Carlisle Companies Inc (CSL) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Carlisle Companies' fourth-quarter earnings teleconference.

At this time all participants have been placed on a listen-only mode and the floor will be open for questions following the presentation.

It is now my pleasure to turn the floor over to your host, President and CEO of Carlisle Companies, Mr. Rick McKinnish.

Sir, you may begin.

Good morning, everybody.

This is our fourth-quarter and full year conference call.

With me this morning is Phil Aldinger, our Controller and Carol Lowe, our Treasurer.

Phil is going to review our earnings for the quarter and the full year, Carol is going to discuss our cash flow and balance sheet.

They will turn it back to me and I will review the operating segments and our guidance for '04.

As we noted in the press release this morning, there is a slide presentation available on our website.

You need to open and advance these slides to follow along with our presentation.

With that, I'll turn it over to Phil to get us started.

Thank you and good morning.

As Rick pointed out there's a presentation posted on the Carlisle web site highlighting our results for 2003.

Slides three and four reflect some of the data (technical difficulty) I will be discussing this morning.

As reported in our press release Carlisle reported fourth-quarter 2003 net earnings of 18.7 million or 60 cents per share diluted, a 26 percent (technical difficulty) over the fourth-quarter 2002.

The earnings increase is driven by record sales of 529 million, a 14 percent increase over the prior year.

Rick will discuss the segment performance in more detail but I do want to note that the strong organic growth (technical difficulty) components, construction materials and general industry segments were the primary contributors to the positive fourth-quarter results.

Total organic sales growth for the quarter was 65 million, acquisition growth of approximately 2 percent for the quarter was offset by divestitures of an equal amount.

Fourth quarter results include approximately 5 cents per diluted share in plant and severance cost reported in our automotive and general industry segment, and a positive 2 cents per share affect from the reduction in our tax rate from 34.5 to 32.5 percent.

Net sales were a record 2.11 billion for the full year 2003.

This as a 7 percent increase over 2002.

Again, most of the 137 million increase came from organic growth.

Acquisitions accounted for 50 million of the net sales gain but this was offset by the divestiture of Carlisle Power Transmission European belt business which was sold in December 2002.

The European belt business accounted for 33 million of net sales in 2002.

Net earnings for 2003 increased 23 percent on a year over year basis with 2003 earnings of 88.9 million or $2.88 per share compared with 72.4 million or $2.37 per share before the effect of the SFAS 142 non-cash charge against goodwill.

Net earnings for 2003 included a 19 cent per diluted share charge for plant closure and severance costs, as well as a benefit of 9 cents per share from the reduction in our income tax rate.

Every segment except automotive reported increased sales for the quarter and for the full year 2003.

On a year over year comparison four of the six segments also improved EBIT for the fourth-quarter and full year 2003.

Total EBIT for Carlisle improved 13 percent for the fourth-quarter and 15 percent for the full year 2003 versus 2002.

Plant closure and severance charges reduced fourth quarter EBIT for the automotive and general industry segment by 900,000 (indiscernible).

Full year 2003 EBIT was reduced by plant closure and severance charges of 700,000 for the industrial component segment, 3.6 million for the automotive group, 600,000 for specialty products and 3.5 million in the general industry segment.

Corporate EBIT was up in the fourth-quarter 2003 as compared to 2002 but was down by approximately 1.1 million for the full year comparison.

Other income in 2003 of 4.7 million compared with other expense of less than $100,000 in 2002.

The change is primarily due to a 2.6 million pre-tax gain in the construction materials segment which is related to insurance recoveries on fire losses at two small coatings and water proofing facilities.

We discussed these insurance recoveries during our second quarter earnings call.

A 2.1 million pre-tax gain on the settlement of loans (indiscernible) foreign currencies also contributed to the improvement in other income.

Backlog improved 37 percent or approximately $114 million on a year over year basis and 20 percent or approximately 69 million from the end of the third-quarter 2003.

Modest selling price increases were more than offset by an $8 million increase in raw materials.

Our unabsorbed overhead of 23 million in the fourth-quarter and 84 million for the full year 2003 compares to 82 million for 2002.

Plant utilization in 2003 was 73 percent and was favorable to 68 percent for the full year 2002.

Now our Treasurer, Carol Lowe, will highlight the company's cash flows and balance sheet.

Thank you, Phil.

Good morning, everyone.

If you are following along with our presentation you will want to refer to slides five and six.

Five highlights our free cash flow and slide six highlights our key balance sheet position.

As reported in our earnings release net cash provided by operating activities was 117 million in 2003 as compared with 226 million in 2002.

There are several items contributing to this decrease.

The largest driver is the increase in Carlisle's trade receivables which were up 75 million at the end of December 2003 versus the year end '02.

The increase in receivables is attributable to the increase in sales volume as well as a decrease in our utilization of the securitization program.

Trade receivables without the effect of the securitization increased approximately 42 million driven primarily by the 22 percent increase in December '03 sales versus December '02 sales.

We also decreased the receivables that are sold through our securitization program by 33 million in 2003.

This was driven by the fact that the company needed less outside external capital as we decreased the company's leverage and improved our overall operation.

Inventories increased a modest 6 percent to support Carlisle's growing sales volume and growing backlog.

Plant closure and severance charges that Phil discussed earlier which were 9 million pre-tax, resulted in 7.5 million of charges of 2003 operating cash flow.

Operating cash flows for '02 included tax refunds of approximately 21 million and proceeds of about 8 million related to the termination of interest rate swap.

Capital expenditures in 2003 were 42 million compared to 39 million a year ago.

Dividends were up slightly at 27 million versus 26 million in '02 following Carlisle's 27th consecutive annual increase in its dividend.

As a result of each of the items I have discussed, free cash flow which we define as cash provided by operating activities plus dividends, less capital expenditures in (indiscernible) of our securitization program was 81 million this year compared to 124 million in 2002.

Looking at the balance sheet I have already highlighted the increase in receivables and inventory.

The slight increase in our property, plant and equipment from the beginning of the year is a result of the 42 million in CAPEX that I discussed, as well as Carlisle Food Services' acquisition of Flo-Pac in May of 2003.

Prepaid expenses are up 8 million from the beginning of the year but primarily just a result of timing differences.

Accounts Payable has increased 29 million largely due to the increase in product by Carlisle & Process Systems.

The $18 million in accrued expenses reflects an increase in our workers compensation accrual and income tax liability.

Other liabilities increased 26 million partially due to an increase in the company's pension liabilities and deferred tax liability.

Utilizing the cash that was provided by operating activity we decreased our total debt by 43 million in 2003 bringing our debt to cap ratio to 32 percent at the end of this year versus 38 percent at the end of 2002.

I would like to now turn the call back over to Rick for additional comments on the operating segment.

Thanks Carol.

I'm going to start with the industrial components segment.

Now this is slide seven on our web site.

We've added quite a bit of information and comments about each operating segment and I'm not going to repeat those.

Hopefully most of you are following through on the web site and you can get that information.

I'm just going to provide some color to each segment.

Talking about sales in the Industrial Components Segment, the divestiture of the Power Transmission belt business which Phil has talked about, partially offset some very solid organic growth in this segment.

The divestiture reduced our sales by 33 million, but Carlisle Tire and Wheel had an organic growth for the year of 7 percent.

This had strength across almost all their product line, but the organic growth in the fourth quarter was 14 percent for the quarter.

We're excited about that.

The earnings improvement in this segment was dampened by some unusual events.

We had a 1.5 million charge for the temporarily idling of the Trinidad Tire Plant.

We had a $70,000 severance charge for consolidation and downsizing in the power belt business.

We also continued to have some startup costs in our belt plant in China.

We believe this new belt plant in China will start contributing in '04.

With 14 percent organic growth at Carlisle Tire and Wheel in the fourth-quarter, we enter this year with a very positive outlook.

The next segment is Construction Materials, that's on slight eight on our web site.

Construction materials obviously had a very strong year.

It got better as the year progressed and the organic sales growth in the segment was 18 percent in the fourth quarter.

We acquired MiraDri last year in October of '02, so the 18 percent growth number in the fourth quarter is entirely organic.

On a special note, our insulation sales were up 36 percent for the full year.

We continue to grow this business very rapidly.

We announced earlier a new insulation plant in a very important territory for us, the Southeast.

We are excited about that, we'll have this new insulation plant up and running somewhere around the second quarter of this year.

We will probably have some other announcements of other expansion plans for this very important segment as this year unfolds but construction materials (indiscernible) enters the year with a lot of momentum.

The next segment is Automotive Components on slide nine.

This we believe, we believe '03 was the bottom for this business based on some phaseouts of programs that we talked about in earlier calls.

The significant event here in this downturn in earnings is the plant closure and severance costs of 3.6 million that is associated with the closing of a manufacturing plant in Erie, Pennsylvania.

We've got that behind us now.

We think '03 was the bottom and we're very comfortable forecasting significant improvements in this segment this year for '04.

The next segment is Specialty Products, slide ten.

This has two small braking companies in it.

We made some improvements here but we've got some work to do.

We had two business units that we have consolidated under one management team that we talked about earlier in the year.

This is allowing us to create certain efficiencies and we look for continued improvements this year in '04.

We divested a small product line or business unit in this segment in December.

It was our spring break business.

This represented about 10 million in sales in '03.

This divestiture had no affect on our earnings for '03, but this divestiture will be accretive one cent per share in '04.

The next segment is transportation products.

Basically there is not much to say here, it was a flat year in some very sluggish markets.

We're forecasting modest improvements in this segment in '04.

The last segment is general industry.

This segment has seven different businesses in it and they are outlined on slide 12.

Of note, we have consolidated, we've been doing a lot consolidation work in Carlisle Process Systems which is our cheese and milk powder systems business.

We have reduced this business from 11 different business units to six.

We're excited about some of the things that are underway.

The margin improvement in this segment that you look at was reduced by $3.5 million of charges that relate to plant closure and severance.

We made a recent announcement, this is on page 13 of the web site.

We made a recent announcement that we received the largest order in the history of Carlisle Process Systems.

It is a significant order for a business this size.

It is $70 million.

This volume in our backlog will be spread out over the next two years.

Also I want to make a comment about the acquisition of Flo-Pac which was in our Carlisle FoodService business.

Flo-Pac was a leadership business in the janitorial sanitation brush business.

This acquisition was accretive in '03 even though we had the cost of shutting down their high cost plant in Minnesota.

We are really excited about our Jan-San brush business going into '04.

With that, I'm going to change now and try to provide some color to the guidance that we put in our press release.

Our earnings guidance for '04 is 3.25 to 3.40 per share, but this reflects in the 20 cent per share of plant closure and severance costs.

Our markets are improving.

I think you can see that from our backlog.

You can see it from all other indications that we're giving.

It's very tempting to back off these consolidations and improvements and really sit back and see how far these improving markets will take us.

But our margins in many of these segments, as you see, are unacceptable.

We plan to continue taking aggressive action until our operating margins are at least 10 percent in each segment.

We're also excited about the quality of these improvement projects.

We have talked about this before.

The average payback on these plant closures, severance packages, whatever, the average payback is around 18 months.

We believe it's in our best interest long-term to continue aggressively reducing our cost and restructuring our businesses until we have operating margins in each segment of at least 10 percent.

With that, that concludes our comments.

I'd like to turn it back to our operator and get some questions.

(OPERATOR INSTRUCTIONS).

Wendy Caplan of Wachovia Securities.

Good morning.

Your comments about -- your last comment, Rick, about bringing the margin up to the 10 percent level for all of your segments.

Four of them are below 5 percent at this point, and next year we have some distinct headwinds in terms of raw material cost despite some of the benefits we expect to get.

I was hoping you could kind of comment on that in terms of when you expect to get to that 10 percent and particularly in the areas that are lagging significantly?

And second along this line, if I were to look at the margin in the fourth-quarter versus last year's fourth-quarter, we did not deliver a whole lot of that to the bottom line in most of the segments other than specialty products which had a big uptick in profitability and a smidge in industrial products.

What was delivered was to the operating line, rather, was less than what we got on the top line.

Can you comment on this specifically?

Sure, Wendy, let me give it a shot.

You are absolutely correct.

We agree with your statement that there is no question there has been a lot of volatility in raw material.

In fact I didn't mention, I probably should have, that our Carlisle Tire and Wheel business, one of the reasons about the margin you talked about.

We had a $10.6 million raw material increase in '03 and only recovered 4.6 million in selling price increases.

So the tire and wheel margins in the industrial components segment experienced a $6 million negative swing from unrecovered raw materials.

One of the things, the questions that I've had Wendy, about this restructuring and these improvement projects and where are we at and how long is this going to continue, I thought the best way to start talking about that is it's going to continue until we have margins that are acceptable.

We're saying that's 10 percent, a minimum of 10 percent in each operating segment.

Now I'm forecasting with my guidance, improvements.

I'm forecasting improvements quite frankly in all segments for '04.

But I'm not really putting a timetable.

I'm saying we are going to get better.

As you can tell we have a long way to go from some of these operating margins to 10 percent.

But what I'm trying to say is that we are going to continue.

There is a lot of room here for consolidations, efficiency gains.

It's kind of interesting that the worst margins in Carlisle are in our smaller businesses.

Our larger segments tend to have better margins.

This gets to scale, it gets to too many small business units, so it's the same thing here.

We are going to consolidate, we're going to take operating units in one of my product lines and other businesses.

So this theme of consolidation is going to continue and I'm just simply saying it is going to continue until we get to 10 percent in each segment.

I'm not putting a timeframe on that.

I'm simply forecasting improvements across the board, but quite frankly we'll have -- I mean to hit this guidance I've just given, we are going to have segments with margins below 10 percent.

Some of the reasons for that are some of these raw material issues.

Does that help anything on the first question?

It does.

Do you expect -- you mentioned that you don't want to hem yourself in in terms of timing here, but which would be the ones in your mind of the segments that are currently under 5 percent that we should expect the greatest improvement in '04?

Which segment with the greatest improvement in '04?

Obviously automotive.

Coming from a terrible year, automotive is going to -- and it's pretty easy, it's pretty easy.

I think Phil has outlined some of these.

We tried to outline each quarter where some of these restructuring expenses have been, what segment.

Some of the largest improvements, Wendy, are coming from segments that took these large charges.

Automotive, we've talked about how much that was.

We talked about the payback being about 18 months.

It doesn't take you very long to figure out there are some pretty big swings here.

Automotive will be up, general industry is going to be up.

Really we're looking for improvement.

The largest improvement will come from the business segments with the lowest margin, I guess might be the best way to put it.

Now some of the times the improvements are slightly offset and that's why we clarified with 10 to 20 cents per share of continued restructuring.

So I'm not prepared to talk about the amounts in each segment except -- because they are going to vary a little bit with where the 10 to 20 cents of restructuring, what segments that goes back into.

That's helpful, thanks Rick.

Also the incremental margin question.

There is no question that for most of the time with us through the years our EBIT dollars, our EBIT change, is greater than our sales change.

That's the typical manner that we function.

The fourth quarter was an exception to that and there are a lot of reasons.

We had some issues in our roofing business, a joint venture in China.

Had to make a management change, had some inventory adjustments.

There were continued restructuring charges, Wendy, of about 5 cents, 4 to 5 cents in several segments, unrecovered raw material.

It was a very disappointing quarter for us.

With that kind of sales increase we would expect our EBIT increases to be greater than our sales increases, that's what they are over a ten-year period, 9 percent of the time.

So it was disappointing quarter from that standpoint.

Thanks, Rick.

One final question.

Can you update us on your CFO search?

I mean it's ongoing.

We're very pleased.

We are getting a lot of good candidates.

We've got internal candidates and also some very attractive external candidates.

We're going to go through, obviously, a very careful process and we will probably have an announcement, I don't know if it will be first or second quarter, but it's obviously a high priority for us.

Thank you.

Deane Dray of Goldman Sachs.

Good morning Rick.

First question is related to your 10 percent margin goal, how realistic is that for some of your businesses like auto?

I was looking back to 1994, it never got above 7.7, and transportation has never been above 7 either.

How realistic is it to put a goal out that might not be that achievable?

How realistic is it?

I think it's pretty realistic.

I'm using this to talk about, for the investment community, there are other measures we look at, Deane, which is working capital turnover, return on invested capital.

There are some businesses that might not quite get to 10 percent.

But with the right turnover ratio get acceptable returns on capital employed and also -- also get cash flow divided by net assets employed.

There are other measures.

I'm just trying to talk because this is in our press release, it's 10 percent, but I don't consider this -- I consider it in certain segments like automotive to be very aggressive but I consider it to be achievable.

For example in automotive, what would be the measure other than return on sales?

What would be the return on invested capital?

The number we look at for automotive, quite frankly, is cash flow divided by net assets employed.

It has very acceptable rates of cash flow, free cash flow generation.

There is no question, there are other metrics we use and I think you have already picked out the one business we look at that way is automotive.

What would that measure be for automotive this year, the cash over net assets employed?

I don't have that number with me.

This has been one of our very best businesses on cash flow generation, and that's very important to us.

I just don't have that number here with my material.

I was interested in your comment about the spring break divestiture.

Do you have any other accretive divestitures up your sleeve for '04?

Hopefully.

The spring break divestiture quite frankly was sold at book value.

It's a nonearnings event in '03, but it's one cent accretive for '04 on earnings per share.

Sure.

And the last question is for the December quarter, how did the quarter develop across the industrial businesses if you look at October, November, December?

And how did you exit December and what does that say about any kind of momentum as of January?

Good question, Deane.

Really I don't know what you've heard from industrial clients but the fourth quarter was really interesting for us.

October was a record month.

We had a very strong October.

November was a complete change.

November was really quite weak for us especially compared to October.

But now there were some holidays, but it's typically holidays the way they hit, but we were a little concerned in November.

Then December came roaring back, quite frankly, and we had a very strong December.

And so we entered the new year, quite frankly, with a lot of momentum, I think we had a lot of customers that would kind of do their typical year end inventory adjustment.

They were trying to hold inventories down, and they were doing that -- it had us in November but then they recognized that the demand was there, and so December was very strong.

So we entered the new year, quite frankly, with a lot of momentum.

This level of activity that we experienced in December is continuing into this year.

That is real interesting.

It's very common of what we have heard companies talk about of October being strong, weak November, spring back in December.

But just specifically, was there any sense that customers were spending December just to finish and use up their budgets, or was as you said, their inventory themselves were low and there was reordering and that extended into January?

Good question, Deane.

We just reviewed this.

The activity levels in January have been consistent with December, quite strong.

There is a lot of activity.

We don't see it as any kind of year end flourish, okay?

Some of our longer cycle businesses that deal with Cap spending which is something we've all been concerned about over the last several years, we've really seen some positive signs on our cap spending business and quite frankly even the quoting activity, which is a good indication for us through the years, our quoting activity continues to be very active.

Good.

I lied.

I have two quick questions.

The CAPEX for '04?

The CAPEX for '04 is going to go up, and we are excited about it and it's going to go up focused on a couple of our key businesses.

We have a lot of opportunity to grow our roofing business.

We've announced a new plant in the Southeast for insulation.

We are going to have some announcements.

We are excited about organic growth opportunities there.

On that basis for organic growth opportunities, we see cap spending going up.

We have been averaging about 40 million a year the last several years.

We see cap spending, quite frankly, going up to maybe 70 million this year.

But that difference is from very exciting organic growth opportunities and heavily concentrated in construction materials.

Good.

And then what is your organic growth rate assumption that you baked into your '04 guidance?

Well our organic growth rate assumption in our '04 guidance is in that 4 to 5 percent range.

Quite frankly we think that's conservative.

But that's what we've got in our guidance.

Great.

Thanks very much.

(OPERATOR INSTRUCTIONS).

Mike Harris of Robert W. Baird trade.

Just wanted to review the restructuring charges again that you saw in Q4.

I'm just a little confused and want to get some clarification.

There was 5 cents overall negative impact in Q4.

My question is the Trinidad charge that you mentioned, Rick, of I believe 1.5 million, was that what's in that 5 cents?

No, it that was not in that 5 cents.

I've got Phil here to help me, but it was not in there for some reason.

We didn't call that a restructuring or plant closure.

It was a temporary idling of a plant.

It just didn't fall in a normal plant closure severance arrangement.

That's why I didn't go into Phil's number.

It was a P&L event that I wanted to talk about.

But that 1.5 million is clearly a non-recurring item, correct?

Yes, I would probably agree with that.

Okay, so if I really want to get at the normalized operating margin for the quarter, I not only have to consider the 5 cents but I really have to add back that 1.5 million as well.

I'd agree with that.

And then, I'm sorry, can you just review the restructuring cost by segment for Q4 again, specifically for Q4?

In the fourth quarter our restructuring cost was in the automotive segment, that was approximately $900,000.

That was really driven by the closure of engineered products' Bundy plant.

The other large piece that we had was in the general industry segment and that had to do with some of our operations, the Walker group severance cost and also with some sales of some property -- closures of some of our properties that we had and we also incurred some severance costs in the corporate area.

But still can you quantify the general industry number?

Industry was around $900,000.

So auto was 900,000 and so was general industry?

This is all pretax.

Okay, and then corporate was how much?

Corporate, we had approximately somewhere between 400 and 500 and that was a combination of some severance and also some write-downs of assets in our Europe operations.

Rick, there were some snowy weather conditions in the Q4 quarter, specifically December.

It doesn't appear that it has had a notable impact with Carlisle Syntec.

Just wanted to gauge if weather is having an impact thus far in Q1 for Syntec.

It's a good question.

I think really this time last year, this call, we talked about what a winter does for the roofing business and last year was a very good year from a weather standpoint, a cold, snowy, winter and in the Northeast and upper Midwest and then a rainy spring.

It was good news and you can tell by these kind of growth rates.

Well we are starting off with -- quite frankly, we like snow, we like ice, and this year is starting from a weather perspective a lot like last year.

It's quite positive for us, quite frankly.

In subsequent quarters, just trying to gauge from quarter to court, nonetheless it seems likely when you do experience poor weather conditions in any given quarter, you can typically ride through it pretty well anyways.

What it typically does is it keeps roofers off the building and so bad weather defers activity to the following quarters.

That's why every year that's why I don't like quite frankly to give quarterly guidance because we've got businesses that we feel good about the year but a winter could move roofing activity, example from February/March to April/May.

So we like this kind of weather, but it can create some issues for us in the first-quarter because if they can't get on the roof, the activity goes down.

That's fair.

Switching over to power transmission, can we get the year over year organic revenue growth in Q4?

The organic revenue growth was approximately 2 million pretax in the fourth quarter for power transmission.

That's topline organic?

Yes, and you know obviously they have the divestiture of the power transmission business which took away about 9 million in revenues from the fourth quarter.

That's helpful.

Just a couple more questions trying to gauge the strength of end markets.

I want to focus on Specialty Product segment Rick.

I would think that your outlook for this business has improved measurably in recent months considering what is going on in the end markets there.

Can you remind us of the mix between OEM sales and aftermarket for this segment and just give a little more detail regarding your outlook here?

This segment, in fact it's been getting -- this used to be -- I mean this used to have (indiscernible) as a percentage than it does today.

This business is probably down to about 25 percent OE, that is 75 percent replacement.

There are several factors going here.

I may have -- you know it's a small segment, I don't spend much time on it.

But we've got a lot of good things here.

We divested a business that has been losing money.

We quantified that as one cent accretive.

That is the Spring Break business.

Then we had consolidated these two businesses under one management team.

There's a lot of synergies there.

We are sharing some R&D.

We are going to share some sales, so we look for continued cost reductions and efficiencies.

We have also been starting up a new plant in South Hill and as you know it takes a few years, perhaps going down, the yields are going up.

So all those internal issues now coupled with better activity and some improvements in the end markets served.

You're right, it's a small segment but we are looking for improvements in '04.

I'm glad you share my optimism on the end markets because it sure seems like recently things are starting to pick up here.

I knew you were skewed more towards the aftermarket but I didn't realize it was that much.

So that's helpful.

Talking about transportation products segment.

You talked about strength in sales were in part due to specialized trailers sold to the electric generation market.

Can you just talk a little bit more about this end market application?

It seems kind of interesting.

Trail King makes a wide cross-section.

This is a very small piece of their business.

Their focus is in construction trailers and as a percentage was a major change because it was up.

They are increasing and do a lot of new product development in these areas, but it is such a small piece of our business, Mike.

I'm just trying to gauge because I have some overlap here with other companies.

Is this distributed power related?

Those large windmills that you see if you go out West, it's the blade for those specialty trailers to be able to carry those blades in the turbines.

Fair enough.

Last question here and then I'll stop, get off here.

You talked about raw material prices and the negative impact in '03.

Rick, in your forecast for '04 what is your assumption for raw material costs that is built into that guidance?

It varies across the board but there is no question, steel is a negative.

We've had a lot of volatility there. (indiscernible) volatility in some of our rubber based components like natural rubber from Asia.

We think we've got our arms around it.

Most of the time it's a quarterly lag because we've got planned price increases, but we do have a small negative in our plan for raw materials for '04, because there is a lag between the raw material increase which could start now in getting a price increase.

For example, Tire and Wheel business has announced a price increase for April 1, because we have to give our customers a little time.

There is a lag there.

We don't see raw materials, quite frankly, being -- we don't see it being worse than '03.

Okay, that's helpful.

All right, that's all I had for you.

Very good quarter, once again.

Is the operator there?

Saul Ludwig of McDonald Investments.

Nice of you to eke out a little gain there in the quarter.

Nice job.

I want you to send me a definition of eke, Saul.

I'll pass that on to you.

How much did ICOPAL add or what was the ICOPAL comp in the fourth quarter?

This is Phil.

The ICOPAL, the (indiscernible) compared to a year ago, we were up $700,000 in the quarter.

How about for the year?

For the full year, ICOPAL was down.

We were down about 800,000.

Those are net income, right?

Yes.

What do you see as the outlook for ICOPAL for this year?

Well, ICOPAL as Phil just mentioned was a -800,000 for the year.

That's the number we like to look at because there are some seasonal things here.

We've changed our method.

We have a 25 percent interest, but we are doing some restructuring there.

We'll have some announcements about that at the end of the first quarter.

So we're going to be more aggressive.

Net of structuring, we see modest improvements in ICOPAL in '04.

But it's going to be offset -- the improvements we're going to make will be offset by some restructuring.

That's part of your 10 to 20 cents?

Yes.

Next question.

This unabsorbed overhead that was 84 million versus 82 million, I guess I was surprised that it increased because your utilization increased by 5 percentage points from 68 to 73 percent.

Why did the unabsorbed overhead go up, and how much eating into that do you think you could do in '04?

It's a good question, Saul.

We've been asking ourselves the same question now.

I don't -- a big reason is all this severance and plant closure.

The 19 cents that Phil has talked about, the 19 cents which is a net number, okay, and overhead is a pretax number.

So the 19 cents net that was heavily cash, and so this restructuring is driving up our negative overhead (indiscernible), and you're right.

So that's a big part of why it doesn't make any sense.

But there is no question that that's why the average payback on these cash severance issues is six months, so you can start doing the math.

We're saying the overall payback on these improvement projects is around 18 months.

This comes back to us pretty quickly.

Relative to your goal to move toward this 10 percent margin, what is it that's the impediment to moving more quickly on the restructurings and consolidations and making them product lines instead of businesses; what impedes moving there more quickly?

I mean, it's a good question, Saul.

I mean, we shut down 11 plants in the last two years.

We've quantified these onetime charges.

You're right, it's continuing, and I know there's frustration that we're not getting it over with, but quite frankly, we do a pretty good job here.

Most companies do an operating plan every year.

We also do a strategic plan for every business unit, every year.

We're just going about this -- maybe it's too slow, but at the end of the day you want to do this -- we're shutting down plants without reducing capacity, without reducing our ability to develop new products.

We're doing this at a pace we can manage it.

I agree with you, I'm a little frustrated.

We quite frankly want to be further along at this.

We're kind of learning the rate we can manage it, and within a segment, within a business unit, these management teams can only deal, quite frankly, with a certain number of extraordinary projects a year.

Because remember, the whole game here is to continue to develop new products, have a good organic growth rates and not affect your ability to service the customer.

So we're finding a certain rate we can do this at.

Let's just assume by some good fortune that the economy was very strong and your business was going to be -- I don't know, just arbitrary, let's say even 25 cents a share better than you think.

Would you be inclined to then accelerate some of these consolidations by, let's just say, 25 cents a share and thus keep the number in this 325 to 340 range?

Is there any flexibility to accelerate some of these programs if your core operating numbers turned out to be better than you thought?

I don't know, it's such an individual situation.

Our approach to this is to do this at a pace that we can manage it properly, not affect our customers, not affect some other key metrics like organic growth.

I don't think that we would fluctuate dramatically these kinds of improvement projects, Saul.

Next question is nonresidential construction, part of your roofing business goes on new roofs, and I would assume that piece of the pie hasn't been very buoyant.

Are you seeing any improvement in the new construction portion of your roofing business?

Yes.

It got better, quite frankly, in the second half.

As you know, new construction had just been hammered in '02 especially.

It was down about 13 percent in '02 based on our numbers.

We are looking at the Dodge report and the Portland Cement forecasts.

Our thought right now is about like theirs, which is that '03 was the bottom.

We're looking for improvement in new construction in '04.

But very modest, a couple percentage points.

Two final questions.

Carol, what is the interest expense expected to be this year?

It will be approximately flat with where it's at in 2003.

Let's just think about that for a second.

In the fourth quarter you had $3 million.

If that were annualized, that would be 12 million and that would compare with 14.5.

Do you think it's going to be at the 14.5 flat or fourth-quarter annualized flat?

I would lean more towards the total number, the 14 in the 2003, staying at that amount, because we have said we're going to have additional capital expenditures, so that's going to probably increase utilization of some of our revolver at different points in time.

Also, we do expect a slight uptick with LIBOR rates, and that does drop the cost of some of our financing.

That's almost floating-rate instrument.

How much of your debt is floating?

At the end of the year, we had -- basically, it was all long-term debt that was fixed, but we swapped back half of the 150 million bonds that are outstanding.

So out of total of 250 million long-term bonds, 75 million is swapped back to floating.

That will all be (indiscernible) for all this year?

Correct.

And tax rate this year?

32.5.

Same as last year.

Same as last year.

Well, keep ekeing it out.

All right, Saul, we're on it.

(OPERATOR INSTRUCTIONS) Godfrey Birckhead of SBK Brooks.

Good morning.

Could you review the other income and expense for the fourth quarter, please, and the year?

What constitutes that?

This is Phil.

What accounts for the difference is we did have some severance costs in the fourth quarter, and then in 2002 we had several favorable settlements with some of our legal and our product liability claims that we had.

Those items, the net of all that, is why you are seeing the increase year-over-year.

So there are more severance costs than there are pluses then, basically?

It's something you go with and talk about year-over-year, but in 2002 we did have some very favorable adjustments with some of our settlement claims.

If you look at the expenses, actual expenses period over period, you wouldn't see this type of an increase.

What do you expect that account to show in '04?

I would say that the total for the year will be very comparable to what you're saying this year, although we will be incurring as all the companies are going to be incurring additional charges in 2004, for the 404 (indiscernible) that all the companies have to go through.

We also will not anticipate getting some of the insurance coverage that we had this year for Carlisle Syntec.

So our number next year is probably going to be higher than what you're seeing right now.

So you would use the same or higher if you were making a business model for your company in '04?

Absolutely.

Depreciation in '04, please?

It should be flat, Godfrey, with --.

Another 60 million, in other words?

Correct, total depreciation and amortization should be consistent with this year.

Rick, you haven't talked about pricing.

What happened to pricing last year and what's happening to pricing in '04 as you see it in your model and in your 325 to 340 estimate?

Well, we talked about it some, I think, at the third quarter that we had been able to get through some price increases.

Pricing for us is really a timing issue, and we've quantified the problem we had at our Tire & Wheel company.

There is no question there is some real volatility right now, Godfrey, with raw materials.

But typically for us, that is a quarter or two and that's why we forecast annually.

I see pricing and raw material issues about like they were in '03.

And they were in '03 was -- in your topline, how much were prices in '03?

In 2003, our pricing -- we were just about a half a million dollars, so we had very little price increase across the company.

Okay.

In '04, do you think it will be about the same?

I would anticipate that, yes, I don't expect that you're going to see much of an increase in that number.

Phil's giving you a consolidated number.

What drives this, I tell you, is our automotive business.

It's mirrored with the automotive business.

It has a built-in price decrease every year, the automotive companies.

It's part of their basis of doing business, and that is a pretty big number.

That offsets, that price decrease in automotive offsets a lot of price increases that we get at other divisions.

So we get more price increases in the years where raw materials go up, and so the number has been jumping around a little bit.

But I don't see it -- in our forecast we're pretty comfortable in our guidance for '04.

We think we'll get through the year with minor impacts from these raw materials.

In the '04 forecast, the capacity utilization number, what is your assumption going -- 73 percent in '03.

What is the assumption, working assumption, for '04 built into your forecast?

I would just give you an overview on that, Godfrey.

Really we're ratcheting up our cap spending with some of these organic growth opportunities.

It's been kind of interesting.

So we're adding capacity in certain areas.

We don't see major shifts in that capacity.

It's been moving a point or two each year and we don't contemplate much.

In our guidance is continued substantial amounts of unabsorbed overhead.

There have been a lot of questions about this 10 percent goal in the operating margin.

As I've followed the company for a few years, one of the things that's impressed me has been if you take the industrial components in the construction materials and the general industry as a percentage of the total business, there is an enormous percentage of the total -- I forget now what they are -- and they're becoming larger and larger and larger.

And the other portions of your business are smaller and smaller and smaller.

And you have talked about, as you've pointed out, has been pointed out here again and again this morning, they are laggers in terms of the operating margin.

So I guess an obvious question would be, because you have talked about divestitures in the past, could there be or would there be a time when they might be sold?

We've sold a business every year.

We sold our power transmission in Europe.

We just announced spring break.

Obviously, we're like anybody.

We're looking at ways.

I mean, we're going to get the right margins and the right returns on capital or they will not be in our portfolio.

Some of these businesses, quite frankly, through the cost reductions and the consolidations, we think they're pretty good businesses.

We have a lot of businesses here that do not have offshore competition.

We have a high level of confidence we're going to improve their margins quite substantially.

The businesses that we can't will be divested.

Well, all of your acquisitions have come in one of those three, though.

So per force, the other ones have become smaller.

And wouldn't it make sense from the point of view of management time and everything else, it just looks to me as though over time in five years your business is going to be industrial components, construction materials, and general industry.

Godfrey, I've been clear that we're allocating resources to certain segments.

We've put it in all our communication.

So you're restating that; so we agree with you.

Thanks a lot, Godfrey.

Thank you.

Beth Lily (ph) of Willan (ph) Partners.

I have a couple of questions.

It's somewhat of a follow-up to Godfrey, which is the 10 percent operating margin that you've set out, this is a several-part question.

Is it possible to -- with your current complexion of business and assets, can you get to that 10 percent margin in a reasonable period of time?

And reasonable being -- and I understand your reluctance to commit to a time, but I'm guessing, what, three years from now?

Once again -- hey listen, the reason I'm putting this out there, here's the key; we're not going to stop until we get there.

But I'm not getting into a timetable here.

I know you've got to make some estimate on that.

But we're confident that the bulk of our businesses do not have offshore competition, that they are specialty businesses.

We've got the opportunity with the right consolidations and changes we're going to make to improve these margins, we think 10 percent is the bright minimum target.

Now, I can't predict.

Raw materials are volatile.

We're not expecting any help from the marketplace.

That's another point, I don't care what happens in these markets.

We are going to continue to take the steps to get to 10 percent.

I'm not going to predict.

You've got to come up with your own, whether it's 2, 3.

You pick your own timetable on that.

Okay.

Can you get there -- so what you're saying is -- I just want to make sure I understand this; with your present mix of businesses, you're targeting 10 percent?

Well, we have segments that quite frankly are higher than that.

So we're not talking about dropping them down.

We're talking about that we are going to improve across the board and get these smaller segments up to 10 percent through continued improvement, and we're making some progress, not as fast.

And that's the reason why we're continuing to do all of this plant closure and consolidation, which frustrate a lot of people.

But long term, this is going to serve us well.

The key here, it doesn't matter what we do.

Our intent is to do more than our competitors.

The second part to the 10-percent question is, what level of return on capital does that translate to?

What is your return on capital today; what's your cost of capital?

And when you hit a 10 percent operating margin, what return on capital will you be generating?

This is a good question.

These numbers you can calculate on a consolidated basis.

We individualize for each business unit, because they each are truly separate.

And so this 10 percent number's been arrived at.

I thought it was just a good way to talk about and tell you how much more restructuring we have to do.

We're going to do it until we get to 10 percent in every segment.

Now, the truth is that some businesses have very high turnover, relationship of revenue to assets, and then we look at that number.

We look at return on invested capital, we look at cash flow.

So I really get -- it's a mix.

We look at all these measurements and make decisions about how to allocate resources.

So I really don't have a given number.

It's individual to each business unit, so I really don't want to talk about that really from a standard number.

So you don't want to give out what you calculate to be your return on invested capital today for the overall corporation?

I didn't bring that with me.

I'm in a remote location;

I don't have it with me.

Maybe we should put that together for a future call.

Obviously -- I will tell you this, it's very high on our priority list, and we track it by each business unit and by each product line.

So I just don't have it here with me today on a consolidated basis.

Let me tell you, it's going to exceed our cost of capital by a handsome amount, okay, but I don't have it with me today.

Okay, thanks much.

Mr. McKinnish, I turn the floor back over to you for any additional comments or closing remarks.

I don't have any additional comments.

We appreciate everybody taking the time to join with us on this conference call.

We look forward to talking to you in about three months.

Thank you.

Thank you.

This does conclude today's teleconference.

You may disconnect your lines at this time and have a great day.