BUSINESS ACQUISITION AND DIVESTITURES

9 Months Ended

Oct. 03, 2021

BUSINESS ACQUISITION AND DIVESTITURES

2021 Activity

Lily's Sweets, LLC

On June 25, 2021, we completed the acquisition of Lily’s Sweets, LLC (“Lily’s”), previously a privately held company that sells a line of sugar-free and low-sugar confectionery foods to retailers and distributors in the United States and Canada. Lily’s products include dark and milk chocolate style bars, baking chips, peanut butter cups and other confection products that complement Hershey’s confectionery and confectionery-based portfolio. The initial cash consideration paid for Lily’s totaled $422,210 and the Company may be required to pay additional cash consideration if certain defined targets related to net sales and gross margin are exceeded during the period from the closing date through December 31, 2021. As of the acquisition date, the estimated fair value of the contingent consideration obligation was classified as a liability of $5,000 and was determined using a scenario-based analysis on forecasted future results. Acquisition-related costs for the Lily’s acquisition were immaterial.

The acquisition has been accounted for as a business combination and, accordingly, Lily’s has been included within the North America segment from the date of acquisition. The purchase consideration, inclusive of the acquisition date fair value of the contingent consideration, was allocated to assets acquired and liabilities assumed based on their respective fair values as follows:


	Initial Allocation (1)		Adjustments		Updated Allocation
Goodwill	$	174,516	$	1,310	$	175,826
Other intangible assets	235,800		—		235,800
Other assets acquired, primarily current assets	30,383		2,709		33,092
Other liabilities assumed, primarily current liabilities	(9,620)		—		(9,620)
Deferred income taxes	(7,888)		—		(7,888)
Net assets acquired	$	423,191	$	4,019	$	427,210

(1)As reported in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended July 4, 2021.

The purchase price allocation presented above is preliminary. The measurement period adjustments to the initial allocation are based on more detailed information obtained about the specific assets acquired. We continue to refine our purchase price allocation, including goodwill, and expect to finalize by the end of 2021.

Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired (including the identifiable intangible assets). The majority of goodwill derived from this acquisition is expected to be deductible

for tax purposes and reflects the value of leveraging our brand building expertise, supply chain capabilities and retail relationships to accelerate growth and access to the portfolio of Lily’s products.

Other intangible assets include trademarks valued at $151,600 and customer relationships valued at $84,200. Trademarks were assigned an estimated useful life of 33 years and customer relationships were assigned estimated useful lives ranging from 17 to 18 years.

Lotte Shanghai Foods Co., Ltd.

In January 2021, we completed the divestiture of Lotte Shanghai Foods Co., Ltd. (“LSFC”), which was previously included within the International and Other segment results in our consolidated financial statements. Total proceeds from the divestiture and the impact on our consolidated financial statements were immaterial and were recorded in the selling, marketing and administrative (“SM&A”) expense caption within the Consolidated Statements of Income.

2020 Activity

During the second quarter of 2020, we completed the divestitures of KRAVE Pure Foods, Inc. and the Scharffen Berger and Dagoba brands, all of which were previously included within the North America segment results in our consolidated financial statements. Total proceeds from the divestitures and the impact on our Consolidated Statements of Income, both individually and on an aggregate basis, were immaterial.