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, global portfolio of niche brands that manufacture 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. 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.
Executive Overview
We focus on achieving profitable growth in our segments both organically, through new product development, product line extensions and entering new markets, as well as through acquisitions of businesses that complement our existing technologies, products and market channels. Resources are allocated among the operating segments based on senior management’s assessment of their ability to obtain leadership positions and competitive advantages in the markets they serve. We focus on obtaining profitable growth through the following strategic factors:
|
|
•
|
Driving above-market organic growth;
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|
•
|
Utilizing Carlisle Operating System ("COS") consistently to drive efficiencies and operating leverage;
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|
•
|
Building scale with synergistic acquisitions;
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|
•
|
Continuing to invest in and develop exceptional talent; and
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•
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Deploying capital into capital expenditures, share repurchases and dividends.
|
Strong demand from customers across our end markets, price discipline, efficiencies gained from COS and execution by our dedicated employees around the globe contributed to a solid fourth-quarter and strong finish to year one of our journey toward Vision 2025. We delivered record highs in full year revenues, earnings per share, share repurchases and dividends paid.
Furthermore, we gained solid traction on the key pillars of Vision 2025, including:
|
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•
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Achieving 7.2% organic revenue growth, in excess of our long-term growth target of 5%
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•
|
Maintaining strong price discipline across businesses, leading to positive realization for the year
|
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|
•
|
Delivering cost savings of 1.5% of revenue through COS
|
|
|
•
|
Completing approximately $70 million of restructuring actions instituted over the last two years at Carlisle Interconnect Technologies ("CIT"), Carlisle Fluid Technologies ("CFT") and Carlisle Brake & Friction ("CBF")
|
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|
•
|
Reshaping our portfolio with the sale of Carlisle FoodService Products ("CFS") for
$758.0 million
in early 2018 and making strategic acquisitions, including the recently announced acquisition of Petersen Aluminum Corporation ("Petersen")
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|
|
•
|
Leveraging our strong cash flow and balance sheet by deploying over $550 million into record share repurchases and dividends paid, more than half-way to our stated objective of deploying $1 billion into share repurchases under Vision 2025
|
As we embark on year two of our journey toward Vision 2025, we will build on the achievements of year one and continue to drive towards our objectives stated above.
Summary Financial Results
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|
|
|
|
|
|
|
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|
|
|
|
(in millions, except per share amounts)
|
|
2018
|
|
2017
|
|
2016
|
Revenues
|
|
$
|
4,479.5
|
|
|
$
|
3,750.8
|
|
|
$
|
3,425.2
|
|
Impairment charges
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
141.5
|
|
Operating income
|
|
$
|
509.0
|
|
|
$
|
464.0
|
|
|
$
|
404.2
|
|
Operating margin percentage
|
|
11.4
|
%
|
|
12.4
|
%
|
|
11.8
|
%
|
Income from continuing operations
|
|
$
|
358.6
|
|
|
$
|
340.6
|
|
|
$
|
231.1
|
|
Income from discontinued operations
|
|
$
|
252.5
|
|
|
$
|
24.9
|
|
|
$
|
19.0
|
|
Diluted earnings per share attributable to common shares:
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
5.88
|
|
|
$
|
5.32
|
|
|
$
|
3.53
|
|
Income from discontinued operations
|
|
$
|
4.14
|
|
|
$
|
0.39
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
Items affecting comparability:
(1)
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|
|
|
|
|
|
Impact to operating income
|
|
$
|
32.6
|
|
|
$
|
47.7
|
|
|
$
|
23.8
|
|
Impact to income from continuing operations
|
|
$
|
21.3
|
|
|
$
|
(14.4
|
)
|
|
$
|
15.7
|
|
Impact to diluted EPS from continuing operations
|
|
$
|
0.34
|
|
|
$
|
(0.22
|
)
|
|
$
|
0.25
|
|
|
|
(1)
|
Items affecting comparability primarily include acquisition related costs, exit and disposal costs, facility rationalization costs, litigation settlement costs, gains from divestitures and the impact of the Tax Act. The tax effect is based on the rate of the jurisdiction where the expense is deductible. Refer to
Items Affecting Comparability
in this MD&A for further discussion
.
|
2018
Compared with
2017
Revenues increased primarily reflecting contribution from acquisition of Accella in the Carlisle Construction Materials (“CCM”), higher sales volumes and price realization. Increased revenues also reflect the adoption of Accounting Standards Codification 606,
Revenue from Contracts with Customers
("ASC 606") in 2018. Refer to Notes 1 and 6, and
Critical Accounting Estimates
within this MD&A for further discussion regarding the impact of adoption of ASC 606.
The increase in operating income primarily reflected higher sales volumes and price realization, benefits from the continued execution of COS and contributions from acquisitions. This increase was partially offset by increases in raw materials, labor-related, freight and executive retirement costs.
Diluted earnings per share from continuing operations primarily benefited from a lower effective tax rate and reduced average shares outstanding, resulting from our share repurchase program, in addition to the aforementioned increases in operating income.
We generated
$339.2 million
in operating cash flows during
2018
and utilized cash on hand and cash provided by operations to fund acquisitions, fund capital projects and return capital to shareholders.
Outlook
Despite geopolitical and economic uncertainties, we remain optimistic that we can achieve high-single-digit revenue growth in 2019 given generally favorable market conditions across our segments and execution on the strategies and key actions we put in place over the last year.
2017
Compared with
2016
Revenues increased primarily reflecting contribution from acquisitions in the CCM and CIT segments as well as higher net sales volume at CCM, associated with favorable commercial roofing market conditions, and higher net sales volume at CBF, associated with higher demand from the construction, agriculture and mining markets. These increases were partially offset by lower net sales volume at CIT, driven by challenges in the commercial aerospace market.
The increase in operating income and operating margin primarily reflected the non-recurrence of
$141.5 million
of goodwill and other intangible assets impairment charges taken at our CBF segment in 2016, higher net sales volumes in the CCM and CBF segments and savings from COS. This increase was partially offset by rising raw material costs in the CCM segment, lower sales and operating margin at CIT, approximately
$36.5 million
for facility rationalization and exit and disposal costs and
$7.7 million
of acquired inventory costs.
Diluted earnings per share improved primarily reflecting the aforementioned increases in operating income combined with the positive net impact of the Tax Cuts and Jobs Act (the “Tax Act”).
Consolidated Results of Operations
Revenues
2018
Compared with
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
(in millions)
|
|
2018
|
|
2017
|
|
Change
|
|
%
|
|
Acquisition
Effect
|
|
Price / Volume
Effect
|
|
Exchange
Rate Effect
|
Revenues
|
|
$
|
4,479.5
|
|
|
$
|
3,750.8
|
|
|
$
|
728.7
|
|
|
19.4
|
%
|
|
11.2
|
%
|
|
7.8
|
%
|
|
0.4
|
%
|
The increase in revenues from acquired businesses in 2018 primarily reflected the contribution of
$434.1 million
from the acquisition of Accella in the CCM segment. The increase in sales volume in 2018 primarily reflected favorable commercial construction demand for CCM, an increase in demand for aerospace and defense products at CIT, and higher demand for our heavy equipment products at CBF. Increased revenues also include
$21.9 million
from the adoption of ASC 606. Refer to Notes 1 and 6, and
Critical Accounting Estimates
within this MD&A for further information regarding the impact of adoption of ASC 606.
2017
Compared with
2016
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Change
|
|
%
|
|
Acquisition
Effect
|
|
Price / Volume
Effect
|
|
Exchange
Rate Effect
|
Revenues
|
|
$
|
3,750.8
|
|
|
$
|
3,425.2
|
|
|
$
|
325.6
|
|
|
9.5
|
%
|
|
4.4
|
%
|
|
5.2
|
%
|
|
(0.1
|
)%
|
The increase in revenues from acquired businesses in 2017 primarily reflected the contribution of $104.8 million from the acquisitions of Accella, Drexel Metals and Arbo in the CCM segment. The increase in sales volume in 2017 primarily reflected favorable commercial roofing market conditions and higher demand for CBF products. These increases were partially offset by lower sales volume at CIT, primarily as a result of the aforementioned challenges in the commercial aerospace market and lower selling price at CCM.
Revenues by Geographic Area
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|
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|
|
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|
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|
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|
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|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
United States
|
|
$
|
3,461.3
|
|
|
77
|
%
|
|
$
|
2,860.4
|
|
|
76
|
%
|
|
$
|
2,604.0
|
|
|
76
|
%
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
443.5
|
|
|
|
|
|
402.5
|
|
|
|
|
|
378.4
|
|
|
|
|
Asia
|
|
306.5
|
|
|
|
|
|
267.0
|
|
|
|
|
|
237.3
|
|
|
|
|
Canada
|
|
112.1
|
|
|
|
|
|
83.3
|
|
|
|
|
|
74.1
|
|
|
|
|
Mexico and Latin America
|
|
72.0
|
|
|
|
|
|
71.1
|
|
|
|
|
|
72.3
|
|
|
|
|
Middle East and Africa
|
|
46.8
|
|
|
|
|
|
40.8
|
|
|
|
|
|
40.7
|
|
|
|
|
Other
|
|
37.3
|
|
|
|
|
|
25.7
|
|
|
|
|
|
18.4
|
|
|
|
|
Total International
|
|
1,018.2
|
|
|
23
|
%
|
|
890.4
|
|
|
24
|
%
|
|
821.2
|
|
|
24
|
%
|
Revenues
|
|
$
|
4,479.5
|
|
|
|
|
|
$
|
3,750.8
|
|
|
|
|
|
$
|
3,425.2
|
|
|
|
|
2018
Compared with
2017
Total revenues to international customers increased primarily reflecting higher foreign sales by CCM, largely reflecting acquired European and Canadian sales compared with prior year. Higher international sales also reflected increased sales to Europe and Asia from CBF.
2017
Compared with
2016
Total revenues to customers located outside the U.S. increased primarily reflecting higher international sales by CCM, largely reflecting improving European and Canadian sales compared with prior year. Higher international sales also reflected increased sales to Europe and Asia from CBF. Partially offsetting this increase in international sales was decrease in European sales by CIT.
Gross Margin
2018
Compared with
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
Change
|
|
%
|
Gross margin
|
|
$
|
1,174.7
|
|
|
$
|
1,048.3
|
|
|
$
|
126.4
|
|
|
12.1
|
%
|
Gross margin percentage
|
|
26.2
|
%
|
|
27.9
|
%
|
|
|
|
|
Depreciation and amortization
|
|
$
|
96.4
|
|
|
$
|
85.1
|
|
|
|
|
|
The decrease in gross margin percentage (gross margin expressed as a percentage of revenues) in 2018 was driven by rising raw material, labor-related and freight costs and unfavorable changes in mix. Also included in gross margin in 2018 were exit and disposal costs totaling
$15.5 million
, primarily at CBF and CIT, attributable to our restructuring initiatives. The decrease was partially offset by lower per unit costs resulting from higher capacity utilization as a result of higher sales volume in the CIT, CCM and CBF segments and savings from COS.
2017
Compared with
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Change
|
|
%
|
Gross margin
|
|
$
|
1,048.3
|
|
|
$
|
1,086.4
|
|
|
$
|
(38.1
|
)
|
|
(3.5
|
)%
|
Gross margin percentage
|
|
27.9
|
%
|
|
31.7
|
%
|
|
|
|
|
Depreciation and amortization
|
|
$
|
85.1
|
|
|
$
|
75.5
|
|
|
|
|
|
The decrease in gross margin percentage in 2017 was primarily driven by unfavorable raw material dynamics at CCM and unfavorable changes in mix, primarily at CIT as a result of the aforementioned challenges in the commercial aerospace market. Also included in gross margin in 2017 were exit and disposal costs totaling
$10.9 million
primarily at CIT and CBF attributable to our exit and disposal initiatives (refer to Note 8 for further discussion) and acquired inventory costs of
$7.7 million
. These decreases were partially offset by lower per unit costs resulting from higher capacity utilization driven by higher net sales volume in the CCM and CBF segments and savings from COS.
Selling and Administrative Expenses
2018
Compared with
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
Change
|
|
%
|
Selling and administrative expenses
|
|
$
|
625.4
|
|
|
$
|
532.9
|
|
|
$
|
92.5
|
|
|
17.4
|
%
|
As a percentage of revenues
|
|
14.0
|
%
|
|
14.2
|
%
|
|
|
|
|
Depreciation and amortization
|
|
$
|
87.5
|
|
|
$
|
59.9
|
|
|
|
|
|
The increase in selling and administrative expense in 2018 primarily reflected acquired selling general and administrative costs from the acquisition of Accella, executive retirement expenses, higher stock-based compensation costs, higher medical claims, and charges for the facility rationalization and plant restructuring projects at CIT (refer to
Note 8
for further discussion). The selling and administrative costs from the acquired businesses also included non-cash amortization of acquired customer-related intangible assets.
2017
Compared with
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Change
|
|
%
|
Selling and administrative expenses
|
|
$
|
532.9
|
|
|
$
|
495.4
|
|
|
$
|
37.5
|
|
|
7.6
|
%
|
As a percentage of revenues
|
|
14.2
|
%
|
|
14.5
|
%
|
|
|
|
|
Depreciation and amortization
|
|
$
|
59.9
|
|
|
$
|
52.3
|
|
|
|
|
|
The increase in selling and administrative expense in 2017 primarily reflected charges for the facility rationalization and plant restructuring projects at CFT and CIT (refer to Note 8 for further discussion), and acquired selling and administrative expenses, primarily in the CCM segment. The selling and administrative costs from acquired businesses also included non-cash amortization of acquired intangible assets.
Research and Development Expenses
2018
Compared with
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
Change
|
|
%
|
Research and development expenses
|
|
$
|
55.1
|
|
|
$
|
51.3
|
|
|
$
|
3.8
|
|
|
7.4
|
%
|
As a percentage of revenues
|
|
1.2
|
%
|
|
1.4
|
%
|
|
|
|
|
Depreciation and amortization
|
|
$
|
1.6
|
|
|
$
|
1.3
|
|
|
|
|
|
The increase in research and development expenses in 2018 primarily reflected acquired research and development expenses from the acquisition of Accella and new product development at our CFT and CIT segments.
2017
Compared with
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Change
|
|
%
|
Research and development expenses
|
|
$
|
51.3
|
|
|
$
|
45.4
|
|
|
$
|
5.9
|
|
|
13.0
|
%
|
As a percentage of revenues
|
|
1.4
|
%
|
|
1.3
|
%
|
|
|
|
|
Depreciation and amortization
|
|
$
|
1.3
|
|
|
$
|
0.9
|
|
|
|
|
|
The increase in research and development expenses reflected increased activities related to new product development, primarily at the CIT and CCM segments. These increases were partially offset by reduced expenses at the CBF segment.
Impairment of Goodwill and Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Impairment charges
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
141.5
|
|
As a percentage of revenues
|
|
—
|
%
|
|
—
|
%
|
|
4.1
|
%
|
In 2016, CBF's revenues continued to decline due to continued weakness in off-highway equipment markets tied to lower demand for commodities and indicators of a longer period before CBF’s markets were expected to recover. Therefore, we recognized impairment charges of
$141.5 million
in the third quarter of 2016. Refer to Note 12 for further discussion.
Other Operating (Income) Expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Other operating (income) expense, net
|
|
$
|
(14.8
|
)
|
|
$
|
0.1
|
|
|
$
|
(0.1
|
)
|
Items affecting comparability
(1)
|
|
$
|
(4.1
|
)
|
|
$
|
—
|
|
|
$
|
(0.3
|
)
|
|
|
(1)
|
Items affecting comparability include (gains) losses on sale of assets and litigation settlement costs, refer to
Items Affecting Comparability
.
|
The increase in other operating income, net in 2018 primarily reflected $6.6 million of gains on sales of assets primarily at CFT, CCM and CIT, and net gains from legal settlements.
Operating Income
2018
Compared with
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
Change
|
|
%
|
Operating income
|
|
$
|
509.0
|
|
|
$
|
464.0
|
|
|
$
|
45.0
|
|
|
9.7
|
%
|
Operating margin percentage
|
|
11.4
|
%
|
|
12.4
|
%
|
|
|
|
|
The decrease in operating margin percentage in 2018 primarily reflected the aforementioned decrease in gross margin percentage, acquired selling, general and administrative costs from Accella, and higher stock-based and other compensation costs, partially offset by other operating income from gains on sales of assets and legal settlements. Refer to
Segment Results of Operations
within this MD&A for further information related to segment operating income results.
2017
Compared with
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Change
|
|
%
|
Operating income
|
|
$
|
464.0
|
|
|
$
|
404.2
|
|
|
$
|
59.8
|
|
|
14.8
|
%
|
Operating margin percentage
|
|
12.4
|
%
|
|
11.8
|
%
|
|
|
|
|
The increase in operating income and operating margin percentage primarily reflected the non-recurrence of
$141.5 million
of goodwill and other intangible assets impairment charges taken at our CBF segment in 2016, higher sales volumes in the CCM and CBF segments and savings from COS. This increase was partially offset by rising raw material costs in the CCM segment, lower sales and operating margin percentage at CIT, approximately
$36.5 million
of facility rationalization and exit and disposal costs and
$7.7 million
of acquired inventory costs.
Interest Expense, net
2018
Compared with
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
Change
|
|
%
|
Interest expense
|
|
$
|
64.7
|
|
|
$
|
34.0
|
|
|
|
|
|
Interest income
|
|
(11.2
|
)
|
|
(0.5
|
)
|
|
|
|
|
Interest expense, net
|
|
$
|
53.5
|
|
|
$
|
33.5
|
|
|
$
|
20.0
|
|
|
59.7
|
%
|
The increase in interest expense, net primarily reflected the interest on the $600.0 million of notes with a stated interest rate of 3.75% and $400.0 million of notes with a stated interest rate of 3.5% that were issued in November 2017, partially offset by an increase in interest income associate with higher average cash balances during the 2018 periods (refer to
Note 14
for further discussion).
2017
Compared with
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Change
|
|
%
|
Interest expense
|
|
$
|
34.0
|
|
|
$
|
31.9
|
|
|
|
|
|
Interest income
|
|
(0.5
|
)
|
|
(1.3
|
)
|
|
|
|
|
Interest expense, net
|
|
$
|
33.5
|
|
|
$
|
30.6
|
|
|
$
|
2.9
|
|
|
9.5
|
%
|
The increase in interest expense, net primarily reflected interest on the combined $1.0 billion of notes, $600 million and $400 million with stated interest rates of 3.75% and 3.5%, respectively, issued in November 2017 and interest on borrowings under our Revolving Credit Facility (the “Facility”) during the year, partially offset by the August 2016 retirement of our $150.0 million senior unsecured note that had a stated interest rate of 6.125% (refer to
Note 14
for further discussion).
Other Non-operating (Income) Expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Other non-operating (income) expense, net
|
|
$
|
9.6
|
|
|
$
|
1.5
|
|
|
$
|
(5.6
|
)
|
Items affecting comparability
(1)
|
|
$
|
7.7
|
|
|
$
|
4.2
|
|
|
$
|
(0.5
|
)
|
|
|
(1)
|
Items affecting comparability include income tax related indemnification losses and (gains) losses on divestitures, refer to
Items Affecting Comparability
.
|
2018
Compared with
2017
Other non-operating (income) expense, net primarily reflected the net impact of the resolution of certain tax uncertainties related to the Accella and Finishing Brands acquisitions and release of the corresponding indemnification asset (refer to Note 3 for further discussion), and the weakening of the U.S. Dollar and related changes in foreign exchange losses.
2017
Compared with
2016
The increase in other non-operating expense, net primarily reflected the net impact of the expiration of income tax related indemnification assets, totaling $4.6 million, and losses from the divestiture of a business in the CIT segment.
Income Taxes
2018
Compared with
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
Change
|
|
%
|
Provision for income taxes
|
|
$
|
87.3
|
|
|
$
|
88.4
|
|
|
$
|
(1.1
|
)
|
|
(1.2
|
)%
|
Effective tax rate
|
|
19.6
|
%
|
|
20.6
|
%
|
|
|
|
|
The effective income tax rate on continuing operations for 2018 was
19.6%
. The provision for income taxes includes taxes on earnings at an annual rate of approximately 24.1% and a discrete tax benefit of $19.6 million. The net discrete tax benefit relates primarily to a reduction of unrecognized tax benefits of
$7.8 million
, a net incremental benefit from the Tax Act of
$3.3 million
and excess tax benefits related to employee stock compensation of $3.3 million.
Refer to
Note 9
in additional information related to income taxes.
2017
Compared with
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Change
|
|
%
|
Provision for income taxes
|
|
$
|
88.4
|
|
|
$
|
148.1
|
|
|
$
|
(59.7
|
)
|
|
(40.3
|
)%
|
Effective tax rate
|
|
20.6
|
%
|
|
39.1
|
%
|
|
|
|
|
On December 22, 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the Tax Act. The Tax Act included significant changes to existing tax law including, among other things, a reduction to the U.S. federal corporate income tax rate from 35% to 21% and a one-time tax on deferred foreign income ("Transition Tax").
For 2017, our results include the estimated impact of the Tax Act resulting in a provisional tax benefit of $57.7 million. This benefit is comprised of a charge of $32.5 million related to the Transition Tax and a benefit of $90.2 million from the rate reduction impacting the Company's U.S. deferred tax balances. Additionally, the effective income tax rate was impacted by a charge of $5.1 million related to a change in assertion associated with the reinvestment of foreign earnings which resulted in an effective income tax rate of
20.6%
.
Income from Discontinued Operations
2018
Compared with
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
Change
|
|
%
|
Income from discontinued operations before taxes
|
|
$
|
300.1
|
|
|
$
|
39.6
|
|
|
|
|
|
|
|
(Benefit) provision for income taxes
|
|
47.6
|
|
|
14.7
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
252.5
|
|
|
$
|
24.9
|
|
|
$
|
227.6
|
|
|
914.1
|
%
|
Income from discontinued operations for 2018 primarily reflects the pre-tax gain on sale of CFS totaling
$296.8 million
. Excluding the gain on sale, income from discontinued operations primarily reflects activity from January 1, 2018 through March 20, 2018, the date that the sale of CFS was completed, compared with the full year 2017.
Refer to
Note 4
in additional information related to discontinued operations.
2017
Compared with
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Change
|
|
%
|
Income from discontinued operations before taxes
|
|
$
|
39.6
|
|
|
$
|
30.2
|
|
|
|
|
|
(Benefit) provision for income taxes
|
|
14.7
|
|
|
11.2
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
24.9
|
|
|
$
|
19.0
|
|
|
$
|
5.9
|
|
|
31.1
|
%
|
Income from discontinued operations for 2017 and 2016 primarily reflects the results of operations for CFS, which benefited from contributions from an acquisition, higher selling prices and savings from COS in 2017, compared with 2016.
Refer to
Note 4
in additional information related to discontinued operations.
Segment Results of Operations
Carlisle Construction Materials (“CCM”)
On
January 11, 2019
, we acquired Petersen Aluminum Corporation ("Petersen") for estimated consideration of
$197.0 million
. Petersen’s primary business is the manufacture and distribution of market leading architectural 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. The results of operations of the acquired business will be reported within the CCM segment beginning in the first quarter of 2019.
2018
Compared with
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
Change
|
|
%
|
|
Acquisition
Effect
|
|
Price / Volume Effect
|
|
Exchange
Rate Effect
|
Revenues
|
|
$
|
2,880.3
|
|
|
$
|
2,336.2
|
|
|
$
|
544.1
|
|
|
23.3
|
%
|
|
17.9
|
%
|
|
5.1
|
%
|
|
0.3
|
%
|
Operating income
|
|
$
|
435.4
|
|
|
$
|
421.9
|
|
|
$
|
13.5
|
|
|
3.2
|
%
|
|
|
|
|
|
|
Operating margin percentage
|
|
15.1
|
%
|
|
18.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
77.9
|
|
|
$
|
41.9
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability
(1)
|
|
$
|
0.4
|
|
|
$
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Items affecting comparability include acquisition related costs (
$2.2 million
in
2018
and
$9.5 million
in
2017
) and gain from divestitures (
$(1.8) million
in
2018
), refer to
Items Affecting Comparability
.
|
CCM’s revenue growth primarily reflected revenue contributions from the acquisitions of Accella and Drexel of $503.8 million in 2018. Organic revenue growth primarily reflected higher volumes, driven by strong U.S. commercial construction demand and continued progress on price realization in the core roofing product lines.
CCM’s operating margin percentage decrease was driven by rising raw material inflation, higher freight and labor costs, acquired unfavorable mix and one-time executive retirement expenses, partially offset by continued price discipline, increased volumes and operational improvements in the legacy CCM businesses.
Outlook
CCM’s revenue and operating income are generally higher in the second and third quarters of the year due to increased construction activity during these periods, however, could be impacted by unfavorable weather. CCM’s commercial roofing business is comprised predominantly of revenues from re-roofing, which derives demand from a large base of installed roofs requiring replacement in a given year, and less 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.
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, commercial insulation and spray foam polyurethane products. Raw material input costs are expected to increase moderately due to crude oil and related
commodity pricing. Despite recent price realization, price competition could negatively impact CCM’s ability to maintain current operating income margin levels or obtain incremental operating margin.
The outlook for commercial construction in the U.S. remains positive, and in 2019 we expect CCM to achieve high-single digit to low-double digit revenue growth.
2017
Compared with
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Change
|
|
%
|
|
Acquisition
Effect
|
|
Price / Volume
Effect
|
|
Exchange
Rate Effect
|
Revenues
|
|
$
|
2,336.2
|
|
|
$
|
2,052.6
|
|
|
$
|
283.6
|
|
|
13.8
|
%
|
|
5.1
|
%
|
|
8.6
|
%
|
|
0.1
|
%
|
Operating income
|
|
$
|
421.9
|
|
|
$
|
430.3
|
|
|
$
|
(8.4
|
)
|
|
(2.0
|
)%
|
|
|
|
|
|
|
Operating margin percentage
|
|
18.1
|
%
|
|
21.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
41.9
|
|
|
$
|
35.6
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability
(1)
|
|
$
|
9.5
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Items affecting comparability include acquisition related costs (
$9.5 million
in
2017
), refer to
Items Affecting Comparability
.
|
CCM’s revenue growth primarily reflected higher net sales volume associated with strong demand in the favorable U.S. non-residential roofing markets, partially offset by lower selling price. CCM’s revenue growth also reflected the contribution of $104.8 million from the acquisitions of Accella, Drexel Metals and Arbo in 2017.
CCM’s operating income and operating margin percentage decrease was primarily driven by rising raw material costs, lower selling prices and
$7.7 million
of acquired inventory costs, partially offset by higher sales volumes and savings from operating efficiencies through COS.
Carlisle Interconnect Technologies (“CIT”)
In January 2019, we announced we would exit our manufacturing operations in El Segundo, California, and relocate the majority of those operations to our existing manufacturing facility in Nogales, Mexico. This project is expected to take approximately 12 months to complete with total expected project costs of approximately $14 million, none of which was recognized in 2018. Additionally, we have completed the relocation of certain of our medical manufacturing operations in Shenzhen, China, to a new manufacturing operation in Dongguan, China. We also completed plans to relocate certain of our aerospace manufacturing operations in Littleborough, United Kingdom, to an existing manufacturing operation. As a result of these efforts, focused on improving operational efficiencies throughout the business, we anticipate continuing costs related to plant restructuring and facility rationalization into 2019. Refer to
Note 8
for further information regarding exit and disposal activities.
2018
Compared with
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
Change
|
|
%
|
|
Acquisition
Effect
|
|
Price / Volume
Effect
|
|
Exchange
Rate Effect
|
Revenues
|
|
$
|
933.8
|
|
|
$
|
815.3
|
|
|
$
|
118.5
|
|
|
14.5
|
%
|
|
0.3
|
%
|
|
14.0
|
%
|
|
0.2
|
%
|
Operating income
|
|
$
|
117.3
|
|
|
$
|
89.5
|
|
|
$
|
27.8
|
|
|
31.1
|
%
|
|
|
|
|
|
|
Operating margin percentage
|
|
12.6
|
%
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
58.3
|
|
|
$
|
55.8
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability
(1)
|
|
$
|
9.2
|
|
|
$
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Items affecting comparability include exit and disposal and facility rationalization costs (
$8.2 million
in
2018
and
$18.0 million
in
2017
), acquisition related costs (
$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 delivered strong revenue growth primarily reflecting increased volumes, driven largely by the aerospace and defense markets, inclusive of CIT's adoption of the new revenue recognition standard. Refer to Notes 1 and 6 for further information regarding the impact of adoption of ASC 606.
CIT’s operating income and operating margin increase was primarily related to higher volumes, savings from COS and lower restructuring and facility rationalization costs, partially offset by unfavorable product mix.
Outlook
Revenues from the aerospace market comprised approximately
66%
of CIT's total revenues. The outlook for CIT’s commercial aerospace business remains positive on expanding production rates and higher content on new aircraft platforms. In-flight entertainment and connectivity ("IFEC") is an important segment of CIT’s overall commercial aerospace business, and long-term trends in IFEC remain positive.
Revenues from the medical market comprise approximately
16%
of CIT’s total revenues. CIT is actively pursuing new products, customers and complementary technologies to support its expansion into the growing medical technology market. The medical technology markets in which CIT competes are experiencing vendor consolidation trends among larger medical original equipment manufacturers, to whom CIT offers improved product verification capabilities and value‑added vertical integration through its multiple product offerings.
In 2019, we expect CIT to achieve mid-single digit revenue growth, driven by growth in CIT's core commercial aerospace business, defense and space expansion and gains in test and measurement products.
2017
Compared with
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Change
|
|
%
|
|
Acquisition
Effect
|
|
Price / Volume
Effect
|
|
Exchange
Rate Effect
|
Revenues
|
|
$
|
815.3
|
|
|
$
|
834.6
|
|
|
$
|
(19.3
|
)
|
|
(2.3
|
)%
|
|
5.4
|
%
|
|
(7.6
|
)%
|
|
(0.1
|
)%
|
Operating income
|
|
$
|
89.5
|
|
|
$
|
143.9
|
|
|
$
|
(54.4
|
)
|
|
(37.8
|
)%
|
|
|
|
|
|
|
Operating margin percentage
|
|
11.0
|
%
|
|
17.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
55.8
|
|
|
$
|
48.8
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability
(1)
|
|
$
|
18.0
|
|
|
$
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Items affecting comparability include exit and disposal and facility rationalization costs (
$18.0 million
in
2017
and
$11.3 million
in
2016
) and acquisition related costs (
$3.6 million
in
2016
), refer to
Items Affecting Comparability
.
|
CIT’s revenues decrease primarily reflected organic revenue decline due to softness experienced in the IFEC markets, and lower volumes driven by in-sourcing initiatives by a large commercial aerospace customer, partially offset by growth in our satellite communication product line and the acquisitions of Micro-Coax and Star Aviation.
CIT’s operating income and operating margin percentage decline was primarily related to unfavorable mix and the sales volume decline. The operating income decline also included plant restructuring and facility rationalization costs related to efforts focused on improving operational efficiencies throughout the business totaling
$18.0 million
in 2017, compared with
$11.3 million
in 2016, partially offset by savings from COS.
Carlisle Fluid Technologies (“CFT”)
Driven by focus on improving operational efficiencies throughout the business, we initiated facility consolidation efforts in the third quarter of 2017. These plans involved exiting our manufacturing operations in Brazil and Mexico, exiting the systems sales business in Germany, and relocating the manufacturing operations currently in Angola, Indiana, to our existing Bournemouth, United Kingdom, manufacturing operations. All facility closures were completed in the first quarter of 2018 and production moved to either our Jackson, Tennessee, or Bournemouth facilities. Refer to
Note 8
for further information regarding exit and disposal activities.
2018
Compared with
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
Change
|
|
%
|
|
Acquisition
Effect
|
|
Price / Volume
Effect
|
|
Exchange
Rate Effect
|
Revenues
|
|
$
|
291.6
|
|
|
$
|
281.4
|
|
|
$
|
10.2
|
|
|
3.6
|
%
|
|
—
|
%
|
|
2.4
|
%
|
|
1.2
|
%
|
Operating income
|
|
$
|
37.1
|
|
|
$
|
16.1
|
|
|
$
|
21.0
|
|
|
130.4
|
%
|
|
|
|
|
|
|
Operating margin percentage
|
|
12.7
|
%
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
22.9
|
|
|
$
|
23.0
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability
(1)
|
|
$
|
(0.1
|
)
|
|
$
|
12.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Items affecting comparability include exit and disposal and facility rationalization costs (
$3.1 million
in
2018
and
$12.6 million
in
2017
) and gains from divestitures (
$(3.2) million
in
2018
), refer to
Items Affecting Comparability
.
|
CFT’s revenue growth primarily reflected higher price realization in the U.S. and Europe and stronger volumes in the general industrial markets, partially offset by lower volumes in the transportation market.
CFT’s operating income and operating margin percentage benefited from our multiple facility rationalization efforts, progress on vertical integration, sourcing initiatives and a one-time gain from the sale of a facility in Mexico.
Outlook
The longer-term outlook in the transportation and general industrial markets remains steady with a stable funnel of systems and standard projects expected over the next year. We expect the opportunity for growth in the Asia-Pacific markets to continue to increase in conjunction with the expanding powder, sealant and adhesive opportunities.
In 2019, we expect CFT to achieve mid-single digit revenue growth, with growth expected in general industrial and transportation markets.
2017
Compared with
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Change
|
|
%
|
|
Acquisition
Effect
|
|
Price / Volume
Effect
|
|
Exchange
Rate Effect
|
Revenues
|
|
$
|
281.4
|
|
|
$
|
269.4
|
|
|
$
|
12.0
|
|
|
4.5
|
%
|
|
0.5
|
%
|
|
5.4
|
%
|
|
(1.4
|
)%
|
Operating income
|
|
$
|
16.1
|
|
|
$
|
31.2
|
|
|
$
|
(15.1
|
)
|
|
(48.4
|
)%
|
|
|
|
|
|
|
Operating margin percentage
|
|
5.7
|
%
|
|
11.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
23.0
|
|
|
$
|
20.7
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability
(1)
|
|
$
|
12.6
|
|
|
$
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Items affecting comparability include exit and disposal and facility rationalization costs (
$12.6 million
in
2017
and
$4.1 million
in
2016
) and acquisition related costs (
$0.1 million
in
2016
), refer to
Items Affecting Comparability
.
|
CFT’s revenue growth primarily reflected higher demand for general industrial products in the U.S. and Europe, increased sales volumes in Asia Pacific, primarily as a result of the timing of systems sales, favorable pricing initiatives, and contribution of sales from MS Powder. This growth is partially offset by unfavorable fluctuations in foreign exchange rates.
CFT’s operating income and operating margin percentage decrease primarily reflected ongoing investments to position the business for future growth and margin improvement. Included in CFT's operating income for 2017 were restructuring and facility rationalization costs of
$12.6 million
, compared with
$4.1 million
in 2016.
Carlisle Brake & Friction (“CBF”)
In 2017, we announced we would exit our manufacturing operations in Tulsa, Oklahoma, and relocate the majority of those operations to our existing manufacturing facility in Medina, Ohio, which was substantially complete by December 31, 2018. Refer to
Note 8
for further information.
2018
Compared with
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
Change
|
|
%
|
|
Acquisition
Effect
|
|
Price / Volume
Effect
|
|
Exchange
Rate Effect
|
Revenues
|
|
$
|
373.8
|
|
|
$
|
317.9
|
|
|
$
|
55.9
|
|
|
17.6
|
%
|
|
—
|
%
|
|
16.1
|
%
|
|
1.5
|
%
|
Operating income
|
|
$
|
(0.8
|
)
|
|
$
|
2.6
|
|
|
$
|
(3.4
|
)
|
|
(130.8
|
)%
|
|
|
|
|
|
|
Operating margin percentage
|
|
(0.2
|
)%
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
23.5
|
|
|
$
|
23.0
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability
(1)
|
|
$
|
19.8
|
|
|
$
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Items affecting comparability include exit and disposal and facility rationalization costs (
$19.8 million
in
2018
and
$5.1 million
in
2017
), refer to
Items Affecting Comparability
.
|
CBF achieved strong organic growth, reflecting volume growth driven by sustained recovery in off-highway vehicle markets and price realization, especially in the construction, mining and agriculture markets.
CBF’s operating income and operating margin percentage decline was largely driven by higher restructuring and facility rationalization costs, associated with our Tulsa, Oklahoma, to Medina, Ohio, facility consolidation, partially offset by higher volumes and price realization.
Outlook
CBF has emerged from the bottom of the cycle and experienced continued recovery in 2018. We continue to monitor our key-end markets for indications of the next down cycle. CBF is aggressively realigning its cost structure through the plant consolidations and seeking to realize associated savings. The Tulsa, Oklahoma, to Medina, Ohio, facility consolidation is substantially complete, with approximately $2.0 million of costs continuing into 2019.
In 2019, we expect CBF to achieve low-single digit revenue growth, with growth expected in core markets of agriculture, mining and construction.
2017
Compared with
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
Change
|
|
%
|
|
Acquisition
Effect
|
|
Price / Volume
Effect
|
|
Exchange
Rate Effect
|
Revenues
|
|
$
|
317.9
|
|
|
$
|
268.6
|
|
|
$
|
49.3
|
|
|
18.4
|
%
|
|
—
|
%
|
|
18.5
|
%
|
|
(0.1
|
)%
|
Impairment charges
|
|
$
|
—
|
|
|
$
|
141.5
|
|
|
$
|
(141.5
|
)
|
|
(100.0
|
)%
|
|
|
|
|
|
|
Operating income
|
|
$
|
2.6
|
|
|
$
|
(135.9
|
)
|
|
$
|
138.5
|
|
|
101.9
|
%
|
|
|
|
|
|
|
Operating margin percentage
|
|
0.8
|
%
|
|
(50.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
23.0
|
|
|
$
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
Items affecting comparability
(1)
|
|
$
|
5.1
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Items affecting comparability include exit and disposal and facility rationalization costs (
$5.1 million
in
2017
), refer to
Items Affecting Comparability
.
|
CBF’s revenue growth reflected higher demand from the construction, mining and agriculture markets, partially offset by a decrease in the aerospace market.
CBF’s operating income and operating margin percentage increase in 2017 primarily reflected the non-recurrence of $141.5 million of goodwill and other intangible asset impairment charges taken in 2016, higher net sales volume and savings from COS. The increase was partially offset by unfavorable mix and restructuring and facility rationalization costs of
$5.1 million
in 2017, associated with the exit of our Tulsa, Oklahoma manufacturing operations.
Liquidity and Capital Resources
A summary of our cash and cash equivalents by region follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2018
|
|
December 31, 2017
|
Europe
|
|
$
|
39.3
|
|
|
$
|
38.1
|
|
North America (excluding U.S.)
|
|
28.6
|
|
|
20.7
|
|
China
|
|
28.6
|
|
|
17.6
|
|
Asia Pacific (excluding China)
|
|
19.5
|
|
|
21.0
|
|
Other international regions
|
|
—
|
|
|
1.0
|
|
International cash and cash equivalents
|
|
116.0
|
|
|
98.4
|
|
U.S. cash and cash equivalents
|
|
687.6
|
|
|
279.9
|
|
Total cash and cash equivalents
|
|
$
|
803.6
|
|
|
$
|
378.3
|
|
We maintain liquidity sources primarily consisting of cash and cash equivalents as well as availability under the Facility. Cash generated by operations is our primary source of liquidity. Another potential source of liquidity is access to public capital markets via our automatic registration statement on Form S-3 filed November 8, 2017, subject to market conditions at that time. The increase in cash and cash equivalents compared to December 31, 2017, was primarily related to the cash consideration received for the disposition of CFS, which was completed on March 20, 2018. During
2018
, we utilized cash on hand to fund share repurchases, capital expenditures and pay dividends to shareholders.
Cash held by subsidiaries 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 to entities that are outside of China.
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 our existing notes by the respective maturity dates. We intend to obtain additional liquidity by accessing the capital markets to repay the outstanding balance if these sources of liquidity have been used for other strategic purposes by the time of maturity. See
Debt Instruments
below.
Sources and Uses of Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Net cash provided by operating activities
|
|
$
|
339.2
|
|
|
$
|
458.7
|
|
|
$
|
531.2
|
|
Net cash provided by (used in) investing activities
|
|
629.2
|
|
|
(1,094.3
|
)
|
|
(293.4
|
)
|
Net cash (used in) provided by financing activities
|
|
(540.7
|
)
|
|
627.2
|
|
|
(261.1
|
)
|
Effect of foreign currency exchange rate changes on cash
|
|
(1.1
|
)
|
|
2.7
|
|
|
(2.1
|
)
|
Change in cash and cash equivalents
|
|
$
|
426.6
|
|
|
$
|
(5.7
|
)
|
|
$
|
(25.4
|
)
|
2018
Compared with
2017
We generated operating cash flows totaling
$339.2 million
for
2018
(including working capital uses of
$224.9 million
), compared with
$458.7 million
for
2017
(including working capital uses of
$59.2 million
). Lower operating cash flows in
2018
primarily reflect higher tax payments for taxes on the sale of CFS, growth in working capital and change in mix of cash earnings due to acquisition activity.
Cash provided by investing activities of
$629.2 million
for
2018
primarily reflected the sale of CFS for gross proceeds of
$758.0 million
, partially offset by capital expenditures of
$120.7 million
. Cash used in investing activities of
$1.1 billion
for
2017
primarily reflected the acquisitions of Accella, Drexel and Arbo in the CCM segment for $720.6 million, net of cash acquired, and San Jamar in the CFS segment for $213.7 million, net of cash acquired, and capital expenditures of
$159.9 million
.
The cash used in financing activities of $
540.7 million
for
2018
primarily reflected
$459.8 million
of share repurchases and
$93.5 million
of dividend payments, reflecting the increased annual dividend of
$1.54
per share. Cash provided by financing activities of
$627.2 million
for
2017
primarily reflected
$997.2 million
net proceeds from our $1.0 billion 2024 and 2027 notes, partially offset by share repurchases of
$268.4 million
and dividend payments of
$92.1 million
. Borrowings were used to fund the aforementioned acquisitions and share repurchases.
2017
Compared with
2016
We generated operating cash flows totaling
$458.7 million
for
2017
(including working capital uses of
$59.2 million
) compared with
$531.2 million
in
2016
(including working capital sources of
$23.6 million
). Lower operating cash flows in 2017 reflect a decrease in working capital sources resulting from higher accounts receivable associated with higher sales volumes at CCM and CBF, increased inventory in preparation for forecasted sales volumes at CCM and CIT and timing of prepaid expense payments.
The cash used in investing activities of
$1.1 billion
for
2017
primarily reflected cash utilized of
$934.3 million
, net of cash acquired, for the acquisitions of Accella, Drexel Metals and Arbo in the CCM segment and the acquisition of San Jamar in the CFS segment, and
$159.9 million
in capital expenditures. Cash used in investing activities of
$293.4 million
for
2016
primarily reflected cash utilized of
$185.5 million
, net of cash acquired, for the acquisition of Star Aviation and Micro-Coax in the CIT segment and MS Powder in the CFT segment, and
$108.8 million
in capital expenditures.
Cash provided by financing activities of
$627.2 million
for
2017
primarily reflected
$997.2 million
net proceeds from our $1.0 billion 2024 and 2027 notes, partially offset by share repurchases of
$268.4 million
and dividend payments of
$92.1 million
. Cash used in financing activities of
$261.1 million
for
2016
primarily reflected payment of
$150.0
million
on bonds that matured during the third quarter of 2016, share repurchases of
$75.0 million
and dividend payments of
$84.5 million
, partially offset by
$53.1 million
of proceeds from exercised stock options.
Outlook
Our priorities for the use of cash are to invest in growth and performance improvement opportunities for our existing businesses 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
2019
are expected to be between $110 million and $125 million, which primarily includes continued investments in CCM facilities, as well as capacity upgrades and investment in CIT. Planned capital expenditures for
2019
include business sustaining projects, cost reduction efforts and new product expansion.
No minimum contributions to our domestic pension plans are required in
2019
. However, during
2019
we expect to pay approximately
$1.5 million
in participant benefits under the executive supplemental and director plans. We do not expect to make any discretionary contributions to our other pension plans in
2019
. We did not make any contributions to the domestic pension plans during
2018
.
We intend to pay dividends to our shareholders and have increased our dividend rate annually for the past 42 years.
On February 5, 2019, the Board of Directors (the "Board") declared a regular quarterly dividend of $0.40 per share, payable on March 1, 2019, to shareholders of record at the close of business on February 20, 2019.
We repurchased approximately
4.4 million
shares in
2018
as part of our plan to return capital to shareholders, utilizing
$459.8 million
of our cash on hand. As of
December 31, 2018
, we had authority to repurchase
2.7 million
shares. Purchases may occur from time‑to‑time in the open market and no maximum purchase price has been set. The decision to repurchase shares depends on price, availability and other corporate developments. On February 5, 2019, the Board approved a 5 million share increase in the Company's stock repurchase programs. We repurchased 0.9 million shares under these programs in 2019, resulting in 6.8 million shares remaining available for repurchase as of
February 7, 2019
. The Company plans to continue to repurchase shares in
2019
on a systematic basis.
Debt Instruments
Senior Notes
We have senior unsecured notes outstanding of
$250.0 million
due 2020 (at a stated interest rate of 5.125%),
$350.0 million
due 2022 (at a stated interest rate of 3.75%),
$400.0 million
due 2024 (at a stated interest rate of 3.5%) and
$600.0 million
due 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
During
2018
, we had no borrowings or repayments under the Facility. As of
December 31, 2018
, we had no amounts outstanding under our revolving credit facility, with $1.0 billion available for use.
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
December 31, 2018
and
2017
.
Refer to
Note 14
for further information on our debt instruments.
Contractual Obligations
Certain contractual cash obligations and commercial commitments as of
December 31, 2018
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Total
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
Long-term debt
|
|
$
|
1,600.0
|
|
|
$
|
—
|
|
|
$
|
250.0
|
|
|
$
|
—
|
|
|
$
|
350.0
|
|
|
$
|
—
|
|
|
$
|
1,000.0
|
|
Interest on long-term debt
(1)
|
|
368.6
|
|
|
63.7
|
|
|
63.7
|
|
|
50.9
|
|
|
49.8
|
|
|
36.5
|
|
|
104.0
|
|
Noncancelable operating leases
|
|
48.5
|
|
|
16.7
|
|
|
10.8
|
|
|
6.8
|
|
|
4.9
|
|
|
4.2
|
|
|
5.1
|
|
Estimated workers' compensation claims
(2)
|
|
22.6
|
|
|
4.6
|
|
|
2.5
|
|
|
1.7
|
|
|
1.8
|
|
|
1.7
|
|
|
10.3
|
|
Estimated defined benefit plan payments
(3)
|
|
256.6
|
|
|
14.4
|
|
|
14.5
|
|
|
13.7
|
|
|
13.6
|
|
|
13.6
|
|
|
186.8
|
|
Total commitments
|
|
$
|
2,296.3
|
|
|
$
|
99.4
|
|
|
$
|
341.5
|
|
|
$
|
73.1
|
|
|
$
|
420.1
|
|
|
$
|
56.0
|
|
|
$
|
1,306.2
|
|
|
|
(1)
|
Future expected interest payments are calculated based on the stated rate for fixed rate debt as of
December 31, 2018
.
|
|
|
(2)
|
The amount of
$22.6 million
in obligations for workers compensation claims reflects undiscounted estimated 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. We maintain occurrence‑based insurance coverage with certain insurance carriers in accordance with our risk management practices that provides for reimbursement of workers’ 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 history of recoveries. As of
December 31, 2018
, we had a recovery receivable of
$6.6 million
. Refer to
Note 17
for further information.
|
|
|
(3)
|
The amount of
$256.6 million
in defined benefit plan payments reflects undiscounted and unescalated estimated employee obligations under the Company’s domestic qualified defined benefit pension plans. The estimated obligation is based upon plan provisions, increases to compensation levels and actuarial assumptions and mortality rate trends. Approximately $225.5 million of the
$256.6 million
in estimated obligations reflects projected benefit obligations under the Company’s qualified defined benefit plans. We maintain a trust in which plan assets of the trust are expected to fully fund the Company’s projected benefit obligations for its qualified defined benefit plans based upon their fair value measurement as of
December 31, 2018
, and expected return on assets. Refer to
Note 15
for further information.
|
In addition to our debt maturities and other 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) long‑term deferred revenue, (ii) unrecognized income tax benefits and deferred income tax liabilities and (iii) deferred compensation. As a result of 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.
There were no contracts for the purchase of goods or services that are enforceable and legally binding and/or require minimum quantities with a term exceeding one year as of
December 31, 2018
, although we routinely enter into purchase agreements for certain key raw materials.
Environmental
We are 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, businesses or offsite disposal facilities 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 and compliance with environmental permits. To date, costs of complying with environmental, health and safety requirements have not been material and we do not currently have any significant accruals related to potential future costs of environmental remediation as of
December 31, 2018
and
2017
, nor do we have any asset retirement obligations recorded at those dates. However, the nature of our operations and our long history of industrial activities at 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.
Off-Balance Sheet Arrangements
Refer to
Note 17
for discussion of off-balance sheet arrangements.
Critical Accounting Estimates
Our significant accounting policies are more fully described in
Note 1
. 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 and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates, including those related to revenue recognition, and 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 values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Business Combinations
As noted in
Executive Overview
we have a history and a 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 acquired and the liabilities assumed at their acquisition date fair values. Deferred taxes are recorded for any differences between fair value and tax basis of assets acquired and liabilities assumed and can vary based on the structure of the acquisition as to whether it is a taxable or non-taxable transaction. To the extent the purchase price of the acquired business exceeds the fair values of the assets acquired and liabilities assumed, including deferred income taxes recorded in connection with the transaction, such excess is recognized as goodwill (see further below for our critical accounting estimate regarding post-acquisition accounting for goodwill). The most critical areas of judgment in applying the acquisition method include selecting the appropriate 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 key techniques and assumptions utilized by type of major acquired asset or liability generally include:
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Asset/Liability
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Typical Valuation Technique
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Key Assumptions
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Technology-based intangible assets
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Relief from royalty method
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- Estimated future revenues from acquired technology
- Royalty rates that would be paid if licensed from a third-party
- Discount rates
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Customer-based intangible assets
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Multiple-period excess earnings method
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- Estimated future revenues from existing customers
- Rates of customer attrition
- Discount rates
- Contributory asset charges
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Trademark/trade name intangible assets
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Relief from royalty method
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- 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
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Property, plant & equipment
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Market comparable transactions (real property) and replacement cost new less economic deprecation (personal property)
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- Similarity of subject property to market comparable transactions
- Costs of like equipment in new condition
- Economic obsolescence rates
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Inventory
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Net realizable value less (i) estimated costs of completion and disposal and (ii) a reasonable profit allowance for the seller
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- Estimated percentage complete (WIP inventory)
- Estimated selling prices
- Estimated completion and disposal costs
- Estimated profit allowance for the seller
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Contingent Consideration
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Discounted future cash flows
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- Future revenues and/or net earnings
- Discount rates
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In 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 intangible asset. Refer to
Note 3
for more information regarding business combinations, specifically the items that generated goodwill in our recent acquisitions.
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 value. Goodwill is tested for impairment via a one-step process by comparing the fair value of goodwill with its carrying value. We recognize an impairment for the amount by which the carrying amount exceeds the fair value. We estimate the fair value of our reporting units primarily based on the income approach utilizing the discounted cash flow method ("DCF"). We also use, when necessary, fair value estimates derived from the market approach utilizing the public company market multiple method to validate the results of the discounted cash flow method, which require 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. The key assumptions that drive fair value, via the DCF, include:
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•
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Industry weighted-average cost of capital (“WACC”): We utilize a WACC 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.
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•
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Revenue growth rates: We utilize a revenue growth rate based on historical growth patterns, industry analysis and management’s experience, which vary based on the reporting unit being evaluated.
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•
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Operating margins: We utilize historical and expected operating margins, which vary based on the projections of each reporting unit being evaluated.
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We have determined that we have four reporting units and have allocated goodwill to those reporting units as follows:
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(in millions)
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December 31, 2018
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December 31, 2017
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Carlisle Construction Materials
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$
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532.8
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$
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544.3
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Carlisle Interconnect Technologies
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643.1
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640.3
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Carlisle Fluid Technologies
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169.5
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171.0
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Carlisle Brake & Friction
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96.4
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96.5
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Total
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$
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1,441.8
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$
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1,452.1
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Annual Impairment Test
We test our goodwill for impairment annually in the fourth-quarter as of October 1. For the
2018
impairment test, the CCM and CIT reporting units were tested for impairment using a qualitative approach. Under this approach, an entity may assess qualitative factors as well as relevant events and circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Through the results of our analysis, we determined that it 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 units were tested for impairment using the quantitative approach described above, resulting in fair value that exceeded the carrying value for each of the reporting units.
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 such as 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 12
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 values. 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 their 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,
2018
, 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‑Lived Assets
Long
‑
lived assets or asset groups, including amortizable intangible assets, are tested for recoverability whenever events or circumstances indicate that the undiscounted future cash flows do not exceed the carrying amount of the asset or asset group. For purposes of testing for impairment, we group our 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, 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 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. We utilize our long
‑
lived assets in multiple industries and economic environments and our asset groupings reflect these various factors.
We monitor the operating and cash flow results of our 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 to the carrying value of the long
‑
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 volumes, 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
‑
lived assets or asset groups classified as held and used for which there 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. If the disposal 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
Beginning January 1, 2018, we began recognizing revenues under the guidance in ASC 606. 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 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 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.
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, 2018, 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:
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•
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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.
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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. We have grouped the estimates of expected margin into three primary categories: (1) commercial aerospace, (2) test and measurement and (3) medical. 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.
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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 consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or 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 state net operating loss ("NOL") carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of
$1.3 million
on the deferred tax assets related to these state NOL carryforwards.
We (1) record unrecognized tax benefits as liabilities in accordance with Accounting Standards Codification 740,
Income Taxes
("ASC 740") and (2) adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, 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 increases or decreases to income tax expense in the period in which new information is available.
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 CCM segment. 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 exceed unamortized deferred revenues equal to such excess. We estimate total expected warranty costs using actuarially 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 labor and material costs. The estimates of the volume and severity of these claims and associated 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 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:
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(in millions, except per share amounts)
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2018
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Impact to
Operating Income
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Impact to Income from Continuing Operations
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Impact to Diluted EPS
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Exit and disposal costs
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$
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17.9
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$
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13.5
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$
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0.22
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Other facility rationalization costs
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13.2
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|
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9.8
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0.16
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Acquisition related costs:
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Inventory step-up amortization
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1.0
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0.8
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0.01
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Other acquisition costs
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4.6
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3.5
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0.06
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Litigation settlement losses (gains)
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2.5
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1.9
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|
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0.03
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Gains from divestitures
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(6.6
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)
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(4.9
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)
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(0.08
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)
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Tax reform benefit
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—
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(3.3
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)
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(0.06
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)
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Total items affecting comparability
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$
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32.6
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$
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21.3
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$
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0.34
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2017
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(in millions, except per share amounts)
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Impact to
Operating Income
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Impact to Income from Continuing Operations
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Impact to Diluted EPS
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Exit and disposal costs
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$
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26.8
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$
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18.5
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$
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0.29
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Other facility rationalization costs
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9.7
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7.0
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0.11
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Acquisition related costs:
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Inventory step-up amortization
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7.7
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4.8
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|
|
0.07
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Other acquisition costs
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3.5
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|
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2.8
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|
0.05
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Indemnification losses
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—
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4.6
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|
0.07
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Losses from divestitures
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—
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|
|
0.5
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|
|
0.01
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|
Tax reform benefit
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—
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(52.6
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)
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(0.82
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)
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Total items affecting comparability
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$
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47.7
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$
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(14.4
|
)
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$
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(0.22
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)
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2016
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(in millions, except per share amounts)
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Impact to
Operating Income
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Impact to Income from Continuing Operations
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Impact to Diluted EPS
|
Exit and disposal costs
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$
|
15.5
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$
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10.6
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$
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0.16
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Other facility rationalization costs
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3.7
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2.7
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|
|
0.05
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Acquisition related costs:
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|
|
|
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Inventory step-up amortization
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2.0
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1.2
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|
0.02
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Other acquisition costs
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2.9
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|
|
1.8
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|
|
0.03
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Gains from divestitures
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(0.3
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)
|
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(0.6
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)
|
|
(0.01
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)
|
Total items affecting comparability
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$
|
23.8
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$
|
15.7
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$
|
0.25
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The impact to income from continuing operations reflects the tax effect of items affecting comparability is 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
).
Forward‑Looking Statements
This report contains forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward‑looking statements generally use words such as “expect,” “foresee,” “anticipate,” “believe,” “project,” “should,” “estimate,” “will,” “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‑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‑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 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Carlisle Companies Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Carlisle Companies Incorporated (the "Company") as of December 31, 2018 and 2017, and the related consolidated statements of income and comprehensive income, shareholders' equity, and cash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
We have 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, 2018, 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 14, 2019, 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, 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 regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 14, 2019
We have served as the Company’s auditor since 2017.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2018, 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 Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control - Integrated Framework (2013)
issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018, of the Company and our report dated February 14, 2019, expressed an unqualified opinion on those financial statements.
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’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 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 the 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.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 14, 2019
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Carlisle Companies Incorporated
We have audited the accompanying consolidated balance sheet of Carlisle Companies Incorporated as of December 31, 2016, and the related consolidated statements of income and comprehensive income, shareholders' equity, and cash flows for the year ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Carlisle Companies Incorporated at December 31, 2016, and the consolidated results of its operations and its cash flows for the year ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements, the Company reclassified the 2016 results of operations related to the sale of Carlisle Food Service during the year ended December 31, 2018 in accordance with ASC 205-20,
Discontinued Operations
.
/s/ Ernst & Young LLP
Phoenix, Arizona
February 13, 2017,
except for Note 2, Note 4, Note 5, Note 9, Note 12, and Note 17, as to which the date is
February 14, 2019
Carlisle Companies Incorporated
Consolidated Statements of Income and Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in millions, except per share amounts)
|
|
2018
|
|
2017
|
|
2016
|
Revenues
|
|
$
|
4,479.5
|
|
|
$
|
3,750.8
|
|
|
$
|
3,425.2
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
3,304.8
|
|
|
2,702.5
|
|
|
2,338.8
|
|
Selling and administrative expenses
|
|
625.4
|
|
|
532.9
|
|
|
495.4
|
|
Research and development expenses
|
|
55.1
|
|
|
51.3
|
|
|
45.4
|
|
Impairment charges
|
|
—
|
|
|
—
|
|
|
141.5
|
|
Other operating (income) expense, net
|
|
(14.8
|
)
|
|
0.1
|
|
|
(0.1
|
)
|
Operating income
|
|
509.0
|
|
|
464.0
|
|
|
404.2
|
|
Interest expense, net
|
|
53.5
|
|
|
33.5
|
|
|
30.6
|
|
Other non-operating (income) expense, net
|
|
9.6
|
|
|
1.5
|
|
|
(5.6
|
)
|
Income from continuing operations before income taxes
|
|
445.9
|
|
|
429.0
|
|
|
379.2
|
|
Provision for income taxes
|
|
87.3
|
|
|
88.4
|
|
|
148.1
|
|
Income from continuing operations
|
|
358.6
|
|
|
340.6
|
|
|
231.1
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
300.1
|
|
|
39.6
|
|
|
30.2
|
|
Provision for income taxes
|
|
47.6
|
|
|
14.7
|
|
|
11.2
|
|
Income from discontinued operations
|
|
252.5
|
|
|
24.9
|
|
|
19.0
|
|
Net income
|
|
$
|
611.1
|
|
|
$
|
365.5
|
|
|
$
|
250.1
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to common shares:
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
5.92
|
|
|
$
|
5.36
|
|
|
$
|
3.57
|
|
Income from discontinued operations
|
|
4.17
|
|
|
0.39
|
|
|
0.29
|
|
Basic earnings per share
|
|
$
|
10.09
|
|
|
$
|
5.75
|
|
|
$
|
3.86
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to common shares:
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
5.88
|
|
|
$
|
5.32
|
|
|
$
|
3.53
|
|
Income from discontinued operations
|
|
4.14
|
|
|
0.39
|
|
|
0.29
|
|
Diluted earnings per share
|
|
$
|
10.02
|
|
|
$
|
5.71
|
|
|
$
|
3.82
|
|
|
|
|
|
|
|
|
Average shares outstanding (in thousands):
|
|
|
|
|
|
|
Basic
|
|
60,393
|
|
|
63,073
|
|
|
64,226
|
|
Diluted
|
|
60,786
|
|
|
63,551
|
|
|
64,883
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
611.1
|
|
|
$
|
365.5
|
|
|
$
|
250.1
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency (losses) gains
|
|
(30.3
|
)
|
|
46.6
|
|
|
(36.7
|
)
|
Amortization of unrecognized net periodic benefit costs, net of tax
|
|
(0.4
|
)
|
|
(5.2
|
)
|
|
1.0
|
|
Other, net of tax
|
|
0.8
|
|
|
(4.9
|
)
|
|
0.6
|
|
Other comprehensive income (loss)
|
|
(29.9
|
)
|
|
36.5
|
|
|
(35.1
|
)
|
Comprehensive income
|
|
$
|
581.2
|
|
|
$
|
402.0
|
|
|
$
|
215.0
|
|
See accompanying Notes to Consolidated Financial Statements
Carlisle Companies Incorporated
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
(in millions, except share and per share amounts)
|
|
December 31, 2018
|
|
December 31, 2017
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
803.6
|
|
|
$
|
378.3
|
|
Receivables, net
|
|
698.3
|
|
|
625.7
|
|
Inventories, net
|
|
457.5
|
|
|
448.8
|
|
Prepaid expenses
|
|
22.0
|
|
|
21.7
|
|
Other current assets
|
|
75.3
|
|
|
73.6
|
|
Discontinued operations
|
|
—
|
|
|
96.5
|
|
Total current assets
|
|
2,056.7
|
|
|
1,644.6
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
760.1
|
|
|
731.1
|
|
Goodwill, net
|
|
1,441.8
|
|
|
1,452.1
|
|
Other intangible assets, net
|
|
967.7
|
|
|
1,065.0
|
|
Other long-term assets
|
|
22.9
|
|
|
34.9
|
|
Discontinued operations
|
|
—
|
|
|
372.1
|
|
Total assets
|
|
$
|
5,249.2
|
|
|
$
|
5,299.8
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
312.1
|
|
|
$
|
332.1
|
|
Accrued expenses
|
|
258.0
|
|
|
257.8
|
|
Deferred revenue
|
|
25.5
|
|
|
27.8
|
|
Discontinued operations
|
|
—
|
|
|
40.9
|
|
Total current liabilities
|
|
595.6
|
|
|
658.6
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
Long-term debt
|
|
1,587.8
|
|
|
1,586.2
|
|
Deferred revenue
|
|
201.9
|
|
|
188.0
|
|
Other long-term liabilities
|
|
266.5
|
|
|
288.7
|
|
Discontinued operations
|
|
—
|
|
|
50.0
|
|
Total long-term liabilities
|
|
2,056.2
|
|
|
2,112.9
|
|
|
|
|
|
|
Commitments and contingencies (see Note 17)
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
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; 57,957,912 and 61,839,734 shares outstanding, respectively)
|
|
78.7
|
|
|
78.7
|
|
Additional paid-in capital
|
|
383.8
|
|
|
353.7
|
|
Deferred compensation equity
|
|
8.0
|
|
|
10.4
|
|
Treasury shares, at cost (20,534,652 and 16,613,193 shares, respectively)
|
|
(1,102.4
|
)
|
|
(649.6
|
)
|
Accumulated other comprehensive loss
|
|
(122.1
|
)
|
|
(85.7
|
)
|
Retained earnings
|
|
3,351.4
|
|
|
2,820.8
|
|
Total shareholders' equity
|
|
2,597.4
|
|
|
2,528.3
|
|
Total liabilities and equity
|
|
$
|
5,249.2
|
|
|
$
|
5,299.8
|
|
See accompanying notes to Consolidated Financial Statements
Carlisle Companies Incorporated
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Operating activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
611.1
|
|
|
$
|
365.5
|
|
|
$
|
250.1
|
|
Reconciliation of net income to cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
86.4
|
|
|
84.9
|
|
|
75.1
|
|
Amortization
|
|
104.2
|
|
|
84.2
|
|
|
62.7
|
|
Impairment charges
|
|
—
|
|
|
—
|
|
|
141.5
|
|
Stock-based compensation, net of tax benefit
|
|
23.9
|
|
|
13.2
|
|
|
(2.6
|
)
|
Deferred taxes
|
|
(0.8
|
)
|
|
(58.5
|
)
|
|
(25.0
|
)
|
Gain on sale of discontinued operations, net of tax
|
|
(250.4
|
)
|
|
—
|
|
|
—
|
|
Other operating activities, net
|
|
(18.8
|
)
|
|
13.9
|
|
|
(6.0
|
)
|
Changes in assets and liabilities, excluding effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
(54.5
|
)
|
|
(53.9
|
)
|
|
0.3
|
|
Inventories
|
|
(29.0
|
)
|
|
(48.5
|
)
|
|
(12.2
|
)
|
Prepaid expenses and other assets
|
|
(2.0
|
)
|
|
(20.1
|
)
|
|
(9.2
|
)
|
Accounts payable
|
|
(39.5
|
)
|
|
42.7
|
|
|
21.6
|
|
Accrued expenses
|
|
(99.9
|
)
|
|
20.6
|
|
|
23.1
|
|
Deferred revenues
|
|
11.8
|
|
|
19.3
|
|
|
11.7
|
|
Other long-term liabilities
|
|
(3.3
|
)
|
|
(4.6
|
)
|
|
0.1
|
|
Net cash provided by operating activities
|
|
339.2
|
|
|
458.7
|
|
|
531.2
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of discontinued operation
|
|
758.0
|
|
|
—
|
|
|
—
|
|
Acquisitions, net of cash acquired
|
|
(19.5
|
)
|
|
(934.3
|
)
|
|
(185.5
|
)
|
Capital expenditures
|
|
(120.7
|
)
|
|
(159.9
|
)
|
|
(108.8
|
)
|
Other investing activities, net
|
|
11.4
|
|
|
(0.1
|
)
|
|
0.9
|
|
Net cash provided by (used in) investing activities
|
|
629.2
|
|
|
(1,094.3
|
)
|
|
(293.4
|
)
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facility
|
|
—
|
|
|
1,189.0
|
|
|
—
|
|
Repayments of revolving credit facility
|
|
—
|
|
|
(1,189.0
|
)
|
|
—
|
|
Proceeds from notes
|
|
—
|
|
|
997.2
|
|
|
—
|
|
Repayments of notes
|
|
—
|
|
|
—
|
|
|
(150.0
|
)
|
Repurchases of common stock
|
|
(459.8
|
)
|
|
(268.4
|
)
|
|
(75.0
|
)
|
Dividends paid
|
|
(93.5
|
)
|
|
(92.1
|
)
|
|
(84.5
|
)
|
Financing costs
|
|
—
|
|
|
(8.3
|
)
|
|
—
|
|
Proceeds from exercise of stock options, net
|
|
12.6
|
|
|
(1.2
|
)
|
|
48.4
|
|
Net cash (used in) provided by financing activities
|
|
(540.7
|
)
|
|
627.2
|
|
|
(261.1
|
)
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate changes on cash and cash equivalents
|
|
(1.1
|
)
|
|
2.7
|
|
|
(2.1
|
)
|
Change in cash and cash equivalents
|
|
426.6
|
|
|
(5.7
|
)
|
|
(25.4
|
)
|
Less: change in cash and cash equivalents of discontinued operations
|
|
1.3
|
|
|
1.0
|
|
|
0.3
|
|
Cash and cash equivalents at beginning of period
|
|
378.3
|
|
|
385.0
|
|
|
410.7
|
|
Cash and cash equivalents at end of period
|
|
$
|
803.6
|
|
|
$
|
378.3
|
|
|
$
|
385.0
|
|
See accompanying notes to Consolidated Financial Statements
Carlisle Companies Incorporated
Consolidated Statements of Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2016
|
64.0
|
|
|
$
|
78.7
|
|
|
$
|
293.4
|
|
|
$
|
8.0
|
|
|
$
|
(87.1
|
)
|
|
$
|
2,381.8
|
|
|
14.4
|
|
|
$
|
(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
|
(0.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.8
|
|
|
(75.7
|
)
|
|
(75.7
|
)
|
Issuances and deferrals, net for stock-based compensation
(1)
|
1.0
|
|
|
—
|
|
|
41.9
|
|
|
2.3
|
|
|
—
|
|
|
—
|
|
|
(1.0
|
)
|
|
20.5
|
|
|
64.7
|
|
Balance as of December 31, 2016
|
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
|
|
|
|
(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.
|
|
|
(2)
|
Refer to
Note 1
for further information regarding new accounting standards adopted.
|
See accompanying notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Note 1
—Summary of Accounting Policies
Nature of Business
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. The Company markets its products as a component supplier to original equipment manufacturers, distributors and directly to end-users.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany transactions and accounts have been eliminated.
Use of Estimates
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.
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 non-operating (income) 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. Assets and liabilities subject to the completed sale of CFS have been classified as discontinued operations for all periods presented in the Condensed Consolidated Balance Sheets. 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, 2018, 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 (Income) Expense, Net
Other non-operating (income) 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 as 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. 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 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. Additionally, the Company 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,
Income
Taxes
, 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. Refer to
Note 9
for additional information regarding income taxes including Staff Accounting Bulletin 118 (“SAB 118”) impacts.
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 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
$5.1 million
,
$6.5 million
and
$3.9 million
as of
December 31,
2018
,
2017
and
2016
, respectively. 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)
|
|
2018
|
|
2017
|
|
2016
|
Balance as of January 1
|
|
$
|
6.5
|
|
|
$
|
3.9
|
|
|
$
|
4.7
|
|
(Decrease) increase to reserve
|
|
(0.5
|
)
|
|
1.2
|
|
|
0.1
|
|
Amounts acquired
|
|
—
|
|
|
2.0
|
|
|
0.4
|
|
Amounts written off
|
|
(0.9
|
)
|
|
(0.6
|
)
|
|
(1.3
|
)
|
Balance as of December 31
|
|
$
|
5.1
|
|
|
$
|
6.5
|
|
|
$
|
3.9
|
|
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 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, 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 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 1st. The Company has
four
reporting units, that align with its reportable segments.
Refer to
Note 12
for additional information regarding goodwill and other intangible assets.
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.
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. Refer to
Note 17
for additional information regarding rent expense.
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.
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 or 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. 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.
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. Refer to
Note 17
for additional information regarding contingencies and insurance recoveries.
Derivative Instruments and Hedge Accounting
From 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. The 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, are classified in accumulated other comprehensive income, until the underlying transaction being hedged impacts earnings. Any ineffectiveness is 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 (income) expense, net. Refer to
Note 18
for a description of the Company's current derivative instrument and hedging activities.
New Accounting Standards Adopted
Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers
("ASU 2014-09"), which 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. In addition to ASU 2014-09, the Company also adopted all the related amendments ("ASC 606") to all uncompleted contracts using the modified retrospective method.
The Company recognized the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of retained earnings totaling
$6.5 million
. The comparative information has not been adjusted and continues to be reported under the accounting standards in effect for those periods. The Company expects the impact of the adoption of ASC 606 to be immaterial to its reported revenue on an ongoing basis.
A majority of the Company's revenues continue to be recognized when products are shipped from its manufacturing facilities or delivered to the customer, depending on shipping terms. For certain highly customized product contracts in the Carlisle Interconnect Technologies segment, revenue was previously recognized as billed, at the point products were shipped and title and associated risk and rewards of ownership passed to the customer. In accordance with ASC
606, the Company now recognizes revenue over time, for those highly customized products, using the input method as products are manufactured.
A summary of the effects of adopting ASC 606 on the Consolidated Financial Statements follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
(in millions)
|
|
As Reported
|
|
Balances Without Adoption of ASC 606
|
|
Effect of Change Higher/(Lower)
|
Consolidated Statement of Income
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,479.5
|
|
|
$
|
4,457.6
|
|
|
$
|
21.9
|
|
Cost of goods sold
|
|
3,304.8
|
|
|
3,290.1
|
|
|
14.7
|
|
Operating income
|
|
509.0
|
|
|
501.8
|
|
|
7.2
|
|
Provision for income taxes
|
|
87.3
|
|
|
85.5
|
|
|
1.8
|
|
Income from continuing operations
|
|
358.6
|
|
|
353.2
|
|
|
5.4
|
|
Net income
|
|
611.1
|
|
|
605.7
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(in millions)
|
|
As Reported
|
|
Balances Without Adoption of ASC 606
|
|
Effect of Change Higher/(Lower)
|
Consolidated Balance Sheet
|
|
|
|
|
|
|
Receivables
|
|
$
|
698.3
|
|
|
$
|
654.0
|
|
|
$
|
44.3
|
|
Inventories, net
|
|
457.5
|
|
|
487.0
|
|
|
(29.5
|
)
|
Other current assets
|
|
75.3
|
|
|
74.4
|
|
|
0.9
|
|
Accrued expenses
|
|
258.0
|
|
|
256.2
|
|
|
1.8
|
|
Other long-term liabilities
|
|
266.5
|
|
|
264.5
|
|
|
2.0
|
|
Retained earnings
|
|
3,351.4
|
|
|
3,344.9
|
|
|
6.5
|
|
Effective January 1, 2018, the Company adopted ASU 2017-07,
Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
("ASU 2017-07"), which requires employers to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating income, if such measure is presented. The Company adopted ASU 2017-07 using a retrospective approach for the presentation in the Condensed Consolidated Statement of Income. The Company elected to use, as a practical expedient, the amounts disclosed in its defined benefit plan note for the prior comparative period as the estimation basis for applying the retrospective presentation requirements. As a result of adopting ASU 2017-07, net periodic benefit income for the non-service cost components of
$(2.4) million
was reclassified from other operating (income) expense, net to other non-operating (income) expense, net for the years ended December 31, 2017 and 2016.
Effective January 1, 2018, the Company early adopted ASU 2018-02,
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
("ASU 2018-02"), which allows entities to reclassify from accumulated other comprehensive income to retained earnings for stranded tax effects related to the change in federal tax rate for all items accounted for in other comprehensive income. Entities can also elect to reclassify other stranded tax effects that relate to the Tax Cuts and Jobs Act, but do not directly relate to the change in the federal tax rate, including state taxes and changing from a worldwide tax system to a territorial system. Tax effects that are stranded in other comprehensive income for other reasons may not be reclassified. The Company adopted ASU 2018-02 using a modified retrospective approach for the presentation in the Condensed Consolidated Balance Sheets to reclassify
$6.5 million
related to the change in federal tax rate from accumulated other comprehensive loss to retained earnings.
Effective October 1, 2018, the Company early adopted ASU 2018-14,
Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic: 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
("ASU 2018-14"), which makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and other postretirement benefit plans. The guidance requires all sponsors of defined benefit plans to disclose the weighted-average interest crediting rate for cash balance plans and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The guidance
also eliminates the required disclosures for the amounts in accumulated other comprehensive income expected to be recognized as components of net period benefit cost over the next fiscal year. The Company adopted ASU 2018-14 using a retrospective approach for the revised disclosure requirements.
New Accounting Standards Issued But Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
("ASU 2016-02") which requires lessees to recognize a lease liability for the obligation to make lease payments, measured at the present value on a discounted basis, and a right-of-use ("ROU") asset for the right to use the underlying asset for the duration of the lease term, measured as 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.
In July 2018, the FASB issued ASU 2018-11,
Leases (Topic 842): Targeted Improvements
, which amended the new leasing standard to give entities another option for transition. This transition option allows entities to not apply the new standard in the comparative periods they present in their financial statements in the year of adoption. ASU 2016-02, and its amendments, are effective for the Company beginning January 1, 2019, and requires the use of a modified retrospective approach for leases that exist at, or are entered into after the beginning of the year of adoption under the new transition guidance. Early application of the ASU is permitted; however, the Company plans to adopt on January 1, 2019 and expects to elect this new transition method. The Company continues its evaluation of adopting the standard, and currently expects the standard to have an impact of approximately
$55.0 million
to
$65.0 million
on its assets and liabilities for the addition of ROU assets and lease liabilities. The Company does not expect the standard to have a material impact on its results of operations or liquidity.
Note 2
—Segment Information
The Company has organized its operations into four primary segments based on the products it sells, each of which represent a reportable segment as follows:
Carlisle Construction Materials (“CCM”)
—the principal products of this segment are rubber (EPDM), thermoplastic polyolefin (TPO) and polyvinyl chloride (PVC) roofing membranes used predominantly on non-residential low-sloped roofs, related roofing accessories, including flashings, fasteners, sealing tapes and coatings and waterproofing products. CCM also manufactures and distributes energy-efficient rigid foam insulation panels for substantially all roofing applications. The markets served primarily include new construction, re-roofing and maintenance of low-sloped roofs, water containment, HVAC sealants and coatings and waterproofing. In addition, CCM offers a broad range of specialty polyurethane products and solutions across a broad diversity of markets and applications.
Carlisle Interconnect Technologies (“CIT”)
—the principal products of this segment are high-performance wire, cable, connectors, contacts and cable assemblies for the transfer of power and data primarily for the aerospace, medical, defense electronics, test and measurement equipment and select industrial markets.
Carlisle Fluid Technologies (“CFT”)
—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”)
—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.
Summary financial information by reportable business segment follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Revenues
|
|
Operating Income (Loss)
|
|
Assets
|
|
Depreciation
and
Amortization
|
|
Capital
Expenditures
|
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
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carlisle Construction Materials
|
|
$
|
2,052.6
|
|
|
$
|
430.3
|
|
|
$
|
891.6
|
|
|
$
|
35.6
|
|
|
$
|
24.9
|
|
Carlisle Interconnect Technologies
|
|
834.6
|
|
|
143.9
|
|
|
1,446.3
|
|
|
48.8
|
|
|
43.9
|
|
Carlisle Fluid Technologies
|
|
269.4
|
|
|
31.2
|
|
|
640.9
|
|
|
20.7
|
|
|
11.7
|
|
Carlisle Brake & Friction
|
|
268.6
|
|
|
(135.9
|
)
|
(2)
|
389.9
|
|
|
20.8
|
|
|
9.4
|
|
Segment Total
|
|
3,425.2
|
|
|
469.5
|
|
|
3,368.7
|
|
|
125.9
|
|
|
89.9
|
|
Corporate and unallocated
(1)
|
|
—
|
|
|
(65.3
|
)
|
|
391.0
|
|
|
2.8
|
|
|
10.7
|
|
Discontinued operations
|
|
—
|
|
|
—
|
|
|
206.1
|
|
|
9.1
|
|
|
8.2
|
|
Total
|
|
$
|
3,425.2
|
|
|
$
|
404.2
|
|
|
$
|
3,965.8
|
|
|
$
|
137.8
|
|
|
$
|
108.8
|
|
|
|
(1)
|
Corporate 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.
|
|
|
(2)
|
Includes impairment charges of
$141.5 million
. Refer to
Note 12
for further discussion.
|
Geographic Area Information
Long‑lived assets, excluding deferred tax assets and intangible assets, by region follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31,
2018
|
|
December 31,
2017
|
United States
|
|
$
|
574.8
|
|
|
$
|
566.1
|
|
International:
|
|
|
|
|
|
|
Europe
|
|
99.3
|
|
|
83.4
|
|
Asia
|
|
42.7
|
|
|
46.6
|
|
Mexico and Latin America
|
|
30.8
|
|
|
36.0
|
|
United Kingdom
|
|
28.0
|
|
|
27.2
|
|
Other
|
|
0.5
|
|
|
0.5
|
|
Total long-lived assets
|
|
$
|
776.1
|
|
|
$
|
759.8
|
|
A summary of revenues based on the country to which the product was delivered and reconciliation of disaggregated revenue by segment follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
(in millions)
|
|
CCM
|
|
CIT
|
|
CFT
|
|
CBF
|
|
Total
|
United States
|
|
$
|
1,837.7
|
|
|
$
|
541.7
|
|
|
$
|
104.6
|
|
|
$
|
120.0
|
|
|
$
|
2,604.0
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
134.9
|
|
|
119.0
|
|
|
51.6
|
|
|
72.9
|
|
|
378.4
|
|
Asia
|
|
10.8
|
|
|
89.3
|
|
|
88.4
|
|
|
48.8
|
|
|
237.3
|
|
Canada
|
|
56.0
|
|
|
7.7
|
|
|
6.5
|
|
|
3.9
|
|
|
74.1
|
|
Mexico
|
|
3.6
|
|
|
46.3
|
|
|
10.8
|
|
|
11.6
|
|
|
72.3
|
|
Middle East and Africa
|
|
6.7
|
|
|
26.0
|
|
|
3.4
|
|
|
4.6
|
|
|
40.7
|
|
Other
|
|
2.9
|
|
|
4.6
|
|
|
4.1
|
|
|
6.8
|
|
|
18.4
|
|
Total international
|
|
214.9
|
|
|
292.9
|
|
|
164.8
|
|
|
148.6
|
|
|
821.2
|
|
Total revenues
|
|
$
|
2,052.6
|
|
|
$
|
834.6
|
|
|
$
|
269.4
|
|
|
$
|
268.6
|
|
|
$
|
3,425.2
|
|
Customer Information
Revenues from Beacon Roofing Supply, Inc. accounted for approximately
11.8%
and
10.2%
of the Company’s consolidated revenues during the years ended
December 31, 2018
and 2016, respectively. Additionally, revenues from ABC Supply Co. accounted for approximately
10.4%
of the Company's consolidated revenues during the year ended December 31, 2017. Sales to both of these customers originate in the CCM segment.
No
other customers accounted for 10.0% or more of the Company’s total revenues for the years ended
December 31, 2018
,
2017
and
2016
.
Note 3
—Acquisitions
2017 Acquisitions
Accella Holdings LLC
On
November 1, 2017
, the Company acquired
100%
of the equity of Accella Holdings LLC, the parent company to Accella Performance Materials Inc. (collectively “Accella”), a specialty polyurethane platform, from Accella Performance Materials LLC, a subsidiary of Arsenal Capital Partners, for total consideration of
$671.4 million
, including a cash, working capital and indebtedness settlement, which was finalized in the first quarter of 2018. Accella offers a wide range of polyurethane products and solutions across a broad diversity of markets and applications. The Company funded the acquisition with borrowings from the Revolving Credit Facility (refer to
Note 14
for subsequent refinancing transactions).
Accella contributed revenues of
$434.1 million
and an operating loss of
$7.8 million
for the year ended
December 31, 2018
, and revenues of
$64.0 million
and an operating loss of
$9.0 million
for the period from November 1, 2017, to December 31, 2017. The operating loss for the period from November 1, 2017, to December 31, 2017, includes
$5.5 million
of incremental cost of goods sold related to measuring inventory at fair value and
$1.1 million
of acquisition-related costs related primarily to professional fees. The results of operations of the acquired business are reported as part of the CCM segment.
The Accella amounts included in the pro forma financial information below are based on Accella’s historical results and therefore may not be indicative of the actual results if owned 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 revenues and income from continuing operations, net of tax, of the Company as if the business combination had occurred on January 1, 2016, based on the purchase price allocation presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma
Twelve Months Ended
December 31,
|
(in millions)
|
|
2017
|
|
2016
|
Revenues
|
|
$
|
4,439.4
|
|
|
$
|
4,029.8
|
|
Income from continuing operations
|
|
351.8
|
|
|
235.2
|
|
The pro forma financial information reflects adjustments to Accella's historical financial information to apply the Company's accounting policies and to reflect the additional depreciation and amortization related to the fair value adjustments of the acquired net assets of
$10.8 million
in 2017 and
$8.5 million
in 2016, 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 2016.
The following table summarizes the consideration transferred to acquire Accella and the 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 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
|
|
The goodwill recognized in the acquisition of Accella is attributable to expected synergies related to supply chain efficiencies and other administrative opportunities, in addition to opportunities for product line expansions. The Company acquired
$68.5 million
of gross contractual accounts receivable, of which
$1.7 million
was not expected to be collected at the date of acquisition. Goodwill of
$19.7 million
is tax deductible, primarily in the United States. All of the goodwill has been assigned to the CCM reporting unit which aligns with the CCM reportable segment. The
$239.0 million
value allocated to definite-lived intangible assets consists of
$145.0 million
of customer relationships with useful lives ranging from
nine
to
11
years, various acquired technologies of
$66.0 million
with useful lives ranging from
three
to
14
years and trade names of
$28.0 million
with useful lives ranging from
four
to
14
years. In accordance with the purchase agreement, Carlisle is indemnified for up to
$25.0 million
, and recorded an indemnification asset of
$15.6 million
in other long-term assets relating to the indemnification for a pre-acquisition income tax liability. The Company has also recorded, as part of the purchase price allocation, deferred tax liabilities related to intangible assets of approximately
$81.5 million
.
During 2018,
$4.6 million
of certain pre-acquisition income tax uncertainties were resolved, resulting in the reversal of the related indemnification asset and 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.
Drexel Metals
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 leading provider of architectural standing seam metal roofing systems for commercial, institutional and residential applications.
Drexel contributed revenues of
$69.7 million
and an operating income of
$4.5 million
for the year ended
December 31, 2018
, and revenues of
$26.8 million
and an operating loss of
$0.2 million
for the period from July 3, 2017, to December 31, 2017. The results of operations of the acquired business are reported within the CCM segment.
Consideration has been allocated to goodwill of
$26.9 million
,
$19.0 million
to definite-lived intangible assets,
$10.4 million
to indefinite-lived intangible assets,
$8.8 million
to inventory,
$5.3 million
to accounts receivable,
$5.8 million
to accounts payable and
$10.8 million
to deferred income and other taxes payable. Definite-lived intangible assets consist of customer relationships with an estimated useful life of nine years. Of the
$26.9 million
of goodwill,
none
is deductible for tax purposes. All of the goodwill was assigned to the CCM reporting unit, which aligns with the reportable segment.
Arbo
On
January 31, 2017
, the Company acquired
100%
of the equity of Arbo Holdings Limited (“Arbo”) for 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 was finalized in the second quarter of 2017. Arbo is a provider of sealants, coatings and membrane systems used for waterproofing and sealing buildings and other structures.
Arbo contributed revenues of
$19.5 million
and an operating income of
$1.4 million
for the year ended
December 31, 2018
, and revenues of
$14.0 million
and operating income of
$0.3 million
for the period from January 31, 2017, to December 31, 2017. The results of operations of the acquired business are reported within the CCM segment.
Consideration has been allocated to goodwill of
$4.7 million
,
$2.2 million
to definite-lived intangible assets,
$2.1 million
to inventory,
$1.6 million
to indefinite-lived intangibles,
$1.5 million
to accounts receivable,
$1.4 million
to accounts payable and
$1.4 million
to deferred income and other taxes payable. Definite-lived intangible assets consist of customer relationships with an estimated useful life of
15
years. Of the
$4.7 million
of goodwill,
$1.3 million
is deductible for tax purposes. All of the goodwill was assigned to the CCM reporting unit, which aligns with the reportable segment.
2016 Acquisitions
Proforma results of operations for the 2016 acquisitions have not been presented because the effect of these acquisitions was not material to the Company's financial condition or results of operations for any of the periods presented.
Star Aviation
On
October 3, 2016
, the Company acquired
100%
of the equity of Star Aviation, Inc. (“Star Aviation”), for total consideration of
$82.7 million
. Star Aviation is a provider of design and engineering services, testing and certification work and manufactured products for in-flight connectivity applications on commercial, business and military aircraft.
The following table summarizes the consideration transferred to acquire Star Aviation 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary
Allocation
|
|
Measurement
Period
Adjustments
|
|
Final
Allocation
|
(in millions)
|
|
As of 10/3/2016
|
|
|
As of 9/30/2017
|
Total consideration transferred
|
|
$
|
82.7
|
|
|
$
|
—
|
|
|
$
|
82.7
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
Receivables
|
|
5.9
|
|
|
(0.1
|
)
|
|
5.8
|
|
Inventories
|
|
3.1
|
|
|
(0.2
|
)
|
|
2.9
|
|
Prepaid expenses and other current assets
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Property, plant and equipment
|
|
3.3
|
|
|
(0.3
|
)
|
|
3.0
|
|
Definite-lived intangible assets
|
|
29.0
|
|
|
—
|
|
|
29.0
|
|
Accounts payable
|
|
(1.3
|
)
|
|
0.2
|
|
|
(1.1
|
)
|
Accrued expenses
|
|
(0.8
|
)
|
|
0.1
|
|
|
(0.7
|
)
|
Total identifiable net assets
|
|
39.6
|
|
|
(0.3
|
)
|
|
39.3
|
|
Goodwill
|
|
$
|
43.1
|
|
|
$
|
0.3
|
|
|
$
|
43.4
|
|
The valuation of property, plant and equipment and intangible assets is final as of September 30, 2017. The goodwill recognized in the acquisition of Star Aviation is attributable to its experienced workforce, expected operational improvements through implementation of the COS, opportunities for product line expansions in addition to supply chain efficiencies and other administrative opportunities and the significant strategic value of the business to Carlisle. Goodwill of
$43.4 million
is deductible for tax purposes in the U.S. All of the goodwill was assigned to the CIT reporting unit which aligns with the reportable segment. The
$29.0 million
value allocated to definite-lived intangible assets consists of
$23.9 million
of customer relationships with useful lives ranging from
five
to
10
years, various acquired technologies of
$4.7 million
with useful a useful life of
six
years and a non-compete agreement of
$0.4 million
with a useful life of
five
years.
Micro-Coax
On
June 10, 2016
, the Company acquired
100%
of the equity of Micro-Coax, Inc. and Kroll Technologies, LLC, (collectively “Micro-Coax”) for total consideration of
$96.6 million
. The 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 following table summarizes the consideration transferred to acquire Micro-Coax 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary
Allocation
|
|
Measurement
Period
Adjustments
|
|
Final
Allocation
|
(in millions)
|
|
As of 6/10/2016
|
|
|
As of 6/30/2017
|
Total consideration transferred
|
|
$
|
97.3
|
|
|
$
|
(0.7
|
)
|
|
$
|
96.6
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1.5
|
|
|
$
|
—
|
|
|
$
|
1.5
|
|
Receivables
|
|
6.3
|
|
|
—
|
|
|
6.3
|
|
Inventories
|
|
8.6
|
|
|
—
|
|
|
8.6
|
|
Prepaid expenses and other current assets
|
|
0.4
|
|
|
(0.1
|
)
|
|
0.3
|
|
Property, plant and equipment
|
|
30.0
|
|
|
(14.0
|
)
|
|
16.0
|
|
Definite-lived intangible assets
|
|
31.5
|
|
|
(5.0
|
)
|
|
26.5
|
|
Indefinite-lived intangible assets
|
|
2.0
|
|
|
(2.0
|
)
|
|
—
|
|
Other long-term assets
|
|
1.0
|
|
|
—
|
|
|
1.0
|
|
Accounts payable
|
|
(1.7
|
)
|
|
—
|
|
|
(1.7
|
)
|
Accrued expenses
|
|
(2.4
|
)
|
|
(0.1
|
)
|
|
(2.5
|
)
|
Total identifiable net assets
|
|
77.2
|
|
|
(21.2
|
)
|
|
56.0
|
|
Goodwill
|
|
$
|
20.1
|
|
|
$
|
20.5
|
|
|
$
|
40.6
|
|
The valuation of property, plant and equipment and intangible assets is final as of June 30, 2017. The goodwill recognized in the acquisition of Micro-Coax is attributable to its experienced workforce, expected operational improvements through implementation of the COS, opportunities for product line expansions in addition to supply chain efficiencies and other administrative opportunities and the significant strategic value of the business to Carlisle. Goodwill of
$40.6 million
is deductible for tax purposes in the U.S. All of the goodwill was assigned to the CIT reporting unit which aligns with the reportable segment. The
$26.5 million
value allocated to definite-lived intangible assets consists of
$14.5 million
of customer relationships with a useful life of
12
years, various acquired technologies of
$10.6 million
with a useful life of
seven
years, an amortizable trade name of
$0.9 million
with a useful life of
10
years and a non-compete agreement of
$0.5 million
with a useful life of
three
years.
MS Oberflächentechnik AG
On
February 19, 2016
, the Company acquired
100%
of the equity of MS Oberflächentechnik AG (“MS Powder”), a Swiss-based developer and manufacturer of powder coating systems and related components, for total consideration of CHF
12.3 million
, or
$12.4 million
, including the estimated fair value of contingent consideration of CHF
4.3 million
, or
$4.3 million
.
Consideration has been allocated to definite-lived intangible assets of
$9.7 million
,
$4.1 million
to indefinite-lived intangible assets and
$2.2 million
to deferred tax liabilities, with
$2.9 million
allocated to goodwill. Definite-lived intangible assets consist of
$8.3 million
of technology with a useful life of
seven
years and customer relationships of
$1.4 million
with a useful life of
10
years.
None
of the goodwill is deductible for tax purposes. All of the goodwill was assigned to the CFT reporting unit, which aligns with the reportable segment.
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 third quarter of 2018. The sale of CFS is consistent with the Company's vision of operating a portfolio of businesses with highly engineered manufacturing products in strong growth markets.
A summary of the results from discontinued operations included in the Consolidated Statements of Income follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Revenue
|
|
$
|
69.5
|
|
|
$
|
337.9
|
|
|
$
|
249.0
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
49.5
|
|
|
238.5
|
|
|
178.5
|
|
Other operating expense, net
|
|
16.7
|
|
|
59.7
|
|
|
40.4
|
|
Operating income
|
|
3.3
|
|
|
39.7
|
|
|
30.1
|
|
Other non-operating (income) expense, net
|
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
Income from discontinued operations before income taxes
|
|
3.3
|
|
|
39.6
|
|
|
30.2
|
|
Gain on sale of discontinued operations
|
|
296.8
|
|
|
—
|
|
|
—
|
|
Provision for income taxes
|
|
47.6
|
|
|
14.7
|
|
|
11.2
|
|
Income from discontinued operations
|
|
$
|
252.5
|
|
|
$
|
24.9
|
|
|
$
|
19.0
|
|
A summary of the carrying amounts of CFS's major assets and liabilities, which were classified as discontinued operations in the Consolidated Balance Sheet, follows:
|
|
|
|
|
|
(in millions)
|
|
December 31, 2017
|
ASSETS
|
|
|
Cash and cash equivalents
|
|
$
|
1.3
|
|
Receivables, net
|
|
32.0
|
|
Inventories, net
|
|
59.0
|
|
Prepaid and other current assets
|
|
4.2
|
|
Total current assets
|
|
$
|
96.5
|
|
|
|
|
Property, plant, and equipment, net
|
|
$
|
49.7
|
|
Goodwill, net
|
|
149.7
|
|
Other intangible assets, net
|
|
169.4
|
|
Other long-term assets
|
|
3.3
|
|
Total long-term assets
|
|
$
|
372.1
|
|
|
|
|
LIABILITIES
|
|
|
Accounts payable
|
|
$
|
20.4
|
|
Accrued expenses
|
|
20.5
|
|
Total current liabilities
|
|
$
|
40.9
|
|
|
|
|
Other long-term liabilities
|
|
$
|
50.0
|
|
Total long-term liabilities
|
|
$
|
50.0
|
|
A summary of cash flows from discontinued operations included in the Consolidated Statements of Cash Flows follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Net cash (used in) provided by operating activities
|
|
$
|
(2.0
|
)
|
|
$
|
62.2
|
|
|
$
|
25.4
|
|
Net cash used in investing activities
|
|
(8.1
|
)
|
|
(222.6
|
)
|
|
(9.0
|
)
|
Net cash provided by (used in) financing activities
(1)
|
|
11.4
|
|
|
161.4
|
|
|
(16.1
|
)
|
Change in cash and cash equivalents from discontinued operations
|
|
$
|
1.3
|
|
|
$
|
1.0
|
|
|
$
|
0.3
|
|
|
|
(1)
|
Represents borrowings (repayments) 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 share from 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)
|
|
2018
|
|
2017
|
|
2016
|
Income from continuing operations
|
|
$
|
358.6
|
|
|
$
|
340.6
|
|
|
$
|
231.1
|
|
Less: dividends declared
|
|
(93.5
|
)
|
|
(92.1
|
)
|
|
(84.5
|
)
|
Undistributed earnings
|
|
265.1
|
|
|
248.5
|
|
|
146.6
|
|
Percent allocated to common shareholders
(1)
|
|
99.7
|
%
|
|
99.3
|
%
|
|
99.3
|
%
|
|
|
264.3
|
|
|
246.8
|
|
|
145.6
|
|
Add: dividends declared to common shares, restricted share units and vested and deferred restricted and performance shares
|
|
93.1
|
|
|
90.9
|
|
|
83.6
|
|
Income from continuing operations attributable to common shareholders
|
|
$
|
357.4
|
|
|
$
|
337.7
|
|
|
$
|
229.2
|
|
|
|
|
|
|
|
|
Shares (in thousands):
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
60,393
|
|
|
63,073
|
|
|
64,226
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Performance awards
|
|
83
|
|
|
137
|
|
|
257
|
|
Stock options
|
|
310
|
|
|
341
|
|
|
400
|
|
Diluted weighted-average shares outstanding
|
|
60,786
|
|
|
63,551
|
|
|
64,883
|
|
|
|
|
|
|
|
|
Per share income from continuing operations attributable to common shares:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
5.92
|
|
|
$
|
5.36
|
|
|
$
|
3.57
|
|
Diluted
|
|
$
|
5.88
|
|
|
$
|
5.32
|
|
|
$
|
3.53
|
|
|
|
|
|
|
|
|
(1)
Basic weighted-average shares outstanding (in thousands)
|
|
60,393
|
|
|
63,073
|
|
|
64,226
|
|
Basic weighted-average shares outstanding and unvested restricted shares expected to vest (in thousands)
|
|
60,561
|
|
|
63,513
|
|
|
64,682
|
|
Percent allocated to common shareholders
|
|
99.7
|
%
|
|
99.3
|
%
|
|
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)
|
|
2018
|
|
2017
|
|
2016
|
Income from discontinued operations attributable to common shareholders for basic and dilutive earnings per share
|
|
$
|
251.8
|
|
|
$
|
24.8
|
|
|
$
|
18.8
|
|
Net income attributable to common shareholders for basic and diluted earnings per share
|
|
$
|
609.2
|
|
|
$
|
362.4
|
|
|
$
|
248.0
|
|
Anti-dilutive stock options excluded from EPS calculation
(1)
|
|
813.0
|
|
|
320.6
|
|
|
23.1
|
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
(in millions)
|
|
CCM
|
|
CIT
|
|
CFT
|
|
CBF
|
|
Total
|
Products transferred at a point in time
|
|
$
|
2,859.0
|
|
|
$
|
900.5
|
|
|
$
|
291.6
|
|
|
$
|
373.8
|
|
|
$
|
4,424.9
|
|
Products and services transferred over time
|
|
21.3
|
|
|
33.3
|
|
|
—
|
|
|
—
|
|
|
54.6
|
|
Total revenues
|
|
$
|
2,880.3
|
|
|
$
|
933.8
|
|
|
$
|
291.6
|
|
|
$
|
373.8
|
|
|
$
|
4,479.5
|
|
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, 2018
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
Extended service warranties
|
|
$
|
20.6
|
|
|
$
|
19.7
|
|
|
$
|
18.6
|
|
|
$
|
17.5
|
|
|
$
|
16.3
|
|
|
$
|
130.3
|
|
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, 2018
.
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 and systems contracts in the CFT 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)
|
|
2018
|
|
2017
|
Balance as of January 1
|
|
$
|
215.8
|
|
|
$
|
195.2
|
|
Revenue recognized
|
|
(79.5
|
)
|
|
(79.9
|
)
|
Revenue deferred
|
|
90.5
|
|
|
99.8
|
|
Acquired liabilities
|
|
0.6
|
|
|
0.7
|
|
Balance as of December 31
|
|
$
|
227.4
|
|
|
$
|
215.8
|
|
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. A summary of the change in contract assets follows:
|
|
|
|
|
|
(in millions)
|
|
2018
|
Balance as of January 1
|
|
$
|
—
|
|
Adoption of ASC 606
|
|
22.8
|
|
Revenue recognized and unbilled
|
|
163.3
|
|
Revenue billed
|
|
(141.4
|
)
|
Balance as of December 31
|
|
$
|
44.7
|
|
Contract assets were immaterial as of December 31, 2017.
Revenues by End-Market
A summary of revenues disaggregated by major end-market industries and reconciliation of disaggregated revenue by segment follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. As of
December 31, 2018
,
1.8 million
shares were available for grant under this plan.
During the year ended
December 31, 2018
, the Company awarded
383 thousand
stock options as part of the annual equity grant,
621 thousand
stock options as part of a one-time grant to all employees,
76 thousand
restricted stock
awards,
54 thousand
performance share awards and
13 thousand
restricted stock units with an aggregate grant-date fair value of approximately
$40.3 million
to be expensed over the requisite service period for each award.
Stock-based compensation cost by award type follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Stock option awards
|
|
$
|
11.0
|
|
|
$
|
7.7
|
|
|
$
|
6.1
|
|
Restricted stock awards
|
|
7.7
|
|
|
6.0
|
|
|
4.5
|
|
Performance share awards
|
|
7.4
|
|
|
5.6
|
|
|
4.7
|
|
Restricted stock units
|
|
1.4
|
|
|
1.4
|
|
|
1.2
|
|
Total stock-based compensation cost
|
|
$
|
27.5
|
|
|
$
|
20.7
|
|
|
$
|
16.5
|
|
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
$2.7 million
to stock-based compensation costs for the year ended December 31, 2018. Compensation cost of
$0.5 million
was capitalized as inventory and will be recognized in costs of goods sold when that related inventory is sold.
The Company recognized an income tax benefit of
$10.6 million
and
$12.5 million
related to total stock-based compensation expense for the years ended
December 31, 2018
and
2017
, respectively.
Stock Option Awards
Options issued under the Program generally vest on a straight-line basis over a
three
-year period on the anniversary date of the grant. All options have a maximum term life of
10
years. Shares issued to cover options under the Program may be issued from shares held in treasury, from new issuances of shares or a combination of the two. Unrecognized compensation cost related to stock options of
$14.1 million
as of
December 31, 2018
, is to be recognized over a weighted-average period of
1.8
years.
The Company utilizes the Black‑Scholes-Merton (“BSM”) option pricing model to determine the fair value of its stock option awards. The BSM relies on certain assumptions to estimate an option’s fair value. The weighted average assumptions used in the determination of fair value for stock option awards follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share amounts)
|
|
2018
One-time Grant
|
|
2018
|
|
2017
|
|
2016
|
Expected dividend yield
|
|
1.4
|
%
|
|
1.4
|
%
|
|
1.3
|
%
|
|
1.4
|
%
|
Expected life (in years)
|
|
3.9
|
|
|
5.5
|
|
|
5.6
|
|
|
5.6
|
|
Expected volatility
|
|
20.7
|
%
|
|
23.1
|
%
|
|
25.6
|
%
|
|
27.5
|
%
|
Risk-free interest rate
|
|
2.6
|
%
|
|
2.6
|
%
|
|
1.9
|
%
|
|
1.4
|
%
|
Weighted-average grant date fair value (per share)
|
|
$
|
21.91
|
|
|
$
|
23.71
|
|
|
$
|
24.57
|
|
|
$
|
19.30
|
|
Fair value of options granted
|
|
$
|
13.6
|
|
|
$
|
9.1
|
|
|
$
|
8.8
|
|
|
$
|
7.2
|
|
The expected life of options is based on the assumption that all outstanding options will be exercised at the midpoint of the valuation date (if vested) or the vesting dates (if unvested) and the options’ expiration date. The expected volatility is based on historical volatility as well as implied volatility of the Company’s options. The risk-free interest rate is based on rates of U.S. Treasury issues with a remaining life equal to the expected life of the option. The expected dividend yield is based on the projected annual dividend payment per share, divided by the stock price at the date of grant.
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, 2017
|
|
1,431
|
|
|
$
|
81.49
|
|
|
|
|
|
Options granted
|
|
1,004
|
|
|
107.60
|
|
|
|
|
|
Options exercised
|
|
(345
|
)
|
|
65.95
|
|
|
|
|
|
Options forfeited / expired
|
|
(126
|
)
|
|
105.86
|
|
|
|
|
|
Outstanding as of December 31, 2018
|
|
1,964
|
|
|
95.76
|
|
|
7.7
|
|
$
|
18.0
|
|
Vested and exercisable as of December 31, 2018
|
|
844
|
|
|
82.86
|
|
|
6.1
|
|
$
|
16.4
|
|
Additional information related to stock option award activity during the years ended
December 31
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Intrinsic value of options exercised
|
|
$
|
18.4
|
|
|
$
|
8.5
|
|
|
$
|
56.4
|
|
Fair value of options vested
|
|
$
|
10.2
|
|
|
$
|
5.4
|
|
|
$
|
4.7
|
|
Restricted Stock Awards
Restricted stock awarded under the Program is generally released to the recipient after a period of approximately
three
years. Unrecognized compensation cost related to restricted stock awards of
$8.0 million
as of
December 31, 2018
, is to be recognized over a weighted-average period of
1.6
years. The grant date fair value and intrinsic value of shares vested during the year ended
December 31, 2018
was
$9.8 million
and
$11.7 million
, respectively. The grant date fair value and intrinsic value of shares vested during the year ended
December 31, 2017
was
$8.1 million
and
$11.4 million
, respectively.
Information related to restricted stock awards during the years ended
December 31
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Weighted-average grant date fair value (per share)
|
|
$
|
114.27
|
|
|
$
|
106.78
|
|
|
$
|
84.73
|
|
A summary of restricted stock awards outstanding and activity follows:
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
Outstanding as of December 31, 2017
|
|
208
|
|
|
$
|
95.63
|
|
Shares granted
|
|
76
|
|
|
114.27
|
|
Shares vested
|
|
(103
|
)
|
|
95.05
|
|
Shares forfeited
|
|
(12
|
)
|
|
109.07
|
|
Outstanding as of December 31, 2018
|
|
169
|
|
|
103.47
|
|
Performance Share Awards
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. Unrecognized compensation cost related to performance share awards of
$5.6 million
as of
December 31, 2018
, is to be recognized over a weighted-average period of
1.7
years. The grant date fair value and intrinsic value of shares vested during the year ended
December 31, 2018
was
$5.2 million
and
$5.3 million
, respectively. The grant date fair value and intrinsic value of shares vested during the year ended
December 31, 2017
was
$10.0 million
and
$11.6 million
, respectively.
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 5
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.
Information related to performance shares during the years ended
December 31
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Weighted-average grant date fair value (per share)
|
|
$
|
140.20
|
|
|
$
|
141.83
|
|
|
$
|
119.08
|
|
A summary of performance shares outstanding and activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017
|
|
160
|
|
|
$
|
123.50
|
|
|
|
|
|
Awards granted
|
|
54
|
|
|
140.20
|
|
|
|
|
|
Awards vested
|
|
(46
|
)
|
|
112.82
|
|
|
|
|
|
Awards converted (withheld)
|
|
(9
|
)
|
|
108.03
|
|
|
|
|
|
Awards forfeited
|
|
(6
|
)
|
|
137.55
|
|
|
|
|
|
Outstanding as of December 31, 2018
|
|
153
|
|
|
132.68
|
|
|
0.8
|
|
$
|
15.4
|
|
Restricted Stock Units
Restricted stock units are awarded to eligible directors and fully vested and are expensed upon grant date. The restricted stock units are 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 Company granted
13 thousand
,
13 thousand
and
14 thousand
units in
2018
,
2017
and
2016
, respectively. Units had a weighted-average grant date fair value per share of
$108.72
,
$107.87
and
$83.31
in
2018
,
2017
and
2016
, respectively. Restricted stock units' fair value is based on the closing market price of the stock on the respective dates of the grants.
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
202 thousand
and
281 thousand
shares of Company common stock as of
December 31, 2018
and
2017
, 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 8
—Exit and Disposal Activities
Beginning in the fourth quarter of 2016, and through 2018, 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 consolidations and relocations and lease termination costs, as further discussed below by operating segment.
CBF
The Company is nearing completion on its project to exit its manufacturing operations in Tulsa, Oklahoma, and relocate the majority of those operations to its existing manufacturing facility in Medina, Ohio. During 2018, exit and disposal costs totaled
$13.6 million
, primarily reflecting equipment moving expenses, accelerated depreciation, employee
termination benefits and facility closure costs. Total costs are expected to approximate
$20.7 million
, with cumulative exit and disposal costs of
$18.7 million
recognized as of
December 31, 2018
. The remaining costs will be incurred throughout 2019.
CIT
The Company is substantially complete with the relocation of certain of its medical manufacturing operations in Shenzhen, China, to a new manufacturing operation in Dongguan, China. During 2018, exit and disposal costs totaled
$1.5 million
for employee termination benefit costs. The project is substantially complete with cumulative exit and disposal costs recognized of
$15.5 million
through
December 31, 2018
, and total cost expected to approximate
$15.6 million
.
During the third quarter of 2017, the Company entered into a letter of undertaking with the Chinese government, whereby the Company designated
$10.1 million
in cash specifically for the payment of employee termination benefits associated with the Chinese medical business action discussed above. Cash payments began in August 2017 and were completed in the second quarter of 2018.
CFT
During 2017, the Company initiated plans to restructure its global footprint. These plans involve exiting manufacturing operations in Brazil and Mexico, exiting the systems sales business in Germany, and relocating the manufacturing operations in Angola, Indiana, to its existing Bournemouth, United Kingdom, manufacturing operations. All facility closures were completed in the first quarter of 2018 and production moved to either the Jackson, Tennessee, or Bournemouth facilities. During 2018, exit and disposal costs totaled
$1.1 million
, primarily reflecting employee termination benefit costs and legal fees. This project is complete as of December 31, 2018, with cumulative exit and disposal costs of
$11.3 million
.
Consolidated Summary
Exit and disposal costs by activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Equipment moving costs
|
|
$
|
5.6
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
Employee severance and benefit arrangements
|
|
3.2
|
|
|
17.8
|
|
|
10.1
|
|
Accelerated depreciation
|
|
2.3
|
|
|
3.7
|
|
|
0.4
|
|
Lease termination costs
|
|
1.1
|
|
|
—
|
|
|
—
|
|
Relocation costs
|
|
0.7
|
|
|
1.5
|
|
|
3.8
|
|
Other restructuring costs
|
|
5.0
|
|
|
3.4
|
|
|
1.2
|
|
Total exit and disposal costs
|
|
$
|
17.9
|
|
|
$
|
26.8
|
|
|
$
|
15.5
|
|
Exit and disposal costs by segment follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Carlisle Brake & Friction
|
|
$
|
13.6
|
|
|
$
|
5.1
|
|
|
$
|
—
|
|
Carlisle Interconnect Technologies
|
|
3.2
|
|
|
$
|
9.5
|
|
|
$
|
7.6
|
|
Carlisle Fluid Technologies
|
|
1.1
|
|
|
11.4
|
|
|
4.1
|
|
Corporate
|
|
—
|
|
|
0.8
|
|
|
3.8
|
|
Total exit and disposal costs
|
|
$
|
17.9
|
|
|
$
|
26.8
|
|
|
$
|
15.5
|
|
Exit and disposal costs by financial statement line item follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Cost of goods sold
|
|
$
|
15.5
|
|
|
$
|
10.9
|
|
|
$
|
—
|
|
Selling and administrative expenses
|
|
1.9
|
|
|
15.8
|
|
|
15.0
|
|
Research and development expenses
|
|
0.1
|
|
|
0.1
|
|
|
—
|
|
Other operating (income) expense, net
|
|
0.4
|
|
|
—
|
|
|
0.5
|
|
Total exit and disposal costs
|
|
$
|
17.9
|
|
|
$
|
26.8
|
|
|
$
|
15.5
|
|
Changes in exit and disposal liabilities follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
CIT
|
|
CFT
|
|
CBF
|
|
Total
|
Balance as of December 31, 2017
|
|
$
|
4.9
|
|
|
$
|
6.7
|
|
|
$
|
1.5
|
|
|
$
|
13.1
|
|
Charges
|
|
3.2
|
|
|
1.1
|
|
|
13.6
|
|
|
17.9
|
|
Cash payments
|
|
(8.1
|
)
|
|
(7.5
|
)
|
|
(11.8
|
)
|
|
(27.4
|
)
|
Other adjustments and non-cash settlements
|
|
—
|
|
|
—
|
|
|
(2.4
|
)
|
|
(2.4
|
)
|
Balance as of December 31, 2018
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
0.9
|
|
|
$
|
1.2
|
|
The liability of
$1.2 million
as of
December 31, 2018
, primarily relates to employee severance and benefit arrangements and is included in accrued expenses.
Note 9
—Income Taxes
Sources of Pre-Tax Income and Related Tax Provision by Region
Geographic sources of income before income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Continuing operations:
|
|
|
|
|
|
|
U.S. domestic
|
|
$
|
352.2
|
|
|
$
|
356.5
|
|
|
$
|
288.2
|
|
Foreign
|
|
93.7
|
|
|
72.5
|
|
|
91.0
|
|
Income from continuing operations before income taxes
|
|
445.9
|
|
|
429.0
|
|
|
379.2
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
U.S. domestic
|
|
299.8
|
|
|
39.1
|
|
|
29.7
|
|
Foreign
|
|
0.3
|
|
|
0.5
|
|
|
0.5
|
|
Income from discontinued operations before income taxes
|
|
300.1
|
|
|
39.6
|
|
|
30.2
|
|
|
|
|
|
|
|
|
Total income before income taxes
|
|
$
|
746.0
|
|
|
$
|
468.6
|
|
|
$
|
409.4
|
|
The provision for income taxes from continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Current provision:
|
|
|
|
|
|
|
Federal and State
|
|
$
|
62.0
|
|
|
$
|
116.5
|
|
|
$
|
144.4
|
|
Foreign
|
|
25.9
|
|
|
28.4
|
|
|
29.2
|
|
Total current provision
|
|
87.9
|
|
|
144.9
|
|
|
173.6
|
|
|
|
|
|
|
|
|
Deferred provision (benefit):
|
|
|
|
|
|
|
|
|
|
Federal and State
|
|
7.9
|
|
|
(62.7
|
)
|
|
(16.0
|
)
|
Foreign
|
|
(8.5
|
)
|
|
6.2
|
|
|
(9.5
|
)
|
Total deferred (benefit) provision
|
|
(0.6
|
)
|
|
(56.5
|
)
|
|
(25.5
|
)
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
87.3
|
|
|
$
|
88.4
|
|
|
$
|
148.1
|
|
Rate Reconciliation
A reconciliation of the tax provision from continuing operations computed at the U.S. federal statutory rate to the actual tax provision follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Taxes at U.S. statutory rate
|
|
$
|
93.6
|
|
|
$
|
150.1
|
|
|
$
|
132.8
|
|
State and local taxes, net of federal income tax benefit
|
|
10.8
|
|
|
9.5
|
|
|
7.5
|
|
Foreign earnings taxed at different rates
|
|
1.1
|
|
|
(6.7
|
)
|
|
(8.1
|
)
|
Change in unrecognized tax benefit
|
|
(7.8
|
)
|
|
0.9
|
|
|
(2.5
|
)
|
Benefit for domestic manufacturing deduction
|
|
—
|
|
|
(9.7
|
)
|
|
(12.1
|
)
|
Tax credits
|
|
(3.0
|
)
|
|
(2.3
|
)
|
|
(10.7
|
)
|
Tax impact of impairment of goodwill
|
|
—
|
|
|
—
|
|
|
41.2
|
|
Impact of U.S. tax reform
|
|
(3.3
|
)
|
|
(57.7
|
)
|
|
—
|
|
Change in investment assertion on foreign earnings
|
|
—
|
|
|
5.1
|
|
|
—
|
|
Other, net
|
|
(4.1
|
)
|
|
(0.8
|
)
|
|
—
|
|
Provision for income taxes
|
|
$
|
87.3
|
|
|
$
|
88.4
|
|
|
$
|
148.1
|
|
Effective income tax rate on continuing operations
|
|
19.6
|
%
|
|
20.6
|
%
|
|
39.1
|
%
|
Cash payments for income taxes, net of refunds, were
$203.0 million
,
$142.8 million
and
$192.3 million
, in
2018
,
2017
and
2016
, respectively.
Deferred Tax Assets (Liabilities), net
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2018
|
|
December 31, 2017
|
Deferred revenue
|
|
$
|
21.1
|
|
|
$
|
20.1
|
|
Warranty reserves
|
|
4.6
|
|
|
4.7
|
|
Inventory reserves
|
|
7.6
|
|
|
7.7
|
|
Allowance for doubtful accounts
|
|
2.5
|
|
|
3.1
|
|
Employee benefits
|
|
27.6
|
|
|
30.2
|
|
Foreign loss carryforwards
|
|
5.1
|
|
|
3.8
|
|
Federal tax credit carryovers
|
|
—
|
|
|
3.1
|
|
Deferred state tax attributes
|
|
11.9
|
|
|
11.9
|
|
Other, net
|
|
—
|
|
|
1.7
|
|
Gross deferred assets
|
|
80.4
|
|
|
86.3
|
|
Valuation allowances
|
|
(1.3
|
)
|
|
(4.3
|
)
|
Deferred tax assets after valuation allowances
|
|
79.1
|
|
|
82.0
|
|
|
|
|
|
|
Undistributed foreign earnings
|
|
(11.0
|
)
|
|
(7.9
|
)
|
Depreciation
|
|
(47.2
|
)
|
|
(36.7
|
)
|
Amortization
|
|
(43.7
|
)
|
|
(37.4
|
)
|
Carryover intangible basis of acquirees
|
|
(128.8
|
)
|
|
(155.0
|
)
|
Other, net
|
|
(0.4
|
)
|
|
—
|
|
Gross deferred liabilities
|
|
(231.1
|
)
|
|
(237.0
|
)
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(152.0
|
)
|
|
$
|
(155.0
|
)
|
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 included in the Consolidated Balance Sheet follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2018
|
|
December 31, 2017
|
Other long-term assets
|
|
$
|
2.6
|
|
|
$
|
1.4
|
|
Other long-term liabilities
|
|
(154.6
|
)
|
|
(156.4
|
)
|
Net deferred tax liabilities
|
|
$
|
(152.0
|
)
|
|
$
|
(155.0
|
)
|
Valuation Allowances
As of December 31, 2018, the Company had
no
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
$7.0 million
(expiring 2019 through 2038). The Company also has deferred tax assets related to NOL carryforwards in foreign jurisdictions of approximately
$5.1 million
, which begin to expire in 2022. 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 million
against the deferred tax assets associated with these attributes. The Company believes that substantially all of the foreign NOLs will be utilized before expiration and therefore has not established a valuation allowance against the deferred tax assets associated with these NOL carryforwards.
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 for 2018 as part of the changes from the Tax Act. As a result, the Company does not have material basis differences related to cumulative unremitted earnings for US tax purposes. The Company has determined that an amount approximately equal to foreign cash balances and other certain assets is not permanently reinvested for local country purposes, which results in an accrual of
$11.0 million
related to foreign withholding taxes. It is not practicable to calculate 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) follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Balance as of January 1
|
|
$
|
37.4
|
|
|
$
|
24.6
|
|
|
$
|
27.7
|
|
Additions based on tax positions related to current year
|
|
3.3
|
|
|
3.0
|
|
|
0.6
|
|
Additions related to acquired uncertain tax positions
|
|
—
|
|
|
12.6
|
|
|
—
|
|
Adjustments for tax positions of prior years
|
|
—
|
|
|
1.5
|
|
|
—
|
|
Reductions due to statute of limitations
|
|
(12.0
|
)
|
|
(3.3
|
)
|
|
(2.1
|
)
|
Reductions due to settlements
|
|
(1.2
|
)
|
|
(1.7
|
)
|
|
(1.4
|
)
|
Adjustments due to foreign exchange rates
|
|
(0.2
|
)
|
|
0.7
|
|
|
(0.2
|
)
|
Balance as of December 31
|
|
$
|
27.3
|
|
|
$
|
37.4
|
|
|
$
|
24.6
|
|
If the unrecognized tax benefits as of December 31, 2018, were to be recognized, approximately
$30.1 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 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 Income and as a long‑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 2018, 2017 and 2016 were
$5.1 million
,
$5.9 million
and
$4.7 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, the Company worked with the IRS to complete its compliance assurance process for the 2017 tax year. The Company is also currently working with the IRS to complete its compliance assurance audit for the 2018 tax year and expects conclusion of the process within the next twelve months.
Generally, state income tax returns are subject to examination for a period of
three
to
five
years after filing. Substantially all material state tax matters have been concluded for tax years through 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 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, the Company believes that within the next
12
months it is reasonably possible that previously unrecognized tax benefits could decrease by approximately
$4.0 million
to
$5.0 million
. These previously unrecognized tax benefits relate to a variety of tax issues including tax matters relating to prior acquisitions and various state matters.
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 Tax Act included significant changes to existing tax law including, among other things, a reduction to the 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 changes included in the Tax Act are broad and complex. As such, on December 22, 2017, the Securities and Exchange Commission (“SEC”) issued SAB 118. SAB 118 expresses views of the SEC regarding ASC Topic 740,
Income Taxes
in the reporting period that includes the enactment date of the Tax Act. The SEC staff issuing SAB 118 recognized that a registrant’s review of certain income tax effects of the Tax Act may be incomplete at the time financial statements are issued for the reporting period that includes the enactment date, including interim periods therein. If a company does not have the necessary information available, prepared or analyzed for certain income tax effects of the Tax Act, SAB 118 allows a company to report provisional numbers and adjust those amounts during the measurement period not to extend beyond one year. In the fourth quarter of 2018, the Company completed the accounting for the relevant aspects of the Tax Act based on available information and have recorded a benefit in the year of
$3.3 million
.
While the Tax Act provides for a territorial tax system, beginning in 2018, it includes the GILTI provision. The Company elected to account for GILTI tax in the period in which it is incurred, which is not material in 2018.
Deemed Repatriation Transition Tax
The deemed repatriation transition tax (the “Transition Tax”) is a tax on certain previously untaxed accumulated and current earnings and profits (“E&P”) of the Company's foreign subsidiaries. The Company was able to reasonably estimate the Transition Tax and recorded an initial provision Transition Tax obligation of
$32.5 million
for the year ended December 31, 2017. On the basis of revised E&P and taxes paid computation that were calculated during the reporting period, as well as additional guidance provided by taxing authorities, the Company recognized an additional measurement-period beneficial adjustment of
$4.6 million
to income tax expense during the fourth quarter 2018. The effect of the measurement period adjustment on the 2018 effective tax rate was approximately
1.0%
.
Reduction of U.S. Federal Corporate Tax Rate
The Act reduced the corporate tax rate to 21%, effective January 1, 2018. Consequently, the Company recorded a decrease to the net deferred tax liability in the amount of
$90.2 million
in the year ended December 31, 2017. In the third quarter of 2018, the Company recorded an additional measurement-period expense of
$1.3 million
, resulting in a total impact of
$88.9 million
.
Note 10
—Inventories
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2018
|
|
December 31, 2017
|
Raw materials
|
|
$
|
195.1
|
|
|
$
|
177.7
|
|
Work-in-process
|
|
59.5
|
|
|
62.9
|
|
Finished goods
|
|
236.5
|
|
|
238.5
|
|
Reserves
|
|
(33.6
|
)
|
|
(30.3
|
)
|
Inventories, net
|
|
$
|
457.5
|
|
|
$
|
448.8
|
|
Note 11
—Property, Plant and Equipment, net
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2018
|
|
December 31, 2017
|
Land
|
|
$
|
69.1
|
|
|
$
|
74.1
|
|
Buildings and leasehold improvements
|
|
441.9
|
|
|
374.5
|
|
Machinery and equipment
|
|
875.3
|
|
|
801.0
|
|
Projects in progress
|
|
78.9
|
|
|
122.1
|
|
Property, plant and equipment, gross
|
|
1,465.2
|
|
|
1,371.7
|
|
Accumulated depreciation
|
|
(705.1
|
)
|
|
(640.6
|
)
|
Property, plant and equipment, net
|
|
$
|
760.1
|
|
|
$
|
731.1
|
|
Capitalized interest totaled
$2.2 million
$2.4 million
and
$0.9 million
for
2018
,
2017
and
2016
, respectively.
Note 12
—Goodwill and Other Intangible Assets, net
Goodwill
As a result of the sale of CFS on March 20, 2018, the Company reclassified
$149.7 million
and
$60.3 million
of goodwill and
$169.4 million
and
$24.9 million
of other intangible assets, net allocated to the CFS segment as of December 31, 2017 and 2016, respectively, to discontinued operations within long-term assets.
The changes in the carrying amount of goodwill, net by segment follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
CCM
|
|
CIT
|
|
CFT
|
|
CBF
(1)
|
|
Total
|
Net balance as of December 31, 2016
|
|
$
|
117.5
|
|
|
$
|
639.1
|
|
|
$
|
167.9
|
|
|
$
|
96.4
|
|
|
$
|
1,020.9
|
|
Goodwill acquired during year
(2)
|
|
420.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
420.2
|
|
Measurement period adjustments
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
Currency translation and other
|
|
6.6
|
|
|
0.9
|
|
|
3.1
|
|
|
0.1
|
|
|
10.7
|
|
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
|
|
|
|
(1)
|
CBF goodwill balance as of December 31, 2016, is presented net of accumulated impairment losses of
$130.0 million
recorded in 2016. No other segments have incurred impairment losses.
|
|
|
(2)
|
See
Note 3
for further information on goodwill resulting from recent acquisitions.
|
|
|
(3)
|
During 2018, Carlisle acquired three businesses for an aggregate purchase price of
$20.1 million
.
|
Other Intangible Assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
(in millions)
|
|
Acquired Cost
|
|
Accumulated Amortization
|
|
Net Book Value
|
|
Acquired Cost
|
|
Accumulated Amortization
|
|
Net Book Value
|
Assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
843.8
|
|
|
$
|
(287.7
|
)
|
|
$
|
556.1
|
|
|
$
|
844.8
|
|
|
$
|
(230.8
|
)
|
|
$
|
614.0
|
|
Technology and intellectual property
|
|
268.8
|
|
|
(129.3
|
)
|
|
139.5
|
|
|
272.0
|
|
|
(95.6
|
)
|
|
176.4
|
|
Trade names and other
|
|
45.4
|
|
|
(16.4
|
)
|
|
29.0
|
|
|
40.1
|
|
|
(9.6
|
)
|
|
30.5
|
|
Assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
243.1
|
|
|
—
|
|
|
243.1
|
|
|
244.1
|
|
|
—
|
|
|
244.1
|
|
Other intangible assets, net
|
|
$
|
1,401.1
|
|
|
$
|
(433.4
|
)
|
|
$
|
967.7
|
|
|
$
|
1,401.0
|
|
|
$
|
(336.0
|
)
|
|
$
|
1,065.0
|
|
The remaining weighted-average amortization period of intangible assets subject to amortization as of
December 31, 2018
, follows (in years):
|
|
|
|
Customer relationships
|
|
10.0
|
Technology and intellectual property
|
|
6.4
|
Trade names and other
|
|
8.5
|
Total assets subject to amortization
|
|
9.2
|
Intangible assets subject to amortization as of
December 31, 2018
, will be amortized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
Estimated future amortization expense
|
|
$
|
98.2
|
|
|
$
|
95.0
|
|
|
$
|
87.4
|
|
|
$
|
73.4
|
|
|
$
|
68.0
|
|
|
$
|
302.6
|
|
The net carrying values of the Company’s other intangible assets, net by reportable segment follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2018
|
|
December 31, 2017
|
Carlisle Construction Materials
|
|
$
|
285.3
|
|
|
$
|
325.1
|
|
Carlisle Interconnect Technologies
|
|
313.4
|
|
|
344.5
|
|
Carlisle Fluid Technologies
|
|
280.9
|
|
|
302.5
|
|
Carlisle Brake & Friction
|
|
86.6
|
|
|
92.9
|
|
Corporate
|
|
1.5
|
|
|
—
|
|
Total
|
|
$
|
967.7
|
|
|
$
|
1,065.0
|
|
2016 Impairment
In 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 fair 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 effective at the date of impairment, 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, revenue growth rates and operating 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 25.0% 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.
See
Note 1
for further information regarding the valuation of goodwill and indefinite‑lived intangible assets.
Note 13
—Accrued Expenses
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2018
|
|
December 31, 2017
|
Compensation and benefits
|
|
$
|
99.9
|
|
|
$
|
100.1
|
|
Customer incentives
|
|
66.1
|
|
|
60.5
|
|
Standard product warranties
|
|
31.9
|
|
|
30.4
|
|
Income and other accrued taxes
|
|
16.7
|
|
|
17.6
|
|
Other accrued expenses
|
|
43.4
|
|
|
49.2
|
|
Accrued expenses
|
|
$
|
258.0
|
|
|
$
|
257.8
|
|
Standard Product Warranties
The Company offers various standard warranty programs on its products, primarily for certain installed roofing systems, high-performance cables and assemblies, fluid technologies and braking products. The Company’s liability for such warranty programs is included in accrued expenses. The change in the Company’s standard product warranty liabilities follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2018
|
|
December 31, 2017
|
Balance as of January 1
|
|
$
|
30.4
|
|
|
$
|
29.1
|
|
Current year provision
|
|
18.1
|
|
|
16.6
|
|
Current year claims
|
|
(16.3
|
)
|
|
(16.3
|
)
|
Current year foreign exchange
|
|
(0.3
|
)
|
|
1.0
|
|
Balance as of December 31
|
|
$
|
31.9
|
|
|
$
|
30.4
|
|
Note 14
—Long-term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
(1)
|
(in millions)
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2018
|
|
December 31,
2017
|
3.75% Notes due 2027
|
|
$
|
600.0
|
|
|
$
|
600.0
|
|
|
$
|
579.4
|
|
|
$
|
607.1
|
|
3.5% Notes due 2024
|
|
400.0
|
|
|
400.0
|
|
|
386.4
|
|
|
403.7
|
|
3.75% Notes due 2022
|
|
350.0
|
|
|
350.0
|
|
|
345.5
|
|
|
358.9
|
|
5.125% Notes due 2020
|
|
250.0
|
|
|
250.0
|
|
|
255.0
|
|
|
264.8
|
|
Unamortized discount, debt issuance costs and other
|
|
(12.2
|
)
|
|
(13.8
|
)
|
|
|
|
|
Total long term-debt
|
|
$
|
1,587.8
|
|
|
$
|
1,586.2
|
|
|
|
|
|
|
|
(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.
|
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 of
$597.6 million
. The Company incurred costs to issue the 2027 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 life of the 2027 Notes. Interest is paid each June 1 and December 1, commencing on June 1, 2018.
3.5% Notes Due 2024
On November 16, 2017, the Company completed a public offering of
$400.0 million
of 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 of
$399.6 million
. The Company incurred costs to issue the 2024 Notes of approximately
$4.5 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 life of the 2024 Notes. Interest is paid each June 1 and December 1, commencing on June 1, 2018.
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 issuance costs are being amortized to interest expense over the life of the 2022 Notes. Interest is paid each May 15 and November 15.
5.125% Notes Due 2020
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”). 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. The Notes may be redeemed at the Company's option, in whole or in part, plus accrued and unpaid interest, at any time prior to the dates stated below, at a price equal to the greater of (i)
100.0%
of the principal amounts; or (ii) 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 a spread (noted below). The Notes may also be redeemed at any time after the dates noted below, in whole or in part, at the Company's option at
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
101.0%
of the principal amount, plus accrued and unpaid interest.
The Notes are subject to the Company's existing indenture dated January 15, 1997, 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 J.P. Morgan Chase Bank, N.A. (“JPMorgan Chase”). On December 12, 2013, the Company executed an amendment to the facility to amend certain terms and extend the term of the Facility to December 12, 2018.
On
February 21, 2017
, the Company entered into a second amendment (the "Amendment") to the Company's Third Amended and Restated Credit Agreement (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 an amount not to exceed
$50.0 million
.
The Facility provides for variable 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. 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.
As of
December 31, 2018
, the Company had
$1.0 billion
available under the Facility. During 2018 and 2016, the Company had no borrowings or repayments under the Facility. During 2017, the Company borrowed and repaid $1.2 billion, in the 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,
2018
and
2017
.
Letters of Credit and Guarantees
During the normal course of business, the Company enters into commitments in the form of letters of credit and bank guarantees to provide financial and performance assurance to third parties. As of
December 31, 2018
, and
2017
, the Company had
$26.0 million
and
$26.3 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
$56.1 million
was available as of
December 31, 2018
.
Interest Payments
Cash payments for interest were
$65.4 million
,
$29.6 million
and
$35.9 million
in
2018
,
2017
and
2016
, respectively.
Note 15
—Retirement Plans
Defined 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 plan. Benefits are based primarily on years of service and earnings of the employee.
The significant assumptions used in the measurement of the projected benefit obligation and net periodic benefit cost 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 follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Discount rate
|
|
4.1
|
%
|
|
3.5
|
%
|
Rate of compensation increase
|
|
3.8
|
%
|
|
3.8
|
%
|
Weighted‑average assumptions for net periodic benefit cost follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Discount rate
|
|
3.5
|
%
|
|
3.9
|
%
|
|
4.4
|
%
|
Rate of compensation increase
|
|
3.8
|
%
|
|
3.8
|
%
|
|
4.3
|
%
|
Expected long-term return on plan assets
|
|
6.3
|
%
|
|
6.3
|
%
|
|
6.2
|
%
|
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, 2018
and
2017
.
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 reasonableness and appropriateness.
A reconciliation of the change in the projected benefit obligation, plan assets and the funded status follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2018
|
|
December 31, 2017
|
Funded status
|
|
|
|
|
Projected benefit obligation
|
|
|
|
|
Beginning of year
|
|
$
|
182.8
|
|
|
$
|
172.5
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
Service cost
|
|
3.1
|
|
|
2.6
|
|
Interest cost
|
|
5.5
|
|
|
5.3
|
|
Plan amendments
|
|
—
|
|
|
0.7
|
|
Actuarial (gain)/loss
|
|
(10.0
|
)
|
|
15.5
|
|
Benefits paid
|
|
(13.9
|
)
|
|
(13.8
|
)
|
End of year
|
|
$
|
167.5
|
|
|
$
|
182.8
|
|
Fair value of plan assets
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
165.7
|
|
|
$
|
163.2
|
|
Change in plan assets:
|
|
|
|
|
|
|
Actual return on plan assets
|
|
(4.6
|
)
|
|
14.9
|
|
Company contributions
|
|
1.4
|
|
|
1.4
|
|
Benefits paid
|
|
(13.9
|
)
|
|
(13.8
|
)
|
End of year
|
|
$
|
148.6
|
|
|
$
|
165.7
|
|
|
|
|
|
|
Unfunded status end of year
|
|
$
|
(18.9
|
)
|
|
$
|
(17.1
|
)
|
|
|
|
|
|
Accumulated benefit obligation at end of year
|
|
$
|
167.0
|
|
|
$
|
181.1
|
|
The Company’s projected benefit obligation includes approximately
$19.6 million
and
$22.3 million
related to the Company’s executive supplemental and director defined benefit pension plans as of
December 31, 2018
and
2017
, respectively. The Company’s accumulated benefit obligation includes approximately
$19.1 million
and
$20.7 million
related to the Company’s executive supplemental and director defined benefit pension plans as of
December 31, 2018
and
2017
, respectively. The executive supplemental and director defined benefit plans have
no
plan assets and the Company is not required to fund the obligations. The U.S. plans required to be funded by the Company were fully funded as of
December 31, 2018
and
2017
.
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2018
|
|
December 31, 2017
|
Long-term assets
|
|
$
|
0.7
|
|
|
$
|
5.2
|
|
Current liabilities
|
|
(1.5
|
)
|
|
(1.4
|
)
|
Long-term liabilities
|
|
(18.1
|
)
|
|
(20.9
|
)
|
Net pension liability
|
|
$
|
(18.9
|
)
|
|
$
|
(17.1
|
)
|
The amounts included in accumulated other comprehensive income (loss) that have not been recognized in net periodic pension cost follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2018
|
|
December 31, 2017
|
Unrecognized actuarial losses (gross)
|
|
$
|
49.3
|
|
|
$
|
48.8
|
|
Unrecognized actuarial losses (net of tax)
|
|
39.6
|
|
|
38.0
|
|
Unrecognized prior service costs (gross)
|
|
1.0
|
|
|
1.3
|
|
Unrecognized prior service costs (net of tax)
|
|
0.8
|
|
|
1.1
|
|
The components of net periodic benefit cost follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Service cost
|
|
$
|
3.1
|
|
|
$
|
2.6
|
|
|
$
|
3.4
|
|
Interest cost
|
|
5.5
|
|
|
5.3
|
|
|
5.4
|
|
Expected return on plan assets
|
|
(10.3
|
)
|
|
(10.2
|
)
|
|
(10.1
|
)
|
Amortization of unrecognized net loss
|
|
4.3
|
|
|
2.3
|
|
|
2.1
|
|
Amortization of unrecognized prior service credit
|
|
0.3
|
|
|
0.2
|
|
|
0.2
|
|
Net periodic benefit cost
|
|
$
|
2.9
|
|
|
$
|
0.2
|
|
|
$
|
1.0
|
|
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 related to changes in 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
88.0%
fixed income securities and
12.0%
equity securities. Fixed income investments are diversified across 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 follows:
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
(in millions)
|
|
December 31,
2018
|
|
December 31,
2017
|
Cash
|
|
$
|
0.6
|
|
|
$
|
0.6
|
|
U.S. treasury bonds
|
|
27.0
|
|
|
—
|
|
Mutual funds:
|
|
|
|
|
|
|
Equity mutual funds
(1)
|
|
17.8
|
|
|
19.4
|
|
Fixed income mutual funds
(2)
|
|
103.2
|
|
|
145.6
|
|
Total
|
|
$
|
148.6
|
|
|
$
|
165.6
|
|
|
|
(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 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
$1.4 million
during both
2018
and
2017
, which pertain to the Company’s executive supplemental and director defined benefit pension plans. This contribution covers current participant benefits as these plans have
no
plan assets.
No
minimum contributions to the pension plans were required in
2018
and
2017
. During
2019
, the Company expects to pay approximately
$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
2019
.
A summary of estimated future benefits to be paid for the Company’s defined benefit pension plans as of
December 31, 2018
, follows:
|
|
|
|
|
|
(in millions)
|
|
Estimated
Benefit
Payments
|
2019
|
|
$
|
14.5
|
|
2020
|
|
14.9
|
|
2021
|
|
14.3
|
|
2022
|
|
14.5
|
|
2023
|
|
14.7
|
|
2024-2028
|
|
67.7
|
|
Defined Contribution Plan
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
$15.2 million
,
$14.8 million
and
$13.3 million
in
2018
,
2017
and
2016
, 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 follows:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
Common shares held
|
|
1.0
|
|
|
1.1
|
|
|
1.2
|
|
Note 16
—Other Long‑Term Liabilities
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31,
2018
|
|
December 31,
2017
|
Deferred taxes and other tax liabilities
(1)
|
|
$
|
186.7
|
|
|
$
|
212.6
|
|
Pension and other post-retirement obligations
(2)
|
|
22.8
|
|
|
26.6
|
|
Deferred compensation
(3)
|
|
21.5
|
|
|
24.7
|
|
Long-term workers' compensation
(4)
|
|
15.0
|
|
|
10.3
|
|
Other
|
|
20.5
|
|
|
14.5
|
|
Other long-term liabilities
|
|
$
|
266.5
|
|
|
$
|
288.7
|
|
|
|
(1)
|
Refer to Note 9 for additional deferred tax discussion.
|
|
|
(2)
|
Refer to Note 15 for additional pension discussion.
|
|
|
(3)
|
Refer to Note 18 for additional deferred compensation discussion.
|
|
|
(4)
|
Refer to Note 17 for additional workers' compensation discussion.
|
Note 17
—Commitments and Contingencies
Leases
The Company currently leases a portion of its facilities, distribution centers and equipment. Some of the leases include scheduled rent increases stated in the lease agreement, generally expressed as a stated percentage increase of the minimum lease payment over the lease term. The Company currently has
no
leases that require rent to be paid based on contingent events. Rent expense was
$32.1 million
,
$26.3 million
and
$23.8 million
in
2018
,
2017
and
2016
, 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 future years follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
Future minimum payments
|
|
$
|
16.7
|
|
|
$
|
10.8
|
|
|
$
|
6.8
|
|
|
$
|
4.9
|
|
|
$
|
4.2
|
|
|
$
|
5.1
|
|
Workers’ Compensation Claims and Related Losses
The Company has accrued approximately
$19.5 million
and
$14.9 million
(net of
$7.0 million
of recovery receivables) related to workers’ compensation claims as of
December 31, 2018
and
2017
, respectively. As of
December 31, 2018
,
$4.5 million
and
$15.0 million
were included in accrued expenses and other long‑term liabilities, respectively. As of
December 31, 2017
,
$4.6 million
and
$10.3 million
were included in accrued expenses and other long‑term liabilities, respectively. 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.
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. As of
December 31, 2018
, the Company had a recovery receivable of
$6.6 million
. The Company's recovery receivables for workers’ compensation claims as of
December 31, 2017
, were presented net with the workers' compensation liability, as noted above.
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. 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.
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, are not expected to have a material adverse effect on the consolidated financial position or annual operating cash flows of the Company.
Environmental Matters
The Company is subject to increasingly stringent environmental laws 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 the Company did not have any significant accruals related to potential future costs of environmental remediation as of
December 31, 2018
and
2017
, nor are any asset retirement obligations recorded as of 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.
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 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.
A summary of the Company's designated and non-designated cash flow hedges follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
(in millions)
|
|
Fair Value
(1)
|
|
Notional Value
|
|
Fair Value
(1)
|
|
Notional Value
|
Designated hedges
|
|
$
|
0.2
|
|
|
$
|
95.0
|
|
|
$
|
(0.2
|
)
|
|
$
|
22.3
|
|
Non-designated hedges
|
|
0.1
|
|
|
49.9
|
|
|
0.2
|
|
|
38.6
|
|
|
|
(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 (income) 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, 2017
|
|
$
|
(26.4
|
)
|
|
$
|
(96.7
|
)
|
|
$
|
0.9
|
|
|
$
|
(122.2
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(11.2
|
)
|
|
46.6
|
|
|
(4.4
|
)
|
|
31.0
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
(1)
|
|
2.5
|
|
|
—
|
|
|
(0.5
|
)
|
|
2.0
|
|
Income tax benefit
|
|
3.5
|
|
|
—
|
|
|
—
|
|
|
3.5
|
|
Other comprehensive income (loss)
|
|
(5.2
|
)
|
|
46.6
|
|
|
(4.9
|
)
|
|
36.5
|
|
Balance as of December 31, 2017
|
|
(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
|
)
|
|
|
(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.
|
Deferred Compensation Rabbi Trust
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 compensation may be deferred up to
10
years and distributed via lump sum or annual payment installments over an additional
10
-year period. 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 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. As of
December 31, 2018
, and
2017
, the Company had
$10.7 million
and
$13.2 million
of cash, respectively, and
$4.3 million
and
$4.0 million
of short-term investments, respectively. The 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 net income and the associated cash flows presented as operating cash flows.
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 their 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
(in millions, except per share data)
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Year
|
Revenues
|
|
$
|
774.0
|
|
|
$
|
983.9
|
|
|
$
|
1,002.4
|
|
|
$
|
990.5
|
|
|
$
|
3,750.8
|
|
Gross margin
|
|
226.1
|
|
|
286.5
|
|
|
284.6
|
|
|
251.1
|
|
|
1,048.3
|
|
Operating income
|
|
89.5
|
|
|
146.3
|
|
|
134.8
|
|
|
93.4
|
|
|
464.0
|
|
Income from continuing operations
|
|
57.9
|
|
|
94.7
|
|
|
79.1
|
|
|
108.9
|
|
|
340.6
|
|
Income from discontinued operations
|
|
3.9
|
|
|
7.6
|
|
|
7.2
|
|
|
6.2
|
|
|
24.9
|
|
Net income
|
|
61.8
|
|
|
102.3
|
|
|
86.3
|
|
|
115.1
|
|
|
365.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
(1)
|
|
$
|
0.89
|
|
|
$
|
1.47
|
|
|
$
|
1.27
|
|
|
$
|
1.75
|
|
|
$
|
5.36
|
|
Income from discontinued operations
(1)
|
|
0.06
|
|
|
0.12
|
|
|
0.11
|
|
|
0.09
|
|
|
0.39
|
|
Basic earnings per share
(1)
|
|
$
|
0.95
|
|
|
$
|
1.59
|
|
|
$
|
1.38
|
|
|
$
|
1.84
|
|
|
$
|
5.75
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
(1)
|
|
$
|
0.88
|
|
|
$
|
1.46
|
|
|
$
|
1.26
|
|
|
$
|
1.73
|
|
|
$
|
5.32
|
|
Income from discontinued operations
(1)
|
|
0.06
|
|
|
0.12
|
|
|
0.11
|
|
|
0.09
|
|
|
0.39
|
|
Diluted earnings per share
(1)
|
|
$
|
0.94
|
|
|
$
|
1.58
|
|
|
$
|
1.37
|
|
|
$
|
1.82
|
|
|
$
|
5.71
|
|
|
|
(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 11, 2019
, the Company completed the acquisition of Petersen Aluminum Corporation ("Petersen") for approximately
$197.0 million
in cash, subject to post-closing adjustments. Petersen’s primary business is the manufacture and distribution of market leading architectural 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. The initial accounting for the business combination is incomplete as a result of the timing of the acquisition. The results of operations of the acquired business will be reported within the CCM segment beginning in the first quarter of 2019.