HERSHEY CO 10-Q

Item 1. Financial Statements. THE HERSHEY COMPANY CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) (unaudited) Three Months Ended March 31, 2024 April 2, 2023 Net sales $ 3,252,749 $ 2,987,614 Cost of sales 1,576,668 1,605,292 Gross profit 1,676,081 1,382,322 Selling, marketing and administrative expense 617,981 581,587 Business realignment costs — 811 Operating profit 1,058,100 799,924 Interest expense, net 39,822 37,685 Other (income) expense, net 32,020 2,983 Income before income taxes 986,258 759,256 Provision for income taxes 188,805 172,071 Net income $ 797,453 $ 587,185 Net income per share—basic: Common stock $ 4.00 $ 2.94 Class B common stock $ 3.64 $ 2.67 Net income per share—diluted: Common stock $ 3.89 $ 2.85 Class B common stock $ 3.63 $ 2.66 Dividends paid per share: Common stock $ 1.370 $ 1.036 Class B common stock $ 1.245 $ 0.942 See Notes to Unaudited Consolidated Financial Statements. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 2 THE HERSHEY COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) For the Three Months Ended March 31, 2024 April 2, 2023 Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount Net income $ 797,453 $ 587,185 Other comprehensive income, net of tax: Foreign currency translation adjustments: Foreign currency translation gains (losses) during period $ ( 4,998 ) $ — ( 4,998 ) $ 8,940 $ — 8,940 Pension and post-retirement benefit plans: Net actuarial gain (loss) and service cost ( 48 ) 7 ( 41 ) 19 2 21 Reclassification to earnings 2,541 ( 609 ) 1,932 3,227 ( 774 ) 2,453 Cash flow hedges: Gains (losses) on cash flow hedging derivatives 1,335 ( 84 ) 1,251 1,448 541 1,989 Reclassification to earnings 1,854 ( 755 ) 1,099 2,007 ( 1,084 ) 923 Total other comprehensive income (loss), net of tax $ 684 $ ( 1,441 ) ( 757 ) $ 15,641 $ ( 1,315 ) 14,326 Comprehensive income $ 796,696 $ 601,511 See Notes to Unaudited Consolidated Financial Statements. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 3 THE HERSHEY COMPANY CONSOLIDATED BALANCE SHEETS (in thousands, except share data) March 31, 2024 December 31, 2023 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 520,404 $ 401,902 Accounts receivable—trade, net 1,205,724 823,617 Inventories 1,137,857 1,340,996 Prepaid expenses and other 523,392 345,588 Total current assets 3,387,377 2,912,103 Property, plant and equipment, net 3,333,096 3,309,678 Goodwill 2,693,921 2,696,050 Other intangibles 1,859,052 1,879,229 Other non-current assets 1,071,065 1,061,427 Deferred income taxes 45,243 44,454 Total assets $ 12,389,754 $ 11,902,941 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 946,000 $ 1,086,183 Accrued liabilities 872,475 867,815 Accrued income taxes 75,482 29,457 Short-term debt 1,289,648 719,839 Current portion of long-term debt 305,425 305,058 Total current liabilities 3,489,030 3,008,352 Long-term debt 3,790,013 3,789,132 Other long-term liabilities 663,648 660,673 Deferred income taxes 338,776 345,698 Total liabilities 8,281,467 7,803,855 Stockholders’ equity: The Hershey Company stockholders’ equity Preferred stock, shares issued: none in 2024 and 2023 — — Common stock, shares issued: 166,939,511 at March 31, 2024 and December 31, 2023 166,939 166,939 Class B common stock, shares issued: 54,613,514 at March 31, 2024 and December 31, 2023 54,614 54,614 Additional paid-in capital 1,315,813 1,345,580 Retained earnings 5,087,126 4,562,263 Treasury—common stock shares, at cost: 19,332,210 at March 31, 2024 and 17,160,099 at December 31, 2023 ( 2,285,370 ) ( 1,800,232 ) Accumulated other comprehensive loss ( 230,835 ) ( 230,078 ) Total stockholders’ equity 4,108,287 4,099,086 Total liabilities and stockholders’ equity $ 12,389,754 $ 11,902,941 See Notes to Unaudited Consolidated Financial Statements. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 4 THE HERSHEY COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended March 31, 2024 April 2, 2023 Operating Activities Net income $ 797,453 $ 587,185 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 107,764 98,199 Stock-based compensation expense 5,986 18,992 Deferred income taxes ( 8,975 ) ( 11,250 ) Write-down of equity investments 31,391 — Unrealized gains on derivative contracts ( 269,582 ) — Other 19,923 22,347 Changes in assets and liabilities, net of business acquisition: Accounts receivable—trade, net ( 383,417 ) ( 140,962 ) Inventories 202,055 ( 3,263 ) Prepaid expenses and other current assets ( 11,415 ) ( 172 ) Accounts payable and accrued liabilities ( 56,334 ) 16,054 Accrued income taxes 147,537 174,201 Contributions to pension and other benefit plans ( 2,408 ) ( 6,532 ) Other assets and liabilities ( 10,844 ) 598 Net cash provided by operating activities 569,134 755,397 Investing Activities Capital additions (including software) ( 213,304 ) ( 176,093 ) Equity investments in tax credit qualifying partnerships ( 13,944 ) ( 12,309 ) Other investing activities ( 321 ) 85 Net cash used in investing activities ( 227,569 ) ( 188,317 ) Financing Activities Net increase (decrease) in short-term debt 569,809 ( 90,700 ) Repayment of long-term debt and finance leases ( 1,568 ) ( 1,187 ) Cash dividends paid ( 273,404 ) ( 207,356 ) Repurchase of common stock ( 494,191 ) ( 239,910 ) Proceeds from exercised stock options 4,103 15,194 Taxes withheld and paid on employee stock awards ( 26,404 ) ( 28,289 ) Net cash used in financing activities ( 221,655 ) ( 552,248 ) Effect of exchange rate changes on cash and cash equivalents ( 1,408 ) ( 18,375 ) Net increase (decrease) in cash and cash equivalents 118,502 ( 3,543 ) Cash and cash equivalents, beginning of period 401,902 463,889 Cash and cash equivalents, end of period $ 520,404 $ 460,346 Supplemental Disclosure Interest paid $ 33,888 $ 32,987 Income taxes paid 31,284 12,279 See Notes to Unaudited Consolidated Financial Statements. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 5 THE HERSHEY COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the Three Months Ended March 31, 2024 and April 2, 2023 (in thousands) (unaudited) Preferred Stock Common Stock Class B Common Stock Additional Paid-in Capital Retained Earnings Treasury Common Stock Accumulated Other Comprehensive (Loss) Income Total Stockholders’ Equity Balance, December 31, 2023 $ — $ 166,939 $ 54,614 $ 1,345,580 $ 4,562,263 $ ( 1,800,232 ) $ ( 230,078 ) $ 4,099,086 Net income 797,453 797,453 Other comprehensive loss ( 757 ) ( 757 ) Dividends (including dividend equivalents): Common Stock, $ 1.370 per share ( 204,596 ) ( 204,596 ) Class B Common Stock, $ 1.245 per share ( 67,994 ) ( 67,994 ) Stock-based compensation 6,390 6,390 Exercise of stock options and incentive-based transactions ( 36,157 ) 13,856 ( 22,301 ) Repurchase of common stock (including excise tax) ( 498,994 ) ( 498,994 ) Balance, March 31, 2024 $ — $ 166,939 $ 54,614 $ 1,315,813 $ 5,087,126 $ ( 2,285,370 ) $ ( 230,835 ) $ 4,108,287 Preferred Stock Common Stock Class B Common Stock Additional Paid-in Capital Retained Earnings Treasury Common Stock Accumulated Other Comprehensive (Loss) Income Total Stockholders’ Equity Balance, December 31, 2022 $ — $ 163,439 $ 58,114 $ 1,296,572 $ 3,589,781 $ ( 1,556,029 ) $ ( 252,333 ) $ 3,299,544 Net income 587,185 587,185 Other comprehensive income 14,326 14,326 Dividends (including dividend equivalents): Common Stock, $ 1.036 per share ( 152,603 ) ( 152,603 ) Class B Common Stock, $ 0.942 per share ( 53,801 ) ( 53,801 ) Conversion of Class B Common Stock into Common Stock 1,000 ( 1,000 ) — Stock-based compensation 18,948 18,948 Exercise of stock options and incentive-based transactions ( 30,108 ) 17,013 ( 13,095 ) Repurchase of common stock (including excise tax) ( 242,139 ) ( 242,139 ) Balance, April 2, 2023 $ — $ 164,439 $ 57,114 $ 1,285,412 $ 3,970,562 $ ( 1,781,155 ) $ ( 238,007 ) $ 3,458,365 See Notes to Unaudited Consolidated Financial Statements. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 6 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data or if otherwise indicated) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited consolidated financial statements provided in this report include the accounts of The Hershey Company (the “Company,” “Hershey,” “we” or “us”) and our majority-owned subsidiaries and entities in which we have a controlling financial interest after the elimination of intercompany accounts and transactions. We have a controlling financial interest if we own a majority of the outstanding voting common stock and minority shareholders do not have substantive participating rights, we have significant control through contractual or economic interests in which we are the primary beneficiary or we have the power to direct the activities that most significantly impact the entity’s economic performance. We use the equity method of accounting when we have a 20% to 50% interest in other companies and exercise significant influence. Other investments that are not controlled, and over which we do not have the ability to exercise significant influence, are accounted for under the cost method. Both equity and cost method investments are included as Other non-current assets in the Consolidated Balance Sheets. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not contain certain information and disclosures required by GAAP for comprehensive financial statements. The financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in our opinion, necessary for a fair presentation of the results of operations, financial position, and cash flows for the indicated periods. Operating results for the quarter ended March 31, 2024 may not be indicative of the results that may be expected for the year ending December 31, 2024 because of seasonal effects on our business. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 (our “2023 Annual Report on Form 10-K”), which provides a more complete understanding of our accounting policies, financial position, operating results and other matters. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations . This ASU requires a buyer in a supplier finance program to disclose qualitative and quantitative information about the program including the program’s nature, activity during the period, changes from period to period and potential magnitude. ASU 2022-04 is effective for annual periods beginning after December 15, 2022 and interim periods within those annual periods. A rollforward of obligations during the annual period, including the amount of obligations confirmed and obligations subsequently paid, is effective for annual periods beginning after December 15, 2023 with early adoption permitted. This ASU should be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on rollforward information, which should be applied prospectively. We early adopted provisions of this ASU in the fourth quarter of 2022, with the exception of the amendment on rollforward information, which we adopted in the fourth quarter of 2023. Adoption of the new standard did not have a material impact on our consolidated financial statements. In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic 606) rather than adjust them to fair value at the acquisition date. ASU 2021-08 is effective for annual periods beginning after December 15, 2022 and interim periods within those annual periods. This ASU should be applied prospectively to business combinations occurring on or after the date of adoption. As a result, we adopted the provisions of this ASU in the first quarter of 2023. This new standard was not applicable to the May 2023 acquisition of Weaver Popcorn Manufacturing, Inc. (“Weaver”) due to no contract assets or liabilities (as discussed in Note 2 ); however, will be applied in relevant future acquisitions. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 7 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) Recently Issued Accounting Pronouncements Not Yet Adopted In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), an amount for other segment items with a description of the composition, and disclosure of the title and position of the CODM. ASU 2023-07 is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the update should be applied retrospectively to each period presented in the financial statements. We are currently evaluating the impact of the new standard on our consolidated financial statements and related disclosures. As a result, we intend to adopt the provisions of this ASU in the fourth quarter of 2024. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . This ASU requires public business entities on an annual basis to disclose specific categories in a tabular rate reconciliation and provide additional information for reconciling items that meet a five percent quantitative threshold. Additionally, the ASU requires all entities to disclose the amount of income taxes paid disaggregated by federal, state, and foreign taxes, as well as individual jurisdictions where income taxes paid are equal to or greater than five percent of total income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted and the update should be applied on a prospective basis, with a retrospective application permitted in the financial statements. We are currently evaluating the impact of the new standard on our consolidated financial statements and related disclosures. As a result, we intend to adopt the provisions of this ASU in the fourth quarter of 2025. No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our consolidated financial statements or disclosures. 2. BUSINESS ACQUISITIONS Manufacturing Capacity On May 31, 2023, we completed the acquisition of certain assets that provide additional manufacturing capacity from Weaver, a leader in the production and co-packing of microwave popcorn and ready-to-eat popcorn, and former co-manufacturer of the Company’s SkinnyPop brand. The initial cash consideration paid for Weaver totaled $ 165,818 and consisted of cash on hand and short-term borrowings. Acquisition-related costs for the Weaver acquisition were immaterial. The acquisition has been accounted for as a business combination and, accordingly, Weaver has been included within the North America Salty Snacks segment from the date of acquisition. The purchase consideration was allocated to assets acquired and liabilities assumed based on their respective fair values and consisted of $ 85,231 to goodwill, $ 79,136 to property, plant and equipment, net and $ 1,451 to other net assets acquired. The purchase price allocation has been finalized as of the fourth quarter of 2023 and did not include measurement period adjustments. Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired. The goodwill derived from this acquisition is deductible for tax purposes and reflects the value of leveraging our supply chain capabilities to accelerate growth and access to our portfolio of salty snacks products. 3. GOODWILL AND INTANGIBLE ASSETS The changes in the carrying value of goodwill by reportable segment for the three months ended March 31, 2024 are as follows: North America Confectionery North America Salty Snacks International Total Balance at December 31, 2023 $ 2,020,831 $ 657,001 $ 18,218 $ 2,696,050 Foreign currency translation ( 2,379 ) — 250 ( 2,129 ) Balance at March 31, 2024 $ 2,018,452 $ 657,001 $ 18,468 $ 2,693,921 Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 8 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) The following table provides the gross carrying amount and accumulated amortization for each major class of intangible asset: March 31, 2024 December 31, 2023 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Intangible assets subject to amortization: Trademarks $ 1,701,943 $ ( 261,564 ) $ 1,703,029 $ ( 249,947 ) Customer-related 513,194 ( 130,187 ) 513,910 ( 123,282 ) Patents 8,054 ( 8,054 ) 8,233 ( 8,233 ) Total 2,223,191 ( 399,805 ) 2,225,172 ( 381,462 ) Intangible assets not subject to amortization: Trademarks 35,666 35,519 Total other intangible assets $ 1,859,052 $ 1,879,229 Total amortization expense for the three months ended March 31, 2024 and April 2, 2023 was $ 19,554 and $ 19,177 , respectively. 4. SHORT AND LONG-TERM DEBT Short-term Debt As a source of short-term financing, we utilize cash on hand and commercial paper or bank loans with an original maturity of three months or less. We maintain a $ 1.35 billion unsecured revolving credit facility with the option to increase borrowings by an additional $ 500 million with the consent of the lenders. The credit facility is scheduled to expire on April 26, 2028; however, we may extend the termination date for up to two additional one-year periods upon notice to the administrative agent. The credit agreements governing the credit facility contain certain financial and other covenants, customary representations, warranties and events of default. As of March 31, 2024, we were in compliance with all covenants pertaining to the credit facility, and we had no significant compensating balance agreements that legally restricted access to these funds. For more information, refer to the Consolidated Financial Statements included in our 2023 Annual Report on Form 10-K. In addition to the revolving credit facility, we maintain lines of credit with domestic and international commercial banks. Commitment fees relating to our revolving credit facility and lines of credit are not material. Short-term debt consisted of the following: March 31, 2024 December 31, 2023 Short-term foreign bank borrowings against lines of credit $ 208,163 $ 192,278 U.S. commercial paper 1,081,485 527,561 Total short-term debt $ 1,289,648 $ 719,839 Weighted average interest rate on outstanding commercial paper 5.4 % 5.4 % Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 9 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) Long-term Debt Long-term debt consisted of the following: Debt Type and Rate Maturity Date March 31, 2024 December 31, 2023 2.050 % Notes November 15, 2024 300,000 300,000 0.900 % Notes June 1, 2025 300,000 300,000 3.200 % Notes August 21, 2025 300,000 300,000 2.300 % Notes August 15, 2026 500,000 500,000 7.200 % Debentures August 15, 2027 193,639 193,639 4.250 % Notes May 4, 2028 350,000 350,000 2.450 % Notes November 15, 2029 300,000 300,000 1.700 % Notes June 1, 2030 350,000 350,000 4.500 % Notes May 4, 2033 400,000 400,000 3.375 % Notes August 15, 2046 300,000 300,000 3.125 % Notes November 15, 2049 400,000 400,000 2.650 % Notes June 1, 2050 350,000 350,000 Finance lease obligations (see Note 7 ) 76,729 76,385 Net impact of interest rate swaps, debt issuance costs and unamortized debt discounts ( 24,930 ) ( 25,834 ) Total long-term debt 4,095,438 4,094,190 Less—current portion 305,425 305,058 Long-term portion $ 3,790,013 $ 3,789,132 Interest Expense Net interest expense consists of the following: Three Months Ended March 31, 2024 April 2, 2023 Interest expense $ 46,044 $ 42,506 Capitalized interest ( 4,436 ) ( 3,067 ) Interest expense 41,608 39,439 Interest income ( 1,786 ) ( 1,754 ) Interest expense, net $ 39,822 $ 37,685 5. DERIVATIVE INSTRUMENTS We are exposed to market risks arising principally from changes in foreign currency exchange rates, interest rates and commodity prices. We use certain derivative instruments to manage these risks. These include interest rate swaps to manage interest rate risk, foreign currency forward exchange contracts to manage foreign currency exchange rate risk, and commodities futures and options contracts to manage commodity market price risk exposures. In entering into these contracts, we have assumed the risk that might arise from the possible inability of counterparties to meet the terms of their contracts. We mitigate this risk by entering into exchange-traded contracts with collateral posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. We do not expect any significant losses from counterparty defaults. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 10 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) Commodity Price Risk We enter into commodities futures and options contracts and other commodity derivative instruments to reduce the effect of future price fluctuations associated with the purchase of raw materials, energy requirements and transportation services. We generally hedge commodity price risks for 3 - to 24 -month periods. Our open commodity derivative contracts had a notional value of $ 206,349 as of March 31, 2024 and $ 94,917 as of December 31, 2023. Derivatives used to manage commodity price risk are not designated for hedge accounting treatment. Therefore, the changes in fair value of these derivatives are recorded as incurred within cost of sales. As discussed in Note 13 , we define our segment income to exclude gains and losses on commodity derivatives until the related inventory is sold, at which time the related gains and losses are reflected within segment income. This enables us to continue to align the derivative gains and losses with the underlying economic exposure being hedged and thereby eliminate the mark-to-market volatility within our reported segment income. Foreign Exchange Price Risk We are exposed to foreign currency exchange rate risk related to our international operations, including non-functional currency intercompany debt and other non-functional currency transactions of certain subsidiaries. Principal currencies hedged include the euro, Canadian dollar, Japanese yen, British pound, Brazilian real, Malaysian ringgit, Mexican peso and Swiss franc. We typically utilize foreign currency forward exchange contracts to hedge these exposures for periods ranging from 3 to 12 months. The contracts are either designated as cash flow hedges or are undesignated. The net notional amount of foreign exchange contracts accounted for as cash flow hedges was $ 50,648 at March 31, 2024 and $ 80,068 at December 31, 2023. The effective portion of the changes in fair value on these contracts is recorded in other comprehensive income and reclassified into earnings in the same period in which the hedged transactions affect earnings. The net notional amount of foreign exchange contracts that are not designated as accounting hedges was $ 10,339 at March 31, 2024 and $ 13,665 at December 31, 2023. The change in fair value on these instruments is recorded directly in cost of sales or selling, marketing and administrative (“SM&A”) expense, depending on the nature of the underlying exposure. Interest Rate Risk In order to manage interest rate exposure, from time to time, we enter into interest rate swap agreements to protect against unfavorable interest rate changes relating to forecasted debt transactions. These swaps, which are settled upon issuance of the related debt, are designated as cash flow hedges and the gains and losses that are deferred in other comprehensive income are being recognized as an adjustment to interest expense over the same period that the hedged interest payments affect earnings. Equity Price Risk We are exposed to market price changes in certain broad market indices related to our deferred compensation obligations to our employees. To mitigate this risk, we use equity swap contracts to hedge the portion of the exposure that is linked to market-level equity returns. These contracts are not designated as hedges for accounting purposes and are entered into for periods of 3 to 12 months. The change in fair value of these derivatives is recorded in selling, marketing and administrative expense, together with the change in the related liabilities. The notional amount of the contracts outstanding at March 31, 2024 and December 31, 2023 was $ 25,004 and $ 22,867 , respectively. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 11 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) The following table presents the classification of derivative assets and liabilities within the Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023: March 31, 2024 December 31, 2023 Assets (1) Liabilities (1) Assets (1) Liabilities (1) Derivatives designated as cash flow hedging instruments: Foreign exchange contracts $ 2,308 $ 1,869 $ 1,219 $ 1,670 Derivatives not designated as hedging instruments: Commodities futures and options (2) 1,919 1,702 66 679 Deferred compensation derivatives 2,271 — 2,343 — Foreign exchange contracts 650 — 1,123 — 4,840 1,702 3,532 679 Total $ 7,148 $ 3,571 $ 4,751 $ 2,349 (1) Derivative assets are classified on our Consolidated Balance Sheets within prepaid expenses and other as well as other non-current assets. Derivative liabilities are classified on our Consolidated Balance Sheets within accrued liabilities and other long-term liabilities. (2) As of March 31, 2024, amounts reflected on a net basis in liabilities were assets of $ 54,461 and liabilities of $ 52,990 , which are associated with cash transfers receivable or payable on commodities futures contracts reflecting the change in quoted market prices on the last trading day for the period. The comparable amounts reflected on a net basis in liabilities at December 31, 2023 were assets of $ 29,881 and liabilities of $ 30,493 . At March 31, 2024 and December 31, 2023, the remaining amount reflected in assets and liabilities related to the fair value of other non-exchange traded derivative instruments, respectively. Income Statement Impact of Derivative Instruments The effect of derivative instruments on the Consolidated Statements of Income for the three months ended March 31, 2024 and April 2, 2023 was as follows: Non-designated Hedges Cash Flow Hedges Gains (losses) recognized in income (a) Gains (losses) recognized in other comprehensive income (“OCI”) Gains (losses) reclassified from accumulated OCI (“AOCI”) into income (b) 2024 2023 2024 2023 2024 2023 Commodities futures and options $ 197,764 $ ( 10,614 ) $ — $ — $ — $ — Foreign exchange contracts ( 267 ) 369 1,335 ( 1,725 ) 445 762 Interest rate swap agreements — — — 3,173 ( 2,299 ) ( 2,769 ) Deferred compensation derivatives 2,271 1,273 — — — — Total $ 199,768 $ ( 8,972 ) $ 1,335 $ 1,448 $ ( 1,854 ) $ ( 2,007 ) (a) Gains (losses) recognized in income for non-designated commodities futures and options contracts were included in cost of sales. Gains (losses) recognized in income for non-designated foreign currency forward exchange contracts and deferred compensation derivatives were included in selling, marketing and administrative expenses. (b) Gains (losses) reclassified from AOCI into income for foreign currency forward exchange contracts were included in selling, marketing and administrative expenses. Losses reclassified from AOCI into income for interest rate swap agreements were included in interest expense. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 12 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) The amount of pre-tax net losses on derivative instruments, including interest rate swap agreements and foreign currency forward exchange contracts expected to be reclassified into earnings in the next 12 months was approximately $ 8,761 as of March 31, 2024. This amount is primarily associated with interest rate swap agreements. 6. FAIR VALUE MEASUREMENTS Accounting guidance on fair value measurements requires that financial assets and liabilities be classified and disclosed in one of the following categories of the fair value hierarchy: Level 1 – Based on unadjusted quoted prices for identical assets or liabilities in an active market. Level 2 – Based on observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3 – Based on unobservable inputs that reflect the entity’s own assumptions about the assumptions that a market participant would use in pricing the asset or liability. We did no t have any Level 3 financial assets or liabilities, nor were there any transfers between levels during the periods presented. The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheets on a recurring basis as of March 31, 2024 and December 31, 2023: Assets / Liabilities Level 1 Level 2 Level 3 Total March 31, 2024: Derivative Instruments: Assets: Foreign exchange contracts (1) $ — $ 2,598 $ — $ 2,598 Deferred compensation derivatives (2) $ — $ 2,271 $ — $ 2,271 Commodities futures and options (3) $ 1,919 $ — $ — $ 1,919 Liabilities: Foreign exchange contracts (1) $ — $ 1,869 $ — $ 1,869 Commodities futures and options (3) $ 1,702 $ — $ — $ 1,702 December 31, 2023: Assets: Foreign exchange contracts (1) $ — $ 2,342 $ — $ 2,342 Deferred compensation derivatives (2) $ — $ 2,343 $ — $ 2,343 Commodities futures and options (3) $ 66 $ — $ — $ 66 Liabilities: Foreign exchange contracts (1) $ — $ 1,670 $ — $ 1,670 Commodities futures and options (3) $ 679 $ — $ — $ 679 (1) The fair value of foreign currency forward exchange contracts is the difference between the contract and current market foreign currency exchange rates at the end of the period. We estimate the fair value of foreign currency forward exchange contracts on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences. (2) The fair value of deferred compensation derivatives is based on quoted prices for market interest rates and a broad market equity index. (3) The fair value of commodities futures and options contracts is based on quoted market prices. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 13 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) Other Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximated fair values as of March 31, 2024 and December 31, 2023 because of the relatively short maturity of these instruments. The estimated fair value of our long-term debt is based on quoted market prices for similar debt issues and is, therefore, classified as Level 2 within the valuation hierarchy. The fair values and carrying values of long-term debt, including the current portion, were as follows: Fair Value Carrying Value March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023 Current portion of long-term debt $ 299,074 $ 297,842 $ 305,425 $ 305,058 Long-term debt 3,349,071 3,413,411 3,790,013 3,789,132 Total $ 3,648,145 $ 3,711,253 $ 4,095,438 $ 4,094,190 Other Fair Value Measurements In addition to assets and liabilities that are recorded at fair value on a recurring basis, GAAP requires that, under certain circumstances, we also record assets and liabilities at fair value on a nonrecurring basis. In connection with the acquisition of Weaver in May 2023, as discussed in Note 2 , we used valuation techniques to determine fair value, with the primary technique being the cost approach to value personal property, which uses significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. 7. LEASES We lease office and retail space, warehouse and distribution facilities, land, vehicles, and equipment. We determine if an agreement is or contains a lease at inception. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are based on the estimated present value of lease payments over the lease term and are recognized at the lease commencement date. As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate in determining the present value of lease payments. The estimated incremental borrowing rate is derived from information available at the lease commencement date. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. A limited number of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements generally do not contain residual value guarantees or material restrictive covenants. For real estate, equipment and vehicles that support selling, marketing and general administrative activities, the Company accounts for the lease and non-lease components as a single lease component. These asset categories comprise the majority of our leases. The lease and non-lease components of real estate and equipment leases supporting production activities are not accounted for as a single lease component. Consideration for such contracts are allocated to the lease and non-lease components based upon relative standalone prices either observable or estimated if observable prices are not readily available. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 14 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) The components of lease expense for the three months ended March 31, 2024 and April 2, 2023 were as follows: Three Months Ended Lease expense Classification March 31, 2024 April 2, 2023 Operating lease cost Cost of sales or SM&A (1) $ 12,215 $ 12,043 Finance lease cost: Amortization of ROU assets Depreciation and amortization (1) 2,213 1,862 Interest on lease liabilities Interest expense, net 1,185 1,100 Net lease cost (2) $ 15,613 $ 15,005 (1) Supply chain-related amounts were included in cost of sales. (2) Net lease cost does not include short-term leases, variable lease costs or sublease income, all of which are immaterial. Information regarding our lease terms and discount rates were as follows: March 31, 2024 December 31, 2023 Weighted-average remaining lease term (years) Operating leases 14.1 14.4 Finance leases 25.6 25.9 Weighted-average discount rate Operating leases 3.5 % 3.5 % Finance leases 6.3 % 6.2 % Supplemental balance sheet information related to leases were as follows: Leases Classification March 31, 2024 December 31, 2023 Assets Operating lease ROU assets Other non-current assets $ 307,664 $ 307,976 Finance lease ROU assets, at cost Property, plant and equipment, gross 89,759 89,335 Accumulated amortization Accumulated depreciation ( 20,810 ) ( 19,472 ) Finance lease ROU assets, net Property, plant and equipment, net 68,949 69,863 Total leased assets $ 376,613 $ 377,839 Liabilities Current Operating Accrued liabilities $ 35,224 $ 34,494 Finance Current portion of long-term debt 6,254 5,900 Non-current Operating Other long-term liabilities 276,417 277,089 Finance Long-term debt 70,475 70,485 Total lease liabilities $ 388,370 $ 387,968 Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 15 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) The maturity of our lease liabilities as of March 31, 2024 were as follows: Operating leases Finance leases Total 2024 (rest of year) $ 36,307 $ 7,991 $ 44,298 2025 35,441 9,330 44,771 2026 28,146 6,179 34,325 2027 26,635 4,421 31,056 2028 25,499 4,216 29,715 Thereafter 243,152 137,910 381,062 Total lease payments 395,180 170,047 565,227 Less: Imputed interest 83,539 93,318 176,857 Total lease liabilities $ 311,641 $ 76,729 $ 388,370 Supplemental cash flow and other information related to leases were as follows: Three Months Ended March 31, 2024 April 2, 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 11,824 $ 11,281 Operating cash flows from finance leases 1,185 1,100 Financing cash flows from finance leases 1,563 1,183 ROU assets obtained in exchange for lease liabilities: Operating leases $ 9,043 $ 3,735 Finance leases 983 292 8. INVESTMENTS IN UNCONSOLIDATED AFFILIATES We invest in partnerships that make equity investments in projects eligible to receive federal historic and renewable energy tax credits. The tax credits, when realized, are recognized as a reduction of tax expense under the flow-through method, at which time the corresponding equity investment is written-down to reflect the remaining value of the future benefits to be realized. The equity investment write-down is reflected within other (income) expense, net in the Consolidated Statements of Income (see Note 17 ). Additionally, we acquire ownership interests in emerging snacking businesses and startup companies, which vary in method of accounting based on our percentage of ownership and ability to exercise significant influence over decisions relating to operating and financial affairs. These investments afford the Company the rights to distribute brands that the Company does not own to third-party customers primarily in North America. Net sales and expenses of our equity method investees are not consolidated into our financial statements; rather, our proportionate share of earnings or losses are recorded on a net basis within other (income) expense, net in the Consolidated Statements of Income. Both equity method investments and cost, less impairment, investments are reported within other non-current assets in our Consolidated Balance Sheets. We regularly review our investments and adjust accordingly for capital contributions, dividends received and other-than-temporary impairments. Total investments in unconsolidated affiliates were $ 190,419 and $ 207,177 as of March 31, 2024 and December 31, 2023, respectively. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 16 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) 9. BUSINESS REALIGNMENT ACTIVITIES We periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies. Costs associated with business realignment activities are classified in our Consolidated Statements of Income as follows: Three Months Ended March 31, 2024 April 2, 2023 Cost of sales $ 2,612 $ 1,050 Selling, marketing and administrative expense 14,054 488 Business realignment costs — 811 Costs associated with business realignment activities $ 16,666 $ 2,349 Costs recorded by program during the three months ended March 31, 2024 and April 2, 2023 related to these activities were as follows: Three Months Ended March 31, 2024 April 2, 2023 Advancing Agility & Automation Initiative: Other program costs 16,666 — International Optimization Program: Severance and employee benefit costs $ — $ 811 Other program costs — 1,538 Total $ 16,666 $ 2,349 Amounts classified as liabilities qualifying as exit and disposal costs primarily represent employee-related and certain third-party service provider charges, however, such amounts at March 31, 2024 are not significant. Advancing Agility & Automation Initiative On February 2, 2024, the Board of Directors of the Company approved a multi-year productivity initiative (“Advancing Agility & Automation” or "AAA") 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. The Company estimates that the AAA Initiative will result in total pre-tax costs of $ 200,000 to $ 250,000 from inception through 2026. This estimate primarily includes program office execution and third-party costs supporting the design and implementation of the new organizational structure of $ 100,000 to $ 120,000 , as well as implementation and technology capability costs of $ 55,000 to $ 70,000 . Additionally, we expect to incur employee severance and related separation benefits of $ 45,000 to $ 60,000 as we facilitate workforce reductions and reallocate resources to further drive the Company’s strategic priorities. The cash portion of the total cost is estimated to be $ 175,000 to $ 225,000 . At the conclusion of the program in 2026, ongoing annual savings are expected to be approximately $ 300,000 . Since inception through March 31, 2024, we recognized total costs associated with the AAA Initiative of $ 16,666 . These charges predominantly included third-party costs supporting the design and implementation of the new organizational structure, as well as technology capability costs. The costs and related benefits of the AAA Initiative relate to the North America Confectionery segment and Corporate. However, segment operating results do not include these business realignment expenses because we evaluate segment performance excluding such costs. 2020 International Optimization Program In the fourth quarter of 2020, we commenced a program (“International Optimization Program”) to streamline resources and investments in select international markets, including the optimization of our China operating model that will improve our operational efficiency and provide for a strong, sustainable and simplified base going forward. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 17 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) The International Optimization Program was originally expected to total pre-tax costs of $ 50,000 to $ 75,000 , with cash costs in the range of $ 40,000 to $ 65,000 , primarily related to workforce reductions of approximately 350 positions outside of the United States, costs to consolidate and relocate production, and third-party costs incurred to execute these activities. The costs and related benefits of the International Optimization Program relate to the International segment. However, segment operating results do not include these business realignment expenses because we evaluate segment performance excluding such costs. For the three months ended April 2, 2023, we recognized total costs associated with the International Optimization Program of $ 2,349 . From program inception in 2020 through completion in 2023, we incurred pre-tax charges to execute the program totaling $ 53,799 . 10. INCOME TAXES The majority of our taxable income is generated in the United States and taxed at the United States statutory rate of 21 %. The effective tax rates for the three months ended March 31, 2024 and April 2, 2023 were 19.1 % and 22.7 %, respectively. Relative to the statutory rate, the 2024 effective tax rate was primarily impacted by investment tax credits partially offset by state taxes. The Company and its subsidiaries file tax returns in the United States, including various state and local returns, and in other foreign jurisdictions. We are routinely audited by taxing authorities in our filing jurisdictions, and a number of these disputes are currently underway, including multi-year controversies at various stages of review, negotiation and litigation in Mexico, Canada, Switzerland and the United States. The outcome of tax audits cannot be predicted with certainty, including the timing of resolution or potential settlements. If any issues addressed in our tax audits are resolved in a manner not consistent with management’s expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs. Based on our current assessments, we believe adequate provision has been made for all income tax uncertainties. We reasonably expect reductions in the liability for unrecognized tax benefits of approximately $ 51,355 within the next 12 months because of the expiration of statutes of limitations and settlements of tax audits. Inflation Reduction Act On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law. The IRA enacted a 15% corporate minimum tax on certain corporations and an excise tax on share repurchases after December 31, 2022, and created and extended certain energy-related tax credits and incentives. For the three months ended March 31, 2024 and April 2, 2023 the tax-related provisions of the IRA did not have a material impact on our consolidated financial statements, including our annual effective tax rate, or on our liquidity. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 18 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) 11. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS Net Periodic Benefit Cost The components of net periodic benefit cost for the three months ended March 31, 2024 and April 2, 2023 were as follows: Pension Benefits Other Benefits Three Months Ended Three Months Ended March 31, 2024 April 2, 2023 March 31, 2024 April 2, 2023 Service cost $ 3,849 $ 3,753 $ 34 $ 54 Interest cost 9,687 10,272 1,218 2,093 Expected return on plan assets ( 12,808 ) ( 12,381 ) — — Amortization of prior service credit ( 1,373 ) ( 1,414 ) ( 38 ) — Amortization of net loss (gain) 3,813 4,967 139 ( 326 ) Total net periodic benefit cost $ 3,168 $ 5,197 $ 1,353 $ 1,821 We made contributions of $ 816 and $ 1,592 to the pension plans and other benefits plans, respectively, during the first three months of 2024. In the first three months of 2023, we made contributions of $ 833 and $ 5,699 to our pension plans and other benefit plans, respectively. The contributions in 2024 and 2023 also included benefit payments from our non-qualified pension plans and post-retirement benefit plans. The non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans is reflected within other (income) expense, net in the Consolidated Statements of Income (see Note 17 ). 12. STOCK COMPENSATION PLANS Share-based grants for compensation and incentive purposes are made pursuant to the Equity and Incentive Compensation Plan (“EICP”). The EICP provides for grants of one or more of the following stock-based compensation awards to employees, non-employee directors and certain service providers upon whom the successful conduct of our business is dependent: • Non-qualified stock options (“stock options”); • Performance stock units (“PSUs”) and performance stock; • Stock appreciation rights; • Restricted stock units (“RSUs”) and restricted stock; and • Other stock-based awards. The EICP also provides for the deferral of stock-based compensation awards by participants if approved by the Compensation and Human Capital Committee of our Board and if in accordance with an applicable deferred compensation plan of the Company. Currently, the Compensation and Human Capital Committee has authorized the deferral of PSU and RSU awards by certain eligible employees under the Company’s Deferred Compensation Plan. Our Board has authorized our non-employee directors to defer any portion of their cash retainer, committee chair fees and RSUs awarded that they elect to convert into deferred stock units under our Directors’ Compensation Plan. At the time stock options are exercised or PSUs and RSUs become payable, Common Stock is issued from our accumulated treasury shares. Dividend equivalents are credited on RSUs on the same date and at the same rate as dividends paid on our Common Stock. Dividend equivalents are charged to retained earnings and included in accrued liabilities until paid. Awards to employees eligible for retirement prior to the award becoming fully vested are amortized to expense over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award. In addition, historical data is used to estimate forfeiture rates and record share-based compensation expense only for those awards that are expected to vest. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 19 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) For the periods presented, compensation expense for all types of stock-based compensation programs and the related income tax benefit recognized were as follows: Three Months Ended March 31, 2024 April 2, 2023 Pre-tax compensation expense $ 5,986 $ 18,992 Related income tax benefit 1,221 4,330 Compensation expenses for stock compensation plans are primarily included in SM&A expense. As of March 31, 2024, total stock-based compensation expense related to non-vested awards not yet recognized was $ 119,082 and the weighted-average period over which this amount is expected to be recognized was approximately 2.0 years. Stock Options The exercise price of each stock option awarded under the EICP equals the closing price of our Common Stock on the New York Stock Exchange on the date of grant. Each stock option has a maximum term of 10 years. Grants of stock options provide for pro-rated vesting, typically over a four-year period. Expense for stock options is based on grant date fair value and recognized on a straight-line method over the vesting period, net of estimated forfeitures. A summary of activity relating to grants of stock options for the period ended March 31, 2024 is as follows: Stock Options Shares Weighted-Average Exercise Price (per share) Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at beginning of year 726,701 $ 105.67 3.3 years Granted 2,455 $ 192.49 Exercised ( 43,892 ) $ 99.88 Outstanding as of March 31, 2024 685,264 $ 106.35 3.1 years $ 60,678 Options exercisable as of March 31, 2024 669,879 $ 104.53 3.0 years $ 60,348 The weighted-average fair value of options granted was $ 45.95 and $ 57.65 per share for the periods ended March 31, 2024 and April 2, 2023, respectively. The fair value was estimated on the date of grant using a Black-Scholes option-pricing model and the following weighted-average assumptions: Three Months Ended March 31, 2024 April 2, 2023 Dividend yields 2.0 % 1.7 % Expected volatility 21.3 % 20.9 % Risk-free interest rates 4.3 % 4.1 % Expected term in years 6.3 6.3 The total intrinsic value of options exercised was $ 4,148 and $ 20,566 for the periods ended March 31, 2024 and April 2, 2023, respectively. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 20 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) Performance Stock Units and Restricted Stock Units Under the EICP, we grant PSUs to select executives and other key employees. Vesting is contingent upon the achievement of certain performance objectives. We grant PSUs over three-year performance cycles. If we meet targets for financial measures at the end of the applicable three-year performance cycle, we award a resulting number of shares of our Common Stock to the participants. The number of shares may be increased to the maximum or reduced to the minimum threshold based on the results of these performance metrics in accordance with the terms established at the time of the award. For PSUs granted, the target award is a combination of a market-based total shareholder return and performance-based components. For market-based condition components, market volatility and other factors are taken into consideration in determining the grant date fair value and the related compensation expense is recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided. For performance-based condition components, we estimate the probability that the performance conditions will be achieved each quarter and adjust compensation expenses accordingly. The performance scores of PSU grants during the three months ended March 31, 2024 and April 2, 2023 can range from 0 % to 250 % of the targeted amounts. We recognize the compensation expenses associated with PSUs ratably over the three-year term. Compensation expenses are based on the grant date fair value because the grants can only be settled in shares of our Common Stock. The grant date fair value of PSUs is determined based on the Monte Carlo simulation model for the market-based total shareholder return component and the closing market price of the Company’s Common Stock on the date of grant for performance-based components. During the three months ended March 31, 2024 and April 2, 2023, we awarded RSUs to certain executive officers and other key employees under the EICP. We also awarded RSUs to non-employee directors. We recognize the compensation expenses associated with employee RSUs over a specified award vesting period based on the grant date fair value of our Common Stock. We recognize expense for employee RSUs based on the straight- line method. The compensation expenses associated with non-employee director RSUs is recognized ratably over the vesting period, net of estimated forfeitures. A summary of activity relating to grants of PSUs and RSUs for the period ended March 31, 2024 is as follows: Performance Stock Units and Restricted Stock Units Number of units Weighted-average grant date fair value for equity awards (per unit) Outstanding at beginning of year 1,039,691 $ 198.31 Granted 315,389 $ 196.16 Performance assumption change (1) ( 60,282 ) $ 121.12 Vested ( 443,419 ) $ 175.69 Forfeited ( 8,241 ) $ 219.04 Outstanding as of March 31, 2024 843,138 $ 214.71 (1) Reflects the net number of PSUs above and below target levels based on the performance metrics. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 21 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) The following table sets forth information about the fair value of the PSUs and RSUs granted for potential future distribution to employees and non-employee directors. In addition, the table provides assumptions used to determine the fair value of the market-based total shareholder return component using the Monte Carlo simulation model on the date of grant. Three Months Ended March 31, 2024 April 2, 2023 Units granted 315,389 278,578 Weighted-average fair value at date of grant $ 196.16 $ 249.74 Monte Carlo simulation assumptions: Estimated values $ 84.13 $ 118.90 Dividend yields 2.8 % 1.7 % Expected volatility 18.5 % 19.2 % The fair value of shares vested totaled $ 84,998 and $ 97,304 for the periods ended March 31, 2024 and April 2, 2023, respectively. Deferred PSUs, deferred RSUs and deferred stock units representing directors’ fees totaled 258,847 units as of March 31, 2024. Each unit is equivalent to one share of the Company’s Common Stock. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 22 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) 13. SEGMENT INFORMATION The Company reports its operations through three reportable segments: (i) North America Confectionery, (ii) North America Salty Snacks and (iii) International. This organizational structure aligns with how our CODM manages our business, including resource allocation and performance assessment, and further aligns with our product categories and the key markets we serve. • North America Confectionery – This segment is responsible for our traditional chocolate and non-chocolate confectionery market position in the United States and Canada. This includes our business in chocolate and non-chocolate confectionery, gum and refreshment products, protein bars, spreads, snack bites and mixes, as well as pantry and food service lines. This segment also includes our retail operations, including Hershey’s Chocolate World stores in Hershey, Pennsylvania; New York, New York; Las Vegas, Nevada; Niagara Falls (Ontario) and Singapore, as well as operations associated with licensing the use of certain of the Company’s trademarks and products to third parties around the world. • North America Salty Snacks – This segment is responsible for our salty snacking products in the United States. This includes ready-to-eat popcorn, baked and trans fat free snacks, pretzels and other snacks. • International – International is a combination of all other operating segments that are not individually material, including those geographic regions where we operate outside of North America. We currently have operations and manufacture product in Mexico, Brazil, India and Malaysia, primarily for consumers in these regions, and also distribute and sell confectionery products in export markets of Asia, Latin America, Middle East, Europe, Africa and other regions. For segment reporting purposes, we use “segment income” to evaluate segment performance and allocate resources. Segment income excludes unallocated general corporate administrative expenses, unallocated mark-to-market gains and losses on commodity derivatives, business realignment and impairment charges, acquisition-related costs and other unusual gains or losses that are not part of our measurement of segment performance. These items of our operating income are managed centrally at the corporate level and are excluded from the measure of segment income reviewed by the CODM as well as the measure of segment performance used for incentive compensation purposes. As discussed in Note 5 , derivatives used to manage commodity price risk are not designated for hedge accounting treatment. These derivatives are recognized at fair market value with the resulting realized and unrealized (gains) losses recognized in unallocated derivative (gains) losses outside of the reporting segment results until the related inventory is sold, at which time the related gains and losses are reallocated to segment income. This enables us to align the derivative gains and losses with the underlying economic exposure being hedged and thereby eliminate the mark-to-market volatility within our reported segment income. Certain manufacturing, warehousing, distribution and other activities supporting our global operations are integrated to maximize efficiency and productivity. As a result, assets and capital expenditures are not managed on a segment basis and are not included in the information reported to the CODM for the purpose of evaluating performance or allocating resources. We disclose depreciation and amortization that is generated by segment-specific assets, since these amounts are included within the measure of segment income reported to the CODM. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 23 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) Our segment net sales and earnings were as follows: Three Months Ended March 31, 2024 April 2, 2023 Net sales: North America Confectionery $ 2,707,310 $ 2,452,165 North America Salty Snacks 275,106 269,985 International 270,333 265,464 Total $ 3,252,749 $ 2,987,614 Segment income: North America Confectionery $ 948,195 $ 887,750 North America Salty Snacks 38,705 46,792 International 42,750 55,049 Total segment income 1,029,650 989,591 Unallocated corporate expense (1) 172,899 177,074 Unallocated mark-to-market (gains) losses on commodity derivatives ( 218,015 ) 10,244 Costs associated with business realignment activities (see Note 9 ) 16,666 2,349 Operating profit 1,058,100 799,924 Interest expense, net (see Note 4 ) 39,822 37,685 Other (income) expense, net (see Note 17 ) 32,020 2,983 Income before income taxes $ 986,258 $ 759,256 (1) Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance, and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense, (d) acquisition and integration-related costs, and (e) other gains or losses that are not integral to segment performance. Activity within the unallocated mark-to-market adjustment for commodity derivatives is as follows: Three Months Ended March 31, 2024 April 2, 2023 Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in income $ ( 197,764 ) $ 10,614 Net losses on commodity derivative positions reclassified from unallocated to segment income ( 20,251 ) ( 370 ) Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative (gains) losses $ ( 218,015 ) $ 10,244 As of March 31, 2024, the cumulative amount of mark-to-market gains on commodity derivatives that have been recognized in our consolidated cost of sales and not yet allocated to reportable segments was $ 167,808 . Based on our forecasts of the timing of the recognition of the underlying hedged items, we expect to reclassify net pre-tax losses on commodity derivatives of $ 24,574 to segment operating results in the next twelve months. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 24 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) Depreciation and amortization expense included within segment income presented above is as follows: Three Months Ended March 31, 2024 April 2, 2023 North America Confectionery $ 62,421 $ 56,722 North America Salty Snacks 19,843 17,580 International 6,071 6,058 Corporate 19,429 17,839 Total $ 107,764 $ 98,199 Additional information regarding our net sales disaggregated by geographical region is as follows: Three Months Ended March 31, 2024 April 2, 2023 Net sales: United States $ 2,854,432 $ 2,617,923 All other countries 398,317 369,691 Total $ 3,252,749 $ 2,987,614 14. TREASURY STOCK ACTIVITY A summary of our treasury stock activity is as follows: Three Months Ended March 31, 2024 Shares Dollars In thousands Shares repurchased in the open market under pre-approved share repurchase programs 2,022,064 $ 400,000 Shares repurchased in the open market to replace Treasury Stock issued for stock options and incentive compensation 483,033 94,191 Total share repurchases 2,505,097 494,191 Shares issued for stock options and incentive compensation ( 332,986 ) ( 13,856 ) Total net share repurchases 2,172,111 480,335 Excise tax associated with net share repurchases (1) — 4,803 Net change 2,172,111 $ 485,138 (1) A corresponding liability for excise tax associated with net share repurchases is classified on our Consolidated Balance Sheets within accrued liabilities. In February 2023, the Company entered into a Stock Purchase Agreement with Hershey Trust Company, as trustee for the Milton Hershey School Trust (the “School Trust”), pursuant to which the Company purchased 1,000,000 shares of the Company’s Common Stock from the School Trust at a price equal to $ 239.91 per share, for a total purchase price of $ 239,910 . Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 25 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) In July 2018, our Board of Directors approved a $ 500 million share repurchase authorization to repurchase shares of our Common Stock. As a result of the February 2023 Stock Purchase Agreement with Hershey Trust Company, as trustee for the School Trust, the July 2018 share repurchase authorization was completed. In May 2021, our Board of Directors approved an additional $ 500 million share repurchase authorization, which was completed as of March 31, 2024. In December 2023, our Board of Directors approved an additional $ 500 million share repurchase authorization. This program commenced after the existing May 2021 authorization was completed. As a result of the share repurchase authorization, approximately $ 470 million remains available for repurchases under our December 2023 share repurchase authorization. We are authorized to purchase our outstanding shares in open market and privately negotiated transactions. The program has no expiration date and acquired shares of Common Stock will be held as treasury shares. Purchases under approved share repurchase authorizations are in addition to our practice of buying back shares sufficient to offset those issued under incentive compensation plans. 15. CONTINGENCIES The Company is subject to certain legal proceedings and claims arising out of the ordinary course of our business, which cover a wide range of matters including trade regulation, product liability, advertising, contracts, environmental issues, patent and trademark matters, labor and employment matters, human and workplace rights matters and tax. While it is not feasible to predict or determine the outcome of such proceedings and claims with certainty, in our opinion these matters, both individually and in the aggregate, are not expected to have a material effect on our financial condition, results of operations or cash flows. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 26 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) 16. EARNINGS PER SHARE We compute basic earnings per share for Common Stock and Class B common stock using the two-class method. The Class B common stock is convertible into Common Stock on a share-for-share basis at any time. The computation of diluted earnings per share for Common Stock assumes the conversion of Class B common stock using the if-converted method, while the diluted earnings per share of Class B common stock does not assume the conversion of those shares. Three Months Ended March 31, 2024 April 2, 2023 Common Stock Class B Common Stock Common Stock Class B Common Stock Basic earnings per share: Numerator: Allocation of distributed earnings (cash dividends paid) $ 205,411 $ 67,994 $ 153,555 $ 53,801 Allocation of undistributed earnings 393,508 130,540 281,044 98,785 Total earnings—basic $ 598,919 $ 198,534 $ 434,599 $ 152,586 Denominator (shares in thousands): Total weighted-average shares—basic 149,609 54,614 147,746 57,114 Earnings Per Share—basic $ 4.00 $ 3.64 $ 2.94 $ 2.67 Diluted earnings per share: Numerator: Allocation of total earnings used in basic computation $ 598,919 $ 198,534 $ 434,599 $ 152,586 Reallocation of total earnings as a result of conversion of Class B common stock to Common stock 198,534 — 152,586 — Reallocation of undistributed earnings — ( 425 ) — ( 481 ) Total earnings—diluted $ 797,453 $ 198,109 $ 587,185 $ 152,105 Denominator (shares in thousands): Number of shares used in basic computation 149,609 54,614 147,746 57,114 Weighted-average effect of dilutive securities: Conversion of Class B common stock to Common shares outstanding 54,614 — 57,114 — Employee stock options 318 — 503 — Performance and restricted stock units 334 — 474 — Total weighted-average shares—diluted 204,875 54,614 205,837 57,114 Earnings Per Share—diluted $ 3.89 $ 3.63 $ 2.85 $ 2.66 The earnings per share calculations for the three months ended March 31, 2024 and April 2, 2023 excluded 12 and 8 stock options (in thousands), respectively, that would have been antidilutive. Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 27 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) 17. OTHER (INCOME) EXPENSE, NET Other (income) expense, net reports certain gains and losses associated with activities not directly related to our core operations. A summary of the components of other (income) expense, net is as follows: Three Months Ended March 31, 2024 April 2, 2023 Write-down of equity investments in partnerships qualifying for historic and renewable energy tax credits (see Note 8 ) $ 31,391 $ — Non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans (see Note 11 ) 638 3,211 Other (income) expense, net ( 9 ) ( 228 ) Total $ 32,020 $ 2,983 Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 28 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) 18. SUPPLEMENTAL BALANCE SHEET INFORMATION The components of certain asset accounts included within our Consolidated Balance Sheets are as follows: March 31, 2024 December 31, 2023 Inventories: Raw materials $ 527,719 $ 481,111 Goods in process 226,527 192,232 Finished goods 818,586 948,974 Inventories at First In First Out 1,572,832 1,622,317 Adjustment to Last In First Out ( 434,975 ) ( 281,321 ) Total inventories $ 1,137,857 $ 1,340,996 Prepaid expenses and other: Prepaid expenses $ 129,654 $ 227,567 Other current assets 393,738 118,021 Total prepaid expenses and other $ 523,392 $ 345,588 Property, plant and equipment: Land $ 180,547 $ 180,751 Buildings 1,776,563 1,763,070 Machinery and equipment 4,000,536 3,861,006 Construction in progress 573,657 644,244 Property, plant and equipment, gross 6,531,303 6,449,071 Accumulated depreciation ( 3,198,207 ) ( 3,139,393 ) Property, plant and equipment, net $ 3,333,096 $ 3,309,678 Other non-current assets: Pension $ 49,594 $ 48,506 Capitalized software, net 371,254 360,205 Operating lease ROU assets 307,664 307,976 Investments in unconsolidated affiliates 190,419 207,177 Other non-current assets 152,134 137,563 Total other non-current assets $ 1,071,065 $ 1,061,427 Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 29 THE HERSHEY COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (amounts in thousands, except share data or if otherwise indicated) The components of certain liability and stockholders’ equity accounts included within our Consolidated Balance Sheets are as follows: March 31, 2024 December 31, 2023 Accounts payable: Accounts payable—trade $ 532,335 $ 630,536 Supplier finance program obligations 201,109 149,261 Other 212,556 306,386 Total accounts payable $ 946,000 $ 1,086,183 Accrued liabilities: Payroll, compensation and benefits $ 170,343 $ 261,961 Advertising, promotion and product allowances 436,474 343,444 Operating lease liabilities 35,224 34,494 Other 230,434 227,916 Total accrued liabilities $ 872,475 $ 867,815 Other long-term liabilities: Post-retirement benefits liabilities $ 93,469 $ 90,718 Pension benefits liabilities 26,104 28,949 Operating lease liabilities 276,417 277,089 Other 267,658 263,917 Total other long-term liabilities $ 663,648 $ 660,673 Accumulated other comprehensive loss: Foreign currency translation adjustments $ ( 92,704 ) $ ( 87,706 ) Pension and post-retirement benefit plans, net of tax ( 124,909 ) ( 126,800 ) Cash flow hedges, net of tax ( 13,222 ) ( 15,572 ) Total accumulated other comprehensive loss $ ( 230,835 ) $ ( 230,078 ) Table of Contents The Hershey Company | Q1 2024 Form 10-Q | Page 30