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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

 X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---   EXCHANGE ACT OF 1934


      For the fiscal year ended      October 31, 1998   
                                 ---------------------------  
                                    OR
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES    
---   EXCHANGE ACT OF 1934


      For the transition period from _________________ to _________________
      Commission file number 0-13940
                             -------
 
                          CENTRAL SPRINKLER CORPORATION
                          -----------------------------
             (Exact name of Registrant as specified in its charter)

Pennsylvania                                            23-2328106
------------                                            ----------
(State or other jurisdiction                            (I.R.S. Employer
of incorporation or organization)                       Identification Number)

              451 North Cannon Avenue, Lansdale, Pennsylvania 19446
              -----------------------------------------------------
          (Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: 215-362-0700
                                                    ------------

Securities registered pursuant to Section 12(b) of the Act: None
                                                            ----

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of class)

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                                    Yes X   No
                                       ---    ---

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.    X
                               ---

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant (computed by reference to the closing price of such stock in
the NASDAQ National Market System on December 31, 1998 -- $9.6875) was
approximately $33.1 million.

         The number of shares of the Registrant's common stock outstanding as of
December 31, 1998 was 3,845,637 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE
                   (Specific pages incorporated are indicated
                         under applicable Item herein):

Registrant's definitive Proxy Statement for its 1999 Annual Meeting of
Shareholders is incorporated by reference into Part III hereof.

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                                     PART I
Item 1. Business.

                (a) General Development of Business

                Central Sprinkler Corporation (the "Company"), through its
wholly-owned subsidiaries, Central Sprinkler Company ("Central Sprinkler"),
Spraysafe Automatic Sprinklers Limited ("Spraysafe"), Central Castings
Corporation ("Castings"), Central CPVC Corporation ("Central CPVC"), and Central
Sprinkler Export Corporation ("Export") is a leading manufacturer of automatic
fire sprinkler heads, valves, grooved couplings and fittings, CPVC plastic pipe
and fittings, steel pipe, and other sprinkler system components as well as a
distributor of component parts of complete automatic fire sprinkler systems that
are either manufactured by the Company or purchased by the Company for resale to
its customers.

                The Company acquired Central Sprinkler in May 1984. Key
executives of Central Sprinkler remained with the business and purchased a
portion of the Company's common stock with the remainder purchased by an outside
investor group. Prior to the acquisition, the Company did not have any
significant assets or liabilities or engage in any activities other than those
related to the acquisition. In May 1985, the Company went public by its sale of
shares of common stock of the Company in an underwritten public offering.

                On November 1, 1985, the Company acquired 80% of the outstanding
common stock and 100% of the outstanding preferred stock of Spraysafe, a
sprinkler head manufacturer and distributor in the United Kingdom. During 1989,
the Company increased its ownership in Spraysafe from 80% to 100% by purchasing
all of the remaining common stock from the minority shareholder. The acquisition
resulted in an expansion of the Company's product lines to include Spraysafe's
glass bulb sprinkler heads and provide a further means of distributing the
Company's products in foreign markets.

                In July 1994, Central Sprinkler formed a new company, Castings,
and acquired substantially all of the business assets of a foundry in the
Southeastern United States engaged in manufacturing piping system components.
The purchase price was approximately $1.8 million for assets consisting
primarily of property, plant and equipment. The Company has incurred significant
capital expenditures for the expansion of this facility to accommodate
production of several additional product lines. Castings is also an importer of
product purchased for resale to its customers to supplement manufactured product
lines.

                In May 1995, Central Sprinkler formed a new company, Central
CPVC, and contributed business assets to Central CPVC. Central CPVC is engaged
in manufacturing CPVC plastic pipe and fittings. The Company built a
manufacturing facility in Huntsville, Alabama for CPVC pipe and fittings
components. The new facility commenced production in May 1997.

                                      - 2 -

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                (b) Financial Information About Industry Segments.

                    The Company operates in one industry; the manufacture and
sale or purchase and sale of component parts of complete automatic fire
sprinkler systems.

                (c) Narrative Description of Business.

General

                The Company is a leading designer, manufacturer, and distributor
of automatic fire sprinkler heads, valves, CPVC plastic pipe and fittings, steel
pipe, grooved fittings and couplings, and other sprinkler system components as
well as a distributor of component parts of complete automatic fire sprinkler
systems. Approximately 82% of the Company's fiscal 1998 annual net sales are
derived from product manufactured by the Company and approximately 18% is
purchased by the Company for resale to its customers.

                The Company's wide variety of products are marketed for
commercial, industrial, residential and institutional uses throughout the world.
The Company sells its products to more than 3 thousand customers, most of which
are sprinkler installation contractors.

Products

                The principal components of a sprinkler system are the sprinkler
heads and the valves, both of which are manufactured and marketed by the Company
and represented approximately 49% of the Company's sales in fiscal 1998 and 51%
in fiscal 1997 and fiscal 1996. The Company also manufactures and distributes
other sprinkler system component parts. The Company's other product lines which
are sold under the Company's various trade names include steel pipe, CPVC
plastic pipe and fittings and ductile iron grooved fittings and couplings as
well as other piping system components. The success of the Company's product
line expansion and diversification efforts has resulted in sprinkler heads and
valves becoming a lower percentage of consolidated sales than in prior years.

    Sprinkler Heads

                The sprinkler head is the mechanism that is activated by heat
and discharges a water spray. The sprinkler head is composed principally of
copper, brass and other corrosion resistant materials. The Company presently
produces and markets five basic types of sprinkler heads: the standard
commercial sprinkler, the residential/life-safety sprinkler, the extended
coverage commercial sprinkler, the early suppression fast response sprinkler and
specific application series sprinklers.

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                The standard commercial sprinkler head is installed near the
ceiling of a structure and consists of a fusable alloy pellet which is sealed
into a bronze center strut by a stainless steel ball. When the alloy melts at
its rated temperature, the ball is forced upward into the center strut,
releasing two ejector springs and activating the sprinkler, which discharges
water in a prescribed flow path. The Company also has standard commercial
sprinklers with glass bulb activating mechanisms. Generally, standard commercial
sprinklers are designed to activate at specified temperatures between 135 and
286 degrees. Standard commercial sprinkler heads are manufactured in a wide
variety of models, sizes, and finishes. The Company also has several adjustable
concealed standard commercial sprinklers. These models have several advantages
over previous models produced by both the Company and its competitors.

                The second type of sprinkler head produced and marketed by the
Company are residential/life-safety sprinklers. These sprinklers have quick
response features and are designed to react to a fire before it has a chance to
spread, which effectively minimizes the smoke, fumes and toxic by-products of
the fire. These residential/life-safety sprinklers are recognized today as the
best means to protect a life in the event of a fire. In late 1989, the Company
introduced residential/life-safety sprinklers with glass bulb activating
mechanisms. These models featured more traditional sprinkler designs along with
the quick response features previously only available in the Omega TM model. The
production of Omega TM models was discontinued in fiscal 1998. The Company has
several new models of its Glass Bulb residential sprinklers. Additionally, the
Company introduced a new residential series of concealed sprinklers called ROC
(Residential Optima Concealed). These sprinklers offer the best flows at the
greatest area of coverage on the market.

                The third type of sprinkler head produced by the Company is the
extended coverage commercial sprinkler. This sprinkler line brings about a
dramatic turning point in sprinkler technology by extending ordinary spacing
from 130 sq. ft. to 400 sq. ft. These sprinklers are being marketed under the
trade name of Optima sprinklers. The Company introduced the Optima sprinkler in
1993 and developed its newest models in fiscal year 1998. Patents have been
issued or are pending on these sprinklers that provide uniform distribution of
minimum densities at very low start pressures, while achieving superior fire
control when compared to the standard commercial sprinkler line.


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                The fourth type of sprinkler head produced by the Company
starting in fiscal 1993 is the early suppression fast response ("ESFR")
sprinkler. This sprinkler is designed for use in special hazards situations. It
is used primarily to protect storage areas where there is a need for a high
density of water with a quick responding sprinkler head. The Company has
developed new ESFR sprinklers with a larger orifice. The new K25 ESFR sprinkler
was developed in fiscal 1997. By making the orifice larger, the pressure
required is lowered. The newer models of the ESFR sprinklers will provide all of
the advantages of the traditional ESFR sprinkler and an overall economic savings
to our customers due to the lower pressure.

                The fifth type of sprinkler produced and marketed by the Company
is the specific application series. These sprinklers, such as the Window
Sprinklers introduced in fiscal 1995 and the Attic and the ELO-231 specific
application sprinklers, are designed to provide better fire protection for
specific occupancies while providing overall economic savings to our
installation contractor customers. The Company continues to expand the specific
application series to include new sprinklers for storage applications with
larger orifices. These sprinklers will further reduce the pressure required and
continue from the very successful ELO-231 series of sprinklers. The newest
sprinklers developed are the K17-231 TM Upright and Pendent and Ultra K17 TM
models.

                The Company discontinued production of Omega TM sprinklers in
fiscal year 1998. The sales of these products represented less than 3% of
consolidated sales in fiscal year 1997. See Note 14 to the Consolidated
Financial Statements contained herein for a further discussion of the Omega TM
product.

                In fiscal 1993, the Company started to manufacture its own line
of glass bulb ampules for use as activating mechanisms in sprinkler heads. The
Company currently manufactures several varieties of these glass bulb ampules for
internal use. Such products are not sold to customers outside the Company. The
Company also supplements its own production with glass bulb ampoules purchased
from several outside suppliers.


    Valves

                The Company markets a wide variety of sprinkler system valves
which are used specifically in fire sprinkler installations. A sprinkler system
valve is the mechanical device by which the water supply is controlled. When the
sprinkler head is activated, the valve allows water to flow into and through the
system. Several of these valves are manufactured by the Company (alarm valve,
butterfly valve, check valve, deluge valve and dry pipe valve), while certain
other valves are manufactured by others and marketed by the Company. The Company
also produces a full line of preaction and deluge valve equipment. The Company
introduced several new manufactured valve models during the year.

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    CPVC Plastic Pipe and Fittings

                    The Company manufactures a line of Blazemaster TM CPVC
plastic pipe and fittings for use in residential and light commercial
applications. The Company expanded such CPVC product lines and manufacturing
capacity in each of the last several fiscal years. The Company continues its
leadership position in the BlazeMaster TM CPVC market. The Company built a new
manufacturing facility for Blazemaster TM CPVC pipe and fittings components that
commenced production in May 1997. Prior to this date, the Company manufactured
the Blazemaster TM CPVC pipe and fittings using principally Company owned
machinery and equipment under a production supply contract whereby the Company
used facilities and certain personnel of an unaffiliated plastic manufacturer.

    Steel Pipe

                The Company produces its proprietary line of steel sprinkler
pipe through a production supply contract in which the Company procures the
semi-processed steel coils from domestic producers and provides it to the
supplier for processing. The production supply contract allows the Company to
control the majority of production time and produce a full line of electric
resistance welded steel pipe for sprinkler systems. The Company owns all raw
materials, work in process, finished goods, selected tooling and product
approvals and listings. Approximately 80% of the product is delivered directly
to Central Sprinkler's contractor customer base and 20% is sold through the
Company's distribution network to customers.

                The product is fabricated for use with various coupling methods.
The steel pipe, which is Underwriters Laboratory Listed and Factory Mutual
Approved, is utilized to fabricate the piping system to carry water to the fire
sprinklers. The pipe ends are fabricated to accept grooved couplings, threaded
fittings or plain end fittings. These product lines install together in order to
provide a completed piping system capable of supplying the necessary water
supply to the fire protection sprinklers or other quick opening devices.

     Grooved Fittings and Couplings

                The Central Grooved Piping product line was first established
through a 1993 acquisition of an importer of such products. The 1994 acquisition
of a ductile iron foundry by Castings and subsequent expansion of the foundry
resulted in the Company's ability to manufacture grooved fittings and couplings
and other piping system components. The product line was expanded in each of the
last several fiscal years and is principally domestic with some product lines
from imports including threaded

                                      - 6 -
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fittings. The product line is used in several markets, but is primarily focused
by the Company into the fire protection and heating, ventilation, and air
conditioning markets. These markets represent the majority of the Company's
business in this product line, and should also provide the potential growth to
maximize capacity. The grooved couplings and fittings are used to attach to all
iron pipe, standard steel pipe, high-density polyethylene plastic pipe, and
other types of piping. The grooved method provides a cost-effective way to
attach pipe ends together, primarily in two inch and above sizing. The method is
readily accepted in the fire protection, mechanical, industrial, original
equipment manufacturing and heating, ventilation and air conditioning markets
which provide the Company with sales growth opportunities

    Other

                The Company also distributes a wide variety of other parts used
in sprinkler system installations. The majority of the other components include
fittings, control valves, electric switches, hangers and a variety of other
items. The Company also develops and markets computer aided design ("CAD")
systems to architects, designers, and contractors for use in the design and
installation of sprinkler systems. The Company also provides other CAD related
services through its SprinkCAD division.


Marketing and Customers

                The Company's products are marketed by its own sales and
marketing staff. The sales, marketing and distribution staff consists of
approximately 200 people and operates from seventeen regional sales
office/distribution centers located near Boston, Atlanta, Miami, Dallas,
Chicago, Los Angeles, San Francisco, Seattle, Philadelphia, Baltimore, Salt Lake
City, Greensboro, Portland, Cleveland and from one distribution center in the
United Kingdom, one in Singapore and one in China. Unlike the majority of the
industry which markets its products primarily through wholesale distributors,
the Company sells most of its products directly to sprinkler installation
contractors. This places the Company in direct contact with its customers and
allows it to respond effectively to customer demands and suggestions.

                The Company's sales and marketing efforts are directed primarily
to these sprinkler installation contractors. Additional sales and marketing
efforts are directed to the introduction and promotion of the Company's products
to architects, engineers, builders, end-users, local fire authorities and
insurance underwriters, for purposes of encouraging them to recommend or specify
the Company's sprinklers for use in new construction and retrofit installations.

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                The Company markets its products to more than 3 thousand
customers, the majority of whom are sprinkler industry contractors, for
commercial, industrial, residential and institutional use throughout the world.

                In fiscal 1998, no single customer accounted for more than 5% of
the Company's net sales.

                The Company principally manufactures products for estimated
shipping demands. The Company also produces product to specific customer orders.
The Company does not have any significant order backlog.

                The Company advertises its products through various media
including insurance publications and trade journals. The Company also
participates in trade shows and trade organizations. Approximately $659 thousand
was spent on advertising and sales promotions of the Company's products in 1998.

                The Company's products are not marketed pursuant to long-term
purchase agreements, but are sold pursuant to individual purchase orders. Often,
the Company's published sales terms sheet is the controlling purchase document.

                The Company is affected by seasonal factors and the weather as
well as the level of new construction activity, remodeling and retrofitting of
older properties in the commercial, industrial, residential and institutional
real estate markets. The Company's sales tend to increase the most when there is
a high level of new construction activity in all such real estate markets and
decline when there is a slowdown in new construction activity. In addition, as a
result of relatively higher levels of new construction during warmer spring and
summer months, the demand for sprinkler system components tends to be greater
during the summer and fall than during other seasons.


Competition

                The Company competes on the basis of price, service,
product quality, design and performance characteristics. The Company encounters
competition worldwide primarily from approximately six domestic manufacturers of
sprinkler heads and valves and a large number of manufacturers and/or
distributors of other sprinkler system component parts.

                The Company is the world's leading manufacturer of fire
sprinklers. The Company also believes its position is due in large part to its
relationships with customers and the innovative technological features of its
products.

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Research and Development

                Research and development has contributed significantly to the
Company's success over the years and will be a major factor in the Company's
ability to continue its future growth.

                The Company maintains a staff of approximately fifty-five
engineers and support staff who devote their time to research and development
activities. During the 1998 fiscal year, the Company spent $6.4 million on
research and development compared to $7.4 million in fiscal 1997 and $5.5
million in fiscal 1996. The Company's efforts in this area are primarily focused
on sprinkler head and valve design and development, and are directed toward both
new product development and further refinement of the quick response technology
designed for residential/life-safety purposes, extended coverage sprinklers,
enhancements to dry pendent and Optima sprinklers, and the specific application
sprinkler series. The Company's heavy emphasis on the development of new
products across most product lines continued throughout the year and led to new
products in fiscal years 1998, 1997 and 1996.

Patents

                The Company holds a number of patents. In fiscal year 1998, the
Company received patents on the K-25 ESFR sprinkler head and several other
products. In September 1997, the Company was issued a patent on directional
sprinklers for usage in attics under pitched roofs, hipped roofs, dormers,
interior cathedral ceilings and other pitched overhead interior walls. In
September 1997 and December 1996, the Company was issued patents on various
models of the extended coverage ceiling sprinklers. The Company was issued a
patent in fiscal 1995 on the new extended coverage sprinkler and additional
related patent applications are pending. These patents are very important to the
Company based upon the Company's substantial investment in the development of
new products and the dramatic turning point they provide in fire sprinkler
protection and technology. The Company has also filed for patent protection on
other products.

Trademarks

                The Company has a number of trademarks on various product names
and selected product components.


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Sources of Supply

                The Company uses a number of component parts in its manufacture
of sprinkler heads and valves. The principal components of the sprinkler head
include the frame, the deflector and the activating mechanism. The major
component of the valve is the metal casting.

                Materials, parts and components purchased by the Company for the
production of its sprinkler heads, valves, ductile iron and steel pipe products
are generally available from a large number of suppliers. The vast majority of
items are manufactured specifically for the Company's needs from molds, dies and
patterns owned by the Company. The Company has not experienced any shortages or
significant delays in delivery of these materials in the recent past, and
management believes that adequate supplies will continue to be available.

                The Company also has a non-exclusive supply contract with the
B.F. Goodrich Company to supply the resin that the Company uses to produce
BlazeMaster TM CPVC plastic pipe and fittings. This supply contract, which
expires in December 2002, provides the Company with a source of resin that is
not generally available. Other products manufactured by the Company such as
steel pipe, fittings and couplings and other piping system components use raw
materials that are available from a wide variety of suppliers.

                Other component parts purchased by the Company for distribution
purposes are generally available from a number of manufacturers.


Effect of Environmental Protection Regulations

                The Company is subject to compliance with various federal, state
and local regulations relating to protection of the environment. The Company has
not made nor does it currently expect to make any material capital expenditures
for environmental protection and control equipment for its current operations.
As more fully discussed in Item 3, "Legal Proceedings" and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
Company has been advised by the Environmental Protection Agency of a potential
contamination problem in the vicinity of the Company's primary plant.


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Employees

                The Company employs approximately 1,300 people, of whom
approximately 950 are production or shipping employees, with the remainder
serving in executive, administrative or sales capacities. The Company's
sprinkler and valve production and shipping employees are covered by a
collective bargaining agreement with the International Association of Machinists
& Aerospace Workers that expires in October 2000. All of the covered employees
are located at the Company's primary manufacturing plant in Lansdale,
Pennsylvania.

                (d)  Financial Information about Foreign and Domestic 
Operations and Export Sales.

                The Company operates in one business segment and engages
in business activity outside the United States.  During fiscal
1998, 1997 and 1996, the combined export and foreign sales represented
approximately 11.4%, 13.6% and 12.5%, respectively, of the Company's net sales.
Included in foreign sales are the sales of the Company's United Kingdom
subsidiary (Spraysafe). Spraysafe primarily manufactures sprinkler heads and
distributes them and other products in Europe and other foreign countries.
Significant financial information about Spraysafe's operations consists of the
following in thousands of dollars:

                                    Year Ended October 31,      
                             -----------------------------------
                               1998          1997          1996 
                               ----          ----          ---- 
                           
Sales                        $15,099       $17,254       $16,807
Operating Income                 996         1,264         1,390
Net Income                       445           495           789
Total Assets                  10,406        12,382        10,803
Total Liabilities              5,221         7,747         6,799
                   

Item 2. Properties.

                The Company's primary manufacturing plant and executive offices
are located in Lansdale, Pennsylvania. The Lansdale facility is owned by the
Company. It is comprised of several buildings which contain approximately 166
thousand square feet of floor space on a parcel of about 7 acres. In fiscal
1996, the Company purchased a building and land for additional offices in
Lansdale, Pennsylvania which contains approximately 14 thousand square feet. The
Company also owns a separate fire sprinkler component manufacturing facility of
approximately 15 thousand square feet in Pennsylvania. The Company's subsidiary,
Castings, owns a piping systems components manufacturing facility and foundry of
approximately 155 thousand square feet on a 67 acre parcel in Anniston, Alabama
purchased in fiscal 1994. The Company's Central CPVC Corporation subsidiary owns
a manufacturing plant located in Huntsville, Alabama containing approximately 79
thousand square feet of floor space on a parcel of approximately 15 acres. The
plant houses offices, manufacturing operations and inventory.


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                The Company's fourteen domestic sales office/distribution
centers are located in major cities across the United States listed in Item
1(c), "Marketing and Customers," hereof and range in size from 11 thousand to 66
thousand square feet per building. These facilities are leased by the Company
pursuant to leases which terminate through 2002. The Company has options to
extend certain of its leases for additional periods on similar terms.

                The Company's United Kingdom subsidiary owns a manufacturing
plant in the United Kingdom that contains approximately 12 thousand square feet
of floor space on a parcel of about 1 acre. This facility is also pledged as
security for a loan. The United Kingdom subsidiary also leases a distribution
center of approximately 5 thousand square feet in the United Kingdom under a
lease that expires in 2000, leases a distribution center of approximately 3
thousand square feet in Singapore under a lease that expires in 1999, and leases
approximately 1 thousand square feet in Beijing, China.

                The Company's manufacturing and assembly facilities
operate on a two-shift or three-shift per day basis. Principally all of the
manufacturing equipment used in the production process is owned by the Company.
At October 31, 1998, the Company's owned and leased facilities are generally
adequate and suitable for the Company's needs and are virtually fully utilized
for their intended use. In the normal course of business, the Company
continually evaluates its properties and facilities for their adequacy and
suitability.

Item 3. Legal Proceedings.

                The Company is engaged in discussions with the Environmental
Protection Agency concerning a claim which may develop in connection with the
Company's primary manufacturing plant in Lansdale, Pennsylvania. This potential
claim is more fully discussed in Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

         The Company has been involved in seven class action lawsuits as well as
an administrative lawsuit filed in March 1998, by the United States Consumer
Product Safety Commission ("Commission") related to the Company's Omega(TM)
sprinklers. The Company has reached a final settlement of the Omega(TM)
litigation with the Commission as well as a definitive settlement agreement with
the plaintiffs in the Hart and Santa Clara class actions. Although the court has
granted preliminary approval to the settlement, settlement is contingent upon 
receiving final approval from the court.

             In accordance with Statement of Financial Accounting Standards No.
5, "Accounting for Contingencies" and based on current information, the Company
revised its estimate of the probable future cost of settling these matters and
recorded a $38 million ($26.6 million net of tax) charge in third quarter of
fiscal 1998 to reflect the total estimated additional future cost. The Company
believes that this additional charge along with previous reserves for the
Omega(TM) head replacement efforts should cover the total estimated future costs

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of the settlements. The Agreements with the Commission and Class Action
litigants generally provide for replacement of the Omega(TM) sprinkler heads
with free replacement sprinklers and parts, the establishment of a separate
trust account for payments to the owners of Omega(TM) sprinklers, administration
of the recall program and a notification program related to the Omega(TM)
sprinkler product recall.

          In addition, the Company has discontinued the manufacturing and sale
of Omega(TM) sprinklers. The Omega(TM) product line represented less than 3% of
the Company's total sales in fiscal year 1997.

          In an effort to recover a portion of the cost of the Omega(TM)
settlement, the Company filed suit on August 19, 1998, against twelve product
liability insurance carriers with which the Company had coverage over the last
15 years. No insurance or third party recoveries have been considered in the
Company's accrual analysis and the amount of such recoveries, if any, is
uncertain at this time.

            In the fourth quarter of fiscal 1997, a charge of $13.2 million ($9
million net of tax) was recorded to cover the estimated future costs associated
with the expansion of a voluntary program which was initiated by the Company to
encourage the testing and possible replacement of certain Omega(TM) fire
sprinklers. A similar Omega(TM) charge was recorded in fiscal 1996 of $3.8
million ($2.4 million net of tax). These amounts were based on estimates of the
number of Omega(TM) sprinklers, the action plan the Company believed was
necessary to remediate these sprinklers and various other assumptions

          In August 1997, a class action lawsuit was filed against the Company
in the State of California on behalf of a class of building owners who have
Omega(TM) sprinkler heads installed in their buildings. In December 1997, a
similar lawsuit was filed in California on behalf of the County of Santa Clara,
seeking to represent a class of public entities and commercial building owners
who have installed Omega(TM) sprinkler heads. Since the filing of these class
actions, the Company has been named as a defendant in five additional class
actions raising virtually identical allegations, captioned Rebecca Adams v.
Central Sprinkler Co. (filed February 11, 1998 in the Superior Court of
California for the County of San Bernadino), James T. Perona v. Central
Sprinkler Corp. (filed March 13, 1998, in the Superior Court of California for
the County of Los Angeles), South Royal Corp. v. Central Sprinkler Corp. (filed
March 27, 1998, in the United States District Court for the Southern District of
Florida), Roy F. Smith v. Central Sprinkler Corp. (filed March 20, 1998 in the
United States District Court for the Eastern District of Pennsylvania) and
Sangiacomo v. Central Sprinkler Corp. (filed April 3, 1998 in the United States
District Court for the Eastern District of Pennsylvania). The complaints do not
specify a dollar amount the plaintiffs are seeking. The Company has moved to
dismiss each of the above actions that it has been served with process. Earlier
in 1998, the court dismissed the South Royal complaint for failure to state a
claim. Plaintiff thereafter voluntarily dismissed its actions. As previously
mentioned, the Company has entered into an agreement to settle the Hart and
Santa Clara matters on a class-wide basis. The court granted preliminary 
approval to the settlement on October 27, 1998 and has scheduled a final 
approval hearing for February 19, 1999. Motions to dismiss remain pending in the
other actions which have been essentially inactive since the date of the 
preliminary approval order in the Hart and Santa Clara matters.


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          The Company believes that the remaining balance from the third quarter
fiscal 1998 charge totaling $35.1 million ($12 million of which is included in
accrued expenses) as of October 31, 1998 will be sufficient to cover the total
estimated additional costs of the Omega(TM) sprinkler matters. The third quarter
fiscal 1998 charge was based on estimates of the number of Omega(TM) sprinklers
to be located, the number of parties who will elect not to participate in the
settlements, estimated legal expenses and various other assumptions and on
information available at the time. It is possible that additional litigation may
ensue. In the event additional information becomes available in the future which
changes management's estimates, additional provisions may be necessary.

                The Company, in the normal course of business, is party to
various other claims and lawsuits with regard to its products and other matters.
Management believes that the ultimate resolution of these other matters will not
have a material impact on the Company's financial position, results of
operations or liquidity.


Item 4. Submission of Matters to a Vote of Security Holders.

                No matters were submitted to a vote of security holders of the
Company, through the solicitation of proxies or otherwise, during the fourth
quarter of fiscal 1998.





                                     - 14 -
<PAGE>


                                     PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder 
        Matters.

                The Company's Common Stock is traded on the NASDAQ National
Market, NASDAQ symbol - CNSP. The following table sets forth, for the fiscal
years indicated, the range of high and low price quotations.

Fiscal 1998:
                                                       High       Low
                                                       ----       ---

    First Quarter................................    $20       $17
    Second Quarter...............................     20 1/2     9 15/16
    Third Quarter................................     11 1/2     5 1/2
    Fourth Quarter...............................     12 15/16   6 1/16

Fiscal 1997:
                                                      High       Low
                                                      ----       ---

    First Quarter................................    $28 3/4   $17 1/4
    Second Quarter...............................     28 1/2    17 3/4
    Third Quarter................................     28 1/4    17 1/2
    Fourth Quarter...............................     22        16 1/2


                As of December 31, 1998, there were approximately 1 thousand
holders of record of Common Stock of the Company. The closing price of such
stock on the NASDAQ National Market on December 31, 1998 was $9.6875.

                The Company has not paid dividends on Common Stock since its
inception in 1984. The Company intends to continue its policy of retaining
earnings to finance future growth.

Item 6. Selected Financial Data.

                The following summary sets forth selected financial data with
respect to the Company for the last five fiscal years. The selected financial
data has been derived from the consolidated financial statements of the Company.

                This data should be read in conjunction with other financial
information of the Company, including the consolidated financial statements of
the Company and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.





                                     - 15 -




<PAGE>


SUMMARY OF SELECTED FINANCIAL DATA
(Amounts in thousands, except per share)

The following fiscal year information should be read in conjunction with the
accompanying consolidated financial statements appearing elsewhere in this
report.
<TABLE>
<CAPTION>
                                                            (1)       Interest                  Diluted Net  
                                                         Operating     Expense       Net       Income (Loss)
                                  Net        Gross         Income     (Income),    Income       Per Common
CONSOLIDATED OPERATIONS          Sales       Profit        (Loss)        Net       (Loss)          Share 
------------------------------------------------------------------------------------------------------------
<S>                          <C>          <C>           <C>           <C>       <C>             <C>  
Year Ended October 31, 1998    $224,930     $60,001     $(27,288)(2)   $5,161   $(22,604)(2)   $(6.89)(2)  
Year Ended October 31, 1997     221,990      66,280(3)       745 (2)    4,322     (2,542)(2)     (.78)(2)
Year Ended October 31, 1996     187,220      55,975(3)     8,999 (2)    2,939      3,763 (2)     1.13 (2)  
Year Ended October 31, 1995     158,849      51,684       15,305        1,902      8,458         2.50
Year Ended October 31, 1994     116,249      35,237        6,428          678      4,018 (4)      .80 (4)
------------------------------------------------------------------------------------------------------------
                                                                                             
                                                                Long-
CONSOLIDATED FINANCIAL        Working    Current     Total      Term     Total  Shareholders'
POSITION                      Capital     Ratio      Assets     Debt      Debt     Equity     
----------------------------------------------------------------------------------------------
As of October 31, 1998        $77,427     2.7:1    $177,104   $76,807   $81,168   $30,767
As of October 31, 1997         84,990     2.8:1     188,027    79,918    85,175    52,898
As of October 31, 1996         35,522     1.5:1     150,918    24,674    62,914    54,392
As of October 31, 1995         47,292     2.2:1     117,360    27,516    45,391    49,550
As of October 31, 1994         53,168     3.0:1      99,061    19,391    30,955    51,101
----------------------------------------------------------------------------------------------
</TABLE>

SELECTED FINANCIAL DATA FOOTNOTES
  (1)  Operating income (loss) represents income before income taxes and
       interest expense (income), net.
  (2)  After an unusual third quarter Omega (TM) charge of $38,015 ($26,610 net
       of tax or $8.10 per share) in fiscal 1998 and unusual fourth quarter
       Omega (TM) charges of $13,200 ($8,976 net of tax or $2.74 per share) in
       fiscal 1997 and $3,750 ($2,362 net of tax or $.72 per share) in fiscal
       1996 (See Footnote No. 14 of the Notes to Consolidated Financial
       Statements contained herein).
  (3)  Reflects reclassification of unusual Omega (TM) charges of $13,200 in
       fiscal 1997 and $3,750 in fiscal 1996 from cost of sales to a separate
       classification effecting operating income.
  (4)  After favorable cumulative effect of $238 ($.05 per share) due to
       accounting change for income taxes. 

                                     - 16 -
<PAGE>



Item 7.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations.

Results of Operations

                The following table shows, for the years indicated, the
percentage relationships to net sales of the items included in the Consolidated
Statements of Operations and the percentage changes in the dollar amounts of
such items from year-to-year.
<TABLE>
<CAPTION>
                                                            Percentage of Net Sales                   Percentage Increase
                                                             Year Ended October 31,                       (Decrease)    
                                                            -----------------------                   -------------------
                                                                                                   Year 1998        Year 1997
                                                     1998           1997           1996            Over 1997        Over 1996
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>           <C>            <C>              <C>              <C>    
Net sales                                           100.0%          100.0%          100.0%             1.3%           18.6%
Cost of sales                                        73.3            70.1*           70.1*             5.9            18.6
                                                    -----           -----           -----
     Gross profit                                    26.7            29.9*           29.9*            (9.5)           18.4
                                                    -----           -----           -----

Operating expenses:
     Selling, general and
      administrative                                 19.1            20.3            20.2             (4.7)           19.1
     Research and development                         2.8             3.3             2.9            (12.9)           34.8
                                                    -----           -----           -----
                                                     21.9            23.6            23.1             (5.8)           21.1
                                                    -----           -----           -----

     Unusual Omega(TM) charge                        16.9             6.0*            2.0*             N/M             N/M
                                                    -----           -----           -----

     Operating income (loss)                        (12.1)             .3             4.8              N/M           (91.7)
                                                    -----           -----           -----

Interest expense (income):
     Interest expense                                 2.6             2.2             1.8             19.6            44.0
     Interest income                                  (.3)            (.3)            (.2)            21.0            23.7
                                                    -----           -----           -----
                                                      2.3             1.9             1.6             19.4            47.1
                                                    -----           -----           -----

     Income (loss) before
      income taxes                                  (14.4)           (1.6)            3.2              N/M             N/M

Income tax provision
    (benefit)                                        (4.4)            (.5)            1.2              N/M             N/M
                                                    -----           -----           -----
Net income (loss)                                   (10.0)           (1.1)            2.0              N/M             N/M
                                                    =====           =====           =====

</TABLE>
----------
* Reflects reclassification of unusual Omega(TM) charges of $13.2 million in
fiscal 1997 and $3.75 million in fiscal 1996 from cost of sales to a separate
classification effecting operating income.

N/M indicates not meaningful.

                                     - 17 -
<PAGE>


     The following table summarizes the impact of the unusual Omega(TM) charges
on the reported operating income (loss), net income (loss) and diluted net
income (loss) per common share for the respective reporting periods. Amounts in
thousands, except per Share.


<TABLE>
<CAPTION>

                                                                   Year Ended October 31,
                                                   -----------------------------------------------------
                                                     1998                 1997                    1996
                                                   --------            ----------               --------
<S>                                               <C>                  <C>                      <C>   
Operating income before 
 unusual Omega(TM) charge                          $ 10,727              $ 13,945                 $12,749

Unusual Omega(TM) charge                            (38,015)              (13,200)                 (3,750)
                                                   --------              --------                 -------
Operating income (loss)                            $(27,288)             $    745                 $ 8,999
                                                   ========              ========                 =======
Net income before unusual
 Omega(TM) charge                                  $  4,006              $  6,434                 $ 6,125

Unusual Omega(TM) charge (net 
 of tax)                                            (26,610)               (8,976)                 (2,362)
                                                   --------              --------                 -------
Net income (loss)                                  $(22,604)             $ (2,542)                $ 3,763
                                                   ========              ========                 =======

Diluted net income per 
 common share before                                                        
 unusual Omega(TM)charge                           $   1.21              $   1.96                 $  1.85

Unusual Omega(TM)charge 
 (after tax)                                          (8.10)                (2.74)                   (.72)
                                                   --------              --------                 -------
Diluted net income (loss) 
 per common share                                  $  (6.89)             $  ( .78)                $  1.13
                                                   ========              ========                 =======
</TABLE>

      Fiscal 1998 sales growth represented the sixth straight year of record net
sales. Net sales for fiscal 1998 increased to $224.9 million, $2.9 million or
1.3% from fiscal 1997 net sales of $222.0 million. The sales increase is due to
unit sales increases in many fire sprinkler system products and new fire
sprinkler and fittings products offset by price competition on virtually all of
its product lines, partially resulting from the publicity surrounding litigation
and governmental investigations


                                     - 18 -

<PAGE>

into the company's Omega(TM) sprinkler products, and the discontinuance of the
Omega(TM) sprinklers. Worldwide demand for the Company's products is driven by
the new construction market and the retrofit of existing buildings. The Glass
Bulb fire sprinkler models continue to lead the Company's sprinkler unit sales
gains. The Company experienced sales gains in CPVC pipe and fittings, grooved
fittings, and steel pipe in fiscal year 1998 as compared to the prior year.
Sales increases were realized in most U.S. markets. International sales
decreased for the fiscal year compared to the same prior year period. The
Company continues to experience very competitive conditions worldwide in the
sprinkler market through price competition that have continued to depress sales
prices and overall sales. The decision to discontinue the sales of the Omega(TM)
sprinkler heads is not expected to have a material adverse impact on future
sales results. The Company announced sales price increases on most of its
products in the first quarter of fiscal 1999 in an effort to improve gross
profit.

     Fiscal 1997 net sales increased to $222.0 million, $34.8 million or 18.6%
from fiscal 1996 net sales of $187.2 million. The sales increases are the result
of strong market demand for fire sprinkler products, a continued strong market
share held by the Company in such market, unit sales increases across most fire
sprinkler system products, and new fire sprinkler and fittings products. The new
construction market and the retrofit of existing buildings drive the worldwide
market demand for the Company's fire sprinklers and related products. The
Company's programs in developing and expanding production and additional
marketing of products continue to increase sales. The Glass Bulb and OptimaTM
fire sprinkler models, CPVC pipe and fittings and grooved fittings and couplings
led the Company's sales gains. Sales increases were realized throughout the U.S.
and in international markets. In fiscal 1997, domestic sales increased 19.3% and
sales outside the U.S. increased 13.6% from fiscal 1996. The Company continues
to experience increased competitive conditions worldwide in the sprinkler market
primarily through stiff price competition, which continues to depress sales
prices. The Company announced a September 1, 1997 sales price increase on most
of its sprinkler and valve products in an effort to improve the Company's gross
profit.

     Cost of sales for fiscal 1998 increased to $164.9 million, an increase of
$9.2 million or 5.9% compared to the prior year. As a percent of net sales, cost
of sales in fiscal 1998 increased to 73.3% compared to 70.1% in the prior fiscal
year. This resulted in a gross profit margin percentage for fiscal 1998 of 26.7%
compared to 29.9% in fiscal 1997. In terms of dollars of expense, cost of sales
increased primarily due to higher sales volume, increased costs for raw
material, labor and overhead, and higher product warranty claims. The decline in
the gross profit margin percentage is due primarily to lower sales prices, less

                                     - 19 -

<PAGE>

favorable sales mix, higher warranty claims and unit volume production declines
in certain products due to the Company's inventory reduction program. The
Company also added more production equipment, including automated equipment, to
accommodate the demand for certain products and increase efficiencies in the
future.

     Cost of sales for fiscal 1997 increased to $155.7 million, an increase of
$24.5 million or 18.6%. The net increase in cost of sales is due primarily to
increased cost of manufacturing related to higher sales volume and increased
costs for raw material, labor, and overhead. The Company added more production
equipment and enlarged its production space later in the year to accommodate the
increasing product demand. The rapid growth led to higher than expected costs to
manufacture some products. The Company's cost of sales in fiscal 1997 and fiscal
1996 were 70.1% of net sales. This resulted in a gross profit margin percentage
of 29.9%.

      Selling, general and administrative expenses were $42.9 million in fiscal
1998, a decrease of $2.1 million or 4.7% from fiscal 1997. These expenses were
19.1% of net sales in fiscal 1998 as compared to 20.3% in fiscal 1997. The
selling, general and administrative expense decrease was due to the Company's
cost reduction programs initiated early in fiscal 1998, but primarily realized
in the third and fourth fiscal quarters of 1998. General and administrative
expenses increased in fiscal 1998 compared to fiscal 1997 primarily due to legal
and consulting fees. Selling and distribution expenses decreased as a result of
reductions in personnel, travel, freight expense, and other cost reductions.

      Selling, general and administrative expenses were $45.0 million in fiscal
1997, an increase of $7.2 million or 19.1% from fiscal 1996. These expenses were
20.3% of net sales in fiscal 1997 as compared to 20.2% of fiscal 1996 net sales.
The selling, general and administrative expense increase was due primarily to
increased selling and distribution expenses resulting from the increased sales
volume and the expansion of distribution operations to better serve existing and
new customers in the U.S. and internationally with expanding product lines. The
Company also opened a new sales location in China late in fiscal 1996. The
Company continues to develop an improved distribution requirements planning
system to increase distribution efficiencies and reduce costs. The increase in
selling, general and administrative expenses was also due to a higher number of
administrative personnel to support the Company's growth.

     Research and development expenses decreased to $6.4 million in fiscal 1998,
a decrease of $947 thousand or 12.9% from fiscal 1997. Research and development
expenses were 2.8% of net sales in fiscal 1998 as compared to 3.3% of net sales
of fiscal 1997.

                                     - 20 -

<PAGE>

Research and development expenses rose sharply early in the fiscal year in
connection with the development and final approvals of a new line of Early
Suppression Fast Response fire sprinklers. The overall decline was due to cost
reduction programs implemented in fiscal 1998 that were realized in the last
half of the year principally through lower outside expenses. Research and
development expenses are anticipated to increase in fiscal 1999 as the Company
increases its efforts over fiscal 1998 to bring new and improved products to the
market. The Company's research and development investment resulted in new and
improved products coming to market during fiscal 1998.

     Research and development expenses increased to $7.4 million in fiscal 1997,
an increase of $1.9 million or 34.8% from fiscal 1996. Research and development
expenses were 3.3% of fiscal 1997 net sales as compared to 2.9% of fiscal 1996
net sales. The increase in research and development expenses is due primarily to
higher outside expenses and additional Company facilities for expanded new
product development and testing. The Company's research and development
investment continues to result in new, improved and innovative products and
product lines and continues to be a driving factor in the Company's growth and
leadership position.

     The Company recorded an unusual Omega(TM) charge of $38 million in the
third quarter of fiscal 1998 and the fourth quarter of fiscal years 1997 of
$13.2 million and 1996 of $3.8 million. Reference is made to the Liquidity and
Capital Resources section and Footnote 14 of the Notes To Consolidated Financial
Statements relating to the fiscal 1998 additional charge for settlement of the
litigation and the product recall related to the Company's Omega(TM) sprinklers.

     Net interest expense in fiscal 1998 was $5.2 million, 2.3% of net sales, as
compared to $4.3 million, 1.9% of net sales, in fiscal 1997. Interest expense
was $5.8 million in fiscal 1998 as compared to $4.9 million in fiscal 1997. The
higher interest expense was due to higher effective borrowing rates. Total debt
was $81.2 million at October 31, 1998, as compared to $85.2 million at October
31, 1997. Interest income was $675 thousand in fiscal 1998 as compared to $558
thousand in fiscal 1997. A lower average investment balance in the second half
of fiscal 1998 offset a higher average investment balance in the first half of
fiscal 1998.

     Net interest expense in fiscal 1997 was $4.3 million, 1.9% of net sales, as
compared to $2.9 million, 1.6% of net sales, in fiscal 1996. Interest expense
was $4.9 million in fiscal 1997 compared to $3.4 million in fiscal 1996. In
fiscal 1996, the Company capitalized $290 thousand of interest costs related to
the grooved fittings manufacturing facility expansion and construction. The
higher interest expense was due to the overall

                                     - 21 -

<PAGE>

increase in debt. Total debt was $85.2 million at October 31, 1997 as compared
to $62.9 million at October 31, 1996. The additional debt was required to
finance the increased growth in the Company's business, principally in
manufacturing capital expenditures and increased accounts receivable and
inventories. Interest income was $558 thousand in fiscal 1997 as compared to
$451 thousand in fiscal 1996. A higher average investment balance in fiscal 1997
was partially offset by lower interest income rates.

     The Company's effective income tax rate for fiscal 1998 was a benefit of
30.3% compared to a benefit of 28.9% in the comparable period of 1997. The
change in the overall effective income tax rate is primarily a result of the
income tax rate used to record the tax benefit of the unusual Omega(TM) charge
in the third quarter of fiscal 1998 and the impact of the nondeductible expenses
on the lower level of income.

     The Company's effective income tax rate for fiscal 1997 was a benefit of
28.9% as compared to a provision of 37.9% in fiscal 1996. The decrease in the
overall effective income tax rate is the result of a decrease in the effective
state income tax rate due to the net loss for the year and an increase in
anticipated federal income tax credits. Such anticipated federal income tax
credits were a significantly larger percentage of pretax amounts due to the
reduced pretax balance.

      The Company's sales are affected by seasonal factors and the weather as
well as the level of new construction activity, remodeling and retrofitting of
older properties in the commercial, industrial, residential and institutional
real estate markets. The Company's sales tend to increase the most when there is
a high level of new construction activity in all such real estate markets. In
addition, as a result of relatively higher levels of new construction during the
warmer spring and summer months, the demand for sprinkler system components
tends to be greater during the summer and fall than during other seasons.

Liquidity and Capital Resources

     The Company's primary sources of long-term and short-term liquidity are its
current financial resources, projected cash from operations and borrowing
capacity. The Company believes that these sources will be sufficient to fund the
programs necessary for future operations, growth and expansion, and the
Omega(TM) settlements. The Company's combined cash, cash equivalents and
short-term investments were $18.8 million at October 31, 1998 as compared to
$20.9 million at October 31, 1997. The decrease in cash, cash equivalents and
short-term investments is the result of fluctuations in operations, funds used
for or provided by investing and financing activities and

                                     - 22 -

<PAGE>

cash used to fund the Omega(TM) settlements. As of October 31, 1998, most of the
short-term investments had been converted to cash deposits in order to increase
liquidity. As of October 31, 1998, the Company has $14.3 million of available
borrowing capacity, based on the borrowing base formulas, including subjective
elements, as defined in the agreements, under a new Revolving Credit Facility
and a line of credit. Under the terms of the new Revolving Credit Facility, the
Company must maintain minimum balances of net borrowing availability. Should the
net balance of borrowing availability fall below such level, the bank may
require the Company to apply its lockbox to its loan balances. The outstanding
borrowings under the Revolving Credit Facility have been classified as a
long-term liability since the Agreement does not expire until March 30, 2001 and
the Company expects to maintain compliance with all covenants and minimum
balances as required.

     On September 18, 1998, the Company entered into a new Loan and Security
Agreement with its existing bank as part of a debt refinancing and debt
consolidation. As part of the refinancing, the Company received gross loan
proceeds of approximately $62.1 million and repaid outstanding debt including
the previous Revolver Credit Agreement, several term notes and mortgage notes.
See Footnote 7 of the Notes to Consolidated Financial Statements relating to the
refinancing.

       Cash provided by operating activities in fiscal 1998 was $3.6 million as
compared to $1.2 million in fiscal 1997. Net income (loss) plus noncash items
generated $17.4 million of cash in fiscal 1998 as compared to $15.6 million in
fiscal 1997. The change in fiscal 1998 as compared to fiscal 1997 was due
primarily to an increase in depreciation. Net cash used for working capital
purposes was $13.8 million in 1998 as compared to $14.4 million in 1997
primarily as a result of cash used to fund the Omega(TM) programs and partially
offset by decreases in accounts receivable and inventories. The lower inventory
balance at October 31, 1998, as compared to October 31, 1997, was a result of
the Company's inventory reduction program partially offset by additional
production and stocking in inventory of new and expanded product lines.
Anticipated future increases in sales volume will require the use of operating
cash flow.

     Cash provided by investing activities was $12.6 million in fiscal 1998 as
compared to cash used in investing activities of $20.0 million in fiscal 1997.
The primary source of cash for fiscal year 1998 was the net sales of investments
as compared to net purchases in fiscal years 1997 and 1996. The primary use of
cash was for the acquisition of property, plant and equipment during these
periods. The capital expenditures were primarily to expand manufacturing
capabilities for fire sprinklers and associated components, grooved fittings
product lines and CPVC fittings product lines.

     Cash used for financing activities in fiscal 1998 was $4.0 million as
compared to cash provided by financing activities of $22.5 million in fiscal
1997. The primary source of cash was from the new Loan and Security Agreement
("Agreement") comprised principally of a revolving credit facility and term
note. Proceeds of the Agreement were used to repay the previous Revolver Credit
Agreement borrowings, several term notes and


                                     - 23 -

<PAGE>

mortgage notes. Repayments of short-term and long-term borrowings exceeded
proceeds from new debt agreements. In fiscal 1997, the primary sources of cash
were from a long-term Revolving Credit Agreement and secured term loan.

       The Company purchases property, plant and equipment from time to time as
required to maintain and expand its offices, manufacturing and research
facilities and distribution centers. The Company has expanded and improved its
operations over the years with such purchases and the Company intends to
continue this policy in the future. The Company has commitments in the ordinary
course of business for such expansions of facilities and equipment and for
research and other contracts.

       The Company believes its cash and cash equivalents along with the
Company's future earnings and borrowing capacity is expected to provide adequate
liquidity to meet the Company's obligations, to fund future growth and expansion
and fund the Omega(TM) settlements.

New Accounting Pronouncements

       The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 established standards for the reporting and display of
comprehensive income in financial statements. Comprehensive income is the change
in net assets during a period from transactions generated from non-owner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. The Company
will adopt SFAS No. 130 in fiscal 1999 and believes that the adoption will not
have a material impact on the Company's financial statements.

       The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131 requires that business
segment financial information be reported in the financial statements utilizing
the management approach. The management approach is the manner in which
management organized the segments within the enterprise for making operating
decisions and assessing performance. The Company will adopt SFAS No. 131 in
fiscal 1999 and believes that this adoption will not have a material impact on
the Company's financial statements.

       In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No.133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 is effective for fiscal
years beginning

                                     - 24 -
<PAGE>


after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including derivative instruments embedded in other
contracts, and for derivatives used for hedging activities. SFAS No. 133
requires that all derivatives be recognized either as an asset or liability, and
measures them at fair value. Management believes that the adoption of SFAS No.
133 will not have a material impact on the Company's financial statements.

Commitments and Contingencies

       The Company and approximately thirty other local businesses were notified
by the Environmental Protection Agency ("EPA") in August 1991 that they may be a
potentially responsible party with respect to a groundwater contamination
problem in the vicinity of the Company's primary manufacturing plant in
Lansdale, Pennsylvania. The Company entered into an Administrative Order of
Consent for Remedial Investigation/Feasibility Study ("AOC") effective May 19,
1995 with the EPA. Pursuant to the AOC, in 1996 the Company performed certain
tests on the Company's property to determine whether any land owned by the
Company could be a source of any of the contamination at the site. Based upon
such tests management believes that the Company's operations did not contribute
to this contamination problem and the Company has no liability to clean-up this
site. Should the EPA mandate the Company's participation in clean-up efforts it
is estimated that such costs could aggregate $2.7 million. The Company has not
accrued for such clean-up costs.

     The Company has commitments and contingencies with respect to settlements,
lawsuits and an administrative lawsuit related to the Company's Omega(TM) 
sprinklers as discussed in Item 3, "Legal Proceedings."






                                     - 25 -

<PAGE>


       The Company, in the normal course of business, is party to various other
claims and lawsuits with regard to its products and other matters. Management
believes that the ultimate resolution of these other matters will not have a
material impact on the Company's financial position, results of operations or
liquidity.












                                     - 26 -
<PAGE>


Year 2000

     At midnight on December 31, 1999, all computer systems that use two digits
to represent the year are at risk of malfunction or failure. Many systems will
continue to run, but may interpret any data in the year '00 to be prior to any
date in the year '99. Businesses and systems that use a four-digit format to
report and process dates later than December 31, 1999 are often denoted as "Year
2000 compliant". While many systems have no date comparison functions and
operate in a date-independent mode, they may have a date function. If full
system operation and correct display of dates subsequent to January 1, 2000 are
possible, these systems may be denoted as "Year 2000 operationally ready". Many
systems and subsystems using two digit dates will operate smoothly until the end
of their technological or economic life without regard to the actual date. These
systems are unaffected by whether it is 2000 or 1900, make no "real-time" date
comparisons and have no date to display features. At the other extreme are
systems that will cease functioning or malfunction when an unacceptable date is
perceived (which in some cases could be during 1999).

     The Company is committed to the operation of our business without
interruption. The Company has been and continues to be in the process of
evaluating and modifying both its information technology and non-information
technology infrastructures for the Year 2000 compliance. The Company's primary
operating systems and software are Year 2000 compliant. In the normal course of
business, the Company has upgraded certain systems and software and these
upgrades are Year 2000 compliant. The Company has also modified certain systems
to be Year 2000 compliant. It is anticipated that the full assessment of all
potential issues will be completed in the third fiscal quarter of 1999 and the
issues tested and resolved, through modification or replacement, by the end of
the fourth fiscal quarter of 1999. The Company does not expect that the cost to
modify or replace infrastructure affected by the Year 2000 issue will be
material to its financial condition or results of operations. The Company does
not anticipate any material disruption in its operations as a result of any
failure by the Company to be in compliance. The Company is in the preliminary
stages of assessing the Year 2000 compliance status of its suppliers and vendors
and the potential impact on the Company's operations should they not achieve
Year 2000 compliance. In the event that any of the Company's significant
suppliers or customers do not successfully and timely achieve Year 2000
compliance, the Company's business or operations could be adversely affected.
Throughout the assessment, the Company will be developing contingency plans.

                                     - 27 -


<PAGE>
       There can be no assurances that the Company will not experience serious
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in technology used in its products or internal systems which
are comprised predominantly of third party software and hardware, or by the
inability of third parties to adequately disclose and correct their Year 2000
issues. While the Company presently believes that the ultimate outcome of its
efforts to be Year 2000 ready will not have a material effect on the Company's
current financial position, liquidity, or operations, there can be no assurances
that unanticipated increased costs could have a material effect on the results
of operations. Readers should be cautioned that forward-looking statements
contained in the Year 2000 disclosure should be read in conjunction with the
Company's disclosure regarding forward-looking statements.


Forward Looking Statements

     This document contains certain forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include certain
information relating to the Company's product recall and litigation regarding
its Omega(TM) sprinklers (including the adequacy of the charge recorded to cover
the recall and lawsuits relating to the Omega(TM) sprinklers), general business
strategy, the growth expected in the construction market, the potential market
and uses for the Company's sprinklers and other products, expansion plans, cost
structure, the effects of competition on the structure of the markets in which
the Company competes, operating performance and liquidity, matters related to
the Year 2000 issues, market risk, foreign currency fluctuations, litigation
matters and the adequacy of the charge recorded to cover such matters, as well
as information contained elsewhere in this document where statements are
preceded by, followed by or include the words "believes," "expects,"
"estimates," "anticipates" or similar expressions. For such statements, the
Company claims the protection of the




                                     - 28 -

<PAGE>

safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. Actual events or results may differ materially
from those discussed in this document and other documents filed by the Company
with the Securities and Exchange Commission.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      Interest Rate Sensitivity

      The Company's interest rate exposure relates primarily to long-term debt
obligations. All debt obligations and the interest rate swap are entered into
for purposes other than trading. A significant portion of the Company's interest
expense is based upon variable interest rates of its banks prime rate or
Eurodollar rate, as discussed in Footnote 7 of the Notes to Consolidated
Financial Statements.

      The table below provides fiscal year information about the Company's debt
obligations and interest rate swap agreement. All of the Company's debt
obligations have been classified as variable rate. The table presents principal
cash flows and related weighted average interest rates by expected maturity
dates. For the interest rate swap, the table presents the notional amounts and
weighted average interest rates by contractual maturity date. Notional amounts
are used to calculate the contractual payments to be made under the contract.
Dollar amounts are in thousands.

--------------------------------------------------------------------------------
  Expected       Variable Rate        Average                        Average
  Maturity         Long-Term          Interest      Interest           Pay
    Date              Debt              Rate        Rate Swap          Rate
  --------       -------------        --------      ---------        --------
   1999            $ 4,064              6.59%        $  550            .875%
   2000              4,618              6.54            550            .875
   2001             57,003              6.11            550            .875
   2002              1,368              4.54            550            .875
   2003              1,345              4.49            550            .875
   Thereafter       12,473              4.43          7,150            .875
                   -------                           ------
   Total           $80,871              6.13%        $9,900            .875%
                   =======                           ======
   Fair Value      $80,871                           $ (560)
                   =======                           ======
--------------------------------------------------------------------------------

      Exchange Rate Sensitivity

      The Company conducts business on a global basis in several major
international currencies. As such, it is exposed to adverse or beneficial
movements in foreign currency exchange rates. Fluctuations in foreign currency
exchange rates have not had, and are not anticipated to have, a material impact
on the Company's current financial condition, liquidity, or operations.

Item 8. Financial Statements and Supplementary Data.

      The consolidated financial statements of the Company for the years ended
October 31, 1998, 1997, and 1996, together with the report thereon of Arthur
Andersen LLP dated December 18, 1998, are set forth on pages F-1 through F-17
hereof. The supplementary financial data for the Company is set forth on page
F-18 hereof.

      The remainder of the financial information required by this report is set
forth on page S-1 which follows the consolidated financial statements and
supplementary financial data set forth on pages F-1 through F-18 hereof. Such
information is listed in Item 14(a)(2) hereof.

Item 9. Disagreements on Accounting and Financial Disclosure.

      There have been no disagreements on any matter of accounting principles or
practices or financial statement disclosure between the Company and its
independent public accountants within the past two fiscal years.


                                     - 29 -
<PAGE>


                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

                The names and ages of the Registrant's executive officers and
key employees, their positions with the Company and with Central Sprinkler, its
primary operating subsidiary, and their principal occupations during the past
five years are as follows:

                                 Position(s) with the Company, and
                                 where indicated, with Central
Name                       Age   Sprinkler 
---------------------     ----   -------------------------------------------- 

E. Talbot Briddell         56    Chairman, Chief Executive Officer and 
                                 Director
                                
George G. Meyer            49    President, Secretary, Treasurer and Director
                                
Stephen J. Meyer           47    Senior Executive Vice President of Central 
                                 Sprinkler and Director
                                
James R. Buchanan          49    Executive Vice President, Sales of Central 
                                 Sprinkler
                                
Albert T. Sabol            46    Executive Vice President, Finance and Chief 
                                 Financial Officer of the Company and Central
                                 Sprinkler
                                
James E. Golinveaux        35    Senior Vice President, Engineering of Central
                                 Sprinkler
                                
Anthony A. DeGregorio      39    Vice President, SprinkCAD of Central 
                                 Sprinkler
                                
Michael J. Graham          53    Vice President, International Operations of 
                                 Central Sprinkler
                                
Carmine L. Schiavone       32    Vice President, Piping Products of Central
                                 Sprinkler                       
                                
Leonard E. Schiavone       32    Vice President, Piping Products of Central 
                                 Sprinkler                      

                E. TALBOT BRIDDELL - Mr. Briddell has been the Chairman of the
Company since January 1999 and Chief Executive Officer and a director of the
Company since July 1998. Mr. Briddell is President of Phoenix Management
Services, Inc., a private consulting firm, since 1985.

                GEORGE G. MEYER - Mr. Meyer has been President of the Company
since November 1997. He has been the Secretary and Treasurer of the Company
since 1985, and a director of the Company and President and a director of
Central Sprinkler since 1984. He was Executive Vice President of the Company
from 1985 to 1987.

                STEPHEN J. MEYER - Mr. Meyer has been Senior Executive Vice
President of Central Sprinkler since November 1997. He was a director of the
Company and Executive Vice President of Central Sprinkler since 1986. He has
been a director of Central Sprinkler since 1983.


                                     - 30 -
<PAGE>

                JAMES R. BUCHANAN - Mr. Buchanan has been Executive Vice
President, Sales of Central Sprinkler since 1996. He was Vice President, Sales
of Central Sprinkler since 1984.

                ALBERT T. SABOL - Mr. Sabol has been Executive Vice President,
Finance and Chief Financial Officer of the Company and Central Sprinkler since
November 1997. He was Executive Vice President, Finance and Administration of
the Company and Central Sprinkler since 1996. He was Vice President, Finance and
Chief Financial Officer of the Company and Central Sprinkler since 1986.

                JAMES E. GOLINVEAUX - Mr. Golinveaux has been Senior Vice
President, Engineering of Central Sprinkler since November 1998. He has been
Senior Vice President, Manufacturing and Engineering of Central Sprinkler since
November 1997. He was Senior Vice President, Engineering of Central Sprinkler
since 1996. He was Vice President, Technical Service and Engineering of Central
Sprinkler since 1993 and Vice President, Technical Service of Central Sprinkler
since 1992. He was Director of Technical Service from 1991 to 1992. From 1986 to
1991 he was the Design Manager for a large fire protection installation
contractor.

                ANTHONY A. DEGREGORIO - Mr. DeGregorio has been Vice President,
SprinkCAD of Central Sprinkler since 1993 and was manager of SprinkCAD sales and
service from 1990 to 1993. From 1986 to 1990 he was General Manager of a
computer aided design services company.

                MICHAEL J. GRAHAM - Mr. Graham has been Vice President,
International Operations of Central Sprinkler since 1995 and Managing Director
of Spraysafe Automatic Sprinkler Limited (U.K.) since 1990.

                CARMINE L. SCHIAVONE - Mr. Schiavone has been Vice President of
Piping Products of Central Sprinkler since 1996 and was Director of Piping
Products from 1995 to 1996 and Manager of Piping Products from 1993 to 1995. He
was Manager of Customer Service from 1989 to 1993.

                LEONARD E. SCHIAVONE - Mr. Schiavone has been Vice President of
Piping Products of Central Sprinkler since 1996 and was Director of Piping
Products from 1995 to 1996. He was a Marketing Manager from 1989 to 1995.

                George G. and Stephen J. Meyer are brothers. 

      The remainder of the information called for by this Item is incorporated 
herein by reference to Registrant's definitive Proxy Statement for its 1999
Annual Meeting of Shareholders which Registrant intends to file with the
Commission not later than 120 days after the end of the fiscal year covered by
this Form 10-K.

                                     - 31 -
<PAGE>


Item 11. Executive Compensation.

      The information called for by this Item is incorporated herein by
reference to Registrant's definitive Proxy Statement for its 1999 Annual Meeting
of Shareholders which Registrant intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and
         Management.

           The information called for by this Item is incorporated herein by
reference to Registrant's definitive Proxy Statement for its 1999 Annual Meeting
of Shareholders which Registrant intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.

Item 13. Certain Relationships and Related Transactions.

      The information called for by this Item is incorporated herein by
reference to Registrant's definitive Proxy Statement for its 1999 Annual Meeting
of Shareholders which Registrant intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.














                                     - 32 -

<PAGE>


                                     PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) The following documents are filed as a part of this report:

           (1)  The financial statements and supplemental 
                financial data required by Item 8 of this report
                are filed below:

FINANCIAL STATEMENTS:
                                                         Page(s)
                                                         -------

Report of Independent Public Accountants................. F-1

Consolidated Balance Sheets as of October 31, 1998 and
  1997................................................... F-2-3

Consolidated Statements of Operations for the years ended
  October 31, 1998, 1997 and 1996........................ F-4

Consolidated Statements of Cash Flows for the years
  ended October 31, 1998, 1997 and 1996.................. F-5-6

Consolidated Statements of Shareholders' Equity for the
  years ended October 31, 1998, 1997 and 1996............ F-7

Notes to Consolidated Financial Statements............... F-8-17

Supplementary Financial Data (unaudited):

                                                          Page
                                                          ----
  
Quarterly Financial Data................................. F-18

          (2) The financial statement schedules required by 
              Item 8 of this report are listed below:

                                                          Page
                                                          ----

Schedule II - Valuation and Qualifying Accounts.......... S-1

                  Other Schedules are omitted because of the absence of
conditions under which they are required or because the required information is
given in the financial statements or notes thereto.


                                     - 33 -

<PAGE>






          (3) Index of Exhibits

          The following is a list of the Exhibits filed as a part of this
report:

          Footnote to Exhibits:-

          * Indicates this is a management contract which is a compensatory plan
            or arrangement which is required to be filed as an exhibit to this
            form pursuant to Item 14(c) of this report.

          The following Exhibit has previously been filed with the Registrant's
Annual Report on Form 10-K for the year ended October 31, 1990 as Exhibit 3(a)
and is incorporated herein by reference thereto:

          3(a) Restated Articles of Incorporation of the Registrant

          The following Exhibit has been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1987 as Exhibit 3(b)
and is incorporated herein by reference thereto:

          3(b) Restated By-Laws of the Registrant

          The following Exhibits 10(a) through 10(b) have been previously filed
with Registrant's Form S-1 Registration Statement No. 2-96850 dated April 3,
1985, to Amendment No. 1 thereto dated May 8, 1985 or to Amendment No. 2 thereto
dated May 17, 1985 as the Exhibit numbers indicated and are incorporated herein
by reference thereto:

          10(a) Deferred Compensation Plan (formerly 10(f))*

          10(b) Multiemployer Union-Sponsored Pension Plan (formerly 10(i))


          The following Exhibits have been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1986 as the Exhibit
numbers indicated and are incorporated herein by reference thereto:

          10(c) Form of Indemnification Agreement among Central Sprinkler
                Corporation, Central Sprinkler Company, CSC Finance Company and
                their Executive Officers and Directors dated September 15, 1986
                (formerly 10(t))*

                                     - 34 -

<PAGE>



          10(d) 1986 Incentive Stock Option Plan, as amended to date (formerly
                10(v))*

          The following Exhibit has been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1988 as the Exhibit
number indicated and is incorporated herein by reference thereto:

          10(e) Incentive Compensation Plan, as amended to date (formerly
                10(k))*

          The following Exhibits have been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1990 as the Exhibit
numbers indicated and are incorporated herein by reference thereto:

          10(f) Employment Agreement with George G. Meyer dated March 19, 1990
                (formerly 10(o))*

          10(g) Employment Agreement with Stephen J. Meyer dated March 19, 1990
                (formerly 10(p))*

          The following Exhibit has been previously filed with Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended April 30, 1992 as
the Exhibit 19 and is incorporated herein by reference thereto:

          10(h) 1988 Non-Qualified Stock Option Plan, as amended


                                     - 35 -

<PAGE>


          The following Exhibit has been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1993 as the Exhibit
number indicated and is incorporated herein by reference thereto:


          10(i) 1993 Non-Employee Director Stock Option Plan (formerly (10(r))

          The following Exhibit has been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1994 as the Exhibit
number indicated and is incorporated herein by reference thereto:

          10(j) Central Sprinkler 401(k) Profit Sharing Plan and Trust, as
                amended to date (formerly 10(s))

          The following Exhibits have been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1995 as the Exhibit
numbers indicated and are incorporated herein by reference thereto:

          10(k) Amendment of Employment Agreement with George G. Meyer dated
                January 5, 1996 (formerly 10(w))*

          10(l) Amendment of Employment Agreement with Stephen J. Meyer dated
                January 5, 1996 (formerly 10(x))*




                                     - 36 -
<PAGE>


          10(m)   Loan Agreement between Alabama State Industrial Development
                  Authority and Central Castings Corporation dated as of
                  November 1, 1995 (formerly 10(ab))

          10(n)   Lease Agreement between Calhoun County Economic Development
                  Council and Central Castings Corporation dated as of November
                  1, 1995 (formerly 10(ac))

          The following Exhibits have been previously filed with the
Registrant's Annual Report on Form 10-K for the year ended October 31, 1996 as
the Exhibit Numbers indicated and are incorporated herein by reference thereto:

          10(o)  Central Sprinkler Corporation Employee Stock Ownership Plan,
                  as amended to date (formerly ad))

          10(p)  Central Sprinkler Corporation 1996 Equity Compensation Plan
                  (formerly 10(ae))*

          10(q)  Interest Rate and Currency Exchange Agreement between Central
                  Castings Corporation and CoreStates Bank, N.A. (formerly 10
                  (af))


                                     - 37 -

<PAGE>

          The following Exhibits have been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1997 as the Exhibit
numbers indicated and are incorporated herein by reference thereto:

          10(r)  Central Castings Corporation 401(K) Profit Sharing Plan

          10(s)  Central CPVC Company 401(K) Profit Sharing Plan 

          10(t)  Employment Agreement with William J. Meyer dated November 1,
                  1997

          The following Exhibits are filed herewith:

          10(u)  Loan and Security Agreement between Congress Financial
                  Corporation and Central Sprinkler Company, Central Castings
                  Corporation, and Central CPVC Corporation dated September 18,
                  1998 (pages 57 - 146 in the sequential numbering system).

          10(v)  Term Promissory Note between the Company and Congress
                  Financial Corporation dated September 18, 1998.
                  (pages 147 - 150 in the sequential numbering system). 
                                                                 
          10(w)  Pledge and Security Agreement between the Company and Congress
                  Financial Corporation dated September 18, 1998.
                 (pages 151 - 159 in the sequential numbering system). 
                                                                  
          10(x)  Amended and Restated Lease Agreement dated October 1, 1998
                  between the Industrial Development Board of the City of
                  Huntsville and Central CPVC Corporation. (pages 160 - 202 in
                  the sequential numbering system). 
                                                           
          10(y)  The Industrial Development Board of the City of Huntsville 
                  and First Union National Bank Trust Indenture dated October 
                  31, 1998. (pages 203 - 314 in the sequential numbering
                  system). 
                            
          10(z)  Irrevocable Direct-Pay Letter of Credit between Central CPVC
                  Corporation and First Union National Bank. (pages 315 - 329 
                  in the sequential numbering system). 
                                                             
          10(aa) United States of America Consumer Product Safety Commission 
                  Consent Agreement (pages 330 - 339 in the sequential numbering
                  system). 
                                   
          10(ab) United States of America Consumer Product Safety Commission 
                  Order (pages 340 - 347 in the sequential numbering system).

          10(ac) Irrevocable Deed of Trust dated November 2, 1998 between
                  Central Sprinkler Corporation, et al and Mellon Bank N.A.
                  pursuant to the Consent Agreement (pages 348-361 in the
                  sequential numbering system).

          10(ad) Amended settlement dated October 2, 1998 between Central
                  Sprinkler Corporation, Central Sprinkler Company with the
                  plaintiffs Hart and Santa Clara (pages 362-482 in the
                  sequential numbering system).
      
          21     Subsidiaries of Registrant (page 483 in the sequential
                  numbering system)

          23     Consent of Independent Public Accountants (page 484 in the
                  sequential numbering system)

(b) No reports on Form 8-K were filed during the quarter ended October 31, 1998.


                                     - 38 -
<PAGE>

                                   SIGNATURES

                  Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                              CENTRAL SPRINKLER CORPORATION


                              By: /s/E. Talbot Briddell 
                                  --------------------------------           
                                  E. Talbot Briddell
                                  Chairman and Chief Executive
                                  Officer

Date: January 27, 1999


                  Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and as of the date indicated.

      Signature                  Title                       Date      
----------------------    ---------------------       ------------------

/s/George G. Meyer        President, Treasurer,        January 27, 1999
----------------------    Secretary and Director
George G. Meyer                   
                          
                          

/s/Stephen J. Meyer       Senior Executive             January 27, 1999
----------------------    Vice President and
Stephen J. Meyer          Director          
                          

/s/Albert T. Sabol        Executive Vice               January 27, 1999
----------------------    President Finance      
Albert T. Sabol           (Principal Financial   
                          and Accounting Officer)
                          

/s/Winston J. Churchill   Director                    January 27, 1999
-----------------------
Winston J. Churchill

/s/Barbara M. Henagan     Director                    January 27, 1999
-----------------------
Barbara M. Henagan

/s/Thomas J. Sharbaugh    Director                    January 27, 1999
-----------------------
Thomas J. Sharbaugh

/s/Timothy J. Wagg        Director                    January 27, 1999
---------------------
Timothy J. Wagg


                                     - 39 -



<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------



To Central Sprinkler Corporation:

We have audited the accompanying consolidated balance sheets of Central
Sprinkler Corporation (a Pennsylvania corporation) and subsidiaries as of
October 31, 1998 and 1997, and the related consolidated statements of
operations, cash flows and shareholders' equity for the years ended October 31,
1998, 1997 and 1996. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on the financial statements and schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Central Sprinkler Corporation
and subsidiaries as of October 31, 1998 and 1997, and the results of their
operations and their cash flows for the years ended October 31, 1998, 1997 and
1996, in conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. The schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.




Philadelphia, Pa.,                           /s/ Arthur Andersen LLP
December 18, 1998
<PAGE>

CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share)

<TABLE>
<CAPTION>


                                                                                              October 31,   
                                                                                -----------------------------------
ASSETS                                                                              1998                     1997
-------------------------------------------------------------------------------------------------------------------
Current Assets:
<S>                                                                              <C>                     <C>       
    Cash and cash equivalents                                                     $ 18,801                 $  6,568
    Short-term investments                                                               -                   14,288
    Accounts receivable, less allowance for doubtful receivables
       of  $6,688 in 1998 and $5,949 in 1997, respectively                          45,315                   48,048
    Inventories                                                                     43,319                   50,450
    Deferred income taxes                                                           11,117                    8,227
    Prepaid expenses and other assets                                                4,968                    3,414
                                                                                  --------                 --------
       Total current assets                                                        123,520                  130,995
                                                                                  --------                 --------
Property, Plant and Equipment:
    Land                                                                               811                      811
    Buildings and improvements                                                      14,837                   14,464
    Machinery and equipment                                                         56,710                   55,567
    Furniture and fixtures                                                           2,626                    2,570
                                                                                  --------                 --------
                                                                                    74,984                   73,412


    Less - Accumulated depreciation                                                (29,989)                 (25,480)
                                                                                  --------                 --------
                                                                                    44,995                   47,932
                                                                                  --------                 --------


Goodwill, less accumulated amortization of $3,765 in 1998
    and $3,514 in 1997, respectively                                                 2,257                    2,508
                                                                                  --------                 --------


Other Assets                                                                         6,332                    6,592
                                                                                  --------                 --------

                                                                                  $177,104                 $188,027
                                                                                  ========                 ========
</TABLE>





--------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
<PAGE>

<TABLE>
<CAPTION>
                                                                                            October 31,
                                                                              -------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY                                                1998                    1997
-------------------------------------------------------------------------------------------------------------------
Current Liabilities:
<S>                                                                           <C>                       <C>  
    Short-term borrowings                                                         $    297                 $  2,403
    Current portion of long-term debt                                                4,064                    2,854
    Accounts payable                                                                21,353                   27,626
    Accrued expenses                                                                20,379                   13,122
                                                                                  --------                 --------
        Total current liabilities                                                   46,093                   46,005 
                                                                                  --------                 --------
Long-Term Debt                                                                      76,807                   79,918
                                                                                  --------                 --------
Long-Term Omega(TM)Liabilities                                                      23,141                    8,700
                                                                                  --------                 --------
Other Noncurrent Liabilities                                                           296                      310
                                                                                  --------                 --------
Deferred Income Taxes                                                                   -                       196
                                                                                  --------                 --------
Commitments and Contingent Liabilities (Note 14)

Shareholders' Equity:
    Common stock, $.01 par value; shares authorized - 15,000;
       issued - 5,568 in 1998 and 1997                                                  56                       56
    Additional paid-in capital                                                      31,179                   31,059
    Retained earnings                                                               21,556                   44,160
    Cumulative translation adjustments                                                 145                      184
    Deferred cost-Employee Stock Ownership Plan ("ESOP")                            (5,260)                  (5,652)
                                                                                  --------                 --------

                                                                                    47,676                   69,807
    Less - Common stock in treasury, at cost -  1,722 shares
       in 1998 and 1997                                                            (16,909)                 (16,909)
                                                                                  --------                 --------
       Total shareholders' equity                                                   30,767                   52,898
                                                                                  --------                 --------
                                                                                  $177,104                 $188,027
                                                                                  ========                 ========
</TABLE>












--------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share)

<TABLE>
<CAPTION>

                                                                         Year Ended October 31,    
                                                          ------------------------------------------------------ 
                                                            1998                  1997                  1996
----------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                   <C>                   <C>     
Net Sales                                                  $224,930              $221,990             $ 187,220

Cost of Sales                                               164,929               155,710               131,245
                                                           --------              --------             ---------
    Gross profit                                             60,001                66,280                55,975
                                                           --------              --------             ---------
Operating Expenses:
    Selling, general and administrative                      42,870                44,984                37,771
    Research and development                                  6,404                 7,351                 5,455
                                                           --------              --------             ---------
                                                             49,274                52,335                43,226
                                                           --------              --------             ---------
     Unusual Omega(TM)charge                                 38,015                13,200                 3,750
                                                           --------              --------             ---------
    Operating income (loss)                                 (27,288)                  745                 8,999
                                                           --------              --------             ---------
Interest Expense (Income):
    Interest expense                                          5,836                 4,880                 3,390
    Interest (income)                                          (675)                 (558)                 (451)
                                                           --------              --------             ---------
                                                              5,161                 4,322                 2,939
                                                           --------              --------             ---------

    Income (loss) before income taxes                       (32,449)               (3,577)                6,060

Income Tax Provision (Benefit)                               (9,845)               (1,035)                2,297
                                                           --------              --------             ---------

Net Income (Loss)                                          $(22,604)             $ (2,542)            $   3,763
                                                           ========              ========             =========


Net Income (Loss) per Common Share
    Basic                                                  $  (6.89)             $   (.78)            $    1.19
                                                           ========              ========             =========

    Diluted                                                $  (6.89)             $   (.78)            $    1.13
                                                           ========              ========             =========
</TABLE>


--------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)

<TABLE>
<CAPTION>
                                                                                             Year Ended October 31,
                                                                          --------------------------------------------------------
                                                                              1998                    1997                  1996
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                      <C>                    <C>
Operating activities:
Net income (loss)                                                          $(22,604)                 $(2,542)              $ 3,763
Noncash items included in net income (loss):
    Depreciation and amortization                                             8,502                    6,924                 4,731
    Deferred income taxes                                                    (7,297)                  (2,711)               (1,878)
    Deferred costs                                                              498                      713                   818
    Loss of disposition of assets                                               306                        -                     -
    Unusual Omega(TM)charge                                                  38,015                   13,200                 3,750

Decrease (increase) in -
    Accounts receivable, net                                                  2,733                   (9,530)               (6,832)
    Inventories                                                               7,131                   (7,036)               (7,459)
    Prepaid expenses and other assets                                        (1,050)                  (2,804)                   40
Increase (decrease) in -
    Accounts payable                                                         (6,273)                   7,633                 7,269
    Accrued expenses and other noncurrent liabilities                       (16,317)                  (2,624)                  (26)
                                                                           --------                  -------               -------

Cash provided by operating activities                                         3,644                    1,223                 4,176
                                                                           --------                  -------               -------

Investing activities:
    Acquisition of property, plant and equipment                             (5,620)                 (13,246)              (17,813)
    Sale of short-term investments                                           29,210                    5,450                 5,716
    Purchase of short-term investments                                      (14,922)                  (7,272)               (8,103)
    Repurchase of subsidiary bond issue                                      (7,500)                       -                     -
    Sale of subsidiary bond issue                                             7,500                        -                     -
    Other long-term assets                                                    3,967                   (4,929                  (772)
                                                                           --------                  -------               -------
Cash provided by (used in) investing activities                              12,635                  (19,997)              (20,972)
                                                                           --------                  -------               -------
Financing activities:
    Short-term (repayments) borrowings, net                                  (2,106)                 (31,987)                9,328
    Proceeds from long-term debt                                             70,825                   57,575                12,018
    Repayments of long-term debt                                            (72,726)                  (3,327)               (3,823)
    Other - net                                                                 (39)                     197                   132
                                                                           --------                  -------               -------
Cash (used in) provided by financing activities                              (4,046)                  22,458                17,655
                                                                           --------                  -------               -------
Increase in cash and cash equivalents                                        12,233                    3,684                   859
Cash and cash equivalents at beginning of year                                6,568                    2,884                 2,025
                                                                           --------                  -------               -------

Cash and cash equivalents at end of year                                   $ 18,801                  $ 6,568               $ 2,884
                                                                           ========                  =======               =======
</TABLE>


-------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)

<TABLE>
<CAPTION>
                                                                                   Year Ended October 31, 
                                                                        -------------------------------------------
                                                                          1998               1997            1996        
-------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                <C>             <C>
Supplemental disclosures of cash flow information:

Cash paid (received) during the year for:

    Interest expense                                                     $ 5,964          $  4,946         $ 3,466
                                                                         =======          ========         ======= 
    Income taxes                                                         $   478          $  4,431         $ 3,943
                                                                         =======          ========         ======= 
    Interest income                                                      $  (821)         $   (554)        $  (485)
                                                                         =======          ========         ======= 



Supplemental schedule of non-cash investing and financing activities:

    Refinancing of short-term
       borrowings with long-term debt                                    $ 7,500          $      -         $     -
                                                                         =======          ========         ======= 
</TABLE>


-------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
<PAGE>

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands)

<TABLE>
<CAPTION>
                                                                                                         Unrealized
                                    Common Stock       Additional                Cumulative   Deferred   Investment     Treasury
                                  ----------------      Paid-in      Retained   Translation     Cost-      Holding        Stock,
                                   Shares   Amount      Capital      Earnings   Adjustments      ESOP     Gains, Net     Common 
--------------------------------------------------------------------------------------------------------------------------------- 
<S>                                <C>        <C>      <C>           <C>           <C>         <C>           <C>       <C>      
Balance, October 31, 1995          5,472      $55      $29,118       $42,939       $(109)      $(6,360)     $ 10       $(16,103)
                                                                                                                      
    Unrealized investment                                                                                             
        holding losses, net            -        -            -             -           -             -       (10)             -
                                                                                                                      
    Exercise of stock options          2        -           40             -           -             -         -              -
                                                                                                                      
    Annual ESOP costs                  -        -          605             -           -           342         -              -
                                                                                                                      
    Translation adjustments            -        -            -             -         102             -         -              -
                                                                                                                      
    Net income                         -        -            -             -       3,763             -         -              - 
                                   -----      ---      -------       -------       -----       -------      ----       --------
                                                                                                                      
                                                                                                                      
Balance, October 31, 1996          5,474       55       29,763        46,702          (7)       (6,018)        -        (16,103)

    Exercise of stock options         94        1          811             -           -             -         -           (806)
                                                                                                                      
    Annual ESOP costs                  -        -          485             -           -           366         -              -
                                                                                                                      
    Translation adjustments            -        -            -             -         191             -         -              -
                                                                                                                      
    Net loss                           -        -       (2,542)            -           -             -         -              -
                                   -----      ---      -------       -------       -----       -------      ----       --------

Balance, October 31, 1997          5,568       56       31,059        44,160         184        (5,652)        -        (16,909)
                                                                                                                      
    Annual ESOP costs                  -        -          120             -           -           392         -              -
                                                                                                                      
    Translation adjustments            -        -            -             -         (39)            -         -              -
                                                                                                                      
    Net loss                           -        -            -       (22,604)          -             -         -              -
                                   -----      ---      -------       -------       -----       -------      ----       --------
Balance, October 31, 1998          5,568      $56      $31,179       $21,556       $ 145       $(5,260)     $  -       $(16,909)
                                   =====      ===      =======       =======       =====       =======      ====       ========
</TABLE>
                                                                       
                                                                    
  

--------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
<PAGE>

Central Sprinkler Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share)

1. Summary of Significant Accounting Policies:

         The Company - The Company's operations are conducted in one business
segment as a manufacturer and distributor of components used in automatic fire
sprinkler systems. These fire sprinkler system components are used in
commercial, industrial, residential and institutional properties and are sold to
over 3 thousand customers, most of which are sprinkler installation contractors.

         Principles of Consolidation - The consolidated financial statements
include the accounts of Central Sprinkler Corporation and its subsidiaries (the
"Company"). All significant intercompany transactions and accounts have been
eliminated.

         Cash Equivalents - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents for the purpose of determining cash flows.

         Short-Term Investments - The Company accounts for short-term
investments in accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No. 115"). The Company's short-term investments have been categorized as
available for sale and as a result are stated at fair value. Unrealized holding
gains and losses are included as a separate component of shareholders' equity
until realized. All of the Company's investment holdings have been classified in
the consolidated balance sheet as current assets.

         Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market.

         Property, Plant and Equipment - Property, plant and equipment are
stated at cost. Depreciation and amortization are being recorded on a
straight-line basis over the estimated lives of the assets which range from 3 to
20 years. The Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS No. 121") effective November 1, 1996. SFAS No.
121 did not have a material impact on the Company's financial position or
results of operations.

         Goodwill - Goodwill represents the excess of the purchase cost of net
assets acquired over their fair market value and is amortized primarily on a
straight-line basis over 25 years. The Company considers goodwill to be fully
realizable through future operations.
<PAGE>

         Fair Value of Financial Instruments - The Company's financial
instruments consist primarily of cash and cash equivalents, short-term
investments, accounts receivable, accounts payable, and debt instruments. The
book values of cash and cash equivalents, short-term investments, accounts
receivable, and accounts payable are considered to be representative of their
respective fair values. Based on the terms of the Company's debt instruments
that are outstanding as of October 31, 1998 the carrying values are considered
to approximate their respective fair values. See Note 7 for the terms and
carrying values of the Company's various debt instruments.

         Foreign Currency Translation - Assets and liabilities of a foreign
subsidiary are translated into U.S. dollars at the rate of exchange prevailing
at the end of the year. Income statement accounts are translated at the average
exchange rate prevailing during the year. Translation adjustments resulting from
this process are recorded directly in shareholders' equity.

         Research and Development Costs - Costs of research, new product
development and product redesign are expensed as incurred.

         Income Taxes - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). SFAS No. 109 requires the liability method of accounting for deferred
income taxes. Deferred tax liabilities and assets are recognized for the tax
effects of the difference between the financial reporting and tax bases of
assets and liabilities. Deferred tax assets and liabilities at the end of each
period are determined using the tax rate expected to be in effect when taxes are
actually paid or recovered.

         Net Income (Loss) Per Common Share - Net income (loss) per common share
is computed under Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" ("SFAS No. 128") . In accordance with SFAS No. 128, basic net income
(loss) per share is computed using the weighted average number of shares of
common stock outstanding. Diluted net income (loss) per common share is computed
using the weighted average number of shares of common stock and common stock
equivalents outstanding (dilutive stock options) unless the inclusion of common
stock equivalents would have an anti-dilutive impact.

         Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the fiscal year. Actual amounts could differ from those estimates.
<PAGE>

         Reclassifications - Certain reclassifications of previously reported
balances have been made to conform with the current year classification of such
balances.

         New Accounting Pronouncements - The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 established standards for
the reporting and display of comprehensive income in financial statements.
Comprehensive income is the change in net assets during a period from
transactions generated from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. The Company will adopt SFAS No. 130 in fiscal 1999 and
believes that the adoption will not have a material impact on the Company's
financial statements.

         The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131 requires that business
segment financial information be reported in the financial statements utilizing
the management approach. The management approach is the manner in which
management organized the segments within the enterprise for making operating
decisions and assessing performance. The Company will adopt SFAS No. 131 in
fiscal 1999 and believes that this adoption will not have a material impact on
the Company's financial statements.

             In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 is effective
for fiscal years beginning after June 15, 1999. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for derivatives used for
hedging activities. SFAS No. 133 requires that all derivatives be recognized
either as an asset or liability, and measures them at fair value. Management
believes that the adoption of SFAS No. 133 will not have a material impact on
the Company's financial statements.
<PAGE>

2. Net Income (Loss) Per Common Share:

         In the first quarter of fiscal 1998, the Company adopted SFAS No. 128,
"Earnings Per Share". In accordance with SFAS No. 128, the Company's prior years
reported net income (loss) per share amounts were restated to comply with SFAS
No. 128. Basic net income (loss) per share is computed using the weighted
average number of shares of common stock outstanding. Diluted net income (loss)
per share is computed using the weighted average number of shares of common
stock and common stock equivalents outstanding (dilutive stock options) unless
the inclusion of common stock equivalents would have an anti-dilutive impact. In
accordance with Statement of Position No. 93-6, "Employers' Accounting for
Employee Stock Ownership Plans" ("SOP 93-6"), unreleased shares of the Company's
stock in the ESOP are excluded from the average number of common shares
outstanding when computing basic and diluted net income (loss) per common share.
The weighted average common and common equivalent shares outstanding for
purposes of calculating net income (loss) per common share are computed as
follows -

                                        Year ended October 31, 
                                     ----------------------------           

                                    1998         1997        1996
-------------------------------------------------------------------
Net income (loss) used for
     basic and diluted net
     income (loss) per
     common share                $(22,604)     $(2,542)     $3,763
                                  =======       ======       =====
Weighted average number
     of common shares
     outstanding                    3,845        3,843       3,793

Adjustment to exclude
     average unreleased
     common shares in ESOP           (564)        (604)       (640)
                                  -------       ------       -----
Weighted average common
     shares outstanding for
     basic net income (loss)
     per common share               3,281        3,239       3,153

Dilutive effect of common
     stock options outstanding          -            -         177
                                  -------       ------       -----
Weighted average common
     and common equivalent
     shares outstanding for
     diluted net income (loss)
     per common share               3,281        3,239       3,330
                                  =======       ======       =====
-------------------------------------------------------------------
<PAGE>

3. Foreign Operations:

         The Company owns Spraysafe Automatic Sprinklers Limited ("Spraysafe"),
a Company in the United Kingdom. Spraysafe manufactures sprinkler heads and
distributes these and other products in Europe and other foreign countries.

         Significant financial information about Spraysafe's operations consist
of the following-

                                        Year Ended October 31,
                                   --------------------------------
                                     1998       1997       1996
-------------------------------------------------------------------

Sales                              $15,099    $17,254    $16,807
Operating income                       996      1,264      1,390
Net income                             445        495        789
Total assets                        10,406     12,382     10,803
Total liabilities                    5,221      7,747      6,799

-------------------------------------------------------------------

         Foreign and export net sales for the Company are comprised of the
following -

                                        Year Ended October 31,
                                   --------------------------------
                                     1998        1997       1996
-------------------------------------------------------------------
Pacific and Far East               $ 9,583     $10,485    $10,127
Europe                               6,265       6,426      7,038
Canada                               5,098       6,151      4,847
Other                                4,663       3,519      1,379
                                   -------     -------    -------
                                   $25,609     $26,581    $23,391
                                   =======     =======    =======
-------------------------------------------------------------------

4. Short-Term Investments:

         The following is a summary of the estimated fair value of available for
sale securities by balance sheet classification -

                                                 October 31,
                                          -------------------------
                                                1998       1997
-------------------------------------------------------------------
Cash Equivalents:

     U.S. Money Market Funds
        and Time Deposits                    $ 17,721     $ 4,978
                                             ========     =======
Short-Term Investments:

     Tax-Exempt Securities                   $      -     $14,288
                                             ========     =======
<PAGE>

              Gross unrealized holding gains and losses for the years ended
October 31, 1998, 1997 and 1996 were not material. The gross proceeds from sales
and maturities of investments were $29,210, $5,450, and $5,716 for the years
ended October 31, 1998, 1997 and 1996, respectively. Gross realized gains and
losses for the years ended October 31, 1998, 1997 and 1996 were not material.
For the purpose of determining gross realized gains and losses, the cost of
securities sold is based upon specific identification.

              Short-term investments as of October 31, 1997 are generally
comprised of variable rate securities that provide for optional or early
redemption within twelve months and the contractual maturities are generally
greater than twelve months.

5. Inventories:

         Inventories consist of the following-


                                                   October 31,          
                                          -------------------------
                                                1998        1997
-------------------------------------------------------------------

Raw materials and work in process             $15,605      $16,053
Finished goods                                 27,714       34,397
                                              -------      -------
                                              $43,319      $50,450
                                              =======      =======
-------------------------------------------------------------------

6. Shareholders' Equity:

         Redeemable Preferred Stock - The Company has authorized 2,000 shares of
Redeemable Preferred Stock, $.01 par value. At October 31, 1998, 1997 and 1996,
there were no shares issued and outstanding.

         Treasury Stock - Treasury stock increased by 42 shares in fiscal 1997
through the surrendering to the Company of such shares as payment for the
exercise of stock options. There were no repurchases in fiscal 1998 or 1996. All
shares are being held in the treasury for possible future issuance.

         Stock Options - The Company has several stock option plans ("option
plans") under which shares of common stock may be granted. The option plans
provided for the grant of 500 nonqualified options under a plan adopted in 1988
and amended in fiscal 1991 and 800 nonqualified stock options under a plan
adopted in 1996. Under a plan adopted in 1993, the Company issued 60
nonqualified options under a non-employee director stock option plan. Options
have been granted to officers, other key employees and non-employee directors at
exercise prices not less than 100% of the fair market value of the Company's
common stock on the date of the grant. The options become exercisable after the
date of the grant and expire ten years from the date of grant.
<PAGE>

         The following table presents data related to the option plans-

                                                         Weighted
                               Stock        Option        Average
                              Options       Price          Price
------------------------------------------------------------------
October 31, 1995                468      $8.60-$15.60     $11.86

     Granted                    112             29.95      29.95
     Exercised                   (2)            13.00      13.00
                               ----  
October 31, 1996                578        8.60-29.95      15.34

     Granted                    459       24.05-50.00      39.80
     Cancelled                   (5)             8.60       8.60
     Exercised                  (94)             8.60       8.60
                              -----

October 31, 1997                938       10.52-50.00      27.95

     Granted                    210        7.81-50.00      16.12
     Cancelled                  (32)      13.80-29.95      22.32
                              -----
October 31, 1998              1,116      $7.81-$50.00     $25.88
                              =====
Exercisable Options:
     October 31, 1996           502      $8.60-$29.95     $13.18
                              =====
     October 31, 1997           856      $8.60-$50.00     $27.99
                              =====
     October 31, 1998           884     $10.52-$50.00     $27.93
                              =====
-----------------------------------------------------------------

         At October 31, 1998, 189 stock options were available for grant under
the 1996 plan.

         Information with respect to the options outstanding under the option
plans are summarized as follows-

                                     Range of Exercise Prices                   
                               ------------------------------------
                                 $7.81-$13.80   $15-$30    $30-$50
-------------------------------------------------------------------
October 31, 1998:
     Options outstanding              514         197        405

     Weighted average
     remaining life                   4.0         7.2        7.6

     Weighted average
     exercise prices               $11.49      $27.75     $43.14

     Options exercisable              364         154        366

     Weighted average
     exercise prices               $12.66      $27.88     $43.11

-------------------------------------------------------------------
<PAGE>

         The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and the related interpretations in
accounting for its stock option plans. The Company has adopted the disclosure
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). Accordingly, no compensation
cost has been recognized for the stock option plans. Had compensation cost for
the Company's stock option plans been determined based on the fair value of the
options at the grant date, as prescribed by SFAS No. 123, the Company's net
income (loss) and net income (loss) per share would have been as follows -

                                           October  31,
                           ----------------------------------------
                               1998           1997         1996      
                           ----------------------------------------
Net income (loss)-
     as reported            $(22,604)       $(2,542)       $3,763

Net income (loss)-
     pro forma               (23,538)        (7,568)        3,458

Net income (loss)
 per share-as reported:
     Basic                     (6.89)          (.78)         1.19
     Diluted                   (6.89)          (.78)         1.13

Net income (loss)
 per share-pro forma:
     Basic                     (7.32)         (2.37)         1.10
     Diluted                   (7.32)         (2.37)         1.04
-------------------------------------------------------------------

         The weighted average fair value of each stock option granted during the
fiscal years ended October 31, 1998, 1997 and 1996 was $3.42, $15.81 and $18.09,
respectively. As of October 31, 1998, the weighted average remaining contractual
life of each stock option outstanding was 6.2 years. The weighted average
remaining contractual life of each stock option granted during the years ended
October 31, 1998, 1997 and 1996 was 9.5, 9.1 and 9.0 years, respectively. The
fair value of each grant is estimated on the date of grant using the
Black-Sholes option pricing model with the following weighted average
assumptions for fiscal 1998, 1997 and 1996: no expected dividend yield; expected
volatility-50%; risk-free interest rate of 4.5% for 1998 grants and 6.0% for
1997 and 1996 and an expected life of 3.7, 8.8, and 7.0 years, respectively. As
the result of additional option grants that may be made in future years, the pro
forma disclosures may not be representative of pro forma effects of reported net
income (loss) for future years.
<PAGE>

7. Debt:

         The Company's long-term debt consists of the following-

                                                October 31,             
                                         --------------------------
                                            1998         1997
-------------------------------------------------------------------

Revolver Credit Facilities                 $49,518     $50,000

Term Loan                                   12,338       7,500

Industrial Revenue Bonds                     9,900      10,450

Industrial Development Revenue Bonds         7,500           -

Foreign Term Loan                              853         980

Foreign Notes                                  762           -

Term Loan                                        -       6,500

Term Loan                                        -       6,417

Mortgage Loans                                   -         925
                                           -------     -------
                                            80,871      82,772
Less-Current portion                        (4,064)     (2,854)
                                           -------     -------
                                           $76,807     $79,918
                                           =======     =======
-------------------------------------------------------------------

         The Company entered into a Loan and Security Agreement ("Agreement")
with its bank in September of 1998, as part of a debt refinancing and debt
consolidation. As part of the refinancing, the Company received gross loan
proceeds of $62,100 and repaid outstanding debt including the previous Revolver
Credit Agreement, several term notes and mortgage notes with a total outstanding
balance of $62,100 as of the date of the refinancing. These repaid debt
instruments were canceled as part of the refinancing. The borrowing commitment
and availability in the Agreement, including term equipment notes, revolving
credit facilities and letters of credit, are subject to borrowing base formulas
as defined in the Agreement. The maximum borrowing availability under the
revolving credit facility portion is $77,600 less the outstanding portion of any
term notes issued under the agreement. At October 31, 1998, $49,518 was
outstanding under the revolving credit facility and $12,338 was outstanding
under a Term Loan.
<PAGE>
         The borrowing base as defined in the Agreement is based on the
appraised value of certain pledged property, plant and equipment, a percentage
of eligible accounts receivable and inventories and the amount of pledged cash
and short term investments. The Agreement expires on March 30, 2001, subject to
renewal, and outstanding borrowings under the revolving credit facility will
bear interest at the lower of the Eurodollar rate plus 1.75% or the bank's prime
rate. The interest rate on the revolving credit facility was 6.97% at October
31, 1998. The interest rate on the Term Loan is variable and was 8.25% at
October 31, 1998 with interest and principal payable monthly. Monthly principal
payments for the Term Loan are $263. The Agreement requires the Company to
maintain a minimum adjusted tangible net worth and comply with other
affirmative, negative and subjective covenants. As of October 31, 1998, the
Company is in compliance with these loan covenants. Approximately $11,700 of the
Revolver was unused and available for use at October 31, 1998, based on the
borrowing base formula. Under the terms of the new Revolving Credit Facility,
the Company must maintain minimum balances of net borrowing availability. Should
the net balance of borrowing availability fall below such level, the bank may
require the Company to apply its lockbox receipts to its loan balances. The
Company also has a capital expenditure facility of $18,000 to finance future
capital expenditures. At October 31, 1998, there was no borrowing under this
facility. The outstanding borrowings under the Revolving Credit Facility have
been classified as a long-term liability since the Agreement does not expire
until March 30, 2001 and the Company expects to maintain compliance with all
covenants and minimum balances as required.

         The Company's Industrial Revenue Bonds consist of original principal
amount of $8,000 State of Alabama Industrial Development Authority Adjustable
Convertible Taxable Industrial Revenue Bonds and original principal amount of
$3,000 Calhoun County (Alabama) Economic Development Council Adjustable
Convertible Taxable Industrial Revenue Bonds ("IRB's") which were issued in
November 1995. The IRB's have a 20 year term and are payable in annual
installments of $550 and bear interest at a variable rate which was 6.125% at
October 31, 1998. The IRB's are collateralized by a letter of credit and are
subject to early redemption under certain circumstances. In January 1996, the
Company entered into an interest rate swap agreement which fixes the interest
rate on the IRB's in order to reduce the impact of changes in interest rates.
The interest rate is fixed at 6.13% for the remainder of the 20 year term.
Interest expense is recorded monthly at the fixed rate plus related fees. The
difference between the variable rate paid to IRB bondholders and the fixed rate
costs are settled monthly between the Company and a bank which is party to the
swap agreement. As of October 31, 1998, the swap agreement has a notional
principal balance of $9,900 and the swap agreement matures at the time the
related IRB's mature. The swap agreement is with a large national bank and the
Company does not anticipate nonperformance by the counterparty. 

         The Company obtained a $7,500 Term Loan on May 30, 1997. The Term Loan
maturity was the earlier of May 31, 2000 or the conversion of the Term Loan into
an Industrial Revenue Bond. In December 1997, the Term Loan was refinanced
through the issuance of First Mortgage Industrial Development Revenue Bonds
Series 1997, principal amount $7,500 issued by the Industrial Development Board
of the City of Huntsville, Alabama ("IDB's"). The IDB's are collateralized by a
letter of credit. The IDB's have a 15 year term and are payable in quarterly
installments of $141 beginning in January 2000 and bear interest at a variable
rate which was 3.4% at October 31, 1998. In April 1998, the Company repurchased
these IDB's which were issued by one of the Company's subsidiaries. In October
1998, the Company remarketed these IDB's to an outside party.

         In fiscal 1996, Spraysafe refinanced a five-year unsecured term loan
obtained in 1995 with a seven-year term loan in the amount of $1,065. This loan
is secured by machinery and equipment and is payable through 2003 in monthly
installments of $10 and bears interest at a variable rate which was 8.125% at
October 31, 1998. The loan proceeds were used primarily for machinery and
equipment and the expansion of Spraysafe's manufacturing facility. Spraysafe has
short-term borrowings in the form of a demand loan which is payable in British
pounds in the amount of $297 at October 31, 1998. This loan bears interest at a
variable interest rate which was 8.375% and 8.25% at October 31, 1998 and 1997,
respectively. Approximately $2,600 of a Spraysafe line of credit was unused and
available for use at October 31, 1998, based on the borrowing base formula.
<PAGE>
         Annual principal payments required under long-term debt obligations are
as follows-

-------------------------------------------------------------------------------

               Fiscal Year
               -----------

                  1999              $  4,064

                  2000                 4,618

                  2001                57,003

                  2002                 1,368

                  2003                 1,345

                  Thereafter          12,473
                                     -------
                                     $80,871
                                     =======
-------------------------------------------------------------------------------

8. Capitalized Interest:

         The interest cost incurred by the Company for fiscal year 1998, 1997
and 1996 amounted to $5,836, $4,880, and $3,680, respectively. No interest was
capitalized in fiscal 1998 or 1997. The Company capitalized $290 of interest
cost in fiscal year 1996 in connection with the expansion of the foundry and
manufacturing facility for piping system components.

9. Income Taxes:

         The following table summarizes the source of income (loss) before
income taxes and information concerning the income tax provision (benefit)-

                                               Year Ended October 31,     
                                       ------------------------------------
                                           1998         1997        1996
---------------------------------------------------------------------------

Income (loss) before income taxes-

     Domestic                           $(33,090)     $(4,372)     $4,876

     Foreign                                 641          795       1,184
                                        --------      -------      ------
Total                                   $(32,449)     $(3,577)     $6,060
                                        ========      =======      ======


Income tax provision (benefit):

Current-

     Federal                            $ (2,744)     $ 1,287      $3,040

     State                                     -           89         740

     Foreign                                 196          300         395
                                        --------      -------      ------
Total                                     (2,548)       1,676       4,175
                                        --------      -------      ------


Deferred-

     Federal                              (7,232)      (2,622)     (1,386)

     State                                   (65)         (89)       (492)
                                        --------      -------      ------
Total                                     (7,297)      (2,711)     (1,878)     
                                        --------      -------      ------
Total tax provision

     (benefit)                          $ (9,845)     $(1,035)     $2,297
                                        ========      =======      ======
---------------------------------------------------------------------------
<PAGE>
         Income tax provision (benefit) differs from the amount currently
payable or receivable because certain revenues and expenses are reported in the
statement of operations in periods which differ from those in which they are
subject to taxation. The primary differences in timing between the statement of
operations and taxable income involve certain accrued expenses and reserves not
currently deductible for tax purposes, tax regulations which limit deductions
for bad debt expense, the uniform cost capitalization rules and different
methods used in computing tax and book depreciation. Such differences are
recorded as deferred income taxes in the accompanying balance sheets under the
liability method. 

         The components of the deferred income tax assets and liabilities,
measured under SFAS No. 109 at the beginning and end of the fiscal year, are
listed below. Based on management's assessment, it is more likely than not that
all of the net deferred tax assets will be realized through future taxable
income. As a result, there is no valuation reserve for deferred tax assets.

                                          10/31/98      11/1/97
-------------------------------------------------------------------
Deferred Tax Assets-

     Accounts receivable                  $ 2,856      $ 2,654

     Inventories                            3,011        2,950

     ESOP                                     463          429

     Omega(TM)costs                        10,526        3,721

     Tax credit carryforwards                 825            -

     Other non-deductible liabilities         919        2,260
                                          -------      -------
     Deferred tax assets                   18,600       12,014
                                          -------      -------


Deferred Tax Liabilities-


     Depreciation                          (2,687)      (2,570)

     Other                                 (1,089)      (1,413) 
                                          -------      -------
     Deferred tax liabilities              (3,776)      (3,983)
                                          -------      -------

Net Deferred Tax Asset                    $14,824      $ 8,031
                                          =======      =======
-------------------------------------------------------------------
<PAGE>

         The effective tax rate is reconciled to the statutory U.S. Federal
income tax rate as follows-

                                              Year Ended October 31,       
                                       --------------------------------------
                                             1998        1997          1996
-----------------------------------------------------------------------------
U.S. Federal
   statutory rate                           (34.0)%    (34.0)%         34.0%

Amortization of
   Goodwill                                   0.2       (2.2)           1.3

State income taxes,
   net of U.S.
   Federal benefit                              -          -            3.3

Income tax credits utilized                     -       10.5           (1.3)

Tax-exempt interest                          (0.3)       4.9           (2.3)

Market value adjustment of
   ESOP shares                                  -       (4.4)           3.1

Other                                         3.8       (3.7)           (.2)
                                             ----       ----           ----
                                            (30.3)%    (28.9%)         37.9%
                                             ====       ====           ====
-----------------------------------------------------------------------------

10. Related-Party Transactions:

         The Company has financial consulting agreements with companies
affiliated with certain of its directors/ shareholders. The Company expensed
$420 in the year ended October 31, 1998 for management services fees to one firm
for services primarily as an executive officer and director of the Company.

         The Company leases an aircraft from a business in which a director and
executive officer of the Company is the sole proprietor. For the years ended
October 31, 1998, 1997, and 1996, the Company recorded lease expense of $343,
$439, and $395, respectively. Pursuant to notice requirements, the lease was
cancelled subsequent to year-end.

         The Company expensed $463, $361, and $346 in the years ended October
31, 1998, 1997, and 1996, respectively, for legal fees to a firm having a member
who is also a director of the Company. In addition, the Company charged $1,917
against the Omega(TM) liability for legal fees incurred by this firm relating to
Omega(TM) actions during the year ended October 31, 1998.

11. Leases:

         The Company has operating leases for its warehousing facilities and
certain transportation and office equipment. The total rental expense for the
years ended October 31, 1998, 1997 and 1996 was $2,168, $1,949, and $1,325
respectively. The future minimum rental payments required under operating leases
that have initial or remaining lease terms in excess of one year as of October
31, 1998, are as follows-

-----------------------------------------------------------------------
                       Fiscal Year
                       -----------

                         1999        $  1,783

                         2000           1,098

                         2001             853

                         2002             351

                         2003             109
-----------------------------------------------------------------------
<PAGE>

12. Incentive Compensation Plans:

         The Company has an Incentive Compensation Plan which provides awards to
officers and other employees of the Company. Amounts credited to the incentive
compensation fund were 8% of monthly operating income, as defined in the Plan,
if monthly operating income met specified levels. Another plan provides two
executive officers with a bonus based on annual net income in excess of the 1985
base income level at a combined rate of 1 1/2% of the increase. There were no
payments due under the plan in 1998.

         The total amounts charged to expense for all such plans were $215,
$1,088 and $1,013 for the years ended October 31, 1998, 1997 and 1996,
respectively.

13.  Employee Benefit Plans:

         Certain of the Company's manufacturing employees are covered by a
union-sponsored, collectively bargained, Multiemployer Pension Plan. The Company
contributed and charged to expense $367, $359 and $277 for the years ended
October 31, 1998, 1997 and 1996, respectively. These contributions are
determined in accordance with the provisions of negotiated labor contracts and
generally are based on the number of hours worked. At October 31, 1998, the
Company had no liability for unfunded vested benefits of this plan. The Company
sponsors 401(K) Profit Sharing Plans which cover certain employees not covered
by collective bargaining agreements and maintains Deferred Compensation Plans
which provide retirement benefits for certain officers. The expense under these
plans was $365, $275 and $222 for the years ended October 31, 1998, 1997 and
1996, respectively.

         The Company has an Employee Stock Ownership Plan ("ESOP") which covers
certain employees not covered by collective bargaining agreements. At October
31, 1998, the ESOP holds 769 shares of the Company's common stock. On April 28,
1993, the ESOP purchased 750 shares of the Company's common stock in a leveraged
transaction at a market value of $9.70 per share for a total cost of $7,275. The
total cost of the plan for this transaction is being amortized over 15 years.
The unamortized cost is reported as Deferred Cost-ESOP in the equity section of
the accompanying balance sheets. The ESOP issued a note payable to the Company
which will be repaid over 15 years with interest at a variable rate. This note
will be repaid from cash contributed to the plan by the Company. The stock will
be committed to be released to the eligible employees over 15 years based upon
the annual principal and interest payments made by the ESOP on the note payable
to the Company. As required under SOP 93-6, compensation expense is recorded for
shares committed to be released to employees based on the fair market value of
those shares in the period in which they are committed to be released. The
difference between cost and fair market value of committed to be released common
shares, which was $120, $485 and $605 for the years ended October 31, 1998,
1997, and 1996, respectively, is recorded in additional paid-in capital.

         The ESOP shares are summarized as follows -


                                                 October 31,        
                                         -------------------------
                                             1998         1997
------------------------------------------------------------------
Committed to be released shares               226          194

Unreleased shares                             543          583
                                           ------      -------
     Total ESOP shares                        769          777
                                           ======      =======

Fair value of unreleased share             $5,091      $10,861
                                           ======      =======
------------------------------------------------------------------

         The ESOP expense for the years ended October 31, 1998, 1997 and 1996
was $512, $851, and $947, respectively.
<PAGE>

14. Commitments and Contingent Liabilities:

         Unusual Omega(TM) Charge

          The Company has been involved in seven class action lawsuits as well
as an administrative lawsuit filed on March 4, 1998, by the United States
Consumer Product Safety Commission ("Commission") related to the Company's
Omega(TM) sprinklers. The Company has reached a final settlement of the
Omega(TM) litigation with the Commission as well as a definitive settlement
agreement with the plaintiffs in the Hart and Santa Clara class actions. 
Although the court has granted preliminary approval to the settlement, 
settlement is contingent upon receiving final approval from the court.

          In accordance with Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies" and based on current information, the Company
revised its estimate of the probable future cost of settling these matters and
recorded a $38,015 ($26,610 net of tax) charge in third quarter of fiscal 1998
to reflect the total estimated additional future cost. The Company believes this
additional charge along with previous reserves for the Omega(TM) head
replacement efforts should cover the total estimated future costs of the
settlements. The Agreements with the Commission and Class Action litigants
generally provide for replacement of the Omega(TM) sprinkler heads with free
replacement sprinklers and parts, the establishment of a separate trust account
for payments to the owners of Omega(TM) sprinklers, administration of the recall
program and a notification program related to the Omega(TM) sprinkler product
recall.

          In addition, the Company has discontinued the manufacturing and sale
of Omega(TM) sprinklers. The Omega(TM) product line represented less than 3% of
the Company's total sales in fiscal year 1997.

          In an effort to recover a portion of the cost of the Omega(TM)
settlement, the company filed suit on August 19, 1998, against twelve product
liability insurance carriers with which the Company had coverage over the last
15 years. No insurance or third party recoveries have been considered in the
Company's accrual analysis and the amount of such recoveries, if any, is
uncertain at this time.

         In the fourth quarter of fiscal 1997, a charge of $13,200 ($8,976 net
of tax) was recorded to cover the estimated future costs associated with the
expansion of a voluntary program which was initiated by the Company to encourage
the testing and possible replacement of certain Omega(TM) fire sprinklers. A
similar Omega(TM) charge was recorded in fiscal 1996 of $3,750 ($2,362 net of
tax). These amounts were based on estimates of the number of Omega(TM)
sprinklers, the action plan the Company believed was necessary to remediate
these sprinklers and various other assumptions.

          In August 1997, a class action lawsuit was filed against the Company
in the State of California on behalf of a class of building owners who have
Omega(TM) sprinkler heads installed in their buildings. In December 1997, a
similar lawsuit was filed in California on behalf of the County of Santa Clara,
seeking to represent a class of public entities and commercial building owners
who have installed Omega(TM) sprinkler heads. Since the filing of these class
actions, the Company has been named as a defendant in five additional class
actions raising virtually identical allegations, captioned Rebecca Adams v.
Central Sprinkler Co. (filed February 11, 1998 in the Superior Court of
California for the County of San Bernadino), James T. Perona v. Central
Sprinkler Corp. (filed March 13, 1998, in the Superior Court of California for
the County of Los Angeles), South Royal Corp. v. Central Sprinkler Corp. (filed
March 27, 1998, in the United States District Court for the Southern District of
Florida), Roy F. Smith v. Central Sprinkler Corp. (filed March 20, 1998 in the
United States District Court for the Eastern District of Pennsylvania) and
Sangiacomo v. Central Sprinkler Corp. (filed April 3, 1998 in the United States
District Court for the Eastern District of Pennsylvania). The complaints do not
specify a dollar amount the plaintiffs are seeking. The Company has moved to
dismiss each of the above actions it has been served with process. Earlier in
1998, the court dismissed the South Royal complaint for failure to state a
claim. Plaintiff thereafter voluntarily dismissed its actions. As previously
mentioned, the Company has entered into an agreement to settle the Hart and
Santa Clara matters on a class-wide basis. The court granted preliminary
approval to the settlement on October 27, 1998 and has scheduled a final
approval hearing for February 19, 1999. Motions to dismiss remain pending in the
other actions which have been essentially inactive since the date of the
preliminary approval order in the Hart and Santa Clara matters.
<PAGE>

         As previously disclosed by the Company in its Annual Report to
shareholders on Form10-K for the fiscal years ended October 31, 1997 and 1996,
and each of its quarterly reports on Form 10-Q during fiscal year 1998 and 1997
and the third fiscal quarter of 1996, the Commission has been investigating
problems regarding the Company's Omega(TM) sprinkler heads since 1996. On March
4, 1998, the Commission filed the administrative complaint against the Company
and one of its subsidiaries. A report on Form 8-K was filed by the Company with
the Securities and Exchange Commission on March 6, 1998, which provided certain
information relating to the administrative action that was commenced by the
Commission against the Company and the Company's press release dated March 4,
1998, included the Company's response to the administrative action.


         On June 23, 1998, the Company filed a Report on Form 8-K with the
Securities and Exchange Commission in which the Company reported that in
connection with settlement meetings with the Commission, the Company believed
that the amount previously accrued for the Omega(TM) sprinkler issues most
likely would have to be increased to cover the costs the Company may incur to
resolve the Commission's action and other lawsuits concerning the Omega(TM)
sprinklers.

         The Company believes that the remaining balance from the third quarter
fiscal 1998 charge totaling $35,141 ($12,000 of which is included in accrued
expenses) as of October 31, 1998 will be sufficient to cover the total estimated
additional costs of the Omega(TM) sprinkler matters. The third quarter fiscal
1998 charge was based on estimates of the number of Omega(TM) sprinklers to be
located, the number of parties who will elect not to participate in the
settlements, estimated legal expenses and various other assumptions and on
information available at that time. It is possible that additional litigation
may ensue. In the event additional information becomes available in the future
which changes management's estimates, additional provisions may be necessary.

         Agreements and Contracts

         The Company is a party to patent licensing agreements to manufacture
and sell certain types of sprinkler devices. Under the terms of the agreements,
the Company is required to pay a royalty on net commissioned sales (as defined
in the agreements) of the licensed product during the terms of the patents. The
expense under these agreements was $60, $76 and $323 for the years ended October
31, 1998, 1997 and 1996, respectively.

         The Company has employment contracts with certain officers under which
their employment could not be terminated without five years prior notice. In
addition, the Company has entered into an employment agreement with an
employee/director for consulting services under which the monthly consulting fee
of $30 is payable for the ten-year term unless the agreement is terminated by
the Company for cause, as defined. The Company also has various purchase
commitments for materials, supplies, machinery and equipment incident to the
ordinary conduct of business. Such commitments are not at prices in excess of
current market.
<PAGE>

         Environmental Matters

         The Company and approximately thirty other local businesses were
notified by the Environmental Protection Agency ("EPA") in August 1991 that they
may be a potentially responsible party with respect to a groundwater
contamination problem in the vicinity of the Company's primary manufacturing
plant in Lansdale, Pennsylvania. The Company entered into Administrative Order
of Consent for Remedial Investigation/Feasibility Study ("AOC") effective May
19, 1995 with the EPA. Pursuant to the AOC, in 1996 the Company performed
certain tests on the Company's property to determine whether any land owned by
the Company could be a source of any of the contamination at the site. Based
upon such tests management believes that the Company's operations did not
contribute to this contamination problem and the Company has no liability to
clean-up this site. Should the EPA mandate the Company's participation in
clean-up efforts it is estimated that such costs could aggregate $2,700.
The Company has not accrued for such clean-up costs.

         Other

         The Company, in the normal course of business, is party to various
other claims and lawsuits with regard to its products and other matters.
Management believes that the ultimate resolution of these other matters will not
have a material impact on the Company's financial position, results of
operations or liquidity.
<PAGE>

------------------------------------------------------------------------------
SUPPLEMENTARY FINANCIAL DATA
Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
                                                              (Amounts in thousands, except per share)
                                                      ----------------------------------------------------------
                                                        First           Second          Third        Fourth    
                                                      ----------------------------------------------------------
<S>                                                   <C>               <C>             <C>        <C>
1998
Net sales                                              $53,452           $56,821        $57,168      $57,489
Gross profit                                            15,222            15,520         14,882*      14,377
Net income                                                 366               867        (25,127)*      1,290
Net income (loss) per common share:
       Basic                                               .11               .27          (7.65)*        .39
       Diluted                                             .11               .26          (7.65)*        .39

1997
Net sales                                              $48,180           $53,873        $58,918      $61,019
Gross profit                                            15,085            17,152         15,978       18,065***
Net income (loss)                                        1,299             2,158            868       (6,867)**
Net income (loss) per common share:
       Basic                                               .41               .66            .27        (2.11)**
       Diluted                                             .39               .64            .26        (2.11)**

1996
Net sales                                              $40,750           $44,801        $49,491      $52,178
Gross profit                                            12,281            13,281         14,251       16,162***
Net income                                               1,041             1,265          1,304          153**
Net income per common share:
       Basic                                               .33               .40            .41          .05**
       Diluted                                             .31               .38            .39          .05**
</TABLE>

  * After unusual Omega (TM) third quarter charge of $38,015 ($26,610 net of 
    tax or $8.10 per share) in fiscal 1998.

 ** After unusual Omega (TM) fourth quarter charge of $13,200 ($8,976 net of 
    tax or $2.74 per share) in fiscal 1997 and $3,750 ($2,362 net of tax or 
    $.72 per share) in fiscal 1996.

*** Reflects reclassification of unusual Omega(TM) charges of $13,200 in fiscal
    1997 and $3,750 in fiscal 1996 from cost of sales to a separate
    classification affecting operating income.

Note: The total of the individual quarterly net income (loss) per share amounts
may not equal the net income (loss) per share amount for the year due to
rounding or changes in the number of shares outstanding during the year.









<PAGE>


                                                            SCHEDULE II


                          CENTRAL SPRINKLER CORPORATION

                        VALUATION AND QUALIFYING ACCOUNTS

                             (Amounts in thousands)




                      RESERVE FOR DOUBTFUL RECEIVABLES

                    Balance   Charges                         Balance
                   Beginning    to                            End of
   Year Ended      of Period  Expense  Recoveries  Writeoffs  Period 
----------------   ---------  -------  ----------  ---------  ------

October 31, 1998    $5,949     $1,048     $135        $444     $6,688
                    ======     ======     ====        ====     ======

October 31, 1997    $4,622     $1,701     $133        $507     $5,949
                    ======     ======     ====        ====     ======

October 31, 1996    $3,813     $1,330     $ 90        $611     $4,622
                    ======     ======     ====        ====     ======





                      RESERVE FOR OMEGA TM LIABILITIES

                    Balance    Charges               Balance
                   Beginning     to                  End of
   Year Ended      of Period   Expense   Payments    Period 
----------------   ---------   -------   ---------   ------

October 31, 1998    $13,492    $38,015    $16,366    $35,141
                    =======    =======    =======    =======

October 31, 1997    $ 2,632    $13,200    $ 2,340    $13,492
                    =======    =======    =======    =======

October 31, 1996    $     -    $ 3,750    $ 1,118    $ 2,632
                    =======    =======    =======    =======