10-Q 1 hsy-20221002.htm THE HERSHEY COMPANY FORM 10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 2, 2022 hsy-20221002
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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 October 2, 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-20221002_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—146,968,799 shares, as of October 30, 2022.
Class B Common Stock, one dollar par value—58,113,777 shares, as of October 30, 2022.



THE HERSHEY COMPANY
Quarterly Report on Form 10-Q
For the Period Ended October 2, 2022

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

The Hershey Company | Q3 2022 Form 10-Q | Page 1
hsy-20221002_g2.jpg


PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
 
Three Months EndedNine Months Ended
October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Net sales$2,728,153 $2,359,839 $7,766,956 $6,645,209 
Cost of sales
1,619,653 1,298,504 4,412,977 3,609,478 
Gross profit
1,108,500 1,061,335 3,353,979 3,035,731 
Selling, marketing and administrative expense
551,880 486,139 1,619,564 1,448,433 
Business realignment costs 365 274 2,748 
Operating profit
556,620 574,831 1,734,141 1,584,550 
Interest expense, net35,378 30,154 101,970 97,655 
Other (income) expense, net48,157 23,004 78,222 32,612 
Income before income taxes473,085 521,673 1,553,949 1,454,283 
Provision for income taxes73,598 76,746 305,428 311,255 
Net income including noncontrolling interest399,487 444,927 1,248,521 1,143,028 
Less: Net gain attributable to noncontrolling interest   1,072 
Net income attributable to The Hershey Company
$399,487 $444,927 $1,248,521 $1,141,956 
Net income per share—basic:
Common stock$2.00 $2.22 $6.23 $5.67 
Class B common stock$1.82 $2.01 $5.67 $5.16 
Net income per share—diluted:
Common stock$1.94 $2.14 $6.04 $5.49 
Class B common stock$1.81 $2.01 $5.65 $5.14 
Dividends paid per share:
Common stock$1.036 $0.901 $2.838 $2.509 
Class B common stock$0.942 $0.819 $2.580 $2.281 

See Notes to Unaudited Consolidated Financial Statements.
The Hershey Company | Q3 2022 Form 10-Q | Page 2
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THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)

For the Three Months Ended
For the Nine Months Ended
October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Pre-Tax AmountTax (Expense) BenefitAfter-Tax AmountPre-Tax AmountTax (Expense) BenefitAfter-Tax AmountPre-Tax AmountTax (Expense) BenefitAfter-Tax AmountPre-Tax AmountTax (Expense) BenefitAfter-Tax Amount
Net income including noncontrolling interest$399,487 $444,927 $1,248,521 $1,143,028 
Other comprehensive income, net of tax:
Foreign currency translation adjustments:
Foreign currency translation (losses) gains during period$(13,511)$ (13,511)$(11,571)$ (11,571)$(15,851)$ (15,851)$2,623 $ 2,623 
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(27,909)6,704 (21,205)(8,793)2,093 (6,700)(66,720)13,895 (52,825)11,912 (2,835)9,077 
Reclassification to earnings6,904 (1,657)5,247 8,457 (671)7,786 20,345 (4,883)15,462 24,246 (4,739)19,507 
Cash flow hedges:
Gains (losses) on cash flow hedging derivatives891 (706)185 5,779 (2,153)3,626 245 (1,343)(1,098)(2,200)(2,312)(4,512)
Reclassification to earnings2,258 (643)1,615 4,709 (119)4,590 9,143 (1,666)7,477 13,527 (501)13,026 
Total other comprehensive income, net of tax$(31,367)$3,698 (27,669)$(1,419)$(850)(2,269)$(52,838)$6,003 (46,835)$55,318 $(10,387)44,931 
Total comprehensive income including noncontrolling interest$371,818 $442,658 $1,201,686 $1,187,959 
Comprehensive (loss) income attributable to noncontrolling interest (5) 6,321 
Comprehensive income attributable to The Hershey Company$371,818 $442,663 $1,201,686 $1,181,638 

See Notes to Unaudited Consolidated Financial Statements.

The Hershey Company | Q3 2022 Form 10-Q | Page 3
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THE HERSHEY COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
October 2, 2022December 31, 2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents$327,741 $329,266 
Accounts receivable—trade, net929,482 671,464 
Inventories1,184,385 988,511 
Prepaid expenses and other251,126 256,965 
Total current assets2,692,734 2,246,206 
Property, plant and equipment, net2,622,587 2,586,187 
Goodwill2,604,889 2,633,174 
Other intangibles1,985,099 2,037,588 
Other non-current assets888,406 868,203 
Deferred income taxes39,192 40,873 
Total assets$10,832,907 $10,412,231 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$915,299 $692,338 
Accrued liabilities845,472 855,638 
Accrued income taxes81,771 3,070 
Short-term debt793,871 939,423 
Current portion of long-term debt752,201 2,844 
Total current liabilities3,388,614 2,493,313 
Long-term debt3,340,671 4,086,627 
Other long-term liabilities750,870 787,058 
Deferred income taxes269,672 288,004 
Total liabilities7,749,827 7,655,002 
Stockholders’ equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none in 2022 and 2021
  
Common stock, shares issued: 163,439,248 at October 2, 2022 and 160,939,248 at December 31, 2021
163,439 160,939 
Class B common stock, shares issued: 58,113,777 at October 2, 2022 and 60,613,777 at December 31, 2021
58,114 60,614 
Additional paid-in capital1,280,462 1,260,331 
Retained earnings3,401,198 2,719,936 
Treasury—common stock shares, at cost: 16,484,611 at October 2, 2022 and 15,444,011 at December 31, 2021
(1,524,083)(1,195,376)
Accumulated other comprehensive loss(296,050)(249,215)
Total stockholders’ equity3,083,080 2,757,229 
Total liabilities and stockholders’ equity$10,832,907 $10,412,231 

See Notes to Unaudited Consolidated Financial Statements.

The Hershey Company | Q3 2022 Form 10-Q | Page 4
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THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
October 2, 2022October 3, 2021
Operating Activities
Net income including noncontrolling interest$1,248,521 $1,143,028 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization279,082 231,953 
Stock-based compensation expense50,640 51,009 
Deferred income taxes(9,751)762 
Write-down of equity investments70,754 28,734 
Other92,632 77,548 
Changes in assets and liabilities, net of business acquisitions and divestitures:
Accounts receivable—trade, net(259,064)(222,864)
Inventories(201,425)(38,864)
Prepaid expenses and other current assets(40,565)11,908 
Accounts payable and accrued liabilities248,230 76,446 
Accrued income taxes124,965 92,236 
Contributions to pension and other benefit plans(16,639)(38,576)
Other assets and liabilities(27,186)(9,603)
Net cash provided by operating activities1,560,194 1,403,717 
Investing Activities
Capital additions (including software)(359,993)(347,450)
Equity investments in tax credit qualifying partnerships(159,713)(75,917)
Business acquisitions, net of cash and cash equivalents acquired (419,501)
Other investing activities9,730 3,129 
Net cash used in investing activities(509,976)(839,739)
Financing Activities
Net (decrease) increase in short-term debt(145,552)339,981 
Repayment of long-term debt and finance leases(3,321)(438,029)
Cash dividends paid(567,989)(505,194)
Repurchase of common stock(355,271)(457,946)
Proceeds from exercised stock options30,824 39,499 
Taxes withheld and paid on employee stock awards
(34,722)(16,137)
Net cash used in financing activities(1,076,031)(1,037,826)
Effect of exchange rate changes on cash and cash equivalents24,288 (6,057)
Decrease in cash and cash equivalents, including cash classified as held for sale(1,525)(479,905)
Less: Increase in cash and cash equivalents classified as held for sale 11,434 
Net decrease in cash and cash equivalents(1,525)(468,471)
Cash and cash equivalents, beginning of period329,266 1,143,987 
Cash and cash equivalents, end of period$327,741 $675,516 
Supplemental Disclosure
Interest paid$90,787 $92,397 
Income taxes paid190,724 199,735 

See Notes to Unaudited Consolidated Financial Statements.

The Hershey Company | Q3 2022 Form 10-Q | Page 5
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THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three Months Ended October 2, 2022 and October 3, 2021
(in thousands)
(unaudited)


Preferred
Stock
Common
Stock
Class B
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Common
Stock
Accumulated Other
Comprehensive
Loss
Total
Stockholders’
Equity
Balance, July 3, 2022
$ $163,439 $58,114 $1,258,091 $3,208,598 $(1,528,121)$(268,381)$2,891,740 
Net income399,487 399,487 
Other comprehensive loss(27,669)(27,669)
Dividends (including dividend equivalents):
Common Stock, $1.036 per share
(152,144)(152,144)
Class B Common Stock, $0.942 per share
(54,743)(54,743)
Stock-based compensation18,132 18,132 
Exercise of stock options and incentive-based transactions4,239 4,038 8,277 
Balance, October 2, 2022
$ $163,439 $58,114 $1,280,462 $3,401,198 $(1,524,083)$(296,050)$3,083,080 

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, July 4, 2021
$ $160,939 $60,614 $1,218,708 $2,301,805 $(1,180,881)$(296,136)$8,844 $2,273,893 
Net income 444,927  444,927 
Other comprehensive loss(2,264)(5)(2,269)
Dividends (including dividend equivalents):
Common Stock, $0.901 per share
(131,551)(131,551)
Class B Common Stock, $0.819 per share
(49,643)(49,643)
Stock-based compensation18,903 18,903 
Exercise of stock options and incentive-based transactions2,401 4,072 6,473 
Repurchase of common stock(23,600)(23,600)
Balance, October 3, 2021
$ $160,939 $60,614 $1,240,012 $2,565,538 $(1,200,409)$(298,400)$8,839 $2,537,133 


See Notes to Unaudited Consolidated Financial Statements.


The Hershey Company | Q3 2022 Form 10-Q | Page 6
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THE HERSHEY COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Nine Months Ended October 2, 2022 and October 3, 2021
(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 income1,248,521 1,248,521 
Other comprehensive income(46,835)(46,835)
Dividends (including dividend equivalents):
Common Stock, $2.838 per share
(414,869)(414,869)
Class B Common Stock, $2.58 per share
(152,390)(152,390)
Conversion of Class B Common Stock into Common Stock2,500 (2,500) 
Stock-based compensation50,592 50,592 
Exercise of stock options and incentive-based transactions(30,461)26,564 (3,897)
Repurchase of common stock(355,271)(355,271)
Balance, October 2, 2022
$ $163,439 $58,114 $1,280,462 $3,401,198 $(1,524,083)$(296,050)$3,083,080 

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 income1,141,956 1,072 1,143,028 
Other comprehensive income39,682 5,249 44,931 
Dividends (including dividend equivalents):
Common Stock, $2.509 per share
(366,831)(366,831)
Class B Common Stock, $2.281 per share
(138,260)(138,260)
Stock-based compensation51,979 51,979 
Exercise of stock options and incentive-based transactions(3,167)26,529 23,362 
Repurchase of common stock(457,946)(457,946)
Divestiture of noncontrolling interest(1,013)(1,013)
Balance, October 3, 2021
$ $160,939 $60,614 $1,240,012 $2,565,538 $(1,200,409)$(298,400)$8,839 $2,537,133 


See Notes to Unaudited Consolidated Financial Statements.



The Hershey Company | Q3 2022 Form 10-Q | Page 7
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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 October 2, 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 throughout 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 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 alternative reference

The Hershey Company | Q3 2022 Form 10-Q | Page 8
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THE HERSHEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(amounts in thousands, except share data or if otherwise indicated)

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.
In September 2022, the FASB issued 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. Adoption of the new standard is not expected to have a material impact on our consolidated financial statements.
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 cash consideration paid for Pretzels totaled $304,334 and consisted of cash on hand and short-term borrowings. Acquisition-related costs for the Pretzels acquisition were immaterial.


The Hershey Company | Q3 2022 Form 10-Q | Page 9
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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 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)AdjustmentsFinal Allocation
Goodwill$165,301 $890 $166,191 
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 $(143)$304,334 
(1) As reported in the Company’s 2021 Annual Report on Form 10-K.
The purchase price allocation presented above has been finalized as of the third quarter of 2022. The measurement period adjustments to the initial allocation were based on more detailed information obtained about the specific assets acquired and liabilities assumed, specifically, post-closing adjustments to the working capital acquired including certain holdbacks.
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 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 cash consideration paid for Dot’s totaled $891,169 and consisted of cash on hand and short-term borrowings. Acquisition-related costs for the Dot’s acquisition were immaterial.


The Hershey Company | Q3 2022 Form 10-Q | Page 10
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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 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)AdjustmentsFinal Allocation
Goodwill$303,345 $(18,918)$284,427 
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)(1,889)(29,946)
Net assets acquired$894,166 $(2,997)$891,169 
(1) As reported in the Company’s 2021 Annual Report on Form 10-K.
The purchase price allocation presented above has been finalized as of the third quarter of 2022. The measurement period adjustments to the initial allocation were based on more detailed information obtained about the specific assets acquired and liabilities assumed, specifically, the refinement of certain assumptions in the value of customer relationships based on an analysis of historical customer-specific data and post-closing adjustments to the working capital acquired including certain holdbacks.
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 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 paid this contingent consideration during the second quarter of 2022. Acquisition-related costs for the Lily’s acquisition were immaterial.



The Hershey Company | Q3 2022 Form 10-Q | Page 11
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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 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)
D