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, 2014

 

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 17, 2014: 64,166,418

 

 

 



 

Item 1. Financial Statements

 

Carlisle Companies Incorporated

Unaudited Condensed Consolidated Statements of Earnings and Comprehensive Income

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(in millions except share and per share amounts)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

904.1

 

$

796.8

 

$

2,414.0

 

$

2,219.0

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

667.0

 

596.5

 

1,790.2

 

1,659.2

 

Selling and administrative expenses

 

94.4

 

87.1

 

282.0

 

265.5

 

Research and development expenses

 

8.6

 

7.0

 

25.0

 

21.7

 

Other (income) expense, net

 

0.1

 

(3.4

)

(2.5

)

(1.8

)

 

 

 

 

 

 

 

 

 

 

Earnings before interest and income taxes

 

134.0

 

109.6

 

319.3

 

274.4

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

7.7

 

8.5

 

23.8

 

25.4

 

Earnings before income taxes from continuing operations

 

126.3

 

101.1

 

295.5

 

249.0

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (Note 6)

 

40.0

 

34.7

 

97.1

 

74.0

 

Income from continuing operations

 

86.3

 

66.4

 

198.4

 

175.0

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations (Note 4)

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

(0.6

)

13.9

 

(1.7

)

(58.5

)

Income tax (benefit) expense

 

(1.6

)

3.7

 

(1.7

)

(23.5

)

Income (loss) from discontinued operations

 

1.0

 

10.2

 

 

(35.0

)

Net income

 

$

87.3

 

$

76.6

 

$

198.4

 

$

140.0

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share attributable to common shares

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.34

 

$

1.04

 

$

3.07

 

$

2.74

 

Income (loss) from discontinued operations

 

0.01

 

0.16

 

 

(0.54

)

Basic earnings per share

 

$

1.35

 

$

1.20

 

$

3.07

 

$

2.20

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share attributable to common shares

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.31

 

$

1.02

 

$

3.01

 

$

2.69

 

Income (loss) from discontinued operations

 

0.01

 

0.15

 

 

(0.53

)

Diluted earnings per share

 

$

1.32

 

$

1.17

 

$

3.01

 

$

2.16

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding - in thousands

 

 

 

 

 

 

 

 

 

Basic

 

64,149

 

63,567

 

64,043

 

63,429

 

Diluted

 

65,447

 

64,890

 

65,315

 

64,714

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid

 

$

16.2

 

$

14.1

 

$

45.0

 

$

39.7

 

Dividends declared and paid per share

 

$

0.25

 

$

0.22

 

$

0.69

 

$

0.62

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

 

 

 

 

 

 

 

 

Net income

 

$

87.3

 

$

76.6

 

$

198.4

 

$

140.0

 

Other comprehensive income (loss) (Note 17)

 

 

 

 

 

 

 

 

 

Change in foreign currency translation

 

(18.1

)

11.5

 

(16.4

)

1.1

 

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

 

0.7

 

0.9

 

1.3

 

3.3

 

Loss on hedging activities, net of tax

 

(0.1

)

(0.1

)

(0.3

)

(0.3

)

Other comprehensive income (loss)

 

(17.5

)

12.3

 

(15.4

)

4.1

 

Comprehensive income

 

$

69.8

 

$

88.9

 

$

183.0

 

$

144.1

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

 

2



 

Carlisle Companies Incorporated

Condensed Consolidated Balance Sheets

 

 

 

September 30,

 

December 31,

 

(in millions except share and per share amounts)

 

2014

 

2013

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

805.1

 

$

754.5

 

Receivables, net of allowance of $3.5 in 2014 and $3.3 in 2013

 

548.7

 

399.6

 

Inventories (Note 8)

 

334.3

 

298.8

 

Deferred income taxes

 

35.6

 

35.7

 

Prepaid expenses and other current assets

 

37.4

 

46.4

 

Total current assets

 

1,761.1

 

1,535.0

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of of $502.4 in 2014 and $468.0 in 2013 (Note 9)

 

537.6

 

497.2

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Goodwill, net (Note 10)

 

854.8

 

858.7

 

Other intangible assets, net (Note 10)

 

545.3

 

579.8

 

Other long-term assets

 

19.6

 

22.3

 

Total other assets

 

1,419.7

 

1,460.8

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

3,718.4

 

$

3,493.0

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

242.8

 

$

187.0

 

Accrued expenses

 

176.8

 

172.0

 

Deferred revenue (Note 14)

 

17.7

 

17.4

 

Total current liabilities

 

437.3

 

376.4

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Long-term debt (Note 12)

 

751.3

 

751.0

 

Deferred revenue (Note 14)

 

148.0

 

143.6

 

Other long-term liabilities (Note 16)

 

231.2

 

235.9

 

Total long-term liabilities

 

1,130.5

 

1,130.5

 

 

 

 

 

 

 

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; 64,163,328 outstanding in 2014 and 63,658,777 outstanding in 2013

 

78.7

 

78.7

 

Additional paid-in capital

 

222.6

 

201.1

 

Deferred Compensation - Equity

 

6.1

 

3.0

 

Cost of shares in treasury - 14,249,807 shares in 2014 and 14,761,481 shares in 2013

 

(207.6

)

(209.5

)

Accumulated other comprehensive loss

 

(46.9

)

(31.5

)

Retained earnings

 

2,097.7

 

1,944.3

 

Total shareholders’ equity

 

2,150.6

 

1,986.1

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

3,718.4

 

$

3,493.0

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

 

3



 

Carlisle Companies Incorporated

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

 

Nine Months Ended September 30,

 

(in millions)

 

2014

 

2013

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

Net income

 

$

198.4

 

$

140.0

 

Reconciliation of net income to cash flows from operating activities:

 

 

 

 

 

Depreciation

 

47.4

 

59.1

 

Amortization

 

28.4

 

30.8

 

Non-cash compensation, net of tax benefit

 

10.3

 

10.2

 

(Gain) loss on sale of property and equipment, net

 

(1.9

)

0.4

 

Impairment of assets

 

 

100.0

 

Deferred taxes

 

(0.7

)

(39.6

)

Foreign exchange gain

 

(0.3

)

(0.2

)

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

 

 

 

 

 

Receivables

 

(152.5

)

(90.4

)

Inventories

 

(38.1

)

56.2

 

Prepaid expenses and other assets

 

(2.4

)

0.8

 

Accounts payable

 

57.8

 

14.6

 

Accrued expenses and deferred revenues

 

16.0

 

33.8

 

Long-term liabilities

 

3.1

 

(0.9

)

Other operating activities

 

(0.8

)

0.7

 

Net cash provided by operating activities

 

164.7

 

315.5

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Capital expenditures

 

(93.1

)

(77.7

)

Proceeds from sale of property and equipment

 

2.7

 

6.7

 

Proceeds from sale of business

 

9.7

 

 

Net cash used in investing activities

 

(80.7

)

(71.0

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Net change in short-term borrowings and revolving credit lines

 

 

(0.2

)

Dividends

 

(45.0

)

(39.7

)

Proceeds from issuance of treasury shares and stock options, net

 

12.7

 

15.5

 

Net cash used in financing activities

 

(32.3

)

(24.4

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(1.1

)

(0.2

)

Change in cash and cash equivalents

 

50.6

 

219.9

 

Cash and cash equivalents

 

 

 

 

 

Beginning of period

 

754.5

 

112.5

 

End of period

 

$

805.1

 

$

332.4

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

 

4



 

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 consolidated financial statements to be consistent with current period presentation.  See Note 4 regarding the divestiture of the Transportation Products business.

 

Note 2—New Accounting Pronouncements

 

New Accounting Standards Issued But Not Yet Adopted

 

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  Under ASU 2014-08, only disposals representing a strategic shift in operations should be presented as discontinued operations.  Those strategic shifts should have a major effect on the organization’s operations and financial results.  Additionally, ASU 2014-08 requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations.  ASU 2014-08 is effective for fiscal and interim periods beginning on or after December 15, 2014.  The impact of the adoption of this ASU on the Company’s results of operation, financial position, cash flows and disclosures will be based on the Company’s future disposal activity.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers.  ASU 2014-09 outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance issued by the FASB, including industry specific guidance.  ASU 2014-09 provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts with customers to provide goods and services.  The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain nonfinancial assets, such as property and equipment, including real estate.

 

ASU 2014-09 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2016.  The new standard must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach.  The modified retrospective approach requires that the new standard be applied to all new and existing contracts as of the date of adoption, with a cumulative catch-up adjustment recorded to the opening balance of retained earnings at the effective date for existing contracts that still require performance by the entity.  Under the modified retrospective approach, amounts reported prior to the date of adoption will be presented under existing guidance.

 

ASU 2014-09 also requires entities to disclose both quantitative and qualitative information to enable users of the financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

 

We have not yet determined the impact of adopting the standard on our financial statements nor have we determined whether we will utilize the full retrospective or the modified retrospective approach.

 

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern.  The new standard provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements.  Management will be required to perform interim and annual assessments of the Company’s ability to continue as a going concern within one year of the date the financial statements are issued.  ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.  The adoption of this standard is not expected to have an impact on the Company’s financial statement disclosures.

 

5



 

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 insulation materials, rubber (EPDM), thermoplastic polyolefin (TPO), and polyvinyl chloride (PVC) roofing membranes used predominantly on non-residential low-sloped roofs, related roofing accessories, including flashings, fasteners, sealing tapes, and coatings and waterproofing products. The markets served include new construction, re-roofing and maintenance of low-sloped roofs, water containment, HVAC sealants, and coatings and waterproofing.

 

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 for the transfer of power and data primarily for the aerospace, defense electronics, medical, test and measurement equipment, and select industrial markets.

 

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 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 EBIT includes other unallocated costs, primarily general corporate expenses. Corporate assets consist primarily of cash and cash equivalents, deferred taxes, corporate aircraft, and other invested assets.

 

Financial information for continuing operations by reportable segment is included in the following summary:

 

Three Months Ended September 30,

 

2014

 

2013

 

(in millions)

 

Net Sales(1)

 

EBIT

 

Net Sales(1)

 

EBIT

 

 

 

 

 

 

 

 

 

 

 

Carlisle Construction Materials

 

$

589.1

 

$

97.0

 

$

505.7

 

$

83.0

 

Carlisle Interconnect Technologies

 

164.4

 

33.9

 

147.8

 

24.8

 

Carlisle Brake & Friction

 

89.3

 

6.1

 

85.2

 

5.2

 

Carlisle FoodService Products

 

61.3

 

7.4

 

58.1

 

6.9

 

Corporate

 

 

(10.4

)

 

(10.3

)

 

 

 

 

 

 

 

 

 

 

Total

 

$

904.1

 

$

134.0

 

$

796.8

 

$

109.6

 

 

Nine Months Ended September 30,

 

2014

 

2013

 

(in millions)

 

Net Sales(1)

 

EBIT

 

Assets

 

Net Sales(1)

 

EBIT

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carlisle Construction Materials

 

$

1,472.2

 

$

210.0

 

$

1,033.6

 

$

1,335.8

 

$

197.0

 

$

966.3

 

Carlisle Interconnect Technologies

 

477.5

 

98.7

 

1,042.1

 

434.7

 

65.5

 

1,028.0

 

Carlisle Brake & Friction

 

279.1

 

26.1

 

602.7

 

269.6

 

28.6

 

601.4

 

Carlisle FoodService Products

 

185.2

 

22.9

 

204.2

 

178.9

 

19.3

 

187.2

 

Corporate

 

 

(38.4

)

835.8

 

 

(36.0

)

367.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

2,414.0

 

$

319.3

 

$

3,718.4

 

$

2,219.0

 

$

274.4

 

$

3,150.2

 

 


(1) Excludes intersegment sales

 

6



 

A reconciliation of assets reported above to the amounts presented on the Condensed Consolidated Balance Sheet is as follows:

 

 

 

September 30,

 

September 30,

 

(in millions)

 

2014

 

2013

 

Assets per table above

 

$

3,718.4

 

$

3,150.2

 

Assets held for sale

 

 

446.7

 

Total Assets per Consolidated Balance Sheet

 

$

3,718.4

 

$

3,596.9

 

 

Note 4—Discontinued Operations

 

On December 31, 2013, the Company sold its Transportation Products business, subject to the working capital adjustment component of the sale agreement.  The working capital adjustment was finalized during 2014 for $9.7 million and resulted in a $1.0 million after-tax loss.  The after-tax loss was reported in discontinued operations in the first quarter.

 

After-tax loss from Discontinued Operations for the nine months ended September 30, 2013 of $35.0 million reflects the operations of the Transportation Products business which included a $100.0 million goodwill impairment charge recorded during the second quarter of 2013.  For the nine months ended September 30, 2013, the Transportation Products business had net sales of $602.9 million.

 

Note 5—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 in continuing operations was $2.9 million and $2.6 million for the three month periods ended September 30, 2014 and 2013, respectively and $13.6 million and $13.1 million for the nine months ended September 30, 2014 and 2013 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. 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, 2014, 2,645,966 shares were available for grant under this plan, of which 454,597 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, 2014, 256,833 shares were available for grant under this plan, of which 26,833 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 nine months ended September 30, 2014, the Company awarded 259,035 stock options, 104,773 restricted stock awards, 67,970 performance share awards and 10,377 restricted stock units with an aggregate grant-date fair value of approximately $20.3 million to be expensed over the requisite service period for each award.

 

Stock Option Awards

 

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 $0.9 million and $1.1 million for the three month periods ended September 30, 2014 and 2013, respectively, and $3.1 million and $3.5 million for the nine months ended September 30, 2014 and 2013, respectively.

 

7



 

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 2014 and 2013 were as follows:

 

 

 

2014

 

2013

 

Expected dividend yield

 

1.2

%

1.2

%

Expected life in years

 

5.74

 

5.71

 

Expected volatility

 

29.3

%

32.2

%

Risk-free interest rate

 

1.7

%

1.0

%

Weighted average fair value

 

$

19.15

 

$

17.58

 

 

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.  The $73.08 grant date fair value of the 2014 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 2014 performance shares of $95.72 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 $73.08 grant date fair value of the 2014 restricted stock units is based on the closing market price of the stock on February 5, 2014, the date of the grant.

 

Deferred Compensation - Equity

 

Certain employees are eligible to participate in the Company’s Non-qualified Deferred Compensation Plan (the “Deferred Compensation Plan”).  Participants may elect to defer all or part of their stock-based compensation.  Participants have elected to defer 189,980 shares of Company common stock as of September 30, 2014 and 201,060 shares as of December 31, 2013.

 

Note 6Income Taxes

 

The effective income tax rate on continuing operations for the three months and nine months ended September 30, 2014 were 31.7% and 32.9%, respectively.  The year to date provision for income taxes includes taxes on earnings at an anticipated rate of approximately 33% and year to date net discrete tax benefit of $0.6 million.

 

The effective tax rate on continuing operations for the nine months ended September 30, 2013 was 29.7%.  This rate was favorably impacted by a tax election made in a foreign jurisdiction that resulted in the release of deferred tax liabilities with a corresponding tax benefit of approximately $11.8 million in the first nine months of 2013.

 

8



 

Note 7—Earnings Per Share

 

The Company’s 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 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.

 

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

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(in millions except share and per share amounts)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

86.3

 

$

66.4

 

$

198.4

 

$

175.0

 

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

 

(16.2

)

(14.1

)

(45.0

)

(39.7

)

Undistributed earnings

 

70.1

 

52.3

 

153.4

 

135.3

 

Percent allocated to common shareholders (1)

 

99.5

%

99.5

%

99.5

%

99.5

%

 

 

69.7

 

52.0

 

152.6

 

134.6

 

Add: dividends declared - common stock

 

16.0

 

14.0

 

44.2

 

39.5

 

Numerator for basic and diluted EPS

 

$

85.7

 

$

66.0

 

$

196.8

 

$

174.1

 

 

 

 

 

 

 

 

 

 

 

Denominator (in thousands):

 

 

 

 

 

 

 

 

 

Denominator for basic EPS: weighted-average common shares outstanding

 

64,149

 

63,567

 

64,043

 

63,429

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Performance awards

 

306

 

374

 

306

 

374

 

Stock options

 

992

 

949

 

966

 

911

 

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

 

65,447

 

64,890

 

65,315

 

64,714

 

 

 

 

 

 

 

 

 

 

 

Per share income from continuing operations:

 

 

 

 

 

 

 

 

 

Basic

 

$

1.34

 

$

1.04

 

$

3.07

 

$

2.74

 

Diluted

 

$

1.31

 

$

1.02

 

$

3.01

 

$

2.69

 

 


(1) Basic weighted-average common shares outstanding

 

64,149

 

63,567

 

64,043

 

63,429

 

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

 

64,492

 

63,892

 

64,386

 

63,755

 

Percent allocated to common shareholders

 

99.5

%

99.5

%

99.5

%

99.5

%

 

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:

 

9



 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(in millions)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

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

 

$

1.0

 

$

10.2

 

$

 

$

(35.0

)

 

 

 

 

 

 

 

 

 

 

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

 

$

86.7

 

$

76.2

 

$

196.8

 

$

139.3

 

 

Note 8Inventories

 

The components of Inventories at September 30, 2014 and December 31, 2013 were as follows:

 

 

 

September 30,

 

December 31,

 

(in millions)

 

2014

 

2013

 

 

 

 

 

 

 

Finished goods

 

$

180.3

 

$

163.7

 

Work-in-process

 

47.2

 

40.2

 

Raw materials

 

132.7

 

121.3

 

Reserves

 

(25.9

)

(26.4

)

Inventories

 

$

334.3

 

$

298.8

 

 

Note 9Property, Plant and Equipment

 

The components of Property, plant and equipment at September 30, 2014 and December 31, 2013 were as follows:

 

 

 

September 30,

 

December 31,

 

(in millions)

 

2014

 

2013

 

Land

 

$

38.1

 

$

38.9

 

Buildings and leasehold improvements

 

263.9

 

259.1

 

Machinery and equipment

 

658.4

 

606.9

 

Projects in progress

 

79.6

 

60.3

 

 

 

1,040.0

 

965.2

 

Accumulated depreciation

 

(502.4

)

(468.0

)

Property, plant and equipment, net

 

$

537.6

 

$

497.2

 

 

Note 10Goodwill and Other Intangible Assets

 

The changes in the carrying amount of Goodwill, net for the nine months ended September 30, 2014 were as follows:

 

 

 

Construction

 

Interconnect

 

Brake and

 

FoodService

 

 

 

(in millions)

 

Materials

 

Technologies

 

Friction

 

Products

 

Total

 

Gross balance at January 1, 2014

 

$

129.1

 

$

442.6

 

$

226.7

 

$

60.3

 

$

858.7

 

Currency translation

 

(3.9

)

 

 

 

(3.9

)

Gross balance at September 30, 2014

 

125.2

 

442.6

 

226.7

 

60.3

 

854.8

 

Accumulated impairment losses

 

 

 

 

 

 

Net balance at September 30, 2014

 

$

125.2

 

$

442.6

 

$

226.7

 

$

60.3

 

$

854.8

 

 

The Company’s Other intangible assets, net at September 30, 2014, were as follows:

 

10



 

 

 

Acquired

 

Accumulated

 

Net Book

 

(in millions)

 

Cost

 

Amortization

 

Value

 

Assets subject to amortization:

 

 

 

 

 

 

 

Patents

 

$

131.8

 

$

(35.2

)

$

96.6

 

Customer Relationships

 

439.6

 

(115.2

)

324.4

 

Other

 

19.2

 

(11.6

)

7.6

 

Assets not subject to amortization:

 

 

 

 

 

 

 

Trade names

 

116.7

 

 

116.7

 

Other intangible assets, net

 

$

707.3

 

$

(162.0

)

$

545.3

 

 

The Company’s Other intangible assets, net at December 31, 2013, were as follows:

 

 

 

Acquired

 

Accumulated

 

Net Book

 

(in millions)

 

Cost

 

Amortization

 

Value

 

Assets subject to amortization:

 

 

 

 

 

 

 

Patents

 

$

134.6

 

$

(29.2

)

$

105.4

 

Customer Relationships

 

443.3

 

(95.8

)

347.5

 

Other

 

19.0

 

(10.1

)

8.9

 

Assets not subject to amortization:

 

 

 

 

 

 

 

Trade names

 

118.0

 

 

118.0

 

Other intangible assets, net

 

$

714.9

 

$

(135.1

)

$

579.8

 

 

Estimated amortization expense for the remainder of 2014 and the next four years is as follows: $9.2 million remaining in 2014, $36.2 million in 2015, $35.3 million in 2016, $34.5 million in 2017, and $34.4 million in 2018.

 

The net carrying values of the Company’s Other intangible assets by reportable segment were as follows:

 

 

 

September 30,

 

December 31,

 

(in millions)

 

2014

 

2013

 

 

 

 

 

 

 

Carlisle Construction Materials

 

$

76.4

 

$

86.9

 

Carlisle Interconnect Technologies

 

313.7

 

330.8

 

Carlisle Brake & Friction

 

125.2

 

130.1

 

Carlisle FoodService Products

 

30.0

 

32.0

 

Total

 

$

545.3

 

$

579.8

 

 

Note 11—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 $17.6 million and $16.8 million for the nine months ended September 30, 2014 and 2013, 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 $4.3 million for the remainder of 2014, $15.5 million in 2015, $12.5 million in 2016, $10.2 million in 2017, $8.4 million in 2018, and $14.4 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, 2014.

 

11



 

Workers’ Compensation Claims and Related Losses

 

The Company has accrued approximately $25.5 million and $26.9 million related to workers’ compensation claims at September 30, 2014 and December 31, 2013, respectively.  At September 30, 2014, $7.7 million and $17.8 million are included in Accrued expenses and Other long-term liabilities, respectively, and at December 31, 2013, $9.1 million and $17.8 million were included in Accrued expenses and Other long-term liabilities, respectively in the Condensed Consolidated Balance Sheet.  Workers’ compensation obligations related to former employees associated with the Transportation Products business, and arising prior to the sale of the Transportation Products business, have been retained by the Company and the Company is obligated to pay the related claims until they are extinguished or otherwise settled.  The Company will not be held liable for any workers’ compensation claims related to the former Transportation Products business incurred after December 31, 2013.  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, loss development factors, and the Company’s historical loss experience.

 

The Company maintains occurrence-based insurance contracts with certain insurance carriers in accordance with its risk management practices that provides for reimbursement of workers’ compensation claims in excess of $0.5 million.  The Company records a recovery receivable from the insurance carriers when such recovery is deemed probable based on the nature of the claim and history of recoveries.  At September 30, 2014 the Company did not have any recovery receivables recorded for workers’ compensation claims.

 

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 and we do not currently have any significant accruals related to potential future costs of environmental remediation at September 30, 2014, nor do we have an asset retirement obligation recorded at those dates.  However, 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 or asset retirement modifications.

 

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.

 

12



 

Note 12Borrowings

 

As of September 30, 2014 and December 31, 2013 the Company’s borrowings were as follows:

 

 

 

September 30,

 

December 31,

 

(in millions)

 

2014

 

2013

 

3.75% notes due 2022, net of unamortized discount of ($0.9) and ($1.0), respectively

 

$

349.1

 

$

349.0

 

5.125% notes due 2020, net of unamortized discount of ($0.7) and ($0.8) respectively

 

249.3

 

249.2

 

6.125% notes due 2016, net of unamortized discount of ($0.2) and ($0.3) respectively

 

149.8

 

149.7

 

Revolving credit facility

 

 

 

Industrial development and revenue bonds through 2018

 

3.0

 

3.0

 

Other, including capital lease obligations

 

0.1

 

0.1

 

Total long-term debt

 

751.3

 

751.0

 

Less current portion

 

 

 

Total long-term debt, net of current portion

 

$

751.3

 

$

751.0

 

 

Revolving Credit Facilities

 

As of September 30, 2014, the Company had $600.0 million available under its Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”) administered by JPMorgan Chase Bank, N.A.  During the nine months ended September 30, 2014 and September 30, 2013 there were no borrowings under the revolving credit facility.

 

Uncommitted Line of Credit

 

The Company also maintains an uncommitted line of credit of which $45.0 million was available for borrowing as of September 30, 2014 and December 31, 2013.  During the nine months ended September 30, 2014 and September 30, 2013 there were no borrowings under the uncommitted line of credit.

 

Covenants and Limitations

 

Under the Company’s various debt and credit facilities, the Company is required to meet various restrictive covenants and limitations, including limitations on certain leverage ratios, interest coverage and limits on outstanding debt balances held by certain subsidiaries. The Company was in compliance with all covenants and limitations as of September 30, 2014 and December 31, 2013.

 

Other Matters

 

Cash payments for interest were $22.2 million and $22.0 million in the nine months ended September 30, 2014 and 2013, respectively.  Interest expense, net is presented net of interest income of $1.1 million and $0.3 million in the nine months ended September 30, 2014 and 2013, respectively.

 

At September 30, 2014, the fair value of the Company’s par value $350 million, 3.75% senior notes due 2022, $250 million, 5.125% senior notes due 2020, and par value $150 million, 6.125% senior notes due 2016, using Level 2 inputs in the fair value hierarchy, was approximately $343.1 million, $267.9 million and $160.5  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.

 

13



 

Note 13—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 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.

 

Components of net periodic benefit cost were as follows:

 

 

 

Pension Benefits

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(in millions)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

0.9

 

$

1.1

 

$

2.7

 

$

3.3

 

Interest cost

 

1.9

 

1.7

 

5.8

 

5.2

 

Expected return on plan assets

 

(2.6

)

(2.7

)

(8.0

)

(8.0

)

Amortization of unrecognized loss

 

1.1

 

1.2

 

3.2

 

3.6

 

 

 

 

 

 

 

 

 

 

 

Net periodic benefit cost

 

$

1.3

 

$

1.3

 

$

3.7

 

$

4.1

 

 

The Company made no contributions to the pension plans during the nine months ended September 30, 2014.  No minimum contributions to the pension plans are required in 2014.  In light of the plans’ funded status, the Company does not expect to make discretionary contributions to its other pension plans in 2014.

 

During 2014, the Company expects to pay approximately $1.0 million in participant benefits under the non-funded executive supplemental and director plans.

 

Defined Contribution Plans

 

The Company maintains defined contribution plans covering a significant portion of its employees. Expenses for the plans were $2.8 million and $2.4 million for the three months ended September 30, 2014 and 2013, respectively and $8.4 million and $7.6 million for the nine months ended September 30, 2014 and 2013, respectively.

 

ESOP Plan

 

The Company sponsors an employee stock ownership plan (“ESOP”) as part of one of its existing defined contribution plans. Costs for the ESOP are included in the defined contribution plans noted above. The ESOP is available to eligible domestic employees and includes a match of contributions made by plan participants to the savings plan up to a maximum of 4.0% of a participant’s eligible compensation, divided between cash and an employee-directed election of the Company’s common stock, not to exceed 50% of the total match.  Participants are not allowed to direct savings plan contributions to an investment in the Company’s common stock. Total shares held by the ESOP were 1.4 million and 1.7 million at September 30, 2014 and December 31, 2013, respectively.

 

14



 

Note 14— Deferred Revenue and Extended Product Warranties

 

Deferred revenue consists primarily of unearned revenue related to separately priced extended warranty contracts on sales of certain products, the most significant being those offered on its installed roofing systems within the Construction Materials segment.

 

Roofing Systems Deferred Revenue

 

The amount of revenue recognized related to extended product warranties covering roofing systems was $4.9 million and $4.4 million for the three month periods ended September 30, 2014 and September 30, 2013, respectively, and $13.4 million and $12.9 million for the nine month periods ended September 30, 2014 and September 30, 2013, respectively.  Deferred revenue recognized in the Condensed Consolidated Balance Sheets includes the following related to roofing systems extended product warranty contracts:

 

 

 

September 30,

 

December 31,

 

(in millions)

 

2014

 

2013

 

Deferred revenue

 

 

 

 

 

Current

 

$

17.3

 

$

17.0

 

Long-term

 

147.5

 

142.8

 

Deferred revenue liability

 

$

164.8

 

$

159.8

 

 

Expected costs of services to be performed under extended product warranty contracts are actuarially determined.  Any expected costs in excess of deferred revenue are recognized within Accrued expenses.

 

Other Deferred Revenue

 

Other deferred revenue recognized in the Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013, mainly related to contracts on brake pads, was as follows:

 

 

 

September 30,

 

December 31,

 

(in millions)

 

2014

 

2013

 

Deferred revenue

 

 

 

 

 

Current

 

$

0.4

 

$

0.4

 

Long-term

 

0.5

 

0.8

 

Deferred revenue liability

 

$

0.9

 

$

1.2

 

 

Note 15—Standard Product Warranties

 

The Company offers various warranty programs on its products included in the price of its products, primarily certain installed roofing systems, braking products, high-performance cables and assemblies, and foodservice equipment.  The Company’s liability for such warranty programs is included in Accrued expenses.  The change in the Company’s product warranty liabilities for the nine months ended September 30, 2014 and September 30, 2013 was as follows:

 

(in millions)

 

2014

 

2013

 

Balance at January 1

 

$

14.3

 

$

16.3

 

Current year provision

 

15.7

 

12.5

 

Current year claims

 

(14.1

)

(13.6

)

Balance at September 30

 

$

15.9

 

$

15.2

 

 

15



 

Note 16—Other Long-Term Liabilities

 

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

 

 

 

September 30,

 

December 31,

 

(in millions)

 

2014

 

2013

 

Deferred taxes and other tax liabilities

 

$

174.5

 

$

177.6

 

Pension and other post-retirement obligations

 

18.8

 

18.9

 

Long-term workers compensation

 

17.8

 

17.8

 

Deferred compensation

 

13.6

 

11.3

 

Other

 

6.5

 

10.3

 

Other long-term liabilities

 

$

231.2

 

$

235.9

 

 

Note 17—Accumulated Other Comprehensive Income (Loss)

 

The changes in Accumulated other comprehensive income (loss) by component for the three months ended September 30, 2014 were as follows:

 

 

 

Accrued

 

Foreign

 

 

 

 

 

 

 

post-retirement

 

currency

 

Hedging

 

 

 

(in millions)

 

benefit liability(1)

 

translation

 

activities(2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2014

 

$

(27.6

)

$

(2.6

)

$

0.8

 

$

(29.4

)

Other comprehensive income (loss) before reclassifications

 

 

 

(18.1

)

 

(18.1

)

Amounts reclassified from accumulated other comprehensive loss

 

1.1

 

 

(0.2

)

0.9

 

Income tax expense

 

(0.4

)

 

0.1

 

(0.3

)

Net other comprehensive income (loss)

 

0.7

 

(18.1

)

(0.1

)

(17.5

)

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2014

 

$

(26.9

)

$

(20.7

)

$

0.7

 

$

(46.9

)

 

The changes in Accumulated other comprehensive income (loss) by component for the three months ended September 30, 2013 were as follows:

 

 

 

Accrued

 

Foreign

 

 

 

 

 

 

 

post-retirement

 

currency

 

Hedging

 

 

 

(in millions)

 

benefit liability(1)

 

translation

 

activities(2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2013

 

$

(31.7

)

$

(13.1

)

$

1.1

 

$

(43.7

)

Other comprehensive income (loss) before reclassifications

 

 

11.5

 

 

11.5

 

Amounts reclassified from accumulated other comprehensive loss

 

1.5

 

 

(0.1

)

1.4

 

Income tax expense

 

(0.6

)

 

 

(0.6

)

Net other comprehensive income (loss)

 

0.9

 

11.5

 

(0.1

)

12.3

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2013

 

$

(30.8

)

$

(1.6

)

$

1.0

 

$

(31.4

)

 


(1)         Current period amounts related to accrued post-retirement benefit liability are for amortization of unrecognized actuarial gains and losses which is included in net periodic benefit cost for pension and other post-retirement welfare plans.  See Note 13.

(2)         Current period amounts related to hedging activities are a reduction to interest expense.  See Note 20 in the Company’s 2013 Annual Report on Form 10-K for more information.

 

16



 

The changes in Accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2014 were as follows:

 

 

 

Accrued

 

Foreign

 

 

 

 

 

 

 

post-retirement

 

currency

 

Hedging

 

 

 

(in millions)

 

benefit liability(1)

 

translation

 

activities(2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

$

(28.2

)

$

(4.3

)

$

1.0

 

$

(31.5

)

Other comprehensive income (loss) before reclassifications

 

(0.6

)

(16.4

)

 

(17.0

)

Amounts reclassified from accumulated other comprehensive loss

 

3.1

 

 

(0.5

)

2.6

 

Income tax expense

 

(1.2

)

 

0.2

 

(1.0

)

Net other comprehensive income (loss)

 

1.3

 

(16.4

)

(0.3

)

(15.4

)

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2014

 

$

(26.9

)

$

(20.7

)

$

0.7

 

$

(46.9

)

 

The changes in Accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2013 were as follows:

 

 

 

Accrued

 

Foreign

 

 

 

 

 

 

 

post-retirement

 

currency

 

Hedging

 

 

 

(in millions)

 

benefit liability(1)

 

translation

 

activities(2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2012

 

$

(34.1

)

$

(2.7

)

$

1.3

 

$

(35.5

)

Other comprehensive income (loss) before reclassifications

 

0.5

 

1.1

 

 

1.6

 

Amounts reclassified from accumulated other comprehensive loss

 

4.4

 

 

(0.4

)

4.0

 

Income tax expense

 

(1.6

)

 

0.1

 

(1.5

)

Net other comprehensive income (loss)

 

3.3

 

1.1

 

(0.3

)

4.1

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2013

 

$

(30.8

)

$

(1.6

)

$

1.0

 

$

(31.4

)

 


(1)         Current period amounts related to accrued post-retirement benefit liability are for amortization of unrecognized actuarial gains and losses which is included in net periodic benefit cost for pension and other post-retirement welfare plans.  See Note 13.

(2)         Current period amounts related to hedging activities are a reduction to interest expense.  See Note 20 in the Company’s 2013 Annual Report on Form 10-K for more information.

 

Note 18 — Subsequent Events

 

On October 1, 2014, the Company acquired LHi Technology (“LHi”), a leading designer, manufacturer and provider of cable assemblies and related interconnect components to the medical equipment and device industry.  LHi supplies world-class medical device manufacturers with interconnect components used for patient monitoring, electrosurgery, diagnostic imaging and surgical instrumentation.  The enterprise value of the transaction was $195 million.

 

LHi has manufacturing and assembly facilities in Shenzhen, China, and has annual sales of approximately $100 million. LHi sells its products globally to the world’s leading medical device manufacturers. The company designs, manufactures and sells customized, high-reliability wire, cable and components for transmission of data and power to and from medical devices used for a variety of medical applications. The business will operate as part of Carlisle Interconnect Technologies. Results of operations for LHi will be included in the Company’s condensed consolidated financial statements from the date of acquisition.

 

On October 8, 2014, the Company entered into a definitive agreement to purchase from Graco Inc. and its subsidiary Finishing Brands Holdings, Inc. their held separate liquid finishing business net assets (“Liquid Finishing Brands”) for $590 million in cash.  The Liquid Finishing Brands business was acquired by Graco in April 2012 as part of its purchase of the liquid and powder finishing businesses of Illinois Tool Works. The Liquid Finishing Brands business is currently being held separate from Graco’s other businesses pursuant to an order of the U.S. Federal Trade Commission (“FTC”), and Graco is required to sell the business within 180 days after entry of the FTC’s final divestiture order, which occurred on October 6, 2014.

 

17



 

The Liquid Finishing Brands business has annual sales of approximately $275 million and is a global manufacturer and supplier of liquid finishing equipment and systems serving diverse end markets for paints and coatings, including OE automotive, automotive refinishing, aerospace, agriculture, construction, marine, rail and other industrial applications.  The business operates from multiple locations in seven countries with approximately 57% of its sales outside the United States. Liquid Finishing Brands manufactures and sells products under the well-known brand names of Binks®, DeVilbiss®, Ransburg® and BGK.

 

Carlisle will include Liquid Finishing Brands in a new operating segment named Carlisle Fluid Technologies. The acquisition is subject to FTC and other regulatory approvals and certain other closing conditions.  The purchase is expected to be completed on, or about, December 31, 2014.

 

18



 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Executive Overview

 

Carlisle Companies Incorporated (“Carlisle”, the “Company”, “we”, “us” or “our”) is a diversified manufacturing company focused on achieving profitable growth organically through new product development, product line extensions, entering new markets and externally through acquisitions that complement our existing technologies, products and market channels. We manage our businesses under the following segments:

 

·                  Carlisle Construction Materials (“CCM” or the “Construction Materials segment”);

 

·                  Carlisle Interconnect Technologies (“CIT” or the “Interconnect Technologies segment”);

 

·                  Carlisle Brake & Friction (“CBF” or the “Brake & Friction segment”); and

 

·                  Carlisle FoodService Products (“CFSP” or the “FoodService Products segment”).

 

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

 

On December 31, 2013, the Company sold its Transportation Products business.  Results for the Transportation Products business are reported in discontinued operations for all prior periods presented.  Prior to its sale, the Transportation Products business was our second largest segment based on $767.9 million in net sales in 2013.  However, this segment was not core to our strategy and did not support our net sales growth and EBIT margin objectives. We have applied the proceeds to provide value to shareholders by making investments in the acquisition of LHi Technology and the planned acquisition of Liquid Finishing Brands in furtherance of our long term goals.

 

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

 

For a more in-depth discussion of the results discussed in this “Executive Overview”, please refer to the discussion on “Financial Reporting Segments” presented later in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

Net sales increased 13% in the third quarter of 2014 to $904.1 million, compared to $796.8 million for the same period in 2013.  Organic sales (defined as net sales from continuing operations excluding sales from acquired businesses within the last twelve months, as well as the impact of changes in foreign exchange rates) in the third quarter of 2014 grew 13.4% reflecting higher sales volume of 14.1% due to robust demand for commercial roofing at Construction Materials and strong demand in the aerospace market at Interconnect Technologies as well as execution on selling initiatives partially offset by a 0.7% lower selling price primarily at Construction Materials and Interconnect Technologies.  Net sales at Brake & Friction and Foodservice Products grew moderately during the third quarter versus the prior year.  During the third quarter of 2014, the increase in net sales from fluctuations in foreign currency exchange rates was less than 0.1%.

 

For the third quarter of 2014, EBIT grew 22% and EBIT margin rose 100 basis points to 14.8% due to lower per unit costs resulting from higher capacity utilization driven by higher sales volume and lower labor and material usage costs from the Carlisle Operating System.  These positive impacts were partially offset by lower selling prices net of changes in raw material costs at Construction Materials and Interconnect Technologies as well as higher freight expense at Construction Materials.  Our income from continuing operations, net of tax, of $86.3 million increased by 30% in the third quarter of 2014, from income of $66.4 million in the third quarter of 2013, reflecting higher EBIT and a lower effective tax rate during the third quarter of 2014 versus the prior year.

 

19



 

For the nine months ended September 30, 2014, net sales increased 8.8% to $2.41 billion, compared to $2.22 billion for the same period in 2013 led by higher sales volume of 9.7% primarily at Construction Materials and Interconnect Technologies partially offset by lower selling price of 1.2% primarily at Construction Materials and Interconnect Technologies.

 

For the first nine months of 2014, EBIT grew 16% and EBIT margin increased 80 basis points to 13.2% reflecting lower per unit costs resulting from higher capacity utilization as well as lower labor and material usage costs from the from the Carlisle Operating System. Offsetting the EBIT margin improvements were lower selling price, and, at Construction Materials, increased per unit costs resulting from lower capacity utilization during the first quarter 2014 in our new polyiso plants.  Income from continuing operations, net of tax, of $198.4 million increased 13% in the first nine months of 2014 from income of $175.0 million in the first nine months of 2013.

 

On October 1, 2014, we completed the acquisition of LHi Technology (“LHi”), a leading global designer and manufacturer of medical cabling and interconnect applications, for an enterprise value of $195 million using cash on hand. The purchase price for LHi is subject to final working capital adjustments.  The results of operations for LHi will be reported within the CIT segment and are expected to be accretive to earnings per share within the first year of acquisition.

 

For the full year 2014, we expect high single digit net sales growth along with EBIT margin improvement versus 2013.  Growth in 2014 is anticipated to primarily reflect increased sales volume related to demand for commercial roofing at Construction Materials and for commercial aerospace at Interconnect Technologies.

 

As of September 30, 2014, we had $805 million of cash on hand and $600 million of availability under our revolving credit facility.  On October 1, 2014, we purchased LHi for an enterprise value of $195 million using cash on hand.  On October 8, 2014, we entered into an agreement to purchase the liquid finishing brands business (“Liquid Finishing Brands”) from Graco Inc. for $590 million.  This purchase is expected to be completed on, or about, December 31, 2014 using cash on hand.  Both the acquisition of LHi and the pending acquisition of Liquid Finishing Brands reflect our commitment to maximize shareholder value.  After the acquisition of Liquid Finishing Brands, we expect to have ample liquidity to continue to pursue our long-term growth objectives and return capital to shareholders.

 

Net Sales

 

 

 

Three Months Ended September 30,

 

Volume

 

Price

 

Exchange

 

(in millions)

 

2014

 

2013

 

Change

 

Effect

 

Effect

 

Rate Effect

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

904.1

 

$

796.8

 

13.5%

 

14.1

%

(0.7

)%

0.1

%

 

 

 

Nine Months Ended September 30,

 

Volume

 

Price

 

Exchange

 

(in millions)

 

2014

 

2013

 

Change

 

Effect

 

Effect

 

Rate Effect

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

2,414.0

 

$

2,219.0

 

8.8%

 

9.7

%

(1.2

)%

0.3

%

 

For the third quarter of 2014, the increase in net sales primarily reflected strong sales volume at Construction Materials and Interconnect Technologies on increased demand for commercial roofing and aerospace, respectively.  Sales volume growth was partially offset by lower selling price at Construction Materials and Interconnect Technologies.  Brake & Friction and Foodservice Products both achieved moderate increases in demand during the third quarter 2014.

 

For the first nine months of 2014, organic sales growth was similarly impacted by stronger demand at Interconnect Technologies and Construction Materials.

 

We have a long-term goal of achieving 30% of total net sales from outside the United States.  Total net sales to customers located outside the United States increased from $508.6 million in the first nine months of 2013, or 22.9% of net sales, to $587.3 million in the first nine months of 2014, or 24.3% of net sales. The 15% increase in net sales from outside the United States from the first nine months of 2013 to the first nine months of 2014 primarily reflects higher net sales into Europe by Construction Materials and Interconnect Technologies, higher sales into Canada by Construction Materials and 1.1% increased net sales from fluctuations in foreign exchange rates.

 

20



 

Gross Margin

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(in millions)

 

2014

 

2013

 

Change

 

2014

 

2013

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

$

237.1

 

$

200.3

 

18.4%

 

$

623.8

 

$

559.8

 

11.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

26.2

%

25.1

%

 

 

25.8

%

25.2

%

 

 

 

For the third quarter of 2014, gross margin (gross profit expressed as a percentage of net sales) increased 110 basis points due to lower per unit costs related to higher capacity utilization driven by higher sales volume and lower labor and material usage costs from the Carlisle Operating System.  These positive impacts were partially offset by lower selling price and higher freight costs at Construction Materials.  Included in gross profit and gross margin for the third quarter 2014 was $2.0 million in plant startup costs at Construction Materials related to startup of its PVC manufacturing operations and new TPO manufacturing facility, as compared to $3.4 million in plant startup costs at Constructions Materials in the same prior year period.

 

The 60 basis point increase in gross margin for the first nine months of 2014 versus the prior year was similarly impacted by the above noted factors. Included in gross profit and gross margin for the first nine months of 2014 was $5.6 million in plant startup costs at Construction Materials related to startup of its PVC manufacturing operations and new TPO manufacturing facility, as compared to $5.5 million in plant startup costs at Constructions Materials in the same prior year period.  Also included in gross margin for the first nine months of the prior year was $1.1 million of additional cost of goods sold related to recording acquired inventory at estimated fair value as of the acquisition date in the Interconnect Technologies segment.

 

Selling and Administrative Expenses

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(in millions)

 

2014

 

2013

 

Change

 

2014

 

2013

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling & Administrative

 

$

94.4

 

$

87.1

 

8.4%

 

$

282.0

 

$

265.5

 

6.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As a percentage of net sales

 

10.4

%

10.9

%

 

 

11.7

%

12.0

%

 

 

 

Selling and administrative expenses increased 8.4% versus the prior year primarily reflecting higher selling and commission costs tied to higher sales, higher acquisition costs, increased performance based incentive compensation expense and expenditures on certain entity-wide programs and initiatives.  During the third quarter 2014, Interconnect Technologies incurred $1.1 million in transaction expenses connected to the acquisition of LHi.

 

The increase in selling and administrative expenses for the first nine months in 2014 versus the prior year was similarly impacted by the above noted factors.

 

Research and Development Expenses

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(in millions)

 

2014

 

2013

 

Change

 

2014

 

2013

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and Development

 

$

8.6

 

$

7.0

 

22.9%

 

$

25.0

 

$

21.7

 

15.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As a percentage of net sales

 

1.0

%

0.9

%

 

 

1.0

%

1.0

%

 

 

 

The increase in research and development expenses during the third quarter 2014 reflected increased product development costs primarily in the Brake & Friction segment.  For the nine months ended September 30, 2014, the increase in research and development expense reflects increased product development activities by all the segments, led by increased efforts at Brake & Friction.

 

21



 

Other (Income) Expense, net

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(in millions)

 

2014

 

2013

 

Change

 

2014

 

2013

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (income) expense, net

 

$

0.1

 

$

(3.4

)

102.9%

 

$

(2.5

)

$

(1.8

)

(38.9

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As a percentage of net sales

 

0.0

%

(0.4

)%

 

 

(0.1

)%

(0.1

)%

 

 

 

Other expense during the third quarter 2014 primarily reflects foreign exchange losses.  By comparison, during the third quarter of 2013, the Construction Materials recorded a $1.3 million positive adjustment to the fair value of contingent consideration related to its 2011 acquisition of PDT based upon an earn-out settlement agreement with the former owners.  Also during the third quarter of 2013, Foodservice Products sold its distribution facility in Reno, NV and recognized a pre-tax gain of $1.0 million on the sale.

 

Other income for the first nine months of 2014 primarily reflects a $1.1 million gain on the sale of property in The Netherlands at Foodservice Products that occurred in the second quarter of 2014 and a gain of $0.9 million from final settlement of the Thermax/Raydex acquisition by Interconnect Technologies recognized in the first quarter of 2014. By comparison, other income in the nine month period ending September 30, 2013 primarily reflects fair value adjustments related to commodity swap agreements in the Interconnect Technologies segment and contingent consideration for the PDT acquisition in the Construction Materials segment as well as the aforementioned gain on the sale of Foodservice Products property in Reno, NV.

 

EBIT (Earnings Before Interest and Taxes)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(in millions)

 

2014

 

2013

 

Change

 

2014

 

2013

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBIT

 

$

134.0

 

$

109.6

 

22.3%

 

$

319.3

 

$

274.4

 

16.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBIT Margin

 

14.8

%

13.8

%

 

 

13.2

%

12.4

%

 

 

 

EBIT grew 22% in the third quarter of 2014 reflecting lower per unit costs from higher capacity utilization driven by higher sales volume and lower labor and material usage from the Carlisle Operating System, partially offset by lower selling prices net of raw material expense changes as well as higher freight expense at Construction Materials.

 

EBIT for the first nine months of 2014 was similarly impacted by the above mentioned factors.  In addition to the above noted factors, EBIT for the first nine months of 2014 was negatively impacted by lower capacity utilization at Construction Materials’ new polyiso facilities which occurred during the first quarter of 2014 and increased expense for product and warranty related costs.

 

Interest Expense

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(in millions)

 

2014

 

2013