UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/ x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1993
OR
/ / 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 1-5828
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
(Exact name of Registrant as specified in its Charter)
DELAWARE 23-0458500
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 West Bern Street, Reading, Pennsylvania 19612-4662
- ------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
215-208-2000
---------------------
(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 December 31, 1993.
Common stock, $5 par value 8,009,955
- -------------------------- ----------------------------
Class Number of shares outstanding
The Exhibit Index appears on page E-1.
CARPENTER TECHNOLOGY CORPORATION
FORM 10-Q
INDEX
Page
Part I FINANCIAL INFORMATION
Consolidated Balance Sheet December 31, 1993 (Unaudited)
and June 30, 1993...................................... 3 & 4
Consolidated Statement of Income (Unaudited) for the
Three and Six Months Ended December 31, 1993 and 1992.. 5
Consolidated Statement of Cash Flows (Unaudited) for the
Six Months Ended December 31, 1993 and 1992............ 6
Notes to Financial Statements............................ 7 - 10
Management's Discussion and Analysis of Results
of Operations.......................................... 10 & 11
Part II OTHER INFORMATION................................ 12 - 14
Exhibit Index............................................. E-1
PART I CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31 and June 30, 1993
In Thousands
--------------------------
December 31 June 30
ASSETS 1993 1993
----------- ----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 18,047 $ 45,822
Accounts receivable 75,815 90,426
Inventories 80,949 70,590
Deferred income taxes - 2,737
Other current assets 8,395 7,120
-------- --------
Total current assets 183,206 216,695
-------- --------
Property, plant and equipment, at cost 719,169 699,269
Less accumulated depreciation and amortization 320,984 308,140
-------- --------
398,185 391,129
-------- --------
Prepaid pension cost 66,386 61,602
-------- --------
Investment in joint venture 47,072 -
-------- --------
Other assets 41,920 30,139
-------- --------
Total assets $736,769 $699,565
======== ========
See accompanying notes to financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31 and June 30, 1993
In Thousands
-------------------------
December 31 June 30
LIABILITIES 1993 1993
----------- ----------
(Unaudited)
Current liabilities:
Short-term debt $ 11,589 $ -
Accounts payable 31,454 24,328
Accrued compensation 9,591 14,457
Accrued income taxes 5,197 2,080
Deferred income taxes 3,046 -
Other accrued liabilities 30,598 25,951
Current portion of long-term debt 15,619 6,617
------- --------
Total current liabilities 107,094 73,433
-------- --------
Long-term debt, net of current portion 176,826 189,895
-------- --------
Accrued postretirement benefits 146,392 143,876
-------- --------
Deferred income taxes 69,218 66,765
-------- --------
Other liabilities 16,760 7,135
-------- --------
SHAREHOLDERS' EQUITY
Preferred Stock, $5 par value - authorized
2,000,000 shares; issued 460.7 shares at
December 31, 1993 and 461.2 shares at
June 30, 1993 29,095 29,128
Deferred Compensation (26,301) (27,431)
Common stock, $5 par value - authorized
50,000,000 shares; issued 9,532,539 shares
at December 31, 1993 and 9,508,355 shares
at June 30, 1993 47,662 47,542
Capital in excess of par value 47,182 46,131
Reinvested earnings 188,991 189,241
Common stock in treasury, at cost -
1,522,584 shares (66,150) (66,150)
-------- --------
Total shareholders' equity 220,479 218,461
-------- --------
Total liabilities & shareholders' equity $736,769 $699,565
======== ========
See accompanying notes to financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
for the Three and Six Months Ended December 31, 1993 and 1992
Three Months Six Months
------------------ ------------------
1993 1992 1993 1992
---- ---- ---- ----
(in thousands, except per share data)
Net Sales $147,127 $123,026 $276,556 $262,412
-------- -------- -------- --------
Costs and expenses:
Cost of sales 108,088 94,891 205,347 205,169
Selling and administrative
expenses 22,812 20,687 43,820 41,083
Interest expense 4,178 4,916 9,214 10,241
Other income (88) (472) (713) (1,245)
-------- -------- -------- --------
134,990 120,022 257,668 255,248
-------- -------- -------- --------
Income before income taxes and
cumulative effect of changes
in accounting principles 12,137 3,004 18,888 7,164
Income taxes 4,777 1,090 8,756 2,598
-------- -------- -------- --------
Income before cumulative effect
of changes in accounting
principles 7,360 1,914 10,132 4,566
Cumulative effect of changes in
accounting principles - - - (74,676)
-------- -------- -------- --------
Net income (loss) $ 7,360 $ 1,914 $ 10,132 $(70,110)
======== ======== ======== ========
Weighted average common shares 8,032 7,965 8,019 8,057
======== ======== ======== ========
Earnings per common share before
cumulative effect of changes
in accounting principles $ .86 $ .19 $ 1.16 $ .47
Cumulative effect of changes
in accounting principles - - - (9.32)
-------- -------- -------- --------
Earnings (loss) per common
share $ .86 $ .19 $ 1.16 $ (8.85)
======== ======== ======== ========
Dividends per common share $ .60 $ .60 $ 1.20 $ 1.20
======== ======== ======== ========
See accompanying notes to financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
for the Six Months Ended December 31, 1993 and 1992
1993 1992
---- ----
(in thousands)
OPERATIONS
Net income (loss) $ 10,132 $(70,110)
Adjustments to reconcile net income (loss)
to net cash provided from operations:
Depreciation and amortization 14,374 13,261
Deferred income taxes 2,714 793
Pension credits (6,147) (5,789)
Cumulative effect of changes in
accounting principles - 74,676
Changes in working capital and other:
Receivables 18,960 15,241
Inventories 2,040 22,386
Other assets and liabilities, net 18,429 (15,782)
-------- --------
Net cash provided from operations 60,502 34,676
-------- --------
INVESTING ACTIVITIES
Investment in joint venture (47,072) -
Acquisition of wholly-owned
subsidiaries, net of cash received (22,200) -
Purchases of plant and equipment (15,179) (11,331)
Disposals of plant and equipment 691 138
-------- --------
Net cash used for investing activities (83,760) (11,193)
-------- --------
FINANCING ACTIVITIES
Provided by short-term debt 8,794 -
Payments on long-term debt (4,067) (3,707)
Payments to acquire treasury stock - (11,633)
Proceeds from issuance of stock 1,138 38
Dividends paid (10,382) (10,507)
-------- --------
Net cash required by financing activities (4,517) (25,809)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (27,775) (2,326)
Cash and cash equivalents at
beginning of period 45,822 9,321
-------- --------
Cash and cash equivalents at
end of period $ 18,047 $ 6,995
======== ========
Supplemental Data:
Interest payments $ 9,277 $ 10,261
Income tax payments (net of refunds) $ 2,768 $ 2,641
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial
statements have been prepared in accordance with the
instructions to Form 10-Q and 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 (consisting only
of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for
the six months ended December 31, 1993, are not necessarily
indicative of the results that may be expected for the year
ending June 30, 1994. For further information, refer to the
consolidated financial statements and footnotes included in
the Company's 1993 Annual Report to Shareholders.
The June 30, 1993 condensed balance sheet data was
derived from audited financial statements, but does not
include all disclosures required by generally accepted
accounting principles.
2. Earnings Per Common Share
-------------------------
Primary earnings per common share are computed by
dividing net income less preferred dividends net of tax
benefits by the weighted average number of common shares and
common share equivalents outstanding during the period.
3. Inventories
-----------
December 31 June 30
1993 1993
---------- ----------
(in thousands)
Finished $ 97,598 $ 97,129
Work in process 84,092 80,072
Raw materials and supplies 30,942 31,472
-------- --------
Total at June 30, 1993 cost 212,632 208,673
Less excess of June 30, 1993
cost over LIFO values 131,683 138,083
-------- --------
$ 80,949 $ 70,590
======== ========
Inventories at December 31, 1993 include finished
inventory of Aceros Fortuna, S.A. de C.V., a Mexican steel
distribution company, acquired by the Company during the six
months ended December 31, 1993. This company's inventories
are valued using the FIFO method.
The cost of LIFO-valued inventories at June 30, 1993
costs was $181,975,000 at December 31, 1993 and $192,743,000
at June 30, 1993. Reduction in LIFO-valued inventories
resulted in an increase in net income of approximately
3. Inventories, continued
-----------
$1,500,000 or $.19 per share and $3,600,000 or $.45 per
share for the three and six months ended December 31, 1993,
respectively, and approximately $300,000 or $.04 per share
and $600,000 or $.08 per share for the three and six months
ended December 31, 1992, respectively.
4. Investment in Joint Venture
---------------------------
On September 2, 1993, the Company acquired, for
$45,000,000 in cash, 19 percent of the shares of Walsin-
Cartech Specialty Steel Corporation, a joint venture with
Walsin Lihwa Corporation in Taiwan. The joint venture is in
the process of constructing a facility in Taiwan to
manufacture and distribute specialty steel. The Company has
an option to acquire up to an additional 16 percent of the
outstanding shares of the venture from Walsin Lihwa at
anytime until July 1, 1996. Alternatively, the Company may
require Walsin Lihwa to purchase its 19 percent ownership
for the original purchase cost at anytime up to July 1,
1997. This investment is being accounted for using the
equity method of accounting. The investment account has
been increased for interest costs capitalized during the
preoperating period totaling $1,200,000 and $1,570,000,
respectively, for the three and six months ended
December 31, 1993, and for certain acquisition expenses.
A separate agreement also provides for the Company to
provide marketing and technical assistance to the joint
venture in exchange for an initial lump sum royalty payment
of $10,000,000, received in October 1993, and continuing
royalties based on sales over the 10-year term of the
agreement. The initial lump sum royalty has been deferred
and is being recognized as income over the term of the
agreement.
5. Acquisition of Wholly-Owned Subsidiaries
----------------------------------------
On July 28, 1993, the Company acquired all of the
outstanding shares of Aceros Fortuna, S.A. de C.V., a
Mexican steel distribution company, and two affiliated
companies for cash of $20,400,000. In addition, the Company
paid $2,500,000 for agreements not to compete, and acquired
equipment from an affiliated company in Mexico for
$5,100,000.
The acquisition has been accounted for using the
purchase method of accounting, and accordingly, the purchase
price has been allocated to the assets purchased and the
liabilities assumed based upon the preliminary estimated
fair values at the date of acquisition. The excess of
purchase price over the preliminary estimated fair values of
the net assets acquired approximated $7,000,000 and has been
recorded as goodwill, which is being amortized over 20
years.
5. Acquisition of Wholly-Owned Subsidiaries, continued
----------------------------------------
The operating results of these acquired businesses have
been included in the Consolidated Statement of Income from
the date of acquisition. On the basis of a pro forma
combination of the results of operations as if the
acquisition had taken place at the beginning of the fiscal
year 1993 rather than at July 28, 1993, combined net sales
would have been $279,200,000 for the six months ended
December 31, 1993, and $131,200,000 and $279,700,000 for the
three and six months ended December 31, 1992, respectively.
Combined pro forma net income and earnings per share, before
the cumulative effect of accounting changes, would not have
been materially different from the reported amounts for the
three and six months ended December 31, 1993 and 1992. Such
pro forma amounts are not necessarily indicative of what the
actual combined results of operations might have been if the
acquisition had been effective at the beginning of fiscal
1993.
6. Changes in Accounting Principles
--------------------------------
During the fourth quarter of fiscal 1993, the Company
adopted, retroactive to July 1, 1992, two new financial
accounting standards, "Employers' Accounting for
Postretirement Benefits Other than Pensions" (SFAS 106) and
"Accounting for Income Taxes" (SFAS 109).
SFAS 106 requires companies to accrue the cost of
postretirement benefits over the years employees provide
services to the date of their full eligibility for such
benefits. Previously, these costs were expensed as claims
were incurred. The Company elected to immediately recognize
the transition obligation for benefits earned as of July 1,
1992, resulting in a non-cash charge of $146,802,000 pre-tax
($87,113,000 after tax or $10.87 per share), representing
the cumulative effect of the change in accounting.
SFAS 109 changes the method of accounting for income
taxes from the deferral method to the asset/liability
method. Under this method, deferred income taxes are
determined based on enacted tax laws and rates, which are
applied to the differences between the financial statement
bases and tax bases of assets and liabilities. The adoption
of this statement resulted in a credit to income of
$12,437,000 ($1.55 per share) principally for the cumulative
effect of restating deferred taxes as of July 1, 1992 to
current tax rates.
Results for the three and six months ended December 31,
1992 have been restated to include the effects of these
accounting changes which reduced income before income taxes
by $1,800,000 and $3,500,000 and income before the cumula-
tive effect of accounting changes by $1,200,000 or $.14 per
share and $2,300,000 or $.28 per share, respectively.
7. Subsequent Events - Debt Arrangements
-------------------------------------
In January 1994, the Company entered into a
$150,000,000 financing arrangement with a number of banks,
providing for the availability of $125,000,000 of revolving
credit to January 1998 and lines of credit of $25,000,000.
Interest is based on short-term market rates or competitive
bids. This financing arrangement replaces the previous
revolving credit and lines of credit arrangement.
The Company has announced that on March 1, 1994, it
will redeem the entire outstanding principal amount of
$55,300,000 of its 12-7/8% sinking fund debentures due 2014.
The redemption price for the 12-7/8% debentures will be
$1,061.62 per $1,000 of principal amount consisting of the
principal amount and a redemption premium. The premium paid
for the redemption will result in an extraordinary charge of
approximately $1,900,000 after taxes ($.24 per share) in the
Company's third fiscal quarter ending March 31, 1994. The
debentures are being redeemed to reduce future interest
costs.
Funding for the redemption will come from the Company's
current credit facilities or through the issuance of Medium-
Term Notes. On December 21, 1993, the Company filed a shelf
registration statement (effective January 6, 1994) with the
Securities and Exchange Commission for the issuance of up to
$100,000,000 of Medium-Term Notes.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
-------------------------------------------------------------
Second Quarter Results:
- ----------------------
Net income for the quarter ended December 31, 1993 was $7.4
million or $.86 per share versus $1.9 million or $.19 per share
in the same quarter a year ago. The improved results were
primarily due to higher sales volume and LIFO inventory
accounting effects.
Sales revenues were $147.1 million, a 20 percent increase
over year-earlier sales. Approximately two-thirds of the
increase resulted from improved sales volume of the Steel
Division offset by selling price reductions and a leaner product
mix. The balance of the higher sales resulted from the inclusion
of the sales of Aceros Fortuna, a Mexican steel distribution
subsidiary, acquired in July 1993.
Cost of sales as a percent of net sales decreased from 77
percent in last year's second fiscal quarter to 73 percent in the
current year's second quarter. This improved cost level was due
primarily to lower inventory levels and the use of the LIFO
inventory valuation method which reduced costs by $2.5 million
before taxes in the December 1993, quarter and by $.6 million
last year's December quarter. In addition, raw material costs
were 13 percent lower than a year ago and additional efficiencies
were achieved in manufacturing costs.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
-------------------------------------------------------------
(continued)
Six Months Results:
- ------------------
Net income for the six months ended December 31, 1993 was
$10.1 million or $1.16 per share versus $4.6 million or $.47 per
share a year ago.
Sales revenues increased by 5 percent to $276.6 million due
to the inclusion of Aceros Fortuna operations and to a 9 percent
unit volume improvement of the Steel Division. These effects
were partially offset by unit selling price reductions and a
leaner product mix in domestic operations.
Cost of sales were 74 percent of sales in the current fiscal
year versus 78 percent a year ago. The favorable LIFO accounting
effects were $5.8 million before taxes in the six months ended
December 31, 1993 and $1.1 million in the same period a year ago.
Raw material costs were lower by approximately 19 percent versus
those of a year ago.
Earnings for the most recent six month period were adversely
affected by a one-time charge of $1.4 million, or $.19 per share
in the September 1993 quarter, to increase deferred tax
liabilities for the recently enacted change in the corporate
income tax rate.
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings.
-------------------------
There are no material pending legal proceedings to which the
Company is a party or of which its property is subject. 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 or has a material interest adverse to
the Company's interest. There are no material proceedings with
environmental issues which involve a claim for damages, potential
sanctions or capital expenditures exceeding ten percent of the
current assets of the Company or which involve potential monetary
sanctions in excess of $100,000.
Item 2. Changes in Securities.
-----------------------------
There has been no material modification of any class of
registered securities, except for a registration statement on
Form S-3 (Registration No. 33-51613) filed on December 21, 1993
with respect to the issuance of up to $100,000,000 of unsecured
medium term notes which registration statement became effective
on January 6, 1994.
Item 4. Submission of Matters to a Vote of Security Holders.
-----------------------------------------------------------
The Annual Meeting of Stockholders of the Company was held
on October 25, 1993. Set forth below is a description of the
matters voted upon and the number of votes cast for, against or
withheld, as well as the number of abstentions and broker
nonvotes, as applicable to each such matter.
1. Election Of Directors. The following five directors
were elected to the Board of Directors of the Company.
There were no other nominees for director.
A. Dennis M. Draeger
Shares voted for: 6,907,741
Shares withheld: 198,779
Abstentions: N/A
Broker nonvotes: N/A
B. Carl R. Garr
Shares voted for: 6,885,068
Shares withheld: 221,452
Abstentions: N/A
Broker nonvotes: N/A
C. Marlin Miller, Jr.
Shares voted for: 6,908,026
Shares withheld: 198,494
Abstentions: N/A
Broker nonvotes: N/A
D. Marcus C. Bennett
Shares voted for: 6,902,728
Shares withheld: 203,792
Abstentions: N/A
Broker nonvotes: N/A
E. Mylle H. Bell
Shares voted for: 6,900,577
Shares withheld: 205,943
Abstentions: N/A
Broker nonvotes: N/A
2. The accounting firm of Coopers & Lybrand was elected
independent accountants for the year ending June 30,
1994.
Shares voted for: 7,000,731
Shares voted against: 60,331
Abstentions: 45,458
Broker nonvotes: N/A
3. A stock-based incentive compensation plan for officers
and key employees was approved. The plan succeeds a
previous plan adopted by shareholders in 1977.
Shares voted for: 4,166,594
Shares voted against: 1,987,771
Abstentions: 295,391
Broker nonvotes: 656,764
Item 5. Other Information.
-------------------------
On January 25, 1994 the Company sent notice to the holders
of its 12-7/8% Debentures Due 2014 ("Debentures") that the
Company will redeem the full outstanding balance of such
Debentures in the principal amount of $55.3 million on March 1,
1994. The redemption price will be at a premium over par equal
to $1,061.62 per $1,000 of principal amount of the Debentures.
The redemption will result in an extraordinary charge of $1.9
million after taxes ($.24 per share) to be taken in the quarter
ending March 31, 1994. The redemption will be made to reduce
future interest costs.
Item 6. Exhibits and Reports on Form 8-K.
----------------------------------------
a. The following documents are filed as exhibits:
4. Instruments defining the rights of security
holders, including indentures
A. Indenture dated January 12, 1994 between
the Company and Morgan Guaranty Trust
Company of New York, as Trustee, related
to the Company's $100,000,000 of
unsecured medium term notes registered
under Registration No. 33-51613.
11. Statement regarding computation of per share
earnings.
23. Additional Exhibits.
A. Press release dated January 25, 1994.
b. The Company filed no Reports on Form 8-K for
events occurring during the quarter of the fiscal
year covered by this report.
Item 3 is omitted as the answer is negative or the item is
not applicable.
SIGNATURES
----------
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.
CARPENTER TECHNOLOGY CORPORATION
(Registrant)
Date: February 10, 1994 s/G. Walton Cottrell
----------------- --------------------------------
G. Walton Cottrell
Sr. Vice President - Finance
and Chief Financial Officer