UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1998 -------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 (I.R.S. employer incorporation or organization identification no.) 250 South Clinton Street, Suite 201, Syracuse, New York 13202-1258 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (315) 474-2500 ----------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- Common stock, $1 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Indicate by check mark whether the 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 X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of voting common stock held by non-affiliates at February 24, 1999 $1,161,579,144 -------------- Shares of common stock outstanding at February 24, 1999 30,190,871 -------------- Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders on April 20, 1999 are incorporated by reference in Part III.
Part I Item 1. Business. Carlisle Companies Incorporated was incorporated in 1986 in Delaware as a holding company for Carlisle Corporation, whose operations began in 1917, and its wholly-owned subsidiaries. Unless the context of this report otherwise requires, the words "Company" and "registrant" refer to Carlisle Companies Incorporated and its wholly-owned subsidiaries and any divisions or subsidiaries they may have. The Company's diversified manufacturing operations are conducted through its subsidiaries. The Company manufactures and distributes a wide variety of products across a broad range of industries, including, among others, roofing, construction, trucking, automotive, foodservice, industrial equipment, lawn and garden and aircraft manufacturing. The Company markets its products both as a component supplier to original equipment manufacturers ("OEMs"), as well as directly to end users. Sales of the Company's products are reported by distribution to the following four industry segments: Construction Materials, Industrial Components, Automotive Components and All Other. The principal products, services and markets or customers served in each of the industry segments include: Construction Materials. The principal products of this segment are rubber, plastic and FleeceBACK(TM) sheeting used predominantly on non-residential flat roofs and related roofing accessories, including flashings, fasteners, sealing tapes, coatings and waterproofings. The markets served include new construction, re-roofing and maintenance of low slope roofs, water containment, HVAC sealants, and coatings and waterproofings. Industrial Components. The principal products of this segment are small bias-ply rubber tires, stamped and roll-formed wheels, heavy duty friction and braking systems for truck and off-highway equipment, high grade aerospace wire and speciality electronic cable. Customers include golf car manufacturers, power equipment manufacturers, boat and utility trailer manufacturers, truck OEMs, heavy equipment and truck dealers and aftermarket distributors, aerospace OEMs, and electronic equipment manufacturers. Automotive Components. The principal products of this segment are highly engineered rubber and plastic components for Tier I suppliers and other manufacturers in the automotive market. All Other. The principal products of this segment include commercial and institutional plastic foodservice permanentware and catering equipment, fiber glass and composite material trays and dishes, ceramic tableware, specialty rubber and plastic cleaning brushes, stainless steel processing equipment and their related process control systems, specialty trailers and standard and custom-built high payload trailers and dump bodies, self-contained ISO perishable cargo shipping containers and perishable cargo container leasing. Customers include food service distributors, 2
restaurants, dairy product processors and distributors, heavy equipment and truck dealers, shipping lines and commercial haulers. The amount of total revenue contributed by the products or services in each industry segment for each of the last three fiscal years is as follows (in millions): 1998 1997 1996 ---- ---- ---- Construction Materials ............ $ 371.5 $ 316.6 $ 318.0 Industrial Components ............. 510.8 396.9 320.7 Automotive Components ............. 272.0 241.3 124.1 All Other ......................... 363.2 305.7 254.7 -------- -------- -------- Total ............................. $1,517.5 $1,260.5 $1,017.5 In each industry segment, the Company's products are generally distributed either by Company-employed field sales personnel or manufacturers' representatives. In a few instances, distribution is through dealers and independent distributors. Since many of the Company's customers are OEMs, marketing methods and certain operations are designed to accommodate the requirements of a small group of high-volume producer-customers. In each industry segment, satisfactory supplies of raw materials and adequate sources of energy essential for operation of the Company's businesses have generally been available to date. Uncertain economic conditions, however, could cause shortages of some basic materials, particularly those which are petroleum derivatives (plastic resins, synthetic rubber, etc.) and used in the Construction Materials, Industrial Components, Automotive Components and All Other industry segments. The Company believes that energy sources are secure and sufficient quantities of raw materials can be obtained through normal sources to avoid interruption of production in 1999. The Company owns or holds the right to use a variety of patents, trademarks, licenses, inventions, trade secrets and other intellectual property rights which, in the aggregate, are considered significant to the successful conduct of each of the Company's four industry segments. The Company has adopted a variety of measures and programs to ensure the continued validity and enforceability of its various intellectual property rights. In each industry segment, the Company is engaged in businesses, and its products serve markets, that generally are highly competitive. Product lines serving most markets tend to be price competitive and all lines also compete on service and product performance. Except for Automotive Components, no industry segment is dependent upon a single customer, or a few customers, the loss of which would have a material adverse effect on the segment. Sales to its largest customer represented 22% of total Automotive Components segment sales in 1998. Order Backlog was $262.1 million at December 31, 1998, and $281.6 million at December 31, 1997, and $200.8 million at December 31, 1996. 3
Research and Development expenses increased to $16.2 million in 1998, compared to $15.8 million in 1997, and $11.9 million in 1996. The 1997 increase is primarily attributable to product development for the Automotive Components segment. The Company employs approximately 9,500 persons on a full-time basis. The businesses of the Construction Materials, Automotive Components and All Other industry segments are generally not seasonal in nature. Within the Industrial Components segment, distribution of lawn and garden products generally reach peak sales volume during the first two quarters of the year. The businesses of all four segments are affected by the state of the general economy. In 1998, the Company completed the following acquisitions. In January, the Company acquired Hardcast Europe, a Dutch manufacturer of adhesive and sealant products for the construction market. In March, the Company acquired the assets of Vermont Electromagnetics Corporation and in September the Company acquired the assets of Quality Microwave Interconnects, Inc., both manufacturers of specialty coaxial cable assemblies and connectors serving the computer, medical, electronics and telecommunications markets. In October, the Company acquired Industrial Tire Products, Inc., a distributor of industrial and recreational tire and wheel assemblies. In addition, in January, 1998 the Company completed a joint venture in the United Kingdom with Lander Plastics, a British manufacturer of plastic automotive components. In each industry segment, the Company's compliance with Federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment is not anticipated to have a material effect upon the capital expenditures, earnings or the financial and competitive position of the Company or its divisions and subsidiaries. Information on the Company's revenues, earnings and identifiable assets by industry segments for the last three fiscal years is as follows: 4
(In Thousands) 1998 1997 1996 --------- --------- --------- Sales to Unaffiliated Customers(1) Construction Materials $ 371,547 $ 316,597 $ 318,036 Industrial Components 510,780 396,941 320,708 Automotive Components 271,955 241,283 124,148 All Other 363,212 305,729 254,603 Earnings before interest and income taxes Construction Materials $ 53,030 $ 49,120 $ 42,781 Industrial Components 61,261 47,509 38,821 Automotive Components 17,638 18,633 9,428 All Other 38,166 30,142 20,307 Corporate(2) (10,110) (13,290) (10,901) Identifiable Assets Construction Materials $ 218,045 $ 174,157 $ 180,245 Industrial Components 319,519 278,458 194,038 Automotive Components 213,900 178,206 157,776 All Other 262,393 215,777 192,250 Corporate(3) 8,995 14,618 18,154 (1) Intersegment sales or transfers are not material. (2) Includes general corporate and idle property expenses. (3) Consists primarily of cash and cash equivalents, facilities, andother invested assets. 5
Item 2. Properties The following table sets forth certain information with respect to the principal properties and plants of the Company as of December 31, 1998: <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------- O - Office Principal Product M - Manufacturing Owned Floor Space Approximate Approximate or Activity W - Warehousing Location or Leased (sq. ft.) Acreage - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Corporate headquarters O Syracuse, NY Leased to 2005 15,500 - O,M,W Zevenaar, Holland Owned 26,000 1 --------- 41,500 - ------------------------------------------------------------------------------------------------------------------ Elastomeric membranes O,M,W Carlisle, PA Owned 557,474 79 and related roofing O,M,W Greenville, IL Owned 165,430 35 products O,M,W Stafford, TX Owned 108,500 9 O,M,W Sapulpa, OK Owned 34,550 3 O,M,W Wylie, TX Owned 44,000 6 O,M,W Senatobia, MS Owned 54,500 - O Enfield, CT Leased to 1999 2,170 - O Akron, OH Leased to 1999 9,600 - O Fairfield, CA Leased to 1999 500 - W Greenville, IL Leased to 1999 75,500 - W Carlisle, PA Leased to 1999 49,600 - O,W Carollton, TX Leased to 1999 26,878 - W Herington, Kansas Leased to 1999 32,000 - O,W Sewickley, PA Leased to 2000 27,852 - O Chicago, IL Leased to 2000 3,000 - O,M,W Fontana, CA Leased to 2001 72,587 - O Kennesaw, GA Leased to 2002 10,720 - --------- --- 1,274,861 132 --------- --- - ------------------------------------------------------------------------------------------------------------------- Small pneumatic tires O,M,W Carlisle, PA Owned 640,609 29 and tubes; stamped and O,M,W Aiken, SC Owned 420,500 23 roll-formed wheels O,M Point Fortin, Owned 167,604 - Trinidad, W.I. O,M,W Long Beach, CA Owned 60,000 3 M Milwaukee, WI Owned 99,000 - O,M,W Ontario, CA Owned 60,000 - O,M,W Lenexa, KS Leased to 2001 112,900 6 W Trenton, SC Leased to 1999 176,450 - W Lakeland, FL Leased to 1999 15,000 - W Springfield, TN Leased to 1999 26,000 - W Spokane, WA Leased to 2000 16,000 - M Stow, OH Leased to 2000 20,000 5 O,W Mansfield, TX Leased to 2001 38,160 - W Perrysburg, OH Leased to 2002 64,300 - W Villa Rica, GA Leased to 2002 43,000 - W Winnepeg, Manitoba Leased to 2002 48,800 - W Saskatoon, Saskatchewan Leased to 2002 30,200 - W Carson, CA Leased to 2003 84,044 - O,M,W Ontario, CA Leased to 2003 87,143 - W Waterloo, Ontario Leased to 2007 69,000 - --------- --- 2,278,710 66 --------- --- - ------------------------------------------------------------------------------------------------------------------- Molded plastics products M Oklahoma City, OK Owned 146,985 8 for commercial food O,M,W Fredonia, WI Owned 192,500 12 service; ceramic tableware O,M Zanesville, OH Owned 125,600 16 O,M,W Sparta, WI Owned 40,000 3 W Oklahoma City, OK Leased to 1999 253,760 - O Atlanta, GA Leased to 1999 1,610 - O Des Plaines, IL Leased to 2001 1,462 - O,W Charlottesville, NC Leased to 2009 210,560 - --------- --- 972,477 39 --------- --- - ------------------------------------------------------------------------------------------------------------------ Custom-manufactured M Middlefield, OH Owned 200,581 28 rubber and plastics M Crestline, OH Owned 172,997 40 products, including M Canton, OH Owned 87,845 17 precision-molded engine M Lake City, PA Owned 100,000 30 components </TABLE> 6
<TABLE> <S> <C> <C> <C> <C> <C> and blow-molded M Trenton, SC Owned 67,695 10 bumper beams M Belleville, MI Owned 46,000 5 M Erie, PA Owned 95,800 15 M Lapeer, MI Owned 96,300 6 M Tuscaloosa, AL Owned 67,376 15 W Mayville, MI Leased to 1998 40,000 - O Chardon, OH Leased to 1999 8,033 - M Canton, OH Leased to 2000 31,840 - M,W Ashtabula, OH Leased to 2000 30,000 - O Livonia, MI Leased to 2000 2,673 - M,W Erie, PA Leased to 2004 142,000 - --------- --- 1,189,140 166 --------- --- - ------------------------------------------------------------------------------------------------------------------ Brake lining for trucks O,M Ridgway, PA Owned 117,300 7 and trailers; brakes and O,M Fredericksburg, VA Owned 90,042 27 actuation systems; O Charlottesville,VA Owned 25,000 4 friction products O,M,W Logansport, IN Owned 112,200 26 O,M Bloomington, IN Owned 250,000 19 W Lancaster, PA Leased to 2000 39,000 2 M,W Stockton, CA Leased to 2000 27,600 2 O,M Brantford, Ont. Leased to 2002 40,000 2 M,W Pittsburg, KS Leased to 2004 30,000 3 M Nampa, ID Leased to 2007 106,400 5 --------- --- 837,542 97 --------- --- - ------------------------------------------------------------------------------------------------------------------ Specialized lowbed trailers O,M Mitchell, SD Owned 240,250 27 for construction and O,M Brookville, PA Owned 160,000 22 commercial markets O,M Green Pond, AL Owned 49,860 14 M,W Mitchell, SD Leased to 2003 14,800 - --------- --- 464,910 63 --------- --- - ------------------------------------------------------------------------------------------------------------------ Liquid transport tanks and O,M,W New Lisbon, WI Owned 252,850 31 in-plant processing O,M,W Elroy, WI Owned 84,300 7 equipment O,M,W Winsted, MN Owned 390,894 7 O,M,W Tavares, FL Leased to 1999 73,967 12 --------- --- 802,011 57 --------- --- - ------------------------------------------------------------------------------------------------------------------ High- and medium- O,M,W St. Augustine, FL Owned 166,750 17 temperature insulated O,M Wilmington, MA Leased to 2000 16,500 - wire and cable O,M Williston, VA Leased to 1999 27,000 - --------- --- 210,250 17 --------- --- - ------------------------------------------------------------------------------------------------------------------ Refrigerated marine O,M,W Green Cove Springs, Leased to 2004 110,000 10 containers FL - ------------------------------------------------------------------------------------------------------------------ 8,181,401 648 ========= === </TABLE> Total plant space of 8,181,401 sq. ft. is used for: Owned Leased Total ----- ------ ----- Office 461,938 156,090 618,028 Manufacturing 3,960,555 457,601 4,418,156 Warehousing 1,274,849 1,723,118 2,997,967 Other 119,950 27,300 147,250 --------- --------- --------- 5,817,292 2,364,109 8,181,401 ========= ========= ========= As of December 31, 1998, an additional 655,825 sq. ft. is leased by the Company, under various agreements, principally for warehousing and distribution. All of the manufacturing and most of the office and warehousing space is of masonry and steel construction and most are equipped with automatic sprinkler systems. Approximately one-third of the owned office, manufacturing and warehousing space has been constructed within the last twenty years; the remaining buildings are 7
from twenty to seventy years old and have been maintained in good condition. 8
Item 3. Legal Proceedings As of December 31, 1998, other than ordinary routine litigation incidental to the business, which is being handled in the ordinary course of business, neither the Company nor any of its subsidiaries is a party to, nor are any of their properties subject to any material pending legal proceedings, nor are any such proceedings known to be contemplated by governmental authorities. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. 9
Part II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters. The Company's common stock is traded on the New York Stock Exchange. As of December 31, 1998, there were 2,443 shareholders of record. Quarterly cash dividends paid and the high and low prices of the Company's stock on the New York Stock Exchange in 1998 and 1997 were as follows: First Second Third Fourth ----- ------ ----- ------ 1998 Dividends per share $.1400 $.1400 $.1600 $.1600 Stock Price High $51 1/4 $53 1/16 $47 15/16 $51 5/8 Low $40 1/16 $39 3/8 $35 1/2 $32 11/16 1997 Dividends per share $.1225 $.1225 $.1400 $.1400 Stock Price High $35 5/8 $37 $46 7/8 $46 3/4 Low $29 1/4 $27 $34 3/4 $39 5/8 10
Item 6. Selected Financial Data. <TABLE> <CAPTION> (In Thousands except per share data) 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Summary Of Operations Net Sales $1,517,494 1,260,550 1,017,495 822,534 692,650 Net Earnings $ 84,866 70,666 55,680 44,081 35,568 Basic Earnings per share(1)(2) $ 2.81 2.34 1.84 1.43 1.17 Diluted Earnings per share(1)(2) $ 2.77 2.28 1.80 1.41 1.15 Financial Position Total assets $1,022,852 861,216 742,463 542,423 485,283 Long-term debt $ 273,521 209,642 191,167 72,725 69,148 Other Data Dividends paid $ 18,105 15,868 14,129 12,928 11,605 Per share(1) $ .600 0.525 0.465 0.420 0.380 </TABLE> (1) All share and per share amounts have been restated to reflect the two-for-one stock split completed on January 15, 1997. (2) Earnings per share amounts prior to 1997 have been restated to comply with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." See the Notes to Consolidated Financial Statements. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Carlisle Companies Incorporated sales grew to $1.52 billion in 1998, up 20%, or $256.9 million, from 1997 sales of $1.26 billion. This increase is primarily due to the expansion of product lines and market shares of Carlisle's core businesses, as well as the integration of several small, complementary acquisitions made in 1997 and 1998. In 1998, net earnings kept pace with these increased sales, reaching $84.9 million, or $2.77 per share of common stock, a 20% increase over 1997 net earnings of $70.7 million, or $2.28 per share. In 1997, sales increased 24%, or $243.1 million, due to continued growth in core businesses, as well as acquisitions made in 1997 and the full-year effect of acquisitions made in 1996. Net earnings increased 27%, or $15.0 million, in 1997 reflecting both the increased sales levels and cost reductions. During 1998, we acquired the following companies that fit well with our existing businesses: Vermont Electromagnetics Corporation and Quality Microwave Interconnects, Inc., both of which are manufacturers of specialty cable assemblies and connectors that will open new opportunities for the growth of our wire and cable business, and Industrial Tire Products, Inc., a distributor of industrial and recreational tire and wheel assemblies, which will help to extend our 11
tire and wheel products to the replacement market. Additionally, in January 1998, we completed a joint venture in the U.K. with Lander Plastics, a British manufacturer of plastic automotive components, and the acquisition of Hardcast Europe, a Dutch manufacturer of adhesive and sealant products for the construction market. In 1997, we completed a record number of acquisitions. These acquisitions include several bias-ply tire and wheel manufacturing and distributing companies, Overland Brakes Incorporated, a spring-brake manufacturing company, complementing our heavy duty friction products and Zimmerman Brush Co., a privately owned manufacturer of brushes for the janitorial and sanitation market. Operating Segments In accordance with the requirements of the recently issued Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information," we have recast our businesses into three identifiable segments and a fourth classification of All Other. The Construction Materials segment consists of the manufacturing of membranes and accessories necessary for rubber (EPDM) and plastic (TPO) roofing systems for non-residential flat roofs. Also, included in this segment is the manufacture and distribution of coatings and waterproofing products for construction markets. The Industrial Components segment includes businesses that manufacture and distribute tire and wheel assemblies, heavy duty friction and braking products and high-performance wire/cable and cable assemblies. The Automotive Components segment is engaged in manufacturing highly engineered plastic and rubber components for Tier I suppliers and other manufacturers in the automotive industry. Several businesses, which altogether have not met the guidelines to be identified as a separate segment, have been aggregated under an All Other (General Industry) category. Activities in this category include the manufacturing and distributing of specialty trailers and dump bodies, stainless steel in-plant processing equipment, institutional plastic foodservice permanentware, and the manufacturing and leasing of intermodal perishable cargo shipping containers. Earnings before interest and income taxes (EBIT) herein referred to as "earnings," is used to measure the profitability of the business segments. Following is a general discussion and analysis of the 1998 and 1997 sales and profitability of these business segments. Construction Materials Segment sales grew by 17% in 1998 to $371.5 million, an increase of $54.9 million over 1997 sales of $316.6 million. This growth is due to increasing market share, as well as increased sales of insulation products. In 1997, segment sales declined 0.4% from 1996 sales of $318.0 million due to the effect of divesting our metal roofing business offsetting slightly increased sales in the ongoing business. 12
Earnings were up 8% in 1998 to $53.0 million, reflecting the increased sales levels, partially offset by increased raw material costs, competitive pricing and a change in product mix, which included a higher level of lower margin insulation sales. The 1997 earnings of $49.1 million in this segment were up 15% over 1996 earnings of $42.8 million, reflecting improving margins, improved warranty results and the elimination of losses due to the divestiture of the metal roofing company. Industrial Components Segment sales reached $510.8 million in 1998, a 29%, or $113.8 million, increase over 1997 sales of $396.9 million. This increase is primarily due to the internal growth of tire and wheel assemblies, especially to the aftermarket; the continued integration of tire and wheel distribution companies acquired in 1997; increased shipments of high-quality wire to aircraft manufacturers; and the acquisition of two high-speed data cable and connector companies. Sales of heavy duty friction and braking products increased just 3% in 1998 after robust gains in 1997. In 1997, sales in this segment climbed 24%, or $76.2 million over the 1996 sales of $320.7 million, reflecting increased shipments of aircraft wire, increased market penetration of our tire and wheel products, as well as sales gains of heavy duty friction materials to the aftermarket. Earnings increased 29%, or $13.8 million, to $61.3 million in 1998. This increase generally follows the increased level of segment sales. In 1997, this segment earned $47.5 million, growing 22%, or $8.7 million, from the 1996 level of $38.8 million. This earnings growth is consistent with the increase in sales, offset by costs associated with integrating tire and wheel manufacturers and distributors acquired in 1996 and 1995. Automotive Components In 1998, segment sales jumped 13% to $272.0 million, a $30.7 million increase over 1997 sales of $241.3 million. This increase is due to internal growth, which was dampened by the General Motors strike in the summer months. The dramatic increase in 1997 sales of 94%, from $124.1 million, reflects the full-year consolidation of The Engineered Plastics Division of Johnson Controls, acquired in October 1996, to form Carlisle Engineered Products. Earnings of $17.6 million in this segment did not keep pace with sales, falling 5% from the 1997 level of $18.6 million. This decline is due primarily to inefficiencies generated by the rapid ramp-up of production for new programs interrupted by the General Motors strike. Earnings grew 98% in 1997 following the increased sales level in that year. 13
All Other (General Industry) Category Aggregate sales of companies included in this category grew 19%, or $57.5 million, to $363.2 million in 1998. This increase is primarily due to growth in the specialty trailers business and the manufacturing of refrigerated containers for the perishable cargo business. Plastic permanentware, which is manufactured and distributed to the institutional foodservice industry, contributed to this growth, growing its sales by 7% in 1998. In 1997, total sales in this category increased 20% to $305.7 million related to increased sales of specialty trailers to construction markets, the full-year effect of acquisitions in the in-plant processing and ceramic tableware manufacturing businesses made in 1996 and increased direct sales of manufactured refrigerated containers. Aggregate earnings of the businesses in this category grew 27% to $38.2 million in 1998. This growth is due to general increased sales levels, improved manufacturing efficiencies and increased share of the leasing market in our perishable cargo business. In 1997, the earnings of these businesses grew 48% to $30.1 million. This increase is due to the increased level of sales and increased margins due to improved manufacturing processes in the specialty trailer business and especially in the refrigerated container business. In January 1999, we announced the suspension of container manufacturing operations in Green Cove Springs, Florida and the sale, to our partner, of the major portion of our interest in Carlisle Leasing International Company, significantly reducing our activity in the refrigerated container business. Financial Results Gross margin, expressed as a percent of sales, represents the difference between net sales and cost of goods sold. These margins declined from 23.4% of sales in 1996 to 22.7% in 1997 and 21.6% in 1998. This decline largely reflects the competitive marketplace and changing mix in Carlisle's total sales. In 1998, operations with lower gross margins, but also with lower corresponding selling, general and administrative costs, represent greater proportions of total Carlisle sales. Selling and administrative costs, expressed as a percent of sales, declined from 12.6% in 1996 to 11.4% in 1997 and 10.6% in 1998, reflecting both disciplined cost control throughout all operations and the increasing proportion of activities with lower cost structures in Carlisle's overall business. Total costs, which include raw material, manufacturing, selling, general and administrative costs, expressed as a percentage of total sales, remain fairly consistent with 1997 levels, increasing slightly in 1998 to 90.0% of sales, up from 89.9% of sales in 1997. Improvements in 14
total costs, evident throughout Carlisle, were offset by the impact of the GM strike and the change in product mix in the construction materials operations. The 1997 decline from 1996's level of 90.5% percent of sales was due to improved purchasing, manufacturing and distribution of products throughout all Carlisle operations. Interest expense increased to $22.7 million in 1998 from $16.5 million in 1997 and $9.1 million in 1996, due to the increasing level of debt used to finance planned capital expenditures and acquisitions amid slightly lower overall interest rates. Other, net increased to $8.4 million in 1998 due to one-time gains recognized on the sales of various assets, as well as overall improvements in earnings of equity investments. Income taxes, for financial reporting purposes, have remained constant at an effective rate of 39.5% of earnings before tax in 1998, 1997 and 1996, generally reflecting stable Federal and state tax rates. Taxes are discussed more completely in the Notes to Consolidated Financial Statements. Receivables, less allowances, were $225.3 million, an increase of 21.9% over the 1997 level of $184.8 million. The high level of December 1998 sales throughout most of Carlisle's businesses drives this increase. The 1997 level of receivables represents a 16.6% increase over 1996, and is primarily attributable to a higher level of sales, partially offset by an increasing portion of sales from businesses that require a lower investment in receivables, and an ongoing effort to manage receivables at all operations. Inventories, valued primarily by the last-in, first-out (LIFO) method, were $193.6 million at year-end 1998, a 7.4% increase over the 1997 year-end level of $180.3 million. This modest increase is the result of increased capacity at most operations, partially offset by a renewed Company-wide focus on inventory management. The year-end 1997 inventory level increased $43.2 million over 1996 levels, or 31.5%, due primarily to acquisitions made during the year, normal seasonal buildup, strong demand and backlogs at most operations. Capital expenditures totaled $96.0 million in 1998, a significant increase over the 1997 level of $59.5 million. This increase is primarily attributable to investments in injection-molding and blow-molding equipment to meet growth opportunities in Carlisle's automotive components operation. Additionally, other significant projects in 1998 include expanded warehousing and distribution facilities for foodservice products, finished specialty tire and wheel assemblies and EPDM roofing products, increased production capacity of specialty tire and wheel assemblies, specialty trailer products, Tufflite(TM) wire and high-speed data wire and cable assemblies, and plant and equipment to manufacture 15
TPO roofing membranes. In 1997, the major projects include injection-molding and blow-molding equipment, plant and equipment to produce TPO roofing membrane, warehousing for specialty tire and wheel assemblies and EPDM roofing membranes, increased capacity to produce Tufflite(TM) wire and in-plant processing equipment for the food and pharmaceutical industries. Liquidity, Capital Resources and Environmental Cash flows provided by operating activities rose to $96.8 million in 1998, from $83.0 million in 1997. This increase is primarily due to increases in net earnings before depreciation and amortization charges, slightly offset by higher working capital levels. Cash flows from operating activities were $86.0 million in 1996. Cash used in investing activities was $133.0 million; an increase from the 1997 level of $93.2 million, resulting from the increased level of capital expenditures and equity investments, slightly offset by lower acquisition spending. In 1996, the cash used in investing activities was $165.4 million, which includes $133.7 million of acquisition expenditures. The net cash provided by financing activities in 1998 was $38.3 million, which reflects the net increase in debt, after the early payment of higher cost debt, dividend payments and stock repurchases. The net cash provided by financing activities in 1997 was essentially due to increases in debt offset by dividend payments and stock repurchases. Carlisle has a $125.0 million revolving credit facility available for acquisitions and general corporate purposes. In May 1998, Carlisle issued to the public $100.0 million of ten-year bonds at a rate of 6.70%. The net proceeds from these bonds were used to repay amounts outstanding under the revolving credit facility and to fund other needs throughout 1998. The Company's primary sources of liquidity and capital are cash flows from operations and borrowing capacity. Carlisle continues to maintain substantial flexibility to meet anticipated needs for liquidity and capital investment opportunities. Carlisle management recognizes the importance of the Company's responsibilities toward matters of environmental concern. Programs are in place to monitor and test facilities and surrounding environments and, where practical, to recycle materials. Carlisle has not incurred any material charges relating to environmental matters in 1998 or in prior years, and none are currently anticipated. Year 2000 During the last several years, and in the normal course of business, Carlisle has replaced a substantial portion of its older computer software and systems with new systems that are Year 2000 compliant. With respect to the remaining information systems, as well as the Company's embedded technology, the Company has adopted a program (involving both 16
internal personnel and third-party consultants) of (i) assessment, (ii) remediation, and (iii) authentication. At this time, the Company has substantially completed the assessment phase and is pursuing appropriate remedial action for the systems determined to be non-compliant. The authentication phase includes simulated testing in a Year 2000 environment. The estimated cost of the Company's completed and remaining efforts is not expected to exceed $500,000. Carlisle also has a formal communication program with its significant suppliers and large customers and once the assessment phase is completed, the Company will determine what remedial action should be taken (including contingency plans). Carlisle has completed the remediation phase of its program throughout most of its operations, with the remaining operations expected to be completed by mid-1999, and the authentication phase continuing throughout 1999. The Company believes that upon completion of the program, the Year 2000 issue will not pose a significant operational problem for its computer systems. However, there can be no guarantee that the failure of third parties to become Year 2000-ready would not have a material adverse effect on the Company's financial condition or operations. Backlog and Future Outlook Backlog was $262.1 million at December 31, 1998 compared to $281.6 million in 1997. Notwithstanding stronger positions at all major operations within the Company, and especially in the automotive components operation, our backlog decreased 7% due to an unusually high backlog, associated with a large one-time contract, at the container manufacturing operation, at December 31, 1997. Excluding the container contract, backlog in the Company is up a healthy 14%. Our companies continue to implement consistent strategies to grow their businesses both internally and through acquisition. In 1998, Carlisle increased market shares, improved manufacturing processes and targeted new markets with expanded products to complement the Company's strengths. As 1998 closes, we are optimistic about the opportunities waiting for us in 1999. With a strong backlog position, growing markets and a committed organization, we look forward to continued success in 1999. 17
Item 8. Financial Statements and Supplementary Data. Consolidated Statement of Earnings For years ended December 31 (In Thousands except per share data) 1998 1997 1996 ----------- ----------- ----------- Net sales $ 1,517,494 $ 1,260,550 $ 1,017,495 ----------- ----------- ----------- Cost and expenses: Cost of goods sold 1,189,379 974,089 779,797 Selling and administrative expenses 160,366 143,246 128,676 Research and development expenses 16,178 15,824 11,900 ----------- ----------- ----------- 1,365,923 1,133,159 920,373 Other income (deductions): Investment income 2,999 1,172 666 Interest expense (22,715) (16,502) (9,062) Other, net 8,414 4,723 3,314 ----------- ----------- ----------- (11,302) (10,607) (5,082) ----------- ----------- ----------- Earnings before income taxes 140,269 116,784 92,040 Income taxes 55,403 46,118 36,360 Net earnings $ 84,866 $ 70,666 $ 55,680 =========== =========== =========== Average shares outstanding-basic 30,179 30,235 30,281 Basic earnings per share $ 2.81 $ 2.34 $ 1.84 ----------- ----------- ----------- Average shares outstanding-diluted 30,674 $ 31,025 30,953 Diluted earnings per share $ 2.77 $ 2.28 $ 1.80 =========== =========== =========== See accompanying Notes to Consolidated Financial Statements. 18
Consolidated Statement of Shareholders' Equity (In Thousands except per share data) Additional Cost of Common Paid-in Retained Shares in Stock Capital Earnings Treasury ----- ------- -------- -------- Balance at December 31, 1995 $19,665 $ 9,316 $ 314,072 $ (69,796) Net earnings -- -- 55,680 -- Cash dividends -$0.465 per share -- -- (14,129) -- Exercise of stock options & other -- 3,765 -- 3,098 Purchase of 649,966 treasury shares -- -- -- (14,168) ---------------------------------------------- 19,665 13,081 355,623 (80,866) Two-for-one stock split 19,666 (12,601) (7,065) -- ---------------------------------------------- Balance at December 31, 1996 $39,331 $ 480 $ 348,558 $ (80,866) Net earnings -- -- 70,666 -- Cash dividends - $0.525 per share -- -- (15,868) -- Exercise of stock options & other -- 1,350 -- 3,295 Purchase of 550,980 treasury shares -- -- -- (18,110) ---------------------------------------------- Balance at December 31, 1997 $39,331 $ 1,830 $ 403,356 $ (95,681) Net earnings -- -- 84,866 -- Cash dividends - $0.600 per share -- -- (18,105) -- Exercise of stock options & other -- 2,371 -- 3,309 Purchase of 283,598 treasury shares -- -- -- (14,372) ---------------------------------------------- Balance at December 31, 1998 $39,331 $ 4,201 $ 470,117 $(106,744) ---------------------------------------------- See accompanying Notes to Consolidated Financial Statements. 19
Consolidated Balance Sheet As of December 31 (In Thousands except share data) 1998 1997 ------ ------ ASSETS Current assets Cash and cash equivalents $ 3,883 $ 1,732 Receivables, less allowances of $4,864 in 1998 and $5,180 in 1997 225,348 184,796 Inventories 193,650 180,331 Deferred income taxes 26,040 28,462 Prepaid expenses and other 29,604 22,212 ----------- --------- Total current assets 478,525 417,533 ----------- --------- Property, plant and equipment, net 354,769 294,165 ----------- --------- Other assets Patents, goodwill and other intangibles 139,744 121,772 Investments and advances to affiliates 34,892 16,467 Receivables and other assets 14,922 11,279 ----------- --------- Total other assets 189,558 149,518 ----------- --------- $ 1,022,852 $ 861,216 =========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term debt, including current maturities $ 31,241 $ 24,332 Accounts payable 101,859 75,936 Accrued expenses 122,237 125,815 ----------- --------- Total current liabilities 255,337 226,083 ----------- --------- Long-term liabilities Long-term debt 273,521 209,642 Product warranties 75,084 73,715 Other liabilities 12,005 2,940 ----------- --------- Total long-term liabilities 360,610 286,297 ----------- --------- Shareholders' equity Preferred stock, $1 par value. Authorized and unissued 5,000,000 shares Common stock, $1 par value. Authorized 50,000,000 shares; issued 39,330,624 shares 39,331 39,331 Additional paid-in capital 4,201 1,830 Retained earnings 470,117 403,356 Cost of shares in treasury-9,152,167 shares in 1998 and 9,171,915 shares in 1997 (106,744) (95,681) ----------- --------- Total shareholders' equity 406,905 348,836 ----------- --------- $ 1,022,852 $ 861,216 =========== ========= See accompanying Notes to Consolidated Financial Statements. 20
Consolidated Statement of Cash Flows For years ended December 31 (In Thousands) 1998 1997 1996 ------ ------ ------ Operating Activities Net earnings $ 84,866 $ 70,666 $ 55,680 Reconciliation of net earnings to cash flows: Depreciation 37,617 32,477 25,320 Amortization 7,604 6,278 4,438 (Gain)/loss on sales of property, equipment and business (3,156) (993) 216 Changes in assets and liabilities, excluding effects of acquisitions and divestitures: Current and long-term receivables (43,786) (19,659) (13,237) Inventories (10,526) (31,118) (5,837) Accounts payable and accrued expenses 25,450 9,245 16,667 Prepaid, deferred and current income taxes (7,568) 10,887 (4,260) Long-term liabilities 5,217 3,279 4,939 Other 1,086 1,924 2,106 --------- --------- --------- Net cash provided by operating activities 96,804 82,986 86,032 --------- --------- --------- Investing Activities Capital expenditures (95,970) (59,531) (34,990) Acquisitions, net of cash (31,577) (45,380) (133,719) Sales of property, equipment and business 11,344 15,815 3,489 Other (16,761) (4,090) (155) --------- --------- --------- Net cash used in investing activities (132,964 (93,186) (165,375) --------- --------- --------- Financing Activities Net Proceeds from short-term debt 15,827 13,458 -- Proceeds from long-term debt 104,235 150,000 124,358 Reductions of long-term debt (49,274) (125,860) (11,604) Dividends (18,105) (15,868) (14,129) Purchases of treasury shares (14,372) (18,110) (14,168) --------- --------- --------- Net cash provided by financing activities 38,311 3,620 84,457 --------- --------- --------- Change in cash and cash equivalents 2,151 (6,580) 5,114 Cash and cash equivalents Beginning of year 1,732 8,312 3,198 --------- --------- --------- End of year $ 3,883 $ 1,732 $ 8,312 ========= ========= ========= See accompanying Notes to Consolidated Financial Statements. 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Carlisle Companies Incorporated and Subsidiaries SUMMARY OF ACCOUNTING POLICIES Basis of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries. Investments in affiliates where the Company does not have majority control are accounted for under the equity method. Equity income related to such investments is recorded in Other, net. All material intercompany transactions and accounts have been eliminated. Revenue Recognition. The Company recognizes revenues from product sales upon shipment to the customer. The substantial majority of the Company's product sales are to customers in the United States. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents. Debt securities with a remaining maturity of three months or less when acquired are cash equivalents. Cash and cash equivalents are stated at cost, which approximates market value. Inventories. Inventories are valued at lower of cost or market. Cost for inventories is determined for a majority of the Company's inventories by the last-in, first-out (LIFO) method, with the remainder determined by the first-in, first-out (FIFO) method. Property, Plant and Equipment. Property, plant and equipment are stated at cost. Costs allocated to property, plant and equipment of acquired companies are based on estimated fair value at the date of acquisition. Depreciation is principally computed on the straight line basis over the estimated useful lives of the assets. Asset lives are 20 to 40 years for buildings, 5 to 15 years for machinery and equipment and 3 to 10 years for leasehold improvements. Patents, Goodwill and Other Intangibles. Patents and other intangibles, recorded at cost, amounted to $4.3 million and $5.3 million at December 31, 1998 and 1997, respectively (net of accumulated amortization of $16.3 million and $14.6 million, respectively), and are amortized over their remaining lives, which average five years. Goodwill, representing the excess of acquisition cost over the fair value of specifically identifiable assets acquired, was $135.4 million and $116.5 million at December 31, 1998 and 1997, 22
respectively (net of accumulated amortization of $13.6 million and $7.8 million, respectively), and is amortized on a straight line basis over various periods not exceeding 30 years. Product Warranties. The Company offers warranties on the sales of certain of its products and records an accrual for estimated future claims. Such accruals are based upon historical experience and management's estimate of the level of future claims. Leases. The Company is obligated under various noncancelable operating leases for certain facilities and equipment. Rent expense was $6.6 million, $5.4 million and $2.6 million, in 1998, 1997 and 1996, respectively. Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences of the differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. These balances are measured using enacted tax rates expected to apply to taxable income in the years in which such temporary differences are expected to be recovered or settled. If a portion or all of a deferred tax asset is not expected to be realized, a valuation allowance is recognized. Earnings Per Share. Earnings per share is determined in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." Basic earnings per share excludes the dilutive effects of options, warrants, and convertible securities. Diluted earnings per share gives effect to all dilutive securities that were outstanding during the period. The only difference between basic and diluted earnings per share of the Company is the effect of dilutive stock options. Fair Value of Financial Instruments. The estimated fair market values of the Company's financial instruments approximate their recorded values. Other Comprehensive Income. The Company has determined the components of other comprehensive income, such as cumulative translation adjustments and minimum pension liability, are not significant. Reclassifications. Certain reclassifications have been made to prior years' information to conform to 1998 presentation. 23
INVENTORIES The components of inventories are: 1998 1997 ---- ---- In Thousands FIFO cost (approximates current costs): Finished goods $ 113,852 $ 111,403 Work in process 24,665 23,250 Raw materials 68,979 60,375 --------- --------- $ 207,496 $ 195,028 Excess of FIFO cost over LIFO value (13,846) (14,697) --------- --------- $ 193,650 $ 180,331 ========= ========= PROPERTY, PLANT & EQUIPMENT The components of property, plant and equipment are: 1998 1997 ---- ---- In Thousands Land $ 6,936 $ 6,804 Buildings & leasehold improvements 142,525 123,432 Machinery & equipment 436,222 383,560 Projects in progress 44,890 25,686 --------- --------- $ 630,573 $ 539,482 Accumulated depreciation (275,804) (245,317) --------- --------- $ 354,769 $ 294,165 ========= ========= BORROWINGS Long-term debt includes: 1998 1997 ---- ---- In Thousands 6.70% senior notes due 2008 $ 100,000 -- 7.25% senior notes due 2007 $ 150,000 $ 150,000 8.09% senior notes due 1998-2002 -- 48,000 Industrial Development and Revenue Bonds due through 2014 16,645 12,460 Other, including capital lease obligations 8,832 10,056 --------- --------- $ 275,477 $ 220,516 Less current maturities (1,956) (10,874) --------- --------- $ 273,521 $ 209,642 ========= ========= On May 15, 1998, the Company issued $100 million in notes due in 2008 at an interest rate of 6.70%. The net proceeds were used to repay all amounts outstanding under the Company's revolving credit facility, to repay other short-term indebtedness and for general corporate purposes. On December 29, 1998, the Company retired the 8.09% senior notes due 1998-2002 with cash generated from operations and short-term borrowings. Included in Other, net is a $1.8 million charge related to this prepayment. 24
The Company has a $125 million revolving credit facility with various banks. As of December 31, 1998, $115 million was available under this facility. The Company has available unsecured lines of credit from banks of $40 million, of which $21.6 million was available as of December 31, 1998. At December 31, 1998, letters of credit amounting to $21.2 million were outstanding, primarily to provide security under insurance arrangements and certain borrowings. The weighted average interest rates on the revenue bonds for 1998 and 1997 were 4.3% and 4.2%, respectively. The debt facilities contain various restrictive covenants and limitations, all of which were complied with in 1998 and 1997. The industrial development and revenue bonds are collateralized by the facilities and equipment acquired through the proceeds of the related bond issuances. Cash payments for interest were $21.3 million in 1998, $12.3 million in 1997 and $6.9 million in 1996. The aggregate amount of long-term debt maturing in each of the next five years is approximately $2.0 million in 1999, $2.2 million in 2000 and 2001, $1.2 million in 2002, $3.7 million in 2003 and $264.2 million thereafter. ACQUISITIONS In each of the last three years, the Company has completed various acquisitions, all of which have been accounted for as purchases. Results of operations for these acquisitions, which have been included in the consolidated financial statements since their respective acquisition dates, did not have a material effect on consolidated operating results of the Company in the years of acquisition. SHAREHOLDERS' EQUITY On October 4, 1996, the Company's Board of Directors authorized a two-for-one stock split which was completed on January 15, 1997 to shareholders of record on January 2, 1997. The split resulted in the issuance of 19,665,312 new shares of common stock including 4,489,650 shares issued as treasury shares. In addition, authorized shares were increased from 25,000,000 to 50,000,000. All references in the financial statements to average number of shares outstanding and related prices, per share amounts, and stock option plan data have been restated to reflect this split. The Company has a Shareholders' Rights Agreement which is designed to protect shareholder investment values. A dividend distribution of one Preferred Stock Purchase Right for each outstanding share of the Company's common stock was declared, payable to shareholders of record on March 3, 1989. The Rights will become exercisable under certain circumstances, including the acquisition of 25% of the Company's common 25
stock, or 40% of the voting power, in which case all rights holders except the acquiror may purchase the Company's common stock at a 50% discount. If the Company is acquired in a merger or other business combination, and the Rights have not been redeemed, rights holders may purchase the acquiror's shares at a 50% discount. On August 7, 1996, the Company amended the Shareholders' Rights Agreement to, among other things, extend the term of the Rights until August 6, 2006. Common shareholders of record on May 30, 1986 are entitled to five votes per share. Common stock acquired subsequent to that date entitles the holder to one vote per share until held four years, after which time the holder is entitled to five votes. EMPLOYEE STOCK OPTIONS & INCENTIVE PLAN The Company maintains an Executive Incentive Program for executives and certain other employees of the Company and its operating divisions and subsidiaries. The Program contains a plan, for those who are eligible, to receive cash bonuses and/or shares of restricted stock. The Program also has a stock option plan available to certain employees who are not eligible to receive restricted stock awards. At December 31, 1998, 23,472 nonvested shares were outstanding and 2,165,365 shares were available for issuance under the Company's restricted stock plan. The activity under the stock option plan is as follows: Weighted Average Number Exercise of Shares Price --------- -------- Outstanding at December 31, 1995 1,478,998 $13.77 Options granted 396,000 20.73 Options exercised (175,892) 10.05 Options surrendered (2,276) 12.32 --------- Outstanding at December 31, 1996 1,696,830 15.77 Options granted 214,000 29.50 Options exercised (340,584) 11.71 --------- Outstanding at December 31, 1997 1,570,246 18.52 Options granted 239,000 46.56 Options exercised (282,413) 16.32 --------- Outstanding at December 31, 1998 1,526,833 23.32 ========= Available for grant at December 31, 1998 435,182 The following tables summarize information about stock options outstanding as of December 31, 1998: Options Outstanding: 26
Weighted Number Range of Weighted Average Average Outstanding Exercise Remaining Exercise at 12/31/98 Prices Years Price ----------- ------ --------------- ----- 152,407 $ 8.10- 9.78 2.7 $ 9.10 248,094 12.32-17.25 4.5 14.38 252,000 17.32-19.63 6.1 17.75 634,332 19.88-29.50 7.5 23.68 240,000 32.75-46.56 9.1 46.51 --------- 1,526,833 ========= Options Exercisable: Range of Number Exercise Exercisable Weighted Average Prices at 12/31/98 Exercise Price -------- ----------- ---------------- $ 8.10 - 9.78 152,407 $ 9.10 12.32-17.25 248,094 14.38 17.32-19.63 252,000 17.75 19.88-29.50 563,332 22.94 32.75-46.56 80,333 46.45 --------- 1,296,166 ========= At December 31, 1997, 1,297,135 options were exercisable at a weighted average price of $17.09. In accordance with the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company applies APB Opinion 25 and related interpretations in accounting for its stock compensation plans and, accordingly, does not recognize compensation cost for its stock option plan. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS No. 123, the pro forma effect on net earnings and earnings per share, in 1998, 1997 and 1996, would have been approximately $1.7 million or $.06 per share, $1.5 million or $.05 per share and $1.1 million or $.03 per share, respectively. Pursuant to the transition provisions of SFAS No. 123, the pro forma effect includes only the vested portion of options granted in and after 1995. Options vest over a three-year period. Compensation cost was estimated using the Black-Scholes model with the following assumptions: expected dividend yield of 1.20% in 1998 and 1.75% in 1997 and 1996; an expected life of 7 years; expected volatility of 25.6% in 1998 and 24.0% in 1997 and 1996; and risk-free interest rate of 5.5% in 1998 and 6.0% in 1997 and 1996. The weighted average fair value of those stock options granted in 1998, 1997 and 1996 was $16.35, $9.61 and $6.75, respectively. RETIREMENT PLANS The Company maintains defined benefit retirement plans for the majority of its employees. Benefits are based primarily on years of service and earnings of the employee. Plan assets consist primarily of publicly listed common stocks and corporate bonds. 27
The Company adopted SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits." The Company has restated prior year defined benefit retirement plan disclosures to conform to the requirements of SFAS No. 132. The change in projected benefit obligation: 1998 1997 ---- ---- In Thousands Benefit obligation at beginning of year $ 99,551 $ 86,135 Service cost 5,258 4,366 Interest cost 7,113 6,734 Amendments 702 (5,313) Actuarial gain 2,972 13,577 Benefits paid (7,717) (5,948) --------- -------- Benefit obligation at end of year $ 107,879 $ 99,551 ========= ======== The change in plan assets: 1998 1997 ---- ---- In Thousands Fair value of plan assets at beginning of year $ 104,015 $ 90,737 Actual return on plan assets 17,098 17,975 Company contribution 1,069 1,251 Benefits paid (7,717) (5,948) --------- --------- Fair value of plan assets at end of year $ 114,465 $ 104,015 ========= ========= Reconciliation of the accrued benefit cost recognized in the financial statements: 1998 1997 ---- ---- In Thousands Funded status $ 6,586 $ 4,464 Unrecognized net actuarial loss (15,321) (9,078) Unrecognized prior service cost (3,363) (3,889) Unrecognized transition asset (2,901) (3,589) -------- -------- Accrued benefit cost $(14,999) $(12,092) ======== ======== Components of net periodic benefit cost at December 31: 1998 1997 1996 ---- ---- ---- In Thousands Service cost $ 5,258 $ 4,366 $ 3,374 Interest cost 7,113 6,734 6,122 Expected return on plan assets (8,014) (6,968) (6,440) Net amortization and deferral (381) (512) (80) ------- ------- ------- Net periodic benefit cost $ 3,976 $ 3,620 $ 2,976 ======= ======= ======= 28
The projected benefit obligation was determined using an assumed discount rate of 7.0% in 1998, 7.25% in 1997 and 7.75% in 1996. The assumed rate of compensation increase was 4.0% in 1998 and 1997 and 4.5% in 1996; and the expected rate of return on plan assets was 9.25% in 1998 and 8.75% in 1997 and 1996. Additionally, the Company maintains a retirement savings plan covering substantially all employees other than those employees under collective bargaining agreements. Plan expense was $4.9 million, $4.7 million and $3.2 million, in 1998, 1997 and 1996, respectively. The Company also has a limited number of unfunded post retirement benefit programs for which the expense, inclusive of the components of service costs, interest costs and the amortization of the unrecognized transition obligation, was approximately $0.4 million in 1998 and 1997 and $0.6 million in 1996. The present value of the Company's obligation under these plans is not significant. INCOME TAXES The provision for income taxes was as follows: 1998 1997 1996 ---- ---- ---- In Thousands Currently payable Federal $ 38,496 $ 39,262 $ 27,954 State, local and other 8,340 8,242 9,788 -------- -------- -------- $ 46,836 $ 47,504 $ 37,742 ======== ======== ======== Deferred liability (benefit) Federal $ 5,572 $ (1,363) $ (1,238) State, local and other 2,995 (23) (144) -------- -------- -------- 8,567 (1,386) (1,382) -------- -------- -------- Total provision $ 55,403 $ 46,118 $ 36,360 ======== ======== ======== Deferred tax assets (liabilities) are comprised of the following at December 31: 1998 1997 ---- ---- In Thousands Product warranty $ 46,047 $ 35,346 Inventory reserves 3,495 3,197 Doubtful receivables 3,742 1,719 Employee benefits 11,799 12,114 Other, net 11,879 12,088 -------- -------- Deferred assets $ 76,962 $ 64,464 -------- -------- Depreciation (55,473) (37,394) Other, net (4,591) (1,606) -------- -------- Deferred liabilities (60,064) (39,000) -------- -------- Net deferred tax assets $ 16,898 $ 25,464 ======== ======== No valuation allowance is required for the deferred tax assets based on the Company's past tax payments and estimated future taxable income. 29
A reconciliation of taxes computed at the statutory rate with the tax provision is as follows: 1998 1997 1996 ---- ---- ---- In Thousands Federal income taxes at statutory $49,095 $40,875 $32,214 State income taxes, net of federal income tax benefit 5,798 3,842 2,912 Other, net 510 1,401 1,234 ------- ------- ------- $55,403 $46,118 $36,360 Effective income tax rate 39.5% 39.5% 39.5% Cash payments for income taxes were $58.7 million, $30.7 million and $40.5 million in 1998, 1997 and 1996, respectively. SUBSEQUENT EVENT In January 1999, the Company announced that it will reduce its interest in the perishable cargo business. On January 28, 1999, the Company sold 85% of its interest in its perishable cargo container leasing joint venture. Furthermore, in connection with the reduction of the Company's interest in the leasing joint venture, the Company announced the suspension of operations at its perishable cargo container manufacturing facility. These operations are associated with the Company's All Other business segment. The Company will continue to participate in the perishable cargo business with its remaining interest in the leasing joint venture. The Company will recognize a net gain of approximately $17 million resulting from the reduction of its interest in the perishable cargo business. 30
SEGMENT INFORMATION Effective December 31, 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company has restated its prior year segment disclosures to conform to the requirements of SFAS No. 131. The Company's reportable segments have been organized around differences in products and services, and operating segments have been aggregated. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The chief operating decision maker evaluates segment performance by earnings before interest and income taxes. The Company's operations are classified into the following segments: Construction Materials -- the principal products of this segment are rubber, plastic and FleeceBACK(TM) sheeting used predominantly on non-residential flat roofs and related roofing accessories, including flashings, fasteners, sealing tapes, coatings and waterproofings. The markets served include new construction, re-roofing and maintenance of low slope roofs, water containment, HVAC sealants, and coatings and waterproofings. Industrial Components -- the principal products of this segment are small bias-ply rubber tires, stamped and roll-formed wheels, heavy duty friction and braking systems for truck and off-highway equipment, high grade aerospace wire and speciality electronic cable. Customers include golf car manufacturers, power equipment manufacturers, boat and utility trailer manufacturers, truck OEMs, heavy equipment and truck dealers and aftermarket distributors, aerospace OEMs, and electronic equipment manufacturers. Automotive Components -- the principal products of this segment are highly engineered rubber and plastic components for Tier I suppliers and other manufacturers in the automotive market. All Other -- the principal products of this segment include commercial and institutional plastic foodservice permanentware and catering equipment, fiber glass and composite material trays and dishes, ceramic tableware, specialty rubber and plastic cleaning brushes, stainless steel processing equipment and their related process control systems, specialty trailers and standard and custom-built high payload trailers and dump bodies, self-contained ISO perishable cargo shipping containers and perishable cargo container leasing. Customers include foodservice distributors, restaurants, dairy product processors and distributors, heavy equipment and truck dealers, shipping lines and commercial haulers. Corporate -- includes general corporate and idle property expenses. Corporate assets consist primarily of cash and cash equivalents, facilities, and other invested assets. 31
Financial information for operations by reportable business segment is included in the following summary: <TABLE> <CAPTION> Earnings Before Interest & Deprec. Income & Capital Sales Taxes Assets Amort. Spending ---------- ----------- ---------- ------- ------- In Thousands <S> <C> <C> <C> <C> <C> 1998 Construction Materials $ 371,547 $ 53,030 $ 218,045 $ 7,439 $12,849 Industrial Components 510,780 61,261 319,519 15,270 33,540 Automotive Components 271,955 17,638 213,900 10,005 27,442 All Other 363,212 38,166 262,393 11,590 21,749 Corporate -- (10,110) 8,995 917 390 ---------- ----------- ---------- ------- ------- $1,517,494 $ 159,985 $1,022,852 $45,221 $95,970 ========== =========== ========== ======= ======= 1997 Construction Materials $ 316,597 $ 49,120 $ 174,157 $ 6,179 $ 8,109 Industrial Components 396,941 47,509 278,458 12,398 19,743 Automotive Components 241,283 18,633 178,206 8,571 14,454 All Other 305,729 30,142 215,777 10,714 17,016 Corporate -- (13,290) 14,618 893 209 ---------- ----------- ---------- ------- ------- $1,260,550 $ 132,114 $ 861,216 $38,755 $59,531 ========== =========== ========== ======= ======= 1996 Construction Materials $ 318,036 $ 42,781 $ 180,245 $ 5,976 $ 6,416 Industrial Components 320,708 38,821 194,038 10,113 14,582 Automotive Components 124,148 9,428 157,776 4,016 3,198 All Other 254,603 20,307 192,250 8,953 10,704 Corporate -- (10,901) 18,154 700 90 ---------- ----------- ---------- ------- ------- $1,017,495 $ 100,436 $ 742,463 $29,758 $34,990 ========== =========== ========== ======= ======= </TABLE> Reconciliation of earnings before interest and income taxes to Earnings before income taxes: 1998 1997 1996 ---- ---- ---- Earnings before interest and income taxes $ 159,985 $ 132,114 $ 100,436 Investment Income 2,999 1,172 666 Interest Expense (22,715) (16,502) (9,062) --------- --------- --------- Earnings before income taxes $ 140,269 $ 116,784 $ 92,040 --------- --------- --------- 32
QUARTERLY FINANCIAL DATA (In Thousands except per share data) (unaudited) <TABLE> <CAPTION> First Second Third Fourth Year ----- ------ ----- ------ ---- <S> <C> <C> <C> <C> <C> 1998 Net sales $363,090 395,580 377,985 380,839 $1,517,494 Gross margin $ 78,555 88,363 81,948 79,249 $ 328,115 Operating expenses $ 43,993 44,644 43,437 44,470 $ 176,544 Net earnings $ 18,979 24,551 22,320 19,016 $ 84,866 Basic earnings per share $ 0.63 0.81 0.74 0.63 $ 2.81 Diluted earnings per share $ 0.62 0.80 0.73 0.62 $ 2.77 Dividends per share $ 0.1400 0.1400 0.1600 0.1600 $ 0.6000 Stock price: High $51 1/4 53 1/16 47 15/16 51 5/8 Low $40 1/16 39 3/8 35 1/2 32 11/16 1997 Net sales $287,819 337,372 315,707 319,652 $1,260,550 Gross margin $ 63,592 76,712 75,089 71,068 $ 286,461 Operating expenses $ 38,319 38,925 40,273 41,553 $ 159,070 Net earnings $ 13,421 20,980 19,518 16,747 $ 70,666 Basic earnings per share $ 0.44 0.69 0.65 0.56 $ 2.34 Diluted earnings per share $ 0.43 0.68 0.63 0.54 $ 2.28 Dividends per share $ 0.1225 0.1225 0.1400 0.1400 $ 0.5250 Stock price: High $ 35 5/8 37 46 7/8 46 3/4 Low $ 29 1/4 27 34 3/4 39 5/8 </TABLE> 33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors Carlisle Companies Incorporated: We have audited the accompanying consolidated balance sheets of Carlisle Companies Incorporated (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Carlisle Companies Incorporated and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP /s/ Arthur Andersen LLP New York, New York January 28, 1999 34
Item 9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. Part III Item 10. Directors and Executive Officers of the Registrant. The following table sets forth certain information relating to each executive officer of the Company, as furnished to the Company by the executive officers. Except as otherwise indicated each executive officer has had the same principal occupation or employment during the past five years. <TABLE> <CAPTION> Name Age Positions With Company Period of Service - ---- --- ---------------------- ----------------- <S> <C> <C> <C> Stephen P. Munn 56 Chief Executive Officer September, 1988 since September, 1988, to date Chairman of the Board since January, 1994, and President from September, 1988 to February, 1995. Dennis J. Hall 57 Chief Operating Officer August, 1989 and Vice Chairman since to date March, 1999, President from February, 1995 to March, 1999, and Executive Vice President, Treasurer and Chief Financial Officer from August, 1989 to February, 1995. Scott C. Selbach 43 Vice President, Corporate July, 1989 Development since August, 1997, to date Vice President, Europe from August, 1995 to August, 1997 and Vice President, Secretary and General Counsel from July, 1989 to August, 1995. John S. Barsanti 47 Vice President and Chief April, 1991 Financial Officer from March, to date 1999. President of Walker Stainless Equipment Company from October, 1995 to March, 1999, and Vice President, Planning & Administration from April, 1991 to October, 1995. Steven J. Ford 39 Vice President, Secretary July, 1995 and General Counsel, since July, to date 1995. Formerly an associate with Bond, Schoeneck & King, Syracuse, NY. Richmond D. McKinnish 49 Executive Vice President from August, 1974 March, 1999 and President of to date Carlisle Tire & Wheel Company since January, 1991. </TABLE> 35
The officers have been elected to serve at the pleasure of the Board of Directors of the Company. There are no family relationships between any of the above officers, and there is no arrangement or understanding between any officer and any other person pursuant to which he was selected an officer. Information required by Item 10 with respect to directors of the Company is incorporated by reference to the Company's definitive proxy statement filed with the Securities and Exchange Commission on March 9, 1999. Item 11. Executive Compensation. Information required by Item 11 is incorporated by reference to the Company's definitive proxy statement filed with the Securities and Exchange Commission on March 9, 1999. Item 12. Security Ownership of Certain Beneficial Owners and Management. Information required by Item 12 is incorporated by reference to the Company's definitive proxy statement filed with the Securities and Exchange Commission on March 9, 1998. Item 13. Certain Relationships and Related Transactions. Not applicable. Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. Financial statements required by Item 8 are as follows: Consolidated Statement of Earnings, years ended December 31, 1998, 1997 and 1996 Consolidated Statement of Shareholders' Equity, years ended December 31, 1998, 1997 and 1996 Consolidated Balance Sheet, December 31, 1998 and 1997 Consolidated Statement of Cash Flows, years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements Financial statement supplementary notes applicable to the filing of this report are as follows: Page 1. Other current liabilities 39 All other schedules are omitted because the required information is inapplicable or the information is presented in the financial statements or related notes. 36
Exhibits applicable to the filing of this report are as follows: (3) By-laws of the Company.* (3.1) Restated Certificate of Incorporation as amended April 22, 1991.**** (3.2) Certificate of Amendment of the Restated Certificate of Incorporation dated December 20, 1996.****** (4) Shareholders' Rights Agreement, February 8, 1989.* (4.1) Amendment to Shareholders' Rights Agreement, dated August 7, 1996.***** (10.1) Executive Incentive Program.** (10.2) Representative copy of Executive Severance Agreement, dated December 19, 1990, between the Company and certain individuals, including the five most highly compensated executive officers of the Company.*** (10.3) Summary Plan Description of Carlisle Companies Incorporated Director Retirement Program, effective November 6, 1991.*** (12) Ratio of Earnings to Fixed Charges. (21) Subsidiaries of the Registrant. (23) Consent of Independent Public Accountants. (27) Financial Data Schedule as of December 31, 1998 and for the twelve months ended December 31 1998. * Filed as an Exhibit to the Company's annual report on Form 10-K for the year ended December 31, 1988 and incorporated herein by reference. ** Filed with the Company's definitive proxy statement dated March 9, 1994 and incorporated herein by reference. *** Filed as an Exhibit to the Company's annual report on Form 10-K for the year ended December 31, 1990 and incorporated herein by reference. **** Filed as an Exhibit to the Company's annual report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. ***** Filed as an Exhibit to Form 8-A/A filed on August 9, 1996 and incorporated herein by reference. ****** Filed as an Exhibit to the Company's annual report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference. No reports on Form 8-K were filed during the last quarter of the period covered by this report. The Company will furnish to the Commission upon request its long-term debt instruments not listed in this Item. 37
Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities 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 /s/ Dennis J. Hall By: Dennis J. Hall, Chief Operating Officer and Vice Chairman of the Board of Directors Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/ Stephen P. Munn /s/ Peter F. Krogh Stephen P. Munn, Chief Peter F. Krogh, Director Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) /s/ Donald G. Calder /s/ John S. Barsanti Donald G. Calder, Director John S. Barsanti, Vice President and Chief /s/ Henry J. Forrest Financial Officer (Principal Financial Officer Henry J. Forrest, Director and Principal Accounting Officer) /s/ Peter L.A. Jamieson Peter L.A. Jamieson, Director /s/ G. FitzGerald Ohrstrom G. FitzGerald Ohrstrom, Director /s/ Robin W. Sternbergh Robin W. Sternbergh, Director March 9, 1999 38
Carlisle Companies Incorporated and Subsidiaries Supplementary Notes to the Consolidated Financial Statements December 31, 1998 Note 1. Other Current Liabilities - Other current liabilities at December 31 consist of the following: (000's) 1998 1997 ---- ---- Employee compensation and benefits $ 36,435 $ 32,268 Product warranties 29,440 29,710 Insurance 11,993 12,250 Other accrued expenses 44,369 51,587 -------- -------- $122,237 $125,815 ======== ======== 39
CARLISLE COMPANIES INCORPORATED COMMISSION FILE NUMBER 1-9278 FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1998 EXHIBIT LIST (12) Ratio of Earnings to Fixed Charges (21) Subsidiaries of the Registrant (23) Consent of Independent Public Accountants (27) Financial Data Schedule as of December 31, 1998 and for the twelve months ended December 31, 1998 40