HERSHEY CO

Previous wording

This Management’s Discussion and Analysis (“MD&A”) is intended to provide an understanding of Hershey’s financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. This MD&A should be read in conjunction with our Unaudited Consolidated Financial Statements and accompanying notes included in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024 (“this Quarterly Report on Form 10-Q”). This discussion contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially. Refer to the Safe Harbor Statement below as well as the Risk Factors and other information contained in our 2023 Annual Report on Form 10-K, as updated by Part II, Item 1A in this Quarterly Report on Form 10-Q, for information concerning the key risks to achieving future performance goals.

Current wording

This Management’s Discussion and Analysis (“MD&A”) is intended to provide an understanding of Hershey’s financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. This MD&A should be read in conjunction with our Unaudited Consolidated Financial Statements and accompanying notes included in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 (“this Quarterly Report on Form 10-Q”). This discussion contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially. Refer to the Safe Harbor Statement below as well as the Risk Factors and other information contained in our 2023 Annual Report on Form 10-K, and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024, for information concerning the key risks to achieving future performance goals.

Previous wording

Throughout the first quarter of 2024, the U.S. consumer continued to drive momentum within the economy; however, we expect some moderation in consumer spending throughout the remainder of 2024 as cost fatigue and labor markets restrict income growth and constrain consumer spending power and purchasing behaviors. Net sales and net income increased during the three months ended March 31, 2024, as we continued to experience a dynamic macroeconomic environment, including price volatility related to select commodities, resulting in corresponding incremental costs and gross margin pressures. Despite specific actions taken to mitigate these gross margin pressures, higher prices for direct materials used to manufacture our products were, and continue to be, the primary incremental cost to our business (see Consolidated Results of Operations included in this MD&A). We utilize many exchange traded commodities for our business that are subject to price volatility, specifically cocoa products, which experienced a market price increase of approximately 140% since the beginning of the year (see Part I, Item 3 - Quantitative and Qualitative Disclosures about Market Risk included in this Quarterly Report on Form 10-Q). We continue to monitor and use our risk management strategy where possible to hedge commodity prices in order to mitigate corresponding increases in our raw materials and energy costs (see Part II, Item 1A- Risk Factors included in this Quarterly Report on Form 10-Q).

Current wording

Throughout the first six months of 2024, U.S. consumer behavior has continued to shift and evolve, as cost fatigue and labor markets restrict income growth and constrain consumer spending and purchasing patterns. As a result, consumer behavior related to our products has shifted. As such, during the six months ended June 30, 2024, we continued to experience a dynamic macroeconomic environment, including price volatility related to select commodities, resulting in corresponding incremental costs and gross margin pressures, and net sales and net income declines. Despite specific actions taken to mitigate these gross margin pressures, higher prices for direct materials used to manufacture our products were, and continue to be, the primary incremental cost to our business (see Consolidated Results of Operations included in this MD&A). We utilize many exchange traded commodities for our business that are subject to price volatility, specifically cocoa products, which experienced a market price increase of approximately 75% since the beginning of the year (see Part I, Item 3 - Quantitative and Qualitative Disclosures about Market Risk included in this Quarterly Report on Form 10-Q).

Previous wording

Furthermore, certain geopolitical events, specifically the conflict between Russia and Ukraine, have increased global economic and political uncertainty. For the three months ended March 31, 2024, this conflict did not have a material impact on our commodity prices or supply availability. However, we are continuing to monitor for any significant escalation or expansion of economic or supply chain disruptions or broader inflationary costs, which may result in material adverse effects on our results of operations.

Current wording

Furthermore, certain geopolitical events, specifically the conflict between Russia and Ukraine, have increased global economic and political uncertainty. For the six months ended June 30, 2024, this conflict did not have a material impact on our commodity prices or supply availability. However, we are continuing to monitor for any significant escalation or expansion of economic or supply chain disruptions or broader inflationary costs, which may result in material adverse effects on our results of operations.

Previous wording

Net sales were $3,252.7 million in the first quarter of 2024 compared to $2,987.6 million in the same period of 2023, an increase of $265.1 million, or 8.9%. The net sales increase reflects a favorable price realization of 5.2% driven by higher list prices primarily within our North America Confectionery and North America Salty Snacks segments. The net sales increase was further driven by a volume increase of 3.4% primarily due to an increase in everyday core U.S. confection, as a result of accelerated shipments in anticipation of our enterprise resource planning (“ERP”) system implementation, which was completed in the beginning of the second quarter of 2024, as well as an increase in salty snack brands. Foreign currency exchange rates resulted in a 0.3% impact.

Current wording

Net sales were $2,074.5 million in the second quarter of 2024 compared to $2,490.3 million in the same period of 2023, a decrease of $415.8 million, or 16.7%. The net sales decrease was driven by a volume decline of approximately 18%, primarily due to a decrease in everyday core U.S. confection, primarily as a result of accelerated shipments in the first quarter of 2024 due to the anticipation of our enterprise resource planning (“ERP”) system implementation, which was completed in the beginning of the second quarter of 2024. Consolidated volume decline was partially offset by an increase in salty snack brands. The net sales decrease was partially offset by a favorable price realization of approximately 1%, driven by higher list prices primarily within our North America Confectionery and International segments, partially offset by unfavorable price realization in our North America Salty Snacks segment. Foreign currency exchange rates resulted in a favorable impact of less than 1%.

Previous wording

For the first quarter of 2024, our total U.S. retail takeaway increased 7.0% in the expanded multi-outlet combined plus convenience store channels (Circana MULO + C-Stores), which includes candy, mint, gum, salty snacks and grocery items. Our U.S. candy, mint and gum (“CMG”) consumer takeaway increased 8.1% and experienced a CMG market share increase of 6 basis points. Our Salty consumer takeaway declined 4.1% in the first quarter of 2024 and experienced a Salty market share decline of 16 basis points.

Current wording

For the second quarter of 2024, our total U.S. retail takeaway declined 2.9% in the expanded multi-outlet combined plus convenience store channels (Circana MULO + C-Stores), which includes candy, mint, gum, salty snacks and grocery items. Our U.S. candy, mint and gum (“CMG”) consumer takeaway declined 5.0% and experienced a CMG market share decline of 138 basis points. Our Salty consumer takeaway increased 8.0% in the second quarter of 2024 and experienced a Salty market share increase of 22 basis points.

Previous wording

SM&A expenses were $618.0 million in the first quarter of 2024 compared to $581.6 million in the same period of 2023, an increase of $36.4 million, or 6.3%. Total advertising and related consumer marketing expenses increased 12.0% driven primarily by increases across all segments. SM&A expenses, excluding advertising and related consumer marketing, increased approximately 3.3% in the first quarter of 2024 driven by higher investments in capabilities and technology and higher compensation costs across segments.

Current wording

SM&A expenses were $541.0 million in the second quarter of 2024 compared to $571.8 million in the same period of 2023, a decrease of $30.8 million, or 5.4%. Total advertising and related consumer marketing expenses decreased 15.4% driven primarily by a decrease in the North America Confectionery segment. SM&A expenses, excluding advertising and related consumer marketing, decreased 0.8% in the second quarter of 2024 driven by lower compensation costs across segments, partially offset by $24.1 million of incremental business realignment costs, as well as higher investments in capabilities and technology.

Previous wording

We periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies. During the first quarter of 2024, we recorded no business realignment costs versus costs of $0.8 million in the first quarter of 2023. The costs in 2023 related to the International Optimization Program, which completed in 2023. The International Optimization Program was focused on optimizing our China operating model to improve our operational efficiency and provide for a strong, sustainable and simplified base going forward. In February 2024, the Board of Directors approved the Advancing Agility & Automation (“AAA”) Initiative, focused on leveraging new technology to improve supply chain and manufacturing-related spend, and optimize selling, general and administrative expenses. Costs associated with business realignment activities are classified in our Consolidated Statements of Income as described in Note 9 to the Unaudited Consolidated Financial Statements.

Current wording

We periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies. Excluding the portion recorded within Cost of Sales and SM&A expenses (as noted above), we recorded $4.9 million business realignment costs during the second quarter of 2024, versus a benefit of $0.3 million in the second quarter of 2023. The costs in 2024 related to the Advancing Agility & Automation (“AAA”) Initiative, which commenced in 2024, focused on leveraging new technology to improve supply chain and manufacturing-related spend, and optimize selling, general and administrative expenses. The costs in 2023 related to the International Optimization Program, which completed in 2023. The International Optimization Program was focused on optimizing our China operating model to improve our operational efficiency and provide for a strong, sustainable and simplified base going forward. Costs associated with business realignment activities are classified in our Consolidated Statements of Income as described in Note 9 to the Unaudited Consolidated Financial Statements.

Previous wording

Operating profit was $1,058.1 million in the first quarter of 2024 compared to $799.9 million in the same period of 2023, an increase of $258.2 million, or 32.3%. The increase was predominantly due to higher gross profit, partially offset by higher SM&A expenses, as noted above. Operating profit margin increased to 32.5% in 2024 from 26.8% in 2023 driven by the same factors noted above that resulted in higher gross margin for the period.

Current wording

Operating profit was $287.9 million in the second quarter of 2024 compared to $560.6 million in the same period of 2023, a decrease of $272.7 million, or 48.7%. The decrease was primarily due to lower gross profit and higher business realignment costs, partially offset by lower SM&A expenses, as noted above. Operating profit margin decreased to 13.9% in 2024 from 22.5% in 2023 driven by the same factors noted above that resulted in lower gross margin for the period.

Previous wording

Other (income) expense, net was $32.0 million in the first quarter of 2024 versus net expense of $2.9 million in the first quarter of 2023, an increase of $29.1 million, or 973.4%. The increase in net expense was primarily driven by an increase of $31.4 million of higher write-downs on equity investments qualifying for tax credits in 2024 versus the first quarter of 2023, partially offset by a decrease of $2.6 million of non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans.

Current wording

Other (income) expense, net was $0.6 million in the second quarter of 2024 versus net expense of $84.5 million in the second quarter of 2023, a decrease of $83.9 million, or 99.3%. The decrease in net expense was primarily driven by $77.4 million of lower write-downs on equity investments qualifying for tax credits in 2024 versus the second quarter of 2023, and a decrease of $7.1 million of non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans.

Previous wording

Cost of sales were $1,576.6 million in the first quarter 2024 compared to $1,605.3 million in the same period 2023, a decrease of $28.7 million, or 1.8%. The decrease was driven by an incremental $208.4 million of favorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases (See Part I, Item 3 - Quantitative and Qual itative Disclosures About Market Risk included in this Quarterly Report on Form 10-Q for more information). The decrease was further driven by $57.7 million of favorable supply chain productivity. The decreases were partially offset by $237.4 million driven by higher commodity costs, primarily driven by cocoa, unfavorable mix and higher supply chain costs.

Current wording

Cost of sales were $2,817.4 million in the first six months of 2024 compared to $2,963.5 million in the same period of 2023, a decrease of $146.1 million, or 4.9%. The decrease was driven by an incremental $176.5 million of favorable mark-to-market activity on our commodity derivative instruments intended to economically hedge future years’ commodity purchases (See Part I, Item 3 - Quantitative and Qualitative Disclosures About Market Risk included in this Quarterly Report on Form 10-Q for more information). The decrease was further driven by $156.8 million related to lower sales volume. The decrease was partially offset by $187.2 million driven by higher commodity costs, higher supply chain costs, unfavorable mix and an increase of $9.7 million of incremental business realignment costs.

Previous wording

Gross margin was 51.5% in the first quarter of 2024 compared to 46.3% in the same period of 2023, an increase of 520 basis points. The increase was driven by favorable activity on our mark-to-market impact from commodity derivative instruments, favorable price realization, volume increases, and favorable supply chain productivity. The increase was partially offset by unfavorable commodity costs, higher supply chain costs, including higher labor costs, and unfavorable mix.

Current wording

Gross margin was 47.1% in the first six months of 2024 compared to 45.9% in the same period of 2023, an increase of 120 basis points. The increase was driven by favorable year-over-year mark-to-market impact from commodity derivative instruments, favorable price realization and volume declines. The increase was partially offset by higher supply chain costs, including higher logistics and labor costs, unfavorable product mix and increased business realignment costs.

Previous wording

Net interest expense was $39.8 million in the first quarter of 2024 compared to $37.7 million in the same period of 2023, an increase of $2.1 million, or 5.7%. The increase was primarily due to higher rates on long-term debt balances in 2024 versus 2023, specifically related to the $350 million 4.25% Notes and $400 million 4.50% Notes issued in May 2023. The increase was partially offset by higher interest income.

Current wording

Net interest expense was $81.2 million in the first six months of 2024 compared to $74.3 million in the same period of 2023, an increase of $6.9 million, or 9.2%. The increase was primarily due to higher rates on short-term debt balances in 2024 versus 2023, specifically related to outstanding commercial paper borrowings. The increase was further driven by higher rates on long-term debt balances in 2024 versus 2023, due to the $350 million 4.25% and $400 million 4.50% Notes issued in May 2023.

Previous wording

The effective income tax rate was 19.1% for the first quarter of 2024 compared with 22.7% for the first quarter of 2023. Relative to the 21% statutory rate, the 2024 effective tax rate was primarily impacted by investment tax credits partially offset by state taxes. Relative to the 21% statutory rate, the 2023 effective tax rate was impacted by state taxes, partially offset by employee share-based payments.

Current wording

Our effective income tax rate was 20.6% for the first six months of 2024 compared with 17.1% for the first six months of 2023. Relative to the 21% statutory rate, the 2024 effective tax rate was impacted by investment tax credits partially offset by state taxes. Relative to the 21% statutory rate, the 2023 effective tax rate was impacted by investment tax credits and employee share-based payments partially offset by state taxes and tax reserves.

Previous wording

Net income was $797.5 million in the first quarter of 2024 compared to $587.2 million in the same period of 2023, an increase of $210.3 million, or 35.8%. EPS-diluted was $3.89 in the first quarter of 2024 compared to $2.85 in the first quarter of 2023, an increase of $1.04, or 36.5%. The increase in both net income and EPS-diluted was driven primarily by higher gross profit, partially offset by higher SM&A expenses, higher other income and expenses and higher income taxes. Our 2024 EPS-diluted also benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.

Current wording

Net income was $978.3 million in the first six months of 2024 compared to $994.2 million in the same period of 2023, a decrease of $15.9 million, or 1.6%. EPS-diluted was $4.80 in the first six months of 2024 compared to $4.83 in the same period of 2023, a decrease of $0.03, or 0.6%. The decrease in both net income and EPS-diluted was driven by lower gross profit, higher income taxes and higher SM&A, partially offset by lower other income and expenses. Our 2024 EPS-diluted benefited from lower weighted-average shares outstanding as a result of share repurchases pursuant to our Board-approved repurchase programs.

Previous wording

The North America Confectionery segment is responsible for our chocolate and non-chocolate confectionery market position in the United States and Canada. This includes developing and growing 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. While a less significant component, 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 trademarks and products to third parties around the world. North America Confectionery results, which accounted for 83.2% and 82.1% of our net sales for the three months ended March 31, 2024 and April 2, 2023, respectively, were as follows:

Current wording

The North America Confectionery segment is responsible for our chocolate and non-chocolate confectionery market position in the United States and Canada. This includes developing and growing 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. While a less significant component, 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 trademarks and products to third parties around the world. North America Confectionery results, which accounted for 76.2% and 80.0% of our net sales for the three months ended June 30, 2024 and July 2, 2023, respectively, were as follows:

Previous wording

Net sales of our North America Confectionery segment were $2,707.3 million in the first quarter of 2024 compared to $2,452.2 million in the same period of 2023, an increase of $255.1 million, or 10.4%. The increase reflected a favorable price realization of 5.9% primarily due to list price increases on certain products across our portfolio. The increase was further driven by a volume increase of 4.5% driven primarily by an increase in everyday core U.S. confection, as a result of accelerated shipments in anticipation of our ERP system implementation, which was completed in the beginning of the second quarter of 2024.

Current wording

Net sales of our North America Confectionery segment were $1,579.8 million in the second quarter of 2024 compared to $1,993.1 million in the same period of 2023, a decrease of $413.3 million, or 20.7%. The decrease was driven by volume declines of approximately 22%, primarily driven by a decrease in everyday core U.S. confection as a result of accelerated shipments in the first quarter of 2024 in anticipation of our ERP system implementation, which was completed in the beginning of the second quarter of 2024. The decrease was partially offset by favorable price realization of approximately 1%, primarily due to list price increases on certain products across our portfolio.

Previous wording

Our North America Confectionery segment also includes licensing and owned retail. This includes our Hershey’s Chocolate World stores in the United States (3 locations), Niagara Falls (Ontario) and Singapore. Our net sales for licensing and owned retail increased approximately 11.0% during the first quarter of 2024 compared to the same period of 2023.

Current wording

Our North America Confectionery segment also includes licensing and owned retail. This includes our Hershey’s Chocolate World stores in the United States (3 locations), Niagara Falls (Ontario) and Singapore. Our net sales for licensing and owned retail increased approximately 0.6% during the second quarter of 2024 compared to the same period of 2023.

Previous wording

Net sales of our North America Salty Snacks segment were $275.1 million in the first quarter of 2024 compared to $270.0 million in the same period of 2023, an increase of $5.1 million, or 1.9%. The increase reflected a favorable price realization of 1.7%, due to list price increases on certain products across our portfolio, primarily Dot’s Homestyle Pretzels, and a volume increase of 0.2%, primarily due to Dot’s Homestyle Pretzels, substantially offset by volume declines in SkinnyPop snacks.

Current wording

Net sales of our North America Confectionery segment were $4,287.1 million in the first six months of 2024 compared to $4,445.2 million in the same period of 2023, a decrease $158.1 million, or 3.6%. The decrease was driven by volume declines of approximately 7%, primarily driven by a decrease in everyday core U.S. confection brands. The decrease was partially offset by favorable price realization of approximately 4%, due to list price increases on certain products across our portfolio.

Previous wording

The North America Salty Snacks segment is responsible for our grocery and snacks market positions, including our salty snacking products. North America Salty Snacks results, which accounted for 8.5% and 9.0% of our net sales for the three months ended March 31, 2024 and April 2, 2023, respectively, were as follows:

Current wording

The North America Salty Snacks segment is responsible for our grocery and snacks market positions, including our salty snacking products. North America Salty Snacks results, which accounted for 14.0% and 10.9% of our net sales for the three months ended June 30, 2024 and July 2, 2023, respectively, were as follows:

Previous wording

The International segment includes all other countries where we currently manufacture, import, market, sell or distribute chocolate and non-chocolate confectionery and other products. 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 Latin America, as well as Europe, Asia, the Middle East and Africa (“AMEA”) and other regions. International results, which accounted for 8.3% and 8.9% of our net sales for the three months ended March 31, 2024 and April 2, 2023, respectively, were as follows:

Current wording

The International segment includes all other countries where we currently manufacture, import, market, sell or distribute chocolate and non-chocolate confectionery and other products. 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 Latin America, as well as Europe, Asia, the Middle East and Africa (“AMEA”) and other regions. International results, which accounted for 9.9% and 9.0% of our net sales for the three months ended June 30, 2024 and July 2, 2023, respectively, were as follows:

Previous wording

Our International segment generated income of $42.8 million in the first quarter of 2024 compared to $55.0 million in the first quarter of 2023, a decrease of $12.2 million, or 22.2%, driven primarily by volume declines, increased commodity costs, and unfavorable product mix, partially offset by favorable price realization.

Current wording

Our International segment generated income of $25.0 million in the second quarter of 2024 compared to $41.1 million in the second quarter of 2023, a decrease of $16.1 million, or 39.2%, driven primarily by volume declines and higher commodity costs, partially offset by favorable price realization.

Previous wording

Net sales of our International segment were $270.3 million in the first quarter of 2024 compared to $265.4 million in the same period of 2023, an increase $4.9 million, or 1.8%. The increase was due to favorable price realization of 3.5%, and a favorable impact from foreign currency exchange rates of 3.1%, primarily driven by Mexico. The increase was partially offset by volume declines of 4.8% primarily driven by Mexico.

Current wording

Net sales of our International segment were $475.1 million in the first six months of 2024 compared to $490.3 million the same period of 2023, a decrease $15.2 million, or 3.1%. The decrease was due to volume declines of approximately 10% across the segment, partially offset by growth in Europe. The decrease was partially offset by favorable price realization of approximately 4% across the segment, and a favorable impact from foreign currency exchange rates of approximately 2%, primarily driven by Mexico.

Previous wording

In the first quarter of 2024, unallocated corporate expense totaled $172.9 million, as compared to $177.1 million in the first quarter of 2023, a decrease of $4.2 million, or 2.4%. The decrease was primarily driven by lower acquisition and integration related costs, partially offset by higher compensation costs and higher investments in capabilities and technology.

Current wording

In the second quarter of 2024, unallocated corporate expense totaled $161.5 million, as compared to $186.6 million in the second quarter of 2023, a decrease of $25.1 million, or 13.5%. The decrease was primarily driven by lower acquisition and integration related costs and lower compensation costs, partially offset by higher investments in capabilities and technology.

Previous wording

At March 31, 2024, our cash and cash equivalents totaled $520.4 million, an increase of $118.5 million compared to the 2023 year-end balance. Additional detail regarding the net uses of cash are outlined in the following discussion. Additionally, at March 31, 2024, we had outstanding short- and long-term debt totaling $5.4 billion, of which $305.4 million was classified as the current portion of long-term debt. Of the $305.4 million, $300 million of 2.050% Notes are due upon maturity on November 15, 2024. We believe we can satisfy these debt obligations with cash generated from our operation, issuing new debt, and/or by borrowing on our unsecured credit facility.

Current wording

At June 30, 2024, our cash and cash equivalents totaled $467.1 million, an increase of $65.1 million compared to the 2023 year-end balance. Additional detail regarding the net uses of cash are outlined in the following discussion. Additionally, at June 30, 2024, we had outstanding short- and long-term debt totaling $5.4 billion, of which $605.2 million was classified as the current portion of long-term debt. Of the $605.2 million, $300 million of 2.050% Notes are due upon maturity on November 15, 2024 and $300 million of 0.900% Notes are due upon maturity on June 1, 2025. We believe we can satisfy these debt obligations with cash generated from our operations, issuing new debt, and/or by borrowing on our unsecured credit facility.

Previous wording

Approximately 55% of the balance of our cash and cash equivalents at March 31, 2024 was held by subsidiaries domiciled outside of the United States. A majority of this balance is distributable to the United States without material tax implications, such as withholding tax. We intend to continue to reinvest the remainder of the earnings outside of the United States for which there would be a material tax implication to distributing for the foreseeable future and, therefore, have not recognized additional tax expense on these earnings. We believe that our existing sources of liquidity are adequate to meet anticipated funding needs at comparable risk-based interest rates for the foreseeable future. Acquisition spending and/or share repurchases could potentially increase our debt. Operating cash flow and access to capital markets are expected to satisfy our various short- and long-term cash flow requirements, including acquisitions and capital expenditures.

Current wording

Approximately 80% of the balance of our cash and cash equivalents at June 30, 2024 was held by subsidiaries domiciled outside of the United States. A majority of this balance is distributable to the United States without material tax implications, such as withholding tax. We intend to continue to reinvest the remainder of the earnings outside of the United States for which there would be a material tax implication to distributing for the foreseeable future and, therefore, have not recognized additional tax expense on these earnings. We believe that our existing sources of liquidity are adequate to meet anticipated funding needs at comparable risk-based interest rates for the foreseeable future. Acquisition spending and/or share repurchases could potentially increase our debt. Operating cash flow and access to capital markets are expected to satisfy our various short- and long-term cash flow requirements, including acquisitions and capital expenditures.

Previous wording

We generated cash of $569.2 million from operating activities in the first three months of 2024, a decrease of $186.2 million compared to $755.4 million in the same period of 2023. This decrease in net cash provided by operating activities was mainly driven by the following factors:

Current wording

We generated cash of $894.7 million from operating activities in the first six months of 2024, a decrease of $155.1 million compared to $1,049.8 million in the same period of 2023. This decrease in net cash provided by operating activities was mainly driven by the following factors:

Previous wording

•Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation, deferred income taxes, a write-down of equity investments, unrealized gains and losses on derivative contracts and other charges) resulted in $31.5 million of lower cash flow in 2024 relative to 2023.

Current wording

•Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation, deferred income taxes, a write-down of equity investments, unrealized gains and losses on derivative contracts and other charges) resulted in $261.7 million of lower cash flow in 2024 relative to 2023.

Previous wording

•In the aggregate, select net working capital items, specifically, trade accounts receivable, inventory, accounts payable and accrued liabilities, consumed cash of $237.7 million in 2024, compared to $128.2 million in 2023. This $109.5 million fluctuation was mainly driven by an increase in cash used by accounts receivable due to an increase in sales of everyday core U.S. confection brands and salty snack brands and the timing of vendor and supplier payments.

Current wording

•In the aggregate, select net working capital items, specifically, trade accounts receivable, inventory, accounts payable and accrued liabilities, consumed cash of $141.2 million in 2024, compared to $265.7 million in 2023. This $124.5 million fluctuation was mainly driven by a decrease in cash used by accounts receivable due to a decrease in sales of everyday core U.S. confection brands and lower inventory levels, partially offset by increase accounts payable and accrued liabilities due to the timing of vendor and supplier payments.

Previous wording

•Timing of income tax payments contributed to an increase in operating cash of $147.5 million in 2024, compared to an increase of $174.2 million in 2023. This $26.7 million fluctuation was primarily due to the variance in actual tax expense for 2024 relative to the timing of quarterly estimated tax payments. We paid cash of $31.3 million for income taxes during 2024 compared to $12.3 million in the same period of 2023.

Current wording

•Timing of income tax payments contributed to an increase in operating cash of $63.6 million in 2024, compared to a decrease of $3.7 million in 2023. This $67.3 million fluctuation was primarily due to the variance in actual tax expense for 2024 relative to the timing of quarterly estimated tax payments. We paid cash of $165.5 million for income taxes during 2024 compared to $229.1 million in the same period of 2023.

Previous wording

We used cash of $227.6 million for investing activities in the first three months of 2024, an increase of $39.3 million compared to $188.3 million in the same period of 2023. This increase in net cash used in investing activities was mainly driven by the following factors:

Current wording

We used cash of $389.7 million for investing activities in the first six months of 2024, a decrease of $126.3 million compared to $516.0 million in the same period of 2023. This decrease in net cash used in investing activities was mainly driven by the following factors:

Previous wording

•Capital spending. Capital expenditures, including capitalized software, primarily to support our ERP system implementation, capacity expansion, innovation and cost savings, were $213.3 million in the first three months of 2024 compared to $176.1 million in the same period of 2023. Expenditures increased due to progress on capacity expansion projects and our ERP system implementation. We expect 2024 capital expenditures, including capitalized software, to approximate $600 million to $650 million. The decrease in our 2024 capital expenditures is largely driven by the wind down of our key strategic initiatives, including completion of the upgrade of a new ERP system across the enterprise in 2024. We intend to use our existing cash and internally generated funds to meet our 2024 capital requirements.

Current wording

•Capital spending. Capital expenditures, including capitalized software, primarily to support our ERP system implementation, capacity expansion, innovation and cost savings, were $343.5 million in the first six months of 2024 compared to $330.5 million in the same period of 2023. Expenditures increased due to progress on capacity expansion projects and our ERP system implementation. We expect 2024 capital expenditures, including capitalized software, to approximate $600 million to $625 million, a slight decrease from our previously estimated range of $600 million to $650 million. The decrease in our 2024 capital expenditures is largely driven by the wind down of our key strategic initiatives, including completion of the upgrade of a new ERP system across the enterprise in 2024. We intend to use our existing cash and internally generated funds to meet our 2024 capital requirements.

Previous wording

•Investments in partnerships qualifying for tax credits. We make investments in partnership entities that in turn make equity investments in projects eligible to receive federal historic and renewable energy tax credits. We invested approximately $13.9 million in the first three months of 2024, compared to $12.3 million in the same period of 2023.

Current wording

•Investments in partnerships qualifying for tax credits. We make investments in partnership entities that in turn make equity investments in projects eligible to receive federal historic and renewable energy tax credits. We invested approximately $46.1 million in the first six months of 2024, compared to $19.1 million in the same period of 2023.

Previous wording

•Other investing activities. In 2024 and 2023, our other investing activities were minimal.

Current wording

•Other investing activities. In the first six months of 2024 and 2023, our other investing activities were minimal.

Previous wording

We used cash of $221.7 million for financing activities in the first three months of 2024, a decrease of $330.5 million compared to $552.2 million in the same period of 2023. This decrease in net cash used in financing activities was mainly driven by the following factors:

Current wording

We used cash of $452.9 million for financing activities in the first six months of 2024, a decrease of $53.8 million compared to $506.7 million in the same period of 2023. This decrease in net cash used in financing activities was mainly driven by the following factors:

Previous wording

•Short-term borrowings, net. In addition to utilizing cash on hand, we use short-term borrowings (commercial paper and bank borrowings) to fund seasonal working capital requirements and ongoing business needs. During the first three months of 2024, we generated cash of $569.9 million predominately through the issuance of short-term commercial paper, as well as an increase in short-term foreign bank borrowings. During the first three months of 2023, we used cash of $90.7 million to reduce a portion of our short-term commercial paper borrowings , partially offset by an increase in short-term foreign bank borrowings.

Current wording

•Short-term borrowings, net. In addition to utilizing cash on hand, we use short-term borrowings (commercial paper and bank borrowings) to fund seasonal working capital requirements and ongoing business needs. During the first six months of 2024, we generated cash of $610.0 million predominately through the issuance of short-term commercial paper, partially offset by a decrease in short-term foreign bank borrowings. During the

Previous wording

•Long-term debt borrowings and repayments. During the first three months of 2024 and 2023, long-term debt borrowings and repayments were minimal.

Current wording

•Long-term debt borrowings and repayments. During the first six months of 2024, we had no long-term debt borrowings or repayments activity. During the first six months of 2023, we issued $350 million of 4.250% Notes due in May 2028 and $400 million of 4.500% Notes due in May 2033 (the “2023 Notes”). Proceeds from the issuance of the 2023 Notes, net of discounts and issuance costs, totaled $744,092. Additionally, in May 2023 we repaid $250 million of 2.625% Notes and $500 million of 3.375% Notes due upon their maturity

Previous wording

•Dividend payments. Total dividend payments to holders of our Common Stock and Class B Common Stock were $273.4 million during the first three months of 2024, an increase of $66.0 million compared to $207.4 million in the same period of 2023. Details regarding our 2024 cash dividends paid to stockholders are as follows:

Current wording

•Dividend payments. Total dividend payments to holders of our Common Stock and Class B Common Stock were $543.9 million during the first six months of 2024, an increase of $130.4 million compared to $413.5 million in the same period of 2023. Details regarding our 2024 cash dividends paid to stockholders are as follows:

Previous wording

•Proceeds from exercised stock options and employee tax withholding. During the first three months of 2024, we received $4.1 million from employee exercises of stock options and paid $26.4 million of employee taxes withheld from share-based awards. During the first three months of 2023, we received $15.2 million from employee exercises of stock options and paid $28.3 million of employee taxes withheld from share-based awards. Variances are driven primarily by the number of shares exercised and the share price at the date of grant.

Current wording

•Proceeds from exercised stock options and employee tax withholding. During the first six months of 2024, we received $8.2 million from employee exercises of stock options and paid $30.0 million of employee taxes withheld from share-based awards. During the first six months of 2023, we received $22.0 million from employee exercises of stock options and paid $33.0 million of employee taxes withheld from share-based awards. Variances are driven primarily by the number of shares exercised and the share price at the date of grant.

Previous wording

•Such other matters as discussed in our 2023 Annual Report on Form 10-K and this Quarterly Report on Form 10-Q, including Part II, Item 1A, ”Risk Factors.”

Current wording

•Such other matters as discussed in our 2023 Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarter ending March 31, 2024, and this Quarterly Report on Form 10-Q, including Part II, Item 1A, ”Risk Factors.”