Carlisle Companies Incorporated — FY2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; the filing also reports fourth-quarter results. Amounts are in U.S. dollars; financial figures are in millions unless otherwise noted. The company operates four continuing segments: Construction Materials, Interconnect Technologies, Brake & Friction, and FoodService Products. Transportation Products was sold on December 31, 2013 and is presented as discontinued operations, with prior periods reclassified.
Financial performance
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Continuing-operations sales | $2,943.0 | $2,851.2 | +3.2% |
| Gross profit / margin | $745.6 / 25.3% | $767.0 / 26.9% | Profit -2.8%; margin -160 bps |
| EBIT / margin | $366.8 / 12.5% | $371.9 / 13.0% | EBIT -1.4%; margin -50 bps |
| Continuing-operations net income | $235.2 | $228.7 | +2.8% |
| Diluted EPS from continuing operations | $3.61 | $3.57 | +1.1% |
| Net income / diluted EPS | $209.7 / $3.22 | $270.2 / $4.22 | -22.3% / -23.7% |
| Net cash from operating activities* | $414.7 | $485.9 | -$71.2 |
| Capital expenditures* | $110.8 | $140.4 | -$29.6 |
*Cash-flow and capital-expenditure figures include continuing and discontinued operations. Operating cash flow declined mainly because working-capital contributions were lower year over year. Cash provided by investing activities was $270.1 million, including $369.0 million of net proceeds from the Transportation Products sale; financing activities used $41.5 million, including $53.7 million of dividends.
Fourth quarter: Continuing-operations sales were $724.0 million versus $683.6 million; EBIT was $92.4 million versus $72.5 million; continuing-operations net income was $60.2 million versus $44.0 million. Net income was $69.7 million versus $47.9 million. Fourth-quarter 2013 discontinued-operations income was $9.5 million, compared with $3.9 million.
Segments and notable year-over-year drivers
- Construction Materials: Sales +4.8% to $1,776.5 million; EBIT -3.4% to $264.0 million, with margin down to 14.9% from 16.1%. Commercial roofing demand grew, but pricing pressure, higher raw-material costs, adverse early-year weather, and $7.3 million of plant start-up costs weighed on profitability.
- Interconnect Technologies: Sales +24.7% to $577.7 million and EBIT +29.4% to $89.4 million. Growth included $95.2 million of Thermax/Raydex acquisition sales; organic growth was 4.1%, supported by aerospace and test-and-measurement demand.
- Brake & Friction: Sales -22.0% to $350.0 million; EBIT -55.7% to $33.5 million and margin fell to 9.6%. Heavy-equipment weakness, customer inventory reductions, and pricing pressure hurt results.
- FoodService Products: Sales -1.8% to $238.8 million, while EBIT rose to $27.0 million from $12.3 million. Consolidation savings, pricing, and the absence of significant prior-year restructuring and impairment charges supported improvement.
Organic sales declined 0.4%; acquisitions contributed $98.9 million of sales. The Construction Materials segment generated about 60% of continuing-operations revenue, creating significant exposure to commercial construction.
Balance sheet, liquidity and debt
- Cash and cash equivalents were $754.5 million at year-end, up from $112.5 million, largely reflecting the divestiture proceeds. About $250 million was held by foreign subsidiaries; management considers foreign earnings permanently reinvested.
- Net working capital was $1,158.6 million versus $734.7 million; total current assets were $1,535.0 million and current liabilities $376.4 million. Average working capital as a percentage of annualized continuing sales improved to 18.7% from 20.2%.
- Long-term debt was $751.0 million, with no short-term debt. Debt-to-capital was approximately 27%; shareholders’ equity was $1,986.1 million. Debt consists primarily of notes due 2016, 2020, and 2022.
- The company had $600 million available under its revolving credit facility, extended to December 2018, plus $45 million available under an uncommitted line. It reported compliance with debt covenants.
- Dividends were $0.84 per share for 2013, up from $0.76. Board authorization remained for repurchases of up to 3,024,499 shares.
Outlook, risks and unusual items
- 2014 outlook: Management expected high-single-digit sales growth and improvement in EBIT and EBIT margin, primarily from commercial construction and aerospace. It anticipated only modest Brake & Friction recovery and continued FoodService improvement. Planned 2014 capital expenditures were approximately $118 million; expected net interest expense was about $34 million and the effective tax rate about 34%.
- Transportation Products sale: Net proceeds were $375.6 million, including a $6.6 million receivable for a working-capital adjustment expected to be finalized in Q1 2014. The company recorded a $6.2 million after-tax sale gain. Discontinued operations included a $100.0 million pre-tax goodwill impairment and a $12.3 million pre-tax sale loss; 2013 discontinued operations recorded a net loss of $25.5 million. The disposed business had 2013 sales of $767.9 million.
- Tax item: Continuing-operations tax expense was $97.8 million and the effective tax rate was 29.4%, versus 34.0%. A foreign tax election generated an $11.8 million one-time benefit, reducing the 2013 rate by 350 basis points.
- Restructuring and investment: Brake & Friction planned to close its Akron facility, with total expected costs of $2.9 million and estimated annual savings of $0.6 million. Construction Materials’ new PVC line was expected to begin production in Q1 2014; Interconnect Technologies planned a new Nogales, Mexico facility.
- Principal risks: Cyclical end markets and economic conditions; raw materials and freight, which represented about 64% of cost of goods sold; commercial-construction concentration, weather and competitive pricing; customer concentration; foreign exchange and international operating risks; acquisition integration and goodwill valuation; pension and healthcare costs; cybersecurity; and environmental regulation or liabilities. The filing notes that pending asbestos claims are not expected to have a material overall impact, though costs or charges could affect individual periods.
- Specific customer exposure: In 2013, individual customers represented 18% of Interconnect Technologies and 18% of Brake & Friction segment sales. Management also warned that pricing and long-term-contract negotiations with Boeing could adversely affect Interconnect Technologies results.
The financial statements and internal control over financial reporting received unqualified audit opinions. Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2013.
Investor verification points
- Verify the final settlement of the $6.6 million Transportation Products working-capital receivable and the completion of the related pension-asset transfer to the buyer.
- Assess the sustainability of continuing-operations earnings after removing the $11.8 million one-time tax benefit, and distinguish continuing results from the disposed business’s impairment and sale effects.
- Track recovery in Brake & Friction, Construction Materials pricing/raw-material recovery, and the delivery and return profile of the planned capacity investments.
- Monitor Boeing contract negotiations, aerospace customer concentration, and the shift from seat-installed in-flight entertainment to onboard connectivity.
- Review cash availability and the use of sale proceeds, including foreign cash restrictions and the company’s capital-allocation choices among acquisitions, investment, dividends, and repurchases.