Carlisle Companies Incorporated — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This is an annual filing; fourth-quarter figures are included in the filing’s unaudited quarterly data. Carlisle is a diversified manufacturer with four continuing segments: Construction Materials, Interconnect Technologies, Brake & Friction, and FoodService Products.
Financial performance
| Metric | 2014 | 2013 |
|---|
| Net sales | $3,204.0 million | $2,943.0 million |
|
| Gross profit / margin | $819.5 million / 25.6% | $745.6 million / 25.3% |
|
| EBIT / margin | $408.3 million / 12.7% | $366.8 million / 12.5% |
| Continuing-operations income, net of tax | $251.7 million | $235.2 million |
| Net income | $251.3 million | $209.7 million |
| Diluted EPS from continuing operations / total diluted EPS | $3.83 / $3.82 | $3.61 / $3.22 |
| Cash from operating activities | $295.9 million | $414.7 million |
| Capital expenditures | $118.8 million | $110.8 million |
- Organic sales grew 7.9%: volume increased 9.1%, while selling price declined 1.2%. Acquisitions added 0.9% and foreign exchange added 0.1% to sales growth. EBIT increased 11.3%.
- Cash and cash equivalents were $730.8 million at year-end; the company also had $600 million available on its revolving credit facility and $45 million available on an uncommitted line. Net working capital was $1,219.3 million.
- Long-term debt was $749.8 million and shareholders’ equity was $2,205.0 million. Debt was 25.4% of total capitalization. The company reported compliance with debt covenants and no revolving-facility borrowings.
- Quarter four 2014 net sales were $790.0 million versus $724.0 million in Q4 2013; EBIT was $89.0 million versus $92.4 million, and continuing-operations income was $53.2 million versus $60.2 million.
Segments and changes versus prior year
| Segment | 2014 sales | 2014 EBIT | Key comparison |
|---|
| Construction Materials | $1,935.4 million | $268.8 million; 13.9% margin | Sales +8.9%; margin down from 14.9%. |
| Interconnect Technologies | $669.1 million | $132.2 million; 19.8% margin | Sales +15.8%; margin up from 15.5%. |
| Brake & Friction | $355.3 million | $26.8 million; 7.5% margin | Sales +1.5%; EBIT down 20.0% and margin down from 9.6%. |
| FoodService Products | $244.2 million | $29.6 million; 12.1% margin | Sales +2.3%; EBIT +9.6% and margin up from 11.3%. |
- Growth and margin improvement overall reflected higher capacity utilization and Carlisle Operating System cost savings. Lower pricing partly offset those gains.
- Construction Materials faced lower selling prices, increased freight, and startup and product-line costs. It incurred $9.0 million in plant startup costs and $0.9 million in Insulfoam exit costs.
- Interconnect Technologies benefited from aerospace demand and acquired LHi Technology, purchased October 1 for approximately $194 million net of cash acquired. LHi contributed $26.1 million in 2014 sales.
- Brake & Friction remained pressured by weaker agriculture and mining demand, lower pricing, $4.3 million in inventory charges, and $1.2 million in severance costs.
- Operating cash flow fell year over year, primarily because working capital used $50.4 million in 2014, compared with providing $48.0 million in 2013. Inventory increased $27.7 million and receivables increased $18.1 million. Average working capital as a percentage of annualized sales improved to 17.8% from 18.7%.
Outlook, risks, and notable items
- Management expected mid-to-high single-digit organic sales growth and EBIT margin improvement in 2015. It forecast approximately 33% effective tax rate and $100 million in 2015 capital expenditures, excluding the pending acquisition.
- Segment expectations included high-single-digit sales growth and improved margins at Construction Materials; mid-single-digit aerospace sales growth at Interconnect Technologies, partly offset by contractual price reductions; flat-to-low-single-digit sales growth and improved EBIT at Brake & Friction; and low-to-mid-single-digit sales growth with improved EBIT and margin at FoodService Products.
- The planned $590 million cash acquisition of Liquid Finishing Brands from Graco was expected to close in Q1 2015, subject to regulatory approvals and other closing conditions. Management expected it to be accretive to net earnings within its first year and said liquidity would remain ample after closing.
- The sale of Transportation Products closed at the end of 2013. The business’s 2013 results included a $100 million goodwill impairment; the 2014 discontinued-operations loss was $0.4 million, primarily related to the final working-capital adjustment.
- Principal risks include commercial-construction and other cyclical-market exposure; substantial dependence on Construction Materials, which generated about 60% of 2014 revenue; customer concentrations within segments; raw-material costs (about 63% of cost of goods sold); competition and pricing pressure; foreign currency and international operating risks; acquisition integration and medical-device regulation; and cybersecurity, pension, and environmental exposures.
- Environmental compliance costs had not been material and no significant remediation accrual was reported, but the company noted potential liabilities from current or former industrial sites. Asbestos-related brake litigation remained subject to claims, though management said reasonably possible additional claims were not material to financial position, results, or operating cash flows.
- The 2013 continuing-operations tax rate benefited from a one-time $11.8 million foreign tax election benefit; the 2014 effective rate was 33.1%. The 2014 pension obligation also reflected an $11.9 million increase from adoption of a new mortality table.
- The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting. The assessment excluded LHi’s internal controls.
Important facts for investors to verify
- Whether 2015 organic growth, margin improvement, and the stated segment outlook were achieved, especially given pricing pressure and weaker European conditions.
- Completion, financing, integration, and realized earnings contribution of the $590 million Liquid Finishing Brands acquisition.
- Whether working-capital investment and lower operating cash flow were temporary effects of growth or a continuing cash-conversion issue.
- Brake & Friction recovery and the performance of agriculture and mining markets, alongside ongoing customer and raw-material concentration risks.
- Foreign exchange effects, the treatment of foreign-held cash, and any material changes in tax contingencies, pension assumptions, warranties, litigation, or environmental exposures.
