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, 2015

 

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 16, 2015: 65,005,401

 

 

 



 

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)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

973.1

 

$

904.1

 

$

2,667.0

 

$

2,414.0

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

677.6

 

667.0

 

1,913.1

 

1,790.2

 

Selling and administrative expenses

 

121.7

 

94.4

 

345.4

 

282.0

 

Research and development expenses

 

11.3

 

8.6

 

31.0

 

25.0

 

Other expense (income), net

 

0.7

 

0.1

 

1.3

 

(2.5

)

 

 

 

 

 

 

 

 

 

 

Earnings before interest and income taxes

 

161.8

 

134.0

 

376.2

 

319.3

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

8.7

 

7.7

 

25.6

 

23.8

 

Earnings before income taxes from continuing operations

 

153.1

 

126.3

 

350.6

 

295.5

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (Note 6)

 

49.5

 

40.0

 

112.7

 

97.1

 

Income from continuing operations

 

103.6

 

86.3

 

237.9

 

198.4

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(0.6

)

 

(1.7

)

Income tax benefit

 

 

(1.6

)

 

(1.7

)

Income from discontinued operations

 

 

1.0

 

 

 

Net income

 

$

103.6

 

$

87.3

 

$

237.9

 

$

198.4

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to common shares

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.59

 

$

1.34

 

$

3.64

 

$

3.07

 

Income from discontinued operations

 

 

0.01

 

 

 

Basic earnings per share

 

$

1.59

 

$

1.35

 

$

3.64

 

$

3.07

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to common shares

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.56

 

$

1.31

 

$

3.58

 

$

3.01

 

Income from discontinued operations

 

 

0.01

 

 

 

Diluted earnings per share

 

$

1.56

 

$

1.32

 

$

3.58

 

$

3.01

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding - in thousands

 

 

 

 

 

 

 

 

 

Basic

 

64,970

 

64,149

 

64,952

 

64,043

 

Diluted

 

65,987

 

65,447

 

66,052

 

65,315

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid

 

$

19.6

 

$

16.2

 

$

52.7

 

$

45.0

 

Dividends declared and paid per share

 

$

0.30

 

$

0.25

 

$

0.80

 

$

0.69

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

 

 

 

 

 

 

 

 

Net income

 

$

103.6

 

$

87.3

 

$

237.9

 

$

198.4

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

Change in foreign currency translation

 

(9.2

)

(18.1

)

(17.7

)

(16.4

)

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

 

0.8

 

0.7

 

2.4

 

1.3

 

Loss on hedging activities, net of tax

 

(0.1

)

(0.1

)

(0.3

)

(0.3

)

Other comprehensive loss

 

(8.5

)

(17.5

)

(15.6

)

(15.4

)

Comprehensive income

 

$

95.1

 

$

69.8

 

$

222.3

 

$

183.0

 

 

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)

 

2015

 

2014

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

354.4

 

$

730.8

 

Receivables, net of allowance of $5.0 in 2015 and $4.8 in 2014

 

600.8

 

439.2

 

Inventories (Note 8)

 

383.8

 

339.1

 

Deferred income taxes

 

35.2

 

35.4

 

Prepaid expenses and other current assets

 

52.2

 

67.0

 

Total current assets

 

1,426.4

 

1,611.5

 

 

 

 

 

 

 

Property, plant, and equipment, net of accumulated depreciation of $554.0 in 2015 and $513.7 in 2014 (Note 9)

 

580.0

 

547.3

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Goodwill, net (Note 10)

 

1,137.2

 

964.5

 

Other intangible assets, net (Note 10)

 

906.1

 

611.7

 

Other long-term assets

 

25.9

 

23.7

 

Total other assets

 

2,069.2

 

1,599.9

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

4,075.6

 

$

3,758.7

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term debt, including current maturities (Note 12)

 

$

149.9

 

$

 

Accounts payable

 

267.5

 

198.0

 

Accrued expenses

 

216.9

 

176.3

 

Deferred revenue (Note 14)

 

27.3

 

17.9

 

Total current liabilities

 

661.6

 

392.2

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Long-term debt (Note 12)

 

598.7

 

749.8

 

Deferred revenue (Note 14)

 

155.9

 

151.1

 

Other long-term liabilities (Note 16)

 

295.3

 

260.6

 

Total long-term liabilities

 

1,049.9

 

1,161.5

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

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

 

 

 

Common stock, $1 par value per share. Authorized 200,000,000 shares; 78,661,248 shares issued; 64,855,456 outstanding in 2015 and 64,691,059 outstanding in 2014

 

78.7

 

78.7

 

Additional paid-in capital

 

284.9

 

247.8

 

Deferred compensation equity (Note 5)

 

8.4

 

6.0

 

Cost of shares in treasury - 13,578,670 shares in 2015 and 13,723,201 shares in 2014

 

(250.1

)

(200.1

)

Accumulated other comprehensive loss (Note 17)

 

(77.4

)

(61.8

)

Retained earnings

 

2,319.6

 

2,134.4

 

Total shareholders’ equity

 

2,364.1

 

2,205.0

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

4,075.6

 

$

3,758.7

 

 

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)

 

2015

 

2014

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

Net income

 

$

237.9

 

$

198.4

 

Reconciliation of net income to cash flows provided by operating activities:

 

 

 

 

 

Depreciation

 

54.6

 

47.4

 

Amortization

 

40.8

 

28.4

 

Non-cash compensation, net of tax benefit

 

1.0

 

10.3

 

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

 

0.4

 

(1.9

)

Deferred taxes

 

2.3

 

(0.7

)

Foreign exchange (gain) loss

 

0.2

 

(0.3

)

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

 

 

 

 

 

Receivables

 

(108.3

)

(152.5

)

Inventories

 

(6.5

)

(38.1

)

Prepaid expenses and other assets

 

0.6

 

(2.4

)

Accounts payable

 

49.4

 

57.8

 

Accrued expenses and deferred revenues

 

77.4

 

16.0

 

Long-term liabilities

 

1.9

 

3.1

 

Other operating activities

 

1.2

 

(0.8

)

Net cash provided by operating activities

 

352.9

 

164.7

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Capital expenditures

 

(48.7

)

(93.1

)

Acquisitions, net of cash

 

(598.9

)

 

Proceeds from sale of property and equipment

 

0.1

 

2.7

 

Proceeds from sale of business

 

 

9.7

 

Net cash used in investing activities

 

(647.5

)

(80.7

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Net change in short-term borrowings and revolving credit lines

 

(1.4

)

 

Repayments of long-term debt

 

(1.5

)

 

Dividends

 

(52.7

)

(45.0

)

Proceeds from issuance of treasury shares and stock options

 

35.2

 

12.7

 

Repurchases of common stock

 

(57.9

)

 

Net cash used in financing activities

 

(78.3

)

(32.3

)

 

 

 

 

 

 

Effect of foreign currency exchange rate changes on cash and cash equivalents

 

(3.5

)

(1.1

)

Change in cash and cash equivalents

 

(376.4

)

50.6

 

Cash and cash equivalents

 

 

 

 

 

Beginning of period

 

730.8

 

754.5

 

End of period

 

$

354.4

 

$

805.1

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

 

4



 

Carlisle Companies Incorporated

Unaudited Consolidated Statement of Shareholders’ Equity

(In millions, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Deferred

 

Other

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

Paid-In

 

Compensation

 

Comprehensive

 

Retained

 

Shares in Treasury

 

Shareholders’

 

 

 

Shares

 

Amount

 

Capital

 

Equity

 

Income (loss)

 

Earnings

 

Shares

 

Cost

 

Equity

 

Balance at December 31, 2013

 

63,658,777

 

$

78.7

 

$

201.1

 

$

3.0

 

$

(31.5

)

$

1,944.3

 

14,761,481

 

$

(209.5

)

$

1,986.1

 

Net income

 

 

 

 

 

 

 

251.3

 

 

 

 

251.3

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

(30.3

)

 

 

 

 

(30.3

)

Cash dividends - $0.94 per share

 

 

 

 

 

 

 

(61.2

)

 

 

 

(61.2

)

Stock based compensation (1)

 

1,032,282

 

 

46.7

 

3.0

 

 

 

(1,038,280

)

9.4

 

59.1

 

Balance at December 31, 2014

 

64,691,059

 

78.7

 

247.8

 

6.0

 

(61.8

)

2,134.4

 

13,723,201

 

(200.1

)

2,205.0

 

Net income

 

 

 

 

 

 

 

237.9

 

 

 

 

237.9

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

(15.6

)

 

 

 

 

(15.6

)

Cash dividends - $0.80 per share

 

 

 

 

 

 

 

(52.7

)

 

 

 

(52.7

)

Common stock repurchase

 

 

 

 

 

 

 

 

591,062

 

(57.9

)

(57.9

)

Stock based compensation (1)

 

164,397

 

 

37.1

 

2.4

 

 

 

(735,593

)

7.9

 

47.4

 

Balance at September 30, 2015

 

64,855,456

 

$

78.7

 

$

284.9

 

$

8.4

 

$

(77.4

)

$

2,319.6

 

13,578,670

 

$

(250.1

)

$

2,364.1

 

 


(1)  Stock based compensation includes stock option activity, net of tax, and restricted share activity

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

 

5



 

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.   The unaudited condensed consolidated financial statements include assets, liabilities, net sales, and expenses of all majority-owned subsidiaries.  Carlisle accounts for investments in minority-owned companies where it exercises significant influence, but does not have control, on the equity basis.  Intercompany transactions and balances are eliminated in consolidation.

 

Note 2—New Accounting Pronouncements

 

New Accounting Standards Issued But Not Yet Adopted

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”).  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, 2017.  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.

 

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 April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  ASU 2015-03 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2015, and early adoption is permitted. The provisions of ASU 2015-03 are not expected to have a material effect on the Company’s financial condition.

 

In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”).  ASU 2015-15 expands guidance provided in ASU 2015-03 and states that presentation of costs associated with securing a revolving line of credit as an asset is permitted, regardless of whether a balance is outstanding.  ASU 2015-15 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2015, and early adoption is permitted. The provisions of ASU 2015-15 are not expected to have a material effect on the Company’s financial condition.

 

In April 2015, the FASB issued ASU 2015-05, Customer’s Accounting For Fees Paid In A Cloud Computing Arrangement (“ASU 2015-05”), which provides guidance for a customer’s accounting for cloud computing costs. ASU 2015-05 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2015. The provisions of ASU 2015-05 are not expected to have a material effect on the Company’s financial condition, results of operations, or cash flows.

 

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”), which applies to inventory valued at first-in, first-out (FIFO) or average cost.  ASU 2015-11 requires inventory to be measured at the lower of cost and net realizable value, rather than at the lower of cost or market.  ASU 2015-11 is effective on a prospective basis for annual periods, including interim reporting periods within those periods, beginning after December 15, 2016.  The Company reports inventory on an average-cost basis and thus will be required to adopt the standard; however, the provisions of ASU 2015-11 are not expected to have a material effect on the Company’s financial condition.

 

6



 

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”).  ASU 2015-16 eliminates the requirement to restate prior period financial statements for measurement period adjustments.  The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified.  In addition, separate presentation on the face of the income statement or disclosure in the notes is required regarding the portion of the adjustment recorded in the current period earnings, by line item, that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.  ASU 2015-16 is to be applied prospectively for measurement period adjustments that occur after the effective date.  ASU 2015-16 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2015, and early adoption is permitted.  Since it is prospective, the impact of ASU 2015-16 on the Company’s financial condition and earnings will depend upon the nature of any measurement period adjustments identified in future periods.

 

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, medical, defense electronics, test and measurement equipment, and select industrial markets.

 

Carlisle Fluid Technologies (“CFT” or the “Fluid Technologies segment”)—the principal products of this segment are industrial finishing equipment and integrated system solutions for spraying, pumping, mixing, metering, and curing of a variety of coatings used in the transportation, general industrial, protective coating, wood, specialty, and auto refinishing 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 construction, agriculture, mining, aerospace, and motor sports 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 earnings before interest and income taxes (“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,

 

2015

 

2014

 

(in millions)

 

Net Sales

 

EBIT

 

Net Sales

 

EBIT

 

 

 

 

 

 

 

 

 

 

 

Carlisle Construction Materials

 

$

570.1

 

$

115.5

 

$

589.1

 

$

97.0

 

Carlisle Interconnect Technologies

 

202.3

 

41.2

 

164.4

 

33.9

 

Carlisle Fluid Technologies

 

67.9

 

10.1

 

 

 

Carlisle Brake & Friction

 

70.7

 

0.5

 

89.3

 

6.1

 

Carlisle FoodService Products

 

62.1

 

7.7

 

61.3

 

7.4

 

Corporate

 

 

(13.2

)

 

(10.4

)

 

 

 

 

 

 

 

 

 

 

Total

 

$

973.1

 

$

161.8

 

$

904.1

 

$

134.0

 

 

7



 

Nine Months Ended September 30,

 

2015

 

2014

 

(in millions)

 

Net Sales

 

EBIT

 

Assets

 

Net Sales

 

EBIT

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carlisle Construction Materials

 

$

1,519.0

 

$

264.3

 

$

1,007.8

 

$

1,472.2

 

$

210.0

 

$

1,033.6

 

Carlisle Interconnect Technologies

 

595.0

 

111.8

 

1,294.2

 

477.5

 

98.7

 

1,042.1

 

Carlisle Fluid Technologies

 

129.6

 

9.1

 

677.1

 

 

 

 

Carlisle Brake & Friction

 

242.1

 

16.8

 

579.4

 

279.1

 

26.1

 

602.7

 

Carlisle FoodService Products

 

181.3

 

20.3

 

202.7

 

185.2

 

22.9

 

204.2

 

Corporate

 

 

(46.1

)

314.4

 

 

(38.4

)

835.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

2,667.0

 

$

376.2

 

$

4,075.6

 

$

2,414.0

 

$

319.3

 

$

3,718.4

 

 

Note 4 — Acquisitions

 

2015 Acquisition

 

Finishing Brands

 

On April 1, 2015, the Company acquired 100% of the Finishing Brands business from Graco Inc. (“Graco”) for total cash consideration of $598.9 million, net of $12.2 million cash acquired.  The Company funded the acquisition with cash on hand.  As of the acquisition date, the Company recorded a payable to Graco for $20.6 million representing the estimated working capital settlement.  In the third quarter of 2015, the Company finalized the working capital settlement with Graco for $21.1 million in cash.  The additional cash consideration paid has been allocated to goodwill.  The Company has reported the results of the acquired business as a new reporting segment named Carlisle Fluid Technologies (“CFT”).  CFT is a global manufacturer and supplier of finishing equipment and systems serving diverse end markets for paints and coatings, including original equipment (“OE”) automotive, automotive refinishing, aerospace, agriculture, construction, marine, rail, and other industrial applications.

 

CFT contributed net sales of $129.6 million and earnings before interest and taxes of $9.1 million for the period from April 1, 2015 to September 30, 2015. Earnings before interest and taxes for the period from April 1, 2015 to September 30, 2015 includes $0.7 million of non-recurring acquisition-related costs related primarily to professional fees and $8.6 million of non-recurring incremental cost of goods sold related to measuring inventory at fair value.  Earnings before interest and taxes for the period from April 1, 2015 to September 30, 2015 also includes $6.2 million and $2.6 million of amortization expense of customer relationships and acquired technology, respectively.

 

The Finishing Brands amounts included in the pro forma financial information below are based on the Finishing Brands’ historical results and, therefore, may not be indicative of the actual results if operated by Carlisle.  The pro forma adjustments represent management’s best estimates based on information available at the time the pro forma information was prepared and may differ from the adjustments that may actually have been required.  Accordingly, pro forma information should not be relied upon as being indicative of the historical results that would have been realized had the acquisition occurred as of the date indicated or that may be achieved in the future.

 

The unaudited combined pro forma financial information presented below includes Net sales and Income from continuing operations, net of tax, of the Company as if the business combination had occurred on January 1, 2014 based on the preliminary purchase price allocation presented below:

 

 

 

Pro Forma

 

Pro Forma

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(in millions)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

973.1

 

$

970.3

 

$

2,728.2

 

$

2,614.9

 

Income from continuing operations

 

103.6

 

91.9

 

250.5

 

208.9

 

 

The pro forma financial information reflects adjustments to Finishing Brands’ historical financial information to apply the Company’s accounting policies and to reflect the additional depreciation and amortization related to the preliminary fair value adjustments of the acquired net assets, together with the associated tax effects. Also, the pro forma financial information reflects the non-recurring costs of goods sold related to the fair valuation of inventory and acquisition-related costs described above as if they occurred in the first quarter of 2014.

 

8



 

The following table summarizes the consideration transferred to acquire Finishing Brands and the preliminary allocation among the assets acquired and liabilities assumed.  The acquisition has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires that consideration be allocated to the acquired assets and liabilities based upon their acquisition date fair values with the remainder allocated to goodwill.

 

 

 

Preliminary
Allocation

 

Measurement
Period
Adjustments

 

Preliminary
Allocation

 

 

 

As of

 

Six Months
Ended

 

As of

 

(in millions)

 

4/1/2015

 

9/30/2015

 

9/30/2015

 

Total cash consideration transferred and payable

 

$

610.6

 

$

0.5

 

$

611.1

 

 

 

 

 

 

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12.2

 

$

 

$

12.2

 

Receivables

 

57.3

 

 

57.3

 

Inventories

 

40.9

 

 

40.9

 

Prepaid expenses and other current assets

 

6.4

 

(0.1

)

6.3

 

Property, plant, and equipment

 

41.0

 

(0.2

)

40.8

 

Definite-lived intangible assets

 

216.0

 

 

216.0

 

Indefinite-lived intangible assets

 

125.0

 

 

125.0

 

Deferred income tax assets

 

1.9

 

 

1.9

 

Other non-current assets

 

3.8

 

 

3.8

 

Line of credit

 

(1.4

)

 

(1.4

)

Accounts payable

 

(16.3

)

 

(16.3

)

Income tax payable

 

(1.9

)

 

(1.9

)

Accrued expenses

 

(15.6

)

0.3

 

(15.3

)

Deferred income tax liabilities

 

(28.8

)

 

(28.8

)

Other non-current liabilities

 

(5.6

)

 

(5.6

)

 

 

 

 

 

 

 

 

Total identifiable net assets

 

434.9

 

 

434.9

 

 

 

 

 

 

 

 

 

Goodwill

 

$

175.7

 

$

0.5

 

$

176.2

 

 

The goodwill recognized in the acquisition of Finishing Brands is attributable to its experienced workforce, the expected operational improvements through implementation of the Carlisle Operating System, opportunities for geographic and product line expansions in addition to supply chain efficiencies and other administrative opportunities, and the significant strategic value of the business to Carlisle.  The Company acquired $58.8 million of gross contractual accounts receivable, of which $1.5 million is not expected to be collected.  Goodwill of $134.9 million is tax deductible, primarily in the United States.  All of the goodwill was assigned to the CFT reporting unit which aligns with the reportable segment.  Indefinite-lived intangible assets of $125.0 million represent acquired trade names.  The $216.0 million value allocated to definite-lived intangible assets consists of $186.0 million of customer relationships with a useful life of 15 years and various acquired technologies of $30.0 million with useful lives ranging from five to eight years. The Company recorded an indemnification asset of $3.0 million in Other long-term assets relating to the indemnification of Carlisle for a pre-acquisition tax liability in accordance with the purchase agreement. The Company has also recorded deferred tax liabilities related to intangible assets of approximately $28.8 million.

 

As additional information is obtained, adjustments may be made to the preliminary purchase price allocation.  The Company is still finalizing the fair value of certain property assets, tax liabilities, and accrued expenses.

 

2014 Acquisition

 

LHi Technology

 

On October 1, 2014, the Company acquired 100% of the equity of LHi Technology (“LHi”) for total cash consideration of $194.0 million, net of $6.7 million cash acquired, inclusive of the working capital settlement.  The Company funded the acquisition

 

9



 

with cash on hand.  LHi is a leading designer, manufacturer and provider of cable assemblies and related interconnect components to the medical equipment and device industry.  The acquisition will strengthen Carlisle’s launch of its medical cable and cable assembly product line by adding new products, new customers, and complementary technologies to better serve the global healthcare market.  LHi operates within the Interconnect Technologies segment.

 

The following table summarizes the consideration transferred to acquire LHi and the final allocation among the assets acquired and liabilities assumed.  The acquisition has been accounted for using the acquisition method of accounting which requires that consideration be allocated to the acquired assets and liabilities based upon their acquisition date fair values with the remainder allocated to goodwill.

 

 

 

Preliminary
Allocation

 

Measurement
Period
Adjustments

 

Final
Allocation

 

 

 

As of

 

 

 

As of

 

(in millions)

 

10/1/2014

 

 

 

9/30/2015

 

Total cash consideration transferred

 

$

200.7

 

$

 

$

200.7

 

 

 

 

 

 

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6.7

 

$

 

$

6.7

 

Receivables

 

26.9

 

 

26.9

 

Inventories

 

17.1

 

 

17.1

 

Prepaid expenses and other current assets

 

2.9

 

 

2.9

 

Property, plant, and equipment

 

4.5

 

 

4.5

 

Definite-lived intangible assets

 

74.5

 

 

74.5

 

Indefinite-lived intangible assets

 

6.0

 

 

6.0

 

Other non-current assets

 

8.8

 

 

8.8

 

Accounts payable

 

(16.9

)

 

(16.9

)

Income tax payable

 

(0.3

)

 

(0.3

)

Accrued expenses

 

(4.9

)

(1.1

)

(6.0

)

Net deferred tax liabilities

 

(16.2

)

 

(16.2

)

Other non-current liabilities

 

(20.1

)

 

(20.1

)

 

 

 

 

 

 

 

 

Total identifiable net assets

 

89.0

 

(1.1

)

87.9

 

 

 

 

 

 

 

 

 

Goodwill

 

$

111.7

 

$

1.1

 

$

112.8

 

 

The goodwill recognized in the acquisition of LHi is attributable to the workforce of LHi, the solid financial performance in the medical cable market, and the significant strategic value of the business to Carlisle. Goodwill arising from the acquisition of LHi is not deductible for income tax purposes.  All of the goodwill was assigned to the Interconnect Technologies reporting unit. Indefinite-lived intangible assets of $6.0 million represent acquired trade names.  The $74.5 million value allocated to definite-lived intangible assets consists of $57.0 million of customer relationships with a useful life of 15 years, $16.0 million of acquired technology with a useful life of six years, and a $1.5 million non-compete agreement with a useful life of five years.  The Company recorded an indemnification asset of $8.7 million in Other long-term assets relating to the indemnification of Carlisle for certain pre-acquisition liabilities, in accordance with the purchase agreement.  The Company has also recorded deferred tax liabilities related to intangible assets as of the closing date.

 

The Company recorded an increase to accrued expenses of $1.1 million and a corresponding increase to goodwill of $1.1 million as a measurement period adjustment.

 

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 $4.1 million and $2.9 million for the three month periods ended September 30,

 

10



 

2015 and 2014, respectively, and $14.6 million and $13.6 million for the nine months ended September 30, 2015 and 2014, respectively.

 

Incentive Compensation Program

 

The Company maintains an Incentive Compensation Program (the “Program”) for executives, certain other employees of the Company and its operating segments and subsidiaries, and the Company’s non-employee directors. The Program was approved by shareholders on May 6, 2015. 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, 2015, 4,204,698 shares were available for grant under this plan, of which 1,588,163 shares were available for the issuance of stock awards.

 

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, 2015, 244,764 shares were available for grant under this plan of which 14,764 restricted 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, 2015, the Company awarded 316,345 stock options, 58,040 restricted stock awards, 58,040 performance share awards and 11,801 restricted stock units with an aggregate grant-date fair value of approximately $19.6 million to be expensed over the requisite service period for each award.

 

Stock Option Awards

 

Options issued under these plans generally 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 $1.5 million and $0.9 million for the three month periods ended September 30, 2015 and 2014, respectively, and $3.9 million and $3.1 million for the nine months ended September 30, 2015 and 2014, 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 2015 and 2014 were as follows:

 

 

 

2015

 

2014

 

Expected dividend yield

 

1.1

%

1.2

%

Expected life in years

 

5.71

 

5.74

 

Expected volatility

 

27.3

%

29.3

%

Risk-free interest rate

 

1.4

%

1.7

%

Weighted-average fair value

 

$

21.19

 

$

19.15

 

 

The expected life of options is based on the assumption that all outstanding options will be exercised at the midpoint of the valuation date (if vested) or the vesting dates (if unvested) and the options’ 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 approximately three years.  The grant date fair value of the 2015 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.

 

11



 

Performance Share Awards

 

The performance shares awarded 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 2015 performance shares 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 approximately 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 $90.54 grant date fair value of the 2015 restricted stock units is based on the closing market price of the stock on February 4, 2015, 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 237,261 shares of Company common stock as of September 30, 2015, and 228,047 shares as of December 31, 2014.

 

Note 6—Income Taxes

 

The effective income tax rate on continuing operations for the nine months ended September 30, 2015 was 32.2%.  The year-to-date provision for income taxes includes taxes on earnings at an anticipated rate of approximately 33% and year-to-date discrete tax benefit of $3.3 million.  The year-to-date discrete tax benefit is primarily related to a state valuation allowance release discussed in detail below,  a decrease in the anticipated future state income tax rate of the Company, and recognition of state attributes generated with the prior year tax filings finalized in the current quarter.

 

As of December 31, 2014 management believed it was more likely than not certain of the Company’s state tax attributes would expire unused and a valuation allowance existed to write the assets down to the amount expected to be realized.  As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regard to the future realization of deferred tax assets. With the acquisition of the Carlisle Fluid Technologies business on April 1, 2015 the Company expects to create sufficient taxable income in certain state taxing jurisdictions so that the assertion regarding the realizability of state tax attributes has changed.  As such a discrete tax benefit of $2.0 million was recorded in the second quarter of 2015 to reverse a portion of the Company’s valuation allowance.

 

The effective tax rate on continuing operations for the nine months ended September 30, 2014 was 32.9% and included a year-to-date discrete benefit of $0.6 million.

 

Note 7—Earnings Per Share

 

The Company’s restricted shares and restricted stock units contain non-forfeitable 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 considering those that are contingently issuable.  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:

 

12



 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(in millions except share and per share amounts)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

103.6

 

$

86.3

 

$

237.9

 

$

198.4

 

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

 

(19.6

)

(16.2

)

(52.7

)

(45.0

)

Undistributed earnings

 

84.0

 

70.1

 

185.2

 

153.4

 

Percent allocated to common shareholders (1)

 

99.5

%

99.5

%

99.5

%

99.5

%

 

 

83.6

 

69.7

 

184.3

 

152.6

 

Add: dividends declared - common stock

 

19.5

 

16.0

 

52.0

 

44.2

 

Numerator for basic and diluted EPS

 

$

103.1

 

$

85.7

 

$

236.3

 

$

196.8

 

 

 

 

 

 

 

 

 

 

 

Denominator (in thousands):

 

 

 

 

 

 

 

 

 

Denominator for basic EPS: weighted-average common shares outstanding

 

64,970

 

64,149

 

64,952

 

64,043

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Performance awards

 

348

 

306

 

348

 

306

 

Stock options

 

669

 

992

 

752

 

966

 

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

 

65,987

 

65,447

 

66,052

 

65,315

 

 

 

 

 

 

 

 

 

 

 

Per share income from continuing operations:

 

 

 

 

 

 

 

 

 

Basic

 

$

1.59

 

$

1.34

 

$

3.64

 

$

3.07

 

Diluted

 

$

1.56

 

$

1.31

 

$

3.58

 

$

3.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

(1)   Basic weighted-average common shares outstanding

 

 

64,970

 

 

64,149

 

 

64,952

 

 

64,043

 

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

 

 

65,304

 

 

64,492

 

 

65,286

 

 

64,386

 

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

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(in millions)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

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

 

$

 

$

1.0

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

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

 

$

103.1

 

$

86.7

 

$

236.3

 

$

196.8

 

 

13



 

Note 8Inventories

 

The components of Inventories at September 30, 2015 and December 31, 2014 were as follows:

 

 

 

September 30,

 

December 31,

 

(in millions)

 

2015

 

2014

 

 

 

 

 

 

 

Finished goods

 

$

212.4

 

$

188.1

 

Work-in-process

 

62.5

 

45.3

 

Raw materials

 

139.1

 

132.2

 

Reserves

 

(30.2

)

(26.5

)

Inventories

 

$

383.8

 

$

339.1

 

 

Note 9Property, Plant and Equipment

 

The components of Property, plant and equipment at September 30, 2015 and December 31, 2014 were as follows:

 

 

 

September 30,

 

December 31,

 

(in millions)

 

2015

 

2014

 

Land

 

$

59.2

 

$

37.1

 

Buildings and leasehold improvements

 

317.5

 

284.6

 

Machinery and equipment

 

725.8

 

690.7

 

Projects in progress

 

31.5

 

48.6

 

 

 

1,134.0

 

1,061.0

 

Accumulated depreciation

 

(554.0

)

(513.7

)

Property, plant, and equipment, net

 

$

580.0

 

$

547.3

 

 

Note 10Goodwill and Other Intangible Assets

 

The changes in the carrying amount of Goodwill, net for the nine months ended September 30, 2015 were as follows:

 

 

 

Construction

 

Interconnect

 

Fluid

 

Brake and

 

FoodService

 

 

 

(in millions)

 

Materials

 

Technologies

 

Technologies

 

Friction

 

Products

 

Total

 

Gross balance at January 1, 2015

 

$

123.3

 

$

554.3

 

$

 

$

226.6

 

$

60.3

 

$

964.5

 

Goodwill acquired during year (1)

 

 

 

175.7

 

 

 

175.7

 

Measurement period adjustments

 

 

1.1

 

0.5

 

 

 

1.6

 

Currency translation

 

(3.4

)

 

(1.2

)

 

 

(4.6

)

Net balance at September 30, 2015

 

$

119.9

 

$

555.4

 

$

175.0

 

$

226.6

 

$

60.3

 

$

1,137.2

 

 


(1) See Note 4 for further information on goodwill resulting from recent acquisitions.

 

14



 

The Company’s Other intangible assets, net at September 30, 2015, were as follows:

 

 

 

Acquired

 

Accumulated

 

Net Book

 

(in millions)

 

Cost

 

Amortization

 

Value

 

Assets subject to amortization:

 

 

 

 

 

 

 

Intellectual property

 

$

174.5

 

$

(48.3

)

$

126.2

 

Customer relationships

 

676.6

 

(150.4

)

526.2

 

Other

 

20.7

 

(13.1

)

7.6

 

Assets not subject to amortization:

 

 

 

 

 

 

 

Trade names

 

246.1

 

 

246.1

 

Other intangible assets, net

 

$

1,117.9

 

$

(211.8

)

$

906.1

 

 

The Company’s Other intangible assets, net at December 31, 2014, were as follows:

 

 

 

Acquired

 

Accumulated

 

Net Book

 

(in millions)

 

Cost

 

Amortization

 

Value

 

Assets subject to amortization:

 

 

 

 

 

 

 

Intellectual property

 

$

146.6

 

$

(37.8

)

$

108.8

 

Customer relationships

 

494.6

 

(122.3

)

372.3

 

Other

 

20.6

 

(12.1

)

8.5

 

Assets not subject to amortization:

 

 

 

 

 

 

 

Trade names

 

122.1

 

 

122.1

 

Other intangible assets, net

 

$

783.9

 

$

(172.2

)

$

611.7

 

 

Estimated amortization expense for the remainder of 2015 and the next four years is as follows: $15.0 million remaining in 2015, $58.8 million in 2016, $58.0 million in 2017, $58.0 million in 2018, and $57.9 million in 2019.

 

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

 

 

 

September 30,

 

December 31,

 

(in millions)

 

2015

 

2014

 

 

 

 

 

 

 

Carlisle Construction Materials

 

$

63.6

 

$

72.3

 

Carlisle Interconnect Technologies

 

364.7

 

386.6

 

Carlisle Fluid Technologies

 

331.4

 

 

Carlisle Brake & Friction

 

118.8

 

123.5

 

Carlisle FoodService Products

 

27.6

 

29.3

 

Total

 

$

906.1

 

$

611.7

 

 

The most recent annual goodwill impairment test was performed for all reporting units as of October 1, 2014.  The Company also performs Step 1 of the goodwill impairment test on an interim basis upon the occurrence of events or substantive changes in circumstances that indicate that a reporting unit’s carrying value may be less than its fair value.

 

The CBF reporting unit’s goodwill as of September 30, 2015 and December 31, 2014 was $226.6 million.  The Company determined through ongoing monitoring that due to various factors it was appropriate to perform Step 1 of the goodwill impairment test as of September 30, 2015. Consistent with the policy described in the 2014 Form 10-K, the Company performed Step 1 of the goodwill impairment test using a discounted cash flow analysis to estimate the fair value of the CBF reporting unit and concluded that its fair value continues to exceed its carrying value.

 

The Company also evaluated the indefinite-lived intangible assets, primarily trademarks and trade names with a carrying value of $53.5 million, associated with the CBF reporting unit for impairment as of September 30, 2015.  The analysis did not result in an impairment of CBF’s trade names as their estimated fair value exceeded their carrying value.

 

15



 

As noted above, the Company believes that the facts and circumstances as of September 30, 2015, indicate that no impairment exists with respect to CBF’s goodwill and other indefinite-lived intangible assets. If the estimates of recovery in CBF’s end markets do not materialize as expected and/or the U.S. Dollar continues to strengthen and therefore results continue to be lower than anticipated, an impairment loss may be recorded.

 

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 $19.3 million and $17.6 million for the nine months ended September 30, 2015 and 2014, 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 $4.4 million for the remainder of 2015, $16.1 million in 2016, $12.8 million in 2017, $10.7 million in 2018, $8.3 million in 2019, and $12.3 million thereafter.

 

Workers’ Compensation Claims and Related Losses

 

The Company has accrued approximately $21.4 million and $23.5 million related to workers’ compensation claims at September 30, 2015 and December 31, 2014, respectively.  At September 30, 2015, $6.7 million and $14.7 million are included in Accrued expenses and Other long-term liabilities, respectively, and at December 31, 2014, $7.8 million and $15.7 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 and loss development factors and the Company’s historical loss experience.

 

The Company maintains occurrence-based insurance coverage 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, 2015, 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-1940s and the mid-1980s.  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.

 

The Company may occasionally 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.

 

16



 

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 as of September 30, 2015, nor do we have an asset retirement obligation recorded as of that date.  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.

 

Note 12Borrowings

 

As of September 30, 2015 and December 31, 2014 the Company’s borrowings were as follows:

 

 

 

September 30,

 

December 31,

 

(in millions)

 

2015

 

2014

 

3.75% notes due 2022, net of unamortized discount of ($0.8) and ($0.9), respectively

 

$

349.2

 

$

349.1

 

5.125% notes due 2020, net of unamortized discount of ($0.6) and ($0.7), respectively

 

249.4

 

249.3

 

6.125% notes due 2016, net of unamortized discount of ($0.1) and ($0.2), respectively

 

149.9

 

149.8

 

Revolving credit facility

 

 

 

Industrial development and revenue bonds

 

 

1.5

 

Other, including capital lease obligations

 

0.1

 

0.1

 

Total long-term debt

 

748.6

 

749.8

 

Less 6.125% notes due 2016 classified as current

 

(149.9

)

 

Total long-term debt, net of current portion

 

$

598.7

 

$

749.8

 

 

Revolving Credit Facilities

 

As of September 30, 2015, 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, 2015 and 2014, 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, 2015 and December 31, 2014.  During the nine months ended September 30, 2015 and 2014, there were no borrowings under the uncommitted line of credit.

 

Industrial Development and Revenue Bonds

 

The industrial development and revenue bonds were collateralized by letters of credit, Company guarantees, and/or by the facilities and equipment acquired through the proceeds of the related bond issuances. The Company repaid the remaining $1.5 million of the outstanding principal on the industrial development and revenue bonds during the second quarter of 2015.

 

17



 

Covenants and Limitations

 

Under the Company’s 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, 2015 and December 31, 2014.

 

Other Matters

 

At September 30, 2015, 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 $351.5 million, $272.6 million and $154.7  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.

 

Note 13—Retirement Plans

 

Defined Benefit Plans

 

The Company maintains defined benefit retirement plans for certain domestic 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:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(in millions)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

0.9

 

$

0.9

 

$

2.8

 

$

2.7

 

Interest cost

 

1.8

 

1.9

 

5.3

 

5.8

 

Expected return on plan assets

 

(2.6

)

(2.6

)

(7.8

)

(8.0

)

Amortization of unrecognized loss

 

1.3

 

1.1

 

3.9

 

3.2

 

 

 

 

 

 

 

 

 

 

 

Net periodic benefit cost

 

$

1.4

 

$

1.3

 

$

4.2

 

$

3.7

 

 

The Company made no contributions to the pension plans during the nine months ended September 30, 2015.  No minimum contributions to the pension plans are required in 2015.  In light of the plans’ funded status, the Company does not expect to make discretionary contributions to its pension plans in 2015.

 

During 2015, 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 $2.9 million and $2.8 million for the three months ended September 30, 2015 and 2014, respectively, and $9.4 million and $8.4 million for the nine months ended September 30, 2015 and 2014, respectively.

 

Employee Stock Ownership Plan

 

The Company sponsors an employee stock ownership plan (“ESOP”) as part of one of its existing savings 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 1.3 million at September 30, 2015 and 1.4 million December 31, 2014.

 

18



 

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 $4.7 million and $4.9 million for the three month periods ended September 30, 2015 and 2014, respectively, and $13.8 million and $13.4 million for the nine month periods ended September 30, 2015 and 2014, 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)

 

2015

 

2014

 

Deferred revenue

 

 

 

 

 

Current

 

$

17.7

 

$

17.5

 

Long-term

 

155.8

 

150.7

 

Deferred revenue liability

 

$

173.5

 

$

168.2

 

 

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, 2015 and December 31, 2014, primarily related to contracts on systems sales within the Fluid Technologies segment, was as follows:

 

 

 

September 30,

 

December 31,

 

(in millions)

 

2015

 

2014

 

Deferred revenue

 

 

 

 

 

Current

 

$

9.6

 

$

0.4

 

Long-term

 

0.1

 

0.4

 

Deferred revenue liability

 

$

9.7

 

$

0.8

 

 

Note 15—Standard Product Warranties

 

The Company offers various warranty programs on its products included in the price of its products, primarily for certain installed roofing systems, high-performance cables and assemblies, fluid technologies, braking products, 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 was as follows:

 

(in millions)

 

2015

 

2014

 

Balance at January 1

 

$

15.2

 

$

14.3

 

Current year provision

 

18.9

 

15.7

 

Acquired warranty obligation

 

1.1

 

 

Current year claims

 

(13.2

)

(14.1

)

Balance at September 30

 

$

22.0

 

$

15.9

 

 

19



 

Note 16—Other Long-Term Liabilities

 

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

 

 

 

September 30,

 

December 31,

 

(in millions)

 

2015

 

2014

 

Deferred taxes and other tax liabilities

 

$

226.2

 

$

195.4

 

Pension and other post-retirement obligations

 

27.3

 

24.8

 

Long-term workers’ compensation

 

14.7

 

15.7

 

Deferred compensation

 

16.3

 

14.0

 

Other

 

10.8

 

10.7

 

Other long-term liabilities

 

$

295.3

 

$

260.6

 

 

Note 17—Accumulated Other Comprehensive Income (Loss)

 

The changes in Accumulated other comprehensive income (loss) by component for the three months ended September 30, 2015 were as follows:

 

 

 

Accrued

 

Foreign

 

 

 

 

 

 

 

post-retirement

 

currency

 

Hedging

 

 

 

(in millions)

 

benefit liability(1)

 

translation

 

activities(2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2015

 

$

(30.4

)

$

(38.9

)

$

0.4

 

$

(68.9

)

Other comprehensive loss before reclassifications

 

 

(9.2

)

 

(9.2

)

Amounts reclassified from accumulated other comprehensive loss

 

1.3

 

 

(0.2

)

1.1

 

Income tax benefit (expense)

 

(0.5

)

 

0.1

 

(0.4

)

Net other comprehensive income (loss)

 

0.8

 

(9.2

)

(0.1

)

(8.5

)

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2015

 

$

(29.6

)

$

(48.1

)

$

0.3

 

$

(77.4

)

 

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 loss before reclassifications

 

 

(18.1

)

 

(18.1

)

Amounts reclassified from accumulated other comprehensive loss

 

1.1

 

 

(0.2

)

0.9

 

Income tax benefit (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

)

 


(1)         Current period amounts related to accrued post-retirement benefit liability are related to 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 18 in the Company’s 2014 Annual Report on Form 10-K for more information.

 

20



 

The changes in Accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2015 were as follows:

 

 

 

Accrued

 

Foreign

 

 

 

 

 

 

 

post-retirement

 

currency

 

Hedging

 

 

 

(in millions)

 

benefit liability(1)

 

translation

 

activities(2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

$

(32.0

)

$

(30.4

)

$

0.6

 

$

(61.8

)

Other comprehensive loss before reclassifications

 

 

(17.7

)

 

(17.7

)

Amounts reclassified from accumulated other comprehensive loss

 

3.9

 

 

(0.4

)

3.5

 

Income tax benefit (expense)