Note 1—Summary of Accounting Policies
Nature of Business
Carlisle Companies Incorporated, its wholly owned subsidiaries and their divisions or 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 niche markets including commercial roofing, energy, agriculture, lawn and garden, mining and construction equipment, aerospace and electronics, dining and food delivery, and healthcare. The Company markets its products as a component supplier to original equipment manufacturers, distributors, as well as directly to end-users.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany transactions and accounts have been eliminated. The Company's fiscal year-end is December 31.
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.
Cash and Cash Equivalents
Demand deposits and debt securities with a maturity of three months or less when acquired are cash equivalents.
Revenues are recognized when persuasive evidence of an arrangement exists, goods have been shipped (or services have been rendered), the customer takes ownership and assumes risk of loss, collection is probable, and the sales price is fixed or determinable.
Provisions for discounts and rebates to customers and other adjustments are provided for at the time of sale as a deduction to revenue.
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 revenue.
Allowance for Doubtful Accounts
The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer's current credit worthiness, as determined by the review of their credit information. Allowances for doubtful accounts are estimated based on the evaluation of potential losses related to customer receivable balances. Estimates are developed by using standard quantitative measures 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 $9.5 million at December 31, 2011 and $9.7 million at December 31, 2010. Changes in economic conditions in specific markets in which the Company operates could have an effect on reserve balances required. The following is activity in the Company's allowance for doubtful accounts for the years ended December 31:
Inventories are valued at the lower of cost or market on the first-in, first-out 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.
Deferred Revenue and Extended Product Warranty
The Company offers extended warranty contracts on sales of certain products; the most significant being those offered on its installed roofing systems within the Construction Materials segment. The lives of these warranties range from five to thirty years. All revenue for the sale of these contracts is deferred and amortized on a straight-line basis over the life of the contracts. Current costs of services performed under these contracts are expensed as incurred. The Company also records a loss and a corresponding reserve if the total expected costs of providing services under the contract exceed unearned revenues. The Company estimates total expected warranty costs using standard quantitative measures based on historical claims experience and management judgment. See Note 17.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. 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 the straight-line basis over the estimated useful lives of the assets. Depreciation includes the amortization of capital leases. Asset lives are 20 to 40 years for buildings, 5 to 15 years for machinery and equipment and 3 to 10 years for leasehold improvements.
Valuation of Long-Lived Assets
Long-lived assets or asset groups, including amortizable intangible assets, are tested for impairment whenever events or circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. For purposes of testing for impairment, the Company groups its long-lived assets classified as held and used at the lowest level for which identifiable cash flows are largely independent of the cash flows from other assets and liabilities. The Company's asset groupings vary based on the related business in which the long-lived asset is employed and the interrelationship between those long-lived assets in producing net cash flows, for example, multiple manufacturing facilities may work in concert with one another or may work on a stand-alone basis to produce net cash flows. The Company utilizes its long-lived assets in multiple industries and economic environments and its asset grouping reflect these various factors. The following are examples of events or changes in circumstances that the Company considers:
The Company monitors the operating and cash flow results of its long-lived assets or asset groups classified as held and used to identify whether events and circumstances indicate the remaining useful lives of those assets should be adjusted, or if the carrying value of those assets or asset groups may not be recoverable. In the event indicators of impairment are identified, undiscounted estimated future cash flows are compared to the carrying value of the long-lived asset or asset group. If the undiscounted estimated future cash flows are less than the carrying amount, the Company determines the fair value of the asset or asset group and records an impairment charge in current earnings to the extent carrying value exceeds fair value. Fair values may be determined based on estimated discounted cash flows, by prices for like or similar assets in similar markets, or a combination of both. There are currently no long-lived assets or asset groups classified as held and used for which the related undiscounted cash flows do not substantially exceed their carrying amounts.
Long-lived assets or asset groups that are part of a disposal group that meets the criteria to be classified as held for sale are not assessed for impairment but rather if fair value, less cost to sell, of the disposal group is less than its carrying value a loss is recorded against the disposal group.
The Company is a party to various lease arrangements that include scheduled rent increases, rent holidays or may provide for contingent rentals or incentive payments to be made to the Company as part of the terms of the lease. Scheduled rent increases and rent holidays are included in the determination of minimum lease payments when assessing lease classification and, along with any lease incentives, are included in rent expense on a straight-line basis over the lease term. Scheduled rent increases that are dependent upon a change in an index or rate such as the consumer price index or prime rate are included in the determination of rental expense at the time the rate or index changes. Contingent rentals are excluded from the determination of minimum lease payments when assessing lease classification and are included in the determination of rent expense when the event that will require additional rents is considered probable. See Note 14 for further information regarding rent expense.
The Company maintains self-retained liabilities for workers' compensation, medical and dental, general liability, property and product liability claims up to applicable retention limits. The Company estimates these retention liabilities utilizing actuarial methods and loss development factors. The Company's historical loss experience is considered in the calculation. The Company is insured for losses in excess of these limits. See Note 14.
Goodwill and Other Intangible Assets
Intangible assets are recognized and recorded at their acquisition-date fair values. Intangible assets that are subject to amortization are amortized on a straight-line basis over their useful lives. Definite-lived intangible assets consist primarily of acquired customer relationships and patents, in addition to non-compete agreements and intellectual property. The Company determines the useful life of its customer relationship intangible assets based on multiple factors including the size and make-up of the acquired customer base, the expected dissipation of those customers over time, the Company's own experience in the particular industry, the impact of known trends such as technological obsolescence, product demand or other factors, and the period over which expected cash flows are used to measure the fair value of the intangible asset at acquisition. The Company periodically re-assesses the useful lives of its customer relationship intangible assets when events or circumstances indicate that useful lives have significantly changed from the previous estimate.
Intangible assets with indefinite useful lives are not amortized but are tested annually for impairment via a one-step process by comparing the fair value of the intangible asset with its carrying value. If the intangible asset's carrying value exceeds its fair value, an impairment charge is recorded in current earnings for the difference. The Company estimates the fair value of its indefinite-lived intangible assets based on the income approach utilizing the discounted cash flow method. As of the most recent annual impairment test, all of the Company's indefinite-lived intangible assets' fair value exceeded their carrying values by at least 15%. 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 for impairment at a reporting unit level. The Company has determined that its operating segments are its reporting units.
First, goodwill is tested for impairment by comparing the fair value of the reporting unit with the reporting unit's carrying amount to identify any potential impairment. If fair value is determined to be less than carrying value, a second step is used whereby the implied fair value of the reporting unit's goodwill, determined through a hypothetical purchase price allocation, is compared with the carrying amount of the reporting units' goodwill. If the implied fair value of the reporting units' goodwill is less than its carrying amount, an impairment charge is recorded in current earnings for the difference. The Company also assesses the recoverability of goodwill if facts and circumstances indicate goodwill may be impaired.
See Note 13 for more information regarding goodwill.
Pension and Other Post Retirement Benefits
The Company maintains defined benefit pension plans for certain employees. Additionally, the Company has a limited number of post-retirement benefit programs that provide certain retirees with medical and prescription drug coverage. The annual net periodic expense and benefit obligations related to these plans are determined on an actuarial basis. This determination requires assumptions to be made concerning general economic conditions (particularly interest rates), expected return on plan assets, increases to compensation levels, and health care cost trends. These assumptions are reviewed periodically by management in consultation with its independent actuary. Changes in the assumptions to reflect actual experience can result in a change in the net periodic expense and accrued benefit obligations. The defined benefit pension plans' assets consist primarily of equity and fixed income mutual funds that are primarily considered Level 1 assets under the fair value hierarchy, as their fair value is derived from market observable data. The Company uses the market related valuation method to determine the value of plan assets, which recognizes the change of the fair value of the plan assets over five years. If actual experience differs from these long-term assumptions, the difference is recorded as an unrecognized actuarial gain (loss) and then amortized into earnings over a period of time based on the average future service period, which may cause the expense related to providing these benefits to increase or decrease. See Note 16 for additional information regarding these plans and the associated plan assets.
Derivative Financial Instruments
The Company records derivative financial instruments at fair value on the balance sheet, with changes in fair value recorded currently in earnings unless the Company elects to account for the derivative as a hedge. If the Company elects to designate a derivative as a fair value hedge and it is highly effective, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If a fair value hedge is terminated before maturity, the adjusted carrying amount of the hedged asset or liability remains as a component of the carrying amount of that asset or liability until it is disposed. If the hedged item is an interest-bearing financial instrument, the adjusted carrying amount is amortized into earnings over the remaining life of the instrument. If the Company elects to designate the derivative as a cash flow hedge and it is highly effective, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized currently in earnings.
The Company is subject to market risk from exposures to changes in interest rates due to its financing, investing and cash management activities. The Company uses treasury lock contracts, interest rate swap agreements, or other derivative instruments, from time to time, to manage the interest rate risk of its floating and fixed rate debt portfolio. The Company, on a periodic basis, assesses the initial and ongoing effectiveness of its hedging relationships. As of December 31, 2011, the Company had not entered into any derivative financial instruments to hedge interest rate risk.
The Company's international operations are exposed to translation risk when the local currency financial statements are translated into U.S. Dollars. The Company had foreign exchange forward contracts with an aggregate notional amount of $4.5 million outstanding as of December 31, 2011, with scheduled maturities of $4.5 million during 2012. The fair value of open contracts is negligible. Approximately 19% of the Company's revenues from continuing operations for the year ended December 31, 2011 are from countries other than the U.S.
Selling and Administrative Expenses
Selling and administrative expenses includes wages and benefits related to the Company's sales force, its administrative functions such as corporate management and other indirect costs not allocated to inventories, including a portion of depreciation and amortization. Selling and administrative expenses also includes certain warehousing costs incurred in the tire and wheel and power transmission belt product lines related to their distribution centers that are separately operated to facilitate shipments directly to customers.
Deferred tax assets and liabilities are recognized for the future tax consequences of the differences between financial statement carrying amounts of assets and liabilities and their respective tax basis. These balances are measured using enacted tax rates expected to apply to taxable income in the years in which such temporary differences are expected to be recovered or settled. If a portion or all of a deferred tax asset is not expected to be realized, a valuation allowance is recognized.
The Company accounts for stock-based compensation under the fair-value method. Accordingly, equity classified stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period, which generally matches the stated vesting period of the award, but may also be shorter if the employee is retirement-eligible and under the award's terms may fully-vest upon retirement from the Company. The Company recognizes expense for awards that have graded vesting features under the graded vesting method, which considers each separately vesting tranche as though they were, in substance, multiple awards.
Foreign Currency Translation
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 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. 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 books are maintained in the local currency are included in Other expense (income), net.
New Accounting Standards Adopted
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05, Presentation of Comprehensive Income. ASU 2011-05 revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in Accounting Standards Codification (ASC) 220, Comprehensive Income, and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income. In December 2011, the FASB issued ASU 2011-12 which defers the requirement in ASU 2011-05 that companies present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. ASU 2011-05 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2011, with early adoption permitted. The Company has elected to adopt ASU 2011-05, as amended by ASU 2011-12, beginning with the quarter ended December 31, 2011. The adoption did not have a material effect on the Company's consolidated financial statements.
New Accounting Standards Not Yet Effective
There are currently no new accounting standards that have been issued that will have a significant impact on the Company's financial position, results of operations and cash flows upon adoption.
Note 2—Segment Information
The accounting policies of the segments are the same as those described in the summary of accounting policies. The Company's operations are reported in the following segments:
Carlisle Construction Materials—the principal products of this segment are rubber (EPDM) and thermoplastic polyolefin (TPO) roofing membranes used predominantly on non-residential low-sloped roofs, related roofing accessories, including flashings, fasteners, sealing tapes, coatings and waterproofing, and insulation products. The markets served include new construction, re-roofing and maintenance of low-sloped roofs, water containment, HVAC sealants, and coatings and waterproofing.
Carlisle Transportation Products—the principal products of this segment include bias-ply, steel belted radial trailer tires, stamped or roll-formed steel wheels, tires, and tire and wheel assemblies, as well as industrial belts and related components. The markets served include lawn and garden, power sports, agriculture and construction.
Carlisle Brake & Friction—the principle products of this segment include high-performance brakes and friction material, clutches and transmissions for the mining, construction, aerospace, agriculture, high-performance racing, and alternative energy markets.
Carlisle Interconnect Technologies—the principal products of this segment are high-performance wire, cable, connectors and cable assemblies, including RF/microwave connectors and cable assemblies primarily for the aerospace, defense electronics, and test and measurement equipment.
Carlisle FoodService Products—the principal products of this group include commercial and institutional foodservice permanentware, table coverings, cookware, catering equipment, fiberglass and composite material trays and dishes, industrial brooms, brushes, mops and rotary brushes for commercial and non-commercial foodservice operators and sanitary maintenance professionals.
Corporate—includes general corporate expenses. Corporate assets consist primarily of cash and cash equivalents, facilities, deferred taxes and other invested assets. Corporate operations also maintain a captive insurance program for workers compensation costs on behalf of all the Carlisle operating companies.
Geographic Area Information—sales are attributable to the United States and to all foreign countries based on the country to which the product was delivered. Sales by region for the years ended December 31 are as follows (in millions):
Long-lived assets, comprised of net property, plant and equipment, goodwill and other intangible assets, investments and other long-term assets, located in the United States and foreign countries are as follows (in millions):
Financial information for operations by reportable business segment is included in the following summary:
A reconciliation of assets reported in the preceding table to total assets as presented on the Company's Consolidated Balance Sheets is as follows:
A reconciliation of depreciation and amortization and capital spending reported above to the amounts presented on the Consolidated Statements of Cash Flows is as follows:
Note 5—Exit and Disposal Activities
The following table represents the effects of exit and disposal activities related to continuing operations on the Company's Consolidated Statements of Earnings for the years ended December 31:
Exit and disposal activities by type of charge for the years ended December 31 were as follows:
Other associated costs are primarily related to severance and relocation costs.
Exit and disposal accrual activities for the years ended December 31, 2011 and 2010 were as follows:
Exit and disposal activities by segment were as follows:
Carlisle Transportation Products—Starting in the fourth quarter of 2008, the Company undertook several consolidation projects within the Transportation Products segment in efforts to reduce costs and streamline its operations. Descriptions of these projects are set forth below:
During 2009, the Company recorded $22.1 million of expense, including $12.3 million in fixed asset charges, $5.1 million of other costs consisting primarily of contract termination and relocation expenses, and $4.7 million in employee termination costs related to the consolidations of its distribution centers, plant consolidations in Ontario, CA, Meizhou, China and Jackson, TN and integration of the power transmission business into the tire and wheel business.
During 2010, the Company recorded $10.7 million of expense primarily related to the tire manufacturing consolidation in Jackson, TN consisting of $8.0 million of costs to relocate equipment and employees and $2.7 million in employee termination costs.
During 2011, the Company incurred $4.0 million of exit and disposal costs, associated with the Jackson, TN consolidation, which began in the third quarter of 2009. This consolidation was substantially completed in the first quarter of 2011; however, additional activities related to this consolidation were completed in the fourth quarter of 2011. The total cost of the project was approximately $20.9 million. Included in Accrued expenses at December 31, 2011 was $0.3 million related to unpaid severance.
Carlisle Brake & Friction—In the fourth quarter of 2009, within its off-highway braking business, the Company announced plans to close its friction product manufacturing facility in Logansport, IN and to consolidate operations into its locations in Hangzhou, China and Bloomington, IN. This consolidation was substantially completed in the fourth quarter of 2010; however, additional activities related to the closure of the facility occurred in 2011. The total cost of this consolidation project was $5.3 million. Costs of $0.6 million incurred in 2011 primarily consisted of other relocation costs. Costs incurred in 2010 related to this consolidation were $2.4 million and reflected $0.3 million in employee and $2.1 million of other costs to transfer equipment and relocate employees. Total costs incurred in 2009 related to this consolidation were $2.3 million consisting of fixed asset impairment charges and write-down of inventory. The company expects no additional costs to be incurred related to this project.
In the third quarter of 2011, the Company decided to close its braking plant in Canada. The project is expected to cost approximately $1.3 million, including $0.9 million of expense recognized in 2011 for employee termination costs and other associated costs. As of December 31, 2011, a $0.9 million liability, reported in Accrued expenses, exists for unpaid severance, pensions and lease termination costs.
Carlisle Interconnect Technologies—During 2009, the Company undertook two consolidation projects within the Interconnect Technologies segment in efforts to reduce costs and streamline operations. Descriptions of these projects are set forth below:
Total costs incurred in 2010 related to these consolidations were $1.1 million reflecting employee termination benefits and other disposal costs. Total costs incurred in 2009 related to these consolidations were $3.7 million and reflected $0.6 million in employee and contract termination and other disposal costs, $2.1 million of fixed asset impairment charges and $1.0 million of inventory write-downs. As of December 31, 2011, no liability exists for unpaid exit and disposal costs related to these consolidations.
Note 6—Stock-Based Compensation
Stock-based compensation cost is recognized over the requisite service period, which generally equals the stated vesting period, unless the stated vesting period exceeds the date upon which an employee reaches retirement eligibility. Pre-tax stock-based compensation expense of $15.7 million, $13.3 million and $13.9 million was recognized for the years ended December 31, 2011, 2010 and 2009, respectively. Pre-tax stock-based compensation for 2011 includes $2.6 million of expense related to the modification of vesting and termination provisions of certain stock options, restricted share awards and performance shares for senior management severance. Pre-tax compensation expense recorded in 2009 includes expense related to the early retirement of certain executives of $1.8 million as they are no longer required to render service to the Company to continue to vest in their awards.
The Company maintains an Executive Incentive Program (the "Program") for executives and certain other employees of the Company and its operating divisions and subsidiaries. The Program was approved by shareholders on April 20, 2004. The Program allows for awards to eligible employees of stock options, restricted stock, stock appreciation rights, performance shares and units or other awards based on Company common stock. At December 31, 2011, 1,924,953 shares were available for grant under this plan, of which 435,225 were available for the issuance of restricted and performance share awards.
The Company also maintains the Nonemployee Director Equity Plan (the "Plan") for members of its Board of Directors, with the same terms and conditions as the Program. At December 31, 2011, 291,409 shares were available for grant under this plan. Members of the Board of Directors that receive stock-based compensation are treated as employees for accounting purposes.
Effective 2008, options issued under these plans vest one-third on the first anniversary of grant, one-third on the second anniversary of grant and the remaining one-third on the third anniversary of grant. Prior to 2008, options issued under both of the above plans vested one-third upon grant, one-third on the first anniversary of grant and the remaining one-third on the second anniversary of grant. All options have a maximum term life of 10 years. Shares issued to cover options under the Program and the Plan may be issued from shares held in treasury, from new issuances of shares or a combination of the two.
For 2011, 2010 and 2009 share-based compensation expense related to stock options was as follows:
Unrecognized compensation cost related to stock options of $4.7 million at December 31, 2011 is to be recognized over a weighted average period of 1.7 years.
Excess income tax benefits related to share-based compensation expense that must be recognized directly in equity are considered financing cash flows. The amount of financing cash flows for these benefits was $3.2 million, $1.3 million and $0.1 million for the years ended December 31, 2011, 2010 and 2009, respectively.
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 options fair value. The weighted average assumptions used in the determination of fair value for stock option awards in 2011, 2010, and 2009 are as follows:
The expected life of options is based on the assumption that all outstanding options will be exercised at the midpoint of the valuation date and the option expiration date. The expected volatility is based on historical volatility as well as implied volatility of the Company's publicly traded 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
Stock option activity under the Company's stock option awards for 2011, 2010 and 2009 was as follows:
The weighted-average grant-date fair value of options granted during the years ended December 31, 2011, 2010 and 2009 was $6.7 million, $5.7 million and $7.3 million, respectively.
The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 was approximately $11.0 million, $4.4 million and $1.1 million, respectively. The weighted average contractual term of options outstanding at December 31, 2011, 2010 and 2009 was 6.56, 6.89 and 7.42 years, respectively.
At December 31, 2011, 2010 and 2009, 2,642,842, 2,480,302 and 2,182,137 options were exercisable, with a weighted average exercise price of $32.95, $33.24 and $34.70, respectively. The weighted average contractual term of options exercisable at December 31, 2011 and 2010 was 5.53 and 5.84 years, respectively.
The aggregate intrinsic value of options outstanding and exercisable at December 31, 2011 and 2010 was $44.6 million and $17.7 million, respectively. The total fair value of options vested during the year ended December 31, 2011, 2010 and 2009 was $6.0 million, $3.0 million and $5.2 million, respectively.
Restricted stock awarded under the Program is generally released to the recipient after a period of three years; however, 56,700 shares awarded to executive management in February 2008 vest ratably over five years. The number and weighted average grant-date fair value of restricted shares issued in each of the last three years was as follows: in 2011 111,685 awards were granted at a weighted average fair value of $38.31; in 2010, 101,785 awards were granted at a weighted average fair value of $34.21; and in 2009, 275,005 awards were granted at a weighted average fair value of $18.57. Compensation expense related to restricted stock awards of $5.2 million, $5.6 million and $6.0 million were recognized for the years ended December 31, 2011, 2010 and 2009, respectively. Unrecognized compensation cost related to restricted stock awards of $4.2 million at December 31, 2011 is to be recognized over a weighted average period of 1.7 years.
The following represents activity related to restricted stock for the years ended December 31, 2011 and 2010:
The Company granted 109,075 and 101,785 performance share awards in 2011 and 2010, respectively. The performance shares vest based on the employee rendering three years of service to the Company, and the attainment of a market condition over the performance period, which is based on the Company's relative total shareholder return versus the S&P Midcap 400 Index® over a pre-determined time period as determined by the Compensation Committee of the Board of Directors. The grant date fair value of the 2011 and 2010 performance shares of $53.95 and $50.36, respectively, was estimated using a Monte-Carlo simulation approach based on a three year measurement period. Such approach entails the use of assumptions regarding the future performance of the Company's stock and those of the peer group of companies. Those assumptions include expected volatility, risk-free interest rates, correlation coefficients and dividend reinvestment. Dividends accrue on the performance shares during the performance period and are to be paid in cash based upon the number of awards ultimately earned.
The Company expenses the compensation cost associated with the performance awards on a straight-line basis over the vesting period of three years. In 2011 and 2010, the Company recognized approximately $3.8 million and $1.6 million, respectively, of compensation cost related to the performance share awards. Unrecognized compensation cost related to the performance share awards was approximately $5.6 million and $3.5 million at December 31, 2011 and 2010 and will be recognized in current income in equal installments over the remaining years. For purposes of determining diluted earnings per share, the performance share awards are considered contingently issuable shares and are included in diluted earnings per share based upon the number of shares that would have been awarded had the conditions at the end of the reporting period continued until the end of the performance period. See Note 9 for further information regarding earnings per share computations.
The following represents activity related to performance shares for the years ended December 31, 2011 and 2010:
Note 7—Fire Gain
On November 16, 2008, a fire occurred at the tire and wheel plant in Bowdon, GA, and as a result the building and the majority of the machinery, equipment, records and other assets were destroyed. In order to service customers, partial operations were initiated at a facility in Heflin, AL, which has since been consolidated into the Company's facility in Jackson, TN, while some production was transferred to other tire and wheel plants or outsourced to third parties.
From January 1, 2009 through June 30, 2009 cash proceeds of $54.5 million were received from the insurance carriers. Losses and cost incurred resulting from the fire totaling $27.6 million included $8.9 million of inventory; $5.7 million of building, machinery, equipment and other assets; and $13.0 million of costs incurred related to the fire. A pretax gain of $26.9 million was recorded in 2009 representing the difference between cash proceeds of $54.5 million and the losses of $27.6 million. An additional gain of $0.1 million was also recorded in 2009 representing sales of fire-related scrap.
Note 8—Income Taxes
The Company's income before tax from U.S. and non-U.S. operations amounted to $215.3 million and $36.1 million, respectively, for the year ended December 31, 2011, $179.5 million and $24.7 million for 2010, and $168.0 million and $17.5 million for 2009. Income from continuing operations before tax from U.S. and non-U.S. operations amounted to $216.3 million and $37.6 million respectively for the year ended December 31, 2011, $168.6 million and $19.2 million for 2010, and $186.5 million and $16.4 million for 2009.
The provision for income taxes from continuing operations is as follows:
A reconciliation of the tax provision for continuing operations computed at the U.S. federal statutory rate to the actual tax provision is as follows:
Cash payments for income taxes, net of refunds, were $73.5 million, $74.3 million and $14.8 million in 2011, 2010 and 2009, respectively.
Deferred tax assets and (liabilities) are classified as current or long-term consistent with the classification of the underlying temporary difference. Foreign deferred tax assets and (liabilities) are grouped separately from U.S. domestic assets and (liabilities).
Deferred tax assets (liabilities) at December 31 related to the following:
Deferred tax assets and liabilities are included in the Consolidated Balance Sheets as follows:
In assessing whether deferred tax assets associated with temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes are realizable, the Company considers if it is more likely than not that they will be utilized to offset future taxable income during the periods in which those temporary differences become deductible for income tax purposes. Based on historical levels of taxable income and projections of future taxable income, the Company believes it is more likely than not that the benefits of its deductible temporary differences will be realized.
Assessment as to whether deferred tax assets related to net operating losses are realizable is dependent upon whether it is more likely than not that sufficient taxable income to utilize the losses will be generated in the appropriate tax jurisdiction prior to their expiration. At December 31, 2011 the Company had no significant carryforwards for U.S. federal tax purposes but had a deferred tax asset for state tax loss carryforwards of approximately $2.7 million and tax loss carryforwards in foreign jurisdictions of approximately $10.0 million. The Company believes that it is more likely than not that certain of the foreign tax losses will expire unused and therefore has established a valuation allowance of approximately $5.8 million against the deferred tax assets associated with these carryforwards. Although realization is not assured for the remaining deferred tax assets, the Company believes that it is more likely than not that future taxable earnings and tax planning strategies will generate sufficient income to fully utilize the losses.
The Company is not required to provide U.S. federal or state income taxes on the cumulative undistributed earnings of foreign subsidiaries when such earnings are considered indefinitely reinvested. The Company considers this assertion quarterly. At December 31, 2010 the Company considered all foreign unremitted earnings to be of a permanent investment nature. However, during 2011 the Company determined that repatriation of significantly all of the unremitted earnings of the Company's Italian subsidiary would be advantageous for both treasury and tax reasons. Therefore, a transaction to remit the funds occurred in the fourth quarter. At that time the Company provided for the associated tax expense and related tax benefits from foreign tax credits. The total dividend remitted was $79.3 million, and the net tax effect of the repatriation was a tax benefit of $4.2 million. The Company anticipates repatriating all of the Italian subsidiary's 2012 earnings during the upcoming year and will provide for the associated tax effects as such earnings are accumulated.
Except as noted above, at December 31, 2011, the Company intends to permanently reinvest abroad all of the earnings of its foreign subsidiaries. The Company has identified appropriate long term uses for such earnings outside the United States, considers the unremitted earnings to be indefinitely reinvested, and accordingly has made no provision for federal or state income or withholding taxes on such earnings. It is not practicable to calculate the unrecognized deferred tax liability on the unremitted earnings.
Unrepatriated earnings for the years ended December 31 were as follows:
The Company periodically assesses whether there are differences between the benefit for positions taken or expected to be taken on income tax returns and the amount that should be recognized in the financial statements. The gross liability for these uncertain tax positions at December 31, 2011, was $9.6 million. Approximately $6.5 million of the balance, if recognized, would impact the Company's effective tax rate.
The Company classifies and reports interest and penalties associated with uncertain tax positions as a component of the income tax provision on the Consolidated Statements of Earnings and Comprehensive Income, and as a long-term liability on the Consolidated Balance Sheets. The prior year balances in the table below have been adjusted to remove interest and penalties that were included in prior period reporting. The total amount of interest and penalties accrued, but excluded from the table below, at the years ending 2011, 2010 and 2009 were $1.8 million, $2.4 million and $2.8 million respectively.
The following table summarizes the movement in unrecognized tax benefits:
The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. The Company is currently working with the IRS to complete its compliance assurance audit for the 2011 tax year and expects conclusion of the process within the next twelve months. Any impact on the results of the Company's operations is not expected to be material.
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 2006. 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. The Company believes that any material results from income tax examinations underway in foreign jurisdictions have been adequately provided for.
Within the next twelve months state and foreign audits may conclude and affect the amount of unrecognized tax benefits. The change in unrecognized tax benefits that may result is not known but the Company does not anticipate there will be a material impact.
Note 10—Fair Value Measurements
Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value may be measured using three levels of inputs:
The fair value of the Company's financial assets and liabilities measured at fair value on a recurring basis were as follows:
Short-term investments of $0.6 million at December 31, 2011 consist of investments held in mutual funds and cash for the Company's deferred compensation program and are classified in the consolidated balance sheet at December 31, 2011 in Prepaid expenses and other current assets. Contingent consideration represents fair value of the earn-out associated with the purchase of PDT. See Note 3 for further information regarding the PDT acquisition.
Short-term investments of $5.3 million at December 31, 2010 were acquired in the Hawk acquisition consisting of euro-denominated certificates of deposit with original maturities of greater than three months. These investments matured during 2011. The remaining $0.1 million consists of investments held in mutual funds and cash for the Company's deferred compensation program. Short-term investments are classified in the consolidated balance sheet at December 31, 2010 in Prepaid expenses and other current assets.
See Note 15 regarding the fair value of the Company's Borrowings and Note 16 regarding fair value measurements related to the Company's Retirement Plans.
For the years ended December 31, 2011 and 2010, there were no non-recurring fair value measurements subsequent to initial recognition. See Note 3 for information regarding assets acquired and liabilities assumed in the Tri-Star, PDT and Hawk acquisitions measured at fair value at initial recognition.
For the year ended December 31, 2009, the Company measured certain non-financial assets at fair value on a nonrecurring basis subsequent to initial recognition. These measurements were primarily the result of management's decision to consolidate certain manufacturing facilities within the Transportation Products, Brake & Friction and Interconnect Technologies segments. The Company recorded $18.2 million of impairment charges in 2009 related to these measurements. The following table summarizing impairment charges recorded by each segment is followed by a discussion on how the charges were derived:
For the three months ended December 31, 2009, the Company measured certain non-financial assets at fair value on a nonrecurring basis within the Transportation Products and Interconnect Technologies segments. Within the Transportation Products segment, property, plant and equipment within the power transmission belt business with a carrying amount of $3.2 million were written down to a fair value of zero, resulting in an impairment charge of $3.2 million, which was included in Other expense (income), net. The impairment charge resulted from the decision to integrate and combine the power transmission belt business, which had been previously reported as Discontinued Operations, into the tire and wheel business. The fair value determination was based upon Level 3 inputs reflecting a market participants' determination of the net realizable value of certain property, plant and equipment upon integration of the businesses. In addition, a reduction in the carrying value of property plant and equipment for the power transmission belt business was recorded of $3.2 million, reflecting the difference between their current carrying value and carrying value before classification as held for sale, adjusted for depreciation expense that would have been recognized had the assets been continuously classified as held and used.
Also within the Brake & Friction segment, during the three months ended December 31, 2009, property, plant and equipment with a carrying amount of $2.6 million were written down to a fair value of $0.8 million, resulting in an impairment charge of $1.8 million, which was included in Other expense (income), net. The impairment charge resulted from the decision to relocate production from the Company's Logansport, Indiana facility to its manufacturing facilities in Bloomington, Indiana and Hangzhou, China and to close its Logansport facility. The fair value determination was based upon Level 3 inputs reflecting a market participants' determination of the net realizable value of the certain assets that would not be transferred to the consolidated operations.
Also during the three months ended December 31, 2009, property, plant and equipment within the Interconnect Technologies segment with a carrying amount of $1.8 million were written down to a fair value of zero, resulting in an impairment charge of $1.8 million, which was included in Other expense (income), net. The impairment charge resulted from the decision to relocate production serving the Company's test and measurement market from the Company's Vancouver, Washington facility to its production facilities in Long Beach, California and Yichang, China and to exit the Vancouver, Washington facility. The fair value determination was based upon Level 3 inputs reflecting a market participants' determination of the net realizable value of the assets and leasehold improvements which would have no transferable value upon closure of the facility.
For the year period ended December 31, 2009, the Company measured other non-financial assets at fair value on a nonrecurring basis.
Within the tire and wheel business of the Transportation Products segment, during the three months ended March 31, 2009, property, plant and equipment with a carrying amount of $2.9 million were written down to a fair value of zero, resulting in an impairment charge of $2.9 million, which was included in Other expense (income), net. The fair value determination was based upon Level 3 inputs reflecting a market participants' determination of the net realizable value of the assets. Such assets primarily reflected leasehold improvements in its Buji, China operations that could not be transferred upon consolidation of production into Meizhou, China.
During the three months ended June 30, 2009, as a result of further manufacturing consolidation actions within the tire and wheel business, property, plant and equipment relating to facilities in Pennsylvania, Alabama and China with a carrying amount of $2.8 million were written down to a fair value of zero, resulting in an impairment charge of $2.8 million, which was included in Other expense (income), net. This fair value measurement of the impaired assets was based on Level 3 inputs. The Level 3 inputs reflected a market participants' determination that impaired leasehold improvement assets could not be transferred upon consolidation of operations into a new tire production facility in Jackson, TN. In addition, it was management's determination that machinery and equipment subject to the impairment charge was estimated to have zero net realizable value.
Within the Interconnect Technologies segment, property consisting of leasehold improvements with a carrying amount of $0.3 million was written down to a fair value of zero, resulting in an impairment charge of $0.3 million which was included in other operating expense for the three months ended June 30, 2009. The fair value measurement was based upon Level 3 inputs which reflected management's determination that the leasehold improvements in the Company's Kent, WA facility would not have any transferrable value upon consolidation of operating activities into another Company facility in Tukwila, WA.
Within discontinued operations related to the Company's specialty trailer business, property, plant and equipment relating to the closure of its facility in Brookville, PA with a carrying amount of $5.6 million were written down to a fair value of $1.8 million, resulting in a pre-tax impairment charge of $3.8 million, which has been included in discontinued operations, net of tax for 2009. A fair value measurement of $1.6 million for land, building and leasehold improvements, which resulted in a pre-tax impairment charge of $3.3 million, was based on Level 2 inputs. The land and building were subsequently sold in the first half of 2010 for $2.7 million resulting in a pre-tax gain of $1.1 million that is included in discontinued operations, net of tax for first nine months of 2010. A fair value measurement of $0.2 million for machinery and equipment, which resulted in a $0.5 million pre-tax impairment charge that is included in discontinued operations, net of tax, was based on Level 3 inputs reflecting management's determination of the net realizable value of the assets.
For the three month period ended September 30, 2009, the Company measured certain non-financial assets at fair value on a nonrecurring basis within the Construction Materials segment, resulting in a total impairment charge of $1.6 million, which was included in Other expense (income), net. These measurements were based on fair value determination of certain long-lived assets within a specialized segment of its commercial roofing operations using Level 3 inputs. Intangible assets consisting of a licensing agreement with a carrying amount of $0.4 million were written down to a fair value of zero, resulting in an impairment charge of $0.4 million, based on management's determination of the usefulness of the technology underlying the license agreement in the current market. In addition, certain property, plant and equipment with a carrying value of $2.3 million were written down to a fair value of $1.1 million, resulting in an impairment charge of $1.2 million. The determination was based upon a market participants' evaluation of future cash flows from this production equipment and net realizable value.
Inventories at December 31, 2011 include assets acquired from Tri-Star and PDT and at December 31, 2010 include assets acquired from Hawk, recorded at estimated fair value based on preliminary valuation studies. See Note 3 for further information regarding these acquisitions.
The components of inventories at December 31 are as follows:
Note 12—Property, Plant and Equipment
The components of property, plant and equipment at December 31 are as follows:
Property, plant and equipment at December 31, 2011 includes assets acquired from Tri-Star and PDT and at December 31, 2010 includes assets acquired from Hawk, recorded at estimated fair value based on preliminary valuation studies. See Note 3 for further information regarding these acquisitions.
During 2011, 2010 and 2009, the Company capitalized interest in the amount of $1.3 million, $1.7 million and $0.8 million, respectively.
Note 13—Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the years ended December 31, 2011 and 2010 are as follows:
On December 2, 2011, the Company acquired Tri-Star for a total purchase price of $284.4 million, net of $4.5 million cash acquired. The resulting preliminary goodwill recorded of $156.7 million was allocated to the Interconnect Technologies segment. See Note 3 for further information regarding the Tri-Star acquisition.
On August 1, 2011, the Company acquired PDT for a total purchase price of $111.0 million, net of $7.6 million cash acquired. The resulting revised preliminary goodwill recorded of $29.8 million was allocated to the Construction Materials segment. See Note 3 for further information regarding the PDT acquisition.
On December 1, 2010, the Company acquired Hawk for a total purchase price of $343.4 million, net of $70.7 million cash acquired. The resulting final goodwill of $211.6 million was allocated to the Brake & Friction segment. See Note 3 for further information regarding the Hawk acquisition. During 2011, the Company finalized its allocation purchase consideration to the acquired assets and assumed liabilities, resulting in a $4.9 million decrease in related goodwill.
In the fourth quarter of 2010, the Company sold its specialty trailer business and as part of the transaction eliminated the associated goodwill of approximately $11.2 million. See Note 4 for further information regarding discontinued operations.
The Company's Other intangible assets, net at December 31, 2011, are as follows:
The Company's Other intangible assets, net at December 31, 2010, are as follows:
Estimated amortization expense over the next five years is as follows: $26.1 million in 2012, $25.1 million in 2013, $24.8 million in 2014, $24.5 million in 2015 and $23.6 million in 2016.
The net carrying values of the Company's Other intangible assets by reportable segment as of December 31 are as follows:
The acquired cost of the Company's customer relationship intangible assets by estimated useful life as of December 31 are as follows (in millions):
See Note 1 in these Notes to Consolidated Financial Statements for information regarding the valuation of goodwill and indefinite-lived intangible assets.
Note 14—Commitments and Contingencies
The Company currently leases a portion of its manufacturing facilities, distribution centers and equipment, some of which include scheduled rent increases stated in the lease agreement generally expressed as a stated percentage increase of the minimum lease payment over the lease term. The Company currently has no leases that require rent to be paid based on contingent events nor has it received any lease incentive payments. Rent expense was $26.5 million, $21.4 million and $20.6 million in 2011, 2010 and 2009, respectively, inclusive of rent based on scheduled rent increases and rent holidays recognized on a straight-line basis. Future minimum payments under its various non-cancelable operating leases in each of the next five years are approximately $23.0 million in 2012, $18.4 million in 2013, $14.9 million in 2014, $12.2 million in 2015, $10.0 million in 2016 and $38.1 million thereafter.
Although the Company has entered into purchase agreements for certain key raw materials, there were no such contracts with a term exceeding one year in place at December 31, 2011.
Workers' Compensation, General Liability and Property Claims
The Company is self-insured for workers' compensation, medical and dental, general liability and property claims up to applicable retention limits. Retention limits are $1.0 million per occurrence for general liability, $0.5 million per occurrence for workers' compensation, $0.25 million per occurrence for property and up to $1.0 million for medical claims. The Company is insured for losses in excess of these limits.
The Company has accrued approximately $22.9 million and $21.3 million related to workers' compensation claims at December 31, 2011 and 2010, respectively. The amounts recognized are presented in Accrued expenses in the Consolidated Balance Sheet. 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 and loss development factors and the Company's historical loss experience.
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.
Other than the matter described below, to date, 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 a portion of certain of the Company's defense costs and payments of settlements or judgments in connection with asbestos-related lawsuits.
On December 22, 2010, the Company settled a case involving alleged asbestos-related injury. The total amount of the award and related loss, inclusive of insurance recoveries, was approximately $5.9 million, which was recorded in discontinued operations in the fourth quarter of 2010, as the related alleged asbestos-containing product was manufactured by the Company's former on-highway brake business.
At this time, the above matter and the amount of reasonably possible additional asbestos claims, if any, are not material to the Company's financial position, annual results of operations or annual 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.
From time-to-time the Company may be involved in various other legal actions arising in the normal course of business. In the opinion of management, the ultimate outcome of such actions, either individually or in the aggregate, will not have a material adverse effect on the consolidated financial position, results of operations for a particular period or annual operating cash flows of the Company.
The Company is subject to increasingly stringent environmental laws and regulations, including those relating to air emissions, wastewater discharges, chemical and hazardous waste management and disposal. Some of these environmental laws hold owners or operators of land or businesses liable for their own and for previous owners' or operators' releases of hazardous or toxic substances or wastes. Other environmental laws and regulations require the obtainment and compliance with environmental permits. To date, costs of complying with environmental, health and safety requirements have not been material. 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.
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.
As of December 31, 2011 and 2010 the Company's borrowings are as follows:
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 2020 Notes are presented net of the related discount in Long-term debt in the consolidated balance sheet at December 31, 2011 and 2010. Interest on the 2020 Notes will be paid each June 15 and December 15, commencing on June 15, 2011. 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. The issuance costs have been recorded in Other long-term assets in the consolidated balance sheet at December 31, 2011 and 2010. Both the discount and the issuance costs will be amortized to interest expense over the life of the 2020 Notes. The proceeds were utilized to re-pay borrowings under the Company's Revolving Credit Facility that were used to finance the acquisition of Hawk.
The 2020 Notes, in whole or in part, may be redeemed at the Company's option, plus accrued and unpaid interest, at any time prior to September 15, 2020 at a price equal to the greater of:
The 2020 Notes may also be redeemed at any time after September 15, 2020, in whole or in part, at the Company's option at 100% of the principal amount, plus accrued and unpaid interest. Upon a change-in-control triggering event, the Company will be required to offer to repurchase the 2020 Notes at 101% of the principal amount, plus accrued and unpaid interest.
The 2020 Notes are subject to the Company's existing indenture dated January 15, 1997 with Bank of New York Mellon, as trustee, and accordingly are subject to the same restrictive covenants and limitations as the Company's existing indebtedness. The 2020 Notes are general unsecured obligations of the Company and rank equally with the Company's existing and future unsecured and unsubordinated indebtedness. The 2020 Notes are subordinate to any existing or future debt or other liabilities of the Company's subsidiaries. At December 31, 2011, the principal amount of the Company's subsidiaries indebtedness was approximately $5.9 million.
In connection with the acquisition of Hawk on December 1, 2010, the Company assumed Hawk's 8.75% senior notes previously due November 1, 2014 (the "Hawk senior notes"). The Hawk senior notes were recorded at estimated fair value of $59.0 million on the date of acquisition. See Note 3 for further information regarding the Hawk acquisition.
On December 10, 2010, the Company notified the holders of the Hawk senior notes of its intent to redeem such notes under the terms of the related indenture. On January 10, 2011, the Company redeemed all of the outstanding Hawk senior notes for approximately $59.1 million, of which $57.1 million related to the outstanding principal amount, $1.9 million related to a contractual redemption premium, and $0.1 million for accrued and unpaid interest. Accordingly, the carrying value of the Hawk senior notes has been presented as Short-term debt, including current maturities in the consolidated balance sheet at December 31, 2010. There was no extinguishment gain or loss recorded as the carrying value and amount paid to redeem the Hawk senior notes were the same. The Company redeemed the Hawk senior notes using borrowings under its revolving credit facility.
On October 20, 2011, the Company entered into a Third Amended and Restated Credit Agreement (the "Amended Credit Agreement") administered by JPMorgan Chase Bank, N.A. ("JPMorgan Chase"). The Credit Agreement provides for a $600 million revolving line of credit with a maturity date of October 20, 2016 and replaces the Second Amended and Restated Credit Agreement, which was scheduled to expire on July 12, 2012.
The new revolving credit facility provides for grid-based interest pricing based on the credit rating of the Company's senior unsecured bank debt or other unsecured senior debt. 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.
In addition to JPMorgan Chase, the following lenders are parties to the Credit Agreement: Wells Fargo Bank, N.A., Bank of America, N.A., SunTrust Bank, The Bank of Tokyo-Mitsubishi UFJ Ltd, Mizuho Corporate Bank (USA), T.D. Bank, N.A., Citicorp North America, Inc., HSBC Bank USA National Association, PNC Bank National Association (collectively, the "Lenders"). The following Lenders provide the Company general banking and/or investment advisory services: JPMorgan Chase, Wells Fargo Bank, Bank of America, SunTrust Bank, The Bank of Tokyo, Mizuho Bank, T.D. Bank, Citicorp, HSBC Bank, PNC Bank.
At December 31, 2011 the Company had $252.0 million available under its Amended Credit Agreement. Of the total $348.0 million borrowed under the Amended Credit Agreement at December 31, 2011, $290.0 million was borrowed and outstanding in connection with the financing of the Tri-Star acquisition. Under the terms of the Amended Credit Agreement, and at the Company's election, the full amount outstanding of $348.0 million was payable in January 2012 (30 days from the date of funding). However, the Company has the option to rollover amounts payable, at differing tenors and interest rates, until the facility expires in October of 2016. The Company expects that $200.0 million of the $348.0 million outstanding will be rolled over for a period longer than one year. Accordingly, $148.0 million has been presented in Short-term debt, including current maturities in the consolidated balance sheet. The average interest rate of the Company's revolving credit facilities for 2011 and 2010 was 0.84% and 0.65%, respectively.
The Company also maintains an uncommitted line of credit of which $35.0 million and $55.0 million was available for borrowing as of December 31, 2011 and 2010, respectively. The average interest rate on the uncommitted line was 1.50% for 2011 and 1.87% for 2010.
As of December 31, 2011, the Company had outstanding issued letters of credit amounting to $31.0 million. Letters of credit are issued primarily to provide security under insurance arrangements and certain borrowings. Letters of credit were previously issued under the Company's revolving credit facility and reduced the amount available for borrowings under the facility. Currently, the Company's letters of credit are issued separately from its revolving credit facility and do not affect borrowing availability under the credit facility.
The industrial development and revenue bonds are collateralized by letters of credit, Company guarantees and/or by the facilities and equipment acquired through the proceeds of the related bond issuances. The weighted average interest rates on the revenue bonds for 2011 and 2010 were 1.12% and 1.15%, respectively. The Company estimates the fair value of its industrial development and revenue bonds approximates their carrying value.
Under the Company's various debt and credit facilities, the Company is required to meet various restrictive covenants and limitations, including certain net worth, cash flow ratios and limits on outstanding debt balances held by certain subsidiaries. The Company was in compliance with all covenants and limitations in 2011 and 2010.
Cash payments for interest were $23.0 million in 2011, $9.3 million in 2010, and $10.8 million in 2009. Interest expense, net is presented net of interest income of $0.5 million in 2011, $0.3 million in 2010, and $0.5 million in 2009.
Regarding the Company's long-term debt, $150.0 million (excluding unamortized discount of $0.5 million) matures in 2016, $5.7million matures in 2018, and $250 million (excluding unamortized discount of $1.0 million) matures in 2020.
At December 31, 2011, the fair value of the Company's par value $250 million, 5.125% senior notes due 2020 and par value $150 million, 6.125% senior notes due 2016, using the Level 2 inputs, is approximately $272.6 million and $168.7 million, respectively. Fair value is estimated based on current yield rates plus the Company's estimated credit spread available for financings with similar terms and maturities. The Company estimates that the fair value of amounts outstanding under the revolving credit facility approximates their carrying value.
Note 16—Retirement Plans
Defined Benefit Plans
The Company maintains defined benefit retirement plans for certain employees. Benefits are based primarily on years of service and earnings of the employee. The Company recognizes the funded status of its defined benefit pension plans in the Consolidated Balance Sheets. The funded status is the difference between the retirement plans' projected benefit obligation and the fair value of the retirement plans' assets as of the measurement date.
Included in Accumulated other comprehensive income, net of tax at December 31, 2011, are the following amounts that have not yet been recognized in net periodic pension costs: unrecognized actuarial losses of $61.5 million ($38.4 million, net of tax) and unrecognized prior service cost of $1.9 million ($1.2 million, net of tax). The prior service cost and actuarial loss included in Accumulated other comprehensive income and expected to be recognized in net periodic pension cost during the year ended December 31, 2012, are $0.2 million credit ($0.1 million credit, net of tax) and $5.0 million ($3.1 million, net of tax) respectively.
The reconciliation of the beginning and ending balances of the projected pension benefit obligation, the fair value of the plan assets and the ending accumulated benefit obligation are as follows:
The accumulated benefit obligation differs from the projected pension benefit obligation in that it includes no assumption about future compensation levels. The Company's net unfunded status at December 31, 2011 includes approximately $16.2 million related to the Company's executive supplemental and director defined benefit pension plans. 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 at December 31, 2011.
The fair value of the plans' assets at December 31, 2011 and 2010 by asset category are as follows:
The Company employs a liability driven investment approach whereby plan assets are invested primarily in fixed income investments to match the changes in the plan liabilities that occur as a result of changes in the discount rate. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The established target allocation is 88% fixed income securities and 12% equity securities. Fixed income investments are diversified across core fixed income, long 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 liability measures and asset/liability studies.
The net asset (liability) consists of the following amounts recorded on the Company's balance sheet at December 31, 2011 and 2010:
The Company made contributions of $5.3 million to the pension plans during 2011, of which $1.1 million was contributed the Company's executive supplemental and director defined benefit pension plans in the form of participant benefits as these plans have no plan assets. No minimum contributions to the Company's pension plans are required in 2012. However, during 2012 the Company expects to pay approximately $1.1 million in participant benefits under the executive supplemental and director plans and make discretionary contributions of approximately $4.2 million to the other pension plans to maintain fully funded status as participants continue to earn benefits.
Components of net periodic benefit cost for the years ended December 31 are as follows:
Weighted-average assumptions for benefit obligations at December 31 are as follows:
The Company bases its discount rate assumptions on a yield curve which provides better matching of the expected future retirement plan cash flows with projected yields.
Weighted-average assumptions for net periodic benefit cost for the years ended December 31 are outlined below: