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 MARCH 31,
2009
OR
o
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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Commission file number 1-9278
CARLISLE COMPANIES INCORPORATED
(Exact name of registrant as specified in its
charter)
Delaware
|
|
31-1168055
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
|
|
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13925 Ballantyne Corporate Place,
Suite 400, Charlotte, North Carolina 28277
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|
(
704) 501-1100
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(Address of principal executive office,
including zip code)
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(Telephone Number)
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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
o
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
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Accelerated filer
o
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|
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Non-accelerated filer
o
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Smaller Reporting Company
o
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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 May 1, 2009: 61,251,582
Part I. Financial Information
Item 1.Financial Statements
Carlisle Companies Incorporated
Consolidated Statements of Earnings and Comprehensive Income
For the Three Months ended March 31, 2009 and 2008
(In millions, except share and per share amounts)
(Unaudited)
|
|
Three Months Ended
|
|
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March 31,
|
|
|
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2009
|
|
2008*
|
|
Net sales
|
|
$
|
511.1
|
|
$
|
652.4
|
|
|
|
|
|
|
|
Cost and expenses:
|
|
|
|
|
|
Cost of goods sold
|
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422.1
|
|
528.8
|
|
Selling and administrative expenses
|
|
67.7
|
|
74.8
|
|
Research and development expenses
|
|
3.5
|
|
3.3
|
|
Other operating expense
|
|
0.4
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
17.4
|
|
45.5
|
|
|
|
|
|
|
|
Other non-operating income, net
|
|
(0.7
|
)
|
(1.1
|
)
|
Interest expense, net
|
|
2.7
|
|
4.1
|
|
Income before income taxes
|
|
15.4
|
|
42.5
|
|
|
|
|
|
|
|
Income tax expense
|
|
5.4
|
|
14.3
|
|
Income from continuing operations, net of
tax
|
|
10.0
|
|
28.2
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
Loss from discontinued operations
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|
(6.6
|
)
|
(127.2
|
)
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Income tax benefit
|
|
(3.2
|
)
|
(36.4
|
)
|
Loss from discontinued operations, net of
tax
|
|
(3.4
|
)
|
(90.8
|
)
|
Net income (loss)
|
|
6.6
|
|
(62.6
|
)
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
Foreign currency translation, net of tax
|
|
(1.8
|
)
|
(0.9
|
)
|
Minimum pension liability, net of tax
|
|
0.2
|
|
0.1
|
|
Loss on hedging activities, net of tax
|
|
(0.1
|
)
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(2.8
|
)
|
Other comprehensive loss
|
|
(1.7
|
)
|
(3.6
|
)
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Comprehensive income (loss)
|
|
$
|
4.9
|
|
$
|
(66.2
|
)
|
|
|
|
|
|
|
Earnings (loss) per share - basic
|
|
|
|
|
|
Income from continuing operations, net of
tax
|
|
$
|
0.16
|
|
$
|
0.46
|
|
Loss from discontinued operations, net of
tax
|
|
(0.05
|
)
|
(1.48
|
)
|
Earnings per share - basic
|
|
$
|
0.11
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|
$
|
(1.02
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)
|
|
|
|
|
|
|
Earnings (loss) per share - diluted
|
|
|
|
|
|
Income from continuing operations, net of
tax
|
|
$
|
0.16
|
|
$
|
0.46
|
|
Loss from discontinued operations, net of
tax
|
|
(0.05
|
)
|
(1.48
|
)
|
Earnings per share - diluted
|
|
$
|
0.11
|
|
$
|
(1.02
|
)
|
|
|
|
|
|
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Weighted average common shares outstanding
(in thousands)
|
|
|
|
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Basic
|
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60,568
|
|
60,594
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|
Effect of dilutive stock options and
restricted stock
|
|
348
|
|
397
|
|
Diluted
|
|
60,916
|
|
60,991
|
|
|
|
|
|
|
|
Dividends declared and paid per share
|
|
$
|
0.155
|
|
$
|
0.145
|
|
*
|
|
For the three months ended March 31, 2008 certain
reclassifications and revisions have been made regarding discontinued
operations and FSP 03-06-1. See Notes 2 and 8 to Unaudited Consolidated Financial
Statements. Results may differ from prior presentations due to rounding.
|
See accompanying notes to Unaudited Consolidated Financial Statements
1
Carlisle Companies Incorporated
Consolidated Balance Sheets
March 31, 2009 and December 31, 2008
(In millions, except share amounts)
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|
March 31,
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December 31,
|
|
|
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2009
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2008
|
|
|
|
(Unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
59.3
|
|
$
|
42.7
|
|
Receivables, less allowance of $11.4 in
2009 and $10.7 in 2008
|
|
316.9
|
|
317.0
|
|
Inventories
|
|
374.0
|
|
424.2
|
|
Deferred income taxes
|
|
39.4
|
|
35.2
|
|
Prepaid expenses and other current assets
|
|
32.8
|
|
58.9
|
|
Current assets held for sale
|
|
78.6
|
|
90.1
|
|
Total current assets
|
|
901.0
|
|
968.1
|
|
|
|
|
|
|
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Property, plant and equipment, net of
accumulated depreciation of $501.2 in 2009 and $494.2 in 2008
|
|
461.9
|
|
470.7
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
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Goodwill, net
|
|
436.2
|
|
435.8
|
|
Patents and other intangible assets, net
|
|
143.6
|
|
146.3
|
|
Investments and advances to affiliates
|
|
4.1
|
|
4.6
|
|
Other long-term assets
|
|
5.0
|
|
2.5
|
|
Non-current assets held for sale
|
|
47.9
|
|
47.9
|
|
Total other assets
|
|
636.8
|
|
637.1
|
|
|
|
|
|
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TOTAL ASSETS
|
|
$
|
1,999.7
|
|
$
|
2,075.9
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Short-term debt, including current
maturities
|
|
$
|
130.5
|
|
$
|
127.0
|
|
Accounts payable
|
|
115.6
|
|
123.6
|
|
Accrued expenses
|
|
106.1
|
|
148.3
|
|
Deferred revenue
|
|
14.8
|
|
14.7
|
|
Current liabilities associated with assets
held for sale
|
|
26.6
|
|
28.9
|
|
Total current liabilities
|
|
393.6
|
|
442.5
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
Long-term debt
|
|
242.9
|
|
273.3
|
|
Deferred revenue
|
|
107.8
|
|
106.2
|
|
Other long-term liabilities
|
|
163.3
|
|
159.8
|
|
Total long-term liabilities
|
|
514.0
|
|
539.3
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
Preferred stock, $1 par value. Authorized
and unissued 5,000,000 shares
|
|
|
|
|
|
Common stock, $1 par value. Authorized
100,000,000 shares; 78,661,248 shares issued; 60,580,967 outstanding in 2009
and 60,532,539 outstanding in 2008
|
|
78.7
|
|
78.7
|
|
Additional paid-in capital
|
|
61.9
|
|
62.1
|
|
Cost of shares of treasury - 17,409,666
shares in 2009 and 17,654,759 shares in 2008
|
|
(222.7
|
)
|
(225.5
|
)
|
Accumulated other comprehensive loss
|
|
(41.2
|
)
|
(39.5
|
)
|
Retained earnings
|
|
1,215.4
|
|
1,218.3
|
|
Total shareholders equity
|
|
1,092.1
|
|
1,094.1
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
1,999.7
|
|
$
|
2,075.9
|
|
See accompanying notes to Unaudited Consolidated Financial Statements
2
Carlisle Companies Incorporated
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2009 and 2008
(Dollars in millions)
(Unaudited)
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
Net income (loss)
|
|
$
|
6.6
|
|
$
|
(62.6
|
)
|
Reconciliation of net income (loss) to cash
flows from operating activities:
|
|
|
|
|
|
Depreciation
|
|
14.8
|
|
16.7
|
|
Amortization
|
|
2.6
|
|
1.6
|
|
Non-cash compensation
|
|
3.3
|
|
2.9
|
|
Earnings of equity investments
|
|
(0.1
|
)
|
(0.4
|
)
|
Loss (gain) on sale of property and
equipment, net
|
|
(1.2
|
)
|
|
|
Loss on writedown of assets
|
|
3.6
|
|
124.2
|
|
Gain from insurance recoveries
|
|
(2.6
|
)
|
|
|
Deferred taxes
|
|
(3.2
|
)
|
(37.9
|
)
|
Tax benefits from stock-based compensation
|
|
0.3
|
|
(0.1
|
)
|
Changes in assets and liabilities,
excluding effects of acquisitions and divestitures:
|
|
|
|
|
|
Current and long-term receivables
|
|
12.8
|
|
(29.0
|
)
|
Inventories
|
|
59.6
|
|
(13.1
|
)
|
Accounts payable and accrued expenses
|
|
(50.7
|
)
|
(4.6
|
)
|
Income taxes
|
|
14.3
|
|
8.3
|
|
Long-term liabilities
|
|
3.0
|
|
1.9
|
|
Other operating activities
|
|
0.4
|
|
(0.7
|
)
|
Net cash provided by operating activities
|
|
63.5
|
|
7.2
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
Capital expenditures
|
|
(10.3
|
)
|
(23.0
|
)
|
Acquisitions, net of cash
|
|
|
|
(95.4
|
)
|
Proceeds from sale of property and
equipment
|
|
|
|
0.3
|
|
Purchase of security investments
|
|
|
|
(41.9
|
)
|
Other investing activities
|
|
0.8
|
|
(0.1
|
)
|
Net cash used in investing activities
|
|
(9.5
|
)
|
(160.1
|
)
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
Net change in short-term borrowings and
revolving credit lines
|
|
(26.9
|
)
|
135.8
|
|
Dividends
|
|
(9.5
|
)
|
(8.9
|
)
|
Treasury share repurchases
|
|
|
|
(4.8
|
)
|
Treasury shares and stock options, net
|
|
(0.5
|
)
|
(1.3
|
)
|
Tax benefits from stock-based compensation
|
|
(0.3
|
)
|
0.1
|
|
Net cash (used in) provided by financing
activities
|
|
(37.2
|
)
|
120.9
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
(0.2
|
)
|
0.4
|
|
Change in cash and cash equivalents
|
|
16.6
|
|
(31.6
|
)
|
Cash and cash equivalents
|
|
|
|
|
|
Beginning of period
|
|
42.7
|
|
88.4
|
|
End of period
|
|
$
|
59.3
|
|
$
|
56.8
|
|
See accompanying notes to Unaudited Consolidated Financial Statements
3
Notes to
Unaudited Consolidated Financial Statements
Three Months Ended March 31, 2009 and
2008
(1)
Basis of Presentation
The accompanying unaudited consolidated financial statements include
the accounts of Carlisle Companies Incorporated and its wholly-owned
subsidiaries (together, the Company or Carlisle). Intercompany transactions and balances have
been eliminated in consolidation. The unaudited consolidated financial
statements have been prepared in accordance with Article 10-01 of
Regulation S-X of the Securities and Exchange Commission and, as such, do not
include all information required by generally accepted accounting principles
for annual financial statements. However, in the opinion of the Company, these
financial statements contain all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial statements for the
interim periods presented herein.
Results of operations for the three months ended March 31, 2009 are
not necessarily indicative of the operating results for the full year.
While the Company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these financial
statements be read in conjunction with the financial statements and notes
included in the Companys 2008 Form 10-K.
(2)
Reclassifications and
Restatements
Certain
reclassifications have been made to the information for the three months ending
March 31, 2008, to conform to the current years presentation.
Consolidated
Statements of Earnings and Comprehensive Income have been retrospectively
adjusted to reflect the effects of discontinued operations. Segment information presented in Note 15 has
also been restated from prior years presentation to reflect the Companys
discontinued operations and assets held for sale. See Note 8 for additional information
regarding discontinued operations.
Earnings
per share for the three months ended March 31, 2008 have been revised to
reflect the implementation of FASB Staff Position 03-06-1. See Notes 3 and 17 for additional
information.
(3)
New Accounting Pronouncements
New accounting standards adopted
In
January 2008, the Company adopted SFAS No. 157, Fair Value
Measurements (SFAS 157) for financial assets and liabilities. SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. SFAS 157 applies only for fair value
measurements that are already required or permitted by other accounting
standards (except for measurements of share-based payments) and is intended to
increase the consistency of those measurements.
Accordingly, SFAS 157 does not require any new fair value measurements. Adoption of this standard had no material
effect on the Companys statement of earnings or financial position. In February 2008, FASB Staff Position
(FSP) No. FAS 157-2 was issued, which deferred the effective date of SFAS
157 by one year for certain types of nonfinancial assets and nonfinancial
liabilities to fiscal years beginning after November 15, 2008. The Company has adopted the provisions of
this standard as it relates to the fair value measurement of non-financial
assets and liabilities effective January 1, 2009. The adoption did not have a material impact
on the Companys consolidated financial statements. See Note 5 for additional information.
4
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and SFAS No. 160,
Accounting and Reporting of
Noncontrolling Interest in Consolidated Financial Statements, an amendment of
ARB No. 51. These new standards will significantly change the
accounting for and reporting of business combination transactions and noncontrolling
(minority) interests in consolidated financial statements. SFAS Nos. 141(R) and
160 are required to be adopted simultaneously and are effective for the first
annual reporting period beginning on or after December 15, 2008. The Company has adopted the provisions of
these statements prospectively, as required, beginning January 1,
2009. There were no business
combinations, or acquisitions of noncontrolling interests in the first quarter
of 2009 and thus the adoption did not impact the Companys consolidated
financial statements.
In
March 2008, the FASB issued SFAS No. 161 (SFAS 161),
Disclosures about
Derivative Instruments and Hedging Activities
. SFAS 161 applies to all derivative
instruments and nonderivative instruments that are designated and qualify as
hedging instruments pursuant to paragraphs 37 and 42 of SFAS 133 and related
hedged items accounted for under SFAS 133,
Accounting
for Derivative Instruments and Hedging Activities
. SFAS 161 requires entities to provide greater
transparency through additional disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under SFAS 133 and its related
interpretations, and (c) how derivative instruments and related hedged
items affect an entitys financial position, results of operations, and cash
flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning
after November 15, 2008. At March 31, 2009, the Company had no active
derivative instruments, thus the adoption of this standard had no effect on its
consolidated financial statements.
In
June 2008, the FASB issued FASB Staff Position EITF 03-6-1 (FSP EITF
03-6-1), Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities. FSP EITF 03-06-1 clarifies that
unvested share-based payment awards with a right to receive nonforfeitable
dividends are participating securities for purposes of applying the two-class
method of computing earnings per share.
The Company adopted the provisions of this FSP effective January 1,
2009. The adoption did not have a
material effect on the Companys consolidated financial statements. See Note 17 for more information regarding
the Companys adoption of this standard.
(4)
Fire Loss
On
November 16, 2008, a fire occurred at the tire and wheel plant in Bowdon,
GA, and as a result the building and the majority of the machinery, equipment,
records and other assets were destroyed.
The Company had property insurance coverage on the plant and in the
fourth quarter of 2008 recorded a receivable of $16.9 million representing
losses recorded in the same period, less a deductible of $0.1 million. Discussions are underway with the insurance
carriers regarding the Companys claims on the loss of the building, the loss
of business personal property except inventory on which the claim was settled
during the first quarter of 2009, and the loss related to the business
interruption.
In
order to service customers, partial operations were initiated at a facility in
Heflin, AL, and some production was transferred to other tire and wheel plants
or outsourced to third parties.
During
the first quarter of 2009, $5.4 million of fire-related expenses were incurred. These expenses included $1.3 million of site
clean-up, $1.2 million of mold repair, $1.0 million of extra expenses primarily
covering the modification of presses for use at the temporary facility in
Heflin, AL, $0.9
5
million
of equipment and supplies, $0.4 million of employee costs for time not worked,
and $0.6 million of other expenses.
These $5.4 million of expenses were recorded as Other operating expense.
A
$2.6 million gain on the settlement of the inventory claim was recorded as an
offset to Other operating expense in the first quarter of 2009. This gain was the difference between $8.9
million, representing losses recorded in the fourth quarter of 2008 and for
which a receivable was recorded at December 31, 2008, and $11.5 million of
cash proceeds received from the insurance carriers to settle the inventory
claim in the first quarter of 2009.
An
$11.2 million insurance claims receivable balance at March 31, 2009 was
included in Prepaid expenses and other current assets for a portion of the
expected insurance reimbursements. This
$11.2 million is comprised of a $5.9 million balance of the insurance claims
receivable for the period from November 16, 2008 through December 31,
2008 and a $5.3 million balance of the insurance claims receivable for the
period from January 1, 2009 through March 31, 2009. The insurance claims receivable for this $5.3
million was recorded as an offset to Other operating expense. The net result of fire-related transactions
in the quarter ended March 31, 2009 was a $2.5 million gain reported in
Other operating expense.
The
ultimate amount of expected insurance reimbursements is not currently
estimable; however, it is probable that the full amount of loss will be
recovered, except for the $0.1 million deductible.
Total
payments of $13.5 million have been received from the insurance carriers. One of the three insurance carriers for these
claims is a subsidiary of American International Group, which has recently
relied on U.S. government funding.
Although no unusual delays have been experienced during the insurance
claims process and no collectability reserves have been established, this could
affect the insurance carriers ability to pay the remaining insurance claims
receivable.
(5)
Fair Value Measurements
As
described in Note 3, New Accounting Pronouncements, the Company adopted SFAS
157 effective January 1, 2008 and adopted the provisions applicable to
FASB Staff Position (FSP) No. FAS 157-2 effective January 1, 2009. SFAS 157 defines fair value as the price that
would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. SFAS 157 also describes three levels of
inputs that may be used to measure fair value:
Level 1 quoted prices in active markets for
identical assets and liabilities.
Level
2 observable inputs other than quoted prices in active markets for identical
assets and liabilities.
Level
3 unobservable inputs in which there is little or no market data available,
which requires the reporting entity to develop its own assumptions.
The
fair value of the Companys assets and liabilities measured at fair value on a
recurring basis were as follows:
6
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
In Active
|
|
Significant
|
|
|
|
|
|
Markets for
|
|
Other
|
|
|
|
Balance at
|
|
Identical
|
|
Observable
|
|
|
|
March 31,
|
|
Assets
|
|
Inputs
|
|
(In millions)
|
|
2009
|
|
Level 1
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
59.3
|
|
$
|
59.3
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the period ended March 31, 2009, the Company measured certain
non-financial assets at fair value on a nonrecurring basis pursuant to the
requirements of SFAS 144. These
measurements were based on managements decision to consolidate certain
manufacturing facilities in China within the tire and wheel business of the
Transportation Products segment and the planned disposition of the assets
related to the on-highway friction and brake shoe business reported in
Discontinued Operations.
Property,
plant and equipment within the tire and wheel business of the Transportation
Products segment with a carrying amount of $2.9 million were written down to a
fair value of zero, resulting in an impairment charge of $2.9 million, which
was included in Other operating expense for the three months ended March 31,
2009. The fair value determination was
based upon Level 3 inputs reflecting managements determination of the net
realizable value of the assets. Such assets primarily reflected leasehold
improvements that could not be transferred upon consolidation of locations.
Non-current
assets held for sale within the on-highway friction and brake shoe business
reported in Discontinued Operations with a carrying amount of $1.5 million were
written down to a fair value of $0.7 million, resulting in an impairment charge
of $0.8 million, which was included in Loss from discontinued operations for
the three months ended March 31, 2009.
The fair value measurement was based upon Level 2 inputs.
(6)
Employee Stock-Based Compensation
Arrangements
Stock Options
The Company uses the fair value method of accounting
for employee stock-based compensation.
Effective 2008, stock option awards vest one-third on the first
anniversary of grant, one-third on the second anniversary of grant and the
remaining one-third on the third anniversary of grant. Prior to 2008, stock
option awards generally vest ratably within a period of two years, with the
first one-third vesting immediately upon grant.
Compensation expense related to stock options
of $1.4 million was recognized for both the three months ended March 31,
2009 and 2008. The following table
summarizes the stock option activity for the three months ended March 31,
2009.
7
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
Price
|
|
|
|
|
|
|
|
Outstanding at January 1, 2009
|
|
2,814,003
|
|
$
|
33.91
|
|
Granted
|
|
1,598,095
|
|
$
|
19.59
|
|
Forfeited
|
|
(37,280
|
)
|
$
|
27.13
|
|
|
|
|
|
|
|
Outstanding at March 31, 2009 *
|
|
4,374,818
|
|
$
|
28.74
|
|
* No options were exercised during the three
months ended March 31, 2009.
Restricted Shares
Restricted shares are generally released to the
recipient after a period of three years; however, 100,000 shares awarded to
executive management in the second quarter of 2007 and 56,700 shares awarded to
executive management in the first quarter of 2008 vest ratably over five
years. Compensation expense related to
restricted shares and restricted share unit awards of $2.0 million and $1.5
million was recognized for the three months ended March 31, 2009 and 2008,
respectively.
(7)
Acquisitions
On April 28, 2008, the Company acquired 100% of
the equity of Carlyle Incorporated (Carlyle), a leading provider of
sophisticated aerospace and network interconnection solutions, for a purchase
price of approximately $194 million.
Carlyle is located in Tukwila, WA and is under the management direction
of the interconnect technologies business, and operating results since the
acquisition date have been included in the Applied Technologies segment. Although the Company is continuing to
evaluate the purchase price allocation, the initial purchase price allocation
resulted in goodwill of approximately $123.2 million and identified intangible
assets of $75.0 million. Of the $75.0
million of identified intangible assets, $74.0 million was assigned to customer
relationships with a useful life of 20 years and $1.0 million was assigned to
covenants not-to-compete with a determinable useful life of 5 years. The goodwill from this acquisition is not
deductible for tax purposes.
On January 25, 2008, the Company acquired 100%
of the equity of both Dinex International, Inc. and Proex, Inc. (collectively
Dinex), leading suppliers of foodservice products to the healthcare and other
institutional industries, for approximately $96 million. Dinex has facilities in Glastonbury, CT and
Batavia, IL, and is under the management direction of the foodservice business,
and operating results since the acquisition date have been included in the
Applied Technologies segment. The
purchase price allocation resulted in goodwill of approximately $29.3 million
and identified intangible assets of $49.8 million. Of the $49.8 million of identified intangible
assets, $8.0 million was assigned to trade names that are not subject to
amortization, $37.0 million was assigned to customer relationships with a
weighted average useful life of 16.4 years, $1.0 million was assigned to
patents with a determinable useful life of 6 years, and the remaining $3.8
million was assigned to other intangible assets with a weighted average useful
life of 6.5 years. The goodwill from
this acquisition is deductible for tax purposes.
8
(8)
Discontinued Operations and Assets Held for Sale
In the second quarter of 2008, in keeping with the Companys plan to
simplify its business and focus attention on its remaining businesses and
operating segments, the Company announced its decision to pursue disposition of
both its power transmission belt business and its on-highway friction and brake
shoe business. The Company intends to complete the sale of the power
transmission business in 2009. During the first quarter of 2009, the Company
made the decision to exit, rather than sell, the on-highway friction and brake
shoe business and dispose of the assets as part of a planned dissolution. In
the second quarter of 2007, as part of its commitment to concentrate on its
core businesses, the Company announced plans to exit the custom thermoset
products molding operation (thermoset molding operation). The disposition of
the thermoset molding operation was completed in 2008.
The assets of these operations have met the criteria for, and have been
classified as held for sale in accordance with SFAS 144, Accounting for the
Impairment and Disposal of Long-Lived Assets.
In addition, results of operations for these businesses, and any gains
or losses recognized from their sale, are reported as discontinued operations
in accordance with SFAS 144.
Total assets held for sale were as follows:
|
|
March 31,
|
|
December 31,
|
|
In millions
|
|
2009
|
|
2008
|
|
Assets held for sale:
|
|
|
|
|
|
Power transmission belt business
|
|
$
|
100.9
|
|
$
|
101.9
|
|
On-highway brake business
|
|
23.9
|
|
34.4
|
|
Thermoset molding operation
|
|
1.7
|
|
1.7
|
|
Total assets held for sale
|
|
$
|
126.5
|
|
$
|
138.0
|
|
At March 31, 2009, and December 31, 2008, the remaining
assets of the thermoset molding operation consisted of land and building
formerly utilized by the operation.
9
The major classes of assets and liabilities held for sale included in
the Companys Consolidated Balance Sheets were as follows:
|
|
March 31,
|
|
December 31,
|
|
In millions
|
|
2009
|
|
2008
|
|
Assets held for sale:
|
|
|
|
|
|
Receivables
|
|
$
|
26.4
|
|
$
|
26.0
|
|
Inventories
|
|
50.6
|
|
62.5
|
|
Prepaid expenses and other current assets
|
|
1.6
|
|
1.6
|
|
Total current assets held for sale
|
|
78.6
|
|
90.1
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
47.0
|
|
46.9
|
|
Other long term assets
|
|
0.9
|
|
1.0
|
|
Total non-current assets held for sale
|
|
47.9
|
|
47.9
|
|
Total assets held for sale
|
|
$
|
126.5
|
|
$
|
138.0
|
|
|
|
|
|
|
|
Liabilities associated with assets held for
sale:
|
|
|
|
|
|
Accounts payable
|
|
$
|
7.3
|
|
$
|
8.6
|
|
Accrued expenses
|
|
19.3
|
|
20.3
|
|
Total liabilities associated with assets
held for sale
|
|
$
|
26.6
|
|
$
|
28.9
|
|
Net sales and income (loss) before income taxes from discontinued
operations were as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
In millions
|
|
2009
|
|
2008 *
|
|
Net sales:
|
|
|
|
|
|
Power transmission belt business
|
|
$
|
32.0
|
|
$
|
40.5
|
|
On-highway brake business
|
|
10.0
|
|
15.3
|
|
Thermoset molding operation
|
|
|
|
2.2
|
|
Net sales for discontinued operations
|
|
$
|
42.0
|
|
$
|
58.0
|
|
|
|
|
|
|
|
Income (loss) from operations of
discontinued operations:
|
|
|
|
|
|
Power transmission belt business
|
|
$
|
2.4
|
|
$
|
(66.5
|
)
|
On-highway brake business
|
|
(9.7
|
)
|
(59.3
|
)
|
Thermoset molding operation
|
|
(0.1
|
)
|
(0.1
|
)
|
Automotive components
|
|
(0.1
|
)
|
(1.3
|
)
|
Systems and equipment
|
|
0.9
|
|
|
|
Loss before income taxes from discontinued
operations
|
|
$
|
(6.6
|
)
|
$
|
(127.2
|
)
|
* 2008 amounts have been restated to reflect the
power transmission belt and on-highway brake businesses as discontinued
operations. Results may differ from prior presentations due to rounding.
Results
for the three months ended March 31, 2009 included $6.0 million of pre-tax
expenses related to the planned disposition of the on-highway friction and
brake shoe business, including an inventory
10
write-down
of $3.4 million, property, plant and equipment impairment costs of $0.8 million
and severance costs of $1.8 million.
These expenses were recorded pursuant to the requirements of SFAS 144
and SFAS 146. Results for the three months ended March 31, 2008 reflected
$124.2 million in pre-tax impairment charges in connection with the power
transmission belt and on-highway friction and brake shoe businesses which were
recognized under SFAS 142 and SFAS 144.
(9) Inventories
The Company is a diversified manufacturing entity
comprised of multiple domestic and foreign companies that operate as distinct
businesses manufacturing different products.
The First-in, First-out (FIFO) method was used to value inventories.
The components of inventories were as follows:
|
|
March 31,
|
|
December 31,
|
|
In millions
|
|
2009
|
|
2008
|
|
Finished goods
|
|
$
|
260.6
|
|
$
|
288.1
|
|
Work-in-process
|
|
35.4
|
|
34.9
|
|
Raw materials
|
|
143.1
|
|
152.9
|
|
Reserves and variances - net
|
|
(14.5
|
)
|
10.8
|
|
|
|
424.6
|
|
486.7
|
|
Inventories associated with assets held for
sale
|
|
(50.6
|
)
|
(62.5
|
)
|
Inventories
|
|
$
|
374.0
|
|
$
|
424.2
|
|
(10) Goodwill, Patents and Other Intangible Assets
The changes in the carrying amount of goodwill for
the three months ended March 31, 2009 were as follows:
|
|
Construction
|
|
Transportation
|
|
Applied
|
|
Specialty
|
|
|
|
In millions
|
|
Materials
|
|
Products
|
|
Technologies
|
|
Products
|
|
Total
|
|
Balance at January 1, 2009
|
|
$
|
88.3
|
|
$
|
99.6
|
|
$
|
221.8
|
|
$
|
26.1
|
|
$
|
435.8
|
|
Purchase accounting adjustments
|
|
|
|
|
|
0.7
|
|
|
|
0.7
|
|
Currency translation
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
Balance at March 31, 2009
|
|
$
|
88.0
|
|
$
|
99.6
|
|
$
|
222.5
|
|
$
|
26.1
|
|
$
|
436.2
|
|
The Companys patents and other intangible assets at March 31,
2009, were as follows:
|
|
Acquired
|
|
Accumulated
|
|
Net Book
|
|
In millions
|
|
Cost
|
|
Amortization
|
|
Value
|
|
Assets subject to amortization
|
|
|
|
|
|
|
|
Patents
|
|
$
|
9.0
|
|
$
|
(7.2
|
)
|
$
|
1.8
|
|
Customer Relationships
|
|
134.5
|
|
(16.0
|
)
|
118.5
|
|
Other
|
|
7.6
|
|
(2.6
|
)
|
5.0
|
|
Assets not subject to amortization
|
|
|
|
|
|
|
|
Trade names
|
|
18.3
|
|
|
|
18.3
|
|
|
|
$
|
169.4
|
|
$
|
(25.8
|
)
|
$
|
143.6
|
|
11
Estimated
amortization expense for the remainder of 2009 and the next four years is as
follows: $7.9 million remaining in 2009, $10.5 million in 2010, $10.0 million
in 2011, $8.9 million in 2012 and $7.9 million in 2013.
(11) Retirement Plans and Other Postretirement Benefits
Components of net periodic benefit cost were as
follows:
|
|
Pension Benefits
|
|
Post-retirement Benefits
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
March 31,
|
|
In millions
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Service costs - benefits earned during the
quarter
|
|
$
|
1.2
|
|
$
|
1.2
|
|
$
|
|
|
$
|
|
|
Interest cost on benefits earned in prior
years
|
|
2.6
|
|
2.4
|
|
0.1
|
|
0.1
|
|
Expected return on plan assets
|
|
(3.1
|
)
|
(3.1
|
)
|
|
|
|
|
Amortization of unrecognized net actuarial
loss
|
|
0.3
|
|
0.1
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
1.0
|
|
$
|
0.6
|
|
$
|
0.1
|
|
$
|
0.1
|
|
The Company made no contribution to the pension
plans during the period ended March 31, 2009. However, the Company expects
to contribute approximately $8.6 million to its pension plan in 2009.
The Company maintains defined contribution plans to
which it has contributed $2.7 million during the three months ended March 31,
2009. Full year contributions are
expected to approximate $10.9 million.
(12) Other Long-Term Liabilities
The components of other long-term liabilities were
as follows:
|
|
March 31,
|
|
December 31,
|
|
In millions
|
|
2009
|
|
2008
|
|
Deferred taxes and other tax liabilities
under FIN 48
|
|
$
|
95.5
|
|
$
|
92.4
|
|
Pension and other post-retirement
obligations
|
|
62.1
|
|
60.5
|
|
Long-term warranty obligations
|
|
2.4
|
|
2.1
|
|
Other
|
|
3.3
|
|
4.8
|
|
Other long-term liabilities
|
|
$
|
163.3
|
|
$
|
159.8
|
|
(13) Commitments and Contingencies
For its continuing and discontinued operations, the Company is
obligated under various noncancelable operating leases for certain facilities
and equipment. Future minimum payments
under its various noncancelable operating leases during the remainder of 2009
and in each of the next four years are approximately $14.9 million in 2009,
$17.8 million in 2010, $13.9 million in 2011, $9.9 million in 2012, $6.5
million in 2013 and $17.7 million thereafter.
At March 31, 2009, letters of credit amounting to $34.5 million
were outstanding, primarily to provide security under insurance arrangements
and certain borrowings.
12
The Company has financial guarantee lines in place for certain of its
operations in the U.S. and Europe to facilitate working capital needs, customer
performance and payment and warranty obligations. At March 31, 2009, the Company had
issued guarantees of $0.8 million, of which an immaterial amount is recorded in
current liabilities or other long-term liabilities. The fair value of these guarantees is
estimated to equal the amount of the guarantees at March 31, 2009, due to
their short-term nature.
During 2005, the Company
sold certain assets and liabilities of its discontinued automotive components
business which was part of a series of sales. Certain leases guaranteed by the
Company expire in 2009 and 2011 and have total minimum lease payments of $1.0
million at March 31, 2009. The Company believes that the current lessee
will fulfill all obligations required by those lease agreements.
The
Company offers various warranty programs on its installed roofing systems,
braking products, truck trailers, and refrigerated truck bodies. The change in the Companys aggregate product
warranty liabilities for the period ended March 31 was as follows:
In millions
|
|
2009
|
|
2008
|
|
Beginning reserve
|
|
$
|
7.2
|
|
$
|
7.4
|
|
Current year provision
|
|
3.0
|
|
2.1
|
|
Current year claims
|
|
(2.8
|
)
|
(2.3
|
)
|
Ending reserve
|
|
$
|
7.4
|
|
$
|
7.2
|
|
The
amount of extended product warranty revenues recognized was $3.8 million for
the three months ended March 31, 2009, and $3.6 million for the three
months ended March 31, 2008.
Although
the Company has entered into long-term purchase agreements for certain key raw
materials, there were no take-or-pay contracts exceeding one year in place at March 31,
2009.
The
Company maintains self-retained liabilities for workers compensation, medical,
general liability and property claims up to applicable retention limits.
Retention limits are between $0.5 million and $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.
(14) Derivative Instruments and Hedging Activities
The
Company is exposed to the impact of changes in interest rates and market values
of its debt instruments, changes in raw material prices and foreign currency
fluctuations. Management of interest rate exposure includes consideration of the
use of treasury lock contracts and interest rate swaps to reduce the volatility
of cash flows, the impact on earnings, and to lower its cost of capital.
On
June 15, 2005, the Company entered into treasury lock contracts with a
notional amount of $150.0 million to hedge the cash flow variability on
forecasted debt interest payments associated with changes in interest
rates. These contracts were designated
as cash flow hedges and were deemed effective at the origination date. On August 15, 2006, the Company
terminated the treasury lock contracts resulting in a gain of $5.6 million
($3.5 million, net of tax), which will
be amortized to reduce interest expense until August 2016, the term of the
interest payments related to the $150.0 million in notes issued on August 18,
2006. At March 31, 2009, the
Company had a remaining
13
unamortized
gain of $4.2 million ($2.6 million, net of tax) which is reflected in
Accumulated other comprehensive loss on the Companys Consolidated Balance
Sheets. Approximately $0.4 million ($0.3
million, net of tax) is expected to be amortized to reduce Interest expense,
net in 2009.
(15) Segment Information
The Company manages its businesses under the following four operating
groups and reporting segments:
·
Construction
Materials:
the construction
materials business;
·
Transportation
Products:
the tire and
wheel business and the specialty trailer business;
·
Applied
Technologies:
the interconnect
technologies business and the foodservice products business; and
·
Specialty
Products:
the off-highway
braking business and the refrigerated truck bodies business.
Sales, operating income and assets for
continuing operations by reportable segment are included in the following
summary:
|
|
2009
|
|
2008 (2)
|
|
Three Months Ended March 31,
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
|
In millions
|
|
Sales
(1)
|
|
Income
|
|
Assets
|
|
Sales(1)
|
|
Income
|
|
Assets
|
|
Construction Materials
|
|
$
|
207.6
|
|
$
|
5.3
|
|
$
|
617.5
|
|
$
|
282.1
|
|
$
|
14.9
|
|
$
|
701.8
|
|
Transportation Products
|
|
168.1
|
|
7.4
|
|
507.0
|
|
242.0
|
|
23.9
|
|
564.6
|
|
Applied Technologies
|
|
102.6
|
|
8.4
|
|
553.5
|
|
91.0
|
|
9.9
|
|
360.1
|
|
Specialty Products
|
|
32.8
|
|
4.2
|
|
109.4
|
|
37.3
|
|
4.9
|
|
116.0
|
|
Corporate
|
|
|
|
(7.9
|
)
|
85.8
|
|
|
|
(8.1
|
)
|
142.8
|
|
Total
|
|
$
|
511.1
|
|
$
|
17.4
|
|
$
|
1,873.2
|
|
$
|
652.4
|
|
$
|
45.5
|
|
$
|
1,885.3
|
|
(1) Excludes intersegment sales
(2) 2008 amounts have been restated to
reflect discontinued operations.
A reconciliation of assets reported above to total assets as presented
on the Companys Consolidated Balance Sheets is as follows:
|
|
2009
|
|
Assets per table above
|
|
$
|
1,873.2
|
|
Assets held for sale of discontinued
operations
|
|
126.5
|
|
Total Assets per Consolidated Balance Sheet
|
|
$
|
1,999.7
|
|
(16) Income Taxes
The Companys effective tax rate on continuing
operations of 35.1% for the three months ended March 31, 2009, is not
materially different from the statutory rate within the United States of 35.0%.
The total gross liability for uncertain tax
positions under FASB Interpretation No. (FIN) 48 at March 31, 2009,
was $18.8 million. The total amount of
unrecognized tax benefit as of March 31, 2009, was $13.4 million. The Company classifies and reports interest
and penalties associated with uncertain tax positions as Income tax expense on
the Consolidated Statements of Earnings and Comprehensive Income, and as other
tax liabilities on the Consolidated Balance Sheets. The total
14
amount of interest and penalties accrued at March 31,
2009, was $3.3 million. The entire
balance accrued for uncertain tax positions at March 31, 2009, if
recognized, would affect the Companys effective tax rate.
The Company is subject to U.S. federal income tax as
well as income tax in multiple state and foreign jurisdictions. The Company has concluded all U.S. federal
income tax examinations through 2007.
Substantially all material state and foreign tax matters have been
concluded for tax years through 2003.
Within the next twelve months, federal, state and foreign audits may
conclude and affect the amount of unrecognized tax benefits. The amount of the change in unrecognized tax
benefits that may result from audits within the next twelve months is not
known.
(17) Earnings Per Share
Basic earnings per share amounts are calculated by dividing Income from
continuing operations, Loss from discontinued operations, and Net income (loss)
for the period attributable to common shareholders by the weighted-average
number of common shares outstanding during the period.
Diluted earnings per share amounts are calculated by dividing Income
from continuing operations, Loss from discontinued operations, and Net income
(loss) for the period attributable to common shareholders by the
weighted-average number of common shares outstanding plus the weighted-average
number of common shares that would be issued on conversion of all of the
potentially-dilutive common shares into common shares.
The following reflects the Income from continuing operations and share
data used in the basic and diluted earnings per share computations:
15
|
|
Three Months Ended
|
|
|
March 31,
|
|
(In millions, except share and per share amounts)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
10.0
|
|
$
|
28.2
|
|
Less: dividends declared - common stock
outstanding, unvested restricted shares and restricted share units
|
|
(9.5
|
)
|
(8.9
|
)
|
Undistributed earnings
|
|
0.5
|
|
19.3
|
|
Percent allocated to common shareholders
(1)
|
|
98.8
|
%
|
99.1
|
%
|
|
|
0.5
|
|
19.1
|
|
Add: dividends declared - common stock
|
|
9.4
|
|
8.8
|
|
Numerator for basic and diluted EPS
|
|
$
|
9.9
|
|
$
|
27.9
|
|
|
|
|
|
|
|
Denominator (in thousands):
|
|
|
|
|
|
Denominator for basic EPS:
weighted-average common shares outstanding
|
|
60,568
|
|
60,594
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Stock
options
|
|
348
|
|
397
|
|
Denominator for diluted EPS:
adjusted weighted average common shares outstanding and assumed conversion
|
|
60,916
|
|
60,991
|
|
|
|
|
|
|
|
Per share income from continuing
operations:
|
|
|
|
|
|
Basic
|
|
$
|
0.16
|
|
$
|
0.46
|
|
Diluted
|
|
$
|
0.16
|
|
$
|
0.46
|
|
(1) Basic weighted-average common
shares outstanding
|
|
60,568
|
|
60,594
|
|
Basic weighted-average common
shares outstanding, unvested restricted shares expected to vest and restricted
share units
|
|
61,279
|
|
61,119
|
|
Percent allocated to common shareholders
|
|
98.8
|
%
|
99.1
|
%
|
To calculate earnings per share for the Loss from discontinued
operations and for Net income (loss), the denominator for both basic and
diluted earnings per share is the same as used in the above table. The Loss from discontinued operations and the
Net income (loss) were as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Loss from discontinued operations
attributable to common shareholders for basic and diluted earnings per share
|
|
$
|
(3.4
|
)
|
$
|
(90.0
|
)
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders for unvested
restricted shares and restricted share units
|
|
$
|
6.5
|
|
$
|
(62.1
|
)
|
On January 1, 2009, as described in Note 3, New Accounting Pronouncements,
the Company adopted FSP EITF 03-06-1, Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities. The Companys unvested restricted shares
contain nonforfeitable rights to dividends and, therefore, are participating
securities that are included in the computation of earnings per share pursuant
to the two-class method. The above
computation of
16
earnings per share excludes the income attributable to the unvested
restricted shares and vested restricted stock units from the numerator and
excludes the dilutive impact of those unvested restricted shares and the vested
restricted share units from the denominator.
At March 31, 2009 and 2008, the Company had 4,374,818 and
2,845,158 of outstanding stock options, respectively. Stock options are included in the diluted
earnings per share computation using the treasury stock method.
At March 31, 2009 and 2008, under the Companys restricted stock
plan 670,615 and 510,345 unvested restricted shares were outstanding,
respectively. In addition at March 31,
2009 and 2008, under an equity plan for non-employee directors, 43,630 and
14,440 of vested restricted share units were outstanding.
(18)
Exit And Disposal
Activities
The following table represents the effects of exit and disposal
activities related to continuing operations on the Companys Consolidated
Statements of Earnings for the three months ended March 31, 2009. There were no exit and disposal activities
reported for the three months ended March 31 2008.
|
|
March 31,
|
|
In millions
|
|
2009
|
|
Cost of goods sold
|
|
$
|
0.4
|
|
Selling and administrative expenses
|
|
0.5
|
|
Other operating expense
|
|
2.9
|
|
Total exit and disposal costs
|
|
$
|
3.8
|
|
Exit and disposal activities by type of charge were as follows:
|
|
March 31,
|
|
In millions
|
|
2009
|
|
Termination benefits
|
|
$
|
0.2
|
|
Contract termination costs
|
|
0.4
|
|
Fixed asset impairment
|
|
2.9
|
|
Other associated costs
|
|
0.3
|
|
Total exit and disposal costs
|
|
$
|
3.8
|
|
Exit and disposal accrual activities for the period ended March 31,
2009 were as follows:
In millions
|
|
Severance
costs
|
|
Contract
termination
costs
|
|
Asset
Impairment
|
|
Other
associated
costs
|
|
Total
|
|
Balance at December 31, 2008
|
|
$
|
0.2
|
|
$
|
0.7
|
|
$
|
|
|
$
|
0.4
|
|
$
|
1.3
|
|
2009 charges to expense and adjustments
|
|
0.2
|
|
0.4
|
|
2.9
|
|
0.3
|
|
3.8
|
|
2009 usage
|
|
(0.2
|
)
|
(0.6
|
)
|
(2.9
|
)
|
(0.1
|
)
|
(3.8
|
)
|
Balance at March 31, 2009
|
|
$
|
0.2
|
|
$
|
0.5
|
|
$
|
|
|
$
|
0.6
|
|
$
|
1.3
|
|
Exit and disposal activities by segment were as follows:
17
|
|
March 31,
|
|
In millions
|
|
2009
|
|
Total by segment
|
|
|
|
Transportation Products
|
|
$
|
3.7
|
|
Applied Technologies
|
|
0.1
|
|
Total exit and disposal costs
|
|
$
|
3.8
|
|
Transportation Products
In the fourth quarter of 2008, the Company began the consolidation
of three distribution centers located in the Southeast U.S. into McDonough, GA,
two facilities in Texas into one facility, and two facilities in Spokane, WA
into Ontario, CA. During 2008, the
Company also announced plans to consolidate the California wheel manufacturing
operations into one location during 2009.
In the first quarter of 2009, the Company announced plans to
consolidate its pneumatic tire manufacturing operations in Buji, China to its
other manufacturing location in Meizhou, China.
In addition, consolidations of the Lithia Springs, GA distribution
center and Carlisle, PA warehouse into other locations were completed. Also in the first quarter of 2009, the
Company announced plans to consolidate its Perrysburg, OH distribution center.
During the period ended March 31, 2009, $3.7 million in exit and
disposal and restructuring charges were incurred related to the additional
closures and consolidations. These were
comprised of fixed asset impairment charges of $2.9 million related to the
consolidation in China, $0.2 million of employee severance costs, $0.4 million
of contract termination costs and $0.2 million in moving, relocation and other
expenses. Refer to Note 5 for further
information on the fixed asset impairment.
Included in Accrued liabilities at March 31, 2009, was $1.0 million
related to unpaid severance, contract termination, moving and relocation, and
other costs.
The estimated total pre-tax cost to exit the distribution and
manufacturing facilities announced in 2008 and 2009 is $10.9 million. Through March 31,
2009, $4.5 million has been incurred.
The remaining $6.4 million is expected to be incurred through the
remainder of 2009.
Applied Technologies
Exit and disposal costs of $2.2 million were incurred in the
foodservice business in 2008 related to the consolidation of the Georgia and
Wisconsin janitorial/sanitation manufacturing facilities into one facility in
Sparta, WI. At December 31, 2008,
$0.2 million of employee termination costs were included in Accrued
liabilities. Cash payments were made
during the period ended March 31, 2009 for most of this liability.
During the period ended March 31, 2009, an additional charge of
$0.1 million was incurred reflecting cash payments for moving and relocation
expense. At March 31, 2009, no
significant liability existed for unpaid exit and disposal costs related to
this consolidation and the project is expected to be complete in the second
quarter of 2009 with no additional material exit and disposal costs.
18
Item 2. Managements 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 and product line extensions, and
externally through acquisitions that complement the Companys existing
technologies, products and market channels.
Carlisle manages its businesses under the following four operating
groups and
reporting segments:
·
Construction Materials:
the construction materials business;
·
Transportation Products:
the tire and wheel business and the specialty
trailer business;
·
Applied Technologies:
the interconnect technologies business and
the foodservice products business; and
·
Specialty Products:
the off-highway brake business and the refrigerated
truck bodies business.
While
Carlisle has offshore manufacturing operations, the markets served by the
Company are primarily in North America.
Management focuses on maintaining a strong and flexible balance sheet,
continued year-over-year improvement in sales, operating margins and earnings,
globalization, and improving cash flow from operations. Resources are allocated among the operating
groups based on managements assessment of their ability to obtain leadership
positions and competitive advantages in the markets they serve.
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 Managements Discussion and Analysis.
Net
sales of $511.1 million for the three months ended March 31, 2009
represented a 22% decline from net sales of $652.4 million during the first
three months of 2008. Organic sales
(defined as net sales excluding the impact of acquisitions and divestitures
within the last twelve months as well as the impact of changes in foreign
exchange rates) declined 25% reflecting negative organic growth in all
segments, but primarily driven by lower sales volumes in the Construction
Materials and Transportation Products segments.
The acquisitions of the Dinex foodservice business (Dinex) in January 2008
and the Carlyle interconnect solutions business (Carlyle) in April 2008
reported in the Applied Technologies segment contributed $29.7 million in net
sales to first quarter 2009 results.
Approximately 1% of the sales decline was attributed to changes in
foreign currency exchange rates.
Operating
income in the first quarter of 2009 was $17.4 million, a 62% decline as
compared to operating income of $45.5 million for the first quarter of
2008. The primary drivers of the
decrease were lower sales volumes within the Construction Materials and
Transportation Products segments, higher unabsorbed manufacturing costs as a
result of lower production, particularly in the Construction Materials segment,
and higher raw material cost within the Transportation Products segment. Acquisitions contributed $4.0 million to
operating income in the first quarter of this year.
Income
from continuing operations of $10.0 million, or $0.16 per diluted share, for
the three months ended March 31, 2009 fell 65% compared to income from
continuing operations of $28.2 million, or $0.46 per diluted share for the same
period in 2008.
19
Sales and Earnings
Consolidated
Results of Continuing Operations
Net sales
for
the three months ended March 31, 2009 decreased $141.3 million compared to
the three months ended March 31, 2008.
The acquisitions of Dinex and Carlyle, reported in the Applied
Technologies segment, contributed $29.7 million in net sales during the first
three months of 2009. Organic sales fell
25% compared to last year on significantly weaker demand most notably in the
Construction Materials and Transportation Products segments. Partially offsetting the drop in volume was
an approximate 6% increase in selling prices, most of which were implemented in
the second half of 2008 as the Company attempted to recover the increase in raw
material cost experienced in 2008. The
impact of changes in foreign currency rates accounted for a 1% decline in sales
as compared to last year.
Cost of Goods Sold
of $422.1 million for the quarter ended March 31, 2009 decreased
$106.7 million, or 20% from $528.8 million in the first quarter of 2008, on a
decline in net sales of 22%. The decline
was attributable to lower sales volumes, partially offset by higher unabsorbed
overhead costs on decreased production and higher raw material costs reflecting
high valued inventory sold in the first quarter of this year.
Gross margin
(net sales less cost of goods sold expressed as a percent of net sales) of
17.4% in the first quarter of 2009 decreased compared to a gross margin of
18.9% in the first quarter in 2008. With the exception of the Specialty
Products segment, reductions in gross margins were reported across all
segments. The primary drivers were
higher unabsorbed overhead costs in the Construction Materials segment and
higher raw material costs in the Transportation Products segment.
Selling and administrative expenses
of $67.7 million for the quarter ended March 31,
2009 were $7.1 million, or 10%, lower than $74.8 million in the first three
months of 2008. Expenses were down across
all segments with the exception of the Applied Technologies segment where
expenses were higher reflecting the Dinex and Carlyle acquisitions. The reductions were primarily in commission
and other compensation expenses reflecting lower sales and headcount
reductions. As a percent of net sales,
selling and administrative expenses were 13.2% and 11.5% for the three months
ended March 31, 2009 and 2008, respectively.
Operating income
of $17.4 million in the first quarter of 2009 represented a 62% decline as
compared to $45.5 million in the first quarter of 2008. Operating margin (operating income expressed
as a percent of net sales) declined from 7.0% in the first quarter of 2008 to
3.4% in the first quarter of 2009. The
decline in operating income and operating margin reflected lower gross margins
and higher selling and administrative costs as a percent of sales as described
above.
Interest
expense, net
was $2.7
million for the three months ended March 31, 2009, compared to interest
expense, net of $4.1 million for the three months ended March 31, 2008,
primarily reflecting more favorable short-term interest rates in 2009.
Income from continuing operations, net of tax
was $10.0 million, or $0.16 per diluted
share for the three months ended March 31, 2009, a 65% decline from $28.2
million, or $0.46 per diluted share reported for the three months ended March 31,
2008.
20
Consolidated Results of Discontinued Operations
Loss from discontinued operations, net of tax,
for the three months ended March 31,
2009 was $3.4 million, or $0.05 per diluted share, which compared to a loss
from discontinued operations, net of tax, of $90.8 million, or $1.48 per
diluted share for the same period in 2008.
In April 2008, the Company announced the planned disposition of
Power Transmission Products and Motion Control, the power transmission belt and
on-highway friction and brake shoe businesses, respectively. The 2008 loss
includes an after-tax impairment charge on the assets of these two businesses
of $89.5 million.
In April 2009, the Company announced it will exit, rather than
sell, the on-highway friction and brake shoe business of Motion Control and
dispose of the assets associated with this business as part of a planned dissolution.
The loss from discontinued operations for the first quarter of 2009 includes
after-tax severance, asset write-down and impairment charges of $3.7 million
related to the exit of this business. Power Transmission Products remains in
discontinued operations as it is held for sale, and the business generated
positive cash flow from operations for the first quarter of 2009.
Net income
of
$6.6 million, or $0.11 per diluted share, for the quarter ended March 31,
2009 compared to a net loss of $62.6 million, or $1.02 per diluted share, for
the quarter ended March 31, 2008.
Results for the first quarter 2008 included an $89.5 million, or $1.47
per diluted share, after-tax impairment charge of assets related to
discontinued operations.
Acquisitions
On
April 28, 2008, the Company acquired 100% of the equity of Carlyle, a
leading provider of sophisticated aerospace and network interconnection
solutions, for a purchase price of approximately $194 million. Carlyle is located in Tukwila, WA, and is
under the management direction of the interconnect technologies business that
is included in the Applied Technologies segment.
On
January 25, 2008, the Company acquired 100% of the equity of both Dinex
International, Inc. and Proex, Inc., leading suppliers of foodservice
products to the healthcare and other institutional industries, for
approximately $96 million. Dinex has
facilities in Glastonbury, CT, and Batavia, IL, and is under the management
direction of the foodservice business that is included in the Applied
Technologies segment.
21
Financial Reporting Segments
The
following table summarizes segment net sales and operating income (or earnings). The amounts for each segment should be
referred to in conjunction with the applicable discussion below.
|
|
Three Months Ended
|
|
Increase
|
|
In millions,
|
|
March 31,
|
|
(Decrease)
|
|
except percentages
|
|
2009
|
|
2008 *
|
|
Amount
|
|
Percent
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
Construction Materials
|
|
$
|
207.6
|
|
$
|
282.1
|
|
$
|
(74.5
|
)
|
-26
|
%
|
Transportation Products
|
|
168.1
|
|
242.0
|
|
(73.9
|
)
|
-31
|
%
|
Applied Technologies
|
|
102.6
|
|
91.0
|
|
11.6
|
|
13
|
%
|
Specialty Products
|
|
32.8
|
|
37.3
|
|
(4.5
|
)
|
-12
|
%
|
|
|
$
|
511.1
|
|
$
|
652.4
|
|
$
|
(141.3
|
)
|
-22
|
%
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
|
|
|
|
|
|
|
Construction Materials
|
|
$
|
5.3
|
|
$
|
14.9
|
|
$
|
(9.6
|
)
|
-64
|
%
|
Transportation Products
|
|
7.4
|
|
23.9
|
|
(16.5
|
)
|
-69
|
%
|
Applied Technologies
|
|
8.4
|
|
9.9
|
|
(1.5
|
)
|
-15
|
%
|
Specialty Products
|
|
4.2
|
|
4.9
|
|
(0.7
|
)
|
-14
|
%
|
Corporate
|
|
(7.9
|
)
|
(8.1
|
)
|
0.2
|
|
2
|
%
|
|
|
$
|
17.4
|
|
$
|
45.5
|
|
$
|
(28.1
|
)
|
-62
|
%
|
* 2008 amounts have been restated to
reflect discontinued operations.
Construction Materials
Net sales in the Construction Materials segment were $207.6 million in
the first three months of 2009, a 26% decline from $282.1 million reported in
the same period of 2008 on lower sales in all product lines. The reason for the decline was primarily due
to a 32% drop in unit volume reflecting soft demand in the commercial
construction market, partially offset by a 6% improvement in selling prices.
Operating income of $5.3 million in the first quarter of 2009
represented a $9.6 million, or 64%, decline compared with the first quarter of
2008. Operating margin was 2.6% in the
first quarter of 2009 as compared to 5.3% for the same period in 2008. The decline primarily reflected lower sales
volume coupled with higher unabsorbed overhead reflecting a reduction in
membrane production as the Company continues to focus on optimizing inventory
levels.
Net sales and earnings are generally higher for this segment in the
second and third quarters of the year due to increased construction activity
during these periods. Recent trends
indicate sales and earnings may continue to be negatively impacted by the
downturn in commercial construction.
Also, while the Company has been able to maintain higher prices
implemented in 2008 to offset the increase in raw materials, the ability to
continue to maintain these prices is uncertain.
Competitive pricing pressures may place further negative pressure on
earnings in future periods.
22
Transportation
Products
Net
sales of $168.1 million for the three months ended March 31, 2009 were 31%
lower than net sales of $242.0 million for the same period in 2008. Net sales for the tire and wheel business
declined 22% as compared to last year on a 29% drop in sales volumes, partially
offset by a 9% increase in selling prices. The downturn in the economy and
continued softness in residential construction were the primary reasons for the
volume decline. Sales in the specialty
trailer business were down 65% in the current-year quarter as compared to the
first quarter of 2008 as current economic conditions are adversely impacting
sales in all product lines.
In the fourth quarter of 2008, the Company began the consolidation of
three distribution centers located in the Southeast U.S. into McDonough, GA,
two facilities in Texas into one facility, and two facilities in Spokane, WA
into Ontario, CA. During 2008, the
Company also announced plans to consolidate three California wheel
manufacturing operations into one location during 2009.
In the first quarter of 2009, the Company announced plans to
consolidate its pneumatic tire manufacturing operations in Buji, China into its
other manufacturing location in Meizhou, China.
In addition, consolidations of the Lithia Springs, GA distribution
center and Carlisle, PA warehouse into other locations were completed. Related to these activities, the Company
recorded $3.7 million of expenses in the first quarter of 2009 comprised of
fixed asset impairment charges of $2.9 million related to the consolidation in
China, $0.2 million of employee severance costs, $0.4 million of contract
termination costs and $0.2 million in moving, relocation and other expenses.
The estimated total pre-tax cost to exit the distribution and
manufacturing facilities announced in 2008 and 2009 is $10.9 million. Through March 31, 2009, $4.5 million has
been incurred. The remaining $6.4 million is expected to be incurred through
the remainder of 2009. These closures and consolidation actions are estimated
to yield cost of goods sold and operating expense savings of approximately $14
million annually reflecting lower lease expense, labor efficiencies and lower
energy costs. A portion of these savings
will be realized this year related to the closures that have taken place to
date, and are expected to be fully realized by 2010.
Operating
income of $7.4 million for the three months ended March 31, 2009
represented a 69% decline as compared to the prior year. Operating margin fell to 4.4% in the first
quarter of 2009, down from 9.9% in the prior-year quarter. Included in current year results were $3.7
million of expenses related to the consolidation activities as previously
discussed. Partially offsetting these
expenses was a net $2.6 million gain resulting from insurance recoveries on
inventory destroyed in a fire at the Companys facility in Bowdon, Georgia in November 2008. For a more information see Note 4 to the
Consolidated Financial Statements.
The
specialty trailer business reported a loss in the first quarter of 2009 as a
result of the significant drop in sales volume coupled with significantly lower
production levels resulting in higher unabsorbed overhead costs.
Earnings
and margins were also lower in the tire and wheel business primarily reflecting
the drop in unit sales. While increased
selling prices reflecting pricing actions implemented in the second half of
2008 had a positive impact on earnings in the first quarter of 2009, higher raw
material costs offset this impact as the Company worked through its high-priced
raw material inventory.
Net
sales and earnings for the tire and wheel business are generally higher in the
first half of the year due to peak sales volumes in the outdoor power equipment
market; however, current economic conditions have suppressed sales in the first
quarter of this year, and it remains uncertain to what extent future
23
quarters
will be impacted. The Company has seen
raw material prices stabilize, but due to long lead times and reduced
production volume, the benefits from lower raw material costs may not be
realized until the third quarter of 2009.
Further, the Company could face negative pricing pressure in subsequent
quarters which could negatively impact sales and earnings in those
periods. The Company could also be
negatively impacted by cost and availability of shipping channels and the
amount of time required to ship product manufactured in China. The continuation
of the recession may continue to negatively impact the specialty trailer
business in subsequent quarters.
Applied Technologies
Net
sales of $102.6 million in the first quarter of 2009 grew 13% from the first
quarter of 2008. The acquisitions of
Dinex in January, 2008 and Carlyle in April, 2008 contributed $29.7 million to
current year results. Organic sales
declined 20% on lower sales in both the interconnect technologies and
foodservice products businesses. Organic
sales in the interconnect technologies business fell 28% on aerospace
production delays and general economic conditions. Organic sales in the foodservice products
business were off 15% from first quarter 2008 levels also reflecting the
recession.
Operating
income for this segment decreased $1.5 million, or 15%, in the first quarter of
2009 as compared to the prior-year quarter.
Acquisitions contributed $4.0 million of earnings in the current
year. Operating margin of 8.2% reported
for the first three months of 2009 was lower than the 10.9% recorded for the
same period of 2008. Excluding the
impact of acquisitions, earnings fell in the current-year quarter as compared
to last year on lower organic sales and higher unabsorbed overhead on lower
production.
While
the Company continues to focus efforts on aggressive cost reduction to maintain
profitability, continued delays in new airplane manufacturing schedules and
uncertainty regarding general economic conditions could place negative pressure
on sales and earnings in subsequent quarters.
Specialty Products
Net
sales of $32.8 million in the first quarter of 2009 fell 12% from $37.3 million
in the first quarter of 2008. Sales grew
54% in the refrigerated truck bodies business due to a large military order,
but were more than offset by a 29% decline in the off-highway brake business
primarily on reductions in the construction and mining market segments.
Operating
income of $4.2 million in the first quarter of 2009 represented a 14% decline
from the first quarter of 2008.
Operating margins declined from 13.1% in the first quarter of 2008 to
12.8% in the first quarter of 2009.
Earnings in the refrigerated truck bodies business were up significantly
from the prior year reflecting the improvement in sales, while the off-highway
brake business reported lower earnings primarily as a result of the reduction
in sales volumes.
The off-highway brake and
refrigerated truck bodies businesses are generally not subject to seasonal
demand. While the off-highway brake
business has not experienced any significant raw material supply issues or
significant unrecovered raw material cost increases in recent periods, limited
availability and price volatility of raw materials could negatively impact
future operating income. Volatility in commodities prices could impact demand
in the mining sector. Lack of credit availability could impact demand in all
markets served by the Specialty Products segment. The Company could also be negatively impacted
by cost and availability of shipping channels and the amount of time required
to ship product manufactured in China.
24
Balance Sheet
Cash
increased by $16.6 million, from $42.7
million at December 31, 2008 to $59.3 million at March 31, 2009. Refer to the Liquidity and Capital Resources
section for more information.
Trade
Receivables
of $316.9
million at March 31, 2009 compared to receivables of $317.0 million at December 31,
2008. Sales are generally higher in the
last two months of the first quarter as compared to the last two months of the fourth
quarter, resulting in an increase in trade receivables at March 31 as
compared to December 31. However, net sales in the last two months of the
quarter ended March 31, 2009 were comparable to net sales in the last two
months of the quarter ended December 31, 2008, thus trade receivables at March 31,
2009 were nearly unchanged compared to December 31, 2008.
Inventories
decreased $50.2 million, from $424.2 million
at December 31, 2008 to $374.0 million at March 31, 2009. The decrease relates to lower production in
the Construction Materials, Transportation Products and Applied Technologies
segments due to lower demand in addition to managements inventory reduction
efforts.
Prepaid
expenses and other current assets
at March 31, 2009 of $32.8 million, decreased $26.1 million from
$58.9 million at December 31, 2008.
The decrease primarily reflects the receipt of certain vendor rebates
accrued at December 31, 2008 in the Construction Materials segment,
collection of tax receivables and collection of insurance proceeds related to
the insurance claim on the Bowdon fire.
Current
assets held for sale
at
March 31, 2009 of $78.6 million decreased $11.5 million from $90.1 million
at December 31, 2008. The decrease
primarily relates to inventory reductions at the Companys discontinued power
transmission and on-highway friction and brake shoe businesses, as well as a
$3.4 million inventory charge connected with the Companys decision to exit the
on-highway friction and brake shoe business.
Property,
plant and equipment, net
of $461.9 million at March 31, 2009 decreased $8.8 million compared to
$470.7 million at December 31, 2008.
The decrease reflects capital expenditures lower than period
depreciation expense as well as a $2.9 million impairment charge in the
Transportation Products segment related to plant consolidation.
Accounts payable
decreased by $8.0 million,
from $123.6 million at December 31, 2008 to $115.6 million at March 31,
2009, reflecting decreases in the Construction Materials and Applied Technologies
segments from decreased production and sales activity.
Accrued expenses
of $106.1 million at March 31,
2009 were $42.2 million lower than accrued expenses at December 31, 2008
of $148.3 million, primarily related to the payment of accrued rebates and
bonuses.
Long-term debt
decreased by $30.4 million,
from $273.3 million at December 31, 2008 to $242.9 million at March 31,
2009. This decrease primarily reflects a net reduction in the Companys
borrowings.
25
Liquidity and Capital Resources
Sources and Uses of Cash
|
|
Three Months Ended March 31,
|
|
In millions
|
|
2009
|
|
2008
|
|
Net cash provided by operating activities
|
|
$
|
63.5
|
|
$
|
7.2
|
|
Net cash used in investing activities
|
|
(9.5
|
)
|
(160.1
|
)
|
Net cash (used in) provided by financing
activities
|
|
(37.2
|
)
|
120.9
|
|
Effect of exchange rate changes on cash
|
|
(0.2
|
)
|
0.4
|
|
Change in cash and cash equivalents
|
|
$
|
16.6
|
|
$
|
(31.6
|
)
|
Net
cash provided by operating activities was $63.5 million for the three months
ended March 31, 2009, compared to net cash provided by operating
activities of $7.2 million for the three months ended March 31, 2008. Cash provided by working capital and other
assets and liabilities was $39.0 million for the three months ended March 31,
2009, which compared to cash used of $36.5 million for the three months ended March 31,
2008.
Cash
used in investing activities was $9.5 million for the quarter ended March 31,
2009 compared to $160.1 million for the first quarter of 2008. Capital expenditures were $10.3 million in
the first quarter of 2009 compared to capital expenditures of $23.0 million in
the first quarter of 2008. Cash used in investing activities in the first
quarter of 2008 included $95.4 million used to fund the acquisition of Dinex
for the Companys foodservice business. 2008 investing activities also included
a $41.9 million off-shore short-term investment of proceeds from the sale of
the Companys European roofing joint venture in 2007.
Cash
used by financing activities of $37.2 million for the three months ended March 31,
2009 primarily reflects the repayment of debt and the payment of dividends.
Cash provided by financing activities of $120.9 million for the three months
ended March 31, 2008 included borrowings under the revolving credit
facility and securitization facility to fund acquisitions.
Debt
Instruments, Guarantees and Covenants
The
following table quantifies certain contractual cash obligations and commercial
commitments at March 31, 2009:
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Total
|
|
in 2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
|
Short-term credit lines and long-term debt
|
|
$
|
374.2
|
|
$
|
210.0
|
|
$
|
|
|
$
|
0.4
|
|
$
|
0.5
|
|
$
|
0.5
|
|
$
|
162.8
|
|
Interest on long-term debt
(1)
|
|
88.0
|
|
7.8
|
|
10.4
|
|
10.4
|
|
10.4
|
|
10.4
|
|
38.6
|
|
Noncancelable operating leases
|
|
80.7
|
|
14.9
|
|
17.8
|
|
13.9
|
|
9.9
|
|
6.5
|
|
17.7
|
|
Total commitments
|
|
$
|
542.9
|
|
$
|
232.7
|
|
$
|
28.2
|
|
$
|
24.7
|
|
$
|
20.8
|
|
$
|
17.4
|
|
$
|
219.1
|
|
(1) Future expected interest payments are calculated
based on the stated rate for fixed rate debt and the effective interest rate at
March 31, 2009, for variable rate debt.
Short-term credit lines and long-term debt for 2009 in the above table
include $210.0 million related to borrowings under the Companys revolving
credit facility. Based on the Companys
expected future cash flow needs, the Company expects $79.5 million of these
borrowings to be outstanding beyond the twelve-month period immediately
following March 31, 2009, as the revolving credit facility does not expire
until
26
July 2012. Therefore, $79.5 million of these borrowings are
included in Long-term debt at March 31, 2009, with the remaining $130.5
million of borrowings included in Short-term debt, including current
maturities.
The above table does not include $163.3 million of other long-term
liabilities. Other long-term liabilities
consist primarily of deferred income tax and other tax liabilities of $95.5
million, pension and post-retirement medical benefits of $62.1 million and
warranty and other obligations of $5.7 million.
Due to factors such as return on plan assets, disbursements,
contributions, and timing of warranty claims, it is not reasonably possible to
estimate when these will become due.
Although
the Company has entered into long-term purchase agreements for certain key raw
materials, there were no take-or-pay contracts exceeding one year in place at March 31,
2009.
At
March 31, 2009 the Company had $284.9 million available under its $500
million revolving credit facility. The revolving credit facility provides for
grid-based interest pricing based on the credit rating of the Companys senior
unsecured bank debt or other unsecured senior debt and the Companys
utilization of the facility. The Company is presently on Credit Watch with one
of the credit rating agencies. The
facility requires the Company to meet various restrictive covenants and
limitations including certain net worth, cash flow ratios and limits on
outstanding debt balances held by certain subsidiaries.
The
Company also maintains a $55.0 million uncommitted line of credit of which
$55.0 million was available at March 31, 2009.
The
Company had $93.5 million available under its accounts receivable
securitization facility at March 31, 2009, which matures in July 2009.
At March 31, 2009, letters of credit amounting to $34.5 million
were outstanding, primarily to provide security under insurance arrangements
and certain borrowings.
The
Company has financial guarantee lines in place for certain of its operations in
U.S. and Europe to facilitate working capital needs, customer performance and
payment and warranty obligations. At March 31,
2009, the Company had issued guarantees of $0.8 million, of which an immaterial
amount is recorded in current liabilities or other long-term liabilities.
During 2005, the Company
sold certain assets and liabilities of its discontinued automotive components
business which was part of a series of sales. Certain leases guaranteed by the
Company expire in 2009 and 2011 and have total minimum lease payments of $1.0
million at March 31, 2009. The Company believes that the current lessee
will fulfill all obligations required by those lease agreements.
Discontinued Operations and Assets Held for Sale
In the second quarter of 2008, in keeping with the Companys plan to
simplify its business and focus attention on its remaining businesses and
operating segments, the Company announced its decision to pursue disposition of
both its power transmission belt business and its on-highway friction and brake
shoe business. The Company intends to complete the sale of the power
transmission business in 2009.
During the first quarter of 2009, the Company made the decision to exit
the on-highway friction and brake shoe business and dispose of the assets as
part of a planned dissolution.
27
In the second quarter of 2007, as part of its commitment to concentrate
on its core businesses, the Company announced plans to exit the custom
thermoset products molding operation (thermoset molding operation). The
disposition of the thermoset molding operation was completed in 2008.
The assets of these operations have met the criteria for, and have been
classified as held for sale in accordance with SFAS 144, Accounting for the
Impairment and Disposal of Long-Lived Assets.
In addition, results of operations for these businesses, and any gains
or losses recognized from their sale, are reported as discontinued operations
in accordance with SFAS 144.
Total assets held for sale were as follows:
|
|
March 31,
|
|
December 31,
|
|
In millions
|
|
2009
|
|
2008
|
|
Assets held for sale:
|
|
|
|
|
|
Power transmission belt business
|
|
$
|
100.9
|
|
$
|
101.9
|
|
On-highway brake business
|
|
23.9
|
|
34.4
|
|
Thermoset molding operation
|
|
1.7
|
|
1.7
|
|
Total assets held for sale
|
|
$
|
126.5
|
|
$
|
138.0
|
|
At March 31, 2009 and December 31, 2008, the remaining assets
of the thermoset molding operation consisted of land and building formerly
utilized by the operation.
The major classes of assets and liabilities held for sale included in
the Companys Consolidated Balance Sheets were as follows:
|
|
March 31,
|
|
December 31,
|
|
In millions
|
|
2009
|
|
2008
|
|
Assets held for sale:
|
|
|
|
|
|
Receivables
|
|
$
|
26.4
|
|
$
|
26.0
|
|
Inventories
|
|
50.6
|
|
62.5
|
|
Prepaid expenses and other current assets
|
|
1.6
|
|
1.6
|
|
Total current assets held for sale
|
|
78.6
|
|
90.1
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
47.0
|
|
46.9
|
|
Other long term assets
|
|
0.9
|
|
1.0
|
|
Total non-current assets held for sale
|
|
47.9
|
|
47.9
|
|
Total assets held for sale
|
|
$
|
126.5
|
|
$
|
138.0
|
|
|
|
|
|
|
|
Liabilities associated with assets held for
sale:
|
|
|
|
|
|
Accounts payable
|
|
$
|
7.3
|
|
$
|
8.6
|
|
Accrued expenses
|
|
19.3
|
|
20.3
|
|
Total liabilities associated with assets
held for sale
|
|
$
|
26.6
|
|
$
|
28.9
|
|
28
Net sales and income (loss) before income taxes from discontinued
operations were as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
In millions
|
|
2009
|
|
2008 *
|
|
Net sales:
|
|
|
|
|
|
Power transmission belt business
|
|
$
|
32.0
|
|
$
|
40.5
|
|
On-highway brake business
|
|
10.0
|
|
15.3
|
|
Thermoset molding operation
|
|
|
|
2.2
|
|
Net sales for discontinued operations
|
|
$
|
42.0
|
|
$
|
58.0
|
|
|
|
|
|
|
|
Income (loss) from operations of
discontinued operations:
|
|
|
|
|
|
Power transmission belt business
|
|
$
|
2.4
|
|
$
|
(66.5
|
)
|
On-highway brake business
|
|
(9.7
|
)
|
(59.3
|
)
|
Thermoset molding operation
|
|
(0.1
|
)
|
(0.1
|
)
|
Automotive components
|
|
(0.1
|
)
|
(1.3
|
)
|
Systems and equipment
|
|
0.9
|
|
|
|
Loss before income taxes from discontinued
operations
|
|
$
|
(6.6
|
)
|
$
|
(127.2
|
)
|
* 2008 amounts have been restated to
reflect the power transmission belt and on-highway brake businesses as
discontinued operations. Results may differ from prior presentations due to
rounding.
Results
for the three months ended March 31, 2009 included $6.0 million of pre-tax
expenses related to the planned disposition of the on-highway friction and
brake shoe business, including an inventory write-down of $3.4 million,
property, plant and equipment impairment costs of $0.8 million and severance
costs of $1.8 million. These expenses
were recorded pursuant to the requirements of SFAS 144 and SFAS 146. Results
for the three months ended March 31, 2008 reflected $124.2 million in
pre-tax impairment charges in connection with the power transmission belt and
on-highway friction and brake shoe businesses which were recognized under SFAS
142 and SFAS 144.
New Accounting Pronouncements
In
January 2008, the Company adopted SFAS No. 157, Fair Value
Measurements (SFAS 157) for financial assets and liabilities. SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. SFAS 157 applies only for fair value
measurements that are already required or permitted by other accounting
standards (except for measurements of share-based payments) and is intended to
increase the consistency of those measurements.
Accordingly, SFAS 157 does not require any new fair value
measurements. Adoption of this standard
had no material effect on the Companys statement of earnings or financial
position. In February 2008, FASB
Staff Position (FSP) No. FAS 157-2 was issued, which deferred the
effective date of SFAS 157 by one year for certain types of nonfinancial assets
and nonfinancial liabilities to fiscal years beginning after November 15,
2008. The Company has adopted the
provisions of this standard as it relates to the fair value measurement of
non-financial assets and liabilities effective January 1, 2009. The adoption did not have a material impact
on the Companys consolidated financial statements. See Note 5 for additional information.
In
December 2007, the FASB issued SFAS No. 141(R), Business
Combinations, and SFAS No. 160, Accounting and Reporting of Noncontrolling
Interest in Consolidated Financial Statements, an amendment of ARB No. 51.
These new standards will significantly change the accounting for and
29
reporting
of business combination transactions and noncontrolling (minority) interests in
consolidated financial statements. SFAS Nos. 141(R) and 160 are required
to be adopted simultaneously and are effective for the first annual reporting
period beginning on or after December 15, 2008. The Company has adopted the provisions of
these statements prospectively, as required, beginning January 1,
2009. There were no business
combinations or acquisitions of noncontrolling interests in the first quarter
of 2009 and thus the adoption did not impact the Companys consolidated
financial statements.
In
March 2008, the FASB issued SFAS No. 161 (SFAS 161), Disclosures
about Derivative Instruments and Hedging Activities. SFAS 161 applies to all derivative
instruments and nonderivative instruments that are designated and qualify as
hedging instruments pursuant to paragraphs 37 and 42 of SFAS 133 and related
hedged items accounted for under SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS
161 requires entities to provide greater transparency through additional
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS
133 and its related interpretations, and (c) how derivative instruments
and related hedged items affect an entitys financial position, results of
operations, and cash flows. SFAS 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. At March 31, 2009, the Company had
no active derivative instruments, thus the adoption of this standard had no
effect on its consolidated financial statements.
In
June 2008, the FASB issued FASB Staff Position EITF 03-6-1 (FSP EITF
03-6-1), Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities. FSP EITF 03-06-1 clarifies that
unvested share-based payment awards with a right to receive nonforfeitable
dividends are participating securities for purposes of applying the two-class
method of computing earnings per share.
The Company adopted the provisions of this FSP effective January 1,
2009. The adoption did not have a
material effect on the Companys consolidated financial statements. See Note 17 for more information regarding
the Companys adoption of this standard.
Forward-Looking Statements
This
report contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995.
Such statements are made based on known events and circumstances at the
time of publication, and as such, are subject in the future to unforeseen risks
and uncertainties. It is possible that
the Companys future performance may differ materially from current
expectations expressed in these forward-looking statements, due to a variety of
factors such as: increasing price and product/service competition by foreign
and domestic competitors, including new entrants; technological developments
and changes; the ability to continue to introduce competitive new products and
services on a timely, cost effective basis; the Companys mix of
products/services; increases in raw material costs which cannot be recovered in
product pricing; domestic and foreign governmental and public policy changes
including environmental regulations; threats associated with and efforts to
combat terrorism; protection and validity of patent and other intellectual
property rights; the successful integration and identification of the Companys
strategic acquisitions; the cyclical nature of the Companys businesses; and
the outcome of pending and future litigation and governmental proceedings. In addition, such statements could be
affected by general industry and market conditions and growth rates, and
general domestic and international economic conditions including interest rate
and currency exchange rate fluctuations.
Further, any conflict in the international arena may adversely affect
the general market conditions and the Companys future performance. The Company undertakes no duty to update
forward-looking statements.
30
Item 3. Quantitative and Qualitative Disclosure
about Market Risk
The
Company is exposed to the impact of changes in interest rates and market values
of its debt instruments, changes in raw material prices and foreign currency
fluctuations.
International
operations are exposed to translation risk when the local currency financial
statements are translated into U.S. dollars. The Company monitors this risk,
but at March 31, 2009 no translation risk hedges were in place.
The
Company is also exposed to risks in the movements of foreign currency exchange
rates for transactions denominated in foreign currencies. Revenues for sales of
products manufactured in China for the North American market are generated
predominantly in U.S. dollars. Many of the obligations incurred by these
operations are settled in Chinese renminbi or Hong Kong dollars. If the U.S.
dollar weakened significantly against the renminbi or Hong Kong dollar, the
Companys results of operations could be adversely affected. The Company
continues to monitor developments in China that may affect its strategy and
will hedge its currency risk exposure when deemed effective and prudent. While
the Company is exposed to the exchange rates of other currencies including the
Canadian dollar, British pound, Mexican peso and European euro, their risk is
considered minimal. Less than 6% of the Companys revenues from continuing
operations for the quarter ended March 31, 2009 are in currencies other
than the U.S. dollar.
On
June 15, 2005, the Company entered into treasury lock contracts with a
notional amount of $150.0 million to hedge the cash flow variability on
forecasted debt interest payments associated with changes in interest
rates. These contracts were designated as
cash flow hedges and were deemed effective at the origination date. On August 15, 2006, the Company
terminated the treasury lock contracts resulting in a gain of $5.6 million
($3.5 million, net of tax), which will
be amortized to reduce interest expense until August 2016, the term of the
interest payments related to the $150.0 million in notes issued on August 18,
2006. At March 31, 2009, the
Company had a remaining unamortized gain of $4.2 million ($2.6 million, net of
tax) which is reflected in Accumulated other comprehensive loss on the Companys
Consolidated Balance Sheets.
Approximately $0.4 million ($0.3 million, net of tax) is expected to be
amortized to reduce Interest expense, net in 2009.
No interest rate swaps were in place at March 31, 2009.
The Companys operations use certain commodities such as plastics,
carbon black, synthetic and natural rubber and steel. As such, the Companys cost of operations is
subject to fluctuations as the markets for these commodities change. The Company monitors these risks, but at March 31,
2009 no derivative contracts were in place to hedge these risks.
31
Item 4. Controls and Procedures
(a) Under the supervision and with the
participation of the Companys management, including the Companys chief
executive officer and chief financial officer, the Company carried out an
evaluation of the effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation and as of March 31,
2009, the chief executive officer and chief financial officer concluded that
the Companys disclosure controls and procedures are effective.
(b) There were no
changes in the Companys internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.
32
PART II. OTHER INFORMATION
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
The Companys repurchases of equity securities
during the period January 1, 2009 through March 31, 2009 were as
follows:
Period
|
|
Total Number of
Shares Purchased
|
|
Average Price Paid
per Share
|
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
|
|
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
|
|
January 1 - 31, 2009
|
|
|
|
$
|
|
|
|
|
3,024,499
|
|
Feburary 1 - 28, 2009
|
|
|
|
|
|
|
|
3,024,499
|
|
March 1 - 31, 2009
|
|
|
|
|
|
|
|
3,024,499
|
|
Total
|
|
|
|
$
|
|
|
|
|
3,024,499
|
|
Item 6.
Exhibits
(12)
Ratio of Earnings to Fixed Charges
(31.1)
Rule 13a-14(a)/15d-14(a) Certifications
(31.2)
Rule 13a-14(a)/15d-14(a) Certifications
(32)
Section 1350 Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
33
SIGNATURE
Pursuant to
the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
Carlisle Companies Incorporated
|
|
|
|
|
|
|
May 8, 2009
|
|
|
|
By:
|
/s/ Steven J. Ford
|
|
Name: Steven J. Ford
|
|
Title: Vice President and Chief Financial Officer
|
34
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