csl_Current Folio_10Q

Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

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

 

FOR THE QUARTERLY PERIOD ENDED September 30, 2016

 

Commission file number 1-9278

 

Picture 1

www.carlisle.com 

 

CARLISLE COMPANIES INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

31-1168055

(State of incorporation)

 

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

 

 

 

 

 

 

 

(480) 781-5000

(Telephone Number)

 

 

 

16430 North Scottsdale Road, Suite 400, Scottsdale, Arizona 85254

(Address of principal executive office, including zip code)

 

 

 

 

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

(Former address, if changed since last report)

 

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   No 

 

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    No 

 

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

Accelerated filer

 

 

Non-accelerated filer

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   No 

 

Shares of common stock outstanding at October 20, 2016: 64,504,487

 

 

 

 


 

Table of Contents

Carlisle Companies Incorporated

Table of Contents

 

 

 

 

 

 

    

 

    

Page
Number

 

 

 

 

 

 

 

PART I:  FINANCIAL STATEMENTS

 

 

 

 

 

 

 

Item 1. 

 

Financial Statements

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited)

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)

 

 

 

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 

Item 2. 

 

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

 

26 

 

 

 

 

 

Item 3. 

 

Quantitative and Qualitative Disclosure about Market Risk

 

40 

 

 

 

 

 

Item 4. 

 

Controls and Procedures

 

40 

 

 

 

 

 

 

 

PART II  OTHER INFORMATION

 

 

 

 

 

 

 

Item 1. 

 

Legal Proceedings

 

41 

 

 

 

 

 

Item 1A. 

 

Risk Factors

 

41 

 

 

 

 

 

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

42 

 

 

 

 

 

Item 3. 

 

Defaults Upon Senior Securities

 

42 

 

 

 

 

 

Item 4. 

 

Mine Safety Disclosures

 

42 

 

 

 

 

 

Item 5. 

 

Other Information

 

42 

 

 

 

 

 

Item 6. 

 

Exhibits

 

42 

 

 

 

 

 

SIGNATURE 

 

43 

 

 

 

2


 

Table of Contents

Item 1. Financial Statements

 

Carlisle Companies Incorporated

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

(in millions except share and per share amounts)

 

2016

 

2015

 

2016

 

2015

Net sales

    

$

991.0

    

$

973.1

    

$

2,781.9

    

$

2,667.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

667.4

 

 

677.6

 

 

1,891.7

 

 

1,913.1

Selling and administrative expenses

 

 

135.6

 

 

121.7

 

 

391.2

 

 

345.4

Research and development expenses

 

 

12.3

 

 

11.3

 

 

35.6

 

 

31.0

Impairment charges

 

 

141.5

 

 

 -

 

 

141.5

 

 

 -

Other (income) expense, net

 

 

(2.2)

 

 

0.7

 

 

(4.0)

 

 

1.3

Earnings before interest and income taxes

 

 

36.4

 

 

161.8

 

 

325.9

 

 

376.2

Interest expense, net

 

 

7.5

 

 

8.7

 

 

24.1

 

 

25.6

Earnings before income taxes from continuing operations

 

 

28.9

 

 

153.1

 

 

301.8

 

 

350.6

Income tax expense

 

 

38.4

 

 

49.5

 

 

127.5

 

 

112.7

(Loss) income from continuing operations

 

 

(9.5)

 

 

103.6

 

 

174.3

 

 

237.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(0.6)

 

 

 -

 

 

(0.7)

 

 

 -

Income tax benefit

 

 

(0.3)

 

 

 -

 

 

(0.3)

 

 

 -

Loss from discontinued operations

 

 

(0.3)

 

 

 -

 

 

(0.4)

 

 

 -

Net (loss) income

 

$

(9.8)

 

$

103.6

 

$

173.9

 

$

237.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to common shares:

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from continuing operations

 

$

(0.15)

 

$

1.59

 

$

2.69

 

$

3.64

Loss from discontinued operations

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Basic (loss) earnings per share

 

$

(0.15)

 

$

1.59

 

$

2.69

 

$

3.64

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to common shares:

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from continuing operations

 

$

(0.15)

 

$

1.56

 

$

2.66

 

$

3.58

Loss from discontinued operations

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Diluted (loss) earnings per share

 

$

(0.15)

 

$

1.56

 

$

2.66

 

$

3.58

 

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

64,353

 

 

64,970

 

 

64,206

 

 

64,952

Diluted

 

 

64,353

 

 

65,987

 

 

64,879

 

 

66,052

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid

 

$

22.8

 

$

19.6

 

$

61.8

 

$

52.7

Dividends declared and paid per share

 

$

0.35

 

$

0.30

 

$

0.95

 

$

0.80

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(9.8)

 

$

103.6

 

$

173.9

 

$

237.9

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation

 

 

(0.5)

 

 

(9.2)

 

 

(5.3)

 

 

(17.7)

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

 

 

0.3

 

 

0.8

 

 

1.1

 

 

2.4

Other, net of tax

 

 

(0.1)

 

 

(0.1)

 

 

(0.4)

 

 

(0.3)

Other comprehensive loss

 

 

(0.3)

 

 

(8.5)

 

 

(4.6)

 

 

(15.6)

Comprehensive (loss) income

 

$

(10.1)

 

$

95.1

 

$

169.3

 

$

222.3

 

See accompanying notes

 

 

3


 

Table of Contents

 

 

 

 

Carlisle Companies Incorporated

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

(in millions except share and per share amounts)

    

2016

    

2015

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

355.4

 

$

410.7

Receivables, net (allowance of $5.1 and $4.7, respectively)

 

 

605.0

 

 

502.5

Inventories

 

 

385.8

 

 

356.0

Prepaid expenses and other current assets

 

 

53.5

 

 

50.3

Total current assets

 

 

1,399.7

 

 

1,319.5

 

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

623.6

 

 

585.8

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

Goodwill, net

 

 

1,046.5

 

 

1,134.4

Other intangible assets, net

 

 

870.5

 

 

887.8

Other long-term assets

 

 

23.0

 

 

23.4

Total other assets

 

 

1,940.0

 

 

2,045.6

TOTAL ASSETS

 

$

3,963.3

 

$

3,950.9

 

 

 

 

 

 

 

Liabilities and shareholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Short-term debt, including current maturities

 

$

 -

 

$

149.8

Accounts payable

 

 

264.9

 

 

212.6

Accrued expenses

 

 

234.8

 

 

219.4

Deferred revenue

 

 

23.9

 

 

24.0

Total current liabilities

 

 

523.6

 

 

605.8

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

Long-term debt

 

 

596.2

 

 

595.6

Deferred revenue

 

 

167.2

 

 

159.7

Other long-term liabilities

 

 

229.4

 

 

242.4

Total long-term liabilities

 

 

992.8

 

 

997.7

Commitments and contingencies (See Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

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; issued 78,661,248 shares; outstanding 64,306,206 and 64,051,600 shares, respectively)

 

 

78.7

 

 

78.7

Additional paid-in capital

 

 

326.5

 

 

293.4

Deferred compensation equity

 

 

10.3

 

 

8.0

Treasury shares, at cost (14,129,777 and 14,383,241 shares, respectively)

 

 

(370.8)

 

 

(327.4)

Accumulated other comprehensive loss

 

 

(91.7)

 

 

(87.1)

Retained earnings

 

 

2,493.9

 

 

2,381.8

Total shareholders' equity

 

 

2,446.9

 

 

2,347.4

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

3,963.3

 

$

3,950.9

 

See accompanying notes

 

 

 

 

 

4


 

Table of Contents

Carlisle Companies Incorporated

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended
September 30,

 

(in millions)

    

2016

    

2015

 

Operating activities

 

 

 

 

 

 

 

Net income

 

$

173.9

 

$

237.9

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

102.0

 

 

95.4

 

Impairment charges

 

 

141.5

 

 

 -

 

Non-cash compensation, net of tax benefit

 

 

(3.1)

 

 

1.0

 

Deferred taxes

 

 

(20.8)

 

 

2.3

 

Other operating activities, net

 

 

(0.8)

 

 

1.8

 

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

 

 

 

 

 

 

 

Receivables

 

 

(93.5)

 

 

(108.3)

 

Inventories

 

 

(20.6)

 

 

(6.5)

 

Prepaid expenses and other assets

 

 

1.0

 

 

0.6

 

Accounts payable

 

 

43.3

 

 

49.4

 

Accrued expenses and deferred revenues

 

 

32.7

 

 

77.4

 

Other long-term liabilities

 

 

(0.5)

 

 

1.9

 

Net cash provided by operating activities

 

 

355.1

 

 

352.9

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

Capital expenditures

 

 

(77.3)

 

 

(48.7)

 

Acquisitions, net of cash acquired

 

 

(103.1)

 

 

(598.9)

 

Other investing activities, net

 

 

0.8

 

 

0.1

 

Net cash used in investing activities

 

 

(179.6)

 

 

(647.5)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

Repayments of borrowings

 

 

(150.0)

 

 

(1.5)

 

Dividends paid

 

 

(61.8)

 

 

(52.7)

 

Proceeds from issuance of treasury shares and stock options

 

 

41.4

 

 

35.2

 

Repurchases of common stock

 

 

(61.3)

 

 

(57.9)

 

Other financing activities, net

 

 

 -

 

 

(1.4)

 

Net cash used in financing activities

 

 

(231.7)

 

 

(78.3)

 

 

 

 

 

 

 

 

 

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

 

 

0.9

 

 

(3.5)

 

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

 

(55.3)

 

 

(376.4)

 

Cash and cash equivalents

 

 

 

 

 

 

 

Beginning of period

 

 

410.7

 

 

730.8

 

End of period

 

$

355.4

 

$

354.4

 

 

See accompanying notes

 

 

 

 

 

 

5


 

Table of Contents

Carlisle Companies Incorporated

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)

(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, 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 loss, net of tax

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(15.6)

 

 

 -

 

 -

 

 

 -

 

 

(15.6)

Cash dividends - $0.80 per share

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(52.7)

 

 -

 

 

 -

 

 

(52.7)

Repurchases of common stock

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

591,062

 

 

(57.9)

 

 

(57.9)

Issuances for 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

64,051,600

 

 

78.7

 

 

293.4

 

 

8.0

 

 

(87.1)

 

 

2,381.8

 

14,383,241

 

 

(327.4)

 

 

2,347.4

Net income

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

173.9

 

 -

 

 

 -

 

 

173.9

Other comprehensive loss, net of tax

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(4.6)

 

 

 -

 

 -

 

 

 -

 

 

(4.6)

Cash dividends - $0.95 per share

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(61.8)

 

 -

 

 

 -

 

 

(61.8)

Repurchases of common stock

 

(656,057)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

656,057

 

 

(61.9)

 

 

(61.9)

Issuances for stock based compensation (1)

 

910,663

 

 

 -

 

 

33.1

 

 

2.3

 

 

 -

 

 

 -

 

(909,521)

 

 

18.5

 

 

53.9

Balance at September 30, 2016

 

64,306,206

 

$

78.7

 

$

326.5

 

$

10.3

 

$

(91.7)

 

$

2,493.9

 

14,129,777

 

$

(370.8)

 

$

2,446.9

 


(1)

Issuances for stock based compensation includes shares issued from treasury to cover stock option exercises, restricted and performance share releases, net of shares repurchased to cover employee taxes.

 

See accompanying notes

 

 

6


 

Table of Contents

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

Note 1—Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared by Carlisle Companies Incorporated (the "Company", “We”, “Our” or "Carlisle"). The accompanying unaudited condensed consolidated financial statements do not include all disclosures as required by accounting principles generally accepted in the United States of America (U.S.), and should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2015.

 

The accompanying unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the U.S. and, of necessity, include some amounts that are based upon management estimates and judgments. The accompanying 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.

 

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented.

 

Note 2—New Accounting Pronouncements

 

New Accounting Standards Adopted

 

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 requires entities to present deferred tax assets and liabilities as noncurrent in a classified balance sheet instead of separating into current and noncurrent amounts. ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods, on a prospective or retrospective basis.  Early adoption is permitted, and as such, we early adopted as of December 31, 2015 on a prospective basis and periods prior to December 31, 2015 were not restated. As this standard relates to balance sheet presentation only, the adoption of ASU 2015-17 did not have a material impact on the Company’s consolidated results of operations, financial position, or cash flows. 

 

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. In August 2015, this guidance was clarified in ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”).  ASU 2015-15 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. As a result of adopting ASU 2015-03 on January 1, 2016, $3.1 million of debt issuance costs was reclassified from other long-term assets to long-term debt at December 31, 2015.  Unamortized costs related to securing our revolving line of credit will continue to be presented in other long-term assets in accordance with ASU 2015-15. As this standard relates to balance sheet presentation only, the adoption of ASU 2015-03 had no further impact on the Company’s results of operations, financial position, or cash flows.  

 

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 adoption of ASU 2015-05 had no impact on the Company’s results of operations, financial position, or cash flows.

 

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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 early adopted this standard on January 1, 2016.  The adoption of ASU 2015-11 had no impact on the Company’s results of operations, financial position, or cash flows.

 

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 in 2016. The adoption of ASU 2015-16 had no impact on the Company’s results of operations, financial position, or cash flows.

 

New Accounting Standards Issued But Not Yet Adopted

 

In May 2014, the FASB issued 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 or 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 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. 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. We have not yet selected a transition method. Given the diversity of our business segments, we are continuing to assess the potential impact of adopting the standard on our financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) which requires lessees to recognize a lease liability for the obligation to make lease payments, measured at the present value on a discounted basis, and a right-of-use (“ROU”) asset for the right to use the underlying asset for the duration of the lease term, measured at the lease liability amount adjusted for lease prepayments, lease incentives received and initial direct costs.  The lease liability and ROU asset are recognized in the balance sheet at the commencement of the lease.  For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance.  Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. Classification will be based on criteria that are largely similar to those applied in current lease accounting. ASU 2016-02 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2018, and requires the use of a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period presented in the financial statements.  Early application of the ASU is permitted.  We have not yet determined the impact of adopting the standard on our financial statements. 

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”).  The ASU simplifies several aspects of the accounting for stock compensation. 

 

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·

On a prospective basis, all income tax effects of awards should be recognized in the statement of operations as tax expense or benefit at the time that the awards vest or are settled, rather than recording excess tax benefit and certain deficiencies in additional paid in capital, and eliminates the requirement that excess tax benefits be realized through a reduction in income taxes payable before they can be recognized. 

 

·

Awards may be classified as equity when an employer withholds the maximum amount of taxes on behalf of the employee.  This aspect is to be adopted using a modified retrospective transition method, with a cumulative effect adjustment to retained earnings.  The cash paid to a tax authority when shares are withheld to satisfy the tax withholding obligation should be classified as a financing activity on the statement of cash flows on a retrospective basis. 

 

·

Companies are required to elect the method of accounting for forfeitures of share-based payments, either by recognizing such forfeitures as they occur or estimating the number of awards expected to be forfeited and adjusting such estimate when it is deemed likely to change.  This aspect is to be adopted using a modified retrospective transition method, with a cumulative effect adjustment to retained earnings.

 

ASU 2016-09 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2016.  We are in the process of determining the impact of adopting the standard on our financial statements. However, we do not expect the adoption to have a material impact on our consolidated financial statements.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which provides guidance on reducing the diversity in practice on eight specific cash flow matters and how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for the fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted including an adoption in an interim period. We have not yet determined the impact of adopting the standard on our financial statements. However, we do not expect the adoption to have a material impact on our consolidated financial statements.

 

Note 3—Segment Information

 

The Company’s operating segments are:

 

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, heating, ventilation and cooling (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, auto refinishing, general industrial, wood, protective coating, and specialty 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.

 

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Carlisle FoodService Products (“CFS” 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 expenses are largely comprised of compensation, benefits, and travel expense for the corporate office staff, business development costs, and certain compliance costs not allocated to the segments.

 

The Company uses net sales and earnings before interest and taxes (“EBIT”) as the primary basis for the Chief Operating Decision Maker (“CODM”) to evaluate the performance of each operating segment. The Company’s CODM is the Chief Executive Officer.

 

Segment information is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

2016

 

2015

(in millions)

 

Net Sales

 

EBIT

 

Net Sales

 

EBIT

 

 

 

 

 

 

 

 

 

 

 

 

 

Carlisle Construction Materials

    

$

578.2

    

$

132.0

    

$

570.1

    

$

115.5

Carlisle Interconnect Technologies

 

 

218.2

 

 

42.2

 

 

202.3

 

 

41.2

Carlisle Fluid Technologies

 

 

69.0

 

 

9.5

 

 

67.9

 

 

10.1

Carlisle Brake & Friction

 

 

62.6

 

 

(141.3)

(1)

 

70.7

 

 

0.5

Carlisle FoodService Products

 

 

63.0

 

 

9.0

 

 

62.1

 

 

7.7

Corporate

 

 

 -

 

 

(15.0)

 

 

 -

 

 

(13.2)

Total

 

$

991.0

 

$

36.4

 

$

973.1

 

$

161.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended
September 30,

 

2016

 

2015

(in millions)

    

Net Sales

    

EBIT

    

Net Sales

    

EBIT

 

 

 

 

 

 

 

 

 

 

 

 

 

Carlisle Construction Materials

 

$

1,564.4

 

$

337.4

 

$

1,519.0

 

$

264.3

Carlisle Interconnect Technologies

 

 

624.3

 

 

118.4

 

 

595.0

 

 

111.8

Carlisle Fluid Technologies

 

 

198.4

 

 

23.7

 

 

129.6

 

 

9.1

Carlisle Brake & Friction

 

 

207.9

 

 

(132.8)

(1)

 

242.1

 

 

16.8

Carlisle FoodService Products

 

 

186.9

 

 

24.3

 

 

181.3

 

 

20.3

Corporate

 

 

-

 

 

(45.1)

 

 

-

 

 

(46.1)

Total

 

$

2,781.9

 

$

325.9

 

$

2,667.0

 

$

376.2

 


(1)

Includes impairment charges of $141.5 million in the three and nine month periods ended September 30, 2016. Refer to Note 10 for further discussion

 

 

Note 4— Acquisitions

 

2016 Acquisitions

 

Micro-Coax

 

On June 10, 2016, the Company acquired 100% of the equity of Micro-Coax, Inc., and Kroll Technologies, LLC, (collectively “Micro-Coax”) for total consideration of $94.8 million, net of $1.5 million cash acquired, inclusive of an estimated working capital receivable of $0.2 million. The Company expects to finalize the working capital settlement in the fourth quarter of 2016.  The acquired business is a provider of high-performance, high frequency coaxial wire and cable, and cable assemblies to the defense, satellite, test and measurement, and other industrial markets.  The results of operations of the acquired business are reported within the Interconnect Technologies segment. 

 

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The following table summarizes the consideration transferred to acquire Micro-Coax and the preliminary allocation of the purchase price 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

 

Revised
Allocation

 

 

 

As of

 

 

 

As of

 

(in millions)

    

6/10/2016

    

 

    

9/30/2016

 

Total consideration transferred

 

$

97.3

 

$

(1.0)

 

$

96.3

 

 

 

 

 

 

 

 

 

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1.5

 

$

 -

 

$

1.5

 

Receivables

 

 

6.3

 

 

 -

 

 

6.3

 

Inventories

 

 

8.6

 

 

 -

 

 

8.6

 

Prepaid expenses and other current assets

 

 

0.4

 

 

(0.1)

 

 

0.3

 

Property, plant, and equipment

 

 

30.0

 

 

(14.0)

 

 

16.0

 

Definite-lived intangible assets

 

 

31.5

 

 

(5.3)

 

 

26.2

 

Indefinite-lived intangible assets

 

 

2.0

 

 

(1.1)

 

 

0.9

 

Other long-term assets

 

 

1.0

 

 

 -

 

 

1.0

 

Accounts payable

 

 

(1.7)

 

 

 -

 

 

(1.7)

 

Accrued expenses

 

 

(2.4)

 

 

(0.1)

 

 

(2.5)

 

Total identifiable net assets

 

 

77.2

 

 

(20.6)

 

 

56.6

 

Goodwill

 

$

20.1

 

$

19.6

 

$

39.7

 

 

The valuation of property, plant, and equipment, and intangible assets is preliminary.  We expect to complete the valuation in the fourth quarter of 2016. The goodwill recognized in the acquisition of Micro-Coax is attributable to its experienced workforce, expected operational improvements through implementation of the Carlisle Operating System (“COS”), opportunities for product line expansions in addition to supply chain efficiencies and other administrative opportunities, and the significant strategic value of the business to Carlisle. COS is a manufacturing structure and strategy deployment system based on lean enterprise and six sigma principles and is a continuous improvement process that defines the way we do business. Goodwill of $39.7 million is deductible for tax purposes in the U.S. All of the goodwill was assigned to the CIT reporting unit which aligns with the reportable segment. Indefinite-lived intangible assets of $0.9 million represent acquired trade names. The $26.2 million value allocated to definite-lived intangible assets consists of $15.0 million of customer relationships with a useful life of 12 years, various acquired technologies of $10.6 million with useful a useful life of seven years, and a non-compete agreement of $0.6 million with a useful life of three years.

 

MS Oberflächentechnik AG

 

On February 19, 2016, the Company acquired 100% of the equity of MS Oberflächentechnik AG (“MS”), a Swiss-based developer and manufacturer of powder coating systems and related components, for total consideration of CHF 12.3 million, or $12.4 million, including the estimated fair value of contingent consideration of CHF4.3 million, or $4.3 million. The results of operations of MS are reported within the Fluid Technologies segment.

 

Consideration has been primarily allocated to $9.8 million to definite-lived intangible assets, $4.2 million to indefinite-lived intangible assets, and $2.7 million to deferred tax liabilities, with $2.7 million allocated to goodwill.  Definite-lived intangible assets consist of $8.4 million of technology with a useful life of seven years and customer relationships of $1.4 million with a useful life of ten years.

 

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2015 Acquisition

 

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, inclusive of the working capital settlement. The Company reports the results of the acquired business as the CFT segment. 

 

 

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 purchase price allocation presented below:

 

 

 

 

 

 

 

 

 

 

 

Pro Forma