SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13
[X] OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
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OR
TRANSITION REPORT PURSUANT TO SECTION 13
[ ] OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ____________________
Commission file number 1-9278
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CARLISLE COMPANIES INCORPORATED
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 31-1168055
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
250 SOUTH CLINTON STREET, SUITE 201, SYRACUSE, NEW YORK 13202
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(Address of principal executive offices) (Zip code)
315-474-2500
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(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No__
Shares of common stock outstanding at August 1, 1999 30,177,433
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Page 1 of 13
PART I. FINANCIAL INFORMATION
CARLISLE COMPANIES INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
Three Months and Six Months ended June 30, 1999 and 1998
(Dollars in thousands, except per share amounts)
(unaudited)
Three Months Six Months
June 30, June 30,
1999 1998 1999 1998
--------- --------- --------- ---------
Net Sales ............................... $ 425,813 $ 395,580 $ 815,837 $ 758,670
Cost and expenses:
Cost of goods sold .................... 327,712 307,217 633,113 591,752
Selling and administrative ............ 44,248 40,451 87,193 80,558
Research and development .............. 4,052 4,192 7,977 8,078
Gain on divestiture of business($16,600),
net of other charges ($15,900) ......... -- -- 685 --
Other income & expense, net ............. 502 1,771 2,181 3,151
--------- --------- --------- ---------
Earnings before interest & taxes ........ 50,303 45,491 90,420 81,433
Interest, net ........................... (4,778) (4,891) (9,435) (9,462)
--------- --------- --------- ---------
Earnings before income taxes ............ 45,525 40,600 80,985 71,971
Income taxes ............................ 17,527 16,049 31,179 28,441
--------- --------- --------- ---------
Net earnings ............................ $ 27,998 $ 24,551 $ 49,806 $ 43,530
--------- --------- --------- ---------
--------- --------- --------- ---------
Average shares outstanding - basic ...... 30,178 30,181 30,181 30,179
Basic earnings per share ................ $ .93 $ .81 $ 1.65 $ 1.44
--------- --------- --------- ---------
--------- --------- --------- ---------
Average shares outstanding - diluted .... 30,651 30,725 30,644 30,730
Diluted earnings per share .............. $ .91 $ .80 $ 1.62 $ 1.42
--------- --------- --------- ---------
--------- --------- --------- ---------
Dividends declared and .................. $ .1600 $ .1400 $ .3200 $ .2800
paid per share --------- --------- --------- ---------
--------- --------- --------- ---------
See accompanying notes to interim financial statements.
Page 2 of 13
CARLISLE COMPANIES INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
(Dollars in thousands, except share amounts)
JUNE 30, Dec. 31,
1999 1998
--------- --------
ASSETS (unaudited)
CURRENT ASSETS
Cash and cash equivalents ............................ $ 6,651 $ 3,883
Receivables, less allowances of $5,300 in
1999 and $4,864 in 1998 ............................. 265,445 225,348
Inventories .......................................... 206,927 193,650
Deferred income taxes ................................ 20,291 26,040
Prepaid expenses and other ........................... 34,472 29,604
----------- -----------
TOTAL CURRENT ASSETS ................................ 533,786 478,525
----------- -----------
PROPERTY, PLANT AND EQUIPMENT ......................... 635,848 630,573
Less accumulated depreciation ........................ 291,512 275,804
----------- -----------
NET PROPERTY, PLANT AND EQUIPMENT ................... 344,336 354,769
----------- -----------
OTHER ASSETS
Patents and other intangibles ........................ 146,284 139,744
Investments and advances to affiliates ............... 14,251 34,892
Receivables and other assets ......................... 16,061 14,922
Deferred Income Tax .................................. 24,622 --
----------- -----------
TOTAL OTHER ASSETS .................................. 201,218 189,558
----------- -----------
$1,079,340 $ 1,022,852
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt, including current maturities ........ $ 22,171 $ 31,241
Accounts payable ..................................... 116,753 101,859
Accrued expenses ..................................... 138,589 122,237
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TOTAL CURRENT LIABILITIES ........................... 277,513 255,337
----------- -----------
LONG-TERM LIABILITIES
Long-term debt ....................................... 280,171 273,521
Product warranties and other liabilities ............. 75,314 87,089
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TOTAL LONG-TERM LIABILITIES ......................... 355,485 360,610
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STOCKHOLDERS' EQUITY:
Common stock, $1 par value. Authorized
100,000,000 shares; issued 39,330,624 shares ......... 39,331 39,331
Additional paid-in capital ........................... 4,834 4,201
Retained earnings .................................... 510,272 470,117
Cost of shares in treasury (1999 - 9,153,006
shares; 1998 - 9,152,167 shares) .................... (108,095) (106,744)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY .......................... 446,342 406,905
----------- -----------
$1,079,340 $ 1,022,852
----------- -----------
----------- -----------
See accompanying notes to interim financial statements
Page 3 of 13
CARLISLE COMPANIES INCORPORATED AND SUBSIDIARIES
Condensed Statements of Consolidated Cash Flows
Six Months ended June 30, 1999 and 1998
(Dollars in thousands)
(unaudited)
1999 1998
---- ----
OPERATING ACTIVITIES
Net earnings ................................ $ 49,806 $ 43,530
Reconciliation of net earnings to cash flows:
Depreciation ............................... 21,850 20,056
Amortization ............................... 3,267 3,686
(Gain)on sale of business, net of
other charges ............................ (685) --
Changes in assets and liabilities, excluding
effects of acquisitions and divestitures:
Current & long-term receivables .......... (38,162) (48,203)
Inventories .............................. (1,559) (7,549)
Accounts payable & accrued expenses ...... 6,558 31,041
Prepaid, deferred & current income taxes . (20,674) (3,280)
Long-term liabilities .................... 1,784 (2,683)
Other .................................... (457) 525
--------- ---------
Net cash provided by operating activities .... 21,728 37,123
--------- ---------
INVESTING ACTIVITIES
Capital expenditures ........................ (24,324) (52,297)
Acquisitions, net of cash ................... (28,228) (17,474)
Sales of property, equipment & business ..... 53,830 4,892
Other ....................................... (7,449) (1,005)
--------- ---------
Net cash used in investing activities ........ (6,171) (65,884)
--------- ---------
FINANCING ACTIVITIES
Net change in short-term borrowings ......... (9,285) (13,458)
Proceeds from long-term debt ................ 8,441 100,000
Reductions of long-term debt ................ (1,577) (10,605)
Dividends ................................... (9,650) (8,450)
Purchases of treasury shares ................ (718) (13,701)
--------- ---------
Net cash provided by financing activities .... (12,789) 53,786
--------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS .......... 2,768 25,025
CASH AND CASH EQUIVALENTS
Beginning of period ......................... 3,883 1,732
--------- ---------
End of period ............................... $ 6,651 $ 26,757
--------- ---------
--------- ---------
See accompanying notes to interim financial statements.
Page 4 of 13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1999 and 1998
(1) The accompanying unaudited condensed consolidated financial statements
include the accounts of Carlisle Companies Incorporated and its wholly-
owned subsidiaries (together, the "Company"). Intercompany transactions and
balances have been eliminated in consolidation. The unaudited condensed
consolidated financial statements have been prepared in accordance with
Article 10-01 of Regulation S-X of the Securities and Exchange Commission
and, as such, do not include all information required by generally accepted
accounting principles. However, in the opinion of the Company, these
financial statements contain all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial statements
for the interim period presented herein. Results of operations for the
three months and six months ended June 30, 1999 and 1998 are not
necessarily indicative of the operating results for the full year.
While the Company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these
financial statements be read in conjunction with the financial statements
and notes included in the Company's 1998 Annual Report to Stockholders.
(2) The components of inventories are as follows:
JUNE 30, Dec. 31,
1999 1998
--------- --------
(000)'S
First-in, first-out (FIFO) costs:
Finished goods $122,402 $113,852
Work in process 27,564 24,665
Raw materials 70,418 68,979
------- -------
$220,384 $207,496
Excess of FIFO cost over Last-in,
First-out (LIFO) inventory value (13,457) (13,846)
-------- -------
LIFO inventory value $206,927 $193,650
-------- -------
-------- -------
(3) Diluted earnings per share of common stock are based on the weighted
average number of shares outstanding of 30,650,767 for the three months
ended June 30, 1999 and 30,644,385 for the six months ended June 30, 1999
assuming the exercise of dilutive stock options.
(4) In January 1999, the Company announced the reduction of its interest in its
perishable cargo business, consisting of its container leasing joint
venture and container manufacturing operations. On January 28, 1999 the
Company sold 85% of its interest in its leasing joint venture. In
connection with the reduction in the Company's interest in the leasing
joint venture, the Company suspended operations at its container
manufacturing facility. As a result, the Company recognized a pretax gain
Page 5 of 13
of $16.6 million in the first quarter of 1999. These operations are
associated with the Company's All Other segment.
In conjunction with the implementation of the 1999 business plan, the
Company completed certain product line realignments, manufacturing
improvements and facility relocations and upgrades at its operating
businesses resulting in certain assets that are no longer required or will
be reallocated. In the first quarter of 1999, the Company recognized a
$15.9 million pretax charge related to these assets. Approximately 75% of
this charge related to machinery and equipment primarily associated with
the foodservice, roofing, tire and wheel and automotive components
manufacturing operations, with the remainder related to goodwill and other
intangible assets associated with acquisitions made in prior years. The
amount of the charge related to machinery and equipment was determined to
be the excess of the recorded values over the estimated fair values. The
fair values were determined using estimated market values or projected
future discounted cash flows, whichever was deemed appropriate. The charge
related to the intangible assets was determined as the excess of the
recorded value over the projected future discounted cash flows.
The net effect of the above items is reflected under the caption "gain on
divestiture of business and other charges" on the accompanying Consolidated
Statement of Earnings.
(5) Financial information for operations by reportable business segment is
included in the following summary:
JUNE 1999 - YTD
SEGMENT INFORMATION
SALES EBIT ASSETS
----- ---- ------
Construction Materials $187,470 $ 24,965 $ 203,017
Industrial Components 288,985 40,383 336,505
Automotive Components 165,347 12,799 225,182
All Other 174,035 17,910 236,844
Corporate/Eliminations * (5,637) 77,792
-------- ------- ---------
$815,837 $ 90,420 $1,079,340
-------- -------- ----------
-------- -------- ----------
Page 6 of 13
JUNE 1998 - YTD
SEGMENT INFORMATION
SALES EBIT ASSETS
----- ---- ------
Construction Materials $163,290 $23,260 $219,771
Industrial Components 284,022 37,260 306,266
Automotive Components 136,965 10,795 202,170
All Other 174,393 16,010 240,763
Corporate/Eliminations (5,892) 27,647
-------- ------- --------
$758,670 $81,433 $996,617
-------- ------- --------
-------- ------- --------
Reconciliation of earnings before interest and income taxes to earnings before
income taxes:
1999 1998
---- ----
Earnings before interest and income $90,420 $81,433
taxes
Investment Income 1,384 1,331
Interest expense 10,819 10,793
------ ------
Earnings before income taxes $80,985 $71,971
------- -------
------- -------
*In the first quarter of 1999, the gain on the divestiture of the Company's
perishable cargo business and charges related to certain assets were recorded at
the corporate level. See Note 4 in the Notes to Condensed Consolidated Financial
Statements.
Page 7 of 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Carlisle Companies Incorporated ("Carlisle" or the "Company") reported record
quarterly sales of $426 million and net earnings of $28 million or $.91 per
share (diluted) for the second quarter of 1999. For the six-months ended June
30, 1999, sales were $816 million and net earnings were $50 million or $1.62 per
share.
Second quarter sales represented an increase of 8% over 1998. Eliminating the
impact of the Perishable Cargo operation, which the Company exited in January
1999, sales were up 12%. Higher sales in Construction Materials and Automotive
Components were offset slightly by lower sales in Industrial Components.
Second quarter net earnings were above 1998 by 14%. Excluding the Perishable
Cargo business, net earnings were up 18%. All segments contributed to this
increase.
Six months sales were 8% above 1998. Excluding the Perishable Cargo business,
sales were up 10%. Increases in Construction Materials and Automotive Components
offset declines in the aerospace wire and friction operations of the Industrial
Components segment.
Net earnings for the six months ended June 30, 1999 increased 14%. Excluding the
Perishable Cargo business, net earnings were 17% over last year. Carlisle Tire
and Wheel, of the Industrial Components segment, led the increase with Carlisle
SynTec (Construction Materials) and Carlisle Systems & Equipment
(General Industry) also contributing.
Construction Materials sales of $111 million reflect an 18% increase over 1998.
Earnings before interest and taxes ("EBIT") for this segment increased 10%.
Domestic roofing sales were up over 1998, with TPO and insulation product lines
contributing to the increase. The higher level of lower-margin insulation sales,
coupled with raw material price increases, dampened margins for the period. The
Company has announced a price increase for EPDM rubber membrane roofing, which
will be effective October 1, 1999.
Industrial Components experienced a slight decrease in sales for the quarter
with EBIT up 5% on improved margins. Sales and earnings gains at Carlisle Tire
and Wheel and the cable assembly operations of Tensolite were offset by lower
sales activity of wire at Tensolite, and at the friction and braking systems
operations. This decline was due to reduced demand in the aerospace and mining
industries, coupled with lower heavy-duty aftermarket sales.
Automotive Components sales increased 22% over 1998 and EBIT increased 27%. 1998
results were negatively impacted by the strike at General Motors. Strong demand
at the automotive OEM assembly plants continued through the second quarter.
Absorption improvements were partially offset by continued operational
inefficiencies due to the high production volume requirements.
Page 8 of 13
The General Industry (All Other) segment reported sales of $87 million, down
slightly from 1998 second quarter. After eliminating the sales of the Perishable
Cargo operation, sales of this segment were up 19% over the second quarter of
1998. EBIT increased 38% excluding the Perishable Cargo operation. Increased
sales and operational improvements at Scherping Systems, the Company's cheese
systems operations, and Walker Stainless' in-plant processing equipment
operations contributed to the higher sales and earnings of this segment. Trail
King, the Company's specialized trailer operation, remains strong, particularly
in the construction market, aided by increased spending on state and federal
highway projects. The foodservice operations continue to show improvement in
sales and earnings.
The Company announced the acquisition of Johnson Truck Bodies, a manufacturer of
fiberglass custom truck bodies serving the foodservice distribution market and
the emerging market for on-line ordering of food for delivery to homes. This
business will be reported in the All Other/General Industry segment. The impact
of this acquisition was not material in the quarter. The Company continues to
evaluate complementary and supplementary acquisitions in each of its business
segments.
Cash generated from operations was $22 million for the first six months of 1999
compared to $37 million for the same period of 1998. The decrease is
attributable to the payment of deferred taxes associated with the divestiture of
the Company's Perishable Cargo business in the first quarter of 1999. Working
capital was $256 million at June 30, 1999, compared to $250 million at March 31,
1999 and $251 million at June 30, 1998. Working capital turnover increased from
6.31 turns in 1998 to 6.65 turns in 1999. Capital expenditures of $24.3 million
are down significantly from the unusually high expenditures made in 1998.
Backlog of $229 million at June 30, 1999 is up 11% over June 30, 1998, excluding
the one-time contract at the container manufacturing operations. Stronger
backlog positions at the Automotive Components business, Scherping Systems, as
well as the addition of Johnson Truck Bodies, are the main reasons for the
increase. Also, the backlog shows continued weak aerospace wire purchases as
well as soft friction and off highway brake business.
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 internal personnel and third-party
consultants) of (i) assessment, (ii) remediation, and (iii) authentication. At
this time, the Company has completed the assessment phase and has substantially
completed the remediation phase. The Company is pursuing appropriate remedial
action for the systems determined to be noncompliant. The authentication phase,
which includes simulated testing in a Year 2000 environment, will continue
throughout 1999. The estimated cost of the Company's completed and remaining
efforts is not expected to exceed $500,000.
Page 9 of 13
Carlisle has a formal communication program with its significant suppliers and
large customers which will conclude in the third quarter of 1999. As part of
this program, Carlisle has, and will continue to (1) evaluate the supplier's
year 2000 compliance plans and state of readiness and (2) determine whether a
year 2000-related event will impede the ability of a particular supplier to
continue to provide goods and services. Contingency plans will be adopted for
any significant supplier that does not provide an appropriate and timely
response to Carlisle or if the results of a risk assessment identify a business
process at risk of a Year 2000 failure.
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.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company's 1999 Annual Meeting of Shareholders was held on April
20, 1999.
(b) At the 1999 Annual Meeting of Shareholders, the election of three
directors were approved as follows:
DIRECTOR FOR AGAINST WITHHELD NON-VOTE
-------- --- ------- -------- --------
Henry J. Forrest 39,981,403 -- 217,376 13,753,932
Peter L.A. Jamieson 39,975,442 -- 223,337 13,753,932
Peter F. Krogh 39,977,230 -- 221,549 13,753,932
(c) At the 1999 Annual Meeting of Shareholders, a proposal to amend the
Company's Restated Certificate of Incorporation to increase the number
of authorized shares of common stock from 50,000,000 to 100,000,000
shares was approved as follows:
FOR AGAINST WITHHELD NON-VOTE
--- ------- -------- --------
Proposal to Amend 38,539,509 1,280,872 378,398 13,753,932
Certificate of Incorporation
Item 5. Other Information.
On August 4, 1999, Carlisle Companies Incorporated ("Carlisle" or the "Company")
entered into a Letter of Intent (the "Letter of Intent") with
Page 10 of 13
Titan International, Inc. ("Titan") pursuant to which, and subject to the
terms and conditions set forth therein, Titan will merge (the "Merger") with
a wholly-owned subsidiary of Carlisle. The closing of the Merger will be held
as soon as practicable following the execution and delivery of a definitive
merger agreement (the "Definitive Agreement"). Titan and Carlisle have agreed
to work diligently and in good faith toward the execution and delivery of the
Definitive Agreement within 45 days of the date of the Letter of Intent. The
consummation of the Merger will be subject to and conditioned upon, among
other things, (i) the execution of a mutually acceptable Definitive Agreement
and the compliance with or satisfaction or waiver of the terms and conditions
thereof; (ii) the completion of due diligence investigation by Titan and
Carlisle; (iii) the receipt of all material consents and approvals, including
from regulatory agencies (domestic or foreign), necessary to consummate the
Merger in conformity with applicable law (domestic or foreign), agreements
and orders (domestic or foreign) without the necessity of making any changes
to the business of Titan and Carlisle as they currently exist; (iv) the
approval of the Board of Directors and stockholders of each of Titan and
Carlisle of the Definitive Agreement and the transactions contemplated
thereby; (v) the Merger qualifying as a "pooling-of-interests" transaction in
accordance with Opinion 16 of the Accounting Principles Board and the receipt
by Carlisle of (A) a favorable determination by the Securities and Exchange
Commission (the "SEC") to the effect that the Merger qualifies as a
"pooling-of-interest" transaction and (B) a "pooling opinion" issued by
Carlisle's independent auditors in form and substance satisfactory to
Carlisle dated the date of the Registration Statement on Form S-4 (the "Form
S-4") and confirmed in writing at the effective time of the Merger; (vi) the
effectiveness of the Form S-4 and absence of any stop order issued by the
SEC; (vii) the shares of Carlisle Common Stock (defined below) issuable in
connection with the Merger being approved for listing on the New York Stock
Exchange ("NYSE"), subject only to official notice of issuance; and (viii)
the absence of any changes having or reasonably likely to have a material
adverse effect on the business, properties, operations, prospects or
conditions (financial or otherwise) of Titan and its subsidiaries, or
Carlisle and its subsidiaries.
Upon consummation of the Merger, each share of common stock, no par value
("Titan Common Stock") of Titan issued and outstanding immediately prior to the
Merger will be converted into the right to receive the fraction of one share of
common stock, par value $1.00 per share ("Carlisle Common Stock"), of Carlisle
(the "Exchange Ratio") equal to the quotient obtained by dividing (i) $17 by
(ii) the average of the closing price per share of Carlisle Common Stock on the
NYSE (as reported in THE WALL STREET JOURNAL) on each of the 15 consecutive
trading days immediately preceding the second trading day prior to the actual
date of the special meeting of Carlisle's stockholders with respect to the
transactions contemplated by the Merger (the "Average Closing Price"), provided
that the Exchange Ratio will be no less than .3242 and no more than .3652, even
if the Average Closing Price exceeds $52.43 or is less than $46.55,
respectively. In the event that the Average Closing Price is (A) less than
$40.00, Titan may, at its option, terminate the Merger or (B) greater than
$60.00, Carlisle may, at its option, terminate the Merger, in each case without
further liability to the other party.
Page 11 of 13
In connection with the Letter of Intent, Carlisle entered into a
separate voting agreement, dated as of August 4, 1999 (the "Voting
Agreements"), with each of MascoTech, Inc., 399 Venture Partners, Inc.,
Maurice M. Taylor, Jr. and Anthony L. Soave, owning in the aggregate
7,772,942 shares of Titan Common Stock representing approximately 37% of the
issued and outstanding shares of Titan Common Stock. The purpose of the
Voting Agreements and the transactions contemplated thereby is to ensure
approval of the Merger. The foregoing description of the Letter of Intent is
qualified in its entirety by reference to the text of such agreement, which
is filed as an exhibit to this Form 10-Q and is incorporated by reference
herein.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits applicable to the filing of this report are as follows:
(2) Letter of Intent, dated August 4, 1999 between Carlisle Companies,
Incorporated and Titan International, Inc.
(12) Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule as of June 30, 1999 and for the six months
ended June 30, 1999.
(99) Press Release, dated August 4, 1999.
(b) Report on Form 8-K:
No reports on Form 8-K were filed during the quarter for which this report
on Form 10-Q is filed.
Page 12 of 13
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Carlisle Companies Incorporated
Date August 12, 1999 By: /s/JOHN S. BARSANTI
------------------------------- ----------------------------
John S. Barsanti
Vice President,
and Chief Financial Officer
Page 13 of 13
EXHIBIT 2
Carlisle Companies Incorporated
250 South Clinton Street
Syracuse, New York 13202
August 4, 1999
CONFIDENTIAL
Titan International, Inc.
2701 Spruce Street
Quincy, IL 62301
Attention: Maurice M. Taylor, Jr.,
President and Chief Executive Officer
Dear Mr. Taylor:
This letter (this "Letter") will confirm the discussions between Carlisle
Companies Incorporated ("Buyer") and Titan International, Inc. ("Seller"), with
respect to the proposed merger (the "Merger") involving Seller and an entity to
be formed by Buyer (the "Merger Sub"). The Merger shall be made upon the
following terms and subject to the following conditions:
1. PRICE AND STRUCTURE OF THE TRANSACTION.
Subject to the terms and conditions set forth herein, on the Closing Date (as
defined below), the Merger Sub and Seller shall engage in a merger qualifying as
a "tax-free" reorganization under Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"). Upon consummation of the Merger, each share of
common stock, no par value ("Seller Common Stock"), of Seller issued and
outstanding immediately prior to the Merger shall be converted into right to
receive the fraction of one share of common stock, par value $1.00 per share
("Buyer Common Stock"), of Buyer (the "Exchange Ratio") equal to the quotient
obtained by dividing (i) $17 by (ii) the average of the closing price per share
of Buyer Common Stock on the New York Stock Exchange ("NYSE") (as reported in
THE WALL STREET JOURNAL) on each of the 15 consecutive trading days immediately
preceding the second trading day prior to the actual date of the special meeting
of Buyer's stockholders with respect to the transactions contemplated by the
Merger (the "Average Closing Price"); PROVIDED, HOWEVER, that the Exchange Ratio
shall be no less than .3242 and no more than .3652, even if the Average Closing
Price exceeds $52.43 or is less than $46.55, respectively. In the event that the
Average Closing Price is (i) less than $40.00, Seller may, at its option,
terminate the Merger or (ii) greater than $60.00, Buyer may, at its option,
terminate the Merger, in each case without further liability to the other party.
The Exchange Ratio
shall be calculated and rounded to the nearest 1/10,000th of a decimal place.
No fractional shares of Buyer Common Stock shall be issued pursuant to the
Merger. In lieu of the issuance of any fractional share of Buyer Common Stock
pursuant to the Merger, cash adjustments shall be paid to holders in respect
of any fractional shares of Buyer Common Stock that would otherwise be
issuable, and the amount of such cash adjustment shall be equal to the
product of such fractional amount and the Average Closing Price of Buyer
Common Stock for the first five trading days commencing on and immediately
following the Closing Date.
Upon consummation of the Merger, all obligations of Seller under issued and
outstanding options, warrants and other rights to acquire or receive Seller
Common Stock (the "Seller Options") shall be transferred to and assumed by Buyer
as options to purchase shares of Buyer Common Stock. Following the effective
time of the transactions contemplated by the Merger (the "Effective Time"), each
such Seller Option shall be exercisable upon the same terms and conditions as
then are applicable to such Seller Option, except that (i) each such Seller
Option shall be exercisable for that number of shares of Buyer Common Stock
equal to the product obtained by multiplying the number of shares of Seller
Common Stock that were issuable upon exercise in full of such assumed Seller
Option immediately prior to the Effective Time by the Exchange Ratio, rounded
down to the nearest whole number of shares of Buyer Common Stock and (ii) the
per share exercise price for the shares of Buyer Common Stock issuable upon
exercise of such Seller Option shall be equal to the quotient obtained by
dividing the exercise price per share of Seller Common Stock at which such
Seller Option were exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent. Seller and Buyer shall
cooperate and take all actions that are reasonably necessary and within Seller's
control to (A) comply with the provisions of this paragraph and (B) avoid any
"excess parachute payment" (as contemplated by Section 280G of the Code) with
respect to such options.
2. SIGNING AND CLOSING.
The closing of the Merger shall be held as soon as practicable following the
execution and delivery of a definitive merger agreement (the "Definitive
Agreement"), at a time and place to be mutually agreed upon by Seller and Buyer
(the "Closing Date"). The parties agree to work diligently and in good faith
toward the execution and delivery of the Definitive Agreement within 45 days of
the date hereof (the "Target Date"). The consummation of the Merger shall be
subject to and conditioned upon, among other things, (i) the execution of a
mutually acceptable Definitive Agreement and the compliance with or satisfaction
or waiver of the terms and conditions thereof on or before the Closing Date;
(ii) the completion of due diligence investigation by Seller and Buyer as
described further in paragraph 3 below; (iii) the receipt of all material
consents and approvals, including from regulatory agencies (domestic or
foreign), necessary to consummate the Merger in conformity with applicable law
(domestic or foreign), agreements and orders (domestic or foreign) without the
necessity of making any changes to the business of Buyer or Seller as they
currently exist; (iv) the approval of the Board of Directors and stockholders of
each of Seller and Buyer of the Definitive Agreement and the transactions
contemplated thereby; (v) the Merger qualifying as a "pooling-of-interests"
transaction in accordance with Opinion 16 of the Accounting Principles Board and
the receipt by Buyer of (A) a favorable determination by the Securities and
Exchange Commission
(the "SEC") to the effect that the Merger qualifies as a
"pooling-of-interest" transaction and (B) a "pooling opinion" issued by
Buyer's independent auditors in form and substance satisfactory to Buyer
dated the date of the Registration Statement on Form S-4 (the "Form S-4") and
confirmed in writing at the Effective Time; (vi) the Form S-4 shall have
become effective in accordance with the provisions of the Securities Act of
1933, as amended (the "Securities Act"), and no stop order shall have been
issued by the SEC with respect thereto; (vii) the shares of Buyer Common
Stock issuable in connection with the Merger shall have been approved for
listing on the NYSE, subject only to official notice of issuance; and (viii)
the absence of any changes having or reasonably likely to have a material
adverse effect on the business, properties, operations, prospects or
conditions (financial or otherwise) of Seller and its subsidiaries, or Buyer
and its subsidiaries, in each case, taken as a whole. The shares of Buyer
Common Stock to be delivered in connection with the Merger shall be
registered with the SEC pursuant to the Form S-4. The Form S-4, which shall
include the joint proxy statement/prospectus of Seller and Buyer, shall be
mailed to all of the stockholders of Seller and Buyer in connection with
their approval of the transactions contemplated by the Merger.
3. ACCESS TO FACILITIES; DUE DILIGENCE.
From the date hereof to the Expiration Date (as defined in Paragraph 14), each
of Seller and Buyer and their respective attorneys, consultants, accountants,
lenders and authorized representatives (collectively, the "Representatives"),
upon reasonable notice to the other party, shall be afforded full access to the
all properties, books, contracts, commitments, records, personnel, agents and
representatives of the other party in order to permit it to conduct its due
diligence investigation of the other party. It is anticipated that this
investigation will include an examination and assessment of future business
prospects of the respective parties, including a review of strategic plans,
products and financial forecasts. Following receipt of all necessary approvals
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
Buyer and its Representatives shall also be permitted to contact suppliers,
customers and others having business relations with Seller in connection with
such investigation upon reasonable prior notice to Seller.
4. CONDUCT OF BUSINESS PENDING CLOSING.
From the date hereof until the Expiration Date, Seller shall continue to operate
its business in the usual and ordinary course (including, without limitation,
the payment of dividends in accordance with past practice), shall refrain from
entering into any material contracts or agreements, other than in accordance
with past practice, making any material capital expenditures (not approved by
Seller's Board of Director prior to the date hereof) or significant
organizational or personnel changes (including the sale or purchase of any
significant assets or business segments, other than in the ordinary course) and
shall use all reasonable efforts to preserve the goodwill of its customers,
employees, independent contractors, suppliers and others with whom Seller has
business relations.
5. NO SOLICITATION.
For the period from the date hereof until the Target Date, or such longer period
as the parties hereto may agree in writing (the "Nonsolicitation Period"),
Seller and each of its officers, directors, attorneys, accountants and other
representatives acting within the scope of their authority shall refrain,
directly or indirectly, from soliciting, initiating, inducing or otherwise
encouraging (i) inquiries or proposals from, (ii) an offer to be made by or
(iii) discussions with any party other than Buyer with respect to the sale of
any of the capital stock or business of Seller or any of its assets (other than
sales of assets in ordinary course of business). Notwithstanding the foregoing
provisions of this paragraph 5, Seller's Board of Directors shall be free to
take any action or authorize the taking of any action with respect to
unsolicited (and only unsolicited) inquiries, proposals or offers, including,
without limitation, responding thereto and providing information to third
parties in connection therewith, as may be required in the exercise of their
fiduciary duties to Seller or its stockholders; PROVIDED, HOWEVER, that, as a
condition to taking any such action, Seller must have received from any such
third party an executed confidentiality agreement in customary form on terms not
less favorable to Seller than the confidentiality provisions set forth in that
certain Confidentiality Agreement, dated the date hereof, by and between Seller
and Buyer (the "Confidentiality Agreement"). Seller shall promptly inform Buyer
in writing of any such inquiry (including the name of any such third party). The
foregoing shall in no way limit Seller's obligations to Buyer hereunder,
including, without limitation, under paragraph 10 below.
6. DEFINITIVE AGREEMENT.
The obligations of Seller and Buyer are expressly subject to the negotiation and
execution of the Definitive Agreement in form and substance satisfactory to each
party and their respective counsel. The Definitive Agreement shall contain
representations, warranties, covenants, agreements, conditions, termination
provisions and indemnities as are customary in public merger agreements of this
type.
7. VOTING AGREEMENT.
Seller acknowledges that in order to insure that the Merger will be consummated
as intended and as an inducement to Buyer entering into this Letter, each of
MascoTech., Inc., 399 Venture Partners, Inc., Maurice M. Taylor, Jr. and Anthony
L. Soave (the "Granting Stockholders"), holding in the aggregate approximately
37% of all the issued and outstanding shares of Seller Common Stock, shall
execute and deliver to Buyer a voting agreement/irrevocable proxy (the "Voting
Agreement") in the form attached hereto as EXHIBIT A upon Seller's execution of
this Letter.
8. CONFIDENTIALITY.
In the event of the termination of this Letter or the transactions contemplated
hereby, all information acquired by either party or their respective employees,
agents or Representatives of the business of the other party hereto shall be
held in accordance with the terms and provisions of the Confidentiality
Agreement, which terms and provisions are incorporated herein in their entirety
and constitute a part hereof.
9. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Each of Seller and Buyer represents and warrants to the other that its most
recent Annual Report on Form 10-K and each report or document filed with the SEC
since such date (which constitute all of the documents and reports such party
was required to file with the SEC since such date) as of their respective dates
("Public Filings"), complied in all material respects with the applicable
requirements of the Securities Act, the Securities Exchange Act of 1934, as
amended, and the rules and regulations under each such Act, and none of such
filings contained as of such date any untrue statement of a Material fact or
omitted to state a Material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. To the best of each party's knowledge, since March 31,
1999, neither Seller nor Buyer has incurred any undisclosed Material liability
or obligation of any kind. For the purposes of this paragraph 9, "Material"
shall mean material to Seller or Buyer, as the case may be, and their respective
subsidiaries taken as a whole.
Each party agrees to take all such actions as may be required under its charter
documents and the laws of its jurisdiction of incorporation to facilitate the
consummation of the Merger, including, without limitation, obtaining all
approvals and consents as may be required under relevant control share
acquisition statutes or similar laws.
10. TERMINATION FEE.
If (i) prior to the Expiration Date, Seller enters into an agreement or series
of agreements with a third party or its affiliates, for the sale (without regard
to the form of sale) of all or a substantial portion of the assets, stock or
business of Seller, with any party other than Buyer, or breaches its obligations
set forth in paragraph 5 above or (ii) within six months of the Expiration Date,
Seller enters into an agreement or series of agreements with a third party or
its affiliates, for the sale (without regard to the form of sale) of all or a
substantial portion of the assets, stock or business of Seller, then upon
execution and delivery of any such agreement contemplated by clause (i) or (ii)
above or a breach of paragraph 5 above, Seller shall (unless Buyer shall have
breached its representations and warranties provided in paragraph 9 above) pay
to Buyer a termination fee of $20,000,000 in cash, as liquidated damages.
If prior to the Expiration Date, Buyer determines not to enter into the
Definitive Agreement, other than as a result of (i) discovery during its due
diligence investigation of facts, circumstances or events which have had or
could have a material adverse effect on the (A) the business, properties,
operations, prospects or condition (financial or otherwise) of Seller and its
subsidiaries, taken as a whole, which are not set forth in Seller's Public
Filings in reasonable detail or (B) the ability of Seller to perform or meet its
obligations under or pursuant to the Merger Agreement or the Granting
Stockholders under or pursuant to the Voting Agreements (ii) the failure (A) of
Buyer and Seller to, in good faith, reach an agreement with respect to the terms
and conditions of the Definitive Agreement prior to the Expiration Date or (B)
of the conditions to Buyer's consummation of the Merger contemplated hereby or
in the Definitive Agreement to be met or (iii) a breach by Seller
or any of its affiliates, employees or Representatives of any provision of
the Letter, including, without limitation, the provisions of paragraph 5
above or Seller's representations and warranties provided in paragraph 9
above, Buyer shall, promptly following the Expiration Date, pay to Seller a
termination fee of $5,000,000, as liquidated damages. Notwithstanding any
provision of the first paragraph of this paragraph 10, in the event Buyer is
obligated to pay Seller such $5,000,000 termination fee then from and after
such time Seller shall no longer be obligated under the provisions of the
first paragraph of this paragraph 10.
11. EXPENSES.
Except as provided in paragraph 10, each party will pay its own professional
fees and expenses in connection with the Merger.
12. PUBLIC DISCLOSURE.
The parties shall consult with each other and agree on the desirability, timing
and substance of any press release or public announcement or publicity statement
or other disclosures to the public relating to the proposed transaction. Subject
to applicable law, neither of the parties shall issue such public disclosure
without the prior agreement of the other party hereto as to the time of the
issuance, extent of distribution and form and substance of such public
disclosure; PROVIDED, HOWEVER, that immediately following the execution and
delivery of this Letter the parties shall issue a joint press release in the
form of EXHIBIT B hereto.
13. EFFECT OF THIS LETTER.
Except for the provisions of paragraphs 3, 5, 7, 8, 10, 11 and 12 above, this
paragraph 13 and paragraphs 15 and 16 below, this Letter is not intended to be
and is not a binding contract between us, but is a statement of our good faith,
mutual intent and understanding as of this date to proceed with the Merger
contemplated hereby on the terms outlined in this Letter. With respect to
provisions hereof other than paragraphs 3, 5, 7, 8, 10, 11 and 12 above, this
paragraph 13 and paragraphs 15 and 16 below, the parties will be jointly bound
only in accordance with the terms and conditions contained in the executed
Definitive Agreement.
14. EXPIRATION.
This Letter (other than the provisions of paragraphs 8, 10 and 11 above) shall
expire upon the termination of the Nonsolicitaion Period set forth in paragraph
5 above (the "Expiration Date").
15. CERTAIN STATE LAW MATTERS.
Seller hereby represents and warrants to Buyer that it has taken all such
actions required by law or its Certificate of Incorporation or Bylaws so that no
state takeover, control share acquisition or other law (including, without
limitation, under the Illinois Business Corporation Act) that purports to limit
or restrict mergers or other business combinations or the ability to acquire or
vote shares are applicable to any of (i) the execution of this Letter, the
Definitive Agreement or the Voting Agreements, (ii) the Merger
or (iii) the transactions contemplated by the Merger, the Voting Agreements
or hereby.
16. MISCELLANEOUS.
This Letter (i) may be executed in counterparties, each of which shall be deemed
to be an original, but all of which shall constitute one and the same document
and (ii) shall be construed in accordance with the laws of the State of New York
without regard to the conflict of law principles thereof.
Please indicate your agreement with the terms and conditions of this Letter and
your good faith intention to enter into a Definitive Agreement by signing and
returning one copy of this Letter to the undersigned, whereupon we shall proceed
promptly with the preparation of a Definitive Agreement.
We look forward to working with you toward a successful closing.
Very truly yours,
CARLISLE COMPANIES INCORPORATED
By: /s/STEPHEN P. MUNN
----------------------------
Name: Stephen P. Munn
Title: Chairman and Chief
Agreed to this 4th day of Executive Officer
August, 1999
TITAN INTERNATIONAL, INC.
By: /s/MAURICE M. TAYLOR, JR.
- -----------------------------
Name: Maurice M. Taylor, Jr.
Title: President and Chief Executive Officer
Exhibit 12
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's ratio of earnings to fixed
charges for periods indicated:
6 Months
ENDED YEAR ENDED DECEMBER 31,
----------------------------------------
6/30/99 1998 1997 1996 1995 1994
------- ---- ---- ---- ---- ----
Ratio of Earnings to
Fixed Charges 7.73 5.19 7.47 8.70 9.73 9.89
For purposes of computing the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense (including capitalized interest) and the portion of
rental expense that is representative of the interest factor (deemed to be
one-third of minimum operating lease rentals). The earnings to fixed charges
calculation reflects the Company's proportionate share of income, expense and
fixed charges attributable to the Company's investment in majority-owned
unconsolidated subsidiaries and joint ventures.
Exhibit 27
CARLISLE COMPANIES INCORPORATED
FINANCIAL DATA SCHEDULE
This schedule contains Summary Financial Information extracted from the
Financial Statements of Carlisle Companies Incorporated for the six month period
ending June 30, 1999, and is qualified in its entirety by reference to such
Financial Statements.
Period 6 months
Fiscal Year End December 31, 1999
Period Start January 1, 1999
Period End June 30, 1999
(In thousands except share data)
Item Number Item Description Amount
- ----------- ----------------- -------
5-02(1) cash and cash items $ 6,651
5-02(2) marketable securities 0
5-02(3)(a)(1) notes and accounts receivable -
trade 265,445
5-02(4) allowances for doubtful accounts 5,300
5-02(6) inventory 206,927
5-02(9) total current assets 533,786
5-02(13) property, plant and equipment 635,848
5-02(14) accumulated depreciation 291,512
5-02(18) total assets 1,079,340
5-02(21) total current liabilities 277,513
5-02(22) bonds, mortgages and similar debt 280,171
5-02(28) preferred stock - mandatory redemption 0
5-02(29) preferred stock - no mandatory redemption 0
5-02(30) common stock 39,331
5-02(31) other stockholders' equity 407,101
Item Number Item Description Amount
- ----------- ---------------- ------
5-02(32) total liabilities and stockholders' equity $1,079,340
5-03(b)1(a) net sales of tangible products 815,837
5-03(b)1 total revenues 815,837
5-03(b)2(a) cost of tangible goods sold 633,113
5-03(b)2 total costs and expenses
applicable to sales and revenues 728,283
5-03(b)3 other costs and expenses 2,866
5-03(b)5 provision for doubtful accounts
and notes 539
5-03(b)8 interest and amortization of
debt discount 9,435
5-03(b)(10) income before taxes and other
items 80,985
5-03(b)(11) income tax expense 31,179
5-03(b)(14) income/loss continuing operations 49,806
5-03(b)(15) discontinued operations 0
5-03(b)(17) extraordinary items 0
5-03(b)(18) cumulative effect - changes in
accounting principles 0
5-03(b)(19) net income or loss 49,806
5-03(b)(20) earnings per share - basic 1.65
5-03(b)(20) earnings per share - diluted 1.62
Exhibit 99
NEWS RELEASE
CSL990015
8/4/99 1: 16 PM
(CSL) CARLISLE COMPANIES TO ACQUIRE TITAN INTERNATIONAL, INC.
SYRACUSE, NEW YORK, August 4, 1999 ...... Carlisle Companies Incorporated
(NYSE:CSL) and Titan International, Inc. (NYSE:TWI) jointly announced today that
the two companies have entered into a letter of intent providing for the merger
of Titan into Carlisle Companies in a transaction valued at approximately $600
million including the assumption of debt.
Upon consummation of the merger, each share of Titan's common stock issued and
outstanding immediately prior to the merger will be converted into the right to
receive the fraction of one share of Carlisle's common stock equal to the
quotient obtained by dividing (i) $17 by (ii) the average of the closing price
per share of Carlisle's common stock on the New York Stock Exchange on each of
the 15 consecutive trading days immediately preceding the second trading day
prior to the actual date of the special meeting of Carlisle's stockholders with
respect to the transactions contemplated by the merger, subject to a maximum and
minimum exchange ratio of .3652 and .3242, respectively. The letter of intent
has been approved by the Board of Directors of Titan.
In connection with the execution of the letter of intent, certain of Titan=s
stockholders, holding in the aggregate approximately 37% of Titan's outstanding
common stock, have entered into voting agreements with Carlisle pursuant to
which such stockholders have agreed to vote their shares of Titan's common stock
in favor of the proposed merger.
The proposed merger is conditioned upon execution and delivery of a definitive
merger agreement, completion of due diligence, approval by the Boards of
Directors and the stockholders of both Carlisle and Titan of the proposed merger
and the definitive merger agreement, procurement of applicable regulatory
approval, the proposed merger qualifying as a "pooling-of-interest" transaction,
and other customary conditions to closing and may be terminated under certain
circumstances. Titan has agreed not to solicit competing offers for a period of
45 days and to pay a termination fee of $20,000,000 under certain circumstances.
Maurice M. Taylor, Jr., Titan's President and CEO, said, "This merger is a great
opportunity for both Carlisle and Titan. Carlisle is a well-established company
and Titan is a young aggressive company whose new LSW technology in the off-
highway wheel and tire business is, I believe, ready to take the market by
storm. As the largest individual investor in Titan, there comes a time to look
at the big picture and this merger is a better way to advance Titan's goals and
to strengthen its outlook for the future. My experience is primarily in
engineering and sales. Steve Munn is much stronger in the
financial area than I am, and he's also one heck of a salesman. Together we
should be quite a team in the industry." Stephen P. Munn, Carlisle's Chairman
and CEO, said, "This merger is a unique opportunity for our two companies to
bring outstanding technology, a more favorable cost basis, a broader product
line, and a more enhanced global presence with better service to the customer
base within the tire and wheel industry. We are most enthusiastic about this
transaction and excited about the future opportunities."
Carlisle is a diversified manufacturer of products serving four major markets:
construction materials, automotive components, industrial components and general
industry.
Titan International is a leading global manufacturer of wheel and tire
assemblies serving the agricultural, construction and consumer markets. Titan
has manufacturing and distribution facilities throughout the United States,
Europe and South America.
CONTACT: John S. Barsanti
Vice President and Chief Financial Officer
(315) 474-2500
sjf\sec\10q-2nd.99