Carlisle Companies Incorporated — 2011 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2011; the filing also provides fourth-quarter comparisons. Carlisle is a diversified manufacturer operating in Construction Materials, Transportation Products, Brake & Friction, Interconnect Technologies, and FoodService Products.
Financial performance and liquidity
| Metric | 2011 | 2010 |
|---|---|---|
| Net sales | $3,224.5 million | $2,527.7 million |
| Gross profit / margin | $677.1 million / 21.0% | $528.7 million / 20.9% |
| EBIT / margin | $275.1 million / 8.5% | $196.1 million / 7.8% |
| Continuing-operations income | $181.9 million | $130.6 million |
| Net income | $180.3 million | $145.6 million |
| Diluted EPS | $2.86 ($2.88 from continuing operations) | $2.34 ($2.10 from continuing operations) |
| Operating cash flow | $191.2 million | $107.4 million |
| Capital expenditures | $79.6 million | $64.6 million |
- Sales rose 27.6%; management reported 14% organic growth. Acquisitions added $339.9 million of sales, while foreign exchange had a negligible effect.
- Operating cash flow less capital expenditures was approximately $111.6 million, calculated from reported figures. Working capital absorbed cash, including increases in receivables and inventory; average working capital as a percentage of annualized sales was 21.9%, versus 22.0%.
- At year-end, cash was $74.7 million; current assets were $1,214.1 million and current liabilities $613.5 million. Debt totaled $762.4 million, including $158.1 million classified as short-term; shareholders’ equity was $1,500.1 million. Debt-to-capital was 34%, up from 26%.
- The $600 million revolving facility had $348 million drawn and $252 million available at year-end, and matures in 2016. The company reported compliance with debt covenants. Cash held outside the U.S. was $56.0 million, including $12.9 million in China.
- Quarter four 2011 sales were $789.6 million versus $626.9 million; EBIT was $52.7 million versus $26.8 million; continuing-operations income was $39.6 million versus $21.9 million; diluted continuing-operations EPS was $0.63 versus $0.35.
Material changes and segment performance
- Construction Materials: Sales increased 21.3% to $1,484.0 million; EBIT rose 11.7% to $177.9 million, while margin fell to 12.0% from 13.0%. Higher reroofing demand and pricing helped, but raw-material inflation pressured profitability. This segment generated approximately 46% of company sales.
- Transportation Products: Sales increased 6.9% to $732.1 million, but EBIT fell 58.1% to $9.1 million and margin declined to 1.2%. Jackson, Tennessee tire-plant start-up inefficiencies, lower volumes, and organizational costs weighed on results; management said operations improved during the year.
- Brake & Friction: Sales were $473.0 million and EBIT $77.2 million, versus $129.4 million of sales and a $0.9 million EBIT loss in 2010. The comparison primarily reflects the Hawk acquisition, which contributed $302.7 million of 2011 sales and $59.9 million of EBIT.
- Interconnect Technologies: Sales rose 19.3% to $299.6 million and EBIT rose 35.6% to $41.9 million; margin improved to 14.0%. Aerospace demand and operating efficiencies contributed, partly offset by weaker military-defense demand.
- FoodService Products: Sales declined 1.3% to $235.8 million and EBIT declined 45.7% to $13.2 million. Lower volume, mix, and raw-material costs were factors.
- Acquisitions expanded the portfolio: Carlisle acquired PDT Phoenix in August for $111.0 million net of acquired cash and Tri-Star in December for $284.4 million net of acquired cash. PDT Profiles was sold on January 2, 2012 for $22.7 million, subject to working-capital adjustment.
Outlook, commentary, risks and unusual items
- No consolidated revenue or earnings guidance is provided. Management expected 2012 capital expenditures of $120–$150 million, with investment focused primarily on Construction Materials, Brake & Friction, and Interconnect Technologies. It expected further Transportation Products operating improvement and continued cost reductions in FoodService.
- Management cited higher sales volumes and Carlisle Operating System efficiencies as earnings drivers; raw-material costs, including rubber, steel, resin, and carbon black, offset gains. Raw materials and inbound freight represented approximately 72% of cost of goods sold.
- Construction Materials and Interconnect Technologies did not fully recover increased input costs through pricing until late 2011. Pricing recovery remains exposed to competition and supply constraints.
- Goodwill impairment warrants monitoring at Transportation Products: estimated fair value exceeded carrying value by only about 6%. Management’s sensitivity analysis indicated a 1% higher discount rate or a 1% lower EBIT margin assumption could cause carrying value to exceed fair value.
- Other principal risks include cyclical construction, aerospace and mining markets; potential defense-spending reductions; customer concentration within several segments; international, currency and political risks; acquisition integration; pension assumptions; and environmental liabilities. Management said pending asbestos litigation was not expected to have a material overall impact, though charges could occur in individual periods.
- Discontinued operations produced a $1.6 million after-tax loss in 2011, primarily reflecting PDT Profiles operating losses. In contrast, 2010 discontinued income included business-sale and currency-related gains. 2011 continuing-operations income also benefited from acquisition contributions and lower acquisition-related charges versus 2010.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management’s control assessment, and the auditor’s internal-control audit, excluded PDT and Tri-Star; the filing states their combined year-end assets were $486.3 million.
Most important facts for investors to verify
- Whether Jackson plant productivity and Transportation Products margins improved as management expected, and whether goodwill assumptions remain supportable.
- Whether price increases offset raw-material inflation without materially weakening demand or margins, especially in Construction Materials and FoodService.
- Post-acquisition performance, integration benefits, purchase-price allocations, and debt repayment or refinancing needs following the PDT and Tri-Star transactions.
- The quality and sustainability of operating cash flow given growth in receivables and inventory, and the availability and cost of revolving-credit financing.
- Whether construction reroofing, aerospace, mining, and other end-market demand persists; also monitor customer concentration, pension exposure, and environmental and asbestos contingencies.