What changed in this filing

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Item 1A. Risk Factors

2023-02-17 compared with 2022-02-18 · 19 added, 30 removed, 177 unchanged (22% of the section changed)

2 unchanged sentences

While we believe we have identified and discussed below the key risk factors affecting our business, these risk factors do not identify all the risks we face, and there may be additional risks and uncertainties that we do not presently know or that we do not currently believe to be significant that may have a material adverse effect on our business, performance or financial condition in the future.

Risks Related to Macroeconomic Conditions

Our business and financial results may be negatively impacted by the failure to successfully manage a disruption in consumer and trade patterns, as well as operational challenges associated with the actual or perceived effects of a disease outbreak, including epidemics, pandemics or similar widespread public health concerns, such as the current coronavirus disease 2019 (“COVID-19”) global pandemic.

Our operations are impacted by consumer spending levels, impulse purchases, the availability of our products at retail and our ability to manufacture, store and distribute products to our customers and consumers in an effective and efficient manner.

The fear of exposure to or actual effects of a disease outbreak, epidemic, pandemic or similar widespread public health concern, such as the COVID-19 pandemic, can negatively impact our overall business and financial results.

Specific factors that may impact our operations, some of which have had an unfavorable impact on our operations as a result of COVID-19, include, but are not limited to:

• Significant reductions or volatility in demand for one or more of our products, which may be caused by, among other things:

the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions, or financial hardship, shifts in demand away from one or more of our products, or pantry-loading activity;

if prolonged, such impacts may further increase the difficulty of planning for operations and may negatively impact our results;

• Significant reductions in the availability of one or more of our products as a result of retailers, common carriers or other shippers modifying restocking, fulfillment and shipping practices;

• The inability to meet our customers’ needs and achieve cost targets due to disruptions in our manufacturing operations or supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or finished product components, transportation resources, workforce availability, or other manufacturing and distribution capability;

• The inability to effectively manage evolving health and welfare strategies, including but not limited to ongoing or not yet fully known costs related to operational adjustments to ensure continued employee and consumer safety and adherence to health guidelines as they are modified and supplemented;

• An inability to effectively modify our trade promotion and advertising activities to reflect changing consumer viewing and shopping habits due to the cancellation or postponement of major sporting and entertainment events, reduced in-store visits, travel restrictions and a shift in customer advertising priorities, among other things;

• The failure of third parties on which we rely, including those third parties who supply our ingredients, packaging, capital equipment and other necessary operating materials, contract manufacturers, distributors, contractors, commercial banks and external business partners, to meet their obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties and may negatively impact our operations;

• Significant changes in the political conditions in markets in which we manufacture, sell or distribute our products, including quarantines, governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions, or otherwise prevent our third-party partners, suppliers, or customers from sufficiently

The Hershey Company | 2021 Form 10-K | Page 9

staffing operations, including operations necessary for the production, distribution, sale, and support of our products, which could negatively impact our results.

With respect to COVID-19, the situation remains dynamic and subject to rapid and possibly material change.

The Company’s efforts to manage and mitigate these factors may ultimately be unsuccessful, and the effectiveness of these efforts depends on factors beyond our control, including the duration and severity of any disease outbreak, as well as third-party actions taken in response.

Risks Related to Our Business and Operations

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In addition, negative publicity related to our environmental, social or governance practices could also impact our reputation with customers, consumers, suppliers and vendors.

We have in the past and in the future could potentially be subject to litigation or government actions as a result of issues or concerns relating to the quality and safety of our products, ingredients or packaging, human and workplace rights, and other environmental, social or governance matters, which could result in payments of fines or damages.

We have been in the past and in the future could potentially be subject to litigation or government actions as a result of issues or concerns relating to the quality and safety of our products, ingredients or packaging, human and workplace rights, and other environmental, social or governance matters, which could result in payments of fines or damages.

Costs associated with these potential actions, as well as the potential impact on our reputation or ability to sell our products, could negatively affect our operating results.

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• Natural disaster;

• Pandemic outbreak of disease;

• Pandemic outbreak of disease (such as the coronavirus disease 2019 (“COVID-19”) global pandemic);

• Climate change and severity of extreme weather;

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• Imbalances between supply and demand;

• Rising levels of inflation related to domestic and global economic conditions or supply chain issues;

• Rising levels of inflation and interest rates related to domestic and global economic conditions or supply chain issues;

• The effects of climate change and extreme weather on crop yield and quality;

6 unchanged sentences

• Changes in governmental agricultural programs and energy policies;

• Other events beyond our control such as the impacts on the business or supply chain arising from the conflict between Russia and Ukraine.

Although we use forward contracts and commodity futures and options contracts where possible to hedge commodity prices, commodity price increases ultimately result in corresponding increases in our raw material and energy costs.

14 unchanged sentences

• Our response to consumer demographics and trends, including but not limited to, trends relating to store trips and the impact of the growing digital commerce channel;

• Consumer health concerns, including obesity and the consumption of certain ingredients.

The Hershey Company | 2022 Form 10-K | Page 11

• Consumer health concerns, including obesity and the consumption of certain ingredients.

There continues to be competitive product and pricing pressures in the markets where we operate, as well as challenges in maintaining profit margins.

47 unchanged sentences

If we are not able to achieve our projected international growth objectives and mitigate the numerous risks and uncertainties associated with our international operations, there could be a negative impact on our financial condition and results of operations.

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

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

We depend on our ability to evolve and grow, and as changes in our business environment occur, we may adjust our business plans by introducing new strategic initiatives or restructuring programs to meet these changes.

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It is possible that we could become subject to additional liabilities in the future resulting from changes in laws and regulations that could result in an adverse effect on our financial condition and results of operations.

Political, economic and/or financial market conditions could negatively impact our financial results.

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

Our operations are impacted by consumer spending levels and impulse purchases, which are affected by general macroeconomic conditions, consumer confidence, employment levels, the availability of consumer credit and interest rates on that credit, consumer debt levels, energy costs and other factors.

Volatility in food and energy costs, sustained global recessions, broad political instability, rising unemployment, pandemic outbreak of disease, climate change, weather, natural and other disasters and declines in personal spending could adversely impact our revenues, profitability and financial condition.

Volatility in food and energy costs, sustained global recessions, broad political instability, rising unemployment, pandemic outbreak of disease (such as COVID-19), climate change, weather, natural and other disasters and declines in personal spending could adversely impact our revenues, profitability and financial condition.

Changes in financial market conditions may make it difficult to access credit markets on commercially acceptable terms, which may reduce liquidity or increase borrowing costs for our Company, our customers and our suppliers.

A significant reduction in liquidity could increase counterparty risk associated with certain suppliers and service providers, resulting in disruption to our supply chain and/or higher costs, and could impact our customers, resulting in a reduction in our revenue, or a possible increase in bad debt expense.

Additionally, in February 2022, Russia invaded Ukraine and this conflict is still ongoing.

In response, the U.S.

and other countries have imposed sanctions on Russia and may impose further sanctions that could damage or disrupt international commerce and the global economy.

With respect to the conflict between Russia and Ukraine, the situation remains dynamic and subject to rapid and possibly material change.

The Company’s efforts to manage and mitigate any direct or indirect effects from this conflict may ultimately be unsuccessful, and the effectiveness of these efforts depends on factors beyond our control, including the duration of the conflict and potential governmental actions.

The potential effects of the ongoing conflict between Russia and Ukraine may also impact many of the other risk factors described herein.

Risks Related to Digital Transformation, Cybersecurity and Data Privacy

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We use information technology to manage all business processes including manufacturing, financial, logistics, sales, marketing and administrative functions.

These processes collect, interpret and distribute business data and communicate internally and externally with employees, suppliers, customers and others.

We are regularly the target of cyber and other security threats.

These processes collect, interpret and distribute business data and communicate internally and externally with employees, suppliers, customers and other third parties.

We are regularly the target of cyber, ransomware and other security threats.

Therefore, we continuously monitor and update our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact.

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We also have processes in place to prevent disruptions resulting from our implementation of new software and systems.

While we have been subject to cyber attacks and other security breaches, these incidents did not have a significant impact on our business operations.

We believe our security technology tools and processes provide adequate measures of protection against security breaches and in reducing cybersecurity risks.

The Hershey Company | 2022 Form 10-K | Page 14

While we have been subject to cyber attacks, ransomware and other security breaches, these incidents did not have a significant impact on our business operations.

We believe our security technology tools and processes provide adequate measures of protection against security and data breaches and in reducing cybersecurity risks.

Nevertheless, despite continued vigilance in these areas, disruptions in or failures of information technology systems are possible and could have a negative impact on our operations or business reputation.

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In addition, the cost to remediate any damages to our information technology systems suffered as a result of a cyber attack could be significant.

The Hershey Company | 2021 Form 10-K | Page 15

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

10 unchanged sentences

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-K

Item 1A. Risk Factors