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, 2011

 

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

(Address of principal executive office, including zip code)

 

(704) 501-1100

(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 x  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 July 20, 2011: 61,607,328

 

 

 



 

Item 1. Financial Statements

 

Carlisle Companies Incorporated

Unaudited Condensed Consolidated Statements of Earnings

 

 

 

Second Quarter

 

First Six Months

 

(Dollars in millions, except per share amounts)

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

870.8

 

$

687.6

 

$

1,564.4

 

$

1,234.9

 

 

 

 

 

 

 

 

 

 

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

687.1

 

544.0

 

1,233.6

 

979.3

 

Selling and administrative expenses

 

92.2

 

73.8

 

177.9

 

143.2

 

Research and development expenses

 

7.3

 

6.4

 

14.3

 

10.8

 

Other income, net

 

(1.2

)

(0.6

)

(2.0

)

(1.2

)

 

 

 

 

 

 

 

 

 

 

Earnings before interest and income taxes

 

85.4

 

64.0

 

140.6

 

102.8

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

4.9

 

1.8

 

10.0

 

3.7

 

Income before income taxes

 

80.5

 

62.2

 

130.6

 

99.1

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

25.2

 

23.4

 

42.0

 

37.2

 

Income from continuing operations, net of tax

 

55.3

 

38.8

 

88.6

 

61.9

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

(1.3

)

(0.4

)

(1.2

)

1.3

 

Income tax expense (benefit)

 

(0.6

)

(0.2

)

(0.6

)

0.4

 

Income (loss) from discontinued operations, net of tax

 

(0.7

)

(0.2

)

(0.6

)

0.9

 

Net income

 

$

54.6

 

$

38.6

 

$

88.0

 

$

62.8

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to common shares (1)

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of tax

 

$

0.89

 

$

0.63

 

$

1.43

 

$

1.01

 

Income (loss) from discontinued operations, net of tax

 

(0.01

)

 

(0.01

)

0.02

 

Basic earnings per share

 

$

0.88

 

$

0.63

 

$

1.42

 

$

1.03

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to common shares (1)

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of tax

 

$

0.87

 

$

0.62

 

$

1.40

 

$

0.99

 

Income (loss) from discontinued operations, net of tax

 

(0.01

)

 

(0.01

)

0.02

 

Diluted earnings per share

 

$

0.86

 

$

0.62

 

$

1.39

 

$

1.01

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding - in thousands

 

 

 

 

 

 

 

 

 

Basic

 

61,449

 

60,832

 

61,293

 

60,811

 

Diluted

 

62,701

 

61,686

 

62,425

 

61,678

 

 


(1) Numerator for basic and diluted EPS based on “two class” method of computing earnings per share

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

54.8

 

$

38.4

 

$

87.7

 

$

61.2

 

Net income

 

$

54.1

 

$

38.2

 

$

87.2

 

$

62.1

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid

 

$

10.6

 

$

9.9

 

$

21.1

 

$

19.7

 

Dividends declared and paid per share

 

$

0.17

 

$

0.16

 

$

0.34

 

$

0.32

 

 

See accompanying notes to these Unaudited Condensed Consolidated Financial Statements

 

1



 

Carlisle Companies Incorporated

Consolidated Balance Sheets

 

 

 

June 30,

 

December 31,

 

(Dollars in millions, except share and per share amounts)

 

2011

 

2010

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

99.1

 

$

89.4

 

Receivables, less allowance of $10.0 in 2011 and $9.7 in 2010

 

571.4

 

391.0

 

Inventories

 

444.3

 

430.5

 

Deferred income taxes

 

46.4

 

45.7

 

Prepaid expenses and other current assets

 

46.7

 

60.3

 

Total current assets

 

1,207.9

 

1,016.9

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $564.5 in 2011 and $539.6 in 2010

 

527.4

 

533.4

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Goodwill, net

 

664.0

 

667.1

 

Other intangible assets, net

 

291.5

 

297.9

 

Other long-term assets

 

10.0

 

12.6

 

Non-current assets held for sale

 

2.1

 

1.6

 

Total other assets

 

967.6

 

979.2

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

2,702.9

 

$

2,529.5

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term debt, including current maturities

 

$

100.8

 

$

69.0

 

Accounts payable

 

273.2

 

195.4

 

Accrued expenses

 

148.0

 

174.9

 

Deferred revenue

 

16.9

 

17.1

 

Total current liabilities

 

538.9

 

456.4

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Long-term debt

 

405.1

 

405.1

 

Deferred revenue

 

122.2

 

122.6

 

Other long-term liabilities

 

203.4

 

204.7

 

Total long-term liabilities

 

730.7

 

732.4

 

 

 

 

 

 

 

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; 61,578,799 outstanding in 2011 and 61,024,932 outstanding in 2010

 

78.7

 

78.7

 

Additional paid-in capital

 

110.2

 

92.4

 

Cost of shares of treasury - 16,516,837 shares in 2011 and 17,011,676 shares in 2010

 

(219.9

)

(221.6

)

Accumulated other comprehensive loss

 

(31.9

)

(38.1

)

Retained earnings

 

1,496.2

 

1,429.3

 

Total shareholders’ equity

 

1,433.3

 

1,340.7

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

2,702.9

 

$

2,529.5

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

 

2



 

Carlisle Companies Incorporated

Unaudited Consolidated Statements of Cash Flows

For the Six Months ended June 30, 2011 and 2010

(Unaudited)

 

 

 

June 30,

 

(Dollars in millions)

 

2011

 

2010

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

Net income

 

$

88.0

 

$

62.8

 

Reconciliation of net income to cash flows from operating activities:

 

 

 

 

 

Depreciation

 

36.5

 

30.2

 

Amortization

 

9.1

 

6.1

 

Non-cash compensation

 

7.3

 

7.2

 

Loss (gain) on sale of property and equipment, net

 

0.8

 

(3.6

)

Deferred taxes

 

(0.4

)

(7.1

)

Change in tax benefits from stock-based compensation

 

(3.0

)

(1.5

)

Foreign exchange gain

 

 

(1.2

)

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

 

 

 

 

 

Current and long-term receivables

 

(179.7

)

(123.5

)

Inventories

 

(11.7

)

(24.0

)

Accounts payable and accrued expenses

 

48.8

 

70.7

 

Income taxes

 

15.2

 

4.9

 

Long-term liabilities

 

2.7

 

(0.1

)

Other operating activities

 

0.1

 

(0.4

)

Net cash provided by operating activities

 

13.7

 

20.5

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Capital expenditures

 

(33.8

)

(31.6

)

Acquisitions, net of cash

 

(2.7

)

 

Proceeds from sale of property and equipment

 

1.3

 

5.2

 

Proceeds from sale of investments

 

5.3

 

 

Proceeds from sale of business

 

 

20.3

 

Other investing activities

 

0.1

 

(0.2

)

Net cash used in investing activities

 

(29.8

)

(6.3

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Net change in short-term borrowings and revolving credit lines

 

90.9

 

(0.1

)

Redemption of bonds

 

(59.0

)

 

Dividends

 

(21.1

)

(19.7

)

Treasury shares and stock options, net

 

9.2

 

5.0

 

Change in tax benefits from stock-based compensation

 

3.0

 

1.5

 

Net cash provided by (used in) financing activities

 

23.0

 

(13.3

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

2.8

 

(0.6

)

Change in cash and cash equivalents

 

9.7

 

0.3

 

Cash and cash equivalents

 

 

 

 

 

Beginning of period

 

89.4

 

96.3

 

End of period

 

$

99.1

 

$

96.6

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

 

3



 

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Note 1 - Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared by Carlisle Companies Incorporated (the “Company” or “Carlisle”) in accordance and consistent with the accounting policies stated in the Company’s Annual Report on Form 10-K and should be read in conjunction with the consolidated financial statements.  The unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States and, of necessity, include some amounts that are based upon management estimates and judgments, including adjustments of a normal recurring nature necessary to fairly present the financial statements for the interim periods presented herein. Results of operations for the second quarter and first six months of 2011 are not necessarily indicative of the operating results for the full year. The unaudited condensed consolidated financial statements include assets, liabilities, revenues, and expenses of all majority-owned subsidiaries.  Intercompany transactions and balances are eliminated in consolidation.

 

Note 2 — Reclassifications and Revisions

 

Certain reclassifications and revisions have been made to the previously filed information regarding the second quarter of 2010 included in the Company’s Current Report on Form 8-K filed on December 3, 2010 as follows:

 

·                  The segment disclosures pertaining to the second quarter of 2010 in Note 14 have been revised to reflect the creation, in the fourth quarter of 2010, of the Carlisle Brake & Friction (“CBF”) reportable segment as discussed in the Company’s 2010 Annual Report on Form 10-K.

 

Note 3 - New Accounting Pronouncements

 

New accounting standards adopted

 

There were no accounting standards adopted in the second quarter of 2011.

 

New accounting standards issued but not yet adopted

 

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05, Presentation of Comprehensive Income.  ASU 2011-05 revises the manner in which entities present comprehensive income in their financial statements.  The new guidance removes the presentation options in Accounting Standards Codification (ASC) 220, Comprehensive Income, and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements.  The ASU does not change the items that must be reported in other comprehensive income. ASU 2011-05 will be effective for fiscal years and interim reporting periods within those years beginning after December 15, 2011.  The adoption will not have a material effect on the Company’s consolidated financial statements. There are currently no other accounting standards that have been issued that will have a significant impact on the Company’s financial position, results of operations and cash flows upon adoption.

 

Note 4 — Borrowings

 

5.125% Notes Due 2020

 

On December 9, 2010, the Company completed a public offering of $250.0 million of notes with a stated interest rate of 5.125% due December 15, 2020 (the “2020 Notes”), resulting in proceeds to the Company of approximately $248.9 million.  The proceeds were utilized to re-pay borrowings under the Company’s Revolving Credit Facility that were used to partially finance the acquisition of Hawk.

 

8.75% Hawk Senior Notes Due 2014

 

In connection with the acquisition of Hawk on December 1, 2010, the Company assumed Hawk’s 8.75% senior notes previously due November 1, 2014 (the “Hawk senior notes”).  The Hawk senior notes were recorded at estimated fair value of $59.0 million on the date of acquisition.

 

4



 

On January 10, 2011, the Company redeemed all of the outstanding Hawk senior notes for approximately $59.1 million, of which $57.1 million related to the outstanding principal amount, $1.9 million related to a contractual redemption premium, and $0.1 million for accrued and unpaid interest.  There was no extinguishment gain or loss recorded as the carrying value and amount paid to redeem the Hawk senior notes were the same.  The Company redeemed the Hawk senior notes using borrowings under its revolving credit facility.  See Note 7 for further information regarding the Hawk acquisition.

 

Other Matters

 

At June 30, 2011, the fair value of the Company’s par value $250 million, 5.125% senior notes due 2020 and par value $150 million, 6.125% senior notes due 2016, using the Level 2 inputs, is approximately $253.6 million and $158.9 million, respectively. Fair value is estimated based on current yield rates plus the Company’s estimated credit spread available for financings with similar terms and maturities.  The Company estimates that the fair value of amounts outstanding under the revolving credit facility approximates its carrying value.

 

Note 5 - Fair Value Measurements

 

Recurring Fair Value Measurements

 

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

 

 

 

Balance at
June 30,

 

Quoted
Prices in
Active
Markets for
Identical
Assets

 

Significant
Other
Observable
Inputs

 

Significant
Unobservable
Inputs

 

In millions

 

2011

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

99.1

 

$

99.1

 

$

 

$

 

Short-term investments

 

0.5

 

0.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

99.6

 

$

99.6

 

$

 

$

 

 

Note 6 — Stock-Based Compensation

 

During the three and six month periods ended June 30, 2011 and 2010, the Company expensed stock-based compensation awards under the 2008 Executive Incentive Program and the 2005 Nonemployee Director Equity Plan. A detailed description of the awards under these plans is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

Stock-Based Compensation Expense

 

The compensation cost recorded for all of the Company’s share-based compensation plans during the second quarter and first six months of 2011 and 2010 was as follows:

 

 

 

Second Quarter

 

First Six Months

 

(in millions, except per share amounts)

 

2011

 

2010

 

2011

 

2010

 

Pre-tax compensation expense

 

$

3.5

 

$

3.6

 

$

7.3

 

$

7.2

 

 

 

 

 

 

 

 

 

 

 

After-tax compensation expense

 

$

2.2

 

$

2.3

 

$

4.7

 

$

4.7

 

 

 

 

 

 

 

 

 

 

 

Impact on diluted EPS

 

$

0.04

 

$

0.04

 

$

0.08

 

$

0.08

 

 

5



 

Grants

 

In the first quarter of 2011, the Company awarded 631,855 stock options, 110,685 restricted stock awards and 108,075 performance share awards with an aggregate fair value of approximately $16.8 million to be expensed over the requisite service period for each award which generally equals the stated vesting period.

 

The grant date fair value of the 2011 restricted stock awards, which are released to the recipient after a period of three years, is based on the closing market price of the stock on the day of grant.

 

The grant date fair value of the 2011 stock options with a three-year graded vesting condition was estimated under the Black-Scholes-Merton formula using the following weighted-average assumptions:

 

Expected dividend yield

 

1.67

%

Expected life in years

 

5.76

 

Expected volatility

 

31.99

%

Risk-free interest rate

 

2.22

%

 

The performance shares vest based on the employee rendering three years of service to the Company, and the attainment of a market condition over the performance period, which is based on the Company’s relative total shareholder return versus a peer group of companies over a pre-determined time period as determined by the Compensation Committee of the Board of Directors.  The grant date fair value of the 2011 performance shares was estimated using a Monte-Carlo simulation approach.  Such approach entails the use of assumptions regarding the future performance of the Company’s stock and those of the peer group of companies.  Those assumptions include expected volatility, risk-free interest rates, correlation coefficients and dividend reinvestment.  Dividends accrue on the performance shares during the performance period and are to be paid in cash based upon the number of awards ultimately earned.

 

There were no additional grants of stock-based compensation awarded in the second quarter of 2011.

 

Note 7 — Acquisitions

 

Hawk Corporation

 

On December 1, 2010, the Company completed the acquisition of all of the outstanding equity of Hawk for a total cash purchase price of $414.1 million.  The Company funded the acquisition with cash on hand, borrowings under the Company’s revolving credit facility, and the issuance of the $250 million 2020 Notes.  See Note 4 for further information regarding borrowings.

 

Hawk is a leading worldwide supplier of friction materials for brakes, clutches and transmissions.  With this acquisition, the Company has created a comprehensive global braking solutions platform enabling it to provide a broader line of attractive products and increasing exposure to key emerging markets such as China, Brazil and India. Together with Carlisle’s core industrial brake and friction product line, Hawk became part of the Carlisle Brake & Friction segment.

 

The following schedule illustrates changes recorded to the preliminary purchase price allocation initially performed in the fourth quarter of 2010:

 

6



 

 

 

Preliminary
Allocation

 

Purchase
Accounting
Adjustments

 

Revised
Allocation

 

(in millions)

 

12/31/2010

 

6/30/2011

 

6/30/2011

 

 

 

 

 

 

 

 

 

Cash consideration transferred:

 

 

 

 

 

 

 

Class A common stock

 

$

388.0

 

$

 

$

388.0

 

Class A common stock options

 

24.6

 

 

24.6

 

Series D preferred stock

 

1.5

 

 

1.5

 

 

 

 

 

 

 

 

 

Total cash consideration transferred

 

$

414.1

 

$

 

$

414.1

 

 

 

 

 

 

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

 

70.7

 

 

70.7

 

Short-term investments

 

5.3

 

 

5.3

 

Receivables

 

40.7

 

 

40.7

 

Inventories

 

45.1

 

 

45.1

 

Prepaid expenses and other current assets

 

12.9

 

 

12.9

 

Property, plant and equipment

 

74.7

 

(2.3

)

72.4

 

Definite-lived intangible assets

 

92.5

 

 

92.5

 

Indifinite-lived intangible assets

 

55.1

 

 

55.1

 

Other long-term assets

 

5.9

 

 

5.9

 

Accounts payable

 

(30.6

)

 

(30.6

)

Accrued expenses

 

(33.7

)

 

(33.7

)

Long-term debt

 

(59.0

)

 

(59.0

)

Pension obligations

 

(2.3

)

 

(2.3

)

Deferred tax liabilities

 

(68.9

)

 

(68.9

)

Deferred revenue

 

(2.0

)

 

(2.0

)

Other long-term liabilities

 

(8.8

)

2.8

 

(6.0

)

 

 

 

 

 

 

 

 

Total identifiable net assets

 

197.6

 

0.5

 

198.1

 

 

 

 

 

 

 

 

 

Goodwill

 

$

216.5

 

$

(0.5

)

$

216.0

 

 

The adjustment to other long-term liabilities represents a reduction of tax liabilities on uncertain tax positions related to certain payments made in connection with the acquisition.  The adjustment to property, plant and equipment represents an updated valuation for those assets.

 

As of June 30, 2011, the fair values of the property, plant and equipment and other intangible assets are still considered preliminary and subject to change pending receipt of the final third-party valuations for those assets. Also, the related current and deferred tax balances are preliminary and subject to change pending receipt of additional information regarding the deductibility of certain payments made in connection with the acquisition and final assessment of the acquisition date fair values and tax basis of the acquired assets and assumed liabilities, including any uncertain tax positions.

 

Note 8 — Discontinued Operations and Assets Held for Sale

 

On October 4, 2010, as part of its commitment to concentrate on its core businesses, the Company sold its specialty trailer business.  The final purchase price is subject to an earn-out provision whereby the Company could receive an additional $5 million in proceeds based on future earnings.

 

On February 2, 2010, the Company sold all of the interest in its refrigerated truck bodies business.  The final purchase price is subject to certain indemnifications made to the buyer, which could reduce the gain in subsequent periods. 

 

7



 

The Company does not believe any such adjustments will result in a material change to the purchase price.

 

Total assets held for sale were as follows:

 

 

 

June 30,

 

December 31,

 

In millions

 

2011

 

2010

 

Assets held for sale:

 

 

 

 

 

Thermoset molding operation

 

$

1.0

 

$

1.6

 

Tire and wheel business

 

1.1

 

 

Total assets held for sale

 

$

2.1

 

$

1.6

 

 

At June 30, 2011, the remaining assets of the thermoset molding operation consisted of the land and building it formerly occupied.  The assets held for sale by the tire and wheel business relate to the land and building from its Carlisle, PA facility, which was consolidated into its Jackson, TN facility in 2010.

 

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

 

 

 

Second Quarter

 

First Six Months

 

In millions

 

2011

 

2010

 

2011

 

2010

 

Net sales:

 

 

 

 

 

 

 

 

 

Specialty trailer business

 

$

 

$

21.8

 

$

 

$

36.5

 

Refrigerated truck bodies business

 

 

 

 

4.6

 

Net sales from discontinued operations

 

$

 

$

21.8

 

$

 

$

41.1

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations:

 

 

 

 

 

 

 

 

 

Specialty trailer business

 

$

(0.2

)

$

0.2

 

$

(0.3

)

$

(0.1

)

Refrigerated truck bodies business

 

 

(0.2

)

 

0.1

 

On-highway friction and brake shoe business

 

 

(0.3

)

(0.2

)

1.6

 

Thermoset molding operation

 

(0.7

)

 

(0.7

)

 

Automotive components

 

(0.4

)

 

 

(0.1

)

Systems and equipment

 

 

(0.1

)

 

(0.2

)

Income (loss) before income taxes from discontinued operations

 

$

(1.3

)

$

(0.4

)

$

(1.2

)

$

1.3

 

 

Results for the thermoset molding operation for the three and six months ended June 30, 2011 include a $0.6 million write-down of the land and building.

 

Results of the on-highway friction and brake shoe business for the six months ended June 30, 2010 included a $2.1 million pretax gain on the sale of property.

 

Note 9 — Inventories

 

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

 

8



 

The components of inventories as of June 30, 2011 and December 31, 2010 were as follows:

 

 

 

June 30,

 

December 31,

 

In millions

 

2011

 

2010

 

Finished goods

 

$

251.2

 

$

256.7

 

Work-in-process

 

55.1

 

46.7

 

Raw materials

 

135.3

 

124.0

 

Capitalized variances

 

33.3

 

28.1

 

Reserves

 

(30.6

)

(25.0

)

Inventories

 

$

444.3

 

$

430.5

 

 

Note 10 — Goodwill and Other Intangible Assets

 

The changes in the carrying amount of goodwill for the six months ended June 30, 2011 were as follows:

 

 

 

Construction

 

Transportation

 

Brake and

 

Interconnect

 

FoodService

 

Disc.

 

 

 

In millions

 

Materials

 

Products

 

Friction

 

Technologies

 

Products

 

Ops

 

Total

 

Balance at January 1, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

86.3

 

$

155.5

 

$

231.6

 

$

188.9

 

$

60.3

 

$

47.4

 

$

770.0

 

Accumulated impairment losses

 

 

(55.5

)

 

 

 

(47.4

)

(102.9

)

 

 

86.3

 

100.0

 

231.6

 

188.9

 

60.3

 

 

667.1

 

Purchase accounting adjustments

 

 

 

(0.5

)

 

 

 

(0.5

)

Currency translation

 

0.6

 

0.1

 

(3.3

)

 

 

 

(2.6

)

Goodwill

 

86.9

 

155.6

 

227.8

 

188.9

 

60.3

 

47.4

 

766.9

 

Accumulated impairment losses

 

 

(55.5

)

 

 

 

(47.4

)

(102.9

)

Balance at June 30, 2011

 

$

86.9

 

$

100.1

 

$

227.8

 

$

188.9

 

$

60.3

 

$

 

$

664.0

 

 

The Company’s other intangible assets at June 30, 2011 were as follows:

 

 

 

Acquired

 

Accumulated

 

Net Book

 

In millions

 

Cost

 

Amortization

 

Value

 

Assets subject to amortization:

 

 

 

 

 

 

 

Patents

 

$

58.1

 

$

(8.8

)

$

49.3

 

Customer Relationships

 

194.4

 

(38.2

)

156.2

 

Other

 

16.9

 

(9.6

)

7.3

 

Assets not subject to amortization:

 

 

 

 

 

 

 

Trade names

 

78.7

 

 

78.7

 

Other intangible assets, net

 

$

348.1

 

$

(56.6

)

$

291.5

 

 

Estimated amortization expense for the remainder of 2011 and the next four years is as follows: $9.0 million remaining in 2011, $16.7 million in 2012, $15.7 million in 2013, $15.4 million in 2014 and $15.0 million in 2015.

 

The net book value of the Company’s Other intangible assets by reportable segment are as follows:

 

 

 

June 30,

 

December 31,

 

In millions

 

2011

 

2010

 

 

 

 

 

 

 

Construction Materials

 

$

15.8

 

$

16.4

 

Transportation Products

 

2.7

 

0.2

 

Brake and Friction

 

147.2

 

151.3

 

Interconnect Technologies

 

86.3

 

89.0

 

FoodService Products

 

39.5

 

41.0

 

Total

 

$

291.5

 

$

297.9

 

 

9



 

Note 11 — Retirement Plans and Other Post-Retirement Benefits

 

Components of net periodic benefit cost were as follows:

 

 

 

Pension and Other Post-Retirement Benefits

 

 

 

Second Quarter

 

First Six Months

 

In millions

 

2011

 

2010

 

2011

 

2010

 

Service costs - benefits earned during the quarter

 

$

1.3

 

$

1.3

 

$

2.6

 

$

2.7

 

Interest cost on benefits earned in prior years

 

2.8

 

2.4

 

5.5

 

4.8

 

Expected return on plan assets

 

(3.7

)

(3.2

)

(7.3

)

(6.4

)

Amortization of:

 

 

 

 

 

 

 

 

 

Unrecognized net actuarial loss

 

1.1

 

0.7

 

2.3

 

1.3

 

Prior service costs

 

 

 

 

0.1

 

Net periodic benefit costs

 

$

1.5

 

$

1.2

 

$

3.1

 

$

2.5

 

 

The Company made $1.0 million in contributions to the pension plans during the quarter ended June 30, 2011.  The Company expects full year contributions to the pension plans to approximate $4.0 million in 2011.

 

The Company maintains defined contribution plans to which it has contributed $5.7 million during the six months ended June 30, 2011. Full year contributions are expected to approximate $11.3 million.

 

Note 12 — Other Long-Term Liabilities

 

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

 

 

 

June 30,

 

December 31,

 

In millions

 

2011

 

2010

 

Deferred taxes and other tax liabilities

 

$

177.0

 

$

179.4

 

Pension and other post-retirement obligations

 

17.6

 

18.3

 

Deferred compensation

 

6.1

 

5.6

 

Other

 

2.7

 

1.4

 

Other long-term liabilities

 

$

203.4

 

$

204.7

 

 

Note 13 — Commitments and Contingencies

 

Product Warranties

 

The Company offers various warranty programs on its products, primarily installed roofing systems, braking products, aerospace cables and assemblies, and foodservice equipment. The change in the Company’s aggregate product warranty liabilities, including accrued costs and loss reserves associated with extended product warranties for the period ended June 30 is as follows:

 

 

 

June 30,

 

In millions

 

2011

 

2010

 

Beginning reserve

 

$

20.8

 

$

22.0

 

Liabilities disposed of by sale

 

 

(0.6

)

Current year provision

 

7.3

 

8.4

 

Current year claims

 

(6.9

)

(8.5

)

Ending reserve

 

$

21.2

 

$

21.3

 

 

10



 

The Company also offers separately priced extended warranty contracts on sales of certain products, the most significant being those offered on its installed roofing systems within the Construction Materials segment.  Deferred revenue related to the Company’s installed roofing systems was approximately $137.7 million and $130.2 million at June 30, 2011 and 2010, respectively, of which approximately $122.2 million and $115.1 million was classified as long-term in the Consolidated Balance Sheet, respectively.  The amount of extended product warranty revenues recognized was $7.9 million and $7.8 for the first six months of 2011 and 2010, respectively.

 

Workers’ Compensation, General Liability and Property Claims

 

The Company is self-insured for workers’ compensation, medical and dental, general liability and property claims up to applicable retention limits. Retention limits are $1.0 million per occurrence for general liability, $0.5 million per occurrence for workers’ compensation, $0.1 million per occurrence for property and up to $0.5 million for medical claims. The Company is insured for losses in excess of these limits.

 

The Company has accrued approximately $20.8 million and $20.5 million related to workers’ compensation claims at June 30, 2011 and 2010, respectively.  The amounts recognized are presented in Accrued expenses in the Consolidated Balance Sheet.  The liability related to workers’ compensation claims, both those reported to the Company and those incurred but not yet reported, is estimated based on actuarial estimates and loss development factors and the Company’s historical loss experience.

 

Litigation

 

The Company received written correspondence from the U. S. Immigration and Customs Enforcement Office of Investigations (“ICE”) dated March 11, 2010 indicating that it initiated an investigation relating to the classification of certain rubber tires imported by its tire and wheel operation within the Carlisle Transportation Products segment since 2004.  The Company responded to ICE’s inquiry and, on August 19, 2010, ICE informed the Company that it had terminated its investigation.  The Company continues to work separately with U. S. Customs and Border Protection to properly classify its products.

 

At this time, the Company cannot predict or determine the amount of additional duties and/or civil fines or penalties, if any, owed as a result of this classification effort.  In the opinion of management, the ultimate outcome of such actions will not have a material adverse effect on the consolidated financial position of the Company.

 

Over the years, the Company has been named as a defendant, along with numerous other defendants, in lawsuits in various state courts in which plaintiffs have alleged injury due to exposure to asbestos-containing brakes, which Carlisle manufactured in limited amounts between the late-1940’s and the mid-1980’s.  In addition to compensatory awards, these lawsuits may also seek punitive damages.

 

Other than the matter described below, to date, the Company has obtained dismissals or settlements of its asbestos-related lawsuits with no material effect on its financial condition, results of operations or cash flows.  The Company maintains insurance coverage that applies to a portion of certain of the Company’s defense costs and payments of settlements or judgments in connection with asbestos-related lawsuits.

 

On December 22, 2010, the Company settled a case involving alleged asbestos-related injury.  The total amount of the award and related loss, inclusive of insurance recoveries, was approximately $5.8 million, which was recorded in discontinued operations in the fourth quarter of 2010, as the related alleged asbestos-containing product was manufactured by the Company’s former on-highway brake business.

 

Based on an ongoing evaluation, including the above matter, the Company believes that the resolution of its remaining pending asbestos claims will not have a material impact on the Company’s financial condition, results of operations, or cash flows, although these matters could result in the Company being subject to monetary damages, costs or expenses, and charges against earnings in particular periods.

 

From time-to-time the Company may be involved in various other legal actions arising in the normal course of business. In the opinion of management, the ultimate outcome of such actions will not have a material adverse effect on the consolidated financial position of the Company, but may have a material impact on the Company’s results of operations for a particular period. There were no material legal expenses recognized during the second quarter or first six months of 2011 and 2010.

 

11



 

Environmental Matters

 

The Company is subject to increasingly stringent environmental laws and regulations, including those relating to air emissions, wastewater discharges, chemical and hazardous waste management and disposal. Some of these environmental laws hold owners or operators of land or businesses liable for their own and for previous owners’ or operators’ releases of hazardous or toxic substances or wastes. Other environmental laws and regulations require the obtainment and compliance with environmental permits. To date, costs of complying with environmental, health and safety requirements have not been material.  The nature of the Company’s operations and its long history of industrial activities at certain of its current or former facilities, as well as those acquired could potentially result in material environmental liabilities.

 

While the Company must comply with existing and pending climate change legislation, regulation, international treaties or accords, current laws and regulations do not have a material impact on its business, capital expenditures or financial position. Future events, including those relating to climate change or greenhouse gas regulation could require the Company to incur expenses related to the modification or curtailment of operations, installation of pollution control equipment, or investigation and cleanup of contaminated sites.

 

Note 14 - Segment Information

 

The Company manages and reports its results under the following segments:

 

·                  Carlisle Construction Materials: The principal products of this segment are rubber (EPDM) and thermoplastic polyolefin (TPO) roofing membranes used predominantly on non-residential low-sloped roofs, related roofing accessories, including flashings, fasteners, sealing tapes, coatings and waterproofing, and insulation products. The markets served include new construction, re-roofing and maintenance of low-sloped roofs, water containment, HVAC sealants, and coatings and waterproofing.

 

·                  Carlisle Transportation Products: The principal products of this segment include bias-ply, steel belted radial trailer tires, stamped or roll-formed steel wheels, tires, and tire and wheel assemblies, as well as industrial belts and related components.  The markets served include lawn and garden, power sports, agriculture, and construction.

 

·                  Carlisle Brake & Friction: The principal products of this segment include high-performance brakes and friction material, clutches and transmissions for the mining, construction, aerospace, agriculture, high-performance racing, and alternative energy markets.

 

·                  Carlisle Interconnect Technologies: The principal products of this segment are high-performance wire, cable, connectors and cable assemblies, including RF/microwave connectors and cable assemblies primarily for the aerospace, defense electronics, and test and measurement equipment markets.

 

·                  Carlisle Foodservice Products: The principal products of this group include commercial and institutional foodservice permanentware, table coverings, cookware, catering equipment, fiberglass and composite material trays and dishes, industrial brooms, brushes, mops and rotary brushes for commercial and non-commercial foodservice operators, healthcare, and sanitary maintenance professionals.

 

12



 

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

 

Second Quarter

 

2011

 

2010

 

In millions

 

Sales(1)

 

EBIT

 

Sales(1)

 

EBIT

 

Carlisle Construction Materials

 

$

412.0

 

$

54.2

 

$

345.8

 

$

51.3

 

Carlisle Transportation Products

 

204.3

 

6.8

 

192.0

 

6.3

 

Carlisle Brake & Friction

 

119.4

 

19.3

 

26.2

 

2.9

 

Carlisle Interconnect Technologies

 

71.7

 

11.7

 

62.4

 

6.0

 

Carlisle FoodService Products

 

63.4

 

5.3

 

61.2

 

6.3

 

Corporate

 

 

(11.9

)

 

(8.8

)

Total

 

$

870.8

 

$

85.4

 

$

687.6

 

$

64.0

 

 

First Six Months

 

2011

 

2010

 

In millions

 

Sales(1)

 

EBIT

 

Assets

 

Sales(1)

 

EBIT

 

Assets

 

Carlisle Construction Materials

 

$

663.3

 

$

72.2

 

$

728.7

 

$

562.3

 

$

70.6

 

657.9

 

Carlisle Transportation Products

 

413.4

 

21.8

 

577.2

 

381.6

 

17.8

 

517.3

 

Carlisle Brake & Friction

 

230.2

 

37.6

 

689.0

 

48.7

 

5.0

 

89.6

 

Carlisle Interconnect Technologies

 

137.4

 

20.6

 

416.6

 

124.3

 

13.8

 

396.2

 

Carlisle FoodService Products

 

120.1

 

10.8

 

211.7

 

118.0

 

12.8

 

212.0

 

Corporate (2)

 

 

(22.4

)

78.7

 

 

(17.2

)

115.9

 

Total

 

$

1,564.4

 

$

140.6

 

$

2,701.9

 

$

1,234.9

 

$

102.8

 

$

1,988.9

 

 


(1) Excludes intersegment sales

(2) Corporate assets include assets of discontinued operations not classified as held for sale

 

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

 

 

 

June 30,

 

 

 

2011

 

Assets per table above

 

$

2,701.9

 

Assets held for sale of discontinued operations

 

1.0

 

Total Assets per Consolidated Balance Sheet

 

$

2,702.9

 

 

Note 15 - Income Taxes

 

The effective income tax rate on continuing operations for the six months ended June 30, 2011 was 32.2% compared to an effective income tax rate of 37.5% for the six months ended June 30, 2010.  The decrease in the year to date rate compared to the previous year is primarily attributable to favorable legislation passed after June 30, 2010, which reduced the US taxation of foreign earned income, and reenacted the research credit. The effective tax rate of 32.2% varies from the United States statutory rate of 35.0% primarily due to the deduction for U.S. production activities, earnings in foreign jurisdictions taxed at rates different from the statutory U.S. federal rate, and a current tax benefit recorded in association with the recognition of previously unrecognized deferred tax assets of a Chinese wholly owned foreign entity that is experiencing significantly improved business conditions.

 

13



 

Note 16 - Earnings Per Share

 

The following reflects the Income from continuing operations and share data used in the basic and diluted earnings per share computations using the two-class method:

 

 

 

Second Quarter

 

First Six Months

 

In millions, except share and per share amounts

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

55.3

 

$

38.8

 

$

88.6

 

$

61.9

 

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

 

(10.6

)

(9.9

)

(21.1

)

(19.7

)

Undistributed earnings

 

44.7

 

28.9

 

67.5

 

42.2

 

Percent allocated to common shareholders (1)

 

99.0

%

98.9

%

99.0

%

98.9

%

 

 

44.3

 

28.6

 

66.8

 

41.7

 

Add: dividends declared - common stock

 

10.5

 

9.8

 

20.9

 

19.5

 

Numerator for basic and diluted EPS

 

$

54.8

 

$

38.4

 

$

87.7

 

$

61.2

 

 

 

 

 

 

 

 

 

 

 

Denominator (in thousands):

 

 

 

 

 

 

 

 

 

Denominator for basic EPS: weighted-average common shares outstanding

 

61,449

 

60,832

 

61,293

 

60,811

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Performance awards

 

309

 

102

 

309

 

102

 

Stock options

 

943

 

752

 

823

 

765

 

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

 

62,701

 

61,686

 

62,425

 

61,678

 

 

 

 

 

 

 

 

 

 

 

Per share income from continuing operations:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.89

 

$

0.63

 

$

1.43

 

$

1.01

 

Diluted

 

$

0.87

 

$

0.62

 

$

1.40

 

$

0.99

 

 

 

 

 

 

 

 

 

 

 


(1)   Basic weighted-average common shares outstanding

 

61,449

 

60,832

 

61,293

 

60,811

 

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

 

62,050

 

61,511

 

61,892

 

61,495

 

Percent allocated to common shareholders

 

99.0

%

98.9

%

99.0

%

98.9

%

 

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

 

 

 

Second Quarter

 

First Six Months

 

In millions, except share amounts

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations attributable to common shareholders for basic and diluted earnings per share

 

$

(0.7

)

$

(0.2

)

$

(0.6

)

$

0.9

 

 

 

 

 

 

 

 

 

 

 

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

 

$

54.1

 

$

38.2

 

$

87.2

 

$

62.1

 

 

 

 

 

 

 

 

 

 

 

Antidilutive stock options excluded from EPS calculation (1)

 

200

 

702

 

200

 

702

 

 


(1)          Represents stock options excluded from the calculation of diluted earnings per share as such options had exercise prices in excess of the weighted-average market price of the Company’s common stock during these periods.

 

14



 

Note 17 - Comprehensive Income

 

Total comprehensive income consisted of the following:

 

 

 

Second Quarter

 

First Six Months

 

In millions

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

54.6

 

$

38.6

 

$

88.0

 

$

62.8

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

Foreign currency translation, net of tax

 

1.4

 

(3.9

)

5.0

 

(6.2

)

Accrued post-retirement benefit liability, net of tax

 

0.7

 

0.3

 

1.4

 

0.7

 

Loss on hedging activities, net of tax

 

(0.1

)

 

(0.2

)

(0.1

)

Other comprehensive (loss) income

 

2.0

 

(3.6

)

6.2

 

(5.6

)

Comprehensive income

 

$

56.6

 

$

35.0

 

$

94.2

 

$

57.2

 

 

Loss on hedging activities, net of tax included in Other comprehensive (loss) income for the three and six months ended June 30, 2011 represented the amortization of a $5.6 million ($3.5 million, net of tax) gain in Accumulated other comprehensive (loss) income resulting from the termination of treasury lock contracts on August 15, 2006.  At June 30, 2011, the Company had a remaining unamortized gain of $2.9 million ($1.8 million, net of tax) which is reflected in Accumulated other comprehensive (loss) income 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 2011.

 

Note 18 - 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, for 2011 and 2010, respectively:

 

 

 

Second Quarter

 

First Six Months

 

In millions

 

2011

 

2010

 

2011

 

2010

 

Cost of goods sold

 

$

0.6

 

$

3.3

 

$

3.0

 

$

6.1

 

Selling and administrative expenses

 

 

0.6

 

 

0.6

 

Research and development expenses

 

 

0.1

 

 

0.2

 

Total exit and disposal costs

 

$

0.6

 

$

4.0

 

$

3.0

 

$

6.9

 

 

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

 

 

 

Second Quarter

 

First Six Months

 

In millions

 

2011

 

2010

 

2011

 

2010

 

Termination benefits

 

$

(0.3

)

$

1.3

 

$

0.4

 

$

3.2

 

Other associated costs

 

0.9

 

2.7

 

2.6

 

3.7

 

Total exit and disposal costs

 

$

0.6

 

$

4.0

 

$

3.0

 

$

6.9

 

 

Exit and disposal accrual activities for the six-month period ended June 30, 2011 were as follows:

 

In millions

 

Termination
Benefits

 

Other
Associated
Costs

 

Total

 

Balance at December 31, 2010

 

$

3.1

 

$

1.1

 

$

4.2

 

2011 charges to expense and adjustments

 

0.4

 

2.6

 

3.0

 

2011 payments

 

(3.2

)

(3.7

)

(6.9

)

Balance at June 30, 2011

 

$

0.3

 

$

 

$

0.3

 

 

15



 

Exit and disposal activities by segment were as follows:

 

 

 

Second Quarter

 

First Six Months

 

In millions

 

2011

 

2010

 

2011

 

2010

 

Total by segment

 

 

 

 

 

 

 

 

 

Transportation Products

 

$

0.6

 

$

3.3

 

$

2.6

 

$

5.3

 

Brake and Friction

 

 

0.3

 

0.4

 

0.6

 

Interconnect Technologies

 

 

0.4

 

 

1.0

 

Total exit and disposal costs

 

$

0.6

 

$

4.0

 

$

3.0

 

$

6.9

 

 

Carlisle Transportation Products — During the first six months of 2011, the Company incurred $2.6 million of exit and disposal costs, associated with the consolidation of its tire manufacturing operations in Heflin, AL, Carlisle, PA and portions of Buji, China into a new facility in Jackson, TN.  The consolidation of these operations began in the third quarter of 2009 and is expected to cost approximately $20.3 million in total, of which $19.5 million has been incurred through June 30, 2011, and $0.8 million is expected to be incurred in the third quarter of 2011.  The consolidation was substantially completed in the first quarter of 2011; however additional activities related to the closure of facilities no longer in use will be completed in the third quarter of 2011.  Included in Accrued expenses at June 30, 2011 was $0.3 million related to unpaid severance.

 

Carlisle Brake & Friction — In the fourth quarter of 2009, within its off-highway braking business, the Company announced plans to close its friction product manufacturing facility in Logansport, IN and to consolidate operations into its locations in Hangzhou, China and Bloomington, IN. This consolidation was substantially completed in the fourth quarter of 2010; however, additional activities related to the closure of the facility are expected to be completed in the third quarter of 2011.  The total cost of this consolidation project is estimated at $5.3 million, of which $5.1 million has been incurred through June 30, 2011. The company recorded $0.4 million expense during the first six months of 2011 primarily consisting of employee termination costs and other relocation costs.

 

Carlisle Interconnect Technologies — In the fourth quarter of 2009, the Company announced that it would consolidate its Vancouver, WA facility into its facilities in Long Beach, CA and Yichang, China and close its Vancouver facility. This consolidation was completed during the third quarter 2010.  The Company recorded $1.0 million of expense during the first six months of 2010 primarily consisting of employee termination costs and other relocation costs.

 

Note 19 - Subsequent Events

 

On July 18, 2011, the Company entered into a definitive agreement to acquire all of the outstanding shares of Tarvos Investments GmbH and its subsidiary companies (collectively, “PDT”), a leading manufacturer of EPDM-based (rubber) roofing membranes and industrial components serving key European markets, for a purchase price of approximately €80 million, which includes the assumption of approximately €16 million of net debt and debt like items.  The definitive agreement provides for contingent payments based upon PDT’s future earnings.  The transaction is subject to customary closing conditions, including obtaining regulatory approval in Germany and is expected to close by August 15, 2011.

 

16



 

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, product line extensions, entering new markets and externally through acquisitions that complement our existing technologies, products and market channels. Carlisle manages its businesses under the following segments:

 

·                  Carlisle Construction Materials:  the “construction materials” business;

 

·                  Carlisle Transportation Products:  the “transportation products” business;

 

·                  Carlisle Brake & Friction:  the “brake and friction products” business;

 

·                  Carlisle Interconnect Technologies:  the “interconnect technologies” business; and

 

·                  Carlisle FoodService Products:  the “foodservice products” business.

 

Carlisle is a diverse multi-national company with manufacturing operations located throughout North America, Western Europe and the Asia Pacific region. Management focuses on maintaining a strong and flexible balance sheet, year-over-year improvement in sales, earnings before interest and income taxes (“EBIT”) margins and earnings, globalization, and reducing working capital (defined as Receivables, Inventories, net of Accounts payable) as a percentage of Net Sales.  Resources are allocated among the operating companies based on management’s assessment of their ability to obtain leadership positions and competitive advantages in the markets they serve.

 

During 2008, the Company began the implementation of the Carlisle Operating System, a manufacturing structure and strategy deployment system based on lean enterprise and six sigma principles. The purpose of the Carlisle Operating System is to eliminate waste in all production and business processes, improve manufacturing efficiencies to increase productivity, and to increase EBIT margins and improve cash conversion.

 

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 increased 27% in the second quarter of 2011 compared to the same period in 2010.  The acquisition of Hawk, reported in the Carlisle Brake & Friction segment, contributed $83.5 million, or 12% to net sales in the second quarter of 2011.  For the second quarter of 2011, organic growth of 14% was primarily driven by a 9.8% increase in sales volumes across all segments. To a lesser extent, selling price increases contributed to higher net sales.  During the second quarter 2011, the increase in net sales from fluctuations in foreign currency exchange rates was less than 1%.

 

For the first six months of 2011, net sales increased 27% compared to the same period in 2010.  The acquisition of Hawk, reported in the Carlisle Brake & Friction segment, contributed $159.7 million, or 13%, to net sales in the first six months of 2011.  For the first six months of 2011, organic growth of 13% was primarily driven by a 10% increase in sales volume. To a lesser extent, selling price increases contributed to higher net sales.  During the first six months of 2011, the increase in net sales from fluctuations in foreign currency exchange rates was less than 1%.

 

Income from continuing operations, net of tax, of $55.3 million was 43% higher in the second quarter of 2011 as compared to income of $38.8 million in the second quarter of 2010.  Income in the second quarter was positively impacted by the after-tax contribution from the Hawk acquisition, a lower effective tax rate, higher sales volumes, increased selling prices and reduced operating costs attributable to efficiencies gained through the implementation of the Carlisle Operating System.  Partially offsetting this was the negative impact of significantly higher raw material costs experienced in the second quarter of 2011 compared to the prior year period.

 

Income from continuing operations, net of tax, of $88.6 million was 43% higher in the first six months of 2011 as compared to income of $61.9 million in the prior year period due to the same aforementioned factors contributing to income results during the second quarter of 2011.

 

17



 

Year to date, the Company has achieved strong sales performance most notably in its brake & friction, commercial re-roofing and aerospace businesses.  The Company’s EBIT margin has improved on a year to date basis from 8.3% in 2010 to 9.0% due to the contribution from the Hawk acquisition and earnings growth in the Interconnect Technologies segment.  For the full year 2011, the Company expects sales growth from acquisitions and organic growth to total in the mid-twenty percent range.  However, uncertainty regarding higher raw material costs, global market conditions and economic recovery could place negative pressure on sales and earnings in future periods.

 

The Company’s effective income tax rates for the three and six month periods ending June 30, 2011 were 31.3% and 32.2%, respectively. The rates for the three and six month periods ending June 30, 2010 were 37.6% and 37.5%, respectively.  The lower effective income tax rates during 2011 versus 2010 were primarily attributable to favorable tax legislation passed after June 30, 2010 related to taxation of foreign earned income.  The effective tax rate for the full year of 2010 was 30.5%.

 

Sales and Earnings

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second Quarter

 

Acquisition

 

Volume

 

Price

 

Product

 

Exchange

 

(in millions)

 

2011

 

2010

 

Change

 

Effect

 

Effect

 

Effect

 

Mix Effect

 

Rate Effect

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

870.8

 

$

687.6

 

26.6

%

12.1

%

9.8

%

4.3

%

0.0

%

0.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Six Months

 

Acquisition

 

Volume

 

Price

 

Product

 

Exchange

 

(in millions)

 

2011

 

2010

 

Change

 

Effect

 

Effect

 

Effect

 

Mix Effect

 

Rate Effect

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

1,564.4

 

$

1,234.9

 

26.7

%

12.9

%

10.3

%

3.3

%

-0.1

%

0.3

%

 

Organic sales growth was 14% during the second quarter 2011 versus the prior year period and was achieved by all segments. Organic sales growth was led by 33% growth in Brake & Friction, 19% growth in Construction Materials and 15% growth in Interconnect Technologies. The increase in sales from pricing primarily reflected the impact of selling price actions in the Transportation Products, Construction Materials and FoodService Products segments.  The acquisition of Hawk reported in the Carlisle Brake & Friction segment contributed $83.5 million to net sales in the second quarter of 2011.

 

For the first six months of 2011, the organic sales increase of 13% from the prior year reflected organic growth in all segments, led by the Brake & Friction, Construction Materials and Interconnect Technologies segments. The acquisition of Hawk in the Brake & Friction segment contributed $159.7 million of sales during the first six months of 2011.

 

Gross Margin

 

 

 

Second Quarter

 

Six Months

 

(in millions)

 

2011

 

2010

 

Change

 

2011

 

2010

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

$

183.7

 

$

143.6

 

27.9

%

$

330.8

 

$

255.6

 

29.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

21.1

%

20.9

%

 

 

21.1

%

20.7

%

 

 

 

For the second quarter and first six months of 2011, the improvement in gross margin (gross profit expressed as a percentage of net sales) from the respective prior periods primarily resulted from margin contributed by the Hawk acquisition.  Excluding the contributions from the Hawk acquisition, the positive impact from volume growth, selling price increases and efficiency gains from the Carlisle Operating System was offset by the negative impact from significantly higher raw material costs impacting all business segments as well as production inefficiencies from plant start-up activities within CTP’s tire facility in Jackson, TN.

 

18



 

Selling and Administrative Expenses

 

 

 

Second Quarter

 

First Six Months

 

(in millions)

 

2011

 

2010

 

Change

 

2011

 

2010

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling & Administrative

 

$

92.2

 

$

73.8

 

24.9

%

$

177.9

 

$

143.2

 

24.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As a percentage of net sales

 

10.6

%

10.7

%

 

 

11.4

%

11.6

%

 

 

 

Selling and administrative expenses in the second quarter of 2011 included $7.3 million related to the Hawk acquisition in the Brake & Friction segment and $1.3 million in acquisition costs related to an acquisition opportunity that was not realized.  In addition to the impact of acquisitions, selling and administrative expenses rose in connection with organic sales volume growth and expansion efforts in Asia Pacific.

 

Selling and administrative expenses in the first six months of 2011 included $14.6 million of expenses from the Hawk acquisition and the aforementioned acquisition costs.  In addition to the impact of acquisitions, selling and administrative expenses rose in connection with organic sales volume growth and expansion efforts in Asia Pacific.

 

Research and Development Expenses

 

 

 

Second Quarter

 

First Six Months

 

(in millions)

 

2011

 

2010

 

Change

 

2011