On May 8, 2006, the Company contributed $9,000,000 to Proformance, thereby increasing its statutory surplus.
On May 16, 2007, the Company contributed $4,100,000 to Proformance, thereby increasing its statutory surplus.
our packaged product that includes private passenger automobile, homeowners, personal excess (“umbrella”) and specialty property liability coverage; and
$163.2 million in 2003 to $178.7 million in 2007. As of December 31, 2007, our stockholders’ equity was $144.2 million, up from stockholders’ equity of $49.8 million as of December 31, 2003, reflecting a 30.4% compound annual growth rate. Included in stockholders’ equity is $62.2 million as a result of our initial public offering, which was completed on April 21, 2005.
Direct written premiums for the year ended December 31, 2007 increased by $7.6 million, or 4.4%, to $178.7 million from $171.1 million in the comparable 2006 period.
For the year ended December 31, 2007, the increase is primarily due to the following: new business generated by our partner agents increased by $3.0 million to $34.4 million from $31.4 million in the comparable 2006 period, including new business from our Blue Star auto insurance product in the amount of $8.7 million. This was offset by attrition of existing business of $9.5 million and $7.3 million, respectively, as well as a $17.3 million decrease in premium as a result of decreases in renewal premiums during the period and a reduction in closed agents business as a result of the continued increase in the competitive nature of the New Jersey auto insurance marketplace.
We manage and report our business as a single segment based upon several factors. Although our insurance subsidiary, Proformance Insurance Company writes private passenger automobile, homeowners and commercial lines insurance, we consider those operating segments as one operating segment due to the fact that the nature of the products are similar, the nature of the production processes are similar, the type of class of customer for the products are similar, the methods used to distribute the products are similar and the nature of the regulatory environment is similar. In addition, these lines of business have historically demonstrated similar economic characteristics and as such are aggregated and reported as a single segment. Also, in addition to Proformance, all other operating segments wholly owned by the Company are aggregated and reported as a single segment due to the fact that the nature of the products are similar, the nature of the production processes are similar, the type of class of customer for the products are similar, the methods used to distribute the products are similar and the nature of the regulatory environment is similar.
As of December 31, 2007, the rating tier modifiers and the distribution of risks within the tiers were as follows:
The recent rise in gasoline prices may serve to decrease the number of miles driven by our policyholders and result in lower frequency of automobile claims; and
Upon the closing, Proformance was required to pay to The Hartford a one-time fee of $150,000. In addition, on May 15, 2007, Proformance paid a one-time payment to The Hartford in the amount $253,392, which represented 5% of the written premium of the retained business at the end of the twelve-month non-renewal period.
For the years ended December 31, 2007 and 2006, the direct written premium generated from Hanover renewal business was $12,491,300 and $11,080,943, respectively.
With respect to our replacement carrier transaction for the 2004 year with OCIC and OCNJ, on February 22, 2005 Proformance notified OCNJ that OCNJ owed Proformance $7,762,000 for the 2004 year in connection with the requirement that a premium-to-surplus ratio of 2.5 to 1 be maintained on the OCNJ renewal business. Pursuant to our agreement, OCNJ had until May 15, 2005 to make payment to us. Subsequent to the notification provided to OCIC and OCNJ, we had several discussions with OCIC relating to certain components to the underlying calculation which supports the amount owed to Proformance for the 2004 year. As part of these discussions, OCIC had requested additional supporting documentation and raised issues with respect to approximately $2,000,000 of loss adjustment expense, approximately $800,000 of commission expense, and approximately $600,000 of NJAIRE assessments, or a total of $3,412,000, allocated to OCNJ. We recorded $4,350,000 (the difference between the $7,762,000 we notified OCNJ they owed us, and the $3,412,000 as outlined above) as replacement carrier revenue from related party in our consolidated statement of operations for the year ended December 31, 2004 with respect to the OCIC replacement carrier transaction. We recorded $4,350,000 because it was management’s best estimate of the amount for which we believed collectability was reasonably assured based on several factors. First, the calculation to determine the amount owed by OCIC to us is complex and certain elements of the calculation are significantly dependent on management’s estimates and judgment and thus more susceptible to challenge by OCIC. We also note our experience in the past in negotiating these issues with OCIC. For example, in 2003 we notified OCNJ that OCNJ owed Proformance approximately $10,100,000 for 2003. After negotiations we ultimately received $6,820,000. Accordingly, because of the nature of the calculation, the inherent subjectivity in establishing certain estimates upon which the calculation is based, and our experience from 2003, management’s best estimate of the amount for 2004 for which we believed collectability from OCIC was reasonably assured was $4,350,000. On June 27, 2005, we received $3,654,000 from OCIC in settlement of the amounts due to Proformance, which differs from the $4,350,000 we had recorded as a receivable due from OCIC as outlined above. The difference of $696,000 between the receivable we had recorded ($4,350,000) due from OCIC and the actual settlement payment received from OCIC ($3,654,000) came as a result of a dispute between the Company and OCIC regarding $292,000 of NJAIRE assessments and approximately $404,000 of commission expenses included in the underlying calculation which supported the amounts due to Proformance for the 2004 year, the final year of our three year agreement with OCIC. The $696,000 was recorded as a bad debt expense in the Company’s consolidated statement of operations for the year ended December 31, 2005.
F.P. “Skip” Campion, the Company’s former Vice Chairman and the former President of Proformance, passed away on January 25, 2005. Under the terms of the Plan and the applicable stock option agreements, if an optionee dies without having fully exercised any outstanding stock options, the right to exercise such stock options expires ninety days following the optionee’s death. Accordingly, the expiration date of Mr. Campion’s stock options (none of which had previously been exercised) was accelerated to April 25, 2005. Since the estate of Mr. Campion did not exercise these stock options on or prior to April 25, 2005, the stock options were forfeited. On June 13, 2005, the Board of Directors of the Company approved, subject to shareholder approval, a grant of new nonqualified stock options to the estate of Mr. Campion, to preserve the value of Mr. Campion’s stock options that expired on April 25, 2005. The new stock options are subject to the same terms and conditions as the forfeited stock options, including the exercise price and number of shares subject to each option, except that the new stock options would expire on December 31, 2005.
Approval of the extension of the options granted during 1995 and the grant of new stock options to the estate of Mr. Campion was received at the Company’s Annual Meeting of Shareholders on September 19, 2005. The fair market value of the Company’s stock on September 19, 2005 was $11.47; therefore, the Company recognized $749,802 as compensation expense related to the extension of options in its consolidated statement of operations for the year ended December 31, 2005. The Company also recognized $1,937,198 as compensation expense related to the grant of new options in its consolidated statement of operations for the year ended December 31, 2005.
On December 21, 2007, the Board of Directors of NAHC approved the Compensation Committee’s recommendation to grant 60,000 stock appreciation rights (SARS) to certain executive officers under the Company’s 2004 Stock and Incentive Plan. The SARS were granted with a base price of $3.93 per share, which was the closing price of the Company’s common stock on the Nasdaq National Market on the date of grant.
On March 21, 2006, the Board of Directors of National Atlantic Holdings Corporation (NAHC) approved the Compensation Committee’s recommendation to grant 343,000 stock appreciation rights (SARS) to the executive officers and other key employees under the Company’s 2004 Stock and Incentive Plan. The SARS were granted with a base price of $9.94 per share, which was the closing price of the Company’s common stock on the Nasdaq National Market on the date of grant.
In accordance with SFAS 123R, the Company records share based compensation liabilities at fair value or a portion
On January 1, 2005, Proformance entered into an Auto Physical Damage Quota Share Contract with Odyssey America Reinsurance Corporation. Under the terms of this contract, Proformance ceded $1,953,393 of written premiums and $2,047,576 of beginning unearned premium reserves to Odyssey Re with respect to business written between January 1, 2005 and September 15, 2005. Ceded losses and loss adjustment expenses were $374,143 and ceded reserves including incurred but not reported (“IBNR”) reserves was $222,182.
We derive our revenues primarily from the net premiums we earn, net investment income we earn on our invested assets and revenue associated with replacement carrier transactions. Net earned premiums is the difference between the premiums we earn from the sales of insurance policies and the portion of those premiums that we cede to our reinsurers.
In accordance with industry practice, we also maintain reserves for estimated losses incurred but not yet reported. Incurred but not yet reported reserves are determined in accordance with commonly accepted actuarial reserving techniques on the basis of our historical information and experience. We review incurred but not yet reported reserves quarterly and make adjustments if necessary.
For the year ended December 31, 2006, we decreased reserves by $28.0 million primarily due to a decrease in the loss and loss adjustment expense ratio for the same period. This decrease can be attributed to a decline in earned premium, a reduction in claim frequency in private passenger automobile coverage and significant growth in commercial lines business which in 2006, have exhibited lower loss ratios. For the year ended December 31, 2006, prior year reserves increased by $0.02 million. This increase was due to favorable development in bodily injury and no-fault coverages offset by a reduction in ceded loss estimates for prior years.
The table below sets forth the types of reserves we maintain for our lines of business and indicates the amount of reserves as of December 31, 2007 for each line of business.
More effective claims processes have recently been put in place. If the improvement in our claims handling process is better than expected, losses could develop less than anticipated,
The rate of claims settlements has increased dramatically over the past year. A continuation of this activity could produce ultimate losses below our current estimate.
There are two major factors that could result in ultimate losses above management’s best estimate:
The property and casualty insurance industry uses the combined ratio as a measure of underwriting profitability. The combined ratio is the sum of the loss ratio and the expense ratio. The loss ratio is the ratio of losses and loss adjustment expenses to net earned premiums. The expense ratio, when calculated on a statutory accounting basis, is the ratio of underwriting expenses to net written premiums. The expense ratio, when calculated on a GAAP basis, differs from the statutory method specifically as it relates to policy acquisition expenses. Policy acquisition expenses are expensed as incurred under the statutory accounting method. However, for GAAP, policy acquisition expenses are deferred and amortized over the period in which the related premiums are earned. The combined ratio reflects only underwriting results and does not include fee for service income or investment income. Underwriting profitability is subject to significant fluctuations due to competition, catastrophic events, economic and social conditions and other factors.
The table below shows certain of our selected financial results for the years ended December 31, 2007, 2006 and 2005:
For the year ended December 31, 2007, compared to the year ended December 31, 2006
For the year ended December 31, 2007, the increase is primarily due to the following: new business generated by our partner agents increased by $3.0 million to $34.4 million from $31.4 million in the comparable 2006 period, including new business from our Blue Star auto insurance product in the amount of $8.7 million. This was offset by attrition of existing business of $9.5 million, as well as a $17.3 million decrease in premium as a result of decreases in renewal premiums during the period and a reduction in closed agents business as a result of the continued increase in the competitive nature of the New Jersey auto insurance marketplace.
Net Premiums Earned. Net premiums earned for the year ended December 31, 2007 increased by $7.8 million, or 5.0%, to $165.2 million from $157.4 million in the comparable 2006 period.
Other Income. Other income for the year ended December 31, 2007 and 2006 was $1.7 million and $1.4 million, respectively. The increase is primarily related to an increase in finance and service fees charged to those paying on an installment basis. Finance and service fees for the years ended December 31, 2007 and 2006 were $1.6 million and $1.2 million, respectively.
Underwriting, Acquisition and Insurance Related Expenses. Underwriting, acquisition and insurance related expenses for the year ended December 31, 2007 increased by $1.4 million, or 2.9%, to $49.7 million from $48.3 million in the comparable 2006 period. As a percentage of net written premiums, our underwriting, acquisition and insurance related expense ratio for the year ended December 31, 2007 was 29.9% as compared to 30.0% for the comparable 2006 period. Underwriting, acquisition and insurance related expenses, excluding changes in deferred acquisition costs for the years ended December 31, 2007 and 2006 were $50.0 million and $49.8 million, respectively. The effect of an increase in the deferred acquisition cost asset is recorded as a reduction of underwriting, acquisition and insurance related expenses. For the year ended December 31, 2007, the benefit recorded as a result of the increase in the deferred acquisition cost asset decreased by $1.2 million to $0.3 million from $1.5 million in the comparable 2006 period. For the year ended December 31, 2007, commission expense increased by $2.7 million to $26.6 million from $23.9 million in the comparable 2006 period. Salary expense for year ended December 31, 2007 increased by $0.8 million to $17.6 million from $16.8 million in the comparable 2006 period. In addition, depreciation and amortization expense for the year ended December 31, 2007 increased by $0.7 million to $1.1 million from $0.4 million in the comparable 2006 period as a result of the Diamond 4x software which was placed into service in March of 2007.
For the year ended December 31, 2006, compared to the year ended December 31, 2005
For the year ended December 31, 2006 the decrease is due to the following: our closed agents business that was acquired as part of previous replacement carrier transactions with OCIC, Met P&C and Sentry decreased by $51.0 million as a result of the continued increase in the competitive nature of the New Jersey auto insurance market those agents were able to place that business with other carriers in the New Jersey market. New business generated by our partner agents for the year ended December 31, 2006 was $31.4 million, offset by attrition of existing business of $7.3 million. For the year ended December 31, 2006, direct written premium generated from The Hanover and Hartford renewal business was approximately $11.1 and $4.1 million, respectively.
Net Written Premiums. Net written premiums for the year ended December 31, 2006 decreased by $28.5 million, or 15.0%, to $161.1 million from $189.6 million in the comparable 2005 period. Ceded premiums as a percentage of direct written premium for the year ended December 31, 2006 was 6.5%, as compared to 5.2%, in the same period in the prior year. The decrease in net written premiums for the year ended December 31, 2006 was due to the decrease in direct written premiums for the same period.
Net Premiums Earned. Net premiums earned for the year ended December 31, 2006 decreased by $15.4 million, or 8.9%, to $157.4 million from $172.8 million in the comparable 2005 period.
Other Operating and General Expenses. Other operating and general expenses for the year ended December 31, 2006 decreased by $1.7 million, or 42.5%, to $2.3 million from $4.0 million in the comparable 2005 period. The decrease in other operating and general expenses for the year ended December 31, 2006 is primarily related to a decrease in stock based compensation expense offset by an increase in deferred compensation expense. For the year ended December 31, 2006, stock based compensation expense was $0.0 million, as compared to $3.1 million for the comparable 2005 period. For the year ended December 31, 2006, share-based compensation expense was $1.1 million as compared to $0.0 million for the comparable 2005 period.
Income Tax Expense. Income tax expense for the year ended December 31, 2006 and 2005 was $7.1 million and $1.9 million, respectively. The increase in tax expense of $5.2 million for the year ended December 31, 2006 as compared to the same period in the prior year was due to the increase in income before income taxes for the same periods.
We are organized as a holding company with all of our operations being conducted by our insurance subsidiaries, which underwrite the risks associated with our insurance policies, and our non-insurance subsidiaries, which provide our policyholders and our insurance subsidiaries a variety of services related to the insurance policies we provide. We have continuing cash needs for taxes and administrative expenses. These ongoing obligations are funded with dividends from our non-insurance subsidiaries. Our taxes are paid by each subsidiary through an inter-company tax allocation agreement. In addition, a portion of the proceeds of our sale of common stock to our Partner Agents had historically been used to pay taxes. We do not expect to sell common stock to our Partner Agents in the future as any purchases subsequent to the initial public offering have been and will continue to be made in the open market.
For the years ended December 31, 2007, 2006 and 2005, our consolidated cash flows (used in) provided by operations was ($0.2) million, $7.2 million and $28.1 million, respectively. The decrease in cash flows provided by operations for the year ended December 31, 2007 as compared to December 31, 2006 was due primarily to an increase in income taxes recoverable and decrease in income taxes payable offset by increases in unpaid losses and loss adjustment expenses and a decrease in reinsurance recoverables and receivables. For the year ended December 31, 2007, unpaid losses and loss adjustment expenses increased $5.7 million as compared with a decrease of $28.0 million which occurred during the same period in the prior year. For the year ended December 31, 2007 income taxes recoverable increased $8.5 million and income taxes payable decreased $3.0 million. For the year ended December 31, 2006, income taxes recoverable decreased $1.2 million and income taxes payable increased $3.0 million. For the year ended December 31, 2007, the Company made estimated tax payments of $6.9 million as compared with $4.1 million during the same period in the prior year. In addition, reinsurance recoverable and receivables decreased $6.1 million for the year ended December 31, 2007 as compared with a decrease of $14.1 million for the comparable 2006 period. The decrease in cash flows provided by operations for the year ended December 31, 2006 as compared to December 31, 2005 was due primarily to the a decrease in unpaid losses and loss adjustment expenses , partially offset by a decrease in reinsurance recoverables and receivables and increases in unearned premiums and income taxes payable. For the year ended December 31, 2006, unpaid losses and loss adjustment expenses decreased $28.0 million
as compared with an increase of $35.1 million for the same period in 2005. Reinsurance recoverables and receivables for the year ended December 31, 2006 decreased $14.1 million as compared to an increase of $5.9 million for the same period in 2005.
For the years ended December 31, 2007, 2006 and 2005, our consolidated cash flows (used in) provided by financing activities were ($2.3) million, ($1.6) million and $62.7 million, respectively. The increase in our consolidated cash flows used in financing activities for the year ended December 31, 2007 as compared to December 31, 2006 is primarily related to an increase in the repurchase of capital stock. For the year ended December 31, 2007, the Company invested $2.6 million in common stock held in treasury as compared with $1.7 million in the comparable period in 2006. This was slightly offset by an increase in proceeds received by the Company from the exercise of stock options. For the year ended December 31, 2007, the Company received $0.3 million from the exercise of stock options as compared with $0.1 million in the comparable 2006 period. The decrease in our consolidated cash flows from financing activities for the year ended December 31, 2006 as compared to the year ended December 31, 2005 is related to the repurchase of capital stock as authorized by the board of directors on July 5, 2006 as well as the capital received during 2005 in connection with the Company’s initial public offering which was completed on April 21, 2005
Management believes that the current level of cash flow from operations provides us with sufficient liquidity to meet our operating needs over the next 12 months. We expect to be able to continue to meet our operating needs after the next 12 months from internally generated funds. Since our ability to meet our obligations in the long term (beyond such 12-month period) is dependent upon such factors as market changes, insurance regulatory changes and economic conditions, no assurance can be given that the available net cash flow will be sufficient to meet our operating needs.
purchases in order to retain more of the gross premiums written we generate. We also seek stronger financial strength ratings for Proformance, and both of these objectives require that the capital of Proformance be increased. In addition, the payment of dividends and other distributions by Mayfair is regulated by Bermuda insurance law and regulations.
The table below sets forth the aggregate amount of dividends paid to us by our non-insurance subsidiaries during the years ended December 31, 2007, 2006 and 2005.
Because our non-insurance subsidiaries generate revenues, profits and net cash flows that are generally unrestricted as to their availability for the payment of dividends, we expect to use those revenues to service all of our corporate financial obligations, such as shareholder dividends, if declared. The percentage of our total revenues generated by our non-insurance subsidiaries for the years ended December 31, 2007, 2006 and 2005 were 3.4%, 5.1% and 4.1%, respectively.
The Company entered into a four-year lease agreement for the use of additional office space and equipment commencing on September 11, 2004. Rent expense for 2007, 2006 and 2005 was $212,400, respectively.
As of December 31, 2007, we did not have any material commitments for capital expenditures.
As of December 31, 2007 and December 31, 2006, the Company maintained a high quality investment portfolio.
As of December 31, 2007 and December 31, 2006, we did not hold any securities that were not publicly traded, because our investment policy prohibits us from purchasing those securities. In addition, at those dates, we did not have any non-investment grade fixed income securities.
As more fully described above under “- Critical Accounting Policies - Investment Accounting Policy - Impairment”, in accordance with the guidance of paragraph 16 of SFAS 115, should an other-than-temporary impairment be determined, we recognize such loss on the consolidated statement of operations and we write down the value of the security and treat the adjusted value as the new cost basis of the security.
Our gross unrealized losses represented 0.29% of cost or amortized cost of the investment portfolio as of December 31, 2007. Fixed maturities represented 99.7% of the investment portfolio and 99.8% of the unrealized losses as of December 31, 2007.
Unrealized losses on held-to-maturity securities, aged less than and greater than twelve months, as of December 31, 2007 are as follows:
As of December 31, 2007, the Company has 2 held to maturity securities in the less than twelve month category and 18 held to maturity securities in the twelve months or more categories. The unrealized losses reflect changes in interest rates subsequent to the acquisition of specific securities. Management believes that the unrealized losses represent temporary impairment of the securities, as the Company has the intent and ability to hold these investments until maturity or market price recovery.
Unrealized losses on available-for-sale securities, aged less than and greater than twelve months, as of December 31, 2007 are as follows:
As of December 31, 2007, the Company has 25 available for sale securities in the less than twelve month category
As of December 31, 2006, the Company has 15 held to maturity securities in the less than twelve month category and 20 held to maturity securities in the twelve months or more categories. The unrealized losses reflect changes in interest rates subsequent to the acquisition of specific securities. Management believes that the unrealized losses represent temporary impairment of the securities, as the Company has the intent and ability to hold these investments until maturity or market price recovery.
Unrealized losses on available-for-sale securities, aged less than and greater than twelve months, as of December 31, 2006 were as follows:
As of December 31, 2006, the Company has 132 available-for sale securities in the less than twelve month category and 306 available-for-sale securities in the twelve months or more categories. The unrealized losses reflect changes in interest rates subsequent to the acquisition of specific securities. Management believes that the unrealized losses represent temporary impairment of the securities, as the Company has the intent and ability to hold these investments until maturity or market price recovery.
Our fixed income securities in an unrealized loss position have an average “AA1” credit rating by Moody’s, with extended maturity dates, which have been adversely impacted by the increase in interest rates after the purchase date. As part of our ongoing security monitoring process by our investment manager and investment committee, it was concluded that no securities in the portfolio were considered to be other-than-temporarily impaired as of December 31, 2007 and 2006. We believe, with the investment committee’s confirmation, that securities that are temporarily impaired that continue to pay principal and interest in accordance with their contractual terms, will continue to do so.
Management considers a number of factors when selling securities. For fixed income securities, management considers realizing a loss if the interest payments are not made on schedule or the credit quality has deteriorated. Management also considers selling a fixed income security in order to increase liquidity. Management considers selling an equity security at a loss if it believes that the fundamentals, i.e ., earnings growth, earnings guidance, prospects of dividends, and management quality have deteriorated. Management considers selling equity securities at a gain for liquidity purposes. Our investment manager is restricted with respect to the sales of all securities in an unrealized loss position. These transactions require the review and approval by senior management prior to execution.
Securities in an Unrealized Loss Position for Less than 12 Months
Securities in an Unrealized Loss Position for greater than 12 months
Securities with a Decline in Fair Value Below Carrying Values Less than 20%
Our mix of business because property and first-party claims settle more quickly than bodily injury claims.
Reinsurance programs - changes in Proformance’s retention will influence the payout of the liabilities. As Proformance’s net retention increases, the liabilities will take longer to settle than in past years.
Represents our minimum rental commitments as of December 31, 2007 pursuant to our seven-year lease agreement for the use of our office space and equipment at 4 Paragon Way, Freehold, NJ 07728 and our four-year lease agreement for the use of our office space and equipment at 3 Paragon Way, Freehold, NJ 07728.
On July 13, 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) which provides guidance on accounting for a tax position taken or expected to be taken in a tax return. The Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The guidance in FIN 48 is effective for fiscal years beginning after December 15, 2006. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption, with the cumulative effect
adjustment reported as an adjustment to the opening balance of retained earnings. The Company has determined that the adoption did not have a material impact on the Company’s consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157). This statement defines fair value, establishes a framework for measuring fair value, and enhances disclosures about fair value measurements. The provisions of SFAS 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the method of adoption and whether that adoption will have a material impact on the Company’s consolidated financial statements.
In December 2007, the FASB issued proposed FASB Staff Position (FSP) 157-b, “Effective Date of FASB Statement No. 157,” that would permit a one-year deferral in applying the measurement provisions of Statement No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of Statement 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. This deferral does not apply, however, to an entity that applies Statement 157 in interim or annual financial statements before proposed FSP 157-b is finalized. The Company is currently evaluating the impact, if any, that the adoption of FSP 157-b will have on the Company’s operating income or net earnings.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of SFAS 115 (SFAS 159). SFAS 159 permits all entities to choose, at specified election dates, to measure eligible items at fair value. An entity shall report unrealized gains and losses for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option is to be applied on an instrument by instrument basis and is irrevocable unless a new election date occurs and is applied only to an entire instrument. The provisions of SFAS 159 are effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the method of adoption and whether that adoption will have a material impact on the Company’s consolidated financial statements.