around geographic regions, which enables us to build processes for repeatable success in our global markets. As a result, we have defined our operating segments on a geographic basis, as this aligns with how our Chief Operating Decision Maker (“CODM”) manages our business, including resource allocation and performance assessment. Our North America business, which generates approximately 90% of our consolidated revenue, is our only reportable segment. None of our other operating segments meet the quantitative thresholds to qualify as reportable segments; therefore, these operating segments are combined and disclosed below as International and Other.

•~~North America~~ - This segment is responsible for our traditional chocolate and non-chocolate confectionery market position, as well as our grocery and growing snacks market positions, in the United States and Canada. This includes developing and growing our business in chocolate and non-chocolate confectionery, pantry, food service and other snacking product lines.

•International ~~and Other~~ -– International ~~and Other~~ is a combination of all other operating segments that are not individually material, including those geographic regions where we operate outside of North America. We currently have operations and manufacture product in Mexico, Brazil, India and Malaysia, primarily for consumers in these regions, and also distribute and sell confectionery products in export markets of Asia, Latin America, Middle East, Europe, Africa and other regions. This segment also includes our global retail operations, including Hershey's Chocolate World stores in Hershey, Pennsylvania, New York City, Las Vegas, 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.

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 \| Q2 2021 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)~~

Our segment net sales and earnings were as follows:


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Net sales:	Net sales:									Net sales:
North America		$	1,779,193	$	1,583,787	$	3,861,065	$	3,428,608
International and Other		210,229		123,542		424,305		316,038
North America Confectionery										North America Confectionery	$	1,909,101	$	1,690,372	$	4,126,145	$	3,675,788
North America Salty Snacks										North America Salty Snacks	256,297		128,203		482,419		249,621
International										International	207,184		170,847		430,239		359,961
Total	Total	$	1,989,422	$	1,707,329	$	4,285,370	$	3,744,646	Total	$	2,372,582	$	1,989,422	$	5,038,803	$	4,285,370

Segment income (loss):
North America		$	565,905	$	497,587	$	1,227,465	$	1,079,142
International and Other		42,183		(3,969)		76,023		12,035
Segment income:										Segment income:
North America Confectionery										North America Confectionery	$	618,864	$	554,488	$	1,400,749	$	1,197,093
North America Salty Snacks										North America Salty Snacks	37,433		26,041		58,734		51,419
International										International	30,700		27,559		72,679		54,976
Total segment income	Total segment income	608,088		493,618		1,303,488		1,091,177		Total segment income	686,997		608,088		1,532,162		1,303,488
Unallocated corporate expense (1)	Unallocated corporate expense (1)	151,329		106,883		289,042		231,450		Unallocated corporate expense (1)	188,929		151,329		339,202		289,042
Unallocated mark-to-market (gains) losses on commodity derivatives		(3,385)		487		(5,669)		82,241
Long-lived asset impairment charges (see Note 6)		0		1,600		0		9,143
Unallocated mark-to-market losses (gains) on commodity derivatives										Unallocated mark-to-market losses (gains) on commodity derivatives	40,838		(3,385)		13,459		(5,669)

Costs associated with business realignment activities (see Note 9)	Costs associated with business realignment activities (see Note 9)	3,469		1,275		10,396		2,170		Costs associated with business realignment activities (see Note 9)	699		3,469		1,980		10,396

Operating profit	Operating profit	456,675		383,373		1,009,719		766,173		Operating profit	456,531		456,675		1,177,521		1,009,719
Interest expense, net (see Note 4)	Interest expense, net (see Note 4)	31,065		38,079		67,501		74,334		Interest expense, net (see Note 4)	33,413		31,065		66,592		67,501
Other (income) expense, net (see Note 18)		7,194		11,217		9,608		22,750
Other (income) expense, net (see Note 17)										Other (income) expense, net (see Note 17)	19,658		7,194		30,065		9,608
Income before income taxes	Income before income taxes	$	418,416	$	334,077	$	932,610	$	669,089	Income before income taxes	$	403,460	$	418,416	$	1,080,864	$	932,610

(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 Six Months Ended
July 4, 2021 June 28, 2020 July 4, 2021 June 28, 2020
Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in income $ (16,877) $ (2,624) $ (30,556) $ 74,468
Net gains on commodity derivative positions reclassified from unallocated to segment income 13,492 3,111 24,887 7,773
Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative (gains) losses $ (3,385) $ 487 $ (5,669) $ 82,241

As of July 4, 2021, 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 $68,207. Based on our forecasts of the timing of the recognition of the underlying hedged items, we expect to reclassify net pretax gains on commodity derivatives of $52,970 to segment operating results in the next twelve months.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 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)

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				Six Months Ended
	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Net losses (gains) on mark-to-market valuation of commodity derivative positions recognized in income	$	8,754	$	(16,877)	$	(42,071)	$	(30,556)
Net gains on commodity derivative positions reclassified from unallocated to segment income	32,084		13,492		55,530		24,887
Net losses (gains) on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative (gains) losses	$	40,838	$	(3,385)	$	13,459	$	(5,669)

As of July 3, 2022, 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 $73,456. 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 $74,325 to segment operating results in the next twelve months.

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


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
North America		$	56,913	$	54,379	$	116,022	$	108,081
International and Other		6,921		7,037		13,748		14,246
North America Confectionery										North America Confectionery	$	57,439	$	51,039	$	113,347	$	104,189
North America Salty Snacks										North America Salty Snacks	16,983		6,979		33,662		13,925
International										International	5,921		5,816		11,581		11,656
Corporate	Corporate	12,198		10,484		24,159		20,197		Corporate	13,503		12,198		26,292		24,159
Total	Total	$	76,032	$	71,900	$	153,929	$	142,524	Total	$	93,846	$	76,032	$	184,882	$	153,929

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

Three Months Ended Six Months Ended
July 4, 2021 June 28, 2020 July 4, 2021 June 28, 2020
Net sales:
United States $ 1,681,397 $ 1,504,266 $ 3,664,120 $ 3,271,542
All other countries 308,025 203,063 621,250 473,104
Total $ 1,989,422 $ 1,707,329 $ 4,285,370 $ 3,744,646

The majority of our products are confectionery or confectionery-based and include chocolate and non-chocolate confectionery products, gum and mint refreshment products, spreads, snack bites and mixes, as well as pantry items such as baking ingredients, toppings and sundae syrups. Our snacks portfolio includes ready-to-eat popcorn, baked and trans fat free snacks, protein bars and other better-for-you snacks. Additional information regarding our net sales disaggregated by product line is as follows:
Three Months Ended Six Months Ended
July 4, 2021 June 28, 2020 July 4, 2021 June 28, 2020
Net sales:
Confectionery and confectionery-based portfolio $ 1,837,881 $ 1,592,181 $ 3,993,518 $ 3,500,415
Snacks portfolio 151,541 115,148 291,852 244,231
Total $ 1,989,422 $ 1,707,329 $ 4,285,370 $ 3,744,646


	Three Months Ended				Six Months Ended
	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Net sales:
United States	$	2,060,047	$	1,681,397	$	4,400,693	$	3,664,120
All other countries	312,535		308,025		638,110		621,250
Total	$	2,372,582	$	1,989,422	$	5,038,803	$	4,285,370


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 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)

14. TREASURY STOCK ACTIVITY

A summary of our treasury stock activity is as follows:


		Six Months Ended July 4, 2021				Six Months Ended July 3, 2022
		Shares	Dollars			Shares	Dollars
			In thousands				In thousands
Shares repurchased in the open market under pre-approved share repurchase programs		871,144	$	150,017

Shares repurchased to replace Treasury Stock issued for stock options and incentive compensation		1,871,500	$	284,329
Milton Hershey School Trust repurchase					Milton Hershey School Trust repurchase	1,000,000	$	203,350
Shares repurchased in the open market to replace Treasury Stock issued for stock options and incentive compensation					Shares repurchased in the open market to replace Treasury Stock issued for stock options and incentive compensation	679,000	151,921
Total share repurchases	Total share repurchases	2,742,644	434,346		Total share repurchases	1,679,000	355,271
Shares issued for stock options and incentive compensation	Shares issued for stock options and incentive compensation	(539,714)	(22,457)		Shares issued for stock options and incentive compensation	(541,377)	(22,527)
Net change	Net change	2,202,930	$	411,889	Net change	1,137,623	$	332,744

In February 2022, 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 $203.35 per share, for a total purchase price of $203,350.

In July 2018, our Board of Directors approved a $500,000 share repurchase authorization to repurchase shares of our Common Stock. As of July ~~4, 2021,~~3, 2022, $109,983 remained available for repurchases of our Common Stock under this program. In May 2021, our Board of Directors approved an additional $500,000 share repurchase authorization. This program is to commence after the existing 2018 authorization is completed and is to be utilized at ~~management's~~management’s discretion. 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. ~~NONCONTROLLING INTEREST~~CONTINGENCIES

~~Noncontrolling Interest~~On February 12, 2021, Issouf Coubaly, individually and on behalf of proposed class members, filed a complaint (Coubaly v. Nestlé U.S.A. et al., 1:21-cv-00386-DLF (D.D.C. Feb. 12, 2021)) in ~~Subsidiary~~

~~As discussed~~the District Court of the District of Columbia, seeking injunctive relief and unspecified damages for alleged violations of child labor and human trafficking laws under the Trafficking Victims Protection Reauthorization Act. The Company was among several defendants named in ~~Note 2, in January 2021 we completed~~ the ~~divestiture of LSFC,~~suit. The defendants filed a joint ~~venture originally established~~motion to dismiss the case on July 30, 2021, and on June 28, 2022, the District Court granted the motion and dismissed the case without prejudice. On July 22, 2022, the plaintiffs filed an appeal in ~~2007 in China~~the U.S. Court of Appeals for the ~~purpose~~District of ~~manufacturing~~Columbia challenging the dismissal of the case. The Company continues to believe that the suit, including the appeal, is without merit and ~~selling product~~is defending vigorously against the appeal.

In addition to the ~~joint venture partners. Prior to~~above-referenced matter, the ~~sale, we owned a 50% controlling interest in LSFC.~~

~~A roll-forward showing the 2021 activity relating to the noncontrolling interest follows:~~


	~~Noncontrolling Interest~~
~~Balance, December 31, 2020~~	$	~~3,531~~
~~Net gain attributable to noncontrolling interest~~	~~1,072~~
~~Divestiture of noncontrolling interest~~	~~(1,013)~~
~~Other comprehensive income - foreign currency translation adjustments~~	~~5,254~~
~~Balance, July 4, 2021~~	$	~~8,844~~

The remaining noncontrolling interest balance as of July 4, 2021 reflects the portion of sales proceeds attributable to the joint venture partner. The distribution of the sales proceeds will commence upon the completion of certain approvals and other conditions. We expect the distribution to be completed during 2021.

~~16. CONTINGENCIES~~

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


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 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)

~~17.~~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. In June 2022, 1,500,000 shares of Class B Common Stock were converted to Common Stock by Hershey Trust Company, as trustee for the School Trust. The computation of diluted earnings per share for Common Stock assumes the conversion of Class B common stock using the if-converted method, while the diluted earnings per share of Class B common stock does not assume the conversion of those shares.


		Three Months Ended									Three Months Ended
		July 4, 2021				June 28, 2020					July 3, 2022				July 4, 2021
		Common Stock		Class B Common Stock		Common Stock		Class B Common Stock			Common Stock		Class B Common Stock		Common Stock		Class B Common Stock
Basic earnings per share:	Basic earnings per share:									Basic earnings per share:
Numerator:	Numerator:									Numerator:
Allocation of distributed earnings (cash dividends paid)	Allocation of distributed earnings (cash dividends paid)	$	117,257	$	44,308	$	113,925	$	42,551	Allocation of distributed earnings (cash dividends paid)	$	131,077	$	48,823	$	117,257	$	44,308
Allocation of undistributed earnings	Allocation of undistributed earnings	101,414		38,251		81,891		30,534		Allocation of undistributed earnings	99,227		36,429		101,414		38,251
Total earnings—basic	Total earnings—basic	$	218,671	$	82,559	$	195,816	$	73,085	Total earnings—basic	$	230,304	$	85,252	$	218,671	$	82,559

Denominator (shares in thousands):	Denominator (shares in thousands):									Denominator (shares in thousands):
Total weighted-average shares—basic	Total weighted-average shares—basic	146,111		60,614		147,635		60,614		Total weighted-average shares—basic	146,362		59,114		146,111		60,614

Earnings Per Share—basic	Earnings Per Share—basic	$	1.50	$	1.36	$	1.33	$	1.21	Earnings Per Share—basic	$	1.57	$	1.44	$	1.50	$	1.36

Diluted earnings per share:	Diluted earnings per share:									Diluted earnings per share:
Numerator:	Numerator:									Numerator:
Allocation of total earnings used in basic computation	Allocation of total earnings used in basic computation	$	218,671	$	82,559	$	195,816	$	73,085	Allocation of total earnings used in basic computation	$	230,304	$	85,252	$	218,671	$	82,559
Reallocation of total earnings as a result of conversion of Class B common stock to Common stock	Reallocation of total earnings as a result of conversion of Class B common stock to Common stock	82,559		0		73,085		0		Reallocation of total earnings as a result of conversion of Class B common stock to Common stock	85,252		—		82,559		—
Reallocation of undistributed earnings	Reallocation of undistributed earnings	0		(179)		0		(123)		Reallocation of undistributed earnings	—		(189)		—		(179)
Total earnings—diluted	Total earnings—diluted	$	301,230	$	82,380	$	268,901	$	72,962	Total earnings—diluted	$	315,556	$	85,063	$	301,230	$	82,380

Denominator (shares in thousands):	Denominator (shares in thousands):									Denominator (shares in thousands):
Number of shares used in basic computation	Number of shares used in basic computation	146,111		60,614		147,635		60,614		Number of shares used in basic computation	146,362		59,114		146,111		60,614
Weighted-average effect of dilutive securities:	Weighted-average effect of dilutive securities:									Weighted-average effect of dilutive securities:
Conversion of Class B common stock to Common shares outstanding	Conversion of Class B common stock to Common shares outstanding	60,614		0		60,614		0		Conversion of Class B common stock to Common shares outstanding	59,114		—		60,614		—
Employee stock options	Employee stock options	622		0		521		0		Employee stock options	585		—		622		—
Performance and restricted stock units	Performance and restricted stock units	324		0		300		0		Performance and restricted stock units	388		—		324		—
Total weighted-average shares—diluted	Total weighted-average shares—diluted	207,671		60,614		209,070		60,614		Total weighted-average shares—diluted	206,449		59,114		207,671		60,614

Earnings Per Share—diluted	Earnings Per Share—diluted	$	1.45	$	1.36	$	1.29	$	1.20	Earnings Per Share—diluted	$	1.53	$	1.44	$	1.45	$	1.36

The earnings per share calculations for the three months ended July 3, 2022 and July 4, 2021 excluded 4 and ~~June 28, 2020 excluded~~ 43 ~~and 15~~ stock options (in thousands), respectively, that would have been antidilutive.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 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)


		Six Months Ended									Six Months Ended
		July 4, 2021				June 28, 2020					July 3, 2022				July 4, 2021
		Common Stock		Class B Common Stock		Common Stock		Class B Common Stock			Common Stock		Class B Common Stock		Common Stock		Class B Common Stock
Basic earnings per share:	Basic earnings per share:									Basic earnings per share:
Numerator:	Numerator:									Numerator:
Allocation of distributed earnings (cash dividends paid)	Allocation of distributed earnings (cash dividends paid)	$	235,687	$	88,617	$	229,177	$	85,102	Allocation of distributed earnings (cash dividends paid)	$	263,337	$	97,647	$	235,687	$	88,617
Allocation of undistributed earnings	Allocation of undistributed earnings	270,866		101,859		164,541		61,218		Allocation of undistributed earnings	356,240		131,810		270,866		101,859
Total earnings—basic	Total earnings—basic	$	506,553	$	190,476	$	393,718	$	146,320	Total earnings—basic	$	619,577	$	229,457	$	506,553	$	190,476

Denominator (shares in thousands):	Denominator (shares in thousands):									Denominator (shares in thousands):
Total weighted-average shares—basic	Total weighted-average shares—basic	146,550		60,614		147,954		60,614		Total weighted-average shares—basic	146,248		59,530		146,550		60,614

Earnings Per Share—basic	Earnings Per Share—basic	$	3.46	$	3.14	$	2.66	$	2.41	Earnings Per Share—basic	$	4.24	$	3.85	$	3.46	$	3.14

Diluted earnings per share:	Diluted earnings per share:									Diluted earnings per share:
Numerator:	Numerator:									Numerator:
Allocation of total earnings used in basic computation	Allocation of total earnings used in basic computation	$	506,553	$	190,476	$	393,718	$	146,320	Allocation of total earnings used in basic computation	$	619,577	$	229,457	$	506,553	$	190,476
Reallocation of total earnings as a result of conversion of Class B common stock to Common stock	Reallocation of total earnings as a result of conversion of Class B common stock to Common stock	190,476		0		146,320		0		Reallocation of total earnings as a result of conversion of Class B common stock to Common stock	229,457		—		190,476		—
Reallocation of undistributed earnings	Reallocation of undistributed earnings	0		(484)		0		(309)		Reallocation of undistributed earnings	—		(722)		—		(484)
Total earnings—diluted	Total earnings—diluted	$	697,029	$	189,992	$	540,038	$	146,011	Total earnings—diluted	$	849,034	$	228,735	$	697,029	$	189,992

Denominator (shares in thousands):	Denominator (shares in thousands):									Denominator (shares in thousands):
Number of shares used in basic computation	Number of shares used in basic computation	146,550		60,614		147,954		60,614		Number of shares used in basic computation	146,248		59,530		146,550		60,614
Weighted-average effect of dilutive securities:	Weighted-average effect of dilutive securities:									Weighted-average effect of dilutive securities:
Conversion of Class B common stock to Common shares outstanding	Conversion of Class B common stock to Common shares outstanding	60,614		0		60,614		0		Conversion of Class B common stock to Common shares outstanding	59,530		—		60,614		—
Employee stock options	Employee stock options	606		0		620		0		Employee stock options	592		—		606		—
Performance and restricted stock units	Performance and restricted stock units	356		0		408		0		Performance and restricted stock units	491		—		356		—
Total weighted-average shares—diluted	Total weighted-average shares—diluted	208,126		60,614		209,596		60,614		Total weighted-average shares—diluted	206,861		59,530		208,126		60,614

Earnings Per Share—diluted	Earnings Per Share—diluted	$	3.35	$	3.13	$	2.58	$	2.41	Earnings Per Share—diluted	$	4.10	$	3.84	$	3.35	$	3.13

The earnings per share calculations for the six months ended July 3, 2022 and July 4, 2021 excluded 4 and ~~June 28, 2020 excluded~~ 43 ~~and 15~~ stock options (in thousands), respectively, that would have been antidilutive.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 31

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

~~18.~~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				Six Months Ended					Three Months Ended				Six Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Write-down of equity investments in partnerships qualifying for historic and renewable energy tax credits (see Note 8)	Write-down of equity investments in partnerships qualifying for historic and renewable energy tax credits (see Note 8)	$	4,880	$	7,447	$	7,771	$	18,550	Write-down of equity investments in partnerships qualifying for historic and renewable energy tax credits (see Note 8)	$	14,848	$	4,880	$	27,440	$	7,771
Non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans (see Note 11)	Non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans (see Note 11)	2,304		3,806		1,820		3,955		Non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans (see Note 11)	4,749		2,304		2,567		1,820

Other (income) expense, net	Other (income) expense, net	10		(36)		17		245		Other (income) expense, net	61		10		58		17
Total	Total	$	7,194	$	11,217	$	9,608	$	22,750	Total	$	19,658	$	7,194	$	30,065	$	9,608

18. RELATED PARTY TRANSACTIONS

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

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

A summary of material related party transactions with Hershey Trust Company and/or its affiliates for the six months ended July 3, 2022 is as follows:

Sale and Donation of Property, Plant and Equipment

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

Stock Purchase Agreement

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 shares of its Common Stock from the School Trust (see Note 14).


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 32

THE HERSHEY COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

19. SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of certain Consolidated Balance Sheet accounts are as follows:
July 4, 2021 December 31, 2020
Inventories:
Raw materials $ 412,728 $ 388,600
Goods in process 140,868 104,841
Finished goods 677,254 645,664
Inventories at First In First Out 1,230,850 1,139,105
Adjustment to Last In First Out (170,428) (174,898)
Total inventories $ 1,060,422 $ 964,207
Prepaid expenses and other:
Prepaid expenses $ 64,153 $ 95,669
Other current assets 136,004 158,809
Total prepaid expenses and other $ 200,157 $ 254,478
Property, plant and equipment:
Land $ 132,515 $ 131,513
Buildings 1,412,232 1,387,106
Machinery and equipment 3,271,692 3,169,754
Construction in progress 278,057 276,514
Property, plant and equipment, gross 5,094,496 4,964,887
Accumulated depreciation (2,752,671) (2,679,632)
Property, plant and equipment, net $ 2,341,825 $ 2,285,255
Other non-current assets:
Capitalized software, net $ 215,264 $ 187,673
Operating lease ROU assets 206,068 224,268
Investments in unconsolidated affiliates 81,606 52,351
Other non-current assets 109,676 91,595
Total other non-current assets $ 612,614 $ 555,887
Accrued liabilities:
Payroll, compensation and benefits $ 195,224 $ 237,342
Advertising, promotion and product allowances 309,437 309,537
Operating lease liabilities 28,559 36,578
Other 175,072 198,309
Total accrued liabilities $ 708,292 $ 781,766
Other long-term liabilities:
Post-retirement benefits liabilities $ 217,776 $ 223,507
Pension benefits liabilities 55,615 70,727
Operating lease liabilities 172,352 181,871
Other 225,858 207,329
Total other long-term liabilities $ 671,601 $ 683,434
Accumulated other comprehensive loss:
Foreign currency translation adjustments $ (84,375) $ (98,525)
Pension and post-retirement benefit plans, net of tax (166,707) (194,205)
Cash flow hedges, net of tax (45,054) (45,352)
Total accumulated other comprehensive loss $ (296,136) $ (338,082)


	July 3, 2022		December 31, 2021
Inventories:
Raw materials	$	390,557	$	395,358
Goods in process	164,444		110,008
Finished goods	841,036		649,082
Inventories at First In First Out	1,396,037		1,154,448
Adjustment to Last In First Out	(187,798)		(165,937)
Total inventories	$	1,208,239	$	988,511

Prepaid expenses and other:
Prepaid expenses	$	95,761	$	129,287

Other current assets	130,344		127,678
Total prepaid expenses and other	$	226,105	$	256,965

Property, plant and equipment:
Land	$	156,706	$	154,494
Buildings	1,523,736		1,508,139
Machinery and equipment	3,547,096		3,443,500
Construction in progress	245,159		294,824
Property, plant and equipment, gross	5,472,697		5,400,957
Accumulated depreciation	(2,881,871)		(2,814,770)
Property, plant and equipment, net	$	2,590,826	$	2,586,187

Other non-current assets:
Pension	$	36,743	$	71,618
Capitalized software, net	296,021		260,656

Operating lease ROU assets	337,311		351,712
Investments in unconsolidated affiliates	139,731		93,089
Other non-current assets	95,016		91,128
Total other non-current assets	$	904,822	$	868,203

Accrued liabilities:
Payroll, compensation and benefits	$	213,224	$	291,446
Advertising, promotion and product allowances	310,713		305,050
Operating lease liabilities	32,468		36,292

Other	180,280		222,850
Total accrued liabilities	$	736,685	$	855,638

Other long-term liabilities:
Post-retirement benefits liabilities	$	185,214	$	193,604
Pension benefits liabilities	33,030		37,023
Operating lease liabilities	302,954		310,899
Other	242,843		245,532
Total other long-term liabilities	$	764,041	$	787,058

Accumulated other comprehensive loss:
Foreign currency translation adjustments	$	(102,365)	$	(100,025)
Pension and post-retirement benefit plans, net of tax	(137,786)		(116,381)
Cash flow hedges, net of tax	(28,230)		(32,809)
Total accumulated other comprehensive loss	$	(268,381)	$	(249,215)


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 33

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

This ~~Management's~~Management’s Discussion and Analysis (“MD&A”) is intended to provide an understanding of ~~Hershey's~~Hershey’s financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. The MD&A should be read in conjunction with our Unaudited Consolidated Financial Statements and accompanying notes. This discussion contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially. Refer to the Safe Harbor Statement below as well as the Risk Factors and other information contained in our ~~2020~~2021 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 ~~bringing~~making more moments of goodness ~~to the world~~ through chocolate, sweets, mints ~~gum~~ 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 90100 brand names in approximately 8580 countries worldwide.

~~We report our operations through two segments: North America and International and Other. The majority of our products are confectionery or confectionery-based and~~Our principal product offerings include chocolate and non-chocolate confectionery ~~products,~~products; gum and mint refreshment products ~~spreads, snack bites~~ and ~~mixes, as well as~~protein bars; pantry items, such as baking ingredients, toppings and ~~sundae syrups. The confectionery~~beverages; and ~~confectionery-based~~snack items such as spreads, bars, and snack bites and mixes, popcorn and pretzels.

Business Acquisitions and Divestiture

In December 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 ~~is predominantly sold under the renowned brands of~~ ~~Hershey's~~, ~~Reese's~~that includes filled, gluten free and ~~Kisses~~,seasoned pretzels, as well as ~~Kit Kat®~~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. Additionally, we completed the acquisition of Dot’s Pretzels, LLC (“Dot’s”), ~~Jolly Rancher, Ice Breakers, Twizzlers, Heath, Payday, Cadbury~~previously a privately held company that produces and ~~a variety of other popular brands. Our snacks portfolio includes ready-to-eat popcorn, baked and trans fat free snacks, protein bars~~sells pretzels and other ~~better-for-you snacks. The~~snack food products to retailers and distributors in the United States, with Dot’s Homestyle Pretzels snacks ~~portfolio~~as its primary product. Dot’s is ~~predominantly sold under~~ the ~~brands of~~ ~~SkinnyPop~~, ~~Pirate's Booty~~, ~~ONE Bar~~,fastest-growing scale brand in the pretzel category and complements Hershey’s snacks portfolio.~~Paqui~~.

~~2021 Acquisition and Divestiture~~

In June 2021, we completed the acquisition of ~~Lily's~~Lily’s Sweets, LLC ~~("Lily's"~~(“Lily’s”), previously a privately held company that sells a line of sugar-free and low-sugar confectionery foods to retailers and distributors in the United States and Canada. ~~Lily's~~Lily’s products include dark and milk chocolate style bars, baking chips, peanut butter cups and other confection products that complement Hershey’s confectionery and confectionery-based portfolio. ~~Lily's is expected to generate annualized net sales over $100 million.~~

~~2020 Divestitures~~


Table of Contents			The Hershey Company \| Q2 2022 Form 10-Q \| Page 34

~~During~~

TRENDS AFFECTING OUR BUSINESS

On March 11, 2020, the ~~second quarter~~World Health Organization designated coronavirus disease 2019 (“COVID-19”) as a global pandemic, which has spread worldwide and impacted various markets around the world, including the U.S. Throughout the pandemic we have remained committed to promoting the health and safety of ~~2020, we completed~~our employees and communities and helping to maintain the ~~divestitures~~global food supply. Through the first half of ~~KRAVE Pure Foods, Inc. ("Krave")~~2022, relatively minimal COVID-19 restrictions remained as vaccination status (including vaccine boosters) continued to increase around the world, albeit with slower than anticipated rollouts and challenges within certain countries. The lifting of restrictions has resulted in daily activities and habits being more representative of pre-pandemic times. However, beginning in 2021, and continuing through the six months ended July 3, 2022, the continued strong demand for consumer goods and the effects of COVID-19 mitigation strategies have led to broad-based supply chain disruptions across the U.S. and globally, including inflation on many consumer products, labor shortages and demand outpacing supply. As a result, during the six months ended July 3, 2022, we continued to experience corresponding incremental costs and gross margin pressures (see ~~Scharffen Berger~~Results of Operations included in this MD&A). We are continuing to work closely with our business units, contract manufacturers, distributors, contractors and ~~Dagoba~~ ~~brands, all of which were previously included within~~other external business partners to minimize the ~~North America segment results in our consolidated financial statements. Total proceeds from the divestitures and the~~potential impact on our business.

In addition to COVID-19 and broad-based supply chain disruptions, certain geopolitical events, specifically the conflict between Russia and Ukraine, have increased global economic and political uncertainty. For the six months ended July 3, 2022, 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.

We experienced an increase in our net sales and net income during the three months ended July 3, 2022, which was primarily driven by strong everyday performance on our core U.S. confection brands and salty snack brands (see Segment Results included in this MD&A), partially offset by the aforementioned supply chain disruptions and gross margin pressures. As of July 3, 2022, we believe we have sufficient liquidity to satisfy our key strategic initiatives and other material cash requirements; 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 COVID-19 and the conflict between Russia and Ukraine, including broad-based supply chain disruptions, rising levels of inflation, new trends in outbreaks and hotspots, the spread of COVID-19 variants, resurgences of COVID-19 cases and the continued distribution of vaccinations, we may experience continued volatility in retail foot traffic, consumer shopping and consumption behavior and may experience increasing supply chain costs and higher inflation. We will continue to evaluate the nature and extent of these potential and evolving impacts on our business, consolidated ~~financial statements, both individually~~results of operations, segment results, liquidity and ~~on an aggregate basis, were immaterial.~~capital resources.


Table of Contents			The Hershey Company \| Q2 ~~2021 Form 10-Q \| Page 34~~

~~TRENDS AFFECTING OUR BUSINESS~~

On March 11, 2020, the World Health Organization designated coronavirus disease 2019 ("COVID-19") as a global pandemic, which has spread worldwide and impacted various markets around the world, including the U.S. Various policies and initiatives have been implemented to reduce the global transmission of COVID-19.

Local, state and national governments continue to emphasize the importance of food supply during this pandemic and asked that food manufacturers and retailers remain open to meet the needs of our communities. Employee safety is our first priority, and as a result, we put preparedness plans in place at our manufacturing facilities. Our manufacturing facilities are currently open; however, we have adjusted shift schedules, enforced social distancing, increased sanitation and adjusted time and attendance policies for worker absenteeism. Our sales teams continue to support community food supplies, while adhering to social distancing guidelines, implementing flexible hours, reducing person-to-person interaction and increasing safety measures. At the onset of the pandemic, the Company temporarily closed all Hershey's Chocolate World stores in the U.S. (3 locations), Niagara Falls (Ontario) and Singapore; however, since July 2020, all locations were re-opened on a limited capacity basis with increased safety measures and enforced social distancing.

In June 2020 we commenced a phased in approach to reopen our corporate headquarters in Hershey, Pennsylvania and other select offices with increased safety protocols. We have successfully onboarded several teams; however, occupancy levels remain low as we continue to monitor the latest COVID-19 related public health and government guidance. As a result, a majority of our office-based employees continue to work remotely where possible. We have crisis management teams in place to monitor the continually evolving situation and recommending risk mitigation actions as deemed necessary. To date, there has been minimal disruption to our supply chain network, including the supply of our ingredients, packaging or other sourced materials, though it is possible that more significant disruptions could occur if the COVID-19 pandemic continues to impact markets around the world. We are also working closely with our business units, contract manufacturers, distributors, contractors and other external business partners to minimize the potential impact on our business.

As of July 4, 2021, we believe we have sufficient liquidity to satisfy our cash needs; however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during the ongoing COVID-19 pandemic. We continue to monitor our discretionary spending across the organization (see ~~Liquidity and Capital Resources~~ ~~included in this MD&A).~~

During the second quarter of 2021, many state governments began easing COVID-19 restrictions, resulting in increased travel ahead of the summer season, approval for full capacity at major sporting and entertainment events, increased occupancy limits for indoor gathering and the removal of face covering requirements (subject to certain exceptions). Additionally, increasing availability and the rollout of vaccinations continue around the world, albeit with slower than anticipated rollouts and challenges within certain countries. We experienced an increase in our net sales and income during the three and six months ended July 4, 2021, which was primarily driven by strong everyday performance on our core U.S. confection brands and solid marketplace growth in select international markets (see ~~Segment Results~~ ~~included in this MD&A).~~

Based on the length and severity of COVID-19, including new trends in outbreaks and hotspots, the spread of COVID-19 variants, potential resurgences and the continued distribution of vaccinations, we may experience continued volatility in retail foot traffic, consumer shopping and consumption behavior. We will continue to evaluate the nature and extent of these potential impacts to our business, consolidated results of operations, segment results, liquidity and capital resources.


~~Table of Contents~~			~~The Hershey Company \| Q2 2021~~2022 Form 10-Q \| Page 35

CONSOLIDATED RESULTS OF OPERATIONS


		Three Months Ended								Six Months Ended									Three Months Ended								Six Months Ended
		July 4, 2021			June 28, 2020			Percent Change		July 4, 2021			June 28, 2020			Percent Change			July 3, 2022			July 4, 2021			Percent Change		July 3, 2022			July 4, 2021			Percent Change
In millions of dollars except per share amounts	In millions of dollars except per share amounts																	In millions of dollars except per share amounts
Net sales	Net sales	$	1,989.4		$	1,707.3		16.5	%	$	4,285.4		$	3,744.6		14.4	%	Net sales	$	2,372.6		$	1,989.4		19.3	%	$	5,038.8		$	4,285.4		17.6	%
Cost of sales	Cost of sales	1,064.0			914.8			16.3	%	2,311.0			2,085.5			10.8	%	Cost of sales	1,372.6			1,064.0			29.0	%	2,793.3			2,311.0			20.9	%
Gross profit	Gross profit	925.4			792.5			16.8	%	1,974.4			1,659.1			19.0	%	Gross profit	1,000.0			925.4			8.1	%	2,245.5			1,974.4			13.7	%
Gross margin	Gross margin	46.5		%	46.4		%			46.1		%	44.3		%			Gross margin	42.1		%	46.5		%			44.6		%	46.1		%
Selling, marketing & administrative ("SM&A") expenses		467.6			408.9			14.3	%	962.3			884.3			8.8	%
Selling, marketing & administrative (“SM&A”) expenses																		Selling, marketing & administrative (“SM&A”) expenses	543.5			467.6			16.2	%	1,067.7			962.3			11.0	%
SM&A expense as a percent of net sales	SM&A expense as a percent of net sales	23.5		%	24.0		%			22.5		%	23.6		%			SM&A expense as a percent of net sales	22.9		%	23.5		%			21.2		%	22.5		%
Long-lived asset impairment charges		—			1.6			NM		—			9.1			NM
Business realignment costs (benefits)		1.1			(1.4)			NM		2.4			(0.5)			NM

Business realignment activities																		Business realignment activities	—			1.1			(100.0)	%	0.3			2.4			(88.5)	%
Operating profit	Operating profit	456.7			383.4			19.1	%	1,009.7			766.2			31.8	%	Operating profit	456.5			456.7			NM		1,177.5			1,009.7			16.6	%
Operating profit margin	Operating profit margin	23.0		%	22.5		%			23.6		%	20.5		%			Operating profit margin	19.2		%	23.0		%			23.4		%	23.6		%
Interest expense, net	Interest expense, net	31.1			38.1			(18.4)	%	67.5			74.3			(9.2)	%	Interest expense, net	33.4			31.1			7.6	%	66.6			67.5			(1.3)	%
Other (income) expense, net	Other (income) expense, net	7.2			11.2			(35.9)	%	9.6			22.8			(57.8)	%	Other (income) expense, net	19.7			7.2			173.3	%	30.1			9.6			212.9	%
Provision for income taxes	Provision for income taxes	117.2			66.1			77.5	%	234.5			132.3			77.3	%	Provision for income taxes	87.9			117.2			(25.0)	%	231.8			234.5			(1.1)	%
Effective income tax rate	Effective income tax rate	28.0%			19.8%					25.1%			19.8%					Effective income tax rate	21.8%			28.0%					21.4%			25.1%
Net income including noncontrolling interest	Net income including noncontrolling interest	301.2			268.0			12.4	%	698.1			536.8			30.0	%	Net income including noncontrolling interest	315.5			301.2			4.8	%	849.0			698.1			21.6	%
Less: Net (loss) gain attributable to noncontrolling interest		—			(0.9)			NM		1.1			(3.2)			NM
Less: Net gain attributable to noncontrolling interest																		Less: Net gain attributable to noncontrolling interest	—			—			NM		—			1.1			(100.0)	%
Net income attributable to The Hershey Company	Net income attributable to The Hershey Company	$	301.2		$	268.9		12.0	%	$	697.0		$	540.0		29.1	%	Net income attributable to The Hershey Company	$	315.5		$	301.2		4.8	%	$	849.0		$	697.0		21.8	%
Net income per share—diluted	Net income per share—diluted	$	1.45		$	1.29		12.4	%	$	3.35		$	2.58		29.8	%	Net income per share—diluted	$	1.53		$	1.45		5.5	%	$	4.10		$	3.35		22.4	%

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

Results of Operations - Second Quarter ~~2021~~2022 vs. Second Quarter ~~2020~~2021

Net Sales

Net sales increased ~~16.5%~~19.3% in the second quarter of ~~2021~~2022 compared to the same period of ~~2020,~~2021, reflecting a favorable price realization of 9.5% primarily due to higher list prices across our reportable segments, in addition to lower levels of promotional activity versus the prior year period, a 5.3% benefit from the 2021 acquisitions of Pretzels, Dot’s and Lily’s, and a volume increase of ~~14.5% due to an increase~~4.6% driven by the replenishment of distributor inventory levels, primarily in ~~everyday core U.S. confection brands, as well as~~the North America Confectionery segment, along with the favorable price ~~realization of 1.0% due to higher prices on certain products~~elasticities in the North America Salty Snacks and ~~a favorable~~International segments. These increases were offset by an unfavorable impact from foreign currency exchange rates of ~~1.0%~~0.1%.

Key U.S. Marketplace Metrics

For the second quarter of ~~2021,~~2022, our total U.S. retail takeaway increased ~~2.8%~~17.1% in the expanded multi-outlet combined plus convenience store channels (IRI MULO + C-Stores), which includes candy, mint, gum, salty snacks ~~meat snacks~~ and grocery items. Our U.S. candy, mint and gum ~~("CMG"~~(“CMG”) consumer takeaway increased ~~2.3%, resulting in~~17.0% and experienced a CMG market share loss of approximately ~~113~~61 basis ~~points.~~points as a result of capacity constraints limiting the Company’s ability to fully service consumer demand.

The CMG consumer takeaway and market share information ~~reflect~~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 Information Resources, ~~Incorporated ("IRI"), the Company's market insights and analytics provider, and provide a means to assess our retail takeaway and market position relative to the overall category.~~


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 36

Incorporated (“IRI”), the Company’s market insights and analytics provider, and provide a means to assess our retail takeaway and market position relative to the overall category.

Cost of Sales and Gross Margin

Cost of sales increased ~~16.3%~~29.0% in the second quarter of ~~2021~~2022 compared to the same period of ~~2020.~~2021. The increase was driven by higher sales volume, higher freight and logistics costs, as well as higher supply chain inflation costs and ~~additional plant costs. These drivers were partially offset by the~~an incremental ~~$14.3~~$25.6 million of ~~favorable~~unfavorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future ~~years'~~years’ commodity purchases. ~~Additionally, the~~The increase was partially offset by favorable price realization and supply chain productivity.

Gross margin ~~increased~~decreased by 10440 basis ~~points~~points in the second quarter of ~~2021~~2022 compared to the same period of ~~2020.~~2021. The ~~increase~~decrease was driven by ~~the favorable~~higher freight and logistics costs, higher supply chain inflation costs, as well as unfavorable year-over-year mark-to-market impact from commodity derivative instruments and unfavorable product mix. These declines were offset by favorable price realization and ~~supply chain productivity. These factors were offset by higher freight and logistics costs and additional plant costs.~~volume increases.

SM&A Expenses

SM&A expenses increased ~~$58.7~~$75.9 million, or ~~14.3%~~16.2%, in the second quarter of ~~2021 driven by advertising increases and corporate expenses.~~2022 compared to the same period of 2021. Total advertising and related consumer marketing expenses increased ~~9.9%~~3.2% driven by ~~increased investment in core~~moderate advertising increases across non-capacity constrained brands and ~~incremental sponsorships in~~segments, which were largely offset by cost efficiencies related to new media partners, primarily benefiting the North ~~America.~~America Confectionery segment. SM&A expenses, excluding advertising and related consumer marketing, increased approximately ~~16.6%~~22.4% in the second quarter of ~~2021~~2022 driven by an increase in acquisition and integration related costs, as well as higher compensation costs and investments in capabilities and technology.

~~Long-Lived Asset Impairment Charges~~

We had no impairment charges during the second quarter of 2021. During the second quarter of 2020, we recorded long-lived asset impairment charges of $1.6 million, predominantly comprised of impairment charges to adjust long-lived asset values of our LSFC disposal group which was previously classified as held for sale.

Business Realignment Activities

We periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies. In the second quarter of ~~2021,~~2022, we recorded no business realignment costs versus costs of $1.1 million in the second quarter of 2021 related to the International Optimization ~~Program, a~~Program. This program is focused on optimizing our China operating model to improve our operational efficiency and provide for a strong, sustainable and simplified base going forward. In the second quarter of 2020, we recorded business realignment benefits of $1.4 million related to the Margin for Growth Program, a program focused on improving global efficiency and effectiveness, optimizing the Company’s supply chain, streamlining the Company’s operating model and reducing administrative expenses to generate long-term savings. 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 19.1%~~was $456.5 million in the second quarter of ~~2021~~2022 compared to $456.7 million in the same period of ~~2020~~2021 predominantly due to ~~higher gross profit, partially offset by~~ higher SM&A expenses, as noted ~~above.~~above, partially offset by higher gross profit. Operating profit margin ~~increased~~decreased to 19.2% in 2022 from 23.0% in 2021 ~~from 22.5% in 2020~~ driven by these same factors.

Interest Expense, Net

Net interest expense was ~~$7.0~~$2.3 million ~~lower~~higher in the second quarter of ~~2021 compared~~2022 compared to the same period of ~~2020.~~2021. The ~~decrease~~increase was primarily due to higher short-term debt balances in 2022 versus 2021, specifically outstanding commercial paper borrowings. This increase was partially offset by lower average long-term debt balances, ~~in 2021 versus 2020,~~ specifically resulting from ~~$785~~the repayment of $350 million of ~~long-term debt repayments with varying~~3.100% Notes upon their maturity ~~dates during~~in May 2021.

Other (Income) Expense, Net

Other (income) expense, net was $19.7 million in the ~~last twelve months preceding July 4,~~second quarter of 2022 versus net expense of $7.2 million in the second quarter of 2021.

The increase in net expense was primarily due to higher write-downs on equity investments qualifying for tax credits in 2022 versus 2021 and higher non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 37

~~Other (Income) Expense, Net~~

Other (income) expense, net totaled expense of $7.2 million in the second quarter of 2021 versus net expense of $11.2 million in the second quarter of 2020. The decrease in net expense was primarily due to lower write-downs on equity investments qualifying for historic and renewable energy tax credits in 2021 versus 2020 and lower non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans during 2021.

Income Taxes and Effective Tax Rate

The effective income tax rate was 21.8% for the second quarter of 2022 compared with 28.0% for the second quarter of ~~2021 compared with 19.8% for~~2021. Relative to the ~~second quarter~~21% statutory rate, the 2022 effective tax rate was impacted by state taxes, unfavorable foreign rate differential and tax reserves, partially offset by investment tax credits and the benefit of ~~2020.~~employee share-based payments. Relative to the 21% statutory rate, the 2021 effective tax rate was impacted by incremental tax reserves incurred as a result of an adverse ruling in connection with a non-U.S. tax litigation matter as well as state taxes, partially offset by investment tax credits. ~~Relative to the 21% statutory rate, the 2020 effective tax rate benefited from investment tax credits and changes in tax reserves, partially offset by state taxes.~~

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

Net income increased ~~$32.3~~$14.3 million, or ~~12.0%~~4.8%, while EPS-diluted increased ~~$0.16,~~$0.08, or ~~12.4%~~5.5%, in the second quarter of ~~2021~~2022 compared to the same period of ~~2020.~~2021. The increase in both net income and EPS-diluted was driven primarily by higher gross profit and lower income taxes, partially offset by higher SM&A expenses and higher other income ~~taxes,~~and expenses, as noted above. Our ~~2021~~2022 EPS-diluted ~~also~~ benefited from lower weighted-average shares outstanding as a result of share ~~repurchases pursuant to our Board-approved repurchase programs.~~repurchases.

Results of Operations - First Six Months ~~2021~~2022 vs. First Six Months ~~2020~~2021

Net Sales

Net sales increased ~~14.4%~~17.6% in the first six months of ~~2021~~2022 compared to the same period of ~~2020,~~2021, reflecting a favorable price realization of 7.8% primarily due to higher list prices across our reportable segments, a 4.9% benefit from the 2021 acquisitions of Pretzels, Dot’s and Lily’s, and a volume increase of ~~12.6% due to~~4.9% driven by an increase in everyday core U.S. confection brands ~~as well as favorable price realization of 1.5% due to higher prices on certain products~~ and a favorable impact from foreign currency exchange rates of 0.4%. This was partially offset by a 0.1% decrease from net acquisitions and divestitures (predominantly driven by the 2020 divestitures of Krave and the ~~Scharffen Berger~~ ~~and~~ ~~Dagoba~~ ~~brands).~~our salty snacks portfolio.

Cost of Sales and Gross Margin

Cost of sales increased ~~10.8%~~20.9% in the first six months of ~~2021~~2022 compared to the same period of ~~2020.~~2021. The increase was driven by higher sales volume, higher freight and logistics costs and additional plant costs. These drivers were partially offset by ~~the~~an incremental ~~$105.0~~$11.5 million of favorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future ~~years'~~years’ commodity purchases; however, were significantly impacted by financial market volatility during March 2020 amid COVID-19 fears. Additionally, the increase was partially offset by favorable price realization and supply chain productivity.purchases.

Gross margin ~~increased~~decreased by ~~180~~150 basis points in the first six months of ~~2021~~2022 compared to the same period of ~~2020.~~2021. The ~~increase~~decrease was driven by ~~the~~higher freight and logistics costs, higher supply chain inflation costs and unfavorable product mix. These declines were offset by favorable year-over-year mark-to-market impact from commodity derivative instruments, as well as favorable price realization and ~~supply chain productivity. These factors were offset by higher freight and logistics costs and additional plant costs.~~volume increases.

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

SM&A expenses increased ~~$78.0~~$105.4 million, or ~~8.8%~~11.0%, in the first six months of 2022 compared to the same period of 2021. Total advertising and related consumer marketing expenses increased ~~5.9%~~1.1% driven by ~~increased investment~~increases in ~~core brands~~the North America Salty Snacks and ~~incremental sponsorships~~International segments to raise brand awareness, offset by lower advertising in the North ~~America.~~America Confectionery segment in response to sustained consumer demand and capacity constraints on select brands. SM&A expenses, excluding advertising and related consumer marketing, increased approximately ~~10.4%~~16.2% in the first six months of ~~2021~~2022 driven by an increase in acquisition and integration related costs, as well as higher compensation costs and investments in capabilities and technology.


~~Table of Contents~~			~~The Hershey Company \| Q2 2021 Form 10-Q \| Page 38~~

~~Long-Lived Asset Impairment Charges~~

We had no impairment charges during the first six months of 2021. During the first six months of 2020, we recorded long-lived asset impairment charges of $9.1 million, predominantly comprised of impairment charges to adjust long-lived asset values of our LSFC disposal group which was previously classified as held for sale. Additionally, in connection with a previous sale, the Company wrote-down certain receivables deemed uncollectible.

Business Realignment Activities

During the first six months of ~~2021,~~2022, we recorded ~~business~~business realignment costs of $0.3 million versus $2.4 million in the first six months of 2021 related to the International Optimization ~~Program. During the first six months of 2020, we recorded business realignment benefits of $0.5 million related to the Margin for Growth~~ 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 ~~31.8%~~16.6% in the first six months of ~~2021~~2022 compared to the same period of ~~2020~~2021 predominantly due to higher gross profit, ~~and lower impairment charges,~~ partially offset by higher SM&A expenses, as noted above. Operating profit margin ~~increased to~~was 23.4% in 2022 and 23.6% in 2021 ~~from 20.5% in 2020~~ driven by ~~these~~the same ~~factors.~~factors noted above that resulted in lower gross margin for the period.


Table of Contents			The Hershey Company \| Q2 2022 Form 10-Q \| Page 38

Interest Expense, Net

Net interest expense was ~~$6.8~~$0.9 million lower in the first six months of ~~2021~~2022 compared to the same period of ~~2020.~~2021. The decrease was primarily due to lower average long-term debt balances, ~~in 2021 versus 2020,~~ specifically resulting from ~~$785~~the repayment of $84.7 million of ~~long-term debt repayments with varying~~8.800% Debentures upon their maturity ~~dates during the last twelve months preceding July 4,~~in February 2021 and $350 million of 3.100% Notes upon their maturity in May 2021.

Other (Income) Expense, Net

Other (income) expense, net ~~totaled~~was $30.1 million in the first six months of 2022 versus expense of $9.6 million in the first six months of ~~2021 versus expense of $22.8 million in the first six months of 2020.~~2021. The ~~decrease~~increase in net expense was primarily due to ~~lower~~higher write-downs on equity investments qualifying for ~~historic and renewable energy~~ tax credits in 2022 versus 2021 ~~versus 2020~~ and ~~lower~~higher non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit ~~plans during 2021.~~plans.

Income Taxes and Effective Tax Rate

Our effective income tax rate was 21.4% for the first six months of 2022 compared with 25.1% for the first six months of ~~2021 compared with 19.8% for~~2021. Relative to the ~~first six months~~21% statutory rate, the 2022 effective tax rate was impacted by state taxes, tax reserves and unfavorable foreign rate differential, partially offset by investment tax credits and the benefit of ~~2020.~~employee share-based payments. Relative to the 21% statutory rate, the 2021 effective tax rate was impacted by incremental tax reserves incurred as a result of an adverse ruling in connection with a non-U.S. tax litigation matter as well as state taxes, partially offset by investment tax credits and the benefit of employee share-based payments. ~~Relative to the 21% statutory rate, the 2020 effective tax rate was favorably impacted by investment tax credits and the benefit of employee share-based payments, partially offset by state taxes.~~

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

Net income increased ~~$157.0~~$152.0 million, or ~~29.1%~~21.8%, while EPS-diluted increased ~~$0.77,~~$0.75, or ~~29.8%~~22.4%, in the first six months of ~~2021~~2022 compared to the same period of ~~2020.~~2021. The increase in both net income and EPS-diluted was driven primarily by higher gross profit, ~~and lower impairment charges,~~ partially offset by higher SM&A expenses and higher other income ~~taxes.~~and expenses. Our ~~2021~~2022 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share ~~repurchases pursuant to our Board-approved repurchase programs.~~repurchases.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 39

SEGMENT RESULTS

The summary that follows provides a discussion of the results of operations of our ~~two~~three reportable segments: North America Confectionery, North America Salty Snacks and ~~International and Other. The segments reflect our operations on a geographic basis.~~International. For segment reporting purposes, we use “segment income” to evaluate segment performance and allocate resources. Segment income excludes unallocated general corporate administrative expenses, unallocated mark-to-market gains and losses on commodity derivatives, business realignment and impairment charges, acquisition-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 CODM 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				Six Months Ended					Three Months Ended				Six Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
In millions of dollars	In millions of dollars									In millions of dollars
Net Sales:	Net Sales:									Net Sales:
North America		$	1,779.2	$	1,583.8	$	3,861.1	$	3,428.6
International and Other		210.2		123.5		424.3		316.0
North America Confectionery										North America Confectionery	$	1,909.1	$	1,690.4	$	4,126.2	$	3,675.8
North America Salty Snacks										North America Salty Snacks	256.3		128.2		482.4		249.6
International										International	207.2		170.8		430.2		360.0
Total	Total	$	1,989.4	$	1,707.3	$	4,285.4	$	3,744.6	Total	$	2,372.6	$	1,989.4	$	5,038.8	$	4,285.4

Segment Income (Loss):
North America		$	565.9	$	497.6	$	1,227.5	$	1,079.1
International and Other		42.2		(4.0)		76.0		12.0
Segment Income:										Segment Income:
North America Confectionery										North America Confectionery	$	618.9	$	554.5	$	1,400.7	$	1,197.1
North America Salty Snacks										North America Salty Snacks	37.4		26.0		58.7		51.4
International										International	30.7		27.6		72.7		55.0
Total segment income	Total segment income	608.1		493.6		1,303.5		1,091.1		Total segment income	687.0		608.1		1,532.1		1,303.5
Unallocated corporate expense (1)	Unallocated corporate expense (1)	151.3		106.9		289.1		231.4		Unallocated corporate expense (1)	188.9		151.3		339.1		289.1
Unallocated mark-to-market (gains) losses on commodity derivatives (2)		(3.4)		0.5		(5.7)		82.2
Long-lived asset impairment charges		—		1.6		—		9.1
Unallocated mark-to-market losses (gains) on commodity derivatives (2)										Unallocated mark-to-market losses (gains) on commodity derivatives (2)	40.8		(3.4)		13.5		(5.7)

Costs associated with business realignment activities	Costs associated with business realignment activities	3.5		1.3		10.4		2.2		Costs associated with business realignment activities	0.7		3.5		2.0		10.4
Operating profit	Operating profit	456.7		383.3		1,009.7		766.2		Operating profit	456.6		456.7		1,177.5		1,009.7
Interest expense, net	Interest expense, net	31.1		38.1		67.5		74.3		Interest expense, net	33.4		31.1		66.6		67.5
Other (income) expense, net	Other (income) expense, net	7.2		11.2		9.6		22.8		Other (income) expense, net	19.7		7.2		30.1		9.6
Income before income taxes	Income before income taxes	$	418.4	$	334.0	$	932.6	$	669.1	Income before income taxes	$	403.5	$	418.4	$	1,080.8	$	932.6

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


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 40

North America Confectionery

The North America Confectionery segment is responsible for our chocolate and non-chocolate confectionery market position ~~as well as our grocery and growing snacks market positions,~~ in the United States and Canada. This includes developing and growing our business in chocolate and non-chocolate confectionery, 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 ~~other snacking product lines.~~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 ~~89.4%~~80.5% and ~~92.8%~~85.0% of our net sales for the three months ended July 3, 2022 and July 4, 2021, ~~and June 28, 2020,~~ respectively, were as follows:


		Three Months Ended								Six Months Ended									Three Months Ended								Six Months Ended
		July 4, 2021			June 28, 2020			Percent Change		July 4, 2021			June 28, 2020			Percent Change			July 3, 2022			July 4, 2021			Percent Change		July 3, 2022			July 4, 2021			Percent Change
In millions of dollars	In millions of dollars																	In millions of dollars
Net sales	Net sales	$	1,779.2		$	1,583.8		12.3	%	$	3,861.1		$	3,428.6		12.6	%	Net sales	$	1,909.1		$	1,690.4		12.9	%	$	4,126.2		$	3,675.8		12.3	%
Segment income	Segment income	565.9			497.6			13.7	%	1,227.5			1,079.1			13.8	%	Segment income	618.9			554.5			11.6	%	1,400.7			1,197.1			17.0	%
Segment margin	Segment margin	31.8		%	31.4		%			31.8		%	31.5		%			Segment margin	32.4		%	32.8		%			33.9		%	32.6		%

Results of Operations - Second Quarter ~~2021~~2022 vs. Second Quarter ~~2020~~2021

Net sales of our North America Confectionery segment increased ~~$195.4~~$218.7 million, or ~~12.3%~~12.9%, in the second quarter of ~~2021~~2022 compared to the same period of ~~2020,~~2021, reflecting a favorable price realization of 9.8% due to list price increases on certain products across our portfolio, a volume increase of ~~11.8%~~2.6% due to an increase in everyday core U.S. confection brands and a ~~favorable~~0.8% increase from the 2021 acquisition of Lily’s, partially offset by an unfavorable impact from foreign currency exchange rates of ~~0.7%~~0.3%. ~~This was partially offset by unfavorable price realization of 0.1% and a 0.1% decrease from net acquisitions and divestitures (predominantly driven by the 2020 divestitures of Krave and the~~ ~~Scharffen Berger~~ ~~and~~ ~~Dagoba~~ ~~brands).~~

Our North America Confectionery segment ~~income~~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 increased ~~$68.3 million or 13.7% in~~approximately 5.3% during the second quarter of ~~2021~~2022 compared to the same period of ~~2020,~~2021.

Our North America Confectionery segment income increased $64.4 million, or 11.6%, in the second quarter of 2022 compared to the same period of 2021, primarily due to favorable price realization and volume increases, partially offset by higher ~~supply chain-related costs, higher~~ freight and logistics costs, higher ~~advertising expense and~~supply chain inflation costs, as well as, unfavorable ~~price realization.~~product mix.

Results of Operations - First Six Months ~~2021~~2022 vs. First Six Months ~~2020~~2021

Net sales of our North America Confectionery segment increased ~~$432.5~~$450.4 million or ~~12.6%~~12.3% in the first six months of ~~2021~~2022 compared to the same period of ~~2020,~~2021, reflecting a favorable price realization of 8.0% due to list price increases on certain products across our portfolio, a volume increase of ~~11.3%~~3.4% due to an increase in everyday core U.S. confection brands ~~favorable price realization of 0.9% attributed to higher prices on certain products~~ and a ~~favorable~~1.0% increase from the 2021 acquisition of Lily’s, partially offset by an unfavorable impact from foreign currency exchange rates of ~~0.5%~~0.1%. ~~This was partially offset by a 0.1% decrease from net acquisitions and divestitures (predominantly driven by the 2020 divestitures of Krave and the~~ ~~Scharffen Berger~~ ~~and~~ ~~Dagoba~~ ~~brands).~~

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 increased approximately 11.6% during the first six months of 2022 compared to the same period of 2021.

Our North America Confectionery segment income increased ~~$148.4~~$203.6 million or ~~13.8%~~17.0% in the first six months of ~~2021~~2022 compared to the same period of ~~2020,~~2021, primarily due to ~~volume increases and~~ favorable price realization and volume increases, partially offset by ~~higher supply chain-related costs,~~ higher freight and logistics costs, ~~and~~ higher ~~advertising expense.~~supply chain inflation costs, as well as, unfavorable product mix.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 41

~~International~~North America Salty Snacks

The North America Salty Snacks segment is responsible for our grocery and ~~Other~~snacks market positions, including our salty snacking products. North America Salty Snacks results, which accounted for 10.8% and 6.4% of our net sales for the three months ended July 3, 2022 and July 4, 2021, respectively, were as follows:


	Three Months Ended								Six Months Ended
	July 3, 2022			July 4, 2021			Percent Change		July 3, 2022			July 4, 2021			Percent Change
In millions of dollars
Net sales	$	256.3		$	128.2		99.9	%	$	482.4		$	249.6		93.3	%
Segment income	37.4			26.0			43.8	%	58.7			51.4			14.2	%
Segment margin	14.6		%	20.3		%			12.2		%	20.6		%

Results of Operations - Second Quarter 2022 vs. Second Quarter 2021

Net sales of our North America Salty Snacks segment increased $128.1 million, or 99.9%, in the second quarter of 2022 compared to the same period of 2021, reflecting a 71.6% benefit from the 2021 acquisitions of Dot’s and Pretzels, a favorable price realization of 14.6% due to higher prices on certain products and related trade promotions and a volume increase of 13.7% primarily related to SkinnyPop and Pirate’s Booty snacks.

Our North America Salty Snacks segment income increased $11.4 million, or 43.8%, in the second quarter of 2022 compared to the same period of 2021 due to favorable price realization and volume increases, partially offset by higher freight and logistics costs, higher supply chain inflation costs, as well as unfavorable product mix.

Results of Operations - First Six Months 2022 vs. First Six Months 2021

Net sales of our North America Salty Snacks segment increased $232.8 million, or 93.3%, in the first six months of 2022 compared to the same period of 2021, reflecting a 70.4% benefit from the 2021 acquisitions of Dot’s and Pretzels, a favorable price realization of 14.1% due to higher prices on certain products and related trade promotions and a volume increase of 8.8% primarily related to SkinnyPop and Pirate’s Booty snacks.

Our North America Salty Snacks segment income increased $7.3 million, or 14.2%, in the second quarter of 2022 compared to the same period of 2021, due to favorable price realization and volume increases, partially offset by unfavorable product mix, as well as higher supply chain inflation costs and increased advertising and related consumer marketing costs.


Table of Contents			The Hershey Company \| Q2 2022 Form 10-Q \| Page 42

International

The International ~~and Other~~ segment includes all other countries where we currently manufacture, import, market, sell or distribute chocolate and non-chocolate confectionery and other products. Currently, this includes our operations in ~~India and other~~ Asia, ~~markets,~~ Latin America, Europe, Africa and the Middle East, along with exports to these regions. While a less significant component, this segment also includes our global retail operations, including Hershey’s Chocolate World stores in Hershey, Pennsylvania, New York City, Las Vegas, 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. International ~~and Other~~ results, which accounted for ~~10.6%~~8.7% and ~~7.2%~~8.6% of our net sales for the three months ended July 3, 2022 and July 4, 2021, ~~and June 28, 2020,~~ respectively, were as follows:

Three Months Ended Six Months Ended
July 4, 2021 June 28, 2020 Percent Change July 4, 2021 June 28, 2020 Percent Change
In millions of dollars
Net sales $ 210.2 $ 123.5 70.2 % $ 424.3 $ 316.0 34.3 %
Segment income 42.2 (4.0) NM 76.0 12.0 533.3 %
Segment margin 20.1 % (3.2) % 17.9 % 3.8 %

~~NM = not meaningful~~


	Three Months Ended								Six Months Ended
	July 3, 2022			July 4, 2021			Percent Change		July 3, 2022			July 4, 2021			Percent Change
In millions of dollars
Net sales	$	207.2		$	170.8		21.3	%	$	430.2		$	360.0		19.5	%
Segment income	30.7			27.6			11.3	%	72.7			55.0			32.2	%
Segment margin	14.8		%	16.2		%			16.9		%	15.3		%

Results of Operations - Second Quarter ~~2021~~2022 vs. Second Quarter ~~2020~~2021

Net sales of our International ~~and Other~~ segment increased ~~$86.7~~$36.4 million, or ~~70.2%~~21.3%, in the second quarter of ~~2021~~2022 compared to the same period of ~~2020,~~2021, reflecting a volume increase of ~~49.5%~~17.6% and a favorable price realization of ~~15.0%~~3.0%. The volume increase was primarily ~~attributed~~attributable to solid marketplace growth in Brazil, Mexico, ~~Brazil,~~and India, ~~and AEMEA Markets,~~ where net sales increased by ~~137.7%~~23.4%, ~~68.7%~~21.5%, ~~57.6%~~ and ~~53.1%~~14.1%, respectively. These increases also benefited from a favorable impact from foreign currency exchange rates of ~~5.7%~~0.7%.

Our International and Other segment also includes licensing, owned retail and world travel retail, where net sales increased approximately 91.0% during the second quarter of 2021 compared to the same period of 2020. This increase is due to the Company's temporary closure of all Hershey’s Chocolate World stores at the onset of the pandemic and includes the United States (3 locations), Niagara Falls (Ontario) and Singapore. In July 2020, all locations were re-opened on a limited capacity basis with increased safety measures.

~~Our International and Other~~ segment generated income of ~~$42.2~~$30.7 million in the second quarter of ~~2021~~2022 compared to ~~$4.0~~$27.6 million in the second quarter of ~~2020~~2021 with the improvement primarily resulting from execution of our International Optimization Program in China, as we streamline and optimize our China operating model, as well as volume increases and favorable price realization.

Results of Operations - First Six Months ~~2021~~2022 vs. First Six Months ~~2020~~2021

Net sales of our International ~~and Other~~ segment increased ~~$108.3~~$70.2 million, or ~~34.3%~~19.5%, in the first six months of ~~2021~~2022 compared to the same period of ~~2020,~~2021, reflecting a volume increase of ~~26.7%~~18.2% and a favorable price realization of ~~7.6%~~0.9%. The volume increase was primarily ~~attributed~~attributable to solid marketplace growth in Brazil, Mexico, ~~Brazil,~~and India, ~~and AEMEA Markets,~~ where net sales increased by ~~40.1%~~28.0%, ~~34.7%~~25.5%, ~~53.2%~~ and ~~32.0%~~14.3%, respectively. These increases also benefited from a favorable impact from foreign currency exchange rates of 0.4%.

Our International ~~and Other~~ segment ~~also includes licensing, owned retail and world travel retail, where net sales increased approximately 39.3% during~~generated income of $72.7 million in the first six months of ~~2021~~2022 compared to the same period of 2020. This increase is due to the Company's temporary closure of all Hershey’s Chocolate World stores at the onset of the pandemic and includes the United States (3 locations), Niagara Falls (Ontario) and Singapore. In July 2020, all locations were re-opened on a limited capacity basis with increased safety measures.

~~Our International and Other segment generated income of $76.0~~$55.0 million in the first six months of 2021 ~~compared to $12.0 million in the first six months of 2020 with the improvement~~ primarily resulting from volume increases and favorable price realization, as well as the execution of our International Optimization Program in China, as we streamline and optimize our China operating ~~model, as well as volume increases and favorable price realization.~~model.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 4243

Unallocated Corporate Expense

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

In the second quarter of ~~2021,~~2022, unallocated corporate expense totaled ~~$151.3~~$188.9 million, as compared to ~~$106.9~~$151.3 million in the second quarter of ~~2020.~~2021. The increase is primarily driven by higher ~~group insurance~~acquisition and integration related costs, ~~from COVID-19-related delays in preventive care,~~as well as incremental investments in capabilities and technology and higher ~~incentive compensation.~~compensation costs.

In the first six months of ~~2021,~~2022, unallocated corporate expense totaled ~~$289.1~~$339.1 million, as compared to ~~$231.4~~$289.1 million in the first six months of ~~2020.~~2021. The increase is primarily driven by higher acquisition and integration related costs, as well as incremental investments in capabilities and technology and higher ~~incentive compensation.~~compensation costs.

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 July ~~4, 2021,~~3, 2022, our cash and cash equivalents totaled ~~$426.2~~$339.7 million, ~~a decrease~~an increase of ~~$717.8~~$10.5 million compared to the ~~2020~~2021 year-end balance. We believe we have sufficient liquidity to satisfy our cash needs; however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during the ongoing COVID-19 pandemic. Additional detail regarding the net uses of cash are outlined in the following discussion.

Approximately 85% of the balance of our cash and cash equivalents at July ~~4, 2021~~3, 2022 was held by subsidiaries domiciled outside of the United States. During the first six months of 2021, previously undistributed earnings of certain international subsidiaries were no longer considered indefinitely reinvested; however, the Company had previously recognized a one-time U.S. repatriation tax due under U.S. tax reform, and as a result, only an immaterial amount of withholding tax was recognized. For the remainder of the Company’s cash held by international subsidiaries, weWe intend to continue to reinvest the ~~undistributed~~remainder of the earnings ~~indefinitely.~~outside of the United States for which there would be a material tax implication to distributing, such as withholding tax, for the foreseeable future and, therefore, have not recognized additional tax expense on these earnings. We believe ~~we have sufficient~~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 ~~needs,~~flow requirements, including ~~our cash needs in the United States.~~acquisitions and capital expenditures.

Cash Flow Summary

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


		Six Months Ended					Six Months Ended
In millions of dollars	In millions of dollars	July 4, 2021		June 28, 2020		In millions of dollars	July 3, 2022		July 4, 2021
Net cash provided by (used in):	Net cash provided by (used in):					Net cash provided by (used in):
Operating activities	Operating activities	$	1,017.7	$	614.0	Operating activities	$	1,113.8	$	1,017.7
Investing activities	Investing activities	(700.1)		(209.8)		Investing activities	(351.0)		(700.1)
Financing activities	Financing activities	(1,041.7)		295.9		Financing activities	(755.4)		(1,041.7)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(5.1)		(17.3)		Effect of exchange rate changes on cash and cash equivalents	3.1		(5.1)
Less: Cash classified as assets held for sale	Less: Cash classified as assets held for sale	11.4		(10.7)		Less: Cash classified as assets held for sale	—		11.4
(Decrease) increase in cash and cash equivalents		$	(717.8)	$	672.1
Increase (decrease) in cash and cash equivalents						Increase (decrease) in cash and cash equivalents	$	10.5	$	(717.8)


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 4344

Operating activities

We generated cash of ~~$1.0 billion~~$1,113.8 million from operating activities in the first six months of ~~2021,~~2022, an increase of ~~$403.7~~$96.1 million compared to ~~$614.0~~$1,017.7 million in the same period of ~~2020.~~2021. 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, ~~long-lived asset charges,~~ a write-down of equity investments and other charges) resulted in ~~$186.3~~$218.1 million of higher cash flow in ~~2021~~2022 relative to ~~2020.~~2021.

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

•Net working capital (comprised of trade accounts receivable, inventory, accounts payable and accrued liabilities) consumed cash of $77.5 million in 2022, compared to $13.3 million in ~~2021, compared to $201.9 million in 2020.~~2021. This ~~$188.6~~$64.2 million fluctuation was mainly driven by a higher ~~cash receipts from customers resulting in a slightly lower investment in accounts receivable at the end of the second quarter of 2021 compared to the same period of 2020, as well as strong demand~~year-over-year build up of U.S. inventories ~~specifically our everyday core U.S. confection brands.~~

•~~Accrued income taxes generated consistent~~to satisfy product requirements and maintain sufficient levels ~~of cash in 2021~~to accommodate customer requirements and ~~2020; however, we paid cash of $139.1 million for income taxes during 2021 compared to $71.6 million in the same period of 2020. This $67.5 million~~an increase in cash ~~payments was primarily~~used by accounts receivable due to the ~~2020 deferral~~timing of ~~quarterly estimated tax~~customer payments, ~~as a result~~partially offset by the timing of ~~the CARES Act.~~vendor and supplier payments.

Investing activities

We used cash of ~~$700.1~~$351.0 million for investing activities in the first six months of ~~2021, an increase~~2022, a decrease of ~~$490.3~~$349.1 million compared to ~~$209.8~~$700.1 million in the same period of ~~2020.~~2021. This ~~increase~~decrease 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 projects, innovation and cost savings, were ~~$227.6~~$241.0 million in the first six months of ~~2021~~2022 compared to ~~$185.8~~$227.6 million in the same period of ~~2020. For~~2021. We expect our full year ~~2021, we expect~~2022 capital expenditures, including capitalized software, to approximate ~~$550~~$600 million. Our ~~2021~~2022 capital expenditures are largely driven by our key strategic initiatives, including expanding the ~~continuation~~agility and capacity of ~~our ERP system implementation, as well as our~~the Company’s supply chain ~~capacity projects.~~and building digital infrastructure across the enterprise. We intend to use our existing cash and internally generated funds to meet our 2022 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 ~~$57.4~~$116.2 million in the first six months of ~~2021,~~2022, compared to ~~$26.4~~$57.4 million in the same period of ~~2020.~~2021.

•Business Acquisition. In June 2021, we acquired Lily's for an initial cash purchase price of $418.2 million. Further details regarding our business acquisition activity is provided in Note 2 to the Unaudited Consolidated Financial Statements.

Financing activities

We used cash of ~~$1.0 billion~~$755.4 million for financing activities in the first six months of ~~2021,~~2022, a decrease of $286.3 million compared to ~~cash generated of $295.9~~$1,041.7 million in the same period of ~~2020.~~2021. This ~~fluctuation of $1.3 billion for~~decrease in net cash used in financing activities was mainly driven by the following factors:

•Short-term borrowings, net. In addition to utilizing cash on hand, we use short-term borrowings (commercial paper and bank borrowings) to fund seasonal working capital requirements and ongoing business needs. During the first six months of 2022, we used cash of $24.5 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. During the first six months of 2021, we generated cash ~~flow~~ of $137.0 million predominantly through the issuance of short-term commercial paper, partially offset by a reduction in short-term foreign borrowings.

•Long-term debt borrowings and repayments. During the first six months of ~~2020,~~2022, long-term debt activity was minimal. During the first six months of 2021, we ~~generated cash flow~~repaid $84.7 million of ~~$166.0~~8.800% Debentures due upon their maturity and $350.0 million ~~predominantly through the issuance~~ of ~~short-term commercial paper, as well as an increase in short-term foreign bank borrowings.~~

3.100% Notes due upon their maturity.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 4445

•~~Long-term debt borrowings and repayments~~. During the first six months of 2021, we repaid $84.7 million of 8.800% Debentures due upon their maturity and $350.0 million of 3.100% Notes due upon their maturity. During the first six months of 2020, we issued $300 million of 0.900% Notes due in 2025, $350 million of 1.700% Notes due in 2030 and $350 million of 2.650% Notes due in 2050 (the "2020 Notes"). Proceeds from the issuance of the 2020 Notes, net of discounts and issuance costs, totaled $989.9 million. Additionally, in May 2020, we repaid $350 million of 2.900% Notes due upon their maturity.

•Dividend payments. Total dividend payments to holders of our Common Stock and Class B Common Stock were ~~$324.3~~$361.0 million during the first six months of ~~2021,~~2022, an increase of ~~$10.0~~$36.7 million compared to ~~$314.3~~$324.3 million in the same period of ~~2020.~~2021. Details regarding our ~~2021~~2022 cash dividends paid to stockholders are as follows:
Quarter Ended
In millions of dollars except per share amounts April 4, 2021 July 4, 2021
Dividends paid per share – Common stock $ 0.804 $ 0.804
Dividends paid per share – Class B common stock $ 0.731 $ 0.731
Total cash dividends paid $ 162.7 $ 161.6
Declaration date February 2, 2021 April 27, 2021
Record date February 19, 2021 May 21, 2021
Payment date March 15, 2021 June 15, 2021


	Quarter Ended
In millions of dollars except per share amounts	April 3, 2022		July 3, 2022
Dividends paid per share – Common stock	$	0.901	$	0.901
Dividends paid per share – Class B common stock	$	0.819	$	0.819
Total cash dividends paid	$	181.1	$	179.9
Declaration date	February 2, 2022		April 27, 2022
Record date	February 18, 2022		May 20, 2022
Payment date	March 15, 2022		June 15, 2022

•Share repurchases. We ~~used cash for total~~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 ~~$434.3 million~~stock options exercised and ~~$211.2 million during the first six months~~our market price. In addition, we periodically repurchase shares of ~~2021 and 2020, respectively,~~Common Stock pursuant to ~~our practice of replenishing treasury shares available for issuance for stock options and incentive compensation, as well as~~Board-authorized programs intended to drive additional stockholder value. Details regarding our share repurchases inare as follows:


	Six Months Ended
In millions	July 3, 2022		July 4, 2021
Milton Hershey School Trust repurchase	$	203.4	$	—
Shares repurchased in the open market under pre-approved share repurchase programs	—		150.0
Shares repurchased in the open market to replace Treasury Stock issued for stock options and incentive compensation	151.9		284.3
Cash used for total share repurchases	$	355.3	$	434.3
Total shares repurchased under pre-approved share repurchase programs	—		0.9

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

In July 2018, our Board of Directors approved a $500 million share repurchase authorization. As of July ~~4, 2021,~~3, 2022, approximately $110 million remained available for repurchases of our Common Stock under this program. The share repurchase program does not have an expiration date. In May 2021, our Board of Directors approved an additional $500 million share repurchase authorization. This program is to commence after the existing 2018 authorization is completed and is to be utilized at ~~management's~~management’s discretion. ~~For the remainder of 2021, we~~We expect 2022 share repurchases to ~~return to a more~~be in line with our traditional buyback strategy.

•Proceeds from ~~the exercise of~~exercised stock options ~~including~~and employee tax ~~benefits.~~ withholding.We During the first six months of 2022, we received ~~$16.9~~$21.8 million from employee exercises of stock options ~~net~~and paid $33.9 million of employee taxes withheld from share-based ~~awards, during~~awards. During the first six months of 2021, ~~a minimal decrease compared to $17.5~~we received $31.7 million infrom employee exercises of stock options and paid $14.9 million of employee taxes withheld from share-based awards. Variances are driven primarily by the ~~same period~~number of ~~2020.~~shares exercised and the share price at the date of grant.

Recent Accounting Pronouncements

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


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 4546

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 ~~Prospectus.~~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 business and financial results may be negatively impacted by the failure to successfully manage a disruption in consumer and trade patterns, as well as operational challenges associated with the actual or perceived effects of a disease outbreak, including epidemics, pandemics or similar widespread public health concerns, such as the COVID-19 pandemic;

•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;

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


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 4647

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

•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 ~~2020~~2021 Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarterly period ended April ~~4, 2021,~~3, 2022 and this Quarterly Report on Form 10-Q, including Part II, Item 1A, ~~"Risk~~”Risk Factors."”

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In December 2020, our fixed-to-floating interest rate swap matured in connection with the repayment of certain long-term debt upon its maturity. Therefore, as of July 4, 2021 and December 31, 2020, we had no interest rate swap derivative instruments in a fair value hedging relationship. A hypothetical 100 basis point increase in interest rates applied to this variable-rate debt through its December 2020 maturity would have increased interest expense by approximately $3.2 million for the year 2020. There is no hypothetical impact for 2021.

~~In addition, the~~The total amount of short-term debt, net of cash, amounted to net ~~cash positions~~debt of ~~218.6~~$575.2 million and ~~$1.1 billion, respectively,~~net debt of $610.2 million, at July ~~4, 2021~~3, 2022 and December 31, ~~2020.~~2021, respectively. A hypothetical 100 basis point increase in interest rates applied to this variable-rate short-term debt as of July ~~4, 2021~~3, 2022 would have changed interest expense by approximately ~~$3.2~~$2.8 million forfor the first six months of ~~2021~~2022 and ~~$8.6~~$2.4 million for ~~the full year 2020.~~2021.

We consider our current risk related to market fluctuations in interest rates on our remaining debt portfolio, excluding fixed-rate debt converted to variable rates with fixed-to-floating instruments, to be minimal since this debt is largely long-term and fixed-rate in nature. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. A 100 basis point increase in market interest rates would decrease the fair value of our fixed-rate long-term debt at July ~~4, 2021~~3, 2022 and December 31, ~~2020~~2021 by approximately ~~$322~~$258 million and ~~$357~~$319 million, respectively. However, since we currently have no plans to repurchase our outstanding fixed-rate instruments before their maturities, the impact of market interest rate fluctuations on our long-term debt does not affect our results of operations or financial position.

The potential decline in fair value of foreign currency forward exchange contracts resulting from a hypothetical near-term adverse change in market rates of 10% was ~~$22.9~~$44.8 million as of July ~~4, 2021~~3, 2022 and ~~$25.6~~$24.8 million as of December 31, ~~2020,~~2021, generally offset by a reduction in foreign exchange associated with our transactional activities.

Our open commodity derivative contracts had a notional value of ~~$387.9~~$479.4 million asas of July ~~4, 2021~~3, 2022 and ~~$279.8~~$313.2 million as of December 31, ~~2020.~~2021. At the end of the first quarter ~~2021,~~2022, the potential change in fair value of commodity derivative instruments, assuming a 10% decrease in the underlying commodity price, would have increased our net unrealized losses by ~~$41.6~~$50.8 million, generally offset by a reduction in the cost of the underlying commodity purchases.

Other than as described above, market risks have not changed significantly from those described in our ~~2020~~2021 Annual Report on Form 10-K.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 4748

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of July ~~4, 2021~~3, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of July ~~4, 2021~~3, 2022.

We rely extensively on information systems and technology to manage our business and summarize operating results. We are in the process of a multi-year implementation of a new global enterprise resource planning (“ERP”) system, which will replace our existing operating and financial systems. The ERP system is designed to accurately maintain the Company’s financial records, enhance operational functionality and provide timely information to the Company’s management team related to the operation of the business. The implementation is expected to occur in phases over the next several years. ~~The~~When the next phases of the updated processes are rolled out in connection with the ERP implementation, we will give appropriate consideration to whether these process changes necessitate changes in the design of and testing for effectiveness of internal controls over financial reporting.

There have been no changes in our internal control over financial reporting during the quarter ended July ~~4, 2021~~3, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 4849

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

Information on legal proceedings is included in Note 1615 to the Unaudited Consolidated Financial Statements.

Item 1A. Risk Factors.

When evaluating an investment in our Common Stock, investors should consider carefully, among other things, the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” of our ~~2020~~2021 Annual Report on Form 10-K, Part II, Item 1A, "Risk Factors," of our Quarterly Report on Form 10-Q for the quarterly period ended April ~~4, 2021 (the "Q1 2021 Quarterly Report"),~~3, 2022 and the information contained in this Quarterly Report on Form 10-Q and our other reports and registration statements filed with the SEC.

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

Issuer Purchases of Equity Securities

The following table shows the purchases of shares of Common Stock made by or on behalf of Hershey, or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of Hershey, for each fiscal month in the three months ended July ~~4, 2021:~~3, 2022:
Period Total Number
of Shares
Purchased (1) Average Price
Paid
per Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (2) Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans or
Programs (2)
(in thousands of dollars)
April 5 through May 2 — $ — — $ 260,000
May 3 through May 30 1,134,144 $ 171.04 871,144 $ 109,983
May 31 through July 4 — $ — — $ 109,983
Total 1,134,144 $ 171.04 871,144


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
					(in thousands of dollars)
April 4 through May 1	—	$	—	—	$	109,983
May 2 through May 29	679,000	$	223.74	—	$	109,983
May 30 through July 3	—	$	—	—	$	109,983
Total	679,000	$	—	—

(1) During the three months ended July ~~4, 2021, 1,134,144~~3, 2022, 679,000 shares of Common Stock were purchased in open market transactions in connection with our practice of buying back shares sufficient to offset those issued under incentive compensation plans.

(2) In July 2018, our Board of Directors approved a $500 million share repurchase authorization. As of July ~~4, 2021,~~3, 2022, approximately $110 million remained available for repurchases of our Common Stock under this program. The share repurchase program does not have an expiration date. In May 2021, our Board of Directors approved an additional $500 million share repurchase authorization (excluded from the table above). This program is to commence after the existing 2018 authorization is completed and is to be utilized at ~~management's~~management’s discretion.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 4950

Item 6. Exhibits.

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


Exhibit Number						Description
3.1						The Company’s Restated Certificate of Incorporation, as amended, is incorporated by reference from Exhibit 3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 3, 2005.
3.2						The Company's By-laws, as amended and restated as of February 21, 2017, are incorporated by reference from Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
31.1						Certification of Michele G. Buck, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2						Certification of Steven E. Voskuil, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1						Certification of Michele G. Buck, Chief Executive Officer, and Steven E. Voskuil, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						Inline XBRL Taxonomy Extension Schema
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase
104						The cover page from the Company's Quarterly Report on Form 10-Q for the quarterly period ended July ~~4, 2021,~~3, 2022, formatted in Inline XBRL and contained in Exhibit 101.

*						Filed herewith
**						Furnished herewith


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 5051

SIGNATURES

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

THE HERSHEY COMPANY

(Registrant)

Date:

July ~~29, 2021~~28, 2022

/s/ Steven E. Voskuil

Steven E. Voskuil

Senior Vice President, Chief Financial Officer

(Principal Financial Officer)

Date:

July ~~29, 2021~~28, 2022

/s/ Jennifer L. McCalman

Jennifer L. McCalman

Vice President, Chief Accounting Officer

(Principal Accounting Officer)


Table of Contents			The Hershey Company \| Q2 ~~2021~~2022 Form 10-Q \| Page 5152


	North America		International and Other		Total
Balance at December 31, 2020	$	1,970,445	$	17,770	$	1,988,215
Acquired during the period (see Note 2)	174,516		0		174,516


Foreign currency translation	3,876		(161)		3,715
Balance at July 4, 2021	$	2,148,837	$	17,609	$	2,166,446


	Quarter Ended
In millions of dollars except per share amounts	April 4, 2021		July 4, 2021
Dividends paid per share – Common stock	$	0.804	$	0.804
Dividends paid per share – Class B common stock	$	0.731	$	0.731
Total cash dividends paid	$	162.7	$	161.6
Declaration date	February 2, 2021		April 27, 2021
Record date	February 19, 2021		May 21, 2021
Payment date	March 15, 2021		June 15, 2021