SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

Commission file number 1-9278

 

CARLISLE COMPANIES INCORPORATED

(Exact name of registrant as specified in its charter)

 

Delaware

 

31-1168055

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

13925 Ballantyne Corporate Place, Suite 400, Charlotte, North Carolina 28277

(Address of principal executive office, including zip code)

 

(704) 501-1100

(Telephone Number)

 

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 x  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

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller Reporting Company o

 

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 October 18, 2011: 61,609,678

 

 

 



 

Item 1. Financial Statements

 

Carlisle Companies Incorporated

Unaudited Condensed Consolidated Statements of Earnings

 

 

 

Third Quarter

 

Nine Months

 

(Dollars in millions, except per share amounts)

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

870.5

 

$

665.9

 

$

2,434.9

 

$

1,900.8

 

 

 

 

 

 

 

 

 

 

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

683.0

 

522.3

 

1,916.6

 

1,501.6

 

Selling and administrative expenses

 

99.9

 

71.5

 

277.8

 

214.7

 

Research and development expenses

 

7.1

 

6.0

 

21.4

 

16.8

 

Other income, net

 

(1.3

)

(0.4

)

(3.3

)

(1.6

)

 

 

 

 

 

 

 

 

 

 

Earnings before interest and income taxes

 

81.8

 

66.5

 

222.4

 

169.3

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

5.5

 

1.4

 

15.5

 

5.1

 

Income before income taxes

 

76.3

 

65.1

 

206.9

 

164.2

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

22.6

 

18.3

 

64.6

 

55.5

 

Income from continuing operations, net of tax

 

53.7

 

46.8

 

142.3

 

108.7

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

 

5.6

 

(1.2

)

6.9

 

Income tax expense (benefit)

 

 

1.9

 

(0.6

)

2.2

 

Income (loss) from discontinued operations, net of tax

 

 

3.7

 

(0.6

)

4.7

 

Net income

 

$

53.7

 

$

50.5

 

$

141.7

 

$

113.4

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to common shares (1)

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of tax

 

$

0.86

 

$

0.76

 

$

2.29

 

$

1.77

 

Income (loss) from discontinued operations, net of tax

 

 

0.06

 

 

0.08

 

Basic earnings per share

 

$

0.86

 

$

0.82

 

$

2.29

 

$

1.85

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to common shares (1)

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of tax

 

$

0.85

 

$

0.75

 

$

2.26

 

$

1.75

 

Income (loss) from discontinued operations, net of tax

 

 

0.06

 

(0.02

)

0.08

 

Diluted earnings per share

 

$

0.85

 

$

0.81

 

$

2.24

 

$

1.83

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding - in thousands

 

 

 

 

 

 

 

 

 

Basic

 

61,599

 

60,980

 

61,396

 

60,885

 

Diluted

 

62,403

 

61,527

 

62,322

 

61,639

 

 


(1) Numerator for basic and diluted EPS based on “two class” method of computing earnings per share

 

Income from continuing operations

 

$

53.2

 

$

46.3

 

$

140.9

 

$

107.5

 

Net income

 

$

53.2

 

$

50.0

 

$

140.4

 

$

112.2

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid

 

$

11.2

 

$

10.4

 

$

32.3

 

$

30.1

 

Dividends declared and paid per share

 

$

0.18

 

$

0.17

 

$

0.52

 

$

0.49

 

 

See accompanying notes to these Unaudited Condensed Consolidated Financial Statements

 

1



 

Carlisle Companies Incorporated

Unaudited Consolidated Balance Sheets

 

 

 

September 30,

 

December 31,

 

(Dollars in millions, except share and per share amounts)

 

2011

 

2010

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

81.8

 

$

89.4

 

Receivables, less allowance of $9.5 in 2011 and $9.7 in 2010

 

542.3

 

391.0

 

Inventories

 

482.2

 

430.5

 

Deferred income taxes

 

47.7

 

45.7

 

Prepaid expenses and other current assets

 

49.7

 

60.3

 

Current assets held for sale

 

9.1

 

 

Total current assets

 

1,212.8

 

1,016.9

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $581.7 in 2011 and $539.6 in 2010

 

530.3

 

533.4

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Goodwill, net

 

710.5

 

667.1

 

Other intangible assets, net

 

323.6

 

297.9

 

Other long-term assets

 

7.7

 

12.6

 

Non-current assets held for sale

 

18.3

 

1.6

 

Total other assets

 

1,060.1

 

979.2

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

2,803.2

 

$

2,529.5

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term debt, including current maturities

 

$

113.1

 

$

69.0

 

Accounts payable

 

280.6

 

195.4

 

Accrued expenses

 

165.2

 

174.9

 

Deferred revenue

 

22.0

 

17.1

 

Current liabilities associated with assets held for sale

 

4.5

 

 

Total current liabilities

 

585.4

 

456.4

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Long-term debt

 

405.3

 

405.1

 

Deferred revenue

 

125.1

 

122.6

 

Other long-term liabilities

 

214.6

 

204.7

 

Non-current liabilities associated with assets held for sale

 

1.9

 

 

Total long-term liabilities

 

746.9

 

732.4

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred stock, $1 par value per share. Authorized and unissued 5,000,000 shares

 

 

 

Common stock, $1 par value per share. Authorized 100,000,000 shares; 78,661,248 shares issued; 61,578,799 outstanding in 2011 and 61,024,932 outstanding in 2010

 

78.7

 

78.7

 

Additional paid-in capital

 

115.7

 

92.4

 

Cost of shares of treasury - 16,516,837 shares in 2011 and 17,011,676 shares in 2010

 

(220.0

)

(221.6

)

Accumulated other comprehensive loss

 

(42.2

)

(38.1

)

Retained earnings

 

1,538.7

 

1,429.3

 

Total shareholders’ equity

 

1,470.9

 

1,340.7

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

2,803.2

 

$

2,529.5

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

 

2



 

Carlisle Companies Incorporated

Unaudited Consolidated Statements of Cash Flows

For the Nine Months ended September 30, 2011 and 2010

 

 

 

September 30,

 

(Dollars in millions)

 

2011

 

2010

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

Net income

 

$

141.7

 

$

113.4

 

Reconciliation of net income to cash flows from operating activities:

 

 

 

 

 

Depreciation

 

51.2

 

44.7

 

Amortization

 

13.4

 

9.1

 

Non-cash compensation

 

12.7

 

10.4

 

Loss (gain) on sale of property and equipment, net

 

0.6

 

(3.6

)

Loss on writedown of assets

 

0.4

 

 

Deferred taxes

 

(0.4

)

(5.6

)

Change in tax benefits from stock-based compensation

 

(3.0

)

(1.5

)

Foreign exchange gain

 

(1.0

)

(1.4

)

Changes in assets and liabilities, excluding effects of acquisitions and divestitures:

 

 

 

 

 

Current and long-term receivables

 

(151.8

)

(114.7

)

Inventories

 

(43.9

)

(53.9

)

Accounts payable and accrued expenses

 

75.3

 

60.4

 

Income taxes

 

18.8

 

3.5

 

Long-term liabilities

 

4.3

 

2.4

 

Other operating activities

 

0.6

 

(0.8

)

Net cash provided by operating activities

 

118.9

 

62.4

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Capital expenditures

 

(48.5

)

(46.8

)

Acquisitions, net of cash

 

(108.7

)

 

Proceeds from sale of property and equipment

 

1.3

 

5.7

 

Proceeds from sale of investments

 

5.3

 

 

Proceeds from sale of business

 

 

20.6

 

Other investing activities

 

(0.3

)

(0.2

)

Net cash used in investing activities

 

(150.9

)

(20.7

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Net change in short-term borrowings and revolving credit lines

 

103.0

 

 

Redemption of bonds

 

(59.0

)

 

Dividends

 

(32.3

)

(30.1

)

Treasury shares and stock options, net

 

9.3

 

5.1

 

Change in tax benefits from stock-based compensation

 

3.0

 

1.5

 

Net cash provided by (used in) financing activities

 

24.0

 

(23.5

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

0.4

 

0.3

 

Change in cash and cash equivalents

 

(7.6

)

18.5

 

Cash and cash equivalents

 

 

 

 

 

Beginning of period

 

89.4

 

96.3

 

End of period

 

$

81.8

 

$

114.8

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

 

3



 

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Note 1 - Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared by Carlisle Companies Incorporated (the “Company” or “Carlisle”) in accordance and consistent with the accounting policies stated in the Company’s Annual Report on 10-K and should be read in conjunction with the consolidated financial statements.  The unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States and, of necessity, include some amounts that are based upon management estimates and judgments.  Future actual results could differ from such current estimates.  The unaudited condensed consolidated financial statements include assets, liabilities, revenues, and expenses of all majority-owned subsidiaries.  Carlisle accounts for other investments in minority-owned companies where it exercises significant influence, but does not have control, on the equity basis.  Intercompany transactions and balances are eliminated in consolidation.

 

Note 2 — Reclassifications and Revisions

 

Certain reclassifications and revisions have been made to the previously filed information regarding the third quarter of 2010 included in the Company’s Current Report on Form 8-K filed on December 3, 2010 as follows:

 

·                  The segment disclosures pertaining to the third quarter of 2010 in Note 14 have been revised to reflect the creation, in the fourth quarter of 2010, of the Carlisle Brake & Friction (“CBF”) reportable segment as discussed in the Company’s 2010 Annual Report on Form 10-K.

 

Note 3 - New Accounting Pronouncements

 

New accounting standards adopted

 

There were no new accounting standards adopted in the first nine months of 2011 and 2010.

 

New accounting standards issued but not yet adopted

 

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05, Presentation of Comprehensive Income.  ASU 2011-05 revises the manner in which entities present comprehensive income in their financial statements.  The new guidance removes the presentation options in Accounting Standards Codification (ASC) 220, Comprehensive Income, and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements.  The ASU does not change the items that must be reported in other comprehensive income.  ASU 2011-05 will be effective for fiscal years and interim reporting periods within those years beginning after December 15, 2011.

 

In September 2011, the Financial Accounting Standards Board (FASB) issued ASU 2011-08, Guidance on Testing Goodwill for Impairment.  ASU 2011-08 gives entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit in Step 1 of the goodwill impairment test.  If entities determine, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required.  Otherwise, further testing would not be needed.  ASU 2011-08 will be effective for fiscal and interim reporting periods within those years beginning after December 15, 2011.

 

The adoption of these accounting standards will not have a material effect on the Company’s consolidated financial statements.  There are currently no other accounting standards that have been issued that will have a significant impact on the Company’s financial position, results of operations or cash flows upon adoption.

 

Note 4 — Borrowings

 

5.125% Notes Due 2020

 

On December 9, 2010, the Company completed a public offering of $250.0 million of notes with a stated interest rate of 5.125% due December 15, 2020 (the “2020 Notes”), resulting in proceeds to the Company of approximately $248.9

 

4



 

million.  The proceeds were utilized to re-pay borrowings under the Company’s Revolving Credit Facility that were used to partially finance the acquisition of Hawk.

 

8.75% Hawk Senior Notes Due 2014

 

In connection with the acquisition of Hawk on December 1, 2010, the Company assumed Hawk’s 8.75% senior notes previously due November 1, 2014 (the “Hawk senior notes”).  The Hawk senior notes were recorded at estimated fair value of $59.0 million on the date of acquisition.

 

On January 10, 2011, the Company redeemed all of the outstanding Hawk senior notes for approximately $59.1 million, of which $57.1 million related to the outstanding principal amount, $1.9 million related to a contractual redemption premium, and $0.1 million for accrued and unpaid interest.  There was no extinguishment gain or loss recorded as the carrying value and amount paid to redeem the Hawk senior notes were the same.  The Company redeemed the Hawk senior notes using borrowings under its revolving credit facility.  See Note 7 for further information regarding the Hawk acquisition.

 

Other Matters

 

At September 30, 2011, the fair value of the Company’s par value $250 million, 5.125% senior notes due 2020 and par value $150 million, 6.125% senior notes due 2016, using the Level 2 inputs, is approximately $263.8 million and $158.6 million, respectively. Fair value is estimated based on current yield rates plus the Company’s estimated credit spread available for financings with similar terms and maturities.  The Company estimates that the fair value of amounts outstanding under the revolving credit facility approximates its carrying value.

 

Note 5 - Fair Value Measurements

 

Recurring Fair Value Measurements

 

The fair value of the Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

 

 

 

Balance at
Sept 30,

 

Quoted
Prices in
Active
Markets for
Identical
Assets

 

Significant
Other
Observable
Inputs

 

Significant
Unobservable
Inputs

 

In millions

 

2011

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

81.8

 

$

81.8

 

$

 

$

 

Short-term investments

 

0.6

 

0.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

82.4

 

$

82.4

 

$

 

$

 

 

Note 6 — Stock-Based Compensation

 

During the three and nine month period ended September 30, 2011 and 2010, the Company expensed stock-based compensation awards under the 2008 Executive Incentive Program and the 2005 Nonemployee Director Equity Plan. A detailed description of the awards under these plans is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

Stock-Based Compensation Expense

 

The compensation expense recorded for all of the Company’s share-based compensation plans during the third quarter and first nine months of 2011 and 2010 was as follows:

 

5



 

 

 

Third Quarter

 

First Nine Months

 

(in millions, except per share amounts)

 

2011

 

2010

 

2011

 

2010

 

Pre-tax compensation expense

 

$

5.4

 

$

3.2

 

$

12.7

 

$

10.4

 

 

 

 

 

 

 

 

 

 

 

After-tax compensation expense

 

$

3.5

 

$

2.1

 

$

8.3

 

$

6.8

 

 

 

 

 

 

 

 

 

 

 

Impact on diluted EPS

 

$

0.06

 

$

0.03

 

$

0.14

 

$

0.11

 

 

The third quarter compensation expense amounts include $1.9 million of expense related to the modification of vesting and termination provisions of certain stock options, performance shares and restricted share awards for senior management severance.

 

Grants

 

In the first quarter of 2011, the Company awarded 631,855 stock options, 110,685 restricted stock awards and 108,075 performance share awards with an aggregate grant-date fair value of approximately $16.8 million to be expensed over the requisite service period for each award which generally equals the stated vesting period.

 

The grant date fair value of the 2011 stock options with a three-year graded vesting condition was estimated under the Black-Scholes-Merton formula using the following weighted-average assumptions:

 

Expected dividend yield

 

1.67

%

Expected life in years

 

5.76

 

Expected volatility

 

31.99

%

Risk-free interest rate

 

2.20

%

 

The performance shares vest based on the employee rendering three years of service to the Company, and the attainment of a market condition over the performance period, which is based on the Company’s relative total shareholder return versus a peer group of companies over a pre-determined time period as determined by the Compensation Committee of the Board of Directors.  The grant date fair value of the 2011 performance shares was estimated using a Monte-Carlo simulation approach.  Such approach entails the use of assumptions regarding the future performance of the Company’s stock and those of the peer group of companies.  Those assumptions include expected volatility, risk-free interest rates, correlation coefficients and dividend reinvestment.  Dividends accrue on the performance shares during the performance period and are to be paid in cash based upon the number of awards ultimately earned.

 

Note 7 — Acquisitions

 

PDT Phoenix GmbH

 

On August 1, 2011, the Company acquired 100% of the equity of PDT Phoenix GmbH (“PDT”) for €82.1 million, or $118.3 million, of which €78.7 million, or $113.4 million, was paid in cash initially funded with borrowings under the Company’s revolving credit facility, most of which were subsequently repaid, as well as cash on hand.  PDT is a leading manufacturer of EPDM-based (rubber) roofing membranes and industrial components serving European markets. The acquisition of PDT provides a platform to serve the European market for single-ply roofing systems, and expands the Company’s growth internationally. PDT will operate within the Construction Materials (“CCM”) segment.

 

The purchase price provides for contingent consideration based on future earnings.  The fair value of contingent consideration recognized at the acquisition date was €3.4 million, or $4.9 million, and was estimated using an income approach based on financial projections of the acquired company.

 

The purchase price of PDT included assets and liabilities of PDT’s profiles and frames business (“PDT Profiles”), which the Company intends to sell.  The Profiles assets and liabilities have been classified as held for sale on the Company’s Consolidated Balance Sheet.  The following table summarizes the consideration transferred to acquire PDT and the preliminary allocation among the assets acquired and liabilities assumed. The acquisition has been accounted for using the acquisition method of accounting which requires that the consideration be allocated to the acquired assets and assumed liabilities based on their acquisition date fair values with the remainder allocated to goodwill.

 

6



 

 

 

Preliminary
Allocation

 

(in millions)

 

8/1/2011

 

Consideration transferred:

 

 

 

 

 

 

 

Cash consideration

 

$

113.4

 

Contingent consideration

 

4.9

 

 

 

 

 

Total fair value of consideration transferred

 

$

118.3

 

 

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

 

 

 

 

Cash & cash equivalents

 

$

7.5

 

Receivables

 

5.9

 

Inventories

 

8.1

 

Prepaid expenses and other current assets

 

3.3

 

Current assets held for sale

 

9.9

 

Property, plant and equipment

 

2.9

 

Definite-lived intangible assets

 

42.9

 

Other long-term assets

 

0.1

 

Non-current assets held for sale

 

17.8

 

Accounts payable

 

(5.1

)

Accrued expenses

 

(0.3

)

Current liabilities associated with assets held for sale

 

(4.7

)

Other long-term liabilities

 

(15.2

)

Non-current liabilities associated with assets held for sale

 

(1.5

)

 

 

 

 

Total identifiable net assets

 

71.6

 

 

 

 

 

Goodwill

 

$

46.7

 

 

The preliminary goodwill is primarily attributable to the workforce of PDT.  Goodwill arising from the acquisition of PDT is not deductible for income tax purposes.  All of the preliminary goodwill was assigned to the Carlisle Construction Materials reportable segment. Of the $42.9 million value preliminary allocated to definite-lived intangible assets, approximately half was allocated to brands, and half to customer relationships, with useful lives ranging from 10 to 15 years.

 

The fair values of the inventory, property, plant and equipment and other intangible assets are preliminary and subject to change pending receipt of the final third-party valuations for those assets.  The Company has also recorded deferred tax liabilities related to the intangible assets as of August 1, 2011 which are preliminary and subject to change pending final assessment of the acquisition date fair values and tax basis of the acquired assets and assumed liabilities.

 

PDT contributed revenues of $13.4 million and earnings before interest and taxes (“EBIT”) of $2.2 million for the period from August 1, 2011 to September 30, 2011.  The Company also recorded $0.7 million of acquisition-related expenses in the third quarter of 2011.

 

Hawk Corporation

 

On December 1, 2010, the Company completed the acquisition of all of the outstanding equity of Hawk for a total cash purchase price of approximately $414.1 million.  The Company funded the acquisition with cash on hand, borrowings under the Company’s revolving credit facility, and the issuance of the $250 million 2020 Notes.  See Note 4 for further information regarding borrowings.

 

Hawk is a leading worldwide supplier of friction materials for brakes, clutches and transmissions.  With this acquisition, the Company has created a comprehensive global braking solutions platform enabling it to provide a broader line of attractive products and increasing exposure to key emerging markets such as China, Brazil and India. Together with Carlisle’s legacy industrial brake and friction product line, Hawk became part of the Carlisle Brake and Friction segment.

 

7



 

The following schedule illustrates changes recorded to the preliminary purchase price allocation initially performed in the fourth quarter of 2010:

 

 

 

Preliminary
Allocation

 

Purchase
Accounting
Adjustments

 

Revised
Allocation

 

(in millions)

 

12/1/2010

 

9/30/2011

 

9/30/2011

 

 

 

 

 

 

 

 

 

Total cash consideration transferred

 

$

414.1

 

$

 

$

414.1

 

 

 

 

 

 

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

 

$

70.7

 

$

 

$

70.7

 

Short-term investments

 

5.3

 

 

5.3

 

Receivables

 

40.7

 

 

40.7

 

Inventories

 

45.1

 

 

45.1

 

Prepaid expenses and other current assets

 

12.9

 

 

12.9

 

Property, plant and equipment

 

74.7

 

(2.8

)

71.9

 

Definite-lived intangible assets

 

92.5

 

(3.2

)

89.3

 

Indefinite-lived intangible assets

 

55.1

 

 

55.1

 

Other long-term assets

 

5.9

 

 

5.9

 

Accounts payable

 

(30.6

)

 

(30.6

)

Accrued expenses

 

(33.7

)

 

(33.7

)

Long-term debt

 

(59.0

)

 

(59.0

)

Pension obligations

 

(2.3

)

 

(2.3

)

Deferred tax liabilities

 

(68.9

)

3.3

 

(65.6

)

Deferred revenue

 

(2.0

)

 

(2.0

)

Other long-term liabilities

 

(8.8

)

2.8

 

(6.0

)

 

 

 

 

 

 

 

 

Total identifiable net assets

 

197.6

 

0.1

 

197.7

 

 

 

 

 

 

 

 

 

Goodwill

 

$

216.5

 

$

(0.1

)

$

216.4

 

 

The adjustments to property, plant and equipment and definite-lived intangible assets represent updated valuations for those assets.  The adjustment to deferred tax liabilities represents the impact on deferred taxes resulting from the valuation adjustments to fixed and intangible assets.  The adjustment to other long-term liabilities represents a reduction of tax liabilities on uncertain tax positions related to certain payments made in connection with the acquisition.

 

As of September 30, 2011, the fair values of the property, plant and equipment and other intangible assets are still considered preliminary and subject to change pending receipt of the final third-party valuations for those assets. Also, the related current and deferred tax balances are preliminary and subject to change pending final assessment of the acquisition date fair values.

 

Note 8 — Discontinued Operations and Assets Held for Sale

 

On August 1, 2011, the Company acquired all of the equity of PDT Phoenix GmbH (“PDT”).  Included with the acquisition were assets associated with PDT’s profiles and frames business (“PDT Profiles”), which the Company has classified as held for sale.  The Company is currently in negotiations with a potential buyer and expects to have the assets sold in the first half of 2012.

 

On October 4, 2010, as part of its commitment to concentrate on its core businesses, the Company sold its specialty trailer business.  The final purchase price is subject to an earn-out provision whereby the Company could receive an additional $5 million in proceeds based on future earnings.

 

8



 

On February 2, 2010, the Company sold all of the interest in its refrigerated truck bodies business. The final purchase price is subject to certain indemnifications made to the buyer, which could reduce the gain in subsequent periods.  The Company does not believe any such adjustments will result in a material change to the purchase price.

 

Total assets held for sale and liabilities associated with assets held for sale were as follows:

 

 

 

September 30,

 

December 31,

 

In millions

 

2011

 

2010

 

Assets held for sale:

 

 

 

 

 

PDT Profiles business

 

$

25.7

 

$

 

Thermoset molding operation

 

1.0

 

1.6

 

Tire and wheel business

 

0.7

 

 

Total assets held for sale

 

$

27.4

 

$

1.6

 

 

 

 

 

 

 

Liabilities associated with assets held for sale:

 

 

 

 

 

PDT Profiles business

 

$

6.4

 

$

 

Total liabilities associated with assets held for sale

 

$

6.4

 

$

 

 

The major classes of assets and liabilities held for sale included in the Company’s Consolidated Balance Sheets were as follows:

 

 

 

September 30,

 

December 31,

 

In millions

 

2011

 

2010

 

Assets held for sale:

 

 

 

 

 

Receivables

 

$

6.1

 

$

 

Inventories

 

2.9

 

 

Prepaid expenses and other current assets

 

0.1

 

 

Total current assets held for sale

 

9.1

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

5.4

 

 

1.6

 

Other long term assets

 

12.9

 

 

Total non-current assets held for sale

 

18.3

 

1.6

 

Total assets held for sale

 

$

27.4

 

$

1.6

 

Liabilities associated with assets held for sale:

 

 

 

 

 

Accounts payable

 

$

3.7

 

$

 

Accrued expenses

 

0.8

 

 

Total current liabilities associated with assets held for sale

 

4.5

 

 

 

 

 

 

 

 

Total non-current liabilities associated with assets held for sale

 

1.9

 

 

Total liabilities associated with assets held for sale

 

$

6.4

 

$

 

 

9



 

Net sales and income (loss) before income taxes from discontinued operations were as follows:

 

 

 

Third Quarter

 

First Nine Months

 

In millions

 

2011

 

2010

 

2011

 

2010

 

Net sales:

 

 

 

 

 

 

 

 

 

PDT Profiles business

 

$

9.3

 

$

 

$

9.3

 

$

 

Specialty trailer business

 

 

32.1

 

 

68.6

 

Refrigerated truck bodies business

 

 

 

 

4.6

 

Net sales from discontinued operations

 

$

9.3

 

$

32.1

 

$

9.3

 

$

73.2

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations:

 

 

 

 

 

 

 

 

 

PDT Profiles business

 

$

0.3

 

$

 

$

0.3

 

$

 

Specialty trailer business

 

(0.1

)

5.6

 

(0.4

)

5.5

 

Refrigerated truck bodies business

 

 

0.4

 

 

0.5

 

On-highway friction and brake shoe business

 

 

(0.2

)

(0.2

)

1.4

 

Thermoset molding operation

 

 

 

(0.7

)

 

Automotive components

 

(0.1

)

(0.1

)

(0.1

)

 

Systems and equipment

 

(0.1

)

(0.1

)

(0.1

)

(0.5

)

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes from discontinued operations

 

$

 

$

5.6

 

$

(1.2

)

$

6.9

 

 

Results for the thermoset molding operation for the nine months ended September 30, 2011 include a $0.6 million write-down of the land and building.

 

Results of the on-highway friction and brake shoe business for the nine months ended September 30, 2010 included a $2.1 million pretax gain on the sale of property.

 

Note 9 — Inventories

 

The Company is a diversified manufacturer comprised of multiple domestic and foreign operations manufacturing different products.  The First-in, First-out (“FIFO”) method is used to value inventories.

 

The components of inventories as of September 30, 2011 and December 31, 2010 were as follows:

 

 

 

September 30,

 

December 31,

 

In millions

 

2011

 

2010

 

Finished goods

 

$

279.2

 

$

256.7

 

Work-in-process

 

63.0

 

46.7

 

Raw materials

 

138.2

 

124.0

 

Capitalized variances

 

33.2

 

28.1

 

Reserves

 

(28.5

)

(25.0

)

 

 

$

485.1

 

$

430.5

 

 

 

 

 

 

 

Inventories associated with assets held for sale

 

(2.9

)

 

Inventories

 

$

482.2

 

$

430.5

 

 

10



 

Note 10 — Goodwill and Other Intangible Assets

 

The changes in the carrying amount of goodwill for the nine months ended September 30, 2011 were as follows:

 

 

 

Construction

 

Transportation

 

Brake and

 

Interconnect

 

FoodService

 

Disc.

 

 

 

In millions

 

Materials

 

Products

 

Friction

 

Technologies

 

Products

 

Ops

 

Total

 

Balance at January 1, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

86.3

 

$

155.5

 

$

231.6

 

$

188.9

 

$

60.3

 

$

47.4

 

$

770.0

 

Accumulated impairment losses

 

 

(55.5

)

 

 

 

(47.4

)

(102.9

)

 

 

86.3

 

100.0

 

231.6

 

188.9

 

60.3

 

 

667.1

 

Goodwill acquired during year

 

46.7

 

 

 

 

 

 

46.7

 

Purchase accounting adjustments

 

 

 

(0.1

)

 

 

 

(0.1

)

Currency translation

 

(3.2

)

 

 

 

 

 

(3.2

)

Goodwill

 

129.8

 

155.5

 

231.5

 

188.9

 

60.3

 

47.4

 

813.4

 

Accumulated impairment losses

 

 

(55.5

)

 

 

 

(47.4

)

(102.9

)

Balance at September 30, 2011

 

$

129.8

 

$

100.0

 

$

231.5

 

$

188.9

 

$

60.3

 

$

 

$

710.5

 

 

The Company’s other intangible assets at September 30, 2011 were as follows:

 

 

 

Acquired

 

Accumulated

 

Net Book

 

In millions

 

Cost

 

Amortization

 

Value

 

Assets subject to amortization:

 

 

 

 

 

 

 

Patents

 

$

61.8

 

$

(11.1

)

$

50.7

 

Customer Relationships

 

209.8

 

(42.7

)

167.1

 

Other

 

34.1

 

(7.0

)

27.1

 

Assets not subject to amortization:

 

 

 

 

 

 

 

Trade names

 

78.7

 

 

78.7

 

Other intangible assets, net

 

$

384.4

 

$

(60.8

)

$

323.6

 

 

Estimated amortization expense for the remainder of 2011 and the next four years is as follows: $4.5 million remaining in 2011, $16.7 million in 2012, $15.7 million in 2013, $15.4 million in 2014 and $15.0 million in 2015.

 

The net book value of the Company’s Other intangible assets by reportable segment are as follows:

 

 

 

September 30,

 

December 31,

 

In millions

 

2011

 

2010

 

 

 

 

 

 

 

Construction Materials

 

$

55.5

 

$

16.4

 

Transportation Products

 

2.7

 

0.2

 

Brake and Friction

 

141.8

 

151.3

 

Interconnect Technologies

 

84.9

 

89.0

 

FoodService Products

 

38.7

 

41.0

 

Total

 

$

323.6

 

$

297.9

 

 

11



 

Note 11 — Retirement Plans and Other Post-retirement Benefits

 

Components of net periodic benefit cost were as follows:

 

 

 

Pension and Other Post-retirement Benefits

 

 

 

Third Quarter

 

First Nine Months

 

In millions

 

2011

 

2010

 

2011

 

2010

 

Service costs - benefits earned during the quarter

 

$

1.4

 

$

1.3

 

$

4.2

 

$

3.8

 

Interest cost on benefits earned in prior years

 

3.2

 

2.5

 

9.7

 

7.4

 

Expected return on plan assets

 

(4.2

)

(3.1

)

(12.7

)

(9.5

)

Amortization of:

 

 

 

 

 

 

 

 

 

Unrecognized net actuarial loss

 

1.1

 

0.6

 

3.4

 

1.9

 

Prior service costs

 

 

(0.1

)

(0.1

)

0.1

 

Net periodic benefit costs

 

$

1.5

 

$

1.2

 

$

4.5

 

$

3.7

 

 

The Company made contributions of $2.0 million and $3.0 million to the pension plans during the three and nine month period ended September 30, 2011, respectively.  The Company expects to contribute an additional $1.0 million to the pension plans in the fourth quarter of 2011.

 

The Company maintains defined contribution plans to which it has contributed $2.7 million and $8.3 million during the three and nine month period ended September 30, 2011, respectively. Full year contributions are expected to approximate $11.1 million.

 

Note 12 — Other Long-Term Liabilities

 

The components of other long-term liabilities were as follows:

 

 

 

September 30,

 

December 31,

 

In millions

 

2011

 

2010

 

Deferred taxes and other tax liabilities

 

$

184.2

 

$

179.4

 

Pension and other post-retirement obligations

 

15.5

 

18.3

 

Deferred compensation

 

7.6

 

5.6

 

PDT contingent consideration

 

4.9

 

 

Other

 

2.4

 

1.4

 

Other long-term liabilities

 

$

214.6

 

$

204.7

 

 

Note 13 — Commitments and Contingencies

 

Product Warranties

 

The company offers various warranty programs on its products, primarily installed roofing systems, braking products, aerospace cables and assemblies, and foodservice equipment.  The change in the Company’s aggregate product warranty liabilities, including accrued costs and loss reserves associated with extended product warranties for the period ended September 30 is as follows:

 

12



 

 

 

September 30,

 

In millions

 

2011

 

2010

 

Beginning reserve

 

$

20.8

 

$

22.5

 

Liabilities disposed of by sale

 

 

(1.0

)

Current year provision

 

9.7

 

12.9

 

Current year claims

 

(11.1

)

(14.2

)

Ending reserve

 

$

19.4

 

$

20.2

 

 

The Company also offers separately priced extended warranty contracts on sales of certain products, the most significant being those offered on its installed roofing systems within the Construction Materials segment.  Deferred revenue related to the Company’s installed roofing systems was approximately $140.8 million and $132.9 at September 30, 2011 and 2010, respectively, of which approximately $125.1 million and $117.7 million was classified as long-term in the Consolidated Balance Sheet, respectively.  The amount of extended product warranty revenues recognized was $12.2 million and $12.0 million for the first nine months of 2011 and 2010, respectively.

 

Workers’ Compensation, General Liability and Property Claims

 

The Company is self-insured for workers’ compensation, medical and dental, general liability and property claims up to applicable retention limits. Retention limits are $1.0 million per occurrence for general liability, $0.5 million per occurrence for workers’ compensation, $0.1 million per occurrence for property and up to $0.5 million for medical claims. The Company is insured for losses in excess of these limits.

 

The Company has accrued approximately $21.5 million and $20.6 million related to workers’ compensation claims at September 30, 2011 and 2010, respectively.  The amounts recognized are presented in Accrued expenses in the Consolidated Balance Sheet.  The liability related to workers’ compensation claims, both those reported to the Company and those incurred but not yet reported, is estimated based on actuarial estimates and loss development factors and the Company’s historical loss experience.

 

Litigation

 

The Company received written correspondence from the U. S. Immigration and Customs Enforcement Office of Investigations (“ICE”) dated March 11, 2010 indicating that it initiated an investigation relating to the classification of certain rubber tires imported by its tire and wheel operation within the Carlisle Transportation Products segment since 2004.  The Company responded to ICE’s inquiry and, on August 19, 2010, ICE informed the Company that it had terminated its investigation.  The Company continues to work separately with U. S. Customs and Border Protection to properly classify its products.

 

At this time, the Company cannot predict or determine the amount of additional duties and/or civil fines or penalties, if any, owed as a result of this classification effort.  In the opinion of management, the ultimate outcome of such actions will not have a material adverse effect on the consolidated financial position of the Company.

 

Over the years, the Company has been named as a defendant, along with numerous other defendants, in lawsuits in various state courts in which plaintiffs have alleged injury due to exposure to asbestos-containing brakes, which Carlisle manufactured in limited amounts between the late-1940’s and the mid-1980’s.  In addition to compensatory awards, these lawsuits may also seek punitive damages.

 

Other than the matter described below, to date, the Company has obtained dismissals or settlements of its asbestos-related lawsuits with no material effect on its financial condition, results of operations or cash flows.  The Company maintains insurance coverage that applies to a portion of certain of the Company’s defense costs and payments of settlements or judgments in connection with asbestos-related lawsuits.

 

On December 22, 2010, the Company settled a case involving alleged asbestos-related injury.  The total amount of the award and related loss, inclusive of insurance recoveries, was approximately $5.8 million, which was recorded in discontinued operations in the fourth quarter of 2010, as the related alleged asbestos-containing product was manufactured by the Company’s former on-highway brake business.

 

Based on an ongoing evaluation, including the above matter, the Company believes that the resolution of its

 

13



 

remaining pending asbestos claims will not have a material impact on the Company’s financial condition, results of operations, or cash flows, although these matters could result in the Company being subject to monetary damages, costs or expenses, and charges against earnings in particular periods.

 

From time-to-time the Company may be involved in various other legal actions arising in the normal course of business. In the opinion of management, the ultimate outcome of such actions will not have a material adverse effect on the consolidated financial position of the Company, but may have a material impact on the Company’s results of operations for a particular period. There were no material legal expenses recognized during the third quarter or first nine months of 2011 and 2010.

 

Environmental Matters

 

The Company is subject to increasingly stringent environmental laws and regulations, including those relating to air emissions, wastewater discharges, chemical and hazardous waste management and disposal. Some of these environmental laws hold owners or operators of land or businesses liable for their own and for previous owners’ or operators’ releases of hazardous or toxic substances or wastes. Other environmental laws and regulations require the obtainment and compliance with environmental permits. To date, costs of complying with environmental, health and safety requirements have not been material.  The nature of the Company’s operations and its long history of industrial activities at certain of its current or former facilities, as well as those acquired could potentially result in material environmental liabilities.

 

While the Company must comply with existing and pending climate change legislation, regulation, international treaties or accords, current laws and regulations do not have a material impact on its business, capital expenditures or financial position. Future events, including those relating to climate change or greenhouse gas regulation could require the Company to incur expenses related to the modification or curtailment of operations, installation of pollution control equipment, or investigation and cleanup of contaminated sites.

 

Note 14 - Segment Information

 

The Company manages and reports its results under the following segments:

 

·                  Carlisle Construction Materials: The principal products of this segment are rubber (EPDM) and thermoplastic polyolefin (TPO) roofing membranes used predominantly on non-residential low-sloped roofs, related roofing accessories, including flashings, fasteners, sealing tapes, coatings and waterproofing, and insulation products. The markets served include new construction, re-roofing and maintenance of low-sloped roofs, water containment, HVAC sealants, and coatings and waterproofing.

 

·                  Carlisle Transportation Products: The principal products of this segment include bias-ply, steel belted radial trailer tires, stamped or roll-formed steel wheels, tires, and tire and wheel assemblies, as well as industrial belts and related components.  The markets served include lawn and garden, power sports, agriculture, and construction.

 

·                  Carlisle Brake & Friction: The principal products of this segment include high-performance brakes and friction material, clutches and transmissions for the mining, construction, aerospace, agriculture, high-performance racing, and alternative energy markets.

 

·                  Carlisle Interconnect Technologies: The principal products of this segment are high-performance wire, cable, connectors and cable assemblies, including RF/microwave connectors and cable assemblies primarily for the aerospace, defense electronics, and test and measurement equipment markets.

 

·                  Carlisle Foodservice Products: The principal products of this group include commercial and institutional foodservice permanentware, table coverings, cookware, catering equipment, fiberglass and composite material trays and dishes, industrial brooms, brushes, mops and rotary brushes for commercial and non-commercial foodservice operators, healthcare, and sanitary maintenance professionals.

 

14



 

Sales, EBIT, and assets of continuing operations by reportable segment are included in the following summary:

 

Third Quarter

 

2011

 

2010

 

In millions

 

Sales(1)

 

EBIT

 

Sales(1)

 

EBIT

 

Carlisle Construction Materials

 

$

442.2

 

$

60.2

 

$

354.8

 

$

54.1

 

Carlisle Transportation Products

 

164.6

 

(8.9

)

156.8

 

3.5

 

Carlisle Brake & Friction

 

126.6

 

24.2

 

29.2

 

4.9

 

Carlisle Interconnect Technologies

 

75.7

 

10.9

 

61.4

 

8.2

 

Carlisle FoodService Products

 

61.4

 

4.5

 

63.7

 

6.3

 

Corporate

 

 

(9.1

)

 

(10.5

)

Total

 

$

870.5

 

$

81.8

 

$

665.9

 

$

66.5

 

 

First Nine Months

 

2011

 

2010

 

In millions

 

Sales(1)

 

EBIT

 

Assets

 

Sales(1)

 

EBIT

 

Assets

 

Carlisle Construction Materials

 

$

1,105.5

 

$

132.4

 

$

820.6

 

$

917.1

 

$

124.8

 

649.7

 

Carlisle Transportation Products

 

578.0

 

12.9

 

563.8

 

538.4

 

21.3

 

546.2

 

Carlisle Brake & Friction

 

356.8

 

61.8

 

669.1

 

78.0

 

9.9

 

97.4

 

Carlisle Interconnect Technologies

 

213.1

 

31.5

 

420.4

 

185.6

 

22.0

 

396.5

 

Carlisle FoodService Products

 

181.5

 

15.3

 

212.4

 

181.7

 

19.0

 

216.1

 

Corporate (2)

 

 

(31.5

)

90.2

 

 

(27.7

)

120.9

 

Total

 

$

2,434.9

 

$

222.4

 

$

2,776.5

 

$

1,900.8

 

$

169.3

 

$

2,026.8

 

 


(1) Excludes intersegment sales

(2) Corporate assets include assets of discontinued operations not classified as held for sale

 

A reconciliation of assets reported above to total assets as presented on the Company’s Consolidated Balance Sheets is as follows:

 

 

 

September 30,

 

 

 

2011

 

Assets per table above

 

$

2,776.5

 

Assets held for sale of discontinued operations

 

26.7

 

Total Assets per Consolidated Balance Sheet

 

$

2,803.2

 

 

Note 15 - Income Taxes

 

The effective income tax rate on continuing operations for the nine months ended September 30, 2011 was 31.2% compared to an effective income tax rate of 33.8% for the nine months ended September 30, 2010.

 

The year to date effective tax rate of 31.2% varies from the United States statutory rate of 35.0% primarily due to the deduction for U.S. production activities, earnings in foreign jurisdictions taxed at rates lower than the U.S. federal rate, the generation of excess foreign tax credits through implementation of tax planning strategies, and a tax benefit recorded upon the recognition of certain foreign deferred tax assets discussed below..

 

In periods prior to June 30, 2011 the Company determined it was more likely than not that certain tax assets of a wholly owned Chinese entity may not be realizable.  However, the entity has been experiencing significantly improved business conditions, and in June 2011 the Company determined that the increase in anticipated future income of the entity is sufficient so that it is now more likely than not that the benefit of those tax assets will be realized.  As such, the year to date effective income tax rate for the nine months ended September 30, 2011 reflects a current benefit related to the recognition of those foreign deferred tax assets.

 

15



 

Note 16 - Earnings Per Share

 

The following reflects the Income from continuing operations and share data used in the basic and diluted earnings per share computations using the two-class method:

 

 

 

Third Quarter

 

First Nine Months

 

In millions, except share and per share amounts

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

53.7

 

$

46.8

 

$

142.3

 

$

108.7

 

Less: dividends declared - common stock outstanding, unvested restricted shares and restricted share units

 

(11.2

)

(10.4

)

(32.3

)

(30.1

)

Undistributed earnings

 

42.5

 

36.4

 

110.0

 

78.6

 

Percent allocated to common shareholders (1)

 

99.0

%

98.9

%

99.0

%

98.9

%

 

 

42.1

 

36.0

 

108.9

 

77.7

 

Add: dividends declared - common stock

 

11.1

 

10.3

 

32.0

 

29.8

 

Numerator for basic and diluted EPS

 

$

53.2

 

$

46.3

 

$

140.9

 

$

107.5

 

 

 

 

 

 

 

 

 

 

 

Denominator (in thousands):

 

 

 

 

 

 

 

 

 

Denominator for basic EPS: weighted-average common shares outstanding

 

61,599

 

60,980

 

61,396

 

60,885

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Performance awards

 

165

 

101

 

165

 

101

 

Stock options

 

639

 

446

 

761

 

653

 

Denominator for diluted EPS: adjusted weighted average common shares outstanding and assumed conversion

 

62,403

 

61,527

 

62,322

 

61,639

 

 

 

 

 

 

 

 

 

 

 

Per share income from continuing operations:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.86

 

$

0.76

 

$

2.29

 

$

1.77

 

Diluted

 

$

0.85

 

$

0.75

 

$

2.26

 

$

1.75

 

 


(1)   Basic weighted-average common shares outstanding

 

61,599

 

60,980

 

61,396

 

60,885

 

Basic weighted-average common shares outstanding, unvested restricted shares expected to vest and restricted share units

 

62,193

 

61,657

 

61,989

 

61,562

 

Percent allocated to common shareholders

 

99.0

%

98.9

%

99.0

%

98.9

%

 

To calculate earnings per share for the Income (loss) from discontinued operations and for Net income, the denominator for both basic and diluted earnings per share is the same as used in the above table.  The Income (loss) from discontinued operations and Net income were as follows:

 

 

 

Third Quarter

 

First Nine Months

 

In millions, except share amounts

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations attributable to common shareholders for basic and diluted earnings per share

 

$

 

$

3.7

 

$

(0.6

)

$

4.7

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common shareholders for basic and diluted earnings per share

 

$

53.2

 

$

50.0

 

$

140.4

 

$

112.2

 

 

 

 

 

 

 

 

 

 

 

Antidilutive stock options excluded from EPS calculation (1)

 

669

 

2,342

 

200

 

718

 

 

16



 


(1)          Represents stock options excluded from the calculation of diluted earnings per share as such options had exercise prices in excess of the weighted-average market price of the Company’s common stock during these periods.

 

Note 17 - Comprehensive Income

 

Total comprehensive income consisted of the following:

 

 

 

Third Quarter

 

First Nine Months

 

In millions

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

53.7

 

$

50.5

 

$

141.7

 

$

113.4

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

Foreign currency translation, net of tax

 

(10.9

)

5.2

 

(5.9

)

(1.0

)

Accrued post-retirement benefit liability, net of tax

 

0.7

 

0.4

 

2.1

 

1.1

 

Loss on hedging activities, net of tax

 

(0.1

)

(0.1

)

(0.3

)

(0.2

)

Other comprehensive (loss) income

 

(10.3

)

5.5

 

(4.1

)

(0.1

)

Comprehensive income

 

$

43.4

 

$

56.0

 

$

137.6

 

$

113.3

 

 

Loss on hedging activities, net of tax included in Other comprehensive (loss) income for the three and nine months ended September 30, 2011 represented the amortization of a $5.6 million ($3.5 million, net of tax) gain in Accumulated other comprehensive loss resulting from the termination of treasury lock contracts on August 15, 2006.  At September 30, 2011, the Company had a remaining unamortized gain of $2.8 million ($1.7 million, net of tax) which is reflected in Accumulated other comprehensive loss on the Company’s Consolidated Balance Sheets. Approximately $0.1 million ($0.1 million, net of tax) is expected to be amortized to reduce Interest expense, net during the remainder of 2011.

 

Note 18 - Exit and Disposal Activities

 

The following table represents the effect of exit and disposal activities related to continuing operations on the Company’s Consolidated Statements of Earnings for the three and nine months ended September 30, for 2011 and 2010, respectively:

 

 

 

Third Quarter

 

First Nine Months

 

In millions

 

2011

 

2010

 

2011

 

2010

 

Cost of goods sold

 

$

1.0

 

$

3.3

 

$

4.0

 

$

9.4

 

Selling and administrative expenses

 

0.7

 

0.1

 

0.7

 

0.7

 

Research and development expenses

 

 

 

 

0.2

 

Other operating expense

 

0.4

 

 

0.4

 

 

Total exit and disposal costs

 

$

2.1

 

$

3.4

 

$

5.1

 

$

10.3

 

 

Exit and disposal activities by type of charge were as follows:

 

 

 

Third Quarter

 

First Nine Months

 

In millions

 

2011

 

2010

 

2011

 

2010

 

Termination benefits

 

$

0.6

 

$

0.6

 

$

0.6

 

$

3.8

 

Fixed asset impairment

 

0.4

 

 

0.4

 

 

Other associated costs

 

1.1

 

2.8

 

4.1

 

6.5

 

Total exit and disposal costs

 

$

2.1

 

$

3.4

 

$

5.1

 

$

10.3

 

 

17



 

Exit and disposal accrual activities for the nine months ended September 30, 2011 were as follows:

 

In millions

 

Termination
Benefits

 

Asset
Impairment

 

Other
Associated
Costs

 

Total

 

Balance at December 31, 2010

 

$

3.1

 

$

 

$

1.1

 

$

4.2

 

2011 charges to expense and adjustments

 

0.6

 

0.4

 

4.1

 

5.1

 

2011 payments

 

(2.9

)

(0.4

)

(5.0

)

(8.3

)

Balance at September 30, 2011

 

$

0.8

 

$

 

$

0.2

 

$

1.0

 

 

Exit and disposal activities by segment were as follows:

 

 

 

Third Quarter

 

First Nine Months

 

In millions

 

2011

 

2010

 

2011

 

2010

 

Total by segment

 

 

 

 

 

 

 

 

 

Transportation Products

 

$

1.3

 

$

3.0

 

$

3.9

 

$

8.3

 

Brake and Friction

 

0.8

 

0.3

 

1.2

 

0.9

 

Interconnect Technologies

 

 

0.1

 

 

1.1

 

Total exit and disposal costs

 

$

2.1

 

$

3.4

 

$

5.1

 

$

10.3

 

 

Carlisle Transportation Products — During the first nine months of 2011, the Company incurred $3.9 million of exit and disposal costs, associated with the consolidation of its tire manufacturing operations in Heflin, AL, Carlisle, PA and portions of Buji, China into a new facility in Jackson, TN.  The consolidation of these operations began in the third quarter of 2009 and is expected to cost approximately $21.0 million in total, of which $20.8 million has been incurred through September 30, 2011, and $0.2 million is expected to be incurred in the fourth quarter of 2011.  The consolidation was substantially completed in the first quarter of 2011; however additional activities related to the closure of facilities no longer in use will be completed in the third quarter of 2011.  Included in Accrued expenses at September 30, 2011 was $0.2 million related to unpaid severance.

 

Carlisle Brake & Friction — In the fourth quarter of 2009, within its off-highway braking business, the Company announced plans to close its friction product manufacturing facility in Logansport, IN and to consolidate operations into its locations in Hangzhou, China and Bloomington, IN. This consolidation was substantially completed in the fourth quarter of 2010; however, additional activities related to the closure of the facility occurred in the third quarter of 2011.  The total cost of this consolidation project is estimated at $5.2 million.  The company recorded $0.1 million and $0.5 million of expense in the third quarter and first nine months for 2011, respectively, primarily for other relocation costs.

 

In the third quarter of 2011,  the Company decided to close its braking plant in Canada.  The project is expected to cost approximately $1.1 million.  The Company recorded $0.7 million of expense during the third quarter and first nine months of 2011 consisting of employee termination costs and other associated costs.

 

Carlisle Interconnect Technologies — In the fourth quarter of 2009, the Company announced that it would consolidate its Vancouver, WA facility into its facilities in Long Beach, CA and Yichang, China and close its Vancouver facility. This consolidation was completed during the third quarter 2010.  The Company recorded $1.1 million of expense during the first nine months of 2010 primarily consisting of employee termination costs and other relocation costs.

 

Note 19 - Subsequent Events

 

On October 20, 2011, Carlisle Companies Incorporated (“Carlisle”) and Carlisle Management Company (“CMC” and, together with Carlisle, the  “Borrowers”) entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”) administered by JPMorgan Chase Bank, N.A. (“JPMorgan Chase”).  The Credit Agreement provides for a $600 million revolving line of credit with a maturity date of October 20, 2016 and replaces the Second Amended and Restated Credit Agreement, which was scheduled to expire on July 12, 2012.

 

The new revolving credit facility provides for grid-based interest pricing based on the credit rating of the Company’s senior unsecured bank debt or other unsecured senior debt.  The

 

18



 

facility requires the Company to meet various restrictive covenants and limitations including certain leverage ratios, interest coverage ratios and limits on outstanding debt balances held by certain subsidiaries.

 

The terms of this financing, including interest pricing, are more fully described in the Credit Agreement, a copy of which is filed as Exhibit 10.1 to this Form 10-Q.

 

In addition to JPMorgan Chase, the following lenders are parties to the Credit Agreement:  Wells Fargo Bank, N.A., Bank of America, N.A., SunTrust Bank, The Bank of Tokyo-Mitsubishi UFJ Ltd, Mizuho Corporate Bank (USA), T.D. Bank, N.A., Citicorp North America, Inc., HSBC Bank USA National Association, PNC Bank National Association (collectively, the “Lenders”). The following Lenders provide the Company general banking and/or investment advisory services:  JPMorgan Chase, Wells Fargo Bank, Bank of America, SunTrust Bank, The Bank of Tokyo, Mizuho Bank, T.D. Bank, Citicorp, HSBC Bank, PNC Bank.

 

19



 

Item 2. Management’s 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, product line extensions, entering new markets and externally through acquisitions that complement our existing technologies, products and market channels. Carlisle manages its businesses under the following segments:

 

·                  Carlisle Construction Materials:  the “construction materials” business;

 

·                  Carlisle Transportation Products:  the “transportation products” business;

 

·                  Carlisle Brake & Friction:  the “brake and friction products” business;

 

·                  Carlisle Interconnect Technologies:  the “interconnect technologies” business; and

 

·                  Carlisle FoodService Products:  the “foodservice products” business.

 

Carlisle is a diverse multi-national company with manufacturing operations located throughout North America, Western Europe and the Asia Pacific region. Management focuses on maintaining a strong and flexible balance sheet, year-over-year improvement in sales, earnings before interest and income taxes (“EBIT”) margins and earnings, globalization, and reducing working capital (defined as Receivables, Inventories, net of Accounts payable) as a percentage of Net Sales.  Resources are allocated among the operating companies based on management’s assessment of their ability to obtain leadership positions and competitive advantages in the markets they serve.

 

During 2008, the Company began the implementation of the Carlisle Operating System, a manufacturing structure and strategy deployment system based on lean enterprise and six sigma principles. The purpose of the Carlisle Operating System is to eliminate waste in all production and business processes, improve manufacturing efficiencies to increase productivity, and to increase EBIT margins and improve cash conversion.

 

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 “Management’s Discussion and Analysis”.

 

Net sales increased 31% in the third quarter of 2011 to $870.5 million compared to $665.9 million for the same period in 2010.  Acquisitions in the Carlisle Brake & Friction and Carlisle Construction Materials segments contributed $99.6 million, or 15% to net sales in the third quarter of 2011.  For the third quarter of 2011, organic growth of 15% was driven by a 9% increase in sales volumes across all segments and 6% overall increase in selling prices. During the third quarter 2011, the increase in net sales from fluctuations in foreign currency exchange rates was less than 1%.

 

For the first nine months of 2011, net sales increased 28% to $2.43 billion compared to $1.90 billion for the same period in 2010.  Acquisitions in the Carlisle Brake & Friction and Carlisle Construction Materials segments contributed $259.3 million, or 14%, to net sales in the first nine months of 2011.  For the first nine months of 2011, organic growth of 14% was driven by a 10% increase in sales volume and a 4% overall increase in selling prices. During the first nine months of 2011, the increase in net sales from fluctuations in foreign currency exchange rates was less than 1%.

 

Income from continuing operations, net of tax, of $53.7 million was 15% higher in the third quarter of 2011 as compared to income of $46.8 million in the third quarter of 2010.  Income in the third quarter of 2011 was positively impacted by the after-tax contribution from the Hawk acquisition, higher sales volumes and reduced operating costs attributable to efficiencies gained through the implementation of the Carlisle Operating System.  Partially offsetting this was the negative impact of higher raw material costs at Carlisle Construction Materials experienced in the third quarter of 2011 compared to the prior year period and charges for organizational changes and production inefficiencies incurred within the Carlisle Transportation Products segment.

 

Income from continuing operations, net of tax, of $142.3 million was 31% higher in the first nine months of 2011 as compared to income of $108.7 million in the prior year period due to the same aforementioned factors contributing to income results in the third quarter, as well as a lower effective tax rate during the first nine months of 2011 versus the same prior year period.

 

20