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
|
Large
accelerated filer x
|
Accelerated
filer o
|
|
Non-accelerated
filer o (Do not check if a smaller
reporting company)
|
Smaller
reporting company o
|
Part
I. Financial Information
|
Page
Number
|
Item
1. Consolidated Financial Statements
(Unaudited)
|
|
Consolidated
Statements of Income
|
|
Three
months ended September 28, 2008 and September 30, 2007
|
3
|
Consolidated
Statements of Income
|
|
Nine
months ended September 28, 2008 and September 30, 2007
|
4
|
Consolidated
Balance Sheets
|
|
September
28, 2008 and December 31, 2007
|
5
|
Consolidated
Statements of Cash Flows
|
|
Nine
months ended September 28, 2008 and September 30, 2007
|
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
28,
2008
|
September
30,
2007
|
|||||||
Net
Sales
|
$ | 1,489,609 | $ | 1,399,469 | ||||
Costs
and Expenses:
|
||||||||
Cost
of sales
|
988,380 | 928,846 | ||||||
Selling,
marketing and administrative
|
272,401 | 229,809 | ||||||
Business
realignment and impairment charges, net
|
8,877 | 112,043 | ||||||
Total
costs and expenses
|
1,269,658 | 1,270,698 | ||||||
Income
before Interest and Income Taxes
|
219,951 | 128,771 | ||||||
Interest
expense, net
|
24,915 | 33,055 | ||||||
Income
before Income Taxes
|
195,036 | 95,716 | ||||||
Provision
for income taxes
|
70,498 | 32,932 | ||||||
Net
Income
|
$ | 124,538 | $ | 62,784 | ||||
Earnings
Per Share - Basic - Class B Common Stock
|
$ | .51 | $ | .26 | ||||
Earnings
Per Share - Diluted - Class B Common Stock
|
$ | .51 | $ | .26 | ||||
Earnings
Per Share - Basic - Common Stock
|
$ | .56 | $ | .28 | ||||
Earnings
Per Share - Diluted - Common Stock
|
$ | .54 | $ | .27 | ||||
Average
Shares Outstanding - Basic - Common Stock
|
166,682 | 167,165 | ||||||
Average
Shares Outstanding - Basic - Class B Common Stock
|
60,784 | 60,812 | ||||||
Average
Shares Outstanding - Diluted
|
288,670 | 230,388 | ||||||
Cash
Dividends Paid Per Share:
|
||||||||
Common
Stock
|
$ | .2975 | $ | .2975 | ||||
Class
B Common Stock
|
$ | .2678 | $ | .2678 | ||||
For
the Nine Months Ended
|
||||||||
September
28,
2008
|
September
30,
2007
|
|||||||
Net
Sales
|
$ | 3,755,388 | $ | 3,604,494 | ||||
Costs
and Expenses:
|
||||||||
Cost
of sales
|
2,495,196 | 2,390,402 | ||||||
Selling,
marketing and administrative
|
788,962 | 663,112 | ||||||
Business
realignment and impairment charges, net
|
34,748 | 219,316 | ||||||
Total
costs and expenses
|
3,318,906 | 3,272,830 | ||||||
Income
before Interest and Income Taxes
|
436,482 | 331,664 | ||||||
Interest
expense, net
|
72,911 | 90,523 | ||||||
Income
before Income Taxes
|
363,571 | 241,141 | ||||||
Provision
for income taxes
|
134,321 | 81,330 | ||||||
Net
Income
|
$ | 229,250 | $ | 159,811 | ||||
Earnings
Per Share - Basic - Class B Common Stock
|
$ | .93 | $ | .65 | ||||
Earnings
Per Share - Diluted - Class B Common Stock
|
$ | .93 | $ | .65 | ||||
Earnings
Per Share - Basic - Common Stock
|
$ | 1.03 | $ | .72 | ||||
Earnings
Per Share - Diluted - Common Stock
|
$ | 1.00 | $ | .69 | ||||
Average
Shares Outstanding - Basic - Common Stock
|
166,696 | 168,444 | ||||||
Average
Shares Outstanding - Basic - Class B Common Stock
|
60,798 | 60,814 | ||||||
Average
Shares Outstanding - Diluted
|
228,757 | 232,026 | ||||||
Cash
Dividends Paid Per Share:
|
||||||||
Common
Stock
|
$ | .8925 | $ | .8375 | ||||
Class
B Common Stock
|
$ | .8034 | $ | .7528 | ||||
ASSETS
|
September
28,
2008
|
December 31,
2007
|
||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 135,632 | $ | 129,198 | ||||
Accounts
receivable - trade
|
614,392 | 487,285 | ||||||
Inventories
|
674,320 | 600,185 | ||||||
Deferred
income taxes
|
52,512 | 83,668 | ||||||
Prepaid
expenses and other
|
173,799 | 126,238 | ||||||
Total
current assets
|
1,650,655 | 1,426,574 | ||||||
Property,
Plant and Equipment, at cost
|
3,449,289 | 3,606,443 | ||||||
Less-accumulated
depreciation and amortization
|
(1,969,722 | ) | (2,066,728 | ) | ||||
Net
property, plant and equipment
|
1,479,567 | 1,539,715 | ||||||
Goodwill
|
570,082 | 584,713 | ||||||
Other
Intangibles
|
163,738 | 155,862 | ||||||
Other
Assets
|
567,337 | 540,249 | ||||||
Total
assets
|
$ | 4,431,379 | $ | 4,247,113 | ||||
LIABILITIES,
MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$ | 317,612 | $ | 223,019 | ||||
Accrued
liabilities
|
505,950 | 538,986 | ||||||
Accrued
income taxes
|
10,633 | 373 | ||||||
Short-term
debt
|
712,713 | 850,288 | ||||||
Current
portion of long-term debt
|
16,584 | 6,104 | ||||||
Total
current liabilities
|
1,563,492 | 1,618,770 | ||||||
Long-term
Debt
|
1,510,831 | 1,279,965 | ||||||
Other
Long-term Liabilities
|
532,441 | 544,016 | ||||||
Deferred
Income Taxes
|
172,486 | 180,842 | ||||||
Total
liabilities
|
3,779,250 | 3,623,593 | ||||||
Minority
Interest
|
38,245 | 30,598 | ||||||
Stockholders’
Equity:
|
||||||||
Preferred
Stock, shares issued:
|
||||||||
none
in 2008 and 2007
|
— | — | ||||||
Common
Stock, shares issued: 299,162,017 in 2008 and
299,095,417
in 2007
|
299,161 | 299,095 | ||||||
Class
B Common Stock, shares issued: 60,739,727 in 2008 and
60,806,327
in 2007
|
60,740 | 60,806 | ||||||
Additional
paid-in capital
|
345,791 | 335,256 | ||||||
Retained
earnings
|
3,959,338 | 3,927,306 | ||||||
Treasury-Common
Stock shares at cost:
|
||||||||
132,823,723
in 2008 and 132,851,893 in 2007
|
(4,008,087 | ) | (4,001,562 | ) | ||||
Accumulated
other comprehensive loss
|
(43,059 | ) | (27,979 | ) | ||||
Total
stockholders’ equity
|
613,884 | 592,922 | ||||||
Total
liabilities, minority interest and stockholders’ equity
|
$ | 4,431,379 | $ | 4,247,113 |
For
the Nine Months Ended
|
||||||||
September
28,
2008
|
September
30,
2007
|
|||||||
Cash
Flows Provided from (Used by) Operating Activities
|
||||||||
Net
Income
|
$ | 229,250 | $ | 159,811 | ||||
Adjustments
to Reconcile Net Income to Net Cash
|
||||||||
Provided
from Operations:
|
||||||||
Depreciation
and amortization
|
190,762 | 227,776 | ||||||
Stock-based
compensation expense, net of tax of $9,892 and
$7,181,
respectively
|
17,283 | 12,822 | ||||||
Excess
tax benefits from exercise of stock options
|
(769 | ) | (9,804 | ) | ||||
Deferred
income taxes
|
58,367 | 65,234 | ||||||
Business
realignment initiatives, net of tax of $33,529 and
$118,786,
respectively
|
67,430 | 197,876 | ||||||
Contributions
to pension plans
|
(24,620 | ) | (9,285 | ) | ||||
Changes
in assets and liabilities, net of effects from business
acquisitions
and
divestitures:
|
||||||||
Accounts
receivable - trade
|
(127,564 | ) | (110,415 | ) | ||||
Inventories
|
(62,809 | ) | (128,561 | ) | ||||
Accounts
payable
|
94,593 | 91,221 | ||||||
Other
assets and liabilities
|
(193,332 | ) | (181,391 | ) | ||||
Net
Cash Flows Provided from Operating Activities
|
248,591 | 315,284 | ||||||
Cash
Flows Provided from (Used by) Investing Activities
|
||||||||
Capital
additions
|
(198,446 | ) | (118,204 | ) | ||||
Capitalized
software additions
|
(12,672 | ) | (9,526 | ) | ||||
Proceeds
from sales of property, plant and equipment
|
77,180 | — | ||||||
Business
acquisitions
|
— | (97,030 | ) | |||||
Proceeds
from divestiture
|
1,960 | — | ||||||
Net
Cash Flows (Used by) Investing Activities
|
(131,978 | ) | (224,760 | ) | ||||
Cash
Flows Provided from (Used by) Financing Activities
|
||||||||
Net
(decrease) increase in short-term debt
|
(137,575 | ) | 424,067 | |||||
Long-term
borrowings
|
247,845 | — | ||||||
Repayment
of long-term debt
|
(3,281 | ) | (188,852 | ) | ||||
Cash
dividends paid
|
(197,218 | ) | (186,531 | ) | ||||
Exercise
of stock options
|
34,635 | 43,878 | ||||||
Excess
tax benefits from exercise of stock options
|
769 | 9,804 | ||||||
Repurchase
of Common Stock
|
(55,354 | ) | (248,458 | ) | ||||
Net
Cash Flows (Used by) Financing Activities
|
(110,179 | ) | (146,092 | ) | ||||
Increase
(Decrease) in Cash and Cash Equivalents
|
6,434 | (55,568 | ) | |||||
Cash
and Cash Equivalents, beginning of period
|
129,198 | 97,141 | ||||||
Cash
and Cash Equivalents, end of period
|
$ | 135,632 | $ | 41,573 | ||||
Interest
Paid
|
$ | 87,672 | $ | 115,974 | ||||
Income
Taxes Paid
|
$ | 115,977 | $ | 145,230 |
For
the Three Months Ended
|
For
the Nine Months Ended
|
||||||
September
28,
2008
|
September
30,
2007
|
September
28,
2008
|
September
30,
2007
|
||||
(in
millions of dollars)
|
|||||||
Total
compensation amount charged against income for stock options, performance
stock units (“PSUs”) and restricted stock units
|
$ 8.9
|
$ 7.6
|
$ 26.7
|
$20.0
|
|||
Total
income tax benefit recognized in the Consolidated Statements of Income for
share-based compensation
|
$ 3.2
|
$ 2.8
|
$ 9.6
|
$ 7.2
|
For
the Nine Months Ended
|
|||
September
28,
2008
|
September
30,
2007
|
||
Dividend
yield
|
2.4%
|
2.0%
|
|
Expected
volatility
|
18.1%
|
19.5%
|
|
Risk-free
interest rates
|
3.1%
|
4.6%
|
|
Expected
lives in years
|
6.6
|
6.6
|
For
the Nine Months Ended September 28, 2008
|
|||
Stock
Options
|
Shares
|
Weighted-Average
Exercise
Price
|
Weighted-Average
Remaining
Contractual
Term
|
Outstanding
at beginning of year
|
13,889,116
|
$43.26
|
6.2
years
|
Granted
|
4,417,229
|
$35.95
|
|
Exercised
|
(1,109,550)
|
$31.22
|
|
Forfeited
|
(402,192)
|
$46.53
|
|
Outstanding
as of September 28, 2008
|
16,794,603
|
$42.05
|
6.6
years
|
Options
exercisable as of September 28, 2008
|
8,804,772
|
$40.77
|
5.0
years
|
For
the Nine Months Ended
|
||||||||
September
28,
2008
|
September
30,
2007
|
|||||||
Weighted-average
fair value of options granted (per share)
|
$ 6.20 | $ 12.94 | ||||||
Intrinsic
value of options exercised (in millions of dollars)
|
$ 8.3 | $ 32.2 |
|
As
of September 28, 2008, the aggregate intrinsic value of options
outstanding was $68.4 million and the aggregate intrinsic value of options
exercisable was $46.4 million.
|
|
As
of September 28, 2008, there was $42.6 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 2.5
years.
|
Performance
Stock Units and Restricted Stock Units
|
For
the Nine
Months
Ended
September
28,
2008
|
Weighted-average
grant date
fair
value for equity awards or
market
value for liability awards
|
||||
Outstanding
at beginning of year
|
691,032
|
$
38.14
|
||||
Granted
|
510,803
|
$
37.80
|
||||
Performance
assumption change
|
(58,875)
|
$
50.37
|
||||
Vested
|
(300,853)
|
$
32.11
|
||||
Forfeited
|
(33,111)
|
$
40.45
|
||||
Outstanding
as of September 28, 2008
|
808,996
|
$
38.74
|
For
the Nine Months Ended
|
||||
September
28,
2008
|
September
30,
2007
|
|||
Intrinsic
value of share-based liabilities paid, combined with the fair value
of
shares
vested
(in millions of dollars)
|
$ 9.4
|
$ 21.8
|
For
the Nine Months Ended
|
||||||||
September
28,
2008
|
September
30,
2007
|
|||||||
(in
thousands of dollars)
|
||||||||
Interest
expense
|
$ | 78,775 | $ | 92,690 | ||||
Interest
income
|
(1,305 | ) | (1,919 | ) | ||||
Capitalized
interest
|
(4,559 | ) | (248 | ) | ||||
Interest
expense, net
|
$ | 72,911 | $ | 90,523 |
For
the Three Months Ended
|
For
the Nine Months Ended
|
|||||||||||||||
September
28,
2008
|
September
30,
2007
|
September
28,
2008
|
September
30,
2007
|
|||||||||||||
(in
thousands of dollars)
|
||||||||||||||||
Cost
of sales
2007
business realignment initiatives
|
$ | 19,965 | $ | 37,452 | $ | 60,146 | $ | 88,618 | ||||||||
Selling,
marketing and administrative
2007
business realignment initiatives
|
2,188 | 2,395 | 6,065 | 8,728 | ||||||||||||
Business
realignment and impairment charges, net:
|
||||||||||||||||
Global
supply chain transformation program:
|
||||||||||||||||
Losses
(gains) on sale of fixed assets
|
233 | — | (6,557 | ) | — | |||||||||||
Fixed
asset impairments and plant closure expenses
|
1,755 | 8,284 | 17,020 | 48,382 | ||||||||||||
Employee
separation costs
|
5,866 | 103,759 | 17,740 | 156,618 | ||||||||||||
Contract
termination costs
|
1 | — | 1,592 | 14,316 | ||||||||||||
Brazilian
business realignment:
|
||||||||||||||||
Employee
separation costs
|
92 | — | 1,618 | — | ||||||||||||
Fixed
asset impairment charges
|
35 | — | 752 | — | ||||||||||||
Contract
termination and other exit costs
|
895 | — | 2,583 | — | ||||||||||||
Total
business realignment and
impairment
charges, net
|
8,877 | 112,043 | 34,748 | 219,316 | ||||||||||||
Total
net charges associated with 2007 business realignment
initiatives
|
$ | 31,030 | $ | 151,890 | $ | 100,959 | $ | 316,662 |
For
the Three Months Ended
|
For
the Nine Months Ended
|
|||||||||||||||
September
28,
2008
|
September
30,
2007
|
September
28,
2008
|
September
30,
2007
|
|||||||||||||
(in
thousands except per share amounts)
|
||||||||||||||||
Net
income
|
$ | 124,538 | $ | 62,784 | $ | 229,250 | $ | 159,811 | ||||||||
Weighted-average
shares - Basic
|
||||||||||||||||
Common
Stock
|
166,682 | 167,165 | 166,696 | 168,444 | ||||||||||||
Class
B Common Stock
|
60,784 | 60,812 | 60,798 | 60,814 | ||||||||||||
Total
weighted-average shares - Basic
|
227,466 | 227,977 | 227,494 | 229,258 | ||||||||||||
Effect
of dilutive securities:
|
||||||||||||||||
Employee
stock options
|
904 | 1,938 | 939 | 2,224 | ||||||||||||
Performance
and restricted stock units
|
300 | 473 | 324 | 544 | ||||||||||||
Weighted-average
shares - Diluted
|
228,670 | 230,388 | 228,757 | 232,026 | ||||||||||||
Earnings
Per Share - Basic
|
||||||||||||||||
Class
B Common Stock
|
$ | .51 | $ | .26 | $ | .93 | $ | .65 | ||||||||
Common
Stock
|
$ | .56 | $ | .28 | $ | 1.03 | $ | .72 | ||||||||
Earnings
Per Share - Diluted
|
||||||||||||||||
Class
B Common Stock
|
$ | .51 | $ | .26 | $ | .93 | $ | .65 | ||||||||
Common
Stock
|
$ | .54 | $ | .27 | $ | 1.00 | $ | .69 |
For
the Three Months Ended
|
For
the Nine Months Ended
|
||||||
September
28,
2008
|
September
30,
2007
|
September
28,
2008
|
September
30,
2007
|
||||
(in
millions of dollars)
|
|||||||
Net
after-tax (losses) gains on cash flow hedging
derivatives
|
$(40.6)
|
$(2.5)
|
$21.7
|
$2.3
|
|||
Reclassification
adjustment of gains (losses) from accumulated other comprehensive income
to income, net of tax
|
6.6
|
0.6
|
25.1
|
(.4)
|
|||
Hedge
ineffectiveness losses recognized in cost of sales, before
tax
|
(.7)
|
(.7)
|
(.1)
|
(.7)
|
·
|
Net
gains and losses on cash flow hedging derivatives were primarily
associated with commodities futures contracts.
|
·
|
Reclassification
adjustments from accumulated other comprehensive income (loss) to income
related to gains or losses on commodities futures contracts 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 28, 2008
|
||||||||||||
Pre-Tax
Amount
|
Tax
(Expense)
Benefit
|
After-Tax
Amount
|
||||||||||
(in
thousands of dollars)
|
||||||||||||
Net
income
|
$ | 124,538 | ||||||||||
Other
comprehensive income (loss):
|
||||||||||||
Foreign
currency translation adjustments
|
$ | (17,153 | ) | $ | — | (17,153 | ) | |||||
Pension
and post-retirement benefit plans
|
4,438 | (1,817 | ) | 2,621 | ||||||||
Cash
flow hedges:
|
||||||||||||
Losses on
cash flow hedging derivatives
|
(62,646 | ) | 22,090 | (40,556 | ) | |||||||
Reclassification
adjustments
|
(10,365 | ) | 3,737 | (6,628 | ) | |||||||
Total
other comprehensive loss
|
$ | (85,726 | ) | $ | 24,010 | (61,716 | ) | |||||
Comprehensive
income
|
$ | 62,822 |
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 Nine Months Ended September 28, 2008
|
||||||||||||
Pre-Tax
Amount
|
Tax
(Expense)
Benefit
|
After-Tax
Amount
|
||||||||||
(in
thousands of dollars)
|
||||||||||||
Net
income
|
$ | 229,250 | ||||||||||
Other
comprehensive income (loss):
|
||||||||||||
Foreign
currency translation adjustments
|
$ | (17,248 | ) | $ | — | (17,248 | ) | |||||
Pension
and post-retirement benefit plans
|
9,362 | (3,778 | ) | 5,584 | ||||||||
Cash
flow hedges:
|
||||||||||||
Gains
on cash flow hedging derivatives
|
34,654 | (12,930 | ) | 21,724 | ||||||||
Reclassification
adjustments
|
(39,329 | ) | 14,189 | (25,140 | ) | |||||||
Total
other comprehensive loss
|
$ | (12,561 | ) | $ | (2,519 | ) | (15,080 | ) | ||||
Comprehensive
income
|
$ | 214,170 |
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 |
September
28,
2008
|
December
31,
2007
|
|||||||
(in
thousands of dollars)
|
||||||||
Foreign
currency translation adjustments
|
$ | 27,562 | $ | 44,810 | ||||
Pension
and post-retirement benefit plans, net of tax
|
(73,981 | ) | (79,565 | ) | ||||
Cash
flow hedges, net of tax
|
3,360 | 6,776 | ||||||
Total
accumulated other comprehensive loss
|
$ | (43,059 | ) | $ | (27,979 | ) |
September
28,
2008
|
December
31,
2007
|
|||||||
(in
thousands of dollars)
|
||||||||
Raw
materials
|
$ | 249,266 | $ | 199,460 | ||||
Goods
in process
|
111,739 | 80,282 | ||||||
Finished
goods
|
444,215 | 407,058 | ||||||
Inventories
at FIFO
|
805,220 | 686,800 | ||||||
Adjustment
to LIFO
|
(130,900 | ) | (86,615 | ) | ||||
Total
inventories
|
$ | 674,320 | $ | 600,185 |
September
28, 2008
|
||
Contract
Amount
|
Primary
Currencies
|
|
(in
millions of dollars)
|
||
Foreign
exchange forward contracts to
purchase
foreign currencies
|
$ 21.5
|
British
pounds
Mexican
pesos
|
Foreign
exchange forward contracts to
sell
foreign currencies
|
$ 110.3
|
Canadian
dollars
Mexican
pesos
|
September
28,
2008
|
December
31,
2007
|
|||
(in
millions of dollars)
|
||||
Fair
value of foreign exchange forward contracts – asset
(liability)
|
$ 2.3
|
$ (2.1)
|
·
|
Level
1 Inputs – quoted prices in active markets for identical assets or
liabilities;
|
·
|
Level
2 Inputs – quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar instruments in markets
that are not active; inputs other than quoted prices that are observable;
and inputs that are derived from or corroborated by observable market data
by correlation; and
|
·
|
Level
3 Inputs – unobservable inputs used to the extent that observable inputs
are not available. These reflect the entity’s own assumptions
about the assumptions that market participants would use in pricing the
asset or liability.
|
Description
|
Fair
Value as of
September
28,
2008
|
Quoted
Prices
in
Active
Markets
of
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level
3)
|
||||||||||
(in
thousands of dollars)
|
||||||||||||||
Assets
|
||||||||||||||
Cash
flow hedging derivatives
|
$ | 4,715 | $ | 2,375 | $ | 2,340 | $ | — | ||||||
Liabilities
Cash
flow hedging derivatives
|
$ | 3,274 | $ | 3,274 | $ | — | $ | — |
Pension
Benefits
|
Other
Benefits
|
|||||||||||||||
For
the Three Months Ended
|
||||||||||||||||
September
28,
2008
|
September
30,
2007
|
September
28,
2008
|
September
30,
2007
|
|||||||||||||
(in
thousands of dollars)
|
||||||||||||||||
Service
cost
|
$ | 7,364 | $ | 10,384 | $ | 438 | $ | 816 | ||||||||
Interest
cost
|
14,902 | 15,618 | 5,078 | 5,482 | ||||||||||||
Expected
return on plan assets
|
(26,910 | ) | (29,659 | ) | — | — | ||||||||||
Amortization
of prior service cost
|
322 | 262 | (115 | ) | (42 | ) | ||||||||||
Recognized
net actuarial (gain) loss
|
(134 | ) | (104 | ) | — | 33 | ||||||||||
Administrative
expenses
|
107 | 74 | — | — | ||||||||||||
Net
periodic benefits (income) cost
|
(4,349 | ) | (3,425 | ) | 5,401 | 6,289 | ||||||||||
Special
termination benefits
|
(2 | ) | 40,690 | — | 652 | |||||||||||
Settlement
|
4,458 | — | — | — | ||||||||||||
Curtailment
|
— | 4,106 | — | 22,733 | ||||||||||||
Total
amount reflected in earnings
|
$ | 107 | $ | 41,371 | $ | 5,401 | $ | 29,674 |
Pension
Benefits
|
Other
Benefits
|
|||||||||||||||
For
the Nine Months Ended
|
||||||||||||||||
September
28,
2008
|
September
30,
2007
|
September
28,
2008
|
September
30,
2007
|
|||||||||||||
(in
thousands of dollars)
|
||||||||||||||||
Service
cost
|
$ | 22,128 | $ | 32,350 | $ | 1,315 | $ | 3,165 | ||||||||
Interest
cost
|
44,801 | 44,837 | 15,248 | 14,943 | ||||||||||||
Expected
return on plan assets
|
(80,818 | ) | (86,801 | ) | — | — | ||||||||||
Amortization
of prior service cost
|
965 | 1,389 | (343 | ) | (116 | ) | ||||||||||
Recognized
net actuarial (gain) loss
|
(421 | ) | 806 | (2 | ) | 1,008 | ||||||||||
Administrative
expenses
|
286 | 375 | — | — | ||||||||||||
Net
periodic benefits (income) cost
|
(13,059 | ) | (7,044 | ) | 16,218 | 19,000 | ||||||||||
Special
termination benefits
|
145 | 46,856 | — | 652 | ||||||||||||
Settlement
|
9,301 | — | — | — | ||||||||||||
Curtailment
|
— | 8,321 | — | 41,595 | ||||||||||||
Total
amount reflected in earnings
|
$ | (3,613 | ) | $ | 48,133 | $ | 16,218 | $ | 61,247 |
For
the Nine Months Ended
September
28, 2008
|
||||
Shares
|
Dollars
|
|||
(in
thousands)
|
||||
Shares
repurchased in the open market under pre-approved
share
repurchase programs
|
—
|
$ —
|
||
Shares
repurchased to replace Treasury Stock issued for stock
options
and
incentive compensation
|
1,470
|
55,354
|
||
Total
share repurchases
|
1,470
|
55,354
|
||
Shares
issued for stock options and incentive compensation
|
(1,498)
|
(48,829)
|
||
Net
change
|
(28)
|
$ 6,525
|
·
|
In
December 2006, our Board of Directors approved a $250 million share
repurchase program. As of September 28, 2008, $100.0
million remained available for repurchases of Common Stock under this
program.
|
For
the Three Months Ended
|
For
the Nine Months Ended
|
||||||||||
September
28,
2008
|
September
30,
2007
|
Percent
Change
Increase
(Decrease)
|
September
28,
2008
|
September
30,
2007
|
Percent
Change
Increase
(Decrease)
|
||||||
(in
thousands except per share amounts)
|
|||||||||||
Net
Sales
|
$ 1,489.6
|
$ 1,399.5
|
6.4%
|
$ 3,755.4
|
$ 3,604.5
|
4.2%
|
|||||
Cost
of Sales
|
988.4
|
928.9
|
6.4%
|
2,495.2
|
2,390.4
|
4.4%
|
|||||
Gross
Profit
|
501.2
|
470.6
|
6.5%
|
1,260.2
|
1,214.1
|
3.8%
|
|||||
Gross
Margin
|
33.6%
|
33.6%
|
33.6%
|
33.7%
|
|||||||
SM&A
Expense
|
272.4
|
229.8
|
18.5%
|
789.0
|
663.1
|
19.0%
|
|||||
SM&A
Expense as a
percent
of sales
|
18.3%
|
16.4%
|
21.0%
|
18.4%
|
|||||||
Business
Realignment
Charge, net
|
8.9
|
112.0
|
(92.1)%
|
34.7
|
219.3
|
(84.2)%
|
|||||
EBIT
|
219.9
|
128.8
|
70.8%
|
436.5
|
331.7
|
31.6%
|
|||||
EBIT
Margin
|
14.8%
|
9.2%
|
11.6%
|
9.2%
|
|||||||
Interest
Expense, net
|
24.9
|
33.1
|
(24.6)%
|
72.9
|
90.5
|
(19.5)%
|
|||||
Provision
for Income Taxes
|
70.5
|
32.9
|
114.1%
|
134.3
|
81.4
|
65.2%
|
|||||
Effective
Income Tax Rate
|
36.1%
|
34.4%
|
36.9%
|
33.7%
|
|||||||
Net
Income
|
$ 124.5
|
$ 62.8
|
98.4%
|
$ 229.3
|
$ 159.8
|
43.5%
|
|||||
Net
Income Per Share-Diluted
|
$ 0.54
|
$ 0.27
|
100.0%
|
$ 1.00
|
$ 0.69
|
44.9%
|
2008
|
|
Expected
EPS-diluted in accordance with GAAP
|
$1.43-1.51
|
Total
business realignment and impairment charges
|
$0.39-0.42
|
Non-GAAP
expected EPS-diluted excluding items affecting
comparability
|
$1.85-1.90
|
·
|
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;
|
·
|
The
impact of future developments related to the investigation by government
regulators of alleged pricing practices by members of the confectionery
industry, including risks of subsequent litigation or further government
action;
|
·
|
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, changes in
consumer preferences and behavior, and the impact of economic and
financial market conditions on our customers, suppliers, consumers and
lenders;
|
·
|
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
2007.
|
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)
|
||||
June
30 through
July
27, 2008
|
—
|
$ —
|
—
|
$100,017
|
July
28 through
August
24, 2008
|
45,010
|
$ 36.18
|
—
|
$100,017
|
August
25 through
September
28, 2008
|
335,000
|
$ 37.73
|
—
|
$100,017
|
Total
|
380,010
|
—
|
Exhibit
Number
|
Description
|
|
12.1
|
Statement
showing computation of ratio of earnings to fixed charges for the nine
months ended September 28, 2008 and September 30, 2007.
|
|
31.1
|
Certification
of David J. West, 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 David J. West, 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
5, 2008
|
/s/Humberto P.
Alfonso
Humberto P. Alfonso
Chief Financial Officer
|
Date: November
5, 2008
|
/s/David W.
Tacka
David W. Tacka
Chief Accounting Officer
|
EXHIBIT
INDEX
|
|
Exhibit
12.1
|
Computation
of Ratio of Earnings to Fixed Charges
|
Exhibit
31.1
|
Certification
of David J. West, 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 David J. West, Chief Executive Officer, and Humberto P. Alfonso, Chief
Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|