Carlisle Companies Incorporated reported sales of $1.771 billion in 2000, up 10%, or $160 million, from 1999 sales of $1.611 billion. Acquisitions were the primary contributor to the year-over-year sales increase. Sales volume at many Carlisle companies was affected by the reduction in customer demand in the fourth quarter. In 1999, sales increased 6% or $94 million, as a result of internal growth, driven by product line expansion and market share gains, as well as the effect of acquisitions completed in 1999 and the full year impact of acquisitions completed in 1998.
Net earnings in 2000 were $96.2 million, or $3.14 per share, compared to 1999 net earnings of $95.8 million, or $3.13 per share. As the fourth quarter unfolded, the rapid economic slowdown, seen throughout the manufacturing community, was reflected in the sales and operating earnings of many Carlisle companies. Margin pressures caused by competitive pricing and increased material costs also affected earnings. Net earnings in 1999 increased 13%, due to increased sales levels coupled with operational improvements made throughout the Company.
The disappointing fourth quarter, caused by steep declines in demand, diluted improvements made at many Carlisle companies throughout the year. What started as a very promising year, with demand in excess of capacity at some facilities, took a drastic turn in the fourth quarter. A downturn in many original equipment markets occurred without a corresponding increase in the aftermarket, events that normally do not coincide. Market prices dropped as competitors fought to retain volume in declining markets. This, coupled with upward pressure on costs, brought margins down. Yet, with few exceptions, Carlisle's companies maintained competitively strong leadership positions in each of their major markets.
To further sharpen Carlisle's competitive capability, management has taken action to increase efficiency and reduce costs by announcing
the closure of two plants, six regional support offices and other staff
reductions. The expense associated with these actions resulted in
a pretax charge to operations of $3.7 million in the fourth quarter.
It is expected that this charge will result in a benefit in 2001 equivalent to the charge.
Approximately 96% of this year's sales growth came from acquisitions completed in 2000 and the full year impact of 1999 acquisitions. During 2000, Carlisle completed a record ten acquisitions and established three joint ventures. These acquisitions were: (1) DynAir, Inc., a Canadian manufacturer of duct supplies, (2) Tuchenhagen-Damrow, LLC and Kolding Gruppen A/S, global equipment suppliers to the cheese industry, (3) Dura-Ware Co. of America, Inc., a manufacturer of commercial cookware and servingware, (4) Extract Technology Limited, a U.K. based biotech/pharmaceutical systems provider, (5) Consumer Tire and Wheel Division of Titan International, Inc., expanding product offerings to the lawn and garden markets, (6) Process Controls Engineering, a designer of control systems for the cheese industry, (7) UniTrek Corporation,
a manufacturer of microwave and radio frequency cable assemblies,
(8) Bontech A/S, a Danish designer of spray dryers and fluid bed dryers for the dairy industry, (9) Zimmer Corporation, a supplier of cheese and whey processing equipment, and (10) Red River Manufacturing, a specialty trailer manufacturer. In addition, the Company completed the following joint ventures: (1) Icopal A/S, Europe's leading commercial roofing systems provider, (2) Moody Parts, a distributor of spare parts for processing equipment, and (3) Carlisle Beijing, a Chinese manufacturer of membrane roofing and waterproofing products.
Five acquisitions were completed in 1999. Carlisle purchased: (1) Global Manufacturing, a manufacturer of stamped steel wheels for industrial and recreational applications and styled steel wheels for the automotive aftermarket, (2) Johnson Truck Bodies, a manufacturer of fiberglass custom truck bodies for the delivery of food products to stores and homes, (3) Innovative Engineering Limited, an engineering and equipment supplier of cheese making systems, (4) Marko International, Inc., a supplier of table coverings, table skirtings and other accessories for the foodservice market, and (5) the custom steel wheel business of Cragar Industries, Inc., which produces and markets Cragar brand custom steel wheels to the automotive aftermarket.
Operating Segments
Construction Materials
Segment earnings were down slightly in 2000 to $57.5 million, from $58.2 million in 1999. The continuing trend of raw material price increases, the inability to pass those increases on to our customers, as well as the change in product mix, negatively impacted earnings this year, despite the continuing trend of favorable warranty claims experience. In 1999 segment earnings were up 10% over 1998 earnings of $53.0 million, reflecting increased sales levels, improved operational performance and favorable warranty experience. The improvement in earnings was partially offset by the absorption of increased raw material costs and changes in product mix.
Industrial Components
Segment earnings increased 15% to $76.1 million over 1999 earnings of $66.0 million. Earnings improvements at Carlisle Tire & Wheel driven by the Cragar and Titan acquisitions were reduced by the impact of higher material and utility costs, coupled with expansion and integration costs. Carlisle Industrial Brake & Friction had a positive comparison to 1999 resulting from the successful implementation of productivity improvements and cost reduction programs. Tensolite's cable assembly operations also made a positive contribution to this segment's earnings in 2000. Tensolite has consolidated and upgraded its cable assembly operations in order to strengthen its manufacturing capabilities and flexibility as it prepares for future growth. Motion Control, the off-highway business, was impacted by lower demand compounded by competitive pricing and higher material costs. Segment earnings increased 8%
in 1999 from $61.3 million in 1998. Factors leading to the increase were product line extension and operational improvements at Carlisle Tire & Wheel. Offsetting these improvements were lower earnings at Tensolite and Carlisle Industrial Brake & Friction due to less robust markets.
Automotive Components
Segment earnings of $21.4 million were slightly above 1999 segment earnings of $21.2 million. Earnings in this segment were up 12% through September 30th, 2000 as a result of operational improvements and
efficiencies gained. However, the reduction in industry demand in the fourth quarter and the corresponding impact on sales offset the improvement made throughout the year. Earnings in 1999 increased due to the release of production backlog following the resolution of the GM strike in 1998 as well as improved product mix. Return on assets and free cash flow both improved significantly in this segment.
General Industry (All Other)
Segment earnings of $37.1 million were down 8% over 1999. Margin pressures at Carlisle FoodService and sales declines at Carlisle Transportation Products and Systems & Equipment's Johnson Truck Bodies, offset the earnings increases from the acquisitions in the other Carlisle Systems & Equipment businesses. Carlisle FoodService struggled throughout the second half of the year to fight off increased raw material and freight costs. Price increases were implemented late in 2000 and should improve margins in 2001, but could not offset the cost increases already absorbed this year. Earnings at Carlisle Transportation Products' specialty trailer operations were negatively impacted by lower productivity as a result of the sales decline in each
of its markets. Rising fuel costs reduced demand for new equipment particularly in the commercial trailer markets. Segment earnings of $40.4 million in 1999 increased 6% over 1998 segment earnings of $38.2 million. Pro-forma earnings grew 26%, after excluding the perishable cargo business, which was divested in January of 1999, reflecting primarily the increase in sales in this segment.
Financial Results
Gross margin, expressed as a percent of sales, represents the difference between net sales and cost of goods sold. These margins increased from 21.6% in 1998, to 22.2% in 1999, but declined to 20.8% in 2000. In 1999, improved operational efficiency, as well as improved product mix, accounted for the higher margin rate. The decline from 1999 to 2000 reflects the competitive marketplace, higher raw material prices coupled with the reduced demand during the fourth quarter of this year.
Selling and administrative costs, expressed as a percent of sales, of 10.6% in 1998, 10.8% in 1999, and 10.0% in 2000, reflect the continued emphasis on cost control throughout all operations and lower cost structures in Carlisle's overall businesses.
Total costs, which include raw material, manufacturing, selling, general and administrative, and research and development costs expressed as a percentage of total sales, have remained fairly consistent, at 90.1% in 2000, 89.6% in 1999 and 90.0% in 1998. Through the third quarter of 2000, total costs, as a percentage of sales, were 88.9%, a .3 point improvement over the same period of 1999. The increase in total costs in 2000 was driven by raw material price increases, compounded by declining market demand in the fourth quarter. The improvement in the total cost relationship in 1999 was due to improved operating efficiencies.
Interest expense, net increased to $28.0 million in 2000 from $19.2 million in 1999, due to higher debt levels throughout the year, as a result of the completion of a record number of acquisitions during the year. Strong internally generated cash flows financed planned capital expenditures and some of the acquisition spending.
Income taxes, for financial reporting purposes, decreased in 2000 to an effective tax rate of 36.2% compared to 38.4% in 1999, and 39.5% in 1998. The successful implementation of various foreign and state tax strategies was responsible for much of this improvement.
Receivables, of $214 million reflect a decrease over the 1999 level of
$245 million. The sales decline experienced in the fourth quarter, as well as a focus on reducing days sales outstanding, was responsible for the improvement. The 1999 level of receivables represented a 9% increase over 1998 levels and was in line with the sales growth for that year.
Inventories, valued primarily by the last-in, first-out (LIFO) method, were $277 million at year-end 2000, a 27% increase over the 1999 year-end level of $219 million. The increase in inventory at year-end was primarily due to higher inventory at Carlisle Tire & Wheel in preparation for the spring selling season, and at Carlisle FoodService as a result of acquisitions made during the current year. In 1999, the increase in inventory over 1998 was also due to seasonal demands and the impact of acquisitions.
Capital expenditures totaled $59 million in 2000, up from $48 million in 1999. Investments were made in production capacity in China and Trinidad for tire and wheel assemblies, as well as plant and equipment to manufacture TPO roofing membranes, specialty trailers and processing equipment.
Liquidity, Capital Resources and Environmental
Cash flows provided by operating activities were $125 million in 2000 compared to $136 million in 1999. The decrease is due to higher working capital at the end of 2000 partially offset by an increase in depreciation and amortization. Cash used in investing activities was $272 million
versus $86 million in 1999, an increase of $186 million. This increase was attributable to the unprecedented level of acquisition spending during the year of $209 million versus $42 million in 1999. In addition, in 1999, cash used in investing activities was offset by the proceeds, net of tax, from the divestiture of the perishable cargo business. The net cash provided by financing activities in 2000 was $146 million versus a use of cash of $44 million in 1999. In 2000, short-term borrowings were used to finance acquisitions made during the year. The net cash used in financing activities in 1999 reflects the repayment of short-term borrowings.
In June of 2000, Carlisle replaced its $125 million revolving credit facility with new $350 million credit facilities. These facilities are available for investments in acquisitions and general corporate purposes. 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 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 material charges relating to environmental matters in 2000 or in prior years, and none are currently anticipated.
Backlog and Future Outlook
Backlog was $266 million at December 31, 2000 compared to $228 million in 1999. Higher backlog at Carlisle Tire & Wheel, Tensolite and Carlisle Systems & Equipment reflect the strong market penetration achieved by these businesses through internal efforts and the acquisition of key market niches. Automotive Components backlog was down from December 1999 levels due to the decline in demand in the fourth quarter 2000, and the anticipated slowing of the automotive build rates, particularly in the first quarter of 2001.
With the onset of 2001, management is pleased to announce three recently completed acquisitions by Carlisle Process Systems: Bontech Engineering A/S, in Denmark; Scheffers, Division of Siersema BV and Stork Friesland BV, both in the Netherlands. Each of these companies strengthen Carlisle's position in evaporation and drying systems for the food and dairy processing industries. Additionally, Carlisle SynTec has announced a letter of intent to acquire EcoStar, Inc., a manufacturer of synthetic roofing tiles for the residential and commercial steep slope roofing markets.
There is opportunity in this changed economic environment. The companies we have acquired in 2000 and those announced in 2001, bring new products, customers and markets to Carlisle's portfolio. Although we believe the first half of the year will be a challenge, our competitive position is strong and we are optimistic about the opportunities for growth and leadership in our markets. We have made strides toward achieving our objective of increased global presence in industries that are attractive to us. Our longstanding operating principles of: targeted market leadership; growth from within; lean organizational structure; low cost, decentralized operations; and strategic acquisitions to achieve our sales and earnings growth objectives, have enabled us to show positive results year-over-year despite the market conditions we face. As we move into 2001, we are confident that these principles will continue to result in operating success for Carlisle.
Segment sales of $407 million in 2000 were flat over 1999 sales of $405 million. The relatively soft commercial roofing market experienced in 2000, as compared to 1999, stunted sales growth in this segment. Although sales of thermoplastic polyolefin (TPO) membrane and insulation increased year-over-year, a soft domestic roofing market, further slowed by the cold, wet weather experienced in the fourth quarter of 2000, coupled with a change in product mix, reduced sales. Carlisle Coatings & Waterproofing experienced higher sales driven by its adhesive tape and sealant products. In 1999, segment sales increased 9% from 1998 sales of $372 million as a result of the expansion of its insulation and TPO products.
Segment sales of $642 million for 2000 surpassed 1999 sales of $528 million by 22%. Two acquisitions completed during the year by Carlisle Tire & Wheel and Tensolite fueled much of this segment's sales growth. Tensolite's diversification into cable assembly and high performance interconnects has brought this company into the forefront of the communications technology market and has helped to expand its customer base and markets served. Carlisle Tire & Wheel's acquisition of the Consumer Tire and Wheel Division of Titan International has increased its sales through further expansion of its product line and customer base. The Company's off-highway and industrial brake and friction businesses saw a sales improvement in 2000, primarily in the industrial aftermarket product lines. In 1999, segment sales increased 3% over 1998 sales of $511 million. This increase was due to growth of new customers and new products in the specialty tire and wheel business of Carlisle Tire & Wheel, but was dampened by lower demand for aerospace bulk cable, heavy duty friction to the aftermarket and off-highway industrial brakes.
Segment sales for Automotive Components were down 4% in 2000 to $302 million, from $314 million in 1999. This segment experienced an overall reduction in production build rates throughout 2000 coming off 1999's record pace, with heavier reductions noted in the fourth quarter of this year. In 1999, segment sales were up 16% over 1998 sales of $272 million, as a result of a very strong automotive and light truck market.
The General Industry segment sales of $420 million exceeded 1999 sales by 15%. Acquisitions completed at each of the businesses in this segment during the year were principally responsible for the segment's sales growth. Carlisle Systems & Equipment expanded its reach of isolation systems for the pharmaceutical industry and cheese processing equipment for the dairy products industry and has become a leader in these respective niches. The sales gains at Carlisle Transportation Products, due to the acquisition of Red River and increased demand at the tank trailer business, were more than offset by the decline in demand at the Trail King specialty trailer operations. This decline was caused by the ongoing softness in the transportation markets as a result of rising fuel costs. Acquisitions completed during the year at Carlisle FoodService offset lower sales of the core foodservice business. Segment sales of $364 million in 1999 were flat with 1998 sales of $363 million. On a pro-forma basis, excluding the effect of the perishable cargo divestiture in January 1999, sales increased 20% over 1998. Sales and earnings at Carlisle Systems & Equipment account for much of this pro-forma increase, due to the acquisition of Johnson Truck Bodies as well as internal growth. Carlisle Transportation Products sales were up over 1998 primarily due to a strong highway construction market. Higher sales were recorded in our foodservice business due to product line expansions in both international and domestic markets.
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