SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
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QUARTERLY REPORT PURSUANT TO
SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED JUNE 30,
2009
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OR
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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
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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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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 August 1, 2009: 61,249,270
Part .
Financial Information
Item
1.Financial Statements
Carlisle Companies Incorporated
Consolidated
Statements of Earnings
For
the Three and Six Months ended June 30, 2009 and 2008
(In
millions, except share and per share amounts)
(Unaudited)
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2009
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2008*
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2009
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2008*
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Net
sales
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$
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618.5
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$
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863.0
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$
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1,129.6
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$
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1,515.4
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Cost
and expenses:
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Cost
of goods sold
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477.8
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688.9
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899.9
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1,217.6
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Selling
and administrative expenses
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72.8
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80.9
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140.5
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155.8
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Research
and development expenses
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3.2
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3.3
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6.7
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6.6
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Gain
related to fire settlement
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(24.5
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)
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(27.0
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)
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Other
operating expense
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5.2
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8.1
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Operating
income
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84.0
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89.9
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101.4
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135.4
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Other
non-operating expense (income), net
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1.5
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0.3
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0.8
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(0.8
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)
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Interest
expense, net
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2.3
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5.1
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5.0
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9.2
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Income
before income taxes
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80.2
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84.5
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95.6
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127.0
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Income
tax expense
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24.5
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27.6
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29.9
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41.9
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Income
from continuing operations, net of tax
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55.7
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56.9
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65.7
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85.1
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Discontinued
operations
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Income
(loss) from discontinued operations
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1.1
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(0.6
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)
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(5.5
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)
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(127.8
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)
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Income
tax expense (benefit)
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1.3
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2.0
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(1.9
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)
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(34.4
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)
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Loss
from discontinued operations, net of tax
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(0.2
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)
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(2.6
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)
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(3.6
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)
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(93.4
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)
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Net
income (loss)
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$
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55.5
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$
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54.3
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$
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62.1
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$
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(8.3
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)
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Earnings
(loss) per share - basic
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Income
from continuing operations, net of tax
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$
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0.91
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$
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0.93
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$
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1.07
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$
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1.39
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Loss
from discontinued operations, net of tax
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(0.04
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)
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(0.06
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)
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(1.53
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)
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Earnings
per share - basic
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$
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0.91
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$
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0.89
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$
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1.01
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$
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(0.14
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)
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Earnings
(loss) per share - diluted
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Income
from continuing operations, net of tax
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$
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0.90
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$
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0.93
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$
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1.06
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$
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1.39
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Loss
from discontinued operations, net of tax
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(0.05
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)
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(0.05
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)
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(1.53
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)
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Earnings
per share - diluted
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$
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0.90
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$
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0.88
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$
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1.01
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$
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(0.14
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)
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Weighted
average common shares outstanding (in thousands)
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Basic
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60,584
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60,506
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60,576
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60,550
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Effect
of dilutive stock options
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342
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340
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440
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348
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Diluted
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60,926
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60,846
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61,016
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60,898
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Dividends
declared and paid per share
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$
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0.155
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$
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0.145
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$
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0.310
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$
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0.290
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*
For the three and six
months ended June 30, 2008 certain
revisions have been made regarding FSP 03-6-1.
See Notes 2 and 17 to Unaudited Consolidated Financial Statements.
See
accompanying notes to Unaudited Consolidated Financial Statements
1
Carlisle Companies Incorporated
Consolidated
Balance Sheets
June 30,
2009 and December 31, 2008
(In
millions, except share and per share amounts)
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June 30,
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December 31,
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2009
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2008
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(Unaudited)
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Assets
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Current assets:
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Cash
and cash equivalents
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$
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63.6
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$
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42.7
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Receivables,
less allowance of $11.3 in 2009 and $10.7 in 2008
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347.8
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317.0
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Inventories
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315.8
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424.2
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Deferred
income taxes
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39.4
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35.2
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Prepaid
expenses and other current assets
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19.9
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58.9
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Current
assets held for sale
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56.6
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90.1
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Total current assets
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843.1
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968.1
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Property, plant and equipment, net of accumulated
depreciation
of $494.7 in 2009 and $494.2 in 2008
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444.4
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470.7
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Other assets:
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Goodwill,
net
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436.0
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435.8
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Other
intangible assets, net
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142.8
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146.3
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Investments
and advances to affiliates
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4.3
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4.6
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Other
long-term assets
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5.1
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2.5
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Non-current
assets held for sale
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45.9
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47.9
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Total other assets
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634.1
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637.1
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TOTAL ASSETS
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$
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1,921.6
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$
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2,075.9
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Liabilities and Shareholders Equity
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Current liabilities:
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Short-term
debt, including current maturities
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$
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25.0
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$
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127.0
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Accounts
payable
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143.5
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123.6
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Accrued
expenses
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137.6
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148.3
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Deferred
revenue
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14.8
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14.7
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Current
liabilities associated with assets held for sale
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17.6
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28.9
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Total current liabilities
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338.5
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442.5
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Long-term liabilities:
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Long-term
debt
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156.7
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273.3
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Deferred
revenue
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108.7
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106.2
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Other
long-term liabilities
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168.6
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159.8
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Total long-term liabilities
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434.0
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539.3
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Shareholders equity:
|
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Preferred
stock, $1 par value per share. Authorized and unissued 5,000,000 shares
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Common
stock, $1 par value per share. Authorized 100,000,000 shares; 78,661,248
shares issued; 60,606,425 outstanding in 2009 and 60,532,539 outstanding in
2008
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78.7
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78.7
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Additional
paid-in capital
|
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66.6
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62.1
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|
Cost
of shares of treasury - 17,410,478 shares in 2009 and 17,654,759 shares in
2008
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|
(222.9
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)
|
(225.5
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)
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Accumulated
other comprehensive loss
|
|
(34.9
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)
|
(39.5
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)
|
Retained
earnings
|
|
1,261.6
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|
1,218.3
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Total shareholders equity
|
|
1,149.1
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|
1,094.1
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|
|
|
|
|
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
1,921.6
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|
$
|
2,075.9
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|
See
accompanying notes to Unaudited Consolidated Financial Statements
2
Carlisle Companies Incorporated
Consolidated
Statements of Cash Flows
For
the Six Months ended June 30, 2009 and 2008
(In
millions)
(Unaudited)
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June 30,
|
|
|
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2009
|
|
2008
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
62.1
|
|
$
|
(8.3
|
)
|
Reconciliation
of net income (loss) to cash flows from operating activities:
|
|
|
|
|
|
Depreciation
|
|
29.0
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|
31.3
|
|
Amortization
|
|
5.3
|
|
4.1
|
|
Non-cash
compensation
|
|
7.7
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|
6.5
|
|
Earnings
in equity investments
|
|
(0.2
|
)
|
(0.3
|
)
|
(Gain)
loss on sale of property and equipment, net
|
|
(0.5
|
)
|
0.1
|
|
Loss
on writedown of assets
|
|
10.5
|
|
124.3
|
|
Deferred
taxes
|
|
3.6
|
|
(34.7
|
)
|
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
|
|
6.5
|
|
(119.4
|
)
|
Inventories
|
|
129.5
|
|
12.2
|
|
Accounts
payable and accrued expenses
|
|
(13.7
|
)
|
44.1
|
|
Income
taxes
|
|
24.8
|
|
6.6
|
|
Long-term
liabilities
|
|
4.8
|
|
20.6
|
|
Other
operating activities
|
|
(0.7
|
)
|
(0.8
|
)
|
Net cash provided by operating activities
|
|
269.0
|
|
86.2
|
|
|
|
|
|
|
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Investing activities
|
|
|
|
|
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Capital
expenditures
|
|
(20.1
|
)
|
(40.7
|
)
|
Acquisitions,
net of cash
|
|
|
|
(294.8
|
)
|
Proceeds
from sale of property and equipment
|
|
2.6
|
|
0.3
|
|
Other
investing activities
|
|
0.5
|
|
0.3
|
|
Net cash used in investing activities
|
|
(17.0
|
)
|
(334.9
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)
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
Net
change in short-term borrowings and revolving credit lines
|
|
(211.9
|
)
|
401.9
|
|
Reductions
of long-term debt
|
|
|
|
(100.0
|
)
|
Dividends
|
|
(19.0
|
)
|
(17.7
|
)
|
Treasury
share repurchases
|
|
|
|
(4.8
|
)
|
Treasury
shares and stock options, net
|
|
(0.2
|
)
|
(1.4
|
)
|
Tax
benefits from stock-based compensation
|
|
(0.3
|
)
|
0.1
|
|
Net cash (used in) provided by financing activities
|
|
(231.4
|
)
|
278.1
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
0.3
|
|
0.4
|
|
Change in cash and cash equivalents
|
|
20.9
|
|
29.8
|
|
Cash and cash equivalents
|
|
|
|
|
|
Beginning
of period
|
|
42.7
|
|
88.4
|
|
End
of period
|
|
$
|
63.6
|
|
$
|
118.2
|
|
See
accompanying notes to Unaudited Consolidated Financial Statements
3
Notes to Unaudited Consolidated Financial
Statements
Three and Six Months Ended June 30, 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 on
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 and six
months ended June 30, 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 and six
months ending June 30, 2008 to conform to the current years presentation.
Earnings
per share for the three and six months ended June 30, 2008 have been
revised retroactively, as required, to reflect the implementation of FASB Staff
Position 03-6-1. 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 6 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
4
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 six
months 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 June 30, 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 03-6-1 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.
In
May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS
165). The Company adopted SFAS 165 which requires an entity to recognize in
the financial statements the effects of all subsequent events that provide
additional evidence about conditions that existed at the date of the balance
sheet. For nonrecognized subsequent events that must be disclosed to keep the
financial statements from being misleading, an entity will be required to
disclose the nature of the event as well as an estimate of its financial
effect, or a statement that such an estimate cannot be made. In addition, SFAS
165 requires an entity to disclose the date through which subsequent events
have been evaluated. The Company has evaluated subsequent events through the
date these financial statements were filed with the SEC.
In
June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards Codification
TM
and the Hierarchy of Generally Accepted
Accounting Principles a replacement of FASB Statement No. 162 (SFAS
168). The FASB Accounting Standards Codification (ASC) will become the source
of authoritative generally accepted accounting principles in the United States
of America (U.S. GAAP). The ASC
changes the referencing of accounting standards and is effective for interim or
annual financial periods ending after September 15, 2009. The ASC is not intended to change or alter
existing U.S. GAAP; however the way authoritative literature is referred to
will change effective in the third quarter of 2009.
(4) Fire Gain
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.
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.
5
In
the fourth quarter of 2008, while the Company was negotiating its claim, a
pretax loss was recorded representing the deductible of $0.1 million. The net result of fire-related transactions
in the first quarter of 2009 was a $2.5 million pretax gain which was recorded
as an offset to Other operating expense. This gain included a $2.6 million pretax
gain on the settlement of the inventory claim which was the difference between
$8.9 million, representing the loss on inventory recorded in the fourth quarter
of 2008 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. Total payments of $13.5 million were received
from the insurance carriers in the first quarter of 2009.
The
net result of fire-related transactions in the second quarter of 2009 was a
$24.5 million pretax gain on the settlement of all other claims and that amount
was reported as Gain related to fire settlement. This gain was the difference between the
$41.0 million of cash proceeds received from the insurance carriers in
settlement of all outstanding claims and the $11.2 million insurance claims
receivable balance at March 31, 2009 included in Prepaid expenses and
other current assets for a portion of the expected insurance reimbursements
plus $5.3 million, representing fire-related cost in the second quarter of
2009.
During
the second quarter of 2009 the $2.5 million pretax gain recorded in the first
quarter of 2009 was reclassified from an offset to Other operating expense to
Gain related to fire settlement. The
year-to-date pretax gain through June 30, 2009, was $27.0 million,
including the above mentioned $2.5 million gain, and this year-to-date amount
was recorded as Gain related to fire settlement.
From
November 16, 2008 through June 30, 2009 cash proceeds of $54.5
million were received from the insurance carriers. Losses and cost incurred from November 16,
2008 through June 30, 2009 of $27.6 million included $8.9 million of
inventory; $5.7 million of building, machinery, equipment and other assets; and
$13.0 million of fire-related cost. The
$26.9 million pretax gain from November 16, 2008 through June 30,
2009 was the difference between cash proceeds of $54.5 million and the losses
of $27.6 million. On a quarterly basis,
a loss of $0.1 million was recorded in the fourth quarter of 2008, a gain of
$2.5 million was recorded in the first quarter of 2009, and a gain of $24.5
million was recorded in the second quarter of 2009.
A
minimal amount of fire-related cost is expected after June 30, 2009. Since all insurance claims due to this fire
were settled with the carriers, there was no insurance claims receivable at June 30,
2009 and no additional insurance proceeds are anticipated.
(5) Borrowings
During
the second quarter of 2009, the Company terminated its existing $150.0 million
accounts receivable securitization facility. The facility was terminated as a
result of the Companys strong operating cash flows and its available credit
facilities and lines of credit that should provide adequate liquidity and
capital resources to fund ongoing operations, expand existing lines of business
and make strategic acquisitions.
(6) 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:
6
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:
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
In Active
|
|
Significant
|
|
|
|
|
|
Markets for
|
|
Other
|
|
|
|
Balance at
|
|
Identical
|
|
Observable
|
|
|
|
June 30,
|
|
Assets
|
|
Inputs
|
|
(In millions)
|
|
2009
|
|
Level 1
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
63.6
|
|
$
|
63.6
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three month period ended June 30, 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 the tire and wheel and heavy-haul trailer
businesses of the Transportation Products segment as well as certain aerospace
facilities in the interconnect technologies business of the Applied
Technologies segment. Refer to Note 19 for further information regarding exit
and disposal activity.
Within
the heavy-haul trailer business of the Transportation Products segment,
Property, plant and equipment relating to the expected closure of the facility
in Brookville, PA with a carrying amount of $5.6 million were written down to a
fair value of $1.8 million, resulting in an impairment charge of $3.8 million,
which was included in Other operating expense for the three months ended June 30,
2009. A fair value measurement of $1.6
million for land, building and leasehold improvements, which resulted in an
impairment charge of $3.3 million, was based on Level 2 inputs. A fair value
measurement of $0.2 million for machinery and equipment, which resulted in a
$0.5 million impairment charge, was based on Level 3 inputs reflecting
managements determination of the net realizable value of the assets.
Within
the tire and wheel business of the Transportation Products segment, Property,
plant and equipment relating to facilities in Pennsylvania, Alabama and China
with a carrying amount of $2.8 million were written down to a fair value of
zero, resulting in an impairment charge of $2.8 million, which was included in
Other operating expense for the three months ended June 30, 2009. This fair value measurement of the impaired
assets was based on Level 3 inputs. The
Level 3 inputs reflected managements determination that impaired leasehold
improvement assets could not be transferred upon consolidation of operations
into the new facility in Jackson, TN. In
addition, it was managements determination that machinery and equipment
subject to the impairment charge was estimated to have zero net realizable
value based on current utility.
In
the interconnect technologies business of the Applied Technologies segment,
Property consisting of leasehold improvements with a carrying amount of $0.3
million was written down to a fair value of zero, resulting in an impairment
charge of $0.3 million which was included in Other operating expense for the
7
three
months ended June 30, 2009. The
fair value measurement was based upon Level 3 inputs which reflected managements
determination that the leasehold improvements in the Companys Kent, WA
facility would not have any transferrable value upon consolidation of operating
activities into another Company facility in Tukwila, WA.
(7)
Employee and Non-Employee Stock
Options & Incentive Plans
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 $2.5 million and $1.4 million was recognized for the three months ended June 30,
2009 and 2008, respectively, and $3.9 million and $2.8 million for the six months
ended June 30, 2009 and 2008, respectively. The 2009 compensation expense amounts include
additional expense related to the modification of vesting and termination
provisions of certain stock option awards. The following table summarizes the
stock option activity for the six months ended June 30, 2009.
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
Exercise
|
|
|
|
Shares
|
|
Price
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2009
|
|
2,814,003
|
|
$
|
33.91
|
|
Granted
|
|
1,602,795
|
|
$
|
19.60
|
|
Forfeited
|
|
(126,954
|
)
|
$
|
23.61
|
|
Exercised
|
|
(5,000
|
)
|
$
|
24.19
|
|
Outstanding
at June 30, 2009
|
|
4,284,844
|
|
$
|
28.88
|
|
Restricted Stock and Restricted
Stock Equivalent Units
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 $2.2 million was
recognized for the three months ended June 30, 2009, and 2008,
respectively, and $4.0 million and $3.7 million for the six months ended June 30,
2009, and 2008, respectively. The 2009 compensation expense amounts include
additional expense related to the modification of vesting and termination
provisions of certain restricted shares.
(8) 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, which is included in the Applied
Technologies segment. The purchase price
allocation resulted in goodwill of $122.3 million and identified intangible
assets of $76.0
8
million. Of
the $76.0 million of identified intangible assets, $75.0 million was assigned
to customer relationships with a determinable 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, which is included in the Applied Technologies segment. The purchase price allocation resulted in
goodwill of $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.
(9) 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:
|
|
June 30,
|
|
December 31,
|
|
In millions
|
|
2009
|
|
2008
|
|
Assets held for sale:
|
|
|
|
|
|
Power
transmission belt business
|
|
$
|
94.1
|
|
$
|
101.9
|
|
On-highway
friction and brake shoe business
|
|
6.7
|
|
34.4
|
|
Thermoset
molding operation
|
|
1.7
|
|
1.7
|
|
Total
assets held for sale
|
|
$
|
102.5
|
|
$
|
138.0
|
|
At
June 30, 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:
9
|
|
June 30,
|
|
December 31,
|
|
In millions
|
|
2009
|
|
2008
|
|
Assets held for sale:
|
|
|
|
|
|
Receivables
|
|
$
|
13.8
|
|
$
|
26.0
|
|
Inventories
|
|
40.8
|
|
62.5
|
|
Prepaid
expenses and other current assets
|
|
2.0
|
|
1.6
|
|
Total
current assets held for sale
|
|
56.6
|
|
90.1
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
45.6
|
|
46.9
|
|
Other
long term assets
|
|
0.3
|
|
1.0
|
|
Total
non-current assets held for sale
|
|
45.9
|
|
47.9
|
|
Total
assets held for sale
|
|
$
|
102.5
|
|
$
|
138.0
|
|
|
|
|
|
|
|
Liabilities associated with assets held for sale:
|
|
|
|
|
|
Accounts
payable
|
|
$
|
11.1
|
|
$
|
8.6
|
|
Accrued
expenses
|
|
6.5
|
|
20.3
|
|
Total
liabilities associated with assets held for sale
|
|
$
|
17.6
|
|
$
|
28.9
|
|
Net
sales and income (loss) before income taxes from discontinued operations were
as follows:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In millions
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
Power
transmission belt business
|
|
$
|
30.0
|
|
$
|
36.8
|
|
$
|
62.0
|
|
$
|
77.2
|
|
On-highway
friction and brake shoe business
|
|
7.2
|
|
19.0
|
|
17.1
|
|
34.4
|
|
Thermoset
molding operation
|
|
|
|
2.5
|
|
|
|
4.7
|
|
Net
sales for discontinued operations
|
|
$
|
37.2
|
|
$
|
58.3
|
|
$
|
79.1
|
|
$
|
116.3
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations:
|
|
|
|
|
|
|
|
|
|
Power
transmission belt business
|
|
$
|
3.3
|
|
$
|
2.7
|
|
$
|
5.7
|
|
$
|
(63.8
|
)
|
On-highway
friction and brake shoe business
|
|
(2.1
|
)
|
(2.4
|
)
|
(11.8
|
)
|
(61.6
|
)
|
Thermoset
molding operation
|
|
|
|
|
|
(0.1
|
)
|
(0.1
|
)
|
Automotive
components
|
|
|
|
(0.8
|
)
|
(0.1
|
)
|
(2.1
|
)
|
Systems
and equipment
|
|
(0.1
|
)
|
(0.1
|
)
|
0.8
|
|
(0.2
|
)
|
Income
(loss) before income taxes from discontinued operations
|
|
$
|
1.1
|
|
$
|
(0.6
|
)
|
$
|
(5.5
|
)
|
$
|
(127.8
|
)
|
Results
for the six months ended June 30, 2009 included $6.0 million of pretax
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
six months ended June 30, 2008 reflected $124.2 million in pretax
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.
10
(10) 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:
|
|
June 30,
|
|
December 31,
|
|
In millions
|
|
2009
|
|
2008
|
|
Finished
goods
|
|
$
|
222.2
|
|
$
|
288.1
|
|
Work-in-process
|
|
32.0
|
|
34.9
|
|
Raw
materials
|
|
123.1
|
|
152.9
|
|
Reserves
and variances - net
|
|
(20.7
|
)
|
10.8
|
|
|
|
356.6
|
|
486.7
|
|
Inventories
associated with assets held for sale
|
|
(40.8
|
)
|
(62.5
|
)
|
Inventories
|
|
$
|
315.8
|
|
$
|
424.2
|
|
(11) Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for
the six months ended June 30, 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
|
|
|
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
Currency
translation
|
|
0.1
|
|
0.2
|
|
|
|
0.2
|
|
0.5
|
|
Balance at June 30, 2009
|
|
$
|
88.4
|
|
$
|
99.8
|
|
$
|
221.5
|
|
$
|
26.3
|
|
$
|
436.0
|
|
The
Companys other intangible assets at June 30, 2009 were as follows:
|
|
Acquired
|
|
Accumulated
|
|
Net
Book
|
|
In millions
|
|
Cost
|
|
Amortization
|
|
Value
|
|
Assets
subject to amortization
|
|
|
|
|
|
|
|
Patents
|
|
$
|
9.1
|
|
$
|
(7.3
|
)
|
$
|
1.8
|
|
Customer
Relationships
|
|
136.0
|
|
(18.7
|
)
|
117.3
|
|
Other
|
|
8.3
|
|
(2.9
|
)
|
5.4
|
|
Assets
not subject to amortization
|
|
|
|
|
|
|
|
Trade
names
|
|
18.3
|
|
|
|
18.3
|
|
Other intangible assets, net
|
|
$
|
171.7
|
|
$
|
(28.9
|
)
|
$
|
142.8
|
|
Estimated
amortization expense for the remainder of 2009 and the next four years is as
follows: $5.2 million remaining in 2009, $10.5 million in 2010, $10.2 million
in 2011, $9.0 million in 2012 and $8.0 million in 2013.
11
(12) Retirement Plans and Other Post-retirement Benefits
Components of net periodic benefit cost were as
follows:
|
|
Pension
Benefits
|
|
Pension
Benefits
|
|
Post-retirement
Benefits
|
|
Post-retirement
Benefits
|
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
In millions
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Service
costs - benefits earned during the quarter
|
|
$
|
1.1
|
|
$
|
1.1
|
|
$
|
2.3
|
|
$
|
2.3
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Discretionary
contribution
|
|
0.1
|
|
0.2
|
|
0.2
|
|
0.2
|
|
|
|
|
|
|
|
|
|
Interest
cost on benefits earned in prior years
|
|
2.6
|
|
2.5
|
|
5.2
|
|
4.9
|
|
|
|
|
|
0.1
|
|
0.1
|
|
Expected
return on plan assets
|
|
(3.0
|
)
|
(3.2
|
)
|
(6.1
|
)
|
(6.3
|
)
|
|
|
|
|
|
|
|
|
Amortization
of unrecognized net actuarial loss
|
|
0.2
|
|
0.1
|
|
0.5
|
|
0.2
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
1.0
|
|
$
|
0.7
|
|
$
|
2.1
|
|
$
|
1.3
|
|
$
|
|
|
$
|
|
|
$
|
0.1
|
|
$
|
0.1
|
|
Including the $0.9 million contribution to the
Companys pension plans during the quarter ended June 30, 2009, required
contributions to the Companys pension plans for the full year of 2009 are
expected to be $8.6 million. No
contribution was made during the quarter ended March 31, 2009. The Company
may elect to make additional contributions in 2009 based on cash flows.
The Company maintains defined contribution plans to
which it has contributed $4.8 million during the six months ended June 30,
2009. Full year contributions are
expected to approximate $9.6 million.
(13) Other Long-Term Liabilities
The components of other long-term liabilities were
as follows:
|
|
June 30,
|
|
December 31,
|
|
In millions
|
|
2009
|
|
2008
|
|
Deferred
taxes and other tax liabilities under FIN 48
|
|
$
|
100.1
|
|
$
|
92.4
|
|
Pension
and other post-retirement obligations
|
|
62.0
|
|
60.5
|
|
Long-term
warranty obligations
|
|
2.8
|
|
2.1
|
|
Other
|
|
3.7
|
|
4.8
|
|
Other
long-term liabilities
|
|
$
|
168.6
|
|
$
|
159.8
|
|
(14) Commitments and Contingencies
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 June 30 was as follows:
In millions
|
|
2009
|
|
2008
|
|
Beginning
reserve
|
|
$
|
7.2
|
|
$
|
7.4
|
|
Liabilities
assumed in acquisition
|
|
|
|
0.7
|
|
Current
year provision
|
|
5.9
|
|
6.4
|
|
Current
year claims
|
|
(5.3
|
)
|
(7.0
|
)
|
Ending
reserve
|
|
$
|
7.8
|
|
$
|
7.5
|
|
The
amount of extended product warranty revenues recognized was $3.9 million and
$7.7 million for the three and six months ended June 30, 2009,
respectively, and $3.8 million and $7.4 million for the three and six months
ended June 30, 2008, respectively.
12
(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 heavy-haul 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 of continuing operations by
reportable segment are included in the following summary:
Three
Months Ended June 30,
|
|
2009
|
|
2008
|
|
|
|
|
|
Operating
|
|
|
|
Operating
|
|
In
millions
|
|
Sales(1)
|
|
Income
|
|
Sales(1)
|
|
Income
|
|
Construction
Materials
|
|
$
|
314.4
|
|
$
|
51.1
|
|
$
|
441.6
|
|
$
|
54.0
|
|
Transportation
Products
|
|
173.5
|
|
33.5
|
|
243.8
|
|
21.1
|
|
Applied
Technologies
|
|
103.1
|
|
8.8
|
|
128.5
|
|
13.4
|
|
Specialty
Products
|
|
27.5
|
|
0.7
|
|
49.1
|
|
8.7
|
|
Corporate
|
|
|
|
(10.1
|
)
|
|
|
(7.3
|
)
|
Total
|
|
$
|
618.5
|
|
$
|
84.0
|
|
$
|
863.0
|
|
$
|
89.9
|
|
Six
Months Ended June 30,
|
|
2009
|
|
2008
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
|
In
millions
|
|
Sales(1)
|
|
Income
|
|
Assets
|
|
Sales(1)
|
|
Income
|
|
Assets
|
|
Construction
Materials
|
|
$
|
522.1
|
|
$
|
56.4
|
|
$
|
656.8
|
|
$
|
723.7
|
|
$
|
69.0
|
|
$
|
785.4
|
|
Transportation
Products
|
|
341.6
|
|
40.9
|
|
438.2
|
|
485.8
|
|
45.0
|
|
552.1
|
|
Applied
Technologies
|
|
205.7
|
|
17.2
|
|
538.7
|
|
219.5
|
|
23.3
|
|
570.6
|
|
Specialty
Products
|
|
60.2
|
|
5.0
|
|
103.6
|
|
86.4
|
|
13.5
|
|
120.0
|
|
Corporate
|
|
|
|
(18.1
|
)
|
81.8
|
|
|
|
(15.4
|
)
|
156.2
|
|
Total
|
|
$
|
1,129.6
|
|
$
|
101.4
|
|
$
|
1,819.1
|
|
$
|
1,515.4
|
|
$
|
135.4
|
|
$
|
2,184.3
|
|
(1) Excludes intersegment sales
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
|
|
$
|
1,819.1
|
|
Assets
held for sale of discontinued operations
|
|
102.5
|
|
Total
Assets per Consolidated Balance Sheet
|
|
$
|
1,921.6
|
|
13
(16) Income Taxes
The Companys effective tax rate on continuing
operations of 31.3% for the six months ended June 30, 2009 varies from the
statutory rate within the United States of 35.0% due primarily to the deduction
attributable to U.S. production activities, earnings in foreign jurisdictions
taxed at rates different from the statutory U.S. federal rate and tax credits.
The total gross liability for uncertain tax
positions under FASB Interpretation No. (FIN) 48 at June 30, 2009
was $16.6 million compared to $18.6 million at December 31, 2008. The $2.0 million decrease in the accrual was
primarily due to the resolution of audit issues. The Company classifies and reports interest
and penalties associated with uncertain tax positions as Income tax expense on
the Consolidated Statements of Earnings, and as other tax liabilities on the
Consolidated Balance Sheets. The total
amount of interest and penalties accrued at June 30, 2009 was $3.6
million. The entire balance accrued for
uncertain tax positions at June 30, 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:
14
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
(In
millions, except share and per share amounts)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
55.7
|
|
$
|
56.9
|
|
$
|
65.7
|
|
$
|
85.1
|
|
Less:
dividends declared - common stock outstanding, unvested restricted shares and
restricted share units
|
|
(9.5
|
)
|
(8.8
|
)
|
(19.0
|
)
|
(17.7
|
)
|
Undistributed
earnings
|
|
46.2
|
|
48.1
|
|
46.7
|
|
67.4
|
|
Percent
allocated to common shareholders (1)
|
|
98.9
|
%
|
99.1
|
%
|
98.9
|
%
|
99.1
|
%
|
|
|
45.7
|
|
47.6
|
|
46.2
|
|
66.8
|
|
Add:
dividends declared - common stock
|
|
9.4
|
|
8.8
|
|
18.8
|
|
17.6
|
|
Numerator
for basic and diluted EPS
|
|
$
|
55.1
|
|
$
|
56.4
|
|
$
|
65.0
|
|
$
|
84.4
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
(in thousands):
|
|
|
|
|
|
|
|
|
|
Denominator
for basic EPS: weighted-average common shares outstanding
|
|
60,584
|
|
60,506
|
|
60,576
|
|
60,550
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
342
|
|
340
|
|
440
|
|
348
|
|
Denominator
for diluted EPS: adjusted weighted average common shares outstanding and assumed
conversion
|
|
60,926
|
|
60,846
|
|
61,016
|
|
60,898
|
|
|
|
|
|
|
|
|
|
|
|
Per
share income from continuing operations:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.91
|
|
$
|
0.93
|
|
$
|
1.07
|
|
$
|
1.39
|
|
Diluted
|
|
$
|
0.90
|
|
$
|
0.93
|
|
$
|
1.06
|
|
$
|
1.39
|
|
(1) Basic
weighted-average common shares outstanding
|
|
60,584
|
|
60,506
|
|
60,576
|
|
60,550
|
|
Basic
weighted-average common shares outstanding, unvested restricted shares
expected to vest and restricted share units
|
|
61,264
|
|
61,029
|
|
61,256
|
|
61,073
|
|
Percent
allocated to common shareholders
|
|
98.9
|
%
|
99.1
|
%
|
98.9
|
%
|
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
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
(In
millions)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations attributable to common shareholders for basic
and diluted earnings per share
|
|
$
|
(0.2
|
)
|
$
|
(2.6
|
)
|
$
|
(3.6
|
)
|
$
|
(92.6
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to common shareholders for basic and diluted
earnings per share
|
|
$
|
54.9
|
|
$
|
53.8
|
|
$
|
61.4
|
|
$
|
(8.2
|
)
|
On
January 1, 2009, as described in Note 3, New Accounting Pronouncements,
the Company adopted FSP EITF 03-6-1, 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 earnings per share excludes the
15
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
June 30, 2009 and 2008, the Company had 4,284,844 and 2,843,658 of
outstanding stock options, respectively.
Stock options are included in the diluted earnings per share computation
using the two-class method.
At
June 30, 2009 and 2008, under the Companys restricted stock plan 644,345
and 508,270 unvested restricted shares were outstanding, respectively. In addition at June 30, 2009 and 2008,
under an equity plan for non-employee directors, 40,518 and 16,255 of vested
restricted share units were outstanding.
(18) Comprehensive Income (Loss)
Total
comprehensive income (loss) consisted of the following:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In millions
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
55.5
|
|
$
|
54.3
|
|
$
|
62.1
|
|
$
|
(8.3
|
)
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation, net of tax
|
|
6.2
|
|
|
|
4.5
|
|
(0.9
|
)
|
Minimum
pension liability, net of tax
|
|
0.2
|
|
0.1
|
|
0.3
|
|
0.2
|
|
(Loss)
gain on hedging activities, net of tax
|
|
(0.1
|
)
|
2.3
|
|
(0.2
|
)
|
(0.5
|
)
|
Other
comprehensive income (loss)
|
|
6.3
|
|
2.4
|
|
4.6
|
|
(1.2
|
)
|
Comprehensive
income (loss)
|
|
$
|
61.8
|
|
$
|
56.7
|
|
$
|
66.7
|
|
$
|
(9.5
|
)
|
(Loss)
gain on hedging activities, net of tax for the three and six months ended June 30,
2009 represented the amortization of a $5.6 million ($3.5 million, net of tax)
gain resulting from the termination of treasury lock contracts on August 15,
2006. At June 30, 2009, the Company
had a remaining unamortized gain of $4.0 million ($2.5 million, net of tax)
which is reflected in Accumulated other comprehensive loss on the Companys
Consolidated Balance Sheets. Approximately $0.3 million ($0.2 million, net of
tax) is expected to be amortized to reduce Interest expense, net during the
remainder of 2009.
(19)
Exit
and Disposal Activities
The
following table represents the effect of exit and disposal activities related
to continuing operations on the Companys Consolidated Statements of Earnings
for the three and six months ended June 30, 2009. There were no exit and disposal activities
reported for the three and six months ended June 30, 2008.
16
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
In millions
|
|
June 30, 2009
|
|
June 30, 2009
|
|
Cost
of goods sold
|
|
$
|
2.2
|
|
$
|
2.6
|
|
Selling
and administrative expenses
|
|
0.2
|
|
0.7
|
|
Other
operating expense
|
|
6.9
|
|
9.8
|
|
Total
exit and disposal costs
|
|
$
|
9.3
|
|
$
|
13.1
|
|
Exit
and disposal activities by type of charge were as follows:
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
In millions
|
|
June 30, 2009
|
|
June 30, 2009
|
|
Termination
benefits
|
|
$
|
0.7
|
|
$
|
0.9
|
|
Contract
termination costs
|
|
0.6
|
|
1.0
|
|
Fixed
asset impairment
|
|
6.9
|
|
9.8
|
|
Other
associated costs
|
|
1.1
|
|
1.4
|
|
Total
exit and disposal costs
|
|
$
|
9.3
|
|
$
|
13.1
|
|
Exit
and disposal accrual activities for the six month period ended June 30,
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
|
|
0.9
|
|
1.0
|
|
9.8
|
|
1.4
|
|
13.1
|
|
2009
usage
|
|
(0.4
|
)
|
(0.5
|
)
|
(9.8
|
)
|
(1.0
|
)
|
(11.7
|
)
|
Balance
at June 30, 2009
|
|
$
|
0.7
|
|
$
|
1.2
|
|
$
|
|
|
$
|
0.8
|
|
$
|
2.7
|
|
Exit
and disposal activities by segment were as follows:
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
In millions
|
|
June 30, 2009
|
|
June 30, 2009
|
|
Total
by segment
|
|
|
|
|
|
Transportation
Products
|
|
$
|
8.5
|
|
$
|
12.2
|
|
Applied
Technologies
|
|
0.8
|
|
0.9
|
|
Total
exit and disposal costs
|
|
$
|
9.3
|
|
$
|
13.1
|
|
Transportation Products
The Company has undertaken several consolidation projects within the
Transportation Products segment in efforts to reduce costs and streamline its
operations. Descriptions of these
projects are set forth below:
·
In the fourth quarter of 2008, the Company
began consolidating nineteen of its distribution centers located throughout the
United States and Canada into ten existing facilities. These consolidations
were completed in the second quarter of 2009.
17
·
In the first quarter of 2009, the Company
began the consolidation of three wheel manufacturing plants located in
California into one facility in Ontario, CA.
In the second quarter of 2009, the Company also began the closure of its
wheel manufacturing operation in Mexico.
·
In the first quarter of 2009, the Company
announced plans to consolidate its pneumatic tire manufacturing operations in
Buji, China into its manufacturing operation in Meizhou, China. Also, subsequent to June 30, 2009, the
Company announced plans to consolidate its tire manufacturing operations in
Heflin, AL, Carlisle, PA, and portions of Buji, China into a new facility in
Jackson, TN, the purchase of which is expected to be complete in the third
quarter of 2009.
·
At its heavy-haul trailer business, in the
second quarter of 2009, the Company announced plans to consolidate its
Brookville, PA facility into the operations located in Mitchell, SD and West
Fargo, ND.
The
Company expects the total cost of these consolidation projects will be
approximately $36.0 million, of which $13.0 million has been incurred through June 30,
2009, $8.8 million is expected to be incurred in the second half of 2009, and
$14.2 million is expected to be incurred in 2010. Amounts expected to be incurred through the
remainder of 2009 and 2010 relate primarily to employee termination and other
costs associated with the relocation of employees and equipment.
Of
the $8.5 million of expenses that were recorded in the second quarter of 2009,
$6.6 million related to asset impairment charges, $0.7 million related to
employee termination costs, and $1.2 million related to contract termination
and other costs primarily associated with the relocation of equipment. Refer to Note 6 for further information on
the asset impairment. In the first half of 2009, the Company recorded $12.2
million of expenses, including $9.5 million in asset impairment charges, $0.9
million in employee termination costs, and $1.8 million of other costs
consisting primarily of contract termination and relocation expenses.
Included
in Accrued expenses at June 30, 2009 was $2.1 million related to unpaid
severance, contract termination, moving and relocation and other costs.
Applied Technologies
The Company has undertaken two consolidation projects within the
Applied Technologies segment in efforts to reduce costs and streamline
operations. Descriptions of these
projects are set forth below:
·
In 2008, the Company began the consolidation
of its Georgia and Wisconsin janitorial/sanitation manufacturing facilities
into one facility in Sparta, WI, which operates within its foodservice products
business. This consolidation was
completed in the second quarter of 2009 with no material exit and disposal cost
incurred during the second quarter.
·
In the second quarter of 2009, the Company
announced plans to consolidate its Kent, WA facility operating within the
interconnect technologies business into its Tukwila, WA facility. Total costs incurred in the three and six
months ended June 30, 2009 related to this closure were $0.8 million and
reflected $0.5 million in contract termination costs and $0.3 million of asset
impairment charges. No additional
material costs related to these consolidations are expected. Included in Accrued expenses at June 30,
2009 was $0.6 million relating to unpaid contract termination costs connected
with the Kent, WA facility.
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 heavy-haul
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.
The
Company also reports and manages two businesses currently classified as Discontinued
Operations: the on-highway friction and brake shoe business and the power
transmission belt 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 income and margins,
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 $618.5 million for the three months ended June 30, 2009
represented a 28% decline from net sales of $863.0 million during the three
months ended June 30, 2008. Sales were
down across all segments, with 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) decreasing by 28% from
the second quarter of the prior year, primarily as a result of lower sales
volumes. The acquisition of the Carlyle
interconnect solutions business (Carlyle) in April 2008 reported in the
Applied Technologies segment contributed $7.3 million in net sales to second
quarter 2009 results. The impact of
foreign currency exchange rates on net sales was a reduction of approximately
1% in the second quarter of 2009.
Net
sales of $1.13 billion for the six months ended June 30, 2009, decreased
25% from net sales of $1.52 billion in the six months ended June 30,
2008. Sales decreased across all
segments with organic sales being down 27% from the prior year. The acquisitions of Carlyle in April 2008
and the Dinex foodservice business (Dinex) in January 2008 contributed
an additional $37.0 million of sales in the first six months of the current
year as compared to the same period of 2008.
Approximately 1% of the sales decline was attributed to changes in
foreign currency exchange rates.
Operating
income in the second quarter of 2009 was $84.0 million, a 6.6% decline as
compared to operating income of $89.9 million for the second quarter of
2008. The reduction of operating income
was primarily the result of significantly lower sales volumes year-over-year,
as well as $11.0 million in plant restructurings and senior management
severance expenses. Partially offsetting
these items were a $24.5 million gain from a fire
19
insurance
recovery, increased selling prices, favorable raw material pricing, and
improvement in operating costs attributed to efficiencies gained through the
Carlisle Operating System, the Companys manufacturing structure and strategy
deployment system. Operating income
contributed from acquisitions in the second quarter of 2009 was approximately
$1.0 million.
Operating
income for the six months ended June 30, 2009 of $101.4 million declined
25% compared to operating income of $135.4 million for the six months ended June 30,
2008. The decrease was primarily attributable
to significantly lower sales volumes in all segments, and to a lesser extent,
higher raw material costs associated with high value raw material inventory
within the Transportation Products segment as well as plant restructuring and
senior management severance expenses of $14.8 million. Favorably impacting 2009 results were a $27.0
million gain from a fire insurance recovery, increased selling prices, and
lower operating costs attributed to efficiencies gained through the Carlisle
Operating System. Acquisitions
contributed $4.9 million to current year results.
The
Companys effective tax rate for continuing operations of 30.5% for the second
quarter 2009 compares with an effective tax rate of 32.7% for the second
quarter 2008. The Companys effective
tax rate for the first six months of 2009 was 31.3% as compared to 33.0% for
the same period of 2008. The Companys
effective tax rate varies from the statutory rate within the United States of
35% due to the deduction attributable to U.S. production activities, earnings
in foreign jurisdictions taxed at rates different from the statutory U.S.
federal rate, and tax credits.
Income
from continuing operations, net of tax was $55.7 million, or $0.90 per diluted
share, for the three months ended June 30, 2009 and represented a 2.1%
decline compared to income from continuing operations, net of tax of $56.9
million, or $0.93 per diluted share for the same period in 2008. Income from continuing operations, net of tax
was $65.7 million, or $1.06 per diluted share, for the six months ended June 30,
2009, compared to income from continuing operations, net of tax of $85.1
million, or $1.39 per diluted share for the same period in 2008.
Sales and Earnings
Consolidated
Results of Continuing Operations
Net
sales
of $618.5
million for the three months ended June 30, 2009 represented a 28% decline
from net sales of $863.0 million during the three months ended June 30,
2008. Organic sales decreased by 28%
from the second quarter of the prior year on significantly weaker demand across
all segments. The acquisition of Carlyle
in April 2008 reported in the Applied Technologies segment contributed
$7.3 million in net sales to second quarter 2009 results. The impact of foreign currency exchange rates
on net sales was a reduction of approximately 1% in the second quarter of 2009.
Net
sales of $1.13 billion for the six months ended June 30, 2009, decreased
25% from net sales of $1.52 billion in the six months ended June 30,
2008. Weak demand contributed to a 27%
reduction in organic sales from the prior year.
The acquisitions of Carlyle and Dinex contributed an additional $37.0
million of sales in the first six months of the current year as compared to the
same period of 2008. Approximately 1%
of the sales decline was attributed to changes in foreign currency exchange
rates.
Cost of
goods sold
of $477.8
million for the quarter ended June 30, 2009 decreased $211.1 million, or
31% from $688.9 million in the second quarter of 2008, on a decline in net
sales of 28%. The decline was
attributable to lower sales volumes and lower raw material cost, partially
offset by higher unabsorbed overhead cost as a result of decreased production.
Cost
of goods sold of $899.9 million for the six months ended June 30, 2009,
decreased $317.7 million, or 26% lower than $1.22 billion of cost of goods sold
during the prior year period, on decreased sales of 25%.
20
The
decline was attributable to lower sales volumes, partially offset by higher
unabsorbed overhead costs resulting from decreased production and higher raw
material costs reflecting high valued inventory sold in the Transportation
Products segment in the first quarter of this year.
Gross
margin
(net sales
less cost of goods sold expressed as a percent of net sales) increased from
20.2% in the second quarter of 2008 to 22.7% in the second quarter of
2009. The gross margin improvement was driven
by selling price increases in all segments and an overall reduction in
year-over-year raw material costs. Gross
margin grew from 19.7% in the six months ended 2008 to 20.3% in the six months
ended 2009 primarily reflecting increased selling prices which were implemented
in the second half of the prior year in response to significantly higher raw
material costs.
Selling
and administrative expenses
of $72.8 million for the quarter ended June 30, 2009 were $8.1
million, or 10.0%, lower than $80.9 million for the quarter ended June 30,
2008. Expenses were down across all
segments. The reductions were primarily
in commissions, advertising, and other compensation expenses reflecting lower
sales and headcount reductions. As a
percent of net sales, selling and administrative expenses were 11.8% and 9.4%
for the three months ended June 30, 2009 and 2008, respectively. Selling and administrative expenses in the
second quarter of 2009 included $1.7 million of senior management severance
expenses.
Selling
and administrative expenses of $140.5 million for the six months ended June 30,
2009, were $15.3 million, or 9.8%, lower than the $155.8 million in the six
months ended June 30, 2008 and primarily reflected reductions in
commissions, advertising, and other compensation expenses resulting from lower
sales and headcount reductions. Results
in the current year included $1.7 million of expenses related to senior
management severance. Results for the
six month period ending June 30, 2008 included $2.1 million in additional
bad debt reserves related to a Florida construction materials distributor that
filed for bankruptcy. As a percent of
net sales, selling and administrative expenses were 12.4% and 10.3% for the six
months ended June 30, 2009 and 2008, respectively.
Operating
income
in the second
quarter of 2009 was $84.0 million, a 6.6% decline as compared to operating
income of $89.9 million for the second quarter of 2008. Operating income in 2009 included a $24.5
million gain from a fire insurance recovery, partially offset by restructuring
and senior management severance expenses of $11.0 million.
Operating
income for the six months ended June 30, 2009 of $101.4 million compared
to operating income of $135.4 million for the six months ended June 30,
2008. 2009 operating income included a
$27.0 million gain from a fire insurance recovery, partially offset by plant
restructuring and senior management severance expenses of $14.8 million.
Interest
expense, net
was $2.3
million for the quarter ended June 30, 2009, compared to interest expense,
net of $5.1 million for the quarter ended June 30, 2008. Interest expense, net for the six months
ended June 30, 2009, was $5.0 million compared to $9.2 million in the
prior year period. The decrease in
interest expense for the three and six month periods was due to the reduction
in outstanding debt and more favorable short-term interest rates in 2009.
Income
from continuing operations, net of tax
was $55.7 million, or $0.90 per diluted share, for the three months
ended June 30, 2009, down 2.1% compared to income from continuing
operations, net of tax of $56.9 million, or $0.93 per diluted share for the
same period in 2008. Results for the
current year quarter included an after-tax gain of $15.2 million, or $0.25 per
diluted share, related to insurance recoveries, partially offset by after-tax
expense of $8.3 million, or $0.14 per diluted share, related to plant
restructuring and senior management severance.
21
Income
from continuing operations, net of tax was $65.7 million, or $1.06 per diluted
share, for the six months ended June 30, 2009, compared to income from
continuing operations, net of tax of $85.1 million, or $1.39 per diluted share
for the same period in 2008. Current
year results included an after-tax gain of $16.8 million, or $0.27 per diluted
share, related to insurance recoveries, partially offset by after-tax expense
of $11.9 million, or $0.19 per diluted share, related to plant restructuring
and senior management severance.
Loss from discontinued
operations, net of tax,
for
the three months ended June 30, 2009 was $0.2 million which compared to a
loss from discontinued operations, net of tax, of $2.6 million for the same
period in 2008. In April 2008,
Carlisle announced plans to dispose of Power Transmission and Motion
Control. In April 2009, Carlisle
announced that it will exit the on-highway friction and brake shoe business of
Motion Control and dispose of the assets associated with this business in a
planned dissolution. The Power Transmission business remains in discontinued
operations and continues to operate profitably and is generating positive cash
flows.
Loss
from discontinued operations, net of tax, for the six months ended June 30,
2009, was $3.6 million, or $0.05 per diluted share, which compared to a loss
from discontinued operations, net of tax, of $93.4 million, or $1.53 per
diluted share for the same period in 2008.
The loss from discontinued operations for the first six months of 2009
includes after-tax severance, asset write-down and impairment charges of $3.7
million related to the exit of the Motion Control business. The 2008 loss includes an after-tax
impairment charge on the assets of the Power Transmission and Motion Control
businesses of $89.5 million.
Net
income
of $55.5
million, or $0.90 per diluted share, for the quarter ended June 30, 2009
compared to net income of $54.3 million, or $0.88 per diluted share, for the
quarter ended June 30, 2008. Net
income of $62.1 million, or $1.01 per diluted share, for the six months ended June 30,
2009 compared to a net loss of $8.3 million, or $0.14 per diluted share, for
the six months ended June 30, 2008. Results for the first half of 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.
22
Financial Reporting Segments
The
following table summarizes segment net sales and operating income. The amounts for each segment should be
referred to in conjunction with the applicable discussion below.
|
|
Three Months Ended
|
|
Increase
|
|
Six Months Ended
|
|
Increase
|
|
In millions,
|
|
June 30,
|
|
(Decrease)
|
|
June 30,
|
|
(Decrease)
|
|
except percentages
|
|
2009
|
|
2008
|
|
Amount
|
|
Percent
|
|
2009
|
|
2008
|
|
Amount
|
|
Percent
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
Materials
|
|
$
|
314.4
|
|
$
|
441.6
|
|
$
|
(127.2
|
)
|
-29
|
%
|
$
|
522.1
|
|
$
|
723.7
|
|
$
|
(201.6
|
)
|
-28
|
%
|
Transportation
Products
|
|
173.5
|
|
243.8
|
|
(70.3
|
)
|
-29
|
%
|
341.6
|
|
485.8
|
|
(144.2
|
)
|
-30
|
%
|
Applied
Technologies
|
|
103.1
|
|
128.5
|
|
(25.4
|
)
|
-20
|
%
|
205.7
|
|
219.5
|
|
(13.8
|
)
|
-6
|
%
|
Specialty
Products
|
|
27.5
|
|
49.1
|
|
(21.6
|
)
|
-44
|
%
|
60.2
|
|
86.4
|
|
(26.2
|
)
|
-30
|
%
|
|
|
$
|
618.5
|
|
$
|
863.0
|
|
$
|
(244.5
|
)
|
-28
|
%
|
$
|
1,129.6
|
|
$
|
1,515.4
|
|
$
|
(385.8
|
)
|
-25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
Materials
|
|
$
|
51.1
|
|
$
|
54.0
|
|
$
|
(2.9
|
)
|
-5
|
%
|
$
|
56.4
|
|
$
|
69.0
|
|
$
|
(12.6
|
)
|
-18
|
%
|
Transportation
Products
|
|
33.5
|
|
21.1
|
|
12.4
|
|
59
|
%
|
40.9
|
|
45.0
|
|
(4.1
|
)
|
-9
|
%
|
Applied
Technologies
|
|
8.8
|
|
13.4
|
|
(4.6
|
)
|
-34
|
%
|
17.2
|
|
23.3
|
|
(6.1
|
)
|
-26
|
%
|
Specialty
Products
|
|
0.7
|
|
8.7
|
|
(8.0
|
)
|
-92
|
%
|
5.0
|
|
13.5
|
|
(8.5
|
)
|
-63
|
%
|
Corporate
|
|
(10.1
|
)
|
(7.3
|
)
|
(2.8
|
)
|
-38
|
%
|
(18.1
|
)
|
(15.4
|
)
|
(2.7
|
)
|
-18
|
%
|
|
|
$
|
84.0
|
|
$
|
89.9
|
|
$
|
(5.9
|
)
|
-7
|
%
|
$
|
101.4
|
|
$
|
135.4
|
|
$
|
(34.0
|
)
|
-25
|
%
|
Construction Materials
Second
quarter 2009 net sales declined 29% to $314.4 million from $441.6 million in
the second quarter of 2008. The decrease
in sales was across all product lines and is consistent with declines in the
overall construction industry. A 32%
decline in sales volume was slightly offset by a 2.9% increase in selling
prices. Net sales of $522.1 million for the six months ended June 30, 2009
decreased 28% as compared with $723.7 million for the same period in 2008.
Second
quarter 2009 operating income declined 5.4% to $51.1 million from $54.0 million
in the second quarter of 2008. Operating
margins increased from a raw material challenged 12.2% in 2008 to 16.3% in the
current year. The improvement in margins
was due to the combination of selling price increases, favorable raw material
cost, reduction in selling and administration expenses and efficiency gains
from the Carlisle Operating System.
Operating income of $56.4 million for the six months ended June 30,
2009 decreased 18% as compared with $69.0 million for the same period in 2008
primarily reflecting lower sales.
Operating margins improved to 10.8% in the first half of 2009 compared
to 9.5% in the first half of 2008 primarily due to increased selling prices and
favorable raw material costs as well as a reduction in selling and
administrative expenses and efficiency gains from the Carlisle Operating
System.
Net
sales and operating income 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 operating income may continue to be negatively impacted by the
downturn in commercial construction and credit availability. Also, while the Company has been able to
maintain higher prices implemented in 2008 to offset increased raw material
costs, the ability to continue to maintain these prices is uncertain. Further, higher raw material costs may also
place negative pressure on operating income in future periods.
23
Transportation
Products
Second
quarter 2009 net sales declined 29% to $173.5 million from $243.8 million in
the second quarter of 2008. A 32% drop
in sales volume was partially offset by a 4.1% increase in selling prices. Continued softness in market demand adversely
impacted sales in all product lines. Net
sales of $341.6 million for the six months ended June 30, 2009 decreased
30% as compared with $485.8 million for the same period in 2008, which was
consistent with the decline in the second quarter.
Second
quarter 2009 operating income increased 59% to $33.5 million from $21.1 million
in the second quarter of 2008. Operating
margin grew to 19.3% in the second quarter of 2009, up from 8.7% in the second
quarter of 2008. Operating results in
the current year quarter included a $24.5 million fire insurance recovery gain,
which was partially offset by plant restructuring costs of $8.5 million. Operating income was positively impacted by
cost reductions, improved product mix and year-over-year pricing increases.
Operating
income of $40.9 million for the six months ended June 30, 2009 decreased
9.1% as compared with $45.0 million for the same period in 2008. Operating margin in the first half of 2009
was 12.0%, up from 9.3% in the first half of 2008. Results for the current year included a $27.0
million fire insurance recovery gain, which was partially offset by plant
restructuring costs of $12.2 million.
The positive impact of improved selling prices was substantially offset
by higher raw material costs as the Company worked through its high priced raw
material inventory.
The fire insurance gain was the result of insurance recoveries related
to a fire at the Companys facility in Bowdon, Georgia in November 2008. For more information see Note 4 to the
Consolidated Financial Statements.
The Company has undertaken several consolidation projects within this
segment in efforts to reduce costs and streamline its operations. Descriptions of these projects are set forth
below:
·
In the fourth quarter of 2008, the Company
began consolidating nineteen of its distribution centers located throughout the
United States and Canada into ten existing facilities. These consolidations
were completed in the second quarter of 2009.
·
In the first quarter of 2009, the Company
began the consolidation of three wheel manufacturing plants located in
California into one facility in Ontario, CA.
In the second quarter of 2009, the Company also began the closure of its
wheel manufacturing operation in Mexico.
·
In the first quarter of 2009, the Company
announced plans to consolidate its pneumatic tire manufacturing operations in
Buji, China into its manufacturing operation in Meizhou, China. Also, subsequent to June 30, 2009, the
Company announced plans to consolidate its tire manufacturing operations in
Heflin, AL, Carlisle, PA, and portions of Buji, China into a new facility in
Jackson, TN, the purchase of which is expected to be complete in the third
quarter of 2009.
·
At its heavy-haul trailer business, in the
second quarter of 2009, the Company announced plans to consolidate its
Brookville, PA facility into the operations located in Mitchell, SD and West
Fargo, ND.
The Company expects the total cost of these consolidation projects will
be approximately $36.0 million, of which $13.0 million has been incurred
through June 30, 2009, $8.8 million is expected to be incurred in the
second half of 2009, and $14.2 million is expected to be incurred in 2010. Amounts expected to be incurred through the
remainder of 2009 and 2010 relate primarily to employee termination and other
costs associated with the relocation of employees and equipment.
24
Cost savings related to these consolidations, primarily resulting from
the reduction of operating costs, is expected to approximate $22 million per
year. In 2009, the Company expects cost
savings of approximately $7 million.
As discussed above, $8.5 million of expenses were recorded in the
second quarter of 2009 related to these consolidation projects. Of that amount, $6.6 million related to asset
impairment charges, $0.7 million related to employee termination costs, and
$1.2 million related to contract termination and other costs primarily
associated with the relocation of equipment.
In the first half of 2009, the Company recorded $12.2 million of
expenses, including $9.5 million in asset impairment charges, $0.9 million in
employee termination costs, and $1.8 million of other costs consisting
primarily of contract termination and relocation expenses.
Net
sales and operating income 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 half of this year, and it remains uncertain to what extent future
quarters will be impacted. Other issues
that could negatively impact sales and operating income in future periods
include:
·
The Company could face negative pricing
pressure in subsequent quarters.
·
Raw material price volatility could place
negative pressure on operating income in future periods.
·
The Company could be negatively impacted by
cost and availability of shipping channels and the amount of time required to
ship product manufactured in China.
·
The consolidation of its tire operations into
Jackson, TN is a significant project, and though the Company believes the
expense projections and anticipated savings have been carefully prepared,
unforeseen events due to the size and length of the project may result in
increased costs or a reduction in cost savings compared to current estimates.
·
Reluctance of customers to make capital
expenditures and lack of credit availability may continue to negatively impact
the heavy-haul trailer business in subsequent quarters.
Applied Technologies
Second
quarter 2009 net sales declined 20% to $103.1 million from $128.5 million in
the second quarter of 2008. Organic
sales for the second quarter were down 25% in 2009 as compared to 2008,
primarily due to softness in the foodservice business and lower demand in the
cable and assembly business. The
acquisition of Carlyle in April 2008 contributed $7.3 million to current
year results. Net sales of $205.7
million for the six months ended June 30, 2009 decreased 6.3% as compared
with $219.5 million for the same period in 2008. Organic sales were down 23% in the first half
of 2009 reflecting general economic conditions, as well as production delays in
the aerospace market. The acquisitions
of Dinex and Carlyle contributed $37.0 million of net sales in the current
year.
Second
quarter 2009 operating income declined 34% to $8.8 million from $13.4 million
in the second quarter of 2008 primarily reflecting lower sales. Operating margins declined from 10.4% in the
second quarter of 2008 to 8.5% in the second quarter of 2009. Operating income fell in the current-year quarter
as compared to last year on lower organic sales and an unfavorable product mix.
The contribution of operating income from the Carlyle acquisition was
substantially offset by plant restructuring expenses of $0.8 million in the
aerospace business.
Operating
income of $17.2 million for the six months ended June 30, 2009 decreased
26% as compared with $23.3 million for the same period in 2008 reflecting lower
sales and higher unabsorbed overhead costs resulting from lower
production. Acquisitions contributed
approximately $4.9 million to operating income in the first half of 2009, and
were partially offset by $0.9 million in plant restructuring expenses. Operating margins declined from 10.6% in the
first six months of 2008 to 8.4% in the current year.
25
The Company has undertaken two consolidation projects within this
segment in efforts to reduce costs and streamline operations. Descriptions of these projects are set forth
below:
·
In 2008, the Company began the consolidation
of its Georgia and Wisconsin janitorial/sanitation manufacturing facilities
into one facility in Sparta, WI, which operates within its foodservice products
business. This consolidation was
completed in the second quarter of 2009 with no material exit and disposal cost
incurred during the second quarter. The
Company expects annual savings of approximately $2 million to begin in 2009.
·
In the second quarter of 2009, the Company
announced plans to consolidate its Kent, WA facility operating within the
interconnect technologies business into its Tukwila, WA facility. Total costs incurred in the three and six
months ended June 30, 2009 related to this closure were $0.8 million and
reflected $0.5 million in contract termination costs and $0.3 million of asset
impairment charges. No additional
material costs related to these consolidations are expected. The Company expects this project will result
in $0.5 million in reduced operating expenses per year, with $0.2 million
occurring in 2009.
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 operating income in subsequent quarters.
Specialty Products
Net
sales in the second quarter of 2009 declined 44% to $27.5 million from $49.1
million in the second quarter of 2008.
The decrease in second quarter sales was attributable to weak sales in
the construction and mining markets of the off-highway braking business. Net sales of $60.2 million for the six months
ended June 30, 2009 decreased 30% as compared with $86.4 million for the
same period in 2008. Net sales in the refrigerated truck bodies business were
17% higher in the first half of this year due to a large military order that
was completed in the second quarter, but was more than offset by a 45% decline
in the off-highway braking business on weak sales in the construction and
mining market segments.
Second
quarter 2009 operating income declined 92% to $0.7 million from $8.7 million in
the second quarter of 2008. Operating
margins declined from 17.7% in the second quarter of 2008 to 2.5% in the second
quarter of 2009. The decrease in second
quarter operating income was primarily attributable to the lower sales volume
in the off-highway braking business.
Operating income of $5.0 million for the six months ended June 30,
2009 decreased 63% as compared with $13.5 million for the same period in
2008. Operating margins in the first
half of 2009 were 8.3%, down from 15.6% in the first half of 2008. Operating income in the refrigerated truck
bodies business was up significantly from the prior year reflecting the
improvement in sales, but was more than offset by lower operating income in the
off-highway braking business primarily as a result of the reduction in sales volumes.
The off-highway braking and
refrigerated truck bodies businesses are generally not subject to seasonal
demand. Reluctance of customers to make
capital expenditures and lack of credit availability could impact demand in all
markets served by the Specialty Products segment. Volatility in commodities
prices could impact demand in the mining sector. 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.
26
Corporate
expense
Corporate
expense of $10.1 million for the second quarter of 2009 compared with $7.3
million for the second quarter 2008. The
increase was primarily due to a $1.7 million expense related to senior
management severance costs and higher corporate expenses from the Companys
expansion in Asia.
Liquidity and Capital Resources
Sources and Uses of Cash
|
|
Six
Months Ended June 30,
|
|
In millions
|
|
2009
|
|
2008
|
|
Net
cash provided by operating activities
|
|
$
|
269.0
|
|
$
|
86.2
|
|
Net
cash used in investing activities
|
|
(17.0
|
)
|
(334.9
|
)
|
Net
cash (used in) provided by financing activities
|
|
(231.4
|
)
|
278.1
|
|
Effect
of exchange rate changes on cash
|
|
0.3
|
|
0.4
|
|
Change
in cash and cash equivalents
|
|
$
|
20.9
|
|
$
|
29.8
|
|
Net cash provided by operating activities was $269.0 million for the
six months ended June 30, 2009, compared to net cash provided by operating
activities of $86.2 million for the six months ended June 30, 2008. The
improvement reflected a $70.4 million improvement in net income, an improvement
in working capital and other assets and liabilities of $187.8 million, and
included $54.5 million in insurance recovery proceeds. Net income in the first half of 2009 included
an after-tax gain of $16.8 million related to insurance recoveries, and $11.9
million of after-tax charges related to plant restructuring activities. Net income in the first half of 2008 was
reduced by $89.5 million of after-tax impairment charges. The improvement in working capital was
primarily a result of a reduction in inventories.
Cash used in investing activities was $17.0 million for the six months
ended June 30, 2009, compared to $334.9 million for the first six months
of 2008. Capital expenditures were $20.1
million in the first six months of 2009 compared to capital expenditures of
$40.7 million in the first six months of 2008. Cash used for acquisitions in
2008 of $294.8 million included the acquisitions of Carlyle and Dinex.
In
the third quarter of 2009, activities related to the consolidation of three
tire manufacturing operations into a new facility in Jackson, TN will
commence. Total cash expenditures
associated with this project are expected to approximate $64 million, of which
approximately $45 million relate to the purchase of the facility and investment
in equipment. The remainder will be used
to cover relocation and severance costs.
Cash
used by financing activities of $231.4 million for the six months ended June 30,
2009 primarily reflects the repayment of debt and the payment of dividends.
Cash provided by financing activities of $278.1 million for the six months
ended June 30, 2008 included borrowings under the revolving credit
facility and securitization facility to fund acquisitions and purchase treasury
shares totaling $4.8 million.
Debt
Instruments and Covenants
At
June 30, 2009 the Company had $440.4 million available under its $500.0
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
facility requires the Company to meet various restrictive covenants and
limitations including
27
certain
net worth, cash flow ratios and limits on outstanding debt balances held by
certain subsidiaries. The Company is
presently on credit watch with one of the credit rating agencies.
The
Company also maintains a $55.0 million uncommitted line of credit of which
$55.0 million was available at June 30, 2009.
During
the second quarter of 2009, the Company terminated its existing $150.0 million
accounts receivable securitization facility. The facility was terminated due to
the Companys strong operating cash flow, and its available credit facilities
and lines of credit that should provide adequate liquidity and capital
resources to fund ongoing operations, expand existing lines of business and
make strategic acquisitions.
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.
28
Item 3. Quantitative and Qualitative Disclosure
about Market Risk
There
have been no material changes in the Companys market risk for the period ended
June 30, 2009. For additional information, refer to Item 7A of the Companys
2008 Annual Report on Form 10-K.
29
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 June 30, 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.
30
PART II. OTHER INFORMATION
Item 4.
Submission of Matters to a Vote of Security
Holders.
(a)
The Companys 2009 Annual Meeting of
Shareholders was held on April 20, 2009.
(b)
At the 2009 Annual Meeting of Shareholders,
the election of four directors was approved as follows:
Director
|
|
For
|
|
Against
|
|
Withheld
|
|
Non-Vote
|
|
|
|
|
|
|
|
|
|
|
|
Paul J. Choquette, Jr.
|
|
67,733,357
|
|
3,374,895
|
|
610,563
|
|
|
|
Stephen P. Munn
|
|
67,865,942
|
|
3,447,880
|
|
404,993
|
|
|
|
Lawrence A. Sala
|
|
66,486,081
|
|
4,647,609
|
|
585,125
|
|
|
|
Magalen C. Webert
|
|
67,873,062
|
|
3,316,220
|
|
529,533
|
|
|
|
(c)
At the 2009 Annual Meeting of Shareholders, a
proposal to ratify the appointment of Ernst & Young LLP as the Companys
independent registered public accounting firm for the 2009 fiscal year was
approved as follows:
Proposal
|
|
For
|
|
Against
|
|
Withheld
|
|
Non-Vote
|
|
|
|
|
|
|
|
|
|
|
|
Ratify appointment of
Ernst & Young LLP
|
|
71,012,981
|
|
313,792
|
|
392,042
|
|
|
|
(d)
At the 2009 Annual Meeting of Shareholders, a
proposal to amend the Companys Executive Incentive Program to increase the
number of shares authorized for issuance under the Program was approved as
follows:
Proposal
|
|
For
|
|
Against
|
|
Withheld
|
|
Non-Vote
|
|
|
|
|
|
|
|
|
|
|
|
Amend Companys Executive
Incentive Program
|
|
45,667,453
|
|
19,023,724
|
|
794,650
|
|
6,232,989
|
|
Item 6.
Exhibits
(10)
Letter Agreement, dated June 29, 2009,
between the Company and Michael D. Popielec
(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
31
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
|
|
|
|
|
August 4, 2009
|
|
|
|
|
By:
|
/s/ Steven J. Ford
|
|
Name: Steven J. Ford
|
|
Title: Vice President and Chief Financial Officer
|
32
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