SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009

 

OR

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

Commission file number 1-9278

 

CARLISLE COMPANIES INCORPORATED

(Exact name of registrant as specified in its charter)

 

Delaware

 

31-1168055

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

 

 

13925 Ballantyne Corporate Place, Suite 400, Charlotte, North Carolina 28277

 

(704) 501-1100

(Address of principal executive office, including zip code)

 

(Telephone Number)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller Reporting Company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

 

Shares of common stock outstanding at August 1, 2009: 61,249,270

 

 

 



 

Part . Financial Information

Item 1.Financial Statements

 

Carlisle Companies Incorporated

Consolidated Statements of Earnings

For the Three and Six Months ended June 30, 2009 and 2008

(In millions, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2009

 

2008*

 

2009

 

2008*

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

618.5

 

$

863.0

 

$

1,129.6

 

$

1,515.4

 

 

 

 

 

 

 

 

 

 

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

477.8

 

688.9

 

899.9

 

1,217.6

 

Selling and administrative expenses

 

72.8

 

80.9

 

140.5

 

155.8

 

Research and development expenses

 

3.2

 

3.3

 

6.7

 

6.6

 

Gain related to fire settlement

 

(24.5

)

 

(27.0

)

 

Other operating expense

 

5.2

 

 

8.1

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

84.0

 

89.9

 

101.4

 

135.4

 

 

 

 

 

 

 

 

 

 

 

Other non-operating expense (income), net

 

1.5

 

0.3

 

0.8

 

(0.8

)

Interest expense, net

 

2.3

 

5.1

 

5.0

 

9.2

 

Income before income taxes

 

80.2

 

84.5

 

95.6

 

127.0

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

24.5

 

27.6

 

29.9

 

41.9

 

Income from continuing operations, net of tax

 

55.7

 

56.9

 

65.7

 

85.1

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

1.1

 

(0.6

)

(5.5

)

(127.8

)

Income tax expense (benefit)

 

1.3

 

2.0

 

(1.9

)

(34.4

)

Loss from discontinued operations, net of tax

 

(0.2

)

(2.6

)

(3.6

)

(93.4

)

Net income (loss)

 

$

55.5

 

$

54.3

 

$

62.1

 

$

(8.3

)

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share - basic

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of tax

 

$

0.91

 

$

0.93

 

$

1.07

 

$

1.39

 

Loss from discontinued operations, net of tax

 

 

(0.04

)

(0.06

)

(1.53

)

Earnings per share - basic

 

$

0.91

 

$

0.89

 

$

1.01

 

$

(0.14

)

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share - diluted

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of tax

 

$

0.90

 

$

0.93

 

$

1.06

 

$

1.39

 

Loss from discontinued operations, net of tax

 

 

(0.05

)

(0.05

)

(1.53

)

Earnings per share - diluted

 

$

0.90

 

$

0.88

 

$

1.01

 

$

(0.14

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (in thousands)

 

 

 

 

 

 

 

 

 

Basic

 

60,584

 

60,506

 

60,576

 

60,550

 

Effect of dilutive stock options

 

342

 

340

 

440

 

348

 

Diluted

 

60,926

 

60,846

 

61,016

 

60,898

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid per share

 

$

0.155

 

$

0.145

 

$

0.310

 

$

0.290

 

 


*                      For the three and six months ended June 30, 2008  certain revisions have been made regarding FSP 03-6-1.  See Notes 2 and 17 to Unaudited Consolidated Financial Statements.

 

See accompanying notes to Unaudited Consolidated Financial Statements

 

1



 

Carlisle Companies Incorporated

Consolidated Balance Sheets

June 30, 2009 and December 31, 2008

(In millions, except share and per share amounts)

 

 

 

June 30,

 

December 31,

 

 

 

2009

 

2008

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

63.6

 

$

42.7

 

Receivables, less allowance of $11.3 in 2009 and $10.7 in 2008

 

347.8

 

317.0

 

Inventories

 

315.8

 

424.2

 

Deferred income taxes

 

39.4

 

35.2

 

Prepaid expenses and other current assets

 

19.9

 

58.9

 

Current assets held for sale

 

56.6

 

90.1

 

Total current assets

 

843.1

 

968.1

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $494.7 in 2009 and $494.2 in 2008

 

444.4

 

470.7

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Goodwill, net

 

436.0

 

435.8

 

Other intangible assets, net

 

142.8

 

146.3

 

Investments and advances to affiliates

 

4.3

 

4.6

 

Other long-term assets

 

5.1

 

2.5

 

Non-current assets held for sale

 

45.9

 

47.9

 

Total other assets

 

634.1

 

637.1

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,921.6

 

$

2,075.9

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term debt, including current maturities

 

$

25.0

 

$

127.0

 

Accounts payable

 

143.5

 

123.6

 

Accrued expenses

 

137.6

 

148.3

 

Deferred revenue

 

14.8

 

14.7

 

Current liabilities associated with assets held for sale

 

17.6

 

28.9

 

Total current liabilities

 

338.5

 

442.5

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Long-term debt

 

156.7

 

273.3

 

Deferred revenue

 

108.7

 

106.2

 

Other long-term liabilities

 

168.6

 

159.8

 

Total long-term liabilities

 

434.0

 

539.3

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred stock, $1 par value per share. Authorized and unissued 5,000,000 shares

 

 

 

Common stock, $1 par value per share. Authorized 100,000,000 shares; 78,661,248 shares issued; 60,606,425 outstanding in 2009 and 60,532,539 outstanding in 2008

 

78.7

 

78.7

 

Additional paid-in capital

 

66.6

 

62.1

 

Cost of shares of treasury - 17,410,478 shares in 2009 and 17,654,759 shares in 2008

 

(222.9

)

(225.5

)

Accumulated other comprehensive loss

 

(34.9

)

(39.5

)

Retained earnings

 

1,261.6

 

1,218.3

 

Total shareholders’ equity

 

1,149.1

 

1,094.1

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,921.6

 

$

2,075.9

 

 

See accompanying notes to Unaudited Consolidated Financial Statements

 

2



 

Carlisle Companies Incorporated

Consolidated Statements of Cash Flows

For the Six Months ended June 30, 2009 and 2008

(In millions)

(Unaudited)

 

 

 

June 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

Net income (loss)

 

$

62.1

 

$

(8.3

)

Reconciliation of net income (loss) to cash flows from operating activities:

 

 

 

 

 

Depreciation

 

29.0

 

31.3

 

Amortization

 

5.3

 

4.1

 

Non-cash compensation

 

7.7

 

6.5

 

Earnings in equity investments

 

(0.2

)

(0.3

)

(Gain) loss on sale of property and equipment, net

 

(0.5

)

0.1

 

Loss on writedown of assets

 

10.5

 

124.3

 

Deferred taxes

 

3.6

 

(34.7

)

Tax benefits from stock-based compensation

 

0.3

 

(0.1

)

Changes in assets and liabilities, excluding effects of acquisitions and divestitures:

 

 

 

 

 

Current and long-term receivables

 

6.5

 

(119.4

)

Inventories

 

129.5

 

12.2

 

Accounts payable and accrued expenses

 

(13.7

)

44.1

 

Income taxes

 

24.8

 

6.6

 

Long-term liabilities

 

4.8

 

20.6

 

Other operating activities

 

(0.7

)

(0.8

)

Net cash provided by operating activities

 

269.0

 

86.2

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Capital expenditures

 

(20.1

)

(40.7

)

Acquisitions, net of cash

 

 

(294.8

)

Proceeds from sale of property and equipment

 

2.6

 

0.3

 

Other investing activities

 

0.5

 

0.3

 

Net cash used in investing activities

 

(17.0

)

(334.9

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Net change in short-term borrowings and revolving credit lines

 

(211.9

)

401.9

 

Reductions of long-term debt

 

 

(100.0

)

Dividends

 

(19.0

)

(17.7

)

Treasury share repurchases

 

 

(4.8

)

Treasury shares and stock options, net

 

(0.2

)

(1.4

)

Tax benefits from stock-based compensation

 

(0.3

)

0.1

 

Net cash (used in) provided by financing activities

 

(231.4

)

278.1

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

0.3

 

0.4

 

Change in cash and cash equivalents

 

20.9

 

29.8

 

Cash and cash equivalents

 

 

 

 

 

Beginning of period

 

42.7

 

88.4

 

End of period

 

$

63.6

 

$

118.2

 

 

See accompanying notes to Unaudited Consolidated Financial Statements

 

3



 

Notes to Unaudited Consolidated Financial Statements

Three and Six Months Ended June 30, 2009 and 2008

 

(1)   Basis of Presentation

 

The accompanying unaudited consolidated financial statements include the accounts of Carlisle Companies Incorporated and its wholly-owned subsidiaries (together, the “Company” or “Carlisle”).  Intercompany transactions and balances have been eliminated on consolidation. The unaudited consolidated financial statements have been prepared in accordance with Article 10-01 of Regulation S-X of the Securities and Exchange Commission and, as such, do not include all information required by generally accepted accounting principles for annual financial statements. However, in the opinion of the Company, these financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial statements for the interim periods presented herein.  Results of operations for the three and six months ended June 30, 2009, are not necessarily indicative of the operating results for the full year.

 

While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these financial statements be read in conjunction with the financial statements and notes included in the Company’s 2008 Form 10-K.

 

(2) Reclassifications and Restatements

 

Certain reclassifications have been made to the information for the three and six months ending June 30, 2008 to conform to the current year’s presentation.

 

Earnings per share for the three and six months ended June 30, 2008 have been revised retroactively, as required, to reflect the implementation of FASB Staff Position 03-6-1.  See Notes 3 and 17 for additional information.

 

(3) New Accounting Pronouncements

 

New accounting standards adopted

 

In January 2008, the Company adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”) for financial assets and liabilities.  SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  SFAS 157 applies only for fair value measurements that are already required or permitted by other accounting standards (except for measurements of share-based payments) and is intended to increase the consistency of those measurements.  Accordingly, SFAS 157 does not require any new fair value measurements.  Adoption of this standard had no material effect on the Company’s statement of earnings or financial position.  In February 2008, FASB Staff Position (FSP) No. FAS 157-2 was issued, which deferred the effective date of SFAS 157 by one year for certain types of nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008.  The Company has adopted the provisions of this standard as it relates to the fair value measurement of non-financial assets and liabilities effective January 1, 2009.  The adoption did not have a material impact on the Company’s consolidated financial statements.  See Note 6 for additional information.

 

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and SFAS No. 160, Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51. These new standards will significantly change the accounting for and

 

4



 

reporting of business combination transactions and noncontrolling (minority) interests in consolidated financial statements. SFAS Nos. 141(R) and 160 are required to be adopted simultaneously and are effective for the first annual reporting period beginning on or after December 15, 2008.  The Company has adopted the provisions of these statements prospectively, as required, beginning January 1, 2009.  There were no business combinations or acquisitions of noncontrolling interests in the first six months of 2009 and thus the adoption did not impact the Company’s consolidated financial statements.

 

In March 2008, the FASB issued SFAS No. 161 (“SFAS 161”), Disclosures about Derivative Instruments and Hedging Activities.  SFAS 161 applies to all derivative instruments and nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 37 and 42 of SFAS 133 and related hedged items accounted for under SFAS 133, Accounting for Derivative Instruments and Hedging Activities.  SFAS 161 requires entities to provide greater transparency through additional disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operations, and cash flows.  SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. At June 30, 2009, the Company had no active derivative instruments, thus the adoption of this standard had no effect on its consolidated financial statements.

 

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1 (“FSP EITF 03-6-1”), “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 clarifies that unvested share-based payment awards with a right to receive nonforfeitable dividends are participating securities for purposes of applying the two-class method of computing earnings per share.  The Company adopted the provisions of this FSP effective January 1, 2009.  The adoption did not have a material effect on the Company’s consolidated financial statements.  See Note 17 for more information regarding the Company’s adoption of this standard.

 

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). The Company adopted SFAS 165 which requires an entity to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet. For nonrecognized subsequent events that must be disclosed to keep the financial statements from being misleading, an entity will be required to disclose the nature of the event as well as an estimate of its financial effect, or a statement that such an estimate cannot be made. In addition, SFAS 165 requires an entity to disclose the date through which subsequent events have been evaluated. The Company has evaluated subsequent events through the date these financial statements were filed with the SEC.

 

In June 2009, the FASB  issued SFAS No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162” (“SFAS 168”). The FASB Accounting Standards Codification (“ASC”) will become the source of authoritative generally accepted accounting principles in the United States of America (“U.S. GAAP”).  The ASC changes the referencing of accounting standards and is effective for interim or annual financial periods ending after September 15, 2009.  The ASC is not intended to change or alter existing U.S. GAAP; however the way authoritative literature is referred to will change effective in the third quarter of 2009.

 

(4) Fire Gain

 

On November 16, 2008, a fire occurred at the tire and wheel plant in Bowdon, GA, and as a result the building and the majority of the machinery, equipment, records and other assets were destroyed.  In order to service customers, partial operations were initiated at a facility in Heflin, AL, and some production was transferred to other tire and wheel plants or outsourced to third parties.

 

5



 

In the fourth quarter of 2008, while the Company was negotiating its claim, a pretax loss was recorded representing the deductible of $0.1 million.  The net result of fire-related transactions in the first quarter of 2009 was a $2.5 million pretax gain which was recorded as an offset to Other operating expense. This gain included a $2.6 million pretax gain on the settlement of the inventory claim which was the difference between $8.9 million, representing the loss on inventory recorded in the fourth quarter of 2008 for which a receivable was recorded at December 31, 2008, and $11.5 million of cash proceeds received from the insurance carriers to settle the inventory claim in the first quarter of 2009.  Total payments of $13.5 million were received from the insurance carriers in the first quarter of 2009.

 

The net result of fire-related transactions in the second quarter of 2009 was a $24.5 million pretax gain on the settlement of all other claims and that amount was reported as Gain related to fire settlement.  This gain was the difference between the $41.0 million of cash proceeds received from the insurance carriers in settlement of all outstanding claims and the $11.2 million insurance claims receivable balance at March 31, 2009 included in Prepaid expenses and other current assets for a portion of the expected insurance reimbursements plus $5.3 million, representing fire-related cost in the second quarter of 2009.

 

During the second quarter of 2009 the $2.5 million pretax gain recorded in the first quarter of 2009 was reclassified from an offset to Other operating expense to Gain related to fire settlement.  The year-to-date pretax gain through June 30, 2009, was $27.0 million, including the above mentioned $2.5 million gain, and this year-to-date amount was recorded as Gain related to fire settlement.

 

From November 16, 2008 through June 30, 2009 cash proceeds of $54.5 million were received from the insurance carriers.  Losses and cost incurred from November 16, 2008 through June 30, 2009 of $27.6 million included $8.9 million of inventory; $5.7 million of building, machinery, equipment and other assets; and $13.0 million of fire-related cost.  The $26.9 million pretax gain from November 16, 2008 through June 30, 2009 was the difference between cash proceeds of $54.5 million and the losses of $27.6 million.  On a quarterly basis, a loss of $0.1 million was recorded in the fourth quarter of 2008, a gain of $2.5 million was recorded in the first quarter of 2009, and a gain of $24.5 million was recorded in the second quarter of 2009.

 

A minimal amount of fire-related cost is expected after June 30, 2009.  Since all insurance claims due to this fire were settled with the carriers, there was no insurance claims receivable at June 30, 2009 and no additional insurance proceeds are anticipated.

 

(5) Borrowings

 

During the second quarter of 2009, the Company terminated its existing $150.0 million accounts receivable securitization facility. The facility was terminated as a result of the Company’s strong operating cash flows and its available credit facilities and lines of credit that should provide adequate liquidity and capital resources to fund ongoing operations, expand existing lines of business and make strategic acquisitions.

 

(6) Fair Value Measurements

 

As described in Note 3, “New Accounting Pronouncements”, the Company adopted SFAS 157 effective January 1, 2008 and adopted the provisions applicable to FASB Staff Position (FSP) No. FAS 157-2 effective January 1, 2009.  SFAS 157 defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  SFAS 157 also describes three levels of inputs that may be used to measure fair value:

 

6



 

Level 1 — quoted prices in active markets for identical assets and liabilities.

 

Level 2 — observable inputs other than quoted prices in active markets for identical assets and liabilities.

 

Level 3 — unobservable inputs in which there is little or no market data available, which requires the reporting entity to develop its own assumptions.

 

The fair value of the Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

In Active

 

Significant

 

 

 

 

 

Markets for

 

Other

 

 

 

Balance at

 

Identical

 

Observable

 

 

 

June 30,

 

Assets

 

Inputs

 

(In millions)

 

2009

 

Level 1

 

Level 2

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

63.6

 

$

63.6

 

$

 

 

For the three month period ended June 30, 2009, the Company measured certain non-financial assets at fair value on a nonrecurring basis pursuant to the requirements of SFAS 144.   These measurements were based on management’s decision to consolidate certain manufacturing facilities in the tire and wheel and heavy-haul trailer businesses of the Transportation Products segment as well as certain aerospace facilities in the interconnect technologies business of the Applied Technologies segment. Refer to Note 19 for further information regarding exit and disposal activity.

 

Within the heavy-haul trailer business of the Transportation Products segment, Property, plant and equipment relating to the expected closure of the facility in Brookville, PA with a carrying amount of $5.6 million were written down to a fair value of $1.8 million, resulting in an impairment charge of $3.8 million, which was included in Other operating expense for the three months ended June 30, 2009.  A fair value measurement of $1.6 million for land, building and leasehold improvements, which resulted in an impairment charge of $3.3 million, was based on Level 2 inputs. A fair value measurement of $0.2 million for machinery and equipment, which resulted in a $0.5 million impairment charge, was based on Level 3 inputs reflecting management’s determination of the net realizable value of the assets.

 

Within the tire and wheel business of the Transportation Products segment, Property, plant and equipment relating to facilities in Pennsylvania, Alabama and China with a carrying amount of $2.8 million were written down to a fair value of zero, resulting in an impairment charge of $2.8 million, which was included in Other operating expense for the three months ended June 30, 2009.  This fair value measurement of the impaired assets was based on Level 3 inputs.  The Level 3 inputs reflected management’s determination that impaired leasehold improvement assets could not be transferred upon consolidation of operations into the new facility in Jackson, TN.  In addition, it was management’s determination that machinery and equipment subject to the impairment charge was estimated to have zero net realizable value based on current utility.

 

In the interconnect technologies business of the Applied Technologies segment, Property consisting of leasehold improvements with a carrying amount of $0.3 million was written down to a fair value of zero, resulting in an impairment charge of $0.3 million which was included in Other operating expense for the

 

7



 

three months ended June 30, 2009.  The fair value measurement was based upon Level 3 inputs which reflected management’s determination that the leasehold improvements in the Company’s Kent, WA facility would not have any transferrable value upon consolidation of operating activities into another Company facility in Tukwila, WA.

 

(7)         Employee and Non-Employee Stock Options & Incentive Plans

 

Stock Options

 

The Company uses the fair value method of accounting for employee stock-based compensation.  Effective 2008, stock option awards vest one-third on the first anniversary of grant, one-third on the second anniversary of grant and the remaining one-third on the third anniversary of grant. Prior to 2008, stock option awards generally vest ratably within a period of two years, with the first one-third vesting immediately upon grant. Compensation expense related to stock options of $2.5 million and $1.4 million was recognized for the three months ended June 30, 2009 and 2008, respectively, and $3.9 million and $2.8 million for the six months ended June 30, 2009 and 2008, respectively.  The 2009 compensation expense amounts include additional expense related to the modification of vesting and termination provisions of certain stock option awards. The following table summarizes the stock option activity for the six months ended June 30, 2009.

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Number of

 

Exercise

 

 

 

Shares

 

Price

 

 

 

 

 

 

 

Outstanding at January 1, 2009

 

2,814,003

 

$

33.91

 

Granted

 

1,602,795

 

$

19.60

 

Forfeited

 

(126,954

)

$

23.61

 

Exercised

 

(5,000

)

$

24.19

 

Outstanding at June 30, 2009

 

4,284,844

 

$

28.88

 

 

Restricted Stock and Restricted Stock Equivalent Units

 

Restricted shares  are generally released to the recipient after a period of three years; however, 100,000 shares awarded to executive management in the second quarter of 2007 and 56,700 shares awarded to executive management in the first quarter of 2008 vest ratably over five years.  Compensation expense related to restricted shares and restricted share unit awards of $2.0 million and $2.2 million was recognized for the three months ended June 30, 2009, and 2008, respectively, and $4.0 million and $3.7 million for the six months ended June 30, 2009, and 2008, respectively. The 2009 compensation expense amounts include additional expense related to the modification of vesting and termination provisions of certain restricted shares.

 

(8) Acquisitions

 

On April 28, 2008, the Company acquired 100% of the equity of Carlyle Incorporated (“Carlyle”), a leading provider of sophisticated aerospace and network interconnection solutions, for a purchase price of approximately $194 million.  Carlyle is located in Tukwila, WA and is under the management direction of the interconnect technologies business, which is included in the Applied Technologies segment.  The purchase price allocation resulted in goodwill of $122.3 million and identified intangible assets of $76.0

 

8



 

million.  Of the $76.0 million of identified intangible assets, $75.0 million was assigned to customer relationships with a determinable useful life of 20 years and $1.0 million was assigned to covenants not to compete with a determinable useful life of 5 years.  The goodwill from this acquisition is not deductible for tax purposes.

 

On January 25, 2008, the Company acquired 100% of the equity of both Dinex International, Inc. and Proex, Inc. (collectively “Dinex”), leading suppliers of foodservice products to the healthcare and other institutional industries, for approximately $96 million.  Dinex has facilities in Glastonbury, CT and Batavia, IL, and is under the management direction of the foodservice business, which is included in the Applied Technologies segment.   The purchase price allocation resulted in goodwill of $29.3 million and identified intangible assets of $49.8 million.  Of the $49.8 million of identified intangible assets, $8.0 million was assigned to trade names that are not subject to amortization, $37.0 million was assigned to customer relationships with a weighted average useful life of 16.4 years, $1.0 million was assigned to patents with a determinable useful life of 6 years, and the remaining $3.8 million was assigned to other intangible assets with a weighted average useful life of 6.5 years.  The goodwill from this acquisition is deductible for tax purposes.

 

(9) Discontinued Operations and Assets Held for Sale

 

In the second quarter of 2008, in keeping with the Company’s plan to simplify its business and focus attention on its remaining businesses and operating segments, the Company announced its decision to pursue disposition of both its power transmission belt business and its on-highway friction and brake shoe business. The Company intends to complete the sale of the power transmission business in 2009. During the first quarter of 2009, the Company made the decision to exit, rather than sell, the on-highway friction and brake shoe business and dispose of the assets as part of a planned dissolution. In the second quarter of 2007, as part of its commitment to concentrate on its core businesses, the Company announced plans to exit the custom thermoset products molding operation (“thermoset molding operation”). The disposition of the thermoset molding operation was completed in 2008.

 

The assets of these operations have met the criteria for, and have been classified as “held for sale” in accordance with SFAS 144, “Accounting for the Impairment and Disposal of Long-Lived Assets.”  In addition, results of operations for these businesses, and any gains or losses recognized from their sale, are reported as “discontinued operations” in accordance with SFAS 144.

 

Total assets held for sale were as follows:

 

 

 

June 30,

 

December 31,

 

In millions

 

2009

 

2008

 

Assets held for sale:

 

 

 

 

 

Power transmission belt business

 

$

94.1

 

$

101.9

 

On-highway friction and brake shoe business

 

6.7

 

34.4

 

Thermoset molding operation

 

1.7

 

1.7

 

Total assets held for sale

 

$

102.5

 

$

138.0

 

 

At June 30, 2009, and December 31, 2008, the remaining assets of the thermoset molding operation consisted of land and building formerly utilized by the operation.

 

The major classes of assets and liabilities held for sale included in the Company’s Consolidated Balance Sheets were as follows:

 

9



 

 

 

June 30,

 

December 31,

 

In millions

 

2009

 

2008

 

Assets held for sale:

 

 

 

 

 

Receivables

 

$

13.8

 

$

26.0

 

Inventories

 

40.8

 

62.5

 

Prepaid expenses and other current assets

 

2.0

 

1.6

 

Total current assets held for sale

 

56.6

 

90.1

 

 

 

 

 

 

 

Property, plant and equipment, net

 

45.6

 

46.9

 

Other long term assets

 

0.3

 

1.0

 

Total non-current assets held for sale

 

45.9

 

47.9

 

Total assets held for sale

 

$

102.5

 

$

138.0

 

 

 

 

 

 

 

Liabilities associated with assets held for sale:

 

 

 

 

 

Accounts payable

 

$

11.1

 

$

8.6

 

Accrued expenses

 

6.5

 

20.3

 

Total liabilities associated with assets held for sale

 

$

17.6

 

$

28.9

 

 

Net sales and income (loss) before income taxes from discontinued operations were as follows:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

In millions

 

2009

 

2008

 

2009

 

2008

 

Net sales:

 

 

 

 

 

 

 

 

 

Power transmission belt business

 

$

30.0

 

$

36.8

 

$

62.0

 

$

77.2

 

On-highway friction and brake shoe business

 

7.2

 

19.0

 

17.1

 

34.4

 

Thermoset molding operation

 

 

2.5

 

 

4.7

 

Net sales for discontinued operations

 

$

37.2

 

$

58.3

 

$

79.1

 

$

116.3

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations:

 

 

 

 

 

 

 

 

 

Power transmission belt business

 

$

3.3

 

$

2.7

 

$

5.7

 

$

(63.8

)

On-highway friction and brake shoe business

 

(2.1

)

(2.4

)

(11.8

)

(61.6

)

Thermoset molding operation

 

 

 

(0.1

)

(0.1

)

Automotive components

 

 

(0.8

)

(0.1

)

(2.1

)

Systems and equipment

 

(0.1

)

(0.1

)

0.8

 

(0.2

)

Income (loss) before income taxes from discontinued operations

 

$

1.1

 

$

(0.6

)

$

(5.5

)

$

(127.8

)

 

Results for the six months ended June 30, 2009 included $6.0 million of pretax expenses related to the planned disposition of the on-highway friction and brake shoe business, including an inventory write-down of $3.4 million, property, plant and equipment impairment costs of $0.8 million and severance costs of $1.8 million.  These expenses were recorded pursuant to the requirements of SFAS 144 and SFAS 146. Results for the six months ended June 30, 2008 reflected $124.2 million in pretax impairment charges in connection with the power transmission belt and on-highway friction and brake shoe businesses which were recognized under SFAS 142 and SFAS 144.

 

10



 

(10) Inventories

 

The Company is a diversified manufacturing entity comprised of multiple domestic and foreign companies that operate as distinct businesses manufacturing different products.   The First-in, First-out (“FIFO”) method was used to value inventories.

 

The components of inventories were as follows:

 

 

 

June 30,

 

December 31,

 

In millions

 

2009

 

2008

 

Finished goods

 

$

222.2

 

$

288.1

 

Work-in-process

 

32.0

 

34.9

 

Raw materials

 

123.1

 

152.9

 

Reserves and variances - net

 

(20.7

)

10.8

 

 

 

356.6

 

486.7

 

Inventories associated with assets held for sale

 

(40.8

)

(62.5

)

Inventories

 

$

315.8

 

$

424.2

 

 

(11) Goodwill and Other Intangible Assets

 

The changes in the carrying amount of goodwill for the six months ended June 30, 2009 were as follows:

 

 

 

Construction

 

Transportation

 

Applied

 

Specialty

 

 

 

In millions

 

Materials

 

Products

 

Technologies

 

Products

 

Total

 

Balance at January 1, 2009

 

$

88.3

 

$

99.6

 

$

221.8

 

$

26.1

 

$

435.8

 

Purchase accounting adjustments

 

 

 

(0.3

)

 

(0.3

)

Currency translation

 

0.1

 

0.2

 

 

0.2

 

0.5

 

Balance at June 30, 2009

 

$

88.4

 

$

99.8

 

$

221.5

 

$

26.3

 

$

436.0

 

 

The Company’s other intangible assets at June 30, 2009 were as follows:

 

 

 

Acquired

 

Accumulated

 

Net Book

 

In millions

 

Cost

 

Amortization

 

Value

 

Assets subject to amortization

 

 

 

 

 

 

 

Patents

 

$

9.1

 

$

(7.3

)

$

1.8

 

Customer Relationships

 

136.0

 

(18.7

)

117.3

 

Other

 

8.3

 

(2.9

)

5.4

 

Assets not subject to amortization

 

 

 

 

 

 

 

Trade names

 

18.3

 

 

18.3

 

Other intangible assets, net

 

$

171.7

 

$

(28.9

)

$

142.8

 

 

Estimated amortization expense for the remainder of 2009 and the next four years is as follows: $5.2 million remaining in 2009, $10.5 million in 2010, $10.2 million in 2011, $9.0 million in 2012 and $8.0 million in 2013.

 

11



 

(12) Retirement Plans and Other Post-retirement Benefits

 

Components of net periodic benefit cost were as follows:

 

 

 

Pension Benefits

 

Pension Benefits

 

Post-retirement Benefits

 

Post-retirement Benefits

 

 

 

Three Months Ended

 

Six Months Ended

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

In millions

 

2009

 

2008

 

2009

 

2008

 

2009

 

2008

 

2009

 

2008

 

Service costs - benefits earned during the quarter

 

$

1.1

 

$

1.1

 

$

2.3

 

$

2.3

 

$

 

$

 

$

 

$

 

Discretionary contribution

 

0.1

 

0.2

 

0.2

 

0.2

 

 

 

 

 

Interest cost on benefits earned in prior years

 

2.6

 

2.5

 

5.2

 

4.9

 

 

 

0.1

 

0.1

 

Expected return on plan assets

 

(3.0

)

(3.2

)

(6.1

)

(6.3

)

 

 

 

 

Amortization of unrecognized net actuarial loss

 

0.2

 

0.1

 

0.5

 

0.2

 

 

 

 

 

Net periodic benefit costs

 

$

1.0

 

$

0.7

 

$

2.1

 

$

1.3

 

$

 

$

 

$

0.1

 

$

0.1

 

 

Including the $0.9 million contribution to the Company’s pension plans during the quarter ended June 30, 2009, required contributions to the Company’s pension plans for the full year of 2009 are expected to be $8.6 million.  No contribution was made during the quarter ended March 31, 2009. The Company may elect to make additional contributions in 2009 based on cash flows.

 

The Company maintains defined contribution plans to which it has contributed $4.8 million during the six months ended June 30, 2009.  Full year contributions are expected to approximate $9.6 million.

 

(13) Other Long-Term Liabilities

 

The components of other long-term liabilities were as follows:

 

 

 

June 30,

 

December 31,

 

In millions

 

2009

 

2008

 

Deferred taxes and other tax liabilities under FIN 48

 

$

100.1

 

$

92.4

 

Pension and other post-retirement obligations

 

62.0

 

60.5

 

Long-term warranty obligations

 

2.8

 

2.1

 

Other

 

3.7

 

4.8

 

Other long-term liabilities

 

$

168.6

 

$

159.8

 

 

(14) Commitments and Contingencies

 

The Company offers various warranty programs on its installed roofing systems, braking products, truck trailers, and refrigerated truck bodies.  The change in the Company’s aggregate product warranty liabilities for the period ended June 30 was as follows:

 

In millions

 

2009

 

2008

 

Beginning reserve

 

$

7.2

 

$

7.4

 

Liabilities assumed in acquisition

 

 

0.7

 

Current year provision

 

5.9

 

6.4

 

Current year claims

 

(5.3

)

(7.0

)

Ending reserve

 

$

7.8

 

$

7.5

 

 

The amount of extended product warranty revenues recognized was $3.9 million and $7.7 million for the three and six months ended June 30, 2009, respectively, and $3.8 million and $7.4 million for the three and six months ended June 30, 2008, respectively.

 

12



 

(15) Segment Information

 

The Company manages its businesses under the following four operating groups and reporting segments:

 

· Construction Materials:  the “construction materials” business;

· Transportation Products:  the “tire and wheel” business and the “heavy-haul trailer” business;

· Applied Technologies:  the “interconnect technologies” business and the “foodservice products” business; and

· Specialty Products:  the “off-highway braking” business and the “refrigerated truck bodies” business.

 

Sales, operating income and assets of continuing operations by reportable segment are included in the following summary:

 

Three Months Ended June 30,

 

2009

 

2008

 

 

 

 

 

Operating

 

 

 

Operating

 

In millions

 

Sales(1)

 

Income

 

Sales(1)

 

Income

 

Construction Materials

 

$

314.4

 

$

51.1

 

$

441.6

 

$

54.0

 

Transportation Products

 

173.5

 

33.5

 

243.8

 

21.1

 

Applied Technologies

 

103.1

 

8.8

 

128.5

 

13.4

 

Specialty Products

 

27.5

 

0.7

 

49.1

 

8.7

 

Corporate

 

 

(10.1

)

 

(7.3

)

Total

 

$

618.5

 

$

84.0

 

$

863.0

 

$

89.9

 

 

Six Months Ended June 30,

 

2009

 

2008

 

 

 

 

 

Operating

 

 

 

 

 

Operating

 

 

 

In millions

 

Sales(1)

 

Income

 

Assets

 

Sales(1)

 

Income

 

Assets

 

Construction Materials

 

$

522.1

 

$

56.4

 

$

656.8

 

$

723.7

 

$

69.0

 

$

785.4

 

Transportation Products

 

341.6

 

40.9

 

438.2

 

485.8

 

45.0

 

552.1

 

Applied Technologies

 

205.7

 

17.2

 

538.7

 

219.5

 

23.3

 

570.6

 

Specialty Products

 

60.2

 

5.0

 

103.6

 

86.4

 

13.5

 

120.0

 

Corporate

 

 

(18.1

)

81.8

 

 

(15.4

)

156.2

 

Total

 

$

1,129.6

 

$

101.4

 

$

1,819.1

 

$

1,515.4

 

$

135.4

 

$

2,184.3

 

 


(1) Excludes intersegment sales

 

A reconciliation of assets reported above to total assets as presented on the Company’s Consolidated Balance Sheets is as follows:

 

 

 

2009

 

Assets per table above

 

$

1,819.1

 

Assets held for sale of discontinued operations

 

102.5

 

Total Assets per Consolidated Balance Sheet

 

$

1,921.6

 

 

13



 

(16) Income Taxes

 

The Company’s effective tax rate on continuing operations of 31.3% for the six months ended June 30, 2009 varies from the statutory rate within the United States of 35.0% due primarily to the deduction attributable to U.S. production activities, earnings in foreign jurisdictions taxed at rates different from the statutory U.S. federal rate and tax credits.

 

The total gross liability for uncertain tax positions under FASB Interpretation No. (“FIN”) 48 at June 30, 2009 was $16.6 million compared to $18.6 million at December 31, 2008.  The $2.0 million decrease in the accrual was primarily due to the resolution of audit issues.  The Company classifies and reports interest and penalties associated with uncertain tax positions as Income tax expense on the Consolidated Statements of Earnings, and as other tax liabilities on the Consolidated Balance Sheets.  The total amount of interest and penalties accrued at June 30, 2009 was $3.6 million.  The entire balance accrued for uncertain tax positions at June 30, 2009, if recognized, would affect the Company’s effective tax rate.

 

The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions.  The Company has concluded all U.S. federal income tax examinations through 2007. Substantially all material state and foreign tax matters have been concluded for tax years through 2003.  Within the next twelve months, federal, state and foreign audits may conclude and affect the amount of unrecognized tax benefits.  The amount of the change in unrecognized tax benefits that may result from audits within the next twelve months is not known.

 

(17) Earnings Per Share

 

Basic earnings per share amounts are calculated by dividing Income from continuing operations, Loss from discontinued operations, and Net income (loss) for the period attributable to common shareholders by the weighted-average number of common shares outstanding during the period.

 

Diluted earnings per share amounts are calculated by dividing Income from continuing operations, Loss from discontinued operations, and Net income (loss) for the period attributable to common shareholders by the weighted-average number of common shares outstanding plus the weighted-average number of common shares that would be issued on conversion of all of the potentially-dilutive common shares into common shares.

 

The following reflects the Income from continuing operations and share data used in the basic and diluted earnings per share computations:

 

14



 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(In millions, except share and per share amounts)

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

55.7

 

$

56.9

 

$

65.7

 

$

85.1

 

Less: dividends declared - common stock outstanding, unvested restricted shares and restricted share units

 

(9.5

)

(8.8

)

(19.0

)

(17.7

)

Undistributed earnings

 

46.2

 

48.1

 

46.7

 

67.4

 

Percent allocated to common shareholders (1)

 

98.9

%

99.1

%

98.9

%

99.1

%

 

 

45.7

 

47.6

 

46.2

 

66.8

 

Add: dividends declared - common stock

 

9.4

 

8.8

 

18.8

 

17.6

 

Numerator for basic and diluted EPS

 

$

55.1

 

$

56.4

 

$

65.0

 

$

84.4

 

 

 

 

 

 

 

 

 

 

 

Denominator (in thousands):

 

 

 

 

 

 

 

 

 

Denominator for basic EPS: weighted-average common shares outstanding

 

60,584

 

60,506

 

60,576

 

60,550

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Stock options

 

342

 

340

 

440

 

348

 

Denominator for diluted EPS: adjusted weighted average common shares outstanding and assumed conversion

 

60,926

 

60,846

 

61,016

 

60,898

 

 

 

 

 

 

 

 

 

 

 

Per share income from continuing operations:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.91

 

$

0.93

 

$

1.07

 

$

1.39

 

Diluted

 

$

0.90

 

$

0.93

 

$

1.06

 

$

1.39

 

 


(1)   Basic weighted-average common shares outstanding

 

60,584

 

60,506

 

60,576

 

60,550

 

Basic weighted-average common shares outstanding, unvested restricted shares expected to vest and restricted share units

 

61,264

 

61,029

 

61,256

 

61,073

 

Percent allocated to common shareholders

 

98.9

%

99.1

%

98.9

%

99.1

%

 

To calculate earnings per share for the Loss from discontinued operations and for Net income (loss), the denominator for both basic and diluted earnings per share is the same as used in the above table.  The Loss from discontinued operations and the Net income (loss) were as follows:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(In millions)

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations attributable to common shareholders for basic and diluted earnings per share

 

$

(0.2

)

$

(2.6

)

$

(3.6

)

$

(92.6

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common shareholders for basic and diluted earnings per share

 

$

54.9

 

$

53.8

 

$

61.4

 

$

(8.2

)

 

On January 1, 2009, as described in Note 3, New Accounting Pronouncements, the Company adopted FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.”  The Company’s unvested restricted shares contain nonforfeitable rights to dividends and, therefore, are participating securities that are included in the computation of earnings per share pursuant to the two-class method.  The above computation of earnings per share excludes the

 

15



 

income attributable to the unvested restricted shares and vested restricted stock units from the numerator and excludes the dilutive impact of those unvested restricted shares and the vested restricted share units from the denominator.

 

At June 30, 2009 and 2008, the Company had 4,284,844 and 2,843,658 of outstanding stock options, respectively.  Stock options are included in the diluted earnings per share computation using the two-class method.

 

At June 30, 2009 and 2008, under the Company’s restricted stock plan 644,345 and 508,270 unvested restricted shares were outstanding, respectively.  In addition at June 30, 2009 and 2008, under an equity plan for non-employee directors, 40,518 and 16,255 of vested restricted share units were outstanding.

 

(18) Comprehensive Income (Loss)

 

Total comprehensive income (loss) consisted of the following:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

In millions

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

55.5

 

$

54.3

 

$

62.1

 

$

(8.3

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Foreign currency translation, net of tax

 

6.2

 

 

4.5

 

(0.9

)

Minimum pension liability, net of tax

 

0.2

 

0.1

 

0.3

 

0.2

 

(Loss) gain on hedging activities, net of tax

 

(0.1

)

2.3

 

(0.2

)

(0.5

)

Other comprehensive income (loss)

 

6.3

 

2.4

 

4.6

 

(1.2

)

Comprehensive income (loss)

 

$

61.8

 

$

56.7

 

$

66.7

 

$

(9.5

)

 

(Loss) gain on hedging activities, net of tax for the three and six months ended June 30, 2009 represented the amortization of a $5.6 million ($3.5 million, net of tax) gain resulting from the termination of treasury lock contracts on August 15, 2006.  At June 30, 2009, the Company had a remaining unamortized gain of $4.0 million ($2.5 million, net of tax) which is reflected in Accumulated other comprehensive loss on the Company’s Consolidated Balance Sheets. Approximately $0.3 million ($0.2 million, net of tax) is expected to be amortized to reduce Interest expense, net during the remainder of 2009.

 

(19) Exit and Disposal Activities

 

The following table represents the effect of exit and disposal activities related to continuing operations on the Company’s Consolidated Statements of Earnings for the three and six months ended June 30, 2009.  There were no exit and disposal activities reported for the three and six months ended June 30, 2008.

 

16



 

 

 

Three Months
Ended

 

Six Months
Ended

 

In millions

 

June 30, 2009

 

June 30, 2009

 

Cost of goods sold

 

$

2.2

 

$

2.6

 

Selling and administrative expenses

 

0.2

 

0.7

 

Other operating expense

 

6.9

 

9.8

 

Total exit and disposal costs

 

$

9.3

 

$

13.1

 

 

Exit and disposal activities by type of charge were as follows:

 

 

 

Three Months
Ended

 

Six Months
Ended

 

In millions

 

June 30, 2009

 

June 30, 2009

 

Termination benefits

 

$

0.7

 

$

0.9

 

Contract termination costs

 

0.6

 

1.0

 

Fixed asset impairment

 

6.9

 

9.8

 

Other associated costs

 

1.1

 

1.4

 

Total exit and disposal costs

 

$

9.3

 

$

13.1

 

 

Exit and disposal accrual activities for the six month period ended June 30, 2009 were as follows:

 

In millions

 

Severance
Costs

 

Contract
Termination
Costs

 

Asset
Impairment

 

Other
Associated
Costs

 

Total

 

Balance at December 31, 2008

 

$

0.2

 

$

0.7

 

$

 

$

0.4

 

$

1.3

 

2009 charges to expense and adjustments

 

0.9

 

1.0

 

9.8

 

1.4

 

13.1

 

2009 usage

 

(0.4

)

(0.5

)

(9.8

)

(1.0

)

(11.7

)

Balance at June 30, 2009

 

$

0.7

 

$

1.2

 

$

 

$

0.8

 

$

2.7

 

 

Exit and disposal activities by segment were as follows:

 

 

 

Three Months
Ended

 

Six Months
Ended

 

In millions

 

June 30, 2009

 

June 30, 2009

 

Total by segment

 

 

 

 

 

Transportation Products

 

$

8.5

 

$

12.2

 

Applied Technologies

 

0.8

 

0.9

 

Total exit and disposal costs

 

$

9.3

 

$

13.1

 

 

Transportation Products — The Company has undertaken several consolidation projects within the Transportation Products segment in efforts to reduce costs and streamline its operations.  Descriptions of these projects are set forth below:

 

·                  In the fourth quarter of 2008, the Company began consolidating nineteen of its distribution centers located throughout the United States and Canada into ten existing facilities. These consolidations were completed in the second quarter of 2009.

 

17



 

·                  In the first quarter of 2009, the Company began the consolidation of three wheel manufacturing plants located in California into one facility in Ontario, CA.  In the second quarter of 2009, the Company also began the closure of its wheel manufacturing operation in Mexico.

 

·                  In the first quarter of 2009, the Company announced plans to consolidate its pneumatic tire manufacturing operations in Buji, China into its manufacturing operation in Meizhou, China.  Also, subsequent to June 30, 2009, the Company announced plans to consolidate its tire manufacturing operations in Heflin, AL, Carlisle, PA, and portions of Buji, China into a new facility in Jackson, TN, the purchase of which is expected to be complete in the third quarter of 2009.

 

·                  At its heavy-haul trailer business, in the second quarter of 2009, the Company announced plans to consolidate its Brookville, PA facility into the operations located in Mitchell, SD and West Fargo, ND.

 

The Company expects the total cost of these consolidation projects will be approximately $36.0 million, of which $13.0 million has been incurred through June 30, 2009, $8.8 million is expected to be incurred in the second half of 2009, and $14.2 million is expected to be incurred in 2010.  Amounts expected to be incurred through the remainder of 2009 and 2010 relate primarily to employee termination and other costs associated with the relocation of employees and equipment.

 

Of the $8.5 million of expenses that were recorded in the second quarter of 2009, $6.6 million related to asset impairment charges, $0.7 million related to employee termination costs, and $1.2 million related to contract termination and other costs primarily associated with the relocation of equipment.  Refer to Note 6 for further information on the asset impairment. In the first half of 2009, the Company recorded $12.2 million of expenses, including $9.5 million in asset impairment charges, $0.9 million in employee termination costs, and $1.8 million of other costs consisting primarily of contract termination and relocation expenses.

 

Included in Accrued expenses at June 30, 2009 was $2.1 million related to unpaid severance, contract termination, moving and relocation and other costs.

 

Applied Technologies — The Company has undertaken two consolidation projects within the Applied Technologies segment in efforts to reduce costs and streamline operations.  Descriptions of these projects are set forth below:

 

·                  In 2008, the Company began the consolidation of its Georgia and Wisconsin janitorial/sanitation manufacturing facilities into one facility in Sparta, WI, which operates within its foodservice products business.  This consolidation was completed in the second quarter of 2009 with no material exit and disposal cost incurred during the second quarter.

 

·                  In the second quarter of 2009, the Company announced plans to consolidate its Kent, WA facility operating within the interconnect technologies business into its Tukwila, WA facility.  Total costs incurred in the three and six months ended June 30, 2009 related to this closure were $0.8 million and reflected $0.5 million in contract termination costs and $0.3 million of asset impairment charges.  No additional material costs related to these consolidations are expected.  Included in Accrued expenses at June 30, 2009 was $0.6 million relating to unpaid contract termination costs connected with the Kent, WA facility.

 

18



 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Executive Overview

 

Carlisle Companies Incorporated (“Carlisle”, the “Company”, “we” or “our”) is a diversified manufacturing company focused on achieving profitable growth internally through new product development and product line extensions, and externally through acquisitions that complement the Company’s existing technologies, products and market channels.  Carlisle manages its businesses under the following four operating groups and reporting segments:

 

·                  Construction Materials:  the “construction materials” business;

·                  Transportation Products:  the “tire and wheel” business and the “heavy-haul trailer” business;

·                  Applied Technologies:  the “interconnect technologies” business and the “foodservice products” business; and

·                  Specialty Products:  the “off-highway braking” business and the “refrigerated truck bodies” business.

 

The Company also reports and manages two businesses currently classified as “Discontinued Operations”: the “on-highway friction and brake shoe” business and the “power transmission belt” business.

 

While Carlisle has offshore manufacturing operations, the markets served by the Company are primarily in North America.  Management focuses on maintaining a strong and flexible balance sheet, continued year-over-year improvement in sales, operating income and margins, globalization, and improving cash flow from operations.  Resources are allocated among the operating groups based on management’s assessment of their ability to obtain leadership positions and competitive advantages in the markets they serve.

 

For a more in-depth discussion of the results discussed in this “Executive Overview,” please refer to the discussion on “Financial Reporting Segments” presented later in “Management’s Discussion and Analysis.”

 

Net sales of $618.5 million for the three months ended June 30, 2009 represented a 28% decline from net sales of $863.0 million during the three months ended June 30, 2008.  Sales were down across all segments, with organic sales (defined as net sales excluding the impact of acquisitions and divestitures within the last twelve months as well as the impact of changes in foreign exchange rates) decreasing by 28% from the second quarter of the prior year, primarily as a result of lower sales volumes.  The acquisition of the Carlyle interconnect solutions business (“Carlyle”) in April 2008 reported in the Applied Technologies segment contributed $7.3 million in net sales to second quarter 2009 results.  The impact of foreign currency exchange rates on net sales was a reduction of approximately 1% in the second quarter of 2009.

 

Net sales of $1.13 billion for the six months ended June 30, 2009, decreased 25% from net sales of $1.52 billion in the six months ended June 30, 2008.  Sales decreased across all segments with organic sales being down 27% from the prior year.  The acquisitions of Carlyle in April 2008 and the Dinex foodservice business (“Dinex”) in January 2008 contributed an additional $37.0 million of sales in the first six months of the current year as compared to the same period of 2008.   Approximately 1% of the sales decline was attributed to changes in foreign currency exchange rates.

 

Operating income in the second quarter of 2009 was $84.0 million, a 6.6% decline as compared to operating income of $89.9 million for the second quarter of 2008.  The reduction of operating income was primarily the result of significantly lower sales volumes year-over-year, as well as $11.0 million in plant restructurings and senior management severance expenses.  Partially offsetting these items were a $24.5 million gain from a fire

 

19



 

insurance recovery, increased selling prices, favorable raw material pricing, and improvement in operating costs attributed to efficiencies gained through the Carlisle Operating System, the Company’s manufacturing structure and strategy deployment system.  Operating income contributed from acquisitions in the second quarter of 2009 was approximately $1.0 million.

 

Operating income for the six months ended June 30, 2009 of $101.4 million declined 25% compared to operating income of $135.4 million for the six months ended June 30, 2008.  The decrease was primarily attributable to significantly lower sales volumes in all segments, and to a lesser extent, higher raw material costs associated with high value raw material inventory within the Transportation Products segment as well as plant restructuring and senior management severance expenses of $14.8 million.  Favorably impacting 2009 results were a $27.0 million gain from a fire insurance recovery, increased selling prices, and lower operating costs attributed to efficiencies gained through the Carlisle Operating System.  Acquisitions contributed $4.9 million to current year results.

 

The Company’s effective tax rate for continuing operations of 30.5% for the second quarter 2009 compares with an effective tax rate of 32.7% for the second quarter 2008.  The Company’s effective tax rate for the first six months of 2009 was 31.3% as compared to 33.0% for the same period of 2008.  The Company’s effective tax rate varies from the statutory rate within the United States of 35% due to the deduction attributable to U.S. production activities, earnings in foreign jurisdictions taxed at rates different from the statutory U.S. federal rate, and tax credits.

 

Income from continuing operations, net of tax was $55.7 million, or $0.90 per diluted share, for the three months ended June 30, 2009 and represented a 2.1% decline compared to income from continuing operations, net of tax of $56.9 million, or $0.93 per diluted share for the same period in 2008.  Income from continuing operations, net of tax was $65.7 million, or $1.06 per diluted share, for the six months ended June 30, 2009, compared to income from continuing operations, net of tax of $85.1 million, or $1.39 per diluted share for the same period in 2008.

 

Sales and Earnings

 

Consolidated Results of Continuing Operations

 

Net sales of $618.5 million for the three months ended June 30, 2009 represented a 28% decline from net sales of $863.0 million during the three months ended June 30, 2008.  Organic sales decreased by 28% from the second quarter of the prior year on significantly weaker demand across all segments.  The acquisition of Carlyle in April 2008 reported in the Applied Technologies segment contributed $7.3 million in net sales to second quarter 2009 results.  The impact of foreign currency exchange rates on net sales was a reduction of approximately 1% in the second quarter of 2009.

 

Net sales of $1.13 billion for the six months ended June 30, 2009, decreased 25% from net sales of $1.52 billion in the six months ended June 30, 2008.  Weak demand contributed to a 27% reduction in organic sales from the prior year.  The acquisitions of Carlyle and Dinex contributed an additional $37.0 million of sales in the first six months of the current year as compared to the same period of 2008.   Approximately 1% of the sales decline was attributed to changes in foreign currency exchange rates.

 

Cost of goods sold of $477.8 million for the quarter ended June 30, 2009 decreased $211.1 million, or 31% from $688.9 million in the second quarter of 2008, on a decline in net sales of 28%.  The decline was attributable to lower sales volumes and lower raw material cost, partially offset by higher unabsorbed overhead cost as a result of decreased production.

 

Cost of goods sold of $899.9 million for the six months ended June 30, 2009, decreased $317.7 million, or 26% lower than $1.22 billion of cost of goods sold during the prior year period, on decreased sales of 25%. 

 

20



 

The decline was attributable to lower sales volumes, partially offset by higher unabsorbed overhead costs resulting from decreased production and higher raw material costs reflecting high valued inventory sold in the Transportation Products segment in the first quarter of this year.

 

Gross margin (net sales less cost of goods sold expressed as a percent of net sales) increased from 20.2% in the second quarter of 2008 to 22.7% in the second quarter of 2009.  The gross margin improvement was driven by selling price increases in all segments and an overall reduction in year-over-year raw material costs.  Gross margin grew from 19.7% in the six months ended 2008 to 20.3% in the six months ended 2009 primarily reflecting increased selling prices which were implemented in the second half of the prior year in response to significantly higher raw material costs.

 

Selling and administrative expenses of $72.8 million for the quarter ended June 30, 2009 were $8.1 million, or 10.0%, lower than $80.9 million for the quarter ended June 30, 2008.  Expenses were down across all segments.  The reductions were primarily in commissions, advertising, and other compensation expenses reflecting lower sales and headcount reductions.  As a percent of net sales, selling and administrative expenses were 11.8% and 9.4% for the three months ended June 30, 2009 and 2008, respectively.  Selling and administrative expenses in the second quarter of 2009 included $1.7 million of senior management severance expenses.

 

Selling and administrative expenses of $140.5 million for the six months ended June 30, 2009, were $15.3 million, or 9.8%, lower than the $155.8 million in the six months ended June 30, 2008 and primarily reflected reductions in commissions, advertising, and other compensation expenses resulting from lower sales and headcount reductions.  Results in the current year included $1.7 million of expenses related to senior management severance.  Results for the six month period ending June 30, 2008 included $2.1 million in additional bad debt reserves related to a Florida construction materials distributor that filed for bankruptcy.  As a percent of net sales, selling and administrative expenses were 12.4% and 10.3% for the six months ended June 30, 2009 and 2008, respectively.

 

Operating income in the second quarter of 2009 was $84.0 million, a 6.6% decline as compared to operating income of $89.9 million for the second quarter of 2008.  Operating income in 2009 included a $24.5 million gain from a fire insurance recovery, partially offset by restructuring and senior management severance expenses of $11.0 million.

 

Operating income for the six months ended June 30, 2009 of $101.4 million compared to operating income of $135.4 million for the six months ended June 30, 2008.  2009 operating income included a $27.0 million gain from a fire insurance recovery, partially offset by plant restructuring and senior management severance expenses of $14.8 million.

 

Interest expense, net was $2.3 million for the quarter ended June 30, 2009, compared to interest expense, net of $5.1 million for the quarter ended June 30, 2008.  Interest expense, net for the six months ended June 30, 2009, was $5.0 million compared to $9.2 million in the prior year period.  The decrease in interest expense for the three and six month periods was due to the reduction in outstanding debt and more favorable short-term interest rates in 2009.

 

Income from continuing operations, net of tax was $55.7 million, or $0.90 per diluted share, for the three months ended June 30, 2009, down 2.1% compared to income from continuing operations, net of tax of $56.9 million, or $0.93 per diluted share for the same period in 2008.  Results for the current year quarter included an after-tax gain of $15.2 million, or $0.25 per diluted share, related to insurance recoveries, partially offset by after-tax expense of $8.3 million, or $0.14 per diluted share, related to plant restructuring and senior management severance.

 

21



 

Income from continuing operations, net of tax was $65.7 million, or $1.06 per diluted share, for the six months ended June 30, 2009, compared to income from continuing operations, net of tax of $85.1 million, or $1.39 per diluted share for the same period in 2008.  Current year results included an after-tax gain of $16.8 million, or $0.27 per diluted share, related to insurance recoveries, partially offset by after-tax expense of $11.9 million, or $0.19 per diluted share, related to plant restructuring and senior management severance.

 

Loss from discontinued operations, net of tax, for the three months ended June 30, 2009 was $0.2 million which compared to a loss from discontinued operations, net of tax, of $2.6 million for the same period in 2008.  In April 2008, Carlisle announced plans to dispose of Power Transmission and Motion Control.  In April 2009, Carlisle announced that it will exit the on-highway friction and brake shoe business of Motion Control and dispose of the assets associated with this business in a planned dissolution. The Power Transmission business remains in discontinued operations and continues to operate profitably and is generating positive cash flows.

 

Loss from discontinued operations, net of tax, for the six months ended June 30, 2009, was $3.6 million, or $0.05 per diluted share, which compared to a loss from discontinued operations, net of tax, of $93.4 million, or $1.53 per diluted share for the same period in 2008.  The loss from discontinued operations for the first six months of 2009 includes after-tax severance, asset write-down and impairment charges of $3.7 million related to the exit of the Motion Control business.  The 2008 loss includes an after-tax impairment charge on the assets of the Power Transmission and Motion Control businesses of $89.5 million.

 

Net income of $55.5 million, or $0.90 per diluted share, for the quarter ended June 30, 2009 compared to net income of $54.3 million, or $0.88 per diluted share, for the quarter ended June 30, 2008.  Net income of $62.1 million, or $1.01 per diluted share, for the six months ended June 30, 2009 compared to a net loss of $8.3 million, or $0.14 per diluted share, for the six months ended June 30, 2008. Results for the first half of 2008 included an $89.5 million, or $1.47 per diluted share, after-tax impairment charge of assets related to discontinued operations.

 

Acquisitions

 

On April 28, 2008, the Company acquired 100% of the equity of Carlyle, a leading provider of sophisticated aerospace and network interconnection solutions, for a purchase price of approximately $194 million.  Carlyle is located in Tukwila, WA, and is under the management direction of the interconnect technologies business that is included in the Applied Technologies segment.

 

On January 25, 2008, the Company acquired 100% of the equity of both Dinex International, Inc. and Proex, Inc., leading suppliers of foodservice products to the healthcare and other institutional industries, for approximately $96 million.  Dinex has facilities in Glastonbury, CT, and Batavia, IL, and is under the management direction of the foodservice business that is included in the Applied Technologies segment.

 

22



 

Financial Reporting Segments

 

The following table summarizes segment net sales and operating income.   The amounts for each segment should be referred to in conjunction with the applicable discussion below.

 

 

 

Three Months Ended

 

Increase

 

Six Months Ended

 

Increase

 

In millions,

 

June 30,

 

(Decrease)

 

June 30,

 

(Decrease)

 

except percentages

 

2009

 

2008

 

Amount

 

Percent

 

2009

 

2008

 

Amount

 

Percent

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction Materials

 

$

314.4

 

$

441.6

 

$

(127.2

)

-29

%

$

522.1

 

$

723.7

 

$

(201.6

)

-28

%

Transportation Products

 

173.5

 

243.8

 

(70.3

)

-29

%

341.6

 

485.8

 

(144.2

)

-30

%

Applied Technologies

 

103.1

 

128.5

 

(25.4

)

-20

%

205.7

 

219.5

 

(13.8

)

-6

%

Specialty Products

 

27.5

 

49.1

 

(21.6

)

-44

%

60.2

 

86.4

 

(26.2

)

-30