|
|
 | | | |
- close
- close
- close
- close
Hershey Foods 10-Q 2008 UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
For the
quarterly period ended June 29, 2008
OR
For the
transition period
from
______to_______
Commission
file number 1-183
THE HERSHEY
COMPANY
100
Crystal A Drive
Hershey,
PA 17033
Registrant’s
telephone number: 717-534-4200
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 o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 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 o No x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Common
Stock, $1 par value – 166,215,273 shares, as of July 18, 2008. Class
B Common Stock,
$1 par
value – 60,805,727 shares, as of July 18, 2008.
THE
HERSHEY COMPANY
INDEX
-2-
PART
I - FINANCIAL INFORMATION
Item
1. Consolidated Financial Statements (Unaudited)
THE
HERSHEY COMPANY
CONSOLIDATED
STATEMENTS OF INCOME
(in
thousands except per share amounts)
The
accompanying notes are an integral part of these consolidated financial
statements. -3-
THE
HERSHEY COMPANY
CONSOLIDATED
STATEMENTS OF INCOME
(in
thousands except per share amounts)
The
accompanying notes are an integral part of these consolidated financial
statements. -4-
THE
HERSHEY COMPANY
CONSOLIDATED
BALANCE SHEETS
(in
thousands of dollars)
The
accompanying notes are an integral part of these consolidated balance
sheets. -5-
THE
HERSHEY COMPANY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands of dollars)
The
accompanying notes are an integral part of these consolidated financial
statements. -6-
THE
HERSHEY COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS
OF PRESENTATION
Our
unaudited consolidated financial statements provided in this report include the
accounts of the Company 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, or we
have significant control over an entity through contractual or economic
interests in which we are the primary beneficiary. We prepared these statements
in accordance with the instructions to Form 10-Q. These statements do
not include all of the information and footnotes required by U.S. generally
accepted accounting principles for complete financial statements.
We
included all adjustments (consisting only of normal recurring accruals) which we
believe were considered necessary for a fair presentation. Operating results for
the six months ended June 29, 2008 may not be indicative of the results that may
be expected for the year ending December 31, 2008, because of the seasonal
effects of our business. For more information, refer to the consolidated
financial statements and notes included in our 2007 Annual Report on
Form 10-K.
2. BUSINESS
ACQUISITIONS AND DIVESTITURES
In May
2007, we entered into an agreement with Godrej Beverages and Foods, Ltd., one of
India’s largest consumer goods, confectionery and food companies, to manufacture
and distribute confectionery products, snacks and beverages across
India. Under the agreement, we invested $61.5 million during 2007 and
own a 51% controlling interest in Godrej Hershey Ltd. (formerly Godrej Hershey
Foods and Beverages Company). Total liabilities assumed in 2007 were $51.6
million. Effective in May 2007, this business acquisition was included in our
consolidated results, including the related minority interest.
Also in
May 2007, we entered into a manufacturing agreement in China with Lotte
Confectionery Co., LTD., to produce Hershey products and certain Lotte products
for the market in China. We invested $39.0 million in 2007 and own a 44%
interest. We are accounting for this investment using the equity
method.
In
January 2008, our Brazilian subsidiary, Hershey do Brasil, entered into a
cooperative agreement with Pandurata Alimentos LTDA (“Bauducco”), a leading
manufacturer of baked goods in Brazil whose primary brand is Bauducco. The
arrangement with Bauducco will leverage Bauducco’s strong sales and distribution
capabilities for our products throughout Brazil. Under this agreement we will
manufacture and market, and they will sell and distribute our products. In the
fourth quarter of 2007, we recorded a goodwill impairment charge and approved a
business realignment program associated with initiatives to improve distribution
and enhance performance of our business in Brazil. In the first quarter of 2008,
we received approximately $2.0 million in cash and recorded an other intangible
asset of $13.7 million associated with the cooperative agreement with Bauducco
in exchange for a 49% interest in Hershey do Brasil. We will maintain a 51%
controlling interest in Hershey do Brasil.
3. STOCK
COMPENSATION PLANS
The
Hershey Company Equity and Incentive Compensation Plan (“EICP”) is the plan
under which grants using shares for compensation and incentive purposes are
made. The following table summarizes our stock compensation
costs:
-7-
The
increase in share-based compensation expense for the second quarter of 2008
resulted from the impact of lowered performance expectations for the PSUs in
2007.
The
increase in share-based compensation expense for the first six months of 2008
resulted from the impact of lowered performance expectations for the PSUs in
2007 and the timing of the 2007 stock option grants. Our annual grant
of stock options to management level employees, which customarily has occurred
in February of each year, was delayed in 2007 pending approval by our
stockholders of the EICP at the annual meeting in April 2007. In 2008, we
resumed our customary February grant schedule.
We
estimated the fair value of each stock option grant on the date of the grant
using a Black-Scholes option-pricing model and the weighted-average assumptions
set forth in the following table:
Stock
Options
A summary
of the status of our stock options as of June 29, 2008, and the change during
2008 is presented below:
-8-
Performance
Stock Units and Restricted Stock Units
A summary
of the status of our performance stock units and restricted stock units as of
June 29, 2008, and the change during 2008 is presented below:
As of
June 29, 2008, there was $14.8 million of unrecognized compensation cost
relating to non-vested performance stock units and restricted stock
units. We expect to recognize that cost over a weighted-average
period of 2.9 years.
The
higher 2007 amount was due to the payment of awards earned for the 2004-2006
performance stock unit cycle. In 2008, no payment was made for the 2005-2007
performance stock unit cycle based on the Company’s performance against the two
financial objectives which fell below the threshold levels required to earn an
award.
Deferred
performance stock units, deferred restricted stock units, and directors’ fees
and accumulated dividend amounts representing deferred stock units totaled
430,811 units as of June 29, 2008. Each unit is equivalent to one
share of the Company’s Common Stock.
No stock
appreciation rights were outstanding as of June 29, 2008.
For more
information on our stock compensation plans, refer to the consolidated financial
statements and notes included in our 2007 Annual Report on Form 10-K and our
proxy statement for the 2008 annual meeting of stockholders.
4. INTEREST
EXPENSE
Net
interest expense consisted of the following:
5. BUSINESS
REALIGNMENT INITIATIVES
In
February 2007, we announced a comprehensive, three-year supply chain
transformation program (the “global supply chain transformation program”) and,
in December 2007, we initiated a business realignment program associated with
our business in Brazil (together, “the 2007 business realignment
initiatives”).
When
completed, the global supply chain transformation program will greatly enhance
our manufacturing, sourcing and customer service capabilities, reduce
inventories resulting in improvements in working capital and generate
significant resources to invest in our growth initiatives. This
program will provide for accelerated marketplace momentum within our core U.S.
business, creation of innovative new product platforms to meet customer needs
and disciplined global expansion. -9-
Under the
program, which is being implemented in stages over three years, we will
significantly increase manufacturing capacity utilization by reducing the number
of production lines by more than one-third, outsource production of low
value-added items and construct a flexible, cost-effective production facility
in Monterrey, Mexico to meet current and emerging marketplace
needs. The program will result in a total net reduction of 1,500
positions across our supply chain over the three-year implementation
period.
The
estimated pre-tax cost of the program announced in February 2007 was from $525
million to $575 million over three years. The total included from
$475 million to $525 million in business realignment costs and approximately $50
million in project implementation costs. The costs will be incurred
primarily in 2007 and 2008. Total costs of $400.0 million were
recorded in 2007 and total costs of $66.0 million were recorded during the first
six months of 2008 for this program.
In 2001,
we acquired a small business in Brazil, Hershey do Brasil, which has not gained
profitable scale or adequate market distribution. In an effort to improve the
performance of this business, in January 2008 Hershey do Brasil entered into a
cooperative agreement with Bauducco. In the fourth quarter of 2007 we recorded a
goodwill impairment charge of $12.3 million associated with Hershey do Brasil,
along with a business realignment charge of $.3 million primarily related to
employee separation costs. Business realignment charges of $3.9 million were
recorded in the first six months of 2008.
Charges
(credits) associated with business realignment initiatives recorded during the
three-month and six-month periods ended June 29, 2008 and July 1, 2007 were as
follows:
The
charge of $15.0 million recorded in cost of sales during the second quarter of
2008 related primarily to the accelerated depreciation of fixed assets over a
reduced estimated remaining useful life and start-up costs associated with the
global supply chain transformation program. The $2.4 million recorded
in selling, marketing and administrative expenses related primarily to project
administration for the global supply chain transformation program. In
determining the costs related to fixed asset impairments, fair value was
estimated based on the expected sales proceeds. The $7.1 million of
losses on sale of fixed assets resulted from the write-off of machinery and
equipment at a plant which was sold during the quarter. The $5.5
million of fixed asset impairments and plant closure expenses for 2008 related
primarily to the preparation of plants for sale and line removal costs. Certain
real estate with a carrying value of $12.9 million was being held for sale as of
June 29, 2008. The decrease from the prior quarter was due to asset
sales during the second quarter. The
-10-
global
supply chain transformation program employee separation costs included $3.1
million related to involuntary terminations at the North American manufacturing
facilities which are being closed and $4.9 million primarily related to pension
settlements. The global supply chain transformation program had
identified six manufacturing facilities which would be closed. As of
June 29, 2008, the facilities located in Dartmouth, Nova Scotia; Montreal,
Quebec and Oakdale, California have been closed and sold. The facility located
in Naugatuck, Connecticut has been closed and is being held for sale. The
facilities in Reading, Pennsylvania and Smiths Falls, Ontario are being held and
used pending closure, following which they will be offered for
sale.
The
charge of $40.2 million recorded in cost of sales during the first six months of
2008 related primarily to the accelerated depreciation of fixed assets over a
reduced estimated remaining useful life and start-up costs associated with the
global supply chain transformation program. The $3.9 million recorded
in selling, marketing and administrative expenses related primarily to project
administration for the global supply chain transformation program. In
determining the costs related to fixed asset impairments, fair value was
estimated based on the expected sales proceeds. The $6.8 million of
gains on sale of fixed assets resulted from the receipt of proceeds in excess of
the carrying value primarily from the sale of a warehousing and distribution
facility. The $15.3 million of fixed asset impairments and plant closure
expenses for 2008 related primarily to the preparation of plants for sale and
line removal costs. The global supply chain transformation program
employee separation costs included $7.0 million related to involuntary
terminations at the North American manufacturing facilities which are being
closed and $4.9 million primarily related to pension settlements.
The
charges (credits) for the Brazilian business realignment were related to costs
for involuntary terminations and costs associated with office consolidation
related to the cooperative agreement with Bauducco.
The
charge of $41.3 million recorded in cost of sales during the second quarter of
2007 related to the accelerated depreciation of fixed assets over a reduced
estimated remaining useful life and costs related to inventory
reductions. The $3.3 million recorded in selling, marketing and
administrative expenses related primarily to project
administration. In determining the costs related to fixed asset
impairments, fair value was estimated based on the expected sales
proceeds. The employee separation costs included $22.3 million for
involuntary terminations at the North American manufacturing facilities which
have been closed or are being closed. The employee separation costs
also included $29.2 million for charges relating to pension and other
post-retirement benefits curtailments and special termination
benefits.
The
charge of $51.2 million recorded in cost of sales during the first six months of
2007 related to the accelerated depreciation of fixed assets over a reduced
estimated remaining useful life and costs related to inventory
reductions. The $6.3 million recorded in selling, marketing and
administrative expenses related primarily to project
administration. In determining the costs related to fixed asset
impairments, fair value was estimated based on the expected sales
proceeds. The employee separation costs included $23.7 million
for involuntary terminations and $29.2 million for charges relating to pension
and other post-retirement benefits curtailments and special termination
benefits.
The June
29, 2008 liability balance relating to the 2007 business realignment initiatives
was $46.6 million for employee separation costs. During the first six
months of 2008, we made payments against the liabilities recorded for the 2007
business realignment initiatives of $30.3 million principally related to
employee separation costs. -11-
6. EARNINGS
PER SHARE
In
accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share, we
compute Basic and Diluted Earnings Per Share based on the weighted-average
number of shares of the Common Stock and the Class B Common Stock outstanding as
follows:
The Class
B Common Stock is convertible into Common Stock on a share for share basis at
any time. In accordance with proposed Financial Accounting Standards Board
(“FASB”) Staff Position No. FAS 128-a, Computational Guidance for Computing
Diluted EPS under the Two-Class Method, the calculation of earnings per
share-diluted for the Class B Common Stock was performed using the two-class
method and the calculation of earnings per share-diluted for the Common Stock
was performed using the if-converted method.
For the
three-month and six-month periods ended June 29, 2008, 12.8 million stock
options were not included in the diluted earnings per share calculation because
the effect would have been antidilutive. For the three-month and six-month
periods ended July 1, 2007, 5.6 million stock options were not included in
the diluted earnings per share calculation because the effect would have been
antidilutive.
7. DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES
We
account for derivative instruments in accordance with Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended (“SFAS No.
133”). SFAS No. 133 requires us to recognize all derivative
instruments at fair value. We classify the derivatives as assets or liabilities
on the balance sheet. As of June 29, 2008 and July 1, 2007, all of our
derivative instruments were designated as cash flow hedges. -12-
Summary
of Activity
Our cash
flow hedging derivative activity during the three months and six months ended
June 29, 2008 and July 1, 2007 was as follows:
The
amount of net gains on cash flow hedging derivatives, including foreign exchange
forward contracts, interest rate swap agreements and commodities futures
contracts, expected to be reclassified into earnings in the next twelve months
was approximately $26.8 million after tax as of June 29, 2008. This amount was
primarily associated with commodities futures contracts.
For more
information, refer to the consolidated financial statements and notes included
in our 2007 Annual Report on Form 10-K.
8. COMPREHENSIVE
INCOME
A summary
of the components of comprehensive income (loss) is as follows:
-13-
-14-
The
components of accumulated other comprehensive income (loss) as shown on the
Consolidated Balance Sheets are as follows:
9. INVENTORIES
We value
the majority of our inventories under the last-in, first-out (“LIFO”) method and
the remaining inventories at the lower of first-in, first-out (“FIFO”) cost or
market. Inventories were as follows:
The
increase in raw material inventories as of June 29, 2008 resulted from the
timing of deliveries to support manufacturing requirements and higher prices in
2008. The increase in finished goods inventories was primarily associated with
seasonal sales patterns and the introduction of new products.
10. SHORT-TERM
DEBT
As a
source of short-term financing, we utilize commercial paper or bank loans with
an original maturity of three months or less. In December 2006, we entered into
a five-year unsecured revolving credit agreement. The credit limit is $1.1
billion with an option to borrow an additional $400 million with the concurrence
of the lenders. During the fourth quarter of 2007, the lenders approved a
one-year extension to the term of this agreement in accordance with our option
under the agreement. These funds may be used for general corporate purposes. The
unsecured revolving credit agreement contains certain financial and other
covenants, customary representations, warranties, and events of default. As of
June 29, 2008, we complied with all covenants pertaining to the credit
agreement. There were no significant compensating balance agreements that
legally restricted these funds. For more information, refer to the consolidated
financial statements and notes included in our 2007 Annual Report on Form
10-K.
In August
2007, we entered into an unsecured revolving short-term credit agreement to
borrow up to an additional $300 million because we believed at the time that
seasonal working capital needs, share repurchases and other business activities
would cause our borrowings to exceed the $1.1 billion borrowing limit available
under our five-year credit agreement. We used the funds borrowed
under this new agreement for general corporate purposes, including commercial
paper backstop. Although the new agreement was scheduled to expire in
August 2008, we elected to terminate it in June 2008 because we determined that
we no longer needed the additional borrowing capacity provided by the
agreement.
11. LONG-TERM
DEBT
In May
2006, we filed a shelf registration statement on Form S-3 that registered an
indeterminate amount of debt securities. This registration statement was
effective immediately upon filing under Securities and Exchange Commission
regulations governing “well-known seasoned issuers” (the “WKSI Registration
Statement”). In March 2008, the Company issued $250 million of 5.0% Notes due
April 1, 2013 under the WKSI Registration Statement. The net proceeds of this
debt issuance were used to repay a portion of the Company’s outstanding
indebtedness under its short-term commercial paper program. -15-
12. FINANCIAL
INSTRUMENTS
The
carrying amounts of financial instruments including cash and cash equivalents,
accounts receivable, accounts payable and short-term debt approximated fair
value as of June 29, 2008 and December 31, 2007, because of the relatively short
maturity of these instruments.
The
carrying value of long-term debt, including the current portion, was
$1,530.9 million as of June 29, 2008, compared with a fair value of
$1,556.6 million, an increase of $25.7 million over the carrying value,
based on quoted market prices for the same or similar debt issues.
Foreign
Exchange Forward Contracts
The
following table summarizes our foreign exchange activity:
Our
foreign exchange forward contracts mature in 2008 and 2009.
We define
the fair value of foreign exchange forward contracts as the amount of the
difference between contracted and current market foreign currency exchange rates
at the end of the period. On a quarterly basis, we estimate the fair value of
foreign exchange forward contracts by obtaining market quotes for future
contracts with similar terms, adjusted where necessary for maturity differences.
We do not hold or issue financial instruments for trading purposes.
The total
fair value of our foreign exchange forward contracts included in prepaid
expenses and other current assets, accrued liabilities and non-current assets
(liabilities), as appropriate, on the Consolidated Balance Sheets were as
follows:
13. FAIR
VALUE ACCOUNTING
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value
Measurements (“SFAS No. 157”). SFAS No. 157 applies a consistent
definition to fair value, establishes a framework for measuring fair value in
U.S. generally accepted accounting principles (“GAAP”), and expands disclosures
about fair value measurements.
SFAS No.
157 establishes a fair value measurement hierarchy to price a particular asset
or liability. The fair value of the asset or liability is determined based on
inputs or assumptions that market participants would use in pricing the asset or
liability. These assumptions consist of (1) observable inputs - market data
obtained from independent sources, or (2) unobservable inputs - market data
determined using the company’s own assumptions about valuation.
SFAS No.
157 establishes a fair value hierarchy to prioritize the inputs to valuation
techniques, with the highest priority being given to Level 1 inputs and the
lowest priority to Level 3 inputs, as defined below:
-16-
In
addition, SFAS No. 157 requires disclosures about the use of fair value to
measure assets and liabilities to enable the assessment of inputs used to
develop fair value measures, and for unobservable inputs, to determine the
effects of the measurements on earnings.
Effective
January 1, 2008, we partially adopted SFAS No. 157 and have applied its
provisions to financial assets and liabilities that are recognized or disclosed
at fair value on a recurring basis (at least annually). We have not yet adopted
SFAS No. 157 for nonfinancial assets and liabilities, in accordance with FASB
Staff Position 157-2, Effective Date of FASB Statement No.
157 (“FSP 157-2”). FSP 157-2 defers the effective date of SFAS No. 157 to
January 1, 2009, for nonfinancial assets and nonfinancial liabilities, except
for items that are recognized or disclosed on a recurring basis.
We use
certain derivative instruments from time to time to manage interest rate,
foreign currency exchange rate and commodity market price risk exposures, all of
which are recorded at fair value based on quoted market prices or
rates.
A summary
of our cash flow hedging derivative assets and liabilities measured at fair
value on a recurring basis as of June 29, 2008, is as
follows:
As of
June 29, 2008, cash flow hedging derivative Level 1 assets were related to cash
transfers receivable on commodities futures contracts reflecting the change in
quoted market prices on the last trading day for the period. We account for
commodities futures contracts in accordance with SFAS No. 133. We make or
receive cash transfers to or from commodity futures brokers on a daily basis
reflecting changes in the value of futures contracts on the
IntercontinentalExchange or various other exchanges. These changes in value
represent unrealized gains and losses.
As of
June 29, 2008, cash flow hedging derivative Level 2 assets were principally
related to the fair value of foreign exchange forward contracts. We define the
fair value of foreign exchange forward contracts as the amount of the difference
between the contracted and current market foreign currency exchange rates at the
end of the period. We estimate the fair value of foreign exchange forward
contracts on a quarterly basis by obtaining market quotes for future contracts
with similar terms, adjusted where necessary for maturity
differences.
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities—Including an amendment of FASB
Statement No. 115 (“SFAS No. 159”). SFAS No. 159 permits entities to
choose to measure many financial instruments and other items at fair value. The
objective of SFAS No. 159 is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions.
As of
January 1, 2008, we elected not to adopt the fair value option under SFAS No.
159 for any financial instruments or other items.
14. INCOME
TAXES
During
the first quarter of 2008, the U.S. Internal Revenue Service commenced its audit
of our U.S. income tax returns for 2005 and 2006. It is reasonably possible that
this audit will be completed in 2009, but it is not possible at this time to
estimate the resolution and any possible refunds or payments. -17-
15. PENSION
AND OTHER POST-RETIREMENT BENEFIT PLANS
Components
of net periodic benefits (income) cost consisted of the following:
We made
contributions of $.5 million and $6.0 million to the pension plans and
other benefits plans, respectively, during the second quarter of
2008. In the second quarter of 2007, we made contributions of
$2.7 million and $5.9 million to our pension and other benefits plans,
respectively. The contributions in 2008 and 2007 primarily reflected
benefit payments from our non-qualified pension plans and post-retirement
benefit plans.
In the
second quarter of 2008, there was net periodic pension benefits income of
$4.8 million, compared with net periodic benefits income of
$2.2 million in the second quarter of 2007. The higher net
periodic pension benefits income primarily reflected the lower service cost
resulting from a reduction in employment levels under the global supply chain
transformation program. The Special termination benefits, Settlement
and Curtailment losses recorded in the second quarter of 2008 and 2007 primarily
related to the 2007 business realignment initiatives.
We made
contributions of $3.8 million and $11.9 million to the pension plans and
other benefits plans, respectively, during the first six months of
2008. In the first six months of 2007, we made contributions of
$7.8 million and $10.4 million to our pension and other benefits
plans, respectively. The contributions in 2008 and 2007 primarily
reflected benefit payments from our non-qualified pension plans and
post-retirement benefit plans.
In the
first six months of 2008, there was net periodic pension benefits income of
$8.7 million, compared with net periodic benefits income of
$3.6 million in the first six months of 2007. The increased net
periodic pension benefits -18-
income
primarily reflected lower service cost resulting from a reduction in employment
levels under the global supply chain transformation program. The
Special termination benefits, Settlement and Curtailments losses recorded during
the first six months of 2008 and 2007 primarily related to the 2007 business
realignment initiatives.
For 2008,
there are no minimum funding requirements for the domestic plans and minimum
funding requirements for the non-domestic plans are not
material. During the remainder of 2008, we anticipate contributions
to our pension plans of $25.0 million to $30.0 million which includes benefit
payments from our non-qualified plans.
For more
information, refer to the consolidated financial statements and notes included
in our 2007 Annual Report on Form 10-K.
16. SHARE
REPURCHASES
Repurchases
and Issuances of Common Stock
A summary
of cumulative share repurchases and issuances is as follows:
17. PENDING
ACCOUNTING PRONOUNCEMENTS
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (revised 2007), Business
Combinations (“SFAS No. 141R”), and Statement of Financial Accounting
Standards No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS No.
160”). Both of these new standards are effective for fiscal years beginning
after December 15, 2008, with early adoption prohibited. These standards
significantly change the accounting for and reporting of future business
combinations and noncontrolling interests (minority interests) in consolidated
financial statements. We are required to adopt these standards on January 1,
2009 and are currently evaluating their impact on our consolidated financial
statements upon adoption.
SFAS
No. 141R establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquired business. SFAS No. 141R also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.
SFAS No.
160 establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary and
requires the noncontrolling interest to be reported as a component of equity. In
addition, changes in a parent’s ownership interest while the parent retains its
controlling interest will be accounted for as equity transactions, and any
retained noncontrolling equity investment upon the deconsolidation of a
subsidiary will be initially measured at fair value. Disclosures that clearly
identify and distinguish between the interests of the parent and the interests
of noncontrolling owners will be required.
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133
(“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about an entity’s
derivative and hedging activities. Entities will be required to provide enhanced
disclosures about how and why an entity uses derivative instruments, how these
instruments are accounted for, and how they affect the entity’s financial
position, financial performance and cash flows. This new standard is effective
for -19-
our
Company as of January 1, 2009 and we are currently evaluating the impact on
disclosures associated with our derivative and hedging activities.
In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS No. 162”). SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States. We do not expect
any significant changes to our financial accounting and reporting as a result of
the issuance of SFAS No. 162. -20-
Item
2. Management’s Discussion and Analysis of Results of Operations and
Financial Condition
SUMMARY
OF OPERATING RESULTS
Analysis
of Selected Items from Our Income Statement
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||