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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______to_______
Commission file number 1-183
hsy-20220403_g1.jpg
THE HERSHEY COMPANY
(Exact name of registrant as specified in its charter)
Delaware23-0691590
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
19 East Chocolate Avenue, Hershey, PA 17033
(Address of principal executive offices and Zip Code)
(717) 534-4200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, one dollar par valueHSYNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerxAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Common Stock, one dollar par value—145,990,869 shares, as of April 22, 2022.
Class B Common Stock, one dollar par value—59,613,777 shares, as of April 22, 2022.



THE HERSHEY COMPANY
Quarterly Report on Form 10-Q
For the Period Ended April 3, 2022

TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Notes to Unaudited Consolidated Financial Statements

The Hershey Company | Q1 2022 Form 10-Q | Page 1
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
 
Three Months Ended
April 3, 2022April 4, 2021
Net sales$2,666,221 $2,295,948 
Cost of sales
1,420,741 1,246,997 
Gross profit
1,245,480 1,048,951 
Selling, marketing and administrative expense
524,216 494,665 
Business realignment costs274 1,242 
Operating profit
720,990 553,044 
Interest expense, net33,179 36,436 
Other (income) expense, net10,407 2,414 
Income before income taxes677,404 514,194 
Provision for income taxes143,926 117,323 
Net income including noncontrolling interest533,478 396,871 
Less: Net gain attributable to noncontrolling interest 1,072 
Net income attributable to The Hershey Company
$533,478 $395,799 
Net income per share—basic:
Common stock$2.66 $1.96 
Class B common stock$2.42 $1.78 
Net income per share—diluted:
Common stock$2.57 $1.90 
Class B common stock$2.41 $1.77 
Dividends paid per share:
Common stock$0.901 $0.804 
Class B common stock$0.819 $0.731 

See Notes to Unaudited Consolidated Financial Statements.
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THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)

For the Three Months Ended
April 3, 2022April 4, 2021
Pre-Tax AmountTax (Expense) BenefitAfter-Tax AmountPre-Tax AmountTax (Expense) BenefitAfter-Tax Amount
Net income including noncontrolling interest$533,478 $396,871 
Other comprehensive income, net of tax:
Foreign currency translation adjustments:
Foreign currency translation gains during period$14,419 $ 14,419 $1,198 $ 1,198 
Reclassification to earnings due to the sale of businesses   5,210  5,210 
Pension and post-retirement benefit plans:
Net actuarial (loss) gain and service cost(6,474)(568)(7,042)2,224 (529)1,695 
Reclassification to earnings3,960 (950)3,010 6,853 (1,867)4,986 
Cash flow hedges:
Losses on cash flow hedging derivatives(5,924)874 (5,050)(1,635)287 (1,348)
Reclassification to earnings2,596 (727)1,869 3,137 (540)2,597 
Total other comprehensive income, net of tax$8,577 $(1,371)7,206 $16,987 $(2,649)14,338 
Total comprehensive income including noncontrolling interest$540,684 $411,209 
Comprehensive income attributable to noncontrolling interest 6,334 
Comprehensive income attributable to The Hershey Company$540,684 $404,875 

See Notes to Unaudited Consolidated Financial Statements.

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THE HERSHEY COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
April 3, 2022December 31, 2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents$338,055 $329,266 
Accounts receivable—trade, net868,426 671,464 
Inventories1,031,503 988,511 
Prepaid expenses and other219,454 256,965 
Total current assets2,457,438 2,246,206 
Property, plant and equipment, net2,592,628 2,586,187 
Goodwill2,620,594 2,633,174 
Other intangibles2,029,220 2,037,588 
Other non-current assets902,347 868,203 
Deferred income taxes42,817 40,873 
Total assets$10,645,044 $10,412,231 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$825,231 $692,338 
Accrued liabilities784,660 855,638 
Accrued income taxes79,635 3,070 
Short-term debt873,783 939,423 
Current portion of long-term debt2,328 2,844 
Total current liabilities2,565,637 2,493,313 
Long-term debt4,088,437 4,086,627 
Other long-term liabilities781,048 787,058 
Deferred income taxes294,373 288,004 
Total liabilities7,729,495 7,655,002 
Stockholders’ equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none in 2022 and 2021
  
Common stock, shares issued: 161,939,248 at April 3, 2022 and 160,939,248 at December 31, 2021
161,939 160,939 
Class B common stock, shares issued: 59,613,777 at April 3, 2022 and 60,613,777 at December 31, 2021
59,614 60,614 
Additional paid-in capital1,243,240 1,260,331 
Retained earnings3,071,416 2,719,936 
Treasury—common stock shares, at cost: 15,961,542 at April 3, 2022 and 15,444,011 at December 31, 2021
(1,378,651)(1,195,376)
Accumulated other comprehensive loss(242,009)(249,215)
Total stockholders’ equity2,915,549 2,757,229 
Total liabilities and stockholders’ equity$10,645,044 $10,412,231 

See Notes to Unaudited Consolidated Financial Statements.

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THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
April 3, 2022April 4, 2021
Operating Activities
Net income including noncontrolling interest$533,478 $396,871 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization91,036 77,897 
Stock-based compensation expense15,337 15,656 
Deferred income taxes5,064 (713)
Write-down of equity investments12,592 2,891 
Other24,043 22,027 
Changes in assets and liabilities, net of business acquisitions and divestitures:
Accounts receivable—trade, net(189,621)(22,099)
Inventories(37,320)53,323 
Prepaid expenses and other current assets(11,251)28,272 
Accounts payable and accrued liabilities98,027 (56,900)
Accrued income taxes127,258 104,677 
Contributions to pension and other benefit plans(8,458)(5,013)
Other assets and liabilities(3,718)(7,249)
Net cash provided by operating activities656,467 609,640 
Investing Activities
Capital additions (including software)(141,063)(114,471)
Equity investments in tax credit qualifying partnerships(22,503)(25,064)
Other investing activities(400)2,530 
Net cash used in investing activities(163,966)(137,005)
Financing Activities
Net decrease in short-term debt(65,640)(6,079)
Repayment of long-term debt and finance leases(1,050)(85,863)
Cash dividends paid(181,084)(162,739)
Repurchase of common stock(203,350)(240,359)
Proceeds from exercised stock options16,711 15,117 
Taxes withheld and paid on employee stock awards
(29,041)(11,939)
Net cash used in financing activities(463,454)(491,862)
Effect of exchange rate changes on cash and cash equivalents(20,258)(3,952)
Increase (decrease) in cash and cash equivalents, including cash classified as held for sale8,789 (23,179)
Less: Increase in cash and cash equivalents classified as held for sale 11,434 
Net increase (decrease) in cash and cash equivalents8,789 (11,745)
Cash and cash equivalents, beginning of period329,266 1,143,987 
Cash and cash equivalents, end of period$338,055 $1,132,242 
Supplemental Disclosure
Interest paid$24,782 $27,685 
Income taxes paid10,023 14,350 

See Notes to Unaudited Consolidated Financial Statements.

The Hershey Company | Q1 2022 Form 10-Q | Page 5
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THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(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, 2021
$ $160,939 $60,614 $1,260,331 $2,719,936 $(1,195,376)$(249,215)$2,757,229 
Net income533,478 533,478 
Other comprehensive income7,206 7,206 
Dividends (including dividend equivalents):
Common Stock, $0.901 per share
(133,174)(133,174)
Class B Common Stock, $0.819 per share
(48,824)(48,824)
Conversion of Class B Common Stock into Common Stock1,000 (1,000)— 
Stock-based compensation15,314 15,314 
Exercise of stock options and incentive-based transactions(32,405)20,075 (12,330)
Repurchase of common stock(203,350)(203,350)
Balance, April 3, 2022
$ $161,939 $59,614 $1,243,240 $3,071,416 $(1,378,651)$(242,009)$2,915,549 

Preferred
Stock
Common
Stock
Class B
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Common
Stock
Accumulated Other
Comprehensive
Loss
Noncontrolling
Interests in
Subsidiaries
Total
Stockholders’
Equity
Balance, December 31, 2020
$ $160,939 $60,614 $1,191,200 $1,928,673 $(768,992)$(338,082)$3,531 $2,237,883 
Net income395,799 1,072 396,871 
Other comprehensive income9,076 5,262 14,338 
Dividends (including dividend equivalents):
Common Stock, $0.804 per share
(117,699)(117,699)
Class B Common Stock, $0.731 per share
(44,309)(44,309)
Stock-based compensation15,955 15,955 
Exercise of stock options and incentive-based transactions(11,407)14,586 3,179 
Repurchase of common stock(240,359)(240,359)
Divestiture of noncontrolling interest(1,013)(1,013)
Balance, April 4, 2021
$ $160,939 $60,614 $1,195,748 $2,162,464 $(994,765)$(329,006)$8,852 $2,264,846 


See Notes to Unaudited Consolidated Financial Statements.

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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 April 3, 2022 may not be indicative of the results that may be expected for the year ending December 31, 2022 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, 2021 (our “2021 Annual Report on Form 10-K”), which provides a more complete understanding of our accounting policies, financial position, operating results and other matters.
COVID-19
On March 11, 2020, the World Health Organization designated coronavirus disease 2019 (“COVID-19”) as a global pandemic. We continue to actively monitor COVID-19 and its potential impact on our operations and financial results. Employee health and safety remains our first priority while we continue our efforts to support community food supplies. Since the onset of COVID-19, there has been minimal disruption to our supply chain network, and all our manufacturing plants are currently open. However, beginning in 2021 and continuing into 2022, ongoing strong demand for consumer goods and the effects of COVID-19 mitigation strategies have led to broad-based supply chain disruptions across the U.S. and globally, including inflation on many consumer products, labor shortages and demand outpacing supply. We continue to work closely with our business units, contract manufacturers, distributors, contractors and other external business partners to minimize the potential impact on our business.
The ultimate impact that COVID-19 will have on our consolidated financial statements remains uncertain and ultimately will be dictated by the length and severity of the pandemic, including broad-based supply chain disruptions, rising levels of inflation, the spread of COVID-19 variants or resurgences, as well as the economic recovery and actions taken in response by local, state and national governments around the world, including the distribution of vaccinations. We will continue to evaluate the nature and extent of these potential and evolving impacts to our business and consolidated financial statements.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In March 2020, the the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to provide temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to

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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

alternative reference rates. Entities may apply this ASU upon issuance through December 31, 2022 on a prospective basis. We early adopted the provisions of this ASU in the first quarter of 2022. Adoption of the new standard did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
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. Evaluation of this new standard is dependent on multiple circumstances including the timing and complexity of completed business combinations. As a result, we intend to adopt the provisions of this ASU in the first quarter of 2023.
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 AND DIVESTITURE
2021 Activity
Pretzels Inc.
On December 14, 2021, we completed the acquisition of Pretzels Inc. (“Pretzels”), previously a privately held company that manufactures and sells pretzels and other salty snacks for other branded products and private labels in the United States. Pretzels is an industry leader in the pretzel category with a product portfolio that includes filled, gluten free and seasoned pretzels, as well as extruded snacks that complements Hershey’s snacks portfolio. Based in Bluffton, Indiana, Pretzels operates three manufacturing locations in Indiana and Kansas. Pretzels provides Hershey deep pretzel category and product expertise and the manufacturing capabilities to support brand growth and future pretzel innovation. The initial cash consideration paid for Pretzels totaled $304,477 and consisted of cash on hand and short-term borrowings. Acquisition-related costs for the Pretzels acquisition were immaterial.
The acquisition has been accounted for as a business combination and, accordingly, Pretzels 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 as follows:
Initial Allocation (1)AdjustmentsUpdated Allocation
Goodwill$165,301 $1,033 $166,334 
Other intangible assets32,100 (6,000)26,100 
Current assets acquired30,717 118 30,835 
Property, plant and equipment, net96,099 4,617 100,716 
Other non-current assets, primarily operating lease ROU assets111,787 — 111,787 
Deferred income taxes541 232 773 
Current liabilities assumed(22,713)— (22,713)
Other long-term liabilities, primarily operating lease liabilities(109,355)— (109,355)
Net assets acquired$304,477 $ $304,477 
(1) As reported in the Company’s 2021 Annual Report on Form 10-K.



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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

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 are in the process of evaluating additional information necessary to finalize the valuation of assets acquired and liabilities assumed as of the acquisition date including, but not limited to, post-closing adjustments to the working capital acquired including certain holdbacks. The final fair value determination could result in material adjustments to the values presented in the preliminary purchase price allocation, including other intangible assets, goodwill and the related tax impact of such adjustments. We expect to finalize the purchase price allocation by mid-2022.
Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired (including the identifiable intangible assets). A portion 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 Pretzels’ products.
Other intangible assets include trademarks valued at $5,700 and customer relationships valued at $20,400. Trademarks were assigned an estimated useful life of five years and customer relationships were assigned an estimated useful life of 19 years.
Dot's Pretzels, LLC
On December 13, 2021, we completed the acquisition of Dot’s Pretzels, LLC (“Dot’s”), previously a privately held company that produces and sells pretzels and other snack food products to retailers and distributors in the United States, with Dot’s Homestyle Pretzels snacks as its primary product. Dot’s is the fastest-growing scale brand in the pretzel category and complements Hershey’s snacks portfolio. The initial cash consideration paid for Dot’s totaled $894,166 and consisted of cash on hand and short-term borrowings. Acquisition-related costs for the Dot’s acquisition were immaterial.
The acquisition has been accounted for as a business combination and, accordingly, Dot’s 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 as follows:
Initial Allocation (1)AdjustmentsUpdated Allocation
Goodwill$303,345 $(14,960)$288,385 
Other intangible assets526,300 16,800 543,100 
Current assets acquired51,121 — 51,121 
Property, plant and equipment, net39,256 1,010 40,266 
Other non-current assets2,201 — 2,201 
Other liabilities assumed, primarily current liabilities(28,057)(2,850)(30,907)
Net assets acquired$894,166 $ $894,166 
(1) As reported in the Company’s 2021 Annual Report on Form 10-K.
The purchase price allocation presented above is preliminary. The measurement period adjustments, specifically to other intangible assets and resulting impact on the valuation of goodwill, are principally related to the refinement of certain assumptions in the value of customer relationships based on an analysis of historical customer-specific data. The remaining measurement period adjustments to the initial allocation are based on more detailed information obtained about the specific assets acquired and liabilities assumed. We are in the process of evaluating additional information necessary to finalize the valuation of assets acquired and liabilities assumed as of the acquisition date including, but not limited to, post-closing adjustments to the working capital acquired including certain holdbacks. The final fair value determination could result in material adjustments to the values presented in the preliminary purchase price allocation, including other intangible assets and goodwill. We expect to finalize the purchase price allocation by mid-2022.

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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

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 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 Dot’s products.
Other intangible assets include trademarks valued at $336,600 and customer relationships valued at $206,500. Trademarks were assigned an estimated useful life of 33 years and customer relationships were assigned an estimated useful life of 18 years.
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 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 were 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. Based on financial results through December 31, 2021, the fair value was reduced during the fourth quarter of 2021 to $1,250, with the adjustment to fair value recorded in the selling, marketing and administrative (“SM&A”) expense caption within the Consolidated Statements of Income. We expect to pay the contingent consideration during 2022. 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 Confectionery 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:

Goodwill$175,826 
Other intangible assets235,800 
Other assets acquired, primarily current assets33,092 
Other liabilities assumed, primarily current liabilities(9,620)
Deferred income taxes(7,888)
Net assets acquired$427,210 
The purchase price allocation presented above has been finalized as of the fourth quarter of 2021 and includes an immaterial amount of measurement period adjustments. The measurement period adjustments to the initial allocation were based on more detailed information obtained about the specific assets acquired and liabilities assumed.

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., which was previously included within the International 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 SM&A expense caption within the Consolidated Statements of Income.

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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

3. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying value of goodwill by reportable segment for the three months ended April 3, 2022 are as follows:
North America ConfectioneryNorth America Salty SnacksInternationalTotal
Balance at December 31, 2021
$2,026,006 $589,798 $17,370 $2,633,174 
Measurement period adjustments (see Note 2)
 (13,927) (13,927)
Foreign currency translation1,195  152 1,347 
Balance at April 3, 2022
$2,027,201 $575,871 $17,522 $2,620,594 

The following table provides the gross carrying amount and accumulated amortization for each major class of intangible asset:
April 3, 2022December 31, 2021
Gross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
Intangible assets subject to amortization:
Trademarks$1,705,644 $(154,417)$1,705,390 $(141,760)
Customer-related515,827 (72,685)504,667 (65,131)
Patents8,713 (8,713)8,623 (8,623)
Total
2,230,184 (235,815)2,218,680 (215,514)
Intangible assets not subject to amortization:
Trademarks34,851 34,422 
Total other intangible assets
$2,029,220 $2,037,588 
Total amortization expense for the three months ended April 3, 2022 and April 4, 2021 was $19,859 and $11,621, respectively. In 2022, our amortization expense increased as a result of our 2021 business combination activity (see Note 2).
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 $1.5 billion unsecured revolving credit facility with the option to increase borrowings by an additional $500 million with the consent of the lenders. This facility is scheduled to expire on July 2, 2024; however, we may extend the termination date for up to two additional one-year periods upon notice to the administrative agent under the facility.
The credit agreement contains certain financial and other covenants, customary representations, warranties and events of default. As of April 3, 2022, we were in compliance with all covenants pertaining to the credit agreement, and we had no significant compensating balance agreements that legally restricted these funds. For more information, refer to the Consolidated Financial Statements included in our 2021 Annual Report on Form 10-K.


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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

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:
April 3, 2022December 31, 2021
Short-term foreign bank borrowings against lines of credit$149,102$119,038
U.S. commercial paper724,681820,385
Total short-term debt$873,783$939,423
Weighted average interest rate on outstanding commercial paper0.4 %0.1 %

Long-term Debt
Long-term debt consisted of the following:
Debt Type and Rate
Maturity Date
April 3, 2022December 31, 2021
2.625% Notes
May 1, 2023250,000 250,000 
3.375% Notes
May 15, 2023500,000 500,000 
2.050% Notes
November 15, 2024300,000 300,000 
0.900% Notes
June 1, 2025300,000 300,000 
3.200% Notes
August 21, 2025300,000 300,000 
2.300% Notes
August 15, 2026500,000 500,000 
7.200% Debentures
August 15, 2027193,639 193,639 
2.450% Notes
November 15, 2029300,000 300,000 
1.700% Notes
June 1, 2030350,000 350,000 
3.375% Notes
August 15, 2046300,000 300,000 
3.125% Notes
November 15, 2049400,000400,000
2.650% Notes
June 1, 2050350,000350,000
Finance lease obligations (see Note 7)
68,60169,146
Net impact of interest rate swaps, debt issuance costs and unamortized debt discounts(21,475)(23,314)
Total long-term debt4,090,765 4,089,471 
Less—current portion2,3282,844
Long-term portion$4,088,437 $4,086,627 
Interest Expense
Net interest expense consists of the following:
Three Months Ended
April 3, 2022April 4, 2021
Interest expense$35,371 $38,763 
Capitalized interest
(1,835)(1,717)
Interest expense
33,536 37,046 
Interest income(357)(610)
Interest expense, net
$33,179 $36,436 



The Hershey Company | Q1 2022 Form 10-Q | Page 12
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

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.

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 $284,752 as of April 3, 2022 and $313,200 as of December 31, 2021.
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 $149,170 at April 3, 2022 and $94,623 at December 31, 2021. 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 $2,098 at April 3, 2022 and $2,993 at December 31, 2021. The change in fair value on these instruments is recorded directly in cost of sales or selling, marketing and administrative expense, depending on the nature of the underlying exposure.

Interest Rate Risk
In order to manage interest rate exposure, in previous years we utilized interest rate swap agreements to protect against unfavorable interest rate changes relating to forecasted debt transactions. These swaps, which were settled upon issuance of the related debt, were designated as cash flow hedges and the gains and losses that were 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 April 3, 2022 and December 31, 2021 was $24,697 and $24,975, respectively.

The Hershey Company | Q1 2022 Form 10-Q | Page 13
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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 April 3, 2022 and December 31, 2021:
April 3, 2022December 31, 2021
Assets (1)Liabilities (1)Assets (1)Liabilities (1)
Derivatives designated as cash flow hedging instruments:
Foreign exchange contracts$44 $3,525 $2,949 $711 
Derivatives not designated as hedging instruments:
Commodities futures and options (2)3,709 1,792 2,423 1,376 
Deferred compensation derivatives 800 2,412  
Foreign exchange contracts262  550  
3,971 2,592 5,385 1,376 
Total$4,015 $6,117 $8,334 $2,087 

(1)Derivatives 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 April 3, 2022, amounts reflected on a net basis in liabilities were assets of $62,985 and liabilities of $63,378, 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, 2021 were assets of $31,774 and liabilities of $32,701. At April 3, 2022 and December 31, 2021, 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 April 3, 2022 and April 4, 2021 was as follows:
Non-designated HedgesCash 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)
202220212022202120222021
Commodities futures and options
$50,825 $13,679 $ $ $ $ 
Foreign exchange contracts (20)138 (5,924)(1,635)203 (172)
Interest rate swap agreements
    (2,799)(2,965)
Deferred compensation derivatives
(800)1,554     
Total
$50,005 $15,371 $(5,924)$(1,635)$(2,596)$(3,137)

(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.

The Hershey Company | Q1 2022 Form 10-Q | Page 14
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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 $14,679 as of April 3, 2022. 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 not 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 April 3, 2022 and December 31, 2021:
Assets (Liabilities)
Level 1Level 2Level 3Total
April 3, 2022:
Derivative Instruments:
Assets:
Foreign exchange contracts (1)$$306$$306
Commodities futures and options (3)3,709   3,709 
Liabilities:
Foreign exchange contracts (1) 3,525  3,525 
Deferred compensation derivatives (2) 800  800 
Commodities futures and options (3)1,792   1,792 
December 31, 2021: