Income Taxes
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(in millions)
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|
Three Months Ended June 30,
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Six Months Ended June 30,
|
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2020
|
|
2019
|
|
Change
|
|
%
|
|
2020
|
|
2019
|
|
Change
|
|
%
|
|
Provision for income taxes
|
|
$
|
21.6
|
|
|
$
|
40.1
|
|
|
$
|
(18.5)
|
|
|
(46.1)
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%
|
|
$
|
36.0
|
|
|
$
|
64.1
|
|
|
$
|
(28.1)
|
|
|
(43.8)
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%
|
|
Effective tax rate
|
|
22.3
|
%
|
|
20.8
|
%
|
|
|
|
|
|
20.8
|
%
|
|
21.8
|
%
|
|
|
|
|
The effective income tax rate on continuing operations for the first six months of 2020 was 20.8%. The year-to-date provision for income taxes included taxes on earnings at an anticipated rate of 24.0% and a year-to-date net discrete tax benefit of $5.3 million. The year-to-date net discrete tax benefit relates primarily to a reduction of unrecognized income tax benefits of $5.5 million.
The effective income tax rate on continuing operations for the first six months of 2019 was 21.8%.
Income from Discontinued Operations
Income from discontinued operations of $1.9 million for the first six months of 2019 relates solely to the settlement of prior income tax positions.
Segment Results of Operations
We continue to operate our facilities as essential business operations, while adhering to all health and safety measures for onsite employees. We have taken several steps to address the overall effects of COVID-19 on Carlisle and continue to assess the risks and potential impacts on our businesses. We have developed plans and implemented actions to mitigate risks and enhance the performance of our businesses in an uncertain environment dependent largely on future developments, which are highly uncertain and cannot be predicted.
Carlisle Construction Materials ("CCM")
CCM's manufacturing plants in Europe that had temporary suspensions of operations are now operating at nearly normal capacity. Demand for non-residential roofing solutions is predominantly replacement-driven, and we continue to benefit from the overall resumption of related construction work in both the U.S. and Europe. CCM's operating margins of 18.7% during the quarter are a testament to our excellent management team, suite of valued products and delivery of the premium Carlisle Experience. The actions taken at CCM prior to and during COVID-19 have solidified its place as a go-to supplier of building envelope solutions. Notably, CCM's newer metal and polyurethane platforms performed very well in the quarter. Lastly, we remain price disciplined and expect a substantial raw material benefit year-over-year in 2020.
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(in millions)
|
|
Three Months Ended June 30,
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|
Acquisition Effect
|
|
Price / Volume Effect
|
|
Exchange Rate Effect
|
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2020
|
|
2019
|
|
Change
|
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%
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
734.9
|
|
|
$
|
915.0
|
|
|
$
|
(180.1)
|
|
|
(19.7)
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%
|
|
0.1
|
%
|
|
(19.7)
|
%
|
|
(0.1)
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%
|
|
Operating income
|
|
$
|
137.6
|
|
|
$
|
182.5
|
|
|
$
|
(44.9)
|
|
|
(24.6)
|
%
|
|
|
|
|
|
|
|
Operating margin percentage
|
|
18.7
|
%
|
|
19.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
25.0
|
|
|
$
|
23.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability(1)
|
|
$
|
1.3
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
(1)Items affecting comparability include idle capacity and labor costs, net of subsidies, of $1.1 million, and exit and disposal and facility rationalization costs of $0.2 million in the second quarter of 2020 and exit and disposal and facility rationalization costs of $0.2 million in the second quarter of 2019, refer to Items Affecting Comparability.
CCM’s revenue decline in the second quarter of 2020 primarily reflected lower sales volumes across all of our product lines due to delays in customer demand and in new construction projects attributable to COVID-19.
CCM’s operating margin percentage decline in the second quarter of 2020 primarily reflected lower volumes, partially offset by raw material savings, particularly MDI, and lower travel and other administrative costs.
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(in millions)
|
|
Six Months Ended June 30,
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|
|
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|
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|
|
Acquisition Effect
|
|
Price / Volume Effect
|
|
Exchange Rate Effect
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
%
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,411.3
|
|
|
$
|
1,586.1
|
|
|
$
|
(174.8)
|
|
|
(11.0)
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%
|
|
0.2
|
%
|
|
(11.0)
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%
|
|
(0.2)
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%
|
|
Operating income
|
|
$
|
245.3
|
|
|
$
|
275.4
|
|
|
$
|
(30.1)
|
|
|
(10.9)
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%
|
|
|
|
|
|
|
|
Operating margin percentage
|
|
17.4
|
%
|
|
17.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
49.8
|
|
|
$
|
45.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability(1)
|
|
$
|
1.9
|
|
|
$
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
(1)Items affecting comparability include idle capacity and labor costs, net of subsidies, of $2.2 million, acquisition related costs of $0.2 million, exit and disposal and facility rationalization costs of $0.3 million and $(0.8) million from the sale of a business during the first six months of 2020, and acquisition related costs of $1.6 million and exit and disposal and facility rationalization costs of $0.2 million in the first six months of 2019, refer to Items Affecting Comparability.
CCM’s revenue decline in the first six months of 2020 primarily reflected lower sales volumes across all of our product lines due to delays in customer demand and in new construction projects attributable to from COVID-19.
CCM’s operating margin percentage was flat in the first six months of 2020, driven by raw material savings, lower travel and administrative costs and savings from COS, offset by lower volumes.
Carlisle Interconnect Technologies ("CIT")
Operations at certain CIT manufacturing facilities in the U.S., Mexico and China that were temporarily suspended have resumed operations. CIT has responded well to the lower demand environment within global aerospace, which we anticipate will remain subdued for some time. Our accelerated restructuring plans put in place this spring remain generally on schedule, with the goals of achieving profitability levels contemplated in Vision 2025 fully intact. We do see some positive signs in the aerospace markets with passenger miles increasing and Boeing's 737 MAX moving closer to Federal Aviation Authority approval.
CIT's medical technologies platform grew 15 percent organically year-over-year during the second quarter driven by increased demand for patient monitoring equipment. Recently acquired Providien also continued to perform well. In addition, product rationalization actions taken by CIT medical in 2018 and 2019 have improved its margin profile, with continued COS efforts further enhancing profitability levels.
In April 2020, we announced plans to exit our manufacturing operations in Mobile, Alabama, and relocate the majority of those operations to CIT's existing manufacturing facility in Franklin, Wisconsin. This project is substantially complete with cumulative costs of $1.4 million recognized through June 30, 2020.
In January 2019, we announced the relocation of our connectors manufacturing operations in El Segundo, California, and Riverside, California, to our existing lower cost facilities in North America. This project is substantially complete with cumulative costs of $20.7 million recognized through June 30, 2020. Refer to Note 8 for further information regarding exit and disposal activities.
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
Acquisition Effect
|
|
Price / Volume Effect
|
|
Exchange Rate Effect
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
%
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
184.0
|
|
|
$
|
245.4
|
|
|
$
|
(61.4)
|
|
|
(25.0)
|
%
|
|
8.6
|
%
|
|
(33.5)
|
%
|
|
(0.1)
|
%
|
|
Operating (loss) income
|
|
$
|
(1.5)
|
|
|
$
|
35.9
|
|
|
$
|
(37.4)
|
|
|
(104.2)
|
%
|
|
|
|
|
|
|
|
Operating margin percentage
|
|
(0.8)
|
%
|
|
14.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
19.7
|
|
|
$
|
15.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability(1)
|
|
$
|
7.4
|
|
|
$
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
(1)Items affecting comparability include idle capacity and labor costs, net of subsidies, of $2.4 million, exit and disposal and facility rationalization costs ($5.0 million in the second quarter of 2020 and $1.8 million in the second quarter of 2019) and acquisition related costs of $0.6 million in the second quarter of 2019, refer to Items Affecting Comparability.
CIT's revenue decline in the second quarter of 2020 primarily reflected lower volumes, led by the commercial aerospace market as a result of continued delays in the 737 Max production and lower build rates on narrow and wide body aircraft by original equipment manufacturers ("OEMs") given steep declines in airline travel and customer plant shutdowns. The decline was partially offset by organic growth in the medical market and acquired product lines from Providien, that are sold into medical device end markets.
CIT’s operating margin percentage decreased in the second quarter of 2020, driven by lower volumes, higher restructuring costs and wage and raw material inflation, partially offset by savings from COS.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
Acquisition Effect
|
|
Price / Volume Effect
|
|
Exchange Rate Effect
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
%
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
408.5
|
|
|
$
|
491.8
|
|
|
$
|
(83.3)
|
|
|
(16.9)
|
%
|
|
9.8
|
%
|
|
(26.6)
|
%
|
|
(0.1)
|
%
|
|
Operating income
|
|
$
|
14.9
|
|
|
$
|
66.5
|
|
|
$
|
(51.6)
|
|
|
(77.6)
|
%
|
|
|
|
|
|
|
|
Operating margin percentage
|
|
3.6
|
%
|
|
13.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
38.8
|
|
|
$
|
30.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability(1)
|
|
$
|
12.7
|
|
|
$
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
(1)Items affecting comparability include idle capacity and labor costs, net of subsidies, of $4.3 million, exit and disposal and facility rationalization costs ($8.4 million in the first six months of 2020 and $6.5 million in the first six months of 2019) and acquisition related costs of $0.8 million in the first six months of 2019, refer to Items Affecting Comparability.
CIT's revenue decline in the first six months of 2020 primarily reflected lower volumes, led by the commercial aerospace market as a result of continued delays in the 737 Max production and lower build rates on narrow and wide body aircraft by OEMs given steep declines in airline travel and customer plant shutdowns. The decline was partially offset by organic growth in the medical market and acquired product lines from Providien, that are sold into medical device end markets.
CIT’s operating margin percentage decreased in the first six months of 2020, driven by lower volumes, wage and raw material inflation, and higher restructuring and facility rationalization costs, partially offset by savings from COS.
Carlisle Fluid Technologies ("CFT")
At CFT, each month improved throughout the quarter while we right-sized the business to fit the current demand environment. We see positive signs in CFT's end markets and are cautiously optimistic for an improved second half of 2020 due to the work and investments we have made to improve the business and early signs of stability in demand, particularly in Asia.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
Acquisition Effect
|
|
Price / Volume Effect
|
|
Exchange Rate Effect
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
%
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
46.5
|
|
|
$
|
67.3
|
|
|
$
|
(20.8)
|
|
|
(30.9)
|
%
|
|
4.3
|
%
|
|
(34.2)
|
%
|
|
(1.0)
|
%
|
|
Operating (loss) income
|
|
$
|
(5.2)
|
|
|
$
|
3.3
|
|
|
$
|
(8.5)
|
|
|
(257.6)
|
%
|
|
|
|
|
|
|
|
Operating margin percentage
|
|
(11.2)
|
%
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
5.4
|
|
|
$
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability(1)
|
|
$
|
2.1
|
|
|
$
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
(1)Items affecting comparability include exit and disposal and facility rationalization costs ($2.1 million in the second quarter of 2020 and $0.1 million in the second quarter of 2019) and acquisition related costs of $1.2 million in the second quarter of 2019, refer to Items Affecting Comparability.
CFT's revenue decrease in the second quarter of 2020 reflected volume declines due to COVID-19, particularly in the industrial and automotive end markets in all geographic regions, partially offset by contributions from acquisitions.
CFT’s operating margin percentage performance for the second quarter of 2020 declined, reflecting lower volumes, restructuring charges and wage and raw material inflation, partially offset by savings from COS.
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|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
Acquisition Effect
|
|
Price / Volume Effect
|
|
Exchange Rate Effect
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
%
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
104.8
|
|
|
$
|
130.4
|
|
|
$
|
(25.6)
|
|
|
(19.6)
|
%
|
|
8.1
|
%
|
|
(26.8)
|
%
|
|
(0.9)
|
%
|
|
Operating (loss) income
|
|
$
|
(2.4)
|
|
|
$
|
9.7
|
|
|
$
|
(12.1)
|
|
|
(124.7)
|
%
|
|
|
|
|
|
|
|
Operating margin percentage
|
|
(2.3)
|
%
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
11.6
|
|
|
$
|
11.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability(1)
|
|
$
|
2.4
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
(1)Items affecting comparability include exit and disposal and facility rationalization costs of $2.1 million, idle capacity and labor costs, net of subsidies, of $0.1 million and acquisition related costs of $0.2 million in the second quarter of 2020. Items affecting comparability also include exit and disposal and facility rationalization costs of $2.1 million, acquisition related costs of $1.3 million and a gain on contingent consideration of $(3.0) million in the second quarter of 2019, refer to Items Affecting Comparability.
CFT's revenue decrease in the first six months of 2020 reflected volume declines due to COVID-19, particularly in the industrial and automotive end markets in all geographic regions, partially offset by contributions from acquisitions.
CFT’s operating margin percentage performance for the first six months of 2020 declined, reflecting lower volumes and wage and raw material inflation, partially offset by savings from COS.
Carlisle Brake & Friction ("CBF")
CBF's manufacturing facilities in Europe that were temporarily idled have resumed operations. CBF remains focused on commercial and operational improvements, with the goal of remaining profitable even in a market trough environment. Given the actions taken over the past several years, its strong market position and traction on new technology introductions, CBF is positioned to leverage volume improvement.
During the first quarter of 2020, we initiated plans to consolidate certain operations globally to reduce costs and streamline processes by consolidating certain positions within selling, general and administrative, and manufacturing functions and exited less profitable product lines that resulted in asset write-offs. The project is estimated to take 9 to 12 months to complete. Total associated costs are expected to approximate $5.8 million, with approximately $1.6 million of costs remaining to be incurred, primarily in the second half of 2020.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
Acquisition Effect
|
|
Price / Volume Effect
|
|
Exchange Rate Effect
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
%
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
58.8
|
|
|
$
|
87.1
|
|
|
$
|
(28.3)
|
|
|
(32.5)
|
%
|
|
—
|
%
|
|
(31.1)
|
%
|
|
(1.4)
|
%
|
|
Operating (loss) income
|
|
$
|
(1.6)
|
|
|
$
|
8.3
|
|
|
$
|
(9.9)
|
|
|
(119.3)
|
%
|
|
|
|
|
|
|
|
Operating margin percentage
|
|
(2.7)
|
%
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
5.0
|
|
|
$
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability(1)
|
|
$
|
1.7
|
|
|
$
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
(1)Items affecting comparability include idle capacity and labor costs, net of subsidies, of $0.3 million and include exit and disposal and facility rationalization costs ($1.4 million in the second quarter of 2020 and $0.5 million in the second quarter of 2019), refer to Items Affecting Comparability.
CBF's revenue decrease in the second quarter of 2020 reflected difficult year-over-year volume comparisons as a result of declines in demand due to plant closures from COVID-19 in the heavy equipment and transportation markets and foreign currency headwinds.
CBF's operating margin percentage decrease in the second quarter of 2020 was driven by lower volumes, wage inflation, and higher restructuring and facility rationalization costs, partially offset by savings from COS.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
Acquisition Effect
|
|
Price / Volume Effect
|
|
Exchange Rate Effect
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
%
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
129.8
|
|
|
$
|
178.4
|
|
|
$
|
(48.6)
|
|
|
(27.2)
|
%
|
|
—
|
%
|
|
(25.8)
|
%
|
|
(1.4)
|
%
|
|
Operating (loss) income
|
|
$
|
(5.4)
|
|
|
$
|
14.8
|
|
|
$
|
(20.2)
|
|
|
(136.5)
|
%
|
|
|
|
|
|
|
|
Operating margin percentage
|
|
(4.2)
|
%
|
|
8.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
10.9
|
|
|
$
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability(1)
|
|
$
|
5.4
|
|
|
$
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
(1)Items affecting comparability include idle capacity and labor costs, net of subsidies, of $1.2 million and exit and disposal and facility rationalization costs ($4.2 million in the first six months of 2020 and $1.8 million in the first six months of 2019), refer to Items Affecting Comparability.
CBF's revenue decrease in the first six months of 2020 reflected difficult year-over-year volume comparisons as a result of declines in demand due to plant closures from COVID-19 in the heavy equipment and transportation markets and foreign currency headwinds.
CBF's operating margin percentage decrease in the first six months of 2020 was driven by lower volumes, wage inflation, and higher restructuring and facility rationalization costs, partially offset by savings from COS.
Liquidity and Capital Resources
A summary of our cash and cash equivalents by region follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Europe
|
|
$
|
176.6
|
|
|
$
|
62.2
|
|
|
North America (excluding U.S.)
|
|
32.9
|
|
|
43.4
|
|
|
China
|
|
31.1
|
|
|
17.9
|
|
|
Asia Pacific (excluding China)
|
|
35.2
|
|
|
69.1
|
|
|
|
|
|
|
|
|
International cash and cash equivalents
|
|
275.8
|
|
|
192.6
|
|
|
U.S. cash and cash equivalents
|
|
461.9
|
|
|
158.6
|
|
|
Total cash and cash equivalents
|
|
$
|
737.7
|
|
|
$
|
351.2
|
|
We maintain liquidity sources primarily consisting of cash and cash equivalents as well as availability under our Facility. In the near term, cash on hand is our primary source of liquidity. The increase in cash and cash equivalents compared to December 31, 2019, was primarily related to proceeds from our bond offering of $750.0 million notes due in March 2030, partially offset by the early redemption of our $250.0 million notes due in December 2020. Additionally, during the first six months of 2020, we utilized cash on hand to fund share repurchases, capital expenditures and pay dividends to shareholders.
Cash held in China is subject to local laws and regulations that require government approval for conversion of such cash to U.S. Dollars, as well as for transfer of such cash outside of China.
Despite the continued uncertainty in global markets resulting from COVID-19, we believe we have sufficient cash on hand, availability under the Facility and operating cash flows to meet our business requirements for at least the next 12 months. At the discretion of management, the Company may use available cash on non-operating purchases including capital expenditures for worldwide manufacturing, 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 our existing notes by the respective maturity dates. Another potential source of liquidity is access to public capital markets, subject to market conditions. We may access the capital markets to repay the outstanding balance, if our sources of liquidity have been used for other strategic purposes by the time of maturity. Refer to Debt Instruments below.
Sources and Uses of Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
(in millions)
|
|
2020
|
|
2019
|
|
Net cash provided by operating activities
|
|
$
|
226.3
|
|
|
$
|
197.1
|
|
|
Net cash used in investing activities
|
|
(50.0)
|
|
|
(311.9)
|
|
|
Net cash provided by (used in) financing activities
|
|
214.7
|
|
|
(267.2)
|
|
|
Effect of foreign currency exchange rate changes on cash
|
|
(4.5)
|
|
|
0.4
|
|
|
Change in cash and cash equivalents
|
|
$
|
386.5
|
|
|
$
|
(381.6)
|
|
Operating Activities
We generated operating cash flows of $226.3 million for the first six months of 2020 (including working capital uses of $69.0 million), compared with $197.1 million for the first six months of 2019 (including working capital uses of $153.8 million). Higher operating cash flows in the first six months of 2020 primarily reflect declines in net working capital as a result of decline in sales volumes as well as lower raw material costs at CCM.
Investing Activities
Cash used in investing activities of $50.0 million for the first six months of 2020 primarily reflected capital expenditures of $48.5 million. Cash used in investing activities of $311.9 million for the first six months of 2019 primarily reflected the acquisitions of Petersen, net of cash acquired, for $202.0 million and MicroConnex, net of cash acquired, for $46.0 million, and capital expenditures of $41.0 million.
Financing Activities
Cash provided by financing activities of $214.7 million in the first six months of 2020 primarily reflected net proceeds from our bond offering, partially offset by the early redemption of our senior notes due December 15, 2020, and financing costs associated with our bond offering. Additionally, we used cash of $191.8 million for share repurchases and $56.0 million for dividend payments, reflecting the increased dividend of $1.00 per share. Cash used in financing activities of $267.2 million during the first six months of 2019 primarily reflected $232.1 million of share repurchases and $46.2 million of dividend payments.
Debt Instruments
Senior Notes
On February 28, 2020, the Company completed a public offering of $750.0 million of notes with a stated interest rate of 2.75% due March 1, 2030 (the “2030 Notes”). The 2030 Notes were issued at a discount of $9.3 million, resulting in proceeds to the Company of $740.7 million. The Company incurred costs to issue the 2030 Notes of approximately $6.5 million, inclusive of underwriters’, credit rating agencies’ and attorneys’ fees, loss on treasury locks contract and other costs. The discount, issuance costs and loss on treasury locks are amortized to interest expense over the life of the 2030 Notes. Interest is paid each March 1 and September 1, commencing on September 1, 2020.
On February 28, 2020, we issued a notice for the redemption in full of our $250.0 million aggregate principal amount of its outstanding 5.125% notes due December 15, 2020 (the “2020 Notes”). The 2020 Notes were redeemed on March 29, 2020 at the redemption price of $262.1 million. We recognized a loss on extinguishment of debt totaling $8.8 million in the first quarter of 2020.
We also have senior unsecured notes outstanding of $350.0 million due November 15, 2022 (at a stated interest rate of 3.75%), $400.0 million due December 1, 2024 (at a stated interest rate of 3.5%) and $600.0 million due December 1, 2027 (at a stated interest rate of 3.75%) that are rated BBB by Standard & Poor’s and Baa2 by Moody’s.
Revolving Credit Facility (the "Facility")
On February 5, 2020, the Company entered into the Company's Fourth Amended and Restated Credit Agreement (the “Amendment”) 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.
During the six months ended June 30, 2020, borrowings under the Facility totaled $500.0 million with a weighted average interest rate of 1.9%, and repayments totaled $500.0 million. As of June 30, 2020, there were no borrowings under the Facility and $1.0 billion of availability. During the year ended and as of December 31, 2019 there were no borrowings under the Facility.
Debt Covenants
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 as of June 30, 2020 and December 31, 2019.
Refer to Note 12 for further information on our debt instruments.
New Accounting Pronouncements
Refer to Note 2 for more information regarding new accounting pronouncements.
Critical Accounting Estimates
Our significant accounting policies are more fully described in Note 1 to our Annual Report on Form 10-K for the year ended December 31, 2019. In preparing the Consolidated Financial Statements in conformity with 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, revenues, expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates, including those related to revenue recognition, extended product warranties, goodwill and indefinite-lived intangible assets, valuation of long-lived assets, and income taxes 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 amount of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Subsequent Measurement of Goodwill
Goodwill is not amortized but is tested annually, or more often if impairment indicators are present, for impairment at a reporting unit level, based on a comparison of the fair value of the reporting unit with its carrying amount. Goodwill is tested for impairment via a one-step process by comparing the fair value of goodwill with its carrying amount. We recognize an impairment for the amount by which the carrying amount exceeds the fair value. We generally use both an income approach utilizing the discounted cash flow method ("DCF") and a market approach utilizing the
public company market multiple method, when testing for impairment. The key techniques and assumptions used include:
|
|
|
|
|
|
|
|
|
|
|
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 reporting units relative to peer public company group
|
In the second quarter of 2020, changes in facts and circumstances and general market declines from COVID-19 resulted in reduced operating results. We considered these circumstances and the potential long-term impact on cash flows associated with our reporting units and determined that an indicator of possible impairment existed within our CFT and CBF reporting units. Accordingly, we tested our goodwill for impairment as of June 30, 2020. Those reporting units were tested for impairment using the quantitative approach described above, resulting in a fair value for the CFT reporting unit that exceeded the carrying amount by approximately 10 percent, and a fair value for the CBF reporting unit that substantially exceeded the carrying amount. The carrying amount of goodwill for the CFT and CBF reporting units was $186.2 million and $96.4 million, respectively.
We will continue to closely monitor actual results versus expectations as well as whether and to what extent any significant changes in current events or conditions, including changes to the impacts of COVID-19 on our business, result in corresponding changes to our expectations about future estimated cash flows, the weighted average cost of capital ("WACC") and market multiples. If our adjusted expectations of the operating results, both in size and timing, of CFT and CBF do not materialize, if the WACC increases (based on increases in interest rates, market rates of return or market volatility) or if market multiples decline, we may be required to record goodwill impairment charges, which may be material.
While we believe our conclusions regarding the estimates of fair value of our reporting units are appropriate, these estimates are subject to uncertainty and by nature include judgments and estimates regarding various factors. These factors include 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, the volatility in interest rates and costs of equity.
Refer to Note 11 for more information regarding goodwill.
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 amount. 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.
In the second quarter of 2020, changes in facts and circumstances and general market declines from COVID-19 resulted in reduced revenues. We considered these circumstances and the potential long-term impact on revenues associated with its indefinite-lived trade names and determined that an indicator of possible impairment existed. Accordingly, we performed a quantitative impairment analysis to determine the fair values of our CFT and CBF indefinite-lived trade names using the method described above.
Based on the output of the analysis, we determined that the fair value of one CFT trade name with a carrying value of $39.0 million exceeded the carrying amount by less than 10 percent. The remaining CFT and CBF indefinite-lived trade names substantially exceeded their carrying amounts. Accordingly, no impairment charges were required as of June 30, 2020. The carrying amount of indefinite-lived trade names for CFT and CBF were $129.1 million and $42.0 million, respectively.
We will continue to closely monitor actual results versus expectations as well as whether and to what extent any significant changes in current events or conditions, including changes to the impacts of COVID-19 on our business, result in corresponding changes to our expectations about future estimated revenues and the weighted average cost of capital. If our adjusted expectations of the revenues, both in size and timing, of CFT and CBF trade names do not materialize or if the WACC increases (based on increases in interest rates, market rates of return or market volatility), we may be required to record trade name impairment charges, which may be material.
Refer to Note 11 for more information regarding intangible assets.
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, idle capacity and labor costs, net of subsidies, losses on debt extinguishment and discrete tax items). Because these items affect our, or any particular operating segment's, financial condition or results in a specific period in which they are recognized, we believe it is appropriate to present the total of these items to provide information regarding the comparability of results of operations period to period. The components of items affecting comparability follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
(in millions, except per share amounts)
|
|
Impact to Operating Income
|
|
Impact to Income from Continuing Operations
|
|
Impact to Diluted EPS from Continuing Operations
|
|
Impact to Operating Income
|
|
Impact to Income from Continuing Operations
|
|
Impact to Diluted EPS from Continuing Operations
|
|
Exit and disposal costs
|
|
$
|
8.3
|
|
|
$
|
6.3
|
|
|
$
|
0.11
|
|
|
$
|
1.5
|
|
|
$
|
1.2
|
|
|
$
|
0.02
|
|
|
Other facility rationalization costs
|
|
0.4
|
|
|
0.3
|
|
|
0.01
|
|
|
0.9
|
|
|
0.7
|
|
|
0.01
|
|
|
Acquisition related costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory step-up amortization
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
0.5
|
|
|
0.01
|
|
|
Other acquisition costs
|
|
4.9
|
|
|
3.7
|
|
|
0.07
|
|
|
1.4
|
|
|
1.1
|
|
|
0.02
|
|
|
Idle capacity and labor costs, net of subsidies
|
|
3.8
|
|
|
2.8
|
|
|
0.05
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain and costs from step acquisition
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indemnification losses
|
|
—
|
|
|
2.0
|
|
|
0.04
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Discrete tax items(1)
|
|
—
|
|
|
(1.4)
|
|
|
(0.03)
|
|
|
—
|
|
|
(5.1)
|
|
|
(0.09)
|
|
|
Total items affecting comparability
|
|
$
|
17.4
|
|
|
$
|
13.7
|
|
|
$
|
0.25
|
|
|
$
|
4.5
|
|
|
$
|
(1.9)
|
|
|
$
|
(0.03)
|
|
(1)In order to provide better information to the user, items affecting comparability include all discrete tax items in this period and all comparative periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
(in millions, except per share amounts)
|
|
Impact to Operating Income
|
|
Impact to Income from Continuing Operations
|
|
Impact to Diluted EPS from Continuing Operations
|
|
Impact to Operating Income
|
|
Impact to Income from Continuing Operations
|
|
Impact to Diluted EPS from Continuing Operations
|
|
Exit and disposal costs
|
|
$
|
13.1
|
|
|
$
|
9.9
|
|
|
$
|
0.18
|
|
|
$
|
8.3
|
|
|
$
|
6.3
|
|
|
$
|
0.11
|
|
|
Other facility rationalization costs
|
|
1.9
|
|
|
1.4
|
|
|
0.03
|
|
|
2.3
|
|
|
1.8
|
|
|
0.03
|
|
|
Acquisition related costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory step-up amortization
|
|
0.2
|
|
|
0.2
|
|
|
—
|
|
|
1.2
|
|
|
0.9
|
|
|
0.01
|
|
|
Other acquisition costs
|
|
5.4
|
|
|
4.1
|
|
|
0.07
|
|
|
2.9
|
|
|
2.2
|
|
|
0.04
|
|
|
Idle capacity and labor costs, net of subsidies
|
|
7.8
|
|
|
5.8
|
|
|
0.10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from contingent consideration
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.0)
|
|
|
(3.0)
|
|
|
(0.05)
|
|
|
Gain from step acquisition, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3)
|
|
|
—
|
|
|
Gains from divestitures
|
|
(0.8)
|
|
|
(0.6)
|
|
|
(0.01)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Loss on debt extinguishment
|
|
—
|
|
|
6.6
|
|
|
0.12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Indemnification losses
|
|
—
|
|
|
3.1
|
|
|
0.06
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Discrete tax items(1)
|
|
—
|
|
|
(5.4)
|
|
(2)
|
(0.10)
|
|
|
—
|
|
|
(5.0)
|
|
|
(0.09)
|
|
|
Total items affecting comparability
|
|
$
|
27.6
|
|
|
$
|
25.1
|
|
|
$
|
0.45
|
|
|
$
|
11.7
|
|
|
$
|
2.9
|
|
|
$
|
0.05
|
|
(1)In order to provide better information to the user, items affecting comparability include all discrete tax items in this period and all comparative periods.
(2)Excludes $0.1 million of discrete tax items related to indemnification asset write-offs which had zero impact to income from continuing operations and EPS from continuing operations.
The impact to income from continuing operations reflects the tax effect of items affecting comparability based on the statutory rate in the jurisdiction in which the expense or income is deductible or taxable. The per share impact of items affecting comparability to each period is based on diluted shares outstanding using the two-class method (refer to Note 5).
Outlook
Revenues
In light of current economic uncertainty caused by COVID-19, full-year 2020 revenue guidance has been withdrawn until a clearer picture emerges for our businesses.
Cash Flows
Despite the continued uncertainty in global markets resulting from COVID-19, we believe we have sufficient cash on hand, availability under the Facility and operating cash flows to meet our business requirements for at least the next 12 months. At the discretion of management, the Company may use available cash on non-operating purchases including capital expenditures for worldwide manufacturing, dividends, common stock repurchases, acquisitions and strategic investments.
Capital expenditures in 2020 are expected to be between $100 million and $110 million, which primarily includes continued investments in CCM facilities. Planned capital expenditures for 2020 include business sustaining projects, cost reduction efforts and new product expansion. In response to declining demand attributable to COVID-19, we may make selected adjustments to our expected capital expenditures in line with our capital deployment strategy.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the potential or expected impacts of the global COVID-19 pandemic. Forward-looking statements generally use words such as "expect," "foresee," "anticipate," "believe," "project," "should," "estimate," "will," "plans," "intends," "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-looking statements, due to a variety of factors such as: risks from the global COVID-19 pandemic, including, for example, expectations regarding the impact of COVID-19 on our businesses, including on customer demand, supply chains and distribution systems, production,
our ability to maintain appropriate labor levels, our ability to ship products to our customers, our ability to obtain financial and tax benefits from the recently-passed CARES Act, our future results, or our full-year financial outlook; 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-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-looking statements.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes in the Company’s market risk for the six months ended June 30, 2020. For additional information, refer to "PART II—Item 7A. Quantitative and Qualitative Disclosures About Market Risk" of the Company’s 2019 Annual Report on Form 10-K.
Item 4. Controls and Procedures
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 June 30, 2020, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.
b.Changes in internal controls. During the first six months of 2020, 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.