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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

ý                                 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

 

OR

 

o                                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM             TO             .

 

Commission file number 1-9278

 

CARLISLE COMPANIES INCORPORATED

(Exact name of registrant as specified in its charter)

 

Delaware

 

31-1168055

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

13925 Ballantyne Corporate Place, Suite 400, Charlotte, NC 28277

 

704-501-1100

(Address of principal executive office, including zip code)

 

(Telephone Number)

 

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  Noo

 

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

Yes ý  Noo

 

Shares of common stock outstanding at August 1, 2004: 31,173,572

 

 



 

Carlisle Companies Incorporated

Condensed Consolidated Statements of Earnings and Comprehensive Income

Three and Six Months ended June 30, 2004 and 2003

(dollars in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003*

 

2004

 

2003*

 

Net sales

 

$

640,660

 

$

545,794

 

$

1,194,111

 

$

1,012,793

 

 

 

 

 

 

 

 

 

 

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

518,055

 

444,650

 

965,560

 

821,729

 

Selling and administrative expenses

 

57,771

 

53,397

 

114,493

 

105,049

 

Research and development expenses

 

5,085

 

4,819

 

10,193

 

9,624

 

Other (income) expense, net

 

(2,579

)

(3,631

)

942

 

(543

)

 

 

 

 

 

 

 

 

 

 

Earnings before interest and income taxes

 

62,328

 

46,559

 

102,923

 

76,934

 

Interest expense, net

 

4,243

 

3,239

 

7,846

 

7,869

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

58,085

 

43,320

 

95,077

 

69,065

 

Income taxes

 

18,877

 

14,512

 

30,900

 

23,136

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

39,208

 

28,808

 

64,177

 

45,929

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

Loss from operations of discontinued businesses

 

(2,739

)

(373

)

(4,579

)

(413

)

Income tax benefit

 

890

 

125

 

1,488

 

138

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of tax

 

(1,849

)

(248

)

(3,091

)

(275

)

 

 

 

 

 

 

 

 

 

 

Net income

 

$

37,359

 

$

28,560

 

$

61,086

 

$

45,654

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

Foreign currency translation, net of tax

 

467

 

1,640

 

202

 

3,212

 

Gain (loss) on hedging activities, net of tax

 

127

 

254

 

(74

)

508

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

594

 

1,894

 

128

 

3,720

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

37,953

 

$

30,454

 

$

61,214

 

$

49,374

 

 

 

 

 

 

 

 

 

 

 

Earnings per share - basic

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.26

 

$

0.94

 

$

2.07

 

$

1.50

 

Loss from discontinued operations, net of tax

 

(0.06

)

(0.01

)

(0.10

)

(0.01

)

Earnings per share - basic

 

$

1.20

 

$

0.93

 

$

1.97

 

$

1.49

 

 

 

 

 

 

 

 

 

 

 

Earnings per share - diluted

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.25

 

$

0.94

 

$

2.05

 

$

1.50

 

Loss from discontinued operations, net of tax

 

(0.06

)

(0.01

)

(0.10

)

(0.01

)

Earnings per share - diluted

 

$

1.19

 

$

0.93

 

$

1.95

 

$

1.49

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

31,020

 

30,647

 

30,996

 

30,628

 

Effect of dilutive stock options and restricted stock

 

316

 

115

 

313

 

104

 

Diluted

 

31,336

 

30,762

 

31,309

 

30,732

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid per share

 

$

0.220

 

$

0.215

 

0.440

 

$

0.430

 

 


* 2003 figures have been revised to reflect discontinued operations.  See notes 2 and 6.

 

See accompanying notes to interim financial statements.

 

2



 

Carlisle Companies Incorporated

Condensed Consolidated Balance Sheets

June 30, 2004 and December 31, 2003

(Dollars in thousands)

 

 

 

June 30,
2004

 

December 31,
2003*

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

17,194

 

$

26,848

 

Receivables, less allowances of $7,591 in 2004 and $7,159 in 2003

 

260,021

 

213,524

 

Inventories

 

283,527

 

259,290

 

Deferred income taxes

 

30,844

 

30,866

 

Prepaid expenses and other current assets

 

45,787

 

44,257

 

Current assets held for sale

 

9,071

 

9,596

 

Total current assets

 

646,444

 

584,381

 

 

 

 

 

 

 

Property, plant and equipment, net

 

444,359

 

449,271

 

Other assets:

 

 

 

 

 

Goodwill, net

 

329,386

 

302,556

 

Patents and other intangible assets, net

 

7,750

 

7,881

 

Investments and advances to affiliates

 

77,183

 

79,957

 

Notes receivable and other assets

 

6,957

 

7,849

 

Non-current assets held for sale

 

5,107

 

5,014

 

Total other assets

 

426,383

 

403,257

 

 

 

$

1,517,186

 

$

1,436,909

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term debt, including current maturities

 

$

7,632

 

$

7,505

 

Accounts payable

 

208,579

 

176,335

 

Accrued expenses

 

142,373

 

140,008

 

Deferred revenue

 

12,834

 

12,997

 

Current liabilities associated with assets held for sale

 

2,828

 

2,498

 

Total current liabilities

 

374,246

 

339,343

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Long-term debt

 

287,375

 

294,581

 

Deferred revenue

 

66,658

 

65,929

 

Other long-term liabilities

 

103,996

 

105,126

 

Total long-term liabilities

 

458,029

 

465,636

 

 

 

 

 

 

 

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; 31,042,387 outstanding in 2004 and 30,991,870 outstanding in 2003

 

39,331

 

39,331

 

Additional paid-in capital

 

40,827

 

35,519

 

Unearned compensation

 

(2,876

)

(1,455

)

Cost of shares in treasury - 8,216,832 shares in 2004 and 8,338,754 shares in 2003

 

(113,558

)

(115,107

)

Accumulated other comprehensive loss

 

(9,746

)

(9,874

)

Retained earnings

 

730,933

 

683,516

 

Total shareholders’ equity

 

684,911

 

631,930

 

 

 

$

1,517,186

 

$

1,436,909

 

 


* 2003 figures have been reclassified to reflect assets held for sale of discontinued operations.  See notes 2 and 6.

 

See accompanying notes to interim financial statements.

 

3



 

Carlisle Companies Incorporated

Condensed Consolidated Statements of Cash Flows

Six Months ended June 30, 2004 and 2003

(Dollars in thousands)

(unaudited)

 

 

 

June 30,

 

 

 

2004

 

2003*

 

Operating activities

 

 

 

 

 

Net income

 

$

61,086

 

$

45,654

 

Reconciliation of net income to cash flows from operating activities:

 

 

 

 

 

Loss from discontinued operations, net of tax

 

3,091

 

275

 

Depreciation

 

29,316

 

29,526

 

Amortization

 

703

 

930

 

Loss on equity investments

 

2,650

 

2,433

 

(Gain) loss on investments, property and equipment, net

 

(1,741

)

52

 

Deferred taxes

 

1,654

 

405

 

Foreign exchange gain

 

 

(1,699

)

Changes in assets and liabilities, excluding effects of acquisitions and divestitures:

 

 

 

 

 

Current and long-term receivables

 

(80,410

)

(73,536

)

Receivables under securitization program

 

38,000

 

 

Inventories

 

(21,209

)

(12,454

)

Accounts payable and accrued expenses

 

24,759

 

29,915

 

Income taxes

 

(2,729

)

12,119

 

Long-term liabilities

 

756

 

(3,040

)

Other

 

732

 

1,210

 

Net cash provided by operating activities

 

56,658

 

31,790

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Capital expenditures

 

(35,804

)

(17,640

)

Acquisitions, net of cash received

 

(32,230

)

(32,727

)

Proceeds from investments, property and equipment

 

13,914

 

982

 

Other

 

231

 

130

 

Net cash used in investing activities

 

(53,889

)

(49,255

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Net change in short-term borrowings and revolving credit lines

 

171

 

33,536

 

Reductions of long-term debt

 

(1,964

)

(1,692

)

Dividends

 

(13,669

)

(13,150

)

Treasury shares and stock options, net

 

3,358

 

2,759

 

Other

 

 

(878

)

Net cash (used in) provided by financing activities

 

(12,104

)

20,575

 

 

 

 

 

 

 

Net cash used in discontinued operations

 

(220

)

(116

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(99

)

(904

)

Change in cash and cash equivalents

 

(9,654

)

2,090

 

Cash and cash equivalents

 

 

 

 

 

Beginning of period

 

26,848

 

34,768

 

End of period

 

$

17,194

 

$

36,858

 

 


* 2003 figures have been reclassified to reflect cash flows from discontinued operations.  See notes 2 and 6.

 

See accompanying notes to interim financial statements.

 

4



 

Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended June 30, 2004 and 2003

 

(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 normal recurring adjustments, necessary to present fairly the financial statements for the interim periods presented herein.  Results of operations for the three and six months ended June 30, 2004, 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 2003 Annual Report to Shareholders and 2003 Form 10-K.

 

(2)         Reclassifications

 

Certain reclassifications have been made to prior year’s information to conform to the current year’s presentation.  The Condensed Consolidated Statements of Earnings and Comprehensive Income and Condensed Consolidated Statements of Cash Flows have been revised to reflect the effects of discontinued operations.  As well, the Condensed Consolidated Balance Sheet has been revised to show separately assets held for sale and the liabilities associated with those assets.  Segment information presented in note 16 has also been revised from prior year’s presentation to reflect discontinued operations and assets held for sale.  See note 6 for more detail regarding these operations.

 

Other reclassifications include the segregation of goodwill and the reclassification of $3.1 million from current deferred revenue to accrued expenses on the Company’s Condensed Consolidated Balance Sheet.

 

(3)         Recently Adopted Accounting Standards

 

In December 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46(R) (“FIN 46R”), Consolidation of Variable Interest Entities. This interpretation addresses the consolidation of Variable Interest Entities (“VIE”) as defined by FIN 46R.  VIEs 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 a company 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. The Company was required to apply FIN 46R to variable interests in VIEs created after December 31, 2003.  For VIEs created prior to January 1, 2004, the Company was required to adopt the provisions of this announcement by March 31, 2004.  The adoption of this pronouncement did not have an impact on the Company’s statement of earnings or financial position.

 

(4)         Employee Stock-Based Compensation Arrangements

 

The Company accounts for awards of stock-based employee compensation based on the intrinsic value method under Accounting Principles Board Opinion 25.  As such, no stock-based compensation is recorded in the determination of net income as options granted have an option price equal to the market price of the underlying stock on the date of grant.  The following table illustrates the effect on Net Income and Earnings Per Share had the Company applied the fair-value method

 

5



 

of accounting for stock-based employee compensation under Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation.

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

In thousands except per share data

 

2004

 

2003

 

2004

 

2003

 

Net Income, as reported

 

$

37,359

 

$

28,560

 

$

61,086

 

$

45,654

 

Less: Total stock-based employee compensation expense determined under fair value method for all awards net of related tax effects

 

(389

)

(269

)

(1,394

)

(1,005

)

Proforma net income

 

$

36,970

 

$

28,291

 

$

59,692

 

$

44,649

 

Basic EPS (as reported)

 

$

1.20

 

$

0.93

 

$

1.97

 

$

1.49

 

Basic EPS (proforma)

 

$

1.19

 

$

0.92

 

$

1.93

 

$

1.46

 

Diluted EPS (as reported)

 

$

1.19

 

$

0.93

 

$

1.95

 

$

1.49

 

Diluted EPS (proforma)

 

$

1.18

 

$

0.92

 

$

1.91

 

$

1.45

 

 

The proforma 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:

 

 

 

2004

 

2003

 

Expected dividend yield

 

1.6

%

2.3

%

Expected life in years

 

7

 

7

 

Expected volatility

 

29.3

%

28.7

%

Risk-free interest rate

 

3.7

%

3.8

%

Weighted average fair value

 

$

18.20

 

$

11.31

 

 

(5)         Acquisitions

 

On June 30, 2004, the Company acquired the specialty tire and wheel business of Trintex Corporation for $30.0 million, which is included in the Industrial Components segment.  The Company has preliminarily allocated the purchase price among the acquired assets and liabilities assumed, resulting in goodwill of $24.9 million. Preliminary allocations among other major asset and liability classes were not material.  The purchase price was based on the closing balance sheet as of July 31, 2003.  The Company has agreed to pay for any increase in net assets from July 31, 2003 to June 30, 2004.  The Company is in the process of fully evaluating these assets and as a result, the final purchase price and the purchase price allocation may change.   The purchase agreement also contains an earnout provision based on operating performance over the next four years.   Any future amounts payable under the earnout provision will be treated as a portion of the purchase price and allocated among the acquired assets and liabilities.

 

On May 30, 2003, the Company acquired Flo-Pac Corporation for approximately $32.0 million.  The operating results for this business since the acquisition date are included in the General Industry segment.  The Company has completed the allocation of the purchase price among the acquired assets and liabilities assumed, resulting in goodwill of $7.9 million. Purchase accounting adjustments in 2004 resulted in an increase to goodwill of $1.9 million, primarily due to a contingent payment based on the sale of certain property acquired during the acquisition.  Final allocations did not have a material impact on any major asset or liability captions presented on the Company’s Condensed Consolidated Balance Sheet.

 

(6)         Discontinued Operations and Assets Held for Sale

 

As of June 30, 2004, in ongoing efforts to streamline its businesses, the Company identified three operations it plans to sell. These operations include the Trenton, South Carolina operation of Carlisle Tire & Wheel Company in the Industrial Components segment, the rubber operations of Carlisle Engineered Products in the Automotive Components segment, and the pottery business of Carlisle FoodService in the General Industry segment.  The Company is actively marketing these operations and conducting other actions required to complete the sale and expects the sale of these operations to be completed no later than June 30, 2005.  All three operations met the criteria in accordance with Statement of Financial

 

6



 

Accounting Standard No. 144, “Accounting for the Impairment of Disposal of Long-Lived Assets”. Total assets held for sale by segment are as follows:

 

In thousands

 

June 30,
2004

 

December 31,
2003

 

Assets held for sale by segment:

 

 

 

 

 

Industrial Components

 

$

5,343

 

$

5,133

 

Automotive Components

 

5,621

 

5,502

 

General Industry

 

3,214

 

3,975

 

Total assets held for sale

 

$

14,178

 

$

14,610

 

 

The major classes of assets and liabilities held for sale included in the Company’s Condensed Consolidated Balance Sheet are as follows:

 

In thousands

 

June 30,
2004

 

December 31,
2003

 

Assets held for sale:

 

 

 

 

 

Accounts receivable

 

$

4,353

 

$

5,295

 

Inventory

 

4,288

 

3,985

 

Prepaid expenses and other current assets

 

430

 

316

 

Total current assets held for sale

 

9,071

 

9,596

 

Property, plant and equipment, net

 

5,107

 

5,014

 

Total assets held for sale

 

$

14,178

 

$

14,610

 

Liabilities associated with assets held for sale

 

 

 

 

 

Accounts payable

 

$

1,901

 

$

1,622

 

Accrued expenses

 

927

 

876

 

Total liabilities associated with assets held for sale

 

$

2,828

 

$

2,498

 

 

Net sales and earnings (loss) before interest and income taxes (“EBIT”) from discontinued operations by segment were as follows:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

In thousands

 

2004

 

2003

 

2004

 

2003

 

Net sales:

 

 

 

 

 

 

 

 

 

Industrial Components

 

$

2,185

 

$

2,484

 

$

5,773

 

$

4,374

 

Automotive Components

 

4,733

 

5,561

 

9,600

 

12,019

 

General Industry

 

438

 

574

 

845

 

915

 

Net sales from discontinued operations

 

$

7,356

 

$

8,619

 

$

16,218

 

$

17,308

 

Earnings (loss) before interest and income taxes:

 

 

 

 

 

 

 

 

 

Industrial Components

 

$

(2,071

)

$

115

 

$

(3,263

)

$

106

 

Automotive Components

 

(142

)

137

 

(138

)

697

 

General Industry

 

(526

)

(625

)

(1,178

)

(1,216

)

EBIT from discontinued operations

 

$

(2,739

)

$

(373

)

$

(4,579

)

$

(413

)

 

Included in EBIT for the three and six months ended June 30, 2004 is a $0.5 million write down to fair value of the assets held for sale in the Industrial Components segment.

 

7



 

(7)         Exit and Disposal Activities

 

The following table represents the effects of exit and disposal activities not related to discontinued operations on the Company’s Condensed Consolidated Statements of Earnings:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

In thousands

 

2004

 

2003

 

2004

 

2003

 

Cost of goods sold

 

$

371

 

$

1,092

 

$

1,101

 

$

1,222

 

Selling and administrative expenses

 

117

 

476

 

316

 

680

 

Total exit and disposal

 

$

488

 

$

1,568

 

$

1,417

 

$

1,902

 

 

Exit and disposal activities by type of charge were as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

In thousands

 

2004

 

2003

 

2004

 

2003

 

Termination benefits

 

$

131

 

$

1,239

 

$

251

 

$

1,573

 

Contract termination costs

 

120

 

279

 

219

 

279

 

Other associated costs*

 

237

 

50

 

947

 

50

 

Total exit and disposal activities

 

$

488

 

$

1,568

 

$

1,417

 

$

1,902

 

 


* Other associated costs primarily relate to relocation of employees and equipment.

 

No significant liabilities were initially established, nor were any significant liabilities remaining as of June 30, 2004 related to these activities.

 

Exit and disposal activities by segment were as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

In thousands

 

2004

 

2003

 

2004

 

2003

 

Total by segment

 

 

 

 

 

 

 

 

 

Industrial Components

 

$

66

 

$

199

 

$

189

 

$

318

 

Automotive Components

 

280

 

 

524

 

 

Specialty Products

 

37

 

46

 

97

 

172

 

General Industry

 

105

 

1,323

 

607

 

1,412

 

Total exit and disposal activities

 

$

488

 

$

1,568

 

$

1,417

 

$

1,902

 

 

Industrial Components:

 

Exit and disposal activities in the Industrial Components segment relate to the consolidation of the management teams of Carlisle Tire & Wheel Company and Carlisle Power Transmission.  Total expenses to be incurred with this project are expected to approximate $1.0 million. Since these activities were initiated in January 2003, $0.9 million has been expensed; $0.7 million occurring in 2003 and $0.2 million in the first half of 2004, of which $0.1 million occurred in the second quarter of 2004.  Activities under this plan involve employee terminations and relocation.  To date, termination benefits in the amount of $0.7 million and relocation costs of $0.2 million have been paid.  The Company estimates it will spend an additional $0.1 million before year-end primarily related to relocation costs.

 

Automotive Components:

 

Exit and disposal activities in the Automotive Components segment were related to the Carlisle Engineered Products closure of its Erie-Bundy Park, Pennsylvania facility.  These activities were initiated in the third quarter of 2003 in efforts to cut costs and gain efficiencies by relocating the equipment to other locations.  The total cost of these activities is estimated to be $4.2 million.  To date, $4.1 million has been incurred relating to these activities; $3.6 million occurring in 2003 and $0.5 million in the first six months of 2004, of which $0.3 million occurred in the second quarter of 2004.  Of the total amount expensed to date, $1.9 million relates to termination benefits paid and $0.8 million resulted from fixed asset write-downs.  The remaining $1.4 million relates primarily to the relocation of equipment and inspection fees related to

 

8



 

products manufactured by relocated equipment.  The Company expects the remaining activities to be completed by year-end at an additional cost of $0.1 million.

 

Specialty Products:

 

Exit and disposal activities in 2004 in the Specialty Products segment relate primarily to grievances associated with the closure of the Company’s Ridgeway, Pennsylvania facility which closed in the first quarter of 2002.  Other activities in 2004 included the closure of a testing facility and costs associated with the sale of its spring brake business in December 2003.  The Company believes these activities to be complete and does not expect to incur any additional costs.  Exit and disposal activities in the three and six months ended June 30, 2003 relate primarily to termination benefits paid associated with the consolidation of the management teams of Carlisle Industrial Brake and Friction and Carlisle Motion Control.

 

General Industry:

 

Exit and disposal activities in General Industry primarily relate to the consolidation of the Flo-Pac operations into Carlisle FoodService following the May 2003 acquisition.  This plan included the sale of property acquired, the termination of employees, and the relocation of equipment and employees to other facilities.  The total cost incurred was $1.8 million.  Of this amount, $0.9 million has been recorded as goodwill in accordance with Emerging Issues Task Force (“EITF”) 95-3, Recognition of Liabilities in Connection with a Business Combination.  Cost not applicable to EITF 95-3 associated with these activities was $0.9 million, the majority of which related to relocation costs and severance of employees at existing locations.  As of June 30, 2004, the Company had completed these activities.

 

Exit and disposal activities of $1.4 million in the first half of 2003 in General Industry related to the consolidation of operations within the Company’s life science businesses and the shut down of a Tensolite facility in Mexico as well as additional costs associated with the closure of its Vermont facility which occurred in 2001.  The majority of these costs related to termination benefits of $1.1 million.  Costs associated with the termination of a lease in Vermont accounted primarily for the remaining $0.3 million.

 

(8)         Supplemental Cost Information

 

During the first quarter of 2004, the Company incurred $1.1 million of other expenses related to its equity share of charges taken by its 25% owned European roofing joint venture (“Icopal”) for certain realignment activities and is included in “Other (income) expense, net” on the Condensed Consolidated Statement of Earnings and Comprehensive Income.

 

(9)         Cash and Cash Equivalents

 

In March 2004, the Company sold certain property acquired in the Flo-Pac acquisition.  The proceeds from this sale are held in escrow and are intended to be used for the purchase of like-kind property in 2004 under section 1031 of the Internal Revenue Code.  As of June 30, 2004, $8.6 million remained in escrow and has been classified as a cash equivalent on the Company’s Condensed Consolidated Balance Sheet.

 

(10)  Inventory

 

The components of inventory are as follows:

 

In thousands

 

June 30,
2004

 

December 31,
2003

 

FIFO (approximates current costs):

 

 

 

 

 

Finished goods

 

$

172,181

 

$

169,698

 

Work in process

 

31,939

 

26,224

 

Raw materials

 

96,406

 

80,137

 

 

 

300,526

 

276,059

 

Excess FIFO cost over LIFO value

 

(12,711

)

(12,784

)

Inventory held for sale

 

(4,288

)

(3,985

)

Inventory

 

$

283,527

 

$

259,290

 

 

9



 

(11)  Goodwill and Other Intangible Assets

 

The changes in the carrying amount of goodwill for the six months ended June 30, 2004 are as follows:

 

In thousands

 

Industrial
Components

 

Construction
Materials

 

Automotive
Components

 

Specialty
Products

 

General
Industry

 

Total

 

Balance as of January 1, 2004

 

$

130,710

 

$

32,433

 

$

40,277

 

$

897

 

$

98,239

 

$

302,556

 

Goodwill acquired during year

 

24,914

 

 

 

 

 

24,914

 

Purchase accounting adjustments

 

 

 

 

 

1,897

 

1,897

 

Currency translation

 

(67

)

(224

)

 

(13

)

323

 

19

 

Balance as of June 30, 2004

 

$

155,557

 

$

32,209

 

$

40,277

 

$

884

 

$

100,459

 

$

329,386

 

 

The Company’s acquired other intangible assets as of June 30, 2004 are as follows:

 

In thousands

 

Acquired
Cost

 

Accumulated
Amortization

 

Net Book
Value

 

Assets subject to amortization

 

 

 

 

 

 

 

Patents

 

$

9,390

 

$

(7,445

)

$

1,945

 

Software licenses

 

1,800

 

(728

)

1,072

 

Tradenames

 

1,500

 

(850

)

650

 

Other

 

10,390

 

(10,307

)

83

 

Assets not subject to amortization

 

 

 

 

 

 

 

Trademarks

 

4,000

 

 

4,000

 

Balance as of June 30, 2004

 

$

27,080

 

$

(19,330

)

$

7,750

 

 

Estimated amortization expense for each of the next five years is as follows: $0.8 million in 2004, $0.8 million in 2005, $0.7 million in 2006, $0.5 million in 2007, and $0.3 million in 2008.

 

(12)  Retirement Plans and Other Postretirement Benefits

 

Components of net periodic benefit cost are as follows:

 

 

 

Pension Benefits

 

Post-retirement Medical

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

 

 

 

 

In thousands

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

Service costs

 

$

1,403

 

$

1,612

 

$

2,806

 

$

3,224

 

$

1

 

$

22

 

$

2

 

$

44

 

Discretionary credit

 

179

 

 

358

 

 

 

 

 

 

Interest cost

 

2,456

 

2,335

 

4,912

 

4,670

 

182

 

209

 

364

 

417

 

Expected return on plan assets

 

(2,511

)

(2,544

)

(5,022

)

(5,088

)

 

 

 

 

Amortization of the net actuarial loss

 

134

 

8

 

268

 

16

 

29

 

12

 

57

 

24

 

Amortization of prior service costs

 

(58

)

(25

)

(116

)

(50

)

 

 

 

 

Amortization of unrecognized net (asset) obligation

 

 

(47

)

 

(95

)

55

 

55

 

110

 

110

 

Curtailment (income) expense

 

 

68

 

 

135

 

 

(385

)

 

(770

)

Net periodic benefit costs

 

$

1,603

 

$

1,407

 

$

3,206

 

$

2,812

 

$

267

 

$

(87

)

$

533

 

$

(175

)

 

The Company previously disclosed in its financial statements for the year ended December 31, 2003, that it expected to contribute $8.1 million to $14.1 million to its pension plans in 2004, contingent on congressional pension funding relief.  As of June 30, 2004, contributions of $1.7 million had been made.  In April, 2004 the Pension Funding Equity Act of 2004 was signed into law.  Based on this act, the Company currently expects total 2004 contributions to fund its pension plan obligations will approximate $8.3 million.

 

10



 

The Company has contributed $4.5 million in the form of Company stock to its defined contribution plans in the first half of 2004.  Full year contributions are expected to approximate $9.0 million.

 

In May 2004, the FASB issued FASB Staff Position (“FSP”) No. 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.  In December 2003, the President signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”).  The Act provides subsidies to companies that offer prescription drug benefits that are at least actuarially equivalent to Medicare Part D.   FSP No. 106-2 supercedes FSP No. 106-1 which allowed companies to defer the effects of the Act.  FSP No. 106-2 requires companies to account for the effects of the Act on its accumulated postretirement benefit obligation either retrospectively to the date the Act was enacted or prospectively from the date of adoption depending on whether the effects of the Act are significant.  The Company has determined the benefits provided under its plan are not actuarially equivalent to Medicare Part D, thus the adoption of FSP 106-2 is not expected to have a material impact on its financial statements.

 

(13)  Other Long-Term Liabilities

 

The components of other long-term liabilities are as follows:

 

In thousands

 

June 30,
2004

 

December 31,
2003

 

Pension and other post-retirement obligations

 

$

62,068

 

$

62,968

 

Deferred taxes

 

35,460

 

37,678

 

Long-term warranty obligations

 

3,145

 

3,048

 

Other

 

3,323

 

1,432

 

Other long-term liabilities

 

$

103,996

 

$

105,126

 

 

(14)  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 $8.0 million remaining in 2004, $12.6 million in 2005, $10.6 million in 2006, $9.1 million in 2007, $7.6 million in 2008, and $18.4 million thereafter.

 

At June 30, 2004, letters of credit amounting to $39.3 million were outstanding, primarily to provide security under insurance arrangements and certain borrowings.

 

The Company has financial guarantee lines in place for certain of its operations in Asia and Europe to facilitate working capital needs, customer performance and payment and warranty obligations.  At June 30, 2004, the Company had issued guarantees of $16.1 million, of which $9.2 million represents amounts recorded in current liabilities.  The fair value of these guarantees is estimated to equal the amount of the guarantees at June 30, 2004, due to their short-term nature.

 

The Company offers various warranty programs on its installed roofing systems, braking products, truck trailers, refrigerated truck bodies, and cheese making equipment.  The change in the Company’s aggregate product warranty liabilities for the period ended June 30 is as follows:

 

In thousands

 

2004

 

2003

 

Beginning reserve at December 31

 

$

9,242

 

$

9,045

 

Current year provision

 

6,393

 

8,155

 

Current year claims

 

(6,744

)

(9,318

)

Ending reserve at June 30

 

$

8,891

 

$

7,882

 

 

The amount of extended product warranty revenues recognized was $3.5 million and $6.8 million for the three and six months ended June 30, 2004, respectively, and $3.6 and $7.3 for the three and six months ended June 30, 2003, respectively.

 

11



 

The Company has entered into long-term purchase agreements for certain key raw materials expiring December 31, 2004.  Commitments are variable based on changes in commodity price indices.  Based on pricing in effect at June 30, 2004, commitments under these agreements total approximately $3.5 million.

 

The Company maintains self retained liabilities for workers’ compensation, medical, general liability and property claims up to applicable retention limits.  Retention limits are between $0.5 million and $1.0 million per occurrence for general liability, $0.5 million per occurrence for workers’ compensation, $0.1 million per occurrence for property and up to $0.5 million for medical claims. 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, the ultimate outcome of such litigation will not have a material adverse effect on the consolidated financial position of the Company, but may have a material impact on the Company’s results of operations for a particular period.

 

(15)  Derivative Instruments and Hedging Activities

 

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.  As of June 30, 2004, the Company had in place interest rate swaps with a notional amount of $75.0 million.  These contracts have been designated as fair value hedges and were deemed effective at the origination date and as of June 30, 2004.  The valuation of these contracts as of June 30, 2004 resulted in a liability of $1.0 million, included in other long-term liabilities on the Company’s Condensed Consolidated Balance Sheet, and a corresponding decrease in the fair value of the Company’s 7.25% senior notes, reflected in long-term debt.

 

Also in place at June 30, 2004 were certain currency hedges, designated as cash flow hedges, with a total notional amount of $6.0 million.  The fair value position of these contracts as of June 30, 2004 resulted in a net liability of $0.1 million.

 

(16)  Segment Information

 

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

 

Three Months Ended June 30,

 

2004

 

2003*

 

In thousands

 

Sales

 

EBIT

 

EBIT % Sales

 

Sales

 

EBIT

 

EBIT % Sales

 

Industrial Components

 

$

195,407

 

$

21,888

 

11.2

%

$

172,594

 

$

20,142

 

11.7

%

Construction Materials

 

187,526

 

28,011

 

14.9

%

154,421

 

21,989

 

14.2

%

Automotive Components

 

50,341

 

(2,021

)

-4.0

%

48,941

 

2,600

 

5.3

%

Transportation Products

 

40,023

 

2,551

 

6.4

%

33,195

 

1,415

 

4.3

%

Specialty Products

 

37,669

 

4,105

 

10.9

%

36,386

 

1,724

 

4.7

%

General Industry (All other)

 

129,694

 

12,215

 

9.4

%

100,257

 

2,162

 

2.2

%

Corporate

 

 

(4,421

)

 

 

(3,473

)

 

 

 

$

640,660

 

$

62,328

 

9.7

%

$

545,794

 

$

46,559

 

8.5

%

 

Six Months Ended June 30,

 

2004

 

2003*

 

In thousands

 

Sales

 

EBIT

 

Assets

 

Sales

 

EBIT

 

Assets

 

Industrial Components

 

$

387,591

 

$

44,635

 

$

487,934

 

$

335,973

 

$

39,263

 

$

451,411

 

Construction Materials

 

310,326

 

34,567

 

335,878

 

252,860

 

28,302

 

287,333

 

Automotive Components

 

100,587

 

395

 

121,205

 

98,819

 

5,186

 

120,282

 

Transportation Products

 

72,664

 

3,481

 

52,561

 

61,282

 

2,331

 

53,243

 

Specialty Products

 

69,448

 

6,506

 

81,793

 

68,002

 

3,073

 

83,247

 

General Industry (All other)

 

253,495

 

21,928

 

364,658

 

195,857

 

7,751

 

348,197

 

Corporate

 

 

(8,589

)

58,979

 

 

(8,972

)

90,490

 

 

 

$

1,194,111

 

$

102,923

 

$

1,503,008

 

$

1,012,793

 

$

76,934

 

$

1,434,203

 

 


* 2003 figures have been revised to exclude sales, EBIT and assets held for sale of discontinued operations. See notes 2 and 6.

 

12



 

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

 

Executive Summary

 

Carlisle Companies Incorporated (“Carlisle” or the “Company”) is a diversified manufacturing company focused on achieving profitable growth internally through new product development and product line extensions and externally through acquisitions that complement our existing technologies, products and market channels.  The Company has thirteen operating companies serving a variety of niche markets.  While Carlisle has offshore manufacturing operations, our markets are primarily in North America.  Management focuses on continued year-over-year improvement in sales and earnings, return on capital employed and return on shareholders’ equity.  Resources are allocated among these businesses based on assessments of their ability to obtain leadership positions in the markets they serve.

 

The Company recognized record sales and income in the second quarter and first six months of 2004.  The increase in sales and income was evident in most business segments.  Net sales from continuing operations in the second quarter and first six months of 2004 increased 17% and 18% over the same periods in 2003, respectively.  The factors contributing to this increase were improving markets, new products, market share gains, selling price increases, and to a lesser extent, foreign exchange.  Income from continuing operations of $39.2 million increased 36% from the second quarter 2003 and income from continuing operations of $64.2 million in the first six months was 40% above the same period in 2003.  Selling price increases of $6.8 million in the second quarter 2004 over the second quarter 2003 were not enough to offset raw material prices increases of $10.9 over the same period.  Through the first six months of 2004, selling price increases of $7.1 million were less than half of the $16.0 million increase in the price of raw materials.  Raw material prices are expected to continue rising in subsequent quarters.  The Company will continue to attempt to recover these costs through higher selling prices; however, the ability to raise prices is dependent on competitive and economic conditions beyond the Company’s control.  It is also uncertain what impact the rise in raw material costs and the future availability of raw materials will have on the markets Carlisle serves.

 

In keeping with the Company’s focus to reorganize and realign its businesses through exit and disposal and consolidation opportunities, Carlisle classified three operations in the Industrial Components, Automotive Components, and General Industry segments as discontinued operations.  All three operations met the criteria in accordance with Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment of Disposal of Long-Lived Assets”.

 

Sales and Earnings

 

Consolidated

 

Net sales of $640.7 million in the second quarter 2004 exceeded second quarter 2003 sales of $545.8 million by 17%, or $94.9 million.  Strong organic sales growth (organic growth excludes the effects of acquisitions, discontinued operations and divestitures made within the most recent twelve months) of $93.3 million, or 17% included $2.9 million of favorable changes in foreign currency rates.  Acquisition growth of $4.7 million in the General Industry segment was partially offset by the divestiture of Motion Control’s spring brake business in December 2003.  Net sales for this divestiture in the second quarter 2003 were $3.1 million.  The growth in net sales was primarily attributable to the Construction Materials, General Industry and Industrial Components segments.

 

Income from continuing operations in the second quarter 2004 was $39.2 million, or $1.25 per diluted share, compared to the second quarter 2003 income from continuing operations of $28.8 million, or $0.94 per diluted share.  Net income of $37.4 million, or $1.19 per diluted share, was 31% above the second quarter 2003 and included $1.8 million or $0.06 per diluted share of losses from discontinued operations.  Net income for the second quarter 2003 was $28.6 million, or $0.93 per diluted share, which included $0.2 million or $0.01 per diluted share of income from discontinued operations.  With the exception of the Automotive Components segment, earnings before interest and income taxes (“EBIT” or “earnings”) were higher in each of the Company’s operating segments.  The impact of changes in foreign currency rates on net income was negligible.

 

Income from continuing operations in the second quarter 2004 included $0.01 per diluted share of exit and disposal expenses, compared to $0.03 per diluted share charge in the second quarter 2003.  Income from continuing operations in the first six months of 2004 included $0.03 per diluted share of exit and disposal expenses primarily at Carlisle operations in the Automotive Components and General Industry segments, and compare to $0.04 per diluted share in the first six

 

13



 

months of 2003.  These charges exclude the impact of reorganization expenses at Carlisle’s 25% owned European roofing joint venture “Icopal” incurred in the first quarter 2004.  Exit and disposal costs 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 continues to evaluate exit and disposal opportunities.

 

Operating Segments

 

The following table summarizes segment net sales and EBIT.  The amounts for each segment should be referred to in conjunction with the applicable discussion below.

 

 

 

Three Months Ended
June 30,

 

Increase
(Decrease)

 

Six Months Ended
June 30,

 

Increase
(Decrease)

 

In thousands, except percentages

 

2004

 

2003*

 

Amount

 

Percent

 

2004

 

2003*

 

Amount

 

Percent

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial Components

 

$

195,407

 

$

172,594

 

$

22,813

 

13.2

%

$

387,591

 

$

335,973

 

$

51,618

 

15.4

%

Construction Materials

 

187,526

 

154,421

 

33,105

 

21.4

%

310,326

 

252,860

 

57,466

 

22.7

%

Automotive Components

 

50,341

 

48,941

 

1,400

 

2.9

%

100,587

 

98,819

 

1,768

 

1.8

%

Transportation Products

 

40,023

 

33,195

 

6,828

 

20.6

%

72,664

 

61,282

 

11,382

 

18.6

%

Specialty Products

 

37,669

 

36,386

 

1,283

 

3.5

%

69,448

 

68,002

 

1,446

 

2.1

%

General Industry (All other)

 

129,694

 

100,257

 

29,437

 

29.4

%

253,495

 

195,857

 

57,638

 

29.4

%

Corporate

 

 

 

 

 

 

 

 

 

 

 

$

640,660

 

$

545,794

 

$

94,866

 

17.4

%

$

1,194,111

 

$

1,012,793

 

$

181,318

 

17.9

%

 

Earnings Before Interest and Income Taxes

 

Industrial Components

 

$

21,888

 

$

20,142

 

$

1,746

 

8.7

%

$

44,635

 

$

39,263

 

$

5,372

 

13.7

%

Construction Materials

 

28,011

 

21,989

 

6,022

 

27.4

%

34,567

 

28,302

 

6,265

 

22.1

%

Automotive Components

 

(2,021

)

2,600

 

(4,621

)

-177.7

%

395

 

5,186

 

(4,791

)

-92.4

%

Transportation Products

 

2,551

 

1,415

 

1,136

 

80.3

%

3,481

 

2,331

 

1,150

 

49.3

%

Specialty Products

 

4,105

 

1,724

 

2,381

 

138.1

%

6,506

 

3,073

 

3,433

 

111.7

%

General Industry (All other)

 

12,215

 

2,162

 

10,053

 

465.0

%

21,928

 

7,751

 

14,177

 

182.9

%

Corporate

 

(4,421

)

(3,473

)

(948

)

-27.3

%

(8,589

)

(8,972

)

383

 

4.3

%

 

 

$

62,328

 

$

46,559

 

$

15,769

 

33.9

%

$

102,923

 

$

76,934

 

$

25,989

 

33.8

%

 


* 2003 figures have been revised to exclude sales and EBIT of discontinued operations.

 

Industrial Components

 

Segment net sales in the second quarter 2004 were above the second quarter 2003 as both Carlisle Tire & Wheel Company and Carlisle Power Transmission net sales were 13% above prior year levels.  Most of the increase at Carlisle Tire & Wheel Company was in the commercial outdoor power equipment market, styled wheels in automotive aftermarket and ATV tires and wheels.  Crager and Unique brand styled wheels sustained above average growth and increased business at original equipment manufacturers accounted for the improvement in ATV sales.  The majority of the increase at Carlisle Power Transmission was higher sales in the lawn and grounds care, agricultural and wholesale belt markets.  Sales to most of the major customers in the lawn and grounds care and the wholesale belt markets were above the second quarter 2003.  Second quarter 2004 EBIT was 9% above the second quarter 2003.  In relation to the strong sales growth, the earnings results were disappointing and reflect price increases for steel in the wheel business and oil-based commodities used in the tire manufacturing process.  Selling price increases were more than offset by the continuing rise in raw material costs occurring in the global economy.  Also contributing to the margin erosion was reduced production efficiencies due to increased schedule changes required to support the strong sales demand and the ramp up of production at the China operation.

 

14



 

Net sales through the first six months of 2004 were 15% above the same period of 2003.  Carlisle Tire & Wheel net sales were up 16% and Carlisle Power Transmission net sales were 15% higher, with most of the increase occurring in the same categories previously mentioned.  EBIT in the first six months 2004 was 14% above the first six months of 2003 and was primarily driven by the increase in sales volume, as raw material price increases have more than offset selling price increases.  Efforts are continuing to recover as much of the raw material inflation as possible through price increases or steel surcharges.  While the Company is optimistic about recovering most of the increases in raw material cost through these efforts, its ability may be limited based on competitive and economic conditions beyond its control.  Net sales and earnings in this segment are generally higher in the first half of the year due to peak sales volume in the outdoor power equipment market.

 

Construction Materials

 

Net sales in the second quarter were 21% above the second quarter 2003 with higher sales in all product lines, especially in North American sales of commercial roofing, which accounted for approximately two-thirds of the increase.  Demand in the second quarter in key roofing markets (Northeast and Midwest) drove large increases over prior year.  The economies have recovered favorably in these markets and were, in part, aided by a relatively rough winter.  Additionally, Carlisle SynTec’s investment in re-roofing products and supporting programs are having positive results.  Second quarter 2004 EBIT was 27% above the second quarter 2003.  The improvement includes a $4.9 million or 23% increase in earnings at Carlisle SynTec, and a $1.1 million improvement in earnings at Carlisle’s European roofing joint venture (“Icopal”).  The improvement in EBIT at Carlisle SynTec was primarily due to the significant increase in net sales, despite the fact that higher prices for raw materials exceeded selling price increases.  Gains on insurance recoveries of $1.9 million in the second quarter 2004 and $2.1 million in the second quarter 2003 related to fires that occurred in 2002 at two small coatings and waterproofing manufacturing plants at Carlisle SynTec.  These gains are classified as “other (income) expense, net” on the Company’s Condensed Consolidated Statements of Earnings and Comprehensive Income.

 

Net sales in the first six months 2004 were 23% above the same period in 2003 as all product lines showed improvement.  Approximately 62% of the increase was attributable to North American sales of commercial roofing.  Activity in the commercial roofing industry has been running favorable to a year ago and there is optimism throughout the industry that strong demand will continue into the remainder of the year.  The 22% EBIT improvement is primarily a result of increased sales volume.  Higher sales volumes helped to offset the effects of higher raw material costs and manufacturing start-up expenses at Carlisle SynTec’s new insulation plant in Lake City, Florida.  Net sales and earnings in this segment are generally higher in the second and third quarters of the year due to increased construction activity during these periods; however, the rise in the costs and availability of raw materials are expected to apply pressure to future operating results.  Selling price increases have been announced in an effort to offset higher raw material costs; however, the full extent of these increases remains uncertain.

 

Automotive Components

 

Net sales were 3% above the second quarter 2003.  The increase in net sales was primarily a result of increased business at foreign owned manufacturers, partially offset by lower sales to domestic manufacturers, and price reductions of approximately 2% reflecting negotiated terms in certain long-term agreements.  The $2.0 million EBIT loss in the second quarter 2004 compares to earnings of $2.6 million in the second quarter 2003.  Contributing to the loss was approximately $3.4 million in charges associated with excess manufacturing and inspection costs resulting from the acceptance of a transferred program in which the tooling provided by the customer was defective.  Negotiations with the customer are ongoing.  Unfavorable manufacturing overhead costs at several plants and additional exit and disposal costs at Carlisle Engineered Products’ Erie-Bundy Park plant also contributed to the poor performance in the second quarter 2004.

 

Net sales through the first six months of 2004 were 2% above the same period in 2003 and reflect additional business with foreign owned manufacturers, partially offset by reduced selling prices in accordance with negotiated terms in certain long-term agreements.  As these agreements near expiration, the expected launch of new programs should help mitigate the impact of reduced selling prices.  Approximately $4.7 million of the decline in segment EBIT was a result of the aforementioned transferred program.  The remaining decrease was a result of unabsorbed plant overhead costs and costs associated with closing the Erie-Bundy Park plant.  Higher costs associated with the introduction of new production programs could continue to adversely impact earnings for this segment in subsequent quarters.  Net sales and earnings in the Automotive Components segment are generally higher in the first six months of the year due to the automotive build schedule.

 

15



 

Transportation Products

 

The 21% improvement in net sales in the second quarter 2004 was a result of higher sales of large construction trailers, pneumatic bulk trailers, steel dumps, live-bottom and specialized trailers.  Selling price surcharges were implemented in March 2004, which partially offset raw material price increases in the second quarter 2004.  The 80% increase in EBIT was primarily a result of increased sales, a favorable sales mix, selling price increases and lower manufacturing costs due to improved efficiencies on higher production volume.

 

Transportation Products net sales through the first six months of 2004 were 19% above the first six months of 2003, with the increase occurring in the same product lines previously mentioned.  Segment EBIT in the first six months was 49% above the same period in 2003.  Sales volume, a favorable sales mix and better factory utilization accounted for the increase in EBIT.  Partially offsetting these items were steep rises in steel prices and other raw materials.  These, in turn, were partially offset by selling price surcharges implemented in the latter part of the first quarter 2004.  Prices for sheet steel, tube and structural products appear to have leveled off and average pricing has remained relatively the same for the last few months, but the price for steel products is significantly higher than a year ago.  Steel supply and pricing may have an adverse effect on future earnings in this segment.

 

Specialty Products

 

Net sales in the second quarter 2004 were 4% above the second quarter 2003.  This increase was driven by demand in the OEM and aftermarket for braking systems for off-highway and industrial equipment products.  Organic sales growth in this segment was 12% in the second quarter 2004.  The second quarter 2003 net sales included $3.1 million of sales from Carlisle Motion Control’s spring brake business which was divested in December, 2003.  Second quarter EBIT was 138% above the second quarter 2003 as a result of improved manufacturing efficiencies, lower selling and administrative expenses and the divestiture of the spring brake business which lost $0.4 million in the second quarter 2003.

 

Net sales through the first six months of 2004 were slightly above the same period in 2003.  The first six months of 2003 included $5.4 million of sales from Carlisle Motion Control’s spring brake business which was divested in December, 2003.  Organic sales growth was 10% excluding the spring brake sales from the first six months of 2003 net sales.  The increase in organic sales is primarily due to the strength in the industrial and off-highway markets.  Sales levels and order bookings in the industrial friction and off-highway brake business are at all time highs with strong backlogs continuing into the third quarter.  The 112% improvement in EBIT was primarily a result of improved operating and manufacturing efficiencies, lower research and development and selling and administrative expenses.  Most of the savings were generated through the consolidation of the business units in this segment under one management team.  Also contributing to the improvement was the sale of the spring brake business in December, 2003, as this operation had an EBIT loss of $0.8 million through the first six months 2003.

 

General Industry (All Other)

 

General Industry net sales in the second quarter 2004 were 29% above the second quarter 2003.  Carlisle Process Systems accounted for 63% of the sales growth in the second quarter as a result of increased purchases of cheese and powder capital equipment by dairy and food processors.  Carlisle FoodService net sales were 23% above the second quarter 2003 with the acquisition of Flo-Pac in May 2003 accounting for approximately 61% of the increase.  Organic sales growth of 9% was a result of increased demand for foodservice products.  Net sales at Tensolite in the second quarter 2004 were 26% above last year on increased sales in all product lines.  Carlisle Walker net sales in the second quarter 2004 were 7% below the second quarter 2003 due to lower demand in the Walker Equipment operation.  Johnson Truck Bodies net sales in the second quarter 2004 were the same as the second quarter 2003.

 

Segment EBIT was significantly above the second quarter 2003 as most operations improved their earnings performance. Approximately 63% of the improvement in 2004 was at Carlisle Process Systems due to the increase in sales volume.  The 17% increase at Carlisle FoodService was primarily a result of the acquisition of Flo-Pac.  Second quarter EBIT at Tensolite was significantly higher than the second quarter 2003 and is a result of higher sales volume and exit and disposal costs incurred in the second quarter 2003.  Segment earnings in second quarter 2004 included a $0.1 million charge for exit and disposal costs.  This compares to $1.3 million in the second quarter 2003.

 

16



 

Net sales in General Industry in the first six months of 2004 were 29% above the first six months of 2003.  Carlisle Process Systems accounted for slightly over half of the sales growth in the first six months.  Carlisle FoodService net sales were 29% above the first six months of 2003 with the acquisition of Flo-Pac in May 2003 accounting for approximately 63% of the increase.  Organic sales growth of 11% was a result of increased demand for foodservice products.  Net sales at Tensolite in the first six months of 2004 were 29% above last year on increased sales in all product lines.  Carlisle Walker net sales in the first six months of 2004 were slightly below the same period in 2003 due to lower demand in the Walker Equipment operation.  Johnson Truck Bodies net sales were 4% above the first six months of 2003.

 

The first six months 2004 EBIT in the General Industry segment were 183% above the same period in 2003 as most operations showed improvement.  Carlisle Process Systems accounted for slightly over half of the increase due to higher sales, improved margins through manufacturing efficiencies and reduced selling and administrative expenses.  Carlisle FoodService earnings improved 27% in the first six months of 2004 compared to the same period in 2003 and were primarily due to the acquisition of Flo-Pac.  Tensolite earnings in the first six months of 2004 were 29% above the first six months of 2003 as a result of increased sales volume and exit and disposal costs incurred in the first six months of 2003.  Segment earnings in first half of 2004 included a $0.6 million charge for exit and disposal costs.  This compares to $1.4 million in the first six months of 2003.

 

Acquisitions

 

On June 30, 2004, Carlisle announced the acquisition of the specialty tire and wheel business of Trintex Corporation, North America’s leading manufacturer of semi-pneumatic tires and wheels for the lawn and garden and industrial markets.  Trintex sales were approximately $33 million in 2003. Trintex’s positive addition to Carlisle’s portfolio extends our product line offering to the specialty tire and wheel markets.  This acquisition is included in the Industrial Components segment as part of Carlisle Tire & Wheel’s operations.

 

Financial Results

 

Gross margin (net sales less cost of goods sold expressed as a percent of net sales) in the second quarter 2004 was 19.1%, compared to 18.5% in the second quarter 2003.  The increase in margin was primarily due to increase in sales volume, production efficiencies through higher utilization and lower exit and disposal charges, partially offset by significant raw material price increases for oil-based commodities and steel products.  Raw material costs were approximately $10.9 million higher in the second quarter 2004 than in the second quarter 2003 which more than offset selling price increases in the amount of $6.8 million over the same period.  The second quarter 2004 gross margin included $0.4 million of exit and disposal costs compared to $1.1 million in the second quarter 2003.  The second quarter 2004 plant utilization of 77% was favorable to 75% in the second quarter 2003.  Gross margin in the first six months of 2004 of 19.1% was slightly above 18.9% in the first six months of 2003 and is a result of sales volume and production efficiencies, partially offset by raw material price increases.  Raw material costs in the first six months 2004 were approximately $16.0 million above the same period in 2003 and more than offset selling price increases of $7.1 million.  Exit and disposal charges were relatively the same in the first six months 2004 and 2003.

 

Selling and administrative expenses of $57.8 million in the second quarter 2004 were 8.2% above $53.4 million in the second quarter 2003 primarily as a result of variable expenses that fluctuate with sales volume and acquisitions.  Selling and administrative expenses, as a percent of net sales, of 9.0% in the second quarter 2004 were below 9.8% recorded in the second quarter 2003.  Expenses through the first six months 2004 of $114.5 million are 9% above the same period a year ago.  Most of the increase was a result of variable expenses associated with sales volume and acquisitions.  As a percent of net sales, selling and administrative expenses were 9.6% of sales compared to 10.4% in 2003.  The lower selling and administrative expenses as a percent of net sales was a result of cost control measures and reorganization actions.

 

Other income (expense) of $2.6 million in the second quarter 2004 was below $3.6 million in the second quarter 2003.  Most of the decrease related to a $1.7 million foreign exchange gain on the settlement of long-term loans denominated in foreign currencies in the second quarter 2003.  This was partially offset by a $1.1 million increase in earnings in the second quarter 2004 from the Company’s 25% equity share of income at Icopal.  Other expense of $0.9 million in the first six months 2004 compares to income of $0.5 million in the first six months 2003.  The deviation between the periods was primarily the effect of the foreign exchange gain on the settlement of long-term loans denominated in foreign currencies in 2003.

 

17



 

Interest expense, net of $4.2 million in the second quarter 2004 was $1.0 million above $3.2 million in the second quarter 2003 primarily as a result of interest expense associated with the completion of a capital lease project.  Capitalized interest costs and the effects of interest rate swaps resulted in a reduction of interest expense compared to the second quarter of 2003 but were offset by lower interest income.  Interest expense, net in the first six months of 2004 was essentially the same as the same period in 2003.  Lower average borrowings and the effects of interest rate swaps resulted in lower interest expense year-over-year but were offset by lower interest income and higher interest expense associated with the aforementioned capital lease.

 

Receivables of $260.0 million at June 30, 2004 increased $46.5 million from $213.5 million at December 31, 2003.  The increase was primarily a result of higher sales volume, partially offset by a $38.0 million increase in the utilization of the Company’s accounts receivable securitization program bringing total receivables sold through the program to $105.0 million at June 30, 2004.

 

Inventories, valued primarily by the last-in, first-out (“LIFO”) method, were $283.5 million as of June 30, 2004, up from $259.3 million at December 31, 2003.  The increase was primarily in the Construction Materials and General Industry segments to support increased sales demand.

 

Accounts payable of $208.6 million at June 30, 2004 were $32.3 million above $176.3 million at December 31, 2003 due primarily to increased purchases of materials and supplies to keep pace with the increase in sales volume.

 

Liquidity and Capital Resources

 

Sources and Uses of Cash

 

 

 

Six Months Ended June 30,

 

In thousands

 

2004

 

2003

 

Net cash provided by operating activities

 

$

56,658

 

$

31,790

 

Net cash used in investing activities

 

(53,889

)

(49,255

)

Net cash (used in) provided by financing activities

 

(12,104

)

20,575

 

Net cash used in discontinued operations

 

(220

)

(116

)

Effect of exchange rate changes on cash

 

(99

)

(904

)

Change in cash and cash equivalents

 

$

(9,654

)

$

2,090

 

 

Net cash provided by operating activities in the first half of 2004 was $56.7 million compared to $31.8 million in the first half of 2003.  The $24.9 million improvement was a result of an increase in the utilization of the Company’s securitization program.  An increase in net income was more than offset by an increase in working capital necessary to support increased revenues.

 

Cash used in investing activities was $53.9 million in the first six months of 2004 compared to $49.3 million in the first six months of 2003.  Capital expenditures were $18.2 million higher than in the prior year primarily as a result of plant expansion projects in the Construction Materials segment.  Offsetting higher capital expenditures were proceeds received primarily from the sale of property acquired as part of the Flo-Pac acquisition.  The proceeds received from this sale are intended to be used for the purchase of real property in the Construction Materials and General Industry segments in 2004.

 

Cash used in financing activities was $12.1 million in the first six months of 2004 compared to cash provided from financing activities of $20.6 million in 2003.  The change is a result of a decrease in borrowings associated with an increase in the utilization of the Company’s securitization program, which is classified as cash provided by operating activities.

 

Carlisle maintains a $250.0 million revolving credit facility, which was fully available at June 30, 2004.  The Company also maintains with various financial institutions $25.0 million in committed lines of credit and a $55.0 million uncommitted line of credit which were also fully available as of June 30, 2004.  At June 30, 2004, $20.0 million was available under the Company’s $125.0 million receivables facility.

 

18



 

The following table quantifies certain contractual cash obligations and commercial commitments at June 30, 2004:

 

In thousands

 

Total

 

Remaining
in 2004

 

2005

 

2006

 

2007

 

2008

 

Thereafter

 

Short-term credit lines and long-term debt

 

$

290,867

 

$

7,028

 

$

1,071

 

$

532

 

$

150,255

 

$

112,984

 

$

18,997

 

Interest on long-term debt (1)

 

220,206

 

$

11,425

 

$

23,163

 

$

23,592

 

$

15,052

 

$

9,533

 

$

137,441

 

Noncancellable operating leases

 

66,184

 

7,956

 

12,588

 

10,551

 

9,107

 

7,565

 

18,417

 

Purchase obligations

 

3,506

 

3,506

 

 

 

 

 

 

Total Commitments

 

$

580,763

 

$

29,915

 

$

36,822

 

$

34,675

 

$

174,414

 

$

130,082

 

$

174,855

 

 


(1) Future expected interest payments are calculated based on the stated rate for fixed rate debt and the effective interest rate as of June 30, 2004 for variable rate debt.

 

The above table does not include $104.0 million of other long-term liabilities.  Other long-term liabilities consist primarily of pension, post-retirement, deferred income tax and warranty obligations.  Due to factors such as return on plan assets, disbursements, contributions, and timing of warranty claims, it is not estimable when these will become due.

 

The Company has entered into long-term purchase agreements for certain key raw materials expiring December 31, 2004.  Commitments are variable based on changes in commodity price indices.  Based on pricing in effect at June 30, 2004, commitments under these agreements total approximately $3.5 million.

 

At June 30, 2004, letters of credit amounting to $39.3 million were outstanding, primarily to provide security under insurance arrangements and certain borrowings.

 

The Company has financial guarantee lines in place for certain of its operations in Asia and Europe to facilitate working capital needs, customer performance and payment and warranty obligations.  At June 30, 2004, the Company had issued guarantees of $16.1 million, of which $9.2 million represents amounts recorded in current liabilities.  The fair value of these guarantees is estimated to equal the amount of the guarantees at June 30, 2004, due to their short-term nature.

 

The Company previously disclosed in its financial statements for the year ended December 31, 2003, that it expected to contribute $8.1 million to $14.1 million to its pension plans in 2004, contingent on congressional pension funding relief.  As of June 30, 2004, contributions of $1.7 million had been made.  In April, 2004, the Pension Funding Equity Act of 2004 was signed into law.  Based on this act, the Company currently expects total contributions to fund its pension plan obligations will approximate $8.3 million in 2004.  The Company has contributed $4.5 million in the form of Company stock to its defined contribution plans in the first half of 2004.  Full year contributions are expected to approximate $9.0 million.

 

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

 

Total backlog from continuing operations at June 30, 2004 of $403.2 million was 31% above $307.2 million as of June 30, 2003.  Most segments, especially General Industry and Construction Materials, reported higher backlog positions in June 2004 as compared to June 2003.  Approximately 38% or $36.8 million of the increase from June 30, 2003 was in the General Industry segment and was primarily a result of a $70.0 million order received at Carlisle Process Systems in December 2003 for a new cheese and whey production facility in New Mexico.  Due to the nature of the orders at Carlisle Process Systems, backlog can include capital equipment orders for a period of twelve to twenty-four months.  As compared to March 31, 2004, backlog decreased $23.9 million as a result of order settlements in the General Industry segment and the seasonality of orders.

 

19



 

The Company defines backlog as open orders, which may be shipped within a range of a few days to two years.  Backlog is dependant on market conditions, which vary greatly between industries and throughout the year.  While management utilizes this measurement to monitor and plan future operations, its variant nature is considered in conjunction with other operational and market conditions.

 

Discontinued Operations and Assets Held for Sale

 

As of June 30, 2004, in ongoing efforts to streamline its businesses, the Company identified three operations it plans to sell. These operations include the Trenton, South Carolina operation of Carlisle Tire & Wheel Company in the Industrial Components segment, the rubber operations of Carlisle Engineered Products in the Automotive Components segment, and the pottery business of Carlisle FoodService in the General Industry segment.  Carlisle is actively marketing these operations and conducting other actions required to complete the sale.  The Company expects the sale of these operations to be completed no later than June 30, 2005.  All three operations met the criteria in accordance with Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment of Disposal of Long-Lived Assets”. Total assets held for sale by segment are as follows:

 

In thousands

 

June 30,
2004

 

December 31,
2003

 

Assets held for sale by segment:

 

 

 

 

 

Industrial Components

 

$

5,343

 

$

5,133

 

Automotive Components

 

5,621

 

5,502

 

General Industry

 

3,214

 

3,975

 

Total assets held for sale

 

$

14,178

 

$

14,610

 

 

The major classes of assets and liabilities held for sale included in the Company’s Condensed Consolidated Balance Sheet are as follows:

 

In thousands

 

June 30,
2004

 

December 31,
2003

 

Assets held for sale:

 

 

 

 

 

Accounts receivable

 

$

4,353

 

$

5,295

 

Inventory

 

4,288

 

3,985

 

Prepaid expenses and other current assets

 

430

 

316

 

Total current assets held for sale

 

9,071

 

9,596

 

Property, plant and equipment, net

 

5,107

 

5,014

 

Total assets held for sale

 

$

14,178

 

$

14,610

 

Liabilities associated with assets held for sale

 

 

 

 

 

Accounts payable

 

$

1,901

 

$

1,622

 

Accrued expenses

 

927

 

876

 

Total liabilities associated with assets held for sale

 

$

2,828

 

$

2,498

 

 

20



 

Net sales and EBIT from discontinued operations by segment were as follows:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

In thousands

 

2004

 

2003

 

2004

 

2003

 

Net sales:

 

 

 

 

 

 

 

 

 

Industrial Components

 

$

2,185

 

$

2,484

 

$

5,773

 

$

4,374

 

Automotive Components

 

4,733

 

5,561

 

9,600

 

12,019

 

General Industry

 

438

 

574

 

845

 

915

 

Net sales from discontinued operations

 

$

7,356

 

$

8,619

 

$

16,218

 

$

17,308

 

Earnings (loss) before interest and income taxes:

 

 

 

 

 

 

 

 

 

Industrial Components

 

$

(2,071

)

$

115

 

$

(3,263

)

$

106

 

Automotive Components

 

(142

)

137

 

(138

)

697

 

General Industry

 

(526

)

(625

)

(1,178

)

(1,216

)

EBIT from discontinued operations

 

$

(2,739

)

$

(373

)

$

(4,579

)

$

(413

)

 

Included in EBIT for the three and six months ended June 30, 2004 is a $0.5 million write down to fair value of the assets held for sale in the Industrial Components segment.

 

Exit and Disposal Activities

 

The following table represents the effects of exit and disposal activities not related to discontinued operations on the Company’s Condensed Consolidated Statements of Earnings:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

In thousands

 

2004

 

2003

 

2004

 

2003

 

Cost of goods sold

 

$

371

 

$

1,092

 

$

1,101

 

$

1,222

 

Selling and administrative expenses

 

117

 

476

 

316

 

680

 

Total exit and disposal

 

$

488

 

$

1,568

 

$

1,417

 

$

1,902

 

 

Exit and disposal activities by type of charge were as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

In thousands

 

2004

 

2003

 

2004

 

2003

 

Termination benefits

 

$

131

 

$

1,239

 

$

251

 

$

1,573

 

Contract termination costs

 

120

 

279

 

219

 

279

 

Other associated costs*

 

237

 

50

 

947

 

50

 

Total exit and disposal activities

 

$

488

 

$

1,568

 

$

1,417

 

$

1,902

 

 


* Other associated costs primarily relate to relocation of employees and equipment.

 

No significant liabilities were initially established, nor were any significant liabilities remaining as of June 30, 2004 related to these activities.

 

Exit and disposal activities by segment were as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

In thousands

 

2004

 

2003

 

2004

 

2003

 

Total by segment

 

 

 

 

 

 

 

 

 

Industrial Components

 

$

66

 

$

199

 

$

189

 

$

318

 

Automotive Components

 

280

 

 

524

 

 

Specialty Products

 

37

 

46

 

97

 

172

 

General Industry

 

105

 

1,323

 

607

 

1,412

 

Total exit and disposal activities

 

$

488

 

$

1,568

 

$

1,417

 

$

1,902

 

 

21



 

Industrial Components:

 

Exit and disposal activities in the Industrial Components segment relate to the consolidation of the management teams of Carlisle Tire & Wheel Company and Carlisle Power Transmission.  Total expenses to be incurred with this project are expected to approximate $1.0 million. Since these activities were initiated in January 2003, $0.9 million has been expensed; $0.7 million occurring in 2003 and $0.2 million in the first half of 2004, of which $0.1 million occurred in the second quarter of 2004.  Activities under this plan involve employee terminations and relocation.  To date, termination benefits in the amount of $0.7 million and relocation costs of $0.2 million have been paid.  The Company estimates it will spend an additional $0.1 million before year-end primarily related to relocation costs.  The Company has already begun to realize cost savings as a result of this consolidation.  Annual savings are expected to approximate $0.4 million, primarily as a result of the reduction of administrative staff, beginning in 2005.

 

Automotive Components:

 

Exit and disposal activities in the Automotive Components segment were related to the Carlisle Engineered Products closure of its Erie-Bundy Park, Pennsylvania facility.  These activities were initiated in the third quarter of 2003 in efforts to cut costs and gain efficiencies by relocating the equipment to other locations.  The total cost of these activities is estimated to be $4.2 million.  To date, $4.1 million has been incurred relating to these activities; $3.6 million occurring in 2003 and $0.5 million in the first six months of 2004, of which $0.3 million occurred in the second quarter of 2004.  Of the total amount expensed to date, $1.9 million relates to termination benefits paid and $0.8 million resulted from fixed asset write-downs.  The remaining $1.4 million relates primarily to the relocation of equipment and inspection fees related to products manufactured by relocated equipment.  The Company expects the remaining activities to be completed by year-end at an additional cost of $0.1 million.   The Company expects to save approximately $2.2 million annually in lower production costs.

 

Specialty Products:

 

Exit and disposal activities in 2004 within the Specialty Products segment relate primarily to grievances associated with the closure of the Company’s Ridgeway, Pennsylvania facility which closed in the first quarter of 2002.  Other activities in 2004 included the closure of a testing facility and costs associated with the sale of its spring brake business in December 2003.  The Company believes these activities to be complete and does not expect to incur any additional costs.  Exit and disposal activities in the three and six months ended June 30, 2003 relate primarily to termination benefits paid associated with the consolidation of the management teams of Carlisle Industrial Brake and Friction and Carlisle Motion Control.  As a result of this reorganization, the Company estimates its savings at approximately $0.5 million annually.

 

General Industry:

 

Exit and disposal activities in General Industry primarily relate to the consolidation of the Flo-Pac operations into Carlisle FoodService following the May 2003 acquisition.  This plan included the sale of property acquired, the termination of employees, and the relocation of equipment and employees to other facilities.  The total cost incurred was $1.8 million.  Of this amount, $0.9 million has been recorded as goodwill in accordance with Emerging Issues Task Force (“EITF”) 95-3, Recognition of Liabilities in Connection with a Business Combination.  Cost not applicable to EITF 95-3 associated with these activities was $0.9 million, the majority of which related to relocation costs and severance of employees at existing locations.  As of June 30, 2004, the Company had completed these activities.

 

Exit and disposal activities of $1.4 million in the first half of 2003 in General Industry related to the consolidation of operations within the Company’s life science businesses and the shut down of a Tensolite facility in Mexico as well as additional costs associated with the closure of its Vermont facility which occurred in 2001.  The majority of these costs related to termination benefits of $1.1 million.  Costs associated with the termination of a lease in Vermont accounted primarily for the remaining $0.3 million The company estimates its savings at approximately $1.1 million annually from the shut down of the Mexico facility and $0.6 million annually from the consolidation of its life science businesses.

 

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

 

New Accounting Pronouncements

 

The adoption of new accounting pronouncements in the first quarter 2004 did not have a material impact on the Company’s statement of earnings or financial position. The pronouncements included: FASB Interpretation No. 46(R) (“FIN 46R”), Consolidation of Variable Interest Entities. This interpretation addresses the consolidation of Variable Interest Entities (“VIE”) as defined by FIN 46R.  The Company’s adoption of this pronouncement in the first quarter of 2004 did not have an impact on its statement of earnings or financial position.

 

In May 2004, the FASB issued FASB Staff Position (“FSP”) No. 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.  In December 2003, the President signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”).  The Act provides subsidies to companies that offer prescription drug benefits that are at least actuarially equivalent to Medicare Part D.   FSP No. 106-2 requires companies to account for the effects of the Act on its accumulated postretirement benefit obligation either retrospectively to the date the Act was enacted or prospectively from the date of adoption depending on whether the effects of the Act are significant.  The Company has determined the benefits provided under its plan are not actuarially equivalent to Medicare Part D, thus the adoption of FSP 106-2 is not expected to have a material impact on its financial statements.

 

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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 net income or to lower its cost of capital.  As of June 30, 2004, the Company had in place interest rate swap agreements with a total notional amount of $75.0 million, 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.  Carlisle monitors this risk, but at June 30, 2004 had no translation risk hedges in place.  Overall, currency valuation risk is considered minimal; however, as of June 30, 2004 the Company did have currency hedges in place with a total notional amount of $6.0 million for the purpose of hedging cash flow risk associated with certain customer payment schedules.  Less than 12% of the Company’s revenues for the six months ended June 30, 2004 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 June 30, 2004, the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures are effective.

 

(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 4.

 

Submission of matters to a vote of security holders

 

 

 

(a)

The Company’s 2004 Annual Meeting of Shareholders was held on April 20, 2004.

 

 

 

 

(b)

At the 2004 Annual Meeting of Shareholders, the election of three directors were approved as follows:

 

 

 

 

 

Director

 

For

 

Against

 

Withheld

 

Non-Vote

 

 

 

Donald G. Calder

 

29,799,372

 

 

2,199,910

 

 

 

 

Robin S. Callahan

 

29,850,078

 

 

2,149,203

 

 

 

 

Eriberto R. Scocimara

 

31,484,044

 

 

515,237

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(c)

At the 2004 Annual Meeting of Shareholders, a proposal to amend and restate the Company’s Executive Incentive Program was approved as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proposal

 

For

 

Against

 

Withheld

 

Non-Vote

 

 

 

Amend and Restate Executive Incentive Program

 

24,772,354

 

2,803,029

 

373,211

 

4,050,687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(d)

At the 2004 Annual Meeting of Shareholders, a proposal to adopt the Company’s Senior Management Incentive Compensation Plan was approved as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Proposal

 

For

 

Against

 

Withheld

 

Non-Vote

 

 

Adopt Senior Management Incentive Compensation Plan

 

27,969,857

 

3,621,662

 

407,762

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 6.

Exhibits and Reports on Form 8-K

 

 

 

 

 

(a)

Exhibits applicable to the filing of this report are as follows:

 

 

 

 

 

 

(10.1)

Amended and Restated Executive Incentive Program filed with the Company’s definitive Proxy Statement dated March 11, 2004 and incorporated herein by reference

 

 

 

 

 

 

(10.2)

Senior Management Incentive Compensation Plan filed with the Company’s definitive Proxy Statement dated March 11, 2004 and incorporated herein by reference

 

 

 

 

 

 

(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 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

(c)

Report on Form 8-K:

 

 

On April 15, 2004, the Company furnished to the Commission on Form 8-K the Company’s press release reporting earnings for the quarter ended March 31, 2004.

 

25



 

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:  August 04, 2004

By:

/s/ Carol P. Lowe

 

 

Name: Carol P. Lowe

 

Title: Vice President and Chief Financial Officer

 

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