Table of Contents

 

 

 

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 JUNE 30, 2013

 

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 July 18, 2013: 63,521,258

 

 

 



Table of Contents

 

INDEX

 

 

Page

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

1

 

Unaudited Condensed Consolidated Statements of Comprehensive Income

 

 

Condensed Consolidated Balance Sheets

 

 

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

Controls and Procedures

40

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 3.

Defaults Upon Senior Securities

41

Item 4.

Mine Safety Disclosures

41

Item 5.

Other Information

42

Item 6.

Exhibits

42

 

Signature

43

 



Table of Contents

 

Item 1. Financial Statements

 

Carlisle Companies Incorporated

Unaudited Condensed Consolidated Statements of Comprehensive Income

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(in millions except share amounts)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

996.1

 

$

984.6

 

$

1,853.1

 

$

1,873.9

 

 

 

 

 

 

 

 

 

 

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

755.9

 

729.2

 

1,425.3

 

1,407.3

 

Selling and administrative expenses

 

106.6

 

106.0

 

215.4

 

213.5

 

Research and development expenses

 

9.2

 

8.5

 

18.6

 

16.3

 

Impairment of assets

 

100.0

 

 

100.0

 

 

Other expense, net

 

1.9

 

0.6

 

1.2

 

0.3

 

 

 

 

 

 

 

 

 

 

 

Earnings before interest and income taxes

 

22.5

 

140.3

 

92.6

 

236.5

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

8.6

 

6.5

 

16.9

 

13.0

 

Earnings before income taxes from continuing operations

 

13.9

 

133.8

 

75.7

 

223.5

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (Note 8)

 

5.7

 

44.4

 

12.2

 

74.1

 

Income from continuing operations

 

8.2

 

89.4

 

63.5

 

149.4

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations (Note 5)

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

 

3.6

 

(0.1

)

3.6

 

Income tax expense

 

 

0.2

 

 

0.2

 

Income (loss) from discontinued operations

 

 

3.4

 

(0.1

)

3.4

 

Net income

 

$

8.2

 

$

92.8

 

$

63.4

 

$

152.8

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.13

 

$

1.42

 

$

1.00

 

$

2.39

 

Income from discontinued operations

 

 

0.06

 

 

0.05

 

Basic earnings per share

 

$

0.13

 

$

1.48

 

$

1.00

 

$

2.44

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.13

 

$

1.39

 

$

0.98

 

$

2.34

 

Income from discontinued operations

 

 

0.06

 

 

0.05

 

Diluted earnings per share

 

$

0.13

 

$

1.45

 

$

0.98

 

$

2.39

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding - in thousands (Note 9)

 

 

 

 

 

 

 

 

 

Basic

 

63,409

 

62,419

 

63,343

 

62,166

 

Diluted

 

64,695

 

63,797

 

64,620

 

63,483

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid

 

$

12.8

 

$

11.3

 

$

25.6

 

$

22.5

 

Dividends declared and paid per share

 

$

0.20

 

$

0.18

 

$

0.40

 

$

0.36

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

 

 

 

 

 

 

 

 

Net income

 

$

8.2

 

$

92.8

 

$

63.4

 

$

152.8

 

Other comprehensive income (loss) (Note 19)

 

 

 

 

 

 

 

 

 

Change in foreign currency translation, net of tax

 

(0.1

)

(8.7

)

(10.4

)

(4.4

)

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

 

1.0

 

0.8

 

2.4

 

1.6

 

Loss on hedging activities, net of tax

 

(0.1

)

(0.1

)

(0.2

)

(0.2

)

Other comprehensive income (loss)

 

0.8

 

(8.0

)

(8.2

)

(3.0

)

Comprehensive income

 

$

9.0

 

$

84.8

 

$

55.2

 

$

149.8

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

 

1



Table of Contents

 

Carlisle Companies Incorporated

Condensed Consolidated Balance Sheets

 

 

 

June 30,

 

December 31,

 

(in millions except share amounts)

 

2013

 

2012

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

168.2

 

$

112.5

 

Receivables, less allowance of $5.6 in 2013 and $6.0 in 2012

 

597.5

 

482.7

 

Inventories (Note 11)

 

493.0

 

538.0

 

Deferred income taxes (Note 8)

 

42.9

 

43.1

 

Prepaid expenses and other current assets

 

26.7

 

29.0

 

Total current assets

 

1,328.3

 

1,205.3

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $665.9 in 2013 and $635.7 in 2012 (Note 12)

 

634.5

 

637.1

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Goodwill, net (Note 13)

 

858.0

 

958.8

 

Other intangible assets, net (Note 13)

 

596.4

 

617.5

 

Other long-term assets

 

34.4

 

38.6

 

Non-current assets held for sale (Note 5)

 

10.8

 

 

Total other assets

 

1499.6

 

1,614.9

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

3,462.4

 

$

3,457.3

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

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

 

$

 

$

 

Accounts payable

 

283.5

 

259.7

 

Accrued expenses

 

164.8

 

193.3

 

Deferred revenue (Note 17)

 

16.9

 

17.6

 

Total current liabilities

 

465.2

 

470.6

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Long-term debt (Note 15)

 

752.6

 

752.5

 

Deferred revenue (Note 17)

 

138.3

 

135.4

 

Other long-term liabilities (Note 18)

 

265.1

 

310.7

 

Total long-term liabilities

 

1,156.0

 

1,198.6

 

 

 

 

 

 

 

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; 63,516,542 outstanding in 2013 and 63,127,299 outstanding in 2012

 

78.7

 

78.7

 

Additional paid-in capital

 

188.0

 

171.4

 

Deferred compensation equity (Note 7)

 

3.3

 

0.6

 

Cost of shares in treasury - 14,901,476 shares in 2013 and 15,249,714 shares in 2012

 

(211.1

)

(215.4

)

Accumulated other comprehensive loss (Note 19)

 

(43.7

)

(35.5

)

Retained earnings

 

1,826.0

 

1,788.3

 

Total shareholders’ equity

 

1,841.2

 

1,788.1

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

3,462.4

 

$

3,457.3

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

 

2



Table of Contents

 

Carlisle Companies Incorporated

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

 

Six Months Ended June 30,

 

(in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

Net income

 

$

63.4

 

$

152.8

 

Reconciliation of net income to cash flows from operating activities:

 

 

 

 

 

Depreciation

 

39.4

 

37.0

 

Amortization

 

20.5

 

15.5

 

Non-cash compensation, net of tax benefit

 

8.6

 

4.0

 

Gain on sale of businesses

 

 

(3.7

)

Loss on sale of property and equipment, net

 

0.9

 

0.8

 

Impairment of assets

 

100.0

 

 

Deferred taxes

 

(46.3

)

(4.3

)

Foreign exchange gain

 

(0.1

)

 

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

 

 

 

 

 

Receivables

 

(118.3

)

(138.7

)

Inventories

 

42.7

 

(2.4

)

Prepaid expenses and other assets

 

5.7

 

23.6

 

Accounts payable

 

24.8

 

49.7

 

Accrued expenses and deferred revenues

 

(26.6

)

14.0

 

Long-term liabilities

 

6.0

 

5.2

 

Other operating activities

 

(1.2

)

0.8

 

Net cash provided by operating activities

 

119.5

 

154.3

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Capital expenditures

 

(49.4

)

(60.6

)

Acquisitions, net of cash

 

 

(49.3

)

Proceeds from sale of property and equipment

 

0.3

 

 

Proceeds from sale of business

 

 

25.8

 

Net cash used in investing activities

 

(49.1

)

(84.1

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Net change in short-term borrowings and revolving credit lines

 

(0.1

)

(64.3

)

Dividends

 

(25.6

)

(22.5

)

Stock options and treasury shares, net

 

11.8

 

18.5

 

Net cash used in financing activities

 

(13.9

)

(68.3

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(0.8

)

0.2

 

Change in cash and cash equivalents

 

55.7

 

2.1

 

Cash and cash equivalents

 

 

 

 

 

Beginning of period

 

112.5

 

74.7

 

End of period

 

$

168.2

 

$

76.8

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

 

3



Table of Contents

 

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 between Carlisle Transportation Products (“CTP”) and Carlisle Brake & Friction (“CBF”).

 

Note 2—New Accounting Pronouncements

 

Newly Adopted Accounting Standards

 

On February 5, 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  ASU 2013-02 requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source (e.g., the release due to cash flow hedges from interest rate contracts) and the income statement line items affected by the reclassification (e.g., interest income or interest expense). If a component is not required to be reclassified to net income in its entirety (e.g., the net periodic pension cost), companies would instead cross reference to the related footnote for additional information (e.g., the pension footnote).  ASU 2013-02 is effective for fiscal and interim reporting periods beginning after December 15, 2012.  The adoption of this ASU had no material effect on the Company’s consolidated financial statements.

 

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.

 

New Accounting Standards Issued but not yet adopted

 

There are currently no new accounting standards that have been issued that will have a significant impact on the Company’s financial position, results of operations, and cash flows upon adoption.

 

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.

 

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.

 

4



Table of Contents

 

Carlisle Brake & Friction (“CBF” or the “Brake & Friction segment”)—the principal products of this segment include high-performance brakes and friction material, 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, industrial, 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 continued to be manufactured by CTP, but were marketed and sold by the performance racing group within CBF.  Effective December 1, 2012, due to sales, marketing, and administrative inefficiencies, the Styled Wheels business was transitioned from CBF back to CTP.  Prior period results have been retrospectively adjusted to reflect the Styled Wheels business in the Transportation Products segment.

 

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

 

Three Months Ended June 30,

 

2013

 

2012

 

(in millions)

 

Sales(1)

 

EBIT

 

Sales(1)

 

EBIT

 

 

 

 

 

 

 

 

 

 

 

Carlisle Construction Materials

 

$

490.5

 

$

78.2

 

$

470.0

 

$

85.5

 

Carlisle Transportation Products

 

203.5

 

(86.8

)

211.3

 

19.3

 

Carlisle Brake & Friction

 

93.6

 

12.4

 

125.3

 

23.9

 

Carlisle Interconnect Technologies

 

145.7

 

22.3

 

114.7

 

17.4

 

Carlisle FoodService Products

 

62.8

 

7.3

 

63.3

 

5.7

 

Corporate

 

 

(10.9

)

 

(11.5

)

Total

 

$

996.1

 

$

22.5

 

$

984.6

 

$

140.3

 

 

Six Months Ended June 30,

 

2013

 

2012

 

(in millions)

 

Sales(1)

 

EBIT

 

Assets(2)

 

Sales(1)

 

EBIT

 

Assets(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carlisle Construction Materials

 

$

830.1

 

$

114.0

 

$

979.1

 

$

823.9

 

$

127.5

 

$

944.7

 

Carlisle Transportation Products

 

430.9

 

(72.3

)

440.5

 

451.3

 

40.2

 

560.8

 

Carlisle Brake & Friction

 

184.4

 

23.4

 

605.3

 

250.7

 

47.9

 

700.4

 

Carlisle Interconnect Technologies

 

286.9

 

40.7

 

1,042.3

 

225.4

 

34.1

 

794.7

 

Carlisle FoodService Products

 

120.8

 

12.4

 

198.0

 

122.6

 

11.2

 

210.8

 

Corporate

 

 

(25.6

)

197.2

 

 

(24.4

)

85.2

 

Total

 

$

1,853.1

 

$

92.6

 

$

3,462.4

 

$

1,873.9

 

$

236.5

 

$

3,296.6

 

 


(1) Excludes intersegment sales

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

 

5



Table of Contents

 

Note 4—Acquisitions

 

2012 Acquisitions

 

Thermax and Raydex/CDT Limited

 

On December 17, 2012, the Company acquired certain assets and assumed certain liabilities of Thermax (“Thermax”), an unincorporated North American division of Belden Inc., and acquired all of the outstanding shares of Raydex/CDT Limited (“Raydex” and together with Thermax, “Thermax/Raydex”), a company incorporated in England and Wales, for total cash consideration of approximately $265.5 million, net of $0.1 million cash acquired.  The Company funded the acquisition with proceeds from its 3.75% senior unsecured notes due 2022 issued in November 2012.  Thermax/Raydex designs, manufactures, and sells wire and cable products for the commercial and military aerospace markets and certain industrial markets.  The acquisition of Thermax/Raydex adds capabilities and technology to strengthen the Company’s interconnect products business by expanding its product and service range to its customers.  Thermax/Raydex operates within the Interconnect Technologies segment.

 

The following table summarizes the consideration transferred to acquire Thermax/Raydex 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.

 

 

 

 

 

Measurement

 

Revised

 

 

 

Preliminary

 

Period

 

Preliminary

 

 

 

Allocation

 

Adjustments

 

Allocation

 

 

 

 

 

Six Months

 

 

 

 

 

As of

 

Ended

 

As of

 

(in millions)

 

12/31/2012

 

6/30/2013

 

6/30/2013

 

 

 

 

 

 

 

 

 

Total cash consideration transferred

 

$

265.6

 

$

 

$

265.6

 

 

 

 

 

 

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

 

$

0.1

 

$

 

$

0.1

 

Receivables

 

14.3

 

 

14.3

 

Inventories

 

15.4

 

 

15.4

 

Prepaid expenses and other current assets

 

0.9

 

 

0.9

 

Property, plant and equipment

 

7.2

 

 

7.2

 

Definite-lived intangible assets

 

135.1

 

 

135.1

 

Indefinite-lived intangible assets

 

9.1

 

 

9.1

 

Accounts payable

 

(12.0

)

 

(12.0

)

Accrued expenses

 

(2.6

)

 

(2.6

)

Deferred tax liabilities

 

(2.8

)

 

(2.8

)

 

 

 

 

 

 

 

 

Total identifiable net assets

 

164.7

 

 

164.7

 

 

 

 

 

 

 

 

 

Goodwill

 

$

100.9

 

$

 

$

100.9

 

 

The preliminary goodwill recognized in the acquisition of Thermax/Raydex is attributable to the workforce of Thermax/Raydex, 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 Thermax/Raydex brings to the Company.  Thermax/Raydex brings additional high-end cable products and qualified positions to serve the Company’s existing commercial aerospace and industrial customers.  Goodwill arising from the acquisition of Thermax is deductible for income tax purposes as the acquisition of Thermax was an asset purchase.  All of the preliminary goodwill was assigned to the Interconnect Technologies reporting unit. Preliminary indefinite-lived intangible assets of $9.1 million represent acquired trade names.  The $135.1 million value preliminarily allocated to definite-lived intangible assets consists of $111.4 million of customer relationships with preliminary useful lives ranging from 17 to 18 years, $23.5 million of acquired technology with preliminary useful lives ranging from 9 to 11 years, and a $0.2 million non-compete agreement with a preliminary useful life of 5 years.

 

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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 property, plant and equipment and intangible assets as of the December 17, 2012 closing date.

 

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 operates within the Construction Materials segment.

 

The following table summarizes the consideration transferred to acquire Hertalan 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.

 

 

 

 

 

Measurement

 

 

 

 

 

Preliminary

 

Period

 

Final

 

 

 

Allocation

 

Adjustments

 

Allocation

 

 

 

 

 

Twelve Months

 

 

 

 

 

As of

 

Ended

 

As of

 

(in millions)

 

3/31/2012

 

3/9/2013

 

3/9/2013

 

 

 

 

 

 

 

 

 

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 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 goodwill was assigned to the Construction Materials reporting unit. Indefinite-lived intangible assets

 

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of $8.0 million represent acquired trade names.  The $14.7 million value allocated to definite-lived intangible assets represents customer relationships with 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.

 

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 operates 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.

 

 

 

 

 

Measurement

 

 

 

 

 

Preliminary

 

Period

 

Final

 

 

 

Allocation

 

Adjustments

 

Allocation

 

 

 

 

 

Twelve Months

 

 

 

 

 

As of

 

Ended

 

As of

 

(in millions)

 

12/31/2011

 

12/2/2012

 

12/2/2012

 

 

 

 

 

 

 

 

 

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

)

3.4

 

(55.5

)

Other long-term liabilities

 

(0.4

)

 

(0.4

)

 

 

 

 

 

 

 

 

Total identifiable net assets

 

132.2

 

2.2

 

134.4

 

 

 

 

 

 

 

 

 

Goodwill

 

$

156.7

 

$

(1.8

)

$

154.9

 

 

The 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

 

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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 goodwill was assigned to the Interconnect Technologies segment. Indefinite-lived intangible assets of $19.4 million represent acquired trade names.  The $121.5 million value allocated to definite-lived intangible assets consists of $94.8 million of customer relationships with useful lives ranging from 12 to 21 years, $23.2 million of acquired technology with useful lives of 16 years, $2.5 million of non-compete agreements with useful lives ranging from 3 to 5 years, and $1.0 million of customer certifications and approvals with useful lives of 3 years.

 

The Company has also recorded 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 and 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 operates 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.

 

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Table of Contents

 

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. 

 

 

 

 

 

Measurement

 

 

 

 

 

Preliminary

 

Period

 

Final

 

 

 

Allocation

 

Adjustments

 

Allocation

 

 

 

 

 

Twelve Months

 

 

 

 

 

As of

 

Ended

 

As of

 

(in millions)

 

12/31/2011

 

8/1/2012

 

8/1/2012

 

Consideration transferred:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash consideration

 

$

113.4

 

$

 

$

113.4

 

Contingent consideration

 

5.2

 

 

5.2

 

Total cash 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

 

 

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.

 

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Table of Contents

 

Note 5—Discontinued Operations and Assets Held for Sale

 

For the three months ended June 30, 2013, the Company had no income before income taxes from discontinued operations. For the six months ended June 30, 2013, the Company had a loss before income taxes of $0.1 million pertaining primarily to legacy workers compensation claims.

 

As of June 30, 2013, the Company classified CCM’s Kent, WA facility and related assets as held-for-sale following the relocation of operations to Puyallup, WA.  The disposal group includes only long-lived tangible assets with a net book value of $3.9 million.

 

In the third quarter of 2012, the Company announced plans to restructure certain of CFS’s manufacturing and distribution operations.  As of June 30, 2013, assets held for sale includes $6.9 million of long-lived tangible assets related to the Reno, NV and Zevenaar, The Netherlands distribution centers.

 

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.

 

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 six months ended June 30, 2013 and 2012, respectively:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(in millions)

 

2013

 

2012

 

2013

 

2012

 

Cost of goods sold

 

$

 

$

1.8

 

$

0.6

 

$

1.9

 

Selling and administrative expenses

 

 —

 

(0.2

)

0.1

 

(0.2

)

Other expense

 

 

 

 

0.3

 

Total exit and disposal costs

 

$

 

$

1.6

 

$

0.7

 

$

2.0

 

 

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

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(in millions)

 

2013

 

2012

 

2013

 

2012

 

Termination benefits

 

$

 

$

1.7

 

$

0.1

 

$

1.7

 

Impairments

 

 

 

 

0.3

 

Other associated costs

 

 

(0.1

)

0.6

 

 

Total exit and disposal costs

 

$

 

$

1.6

 

$

0.7

 

$

2.0

 

 

Exit and disposal accrual activities for the six months ended June 30, 2013 were as follows:

 

 

 

Termination

 

Asset Write-

 

Other associated

 

 

 

(in millions)

 

Benefits

 

downs

 

costs

 

Total

 

Balance at December 31, 2012

 

$

1.8

 

$

 

$

0.6

 

$

2.4

 

2013 charges to expense and adjustments

 

0.1

 

 

0.6

 

0.7

 

2013 usage

 

(1.9

)

 

(1.0

)

(2.9

)

Balance at June 30, 2013

 

$

 

$

 

$

0.2

 

$

0.2

 

 

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Exit and disposal activities by segment were as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(in millions)

 

2013

 

2012

 

2013

 

2012

 

Total by segment

 

 

 

 

 

 

 

 

 

Carlisle Construction Materials

 

$

 

$

0.3

 

$

 

$

0.3

 

Carlisle Transportation Products

 

 

1.5

 

0.3

 

1.6

 

Carlisle Brake & Friction

 

 

(0.2

)

 

0.1

 

Carlisle FoodService Products

 

 

 

0.4

 

 

Total exit and disposal costs

 

$

 

$

1.6

 

$

0.7

 

$

2.0

 

 

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.  Costs of $0.8 million incurred in 2012 consisted of employee termination cost, equipment relocation, and other associated costs.  No further costs are expected to be incurred related to this project.

 

Carlisle Transportation Products — During 2012, the Company transferred its remaining manufacturing operations in Buji, China.  The tire manufacturing operations were transferred from Buji to Meizhou, China.  The belt manufacturing operations were transferred from Buji to existing manufacturing facilities in Fort Scott, KS and Springfield, MO.   The total expected cost of the project is $2.9 million.  During the six months ended June 30, 2013, the Company incurred $0.3 million of exit and disposal costs related to the transfer of its Buji, China tire and belt manufacturing operations, consisting of early lease termination costs.    The Company expects no additional costs to be incurred related to this project.

 

Carlisle Brake & Friction — In the third quarter of 2011, the Company decided to close its braking plant in Canada.  The total cost of the project was $1.0 million, including $0.9 million of expense recognized in 2011 for employee termination costs and other associated costs.  Expenses of $0.1 million were recognized in 2012 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.  As of June 30, 2013, a $0.2 million liability, reported in Accrued expenses, exists for unpaid lease termination costs.  The Company expects no additional costs to be incurred related to this project.

 

Carlisle FoodService Products — In the third quarter of 2012, the Company announced plans to close its China manufacturing facility and its Zevenaar, Netherlands and Reno, NV distribution facilities.  Manufacturing operations were moved from China to Carlisle’s existing Oklahoma City, OK and Chihuahua, Mexico manufacturing facilities.  The distribution activities previously conducted at the Zevenaar, Netherlands and Reno, NV facilities were relocated to the Oklahoma City, OK distribution center or to third party distributors throughout Europe.  The total expected cost of the project is $5.7 million, including costs for impairment of long-lived assets, employee termination, contract termination, legal and consulting services, and relocation and retrofitting of plant assets of which $5.3 was incurred in 2012.  During the six months ended June 30, 2013, the Company incurred $0.4 million of exit and disposal costs for employee termination and equipment relocation.  The Company expects no additional costs to be incurred related to this project.

 

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 $2.9 million and $4.5 million for the three months ended June 30, 2013 and 2012, respectively and $10.9 million and $9.9 million for the six months ended June 30, 2013 and 2012, 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 June 30, 2013, 3,051,670 shares were available for grant under this plan, of which 686,985 shares were available for the issuance of stock awards.

 

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Table of Contents

 

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 June 30, 2013, 267,745 shares were available for grant under this plan, of which 37,745 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

 

For the six months ended June 30, 2013, the Company awarded 283,975 stock options, 71,255 restricted stock awards, 71,255 performance share awards and 11,313 restricted stock units with an aggregate grant-date fair value of approximately $16.9 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 $1.3 million and $1.6 million for the three months ended June 30, 2013 and 2012, respectively, and $2.4 million and $3.5 million for the six months ended June 30, 2013 and 2012, 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 2013 and 2012 were as follows:

 

 

 

2013

 

2012

 

Expected dividend yield

 

1.2

%

1.5

%

Expected life in years

 

5.71

 

5.78

 

Expected volatility

 

32.2

%

36.0

%

Risk-free interest rate

 

1.0

%

0.9

%

Weighted average fair value

 

$

17.58

 

$

14.57

 

 

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 vested ratably over five years.  The $64.80 grant date fair value of the 2013 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 2013 performance shares of $91.33 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

 

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Table of Contents

 

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 $64.80 grant date fair value of the 2013 restricted stock units is based on the closing market price of the stock on February 6, 2013, the date of the grant.

 

Deferred Compensation

 

Certain employees are eligible to participate in the Company’s Non-qualified Deferred Compensation Plan (the “Deferred Compensation Plan”).  In addition to the ability to defer a portion of their cash compensation, participants may elect to defer all or part of their stock-based compensation.  Company stock held for future issuance of vested awards is classified as Deferred compensation equity in the condensed consolidated balance sheets and is recorded at grant date fair value.

 

Note 8Income Taxes

 

The effective income tax rate on continuing operations for the six months ended June 30, 2013 was 16.1% compared to an effective income tax rate of 33.2% for the six months ended June 30, 2012.  The decrease in the year-to-date tax rate is primarily due to a tax election made in a foreign jurisdiction that resulted in an increase in the tax basis of certain assets with a corresponding elimination of a deferred tax liability.  The net tax impact of the transaction resulted in a $11.8 million benefit in the first six months of the year.   The year-to-date rate also decreased because of tax legislation passed in January 2013 related to taxation of foreign earned income and research and development expenditures.  The tax impact of the current period impairment of the goodwill of Carlisle Transportation Products is included in the estimated annual effective tax rate rather than as a discrete item in the second quarter of 2013.

 

The year-to-date effective tax rate of 16.1% varies from the United States statutory rate of 35.0% primarily due to the foreign transaction discussed above, the January 2013 tax legislation, the deduction for U.S. production activities, and earnings in foreign jurisdictions taxed at rates lower than the U.S. federal rate. The effective tax rate for the full year is expected to approximate 30%.

 

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 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.

 

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Table of Contents

 

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

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(in millions except share amounts)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

8.2

 

$

89.4

 

$

63.5

 

$

149.4

 

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

 

(12.8

)

(11.3

)

(25.6

)

(22.5

)

Undistributed earnings

 

(4.6

)

78.1

 

37.9

 

126.9

 

Percent allocated to common shareholders (1)

 

99.5

%

99.4

%

99.5

%

99.4

%

 

 

(4.6

)

77.6

 

37.7

 

126.2

 

Add: dividends declared - common stock

 

12.7

 

11.2

 

25.5

 

22.4

 

Numerator for basic and diluted EPS

 

$

8.1

 

$

88.8

 

$

63.2

 

$

148.6

 

 

 

 

 

 

 

 

 

 

 

Denominator (in thousands):

 

 

 

 

 

 

 

 

 

Denominator for basic EPS: weighted-average common shares outstanding

 

63,409

 

62,419

 

63,343

 

62,166

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Performance awards

 

353

 

505

 

353

 

505

 

Stock options

 

933

 

873

 

924

 

812

 

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

 

64,695

 

63,797

 

64,620

 

63,483

 

 

 

 

 

 

 

 

 

 

 

Per share income from continuing operations:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

$

1.42

 

$

1.00

 

$

2.39

 

Diluted

 

$

0.13

 

$

1.39

 

$

0.98

 

$

2.34

 

 


(1) Basic weighted-average common shares outstanding

 

63,409

 

62,419

 

63,343

 

62,166

 

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

 

63,737

 

62,783

 

63,670

 

62,529

 

Percent allocated to common shareholders

 

99.5

%

99.4

%

99.5

%

99.4

%

 

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:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(in millions except share amounts)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

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

 

$

 —

 

$

3.4

 

$

(0.1

)

$

3.4

 

 

 

 

 

 

 

 

 

 

 

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

 

$

8.1

 

$

92.2

 

$

63.1

 

$

151.9

 

 

 

 

 

 

 

 

 

 

 

Antidilutive stock options excluded from EPS calculation(2)

 

 

 

 

 

 


(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.

 

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Table of Contents

 

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

 

 

 

June 30,

 

Assets

 

Inputs

 

Inputs

 

(in millions)

 

2013

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

168.2

 

$

168.2

 

$

 

$

 

Short-term investments

 

1.1

 

1.1

 

 

 

Foreign currency forward contracts

 

0.2

 

 

0.2

 

 

Total assets measured at fair value

 

$

169.5

 

$

169.3

 

$

0.2

 

$

 

 

 

 

 

 

 

 

 

 

 

Commodity swap agreements

 

$

1.6

 

$

 

$

1.6

 

$

 

Contingent consideration

 

10.4

 

 

 

10.4

 

Foreign currency forward contracts

 

0.5

 

 

0.5

 

 

Total liabilities measured at fair value

 

$

12.5

 

$

 

$

2.1

 

$

10.4

 

 

Cash and cash equivalents include $3.3 million in money market accounts for the Company’s deferred compensation program.  Short-term investments of $1.1 million at June 30, 2013 consist of investments held in mutual funds for the Company’s deferred compensation program and are classified in the condensed consolidated balance sheet at June 30, 2013 in Prepaid expenses and other current assets.

 

Foreign exchange forward contracts at June 30, 2013 relate to contracts held for purposes of mitigating the Company’s exposure to fluctuations in foreign exchange rates, resulting from assets or liabilities that are held by certain of its operating subsidiaries in currencies other than the subsidiary’s functional currency.  Such forward contracts are valued at fair value using observable market inputs such as forward prices and spot prices of the underlying exchange rate pair. Based on these inputs, the derivative assets and liabilities are classified within Level 2 of the valuation hierarchy.  The Company has not designated these forward contracts as cash flow hedges and, accordingly, recognizes associated changes in fair value of the forwards through Other income (expense).  At June 30, 2013 the fair values of contracts based on the Japanese Yen and Canadian Dollar were $0.2 million asset and $0.5 million liability, respectively.  The fair values of these contracts are recorded within Prepaid expenses and other assets and Accrued expenses, respectively, in the condensed consolidated balance sheet as of June 30, 2013 as none of the contract terms exceed one year from the balance sheet date.

 

Commodity swap agreements at June 30, 2013 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 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 expense.  The fair value of these swaps is recorded within Accrued expenses in the condensed consolidated balance sheet as of June 30, 2013 as none of the swap terms exceed one year from the balance sheet date.

 

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Table of Contents

 

Contingent consideration represents fair value of the earn-out associated with the purchase of PDT and was estimated using a discounted cash flow model based on financial projections of the acquired company.  The fair value was €8.0 million, or $10.4 million, at June 30, 2013 and is recorded within Other long-term liabilities in the condensed consolidated balance sheet.  See Note 4 for further information regarding the PDT acquisition.

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

 

In Active

 

Significant

 

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

 

 

Balance at

 

Identical

 

Observable

 

Unobservable

 

 

 

December 31,

 

Assets

 

Inputs

 

Inputs

 

(in millions)

 

2012

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

112.5

 

$

112.5

 

$

 

$

 

Short-term investments

 

0.6

 

0.6

 

 

 

Commodity swap agreements

 

0.1

 

 

0.1

 

 

Foreign currency forward contracts

 

0.3

 

 

0.3

 

 

Total assets measured at fair value

 

$

113.5

 

$

113.1

 

$

0.4

 

$

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

9.9

 

$

 

$

 

$

9.9

 

Total liabilities measured at fair value

 

$

9.9

 

$

 

$

 

$

9.9

 

 

Cash and cash equivalents at December 31, 2012 include $1.6 million in money market accounts for the Company’s Deferred Compensation Plan.  Short-term investments of $0.6 million at December 31, 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 December 31, 2012 in Prepaid expenses and other current assets.  Commodity swap agreements 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 Technologies segment and are classified in the condensed consolidated balance sheet at December 31, 2012 in Prepaid expenses and other current assets.  Foreign exchange forward contracts relate to contracts held for purposes of mitigating the Company’s exposure to fluctuations in foreign exchange rates, resulting from assets or liabilities that are held by certain of its operating subsidiaries in currencies other than the subsidiary’s functional currency and are classified in the condensed consolidated balance sheet at December 31, 2012 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 June 30, 2013, the Transportation Products segment recognized an estimated goodwill impairment charge of $100.0 million, reducing the carrying value of CTP’s goodwill to $0.  The estimated fair value of goodwill was determined using the residual value method as required by ASC 350, Goodwill and Other Intangible Assets.  This estimate was based on fair value determinations using Level 3 inputs.  See Note 13 for information regarding asset impairment within the Transportation Products segment.

 

See Note 4 for information regarding assets acquired and liabilities assumed in the Thermax/Raydex and Hertalan acquisitions measured at fair value at initial recognition.

 

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Table of Contents

 

Note 11—Inventories

 

The components of inventories at June 30, 2013 and December 31, 2012 were as follows:

 

 

 

June 30,

 

December 31,

 

(in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Finished goods

 

$

313.7

 

$

340.0

 

Work-in-process

 

59.8

 

55.8

 

Raw materials

 

154.2

 

169.3

 

Capitalized variances

 

3.7

 

8.6

 

Reserves

 

(38.4

)

(35.7

)

Inventories

 

$

493.0

 

$

538.0

 

 

Note 12—Property, Plant and Equipment

 

The components of property, plant and equipment at June 30, 2013 and December 31, 2012 were as follows:

 

 

 

June 30,

 

December 31,

 

(in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Land

 

$

48.7

 

$

45.8

 

Buildings and leasehold improvements

 

331.3

 

311.9

 

Machinery and equipment

 

875.0

 

845.2

 

Projects in progress

 

45.4

 

69.9

 

 

 

 

 

 

 

 

 

1,300.4

 

1,272.8

 

Accumulated depreciation

 

(665.9

)

(635.7

)

 

 

 

 

 

 

Property, plant and equipment, net

 

$

634.5

 

$

637.1

 

 

Property, plant and equipment at December 31, 2012 includes assets acquired from Thermax/Raydex and Hertalan 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 six months ended June 30, 2013 were as follows:

 

 

 

Construction

 

Transportation

 

Brake &

 

Interconnect

 

FoodService

 

Disc.

 

 

 

(in millions)

 

Materials

 

Products

 

Friction

 

Technologies

 

Products

 

Ops

 

Total

 

Gross balance at January 1, 2013

 

$

127.2

 

$

155.5

 

$

226.7

 

$

444.6

 

$

60.3

 

$

47.4

 

$

1,061.7

 

Currency translation

 

(0.9

)

 

(0.1

)

0.2

 

 

 

(0.8

)

Gross balance at June 30, 2013

 

126.3

 

155.5

 

226.6

 

444.8

 

60.3

 

47.4

 

1,060.9

 

Accumulated impairment losses

 

 

(155.5

)

 

 

 

(47.4

)

(202.9

)

Net balance at June 30, 2013