REAL CLIENT MANAGED PORTFOLIO INVESTMENT RECOMMENDATION

TO: Real Client Managed Portfolio, Fall 2010 Class

FROM: Lisandro Tsai, Tom Wang, Antti Zhang and Cardo Martinez

SUBJECT: Carlisle Companies (CSL), Investment Recommendation

DATE: December 9th, 2010

Company Overview

Carlisle Companies is a diversified manufacturing company consisting of five segments: Engineered Transportation service, Construction Materials, Food Service Products, Interconnect Technologies and Specialty Products. Interconnect Technologies: Designs and manufactures high performance wire and cable, RF/microwave connectors, avionics trays, racks, intergraded subsystem and complex cable assemblies. Carlisle Specialty Products: Trail King designs and builds specialized, custom heavy-haul and bulk commodity trailers, truck and trailer dump bodies, and other specialty trailers. Carlisle Engineered Transportation Services: Manufactures bias and radial tires, specialty wheels, power transmission belts and off-highway braking and actuation systems. Carlisle Construction Materials (CCM): Manufactures a complete range of single-ply roofing and water proofing systems focused on optimizing the performance of building envelope. Carlisle Food Services Products: Produces a wide range of commercial and institutional food service permanent ware, catering equipment, meal delivery system and disposable food containers

Analysis:

To determine if CSL is a good investment we focused on _ aspects of the business: Cost of Goods Sold, Pensions, Goodwill, Receivables and Income Taxes. It is important to take these five factors into consideration of management’s current objective titled 5,15,30,15,100. As can be noted during the financial crisis management could not translate the lower cost of goods sold into higher operating margins. This is was primarily due to the higher SG&A expenses. It is important to note that management has emphasized a higher operating margin by cost reduction in COGS however from past data management has had difficulty in controlling manageable costs. Further looking at the Pension factor we observe that management has transitioned to pursuing a return approach. There has been a transition of 80% equities to now in excess 80% of fixed income primarily being junk bonds. Pensions are a company’s obligation (during the financial crisis management had to significantly increase contribution). From the increase in Goodwill we can have a glimpse of the direction management has wanted to take the company. Looking at the composition of sales it is important to note that there has not been a significant change considering the change in composition of goodwill. Receivables have been traditionally been used to facilitate growth via securitization. Management has stated that securitization is n longer needed due to strong cash flow; however, the footnote discloses that the company received approximately 60 cents on the dollar for its last securitization. The tax information disclosed showed that prior to the financial crisis the earning we from the company fundamentals. This is achieved by looking at the deferred tax liability over the change in deferred tax liability. This changed due to the significant impact on the pension obligation during the crisis.

Recommendation

With the above analysis and referring to managements goal 5,15,30,15,100 we are of the opinion that their goal if a difficult one to achieve. Events such as not clearly presenting the difficulties it faced in securitization causes us to doubt the transparency available in the reports. We recommend no action at this moment.