HERSHEY COHSY

HERSHEY CO Income Taxes Disclosure

10-KFiled Feb 17, 20266 min read
INCOME TAXES
The components of income before income taxes were as follows:
For the years ended December 31,202520242023
Domestic
$1,160,843 $1,796,428$1,832,771
Foreign53,365 677,508 339,093 
Income before income taxes
$1,214,208 $2,473,936$2,171,864

The components of our provision for income taxes were as follows:

For the years ended December 31,202520242023
Current:
Federal$81,916 $23,345 $141,753 
State39,312 85,746 83,802 
Foreign87,428 70,371 68,289 
208,656 179,462 293,844 
Deferred:
Federal117,363 21,223 28,191 
State27,142 3,616 (9,531)
Foreign(22,212)48,396 (2,427)

122,293 73,235 16,233 
Total provision for income taxes$330,949 $252,697 $310,077 
Deferred taxes reflect temporary differences between the tax basis and financial statement carrying value of assets and liabilities. The significant temporary differences that comprised the deferred tax assets and liabilities are as follows:
December 31,20252024
Deferred tax assets:
Post-retirement benefit obligations
$26,692 $23,503 
Accrued expenses and other reserves
99,106 83,263 
Stock-based compensation
15,986 16,656 
Lease liabilities
95,415 98,915 
Accrued trade promotion reserves
20,890 18,706 
Net operating loss carryforwards
134,203 98,159 
Capital loss carryforwards8,453 8,002 
Other54,258 87,525 
Gross deferred tax assets455,003 434,729 
Valuation allowance(145,052)(117,239)
Total deferred tax assets309,951 317,490 
Deferred tax liabilities:
Property, plant and equipment, net334,995 295,911 
Acquired intangibles418,073 254,884 
Lease ROU assets74,448 78,852 
Inventories22,828 10,736 
Derivative instruments7,363 37,558 
Pension13,965 8,440 
Other90,017 18,287 
Total deferred tax liabilities961,689 704,668 
Net deferred tax liabilities$(651,738)$(387,178)
Included in:
Non-current deferred tax assets, net$27,802 $37,065 
Non-current deferred tax liabilities, net(679,540)(424,243)
Net deferred tax liabilities$(651,738)$(387,178)

Changes in deferred taxes were primarily due to acquired intangibles, derivative instruments, and accelerated tax depreciation on property, plant and equipment.
The valuation allowances as of December 31, 2025 and 2024 were primarily related to various foreign jurisdictions' net operating loss carryforwards and other deferred tax assets that we do not expect to realize.
The following table presents the updated requirements of ASU 2023-09 for 2025 and reconciles the federal statutory income tax rate with our effective income tax rate:
For the year ended December 31,2025
Amount ($)Percent (%)
Federal statutory income tax rate$254,984 21.0 %
Effect of cross-border tax laws
Foreign branch(22,863)(1.9)
Other4,660 0.4 
Domestic federal
Tax credits
Solar income tax credit investments(29,116)(2.4)
Other(1,864)(0.2)
Changes in valuation allowances(8,102)(0.7)
Non-taxable or non-deductible items6,020 0.5 
Other, net(3,786)(0.3)
State and local income taxes, net of federal income tax effect (1)49,658 4.1 
Foreign tax effects
Brazil
Changes in valuation allowance28,842 2.4 
Other(3,140)(0.3)
Mexico
Transfer pricing reimbursement(15,343)(1.3)
Other11,161 1.0 
Switzerland
Other income-based taxes13,381 1.1 
Other(14,911)(1.2)
Other foreign jurisdictions2,911 0.3 
Worldwide changes in unrecognized tax benefits58,457 4.8 
Effective income tax rate$330,949 27.3 %
(1) During the year ended December 31, 2025, state taxes in Pennsylvania, California, Indiana, and Illinois made up the majority (greater than 50%) of the tax effect in this category.
As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the following table reconciles the federal statutory income tax rate with our effective income tax rate:
For the years ended December 31,20242023
Federal statutory income tax rate21.0 %21.0 %
Increase (reduction) resulting from:
State income taxes, net of Federal income tax benefits2.4 2.8 
Foreign rate differences(1.2)(1.0)
Historic and solar tax credits(9.4)(9.5)
Tax contingencies(1.6)1.1 
Stock compensation(0.2)(0.5)
Other, net(0.8)0.4 
Effective income tax rate10.2 %14.3 %
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
December 31,20252024
Balance at beginning of year
$117,578 $149,625 
Additions for tax positions taken during prior years
12,867 7,207 
Reductions for tax positions taken during prior years
(6,845)(4,913)
Additions for tax positions taken during the current year
28,440 9,339 
Settlements
(23,344)(201)
Expiration of statutes of limitations
(900)(43,479)
Balance at end of year
$127,796 $117,578 
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $98,257 as of December 31, 2025, and $88,230 as of December 31, 2024.
We report accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized a net tax benefit of $14,472 in 2025, a net tax benefit of $7,068 in 2024 and a net tax expense of $12,027 in 2023, respectively, for interest and penalties. Accrued net interest and penalties were $44,786 as of December 31, 2025, and $30,286 as of December 31, 2024.
The Company and its subsidiaries file tax returns in the United States, including various state and local returns, and in other foreign jurisdictions. We are routinely audited by taxing authorities in our filing jurisdictions, and a number of these disputes are currently underway, including multi-year controversies at various stages of review, negotiation and litigation in Mexico, Canada, Switzerland and the United States. The outcome of tax audits cannot be predicted with certainty, including the timing of resolution or potential settlements. If any issues addressed in our tax audits are resolved in a manner not consistent with management’s expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs. Based on our current assessments, we believe adequate provision has been made for all income tax uncertainties.
As of December 31, 2025, we had approximately $770,866 of undistributed earnings of our international subsidiaries. We continue to reinvest the remainder of the earnings outside of the United States for which there would be a material tax implication to distributing, such as withholding tax, for the foreseeable future and, therefore, have not recognized additional tax expense on these earnings beyond the one-time U.S. repatriation tax due under the 2017 Tax Cuts and Jobs Act.
The following table presents the updated requirements of ASU 2023-09 for 2025 which requires additional information about cash taxes paid disaggregated by jurisdiction. Cash taxes paid for prior periods are presented as a supplemental disclosure in the Consolidated Statements of Cash Flows:

For the year ended December 31,2025
U.S. Federal$20,013 
U.S. State & Local
Pennsylvania7,589 
Other37,167 
44,756 
Foreign
Mexico44,039 
Switzerland24,693 
Other7,115 
75,847 
Total cash paid for income taxes$140,616 
One Big Beautiful Bill Act
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA introduces changes to United States tax policy, trade regulations, and federal spending priorities. Key provisions include the extension and modification of tax provisions from the 2017 Tax Cuts and Jobs Act, modification of certain energy-related tax credits and incentives, and timing of deductions related to certain domestic expenses. The OBBBA did not have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2025.

Organization for Economic Cooperation Development
The Organization for Economic Cooperation and Development (“OECD”) introduced Global Anti-Base Erosion and Profit Shifting Pillar Two regulations which aim to ensure that multi-national entities that exceed the threshold revenue levels are subject to a minimum effective tax rate of 15% in jurisdictions where they operate. Numerous countries, including European Union member states, have enacted, or are expected to enact, related legislation with general implementation of a global minimum tax as of January 1, 2025. The Company is subject to OECD Pillar Two regulations, which may result in additional tax liabilities in jurisdictions where the effective tax rate falls below the 15% threshold. The Company has evaluated and will continue to monitor the impact of these new rules but does not anticipate that they will have a material impact on the Company’s effective tax rate.
Investments in Partnerships Qualifying for Tax Credits
We invest in partnerships which make equity investments in projects eligible to receive federal historic and energy tax credits. The investments are accounted for under the equity method and reported within other non-current assets in our Consolidated Balance Sheets. The tax credits, when realized, are recognized as a reduction of tax expense under the flow-through method, at which time the corresponding equity investment is written-down to reflect the remaining value of the future benefits to be realized. For the years ended December 31, 2025, 2024 and 2023 we recognized investment tax credits and related outside basis difference benefits totaling $34,419, $300,597 and $251,827, respectively, and we wrote-down the equity investment by $24,483, $243,311 and $210,484, respectively, to reflect the realization of these benefits. The equity investment write-down is reflected within other (income) expense, net in the Consolidated Statements of Income (see Note 17).

Historical Timeline

Fiscal YearFiled
2025Feb 17, 2026Showing above
2024Feb 18, 2025
2023Feb 20, 2024
2022Feb 17, 2023
2021Feb 18, 2022
2020Feb 17, 2021
2019Feb 20, 2020
2018Feb 22, 2019
2017Feb 27, 2018
2016Feb 21, 2017
2015Feb 26, 2016

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

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