What changed in this filing

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Item 1A. Risk Factors

2024-02-20 compared with 2023-02-17 · 50 added, 37 removed, 159 unchanged (35% of the section changed)

6 unchanged sentences

Issues related to the quality and safety of our products, ingredients or packaging could jeopardize our Company’s image and reputation.

We have in the past and may in the future need to recall products if any of our products become unfit for consumption.

We have in the past recalled or removed certain products from store shelves, and may in the future need to do so again in the future.

Negative publicity related to these types of concerns, or related to product contamination or product tampering, whether valid or not, could decrease demand for our products or cause production and delivery disruptions.

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Disruption to our global manufacturing operations or our supply chain could result from, among other factors, the following:

• Natural disaster;

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

• Natural disasters;

• Pandemics, epidemics or other outbreak of disease (such as the coronavirus disease 2019 (“COVID-19”) global pandemic);

• Climate change and severity of extreme weather;

• Fire or explosion;

• Fires or explosions;

• Terrorism or other acts of violence;

1 unchanged sentence

• Unavailability of raw or packaging materials;

• Third party service provider disruptions, such as cyber breaches or system failures;

• Operational and/or financial instability of key suppliers, and other vendors or service providers;

2 unchanged sentences

We have strategies and plans in place to manage disruptive events if they were to occur, including our global supply chain strategies and our principle-based global labor relations strategy.

If we are unable, or find that it is not financially feasible, to effectively plan for, mitigate or manage operational stability and business resiliency, particularly within our international markets and snacks portfolio, due to the potential impacts of such disruptive events on our manufacturing operations or supply chain, our financial condition and results of operations could be negatively impacted if such events were to occur.

If we are unable, or find that it is not financially feasible, to effectively plan for, mitigate or manage operational stability and business resiliency risks, particularly within our international markets and snacks portfolio, due to the potential impacts of such disruptive events on our manufacturing operations or supply chain, our financial condition and results of operations could be negatively impacted if such events were to occur.

The Hershey Company | 2023 Form 10-K | Page 9

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Competition for global talent is intense, and we might not be able to identify and hire the personnel we need to continue to evolve and grow our business.

In particular, if we are unable to hire the right individuals to fill new or existing senior management positions as vacancies arise, our business performance may be impacted.

In particular, if we are unable to hire the right individuals to fill new or existing senior management positions as vacancies arise, our business performance may be adversely impacted.

Activities related to identifying, recruiting, hiring and integrating qualified individuals require significant time and attention.

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This may require significant investments in training, coaching and other career development and retention activities.

If we are not able to effectively retain and grow our talent, our ability to achieve our strategic objectives will be adversely affected, which may impact our financial condition and results of operations.

If we are not able to effectively retain and grow our talent, our ability to achieve our strategic objectives will be adversely affected, which may negatively impact our financial condition and results of operations.

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

Climate-related changes can increase variability in, or otherwise impact, natural disasters, including weather patterns, with the potential for increased frequency and severity of significant weather events, natural hazards, rising mean temperature and sea levels, and long-term changes in precipitation patterns.

Climate change or weather-related disruptions to our supply chain can impact the availability and cost of materials needed for manufacturing and could increase insurance and other operating costs.

Climate change or weather-related disruptions to our supply chain can impact the availability and cost of materials needed for manufacturing, which may increase insurance and other operating costs.

Increased focus on climate change has led to legislative and regulatory efforts to combat both potential causes and adverse impacts of climate change, including regulation of GHG emissions.

New or increasing laws and regulations related to GHG emissions and other climate change related concerns may adversely affect us, our suppliers and our customers, and may require additional capital investments.

Our value chain faces similar challenges as our products rely on agricultural ingredients and a global supply chain.

Climate change poses a significant and increasing risk to global food production systems and to the safety and resilience of the communities where we live, work and source our ingredients.

The GHG impacts of land-use change are most pronounced in our cocoa supply chain, where we have already been working for several years to prevent deforestation.

The GHG impacts of land-use change are most pronounced in our cocoa supply chain, where we have already been working for several years to prevent deforestation and build climate resilience.

Additionally, any non-compliance with legislative and regulatory requirements could negatively impact our reputation and ability to do business.

1 unchanged sentence

Shareholders and financial institutions have increasingly evaluated a company’s ESG practices, disclosures and performance before making investments or other financial decisions.

We believe our practices, disclosures and performance are strong and growing.

We believe our sustainability practices, disclosures and performance are focused on the most material risks and opportunities to our business and support our environmental goals and continue to evolve to meet the growing needs of our stakeholders.

However, if our environmental goals do not meet investor or other external stakeholder expectations and standards, our access to capital may be negatively impacted.

An enforcement action could harm our reputation, financial position and ability to grow.

A failure to meet expectations may adversely affect our results of operations, ability to manage our liquidity, or implement our strategies.

The Company publishes its environmental goals, with a particular focus on achieving a 50% absolute reduction in our Scope 1 and 2 GHG emissions and a 25% absolute reduction in our Scope 3 GHG emissions by 2030 (compared to a 2018 baseline), as well as having 100% of plastic packaging be reusable, recyclable or compostable and 25 million pounds of packaging be eliminated by 2030.

An enforcement action for non-compliance with regulations or reporting requirements could harm our reputation, financial position and ability to grow.

A failure to meet investor or other external stakeholder expectations or standards may adversely affect our results of operations, ability to manage our liquidity, or ability to implement our strategies.

The Company publishes its environmental goals, with a particular focus on achieving a 50% absolute reduction in our Scope 1 and 2 GHG emissions and a 25% absolute reduction in our Scope 3 GHG emissions by 2030 (compared to a 2018 baseline), as well as having 100% of plastic packaging be recyclable, reusable or compostable and eliminating 25 million pounds of packaging by 2030.

The costs of these voluntary commitments may be greater than expected, and there can be no assurance the Company will achieve its goals, or meet the evolving sustainability expectations and standards of our investors or other external stakeholders.

Any failure to achieve our goals, a perception of our failure to act responsibly with respect to the environment, or failure to respond to new or evolving legal and regulatory requirements or other sustainability concerns could adversely affect our business, reputation and increase risk of litigation.

Any failure to achieve our goals, a perception of our failure to act responsibly with respect to the environment, or failure to respond to new or evolving legal and regulatory

The Hershey Company | 2023 Form 10-K | Page 10

requirements or other sustainability concerns could adversely affect our business, reputation and increase risk of litigation.

The effects and costs of climate change, or any failure to meet related requirements and expectations, could have a negative impact on our reputation, financial condition and results of operations.

4 unchanged sentences

• Commodity market fluctuations;

• Currency exchanges rates;

• Currency exchange rates;

• Imbalances between supply and demand;

8 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.

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

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

If we are unable to offset cost increases for major raw materials and energy, there could be a negative impact on our financial condition and results of operations.

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If we are not able to increase our selling prices or reduce product sizes (including if inflation outpaces our pricing elasticity) sufficiently, or in a timely manner, to offset increased raw material, energy or other input costs, including packaging, freight, direct labor, overhead and employee benefits, or if our sales volume decreases significantly, there could be a negative impact on our financial condition and results of operations.

The Hershey Company | 2023 Form 10-K | Page 11

Market demand for new and existing products could decline.

6 unchanged sentences

• Our ability to drive sustainable innovation and maintain a strong pipeline of new products in the confectionery and broader snacking categories;

• Changes in product category consumption;

• Our ability to react to changes in product category consumption;

• 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;

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

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

• Consumer health and wellness concerns, including weight management (i.e., use of medications, dieting) 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.

5 unchanged sentences

The global confectionery and snacks packaged goods industry is intensely competitive and consolidation in this industry continues.

Some of our competitors are large companies that have significant resources and substantial international operations.

Some of our competitors are large private companies, as well as large retailers, that have significant resources and substantial international operations.

We continue to experience increased levels of in-store activity for other snack items, which has pressured confectionery category growth.

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If the acquisitions, divestitures or joint ventures are not successfully implemented or completed, there could be a negative impact on our financial condition, results of operations and cash flows.

In 2023, we completed the acquisition of certain assets that provide additional manufacturing capacity from Weaver Popcorn, a manufacturer of SkinnyPop popcorn, which helped us strengthen our supply chain capabilities.

In 2021, we successfully completed the divestiture of LSFC as we better prioritize resources against assets and brands that fit our business model and scale capabilities.

Additionally, we completed the acquisitions of Lily’s in June 2021 and Dot’s and Pretzels in December 2021.

While we believe significant operating synergies can be obtained in connection with these acquisitions, achievement of these synergies will be driven by our ability to successfully leverage Hershey’s resources, expertise, capability-building, distribution locations and customer base.

The Hershey Company | 2023 Form 10-K | Page 12

resources, expertise, capability-building, distribution locations and customer base.

In addition, the acquisitions of Dot’s and Pretzels are important steps in our journey to expand our breadth in snacking, as they should enable us to bring scale and category management capabilities to a key sub-segment of the warehouse snack aisle.

If we are unable to successfully couple Hershey’s scale and expertise in brand building with Lily’s, Dot’s and Pretzels’ existing operations, it may impact our ability to expand our snacking footprint at our desired pace.

The Hershey Company | 2022 Form 10-K | Page 12

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

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If we are not able to capture our share of the expanding digital commerce market, if we do not adequately leverage technology to improve operating efficiencies or if we are unable to develop the data analytics capabilities needed to generate actionable commercial insights, our business performance may be impacted, which may negatively impact our financial condition and results of operations.

Additionally, from time to time we implement business realignment activities to support key strategic initiatives designed to maintain long-term sustainable growth, such as the International Optimization Program, which we commenced in the fourth quarter of 2020.

This program is intended to increase our operating effectiveness and efficiency, to reduce our costs and/or to generate savings that can be reinvested in other areas of our business.

We cannot guarantee that we will be able to successfully implement these strategic initiatives and restructuring programs, that we will achieve or sustain the intended benefits under these programs, or that the benefits, even if achieved, will be adequate to meet our long-term growth and profitability expectations, which could in turn adversely affect our business.

This program was intended to increase our operating effectiveness and efficiency, to reduce our costs and/or to generate savings that can be reinvested in other areas of our

The Hershey Company | 2023 Form 10-K | Page 13

Additionally, in February 2024, the Board of Directors approved the Advancing Agility & Automation Initiative, which is a multi-year productivity program to improve supply chain and manufacturing-related spend, optimize selling, general and administrative expenses, leverage new technology and business models to further simplify and automate processes, and generate long-term savings.

Risks Related to Governmental and Regulatory Changes

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

Changes in laws and regulations and the manner in which they are interpreted or applied may alter our business environment.

Changes in U.S.

laws and regulations and the manner in which they are interpreted or applied may alter our business environment.

These negative impacts could result from changes in food and drug laws, laws related to advertising and marketing practices, accounting standards, taxation compliance and requirements, competition laws, employment laws, import/export requirements and environmental laws, among others.

For example, the European Union’s Deforestation Regulation (“EUDR”) will require the Company to conduct extensive diligence on seven commodities, including cocoa, palm oil and soy, as well as products derived from these commodities, such as chocolate, and the value chain, to ensure the goods do not result from recent deforestation, forest degradation, or breaches of local laws in order to sell such products in the European Union market or exported from it.

The EUDR is scheduled to be effective in December 2024.

The EUDR, and other current or proposed regulations in markets in which we operate, are likely to increase our compliance costs, could depress sales in such markets if our products are not in compliance by applicable effective dates, and could result in fines and penalties or reputational harm if we do not fully comply.

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, including impacts on our business arising from the conflict between Russia and Ukraine, could negatively impact our financial results.

Political, economic and/or financial market conditions, including impacts on our business arising from the ongoing 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 (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.

Volatility in food and energy costs, sustained global recessions, broad political instability, rising unemployment, pandemic, or other 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.

6 unchanged sentences

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

The Hershey Company | 2023 Form 10-K | Page 14

Risks Related to Digital Transformation, Cybersecurity and Data Privacy

11 unchanged sentences

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

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.

Failure of our systems, including failures due to cyber attacks that would prevent the ability of systems to function as intended, could cause transaction errors, loss of customers and sales, and could have negative consequences to our Company, our employees and those with whom we do business.

Employees are trained annually on cybersecurity wellness and our acceptable use policy and we have implemented phishing simulations to increase awareness and compliance.

We also currently maintain a cyber insurance policy that provides coverage for security breaches;

however, such insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related breaches.

We have been subject to cyber attacks, ransomware and other security breaches, though these incidents historically have not had a significant impact on our business operations.

The techniques that are used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and may be difficult to detect for long periods of time, and the sophistication of efforts by hackers to gain unauthorized access to information systems has continued to increase in recent years and may continue to do so.

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.

For instance, in September 2023, we experienced a smishing breach, which did not have an impact on our consolidated financial statements.

Promptly after extracting the threat actor, we worked with a cyber expert firm and determined that certain employee and third-party personal information was exposed.

Failure of our systems, including failures due to cyber attacks, ransomware or other security breaches that would prevent the ability of systems to function as intended, could cause transaction errors, loss of customers and sales, and could have negative consequences to our Company, our employees and those with whom we do business.

This in turn could have a negative impact on our financial condition and results or operations.

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

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

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

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Additionally, if we do not effectively implement the ERP system as planned or the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess those controls adequately could be further delayed.

UNRESOLVED STAFF COMMENTS

The Hershey Company | 2023 Form 10-K | Page 15

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