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, 2012

 

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)

 

 

 

11605 North Community House Road, Suite 600, Charlotte, North Carolina 28277

 

(704) 501-1100

(Address of principal executive office, including zip code)

 

(Telephone Number)

 

Indicate by check mark whether the 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

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, 2012: 62,910,568

 

 

 



 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Carlisle Companies Incorporated

Unaudited Condensed Consolidated Statements of Comprehensive Income

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(Dollars in millions, except per share amounts)

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

910.2

 

$

870.5

 

$

2,783.8

 

$

2,434.9

 

 

 

 

 

 

 

 

 

 

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

684.3

 

683.0

 

2,091.2

 

1,916.6

 

Selling and administrative expenses

 

101.1

 

99.9

 

314.6

 

277.8

 

Research and development expenses

 

8.1

 

7.1

 

24.4

 

21.4

 

Other loss (income), net

 

6.1

 

(1.3

)

6.5

 

(3.3

)

 

 

 

 

 

 

 

 

 

 

Earnings before interest and income taxes

 

110.6

 

81.8

 

347.1

 

222.4

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

6.2

 

5.5

 

19.2

 

15.5

 

Earnings before income taxes from continuing operations

 

104.4

 

76.3

 

327.9

 

206.9

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (Note 8)

 

34.7

 

22.6

 

108.7

 

64.6

 

Income from continuing operations

 

69.7

 

53.7

 

219.2

 

142.3

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations (Note 5)

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

(0.2

)

 

3.3

 

(1.2

)

Income tax (income) expense

 

 

 

0.1

 

(0.6

)

Income (loss) from discontinued operations

 

(0.2

)

 

3.2

 

(0.6

)

Net income

 

$

69.5

 

$

53.7

 

$

222.4

 

$

141.7

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to common shares (Note 9)

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.11

 

$

0.86

 

$

3.50

 

$

2.29

 

Income (loss) from discontinued operations

 

(0.01

)

 

0.05

 

 

Basic Earnings per share

 

$

1.10

 

$

0.86

 

$

3.55

 

$

2.29

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to common shares (Note 9)

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.08

 

$

0.85

 

$

3.43

 

$

2.26

 

Income (loss) from discontinued operations

 

 

 

0.05

 

(0.02

)

Diluted earnings per share

 

$

1.08

 

$

0.85

 

$

3.48

 

$

2.24

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding - in thousands (Note 9)

 

 

 

 

 

 

 

 

 

Basic

 

62,708

 

61,599

 

62,347

 

61,396

 

Diluted

 

63,946

 

62,403

 

63,520

 

62,322

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid

 

12.6

 

$

11.2

 

$

35.1

 

$

32.3

 

Dividends declared and paid per share

 

$

0.20

 

$

0.18

 

$

0.56

 

$

0.52

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

 

 

 

 

 

 

 

 

Net income

 

$

69.5

 

$

53.7

 

$

222.4

 

$

141.7

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

Change in foreign currency translation, net of tax

 

4.8

 

(10.9

)

0.3

 

(5.9

)

Change in accrued post-retirement benefit liability, net of tax

 

0.8

 

0.7

 

2.4

 

2.1

 

Loss on hedging activities, net of tax

 

(0.1

)

(0.1

)

(0.3

)

(0.3

)

Other comprehensive income (loss)

 

5.5

 

(10.3

)

2.4

 

(4.1

)

Comprehensive income

 

$

75.0

 

$

43.4

 

$

224.8

 

$

137.6

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

 

1



 

Carlisle Companies Incorporated

Condensed Consolidated Balance Sheets

 

 

 

September 30,

 

December 31,

 

(Dollars in millions except share amounts)

 

2012

 

2011

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

87.1

 

$

74.7

 

Receivables, net of allowance of $9.9 in 2012 and $9.5 in 2011

 

565.7

 

486.4

 

Inventories (Note 11)

 

537.0

 

539.0

 

Deferred income taxes (Note 8)

 

54.7

 

51.3

 

Prepaid expenses and other current assets

 

32.0

 

60.1

 

Current assets held for sale (Note 5)

 

 

2.6

 

Total current assets

 

1,276.5

 

1,214.1

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $629.4 in 2012 and $577.1 in 2011 (Note 12)

 

603.4

 

560.3

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Goodwill, net (Note 13)

 

859.1

 

845.2

 

Other intangible assets, net (Note 13)

 

479.1

 

479.2

 

Other long-term assets

 

25.2

 

19.0

 

Non-current assets held for sale (Note 5)

 

 

20.1

 

Total other assets

 

1,363.4

 

1,363.5

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

3,243.3

 

$

3,137.9

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term debt, including current maturities (Note 15)

 

$

170.1

 

$

158.1

 

Accounts payable

 

274.7

 

260.8

 

Accrued expenses

 

209.0

 

178.3

 

Deferred revenue (Note 17)

 

16.9

 

16.3

 

Total current liabilities

 

670.7

 

613.5

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Long-term debt (Note 15)

 

404.5

 

604.3

 

Deferred revenue (Note 17)

 

136.9

 

129.7

 

Other long-term liabilities (Note 18)

 

298.0

 

290.3

 

Total long-term liabilities

 

839.4

 

1,024.3

 

 

 

 

 

 

 

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; 62,910,468 outstanding in 2012 and 61,664,813 outstanding in 2011

 

78.7

 

78.7

 

Additional paid-in capital

 

159.7

 

120.2

 

Cost of shares in treasury - 15,750,780 shares in 2012 and 16,467,760 shares in 2011

 

(215.9

)

(219.9

)

Accumulated other comprehensive loss

 

(42.6

)

(45.0

)

Retained earnings

 

1,753.3

 

1,566.1

 

Total shareholders’ equity

 

1,733.2

 

1,500.1

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

3,243.3

 

$

3,137.9

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

 

2



 

Carlisle Companies Incorporated

 Unaudited Consolidated Statements of Cash Flows

 

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2012

 

2011

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

Net income

 

$

222.4

 

$

141.7

 

Reconciliation of net income to cash flows from operating activities:

 

 

 

 

 

Depreciation

 

55.7

 

51.2

 

Amortization

 

22.8

 

13.4

 

Non-cash compensation, net of tax benefit

 

5.8

 

9.7

 

(Gain) loss on sale of businesses

 

(3.7

)

0.4

 

Loss on sale of property and equipment, net

 

0.9

 

0.6

 

Impairment of assets

 

6.1

 

0.4

 

Deferred taxes

 

(4.6

)

(0.4

)

Foreign exchange loss (gain)

 

1.8

 

(1.0

)

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

 

 

 

 

 

Receivables

 

(76.4

)

(146.1

)

Inventories

 

11.4

 

(43.9

)

Prepaid expenses and other assets

 

21.6

 

14.4

 

Accounts payable

 

11.1

 

80.3

 

Accrued expenses and deferred revenues

 

40.8

 

(6.3

)

Long-term liabilities

 

6.7

 

4.3

 

Other operating activities

 

0.8

 

0.2

 

Net cash provided by operating activities

 

323.2

 

118.9

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Capital expenditures

 

(93.7

)

(48.5

)

Acquisitions, net of cash

 

(49.3

)

(108.7

)

Proceeds from sale of property and equipment

 

 

1.3

 

Proceeds from sale of businesses

 

25.8

 

5.3

 

Other investing activities

 

 

(0.3

)

Net cash used in investing activities

 

(117.2

)

(150.9

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Net change in short-term borrowings and revolving credit lines

 

(189.3

)

103.0

 

Redemption of Hawk bonds

 

 

(59.0

)

Dividends

 

(35.1

)

(32.3

)

Stock options and treasury shares, net

 

29.9

 

12.3

 

Net cash provided by (used in) financing activities

 

(194.5

)

24.0

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

0.9

 

0.4

 

Change in cash and cash equivalents

 

12.4

 

(7.6

)

Cash and cash equivalents

 

 

 

 

 

Beginning of period

 

74.7

 

89.4

 

End of period

 

$

87.1

 

$

81.8

 

 

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 Form 10-K and should be read in conjunction with the consolidated financial statements therein.  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.

 

The Company has reclassified certain prior period amounts in the condensed consolidated financial statements to be consistent with the current period presentation.  See Note 3 regarding the transition of the Styled Wheels business from Carlisle Transportation Products (“CTP”) to Carlisle Brake & Friction (“CBF”).

 

Note 2 - New Accounting Pronouncements

 

Newly Adopted Accounting Standards

 

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 is effective for fiscal and interim reporting periods within those years beginning after December 15, 2011.    The adoption of this ASU had no material effect on the Company’s consolidated financial statements.

 

In May 2011, FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.  ASU 2011-04 provides guidance to develop a single, converged fair value framework; amend the requirements of fair value measurement; and enhance related disclosure requirements, particularly for recurring Level 3 fair value measurements. This guidance clarifies the concepts of (i) the highest and best use and valuation premise for nonfinancial assets, (ii) application to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk, (iii) premiums or discounts in fair value measurements, and (iv) fair value measurement of an instrument classified in a reporting entity’s shareholders’ equity. ASU 2011-04 is effective for fiscal and interim reporting periods beginning after December 15, 2011.  The adoption of this ASU had no material effect on the Company’s consolidated financial statements.

 

New Accounting Standards Issued but not yet adopted

 

In July 2012, FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment.  ASU 2012-02 amends the guidance on testing indefinite-lived intangible assets, other than goodwill, for impairment.  Under the revised guidance, entities have the option of first performing a qualitative assessment to determine whether there are any events or circumstances indicating that it is more likely than not that an indefinite-lived intangible asset is impaired.  ASU 2012-02 is effective for fiscal and interim impairment tests performed in fiscal years beginning after September 15, 2012.  The adoption of this ASU is not expected to have a material effect on the Company’s consolidated financial statements.

 

Note 3 - Segment Information

 

The Company’s operations are reported in the following segments:

 

Carlisle Construction Materials (“CCM” or the “Construction Materials segment”) —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.

 

4



 

Carlisle Transportation Products (“CTP” or the “Transportation Products segment”) —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, high-speed trailer, agriculture and construction.

 

Carlisle Brake & Friction (“CBF” or the “Brake & Friction segment”) —the principal products of this segment include high-performance brakes and friction material, styled wheels, and clutch and transmission friction material for the mining, construction, aerospace, agriculture, motor sports, and alternative energy markets.

 

Carlisle Interconnect Technologies (“CIT” or the “Interconnect Technologies segment”) —the principal products of this segment are high-performance wire, cable, connectors, contacts and cable assemblies primarily for the aerospace, defense electronics, and test and measurement equipment markets.

 

Carlisle FoodService Products (“CFSP” or the “FoodService Products segment”) —the principal products of this segment 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 and sanitary maintenance professionals.

 

Corporate—includes general corporate expenses. Corporate assets consist primarily of cash and cash equivalents, facilities, deferred taxes, and other invested assets. Corporate operations also maintain a captive insurance program for workers compensation costs on behalf of all the Carlisle operating companies.

 

Effective January 1, 2012, the Company’s Styled Wheels business was transitioned from CTP to CBF.  Styled wheels continue to be manufactured by CTP, but are marketed and sold by the performance racing group within CBF.  Related intersegment sales of $19.3 million from CTP to CBF during the nine months ended September 30, 2012 have been eliminated upon consolidation.  As a result of this transition, in accordance with ASC 280, Segment  Reporting, the Company has presented all of the working capital and goodwill related to the Styled Wheels business in the CBF reportable segment.  Prior period results have been retrospectively adjusted to reflect this change in presentation.

 

Unaudited financial information for operations by reportable segment is included in the following tables:

 

Three Months Ended September 30,

 

2012

 

2011

 

In millions

 

Sales(1)

 

EBIT

 

Sales(1)

 

EBIT

 

Carlisle Construction Materials

 

$

456.7

 

$

79.6

 

$

442.2

 

$

60.2

 

Carlisle Transportation Products(3)

 

$

158.2

 

$

6.5

 

$

157.0

 

$

(10.1

)

Carlisle Brake & Friction(3)

 

$

117.6

 

$

19.8

 

$

134.2

 

$

25.4

 

Carlisle Interconnect Technologies

 

$

115.0

 

$

18.7

 

$

75.7

 

$

10.9

 

Carlisle FoodService Products

 

$

62.7

 

$

(1.2

)

$

61.4

 

$

4.5

 

Corporate

 

$

 

$

(12.8

)

$

 

$

(9.1

)

Total

 

$

910.2

 

$

110.6

 

$

870.5

 

$

81.8

 

 

5



 

Nine Months Ended September 30,

 

2012

 

2011

 

In millions

 

Sales(1)

 

EBIT

 

Assets(2)

 

Sales(1)

 

EBIT

 

Assets(2)

 

Carlisle Construction Materials

 

$

1,280.5

 

$

207.0

 

$

892.2

 

$

1,105.5

 

$

132.4

 

$

820.6

 

Carlisle Transportation Products(3)

 

$

593.0

 

$

44.6

 

$

567.1

 

$

553.4

 

$

8.7

 

$

546.3

 

Carlisle Brake & Friction(3)

 

$

384.6

 

$

69.8

 

$

671.2

 

$

381.4

 

$

66.0

 

$

686.6

 

Carlisle Interconnect Technologies

 

$

340.5

 

$

52.8

 

$

794.4

 

$

213.1

 

$

31.5

 

$

420.4

 

Carlisle FoodService Products

 

$

185.2

 

$

10.0

 

$

204.4

 

$

181.5

 

$

15.3

 

$

212.4

 

Corporate

 

$

 

$

(37.1

)

$

114.0

 

$

 

$

(31.5

)

$

90.2

 

Total

 

$

2,783.8

 

$

347.1

 

$

3,243.3

 

$

2,434.9

 

$

222.4

 

$

2,776.5

 

 


(1)       Excludes intersegment sales

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

(3)  CTP and CBF results and assets reflect January 1, 2012 resegmentation of Styled Wheels business from CTP to CBF.

See above for further discussion.

 

Note 4 - Acquisitions

 

2012 Acquisition

 

Hertalan Holding B.V.

 

On March 9, 2012, the Company acquired 100% of the equity of Hertalan Holding B.V. (“Hertalan”) for a total cash purchase price of €37.3 million, or $48.9 million, net of €0.1 million, or $0.1 million, cash acquired.  The Company funded the acquisition with borrowings under its $600 million senior unsecured revolving credit facility (the “Facility”) and cash on hand.  See Note 15 for further information regarding borrowings.  The acquisition of Hertalan strengthens the Company’s ability to efficiently serve European customers in the EPDM roofing market in Europe with local manufacturing and established distribution channels.  Hertalan will operate within the Construction Materials segment.

 

The following table summarizes the consideration transferred to acquire Hertalan 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

 

Measurement
Period
Adjustments

 

Revised
Preliminary
Allocation

 

(in millions)

 

As of
3/31/2012

 

Six Months
Ended
9/30/2012

 

As of
9/30/2012

 

 

 

 

 

 

 

 

 

Total cash consideration transferred

 

$

49.3

 

$

(0.3

)

$

49.0

 

 

 

 

 

 

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

 

$

0.1

 

$

 

$

0.1

 

Receivables

 

3.7

 

 

3.7

 

Inventories

 

10.5

 

(1.0

)

9.5

 

Prepaid expenses and other current assets

 

0.2

 

 

0.2

 

Property, plant and equipment

 

13.0

 

(0.1

)

12.9

 

Definite-lived intangible assets

 

9.9

 

4.8

 

14.7

 

Indefinite-lived intangible assets

 

2.6

 

5.4

 

8.0

 

Other long-term assets

 

0.3

 

 

0.3

 

Accounts payable

 

(3.3

)

 

(3.3

)

Accrued expenses

 

(2.5

)

 

(2.5

)

Long-term debt

 

(1.3

)

 

(1.3

)

Deferred tax liabilities

 

(4.4

)

(2.3

)

(6.7

)

Other long-term liabilities

 

(0.1

)

 

(0.1

)

 

 

 

 

 

 

 

 

Total identifiable net assets

 

28.7

 

6.8

 

35.5

 

 

 

 

 

 

 

 

 

Goodwill

 

$

20.6

 

$

(7.1

)

$

13.5

 

 

The preliminary goodwill recognized in the acquisition of Hertalan is attributable to the workforce of Hertalan, the solid financial performance of this leading manufacturer of EPDM roofing and waterproofing systems and the significant strategic value of the business to Carlisle. Hertalan provides Carlisle with a solid manufacturing and knowledge base for EPDM roofing products in Europe and provides an established distribution network throughout Europe, both of which enhance Carlisle’s goal of expanding its global presence. The European market shows favorable trends towards EPDM roofing applications and Carlisle can provide additional product development and other growth resources to Hertalan.  Goodwill arising from the acquisition of Hertalan is not deductible for income tax purposes.  All of the preliminary goodwill was assigned to the Construction Materials reporting unit. Preliminary indefinite-lived intangible assets of $8.0 million represent acquired trade names.  The $14.7 million value preliminarily allocated to definite-lived intangible assets represents customer relationships with preliminary useful lives of 9 years.

 

The Company has also recorded deferred tax liabilities related to the property, plant and equipment and intangible assets as of the March 9, 2012 closing date.

 

Hertalan contributed revenues of $17.7 million and earnings before interest and taxes (“EBIT”) of $0.5 million from the acquisition date through September 30, 2012 which includes $1.3 million reflected in Cost of goods sold related to recording the acquired inventory at estimated fair value and $0.8 million of acquisition related transaction costs.

 

7



 

2011 Acquisitions

 

Tri-Star Electronics International, Inc.

 

On December 2, 2011, the Company acquired 100% of the equity of TSEI Holdings, Inc. (“Tri-Star”) for a total cash purchase price of $284.8 million, net of $4.5 million cash acquired.  The total cash purchase price includes a $0.4 million purchase price adjustment during the three months ended March 31, 2012.  The Company funded the acquisition with borrowings under the Facility.  See Note 15 for further information regarding borrowings.  The acquisition of Tri-Star adds capabilities and technology to strengthen the Company’s interconnect products business by expanding its product and service range to its customers.  Tri-Star will operate within the Interconnect Technologies segment.

 

The following table summarizes the consideration transferred to acquire Tri-Star 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.

 

 

 

Preliminary
Allocation

 

Measurement
Period
Adjustments

 

Revised
Preliminary
Allocation

 

(in millions)

 

As of
12/31/2011

 

Nine Months
Ended 9/30/2012

 

As of
9/30/2012

 

 

 

 

 

 

 

 

 

Total cash consideration transferred

 

$

288.9

 

$

0.4

 

$

289.3

 

 

 

 

 

 

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

 

$

4.5

 

$

 

$

4.5

 

Receivables

 

14.0

 

 

14.0

 

Inventories

 

22.8

 

 

22.8

 

Prepaid expenses and other current assets

 

5.6

 

 

5.6

 

Property, plant and equipment

 

15.4

 

(2.1

)

13.3

 

Definite-lived intangible assets

 

112.0

 

9.5

 

121.5

 

Indefinite-lived intangible assets

 

28.0

 

(8.6

)

19.4

 

Other long-term assets

 

0.1

 

 

0.1

 

Accounts payable

 

(6.5

)

 

(6.5

)

Accrued expenses

 

(4.4

)

 

(4.4

)

Deferred tax liabilities

 

(58.9

)

1.5

 

(57.4

)

Other long-term liabilities

 

(0.4

)

 

(0.4

)

 

 

 

 

 

 

 

 

Total identifiable net assets

 

132.2

 

0.3

 

132.5

 

 

 

 

 

 

 

 

 

Goodwill

 

$

156.7

 

$

0.1

 

$

156.8

 

 

The preliminary goodwill recognized in the acquisition of Tri-Star is attributable to the workforce of Tri-Star, the consistent financial performance of this complementary supplier of high-reliability interconnect products to leading aerospace, avionics and electronics companies and the enhanced scale that Tri-Star brings to the Company.  Tri-Star brings additional high-end connector products and qualified positions to serve the Company’s existing commercial aerospace and industrial customers.  Tri-Star will also supply the Company with efficient machining and plating processes that will lower costs and improve product quality.  Favorable trends in the commercial aerospace markets and increasing electronic content in several industrial end markets provide a solid growth platform for the Interconnect Technologies segment. Goodwill arising from the acquisition of Tri-Star is not deductible for income tax purposes.  All of the preliminary goodwill was assigned to the Interconnect Technologies segment. Preliminary indefinite-lived intangible assets of $19.4 million represent acquired trade names.  The $121.5 million value preliminarily allocated to definite-lived intangible assets consists of $94.8 million of customer relationships with preliminary useful lives ranging from 12 to 21 years, $23.2 million of acquired technology with preliminary useful lives of 16 years, $2.5 million of non-compete agreements with preliminary useful lives ranging from 3 to 5 years, and $1.0 million of customer certifications and approvals with preliminary useful lives of 3 years.

 

The Company has also recorded

 

8



 

deferred tax liabilities related to the property, plant and equipment and intangible assets as of the December 2, 2011 closing date.

 

PDT Phoenix GmbH

 

On August 1, 2011, the Company acquired 100% of the equity of PDT Phoenix GmbH (“PDT”) for €77.0 million, or $111.0 million, net of €5.3 million, or $7.6 million, cash acquired. Of the €82.3 million, or $118.6 million gross purchase price, €78.7 million, or $113.4 million, was paid in cash initially funded with borrowings under the 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 segment.

 

The agreement to acquire PDT provided for contingent consideration based on future earnings.  The fair value of contingent consideration recognized at the acquisition date was €3.6 million, or $5.2 million, and was estimated using a discounted cash flow model based on financial projections of the acquired company.

 

The purchase price of PDT included certain assets of the PDT Profiles business, which the Company sold on January 2, 2012 for €17.1 million, or $22.1 million.  The PDT Profiles business was classified as held for sale at the date of acquisition and on the Company’s consolidated balance sheet as of December 31, 2011.  The following table summarizes the consideration transferred to acquire PDT and the 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.

 

 

 

Preliminary
Allocation

 

Measurement
Period Adjustments

 

Final
Allocation

 

(in millions)

 

As of
12/31/2011

 

Nine Months
Ended 9/30/2012

 

As of
9/30/2012

 

Consideration transferred:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash consideration

 

$

113.4

 

$

 

$

113.4

 

Contingent consideration

 

5.2

 

 

5.2

 

 

 

 

 

 

 

 

 

Total fair value of consideration transferred

 

$

118.6

 

$

 

$

118.6

 

 

 

 

 

 

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

 

$

7.6

 

$

 

$

7.6

 

Receivables

 

12.2

 

 

12.2

 

Inventories

 

10.5

 

 

10.5

 

Prepaid expenses and other current assets

 

0.8

 

 

0.8

 

Current assets held for sale

 

3.6

 

 

3.6

 

Property, plant and equipment

 

3.4

 

 

3.4

 

Definite-lived intangible assets

 

57.1

 

 

57.1

 

Indefinite-lived intangible assets

 

6.9

 

 

6.9

 

Other long-term assets

 

0.1

 

 

0.1

 

Non-current assets held for sale

 

21.6

 

(0.6

)

21.0

 

Accounts payable

 

(9.0

)

 

(9.0

)

Accrued expenses

 

(1.2

)

 

(1.2

)

Deferred tax liabilities

 

(21.5

)

 

(21.5

)

Other long-term liabilities

 

(3.3

)

 

(3.3

)

 

 

 

 

 

 

 

 

Total identifiable net assets

 

88.8

 

(0.6

)

88.2

 

 

 

 

 

 

 

 

 

Goodwill

 

$

29.8

 

$

0.6

 

$

30.4

 

 

9



 

The purchase price allocation reflects updated fair value estimates for assets acquired and liabilities assumed.  The amount of goodwill recognized in the acquisition of PDT is attributable to the workforce of PDT, the solid financial performance of this leading manufacturer of single-ply roofing and waterproofing systems and the significant strategic value of the business to Carlisle. PDT provides Carlisle with a solid manufacturing and knowledge base for single-ply roofing products in Europe and provides an established distribution network throughout Europe, both of which enhance Carlisle’s goal of expanding its global presence. The European market shows favorable trends towards single-ply roofing applications and Carlisle can provide additional product development and other growth resources to PDT.  Goodwill arising from the acquisition of PDT is not deductible for income tax purposes.  All of the goodwill was assigned to the Construction Materials segment. Indefinite-lived intangible assets of $6.9 million represent acquired trade names.  Of the $57.1 million value allocated to definite-lived intangible assets, approximately $33.3 million was allocated to patents, with useful lives ranging from 10 to 20 years, and $23.8 million was allocated to customer relationships, with useful lives of 19 years.

 

The Company has also recorded deferred tax liabilities related to the property, plant and equipment and intangible assets as of the August 1, 2011 closing date.

 

Note 5 - Discontinued Operations and Assets Held for Sale

 

For the three months ended September 2012, the Company had loss before income taxes of $0.2 million pertaining to legacy workers compensation claims. The Company had income before income taxes of $3.3 million from discontinued operations in the nine months ended September 30, 2012 and loss before income taxes from discontinued operations of $1.2 million in the nine months ended September 30, 2011.

 

On April 19, 2012, the Company entered into an agreement with the buyer of its specialty trailer business whereby the contingent consideration related to the October 2010 sale was settled for $3.75 million.  This amount was recognized as a gain within discontinued operations during the three months ended June 30, 2012.

 

On January 2, 2012, the Company completed the sale of the PDT Profiles business for €17.1 million, or $22.1 million.  The Company had acquired all of the equity of PDT on August 1, 2011 (see Note 4).  Included with the acquisition were certain assets associated with the PDT Profiles business, which the Company classified as held for sale at the date of acquisition.  No gain or loss was recognized upon the sale of the PDT Profiles business.

 

At December 31, 2011, $22.7 million of assets held for sale included inventory, property, plant and equipment, and related intangible assets of the PDT Profiles business.

 

Note 6 - Exit and Disposal Activities

 

The following table represents the effect of exit and disposal activities related to continuing operations during the three and nine months ended September 30, 2012 and 2011, respectively:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

In millions

 

2012

 

2011

 

2012

 

2011

 

Cost of goods sold

 

$

0.7

 

$

1.0

 

$

2.6

 

$

4.0

 

Selling and administrative expenses

 

0.2

 

0.7

 

 

0.7

 

Other expense

 

3.5

 

0.4

 

3.8

 

0.4

 

Total exit and disposal costs

 

$

4.4

 

$

2.1

 

$

6.4

 

$

5.1

 

 

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

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

In millions

 

2012

 

2011

 

2012

 

2011

 

Termination benefits

 

$

0.9

 

$

0.6

 

$

2.6

 

$

0.6

 

Impairments

 

3.5

 

0.4

 

3.8

 

0.4

 

Other associated costs

 

 

1.1

 

 

4.1

 

Total exit and disposal costs

 

$

4.4

 

$

2.1

 

$

6.4

 

$

5.1

 

 

10



 

Exit and disposal accrual activities for the nine months ended September 30, 2012 were as follows:

 

In millions

 

Termination
Benefits

 

Impairments

 

Other associated
costs

 

Total

 

Balance at December 31, 2011

 

$

0.8

 

$

 

$

0.4

 

$

1.2

 

2012 charges to expense and adjustments

 

2.6

 

3.8

 

 

6.4

 

2012 usage

 

(0.5

)

(3.8

)

(0.1

)

(4.4

)

Balance at September 30, 2012

 

$

2.9

 

$

 

$

0.3

 

$

3.2

 

 

Exit and disposal activities by segment were as follows:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

In millions

 

2012

 

2011

 

2012

 

2011

 

Total by segment

 

 

 

 

 

 

 

 

 

Carlisle Construction Materials

 

$

 

$

 

$

0.3

 

$

 

Carlisle Transportation Products

 

 

1.3

 

1.6

 

3.9

 

Carlisle Brake & Friction

 

 

0.8

 

0.1

 

1.2

 

Carlisle FoodService Products

 

4.4

 

 

4.4

 

 

Total exit and disposal costs

 

$

4.4

 

$

2.1

 

$

6.4

 

$

5.1

 

 

Carlisle Construction Materials — During the second quarter of 2012, the Company announced plans to consolidate its manufacturing operations in Elberton, GA into its locations in Terrell, TX and Carlisle, PA.  During the first nine months of 2012, the Company incurred $0.3 million of exit and disposal costs, consisting of employee termination costs.  Included in Accrued Expenses at September 30, 2012 was $0.3 million related to unpaid costs associated with this project.  The expected cost of the project is $1.2 million, including employee termination costs, equipment relocation, and other associated costs.  The remaining costs are expected to be incurred in the fourth quarter of 2012.

 

Carlisle Transportation Products — During the nine months ended September 30, 2012, the Company incurred $1.6 million in plant restructuring costs related to the transfer of certain CTP international manufacturing operations.  The expected cost of the project is $1.9 million, including employee termination costs, equipment relocation, and other associated costs with the remaining $0.3 to be incurred in the fourth quarter of 2012. Included in Accrued Expenses at September 30, 2012 was $1.6 million related to unpaid severance and other associated costs.

 

In the third quarter of 2009, the Company announced plans to consolidate its tire manufacturing operations in Heflin, AL, Carlisle, PA and portions of Buji, China into a new facility in Jackson, TN.  The consolidation was substantially completed in the first quarter of 2011.  The total cost of the project was approximately $20.9 million, all of which has been incurred through September 30, 2012.  The Company expects no additional costs to be incurred.  Included in Accrued Expenses at September 30, 2012 was $0.3 million related to unpaid severance.

 

Carlisle Brake & Friction — In the third quarter of 2011, the Company decided to close its braking plant in Canada.  The project had a total cost of $1.0 million, including employee termination costs and other associated costs.  Costs incurred during the first nine months of 2012 were $0.1 million, reflecting $0.3 million expense for the write down of assets sold in connection with the plant closure, net of $0.2 million income to reverse an accrual for pension costs which will not be paid.  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. The Company expects no additional costs to be incurred related to this project.

 

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 2011.  The total cost of this consolidation project was $5.3 million.  Costs incurred in the first nine months of 2011 related to this consolidation were $0.5 million, primarily consisting of employee termination costs and other relocation costs.  Costs of $4.7 million were incurred through 2010.  The company expects no additional costs to be incurred related to this project.

 

11



 

Carlisle FoodService Products — In the third quarter of 2012, the Company announced plans to close certain manufacturing and distribution facilities, relocate manufacturing previously conducted at these facilities to a third party, relocate distribution previously conducted at these facilities to other Company distribution facilities, and sell the facilities’ remaining assets.  The project is expected to cost approximately $5.6 million, including costs for impairment of long-lived assets, employee termination, contract termination, legal and consulting services, and relocation and retrofitting of plant assets.  Costs incurred in the third quarter of 2012 were $4.4 million, reflecting $3.5 million for impairment of long-lived assets and employee termination costs of $0.9 million. As of September 30, 2012 a $0.9 million liability related to the project is included in Accrued Expenses.  The remaining costs are expected to be incurred in the fourth quarter of 2012.

 

In addition to the above-noted exit and disposal costs, during the third quarter of 2012, the Company decided to abandon its flameless chafer product line within the CFSP segment.  The abandonment of the product line resulted in a non-cash charge of $2.5 million in the third quarter of 2012 related to the impairment of prepaid royalties related to the product line.

 

Note 7 - Stock-Based Compensation

 

Stock-based compensation cost is recognized over the requisite service period, which generally equals the stated vesting period, unless the stated vesting period exceeds the date upon which an employee reaches retirement eligibility.  Pre-tax stock-based compensation expense was $3.6 million and $5.4 million for the three months ended September 30, 2012 and 2011, respectively, and $13.5 million and $12.7 million for the nine months ended September 30, 2012 and 2011, respectively.

 

2008 Executive Incentive Program

 

The Company maintains an Executive Incentive Program (the “Program”) for executives and certain other employees of the Company and its operating divisions and subsidiaries. The Program was approved by shareholders on April 20, 2004 and was amended and restated effective January 1, 2012. The Program allows for awards to eligible employees of stock options, restricted stock, stock appreciation rights, performance shares and units or other awards based on Company common stock. At September 30, 2012, 3,516,521 shares were available for grant under this plan, of which 884,970 shares were available for the issuance of stock awards.

 

2005 Nonemployee Director Equity Plan

 

The Company also maintains the Nonemployee Director Equity Plan (the “Plan”) for members of its Board of Directors, with the same terms and conditions as the Program. At September 30, 2012, 279,314 shares were available for grant under this plan, of which 49,314 shares were available for the issuance of stock awards. Members of the Board of Directors that receive stock-based compensation are treated as employees for accounting purposes.

 

Grants

 

In the first quarter of 2012 the Company awarded 481,215 stock options, 83,745 restricted stock awards, 83,745 performance share awards and 11,298 restricted stock units with an aggregate grant-date fair value of approximately $17.6 million to be expensed over the requisite service period for each award.

 

Stock Option Awards

 

Effective 2008, options issued under these plans vest one-third on the first anniversary of grant, one-third on the second anniversary of grant and the remaining one-third on the third anniversary of grant. All options have a maximum term life of 10 years. Shares issued to cover options under the Program and the Plan may be issued from shares held in treasury, from new issuances of shares, or a combination of the two.

 

Pre-tax share-based compensation expense related to stock options was $2.1 million and $2.3 million for the three months ended September 30, 2012 and 2011, respectively, and $5.6 million and $5.0 million for the nine months ended September 30, 2012 and 2011, respectively.

 

The Company utilizes the Black-Scholes-Merton (“BSM”) option pricing model to determine the fair value of its stock option awards. The BSM relies on certain assumptions to estimate an option’s fair value. The weighted average assumptions used in the determination of fair value for stock option awards in 2012 and 2011 were as follows:

 

12



 

 

 

2012

 

2011

 

Expected dividend yield

 

1.5

%

1.7

%

Expected life in years

 

5.78

 

5.76

 

Expected volatility

 

36.0

%

32.0

%

Risk-free interest rate

 

0.9

%

2.2

%

Weighted average fair value

 

$

14.57

 

$

10.61

 

 

The expected life of options is based on the assumption that all outstanding options will be exercised at the midpoint of the valuation date and the option expiration date. The expected volatility is based on historical volatility as well as implied volatility of the Company’s options. The risk free interest rate is based on rates of U.S. Treasury issues with a remaining life equal to the expected life of the option. The expected dividend yield is based on the projected annual dividend payment per share, divided by the stock price at the date of grant.

 

Restricted Stock Awards

 

Restricted stock awarded under the Program is generally released to the recipient after a period of three years; however, 56,700 shares awarded to executive management in February 2008 vest ratably over five years.  The $49.56 grant date fair value of the 2012 restricted stock awards, which are released to the recipient after a period of three years, is based on the closing market price of the stock on the date of grant.

 

Performance Share Awards

 

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 the S&P Midcap 400 Index® over a pre-determined time period as determined by the Compensation Committee of the Board of Directors.  The grant date fair value of the 2012 performance shares of $69.76 was estimated using a Monte-Carlo simulation approach based on a three year measurement period.  Such approach entails the use of assumptions regarding the future performance of the Company’s stock and those of the S&P Midcap 400 Index®.  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. The Company expenses the compensation cost associated with the performance awards on a straight-line basis over the vesting period of three years.

 

Restricted Stock Units

 

The restricted stock units awarded to eligible directors are fully vested and will be paid in shares of Company common stock after the director ceases to serve as a member of the Board, or if earlier, upon a change in control of the Company.   The $49.56 grant date fair value of the 2012 restricted stock units is based on the closing market price of the stock on February 1, 2012, the date of the grant.

 

Note 8 - Income Taxes

 

The effective income tax rate on continuing operations for the nine months ended September 30, 2012 was 33.2% compared to an effective income tax rate of 31.2% for the nine months ended September 30, 2011.  The increase in the year to date tax rate is primarily due to expiration of favorable legislation related to foreign income, and research and development costs, and nonrecurring transactions which created tax benefits in 2011.

 

The year to date effective tax rate of 33.2% varies from the United States statutory rate of 35.0% primarily due to the deduction for U.S. production activities and earnings in foreign jurisdictions taxed at rates lower than the U.S. federal rate.

 

Note 9 - Earnings Per Share

 

The Company’s unvested restricted shares and restricted stock units contain nonforfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method. The computation below of earnings per share excludes the income attributable to the unvested restricted shares and

 

13



 

restricted stock units from the numerator and excludes the dilutive impact of those underlying shares from the denominator.  Stock options are included in the calculation of diluted earnings per share utilizing the treasury stock method and performance share awards are included in the calculation of diluted earnings per share using the contingently issuable method.  Neither is considered to be a participating security as they do not contain non-forfeitable dividend rights.

 

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:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

In millions, except share and per share amounts

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

69.7

 

$

53.7

 

$

219.2

 

$

142.3

 

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

 

(12.6

)

(11.2

)

(35.1

)

(32.3

)

Undistributed earnings

 

57.1

 

42.5

 

184.1

 

110.0

 

Percent allocated to common shareholders (1)

 

99.4

%

99.0

%

99.4

%

99.0

%

 

 

56.8

 

42.1

 

183.0

 

108.9

 

Add: dividends declared - common stock

 

12.5

 

11.1

 

34.9

 

32.0

 

Numerator for basic and diluted EPS

 

$

69.3

 

$

53.2

 

$

217.9

 

$

140.9

 

 

 

 

 

 

 

 

 

 

 

Denominator (in thousands):

 

 

 

 

 

 

 

 

 

Denominator for basic EPS: weighted-average common shares outstanding

 

62,708

 

61,599

 

62,347

 

61,396

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Performance awards

 

448

 

165

 

448

 

165

 

Stock options

 

790

 

639

 

725

 

761

 

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

 

63,946

 

62,403

 

63,520

 

62,322

 

 

 

 

 

 

 

 

 

 

 

Per share income from continuing operations:

 

 

 

 

 

 

 

 

 

Basic

 

$

1.11

 

$

0.86

 

$

3.50

 

$

2.29

 

Diluted

 

$

1.08

 

$

0.85

 

$

3.43

 

$

2.26

 

 


(1) Basic weighted-average common shares outstanding

 

62,708

 

61,599

 

62,347

 

61,396

 

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

 

63,067

 

62,193

 

62,707

 

61,989

 

Percent allocated to common shareholders

 

99.4

%

99.0

%

99.4

%

99.0

%

 

To calculate earnings per share for Income 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. Income from discontinued operations and Net income were as follows:

 

14



 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

In millions, except share amounts

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(0.2

)

$

 

$

3.3

 

$

(0.6

)

 

 

 

 

 

 

 

 

 

 

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

 

$

69.1

 

$

53.2

 

$

221.1

 

$

140.4

 

 

 

 

 

 

 

 

 

 

 

Antidilutive stock options excluded from EPS calculation (2)

 

 

669

 

 

200

 

 


(2)          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.  Amounts in thousands.

 

Note 10 - Fair Value Measurements

 

Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value may be measured using three levels of inputs:

 

Level 1—quoted prices in active markets for identical assets and liabilities.

 

Level 2—observable inputs other than quoted prices in active markets for identical assets and liabilities.

 

Level 3—unobservable inputs in which there is little or no market data available, which requires the reporting entity to develop its own assumptions.

 

Recurring Measurements

 

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

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

 

In Active

 

Significant

 

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

 

 

Balance at

 

Identical

 

Observable

 

Unobservable

 

 

 

September 30,

 

Assets

 

Inputs

 

Inputs

 

In millions

 

2012

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

87.1

 

$

87.1

 

$

 

$

 

Short-term investments

 

0.5

 

0.5

 

 

 

Commodity swap agreements

 

0.7

 

 

0.7

 

 

Total assets measured at fair value

 

$

88.3

 

$

87.6

 

$

0.7

 

$

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

5.3

 

$

 

$

 

$

5.3

 

Total liabilities measured at fair value

 

$

5.3

 

$

 

$

 

$

5.3

 

 

Cash and cash equivalents include $1.4 million money market accounts for the Company’s deferred compensation program.  Short-term investments of $0.5 million at September 30, 2012 consist of investments held in mutual funds for the Company’s deferred compensation program and are classified in the condensed consolidated balance sheet at September 30, 2012 in Prepaid expenses and other current assets.

 

Commodity swap agreements at September 30, 2012 relate to swap agreements held for purposes of mitigating the Company’s exposure to fluctuations in the prices of silver and copper, which are key raw materials within the Interconnect

 

15



 

Technologies segment.  Such swaps are valued using third-party valuation models that measure fair value using observable market inputs such as forward prices and spot prices of the underlying commodities. Based on these inputs, the derivative assets and liabilities are classified within Level 2 of the valuation hierarchy.  The Company has not designated these swaps as cash flow hedges and, accordingly, recognizes associated changes in fair value of the swaps through Other income (expense).  The fair value of these swaps is recorded within Other accounts receivable in the condensed consolidated balance sheet as of September 30, 2012 as none of the swap terms exceed one year from the balance sheet date.

 

Contingent consideration represents fair value of the earn-out associated with the purchase of PDT.  The fair value was €4.1 million, or $5.3 million, at September 30, 2012.  See Note 4 for further information regarding the PDT acquisition.

 

In millions

 

Balance at
December 31,
2011

 

Quoted Prices
In Active
Markets for
Identical
Assets
Level 1

 

Significant
Other
Observable
Inputs
Level 2

 

Significant
Unobservable
Inputs

Level 3

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

74.7

 

$

74.7

 

$

 

$

 

Short-term investments

 

0.6

 

0.6

 

 

 

Total assets measured at fair value

 

$

75.3

 

$

75.3

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

5.2

 

$

 

$

 

$

5.2

 

Total liabilities measured at fair value

 

$

5.2

 

$

 

$

 

$

5.2

 

 

Short-term investments of $0.6 million at December 31, 2011 consist of investments held in mutual funds and cash for the Company’s deferred compensation program and are classified in the consolidated balance sheet at December 31, 2011 in Prepaid expenses and other current assets.  Contingent consideration represents fair value of the earn-out associated with the purchase of PDT.

 

Non-Recurring Measurements

 

For the three months ended September 30, 2012 and 2011, the FoodService Products segment measured long-lived assets on a non-recurring basis at certain facilities resulting in an impairment charge of $3.5 million, which was included in Other expense (income).  These measurements were based on fair value determination of certain long-lived assets within the FoodService Products segment using Level 3 inputs.  See Note 4 for information regarding asset impairment within the FoodService Products segment.

 

See Note 4 for information regarding assets acquired and liabilities assumed in the Hertalan, Tri-Star, and PDT acquisitions measured at fair value at initial recognition.

 

Note 11 - Inventories

 

The components of inventories at September 30, 2012 and December 31, 2011 were as follows:

 

 

 

September 30,

 

December 31,

 

In millions

 

2012

 

2011

 

Finished goods

 

$

337.6

 

$

308.7

 

Work-in-process

 

66.9

 

56.7

 

Raw materials

 

164.0

 

179.8

 

Capitalized variances

 

4.9

 

30.2

 

Reserves

 

(36.4

)

(33.8

)

 

 

537.0

 

541.6

 

Inventories associated with assets held for sale

 

 

(2.6

)

Inventories

 

$

537.0

 

$

539.0

 

 

16



 

Note 12—Property, Plant and Equipment

 

The components of property, plant and equipment at September 30, 2012 and December 31, 2011 were as follows:

 

 

 

September 30,

 

December 31,

 

In millions

 

2012

 

2011

 

Land

 

$

38.9

 

$

36.5

 

Buildings and leasehold improvements

 

286.9

 

276.3

 

Machinery and equipment

 

820.1

 

790.1

 

Projects in progress

 

86.9

 

38.6

 

 

 

1,232.8

 

1,141.5

 

Accumulated depreciation

 

(629.4

)

(577.4

)

Property, plant and equipment, net, associated with assets held for sale

 

 

(3.8

)

Property, plant and equipment, net

 

$

603.4

 

$

560.3

 

 

Property, plant and equipment at September 30, 2012 includes assets acquired from Hertalan and at December 31, 2011 includes assets acquired from Tri-Star and PDT, recorded at estimated fair value based on preliminary valuation studies.  See Note 4 for further information regarding these acquisitions.

 

Note 13 - Goodwill and Other Intangible Assets

 

The changes in the carrying amount of goodwill for the nine months ended September 30, 2012 were as follows:

 

 

 

Construction

 

Transportation

 

Brake and

 

Interconnect

 

FoodService

 

Disc.

 

 

 

In millions

 

Materials

 

Products

 

Friction

 

Technologies

 

Products

 

Ops

 

Total

 

Gross balance at January 1, 2012

 

112.6

 

155.5

 

226.7

 

345.6

 

60.3

 

47.4

 

948.1

 

Goodwill acquired during the nine month period

 

20.6

 

 

 

 

 

 

20.6

 

Measurement period adjustments

 

(6.5

)

 

 

0.1

 

 

 

(6.4

)

Resegmentation of Styled Wheels business

 

 

(8.0

)

8.0

 

 

 

 

 

Currency translation

 

(0.6

)

0.1

 

0.2

 

 

 

 

(0.3

)

Gross balance at September 30, 2012

 

126.1

 

147.6

 

234.9

 

345.7

 

60.3

 

47.4

 

962.0

 

Accumulated impairment losses

 

 

(55.5

)

 

 

 

(47.4

)

(102.9

)

Net balance at September 30, 2012

 

$

126.1

 

$

92.1

 

$

234.9

 

$

345.7

 

$

60.3

 

$

 

$

859.1

 

 

On March 9, 2012, the Company acquired Hertalan for a total purchase price of €37.3 million, or $48.9 million, net of €0.1 million, or $0.1 million, cash acquired.  The resulting preliminary goodwill recorded of $13.5 million was allocated to the Construction Materials reporting unit.  Measurement period adjustments during the nine months ended September 30, 2012 resulted in a $7.1 million reduction and $0.6 million increase, respectively, to the preliminary goodwill of Hertalan and PDT within the Construction Materials reporting unit, and a $0.1 million increase to the goodwill of Tri-Star within the Interconnect Technologies reporting unit. See Note 4 for further information regarding these acquisitions.

 

The Company’s Other intangible assets, net at September 30, 2012 were as follows:

 

 

 

Acquired

 

Accumulated

 

Net Book

 

In millions

 

Cost

 

Amortization

 

Value

 

Assets subject to amortization:

 

 

 

 

 

 

 

Patents

 

$

111.6

 

$

(18.1

)

$

93.5

 

Customer Relationships

 

328.9

 

(63.1

)

265.8

 

Other

 

21.0

 

(9.2

)

11.8

 

Assets not subject to amortization:

 

 

 

 

 

 

 

Trade names

 

108.0

 

 

108.0

 

Other intangible assets, net

 

$

569.5

 

$

(90.4

)

$

479.1

 

 

17



 

The Company’s Other intangible assets, net at December 31, 2011 were as follows:

 

 

 

Acquired

 

Accumulated

 

Net Book

 

In millions

 

Cost

 

Amortization

 

Value

 

Assets subject to amortization:

 

 

 

 

 

 

 

Patents

 

$

139.1

 

$

(12.2

)

$

126.9

 

Customer Relationships

 

275.7

 

(47.8

)

227.9

 

Other

 

20.4

 

(7.4

)

13.0

 

Assets not subject to amortization:

 

 

 

 

 

 

 

Trade names

 

111.4

 

 

111.4

 

Other intangible assets, net

 

$

546.6

 

$

(67.4

)

$

479.2

 

 

Estimated amortization expense for the remainder of 2012 and the next four years is as follows: $7.3 million remaining in 2012, $29.0 million in 2013, $28.8 million in 2014, $28.3 million in 2015, and $27.5 million in 2016.

 

The net carrying values of the Company’s Other intangible assets by reportable segment as of September 30, 2012 and December 31, 2011 were as follows:

 

 

 

September 30,

 

December 31,

 

In millions

 

2012

 

2011

 

 

 

 

 

 

 

Carlisle Construction Materials

 

$

89.3

 

$

71.8

 

Carlisle Transportation Products

 

 

2.7

 

Carlisle Brake & Friction

 

141.2

 

144.0

 

Carlisle Interconnect Technologies

 

212.9

 

222.8

 

Carlisle FoodService Products

 

35.7

 

37.9

 

Total

 

$

479.1

 

$

479.2

 

 

Note 14 - Commitments and Contingencies

 

Leases

 

The Company currently leases a portion of its manufacturing facilities, distribution centers and equipment, some of which include scheduled rent increases stated in the lease agreement generally expressed as a stated percentage increase of the minimum lease payment over the lease term.  The Company currently has no leases that require rent to be paid based on contingent events nor has it received any lease incentive payments.  Rent expense was $23.9 million and $17.3 million for the nine months ended September 30, 2012 and 2011, respectively, inclusive of rent based on scheduled rent increases and rent holidays recognized on a straight-line basis.  Future minimum payments under the Company’s various non-cancelable operating leases are approximately $6.6 million for the remainder of 2012, $22.3 million in 2013, $18.9 million in 2014, $15.8 million in 2015, $13.1 million in 2016, and $48.5 million thereafter.

 

Purchase Obligations

 

Although the Company has entered into purchase agreements for certain key raw materials, there were no such contracts with a term exceeding one year in place at September 30, 2012.

 

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, $0.25 million per occurrence for property, and up to $1.0 million for medical claims. The Company is insured for losses in excess of these limits.

 

18



 

The Company has accrued approximately $23.5 million and $22.9 million related to workers’ compensation claims at September 30, 2012 and December 31, 2011, respectively.  The amounts recognized are presented in Accrued expenses in the condensed consolidated balance sheets.  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

 

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.

 

Generally, 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 the Company’s defense costs and payments of settlements or judgments in connection with asbestos-related lawsuits.

 

At this time, the amount of reasonably possible additional asbestos claims, if any, is not material to the Company’s financial position, results of operations or operating 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, either individually or in the aggregate, will not have a material adverse effect on the consolidated financial position, results of operations for a particular period or annual operating cash flows of the Company.

 

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 of 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 15 - Borrowings

 

As of September 30, 2012 and December 31, 2011 the Company’s borrowings were as follows:

 

19



 

 

 

September 30,

 

December 31,

 

In millions

 

2012

 

2011

 

5.125% notes due 2020, net of unamortized discount of ($0.9) and ($1.0) respectively

 

$

249.1

 

$

249.0

 

6.125% notes due 2016, net of unamortized discount of ($0.4) and ($0.5) respectively

 

149.6

 

149.5

 

Revolving credit facility

 

170.0

 

348.0

 

Industrial development and revenue bonds through 2018

 

5.5

 

5.5

 

Other, including capital lease obligations

 

0.4

 

10.4

 

Total long-term debt

 

574.6

 

762.4

 

Less current portion

 

(170.1

)

(158.1

)

Total long-term debt, net of current portion

 

$

404.5

 

$

604.3

 

 

Revolving Credit Facilities

 

As of September 30, 2012 the Company had $430.0 million available under its Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”) administered by JPMorgan Chase Bank, N.A.  Under the terms of the Amended Credit Agreement, and at the Company’s election, the full amount outstanding of $170.0 million was payable in October 2012 (30 days from the date of funding).  However, the Company has the option to rollover amounts payable, at differing tenors and interest rates, until the Facility expires in October of 2016.  Accordingly, the full $170.0 million has been included in Short-term debt, including current maturities in the condensed consolidated balance sheet.  The average interest rate of borrowings under the revolving credit facility during the nine month period ended September 30, 2012 was 1.33%.

 

Uncommitted Line of Credit

 

The Company also maintains an uncommitted line of credit of which $45.0 million and $35.0 million was available for borrowing as of September 30, 2012 and December 31, 2011, respectively.  The average interest rate on the uncommitted line of credit was 1.5% and 1.5% for the nine months ended September 30, 2012 and 2011, respectively.

 

Covenants and Limitations

 

Under the Company’s various debt and credit facilities, the Company is required to meet various restrictive covenants and limitations, including certain net worth, cash flow ratios, and limits on outstanding debt balances held by certain subsidiaries. The Company was in compliance with all covenants and limitations as of September 30, 2012 and December 31, 2011.

 

Other Matters

 

Cash payments for interest were $19.0 million and $16.4 million in the nine months ended September 30, 2012 and 2011, respectively. Interest expense, net is presented net of interest income of $0.3 million and $0.5 million in the nine months ended September 30, 2012 and 2011, respectively.

 

At September 30, 2012, 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 Level 2 inputs, is approximately $281.4 million and $172.1 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 Facility approximates their carrying value.

 

Note 16 - Retirement Plans

 

Defined Benefit Plans

 

The Company maintains defined benefit retirement plans for certain employees. Benefits are based primarily on years of service and earnings of the employee. The Company recognizes the funded status of its defined benefit pension plans in the condensed consolidated balance sheets. The funded status is the difference between the retirement plans’ projected benefit obligation and the fair value of the retirement plans’ assets as of the measurement date.

 

20



 

Post-retirement Welfare Plans

 

The Company also has a limited number of unfunded post-retirement welfare programs. The Company’s liability for post-retirement medical benefits is limited to a maximum obligation; therefore, the Company’s liability is not materially affected by an assumed health care cost trend rate.

 

Components of net periodic benefit cost for the three and nine months ended September 30 were as follows:

 

 

 

Pension Benefits

 

Post-retirement Benefits

 

 

 

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

In millions

&nb