Carlisle Companies Incorporated — 2015 Form 10-K
Business context and reporting period. This is the annual report for the fiscal year ended December 31, 2015, not a standalone fourth-quarter filing. Carlisle is a diversified manufacturer with five segments: Construction Materials, Interconnect Technologies, Fluid Technologies, Brake & Friction, and FoodService Products. The 2015 results include Fluid Technologies from its April 1 acquisition of Finishing Brands.
Financial results and key metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Net sales | $3,543.2 million | $3,204.0 million |
| Gross profit / margin | $1,006.7 million / 28.4% | $819.5 million / 25.6% |
| EBIT / EBIT margin | $501.9 million / 14.2% | $408.3 million / 12.7% |
| Income from continuing operations | $319.6 million; diluted EPS $4.82 | $251.7 million; diluted EPS $3.83 |
| Net income | $319.7 million; diluted EPS $4.82 | $251.3 million; diluted EPS $3.82 |
| Cash from operating activities | $529.2 million | $295.9 million |
| Capital expenditures | $72.1 million | $118.8 million |
- Sales increased 10.6%; acquisitions contributed 8.8%, organic growth was 3.6%, and foreign exchange reduced sales 1.8%. Volume rose 5.0%, partly offset by 1.4% lower pricing.
- Gross margin and EBIT margin expanded by 280 and 150 basis points, respectively. Management cited lower raw-material and energy costs, Carlisle Operating System savings, and higher capacity utilization; lower selling prices partly offset these benefits.
- Cash and equivalents were $410.7 million at year-end, down from $730.8 million. Investing cash outflow was $670.8 million, including the Finishing Brands acquisition; financing cash outflow was $173.0 million.
- Year-end debt included $149.9 million current debt and $598.7 million long-term debt. The $150 million notes due August 2016 were classified as current. The company reported a 24% debt-to-capital ratio and $600 million available under its revolving facility.
- Total assets were $3,954.1 million and shareholders’ equity was $2,347.4 million. Dividends were $1.10 per share; Carlisle repurchased 1,496,411 shares for $137.2 million.
Material changes and segment performance
- Construction Materials: Sales rose 3.5% to $2,002.6 million and EBIT increased 30.6% to $351.1 million; margin improved to 17.5%, principally on lower input costs and improved utilization. This segment generated approximately 56% of company revenue.
- Interconnect Technologies: Sales rose 17.3% to $784.6 million, including LHi acquisition contribution. EBIT rose 7.1% to $141.6 million, but margin fell to 18.0% from 19.8%, reflecting price reductions and acquisition mix.
- Fluid Technologies: Contributed $203.2 million of sales and $20.8 million of EBIT for the nine months after acquisition. Results included $8.6 million of acquired-inventory fair-value costs, $0.7 million of transaction costs, and acquired-intangible amortization.
- Brake & Friction: Sales declined 12.7% to $310.2 million and EBIT fell 35.4% to $17.3 million; margin dropped to 5.6%. Weak construction, mining, and agriculture demand, currency effects, and impairment and severance charges weighed on results.
- FoodService Products: Sales declined 0.7% to $242.6 million and EBIT declined 7.8% to $27.3 million; margin decreased to 11.3%.
- Fourth-quarter 2015 sales were $876.2 million versus $790.0 million in fourth-quarter 2014; EBIT was $125.7 million versus $89.0 million, and diluted EPS was $1.24 versus $0.81.
Outlook, risks, and unusual items
- Management expected 2016 total sales growth in the mid-single-digit range, led by Interconnect Technologies and Fluid Technologies, with moderate commercial roofing growth. It estimated a 2016 effective tax rate of approximately 33% and capital expenditures of $100 million to $125 million.
- Management noted that raw-material costs were low and could decline further, but pricing pressure could limit margin gains. It expected soft or potentially weaker demand in Brake & Friction markets. Planned expansion projects and Fluid Technologies integration and headquarters activities may add costs.
- Finishing Brands was acquired for $598.9 million net of acquired cash. Management identified integration, realization of synergies, and goodwill or intangible-asset impairment as risks. CBF goodwill and indefinite-lived intangibles were not impaired at year-end, but management said further market weakness or currency deterioration could lead to impairment.
- Key exposures include commercial construction cyclicality and weather, customer concentration, commodity and raw-material volatility, foreign exchange, global economic conditions, acquisition integration, cybersecurity, regulation, pensions, and environmental liabilities. Beacon Roofing Supply accounted for 10% of consolidated sales; one CIT customer represented 22% of that segment’s sales.
- Environmental compliance costs and asbestos litigation were described as not material to the company’s financial position at the filing date; the company nevertheless noted potential future environmental liabilities and period-specific litigation costs. The 2015 accounts included $10.7 million of Finishing Brands-related non-recurring costs and $3.4 million of CBF asset impairment charges.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The acquired Fluid Technologies business was excluded from management’s and the auditor’s internal-control assessment for 2015.
Important facts for investors to verify
- How much of 2015 growth and margin improvement is sustainable without acquisition contributions and unusually low input costs, particularly if pricing pressure persists.
- Finishing Brands’ integration progress, normalized profitability after acquisition-related costs and amortization, and the final purchase-price allocation.
- Brake & Friction’s market recovery assumptions and the sensitivity of its goodwill and intangible-asset values to sales, currency, and discount-rate changes.
- Funding and refinancing plans for the $150 million notes due in 2016, alongside planned capital spending, dividends, and repurchases.
- Exposure to major customers, foreign currency movements, and cash held abroad; $122.0 million of year-end cash was outside the United States, including $21.4 million in China.