UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
SCHEDULE TO
Tender Offer Statement under
Section 14(d)(1) or 13(e)(1) of
the Securities Exchange Act of 1934
HAWK
CORPORATION
(Name of Subject Company)
CARLISLE
COMPANIES INCORPORATED
HC
CORPORATION
(Names of Filing
Persons Offeror)
Class A
Common Stock, Par Value $0.01 Per Share
(Title of Class of
Securities)
420089104
(Cusip Number of
Class of Securities)
Steve Ford
Vice
President, Chief Financial Officer and General Counsel
Carlisle
Companies Incorporated
13925
Ballantyne Corporate Place
Charlotte,
NC 28277
Telephone:
(704) 501-1100
(Name, Address and Telephone
Number of Person Authorized to Receive Notices
and Communications on Behalf
of Filing Persons)
Copies to:
Robert A.
Rosenbaum
Dorsey & Whitney LLP
50 South Sixth Street,
Suite 1500
Minneapolis, Minnesota
55402
(612) 340-2600
x
Check the box if the filing relates solely to
preliminary communications made before the commencement of a tender offer.
Check
the appropriate boxes below to designate any transactions to which the
statement relates:
x
third-party tender offer subject to Rule 14d-1.
o
issuer tender
offer subject to Rule 13e-4.
o
going-private
transaction subject to Rule 13e-3.
o
amendment to
Schedule 13D under Rule 13d-2.
Check
the following box if the filing is a final amendment reporting the results of
the tender offer.
o
On
October 14, 2010, Carlisle Companies Incorporated, a Delaware corporation
(
Parent
), and Parents wholly owned
subsidiary, HC Corporation, a Delaware corporation (
Merger Sub
),
entered into an Agreement and Plan of Merger (the
Merger
Agreement
) with Hawk Corporation, a Delaware corporation (the
Company
), whereby Parent and Merger Sub will commence a
tender offer to purchase all of the issued and outstanding shares of the
Companys Class A common stock, including the associated Rights (as
defined in the Merger Agreement), at a purchase price of $50.00 per share in
cash to be followed by a merger of Merger Sub with and into the Company.
The
following is (i) a transcript of a conference call held at 2:00 PM GMT,
Tuesday, October 26, 2010, to discuss Parents earnings for the third
quarter of its 2010 fiscal year, and (ii) the associated slide
presentation utilized during such conference call.
FINAL TRANSCRIPT
Conference Call Transcript
CSL - Q3 2010 Carlisle Companies Earnings Conference Call
Event Date/Time: Oct 26, 2010 / 02:00PM
GMT
This conference call is not an
offer to purchase or a solicitation of an offer to sell any securities of Hawk
Corporation (Hawk). The planned tender offer by Carlisle Companies
Incorporated (Carlisle) for all of the outstanding shares of the Class A
common stock of Hawk has not yet been commenced. Upon commencement of the
tender offer, Carlisle will mail to Hawk stockholders an offer to purchase and
related materials and Hawk will mail to Hawk stockholders a
solicitation/recommendation statement with respect to the tender offer.
Carlisle will file its offer to purchase with the Securities and Exchange
Commission (the SEC) on Schedule TO and Hawk will file its
solicitation/recommendation statement with the SEC on Schedule 14D-9. Hawk
stockholders are urged to read these materials carefully when they become
available since they will contain important information, including the terms
and conditions of the offer. Hawk stockholders may obtain a free copy of these
materials (when available) and other documents filed by Carlisle or Hawk with
the SEC at the website maintained by the SEC at www.sec.gov. The offer to
purchase and related materials, the solicitation/recommendation statement, the
Schedule TO, and the Schedule 14D-9 may also be obtained (when available) for
free by contacting D.F. King & Co., Inc., the information agent for the
tender offer, at (800) 659-5550 or (212) 269-5550 or by contacting Carlisle at
(704) 501-1100.
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1
CORPORATE PARTICIPANTS
David Roberts
Carlisle Companies, Inc. -
Chairman, President and CEO
Steve Ford
Carlisle Companies, Inc. - CFO
CONFERENCE CALL PARTICIPANTS
Glenn Wortman
Sidoti & Co. - Analyst
Peter Lisnic
Robert W. Baird - Analyst
Saul Ludwig
Northcoast Research - Analyst
Wendy Caplan
SunTrust Robinson Humphrey -
Analyst
Peter Grondin
OSS Capital Management - Analyst
Ajay Kejriwal
FBR Capital Markets - Analyst
PRESENTATION
Operator
Good
morning. My name is Kinesha and I would like to welcome you to the Carlisle
Companies, Inc. third-quarter earnings conference call.
I
would like to turn the conference over to Mr. David Roberts, Chairman and CEO
of Carlisle Companies. Thank you, sir. You may begin your conference.
David Roberts
- Carlisle Companies, Inc. - Chairman,
President and CEO
Thank
you. Good morning and welcome to the Carlyle third-quarter 2010 conference
call. On the call with me are Steve Ford, our CFO; Kevin Zdimal, our CAO; and
Julia Chandler, our VP and Treasurer. We will be using slides during the call
which can be found on our website under presentations to allow you to follow
along on todays call.
I
would be remiss if I didnt remind you to read slide 2 titled forward-looking
statements before making any investment decisions. With that said, I hope you
will find the slides useful.
Before
I take you through the quarterly financial data, let me provide you with an
update on our strategic actions in the quarter. These are detailed on slide 3.
In the past, we have publicly stated our objective to reach 15% operating
margins and we took four steps in the third quarter to move us closer to
obtaining that goal.
On
October 4, we sold our trailer business for $35 million in cash plus the
potential to earn an additional $5 million if certain financial criteria are
met. Due to the economy, Trail King has underperformed over the past seven
quarters. It generated sales of $139 million during that period. Actually, the
bigger issue was that we lost $4 million of EBIT during the same period of
time.
Since
the trailer business wasnt core and because of its recent financial
performance, when presented the opportunity to sell the business, we felt
strategically it was the correct action to take.
2
Eleven
days following the divestiture of Trail King, we announced that we had signed a
definitive agreement to purchase the outstanding shares of Hawk Corporation for
$50 per share or a total of $413 million. The acquisition of this business is a
great fit strategically and it brings a performance profile that will add to
our overall profitability. Our purchase of Hawk is subject to regulatory
approvals, but we expect the transition to close before the end of the year.
During
the quarter, we completed the closure of our Vancouver, Washington Interconnect
Technologies facility. The closure had been scheduled for the third quarter and
we closed as planned. Restructuring charges associated with the closure of
Vancouver were approximately $1.1 million. All but $100,000 of these costs
flowed through the income statement in the first and second quarters.
We
also continued to move manufacturing operations into our new Jackson, Tennessee
tire manufacturing facility with the objective to have all but spread buildings
and calendaring up and running in Jackson by the end of the year. The
completion of this action will have a positive impact on our operating margins
in 2011, as will the other actions that we have taken.
Now
lets turn to slide 4. Overall sales were up 10%, growing organically 8% with
the additional 2% of growth coming from our 2009 acquisitions of Jerrik, ECS,
and Japan Power Brake.
Sequentially
in the third quarter, we have seen growth. Each of our four segments grew, led
by Interconnect Technologies, growing at 43%; Engineered Transportation
Solutions at 17%; Construction Materials at 4%; and FoodService at 2%. Company
quarterly EBIT margins were 10%. EBIT margins were lower this quarter as
compared to 2009 due to rapidly rising raw material costs.
We
received $35 million of raw material cost increases in the quarter across the
entire Company. We did realize $4 million of price increases that help offset a
small portion of the raw material price escalation.
Our
effective tax rate in the quarter was 28%, an improvement from the first two
quarters of 2010. EPS for the quarter was $0.75.
On
slides 5 and 6, we have included a sales and margin bridge. I wont go over
these slides. The charts are self-explanatory. If you have any questions
related to the charts, feel free to ask them during the question-and-answer
period following the call.
On
slide 7, you will see our performance in Construction Materials segment, where
sales grew 4%, driven primarily by higher re-roofing sales. We continue to see
a soft construction market and as we did in the first two quarters of the year,
re-roofing has become a very important part of our business. We expect this
trend to continue into 2011.
EBIT
margins declined from 17.8% in 2009 to 15.2% this year. Margins in 2009 were a
record for the business as we benefited from higher selling prices and lower
raw material costs. While no one likes to see margins decline, we think our
ability to achieve 15.2% EBIT margins in an environment of rapidly increasing
raw material costs, a soft new construction market bode well for this business
when the new construction market does begin to recover.
In
the quarter, raw material costs were up $15 million over the third quarter of
2009 and while pricing was higher sequentially in the third quarter of 2010, it
was lower than the comparable quarter of 2009.
Turn
to slide 8, please. In ETS, organic sales were up 16%, led by our braking
business as it grew 48% in the quarter. Contributing to the segments overall
growth, our price increases of $9 million which covered about 50% of our raw
material cost increases in the quarter.
ETS
EBIT was $8.4 million, up 11% over 2009. As a percent, margins were 4.5%, down
slightly from the previous year. The major driver in the margin decline was raw
material cost increases. As you can see on the slide, natural rubber is up 53%
and synthetic rubber is up 61%.
The
consolidation of Buji, Bowden, and Carlisle into our new Jackson, Tennessee
plant continues. We are going about this cautiously as we want to ensure that
we have no impact on our customers build schedules as they begin their
seasonal builds. To ensure success, we will leave thread building and
calendaring in Carlisle for a short period of time in the first quarter of
2011. Inventory may creep up during the transition, but if it does, this is a
temporary situation.
Going
to slide 9, you will see that Interconnect Technologies continues its strong
upward trend with sales growing at 43%, driven by organic growth of 17% and
acquired growth of 26%. The Boeing 787 and the Airbus 380 programs continue to
drive our aerospace business growth while our military RF Microwave
applications are growing equally as fast. EBIT was up 67% with EBIT margins
increasing from 11.4% to 13.4% year-over-year.
3
As
I said earlier in the call, we completed the closure of the Vancouver,
Washington plant. While closing the Vancouver plant had a negative impact on
margins this year, we expect it to fully improve or to help improve the margins
in 2011.
On
slide 10 you will see our FoodService business, and it grew in the third
quarter after being down compared to 2009 and the first two quarters of the
year. Sales were up 2% to $63.7 million due to strong FoodService orders as our
customers prepare for the holiday season. These sales were offset by a decline
in healthcare sales.
Margins
were down during the quarter from 13.4% to 9.9% due to higher raw material
costs and on a smaller scale, transportation costs. To offset the raw material
costs, we will be implementing a price increase on January 1, 2011.
Now
let me turn the call over to Steve to provide more detail on the third quarter
relative to the balance sheet, cash flow, working capital, and the outlook for
the remainder of the year. Steve?
Steve Ford
- Carlisle Companies, Inc. - CFO
Thanks, Dave. Good morning. Please turn to
slide 11. Our balance sheet remains strong, the debt to capital ratio of 11% at
September 30, 2010. We have $115 million in cash on hand and $469 million
available under our revolving credit facility.
As
we noted during our conference call concerning the Hawk transaction, we intend
to initially finance the $413 million purchase price with cash on hand and our
revolver and expect to look to the public debt market for more permanent
financing. We expect the Hawk acquisition financing to be ratings neutral.
Turning
to slide 12, for the quarter we generated $26.6 (sic-see press release) million
of free cash flow. For the nine months ended September 30, we have generated
$16 million of free cash flow. We expect a $65 million to $75 million favorable
change in working capital in the fourth quarter as we collect accounts receivable
primarily related to our Construction Materials business.
Turning
to slide 13, we continue to make progress reducing our working capital as a
percentage of sales. For the first nine months of the year, working capital
represented 21.6% of net sales as compared to 25.1% for the same period 2009.
Finally,
turning to slide 14, we estimate our full-year restructuring costs at $16
million with $6 million forecast for the fourth quarter. We are also projecting
$9 million to $12 million of costs in the fourth quarter related to the Hawk
acquisition for transaction and change in control expenses.
Our
corporate expense for the year is forecast at $36 million. Our capital
expenditures are forecast at $65 million. Our depreciation and amortization for
2010 is estimated at $70 million. Our interest expense for the year is forecast
at $7.6 million and our tax rate for the full year is forecast at 34%.
With
those remarks, I will turn the call back over to Dave.
David Roberts
- Carlisle Companies, Inc. - Chairman,
President and CEO
Thanks, Steve. Kinesha, lets open the floor
to questions, please.
QUESTION
AND ANSWER
Operator
(Operator Instructions). [Glenn Wortman].
4
Glenn Wortman
- Sidoti & Co. - Analyst
Good morning, everyone. I just want to talk a
little bit about some of the price increases that youve put through and some
of your segments. It sounds like you got some sequential benefit in
Construction Materials from 2Q to 3Q. Do you expect any additional flow-through
as we move into the fourth quarter? And what are your plans on pricing as you
head into 2011?
David Roberts
- Carlisle Companies, Inc. - Chairman,
President and CEO
Glenn, I think that the expectation for
additional price increase in the fourth quarter is probably low primarily
because thats the slow season and there will be a lot of competitive activity
bidding on jobs. What well do is continue to monitor the raw material cost
increases and as we see fit, we will pass along price increases to the
customers as long as the market will bear it. But we will continue to try to
pass along price. I just dont you will see any in the fourth quarters.
Glenn Wortman
- Sidoti & Co. - Analyst
Okay. And I guess the same question for the
ETS business.
David Roberts
- Carlisle Companies, Inc. - Chairman,
President and CEO
Yes, ETS were going into the busy part of the
schedule or the busy schedule for our customers. We passed along price
increases earlier or in the third quarter basically and we think that will
carry us into the first quarter -- fourth quarter and first-quarter of next
year.
Again
as raw materials increase, we will be back with our customers and attempting to
get price increase there as well. But pricing is going to be a challenge for us
just because of the environment.
Glenn Wortman
- Sidoti & Co. - Analyst
Lastly, just in the Construction Materials, it
looks like your growth year-over-year did decelerate from 2Q to 3Q just looking
at a year-over-year comparison. Can you just kind of give us a sense of whats
going on there and how do you see that market playing out as you head into
2011?
David Roberts
- Carlisle Companies, Inc. - Chairman,
President and CEO
Yes, I think that -- were looking at the
numbers here. There may have been a slight decline sequentially but I dont
think it was significant. Frankly we think fourth quarter will be okay in the
business and we think that momentum will carry us into 2011. I dont see that
we see a dramatic slowing in the business going forward.
Glenn Wortman
- Sidoti & Co. - Analyst
And then I was just wanting to ask, you guys
were up 10% year-over-year in June and then only 4% year-over-year.
David Roberts
- Carlisle Companies, Inc. - Chairman,
President and CEO
Right, right. We had a heck of a third quarter
last year if youre comparing to 2009. 2009 was an outstanding quarter
considering the environment. We had good sales and I think -- well, margins
were almost 18% in the quarter because of the volume.
Steve Ford
- Carlisle Companies, Inc. - CFO
Yes, in the first half of the year, there was
some pent-up re-roofing demand and there was a lot of weather in the first
quarter that benefited the second quarter.
5
Glenn Wortman
- Sidoti & Co. - Analyst
Then when you are looking out into 2011 maybe
looking at new construction flat to slightly down, do you think you guys can
get mid single-digit growth in that business under that scenario?
Steve Ford
- Carlisle Companies, Inc. - CFO
Yes, Glenn, I think thats exactly right. I
think what you would end up seeing is the business -- if theres no improvement
in new commercial construction, I think you will see the business growing at
anywhere from 4% to 6%.
Glenn Wortman
- Sidoti & Co. - Analyst
All right, thanks for taking my questions.
Operator
Peter Lisnic.
Peter Lisnic
- Robert W. Baird - Analyst
Good morning, gentlemen. Sorry if I missed
this but just wanted to get back to be raws impact. $31 million net impact in
the third quarter, what sort of number are we looking at for the fourth quarter
and then trailing into the first part of next year, all else equal?
Steve Ford
- Carlisle Companies, Inc. - CFO
Looking on a net basis for the fourth quarter
about $10 million. We are expecting a $10 million favorable price and about $20
million negative on the raws.
Peter Lisnic
- Robert W. Baird - Analyst
Okay, great. If I look at the price that you
had in the third quarter, there was $4 million and I guess ETS had a plus $9
million. So there must have been price erosion somewhere. Im assuming that was
in construction, is that right? Is that the right way to think about it?
Steve Ford
- Carlisle Companies, Inc. - CFO
That is correct.
Peter Lisnic
- Robert W. Baird - Analyst
Okay, and then I guess on Construction
Materials, if I look at the selling price being down year-over-year, is that
really a function of mix or is that lower raws? It just seems a bit odd given
the inflation we have seen on the commodity cost side.
David Roberts
- Carlisle Companies, Inc. - Chairman,
President and CEO
No, I think it has evolved in the market
conditions. I think its just very difficult to get price right now.
6
Peter Lisnic
- Robert W. Baird - Analyst
Okay, all right. And then last question if I
could on the Tire & Wheel business with the new facility coming on line in
Jackson, any sort of nonrecurring costs? You had some in the second quarter I
guess but any comparable costs here in the third quarter or expectations in the
fourth quarter as you kind of maintain some excess inventory and are maybe
shipping things longer distances than you like?
David Roberts
- Carlisle Companies, Inc. - Chairman,
President and CEO
Pete, what we will end up doing I will let
Steve talk about the costs themselves but frankly, we think we will be coming
up with everything except tread building and calendaring. Carlisle will be a
very small operation the first quarter, perhaps 50 to 75 people, so it will be
down dramatically from where it was. There will be some transportation costs
and continued integration costs. Steve, I think its $6 million?
Steve Ford
- Carlisle Companies, Inc. - CFO
Yes, thats correct.
David Roberts
- Carlisle Companies, Inc. - Chairman,
President and CEO
Yes, $6 million in the fourth quarter. We are
going to have about $2 million that is going to carry over into next year. We
had originally planned to have it all done this year but we are just a little
leery we dont get to a point where we have a negative impact on our customer.
So were going to carry a bit of that over into the first quarter of next year.
Peter Lisnic
- Robert W. Baird - Analyst
That is very helpful. Thank you very much for
your time.
Operator
Saul Ludwig.
Saul Ludwig
- Northcoast Research - Analyst
Good morning, guys. I tuned in a bit late so I
apologize if this is a repeat. Of the $35 million in raws, how is that spread
by the different segments?
Steve Ford
- Carlisle Companies, Inc. - CFO
Saul, there was $15 at Construction, $18 at
ETS and really the Tire & Wheel business, and $2 million at FoodService.
Saul Ludwig
- Northcoast Research - Analyst
And then what about the price? How did the $4
million play out?
Steve Ford
- Carlisle Companies, Inc. - CFO
$9 million favorable within ETS and $5 million
negative at Construction.
Saul Ludwig
- Northcoast Research - Analyst
Okay and the Construction volume you said was
what, up 10%?
7
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
No,
volume was up 4% in the quarter.
Saul Ludwig
Northcoast
Research - Analyst
In
Construction?
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Yes.
Saul Ludwig
Northcoast
Research - Analyst
Okay.
Then when we get to the fourth quarter, do you think there will be any volume
increase at all?
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Well, I
think quarter-over-quarter there will be some increase. We are really (multiple
speakers) right. Yes and obviously fourth quarter is our low quarter, but we
expect some volume increase in the fourth quarter.
Saul Ludwig
Northcoast
Research - Analyst
Did
you think you answered an earlier question that assuming we dont get any
help from new construction, you would think you would have 4% to 6% revenue
growth in 2011 in Construction Materials.
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Yes,
thats our anticipation, Saul, that we will still we will still see
re-roofing continue and we would expect mid-single-digit growth if that were
the case.
Saul Ludwig
Northcoast
Research - Analyst
Do
you think that 4% to 6% is volume or do you think thats all price with no help
from volume?
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Saul, I
think its going to be volume. I think price will be a struggle until new
construction comes back.
Saul Ludwig
Northcoast
Research - Analyst
Dont
you think that maybe the re-roofing market was unusually strong this year?
Because in 2009, corporations were concerned with liquidity. They werent
spending money for anything. They were repairing or patching, whereas in 2010,
corporate coffers were more flush with cash, just as your example is. And they
sort of did the roofs that were due in 09 as well as the ones in 10 and maybe
the re-roofing was unusually strong, meaning a tough comp for next year.
8
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Yes,
if I wouldve thought that, I wouldnt have said it would have been up
single digits.
Saul Ludwig
Northcoast
Research - Analyst
How
do you think about that rationale?
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
I
still think that its a situation that I think people were still cautious this
year. I dont think people were just out running out doing roofs because they
had cash. I dont think you put a roof on unless you need a roof. And I think
that will carry into next year. I think roofs are going to get another year
older and there will be replacement required next year as well.
Saul Ludwig
Northcoast
Research - Analyst
And
I guess another question, with interest rates where they are today and we see
corporations doing bond financing and fear of inflation, what is the rationale
in sort of waiting to go to market with your bond offering versus like next
week?
Steve Ford
Carlisle
Companies, Inc. - CFO
Well,
Saul, we are not going to be waiting for too long, but the transaction is
subject to regulatory approval and we are sort of moving along in parallel
tracks here. We are looking to finance this on a longer-term basis in close
proximity to the closing.
Saul Ludwig
Northcoast
Research - Analyst
Great,
thank you very much.
Operator
Wendy
Caplan.
Wendy Caplan
SunTrust
Robinson Humphrey - Analyst
Good
morning. Dave, can you kind of walk us through the quarter in terms of the
strength? In other words, July, August, September, what did we see? Was there a
whole lot of difference in the Company in demand for products?
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Actually
not. It was a relatively flat growth that we had. So in other words, I
didnt see Construction Materials up 10% or 11% in July and then fall
back. I think its been relatively flat over the quarter.
Im
trying to think, we had I think in the food business, the FoodService business,
we saw a little bit slow takeoff to the quarter and it got better as the
quarter went on. But honestly I dont expect that momentum to continue. I think
FoodService will continue to be a relatively flat growth business just because
nobody is building new restaurants and the traffic is down in restaurants. But
I think all the other businesses were again relatively stable growth month
after month.
Wendy Caplan
SunTrust
Robinson Humphrey - Analyst
Okay,
thank you. Thats helpful. Re-roofing as a percentage of segments sales this
quarter versus year ago?
9
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Yes, I
havent seen the numbers yet, but my guess is that it is 70% to 80%, as it has
been. So its a significant part of what were doing.
Wendy Caplan
SunTrust
Robinson Humphrey - Analyst
Okay.
And the international sales opportunity in FoodService, can you talk a little
more about that?
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Well,
we continue to push and primarily in the Asia-Pacific market, I think our
Asia-Pacific sales and this is total Asia-Pacific were up 81% in the
quarter. I dont have the numbers in front of me, Wendy, what FoodService was
up, but we grew as well during the quarter, not at the level of 81%, but it
certainly grew in the quarter.
Wendy Caplan
SunTrust
Robinson Humphrey - Analyst
Thank
you, and I guess I need you to interpret your voice for me. Are you feeling
optimistic about the near-term, meaning the next six to 12 months?
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Heck
yes.
Wendy Caplan
SunTrust
Robinson Humphrey - Analyst
Okay.
Thanks, I wanted to be sure that I was hearing this.
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Honestly,
if you look at the business, we are optimistic not only on the sales side but
also the margin side. You bring on Hawk, you got higher margins there. ETS, the
restructuring is behind us, so weve got higher margins there. The volume will
continue to flow through on the CIT business.
We
have to be cautious in looking at Construction Materials, but the more people
we talk to in the marketplace, I think the more less quality I guess it
is as far as what next year looks like. So I think we are optimistic on next
year, absolutely.
Wendy Caplan
SunTrust
Robinson Humphrey - Analyst
Good.
Thank you and just one quick housekeeping question. The bump up in corporate
expense, Steve, this quarter?
Steve Ford
Carlisle
Companies, Inc. - CFO
Yes,
theres been a $3 million increase. Half of that related to Asia selling
expenses. For this year, we are running those expenses through corporate and
that was about $1.5 million increase year-over-year. And the other $1.5 million
was foreign currency related. We have intercompany loans in US dollars on the
books of our foreign subsidiaries and there was a negative currency impact to
the tune of just under $1.5 million.
10
Wendy Caplan
SunTrust
Robinson Humphrey - Analyst
Okay,
and would we expect it sounds like you were saying Asias selling expense
would be right now its in corporate expense. Are you moving it to the segments?
Steve Ford
Carlisle
Companies, Inc. - CFO
Yes,
the Asia expense will be there again in the fourth quarter but it will be at
the segment level in 2011.
Wendy Caplan
SunTrust
Robinson Humphrey - Analyst
Okay,
great. Thank you so much.
Operator
Peter
Grondin.
Peter Grondin
OSS Capital
Management - Analyst
Thanks
for taking my call. Could you just talk a little bit more about the change in
working capital and other assets? It was a pretty big negative number. Can you
give us a little more detail there? Thanks.
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Theres
seasonality to our business and we expect to convert favorably between $65
million and $75 million of our working capital here in the fourth quarter. The
third quarter reflects increase in sales and increase in inventories, but that
will turn significantly in the fourth quarter as we collect our receivables and
further manage our inventory.
Peter Grondin
OSS Capital
Management - Analyst
Okay,
thank you.
Operator
(Operator
Instructions) Ajay Kejriwal.
Ajay Kejriwal
FBR Capital
Markets - Analyst
Thank
you, good morning. I just wanted to drill a little bit on the pricing side. So
in Construction Materials if I remember correctly, you put through 10% in TPO
and 8% in EPDM first July. Maybe any color on what was the realization versus
what it announced.
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Well,
in the quarter, selling prices were actually down.
Ajay Kejriwal
FBR Capital
Markets - Analyst
Right,
that is on a year-over-year basis (multiple speakers)
11
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Sequentially
we had about a little over $1 million of pricing. So very little of that
announced pricing increase was actually realized.
Ajay Kejriwal
FBR Capital
Markets - Analyst
So
maybe help me. So what are you seeing there? Is it that competitors are not
following through or is it that you are getting pushback from distributors and
customers are moving playing one product against another?
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
I
think its a combination. But I think we had every competitor follow us with
the price increases, but immediately as the consumer or the distributor and the
building owner pushed back, people dropped prices to get the business. So while
we increased prices, the effective price increase was minimal, as Steve said,
just because of the pushback on the end users.
Ajay Kejriwal
FBR Capital
Markets - Analyst
And
then so whats the outlook for the fourth quarter? Will you expect better
pricing sequentially a little bit?
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
I
would say no. My guess is that you wont see any degradation of price, but I
think it will be probably very similar to what third quarter was.
Steve Ford
Carlisle
Companies, Inc. - CFO
Ajay,
as you know, despite all that, margins came in over 15% for that business in
the quarter.
Ajay Kejriwal
FBR Capital
Markets - Analyst
Yes,
of course. Part of that is restructuring, so good job there. And then just
on that restructuring, so it sounds like youre lowering your goal for $20
million. That was kind of the number last quarter. At $16 million this year this
quarter. So some of that has shifted to the first quarter, but maybe a little
more color.
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Yes,
what it is is we had originally talked about I think it was $18.5 million of
restructuring and $16 million, it looks as though will be the amount we will
spend this year and we will push $2 million out to next year.
Steve Ford
Carlisle
Companies, Inc. - CFO
And
Ajay, all of that is within ETS. So that doesnt impact the ETS margins and
although we are pushing out some of the restructuring and the actual
restructuring cost has come down a little bit, we are not anticipating any
reduction in our savings.
Ajay Kejriwal
FBR Capital
Markets - Analyst
Good,
lastly, if I could, on free cash flow, so whats driving the sequential
increase in inventories? Any specific businesses that you are seeing?
12
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
Yes,
theres a bill that underway in the Tire & Wheel business primarily
because of the transition of the two three plants into Jackson. We want to
make sure we dont leave ourselves in a situation where we dont have inventory
to serve the customers. So its that more than anything.
Ajay Kejriwal
FBR Capital
Markets - Analyst
Got
it, thank you.
Operator
The
are no further questions. Mr. Roberts, I will now turn the conference
over to you.
David Roberts
Carlisle
Companies, Inc. - Chairman, President and CEO
All
right, thank you. As we explained earlier in the call, we continue to make
progress in achieving our strategic goals. The sale of Trail King allowed us to
concentrate our efforts on our core businesses. The acquisition of Hawk
replaces Trail King with a business that is less cyclical, has higher sales and
better margins. Both in the short and long-term, the addition of Hawk to our
braking business helps us make significant set to achieving sales, margin, and
globalization goals.
The
work weve done to consolidate our tire factories this year will have a
dramatic impact on Tire & Wheel margins next year. We expect Tire &
Wheel margins to improve significantly toward the end of next year in that
business.
All
of these and the other activities weve undertaken through 2010 have positioned
Carlisle frankly to have a very good 2011.
Thank
you for attending our third-quarter conference call and, operator, we can now
bring the call to close.
Operator
This
concludes todays conference call. You may now disconnect. Thank you, sir. You
have a great day.
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13
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October 26,
2010 Carlisle Companies Incorporated Q3 2010 Earnings Call
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Important
Information and Where to Find It This slide presentation is not an offer to
purchase or a solicitation of an offer to sell any securities of Hawk
Corporation (Hawk). The planned tender offer by Carlisle Companies
Incorporated (Carlisle) for all of the outstanding shares of the Class A
common stock of Hawk has not yet been commenced. Upon commencement of the
tender offer, Carlisle will mail to Hawk stockholders an offer to purchase
and related materials and Hawk will mail to Hawk stockholders a
solicitation/recommendation statement with respect to the tender offer.
Carlisle will file its offer to purchase with the Securities and Exchange
Commission (the SEC) on Schedule TO and Hawk will file its
solicitation/recommendation statement with the SEC on Schedule 14D-9. Hawk
stockholders are urged to read these materials carefully when they become
available since they will contain important information, including the terms
and conditions of the offer. Hawk stockholders may obtain a free copy of
these materials (when available) and other documents filed by Carlisle or
Hawk with the SEC at the website maintained by the SEC at www.sec.gov. The
offer to purchase and related materials, the solicitation/recommendation
statement, the Schedule TO, and the Schedule 14D-9 may also be obtained (when
available) for free by contacting D.F. King & Co., Inc., the information
agent for the tender offer, at (800) 659-5550 or (212) 269 5550 or by
contacting Carlisle at (704) 501-1100.
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During the
course of this presentation, we may make projections or other forward-looking
statements. We wish to caution you
that such statements reflect only our current expectations, and that actual
events or results may differ materially due to changes in global economic,
business, competitive, market and regulatory factors. More detailed
information about these factors is contained in the documents that the
Company files from time to time with the Securities and Exchange Commission.
We undertake no obligation to update such projections or such forward-looking
statements in the future. Forward Looking Statements 3
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Strategic
Actions 4 Sold Trail King on October 4, 2010 for $35 million and potential $5
million earn-out Agreed to acquire Hawk Corporation for $413M on October 15,
2010 Expect acquisition to be completed by end of 2010 Will be accretive in
2011 Closed Vancouver, WA Interconnect Technologies facility, consolidating
operations into existing facilities Consolidating tire manufacturing
operations into new plant in Jackson, TN and on track to be substantially
completed by the end of 2010 Actions strengthen platform for long-term
earnings growth
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Highlights of
Q3 2010 5 Net sales up 10.2% Organic up 7.9% Acquisitions contributed 2.3%
growth Growth in all segments led by Interconnect Technologies and ETS EBIT
Margin 10.0% $35 million raw material cost increase versus prior year Selling
price increases of $4 million partially offset raw material cost increases
Effective tax rate of 28% in Q3 10 versus 35% in Q3 09 Continuing
Operations Earnings per share of $0.75 Market growth experienced in all
segments Financial Summary In Millions, except per share amounts Q3 '10 Q3
'09 ? Net Sales 665.9 $ 604.2 $ 10% Earnings Before Interest and Income Taxes
(EBIT) 66.5 74.0 -10% EBIT Margin 10.0% 12.2% -220 bps Income from Continuing
Operations, Net of Tax 46.8 47.1 0% Continuing Operations Diluted Earnings
per Share 0.75 $ 0.76 $ -1%
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Sales Bridge 6 Organic
+7.9% +2.3% Organic by Segment Construction 4% ETS 16% Interconnect 17%
FoodService 2% Market growth in all segments -0.0% +0.7% Volume +7.5%
Mix/Other -0.3% $604.2 $665.9 550 575 600 625 650 675 700 Q3 '09 Price Volume
/ Oth Acq F/X Q3 '10 $ in Millions
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Margin Bridge 7
-5.3% +0.6% +1.5% +1.0% Raw material impact of -5.3% mitigated to net EBIT
margin reduction of 2.2% Margin: 12.2% Margin: 10.0% $66.5 $74.0 0 10 20 30
40 50 60 70 80 Q3 '09 Raw Mat Price Volume COS Net Restr / Oth Q3 '10 $ in Millions
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Q3 2010 Results
4% sales growth reflects continued higher re-roofing sales Selling prices $5
million (1.5%) lower than prior year but higher than Q2 10 levels EBIT
declined 10% from $60.4M in 2009 to $54.1M in 2010 Negative $15 million impact
from raw materials; Q3 09 reflected low raw material costs Significant
increases on TPO resin and other key materials from 09 Raw material expense
relatively level with Q2 10 cost levels COS and operating improvements
continue to mitigate raw material impact 8 Construction Materials 4%
Re-roofing continues to drive sales growth in 2010 $340.1 $354.8 17.8% 15.2%
$0 $50 $100 $150 $200 $250 $300 $350 $400 Q3 '09 Q3 '10 $ in Millions Sales
Margin
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Q3 2010 Results
Organic growth of 16% Double digit sales growth in all major product lines
led by braking at 48% Selling price increases of $9 million added 5.6% Volume
added 10.7% EBIT $8.4M up 11%, but a slight reduction in margin reflects raw
material increases offset by sales volume and selling price Raw material
impact approximately $18 million Natural rubber up 53%; Synthetic up 61% Raw
material costs down from Q2 10 Plant consolidations on track to be
substantially completed by end of 2010 9 Engineered Transportation Solutions
17% Double digit growth led by braking product line Consolidations provide
basis for earnings improvement in 2011 $158.3 $186.0 4.8% 4.5% $0 $50 $100
$150 $200 Q3 '09 Q3 '10 $ in Millions
Sales Margin
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Q3 2010 Results
Organic growth 17% Strong aerospace performance up due to Boeing 787 and
Airbus programs RF Microwave products up due to Military projects ECS and
Jerrik acquisitions contributed $11.1M or 26% to sales EBIT increased by 67%,
200 bps improvement in margin Completed closure of Vancouver, WA with
production moving to other CIT facilities 10 Interconnect Technologies 43%
End markets demonstrating high growth rates; solid EBIT leverage $43.1 $61.4
11.4% 13.4% $0 $10 $20 $30 $40 $50 $60 $70 Q3 '09 Q3 '10 $ in Millions Sales
Margin
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Q3 2010 Results
Sales increased 2% FoodService products up 7% reflecting restaurant inventory
replenishment Healthcare products down 7% EBIT margin decline from 13.4% to
9.9% due to higher raw material and transportation costs Continued weakness
in US consumer confidence and unemployment impacting performance Success in
growing international markets 11 FoodService Products 2% FoodService growth
driven by international sales $62.7 $63.7 13.4% 9.9% $0 $10 $20 $30 $40 $50 $60 $70 Q3 '09 Q3 '10
$ in Millions Sales Margin
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12 No debt under
the Revolving Credit Facility Revolving Credit Facility availability of $469
million as of September 30, 2010 Debt to Capital ratio of 11% Acquisition of
Hawk for $413M by December 31, 2010 to be financed initially with cash on
hand and revolver Expected to be ratings neutral Debt Maturity Schedule In
millions Strong Balance Sheet / Hawk Financing Well positioned for further
investment in acquisitions, new product development and capital expenditures
LOCs, $31 $469 6.125% Senior Notes, $149 $7 $0 $100 $200 $300 $400 $500 2012
2016 Available Under Revolver at 9/30/10 IRB & Other
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13 Cash Flow by
Quarter Year to date Operating Cash Flow of $62M; Free Cash Flow of $16M Q3
'09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Operating Cash Flow $94.3 $83.8 ($16.9) $37.3
$42.0 Capital Expenditures ($14.9) ($13.3) ($8.4) ($23.2) ($15.2) Free Cash
Flow $79.4 $70.5 ($25.3) $14.1 $26.8
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14 Working
Capital as a % of Net Sales Working Capital reflects average of quarter
ending Receivables plus Inventory less Accounts Payable. % of Net Sales
calculated using average Working Capital over annualized year-to-date Net
Sales. Managing working capital improvements on higher sales volume Working
Capital Performance Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2' 10 Q3' 10 WC as a
% of Net Sales 30.2% 26.4% 25.1% 24.9% 23.5% 21.4% 21.6%
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Full year
restructuring costs - $16M $2M carryover to Q1 11 2011 savings estimate -
$14M Hawk acquisition and change in control costs in Q4 10 - $9M to $12M
Corporate Expense - $36M Depreciation & Amortization - $70M Interest
Expense - $7.6M Tax Rate - 34% Capital Expenditures - $65M to $70M 2010
Outlook 15
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Several
important actions taken to achieve long-term goals of $5 billion in revenue,
15% EBIT margins, expand globally and produce strong free cash flow Sale of
Trail King permits focus on core businesses From January 2009 to September
2010, sales at Trail King were $139M with an EBIT loss of $3.9M Acquisition
of Hawk is aligned with Companys long term goals and is a fit with our
Industrial Brake & Friction business Hawk will be accretive in 2011 Plant
consolidations positioning ETS for margin improvement in 2011 These and other
actions are positioning Carlisle for a good 2011 Summary 16
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17
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