Words such as “anticipates,” “estimates,”
“expects,” “projects,” “intends,”
“plans,” “believes” and words and terms
of similar substance used in connection with any discussion
of future operating results or financial performance identify
forward-looking statements. All forward-looking statements reflect
our present expectations of future events and are subject to
a number of important factors and uncertainties that could cause
actual results to differ materially from those described in
the forward-looking statements.
You are cautioned not to place undue reliance on the forward-looking
statements, which speak only as of the date of this Annual Report.
The Company is under no obligation, and expressly disclaims
any obligation, to update or alter any forward-looking statements,
whether as a result of new information, future events or otherwise.
For these statements, the Company claims the protection of the
safe harbor for forward-looking statements contained in Section
27A of the Securities Act.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We operate manufacturing and logistical facilities as well as
offices around the world and utilize fixed and floating rate
debt to finance global operations. As a result, we are subject
to business risks inherent in non-U.S. activities, including
political and economic uncertainty, import and export limitations,
and market risk related to changes in interest rates and foreign
currency exchange rates. We believe the political and economic
risks related to foreign operations are mitigated due to the
stability of the countries in which our largest foreign operations
are located.
In the normal course of business, we use derivative financial
instruments, including interest rate swaps and options and foreign
currency forward exchange contracts and options, and commodity
swaps and options to manage market risks. Additional information
regarding our financial instruments is contained in Note 5–Fair
Value of Financial Instruments and Note 13–Debt. The objective
in managing our exposure to changes in interest rates is to
limit the impact of these changes on earnings and cash flow
and to lower our overall borrowing costs. The objective in managing
our exposure to changes in foreign currency exchange rates is
to reduce volatility on earnings and cash flow associated with
these changes. The objective in managing our exposure to energy
commodities is to reduce our volatility on earnings and cash
flow associated with these changes. Our principal currency exposures
are in the major European currencies and in the Canadian dollar.
We do not hold derivatives for trading purposes.
We measure our market risk related to our holdings of financial
instruments based on changes in interest rates, foreign currency
rates and commodities utilizing a sensitivity analysis. The
sensitivity analysis measures the potential loss in fair values,
cash flows and earnings based on a hypothetical 10 percent change
in these market rates. We used year-end market rates on our
financial instruments to perform the sensitivity analysis. We
do not include items such as lease contracts, insurance contracts
and obligations for pension and other postretirement benefits
in the analysis.
Our primary interest rate exposures relate to cash, fixed and
variable rate debt, and interest rate swaps and options. The
potential loss in fair values is based on an immediate change
in the net present values of our interest rate sensitive exposures
resulting from a 10 percent change in interest rates. The potential
loss in cash flows and earnings is based on the change in the
net interest income/expense over a one-year period due to an
immediate 10 percent change in rates. A hypothetical 10 percent
change in interest rates would not have had a material impact
on our fair values, cash flows or earnings for either 2002 or
2001.
Our primary currency rate exposures relate to our intercompany
debt, foreign cash and foreign currency forward and option contracts.
The potential loss in fair values is based on an immediate change
in the U.S. dollar equivalent balances of our currency exposures
due to a 10 percent shift in exchange rates. The potential loss
in cash flows and earnings is based on the change in cash flow
and earnings over a one-year period resulting from an immediate
10 percent change in currency exchange rates. A hypothetical
10 percent change in the currency exchange rates would not have
had a material impact on the fair values, cash flows or earnings
for either 2002 or 2001.
Our primary commodity exposures relate to our use of diesel
fuel for transportation and natural gas for manufacturing and
heating purposes, as well as swaps and options. The potential
loss in fair values is based on an immediate change in the net
present value of our commodity exposures resulting from a 10
percent change in market rates. The potential loss in cash flows
and earnings would not have had a material impact on our fair
values, cash flows or earnings for either 2002 or 2001.
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