UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

 

CARLISLE COMPANIES INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

Indicate by check mark whether 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  ý  No  o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  ý  No  o

 

Shares of common stock outstanding at November 1, 2003: 30,862,286

 

 

Carlisle Companies Incorporated

Condensed Consolidated Statements of Earnings and Comprehensive Income

Three and Nine Months ended September 30, 2003 and 2002

(dollars in thousands, except per share amounts)

(unaudited)

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2003			2002			2003			2002
											(Restated*)
Net sales		$	549,524		$	499,972		$	1,579,625		$	1,507,355
Cost and expenses:
Cost of goods sold		453,451			408,023			1,292,323			1,230,754
Selling and administrative expenses		54,576			53,844			160,203			159,264
Research and development expenses		4,861			4,803			14,485			15,252
Other (income) and expense, net		(2,325		)	(672		)	(2,868		)	1,503
Earnings before interest and income taxes and cumulative effect of change in accounting principle		38,961			33,974			115,482			100,582
Interest expense, net		3,635			3,532			11,505			12,776
Earnings before income taxes and cumulative effect of change in accounting principle		35,326			30,442			103,977			87,806
Income taxes		10,795			10,502			33,793			30,293
Income before cumulative effect of change in accounting principle		24,531			19,940			70,184			57,513
Cumulative effect of change in accounting principle net of taxes of $12,072		—			—			—			(43,753		)
Net income		$	24,531		$	19,940		$	70,184		$	13,760
Other comprehensive income (loss)
Foreign currency translation, net of tax		328			291			3,540			5,787
Gain (loss) on hedging activities, net of tax		—			(22		)	508			(596		)
Other comprehensive income		328			269			4,048			5,191
Comprehensive income		$	24,859		$	20,209		$	74,232		$	18,951
Earnings per share - basic
Income before cumulative effect of change in accounting principle		$	0.80		$	0.65		$	2.29		$	1.89
Cumulative effect of change in accounting principle		—			—			—			(1.44		)
Net income		$	0.80		$	0.65		$	2.29		$	0.45
Earnings per share - diluted
Income before cumulative effect of change in accounting principle		$	0.80		$	0.65		$	2.28		$	1.88
Cumulative effect of change in accounting principle		—			—			—			(1.43		)
Net income		$	0.80		$	0.65		$	2.28		$	0.45
Weighted average common shares outstanding
Basic		30,680			30,495			30,646			30,390
Effect of dilutive stock options		118			135			109			162
Diluted		30,798			30,630			30,755			30,552
Dividends declared and paid per share		$	0.220		$	0.215		$	0.650		$	0.635

 

See accompanying notes to interim financial statements.

 

* Restated to reflect cumulative effect of change in accounting principle.  See note 8.

 

2

 

Carlisle Companies Incorporated

Condensed Consolidated Balance Sheets

September 30, 2003 and December 31, 2002

(Dollars in thousands)

 

		September 30, 2003			December 31, 2002
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	28,991		$	34,768
Receivables, less allowances of $7,145 in 2003 and $8,103 in 2002		207,964			143,782
Inventories		265,191			248,801
Deferred income taxes		29,569			29,208
Prepaid expenses and other current assets		60,206			37,836
Total current assets		591,921			494,395
Property, plant and equipment, net		457,027			447,986
Other assets:
Patents, goodwill and other intangible assets, net		304,522			305,624
Investments and advances to affiliates		63,001			62,123
Receivables and other assets		20,370			18,659
Total other assets		387,893			386,406
		$	1,436,841		$	1,328,787
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt, including current maturities		$	25,774		$	53,038
Accounts payable		196,871			148,608
Deferred revenue		15,229			15,631
Accrued expenses		136,373			119,872
Total current liabilities		374,247			337,149
Long-term liabilities:
Long-term debt		290,095			293,124
Deferred revenue		64,934			64,957
Other liabilities		95,596			80,480
Total long-term liabilities		450,625			438,561
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $1 par value. Authorized and unissued 5,000,000 shares
Common stock, $1 par value. Authorized 100,000,000 shares; 39,330,624 shares issued; 30,706,134 outstanding in 2003 and 30,597,869 outstanding in 2002		39,331			39,331
Additional paid-in capital		25,744			22,908
Accumulated other comprehensive loss		(5,643		)	(9,691		)
Retained earnings		671,576			621,291
Cost of shares in treasury - 8,624,490 shares in 2003 and 8,732,755 shares in 2002		(119,039		)	(120,762		)
Total shareholders’ equity		611,969			553,077
		$	1,436,841		$	1,328,787

 

See accompanying notes to interim financial statements.

 

3

 

Carlisle Companies Incorporated

Condensed Consolidated Statements of Cash Flows

Nine Months ended September 30, 2003 and 2002

(Dollars in thousands)

(unaudited)

 

		September 30,
		2003			2002
					(Restated*)
Operating activities
Net income		$	70,184		$	13,760
Reconciliation of net income to cash flows:
Goodwill transitional impairment, net of tax		—			43,753
Depreciation		45,571			44,479
Amortization		1,340			1,968
Earnings on equity investments		(946		)	(2,578		)
Foreign exchange gain		(2,451		)	—
Deferred taxes		16,865			16,613
Loss on sales of property and equipment		1,424			1,812
Changes in assets and liabilities, excluding effects of acquisitions and divestitures:
Current and long-term receivables		(90,033		)	(24,472		)
Receivables under securitization program		10,000			36,903
Inventories		(7,348		)	(57		)
Accounts payable and accrued expenses		53,592			6,742
Income taxes		4,074			16,111
Long-term liabilities		(901		)	(555		)
Other		1,237			5,418
Net cash provided by operating activities		102,608			159,897
Investing activities
Capital expenditures		(29,445		)	(27,499		)
Acquisitions, net of cash		(32,934		)	(781		)
Proceeds from sale of property, equipment and business		1,047			395
Other		(111		)	(1,460		)
Net cash used in investing activities		(61,443		)	(29,345		)
Financing activities
Net change in short-term borrowings and revolving credit lines		(27,336		)	(117,880		)
Reductions of long-term debt		(3,809		)	(1,343		)
Dividends		(19,899		)	(19,309		)
Treasury shares and stock options, net		4,560			7,154
Other		(878		)	—
Net cash used in financing activities		(47,362		)	(131,378		)
Effect of exchange rate changes on cash		420			781
Change in cash and cash equivalents		(5,777		)	(45		)
Cash and cash equivalents
Beginning of period		34,768			32,978
End of period		$	28,991		$	32,933

 

See accompanying notes to interim financial statements.

 

* Restated to reflect cumulative effect of change in accounting principle. See note 8.

 

4

 

Notes to Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2003 and 2002

 

(1)         Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Carlisle Companies Incorporated and its wholly-owned subsidiaries (together, the “Company”).  Intercompany transactions and balances have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared in accordance with Article 10-01 of Regulation S-X of the Securities and Exchange Commission and, as such, do not include all information required by generally accepted accounting principles for annual financial statements. However, in the opinion of the Company, these financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the financial statements for the interim periods presented herein.  Results of operations for the three and nine months ended September 30, 2003, are not necessarily indicative of the operating results for the full year.

 

While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these financial statements be read in conjunction with the financial statements and notes included in the Company’s 2002 Annual Report to Shareholders and 2002 Form 10-K.

 

(2)         Reclassifications

 

Certain reclassifications have been made to prior year’s information to conform to the current year’s presentation.  In December 2002, $11.7 million of cash in transit was reclassified to Accounts Payable.  Also in December 2002, $1.2 million of customer rebates were reclassified from allowances for doubtful accounts (netted with Receivables) to Accrued expenses.  Reclassifications have also been made to the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2002, to display separately earnings from equity investments ($2.6 million), deferred taxes ($16.6 million), and the effect of exchange rate changes on cash ($0.8 million).

 

(3)         Recently Adopted Accounting Standards

 

In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development or normal use of the asset. The Company adopted SFAS No. 143 on January 1, 2003.  This adoption did not have a material impact on the Company’s statement of earnings or financial position.

 

In November 2002, the FASB issued FASB Interpretation No. (“FIN”) 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.  This interpretation elaborates the disclosure requirements to be made by a guarantor in its financial statements about obligations under certain guarantees that it has issued and requires a guarantor to recognize, at inception of the guarantee, a liability for the fair-value of the obligation undertaken in issuing the guarantee.  The Company has adopted the measurement provisions of this interpretation as of January 1, 2003.  This adoption did not have a material impact on the Company’s statement of earnings or financial position.

 

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This pronouncement amends and clarifies the accounting and reporting for derivative instruments, including embedded derivatives, and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.  SFAS No. 149 amends SFAS No. 133 to reflect the decisions made as part of the Derivatives Implementation Group and in other FASB projects or deliberations. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. As of September 30, 2003, the Company had adopted the provisions of this statement.  This adoption did not have an impact on the Company’s statement of earnings or financial position.

 

5

 

On May 15, 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This statement defines three classes of freestanding financial instruments that are required to be classified as liabilities (or assets in some circumstance) by the issuer because these instruments embody obligations for the issuer.  Generally, the provisions of this statement were effective for financial instruments entered into or modified after May 31, 2003 and were otherwise effective at the beginning of the first interim period beginning after June 15, 2003.  As of September 30, 2003, the Company had adopted all provisions of this statement.  This adoption did not have an impact on the Company’s statement of earnings or financial position.

 

(4)         New Accounting Pronouncements

 

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities. This interpretation addresses the consolidation of Variable Interest Entities (“VIE’s”) as defined by FIN 46.  VIE’s are entities to which the usual condition of consolidation (ownership of a majority voting interest) does not apply. This interpretation focuses on financial interests that indicate control. It concludes that in the absence of clear control through voting interests, a company’s exposure (variable interest) to the economic risks and potential rewards from the variable interest entity’s assets and activities are the best evidence of control. Variable interests are rights and obligations that convey economic gains or losses from changes in the values of the VIE’s assets and liabilities. Variable interests may arise from financial instruments, service contracts, nonvoting ownership interests and other arrangements. If an enterprise holds a majority of the variable interests of an entity, it would be considered the primary beneficiary. The primary beneficiary would be required to include assets, liabilities and the results of operations of the VIE in its financial statements. FIN 46 applies immediately to VIE’s that are created after or for which control is obtained after January 31, 2003.

 

Effective October 9, 2003, the FASB issued FASB Staff Position No. FIN 46-6, Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities. This Staff Position deferred the effective date for applying the provisions of FIN 46 for interests held by public entities in VIE’s or potential VIE’s created before February 1, 2003. A public entity need not apply the provisions of FIN 46 to an interest held in a VIE or potential VIE until the end of the first interim or annual period ending after December 15, 2003 if the VIE was created before February 1, 2003 and the public entity has not issued financial statements reporting interests in VIE’s in accordance with FIN 46, other than certain required disclosures. The Company will adopt the provisions of FIN 46 for financial statements issued for the year ending December 31, 2003 for any VIE’s created before February 1, 2003.  This adoption is not expected to have a material impact on the statement of earnings or financial position.

 

(5)         Acquisitions

 

On May 30, 2003, the Company acquired Flo-Pac Corporation.  Flo-Pac is a manufacturer of brooms, brushes, rotary brushes and cleaning tools for the sanitary maintenance industry.  The operating results for this business since the acquisition date are included in the General Industry segment.  The Company has preliminarily allocated the purchase price among the acquired assets and liabilities assumed; however, the Company is in the process of fully evaluating these assets and as a result, the purchase price allocation may change.

 

6

 

(6)         Employee Stock-Based Compensation Arrangements

 

The following table illustrates the effect on Net Income and Earnings Per Share had the Company applied the fair-value method of accounting for stock-based employee compensation under SFAS No. 123, Accounting for Stock-Based Compensation.

 

		Three Months Ended September 30,						Nine Months Ended September 30,
In thousands except per share data		2003			2002			2003			2002
											(Restated*)
Net Income, as reported		$	24,531		$	19,940		$	70,184		$	13,760
Less: Total stock-based employee compensation expense determined under fair value method for all awards net of related tax effects		(225		)	(196		)	(1,154		)	(956		)
Proforma net income		$	24,306		$	19,744		$	69,030		$	12,804
Basic EPS (as reported)		$	0.80		$	0.65		$	2.29		$	0.45
Basic EPS (proforma)		$	0.79		$	0.65		$	2.25		$	0.42
Diluted EPS (as reported)		$	0.80		$	0.65		$	2.28		$	0.45
Diluted EPS (proforma)		$	0.79		$	0.64		$	2.24		$	0.42

 

* Restated to reflect cumulative effect of change in accounting principle.  See note 8.

 

The pro forma effect includes only the vested portion of options.  Options vest over a two-year period.  Compensation expense was estimated using the Black-Scholes model utilizing the following assumptions:  expected dividend yield of 2.3% in 2003 and 2002; an expected life of 7 years; expected volatility of 28.7% in 2003 and 28.6% in 2002; and risk-free interest rate of 3.8% in 2003 and 5.2% in 2002.  The weighted-average fair value of those stock options granted in 2003 and 2002 was $11.31 and $10.58, respectively.

 

(7)         Inventory

 

The components of inventories are as follows:

 

In thousands		September 30 2003			December 31 2002
FIFO (approximates current costs):
Finished goods		$	167,698		$	162,213
Work in process		27,864			21,004
Raw materials		82,850			77,776
		278,412			260,993
Excess FIFO cost over LIFO value		(13,221		)	(12,192		)
		$	265,191		$	248,801

 

(8)         Goodwill and Other Intangible Assets

 

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets.  The provisions of this standard required the Company to cease the amortization of goodwill and other intangible assets with indefinite lives and instead test such assets, on at least an annual basis, for impairment.  Based on the Company’s review of its reporting units, in the fourth quarter of 2002, the Company recognized an after-tax impairment loss of $43.8 million retroactive to January 1, 2002, shown as cumulative effect of a change in accounting principle.  Original reported results of operations for the nine months ended September 30, 2002 did not include this charge.  Based on the requirements of SFAS 142, the Condensed Consolidated Statement of Earnings and Comprehensive Income and the Condensed Consolidated Statement of Cash Flows have been restated.

 

7

 

The changes in the carrying amount of goodwill for the nine months ended September 30, 2003, are as follows:

 

In thousands		Industrial Components			Construction Materials			Automotive Components			Transportation Products			Specialty Products			General Industry			Total
Balance as of December 31, 2002		$	130,368		$	33,113		$	40,277		$	—		$	2,732		$	90,207		$	296,697
Goodwill acquired during year		—			—			—			—			—			—			—
Purchase accounting adjustments		—			(1,815		)	—			—			—			—			(1,815		)
Currency translation		261			646			—			—			49			605			1,561
Balance as of September 30, 2003		$	130,629		$	31,944		$	40,277		$	—		$	2,781		$	90,812		$	296,443

 

The Company’s acquired other intangible assets as of September 30, 2003, are as follows:

 

In thousands		Acquired Cost			Accumulated Amortization			Net Book Value
Assets subject to amortization
Patents		$	9,394		$	(7,545	)	$	1,849
Software licenses		1,800			(536		)	1,264
Tradenames		1,500			(625		)	875
Other		10,990			(10,899		)	91
Assets not subject to amortization
Trademarks		4,000			—			4,000
		$	27,684		$	(19,605	)	$	8,079

 

Estimated amortization expense for each of the next five years is as follows:  $1.0 million in 2003, $0.9 million in 2004, $0.7 million in 2005, $0.6 million in 2006, and $0.4 million in 2007.

 

(9)         Borrowings

 

In June 2003, the Company’s revolving credit facilities that provided for borrowings of up to $375 million were replaced with a $250 million three-year syndicated revolving credit facility (“2003 Facility”).  The 2003 Facility provides for interest at the Euro-Dollar rate plus a margin of 0.375% to 1.7%.  The specific rate of the 2003 Facility is based on the Company’s long-term debt rating as determined by certain rating agencies and the amount of outstanding borrowings.  The one-month Euro Dollar rate was 1.165% at September 30, 2003.  The 2003 Facility requires the Company to meet various restrictive covenants and limitations, including certain net worth and cash flow ratios, all of which were complied with as of September 30, 2003.

 

(10)  Receivables Facility

 

In July 2003, the Company increased its receivables facility which provides for the sale on a continuous basis of an undivided interest in certain eligible trade accounts receivable from $100.0 million to $125.0 million.  Pursuant to the Receivables Facility, the Company has formed a wholly-owned, special purpose, bankruptcy remote subsidiary (“SPV”) for the sole purpose of buying and selling receivables generated by the Company.  The financial position and results of operation of the SPV are consolidated with the Company.  At September 30, 2003, the outstanding balance of receivables serviced by the SPV was $220.9 million, and of this balance $110.0 million of undivided interest had been sold.  The Company’s retained interest in the SPV’s receivables is classified in trade accounts receivable in the Company’s consolidated financial statements and amounted to $110.4 million at September 30, 2003.

 

(11)  Commitments and Contingencies

 

The Company is obligated under various noncancelable operating leases for certain facilities and equipment.  Future minimum lease payments under these arrangements in each of the next five years are approximately $4.4 million remaining in 2003, $12.3 million in 2004, $11.4 million in 2005, $10.1 million in 2006, $7.7 million in 2007, and $21.9 million thereafter.

 

At September 30, 2003, letters of credit amounting to $34.9 million were outstanding, primarily to provide security under insurance arrangements and certain borrowings.  Of this amount, $16.1 million represents letters of credit for

 

8

 

industrial development bonds for certain of the Company’s subsidiaries, with such debt allocated between short and long-term debt on the Company’s Consolidated Balance Sheet.

 

The Company has financial guarantee lines totaling $24.3 million in place for certain of its operations in Asia and Europe to facilitate working capital needs, customer performance and payment and warranty obligations.  At September 30, 2003, the Company had issued guarantees of $12.4 million, of which $7.0 million represents amounts recorded in current liabilities on the Company’s Consolidated Balance Sheet.

 

The change in the Company’s aggregate product warranty liabilities for the nine months ended September 30, 2003 is as follows:

 

In thousands
Beginning reserve		$	9,045
Current year provision		11,534
Current year claims		(11,635		)
Ending reserve		$	8,944

 

The Company maintains self retained liabilities for workers’ compensation, medical and dental, general liability, property, and product liability claims up to applicable retention limits.  The Company is insured for losses in excess of these limits.

 

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 legal actions outstanding that would have a material adverse effect on the consolidated financial position or results of operations of the Company.

 

(12)  Derivative Instruments and Hedging Activities

 

The Company is exposed to the impact of changes in interest rates and market values of its debt instruments, changes in raw material prices and foreign currency fluctuations.  From time to time, the Company may manage its interest rate exposure through the use of interest rate swaps to reduce volatility of cash flows, impact on earnings and to lower its cost of capital.  On April 11, 2003, the Company executed $75 million notional amount interest rate swaps, which have been designated as fair value hedges.  The purpose of these contracts is to hedge the market risk associated with the Company’s fixed rate debt.  These fair value hedges have been deemed effective at the origination date and at September 30, 2003.  The valuation of these contracts at September 30, 2003 resulted in an asset of $0.7 million, included in non-current receivables on the Company’s Consolidated Balance Sheet, and a corresponding increase in the fair value of the Company’s 7.25% senior notes, reflected in long-term debt.

 

The Company has also executed certain currency hedges with a total notional amount of $10.4 million.  These currency contracts serve to hedge the Company’s cash flow risk associated with certain customer payment schedules.  The change in the fair value position of these hedge contracts as of September 30, 2003 was not material.

 

9

 

(13)  Segment Information

 

Beginning in the first quarter of 2003, the Company’s custom molder of thermoset plastic components operation was included in the Specialty Products segment to reflect a change in reporting responsibility and the realignment of manufacturing processes.  This operation was previously included in the General Industry (All Other) segment.  Prior year information has been revised to reflect this change.  Third quarter 2002 financial information for this operation included net sales of $3.2 million and Earnings Before Interest and Income Taxes (“EBIT”) of ($0.3) million.  Nine months 2002 financial information for this segment included net sales of $12.6 million, EBIT of $0.1 million and assets of $9.3 million.

 

Financial information for operations by reportable business segment is included in the following summary:

 

Third Quarter
		2003									2002
In thousands		Sales			Earnings Before Interest and Income Taxes			% Sales			Sales			Earnings Before Interest and Income Taxes			% Sales
Industrial Components		$	151,298		$	10,920		7.2		%	$	146,814		$	10,025		6.8		%
Construction Materials		174,704			28,828			16.5		%	141,906			23,081			16.3		%
Automotive Components		46,857			(2,406		)	-5.1		%	54,033			1,928			3.6		%
Specialty Products		31,088			(643		)	-2.1		%	29,146			(1,518		)	-5.2		%
Transportation Products		30,827			2,220			7.2		%	29,030			1,936			6.7		%
General Industry (All other)		114,750			5,534			4.8		%	99,043			5,607			5.7		%
Corporate		—			(5,492		)	—			—			(7,085		)	—
		$	549,524		$	38,961		7.1		%	$	499,972		$	33,974		6.8		%
Nine Months
		2003									2002
In thousands		Sales			Earnings Before Interest and Income Taxes			Assets			Sales			Earnings Before Interest and Income Taxes			Assets
Industrial Components		$	491,646		$	50,289		$	433,315		$	488,601		$	46,799		$	473,451
Construction Materials		427,564			57,129			293,359			359,816			48,405			240,680
Automotive Components		157,694			3,477			130,941			183,814			10,746			123,767
Specialty Products		99,089			2,430			78,245			93,815			(393		)	89,498
Transportation Products		92,109			4,552			50,098			92,608			4,590			49,714
General Industry (All other)		311,523			12,069			345,548			288,701			7,833			320,165
Corporate		—			(14,464		)	105,335			—			(17,398		)	70,852
		$	1,579,625		$	115,482		$	1,436,841		$	1,507,355		$	100,582		$	1,368,127

 

10

 

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

 

Carlisle Companies Incorporated (“Carlisle” or the “Company”) reported a 23% increase in third quarter net earnings of $24.5 million, or $0.80 per share (diluted) over third quarter 2002 net earnings of $19.9 million, or $0.65 per share (diluted).  Third quarter net sales of $549.5 million were 10% above third quarter 2002 net sales of $500.0 million.  Organic sales growth in the third quarter was $38.4 million, and acquisitions completed in 2002 in the Construction Materials segment and in 2003 in the Automotive Components and General Industry segments contributed $18.9 million of net sales growth.  This was partially offset by a $7.8 million reduction in net sales associated with the divestiture of Carlisle Power Transmission’s European belt business in December 2002. Net sales also benefited by $4.7 million due to favorable changes in foreign currency rates.

 

Net sales of $1.58 billion for the nine month period ended September 30, 2003 were 5% above net sales in the first nine months of 2002 of $1.51 billion, primarily due to higher sales in the Construction Materials segment.  Organic sales contributed $55.2 million of the growth in sales and included $14.3 of favorable changes in foreign currency rates.  Acquisition growth of $41.6 million in the Construction Materials, Automotive Components, and General Industry segments was partially offset by the sale of Carlisle Power Transmission’s European belt business in December 2002.  Net sales for this operation in the first nine months of 2002 were $24.6 million.  Net earnings of $70.2 million or $2.28 per share (diluted) in the first nine months 2003 were 22% above $57.5 million or $1.88 per share (diluted) realized in the first nine months of 2002, before the impact of a change in accounting principle required under SFAS 142.  The implementation of SFAS 142 in 2002 resulted in a $43.8 million (net of income tax) reduction in the carrying value of goodwill and a charge to net earnings of $1.43 per share (diluted).  The change in accounting principle, which was effective January 1, 2002, resulted in net earnings of $13.7 million or $0.45 per share (diluted) in the first nine months 2002.

 

Net earnings in the third quarter 2003 included $0.10 per share (diluted) of plant closure and severance expenses at Carlisle operations in the Industrial Components, Automotive Components, Specialty Products, and General Industry segments.  The impact of these programs on net earnings through nine months of 2003 was $0.14 per share (diluted).  These charges represent specific programs identified by Carlisle operations to reduce expense, improve productivity, and consolidate facilities.  Although Carlisle does not have a formal restructuring plan, the Company will continue to evaluate plant closure and cost reduction opportunities.

 

Gross margins, (net sales less cost of goods sold expressed as a percent of net sales), in the third quarter of 2003 were 17.5%, compared to 18.4% in the third quarter 2002.  Gross margins of 18.2% realized in the first nine months 2003 and were slightly below gross margins realized in the same period of 2002.  Gross margins in the third quarter and the first nine months of 2003 included plant shutdown, relocation, and severance expenses of $3.6 million and $4.8 million respectively, in the Industrial Components, Automotive Components, Specialty Products and General Industry segments.  Plant utilization of 72% in the third quarter 2003 and 73% in the first nine months 2003 was favorable to 67% in the third quarter of 2002 and 70% through the first nine months of 2002.

 

Selling and administrative expenses of $54.6 million in the third quarter 2003 were $0.8 million above $53.8 million incurred in the third quarter 2002 primarily as a result of acquisitions and severance costs.  This increase was partially offset by a $1.7 million reduction in selling and administrative expenses associated with the sale of Carlisle Power Transmission’s European transmission belt business in December 2002.  Selling and administrative expenses through nine months of 2003 were $160.2 million, slightly above the same period expenses of $159.3 million in 2002 due to increased sales volume and severance costs.  Acquisitions added $4.5 million of selling and administrative expense through the first nine months of 2003 which was offset by a $5.1 million reduction in selling and administrative expenses as a result of the divestiture of Carlisle Power Transmission’s European transmission belt business.  Selling and administrative expenses, as a percent of net sales, of 9.9% in the third quarter of 2003 were below 10.8% recorded in the third quarter of 2002, and expenses through the first nine months of 2003 at 10.1% of net sales were favorable to 10.6% in the first nine months of 2002.

 

Other income of $2.3 million for the three months ended September 30, 2003 compared to other income of $0.7 million in the same period of 2002.  Most of the increase from the third quarter 2002 was the result of a $0.9 million increase in equity earnings, and a $0.5 million gain from insurance recoveries on fire losses at two small manufacturing plants.  Other income of $2.9 million in the first nine months of 2003 compared to other expense of $1.5 million in the same period 2002.  The $4.4 million improvement was primarily the result of a $2.6 million gain

 

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from insurance recoveries and a $1.7 million foreign exchange gain on the settlement of long-term loans denominated in foreign currencies.

 

Net interest expense of $3.6 million in the third quarter of 2003 was slightly above $3.5 million incurred in the same period in 2002.  Net interest expense for the nine months ended September 30, 2003 of $11.5 million decreased 10% from $12.8 million incurred in the same period in 2002.  This decrease reflects reduced average borrowings, interest income from Carlisle’s roofing joint venture in Europe, and interest income on a tax refund.

 

Income taxes as a percent of income before taxes were reduced to 32.5% in the third quarter 2003, compared to 33.5% in the first half of 2003, and 34.5% in 2002.  The year-to-date adjustment resulted in an effective tax rate of 30.6% for the third quarter 2003 and had a favorable impact on net earnings of $1.0 million or $0.03 per share (diluted).  This decrease was the result of favorable federal and state audit settlements finalized in 2003 for tax returns filed through calendar year 1999.

 

Accounts receivable of $208.0 million at September 30, 2003 increased $65.4 million from $142.6 million at December 31, 2002.  The increase was primarily the result of higher sales volume from the end of the prior year.

 

Inventories, valued primarily by the last-in, first-out (“LIFO”) method, were $265.2 million as of September 30, 2003, up from $248.8 million at December 31, 2002.  Acquisitions represented 48% of the increase.  Inventories in the General Industry and Construction Materials segment are higher to support increased sales demand.

 

Prepaid expenses and other current assets of $60.2 million as of September 30, 2003 were $22.4 million higher than $37.8 million reported as of December 31, 2002 due primarily to higher costs in excess of billings related to percentage of completion projects within the General Industry segment.

 

Accounts payable of $196.9 million at September 30, 2003 were 33% above $148.6 million at December 31, 2002 due primarily to increased purchases of materials and supplies to keep pace with the increase in sales volume.  Accrued expenses at September 30, 2003 of $136.4 million were $17.7 million above $118.7 million at December 31, 2002 primarily as a result of higher accrued taxes.

 

Industrial Components

 

		Three Months Ended Sept. 30						Nine Months Ended Sept. 30
($ in millions)		2003			2002			2003			2002
Net Sales		$	151.3		$	146.8		$	491.6		$	488.6
EBIT (Earnings Before Interest and Income Taxes)		$	10.9		$	10.0		$	50.3		$	46.8

 

Industrial Components net sales of $151.3 million in the third quarter of 2003 were 3% above third quarter 2002 net sales of $146.8 million.  Organic net sales growth of $12.3 million or 8% was partially offset by the divestiture of Carlisle Power Transmission’s European belt business in December 2002.  Third quarter 2003 net sales at Carlisle Tire and Wheel Company were up 8% from the third quarter 2002 as a result of higher sales in the consumer outdoor power equipment and ATV markets.  The net sales improvement included strong sales to original equipment manufacturers (“OEM’s”) in the consumer outdoor power equipment market, and higher ATV sales generated through new product offerings for both OEM and aftermarket customers.  Net sales at Carlisle Power Transmission were up 10% from the third quarter of 2002, excluding its European belt business.  The improvement was primarily due to increased demand by lawn and garden OEM’s.  Segment EBIT of $10.9 million in the third quarter of 2003 was 9% above the $10.0 million realized in the third quarter of 2002 as a result of improved margins at Carlisle Power Transmission due to higher sales volume, a favorable sales mix, and cost reductions achieved through headcount reductions.

 

Net sales of $491.6 million through the first nine months of 2003 were slightly above net sales in the same period of 2002.  Organic net sales growth of $27.7 million was partially offset by the divestiture of Carlisle Power Transmission’s European belt business, which contributed $24.6 million of net sales in the first nine months of 2002.  Organic sales growth of 6% at Carlisle Tire and Wheel Company was primarily the result of improved consumer outdoor power equipment and ATV sales.  Organic sales growth at Carlisle Power Transmission for the first nine months of 2003 was 7% over the same period in 2002, excluding its European belt business.  Carlisle Tire

 

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and Wheel Company accounts for most of the improvement in EBIT for the first nine months of 2003 over the same period in 2002 due primarily as a result of improved sales volume, a favorable sales mix, and selling price increases implemented early in 2003.  This improvement was partially offset by higher costs for major raw material commodities, including natural rubber, synthetic rubber, and steel.  Carlisle Power Transmission also showed an improvement in EBIT over the first nine months of 2002 in spite of $0.6 million of severance expense incurred in 2003.  Net sales and EBIT in this segment are generally higher in the first half of the year due to peak sales volume into the outdoor power equipment market.

 

Construction Materials

 

		Three Months Ended Sept. 30						Nine Months Ended Sept. 30
($ in millions)		2003			2002			2003			2002
Net Sales		$	174.7		$	141.9		$	427.6		$	359.8
EBIT (Earnings Before Interest and Income Taxes)		$	28.8		$	23.1		$	57.1		$	48.4

 

Construction Materials net sales of $174.7 million in the third quarter of 2003 were 23% above third quarter 2002 net sales of $141.9 million.  Organic sales growth of 17% was driven by higher sales of domestic roofing membranes (EPDM and TPO membrane), insulation products and residential roofing tile products.  The acquisition of MiraDri in October 2002 accounted for 6% of the increase in sales.  Third quarter 2003 EBIT of $28.8 million was 25% above third quarter 2002 EBIT of $23.1 million, primarily as a result of increased sales volume.  Third quarter 2003 EBIT also included a $0.5 million gain from insurance recoveries on fire losses at two small coatings and waterproofing facilities and a $0.8 million earnings improvement at its European roofing joint venture.

 

Net sales of $427.6 million in the first nine months of 2003 were 19% above the same period in 2002.  The 11% organic net sales growth in the first nine months of 2003 was primarily the result of higher sales of domestic roofing membranes, insulation products and residential roofing tile products.  Acquisitions contributed 8% of the increase in net sales.  The 18% EBIT improvement through the first nine months in 2003 compared to the same period in 2002 is primarily the result of increased sales volume and a $2.6 million gain on insurance recoveries.  These benefits were partially offset by $1.5 million lower earnings at Carlisle’s roofing joint venture in Europe.  Net sales and EBIT in this segment are generally higher in the second and third quarters of the year due to increased construction activity during these periods.

 

Automotive Components

 

		Three Months Ended Sept. 30						Nine Months Ended Sept. 30
($ in millions)		2003			2002			2003			2002
Net Sales		$	46.9		$	54.0		$	157.7		$	183.8
EBIT (Earnings Before Interest and Income Taxes)		$	(2.4	)	$	1.9		$	3.5		$	10.7

 

Automotive Components net sales of $46.9 million in the third quarter of 2003 were 13% below third quarter 2002 net sales of $54.0 million, primarily as a result of a 6% decline in North American vehicle production, the loss of business as a result of customer design changes, and selling price reductions.  An EBIT loss of $2.4 million in the third quarter includes plant closure costs at Carlisle Engineered Products.  This closure resulted in a $2.7 million charge in the third quarter.

 

The first nine months 2003 net sales of $157.7 million were 14% below $183.8 million realized in the same period of 2002 due to lower demand, customer design changes, and selling price reductions at Carlisle Engineered Products’ major customers.  Plant closure costs account for 37% of the decline in segment EBIT for the first nine months of 2003.  The remaining decrease was primarily the result of lower production volume and selling price reductions.  Net sales and EBIT in the Automotive Components segment are generally higher in the first six months of the year due to the automotive build schedule.

 

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Specialty Products

 

		Three Months Ended Sept. 30						Nine Months Ended Sept. 30
($ in millions)		2003			2002			2003			2002
Net Sales		$	31.1		$	29.2		$	99.1		$	93.8
EBIT (Earnings Before Interest and Income Taxes)		$	(0.6	)	$	(1.5	)	$	2.4		$	(0.4	)

 

Net sales in the Specialty Products segment of $31.1 million were 6% above $29.2 million realized in the third quarter of 2002.  Organic sales growth of 10% in the on-highway brake market generated most of the improvement in the third quarter 2003 net sales over the same period in 2002.  The EBIT loss of $0.6 million in the third quarter included $0.4 million of plant closure costs.

 

Net sales through the first nine months of 2003 of $99.1 million were 6% above the same period in 2002 of $93.8 million.  The $2.4 million segment EBIT in the first nine months of 2003 includes $0.6 million of plant closure and severance costs.  The loss realized in the first nine months of 2002 was primarily the result of costs incurred by Carlisle Motion Control to close its Ridgway, PA plant and start-up new production facilities.

 

Transportation Products

 

		Three Months Ended Sept. 30						Nine Months Ended Sept. 30
($ in millions)		2003			2002			2003			2002
Net Sales		$	30.8		$	29.0		$	92.1		$	92.6
EBIT (Earnings Before Interest and Income Taxes)		$	2.2		$	1.9		$	4.6		$	4.6

 

Segment net sales of $30.8 million in the third quarter of 2003 were 6% above net sales of $29.0 million realized in the third quarter of 2002.  The increase in net sales was the result of improved shipments of tilt-bed trailers, hydraulic tail trailers, steel dump models, and live-bottom trailers.  EBIT of $2.2 million in the third quarter of 2003 was 16% above the $1.9 million realized in the third quarter of 2002 as a result of higher sales, increased plant utilization, and cost reduction efforts.

 

Transportation Products net sales of $92.1 million in the first nine months of 2003 were slightly below net sales of $92.6 million realized in the same period in 2002, primarily as a result of lower sales of OEM pavers.  Segment EBIT of $4.6 million realized in the first nine months of 2003 was the same as in the first nine months of 2002.

 

General Industry

 

		Three Months Ended Sept. 30						Nine Months Ended Sept. 30
($ in millions)		2003			2002			2003			2002
Net Sales		$	114.7		$	99.1		$	311.5		$	288.8
EBIT (Earnings Before Interest and Income Taxes)		$	5.5		$	5.6		$	12.1		$	7.9

 

General Industry net sales of $114.7 million in the third quarter of 2003 were 16% above third quarter 2002 net sales of $99.1 million, with EBIT of $5.5 million about the same as in the third quarter of 2002.  Net sales at Carlisle Process Systems were up 55% from the third quarter 2002 as demand for cheese and powder production equipment has improved.  Carlisle FoodService net sales were 21% above the third quarter 2002 net sales as a result of acquiring Flo-Pac in May 2003.  Sales to the hospitality, school, business and industry, and independent full service operations were less than a year ago.  Carlisle Walker’s net sales were 7% higher than in the third quarter 2002 as a result of improved demand at Johnson Truck Bodies.  The continued downturn in the commercial aircraft and telecommunications industries resulted in a 7% decline in net sales at Tensolite from the third quarter 2002.  Third quarter 2003 EBIT includes a $1.2 million charge for plant closure and severance costs at several of the operations in the General Industry segment.

 

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Net sales in General Industry in the first nine months of 2002 of $311.5 million were 8% above $288.8 million realized in the first nine months of 2002.  Carlisle Walker net sales were 24% higher with most of the increase occurring at its Johnson Truck Bodies operation.  Net sales at Carlisle Process Systems in the first nine months of 2003 were 5% above a year ago and reflect the improved market conditions in the cheese and powder industry.  Carlisle FoodService net sales through the first nine months of 2003 were 6% above the same period in 2002 as a result of acquiring Flo-Pac.  Sales of restaurant supplies and equipment in the food service industry remained weak.  Tensolite’s net sales were 6% less than in the first nine months of 2002 and reflect the continued softness seen throughout the year in the commercial aerospace and telecommunications markets.  Segment EBIT of $12.1 million was 53% above the $7.9 million realized in the first nine months of 2002.  The 2003 EBIT includes a $2.2 million charge at a European operation in the Carlisle Life Sciences organization to correct previously reported EBIT in calendar year 2002, $2.6 million of plant closure and severance expenses incurred at Carlisle Walker, Carlisle FoodService, and Tensolite in 2003 and a $1.7 million foreign exchange gain on the settlement of long-term loans denominated in foreign currencies.

 

Acquisitions

 

On May 30 2003, Carlisle acquired the Flo-Pac Corporation, a leading manufacturer of quality brooms, brushes, rotary brushes and cleaning tools for the sanitary maintenance industry.  Sales in 2002 were approximately $27 million.  This acquisition is included in the General Industry segment as part of Carlisle’s FoodService and Sanitary Maintenance business.

 

Liquidity and Capital Resources

 

Net cash provided by operating activities for the nine months ended September 30, 2003 was $102.6 million as compared to $159.9 million provided for the nine months ended September 30, 2002.  The 36% reduction was largely attributable to an increase in receivables and a decrease in cash provided by the Company’s securitization program.  Cash used in investing activities was $61.4 million during the first nine months of 2003 compared to $29.3 million for the same nine month period of 2002 reflecting primarily the acquisition of Flo-Pac Corporation.  Net cash used in financing activities was $47.4 million and $131.4 million for the nine months ended September 30, 2003 and 2002, respectively.  Cash provided by operating activities net of capital expenditures, acquisitions and dividends facilitated a reduction in the Company’s debt of $31.1 million and $119.2 million for the nine month periods in 2003 and 2002, respectively.

 

In June 2003, the Company’s revolving credit facilities that provided for borrowings of up to $375 million were replaced with a $250 million three-year syndicated revolving credit facility (“2003 Facility”).  The 2003 Facility provides for interest at the Euro-Dollar rate plus a margin of 0.375% to 1.7%.  The specific rate of the 2003 Facility is based on the Company’s long-term debt rating as determined by certain rating agencies and the amount of outstanding borrowings.  The one-month Euro Dollar rate was 1.165% at September 30, 2003.  The 2003 Facility requires the Company to meet various restrictive covenants and limitations, including certain net worth and cash flow ratios, all of which were complied with as of September 30, 2003. The Company had $250 million available under the 2003 Facility at September 30, 2003.

 

The Company also maintains with various financial institutions $35 million in committed lines of credit and a $55 million uncommitted line of credit.  As of September 30, 2003, $74 million was available under these lines.

 

In July 2003, the Company increased its receivables facility which provides for the sale on a continuous basis of an undivided interest in certain eligible trade accounts receivable from $100.0 million to $125.0 million.  At September 30, 2003, $110 million of trade accounts receivable has been sold under the facility.

 

 

 

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The following table quantifies certain contractual cash obligations and commercial commitments at September 30, 2003:

 

In thousands		Total			Remaining in 2003			2004			2005			2006			2007			Thereafter
Short-term credit lines and long-term debt		$	308,384		$	18,379		$	8,757		$	1,111		$	632		$	150,380		$	129,125
Noncancellable operating leases		67,920			4,397			12,349			11,424			10,138			7,738			21,874
Total Commitments		$	376,304		$	22,776		$	21,106		$	12,535		$	10,770		$	158,118		$	150,999

 

At September 30, 2003, letters of credit amounting to $34.9 million were outstanding, primarily to provide security under insurance arrangements and certain borrowings.  Of this amount, $16.1 million represents letters of credit for industrial development bonds for certain of the Company’s subsidiaries, with such debt allocated between short and long-term debt on the Company’s Consolidated Balance Sheet.

 

The Company has financial guarantee lines totaling $24.3 million in place for certain of its operations in Asia and Europe to facilitate working capital needs, customer performance and payment and warranty obligations.  At September 30, 2003, the Company had issued guarantees of $12.4 million, of which $7.0 million represents amounts recorded in current liabilities on the Company’s Consolidated Balance Sheet.

 

Carlisle believes that its operating cash flows, credit facilities, accounts receivable securitization program, lines of credit, and leasing programs provide adequate liquidity and capital resources to fund ongoing operations, expand existing lines of business and make strategic acquisitions.  However, the ability to maintain existing credit facilities and access the capital markets can be impacted by economic conditions outside the Company’s control.  The Company’s cost to borrow and capital market access can be impacted by debt ratings assigned by independent rating agencies, based on certain credit measures such as interest coverage, funds from operations and various leverage ratios.

 

Backlog

 

The September 30, 2003 backlog of $350 million was 30% above the September 30, 2002 position of $269 million.  The General Industry segment accounted for 86% of the increase from a year ago primarily as a result of much improved backlog positions at Carlisle Process Systems and Carlisle Walker.

 

Outlook

 

We continue to experience softness in some of the markets we serve but we are satisfied with the progress made through September of this year considering the $0.14 per share (diluted) of plant closure and severance expense absorbed in our business.  We plan to continue with our cost reduction efforts and anticipate incurring additional expenses related to these efforts.  In spite of these plant closure and severance expenses, we have tightened our net earnings guidance for 2003 to $2.70 to $2.80 per share (diluted).

 

Forward Looking Statements

 

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements are made based on known events and circumstances at the time of publication, and as such, are subject in the future to unforeseen risks and uncertainties.  It is possible that the Company’s future performance may differ materially from current expectations expressed in these forward-looking statements, due to a variety of factors such as: increasing price and product/service competition by foreign and domestic competitors, including new entrants; technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost effective basis; the Company’s mix of products/services; increases in raw material costs which cannot be recovered in product pricing; domestic and foreign governmental and public policy changes including environmental regulations; threats associated with and efforts to combat terrorism; protection and validity of patent and other intellectual property rights; the successful integration and identification of the Company’s strategic acquisitions; the cyclical nature of the Company’s businesses; and the outcome of pending and future litigation and governmental proceedings.  In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic and international economic conditions including interest rate and currency exchange rate fluctuations.  Further, any additional conflicts in the international

 

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arena may adversely affect the general market conditions and the Company’s future performance.  The Company undertakes no duty to update forward-looking statements.

 

Item 3. Quantitative and Qualitative Disclosure about Market Risk

 

Carlisle is exposed to the impact of changes in interest rates and market values of its debt instruments, changes in raw material prices and foreign currency fluctuations.  From time to time, the Company may manage its interest rate exposure through the use of interest rate swaps to reduce volatility of cash flows, impact on earnings and to lower its cost of capital.  On April 11, 2003, the Company executed $75 million notional amount interest rate swap contracts, designated as fair value hedges, to hedge the market risk associated with a portion of its fixed-rate debt.

 

The Company’s operations use certain commodities such as plastics, carbon black, synthetic and natural rubber and steel.  As such, the Company’s cost of operations is subject to fluctuations as the markets for these commodities change.  The Company monitors these risks, but currently has no derivative contracts in place to hedge these risks.

 

International operations are exposed to translation risk when the local currency financial statements are translated into U.S. Dollars.  As of September 30, 2003 Carlisle had executed certain currency hedges with a total notional of $10.4 million which have been designated as cash flow hedges.  Less than 10% of the Company’s 2003 revenues are in currencies other than the U.S. Dollar.

 

Item 4. Controls and Procedures

 

(a)  Under the supervision and with the participation of the Company’s management, including the Company’s chief executive officer and chief financial officer, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.  Based upon that evaluation and as of September 30, 2003, the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures are effective.  Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to disclose material information otherwise required to be set forth in the Company’s periodic reports.

 

(b)  There were no significant changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (a) above that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II.  OTHER INFORMATION

 

Item 6.			Exhibits and Reports on Form 8-K.
	(a)		Exhibits applicable to the filing of this report are as follows:
	(12)		Ratio of Earnings to Fixed Charges
	(31.1)		Rule 13a-14(a)/15d-14(a) Certifications
	(31.2)		Rule 13a-14(a)/15d-14(a) Certifications
	(32)		Section 1350 Certification
	(c)		Report on Form 8-K:

 

On July 16, 2003, the Company furnished to the Commission on Form 8-K the Company’s press release reporting earnings for the period ended June 30, 2003.

 

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SIGNATURE

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

		Carlisle Companies Incorporated
Date:  November 12 , 2003		By:	/s/ Kirk F. Vincent
		Name: Kirk F. Vincent
		Title: Vice President and Chief Financial Officer

 

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