UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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[X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended March 31, 2000 |
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OR |
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[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from ____ to ____ |
Commission File Number 1-5828
CARPENTER TECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its Charter)
|
Delaware |
23-0458500 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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1047 North Park Road, Wyomissing, Pennsylvania |
19610-1339 |
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(Address of principal executive offices) |
(Zip Code) |
610-208-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of April 30, 2000.
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Common stock, $5 par value |
21,964,675 |
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Class |
Number of shares outstanding |
The Exhibit Index appears on page E-1.
CARPENTER TECHNOLOGY CORPORATION
FORM 10-Q
INDEX
PART I
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET
March 31, 2000 and June 30, 1999
(in millions)
|
|
March 31,
2000 |
June 30,
1999 |
|
|
(Unaudited) |
|
|
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ 8.4 |
$ 5.5 |
|
Accounts receivable, net |
180.6 |
150.6 |
|
Inventories |
277.0 |
250.3 |
|
Other current assets |
20.3 |
16.3 |
|
Total current assets |
486.3 |
422.7 |
|
|
|
|
|
Property, plant and equipment, net |
783.4 |
750.4 |
|
Prepaid pension cost |
174.8 |
140.5 |
|
Goodwill, net |
173.7 |
179.2 |
|
Other assets |
115.8 |
115.0 |
|
|
|
|
|
Total assets |
$ 1,734.0 |
$ 1,607.8 |
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|
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|
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LIABILITIES |
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|
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Current liabilities: |
|
|
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Short-term debt |
$ 212.4 |
$ 140.0 |
|
Accounts payable |
97.4 |
59.6 |
|
Accrued liabilities |
75.5 |
78.2 |
|
Deferred income taxes |
- |
1.3 |
|
Current portion of long-term debt |
10.8 |
15.4 |
|
Total current liabilities |
396.1 |
294.5 |
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|
|
|
Long-term debt, net of current portion |
352.0 |
355.0 |
|
Accrued postretirement benefits |
143.8 |
138.9 |
|
Deferred income taxes |
160.5 |
149.8 |
|
Other liabilities |
35.3 |
37.1 |
|
|
|
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SHAREHOLDERS' EQUITY |
|
|
|
Convertible preferred stock -
authorized 2 million shares |
26.3 |
26.8 |
|
Common stock - authorized
100 million shares |
115.3 |
115.3 |
|
Capital in excess of par value -
common stock |
192.2 |
191.9 |
|
Reinvested earnings |
377.6 |
365.5 |
|
Common stock in treasury, at cost |
(38.4) |
(38.4) |
|
Deferred compensation |
(14.5) |
(16.4) |
|
Accumulated other comprehensive
income |
(12.2 ) |
(12.2 ) |
|
Total shareholders' equity |
646.3 |
632.5 |
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|
|
|
|
Total liabilities and shareholders'
equity |
$ 1,734.0 |
$ 1,607.8 |
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
for the three and nine months ended March 31, 2000 and 1999
(in millions, except per share data)
|
|
Three Months |
Nine Months |
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|
2000 |
1999 |
2000 |
1999 |
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|
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|
|
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Net sales |
$ 298.1 |
$ 271.8 |
$ 787.5 |
$ 770.8 |
|
Costs and expenses: |
|
|
|
|
|
Cost of sales |
223.1 |
207.9 |
587.5 |
574.6 |
|
Selling and
administrative
expenses |
49.4 |
40.0 |
131.4
|
121.1
|
|
Interest expense |
8.7 |
7.9 |
23.7 |
21.6 |
|
Special charge |
- |
14.2 |
- |
14.2 |
|
Other (income) expense,
net |
(2.2 ) |
3.3 |
(7.9
) |
1.0
|
|
|
|
|
|
|
|
|
279.0 |
273.3 |
734.7 |
732.5 |
|
Income (loss) before
income taxes |
19.1 |
(1.5) |
52.8
|
38.3
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|
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Income tax expense (benefit) |
7.2 |
(2.7 ) |
18.0 |
12.7 |
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Net income |
$ 11.9 |
$ 1.2 |
$ 34.8 |
$ 25.6 |
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Earnings per common share: |
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Basic |
$ .53 |
$ .04 |
$ 1.54 |
$ 1.10 |
|
Diluted |
$ .52 |
$ .04 |
$ 1.51 |
$ 1.08 |
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Dividends per common share |
$ .33 |
$ .33 |
$ .99 |
$ .99 |
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
for the three and nine months ended March 31, 2000 and 1999
(in millions)
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|
Three Months |
Nine Months |
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2000 |
1999 |
2000 |
1999 |
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Net income |
$ 11.9 |
$ 1.2 |
$ 34.8 |
$ 25.6 |
|
Foreign currency
translation,
net of tax |
.1
|
(.2)
|
-
|
(.2)
|
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Comprehensive income
|
$ 12.0
|
$ 1.0
|
$ 34.8
|
$ 25.4
|
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
for the nine months ended March 31, 2000 and 1999
(in millions)
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2000 |
1999 |
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OPERATIONS |
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Net income |
$ 34.8 |
$ 25.6 |
|
Adjustments to reconcile net income to
net cash provided from operations: |
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Depreciation |
38.5 |
39.6 |
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Amortization of intangible assets |
11.2 |
10.0 |
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Deferred income taxes |
11.8 |
(16.9) |
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Prepaid pension costs |
(34.3) |
(18.7) |
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(Gain) loss on disposal of assets |
(2.1) |
2.1 |
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Special charge |
- |
14.2 |
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Changes in working capital and other,
net of acquisitions: |
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Receivables |
(28.1) |
18.5 |
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Inventories |
(23.4) |
7.0 |
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Accounts payable |
35.9 |
(18.7) |
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Accrued current liabilities |
(4.7) |
(12.4) |
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Other, net |
(5.2 ) |
(4.2 ) |
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Net cash provided from operations |
34.4 |
46.1 |
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INVESTING ACTIVITIES |
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Purchases of plant and equipment |
(73.4) |
(118.9) |
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Proceeds from disposals of plant
and equipment |
7.8 |
.2 |
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Acquisitions of businesses, net of cash
received |
(6.7) |
(23.1) |
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Proceeds from net assets held for sale |
- |
97.0 |
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Net cash used for investing
activities |
(72.3 ) |
(44.8 ) |
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FINANCING ACTIVITIES |
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Net change in short-term debt |
71.0 |
47.1 |
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Proceeds from issuance of long-term debt |
7.6 |
- |
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Payments on long-term debt |
(15.4) |
(36.2) |
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Dividends paid |
(22.7) |
(23.1) |
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Proceeds from issuance of common stock |
.3 |
1.3 |
|
Payments to acquire treasury stock |
- |
(34.9 ) |
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Net cash provided from (used for)
financing activities |
40.8 |
(45.8 ) |
|
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INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS |
2.9 |
(44.5) |
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Cash and cash equivalents at
beginning of period |
5.5 |
52.4 |
|
Cash and cash equivalents at
end of period |
$ 8.4 |
$ 7.9 |
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation have been
included. Operating results for the nine months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending June 30, 2000. The June 30, 1999 condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by generally accepted accounting principles. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes
thereto included in Carpenter's 1999 Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the 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.
Certain reclassifications of prior year's amounts have been made to conform with the current year's presentation. These reclassifications did not affect reported net income.
2. Earnings Per Common Share
The calculations of earnings per share for the periods ended
March 31, 2000 and 1999 are as follows:
|
(in millions, except
per share data) |
Three Months
|
Nine Months
|
|
|
2000 |
2000 |
|
|
Basic |
Diluted |
Basic |
Diluted |
|
Net income |
$ 11.9 |
$ 11.9 |
$ 34.8 |
$ 34.8 |
|
Dividends accrued
on convertible preferred
stock, net of tax benefits |
(.3)
|
-
|
(1.0)
|
-
|
|
Assumed shortfall between
common and preferred dividend |
-
|
(.1
) |
-
|
(.5)
|
|
Earnings available for
common shareholders |
$ 11.6
|
$ 11.8
|
$ 33.8
|
$ 34.3
|
|
|
|
|
|
|
|
Weighted average number
of common shares outstanding |
22.0
|
22.0
|
22.0
|
22.0
|
|
Assumed conversion of
preferred shares |
-
|
.8
|
-
|
.8
|
|
Effect of shares issuable
under stock option plans |
-
|
-
|
-
|
-
|
|
Weighted average common shares |
22.0 |
22.8 |
22.0 |
22.8 |
|
|
|
|
|
|
Earnings per share |
$ .53 |
$ .52 |
$ 1.54 |
$ 1.51 |
|
|
Three Months |
Nine Months |
|
|
1999 |
1999 |
|
|
Basic |
Diluted |
Basic |
Diluted |
|
Net income |
$ 1.2 |
$ 1.2 |
$ 25.6 |
$ 25.6 |
|
Dividends accrued on
convertible preferred stock,
net of tax benefits |
(.4)
|
-
|
(1.2)
|
-
|
|
Assumed shortfall between
common and preferred dividend |
$ -
|
$ (.3)
|
$ -
|
$ (.6)
|
|
Earnings available for common
shareholders |
$ .8
|
$ .9
|
$ 24.4
|
$ 25.0
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding |
21.9
|
21.9
|
22.2
|
22.2
|
|
Assumed conversion of preferred
shares |
-
|
.9
|
-
|
.9
|
|
Effect of shares issuable under
stock option plans |
-
|
-
|
-
|
-
|
|
Weighted average common shares |
21.9 |
22.8 |
22.2 |
23.1 |
|
|
|
|
|
|
Earnings per share |
$ .04 |
$ .04 |
$ 1.10 |
$ 1.08 |
3. Inventories
|
|
March 31,
2000 |
June 30,
1999 |
|
|
(In Millions) |
|
Finished and purchased products |
$ 144.6 |
$ 142.6 |
|
Work in process |
188.6 |
167.3 |
|
Raw materials and supplies |
44.4 |
41.5 |
|
Total at current cost |
377.6 |
351.4 |
|
Less excess of current cost over
LIFO values |
100.6 |
101.1 |
|
Inventory per Balance Sheet |
$ 277.0 |
$ 250.3 |
The current cost of LIFO-valued inventories was $327.9 million at March 31, 2000 and $294.9 million at June 30, 1999.
4. Property, Plant and Equipment
|
|
March 31,
2000 |
June 30,
1999 |
|
|
(In Millions) |
|
Property, plant and equipment
at cost |
$ 1,320.2
|
$ 1,253.8
|
|
Less accumulated depreciation and
amortization |
536.8
|
503.4
|
|
|
$ 783.4
|
$ 750.4
|
5. Shareholders' Equity Data
|
|
March 31,
2000 |
June 30,
1999 |
|
|
|
|
|
Preferred shares issued |
418.2 |
425.8 |
|
|
|
|
|
Common shares issued |
23,066,635 |
23,051,776 |
|
Common shares in Treasury |
(1,106,960 ) |
(1,105,041 ) |
|
|
|
|
|
Net outstanding |
21,959,675 |
21,946,735 |
6. Commitments and Contingencies
Environmental
Carpenter accrues amounts for environmental remediation costs which represent management's best estimate of the probable and reasonably estimable costs relating to environmental remediation. No amount was charged or
credited to operations for the three months ended March 31, 2000. For the nine months ended March 31, 2000, the liability for environmental remediation costs was reduced by $.8 million which was included in Other Income. This adjustment was recorded in
the second quarter and related to updated estimates of probable liabilities for sites previously owned by Talley Industries, Inc. No amounts were charged or credited to operations for the three and nine months ended March 31, 1999. The liability for
environmental remediation costs remaining at March 31, 2000 was $8.5 million. The estimated range of the reasonably possible future costs of remediation at superfund sites and at Carpenter-owned operating facilities is between $8.5 million and $11.0
million.
Estimates of the amount and timing of future costs of environmental remediation requirements are necessarily imprecise because of the continuing evolution of environmental laws and regulatory requirements, the availability
and application of technology, the identification of presently unknown remediation sites and the allocation of costs among the potentially responsible parties. Based upon information presently available, such future costs are not expected to have a
material effect on Carpenter's competitive or financial position. However, such costs could be material to results of operations in a particular future quarter or year.
Bridgeport, CT Property
On January 15, 1999, the Bridgeport, Connecticut, Port Authority issued a Notice of Condemnation for the taking of Carpenter's former plant site in that city. On August 6, 1999, the Port Authority filed a Certificate
of Taking, acquiring fee simple ownership of the property. The proposed compensation for the site is $2.5 million and the Port Authority has stated its intention to seek reimbursement of any additional site remediation costs. The carrying value for the
site on Carpenter's books is approximately $14 million and is based upon arms-length negotiated selling prices with interested parties. Carpenter has begun legal proceedings in court to obtain a fair value for the property and a declaratory judgment
absolving Carpenter from any remediation costs caused by the Port Authority's development efforts. While the ultimate outcome of these proceedings is undeterminable, in the opinion of management the Port Authority's proposed compensation and remediation
reimbursement are unreasonable and will not be upheld and accordingly, no provision has been made for an impairment in carrying value.
Other
Carpenter is also defending various claims and legal actions, and is subject to commitments and contingencies which are common to its operations. Carpenter provides for costs relating to these matters when a loss is
probable and the amount is reasonably estimable. The effect of the outcome of these matters on Carpenter's future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount and
timing (both as to recording future charges to operations and cash expenditures) of the resolution of such matters. While it is not feasible to determine the outcome of these matters, in the opinion of management, any total ultimate liability will not
have a material effect on Carpenter's financial position, results of operations or cash flows.
7. Business Segments
Statement of Financial Accounting Standards (SFAS) 131, "Disclosures about Segments of an Enterprise and Related Information," requires companies to disclose segment information on the same basis as that used
internally by executive management to evaluate segment performance. Carpenter is organized on a product basis and managed in three segments: Specialty Alloys, Titanium Alloys and Engineered Products. For the following segment reporting, the Specialty
Alloys and Titanium Alloys (Dynamet) segments have been aggregated into one reportable segment (Specialty Metals) because of the similarities in products, processes, customers and distribution methods.
Specialty Metals includes the manufacture and distribution of stainless, titanium, high temperature, electronic, tool and other alloys in bar, wire, rod, and strip forms. Sales are distributed both directly from producing
plants and from Carpenter's distribution network.
Engineered Products includes structural ceramic products, ceramic cores for the casting industry, metal-injection molded products, tubular metal products for nuclear and aerospace applications, custom shaped bar and ultra
hard wear materials.
Effective July 1, 1999, management changed the basis for measuring the business segments' profits to exclude the costs of all corporate functions and the pension credit from the Specialty Metals segment, to transfer the
Mexican operations from the Engineered Products segment to the Specialty Metals segment, to allocate certain corporate costs to the business segments, and to show separately both the unallocated corporate costs and the pension credit. All segment data for
fiscal 1999 have been restated to reflect the current segment reporting structure.
Carpenter evaluates segment performance based upon income before interest and income taxes (EBIT) and return on assets after the allocation of certain corporate costs. Sales between the segments are generally made at
market-related prices.
The pension credit represents the income relating to Carpenter's overfunded defined benefit pension plans. None of the pension credit is allocated to the business segments. The corporate costs primarily represent the
unallocated portion of the operating costs of the finance, information services, law and human resource departments and corporate management staff. Corporate assets are primarily cash and cash equivalents, prepaid pension cost, certain assets held for
sale, corporate-owned life insurance, other investments and corporate operating assets.
Carpenter's sales are not materially dependent on a single customer or small group of customers.
Segment Data
|
(In Millions) |
Three Months Ended
March 31, |
Nine Months Ended
March 31, |
|
2000 |
1999 |
2000 |
1999 |
|
Net Sales: |
|
|
|
|
|
Specialty Metals |
$ 266.9 |
$ 244.0 |
$ 697.1 |
$ 688.6 |
|
Engineered Products |
32.1 |
28.3 |
92.6 |
83.8 |
|
Intersegment |
(.9 ) |
(.5 ) |
(2.2 ) |
(1.6 ) |
|
Consolidated net sales |
$ 298.1 |
$ 271.8 |
$ 787.5 |
$ 770.8 |
|
|
|
|
|
|
Income (loss) before income taxes: |
|
|
|
|
|
Specialty Metals |
$ 23.1 |
$ 17.1 |
$ 55.9 |
$ 63.5 |
|
Engineered Products |
1.4 |
1.0 |
3.8 |
1.2 |
|
Pension Credit |
11.5 |
9.3 |
34.3 |
27.1 |
|
Corporate Costs |
(8.7) |
(7.4) |
(19.4) |
(19.6) |
|
Special Charge |
- |
(14.2 ) |
- |
(14.2 ) |
|
Consolidated EBIT |
27.3 |
5.8 |
74.6 |
58.0 |
|
Interest expense |
(8.7) |
(7.9) |
(23.7) |
(21.6) |
|
Interest income |
.5 |
.6 |
1.9 |
1.9 |
|
Consolidated income (loss)
before income taxes |
$ 19.1 |
$ (1.5 ) |
$ 52.8 |
$ 38.3 |
|
|
|
|
|
|
|
|
March 31, |
June 30, |
|
|
|
2000 |
1999 |
|
Total assets: |
|
|
|
|
|
Specialty Metals |
|
|
$1,359.9 |
$1,272.5 |
|
Engineered Products |
|
|
117.6 |
115.7 |
|
Corporate assets |
|
|
256.5 |
219.6 |
|
Consolidated total assets |
|
|
$1,734.0 |
$1,607.8 |
8.
Special Charge
During the third quarter of fiscal 1999, Carpenter recorded a pre-tax charge of $14.2 million ($8.5 million after-tax or $.37 per diluted share) related to a salaried work force reduction and a reconfiguration of
its U.S. distribution network. The eliminated positions included various salaried positions throughout the Specialty Alloys Operations and corporate offices. The charge consisted chiefly of various personnel-related costs for about 210 employees to cover
severance payments, enhanced pension benefits, medical coverage and related items. Approximately $13.0 million of the charge will be paid from pension funds and, accordingly, this portion of the special charge reduced the prepaid pension cost account on
the balance sheet. Through March 31, 2000, there was a reduction of approximately 195 employees. The remaining employees are expected to depart by June 30, 2000.
9. Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which will be effective for Carpenter's fiscal year 2001. This standard requires
that all derivative instruments be recorded on the balance sheet at their fair value. Changes in fair value of derivatives will be recorded each period in current earnings or comprehensive income. Since the implementation rules have not been finalized,
Carpenter has not completed its evaluation of the impact of adopting this statement.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Months Ended March 31, 2000 vs.
Three Months Ended March 31, 1999:
Net income for the quarter ended March 31, 2000, was $11.9 million as compared with $9.6 million, before a special charge, for the year ago quarter. Diluted earnings per share for the quarter increased 27 percent to $.52 per
share from last year's $.41 per share, before a special charge. Last year's special charge of $14.2 million before taxes ($.37 per diluted share) resulted from a salaried work force reduction and a reconfiguration of the U.S. distribution network.
Net sales for the third fiscal quarter ended March 31, 2000 were $298.1 million compared with $271.8 million for last year's third quarter. The overall 10 percent sales increase from the same quarterly period a year ago
was primarily a result of a 13 percent increase in the sales of Specialty Alloys Operations (SAO) and a 14 percent increase in sales of the Engineered Products Group. These increases were somewhat offset by a 16 percent decrease in sales at Dynamet
Incorporated.
Overall, Carpenter's quarterly gross margin (sales less cost of sales) increased to 25.2 percent of sales compared with 23.5 percent last year. This increase resulted from higher unit sales and production levels in SAO and
manufacturing cost reductions. Higher costs for nickel offset much of these favorable effects because Carpenter's raw material surcharge recovers nickel cost increases approximately 60 days after they are incurred. Raw material is accounted for under the
last-in, first-out (LIFO) method of accounting, resulting in current cost being charged to the income statement.
Selling and administrative expenses for the quarter increased by $9.4 million over the same quarter a year ago, due primarily to increased freight costs, start-up costs related to the consolidation of the SAO distribution
system and development costs for Carpenter's e-business initiatives.
Other income/expense, compared with the same quarter a year ago, was more favorable by $5.5 million. Other income for the quarter ended March 31, 2000, of $2.2 million was primarily gains recognized on the sale of three
warehouses. Last year's third quarter other expense included foreign exchange losses and write-downs of assets held for sale.
Income taxes for the quarter were 37.5 percent of income before taxes. For the same period last year the effective tax rate was lower due to an income tax benefit of $2.2 million which was recognized as a result of tax
issues that were satisfactorily resolved.
Business Segment Results
During the quarter ended September 30, 1999, Carpenter changed its segment reporting. The changes are described in Note 7 to the Consolidated Financial Statements. All segment data for the quarter and nine months
ended March 31, 1999 have been restated to reflect the current segment reporting structure.
Specialty Metals Segment
Net sales for this segment, which aggregates the SAO and Dynamet units of Carpenter were $266.9 million which was 9 percent higher than those of the same quarter a year ago. The increase in sales was primarily due to a
13 percent increase in sales at SAO, which was partially offset by a 16 percent decrease in sales at Dynamet. The improved SAO sales were the result of improved demand in the automotive, industrial and consumer markets. Aerospace related sales continued
to fall behind year-earlier levels both at SAO and Dynamet.
Earnings before interest and taxes (EBIT) for the Specialty Metals segment were $23.1 million which was 35 percent higher than last year's third quarter before the special charge. This increase was due to higher sales
volume along with cost reductions in manufacturing and administrative functions. These effects were partially offset by the continued escalation of nickel prices and freight costs and start-up costs related to the consolidation of the SAO distribution
system and development of Carpenter's e-business initiatives.
Engineered Products Segment
Net sales for this segment were $32.1 million which was 14 percent higher than the same quarter of last year. EBIT was $1.4 million which was $0.4 million higher than the third quarter of last year. This profit growth
was due to higher sales volume and lower administrative costs. All units within the segment had sales improvements with the ceramics cores products showing the most growth.
Pension Credits
Pension credits, which result from the significant overfunded position of Carpenter's defined benefit pension plans, were $11.5 million in the March 2000 quarter versus $9.3 million in the same quarter a year ago. The
higher level of credits was due primarily to the investment returns on the pension plan assets during fiscal 1999. This variance from the previous year's level of pension credits will continue for the balance of fiscal 2000.
Results of Operations - Nine Months Ended March 31, 2000 vs.
Nine Months Ended March 31, 1999:
Net income for the nine months ended March 31, 2000, was $34.8 million compared to $34.1 million, before the special charge, last year. Diluted earnings per share were $1.51 per share compared with $1.45, before the
special charge, for the same period a year ago. The growth in earnings for the nine months was constrained by reduced selling prices and higher raw material costs.
Net sales for the nine months were $787.5 million compared with $770.8 million reported last year. This increase was primarily the result of a 10 percent volume increase which was partially offset by price decreases and
mix changes.
Cost of sales as a percent of net sales remained relatively constant at 74.6 percent of sales compared to 74.5 percent last year.
Selling and administrative expenses increased by $10.3 million due primarily to start-up costs for the distribution system consolidation and e-business initiatives, and increased freight and depreciation expenses. These
factors were partially offset by the favorable effects of staff reductions and higher pension credits.
Other income was more favorable than a year ago by $8.9 million, primarily as a result of the gains recognized on the sale of three warehouses, and the favorable effects reported in the second quarter resulting from
adjustments to liabilities for environmental remediation, workers' compensation and other matters related to the acquisition of Talley Industries, Inc. Last year's other expense included foreign exchange losses and write downs of assets held for sale.
The effective tax rate was 34.0 percent for the nine months ended March 31, 2000, versus 33.3 percent for the same period a year earlier. The increase in the current year was primarily due to the resolution of a foreign
tax issue occurring in the second quarter of this fiscal year which reduced tax expense by $1.9 million. Last year several pending income tax issues were resolved resulting in a reduction of income tax expense for the third quarter of $2.2 million.
Business Segment Results
Specialty Metals Segment
Net sales for this segment, which aggregates the SAO and Dynamet units of Carpenter were $697.1 million which was 1 percent higher than those for the same period a year ago. The increase in sales was primarily due to
higher volume and was reduced by lower selling prices and mix changes. SAO sales rose by 4 percent while Dynamet sales were lower by 20 percent.
Most SAO market sectors were improved but aerospace demand for both SAO and Dynamet products remained at lower levels.
Earnings before interest and taxes (EBIT) were $55.9 million which was 12 percent lower than the same period last year, before the special charge. Profit margins were lower as selling prices fell in SAO and at Dynamet
despite higher SAO costs for nickel versus a year ago. These effects were partially offset by cost reductions in manufacturing and administrative functions.
Engineered Products Segment
Net sales for this segment were $92.6 million which was 11 percent higher than the same period last year. Increased demand for ceramics, metal injection molded and shaped products accounted for most of the sales
improvement.
EBIT was $3.8 million, an increase of $2.6 million from the same period last year. This profit improvement was due to the increased sales, manufacturing cost efficiencies and reduced product development and administrative
costs.
Pension Credits
Pension credits were $34.3 million for the nine months ending March 2000 compared to $27.1 million for the same period a year ago. The higher level of credits was due primarily to the investment returns on the pension
plan assets during fiscal 1999.
Cash Flow and Financial Condition:
During the nine months ended March 31, 2000, Carpenter's cash and cash equivalents increased by $2.9 million, as shown in the consolidated statement of cash flows.
Net cash generated from operating activities was $34.4 million, primarily as a result of improved operating performance offset by increased working capital.
Investing activities for plant and equipment consumed $73.4 million in cash during the first nine months of fiscal 2000. Total capital expenditures for all of fiscal 2000 are anticipated to be about $100 million. During
the third quarter, Carpenter acquired The Anval Group, a powder metal producer based in Sweden, for $6.7 million which is net of cash received.
Total debt, excluding debt of acquired businesses, increased by $63.2 million since June 30, 1999 to a level of $575.2 million or 41.6 percent of total capital employed, including deferred taxes. During the third
quarter Carpenter's borrowing capacity was increased by $25 million. Additionally, in early April a long-term collateralized note was issued for $7.6 million, which was utilized to repay short-term debt and accordingly, the short-term debt was classified
as long-term as of March 31, 2000.
At March 31, 2000, current assets exceeded current liabilities by $90.2 million (a ratio of 1.2 to 1). This ratio is conservatively stated because certain inventories are valued $100.6 million less than the current cost as
a result of using the LIFO method.
Carpenter believes that its present financial resources, both from internal and external sources, will be adequate to meet its foreseeable short-term and long-term liquidity needs.
Forward-looking Statements
This Form 10-Q contains various "Forward-looking Statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations regarding future events
that involve a number of risks and uncertainties which could cause actual results to differ from those of such forward-looking statements. Such risks and uncertainties include those set forth in other filings made by Carpenter under the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended, and also include the following factors: 1) the cyclical nature of the specialty materials business and certain end-use markets, including, but not limited to, aerospace, automotive and
consumer durables, all of which are subject to changes in general economic and financial market conditions; 2) the ability of Carpenter to recoup increased nickel costs through increased prices and surcharges and Carpenter's ability to reduce the impact
of a strike in the nickel industry, if it should occur; 3) excess inventory and the impact of inventory adjustments in Carpenter's aerospace customer base; 4) worldwide excess capacity for certain alloys which Carpenter produces, resulting in increased
competition and downward pricing pressure on Carpenter products; 5) the impact on the overfunding of Carpenter's pension plans of an increase in the pension liability or a decrease in plan assets, approximately 70 percent of which are invested in common
stock equities; 6) the criticality of certain raw materials acquired from foreign sources, some of which are located in countries that may be subject to unstable political and economic conditions, potentially affecting the prices of these materials; 7)
the level of export sales impacted by political and economic instability, particularly in Asia, Eastern Europe and Latin America, resulting in lower global demand for stainless steel products; 8) the ability of Carpenter, along with other domestic
producers of stainless steel products, to obtain and retain favorable rulings in dumping and countervailing duty claims against foreign producers; 9) the level of sales impacted by export controls, changes in legal and regulatory requirements, policy
changes affecting the markets, changes in tax laws and tariffs, exchange rate fluctuations and accounts receivable collection; 10) the effects on operations of changes in U.S. and foreign governmental laws and public policy, including environmental
regulations; and 11) the accuracy of Carpenter's belief that the valuation of the Corporation's former plant site by the Bridgeport, Connecticut Port Authority will be overturned and that Carpenter will be absolved from remediation costs caused by the
Port Authority's development efforts. Any of these factors could have an adverse and/or fluctuating effect on Carpenter's results of operations. The forward-looking statements in this document are intended to be subject to the safe harbor protection
provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or to which any of their properties is
subject or which is known by the Company to be contemplated by government authorities. There are no material proceedings to which any Director, Officer, or affiliate of the Company, or any owner of more than five percent of any class of voting securities
of the Company, or any associate of any Director, Officer, affiliate, or security holder of the Company, is a party adverse to the Company or has a material interest adverse to the interest of the Company or its subsidiaries. There is no administrative or
judicial proceeding arising under any Federal, State or local provisions regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment that (1) is material to the business or financial condition of
the Company, (2) involves a claim for damages, potential sanctions or capital expenditures exceeding ten percent of the current assets of the Company or (3) includes a governmental authority as a party and involves potential monetary sanctions in excess
of $100,000.
Item 6. Exhibits and Reports on Form 8-K.
a. The following documents are filed as exhibits:
27. Financial Data Schedule.
b. The Company did not file any Reports on Form 8-K
for events occurring during the quarter of the
fiscal year covered by this report.
Items 2, 3, 4 and 5 are omitted as the answer is negative or the items are not applicable.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Carpenter Technology Corporation |
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(Registrant) |
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Date: May 12, 2000 |
_____________________________
G. Walton Cottrell
Sr. Vice President - Finance
and Chief Financial Officer |
