Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
GENERAL
Carlisle Plastics, Inc. (the "Company") is a global leader in the production of consumer and industrial products made from plastics. The Company's products include trash bags, garment hangers and sheeting used for home improvement, construction and agriculture. The Company's trash bag products include private label and institutional lines, as well as the Company's own national consumer brands. Other products include plastic bottles, containers and packaging.
The following table sets forth the Company's major product categories as a percentage of net sales for each of the three years ended December 31:
Poly-Tech, which is an additional registrant hereunder, is a wholly-owned subsidiary of the Company.
HISTORY
The Company was incorporated in Delaware in 1985 and adopted its present name in February, 1989. In 1989, the Company acquired 79% ownership in Poly-Tech. In 1990, the Company, through Poly-Tech, purchased 100% of the outstanding capital stock of American Western Corporation ("American Western").
In 1991, the Company completed an initial public offering (the "Class A Stock Offering"). In conjunction with the Class A Stock Offering, the Company converted all shares of the Company's outstanding common stock into shares of Class B Common Stock; acquired the 21% minority interests in its directly owned subsidiaries in exchange for shares of Class A Common Stock; and changed its tax status from a "S" corporation to a "C" corporation.
In July 1991, the Company purchased a two-thirds interest in Rhino-X Industries, Inc. ("Rhino-X"). Under a put and call arrangement signed in conjunction with the acquisition of Rhino-X, the Company purchased the remaining shares on January 1, 1994.
PRODUCTS
The Company supplies plastic trash bags to three major markets: mass merchandise, grocery chains, and institutional. The Company provides Ruffies(R), a national brand consumer trash bag, for mass merchandise and other retail stores. Consumer trash bags and food contact products, such as sandwich bags, recloseable freezer bags and wrap are provided for grocery chains nationwide under private label. For institutional customers, such as food service distributors, janitorial supply houses, restaurants, hotels and hospitals, the Company provides heavy-duty trash liners.
In the consumer trash bag market, the Company competes primarily with two highly advertised national brands, as well as other private and controlled label products. The Company has historically concentrated on mass merchandisers as the primary market for its branded trash bags, while the other major national brands are marketed primarily through food retailers.
Film-Gard(R), the Company's leading plastic sheeting product, is sold to consumers and professional contractors through do-it-yourself outlets, home improvement centers and hardware stores. A wide range of
Film-Gard(R) products are sold for various uses, including painting, renovation/construction, landscaping and agriculture. The Company's industrial packaging film is sold directly to manufacturers for use as shrink wrap and other packaging requirements.
Molded plastic garment hangers are sold by the Company to four markets: garment manufacturers, national and regional or local retailers, and mass merchandisers. Garment manufacturers place their clothes on the Company's hangers before shipping to retail outlets. The Company creates and sells customized hanger designs to national retailers. Regional or local retailers buy standard Company hanger lines for retail clothing display. The Company supplies mass merchandise stores with consumer plastic hangers for sale to the general public.
The Company manufactures a line of plastic bottles marketed to the dairy, water, juice, food and industrial markets on the eastern coast of the United States.
The Company operates in a competitive marketplace where success is dependent upon price, service and quality. The Company has positioned itself as a major supplier of innovative plastic products to large, rapidly growing national customers at the highest levels of value, service and quality.
RAW MATERIALS
The primary raw materials used by the Company in the manufacture of its products are various plastic resins, primarily polyethylene. The Company's financial performance is thus dependent to a substantial extent on the polyethylene resin market. The primary plastic resins used by the Company are produced from petrochemical intermediates derived from products of the natural gas and crude oil refining processes, respectively. Because plastic resins are commodity products, the Company selects its suppliers primarily on the basis of price. Consequently, the Company's sources for plastic resins tend to vary from year to year. Shortages of plastic resins have been infrequent.
Natural gas and crude oil markets experience substantial cyclical price fluctuations as well as other market disturbances, including shortages of supply, the effect of OPEC policy and crises in the oil producing regions of the world. The capacity, supply and demand for plastic resins and the petrochemical intermediates from which they are produced are also subject to cyclical and other market factors. Consequently, plastic resin prices may fluctuate as a result of changes in natural gas and crude oil prices and the capacity, supply and demand for resin and petrochemical intermediates from which they are produced.
The Company uses in excess of 425 million pounds of plastic resins annually. At this level, the Company is one of the largest purchasers of plastic resin in the United States. Management believes that large volume purchases of plastic resin result in lower unit raw material costs.
The Company may not always be able to pass through increases in the cost of its raw materials to its customers in the form of price increases. To the extent that increases in the cost of plastic resin cannot be passed on to its customers, such increases may have an adverse impact on profit margins and the overall profitability of the Company.
MAJOR CUSTOMERS
The Company has no customer that accounts for over 10% of its consolidated net sales.
EMPLOYEES
As of December 31, 1994, the Company employed approximately 2,900 full-time employees, of whom approximately 2,450 are in manufacturing and approximately 450 are in administration and sales. Approximately 300 of the Company's total work force are represented by labor unions under contracts which are due to expire in 1996 and 1997 and will be renegotiated in due course. The Company has historically enjoyed satisfactory relations with both union and non-union employees.
CYCLICALITY AND SEASONALITY OF PORTIONS OF BUSINESS
Historically, the Company's results have been affected, in part, by the nature of its customers' purchasing trends for various seasonal and promotional programs. The first quarter is typically the least profitable quarter, and the third quarter is the strongest due to demands for hangers during the holiday season, lawn and leaf bags in the fall and strong promotional activity by major mass merchandisers.
ENVIRONMENTAL AND SAFETY MATTERS
The Company routinely monitors environmental compliance at its manufacturing facilities. The cost of such compliance has not been significant. The Company is currently not subject to any environmental proceedings. During 1994, the Company did not make any material capital expenditures for environmental control facilities, nor does it anticipate any in the near future.
Actions by federal, state and local governments concerning environmental matters could result in laws or regulations that could increase the cost of producing the products manufactured by the Company or otherwise adversely affect the demand for its products.
At present, environmental laws and regulations do not have a material adverse effect upon the demand for the Company's products. The Company is aware, however, that certain local governments have adopted ordinances prohibiting or restricting the use or disposal of certain plastic products that are among the types of products produced by the Company. If such prohibitions or restrictions were widely adopted, such regulatory and environmental measures could have a material adverse effect upon the Company. In addition, a decline in consumer preferences for plastic products due to environmental considerations could have a material adverse effect upon the Company.
Certain of the Company's operations are subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage and disposal of solid and hazardous wastes. While historically the Company has not had to make significant capital expenditures for environmental compliance, the Company cannot predict with any certainty its future capital expenditures for environmental compliance because of continually changing compliance standards and technology. The Company does not currently have any insurance coverage for environmental liabilities and does not anticipate obtaining such coverage in the future.
ITEM 2.



ITEM 2. PROPERTIES
The Company utilizes approximately 618,000 square feet of leased space and approximately 1,780,000 square feet of space owned by the Company.
The principal properties of the Company are as follows:
- ---------------
The Company also leases properties in Hong Kong.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position, results of operations, or cashflows of the Company.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock has been listed on the New York Stock Exchange under the trading symbol "CPA" since May 1991. The Company's Class B Common Stock has restrictions on transfer and ownership; accordingly, no trading market will develop for the Class B Common Stock and the Class B Common Stock will not be listed or traded on any exchange or in any market.
PRICE RANGE OF CLASS A COMMON STOCK:
The Company estimates that it had 8,600 beneficial owners of the Class A Common Stock at December 31, 1994. The Company's Class B Common Stock was held by 7 record holders at December 31, 1994. Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to twenty votes. As of December 31, 1994, officers and directors of the Company controlled 74.1% of the combined voting power of the two classes of stock.
The indentures for the Company's senior notes generally prohibit the Company from paying dividends on its common stock (other than dividends on non-convertible capital stock or certain other securities). See Notes to Consolidated Financial Statements included herein.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
Selected Historical Financial Data of the Company:
Selected Historical Financial Data of Poly-Tech(a):
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of net sales for each of the three years ended December 31:
1994 COMPARED WITH 1993
Net sales increased $26.8 million, or 7.4%, to $387.7 million in 1994 compared to $360.9 million in 1993. The net growth was driven primarily by increased hanger sales. Unit volume for the Company for 1994 increased 9% from 1993.
Gross profit decreased 1.9% to $97.1 million, or 25.0% of net sales in 1994, from $98.9 million, or 27.4% of net sales in 1993. The decrease in gross profit is primarily attributable to plastic resin raw material cost increases affecting the third quarter of 1994. Gross profit in the fourth quarter was restored to 26.7% due to sales price increases.
Operating expenses increased 7.5% in 1994 to $72.5 million from $67.4 million in 1993, due to increases in freight, sales and marketing, and other administrative costs. The increase in freight and sales and marketing is attributable to increased unit volume. The increase in other administrative costs is attributable to increased salaries and expenses related to the relocation of our corporate offices from Boston and our hanger divisional offices from North Carolina to Phoenix, Arizona. Operating expenses as a percent of sales remained flat at 18.7%.
Interest expense, including amortization of deferred financing costs, decreased 13.9% to $19.4 million in 1994 from $22.5 million in 1993 due to the refinancing of 13.75% fixed rate debt with lower rate variable rate debt.
The Company recorded a tax provision of $2.3 million in 1994, reflecting an effective tax rate of 43.9%, compared to a provision of $3.5 million in 1993, reflecting an effective tax rate of 37.2%. The increase in the effective tax rate is due to the effect of goodwill amortization which is not deductible for tax purposes and a lower pretax income for 1994. Amortization related to goodwill was $2.1 million, or 39.5% of pretax income and $2.1 million, or 22.8% of pretax income for the years ending December 31, 1994 and 1993, respectively.
Net income decreased to $.5 million in 1994 from $7.2 million in 1993. The decrease in net income is attributable to the effect of decreased gross margins, increased operating expenses, and the recording of an after-tax extraordinary charge of $2.5 million related to early extinguishment of debt. Net income in 1993 included after-tax extraordinary charge of $0.2 million and a $1.6 million benefit from the adoption of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
1993 COMPARED WITH 1992
Net sales were $360.9 million in 1993 compared to $359.9 million in 1992. Unit volume for 1993 increased 4% from 1992.
Gross profit increased 2.6% to $98.9 million in 1993 from $96.4 million in 1992. Gross profit as a percent of sales increased to 27.4% in 1993 from 26.8% in 1992. The increase was largely due to lower costs in the film products group.
Operating expenses decreased 18.1% in 1993 to $67.4 million from $82.3 million in 1992. Operating expenses as a percent of sales decreased to 18.7% from 22.9% in 1992. Operating expenses in 1992 included $7.7 million associated with a new product introduction and $4.3 million of restructuring charges. These restructuring charges were utilized for realignment of production facilities, management reorganization and product re-engineering.
Interest expense, including amortization of deferred financing costs, increased to $22.5 million in 1993 from $22.0 million in 1992 due to the issuance of $90.0 million 10.25% Senior Notes in June of 1992.
The Company recorded a tax provision of $3.5 million in 1993, reflecting an effective tax rate of 37.2%, compared to a benefit of ($0.7) million in 1992 as a result of losses incurred.
Net income increased to $7.2 million in 1993 from a net loss of ($6.3) million in 1992. Net income in 1993 and 1992 included after-tax extraordinary charges of $0.2 million and $0.1 million, respectively, relating to the early extinguishment of debt. Net income in 1993 also included a $1.6 million net benefit from the adoption SFAS No. 109, "Accounting for Income Taxes."
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased $10.9 million to $65.2 million at December 31, 1994, compared to $54.3 million at December 31, 1993. The increase in working capital is primarily attributable to increases in accounts receivable and inventories as a result of increases in selling prices and raw material costs.
For the year ended December 31, 1994, net cash provided by operations decreased $16.4 million to $3.1 million from $19.5 million for the year ended December 31, 1993. The decrease in net cash provided by operations is primarily due to increases in accounts receivable and inventories discussed above.
Net cash used for investing activities increased $8.5 million to $22.3 million for the year ended December 31, 1994. The Company continued to invest in production facilities for the Company's hanger and films divisions in order to improve manufacturing efficiencies and support increased sales volume. In addition, the Company purchased the remaining outstanding minority interest shares of Rhino-X for $3.2 million. The Company anticipates that capital expenditures for fiscal year 1995 will be less than the annual charge for depreciation.
Net cash provided (used) in financing activities increased $7.7 million to $4.0 million for the year ended December 31, 1994 from ($3.7) million for the year ended December 31, 1993. During 1994, the Company entered into several new debt agreements which are summarized below:
The Company executed a three-year $25 million revolving credit facility which expires in March 1997 and is collateralized by the Company's inventories. Under this facility, the Company may also execute letters of credit up to $9.0 million. The facility's availability is limited to the lesser of $25 million or 50% of eligible inventories as defined in the agreement. Interest is payable monthly at rates of LIBOR plus 2.25% to 3.75% on the outstanding borrowings, and 1.5% to 2.5% on issued letters of credit. Available borrowings under the terms of this facility at December 31, 1994 were $23.3 million. At December 31, 1994, there were no outstanding borrowings and issued and outstanding letters of credit were $2.1 million.
An accounts receivable securitization agreement was also entered into during 1994. This agreement provides for borrowings up to a maximum of $45 million based upon 80% of eligible accounts receivable, as defined by the agreement, and expires in April 1999. Interest is payable daily based on the weighted average rate of the commercial paper, which is issued and secured by the receivables under the terms of the agreement, plus 1.25% on borrowings up to $35 million and plus 2.0% on borrowings in excess of $35 million. Outstanding borrowings under this agreement equaled the amount available at December 31, 1994 of $38.2 million.
The use of proceeds under these agreements is limited to funding working capital requirements. In addition, an unused facility fee of .25%, per annum, is charged on any unused portion of the related agreements.
A sale and lease-back agreement was executed during 1994 in which the Company received $45 million, payable in monthly installments of variable principal plus interest at LIBOR plus 2.65% through April 1999. The agreement is collateralized by the underlying equipment. In addition to the required monthly principal payments, the Company is required to prepay principal semi-annually in an amount equal to 40% of consolidated net income, limited to $2.0 million in each calendar year. Such principal payments are applied to required monthly payments in inverse order of maturity. The use of proceeds received under the lease-back agreement was restricted for use in the retirement of the 13.75% Senior Notes (the "13.75% Notes") due in 1997, which had an outstanding principal balance of $68.5 million.
The revolving credit facility, accounts receivable securitization agreement and the sale and lease-back agreement contain covenants which require the Company to maintain certain financial tests and ratios. Such tests and ratios include the maintenance of minimum fixed charges coverage, interest rate and taxes coverage and funded debt to equity ratios, minimum net worth, and limit capital expenditures and the payment of dividends. At December 31, 1994, the Company was in compliance with the required covenants.
In addition, the Company also completed a $15 million private placement of its unsecured notes, with a discount of 2.06%. Net proceeds received were $14.7 million. The terms of the placement require interest
payable semi-annually at a fixed rate of 10.25% maturing in June 1997. The proceeds received under the placement were utilized to provide additional working capital.
The Company used available cash and proceeds received under the lease-back agreement to retire $10 million in variable rate notes, the $68.5 million 13.75% Notes discussed above, and $.3 million for a 5.7% Industrial Revenue Bond originally issued in 1985.
The Company entered into an interest rate swap agreement, terminating in June 1997, during the third quarter of 1993. In the second quarter of 1994, the Company purchased an interest rate corridor for $1.5 million. The swap agreement and corridor matched the principal and due date of the Company's 1992 10.25% Senior Fixed Rate Notes. In December, 1994, the Company terminated both the interest rate swap and corridor agreements at a termination cost of $6.3 million. The cost of the corridor and termination of the related agreements has been deferred and will be amortized as an adjustment to interest expense, over the remaining term of the 1992 10.25% Senior Fixed Rate Notes. The Company had no interest rate agreements at December 31, 1994.
Management currently expects its cash on hand, funds from operations and borrowings available under existing credit facilities to be sufficient to cover future operating requirements.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 beginning on page 11.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth in the Company's 1995 Proxy Statement under the caption "Election of Directors" is incorporated herein by reference. Each of the executive officers of the Company is also a director of the Company; thus, the required information regarding executive officers of the Company is included in the 1995 Proxy Statement. Information in response to this Item with respect to Poly-Tech is set forth in Appendix A under the caption "Directors and Executive Officers," which is included in this Form 10-K starting on page 40, following the Consolidated Financial Statements and Consolidated Financial Statement Schedules.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the 1995 Proxy Statement under the caption "Executive Compensation" is incorporated herein by reference and also as it relates to the directors and officers with respect to Poly-Tech (as described in Appendix A under the caption "Executive Compensation"), except that information under the captions "Compensation Committee Report on Executive Compensation" and "Stock Performance" are not so incorporated.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth in the 1995 Proxy Statement under the caption "Security Ownership of Principal Shareholders and Management" is incorporated herein by reference. Information in response to this Item with respect to Poly-Tech is set forth in Appendix A under the caption "Security Ownership of Certain Beneficial Owners and Management."
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in the 1995 Proxy Statement under the caption "Certain Transactions" is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements CARLISLE PLASTICS, INC. AND SUBSIDIARIES Independent Auditors' Report Consolidated Balance Sheets at December 31, 1994 and 1993 Consolidated Statements of Operations for the years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedules of Carlisle Plastics, Inc. required to be filed by Item 8 and Paragraph (d) of this Item 14 Schedule I -- Condensed Financial Information of Registrant Schedule II -- Valuation and Qualifying Accounts Such schedules and reports are at pages 36 through 39 of this report.
All other schedules for Carlisle Plastics, Inc. and Subsidiaries and all schedules for Poly-Tech, Inc. have been omitted because they are inapplicable, not required, or the information is included elsewhere in the consolidated financial statements or notes thereto.
3. The Exhibits are listed in the Index of Exhibits required by Item 601 of Regulation S-K at Item (c) below.
(b) No reports on Form 8-K were filed during the last quarter of the period covered by this report.
(c) The Index to Exhibits and required Exhibits are included following the Consolidated Financial Statement Schedules beginning at page 41 of this report.
(d) The Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules are included following the signatures beginning at page 14 of this report.
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.
CARLISLE PLASTICS, INC.
Dated: March 2, 1995 By /s/ WILLIAM H. BINNIE
------------------------------------ William H. Binnie Chairman of The Board
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 on the dates indicated.
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.
POLY-TECH, INC.
Dated: March 2, 1995 By /s/ WILLIAM H. BINNIE
------------------------------------ William H. Binnie Chairman of The Board
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 on the dates indicated.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Carlisle Plastics, Inc. Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Carlisle Plastics, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included the financial statement schedules listed in the Index at Item 14(a)2. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules 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, such consolidated financial statements present fairly, in all material respects, the financial position of Carlisle Plastics, Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Phoenix, Arizona February 2, 1995
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
See notes to consolidated financial statements.
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
See notes to consolidated financial statements.
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
See notes to consolidated financial statements.
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
See notes to consolidated financial statements.
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BUSINESS ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The principal business of Carlisle Plastics, Inc. (the "Company") is the manufacture, distribution and sale of consumer and industrial plastic products.
BASIS OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of Poly-Tech, Inc. ("Poly-Tech"), American Western Corporation ("American Western"), Rhino-X Industries, Inc. ("Rhino-X"), Carlisle Plastics Funding Corporation ("CPFC"), A&E Products (Far East) Ltd. ("Far East"), A&E -- Korea, Ltd. ("Korea") and Plasticos Bajacal, S.A. De C.V. ("Plasticos"). Significant intercompany transactions have been eliminated in consolidation.
Certain amounts in the prior years' financial statements have been reclassified to conform to the current year's presentation.
CASH EQUIVALENTS
Cash equivalents include highly liquid investments with an original maturity of three months or less. The recorded amount of cash equivalents approximates fair market value.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is principally determined using the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed on a straight-line basis over the estimated lives of the assets ranging from two to fifty years. Amortization of property acquired under capital leases and leasehold improvements is computed on a straight-line basis over the estimated useful lives of the assets or the remaining term of the lease.
GOODWILL AND OTHER ASSETS
Goodwill arising from the excess purchase price over net assets acquired is amortized on the straight-line method principally over forty years. Accumulated amortization aggregated $12,464 and $10,352 as of December 31, 1994 and 1993, respectively.
Included in other assets at December 31, 1994 and 1993 are $3,808 and $4,215 (net of accumulated amortization of $6,602 and $5,355), respectively, of deferred financing costs which are being amortized using the interest method over the term of the related debt.
REVENUE RECOGNITION
Revenues are generally recognized when products are shipped.
INCOME TAXES
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," effective January 1, 1993. The cumulative effect of adopting SFAS No. 109 was to increase 1993 net income by $1,586 ($.09 per share). Deferred tax assets and liabilities are determined based
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on the differences between the financial statement and the tax bases of assets and liabilities using enacted tax rates.
INCOME PER COMMON SHARE
Income per common share is computed on the basis of the weighted average number of common and common equivalent shares, consisting of the dilutive effect of stock options outstanding during each year.
2. INVENTORIES
Inventories consist of the following at December 31:
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31:
Accumulated depreciation and amortization includes $1,911 and $1,745 at December 31, 1994 and 1993, respectively, relating to assets acquired under capital leases.
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
LIBOR was 6.07% at December 31, 1994.
During 1994, the Company entered into several new debt agreements which are summarized below:
The Company executed a three-year $25,000 revolving credit facility which expires in March 1997, and is collateralized by the Company's inventories. Under this facility, the Company may also execute letters of credit up to $9,000. The facility's availability is limited to the lesser of $25,000 or 50% of eligible inventories, as defined by the agreement. Interest is payable monthly at the following incremental rates: LIBOR plus 2.25% on borrowings up to $5,000, LIBOR plus 3.25% on borrowings of $5,000 to $10,000, and LIBOR plus 3.75% on borrowings in excess of $10,000. The letters of credit accrue interest payable monthly at 1.5% up to $2,500, 2.0% on $2,500 to $5,000, and 2.5% in excess of $5,000. Available borrowings under the terms of this facility at December 31, 1994 were $23,300. At December 31, 1994, there were no outstanding borrowings and issued and outstanding letters of credit were $2,116.
The Company also executed an accounts receivable securitization agreement in 1994. The agreement provides borrowings up to a maximum of $45,000 based upon 80% of eligible accounts receivable, as defined by the agreement, and expires in April 1999. Interest is payable daily based upon the weighted average rate of the commercial paper which is issued on the secured receivables under the terms of the agreement, plus 1.25% on borrowings up to $35,000 and plus 2.0% on borrowings in excess of $35,000. Outstanding borrowings under this agreement equalled the amount available at December 31, 1994 of $38,163.
The use of proceeds received by the Company under the revolving credit facility and the accounts receivable securitization agreement are limited to funding working capital requirements. In addition, an unused facility fee of .25% is charged on any unused portion of the related agreements.
A sale and lease-back agreement was executed during 1994 in which the Company received $45,000, payable in monthly installments of variable principal plus interest at LIBOR plus 2.65%, collateralized by the underlying equipment. The net gain of $2,369, which was recorded in connection with the sale and lease-back
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement, has been deferred and is being amortized over the term of the agreement. Monthly principal payments are payable as follows: $584 through April 1995, $725 through April 1997, $834 through April 1998, and $817 through April 1999 at which time the remaining balance becomes due. In addition to the required monthly principal payments, the Company is required to prepay principal semi-annually in an amount equal to 40% of consolidated net income, limited to $2,000 in each calendar year. Such principal payments are applied to required monthly payments in inverse order of maturity.
The revolving credit facility, accounts receivable securitization agreement and the sale and lease-back agreement contain cross default covenants which require the Company to maintain certain financial tests and ratios. Such tests and ratios include the maintenance of minimum fixed charges coverage and interest rate and income taxes coverage ratios, maximum funded debt to equity, minimum net worth, and limit capital expenditures and the payment of dividends. At December 31, 1994, the Company was in compliance with the required covenants.
In addition, the Company also completed a $15,000 private placement, which requires the payment of interest semi-annually at a fixed rate of 10.25% maturing in June 1997 (hereinafter the "1994 10.25% Notes"). The 1994 10.25% Notes were issued at a discount of 2.06%. Net proceeds received were $14,693 and were restricted for working capital requirements. The holders of the 1994 10.25% Notes were given registration rights.
In June 1992, the Company issued $90,000 in Senior Notes with interest payable semi-annually at 10.25% (hereinafter the "1992 10.25% Notes").
The 1992 10.25% Notes and the 1994 10.25% Notes (together, the "10.25% Notes") may be redeemed at the option of the Company after June 14, 1995, in whole or in part, at 102.56% of the face amount if redeemed during the 12-month period commencing June 15, 1995 and 100% of the face amount thereafter.
In March 1990, the Company issued $60,000 Senior Variable Rate Notes due in 1997 (the "1997 Notes"), with interest payable quarterly at LIBOR plus 4.0%. The 1997 Notes may be redeemed at the option of the Company, in whole or in part, at par plus accrued interest. The balance outstanding at December 31, 1994 was $19,100.
The indentures relating to the 1997 Notes and the 10.25% Notes (collectively, the "Notes") have been guaranteed by Poly-Tech and contain certain restrictive covenants affecting the Company and its subsidiaries. Such covenants include certain limitations on the sale of assets, issuance of debt, and issuance of common and preferred stock of the Company.
During 1994, the Company used available cash and proceeds received under the sale and lease-back agreement to retire $10,000 in variable rate notes, and $300 of 5.7% Industrial Revenue Bonds. The Company also retired $68,525, $5,000 and $1,800 of its 13.75% Notes in 1994, 1993 and 1992, respectively. As a result of the early retirements of debt, the Company recorded extraordinary charges of $2,462, $234 and $89 (net of taxes of $1,574, $138 and $52, respectively) in 1994, 1993 and 1992, respectively.
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1994, the aggregate annual payments due on long-term debt and the future minimum lease payments under capital lease obligations are as follows:
Based upon available market information and borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of long-term debt was approximately $206,900 and $204,300 at December 31, 1994 and 1993, respectively.
5. EMPLOYEE BENEFIT PLANS
The Company maintains a noncontributory defined benefit pension plan which covers certain employees. Benefits payable are determined based on percentages of compensation for each year of service. The actuarial projected unit credit method has been used to determine the net pension expense and the funded status. The Company's funding policy is to contribute annually the amount necessary to satisfy the minimum funding standards under the Employee Retirement Income Security Act ("ERISA").
The following table sets forth the funded status of the pension plan as estimated by consulting actuaries as of December 31, 1994 and 1993 and amounts recognized in the Company's financial statements:
Components of net pension expense for the years ended December 31 are as follows:
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The discount rate used in determining the projected benefit obligation was 8.5% in 1994, 7% in 1993 and 8% in 1992. The assumed long-term rate of return on plan assets was 8% in 1994, 1993 and 1992. The rate of increase in future compensation levels used in determining the projected benefit obligation was 4.5% in 1994 and 4.5% to 5.5% in 1993 and 1992. Plan assets consist of guaranteed insurance contracts, pooled fixed income, pooled equity and pooled real estate investments. For the year ended December 31, 1994, the Company was not required to make any cash contributions under the minimum funding standards of ERISA. Cash contributions to the pension plan for the years ended December 31, 1993 and 1992 were $122 and $294, respectively.
The Company also maintains defined contribution plans (the "Plans"). Full time employees of the Company who are not members of collective bargaining units or who are not covered by another qualified retirement plan sponsored by the Company are eligible to participate in the Plans after six months of employment. Under the Plans, a participant may elect to reduce annual compensation by 1% to 16% and to have that amount contributed to the Plan by the Company on a pretax basis. The Company matches employee contributions, for one of the Plans, at a rate of 50% of the employee's contribution up to 6% of the employee's salary up to the maximum allowable deferral per the Internal Revenue Code. Employee contributions vest immediately, whereas employer contributions vest over a period of three years. During the years ended December 31, 1994, 1993 and 1992, the Company's aggregate matching contributions were $366, $372 and $405, respectively.
6. INCOME TAXES
Significant components of the Company's net deferred tax asset (liability) as of December 31:
The Company provided a valuation allowance of $1,165 against deferred tax assets recorded as of January 1, 1993. The valuation allowance decreased $1,165 for the year ended December 31, 1993. The valuation allowance was reversed because the Company acquired the minority interest of its 67%-owned subsidiary on January 1, 1994 and the realization of tax loss carryforwards became more likely than not. Of the
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
valuation allowance reversed, $675 was allocated to reduce goodwill, which primarily relates to the tax loss carryforwards acquired in a prior year acquisition.
As of December 31, 1994, the Company had net operating loss carryforwards from a purchased subsidiary which expire in the years 2006 through 2008 in the amount of $9,862, which may be utilized to reduce consolidated taxable income to the extent of taxable income generated by the purchased subsidiary. The Company also had a net consolidated operating loss carryforward of $8,540 which expires in 2009 and alternative minimum tax credits totaling $2,601, which have no expiration date.
The provision (benefit) for income taxes consists of the following for the years ended December 31:
The provision (benefit) for income taxes differs from an amount computed at the statutory tax rate as follows:
7. RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE
At December 31, 1994, the Company had a note receivable from an officer and director of the Company, in the amount of $100, due August 1997. Interest is payable annually at a rate of 6%, compounded monthly.
SUBORDINATED PROMISSORY NOTES
For the year ended December 31, 1992, interest expense paid to stockholders and affiliates related to notes which were retired during the same year was $263.
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MANAGEMENT FEES
In May 1991, the Company entered into a three-year Management Agreement with Carlisle Plastics Management Corporation ("CPMC"), an affiliate of the Company. Under the terms of the original agreement, CPMC received an annual management fee of $1,500. In May, 1994 this agreement was extended and in September, 1994 the agreement was amended to one year with an annual fee of $750. Management fees paid by the Company to CPMC under the agreement were $1,250, $1,500 and $1,500, for the years ended December 31, 1994, 1993 and 1992, respectively.
The indentures for the 10.25% Notes require that management fees do not exceed 2.0% of sales per year and that each affiliate execute a management fee subordination agreement.
The Company also provides purchasing, accounting, and other administrative services for an affiliate. In 1994, 1993 and 1992, the Company received $124, $86 and $130, respectively, from the affiliate as payment for services rendered.
LEASES
The Company leases certain office, manufacturing and warehouse space which is owned by affiliates of the Company. During 1994, the Company terminated its office lease for its Boston office and incurred lease termination costs of $125. In addition, lease expense of $282, $246 and $217 was incurred for the years 1994, 1993 and 1992, respectively.
The Company also leased an aircraft from an affiliate of the Company. Lease expense in connection with the aircraft was $297, $303 and $325 for the years 1994, 1993 and 1992, respectively. In January 1995, the aircraft lease was terminated.
AFFILIATED PURCHASES
The Company purchases certain raw materials from an affiliate of the Company. Purchases for the years ended December 31, 1994, 1993 and 1992 were $112, $257 and $355, respectively.
8. STOCKHOLDERS' EQUITY
The Company's Class B common stock is one-for-one convertible to Class A common stock and has restrictions on transfers. Each share of Class A common stock is entitled to one vote, and each share of Class B common stock is entitled to twenty votes.
The Company maintains an incentive stock option plan (the "Incentive Plan") for key salaried employees and directors of the Company. The term of an incentive stock option may not exceed ten years.
As of December 31, 1994, 1,880,000 shares of Class A Common Stock were reserved for issuance under the Incentive Plan.
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of options granted under the Incentive Plan is as follows:
In 1992, 355,900 options granted in 1991 were repriced to $5.00, the market price at the time of repricing. All options granted were at a per share option price greater than or equal to the market value at the date of grant.
In 1992, a director and officer was granted non-qualified options, which are not included in the above table, to purchase 400,000 shares of the Company's Class A Common Stock at $4.00 per share (the fair market value of the shares at the date of the agreement). The options vest on September 1, 1993, 1994 and 1995 in the amount of 50,000, 50,000 and 300,000, respectively.
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases various manufacturing facilities under noncancellable operating leases with varying terms through 2002. The following is a schedule of future minimum lease payments required under such operating leases:
Amounts above include $203 which is payable to affiliates of the Company (Note 7).
Rent expense under operating leases totaled $5,955, $4,476 and $4,969 for 1994, 1993 and 1992, respectively.
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LITIGATION
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the Company.
10. CONCENTRATION OF CREDIT RISK
In September, 1993, the Company entered into an interest rate swap agreement, terminating in June 1997. In the second quarter of 1994, the Company purchased an interest rate corridor for $1,500. The swap agreement and corridor matched the principal and due date of the Company's 1992 10.25% Notes. In December, 1994, the Company terminated both the interest rate swap and corridor for $6,300. The cost of the corridor and termination of the related agreements has been deferred and will be amortized as an adjustment to interest expense over the remaining term of the 1992 10.25% Notes.
In September 1993, the Company received $2,000 from the termination of an interest rate swap agreement which it had entered into in June 1993. This gain has been deferred and is being amortized through June 1997, the original term of the swap agreement.
For the years ended December 31, 1994 and 1993, the Company recorded as a reduction to interest expense $350 and $751, respectively, for the net interest differential and amortization of the deferred gain relating to the interest rate agreements.
The Company had accounts receivable from a single customer of $4,055 and $3,200 at December 31, 1994 and 1993, respectively. This customer has a history of timely payments to the Company, and the Company believes it had no unusual exposure to credit risk at December 31, 1994.
11. RESTRUCTURING CHARGE AND NEW PRODUCT INTRODUCTION
During 1992, the Company recorded restructuring charges aggregating $4,320. The restructuring charge included realignment of production facilities, management reorganization and product re-engineering. In addition, in 1992 the Company incurred costs of $7,743 associated with a new product introduction.
12. MINORITY INTEREST
On January 1, 1994 the Company purchased the outstanding one-third minority interest shares of Rhino-X at a purchase price of $3.2 million ($12 per share). The purchase price was determined under a put and call arrangement signed in conjunction with the Company's acquisition of a two-thirds interest in July 1991.
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. CONDENSED FINANCIAL INFORMATION OF CARLISLE PLASTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING OPERATIONS INFORMATION
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) On March 9, 1994, Poly-Tech, American Western and Rhino-X entered into asset purchase agreements with Carlisle Plastics, Inc. Under these asset purchase agreements, all accounts receivable and inventory were sold from the subsidiaries to Carlisle Plastics, Inc. On March 9, 1994, these three subsidiaries also entered into contract manufacturing agreements with Carlisle Plastics, Inc., under which the subsidiaries provide manufacturing services to Carlisle Plastics, Inc. With the implementation of these agreements, Carlisle Plastics, Inc. became responsible for all selling and administrative duties for the Company. The asset purchase and contract manufacturing agreements were effective January 1, 1994.
(7) On April 4, 1994, Poly-Tech, American Western and Rhino- X sold certain assets as part of the Company's sale and leaseback financing. The subsidiaries entered into sublease agreements with Carlisle Plastics, Inc. The sublease agreements were equal to each subsidiary's pro rata share (based on assets sold by each subsidiary) of the Company's external sale and leaseback financing and have similar terms. The capital lease obligations related to these subleases are included in Intercompany Notes of $6,588, $4,770 and $16,194 for Poly-Tech, American Western and Rhino-X, respectively.
(8) On April 14, 1994, the Company entered into a five-year $35,000 accounts receivable securitization program. The line was increased to $45,000 on October 25, 1994. Under this program, the Company sold and will continue to sell substantially all of its accounts receivable to its newly-formed, wholly-owned subsidiary, CPFC. CPFC purchases the accounts receivable of the Company with proceeds from its borrowings under a commercial paper facility. The purchased accounts receivable are solely the assets of CPFC. In the event of liquidation of CPFC, creditors of CPFC would be entitled to satisfy their claims from CPFC's assets prior to any distribution to the Company.
SCHEDULE I
CARLISLE PLASTICS, INC. AND SUBSIDIARIES* CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------- * Information is presented for the parent company only.
SCHEDULE I -- (CONTINUED)
CARLISLE PLASTICS, INC. AND SUBSIDIARIES* CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS)
- ---------------
* Information is presented for the parent company only.
SCHEDULE II
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
APPENDIX A
INFORMATION REGARDING POLY-TECH, INC.
DIRECTORS AND EXECUTIVE OFFICERS
The following tables set forth certain information with respect to each person who is an executive officer or director of Poly-Tech, Inc. ("Poly-Tech").
Mr. Binnie has been Chairman of the Board of Directors of Poly-Tech since 1989.
Mr. Deupree has been President of Poly-Tech since September 1994.
Mr. O'Leary has been Vice President, Secretary and Chief Financial Officer of Poly-Tech since September 1994.
EXECUTIVE COMPENSATION
The compensation paid or accrued in 1994 on behalf of Messrs. Binnie, Deupree and O'Leary was paid or accrued for services rendered to Carlisle Plastics, Inc., Poly-Tech and their respective subsidiaries. Information regarding such compensation is included in Item 11 of the Annual Report on Form 10-K, which incorporates by reference the information set forth in the 1995 Proxy Statement under the caption "Executive Compensation."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 31, 1994 with regard to the beneficial ownership of the shares of common stock of Poly-Tech by each holder of 5% thereof, each director of Poly-Tech and by all directors and executive officers of Poly-Tech as a group.
CARLISLE PLASTICS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS