UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

x                            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

OR

o                                 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: 1-9044

DUKE REALTY CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Registrant’s Telephone Number, Including Area Code: (317) 808-6000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x      Accelerated filer  o      Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES  o    NO  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

DUKE REALTY CORPORATION

INDEX

					Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2007 (Unaudited) and December 31, 2006				2
Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2007 and 2006				3
Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2007 and 2006				4
Consolidated Statement of Shareholders’ Equity (Unaudited) for the six months ended June 30, 2007				5
Notes to Consolidated Financial Statements (Unaudited)				6-13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				14-30
Item 3. Quantitative and Qualitative Disclosures About Market Risk				30
Item 4. Controls and Procedures				30
Part II - Other Information
Item 1.		Legal Proceedings		31
Item 1A.		Risk Factors		31
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		31-32
Item 3.		Defaults Upon Senior Securities		32
Item 4.		Submission of Matters to a Vote of Security Holders		32-33
Item 5.		Other Information		33
Item 6.		Exhibits		33-34

 

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

DUKE REALTY CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)

		June 30,			December 31,
		2007			2006
		(Unaudited)
ASSETS
Real estate investments:
Land and improvements		$	773,469		$	844,091
Buildings and tenant improvements		4,300,028			4,211,602
Construction in progress		559,177			359,765
Investments in and advances to unconsolidated companies		537,547			628,323
Land held for development		797,983			737,752
		6,968,204			6,781,533
Accumulated depreciation		(883,601		)	(867,079		)
Net real estate investments		6,084,603			5,914,454
Real estate investments and other assets held for sale		374,573			512,925
Cash and cash equivalents		45,456			68,483
Accounts receivable, net of allowance of $1,565 and $1,088		19,921			24,118
Straight-line rent receivable, net of allowance of $1,962 and $1,915		107,408			105,319
Receivables on construction contracts, including retentions		48,911			64,768
Deferred financing costs, net of accumulated amortization of $24,804 and $19,492		56,984			62,277
Deferred leasing and other costs, net of accumulated amortization of $134,041 and $127,155		332,889			311,553
Escrow deposits and other assets		232,153			174,698
		$	7,302,898		$	7,238,595
LIABILITIES AND SHAREHOLDERS’ EQUITY
Indebtedness:
Secured debt		$	495,551		$	515,192
Unsecured notes		3,143,351			3,129,653
Unsecured line of credit		440,000			317,000
		4,078,902			3,961,845
Liabilities of properties held for sale		40,375			155,185
Construction payables and amounts due subcontractors, including retentions		126,397			136,508
Accrued expenses:
Real estate taxes		70,632			59,276
Interest		52,259			52,106
Other		38,018			63,217
Other liabilities		133,636			118,901
Tenant security deposits and prepaid rents		33,353			31,121
Total liabilities		4,573,572			4,578,159
Minority interest		114,583			156,853
Shareholders’ equity:
Preferred shares ($.01 par value); 5,000 shares authorized; 3,241 shares issued and outstanding		876,250			876,250
Common shares ($.01 par value); 250,000 shares authorized; 136,942 and 133,921 shares issued and outstanding		1,369			1,339
Additional paid-in capital		2,322,721			2,196,388
Accumulated other comprehensive income		16,784			5,435
Distributions in excess of net income		(602,381		)	­(575,829)
Total shareholders’ equity		2,614,743			2,503,583
		$	7,302,898		$	7,238,595

 

See accompanying Notes to Consolidated Financial Statements.

2

DUKE REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations

For the three and six months ended June 30,
(in thousands, except per share amounts)
(Unaudited)

		Three Months Ended						Six Months Ended
		2007			2006			2007			2006
RENTAL OPERATIONS:
Revenues:
Rental income from continuing operations		$	189,705		$	185,576		$	388,008		$	360,818
Equity in earnings of unconsolidated companies		7,949			9,696			15,640			17,955
		197,654			195,272			403,648			378,773
Operating expenses:
Rental expenses		41,036			40,945			88,625			82,298
Real estate taxes		24,148			22,132			48,519			42,855
Interest expense		39,207			42,192			82,444			77,540
Depreciation and amortization		65,943			59,405			130,984			114,300
		170,334			164,674			350,572			316,993
Earnings from continuing rental operations		27,320			30,598			53,076			61,780
SERVICE OPERATIONS
Revenues:
General contractor gross revenue		63,561			54,061			117,718			123,610
General contractor costs		(55,990		)	(48,798		)	(104,678		)	(113,006		)
Net general contractor revenue		7,571			5,263			13,040			10,604
Service fee revenue		7,655			4,430			14,052			8,848
Gain on sale of service operations properties		6,813			25			9,677			272
Total revenue		22,039			9,718			36,769			19,724
Operating expenses		10,021			6,242			17,817			11,798
Earnings from service operations		12,018			3,476			18,952			7,926
General and administrative expense		(10,606		)	(6,953		)	(24,065		)	(20,882		)
Operating income		28,732			27,121			47,963			48,824
OTHER INCOME (EXPENSE)
Interest and other income, net		2,566			1,952			4,984			3,932
Earnings from sale of land, net of impairment adjustment		2,411			554			16,408			2,445
Other minority interest in earnings of subsidiaries		(36		)	(73		)	(51		)	(175		)
Minority interest in earnings of common unitholders		(1,230		)	(1,655		)	(2,613		)	(2,679		)
Income from continuing operations		32,443			27,899			66,691			52,347
Discontinued operations:
Net income from discontinued operations, net of minority interest		856			5,708			2,114			7,594
Gain on sale of properties, net of minority interest		19,003			1,365			67,286			1,824
Income from discontinued operations		19,859			7,073			69,400			9,418
Net income		52,302			34,972			136,091			61,765
Dividends on preferred shares		(15,226		)	(13,255		)	(30,452		)	(25,967		)
Adjustments for redemption of preferred shares		—			—			—			(2,633		)
Net income available for common shareholders		$	37,076		$	21,717		$	105,639		$	33,165
Basic net income per common share:
Continuing operations		$	.13		$	.11		$	.26		$	.18
Discontinued operations		.14			.05			.51			.07
Total		$	.27		$	.16		$	.77		$	.25
Diluted net income per common share:
Continuing operations		$	.13		$	.11		$	.26		$	.18
Discontinued operations		.14			.05			.50			.06
Total		$	.27		$	.16		$	.76		$	.24
Weighted average number of common shares outstanding		136,921			134,969			136,873			134,876
Weighted average number of common shares and potential dilutive common equivalents		148,129			149,364			148,170			149,273

 

See accompanying Notes to Consolidated Financial Statements

3

DUKE REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows

For the six months ended June 30,
(in thousands)
(Unaudited)

		2007			2006
Cash flows from operating activities:
Net income		$	136,091		$	61,765
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of buildings and tenant improvements		105,114			103,658
Amortization of deferred leasing and other costs		31,032			22,091
Amortization of deferred financing costs		5,440			3,818
Minority interest in earnings		7,610			3,786
Straight-line rent adjustment		(9,592		)	(10,207		)
Earnings from land and depreciated property sales		(88,489		)	(4,449		)
Build-for-sale operations, net		(123,267		)	(93,673		)
Construction contracts, net		8,687			(3,878		)
Other accrued revenues and expenses, net		6,698			12,932
Operating distributions received in excess of (less than) equity in earnings from unconsolidated companies		2,159			(11,520		)
Net cash provided by operating activities		81,483			84,323
Cash flows from investing activities:
Development of real estate investments		(186,940		)	(167,746		)
Acquisition of real estate investments and related intangible assets		(79,661		)	(675,723		)
Acquisition of land held for development		(125,908		)	(284,609		)
Recurring tenant improvements		(22,941		)	(25,272		)
Recurring leasing costs		(14,872		)	(6,217		)
Recurring building improvements		(2,373		)	(3,146		)
Other deferred leasing costs		(10,784		)	(23,349		)
Other deferred costs and other assets		(2,467		)	(20,134		)
Proceeds from land and depreciated property sales, net		269,434			29,686
Capital distributions from unconsolidated companies		195,427			21,238
Repayments from (advances to) unconsolidated companies		(69,350		)	5,321
Net cash used for investing activities		(50,435		)	(1,149,951		)
Cash flows from financing activities:
Payments for repurchases of common shares		—			(11,883		)
Proceeds from exercise of stock options		136			5,607
Proceeds from issuance of preferred shares, net		—			283,994
Payments for redemption of preferred shares		—			(75,010		)
Proceeds from unsecured debt issuance		13,824			150,000
Payments on unsecured debt		—			(100,000		)
Proceeds from issuance of secured debt		—			710,450
Payments on secured indebtedness including principal amortization		(19,804		)	(19,449		)
Borrowings on line of credit, net		123,000			287,000
Distributions to common shareholders		(130,050		)	(127,075		)
Distributions to preferred shareholders		(30,452		)	(25,967		)
Distributions to minority interest, net		(9,306		)	(12,698		)
Deferred financing costs		(1,423		)	(19,034		)
Net cash provided by (used for) financing activities		(54,075		)	1,045,935
Net decrease in cash and cash equivalents		(23,027		)	(19,693		)
Cash and cash equivalents at beginning of period		68,483			26,732
Cash and cash equivalents at end of period		$	45,456		$	7,039
Other non-cash items:
Assumption of secured debt for real estate acquisitions		$	—		$	206,020
Conversion of Limited Partner Units to common shares		$	118,239		$	6,057
Contribution of real estate investments to, net of debt assumed by, unconsolidated companies		$	125,353		$	36,557
Issuance of Limited Partner Units for acquisition		$	11,020		$	—

 

See accompanying Notes to Consolidated Financial Statements

 

4

DUKE REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statement of Shareholders’ Equity

For the six months ended June 30, 2007
(in thousands, except per share data)
(Unaudited)

											Accumulated
								Additional			Other			Distributions
		Preferred			Common			Paid-in			Comprehensive			in Excess of
		Stock			Stock			Capital			Income			Net Income			Total
Balance at December 31, 2006		$	876,250		$	1,339		$	2,196,388		$	5,435		$	(575,829	)	$	2,503,583
Effect of implementing new accounting principle		—			—			—			—			(1,717		)	(1,717		)
Balance at January 1, 2007		$	876,250		$	1,339		$	2,196,388		$	5,435		$	(577,546	)	$	2,501,866
Comprehensive Income:
Net income		—			—			—			—			136,091			136,091
Gains on derivative instruments		—			—			—			11,349			—			11,349
Comprehensive income																	$	147,440
Stock based compensation plan activity		—			1			8,123			—			(424		)	7,700
Acquisition of minority interest		—			29			118,210			—			—			118,239
Distributions to preferred shareholders		—			—			—			—			(30,452		)	(30,452		)
Distributions to common shareholders ($.95 per share)		—			—			—			—			(130,050		)	(130,050		)
Balance at June 30, 2007		$	876,250		$	1,369		$	2,322,721		$	16,784		$	(602,381	)	$	2,614,743

 

See accompanying Notes to Consolidated Financial Statements

5

DUKE REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.                                     General Basis of Presentation

The interim consolidated financial statements included herein have been prepared by Duke Realty Corporation (the “Company”) without audit (except for the Balance Sheet as of December 31, 2006). The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with Rule 10-01 of Regulation S-X of the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses during the reporting period. Our actual results could differ from those estimates and assumptions. These financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein and the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2006.

Our rental operations are conducted through Duke Realty Limited Partnership (“DRLP”). Approximately 93.3% of the common partnership interests of DRLP (“Units”) were owned by us at June 30, 2007. The remaining Units are redeemable for shares of our common stock on a one-to-one basis. We conduct our Service Operations through Duke Realty Services LLC and Duke Realty Services Limited Partnership, and are the sole general partner of both entities. We also conduct Service Operations through Duke Construction Limited Partnership, which is effectively 100% owned by DRLP. The consolidated financial statements include our accounts and our majority-owned or controlled subsidiaries. In this Quarterly Report on Form 10-Q (this “Report”), the terms “we,” “us” and “our” refer to the Company and those entities owned or controlled by the Company.

2.                                     Reclassifications

Certain 2006 balances have been reclassified to conform to the 2007 presentation.

3.                                     Acquisitions

In February 2007, we closed on the acquisition of Bremner Healthcare Real Estate (“Bremner”), a national health care development and management firm. The primary reason for the acquisition was to expand our development capabilities within the health care real estate market.

The initial consideration paid to the sellers totaled $47.1 million and the sellers will be eligible for further contingent payments over the next three years.

Approximately $39.1 million of the total purchase price is allocated to goodwill, which is attributable to the value of Bremner’s overall development capabilities and its in-place workforce. The results of operations for Bremner since the date of acquisition have been included in continuing operations in our consolidated financial statements.

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4.                                      Indebtedness

We had an unsecured line of credit available as of June 30, 2007, described as follows (dollars in thousands):

 

We use this line of credit to fund development activities, acquire additional rental properties and provide working capital.

The line of credit provides us with an option to obtain borrowings from financial institutions that participate in the line, at rates lower than the stated interest rate, subject to certain restrictions. Interest rates on the amounts outstanding on the unsecured line of credit as of June 30, 2007 range from LIBOR +.16% to LIBOR +.525% (equal to 5.480% and 5.845% as of June 30, 2007).

The line of credit also contains financial covenants that require us to meet financial ratios and defined levels of performance, including those related to variable rate indebtedness, consolidated net worth and debt-to-market capitalization. As of June 30, 2007, we were in compliance with all covenants under our line of credit.

5.                                      Related Party Transactions

We provide property management, leasing, construction and other tenant related services to unconsolidated companies in which we have equity interests. For the six months ended June 30, 2007 and 2006, we received management fees of $3.3 million and $2.2 million, leasing fees of $1.4 million and $1.6 million and construction and development fees of $6.5 million and $3.2 million, respectively, from these companies.  These fees approximate market rates for these types of services and we have eliminated our ownership percentage of these fees in the condensed consolidated financial statements.

6.                                      Net Income Per Common Share

Basic net income per common share is computed by dividing net income available for common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income per common share is computed by dividing the sum of net income available for common shareholders and the minority interest in earnings allocable to Units not owned by us, by the sum of the weighted average number of common shares outstanding and minority Units outstanding, including any potential dilutive common equivalents for the period.

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The following table reconciles the components of basic and diluted net income per common share for the three and six months ended June 30, 2007 and 2006, respectively (in thousands):

(1)             Excludes the effect of outstanding stock options, as well as Exchangeable Senior Notes (“Exchangeable Notes”) issued in 2006, that have an anti-dilutive effect on earnings per share for the three and six-month periods ended June 30, 2007 and 2006.  Additionally, a partner in one of our unconsolidated joint ventures has the option to convert a portion of its ownership in the joint venture to our common shares.  The effect of this option on earnings per share is anti-dilutive for the three and six-month periods ended June 30, 2007 and 2006.

7.                                      Segment Reporting

We are engaged in three reportable operating segments, the first two of which consist of the ownership and rental of office and industrial real estate investments (collectively, “Rental Operations”). The third reportable segment consists of our build-to-suit for sale operations and providing of various real estate services such as property management, maintenance, leasing, development and construction management to third-party property owners and joint ventures (“Service Operations”). Our reportable segments offer different products or services and are managed separately because each segment requires different operating strategies and management expertise.

The assets of the Service Operations business segment generally include properties under development.  During the period between the completion of development, rehabilitation or repositioning of a Service Operations property and the date the property is contributed to a property fund or sold to a third party, the property and its associated rental income and rental expenses are included in the applicable Rental Operations segment because the primary activity associated with the Service Operations property during that period is rental activities. Upon contribution or sale, the resulting gain or loss is part of the income of the Service Operations business segment.

Non-segment revenue consists mainly of equity in earnings of unconsolidated companies and other insignificant rental operations such as retail and medical office properties. Segment FFO information (FFO is defined below) is calculated by subtracting operating expenses attributable to the applicable segment from segment revenues. Non-segment assets consist of corporate assets, including cash, deferred financing costs and investments in unconsolidated companies. Interest expense and other non-property specific revenues and expenses are not allocated to individual segments in determining our performance measure.

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We assess and measure segment operating results based upon an industry performance measure referred to as Funds From Operations (“FFO”), which management believes is a useful indicator of our operating performance. FFO is used by industry analysts and investors as a supplemental operating performance measure of an equity real estate investment trust (“REIT”) like Duke. FFO is calculated in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”).  NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from net income determined in accordance with GAAP. FFO is a non-GAAP financial measure developed by NAREIT to compare the operating performance of REITs. The most comparable GAAP measure is net income (loss).  FFO should not be considered as a substitute for net income or any other measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other companies.

Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time.  Since real estate values instead have historically risen or fallen with market conditions, many industry analysts and investors have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.  FFO, as defined by NAREIT, represents GAAP net income (loss), excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus certain non-cash items such as real estate asset depreciation and amortization, and after similar adjustments for unconsolidated partnerships and joint ventures.

Management believes that the use of FFO, combined with the required primary GAAP presentations, improves the understanding of operating results of REITs among the investing public and makes comparisons of REIT operating results more meaningful.  Management believes FFO is a useful measure for reviewing comparative operating and financial performance (although FFO should be reviewed in conjunction with net income which remains the primary measure of performance) because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO provides a useful comparison of the operating performance of our real estate between periods or as compared to different companies.

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The following table shows (i) the revenues and FFO for each of the reportable segments and (ii) a reconciliation of net income available for common shareholders to the calculation of FFO for the three and six months ended June 30, 2007 and 2006, respectively (in thousands):

 

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The assets for each of the reportable segments as of June 30, 2007 and December 31, 2006, respectively, are as follows (in thousands):

 

In addition to revenues and FFO, we also review our recurring capital expenditures in measuring the performance of our individual Rental Operations segments. These recurring capital expenditures consist of tenant improvements, leasing commissions and building improvements. We review these expenditures to determine the costs associated with re-leasing vacant space and maintaining the condition of our properties. Our recurring capital expenditures by segment are summarized as follows for the six months ended June 30, 2007 and 2006, respectively  (in thousands):

 

8.                                      Discontinued Operations

We classified the operations of 66 buildings as discontinued operations as of June 30, 2007. These 66 buildings consist of 31 industrial and 35 office properties. Of these properties, 15 were sold during the first six months of 2007, 21 were sold during 2006 and 30 operating properties are classified as held-for-sale at June 30, 2007.

The following table illustrates the operations of the buildings reflected in discontinued operations for the three and six months ended June 30, 2007 and 2006, respectively (in thousands):

 

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At June 30, 2007, we classified 30 properties as held-for-sale and included in discontinued operations. Additionally, we have classified 14 in-service properties as held-for-sale, but have included the results of operations of these properties in continuing operations, either based on our present intention to sell the majority of our ownership interest in the properties to entities in which we will retain a minority equity ownership interest or because the results of operations for the properties are immaterial. The following table illustrates the aggregate balance sheet of the aforementioned properties included in discontinued operations, as well as the 14 held-for-sale properties whose results are included in continuing operations, at June 30, 2007 (in thousands):

 

We allocate interest expense to discontinued operations and have included such interest expense in computing net income from discontinued operations. Interest expense allocable to discontinued operations includes interest on any debt on secured properties included in discontinued operations and an allocable share of our consolidated unsecured interest expense for unencumbered properties. The allocation of unsecured interest expense to discontinued operations was based upon the gross book value of the discontinued operations unencumbered population as it related to our entire unencumbered population.

9.                                      Financial Instruments

We are exposed to capital market risk, such as changes in interest rates. In order to manage the volatility relating to interest rate risk, we may enter into interest rate hedging arrangements from time to time. We do not utilize derivative financial instruments for trading or speculative purposes.

In August 2005, we entered into $300.0 million of cash flow hedges through forward-starting interest rate swaps to hedge interest rates on $300.0 million of estimated debt offerings in 2007. The swaps qualify for hedge accounting, with any change in fair value recorded in Accumulated Other Comprehensive Income (“OCI”). At June 30, 2007, the fair value of these swaps was approximately $21.2 million in an asset position as the effective rates of the swaps were lower than current interest rates at June 30, 2007.  The ineffective portion of the hedge was insignificant.

The effectiveness of our hedges will be evaluated throughout their lives using the hypothetical derivative method under which the change in fair value of the actual swap designated as the hedging instrument is compared to the change in fair value of a hypothetical swap.

10.                               Recent Accounting Pronouncements

We adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”) on January 1, 2007.  The adoption of FIN 48 resulted in an additional tax exposure of approximately $1.7 million recorded as an adjustment to the opening balance of Distributions in Excess of Net Income. Our uncertain tax positions are immaterial both individually and in the aggregate primarily due to our tax status as a REIT.

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In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”).  SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosure about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of this statement will have on the Company.

In January 2007, the FASB issued SFAS No. 159, The Fair Value Options for Financial Assets and Financial Liabilities (“SFAS 159”).  SFAS 159 provides a “Fair Value Option” under which a company may irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities.  This Fair Value Option will be available on a contract-by-contract basis with changes in fair value recognized in earnings as those changes occur. The effective date for SFAS 159 is the beginning of each reporting entity’s first fiscal year end that begins after November 15, 2007. Management is currently evaluating the impact that the adoption of SFAS 159 will have on the Company.

11.                               Subsequent Events

Declaration of Dividends
The Company’s board of directors declared the following dividends at its July 27, 2007, regularly scheduled board meeting:

 

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