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Table of Contents
 

UNITED STATES
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, 2017
 
Commission file number 1-9278
csl20160930x10q001a02.jpg 
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)
 
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer ☐
 
 
Non-accelerated filer ☐
Smaller reporting company ☐
 
 
 
Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes ☐ No ☐

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 19, 2017: 61,963,646

 

Table of Contents
Carlisle Companies Incorporated

Table of Contents
 
 
Page
Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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Table of Contents
Carlisle Companies Incorporated


Item 1. Financial Statements

Condensed Consolidated Statements of Earnings and Comprehensive Income (Unaudited) 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions except share and per share amounts)
 
2017
 
2016
 
2017
 
2016
Net sales
 
$
1,089.1

 
$
991.0

 
$
3,018.1

 
$
2,781.9

 
 
 
 
 
 
 
 
 
Cost of goods sold
 
777.6

 
667.4

 
2,144.9

 
1,891.7

Selling and administrative expenses
 
152.2

 
135.6

 
433.5

 
391.2

Research and development expenses
 
13.5

 
12.3

 
40.2

 
35.6

Impairment charges
 

 
141.5

 

 
141.5

Other expense (income), net
 
2.9

 
(2.2
)
 
1.1

 
(4.0
)
Earnings before interest and income taxes
 
142.9

 
36.4

 
398.4

 
325.9

Interest expense, net
 
7.7

 
7.5

 
21.4

 
24.1

Earnings before income taxes from continuing operations
 
135.2

 
28.9

 
377.0

 
301.8

Income tax expense
 
48.8

 
38.4

 
126.8

 
127.5

Income (loss) from continuing operations
 
86.4

 
(9.5
)
 
250.2

 
174.3

 
 
 
 
 
 
 
 
 
Discontinued operations:
 
 
 
 
 
 

 
 

(Loss) income before income taxes
 
(0.1
)
 
(0.6
)
 
0.3

 
(0.7
)
Income tax (benefit) expense
 

 
(0.3
)
 
0.1

 
(0.3
)
(Loss) income from discontinued operations
 
(0.1
)
 
(0.3
)
 
0.2

 
(0.4
)
Net income (loss)
 
$
86.3

 
$
(9.8
)
 
$
250.4

 
$
173.9

 
 
 
 
 
 
 
 
 
Basic earnings per share attributable to common shares:
 
 
 
 
 
 

 
 

Income (loss) from continuing operations
 
$
1.38

 
$
(0.15
)
 
$
3.91

 
$
2.69

Income from discontinued operations
 

 

 

 

Basic earnings (loss) per share
 
$
1.38

 
$
(0.15
)
 
$
3.91

 
$
2.69

 
 
 
 
 
 
 
 
 
Diluted earnings per share attributable to common shares:
 
 
 
 
 
 

 
 

Income (loss) from continuing operations
 
$
1.37

 
$
(0.15
)
 
$
3.89

 
$
2.66

(Loss) income from discontinued operations
 

 

 

 

Diluted earnings (loss) per share
 
$
1.37

 
$
(0.15
)
 
$
3.89

 
$
2.66

 
 
 
 
 
 
 
 
 
Average shares outstanding (in thousands):
 
 
 
 
 
 

 
 

Basic
 
62,432

 
64,353

 
63,503

 
64,206

Diluted
 
62,797

 
64,353

 
63,916

 
64,879

 
 
 
 
 
 
 
 
 
Dividends declared and paid
 
$
23.2

 
$
22.8

 
$
69.0

 
$
61.8

Dividends declared and paid per share
 
$
0.37

 
$
0.35

 
$
1.07

 
$
0.95

 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 

 
 

Net income (loss)
 
$
86.3

 
$
(9.8
)
 
$
250.4

 
$
173.9

Other comprehensive income (loss)
 
 
 
 
 
 

 
 

Foreign currency translation
 
13.4

 
(0.5
)
 
44.6

 
(5.3
)
Accrued post-retirement benefit liability, net of tax
 
0.4

 
0.3

 
1.2

 
1.1

Other, net of tax
 
(0.2
)
 
(0.1
)
 
(0.9
)
 
(0.4
)
Other comprehensive income (loss)
 
13.6

 
(0.3
)
 
44.9

 
(4.6
)
Comprehensive income (loss)
 
$
99.9

 
$
(10.1
)
 
$
295.3

 
$
169.3

 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

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Table of Contents
Carlisle Companies Incorporated

Condensed Consolidated Balance Sheets 
(in millions except share and per share amounts)
 
September 30, 2017
 
December 31, 2016
Assets
 
(Unaudited)
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
147.6

 
$
385.3

Receivables, net of allowance of $5.1 million and $4.0 million, respectively
 
690.8

 
511.6

Inventories
 
454.8

 
377.0

Prepaid expenses
 
25.3

 
24.3

Other current assets
 
43.2

 
57.0

Total current assets
 
1,361.7

 
1,355.2

 
 
 
 
 
Property, plant, and equipment, net
 
698.5

 
632.2

 
 
 
 
 
Other assets:
 
 
 
 
Goodwill, net
 
1,212.8

 
1,081.2

Other intangible assets, net
 
1,018.6

 
872.2

Other long-term assets
 
26.3

 
25.0

Total other assets
 
2,257.7

 
1,978.4

 
 
 
 
 
TOTAL ASSETS
 
$
4,317.9

 
$
3,965.8

 
 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
328.9

 
$
243.6

Accrued expenses
 
277.4

 
246.7

Deferred revenue
 
29.3

 
23.2

Total current liabilities
 
635.6

 
513.5

 
 
 
 
 
Long-term liabilities:
 
 
 
 
Long-term debt
 
781.9

 
596.4

Deferred revenue
 
182.4

 
172.0

Other long-term liabilities
 
281.7

 
217.0

Total long-term liabilities
 
1,246.0

 
985.4

 
 
 
 
 
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 61,763,078 and 64,257,182 shares, respectively)
 
78.7

 
78.7

Additional paid-in capital
 
346.8

 
335.3

Deferred compensation equity
 
11.9

 
10.3

Treasury shares, at cost
(16,714,585 and 14,178,801 shares, respectively)
 
(652.6
)
 
(382.6
)
Accumulated other comprehensive loss
 
(77.3
)
 
(122.2
)
Retained earnings
 
2,728.8

 
2,547.4

Total shareholders' equity
 
2,436.3

 
2,466.9

 
 
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
4,317.9

 
$
3,965.8

 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)


4

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Carlisle Companies Incorporated

Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 
Nine Months Ended September 30,
(in millions)
 
2017
 
2016
Operating activities
 
 
 
 
Net income

$
250.4


$
173.9

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

 


 

Depreciation

61.5


55.9

Amortization

59.2


46.1

Impairment charges



141.5

Stock-based compensation, net of tax benefit

11.9


(3.1
)
Other operating activities, net

3.5


(21.6
)
Changes in assets and liabilities, excluding effects of acquisitions:






Receivables

(155.3
)

(93.5
)
Inventories

(45.9
)

(20.6
)
Prepaid expenses and other assets

1.4


1.0

Accounts payable

61.3


43.3

Accrued expenses

39.9


25.3

Deferred revenues

15.4


7.4

Other long-term liabilities

(3.7
)

(0.5
)
Net cash provided by operating activities

299.6


355.1

 
 
 
 
 
Investing activities
 
 
 
 
Acquisitions, net of cash acquired

(280.0
)

(103.1
)
Capital expenditures

(105.8
)

(77.3
)
Other investing activities, net

0.2


0.8

Net cash used in investing activities

(385.6
)

(179.6
)
 
 
 
 
 
Financing activities
 
 
 
 
Repayments of borrowings
 

 
(150.0
)
Proceeds from revolving credit facility

491.0



Repayments of revolving credit facility

(306.0
)


Repurchases of common stock
 
(266.4
)
 
(61.3
)
Dividends paid

(69.0
)
 
(61.8
)
Withholding tax paid related to stock-based compensation

(8.2
)
 
(4.8
)
Proceeds from exercise of stock options

4.1


46.2

Net cash used in financing activities

(154.5
)

(231.7
)
 
 
 
 
 
Effect of foreign currency exchange rate changes on cash and cash equivalents
 
2.8

 
0.9

Change in cash and cash equivalents
 
(237.7
)
 
(55.3
)
Cash and cash equivalents
 
 
 
 
Beginning of period
 
385.3

 
410.7

End of period
 
$
147.6

 
$
355.4

 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)


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Table of Contents
Carlisle Companies Incorporated

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)
(In millions, except share and per share amounts)
 
 
Common Stock
 
Additional Paid-In Capital
 
Deferred Compensation Equity
 
Accumulated Other Comprehensive Income (loss)
 
Retained Earnings
 
Shares in Treasury
 
Total Shareholders' Equity
 
Shares
 
Amount
 
 
 
 
 
Shares
 
Cost
 
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 and deferrals, net 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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
64,257,182

 
$
78.7

 
$
335.3

 
$
10.3

 
$
(122.2
)
 
$
2,547.4

 
14,178,801

 
$
(382.6
)
 
$
2,466.9

Net income

 

 

 

 

 
250.4

 

 

 
250.4

Other comprehensive income, net of tax

 

 

 

 
44.9

 

 

 

 
44.9

Cash dividends - $1.07 per share

 

 

 

 

 
(69.0
)
 

 

 
(69.0
)
Repurchases of common stock
(2,719,538
)
 

 

 

 

 

 
2,719,538

 
(268.5
)
 
(268.5
)
Issuances and deferrals, net for stock based compensation (1)
225,434

 

 
11.5

 
1.6

 

 

 
(183,754
)
 
(1.5
)
 
11.6

Balance at September 30, 2017
61,763,078

 
$
78.7

 
$
346.8

 
$
11.9

 
$
(77.3
)
 
$
2,728.8

 
16,714,585

 
$
(652.6
)
 
$
2,436.3

(1) Issuances and deferrals, net for stock based compensation reflects share activity related to option exercises, restricted and performance shares vested and net issuances and deferrals associated with deferred compensation equity.
 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)



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Carlisle Companies Incorporated
Notes to Condensed Consolidated Financial Statements (Unaudited)



Note 1Basis of Presentation
 
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Carlisle Companies Incorporated (the "Company", "we", "our", "us" 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, 2016.
 
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. Intercompany transactions and balances are eliminated in consolidation.
 
In our opinion, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting solely of adjustments of a normal, recurring nature, necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. We have reclassified certain prior period amounts related to the components of property, plant and equipment to conform to current period presentation (refer to Note 8).
 
Note 2New Accounting Pronouncements
 
New Accounting Standards Adopted
 
     Effective January 1, 2017, the Company adopted Accounting Standards Update ("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, including: 

On a prospective basis, all income tax effects of awards are recognized in the statement of operations as tax expense or benefit at the time that the awards vest or are settled, which resulted in a $0.2 million and $3.7 million discrete income tax benefit for the third quarter and first nine months of 2017, respectively.
On a prospective basis, all income tax effects of awards are recognized in the statement of cash flows as only operating activities.
The cash paid to a tax authority when shares are withheld to satisfy the tax withholding obligation are classified as financing activities on the statement of cash flows on a retrospective basis. The adoption had no impact on our cash flows presentation as we have historically presented these amounts as financing activities.
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.  The Company elected to account for forfeitures as they occur and the adoption did not have a material impact on stock-based compensation expense.
In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment, which simplifies how an entity is required to test goodwill for impairment by eliminating step 2 of the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Instead, entities should measure an impairment charge for the excess of carrying amount over the fair value of the respective reporting unit. The Company early adopted this ASU effective January 1, 2017 and anticipates the elimination of step 2 will reduce the complexity and cost of the subsequent measurement of goodwill.


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Carlisle Companies Incorporated
Notes to Condensed Consolidated Financial Statements (Unaudited)


 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 and services. The standard allows for either full retrospective or modified retrospective adoption. The company will adopt the standard, using the modified retrospective approach, for interim and annual periods beginning on January 1, 2018. 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.

 To date, the Company's assessment has included (1) utilizing questionnaires to assist with identifying its revenue streams, (2) performing sample contract analysis, and (3) assessing the identified differences in recognition and measurement that may result from adopting this ASU. The Company has made preliminary conclusions regarding separately-priced extended warranty contracts and variable consideration, and continues its analysis with respect to (1) contracts with multi-year prospective volume rebates and, (2) whether certain contracts’ revenues will be recognized over time or at a point in time, but does not anticipate significant changes in its current revenue recognition pattern. Based on the evaluation to date, the Company does not anticipate the adoption of this standard will have a material impact on reported current net sales; however, given the Company's acquisition strategy within diverse business segments, including the pending acquisition of Accella Holdings LLC, there may be additional revenue streams acquired prior to the adoption date. Further, the Company anticipates providing incremental disaggregated revenue disclosures, including net sales by end market in its Condensed Consolidated Financial Statements, beginning in the first quarter of 2018. The Company continues to evaluate the impact of a cumulative catch-up adjustment, if any, and does not expect it to be significant to the Consolidated Balance Sheet.

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 the Company beginning January 1, 2019 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; however, the Company plans to adopt on January 1, 2019.  The Company has not yet determined the impact of adopting the standard on the Consolidated Financial Statements. 

In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires employers to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating income, if such measure is presented. The other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in non-operating income. The ASU also stipulates that only the service cost component of net benefit cost is eligible for capitalization into inventory or other tangible assets. The effective date for adoption of this guidance is January 1, 2018, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on the Consolidated Financial Statements, however does not believe this update will have a significant impact.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expand an entity's ability to hedge nonfinancial risk and financial risk components, and reduce complexity in fair value hedges of interest rate risk. This ASU eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in fair value of a hedging instrument to be presented in the same income statement line item as the hedged item. The guidance also ceases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. This ASU is effective January 1, 2019 and requires the use of a modified

8

Table of Contents
Carlisle Companies Incorporated
Notes to Condensed Consolidated Financial Statements (Unaudited)


retrospective approach for cash flow and net investment hedges that exist as of the date of adoption. Early adoption of the ASU is permitted. The Company is currently evaluating the effect that this standard will have on the Consolidated Financial Statements, however does not believe this update will have a significant impact on its earnings, cash flows or financial position.

Note 3Segment Information
 
The Company’s operating segments are:
 
Carlisle Construction Materials (“CCM” or “Construction Materials”)—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. CCM also manufactures and distributes energy-efficient rigid foam insulation panels for substantially all roofing applications. 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 “Interconnect Technologies”)—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 FoodService Products (“CFS” or “FoodService Products”)—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.

Carlisle Fluid Technologies (“CFT” or “Fluid Technologies”)—the principal products of this segment are industrial liquid and powder 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 “Brake & Friction”)—the principal products of this segment include high-performance brakes and friction material and clutch and transmission friction material for construction, agriculture, mining, aerospace, and motor sports markets.


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Carlisle Companies Incorporated
Notes to Condensed Consolidated Financial Statements (Unaudited)


Segment information is summarized as follows:
Three Months Ended September 30,
 
2017
 
2016
 
(in millions)
 
Net Sales
 
EBIT
 
Net Sales
 
EBIT
 
Carlisle Construction Materials
 
$
640.2

 
$
124.2

    
$
578.2

 
$
132.0

 
Carlisle Interconnect Technologies
 
210.8

 
25.7

 
218.2

 
42.2

 
Carlisle FoodService Products
 
86.7

 
11.6

 
63.0

 
9.0

 
Carlisle Fluid Technologies
 
70.9

 
0.1

 
69.0

 
9.5

 
Carlisle Brake & Friction
 
80.5

 
1.2

 
62.6

 
(141.3
)
(1 
) 
Corporate
 

 
(19.9
)
 

 
(15.0
)
 
Total
 
$
1,089.1

 
$
142.9

 
$
991.0

 
$
36.4

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
2017
 
2016
 
(in millions)
 
Net Sales
 
EBIT
    
Net Sales
 
EBIT
 
Carlisle Construction Materials
 
$
1,717.5

 
$
333.9

 
$
1,564.4

 
$
337.4

 
Carlisle Interconnect Technologies
 
606.8

 
68.1

 
624.3

 
118.4

 
Carlisle FoodService Products
 
257.8

 
29.5

 
186.9

 
24.3

 
Carlisle Fluid Technologies
 
202.4

 
12.5

 
198.4

 
23.7

 
Carlisle Brake & Friction
 
233.6

 
3.8

 
207.9

 
(132.8
)
(1 
) 
Corporate
 

 
(49.4
)
 

 
(45.1
)
 
Total
 
$
3,018.1

 
$
398.4

 
$
2,781.9

 
$
325.9

 
(1) Includes impairment charges of $141.5 million in the three and nine months ended September 30, 2016. Refer to Note 10 for further discussion.
 
Corporate EBIT includes other unallocated costs, primarily general corporate expenses.
 
Note 4 Acquisitions
 
Pending Acquisition

Accella

On September 29, 2017, the Company entered into a definitive purchase agreement to acquire Accella Holdings LLC, the parent company to Accella Performance Materials Inc. (collectively "Accella"), a specialty polyurethane platform, from Accella Performance Materials LLC, a subsidiary of Arsenal Capital Partners, for $670 million in cash and subject to a cash, working capital and indebtedness settlement. Accella offers a wide range of polyurethane products and solutions across a broad diversity of markets and applications. The transaction is expected to close during the fourth quarter of 2017, pending regulatory approvals. Upon completion of the transaction, the results of operations of the acquired business will be reported as part of the Construction Materials segment.

2017 Acquisitions

Proforma results of operations for the 2017 acquisitions have not been presented because the effect of these acquisitions was not material to the Company's financial condition or results of operations for any of the periods presented.

Drexel Metals

On July 3, 2017, the Company acquired 100% of the equity of Drexel Metals, Inc., ("Drexel Metals") for cash consideration of $55.8 million. Drexel Metals is a leading provider of architectural standing seam metal roofing systems for commercial, institutional and residential applications. The preliminary purchase price allocation is in its early stages and all items are pending valuation.


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Table of Contents
Carlisle Companies Incorporated
Notes to Condensed Consolidated Financial Statements (Unaudited)


In the third quarter and first nine months of 2017, Drexel Metals contributed net sales of $12.8 million and EBIT of $(0.9) million to the Company's consolidated results. The results of operations of the acquired business are reported within the Construction Materials segment.

Consideration has been allocated to goodwill of $26.9 million, $19.0 million to definite-lived intangible assets, $10.4 million to indefinite-lived intangible assets, $8.8 million to inventory, $5.3 million to accounts receivable, $5.8 million to accounts payable and $10.8 million to deferred income and other taxes payable. Definite-lived intangible assets consist of customer relationships with an estimated useful life of nine years. Of the $26.9 million of goodwill, none is deductible for tax purposes. All of the goodwill was assigned to the CCM reporting unit, which aligns with the reportable segment.

Arbo

On January 31, 2017, the Company acquired 100% of the equity of Arbo Holdings Limited (“Arbo”) for estimated consideration of GBP 9.1 million or $11.5 million, including the estimated fair value of contingent consideration of GBP 2.0 million or $2.5 million and a working capital settlement, which was finalized in the second quarter of 2017. Arbo is a provider of sealants, coatings, and membrane systems used for waterproofing and sealing buildings and other structures.

In the third quarter of 2017, Arbo contributed net sales of $4.1 million and EBIT of $0.2 million to the Company's consolidated results; for the first nine months of 2017, Arbo contributed net sales of $10.3 million and EBIT of $0.3 million. The results of operations of the acquired business are reported within the Construction Materials segment.

Consideration has been allocated to goodwill of $4.7 million, $2.2 million to definite-lived intangible assets, $2.1 million to inventory, $1.6 million to indefinite-lived intangibles, $1.5 million to accounts receivable, $1.4 million to accounts payable, and $1.4 million to deferred income and other taxes payable. Definite-lived intangible assets consist of customer relationships with an estimated useful life of 15 years. Of the $4.7 million of goodwill, $1.3 million is deductible for tax purposes. All of the goodwill was assigned to the CCM reporting unit, which aligns with the reportable segment.

San Jamar

On January 9, 2017, the Company acquired 100% of the equity of SJ Holdings, Inc. (“San Jamar”) for consideration of $217.2 million. San Jamar is a provider of universal dispensing systems and food safety products for foodservice and hygiene applications. San Jamar complements the operating performance at FoodService Products by adding new products, opportunities to expand the Company's presence in complementary sales channels, and a history of profitable growth.

In the third quarter of 2017, San Jamar contributed net sales of $22.9 million and EBIT of $2.8 million to the Company's consolidated results; for the first nine months of 2017, San Jamar contributed net sales of $64.9 million and EBIT of $3.5 million. The results of operations of the acquired business are reported within the FoodService Products segment.


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Carlisle Companies Incorporated
Notes to Condensed Consolidated Financial Statements (Unaudited)


The following table summarizes the consideration transferred to acquire San Jamar and the preliminary allocation of the purchase price among the assets acquired and liabilities assumed.
 
 
Preliminary
Allocation
 
Measurement
Period 
Adjustments
 
Revised Preliminary
Allocation
(in millions)
 
As of 1/9/2017
 
 
As of 9/30/2017
Total consideration transferred
 
$
217.2

 
$

 
217.2

Recognized amounts of identifiable assets acquired and liabilities assumed:
 
 
 
 
 
 
Cash and cash equivalents
 
$
3.5

 
$

 
3.5

Receivables
 
9.1

 

 
9.1

Inventories
 
13.1

 
0.4

 
13.5

Prepaid expenses and other current assets
 
2.3

 
0.2

 
2.5

Property, plant, and equipment
 
4.2

 

 
4.2

Definite-lived intangible assets
 
135.1

 
(0.2
)
 
134.9

Indefinite-lived intangible assets
 
23.6

 

 
23.6

Other long-term assets
 
3.2

 

 
3.2

Accounts payable
 
(7.0
)
 

 
(7.0
)
Income tax payable
 
(0.5
)
 

 
(0.5
)
Accrued expenses
 
(4.3
)
 
(0.9
)
 
(5.2
)
Other long-term liabilities
 
(4.8
)
 
0.3

 
(4.5
)
Deferred income taxes
 
(47.2
)
 
(2.4
)
 
(49.6
)
Total identifiable net assets
 
130.3

 
(2.6
)
 
127.7

Goodwill
 
$
86.9

 
$
2.6

 
$
89.5



The valuation of property, plant, and equipment, intangible assets, and income tax obligations is preliminary. The valuation is expected to be completed in the fourth quarter of 2017, pending receipt of the final definitive valuation report. The goodwill recognized in the acquisition of San Jamar 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. Of the $89.5 million of goodwill, $5.0 million is deductible for tax purposes. All of the goodwill was assigned to the CFS reporting unit, which aligns with the reportable segment. The $134.9 million value allocated to definite-lived intangible assets consists of $97.8 million of customer relationships with an estimated useful life of 13 years, various acquired technologies of $36.4 million with useful lives ranging from seven to 10 years, and a non-compete agreement of $0.7 million with an estimated useful life of two years. Indefinite-lived intangible assets consist of acquired trade names.
    
As a result of the acquisition, the Company recognized approximately $4.5 million of pre-acquisition tax liabilities, with a corresponding indemnification asset of $3.6 million, as the seller has indemnified Carlisle for certain of these liabilities. The indemnification asset will be subsequently measured and recognized on the same basis as the corresponding liability. The related seller indemnification asset will expire in stages through the third quarter of 2021, unless claims are made against the seller prior to that date.

2016 Acquisitions
 
Proforma results of operations for the 2016 acquisitions have not been presented because the effect of these acquisitions was not material to the Company's financial condition or results of operations for any of the periods presented.

Star Aviation

On October 3, 2016, the Company acquired 100% of the equity of Star Aviation, Inc. (“Star Aviation”), for consideration of $82.7 million. Star Aviation is a provider of design and engineering services, testing and certification work, and manufactured products for in-flight connectivity applications on commercial, business, and military aircraft.


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Carlisle Companies Incorporated
Notes to Condensed Consolidated Financial Statements (Unaudited)


In the third quarter of 2017, Star Aviation contributed net sales of $11.8 million and EBIT of $3.3 million to the Company's consolidated results; for the first nine months of 2017, Star Aviation contributed net sales of $27.8 million and EBIT of $4.4 million. The results of operations of the acquired business are reported within the Interconnect Technologies segment.

The following table summarizes the consideration transferred to acquire Star Aviation and the final allocation of the purchase price among the assets acquired and liabilities assumed.
 
 
Preliminary
Allocation
 
Measurement
Period 
Adjustments
 
Final Allocation
(in millions)
 
As of 10/3/2016
 
 
As of 9/30/2017
Total consideration transferred
 
$
82.7

 
$

 
$
82.7

Recognized amounts of identifiable assets acquired and liabilities assumed:
 
 
 
 
 
 
Cash and cash equivalents
 
$
0.3

 
$

 
$
0.3

Receivables
 
5.9

 
(0.1
)
 
5.8

Inventories
 
3.1

 
(0.2
)
 
2.9

Prepaid expenses and other current assets
 
0.1

 

 
0.1

Property, plant, and equipment
 
3.3

 
(0.3
)
 
3.0

Definite-lived intangible assets
 
29.0

 

 
29.0

Accounts payable
 
(1.3
)
 
0.2

 
(1.1
)
Accrued expenses
 
(0.8
)
 
0.1

 
(0.7
)
Total identifiable net assets
 
39.6

 
(0.3
)
 
39.3

Goodwill
 
$
43.1

 
$
0.3

 
$
43.4



The valuation of property, plant, and equipment and intangible assets is final as of September 30, 2017. The goodwill recognized in the acquisition of Star Aviation is attributable to its experienced workforce, expected operational improvements through implementation of 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. Goodwill of $43.4 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. The $29.0 million value allocated to definite-lived intangible assets consists of $23.9 million of customer relationships with estimated useful lives ranging from five to 10 years, various acquired technologies of $4.7 million with an estimated useful life of six years, and a non-compete agreement of $0.4 million with a useful life of five years.

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 $96.6 million. The Company finalized 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.

In the third quarter of 2017, Micro-Coax contributed net sales of $9.6 million and EBIT of $1.9 million to the Company's consolidated results; for the first nine months of 2017, Micro-Coax contributed net sales of $25.3 million and EBIT of $(0.6) million. The results of operations of the acquired business are reported within the Interconnect Technologies segment.


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Table of Contents
Carlisle Companies Incorporated
Notes to Condensed Consolidated Financial Statements (Unaudited)


The following table summarizes the consideration transferred to acquire Micro-Coax and the final allocation of the purchase price among the assets acquired and liabilities assumed.
 
 
Preliminary
Allocation
 
Measurement
Period 
Adjustments
 
Final
Allocation
(in millions)
 
As of 6/10/2016
 
 
As of 6/30/2017
Total consideration transferred
 
$
97.3

 
$
(0.7
)
 
$
96.6

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

 
(5.0
)
 
26.5

Indefinite-lived intangible assets
 
2.0

 
(2.0
)
 

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

 
(21.2
)
 
56.0

Goodwill
 
$
20.1

 
$
20.5

 
$
40.6


 
The valuation of property, plant, and equipment and intangible assets was final as of June 30, 2017. The goodwill recognized in the acquisition of Micro-Coax is attributable to its experienced workforce, expected operational improvements through implementation of 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. Goodwill of $40.6 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. The $26.5 million value allocated to definite-lived intangible assets consists of $14.5 million of customer relationships with a useful life of 12 years, various acquired technologies of $10.6 million with a useful life of approximately seven years, an amortizable trade name of $0.9 million with a useful life of 10 years, and a non-compete agreement of $0.5 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 Powder”), 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 CHF 4.3 million, or $4.3 million.

In the third quarter of 2017, MS Powder contributed net sales of $2.8 million and EBIT of $(0.3) million to the Company's consolidated results; for the first nine months of 2017, MS Powder contributed net sales of $6.9 million and EBIT of $(1.7) million.The results of operations of MS Powder are reported within the Fluid Technologies segment.
 
Consideration has been allocated to definite-lived intangible assets of $9.7 million, $4.1 million to indefinite-lived intangible assets, and $2.2 million to deferred tax liabilities, with $2.9 million allocated to goodwill.  Definite-lived intangible assets consist of $8.3 million of technology with a useful life of seven years and customer relationships of $1.4 million with a useful life of ten years. None of the goodwill is deductible for tax purposes. All of the goodwill was assigned to the CFT reporting unit, which aligns with the reportable segment.


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Carlisle Companies Incorporated
Notes to Condensed Consolidated Financial Statements (Unaudited)


Prior Acquisition Matters

LHi Technology
 
In conjunction with the October 2014 acquisition of LHi Technology (“LHi”), 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, principally related to direct and indirect tax uncertainties. During the third quarter of 2016, the Company concluded that $2.6 million of the indirect tax uncertainties were no longer probable, therefore resulting in the reversal of the related indemnification asset and the corresponding liability. During the third quarter of 2017, the escrow covering the remaining direct and indirect tax uncertainties expired and the remaining indirect tax uncertainties were no longer probable, resulting in the reversal of the $6.1 million indemnification asset and corresponding $1.5 million liability, with the net change of $4.6 million reflected in the Corporate segment and other expense (income), net in the Consolidated Statement of Earnings. 

Note 5