Carlisle Companies - 10-Q quarterly report FY

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

ý                                 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005

OR

o                                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM          TO               .

Commission file number 1-9278

CARLISLE COMPANIES INCORPORATED

(Exact name of registrant as specified in its charter)

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesý   No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yesý   No o

Shares of common stock outstanding at August 1, 2005: 30,664,639

Notes to Unaudited Condensed Consolidated Financial Statements

Three and Six months Ended June 30, 2005 and 2004

(1)         Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Carlisle Companies Incorporated and its wholly-owned subsidiaries (together, the “Company”).  Intercompany transactions and balances have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared in accordance with Article 10-01 of Regulation S-X of the Securities and Exchange Commission and, as such, do not include all information required by generally accepted accounting principles for annual financial statements. However, in the opinion of the Company, these financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial statements for the interim periods presented herein.  Results of operations for the three and six months ended June 30, 2005, are not necessarily indicative of the operating results for the full year.

While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these financial statements be read in conjunction with the financial statements and notes included in the Company’s 2004 Annual Report to Shareholders and 2004 Form 10-K.

(2)         Reclassifications

Certain reclassifications have been made to prior year’s information to conform to the current year’s presentation.  The Condensed Consolidated Statements of Earnings and Comprehensive Income and Condensed Consolidated Statements of Cash Flows have been revised to reflect the effects of discontinued operations.  Segment information presented in Note 15 has also been revised from prior year’s presentation to reflect discontinued operations and assets held for sale.  See Note 6 for more detail regarding these operations.

(3)         New Accounting Pronouncements

In May 2004, FASB issued FASB Staff Position (“FSP”) No. 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.  In December 2003, the President of the United States (the “President”) signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”).  The Act provides for a 28% tax-free subsidy on certain prescription drug claims for sponsors of retiree health care plans with drug benefits that are at least actuarially equivalent to those to be offered under Medicare Part D.   Because of existing caps on employer costs for the majority of the groups participating in its postretirement medical plan, the Company does not anticipate it will be eligible for this subsidy.  Due to the size of the liability for those groups that may be eligible, any reduction in the liability as a result of the Act is not expected to be material.

In November 2004, FASB issued Statement of Financial Accounting Standard No. 151 (“SFAS 151”), Inventory Costs – An Amendment of ARB No. 43, Chapter 4.  This statement amends Accounting Research Bulletin No. 43 (“ARB 43”), Chapter 4, “Inventory Pricing”, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).  Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling costs be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005 and is required to be adopted by the Company as of January 1, 2006.  The Company is currently evaluating the impact of this standard, but its adoption is not expected to have a material impact on the Company’s statement of earnings or financial position.

In December 2004, FASB issued SFAS No. 123(R), Share Based Payment.  This statement is a revision of SFAS No. 123, Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.  SFAS 123(R) requires the expensing of all share-based payments, including the issuance of stock options, based on the fair value of the award at the grant date.  Additionally, the new standard requires the use of a fair-value measurement methodology which takes into consideration the special nature of its awards, including early exercise provisions.  Currently, for presentation of the pro-forma effect on Net Income of stock-based compensation arrangements as required by SFAS 123, the Company estimates the fair value of its awards using the Black-Scholes method.

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The Company is required to adopt this standard as of January 1, 2006 and will elect to expense its share-based awards using the modified prospective method as provided by SFAS 123(R).  This method requires the expensing of share-based awards issued on or after the date of adoption as well as the unvested portion of awards issued before the date of adoption.  The Company is currently evaluating alternatives for measuring the fair value of new awards.  The pretax amount of unvested awards as calculated under the Black-Scholes method as of June 30, 2005 to be expensed upon adoption is $0.7 million in 2006 and less than $0.1 million in 2007.  As previously discussed, the Company has not yet determined the methodology it will use in estimating fair value of new awards; however, it expects the expense per option granted to be lower than that presented in current pro-forma disclosures under SFAS 123.

In December 2004, FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets – an amendment of APB Opinion No. 29.  SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  The Company is required to adopt this standard as of January 1, 2006 and does not expect its adoption to have a material impact on the Company’s statement of earnings or financial position.

On October 22, 2004, the American Jobs Creation Act (“the Act”) was signed into law by the President. This Act includes a tax deduction of up to 9% (when fully phased-in) of the lesser of (a) “qualified production activities income,” as defined in the Act, or (b) taxable income (after the deduction for the utilization of any net operating loss carryforwards). This tax deduction is limited to 50 percent of W-2 wages paid by the taxpayer.  The Act also provides for a special one-time tax deduction of 85 percent of certain foreign earnings that are repatriated (as defined in the Act) in either an enterprise’s last tax year that began before the enactment date, or the first tax year that begins during the one-year period beginning on the date of enactment.

In December 2004, FASB also issued FASB Staff Position FAS 109-2 (“FSP 109-2”), Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (the “Act”).  FSP 109-2 provides guidance under FASB Statement No. 109, Accounting for Income Taxes (“SFAS 109”), with respect to recording the potential impact of the repatriation provisions of the Act on income tax expense and deferred tax liability.  FSP 109-2 permits an enterprise time beyond the financial reporting period of enactment to evaluate the effect of the Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS 109. The Company has not yet completed its evaluation of the impact of the repatriation provisions and accordingly has not adjusted its tax expense or deferred tax liability to reflect the repatriation provisions of the Act.  At this time, the Company does not anticipate significant repatriation of foreign earnings in 2005.

In June 2005, FASB issued Statement of Financial Accounting Standard No. 154 (“SFAS 154”), Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle.  This statement applies to all voluntary changes in accounting principle and to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions.  SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. Retrospective application is defined by the statement as the application of a different accounting principle to prior accounting periods as if that principle had always been used or as the adjustment of previously issued financial statements to reflect a change in the reporting entity.  This statement also requires that a change in the depreciation, amortization or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle.  SFAS 154 is effective for fiscal years beginning after December 15, 2005 and is required to be adopted by the Company as of January 1, 2006.

(4)         Employee Stock-Based Compensation Arrangements

The Company accounts for awards of stock-based employee compensation based on the intrinsic value method under Accounting Principles Board Opinion 25.  As such, no stock-based compensation is recorded in the determination of net income as options granted have an option price equal to the market price of the underlying stock on the date of grant.  The following table illustrates the effect on Net Income and Earnings Per Share had the Company applied the fair-value method

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of accounting for stock-based employee compensation under Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation.

The proforma effect includes only the vested portion of options.  Options vest over a two-year period.  Compensation expense was estimated using the Black-Scholes model utilizing the following assumptions:

(5)         Acquisitions

On June 30, 2004, the Company acquired the specialty tire and wheel business of Trintex Corporation for $32.5 million.  The operating results of Trintex Corporation since the acquisition are included in the Industrial Components segment.  The Company has completed the allocation of purchase price among the acquired assets and liabilities assumed, resulting in goodwill of $24.9 million. Allocations among other major asset and liability classes were not material.  The purchase agreement contains an earnout provision based on operating performance over the next four years.   Any future amounts payable under this provision will be treated as a portion of the purchase price and allocated to goodwill.

(6)         Discontinued Operations and Assets Held for Sale

In ongoing efforts during 2004 to streamline its businesses, the Company identified its Automotive Components segment and two operations it plans to exit. The Automotive Components segment consists entirely of Carlisle Engineered Products.  The two operations included the plastic components operation of Carlisle Tire & Wheel Company in the Industrial Components segment and the pottery business of Carlisle FoodService in the General Industry segment.  During the three months ended June 30, 2005, the Company completed the sale of the plastic components operation of Carlisle Tire & Wheel Company and the pottery business of Carlisle FoodService, which resulted in a loss of $1.1 million.  The Company recorded a $13.0 million impairment charge on the fixed assets of the automotive components business in the second quarter of 2005.  The impairment represents management’s assessment of the current fair value of this business as of June 30, 2005 based on a discounted cash flow analysis.  The Company is actively marketing this business and expects to complete the sale in 2005.  The ultimate loss on the discontinuance of the Automotive Components segment will be determined upon its sale or other disposition.

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(7)         Exit and Disposal Activities

On March 29, 2005, Carlisle Power Transmission, reported in the Industrial Components segment, announced plans to close its plant in Red Wing, Minnesota.  Total costs to exit this facility are estimated at $1.7 million and consist primarily of termination benefits and costs to relocate equipment from the Red Wing facility to other manufacturing locations.  Exit costs of $0.6 million were incurred during the three months ended June 30, 2005.  Exit and disposal costs of $0.5 million were also recorded at Carlisle FoodService, reported in the General Industry segment, related to the consolidation of a brush manufacturing operation located in California into an existing facility located in Georgia.

Exit and disposal activities for 2004 were approximately $0.6 million for the General Industry segment and $0.1 million for the Industrial Components segment. Exit and disposal costs within the General Industry segment were associated with the consolidation of the Flo-Pac operations, acquired in May 2003, into Carlisle FoodService, as well as the relocation of a textile operation within the Carlisle FoodService organization.  In the Industrial Components segment, exit and disposal costs were related to the consolidation of the management teams of Carlisle Tire & Wheel Company and Carlisle Power Transmission initiated in 2003.  Liabilities associated with these activities were substantially paid during 2004.

(8)         Inventories

The components of inventories are as follows:

(9)         Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the six months ended June 30, 2005 are as follows:

The Company’s other intangible assets as of June 30, 2005 are as follows:

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Estimated amortization expense for each of the next five years is as follows: $0.2 million remaining in 2005, $0.5 million in 2006, $0.5 million in 2007, $0.4 million in 2008, and $0.2 million in 2009.

(10)  Retirement Plans and Other Postretirement Benefits

Components of net periodic benefit cost are as follows:

The Company previously disclosed in its financial statements for the year ended December 31, 2004, that it expected to contribute $5.2 million to its pension plans in 2005.  The Company subsequently revised this estimate to $5.8 million.  To date, $2.1 million has been contributed to the plans and additional minimum contributions of $3.7 million are expected for the remainder of 2005.

The Company maintains defined contribution plans to which it has contributed $5.0 million during the six months ended June 30, 2005.  Full year contributions are expected to approximate $10.0 million.

(11)  Other Long-Term Liabilities

The components of other long-term liabilities are as follows:

(12)  Borrowings

On June 9, 2005, the Company replaced its three-year $250.0 million syndicated revolving credit facility with a five-year $300.0 million revolving credit facility (the “2005 Facility”).  The 2005 Facility provides for grid-based interest pricing based on the credit rating of the Company’s senior unsecured bank or other unsecured senior debt and the Company’s utilization of the 2005 Facility.  The 2005 Facility requires the Company to meet various restrictive covenants and limitations including minimum consolidated total leverage and minimum consolidated net worth ratios, all of which were complied with as of June 30, 2005.

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(13)  Commitments and Contingencies

The Company is obligated under various noncancelable operating leases for certain facilities and equipment.  Future minimum lease payments under these arrangements in each of the next five years are approximately $9.6 million remaining in 2005, $15.3 million in 2006, $12.9 million in 2007, $9.6 million in 2008, $8.2 million in 2009, and $37.3 million thereafter.

At June 30, 2005, letters of credit amounting to $45.7 million were outstanding, primarily to provide security under insurance arrangements and certain borrowings.

The Company has financial guarantee lines in place for certain of its operations in Asia and Europe to facilitate working capital needs, customer performance and payment and warranty obligations.  At June 30, 2005, the Company had issued guarantees of $12.3 million, of which $9.6 million represents amounts recorded in current liabilities.  The fair value of these guarantees is estimated to equal the amount of the guarantees at June 30, 2005, due to their short-term nature.

The Company offers various warranty programs on its installed roofing systems, braking products, truck trailers, refrigerated truck bodies, and cheese making equipment.  The life 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. The change in the Company’s aggregate product warranty liabilities for the period ended June 30 is as follows:

The amount of extended product warranty revenues recognized was $3.4 million and $6.7 million for the three and six-months ended June 30, 2005, respectively, and $3.5 million and $6.8 million for the three and six months ended June 30, 2004, respectively.

The Company maintains self-insured retained liabilities for workers’ compensation, medical, general liability and property claims up to applicable retention limits.  Retention limits are between $0.5 million and $1.0 million per occurrence for general liability, $0.5 million per occurrence for workers’ compensation, $0.1 million per occurrence for property and up to $0.5 million for medical claims. The Company is insured for losses in excess of these limits.

The Company may be involved in various legal actions from time to time arising in the normal course of business.  In the opinion of management, the ultimate outcome of such litigation will not have a material adverse effect on the consolidated financial position of the Company, but may have a material impact on the Company’s results of operations for a particular period.  During the three and six months ended June 30, 2005, the Company received proceeds of $3.6 million, net of legal fees, from the favorable resolution of certain legal actions initiated by the Company.  These proceeds were included in Other (income) expense, net.

(14)  Derivative Instruments and Hedging Activities

The Company is exposed to the impact of changes in interest rates and market values of its debt instruments, changes in raw material prices and foreign currency fluctuations.  From time to time, the Company may manage its interest rate exposure through the use of treasury lock contracts and interest rate swaps to reduce volatility of cash flows, impact on earnings and to lower its cost of capital.

On June 15, 2005, the Company entered into treasury lock contracts with a notional amount of $150.0 million to hedge the cash flow variability on forecasted debt interest payments associated with changes in interest rates.  These contracts have been designated as cash flow hedges and were deemed effective at the origination date and as of June 30, 2005.  The

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valuation of these contracts as of June 30, 2005 resulted in a liability of $5.3 million, included in Other long-term liabilities on the Company’s Condensed Consolidated Balance Sheet.

In April 2005, the Company terminated certain interest rate swaps with a notional amount of $75.0 million that hedged the market risk associated with the Company’s fixed rate debt. The termination of those contracts, which were designated as fair value hedges, resulted in a loss of $1.4 million, which will be amortized to interest expense until January 2007, the original termination date of the swap.

There were no interest rate swaps in place as of June 30, 2005. At June 30, 2004, the Company had in place interest rate swaps with a notional amount of $75.0 million that were designated as fair value hedges.

On June 30, 2005, the Company executed certain currency hedges with a total notional amount of $2.3 million.  These currency contracts serve to hedge the Company’s cash flow risk associated with certain customer payment schedules.  At June 30, 2005, the Company had currency hedges, designated as cash flow hedges, with a total notional amount of $6.8 million.  The fair value position of these contracts as of June 30, 2005 resulted in a net liability of $0.4 million.

(15)  Segment Information

Sales, earnings before interest and income taxes (“EBIT”) and assets for continuing operations by reportable business segment is included in the following summary:

* 2004 has been revised to exclude discontinued operations

A reconciliation of assets reported above to total assets is as follows:

Net sales and EBIT are generally higher in the first half of the year for the Industrial Components segment due to peak sales volumes in the outdoor equipment market.  As well, in the Construction Materials segment, net sales and EBIT are generally higher in the second and third quarters due to increased construction activity during these periods.

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(16)  Subsequent Event

On July 15, 2005, the Company signed a definitive agreement to acquire 100% of the heavy-duty brake lining and brake shoe assembly assets of Zhejiang Kete (“Kete”) located in Hangzhou, China for approximately $36.0 million.  Kete will be under the management direction of Carlisle Motion Control, which is included in the Specialty Products segment.

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Transportation Products

Net sales in the Transportation Products segment grew by $11.3 million, or 28%, in the three months ended June 30, 2005 as compared to the same period last year, and $18.8 million, or 26% for the six months ended June 30, 2005.  Sales were up substantially in all product lines in both three and six-month periods, led by growth in the construction and material hauling markets.  An increase in sales of hydraulic detachable trailers was the primary driver for the growth in the construction market, while higher sales of pneumatic bulk tanks and construction live-bottoms were responsible for the improvement in the material hauling market.  Higher sales overall were the result of a combination of an increase in selling prices, a more favorable product mix and increased volume.

EBIT was up significantly in both the three and six month-periods ended June 30, 2005 as compared to the same periods in 2004.  Higher selling prices as well as favorable absorption of overhead costs driven by increased demand were the primary contributors to the improvement.  While demand remained strong throughout the first half of 2005 and backlog remains robust going into the third quarter, it is uncertain how long demand will hold at these historic levels.

Specialty Products

Sales in the Specialty Products segment grew at a modest 3% in the second quarter of 2005 as compared to the second quarter of 2004, but combined with a stronger first quarter to generate 10% growth in the first half of 2005 as compared to 2004.  Sales of industrial braking systems were up in the second quarter this year over the prior year, reflecting higher demand and selling prices, but were partially offset by lower sales of heavy friction blocks and relined brake shoes, due to lower demand on increased selling prices.  On a year-over-year basis, sales were higher in nearly all product lines reflecting strong demand and, to a lesser extent, increased selling prices.

EBIT for the three months ended June 30, 2005 was down 15% from the prior year reflecting production inefficiencies and higher freight costs.  EBIT for the current year six-month period was 13% higher than in the prior year.  Higher sales volumes and a more favorable product mix offset higher raw material costs as compared to the first half of 2004.   Continued increases in raw material costs and higher freight costs could negatively impact future earnings in this segment.

On July 15, 2005, the Company signed a definitive agreement to purchase 100% of the heavy-duty brake lining and brake shoe assembly assets of Zhejing Kete located in Hangzhou, China for approximately $36.0 million.

General Industry (All Other)

Overall, net sales for the businesses reported in General Industry were $10.9 million, or 8%, lower in the second quarter of 2005 as compared to the second quarter of 2004, and $13.7 million, or 5%, lower in the first half of 2005 as compared to 2004.  Overall sales at Carlisle FoodService grew 8% over the second quarter last year and 2% from the first six months of 2004 despite lower sales of sanitary maintenance products.  Sales at Carlisle Systems and Equipment (including Carlisle Process Systems, Carlisle Walker Stainless and CPS Pharma) fell 10% and 5% for the three and six months ended June 30, 2005, respectively, as compared to the same periods last year.  Higher sales in the cheese market resulting from a large project in the southwest United States were more than offset by lower sales at the Company’s European operations.  The most significant event impacting sales in both the three and six-month periods was an ongoing labor dispute at Johnson Truck Bodies, which contributed to lower sales as compared to last year of $9.7 million and $11.5 million as for the three and six-month periods, respectively.

EBIT fell 26% in the quarter and 20% in the first six months of this year compared to last year.  Despite higher sales, earnings at Carlisle FoodService remained essentially flat for the second quarter and fell 8% in the first six months primarily as a result of increased expenses associated with the consolidation of a brush facility acquired in 2003 into existing facilities.  The ongoing labor dispute at Johnson Truck Bodies contributed an unfavorable $3.8 million variance in the second quarter of this year as compared to last year, and six-month year-over-year unfavorable variance of $4.5 million.  Management cannot reasonably estimate the duration of the labor dispute, which could continue to negatively impact future operating results into the third and fourth quarters of 2005.

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Discontinued Operations

Losses from discontinued operations, net of tax, were $9.6 million for the quarter ended June 30, 2005, a $6.3 million decline over losses from discontinued operations, net of tax, of $3.3 million recognized in the second quarter of 2004.  For the six months ended June 30, 2005, losses from discontinued operations, net of tax, were $11.4 million, or $8.5 million lower than losses of $2.9 million recorded in 2004.  Results for the second quarter and first six months of 2005 include an after-tax impairment charge of $8.2 million recorded on the fixed assets of the automotive components operations.  The impairment represents management’s assessment of the current fair value of this business as of June 30, 2005 based on a discounted cash flow analysis. The ultimate loss on the discontinuance of the Automotive Components segment will be determined upon its sale or other disposition.

Acquisitions

On June 30, 2004, the Company acquired the specialty tire and wheel business of Trintex Corporation for $32.5 million. The operating results of Trintex Corporation since the acquisition are included in the Industrial Components segment.  The Company has completed the allocation of the purchase price among the acquired assets and liabilities assumed, resulting in goodwill of $24.9 million. Allocations among other major asset and liability classes were not material.  The purchase agreement contains an earnout provision based on operating performance over the next four years.   Any future amounts payable under this provision will be treated as a portion of the purchase price and allocated to goodwill.

On July 15, 2005, the Company signed a definitive agreement to purchase 100% of the heavy-duty brake lining and brake shoe assembly assets of Zhejing Kete (“Kete”) located in Hangzhou, China for approximately $36.0 million.  Kete will be under the management direction of Carlisle Motion Control, which is included in the Specialty Products segment.

Financial Results

Gross margin:   Gross margin (net sales less cost of goods sold expressed as a percent of net sales) for the three months ended June 30, 2005 of 20.1% was slightly below 20.6% recognized in the three months ended June 30, 2004.  For the six months ended June 30, 2005, gross margin of 20.0% was slightly below gross margin of 20.3% in the first six months of last year.  Increased selling prices generally offset higher raw material costs;  however, certain production inefficiencies as well as increased utility and freight costs suppressed gross margins to slightly below 2004 levels for the current quarter.

Selling and administrative expenses:   Selling and administrative expenses (“S&A”) of $60.5 million in the second quarter of 2005 were approximately 9% higher than $55.7 million in the second quarter of 2004.  For the first six-month period, selling and administrative expenses were $120.3 million, or 9%, higher than $110.3 million in the first six months of 2004.  Higher S&A is primarily attributed to variable expenses that fluctuate with sales.  Selling and administrative expenses, as a percent of net sales, were 9.4% in both the second quarter of 2005 and second quarter of 2004.  For the year-to-date period, S&A expenses, as a percent of net sales, were 9.7% in 2005 compared to 10.1% in 2004.  Contributing to the increase in the three and six-month periods were higher corporate expenses, resulting from higher professional fees related to compliance with the Sarbanes-Oxley Act. These costs are estimated to be lower for the full year of 2005 as compared with 2004.

Other (income) expense, net:  Other income, net, in the second quarter of 2005 was $4.8 million, an increase of $2.3 million compared to other income, net, of $2.5 million recorded in the second quarter of 2004.  Included in 2005 results were a gain of $3.6 million on proceeds received from certain legal actions, a $1.3 million gain recognized on the sale of property and a $1.3 million gain recognized on insurance proceeds received from a fire at a small coatings and waterproofing operation that occurred in 2002.  Also included in 2005 results were equity earnings from the Company’s European join venture of $0.6 million.  Offsetting these gains were losses of $1.0 million and $0.9 million associated with fees related to the Company’s securitization program and foreign exchange losses recorded on subsidiary debt, respectively.    Other income in the second quarter of 2004 included gains on insurance proceeds of $1.9 million and equity earnings of $1.2 million.  Also included was a $0.6 million foreign exchange loss related to subsidiary debt and $0.4 million of fees associated with the Company’s securitization program.

Other expense, net, of $0.3 million recognized in the first six months of 2005 was $0.7 million lower than $1.0 million recognized in the first half of 2004.  The 2005 results included the gains previously discussed.  These gains were offset by

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equity losses from the Company’s European joint venture of $3.6 million, securitization fees of $1.7 million and foreign exchange losses of $1.1 million.  2004 results primarily reflect the aforementioned gain on insurance proceeds of $1.9 million, offset by equity losses of $2.9 million.

Interest expense, net:  Net interest expense of $4.4 million for the three months ended June 30, 2005, was $0.2 million higher than for the three months ended June 30, 2004.   Net interest expense for the first six months of 2005 was $8.6 million, or $0.8 million higher than in the first six months of 2004.  The increase was due primarily to higher average borrowings to support working capital needs and capital expenditures and unfavorable positions on the Company’s interest rate swaps relative to last year, partially offset by higher capitalized interest than in the prior year.

Receivables:  Receivables of $232.2 million at June 30, 2005 represented a $4.8 million increase over receivables of $227.4 million at December 31, 2004.  Receivables were up at each of the Company’s segments, most notably in Construction Materials, Industrial Components and Transportation Products due to higher sales.

Inventories:  Inventories increased $53.4 million, up from $315.5 million at December 31, 2004 to $369.0 million as of June 30, 2005.  The largest increase in inventories was in the Construction Materials segment resulting from planned builds of inventory levels to meet projected sales demand in the third quarter of 2005.  Inventories were also significantly higher in the Industrial Components segment as a result of lower demand, and in the General Industry segment reflecting higher inventory levels at Carlisle FoodService.

Current assets held for sale:  Current assets held for sale increased $41.7 million to $58.2 million as of June 30, 2005, up from $16.5 million at December 31, 2004, reflecting an increase in receivables as the Company’s discontinued automotive components business is no longer participating in the securitization program.

Liquidity and Capital Resources

Sources and Uses of Cash

* 2004 figures have been reclassified to reflect cash flows from discontinued operations.

Net cash provided by continuing operations of $20.0 million in the six months ended June 30, 2005 was $33.6 million lower than net cash provided by operating activities of $53.6 million in the first six months of 2004.  Included in cash provided in the 2004 period were proceeds of $38.0 million received from the Company’s securitization program.  No proceeds were received from this program in 2005.  Increased working capital needs were due primarily to higher inventory levels in the Construction Materials segment to support increased demand and higher accounts receivable balances reflecting higher sales.

Cash used in investing activities was $47.2 million in the first half of 2005 compared to $52.9 million in 2004.  Acquisitions accounted for $32.2 million of the cash used in 2004.  Capital expenditures of $52.2 million in the first six months of this year were 50% higher capital than expenditures of $34.8 million in the first half of 2004, reflecting spending for new production plants for the Construction Materials segment and a new distribution center for Carlisle FoodService. Proceeds from the sale of investments, property and equipment in 2005 include the sale of property in the Construction Materials segment.  Proceeds from the sale of investments, property and equipment in 2004 included the sale of properties acquired with the May 2003 acquisition of Flo-Pac, a specialty manufacturer of brooms, brushes, rotary brushes and cleaning tools in the sanitary maintenance market, reported in the General Industry segment.

Cash provided by financing activities of $39.9 million in the first six months of 2005 compared to cash used of $12.1 million in the first six months of 2004, reflecting increased short-term borrowings required to fund higher working capital

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