UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934
For the quarterly period ended September
29, 2002
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
___________to__________
Commission file number:
1-183
HERSHEY FOODS
CORPORATION
100 Crystal A Drive
Hershey, PA
17033
Registrant's telephone number:
717-534-6799
State of
Incorporation
Delaware
IRS Employer Identification
No.
23-0691590
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 [ ]
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 - 105,720,354 shares, as of October 25,
2002. Class B Common Stock, $1 par value - 30,422,308 shares, as
of October 25, 2002.
Exhibit Index - Page 21
-1-
PART I -
FINANCIAL INFORMATION
Item 1.
Consolidated Financial Statements (Unaudited)
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
For the Three Months Ended
--------------------------
September 29, September 30,
2002 2001
------- -------
Net Sales $1,152,321 $1,178,909
--------- -----------
Costs and Expenses:
Cost of sales 717,197 753,403
Selling, marketing and administrative 218,052 216,519
Business realignment charge, net 8,536 -
Gain on sale of business - (19,237)
--------- ----------
Total costs and expenses 943,785 950,685
--------- ----------
Income before Interest and Income Taxes 208,536 228,224
Interest expense, net 14,120 18,147
--------- ----------
Income before Income Taxes 194,416 210,077
Provision for income taxes 71,351 89,315
--------- ----------
Net Income $ 123,065 $ 120,762
========= ==========
Net Income Per Share-Basic $ .90 $ .89
========= ==========
Net Income Per Share-Diluted $ .89 $ .88
========= ==========
Average Shares Outstanding-Basic 137,179 135,869
========= ==========
Average Shares Outstanding-Diluted 138,346 137,213
========= ==========
Cash Dividends Paid per Share:
Common Stock $ .3275 $ .3025
========= ==========
Class B Common Stock $ .2950 $ .2725
========= ==========
The accompanying notes are an integral part of these statements.
-2-
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
For the Nine Months Ended
-------------------------
September 29, September 30,
2002 2001
-------- ------
Net Sales $ 2,964,289 $ 2,984,237
------------ -----------
Costs and Expenses:
Cost of sales 1,851,212 $1,908,616
Selling, marketing and administrative 616,668 622,927
Business realignment charge, net 19,274 -
Gain on sale of business - (19,237)
------------ -----------
Total costs and expenses 2,487,154 2,512,306
------------ -----------
Income before Interest and Income Taxes 477,135 471,931
Interest expense, net 45,448 52,371
------------ -----------
Income before Income Taxes 431,687 419,560
Provision for income taxes 158,429 167,453
------------ -----------
Net Income $ 273,258 $ 252,107
============ ===========
Net Income Per Share-Basic $ 2.00 $ 1.85
============ ===========
Net Income Per Share-Diluted $ 1.98 $ 1.83
============ ===========
Average Shares Outstanding-Basic 136,923 136,343
============ ===========
Average Shares Outstanding-Diluted 138,165 137,768
============ ===========
Cash Dividends Paid per Share:
Common Stock $ .9325 $ .8625
============ ===========
Class B Common Stock $ .8400 $ .7775
============ ===========
The accompanying notes are an integral part of these statements.
-3-
HERSHEY FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 29, 2002 AND DECEMBER 31, 2001
(in thousands of dollars)
ASSETS 2002 2001
------ ------
Current Assets:
Cash and cash equivalents $ 119,860 $ 134,147
Accounts receivable - trade 676,847 361,726
Inventories 593,231 512,134
Deferred income taxes - 96,939
Prepaid expenses and other 69,031 62,595
------------- ------------
Total current assets 1,458,969 1,167,541
------------- ------------
Property, Plant and Equipment, at cost 2,931,809 2,900,756
Less-accumulated depreciation and amortization (1,455,749) (1,365,855)
------------- ------------
Net property, plant and equipment 1,476,060 1,534,901
------------- ------------
Goodwill 378,035 388,702
Other Intangibles 40,022 40,426
Other Assets 92,951 115,860
------------- ------------
Total assets $ 3,446,037 $ 3,247,430
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 131,607 $ 133,049
Accrued liabilities 398,301 462,901
Accrued income taxes 75,545 2,568
Short-term debt 8,182 7,005
Current portion of long-term debt 350 921
------------- ------------
Total current liabilities 613,985 606,444
Long-term Debt 868,491 876,972
Other Long-term Liabilities 370,939 361,041
Deferred Income Taxes 222,522 255,769
------------- -----------
Total liabilities 2,075,937 2,100,226
------------- ------------
Stockholders' Equity:
Preferred Stock, shares issued:
none in 2002 and 2001 --- ---
Common Stock, shares issued:
149,526,564 in 2002 and 149,517,064 in 2001 149,526 149,516
Class B Common Stock, shares issued:
30,424,308 in 2002 and 30,433,808 in 2001 30,424 30,434
Additional paid-in capital 186 3,263
Unearned ESOP compensation (13,572) (15,967)
Retained earnings 2,903,792 2,755,333
Treasury-Common Stock shares at cost:
43,580,410 in 2002 and 44,311,870 in 2001 (1,668,052) (1,689,243)
Accumulated other comprehensive loss (32,204) (86,132)
------------- -------------
Total stockholders' equity 1,370,100 1,147,204
------------- ------------
Total liabilities and stockholders' equity $ 3,446,037 $ 3,247,430
============= ============
The accompanying notes are an integral part of these balance sheets.
-4-
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
For the Nine Months Ended
-------------------------
September 29, September 30,
2002 2001
---- ----
Cash Flows Provided from (Used by) Operating Activities
Net Income $ 273,258 $ 252,107
Adjustments to Reconcile Net Income to Net Cash
Provided from Operations:
Depreciation and amortization 137,454 141,699
Deferred income taxes (2,385) 10,415
Business realignment initiatives 19,274 -
Gain on sale of business, net of tax of $18,134 - (1,103)
Changes in assets and liabilities, net of effects
from business acquisition and divestitures:
Accounts receivable - trade (315,121) (168,729)
Inventories (75,197) (127,659)
Accounts payable (1,442) 13,766
Other assets and liabilities 136,960 163,249
------------ ----------
Net Cash Flows Provided from Operating Activities 172,801 283,745
------------ ----------
Cash Flows Provided from (Used by) Investing Activities
Capital additions (74,451) (114,608)
Capitalized software additions (6,964) (6,003)
Business acquisition - (17,143)
Proceeds from business divestiture 12,000 59,900
Other, net 28,907 16,661
------------ ----------
Net Cash Flows (Used by) Investing Activities (40,508) (61,193)
------------ ----------
Cash Flows Provided from (Used by) Financing Activities
Net increase (decrease) in short-term debt 1,177 (20,391)
Long-term borrowings - 354
Repayment of long-term debt (9,169) (578)
Cash dividends paid (124,799) (114,597)
Exercise of stock options 84,328 21,509
Incentive plan transactions (98,117) (51,328)
Repurchase of Common Stock - (40,322)
------------ ----------
Net Cash Flows (Used by) Financing Activities (146,580) (205,353)
------------ ----------
(Decrease) Increase in Cash and Cash Equivalents (14,287) 17,199
Cash and Cash Equivalents, beginning of period 134,147 31,969
------------ ----------
Cash and Cash Equivalents, end of period $ 119,860 $ 49,168
============ ==========
Interest Paid $ 57,000 $ 63,105
============ ==========
Income Taxes Paid $ 32,449 $ 53,818
============ ==========
The accompanying notes are an integral part of these statements.
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the accounts of Hershey Foods Corporation and its
subsidiaries (the "Corporation") after elimination of intercompany accounts and transactions. These statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes
required by accounting principles generally accepted in the United States for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine months ended September 29, 2002, are not necessarily
indicative of the results that may be expected for the year ending December 31, 2002, because of the seasonal effects of
the Corporation's business. For more information, refer to the consolidated financial statements and notes included in
the Corporation's 2001 Annual Report on Form 10-K.
Certain reclassifications have been made to prior year amounts to conform to the 2002 presentation. In accordance with
final consensuses reached on various EITF Issues regarding the reporting of certain sales incentives, costs totaling
$126.1 million and $301.0 million for the three months and nine months ended September 30, 2001, respectively,
previously reported in selling, marketing and administrative expense, have been reclassified as a reduction to net
sales. In addition, certain freight billings totaling $.8 million and $1.9 million for the three months and nine months
ended September 30, 2001, respectively, previously reported in cost of sales have been reclassified as an increase to
net sales.
- BUSINESS REALIGNMENT INITIATIVES
In late October 2001, the Corporation's Board of Directors approved a plan to improve the efficiency and profitability
of the Corporation's operations. The plan included asset management improvements, product line rationalization, supply
chain efficiency improvements, and a voluntary work force reduction program (collectively, "the business realignment
initiatives"). The major components of the plan will be completed by the end of 2002. For more information on the
business realignment initiatives recorded in the fourth quarter of 2001, refer to the consolidated financial statements
and notes included in the Corporation's 2001 Annual Report on Form 10-K.
During the first six months of 2002, a charge to cost of sales and net business realignment charges were recorded
totaling $11.5 million before tax ($7.3 million after-tax or $.05 per share-diluted). The total included a charge to
cost of sales of $.8 million associated with the relocation of manufacturing equipment and a net business realignment
charge of $10.7 million. Components of the net $10.7 million pre-tax charge for these initiatives included a $14.9
million charge relating to pension settlement costs associated with the voluntary work force reduction program ("VWRP"),
a $.1 million charge relating to product line rationalization, and a $.1 million charge relating to supply chain
efficiency improvements, partially offset by a $4.4 million favorable adjustment relating to the sale of a group of
Hershey's non-chocolate confectionery candy brands to Farley's and Sathers Candy Company, Inc. (the "Farley's and
Sathers sale") for $12.0 million in cash.
During the third quarter of 2002, a charge to cost of sales and business realignment charges were recorded totaling $9.1
million before tax ($5.8 million after-tax or $.04 per share-diluted). The total included a charge to cost of sales of
$.6 million associated with the relocation of manufacturing equipment and a business realignment charge of $8.5 million
relating to pension settlement costs associated with the VWRP.
Additional charges totaling approximately $15.0 million to $25.0 million before tax, are expected to be recorded, as
incurred, in the fourth quarter of 2002, primarily related to additional pension settlement costs resulting from the VWRP
and expenses associated with the relocation of manufacturing equipment. Pension settlement costs will vary depending
upon pension cost factors, such as actuarial assumptions, returns on pension plan assets and employee retirement
decisions. Total costs associated with the business realignment initiatives are expected to be in the range of $310.0
million, as announced in January 2002, to $320.0 million.
Asset Management Improvements
During the first six months of 2002, cash payments totaling $1.8 million for equipment removal relating to outsourcing
the manufacture of certain ingredients were recorded against the liability for business realignment initiatives. Also
during the first six months of 2002, asset write-offs totaling $1.8 million relating to outsourcing the manufacture of
certain ingredients were recorded against the reserve for asset impairment write-downs associated
-6-
with the business realignment initiatives which is included as part of
accumulated depreciation. During the third quarter of 2002, cash
payments totaling $.2 million for equipment removal relating to
outsourcing the manufacture of certain ingredients were recorded
against the liability for business realignment initiatives.
Product Line Rationalization
During the first six months of 2002, a net pre-tax charge of $.1 million was recorded, as incurred, resulting in an
increase to the liability for business realignment initiatives relating to the realignment of the Corporation's sales
organizations. Additionally, cash payments totaling $1.9 million, primarily for severance and broker termination fees
associated with exiting certain businesses, and a non-cash write-off of $8.5 million associated with exiting the
Corporation's aseptically packaged drink business were recorded against the liability for business realignment
initiatives. Asset write-offs during the first six months of 2002 totaling $1.2 million, net of proceeds, relating to
the Farley's and Sathers sale were recorded against the reserve for asset impairment write-downs associated with the
business realignment initiatives. In addition, the Farley's and Sathers sale resulted in a reduction of goodwill in the
amount of $7.1 million and a $4.4 million favorable adjustment which was included in the net business realignment
charge. Net sales associated with businesses to be sold or exited as part of the business realignment initiatives were
approximately $12.8 million and $18.6 million during the first six months of 2002 and 2001, respectively.
During the third quarter of 2002, cash payments totaling $2.0 million, primarily for maintenance of properties prior to
sale and severance, and $.4 million of non-cash write-offs for inventory and spare parts were recorded against the
liability for business realignment initiatives. Employee terminations during the third quarter were primarily related
to the Farley's and Sathers sale which resulted in the closure of a manufacturing plant. During the first nine months
of 2002, 139 employees were terminated and involuntary employee termination benefits paid were approximately $1.2
million. There were no net sales associated with businesses to be sold or exited as part of the business realignment
initiatives in the third quarter of 2002, however, sales in the third quarter of 2001 were $10.9 million.
Supply Chain Efficiency Improvements
During the first six months of 2002, a net pre-tax charge of $.1 million was credited to the liability for business
realignment initiatives relating to the closure of the Palmyra, Pennsylvania plant and cash payments totaling $1.1
million relating primarily to the closure of the Palmyra, Pennsylvania plant and a distribution center in Oakdale,
California were recorded against the liability. Asset write-offs during the first six months of 2002 totaling $8.0
million relating to closure of the three manufacturing plants were recorded against the reserve for asset impairment
write-downs associated with the business realignment initiatives.
During the third quarter of 2002, cash payments totaling $.1 million relating primarily to the closure of the three
manufacturing plants were recorded against the liability for business realignment initiatives. During the third quarter
of 2002, asset write-offs totaling $.6 million, net of proceeds from the sale of equipment of $.5 million, relating to
closure of the three manufacturing plants were recorded against the reserve for asset impairment write-downs associated
with the business realignment initiatives. During the first nine months of 2002, 288 employees were terminated and
involuntary employee termination benefits paid were approximately $.9 million.
Voluntary Work Force Reduction Program
During the first six months of 2002, cash payments totaling $7.2 million relating to the enhanced mutual separation
program of the Corporation's VWRP and administrative expenses were recorded against the liability for business
realignment initiatives. In addition, a net pre-tax charge of $14.9 million was credited to pension benefit liabilities
during the first six months of 2002 relating to pension settlement costs associated with departing employees electing a
lump sum payment of their pension benefit under the early retirement program of the VWRP. Payments of pension and
certain supplemental benefits were made from the assets of the Corporation's pension plan for salaried employees.
During the third quarter of 2002, cash payments totaling $.8 million relating to the enhanced mutual separation program
of the Corporation's VWRP and administrative expenses were recorded against the liability for business realignment
initiatives. In addition, a net pre-tax charge of $8.5 million was credited to pension benefit liabilities during the
third quarter of 2002 relating to pension settlement costs associated with departing employees electing a lump sum
payment of their pension benefit under the early retirement program of the VWRP. Payments of pension and certain
supplemental benefits were made from the assets of the Corporation's pension plan for salaried employees. As of
September 29, 2002, a reduction of approximately 500 employees has resulted from the VWRP.
-7-
The following tables summarize the charges for certain business realignment initiatives in the fourth quarter of 2001
and the related activities completed through September 29, 2002:
New 2002
charges Six-Months 2002
Balance 1st Qtr YTD 3rd Qtr Balance
Accrued Liabilities 12/31/01 2002 Utilization Utilization 9/29/02
------------------- -------- ---- ----------- ----------- -------
(In thousands of dollars)
Asset management improvements $ 2,700 $ - $ (1,768) $ (247) $ 685
Product line rationalization 15,529 115 (10,416) (2,409) 2,819
Supply chain efficiency improvements 8,300 100 (1,107) (105) 7,188
Voluntary work force reduction program 8,860 - (7,191) (787) 882
------- ----- ------- ------ ------
Total $ 35,389 $ 215 $(20,482) $ (3,548) $11,574
======= ===== ======= ====== =======
New
charges during the first quarter of 2002 related to realignment of the
Corporation’s sales organizations and termination benefits. Cash payments
totaling $12.0 million and a non-cash write-off of $8.5 million associated with
exiting certain businesses were recorded against the liability during the first
six months of 2002. The cash payments related primarily to enhanced mutual
separation program (“EMSP”) severance payments, outsourcing the
manufacture of certain ingredients, VWRP administrative expenses, supply chain
efficiency improvements, the realignment of the Corporation’s sales
organizations and other expenses associated with exiting certain businesses.
Cash
payments totaling $3.1 million and a non-cash write-off of $.4 million
associated with exiting certain businesses were recorded against the liability
in the third quarter. The cash payments related primarily to the maintenance of
properties prior to sale, severance payments resulting from the Farley’s
and Sathers sale, EMSP severance payments and outsourcing the manufacture of
certain ingredients.
2002
Six-Months 2002
Balance YTD 3rd Qtr Balance
Asset Impairment Write-down 12/31/01 Utilization Utilization 9/29/02
--------------------------- -------- ----------- ----------- -------
(In thousands of dollars)
Asset management improvements $ 2,600 $ (1,844) $ - $ 756
Product line rationalization 5,000 (1,201) 42 3,841
Supply chain efficiency improvements 37,700 (8,033) (620) 29,047
-------- ------- ---- ------
Total $ 45,300 $(11,078) $ (578) $33,644
======== ======= ==== ======
Asset
write-offs of $11.1 million were recorded against the reserve during the first
six months of 2002 associated with the outsourcing of manufacturing for certain
ingredients, the Farley’s and Sathers sale and the closure of manufacturing
facilities. Asset write-offs of $.6 million, net of proceeds of $.6 million from
the sale of equipment, were recorded in the third quarter, associated with the
closure of the manufacturing facilities. This reserve was included as part of
accumulated depreciation.
- INTEREST EXPENSE
Interest expense, net consisted of the following:
For the Nine Months Ended
-------------------------
September 29, 2002 September 30, 2001
------------------ ------------------
(in thousands of dollars)
Interest expense $ 48,968 $ 55,666
Interest income (2,776) (1,862)
Capitalized interest (744) (1,433)
------- --------
Interest expense, net $ 45,448 $ 52,371
======= =======
-8-
- NET INCOME PER SHARE
A total of 43,580,410 shares were held as Treasury Stock as of September 29, 2002.
In accordance with Statement of Financial Accounting Standards No. 128,
“Earnings Per Share,” Basic and Diluted Earnings per Share are
computed based on the weighted-average number of shares of the Common Stock and
the Class B Stock outstanding as follows:
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
9/29/02 9/30/01 9/29/02 9/30/01
------- ------- ------- -------
(in thousands of dollars except per share amounts)
Net income $ 123,065 $ 120,762 $ 273,258 $ 252,107
========= ======== ======= ========
Weighted-average shares-basic 137,179 135,869 136,923 136,343
Effect of dilutive securities:
Employee stock options 1,076 1,285 1,151 1,366
Performance and restricted stock units 91 59 91 59
--------- -------- -------- --------
Weighted-average shares - diluted 138,346 137,213 138,165 137,768
========= ======== ======== ========
Net income per share - basic $ 0.90 $ 0.89 $ 2.00 $ 1.85
========= ======== ======== ========
Net income per share-diluted $ 0.89 $ 0.88 $ 1.98 $ 1.83
========= ======== ======== ========
Employee
stock options for 1,833,705 shares for the three months and nine months ended
September 29, 2002, and 1,957,150 shares and 1,963,950 shares for the three
months and nine months ended September 30, 2001, respectively, were
anti-dilutive and were excluded from the earnings per share calculation.
- GOODWILL AND OTHER INTANGIBLE ASSETS
The
Corporation adopted Statement of Financial Accounting Standards No. 141,
“Business Combinations” (“SFAS No. 141”) as of July
1, 2001, and Statement of Financial Accounting Standards No. 142,
“Goodwill and Other Intangible Assets” (“SFAS No.
142”) as of January 1, 2002. The reassessment of the useful
lives of intangible assets acquired on or before June 30, 2001 was completed
during the first quarter of 2002. Amortization of goodwill resulting from
business acquisitions of $388.7 million was discontinued as of January 1, 2002.
Other intangible assets totaling $40.4 million as of January 1, 2002 primarily
consisted of trademarks and patents obtained through business acquisitions. The
useful lives of trademarks were determined to be indefinite and, therefore,
amortization of these assets was discontinued as of January 1, 2002. Patents
valued at a total of $9.0 million are being amortized over their remaining legal
lives of approximately eighteen years.
Goodwill
was assigned to reporting units and transitional impairment tests were performed
for goodwill and other intangible assets during the first quarter of 2002. No
impairment of assets was determined as a result of these tests. A reconciliation
of reported net income to net income adjusted to reflect the impact of the
discontinuance of the amortization of goodwill and other intangible assets for
the three months and nine months ended September 30, 2001 is as follows:
-9-
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
9/29/02 9/30/01 9/29/02 9/30/01
------- ------- ------- -------
(in thousands of dollars except per share amounts)
Reported net income: $ 123,065 $ 120,762 $ 273,258 $ 252,107
Add back: Goodwill amortization 3,232 8,794
Add back: Trademark amortization 436 1,161
--------- --------- --------- --------
Adjusted net income $ 123,065 $ 124,430 $ 273,258 $ 262,062
========= ========= ========= ========
Basic earnings per share:
Reported net income $ .90 $ .89 $ 2.00 $ 1.85
Goodwill amortization .02 .06
Trademark amortization .01 .01
--------- --------- -------- --------
Adjusted net income $ .90 $ .92 $ 2.00 $ 1.92
========= ========= ======== ========
Diluted earnings per share:
Reported net income $ .89 $ .88 $ 1.98 $ 1.83
Goodwill amortization .02 .06
Trademark amortization .01 .01
--------- --------- -------- --------
Adjusted net income $ .89 $ .91 $ 1.98 $ 1.90
========= ========= ======== ========
- DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The
Corporation accounts for derivative instruments in accordance with Statement of
Financial Accounting Standards No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended. All derivative
instruments currently utilized by the Corporation, including foreign exchange
forward contracts, interest rate swap agreements and commodities futures
contracts, are designated as cash flow hedges. For more information, refer to
the consolidated financial statements and notes included in the
Corporation’s 2001 Annual Report on Form 10-K.
- COMPREHENSIVE INCOME
Comprehensive income consisted of the following:
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
9/29/02 9/30/01 9/29/02 9/30/01
------- ------- ------- -------
(in thousands of dollars)
Net income $ 123,065 $ 120,762 $ 273,258 $ 252,107
-------- --------- -------- --------
Other comprehensive income (loss):
Foreign currency translation
adjustments (15,098) (10,200) (17,210) (10,391)
Minimum pension liability
adjustments, net of tax (30,727) - (43,132) -
Gains on cash flow hedging
derivatives, net of tax 69,827 8,424 128,133 49,253
Add: Reclassification adjustments,
net of tax (6,900) 5,267 (13,863) 13,982
-------- --------- --------- --------
Other comprehensive income 17,102 3,491 53,928 52,844
-------- --------- --------- --------
Comprehensive income $ 140,167 $ 124,253 $ 327,186 $ 304,951
======== ========= ======== ========
-10-
Reclassification
adjustments from accumulated other comprehensive income to income, for gains or
losses on cash flow hedging derivatives, were reflected in cost of sales.
Pre-tax losses on cash flow hedging derivatives recognized in cost of sales as a
result of hedge ineffectiveness were approximately $.7 million for the three
months September 29, 2002, with pre-tax gains of approximately $.4 million
recognized for the nine months ended September 29, 2002. Pre-tax net gains on
cash flow hedging derivatives recognized in cost of sales as a result of hedge
ineffectiveness were approximately $1.0 million and $.8 million for the three
months and nine months ended September 30, 2001, respectively. No gains or
losses on cash flow hedging derivatives were reclassified from accumulated other
comprehensive income (loss) into income as a result of the discontinuance of a
hedge because it became probable that a hedged forecasted transaction would not
occur. There were no components of gains or losses on cash flow hedging
derivatives that were recognized in income because such components were excluded
from the assessment of hedge effectiveness.
The
components of accumulated other comprehensive income (loss) as shown on the
Consolidated Balance Sheets are as follows:
Foreign Minimum Gains (Losses) Accumulated
Currency Pension on Cash Flow Other
Translation Liability Hedging Reclassification Comprehensive
Adjustments Adjustments Derivatives Adjustments Income (Loss)
- -------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
Balance as of 12/31/01 $(62,545) $(35,135) $ 11,548 $ - $(86,132)
Current period credit (charge), gross (17,210) (72,007) 202,248 (21,900) 91,131
Income tax benefit (expense) - 28,875 (74,115) 8,037 (37,203)
--------- --------- -------- -------- --------
Balance as of 9/29/02 $(79,755) $(78,267) $139,681 $(13,863) $(32,204)
========= ========= ======== ======== ========
As
of September 29, 2002, the amount of net after-tax 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 were approximately $54.0 million, compared to
net after-tax losses on cash flow hedging derivatives to be reclassified into
earnings in the next twelve months of $6.3 million as of September 30, 2001.
- INVENTORIES
The
majority of inventories are valued under the last-in, first-out (LIFO) method.
The remaining inventories are stated at the lower of first-in, first-out (FIFO)
cost or market. Inventories were as follows:
September 29, 2002 December 31, 2001
------------------ -----------------
(in thousands of dollars)
Raw materials $ 195,969 $ 160,343
Goods in process 56,646 51,184
Finished goods 392,994 354,100
----------- ----------
Inventories at FIFO 645,609 565,627
Adjustment to LIFO (52,378) (53,493)
----------- ----------
Total inventories $ 593,231 $ 512,134
=========== ==========
The
increase in raw material inventories as of September 29, 2002, reflected the
seasonal timing of deliveries to support manufacturing requirements. Raw
material inventories were $196.0 million as of September 29, 2002 compared to
$284.8 million as of September 30, 2001, reflecting the impact of the
Corporation’s business realignment initiatives implemented in the fourth
quarter of 2001.
- LONG-TERM DEBT
In
August 1997, the Corporation filed a Form S-3 Registration Statement under which
it could offer, on a delayed or continuous basis, up to $500 million of
additional debt securities. As of September 29, 2002, $250 million of debt
securities remained available for issuance under the August 1997 Registration
Statement.
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- 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 September 29, 2002 and December 31, 2001, because of the relatively
short maturity of these instruments. The carrying value of long-term debt,
including the current portion, was $868.8 million as of September 29, 2002,
compared to a fair value of $1,017.0 million, based on quoted market prices for
the same or similar debt issues.
As
of September 29, 2002, the Corporation had foreign exchange forward contracts
maturing in 2002, 2003 and 2004 to purchase $53.0 million in foreign currency,
primarily British sterling and euros, and to sell $23.8 million in foreign
currency, primarily Japanese yen, at contracted forward rates.
The
fair value of foreign exchange forward contracts is estimated by obtaining
quotes for future contracts with similar terms, adjusted where necessary for
maturity differences. As of September 29, 2002, the fair value of foreign
exchange forward contracts approximated the contract value. The Corporation does
not hold or issue financial instruments for trading purposes.
In
order to minimize its financing costs and to manage interest rate exposure, the
Corporation, from time to time, enters into interest rate swap agreements. In
February 2001, the Corporation entered into interest rate swap agreements that
effectively convert interest-rate-contingent rental payments on certain
operating leases from a variable to a fixed rate of 6.1%. Any interest rate
differential on interest rate swap agreements is recognized as an adjustment to
interest expense over the term of each agreement. The fair value of interest
rate swap agreements was a liability of $8.0 million and $2.7 million as of
September 29, 2002 and December 31, 2001, respectively. The Corporation’s
risk related to interest rate swap agreements is limited to the cost of
replacing such agreements at prevailing market rates.
- SHARE REPURCHASES
In
October 1999, the Corporation’s Board of Directors approved a share
repurchase program authorizing the repurchase of up to $200 million of the
Corporation’s Common Stock. Under this program, a total of 2,388,586 shares
of Common Stock was purchased through September 29, 2002. As of September 29,
2002, a total of 43,580,410 shares were held as Treasury Stock and $84.2 million
remained available for repurchases of Common Stock under the repurchase program.
- OTHER MATTERS
On
July 25, 2002, the Corporation confirmed that the Milton Hershey School Trust,
which controls 77% of the combined voting power of the Corporation’s Common
Stock and Class B Common Stock, had informed the Corporation that it had decided
to diversify its holdings and in this regard wanted Hershey Foods to explore a
sale of the entire Corporation. On September 17, 2002, the Milton Hershey School
Trust instructed the Corporation to terminate the sale process. Selling,
marketing and administrative expenses for the three months and nine months ended
September 29, 2002, included expenses of approximately $17.3 million associated
with the exploration of the sale of the Corporation.
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Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
Results of Operations - Third Quarter 2002 vs. Third Quarter 2001
Consolidated net sales for
the third quarter decreased from $1,178.9 million in 2001 to $1,152.3 million in
2002. The decrease from the prior year was a result of higher promotional
allowances, returns, discounts, and allowances as well as the rationalization of
certain under-performing brands, including the divestiture of Heide
brands in May 2002, the discontinuance and subsequent licensing of the
Corporation’s aseptically packaged drink products in the United States, and
the divestiture of the Luden’s throat drop business in September
2001. Sluggishness in several international markets, specifically Canada and
Brazil, also contributed to the lower sales in the quarter. These factors which
resulted in lower sales were partially offset by increased sales of key
confectionery brands in the United States, including new products and line
extensions, and selected confectionery selling price increases.
The consolidated gross
margin increased from 36.1% in 2001 to 37.8% in 2002. The increase reflected
decreased costs for certain major raw materials, primarily cocoa and peanuts,
and packaging materials, a more profitable sales mix and selected confectionery
selling price increases. The impact of these items was partially offset by
higher promotional spending, and returns, discounts, and allowances, which were
higher as a percent of sales compared to the prior year. Selling, marketing and
administrative expenses increased by 1% in 2002, primarily reflecting the impact
of $17.3 million of expenses related to the exploration of the sale of the
Corporation. Excluding the impact of these expenses in 2002 and goodwill
amortization in 2001, selling, marketing and administrative costs were 6% lower
in 2002. The reduction was due primarily to lower marketing spending as well as
lower salary expense associated with reduced staffing resulting from the
Corporation’s voluntary work force reduction program.
Net interest expense in the
third quarter of 2002 was $4.0 million less than the comparable period of 2001,
primarily reflecting a decrease in short-term interest expense due to reduced
average short-term borrowings and lower average short-term borrowing rates.
Net income for the third
quarter increased $2.3 million, or 2%, from 2001 to 2002, and net income per
share - diluted increased $.01, or 1%. Excluding the after-tax effect of the
business realignment initiatives and expenses related to the exploration of sale
recorded in 2002, as well as the after-tax effect of goodwill amortization and
the gain on the sale of the Luden’s business in 2001, net income for the
third quarter increased $16.5 million, or 13%, from 2001 to 2002, and net income
per share - diluted increased $.11, or 12%.
Results of
Operations - First Nine Months 2002 vs. First Nine Months 2001
Consolidated net sales for
the first nine months decreased from $2,984.2 million in 2001 to $2,964.3
million in 2002. The sales decrease primarily reflected higher promotion
allowances and returns, discounts, and allowances, the rationalization of
certain under-performing brands, including the divestitures of the Heide
brands in May 2002 and the Luden’s throat drop business in September
2001, and the timing of the acquisition of the Nabisco Inc. gum and mint
business which resulted in incremental sales in the first nine months of 2001
compared to the same period of 2002. These decreases were partially offset by
increases in sales of key confectionery brands in the United States, including
new products and line extensions, and selected confectionery selling price
increases, as well as incremental sales from Visagis, the Brazilian chocolate
and confectionery business acquired in July 2001.
The consolidated gross
margin increased from 36.0% in 2001 to 37.5% in 2002. The increase in gross
margin primarily reflected decreased costs for certain major raw materials,
primarily cocoa, milk, and peanuts, and packaging materials, higher
profitability resulting from the mix of confectionery items sold in 2002
compared with sales in 2001 and selected confectionery selling price increases.
These increases in gross margin were partially offset by higher promotion
allowances and returns, discounts, and allowances, both of which were higher as
a percent of sales compared to the prior year. Selling, marketing and
administrative expenses decreased by 1% in 2002, primarily as a result of
savings from the business realignment initiatives and the elimination of
goodwill amortization in 2002, offset by $17.3 million of expenses incurred to
explore the sale of the Corporation. Excluding the impact of goodwill
amortization in 2001 and the expenses incurred to explore the Corporation’s
sale, selling, marketing, and administrative expenses in 2002 were 2% lower than
2001.
Net interest expense in the
first nine months of 2002 was $6.9 million less than the comparable period of
2001, primarily reflecting a decrease in short-term interest expense due to
reduced average short-term borrowings and lower average short-term borrowing
rates.
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Net income for the first
nine months of 2002 was $273.3 million compared to $252.1 million in 2001 and
net income per share-diluted was $1.98 per share compared to $1.83 per share in
the prior year. Excluding the after-tax effect of the business realignment
initiatives and costs related to the exploration of the sale of the Corporation
recorded in 2002, as well as the after-tax effect of goodwill amortization and
the gain on the sale of the Luden’s business in 2001, net income for the
first nine months increased $36.3 million, or 14%, from 2001 to 2002 and net
income per share - diluted increased $.26, or 14%.
Business Realignment Initiatives
In late October 2001, the
Corporation’s Board of Directors approved a plan to improve the efficiency
and profitability of the Corporation’s operations. The plan included asset
management improvements, product line rationalization, supply chain efficiency
improvements and a voluntary work force reduction program (“VWRP”). As
of September 29, 2002, the total estimated costs for the business realignment
initiatives are expected to be in a range of $310.0 million, as announced in
January 2002, to $320.0 million, as higher pension settlement costs associated
with the VWRP which are recorded as incurred, are expected to more than offset
the impact of the greater than expected proceeds from the sale of certain
assets. A favorable adjustment of $4.4 million resulting from the greater than
expected proceeds was recorded during the second quarter and included in the net
business realignment charge. As of September 29, 2002, there have been no
significant changes to the estimated savings for the business realignment
initiatives. The major components of these initiatives remain on schedule for
completion by the end of 2002.
Asset management
improvements included the decision to outsource the manufacture of certain
ingredients and the related removal and disposal of machinery and equipment
related to the manufacture of these ingredients. As a result of this
outsourcing, the Corporation was able to significantly reduce raw material
inventories, primarily cocoa beans and cocoa butter, in the fourth quarter of
2001. The remaining portion of the project was substantially completed during
the first quarter of 2002.
Product line
rationalization plans included the sale or exit of certain businesses, the
discontinuance of certain non-chocolate confectionery products and the
realignment of the Corporation’s sales organizations. Costs associated with
the realignment of the sales organizations related primarily to sales office
closings and terminating the use of certain sales brokers. During the first nine
months of 2002, sales offices were closed as planned and the use of certain
sales brokers was discontinued. During the second quarter, the sale of a group
of Hershey’s non-chocolate confectionery candy brands to Farley’s
& Sathers Candy Company, Inc. was completed. Included in the transaction
were the HEIDE®, JUJYFRUITS®,
WUNDERBEANS® and AMAZIN’ FRUIT® trademarked
confectionery brands, as well as the rights to sell CHUCKLES®
branded products, under license. Also, during the second quarter the Corporation
discontinued and subsequently licensed the sale of its aseptically packaged
drink products in the United States. Sales associated with these brands during
the first six months and third quarter of 2002 are included in Note 2.
To improve supply chain
efficiency and profitability, three manufacturing facilities, a distribution
center and certain other facilities were planned to be closed. These included
manufacturing facilities in Denver, Colorado; Pennsburg, Pennsylvania; and
Palmyra, Pennsylvania and a distribution center and certain minor facilities
located in Oakdale, California. During the first quarter of 2002, the
manufacturing facility in Palmyra, Pennsylvania was closed and additional costs
were recorded, as incurred, relating to retention payments. In addition, asset
disposals relating to the closure of the three manufacturing plants were begun.
During the second quarter, operations utilizing the distribution center in
Oakdale, California ceased. Asset write-offs relating to the closure of the
three manufacturing plants continued during the third quarter.
In October 2001, the
Corporation offered the VWRP to certain eligible employees in the United States,
Canada and Puerto Rico in order to reduce staffing levels and improve
profitability. The VWRP consisted of an early retirement program which provided
enhanced pension, post-retirement and certain supplemental benefits and an
enhanced mutual separation program which provided increased severance and
temporary medical benefits. A reduction of approximately 500 employees occurred
during the first nine months of 2002 as a result of the VWRP. Additional pension
settlement costs of $8.6 million, $6.4 million and $8.5 million before tax were
recorded in the first, second and third quarters, respectively, of 2002,
principally associated with lump sum payments of pension benefits.
Liquidity and Capital Resources
Historically, the
Corporation’s major source of financing has been cash generated from
operations. Domestic seasonal working capital needs, which typically peak during
the summer months, generally have been met by issuing commercial paper. During
the first nine months of 2002, the Corporation’s cash and cash equivalents
decreased by $14.3 million. Also
-14-
during the period, the Corporation contributed
$129.7 million to its domestic pension plans. Cash provided from operations,
cash on hand at the beginning of the period and proceeds from a business
divestiture was substantially sufficient to fund dividend payments of $124.8
million and $74.5 million of capital expenditures. Cash provided from other
assets and liabilities of $137.0 million, primarily reflected commodities
transactions and an increase in accrued income taxes, partially offset by
contributions to the Corporation’s domestic pension plans and decreases in
accrued liabilities. Cash provided from other assets and liabilities in 2001 of
$163.2 million was principally the result of commodities transactions and an
increase in accrued income taxes , partially offset by a pension plan
contribution.
In order to improve the
funded status of the Corporation’s domestic pension plans, a contribution
of $75.0 million was made in February 2001. Additional contributions of $95.0
million, $75.0 million and $54.7 million were made in December 2001 and in March
and June 2002, respectively, to fund payments related to the early retirement
program and to improve the funded status. These contributions were funded by
cash from operations. Depending upon the market performance of pension plan
assets, the Corporation anticipates additional contributions of $75.0 million to
$100.0 million during the fourth quarter of 2002.
The ratio of current assets
to current liabilities was 2.4:1 as of September 29, 2002, and 1.9:1 as of
December 31, 2001. The Corporation’s capitalization ratio (total
short-term and long-term debt as a percent of stockholders’ equity,
short-term and long-term debt) was 39% as of September 29, 2002, and 44% as of
December 31, 2001.
Other Matters
On July 25, 2002, the
Corporation confirmed that the Milton Hershey School Trust, which controls 77%
of the combined voting power of the Corporation’s Common Stock and Class B
Common Stock, had informed the Corporation that it had decided to diversify its
holdings and in this regard wanted Hershey Foods to explore a sale of the entire
Corporation. On September 17, 2002, the Milton Hershey School Trust instructed
the Corporation to terminate the sale process.
Safe Harbor Statement
The nature of the
Corporation’s operations and the environment in which it operates subject
it to changing economic, competitive, regulatory and technological conditions,
risks and uncertainties. In connection with the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995, the
Corporation notes the following factors which, among others, could cause future
results to differ materially from the forward-looking statements, expectations
and assumptions expressed or implied herein. Many of the forward-looking
statements contained in this document may be identified by the use of
forward-looking words such as “believe,” “expect,”
“anticipate,” “should,” “planned,”
“estimated,” and “potential,” among others. Factors which
could cause results to differ include, but are not limited to: changes in the
confectionery and grocery business environment, including actions of competitors
and changes in consumer preferences; changes in governmental laws and
regulations, including taxes; market demand for new and existing products;
changes in raw material and other costs; the Corporation’s ability to
implement improvements to and reduce costs associated with the
Corporation’s distribution operations; pension cost factors, such as
actuarial assumptions, return on pension plan assets, and employee retirement
decisions; and the Corporation’s ability to sell certain assets at targeted
values.
-15-
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
The potential loss in fair
value of foreign exchange forward contracts and interest rate swap agreements
resulting from a hypothetical near-term adverse change in market rates of ten
percent increased from $.3 million as of December 31, 2001, to $.5 million as of
September 29, 2002. The market risk resulting from a hypothetical adverse market
price movement of ten percent associated with the estimated average fair value
of net commodity positions decreased from $4.7 million as of December 31, 2001,
to $1.1 million as of September 29, 2002. Market risk represents 10% of the
estimated average fair value of net commodity positions at four dates prior to
the end of each period.
Item 4. Controls and Procedures
As required by Rule 13a-15
under the Securities Exchange Act of 1934 (the “Exchange Act”), within
the 90 days prior to the filing date of this report, the Corporation conducted
an evaluation of the effectiveness of the design and operation of the
Corporation’s disclosure controls and procedures. This evaluation was
carried out under the supervision and with the participation of the
Corporation’s management, including the Corporation’s Chief Executive
Officer and Chief Financial Officer. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the
Corporation’s disclosure controls and procedures are effective. There have
been no significant changes in the Corporation’s internal controls or in
other factors which could significantly affect internal controls subsequent to
the date of the evaluation.
Disclosure controls and
procedures are controls and other procedures that are designed to ensure that
information required to be disclosed in the Corporation’s reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in the Corporation’s reports filed under the
Exchange Act is accumulated and communicated to management, including the
Corporation’s Chief Executive Officer and Chief Financial Officer as
appropriate, to allow timely decisions regarding required disclosure.
-16-
PART II - OTHER INFORMATION
Items 1 through 5 have been omitted as not applicable.
Item 6 -
Exhibits and Reports on Form 8-K
a) Exhibits
The following items are attached and incorporated herein by reference:
Exhibit 10.1 - Amended and Restated Key Employee Incentive Plan.
Exhibit 10.2 - Amended and Restated Deferred Compensation Plan.
Exhibit 10.3 - Amended and Restated Supplemental Executive Retirement Plan.
Exhibit 10.4 - Executive Benefits Protection Plan (Group 3A).
Exhibit 12 - Statement showing computation of ratio of earnings to fixed charges for the nine months ended September 29,
2002 and September 30, 2001.
b) Reports on Form 8-K
A
report on Form 8-K was filed on July 25, 2002, confirming that the Milton
Hershey School Trust, which controls 77% of the voting power of the
Corporation’s Common Stock, informed the Corporation that it had decided to
diversify its holdings and in this regard wanted Hershey Foods to explore a sale
of the entire Corporation.
A
report on Form 8-K was furnished on August 7, 2002, stating that Richard H.
Lenny, Chief Executive Officer of the Corporation and Frank Cerminara, Chief
Financial Officer of the Corporation, each furnished to the Securities and
Exchange Commission personal certifications pursuant to 18 U.S.C. Section 1350.
A
report on Form 8-K was furnished on August 8, 2002, stating that the Corporation
issued a press release recommending that its stockholders reject an unsolicited,
below-market mini tender offer made by TRC Capital Corporation for up to 1.64%
of Hershey Foods Corporation’s outstanding shares.
A
report on Form 8-K was furnished on August 13, 2002, to include sworn statements
filed by Richard H. Lenny, Chief Executive Officer of the Corporation and Frank
Cerminara, Chief Financial Officer of the Corporation, pursuant to the
Commission’s order under Section 21(a) (1) of the Securities Exchange Act
of 1934 No. 4-460.
A
report on Form 8-K was filed on September 18, 2002, confirming that the Milton
Hershey School Trust’s Board of Directors had voted to instruct the
Corporation to terminate the sale process that was initiated at the direction of
the Trust.
-17-
SIGNATURES
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.
HERSHEY FOODS CORPORATION
(Registrant)
Date November 12, 2002
/s/ Frank Cerminara
Frank Cerminara
Senior Vice President,
Chief Financial Officer
Date November 12, 2002
/s/ David W. Tacka
David W. Tacka
Vice President, Corporate Controller and
Chief Accounting Officer
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CERTIFICATION
I, Richard H. Lenny, certify that:
- I have reviewed this quarterly report on Form 10-Q of Hershey Foods Corporation;
Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
Based on my knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report;
The registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a)
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b)
evaluated the effectiveness of the registrant’s disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
The registrant’s other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant’s auditors and the audit
committee of registrant’s board of directors:
a)
all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant’s ability to record, process,
summarize and report financial data and have identified for the
registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal controls; and
The registrant’s other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Richard H. Lenny
Richard H. Lenny
Chief Executive Officer
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CERTIFICATION
I, Frank Cerminara, certify that:
- I have reviewed this quarterly report on Form 10-Q of Hershey Foods Corporation;
Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
Based on my knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report;
The registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a)
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b)
evaluated the effectiveness of the registrant’s disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the “Evaluation Date”); and
c)
presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
The registrant’s other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant’s auditors and the audit
committee of registrant’s board of directors:
a)
all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant’s ability to record, process,
summarize and report financial data and have identified for the
registrant’s auditors any material weaknesses in internal controls; and
b)
any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant's internal controls;
and
The registrant’s other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Frank Cerminara
Frank Cerminara
Chief Financial Officer
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EXHIBIT INDEX
Exhibit 10.1 Amended and Restated Key Employee Incentive Plan
Exhibit 10.2 Amended and Restated Deferred Compensation Plan
Exhibit 10.3 Amended and Restated Supplemental Executive Retirement Plan
Exhibit 10.4 Executive Benefits Protection Plan (Group 3A)
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
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