MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
The Company's operating earnings decreased compared to the corresponding periods
in the prior year, primarily due to lower revenues in three of the Company's
four segments compared to last year, particularly in those businesses that serve
the aerospace, industrial gas turbine and electronics markets. In September 2002
the Company also recorded restructure and impairment charges in connection with
plans to eliminate, consolidate and restructure certain of its operations. The
Company expects to realize significant cost savings in connection with these
actions. In 2002, the Company also continued to execute various steps of the
restructuring plans announced in 2001.
2002 COMPARED TO 2001
Net Sales and Orders
Net sales were $830.3 million in 2002 compared to $918.1 million in 2001, a
decrease of $87.8 million, or 9.6 percent. Incoming orders for 2002 were $809.6
million compared to $914.0 million for 2001, an 11.4 percent decrease.
Revenues of the Company's Aerospace Fasteners and Components segment were $306.1
million in 2002 compared to $352.9 million in 2001, a decrease of $46.8 million,
or 13.3 percent. Incoming orders for this segment were $285.3 million in 2002
compared to $367.1 million in 2001, a decrease of $81.8 million, or 22.3
percent. The Company is experiencing the impacts of a cyclical downturn in the
commercial aerospace industry. Weak demand for air travel resulting in reduced
airline flight schedules and poor financial results reported by the major North
American airlines have influenced the reduced production schedules announced by
commercial aircraft and jet engine manufacturers. The Company expects further
weakening of demand for products produced by the Aerospace Fastener and
Components segment in 2003.
Revenues of the Company's Specialty Materials and Alloys segment were $122.6
million in 2002 compared to $166.7 million in 2001, a decrease of $44.1 million,
or 26.5 percent. Sales of a business sold in 2001 (Lake Erie Design Co., Inc. on
December 31, 2001) reduced segment sales in 2002 by $9.8 million compared to
2001. Sales of recently acquired businesses (M. Argueso & Co., Inc. on April 5,
2001 and J.F. McCaughin Co. on October 3, 2001) increased Specialty Materials
and Alloys segment sales for 2002 by $5.1 million compared to 2001. Excluding
the sales of these recently sold and acquired businesses, sales for this segment
decreased $39.4 million, or 27.9 percent, in 2002 compared to 2001. Incoming
orders for this segment were $119.0 million in 2002 compared to $156.0 million
in 2001, a decrease of $37.0 million, or 23.7 percent. Excluding the orders of
the recently sold and acquired businesses, this segment's incoming orders
decreased $31.3 million, or 24.0 percent, in 2002 compared to 2001. These lower
sales and incoming orders are primarily the result of lower build rates for
aerospace and industrial gas turbine engines and lower raw material prices,
which benefit customers through lower prices. With leading industrial gas
turbine engine manufacturers projecting market demand to remain flat and
independent power producers continuing to reduce their capital spending budgets,
the Company is expecting further decreases in sales for this segment for 2003.
The production expansion project announced in 2001 at the Company's
Cannon-Muskegon subsidiary was completed in the fourth quarter of 2002. The new
vacuum induction melting furnace has added five million pounds of vacuum melt
capacity, an increase of 56 percent. Despite the Company's expectations of lower
aerospace and industrial gas turbine engine production in 2003 due to weakening
market conditions, the Company completed the expansion program to meet the
anticipated long-term demand for this segment's products and to realize improved
manufacturing efficiencies.
Sales of the Company's Engineered Fasteners and Components segment were $292.5
million in 2002 compared to $278.9 million in 2001, an increase of $13.5
million, or 4.9 percent. Incoming orders for this segment were $293.3 million in
2002 compared to $280.9 million in 2001, an increase of $12.4 million, or 4.4
percent. Although the industrial markets served by this segment continued to be
weak during 2002, revenues in the Company's North American automotive fastener
businesses have contributed to the increase in sales and orders. In addition,
sales of the Company's formed component business have increased over prior year
results. While the Company is encouraged by order rates for its automotive
fastener and components business, it remains cautious with respect to the
outlook for demand of these products in 2003.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Revenues in the Magnetic Products segment were $109.1 million in 2002 compared
to $119.6 million in 2001, a decrease of $10.5 million, or 8.7 percent. The
decreases in sales compared to 2001 result from lower demand from the
automotive, general industrial and electronic markets. The Company is encouraged
by the increase in incoming orders for products manufactured by the Company's
recently established facility in China. Incoming orders for the magnetic
products segment were $112.1 million compared to $110.0 million in 2001, an
increase of $2.1 million, or 1.9 percent.
Sales originating in the United States, as presented in the geographic area
information in Note 23 to the financial statements, decreased $70.6 million, or
10.1 percent, in 2002. This decrease is primarily due to lower sales of
aerospace fasteners and components ($26.7 million), specialty materials and
alloys ($39.4 million) and magnetic products ($18.8 million), net of an increase
in the sale of automotive and industrial fasteners and components ($18.2
million). Sales originating in England and Ireland decreased $21.4 million, or
14.7 percent, primarily due to lower sales of aerospace fasteners and components
($17.8 million) and automotive and industrial fasteners ($3.7 million). Sales
originating in the Other areas, as defined in Note 23, increased $6.5 million,
or 12.4 percent, primarily due to an increase in sales of magnetic products
manufactured by the Company's businesses in China ($7.3 million) and automotive
and industrial fasteners manufactured in Australia ($2.2 million), net of a
decrease in sales of aerospace products manufactured in France ($1.9 million).
Changes in currency exchange rates, particularly an increase in the British
Pound Sterling, resulted in an approximate increase of $1.3 million to the sales
reported by non-United States subsidiaries.
Operating Earnings
Operating earnings decreased $22.6 million, or 44.2 percent, in 2002 compared to
2001. The Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" on January 1, 2002. As required by this
standard, the Company no longer amortizes goodwill and intangible assets deemed
to have an indefinite life. In 2002, the Company recorded a charge of $2.15
million as a result of the settlement of a legal judgment in the second quarter
of 2002. Additional information on the related litigation is provided below in
the section entitled "Litigation". In connection with the restructure plans
announced in 2002 and 2001, the Company has incurred charges to eliminate,
consolidate and restructure certain operations, wind down losses of plants
closed and other restructure related costs in 2002 and 2001.
The following pro forma information excludes the amortization of goodwill and
intangible assets deemed to have an indefinite life, the charge recorded in 2002
for the settlement of a legal judgement and the expenses related to the
Company's restructuring actions. The pro forma operating earnings presentation
is intended to supplement and clarify the operating earnings by segment
presented in Note 23 to the financial statements, "Segments and Related
Information". Additional information on the expenses related to the Company's
restructuring actions in total and by segment is provided below in the section
entitled "Summary of the Restructure Actions".
(In thousands) 2002 2001
--------------------
Pro Forma operating
earnings excluding
amortization of goodwill,
legal settlement charges
and expenses and wind-
down losses related to
restructure actions:
Aerospace Fasteners
and Components ............................. $27,746 $43,989
Engineered Fasteners
and Components ............................. 13,481 16,453
Specialty Materials
and Alloys ................................. 16,352 24,904
Magnetic Products ............................ 5,873 8,531
Unallocated Corporate
Costs ........................................ (12,320) (12,500)
-------------------
Pro Forma operating earnings .................... 51,132 81,377
Amortization of
goodwill ................................... - (6,122)
Legal settlement
charges .................................... (2,150) -
Expenses and wind-down
losses related to
restructure actions ........................ (20,451) (24,083)
-------------------
Reported operating earnings ..................... $28,531 $51,172
===================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Excluding the amortization of goodwill and other items noted above, operating
earnings of the Company decreased from $81.4 million, or 8.9 percent of sales,
in 2001 to $51.1 million, or 6.2 percent of sales, in 2002. In 2002, operating
profit margins declined in all four of the Company's operating segments compared
to 2001.
Pro forma operating earnings of the Aerospace Fasteners and Components segment
decreased from $44.0 million, or 12.5 percent of sales, in 2001 to $27.7
million, or 9.1 percent of sales, in 2002. The decrease in operating earnings is
due to lower revenue for this segment and operational difficulties at the
Company's structural component manufacturing facilities in Europe. Aircraft
manufacturers continue to reduce supplier bases and seek lower cost products
which results in lower operating margins. With the anticipated continued
weakness in revenues and customer requests for reduced prices, management will
continue to focus on cost containment and productivity improvement opportunities
to maintain reasonable operating profit margins at the Company's aerospace
fastener manufacturing facilities. The structural component manufacturing
operations have experienced operating losses of approximately $3.1 million in
2002. The Company has consolidated the management responsibilities for
manufacturing and marketing in the structural component operations with the
aerospace fastener operations to enhance the operating performance of these
manufacturing plants. The operating results of the structural component
manufacturing operation in England did improve in the fourth quarter in
comparison to the first nine months and the Company expects further improvements
in profitability in 2003 at this manufacturing operation.
Pro forma operating earnings of the Specialty Materials and Alloys segment
decreased from $24.9 million, or 14.9 percent of sales, in 2001 to $16.4
million, or 13.3 percent of sales, in 2002. The decrease in earnings and margins
is due primarily to the decrease in revenues discussed above and favorable
margin realization in 2001 on raw materials.
Pro forma operating earnings of the Engineered Fasteners and Components segment
decreased from $16.5 million, or 5.9 percent of sales, in 2001, to $13.5
million, or 4.6 percent of sales, in 2002. Despite higher sales, operating
earnings and margins decreased in this segment. Profitability in 2002 was
adversely affected by excess operating costs (such as premium freight and
outside inspection expenses) incurred to fill stronger than expected automotive
fastener demand, slower than planned implementation of certain cost reduction
initiatives and start-up inefficiencies on production transferred to the
Company's facility in Shannon, Ireland.
Pro forma operating earnings of the Magnetic Products segment decreased from
$8.5 million, or 7.1 percent of sales, in 2001 to $5.9 million, or 5.4 percent
of sales, in 2002. This segment has been subject to decreasing sales, intense
price competition and declining margins. Part of the Company's strategy to
reduce costs in this segment is to increase the level of manufacturing activity
in Asia. Volume of production in the Company's magnetic products operations in
China increased 116 percent to $13.6 million in 2002. One plant is currently in
operation in Asia and a second plant is currently being commissioned. Start-up
inefficiencies associated with the transfer of this business from the United
States have negatively impacted margins in 2002.
Summary of the Restructure Actions
As discussed in Note 3 to the financial statements, the Company announced plans
in 2002 and 2001 to eliminate, consolidate and restructure certain of its
operations. The Statement of Consolidated Operations for 2002 includes charges
that total $16.9 million ($11.9 million or $0.90 per share on an after-tax
basis) for restructurings and impairments, related inventory write downs and
costs to mark to market certain interest rate swaps, that became ineffective as
a result of lower debt levels. Additionally in 2002, the Company incurred $4.5
million ($2.9 million or $0.22 per share on an after-tax basis) of costs related
to the restructure plans that were charged to the Statement of Consolidated
Operations as incurred. These costs included $1.7 million for losses during the
wind-down period for facilities that were closed, $2.0 million of costs to
relocate equipment and $0.8 million of costs to start up production at plants
where products have been transferred. The following table summarizes the 2002
expenses related to the Company's restructuring plans and the balances in the
accrued restructure account:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
2002 Charges
-----------------------------------
Accrual Adjust- Accrual
December 2002 ments to 2002 December
(In thousands) 31, 2001 Plan Prior Plan Total Incurred 31, 2002
------------------------------------------------------------------------
2002 Restructure plan:
Employee separations .................... $ - $ 6,007 $ - $ 6,007 $4,351 $1,656
Cumulative translation
adjustment write offs ................. - 7,516 - 7,516 7,516 -
Write downs of PP&E, net ................ - 582 - 582 582 -
Other costs ............................. - 389 - 389 309 80
----------------------------------------------------------------------
- 14,494 - 14,494 12,758 1,736
----------------------------------------------------------------------
2001 Restructure plan:
Employee separations .................... 3,335 - (345) (345) 2,839 151
Loss on sale of the Lake
Erie Design business .................... - - 309 309 309 -
Write downs of PP&E, net ................ - - 107 107 107 -
Lease termination cost .................. 600 - (190) (190) 410 -
Other costs ............................. 874 - 125 125 999 -
----------------------------------------------------------------------
4,809 - 6 6 4,664 151
----------------------------------------------------------------------
Restructure and impairment
charges ................................. 4,809 14,494 6 14,500 17,422 1,887
Cost of goods sold:
Write downs of inventory ................ - 1,152 348 1,500 1,500 -
----------------------------------------------------------------------
$4,809 $15,646 $354 16,000 $18,922 $1,887
================================== ==================
Wind-down losses and other expenses
recognized as incurred .................. 4,451
-------
Charges and wind-down losses
affecting operating earnings ............ 20,451
Other expense:
Market value of ineffective interest
rate swaps ............................ 900
-------
Total charges and wind-down
losses .................................. $21,351
=======
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
The Statement of Consolidated Operations for 2001 included charges that totaled
$20.6 million ($13.5 million or $1.02 per share on an after-tax basis) for
restructurings and impairments and related inventory write downs. Additionally
in 2001, the Company incurred $3.5 million ($2.2 million or $0.17 per share on
an after-tax basis) of costs related to the 2001 restructure plan that were
charged to the Statement of Consolidated Operations as incurred. These costs
included $1.9 million for losses during the wind-down period, $1.1 million for
costs to relocate equipment and $0.5 million for costs to start up production at
plants where products have been transferred. The following table summarizes the
2001 expenses related to the Company's 2001 restructuring plans and the balances
in the accrued restructure account:
2001 Charges
--------------------------------
Accrual
Initial 2001 December 31,
(In thousands) Charge Adjustments Total Incurred 2001
-------------------------------------------------------------
Restructurings and impairments:
Employee separations .................... $ 7,784 $688 $ 8,472 $ 5,137 $3,335
Loss on sale of the Lake Erie
Design business ......................... 6,500 - 6,500 6,500 -
Write downs of PP&E ..................... 2,005 - 2,005 2,005 -
Lease termination cost .................. 900 (300) 600 - 600
Other costs ............................. 1,456 67 1,523 649 874
-------------------------------------------------------------
18,645 455 19,100 14,291 4,809
Cost of goods sold:
Write downs of inventory ................ 1,500 - 1,500 1,500 -
-------------------------------------------------------------
$20,145 $455 20,600 $15,791 $4,809
===================== ======================
Wind-down losses and other
expenses recognized
as incurred ............................. 3,483
-------
Total charges and wind-down
losses .................................. $24,083
=======
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
The expenses related to the Company's restructuring actions included in the
Statement of Consolidated Operations for 2002 and 2001 by segment are as
follows:
(In thousands) 2002 2001
-------------------
Aerospace Fasteners and
Components .............................. $ 4,613 $ 6,472
Engineered Fasteners and
Components .............................. 12,510 6,535
Specialty Materials
and Alloys .............................. 309 7,785
Magnetic Products .......................... 2,823 3,291
Unallocated Corporate
Costs ................................... 196 -
-------------------
Total effect on operating
earnings ................................ 20,451 24,083
Other expenses ............................. 900 -
-------------------
Total charges and
wind-down losses ........................ $21,351 $24,083
===================
The 2002 and 2001 restructuring plans were implemented to provide a meaningful
reduction in the cost structure of the Company in response to the anticipated
fall in the Company's revenues (revenues decreased by $87.8 million in 2002
compared to 2001). Significant cost reduction actions were necessary in order to
maintain reasonable profit margins despite declining demand in many of the
markets served by the Company. The Company decided to reduce overhead by closing
certain stand alone facilities and transferring production to shared facilities
and reducing the headcount at retained facilities.
The elements of the restructuring plans included the closure of eight
manufacturing facilities (affecting approximately 600 employees), the reduction
of an additional 500 employees at its remaining facilities, the exit from
certain distribution locations (which resulted in the write off of the related
cumulative translation adjustment amounts of $7.5 million) and further
relocation of certain manufacturing activity to Asia. In connection with these
actions, the Company expects to realize significant cost savings, including a
decrease in its employment cost structure of approximately $24.2 million, and an
improvement in operating profit of approximately $8.1 million through the
elimination of unprofitable facilities. As of December 31, 2002, employment has
been reduced by approximately 1,000 people due to these actions. The remaining
costs to be expensed as incurred in 2003 related to the restructure plans are
estimated to be approximately $800 thousand ($600 thousand or $0.05 per share on
an after-tax basis). Remaining actions related to the Company's 2002 restructure
plan include the payment of severance benefits and the closure of two
manufacturing plants in England. Remaining actions related to the Company's 2001
restructure plan include the payment of severance benefits to separated
employees and the transfer of remaining equipment from the Company's Salt Lake
City, Utah aerospace facility to the Company's other aerospace facilities. As of
December 31, 2002, all other actions related to the Company's 2001 restructuring
plan have been completed.
In connection with the 2002 restructure plan, the Company has reduced employment
levels in the Aerospace Fasteners and Components segment, primarily at its
aerospace manufacturing facility in Jenkintown, Pennsylvania, in response to
current market conditions. In addition, the Company recorded a charge for the
write down of inventory associated with product inventory procured by its
structural components business in connection with the RJX regional jet program,
which has been canceled by British Aerospace. Pursuant to the 2001 restructure
plan, the Company reduced employment levels in certain aerospace fastener and
component plants and announced the closure of two additional manufacturing
plants to reflect the forecasted reductions in production of commercial
aircraft. The Company's facility in Las Vegas, Nevada was closed in 2001 and
certain production was relocated to existing facilities in Montreal, Canada and
Nashville, Tennessee while other production was discontinued. Manufacturing
operations at the Company's Salt Lake City, Utah aerospace fastener plant were
discontinued in June 2002. The majority of the Salt Lake City manufacturing
equipment has been relocated to existing facilities in Jenkintown, Pennsylvania,
Santa Ana, California and Leicester, England.
In connection with the 2002 restructure plan, the Company closed various
facilities in the Engineered Fasteners and Components segment. The Company
closed its marketing
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
and distribution center in Singapore and its tool manufacturing facility in
France. The Company also closed its warehouse and distribution center for
Unbrako products located in Mexico and terminated its trademark license
agreement with the majority shareholder in its investment in India. The exiting
of the Company's investments in Mexico and India required the amount in the
cumulative translation adjustment component of equity to be recognized in the
Statement of Consolidated Operations. The Company is also closing its automotive
and industrial fastener manufacturing plant in Coventry, England. Production
will be transferred to the Company's facility in Shannon, Ireland. This transfer
is expected to be completed in the second quarter of 2003. The Company further
consolidated management infrastructure and reduced headcount at its automotive
and industrial manufacturing facility in Cleveland, Ohio. Pursuant to the 2001
restructure plan, the Company's facility in Smethwick, England, which had
manufactured pushrods for gasoline and diesel engines, was closed and this
product line was relocated to the Company's facility in Shannon, Ireland. The
land and building at the Smethwick location was subsequently sold in 2002 for
$2.2 million which resulted in a gain of $1.5 million. This gain was included in
the restructuring and impairment charges recorded in 2002. In connection with
the 2001 restructure plan, the Company also further integrated and consolidated
operations at its precision tool businesses as well as automotive fastener
plants in Waterford, Michigan and Cleveland, Ohio.
Pursuant to the 2001 restructure plan, the Company sold the Lake Erie Design
(LED) business that was included in the Specialty Materials and Alloys segment.
LED, located in Wickliffe, Ohio, is a manufacturer of high precision ceramic
cores for the investment casting industry.
In connection with the 2002 restructure plan, the Company is closing its
manufacturing plant in Rochester, England that is included in the Magnetic
Products segment. Production will be transferred to the Company's facility in
Derbyshire, England. This transfer is expected to be completed in the first
quarter of 2003. Also, further headcount reductions at the magnetic products
operation in Marengo, Illinois occurred due to elimination of direct labor and
support positions related to the transfer of powder core production to China.
Pursuant to the 2001 restructure plan, the Company's hard ferrite manufacturing
facility in Sevierville, Tennessee was closed and production of hard ferrite
magnets was transferred to an Asian third party supplier. Additionally,
employment levels in the Company's other magnetic product businesses were
reduced and certain operations supporting electronic equipment markets were
relocated to recently established Company facilities in China.
Litigation
The Company is involved in lawsuits, claims, investigations and proceedings,
including commercial, environmental and employment matters, which arise in the
ordinary course of business. Although the final outcome of these matters cannot
be determined, it is management's opinion that the final resolution of these
matters will not have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
On April 29, 2002, in the case of Brookover v. Flexmag Industries, Inc., an Ohio
Appeals Court affirmed a trial court judgment against one of the Company's
subsidiaries, resulting from a workplace injury claim at a magnetic products
manufacturing plant in 1997. On June 17, 2002 the Company settled its portion of
the claim for $2.15 million ($1.3 million after tax or $0.10 per share).
Other Income (Expense)
Due primarily to lower levels of debt, interest expense decreased from $20.0
million in 2001 to $18.2 million in 2002. As discussed in Note 21 to the
financial statements, certain interest rate swap agreements became ineffective
in 2002 and no longer qualified for hedge accounting. The fair values of these
ineffective derivatives and the related amounts paid that were recorded to
current period earnings in 2002 totaled $1.1 million. This expense is classified
in the "Other, net" line of the Statements of Consolidated Operations.
Income Taxes
The effective income tax rate increased from 31.2 percent in 2001 to 35.0
percent in 2002. The increase in the effective income tax rate is due primarily
to certain components of the 2002 restructuring and impairment charges that do
not
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
get a full income tax benefit (for example, the losses on disposal of the
Unbrako distribution and warehouse operation in Mexico and the tool
manufacturing facility in France). Details regarding the components of the
provisions for income taxes and reconciliations of statutory to reported income
tax expense are included in Note 16 to the financial statements.
Backlog
The backlog of orders, which represents firm orders with delivery scheduled
within 12 months, at December 31, 2002 was $279.2 million, compared to $299.1
million at the end of 2001 and $294.2 million at December 31, 2000.
ENVIRONMENTAL
The Company has been identified as a potentially responsible party by various
federal and state authorities for clean up or removal of waste from various
disposal sites. The cost of remediation will depend upon numerous factors,
including the number of parties found liable at each environmental site and
their ability to pay, the outcome of negotiations with regulatory authorities
and the years of remedial activity required.
At December 31, 2002, the accrued liability for environmental remediation
represents management's best estimate of the probable and reasonably estimable
costs related to environmental remediation. The measurement of the liability is
evaluated quarterly based on currently available information.
2001 COMPARED TO 2000
Net Sales and Orders
Net sales were $918.1 million in 2001 compared to $872.8 million in 2000, an
increase of $45.4 million, or 5.2 percent. Incoming orders for 2001 were $914.0
million compared to $900.5 million for 2000, a 1.5 percent increase.
The Company's Aerospace Fasteners and Components segment sales were $352.9
million in 2001 compared to $303.9 million in 2000, an increase of $49.0
million, or 16.1 percent due primarily to the results of recently acquired
businesses and strong end market demand in North America and Europe for most of
2001. Sales of products by businesses acquired in 2000 and 2001 (primarily,
Avibank Mfg., Inc., DACAR S.A. and AAA Aircraft Supply Co., Inc.) increased
Aerospace Fasteners and Components segment sales by $43.4 million. Incoming
orders for this segment were $367.1 million in 2001 compared to $302.4 million
in 2000, an increase of $64.7 million, or 21.4 percent. Incoming orders of
businesses acquired in 2000 and 2001 increased Aerospace Fasteners and
Components segment incoming orders by $46.4 million. After events of September
11, 2001, the strong end market demand in North America and Europe experienced
for most of 2001 began to dissipate.
Total sales for the Specialty and Materials Alloy segment were $166.7 million in
2001 compared to $127.4 million in 2000. Sales of products by recently acquired
businesses (M. Argueso & Co., Inc. on April 5, 2001 and J. F. McCaughin Co. on
October 3, 2001) increased Specialty Materials and Alloys segment sales by $15.6
million in 2001. Excluding the sales of these recently acquired businesses, this
segment's sales increased $23.7 million, or 18.6 percent in 2001. These higher
sales are primarily the result of strong demand for proprietary alloys from the
industrial gas and aerospace turbine markets and higher market prices for
materials. Total incoming orders for this segment were $156.0 million in 2001,
an increase of $17.1 million, or 12.3 percent, compared to 2000. Incoming orders
of recently acquired businesses increased this segment's incoming orders in 2001
by $16.8 million.
The Company's Engineered Fasteners and Components segment sales were $278.9
million in 2001, a decrease of $24.1 million, or 7.9 percent, compared to 2000.
The Magnetic Products segment sales were $119.6 million in 2001, a decrease of
$18.8 million, or 13.6 percent, compared to 2000. These decreases are the result
of lower demand from the automotive, truck, general industrial and electronic
markets. Incoming orders for these segments were $390.9 million in 2001, a
decrease of $68.3 million, or 14.9 percent, compared to 2000.
Sales originating in the United States, as presented in the geographic area
information in Note 23 to the financial statements, increased $43.6 million, or
6.7 percent, in 2001. This increase is primarily due to sales by businesses
acquired in the last two years located in the United States ($48.1 million) and
increased sales by the Specialty
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Materials and Alloys segment ($23.7 million), net of the decreased United States
Magnetic Product segment sales ($21.6 million). Sales originating in England and
Ireland decreased $14.2 million, or 8.9 percent, primarily due to lower sales of
aerospace components ($6.6 million) and automotive and industrial fasteners
($3.6 million). Sales originating in the Other areas increased $16.7 million, or
46.7 percent, primarily due to sales by the business acquired at the end of 2000
located in France ($11.8 million). The decline in currency exchange rates,
particularly the British Pound Sterling and Brazilian Reis, contributed
approximately $11.0 million to the decline in sales reported by non-United
States subsidiaries.
Operating Earnings
Operating earnings of the Company decreased $32.2 million, or 38.6 percent, in
2001. Operating earnings in 2001 include a $24.1 million charge for the cost to
eliminate, consolidate and restructure certain under-performing operations as
described in the section entitled "Summary of the Restructure Actions".
Operating earnings were reduced by $4.6 million in 2000 due to the amortization
of the inventory step-up that resulted from the acquisition of Avibank. The $4.6
million charge was incurred by the Aerospace Fasteners and Components segment
and Engineered Fasteners and Components segment in the amounts of $1.3 million
and $3.3 million, respectively. This 2000 non-recurring charge, which related to
purchase accounting for the acquisition of Avibank on March 14, 2000, reduced
net income for 2000 by $3.0 million, or $0.23 per share.
The following information excludes the expenses related to the Company's 2001
restructuring actions and the amortization of the inventory step-up that
resulted from the 2000 acquisition of Avibank. The pro forma operating earnings
presentation is intended to supplement and clarify the operating earnings by
segment presented in Note 23 to the financial statements, "Segments and Related
Information". Additional information on the expenses related to the Company's
2001 restructuring actions in total and by segment is provided in the section
entitled "Summary of the Restructure Actions".
(In thousands) 2001 2000
--------------------
Pro Forma operating
earnings excluding
expenses and
wind-down losses
related to restructure
actions and
amortization of
the inventory step-up:
Aerospace Fasteners
and Components ............................. $41,578 $38,116
Engineered Fasteners
and Components ............................. 14,396 28,397
Specialty Materials
and Alloys ................................. 24,294 17,376
Magnetic Products ............................ 7,487 15,434
Unallocated Corporate
Costs ...................................... (12,500) (11,360)
--------------------
Pro Forma operating
earnings ..................................... 75,255 87,963
Expenses and
wind-down losses
related to restructure
actions .................................... (24,083) -
Amortization of the
inventory step-up .......................... - (4,575)
--------------------
Reported operating
earnings ..................................... $51,172 $83,388
====================
Excluding the charges noted above, the operating earnings of the Company
decreased from $88.0 million, or 10.1 percent of sales, in 2000 to $75.3
million, or 8.2 percent of sales, in 2001. While operating profit margins
decreased in three of the Company's four segments in 2001, the margin decline
was most severe in the Engineered Fasteners and Components segment and Magnetic
Products segment. Consistent with the trend in sales volume, operating earnings
increased in the Aerospace Fasteners and Components segment and Specialty
Materials and Alloys segment while operating earnings decreased in the
Engineered Fasteners and Components segment and Magnetic Products segment.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Pro forma operating earnings of the Aerospace Fasteners and Components segment
increased $3.5 million, or 9.1 percent, in 2001. Operating earnings of
businesses acquired in 2000 and 2001 (primarily Avibank, DACAR and AAA Aircraft
Supply) increased Aerospace Fasteners and Components segment's operating
earnings by $8.0 million in 2001. Excluding the operating results of these
recently acquired businesses, this segment's operating earnings decreased $4.5
million, or 13.1 percent, despite a $5.5 million increase in sales. Aerospace
operating earnings and margins were adversely affected by rescheduling of
customer demands and commitments, design related changes by certain customers,
cancelled programs and downward pricing pressures.
Pro forma operating earnings of the Specialty Materials and Alloys segment
increased from $17.4 million, or 13.6 percent of sales, in 2000 to $24.3
million, or 14.6 percent of sales, in 2001. The increase in earnings is due
primarily to the increase in proprietary sales and favorable margin realization
on raw materials. In addition, the investment in vacuum and air melt production
equipment made in the last two years has increased melting productivity and
yields which has had a positive impact on margins in this segment.
Pro forma operating earnings of the Magnetic Products segment decreased from
$15.4 million, or 11.2 percent of sales, in 2000 to $7.5 million, or 6.3 percent
of sales, in 2001. This decrease is primarily the result of lower sales of this
segment's higher margin products for telecommunications and computer
applications in the electronics markets. The Company is pursuing opportunities
to manufacture and source certain product lines in Asia to reduce cost and meet
the competitive price pressures in this segment.
Other Income (Expense)
Due primarily to lower interest rates, interest expense decreased from $20.9
million in 2000 to $20.0 million in 2001. In 2000, the Company sold excess land
in Brazil and realized a gain of approximately $570 thousand. This gain is
included in the "Other, net" line of the Statements of Consolidated Operations
for the year ended December 31, 2000.
Income Taxes
The effective income tax rate increased from 30.7 percent in 2000 to 31.2
percent in 2001. The increase in the tax rate is primarily due to the decrease
in utilization of foreign tax credits related to dividends received from certain
non-United States subsidiaries. Details regarding the components of the
provisions for income taxes and reconciliations of statutory to reported income
tax expense are included in Note 16 to the financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Management considers liquidity to be the ability to generate adequate amounts of
cash to meet its needs and capital resources to be the resources from which such
cash can be obtained. The Company believes that capital resources available to
it will be sufficient to meet the needs of its business, both on a short-term
and long-term basis. The Company's principal sources of liquidity and capital
resources are cash flows from operations, management of working capital and
borrowings under existing credit facilities. Cash flows from operations are
impacted by changes in demand for the Company's products. Economic downturns,
product and pricing competition and customer satisfaction and qualification
issues all affect demand for the Company's products. Changes in the Company's
ratio of debt to total capitalization could result in an increase in the cost to
borrow funds under the Bank Credit Agreements described in Note 13 to the
financial statements. The cost and terms of any future financing arrangement
depend on the market conditions and the Company's financial position at that
time.
Cash flow provided by or used in operating activities, investing activities and
financing activities is summarized in the statements of consolidated cash flows.
Net cash provided by operating activities increased by $7.0 million in 2002
compared to 2001. This increase in net cash flow from operations is primarily
due to improved working capital performance ($25.4 million), net of lower net
earnings ($15.5 million). The improved working capital performance was
associated with lower accounts receivables and inventory levels at December 31,
2002 compared to December 31, 2001. Operating cash outflows include employer
contributions to various defined benefit pension plans that totaled $8.0
million, $9.2 million and $3.2 million
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
in 2002, 2001 and 2000, respectively. As a result of equity market returns and
cash demands on the plans due to recent headcount reductions, the Company
expects employer contributions to increase by approximately $2.5 to $3.0 million
in 2003 over 2002 levels.
Cash flows provided by or used in investing activities for 2002 included $5.1
million in proceeds from sale of facilities and assets in connection with the
Company's restructuring programs. Cash flows provided by or used in investing
activities for 2001 included cash payments for the acquisition of Argueso ($9.1
million) and AAA Aircraft ($6.6 million) and the net proceeds from the sale of
the Lake Erie Design business ($5.1 million) and from the sale of certain
equipment ($19.5 million) that was leased back under operating leases. Cash
flows provided by or used in investing activities for 2000 included the cash
payment for the acquisition of Avibank ($112.3 million) and the net proceeds
from the sale of the Coventry, England facility ($2.5 million). Capital
Expenditures decreased by $21.3 million to $20.9 million in 2002, reflecting a
reprioritization of capital projects as a consequence of the reduction in 2002
earnings. The Company has budgeted $30.5 million for capital expenditures in
2003, excluding capital spending for any companies that may be acquired in 2003,
which approximates anticipated depreciation levels.
The Company's total debt to equity ratio was 65 percent at December 31, 2002, 75
percent at December 31, 2001 and 75 percent at December 31, 2000. Total debt was
$224.6 million at December 31, 2002, $263.2 million at December 31, 2001 and
$258.2 million at December 31, 2000. Details of the long-term Note Purchase
Agreements, the credit agreements with commercial banks and other debt are
provided in Note 13 to the financial statements. As of December 31, 2002, under
the terms of its existing credit agreements, the Company is permitted to incur
an additional $122.0 million in debt and has retained earnings available for
future restricted payments (which include all dividends and purchases or
retirements of capital stock) of $87.0 million. As of December 31, 2002, the
Company does not intend to pay cash dividends during the year 2003.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table represents significant long-term cash obligations:
Payments Due by Year (000s)
-----------------------------------------------------------
2004- 2006-
Total 2003 2005 2007 Thereafter
-----------------------------------------------------------
Long-term debt (a) ................. $222,196 $ 9,122 $61,660 $33,803 $117,611
Operating leases (b) ............... 78,636 13,769 25,335 16,830 22,702
-----------------------------------------------------------
Totals ............................. $300,832 $22,891 $86,995 $50,633 $140,313
===========================================================
(a) Represents scheduled principal payments, including principal due under
capital lease obligations of $1.5 million.
(b) Includes a long-term operating lease agreement covering manufacturing
equipment which contains a purchase option and minimum residual value
guarantee. If the lease is terminated and the Company chooses to retain the
equipment, the Company must pay the purchase option price. If the lease is
terminated and the lessor disposes of the equipment, then the Company must
pay any shortfall of the sales proceeds up to the residual value guarantee
to the lessor. The purchase option price and minimum residual value
guarantee related to this lease are $8.0 million and $2.0 million,
respectively. The five year lease agreement expires in December 2006.
The following table represents commitments made by commercial banks to extend
credit to the Company:
Amount of Commitment Expiration Per Year (000s)
---------------------------------------------------------------
2004- 2006-
Total 2003 2005 2007 Thereafter
---------------------------------------------------------------
Lines of credit (c) $153,569 $23,569 $130,000 $- $-
Standby letters of credit (d) 22,400 16,287 6,113 - -
---------------------------------------------------------------
Totals $175,969 $39,856 $136,113 $- $-
===============================================================
(c) Borrowings under lines of credit at December 31, 2002 amounted to $32.4
million and are included in notes payable and long-term debt.
(d) Approximately $11.3 million of this amount are letters of credit which
support the Company's Industrial Revenue Bonds, as more fully described in
Note 13 to the financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
CRITICAL ACCOUNTING POLICIES / ESTIMATES
The following accounting estimates below have been identified as critical to the
business operations and the understanding of the results of operations of the
Company. The impact and any associated risks related to these estimates on the
Company's business operations is discussed throughout Management's Discussion
and Analysis of Financial Condition and Results of Operations (MD&A) where such
policies affect the reported and expected financial results. For a detailed
discussion on the application of these and other accounting estimates see Note 1
to the financial statements of the Company. Note that preparation of this Annual
Report on Form 10-K requires making estimates and assumptions that affect the
reported amount of assets and liabilities, disclosure of contingent assets and
liabilities at the financial statement date, and the reported amounts of revenue
and expenses during the reporting period. There can be no assurance that actual
results will not differ from those estimates.
Income Taxes
Disclosures related to income taxes are stated in Note 16 to the consolidated
financial statements. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes. "Significant judgment is required in determining the worldwide
provision for income taxes. In the ordinary course of a global business,
transactions arise for which the ultimate tax outcome is uncertain until
reviewed by the taxing authorities. While the Company believes the recorded tax
provision will not vary materially from the ultimate amounts determined by the
tax authorities, such determinations could be different. Such differences could
have a material effect on the Company's income tax provisions or benefits in the
period in which such determination is made. The Company assesses the likelihood
that deferred tax assets will be recovered from future taxable income, and, to
the extent the Company believes that recovery is not likely, a valuation
allowance is established. The Company considers future taxable income
projections, historical results, and ongoing prudent and feasible tax planning
strategies in assessing the recoverability of deferred tax assets. However,
adjustments could be required in the future if the Company determines that the
amount to be realized is less or greater than the amount recorded. Such
adjustments, if any, may have a material impact on the Company's consolidated
results of operations.
Environmental
As discussed in Note 14 to the consolidated financial statements, the Company
establishes reserves for environmental matters and other litigation when it is
probable that a liability has been incurred and the amount of the liability is
reasonably estimable. If the contingency is resolved for an amount greater or
less than has been accrued, or the Company's share of the contingency increases
or decreases, or other assumptions relevant to the development of the estimate
were to change, the Company would recognize an additional expense or benefit in
income in the period in which such determination was made. At December 31, 2002,
the Company has accrued $2.6 million for environmental matters relating
primarily to the Aerospace Fasteners and Components and Magnetic Products
segments.
Employee Benefit Plans
As discussed in Note 17 to the consolidated financial statements, the Company
provides a number of benefits to its active and retired employees, including
pensions and postretirement healthcare. The Company records annual amounts
relating to these plans based on calculations specified by accounting principles
generally accepted in the United States of America, which include various
actuarial assumptions such as discount rates, assumed rates of return,
compensation increases, turnover rates and healthcare cost trend rates. The
expected return on plan assets is based on the Company's expectation of the
long-term average rate of return on assets in the pension funds, which is
reflective of the current and projected asset mix of the funds and considers the
historical returns earned on the funds. The Company reviews its actuarial
assumptions on an annual basis and makes modifications to the assumptions based
on current rates and trends when appropriate. As required by accounting
principles generally accepted in the United States of America, the effects of
the modifications are recorded currently or amortized over future periods. Based
on information provided by its independent actuaries and other relevant sources,
the Company believes that the assumptions used are reasonable.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Minimum pension liability was $43.8 million and $16.2 million at December 31,
2002 and 2001, respectively. The change in the minimum pension liability relates
primarily to the actual returns on plan assets being less than the corresponding
actuarial assumption for the 2002 plan year. For the 2003 plan year, the
expected return on plan asset assumptions have been reduced as disclosed in Note
17. Due to amortization of net actuarial losses, net periodic pension expense
for defined benefit pension plans is expected to increase by approximately $4.0
to $4.5 million in 2003.
Inventories
As discussed in Note 1 to the consolidated financial statements, the Company
states inventories at the lower of cost or market. The Company regularly reviews
inventory quantities on hand and records a provision for excess and obsolete
inventory based primarily on age of inventory as well as estimated future
forecast of demand and production requirements. Demand for products can
fluctuate significantly depending on the strength or weakness of the market
demand in the industries which the Company serves. A significant increase in the
demand for products could result in a short-term increase in the cost of
inventory while a significant decrease in demand could result in an increase in
the amount of excess inventory quantities on hand. The Company's estimates of
future product demand may prove to be inaccurate, in which case the Company may
have understated or overstated the provision required for excess and obsolete
inventory. In the future, if inventory is determined to be overvalued, the
Company would be required to recognize such costs in cost of goods sold at the
time of such determination. Likewise, if inventory is determined to be
undervalued, the Company may have over reported cost of goods sold in previous
periods and would be required to recognize such additional operating income at
the time of sale. Therefore, although the Company makes every effort to ensure
accuracy of forecasts of future product demand, any significant unanticipated
changes in demand could have an impact on the value of inventory and reported
operating results.
Restructuring
As discussed in Note 3 to consolidated financial statements, in 2002 and 2001,
the Company recorded restructuring charges representing the direct costs of
headcount reductions, the closure of certain manufacturing plants, exiting
certain distribution locations, relocation of certain product lines to existing
facilities, outsourcing the manufacture of certain product lines to third
parties, discontinuing production of certain product lines and further
integrating and consolidating the operations of certain acquired companies. The
charges include costs of employee severance and pension expense, asset
impairments, losses on dispositions of certain assets and costs to mark to
market certain interest rate swaps as a result of lower debt levels. Such
charges were established in accordance with SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities" and EITF 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)" and represent
management's best estimate at the date the charges were taken. Adjustments for
changes in assumptions are recorded in the period they become known. Changes in
assumptions could have a material effect on the restructuring accrual as well as
reported operating results.
Goodwill
As discussed in Notes 1 and 9 to the consolidated financial statements, at
December 31, 2002 the Company had approximately $210.1 million in goodwill. The
Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets", in the
first quarter of 2002. As a result, the Company no longer amortizes goodwill but
instead performs a review of goodwill for impairment annually, or earlier if
indicators of potential impairment exist. The review of goodwill for potential
impairment is subjective and requires allocating goodwill to various business
units and estimating the fair value of those business units to which the
goodwill relates. Fair value of the business units is determined using the
income approach. Under the income approach, fair value is dependent on the
present value of economic benefits to be derived from ownership. The income
approach requires significant estimates about future cash flows and discount
rates. The impairment test for goodwill consists of a comparison of the fair
value of a reporting unit with the unit's carrying amount, including the
goodwill allocated to the reporting unit. If the carrying amount is in excess of
the fair value, the implied fair value is compared to the reporting unit
goodwill. Any excess carrying value of the reporting unit goodwill over the
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
implied fair value of the reporting unit goodwill will be recorded as an
impairment loss. While management believes that estimates of future cash flows
are reasonable, different assumptions regarding such cash flows could materially
affect the outcome of the review of goodwill.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset
Retirement Obligations." This statement requires that obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs be recognized when they are incurred and displayed as
liabilities. This statement is effective for fiscal years beginning after June
15, 2002. The adoption of this statement in the first quarter of 2003 will not
have a material impact on the company's consolidated financial position, results
of operations or cash flows.
In November 2002, FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" was issued. The interpretation provides guidance on the
guarantor's accounting and disclosure requirements for guarantees, including
indirect guarantees of indebtedness of others. The Company had no additional
disclosure requirements as a result of the release of this interpretation as of
December 31, 2002. The accounting guidelines are applicable to guarantees issued
after December 31, 2002 and require that the Company record a liability for the
fair value of such guarantees in the balance sheet.
In January 2003, FIN No. 46, "Consolidation of Variable Interest Entities" was
issued. The interpretation provides guidance on consolidating variable interest
entities and applies immediately to variable interests created after January 31,
2003. The interpretation requires variable interest entities to be consolidated
if the equity investment at risk is not sufficient to permit an entity to
finance its activities without support from other parties or the equity
investors lack certain specified characteristics. The Company is reviewing FIN
No. 46 to determine its impact, if any, on future reporting periods, and does
not currently anticipate any material accounting or disclosure requirement under
the provisions of the interpretation.
MARKET RISK
The Company's primary market risk exposures are foreign currency exchange rate
and interest rate risk. Fluctuations in foreign currency exchange rates affect
the Company's results of operations and financial position. As discussed in Note
1 to the financial statements, the Company uses forward exchange contracts to
minimize exposure and reduce risk from exchange rate fluctuations affecting the
results of operations. Because the largest portion of the Company's foreign
operations are in countries with relatively stable currencies, namely, England,
Ireland and Canada, the foreign currency exchange rate risk to the Company's
financial position is not significant. However, the Company has operations in
Brazil, China and other foreign countries which increases its exposure to
foreign currency fluctuations. Fluctuations in interest rates primarily affect
the Company's results of operations. Because a majority of the Company's debt is
in fixed rate obligations (as disclosed in Note 13 to the financial statements),
the Company has effectively limited its interest expense exposure to
fluctuations in interest rates.
The status of the Company's financial instruments as of December 31, 2002 and
2001 is provided in Note 21 to the financial statements. Assuming an
instantaneous 10 percent strengthening of the United States dollar versus
foreign currencies for which forward exchange contracts existed and a 10 percent
change in the interest rate on the Company's debt had all occurred on December
31, 2002,
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
the Company's financial position would not have been materially affected.
Assuming the United States dollar versus foreign currencies had been 10 percent
stronger and that the interest rate on the Company's variable rate debt had been
10 percent higher in 2002, the Company's 2002 results of operations would not
have been materially affected.
FORWARD-LOOKING STATEMENTS
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations contain "forward-looking" information,
within the meaning of the Private Securities Litigation Reform Act of 1995, that
involve risk and uncertainty. Statements such as: the Company expects to realize
significant cost savings in connection with the restructure actions, including a
decrease in its employment cost structure of approximately $24.2 million, and an
improvement in operating profit of approximately $8.1 million through the
elimination of unprofitable facilities, the Company expects further weakening of
demand for products produced by the Aerospace Fasteners and Components segment
for 2003, the Company is expecting further decreases in sales for 2003 but
needed to expand to meet the anticipated long-term demand for products for the
Specialty Materials and Alloys segment, the Company expects further improvements
in profitability of its aerostructural component manufacturing operation in
England, the Company expects the remaining costs related to the restructure
plans that are expensed as incurred will be approximately $800 thousand ($600
thousand or $0.05 per share on an after-tax basis), the transfer of production
from the Company's facility in Coventry, England to its facility in Shannon,
Ireland will be completed in the second quarter of 2003, the transfer of
production from the Company's Rochester, England facility to its facility in
Derbyshire, England will be completed in the first quarter of 2003, capital
resources available to the Company will be sufficient to meet the needs of its
business on a short-term and long-term basis, the Company expects employer
contributions to defined pension plans to increase by $2.5 to $3.0 million in
2003, the Company's intention to not pay cash dividends during the year 2003,
the Company expects net periodic pension expense for defined pension plans to
increase by $4.0 to $4.5 million in 2003 and the relative stability of certain
foreign currencies are "forward looking" statements contained in Management's
Discussion and Analysis of Financial Condition and Results of Operations. Actual
future results may differ materially depending on a variety of factors, such as:
the effects of competition on products and pricing, customer satisfaction and
qualification issues, labor disputes, worldwide political and economic stability
and changes in foreign currency exchange rates, interest rates, fiscal policies,
laws and regulations on a national and international basis. The Company
undertakes no obligation to publicly release any forward-looking information to
reflect anticipated or unanticipated events or circumstances after the date of
this document.