What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-10-28 compared with 2021-07-29 · 145 added, 154 removed, 231 unchanged (56% of the section changed)

35 unchanged sentences

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.

Local, state and national governments continue to emphasize the importance of food supply during this pandemic and have 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.

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(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.

however, since July 2020, all locations have been 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.

3 unchanged sentences

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.

Since the onset of COVID-19, there has been minimal disruption to our supply chain network.

However, during the third quarter of 2021, 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., including inflation on many consumer products, labor shortages and demand outpacing supply.

As a result, we experienced corresponding incremental costs and gross margin pressures during the three months ended October 3, 2021 (see Results of Operations included in this MD&A).

We are working closely with our business units, contract manufacturers, distributors, contractors and other external business partners to minimize the potential impact on our business.

During 2021, many state governments began easing COVID-19 restrictions, resulting in increased travel during the summer season, full capacity at major sporting and entertainment events, increased occupancy limits for indoor gatherings and the removal of face covering requirements (subject to certain exceptions).

This led to a temporary resurgence of COVID-19 cases during the summer months but has declined in recent weeks as the availability of vaccinations (including vaccine boosters) continues to increase around the world, albeit with slower than anticipated rollouts and challenges within certain countries.

We experienced an increase in our net sales during the three and nine months ended October 3, 2021, which was primarily driven by strong everyday performance on our core U.S.

confection brands and solid growth in our snacks portfolio and select international markets (see Segment Results included in this MD&A).

Despite higher net sales, our net income during the three months ended October 3, 2021 decreased slightly due to the aforementioned supply chain disruptions and gross margin pressures.

As of October 3, 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 operate effectively 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.

Based on the length and severity of COVID-19, including broad-based supply chain disruptions, new trends in outbreaks and hotspots, the spread of COVID-19 variants, resurgences 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 to our business, consolidated results of operations, segment results, liquidity and capital resources.

The Hershey Company | Q3 2021 Form 10-Q | Page 35

CONSOLIDATED RESULTS OF OPERATIONS

Three Months Ended Six Months Ended

July 4, 2021 June 28, 2020 Percent Change July 4, 2021 June 28, 2020 Percent Change

Three Months Ended Nine Months Ended

October 3, 2021 September 27, 2020 Percent Change October 3, 2021 September 27, 2020 Percent Change

In millions of dollars except per share amounts

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Long-lived asset impairment charges — — NM — 9.1 NM

Business realignment costs (benefits) 1.1 (1.4) NM 2.4 (0.5) NM

Business realignment costs (benefits) 0.4 — NM 2.7 (0.5) (678.5) %

Operating profit 574.8 611.4 (6.0) % 1,584.6 1,377.6 15.0 %

5 unchanged sentences

Net income including noncontrolling interest 444.9 447.3 (0.5) % 1,143.0 984.1 16.2 %

Net (loss) gain attributable to noncontrolling interest — (0.9) NM 1.1 (3.2) NM

Net gain (loss) attributable to noncontrolling interest — — NM 1.1 (3.2) (133.1) %

Net income attributable to The Hershey Company $ 444.9 $ 447.3 (0.5) % $ 1,141.9 $ 987.3 15.7 %

2 unchanged sentences

NM = not meaningful

Results of Operations - Second Quarter 2021 vs.

Second Quarter 2020

Net sales increased 16.5% in the second quarter of 2021 compared to the same period of 2020, reflecting a volume increase of 14.5% due to an increase in everyday core U.S.

confection brands, as well as favorable price realization of 1.0% due to higher prices on certain products and a favorable impact from foreign currency exchange rates of 1.0%.

Results of Operations - Third Quarter 2021 vs.

Third Quarter 2020

Net sales increased 6.3% in the third quarter of 2021 compared to the same period of 2020, reflecting a favorable price realization of 3.1% due to higher prices on certain products, a 1.4% increase from the 2021 acquisition of Lily’s, a v olume increase of 1.3% due to an increase in our snacks portfolio, as well as, a favorable impact from foreign currency exchange rates of 0.5%.

Marketplace Metrics

For the second quarter of 2021, our total U.S.

For the third quarter of 2021, our total U.S.

retail takeaway increased 8.9% 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.

candy, mint and gum ("CMG") consumer takeaway increased 2.3%, resulting in a CMG market share loss of approximately 113 basis points.

The CMG consumer takeaway and market share information reflect measured channels of distribution accounting for approximately 90% of our U.S.

candy, mint and gum (“CMG”) consumer takeaway increased 8.0% and experienced a CMG market share loss of approximately 95 basis points.

The CMG consumer takeaway and market share information reflects measured channels of distribution accounting for approximately 90% of our U.S.

confectionery retail business.

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Cost of Sales and Gross Margin

Cost of sales increased 16.3% in the second quarter of 2021 compared to the same period of 2020.

The increase was driven by higher sales volume, higher freight and logistics costs and additional plant costs.

These drivers were partially offset by the incremental $14.3 million of favorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years' commodity purchases.

Additionally, the increase was partially offset by favorable price realization and supply chain productivity.

Gross margin increased by 10 basis points in the second quarter of 2021 compared to the same period of 2020.

The increase was driven by the favorable year-over-year mark-to-market impact from commodity derivative instruments, favorable price realization and supply chain productivity.

These factors were offset by higher freight and logistics costs and additional plant costs.

Cost of sales increased 13.9% in the third quarter of 2021 compared to the same period of 2020.

The increase was driven by higher sales volume, higher freight and logistics costs and additional plant costs, as well as, the incremental $40.6 million of unfavorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases.

The increase was partially offset by favorable price realization and supply chain productivity.

Gross margin decreased by 370 basis p oints in the third quarter of 2021 compared to the same period of 2020.

The decrease was driven by higher freight and logistics costs and additional plant costs and the unfavorable year-over-year mark-to-market impact from commodity derivative instruments.

These factors were offset by favorable price realization and supply chain productivity.

SM&A Expenses

SM&A expenses increased $58.7 million or 14.3% in the second quarter of 2021 driven by advertising increases and corporate expenses.

Total advertising and related consumer marketing expenses increased 9.9% driven by increased investment in core brands and incremental sponsorships in North America.

SM&A expenses, excluding advertising and related consumer marketing, increased approximately 16.6% in the second quarter of 2021 driven by 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.

SM&A expenses increased $17.5 million or 3.7% in the third quarter of 2021 driven by increased corporate expenses.

Total advertising and related consumer marketing expenses decreased 3.6% driven by lower advertising in the North America segment in response to sustained consumer demand and capacity constraints on select brands.

SM&A expenses, excluding advertising and related consumer marketing, increased approximately 8.1% in the third quarter of 2021 driven by higher compensation costs and investments in capabilities and technology.

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, we recorded business realignment costs of $1.1 million related to the International Optimization Program, a program 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.

In the third quarter of 2021, we recorded business realignment costs of $0.4 million related to the International Optimization Program, a program focused on optimizing our China operating model to improve our operational efficiency and provide for a strong, sustainable and simplified base going forward.

Th ere were no business realignment costs in the third quarter of 2020.

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% in the second quarter of 2021 compared to the same period of 2020 predominantly due to higher gross profit, partially offset by higher SM&A expenses, as noted above.

Operating profit margin increased to 23.0% in 2021 from 22.5% in 2020 driven by these same factors.

Operating profit decreased 6.0% in the third quarter of 2021 compared to the same period of 2020 predominantly due to lower gross profit, as well as higher SM&A expenses, as noted above.

Operating profit margin decreased to 24.4% in 2021 from 27.5% in 2020 driven by these same factors.

Interest Expense, Net

Net interest expense was $7.0 million lower in the second quarter of 2021 compared to the same period of 2020.

The decrease was primarily due to lower long-term debt balances in 2021 versus 2020, specifically resulting from $785 million of long-term debt repayments with varying maturity dates during the last twelve months preceding July 4, 2021.

The Hershey Company | Q2 2021 Form 10-Q | Page 37

Net interest expense was $7.1 million lower in the third quarter of 2021 compared to the same period of 2020.

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.

Other (income) expense, net was $23.0 million in the third quarter of 2021 versus net expense of $11.6 million in the third quarter of 2020.

The increase in net expense was primarily due to higher write-downs on equity investments qualifying for historic and renewable energy tax credits in 2021 versus 2020 and higher 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 28.0% for the second quarter of 2021 compared with 19.8% for the second quarter of 2020.

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.

The effective income tax rate was 14.7% for the third quarter of 2021 compared with 20.5% for the third quarter of 2020.

Relative to the 21% statutory rate, the 2021 effective tax rate benefited from investment tax credits and the utilization (during the third quarter of 2021) of previously generated capital losses, partially offset by state taxes.

Relative to the 21% statutory rate, the 2020 effective tax rate benefited from favorable foreign rate differential and investment tax credits, partially offset by state taxes.

The Hershey Company | Q3 2021 Form 10-Q | Page 37

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

Net income increased $32.3 million, or 12.0%, while EPS-diluted increased $0.16, or 12.4%, in the second quarter of 2021 compared to the same period of 2020.

The increase in both net income and EPS-diluted was driven primarily by higher gross profit, partially offset by higher SM&A expenses and higher income taxes, as noted above.

Our 2021 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.

Results of Operations - First Six Months 2021 vs.

First Six Months 2020

Net sales increased 14.4% in the first six months of 2021 compared to the same period of 2020, reflecting a volume increase of 12.6% due to 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).

Net income decreased $2.4 million, or 0.5%, while EPS-diluted had no change, in the third quarter of 2021 compared to the same period of 2020.

The decrease in net income was driven primarily by lower gross profit, as well as higher SM&A expenses and other expenses, partially offset by lower income taxes, as noted above.

Our 2021 EPS-diluted benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.

Results of Operations - First Nine Months 2021 vs.

First Nine Months 2020

Net sales increased 11.4% in the first nine months of 2021 compared to the same period of 2020, reflecting a volume increase of 8.5% due to an increase in everyday core U.S.

confection brands and our snacks portfolio, a favorable price realization of 2.0% due to higher prices on certain products, a 0.5% increase from net acquisitions and divestitures (predominantly driven by the 2021 acquisition of Lily’s, partially offset by the 2020 divestitures of Krave and the Scharffen Berger and Dagoba brands), as well as, a favorable impact from foreign currency exchange rates of 0.4%.

Cost of Sales and Gross Margin

Cost of sales increased 10.8% in the first six months of 2021 compared to the same period of 2020.

Cost of sales increased 11.9% in the first nine months of 2021 compared to the same period of 2020.

The increase was driven by higher sales volume, higher freight and logistics costs and additional plant costs.

These drivers were partially offset by the incremental $64.4 million of favorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases;

however, were significantly impacted by financial market volatility during March 2020 amid COVID-19 fears.

however, our mark-to-market activity was 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.

Gross margin increased by 180 basis points in the first six months of 2021 compared to the same period of 2020.

The increase was driven by the favorable year-over-year mark-to-market impact from commodity derivative instruments, favorable price realization and supply chain productivity.

These factors were offset by higher freight and logistics costs and additional plant costs.

Selling, Marketing and Administrative

SM&A expenses increased $78.0 million or 8.8% in the first six months of 2021.

Gross margin decreased by 20 basis points in the first nine months of 2021 compared to the same period of 2020.

The decrease was driven by higher freight and logistics costs and additional plant costs.

These factors were partially offset by favorable price realization, supply chain productivity and the favorable year-over-year mark-to-market impact from commodity derivative instruments.

SM&A Expenses

SM&A expenses increased $95.5 million or 7.1% in the first nine months of 2021.

Total advertising and related consumer marketing expenses increased 2.5% driven by increased investment in core brands and incremental sponsorships in North America.

SM&A expenses, excluding advertising and related consumer marketing, increased approximately 10.4% in the first six months of 2021 driven by higher compensation costs and investments in capabilities and technology.

The Hershey Company | Q2 2021 Form 10-Q | Page 38

SM&A expenses, excluding advertising and related consumer marketing, increased approximately 9.6% in the first nine months of 2021 driven by higher compensation costs and investments in capabilities and technology.

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.

We had no impairment charges during the first nine months of 2021.

During the first nine months of 2020, we recorded long-lived asset impairment charges of $9.1 million, predominantly comprising 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, we recorded business realignment costs of $2.4 million 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.

During the first nine months of 2021, we recorded business realignment costs of $2.7 million related to the International Optimization Program.

During the first nine 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% in the first six months of 2021 compared to the same period of 2020 predominantly due to higher gross profit and lower impairment charges, partially offset by higher SM&A expenses, as noted above.

O perating profit increased 15.0% in the first nine months of 2021 compared to the same period of 2020 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 23.8% in 2021 from 23.1% in 2020 driven by these same factors.

The Hershey Company | Q3 2021 Form 10-Q | Page 38

Interest Expense, Net

Net interest expense was $6.8 million lower in the first six months of 2021 compared to the same period of 2020.

Net interest expense was $13.9 million lower in the first nine months of 2021 compared to the same period of 2020.

Other (Income) Expense, Net

Other (income) expense, net totaled 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.

Other (income) expense, net was $32.6 million in the first nine months of 2021 versus expense of $34.4 million in the first nine months of 2020.

The decrease in net expense was primarily due to lower non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans during 2021 and lower write-downs on equity investments qualifying for historic and renewable energy tax credits in 2021 versus 2020.

Income Taxes and Effective Tax Rate

Our effective income tax rate was 25.1% for the first six months of 2021 compared with 19.8% for the first six months of 2020.

Our effective income tax rate was 21.4% for the first nine months of 2021 compared with 20.1% for the first nine months of 2020.

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.

tax litigation matter as well as state taxes, partially offset by investment tax credits and the utilization (during the third quarter of 2021) of previously generated capital losses.

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 to The Hershey Company and Earnings Per Share-diluted

Net income increased $157.0 million, or 29.1%, while EPS-diluted increased $0.77, or 29.8%, in the first six months of 2021 compared to the same period of 2020.

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 income taxes.

Net income increased $154.6 million, or 15.7%, while EPS-diluted increased $0.78, or 16.6%, in the first nine months of 2021 compared to the same period of 2020.

The increase in both net income and EPS-diluted was driven primarily by higher gross profit, as well as, lower interest expense and impairment charges, partially offset by higher SM&A expenses and higher income taxes.

Our 2021 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.

10 unchanged sentences

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

Three Months Ended Six Months Ended

July 4, 2021 June 28, 2020 July 4, 2021 June 28, 2020

Three Months Ended Nine Months Ended

October 3, 2021 September 27, 2020 October 3, 2021 September 27, 2020

In millions of dollars

2 unchanged sentences

Total $ 2,359.8 $ 2,219.8 $ 6,645.2 $ 5,964.5

Segment Income (Loss):

Segment Income:

North America $ 666.1 $ 647.1 $ 1,893.6 $ 1,726.3

16 unchanged sentences

This includes developing and growing our business in chocolate and non-chocolate confectionery, pantry, food service and other snacking product lines.

North America results, which accounted for 89.4% and 92.8% of our net sales for the three months ended 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

North America results, which accounted for 90.1% and 90.7% of our net sales for the three months ended October 3, 2021 and September 27, 2020, respectively, were as follows:

Three Months Ended Nine Months Ended

October 3, 2021 September 27, 2020 Percent Change October 3, 2021 September 27, 2020 Percent Change

In millions of dollars

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Segment margin 31.3 % 32.1 % 31.6 % 31.7 %

Results of Operations - Second Quarter 2021 vs.

Second Quarter 2020

Net sales of our North America segment increased $195.4 million or 12.3% in the second quarter of 2021 compared to the same period of 2020, reflecting a volume increase of 11.8% due to an increase in everyday core U.S.

confection brands and a favorable impact from foreign currency exchange rates of 0.7%.

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 segment income increased $68.3 million or 13.7% in the second quarter of 2021 compared to the same period of 2020, primarily due to volume increases, partially offset by higher supply chain-related costs, higher freight and logistics costs, higher advertising expense and unfavorable price realization.

Results of Operations - First Six Months 2021 vs.

First Six Months 2020

Net sales of our North America segment increased $432.5 million or 12.6% in the first six months of 2021 compared to the same period of 2020, reflecting a volume increase of 11.3% 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 impact from foreign currency exchange rates of 0.5%.

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 segment income increased $148.4 million or 13.8% in the first six months of 2021 compared to the same period of 2020, primarily due to volume increases and favorable price realization, partially offset by higher supply chain-related costs, higher freight and logistics costs and higher advertising expense.

Results of Operations - Third Quarter 2021 vs.

Third Quarter 2020

Net sales of our North America segment increased $111.5 million or 5.5% in the third quarter of 2021 compared to the same period of 2020, reflecting a favorable price realization of 2.4% due to higher prices on certain products, a volume increase of 1.3% due to an increase in our snacks portfolio, a 1.5% increase from the 2021 acquisition of Lily’s, and a favorable impact from foreign currency exchange rates of 0.3%.

Our North America segment income increased $19.0 million or 2.9% in the third quarter of 2021 compared to the same period of 2020, primarily due to volume increases and favorable price realization, partially offset by higher supply chain-related costs, higher freight and logistics costs, as well as unfavorable product mix.

Results of Operations - First Nine Months 2021 vs.

First Nine Months 2020

Net sales of our North America segment increased $543.9 million or 10.0% in the first nine months of 2021 compared to the same period of 2020, reflecting a volume increase of 7.6% due to an increase in everyday core U.S.

confection brands and our snacks portfolio, favorable price realization of 1.5% attributed to higher prices on certain products, a 0.5% increase from net acquisitions and divestitures (predominantly driven by the 2021 acquisition of Lily’s, partially offset by the 2020 divestitures of Krave and the Scharffen Berger and Dagoba brands) and a favorable impact from foreign currency exchange rates of 0.4%.

Our North America segment income increased $167.3 million or 9.7% in the first nine months of 2021 compared to the same period of 2020, primarily due to volume increases and favorable price realization, partially offset by higher supply chain-related costs and higher freight and logistics costs.

The Hershey Company | Q3 2021 Form 10-Q | Page 41

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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% and 7.2% of our net sales for the three months ended 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

International and Other results, which accounted for 9.9% and 9.3% of our net sales for the three months ended October 3, 2021 and September 27, 2020, respectively, were as follows:

Three Months Ended Nine Months Ended

October 3, 2021 September 27, 2020 Percent Change October 3, 2021 September 27, 2020 Percent Change

In millions of dollars

Net sales $ 234.2 $ 205.7 13.9 % $ 658.5 $ 521.7 26.2 %

Segment income 42.2 (4.0) NM 76.0 12.0 533.3 %

Segment income 38.7 24.5 58.1 % 114.7 36.5 214.2 %

Segment margin 16.5 % 11.9 % 17.4 % 7.0 %

NM = not meaningful

Results of Operations - Second Quarter 2021 vs.

Second Quarter 2020

Net sales of our International and Other segment increased $86.7 million or 70.2% in the second quarter of 2021 compared to the same period of 2020, reflecting a volume increase of 49.5% and favorable price realization of 15.0%.

The volume increase was primarily attributed to solid marketplace growth in Mexico, Brazil, India and AEMEA Markets, where net sales increased by 137.7%, 68.7%, 57.6% and 53.1%, respectively.

Results of Operations - Third Quarter 2021 vs.

Third Quarter 2020

Net sales of our International and Other segment increased $28.5 million or 13.9% in the third quarter of 2021 compared to the same period of 2020, reflecting a favorable price realization of 9.5% and volume increase of 1.9%.

The volume increase was primarily attributed to solid marketplace growth in Mexico, Brazil, and India, where net sales increased by 72.3%, 13.0%, and 5.0%, respectively.

These increases also benefited from a favorable impact from foreign currency exchange rates of 2.5%.

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 million in the second quarter of 2021 compared to $4.0 million in the second quarter of 2020 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 vs.

First Six Months 2020

Net sales of our International and Other segment increased $108.3 million or 34.3% in the first six months of 2021 compared to the same period of 2020, reflecting a volume increase of 26.7% and favorable price realization of 7.6%.

Our International and Other segment also includes licensing, owned retail and world travel retail.

At the onset of the pandemic, all Hershey's Chocolate World stores were temporarily closed and subsequently re-opened in July 2020 with increased safety measures.

This included the United States (3 locations), Niagara Falls (Ontario) and Singapore.

As a result, our net sales increased approximately 47.7% during the third quarter of 2021 compared to the same period of 2020.

Our International and Other segment generated income of $38.7 million in the third quarter of 2021 compared to $24.5 million in the third quarter of 2020 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 Nine Months 2021 vs.

First Nine Months 2020

Net sales of our International and Other segment increased $136.8 million or 26.2% in the first nine months of 2021 compared to the same period of 2020, reflecting a volume increase of 17.2% and favorable price realization of 8.1%.

The volume increase was primarily attributed to solid marketplace growth in Mexico, Brazil, India and AEMEA Markets, where net sales increased by 50.0%, 25.4%, 34.4% and 17.5%, respectively.

Our International and Other segment also includes licensing, owned retail and world travel retail, where net sales increased approximately 39.3% during the first six months of 2021 compared to the same period of 2020.

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 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 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.

These increases also benefited from a favorable impact from foreign currency exchange rates of 0.9%.

Our International and Other segment also includes licensing, owned retail and world travel retail.

At the onset of the pandemic, all Hershey’s Chocolate World stores were temporarily closed and subsequently re-opened in July 2020 with increased safety measures.

This included the United States (3 locations), Niagara Falls (Ontario) and Singapore.

As a result, our net sales increased approximately 42.6% during the first nine months of 2021 compared to the same period of 2020.

Our International and Other segment generated income of $114.7 million in the first nine months of 2021 compared to $36.5 million in the first nine months of 2020 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.

The Hershey Company | Q3 2021 Form 10-Q | Page 42

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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 and (d) other gains or losses that are not integral to segment performance.

In the second quarter of 2021, unallocated corporate expense totaled $151.3 million, as compared to $106.9 million in the second quarter of 2020.

The increase is primarily driven by higher group insurance costs from COVID-19-related delays in preventive care, incremental investments in capabilities and technology and higher incentive compensation.

In the first six months of 2021, unallocated corporate expense totaled $289.1 million, as compared to $231.4 million in the first six months of 2020.

The increase is primarily driven by incremental investments in capabilities and technology and higher incentive compensation.

In the third quarter of 2021, unallocated corporate expense totaled $145.0 million, as compared to $132.0 million in the third quarter of 2020.

The increase is primarily driven by higher incentive compensation, higher group insurance costs from COVID-19-related delays in preventive care, and incremental investments in capabilities and technology.

In the first nine months of 2021, unallocated corporate expense totaled $434.0 million, as compared to $363.4 million in the first nine months of 2020.

LIQUIDITY AND CAPITAL RESOURCES

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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, our cash and cash equivalents totaled $426.2 million, a decrease of $717.8 million compared to the 2020 year-end balance.

At October 3, 2021, our cash and cash equivalents totaled $675.5 million, a decrease of $468.5 million compared to the 2020 year-end balance.

We believe we have sufficient liquidity to satisfy our cash needs;

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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 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;

Approximately 90% of the balance of our cash and cash equivalents at October 3, 2021 was held by subsidiaries domiciled outside of the United States.

During the first nine 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.

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For the remainder of the Company’s cash held by international subsidiaries, we intend to continue to reinvest the undistributed earnings indefinitely.

We believe we have sufficient liquidity to satisfy our cash needs, including our cash needs in the United States.

We believe we have sufficient liquidity to satisfy our cash needs for at least the next twelve months, including our cash needs in the United States.

Cash Flow Summary

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

Six Months Ended

In millions of dollars July 4, 2021 June 28, 2020

Nine Months Ended

In millions of dollars October 3, 2021 September 27, 2020

Net cash provided by (used in):

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Operating activities

We generated cash of $1.0 billion from operating activities in the first six months of 2021, an increase of $403.7 million compared to $614.0 million in the same period of 2020.

We generated cash of $1.4 billion from operating activities in the first nine months of 2021, an increase of $308.4 million compared to $1.1 billion in the same period of 2020.

This increase in net cash provided by operating activities was mainly driven by the following factors:

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• Net working capital (comprised of trade accounts receivable, inventory, accounts payable and accrued liabilities) consumed cash of $185.3 million in 2021, compared to $295.3 million in 2020.

This $188.6 million fluctuation was mainly driven by 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 of U.S.

This $110.0 million fluctuation was mainly driven by strong demand of U.S.

inventories, specifically our everyday core U.S.

confection brands.

• Accrued income taxes generated consistent levels of cash in 2021 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 increase in cash payments was primarily due to the 2020 deferral of quarterly estimated tax payments as a result of the CARES Act.

Investing activities

We used cash of $700.1 million for investing activities in the first six months of 2021, an increase of $490.3 million compared to $209.8 million in the same period of 2020.

We used cash of $839.7 million for investing activities in the first nine months of 2021, an increase of $498.4 million compared to $341.3 million in the same period of 2020.

This increase in net cash used in investing activities was mainly driven by the following factors:

• Capital spending .

Capital expenditures, including capitalized software, primarily to support capacity expansion, innovation and cost savings, were $227.6 million in the first six months of 2021 compared to $185.8 million in the same period of 2020.

For full year 2021, we expect capital expenditures, including capitalized software, to approximate $550 million.

Our 2021 capital expenditures are largely driven by the continuation of our ERP system implementation, as well as our supply chain capacity projects.

Capital expenditures, including capitalized software, primarily to support capacity expansion, innovation and cost savings, were $347.5 million in the first nine months of 2021 compared to $292.1 million in the same period of 2020.

For full year 2021, we now expect capital expenditures, including capitalized software, to approximate $500 million to $525 million, a reduction from our previously announced estimate of $550 million, as we evaluate and re-prioritize our capital projects to align with consumer demand and broad-based supply chain disruptions.

Our 2021 capital expenditures are largely driven by the continuation of our new global enterprise resource planning system implementation, as well as our supply chain capacity projects.

• 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 million in the first six months of 2021, compared to $26.4 million in the same period of 2020.

We invested approximately $75.9 million in the first nine months of 2021, compared to $46.4 million in the same period of 2020.

• Business Acquisition .

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Financing activities

We used cash of $1.0 billion for financing activities in the first six months of 2021, compared to cash generated of $295.9 million in the same period of 2020.

This fluctuation of $1.3 billion for financing activities was mainly driven by the following factors:

We used cash of $1,037.8 million for financing activities in the first nine months of 2021, an increase of $1,017.8 million compared to $20.0 million in the same period of 2020.

This increase 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 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.

During the first six months of 2020, we generated cash flow of $166.0 million predominantly through the issuance of short-term commercial paper, as well as an increase in short-term foreign bank borrowings.

The Hershey Company | Q2 2021 Form 10-Q | Page 44

During the first nine months of 2021, we generated cash flow of $340.0 million predominantly through the issuance of short-term commercial paper, partially offset by a reduction in short-term foreign borrowings.

During the first nine months of 2020, we generated cash flow of $13.4 million due to an increase in short-term foreign bank borrowings.

• 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").

During the first nine 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 nine 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.

The Hershey Company | Q3 2021 Form 10-Q | Page 44

• Dividend payments .

Total dividend payments to holders of our Common Stock and Class B Common Stock were $324.3 million during the first six months of 2021, an increase of $10.0 million compared to $314.3 million in the same period of 2020.

Total dividend payments to holders of our Common Stock and Class B Common Stock were $505.2 million during the first nine months of 2021, an increase of $27.2 million compared to $478.0 million in the same period of 2020.

Details regarding our 2021 cash dividends paid to stockholders are as follows:

Quarter Ended

In millions of dollars except per share amounts April 4, 2021 July 4, 2021

In millions of dollars except per share amounts April 4, 2021 July 4, 2021 October 3, 2021

Dividends paid per share – Common stock $ 0.804 $ 0.804 $ 0.901

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Total cash dividends paid $ 162.7 $ 161.6 $ 180.9

Declaration date February 2, 2021 April 27, 2021

Record date February 19, 2021 May 21, 2021

Payment date March 15, 2021 June 15, 2021

Declaration date February 2, 2021 April 27, 2021 July 23, 2021

Record date February 19, 2021 May 21, 2021 August 20, 2021

Payment date March 15, 2021 June 15, 2021 September 15, 2021

• Share repurchases .

We used cash for total share repurchases of $434.3 million and $211.2 million during the first six months of 2021 and 2020, respectively, pursuant to our practice of replenishing treasury shares available for issuance for stock options and incentive compensation, as well as our share repurchases in the open market under pre-approved share repurchase programs.

We used cash for total share repurchases of $458.0 million and $211.2 million during the first nine months of 2021 and 2020, respectively, pursuant to our practice of replenishing treasury shares available for issuance for stock options and incentive compensation, as well as our share repurchases in the open market under pre-approved share repurchase programs.

In July 2018, our Board of Directors approved a $500 million share repurchase authorization.

As of July 4, 2021, approximately $110 million remained available for repurchases of our Common Stock under this program.

As of October 3, 2021, approximately $110 million remained available for repurchases of our Common Stock under this program.

The share repurchase program does not have an expiration date.

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This program is to commence after the existing 2018 authorization is completed and is to be utilized at management’s discretion.

For the remainder of 2021, we expect share repurchases to return to a more traditional buyback strategy.

• Proceeds from the exercise of stock options, including tax benefits.

We received $16.9 million from employee exercises of stock options, net of employee taxes withheld from share-based awards, during the first six months of 2021, a minimal decrease compared to $17.5 million in the same period of 2020.

We received $23.4 million from employee exercises of stock options, net of employee taxes withheld from share-based awards, during the first nine months of 2021, a minimal increase compared to $19.1 million in the same period of 2020.

Recent Accounting Pronouncements

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

• Such other matters as discussed in our 2020 Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarterly period ended April 4, 2021, and this Quarterly Report on Form 10-Q, including Part II, Item 1A, "Risk Factors."

• Such other matters as discussed in our 2020 Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q for the quarterly periods ended April 4, 2021 and July 4, 2021, and this Quarterly Report on Form 10-Q, including Part II, Item 1A, ”Risk Factors.”

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis