Carlisle Companies Incorporated (CSL) Q1 2013 Earnings Report, Transcript and Summary

Good morning, my name is Tamara, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies Incorporated First Quarter Earnings Conference Call. [Operator Instructions] I will now turn the conference call over to David Roberts, President and CEO of Carlisle Companies. Please go ahead, sir.

Thank you, Tamara. Good morning, and welcome to Carlisle's First Quarter 2013 Conference Call. On the phone with me is our CFO, Steven Ford; our Chief Accounting Officer, Kevin Zdimal; and our Treasurer, Julia Chandler. On our website, you will find slides for today's call. These slides detail our performance in the first quarter. Before we begin our review of each business segment, let me set the stage for that conversation. We knew that comparison to 2012's first quarter record sales and earnings was going to be difficult, but that was before we encountered one of the wettest winters in history in the U.S. and Europe and before 2 of our Interconnect Technologies customers had technical issues with their products, delaying the ramp-up and rollout of the product we supplied to them. During the quarter, the wet weather kept roofers off roofs, which impacted the Construction Materials business sales. The weather also kept farmers out of their fields, which negatively impact demand for agricultural replacement tires and belts, which we manufacture in our Transportation Products segment. On top of the wet weather, we had technical issues facing 2 of our aerospace customers. I am sure you're aware of the highly publicized battery issue with the Boeing 787, which delayed the ramp-up of the aircraft build schedule, but we also had a delayed introduction of a new in-flight entertainment system at another one of our large customers. Both situations slowed the first quarter growth in Interconnect Technologies. Couple these issues with continued soft demand for our Brake & Friction products and slow restaurant traffic, we had the recipe for lower sales overall in the first quarter. The silver lining in the storm cloud that shrouded the first quarter growth is that we believe no market share was lost. Spring has finally arrived, except perhaps for small regions in the upper Midwest, and our roofing contractors have very healthy backlogs. They are now preparing to get on the roofs. As they do, demand for our roofing membrane and insulation products will be very strong. Also, the break in the weather, farmers are now in their fields, and we expect to see increased demand for replacement tires and belts. As a result of the FFA (sic) [FAA] approval of Boeing's fix for the lithium battery issue, we have been told to expect an increase in 787 build rate to 7 in September and 10 in December, and the delivery of our products usually precede the ramp-up of their production. While demand is expected to be flat in Transportation Products and FoodService, both are margin stories. We had not -- had we not reduced our overall cost structure over the past years in both businesses, our reported profit would have been significantly lower in the first quarter. Our EBIT was lower than we generated in the first quarter of 2012 due to lower volume and our focus on inventory reduction. The $70 million we earned this quarter was the second highest level of earnings we have generated in the first quarter in the company's history. We knew the sales shortfall was a short-term issue, and we could have softened the earnings hit by building inventory. We elected not to do that. Because of strong commitment to reduce working capital, we decided to reduce our inventories. Historically, our inventories grow in the first quarter. This year, we reduced our inventories by 4% or nearly $25 million. I remain optimistic about 2013. Other than Transportation Products, which may have a difficult time recovering from the outdoor power equipment sales that didn't materialize in the first quarter, and Brake & Friction, which will remain soft but has stabilized at its current level of sales, I think 2013 still has the earmarks to be a good year. Let's now turn to the presentation. I encourage everyone to read Slide 2, titled Forward Looking Statements. Slide 2 details the risks associated with making an investment in Carlisle. I also encourage anyone who is considering an investment in our company to also review our SEC filings. Let's now move on to the details of the quarter. Turning to Slide 3, you will see that overall company sales in the first quarter declined 4% to $857 million and EBIT declined 27% as we earned $70 million. Organically, our sales were down 7%, primarily due to the harsh weather not only in the U.S. but also in Europe. The weather had the greatest impact on Construction Materials and Transportation Products. Sales were down 28% in Brake & Friction, but it's important to point out that our first quarter last year was a record quarter, and we didn't start to see a decline in demand in Brake & Friction until midway through the second quarter. FoodService also saw a decline in sales. Many of our large customer -- restaurant customers have stated that they think the slowdown in restaurant traffic is a result of the increased payroll taxes that went into effect on January 1. Interconnect Technologies' growth slowed in the first quarter due to the battery issue with the 787 and the introduction of the new in-flight entertainment system, which had technical issues by one of our large IFE customers. Both issues are now resolved. The organic sales decline of 7% was partially offset by 3% of acquired growth coming from acquisitions of Thermax and Hertalan, which were acquired in 2012. EBIT was down 27%, driven primarily by volume shortfalls in our factories. We elected not to build inventory to absorb overhead during the quarter, reducing our overall inventory by $25 million, as I stated earlier. Our earnings did benefit from a tax election in a foreign jurisdiction. This election increased our EPS by $0.20. Slide 4 provides you with our sales bridge for the quarter. The bridge shows that price increased sales by 20 basis points, volume reduced sales 700 basis points, acquisitions contributed 330 basis points to our growth and foreign exchange negatively impacted sales by 10 basis points. Organically, Construction Materials sales were down 5%; Transportation Products was down 5%; Brake & Friction was down 28%; FoodService, down 2%; all while Interconnect Technologies grew 5%. On Slide 5, you'll find our EBIT margin bridge. It details the 27% margin decline that we had in the first quarter. Price to raw material and COS savings had a combined positive impact on earnings of 170 basis points. But on the negative side of the ledger, volume was down 160 basis points; mix, a negative 50 basis points; and other, which is primarily unabsorbed overhead, was down 220 basis points. Our EBIT margins for the quarter were 8.2%, a 260 basis points lower than the first quarter in 2012. I want to again say that the $70 million we earned in the first quarter this year was our second highest first quarter EBIT earnings in the history of the company. On Slide 6, we begin our review of the individual business segments, starting with Construction Materials. Sales declined 4% in the quarter, and as I've mentioned earlier, the sales decline was related to wet weather we experienced during the first quarter. This was a dramatic change from the warm and dry weather we enjoyed in 2012. The good news is, the slowdown in sales was not the result of a demand drop. To the contrary, our contractors are experiencing higher backlog comprised of both new construction and reroofing projects. Reroofing demand should increase as demand still exists in the Northeast to repair damage from the Superstorm Sandy. Our normal replacement work, which grows every year and could grow even faster this year due to the wet weather in the first quarter. As we enter the second and third quarter, we expect to see strong demand for our roofing materials. As you review the slide, you'll see that sales of our insulating materials and waterproofing materials increased in the first quarter. These materials are used primarily in new construction, so I think it speaks volumes to the number of new noncommercial construction projects underway. Commercial is up 19% over last year, as the big-box buildings, which are warehouses, distribution centers and retail space, are actually being built. In a recent in-house survey, 85% of our roofing contractors are predicting a strong 2013. That's up from 60% predicting the same thing last year. The hurdle in acquisition added 1% to our growth in the quarter, but we did see the wet weather cause the same reduction in demand in Europe, which was very similar to what we saw in the U.S. EBIT was lower by 15%, as we earned $36 million in Construction Materials. Margin was lower by 140 basis points. What's interesting about the 10.5% margin performance is that this is our second highest quarter margin in the past 5 years, with our highest being 11.9% coming in 2012. Our new polyiso insulation plant in Seattle is producing a shipping product, and our Montgomery New York plant should be in full production early in the third quarter. There will be approximately $5 million in start-up costs associated with these facilities that would be spread evenly over the 4 quarters of the year. Turning to Slide 7. It details the performance in the Transportation Products segment, where sales were down 5%, with volume down 4% and price down 1%. While high-speed trailer sales were up 9%, our other product lines were either flat or down compared to 2012. Outdoor power equipment was down because the retail channel for this equipment is still full as a result of the drought we had last year, while ag and construction sales were down due to the wet weather in the first quarter. We are seeing growth in our power sports business starting to level out. Our customers have told us that consumer demand seems to have been impacted by the payroll tax increase that we all enjoyed at the start of the year. Transportation Products. EBIT was down 31%, where we earned $14.5 million compared to $21 million last year. We did realize $1.2 million in savings as a result of our plant consolidation activities last year. In the past, our profit would have been less with the volume declines we saw in the first quarter. But with our tire plants being more cost effective following our restructuring efforts over the last few years, we generated the $14.5 million of profit in the first quarter. Slide 8 details the performance of our braking business. We are suffering from lower sales as our customers worldwide struggle to -- from a lack of demand for heavy construction equipment and mining equipment. Our sales were down 28% compared to Q1 2012, and our EBIT was down 54%. The comps were difficult in the first quarter as we came off of a record sales in early 2012. The comps become easier as the year progresses and our demand curve is stabilized at this volume level. The management team has done a very good job in generating 12% EBIT margins in a quarter where their sales declined 28%. I actually do not see a recovery in sales for the remainder of 2013 in the Brake & Friction business. Interconnect Technologies grew 28% in the first quarter, with 23% of that growth coming from the acquisition of Thermax and the remaining 5% coming from organic growth. We plan for higher organic growth in the quarter as the 787 was to step up production to 7 aircraft late in the quarter. That ramp-up was delayed as Boeing worked to resolve the lithium battery issue. Similar to 2012, our aerospace markets continue to grow, while test & measurement was down 16% and military was down 7%. The scope of our business today is heavily skewed to commercial aerospace, so while test & measurement and the military sales are down, it doesn't have a big impact on our overall sales. EBIT for the quarter was 18.4%, up 10% -- or $18.4 million, up 10%. The Thermax acquisition contributed $2.3 million of our profitability, including an inventory step-up of $1.1 million as a result of the acquisition of Thermax. As you turn to Slide 10, you'll see that FoodService's revenue declined 2% in the quarter. Volume was down 7% as traffic in our customer stores was down. As I said earlier, many of our customers have commented that they think the driver of the decline is the result of the payroll tax that went into effect in January 1. We had a 2% price increase and reduced our rebate and allowances 3% in the quarter. We did see a step-up in volume in healthcare facilities, which has been a long time coming. EBIT was down 7% as we had $1 million worth of plant consolidation costs flow through the income statement in the quarter. These costs are now behind us, and we saw an increase in our margin to low double digits in March. We think we're on track to see low- to mid-teen margins by the end of 2013 in FoodService business. This concludes my remarks on the business segments. I want to turn the meeting over to Steve Ford, who will take us through our balance sheet, cash flow statement and working capital slides. Steve?

Thanks, Dave. Good morning. Please turn to Slide 11 of the presentation. In the fourth quarter of last year, we issued $350 million of 10-year senior notes at 3.75% to fund the Thermax acquisition. We currently have all $600 million of availability under our credit facility. Our balance sheet remains strong, with a debt-to-capital ratio of 29% and a debt-to-EBITDA ratio of 1.3. We remain well positioned for future growth. Turning to Slide 12. Our cash flow from operations for the quarter was $38 million, a $10.3 million decline from the first quarter 2012. We generated $11.2 million of free cash flow in the quarter compared to $26.3 million last year. The decline is due to lower earnings and higher CapEx. We did reduce working capital by $61 million compared to the first quarter 2012, with receivables down $71 million and inventory down $30 million, partially offset by a $40 million reduction in accounts payable. Also negatively impacting free cash flow was the change in accrued expenses, primarily for tax items. Turning to Slide 13. Our average working capital as a percentage of sales for the quarter was 22.3%, the same percentage we reported for the first quarter 2012. We remain committed to improving our management of working capital and achieving our long-term goal of 15% of sales, with a particular focus on inventory turns. And with those remarks, I'll turn the call back over to Dave.

Thanks, Steve. Tamara, can we open the floor to questions today -- or right now, please?

[Operator Instructions] Okay, your first response is from Peter Lisnic of Robert W. Baird. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: I guess, first question, probably a tough one, but wondering if you could give us a little bit of color or quantification on what weather may have cost you, either from a revenue or profitability standpoint, in the first quarter.

Pete, honestly, all of the decline that we saw in Construction Materials and Transportation was weather related. We expected -- in fact, as we got in the first 2 weeks of January, and I think I mentioned on our year-end conference call that the year started out fairly well. And then all of a sudden, weather hit and nobody was on roofs, nobody was in fields and nobody was even thinking about cutting grass. So I think that all of the shortfall was a result of weather. In CIT, it was a little different issue. We expected sales growth to be around 10% organically. The ramp-up of the 787 was slow because of the battery issue, and then we had one of our customers that had technical issue with their new in-flight entertainment system, and that delayed some of the shipments today because of their issues, not ours. So we lost some sales there. CIT came back nicely in March, so that's the good news. FoodService and braking business, really not weather related. FoodService remained soft, has for the last few years, and the Braking business is down, I think it was 28%. And we think that's the comparison to the first quarter. If you look really out of the fourth quarter, it's relatively flat to what it was out of the fourth quarter. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Okay, all right. So absent weather, construction and Transportation flat to up would be kind of the right way to think about it. Is that a fair statement?

Yes, I think certainly in Construction Materials, that's the case. And we certainly -- we thought we may have an issue with Transportation based on the drought last year, the channel being full of inventory. But we were somewhat optimistic until the weather hit and people just started to stop thinking about buying new mores [ph] because of the weather. And then the ag business just wasn't doing anything from a replacement cycle, which is really rare in the first quarter for us. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Okay, all right. So this -- I guess, this question's splitting hairs a little bit. But when you look at your kind of outlook commentary for 2013, I think, previously, we were looking at -- or you were suggesting that mid to perhaps high single-digit growth would be the outlook for 2013. Now we're seeing mid, and I realize again that, that's -- again we're splitting hairs a little bit here. But just kind of wondering what the negative -- if there is one actually, what the negative might be relative to what you were previously thinking. It sounds like it could be Brake & Friction just kind of running at that demand level that we're seeing here in the first quarter. Is that right?

Yes, there are a couple of things, Pete. Brake & Friction, we were basically told to forecast that third and fourth quarters would get better. Today, it looks like it's going to be flat. But the tire business, when you miss the season and there's still a lot of inventory sitting in the channel, I think we're going to miss some of the tire business we would have normally gotten just because of the glut of inventory in our customers' channel. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Okay. All right, that helps. And then last question, just back to construction. In the press release, you identify the impact of potentially higher commodity costs or input costs. Can you give us a flavor as to what you're seeing, what the impact might be and the ability to put through price maybe at this point or latter point of the year to kind of help offset that?

Yes, I think that first quarter was very difficult to get price primarily because everybody was in the same situation we were, and people were aggressively going after whatever work was out there. I think that will change as the weather breaks and the contractors get on the roofs. You're going to see, I think, very strong demand from not only our -- not only for our business, but also all of our competitors' business. I think it will become easier to pass along a price increase at that point. We saw some raw materials going up, MDIs and polyols, which are primarily used in the insulation business, the polyiso insulation business. We've seen some of the MDI price increase back off a bit here lately, so we wanted to basically warn everybody that there could be some issues out there. I don't think they're going to be major issues.

Your next response is from the line of Matt McConnell of Citi Research.

I'd like to start on probably the 787. We've heard from other suppliers that Boeing was going to try to maintain production rates and then just fix the battery issues kind of as they had a resolution. So with your kind of pushouts or the disruption there, was that related to components specifically related to the battery, or was that just a broader slowdown across all of your product categories?

Matt, what we saw is that -- we heard the same thing from Boeing as well is that they were going to continue the build schedules. We had -- one of our customers -- we manufacture wire, it goes to one of our customers. They then install that system and they were subassembling and shipping to Boeing. They were very reluctant to increase demand to what Boeing was asking for, primarily not knowing how long the battery problem was going to go. So where Boeing have been telling all of us to go ahead and continue building, we have one of our sub-supplier -- our sub-customers, I guess you'd call them, that really was not asking for any more material. They didn't want to build any inventory until they knew exactly what was going to happen with the battery issue.

Okay, great. That makes sense. So it didn't come from Boeing, it was more a sub-assembler, so all right, great. That make sense. And then on Brake & Friction, I mean, our understanding is that the first quarter should probably mark the low point on the year for just construction equipment production rates from -- I mean, Caterpillar and some others. Would there be a big mix impact on your margins if construction improved, but mining remained substantially weaker? Would that have a margin impact on you guys?

Not really. It would have -- we put a lot of dollar value in mining trucks, but the margins are relatively the same as what construction would be. If construction picked up, I think margin would pick up. Are you talking about a decline, a further decline in mining from what it is?

Yes, so if mining kind of continued to tail off through the year even if construction kind of stabilized.

Right. I don't think so, but I'd have to see the volume levels before we could really quantify that. I think if construction picks up and mining declines a bit, I think the margin would -- we'd be able to hold the margin that we're at.

Okay, great. And just a follow-up on Pete's question. I think you were putting through a price increase in March, and it might be hard to tell the stickiness of that given the soft demand. But do you have any kind of early read on whether that held, or would we kind of have to wait until volume improves to get a better read into that?

Yes. I think we're going to have to see volume improve before we see it. I think that it was very difficult to get price passed through in the first quarter, and I think our suppliers saw the same thing.

Your next response comes from the line of Glenn Wortman of Sidoti & Company. Glenn Wortman - Sidoti & Company, LLC: Just a couple of questions. And so it does sound like just some momentum building from new construction and then just the wet weather we saw the past few months for construction materials. Where do you potentially see the top line growth rate shaking out for 2013 for that segment?

We will see growth. It should be in the high single digits, mid to high single digits. I think we'll be in that area. We try not to give guidance, but I think we'll be in the mid to high single-digit growth in Construction Materials. Glenn Wortman - Sidoti & Company, LLC: Okay, okay. And then moving on to the Interconnect Technologies business, now that we're past some of these temporary issues. Do you see yourselves returning to that maybe 10% organic growth rate for that segment?

Yes, I think that with the -- again, with the technology issues behind us, we should be back to where the growth rates should have been in the first quarter. And that will be probably close to a 10% organic growth.

Your next response is from the line of Ivan Marcuse of KeyBanc Capital Markets.

On the synthetic rubber, there's been a few suppliers that have taken out capacity due to their various customers, tires being -- seeing a very low demand. So are you seeing any sort of supply issues on the -- for synthetic rubber in both either the tire or the roofing business, though price increase is there?

We have not -- yes, we have not seen any issues with being able to get any raw material that we want. In fact, natural rubber has been declining in price, so there appears to be less demand for organic rubber as well -- or natural rubber, I guess, I should say. But no, we have had no problems getting materials.

So will that help all your -- should you see an increase in your price cost spread going to the second and third quarter if you're able to maintain price?

Yes. If you're able to maintain price, I think that would be an issue -- a positive issue for us. But keep in mind, what we've done is structure our contracts with our customers that it's an [indiscernible] based on raw material cost. So as raw materials go up, we get price increases; raw materials go down and cost, we have to give back a little bit of price. So it -- really, it works more as a neutral than anything as far as positive or negative.

But that's not the same on the roofing business, right?

No, not on roofing, no.

So do you see an acceleration of demand in -- and the material stays flat to down and your price increases stay maybe flat to up, you should see an increase in margin?

Yes, if that happens, yes, we would.

Okay. And then so if the -- with the polyiso plant net negatively impacting EBIT by about $1 million this quarter? Is that how to think about it, $5 million divided by 4?

It's a little over $1 million, but yes, right around $1 million is probably the best number to use.

Great. And then on the Brake & Friction, just I guess, clear for me, so do you expect that to be flat sequentially through the year or flat year-over-year? Because if it's sequentially, you should see some nice year-over-year improvements starting in the second half of the year because it's pretty easy comps.

No. Sequentially, coming out of the third and fourth quarters, if it's flat, you shouldn't see much growth in the third and fourth quarter. It should be relatively flat to third and fourth quarter.

No, meaning maybe you had $130 million in sales this quarter, so -- or thereabouts, so would you expect that to stay flat sort of $130 million per quarter going forward in '13, or would you expect to see it falling to a flat year-over-year growth rate in the back half as well?

Yes, we didn't -- we had $90 million or $91 million worth of sales in the first quarter. Yes, it's $90 million. It should be sequential -- sequentially flat to the $90 million to somewhere-in-that-range million.

Your next response is from the line of Neil Frohnapple of Northcoast Research.

Dave, you mentioned in the press release that one of the drivers to the year-over-year margin decline was that Interconnect Technologies was selling price and mix changes. I'm just wondering if you could provide a little bit more granularity on where this is stemming from, and how much longer that you anticipate this to be a headwind to the segment. Was that just associated with the 2 issues during the first quarter?

Neil, this is Steve. The mix issue was very much related to the technology snafus that Dave described in his opening remarks. And there is some price giveback in connection with some of our longer-term agreements that also had a little bit of a negative impact in the first quarter.

Okay. And then a follow up on Brake & Friction, pertaining to margins, they held up much better in the quarter than we were anticipating. And I'm just wondering, as a follow up to Ivan's question regarding sales being roughly flat during the year, should we think -- how should we think about margins directionally in the second, third and fourth quarter as we move to the end of the year? Will you guys start to increase production a little bit, maybe build some inventory for increased demand in '14? Any color you could provide there would be helpful.

Neil, I think that margins will be relatively flat. As long as revenue remains at this level, margins will be flat with the revenue. We won't build any inventory until we get good solid orders. I think that's the last thing we'd want to do. So I'm anticipating margins to be in that 12% range for the year.

Your next response is from the line of Joel Tiss of Bank of Montréal.

Are you able to tell us the percent of your Brake & Friction business that goes into the mining industry, or is that something you don't want to talk about?

I just don't have it in front of me. What we end up doing, we combine construction and mining together in our segment, so, Steve, do you want to...

Yes, it's about 15%.

Okay, so then at least we can gauge whatever's happening in the different sectors there. And what drove that decline in the test & measurement business?

Honestly, it's so small we don't pay that much attention to it. I don't know. Honestly, I just can't answer that.

Okay. Because I was listening to ITW crow about their test and measurement business yesterday, so I was just wondering. And then can you just talk for a second about -- if we have this continued grind-it-out recovery for the next 2 or 3 years and there's nothing really that exciting, I'm sure your roofing business might -- will be better than that. But what other levers can you guys pull to really try to drive stronger operating margins?

Well, I mean, there's always additional cost reductions that we're working on through COS. I think if -- it's -- you're talking about even Brake & Friction if it grinds out over the next 3 years or so, I think that would be a relatively margin neutral story. I think margins in Construction Materials, depending on what happens to the material and so on, I think -- I still think we're pretty positive on Construction Materials for growth, and I think that will drive margin for us. I think the tire business will come back next year; that will drive margin. And FoodService, just the cost improvements we're making there will drive margin. We'll see margin improvement this year in FoodService. So I think it's just an ongoing grind-it-out, improve your cost structure and improve profitability.

[Operator Instructions] Your next response is from the line of Ajay Kejriwal of FBR. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: So maybe on Construction Materials, sounds like you got positive pricing there. What's -- the detrimental margins, is that just a reflection of volume, or is anything else going on?

No, it's all volume. If you look at across the businesses, it's primarily volume in all the businesses. I think all the plants are running as efficiently as they could, based on the volume levels in all of our businesses. It was just a function of unabsorbed overhead with volume declines. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: So as volume comes back, how should we be thinking about the incremental margins? Would they be kind of similar just with a plus sign, or how should we think about the margin improvement?

Yes, I think the incremental margins are what we've been talking about over the last number of years. Construction Materials is probably at 20% incremental margin. The other businesses are in the 30% range. As volume comes back, we would expect the profitability to improve by that amount. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: Okay. And then, what was the price and raw material spread? Is it possible to quantify that for Construction Materials in the quarter?

Yes, Ajay, it was slightly positive. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: Okay, for the company, you had 80 basis points, so do you have positive pricing in other segments -- pricing raw?

Yes, for the company, it was also slightly positive. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: Right. You have that 80 basis points, I think it's in the -- in Slide 5.

Right. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: So is all of that in Construction Materials, or did we see positive pricing in others?

The positive pricing was also in FoodService and in CCM. And we had some positive raw material in -- at CTP. But again, for the most part, it was slightly positive for the company and slightly positive across the segments. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: Got it. And that inventory reduction, is that all in CTP, or was -- did you take inventory down in other businesses as well?

No, most of it was CTP. What we elected to do where inventory is going to be strategic to us, for instance, in Construction Materials, we went ahead and made sure that we're going to have adequate material available when that market picks up or as it picks up, and in the other businesses, about the same. Most of that came out of the tire business. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: As you think about the tire business, obviously, 1Q, it's seasonal business, kind of the season's gone. Is there a potential for inventory to come down further, or are you kind of thinking that you're done with inventory reduction?

We'll have to look at it as we go. We’re going to manage to orders. And in that case, if the outlook doesn't look extremely positive, we will probably lower inventory. What we don't want to do is get into the replacement season, which generally is the second half of the season, and be without inventory. So the inventory that we took out was basically focusing on what the incoming order rate was for outdoor power equipment and reducing those segments. But having material on hand or inventory on hand, so to provide ag, construction, high-speed trailer power sports with replacement tires in the second half of the year.

Your next response is from Rob Crystal of Goldman Sachs.

Dave, could you talk a little bit about the M&A pipeline, what you're seeing there both from activity and a pricing standpoint?

Yes. Rob, the pipeline, it gets full and it gets empty and it's probably medium full, I guess, at this point. The prices that we're seeing are, I guess, comparable to what they have been in the past; they're not up, they're not down. There are some businesses out there that we're taking a look at. I'm not sure that we're going to be in a position to execute on an acquisition over the next quarter anyway. But we're continuing to look at potential acquisitions. And they would be in, as we've said in the past, either in our Braking business or in the CIT business.

Just lastly, for Steve. On the free cash flow front for the year, should we think about free cash flow equaling net income or pretty close?

Yes. I think we're still very much focused on a 100% conversion, so very -- the net income number is the number I'd be looking at.

Your next response is from the line of James Kawai of SunTrust.

My question is on the Interconnect Business. If you look at Thermax and kind of exclude it, it looks like it did about 13%, a little bit above that in the quarter, and it's a pretty decent portion of the mix. As we go through the second through the fourth quarter, do you think you could still print a flat to kind of up margins within the Interconnect business despite the mix headwind there?

Yes. Frankly, the mix is not an issue for us going forward. I think, yes, the margins will improve as volume improves. We also have got the -- we'll get some cost efficiencies out of the integration of Thermax into the regular business. We feel very positive about Interconnect Technologies from a margin standpoint and from a growth standpoint for the year.

Got you. And just to parse through the press release a little bit, one of the things I just wanted clarification on is the earnings improvement in 2013. Is that including or excluding the tax benefit there? Meaning, is that on an operating basis or on an EPS after-tax basis?

No, we expect operating earnings to improve.

Okay, got you, great. And then finally, one for Steve. Just the working capital on the quarter, accrued expenses and deferred revenues was a negative $41 million. It seemed a bit of an outlier for the quarter. If you can give us some color there.

Yes. That was -- again, on a comparative basis, a lot of that was tax-related. We had a large tax payment in the first quarter this year, and we actually came into the first quarter last year in an overpaid situation from a tax standpoint. So on a net basis year-over-year, it was almost a $30 million negative impact. And that really had an impact on the free cash flow generation for the business, and it sort of masked the improvement that we made with respect to inventory and receivables.

There are no further questions in the queue at this time. I'd like to turn the call back over to David Roberts for closing remarks.

Okay, thank you. As the conference call is off to a close, let's turn to Slide 15. Despite the fact that our sales volume was soft in the first quarter, we expect overall growth to be in the mid-single digits for the year; construction Materials has a very strong demand; and we think the remainder of the year, given the weather cooperating, will be very good, as the contractors are able to get on roofs. We see nothing that suggests that their backlogs, their backlogs being the construction contractors' -- or the roofing contractors', is anything but very solid. In addition to reroofing, there's no doubt that new construction will continue to gain strength. We saw solid sales for our polyiso insulation in the first quarter, and this generally is an indicator of new construction picking up. The only negative in Construction Materials, as I've said earlier, could possibly be the price of MDI and polyol. If they continue to increase and they basically level out at this point, they could have some negative impact on our earnings, but we don't think it will be dramatic. As we look at other raw materials, they're, I think, very predictable, as far as what the rate increases will be. And if they remain that way, we should be able to pass them along to our customers in the form of price increases. Generally, we've seen pricing discipline in the market, and we expect this to continue, particularly as demand increases in that segment. January and February started slow in Interconnect, but the volume ramped up in March. In fact, March was a very good month for the business. We should enjoy a good year as the 787 battery issue is now behind us and the issues with the new in-flight entertainment system have been resolved. Boeing is planning to step up production midyear, and we will benefit from that increase. With increased volume and raw materials have been trending down in price lately in CIT, we should reach mid to higher than mid-teen margins for the year. The Braking business will remain soft for the entire year. While the comparisons will get easier as we enter the third quarter, demand for our braking products is not only expected to improve from its current level. But as we heard from the CAT conference call earlier this week and we're witnessing in our own incoming order rate, the business has stabilized at the current rate. We now think that it will be 2014 before we see any uptick in demand. To maintain profitability at that current level, the management team will continue to focus on cost containment and cost reductions. I think they've done a good job to-date matching their cost to their current demand levels, and they've done it over the last 3 quarters. FoodService is starting to show some signs of margin improvement, as we've forecasted in our year-end conference call. The restructuring cost issues are now behind us, and we should see a steady improvement in profitability throughout the year. I do expect to see relatively flat demand in FoodService for the year, but margin will improve. And I said earlier, we should be in that low to mid double-digit margin rate by year-end. I think Transportation Products will be the wildcard for the remainder of the year. The outdoor power equipment season traditionally ends late in the second quarter. And with our customers' inventory channels still full of product, I don't think we'll see a recovery in volume anytime in 2013. The weather, both the drought last year and the wet weather this year, is really taking a toll on the business demand. The good news is, the cost structure is now in place that will allow us to generate a reasonable level of profitability at this level of sales. During our 2012 year-end conference call, I said that I thought we will see an increase from the company's overall margin in 2013 compared to 2012. With the softness that we had in the first quarter, I now think that the margin will remain flat with 2012. We do have some upside in Construction Materials, if they come back even stronger than we're anticipating. And also, I think the ramp-up of the 787 will help us also. Let's take a look at the remainder of the information on Slide 15. Our corporate expenses will be $48 million; D&A should be $119 million; interest expense will be $34 million; our tax rate will be approximately 30%; and our cash conversion rate will be very close to 100%, despite the fact that we're going to invest about $120 million in capital for future growth of the business. Like I said early in the call, I think 2013 still has a chance to be a very good year for Carlisle. This concludes my comments, and now I want to close our first quarter conference call. Thank you for attending. I look forward to reviewing our second quarter results with you in July. Tamara, you may now end the call.

Thank you. This concludes today's conference call. You may now disconnect.