Summary of Accounting Policies
Basis of Consolidation
Revenue Recognition
Use of Estimates
Cash and Cash Equivalents
Inventories
Property, Plant and Equipment
Patents, Goodwill and Other Intangibles
Product Warranties
Income Taxes
Earnings Per Share
Foreign Currency Translation
Other Comprehensive Income
Derivative Instruments and Hedging Activities
Reclassifications
On June 30, 2000, the Company replaced its $125 million revolving credit facility, expiring April 30, 2001, with new syndicated revolving credit facilities, which provide for borrowings up to $350 million. These facilities consist of a $150 million three-year facility and a $200 million 364-day facility. As of December 31, 2000, $171 million was outstanding under these facilities. The Company has available unsecured lines of credit from banks of $40 million, all of which was available as of December 31, 2000.
At December 31, 2000, letters of credit amounting to $29.7 million were outstanding, primarily to provide security under insurance arrangements and certain borrowings.
Under the Company's various debt and credit facilities, the Company is required to maintain various restrictive covenants and limitations, including certain net worth and cash flow ratios, all of which were complied with in 2000 and 1999.
The industrial development and revenue bonds are collateralized by the facilities and equipment acquired through the proceeds of the related bond issuances. On January 1, 1999, the Company secured a $10 million Industrial Development Revenue Bond due December 31, 2018.
The weighted average interest rates on the revenue bonds for 2000 and 1999 were 5.7% and 4.6%, respectively.
Cash payments for interest were $28.2 million in 2000, $19.1 million in 1999 and $21.3 million in 1998.
Interest expense, net is shown net of interest income of $3.5 million in 2000, $2.6 million in 1999 and $3.0 million in 1998.
The aggregate amount of long-term debt maturing in each of the next five years is approximately $2.3 million in 2001, $1.5 million in 2002, $3.9 million in 2003, $1.4 million in 2004, $1.5 million in 2005 and $273.5 million thereafter.
The estimated fair market values of the Company's financial instruments approximate their recorded values.
Acquisitions
The Company has completed several acquisitions during the year and has tentatively considered the carrying value of the acquired assets to approximate their fair value, with all of the excess of those acquisition costs being attributable to goodwill. The Company is in the process of fully evaluating the assets acquired and, as a result, the purchase price allocation among the tangible and intangible assets acquired and their useful lives may change.
Shareholders' Equity
Common shareholders of record on May 30, 1986 are entitled to five votes per share. Common stock acquired subsequent to that date entitles the holder to one vote per share until held four years, after which time the holder is entitled to five votes.
In April 1999, the shareholders approved an increase in the number of authorized common shares of the company from 50 million shares to 100 million shares.
Employee Stock Options & Incentive Plan
At December 31, 2000, under the Company's restricted stock plan,
10,683 nonvested shares were outstanding and 2,148,380 shares were available for issuance.
The activity under the stock option plan is as follows:
The following tables summarize information about stock options
outstanding as of December 31, 2000:
At December 31, 1999, 1,450,350 options were exercisable at a weighted average price of $22.90.
In accordance with the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", the Company applies APB Opinion 25 and related interpretations in accounting for its stock compensation plans and, accordingly, does not recognize compensation cost for its stock option plan. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS No. 123, the pro-forma effect on net earnings and earnings per share, in 2000, 1999 and 1998, would have been approximately $2.1 million or $.07 per share, $2.5 million or $.08 per share and $1.7 million or $.06 per share, respectively. Pursuant to the transition provisions of SFAS No. 123, the pro-forma effect includes only the vested portion of options granted in and after 1995. Options vest over a three year period. Compensation cost was estimated using the Black-Scholes model with the following assumptions: expected dividend yield of 2.22 percent in 2000, 1.70 percent in 1999 and 1.20 percent in 1998; an expected life of 7 years; expected volatility of 38.7 percent in 2000, 33.2 percent in 1999 and 25.6 percent in 1998; and risk-free interest rate of 5.9 percent in 2000, 5.5 percent in 1999 and 1998. The weighted-average fair value of those stock options granted in 2000, 1999 and 1998 was $12.70, $14.66 and $16.35, respectively.
Retirement Plans
The change in projected benefit obligation:
The change in plan assets:
Reconciliation of the accrued benefit cost recognized in the financial statements:
Components of net periodic benefit cost at December 31:
The projected benefit obligation was determined using an assumed discount rate of 7.75% in 2000 and 1999 and 7.00% in 1998. The assumed rate of compensation increase was 4.5% in 2000 and 1999 and 4.0% in 1998; and the expected rate of return on plan assets was 9.25% in 2000, 1999 and 1998.
The 2000 and 1999 pension plan disclosures were determined using a September 30 measurement date.
Additionally, the Company maintains a retirement savings plan covering substantially all employees other than those employees under collective bargaining agreements. Plan expense was $5.6 million, $4.9 million and $4.9 million, in 2000, 1999 and 1998, respectively.
The Company also has a limited number of unfunded post-retirement benefit programs for which the expense, inclusive of the components of service costs, interest costs and the amortization of the unrecognized transition obligation, was approximately $0.4 million in 2000, 1999 and 1998. The present value of the Company's obligation under these plans is not significant.
Income Taxes
No valuation allowance is required for the deferred tax assets
based on the Company's past tax payments and estimated future
taxable income.
A reconciliation of taxes computed at the statutory rate to the tax
provision is as follows:
Cash payments for income taxes were $49.9 million, $84.9 million and $58.7 million in 2000, 1999 and 1998, respectively.
The Company has not provided for U.S. taxes payable on accumulated undistributed foreign earnings of certain subsidiaries since these amounts are permanently reinvested.
Commitments and Contingencies
The Company may be involved in various legal actions from time to time arising in the normal course of business. In the opinion of management, there are no matters outstanding that would have a material adverse effect on the consolidated financial position or results of operations of the Company.
Operational Restructuring and Impairment of Assets
In conjunction with the implementation of the 1999 business plan, the Company completed certain product line realignments, manufacturing improvements and facility relocations and upgrades at its operating businesses resulting in certain assets that are no longer required or will be reallocated. In the first quarter of 1999, the Company recognized a $15.9 million pre-tax charge related to these assets. Approximately 75% of this charge related to machinery and equipment primarily associated with the foodservice, roofing, tire and wheel and automotive components manufacturing operations, with the remainder related to goodwill and other intangible assets associated with acquisitions made in prior years. The amount of the write-down of machinery and equipment was determined to be the excess of the recorded values over the estimated fair values. The fair values were determined using estimated market values or projected future cash flows, whichever was deemed appropriate. The charge related to the intangible assets was determined as the excess of the recorded value over the projected future cash flows.
The net effect of the above items is reflected under the caption "gain on divestiture of business, net of other charges" on the face of the Company's Consolidated Statements of Earnings.
Segment Information
Construction Materials – the principal products of this segment are rubber, plastic and fleece back sheeting used predominantly on non-residential flat roofs and related roofing accessories, including flashings, fasteners, sealing tapes, coatings and waterproofings. The markets served include new construction, re-roofing and maintenance of low slope roofs, water containment, HVAC sealants, and coatings and waterproofings.
Industrial Components – the principal products of this segment are small bias-ply rubber tires, stamped and roll-formed wheels, heavy duty friction and braking systems for truck and off-highway equipment, high grade aerospace wire, specialty electronic cable, cable assemblies
and interconnects. Customers include golf car manufacturers, power equipment manufacturers, boat and utility trailer manufacturers, truck OEMs, heavy equipment and truck dealers and aftermarket distributors, aerospace OEMs, and electronic and communications equipment
manufacturers.
Automotive Components – the principal products of this segment are highly engineered rubber and plastic components for Tier I suppliers and other manufacturers in the automotive market.
General Industry (All Other) – the principal products of this segment include commercial and institutional plastic foodservice permanentware and catering equipment, fiberglass and composite material trays and dishes, commercial cookware and servingware, ceramic tableware, specialty rubber and plastic cleaning brushes, stainless steel processing and containment equipment and their related process control systems, specialty trailers and standard and custom-built high payload trailers and dump bodies, refrigerated fiberglass truck bodies and perishable cargo container leasing. Customers include foodservice distributors, restaurants, food, dairy, beverage, and pharmaceutical processors and distributors, heavy equipment and truck dealers, shipping lines and commercial haulers.
Corporate – includes general corporate expenses. Corporate assets consist primarily of cash and cash equivalents, facilities, and other invested assets.
Financial information for operations by reportable business segment is included in segment data.
The consolidated financial statements include the accounts of the Company and its subsidiaries. Investments in affiliates where the Company does not have control are accounted for under the equity method. Equity income related to such investments is recorded in Other (income) and expense. All material intercompany transactions and accounts have been eliminated.
The substantial majority of the consolidated revenues are recognized by the Company upon shipment of products to the customer. The Company's product sales are predominantly to customers in the United States.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Debt securities with a remaining maturity of three months or less when acquired are cash equivalents. Cash and cash equivalents are stated at cost, which approximates market value.
Inventories are valued at the lower of cost or market. Cost for a majority of the Company's inventories is determined by the last-in, first-out (LIFO) method with the remainder determined by the first-in, first-out (FIFO) method.
Property, plant and equipment are stated at cost. Costs allocated to property, plant and equipment of acquired companies are based on estimated fair value at the date of acquisition. Depreciation is principally computed on the straight line basis over the estimated useful lives of the assets. Asset lives are 20 to 40 years for buildings, 5 to 15 years for machinery and equipment and 3 to 10 years for leasehold improvements.
Patents and other intangibles, recorded at cost, amounted to $1.5 million and $6.6 million at December 31, 2000 and 1999, respectively (net of accumulated amortization of $17.2 million and $16.5 million, respectively), and are amortized over their remaining lives, which average five years. Goodwill, representing the excess of acquisition cost over the
fair value of specifically identifiable assets acquired, was $250.2 million and $151.3 million at December 31, 2000 and 1999, respectively (net of accumulated amortization of $29.7 million and $19.8 million, respectively), and is amortized on a straight line basis over various periods not exceeding 30 years. The Company evaluates the carrying value of
goodwill and other intangible assets if facts and circumstances suggest that they may be impaired. Impairments would be recognized when
the expected future operating cash flows derived from such intangible assets is less than their carrying value.
The Company offers warranties on the sales of certain of its products and records an accrual for estimated future claims. Such accruals are based upon historical experience and management's estimate of the level of future claims.
Deferred tax assets and liabilities are recognized for the future tax
consequences of the differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. These balances are measured using enacted tax rates expected to apply to taxable income in the years in which such temporary differences are expected to be recovered or settled. If a portion or all of a deferred tax asset is not expected to be realized, a valuation allowance is recognized.
Earnings per share is determined in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". Basic earnings per share excludes the dilutive effect of options,
warrants, and convertible securities. Diluted earnings per share gives effect to all dilutive securities that were outstanding during the period. The only difference between basic and diluted earnings per share of the Company is the effect of dilutive stock options.
The Company has determined that the local currency is the functional currency for its subsidiaries outside the United States. Assets and liabilities of these operations are translated at the exchange rate in effect at each year-end. Income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of shareholders' equity. Gains and losses from foreign currency transactions are included in net income for the period.
A statement of comprehensive income has not been presented because, aside from changes in cumulative translation adjustments, the components of comprehensive income are not significant. The changes in cumulative translation adjustment are presented in the Consolidated Statements of Shareholders' Equity.
Effective January 1, 2001, the Company will implement SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement standardizes the accounting for derivatives and hedging activities and requires that all derivatives be recognized in the statement of financial position as either assets or liabilities at fair value. Changes in the fair value of derivatives that do not meet the hedge accounting criteria are to be reported in earnings. Implementation of this pronouncement will not have a material effect since the Company has not utilized derivative financial instruments or entered into hedging transactions.
Certain reclassifications have been made to prior years' information to conform to the 2000 presentation.
In each of the last three years, the Company has completed various acquisitions, all of which have been accounted for as purchases. Results of operations for these acquisitions, which have been included in the consolidated financial statements since their respective acquisition dates, did not have a material effect on consolidated operating results of the Company in the years of the acquisition.
The Company has a Shareholders' Rights Agreement that is designed to protect shareholder investment values. A dividend distribution of one Preferred Stock Purchase Right for each outstanding share of the Company's common stock was declared, payable to shareholders of record on March 3, 1989. The Rights will become exercisable under certain circumstances, including the acquisition of 25% of the Company's common stock, or 40% of the voting power, in which case all rights holders except the acquiror may purchase the Company's common stock at a 50% discount. If the Company is acquired in a merger or other business combination, and the Rights have not been redeemed, rights holders may purchase the acquiror's shares at a 50% discount. On August 7, 1996, the Company amended the Shareholders' Rights Agreement to, among other things, extend the term of the Rights until August 6, 2006.
The Company maintains an Executive Incentive Program for executives and certain other employees of the Company and its operating divisions and subsidiaries. The Program contains a plan, for those who are eligible, to receive cash bonuses and/or shares of restricted stock. The Program also has a stock option plan available to certain employees.
The Company maintains defined benefit retirement plans for the majority of its employees. Benefits are based primarily on years of service and earnings of the employee. Plan assets consist primarily of publicly-listed common stocks and corporate bonds.
The provision for income taxes was as follows:
The Company is obligated under various noncancelable operating leases for certain facilities and equipment. Rent expense was $9.9 million, $8.4 million, and $6.6 million, in 2000, 1999, and 1998, respectively. Future minimum payments under various noncancelable operating leases in each of the next five years are approximately $12.0 million in 2001, $8.5 million in 2002, $7.1 million in 2003, $6.9 million in 2004 and
$6.2 million in 2005.
In January 1999, the Company announced the reduction of its interest in its perishable cargo business, consisting of its container leasing joint venture and container manufacturing operations. On January 28, 1999 the Company sold 85% of its interest in its leasing joint venture. In connection with the reduction in the Company's interest in the leasing joint venture, the Company suspended operations at its container manufacturing facility. As a result, the Company recognized a pre-tax gain of $16.6 million in the first quarter of 1999. These operations are associated with the Company's General Industry (All Other) segment.
The Company's reportable segments have been organized around differences in products and services, and operating segments have been aggregated. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The chief operating decision maker evaluates segment performance by earnings before interest and income taxes. The Company's operations are classified into the following segments:
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