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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 October 2, 2022
OR
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
hsy-20221002_g1.jpg
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 growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x 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—146,968,799 shares, as of October 30, 2022.
Class B Common Stock, one dollar par value—58,113,777 shares, as of October 30, 2022.



THE HERSHEY COMPANY
Quarterly Report on Form 10-Q
For the Period Ended October 2, 2022

TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
2
Item 1. Financial Statements
2
2
3
4
5
6
Notes to Unaudited Consolidated Financial Statements
8
8
9

The Hershey Company | Q3 2022 Form 10-Q | Page 1
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
 
Three Months Ended Nine Months Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Net sales $ 2,728,153  $ 2,359,839  $ 7,766,956  $ 6,645,209 
Cost of sales
1,619,653  1,298,504  4,412,977  3,609,478 
Gross profit
1,108,500  1,061,335  3,353,979  3,035,731 
Selling, marketing and administrative expense
551,880  486,139  1,619,564  1,448,433 
Business realignment costs —  365  274  2,748 
Operating profit
556,620  574,831  1,734,141  1,584,550 
Interest expense, net 35,378  30,154  101,970  97,655 
Other (income) expense, net 48,157  23,004  78,222  32,612 
Income before income taxes 473,085  521,673  1,553,949  1,454,283 
Provision for income taxes 73,598  76,746  305,428  311,255 
Net income including noncontrolling interest 399,487  444,927  1,248,521  1,143,028 
Less: Net gain attributable to noncontrolling interest —  —  —  1,072 
Net income attributable to The Hershey Company
$ 399,487  $ 444,927  $ 1,248,521  $ 1,141,956 
Net income per share—basic:
Common stock $ 2.00  $ 2.22  $ 6.23  $ 5.67 
Class B common stock $ 1.82  $ 2.01  $ 5.67  $ 5.16 
Net income per share—diluted:
Common stock $ 1.94  $ 2.14  $ 6.04  $ 5.49 
Class B common stock $ 1.81  $ 2.01  $ 5.65  $ 5.14 
Dividends paid per share:
Common stock $ 1.036  $ 0.901  $ 2.838  $ 2.509 
Class B common stock $ 0.942  $ 0.819  $ 2.580  $ 2.281 

See Notes to Unaudited Consolidated Financial Statements.
The Hershey Company | Q3 2022 Form 10-Q | Page 2
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THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)

For the Three Months Ended
For the Nine Months Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 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
Net income including noncontrolling interest $ 399,487  $ 444,927  $ 1,248,521  $ 1,143,028 
Other comprehensive income, net of tax:
Foreign currency translation adjustments:
Foreign currency translation (losses) gains during period $ (13,511) $ —  (13,511) $ (11,571) $ —  (11,571) $ (15,851) $ —  (15,851) $ 2,623  $ —  2,623 
Reclassification to earnings due to the sale of businesses —  —  —  —  —  —  —  —  —  5,210  —  5,210 
Pension and post-retirement benefit plans:
Net actuarial (loss) gain and service cost (27,909) 6,704  (21,205) (8,793) 2,093  (6,700) (66,720) 13,895  (52,825) 11,912  (2,835) 9,077 
Reclassification to earnings 6,904  (1,657) 5,247  8,457  (671) 7,786  20,345  (4,883) 15,462  24,246  (4,739) 19,507 
Cash flow hedges:
Gains (losses) on cash flow hedging derivatives 891  (706) 185  5,779  (2,153) 3,626  245  (1,343) (1,098) (2,200) (2,312) (4,512)
Reclassification to earnings 2,258  (643) 1,615  4,709  (119) 4,590  9,143  (1,666) 7,477  13,527  (501) 13,026 
Total other comprehensive income, net of tax $ (31,367) $ 3,698  (27,669) $ (1,419) $ (850) (2,269) $ (52,838) $ 6,003  (46,835) $ 55,318  $ (10,387) 44,931 
Total comprehensive income including noncontrolling interest $ 371,818  $ 442,658  $ 1,201,686  $ 1,187,959 
Comprehensive (loss) income attributable to noncontrolling interest —  (5) —  6,321 
Comprehensive income attributable to The Hershey Company $ 371,818  $ 442,663  $ 1,201,686  $ 1,181,638 

See Notes to Unaudited Consolidated Financial Statements.

The Hershey Company | Q3 2022 Form 10-Q | Page 3
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THE HERSHEY COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
October 2, 2022 December 31, 2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 327,741  $ 329,266 
Accounts receivable—trade, net 929,482  671,464 
Inventories 1,184,385  988,511 
Prepaid expenses and other 251,126  256,965 
Total current assets 2,692,734  2,246,206 
Property, plant and equipment, net 2,622,587  2,586,187 
Goodwill 2,604,889  2,633,174 
Other intangibles 1,985,099  2,037,588 
Other non-current assets 888,406  868,203 
Deferred income taxes 39,192  40,873 
Total assets $ 10,832,907  $ 10,412,231 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 915,299  $ 692,338 
Accrued liabilities 845,472  855,638 
Accrued income taxes 81,771  3,070 
Short-term debt 793,871  939,423 
Current portion of long-term debt 752,201  2,844 
Total current liabilities 3,388,614  2,493,313 
Long-term debt 3,340,671  4,086,627 
Other long-term liabilities 750,870  787,058 
Deferred income taxes 269,672  288,004 
Total liabilities 7,749,827  7,655,002 
Stockholders’ equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none in 2022 and 2021
—  — 
Common stock, shares issued: 163,439,248 at October 2, 2022 and 160,939,248 at December 31, 2021
163,439  160,939 
Class B common stock, shares issued: 58,113,777 at October 2, 2022 and 60,613,777 at December 31, 2021
58,114  60,614 
Additional paid-in capital 1,280,462  1,260,331 
Retained earnings 3,401,198  2,719,936 
Treasury—common stock shares, at cost: 16,484,611 at October 2, 2022 and 15,444,011 at December 31, 2021
(1,524,083) (1,195,376)
Accumulated other comprehensive loss (296,050) (249,215)
Total stockholders’ equity 3,083,080  2,757,229 
Total liabilities and stockholders’ equity $ 10,832,907  $ 10,412,231 

See Notes to Unaudited Consolidated Financial Statements.

The Hershey Company | Q3 2022 Form 10-Q | Page 4
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THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
October 2, 2022 October 3, 2021
Operating Activities
Net income including noncontrolling interest $ 1,248,521  $ 1,143,028 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 279,082  231,953 
Stock-based compensation expense 50,640  51,009 
Deferred income taxes (9,751) 762 
Write-down of equity investments 70,754  28,734 
Other 92,632  77,548 
Changes in assets and liabilities, net of business acquisitions and divestitures:
Accounts receivable—trade, net (259,064) (222,864)
Inventories (201,425) (38,864)
Prepaid expenses and other current assets (40,565) 11,908 
Accounts payable and accrued liabilities 248,230  76,446 
Accrued income taxes 124,965  92,236 
Contributions to pension and other benefit plans (16,639) (38,576)
Other assets and liabilities (27,186) (9,603)
Net cash provided by operating activities 1,560,194  1,403,717 
Investing Activities
Capital additions (including software) (359,993) (347,450)
Equity investments in tax credit qualifying partnerships (159,713) (75,917)
Business acquisitions, net of cash and cash equivalents acquired —  (419,501)
Other investing activities 9,730  3,129 
Net cash used in investing activities (509,976) (839,739)
Financing Activities
Net (decrease) increase in short-term debt (145,552) 339,981 
Repayment of long-term debt and finance leases (3,321) (438,029)
Cash dividends paid (567,989) (505,194)
Repurchase of common stock (355,271) (457,946)
Proceeds from exercised stock options 30,824  39,499 
Taxes withheld and paid on employee stock awards
(34,722) (16,137)
Net cash used in financing activities (1,076,031) (1,037,826)
Effect of exchange rate changes on cash and cash equivalents 24,288  (6,057)
Decrease in cash and cash equivalents, including cash classified as held for sale (1,525) (479,905)
Less: Increase in cash and cash equivalents classified as held for sale —  11,434 
Net decrease in cash and cash equivalents (1,525) (468,471)
Cash and cash equivalents, beginning of period 329,266  1,143,987 
Cash and cash equivalents, end of period $ 327,741  $ 675,516 
Supplemental Disclosure
Interest paid $ 90,787  $ 92,397 
Income taxes paid 190,724  199,735 

See Notes to Unaudited Consolidated Financial Statements.

The Hershey Company | Q3 2022 Form 10-Q | Page 5
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THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three Months Ended October 2, 2022 and October 3, 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
Total
Stockholders’
Equity
Balance, July 3, 2022
$ —  $ 163,439  $ 58,114  $ 1,258,091  $ 3,208,598  $ (1,528,121) $ (268,381) $ 2,891,740 
Net income 399,487  399,487 
Other comprehensive loss (27,669) (27,669)
Dividends (including dividend equivalents):
Common Stock, $1.036 per share
(152,144) (152,144)
Class B Common Stock, $0.942 per share
(54,743) (54,743)
Stock-based compensation 18,132  18,132 
Exercise of stock options and incentive-based transactions 4,239  4,038  8,277 
Balance, October 2, 2022
$ —  $ 163,439  $ 58,114  $ 1,280,462  $ 3,401,198  $ (1,524,083) $ (296,050) $ 3,083,080 

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, July 4, 2021
$ —  $ 160,939  $ 60,614  $ 1,218,708  $ 2,301,805  $ (1,180,881) $ (296,136) $ 8,844  $ 2,273,893 
Net income 444,927  —  444,927 
Other comprehensive loss (2,264) (5) (2,269)
Dividends (including dividend equivalents):
Common Stock, $0.901 per share
(131,551) (131,551)
Class B Common Stock, $0.819 per share
(49,643) (49,643)
Stock-based compensation 18,903  18,903 
Exercise of stock options and incentive-based transactions 2,401  4,072  6,473 
Repurchase of common stock (23,600) (23,600)
Balance, October 3, 2021
$ —  $ 160,939  $ 60,614  $ 1,240,012  $ 2,565,538  $ (1,200,409) $ (298,400) $ 8,839  $ 2,537,133 


See Notes to Unaudited Consolidated Financial Statements.


The Hershey Company | Q3 2022 Form 10-Q | Page 6
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THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Nine Months Ended October 2, 2022 and October 3, 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 1,248,521  1,248,521 
Other comprehensive income (46,835) (46,835)
Dividends (including dividend equivalents):
Common Stock, $2.838 per share
(414,869) (414,869)
Class B Common Stock, $2.58 per share
(152,390) (152,390)
Conversion of Class B Common Stock into Common Stock 2,500  (2,500) — 
Stock-based compensation 50,592  50,592 
Exercise of stock options and incentive-based transactions (30,461) 26,564  (3,897)
Repurchase of common stock (355,271) (355,271)
Balance, October 2, 2022
$ —  $ 163,439  $ 58,114  $ 1,280,462  $ 3,401,198  $ (1,524,083) $ (296,050) $ 3,083,080 

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 1,141,956  1,072  1,143,028 
Other comprehensive income 39,682  5,249  44,931 
Dividends (including dividend equivalents):
Common Stock, $2.509 per share
(366,831) (366,831)
Class B Common Stock, $2.281 per share
(138,260) (138,260)
Stock-based compensation 51,979  51,979 
Exercise of stock options and incentive-based transactions (3,167) 26,529  23,362 
Repurchase of common stock (457,946) (457,946)
Divestiture of noncontrolling interest (1,013) (1,013)
Balance, October 3, 2021
$ —  $ 160,939  $ 60,614  $ 1,240,012  $ 2,565,538  $ (1,200,409) $ (298,400) $ 8,839  $ 2,537,133 


See Notes to Unaudited Consolidated Financial Statements.



The Hershey Company | Q3 2022 Form 10-Q | Page 7
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data or if otherwise indicated)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited consolidated financial statements provided in this report include the accounts of The Hershey Company (the “Company,” “Hershey,” “we” or “us”) and our majority-owned subsidiaries and entities in which we have a controlling financial interest after the elimination of intercompany accounts and transactions. We have a controlling financial interest if we own a majority of the outstanding voting common stock and minority shareholders do not have substantive participating rights, we have significant control through contractual or economic interests in which we are the primary beneficiary or we have the power to direct the activities that most significantly impact the entity’s economic performance. We use the equity method of accounting when we have a 20% to 50% interest in other companies and exercise significant influence. Other investments that are not controlled, and over which we do not have the ability to exercise significant influence, are accounted for under the cost method. Both equity and cost method investments are included as Other non-current assets in the Consolidated Balance Sheets.
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not contain certain information and disclosures required by GAAP for comprehensive financial statements. The financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in our opinion, necessary for a fair presentation of the results of operations, financial position, and cash flows for the indicated periods.
Operating results for the quarter ended October 2, 2022 may not be indicative of the results that may be expected for the year ending December 31, 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, 2021 (our “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”) 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 throughout 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 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 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 March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to provide temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference

The Hershey Company | Q3 2022 Form 10-Q | Page 8
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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 early adopted the provisions of this ASU in the first quarter of 2022. Adoption of the new standard did not have a material impact on our consolidated financial statements.
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 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.
In September 2022, the FASB issued ASU No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50):
Disclosure of Supplier Finance Program Obligations. This ASU requires a buyer in a supplier finance program to disclose qualitative and quantitative information about the program including the program’s nature, activity during the period, changes from period to period and potential magnitude. ASU 2022-04 is effective for annual periods beginning after December 15, 2022 and interim periods within those annual periods. A rollforward of obligations during the annual period, including the amount of obligations confirmed and obligations subsequently paid, is effective for annual periods beginning after December 15, 2023 with early adoption permitted. This ASU should be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on rollforward information, which should be applied prospectively. Adoption of the new standard is not expected to have a material impact on our consolidated financial statements.
No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our consolidated financial statements or disclosures.
2. BUSINESS ACQUISITIONS AND 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 three manufacturing locations in Indiana and Kansas. Pretzels provides Hershey deep pretzel category and product expertise and the manufacturing capabilities to support brand growth and future pretzel innovation. The cash consideration paid for Pretzels totaled $304,334 and consisted of cash on hand and short-term borrowings. Acquisition-related costs for the Pretzels acquisition were immaterial.


The Hershey Company | Q3 2022 Form 10-Q | Page 9
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

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 Final 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.
The purchase price allocation presented above has been finalized as of the third quarter of 2022. The measurement period adjustments to the initial allocation were based on more detailed information obtained about the specific assets acquired and liabilities assumed, specifically, post-closing adjustments to the working capital acquired including certain holdbacks.
Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired (including the identifiable intangible assets). A portion of goodwill derived from this acquisition is deductible for tax purposes and reflects the value of leveraging our brand building expertise, supply chain capabilities and retail relationships to accelerate growth and access to the portfolio of Pretzels’ products.
Other intangible assets include trademarks valued at $5,700 and customer relationships valued at $20,400. Trademarks were assigned an estimated useful life of five years and customer relationships were assigned an estimated useful life of 19 years.
Dot's Pretzels, LLC
On December 13, 2021, we completed the acquisition of Dot’s Pretzels, LLC (“Dot’s”), previously a privately held company that produces and sells pretzels and other snack food products to retailers and distributors in the United States, with Dot’s Homestyle Pretzels snacks as its primary product. Dot’s is the fastest-growing scale brand in the pretzel category and complements Hershey’s snacks portfolio. The cash consideration paid for Dot’s totaled $891,169 and consisted of cash on hand and short-term borrowings. Acquisition-related costs for the Dot’s acquisition were immaterial.


The Hershey Company | Q3 2022 Form 10-Q | Page 10
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

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 Final Allocation
Goodwill $ 303,345  $ (18,918) $ 284,427 
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) (1,889) (29,946)
Net assets acquired $ 894,166  $ (2,997) $ 891,169 
(1) As reported in the Company’s 2021 Annual Report on Form 10-K.
The purchase price allocation presented above has been finalized as of the third quarter of 2022. The measurement period adjustments to the initial allocation were based on more detailed information obtained about the specific assets acquired and liabilities assumed, specifically, the refinement of certain assumptions in the value of customer relationships based on an analysis of historical customer-specific data and post-closing adjustments to the working capital acquired including certain holdbacks.
Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired (including the identifiable intangible assets). The goodwill derived from this acquisition is deductible for tax purposes and reflects the value of leveraging our brand building expertise, supply chain capabilities and retail relationships to accelerate growth and access to the portfolio of Dot’s products.
Other intangible assets include trademarks valued at $336,600 and customer relationships valued at $206,500. Trademarks were assigned an estimated useful life of 33 years and customer relationships were assigned an estimated useful life of 18 years.
Lily's Sweets, LLC
On June 25, 2021, we completed the acquisition of Lily’s Sweets, LLC (“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 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 cash consideration paid for Lily’s totaled $422,210 and the Company may be required to pay additional cash consideration if certain defined targets related to net sales and gross margin were exceeded during the period from 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 acquisition were immaterial.



The Hershey Company | Q3 2022 Form 10-Q | Page 11
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

The acquisition has been accounted for as a business combination and, accordingly, 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 $ 175,826 
Other intangible assets 235,800 
Other assets acquired, primarily current assets 33,092 
Other liabilities assumed, primarily current liabilities (9,620)
Deferred income taxes (7,888)
Net assets acquired $ 427,210 
The purchase price allocation presented above has been finalized as of the fourth quarter of 2021 and includes an immaterial amount of measurement period adjustments. The measurement period adjustments to the initial allocation were based on more detailed information obtained about the specific assets acquired and liabilities 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 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 products.

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., which was previously included within the International 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 SM&A expense caption within the Consolidated Statements of Income.
3. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying value of goodwill by reportable segment for the nine months ended October 2, 2022 are as follows:
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)
—  (18,028) —  (18,028)
Foreign currency translation (9,733) —  (524) (10,257)
Balance at October 2, 2022
$ 2,016,273  $ 571,770  $ 16,846  $ 2,604,889 


The Hershey Company | Q3 2022 Form 10-Q | Page 12
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

The following table provides the gross carrying amount and accumulated amortization for each major class of intangible asset:
October 2, 2022 December 31, 2021
Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Intangible assets subject to amortization:
Trademarks $ 1,700,950  $ (177,195) $ 1,705,390  $ (141,760)
Customer-related 512,539  (85,687) 504,667  (65,131)
Patents 7,890  (7,890) 8,623  (8,623)
Total
2,221,379  (270,772) 2,218,680  (215,514)
Intangible assets not subject to amortization:
Trademarks 34,492  34,422 
Total other intangible assets
$ 1,985,099  $ 2,037,588 
Total amortization expense for the three months ended October 2, 2022 and October 3, 2021 was $19,909 and $13,936, respectively. Total amortization expense for the nine months ended October 2, 2022 and October 3, 2021 was $59,827 and $37,192, 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 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 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 October 2, 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 2021 Annual Report on Form 10-K.

In addition to the revolving credit facility, we maintain lines of credit with domestic and international commercial banks. Commitment fees relating to our revolving credit facility and lines of credit are not material. Short-term debt consisted of the following:
October 2, 2022 December 31, 2021
Short-term foreign bank borrowings against lines of credit $ 130,343 $ 119,038
U.S. commercial paper 663,528 820,385
Total short-term debt $ 793,871 $ 939,423
Weighted average interest rate on outstanding commercial paper 3.0  % 0.1  %



The Hershey Company | Q3 2022 Form 10-Q | Page 13
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

Long-term Debt
Long-term debt consisted of the following:
Debt Type and Rate
Maturity Date
October 2, 2022 December 31, 2021
2.625% Notes
May 1, 2023 250,000  250,000 
3.375% Notes
May 15, 2023 500,000  500,000 
2.050% Notes
November 15, 2024 300,000  300,000 
0.900% Notes
June 1, 2025 300,000  300,000 
3.200% Notes
August 21, 2025 300,000  300,000 
2.300% Notes
August 15, 2026 500,000  500,000 
7.200% Debentures
August 15, 2027 193,639  193,639 
2.450% Notes
November 15, 2029 300,000  300,000 
1.700% Notes
June 1, 2030 350,000  350,000 
3.375% Notes
August 15, 2046 300,000  300,000 
3.125% Notes
November 15, 2049 400,000 400,000
2.650% Notes
June 1, 2050 350,000 350,000
Finance lease obligations (see Note 7)
69,719 69,146
Net impact of interest rate swaps, debt issuance costs and unamortized debt discounts (20,486) (23,314)
Total long-term debt 4,092,872  4,089,471 
Less—current portion 752,201 2,844
Long-term portion $ 3,340,671  $ 4,086,627 
Interest Expense
Net interest expense consists of the following:
Three Months Ended Nine Months Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Interest expense $ 38,520  $ 33,066  $ 109,526  $ 106,597 
Capitalized interest (2,487) (2,380) (6,155) (7,181)
Interest expense
36,033  30,686  103,371  99,416 
Interest income (655) (532) (1,401) (1,761)
Interest expense, net
$ 35,378  $ 30,154  $ 101,970  $ 97,655 



The Hershey Company | Q3 2022 Form 10-Q | Page 14
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

5. DERIVATIVE INSTRUMENTS
We are exposed to market risks arising principally from changes in foreign currency exchange rates, interest rates and commodity prices. We use certain derivative instruments to manage these risks. These include interest rate swaps to manage interest rate risk, foreign currency forward exchange contracts to manage foreign currency exchange rate risk, and commodities futures and options contracts to manage commodity market price risk exposures.
In entering into these contracts, we have assumed the risk that might arise from the possible inability of counterparties to meet the terms of their contracts. We mitigate this risk by entering into exchange-traded contracts with collateral posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. We do not expect any significant losses from counterparty defaults.

Commodity Price Risk
We enter into commodities futures and options contracts and other commodity derivative instruments to reduce the effect of future price fluctuations associated with the purchase of raw materials, energy requirements and transportation services. We generally hedge commodity price risks for 3- to 24-month periods. Our open commodity derivative contracts had a notional value of $679,205 as of October 2, 2022 and $313,200 as of December 31, 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 $33,002 at October 2, 2022 and $94,623 at December 31, 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 $537 at October 2, 2022 and $2,993 at December 31, 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.

Interest Rate Risk
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 October 2, 2022 and December 31, 2021 was $19,768 and $24,975, respectively.

The Hershey Company | Q3 2022 Form 10-Q | Page 15
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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 October 2, 2022 and December 31, 2021:
October 2, 2022 December 31, 2021
Assets (1) Liabilities (1) Assets (1) Liabilities (1)
Derivatives designated as cash flow hedging instruments:
Foreign exchange contracts $ 8,383  $ 4,945  $ 2,949  $ 711 
Derivatives not designated as hedging instruments:
Commodities futures and options (2) 5,797  493  2,423  1,376 
Deferred compensation derivatives —  1,098  2,412  — 
Foreign exchange contracts 380  148  550  — 
6,177  1,739  5,385  1,376 
Total $ 14,560  $ 6,684  $ 8,334  $ 2,087 

(1)Derivative assets are classified on our Consolidated Balance Sheets within prepaid expenses and other as well as other non-current assets. Derivative liabilities are classified on our Consolidated Balance Sheets within accrued liabilities and other long-term liabilities.
(2)As of October 2, 2022, amounts reflected on a net basis in liabilities were assets of $44,502 and liabilities of $39,740, which are associated with cash transfers receivable or payable on commodities futures contracts reflecting the change in quoted market prices on the last trading day for the period. The comparable amounts reflected on a net basis in liabilities at December 31, 2021 were assets of $31,774 and liabilities of $32,701. At October 2, 2022 and December 31, 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 October 2, 2022 and October 3, 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
$ (14,044) $ 33,643  $ —  $ —  $ —  $ — 
Foreign exchange contracts (39) 891  5,779  421  (2,030)
Interest rate swap agreements
—  —  —  —  (2,679) (2,679)
Deferred compensation derivatives
(1,098) 82  —  —  —  — 
Total
$ (15,181) $ 33,726  $ 891  $ 5,779  $ (2,258) $ (4,709)

The Hershey Company | Q3 2022 Form 10-Q | Page 16
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

The effect of derivative instruments on the Consolidated Statements of Income for the nine months ended October 2, 2022 and October 3, 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
$ 28,027  $ 64,199  $ —  $ —  $ —  $ — 
Foreign exchange contracts (173) 574  245  (2,200) (956) (5,174)
Interest rate swap agreements
—  —  —  —  (8,187) (8,353)
Deferred compensation derivatives
(6,142) 3,592  —  —  —  — 
Total
$ 21,712  $ 68,365  $ 245  $ (2,200) $ (9,143) $ (13,527)

(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 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 $7,479 as of October 2, 2022. This amount is primarily associated with interest rate swap agreements.
6. FAIR VALUE MEASUREMENTS
Accounting guidance on fair value measurements requires that financial assets and liabilities be classified and disclosed in one of the following categories of the fair value hierarchy:
Level 1 – Based on unadjusted quoted prices for identical assets or liabilities in an active market.
Level 2 – Based on observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3 – Based on unobservable inputs that reflect the entity’s own assumptions about the assumptions that a market participant would use in pricing the asset or liability.

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

The Hershey Company | Q3 2022 Form 10-Q | Page 17
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheets on a recurring basis as of October 2, 2022 and December 31, 2021:
Assets (Liabilities)
Level 1 Level 2 Level 3 Total
October 2, 2022:
Derivative Instruments:
Assets:
Foreign exchange contracts (1) $ $ 8,763 $ $ 8,763
Commodities futures and options (3) 5,797  —  —  5,797 
Liabilities:
Foreign exchange contracts (1) —  5,093  —  5,093 
Deferred compensation derivatives (2) —  1,098  —  1,098 
Commodities futures and options (3) 493  —  —  493 
December 31, 2021:
Assets:
Foreign exchange contracts (1) $ $ 3,499 $ $ 3,499
Deferred compensation derivatives (2) —  2,412  —  2,412 
Commodities futures and options (3) 2,423  —  —  2,423 
Liabilities:
Foreign exchange contracts (1) —  711  —  711 
Commodities futures and options (3) 1,376  —  —  1,376 
(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.

Other Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximated fair values as of October 2, 2022 and December 31, 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
October 2, 2022 December 31, 2021 October 2, 2022 December 31, 2021
Current portion of long-term debt $ 745,579 $ 2,844 $ 752,201 $ 2,844
Long-term debt 2,827,974  4,274,304  3,340,671  4,086,627 
Total $ 3,573,553  $ 4,277,148  $ 4,092,872  $ 4,089,471 



The Hershey Company | Q3 2022 Form 10-Q | Page 18
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

Other Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, GAAP requires that, under certain circumstances, we also record assets and liabilities at fair value on a nonrecurring basis.
In connection with the acquisitions of Pretzels, 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, 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 nine months ended October 2, 2022 and October 3, 2021, we recorded no impairment charges.
7. LEASES
We lease office and retail space, warehouse and distribution facilities, land, vehicles, and equipment. We determine if an agreement is or contains a lease at inception. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet.
Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are based on the estimated present value of lease payments over the lease term and are recognized at the lease commencement date.
As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate in determining the present value of lease payments. The estimated incremental borrowing rate is derived from information available at the lease commencement date.
Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. A limited number of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements generally do not contain residual value guarantees or material restrictive covenants.
For real estate, equipment and vehicles that support selling, marketing and general administrative activities the Company accounts for the lease and non-lease components as a single lease component. These asset categories comprise the majority of our leases. The lease and non-lease components of real estate and equipment leases supporting production activities are not accounted for as a single lease component. Consideration for such contracts are allocated to the lease and non-lease components based upon relative standalone prices either observable or estimated if observable prices are not readily available.
The components of lease expense for the three months ended October 2, 2022 and October 3, 2021 were as follows:  
Three Months Ended
Lease expense Classification October 2, 2022 October 3, 2021
Operating lease cost Cost of sales or SM&A (1) $ 11,812  $ 10,764 
Finance lease cost:
Amortization of ROU assets Depreciation and amortization (1) 1,539  1,971 
Interest on lease liabilities Interest expense, net 1,030  1,100 
Net lease cost (2) $ 14,381  $ 13,835 


The Hershey Company | Q3 2022 Form 10-Q | Page 19
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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 nine months ended October 2, 2022 and October 3, 2021 were as follows:
Nine Months Ended
Lease expense Classification October 2, 2022 October 3, 2021
Operating lease cost Cost of sales or SM&A (1) $ 37,309  $ 33,318 
Finance lease cost:
Amortization of ROU assets Depreciation and amortization (1) 4,989  6,032 
Interest on lease liabilities Interest expense, net 3,083  3,321 
Net lease cost (2) $ 45,381  $ 42,671 
(1)Supply chain-related amounts were included in cost of sales.
(2)Net lease cost does not include short-term leases, variable lease costs or sublease income, all of which are immaterial.
Information regarding our lease terms and discount rates were as follows:
October 2, 2022 December 31, 2021
Weighted-average remaining lease term (years)
Operating leases 15.2 15.4
Finance leases 29.2 30.0
Weighted-average discount rate
Operating leases 3.1  % 3.1  %
Finance leases 6.1  % 6.1  %

Supplemental balance sheet information related to leases were as follows:
Leases Classification October 2, 2022 December 31, 2021
Assets
Operating lease ROU assets Other non-current assets $ 328,098  $ 351,712 
Finance lease ROU assets, at cost Property, plant and equipment, gross 84,073  89,190 
Accumulated amortization Accumulated depreciation (14,396) (16,694)
Finance lease ROU assets, net Property, plant and equipment, net 69,677  72,496 
Total leased assets $ 397,775  $ 424,208 
Liabilities
Current
Operating Accrued liabilities $ 31,415  $ 36,292 
Finance Current portion of long-term debt 2,934  3,564 
Non-current
Operating Other long-term liabilities 295,694  310,899 
Finance Long-term debt 66,785  65,582 
Total lease liabilities $ 396,828  $ 416,337 


The Hershey Company | Q3 2022 Form 10-Q | Page 20
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

The maturity of our lease liabilities as of October 2, 2022 were as follows:
Operating leases Finance leases Total
2022 (rest of year) $ 10,184  $ 1,860  $ 12,044 
2023 40,229  6,494  46,723 
2024 37,277  5,560  42,837 
2025 26,118  4,398  30,516 
2026 22,258  4,025  26,283 
Thereafter 284,584  146,082  430,666 
Total lease payments 420,650  168,419  589,069 
Less: Imputed interest 93,541  98,700  192,241 
Total lease liabilities $ 327,109  $ 69,719  $ 396,828 

Supplemental cash flow and other information related to leases were as follows:
Nine Months Ended
October 2, 2022 October 3, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 34,528  $ 32,243 
Operating cash flows from finance leases 3,083  3,321 
Financing cash flows from finance leases 3,336  3,313 
ROU assets obtained in exchange for lease liabilities:
Operating leases $ 6,629  $ 7,013 
Finance leases 4,192  436 
8. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
We invest in partnerships that make equity investments in projects eligible to receive federal historic and renewable energy tax credits. The tax credits, when realized, are recognized as a reduction of tax expense under the flow-through method, at which time the corresponding equity investment is written-down to reflect the remaining value of the future benefits to be realized. The equity investment write-down is reflected within other (income) expense, net in the Consolidated Statements of Income (see Note 17).

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

Both equity and cost method investments are reported within other non-current assets in our Consolidated Balance Sheets. We regularly review our investments and adjust accordingly for capital contributions, dividends received and other-than-temporary impairments. Total investments in unconsolidated affiliates were $132,226 and $93,089 as of October 2, 2022 and December 31, 2021, respectively.


The Hershey Company | Q3 2022 Form 10-Q | Page 21
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

9. BUSINESS REALIGNMENT ACTIVITIES
We periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies. Costs associated with business realignment activities are classified in our Consolidated Statements of Income as follows:
Three Months Ended Nine Months Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Cost of sales $ (1) $ 213  $ $ 5,250 
Selling, marketing and administrative expense 394  2,819  2,096  5,795 
Business realignment costs —  365  274  2,748 
Costs associated with business realignment activities $ 393  $ 3,397  $ 2,373  $ 13,793 
Costs recorded by program during the three and nine months ended October 2, 2022 and October 3, 2021 related to these activities were as follows:
Three Months Ended Nine Months Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
International Optimization Program:
Severance and employee benefit costs $ $ 377  $ 287  $ 3,199 
Other program costs 391  3,020  2,086  10,594 
Total $ 393  $ 3,397  $ 2,373  $ 13,793 
Amounts classified as liabilities qualifying as exit and disposal costs primarily represent employee-related and certain third-party service provider charges, however, such amounts at October 2, 2022 are not significant.
2020 International Optimization Program
In the fourth quarter of 2020, we commenced a program (“International Optimization Program”) to streamline resources and investments in select international markets, including the optimization of our China operating model that will improve our operational efficiency and provide for a strong, sustainable and simplified base going forward.
The International Optimization Program is expected to be completed by the end of 2023, with total pre-tax costs anticipated to be $50,000 to $75,000. Cash costs are expected to be $40,000 to $65,000, primarily related to workforce reductions of approximately 350 positions outside of the United States, costs to consolidate and relocate production, and third-party costs incurred to execute these activities. The costs and related benefits of the International Optimization Program relate to the International segment. However, segment operating results do not include these business realignment expenses because we evaluate segment performance excluding such costs.
For the nine months ended October 2, 2022 and October 3, 2021, we recognized total costs associated with the International Optimization Program of $2,373 and $13,793, 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 $48,315.


The Hershey Company | Q3 2022 Form 10-Q | Page 22
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

10. INCOME TAXES
The majority of our taxable income is generated in the United States and taxed at the United States statutory rate of 21%. The effective tax rates for the nine months ended October 2, 2022 and October 3, 2021 were 19.7% and 21.4%, respectively. Relative to the statutory rate, the 2022 effective tax rate was impacted by investment tax credits, partially offset by state taxes.
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. 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 $15,220 within the next 12 months because of the expiration of statutes of limitations and settlements of tax audits.
Inflation Reduction Act
On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law. The IRA enacted a 15% corporate minimum tax on certain corporations and an excise tax on share repurchases after December 31, 2022, and created and extended certain energy-related tax credits and incentives. We currently do not expect the tax-related provisions of the IRA to have a material impact on our consolidated financial statements, including our annual effective tax rate, or on our liquidity. We will continue to monitor and assess the impact the IRA may have on our business and financial results.
American Rescue Plan Act
On March 11, 2021, the American Rescue Plan Act (“ARPA”) was signed into law. The ARPA strengthens and extends certain federal programs enacted through the 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 nine months ended October 3, 2021.
Coronavirus Aid, Relief, and Economic Security Act
On March 27, 2020, the 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 nine months ended October 3, 2021.

The Hershey Company | Q3 2022 Form 10-Q | Page 23
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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 October 2, 2022 and October 3, 2021 were as follows:
Pension Benefits Other Benefits
Three Months Ended Three Months Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Service cost $ 4,028 $ 5,256 $ 80 $ 45
Interest cost 8,810  4,785  1,154  964 
Expected return on plan assets (11,973) (12,249) —  — 
Amortization of prior service credit (1,413) (1,536) —  — 
Amortization of net loss 4,563  4,585  26  — 
Settlement loss 3,728  5,408  —  — 
Total net periodic benefit cost $ 7,743  $ 6,249  $ 1,260  $ 1,009 
We made contributions of $824 and $1,484 to the pension plans and other benefits plans, respectively, during the third quarter of 2022. In the third quarter of 2021, we made contributions of $25,711 and $3,527 to our pension plans and other benefit plans, respectively. The contributions in 2022 and 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 nine months ended October 2, 2022 and October 3, 2021 were as follows:
 
Pension Benefits Other Benefits
Nine Months Ended Nine Months Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Service cost $ 13,639 $ 16,178 $ 238 $ 135
Interest cost 20,438  13,511  3,467  2,893 
Expected return on plan assets (36,788) (36,861) —  — 
Amortization of prior service credit (4,238) (4,607) —  — 
Amortization of net loss 10,402  16,005  77  — 
Settlement loss 14,104  12,848  —  — 
Total net periodic benefit cost $ 17,557  $ 17,074  $ 3,782  $ 3,028 
We made contributions of $4,580 and $12,059 to the pension plans and other benefits plans, respectively, during the first nine months of 2022. In the first nine months of 2021, we made contributions of $26,894 and $11,682 to our pension plans and other benefit plans, respectively. The contributions in 2022 and 2021 also included benefit payments from our non-qualified pension plans and post-retirement benefit plans.

The Hershey Company | Q3 2022 Form 10-Q | Page 24
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

The non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans is reflected within other (income) expense, net in the Consolidated Statements of Income (see Note 17).
During the first nine months of 2022, we recognized pension settlement charges in our hourly retirement plan and salaried retirement plan due to lump sum withdrawals by employees retiring or leaving the Company. The non-cash settlement charges, which represent the acceleration of a portion of the respective plan’s accumulated unrecognized actuarial loss, were triggered when the cumulative lump sum distributions exceeded the plan’s anticipated annual service and interest costs. In connection with the third quarter 2022 settlements, the related plan assets and liabilities were remeasured using a discount rate as of the remeasurement date that was 288 basis points higher than the rate as of December 31, 2021 and an expected rate of return on plan assets of 5.8%.
12. STOCK COMPENSATION PLANS
Share-based grants for compensation and incentive purposes are made pursuant to the Equity and Incentive Compensation Plan (“EICP”). The EICP provides for grants of one or more of the following stock-based compensation awards to employees, non-employee directors and certain service providers upon whom the successful conduct of our business is dependent:
Non-qualified stock options (“stock options”);
Performance stock units (“PSUs”) and performance stock;
Stock appreciation rights;
Restricted stock units (“RSUs”) and restricted stock; and
Other stock-based awards.
The EICP also provides for the deferral of stock-based compensation awards by participants if approved by the Compensation and Human Capital Committee of our Board and if in accordance with an applicable deferred compensation plan of the Company. Currently, the Compensation and Human Capital Committee has authorized the deferral of PSU and RSU awards by certain eligible employees under the Company’s Deferred Compensation Plan. Our Board has authorized our non-employee directors to defer any portion of their cash retainer, committee chair fees and RSUs awarded that they elect to convert into deferred stock units under our Directors’ Compensation Plan.
At the time stock options are exercised or PSUs and RSUs become payable, Common Stock is issued from our accumulated treasury shares. Dividend equivalents are credited on RSUs on the same date and at the same rate as dividends paid on our Common Stock. Dividend equivalents are charged to retained earnings and included in accrued liabilities until paid.
Awards to employees eligible for retirement prior to the award becoming fully vested are amortized to expense over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award. In addition, historical data is used to estimate forfeiture rates and record share-based compensation expense only for those awards that are expected to vest.
For the periods presented, compensation expense for all types of stock-based compensation programs and the related income tax benefit recognized were as follows:
Three Months Ended Nine Months Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Pre-tax compensation expense
$ 18,079  $ 18,527  $ 50,640  $ 51,009 
Related income tax benefit 2,990  2,791  9,925  10,814 
Compensation expenses for stock compensation plans are primarily included in selling, marketing and administrative expense. As of October 2, 2022, total stock-based compensation expense related to non-vested awards not yet recognized was $93,265 and the weighted-average period over which this amount is expected to be recognized was approximately 1.8 years.

The Hershey Company | Q3 2022 Form 10-Q | Page 25
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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.

A summary of activity relating to grants of stock options for the period ended October 2, 2022 is as follows:
Stock Options Shares Weighted-Average
Exercise Price (per share)
Weighted-Average Remaining
Contractual Term
Aggregate Intrinsic Value
Outstanding at beginning of the period 1,332,956  $102.78 4.3 years
Granted 4,025  $202.03
Exercised (315,250) $98.38
Forfeited (3,858) $102.97
Expired (1,873) $103.07
Outstanding as of October 2, 2022
1,016,000  $104.53 4.0 years $ 117,793 
Options exercisable as of October 2, 2022
978,507  $102.65 3.8 years $ 115,291 

The weighted-average fair value of options granted was $37.28 and $24.12 per share for the periods ended October 2, 2022 and October 3, 2021, respectively. The fair value was estimated on the date of grant using a Black-Scholes option-pricing model and the following weighted-average assumptions:
Nine Months Ended
October 2, 2022 October 3, 2021
Dividend yields
1.9  % 2.2  %
Expected volatility 21.1  % 21.8  %
Risk-free interest rates
1.9  % 1.0  %
Expected term in years 6.3 6.3
The total intrinsic value of options exercised was $36,362 and $28,416 for the periods ended October 2, 2022 and October 3, 2021, respectively.
Performance Stock Units and Restricted Stock Units
Under the EICP, we grant PSUs to select executives and other key employees. Vesting is contingent upon the achievement of certain performance objectives. We grant PSUs over three-year performance cycles. If we meet targets for financial measures at the end of the applicable three-year performance cycle, we award a resulting number of shares of our Common Stock to the participants. The number of shares may be increased to the maximum or reduced to the minimum threshold based on the results of these performance metrics in accordance with the terms established at the time of the award.
For PSUs granted, the target award is a combination of a market-based total shareholder return and performance-based components. For market-based condition components, market volatility and other factors are taken into consideration in determining the grant date fair value and the related compensation expense is recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided. For performance-based condition components, we estimate the probability that the performance conditions will be achieved each quarter and adjust compensation expenses accordingly. The performance scores of PSU grants during the nine months ended October 2, 2022 and October 3, 2021 can range from 0% to 250% of the targeted amounts.

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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 three-year term. Compensation expenses are based on the grant date fair value because the grants can only be settled in shares of our Common Stock. The grant date fair value of PSUs is determined based on the Monte Carlo simulation model for the market-based total shareholder return component and the closing market price of the Company’s Common Stock on the date of grant for performance-based components.
During the nine months ended October 2, 2022 and October 3, 2021, we awarded RSUs to certain executive officers and other key employees under the EICP. We also awarded RSUs to non-employee directors.
We recognize the compensation expenses associated with employee RSUs over a specified award vesting period based on the grant date fair value of our Common Stock. We recognize expense for employee RSUs based on the straight- line method. The compensation expenses associated with non-employee director RSUs is recognized ratably over the vesting period, net of estimated forfeitures.
A summary of activity relating to grants of PSUs and RSUs for the period ended October 2, 2022 is as follows:
Performance Stock Units and Restricted Stock Units
Number of units Weighted-average grant date fair value for equity awards (per unit)
Outstanding at beginning of year
1,303,521  $146.96
Granted
305,109  $211.29
Performance assumption change (1)
105,143  $245.93
Vested
(505,135) $130.07
Forfeited
(27,016) $163.35
Outstanding as of October 2, 2022
1,181,622  $182.34
(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.