Carlisle Companies Inc (CSL) 2002 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Carlisle Companies, Incorporated first quarter 2002 conference call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a quesiton-and-answer session. At that time if you have a question, please press the one followed by the four on your telephone.

As a reminder, this conference is being recorded Tuesday, April 16th, 2002.

I would now like to turn the conference over to

, President and CEO of Carlisle Companies, Incorporated. Please go ahead, sir.

Thank you. Welcome to Carlisle's first quarter conference call. With me today is Kirk Vincent, our Chief Financial Officer.

Our format's going to be the same. Kirk will briefly summarize the first quarter, I'll have some comments about our operating units and then we'll turn it back to the operator for some Q&A.

OK, Kirk.

Thank you, Rick. Good morning, everyone. Yesterday Carlisle reported first quarter sales 455 million - a two percent - two percent decrease from the first quarter 2001.

Net earnings were 12.8 million or 42 cents per share diluted, which compares to the first quarter 2001 net loss of $10.2 million or 33 cents per share.

The first quarter 2001 net loss included a $20.9 million after tax restructuring charge.

After factoring out the effect of the restructuring charge, net earnings were $10.7 million or...

... cents per share in the first quarter after tax restructuring charge.

After factoring out the effect of the restructuring charge, net earnings were $10.7 million or 35 cents per share in the first quarter of 2001.

As required by Financial Accounting Standards 142, goodwill is no longer being amortized.

This change had a positive impact of 2.1 million or seven cents per share in the first quarter of 2002 compared to the same period a yeatr ago.

Turning to cahs flow - we reported that cash flow from operations was negative in the first quarter due to changes in working capital primarily associated with an increase in accounts receivable. Carlisle's focus on inventory remains strong with total inventories down almost $51 million excluding acquisitions from the first quarter 2001.

Capital expenditures declined from 21 million in the first quarter of 2001 to 10.7 million in the first quarter of 2002.

Total cash flow in the first quarter was a negative 12.3 million compared to a positive $400,000 a year ago.

I can also say that cash flow remains a critical focus for Carlislie and we're optimistic that the negative cash flow realized in the first quarter is going to reverse itself throughout the rest of the year.

Backlog at March 31, 2002 was 270 million down from the year ago period of 300 million and is about six percent below the December 31, 2001 level of 288 million.

Most of the decrease is associated with lower backlog position in the general industry segment at

and Carlisle Systems and Equipment.

I'd like to turn the call back over to Rick now for some comments on the quarter.

Thanks, Kirk. Our first segment - construction materials segment - this consists of our commercial roofing company

and a 25 percent interest in

, which is a leading European commercial roofing company.

sales were down seven percent in the quarter. This is slightly less than the industry publication

who recently reported that non-residential construction was down 11 percent.

March was a very weak month for

and the management there feels it was reallly a hangover from 9/11. There's a lengthy construction cycle. It takes so many months for these things to work their way through.

April activity month to date is much better. Despite the sales fall off at

, margins improved.

Warranty adjustments were the same in both periods and EBIT as a percent of sales was up one point.

The earnings decrease was entirely our joint venture in Europe -

.

We've got reallignment issues and we think the balance of the year forecast will be much improved there. They traditionally have a soft first quarter. It was a little worse than normal.

On a bright note, our TPO membrane, which has been growing rapidly - sales were up 47 percent continuing a strong growth.

has been a majority owner in an insulation joint venture -

).

During the first quarter we purchased the balance of this business. We're now 100 percent owner of the insulation business.

Insulation is a critical component on the roof that co-exists with our roofing membrane.

The next segment is industrial components. This is a new segment. It's composed of our specialty tire and wheel business and the

acquisition, which was renamed Carlisle Power Transmission.

They make rubber belts for a wide variety of power transmission needs.

Tire and wheel had a very soft quarter. Their sales were down 18 million primarily in the lawn and garden and trailer markets.

Our transmission sales were also down, reflecting their dependence on lawn and garden, ag and certain industrial markets.

Despite the sales decrease at Carlisle Tire and Wheel net earnings were only off four-tenths of one percent on sales. This bodes well when this market starts improving.

Carlisle Tire and Wheel also reduced their SG&A by 2 1/2 million. Only 700,000 of that was the change to goodwill.

So they continue to show some very good operating improvement.

Tire and wheel also had a first quarter - announced two major new product lines. They've entered into the agricultural market with a line of tires and wheels. It's the first venture at tire and wheel in ag since we've been inexistence - introducing a line of steel belted radials. It's also Carlisle's first venture into steel belted radials and we're excited about that.

The next segment is specialty products. This consists of our two braking products company - motion control and industrial brake and friction.

The sales at motion control were down 14 percent mostly because of their dependence on the heavy truck

market. And the heavy construction market was also soft.

Earnings in this segment was very disappointing but our industrial brake and friction business had an EBIT percentage over 12 percent on sales. They continue to perform very well inspite of soft markets.

The loss at motion control more than offset the good performance at our industrial brake and friction company.

We elected in January to shut down our high cost friction plant in Pennsylvania and accelerate our ramp up at our new plant in South Hills, Virginia.

Motion control profits were severely impacted by a major plant closing and new plant start up. We should have these projects substantially complete by the end of the second quarter.

The next segment is automotive components. We mentioned on our last conference call that new management - we're please with new management and some of the actions they've taken. I think that's reflected in the first quarter. Earnings increased by 66 percent.

The next segment is transportation products segment. This is primarily Trail King. They participate in the speacialty heavy construction trailer business. They historically have been a very good performer but they're in a very severe market cycle.

Management at Trail King feels like some of their major customers' volume is down between 20 and 60 percent. This business is functioning at break even. And they believe - the management team at Trail King believes that this market has

.

The general industry segment was, again, very disappointing. The sales were down nine percent. The majority of that sales shortfall is

.

sales were down 30 percent based on their exposure to the commercial aircraft business and telecom markets.

The other sales shortfall was in process systems - our cheese processing business primarily in Europe. They also represent the balance of the sales shortfall.

The earnings in this segment - the bright spot was our food service business. Basically on flat sales food service earnings were up 31 percent. Their sales were flat because they service some travel related channels and these continue to be very soft. But they've made operating improvements across the board.

Many of the issues that we talked about last year at food service are now behind us - the Mexican start-up, some of the acquisition integration issues. There are two new distribution centers.

I was very pleased with food service - earnings up 31 percent and they're off to a good start and should have a good year.

The major factors in our poor earnings performance - our process systems, which had a very bad quarter in Europe. There was a $1 million loss in EBIT in Europe in process systems.

We have relocated the president of process systems to Europe. Steps are being taken to consolidate and realign these businesses. And we are forecasting improvements in the upcoming quarter.

was the other disappointment in the first quarter. We wrote off $1 million of telecom inventory in the first quarter and got that behind us. We've been dealing with some telecom customers and have not been able to get, quite frankly, reasonable information. We elected to write the inventory off. That was $1 million in the first quarter.

We also in the first week of April announced that we were going to shut down our Andover, Massachusetts assembly operation, which has heavy exposure to telecom.

We're going to transfer this business to other assembly operations in Mexico and the West Coast. We're going to take between a $2 to $3 million charge to net earnings in the second quarter to make this plant shut down complete.

This is the second plant that was exposed to the telecom business at

that we've shut down in the last year and a half.

A couple of comments about outlook. Many of our in-markets remained depressed during the quarter but showed signs of bottoming.

We are beginning to see limited signs of strengthening.

Our customer niventory

. Last week we had a meeting with all of the operating unit presidents. As a group they felt like that we're definitely seeing some signs of strengthening but it's very early.

We also feel strongly that we've taken advantage of this down cycle or very slow cycle in our plants and we're coming out with a record number of new products.

So all in all we continue to experience depresed markets but are very - beginning to see some signs of strengthening.

And with that I'll turn it back to the Operator for some questions - Q&A.

Thank you. Ladies and gentlemen, if you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-toned prompt to acknowledge your request.

If your question has been answered and you would like to withdraw your registration, please press the one followed by the three.

If you are using a speakerphone, please lift your handset before entering your request.

On moment, please, for the first question.

Our first question comes from

with Goldman Sachs. Please go ahead with your question.

Good morning, Rick. And a quick question on the construction materials. Talk about - you said there were reallignment issues in

. what specifically is giong on there?

And then take us through the story as to the sequentially fourth quarter mild weather. Was there - was there - was there an impact at all in first quarter results? Was there any pull-in from the fourth quarter.

Well, let me answer those in reverse,

. The fourth quarter - first quarter sales situation - one thing I forgot to mention that might provide some insight to you - normally historically we provide - the last two years we've come out with an April 1st price increase announcement at

.

So what this does - we announced this in early March. This drives sales into March. So customers will buy this product before the April 1st price increase.

There was no price increase announcement this year so we didn't pull any sales into the first quarter out of April. So that's going to serve us well.

That's why I mentioned our April activity is a lot stronger.

As far as

- we have a new management - a new CEO there. He's 12 months into the job. They're going through a series of plant realignments, consolidations. There's been some issues in East Europe - Eastern Europe, Poland. And so it's just a whole cross section of new management teams getting some issues behind them.

The forecast at

are for improvement. And we plan to make up this poor performance in the first quarter through the balance of the year.

So we don't see it as a long term change in

as a good solid company - it's just some realignment issues we got behind us in the first quarter.

And then with regard to weather?

OK - well, weather - there's no - if you remember, our sales and construction continued strong after 9/11. Our

operating team has been out in the field. There's no question that very few projects were initiated immediately after 9/11.

Now - so they're calling it the 9/11 hangover. Plus, based on

we think this was, quite frankly, a very short term situation.

Now the weather - there's no question we had a milder winter. If you think back to last year's winter we had a severe winter.

So there's no question that a mild winter is a slight depressent to our balance of the year business. We need hard freezes and thaws to drive up roofing activity and we had a mild winter. So we have not really put all of that . . .

The offset to that vein is new product development.

coming out with a number of new products. They're coming out with a heavy TPO for severe applications, they're coming out with more re-roofing products.

So, in general, our roofing business has a certain

minimum. We had a soft March. We think we understand why. But we've got a lot of optimism for the balance of the year. We think our new product development introductions will offset the weather. That's how we see it right now.

OK. In tire and wheel you talked about the new products in ag and then the steel belted radials for trailer. Now one of the issues for tire and wheel is that you - Carlisle - has always been in - a leader in real niche markets and not going after some of the commodity type products.

And ag was usually refered to as one of those commodity type of products - very, very competitive. So what's the change here? What kind of niche are you actually going after? And then how does that also apply to the trailer market? How competitive is that? And what do you expect your presence to be?

Well, in the ag market,

, we feel like we're the low cost producer of bias tires in the world, quite frankly. And the bulk of the business - we're pretty much the leader in bias tire manufacturing.

And this is just a segment that we're very close to that we've not gone in before. It's a specialty segment. Our stretcher here is tire and wheel combinations and we don't think this market is going to be any more competitive than the lawn and garden or golf or material handling or other markets we're in.

We have a highly focused area and we think we're coming at it as the low cost producer.

The trailer business we've been in for years. We're the leader in

trailer. We're the largest manufacturer of trailer wheels.

So we're taking these two positions of strength.

We've been buying and reselling steel belted radials. We're now going to manufacturer them ourselves.

We think we'll be the leader, quite frankly, in steel belted trailer tires.

But remember these are highly focused kinds of projects. We're not talking about going into the steel radial passenger truck business. We're talking about going into steel belted radial trailer business where we're already the leader in wheels and bias.

So we think it's a very focused strategy and don't see it in any way changing our margins.

OK. And then last question -

- the - how has the addition of connecting devices either helped or hurt the product mix in this market?

Well, the CDI connecting devices in southern California has been an excellent cquisition. It's getting us involved in major programs in the very high end of communications and we're excited about it but there's no question that the telcom and datacom markets have been severely impacted over the the last 12 - 18 months and they have felt some of that.

But CDI is a leader in radar types of surveilance. It's a leader in a lot of military applications.

Now the CDI acquisition is a strategic fit and it's expanding the markets available to the old traditional

by probably a factor of two.

Going through some softness right now, but CDI very much fits in our long terms plans.

Terrific.

All of the changes we've made at

reflect two plants doing assembly only with dependence on telecom. And we've elected not to wait any longer for this telecom business to change. We're jsut simply taking care of

and going on.

OK, Rick - thanks.

Our next question comes from

with Putnam Investment Management. Please go ahead with your question.

Yes. It sounds like in some of the businesses you've got some momentum but in many others more of - the orders are still on the weak side. But you said you thought the orders were bottoming in some divisions. I'm wondering if you could be a little bit more explicit about what areas you think you are seeing clearly a bottom in because it wasn't clear for me from your discussions.

Well, I can address several markets. For example, Trail King is in the heavy construction trailer business. This has been a severe cycle - probably down 50 percent. They've seen from recent activity that they don't think the business is going to get any worse. There's some small signs of strengthening but there's a lot of feeling from their customers that the worst is over - that the last half of last year and the first quarter - they think it's bottomed. That's an example.

There's a feeling in the lawn and garden business - of course, there's some weather factors here. But there's a feeling because of inventory and some of the things that have been done that that business has probably bottomed.

And so I'm using the word "bottom" because we're just simply saying that there have been times that we don't think it's going to get any worse. But it's very early and very fragmented - the kind of information we have as of the kind of strengthening that's going to occur.

So we think that there's other markets - our food service business is starting to strengthen.

So really we're a diverse business but I would say over half of the markets were in there's a confidence here that the worst is over - that they have bottomed. The question is - what kind of improvement can we look to? We're not in a position today to forecast any amounts of strengthen but there's signs there's going to be some slight strengthening the balance of the year.

And that strengthening in the balance of the year is in what particular businseses?

Well, it's - Kirk may have some different thoughts but it's across many of our business. Part of it is the New Park development initatives. We've taken advantageof this slow period in our factories to introduce what we think is going to be a record number of new products.

So these expand the market available to us and that's a big factor for us going forward because in general in most cases our cost of production is as good as any of our competitors.

So when we introduce new products we normally have some success.

But we're in 30 markets and I'm just struggling a little bit trying to - it will probably be difficult on this call to cover all 30 markets. But in general I'm just saying that we're seeing - we believe we've bottomed out in most of these very weak markets.

There's even signs, quite frankly, that some of our telecom customers that . . .

But now, once again, we're in very specialty areas. We're in wireless, were in missile guidance, we're in some mililtary applications. And so there's a whole

here. But in the overall I'm saying that we think things have bottomed in most of these markets.

Maybe one way to translate this better to investors would be - can you say anything about your total revenue objectives or where you think you might come in in terms of revenues for this year at this point or what the comparisons might be - might look like as we move through the year in terms of sales comparisons?

I'm really - it's so early in our year. We have so many seasonal businesses - lawn and garden, roofing. It's too early for me to predict anything about revenue.

The primary focus for us right now is to wratchet up our operating earnings . . .

Right.

. . . as a percent of sales. We've gone through a severe cycle and we think there's a lot of room to move our operating earnings up pretty dramatically. So that's the focus.

We don't have any acquisitions really to announce in this quarter, which is unusual for us.

So we're very much focused on improving our existing businesses and growing earnings. But it's too early to forecast revenue in our seasonal businesses.

Well, certainly we're all in favor of earnings but if it's hard for you to calibrate it's even more difficult for us. So we're just looking for a little help here. Thank you.

Our next question comes from

with

. Please good ahead with your question.

Good morning. I would just try the construction materials for a second. Did

on the quarter on the quarter actually have a loss?

Yes.

OK. And then I have another insulation. In the release it said that insulation sales were down and that was one of the primary factors behind the reduction of revenues. and you've also talked about re-roofing and how - last year I think you had a pretty good growth rate with the FleeceBack product and you've introduced a FleeceBack TPO for the re-roofing market.

When - relative to the re-roofing market, when they do a re-roofing, does that require new or added insulation?

That depends. In some cases no, in some cases if it's a total - it could. In many cases it doesn't.

So, Kirk, I think there are some issues here on the insulation because some numbers were not consolidated. Do you want to make any . . .

Well - yeah. The Hunter Panel that we owned a - had an equity interest in and completely bought out the other owner in the first quarter was not consolidated in the sales for part of the quarter. And those insulation sales were in last year.

But the shortfall for construction was - in sales was probably two-thirds related to insulation and one-third related to other products.

OK. But let's just pursue that - the re-roofing market again a little bit, Rick.

When - if you continue to grow in the FleeceBack products will insulation become a smaller part of the mix and will that drive margins up?

Well, there's no question that the insulation, which traditionally has lower margins, is not as great a factor in re-roofing as it is in new construction. And I don't have a number in front of me. I mentioned how much TPO was up. But our FleeceBack business also grew very well in the first quarter. It was in the mid teens.

So these new product introductions are having a lot of success. And I think part of these sales - and,

, I apologize - as Kirk just mentioned there were some consolidation issues when it was a joint venture and then we bought it 100 percent.

I think these numbers will make more sense probably in the second quarter when we have it for the whole quarter.

OK. Then I just have a question on specialty products and the new brake plant in Virginia.

During the quarter the closure of the Pennsylvania plant and the ramp up of the Virginia plant - did you lose any sales? Were sales delayed? Or were there any lost sales?

Yeah - I think there has been - I think minor amounts - but, yes - there have been some lost sales there through this movement - yes.

OK. And then one final question - again, on the Pennsylvania plant. Are there any plans for selling that plant? And, if so, what do you think that would bring?

I don't - I can't even speak to that right now. We're taking a look at it as a possible warehousing location. There's some interest in companies always interested in buying it but it's premature and I really don't think it will be material even if we sell it.

OK - great - thanks a lot.

Our next question comes from

with

. Please go ahead with your question.

Good morning, guys. If you assume that - your general statement that the - your major markets have bottomed and you're focusing on improving your EBIT as a percent of sales, EBIT second quarter versus the first quarter? and could you give us some idea what that level or what degree of improvement that would be?

When you look at the first quarter versus the fourth '01, EBIT improved 50 percent. So is it - could you do that again in terms of percentage-wise the second?

Well,

, I can tell you this - that we voted that we're going to improve the EBIT in the second quarter over the first quarter.

OK.

But beyond that I'm just - I can't. We do this almost every year in April with roofing and lawn and garden and some of our large businesses that we really have to see how the spring unfolds and it's just too early.

But we - I do - can say we're looking for improved EBIT in the second quarter.

Maybe you can give us a better look on the new segments. Construction materials is the same - typicaly a better second and third versus first and fourth.

Industrial components - I would imagine would be a better first half than second half. And automotive components - same thing.

What does the seasonality in specialty products, transportation, general industry work out throughout the year?

Well, I think - pretty good observation,

. Construction materials and industrial components normally have a very good second quarter.

Specialty products is not as seasonal . . .

OK.

. . . as the other businesses. Automotive you're familiar with. Transportation products is - has normally a stronger first half because they have some trailer business that's spring related. But it's not as seasonal as tire and wheel.

So, you're right - the major seasonality for us is in construction materials and industrial components.

OK. And when you take a look at industrial components, could you give us some sense what the customer inventory situation is at tire and wheel and

?

Well, tire and wheel, as I mentioned, had a pretty darned good earnings quarter serving those soft markets - only lost four-tenths of one percent on that.

And they've shrunk their inventories. So - plus, the feedback that they're getting is that inventories in their channels are leaner and in better shape than they - than they were at this time a year ago.

So there is a sense of optimism at tire and wheel that they're planning on showing - and I think they will show a nice improvement over last year . . .

How . . .

. . . in the second quarter.

How does industrial components EBIT compare with the fourth quarter? Was it particularly up?

Do you have that, Kirk? I'll get that for you,

. I think it was significantly up but I don't have the exact number on the fourth quarter.

Oh, I''m sure it was significantly up,

.

OK. And could you give us an idea

at tie and wheel was in this quarter versus the fourth? Just a sense how much upward capacity you have left?

Well, we continue to have quite a bit of capacity at tire and wheel. But the utilization was higher - probably 10 to 15 percent higher than the second half of last year.

OK.

We did operate a higher plant utilization at tire and wheel in the first quarter than the last half of last year - probably 10 to 15 percent higher utilization. But we continue to have a lot of capacity - a lot of fire power here to grow this business.

OK. And, final question - when you look at your free cash flow you generated quite a bit, you had a slow start in the first quarter. Can you give us a sense what level of free cash you think you can do in the

of the year?

I don't know what we can do,

, but I'm targeting the same amount that we did last year. We'll see if we can pull it off.

That was what - 100 million?

Yeah.

OK - thank you.

Our next question comes from

with JP Morgan. Please go ahead with your question.

Good morning.

Good morning.

Good morning.

You indicated that operating cash flow was impaired or hurt by an increase in accounts receivable. Could you speak a little bit to what drove that increase in receivables?

Yeah - good question. Some of it is driven by commercial terms. In order to get the order we'll provide a little more time to pay in the first quarter. Some of it, quite frankly, might be from customers dressing up their balance sheets at quarter end.

We were expecting a better March on cash flow,

, but little things impacted that. For instance, the last Friday of the month, which is usually a big cash day for us was Good Friday.

So it's not a collection issue. In my opinion it was a timing issue.

OK - fair enough. Sales as reported was down about six and a half percent. Could you dissect it a bit what was the base sales gross and what was the acquisition contribution?

, I don't think our sales were down. Help me, Kirk (inaudilbe) percent.

Sales were down two percent and from an acquisition standpoint period to period I would say the round number there - Canoe - the cquisitions that we didn't have for the full quarter or the whole year last year were probably $40 million of sales.

, I'll add to that. I think I gave you some of the time wheel and their exposure to lawn and garden and trailer. They were down over 18 million in sales.

Our process systems business - our cheese business in Europe - I think I covered that. They were down over three million in sales.

- their exposure to telecom and commercial aircraft they were

.

This offset the acquisition sales of Power Transmission that we acquired last year in August.

that's basically the sales story there.

OK - great. That's it for me. Thanks a lot.

Our next question comes from

with McDonald Investments. Please go ahead with your question.

Yeah - hey, Rick, if it wasn't once it was 20 times that we talked about cash flow all during last year and focus on cash flow.

And I want to go back to this cash consumption herein the first quarter. Was the full variant despite all of the attention that's being placed on cash flow due to this receivable issue? Or when you analyze all of the components of cash flow was there anything else that was off the menu, if you will - or off the plan?

Well, there were a couple of items,

. Any time you're going to shut a plant down you build some inventory. And we've built some inventory in motion and control to facilitate the plant closure in Ridgeway, Pennsylvania .

We've built some inventory at Tinselite to facilitate the closing of their assembly operation in Andover.

So that's two elements.

I will say that on the payables side, I do know that we were talking with the division presidents and there were some pretty good deals to buy some material early and get some pretty substantial discounts. And I think some of that occured.

But let me say this - we're focused on cash flow and we plan to have a very good year in cash flow, as Kirk mentioned.

And we're so seasonal - I'm not too alarmed, quite frankly, at this point. Let's talk again at the end of the second quarter about cash flow.

OK. And then on that lawn and garden - you're in close contact with the Mario, Ohio and Deeres and MPDs . what are they doing in terms of running their facilities right now? This is - this is the meat of the action and the dye is cast for March 15th to June 15th and we're a third of the way through that.

What are you hearing from the Wal-Marts and the Lowe's and the Home Depots about how these products are moving?

Well, there's been some encouraging feedback, quite frankly, from some of our customers that sales are off to a pretty decent start.

I will tell you, reflecting back to last year - the first quarter that we just experienced was softer in production than the first quarter of '01.

Right - that's what I'm speaking . . .

The second quarter,

, is forecast to be stronger than the second quarter of '01. So it's a total reversal. First quarter we just finished - had softer production. The second quarter right now is forecast to be stronger because if you'll think back - most of our major customers really shut down last year early in the second quarter to get their inventories in line.

That's why I mentioned inventories. Inventories are such a critical factor.

Right now it appears that we should have an improved lawn and garden second quarter because of better inventory situations and early feedback - and it's early - some reasonable sales at the retail level.

OK. I want to also go back to this insulation. I'm confused - consolidated or not. Was insulation not consolidated this year? And was consolidated - was it not consolidate last year and was consolidated for half of the quarter this year? So insulation would have been sales this year whatever you had versus nothing last year or . . .

Explain that to me.

Other way around,

. We consolidated insulation in the first quarter of last. We de-consolidated it for part of the quarter this year.

And you de-consolidated it because?

Because that's what the accounting rules told us to do. We then bought out our minority or the other owner and fully consolidated for the last part of the month - last part of the quarter.

Last year you owned - what - 50 percent?

No - last year we owned more than 50 percent.

You consolidated? Then what happened to cause some de-consolidation this eyar?

The - in this quarter?

Yeah.

The other owner took the insulation company into bankruptcy. The bankruptcy court took basically control of the business. You can only consolidate if you have control. So we had to de-consolidate.

We bought out the management - owner and reconoslidated in the first quarter.

So this was more of an accounting nuance rather than a real indication of business?

Yeah - absolutely. Accounting nuance is a good term for it - accounting nightmare also. But it was accounting - not business related.

OK. How many dollars of sales do you think you will get from the ag - business? And is this a direct - you're going to be competing here with Tyson . But whatever you get is going to be purely incremental business that - you didn't have this product last year. A - and in the radial trailer tires - will that be canibalizing your sales of bias tires and, therefore, the belted may not be much except for the difference between a radial tires and a bias tire?

Well,

, I think - we just met with the president and operating group at tire and wheel and we went through these numbers. We don't plan to canibalize any of our existing bias businses. There's a clear market differentiation on the applications that should be bias and should be radial. We're excited about the steel belted radial.

We plan to build a $60 million business in the next several years at our steel belted radial and these ag tires and wheels. that's our target 60 million.

How much do you think you'll do this year?

Well,

, it's - we're just introducing. You know how this goes. You come out there with new products. we've got some good long term relationships in these channels and some distributors.

Our targets early are in the after market where we've got - we probably do - we do 140 million today of tire after market business. And we think these products will move through our existing after market channels so we've got a certain level of confidence.

But I will say that we plan to (inaudilbe) this year - a lot less than half because we're getting a late start. So I would plug in 15 million if you want an estimate.

That's fair enough. And, finally, you calculate your unobserved overhead in your plants. And to what extent was unabsorption an issue, let's say, this year versus last year?

Well, I haven't consolidated that number. It's - some companies it's getting better. Areas that are really impacted that are functioning at very low utilizations - our trailer business - example, Trail King - their major component - and they've done a good job of cutting cost - is unabsorbed overhead.

The braking business is the same scenario - Class A truck - unabsorbed overhead.

The time wheel situation was much better because they took out so much inventory last year they were able to operate at a high utilization. And it's a big factor,

, as you well know. But, in general, our utilization as a company was slightly better in the first quarter than the second half of last year. But, still, we're operating at record lows in utilization.

And I have one other question. You mentioned the effect of

question of outlook for revenues. You talked about some signs of - some early signs of improvement. Are those early signs because you're actually getting more orders through the door or are these . . .

. . . because of what your customers are telling you or are they another?

What are these early signs of improvement and are they more of a hope or . . .

Our customers are so paranoid about putting inventory in they're waiting and depending on us to react. They're waiting until absolutely theseinventories get at record lows before they order from us to restock.

So the confidence we have - there's been a little activity feedback on the sales side. But in general the way einventories are so lean,

, we - all we need is a little help on the sales side. And we're going to get what we think to be better orders because of very lean inventories.

Our inventories are leaner and our customers' inventories for the most part are leaner. And that's what we're getting the confidence.

But it's so early in some of these seasonal businesses to talk about sales yet - the final sales - like a lawn and garden tractor. How many tractors are they selling in Cleveland? I thought you just had some snow up there?

It's 80 degrees today.

OK - so good - that's good.

Okey doke - thank you.

Ladies and gentlemen, as a reminder, to register for a question, press theone followed by the four. Our next question comes from

with

. Please go ahead with your question.

Hi, guys. I wanted to circle back once more to this working capital question. You mentioned some of the reasons that the receivables ended at a higher level than you had expected. Where do you really expect for accounts receivables to come in?

Well, I think they're - probably from year end . . .

Yes.

. . . I think they're unusually high by 20 - 25 million.

OK. the off balance sheet accounts receivable facility that you use - any change in the status as far as the - I think you had - what - 100 out there of which 63 is off balance. Any change in those numbers?

Yeah - we utilized less of that facility during the first quarter and I think we ended the quarter at borrowing 49 1/2 million under that facility.

OK - so a little less on a gross basis.

yeah.

OK. And as far as your targets that you're shooting for with your working capital. Can you give us some feeling from what you're - what you're targeting there as turnover - days or however you want to state it?

Oh - it differs from business to business. And, frankly, if the - if the order builds the inventory will build also so it's hard to say.

And it's a very moving target but I stand beside - behind my free cash flow target of 100 million for the year.

So you would expect - all right - in days terms you would still - you would still expect quite an extension then you're saying?

No - I dn't think so.

I know the absolute number would be (inaudilbe).

Days sales outstanding may increase a little bit before the end of June but I think by the end of June they'll be back in line with where they were at the end of hte fourth quarter.

But you all really haven't sat down and decided that - on a structural basis you can improve days sales and days inventory by any certain number?

No. In each business - we run 10 different businesses - 11 different businesses and each one is dfferent in their cycle.

Part of it's seasonal, as we talked about - so if you're trying to dome up with one size fits all in this company . . .

But there are - these kind of goals are married to the incentive comp system for each operating unit. So it's very much a focus.

I think what Kirk's saying - he's not, for this conference call, consolidate up.

There's 10 goals set on days of sales outstanding for each operating company. He just has not consolidated that for this conference call.

OK - that would be interesting data I think if you could provide that next time then. Thank you.

All right. Thanks for the comment. We'll try to do that.

Our next quesiton comes from

with Goldman Sachs. Please go ahead with your question.

yes - a follow up question on cash flow for Kirk. Could you give us a sense - let me make sure I have my numbers correct - on the difference in the cap ex reduction year over year? It went from 21 down to 10.7.

What were the drivers there and what is maintenance cap ex and any assurances that you're really clamping down on cap ex to the point where it could hurt the businesses?

Yeah - I think last couple of years if you look at cap ex we've spent a lot of money modernizing the plants. If you tour around the plants they're in good shape.

Maintenance cap ex is probably a rough number - $30 million a year. We're going to be slightly above that but the clamp down on cap ex is in palce. We are - we will spend money for good cost saving projects to bring on a new product line.

But other than that, discretionary cap ex is gone. And I think the $10 million run rate in the first quarter - we can hold for a quarter for the rest of the year.

, this was pretty much forecast last year I think in our last couple of conference calls. We've got good infrastructure in Carlisle. Our plants are in top flight shape, we're operating at low capacity utilization. So don't read into the lower cap ex in any way that we're not moving on every good project. But we've forecast, quite frankly, I think for the next couple of years and we've got good plant infrastructure that we're going to be spending primarily on new product development and cost reductkon. And we're gonig to have less demands on cap ex.

OK. And then, Rick, you made a comment last quarter on the conference call that you had a sense that Carlisle was still too diverse for its base of business. And any sense - the implication was that there could be some divestitures. Where does that stand? Where are your priorities? And what should we be thinking about in terms of timetable?

Well,

, I've said - and I think I've said it consistently. I think we're too diverse for our size. I think that we don't need to be in 30 markets - that we very much are going to invest in businesses that can grow and create leadership in their respective markets served.

There's no question that we're taking a hard look at all of our companies. We're taking extremely a tough look at some of the underperforming companies and we're going to improve our divest.

But I can't really speak - it's an ongoing process. And it's just like acquisitions - it's so lumpy I really can't speak to the timing. But I will just say it's an active process that we're in and we will not be in 30 markets three years from now. And that's really all that I can comment about it right now.

OK - thank you.

I'm showing no further questions at this time. Please continue.

Well, thanks a lot for your time. Kirk and I appreciate you taking the time to listen to our conference call. And we have a certain optimism about the balance of the year. and thank you very much. And that concludes our conference call.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.