x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
State
of Incorporation
|
IRS
Employer Identification No.
|
|
Delaware
|
23-0691590
|
Part
I. Financial Information
|
Page
Number
|
Item
1. Consolidated Financial Statements
(Unaudited)
|
|
Consolidated
Statements of Income
|
|
Three
months ended September 30, 2007 and October 1, 2006
|
3
|
Consolidated
Statements of Income
|
|
Nine
months ended September 30, 2007 and October 1, 2006
|
4
|
Consolidated
Balance Sheets
|
|
September
30, 2007 and December 31, 2006
|
5
|
Consolidated
Statements of Cash Flows
|
|
Nine
months ended September 30, 2007 and October 1, 2006
|
6
|
Notes
to Consolidated Financial Statements
|
7
|
Item
2. Management’s Discussion and Analysis of
|
|
Results
of Operations and Financial Condition
|
21
|
Item
3. Quantitative and Qualitative Disclosures
|
|
About
Market Risk
|
28
|
Item
4. Controls and Procedures
|
28
|
Part
II. Other Information
|
|
Item
2. Unregistered Sales of Equity Securities and
Use
|
|
Of
Proceeds
|
29
|
Item
6. Exhibits
|
29
|
For
the Three Months Ended
|
||||||||
September
30,
2007
|
October
1,
2006
|
|||||||
Net
Sales
|
$ |
1,399,469
|
$ |
1,416,202
|
||||
Costs
and Expenses:
|
||||||||
Cost
of sales
|
928,846
|
870,733
|
||||||
Selling,
marketing and administrative
|
229,809
|
221,842
|
||||||
Business
realignment charge, net
|
112,043
|
1,568
|
||||||
Total
costs and expenses
|
1,270,698
|
1,094,143
|
||||||
Income
before Interest and Income Taxes
|
128,771
|
322,059
|
||||||
Interest
expense, net
|
33,055
|
31,835
|
||||||
Income
before Income Taxes
|
95,716
|
290,224
|
||||||
Provision
for income taxes
|
32,932
|
105,103
|
||||||
Net
Income
|
$ |
62,784
|
$ |
185,121
|
||||
Earnings
Per Share - Basic - Class B Common Stock
|
$ |
.26
|
$ |
.73
|
||||
Earnings
Per Share - Diluted - Class B Common Stock
|
$ |
.26
|
$ |
.72
|
||||
Earnings
Per Share - Basic - Common Stock
|
$ |
.28
|
$ |
.81
|
||||
Earnings
Per Share - Diluted - Common Stock
|
$ |
.27
|
$ |
.78
|
||||
Average
Shares Outstanding - Basic - Common Stock
|
167,165
|
173,232
|
||||||
Average
Shares Outstanding - Basic - Class B Common Stock
|
60,812
|
60,816
|
||||||
Average
Shares Outstanding - Diluted
|
230,388
|
237,681
|
||||||
Cash
Dividends Paid per Share:
|
||||||||
Common
Stock
|
$ |
.2975
|
$ |
.2700
|
||||
Class
B Common Stock
|
$ |
.2678
|
$ |
.2425
|
||||
For
the Nine Months Ended
|
||||||||
September
30,
2007
|
October
1,
2006
|
|||||||
Net
Sales
|
$ |
3,604,494
|
$ |
3,607,621
|
||||
Costs
and Expenses:
|
||||||||
Cost
of sales
|
2,390,402
|
2,222,175
|
||||||
Selling,
marketing and administrative
|
663,112
|
660,114
|
||||||
Business
realignment charge, net
|
219,316
|
9,139
|
||||||
Total
costs and expenses
|
3,272,830
|
2,891,428
|
||||||
Income
before Interest and Income Taxes
|
331,664
|
716,193
|
||||||
Interest
expense, net
|
90,523
|
84,528
|
||||||
Income
before Income Taxes
|
241,141
|
631,665
|
||||||
Provision
for income taxes
|
81,330
|
226,176
|
||||||
Net
Income
|
$ |
159,811
|
$ |
405,489
|
||||
Earnings
Per Share - Basic - Class B Common Stock
|
$ |
.65
|
$ |
1.58
|
||||
Earnings
Per Share - Diluted - Class B Common Stock
|
$ |
.65
|
$ |
1.57
|
||||
Earnings
Per Share - Basic - Common Stock
|
$ |
.72
|
$ |
1.76
|
||||
Earnings
Per Share - Diluted - Common Stock
|
$ |
.69
|
$ |
1.69
|
||||
Average
Shares Outstanding - Basic - Common Stock
|
168,444
|
175,977
|
||||||
Average
Shares Outstanding - Basic - Class B Common Stock
|
60,814
|
60,817
|
||||||
Average
Shares Outstanding - Diluted
|
232,026
|
240,326
|
||||||
Cash
Dividends Paid per Share:
|
||||||||
Common
Stock
|
$ |
.8375
|
$ |
.7600
|
||||
Class
B Common Stock
|
$ |
.7528
|
$ |
.6825
|
||||
ASSETS
|
September
30,
2007
|
December 31,
2006
|
||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ |
41,573
|
$ |
97,141
|
||||
Accounts
receivable - trade
|
638,312
|
522,673
|
||||||
Inventories
|
775,380
|
648,820
|
||||||
Deferred
income taxes
|
58,067
|
61,360
|
||||||
Prepaid
expenses and other
|
145,433
|
87,818
|
||||||
Total
current assets
|
1,658,765
|
1,417,812
|
||||||
Property,
Plant and Equipment, at cost
|
3,698,313
|
3,597,756
|
||||||
Less-accumulated
depreciation and amortization
|
(2,147,961 | ) | (1,946,456 | ) | ||||
Net
property, plant and equipment
|
1,550,352
|
1,651,300
|
||||||
Goodwill
|
601,017
|
501,955
|
||||||
Other
Intangibles
|
150,136
|
140,314
|
||||||
Other
Assets
|
495,307
|
446,184
|
||||||
Total
assets
|
$ |
4,455,577
|
$ |
4,157,565
|
||||
LIABILITIES,
MINORITY INTEREST AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$ |
252,276
|
$ |
155,517
|
||||
Accrued
liabilities
|
482,215
|
454,023
|
||||||
Accrued
income taxes
|
5,041
|
—
|
||||||
Short-term
debt
|
1,086,098
|
655,233
|
||||||
Current
portion of long-term debt
|
15,008
|
188,765
|
||||||
Total
current liabilities
|
1,840,638
|
1,453,538
|
||||||
Long-term
Debt
|
1,271,658
|
1,248,128
|
||||||
Other
Long-term Liabilities
|
616,103
|
486,473
|
||||||
Deferred
Income Taxes
|
171,545
|
286,003
|
||||||
Total
liabilities
|
3,899,944
|
3,474,142
|
||||||
Minority
Interest
|
16,284
|
—
|
||||||
Stockholders'
Equity:
|
||||||||
Preferred
Stock, shares issued:
|
||||||||
none
in 2007 and 2006
|
—
|
—
|
||||||
Common
Stock, shares issued: 299,090,734 in 2007 and
299,085,666
in 2006
|
299,090
|
299,085
|
||||||
Class
B Common Stock, shares issued: 60,811,010 in 2007 and
60,816,078
in 2006
|
60,811
|
60,816
|
||||||
Additional
paid-in capital
|
330,887
|
298,243
|
||||||
Retained
earnings
|
3,938,695
|
3,965,415
|
||||||
Treasury-Common
Stock shares at cost:
|
||||||||
132,875,127
in 2007 and 129,638,183 in 2006
|
(4,000,719 | ) | (3,801,947 | ) | ||||
Accumulated
other comprehensive loss
|
(89,415 | ) | (138,189 | ) | ||||
Total
stockholders' equity
|
539,349
|
683,423
|
||||||
Total
liabilities, minority interest, and stockholders' equity
|
$ |
4,455,577
|
$ |
4,157,565
|
For
the Nine Months Ended
|
||||||||
September
30,
2007
|
October
1,
2006
|
|||||||
Cash
Flows Provided from (Used by) Operating
Activities
|
||||||||
Net
Income
|
$ |
159,811
|
$ |
405,489
|
||||
Adjustments
to Reconcile Net Income to Net Cash
|
||||||||
Provided
from Operations:
|
||||||||
Depreciation
and amortization
|
227,776
|
148,726
|
||||||
Stock-based
compensation expense, net of tax of $7,181 and
$14,596,
respectively
|
12,822
|
26,174
|
||||||
Excess
tax benefits from exercise of stock options
|
(9,804 | ) | (5,315 | ) | ||||
Deferred
income taxes
|
65,234
|
19,765
|
||||||
Business
realignment initiatives, net of tax of $118,786 and
$1,910,
respectively
|
197,876
|
4,137
|
||||||
Contributions
to pension plans
|
(9,285 | ) | (18,217 | ) | ||||
Changes
in assets and liabilities, net of effects from business
acquisitions:
|
||||||||
Accounts
receivable - trade
|
(110,415 | ) | (173,436 | ) | ||||
Inventories
|
(128,561 | ) | (154,013 | ) | ||||
Accounts
payable
|
91,221
|
(3,853 | ) | |||||
Other
assets and liabilities
|
(181,391 | ) | (23,104 | ) | ||||
Net
Cash Flows Provided from Operating Activities
|
315,284
|
226,353
|
||||||
Cash
Flows Provided from (Used by) Investing
Activities
|
||||||||
Capital
additions
|
(118,204 | ) | (119,357 | ) | ||||
Capitalized
software additions
|
(9,526 | ) | (10,580 | ) | ||||
Business acquisitions
|
(97,030 | ) |
—
|
|||||
Net
Cash Flows (Used by) Investing Activities
|
(224,760 | ) | (129,937 | ) | ||||
Cash
Flows Provided from (Used by) Financing
Activities
|
||||||||
Net
increase in short-term debt
|
424,067
|
20,970
|
||||||
Long-term
borrowings
|
—
|
496,728
|
||||||
Repayment
of long-term debt
|
(188,852 | ) | (176 | ) | ||||
Cash
dividends paid
|
(186,531 | ) | (174,446 | ) | ||||
Exercise
of stock options
|
43,878
|
26,123
|
||||||
Excess
tax benefits from exercise of stock options
|
9,804
|
5,315
|
||||||
Repurchase
of Common Stock
|
(248,458 | ) | (490,478 | ) | ||||
Net
Cash Flows (Used by) Financing Activities
|
(146,092 | ) | (115,964 | ) | ||||
Decrease
in Cash and Cash Equivalents
|
(55,568 | ) | (19,548 | ) | ||||
Cash
and Cash Equivalents, beginning of period
|
97,141
|
67,183
|
||||||
Cash
and Cash Equivalents, end of period
|
$ |
41,573
|
$ |
47,635
|
||||
Interest
Paid
|
$ |
115,974
|
$ |
96,676
|
||||
Income
Taxes Paid
|
$ |
145,230
|
$ |
211,997
|
For
the Three Months Ended
|
For
the Nine Months Ended
|
||||||
September
30, 2007
|
October
1, 2006
|
September
30, 2007
|
October
1, 2006
|
||||
(in
millions of dollars)
|
|||||||
Total
compensation amount charged against income for stock compensation
plans,
including stock options, performance stock units (“PSUs”) and restricted
stock units
|
$ 7.6
|
$12.3
|
$ 20.0
|
$ 41.8
|
|||
Total
income tax benefit recognized in Consolidated Statements of Income
for
share-based compensation
|
$ 2.8
|
$ 4.5
|
$ 7.2
|
$ 15.0
|
For
the Nine Months Ended
|
||||||||
September
30,
2007
|
October
1,
2006
|
|||||||
Dividend
yields
|
2.0 | % | 1.6 | % | ||||
Expected
volatility
|
19.5 | % | 23.7 | % | ||||
Risk-free
interest rates
|
4.6 | % | 4.6 | % | ||||
Expected
lives in years
|
6.6
|
6.6
|
For
the Nine Months Ended September 30, 2007
|
|||
Stock
Options
|
Shares
|
Weighted-
Average
Exercise
Price
|
Weighted-Average
Remaining
Contractual
Term
|
Outstanding
at beginning of the period
|
13,855,113
|
$40.29
|
6.3
years
|
Granted
|
2,115,225
|
$54.27
|
|
Exercised
|
(1,473,627)
|
$29.81
|
|
Forfeited
|
(288,902)
|
$54.52
|
|
Outstanding
as of September 30, 2007
|
14,207,809
|
$43.17
|
6.4
years
|
Options
exercisable as of September 30, 2007
|
8,487,112
|
$37.24
|
5.1
years
|
For
the Nine Months Ended
|
||||||||
September
30,
2007
|
October
1,
2006
|
|||||||
Weighted-average
fair value of options granted (per share)
|
$ |
12.94
|
$ |
15.07
|
||||
Intrinsic
value of options exercised (in millions of dollars)
|
$ |
32.2
|
$ |
20.9
|
|
As
of September 30, 2007, the aggregate intrinsic value of options
outstanding was $99.6 million and the aggregate intrinsic value of
options exercisable was $95.5 million.
|
|
As
of September 30, 2007, there was $45.0 million of total unrecognized
compensation cost related to non-vested stock option compensation
arrangements granted under our stock option plans. That cost is expected
to be recognized over a weighted-average period of 2.6
years.
|
Performance
Stock Units and Restricted Stock Units
|
For
the Nine
Months
Ended
September
30, 2007
|
Weighted-average
grant date
fair
value
for equity awards or
market
value for liability
awards
|
|
Outstanding
at beginning of year
|
1,075,748
|
$44.89
|
|
Granted
|
315,899
|
$51.04
|
|
Performance
assumption change
|
(235,108)
|
$51.16
|
|
Vested
|
(432,457)
|
$47.06
|
|
Forfeited
|
(54,358)
|
$50.21
|
|
Outstanding
as of September 30, 2007
|
669,724
|
$39.99
|
For
the Nine Months Ended
|
||||||||
September
30,
2007
|
October
1,
2006
|
|||||||
Intrinsic
value of share-based liabilities paid, combined with the
fair value of shares vested (in millions of dollars)
|
$ |
21.8
|
$ |
4.2
|
For
the Nine Months Ended
|
||||
September
30,
2007
|
October
1,
2006
|
|||
(in
thousands of dollars)
|
||||
Interest
expense
|
$92,690
|
$ 85,800
|
||
Interest
income
|
(1,919)
|
(1,226)
|
||
Capitalized
interest
|
(248)
|
(46)
|
||
Interest
expense, net
|
$90,523
|
$ 84,528
|
For
the Three Months
Ended
|
For
the Nine Months
Ended
|
|||||||||||||||
September
30,
2007
|
October
1,
2006
|
September
30,
2007
|
October
1,
2006
|
|||||||||||||
(in
thousands of dollars)
|
||||||||||||||||
Cost
of sales
|
||||||||||||||||
2007
business realignment initiatives
|
$ |
37,452
|
$ |
–
|
$ |
88,618
|
$ |
–
|
||||||||
2005
business realignment initiatives
|
–
|
–
|
–
|
(1,599 | ) | |||||||||||
Previous
business realignment initiatives
|
–
|
–
|
–
|
(1,600 | ) | |||||||||||
Total
cost of sales
|
37,452
|
–
|
88,618
|
(3,199 | ) | |||||||||||
Selling,
marketing and administrative
|
||||||||||||||||
2007
business realignment initiatives
|
2,395
|
–
|
8,728
|
–
|
||||||||||||
2005
business realignment initiatives
|
–
|
108
|
–
|
108
|
||||||||||||
Total
selling, marketing and administrative
|
2,395
|
108
|
8,728
|
108
|
||||||||||||
Business
realignment and asset impairments, net
|
||||||||||||||||
2007
business realignment initiatives:
|
||||||||||||||||
Fixed
asset impairments and plant closure expenses
|
8,284
|
–
|
48,382
|
–
|
||||||||||||
Employee
separation costs
|
103,759
|
–
|
156,618
|
–
|
||||||||||||
Contract
termination costs
|
–
|
14,316
|
–
|
|||||||||||||
2005
business realignment initiatives
|
–
|
1,568
|
–
|
8,626
|
||||||||||||
Previous
business realignment initiatives
|
–
|
–
|
–
|
513
|
||||||||||||
Total
business realignment and asset
impairments, net
|
112,043
|
1,568
|
219,316
|
9,139
|
||||||||||||
Total
net charges associated with business realignment
initiatives
|
$ |
151,890
|
$ |
1,676
|
$ |
316,662
|
$ |
6,048
|
For
the Three Months Ended
|
For
the Nine Months Ended
|
||||||||||||||
September
30,
2007
|
October
1,
2006
|
September
30,
2007
|
October
1,
2006
|
||||||||||||
(in
thousands except per share amounts)
|
|||||||||||||||
Net
income
|
$ |
62,784
|
$ |
185,121
|
$ |
159,811
|
$ |
405,489
|
|||||||
Weighted-average
shares - Basic
|
|||||||||||||||
Common
Stock
|
167,165
|
173,232
|
168,444
|
175,977
|
|||||||||||
Class
B Common Stock
|
60,812
|
60,816
|
60,814
|
60,817
|
|||||||||||
Total
weighted-average shares - Basic
|
227,977
|
234,048
|
229,258
|
236,794
|
|||||||||||
Effect
of dilutive securities:
|
|||||||||||||||
Employee
stock options
|
1,938
|
2,804
|
2,224
|
2,833
|
|||||||||||
Performance
and restricted stock units
|
473
|
829
|
544
|
699
|
|||||||||||
Weighted-average
shares - Diluted
|
230,388
|
237,681
|
232,026
|
240,326
|
|||||||||||
Earnings
Per Share - Basic
|
|||||||||||||||
Class
B Common Stock
|
$ |
.26
|
$ |
.73
|
$ |
.65
|
$ |
1.58
|
|||||||
Common
Stock
|
$ |
.28
|
$ |
.81
|
$ |
.72
|
$ |
1.76
|
|||||||
Earnings
Per Share - Diluted
|
|||||||||||||||
Class
B Common Stock
|
$ |
.26
|
$ |
.72
|
$ |
.65
|
$ |
1.57
|
|||||||
Common
Stock
|
$ |
.27
|
$ |
.78
|
$ |
.69
|
$ |
1.69
|
For
the Three Months Ended
|
For
the Nine Months Ended
|
||||||
September
30,
2007
|
October
1,
2006
|
September
30,
2007
|
October
1,
2006
|
||||
(in
millions of dollars)
|
|||||||
Net
after-tax gains (losses) on cash flow hedging
derivatives
|
$(2.5)
|
$(25.3)
|
$2.3
|
$(11.0)
|
|||
Reclassification
adjustment of gains (losses)
from
accumulated other comprehensive income
to
income, net of tax
|
0.6
|
(2.7)
|
(.4)
|
(4.0)
|
|||
Hedge
ineffectiveness gains (losses) recognized
in
cost of sales, before tax
|
(.7)
|
.1
|
(.7)
|
2.0
|
|
Net
gains and losses on cash flow hedging derivatives were primarily
associated with commodities futures contracts in 2007 and with commodities
futures contracts and interest rate swap agreements in
2006.
|
|
Reclassification
adjustments from accumulated other comprehensive income (loss) to
income
related to gains or losses on commodities futures contracts and were
reflected in cost of sales. Reclassification adjustments for
gains on interest rate swaps were reflected as an adjustment to interest
expense.
|
|
We
recognized no components of gains or losses on cash flow hedging
derivatives in income due to excluding such components from the hedge
effectiveness assessment.
|
For
the Three Months Ended
September
30, 2007
|
||||||||||||
Pre-Tax
Amount
|
Tax
(Expense)
Benefit
|
After-Tax
Amount
|
||||||||||
(in
thousands of dollars)
|
||||||||||||
Net
income
|
$ |
62,784
|
||||||||||
Other
comprehensive income (loss):
|
||||||||||||
Foreign
currency translation adjustments
|
$ |
16,738
|
$ |
—
|
16,738
|
|||||||
Pension
and post-retirement benefit plans
|
(282 | ) |
111
|
(171 | ) | |||||||
Cash
flow hedges:
|
||||||||||||
Losses
on cash flow hedging derivatives
|
(3,970 | ) |
1,430
|
(2,540 | ) | |||||||
Reclassification
adjustments
|
(987 | ) |
353
|
(634 | ) | |||||||
Total
other comprehensive income
|
$ |
11,499
|
$ |
1,894
|
13,393
|
|||||||
Comprehensive
income
|
$ |
76,177
|
For
the Three Months Ended
October
1, 2006
|
||||||||||||
Pre-Tax
Amount
|
Tax
(Expense)
Benefit
|
After-Tax
Amount
|
||||||||||
(in
thousands of dollars)
|
||||||||||||
Net
income
|
$ |
185,121
|
||||||||||
Other
comprehensive income (loss):
|
||||||||||||
Foreign
currency translation adjustments
|
$ |
2,295
|
$ |
—
|
2,295
|
|||||||
Cash
flow hedges:
|
||||||||||||
Losses
on cash flow hedging derivatives
|
(39,603 | ) |
14,337
|
(25,266 | ) | |||||||
Reclassification
adjustments
|
4,293
|
(1,554 | ) |
2,739
|
||||||||
Total
other comprehensive loss
|
$ | (33,015 | ) | $ |
12,783
|
(20,232 | ) | |||||
Comprehensive
income
|
$ |
164,889
|
For
the Nine Months Ended
September
30, 2007
|
||||||||||||
Pre-Tax
Amount
|
Tax
(Expense)
Benefit
|
After-Tax
Amount
|
||||||||||
(in
thousands of dollars)
|
||||||||||||
Net
income
|
$ |
159,811
|
||||||||||
Other
comprehensive income (loss):
|
||||||||||||
Foreign
currency translation adjustments
|
$ |
44,056
|
$ |
—
|
44,056
|
|||||||
Pension
and post-retirement benefit plans
|
3,438
|
(1,481 | ) |
1,957
|
||||||||
Cash
flow hedges:
|
||||||||||||
Gains
on cash flow hedging derivatives
|
3,677
|
(1,338 | ) |
2,339
|
||||||||
Reclassification
adjustments
|
639
|
(217 | ) |
422
|
||||||||
Total
other comprehensive income
|
$ |
51,810
|
$ | (3,036 | ) |
48,774
|
||||||
Comprehensive
income
|
$ |
208,585
|
For
the Nine Months Ended
October
1, 2006
|
||||||||||||
Pre-Tax
Amount
|
Tax
(Expense)
Benefit
|
After-Tax
Amount
|
||||||||||
(in
thousands of dollars)
|
||||||||||||
Net
income
|
$ |
405,489
|
||||||||||
Other
comprehensive income (loss):
|
||||||||||||
Foreign
currency translation adjustments
|
$ |
10,497
|
$ |
—
|
10,497
|
|||||||
Minimum
pension liability adjustments
|
118
|
(42 | ) |
76
|
||||||||
Cash
flow hedges:
|
||||||||||||
Losses
on cash flow hedging derivatives
|
(17,201 | ) |
6,202
|
(10,999 | ) | |||||||
Reclassification
adjustments
|
6,330
|
(2,285 | ) |
4,045
|
||||||||
Total
other comprehensive income
|
$ | (256 | ) | $ |
3,875
|
3,619
|
||||||
Comprehensive
income
|
$ |
409,108
|
September
30,
2007
|
December
31,
2006
|
|||||||
(in
thousands of dollars)
|
||||||||
Foreign
currency translation adjustments
|
$ |
44,021
|
$ | (35 | ) | |||
Pension
and post-retirement benefit plans, net of tax
|
(136,015 | ) | (137,972 | ) | ||||
Cash
flow hedges, net of tax
|
2,579
|
(182 | ) | |||||
Total
accumulated other comprehensive loss
|
$ | (89,415 | ) | $ | (138,189 | ) |
September
30,
2007
|
December
31,
2006
|
|||||||
(in
thousands of dollars)
|
||||||||
Raw
materials
|
$ |
240,607
|
$ |
214,335
|
||||
Goods
in process
|
111,011
|
94,740
|
||||||
Finished
goods
|
503,909
|
418,250
|
||||||
Inventories
at FIFO
|
855,527
|
727,325
|
||||||
Adjustment
to LIFO
|
(80,147 | ) | (78,505 | ) | ||||
Total
inventories
|
$ |
775,380
|
$ |
648,820
|
September
30, 2007
|
||
Contract
Amount
|
Primary
Currencies
|
|
(in
millions of dollars)
|
||
Foreign
exchange forward contracts to
purchase
foreign currencies
|
$ 24.2
|
British
pounds
Australian dollars
Mexican
pesos
Euros
|
Foreign
exchange forward contracts to
sell
foreign currencies
|
$ 85.7
|
Canadian
dollars
Brazilian
reais
Mexican
pesos
|
September
30,
2007
|
December
31,
2006
|
|||||||
(in
millions of dollars)
|
||||||||
Fair
value of foreign exchange forward contracts – (liability)
asset
|
$ |
(2.3)
|
$ |
1.5
|
Pension
Benefits
|
Other
Benefits
|
|||||||||||||||
For
the Three Months Ended
|
||||||||||||||||
September
30,
2007
|
October
1,
2006
|
September
30,
2007
|
October
1,
2006
|
|||||||||||||
(in
thousands of dollars)
|
||||||||||||||||
Service
cost
|
$ |
10,384
|
$ |
14,168
|
$ |
816
|
$ |
1,434
|
||||||||
Interest
cost
|
15,618
|
14,710
|
5,482
|
4,774
|
||||||||||||
Expected
return on plan assets
|
(29,659 | ) | (26,212 | ) |
—
|
—
|
||||||||||
Amortization
of prior service cost
|
262
|
1,145
|
(42 | ) |
49
|
|||||||||||
Amortization
of unrecognized transition balance
|
—
|
4
|
—
|
—
|
||||||||||||
Recognized
net actuarial gain/loss
|
(104 | ) |
3,435
|
33
|
928
|
|||||||||||
Administrative
expenses
|
74
|
176
|
—
|
—
|
||||||||||||
Net
periodic benefits (income) cost
|
(3,425 | ) |
7,426
|
6,289
|
7,185
|
|||||||||||
Special
termination benefits
|
40,690
|
—
|
652
|
—
|
||||||||||||
Settlement
|
—
|
—
|
—
|
—
|
||||||||||||
Curtailment
|
4,106
|
—
|
22,733
|
—
|
||||||||||||
Total
amount reflected in earnings
|
$ |
41,371
|
$ |
7,426
|
$ |
29,674
|
$ |
7,185
|
Pension
Benefits
|
Other
Benefits
|
|||||||||||||||
For
the Nine Months Ended
|
||||||||||||||||
September
30,
2007
|
October
1,
2006
|
September
30,
2007
|
October
1,
2006
|
|||||||||||||
(in
thousands of dollars)
|
||||||||||||||||
Service
cost
|
$ |
32,350
|
$ |
42,532
|
$ |
3,165
|
$ |
4,290
|
||||||||
Interest
cost
|
44,837
|
43,964
|
14,943
|
14,313
|
||||||||||||
Expected
return on plan assets
|
(86,801 | ) | (78,847 | ) |
—
|
—
|
||||||||||
Amortization
of prior service cost
|
1,389
|
3,432
|
(116 | ) |
144
|
|||||||||||
Amortization
of unrecognized transition balance
|
—
|
13
|
—
|
—
|
||||||||||||
Recognized
net actuarial loss
|
806
|
10,193
|
1,008
|
2,780
|
||||||||||||
Administrative
expenses
|
375
|
579
|
—
|
—
|
||||||||||||
Net
periodic benefits (income) cost
|
(7,044 | ) |
21,866
|
19,000
|
21,527
|
|||||||||||
Special
termination benefits
|
46,856
|
—
|
652
|
—
|
||||||||||||
Settlement
|
—
|
28
|
—
|
—
|
||||||||||||
Curtailment
|
8,321
|
31
|
41,595
|
—
|
||||||||||||
Total
amount reflected in earnings
|
$ |
48,133
|
$ |
21,925
|
$ |
61,247
|
$ |
21,527
|
For
the nine months ended
September 30, 2007 |
||||||||
Shares
|
Dollars
|
|||||||
(in
thousands)
|
||||||||
Shares
repurchased in the open market under pre-approved
share
repurchase programs
|
2,916
|
$ |
149,983
|
|||||
Shares
repurchased to replace Treasury Stock issued for stock
options
and
incentive compensation
|
1,855
|
98,475
|
||||||
Total
share repurchases
|
4,771
|
248,458
|
||||||
Shares
issued for stock options and incentive compensation
|
(1,534 | ) | (49,686 | ) | ||||
Net
change
|
3,237
|
$ |
198,772
|
|
We
intend to continue to repurchase shares of Common Stock in order
to
replace Treasury Stock shares issued for exercised stock options.
The
value of shares purchased in a given period will vary based on stock
options exercised over time and market conditions.
|
|
In
December 2006, our Board of Directors approved an additional $250
million
share repurchase program. As of September 30, 2007, $100.0 million
remained available for repurchases of Common Stock under this
program.
|
For
the Three Months Ended
|
For
the Nine Months Ended
|
||||||||||
September
30,
2007
|
October
1,
2006
|
Percent
Change
Increase
(Decrease)
|
September
30,
2007
|
October
1,
2006
|
Percent
Change
Increase
(Decrease)
|
||||||
(in
thousands except per share amounts)
|
|||||||||||
Net
Sales
|
$ 1,399.5
|
$1,416.2
|
(1.2)%
|
$ 3,604.5
|
$ 3,607.6
|
(0.1)%
|
|||||
Cost
of Sales
|
928.9
|
870.7
|
6.7%
|
2,390.4
|
2,222.2
|
7.6%
|
|||||
Gross
Profit
|
470.6
|
545.5
|
(13.7)%
|
1,214.1
|
1,385.4
|
(12.4)%
|
|||||
Gross
Margin
|
33.6%
|
38.5%
|
33.7%
|
38.4%
|
|||||||
SM&A
Expense
|
229.8
|
221.8
|
3.6%
|
663.1
|
660.1
|
0.5%
|
|||||
SM&A
Expense as a percent of sales
|
16.4%
|
15.7%
|
18.4%
|
18.3%
|
|||||||
Business
Realignment Charge, net
|
112.0
|
1.6
|
N/A
|
219.3
|
9.1
|
N/A
|
|||||
EBIT
|
128.8
|
322.1
|
(60.0)%
|
331.7
|
716.2
|
(53.7)%
|
|||||
EBIT
Margin
|
9.2%
|
22.7%
|
9.2%
|
19.9%
|
|||||||
Interest
Expense, net
|
33.1
|
31.9
|
3.8%
|
90.5
|
84.5
|
7.1%
|
|||||
Provision
for Income Taxes
|
32.9
|
105.1
|
(68.7)%
|
81.4
|
226.2
|
(64.0)%
|
|||||
Effective
Income Tax Rate
|
34.4%
|
36.2%
|
33.7%
|
35.8%
|
|||||||
Net
Income
|
$ 62.8
|
$ 185.1
|
(66.1)%
|
$ 159.8
|
$ 405.5
|
(60.6)%
|
|||||
Net
Income Per Share-Diluted
|
$ .27
|
$ .78
|
(65.4)%
|
$ .69
|
$ 1.69
|
(59.2)%
|
2006
|
2007
|
|||||||
Reported
/ Expected EPS-Diluted
|
$ |
2.34
|
$ |
1.00
- $1.09
|
||||
Total
Realignment Charges
|
$ |
0.03
|
$ |
1.03
- $1.08
|
||||
EPS-Diluted
from Operations*
|
$ |
2.37
|
|
|||||
Expected
EPS-Diluted from Operations*
|
$ |
2.08
- $2.12
|
||||||
*From
operations, excluding
business realignment and one-time costs.
|
|
Our
ability to implement and generate expected ongoing annual savings
from the
initiatives to transform our supply chain and advance our value-enhancing
strategy;
|
|
Changes
in raw material and other costs and selling price increases;
|
|
Our
ability to execute our supply chain transformation within the anticipated
timeframe in accordance with our cost estimates;
|
|
The
impact of future developments related to the product recall and temporary
plant closure in Canada during the fourth quarter of 2006, including
our
ability to recover costs we incurred for the recall and plant closure
from
responsible third parties;
|
|
Pension
cost factors, such as actuarial assumptions, market performance and
employee retirement decisions;
|
|
Changes
in our stock price, and resulting impacts on our expenses for incentive
compensation, stock options and certain employee benefits;
|
|
Market
demand for our new and existing products;
|
|
Changes
in our business environment, including actions of competitors and
changes
in consumer preferences;
|
|
Changes
in governmental laws and regulations, including taxes;
|
|
Risks
and uncertainties related to our international operations;
and
|
|
Such
other matters as discussed in our Annual Report on Form 10-K for
2006.
|
Period
|
(a)
Total
Number
of Shares Purchased
|
(b)
Average
Price
Paid
per
Share
|
(c)
Total Number
of
Shares
Purchased
as
Part
of Publicly Announced Plans
or
Programs
|
(d)
Approximate
Dollar
Value of
Shares
that May
Yet
Be
Purchased
Under
the
Plans or
Programs
|
|||||||
(in
thousands of dollars)
|
|||||||||||
July
2 through
July
29, 2007
|
366,000
|
$
47.73
|
366,000
|
$132,534
|
|||||||
July
30 through
August
26, 2007
|
718,400
|
$
47.29
|
687,400
|
$100,017
|
|||||||
August
27 through
September
30, 2007
|
—
|
—
|
—
|
$100,017
|
|||||||
Total
|
1,084,400
|
1,053,400
|
Exhibit
Number
|
Description
|
|
10.1
|
The
Hershey Company Compensation Limit Replacement Plan is attached hereto
and
filed as Exhibit 10.1.
|
|
10.2
|
Master
Innovation and Supply Agreement between the Company and Barry Callebaut,
AG, dated July 13, 2007, is incorporated by reference from Exhibit
10.1 to
the Company’s Current Report on Form 8-K, Filed on July 19,
2007.
|
|
10.3
|
Supply
Agreement for Monterrey, Mexico, between the Company and Barry Callebaut,
AG, dated July 13, 2007, is incorporated by reference from Exhibit
10.2 to
the Company’s Current Report on Form 8-K, filed July 19,
2007.
|
|
10.4
|
The
Company’s Short-Term Credit Agreement is incorporated by reference from
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed August 30,
2007.
|
|
12.1
|
Statement
showing computation of ratio of earnings to fixed charges for the
nine
months ended September 30, 2007 and October 1, 2006.
|
|
31.1
|
Certification
of Richard H. Lenny, Chief Executive Officer, pursuant to Section
302 of
the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Humberto P. Alfonso, Chief Financial Officer, pursuant to Section
302
of the Sarbanes-Oxley Act of
2002.
|
32.1*
|
Certification
of Richard H. Lenny, Chief Executive Officer, and Humberto P. Alfonso,
Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley
Act
of 2002.
|
|
*Pursuant
to Securities and Exchange Commission Release No. 33-8212, this
certification will be treated as “accompanying” this Quarterly Report on
Form 10-Q and not “filed” as part of such report for purposes of Section
18 of the Exchange Act or otherwise subject to the liability of Section
18
of the Exchange Act, and this certification will not be deemed to
be
incorporated by reference into any filing under the Securities Act
of
1933, as amended, or the Exchange Act, except to the extent that
the
Company specifically incorporates it by
reference.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
|
THE
HERSHEY COMPANY
|
|
(Registrant)
|
|
Date: November 7, 2007
|
/s/Bert
Alfonso
Humberto
(Bert) P. Alfonso
Chief
Financial Officer
|
Date: November
7, 2007
|
/s/David
W.
Tacka
David
W. Tacka
Chief
Accounting Officer
|
EXHIBIT
INDEX
|
|
Exhibit
10.1
|
The
Hershey Company Compensation Limit Replacement Plan
|
Exhibit
12.1
|
Computation
of Ratio of Earnings to Fixed Charges
|
Exhibit
31.1
|
Certification
of Richard H. Lenny, Chief Executive Officer, pursuant to Section
302 of
the Sarbanes-Oxley Act of 2002
|
Exhibit
31.2
|
Certification
of Humberto P. Alfonso, Chief Financial Officer, pursuant to Section
302
of the Sarbanes-Oxley Act of 2002
|
Exhibit
32.1
|
Certification
of Richard H. Lenny, Chief Executive Officer, and Humberto P. Alfonso,
Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley
Act
of 2002
|