Indicate by check mark if the registrant is a
well‑knownwell-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
☒ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
☐ No ☒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‑TS-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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S‑KS-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10‑K10-K or any amendment to this Form
10‑K. 10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑acceleratednon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company”company,” and "emerging growth company" in Rule 12b‑212b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer☒ | ☒ | Accelerated filer☐ | Non‑accelerated ☐
|
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‑212b-2 of the Exchange Act). Yes
☐ No ☒The aggregate market value of the shares of common stock of the registrant held by
non‑affiliatesnon-affiliates was approximately
$6.7$7.8 billion based upon the closing price of the common stock on the New York Stock Exchange on June 30,
2016.2019.
As of February
9, 2017, 64,566,0373, 2020, 55,914,732 shares of common stock of the registrant were
outstanding;outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
April 26, 2017May 6, 2020 are incorporated by reference in Part III.
TABLE OF CONTENTS
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Exhibit
| |
Carlisle Companies Incorporated (“Carlisle”, the “Company”, “we”, “us” or “our”) was incorporated in 1986 in Delaware as a holding company for Carlisle Corporation, whose operations began in 1917, and its wholly‑owned subsidiaries. Carlisle is a diversified, manufacturing company consistingglobal manufacturer of five segments that manufacture and distribute a broad range ofhighly engineered products. Additional information is contained in Items 7 and 8.Our executive offices are located at 16430 North Scottsdale Road, Suite 400, Scottsdale, Arizona 85254. The Company’s main telephone number is (480) 781‑5000. Our Company website is
www.carlisle.com, through which (found in the “Investor Relations” link), we make available, free of charge, our Annual Report on Form 10‑K,10-K, Quarterly Reports on Form 10‑Q10-Q and Current Reports on Form 8‑K8-K and all amendments to those reports, as soon as reasonably practicable after these reports are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”).Management Philosophy/ All references to "Notes" refer to our Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
We strive to be the market leader of
highly‑highly engineered products in the various markets we serve.
We are dedicatedUnder Vision 2025, our key pillars include: dedication to
achieving low‑cost positions and providing service excellence based on, among other things, superior quality, on‑time delivery, and short cycle times.The presidents ofdriving above market growth, utilizing the various operating companies are given considerable autonomy and have a significant level of independent responsibility for their businesses and their performance. The Company believes that this structure encourages entrepreneurial action and enhances responsive decision making thereby enabling each operation to better serve its customers and react quickly to its customers’ needs.
Our executive management role is to (i) provide general management oversight and counsel, (ii) manage the Company’s portfolio of businesses including identifying acquisition candidates and assisting in acquiring candidates identified by the operating companies, as well as identifying businesses for divestiture in an effort to optimize the portfolio, (iii) allocate and manage capital, (iv) evaluate and motivate operating management personnel, and (v) provide selected other services.
The Company utilizes its Carlisle Operating System (“COS”), a manufacturing consistently to drive efficiencies and operating leverage, building scale with synergistic acquisitions, continuing to invest in and develop exceptional talent, and deploying capital into capital expenditures, share repurchases and dividends.
We utilize COS, an operating structure and strategy deployment system based on lean enterprise and six sigma principles, to drive
improving operational
improvements.performance. COS is a continuous improvement process that defines the way
the Company doeswe do business. Waste is eliminated and efficiencies
are improved enterprise wide, allowing us to increase overall profitability. Improvements are not limited to production areas, as COS is also driving improvements in new product innovation, engineering, supply chain management, warranty and product rationalization. COS has created a culture of continuous improvement across all aspects of our business operations.
The Company has
See Description of Business by Segment below for a long‑standing acquisitionmore detailed discussion of our Vision 2025 strategy. Traditionally, we have focused on strategic acquisitions or acquiring new businesses that can be added
As noted above, a significant part of our strategy is to existing operations. In addition, the Company considers acquiring new businesses that can operate independently from other Carlisle companies. Factorsbuild scale with synergistic acquisitions. Synergies considered in making an acquisition include consolidation opportunities, technology, customer dispersion, operating capabilities and earnings growth potential. We acquired threeeight businesses during 2016,2019, which complementadd to our existing Carlisle Construction Materials (“CCM”), Carlisle Interconnect Technologies (“CIT”) and Carlisle Fluid Technologies segments, and acquisitions in 2017 that will expand our FoodService Products and Construction Materials("CFT") segments.
We
have also
pursuedpursue the sale of
operating divisionsa business when it is determined
theyit no longer
fitfits within the Company’s
long‑termlong-term goals or strategy.
Accordingly, on March 20, 2018, we completed the sale of our Carlisle FoodService Products ("CFS") segment to The Jordan Company for $758.0 million (refer to Note 4).
For more details regarding acquisitions of the Company’s businesses during the past three years,
see “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisitions” andrefer to Note
3 to the Consolidated Financial Statements in Item 8.3.Information on the Company’s revenues, earnings, and identifiable assets from continuing operations by segment for the last three fiscal years is as follows:
Financial Information about Segments
| | | | | | | | | |
(in millions) | | 2016 | | 2015 | | 2014 |
Net Sales to Unaffiliated Customers | | | | | | | | | |
Carlisle Construction Materials | | $ | 2,052.6 | | $ | 2,002.6 | | $ | 1,935.4 |
Carlisle Interconnect Technologies | | | 834.6 | | | 784.6 | | | 669.1 |
Carlisle Fluid Technologies | | | 269.4 | | | 203.2 | | | - |
Carlisle Brake & Friction | | | 268.6 | | | 310.2 | | | 355.3 |
Carlisle FoodService Products | | | 250.2 | | | 242.6 | | | 244.2 |
Total | | $ | 3,675.4 | | $ | 3,543.2 | | $ | 3,204.0 |
| | | | | | | | | |
Earnings Before Interest and Income Taxes | | | | | | | | | |
Carlisle Construction Materials | | $ | 430.5 | | $ | 351.1 | | $ | 268.8 |
Carlisle Interconnect Technologies | | | 144.4 | | | 141.6 | | | 132.2 |
Carlisle Fluid Technologies | | | 33.1 | | | 20.8 | | | - |
Carlisle Brake & Friction (1) | | | (135.7) | | | 17.3 | | | 26.8 |
Carlisle FoodService Products | | | 31.5 | | | 27.3 | | | 29.6 |
Corporate (2) | | | (62.7) | | | (56.2) | | | (49.1) |
Total | | $ | 441.1 | | $ | 501.9 | | $ | 408.3 |
| | | | | | | | | |
Identifiable Assets (3) | | | | | | | | | |
Carlisle Construction Materials | | $ | 891.6 | | $ | 899.2 | | $ | 915.1 |
Carlisle Interconnect Technologies | | | 1,446.3 | | | 1,264.0 | | | 1,296.3 |
Carlisle Fluid Technologies | | | 640.9 | | | 659.5 | | | - |
Carlisle Brake & Friction | | | 389.9 | | | 553.0 | | | 591.3 |
Carlisle FoodService Products | | | 206.1 | | | 199.0 | | | 198.4 |
Corporate (4) | | | 391.0 | | | 376.2 | | | 753.8 |
Total | | $ | 3,965.8 | | $ | 3,950.9 | | $ | 3,754.9 |
| (1)
| | Includes $141.5 million goodwill and intangible asset impairment. See Note 10 to the Consolidated Financial Statements in Item 8.
|
| (2)
| | Includes general corporate expenses.
|
| (3)
| | Prior year amounts were reclassified to reflect the adoption of ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. See Note 1 to the Consolidated Financial Statements in Item 8.
|
| (4)
| | Consists primarily of cash and cash equivalents, deferred taxes, and other invested assets.
|
Description of BusinessesBusiness by Segment
Carlisle Construction Materials (“CCM”
or “Construction Materials”)
Products, Markets and Locations
The Construction MaterialsCCM segment is a market leader in designing, manufacturing and selling ethylene propylene diene monomer rubber (“EPDM”), thermoplastic polyolefin (“TPO”), and polyvinyl chloride membrane (“PVC”) membrane and metal roofing systems. In addition, CCM markets and sells accessories purchased from third party suppliers. CCM also manufactures and distributes energy‑efficientenergy-efficient rigid foam insulation panels for substantially all roofing applications. Roofing materials and insulation are sold together in warranted systems or separately in non‑warrantednon-warranted systems to the new construction, re‑roofingre-roofing and maintenance, general construction and industrial markets. Through its coatingsThe roofing materials, including insulation, are primarily sold under the SynTec, Versico and waterproofing operation, thisHunter Panels product lines in the United States of America (“U.S.” or “United States”) and throughout the world, and the Resitrix and Hertalan product lines in Europe. In addition, CCM produces metal panel roofing primarily for residential and commercial markets and offers a broad range of polyurethane products and solutions across a broad diversity of markets and applications. The segment manufactures and sells liquid and spray‑appliedspray-applied waterproofing membranes, vapor and air barriers and HVAC duct sealants and hardware for the commercial and residential construction markets.markets through its coatings and waterproofing operation. The segment manufactures block molded expanded polystyrene for a variety of end markets, predominantly roofing and waterproofing through its Insulfoam product line. CCM operates manufacturing facilities located throughout the United States, its primary market, and in Germany,
the Netherlands, United Kingdom ("U.K.") and Romania. The majority of CCM’s products are sold through a network of authorized sales representatives and
distributors. CCM operates manufacturing facilities located throughoutdistributors in the United States, its primary market, and in Germany, the Netherlands, and Romania. Insulation facilities are located in Montgomery, New York; Franklin Park, Illinois; Lake City, Florida; Terrell, Texas; Smithfield, Pennsylvania; Tooele, Utah; and Puyallup, Washington. EPDM manufacturing operations are located in Carlisle, Pennsylvania; Greenville, Illinois; Kampen; the Netherlands; and in Hamburg and Waltershausen, Germany. TPO facilities are located in Senatobia, Mississippi, Tooele, Utah; and Carlisle, Pennsylvania. Coatings and waterproofing manufacturing operations include four production facilities in North America. Block molded expanded polystyrene (“EPS”) operations include nine production and fabrication facilities across the United States. CCM also has a PVC manufacturing plant in Greenville, Illinois.
Key Raw Materials
Key raw materials for this segment include
methylene diphenyl diisocyanate (“MDI”), polyol, EPDM polymer, TPO polymer, carbon black
processing oils, solvents, asphalt, methylene diphenyldiisocyanate, polyol, polyester fabric, black facer paper, oriented strand board, clay, and
various packaging materials. Criticalcoated steel. These raw materials generally have at least two vendor sources to better assure adequate supply.
ForThe vendor typically has multiple processing facilities for key raw materials that are single
sourced, the vendor typically has multiple processing facilities.Salessourced.
Seasonality and Working Capital
Revenues and earnings for CCM
tend to be somewhathave historically been higher in the second and third quarters due to increased construction activity during those
periods.periods from favorable weather conditions.
The working capital practices for this segment include:
| (i)
| | Standard accounts receivable payment terms of 45 days to 90 days.
|
| (ii)
| | Standard accounts payable payment terms of 30 days to 60 days.
|
•Standard accounts receivable payment terms of 45 days to 90 days. | (iii)
| | Inventories are maintained in sufficient quantities to meet forecasted demand.
|
•Standard accounts payable payment terms of 30 days to 60 days.•Inventories are maintained in sufficient quantities to meet forecasted demand.
Customer Concentration and Competition
CCM serves a large and diverse customer base; however, in
20162019 two
distributorof CCM's largest customers represented
approximately 34%16.4% and 15.6% of this segment’s
net sales, but neither customer represented 10%revenues and 11.0% and 10.5% of the Company’s consolidated
net sales.revenues. The loss of either of these customers could have a material adverse effect on this segment’s
net salesrevenues and
cash flows.operating income and the Company's consolidated revenues and operating income. Backlog orders are not a significant factor of CCM’s business and were $106.2 million and $90.1 million as of December 31, 2019 and 2018, respectively. All orders are reasonably expected to be filled in 2020.
This segment faces competition from numerous competitors that produce roofing, insulation and waterproofing products for commercial and residential applications. The level of competition within this market varies by product
line.line and region. As one of four major manufacturers in the
single‑plysingle-ply industry, CCM competes through
pricing, innovative products,
long‑termlong-term warranties and customer service. CCM offers
separately‑pricedseparately-priced extended warranty contracts on
certain of its
installed roofing systems,products ranging from five
years to 40 years,
and,the most significant being those offered on its installed single-ply roofing systems primarily in the United States, subject to certain exclusions,
coveringthat covers leaks in the roofing system attributable to a problem with the particular product or the installation of the product.
In order to qualify for the warranty, theThe building owner must have the roofing system installed by an independent authorized roofing contractor trained by CCM to install its roofing
systems.systems in order to qualify for the warranty.
Vision 2025 Strategy
Our strategy under Vision 2025 for the CCM segment is to:
•Maintain its above average margin profile;
•Capture significant after market opportunities as buildings in the U.S. approach “re-roofing” vintage;
•Further expand our presence in niche high-growth and high-margin opportunities of the building envelope via liquid applied roofing and spray foam polyurethanes;
•Expand internationally, especially into Europe where there is a market to displace traditional asphalt roofing with EPDM roofing; and
•Expand our presence in the metal roofing market.
Key growth initiatives:
•Capture market share based on labor and energy efficiency;
•Leverage the Carlisle Experience, which delivers the right product, at the right place, at the right time, to create the preferred choice through operational excellence;
•Continued development of proprietary, differentiated products;
•Utilize training to drive a culture of continuous learning that creates brand loyalty; and
•Focus mergers and acquisitions on synergistic building envelope opportunities.
Carlisle Interconnect Technologies (“CIT”
or “Interconnect Technologies”)
Products, Markets and Locations
The
Interconnect TechnologiesCIT segment is a market leader in
designingengineering, manufacturing and
manufacturing high‑performanceselling high-performance wire, cable, connectors, contacts and cable assemblies,
and satellite communication equipment for the transfer of power and data,
and other manufacturing solutions primarily for the aerospace, medical, defense electronics, test and measurement equipment, and select industrial markets. This segment
primarily operates manufacturing facilities in the United States,
Switzerland, China
Mexico, and
the United Kingdom,Mexico, with the United States, Europe and China being the primary target
marketsregions for sales. Sales are made by direct sales personnel and independent sales representatives.
Key Raw Materials
Key raw materials for this segment include gold, copper conductors that are plated with tin, nickel, or silver, polyimide tapes, polytetrafluoroethylene (“PTFE”) tapes, PTFE fine powder resin, thermoplastic resins, stainless steel, beryllium copper rod, machined metals, plastic parts, and various marking and identification materials.
KeyThese raw materials are typically sourced worldwide and
generally have at least two supplier sources to better assure adequate
supply.Salessupply, except when prohibited by customer contracts, which represented less than 10% of purchases in 2019.
Seasonality and
earnings of the Interconnect Technologies segment are generally not seasonal in nature.Working Capital
The working capital practices for this segment include:
| (i)
| | Standard accounts receivable payment terms of 30 days to 60 days.
|
•Standard accounts receivable payment terms of 30 days to 90 days.
•Standard accounts payable payment terms of 30 days to 60 days.•Inventories are maintained in sufficient quantities to meet forecasted demand. The majority of CIT’s sales are from made-to-order products, resulting in inventories purchased on demand.
| (ii)
| | Standard accounts payable payment terms of 30 days to 60 days.
|
Customer Concentration and Competition | (iii)
| | Inventories are maintained in sufficient quantities to meet forecasted demand. The majority of CIT’s sales are from made‑to‑order products, resulting in inventories purchased on demand.
|
CIT serves a large and diverse customer base; however, in 20162019 one customer represented approximately 22%11.6% of this segment’s net sales,revenues but did not represent greater than 10% of the Company’s consolidated net sales.revenues. The loss of this customer could have a material adverse effect on this segment’s net salesrevenues and cash flows.
operating income. Backlog orders were $306.8 million and $319.2 million as of December 31, 2019 and 2018, respectively. Of the $306.8 million in backlog orders as of December 31, 2019, $7.6 million is not reasonably expected to be filled in 2020.
The Interconnect TechnologiesCIT segment faces competition from numerous competitors within each of the markets it serves. While product specifications, certifications and life cycles vary by market, the Interconnect TechnologiesCIT segment primarily positions itself to gain design specification for customer platforms or products with long life cycles and high barriers to entry, such as in the aerospace and medical markets that generally have high standards for product certification as deemed by the Federal Aviation Administration (“FAA”) and European Union Aviation Safety Aviation ("EASA"), and Food and Drug Administration (“FDA”), respectively. The Interconnect TechnologiesCIT segment competes primarily on the basis of its product performance and its ability to meet its customers’ highly specific design, engineering and delivery needs on a timely basis. Relative
Vision 2025 Strategy
Our strategy under Vision 2025 for the CIT segment is to manyfocus on highly regulated industries that have the characteristics of its competitors that are large multi‑national corporations,high performance, mission critical products designed to operate in harsh environments with significant barriers to entry and attractive margins. The primary industries currently include commercial aerospace and medical devices.
In commercial aerospace the Interconnect TechnologiesCIT segment retainsis focused on:
•Increasing content per aircraft across a wide range of products;
•Being present on all key aircraft platforms; and
•Further expanding content per aircraft into passenger cabins, flight deck, and aircraft control systems.
In medical devices the abilityCIT segment is focused on:
•Capitalizing on growing spend on medical equipment and technology, driven by an aging population in key regions, and increasing preference for minimally invasive procedures by patients, hospitals and insurance providers; and
•Growth in the attractive electrosurgical segment by leveraging current technology and customer relationships and making targeted acquisitions to remain agilegrow in the high-potential cardiovascular monitoring devices market.
Key growth initiatives:
•Increase content per aircraft across all product groups;
•Build and respond quicklyconvert medical original equipment manufacturers ("OEM") project pipeline;
•Establish new OEM relationships and drive new product development in test and measurement;
•Increase market share on defense electronics and space programs;
•Ensure organization alignment is market focused to customer needsdrive accelerated organic growth; and market opportunities. •Focus merger and acquisition efforts on commercial aerospace, medical technologies and test and measurement end markets.
Carlisle Fluid Technologies (“CFT”
or “Fluid Technologies”)
Acquired in April 2015, the Fluid Technologies
Products, Markets and Locations
The CFT segment is a market leader in designing, manufacturing,designs, manufactures and selling highly‑sells highly engineered liquid, powder, sealants and powderadhesives finishing equipment and system components primarily in the automotive, automotive refinishing, aerospace, agriculture, construction, marine and rail industries. The businesssegment operates manufacturing and assembly facilities primarily in the United States, Mexico, Brazil, the United Kingdom, Germany, Switzerland and Sweden, and assembly and distribution facilities in China, Japan and Japan,South Korea, with approximately 60%55% of its salesrevenues outside the United States. The Fluid TechnologiesCFT segment manufactures and sells products that are sold under the brand names of Binks®, DeVilbiss®, Ransburg®, BGK®, and MS Powder®. The majority of sales into theseCFT's industries are made through a worldwide network of distributors, national accounts, integrators and some direct to end‑userend-user sales. These business relationships are managed primarily through direct sales personnel worldwide. Key Raw Materials
Key raw materials for this segment include carbon and various grades of stainless steel, brass, aluminum, copper, machined metals, carbide, machined plastic parts and PTFE.
KeyThese raw materials are typically sourced worldwide and have at least two vendor sources to better assure adequate supply.
Seasonality and Working Capital
Approximately
20% to 25%17% of CFT’s annual
net salesrevenues are for the development, and
in some cases assembly, of large fluid handling or other application systems projects. Timing of these system sales can result in
salesrevenues that are higher in certain quarters versus other quarters within the same calendar
year. In addition, timing of system sales may cause significant year,
over year sales variances.particularly the fourth quarter.
The working capital practices for this segment include:
| (i)
| | Standard accounts receivable payment terms of 30 days to 90 days.
|
| (ii)
| | Standard accounts payable payment terms of 30 days to 60 days.
|
•Standard accounts receivable payment terms of 30 days to 90 days. | (iii)
| | Inventories are maintained in sufficient quantities to meet forecasted demand.
|
•Standard accounts payable payment terms of 30 days to 60 days.•Inventories are maintained in sufficient quantities to meet forecasted demand.
Customer Concentration and Competition
CFT serves a large and diverse customer
base.base and in 2019 no single customer accounted for 10% or more of this segment’s revenues. The loss of any single customer would not have a material adverse effect on
thisthe segment’s
net salesrevenues and
cash flows.operating income. Backlog orders are not considered a significant factor of CFT’s business and were $26.0 million and $23.4 million as of December 31, 2019 and 2018, respectively. All orders are reasonably expected to be filled in 2020.The Fluid TechnologiesCFT segment competes against both regional and international manufacturers. Major competitive factors include innovative designs, the ability to provide customers with lower cost of ownership, than its competitors, dependable performance and high quality at a competitive price. Fluid Technologies’CFT’s products' ability to spray, mix or deliver a wide range of coatings, applied uniformly in exact increments, is critical to the overall appearance and functionality of the finished product. applied coatings and functionality.
The segment’s installed base of global customers is supported by a worldwide distribution network with the ability to deliver critical spare parts and other services. Brands that are well recognized and respected internationally, combined with a diverse base of customers, applications and industries served, positions the
Fluid TechnologiesCFT segment to continue designing patented, innovative equipment and solutions for customers across the globe.
Vision 2025 Strategy
Our strategy under Vision 2025 for the CFT segment is to focus on key end markets of automotive and automotive refinish, transportation and general industrial.
In the automotive and automotive refinish markets CFT is focused on:
•Growing sales of core spray guns in automotive OEM and automotive refinishing markets by capitalizing on strong brand recognition and solid customer advocacy among key automotive OEMs; and
•Further expanding in mixing, metering, and dispensing viscous liquids or powder coating equipment through our energy efficient pumps, leveraging those pumps to support core spray gun sales and expand in adjacent markets.
In the transportation and general industrial markets CFT is focused on:
•Leveraging the CFT brand and distribution in Asia;
•Scaling the powder business outside of Europe;
•Expanding pump sales in the attractive reciprocating pumps market;
•Entering the market for fast-set applications such as polyurethane; and
•Continuing to expand into sealants and adhesives.
Key growth initiatives:
•Expand global distribution network by developing partners in growing regions and markets;
•Expand product portfolio by quickly launching new products in adjacent markets;
•Fill gaps in existing product portfolio;
•Increase market share by driving deep customer relationships and operational excellence; and
•Focus merger and acquisition efforts on targets that precisely deliver fluid management solutions.
Carlisle Brake & Friction (“CBF”
or “Brake & Friction”)
Products, Markets and Locations
The Brake & FrictionCBF segment consists of off‑highwaydesigns, manufactures and sells high-performance braking products and systems and clutch transmission friction products for off‑highway, on‑highway,off-highway, on-highway, aircraft and other industrial applications. CBF also includes the performance racing group which marketsdesigns, manufactures and sells high‑performancehigh-performance motorsport braking products. The Brake & FrictionCBF segment manufactures and sells products which are sold under several brand names, such as Hawk®, Wellman®, and Velvetouch®. CBF’s products are sold by direct sales personnel to Original Equipment Manufacturers (“OEMs”),OEMs, mass merchandisers, and various wholesale and industrial distributors around the world, including North America, Europe, Asia and South America, and Africa.America. Key markets served include construction, agriculture, mining, aircraft, heavy truck,on-highway and performance racing. ManufacturingPrimary manufacturing facilities are located in the United States, Italy, China and the United Kingdom, Italy, China, Japan, and India, where we have established a light manufacturing presence.Kingdom.
Key Raw Materials
The brake manufacturing operations require the use of various metal products such as castings, pistons, springs and bearings. With respect to friction products,
thekey raw materials used are fiberglass, phenolic resin, metallic chips, copper and iron powders, steel,
custom‑fabricatedcustom-fabricated cellulose sheet and various other organic materials.
RawThese raw materials are sourced worldwide to better assure adequate
supply, and criticalsupply. Key raw materials generally have at least two vendor sources.
Seasonality and Working Capital
The working capital practices for this segment include:
| (i)
| | Standard accounts receivable payment terms of 30 days to 60 days.
|
| (ii)
| | Standard accounts payable payment terms of 30 days to 90 days.
|
•Standard accounts receivable payment terms of 30 days to 90 days. | (iii)
| | Inventories are maintained in sufficient quantities to meet forecasted demand.
|
•Standard accounts payable payment terms of 30 days to 90 days.•Inventories are maintained in sufficient quantities to meet forecasted demand.
Customer Concentration and Competition
CBF serves a large and diverse customer base; however, in
20162019 one customer represented
approximately 18%17.3% of this segment’s
net sales,revenues but did not represent
greater than 10% of the Company’s consolidated
net sales.revenues. The loss of this customer could have a material adverse effect on this segment’s
net salesrevenues and
cash flows.operating income. Backlog orders were $155.3 million and $190.8 million as of December 31, 2019 and 2018, respectively. All orders are reasonably expected to be filled in 2020.
This segment strives to be a market leader by competing globally against regional and international manufacturers. Few competitors participate in all served markets. A majority
of competitors participate in only a few of CBF’s served markets on a regional or global basis. Markets served are competitive and the major competitive factors include product performance, quality, product availability and price. The relative importance of these competitive factors varies by market segment and channel.
Carlisle FoodService Products (“CFS” or “FoodService Products”)
The FoodService ProductsOur strategy under Vision 2025 for the CBF segment is to be the top brand in off-highway commercial transportation as the only supplier able to offer a leading manufacturer, distributor,complete “pedal to the wheel” solution and seller of commercial foodservice and janitorial products with three main focus markets. CFS is a leading provider of (i) tabletop dining supplies, table coverings, and display serving ware, (ii) food preparation, storage and handling and transport supplies and tools, and (iii) cleaning and sanitation tools and waste handling for restaurants, hotels, hospitals, nursing homes, business and industry work sites, education, and government facilities. CFS’s Dinex brand business is a leading provider of healthcare meal delivery systems for in‑room and mobile dining for acute care hospital patients and senior assisted living residents. CFS’s Sanitary Maintenance Products group is the leading provider of Sparta brand cleaning brushes, floor care supplies, and waste handling for janitorial professionals managing commercial building, industrial, and institutional facilities cleaning and maintenance. On January 9, 2017, we acquired San Jamar, a leading provider of universal dispensing systems and food safety products for foodservice and hygiene applications. San Jamar designs and distributes dispensers for paper towels, tissue, soap and air purification as well as personal and food safety products for commercial and institutional foodservice and sanitary maintenance customers.
CFS operates manufacturing facilitiescontinue to participate in the United Statesmining and Mexico. Sales are primarilymachinery equipment markets where demand remains supportive.
Key growth initiatives:
•Product innovation by leveraging substantial research and development capabilities;
•Increase differentiated technology via expansion of carbon technology;
•Provide innovative, highly engineered vehicle solutions;
•Increase presence through capitalizing on global acceleration of growth in North America. CFS’s product line is distributed from three primary distribution centers located in Charlotte, North Carolina; Oklahoma City, Oklahoma;served regions; and Batavia, Illinois, to wholesalers, distributors,
•Operational excellence through facility rationalization, COS and dealers. These distributor and dealer customers, in turn, sell to restaurant, hotel, and onsite foodservice operators and sanitary maintenance professionals. Distributors and dealer business relationships are managed through both direct sales personnel and subcontracted manufacturer representatives. With the acquisition of San Jamar, CFS added one additional distribution center in Elkhorn, WI. Raw materials used by the FoodService Products segment include polymer resins, stainless steel, and aluminum. Key raw materials are sourced nationally from recognized suppliers of these materials.
The working capital practices for this segment include:
| (i)
| | Standard accounts receivable payment terms of 30 days to 60 days.
|
automation. | (ii)
| | Standard accounts payable payment terms of 30 days to 90 days.
|
| (iii)
| | Inventories are maintained in sufficient quantities to meet forecasted demand.
|
The FoodService Products segment serves a large and diverse customer base; however, in 2016 three distributor customers together represented approximately 26% of this segment’s net sales, none of which represented 10% of the Company’s consolidated net sales. The loss of one of these customers could have a material adverse effect on this segment’s net sales and cash flows.
The FoodService Products segment is engaged in markets that are generally highly competitive and competes equally on price, service, and product performance.
Principal Products
The Company’s products are discussed above and in Note 2 to the Consolidated Financial Statements in Item 8.
Intellectual Property
The Company owns
We own or
holdshold the right to use a variety of patents, trademarks, licenses, inventions, trade secrets and other intellectual property rights.
The Company hasWe have adopted a variety of measures and programs to ensure the continued validity and enforceability of
itsour various intellectual property rights.
Backlog
Backlog of orders generally is not a significant factor in most of the Company’s businesses, as most of the Company’s products have relatively short order‑to‑delivery periods. Backlog of orders was $421.2 million at December 31, 2016 and $389.6 million at December 31, 2015; however, not all of these orders are firm in nature.
Government Contracts
At December 31, 2016, the Company had no material contracts that were subject to renegotiation of profits or termination at the election of the U.S. government.
Research and Development
Research and development activities include the development of new product lines, the modification of existing product lines to comply with regulatory changes and the research of cost efficiencies through raw material substitution and process improvements.
The Company’sOur research and development expenses were
$48.1$60.9 million,
$55.1 million and $51.3 million, representing 1.3%, 1.2% and 1.4% of revenues in
2016 compared to $42.8 million in 20152019, 2018 and
$33.8 million in 2014.2017, respectively.
Environmental Matters
See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Environmental”
Refer to “Item 1A. Risk Factors” and Note
11 to the Consolidated Financial Statements in Item 817 for information regarding environmental matters.
Employees
Labor Matters
As of December 31, 2016, the Company had2019, we employed approximately 12,000 employees and also had13,000 people, excluding approximately 1,600 temporary workers. Certain international employees are subject to2,000 contractors. Employees represented by unions, local work councilcouncils or collective bargaining agreements. agreements as of December 31, 2019, are listed below, with the number of employees represented and the expiration date of the applicable agreements:
| | | | | | | | | | | | | | | | | | | | | | | |
| Location | | Number of Agreements | | Number of Employees Represented | | Expiration Date | |
| CIT - China | | 2 | | | 3,263 | | | December 2022 | |
| CIT - Mexico | | 1 | | | 1,014 | | | N/A | |
| CBF - Italy | | 3 | | | 281 | | | December 2019
December 2020
December 2023 | (1) |
| CCM - Germany | | 2 | | | 153 | | | May 2020 | |
| CCM - Netherlands | | 1 | | | 122 | | | September 2021 | |
| CBF - United Kingdom | | 1 | | | 98 | | | N/A | |
| CIT - Switzerland | | 1 | | | 94 | | | N/A | |
| CCM - United States | | 1 | | | 56 | | | June 2020 | |
| CFT - Germany | | 5 | | | 20 | | | N/A | |
(1)The Company believes the state of its relationship withagreement between CBF and its employees that expired in December 2019 is generally good.International
For foreign net sales and an allocation of the Company’s assets, see Note 2 to the Consolidated Financial Statementscurrently in Item 8.
NYSE Affirmation
On May 19, 2016, D. Christian Koch, the Company’s Chief Executive Officer, submitted to the New York Stock Exchange (the “NYSE”) the Annual CEO Certification and certified therein that he was not aware of any violation by the Company of the NYSE’s Corporate Governance listing standards.
negotiation for renewal.
The Company’s business, financial condition, results of operations and cash flows can be affected by a number of factors including but not limited to those set forth below, those set forth in our “Forward Looking Statements” disclosure in Item 7 and those set forth elsewhere in this Annual Report on Form
10‑K,10-K, any one of which could cause the Company’s actual results to vary materially from recent results or from anticipated future results.
The Company’s earnings growth strategy is partially dependent on the acquisition and successful integration of other businesses.
The Company has a history of acquiring businesses as part of its earnings growth strategy. Typically, the Company considers acquiring companies that can be integrated within an existing business. Acquisitions of this type involve numerous risks, which may include a failure to realize expected revenue growth and operating and cost synergies from integration initiatives, increasing dependency on the markets served by the combined businesses or increased debt to finance the acquisitions.
The Company also considers the acquisition of businesses that may operate independent of existing businesses that involve similar risks with respect to a failure to realize expected revenue growth or operating and cost reductions within the acquired business; and could increase the possibility of diverting corporate management’s attention from its existing operations.
The successful realization of revenue growth, cost reductions and synergies with our existing businesses, and within acquired stand-alone businesses, and increases in profitability overall, is dependent upon successful integration initiatives. If these integration initiatives do not occur, there may be a negative effect on the Company’s business, financial condition, results of operations and cash flows.
See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for recent acquisition information.
Several of the market segments that the Company serves are cyclical and sensitive to domestic and global economic conditions.
Several of the market segments in which the Company sells its products are, to varying degrees, cyclical and may experience periodic downturns in demand. For example, the
Brake & FrictionCBF segment is susceptible to downturns in the construction, agriculture and mining
industries, the Interconnect Technologiesindustries. The CIT segment is susceptible to downturns in the commercial
airlineaerospace industry,
and the
Construction MaterialsCCM segment is susceptible to downturns in the commercial construction
industry. In addition, both the Interconnect Technologies segmentindustry and the
Brake & FrictionCFT segment
may be negatively impacted by reductionsis susceptible to downturns in
military spending.the automotive industry.
Current uncertaintyUncertainty regarding global economic conditions may have an adverse effect on the businesses, results of operations and financial condition of the Company and its customers, distributors and suppliers. Among the economic factors which may affect performance are: manufacturing activity, commercial and residential construction, difficulties entering new markets and general economic conditions such as inflation, deflation, interest rates and credit availability. These effects may, among other things, negatively impact the level of purchases, capital expenditures and creditworthiness of the Company’s customers, distributors and suppliers, and therefore, the Company’s results of operations, margins and orders. The Company cannot predict if, when or how much worldwide economic conditions will fluctuate. These conditions are highly unpredictable and beyond the Company’sCompany's control. If these conditions deteriorate, however, the Company’s business, financial condition, results of operations and cash flows could be materially adversely affected.
The Company is subject to risks arising from international economic, political, legal and business factors.
The Company operates in global markets. Approximately 20% of the Company’s revenues in 2019 were generated outside the United States. In addition, to compete globally, all of the Company’s segments have manufacturing facilities outside the United States. In 2019, approximately 24% of cost of goods sold is derived from facilities outside of the United States.
The Company’s growthreliance on international revenues and international manufacturing bases exposes its business, financial condition, operating results and cash flows to a number of risks, including price and currency controls; government embargoes or foreign trade restrictions, including import and export tariffs; extraterritorial effects of U.S. laws such as the Foreign Corrupt Practices Act; expropriation of assets; war, civil uprisings, acts of terror and riots; political instability; nationalization of private enterprises; hyperinflationary conditions; the necessity of obtaining governmental approval for new and continuing products and operations, currency conversion or repatriation of assets; legal systems of decrees, laws, taxes, regulations, interpretations and court decisions that are not always fully developed and that may be retroactively or arbitrarily applied; cost and availability of international labor, materials and shipping channels; and customer loyalty to local companies.
Additionally, there is
partially dependent onuncertainty caused by the
acquisitionU.K.'s recent exit from the European Union commonly referred to as "Brexit." While the specific terms and
successful integrationimpact of
other businesses.Brexit are not yet known, Brexit could adversely impact the U.K. and/or the European Union, and therefore the Company’s business, financial condition, results of operations and cash flows could be adversely affected.
The Company has a long standing acquisition program and expectscertain of its customers’ operations are subject to continue acquiring businesses. Typically,regulatory risks.
Certain products manufactured by our businesses and certain of our customers operating in the aerospace and medical markets are subject to extensive regulation by the FAA and EASA, and FDA, respectively. It can be costly and time-consuming for the Company
considers acquiring small companies in similar industries. Acquisitions of this type involve numerous risks, which may include potential difficulties integrating the business into existing operations; a failure to realize expected growth, synergies, and
efficiencies; increasing dependency on the markets served by certain businesses, increased debt to finance the acquisitions or the inabilityour customers to obtain
adequate financing on reasonable terms.The Company also considersand maintain regulatory approvals and certifications to operate in these markets. Delays in FAA or EASA approvals or certifications of the acquisition of businesses that may operate independent of existing operations and could increase the possibility of diverting management’s attention from its existing operations. See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for acquisition information.
The successful integrationproducts of our acquired businesses is dependent uponaerospace customers may impact the realizationrequirements for our interconnect components. Product approvals subject to regulations might not be granted for new medical devices on a timely basis, if at all. Proposed new regulations or changes to regulations could result in the need to incur significant additional costs to comply. Continued government scrutiny, including reviews of efficienciesthe FDA medical device pre-market authorization and synergies. Ifpost-market surveillance processes, may impact the requirements for our medical device components. Failure of the Company or any of its customers operating in these integration initiatives do not occur, theremarkets to effectively respond to changes to applicable laws and regulations or comply with existing and future laws and regulations may behave a negative effect on the Company’s business, financial condition, results of operations and cash flows.
If
We are also 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 the Company is unabledid not have any significant accruals related to successfully integratepotential future costs of environmental remediation as of December 31, 2019 and 2018, nor are any acquired business or realizematerial asset retirement obligations recorded as of that date. However, the growth, synergies, and efficiencies that were expected when determining the purchase price, goodwill and other intangible assets acquired may be considered impaired, resulting in an adverse impact on the Company’s results of operations. See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” for a discussion of factors considered in the subsequent valuationnature 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, goodwillcould potentially result in material environmental liabilities or asset retirement obligations.
While we must comply with existing and
intangible assets.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.
The Company has significant concentrations in the
domestic commercial construction market.
For the year ended December 31,
2016,2019, approximately
56%67% of the Company’s revenues and approximately
85%88% of its
EBIT (excluding Corporate expenses and including impairment charges of $141.5 million)operating income were generated by the
Construction MaterialsCCM segment. Construction spending is affected by economic conditions, changes in interest rates, demographic and population shifts and changes in construction spending by federal, state and local governments. A decline in the commercial construction market could adversely affect the Company’s business, financial condition, results of operations and cash flows. Additionally, adverse weather conditions such as heavy or sustained rainfall, cold weather and snow can limit construction activity and reduce demand for roofing materials. Weather conditions can also be a positive factor, as demand for roofing materials may rise after harsh weather conditions due to the need for replacement materials.
The
Construction MaterialsCCM segment competes through pricing, among other factors. Increased competition in this segment has
placed, and could continue to place, negative pressure on operating results in future periods.
The Company is subject to risks arising from international economic, political, legal, and business factors.
The Company has increased, and anticipates that it will continue to increase, its presence in global markets. Approximately 23% of the Company’s revenues in 2016 were generated outside the United States. The Company expects this percentage will grow as the Company continues to expand its international sales efforts. In addition, to compete globally, all of the Company’s segments have operations outside the United States.
The Company’s increasing reliance on international revenues and international manufacturing bases exposes its business, financial condition, operating results, and cash flows to a number of risks, including price and currency controls; government embargoes or foreign trade restrictions; extraterritorial effects of U.S. laws such as the Foreign Corrupt Practices Act; expropriation of assets; war, civil uprisings, acts of terror, and riots; political instability; nationalization of private enterprises; hyperinflationary conditions; the necessity of obtaining governmental approval for new and continuing products and operations, currency conversion, or repatriation of assets; legal systems of decrees, laws, taxes, regulations, interpretations, and court decisions that are not always fully developed and that may be retroactively or arbitrarily applied; cost and availability of international shipping channels; and customer loyalty to local companies.
The loss of, or a significant decline in business with, one or more of the Company’s key customers could adversely affect the Company’s business, financial condition, results of operations and cash flows.
The Company operates in several
specialty niche markets in which a large portion of the segment’s revenues are attributable to a few large customers. See “Item 1. Business—Overview—Description of Businesses by Segment” for a discussion of customer concentrations by segment. A significant reduction in purchases by one or more of these customers could have
a materialan adverse effect on the business, financial condition, results of operations or cash flows of one or more of the Company’s segments.
Some of the Company’s key customers enjoy significant purchasing power that may be used to exert pricing pressure on the Company. Additionally, as many of the Company’s businesses are part of a long supply chain to the ultimate consumer, the Company’s business, financial condition, results of operations or cash flows could be adversely affected if one or more key customers elects to
in‑sourcein-source or find alternative suppliers for the production of a product or products that the Company currently provides.
Raw
Materialmaterial costs are a significant component of the Company’s cost structure and are subject to volatility.
The Company utilizes
petroleum‑basedpetroleum-based products, steel and other commodities in its manufacturing processes. Raw materials, including inbound freight, accounted for approximately
59%62% of the Company’s cost of goods sold in
2016.2019. Significant increases in the price of these materials may not be recovered through selling price increases and could adversely affect the Company’s business, financial condition, results of operations and cash flows. The Company also relies on global sources of raw materials, which could be adversely impacted by unfavorable shipping or trade arrangements,
including import and export tariffs and global economic conditions.
If the Company or its business partners are unable Refer to adequately protect the Company’s information assets from cyber‑based attacks or other security incidents, the Company’s operations could be disrupted.
The Company is increasingly dependent on information technology, including the internet, for the storage, processing, and transmission of its electronic, business‑related, information assets. Cybersecurity incidents are increasing in frequency, evolving in nature and include, but are not limited to, installation of malicious software, unauthorized access to data and other electronic security breaches that could lead to disruptions in our systems, unauthorized release of confidential or otherwise protected information and the corruption of data. The Company leverages its internal information technology infrastructures, and those of its business partners, to enable, sustain, and protect its global business interests. In the event that the Company or its business partners are unable to prevent, detect, and remediate cyber‑based attacks or other security incidents in a timely manner, the Company’s operations could be disrupted or the Company may incur financial or reputational losses arising from the theft, alteration, misuse, unauthorized disclosure, or destruction of its information assets.
Currency fluctuation could have a material impact on the Company’s reported results of business operations.
The Company’s global net sales and other activities are translated into U.S. Dollars for reporting purposes. The strengthening or weakening of the U.S. Dollar could result in unfavorable translation effects as the results of transactions in foreign countries are translated into U.S. Dollars. In addition, sales and purchases in currencies other than the U.S. Dollar expose the Company to fluctuations in foreign currencies relative to the U.S. Dollar. Increased strength of the U.S. Dollar will decrease the Company’s reported revenues or margins in respect of sales conducted in foreign currencies to the extent the Company is unable or determines not to increase local currency prices. Likewise, decreased strength of the U.S. Dollar could have a material adverse effect on the cost of materials and products purchased overseas. Many of the Company’s sales that are exported by its U.S. subsidiaries to foreign countries are denominated in U.S. Dollars, reducing currency exposure. However, increased strength of the U.S. Dollar may decrease the competitiveness of our U.S. subsidiaries’ products that are sold in U.S. Dollars within foreign locations.
The Company has entered into foreign currency forward contracts to mitigate the exposure of certain of our results of operations and cash flows to such fluctuations. See “Part II—Item 8. Financial Statements7A. Quantitative and Supplementary Data—Note 19 – Foreign Currency Forward Contracts”Qualitative Disclosures About Market Risk” for a discussion of these contracts.
additional information regarding commodity price risk.
Dispositions, failure to successfully complete dispositions or restructuring activities could negatively affect the Company.
From time to time, the Company, as part of its commitment to concentrate on its core business, may dispose of all or a portion of certain businesses. Such dispositions involve a number of risks and present financial, managerial and operational challenges, including diversion of
managementmanagement's attention from the Company’s core businesses, increased expense associated with the dispositions, potential disputes with the customers or suppliers of the disposed businesses, potential disputes with the acquirers of the disposed businesses and a potential dilutive effect on the Company’s earnings per share. If dispositions are not completed in a timely manner, there may be a negative effect on the Company’s cash flows and/or the Company’s ability to execute its strategy.
Additionally, from time to time, the Company may undertake consolidation and other restructuring projects in an effort to reduce costs and streamline its operations. Such restructuring activities may divert managementmanagement's attention from the Company’s core businesses, increase expenses on a short‑termshort-term basis and lead to potential disputes with the employees, customers or suppliers of the affected businesses. If restructuring activities are not completed in a
timely manner or if anticipated cost savings, synergies and efficiencies are not realized, there may be a negative effect on the Company’s business, financial condition, results of operations and cash flows.
During 2016, the Company implemented cost reduction plans
Refer to Notes 4 and
incurred restructuring and severance charges of $15.5 million, primarily resulting from a reduction in workforce, facility consolidation and relocation, and lease termination costs associated with our Interconnect Technologies segment, Fluid Technologies segment and Corporate office. See “Part II—Item 8. Financial Statements and Supplementary Data—Note 4 – Restructuring”8 for a discussion of
thesedisposition and restructuring
programs.matters.
Currency fluctuation could have a material impact on the Company’s reported results of business operations.
The Company’s
operationsglobal revenues and other activities are
subject to regulatory risks.Certain products manufactured by our businesses operating intranslated into U.S. Dollars ("USD") for reporting purposes. The strengthening or weakening of the aerospace and medical markets are subject to extensive regulation by the FAA and FDA, respectively. It can be costly and time‑consuming to obtain and maintain regulatory approvals as well as maintain certifications to supply our products to OEM aerospace customers and to obtain regulatory approvals to market medical devices. Product approvals subject to regulations might not be granted for new devices on a timely basis, if at all. Proposed new regulations or changes to regulationsUSD could result in unfavorable translation effects as the needresults of transactions in foreign countries are translated into USD. In addition, sales and purchases in currencies other than our subsidiaries functional currencies (primarily the USD, Euro, Chinese Renminbi and British Pound) expose the Company to incur significant additional costsfluctuations in foreign currencies relative to comply. Continued government scrutiny, including reviewsthose functional currencies. Increased strength of the FDA medical device pre‑market authorization and post‑market surveillance processes, may impactfunctional currency will decrease the requirements for our medical device interconnect components. FailureCompany’s reported revenues or margins in respect of sales conducted in foreign currencies to effectively respondthe extent the Company is unable or determines not to changes to applicable laws and regulations or comply with existing and future laws and regulations mayincrease local currency prices. Likewise, decreased strength of the functional currency could have a negativematerial adverse effect on the cost of materials and products. Many of the Company’s business, financial condition,sales that are exported by its USD functional subsidiaries to foreign countries are denominated in USD, reducing currency exposure. However, increased strength of the USD may decrease the competitiveness of our U.S. subsidiaries’ products that are sold in USD within foreign locations.
The Company has entered into foreign currency forward contracts to mitigate the exposure of certain of our results of operations and cash
flows.flows to such fluctuations. See “Part II—Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for a discussion on foreign currency exchange risk. Security breaches or significant disruptions of our information technology systems or violations of data privacy laws could adversely affect our business.
We rely on information technology systems, some of which are managed by third-parties, to process, transmit and store electronic information, and to manage or support critical business processes. Security breaches of these systems could result in the unauthorized or inappropriate access to confidential information or personal data entrusted to us by our business partners. While we have experienced, and expect to continue to experience, security breaches to our information technology systems, none of them to date has had a material impact on the Company. Additionally, these systems may be disrupted as a result of attacks by computer hackers or viruses, human error or wrongdoing, operational failures or other catastrophic events. The Company leverages its internal information technology infrastructures, and those of its business partners, to enable, sustain and protect its global business interests, however, any of the aforementioned breaches or disruptions could result in legal claims, liability or penalties under privacy laws or damage to operations or to the Company's reputation, which could adversely affect our business.We are subject to data privacy and security laws, regulations and customer-imposed controls as a result of having access to and processing confidential, personal and/or sensitive data in the course of business. If we are unable to maintain reliable information technology systems and appropriate controls with respect to privacy and security requirements, we may suffer regulatory consequences that could be costly or otherwise adversely affect our business.
Item 1B. Unresolved Staff Comments.
The number, location and size of the Company’s principal properties as of December 31,
2016 are shown on the following chart,2019, by
segment.segment follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Square Footage | | | Number of Facilities | | | Square Footage (in millions) | |
| | Location | | | | (in millions) | |
| | North | | | | | | | | No. of | | | | | |
Segment | | America | | Europe | | Asia | | Other | | Facilities | | Owned | | Leased | |
| | | | | | | | | | | | | | | | North America | | Europe | | Asia | | Other | | Total | | Owned | | Leased |
Carlisle Construction Materials | | 21 | | 6 | | - | | - | | 27 | | 4.3 | | 0.8 | Carlisle Construction Materials | | 44 | | | 11 | | | — | | | — | | | 55 | | | 5.2 | | | 1.4 | |
Carlisle Interconnect Technologies | | 13 | | 2 | | 3 | | - | | 18 | | 0.7 | | 1.0 | Carlisle Interconnect Technologies | | 21 | | | 2 | | | 5 | | | — | | | 28 | | | 0.6 | | | 1.3 | |
Carlisle Fluid Technologies | | 7 | | 3 | | 2 | | 2 | | 14 | | 0.6 | | 0.2 | Carlisle Fluid Technologies | | 5 | | | 3 | | | 4 | | | 1 | | | 13 | | | 0.4 | | | 0.1 | |
Carlisle Brake and Friction | | 4 | | 2 | | 6 | | - | | 12 | | 0.8 | | 0.5 | Carlisle Brake and Friction | | 4 | | | 2 | | | 5 | | | — | | | 11 | | | 1.0 | | | 0.2 | |
Carlisle FoodService Products | | 8 | | - | | - | | - | | 8 | | 0.2 | | 0.8 | |
Totals | | 53 | | 13 | | 11 | | 2 | | 79 | | 6.6 | | 3.3 | Totals | | 74 | | | 18 | | | 14 | | | 1 | | | 107 | | | 7.2 | | | 3.0 | |
In addition to the manufacturing plants and warehousing facilities listed above, we lease our corporate offices in Scottsdale, Arizona and in Shanghai, China. We consider our
The Company considers its principal properties, as well as the related machinery and equipment, to be
generally well maintained, and suitable and adequate for
theirits intended
purpose.purposes.
Item 3. Legal Proceedings.Information pertaining to legal proceedings can be found in Note 11 to the Consolidated Financial Statements included in this Annual Report, and is incorporated by reference herein.
None.
Item 4. Mine Safety Disclosures. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Performance Graph
The table below shows how a $100 investment in Carlisle has grown over the five-year period ending December 31, 2019, as compared to a $100 investment in the S&P MidCap 400® Index, S&P 500® Index and the peer group. The peer group includes Crane Co., Danaher Corp., Dover Corp., Emerson Electric Co., General Electric Co., Harsco Corp., Illinois Tool Works Inc., Ingersoll-Rand plc, ITT Inc., Parker Hannifin Corp., Pentair plc, Roper Technologies, Inc., SPX Corp., Teleflex Inc., Textron Inc., and United Technologies Corp.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carlisle | | S&P MidCap 400 | | S&P 500 | | Peer Group |
| 2014 | | $100.00 | | $100.00 | | $100.00 | | $100.00 |
| 2015 | | 98.50 | | 100.22 | | 97.29 | | 86.43 |
| 2016 | | 122.95 | | 109.28 | | 114.46 | | 102.64 |
| 2017 | | 125.24 | | 130.29 | | 131.19 | | 128.62 |
| 2018 | | 107.82 | | 119.86 | | 112.90 | | 108.10 |
| 2019 | | 179.34 | | 156.92 | | 142.04 | | 152.31 |
The graph below shows a five-year comparison of cumulative returns for a $100 investment in the Company as compared to the S&P MidCap 400® Index, S&P 500® Index and the peer group.
Market Information
The Company’s common stock is traded on the New York Stock
Exchange. AtExchange under the ticker symbol "CSL." As of December 31,
2016,2019, there were
1,2921,180 shareholders of record.
The number of beneficial holders is substantially greater than the number of record holders because a significant portion of our common stock is held of record in broker “street names.”Issuer Purchases of Equity Securities Quarterly cash dividends paid and the high and low prices of the Company’s stock on the New York Stock Exchange in 2016 and 2015 were as follows:
| | | | | | | | | | | | |
2016 | | First | | Second | | Third | | Fourth |
| | | | | | | | | | | | |
Dividends per share | | $ | 0.30 | | $ | 0.30 | | $ | 0.35 | | $ | 0.35 |
Stock Price | | | | | | | | | | | | |
High | | $ | 99.79 | | $ | 105.68 | | $ | 108.49 | | $ | 115.96 |
Low | | $ | 77.82 | | $ | 98.38 | | $ | 98.85 | | $ | 101.57 |
| | | | | | | | | | | | |
2015 | | First | | Second | | Third | | Fourth |
| | | | | | | | | | | | |
Dividends per share | | $ | 0.25 | | $ | 0.25 | | $ | 0.30 | | $ | 0.30 |
Stock Price | | | | | | | | | | | | |
High | | $ | 95.10 | | $ | 102.26 | | $ | 104.60 | | $ | 92.70 |
Low | | $ | 86.79 | | $ | 91.87 | | $ | 86.91 | | $ | 84.11 |
The following table summarizes the Company’s purchases of its common stock forduring the quarterthree months ended December 31, 2016:
| | | | | | | | | |
Period | | (a)
Total Number
of Shares
Purchased | | (b)
Average Price
Paid Per Share | | (c)
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs | | (d)
Maximum Number
(or Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans or
Programs(1) |
| | | | | | | | | |
October 2016 | | 42,000 | | $ | 104.04 | | 42,000 | | 4,919,689 |
November 2016 | | 42,000 | | $ | 110.87 | | 42,000 | | 4,877,689 |
December 2016 | | 42,000 | | $ | 112.64 | | 42,000 | | 4,835,689 |
Total | | 126,000 | | | | | 126,000 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except per share amounts) | | (a)
Total Number
of Shares
Purchased | | (b)
Average Price
Paid Per Share | | (c)
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs | | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
| October | | 3 | | | $ | 139.27 | | | — | | | 5,844 | |
| November | | 514 | | | $ | 159.02 | | | 514 | | | 5,330 | |
| December | | 431 | | | $ | 158.16 | | | 431 | | | 4,899 | |
| Total | | 948 | | | | | 945 | | | |
| (1)
| | Represents the number of shares that can be repurchased under the Company’s stock repurchase program. The stock repurchase program was originally approved on November 3, 1999, and was reactivated on August 17, 2004. At the time of the adoption, the Company had the authority to purchase 741,890 split‑adjusted shares of common stock. The Board of Directors authorized the repurchase of an additional 2,500,000 shares, 1,400,000 shares, and 4,100,000 shares of the Company’s common stock on August 1, 2007, February 12, 2008, and September 12, 2016, respectively.
|
(1)Represents the remaining total number of shares that can be repurchased under the Company’s stock repurchase program. On February 5, 2019, the Board approved a 5 million share increase in the Company's stock repurchase program.The Company may also reacquire shares outside of the repurchase program from time to time in connection with the forfeiture of shares in satisfaction of tax withholding obligations from the vesting of
share‑basedshare-based compensation. There were
noapproximately 3 thousand shares reacquired in transactions outside the repurchase program during the three months ended December 31,
2016.
Item 6. Selected Financial Data.
Five‑Year Summary
| | | | | | | | | | | | | | | |
(in millions except for per share data) | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| | | | | | | | | | | | | | | |
Summary of Operations | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net sales | | $ | 3,675.4 | | $ | 3,543.2 | | $ | 3,204.0 | | $ | 2,943.0 | | $ | 2,851.2 |
Gross margin | | | 1,157.3 | | | 1,006.7 | | | 819.5 | | | 745.6 | | | 767.0 |
Selling & administrative expenses | | | 532.0 | | | 461.9 | | | 379.0 | | | 353.7 | | | 356.6 |
Research & development expenses | | | 48.1 | | | 42.8 | | | 33.8 | | | 29.3 | | | 26.1 |
Earnings before interest and income taxes | | | 441.1 | | | 501.9 | | | 408.3 | | | 366.8 | | | 371.9 |
Income from continuing operations | | | 250.8 | | | 319.6 | | | 251.7 | | | 235.2 | | | 228.7 |
Basic earnings per share | | $ | 3.87 | | $ | 4.89 | | $ | 3.89 | | $ | 3.69 | | $ | 3.64 |
Diluted earnings per share | | $ | 3.83 | | $ | 4.82 | | $ | 3.83 | | $ | 3.61 | | $ | 3.57 |
Net income | | | 250.1 | | | 319.7 | | | 251.3 | | | 209.7 | | | 270.2 |
Basic earnings per share | | $ | 3.86 | | $ | 4.89 | | $ | 3.89 | | $ | 3.29 | | $ | 4.30 |
Diluted earnings per share | | $ | 3.82 | | $ | 4.82 | | $ | 3.82 | | $ | 3.22 | | $ | 4.22 |
| | | | | | | | | | | | | | | |
Financial Position | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total assets (1) | | $ | 3,965.8 | | $ | 3,950.9 | | $ | 3,754.9 | | $ | 3,488.5 | | $ | 3,452.2 |
Long-term debt (1) | | | 596.4 | | | 595.6 | | | 746.0 | | | 746.5 | | | 747.2 |
| | | | | | | | | | | | | | | |
Other Data | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Dividends paid | | $ | 84.5 | | $ | 72.3 | | $ | 61.2 | | $ | 53.7 | | $ | 48.0 |
Per share | | $ | 1.30 | | $ | 1.10 | | $ | 0.94 | | $ | 0.84 | | $ | 0.76 |
(1)Prior year amounts were reclassified to reflect the adoption of ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. See Note 1 to theSelected Consolidated Financial Statements in Item 8.
Data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions except for per share data) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Summary of Operations | | | | | | | | | | |
| Revenues | | $ | 4,811.6 | | | $ | 4,479.5 | | | $ | 3,750.8 | | | $ | 3,425.2 | | | $ | 3,300.6 | |
| Gross margin | | $ | 1,371.7 | | | $ | 1,174.7 | | | $ | 1,048.3 | | | $ | 1,086.4 | | | $ | 941.3 | |
| Selling and administrative expenses | | $ | 667.1 | | | $ | 625.4 | | | $ | 532.9 | | | $ | 495.4 | | | $ | 426.5 | |
| Research and development expenses | | $ | 60.9 | | | $ | 55.1 | | | $ | 51.3 | | | $ | 45.4 | | | $ | 39.9 | |
| Operating income | | $ | 654.2 | | | $ | 509.0 | | | $ | 464.0 | | | $ | 404.2 | | | $ | 477.5 | |
| | | | | | | | | | |
| Income from continuing operations | | $ | 473.7 | | | $ | 358.6 | | | $ | 340.6 | | | $ | 231.1 | | | $ | 302.6 | |
| (Loss) income from discontinued operations | | (0.9) | | | 252.5 | | | 24.9 | | | 19.0 | | | 17.1 | |
| Net income | | $ | 472.8 | | | $ | 611.1 | | | $ | 365.5 | | | $ | 250.1 | | | $ | 319.7 | |
| | | | | | | | | | |
| Basic earnings per share: | | | | | | | | | | |
| Income from continuing operations | | $ | 8.30 | | | $ | 5.92 | | | $ | 5.36 | | | $ | 3.57 | | | $ | 4.63 | |
| (Loss) income from discontinued operations | | (0.02) | | | 4.17 | | | 0.39 | | | 0.29 | | | 0.26 | |
| | $ | 8.28 | | | $ | 10.09 | | | $ | 5.75 | | | $ | 3.86 | | | $ | 4.89 | |
| Diluted earnings per share: | | | | | | | | | | |
| Income from continuing operations | | $ | 8.21 | | | $ | 5.88 | | | $ | 5.32 | | | $ | 3.53 | | | $ | 4.56 | |
| (Loss) income from discontinued operations | | (0.02) | | | 4.14 | | | 0.39 | | | 0.29 | | | 0.26 | |
| | $ | 8.19 | | | $ | 10.02 | | | $ | 5.71 | | | $ | 3.82 | | | $ | 4.82 | |
| Financial Position | | | | | | | | | | | | | | | |
| Total assets | | $ | 5,496.0 | | | $ | 5,249.2 | | | $ | 5,299.8 | | | $ | 3,965.8 | | | $ | 3,950.9 | |
| Total debt, including current portion | | $ | 1,591.6 | | | $ | 1,587.8 | | | $ | 1,586.2 | | | $ | 596.4 | | | $ | 595.6 | |
| Other Data | | | | | | | | | | | | | | | |
| Dividends paid | | $ | 102.9 | | | $ | 93.5 | | | $ | 92.1 | | | $ | 84.5 | | | $ | 72.3 | |
| Dividends paid per share | | $ | 1.80 | | | $ | 1.54 | | | $ | 1.44 | | | $ | 1.30 | | | $ | 1.10 | |
The selected consolidated financial data shown above is derived from our audited consolidated financial statements. Refer to Note 3 for information regarding recent acquisitions and its impact to financial results.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Carlisle Companies Incorporated (“Carlisle”, the “Company”, “we”, “us” or “our”) is a diversified manufacturer of highly engineered products. Carlisle is committed to generating superior shareholder returns by combining a unique management style of decentralization, entrepreneurial spirit, active mergers and acquisitions, and a balanced and disciplined approach to capital deployment, all with a culture of continuous improvement as embodied in the Carlisle Operating System ("COS"). Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of Company management. All references to “Notes” refer to our Notes to Consolidated Financial Statements in this Annual Report on Form 10-K. For more information regarding our consolidated results, segment results, and liquidity and capital resources for the year ended December 31, 2018 as compared to the year ended December 31, 2017, refer to "Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2018 Annual Report on Form 10-K, which information is incorporated herein by reference. We
are a multi‑national company that designs, manufactures and sells a wide range of products principally throughout North America, Western Europe, and the Asia Pacific region via the following segments: | ·
| | Carlisle Construction Materials (“CCM” or “Construction Materials”);
|
| ·
| | Carlisle Interconnect Technologies (“CIT” or “Interconnect Technologies”);
|
| ·
| | Carlisle Fluid Technologies (“CFT” or “Fluid Technologies”);
|
| ·
| | Carlisle Brake & Friction (“CBF” or “Brake & Friction”); and
|
| ·
| | CarlisleFoodService Products (“CFS” or “FoodService Products”).
|
We are focusedfocus on achieving profitable growth in theseour segments both organically, through new product development, product line extensions and entering new markets, andas well as through acquisitions of businesses that complement our existing technologies, products and market channels. We focus on obtaining profitable growth through:
| ·
| | Year‑over‑year improvement in sales, earnings before interest and income taxes (“EBIT”) margins, net earnings and return on invested capital (“ROIC”);
|
| ·
| | Reduction of working capital (defined as receivables, plus inventories, net of accounts payable) as a percentage of net sales;
|
| ·
| | Maintenance of a strong and flexible balance sheet.
|
Resources are allocated among the operating companiessegments based on senior management’s assessment of theirits ability to obtain leadership positions and competitive advantages in the markets they serve.
A key philosophy in how we driveit serves. We focus on obtaining profitable growth isthrough the following strategic factors:
•Driving above-market organic growth;
•Utilizing COS consistently to drive efficiencies and operating leverage;
•Building scale with synergistic acquisitions;
•Continuing to invest in and develop exceptional talent; and
•Deploying capital into capital expenditures, share repurchases and dividends.
Driven by strong underlying demand in North American non-residential roofing markets, Carlisle Operating System (“COS”delivered record full year sales, operating income and diluted EPS results. We accomplished these results despite continued negative impact in the global economy highlighted by, amongst various factors, U.S./China trade negotiations, Brexit uncertainty, global industrial production declines and significant commercial aerospace production delays at a key customer.
We continue to gain traction on the key pillars of Vision 2025, under which we target $8 billion in revenues, 20% operating margin, and 15% return on invested capital ("ROIC")., all driving to $15 of earnings per share.
As we embark on year three of Vision 2025, we will build on the achievements of our first two years and continue to drive towards our objectives to achieve 5% organic growth with leverage, utilize COS isto deliver efficiencies and annual cost savings of 1 to 2% of revenues, deploying $3 billion to build scale with synergistic acquisitions, continuing to invest in exceptional talent and allocating over $3 billion into capital expenditures, share repurchases and dividends.
Full year 2019 highlights include:
•Delivered 2.8% organic revenue growth despite significant headwinds and leveraged this growth to expand operating margins 220 basis points
•Drove organic revenue growth of 5% since the launch of Vision 2025, in line with our long-term target
•Maintained strong price discipline, leading to positive price realization across all segments
•Achieved gross savings and benefits from COS within our targeted range of 1 to 2% of revenues
•Deployed over $600 million of capital into 8 strategic acquisitions
•Leveraged our strong cash flow and balance sheet by deploying over $485 million into share repurchases and dividends paid
In addition to our strong financial performance, we are pleased about the continued momentum our team has generated around environmental, social and governance ("ESG") issues. In 2019, we established an ESG steering committee, developed an ESG reporting process, elevated the position of Director of Sustainability to report directly to the Chief Executive Officer and established a manufacturing structureplan to publish our first ESG report in 2020. Additionally, we made
progress in diversifying our Board of Directors and strategy deployment systemhave made commitments to ensuring a $15 per hour minimum wage in our U.S. operations, gender pay equity, and a gender-balanced management team.
We are pleased with our significant accomplishments and strong performance in a challenging 2019. Supported by COS, our teams focused on and executed numerous continuous improvement projects to help overcome these challenges. Finally, we recognize that Carlisle's achievements are the culmination of efforts by our employees, customers, channel partners and suppliers, and we appreciate their contribution to our record results in 2019.
Summary Financial Results
| | | | | | | | | | | | | | | | |
| (in millions, except per share amounts) | | 2019 | | 2018 | | |
| Revenues | | $ | 4,811.6 | | | $ | 4,479.5 | | | |
| | | | | | |
| Operating income | | $ | 654.2 | | | $ | 509.0 | | | |
| Operating margin percentage | | 13.6 | % | | 11.4 | % | | |
| Income from continuing operations | | $ | 473.7 | | | $ | 358.6 | | | |
| (Loss) income from discontinued operations | | $ | (0.9) | | | $ | 252.5 | | | |
| Diluted earnings per share attributable to common shares: | | | | | | |
| Income from continuing operations | | $ | 8.21 | | | $ | 5.88 | | | |
| (Loss) income from discontinued operations | | $ | (0.02) | | | $ | 4.14 | | | |
| | | | | | |
Items affecting comparability: (1) | | | | | | |
| Impact to operating income | | $ | 23.7 | | | $ | 32.6 | | | |
| Impact to income from continuing operations | | $ | 4.3 | | | $ | 12.3 | | | |
| Impact to diluted EPS from continuing operations | | $ | 0.08 | | | $ | 0.20 | | | |
(1)Items affecting comparability primarily include acquisition related costs, exit and disposal costs, facility rationalization costs, litigation settlement costs, gains from divestitures and non-comparable tax items. The tax effect is based on lean enterprise and six sigma principles and is a continuous improvement process that defines the way we do business. Waste is eliminated and efficiencies improved enterprise wide. Improvements are not limited to production areas, as COS also drives improvements in new product innovation, engineering, supply chain management, warranty, and product rationalization. COS creates a culture of continuous improvement across all aspectsrate of the Company’s business operations.Another key strategyjurisdiction where the expense is deductible. Refer to
Items Affecting Comparability in driving profitable growth is through acquisitions. We typically acquire businesses that are complementary to our existing segments and can be integrated into them. However,this MD&A for further discussion. Revenues increased primarily reflecting contributions from
time to time we may acquire new businesses that operate independently from other segments. Factors we consider in making an acquisition include the ability of the acquired businesses to drive profitable growth in the future by increasing our EBIT margins, operating cash flows, and net earnings. We may also pursue the sale of businesses when it is determined they no longer fit within the Company’s long‑term goals or strategy.Acquisitions
On January 31, 2017, we acquired 100% of the equity of Arbo Holdings Limited (“Arbo”) for an estimated cash consideration of $8.9 million. Arbo is a leading provider of sealants, coatings, and membrane systems used for waterproofing and sealing buildings and other structures. The results of operations of the acquired business will be reported within the Construction Materials segment beginning in the first quarter of 2017.
On January 9, 2017, we acquired 100% of the equity of San Jamar, Inc., (“San Jamar”), for estimated cash consideration of $217.7 million, subject to a working capital settlement. San Jamar is a leading provider of universal dispensing systems and food safety products for foodservice and hygiene applications. San Jamar enhances the improved operating performance at FoodService Products by adding innovative new products, opportunities to expand our presence in complementary sales channels and adding a history of profitable growth. The results of operations of the acquired business will be reported within the FoodService Products segment beginning in the first quarter of 2017.
On October 3, 2016, we acquired 100% of the equity of Star Aviation, Inc. (“Star Aviation”), for total consideration of $82.4 million, net of cash acquired, inclusive of a working capital settlement. Star Aviation is a leading provider of design and engineering services, testing and certification work and manufactured products for in-flight connectivity applications on commercial, business and military aircraft. Star Aviation complements CIT’s highly specialized engineering and design capabilities in the in-flight connectivity market, where we expect further growth opportunities from the demand for retro-fit and line-fit for satellite connectivity, as well as, development in emerging connectivity technologies. The results of operations of the acquired business are reported within the Interconnect Technologies segment.
On June 10, 2016, we acquired 100% of the equity of Micro-Coax, Inc., and Kroll Technologies, LLC, (collectively “Micro-Coax”) for total consideration of $95.1 million, net of cash acquired, inclusive of a working capital settlement. 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.
On February 19, 2016, we 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 CHF4.3 million, or $4.3 million. The results of operations of MS Powder are reported within the Fluid Technologies segment.
On April 1, 2015, we acquired the Finishing Brands business from Graco Inc. (“Graco”) for total cash consideration of $598.9 million. We added a reportable segment, Fluid Technologies, to reflect the acquisition of Finishing Brands. CFT isPetersen Aluminum Corporation ("Petersen") in the Carlisle Construction Materials (“CCM”) segment, higher volumes and continued price leadership, partially offset by unfavorable foreign currency exchange rates.
The increase in operating income primarily reflected the above revenue performance and benefits from raw material savings and contributions from COS, partially offset by wage inflation. Refer to Segment Results of Operations within this MD&A for further information related to segment operating income results.
Diluted earnings per share from continuing operations primarily benefited from the above operating income performance ($1.81 per share in 2019), reduced average shares outstanding ($0.44 per share in 2019) resulting from our share repurchase program, and 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. lower effective tax rate ($0.02 per share in 2019).
We generated
$531.2$703.1 million in operating cash flows during
2016. We2019 and utilized cash on hand and cash provided by operations to fund
acquisitions.Summaryacquisitions, fund capital projects and return capital to shareholders.
Consolidated Results of
Consolidated Financial ResultsOperations | | | | | | | | | | | | | | | | | |
(in millions, except per share amounts) | | 2016 | | 2015 | | Change | | 2015 | | 2014 | | Change | |
| | | | | | | | | | | | | | | | | |
Net sales | | $ | 3,675.4 | | $ | 3,543.2 | | 3.7 | % | $ | 3,543.2 | | $ | 3,204.0 | | 10.6 | % |
EBIT | | $ | 441.1 | | $ | 501.9 | | (12.1) | % | $ | 501.9 | | $ | 408.3 | | 22.9 | % |
EBIT margin | | | 12.0 | % | | 14.2 | % | (220) | bps | | 14.2 | % | | 12.7 | % | 150 | bps |
Income from continuing operations | | $ | 250.8 | | $ | 319.6 | | (21.5) | % | $ | 319.6 | | $ | 251.7 | | 27.0 | % |
Diluted EPS from continuing operations | | $ | 3.83 | | $ | 4.82 | | (20.5) | % | $ | 4.82 | | $ | 3.83 | | 25.8 | % |
2016 Compared to 2015
Net sales increased
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % | | Acquisition
Effect | | Price / Volume
Effect | | Exchange
Rate Effect |
| Revenues | | $ | 4,811.6 | | | $ | 4,479.5 | | | $ | 332.1 | | | 7.4 | % | | 5.1 | % | | 2.8 | % | | (0.5) | % |
The increase in revenues in 2019 primarily reflected a contribution of $176.2 million from the acquisition of Petersen in the CCM segment and $53.8 million from other acquisitions primarily in the CFT and Carlisle Interconnect Technologies ("CIT") segments, and higher volumes and price from favorable commercial construction demand at CCM. The increase in revenues was partially offset by lower volumes at CBF and CFT, and unfavorable foreign currency rates due to higher neta stronger U.S. dollar.
Revenues by Geographic Area
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | 2019 | | | | 2018 | | | | | | |
| United States | | $ | 3,847.1 | | | 80 | % | | $ | 3,461.3 | | | 77 | % | | | | |
| International: | | | | | | | | | | | | |
| Europe | | 428.3 | | | | | 443.5 | | | | | | | |
| Asia | | 288.3 | | | | | 306.5 | | | | | | | |
| Canada | | 104.7 | | | | | 112.1 | | | | | | | |
| Mexico | | 70.0 | | | | | 72.0 | | | | | | | |
| Middle East and Africa | | 39.4 | | | | | 46.8 | | | | | | | |
| Other | | 33.8 | | | | | 37.3 | | | | | | | |
| Total International | | 964.5 | | | 20 | % | | 1,018.2 | | | 23 | % | | | | |
| Revenues | | $ | 4,811.6 | | | | | $ | 4,479.5 | | | | | | | |
Total revenues to international customers decreased primarily reflecting lower sales volume at Construction Materials, reflectingto Asia and Europe from CIT, CFT and CBF compared with prior year. Partly offsetting lower international sales were increased sales to Europe and Asia from CCM.
Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % |
| Gross margin | | $ | 1,371.7 | | | $ | 1,174.7 | | | $ | 197.0 | | | 16.8 | % |
| Gross margin percentage | | 28.5 | % | | 26.2 | % | | | | |
| Depreciation and amortization | | $ | 113.5 | | | $ | 96.4 | | | | | |
The increase in gross margin percentage (gross margin expressed as a percentage of revenues) in 2019 was driven by company-wide price realization, particularly in the CCM segment, savings from COS, favorable commercial roofing market conditions, full year sales from the acquired Finishing Brands businessraw material dynamics and higher salesvolumes. Partially offsetting these items were higher labor-related costs. Also included in cost of goods sold were exit and disposal costs totaling $7.1 million in 2019, primarily at CIT, attributable to our restructuring initiatives, compared with $15.5 million in 2018. Refer to Note 8 for further information on exit and disposal activities
Selling and Administrative Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % |
| Selling and administrative expenses | | $ | 667.1 | | | $ | 625.4 | | | $ | 41.7 | | | 6.7 | % |
| As a percentage of revenues | | 13.9 | % | | 14.0 | % | | | | |
| Depreciation and amortization | | $ | 89.8 | | | $ | 87.5 | | | | | |
The increase in selling and administrative expenses in 2019 primarily reflected acquired selling, general and administrative costs and higher labor-related costs for equity and incentive compensation. Also included in selling and administrative expenses were exit and disposal costs totaling $5.6 million in 2019, primarily at CIT and CFT, attributable to our restructuring initiatives, compared with $1.9 million in 2018. Refer to Note 8 for further information on exit and disposal activities. The selling and administrative costs from Interconnect Technologies, reflecting higher sales volume and contribution from acquisitions.acquired businesses also included non-cash amortization of acquired customer-related intangible assets. These increases were partially offset by continuing cost savings from the integration of acquired businesses.
Research and Development Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % |
| Research and development expenses | | $ | 60.9 | | | $ | 55.1 | | | $ | 5.8 | | | 10.5 | % |
| As a percentage of revenues | | 1.3 | % | | 1.2 | % | | | | |
| Depreciation and amortization | | $ | 2.1 | | | $ | 1.6 | | | | | |
Research and development expenses increased in 2019, compared with 2018, and primarily reflected new product development at our CFT, CCM and CIT segments.
Other Operating (Income) Expense, net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % | | |
| Other operating (income) expense, net | | $ | (10.5) | | | $ | (14.8) | | | $ | 4.3 | | | (29.1) | % | | |
Items affecting comparability (1) | | $ | (7.2) | | | $ | (4.1) | | | | | | | |
(1)Items affecting comparability include a contingent consideration gain, net (gains) losses on sale of assets and litigation settlement costs, refer to Items Affecting Comparability.
Other operating (income) expense, net in 2019 primarily reflected a $5.0 million gain on contingent consideration at CFT, $2.3 million of rebates, and $1.9 million of gains on sales of assets. Other operating (income) expense, net in 2018 primarily reflected a $6.6 million of gains on sales of assets primarily at CFT, CCM and CIT, and net gains from legal settlements.
Operating Income
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % |
| Operating income | | $ | 654.2 | | | $ | 509.0 | | | $ | 145.2 | | | 28.5 | % |
| Operating margin percentage | | 13.6 | % | | 11.4 | % | | | | |
Refer to Segment Results of Operations within this MD&A for further information related to segment operating income results.
Interest Expense, net
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % |
| Interest expense, net | | $ | 66.1 | | | $ | 64.7 | | | $ | 1.4 | | | 2.2 | % |
Interest expense, net of capitalized interest in 2019 and 2018 primarily reflected interest on our long-term debt. Refer to Note 14 for further information on our long-term debt.
Interest Income
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % |
| Interest income | | $ | (7.9) | | | $ | (11.2) | | | $ | 3.3 | | | (29.5) | % |
Interest income decreased in 2019 primarily related to lower yields and a smaller average cash balance.
Other Non-operating Expense, net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % | | |
| Other non-operating expense, net | | $ | 0.7 | | | $ | 9.6 | | | | $ | (8.9) | | | | NM | | | |
Items affecting comparability (1) | | $ | 2.3 | | | $ | 7.7 | | | | | | | |
(1)Items affecting comparability include income tax related indemnification losses and (gains) losses on divestitures, refer to Items Affecting Comparability.
Other non-operating expense, net,
sales at Brake & Friction. Brake & Friction’s results are consistent with reported significant sales declines in
the construction, mining2019 and
aircraft off-highway equipment sectors.The decrease in EBIT and EBIT margin2018 primarily reflected the impairment of goodwill and other intangible assets at our Brake & Friction segment of $141.5 million. Refer to “Critical Accounting Estimates” in this Management Discussion and Analysis for further discussion. This reduction was partially offset by $79.4 million EBIT growth from the Construction Materials segment due to favorable raw material and pricing dynamics and higher sales volume, and the contribution of a full yearnet impact of the acquired Finishing brands business withinresolution of certain tax uncertainties related to the Fluid Technologies segment.
Matters Impacting Future Results
For 2017, we expect total net sales growth to beAccella acquisition and release of the corresponding indemnification assets and foreign exchange (gains) losses.
Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % |
| Provision for income taxes | | $ | 121.6 | | | $ | 87.3 | | | $ | 34.3 | | | 39.3 | % |
| Effective tax rate | | 20.4 | % | | 19.6 | % | | | | |
The provision for income taxes on continuing operations for 2019 is higher than 2018 primarily reflecting higher pre-tax income in the
high-single digit percent range, led by the performanceU.S., and to a lesser extent in foreign jurisdictions. This equated to higher taxes of
our CCM, CIT and CFT segments. Net sales growth is expected to be primarily driven by growth$35.5 million, with approximately $1.2 million of net lower taxes related to
strength in the domestic commercial roofing market at the Construction Materials segment, higher demand for aerospace and medical connector applications at the Interconnect Technologies segment, and new products and sales penetration initiatives at the Fluid Technologies segment.2015 Compared to 2014
Net sales increased primarily due to a full year of sales from the acquired Finishing Brands and LHi businesses. From the period beginning April 1, 2015 through December 31, 2015, Fluid Technologies contributed net sales of $203.2 million and EBIT of $20.8 million to the Company’s 2015 results. Our organic net sales growth (defined as net sales excluding both sales from acquired businesses within the last twelve months,other permanent differences and the impact of changesprior year taxes in foreign exchange rates)the current year, primarily reflected increased sales volumes at Construction Materials and Interconnect Technologies, partially offset by lower sales volume at Brakerelated to:
•Higher current year expected research & Friction and lower selling price. Foreign currency fluctuations had a negative impact to net salesdevelopment tax credits of 1.8%.$2.2 million EBIT increased primarily due to lower raw material costs, particularly at Construction Materials•Higher windfall tax benefits related to materials that are tiedcurrent year stock-based compensation of $1.2 million, and
•Unfavorable reduction in adjustments to crude oil as well as related lower energy costs, lower labor and material usage costs from COS, lower per unit costs resulting from higher capacity utilization driven by higher net sales volume, and the aforementioned acquisitions. These positive impacts were partially offset by lower selling price. Our overall EBIT margin increased primarily reflecting lower raw material costs and lower labor and material usage costs from COS. Included in EBIT in 2015 was $10.7 million in costsprior year taxes of $2.2 million.
Refer to Note 9 for further information related to the acquisitionincome taxes.
(Loss) Income from Discontinued Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % |
| (Loss) income from discontinued operations before taxes | | $ | (1.8) | | | $ | 300.1 | | | | | |
| (Benefit from) provision for income taxes | | (0.9) | | | 47.6 | | | | | |
| (Loss) income from discontinued operations | | $ | (0.9) | | | $ | 252.5 | | | $ | (253.4) | | | NM | |
The loss from discontinued operations in
EBIT2019 relates to an environmental remediation accrual associated with a former business disposed of in
2014 was $9.0 million in plant startup costs at Construction Materials and $3.5 million in costs related to the acquisition of LHi.Results of Operations
For a more in-depth discussion of the results discussed in “Executive Overview” and “Summary of Consolidated Financial Results,” please refer to “Financial Reporting Segments” presented later in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
2016 Compared to 2015
Net Sales
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Acquisition | | Volume | | Price | | Exchange | |
(in millions) | | 2016 | | 2015 | | Change | | Effect | | Effect | | Effect | | Rate Effect | |
| | | | | | | | | | | | | | | | | |
Net Sales | | $ | 3,675.4 | | $ | 3,543.2 | | 3.7 | % | 2.6 | % | 2.9 | % | (1.6) | % | (0.2) | % |
The increase in net sales primarily resulted from higher sales volume at Construction Materials and Interconnect Technologies, partially offset by lower sales volume at Brake & Friction. The negative impact of price to net sales primarily resulted from lower selling price at Construction Materials and Interconnect Technologies. The increase in net sales from acquired businesses primarily resulted from contribution of $66.6 million from the 2015 acquisition of Finishing Brands and the 2016 acquisition of MS Powder in the Fluid Technologies segment.
2015 Compared to 2014
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Acquisition | | Volume | | Price | | Exchange | |
(in millions) | | 2015 | | 2014 | | Change | | Effect | | Effect | | Effect | | Rate Effect | |
| | | | | | | | | | | | | | | | | |
Net sales | | $ | 3,543.2 | | $ | 3,204.0 | | 10.6 | % | 8.8 | % | 5.0 | % | (1.4) | % | (1.8) | % |
The increase in net sales primarily reflected growth due to acquisitions and increased sales volume at Construction Materials and Interconnect Technologies. The acquisition of the Finishing Brands business, reported in the Fluid Technologies segment, contributed $203.2 million, and the acquisition of LHi, reported in the Interconnect Technologies segment, contributed $79.0 million. Organic net sales growth in 2015 reflected higher net sales volume, primarily at Construction Materials, partially offset by lower selling price also from Construction Materials and within Interconnect Technologies. The negative impact from fluctuations in foreign exchange was primarily attributable to the weaker Euro and Canadian Dollar versus the U.S. Dollar, impacting the Construction Materials segment, and the weaker Euro and British Pound versus the U.S. Dollar, impacting the Brake & Friction segment.
Net Sales by Geographic Area
| | | | | | | | | | | | | |
Region | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | | | 2014 |
| | | | | | | | | | | | | |
United States | | $ 2,835.7 | | 77% | | $ 2,659.4 | | 75% | | | $ 2,441.7 | | 76% |
International: | | | | | | | | | | | | | |
Europe | | 381.8 | | | | 384.4 | | | | | 357.4 | | |
Asia | | 241.9 | | | | 225.5 | | | | | 136.0 | | |
Canada | | 77.2 | | | | 114.9 | | | | | 117.1 | | |
Mexico and Latin America | | 76.1 | | | | 81.6 | | | | | 82.0 | | |
Middle East and Africa | | 42.6 | | | | 55.7 | | | | | 48.7 | | |
Other | | 20.1 | | | | 21.7 | | | | | 21.1 | | |
Total International | | 839.7 | | 23% | | 883.8 | | 25% | | | 762.3 | | 24% |
Net sales | | $ 3,675.4 | | | | $ 3,543.2 | | | | | $ 3,204.0 | | |
2016 Compared to 2015
Total net sales to customers located outside the United States (“U.S.”) decreased primarily due to reduction of international sales by Construction Materials, largely reflecting declining Canadian sales as a result of reduced construction activity as compared to prior year. Partially offsetting this decline in international sales is the contribution of international sales from the acquisition of the Finishing Brands business reported in the Fluid Technologies segment. The increase of net sales into Asia in 2016 was primarily attributable to Fluid Technologies. Approximately 33% of Fluid Technologies’ net sales were to customers in Asia in 2016.
2015 Compared to 2014
Total net sales to customers located outside the United States increased primarily due to contribution from the acquisition of the Finishing Brands business reported in the Fluid Technologies segment of $118.7 million. The increase in net sales to customers outside the United States also reflected higher sales volumes at Interconnect Technologies and contribution from the LHi acquisition. These increases were2009, partially offset by the negative impactsettlement of foreign exchange fluctuations primarily at Construction Materials and Brake & Friction and lower net sales volume at Brake & Friction and Foodservice Products. The 66% increase in net sales into Asia in 2015 was primarily attributable to the aforementioned acquisitions. Approximately 30% of Fluid Technologies’ net sales were to customers in Asia in 2015.
Gross Margin
| | | | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | | Change | | 2015 | | 2014 | | Change | |
| | | | | | | | | | | | | | | | | |
Gross profit | | $ | 1,157.3 | | $ | 1,006.7 | | 15.0 | % | $ | 1,006.7 | | $ | 819.5 | | 22.8 | % |
Gross margin | | | 31.5 | % | | 28.4 | % | | | | 28.4 | % | | 25.6 | % | | |
2016 Compared to 2015
In 2016, the increase in gross margin (gross profit expressed as a percentage of net sales) was primarily driven by lower raw material costs at Construction Materials, savings from COS, and lower per unit costs related to higher capacity utilization driven by higher sales volume. These positive impacts were partially offset by lower selling prices at Construction Materials and Interconnect Technologies. Included in gross profit and gross margin in 2016 was $2.0 million in additional cost of goods sold associated with the fair valuation of acquired inventoryprior income tax positions in the Interconnect Technologies segment.
2015 Compared to 2014
In 2015, the increase in gross margin was primarily driven by lower raw material costs at Construction Materials, lower labor and material usage costs from COS and lower per unit costs related to higher capacity utilization driven by higher sales volume. These positive impacts were partially offset by lower selling prices. Included in gross profit and gross margin in 2015 was $8.6 million in additional cost of goods sold associated with the fair valuation of acquired inventory in the Fluid Technologies segment. Included in gross profit and gross margin in 2014 was $1.6 million in cost of goods soldcurrent year related to the fair valuationsale of acquired inventory forCFS.
Income from discontinued operations in 2018 primarily reflects the
LHi acquisition inpre-tax gain on sale of CFS totaling $296.8 million. Excluding the
Interconnect Technologies segment, $9.0 million in plant startup and product line closing costs at Construction Materials related to startupgain on sale, income from discontinued operations reflects activity from January 1, 2018 through March 20, 2018, the date that the sale of
its PVC manufacturing operations and new TPO manufacturing facility, and $0.9 million in expense to discontinue production of Construction Materials’ Insulfoam product line at its Smithfield, Pennsylvania facility.Selling and Administrative Expenses
Carlisle FoodService Products ("CFS") was completed. | | | | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | | Change | | 2015 | | 2014 | | Change | |
| | | | | | | | | | | | | | | | | |
Selling and administrative | | $ | 532.0 | | $ | 461.9 | | 15.2 | % | $ | 461.9 | | $ | 379.0 | | 21.9 | % |
As a percentage of net sales | | | 14.5 | % | | 13.0 | % | | | | 13.0 | % | | 11.8 | % | | |
2016 Compared to 2015
Selling and administrative expense increased primarily due to a full year of expenses from the acquired Finishing Brands business, higher selling costs primarily at Construction Materials on higher net sales volume, higher staffing and performance-based incentive compensation costs at Construction Materials and Interconnect Technologies, and expenses related to our exit and disposal plans during 2016 (referRefer to Note 4 in Item 8 for further discussion). During 2016, Interconnect Technologies incurred employee termination costs of $7.6 million related to planned growth opportunities and enhancements in its long-term cost competitiveness within certain international operations. Expenses to close certain facilities and relocate administrative functions at Fluid Technologies and Corporate were $4.1 million and $3.8 million, respectively. These increases were partially offset by reduced expenses at the Brake & Friction segment.
Selling and administrative expense, as a percentage of sales, increased primarily due to incremental administrative expenses from acquired businesses, principally the Finishing Brands business, as well as exit and disposal costs at Interconnect Technologies, Fluid Technologies, and Corporate.
2015 Compared to 2014
Selling and administrative expenses increased primarily due to $67.0 million of expense from the acquired Finishing Brands and LHi businesses, higher selling costs primarily at Construction Materials on higher net sales volume, higher expense from increased staffing and performance‑based incentive compensation costs at Construction Materials, and increased Corporate expenses. These increased expenses were partially offset by lower selling and administrative expense costs at Brake & Friction due to lower net sales volume and cost reduction efforts. During 2015, the Company incurred $2.1 million in transaction costs related to the Finishing Brands acquisition, of which $0.7 million was allocated to the Fluid Technologies segment and the remaining $1.4 million allocated to Corporate. By comparison, in 2014, the Company incurred $1.9 million in transaction expenses for the acquisition of LHi in the Interconnect Technologies segment.
Selling and administrative expense as a percentage of net sales increased as a result of the Fluid Technologies segment having a higher ratio of selling and administrative expense to net sales versus the other segments, in part due to the amortized cost of acquired intangible assets.
Research and Development Expenses
| | | | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | | Change | | 2015 | | 2014 | | Change | |
�� | | | | | | | | | | | | | | | | | |
Research and development | | $ | 48.1 | | $ | 42.8 | | 12.4 | % | $ | 42.8 | | $ | 33.8 | | 26.6 | % |
As a percentage of net sales | | | 1.3 | % | | 1.2 | % | | | | 1.2 | % | | 1.1 | % | | |
2016 Compared to 2015
The increase in research and development expenses reflected increased activities related to new product development, primarily at the Interconnect Technologies segment. The increase also reflected contribution from the acquired Finishing Brands as well as increased new product development activities at the Fluid Technologies segment. These increases were partially offset by reduced expenses at the Brake & Friction segment.
2015 Compared to 2014
The increase in research and development expenses reflected $4.3 million of expense from acquired operations, as well as, increased activities related to new product development, primarily in the Interconnect Technologies and Construction Materials segments.
Impairment of Goodwill and Intangible Assets
| | | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | | Change | | 2015 | | 2014 | | Change |
| | | | | | | | | | | | | | | | |
Impairment of assets | | $ | 141.5 | | $ | - | | n/a | | $ | - | | $ | - | | n/a |
As a percentage of net sales | | | 3.8 | % | | - | % | | | | - | % | | - | % | |
Our Brake & Friction segment’s net sales continued to decline due to continued weakness in off-highway equipment markets tied to lower demand for commodities. Recent indicators point to a longer period before Brake & Friction’s markets are expected to recover. Therefore, we recognized impairment charges of $141.5 million in the third quarter of 2016. Refer to “Critical Accounting Estimates” in this Management Discussion and Analysis for further discussion.
Other (Income) Expense, Net
| | | | | | | | | |
(in millions) | | 2016 | | 2015 | | 2014 |
| | | | | | | | | |
Other (income) expense, net | | $ | (5.4) | | $ | 0.1 | | $ | (1.6) |
2016 Compared to 2015
The increase in other income primarily reflected strengthening of the U.S. Dollar and related changes in foreign exchange gains as compared to 2015. The change in 2016, as compared to 2015, also reflected gains on sale of assets.
2015 Compared to 2014
The change in other (income) expense, net primarily reflected the non‑recurrence of gains in 2014 consisting of final settlement proceeds of $0.9 million at Interconnect Technologies, related to the Thermax acquisition, and a $1.1 million gain at FoodService Products on the sale of its property in the Netherlands.
EBIT (Earnings Before Interest and Taxes)
| | | | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | | Change | | 2015 | | 2014 | | Change | |
| | | | | | | | | | | | | | | | | |
EBIT | | $ | 441.1 | | $ | 501.9 | | (12.1) | % | $ | 501.9 | | $ | 408.3 | | 22.9 | % |
EBIT margin | | | 12.0 | % | | 14.2 | % | | | | 14.2 | % | | 12.7 | % | | |
2016 Compared to 2015
The decrease in EBIT and EBIT margin primarily reflected the goodwill and other intangible asset impairment charges of $141.5 million recognized at our Brake & Friction segment as well as exit and disposal costs of $15.5 million recognized at our Interconnect Technologies and Fluid Technologies segments and Corporate. Partially offsetting these reductions were higher sales volume at Construction Materials and Interconnect Technologies, lower raw material costs, lower labor and material usage costs resulting from COS, and the non-recurrence of certain costs that occurred in 2015, including acquisition related costs in the Fluid Technologies segment of $9.3 million.
2015 Compared to 2014
The growth in EBIT was primarily attributable to lower raw material costs primarily at Construction Materials, lower per unit cost resulting from higher capacity utilization, lower labor and material usage costs from COS, and contribution from acquisitions.
Interest Expense, Net
| | | | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | | Change | | 2015 | | 2014 | | Change | |
| | | | | | | | | | | | | | | | | |
Interest expense | | $ | 31.9 | | $ | 34.7 | | | | $ | 34.7 | | $ | 33.7 | | | |
Interest income | | | (1.3) | | | (0.7) | | | | | (0.7) | | | (1.5) | | | |
Interest expense, net | | $ | 30.6 | | $ | 34.0 | | (10.0) | % | $ | 34.0 | | $ | 32.2 | | 5.6 | % |
2016 Compared to 2015
The decrease in interest expense, net primarily reflected the August 2016 retirement of our $150.0 million senior unsecured note that had a stated interest rate of 6.125% (refer to Note 12 in Item 8 for further discussion).
2015 Compared to 2014
The increase in interest expense, net primarily reflected a reduction in interest capitalized into property, plant and equipment in 2015 versus 2014, due to lower capital projects in 2015, and lower interest income as a result of lower cash on hand in 2015 versus 2014. During 2015, we used $598.9 million of cash on hand to acquire Finishing Brands. The Company’s cash balance declined from $730.8 million as of December 31, 2014, to $410.7 million as of December 31, 2015.
Income Taxes
| | | | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | | Change | | 2015 | | 2014 | | Change | |
| | | | | | | | | | | | | | | | | |
Income tax expense | | $ | 159.7 | | $ | 148.3 | | 7.7 | % | $ | 148.3 | | $ | 124.4 | | 19.2 | % |
Effective tax rate | | | 38.9 | % | | 31.7 | % | | | | 31.7 | % | | 33.1 | % | | |
See Note 6 in Item 8 for additional information related to income taxes.
2016 Compared to 2015
The 2016 effective income tax rate of 38.9% differs from the U.S. Federal tax rate of 35% primarily due to the impairment of goodwill, reduced by foreign earnings taxed at lower rates, the deduction for U.S. manufacturing activities, Federal foreign tax credits, and the recognition of certain state tax attributes.
2015 Compared to 2014
The 2015 effective income tax rate of 31.7% differs from the statutory rate primarily due to foreign earnings taxed at rates lower than the U.S. federal tax rate, the deduction for U.S. manufacturing activities, and the recognition of certain state tax attributes. The recognition of the state tax attributes, which is the primary driver of the decrease in the year over year tax rate, occurred as a result of a change in judgment due to new facts regarding the expected deferred tax asset realization from state tax loss and credit carryforwards for which we previously held a valuation allowance.
Income from Continuing Operations
| | | | | | | | | | | | | | | | | |
(in millions, except per share amounts) | | 2016 | | 2015 | | Change | | 2015 | | 2014 | | Change | |
| | | | | | | | | | | | | | | | | |
Income from continuing operations, net of tax | | $ | 250.8 | | $ | 319.6 | | (21.5) | % | $ | 319.6 | | $ | 251.7 | | 27.0 | % |
| | | | | | | | | | | | | | | | | |
EPS | | | | | | | | | | | | | | | | | |
Basic | | $ | 3.87 | | $ | 4.89 | | (20.9) | % | $ | 4.89 | | $ | 3.89 | | 25.7 | % |
Diluted | | $ | 3.83 | | $ | 4.82 | | (20.5) | % | $ | 4.82 | | $ | 3.83 | | 25.8 | % |
Net Income
| | | | | | | | | | | | | | | | | |
(in millions, except per share amounts) | | 2016 | | 2015 | | Change | | 2015 | | 2014 | | Change | |
| | | | | | | | | | | | | | | | | |
Net income | | $ | 250.1 | | $ | 319.7 | | (21.8) | % | $ | 319.7 | | $ | 251.3 | | 27.2 | % |
| | | | | | | | | | | | | | | | | |
EPS | | | | | | | | | | | | | | | | | |
Basic | | $ | 3.86 | | $ | 4.89 | | (21.1) | % | $ | 4.89 | | $ | 3.89 | | 25.7 | % |
Diluted | | $ | 3.82 | | $ | 4.82 | | (20.7) | % | $ | 4.82 | | $ | 3.82 | | 26.2 | % |
2016 Compared to 2015
The decrease in income from continuing operations and net income primarily reflected goodwill and intangible asset impairment charges at our Brake & Friction segment, as well as impacts to EBIT from the aforementioned factors.
2015 Compared to 2014
Income from continuing operations and net income increased primarily due to higher EBIT as well as a lower effective tax rate in 2015 versus 2014.The increase in net income was primarily attributable to higher income from continuing operations.
Segment Results of Operations by Segment
Carlisle Construction Materials
(“CCM”) | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change | | Change | | | | | | | | Change | | Change | |
(in millions) | | 2016 | | 2015 | | $ | | % | | 2015 | | 2014 | | $ | | % | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 2,052.6 | | $ | 2,002.6 | | $ | 50.0 | | 2.5 | % | $ | 2,002.6 | | $ | 1,935.4 | | $ | 67.2 | | 3.5 | % |
EBIT | | $ | 430.5 | | $ | 351.1 | | $ | 79.4 | | 22.6 | % | $ | 351.1 | | $ | 268.8 | | $ | 82.3 | | 30.6 | % |
EBIT margin | | | 21.0 | % | | 17.5 | % | | | | | | | 17.5 | % | | 13.9 | % | | | | | |
2016 Compared to 2015
CCM’s net sales growth reflected strong demand in the U.S. for commercial roofing and insulation applications, partially offset by lower selling price and lower international demand. CCM’s net sales growth primarily reflected higher sales volumes of 5.1%, partially offset by 2.2% negative pricing impact. International sales decreased primarily due to sales volume reductions in Canada as compared to the prior year. CCM’s net sales into Canada declined approximately 40%, due to weakened new construction activity as compared to prior year.
CCM’s EBIT and EBIT margin growth was due primarily to favorable raw material costs, higher net sales and savings from operating efficiencies through COS. CCM’s raw material costs were lower in 2016 versus 2015 primarily due to lower input costs driven by the decline in crude oil and other energy commodity pricing. These positive impacts were partially offset by unfavorable changes in selling price.
Matters Impacting Future Results
CCM’s net sales and EBIT are generally higher in the second and third quarters of the year due to increased construction activity during these periods. CCM’s commercial roofing business is comprised predominantly of net sales from re-roofing, which derives demand from a large base of installed roofs requiring replacement in a given year, and less extensively from roofing for new commercial construction. Demand for commercial insulation products is also driven by increased enforcement of building codes related to energy efficiency. Growth in demand in the commercial construction market may be negatively impacted by changes in fiscal policy and increases in interest rates. The availability of labor to fulfill installations may also be a constraint on growth in the commercial roofing market.
The outlook in commercial construction in the U.S. remains positive, with mid-single digit sales growth expected in 2017. Selling prices are expected to remain relatively flat in the industry, with slight raw material cost inflation experienced for the first time since the end of 2014. We acquired Arbo inOn January of 2017, as previously mentioned. See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisitions” for additional information regarding acquisitions.
CCM’s ability to maintain current selling price and volume levels is subject to significant competition, in particular from competitors that have recently added manufacturing capacity of commercial roofing and commercial insulation products and as a result of lower raw material costs. Raw material input costs are expected to increase moderately from current levels due to crude oil and related commodity pricing. Also, selling price pressure may negatively impact CCM’s ability to maintain current EBIT margin levels or obtain incremental EBIT margin.
2015 Compared to 2014
CCM’s net sales growth primarily reflected higher sales volumes of 6.5%, partially offset by a 2.0% negative impact from foreign exchange fluctuations primarily from the stronger U.S. Dollar versus the Euro and the Canadian dollar, and 1.0% from lower selling prices. CCM’s net sales volume growth was primarily driven by increased activity in both commercial construction and re‑roofing. CCM’s net sales into Europe declined 13%, of which 16% related to the negative impact of foreign exchange, partially offset by organic net sales growth. CCM’s net sales into Canada, declined 9%, of which 13% related to the negative impact of foreign exchange, partially offset by organic net sales growth.
CCM’s EBIT and EBIT margins growth was due primarily to lower raw material costs, with additional contribution from lower per unit cost from higher capacity utilization, lower labor and material usage costs from COS, and the non‑recurrence of $9.0 million in startup expense in 2014 at its new PVC and TPO production facilities. CCM’s raw material costs were lower in 2015 versus 2014 primarily due to lower input costs driven by the decline in crude oil and other energy commodity pricing. These positive impacts were partially offset by unfavorable changes in mix, lower selling price, and the negative impact of foreign exchange fluctuations related to the U.S. Dollar versus the Canadian Dollar and versus the Euro.
Carlisle Interconnect Technologies
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change | | Change | | | | | | | | Change | | Change | |
(in millions) | | 2016 | | 2015 | | $ | | % | | 2015 | | 2014 | | $ | | % | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 834.6 | | $ | 784.6 | | $ | 50.0 | | 6.4 | % | $ | 784.6 | | $ | 669.1 | | $ | 115.5 | | 17.3 | % |
EBIT | | $ | 144.4 | | $ | 141.6 | | $ | 2.8 | | 2.0 | % | $ | 141.6 | | $ | 132.2 | | $ | 9.4 | | 7.1 | % |
EBIT margin | | | 17.3 | % | | 18.0 | % | | | | | | | 18.0 | % | | 19.8 | % | | | | | |
2016 Compared to 2015
CIT’s net sales growth primarily reflected higher sales volume of 4.3%, largely related to the aerospace and medical technology applications, and acquisition growth of 3.4% from the acquisitions of Micro-Coax and Star Aviation. These increases were partially offset by lower selling prices of 1.1%. Net sales in CIT’s aerospace and medical markets increased by 4.3% and 7.5%, respectively, due to higher demand. These increases were partially offset by a decline in sales in the defense, industrial and test and measurement markets.
In the third quarter of 2015, CIT announced a project to expand its production facilities in Dongguan, China into a new 260,000 sq. ft. facility to meet expected demand in the medical technology market. In 2016, we started production at our new manufacturing facility in Dongguan, China. Production at this state-of-the-art facility will ramp up over the next year, as we integrate facilities to create efficiencies in our Asia operations, to meet demand expectations in the medical market. During the fourth quarter of 2016, CIT recognized expenses for employee termination benefits of $7.6 million related to planned growth opportunities and enhancements in its long-term cost competitiveness within certain of our Asia operations. The total cost of the termination benefits is expected to be approximately $12 million, with the additional benefits to be recognized through the second quarter of 2018. Cash payments related to these benefits will be incurred beginning in the first half of 2017 through the second quarter of 2018. Other associated costs are not expected to be significant.
CIT’s EBIT increased primarily due to savings from COS, and higher net sales volume led by in‑flight entertainment and connectivity (“IFEC”) demand, partially offset by lower selling price. CIT’s EBIT margin decrease was partially attributable to the aforementioned employee termination benefits expense of $7.6 million as well as $3.7 million in plant startup costs for the new facility in Dongguan, China, to expand manufacturing capacity. Also included in CIT’s EBIT was $3.5 million in expense related to the acquisitions of Micro-Coax and Star Aviation, primarily related to additional costs associated with the fair valuation of inventory.
Also, in the fourth quarter 2015, CIT announced a project to expand its existing aerospace facility in Franklin, Wisconsin to increase manufacturing capacity by 30,000 sq. ft. to meet expected demand for its recently launched SatCom antenna adaptor plate used as part of satellite‑based IFEC applications. The Franklin, Wisconsin expansion is expected to be completed in early 2017. In 2016, CIT has incurred costs of approximately $3.1 million related to this project.
Matters Impacting Future Results
Net sales into the aerospace market comprised approximately 69%, including net sales from Star Aviation. The longer term outlook in the commercial aerospace market remains favorable with a strong delivery cycle for new commercial aircraft expected over the next several years. The outlook for the market for IFEC applications also remains positive on increasing demand for on board connectivity applications used in both installed aircraft seating and through personal mobile devices using wireless connectivity (Wi‑Fi) access.
Net sales into the medical market comprise approximately 15% of CIT’s total net sales. CIT is actively pursuing new products, customers, and complementary technologies to support its expansion into the growing healthcare technology market. The medical technology markets in which CIT competes are experiencing vendor consolidation trends among larger medical OEM’s, to whom CIT offers improved product verification capabilities and value‑added vertical integration through its multiple product offerings.
Our overall outlook for CIT in 2017 is for net sales growth in the high single digits with growth expected in commercial aerospace, medical, military/defense and test and measurement markets.
2015 Compared to 2014
CIT’s net sales growth primarily reflected acquisition growth of 11.8%, from the acquisition of the LHi medical cabling business, and higher sales volumes of 8.5%, primarily on higher demand for its IFEC applications sold into the commercial aerospace markets and slightly higher volumes on higher demand for connectivity applications sold into the defense and test and measurement markets. The increase in net sales from acquisitions and higher sales volumes were partially offset by 2.8% lower selling price.
CIT’s EBIT increase primarily reflected higher net sales volume, lower labor and material usage costs from COS, and $7.8 million in EBIT contribution from the acquisition of LHi, partially offset by lower contractual selling price. CIT’s EBIT margin declined versus the prior year primarily due to selling price reductions and the dilutive impact of the LHi acquisition on margin. These negative impacts were partially offset by lower per unit costs resulting from higher capacity utilization, lower labor and material usage costs from COS and lower raw material costs. Included in CIT’s EBIT in 2014 was $3.5 million in costs related to the acquisition of LHi, including higher cost of goods sold related to the fair valuation of acquired inventory. Partially offsetting these costs in 2014 was a gain of $0.9 million recognized upon the final settlement of the acquisition of Thermax.
During 2014, CIT began construction on a 216,000 sq. ft. manufacturing facility in Nogales, Mexico, to meet growing demand for its aerospace applications and to support growth in its medical applications. The total cost of CIT’s new facility was $23.4 million. Shipments began in the first quarter 2015 and the project was completed in the second quarter of 2015.
Carlisle Fluid Technologies
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change | | Change | | | | | | | | Change | | Change |
(in millions) | | 2016 | | 2015 | | $ | | % | | 2015 | | 2014 | | $ | | % |
| | | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 269.4 | | $ | 203.2 | | $ | 66.2 | | 32.6 | % | $ | 203.2 | | $ | - | | $ | 203.2 | | n/a |
EBIT | | $ | 33.1 | | $ | 20.8 | | $ | 12.3 | | 59.1 | % | $ | 20.8 | | $ | - | | $ | 20.8 | | n/a |
EBIT margin | | | 12.3 | % | | 10.2 | % | | | | | | | 10.2 | % | | n/a | | | | | |
On April 1, 2015, we completed the acquisition of the Finishing Brands business from Graco, which resulted in the addition of the Fluid Technologies reportable segment. In February 2016,11, 2019, we acquired MS Powder as partPetersen for consideration of efforts to broaden CFT’s product portfolio.
2016 Compared to 2015
CFT’s net sales growth primarily reflected the contribution from the full year$207.2 million, including $5.2 million of Finishing Brands of $60.9 millioncash acquired and post-closing adjustments, which were finalized in the first quarter of 2016, as well as contribution from MS Powder during 20162019. Petersen’s primary business is the manufacture and distribution of $5.7 million. This growth is partially offset by a negative impactarchitectural metal roof panels, steel and aluminum flat sheets, and coils, wall panels, perimeter roof edge systems and related accessories for commercial, residential, institutional, industrial and agricultural markets. Refer to foreign currency of 1.2%.
Note 3 for further information on the acquisition. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % | | Acquisition
Effect | | Price / Volume
Effect | | Exchange
Rate Effect |
| Revenues | | $ | 3,233.3 | | | $ | 2,880.3 | | | $ | 353.0 | | | 12.3 | % | | 6.4 | % | | 6.2 | % | | (0.3) | % |
| Operating income | | $ | 576.0 | | | $ | 435.4 | | | $ | 140.6 | | | 32.3 | % | | | | | | |
| Operating margin percentage | | 17.8 | % | | 15.1 | % | | | | | | | | | | |
| Depreciation and amortization | | $ | 93.9 | | | $ | 77.9 | | | | | | | | | | | |
Items affecting comparability (1) | | $ | 2.2 | | | $ | 0.4 | | | | | | | | | | | |
During 2016, our Carlisle Fluid Technologies segment recognized costs primarily associated with employee termination benefits and relocation costs of $4.1 million, related to the relocation of administrative functions to Scottsdale, Arizona, and closure of facilities in Swanton, Ohio and France. These actions are substantially complete with remaining costs of approximately $0.6 million expected to be incurred principally in 2017. CFT may experience additional costs related to integration and headquarter relocation activities. CFT is expected to hire additional sales, marketing and administrative staff to support its organizational and sales growth strategy during 2017.
CFT’s EBIT and EBIT margin increase primarily reflected the non-recurrence of $9.3 million of(1)Items affecting comparability include acquisition related costs incurred in 2015, as well as, the Finishing Brands acquisition full year contribution to EBIT of $6.9($2.6 million in the first quarter of 2016. Included in CFT’s EBIT is also the aforementioned $4.12019 and $2.2 million in restructuring expense for consolidation2018), gain from divestitures ($(0.7) million in 2019 and relocation activities.
Matters Impacting Future Results
The longer term outlook$(1.8) million in the transportation2018) and general industrial markets remains steady with a stable backlog of systemsexit and standard projects expected over the next year. We expect the opportunity fordisposal costs ($0.3 million in 2019), refer to Items Affecting Comparability.
CCM’s revenue growth in
the Asia-Pacific markets to continue to increase in conjunction with the expanding powder opportunities. The outlook across CFT’s largest global end markets is positive as we enter 2017, and our expectations for growth are in the mid-single digit percent range.2015 Compared to 2014
Through the nine month period2019 reflected contribution from April 1, 2015 through December 31, 2015, CFT’s EBIT and EBIT margin included acquisition related costs for Finishing Brands of $8.6 million, additional costs of goods sold of $13.2 million related to the fair valuation of acquired inventory, and $0.7 million allocated transaction costs. These acquisition related costs were incurred in the second quarter of 2015.
Carlisle Brake & Friction
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change | | Change | | | | | | | | Change | | Change | |
(in millions) | | 2016 | | 2015 | | $ | | % | | 2015 | | 2014 | | $ | | % | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 268.6 | | $ | 310.2 | | $ | (41.6) | | (13.4) | % | $ | 310.2 | | $ | 355.3 | | $ | (45.1) | | (12.7) | % |
EBIT | | $ | (135.7) | | $ | 17.3 | | $ | (153.0) | | n/a | | $ | 17.3 | | $ | 26.8 | | $ | (9.5) | | (35.4) | % |
EBIT margin | | | (50.5) | % | | 5.6 | % | | | | | | | 5.6 | % | | 7.5 | % | | | | | |
2016 Compared to 2015
CBF’s net sales declined due to continued weakness in off-highway equipment markets dependent on and tied to lower demand for commodities. The lower net sales wereacquisitions, primarily due to declines in the construction, mining, and on-highway markets of 14.9%, 14.4%, and 22.3%, respectively. Sale declined 15.6% in the aircraft braking market during 2016.
Indicators as of September 30, 2016 pointed to a longer period before CBF’s markets are expected to recover. Given these conditions, during the third quarter of 2016, we recognized goodwill and other intangible asset impairment charges of $141.5 million. Refer to “Critical Accounting Estimates” in this Management Discussion and Analysis for further discussion.
CBF’s EBIT and EBIT margin decline was impacted by goodwill and intangible asset impairment charges, as discussed above,Petersen, and higher per unit costs resultingvolumes driven by continued strength in U.S. commercial roofing demand and new product introductions.
CCM’s operating margin percentage growth in 2019 primarily reflected raw material savings, positive volume leverage, price realization and savings from
lower capacity utilization due to lower net sales volume, partially offset by cost reduction actions.COS. Carlisle Interconnect Technologies (“CIT”) Matters Impacting Future Results
In 2017,January 2019, we do not anticipate a significant recovery in key end markets, and expect a slight sales decline for the year. Throughout this downturn, CBF has aggressively addressed its challenging markets by realigning its cost structure. CBF has reduced headcount and reduced its non-production related operating expenses. CBF faces competitive pricing pressure in the current demand environment and from competitors that manufacture and sell products in Euros.
CBF continues to remain focused on new sources of revenue, cost reduction, operational efficiency and positive cash flow generation. As part of its efforts to continue to re-align CBF’s cost structure and to position it for expected end market recovery,announced we would exit our Board of Directors approved and subsequently, on February 9, 2017, the Company announced that it will exit its manufacturing operations in Tulsa, OklahomaEl Segundo, California, and Riverside, California, and relocate the majority of those operations to itsour existing manufacturing facilityfacilities in Medina, Ohio.North America. This actionproject is expected to take approximately12 to 18 months to complete.
Total associated exit and disposalproject costs are expected to be between $16.5 million and $18.5approximately $17.9 million, with non-cashapproximately $1.4 million remaining to be incurred. Refer to Note 8 for further information regarding exit and disposal activities.
On April 1, 2019, we acquired MicroConnex Corporation ("MicroConnex") for consideration of $46.2 million, including $0.8 million of cash acquired and post-closing adjustments. MicroConnex is a manufacturer of highly engineered microminiature flex circuits and sensors for the medical, and test and measurement markets.
On November 20, 2019, we acquired Providien, LLC ("Providien") for consideration of $332.1 million, including $3.4 million of cash acquired, subject to post-closing adjustments. Providien is a leading provider of comprehensive manufacturing solutions for global medical device original equipment manufacturers, including thermoforming, medical device contract manufacturing, precision machining and metals, and medical injection molding.
Refer to Note 3 for further information on acquisitions.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % | | Acquisition
Effect | | Price / Volume
Effect | | Exchange
Rate Effect |
| Revenues | | $ | 972.9 | | | $ | 933.8 | | | $ | 39.1 | | | 4.2 | % | | 2.4 | % | | 2.1 | % | | (0.3) | % |
| Operating income | | $ | 131.6 | | | $ | 117.3 | | | $ | 14.3 | | | 12.2 | % | | | | | | |
| Operating margin percentage | | 13.5 | % | | 12.6 | % | | | | | | | | | | |
| Depreciation and amortization | | $ | 63.0 | | | $ | 58.3 | | | | | | | | | | | |
Items affecting comparability (1) | | $ | 16.7 | | | $ | 9.2 | | | | | | | | | | | |
(1)Items affecting comparability include exit and disposal and facility rationalization costs ($13.6 million in 2019 and $8.2 million in 2018), acquisition related costs ($3.1 million in 2019 and $0.1 million in 2018), litigation settlement costs ($2.5 million in 2018) and gains from divestitures ($(1.6) million in 2018), refer to Items Affecting Comparability.
CIT's revenue growth in 2019 primarily reflected contributions from the acquisition of Providien and MicroConnex, higher volumes and price realization.
CIT’s operating margin percentage increased in 2019, driven by savings from COS and price realization, partially offset by wage inflation.
Carlisle Fluid Technologies (“CFT”)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % | | Acquisition
Effect | | Price / Volume
Effect | | Exchange
Rate Effect |
| Revenues | | $ | 278.4 | | | $ | 291.6 | | | $ | (13.2) | | | (4.5) | % | | 8.2 | % | | (11.3) | % | | (1.4) | % |
| Operating income | | $ | 24.0 | | | $ | 37.1 | | | $ | (13.1) | | | (35.3) | % | | | | | | |
| Operating margin percentage | | 8.6 | % | | 12.7 | % | | | | | | | | | | |
| Depreciation and amortization | | $ | 24.1 | | | $ | 22.9 | | | | | | | | | | | |
Items affecting comparability (1) | | $ | 0.8 | | | $ | (0.1) | | | | | | | | | | | |
(1)Items affecting comparability include exit and disposal and facility rationalization costs ($2.7 million in 2019 and $3.1 million in 2018), acquisition related costs ($3.1 million in 2019), contingent consideration gains ($(5.0) million in 2019) and gains from divestitures ($(3.2) million in 2018), refer to Items Affecting Comparability.
CFT's revenue declined in 2019, reflecting volume declines, particularly in the industrial and automotive end markets, partially offset by a contribution from acquisitions and price realization.
CFT’s operating margin percentage performance in 2019 declined, reflecting lower volumes, and raw material and wage inflation, partially offset by savings from COS and price realization.
Carlisle Brake & Friction (“CBF”)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | Change | | % | | Acquisition
Effect | | Price / Volume
Effect | | Exchange
Rate Effect |
| Revenues | | $ | 327.0 | | | $ | 373.8 | | | $ | (46.8) | | | (12.5) | % | | — | % | | (10.3) | % | | (2.2) | % |
| Operating income (loss) | | $ | 21.3 | | | $ | (0.8) | | | $ | 22.1 | | | 2,762.5 | % | | | | | | |
| Operating margin percentage | | 6.5 | % | | (0.2) | % | | | | | | | | | | |
| Depreciation and amortization | | $ | 21.7 | | | $ | 23.5 | | | | | | | | | | | |
Items affecting comparability (1) | | $ | 2.8 | | | $ | 19.8 | | | | | | | | | | | |
(1)Items affecting comparability include exit and disposal and facility rationalization costs ($2.8 million in 2019 and $19.8 million in 2018), refer to Items Affecting Comparability.
CBF's revenue decreased in 2019, reflecting year-over-year volume declines in the transportation and heavy equipment markets, and unfavorable foreign currency exchange rates.
CBF's operating margin percentage increase in 2019 was driven by lower restructuring and facility rationalization costs associated with
accelerated depreciation of approximately $6 million, and cash costsour Tulsa, Oklahoma to
be incurred of between $10.5 million to $12.5 million between the first quarter of 2017 and the second half of 2018. As part of the relocation effort, the Company will also invest additional capital in its Medina, Ohio
facility. The capital investment is anticipated to be comprised of approximately $13.0 million to expand the facility
consolidation and
between $15 million to $16 million to purchase new, more efficient equipment to replace equipment not being relocated.See Note 20 in Item 8 and Item 9B for further detail as to the type and timing of associated costs expected to be incurred as a result of this action.
2015 Compared to 2014
CBF’s net sales declined due to lower net sales volume and a 5.1% negative impactsavings from foreign exchange fluctuations from the stronger U.S. Dollar versus the Euro, British Pound and Yen in 2015, versus the prior year. CBF’s primary markets of construction, mining, and agriculture were negatively impacted by slower global conditions and depressed conditions in the commodities markets. CBF’s net sales of its off‑highway braking applications into the construction market declined by 16%. CBF’s net sales into the mining and agriculture markets declined by 14% and 20%, respectively.
CBF’s EBIT and EBIT margin decline primarily reflected lower net sales volume, higher per unit costs resulting from lower capacity utilization, and the negative impact of foreign exchange fluctuations of approximately $3.0 million. Also included in CBF’s EBIT in 2015 was $1.7 million in severance costs, $3.4 million in asset impairment charges, and $0.5 million in closing costs for its Akron, Ohio facility. By comparison, in 2014, CBF incurred $1.2 million in severance costs from staff reduction actions taken to align its cost structure with current demand levels and $4.3 million in inventory impairments.
Carlisle FoodService Products
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change | | Change | | | | | | | | Change | | Change | |
(in millions) | | 2016 | | 2015 | | $ | | % | | 2015 | | 2014 | | $ | | % | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 250.2 | | $ | 242.6 | | $ | 7.6 | | 3.1 | % | $ | 242.6 | | $ | 244.2 | | $ | (1.6) | | (0.7) | % |
EBIT | | $ | 31.5 | | $ | 27.3 | | $ | 4.2 | | 15.4 | % | $ | 27.3 | | $ | 29.6 | | $ | (2.3) | | (7.8) | % |
EBIT margin | | | 12.6 | % | | 11.3 | % | | | | | | | 11.3 | % | | 12.1 | % | | | | | |
2016 Compared to 2015
CFS’s net sales growth primarily reflected higher demand in the foodservice products market. Net sales to the foodservice market increased by 5.7%, due to increased sales to larger accounts and national chains and improvements from new sales initiatives. Net sales to the janitorial/sanitation market increased by 2.7% due to higher demand for waste handling products. These increases wereCOS, partially offset by lower net sales to the healthcare market.
CFS’s EBIT and EBIT margin increase primarily reflected higher net sales volume, improved selling price, product engineering and lower labor costs from COS, and lower raw material costs. Partially offsetting the EBIT and EBIT margin increases is $1.3 million
Table of acquisition costs related to the acquisition of San Jamar.Matters Impacting Future Results
Sales to CFS’s healthcare market may be impacted by timing of larger equipment orders that can cause year-over-year variances. CFS continues to remain focused on the execution of its strategies of operational excellence and sales growth. We expect CFS to achieve low single digit sales growth, excluding acquisitions, for the full year 2017. We acquired San Jamar in January of 2017, as previously mentioned. See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisitions” for additional information regarding acquisitions.
2015 Compared to 2014
CFS’s net sales in 2015 declined primarily due to lower net selling price, partially offset by higher net sales volume. Net sales to the foodservice market were unchanged as compared to 2014, due to higher demand in the domestic foodservice market, offset by changes in customer mix and lower international demand in Europe and Asia. Net sales to the healthcare market declined by 5%, primarily due to the non‑recurrence of a large order with a customer in 2014 for rethermalization equipment. Net sales to the janitorial/sanitation market grew by 5%, due to increased sales to retail supercenters.
CFS’s EBIT and EBIT margin declined primarily due to lower selling price associated with selling incentives and higher cost of capitalized inventory recognized in cost of goods sold. These negative impacts were partially offset by lower raw material costs. Included in CFS’s results for 2014 was a gain of $1.1 million on the sale of property in the Netherlands.
Corporate
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change | | Change | | | | | | | | Change | | Change | |
(in millions) | | 2016 | | 2015 | | $ | | % | | 2015 | | 2014 | | $ | | % | |
| | | | | | | | | | | | | | | | | | | | | | | |
Corporate expenses | | $ | 62.7 | | $ | 56.2 | | $ | 6.5 | | 11.6 | % | $ | 56.2 | | $ | 49.1 | | $ | 7.1 | | 14.5 | % |
As a percentage of net sales | | | 1.7 | % | | 1.6 | % | | | | | | | 1.6 | % | | 1.5 | % | | | | | |
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. Corporate expenses also includes certain gains and losses related to employee benefit obligations that are not allocated to the segments, such as pension and post‑employment benefit obligation settlements and curtailment charges, as well as, gains and losses associated with workers’ compensation obligations.
2016 Compared to 2015
The increase in corporate expenses primarily reflected increased staff related costs and expenses pertaining to the relocation of administrative functions to our new headquarters in Scottsdale, Arizona, as well as an increase in other employee related expenses. As a result of the relocation, we incurred $3.8 million of costs related primarily to employee termination benefits and expenses associated with relocating employees. This relocation is substantially complete as of December 31, 2016. This increase is partially offset by reduced stock-based compensation expense reflecting the change in our CEO on December 31, 2015 and the non-recurrence of $1.4 million in transactions costs related to the acquisition of Finishing Brands in the prior year. The former CEO’s 2015 awards were fully expensed at grant, due to his attainment of retirement eligibility prior to the award being granted. The current CEO’s awards are expensed over the service period of three years.
Contents 2015 Compared to 2014
Corporate expenses increased from the prior year primarily due to higher staffing costs, performance‑based incentive compensation expense and sponsorship of companywide management programs. In addition, the Company incurred $1.4 million in transaction costs for the acquisition of the Finishing Brands business in the second quarter of 2015, which was reported in Corporate expenses.
Liquidity and Capital Resources
A summary of our cash and cash equivalents by region follows:
| | | | | | | | | | | | | | |
| (in millions) | | December 31, 2019 | | December 31, 2018 |
| Europe | | $ | 62.2 | | | $ | 39.3 | |
| North America (excluding U.S.) | | 43.4 | | | 28.6 | |
| China | | 17.9 | | | 28.6 | |
| Asia Pacific (excluding China) | | 69.1 | | | 19.5 | |
| | | | |
| International cash and cash equivalents | | 192.6 | | | 116.0 | |
| U.S. cash and cash equivalents | | 158.6 | | | 687.6 | |
| Total cash and cash equivalents | | $ | 351.2 | | | $ | 803.6 | |
We maintain liquidity sources primarily consisting of cash and cash equivalents
andas well as availability under the Revolving Credit Facility (the "Facility"). Cash generated by operations is our
unused $600 million revolving credit facility (the “Facility”). Asprimary source of
December 31, 2016, we had $385.3 millionliquidity. Another potential source of
cash and cash equivalents. On January 9, 2017,liquidity is access to public capital markets subject to market conditions. During 2019, we utilized cash
of approximately $218 million for the San Jamar acquisition. See Note 20 in Item 8 for further information regarding subsequent events.Our cash balance on December 31, 2016 included cash and cash equivalents of $107.9 million located in wholly‑owned subsidiaries of the Company outside the U.S. Cash held by subsidiaries outside the U.S. is held in U.S. Dollars or in the currency of the country in which it is located. It is our intention to use cash held outside the U.S.hand to fund the operating activities of our foreign subsidiaries,acquisitions, share repurchases, capital expenditures and pay dividends to make further investments in our foreign operations, and to invest in additional growth opportunities for the Company through acquisitions. shareholders.
Cash
outside the U.S. is generally held
in deposit accounts with banking institutions that are parties to the facility. The majority of these accounts are at bank subsidiaries that are owned by U.S. corporate banks. Repatriation of cash held by foreign subsidiaries may require the accrual and payment of taxes in the U.S.; however, consistent with our unremitted earnings, we consider such related cash to be permanently reinvested in our foreign operations and our current plans do not demonstrate a need, nor do we plan, to repatriate such cash to fund U.S. operations and financing activities. We plan to continue to invest in our international business and potential acquisitions to achieve our stated goal of 30% of net sales outside of the U.S.In addition, cash held by subsidiaries in China is subject to local laws and regulations that require government approval for conversion of such cash to and from U.S. Dollars, as well as for transfer of such cash to entities that are outside of China. As
We believe we have sufficient financial resources to meet our business requirements for at least the next 12 months, including capital expenditures for worldwide manufacturing, working capital requirements, dividends, common stock repurchases, acquisitions and strategic investments.
We also anticipate we will have sufficient cash on hand, as well as available liquidity under the Facility, to pay outstanding principal balances of December 31, 2016, we had cash and cash equivalentsour existing notes by the respective maturity dates. We intend to obtain additional liquidity by accessing the capital markets to repay the outstanding balance if our sources of $22.5 million located in wholly owned subsidiariesliquidity have been used for other strategic purposes by the time of the Company within China.maturity. See
Debt Instruments below. Sources and Uses of Cash
and Cash Equivalents | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | | 2014 | (in millions) | | 2019 | | 2018 | |
Net cash provided by operating activities | | $ | 531.2 | | $ | 529.2 | | $ | 295.9 | Net cash provided by operating activities | | $ | 703.1 | | | $ | 339.2 | | |
Net cash used in investing activities | | | (293.4) | | | (670.8) | | | (297.8) | |
| Net cash (used in) provided by investing activities | | Net cash (used in) provided by investing activities | | (694.9) | | | 629.2 | | |
Net cash used in financing activities | | | (261.1) | | | (173.0) | | | (20.2) | Net cash used in financing activities | | (461.2) | | | (540.7) | | |
Effect of foreign currency exchange rate changes on cash | | | (2.1) | | | (5.5) | | | (1.6) | Effect of foreign currency exchange rate changes on cash | | 0.6 | | | (1.1) | | |
Change in cash and cash equivalents | | $ | (25.4) | | $ | (320.1) | | $ | (23.7) | Change in cash and cash equivalents | | $ | (452.4) | | | $ | 426.6 | | |
2016 Compared to 2015
The increase
We generated operating cash flows totaling $703.1 million for 2019 (including working capital uses of $9.5 million), compared with $339.2 million for 2018 (including working capital uses of $224.9 million). Higher operating cash flows in
net2019 primarily reflect higher cash
provided by operating activities was primarily attributable to increased sales volume, partially offset by a decreaseearnings, more efficient investment in
working capital and non-recurrence of cash
provided bytax payments for the sale of CFS (also included in 2018 working
capital. Working capital
as compared to prior year primarily reflected difference in timing of accrued taxes and related payments, as well as expanded inventory due to service level strategies. The cashuses).
Cash used in investing activities
in 2016 of
$293.4$694.9 million
for 2019 primarily reflected
cash utilizedthe acquisitions of
$185.5 million,Providien, net of cash acquired, for
the acquisitions of Micro-Coax and Star Aviation in the Interconnect Technologies segment and the acquisition of MS Powder, in the Fluid Technologies segment. In 2015, cash used in investing activities of $670.8 primarily reflected cash utilized of $598.9$328.7 million,
Petersen, net of cash acquired, for
$202.0 million, MicroConnex, net of cash acquired, for $45.4 million and other acquisitions, net of cash acquired, for $40.3 million, and capital expenditures of $88.9 million. Cash provided by investing activities of $629.2 million for 2018 primarily reflected the
acquisitionsale of
Finishing Brands.CFS for gross proceeds of $758.0 million, partially offset by capital expenditures of $120.7 million.
The cash used in financing activities in 2016of $461.2 million for 2019 primarily reflected payment$382.1 million of $150.0share repurchases and $102.9 million on bonds that matured during the third quarter of 2016, dividend payments, reflecting the increased annual dividend of $1.80 per share. Cash used in financing activities of $540.7 million for 2018 primarily reflected $459.8 million of share repurchases and cash utilized for share repurchases. The Company’s systematic share repurchase program began in$93.5 million of dividend payments.
On February
2015, and5, 2019, the Board of Directors
authorized an additional 4.1(the "Board") approved a 5 million share increase in the Company's stock repurchase program. We repurchased approximately 2.8 million shares
under this program in
September 2016. 2015 Compared to 2014
The increase in net cash provided by operating activities was attributable to increased cash income, resulting from lower raw material costs, cash taxes paid, cash from acquired businesses and an increase in working capital sources of $145.0 million, reflecting cash provided by working capital of $94.6 million in 2015 and cash used of $50.4 million in 2014. Cash provided by changes in accrued expenses totaled $79.9 million in 2015, compared to cash provided of $14.5 million in 2014, and includes differences in usage of cash for tax payments in 2015 versus 2014.
In 2015, cash used in investing activities included $598.9 million, net of $12.2 million cash acquired, used to acquire Finishing Brands and $72.1 million in capital expenditures. In 2014, cash used in investing activities included $118.8 million in capital expenditures and $194.0 million, net of $6.7 million cash acquired, used to acquire LHi Technologies. Also in 2014, we received $9.7 million2019 as part of our plan to return capital to shareholders, utilizing $382.1 million of our cash on hand. As of December 31, 2019, we had authority to repurchase 4.9 million shares. Purchases may occur from time to time in the final working capital settlement from the sale of the Transportation Products business.
open market and no maximum purchase price has been set. The decline in capital expenditures was primarily attributabledecision to lower capital expenditures at Construction Materials in 2015 due to completion of its new TPOrepurchase shares depends on price, availability and PVC production facilities in 2014. During 2015, the Interconnect Technologies segment spent $34.5 million in capital expenditures, including $7.0 million for the completion of its new manufacturing facility in Nogales, Mexico, as well as other projects tied to product or capacity expansion.
During 2015, cash used in financing activities primarily reflected $137.2 in share repurchases, $72.3 million in dividends paid and $2.9 million in debt repayments, partially offset by net cash inflows related to the exercise of employee stock options of $39.4 million in 2015.corporate developments. The Company started its systematic shareplans to continue to repurchase programshares in 2015 and repurchased 1.5 million shares. Also in 2015, we increased our dividends to shareholders by 17%.
Capital Allocation
Our priorities for the use2020 on an opportunistic basis.
Table of cash are to invest in growth and performance improvement opportunities for our existing businesses and maintain assets through capital expenditures, pursue strategic acquisitions that meet shareholder return criteria, pay dividends to shareholders, and return value to shareholders through share repurchases.Capital expenditures in 2017 are expected to be between $125 million and $150 million, which primarily includes investments in Construction Materials buildings and expanded manufacturing lines as well as investment in Interconnect Technologies continuing building expansions. The amount of planned expenditures is higher than capital expenditures in 2016 due to planned expenditures for the Construction Materials and Fluid Technologies segments as well as investments by Interconnect Technologies to complete expansion of certain manufacturing capacity. Planned capital expenditures for 2017 include business sustaining projects, cost reduction efforts, and new product expansion. In addition to the planned aforementioned capital expenditures, in January 2017, we utilized cash to fund several acquisitions. We utilized approximately $218 million of cash to purchase San Jamar within our FoodService Products segment, approximately $9 million to purchase a sealant business and approximately $3 million to purchase machinery, equipment and customer relationships within our Construction Materials segment, and approximately $2 million to purchase a business within our Interconnect Technologies segment.
No minimum contributions to our domestic pension plans are required in 2017. However, during 2017 we expect to pay approximately $1.4 million in participant benefits under the executive supplemental and director plans. In light of our plans’ funded status, we do not expect to make any discretionary contributions to our other pension plans in 2017. We did not make any contributions to the domestic pension plans during 2016.
Contents
We intend to pay dividends to our shareholders and have increased our dividend rate annually for the past
4043 years. On February
7, 20174, 2020, the Board
of Directors declared a regular quarterly dividend of
$0.35$0.50 per share, payable on March
1, 20172, 2020, to shareholders of record at the close of business on February
17, 2017.20, 2020.We repurchased 835,646 shares in 2016 as part of our planOn October 21, 2019, we announced that we submitted an irrevocable and binding offer, and entered into exclusive discussions to return capital to shareholders, utilizing $80.4 million of our cash on hand. As of December 31, 2016, we had authority to repurchase an additional 4,835,689 shares. Shares may be repurchased at management’s direction. Purchases may occur from time‑to‑time in the open market and no maximum purchase price has been set. The Company plans to continue to repurchase shares in 2017 on a systematic basis. The decision to repurchase shares will depend on price, availability, and other corporate developments.
We believe that our cash on hand, operating cash flows, credit facilities, and access to bank financing and capital markets provide adequate liquidity and capital resources to fund ongoing operations, expand existing lines of business, and make strategic acquisitions. In addition, we believe that our liquidity and capital resources from U.S. operations are adequate to fund our U.S. operations and corporate activities without a need to repatriate funds held by subsidiaries outside the U.S. However, the ability to maintain existing credit facilities and access the capital markets can be impacted by economic conditions outside our control, specifically credit market tightness or sustained market downturns. Our cost to borrow and capital market access can be impacted by debt ratings assigned by independent rating agencies, based on certain credit measures such as interest coverage, funds from operations and various leverage ratios.
Contractual Obligations
The following table quantifies certain contractual cash obligations and commercial commitments at December 31, 2016:
| | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Total | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter |
Long-term debt | | $ | 600.0 | | $ | — | | $ | — | | $ | — | | $ | 250.0 | | $ | — | | $ | 350.0 |
Interest on long-term debt (1) | | | 131.4 | | | 26.7 | | | 26.7 | | | 25.9 | | | 25.9 | | | 13.1 | | | 13.1 |
Noncancelable operating leases | | | 80.2 | | | 18.3 | | | 16.9 | | | 14.0 | | | 9.3 | | | 6.6 | | | 15.1 |
Estimated workers' compensation claims (undiscounted) | | | 18.2 | | | 5.1 | | | 3.4 | | | 2.4 | | | 1.8 | | | 1.3 | | | 4.2 |
Estimated defined benefit plan payments (undiscounted) | | | 259.6 | | | 15.6 | | | 15.0 | | | 14.1 | | | 13.9 | | | 13.4 | | | 187.6 |
Total commitments | | $ | 1,089.4 | | $ | 65.7 | | $ | 62.0 | | $ | 56.4 | | $ | 300.9 | | $ | 34.4 | | $ | 570.0 |
| (1)
| | Future expected interest payments are calculated based on the stated rate for fixed rate debt at December 31, 2016.
|
The above table does not include $172.0 million of long‑term deferred revenue and $217.0 million of other long‑term liabilities, of which $29.4 million relates to unrecognized income tax benefits. Excluded other long‑term liabilities consist primarily of deferred income tax liabilities and deferred compensation. Due to factors such as the timing of book‑tax difference reversals and retirement of employees, it is not reasonably possible to estimate when these will become due.
The amount of $18.2 million in obligations for workers compensation claims reflects an estimate for claims reported to the Company and incurred but not yet reported. Our estimate and the related timing is based upon actuarial assumptions and loss development factors and historical loss experience. See Note 11 in the Notes to Consolidated Financial Statements in Item 8 for further information.
The amount of $259.6 million in defined benefit plan payments reflects undiscounted estimated employee obligations under the Company’s qualified defined benefit pension plans. The estimated obligation is based upon plan provisions, increases to compensation levels and actuarial assumptions and mortality rate trends. Of the $259.6 million in estimated obligations, approximately $224.7 million reflects projected benefit obligations under the Company’s qualified defined benefit plans. We maintain a trust in which plan assetsacquire 100% of the trust, based upon their fair value measurement asshares of December 31, 2016,Draka Fileca SAS from Prysmian SpA. Draka Fileca is a leader in highly engineered interconnect solutions for harsh environments, providing high-end cable solutions to important European aerospace and expected return on assets arespace and defense customers. The transaction is subject to customary closing conditions, including regulatory clearances, and is expected to fully fundclose no later than the Company’s projected benefit obligations for its qualified defined benefit plans. See Note 13 to Consolidated Financial Statements in Item 8 for further information.
Although wefirst quarter of 2020.
Debt Instruments
Senior Notes
We have
entered into purchase agreements for certain key raw materials, there were no material contracts with a term exceeding one year in place at December 31, 2016. Our $600 million Facility allows for borrowings that bear interest at a Base Rate or a Euro-Dollar Rate plus an applicable margin based on our senior unsecured debtnotes outstanding of $250.0 million due December 2020 (at a stated interest rate of 5.125%), $350.0 million due November 2022 (at a stated interest rate of 3.75%), $400.0 million due December 2024 (at a stated interest rate of 3.5%) and $600.0 million due December 2027 (at a stated interest rate of 3.75%). The Company's credit ratings (all as defined in the Facility agreement). We may use the Facility for general working capital purposes and to provide additional liquidity to pursue growth opportunities including acquisitions. The Facility expires on December 12, 2018. Our senior unsecured debt is ratedare BBB by Standard & Poor’s and Baa2 by Moody’s. We
Revolving Credit Facility
During 2019, we had no borrowings
on our Facility during the year and we had $600 million availableor repayments under the
Facility asFacility. As of December 31,
2016.During August 2016,2019, we utilized cashhad no amounts outstanding under our revolving credit facility, with $1.0 billion available for use. On February 5, 2020, the Company entered into a the Company's Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) administered by JPMorgan Chase Bank, N.A. Among other things, the Amendment extended the maturity date of the Facility from February 21, 2022, to February 5, 2025. Refer to Note 20 for further information on hand to repay the outstanding balance on our senior unsecured note outstanding of $150.0 million (at a stated interest rate of 6.125%).
Under our various debt andrevised credit facilities, weagreement.
We are required to meet various restrictive covenants and limitations
under our senior notes and revolving credit facility including certain leverage ratios, interest coverage ratios and limits on outstanding debt balances held by certain subsidiaries. We were in compliance with all covenants and limitations
in 2016as of December 31, 2019 and
2015.We anticipate we will have sufficient cash2018.
Refer to Note 14 for further information on
hand as well as available liquidity under our revolving credit facility to pay outstanding principal balances of our existing notes by the respective maturity dates. If these sources of liquidity have been used for other strategic purposes by the time of maturity, we would obtain additional liquidity by accessing the capital markets to repay the outstanding balance.We view our debt instruments.
Contractual Obligations
Certain contractual cash obligations and commercial commitments as of December 31, 2019 follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Total | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter |
| Debt maturities of principal balances | | $ | 1,600.0 | | | $ | 250.0 | | | $ | — | | | $ | 350.0 | | | $ | — | | | $ | 400.0 | | | $ | 600.0 | |
Interest on long-term debt (1) | | 304.9 | | | 63.7 | | | 50.9 | | | 49.8 | | | 36.5 | | | 36.5 | | | 67.5 | |
| Operating leases, including imputed interest | | 96.4 | | | 24.8 | | | | 18.6 | | | | 13.7 | | | | 9.6 | | | | 6.8 | | | | 22.9 | |
Estimated workers' compensation claims (2) | | 18.9 | | | 4.2 | | | 2.2 | | | 1.5 | | | 1.6 | | | 1.3 | | | 8.1 | |
Estimated defined benefit plan payments (3) | | 247.0 | | | 14.1 | | | 13.7 | | | 13.7 | | | 13.8 | | | 13.7 | | | 178.0 | |
| Total commitments | | $ | 2,267.2 | | | $ | 356.8 | | | $ | 85.4 | | | $ | 428.7 | | | $ | 61.5 | | | $ | 458.3 | | | $ | 876.5 | |
(1)Future expected interest payments are calculated based on the stated rate for fixed rate debt as of December 31, 2019.
(2)The amount of $18.9 million in obligations for workers compensation claims reflects undiscounted estimated claims reported to capital ratio (defined as short‑term debt plus long‑term debt divided by the sumCompany and incurred but not yet reported. Our estimate and the related timing is based upon actuarial assumptions, loss development factors and historical loss experience. We maintain occurrence-based insurance coverage with certain insurance carriers in accordance with our risk management practices that provides for reimbursement of total shareholders’ equity, long‑term debtworkers’ compensation claims in excess of $0.5 million. We record a recovery receivable from the insurance carriers when such recovery is deemed probable based on the nature of the claim and short‑term debt) as an important indicatorhistory of our ability to utilize debt in financing acquisitions and capital investments.recoveries. As of December 31, 2016 and 2015, our debt to capital ratio was approximately 19% and 24%, respectively.Off-Balance Sheet Arrangements
2019, we had a recovery receivable of $5.4 million. Refer to Note 1115 for discussionfurther information.
(3)The amount of off-balance sheet arrangements. Environmental
$247.0 million in defined benefit plan payments reflects undiscounted and unescalated estimated employee obligations under the Company’s domestic qualified defined benefit plans. The estimated obligation is based upon plan provisions, increases to compensation levels, actuarial assumptions and mortality rate trends. Approximately $214.9 million of the $247.0 million in estimated obligations reflects projected benefit obligations under the Company’s qualified defined benefit plan. We maintain a trust in which Core plan assets of the trust are subjectexpected to increasingly stringent environmental lawsfund the Company’s projected benefit obligations for its Core qualified defined benefit plan based upon its fair value measurement as of December 31, 2019, and regulations, including those relatingexpected return on assets. Refer to air emissions, wastewater discharges, chemicalNote 15 for further information.
In addition to our debt maturities and hazardous waste managementother contractual obligations discussed above, we have other commitments, which we expected to fund with available cash, projected operating cash flows, available credit facilities or future financing transactions, if necessary. The above table does not include (i) extended service warranty claims, (ii) unrecognized income tax benefits and disposal. Somedeferred income tax liabilities and (iii) deferred compensation. As a result of factors such as the timing and amount of claims, book-tax difference reversals and retirement of employees, it is not reasonably possible to estimate when these environmental laws hold owners or operators of land, businesses, or offsite disposal facilities liable for their ownwill become due.
No minimum contributions to our domestic pension plans are required in 2020. However, during 2020 we expect to pay approximately $1.5 million in participant benefits under the executive supplemental and for previous owners’ or operators’ releases of hazardous or toxic substances or wastes. Other environmental laws and regulations require the obtainment and compliance with environmental permits. To date, costs of complying with environmental, health and safety requirements have not been material and wedirector plans. We do not currently haveexpect to make any significant accruals relateddiscretionary contributions to potential future costsour other pension plans in 2020. We did not make any contributions to the domestic pension plans during 2019.
There were no contracts for the purchase of
environmental remediation atgoods or services that are enforceable and legally binding that require minimum quantities with a term exceeding one year as of December 31,
2016 and 2015, nor do2019, although we
have any asset retirement obligations recorded at those dates. However, the nature of our operations and our long history of industrial activities atroutinely enter into purchase agreements for certain
of our current or former facilities, as well as those acquired, could potentially result in material environmental liabilities or asset retirement obligations.While we 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 our business, capital expenditures, or financial position. Future events, including those relating to climate change or greenhouse gas regulation, may require us to incur expenses related to the modification or curtailment of operations, installation of pollution control equipment, or investigation and cleanup of contaminated sites.
key raw materials. Off-Balance Sheet Arrangements Critical Accounting Estimates
Our significant accounting policies are more fully described in Note
1 in1. In preparing the
Notes to Consolidated Financial Statements
within Item 8. In preparing the consolidated financial statements in conformity with
accounting principles generally accepted in the U.S.
Generally Accepted Accounting Principles (“GAAP”), the Company’s management must make informed decisions which impact the reported amounts and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and assumptions on which to base estimates and judgments that affect the reported amounts of assets, liabilities,
sales andrevenues, expenses, and related disclosure of contingent assets and liabilities.
On an ongoing basis, weWe evaluate our estimates, including those related to revenue recognition,
inventory valuation, deferred revenue and extended product warranties, goodwill and indefinite-lived intangible assets, valuation of long-lived assets, and income
taxes. We base ourtaxes on an ongoing basis. The Company bases its estimates on historical experience, terms of existing contracts, our observation of trends in the industry, information provided by our customers and information available from other outside sources, that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Goodwill
Business Combinations
As noted in Executive Overview we have a history and Indefinite‑Lived Intangible AssetsIndefinite-Lived Intangible Assets
Indefinite-lived intangiblea strategy of acquiring businesses. We account for these business combinations as required by GAAP under the acquisition method of accounting, which requires us to recognize the assets are recognizedacquired and recordedthe liabilities assumed at their acquisition-dateacquisition date fair values. Intangible assets with indefinite useful livesDeferred taxes are not amortized but are tested annually, or more often, if impairment indicators are present,recorded for impairment via a one-step process by comparing theany differences between fair value and tax basis of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment charge is recorded in current earnings equal to the difference. We generally estimate the fair value of our indefinite-lived intangible assets acquired and liabilities assumed and can vary based on the income approach utilizingstructure of the discounted cash flow method. We periodically re-assess indefinite-lived intangible assetsacquisition as to whether their useful lives can be determined and if so, we would begin amortizing any applicable intangible asset.
Wellman® Trade name
During 2016,it is a taxable or non-taxable transaction. To the CBF reporting unit experienced lower than expected sales, primarily inextent the construction and mining industries. Management considered these results and the potential long-term effect of market conditions on the operationspurchase price of the CBF reporting unit and determined that an indicator of possible impairment existed. During the first and second quarters of 2016, management determined thatacquired business exceeds the fair values of the trade names withinassets acquired and liabilities assumed, including deferred income taxes recorded in connection with the CBF reporting unit exceeded their carrying values. However,transaction, such excess is recognized as a resultgoodwill (see further below for our critical accounting estimate regarding post-acquisition accounting for goodwill). The most critical areas of judgment in applying the interim impairment test performed duringacquisition method include selecting the third quarter of 2016, management determinedappropriate valuation techniques and assumptions that are used to measure the acquired assets and assumed liabilities at fair value, particularly for intangible assets, contingent consideration, acquired tangible assets such as property, plant and equipment, and inventory.
The
primarykey techniques and assumptions
that drive fair value related to trade namesutilized by type of major acquired asset or liability generally include:
| ·
| | Future revenue generated by product sales that utilize the trade name;
|
| ·
| | | | | | | | | | | | | |
| Asset/Liability | | Typical Valuation Technique | | Key Assumptions |
| Technology-based intangible assets | | Relief from royalty method | | •Estimated future revenues from acquired technology •Royalty raterates that would be paid if the asset were licensed from a third party;third-party •Discount rates |
| Customer-based intangible assets | | Multiple-period excess earnings method | | •Estimated future revenues from existing customers •Rates of customer attrition •Discount rates •Contributory asset charges |
| Trademark/trade name intangible assets | | Relief from royalty method | | •Estimated future revenues from acquired trademark/trade name •Economic useful lives (definite vs. indefinite) •Royalty rates that would be paid if licensed from a third-party •Discount rates |
| Property, plant & equipment | | Market comparable transactions (real property) and replacement cost, new less economic deprecation (personal property) | | •Similarity of subject property to market comparable transactions •Costs of like equipment in new condition •Economic obsolescence rates |
| Inventory | | Net realizable value less (i) estimated costs of completion and disposal, and (ii) a reasonable profit allowance for the seller | | •Estimated percentage complete (WIP inventory) •Estimated selling prices •Estimated completion and disposal costs •Estimated profit allowance for the seller |
| Contingent consideration | | Discounted future cash flows | | •Future revenues and/or net earnings •Discount rates |
| ·
| | Discount rate utilized, which reflects the associated industry weighted-average cost of capital (discussed below) plus a single asset risk premium.
|
This interim impairment test resultedIn selecting techniques and assumptions noted above, we generally engage third-party, independent valuation professionals to assist us in developing the assumptions and applying the valuation techniques to a particular business combination transaction. In particular, the discount rates selected are compared to and evaluated with (i) the industry weighted-average cost of capital, (ii) the inherent risks associated with each type of asset and (iii) the level and timing of future cash flows appropriately reflecting market participant assumptions.
As noted above, goodwill represents a residual amount of purchase price. However, the primary items that generate goodwill include the value of the synergies between the acquired company and our existing businesses and the value of the acquired assembled workforce, neither of which qualifies for recognition as an impairment chargeintangible asset. Refer to Note 3 for more information regarding business combinations, specifically the Wellman® trade nameitems that generated goodwill in our recent acquisitions.
Subsequent Measurement of
$11.5 million in the CBF segment in the third quarter of 2016.Annual Impairment Test
In conjunction with our annual impairment test, we estimated that all of our indefinite‑lived intangible assets’ fair values exceeded their carrying values.
Goodwill Goodwill
Goodwill is not amortized but is tested annually, or more often if impairment indicators are present, for impairment at a reporting unit level. We have determined that our operating segments are our reporting units. We have allocated goodwill to our reporting units as follows:
| | | | | | |
| | December 31, | | December 31, |
(in millions) | | 2016 | | 2015 |
| | | | | | |
Carlisle Construction Materials | | $ | 117.5 | | $ | 118.7 |
Carlisle Interconnect Technologies | | | 639.1 | | | 555.4 |
Carlisle Fluid Technologies | | | 167.9 | | | 173.4 |
Carlisle Brake & Friction | | | 96.4 | | | 226.6 |
Carlisle FoodService Products | | | 60.3 | | | 60.3 |
Total | | $ | 1,081.2 | | $ | 1,134.4 |
Q3 2016 CBF Reporting Unit
During 2016, the CBF reporting unit continued to experience declining sales due to the overall market conditionslevel, based on a comparison of the industries it serves. The decline is primarily attributable to lowered projected revenues and EBIT margins as a result of lower expectations of recovery in CBF’s various end markets. Upon review of CBF's 2016 financial performance and its end market projections as of the third quarter of 2016, management determined that a triggering event had occurred. As discussed in Item 2 of the Company’s September 30, 2016 Quarterly Report on 10‑Q under Financial Reporting Segments, we performed an interim goodwill impairment test for the Carlisle Brake & Friction reporting unit as of September 30, 2016. As a result, we concluded that the carrying value of the CBF reporting unit was approximately 25% greater than its fair value. Management then performed a step two analysis to measure the amount of the impairment. This analysis required management to allocate the fair value of the CBF reporting unit towith its underlying assets and liabilities, both recognized and unrecognized, based on their estimatedcarrying value. Goodwill is tested for impairment via a one-step process by comparing the fair values with any residual amount treated as the implied value of goodwill. The analysis resulted in the Company recognizing a goodwill impairment charge of $130.0 million in the third quarter of 2016 in income from continuing operations. The carrying value of goodwill atwith its carrying value. We recognize an impairment for the CBF reporting unit afteramount by which the impairment charge was $96.5 million as of September 30, 2016.
Annual Impairment Test
Forcarrying amount exceeds the 2016 impairment test, four reporting units were tested for impairment using ASC 350’s quantitative approach: Carlisle Construction Materials, Carlisle Interconnect Technologies, Carlisle Fluid Technologies, and Carlisle FoodService Products.
fair value. We estimate the fair value of our reporting units primarily based on the income approach utilizing the discounted cash flow method. We also utilize fair value estimates derived frommethod ("DCF") and the market approach utilizing the public company market multiple method to validate the results of the discounted cash flow method, which requires us to make assumptions about the applicability of those multiples to our reporting units. The discounted cash flow method requires us to estimate future cash flows and discount those amounts to present value.method. The key techniques and assumptions that drive fair valuegenerally include:
| ·
| | Industry weighted-average cost
| | | | | |
| Valuation Technique | | Key Assumptions |
| Discounted future cash flows | | •Estimated future revenues •Earnings before interest, taxes, depreciation and amortization ("EBITDA") margins •Discount rates |
| Market multiple method | | •Peer public company group •Financial performance of capital (“WACC”): We utilize a WACCreporting units relative to each reporting unit’s industry as the discount rate for estimated future cash flows. The WACC is intended to represent a rate of return that would be expected by a market place participant.peer public company group |
| ·
| | EBIT margins: We utilize historical and expected EBIT margins, which vary based on the projections of each reporting unit being evaluated.
|
25
Fair value exceeded carrying value for the above
We have determined that we have four reporting units at December 31, 2016. While we believe these assumptions are appropriate, they are subjectand have allocated goodwill to uncertaintythose reporting units as follows:
| | | | | | | | | | | | | | |
| (in millions) | | December 31, 2019 | | December 31, 2018 |
| Carlisle Construction Materials | | $ | 597.1 | | | $ | 532.8 | |
| Carlisle Interconnect Technologies | | 835.2 | | | 643.1 | |
| Carlisle Fluid Technologies | | 187.5 | | | 169.5 | |
| Carlisle Brake & Friction | | 96.5 | | | 96.4 | |
| Total | | $ | 1,716.3 | | | $ | 1,441.8 | |
Annual Impairment Test
We test our goodwill for impairment annually as of October 1. For the 2019 impairment test, the CCM and
by nature include judgments and estimates regarding various factors including the realization of sales price increases, fluctuation in price and availability in key raw materials, and operating efficiencies. The Carlisle Brake & FrictionCIT reporting unit wasunits were tested for impairment using ASC 350’sa qualitative approach. Under this approach, sincean entity may assess qualitative factors as well as relevant events and circumstances to determine whether it is more likely than not that the businessfair value of a reporting unit is less than its carrying amount. Through the results of our analysis, we determined that comprisesit is not more likely than not that the fair values of the CCM and CIT reporting units were less than their respective carrying values and thus, a quantitative analysis was not performed. The CFT and CBF reporting unit wasunits were tested for impairment as of September 30, 2016. Based on our comparison of estimates of future performance at October 1 and December 31 of 2016 versus our estimates at September 30, 2016, we concludedusing the quantitative approach described above, resulting in fair value that there were no significant changes and therefore no indicators of impairment at such dates. Our estimates of future performance considered factors such as sales growth, expected raw materials pricing, andexceeded the business environmentcarrying value for each of the industries CBF serves. We will continue to evaluate the CBF reporting unit for indicators of impairment on an interim basis. If our adjusted expectations of recovery, both in size and timing, in CBF’s end markets do not materialize, or the WACC increases (based on increases in interest rates, market rates of return, and market volatility), the Company may be required to record additional intangible asset and goodwill impairment charges, which may be material.
units.
While we believe our conclusions regarding the estimates of fair value of our reporting units
the underlying assets and liabilities and our trade names are appropriate, these estimates are subject to uncertainty and by nature include judgments and estimates regarding various
factors. These factors
includinginclude the rate and extent of growth in the markets that our reporting units serve, the realization of future sales price
and volume increases, fluctuations in exchange rates, fluctuations in price and availability of key raw materials, future operating efficiencies and,
as it pertains to discount
rates. Seerates, the volatility in interest rates and costs of equity.
Refer to Note 10 to the Consolidated Financial Statements in Item 812 for more information regarding goodwillgoodwill.
Subsequent Measurement of Indefinite-Lived Intangible Assets
As discussed above, indefinite-lived intangible assets are recognized and recorded at their acquisition-date fair value. Intangible assets with indefinite useful lives are not amortized but are tested annually at the appropriate unit of account, which generally equals the individual asset, or more often if impairment indicators are present. Indefinite-lived intangible assets are tested for impairment via a one-step process by comparing the fair value of the intangible asset with its carrying value. We recognize an impairment charge for the amount by which the carrying amount exceeds the intangible asset's fair value. We generally estimate the fair value of our indefinite-lived intangible assets consistent with the techniques noted above using our expectations about future cash flows, discount rates and royalty rates for purposes of the annual test. We monitor for significant changes in those assumptions during interim reporting periods. We also periodically re-assess indefinite-lived intangible assets as to whether its useful lives can be determined, and if so, we would begin amortizing any applicable intangible asset.
Annual Impairment Test
We evaluated our indefinite-lived intangible assets for impairment as of October 1, 2019, and determined that their fair values exceeded their carrying values in conjunction with our annual impairment test.
Refer to Note 12 for more information regarding intangible assets.
Valuation of
Long‑LivedLong-Lived Assets
Long‑lived
Long-lived assets or asset groups, including amortizable intangible assets, are tested for
impairmentrecoverability whenever events or circumstances indicate that
the undiscounted future cash flows do not exceed the carrying amount of the asset or asset
group may not be recoverable.group. For purposes of testing for impairment, we group our
long‑livedlong-lived assets classified as held and used at the lowest level for which identifiable cash flows are largely independent of the cash flows from other assets and
liabilities.liabilities, which means that in many cases multiple assets are tested for recovery as a group. Our asset groupings vary based on the related business in which the
long‑lived asset islong-lived assets are employed and the interrelationship between those
long‑livedlong-lived assets in producing net cash flows; for example, multiple manufacturing facilities may work in concert with one another or may work on a
stand‑alonestand-alone basis to produce net cash flows. We utilize our
long‑livedlong-lived assets in multiple industries and economic environments and our asset
grouping reflectsgroupings reflect these various factors.
We monitor the operating and cash flow results of our long‑livedlong-lived assets or asset groups classified as held and used to identify whether events and circumstances indicate the remaining useful lives of those assets should be adjusted, or if the carrying value of those assets or asset groups may not be recoverable. In the event indicators of impairment are identified, undiscountedUndiscounted estimated future cash flows are compared to the carrying value of the long‑livedlong-lived asset or asset group in the event indicators of impairment are identified. In developing our estimates of future undiscounted cash flows, we utilize our internal estimates of future revenues, costs and other net cash flows from operating the long-lived asset or asset group over the life of the asset or primary asset, if an asset group. This requires us to make judgments about future levels of sales volume, pricing, raw material costs and other operating expenses.
If the undiscounted estimated future cash flows are less than the carrying amount, we determine the fair value of the asset or asset group and record an impairment charge in current earnings to the extent carrying value exceeds fair value. Fair values may be determined based on estimated discounted cash flows, by prices for like or similar assets in similar markets or a combination of both. There are currently no
long‑livedlong-lived assets or asset groups classified as held and used for which
the related undiscounted cash flows do not substantially exceed their carrying amounts.Long‑livedthere were indicators of impairment that would require a recoverability test.
Long-lived assets or asset groups that are part of a disposal group that meets the criteria to be classified as held for sale are not assessed for impairment, but rather
a loss on sale is recorded against the disposal group if fair value, less cost to sell, of the disposal group is less than its carrying
value, a loss on sale is recorded againstvalue. If the disposal
group.group’s fair value exceeds its carrying value, we record a gain, assuming all other criteria for a sale are met, when the transaction closes.
On March 20, 2018, we completed the sale of our CFS operations. Refer to Note 4 for more information regarding the gain on sale.
Revenue Recognition
We recognize revenue
Beginning January 1, 2018, we began recognizing revenues under the guidance in Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606"). Revenue is recognized when all of the criteriaobligations under current U.S. GAAP are met. Those include: | ·
| | pervasive evidence of an arrangement exists,
|
| ·
| | the customer takes ownership and assumes risk of loss,
|
| ·
| | collection is probable at the time of sale, and
|
| ·
| | the sales price is fixed or determinable.
|
The first four criteria are generally a matter of fact based on the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of our products or services. Revenue is measured as the amount of total consideration expected to be received in exchange for transferring goods or providing services. Total expected consideration, in certain cases, is estimated at each reporting period, including interim periods, and conditions of sale alongis subject to change with estimates of delivery times for those sales with delivery terms, and an assessment ofvariability dependent on future events, such as customer credit risk at the time of sale. The most critical judgments involved in revenue recognition are primarily thosebehavior related to concluding that the sales price is determinable. We offer variousfuture purchase volumes, returns, early payment discounts rebates, and other incentivescustomer allowances. Estimates for rights of return, discounts and rebates to our customers, primarilyand other adjustments for competitive reasons. We estimate the impact of these itemsvariable consideration are provided for at the time of sale as a deduction to revenue, based on an analysis of historical experience and actual sales data. Changes in these estimates are reflected as an adjustment to revenue in the period identified. Sales, value added and other taxes collected concurrently with revenue-producing activities are excluded from revenue.
We receive payment at the inception of the contract for separately priced extended service warranties, and revenue is deferred and recognized on a straight-line basis over the life of the contracts. The term of these warranties ranges from five to 40 years. The weighted average life of the contracts as of December 31, 2019, is approximately 19 years.
Additionally, critical judgments and estimates related to revenue recognition relative to certain customer contracts in our CIT segment, in which CIT is a contract manufacturer or where CIT has entered into an agreement to provide both services (engineering and design) and products resulting from those services, include the following:
•Determination of whether revenue is earned at a "point-in-time" or "over time": Where contracts provide for the manufacture of highly customized products with no alternative use and provide CIT the right to payment for work performed to date, including a normal margin for that effort, we have concluded those contracts require the recognition of revenue over time.
•Measurement of revenue using the key inputs of expected gross margin and inventory in our possession. We utilize an estimate of expected gross margin based on historical margin patterns and management’s experience, which vary based on the customers and end markets being evaluated. There are multiple unique customer contracts at CIT. Accordingly, the estimate of expected margin is done for each customer discretely. We review the margins for these categories as contracts, customers and product profiles change over time to ensure that the margin expectations reflect the best available data for each category.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgments and estimates are required in the determination of the ultimate price collected for similar transactions with similar customers, industries,consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax basis of assets and geographic markets, adjusted based on any known eventsliabilities and its reported amounts in the financial statements, which will result in taxable or conditions that would suggest a different outcome. deductible amounts in the future. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations.
We believe that it is more likely than not that the benefit from certain U.S. federal, state and foreign net operating loss ("NOL"), and credit carryforwards will not be realized. In recognition of this risk, we have sufficient historyprovided a valuation allowance of $5.3 million on the deferred tax assets related to these carryforwards.
We (1) record unrecognized tax benefits as liabilities in accordance with Accounting Standards Codification 740, Income Taxes ("ASC 740") and other(2) adjust these liabilities when our judgment changes as a result of the evaluation of new information available to produce a reliable estimate and conclude thatnot previously available. Because of the price is determinable at the timecomplexity of sale. We reflect the impactsome of these various discounts and incentivesuncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as a reduction of revenue atincreases or decreases to income tax expense in the time of sale and subsequently adjust the initial estimate asperiod in which new information becomesis available.Inventories
Inventories are valued at the lower of cost or net realizable value (“NVR”) with cost determined primarily on an average cost basis. Cost of inventories includes direct as well as certain indirect costs associated with the acquisition and production process. These costs include raw materials, direct and indirect labor, and manufacturing overhead. Manufacturing overhead includes materials, depreciation and amortization related to property, plant, and equipment and other intangible assets used directly and indirectly in the acquisition and production of inventory, costs related to our distribution network such as inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs, and other such costs associated with preparing our products for sale.
Under U.S. Generally Accepted Accounting Principles (“GAAP”), net realizable value is defined as estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. The estimates that are subject to uncertainty include estimates of selling prices, costs of completion and disposal, and the levels of excess and obsolete inventory. We regularly review inventory quantities on hand for indicators that cost may exceed net realizable value. These indicators include excess and obsolete inventory and trends in raw material costs or selling prices. The Company utilizes historical write‑off information as well as forecasted selling prices to determine if market is below cost. At year end, if any reserves are recorded, they are not reversed and NRV is established as the inventory’s new cost basis. In general, we perform the test described above at a product level.
Deferred Revenue and
Extended Product Warranty
Reserves
We offer extended warranty contracts on sales of certain products, the most significant being those offered on our installed roofing systems within the
Construction MaterialsCCM segment.
The lives of these warranties range from five to 40 years. All revenue from the sale of these contracts is deferred and amortized on a straight‑line basis over the life of the contracts. Current costs of services performed under these contracts are expensed as incurred. We also record an additional loss and a corresponding reserve if the total expected costs of providing services under the contract
at a product line level exceed
unearnedunamortized deferred revenues equal to such excess. We estimate total expected warranty costs using
quantitative measures based onactuarially derived estimates of future costs of servicing the warranties. The key inputs that are utilized to develop these estimates include historical claims experience
by type of roofing membrane, location, and
management judgment.Pension
We maintain defined benefit retirement plans for certain domestic employees. All plans are frozen to new entrants, with the exceptionlabor and material costs. The estimates of the executive supplementalvolume and director defined benefit pension plans. The net periodic benefit costseverity of these claims and projected benefit obligationsassociated costs are dependent upon the above assumptions and future results could differ from our current expectations. We currently do not have any material loss reserves recorded associated with our extended product warranties.
New Accounting Standards
Refer to Note 1 for information regarding new accounting standards.
Items Affecting Comparability
Items affecting comparability include costs, and losses or gains related to,
among other things, growth and profitability improvement initiatives and other events outside of core business operations (such as asset impairments, exit and disposal and facility rationalization charges, costs of and related to acquisitions, litigation settlement costs, gains and losses from and costs related to divestitures, and non-comparable tax items). Because these
plans are determined annually on an actuarial basis. This determination requires assumptions to be made concerning general economic conditions (particularly interest rates), expected return on plan assets, increases to compensation levels and mortality rate trends. These assumptions are reviewed by management in consultation withitems affect our,
independent actuary and investment manager. Changes in the assumptions to reflect actual experience may resultor any particular operating segment's, financial condition or results in a
changespecific period in
the net periodic benefit cost and projected benefit obligations. Beginning in 2016, we moved from utilizing a weighted‑average discount rate, which was derived from the yield curve used to measure the benefit obligation at the beginning of the period, to a spot yield rate curve to estimate the projected benefit obligation and net periodic benefit costs. The change in estimate provides a more accurate measurement of service and interest costs by applying the spot rate that could be used to settle each projected cash flow individually. This change in estimate did not have a material effect on net periodic benefit costs for 2016.
The defined benefit retirement plan assets consist primarily of fixed income and equity securities, whichthey are considered Level 1 assets under the fair value hierarchy. We use the market related valuation method to determine the value of plan assets, which recognizes the change of the fair value of the plan assets over five years. If actual experience differs from these long‑term assumptions, the difference is recorded as an unrecognized actuarial gain (loss) and then amortized into earnings over the average remaining future service period, which may cause the expense related to providing these benefits to increase or decrease.
The weighted‑average expected rate of return on plan assets was 6.30% for the 2017 benefit cost. While we believe this is a reasonable expectation based on the plan assets’ mix of fixed income and equity investments, significant differences in actual experience or significant changes in the assumptions used may materially affect future benefit obligations and expense. The effect of a 0.25% increase or decrease in the expected rate of return would cause our estimated 2017 net periodic benefit cost to be approximately $0.4 million lower or higher.
The assumed weighted‑average discount rate was 3.86% for the 2016 valuation. The effects of a 0.25% increase or decrease in the assumed discount rate would cause our projected benefit obligation at December 31, 2016 to be approximately $3.7 million lower or $3.6 million higher, respectively.
We used a weighted‑average assumed rate of compensation increase of 3.82% for the 2016 valuation. This rate is not expected to change in the foreseeable future and is based on our actual rate of compensation increase over the past several years, adjusted to reflect management’s expectations regarding future labor costs.
See Note 13 to the Consolidated Financial Statements in Item 8 for more information regarding our retirement plans.
Income Taxes
We record income taxes including an estimate of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized, in our financial statements or tax returns.
Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We periodically assess the realizability of deferred tax assets and the adequacy of deferred tax liabilities.
Realization of deferred tax assets involves estimates regarding (1) the timing and amount of the reversal of taxable temporary differences, (2) expected future taxable income, and (3) the impact of tax planning strategies. We believe that it is more likely than not that we may not realize the benefit of certain deferred tax assets and, accordingly, have established a valuation allowance against them. In assessing the need for a valuation allowance, we consider all available positive and negative evidence, including past operating results, projections of future taxable income and the feasibility of and potential changes to ongoing tax planning strategies. Although realization is not assured for the remaining deferred tax assets, we believe it is more likely than not thatappropriate to present the remaining deferredtotal of these items to provide information regarding the comparability of results of operations period to period. The components of items affecting comparability follows:
| | | | | | | | | | | | | | | | | | | | |
| (in millions, except per share amounts) | | 2019 | | | | |
| | Impact to
Operating Income | | Impact to Income from Continuing Operations | | Impact to Diluted EPS |
| Exit and disposal costs | | $ | 13.7 | | | $ | 10.3 | | | $ | 0.18 | |
| Other facility rationalization costs | | 5.7 | | | 4.4 | | | 0.08 | |
| Acquisition related costs: | | | | | | |
| Inventory step-up amortization | | 3.1 | | | 2.4 | | | 0.04 | |
| Other acquisition costs | | 8.3 | | | 6.9 | | | 0.12 | |
| | | | | | |
| | | | | | |
| Gains from contingent consideration | | (5.0) | | | (5.0) | | | (0.09) | |
| Gains from divestitures | | (2.1) | | | (1.2) | | | (0.02) | |
| Gain from step acquisition, net | | — | | | (0.3) | | | — | |
Tax items (1) | | — | | | (13.2) | | (2) | (0.23) | |
| Total items affecting comparability | | $ | 23.7 | | | $ | 4.3 | | | $ | 0.08 | |
| | | | | | |
(1)In order to provide better information to the user, items affecting comparability include all non-comparable tax assets will be realized. However, deferredactivity in this year and all comparative years.
(2)Excludes $(1.9) million of tax assets could be reduceditems related to indemnification asset write-offs which had zero impact to income from continuing operations and diluted EPS from continuing operations.
| | | | | | | | | | | | | | | | | | | | |
| | 2018 | | | | |
| (in millions, except per share amounts) | | Impact to
Operating Income | | Impact to Income from Continuing Operations | | Impact to Diluted EPS |
| Exit and disposal costs | | $ | 17.9 | | | $ | 13.5 | | | $ | 0.22 | |
| Other facility rationalization costs | | 13.2 | | | 9.8 | | | 0.16 | |
| Acquisition related costs: | | | | | | |
| Inventory step-up amortization | | 1.0 | | | 0.8 | | | 0.01 | |
| Other acquisition costs | | 4.6 | | | 3.5 | | | 0.06 | |
| Litigation settlement losses | | 2.5 | | | 1.9 | | | 0.03 | |
| | | | | | |
| Gains from divestitures | | (6.6) | | | (4.9) | | | (0.08) | |
Tax items (1) | | — | | | (12.3) | | (2) | (0.20) | |
| Total items affecting comparability | | $ | 32.6 | | | $ | 12.3 | | | $ | 0.20 | |
(1)In order to provide better information to the user, items affecting comparability include all non-comparable tax activity in this year and all comparative years.
(2)Excludes $(7.7) million of tax items related to indemnification asset write-offs which had zero impact to income from continuing operations and diluted EPS from continuing operations.
The impact to income from continuing operations reflects the tax effect of items affecting comparability, which is based on the statutory rate in the
near term if our estimatesjurisdiction in which the expense or income is deductible or taxable. The per share impact of
taxable income duringitems affecting comparability to each period is based on diluted shares outstanding using the
carryforward period are significantly reduced or tax planning strategies are no longer viable, which could result in significant income tax expense.The amount of income tax that we pay annually is dependent on various factors, including the timing of certain deductions and ongoing audits by federal, state, and foreign tax authorities, which may result in proposed adjustments. We perform reviews of our income tax positions on a quarterly basis and accrue for potential uncertain tax positions. We believe we have adequately provided for any reasonably foreseeable outcome relatedtwo-class method (refer to these matters.
New Accounting Standards Not Yet Effective
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 outlines a single, comprehensive model
Outlook
Revenues
Our expectations for entities to usesegment revenues in accounting2020 follows:
| | | | | | | | | | | | | | |
| | 2020 Revenue | | Primary Drivers |
| Carlisle Construction Materials | | Mid-single
digit growth | | •Healthy North American non-residential construction market •Price discipline •Solid backlog of work at contractors |
| Carlisle Interconnect Technologies | | High-single
digit growth | | •Continued volume impacts in aerospace from 737 Max •Contributions from the Providien acquisition •Operational improvements and efficiency gains driven by the consolidation of North American facilities |
| Carlisle Fluid Technologies | | Low-to-mid
single digit growth | | •Product introductions •Price realization •Volume growth on quality improvements |
| Carlisle Brake & Friction | | Decline mid-single digits | | •Certain customers adjusting inventory levels •Product line rationalization |
| Total Carlisle | | Mid-single
digit growth | | |
Cash Flows
Our priorities 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 engaged a third-party consultant to assist with our assessment of the impact of the new revenue guidance on our operations. To date, this assessment has included utilizing questionnaires to assist with (1) identifying our revenue streams, (2) performing sample contract analyses, and (3) assessing the identified differences in recognition and measurement that may result from adopting this ASU. Based on the evaluation to date, we do not anticipate the adoption of this standard will have a material impact on our reported current net sales, however, given our acquisition strategy within diverse business segments, there may be additional revenue streams acquired prior to the adoption date. Our technical analysis is on-going with respect to separately-priced extended-warranty contracts, variable consideration, whether certain contracts’ revenues will be recognized over time or at a point in time, and whether costs to obtain a contract will be capitalized. Further, we are continuing to assess what incremental disaggregated revenue disclosures will be required in our consolidated financial statements. We continue to evaluate transition methods, and expect to finalize our determination once all other significant matters are concluded on.
In February 2016, the FASB issued ASU 2016-02, Accounting for Leases (Topic 842), 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 approachcash are to invest in growth and performance improvement opportunities for leasesour existing businesses through capital expenditures, pursue strategic acquisitions that exist ormeet shareholder return criteria, pay dividends to shareholders and return value to shareholders through share repurchases.
Capital expenditures in 2020 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 consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU simplifies several aspects of the accounting for stock compensation.
| ·
| | 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 adopted this ASU effective January 1, 2017, and have elected to recognize forfeitures as they occur. The related financial statement impacts of adopting the above aspects of this ASU are not expected to be material, however, depending on several factors such as the market price of the Company’s common stock, employee exercise behavior and corporate income tax rates, the excess tax benefits associated with the exercise of stock options and vesting of restricted and performance shares could generate a significant discrete income tax benefit in a particular interim period potentially creating volatility in net income and earnings per share period-to-period and period-over-period. We do not expect, based on the existing amounts of vested and unvested stock compensation awards, that the impact will be material to the Company’s net income and earnings-per-share on an annual basis. In 2016 and 2015, we recognized in additional-paid-in-capital approximately $18.8between $100 million and $15.9$120 million, of excess tax benefits, under current accounting guidance, related to stock-based compensation. If this ASU had been adoptedwhich primarily includes continued investments in 2015, the amounts would have been reflected as aCCM and CIT facilities. Planned capital expenditures for 2020 include business sustaining projects, cost reduction to income tax expense in those periods.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receiptsefforts and Cash Payments, 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 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 consolidated financial statements. However, we do not expect the adoption to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. As this standard is prospective in nature, the impact to our financial statements will depend on the nature of our future acquisitions.
In January 2017, the 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 from 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 perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the excess of carrying amount over the fair value of the respective reporting unit. The guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early application of the ASU is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company intends to early adopt this ASU effective January 1, 2017. As this standard is prospective in nature, the impact to our financial statements by not performing step 2 to measure the amount of any potential goodwill impairment will depend on various factors. However, the elimination of step 2 will reduce the complexity and cost of the subsequent measurement of goodwill.
new product expansion.Forward-Looking Statements Forward‑Looking Statements
This report contains forward‑lookingforward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward‑lookingForward-looking statements generally use words such as “expect,” “foresee,” “anticipate,” “believe,” “project,” “should,” “estimate,” “will,” “plans”, “forecast”“plans,” “forecast,” and similar expressions, and reflect our expectations concerning the future. Such statements are made based on known events and circumstances at the time of publication and, as such, are subject in the future to unforeseen risks and uncertainties. It is possible that our future performance may differ materially from current expectations expressed in these forward‑lookingforward-looking statements, due to a variety of factors such as: increasing price and product/service competition by foreign and domestic competitors, including new entrants; technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost‑effectivecost-effective basis; our mix of products/services; increases in raw material costs which cannot be recovered in product pricing; domestic and foreign governmental and public policy changes including environmental and industry regulations; threats associated with and efforts to combat terrorism; protection and validity of patent and other intellectual property rights; the successful integration and identification of our strategic acquisitions; the cyclical nature of our businesses; and the outcome of pending and future litigation and governmental proceedings. In addition, such statements could be affected by general industry and market conditions and growth rates, the condition of the financial and credit markets and general domestic and international economic conditions including interest rate and currency exchange rate fluctuations. Further, any conflict in the international arena may adversely affect general market conditions and our future performance. We undertake no duty to update forward‑lookingforward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk in the form of changes in interest rates, foreign currency exchange rates and commodity prices for raw materials. We may, from time to time, enter into derivative financial instruments to manage these risks; however, we do not utilize such instruments or contracts for speculative or trading purposes. In the event that we enter into a derivative financial instrument, it is possible that such future dated contracts could no longer serve as a hedge if the projected cash flow does not occur as anticipated at the time of contract initiation.
Interest Rate Risk
We are exposed to interest rate risks as a result of our borrowing and investing activities, which principally includes
long‑termlong-term borrowings used to maintain liquidity and to fund our business operations and capital requirements.
FromWe may enter into interest rate swaps from time to time to manage our mix of fixed and variable interest rate debt
effectively, weeffectively. We may enter into
other interest rate
swaps.derivatives such as treasury locks or zero cost collars to manage forecasted interest rates associated with bond offerings. As of December 31,
20162019, and
20152018, there were no interest rate swaps
or other derivative instruments in place and, at both dates, all of our
long‑termlong-term debt
(including the current portion) was
fixed‑ratefixed-rate and U.S. Dollar denominated. We also have a
$600 million$1.0 billion revolving credit facility that allows for borrowings at a variable interest rate. We had no outstanding borrowings under this facility as of December 31,
20162019 and
2015.2018. The nature and amount of our
long‑termlong-term debt may vary from time to time as a result of business requirements, market conditions and other factors. We consider the risk to our results of operations from changes in market rates of interest to be minimal as
suchour interest bearing debt instruments are
fixed‑rate.As a multi‑national company, afixed-rate.
Foreign Currency Exchange Risk
A portion of our operating cash flows are denominated in foreign
currencies, and ascurrencies. As such we are exposed to market risk from changes in foreign currency exchange rates. We are primarily exposed to the exchange rates of currencies including the
Canadian Dollar, Chinese Renminbi, Euro, British Pound,
Canadian Dollar and Japanese Yen. We continually evaluate our foreign currency exposure based on current market conditions and the locations in which we conduct our business. We manage most of our foreign currency exposure on a consolidated basis, which allows us to net certain exposures and take advantage of natural offsets. In order to mitigate foreign currency risk, we may, from time to time, enter into derivative financial instruments, generally foreign currency forward contracts, to hedge the cash flows related to certain foreign currency denominated sales and purchase transactions expected within one year and the related recognized trade receivable or payable. The gains and losses on these contracts offset changes in the value of the related exposures. It is our policy to enter into foreign currency derivative financial instruments only to the extent considered necessary to meet the objectives set forth above. We generally do not hedge the risk
from translation of
sales and earningsforeign currency net investments into U.S. Dollars for financial reporting.
ForWe had foreign exchange contracts with maturities less than one year for instruments that are designated and qualify as an accounting cash flow hedge the Company had foreign exchange contracts with maturities less than one year and an aggregate U.S. Dollar equivalent notional value of $17.6$108.1 million atand $95.0 million as of December 31, 2016.2019 and 2018, respectively. The gross fair value was insignificant at December 31, 2016. No instruments were outstanding$2.0 million and $0.2 million as of December 31, 2015.2019 and 2018, respectively. The effective portion of changes in the fair value of the contracts is recorded in accumulated other comprehensive income in the Statements of Shareholders’ Equity(loss) and is recognized in operating income when the underlying forecasted transaction impacts earnings. ForWe also had foreign exchange contracts with maturities less than one year for instruments that are not designed as a cash flow hedge, but nonetheless are entered into as an economic hedge of certain foreign currency risk the Company had foreign exchange contracts with maturities less than one year and an aggregate U.S. Dollar equivalent notional value of $39.3$124.4 million and $6.1$49.9 million atas of December 31, 20162019 and December 31, 2015,2018, respectively. The gross fair value was insignificant at$0.6 million and $0.1 million as of December 31, 20162019 and December 31, 2015.2018, respectively. The unrealized gains and losses resulting from these contracts are not significant and are recognized in other non-operating expense, net within the Consolidated Statements of Earnings and Comprehensive Income and partially offset corresponding foreign exchange gains and losses on the underlying items being economically hedged.
The
near termnear-term sensitivity of these contracts to changes in foreign currency exchange rates is also minimal as they are scheduled to mature within 12 months. Further, changes in the fair value of these contracts will be offset by changes in the cash flows of the underlying foreign currency denominated sales, purchases, assets and liabilities which the contracts are intended to mitigate (both accounting and economic hedges).
Commodity Price Risk
We continually address the impact of changes in commodity prices on our results of operations and cash flow. Our exposure to changes in commodity prices is principally indirect as we do not directly purchase
exchange‑tradedexchange-traded commodities, but rather purchase raw materials that are a result of further downstream processing (as noted in Item 1 of this Form
10‑K)10-K), primarily inputs resulting from processing crude oil, natural gas, iron ore, gold, silver and copper. We generally manage the risk of changes in commodity prices that impact our raw material costs by seeking to
(1)(i) offset increased costs through increases in prices,
(2)(ii) alter the nature and mix of raw materials used to manufacture our finished goods or
(3)(iii) enter into
commodity‑linkedcommodity-linked sales or purchase contracts, all to the extent possible based on competitive and other economic factors. We may also from time to time enter into derivative financial instruments to mitigate such impact however,
atas of December 31,
20162019 and
20152018 we had no derivative financial instruments in place.
Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
The
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors
and Shareholders of Carlisle Companies Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Carlisle Companies Incorporated
(the "Company") as of December 31,
20162019 and
2015,2018, and the related consolidated statements of
earningsincome and comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31,
2016. These2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
arepresent fairly, in all material respects, the
responsibilityfinancial position of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We conducted our auditshave also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 10, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
supportingregarding the amounts and disclosures in the financial statements.
An auditOur audits also
includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial
statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill – CFT and CBF Reporting Units – Refer to Notes 1 and 12 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company determines the fair value of its reporting units using the income approach utilizing the discounted cash flow method and market approach utilizing the public company market multiple method. The determination of the fair value using the discounted cash flow method requires management to make significant estimates and assumptions related to forecasts of future revenues and earnings before interest, taxes, depreciation, and amortization (EBITDA) margins, and discount rates. The determination of the fair value using the market approach requires management to make significant assumptions related to market revenue multiples and EBITDA multiples from within a comparable industry group. The fair values of the CFT and CBF reporting units exceeded their carrying values as of the measurement date and, therefore, no impairment was recognized.
Given the significant judgments management makes to estimate the fair value of the CFT and CBF reporting units, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts of future revenues and operating unit EBITDA margins, selection of the discount rates, and the selection of multiples applied to revenue and EBITDA required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future revenues and operating unit EBITDA margins (“forecasts”), the selection of discount rates, and the selection of comparable market revenue and EBITDA multiples for the CFT and CBF reporting units included the following procedures:
•We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of CFT and CBF, such as controls related to management’s forecasts and selection of discount rates.
•We evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts.
•We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results of the Company and its competitors, (2) internal communications to management, and (3) forecasted information included in industry reports of the Company and companies in its peer group.
•With the assistance of our fair value specialists, we evaluated the discount rates, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management.
•With the assistance of our fair value specialists, we evaluated the revenue and EBITDA multiples, including testing the underlying source information and mathematical accuracy of the calculations, and evaluating the appropriateness of the Company’s selection of companies in its industry comparable groups.
Acquisitions – Petersen Aluminum Corporation and Providien, LLC – Customer Relationships Intangible Asset – Refer to Notes 1 and 3 to the financial statements
Critical Audit Matter Description
The Company completed the acquisitions of Petersen Aluminum Corporation (“Petersen”) for $207.2 million on January 11, 2019 and Providien, LLC (“Providien”) for $332.1 million on November 20, 2019. The Company accounted for the acquisitions under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including customer relationships of $79.7 million and $111.7 million for Petersen and Providien, respectively. The Company has not yet finalized the allocation of the purchase price to the fair value of the tangible assets, intangible assets and liabilities acquired for the Providien acquisition. Management estimated the fair value of Petersen and Providien customer relationships using the multi-period excess earnings method, which is a specific discounted cash flow method. The fair value determination of the customer relationships required management to make significant estimates and assumptions related to future cash flows and the selection of the discount rate.
Given the fair value determination of customer relationships for Petersen and Providien requires management to make significant estimates and assumptions related to the forecasts of future cash flows and the selection of the discount rate, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future cash flows and the selection of the discount rate for the customer relationships included the following, among others:
•We tested the effectiveness of controls over the valuation of the customer relationships, including management’s controls over forecasts of future cash flows and selection of the discount rate.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate by:
–Testing the source information underlying the determination of the discount rate and testing the mathematical accuracy of the calculation.
–Developing a range of independent estimates and comparing those to the discount rate selected by management.
•We evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit and compared projections to historical results and peer companies.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 10, 2020
We have served as the Company’s auditor since 2017.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Carlisle Companies Incorporated
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Carlisle Companies Incorporated (the “Company”) as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly,Company maintained, in all material respects, the consolidatedeffective internal control over financial positionreporting as of Carlisle Companies Incorporated at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years2019, based on criteria established in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
Internal Control — Integrated Framework (2013) issued by COSO. We have also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), Carlisle Companies Incorporated’sthe consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated February 10, 2020, expressed an unqualified opinion on those financial statements.
As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting
Petersen Aluminum Corporation, MicroConnex Corporation, and Providien LLC (collectively the “Excluded Acquisitions”), which were acquired on January 11, 2019, April 1, 2019, and November 20, 2019, and whose financial statements constitute 12 % total assets and 4% of net sales of the consolidated financial statement amounts as of
and for the year ended December 31,
2016, based on criteria established in Internal Control-Integrated Framework issued by2019. Accordingly, our audit did not include the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 13, 2017 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP
Phoenix, Arizona
February 13, 2017
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Carlisle Companies Incorporated
We have audited Carlisle Companies Incorporated’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Carlisle Companies Incorporated’sExcluded Acquisitions.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
company’sCompany’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Management's Report on Internal Control over Financial Reporting, management's assessment
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 10, 2020
Table of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the Micro-Coax, Inc., Kroll Technologies, LLC, and Star Aviation, Inc. businesses (collectively the “Acquired Businesses”) which were acquired on June 10, 2016, June 10, 2016 and October 3, 2016, respectively, and are included in the 2016 consolidated financial statements of Contents
Carlisle Companies Incorporated
and constitute $181.4 million and $177.7 million of total and net assets, respectively, as of December 31, 2016 and $27.1 million and $0.5 million of net sales and earnings before interest and income taxes, respectively, for the year then ended. Our audit of internal control over financial reporting of Carlisle Companies Incorporated also did not include an evaluation of the internal control over financial reporting of the Acquired Businesses.In our opinion, Carlisle Companies Incorporated maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Carlisle Companies Incorporated as of December 31, 2016 and 2015 and the related consolidated statements of earnings and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016 of Carlisle Companies Incorporated and our report dated February 13, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Phoenix, Arizona
February 13, 2017
Carlisle Companies Incorporated
Consolidated Statements of EarningsIncome and Comprehensive Income
| | | | | | | | | |
| | For the Years Ended December 31, |
(in millions except per share amounts) | | 2016 | | 2015 | | 2014 |
| | | | | | | | | |
Net sales | | $ | 3,675.4 | | $ | 3,543.2 | | $ | 3,204.0 |
| | | | | | | | | |
Cost of goods sold | | | 2,518.1 | | | 2,536.5 | | | 2,384.5 |
Selling and administrative expenses | | | 532.0 | | | 461.9 | | | 379.0 |
Research and development expenses | | | 48.1 | | | 42.8 | | | 33.8 |
Impairment charges | | | 141.5 | | | - | | | - |
Other (income) expense, net | | | (5.4) | | | 0.1 | | | (1.6) |
| | | | | | | | | |
Earnings before interest and income taxes | | | 441.1 | | | 501.9 | | | 408.3 |
| | | | | | | | | |
Interest expense, net | | | 30.6 | | | 34.0 | | | 32.2 |
Earnings before income taxes from continuing operations | | | 410.5 | | | 467.9 | | | 376.1 |
| | | | | | | | | |
Income tax expense | | | 159.7 | | | 148.3 | | | 124.4 |
Income from continuing operations | | | 250.8 | | | 319.6 | | | 251.7 |
| | | | | | | | | |
Discontinued operations | | | | | | | | | |
(Loss) income before income taxes | | | (1.1) | | | 0.1 | | | (2.1) |
Income tax benefit | | | (0.4) | | | - | | | (1.7) |
(Loss) income from discontinued operations | | | (0.7) | | | 0.1 | | | (0.4) |
Net income | | $ | 250.1 | | $ | 319.7 | | $ | 251.3 |
| | | | | | | | | |
Basic earnings (loss) per share attributable to common shares | | | | | | | | | |
Income from continuing operations | | $ | 3.87 | | $ | 4.89 | | $ | 3.89 |
Loss from discontinued operations | | | (0.01) | | | - | | | - |
Basic earnings per share | | $ | 3.86 | | $ | 4.89 | | $ | 3.89 |
| | | | | | | | | |
Diluted earnings (loss) per share attributable to common shares | | | | | | | | | |
Income from continuing operations | | $ | 3.83 | | $ | 4.82 | | $ | 3.83 |
Loss from discontinued operations | | | (0.01) | | | - | | | (0.01) |
Diluted earnings per share | | $ | 3.82 | | $ | 4.82 | | $ | 3.82 |
| | | | | | | | | |
Comprehensive Income | | | | | | | | | |
Net income | | $ | 250.1 | | $ | 319.7 | | $ | 251.3 |
Other comprehensive income (loss) | | | | | | | | | |
Change in foreign currency translation | | | (36.7) | | | (29.6) | | | (26.1) |
Change in accrued post-retirement benefit liability, net of tax | | | 1.0 | | | 4.6 | | | (3.8) |
Other, net of tax | | | 0.6 | | | (0.3) | | | (0.4) |
Other comprehensive loss | | | (35.1) | | | (25.3) | | | (30.3) |
Comprehensive income | | $ | 215.0 | | $ | 294.4 | | $ | 221.0 |
| | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | | | | |
| (in millions, except per share amounts) | | 2019 | | 2018 | | 2017 |
| Revenues | | $ | 4,811.6 | | | $ | 4,479.5 | | | $ | 3,750.8 | |
| | | | | | |
| Cost of goods sold | | 3,439.9 | | | 3,304.8 | | | 2,702.5 | |
| Selling and administrative expenses | | 667.1 | | | 625.4 | | | 532.9 | |
| Research and development expenses | | 60.9 | | | 55.1 | | | 51.3 | |
| | | | | | |
| Other operating (income) expense, net | | (10.5) | | | (14.8) | | | 0.1 | |
| Operating income | | 654.2 | | | 509.0 | | | 464.0 | |
| Interest expense, net | | 66.1 | | | 64.7 | | | 34.0 | |
| Interest income | | (7.9) | | | (11.2) | | | (0.5) | |
| Other non-operating expense, net | | 0.7 | | | 9.6 | | | 1.5 | |
| Income from continuing operations before income taxes | | 595.3 | | | 445.9 | | | 429.0 | |
| Provision for income taxes | | 121.6 | | | 87.3 | | | 88.4 | |
| Income from continuing operations | | 473.7 | | | 358.6 | | | 340.6 | |
| | | | | | |
| Discontinued operations: | | | | | | | | | |
| (Loss) income before income taxes | | (1.8) | | | 300.1 | | | 39.6 | |
| (Benefit from) provision for income taxes | | (0.9) | | | 47.6 | | | 14.7 | |
| (Loss) income from discontinued operations | | (0.9) | | | 252.5 | | | 24.9 | |
| Net income | | $ | 472.8 | | | $ | 611.1 | | | $ | 365.5 | |
| | | | | | |
| Basic earnings per share attributable to common shares: | | | | | | | | | |
| Income from continuing operations | | $ | 8.30 | | | $ | 5.92 | | | $ | 5.36 | |
| (Loss) income from discontinued operations | | (0.02) | | | 4.17 | | | 0.39 | |
| Basic earnings per share | | $ | 8.28 | | | $ | 10.09 | | | $ | 5.75 | |
| | | | | | |
| Diluted earnings per share attributable to common shares: | | | | | | | | | |
| Income from continuing operations | | $ | 8.21 | | | $ | 5.88 | | | $ | 5.32 | |
| (Loss) income from discontinued operations | | (0.02) | | | 4.14 | | | 0.39 | |
| Diluted earnings per share | | $ | 8.19 | | | $ | 10.02 | | | $ | 5.71 | |
| | | | | | |
| Average shares outstanding (in thousands): | | | | | | |
| Basic | | 56,913 | | | 60,393 | | | 63,073 | |
| Diluted | | 57,547 | | | 60,786 | | | 63,551 | |
| | | | | | |
| Comprehensive income: | | | | | | | | | |
| Net income | | $ | 472.8 | | | $ | 611.1 | | | $ | 365.5 | |
| Other comprehensive (loss) income: | | | | | | | | | |
| Foreign currency (losses) gains | | (2.1) | | | (30.3) | | | 46.6 | |
| Amortization of unrecognized net periodic benefit costs, net of tax | | (2.0) | | | (0.4) | | | (5.2) | |
| Other, net of tax | | 2.1 | | | 0.8 | | | (4.9) | |
| Other comprehensive (loss) income | | (2.0) | | | (29.9) | | | 36.5 | |
| Comprehensive income | | $ | 470.8 | | | $ | 581.2 | | | $ | 402.0 | |
See accompanying
notesNotes to Consolidated Financial Statements
Carlisle Companies Incorporated
Consolidated Balance Sheets
| | | | | | | | | | | | | | | | | | | | |
| | December 31, | | December 31, | |
(in millions except share and per share amounts) | | 2016 | | 2015 | |
Assets | | | | | | | |
| (in millions, except share and per share amounts) | | (in millions, except share and per share amounts) | | December 31, 2019 | | December 31, 2018 |
| ASSETS | | ASSETS | | | | | | |
Current assets: | | | | | | | Current assets: | | | | | | |
Cash and cash equivalents | | $ | 385.3 | | $ | 410.7 | Cash and cash equivalents | | $ | 351.2 | | | $ | 803.6 | |
Receivables, net | | | 511.6 | | | 502.5 | Receivables, net | | 783.0 | | | 698.3 | |
Inventories | | | 377.0 | | | 356.0 | |
| Inventories, net | | Inventories, net | | 510.6 | | | 457.5 | |
Prepaid expenses | | | 24.3 | | | 18.8 | Prepaid expenses | | 30.5 | | | 22.0 | |
Other current assets | | | 57.0 | | | 31.5 | Other current assets | | 76.7 | | | 75.3 | |
| Total current assets | | | 1,355.2 | | | 1,319.5 | Total current assets | | 1,752.0 | | | 2,056.7 | |
| | | | | | | | | | |
Property, plant, and equipment, net | | | 632.2 | | | 585.8 | |
| | | | | | | |
Other assets: | | | | | | | |
| Property, plant and equipment, net | | Property, plant and equipment, net | | 783.5 | | | 760.1 | |
Goodwill, net | | | 1,081.2 | | | 1,134.4 | Goodwill, net | | 1,716.3 | | | 1,441.8 | |
Other intangible assets, net | | | 872.2 | | | 887.8 | Other intangible assets, net | | 1,140.6 | | | 967.7 | |
Other long-term assets | | | 25.0 | | | 23.4 | Other long-term assets | | 103.6 | | | 22.9 | |
Total other assets | | | 1,978.4 | | | 2,045.6 | |
TOTAL ASSETS | | $ | 3,965.8 | | $ | 3,950.9 | |
| | | | | | | |
Liabilities and shareholders' equity | | | | | | | |
| Total assets | | Total assets | | $ | 5,496.0 | | | $ | 5,249.2 | |
| | LIABILITIES AND EQUITY | | LIABILITIES AND EQUITY | | | | | | |
Current liabilities: | | | | | | | Current liabilities: | | | | | | |
Short-term debt, including current maturities | | $ | - | | $ | 149.8 | |
Accounts payable | | | 243.6 | | | 212.6 | Accounts payable | | $ | 327.3 | | | $ | 312.1 | |
Accrued expenses | | | 246.7 | | | 219.4 | |
| Accrued and other current liabilities | | Accrued and other current liabilities | | 294.5 | | | 258.0 | |
| Current portion of debt | | Current portion of debt | | 250.2 | | | — | |
Deferred revenue | | | 23.2 | | | 24.0 | Deferred revenue | | 27.0 | | | 25.5 | |
| Total current liabilities | | | 513.5 | | | 605.8 | Total current liabilities | | 899.0 | | | 595.6 | |
| | | | | | | | | | |
Long-term liabilities: | | | | | | | Long-term liabilities: | | | | | | |
Long-term debt | | | 596.4 | | | 595.6 | |
| Long-term debt, less current portion | | Long-term debt, less current portion | | 1,341.4 | | | 1,587.8 | |
Deferred revenue | | | 172.0 | | | 159.7 | Deferred revenue | | 220.4 | | | 201.9 | |
Other long-term liabilities | | | 217.0 | | | 242.4 | Other long-term liabilities | | 392.4 | | | 266.5 | |
| Total long-term liabilities | | | 985.4 | | | 997.7 | Total long-term liabilities | | 1,954.2 | | | 2,056.2 | |
Commitments and contingencies (See Note 11) | | | | | | | |
| | Commitments and contingencies (see Note 17) | | Commitments and contingencies (see Note 17) | |
| | | | | | | |
Shareholders' equity: | | | | | | | 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 64,257,182 and 64,051,600 shares, respectively) | | | 78.7 | | | 78.7 | |
| Preferred stock, $1 par value per share (5,000,000 shares authorized and unissued) | | Preferred stock, $1 par value per share (5,000,000 shares authorized and unissued) | | — | | | — | |
| Common stock, $1 par value per share 200,000,000 shares authorized; 55,692,544 and 57,957,912 shares outstanding, respectively) | | Common stock, $1 par value per share 200,000,000 shares authorized; 55,692,544 and 57,957,912 shares outstanding, respectively) | | 78.7 | | | 78.7 | |
Additional paid-in capital | | | 335.3 | | | 293.4 | Additional paid-in capital | | 413.7 | | | 383.8 | |
Deferred compensation equity | | | 10.3 | | | 8.0 | Deferred compensation equity | | 2.9 | | | 8.0 | |
Treasury shares, at cost (14,178,801 and 14,383,241 shares, respectively) | | | (382.6) | | | (327.4) | |
| Treasury shares, at cost (22,795,428 and 20,534,652 shares, respectively) | | Treasury shares, at cost (22,795,428 and 20,534,652 shares, respectively) | | (1,449.7) | | | (1,102.4) | |
Accumulated other comprehensive loss | | | (122.2) | | | (87.1) | Accumulated other comprehensive loss | | (124.1) | | | (122.1) | |
Retained earnings | | | 2,547.4 | | | 2,381.8 | Retained earnings | | 3,721.3 | | | 3,351.4 | |
Total shareholders' equity | | | 2,466.9 | | | 2,347.4 | Total shareholders' equity | | 2,642.8 | | | 2,597.4 | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 3,965.8 | | $ | 3,950.9 | |
| Total liabilities and equity | | Total liabilities and equity | | $ | 5,496.0 | | | $ | 5,249.2 | |
See accompanying
notesNotes to Consolidated Financial Statements
Carlisle Companies Incorporated
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | | Years Ended December 31, | |
(in millions) | | 2016 | | 2015 | | 2014 | (in millions) | | 2019 | | 2018 | | 2017 |
Operating activities | | | | | | | | | | |
| Operating activities: | | Operating activities: | | | | | | | | | |
Net income | | $ | 250.1 | | $ | 319.7 | | $ | 251.3 | Net income | | $ | 472.8 | | | $ | 611.1 | | | $ | 365.5 | |
Reconciliation of net income to cash flows provided by operating activities: | | | | | | | | | | Reconciliation of net income to cash flows provided by operating activities: | | | | | | | | | |
Depreciation | | | 75.1 | | | 73.5 | | | 64.7 | Depreciation | | 88.4 | | | 86.4 | | | 84.9 | |
Amortization | | | 62.7 | | | 55.8 | | | 39.3 | Amortization | | 117.0 | | | 104.2 | | | 84.2 | |
Impairment charges | | | 141.5 | | | - | | | - | |
| Lease expense | | Lease expense | | 27.5 | | | — | | | — | |
| Stock-based compensation, net of tax benefit | | | (2.6) | | | 2.7 | | | 3.3 | Stock-based compensation, net of tax benefit | | 26.1 | | | 23.9 | | | 13.2 | |
Deferred taxes | | | (25.0) | | | (15.8) | | | (9.9) | Deferred taxes | | (8.9) | | | (0.8) | | | (58.5) | |
| | Gain on sale of discontinued operations, net of tax | | Gain on sale of discontinued operations, net of tax | | — | | | (250.4) | | | — | |
Other operating activities, net | | | (6.0) | | | (1.3) | | | (2.4) | Other operating activities, net | | 5.4 | | | (18.8) | | | 13.9 | |
Changes in assets and liabilities, excluding effects of acquisitions: | | | | | | | | | | Changes in assets and liabilities, excluding effects of acquisitions: | | | | | | | | | |
Receivables | | | 0.3 | | | (11.8) | | | (18.1) | Receivables | | (25.7) | | | (54.5) | | | (53.9) | |
Inventories | | | (12.2) | | | 23.0 | | | (27.7) | Inventories | | (1.9) | | | (29.0) | | | (48.5) | |
Prepaid expenses and other assets | | | (9.2) | | | 6.7 | | | (5.5) | Prepaid expenses and other assets | | (3.6) | | | (2.0) | | | (20.1) | |
Accounts payable | | | 21.6 | | | (2.9) | | | (5.1) | Accounts payable | | 16.5 | | | (39.5) | | | 42.7 | |
Accrued expenses and deferred revenues | | | 34.8 | | | 78.4 | | | 14.5 | |
| Accrued expenses | | Accrued expenses | | 5.2 | | | (99.9) | | | 20.6 | |
| Deferred revenues | | Deferred revenues | | 18.5 | | | 11.8 | | | 19.3 | |
Other long-term liabilities | | | 0.1 | | | 1.2 | | | (8.5) | Other long-term liabilities | | (34.2) | | | (3.3) | | | (4.6) | |
Net cash provided by operating activities | | | 531.2 | | | 529.2 | | | 295.9 | Net cash provided by operating activities | | 703.1 | | | 339.2 | | | 458.7 | |
| | | | | | | | | | | | | | | |
Investing activities | | | | | | | | | | |
| Investing activities: | | Investing activities: | | | | | | | | | |
| Acquisitions, net of cash acquired | | Acquisitions, net of cash acquired | | (616.4) | | | (19.5) | | | (934.3) | |
Capital expenditures | | | (108.8) | | | (72.1) | | | (118.8) | Capital expenditures | | (88.9) | | | (120.7) | | | (159.9) | |
Acquisitions, net of cash acquired | | | (185.5) | | | (598.9) | | | (194.0) | |
| Proceed from sale of discontinued operation | | Proceed from sale of discontinued operation | | — | | | 758.0 | | | — | |
Other investing activities, net | | | 0.9 | | | 0.2 | | | 15.0 | Other investing activities, net | | 10.4 | | | 11.4 | | | (0.1) | |
Net cash used in investing activities | | | (293.4) | | | (670.8) | | | (297.8) | |
| Net cash (used in) provided by investing activities | | Net cash (used in) provided by investing activities | | (694.9) | | | 629.2 | | | (1,094.3) | |
| | | | | | | | | | | | | | | |
Financing activities | | | | | | | | | | |
Repayments of borrowings | | | (150.0) | | | (1.5) | | | (1.5) | |
| Financing activities: | | Financing activities: | | | | | | | | | |
| Proceeds from revolving credit facility | | Proceeds from revolving credit facility | | — | | | — | | | 1,189.0 | |
| Repayments of revolving credit facility | | Repayments of revolving credit facility | | — | | | — | | | (1,189.0) | |
| Proceeds from notes | | Proceeds from notes | | — | | | — | | | 997.2 | |
| | Repurchases of common stock | | Repurchases of common stock | | (382.1) | | | (459.8) | | | (268.4) | |
Dividends paid | | | (84.5) | | | (72.3) | | | (61.2) | Dividends paid | | (102.9) | | | (93.5) | | | (92.1) | |
Proceeds from exercise of stock options, net | | | 48.4 | | | 39.4 | | | 42.5 | |
Repurchases of common stock | | | (75.0) | | | (137.2) | | | - | |
| Financing costs | | Financing costs | | — | | | — | | | (8.3) | |
| Proceeds from exercise of stock options | | Proceeds from exercise of stock options | | 37.0 | | | 22.7 | | | 8.4 | |
| Withholding tax paid related to stock-based compensation | | Withholding tax paid related to stock-based compensation | | (10.4) | | | (10.1) | | | (9.6) | |
Other financing activities, net | | | - | | | (1.4) | | | - | Other financing activities, net | | (2.8) | | | — | | | — | |
Net cash used in financing activities | | | (261.1) | | | (173.0) | | | (20.2) | |
| Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | | (461.2) | | | (540.7) | | | 627.2 | |
| | | | | | | | | | |
Effect of foreign currency exchange rate changes on cash and cash equivalents | | | (2.1) | | | (5.5) | | | (1.6) | Effect of foreign currency exchange rate changes on cash and cash equivalents | | 0.6 | | | (1.1) | | | 2.7 | |
| | | | | | | | | | |
Change in cash and cash equivalents | | | (25.4) | | | (320.1) | | | (23.7) | Change in cash and cash equivalents | | (452.4) | | | 426.6 | | | (5.7) | |
Cash and cash equivalents | | | | | | | | | | |
Beginning of period | | | 410.7 | | | 730.8 | | | 754.5 | |
End of period | | $ | 385.3 | | $ | 410.7 | | $ | 730.8 | |
| Less: change in cash and cash equivalents of discontinued operations | | Less: change in cash and cash equivalents of discontinued operations | | — | | | 1.3 | | | 1.0 | |
| Cash and cash equivalents at beginning of period | | Cash and cash equivalents at beginning of period | | 803.6 | | | 378.3 | | | 385.0 | |
| Cash and cash equivalents at end of period | | Cash and cash equivalents at end of period | | $ | 351.2 | | | $ | 803.6 | | | $ | 378.3 | |
See accompanying
notesNotes to Consolidated Financial Statements
Carlisle Companies Incorporated
Consolidated Statements of Shareholders’ Equity
(In millions, except
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Common Stock Outstanding | | | | 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 as of January 1, 2017 | 64.2 | | | $ | 78.7 | | | $ | 335.3 | | | $ | 10.3 | | | $ | (122.2) | | | $ | 2,547.4 | | | 14.2 | | | $ | (382.6) | | | $ | 2,466.9 | |
| Net income | — | | | — | | | — | | | — | | | — | | | 365.5 | | | — | | | — | | | 365.5 | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | 36.5 | | | — | | | — | | | — | | | 36.5 | |
| Cash dividends - $1.44 per share | — | | | — | | | — | | | — | | | — | | | (92.1) | | | — | | | — | | | (92.1) | |
| Repurchases of common stock | (2.7) | | | — | | | — | | | — | | | — | | | — | | | 2.7 | | | (268.4) | | | (268.4) | |
Issuances and deferrals, net for stock-based compensation (1) | 0.3 | | | — | | | 18.4 | | | 0.1 | | | — | | | — | | | (0.3) | | | 1.4 | | | 19.9 | |
| Balance as of December 31, 2017 | 61.8 | | | $ | 78.7 | | | $ | 353.7 | | | $ | 10.4 | | | $ | (85.7) | | | $ | 2,820.8 | | | 16.6 | | | $ | (649.6) | | | $ | 2,528.3 | |
Adoption of accounting standards (2) | — | | | — | | | — | | | — | | | (6.5) | | | 13.0 | | | — | | | — | | | 6.5 | |
| Net income | — | | | — | | | — | | | — | | | — | | | 611.1 | | | — | | | — | | | 611.1 | |
| Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (29.9) | | | — | | | — | | | — | | | (29.9) | |
| Cash dividends - $1.54 per share | — | | | — | | | — | | | — | | | — | | | (93.5) | | | — | | | — | | | (93.5) | |
| Repurchases of common stock | (4.4) | | | — | | | — | | | — | | | — | | | — | | | 4.4 | | | (467.0) | | | (467.0) | |
Issuances and deferrals, net for stock-based compensation (1) | 0.5 | | | — | | | 30.1 | | | (2.4) | | | — | | | — | | | (0.5) | | | 14.2 | | | 41.9 | |
| Balance as of December 31, 2018 | 57.9 | | | $ | 78.7 | | | $ | 383.8 | | | $ | 8.0 | | | $ | (122.1) | | | $ | 3,351.4 | | | 20.5 | | | $ | (1,102.4) | | | $ | 2,597.4 | |
| Net income | — | | | — | | | — | | | — | | | — | | | 472.8 | | | — | | | — | | | 472.8 | |
| Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (2.0) | | | — | | | — | | | — | | | (2.0) | |
| Cash dividends - $1.80 per share | — | | | — | | | — | | | — | | | — | | | (102.9) | | | — | | | — | | | (102.9) | |
| Repurchases of common stock | (2.8) | | | — | | | — | | | — | | | — | | | — | | | 2.8 | | | (374.9) | | | (374.9) | |
Issuances and deferrals, net for stock-based compensation (1) | 0.6 | | | — | | | 29.9 | | | (5.1) | | | — | | | — | | | (0.6) | | | 27.6 | | | 52.4 | |
| Balance as of December 31, 2019 | 55.7 | | | $ | 78.7 | | | $ | 413.7 | | | $ | 2.9 | | | $ | (124.1) | | | $ | 3,721.3 | | | 22.7 | | | $ | (1,449.7) | | | $ | 2,642.8 | |
(1)Issuances and deferrals, net for stock-based compensation reflects share activity related to option exercises, net of tax, restricted and per share amounts)performance shares vested and net issuances and deferrals associated with deferred compensation equity. | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | | | | | | | | |
| | | | | | | Additional | | Deferred | | Other | | | | | | | | | | Total |
| | Common Stock Outstanding | | Paid-In | | Compensation | | Comprehensive | | Retained | | Shares in Treasury | | Shareholders' |
| | Shares | | Amount | | Capital | | Equity | | Income (loss) | | Earnings | | Shares | | Cost | | Equity |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2014 | | 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 loss, net of tax | | - | | | - | | | - | | | - | | | (30.3) | | | - | | - | | | - | | | (30.3) |
Cash dividends - $0.94 per share | | - | | | - | | | - | | | - | | | - | | | (61.2) | | - | | | - | | | (61.2) |
Issuances and deferrals, net for 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 | | - | | | - | | | - | | | - | | | - | | | 319.7 | | - | | | - | | | 319.7 |
Other comprehensive loss, net of tax | | - | | | - | | | - | | | - | | | (25.3) | | | - | | - | | | - | | | (25.3) |
Cash dividends - $1.10 per share | | - | | | - | | | - | | | - | | | - | | | (72.3) | | - | | | - | | | (72.3) |
Repurchases of common stock | | (1,496,411) | | | - | | | - | | | - | | | - | | | - | | 1,496,411 | | | (137.2) | | | (137.2) |
Issuances and deferrals, net for stock based compensation (1) | | 856,952 | | | - | | | 45.6 | | | 2.0 | | | - | | | - | | (836,371) | | | 9.9 | | | 57.5 |
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 | | - | | | - | | | - | | | - | | | - | | | 250.1 | | - | | | - | | | 250.1 |
Other comprehensive loss, net of tax | | - | | | - | | | - | | | - | | | (35.1) | | | - | | - | | | - | | | (35.1) |
Cash dividends - $1.30 per share | | - | | | - | | | - | | | - | | | - | | | (84.5) | | - | | | - | | | (84.5) |
Repurchases of common stock | | (782,057) | | | - | | | - | | | - | | | - | | | - | | 782,057 | | | (75.7) | | | (75.7) |
Issuances and deferrals, net for stock based compensation (1) | | 987,639 | | | - | | | 41.9 | | | 2.3 | | | - | | | - | | (986,497) | | | 20.5 | | | 64.7 |
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 |
| (1)
| | Issuances and deferrals, net for stock based compensation reflects share activity related to option exercises, net of tax, restricted and performance shares vested and net issuances and deferrals associated with deferred compensation equity.
|
See accompanying notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Note 1—Summary of Accounting Policies
Carlisle Companies Incorporated, its wholly owned subsidiaries and their subsidiaries, referred to herein as the “Company” or “Carlisle,” is a global diversified company that designs, manufactures and markets a wide range of products that serve a broad range of markets including commercial roofing, energy, agriculture, mining, construction, aerospace and defense electronics, medical technology, transportation, general industrial, protective coatings, wood
and auto
refinishing, foodservice, and healthcare and sanitary maintenance.refinishing. The Company markets its products as a component supplier to original equipment manufacturers, distributors
as well asand directly to end-users.
Basis of ConsolidationPresentation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany transactions and accounts have been eliminated. The
Company’s fiscal year‑end is December 31.Company has reclassified certain prior periods' amounts to conform with the current period presentation of interest expense, net, and interest income on the Consolidated Statement of Income and proceeds from exercise of stock options, net, and withholding tax paid related to stock-based compensation on the Consolidated Statement of Cash Flows.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“United States” or “U.S.”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
Highly liquid investments with a maturity of three months or less when acquired are considered cash equivalents.
Revenue Recognition
Revenues are recognized when persuasive evidence of an arrangement exists, goods have been shipped (or services have been rendered), the customer takes ownership and assumes risk of loss, collection is probable, and the sales price is fixed or determinable.
Provisions for rights of return, discounts, and rebates to customers and other adjustments are provided for at the time of sale as a deduction to revenue. Costs related to standard warranties are estimated at the time of sale and recorded as a component of cost of goods sold.
Shipping and Handling Costs
Costs incurred to physically transfer product to customer locations are recorded as a component of cost of goods sold. Charges passed on to customers are recorded into net sales.
Receivables and Allowance for Doubtful Accounts
Receivables are stated at net realizable value. The Company performs ongoing evaluations of its customers’ current creditworthiness, as determined by the review of their credit information to determine if events have occurred subsequent to the recognition of the revenue and related receivable that provides evidence that such receivable will be realized at an amount less than that recognized at the time of sale. Estimates of net realizable value are based on historical losses, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for risk of loss. The allowance for doubtful accounts was $4.0 million at December 31, 2016, $4.7 million at December 31, 2015, and $4.8 million at December 31, 2014. Changes in economic conditions in specific markets in which the Company operates could have an effect on reserve balances required and on the ability to recognize revenue until cash is collected or collectability is probable.
The following is activity in the Company’s allowance for doubtful accounts for the years ended December 31:
| | | | | | | | | |
(in millions) | | 2016 | | 2015 | | 2014 |
Balance at January 1 | | $ | 4.7 | | $ | 4.8 | | $ | 3.3 |
Provision charged to expense | | | 0.7 | | | 0.4 | | | 2.3 |
Amounts written off, net of recoveries | | | (1.4) | | | (0.5) | | | (0.8) |
Balance at December 31 | | $ | 4.0 | | $ | 4.7 | | $ | 4.8 |
Inventories
Inventories are valued at lower of cost and net realizable value with cost determined primarily on an average cost basis. See “New Accounting Standards Adopted” herein for further information related to adoption of pronouncements related to inventories. Cost of inventories includes direct as well as certain indirect costs associated with the acquisition and production process. These costs include raw materials, direct and indirect labor, and manufacturing overhead. Manufacturing overhead includes materials, depreciation and amortization related to property, plant, and equipment and other intangible assets used directly and indirectly in the acquisition and production of inventory, and costs related to the Company’s distribution network such as inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs, and other such costs associated with preparing the Company’s products for sale.
Deferred Revenue and Extended Product Warranty
The Company offers extended warranty contracts on sales of certain products; the most significant being those offered on its installed roofing systems within the Construction Materials segment. The term of these warranties range from five to 40 years. All revenue for the sale of these contracts is deferred and amortized on a straight‑line basis over the life of the contracts. The weighted average life of the contracts is approximately 19 years. Current costs of services performed under these contracts are expensed as incurred and included in cost of goods sold. The Company would record a reserve within accrued expenses if the total expected costs of providing services at a product line level exceed unearned revenues. Total expected costs of providing extended product warranty services are actuarially determined using standard quantitative measures based on historical claims experience and management judgment. See Note 14 for additional information regarding deferred revenue and extended product warranties.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost including interest costs associated with qualifying capital additions. Costs allocated to property, plant, and equipment of acquired companies are based on estimated fair value at the date of acquisition. Depreciation is principally computed on a straight‑line basis over the estimated useful lives of the assets. Depreciation includes the amortization of capital leases. Asset lives are generally 20 to 40 years for buildings, five to 15 years for machinery and equipment, and two to 20 years for leasehold improvements. Leasehold improvements are amortized based on the underlying lease term, or the asset’s estimated useful life, whichever is shorter.
Valuation of Long‑Lived Assets
Long‑lived assets or asset groups, including amortizable intangible assets, are tested for impairment whenever events or circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. For purposes of testing for impairment, the Company groups its long‑lived assets classified as held and used at the lowest level for which identifiable cash flows are largely independent of the cash flows from other assets and liabilities. The Company’s asset groupings vary based on the related business in which the long‑lived asset is employed and the interrelationship between those long‑lived assets in producing net cash flows; for example, multiple manufacturing facilities may work in concert with one another or may work on a stand‑alone basis to produce net cash flows. The Company utilizes its long‑lived assets in multiple industries and economic environments and its asset groupings reflect these various factors.
The Company monitors the operating and cash flow results of its long‑lived assets or asset groups classified as held and used to identify whether events and circumstances indicate the remaining useful lives of those assets should be adjusted or if the carrying value of those assets or asset groups may not be recoverable. In the event indicators of impairment are identified, undiscounted estimated future cash flows are compared to the carrying value of the long‑lived asset or asset group. If the undiscounted estimated future cash flows are less than the carrying amount, the Company determines the fair value of the asset or asset group and records an impairment charge in current earnings to the extent carrying value exceeds fair value. Fair values may be determined based on estimated discounted cash flows, by prices for like or similar assets in similar markets, or a combination of both.
Long‑lived assets or asset groups that are part of a disposal group that meets the criteria to be classified as held for sale are not assessed for impairment but rather if fair value, less cost to sell, of the disposal group is less than its carrying value a loss is recorded against the disposal group.
Goodwill and Other Intangible Assets
Intangible assets are recognized and recorded at their acquisition date fair values. Intangible assets that are subject to amortization are amortized on a straight-line basis over their useful lives. Definite-lived intangible assets consist primarily of acquired customer relationships and patents, non-compete agreements, and intellectual property. The Company determines the useful life of its customer relationship intangible assets based on multiple factors including the size and make-up of the acquired customer base, the expected dissipation of those customers over time, the Company’s own experience in the particular industry, the impact of known trends such as technological obsolescence, product demand or other factors, and the period over which expected cash flows are used to measure the fair value of the intangible asset at acquisition. The Company periodically re-assesses the useful lives of its customer relationship intangible assets when events or circumstances indicate that useful lives have significantly changed from the previous estimate.
Intangible assets with indefinite useful lives are not amortized but are tested annually, or more often if impairment indicators are present, for impairment via a one-step process by comparing the fair value of the intangible asset with its carrying value. If the intangible asset’s carrying value exceeds its fair value, an impairment charge is recorded in current earnings for the difference. The Company estimates the fair value of its indefinite-lived intangible assets based on the income approach utilizing the discounted cash flow method. The Company’s annual testing date for indefinite-lived intangible assets is October 1. The Company periodically re-assesses indefinite-lived intangible assets as to whether their useful lives can be determined and, if so, begins amortizing any applicable intangible asset.
Goodwill is not amortized but is tested annually, or more often if impairment indicators are present, for impairment at a reporting unit level. The Company’s annual testing date for goodwill is October 1. The Company has determined that its operating segments are its reporting units.
See Note 10 for additional information regarding goodwill and other intangible assets.
Lease Arrangements
The Company is a party to various lease arrangements that include scheduled rent increases, rent holidays, or may provide for contingent rentals or incentive payments to be made to the Company as part of the terms of the lease. Scheduled rent increases and rent holidays are included in the determination of minimum lease payments when assessing lease classification and, along with any lease incentives, are included in rent expense on a straight‑line basis over the lease term. Scheduled rent increases that are dependent upon a change in an index or rate such as the consumer price index or prime rate are included in the determination of rental expense at the time the rate or index changes. Contingent rentals are excluded from the determination of minimum lease payments when assessing lease classification and are included in the determination of rent expense when the event that will require additional rents is considered probable. See Note 11 for additional information regarding rent expense.
Contingencies and Insurance Recoveries
The Company is exposed to losses related to various potential claims related to its employee obligations and other matters in the normal course of business, including litigation. The Company records a liability related to such potential claims, both those reported to the Company and incurred but not yet reported, when probable and reasonably estimable, and with respect to workers’ compensation obligations. The Company utilizes actuarial models to estimate the ultimate total cost of such claims, primarily based on historical loss experience and expectations about future costs of providing workers’ compensation benefits.
As part of its risk management strategy, the Company maintains occurrence‑based insurance contracts related to certain contingent losses primarily workers’ compensation, medical and dental, general liability, property, and product liability claims up to applicable retention limits. The Company records a recovery under these insurance contracts when such recovery is deemed probable. See Note 11 for additional information regarding contingencies and insurance recoveries.
Pension
The Company maintains defined benefit pension plans primarily for certain domestic employees. The annual net periodic benefit cost and projected benefit obligations related to these plans are determined on an actuarial basis annually on December 31, unless a remeasurement event occurs in an interim period. This determination requires assumptions to be made concerning general economic conditions (particularly interest rates), expected return on plan assets, increases to compensation levels, and mortality rate trends. These assumptions are reviewed periodically by management in consultation with its independent actuary. Changes in the assumptions to reflect actual experience can result in a change in the net periodic benefit cost and projected benefit obligations.
The defined benefit pension plans’ assets are measured at fair value annually on December 31, unless a remeasurement event occurs in an interim period. The Company uses the market related valuation method to determine the value of plan assets for purposes of determining the expected return on plan assets component of net periodic benefit cost. The market related valuation method recognizes the change of the fair value of the plan assets over five years. If actual experience differs from these long-term assumptions, the difference is recorded as an actuarial gain (loss) and then amortized into earnings over a period of time based on the average future service period, which may cause the expense related to providing these benefits to increase or decrease. See Note 13 for additional information regarding these plans and the associated plan assets.
Income Taxes
Income taxes are recorded in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740, IncomeTaxes, which includes an estimate of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. See Note 6 for additional information regarding income taxes.
Stock‑Based Compensation
The Company accounts for stock‑based compensation under the fair‑value method. Accordingly, equity classified stock‑based compensation cost is measured at the grant date, based on the fair value of the award and is recognized as expense over the requisite service period, which generally matches the stated vesting period of the award but may also be shorter if the employee is retirement‑eligible and under the award’s terms may fully‑vest upon retirement from the Company. The Company recognizes expense for awards that have graded vesting features under the graded vesting method, which considers each separately vesting tranche as though they were, in substance, multiple awards. See Note 5 for additional information regarding stock-based compensation.
Foreign Currency Matters
The functional currency of the Company’s subsidiaries outside the United States is the currency of the primary economic environment in which the subsidiary operates. Assets and liabilities of these operations are translated to the U.S. Dollar at the exchange rate in effect at each balance sheet date. Income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of shareholders’ equity in accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions and from the remeasurement of monetary assets and liabilities and associated income statement activity of foreign subsidiaries where the functional currency is the U.S. Dollar and the records are maintained in the local currency are included in other
(income)non-operating expense, net.
Discontinued Operations
The results of operations for the Company's Carlisle FoodService Products ("CFS") segment have been classified as discontinued operations for all periods presented in the Condensed Consolidated Statements of Income. Refer to Note 4 for additional information.
Revenue Recognition
Revenue is recognized when obligations under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of the Company’s products or services. Revenue is measured as the amount of total consideration expected to be received in exchange for transferring goods or providing services. Total expected consideration, in certain cases, is estimated at each reporting period, including interim periods, and is subject to change with variability dependent on future events, such as customer behavior related to future purchase volumes, returns, early payment discounts and other customer allowances. Estimates for rights of return, discounts and rebates to customers and other adjustments for variable consideration are provided for at the time of sale as a deduction to revenue, based on an analysis of historical experience and actual sales data. Changes in these estimates are reflected as an adjustment to revenue in the period identified. Sales, value added and other taxes collected concurrently with revenue-producing activities are excluded from revenue.
The Company receives payment at the inception of the contract for separately priced extended service warranties, and revenue is deferred and recognized on a straight-line basis over the life of the contracts. The term of these
warranties ranges from five to 40 years. The weighted average life of the contracts as of December 31, 2019, is approximately 19 years.
The Company recognizes revenue over-time for certain contracts that provide for the manufacture of highly customized products with no alternative use and provide the Company the right to payment for work performed to date, including a normal margin for that effort.
Refer to Note 6 for further information on revenue recognition.
Costs to Obtain a Contract
Costs of obtaining or fulfilling a contract are recognized as expense as incurred, as the amortization period of these costs would be one year or less. These costs generally include sales commissions and are included in selling, general and administrative costs.
Shipping and Handling Costs
Costs incurred to physically transfer product to customer locations are recorded as a component of cost of goods sold. Charges passed on to customers are recorded into revenues.
Other Non-operating Expense, net
Other non-operating expense, net primarily includes foreign currency exchange (gains) losses, indemnification (gains) losses associated with acquired businesses, (income) loss from equity method investments and (gains) losses on sales of a business.
Stock-Based Compensation
The Company accounts for stock-based compensation under the fair-value method. Accordingly, equity-classified stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as compensation cost over the requisite service period. The requisite service period generally matches the stated vesting period of the award but may be shorter if the employee is retirement-eligible and, under the award’s terms, may fully vest upon retirement from the Company. The Company recognizes compensation cost for awards that have graded vesting features under the graded vesting method, which considers each separately vesting tranche as though they were, in substance, multiple awards.
Additionally, the Company accounts for liability-classified stock-based compensation cost under the fair value method, with the fair value of the award remeasured as of the date of the financial position. The Company recognizes compensation cost over the requisite service period based on the remeasured fair value of the award. The requisite service period generally matches the stated vesting period of the award but may be shorter if the employee is retirement-eligible and, under the award’s terms, may fully vest upon retirement from the Company.
The Company also accounts for forfeitures of stock-based awards as they occur. Refer to Note 7 for additional information regarding stock-based compensation.
Income Taxes
Income taxes are recorded in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740, IncomeTaxes, which includes an estimate of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Cash Equivalents
Highly liquid investments with a maturity of three months or less when acquired are considered cash equivalents.
Receivables and Allowance for Doubtful Accounts
Receivables are stated at net realizable value. The Company performs ongoing evaluations of its customers’ current creditworthiness, as determined by the review of its credit information to determine if events have occurred subsequent to the recognition of the revenue and related receivable that provides evidence that such receivable will
be realized at an amount less than that recognized at the time of sale. Estimates of net realizable value are based on historical losses, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for risk of loss. Changes in economic conditions in specific markets in which the Company operates could have an effect on reserve balances required and on the ability to recognize revenue until cash is collected or collectability is probable.
Changes in the Company's allowance for doubtful accounts follows:
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | 2017 |
| Balance as of January 1 | | $ | 5.1 | | | $ | 6.5 | | | $ | 3.9 | |
| Increase (decrease) to reserve | | 1.4 | | | (0.5) | | | 1.2 | |
| Amounts acquired | | 0.6 | | | — | | | 2.0 | |
| Amounts written off | | (0.5) | | | (0.9) | | | (0.6) | |
| Balance as of December 31 | | $ | 6.6 | | | $ | 5.1 | | | $ | 6.5 | |
Inventories
Inventories are valued at lower of cost and net realizable value with cost determined primarily on an average cost basis. Cost of inventories includes direct as well as certain indirect costs associated with the acquisition and production process. These costs include raw materials, direct and indirect labor and manufacturing overhead. Manufacturing overhead includes materials, depreciation and amortization related to property, plant and equipment and other intangible assets used directly and indirectly in the acquisition and production of inventory, and costs related to the Company’s distribution network such as inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs and other such costs associated with preparing the Company’s products for sale. Refer to Note 10 for further information regarding inventories.
Property, Plant and Equipment
Property, plant and equipment are stated at cost including interest costs associated with qualifying capital additions. Costs allocated to property, plant and equipment of acquired companies are based on estimated fair value at the date of acquisition. Depreciation is principally computed on a straight-line basis over the estimated useful lives of the assets. Asset lives are generally 20 to 40 years for buildings, five to 15 years for machinery and equipment and two to 20 years for leasehold improvements. Leasehold improvements are amortized based on the shorter of the underlying lease term or the asset’s estimated useful life. Refer to Note 11 for further information regarding property, plant and equipment.
Valuation of Long-Lived Assets
Long-lived assets or asset groups, including amortizable intangible assets, are tested for impairment whenever events or circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. The Company groups its long-lived assets classified as held and used at the lowest level for which identifiable cash flows are largely independent of the cash flows from other assets and liabilities for purposes of testing for impairment. The Company’s asset groupings vary based on the related business in which the long-lived assets are employed and the interrelationship between those long-lived assets in producing net cash flows; for example, multiple manufacturing facilities may work in concert with one another or may work on a stand-alone basis to produce net cash flows. The Company utilizes its long-lived assets in multiple industries and economic environments and its asset groupings reflect these various factors.
The Company monitors the operating and cash flow results of its long-lived assets or asset groups classified as held and used to identify whether events and circumstances indicate the remaining useful lives of those assets should be adjusted or if the carrying value of those assets or asset groups may not be recoverable. Undiscounted estimated future cash flows are compared with the carrying value of the long-lived asset or asset group in the event indicators of impairment are identified. If the undiscounted estimated future cash flows are less than the carrying amount, the Company determines the fair value of the asset or asset group and records an impairment charge in current earnings to the extent carrying value exceeds fair value. Fair values may be determined based on estimated discounted cash flows by prices for like or similar assets in similar markets or a combination of both.
Long-lived assets or asset groups that are part of a disposal group that meets the criteria to be classified as held for sale are not assessed for impairment, but rather a loss is recorded against the disposal group if fair value, less cost to sell, of the disposal group is less than its carrying value.
Goodwill and Other Intangible Assets
Intangible assets are recognized and recorded at its acquisition date fair values. Intangible assets that are subject to amortization are amortized on a straight-line basis over its useful lives. Definite-lived intangible assets consist primarily of acquired customer relationships, patents and technology, certain trade names and non-compete agreements. The Company determines the useful life of its definite-lived intangible assets based on multiple factors including the size and make-up of the acquired customer base, the expected dissipation of those customers over time, the Company’s own experience in the particular industry, the impact of known trends such as technological obsolescence, product demand or other factors and the period over which expected cash flows are used to measure the fair value of the intangible asset at acquisition. The Company periodically re-assesses the useful lives of its definite-lived intangible assets when events or circumstances indicate that useful lives have significantly changed from the previous estimate.
Intangible assets with indefinite useful lives are not amortized but are tested annually, or more often if impairment indicators are present, for impairment via a one-step process by comparing the fair value of the intangible asset with its carrying value. If the intangible asset’s carrying value exceeds its fair value, an impairment charge is recorded in current earnings for the excess. The Company estimates the fair value of its indefinite-lived intangible assets based on the income approach utilizing the discounted cash flow method. The Company’s annual testing date for indefinite-lived intangible assets is October 1. The Company periodically re-assesses indefinite-lived intangible assets as to whether its useful lives can be determined and, if so, begins amortizing any applicable intangible asset.
Goodwill is not amortized but is tested annually, or more often if impairment indicators are present, for impairment at a reporting unit level. The Company’s annual testing date for goodwill is October 1st. The Company has 4 reporting units, that align with its reportable segments.
Refer to Note 12 for additional information regarding goodwill and other intangible assets.
Extended Product Warranty Reserves
The Company offers extended warranty contracts on sales of certain products; the most significant being those offered on its installed roofing systems within the CCM segment. Current costs of services performed under these contracts are expensed as incurred and included in cost of goods sold. The Company would record a reserve within accrued expenses if the total expected costs of providing services at a product line level exceed unamortized deferred revenues. Total expected costs of providing extended product warranty services are actuarially determined using standard quantitative measures based on historical claims experience and management judgment. Refer to Notes 6 and 13 for additional information regarding deferred revenue and extended product warranties.
Pension
The Company maintains defined benefit pension plans primarily for certain domestic employees. The annual net periodic benefit cost and projected benefit obligations related to these plans are determined on an actuarial basis annually on December 31, unless a remeasurement event occurs in an interim period. This determination requires assumptions to be made concerning general economic conditions (particularly interest rates), expected return on plan assets, increases to compensation levels and mortality rate trends. Changes in the assumptions to reflect actual experience can result in a change in the net periodic benefit cost and projected benefit obligations.
The defined benefit pension plans’ assets are measured at fair value annually on December 31, unless a remeasurement event occurs in an interim period. The Company uses the market related valuation method to determine the value of plan assets for purposes of determining the expected return on plan assets component of net periodic benefit cost. The market related valuation method recognizes the change of the fair value of the plan assets over five years. If actual experience differs from these long-term assumptions, the difference is recorded as an actuarial gain (loss) and amortized into earnings over a period of time based on the average future service period, which may cause the expense related to providing these benefits to increase or decrease. Refer to Note 15 for additional information regarding these plans and the associated plan assets.
Leases
The Company determines if an arrangement is a lease at inception by evaluating if the asset is explicitly or implicitly identified or distinct, if the Company will receive substantially all of the economic benefit or if the lessor has an
economic benefit and the ability to substitute the asset. Operating leases are included in other long-term assets, accrued and other current liabilities, and other long-term liabilities.
Right-of-use assets ("ROU assets") represent the Company's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of fixed and known lease payments over the lease term. Variable payments are not included in the ROU asset or lease liability and can vary from period to period based on the use of an asset during the period or the Company's proportionate share of common costs. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and lease expense for these leases is recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease components and non-lease components. The Company has elected to apply the practical expedient to account for these components as a single lease component, for all classes of underlying assets. Refer to Note 17 for additional information regarding leases.
Contingencies and Insurance Recoveries
The Company is exposed to losses related to various potential claims related to its employee obligations and other matters in the normal course of business, including commercial, employee, environmental or other regulatory litigation. The Company records a liability related to such potential claims, both those reported to the Company and incurred but not yet reported, when probable and reasonably estimable.
The Company maintains occurrence-based insurance contracts related to certain contingent losses primarily workers’ compensation, medical and dental, general liability, property and product liability claims up to applicable retention limits as part of its risk management strategy. The Company records a recovery under these insurance contracts when such recovery is deemed probable. Insurance proceeds in excess of realized losses are gain contingencies and not recorded until realized. Refer to Note 17 for additional information regarding contingencies and insurance recoveries.
Derivative Instruments and Hedge Accounting
From
time-to-time,time to time, the Company may enter into derivative financial instruments to hedge various risks to cash flows or the fair value of recognized assets and liabilities, including those arising from fluctuations in foreign currencies, interest rates and commodities.
In all cases, theThe Company recognizes these instruments at the time they
are entered into and measures them at fair value. For instruments that are designated and qualify as cash flow hedges under U.S. GAAP, the changes in fair value period-to-period, less any
ineffective portion, isexcluded components, are classified in accumulated other comprehensive income,
in the Statements of Shareholders’ Equity, until the underlying transaction being hedged impacts earnings.
Any ineffectiveness isThe excluded components are recorded in current period income. For those instruments that are designated and qualify as fair value hedges under U.S. GAAP, the changes in fair value period-to-period of both the derivative instrument and underlying hedged item are recognized currently in earnings. For those instruments not designated or do not qualify as hedges under U.S. GAAP, the changes in fair value period-to-period are classified immediately in current period income, within other
non-operating expense,
net within the Consolidated Statements of Earnings and Comprehensive Income. Seenet. Refer to Note 18 for a description of
ourthe Company's current derivative instrument and hedging activities.
New Accounting Standards Adopted
In April 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs. 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 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 short-term and 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. See Note 12 for additional information regarding debt issuance costs.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, 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, with early adoption permitted as of the beginning of an interim or annual reporting period. 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 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. The Company adopted this standard on January 1, 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 Not Yet Effective
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance issued by the FASB, including industry specific guidance. ASU 2014-09 provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts with customers to provide goods and services. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain nonfinancial assets, such as property and equipment, including real estate. ASU 2014-09 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 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 do not anticipate the adoption of this standard will have a material impact on our reported current net sales, however, given our acquisition strategy within diverse business segments, there may be additional revenue streams acquired prior to the adoption date. Our technical analysis is on-going with respect to separately-priced extended-warranty contracts, variable consideration, whether certain contracts’ revenues will be recognized over time or at a point in time, and whether costs to obtain a contract will be capitalized. Further, we are continuing to assess what incremental disaggregated revenue disclosures will be required in our consolidated financial statements. We continue to evaluate transition methods, and expect to finalize our determination once all other significant matters are concluded on.
In February 2016, the FASB issued ASU 2016-02, Accounting for 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”)an ROU asset for the right to use the underlying asset for the duration of the lease term, measured atas the lease liability amount adjusted for lease prepayments, lease incentives received, and initial direct costs.
The Company adopted ASU 2016-02 and all related amendments ("ASC 842") on January 1, 2019, using the alternative modified retrospective method, also known as the transition relief method, permitted under ASC 842, which did not require restatement of prior periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the
Company to carry forward the historical lease liability and ROU asset are recognized in the balance sheet at the commencementclassification. The standard did not materially impact consolidated net income or cash flows.
Following is a summary 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 impacteffects of adopting
the standard on our consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU simplifies several aspects of the accounting for stock compensation.
| ·
| | 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 adopted this ASU effective January 1, 2017, and have elected to recognize forfeitures as they occur. The related financial statement impacts of adopting the above aspects of this ASU are not expected to be material, however, depending on several factors such as the market price of the Company’s common stock, employee exercise behavior and corporate income tax rates, the excess tax benefits associated with the exercise of stock options and vesting of restricted and performance shares could generate a significant discrete income tax benefit in a particular interim period potentially creating volatility in net income and earnings per share period-to-period and period-over-period. We do not expect, basedASC 842 on the existing amounts of vested and unvested stock compensation awards, that the impact will be material to the Company’s net income and earnings-per-share on an annual basis.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, 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 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 consolidated financial statements. However, we do not expect the adoption to have a material impact on our consolidated financial statements.
Condensed Consolidated Balance Sheet: | | | | | | | | | | | | | | | | | | | | |
| | January 1, 2019 | | | | |
| (in millions) | | Balances Without Adoption | | Effect of Adoption Higher/(Lower) | | Balances With Adoption |
| Other current assets | | $ | 75.3 | | | $ | (0.5) | | | $ | 74.8 | |
| Other long-term assets | | 22.9 | | | 69.6 | | | 92.5 | |
| Accrued and other current liabilities | | 258.0 | | | 21.4 | | | 279.4 | |
| Other long-term liabilities | | 266.5 | | | 47.7 | | | 314.2 | |
| | | | | | |
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The impact of adopting the standard will depend on the nature of the Company’s future acquisitions. However, we do not expect the adoption to have a material impact on our consolidated financial statements.
In January 2017, the 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 from 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 perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the excess of carrying amount over the fair value of the respective reporting unit. The guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early application of the ASU is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company intends to early adopt this ASU effective January 1, 2017. As this standard is prospective in nature, the impact to our financial statements by not performing step 2 to measure the amount of any potential goodwill impairment will depend on various factors. However, the elimination of step 2 will reduce the complexity and cost of the subsequent measurement of goodwill.
Note 2—Segment Information
The
Company’sCompany reports its results of operations
are reported inthrough the following
segments:4 segments, each of which represents a reportable segment as follows:
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. In addition, CCM offers a broad range of specialty polyurethane products and solutions across a broad array of markets and applications, and metal panel roofing primarily for residential and commercial markets. CCM also manufactures and distributes energy-efficient rigid foam insulation panels for substantially all roofing applications. The markets served primarily 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.markets and highly engineered products and services to the medical device market.
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 the construction, agriculture, mining, on-highway, aerospace and motor sports markets.Carlisle FoodService Products (“CFS” or “FoodService Products”)—the principal products
Summary financial information by reportable 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.follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Revenues | | Operating Income (Loss) | | Assets | | Depreciation
and
Amortization | | Capital
Expenditures |
| 2019 | | | | | | | | | | |
| Carlisle Construction Materials | | $ | 3,233.3 | | | $ | 576.0 | | | | $ | 2,097.8 | | | $ | 93.9 | | | $ | 30.1 | |
| Carlisle Interconnect Technologies | | 972.9 | | | 131.6 | | | | 1,880.4 | | | 63.0 | | | 23.6 | |
| Carlisle Fluid Technologies | | 278.4 | | | 24.0 | | | | 707.5 | | | 24.1 | | | 3.5 | |
| Carlisle Brake & Friction | | 327.0 | | | 21.3 | | | 441.3 | | | 21.7 | | | 19.1 | |
| Segment Total | | 4,811.6 | | | 752.9 | | | 5,127.0 | | | 202.7 | | | 76.3 | |
Corporate and unallocated (1) | | — | | | (98.7) | | | | 369.0 | | | 2.7 | | | 12.6 | |
| | | | | | | | | | |
| Total | | $ | 4,811.6 | | | $ | 654.2 | | | | $ | 5,496.0 | | | $ | 205.4 | | | $ | 88.9 | |
| 2018 | | | | | | | | | | | | | | | | |
| Carlisle Construction Materials | | $ | 2,880.3 | | | $ | 435.4 | | | | $ | 1,870.7 | | | $ | 77.9 | | | $ | 50.0 | |
| Carlisle Interconnect Technologies | | 933.8 | | | 117.3 | | | | 1,446.4 | | | 58.3 | | | 27.2 | |
| Carlisle Fluid Technologies | | 291.6 | | | 37.1 | | | | 678.0 | | | 22.9 | | | 11.5 | |
| Carlisle Brake & Friction | | 373.8 | | | (0.8) | |
| 446.6 | | | 23.5 | | | 22.4 | |
| Segment Total | | 4,479.5 | | | 589.0 | | | 4,441.7 | | | 182.6 | | | 111.1 | |
Corporate and unallocated (1) | | — | | | (80.0) | | | | 807.5 | | | 2.9 | | | 1.5 | |
| Discontinued operations | | — | | | — | | | — | | | 5.1 | | | 8.1 | |
| Total | | $ | 4,479.5 | | | $ | 509.0 | | | | $ | 5,249.2 | | | $ | 190.6 | | | $ | 120.7 | |
| 2017 | | | | | | | | | | | | | | | | |
| Carlisle Construction Materials | | $ | 2,336.2 | | | $ | 421.9 | | | | $ | 1,898.6 | | | $ | 41.9 | | | $ | 61.0 | |
| Carlisle Interconnect Technologies | | 815.3 | | | 89.5 | | | | 1,473.0 | | | 55.8 | | | 53.2 | |
| Carlisle Fluid Technologies | | 281.4 | | | 16.1 | | | | 678.7 | | | 23.0 | | | 8.8 | |
| Carlisle Brake & Friction | | 317.9 | | | 2.6 | | | 433.8 | | | 23.0 | | | 26.8 | |
| Segment Total | | 3,750.8 | | | 530.1 | | | 4,484.1 | | | 143.7 | | | 149.8 | |
Corporate and unallocated (1) | | — | | | (66.1) | | | | 346.4 | | | 2.6 | | | 1.2 | |
| Discontinued operations | | — | | | — | | | 469.3 | | | 22.8 | | | 8.9 | |
| Total | | $ | 3,750.8 | | | $ | 464.0 | | | | $ | 5,299.8 | | | $ | 169.1 | | | $ | 159.9 | |
(1)Corporate earnings before interest and income taxes (“EBIT”)operating loss includes other unallocated costs, primarily general corporate expenses. Corporate assets consist primarily of cash and cash equivalents, deferred taxes and other invested assets. The Company uses net sales and EBIT as the primary basis for the Chief Operating Decision Maker (“CODM”) to evaluate the performance of each operating segment.
Geographic Area Information—Net sales are
Long-lived assets, excluding deferred tax assets and intangible assets, by region follows:
| | | | | | | | | | | | | | |
| (in millions) | | December 31,
2019 | | December 31,
2018 |
| United States | | $ | 571.8 | | | $ | 574.8 | |
| International: | | | | | | |
| Europe | | 117.1 | | | 99.3 | |
| Asia | | 44.7 | | | 42.7 | |
| Mexico | | 31.3 | | | 30.8 | |
| United Kingdom | | 28.1 | | | 28.0 | |
| Other | | 0.2 | | | 0.5 | |
| Total long-lived assets | | $ | 793.2 | | | $ | 776.1 | |
A summary of revenues based on the country to which the product was
delivered. Net salesdelivered and reconciliation of disaggregated revenue by
region for the years ended December 31 are as follows (in millions): | | | | | | | | | |
Region | | 2016 | | 2015 | | 2014 |
United States | | $ | 2,835.7 | | $ | 2,659.4 | | $ | 2,441.7 |
International: | | | | | | | | | |
Europe | | | 381.8 | | | 384.4 | | | 357.4 |
Asia | | | 241.9 | | | 225.5 | | | 136.0 |
Canada | | | 77.2 | | | 114.9 | | | 117.1 |
Mexico and Latin America | | | 76.1 | | | 81.6 | | | 82.0 |
Middle East and Africa | | | 42.6 | | | 55.7 | | | 48.7 |
Other | | | 20.1 | | | 21.7 | | | 21.1 |
Net sales | | $ | 3,675.4 | | $ | 3,543.2 | | $ | 3,204.0 |
Long‑lived assets, comprised of net property, plant, and equipment, are as follows (in millions):
| | | | | | |
Region | | 2016 | | 2015 |
United States | | $ | 495.5 | | $ | 461.3 |
International: | | | | | | |
Europe | | | 48.4 | | | 47.9 |
Asia | | | 38.3 | | | 29.0 |
United Kingdom | | | 21.3 | | | 19.2 |
Mexico and Latin America | | | 28.4 | | | 27.8 |
Other | | | 0.3 | | | 0.6 |
Total long-lived assets | | | $ 632.2 | | | $ 585.8 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | | | | | | | |
| (in millions) | | CCM | | CIT | | CFT | | CBF | | Total |
| United States | | $ | 2,895.5 | | | $ | 699.5 | | | $ | 124.1 | | | $ | 128.0 | | | $ | 3,847.1 | |
| International: | | | | | | | | | | |
| Europe | | 204.2 | | | 71.7 | | | 54.8 | | | 97.6 | | | 428.3 | |
| Asia | | 19.7 | | | 107.9 | | | 87.9 | | | 72.8 | | | 288.3 | |
| Canada | | 89.7 | | | 5.5 | | | 6.2 | | | 3.3 | | | 104.7 | |
| Mexico | | 3.0 | | | 53.0 | | | 2.7 | | | 11.3 | | | 70.0 | |
| Middle East and Africa | | 13.1 | | | 23.0 | | | 1.9 | | | 1.4 | | | 39.4 | |
| Other | | 8.1 | | | 12.3 | | | 0.8 | | | 12.6 | | | 33.8 | |
| Total international | | 337.8 | | | 273.4 | | | 154.3 | | | 199.0 | | | 964.5 | |
| Total revenues | | $ | 3,233.3 | | | $ | 972.9 | | | $ | 278.4 | | | $ | 327.0 | | | $ | 4,811.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2018 | | | | | | | | |
| (in millions) | | CCM | | CIT | | CFT | | CBF | | Total |
| United States | | $ | 2,552.6 | | | $ | 634.0 | | | $ | 116.9 | | | $ | 157.8 | | | $ | 3,461.3 | |
| International: | | | | | | | | | | |
| Europe | | 186.2 | | | 89.7 | | | 58.6 | | | 109.0 | | | 443.5 | |
| Asia | | 16.4 | | | 114.0 | | | 100.1 | | | 76.0 | | | 306.5 | |
| Canada | | 97.9 | | | 4.8 | | | 6.5 | | | 2.9 | | | 112.1 | |
| Mexico | | 4.1 | | | 48.2 | | | 5.4 | | | 14.3 | | | 72.0 | |
| Middle East and Africa | | 15.2 | | | 27.7 | | | 2.5 | | | 1.4 | | | 46.8 | |
| Other | | 7.9 | | | 15.4 | | | 1.6 | | | 12.4 | | | 37.3 | |
| Total international | | 327.7 | | | 299.8 | | | 174.7 | | | 216.0 | | | 1,018.2 | |
| Total revenues | | $ | 2,880.3 | | | $ | 933.8 | | | $ | 291.6 | | | $ | 373.8 | | | $ | 4,479.5 | |
Financial information for operations by reportable business segment is included in the following summary:
| | | | | | | | | | | | | | | |
(in millions) | | Net Sales | | EBIT | | Assets (2) | | Depreciation
and
Amortization | | Capital
Spending |
2016 | | | | | | | | | | | | | | | |
Carlisle Construction Materials | | $ | 2,052.6 | | $ | 430.5 | | $ | 891.6 | | $ | 35.6 | | $ | 24.9 |
Carlisle Interconnect Technologies | | | 834.6 | | | 144.4 | | | 1,446.3 | | | 48.8 | | | 43.9 |
Carlisle Fluid Technologies | | | 269.4 | | | 33.1 | | | 640.9 | | | 20.7 | | | 11.7 |
Carlisle Brake & Friction | | | 268.6 | | | (135.7) | (3) | | 389.9 | | | 20.8 | | | 9.4 |
Carlisle FoodService Products | | | 250.2 | | | 31.5 | | | 206.1 | | | 9.1 | | | 8.2 |
Corporate (1) | | | - | | | (62.7) | | | 391.0 | | | 2.8 | | | 10.7 |
Total | | $ | 3,675.4 | | $ | 441.1 | | $ | 3,965.8 | | $ | 137.8 | | $ | 108.8 |
| | | | | | | | | | | | | | | |
2015 | | | | | | | | | | | | | | | |
Carlisle Construction Materials | | $ | 2,002.6 | | $ | 351.1 | | $ | 899.2 | | $ | 37.3 | | $ | 21.0 |
Carlisle Interconnect Technologies | | | 784.6 | | | 141.6 | | | 1,264.0 | | | 44.3 | | | 31.6 |
Carlisle Fluid Technologies | | | 203.2 | | | 20.8 | | | 659.5 | | | 15.0 | | | 1.9 |
Carlisle Brake & Friction | | | 310.2 | | | 17.3 | | | 553.0 | | | 21.4 | | | 11.1 |
Carlisle FoodService Products | | | 242.6 | | | 27.3 | | | 199.0 | | | 9.7 | | | 6.3 |
Corporate (1) | | | - | | | (56.2) | | | 376.2 | | | 1.6 | | | 0.2 |
Total | | $ | 3,543.2 | | $ | 501.9 | | $ | 3,950.9 | | $ | 129.3 | | $ | 72.1 |
| | | | | | | | | | | | | | | |
2014 | | | | | | | | | | | | | | | |
Carlisle Construction Materials | | $ | 1,935.4 | | $ | 268.8 | | $ | 915.1 | | $ | 34.6 | | $ | 51.4 |
Carlisle Interconnect Technologies | | | 669.1 | | | 132.2 | | | 1,296.3 | | | 37.6 | | | 32.2 |
Carlisle Fluid Technologies | | | - | | | - | �� | | - | | | - | | | - |
Carlisle Brake & Friction | | | 355.3 | | | 26.8 | | | 591.3 | | | 21.9 | | | 11.2 |
Carlisle FoodService Products | | | 244.2 | | | 29.6 | | | 198.4 | | | 8.8 | | | 17.5 |
Corporate (1) | | | - | | | (49.1) | | | 753.8 | | | 1.1 | | | 6.5 |
Total | | $ | 3,204.0 | | $ | 408.3 | | $ | 3,754.9 | | $ | 104.0 | | $ | 118.8 |
| (1)
| | Corporate EBIT includes other unallocated costs, primarily general corporate expenses. Corporate assets consist primarily of cash and cash equivalents, deferred taxes, and other invested assets.
|
| (2)
| | Prior year amounts were reclassified to reflect the adoption of ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. Refer to note 1 for further discussion.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | | | | | | | |
| (in millions) | | CCM | | CIT | | CFT | | CBF | | Total |
| United States | | $ | 2,080.5 | | | $ | 537.8 | | | $ | 110.1 | | | $ | 132.0 | | | $ | 2,860.4 | |
| International: | | | | | | | | | | |
| Europe | | 156.5 | | | 96.3 | | | 55.5 | | | 94.2 | | | 402.5 | |
| Asia | | 13.2 | | | 98.1 | | | 93.0 | | | 62.7 | | | 267.0 | |
| Canada | | 67.7 | | | 5.1 | | | 6.9 | | | 3.6 | | | 83.3 | |
| Mexico | | 2.1 | | | 46.6 | | | 9.5 | | | 12.9 | | | 71.1 | |
| Middle East and Africa | | 12.0 | | | 24.4 | | | 2.0 | | | 2.4 | | | 40.8 | |
| Other | | 4.2 | | | 7.0 | | | 4.4 | | | 10.1 | | | 25.7 | |
| Total international | | 255.7 | | | 277.5 | | | 171.3 | | | 185.9 | | | 890.4 | |
| Total revenues | | $ | 2,336.2 | | | $ | 815.3 | | | $ | 281.4 | | | $ | 317.9 | | | $ | 3,750.8 | |
| (3)
| | Includes impairment charges of $141.5 million. Refer to note 10 for further discussion.
|
Customer Information – Net sales to
Revenues from Beacon Roofing Supply, Inc. accounted for approximately
10%11.0% and 11.8% of the Company’s consolidated
net salesrevenues during the
yearyears ended December 31,
2015.2019 and 2018, respectively. Additionally, revenues from ABC Supply Co. accounted for approximately 10.5% and 10.4% of the Company's consolidated revenues during the years ended December 31, 2019 and 2017, respectively. Sales to
this customerboth of these customers originate in the
Construction MaterialsCCM segment.
NoNaN other
customercustomers accounted for
10%10.0% or more of the Company’s total
net salesrevenues for the
periods presented.years ended December 31, 2019, 2018 and 2017.
2019 Acquisitions
Star Aviation
Providien, LLC
On October 3, 2016,November 20, 2019, the Company acquired 100%completed its acquisition of the equity of Star Aviation, Inc. (“Star Aviation”Providien, LLC ("Providien"), for estimated consideration of $82.4$332.1 million, netincluding $3.4 million of $0.3 million cash acquired, inclusive of a working capital settlement which was finalized in the fourth quarter of 2016. Star Aviationsubject to post-closing adjustments. Providien is a leading provider of designcomprehensive manufacturing solutions for global medical device original equipment manufacturers, including: thermoforming, medical device contract manufacturing, precision machining and engineering services, testingmetals, and certification workmedical injection molding.
For the period from November 20, 2019 to December 31, 2019, Providien contributed revenues of $11.3 million and
manufactured products for in-flight connectivity applications on commercial, business and military aircraft.operating income of $0.1 million to the Company's consolidated results. The results of operations of the acquired business are reported
withinas part of the
Interconnect TechnologiesCIT segment.
The following table summarizes the consideration transferred to acquire Star AviationProvidien 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 assumed liabilities based upon their acquisition date fair values with the remainder allocated to goodwill.
The fair values are preliminary and subject to change pending receipt of the final valuation studies. | | | | | | | | | | | | |
| | Preliminary
Allocation | | | | |
| (in millions) | | As of 11/20/2019 | | | | |
(in millions)
Total cash consideration transferred | | 10/3/2016
$ | 332.1 | | | | | |
Total consideration transferred
| | $
| 82.7 |
| | | |
Recognized amounts of identifiable assets acquired and liabilities assumed: | | | | | | |
Cash and cash equivalents | | $
3.4 | 0.3 | | | | |
Receivables, net | | 38.9 | 5.9 | | | | |
Inventories, net | | 2.7 | 3.1 | | | | |
Prepaid expenses and other current assets | | 2.3 | 0.1 | | | | |
Property, plant and equipment | | 12.9 | 3.3 | | | | |
Definite-lived intangible assets | | 135.4 | 29.0 | | | | |
Accounts payable
Other long-term assets | | 7.1 | (1.3) | | | | |
Accrued expenses
Accounts payable | | (6.0) | (0.8) | | | | |
Income tax payable | | (0.7) | | | | | |
| Accrued and other current liabilities | | (7.0) | | | | | |
| Other long-term liabilities | | (8.1) | | | | | |
| Deferred income taxes | | (27.1) | | | | | |
| Total identifiable net assets | | 153.8 | 39.6 | | | | |
Goodwill | | $ | 43.1178.3 | | | | | |
The valuation of property, plant, and equipment, and intangible assets is preliminary. We expect to complete the valuation in the first half of 2017. Thepreliminary goodwill recognized in the acquisition of Star Aviation isProvidien reflects market participant synergies attributable to its experiencedsignificant raw material purchase synergies with CIT, other administrative synergies and the assembled workforce expected operational improvements through implementation of theto Carlisle, Operating System (“COS”),in addition to opportunities for product line expansions in additionexpansions. The Company acquired $38.9 million of gross contractual accounts receivable, of which less than $0.1 million was not expected to supply chain efficiencies and other administrative opportunities, andbe collected at the significant strategic valuedate 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 $43.1 million is deductible for tax purposes in the U.S.acquisition. All of the goodwill washas been preliminarily assigned to the CIT reporting unit, which aligns with the CIT reportable segment. Of the goodwill, $42.9 million is preliminarily deductible for tax purposes. The $29.0$135.4 million preliminary value allocated to definite-lived intangible assets consists of $23.9$111.7 million of customer relationships with a useful lives ranging from five to tenlife of 14 years, various acquired technologies of $4.7 million with useful a useful life of six years, and a non-compete agreement of $0.4$19.5 million with a useful life of fivesix or 11 years and trade names of $4.1 million with a useful life of two years.Micro-Coax
The Company has also recorded, as part of the purchase price allocation, deferred tax liabilities related to intangible assets of approximately $27.1 million.
Petersen Aluminum Corporation
On June 10, 2016,January 11, 2019, the Company acquired 100% of the equity of Micro-Coax, Inc.Petersen Aluminum Corporation ("Petersen"), and Kroll Technologies, LLC, (collectively “Micro-Coax”) for total consideration of $95.1$207.2 million, netincluding $5.2 million of $1.5 million cash acquired inclusive of a working capital settlement. The Companyand post-closing adjustments, which were finalized the working capital settlement in the fourthfirst quarter of 2016. The acquired business2019. Petersen is a providermanufacturer and distributor of high-performance, high frequency coaxial wirearchitectural metal roof panels, steel and cable,aluminum flat sheets and cable assembliescoils, wall panels, perimeter roof edge systems and related accessories for commercial, residential, institutional, industrial and agricultural markets.
For the period from January 11, 2019 to December 31, 2019, Petersen contributed revenues of $176.2 million and operating income of $9.8 million to the
defense, satellite, test and measurement, and other industrial markets.Company's consolidated results. The results of operations of the acquired business are reported
withinas part of the
Interconnect TechnologiesCCM segment.
The following table summarizes the consideration transferred to acquire Micro-CoaxPetersen 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 assumed liabilities based upon their acquisition date fair values with the remainder allocated to goodwill. | | | | | | | | | | | | | | | | | | | | |
| | Preliminary
Allocation | | Measurement
Period
Adjustments | | Final
Allocation |
| (in millions) | | As of 1/11/2019 | | | | 12/31/2019 |
| Total cash consideration transferred | | $ | 207.2 | | | $ | — | | | $ | 207.2 | |
| Recognized amounts of identifiable assets acquired and liabilities assumed: | | | | | | |
| Cash and cash equivalents | | 5.2 | | | — | | | 5.2 | |
| Receivables, net | | 11.5 | | | — | | | 11.5 | |
| Inventories, net | | 39.5 | | | (0.3) | | | 39.2 | |
| Prepaid expenses and other current assets | | 2.1 | | | — | | | 2.1 | |
| Property, plant and equipment | | 17.8 | | | — | | | 17.8 | |
| Definite-lived intangible assets | | 109.3 | | | 0.8 | | | 110.1 | |
| Other long-term assets | | 9.5 | | | — | | | 9.5 | |
| Accounts payable | | (5.9) | | | — | | | (5.9) | |
| Income tax payable | | 1.7 | | | — | | | 1.7 | |
| Accrued and other current liabilities | | (8.7) | | | — | | | (8.7) | |
| Other long-term liabilities | | (12.4) | | | (0.1) | | | (12.5) | |
| Deferred income taxes | | (25.4) | | | (0.2) | | | (25.6) | |
| Total identifiable net assets | | 144.2 | | | 0.2 | | | 144.4 | |
| Goodwill | | $ | 63.0 | | | $ | (0.2) | | | $ | 62.8 | |
| | | | | | | | | | |
| | Preliminary
Allocation | | Measurement
Period
Adjustments | | Revised
Preliminary
Allocation | |
| | As of | | | | As of | |
(in millions) | | 6/10/2016 | | | | 12/31/2016 | |
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 is preliminary. We expect to complete the valuation in the first quarter of 2017. The goodwill recognized in the acquisition of Micro-Coax isPetersen reflects market participant synergies attributable to its experiencedsignificant raw material purchase synergies with CCM, other administrative synergies and the assembled workforce expected operational improvements through implementation of theto Carlisle, Operating System (“COS”),in addition to opportunities for product line expansions in additionexpansions. The Company acquired $11.6 million of gross contractual accounts receivable, of which $0.1 million was not expected to supply chain efficiencies and other administrative opportunities, andbe collected at the significant strategic valuedate of acquisition. All of the businessgoodwill has been assigned to Carlisle. Goodwillthe CCM reporting unit, which aligns with the CCM reportable segment, and none of $40.6 millionthe goodwill is deductible for tax purposespurposes. The $110.1 million value allocated to definite-lived intangible assets consists of $79.7 million of customer relationships with a useful life of 11 years, $27.9 million of trade names with a useful life of 17 years and various acquired technologies of $2.5 million with a useful life of 10 years. In accordance with the purchase agreement, Carlisle is indemnified for up to $5.2 million, and recorded an indemnification asset of $5.2 million in other long-term assets relating to the indemnification for pre-acquisition income tax liabilities. The Company has also recorded, as part of the purchase price allocation, deferred tax liabilities related to intangible assets of approximately $25.6 million.
MicroConnex Corporation
On April 1, 2019, the Company acquired 100% of the equity of MicroConnex Corporation ("MicroConnex") for cash consideration of approximately $46.2 million, including $0.8 million of cash acquired and post-closing adjustments, which were finalized in the U.S.third quarter of 2019. MicroConnex is a manufacturer of highly engineered microminiature flex circuits and sensors for the medical and test and measurement markets.
MicroConnex contributed revenues of $10.2 million and an operating loss of $0.8 million for the period from April 1, 2019 to December 31, 2019. The results of operations of the acquired business are reported within the CIT segment.
Consideration of $15.2 million has been allocated to goodwill, $27.4 million to definite-lived intangible assets, $0.9 million to inventory, $3.4 million to accounts receivable, $0.6 million to accounts payable and $7.0 million to deferred income taxes. Definite-lived intangible assets consist of customer relationships with an estimated useful life of 12 years, trade names with a useful life of 17 years and acquired technologies with a useful life of five years. NaN of the $15.2 million allocated to goodwill is deductible for tax purposes. All of the goodwill washas been 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 seven years, an amortizable trade name of $0.9 million with a useful life of 10 years, and a non-compete agreement of $0.6 million with a useful life of three years.MS Oberflächentechnik AG
2017 Acquisitions
Accella Holdings LLC
On
February 19, 2016,November 1, 2017, the Company acquired 100% of the equity of
MS Oberflächentechnik AG (“MS Powder”Accella Holdings LLC, the parent company to Accella Performance Materials Inc. (collectively “Accella”), a
Swiss-based developer and manufacturerspecialty polyurethane platform, from Accella Performance Materials LLC, a subsidiary of
powder coating systems and related components,Arsenal Capital Partners, for total consideration of
CHF 12.3 million, or $12.4$671.4 million, including
a cash, working capital and indebtedness settlement, which was finalized in the
estimated fair valuefirst quarter of
contingent consideration2018. Accella offers a wide range of
CHF 4.3 million, or $4.3 million. The resultspolyurethane products and solutions across a broad array of
operations of MS Powder are reported within the Fluid Technologies segment.Consideration has been primarily allocated to $9.7 million to definite-lived intangible assets, $4.1 million to indefinite-lived intangible assets,markets 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.
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.applications. The Company funded the acquisition with cash on hand. The Company reportsborrowings from the resultsRevolving Credit Facility.
Accella contributed revenues of
the acquired business as the CFT segment. CFT contributed net sales of $203.2$64.0 million and earnings before interest and taxesan operating loss of $20.8$9.0 million for the period from AprilNovember 1, 20152017 to December 31, 2015. Earnings before interest and taxes2017. The operating loss for the period from AprilNovember 1, 20152017 to December 31, 20152017, includes $8.6$5.5 million of incremental cost of goods sold related to measuring inventory at fair value and $0.7$1.1 million of acquisition-related costs related primarily to professional fees,fees. The results of operations of the acquired business are reported as well as $9.3 million and $3.9 millionpart of amortization expense of customer relationships and acquired technology, respectively.
the CCM segment.
The
Finishing BrandsAccella amounts included in the pro forma financial information below are based on
the Finishing Brands’Accella’s historical results and therefore may not be indicative of the actual results if
operatedowned 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 salesrevenues and income from continuing operations, net of tax, of the Company as if the business combination had occurred on January 1, 20142016, based on the purchase price allocation presented below:
| | | | | | |
| | | | | | |
| | Pro Forma |
| | Twelve Months Ended December 31, |
(in millions) | | 2015 | | 2014 |
| | | | | | |
Net sales | | $ | 3,604.4 | | $ | 3,482.3 |
Income from continuing operations | | | 332.2 | | | 271.4 |
| | | | | | | | |
| (in millions) | | Unaudited Pro Forma Twelve Months Ended
December 31, 2017 |
| Revenues | | $ | 4,439.4 | |
| Income from continuing operations | | 351.8 | |
The pro forma financial information reflects adjustments to
Finishing Brands’Accella's 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
of $10.8 million in 2017, together with the associated tax effects. Also, the pro forma financial information reflects costs of goods sold related to the fair valuation of inventory and acquisition-related costs described above as if they occurred in
2014.2016.
The following table summarizes the consideration transferred to acquire Finishing Brands,Accella and the preliminary allocation and measurement period adjustments to arrive at the final 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 assumed liabilities based upon their acquisition date fair values with the remainder allocated to goodwill.
The measurement period adjustments resulted primarily from finalizing valuations of inventory with corresponding measurement period adjustment to deferred taxes. | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Preliminary
Allocation | | Measurement
Period
Adjustments | | Final
Allocation | | | | |
| (in millions) | | As of 11/1/2017 | | | | As of 11/1/2018 | | | | |
| Total cash consideration transferred | | $ | 670.7 | | | $ | 0.7 | | | $ | 671.4 | | | | | |
| Recognized amounts of identifiable assets acquired and liabilities assumed: | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 16.5 | | | $ | — | | | $ | 16.5 | | | | | |
| Receivables, net | | 66.8 | | | — | | | 66.8 | | | | | |
| Inventories | | 48.5 | | | (1.0) | | | 47.5 | | | | | |
| Prepaid expenses and other current assets | | 0.9 | | | — | | | 0.9 | | | | | |
| Property, plant and equipment | | 59.6 | | | 3.2 | | | 62.8 | | | | | |
| Definite-lived intangible assets | | 240.0 | | | (1.0) | | | 239.0 | | | | | |
| Other long-term assets | | 15.6 | | | — | | | 15.6 | | | | | |
| Accounts payable | | (45.5) | | | — | | | (45.5) | | | | | |
| Income tax payable | | 2.0 | | | — | | | 2.0 | | | | | |
| Accrued expenses | | (23.2) | | | 9.5 | | | (13.7) | | | | | |
| Other long-term liabilities | | (15.6) | | | — | | | (15.6) | | | | | |
| Deferred income taxes | | (83.5) | | | 2.0 | | | (81.5) | | | | | |
| Total identifiable net assets | | 282.1 | | | 12.7 | | | 294.8 | | | | | |
| Goodwill | | $ | 388.6 | | | $ | (12.0) | | | $ | 376.6 | | | | | |
| | | | | | | | | |
| | Preliminary
Allocation | | Measurement
Period
Adjustments | | Final
Allocation |
| | As of | | | | As of |
(in millions) | | 4/1/2015 | | | | 3/31/2016 |
Total cash consideration transferred | | $ | 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 | | | 1.2 | | | 58.5 |
Inventories | | | 40.9 | | | 2.2 | | | 43.1 |
Prepaid expenses and other current assets | | | 6.4 | | | (0.2) | | | 6.2 |
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 | | | (1.2) | | | 0.7 |
Other long-term assets | | | 3.8 | | | (0.3) | | | 3.5 |
Line of credit | | | (1.4) | | | - | | | (1.4) |
Accounts payable | | | (16.3) | | | - | | | (16.3) |
Income tax payable | | | (1.9) | | | (0.1) | | | (2.0) |
Accrued expenses | | | (15.6) | | | - | | | (15.6) |
Deferred income tax liabilities | | | (28.8) | | | 0.6 | | | (28.2) |
Other long-term liabilities | | | (5.6) | | | (0.7) | | | (6.3) |
Total identifiable net assets | | | 434.9 | | | 1.3 | | | 436.2 |
Goodwill | | $ | 175.7 | | $ | (0.8) | | $ | 174.9 |
The goodwill recognized in the acquisition of Finishing BrandsAccella is attributable to its experienced workforce, the expected operational improvements through implementation of the COS, opportunities for geographic and product line expansions in additionsynergies related to supply chain efficiencies and other administrative opportunities, and the significant strategic value of the businessin addition to Carlisle.opportunities for product line expansions. The Company acquired $60.0$68.5 million of gross contractual accounts receivable, of which $1.5$1.7 million was not expected to be collected at the date of acquisition. Goodwill of $132.9$19.7 million is tax deductible, primarily in the United States. All of the goodwill washas been assigned to the CFTCCM reporting unit which aligns with the CCM reportable segment. Indefinite-lived intangible assets of $125.0 million represent acquired trade names. The $216.0$239.0 million value allocated to definite-lived intangible assets consists of $186.0$145.0 million of customer relationships with a useful life of 15lives ranging from nine to 11 years, and various acquired technologies of $30.0$66.0 million with useful lives ranging from fivethree to eight14 years and trade names of $28.0 million with useful lives ranging from four to 14 years. The CompanyIn accordance with the purchase agreement, Carlisle is indemnified for up to $25.0 million, and recorded an indemnification asset of $3.0$15.6 million in other long-term assets relating to the indemnification of Carlisle for a pre-acquisition income tax liability in accordance with the purchase agreement.liability. The Company has also recorded, as part of the purchase price allocation, deferred tax liabilities related to intangible assets of approximately $28.2$81.5 million. See Note 10 for further information regarding deferred tax liabilities acquired in the Finishing Brands acquisition.
2014 Acquisition
LHi Technology
In conjunction with the acquisition
During 2019 and 2018, $1.9 million and $4.6 million, respectively, of
LHi Technology (“LHi”) in October 2014, 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 indirectincome tax uncertainties were
no longer probable, thereforeresolved, resulting in the reversal of the related indemnification asset and
the corresponding liability.
Excluding Accella, 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. On July 3, 2017, the Company acquired 100% of the equity of Drexel Metals, Inc., (“Drexel Metals”) for total consideration of $55.8 million. Drexel Metals is a provider of architectural standing seam metal roofing systems for commercial, institutional and residential applications.
Note 4—ExitDrexel contributed revenues of $26.8 million and Disposal Activities
an operating loss of $0.2 million for the period from July 3, 2017 to December 31, 2017. The Companyresults of operations of the acquired business are reported within the CCM segment.
Consideration of $26.9 million has undertaken operational restructuringbeen allocated to goodwill, $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 cost reduction actionstaxes payable. Definite-lived intangible assets consist of customer relationships with an estimated useful life of nine years. None of the $26.9 million allocated to streamline processes and manage costs throughout various departments withingoodwill is deductible for tax purposes. All of the Company. During 2016,goodwill was assigned to the CCM reporting unit, which aligns with the reportable segment.
Arbo
On January 31, 2017, the Company
implemented cost reduction plans,acquired 100% of the equity of Arbo Holdings Limited (“Arbo”) for total 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
resultedwas finalized in
exit, disposal and employee termination benefit costs totaling $15.5 million, primarily resulting from a planned reduction in workforce, facility consolidation and relocation, and lease termination costs, as further discussed below.During 2016, the Carlisle Interconnect Technologies segment recognized a liability and related expense for employee termination benefits of $7.6 million related to planned growth opportunities and long-term cost competitiveness improvements in the medical business. Termination benefits reflect those earned by certain employees through December 31, 2016. The total cost of these termination benefits is expected to be approximately $12 million, with the additional benefits to be recognized through the second quarter of 2018. Cash payments related2017. Arbo is a provider of sealants, coatings and membrane systems used for waterproofing and sealing buildings and other structures.
Arbo contributed revenues of $14.0 million and operating income of $0.3 million for the period from January 31, 2017 to these benefits will be incurred beginningDecember 31, 2017. The results of operations of the acquired business are reported within the CCM segment.
Consideration of $4.7 million has been allocated to goodwill, $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.
Note 4—Discontinued Operations
On March 20, 2018, the Company completed the sale of CFS to The Jordan Company of New York, NY for gross proceeds of $758.0 million, including a working capital adjustment, which was finalized in the
first half of 2017 through the secondthird quarter of 2018.
Other associated costs are not expected to be significant.During 2016,The sale of CFS is consistent with the Carlisle Fluid Technologies segment recognized costs primarily associatedCompany's vision of operating businesses with employee termination benefits and relocation costs of $4.1 million related to the relocation of administrative functions to Scottsdale, Arizona and closure of facilitieshighly engineered manufacturing products in Swanton, Ohio and France. These actions are substantially complete with remaining costs of approximately $0.6 million expected to be incurred principally in 2017.
During 2016, the Company relocated the Corporate headquarters to Scottsdale, Arizona. As a result, the Company incurred $3.8 million of costs related primarily to employee termination benefits and cost associated with relocating employees. This relocation is substantially complete as of December 31, 2016.
strong growth markets.
A summary of
our expense related to exit and disposal activities is as follows: | | | |
(in millions)
| | 2016
|
Employee severance and benefit arrangements
| | $
| 10.1 |
Relocation costs
| | | 3.8 |
Other restructuring costs
| | | 1.6 |
Total exit and disposal costs
| | $
| 15.5 |
A summary of our expense by segment related to exit and disposal activities is as follows:
| | | |
(in millions)
| | 2016
|
Total by segment
| | | |
Carlisle Interconnect Technologies
| | | 7.6 |
Carlisle Fluid Technologies
| | | 4.1 |
Corporate
| | | 3.8 |
Total exit and disposal costs
| | $
| 15.5 |
A summary of our expense by financial statement line related to exit and disposal activities is as follows:
| | | |
(in millions)
| | 2016
|
Selling and administrative expenses
| | $
| 15.0 |
Other expense
| | | 0.5 |
Total exit and disposal costs
| | $
| 15.5 |
A summary of our liability related to exit and disposal activities is as follows:
| | | | | | | | | | | | |
| | Carlisle | | Carlisle | | | | | |
| | Interconnect | | Fluid | | | | | |
(in millions) | | Technologies | | Technologies | | Corporate | | Total |
Balance at December 31, 2015 | | $ | - | | $ | - | | $ | - | | $ | - |
Accruals | | | 7.6 | | | 4.1 | | | 3.8 | | | 15.5 |
Cash payments | | | - | | | (3.4) | | | (3.1) | | | (6.5) |
Balance at December 31, 2016 | | $ | 7.6 | | $ | 0.7 | | $ | 0.7 | | $ | 9.0 |
The liability of $9.0 million primarily relates to employee severance and benefit arrangements, and isthe results from discontinued operations included in accrued expenses in the Consolidated Balance Sheet.
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 $16.5 million, $17.4 million and $15.7 million for the years ended December 31, 2016, 2015, and 2014, respectively and is included in selling and administrative expenses in the Consolidated Statements of Earnings.
Income follows:
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | 2017 |
| Revenue | | $ | — | | | $ | 69.5 | | | $ | 337.9 | |
| | | | | | |
| Cost of goods sold | | — | | | 49.5 | | | 238.5 | |
| Other operating expense, net | | — | | | 16.7 | | | 59.7 | |
| Operating income | | — | | | 3.3 | | | 39.7 | |
| Other non-operating expense, net | | 1.8 | | | — | | | 0.1 | |
| Income from discontinued operations before income taxes | | (1.8) | | | 3.3 | | | 39.6 | |
| Gain on sale of discontinued operations | | — | | | 296.8 | | | — | |
| Provision for income taxes | | (0.9) | | | 47.6 | | | 14.7 | |
| Income from discontinued operations | | $ | (0.9) | | | $ | 252.5 | | | $ | 24.9 | |
A summary of cash flows from discontinued operations included in the Consolidated Statements of Cash Flows follows:
| | | | | | | | | | | | | | | | |
| (in millions) | | | | 2018 | | 2017 |
| Net cash (used in) provided by operating activities | | | | $ | (2.0) | | | $ | 62.2 | |
| Net cash used in investing activities | | | | (8.1) | | | (222.6) | |
Net cash provided by financing activities (1) | | | | 11.4 | | | 161.4 | |
| Change in cash and cash equivalents from discontinued operations | | | | $ | 1.3 | | | $ | 1.0 | |
(1)Represents borrowings from the Carlisle cash pool to fund capital expenditures and acquisitions.
Note 5—Earnings Per Share
The Company’s restricted shares contain non-forfeitable rights to dividends and 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 income attributable to the unvested restricted shares from the numerator and excludes the dilutive impact of those underlying shares from the denominator.
The computation below of earnings per share includes the income attributable to the vested and deferred restricted shares and restricted stock units in the numerator and includes the dilutive impact of those underlying shares in 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 are contingently issuable. Neither is considered to be a participating security as they do not contain non-forfeitable dividend rights.
Income from continuing operations and share data used in the basic and diluted earnings per share computations using the two-class method follows:
| | | | | | | | | | | | | | | | | | | | |
| (in millions except share and per share amounts) | | 2019 | | 2018 | | 2017 |
| Income from continuing operations | | $ | 473.7 | | | $ | 358.6 | | | $ | 340.6 | |
| Less: dividends declared | | (102.9) | | | (93.5) | | | (92.1) | |
| Undistributed earnings | | 370.8 | | | 265.1 | | | 248.5 | |
Percent allocated to common shareholders (1) | | 99.7 | % | | 99.7 | % | | 99.3 | % |
| | | 369.7 | | | 264.3 | | | 246.8 | |
| Add: dividends declared to common shares, restricted share units and vested and deferred restricted and performance shares | | 102.7 | | | 93.1 | | | 90.9 | |
| Income from continuing operations attributable to common shareholders | | $ | 472.4 | | | $ | 357.4 | | | $ | 337.7 | |
| | | | | | |
| Shares (in thousands): | | | | | | |
| Basic weighted-average shares outstanding | | 56,913 | | | 60,393 | | | 63,073 | |
| Effect of dilutive securities: | | | | | | |
| Performance awards | | 203 | | | 83 | | | 137 | |
| Stock options | | 431 | | | 310 | | | 341 | |
| Diluted weighted-average shares outstanding | | 57,547 | | | 60,786 | | | 63,551 | |
| | | | | | |
| Per share income from continuing operations attributable to common shares: | | | | | | |
| Basic | | $ | 8.30 | | | $ | 5.92 | | | $ | 5.36 | |
| Diluted | | $ | 8.21 | | | $ | 5.88 | | | $ | 5.32 | |
| | | | | | |
(1) Basic weighted-average shares outstanding (in thousands) | | 56,913 | | | 60,393 | | | 63,073 | |
| Basic weighted-average shares outstanding and unvested restricted shares expected to vest (in thousands) | | 57,086 | | | 60,561 | | | 63,513 | |
| Percent allocated to common shareholders | | 99.7 | % | | 99.7 | % | | 99.3 | % |
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.
| | | | | | | | | | | | | | | | | | | | |
| (in millions except share amounts presented in thousands) | | 2019 | | 2018 | | 2017 |
| Income from discontinued operations attributable to common shareholders for basic and dilutive earnings per share | | $ | (0.9) | | | $ | 251.8 | | | $ | 24.8 | |
| Net income attributable to common shareholders for basic and diluted earnings per share | | 471.5 | | | 609.2 | | | 362.4 | |
Anti-dilutive stock options excluded from EPS calculation (1) | | 1 | | | 813 | | | 321 | |
(1)Represents stock options excluded from the calculation of diluted earnings per share as such options’ assumed proceeds upon exercise would result in the repurchase of more shares than the underlying award.
Note 6—Revenue Recognition
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer in exchange for payment and is the unit of account. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when or as the performance obligation is satisfied. The majority of the Company’s contracts have a single performance obligation to transfer individual goods or services. For contracts with multiple performance obligations, the contract's transaction price is allocated to each performance obligation using the Company’s best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is observable prices.
The Company’s performance obligations are satisfied, and control is transferred, either at a point in time or over time as work progresses. For the majority of the Company’s products, control is transferred, and revenue is recognized when the product is shipped from the manufacturing facility or delivered to the customer, depending on
shipping terms. Revenue is recognized over time primarily for separately priced extended service warranties in the CCM segment and certain highly customized product contracts in the CIT segment. Revenues for separately priced extended service warranties are recognized over the life of the contract. Revenues for highly customized product contracts are recognized based on the proportion of costs incurred to date, relative to total estimated costs to complete the contract and are generally incurred over twelve months or less. Highly customized product contract costs generally include labor, material and overhead. A summary of the timing of revenue recognition and reconciliation of disaggregated revenue by reportable segment follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | | | | | | | |
| (in millions) | | CCM | | CIT | | CFT | | CBF | | Total |
| Products transferred at a point in time | | $ | 3,211.1 | | | $ | 531.7 | | | $ | 278.4 | | | $ | 327.0 | | | $ | 4,348.2 | |
| Products and services transferred over time | | 22.2 | | | 441.2 | | | — | | | — | | | 463.4 | |
| Total revenues | | $ | 3,233.3 | | | $ | 972.9 | | | $ | 278.4 | | | $ | 327.0 | | | $ | 4,811.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2018 | | | | | | | | |
| (in millions) | | CCM | | CIT | | CFT | | CBF | | Total |
| Products transferred at a point in time | | $ | 2,859.0 | | | $ | 540.7 | | (1) | $ | 291.6 | | | $ | 373.8 | | | $ | 4,065.1 | |
| Products and services transferred over time | | 21.3 | | | 393.1 | | (1) | — | | | — | | | 414.4 | |
| Total revenues | | $ | 2,880.3 | | | $ | 933.8 | | | $ | 291.6 | | | $ | 373.8 | | | $ | 4,479.5 | |
(1)As corrected from $900.5 million for products transferred at a point in time and $33.3 million for products and services transferred over time, as previously reported.
Remaining performance obligations for extended service warranties represent the transaction price for the remaining stand-ready obligation to perform warranty services. A summary of estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of December 31, 2019 follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter |
| Extended service warranties | | $ | 21.9 | | | $ | 20.8 | | | $ | 19.7 | | | $ | 18.5 | | | $ | 17.4 | | | $ | 143.8 | |
The Company has applied the practical expedient to not disclose information about remaining performance obligations that have original expected durations of one year or less. Additionally, the Company has applied the transition practical expedient to not disclose the amount of transaction price allocated to the remaining performance obligations and an expectation of when the Company expects to recognize associated revenues, for the year ended December 31, 2019.
Contract Balances
Contract liabilities relate to payments received in advance of performance under a contract, primarily related to extended service warranties in the CCM segment, systems contracts in the CFT segment and highly customized product contracts in the CIT segment. Contract liabilities are recognized as revenue as (or when) the Company performs under the contract. A summary of the change in contract liabilities follows:
| | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 |
| Balance as of January 1 | | $ | 227.4 | | | $ | 215.8 | |
| Revenue recognized | | (69.1) | | | (79.5) | |
| Revenue deferred | | 87.6 | | | 90.5 | |
| Acquired liabilities | | 1.5 | | | 0.6 | |
| Balance as of December 31 | | $ | 247.4 | | | $ | 227.4 | |
Contract assets relate to the Company's right to payment for performance completed to date under a contract, primarily related to highly customized product contracts within the CIT segment. Accounts receivable are recorded when the right to payment becomes unconditional, which generally occurs over twelve months or less. A summary of the change in contract assets follows:
| | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 |
| Balance as of January 1 | | $ | 44.7 | | | $ | — | |
| | | | |
| | | | |
| | | | |
| | | | |
| Balance as of December 31 | | 100.5 | | | 44.7 | |
| Change in contract assets | | $ | 55.8 | | | | $ | 44.7 | |
The change in contract assets for the year ended December 31, 2019, primarily reflects acquired contract assets of $29.1 million and the recognition of revenue as performance obligations were satisfied exceeding billings of $26.7 million. The change in contract assets for the year ended December 31, 2018, primarily reflects the adoption of ASC 606 of $22.8 million and the recognition of revenue as performance obligations were satisfied exceeding billings of$21.9 million.
Revenues by End-Market
A summary of revenues disaggregated by major end-market industries and reconciliation of disaggregated revenue by segment follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | | | | | | | |
| (in millions) | | CCM | | CIT | | CFT | | CBF | | Total |
| General construction | | $ | 3,035.6 | | | $ | — | | | $ | — | | | $ | — | | | $ | 3,035.6 | |
| Aerospace | | — | | | 641.4 | | | — | | | 23.3 | | | 664.7 | |
| Heavy equipment | | 100.2 | | | — | | | — | | | 259.5 | | | 359.7 | |
| Transportation | | — | | | — | | | 152.2 | | | 33.5 | | | 185.7 | |
| Medical | | — | | | 162.3 | | | — | | | — | | | 162.3 | |
| General industrial and other | | 97.5 | | | 169.2 | | | 126.2 | | | 10.7 | | | 403.6 | |
| Total revenues | | $ | 3,233.3 | | | $ | 972.9 | | | $ | 278.4 | | | $ | 327.0 | | | $ | 4,811.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2018 | | | | | | | | |
| (in millions) | | CCM | | CIT | | CFT | | CBF | | Total |
| General construction | | $ | 2,661.4 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,661.4 | |
| Aerospace | | — | | | 620.3 | | | — | | | 21.5 | | | 641.8 | |
| Heavy equipment | | 112.1 | | | — | | | — | | | 300.7 | | | 412.8 | |
| Transportation | | — | | | — | | | 154.9 | | | 41.1 | | | 196.0 | |
| Medical | | — | | | 146.4 | | | — | | | — | | | 146.4 | |
| General industrial and other | | 106.8 | | | 167.1 | | | 136.7 | | | 10.5 | | | 421.1 | |
| Total revenues | | $ | 2,880.3 | | | $ | 933.8 | | | $ | 291.6 | | | $ | 373.8 | | | $ | 4,479.5 | |
Note 7—Stock-Based Compensation
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. Members of the Board of Directors
(the "Board") that receive stock-based compensation are treated as employees for accounting purposes. The Program was approved by shareholders on May 6, 2015. The Program allows for
up to 4.2 million awards to eligible employees of stock options, restricted stock, stock appreciation rights, performance shares and units or other awards based on Company common stock.
AtAs of December 31,
2016, 3,950,9532019, 1.5 million shares were available for grant under this
plan, of which 1,437,278 shares were available for the issuance of stock awards.plan.
During the year ended December 31,
2016,2019, the Company awarded
371,623460 thousand stock options
69,583as part of the Program, 58 thousand restricted stock awards,
61,12752 thousand performance share awards, and
14,35912 thousand restricted stock units with an aggregate grant-date fair value of approximately
$22.0$25.4 million to be
expensedrecognized over the requisite service period for each award.
Stock-based compensation cost by award type follows:
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | 2017 |
| Stock option awards | | $ | 10.8 | | | $ | 11.0 | | | $ | 7.7 | |
| Restricted stock awards | | 7.4 | | | 7.7 | | | 6.0 | |
| Performance share awards | | 6.0 | | | 7.4 | | | 5.6 | |
| Restricted stock units | | 1.3 | | | 1.4 | | | 1.4 | |
| Stock appreciation rights | | 8.6 | | | — | | | — | |
| Total stock-based compensation cost | | $ | 34.1 | | | $ | 27.5 | | | $ | 20.7 | |
| Income tax benefit | | $ | 12.9 | | | $ | 10.6 | | | $ | 12.5 | |
In 2018, the Board authorized a grant of stock options to U.S. employees and stock appreciation rights to employees outside of the U.S. This grant contributed $11.5 million and $2.7 million to stock-based compensation costs for the years ended December 31, 2019 and December 31, 2018, respectively. Compensation cost of $3.2 million and $0.5 million is capitalized as inventory as of December 31, 2019 and December 31, 2018, respectively. Inventory is recognized in costs of goods sold when that related inventory is sold.
Stock Option AwardsOptions issued
Stock options awarded under the Program generally vest on a straight-line basis over a three year-year period on the anniversary date of the grant. All stock options have a maximum contractual term life of 10 years. Shares issued to cover stock options issued under the Program may be issued from shares held in treasury, from new issuances of shares or a combination of the two.For 2016, 2015 and 2014 share‑based compensation expense related to stock options was as follows:
| | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2016 | | 2015 | | 2014 |
Pre-tax compensation expense | | $ | 6.1 | | $ | 5.1 | | $ | 4.5 |
Unrecognized compensation cost related to stock options of $4.3$9.8 million atas of December 31, 2016,2019, is to be recognized over a weighted-average period of 1.831.4 years.
Excess income tax benefits related to share‑based compensation expense that must be recognized directly in equity are considered financing cash flows. The amount of financing cash flows for these benefits was $18.8 million, $15.9 million, and $13.2 million for the years ended December 31, 2016, 2015, and 2014, respectively and is included in proceeds from issuance of stock options in the Consolidated Statement of Cash Flows.
The Company utilizes the Black‑Scholes-MertonBlack-Scholes-Merton (“BSM”) option pricing model to determine the fair value of its stock option awards.options. 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 2016, 2015, and 2014 were asoptions follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | |
| | 2016 | | 2015 | | 2014 | | |
| (in millions, except per share amounts) | | (in millions, except per share amounts) | | 2019 | | 2018
One-time Grant | | 2018 | | 2017 |
Expected dividend yield | | | 1.4 | % | | 1.1 | % | | 1.2 | % | Expected dividend yield | | 1.6 | % | | 1.4 | % | | 1.4 | % | | 1.3 | % |
Expected life in years | | | 5.61 | | | 5.71 | | | 5.74 | | |
| Expected term (in years) | | Expected term (in years) | | 4.9 | | 3.9 | | 5.5 | | 5.6 |
Expected volatility | | | 27.5 | % | | 27.3 | % | | 29.3 | % | Expected volatility | | 21.3 | % | | 20.7 | % | | 23.1 | % | | 25.6 | % |
Risk-free interest rate | | | 1.4 | % | | 1.4 | % | | 1.7 | % | Risk-free interest rate | | 2.5 | % | | 2.6 | % | | 2.6 | % | | 1.9 | % |
Weighted-average fair value | | $ | 19.30 | | $ | 21.19 | | $ | 19.15 | | |
| Weighted-average grant date fair value (per share) | | Weighted-average grant date fair value (per share) | | $ | 21.07 | | | $ | 21.91 | | | $ | 23.71 | | | $ | 24.57 | |
| Fair value of options granted | | Fair value of options granted | | $ | 9.7 | | | $ | 13.6 | | | $ | 9.1 | | | $ | 8.8 | |
The expected
lifeterm of
optionsa stock option is based on the assumption that all outstanding
stock options will be exercised at the midpoint of the valuation date (if vested) or the vesting dates (if unvested) and the
stock options’ expiration date. The expected volatility is based on historical volatility, as well as implied volatility of the Company’s
call options. The risk-free interest rate is based on rates of U.S. Treasury issues with a remaining life equal to the expected
lifeterm of the
stock option. The expected dividend yield is based on the
projected annuallatest quarterly dividend payment per share,
annualized, divided by the
average three-month stock price
atas of the date of grant.
Stock
A summary of stock options outstanding and activity follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares (in thousands) | | Weighted-Average Exercise Price (per share) | | Weighted-Average Contractual Term (in years) | | Aggregate Intrinsic Value (in millions) |
| Outstanding as of December 31, 2018 | | 1,964 | | | $ | 95.76 | | | | | |
| Options granted | | 460 | | | 110.82 | | | | | |
| Options exercised | | (448) | | | 82.26 | | | | | |
| Options forfeited / expired | | (151) | | | 107.81 | | | | | |
| Outstanding as of December 31, 2019 | | 1,825 | | | 101.95 | | | 7.6 | | $ | 109.3 | |
| Vested and exercisable as of December 31, 2019 | | 646 | | | 89.69 | | | 5.9 | | $ | 46.6 | |
Additional information related to stock option activity
under the Company’s stock option awards for 2016, 2015, and 2014 was as follows: | | | | | |
| | | | Weighted-Average |
| | Number of | | Exercise |
| | Shares | | Price |
Outstanding at January 1, 2014 | | 2,993,007 | | $ | 38.76 |
Options granted | | 259,035 | | | 73.08 |
Options exercised | | (925,520) | | | 38.63 |
Options forfeited / expired | | (49,885) | | | 56.89 |
Outstanding at December 31, 2014 | | 2,276,637 | | $ | 42.32 |
Options granted | | 316,345 | | | 92.84 |
Options exercised | | (748,270) | | | 38.44 |
Options forfeited / expired | | (34,632) | | | 81.68 |
Outstanding at December 31, 2015 | | 1,810,080 | | $ | 52.00 |
Options granted | | 371,623 | | | 83.85 |
Options exercised | | (888,166) | | | 37.25 |
Options forfeited / expired | | (29,872) | | | 85.07 |
Outstanding at December 31, 2016 | | 1,263,665 | | $ | 70.95 |
The weighted‑average grant‑date fair value of options granted during the years ended December 31 2016, 2015, and 2014 was $7.2 million, $6.7 million, and $5.0 million, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015, and 2014 was $56.4 million, $42.7 million, and $41.7 million, respectively.
At December 31, 2016, 2015, and 2014 there were 634,719, 1,281,126, and 1,666,647 options exercisable with a weighted average exercise price of $56.15, $39.09, and $34.24, respectively. The weighted-average contractual term of options exercisable at December 31, 2016, 2015, and 2014 was 5.14, 4.43 and 4.72 years, respectively.
The aggregate intrinsic value of options outstanding and exercisable at December 31, 2016, 2015, and 2014 was $34.4 million, $63.5 million and $91.8 million, respectively. The weighted-average contractual term of options outstanding at December 31, 2016, 2015, and 2014 was 6.85, 5.63, and 5.71 years, respectively. The total grant date fair value of options vested during the year ended December 31, 2016, 2015, and 2014 was $4.7 million, $4.6 million, and $4.0 million, respectively.
follows: | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | 2017 |
| Intrinsic value of options exercised | | $ | 25.4 | | | $ | 18.4 | | | $ | 8.5 | |
| Fair value of options vested | | $ | 6.3 | | | $ | 10.2 | | | $ | 5.4 | |
Restricted stock awarded under the Program is generally released to the recipient after a period of approximately three years. Compensation expense related to restricted stock awards of $4.5 million $5.9 million and $5.1 million was recognized for the years ended December 31, 2016, 2015, and 2014, respectively. Unrecognized compensation cost related to restricted stock awards of $5.5$6.7 million atas of December 31, 20162019, is to be recognized over a weighted-average period of 2.41.6 years.The following represents activity
Information related to restricted stock forduring the years ended December 31 2016, 2015,follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Weighted-average grant date fair value (per share) | | $ | 112.70 | | | $ | 114.27 | | | $ | 106.78 | |
A summary of restricted stock outstanding and
2014:activity follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Weighted-Average | | | Number of Shares (in thousands) | | Weighted-Average Grant Date Fair Value (per share) | | Weighted-Average Contractual Term (in years) | | Aggregate Intrinsic Value (in millions) |
| | Number of | | Grant Date | |
| | Shares | | Fair Value | |
Outstanding at January 1, 2014 | | 240,990 | | $ | 49.66 | |
| Outstanding as of December 31, 2018 | | Outstanding as of December 31, 2018 | | 169 | | | $ | 103.47 | | | | | |
Shares granted | | 104,773 | | | 76.70 | Shares granted | | 58 | | | 112.70 | | |
Shares vested | | (94,590) | | | 38.57 | Shares vested | | (50) | | | 92.53 | | |
Shares forfeited | | (4,185) | | | 63.73 | Shares forfeited | | (4) | | | 109.22 | | |
Outstanding at December 31, 2014 | | 246,988 | | $ | 65.14 | |
Shares granted | | 58,040 | | | 90.54 | |
Shares vested | | (75,740) | | | 49.56 | |
Shares forfeited | | (2,881) | | | 81.32 | |
Outstanding at December 31, 2015 | | 226,407 | | $ | 76.66 | |
Shares granted | | 69,583 | | | 84.73 | |
Shares vested | | (67,570) | | | 64.80 | |
Shares forfeited | | (3,155) | | | 84.93 | |
Outstanding at December 31, 2016 | | 225,265 | | $ | 82.59 | |
| Outstanding as of December 31, 2019 | | Outstanding as of December 31, 2019 | | 173 | | | 109.62 | | | 1.0 | | | $ | 28.0 | |
Additional information related to restricted stock award activity during the years ended December 31 follows:
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | 2017 |
| Intrinsic value of restricted stock exercised | | $ | 5.6 | | | $ | 11.7 | | | $ | 11.4 | |
| Fair value of restricted stock vested | | $ | 4.6 | | | $ | 9.8 | | | $ | 8.1 | |
Performance shares vest based on the employee rendering three years of service to the Company and the attainment of a market condition over the performance period, which is based on the Company’s relative total shareholder return versus the S&P Midcap 400 Index® over a pre-determined time period as determined by the Compensation Committee of the Board of Directors. The grant date fair value of the 2016, 2015, and 2014 performance shares of $119.08, $112.39 and $95.72, respectively, 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. In the years ended December 31, 2016, 2015, and 2014, the Company recognized $4.7 million, $6.3 million, and $6.0 million, respectively, of compensation cost related to the performance share awards.Board. Unrecognized compensation cost related to performance share awards of $6.0$6.9 million atas of December 31, 20162019, is to be recognized over a weighted-average period of 1.811.7 years.
For purposes of determining diluted earnings per share, the performance share awards are considered contingently issuable shares and are included in diluted earnings per share based upon the number of shares that would have been awarded had the conditions at the end of the reporting period continued until the end of the performance period. See Note
75 for further information regarding earnings per share computations.
The Company utilizes the Monte-Carlo simulation approach based on a three-year measurement period to determine the fair value of performance shares. 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 following represents activityInformation related to performance shares forduring the years ended December 31 2016, 2015,follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Weighted-average grant date fair value (per share) | | $ | 149.27 | | | $ | 140.20 | | | $ | 141.83 | |
A summary of performance shares outstanding and
2014:activity follows: | | | | | | | | | | | | | | | |
| | Number of | | | | | | | | | | | | | |
| | Performance | | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| | Units | | | Awards | | Awards | | Awards | | Awards | | Awards | | Awards |
Outstanding at January 1, 2014 | | 328,990 | | | - | | - | | - | | 70,175 | | 77,595 | | 181,220 |
Units granted (1) | | 137,890 | | | - | | - | | 67,970 | | - | | 69,920 | | - |
Units vested and issued | | (135,008) | | | - | | - | | - | | - | | - | | (135,008) |
Units vested and deferred | | (46,212) | | | - | | - | | - | | - | | - | | (46,212) |
Units forfeited | | (4,185) | | | - | | - | | (1,465) | | (1,630) | | (1,090) | | - |
Outstanding at December 31, 2014 | | 281,475 | | | - | | - | | 66,505 | | 68,545 | | 146,425 | | - |
Units granted (1) | | 95,536 | | | - | | 58,040 | | - | | 37,496 | | - | | - |
Units vested and issued | | (112,814) | | | - | | - | | - | | - | | (112,814) | | - |
Units vested and deferred | | (33,611) | | | - | | - | | - | | - | | (33,611) | | - |
Units forfeited | | (2,340) | | | - | | (1,220) | | (750) | | (370) | | - | | - |
Outstanding at December 31, 2015 | | 228,246 | | | - | | 56,820 | | 65,755 | | 105,671 | | - | | - |
Units granted (1) | | 100,139 | | | 61,127 | | - | | 39,012 | | - | | - | | - |
Units vested and issued | | (81,604) | | | - | | - | | - | | (81,604) | | - | | - |
Units vested and deferred | | (24,067) | | | - | | - | | - | | (24,067) | | - | | - |
Units forfeited | | (3,155) | | | (1,040) | | (1,380) | | (735) | | - | | - | | - |
Outstanding at December 31, 2016 | | 219,559 | | | 60,087 | | 55,440 | | 104,032 | | - | | - | | - |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares (in thousands) | | Weighted-Average Grant Date Fair Value (per share) | | Weighted-Average Contractual Term (in years) | | Aggregate Intrinsic Value (in millions) |
| Outstanding as of December 31, 2018 | | 153 | | | $ | 132.68 | | | | | |
| Awards granted | | 52 | | | 149.27 | | | | | |
| Awards vested | | (49) | | | 119.37 | | | | | |
| Awards withheld | | (9) | | | 118.80 | | | | | |
| Awards forfeited | | (4) | | | 143.31 | | | | | |
| Outstanding as of December 31, 2019 | | 143 | | | 143.94 | | | 1.0 | | $ | 23.2 | |
| (1)
| | The Company's relative total shareholder return versus companies in the S&P Midcap 400 Index® over the period covered by the 2014 awards, 2013 awards, and 2012 awards resulted in participants being awarded an additional 39,012 shares, 37,496 shares, and 69,920 shares, respectively, under the plan. The awarding of these additional shares had no impact on stock-based compensation expense as the likelihood of their issuance was included in the determination of grant date fair value using a Monte Carlo simulation approach.
|
Additional information related to performance share activity during the years ended December 31 follows: | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | 2017 |
| Intrinsic value of performance share awards exercised | | $ | 5.0 | | | | $ | 5.3 | | | | $ | 11.6 | |
| Fair value of performance share awards vested | | $ | 5.9 | | | | $ | 5.2 | | | | $ | 10.0 | |
Restricted stock units are awarded to eligible directors and fully vested and are expensed upon grant date. 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 $83.31Company granted 12 thousand, 13 thousand and 13 thousand units in 2019, 2018 and 2017, respectively. Units had a weighted-average grant date fair value per share of the 2016 restricted$110.79, $108.72 and $107.87 in 2019, 2018 and 2017, respectively. Restricted stock units wasunits' fair value is based on the closing market price of the stock on February 4, 2016,the respective dates of the grants.
Stock Appreciation Rights
Stock appreciation rights issued under the 2018 one-time grant discussed above, cliff vest on May 2, 2021, at which date they will immediately vest and be settled in cash. Unrecognized compensation cost related to stock appreciation rights of $11.6 million as of December 31, 2019, is to be recognized over a weighted-average period of 1.3 years.
The stock appreciation rights are classified as liability awards and are measured at fair value at each balance sheet date. The Company utilizes the BSM option pricing model to determine the fair value of its stock appreciation rights. The BSM relies on certain assumptions to estimate a stock appreciation right's fair value. The weighted average assumptions used in the December 31, 2019 determination of fair value for stock appreciation rights follows:
| | | | | | | | |
| (in millions, except per share amounts) | | 2018 One-time Grant |
| Expected dividend yield | | 1.3 | % |
| Expected term (in years) | | 1.3 |
| Expected volatility | | 24.3 | % |
| Risk-free interest rate | | 1.6 | % |
| Weighted-average grant date fair value (per share) | | $ | 55.76 | |
| Fair value of stock appreciation rights granted | | $ | 27.5 | |
The expected life of stock appreciation rights is based on the time from the valuation date to the vest date. The expected volatility is based on historical volatility as well as implied volatility of the Company’s call 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 stock appreciation right. The expected dividend yield is based on the latest quarterly dividend payment per share, annualized, divided by the average three-month stock price as of the date of
the grant.
A summary of stock appreciation awards outstanding and activity follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares (in thousands) | | Weighted-Average Exercise Price (per share) | | Weighted-Average Contractual Term (in years) | | Aggregate Intrinsic Value (in millions) |
| Outstanding as of December 31, 2018 | | — | | | | $ | — | | | | | | | | | |
| Awards granted | | 493 | | | | 106.85 | | | | | | | | | |
| Awards forfeited | | (131) | | | | 106.85 | | | | | | | | | |
| Outstanding as of December 31, 2019 | | 362 | | | | 106.85 | | | | 1.3 | | | $ | 19.9 | |
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 restricted and performance shares. Participants have elected to defer
294,57486 thousand and 202 thousand shares of Company common stock as of December 31,
20162019 and
253,520 shares as of December 31, 2015.2018, respectively. Company stock held for future issuance of vested awards is classified as deferred compensation equity in the Consolidated Balance Sheets and is recorded at grant date fair value.
Such deferred shares are included in basic earnings per share.Note 6—8—Exit and Disposal Activities
The Company has undertaken operational restructuring and other cost reduction actions to streamline processes and manage costs throughout various departments. These actions resulted in exit, disposal and employee termination benefit costs, primarily resulting from planned reductions in workforce, facility consolidation and relocation and lease termination costs. The primary actions are discussed below by operating segment.
CIT
The Company is substantially complete with its project to relocate its manufacturing operations in El Segundo, California, and Riverside, California, to existing manufacturing operations in North America. During the year ended December 31, 2019, exit and disposal costs totaled $8.0 million, primarily for employee termination benefit costs and travel costs. Total associated exit and disposal costs are expected to approximate $9.1 million, with approximately $0.5 million costs remaining to be incurred in the first half of 2020.
CFT
During 2019, the Company initiated plans to reduce costs and streamline processes by eliminating certain positions within selling, general and administrative, and manufacturing functions. The costs to complete this project totaled $2.7 million and were recognized primarily in the first quarter of 2019.
CBF
During 2017, the Company initiated plans to exit its manufacturing operations in Tulsa, Oklahoma, and relocate the majority of those operations to its existing manufacturing facility in Medina, Ohio. During the year ended December 31, 2019, exit and disposal costs totaled $2.2 million, primarily reflecting facility closure costs and employee termination benefits. This project is complete as of December 31, 2019, with cumulative exit and disposal costs of $20.8 million.
Consolidated Summary
Exit and disposal costs by activity follows:
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | 2017 |
| Employee severance and benefit arrangements | | $ | 7.5 | | | | $ | 3.2 | | | | $ | 17.8 | |
| Lease termination costs | | 1.8 | | | | 1.1 | | | | — | |
| Relocation costs | | 0.9 | | | | 6.3 | | | | 1.9 | |
| Accelerated depreciation | | 0.2 | | | | 2.3 | | | | 3.7 | |
| Other restructuring costs | | 3.3 | | | 5.0 | | | 3.4 | |
| Total exit and disposal costs | | $ | 13.7 | | | $ | 17.9 | | | $ | 26.8 | |
Exit and disposal costs by segment follows:
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | 2017 |
| Carlisle Interconnect Technologies | | $ | 8.5 | | | $ | 3.2 | | | $ | 9.5 | |
| Carlisle Fluid Technologies | | 2.7 | | | 1.1 | | | 11.4 | |
| Carlisle Brake & Friction | | 2.2 | | | 13.6 | | | 5.1 | |
| Carlisle Construction Materials | | 0.3 | | | — | | | — | |
| Corporate | | — | | | — | | | 0.8 | |
| Total exit and disposal costs | | $ | 13.7 | | | $ | 17.9 | | | $ | 26.8 | |
Exit and disposal costs by financial statement line item follows:
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2019 | | 2018 | | 2017 |
| Cost of goods sold | | $ | 7.1 | | | $ | 15.5 | | | $ | 10.9 | |
| Selling and administrative expenses | | 5.6 | | | 1.9 | | | 15.8 | |
| Research and development expenses | | 0.1 | | | 0.1 | | | 0.1 | |
| Other operating (income) expense, net | | 0.9 | | | 0.4 | | | — | |
| Total exit and disposal costs | | $ | 13.7 | | | $ | 17.9 | | | $ | 26.8 | |
Changes in exit and disposal liabilities follows:
| | | | | | | | |
| (in millions) | | Total |
| Balance as of December 31, 2018 | | $ | 1.2 | |
| Charges | | 13.7 | |
| Cash payments | | (9.7) | |
| | |
| Balance as of December 31, 2019 | | $ | 5.2 | |
The liability of $5.2 million as of December 31, 2019, primarily relates to employee severance and benefit arrangements and is included in accrued expenses.
Note 9—Income Taxes
A summary
Sources of pre‑taxPre-Tax Income and Related Tax Provision by Region
Geographic sources of income
from U.S. and non U.S. operations is as follows:before income taxes consists of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | | 2014 | (in millions) | | 2019 | | 2018 | | 2017 |
Continuing operations | | | | | | | | | | |
| Continuing operations: | | Continuing operations: | | | | | | |
U.S. domestic | | $ | 319.0 | | $ | 393.8 | | $ | 318.9 | U.S. domestic | | $ | 484.7 | | | $ | 352.2 | | | $ | 356.5 | |
Foreign | | | 91.5 | | | 74.1 | | | 57.2 | Foreign | | 110.6 | | | 93.7 | | | 72.5 | |
Total pre-tax income from continuing operations | | | 410.5 | | | 467.9 | | | 376.1 | |
Discontinued operations | | | | | | | | | | |
| Income from continuing operations before income taxes | | Income from continuing operations before income taxes | | 595.3 | | | 445.9 | | | 429.0 | |
| | Discontinued operations: | | Discontinued operations: | | | | | | | | | |
U.S. domestic | | | (1.1) | | | 0.1 | | | (3.2) | U.S. domestic | | (1.8) | | | 299.8 | | | 39.1 | |
Foreign | | | - | | | - | | | 1.1 | Foreign | | — | | | 0.3 | | | 0.5 | |
Total pre-tax income (loss) from discontinued operations | | | (1.1) | | | 0.1 | | | (2.1) | |
Total pre-tax income | | $ | 409.4 | | $ | 468.0 | | $ | 374.0 | |
| Income from discontinued operations before income taxes | | Income from discontinued operations before income taxes | | (1.8) | | | 300.1 | | | 39.6 | |
| | Total income before income taxes | | Total income before income taxes | | $ | 593.5 | | | $ | 746.0 | | | $ | 468.6 | |
The provision for income taxes from continuing operations
is as follows:consists of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | | 2014 | (in millions) | | 2019 | | 2018 | | 2017 |
Current expense | | | | | | | | | | |
| Current provision: | | Current provision: | | | | | | |
Federal and State | | $ | 155.5 | | $ | 140.1 | | $ | 118.4 | Federal and State | | $ | 105.9 | | | $ | 62.0 | | | $ | 116.5 | |
Foreign | | | 29.2 | | | 24.0 | | | 16.1 | Foreign | | 23.4 | | | 25.9 | | | 28.4 | |
Total current expense | | | 184.7 | | | 164.1 | | | 134.5 | |
Deferred expense (benefit) | | | | | | | | | | |
| Total current provision | | Total current provision | | 129.3 | | | 87.9 | | | 144.9 | |
| | Deferred provision (benefit): | | Deferred provision (benefit): | | | | | | | | | |
Federal and State | | | (15.5) | | | (12.7) | | | (8.5) | Federal and State | | (6.9) | | | 7.9 | | | (62.7) | |
Foreign | | | (9.5) | | | (3.1) | | | (1.6) | Foreign | | (0.8) | | | (8.5) | | | 6.2 | |
Total deferred expense (benefit) | | | (25.0) | | | (15.8) | | | (10.1) | |
Total tax expense | | $ | 159.7 | | $ | 148.3 | | $ | 124.4 | |
| Total deferred (benefit) provision | | Total deferred (benefit) provision | | (7.7) | | | (0.6) | | | (56.5) | |
| | Total provision for income taxes | | Total provision for income taxes | | $ | 121.6 | | | $ | 87.3 | | | $ | 88.4 | |
Rate Reconciliation
A reconciliation of the tax provision
forfrom continuing operations computed at the U.S. federal statutory rate to the actual tax provision
is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | | 2014 | (in millions) | | 2019 | | 2018 | | 2017 |
Taxes at the 35% U.S. statutory rate | | $ | 143.7 | | $ | 163.8 | | $ | 131.6 | |
| Taxes at U.S. statutory rate | | Taxes at U.S. statutory rate | | $ | 125.0 | | | $ | 93.6 | | | $ | 150.1 | |
State and local taxes, net of federal income tax benefit | | | 8.6 | | | 1.9 | | | 7.4 | State and local taxes, net of federal income tax benefit | | 15.2 | | | 10.8 | | | 9.5 | |
Benefit of foreign earnings taxed at lower rates | | | (8.1) | | | (7.9) | | | (5.2) | |
| Foreign earnings taxed at different rates | | Foreign earnings taxed at different rates | | 0.8 | | | 1.1 | | | (6.7) | |
| Change in unrecognized tax benefit | | Change in unrecognized tax benefit | | (2.8) | | | (7.8) | | | 0.9 | |
| Return to provision adjustments | | Return to provision adjustments | | (7.6) | | | (2.3) | | | (0.7) | |
Benefit for domestic manufacturing deduction | | | (12.6) | | | (11.5) | | | (8.7) | Benefit for domestic manufacturing deduction | | — | | | — | | | (9.7) | |
Tax credits | | | (10.7) | | | - | | | - | Tax credits | | (5.2) | | | (3.0) | | | (2.3) | |
Tax impact of impairment of goodwill | | | 41.2 | | | - | | | - | |
| Impact of U.S. tax reform | | Impact of U.S. tax reform | | — | | | (3.3) | | | (57.7) | |
| Change in investment assertion on foreign earnings | | Change in investment assertion on foreign earnings | | — | | | — | | | 5.1 | |
Other, net | | | (2.4) | | | 2.0 | | | (0.7) | Other, net | | (3.8) | | | (1.8) | | | (0.1) | |
Tax expense | | $ | 159.7 | | $ | 148.3 | | $ | 124.4 | |
| Provision for income taxes | | Provision for income taxes | | $ | 121.6 | | | $ | 87.3 | | | $ | 88.4 | |
Effective income tax rate on continuing operations | | | 38.9% | | | 31.7% | | | 33.1% | Effective income tax rate on continuing operations | | 20.4 | % | | 19.6 | % | | 20.6 | % |
Cash payments for income taxes, net of refunds, were
$192.3$120.6 million,
$123.0$203.0 million and
$138.5$142.8 million, in
2016, 2015,2019, 2018 and
2014,2017, respectively.
Deferred Tax Assets (Liabilities), net | | | | | | | | | | | | | | |
| (in millions) | | December 31, 2019 | | December 31, 2018 |
| Deferred revenue | | $ | 22.9 | | | $ | 21.1 | |
| Warranty reserves | | 4.6 | | | 4.6 | |
| Inventory reserves | | 7.6 | | | 7.6 | |
| Allowance for doubtful accounts | | 3.3 | | | 2.5 | |
| Employee benefits | | 29.8 | | | 27.6 | |
| Foreign loss carryforwards | | 4.4 | | | 5.1 | |
| Federal tax credit carryovers | | 2.4 | | | — | |
| Deferred state tax attributes | | 8.3 | | | 11.9 | |
| Lease liabilities | | 16.3 | | | — | |
| Other, net | | 5.0 | | | — | |
| Gross deferred assets | | 104.6 | | | 80.4 | |
| Valuation allowances | | (5.3) | | | (1.3) | |
| Deferred tax assets after valuation allowances | | 99.3 | | | 79.1 | |
| | | | |
| Undistributed foreign earnings | | (13.6) | | | (11.0) | |
| Property, plant and equipment | | (55.8) | | | (47.2) | |
| Intangibles | | (219.0) | | | (172.5) | |
| Right of use assets | | (15.0) | | | — | |
| Other, net | | — | | | (0.4) | |
| Gross deferred liabilities | | (303.4) | | | (231.1) | |
| | | | |
| Net deferred tax liabilities | | $ | (204.1) | | | $ | (152.0) | |
Deferred tax assets (liabilities) at December 31 related toand liabilities are classified as long-term. Foreign deferred tax assets and liabilities are grouped separately from U.S. domestic assets and liabilities and are analyzed on a jurisdictional basis.
Deferred tax assets and liabilities included in the
following:Consolidated Balance Sheet follows: | | | | | | |
(in millions) | | 2016 | | 2015 |
Deferred revenue | | $ | 26.9 | | $ | 25.3 |
Warranty reserves | | | 7.1 | | | 5.6 |
Inventory reserves | | | 12.1 | | | 10.9 |
Allowance for doubtful accounts | | | 4.5 | | | 4.6 |
Employee benefits | | | 45.2 | | | 41.5 |
Foreign loss carryforwards | | | 2.9 | | | 1.9 |
Federal tax credit carryovers | | | 6.6 | | | - |
Deferred state tax attributes | | | 14.6 | | | 16.2 |
Other, net | | | 5.3 | | | (1.4) |
Gross deferred assets | | | 125.2 | | | 104.6 |
Valuation allowances | | | (1.3) | | | (4.3) |
Deferred tax assets after valuation allowances | | $ | 123.9 | | $ | 100.3 |
Depreciation | | | (42.4) | | | (46.5) |
Amortization | | | (60.7) | | | (55.1) |
Acquired identifiable intangibles | | | (134.7) | | | (142.4) |
Gross deferred liabilities | | | (237.8) | | | (244.0) |
Net deferred tax liabilities | | $ | (113.9) | | $ | (143.7) |
| | | | | | | | | | | | | | |
| (in millions) | | December 31, 2019 | | December 31, 2018 |
| Other long-term assets | | $ | 3.6 | | | $ | 2.6 | |
| Other long-term liabilities | | (207.7) | | | (154.6) | |
| Net deferred tax liabilities | | $ | (204.1) | | | $ | (152.0) | |
Valuation Allowances
As of December 31, 2016,2019, the Company had no0 deferred tax assets related to net operating loss (“NOL”) carryforwards for U.S. federal tax purposes but had a deferred tax asset for state NOL carryforwards and credits of approximately $11$5.2 million (expiring 2017 2036) and deferred tax assets related to NOL carryforwards in foreign jurisdictions of approximately $2.9 million (expiring 2017 2024)2020 through 2039). The Company believes that it is likely that certain of the state attributes will expire unused and therefore has established a valuation allowance of approximately $1.3$0.9 million against the deferred tax assets associated with these attributes. The Company also has deferred tax assets related to NOL carryforwards in foreign jurisdictions of approximately $4.4 million, which begin to expire in 2022. The Company believes that substantially all of theit is likely that certain foreign NOLsNOL carryforwards will be utilized before expirationexpire unused and therefore has not established a valuation allowance against the deferred tax assets associated with these NOL carryforwards. Approximately $2.3 million of the valuation allowance with respect to state attributes that was recorded on December 31, 2015 was released during 2016 due to management’s change in judgement regarding the portion of the attributes that was likely to expire unused. The change in judgment occurred as predictions of future taxable income in certain state jurisdictions were increased due to the various restructuring actions that occurred during the year.approximately $2.0 million. As of December 31, 2016,2019, the Company has $6.6 million of federalhad foreign tax credit carryover (expiringcarryforwards of $2.4 million, which begin to expire in 2026).2028. The Company believes that substantially allit is likely the credits will expire unused and therefore has established a full valuation allowance.
Undistributed Foreign Earnings
As a result of the
deemed mandatory repatriation provisions in the Tax Cuts and Jobs Act (the "Tax Act"), the Company included undistributed earnings in income subject to U.S. tax at reduced tax rates in 2017. In addition, the Company recognized in income global intangible low-taxed income (“GILTI”) reduced by foreign tax credits
will be utilized before expiration and therefore has not establishedfor 2018 as part of the changes from the Tax Act. As a
valuation allowance. Although realization is not assured for the remaining deferred tax assets,result, the Company
believes that the timing and amount of the reversal of taxable temporarydoes not have material basis differences
expected future taxable income andrelated to cumulative unremitted earnings for US tax
planning strategies will generate sufficient income to be fully realized. However, deferred tax assets could be reduced in the future if our estimates of the timing and amount of the reversal of taxable temporary differences, expected future taxable income during the carryforward period are significantly reduced or tax planning strategies are no longer viable.Deferred tax assets and liabilities are classified as long term. Foreign deferred tax assets and (liabilities) are grouped separately from U.S. domestic assets and liabilities and are analyzed on a jurisdictional basis.
Deferred tax assets and (liabilities) are included in the Consolidated Balance Sheet as follows:
| | | | | | |
(in millions) | | 2016 | | 2015 |
Other long-term assets | | $ | 1.1 | | $ | 0.3 |
Other long-term liabilities | | | (115.0) | | | (144.0) |
Net deferred tax liabilities | | $ | (113.9) | | $ | (143.7) |
purposes. The Company is not required to provide income taxes on the excess of thehas determined that an amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. The Company’s excess of financial reporting over the tax basis of investments in foreign subsidiaries is approximately equal to the cumulative unremitted earningsforeign cash balances and cumulative translation adjustmentsother certain assets is not permanently reinvested for local country purposes, which results in an accrual of its$13.6 million related to foreign subsidiaries. The Company reconsiders this assertion quarterly. The Company’s cumulative unremitted earnings and cumulative translation adjustments at December 31, 2016 were approximately $515 million.
At December 31, 2016, the Company intends to permanently reinvest abroad substantially all of the earnings of its foreign subsidiaries. The Company has identified appropriate long term uses for such earnings outside the United States, considers the unremitted earnings to be indefinitely reinvested, and accordingly has made no significant provision for income or withholding taxes that would be due upon distribution of such earnings. The calculation of the deferred tax liability on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiariestaxes. It is not practicable due to the complexitycalculate deferred tax balances on other basis differences.
Unrecognized Tax Benefits
Unrecognized tax benefits reflect the difference between the tax benefits of positions taken or expected to be taken on income tax returns and the tax benefits that meet the criteria for current recognition in the financial statements. The Company periodically assesses its unrecognized tax benefits.
A summary of the movement in gross unrecognized tax benefits (before estimated interest and penalties)
is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | | 2014 | (in millions) | | 2019 | | 2018 | | 2017 |
Balance at January 1 | | $ | 27.7 | | $ | 23.8 | | $ | 10.2 | |
| Balance as of January 1 | | Balance as of January 1 | | $ | 27.3 | | | $ | 37.4 | | | $ | 24.6 | |
Additions based on tax positions related to current year | | | 0.6 | | | 0.9 | | | 1.8 | Additions based on tax positions related to current year | | 0.3 | | | 3.3 | | | 3.0 | |
Additions related to purchase accounting | | | - | | | 3.0 | | | 13.6 | |
| Additions related to acquired uncertain tax positions | | Additions related to acquired uncertain tax positions | | 11.6 | | | — | | | 12.6 | |
Adjustments for tax positions of prior years | | | - | | | 1.3 | | | (0.1) | Adjustments for tax positions of prior years | | 2.0 | | | — | | | 1.5 | |
Reductions due to statute of limitations | | | (2.1) | | | (1.2) | | | (1.2) | Reductions due to statute of limitations | | (5.0) | | | (12.0) | | | (3.3) | |
Reductions due to settlements | | | (1.4) | | | - | | | (0.4) | Reductions due to settlements | | (0.1) | | | (1.2) | | | (1.7) | |
Adjustments due to foreign exchange rates | | | (0.2) | | | (0.1) | | | (0.1) | Adjustments due to foreign exchange rates | | (0.2) | | | (0.2) | | | 0.7 | |
Balance at December 31 | | $ | 24.6 | | $ | 27.7 | | $ | 23.8 | |
| Balance as of December 31 | | Balance as of December 31 | | $ | 35.9 | | | $ | 27.3 | | | $ | 37.4 | |
If the unrecognized tax benefits as of December 31,
20162019, were to be recognized, approximately
$26$40.9 million would impact the Company’s effective tax rate. The amount impacting the Company’s effective rate is calculated by adding accrued interest and penalties to the gross unrecognized tax benefit
excluding positions related to discontinued operations and subtracting the tax benefit associated with state taxes and interest.
The Company classifies and reports interest and penalties associated with unrecognized tax benefits as a component of the income tax provision on the Consolidated Statements of
Earnings,Income and as a
long‑termlong-term liability on the Consolidated Balance Sheets. The total amount of such interest and penalties accrued, but excluded from the table above, at the years ending
2016, 2015,2019, 2018 and
20142017 were
$4.7$9.2 million,
$4.9$5.1 million and
$3.8$5.9 million, respectively.
The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions.
During the year theThe Company is working with the IRS to complete its compliance assurance process for the
20152018 and 2019 tax
year. The Company is also currently working with the IRS to complete its compliance assurance audit for the 2016 tax year and expects conclusion of the process within the next twelve months.years.
Generally, state income tax returns are subject to examination for a period of three
years to five years after filing. Substantially all material state tax matters have been concluded for tax years through
2011.2013. Various state income tax returns for subsequent years are in the process of examination. At this stage the outcome is uncertain; however, the Company believes that contingencies have been adequately provided for. Statutes of limitation vary among the foreign jurisdictions in which the Company operates. Substantially all foreign tax matters have been concluded for tax years through
2008.2009. The Company believes that foreign tax contingencies associated with income tax examinations underway or open tax years have been provided for adequately.
Based on the outcome of certain examinations or as a result of the expiration of statutes of limitations for certain jurisdictions, we believethe Company believes that within the next 12 months it is reasonably possible that our previously unrecognized tax benefits could decrease by approximately $5$9.0 million to $6$10.0 million. These previously unrecognized tax benefits relate to a variety of tax issues including tax matters relating to prior acquisitions and various state matters.
Note 7—Earnings Per Share
U.S. Tax Reform
On December 22, 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Company’s restricted shares and restricted stock units contain non-forfeitable rightsTax Act included significant changes to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuantexisting tax law including, among other things, a reduction to the two-class method. U.S. federal corporate income tax rate from 35% to 21% and a one-time tax on deferred foreign income ("Transition Tax") in 2017.
The computation belowdeemed repatriation transition tax (the “Transition Tax”) is a tax on certain previously untaxed accumulated and current earnings and profits (“E&P”) of earnings per share excludes the income attributableCompany's foreign subsidiaries. The Company previously recognized $27.9 million related to the unvested restricted shares and restricted stock units fromTransition Tax.
The Tax Act reduced the
numerator and excludescorporate tax rate to 21%, effective January 1, 2018. The Company previously recognized $88.9 million related to the
dilutive impact of those underlying shares from the denominator. Stock options are includedchange 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 are contingently issuable. Neither is considered to be 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:
| | | | | | | | | | |
(in millions except share and per share amounts) | | 2016 | | 2015 | | 2014 | |
Income from continuing operations | | $ | 250.8 | | $ | 319.6 | | $ | 251.7 | |
Less: dividends declared - common stock outstanding, restricted shares and restricted share units | | | (84.5) | | | (72.3) | | | (61.2) | |
Undistributed earnings | | | 166.3 | | | 247.3 | | | 190.5 | |
Percent allocated to common shareholders (1) | | | 99.3 | % | | 99.3 | % | | 99.5 | % |
| | | 165.0 | | | 245.6 | | | 189.5 | |
Add: dividends declared - common stock | | | 83.6 | | | 71.4 | | | 60.4 | |
Income from continuing operations attributable to common shares | | $ | 248.6 | | $ | 317.0 | | $ | 249.9 | |
| | | | | | | | | | |
Shares (in thousands): | | | | | | | | | | |
Weighted-average common shares outstanding | | | 64,226 | | | 64,844 | | | 64,170 | |
Effect of dilutive securities: | | | | | | | | | | |
Performance awards | | | 257 | | | 253 | | | 362 | |
Stock options | | | 400 | | | 707 | | | 772 | |
Adjusted weighted-average common shares outstanding and assumed conversion | | | 64,883 | | | 65,804 | | | 65,304 | |
| | | | | | | | | | |
Per share income from continuing operations: | | | | | | | | | | |
Basic | | $ | 3.87 | | $ | 4.89 | | $ | 3.89 | |
Diluted | | $ | 3.83 | | $ | 4.82 | | $ | 3.83 | |
| | | | | | | | | | |
(1) Basic weighted-average common shares outstanding | | | 64,226 | | | 64,844 | | | 64,170 | |
Basic weighted-average common shares outstanding, unvested restricted shares expected to vest and restricted share units | | | 64,682 | | | 65,304 | | | 64,512 | |
Percent allocated to common shareholders | | | 99.3 | % | | 99.3 | % | | 99.5 | % |
To calculate per share amounts for the loss from discontinued operations and for
Note 10—Inventories, net
income, the denominator for both basic and diluted earnings per share is the same as used in the above table. The loss from discontinued operations and net income were as follows: | | | | | | | | | |
(in millions except share amounts presented in thousands) | | 2016 | | 2015 | | 2014 |
(Loss) income from discontinued operations | | $ | (0.7) | | $ | 0.1 | | $ | (0.4) |
| | | | | | | | | |
Net income attributable to common shareholders for basic and diluted earnings per share | | $ | 248.0 | | $ | 317.1 | | $ | 249.5 |
| | | | | | | | | |
Anti-dilutive stock options excluded from EPS calculation (1) | | | 23.1 | | | 257.5 | | | - |
| | | | | | | | | | | | | | |
| (in millions) | | December 31, 2019 | | December 31, 2018 |
| Raw materials | | $ | 241.0 | | | $ | 195.1 | |
| Work-in-process | | 45.2 | | | 59.5 | |
| Finished goods | | 260.9 | | | 236.5 | |
| Reserves | | (36.5) | | | (33.6) | |
| Inventories, net | | $ | 510.6 | | | $ | 457.5 | |
| (1)
| | Represents stock options excluded from the calculation of diluted earnings per share as such options’ assumed proceeds upon exercise would result in the repurchase of more shares than the underlyingaward.
|
Note
8—InventoriesThe components of Inventories at December 31 were as follows:
| | | | | | |
| | December 31, | | December 31, |
(in millions) | | 2016 | | 2015 |
Finished goods | | $ | 218.6 | | $ | 205.1 |
Work-in-process | | | 51.3 | | | 48.8 |
Raw materials | | | 143.4 | | | 133.9 |
Reserves | | | (36.3) | | | (31.8) |
Inventories | | $ | 377.0 | | $ | 356.0 |
Note 9—11—Property, Plant and Equipment, net
The components of Property, plant, and equipment, net of accumulated depreciation at December 31 were as follows:
| | | | | | | |
| | December 31, | | December 31, | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | (in millions) | | December 31, 2019 | | December 31, 2018 |
Land | | $ | 60.2 | | $ | 59.9 | Land | | $ | 75.8 | | | $ | 69.1 | |
Buildings and leasehold improvements | | | 342.5 | | | 324.6 | Buildings and leasehold improvements | | 479.8 | | | 441.9 | |
Machinery and equipment | | | 784.7 | | | 735.4 | Machinery and equipment | | 926.0 | | | 875.3 | |
Projects in progress | | | 57.5 | | | 34.6 | Projects in progress | | 54.7 | | | 78.9 | |
| | | 1,244.9 | | | 1,154.5 | |
| Property, plant and equipment, gross | | Property, plant and equipment, gross | | 1,536.3 | | | 1,465.2 | |
Accumulated depreciation | | | (612.7) | | | (568.7) | Accumulated depreciation | | (752.8) | | | (705.1) | |
Property, plant, and equipment, net | | $ | 632.2 | | $ | 585.8 | |
| Property, plant and equipment, net | | Property, plant and equipment, net | | $ | 783.5 | | | $ | 760.1 | |
During 2016, 2015, and 2014, the Company capitalized
Capitalized interest
in the amount of $0.9totaled $1.2 million,
$1.0$2.2 million and
$2.2$2.4 million
for 2019, 2018 and 2017, respectively.
Note 10—12—Goodwill and Other Intangible Assets, netIn the third quarter of 2016, the Company concluded that its expectations of recovery in the near term in CBF’s related end markets had declined to the extent that it was more likely than not that the carrying value of the Wellman® trade name and CBF reporting unit were below their carrying values. As a result, in the third quarter of 2016 the Company recognized impairment charges within its CBF segment of $11.5 million related to the Wellman® trade name and $130.0 million of goodwill, resulting in a carrying value of $35.4 million and $96.5 million, respectively. Consistent with its accounting policies, the Company performed the impairment tests for these assets through a one-step process for the Wellman® trade name and a two-step process for goodwill.
Wellman® Trade name Impairment
The Company based its estimate of fair value of the Wellman® trade name on the income approach utilizing the discounted future cash flow method. As part of estimating discounted future cash flows attributable to the Wellman® trade name, management estimated future revenues, royalty rates and discount rates. These represent the most significant assumptions used in the Company’s evaluation of the fair value of the Wellman® trade name (i.e., Level 3 measurements). As a result, management determined that the fair value of the Wellman® trade name was below its carrying value and recorded an impairment charge equal to the difference as noted above.
CBF Goodwill Impairment
Similarly, for Step 1 of the two-step goodwill impairment test, the Company estimated the fair value of the CBF reporting unit based on the income approach utilizing the discounted cash flow method. Estimated industry weighted average cost of capital and earnings before interest and taxes margins for the CBF reporting unit represent the most significant assumptions used in the Company’s evaluation of fair value (i.e., Level 3 measurements). As a result, the Company determined that the fair value of the CBF reporting unit was below its carrying value by approximately 25% and therefore Step 2 of the goodwill impairment test was required to measure the amount of the Goodwill impairment. In performing the Step 2 analysis, the Company was required to allocate the reporting units’ fair value to the estimated fair values of the CBF reporting unit’s underlying asset and liabilities, both those recognized and unrecognized, with the residual amount reflecting the implied value of goodwill at September 30, 2016. As a result, the carrying amount of goodwill approximates the implied value of goodwill at September 30, 2016.
See Note 1 for further information regarding the valuation of goodwill and indefinite‑lived intangible assets.
The changes in the carrying amount of Goodwill,goodwill, net by segment follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | CCM | | CIT | | CFT | | CBF (1) | | Total |
| Net balance as of December 31, 2017 | | $ | 544.3 | | | $ | 640.3 | | | $ | 171.0 | | | $ | 96.5 | | | $ | 1,452.1 | |
Goodwill acquired during year (2), (3) | | 2.8 | | | 2.7 | | | — | | | — | | | 5.5 | |
| | | | | | | | | | |
| Measurement period adjustments | | (12.0) | | | — | | | — | | | — | | | (12.0) | |
| Currency translation and other | | (2.3) | | | 0.1 | | | (1.5) | | | (0.1) | | | (3.8) | |
| Net balance as of December 31, 2018 | | $ | 532.8 | | | $ | 643.1 | | | $ | 169.5 | | | $ | 96.4 | | | $ | 1,441.8 | |
Goodwill acquired during year (2), (3) | | 64.3 | | | 194.1 | | | 16.1 | | | — | | | 274.5 | |
| | | | | | | | | | |
| Measurement period adjustments | | 0.5 | | | (1.9) | | | 1.6 | | | — | | | 0.2 | |
| Currency translation and other | | (0.5) | | | (0.1) | | | 0.3 | | | 0.1 | | | (0.2) | |
| Net balance as of December 31, 2019 | | $ | 597.1 | | | $ | 835.2 | | | $ | 187.5 | | | $ | 96.5 | | | $ | 1,716.3 | |
(1)CBF goodwill is presented net of accumulated impairment losses of $130.0 million recorded in prior periods. No other segments have incurred impairment losses.
(2)See Note 3 for further information on goodwill resulting from recent acquisitions.
(3)In addition to the years endedacquisitions disclosed in Note 3, the Company acquired 5 businesses for an aggregate purchase price of $42.4 million during 2019. During 2018, the Company acquired 3 businesses for an aggregate purchase price of $20.1 million.
Other Intangible Assets, net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | | | | | December 31, 2018 | | | | |
| (in millions) | | Acquired Cost | | Accumulated Amortization | | Net Book Value | | Acquired Cost | | Accumulated Amortization | | Net Book Value |
| Assets subject to amortization: | | | | | | | | | | | | |
| Customer relationships | | $ | 1,054.4 | | | $ | (354.9) | | | $ | 699.5 | | | $ | 843.8 | | | $ | (287.7) | | | $ | 556.1 | |
| Technology and intellectual property | | 304.1 | | | (167.0) | | | 137.1 | | | 268.8 | | | (129.3) | | | 139.5 | |
| Trade names and other | | 100.0 | | | (38.7) | | | 61.3 | | | 45.4 | | | (16.4) | | | 29.0 | |
| Assets not subject to amortization: | | | | | | | | | | | | |
| Trade names | | 242.7 | | | — | | | 242.7 | | | 243.1 | | | — | | | 243.1 | |
| Other intangible assets, net | | $ | 1,701.2 | | | $ | (560.6) | | | $ | 1,140.6 | | | $ | 1,401.1 | | | $ | (433.4) | | | $ | 967.7 | |
The remaining weighted-average amortization period of intangible assets subject to amortization as of December 31,
2016 and 2015 were as follows: | | | | | | | | | | | | | | | | | | |
| | Construction | | Interconnect | | Fluid | | Brake and | | FoodService | | | |
(in millions) | | Materials | | Technologies | | Technologies | | Friction | | Products | | Total |
Net 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) | | | - | | | - | | | 0.6 |
Currency translation and other | | | (4.6) | | | - | | | (1.8) | | | - | | | - | | | (6.4) |
Net balance at December 31, 2015 | | $ | 118.7 | | $ | 555.4 | | $ | 173.4 | | $ | 226.6 | | $ | 60.3 | | $ | 1,134.4 |
Goodwill acquired during year (1) | | | - | | | 83.7 | | | 2.9 | | | - | | | - | | | 86.6 |
Impairment charges | | | - | | | - | | | - | | | (130.0) | | | - | | | (130.0) |
Measurement period adjustments | | | - | | | - | | | (0.3) | | | - | | | - | | | (0.3) |
Currency translation and other | | | (1.2) | | | - | | | (8.1) | (2) | | (0.2) | | | - | | | (9.5) |
Balance at December 31, 2016 | | $ | 117.5 | | $ | 639.1 | | $ | 167.9 | | $ | 96.4 | | $ | 60.3 | | $ | 1,081.2 |
2019, follows (in years): | (1)
| | See Note 3 for further information on goodwill resulting from recent acquisitions.
| | | | | |
| Customer relationships | | 10.0 |
| Technology and intellectual property | | 6.1 |
| Trade names and other | | 11.3 |
| Total assets subject to amortization | | 9.5 |
| (2)
| | Includes $4.9 million of an immaterial correction of certain deferred tax liabilities acquired in the Finishing Brands acquisition.
|
The Company’s other intangible assets, net at December 31, 2016, are as follows:
| | | | | | | | | |
| | Acquired | | Accumulated | | Net Book |
(in millions) | | Cost | | Amortization | | Value |
Assets subject to amortization: | | | | | | | | | |
Intellectual property | | $ | 200.7 | | $ | (72.4) | | $ | 128.3 |
Customer relationships | | | 704.3 | | | (201.6) | | | 502.7 |
Other | | | 15.4 | | | (11.7) | | | 3.7 |
Assets not subject to amortization: | | | | | | | | | |
Trade names | | | 237.5 | | | - | | | 237.5 |
Other intangible assets, net | | $ | 1,157.9 | | $ | (285.7) | | $ | 872.2 |
The Company’s other intangible assets, net at December 31, 2015, were as follows:
| | | | | | | | | |
| | Acquired | | Accumulated | | Net Book |
(in millions) | | Cost | | Amortization | | Value |
Assets subject to amortization: | | | | | | | | | |
Intellectual property | | $ | 180.7 | | $ | (55.0) | | $ | 125.7 |
Customer relationships | | | 673.9 | | | (160.5) | | | 513.4 |
Other | | | 13.5 | | | (10.6) | | | 2.9 |
Assets not subject to amortization: | | | | | | | | | |
Trade names | | | 245.8 | | | - | | | 245.8 |
Other intangible assets, net | | $ | 1,113.9 | | $ | (226.1) | | $ | 887.8 |
Intangible assets subject to amortization as of December 31, 20162019, will be amortized as follows:
| | |
Remaining weighted-average amortization period (years)
| | |
Assets subject to amortization
| | |
Intellectual property
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions) | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Estimated future amortization expense | | $ | 122.5 | | | $ | 115.0 | | | $ | 98.8 | | | $ | 93.2 | | | $ | 84.1 | | | $ | 384.3 | |
8.1 |
Customer relationships
| | 12.1 |
Other
| | 9.3 |
Total assets subject to amortization
| | 11.3 |
| | | | | | | | | | | | |
(millions) | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter |
Estimated future amortization expense | | $ 64.4 | | $ 64.4 | | $ 64.2 | | $ 61.1 | | $ 57.5 | | $ 323.1 |
The net carrying values of the Company’s other intangible assets, net by reportable segment as of December 31 were as follows:
| | | | | | | |
| | December 31, | | December 31, | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | (in millions) | | December 31, 2019 | | December 31, 2018 |
Carlisle Construction Materials | | $ | 55.2 | | $ | 60.9 | Carlisle Construction Materials | | $ | 345.3 | | | $ | 285.3 | |
Carlisle Interconnect Technologies | | | 379.1 | | | 357.3 | Carlisle Interconnect Technologies | | 441.0 | | | 313.4 | |
Carlisle Fluid Technologies | | | 313.7 | | | 325.3 | Carlisle Fluid Technologies | | 272.8 | | | 280.9 | |
Carlisle Brake & Friction | | | 99.3 | | | 117.2 | Carlisle Brake & Friction | | 80.2 | | | 86.6 | |
Carlisle FoodService Products | | | 24.9 | | | 27.1 | |
| Corporate | | Corporate | | 1.3 | | | 1.5 | |
Total | | $ | 872.2 | | $ | 887.8 | Total | | $ | 1,140.6 | | | $ | 967.7 | |
Note
11—Commitments13—Accrued and
ContingenciesLeases
Other Current Liabilities
| | | | | | | | | | | | | | |
| (in millions) | | December 31, 2019 | | December 31, 2018 |
| Compensation and benefits | | $ | 109.5 | | | $ | 99.9 | |
| Customer incentives | | 69.9 | | | 66.1 | |
| Standard product warranties | | 29.2 | | | 31.9 | |
| Income and other accrued taxes | | 22.7 | | | 16.7 | |
| Other accrued liabilities | | 63.2 | | | 43.4 | |
| Accrued and other current liabilities | | $ | 294.5 | | | $ | 258.0 | |
Standard Product Warranties
The Company
currently leases a portion ofoffers various standard warranty programs on its
manufacturing facilities, distribution centers,products, primarily for certain installed roofing systems, high-performance cables 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.assemblies, fluid technologies and braking products. 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 $27.4 million, $25.9 million, and $23.7 million in 2016, 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 its various non‑cancelable operating leases in each of the next five years are as follows:
| | | | | | | | | | | | | | | | | | |
(in millions) | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter |
Future minimum payments | | $ | 18.3 | | $ | 16.9 | | $ | 14.0 | | $ | 9.3 | | $ | 6.6 | | $ | 15.1 |
Workers’ Compensation Claims and Related Losses
The Company has accrued approximately $18.1 million and $19.4 million related to workers’ compensation claims at December 31, 2016 and 2015, respectively. At December 31, 2016, $5.8 million and $12.3 million areCompany’s liability for such warranty programs is included in accrued expenses and other long‑term liabilities, respectively, and at December 31, 2015, $6.0 million and $13.4 million were included in accrued expenses and other long‑term liabilities, respectively,expenses. The change in the Consolidated Balance Sheets. Company’s standard product warranty liabilities follows:
| | | | | | | | | | | | | | |
| (in millions) | | December 31, 2019 | | December 31, 2018 |
| Balance as of January 1 | | $ | 31.9 | | | $ | 30.4 | |
| Provision | | 17.1 | | | 18.1 | |
| | | | |
| Claims | | (19.6) | | | (16.3) | |
| Foreign exchange | | (0.2) | | | (0.3) | |
| Balance as of December 31 | | $ | 29.2 | | | $ | 31.9 | |
Note 14—Long-term Debt
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Fair Value (1) | | |
| (in millions) | | December 31,
2019 | | December 31,
2018 | | December 31,
2019 | | December 31,
2018 |
| 3.75% Notes due 2027 | | $ | 600.0 | | | $ | 600.0 | | | $ | 623.4 | | | $ | 579.4 | |
| 3.5% Notes due 2024 | | 400.0 | | | 400.0 | | | 414.2 | | | 386.4 | |
| 3.75% Notes due 2022 | | 350.0 | | | 350.0 | | | 361.4 | | | 345.5 | |
| 5.125% Notes due 2020 | | 250.0 | | | 250.0 | | | 255.0 | | | 255.0 | |
| | | | | | | | |
| Unamortized discount, debt issuance costs and other | | (8.4) | | | (12.2) | | | | | |
| Total long term-debt | | $ | 1,591.6 | | | $ | 1,587.8 | | | | | |
| Less current portion of long-term debt | | 250.2 | | | — | | | | | |
| Total long term-debt, net of current portion | | $ | 1,341.4 | | | $ | 1,587.8 | | | | | |
(1)The liability related to workers’ compensation claims, both those reported to the Company and those incurred but not yet reported,fair value is estimated based on actuarial estimates and loss development factors andcurrent yield rates plus the Company’s historical loss experience.estimated credit spread available for financings with similar terms and maturities. Based on these inputs, debt instruments are classified as Level 2 in the fair value hierarchy.
3.75% Notes Due 2027
On November 16, 2017, the Company completed a public offering of $600.0 million of notes with a stated interest rate of 3.75% due December 1, 2027 (the “2027 Notes”). The 2027 Notes were issued at a discount of $2.4 million, resulting in proceeds to 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$597.6 million. The Company records a recovery receivable fromincurred costs to issue the insurance carriers when such recovery is deemed probable based on2027 Notes of approximately $7.7 million, inclusive of underwriters’, credit rating agencies’ and attorneys’ fees and other costs. The discount and issuance costs are amortized to interest expense over the naturelife of the claim2027 Notes. Interest is paid each June 1 and history of recoveries. At December 31, 2016 and 20151.
3.5% Notes Due 2024
On November 16, 2017, the Company
did not have any significant recovery receivables recorded for workers’ compensation claims.Letterscompleted a public offering of Credit and Guarantees
During the normal course$400.0 million of business,notes with a stated interest rate of 3.5% due December 1, 2024 (the “2024 Notes”). The 2024 Notes were issued at a discount of $0.4 million, resulting in proceeds to the Company enters into commitments in the form of letters of credit and bank guarantees under a continuing credit agreement with J.P. Morgan Chase Bank, N.A. to provide financial and performance assurance to third parties. At December 31, 2016 and 2015, we had $28.7 million and $29.2 million letters of credit and bank guarantees outstanding, respectively.
Litigation
Over the years, the Company has been named as a defendant, along with numerous other defendants, in lawsuits in various state courts in which plaintiffs have alleged injury due to exposure to asbestos‑containing brakes, which Carlisle manufactured in limited amounts between the late‑1940’s and the mid‑1980’s. In addition to compensatory awards, these lawsuits may also seek punitive damages. Generally, the Company has obtained dismissals or settlements of its asbestos‑related lawsuits with no material effect on its financial condition, results of operations or cash flows.$399.6 million. The Company maintains insurance coverage that appliesincurred costs to issue the Company’s defense2024 Notes of approximately $4.5 million, inclusive of underwriters’, credit rating agencies’ and attorneys’ fees and other costs. The discount and issuance costs and payments of settlements or judgments in connection with asbestos‑related lawsuits. At this time,are amortized to interest expense over 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 flowslife of the Company.
Environmental Matters
The Company2024 Notes. Interest is subject to increasingly stringent environmental lawspaid each June 1 and regulations, including those relating to air emissions, wastewater discharges, and chemical and hazardous waste management and disposal. Some of these environmental laws hold owners or operators of land or businesses liable for their own and for previous owners' or operators' releases of hazardous or toxic substances or wastes. Other environmental laws and regulations require the obtainment of and compliance with environmental permits. To date, costs of complying with environmental, health and safety requirements have not been material and we do not currently have any significant accruals related to potential future costs of environmental remediation at December 31, 2016 and 2015, nor do we have any asset retirement obligations recorded at those dates. However, the nature of the Company’s operations and its long history of industrial activities at certain of its current or former facilities, as well as those acquired, could potentially result in material environmental liabilities or asset retirement obligations.
1. 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 12—Long-term Debt
As of December 31, 2016 and 2015 the Company’s borrowings were as follows:
| | | | | | | | | | | | |
| | December 31, | | December 31, | | Fair Value (1) | | Fair Value (1) |
(in millions) | | 2016 | | 2015 | | 2016 | | 2015 |
3.75% notes due 2022 | | $ | 350.0 | | $ | 350.0 | | $ | 347.2 | | $ | 349.3 |
5.125% notes due 2020 | | | 250.0 | | | 250.0 | | | 263.1 | | | 268.6 |
6.125% notes due 2016 | | | - | | | 150.0 | | | - | | | 152.9 |
Unamortized discount, debt issuance costs and other | | | (3.6) | | | (4.6) | | | | | | |
Total long term-debt | | | 596.4 | | | 745.4 | | | | | | |
Less current portion of long-term debt | | | - | | | (149.8) | | | | | | |
Total long term-debt, net of current portion | | $ | 596.4 | | $ | 595.6 | | | | | | |
| (1)
| | The fair value is estimated based on current yield rates plus the Company’s estimated credit spread available for financings with similar terms and maturities. Based on these inputs, debt instruments are classified as Level 2 in the fair value hierarchy.
|
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. See Note 1 for additional information regarding new accounting standard updates.
In August 2016, the Company utilized cash on hand to repay the outstanding principal balance of $150.0 million on the 6.125% senior unsecured notes.
3.75% Notes Due 2022
On November 20, 2012, the Company completed a public offering of $350.0 million of notes with a stated interest rate of 3.75% due November 15, 2022 (the “2022 Notes”). The 2022 Notes were issued at a discount of $1.1 million, resulting in proceeds to the Company of $348.9 million. The Company incurred costs to issue the 2022 Notes of approximately $2.9 million, inclusive of underwriters’, credit rating agencies’ and attorneys’ fees and other costs. Both the discount and
the issuance costs
will beare being amortized to interest expense over the life of the 2022 Notes. Interest is paid each May 15 and November 15.
On December 9, 2010, the Company completed a public offering of $250.0 million of notes with a stated interest rate of 5.125% due December 15, 2020 (the
"2020 Notes"“2020 Notes”). The 2020 Notes were issued at a discount of approximately $1.1 million, resulting in proceeds to the Company of approximately $248.9 million. The Company incurred costs to issue the 2020 Notes of approximately $1.9 million, inclusive of underwriters’, credit rating agencies’ and attorneys’ fees and other costs. Interest on the 2020 Notes is paid each June 15 and December 15.
Notes Terms
and Redemption Features
The
2027, 2024, 2022 and 2020 Notes (jointly
the “Notes”) are presented net of the related discount and debt issuance costs in
Long‑term debt in the Consolidated Balance Sheets.long-term debt. The
2022 and 2020 Notes
in whole or in part, may be redeemed at the Company's option,
in whole or in part, plus accrued and unpaid interest, at any time prior to
August 15, 2022 and September 15, 2020, respectively,the dates stated below, at a price equal to the greater
of: | ·
| | 100% of (i) 100.0% of the principal amounts; or (ii) the principal amounts; or
|
| ·
| | The sum of the present values of the remaining scheduled payments of principal and interest discounted to the redemption date on a semi-annual basis at the Treasury Rate plus 35 basis points.
|
The 2022 and 2020interest discounted to the redemption date on a semi-annual basis at the Treasury Rate plus a spread (noted below). The Notes may also be redeemed at any time after August 15, 2022 and September 15, 2020, respectively,the dates noted below, in whole or in part, at the Company's option at 100%100.0% of the principal amount, plus accrued and unpaid interest.
| | | | | | | | | | | | | | |
| Debt Instrument | | Date | | Spread |
| 3.75% Notes due 2027 | | September 1, 2027 | | 25 basis points | |
| 3.5% Notes due 2024 | | October 1, 2024 | | 20 basis points | |
| 3.75% Notes due 2022 | | August 15, 2022 | | 35 basis points | |
| 5.125% Notes due 2020 | | September 15, 2020 | | 35 basis points | |
Upon a change-in-control triggering event, the Company will be required to offer to repurchase the Notes at
101%101.0% of the principal amount, plus accrued and unpaid interest.
The Notes are subject to the Company's existing indenture dated January 15, 1997,
with Bank of New York Mellon, as trustee, and accordingly, are subject to the same restrictive covenants and limitations as the Company's existing indebtedness. The Notes are general unsecured obligations of the Company and rank equally with the Company's existing and future unsecured and unsubordinated indebtedness. The Notes are subordinate to any existing or future debt or other liabilities of the Company's subsidiaries.
Revolving Credit Facility (the “Facility”) On October 20, 2011, the Company entered into a Third Amended and Restated Credit Agreement (“the Credit Agreement”) administered by JPMorganJ.P. Morgan Chase Bank, N.A. (“JPMorgan Chase”). On December 12, 2013, the Company executed an amendment to the facility (“the Amendment”) to amend certain terms and extend the term of the facilityFacility to December 12, 2018. The
On February 21, 2017, the Company entered into a second amendment (the "Amendment") to the Company's Third Amended and Restated Credit Agreement
provides(the “Credit Agreement”) administered by JPMorgan Chase Bank, N.A. Among other things, the Amendment increased the lenders' aggregate revolving commitment from $600.0 million to $1.0 billion and extended the maturity date of the Facility from December 12, 2018 to February 21, 2022. During the first quarter of 2017, the Company incurred $1.4 million of debt issuance costs to finalize the amendment, which are being recognized ratably over the extended maturity date of the Facility. The Facility has a feature that allows the Company to increase availability, at the Company's option, by an aggregate amount of up to $500.0 million through increased commitments from existing lenders or the addition of new lenders. Under the Facility, the Company may also enter into commitments in the form of standby, commercial, or direct pay letters of credit for
a $600 million revolving line of credit.an amount not to exceed $50.0 million.
The Facility provides for
grid‑basedvariable interest pricing based on the credit rating of the
Company’s senior unsecured bank debt or other unsecured senior debt. The Facility is also subject to fees based on applicable rates as defined in the agreement and the aggregate commitment, regardless of usage. The Facility requires the Company to meet various restrictive covenants and limitations including certain leverage ratios, interest coverage ratios and limits on outstanding debt balances held by certain subsidiaries.
At
As of December 31, 2016,2019, the Company had $600.0 million$1.0 billion available under its Amended Credit Agreement. There was no interest onthe Facility. During 2019 and 2018, the Company had 0 borrowings or repayments under the revolving credit facilityFacility. During 2017, the Company borrowed and repaid $1.2 billion, in 2016 and 2015the aggregate, under the Facility. 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 December 31, 2019 and 2018.
Letters of Credit and Guarantees
During the normal course of business, the Company enters into commitments in
2016the form of letters of credit and
2015.Other Matters
bank guarantees to provide financial and performance assurance to third parties. As of December 31, 2019, and 2018, the Company had $25.5 million and $26.0 million letters of credit and bank guarantees outstanding, respectively. The Company has multiple arrangements to obtain letters of credit, which include an agreement with an unspecified availability and separate agreements for up to $80.0 million in letters of credit, of which $54.5 million was available as of December 31, 2019.
Interest Payments
Cash payments for interest were
$35.9$63.7 million, $65.4 million and $29.6 million in
2016, $35.1 million in 2015,2019, 2018 and
$35.2 million in 2014.
Note
13—Retirement15—Employee Benefit Plans
The Company maintains defined benefit retirement plans, primarily for certain domestic employees, as presented below. All plans are frozen to new entrants, with the exception of the executive supplemental
and director defined benefit pension plans.plan. Benefits are based primarily on years of service and earnings of the employee.
In 2016, the Company moved from utilizing a weighted-average discount rate, which was derived from the yield curve used to measure the benefit obligation at the beginning of the period, to a spot yield rate curve to estimate the pension benefit obligation and net periodic benefit costs. This change in estimate provides a more accurate measurement of service and interest costs by applying the spot rate that could be used to settle each projected cash flow individually. This change in estimate did not have a material effect on net periodic benefit costs for 2016.
The
following are the significant assumptions used in the measurement of the projected benefit obligation and net periodic benefit
cost:Weighted‑averagecost primarily include the discount rate, rate of compensation increase and expected long-term return on plan assets. Weighted-average assumptions for the projected benefit obligation at December 31:
follows: | | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | | 2019 | | 2018 |
Discount rate | | | 3.86% | | | 4.15% | Discount rate | | 3.0 | % | | 4.1 | % |
Rate of compensation increase | | | 3.82% | | | 4.29% | Rate of compensation increase | | 3.8 | % | | 3.8 | % |
Weighted‑average
Weighted-average assumptions for net periodic benefit cost follows:
| | | | | | | | | | | | | | | | | | | | |
| | | 2019 | | 2018 | | 2017 |
| Discount rate | | 4.1 | % | | 3.5 | % | | 3.9 | % |
| Rate of compensation increase | | 3.8 | % | | 3.8 | % | | 3.8 | % |
| Expected long-term return on plan assets | | 6.3 | % | | 6.3 | % | | 6.3 | % |
| | | | | | |
The weighted-average cash balance interest crediting rate for the Company's cash balance defined benefit plans was 4.0% for the years ended December
31:31, 2019, 2018 and 2017. | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
Discount rate | | | 4.35% | | | 3.87% | | | 4.58% |
Rate of compensation increase | | | 4.29% | | | 4.29% | | | 4.29% |
Expected long-term return on plan assets | | | 6.20% | | | 6.30% | | | 6.48% |
The Company considers several factors in determining the long-term rate of return for plan assets. Asset-class return expectations are set using a combination of empirical and forward-looking analyses. Capital market assumptions for the composition of the Company’s asset portfolio are intended to capture the behavior of asset classes observed over several market cycles. The Company also looks to historical returns for reasonabilityreasonableness and appropriateness.
The following table reconcilesA reconciliation of the change in the projected benefit obligation, the change in plan assets and the funded status recognized in the Consolidated Balance Sheets for the years ended December 31:
follows: | | | | | | | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | (in millions) | | December 31, 2019 | | December 31, 2018 |
Funded status | | | | | | | Funded status | | | | |
Projected benefit obligation | | | | | | | Projected benefit obligation | | | | |
Beginning of year | | $ | 174.3 | | $ | 192.3 | Beginning of year | | $ | 167.5 | | | $ | 182.8 | |
Change in benefit obligation: | | | | | | | Change in benefit obligation: | | | | |
Service cost | | | 3.4 | | | 3.7 | Service cost | | 2.8 | | | 3.1 | |
Interest cost | | | 5.4 | | | 7.1 | Interest cost | | 6.1 | | | 5.5 | |
Plan amendments | | | (0.1) | | | - | Plan amendments | | (0.1) | | | — | |
Actuarial (gain)/loss | | | 1.2 | | | (16.7) | Actuarial (gain)/loss | | 17.2 | | | (10.0) | |
Benefits paid | | | (11.7) | | | (12.1) | Benefits paid | | (14.6) | | | (13.9) | |
End of year | | $ | 172.5 | | $ | 174.3 | End of year | | $ | 178.9 | | | $ | 167.5 | |
| | | | | | | |
Fair value of plan assets | | | | | | | Fair value of plan assets | | | | |
Beginning of year | | $ | 162.7 | | $ | 177.3 | Beginning of year | | $ | 148.6 | | | $ | 165.7 | |
Change in plan assets: | | | | | | | Change in plan assets: | | | | |
Actual return on plan assets | | | 11.2 | | | (3.5) | Actual return on plan assets | | 20.9 | | | (4.6) | |
Company contributions | | | 1.0 | | | 1.0 | Company contributions | | 1.6 | | | 1.4 | |
Benefits paid | | | (11.7) | | | (12.1) | Benefits paid | | (14.6) | | | (13.9) | |
End of year | | $ | 163.2 | | $ | 162.7 | End of year | | $ | 156.5 | | | $ | 148.6 | |
| | | | | | | | | | |
(Unfunded) status end of year | | $ | (9.3) | | $ | (11.6) | |
| Unfunded status end of year | | Unfunded status end of year | | $ | (22.4) | | | $ | (18.9) | |
| | | | | | | | | | |
Accumulated benefit obligation at end of year | | $ | 171.5 | | $ | 173.5 | Accumulated benefit obligation at end of year | | $ | 178.0 | | | $ | 167.0 | |
In accordance with FASB guidance, the projected benefit obligation, accumulated benefit obligation and the fair value of plan assets are required to be disclosed for all plans where the accumulated benefit obligation is in excess of plan assets. The difference between the projected benefit obligation and the accumulated benefit obligation is that the projected benefit obligation includes projected compensation increases.
The Company’s projected benefit obligation at December 31, 2016 and 2015 includes approximately $21.7$21.8 million and $21.3$19.6 million respectively, related to the Company’s executive supplemental and director defined benefit pension plans.plans as of December 31, 2019 and 2018, respectively. The Company’s accumulated benefit obligation includes approximately $20.9 million and $19.1 million related to the Company’s executive supplemental and director defined benefit pension plans as of December 31,
2019 and 2018, respectively. The executive supplemental and director defined benefit plans have
no0 plan assets and the Company is not required to
fundpre-fund the obligations.
The U.S. plans required to be funded by the Company were fully funded at December 31, 2016 and 2015.The net assets (liabilities) included in the Consolidated Balance Sheets at December 31 were as follows:
| | | | | | |
(in millions) | | 2016 | | 2015 |
Noncurrent assets | | $ | 12.4 | | $ | 9.7 |
Current liabilities | | | (1.4) | | | (1.0) |
Noncurrent liabilities | | | (20.3) | | | (20.3) |
Asset (liability) at end of year | | $ | (9.3) | | $ | (11.6) |
| | | | | | | | | | | | | | |
| (in millions) | | December 31, 2019 | | December 31, 2018 |
| Long-term assets | | $ | — | | | $ | 0.7 | |
| Current liabilities | | (1.5) | | | (1.5) | |
| Long-term liabilities | | (20.9) | | | (18.1) | |
| Net pension liability | | $ | (22.4) | | | $ | (18.9) | |
The amounts included in accumulated other comprehensive
loss at December 31 are as follows: | | | | | | |
(in millions) | | 2016 | | 2015 |
Unrecognized actuarial losses (gross) | | $ | 40.2 | | $ | 42.2 |
Unrecognized actuarial losses (net of tax) | | | 25.3 | | | 26.4 |
Unrecognized prior service costs (gross) | | | 0.9 | | | 1.1 |
Unrecognized prior service costs (net of tax) | | | 0.5 | | | 0.7 |
The Company estimatesincome (loss) that $0.2 million ($0.1 million net of tax) of prior service cost and $2.3 million ($1.5 million net of tax) of actuarial losses will be amortized from accumulated other comprehensive loss intohave not been recognized in net periodic pension expense in 2017.
cost follows:
| | | | | | | | | | | | | | |
| (in millions) | | December 31, 2019 | | December 31, 2018 |
| Unrecognized actuarial losses (gross) | | $ | 52.1 | | | $ | 49.3 | |
| Unrecognized actuarial losses (net of tax) | | 41.5 | | | 39.6 | |
| Unrecognized prior service costs (gross) | | 0.8 | | | 1.0 | |
| Unrecognized prior service costs (net of tax) | | 0.6 | | | 0.8 | |
The components of net periodic benefit cost
for 2016, 2015 and 2014 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | 2016 | | 2015 | | 2014 | (in millions) | | 2019 | | 2018 | | 2017 |
Service cost | | $ | 3.4 | | $ | 3.7 | | $ | 4.0 | Service cost | | $ | 2.8 | | | $ | 3.1 | | | $ | 2.6 | |
Interest cost | | | 5.4 | | | 7.1 | | | 7.7 | Interest cost | | 6.1 | | | 5.5 | | | 5.3 | |
Expected return on plan assets | | | (10.1) | | | (10.2) | | | (10.8) | Expected return on plan assets | | (9.7) | | | (10.3) | | | (10.2) | |
Amortization of unrecognized net loss | | | 2.1 | | | 4.1 | | | 3.3 | Amortization of unrecognized net loss | | 3.1 | | | 4.3 | | | 2.3 | |
Amortization of unrecognized prior service credit | | | 0.2 | | | 0.2 | | | 0.3 | Amortization of unrecognized prior service credit | | 0.2 | | | 0.3 | | | 0.2 | |
Net periodic benefit cost | | $ | 1.0 | | $ | 4.9 | | $ | 4.5 | Net periodic benefit cost | | $ | 2.5 | | | $ | 2.9 | | | $ | 0.2 | |
Disclosures on investment policies and strategies, categories of plan assets and the fair value measurements of plan assets are included below.
The Company employs a liability driven investment approach whereby plan assets are invested primarily in fixed income investments to match the changes in the projected benefit obligation of funded plans
that occur as a result ofrelated to changes in
the discount rate.interest rates. Risk tolerance is established through careful consideration of projected benefit obligations, plan funded status and the Company’s other obligations and strategic investments.
The established target allocation is
88%88.0% fixed income securities and
12%12.0% equity securities. Fixed income investments are diversified across
core fixed income,U.S. treasury, long
and intermediate duration and high yield bonds. Equity investments are diversified across large capitalization U.S. and international stocks. Investment risk is measured and monitored on an ongoing basis through investment portfolio reviews, annual projected benefit liability measurements and asset/liability studies.
The fair value measurement of the plans’ assets by asset category at December 31 werefollows:
| | | | | | | | | | | | | | |
| | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | |
| (in millions) | | December 31,
2019 | | December 31,
2018 |
| Cash | | $ | 0.6 | | | $ | 0.6 | |
| U.S. treasury bonds | | 20.9 | | | 27.0 | |
| Mutual funds: | | | | |
Equity mutual funds (1) | | 17.8 | | | 17.8 | |
Fixed income mutual funds (2) | | 117.2 | | | 103.2 | |
| Total | | $ | 156.5 | | | $ | 148.6 | |
(1)This category is comprised of investments in mutual funds that invest in equity securities such as follows:large publicly traded companies listed in the S&P 500 Index; small to medium sized companies with market capitalization in the range of the Russell 2500 Index; and foreign issuers in emerging markets. | | | | | | |
| | Quoted Prices in Active Markets |
| | for Identical Assets (Level 1) |
Asset Category (in millions) | | 2016 | | 2015 |
Cash | | $ | 0.6 | | $ | 0.6 |
Mutual funds: | | | | | | |
Equity mutual funds(1) | | $ | 20.6 | | $ | 19.8 |
Fixed income mutual funds (2) | | | 142.0 | | | 142.3 |
Total | | $ | 163.2 | | $ | 162.7 |
| (1)
| | This category is comprised of investments in mutual funds that invest in equity securities such as large publicly traded companies listed in the S&P 500 Index; small to medium sized companies with market capitalization in the range of the Russell 2500 Index; and foreign issuers in emerging markets.
|
| (2)
| | This category is comprised of investments in mutual funds that invest in U.S. corporate and government fixed income securities, including asset‑backed securities; high yield fixed income securities primarily rated BB, B, CCC, CC, C and D; and US dollar denominated debt securities of government, government related and corporate issuers in emerging market countries.
|
The Company made contributions of $1.0$1.6 million and $1.4 million during 20162019 and 20152018, respectively, which pertain to the Company’s executive supplemental and director defined benefit pension plans. This contribution covers current participant benefits as these plans have no0 plan assets. NoNaN minimum contributions to the pension plans were required in 20162019 and 2015.2018. During 2017,2020, the Company expects to pay approximately $1.4$1.5 million in participant
benefits under the executive supplemental and director plans. In light of the plans’ funded status, the Company does not expect to make discretionary contributions to its pension plans in
2017.2020.The following is aA summary of estimated future benefits to be paid for the Company’s defined benefit pension plans atas of December 31, 2016:
2019, follows: | | | |
(in millions) | | Estimated Benefit |
Year | | Payments |
2017 | | $ | 15.7 |
2018 | | | 15.4 |
2019 | | | 14.8 |
2020 | | | 14.8 |
2021 | | | 14.4 |
2022-2026 | | | 63.1 |
| | | | | | | | |
| (in millions) | | Estimated
Benefit
Payments |
| 2020 | | $ | 14.2 | |
| 2021 | | 14.1 | |
| 2022 | | 14.3 | |
| 2023 | | 14.6 | |
| 2024 | | 14.7 | |
| 2025-2029 | | 65.7 | |
Defined Contribution Plans
The Company maintains defined contribution savings plans covering a significant portion of its eligible employees. Participant contributions are matched by the Company up to a 4.0% maximum of eligible compensation, subject to compensation and contribution limits as defined by the Internal Revenue Service. Employer contributions for the savings plan were
$13.3$16.6 million,
$12.2$15.2 million and
$11.1$14.8 million in
2016, 20152019, 2018 and
2014,2017, respectively.
Matching contributions are invested in funds as directed by participants. Eligible participants may also elect to invest up to 50.0% of the Company’s matching contribution in Company common stock. Common shares held by the contribution savings plan
at December 31 were as follows:
| | | | | | | | | |
(in millions) | | 2016 | | 2015 | | 2014 |
Common shares held | | | 1.2 | | | 1.3 | | | 1.4 |
Note 14—Deferred Revenue
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 $19.5 million, $18.5 million and $17.9 million for the years ended December 31, 2016, 2015 and 2014, respectively.
The deferred revenue liability as of December 31 is summarized as follows:
| | | | | | |
(in millions) | | 2016 | | 2015 |
Current | | $ | 18.8 | | $ | 18.1 |
Long-term | | | 172.0 | | | 159.7 |
Deferred revenue | | $ | 190.8 | | $ | 177.8 |
Expected costs of services to be performed under extended product warranty contracts are actuarially determined. Any expected costs in excess of the deferred revenue liability are recognized within accrued expenses.
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | December 31,
2019 | | December 31,
2018 | | December 31,
2017 |
| Common shares held | | 0.9 | | | 1.0 | | | 1.1 | |
Other Deferred Revenue
Other deferred revenue primarily relates to customer prepayments on sales within the Fluid Technologies segment. Other deferred revenue as of December 31 is summarized as follows:
| | | | | | |
(in millions) | | 2016 | | 2015 |
Current | | $ | 4.4 | | $ | 5.9 |
Long-term | | | - | | | - |
Deferred revenue | | $ | 4.4 | | $ | 5.9 |
Note 15—Accrued Expenses
The components of accrued expenses at December 31 were as follows:
| | | | | | |
(in millions) | | 2016 | | 2015 |
Compensation and benefits | | $ | 97.9 | | $ | 75.2 |
Customer incentives | | | 58.1 | | | 54.7 |
Standard product warranties | | | 29.5 | | | 28.9 |
Income and other accrued taxes | | | 14.2 | | | 18.5 |
Other accrued expenses | | | 47.0 | | | 42.1 |
| | $ | 246.7 | | $ | 219.4 |
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 period ended December 31 is as follows:
| | | | | | |
(in millions) | | 2016 | | 2015 |
Balance at January 1 | | $ | 28.9 | | $ | 15.2 |
Current year provision | | | 23.7 | | | 30.2 |
Acquired warranty obligation | | | - | | | 1.1 |
Current year claims | | | (22.9) | | | (17.6) |
Current year foreign exchange | | | (0.2) | | | - |
Balance at December 31 | | $ | 29.5 | | $ | 28.9 |
Note 16—Other Long‑Term Liabilities
The components of other long‑term liabilities at December 31 were as follows:
| | | | | | |
| | December 31, | | December 31, |
(in millions) | | 2016 | | 2015 |
Deferred taxes and other tax liabilities | | $ | 144.1 | | $ | 176.5 |
Pension and other post-retirement obligations | | | 27.1 | | | 26.3 |
Deferred compensation | | | 21.2 | | | 16.8 |
Long-term workers' compensation | | | 12.3 | | | 13.4 |
Other | | | 12.3 | | | 9.4 |
Other long-term liabilities | | $ | 217.0 | | $ | 242.4 |
Deferred Compensation
- Cash
The Company’s Deferred Compensation Plan allows certain eligible participants to defer a portion of their cash compensation and provides a matching contribution to the deferred compensation plan of up to 4.0% of eligible compensation.
Eligible participants may elect to receive in-service distributions of deferred compensation or may be deferred up to 10 years and distributeddefer receipt of distributions until retirement via lump sum or annual payment installments over an additionala maximum period of 10 year period.years. Participants allocate their deferred compensation amongst various investment options with earnings accruing to the participant.The Company has established a Rabbi Trust to provide for a degree of financial security to cover
these obligations.its obligations with its deferred compensation plan. Contributions to the Rabbi Trust by the Company are made at the discretion of management and generally are made in cash and invested in money-market funds. The Company consolidates the Rabbi Trust and therefore includes the investments in its Consolidated Balance Sheets.
AtAs of December 31,
20162019, and
2015,2018, the Company had
$11.7$6.1 million and
$8.9$10.7 million of cash, respectively, and
$2.6$5.5 million and
$1.9$4.3 million of short-term investments, respectively.
Management has classified these instruments as trading securities and therefore gains and lossesThe short-term investments are
measured at fair value using quoted market prices in active markets (i.e. Level 1 measurements) with changes in fair value recorded in
earnings withnet income and the associated cash flows presented as operating cash flows.
Workers’ Compensation Claims and Related Losses
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. The liability related to workers’ compensation claims, both those reported to the Company and those incurred but not yet reported, is estimated based on actuarial
estimates, loss development factors and the Company’s historical loss experience. A summary of the receivable and liability related to workers' compensation claims follows:
| | | | | | | | | | | | | | |
| (in millions) | | December 31,
2019 | | December 31,
2018 |
| Other current assets | | $ | 0.6 | | | | $ | 4.5 | |
| Other long-term assets | | 4.8 | | | | 2.1 | |
| Total recovery receivable | | $ | 5.4 | | | | $ | 6.6 | |
| | | | |
| Accrued and other current liabilities | | $ | 4.2 | | | | $ | 4.5 | |
| Other long-term liabilities | | 12.9 | | | | 15.0 | |
| Total workers' compensation liability | | $ | 17.1 | | | | $ | 19.5 | |
Note 16—Other Long-Term Liabilities
| | | | | | | | | | | | | | |
| (in millions) | | December 31,
2019 | | December 31,
2018 |
Deferred taxes and other tax liabilities (1) | | $ | 252.7 | | | $ | 186.7 | |
Operating lease liabilities (2) | | 61.8 | | | — | |
Deferred compensation (3) | | 28.5 | | | 21.5 | |
Pension and other post-retirement obligations (3) | | 25.5 | | | 22.8 | |
Long-term workers' compensation (3) | | 12.9 | | | 15.0 | |
| Other | | 11.0 | | | 20.5 | |
| Other long-term liabilities | | $ | 392.4 | | | $ | 266.5 | |
(1)Refer to Note 9 for additional deferred tax discussion.
(2)Refer to Note 17 for additional operating lease liabilities discussion
(3)Refer to Note 15 for additional pension, deferred compensation and workers' compensation discussion.
Note 17—Accumulated Other Comprehensive LossCommitments and Contingencies
Leases
Lease Costs, Assets and Liabilities
The changesCompany has operating leases primarily for manufacturing facilities, warehouses, offices and certain equipment. These leases have remaining lease terms of one to 13 years, some of which include one or more options to renew, with renewal terms that can extend the leases to one or 20 years or more. The components of lease cost follow:
| | | | | | | | | | | | | | |
| (in millions) | | | | | | 2019 | | |
| Operating lease cost | | | | | | $ | 27.5 | | | |
| Variable lease cost | | | | | | 5.0 | | | |
| Short-term lease cost | | | | | | 3.1 | | | |
| Total lease cost | | | | | | $ | 35.6 | | | |
A summary of lease assets and liabilities follows:
| | | | | | | | | | |
| (in millions) | | December 31,
2019 | | |
| Assets: | | | | |
Operating lease right-of-use assets(1) | | $ | 78.0 | | | |
| Liabilities: | | | | |
Operating lease liabilities - current(2) | | 22.2 | | | |
Operating lease liabilities - long-term(3) | | 61.8 | | | |
| Total lease liabilities | | $ | 84.0 | | | |
(1)Included in accumulated other comprehensive loss by component,long-term assets.
(2)Included in accrued and other current liabilities.
(3)Included in other long-term liabilities.
Maturity of lease liabilities as of December 31, 2019, follow:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
| Lease payments | | | | $ | 24.8 | | | $ | 18.6 | | | $ | 13.7 | | | $ | 9.6 | | | $ | 6.8 | | | $ | 22.9 | | | $ | 96.4 | |
| Less: imputed interest | | | | | | | | | | | | | | | | (12.4) | |
| Total lease liabilities | | | | | | | | | | | | | | | | $ | 84.0 | |
As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting standard, future minimum lease payments for non-cancelable operating leases in future years would have been as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter |
| Future minimum lease payments | | $ | 16.7 | | | $ | 10.8 | | | $ | 6.8 | | | $ | 4.9 | | | $ | 4.2 | | | $ | 5.1 | |
Lease Term and Discount Rate
| | | | | | | | |
| | December 31,
2019 |
| Operating leases: | | |
| Weighted-average remaining lease term (in years) | | 6.3 |
| Weighted-average discount rate | | 3.8 | % |
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of operating lease liabilities totaled $25.0 million for the yearsyear ended December 31, 20162019. Operating lease right-of-use assets obtained in exchange for new operating lease liabilities totaled $100.5 million for the year ended December 31, 2019, of which $69.6 million related to the adoption of ASC 842.
Litigation
Over the years, the Company has been named as a defendant, along with numerous other defendants, in lawsuits in various 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
2015 were as follows: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 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. | | | | | | | | | | | | |
| | Accrued | | Foreign | | | | | | |
| | post-retirement | | currency | | | | | |
(in millions) | | benefit liability | | translation | | Other | | Total |
| | | | | | | | | | | | |
Balance at December 31, 2015 | | $ | (27.4) | | $ | (60.0) | | $ | 0.3 | | $ | (87.1) |
Other comprehensive loss before reclassifications | | | (0.6) | | | (36.7) | | | 0.6 | | | (36.7) |
Amounts reclassified from accumulated other comprehensive loss (1) | | | 2.3 | | | - | | | (0.1) | | | 2.2 |
Income tax (expense) benefit | | | (0.7) | | | - | | | 0.1 | | | (0.6) |
Other comprehensive income (loss) | | | 1.0 | | | (36.7) | | | 0.6 | | | (35.1) |
Balance at December 31, 2016 | | $ | (26.4) | | $ | (96.7) | | $ | 0.9 | | $ | (122.2) |
| | | | | | | | | | | | |
| | Accrued | | Foreign | | | | | | |
| | post-retirement | | currency | | | | | |
(in millions) | | benefit liability | | translation | | Other | | Total |
| | | | | | | | | | | | |
Balance at January 1, 2014 | | $ | (32.0) | | $ | (30.4) | | $ | 0.6 | | $ | (61.8) |
Other comprehensive loss before reclassifications | | | 3.0 | | | (29.6) | | | - | | | (26.6) |
Amounts reclassified from accumulated other comprehensive loss (1) | | | 4.5 | | | - | | | (0.5) | | | 4.0 |
Income tax (expense) benefit | | | (2.9) | | | - | | | 0.2 | | | (2.7) |
Other comprehensive income (loss) | | | 4.6 | | | (29.6) | | | (0.3) | | | (25.3) |
Balance at December 31, 2015 | | $ | (27.4) | | $ | (60.0) | | $ | 0.3 | | $ | (87.1) |
| (1)
| | The accrued post‑retirement benefit liability reclassification pertains to the amortization of unrecognized actuarial gains and losses and prior service credits which is included in net periodic benefit cost. See Note 13 for additional pension discussion.
|
Note 18—Financial Instruments
Foreign Currency Forward Contracts
The Company uses foreign currency forward contracts to hedge a portion of its foreign currency exchange rate exposure to forecasted foreign currency denominated cash flows. These instruments are not held for speculative or trading purposes.
For instruments that areA summary of the Company's designated and qualify as anon-designated cash flow hedge, the Company had foreign exchange contracts with maturities less than one year and an aggregate U.S. Dollar equivalent notional value of $17.6 million at December 31, 2016. The gross fair value was immaterial at December 31, 2016. No instruments were outstanding as of December 31, 2015. The effective portion of changes in the fair value of the contracts is recorded in accumulated other comprehensive income in the Consolidated Statements of Shareholders’ Equity and is recognized in operating income when the underlying forecasted transaction impacts earnings.
For instruments that are not designed as a cash flow hedge, the Company had foreign exchange contracts with maturities less than one year and an aggregate U.S. Dollar equivalent notional value of $39.3 million and $6.1 million at December 31, 2016 and 2015, respectively. The gross fair value was immaterial at December 31, 2016 and 2015. The unrealized gains and losses resulting from these contracts are not significant and are recognized in other expense, net and partially offset corresponding foreign exchange gains and losses on these balances.
hedges follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | | | December 31, 2018 | | |
| (in millions) | | Fair Value (1) | | Notional Value | | Fair Value (1) | | Notional Value |
| Designated hedges | | $ | 2.0 | | | $ | 108.1 | | | $ | 0.2 | | | $ | 95.0 | |
| Non-designated hedges | | 0.6 | | | 124.4 | | | 0.1 | | | 49.9 | |
(1)The fair value of foreign currency forward contracts is included in other current assets. The fair value was estimated using observable market inputs such as forward and spot prices of the underlying exchange rate pair. Based on these inputs, derivative assets and liabilities are classified as Level 2 in the fair value hierarchy. For instruments that are designated and qualify as a cash flow hedge, the Company had foreign currency forward contracts with maturities less than one year. The changes in the fair value of the contracts are recorded in accumulated other comprehensive income (loss) and recognized in the same line item as the impact of the hedged item, revenues or cost of sales, when the underlying forecasted transaction impacts earnings. Gains and losses on the contracts representing hedge components excluded from the assessment of hedge effectiveness are recognized in the same line item as the hedged item, revenues or cost of sales, currently.
For instruments that are not designed as a cash flow hedge, the Company had foreign exchange contracts with maturities less than one year. The unrealized gains and losses resulting from these contracts were immaterial and are recognized in other non-operating expense, net and partially offset corresponding foreign exchange gains and losses on these balances.
Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Accrued
post-retirement benefit liability | | Foreign currency translation | | Foreign currency forward contracts | | Total |
| Balance as of January 1, 2018 | | $ | (31.6) | | | $ | (50.1) | | | $ | (4.0) | | | $ | (85.7) | |
| Adoption of accounting standard | | (6.5) | | | — | | | — | | | (6.5) | |
| Other comprehensive income (loss): | | | | | | | | |
| Other comprehensive income (loss) before reclassifications | | (5.1) | | | (30.3) | | | 0.4 | | | (35.0) | |
Amounts reclassified from accumulated other comprehensive income (loss) (1) | | 4.6 | | | — | | | 0.4 | | | 5.0 | |
| Income tax benefit | | 0.1 | | | — | | | — | | | 0.1 | |
| Other comprehensive income (loss) | | (0.4) | | | (30.3) | | | 0.8 | | | (29.9) | |
| Balance as of December 31, 2018 | | (38.5) | | | (80.4) | | | (3.2) | | | (122.1) | |
| | | | | | | | |
| | | | | | | | |
| Other comprehensive income (loss) before reclassifications | | (6.0) | | | (2.1) | | | 1.3 | | | (6.8) | |
Amounts reclassified from accumulated other comprehensive income (loss) (1) | | 3.4 | | | — | | | 0.8 | | | 4.2 | |
| Income tax benefit | | 0.6 | | | — | | | — | | | 0.6 | |
| Other comprehensive income (loss) | | (2.0) | | | (2.1) | | | 2.1 | | | (2.0) | |
| Balance as of December 31, 2019 | | $ | (40.5) | | | $ | (82.5) | | | $ | (1.1) | | | $ | (124.1) | |
(1)The accrued post-retirement benefit liability reclassification pertains to the amortization of unrecognized actuarial gains and losses and prior service credits which is included in net periodic benefit cost. See Note 15 for additional pension discussion.
Other Financial Instruments
Other financial instruments include cash and cash equivalents, accounts receivable, net, accounts payable, accrued expenses and long-term debt. The carrying value for cash and cash equivalents, accounts receivable, net, accounts
payable and accrued expenses approximates fair value because of its short-term nature and generally negligible credit losses (refer to Note 14 for the fair value of long-term debt).
Note 19—Quarterly Financial Data (Unaudited)
| | | | | | | | | | | | | | | |
(in millions except per share data) | | First | | Second | | Third | | Fourth | | Year |
2016 | | | | | | | | | | | | | | | |
Net sales | | $ | 794.0 | | $ | 996.9 | | $ | 991.0 | | $ | 893.5 | | $ | 3,675.4 |
Gross profit | | | 245.4 | | | 321.2 | | | 323.6 | | | 267.1 | | | 1,157.3 |
Earnings before interest and income taxes | | | 110.6 | | | 178.9 | | | 36.4 | | | 115.2 | | | 441.1 |
Income (loss) from continuing operations | | | 68.5 | | | 115.3 | | | (9.5) | | | 76.5 | | | 250.8 |
Net income (loss) | | | 68.5 | | | 115.2 | | | (9.8) | | | 76.2 | | | 250.1 |
Basic earnings (loss) per share from continuing operations | | $ | 1.06 | | $ | 1.78 | | $ | (0.15) | | $ | 1.18 | | $ | 3.87 |
Diluted earnings (loss) per share from continuing operations | | $ | 1.05 | | $ | 1.75 | | $ | (0.15) | | $ | 1.17 | | $ | 3.83 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | | | | | | | |
| (in millions, except per share data) | | First | | Second | | Third | | Fourth | | Year |
| Revenues | | $ | 1,071.9 | | | $ | 1,314.8 | | | $ | 1,280.6 | | | $ | 1,144.3 | | | $ | 4,811.6 | |
| Gross margin | | 288.6 | | | 394.2 | | | 380.2 | | | 308.7 | | | 1,371.7 | |
| Operating income | | 114.7 | | | 207.2 | | | 191.0 | | | 141.3 | | | 654.2 | |
| Income from continuing operations | | 77.4 | | | 153.0 | | | 139.3 | | | 104.0 | | | 473.7 | |
| Income (loss) from discontinued operations | | 2.0 | | | (0.1) | | | (1.4) | | | (1.4) | | | (0.9) | |
| Net income | | 79.4 | | | 152.9 | | | 137.9 | | | 102.6 | | | 472.8 | |
| | | | | | | | | | |
| Basic earnings per share: | | | | | | | | | | |
Income from continuing operations (1) | | $ | 1.34 | | | $ | 2.68 | | | $ | 2.45 | | | $ | 1.84 | | | $ | 8.30 | |
Income (loss) from discontinued operations (1) | | 0.03 | | | — | | | (0.02) | | | (0.03) | | | (0.02) | |
Basic earnings per share (1) | | $ | 1.37 | | | $ | 2.68 | | | $ | 2.43 | | | $ | 1.81 | | | $ | 8.28 | |
| | | | | | | | | | |
| Diluted earnings per share: | | | | | | | | | | |
Income from continuing operations (1) | | $ | 1.33 | | | $ | 2.65 | | | $ | 2.42 | | | $ | 1.81 | | | $ | 8.21 | |
Income (loss) from discontinued operations (1) | | 0.03 | | | — | | | (0.02) | | | (0.03) | | | (0.02) | |
Diluted earnings per share (1) | | $ | 1.36 | | | $ | 2.65 | | | $ | 2.40 | | | $ | 1.78 | | | $ | 8.19 | |
| | | | | | | | | | | | | | | |
(in millions except per share data) | | First | | Second | | Third | | Fourth | | Year |
2015 | | | | | | | | | | | | | | | |
Net sales | | $ | 709.3 | | $ | 984.6 | | $ | 973.1 | | $ | 876.2 | | $ | 3,543.2 |
Gross profit | | | 173.0 | | | 285.4 | | | 295.5 | | | 252.8 | | | 1,006.7 |
Earnings before interest and income taxes | | | 66.4 | | | 148.0 | | | 161.8 | | | 125.7 | | | 501.9 |
Income from continuing operations | | | 39.5 | | | 94.8 | | | 103.6 | | | 81.7 | | | 319.6 |
Net income | | | 39.4 | | | 94.9 | | | 103.6 | | | 81.8 | | | 319.7 |
Basic earnings per share from continuing operations | | $ | 0.60 | | $ | 1.45 | | $ | 1.59 | | $ | 1.25 | | $ | 4.89 |
Diluted earnings per share from continuing operations | | $ | 0.59 | | $ | 1.43 | | $ | 1.56 | | $ | 1.24 | | $ | 4.82 |
Note: (1)The sum of quarterly earnings per share amounts may not equal the year due to rounding.
differences in weighted-average share calculation.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2018 | | | | | | | | |
| (in millions, except per share data) | | First | | Second | | Third | | Fourth | | Year |
| Revenues | | $ | 984.7 | | | $ | 1,236.1 | | | $ | 1,181.4 | | | $ | 1,077.3 | | | $ | 4,479.5 | |
| Gross margin | | 249.4 | | | 332.2 | | | 314.3 | | | 278.8 | | | 1,174.7 | |
| Operating income | | 94.7 | | | 159.7 | | | 140.0 | | | 114.6 | | | 509.0 | |
| Income from continuing operations | | 57.9 | | | 114.7 | | | 96.9 | | | 89.1 | | | 358.6 | |
| Income (loss) from discontinued operations | | 251.7 | | | (1.0) | | | 2.8 | | | (1.0) | | | 252.5 | |
| Net income | | 309.6 | | | 113.7 | | | 99.7 | | | 88.1 | | | 611.1 | |
| | | | | | | | | | |
| Basic earnings per share: | | | | | | | | | | |
Income from continuing operations (1) | | $ | 0.93 | | | $ | 1.88 | | | $ | 1.61 | | | $ | 1.50 | | | $ | 5.92 | |
Income (loss) from discontinued operations (1) | | 4.05 | | | (0.02) | | | 0.05 | | | (0.02) | | | 4.17 | |
Basic earnings per share (1) | | $ | 4.98 | | | $ | 1.86 | | | $ | 1.66 | | | $ | 1.48 | | | $ | 10.09 | |
| | | | | | | | | | |
| Diluted earnings per share: | | | | | | | | | | |
Income from continuing operations (1) | | $ | 0.92 | | | $ | 1.87 | | | $ | 1.59 | | | $ | 1.49 | | | $ | 5.88 | |
Income (loss) from discontinued operations (1) | | 4.02 | | | (0.02) | | | 0.05 | | | (0.02) | | | 4.14 | |
Diluted earnings per share (1) | | $ | 4.94 | | | $ | 1.85 | | | $ | 1.64 | | | $ | 1.47 | | | $ | 10.02 | |
(1)The sum of quarterly earnings per share amounts may not equal the year due to differences in weighted-average share calculation.
Note 20—Subsequent Events
On
January 9, 2017,February 5, 2020, the Company
acquired 100%entered into the Company's Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) administered by JPMorgan Chase Bank, N.A. Among other things, the Amendment extended the maturity date of the
equity of San Jamar, Inc. (“San Jamar”) for estimated cash consideration of $217.7 million, subjectFacility from February 21, 2022, to
a working capital settlement. San Jamar is a leading 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 innovative new products, opportunities to expand our presence in complementary sales channels and a history of profitable growth. The results of operations of the acquired business will be reported within the FoodService Products segment beginning inFebruary 5, 2025. During the first quarter of 2017.
2020, the Company incurred $1.3 million of debt issuance costs to finalize the amendment, which will be recognized ratably over the extended maturity date of the Facility. The Facility has a feature that allows the Company to increase availability, at our option, by an aggregate amount of up to $500.0 million through increased commitments from existing lenders or the addition of new lenders. Under the Facility the Company may also enter into commitments in the form of standby, commercial, or direct pay letters of credit for an amount not to exceed $50.0 million. The Facility provides for grid-based interest pricing based on the credit rating of the senior unsecured bank debt or other unsecured senior debt. The Facility is also subject to fees based on applicable rates as defined in the agreement and the aggregate commitment, regardless of usage.On January 31, 2017, the Company acquired 100% of the equity of Arbo Holdings Limited (“Arbo”) for an estimated cash consideration of $8.9 million. Arbo is a leading provider of sealants, coatings, and membrane systems used for waterproofing and sealing buildings and other structures. The results of operations of the acquired business will be reported within the Construction Materials segment beginning in the first quarter of 2017.
As part of its efforts to continue to re-align CBF’s cost structure and to position it for expected end market recovery, our Board of Directors approved and subsequently, on February 9, 2017, the Company announced that it will exit its manufacturing operations in Tulsa, Oklahoma and relocate the majority of those operations to its existing manufacturing facility in Medina, Ohio. This action is expected to take approximately 18 months to complete. Total associated exit and disposal costs are expected to be between approximately $16.5 million to $18.5 million with additional capital expenditures between approximately $28.0 million to $29.0 million.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures. | (a)Under the supervision and with the participation of the Company’s management, including the Company’s chief executive officer and chief financial officer, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a‑15. Based upon that evaluation and as of December 31, 2016, the chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are effective.
|
(a) Evaluation of disclosure controls and procedures. Under the supervision and with the participation of the Company’s management, including the Company’s chief executive officer and chief financial officer, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation and as of December 31, 2019, the chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are effective.Management has prepared a report on the Company’s internal control over financial reporting in which management has determined that the Company’s controls are effective. A copy of management’s report is set forth below.
| (b)During the fourth quarter of 2016, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
|
(b) Changes in internal controls. During the fourth quarter of 2019, there were no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.Management’s Report on Internal Control over Financial Reporting.Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of the Company’s management, including the chief executive officer and chief financial officer, the Company evaluated the effectiveness of the design and operation of its internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s internal control over financial reporting was effective as of December 31,
2016.2019.
As discussed in Note 3 to the Consolidated Financial Statements in Item 8, the Company completed the acquisitions of
Micro-Coax, Inc.Petersen Aluminum Corporation on January 11, 2019, MicroConnex Corporation on April 1, 2019, and
Kroll Technologies,Providien LLC on
June 10, 2016 and Star Aviation, Inc. on October 3, 2016November 20, 2019, (collectively the “Acquired Businesses”). Management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the Acquired Businesses, which
constituted $181.4 millionrepresented 12% of total assets as of December 31,
2016, $27.1 million2019, and 4% of
net sales and $0.5 million of earnings before interest and income taxesrevenues for the year then ended.
The internal controls over financial reporting have been assessed by
ErnstDeloitte &
YoungTouche LLP, whose report with respect to the effectiveness of internal controls over financial reporting is included herein at Item 8.
Item 9B. Other Information.
The following disclosure is made in lieu of filing a Current Report on Form 8-K, Item 2.05, Costs Associated with Exit or Disposal Activities:
As part of its efforts to continue to re-align CBF’s cost structure and to position it for expected end market recovery, our Board of Directors approved and subsequently, on February 9, 2017, the Company announced that it will exit its manufacturing operations in Tulsa, Oklahoma and relocate the majority of those operations to its existing manufacturing facility in Medina, Ohio. This action is expected to take approximately 18 months to complete. Total associated exit and disposal costs are expected to be between $16.5 million to $18.5 million, including:
| ·
| | Non-cash accelerated depreciation of long-lived assets at the Oklahoma facility, which is primarily property, plant and equipment that will not be transferred to Ohio (between $5.0 million to $6.0 million expected to be recognized ratably between the first quarter of 2017 and the second quarter of 2018),
|
| ·
| | Costs to relocate and install equipment (between $6.0 million to $7.0 million, expected to be incurred in the second half of 2018),
|
| ·
| | Employee retention and termination benefits (approximately $2.5 million, expected to be incurred ratably between the first quarter of 2017 and the second half of 2018),
|
| ·
| | Other associated costs related to the closure of the facility and internal administration of the project (approximately $3.0 million, expected to be incurred primarily in the second half of 2018).
|
As part of the relocation effort, the Company will also invest additional capital in its Medina, Ohio facility. The capital investment is anticipated to be comprised of approximately $13.0 million to expand the facility and between approximately $15.0 million to $16.0 million to purchase new, more efficient equipment to replace equipment not being relocated.
Item 10. Directors,
and Executive Officers
of the Registrant.and Corporate Governance.
The following table sets forth certain information relating to each executive officer of the Company, as furnished to the Company by the executive officers. Except as otherwise indicated each executive officer has had the same principal occupation or employment during the past five years.
| | | | | | | | | | | | | | | | | | | | |
Name | | Age | | Position with Company | | Period of Service |
D. Christian Koch | | 51
54 | | | Director, President and Chief Executive Officer since January 2016; President and Chief Operating Officer from May 2014 to December 2015; Group President, Carlisle Diversified Products from June 2012 to May 2014; President, Carlisle Brake & Friction from January 2009 to June 2012; President, Carlisle Asia‑Pacific from February 2008 to January 2009. | | February 2008 to date |
| | | | | | |
John W. Altmeyer
| | 57
| | President, Carlisle Construction Materials since July 1997.
| | June 1989 to date
|
| | | | | | |
Titus B. Ball | | 43
46 | | | Vice President, Chief Accounting Officer since May 2016; Director of Internal Audit from April 2011 to April 20162016. | | January 2010 to date |
| Shelley J. Bausch | | 54 | | | President, Carlisle Fluid Technologies since October 2017; Vice President, PPG Industrial Coatings from January 2014 to September 2017; Business Vice President, Finished Products, Dow Corning Corporation from April 2011 to January 2014. | | October 2017 to date |
John E. Berlin | | 55
58 | | | President, Carlisle Interconnect Technologies since February 1995. | | January 1990 to date |
| Karl T. Messmer | | 49 | | | President, Carlisle Brake & Friction since November 2015; Vice President & General Manager, Networking Solutions, Belden Inc. from October 2010 to September 2015. | | November 2015 to date |
Steven J. Ford
Amelia Murillo | | 57
45 | | | Vice President, Human Resources since February 2016; Vice President, Finance & Administration, Carlisle Interconnect Technologies from October 2008 to April 2014. | | February 2016 to date |
| Robert M. Roche | | 52 | | | Vice President, Chief Financial Officer since November 2008February 2017; Senior Vice President, Business Finance, Tyco International from August 2014 to February 2017, Chief Operating Officer & Senior Vice President, Business Finance, Tyco International from December 2014 to August 2015, and Senior Vice President, Audit, Tyco International from January 2013 to August 2014. | | February 2017 to date |
| Scott C. Selbach | | 64 | | | Vice President, Secretary and General Counsel since July 1995.May 2018; Vice President, Corporate Development from April 2006 to May 2018. | | July 1995April 2006 to date
|
| Nicholas J. Shears | | 61 | | | President since May 2019; Interim President from September 2018 to April 2019; Executive Vice President, Sales & Marketing from January 2017 to August 2018; Vice President, Sales & Marketing from October 1999 to December 2016, Carlisle Construction Materials. | | April 1984 to date |
ScottDouglas C. Selbach
Taylor | | 61
50 | | | Vice President, Carlisle Operating System since June 2014; Director of Operational Excellence, Demmer Corporation from March 2013 to June 2014. | | June 2014 to date |
| Laura Walsh | | 37 | | | Vice President & Chief Information Officer since January 2020; Vice President, Information Technology from September 2018 to December 2019; Vice President, Chief Information Officer, Lydall, Inc. from July 2016 to August 2018; Vice President, Information Technology, Unimin Corporation from July 2014 to June 2016. | | September 2018 to date |
| Kevin P. Zdimal | | 49 | | | Vice President, Corporate Development since April 2006. | | April 2006 to date
|
| | | | | | |
Kevin P. Zdimal
| | 46
| | May 2018, Vice President, Business Development sincefrom May 2016 to May 2018, Vice President and Chief Accounting Officer from May 2010 to May 2016. | | September 1995 to date |
The officers have been elected to serve at the pleasure of the Board of Directors of the Company. There are no family relationships between any of the above officers, and there is no arrangement or understanding between any officer and any other person pursuant to which he
or she was selected
as an officer.
Information required by Item 10
with respect to directors of the Company is incorporated by reference to the
Company’sCompany's definitive proxy statement,
set forth under the caption "Corporate Governance" to be filed with the Securities and Exchange Commission no later than 40 days before the Annual Meeting of Shareholders to be held on
April 26, 2017.The Company has adopted a Business Code of Ethics covering, among others, its principal executive officer and all management involved in financial reporting. The Business Code of Ethics is published on the Company’s website: www.carlisle.com. Any amendment to, or waiver of, any provision of the Business Code of Ethics affecting such senior officers will be disclosed on the Company’s website.
In the Company’s definitive proxy statement we describe the procedures under which shareholders can recommend nominees for the Board of Directors. There have been no changes to those procedures since the Company’s definitive proxy statement dated March 31, 2016.
Item 11. Executive Compensation.
Information required by Item 11 is incorporated by reference to the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission no later than 40 days before the Annual Meeting of Shareholders to be held on
April 26, 2017.May 6, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Security Ownership of Certain Beneficial Owners and Management Information required by Item 12 is incorporated by reference to the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission no later than 40 days before the Annual Meeting of Shareholders to be held on
April 26, 2017.May 6, 2020.
Securities Authorized for Issuance under Equity Compensation Plans The number of securities to be issued upon the exercise of stock optionsequity awards under the Company’s equity compensation plans, the weighted average exercise price of the options and the number of securities remaining for future issuance as of December 31, 20162019, follows:
| | | | | | | | | | | | | | | | | | | | |
Plan Category (in thousands, except per share amounts) | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| | (a) | | (b) | | (c) |
| Equity compensation plans approved by equity security holders | | 2,284 | | (1) | $ | 101.95 | | | 1,515 | |
| Equity compensation plans not approved by equity security holders | | — | | | n/a | | | — | |
| Total | | 2,284 | | | $ | 101.95 | | | 1,515 | |
(1)Includes shares of our common stock issuable upon the vesting of 173 thousand restricted stock awards and 286 thousand performance share units at maximum performance levels. These awards are as follows:not reflected in column (b) because they do not have an exercise price. | | | | | | | |
| | Number of securities to be issued upon exercise of outstanding options | | Weighted-average price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
Plan Category | | (a) | | (b) | | (c) | |
Equity compensation plans approved by equity security holders | | 1,263,665 | | $ 70.95 | | 3,950,953 | (1) |
Equity compensation plans not approved by equity security holders | | - | | n/a | | - | |
Total | | 1,263,665 | | $ 70.95 | | 3,950,953 | |
| (1)
| | Includes 1,437,278 of shares which may be issued as stock awards. Shares available for award under the Carlisle Companies Incorporated Incentive Compensation Program were approved onMay 6, 2015.
|
Item 13. Certain Relationships and Related Transactions.
Transactions, and Director Independence.
Information required by Item 13 is incorporated by reference to the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission no later than 40 days before the Annual Meeting of Shareholders to be held on
April 26, 2017.May 6, 2020.
Item 14. Principal AccountantAccounting Fees and Services. Information required by Item 14 is incorporated by reference to the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission no later than 40 days before the Annual Meeting of Shareholders to be held on
April 26, 2017.Item 15. Exhibits, and Financial Statement Schedules. (a)(1). Financial statements required by Item 8 are as follows:
| | | | | |
Consolidated Statements of EarningsIncome and Comprehensive Income, years ended December 31, 2016, 2015,2019, 2018 and 2014 | 2017 | 45 |
Consolidated Balance Sheets, December 31, 20162019 and 2015 | 2018 | 46 |
Consolidated Statements of Cash Flows, years ended December 31, 2016, 20152019, 2018 and 2014 | 2017 | 47 |
Consolidated Statements of Shareholders’ Equity, years ended December 31, 2016, 2015,2019, 2018 and 2014 | 2017 | 48 |
Notes to Consolidated Financial Statements | | 49 |
(a)(2). Financial Statement Schedules:
Included in Item 8, as applicable.
(a)(3). Exhibits applicable to the filing of this report are
as follows:listed in the following exhibit index.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | |
Carlisle Companies Incorporated | | | | | | | | | | |
Exhibit Index |
| | | | | | | | | | |
| Exhibit | | | | Filed | | |
Exhibit
| | | | with this Form 10-K | | Incorporated by Reference | | | | |
Number | | Exhibit Title | | Form 10-K
| | Form | | File No. | | Date Filed |
| | | | | | | | | | |
2.1 | | Master Transaction Agreement, dated October 20, 2013, between the Company and CTP Transportation Products, LLC. | | | | 8-K | | 001-09278 | | 10/22/2013 |
2.2 | | Asset Purchase Agreement, date October 20, 2013, between Carlisle Transportation Products, Inc., Carlisle Intangible Company and CTP Transportation Products, LLC. | | | | 8-K | | 001-09278 | | 10/22/2013 |
2.3 | | Asset Purchase Agreement, dated October 20, 2013, between Carlisle Canada and CTP Transportation Products, LLC. | | | | 8-K | | 001-09278 | | 10/22/2013 |
2.4 | | Stock Purchase Agreement, dated October 20, 2013, between Carlisle International BV and CTP Transportation Products, LLC. | | | | 8-K | | 001-09278 | | 10/22/2013 |
2.5 | | Equity Purchase Agreement, dated October 20, 2013, between Carlisle Asia Pacific Limited and CTP Transportation Products, LLC. | | | | 8-K | | 001-09278 | | 10/22/2013 |
2.6 | | Asset Purchase Agreement, dated October 20, 2013, between Carlisle Asia Pacific Limited and CTP Transportation Products, LLC. | | | | 8-K | | 001-09278 | | 10/22/2013 |
2.7 | | Form of Trademark License Agreement between the Company, Carlisle Intangible Company and CTP Transportation Products, LLC. | | | | 8-K | | 001-09278 | | 10/22/2013 |
2.8 | | Asset Purchase Agreement, dated October 7, 2014, between the Company, Carlisle Fluid Technologies, Inc., Graco Inc. and Finishing Brands Holdings Inc. | | | | 8-K | | 001-09278 | | 10/8/2014 |
2.9 | | Amendment No. 1 to Asset Purchase Agreement, dated March 6, 2015, between the Company, Carlisle Fluid Technologies, Inc., Graco Inc. and Finishing Brands Holdings Inc. | | | | 8-K | | 001-09278 | | 3/9/2015 |
2.10 | | Form of Cross License Agreement (as amended by Amendment No. 1 to Asset Purchase Agreement), by and among the Company, Carlisle Fluid Technologies, Inc., Finishing Brands Holdings Inc., Graco Inc. and Gema Switzerland GmbH. | | | | 8-K | | 001-09278 | | 3/9/2015 |
3.1 | | Securities Purchase Agreement, dated September 29, 2017, between Accella Performance Materials LLC, Accella Holdings LLC and Carlisle Construction Materials, LLC. | | | | 8-K | | 001-09278 | | 10/2/2017 |
| | Stock Purchase Agreement, dated as of January 31, 2018, by and among Carlisle, LLC, Carlisle FoodService Products, Incorporated, CFSP Acquisition Corp. and Carlisle Companies Incorporated. | | | | 8-K | | 001-09278 | | 2/2/2018 |
| | Restated Certificate of Incorporation of the Company. | | | | 10-Q | | 001-09278 | | 10/21/2015 |
3.2 | | Amended and Restated Bylaws of the Company. | | | | 8-K | | 001-09278 | | 12/14/2015 |
4.1 | | Form of Trust Indenture between the Company and Fleet National Bank. | | | | S-3 | | 333-16785 | | 11/26/1996 |
4.2 | | First Supplemental Indenture, dated as of August 18, 2006, among the Company, U.S. Bank National Association (as successor to State Street Bank and Trust Company, as successor to Fleet National Bank) and The Bank of New York Trust Company, N.A. | | | | 8-K | | 001-09278 | | 8/18/2006 |
4.3 | | Second Supplemental Indenture, dated as of December 9, 2010, among the Company, U.S. Bank National Association (as successor to State Street Bank and Trust Company, as successor to Fleet National Bank) and The Bank of New York Mellon Trust Company, N.A. | | | | 8-K | | 001-09278 | | 12/10/2010 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Carlisle Companies Incorporated | | | | | | | | | | |
| Exhibit Index | | | | | | | | | | |
| Exhibit | | | | Filed with this Form 10-K | | Incorporated by Reference | | | | |
| Number | | Exhibit Title | | | | Form | | File No. | | Date Filed |
| | | | | | | | | | |
4.4 | | Third Supplemental Indenture, dated as of November 20, 2012, among the Company, U.S. Bank National Association (as successor to State Street Bank and Trust Company, as successor to Fleet National Bank) and The Bank of New York Mellon Trust Company, N.A. | | | | 8-K | | 001-09278 | | 11/20/2012 |
10.1 | | Form of 3.500% Notes due 2024. | | | | 8-K | | 001-09278 | | 11/16/2017 |
| | Form of 3.750% Notes due 2027. | | | | 8-K | | 001-09278 | | 11/16/2017 |
| | Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. | | X | | 10-K | | 001-09278 | | 2/11/2020 |
| | Carlisle Companies Incorporated Amended and Restated Executive Incentive Program. | | | | Schedule 14A | | 001-09278 | | 3/20/2012 |
10.2 | | Form of Carlisle Companies Incorporated Nonqualified Stock Option Agreement. | | | | 10-Q | | 001-09278 | | 11/8/2004 |
10.3 | | Form of Carlisle Companies Incorporated Restricted Share Agreement with Non-Compete Covenant. | | | | 10-Q | | 001-09278 | | 7/22/2014 |
10.4 | | Form of Amended and Restated Executive Severance Agreement. | | | | 10-K | | 001-09278 | | 2/27/2009 |
10.5**P 10.5 | | Summary Plan Description of Carlisle Companies Incorporated Director Retirement Plan, effective November 6, 1991. | | | | 10-K | | 001-09278 | | 3/24/1992 |
10.6 | | Amendment to the Carlisle Companies Incorporated Director Retirement Plan. | | | | 10-K | | 001-09278 | | 3/11/2004 |
10.7 | | Carlisle Companies Incorporated Amended and Restated Nonemployee Director Equity Plan. | | | | Schedule 14A | | 001-09278 | | 3/9/2005 |
10.8 | | Form of Carlisle Companies Incorporated Stock Option Agreement for Nonemployee Directors. | | | | 8-K | | 001-09278 | | 2/7/2005 |
10.9 | | Form of Carlisle Companies Incorporated Nonqualified Stock Option Agreement for Nonemployee Directors. | | | | 8-K | | 001-09278 | | 5/10/2005 |
10.10 | | Form of Carlisle Companies Incorporated Restricted Share Agreement for Nonemployee Directors. | | | | 8-K | | 001-09278 | | 5/10/2005 |
10.11 | | Form of Carlisle Companies Incorporated Restricted Stock Unit Agreement for Nonemployee Directors. | | | | 10-K | | 001-09278 | | 2/27/2009 |
10.12 | | Carlisle Companies Incorporated Amended and Restated Deferred Compensation Plan for Nonemployee Directors. | | | | 10-K | | 001-09278 | | 2/27/2009 |
10.13 | | Carlisle Companies Incorporated Amended and Restated Incentive Compensation Program, effective January 1, 2015. | | | | Schedule 14A | | 001-09278 | | 3/20/2015 |
10.14 | | Letter Agreement, dated June 5, 2007, between David A. Roberts and the Company. | | | | 8-K | | 001-09278 | | 6/12/2007 |
10.15 | | Nonqualified Stock Option Agreement, dated as of June 21, 2007, between the Company and David A. Roberts. | | | | 10-Q | | 001-09278 | | 8/6/2007 |
10.16 | | Restricted Share Agreement, dated as of June 21, 2007, between the Company and David A. Roberts. | | | | 10-Q | | 001-09278 | | 8/6/2007 |
10.17 | | Letter Agreements, dated January 11, 2008 and December 31, 2008, between D. Christian Koch and the Company. | | | | 10-K | | 001-09278 | | 2/27/2009 |
10.18 | | Letter Agreement, dated August 4, 2011, between Fred A. Sutter and the Company. | | | | 10-Q | | 001-09278 | | 10/25/2011 |
10.19 | | Carlisle Corporation Amended and Restated Supplemental Pension Plan. | | | | 10-K | | 001-09278 | | 2/10/2012 |
10.20 | | Amendment No. 1 to the Carlisle Corporation Supplemental Pension Plan, adopted February 4, 2014. | | | | 10-Q | | 001-09278 | | 4/22/2014 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Carlisle Companies Incorporated | | | | | | | | | | |
| Exhibit Index | | | | | | | | | | |
| Exhibit | | | | Filed with this Form 10-K | | Incorporated by Reference | | | | |
| Number | | Exhibit Title | | | | Form | | File No. | | Date Filed |
| | | | | | | | | | |
10.21 | | Form of Carlisle Companies Incorporated Performance Share Agreement. | | | | 10-Q | | 001-09278 | | 4/27/2010 |
10.22 | | Carlisle Companies Incorporated Amended and Restated Nonqualified Deferred Compensation Plan, dated January 1, 2012. | | | | 10-K | | 001-09278 | | 2/10/2012 |
10.23 | | Carlisle Companies Incorporated Nonqualified Benefit Plan Trust, dated February 2, 2010, by and between the Company and Wachovia Bank, National Association. | | | | 10-Q | | 001-09278 | | 4/27/2010 |
10.24 | | Third Amended and Restated Credit Agreement, dated as of October 20, 2011, among the Company, Carlisle Management Company, JPMorgan Chase Bank, N.A., as administrative agent and the lenders party thereto. | | | | 10-Q | | 001-09278 | | 10/25/2011 |
10.25 | | First Amendment to Third Amended and Restated Credit Agreement, dated as of December 12, 2013, by and among the Company, Carlisle Corporation, JPMorgan Chase Bank, N.A., as administrative agent and the lenders party thereto. | | | | 8-K | | 001-09278 | | 12/17/2013 |
12.1 | | Ratio of Earnings to Fixed Charges.
Letter Agreement, dated January 5, 2017, between Robert Roche and the Company. | | X
| | 8-K | | 001-09278 | | 2/15/2017 |
21.1 | | Second Amendment to Third Amended and Restated Credit Agreement, dated as of February 21, 2017, by and among Carlisle Companies Incorporated, Carlisle Corporation, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto. | | | | 8-K | | 001-09278 | | 2/24/2017 |
| | Form of Executive Severance Agreement | | | | 8-K/A | | 001-09278 | | 4/12/2017 |
| | Form of Trademark License Agreement between Carlisle Intangible Company, LLC and Carlisle FoodService Products, Incorporated. | | | | 8-K | | 001-09278 | | 2/2/2018 |
| | Letter Agreement, dated August 22, 2018, between the Company and John W. Altmeyer | | | | 8-K | | 001-09278 | | 9/13/2018 |
| | Carlisle LLC Amended and Restated Supplemental Pension Plan, effective January 1, 2019. | | | | 10-Q | | 001-09278 | | 4/25/2019 |
| | Carlisle Companies Incorporated Amended and Restated Incentive Compensation Program, effective January 1, 2019. | | | | 10-Q | | 001-09278 | | 4/25/2019 |
| | Fourth Amended and Restated Credit Agreement, dated as of February 5, 2020, by and among Carlisle Companies Incorporated, Carlisle LLC, JPMorgan Chase Bank, N.A., as administrative agent and the lenders party thereto. | | | | 8-K | | 001-09278 | | 2/7/2020 |
| | Subsidiaries of the Registrant. | | X | | | | | | |
23.1 | | Consent of Independent Registered Public Accounting Firm – ErnstDeloitte & YoungTouche LLP. | | X | | | | | | |
31.1 | | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). | | X | | | | | | |
31.2 | | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). | | X | | | | | | |
32.1 | | Section 1350 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | X | | | | | | |
101.1 101.INS | |
| Inline XBRL Instance | | X | | | | | | |
| 101.SCH | | | Inline XBRL Taxonomy Extension Schema | | X | | | | | | |
| 101.CAL | | | Inline XBRL Taxonomy Extension Calculation | | X | | | | | | |
| 101.LAB | | | Inline XBRL Taxonomy Extension Labels | | X | | | | | | |
| 101.PRE | | | Inline XBRL Taxonomy Extension Presentation | | X | | | | | | |
| 101.DEF | | | Inline XBRL Taxonomy Extension Definition | | X | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Carlisle Companies Incorporated | | | | | | | | | | |
| Exhibit Index | | | | | | | | | | |
| Exhibit | | | | Filed with this Form 10-K | | Incorporated by Reference | | | | |
| Number | | Exhibit Title | | | | Form | | File No. | | Date Filed |
| | | | | | | | | | |
| 104 | | | Cover Page Interactive Data File.File (embedded within the Inline XBRL document) | | X | | | | | | |
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*Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementary to Securities and Exchange Commission upon request.
** Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
P Indicates paper filing.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Carlisle Companies Incorporated
CARLISLE COMPANIES INCORPORATED
| | | | | | | | |
By: /s/ Steven J. FordRobert M. Roche | | |
Steven J. Ford, Robert M. Roche, Vice President and
| | |
Chief Financial Officer | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
| | | | | | | | |
| /s/ D. Christian Koch | | /s/ Robin J. Adams |
D. Christian Koch, Director,
| | Robin J. Adams, Director
|
President and Chief Executive Officer | | |
(Principal Executive Officer) | | |
| | |
/s/ Steven J. Ford Robert M. Roche | | /s/ Robert G. Bohn |
Steven J. Ford, Robert M. Roche, Vice President and
| | Robert G. Bohn, Director
|
Chief Financial Officer | | |
(Principal Financial Officer) | | |
| | |
/s/ Titus B. Ball | | /s/ Jonathan R. Collins |
Titus B. Ball, Vice Presidentand
| | Jonathan R. Collins, Director
|
Chief Accounting Officer | | |
(Principal Accounting Officer) | | /s/ James D. Frias |
| | James D. Frias, Director
|
| | |
| | /s/ Terry D. Growcock Maia A. Hansen |
| | Terry D. Growcock, Maia A. Hansen, Director
|
| | |
| | /s/ Gregg A. Ostrander |
| | Gregg A. Ostrander, Director |
| | |
| | /s/ Corrine D. Ricard |
| | Corrine D. Ricard, Director |
| | |
| | /s/ David A. Roberts |
| | David A. Roberts, Director
|
| | |
| | /s/ Lawrence A. Sala |
| | Lawrence A. Sala, Director
|
| | |
| | /s/ Magalen C. Webert Jesse G. Singh |
| | Magalen C. Webert, Jesse G. Singh, Director
|
| | |
| | |
| | |
February
13, 201710, 2020
www.carlisle.comCommission 
13Market InformationThe Company’s common stock is traded on the New York Stock