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 March 31, 1994
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 April 30, 1994.
Common stock, $5 par value 8,066,419
- -------------------------- ----------------------------
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 March 31, 1994 (Unaudited)
and June 30, 1993..................................... 3 & 4
Consolidated Statement of Income (Unaudited) for the
Three and Nine Months Ended March 31, 1994 and 1993... 5 & 6
Consolidated Statement of Cash Flows (Unaudited) for the
Nine Months Ended March 31, 1994 and 1993............. 7
Notes to Financial Statements........................... 8 - 11
Management's Discussion.................................11 & 12
Part II OTHER INFORMATION................................13 & 14
Exhibit Index............................................. E-1
PART I
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Page 1 of 2)
March 31, 1994 and June 30, 1993
In Thousands
----------------------
March 31 June 30
1994 1993
--------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,032 $ 45,822
Accounts receivable 93,089 90,426
Inventories 70,662 70,590
Deferred income taxes 1,347 2,737
Other current assets 6,076 7,120
-------- --------
Total current assets 176,206 216,695
-------- --------
Property, plant and equipment,
at cost 723,421 699,269
Less accumulated depreciation
and amortization 327,212 308,140
-------- --------
396,209 391,129
-------- --------
Prepaid pension cost 70,374 61,602
-------- --------
Investment in joint venture 47,227 -
-------- --------
Other assets 39,882 30,139
-------- --------
Total assets $729,898 $699,565
======== ========
See accompanying notes to financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Page 2 of 2)
March 31, 1994 and June 30, 1993
In Thousands
---------------------
March 31 June 30
LIABILITIES 1994 1993
-------- --------
(Unaudited)
Current liabilities:
Short-term debt $ 556 $ -
Accounts payable 42,051 24,328
Accrued compensation 9,822 14,457
Accrued income taxes 2,299 2,080
Other accrued liabilities 22,254 25,951
Current portion of long-term debt 15,619 6,617
-------- --------
Total current liabilities 92,601 73,433
-------- --------
Long-term debt, net of current portion 167,589 189,895
-------- --------
Accrued postretirement benefits 147,719 143,876
-------- --------
Deferred income taxes 77,128 66,765
-------- --------
Other liabilities and deferred income 16,974 7,135
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock, $5 par value -
authorized 2,000,000 shares; issued
460.6 shares at March 31, 1994 and
461.2 shares at June 30, 1993 29,090 29,128
Deferred compensation (25,979) (27,431)
Common stock, $5 par value -
authorized 50,000,000 shares; issued
9,587,822 shares at March 31, 1994
and 9,508,355 shares at June 30, 1993 47,938 47,542
Capital in excess of par value 49,580 46,131
Reinvested earnings 194,567 189,241
Foreign currency translation
adjustments (1,159) -
Common stock in treasury, at cost -
1,522,584 shares (66,150) (66,150)
-------- --------
Total shareholders' equity 227,887 218,461
-------- --------
Total liabilities and
shareholders' equity $729,898 $699,565
======== ========
See accompanying notes to financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Page 1 of 2)
(Unaudited)
for the Three and Nine Months Ended March 31, 1994 and 1993
Three Months Nine Months
------------------------------------
1994 1993 1994 1993
---- ---- ---- ----
(in thousands, except per share data)
Net Sales $174,347 $155,370 $450,903 $417,782
-------- -------- -------- --------
Costs and expenses:
Cost of sales 123,728 113,503 329,075 318,672
Selling & administrative
expenses 24,289 20,027 68,109 61,110
Interest expense 3,499 5,189 12,713 15,430
Other expense (income) 1,112 (663) 399 (1,908)
-------- -------- -------- --------
152,628 138,056 410,296 393,304
-------- -------- -------- --------
Income before income
taxes, extraordinary
charge and cumulative
effect of changes in
accounting principles 21,719 17,314 40,607 24,478
Income taxes 8,894 7,112 17,650 9,710
-------- -------- -------- --------
Income before extra-
ordinary charge and
cumulative effect
of changes in
accounting principles 12,825 10,202 22,957 14,768
Extraordinary charge,
net of income taxes (2,039) - (2,039) -
Cumulative effect of
changes in accounting
principles, net of
income taxes - - - (74,676)
-------- -------- -------- --------
Net income (loss) $ 10,786 $ 10,202 $ 20,918 $(59,908)
======== ======== ========= ========
See accompanying notes to financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Page 2 of 2)
(Unaudited)
for the Three and Nine Months Ended March 31, 1994 and 1993
Three Months Nine Months
------------------------------------
1994 1993 1994 1993
---- ---- ---- ----
(in thousands, except per share data)
Primary earnings per
common share:
Income before extra-
ordinary charge and
cumulative effect
of changes in
accounting principles $ 1.54 $ 1.22 $ 2.70 $ 1.69
Extraordinary charge (.25) - (.25) -
Cumulative effect of
changes in
accounting principles - - - (9.32)
-------- -------- -------- --------
Earnings (loss) per
common share $ 1.29 $ 1.22 $ 2.45 $ (7.63)
======== ======== ======== ========
Weighted average common
shares outstanding 8,101 7,963 8,050 8,025
======== ======== ======== ========
Fully-diluted earnings
per common share:
Income before extra-
ordinary charge and
cumulative effect
of changes in
accounting principles $ 1.49 $ 1.19 $ 2.63 $ 1.67
Extraordinary charge (.24) - (.24) -
Cumulative effect of
changes in
accounting principles - - - (8.80)
-------- -------- -------- --------
Earnings (loss) per
common share $ 1.25 $ 1.19 $ 2.39 $ (7.13)
======== ======== ======== ========
Weighted average common
shares outstanding 8,571 8,424 8,538 8,486
======== ======== ======== ========
Dividends per common
share $ .60 $ .60 $ 1.80 $ 1.80
======== ======== ======== ========
See accompanying notes to financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
for the Nine Months Ended March 31, 1994 and 1993
1994 1993
---- ----
(in thousands)
OPERATIONS
Net income (loss) $ 20,918 $(59,908)
Adjustments to reconcile net income (loss)
to net cash provided from operations:
Depreciation and amortization 21,612 19,948
Deferred income taxes 6,231 4,614
Pension credits (10,135) (8,864)
Extraordinary charge 2,039 -
Equity in losses of joint venture 1,055 -
Cumulative effect of changes in
accounting principles - 74,676
Changes in working capital and other:
Receivables 1,686 (2,192)
Inventories 12,327 42,250
Other 21,037 (9,502)
-------- --------
Net cash provided from operations 76,770 61,022
-------- --------
INVESTING ACTIVITIES
Investment in joint venture (48,282) -
Acquisition of wholly-owned
subsidiaries, net of cash received (22,200) -
Purchases of plant and equipment (21,084) (15,556)
Disposals of plant and equipment 1,334 293
-------- --------
Net cash used for investing activities (90,232) (15,263)
-------- --------
FINANCING ACTIVITIES
Payments on short-term debt (2,239) -
Proceeds from issuance of long-term debt 45,851 -
Payments on long-term debt (59,155) (3,944)
Payments to acquire treasury stock - (11,633)
Proceeds from issuance of stock 3,807 351
Dividends paid (15,592) (15,686)
-------- --------
Net cash required by financing activities (27,328) (30,912)
-------- --------
INCREASE(DECREASE) IN CASH & CASH EQUIVALENTS (40,790) 14,847
Cash and cash equivalents at
beginning of period 45,822 9,321
-------- --------
Cash and cash equivalents at
end of period $ 5,032 $ 24,168
======== ========
Supplemental Data:
Interest payments $ 16,450 $ 18,794
Income tax payments (net of refunds) $ 11,414 $ 2,478
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 nine months ended March 31, 1994, 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.
Fully diluted earnings per share are computed by
dividing net income (less the amount of additional after-tax
contribution the Company would be required to make to its
ESOP if the preferred shares were converted to common stock)
by the weighted average number of common shares and common
share equivalents during the period.
3. Inventories
-----------
March 31 June 30
1994 1993
-------- --------
(in thousands)
Finished $ 82,616 $ 97,129
Work in process 80,620 80,072
Raw materials and supplies 28,809 31,472
-------- --------
Total at current cost 192,045 208,673
Excess of current cost
over LIFO values 121,383 138,083
-------- --------
Inventory per Balance Sheet $ 70,662 $ 70,590
======== ========
3. Inventories, continued
-----------
Inventories at March 31, 1994 include finished
inventory of Aceros Fortuna, S.A. de C.V., a Mexican steel
distribution company which was acquired in July 1993. This
company's inventories are valued using the FIFO method.
The cost of LIFO-valued inventories was $165,026,000 at
March 31, 1994 and $192,743,000 at June 30, 1993. Reduction
in LIFO-valued inventories resulted in an increase in net
income of approximately $5,500,000 or $.68 per share and
$9,100,000 or $1.13 per share for the three and nine months
ended March 31, 1994, respectively, and approximately
$6,400,000 or $.80 per share and $7,000,000 or $.88 per
share for the three and nine months ended March 31, 1993,
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 $1,090,000 and $2,660,000,
respectively, for the three and nine months ended
March 31, 1994, 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.
5. Acquisition of Wholly-Owned Subsidiaries, continued
----------------------------------------
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.
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
consolidation 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, consolidated net
sales would have been $453,600,000 for the nine months ended
March 31, 1994, and $163,500,000 and $443,200,000 for the
three and nine months ended March 31, 1993, respectively.
Consolidated pro forma net income and earnings per share,
before the cumulative effect of accounting changes and
extraordinary charge, would not have been materially
different from the reported amounts for the three and nine
months ended March 31, 1994 and 1993. Such pro forma
amounts are not necessarily indicative of what the actual
consolidated 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
6. Changes in Accounting Principles, continued
--------------------------------
$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 nine months ended March 31,
1993 have been restated to include the effects of these
accounting changes which reduced income before income taxes
by $2,200,000 and $5,700,000 and income before the
cumulative effect of accounting changes by $2,200,000 or
$.28 per share and $4,500,000 or $.56 per share,
respectively.
7. 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.
During the quarter ended March 31, 1994, the Company
purchased at a premium, the entire outstanding principal
amount of $55,300,000 of its 12-7/8% sinking fund debentures
originally due in 2014. The purchase resulted in an
extraordinary charge of $2,039,000, net of $1,206,000 of tax
benefit, or $.25 per share. Funding for the purchase came
from the Company's short-term credit facilities, which are
intended to be replaced with Medium-Term Notes in the
future. 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 & ANALYSIS OF RESULTS OF OPERATIONS
-----------------------------------------------------------
Third Quarter Results:
- ---------------------
Income for the quarter ended March 31, 1994 was $12.8
million, before an extraordinary charge of $2.0 million after
taxes, or $.25 per share (see Note 7 above).
Primary earnings before the extraordinary charge were $1.54
per share, 26% higher than the $1.22 per share earned a year ago.
Including the extraordinary charge, third quarter net income was
$10.8 million, or $1.29 per share. The improved results were
primarily due to higher unit volume.
Sales for the third quarter were $174.3 million, up 12
percent from the $155.4 million for the same period a year ago.
This increase was a result of improved demand in the Steel
Division, and the inclusion of the sales of Aceros Fortuna, a
Mexican steel distribution subsidiary acquired in July 1993.
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS
-----------------------------------------------------------
(continued)
Third Quarter Results, continued
- ---------------------
Cost of sales as a percent of net sales decreased to 71
percent in the current quarter from 73 percent in last year's
third fiscal quarter. This improved cost level was due to lower
raw material costs, sales mix improvements and a higher
production level.
Inventories valued by the last-in, first-out method were
reduced during the third quarter of both years, resulting in
decreases in costs of $8.6 million before taxes or $.68 per
share after taxes in the current year, and by $9.9 million
before taxes or $.80 per share after taxes a year ago.
Nine Month Results:
- ------------------
For the first nine months of the current fiscal year, income
before the extraordinary charge was $23.0 million or $2.70 per
share, versus $14.8 million, or $1.69 per share for the same
period last year before a one-time charge for changes in
accounting principles.
Sales revenues were $450.9 million for the nine month
period, an eight percent increase from the $417.8 million
reported last year. The higher sales included the results of
Aceros Fortuna, the Company's Mexican steel distribution business
which was acquired in July 1993, and increased demand for
specialty steel products in the United States.
Cost of sales were 73 percent of sales in the current fiscal
year versus 76 percent a year ago. This improved cost level was
due primarily to lower inventory levels and the use of the LIFO
inventory valuation method which reduced costs by $14.4 million
before taxes, or $1.13 per share after taxes, in the nine months
ended March 31, 1994 and $11.0 million before taxes, or $.88 per
share after taxes, in the same period a year ago.
Earnings for the nine month period ending March 31, 1994,
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 a change in the corporate income tax
rate in August 1993.
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.
-----------------------------
a. There has been no material modification of any class of
registered securities, except for a Prospectus Supplement dated
January 12, 1994 with respect to the 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.
b. The Company's financing arrangements, including the
provisions of a certain Credit Agreement dated January 18, 1994
in the principal amount of $125,000,000, contain restrictions
which, among other things, limit the aggregate amount of the
Company's dividends.
Item 5. Other Information.
-------------------------
On March 1, 1994, the Company redeemed the full outstanding
balance of its 12-7/8% Debentures due 2014 ("Debentures") in the
principal amount of $55.3 million. The redemption price was at a
premium over par equal to $1,061.62 per $1,000 of principal
amount of the Debentures plus accrued and unpaid interest. The
redemption resulted in an extraordinary charge of $2.0 million
after taxes ($.25 per share). The redemption was made to reduce
future interest costs.
Item 6. Exhibits and Reports on Form 8-K.
----------------------------------------
a. The following document is filed as an exhibit:
11. Statement regarding computation of per share
earnings.
b. The Company filed no Reports on Form 8-K for
events occurring during the quarter of the fiscal
year covered by this report.
Items 3 and 4 are omitted as the answers are negative or the
items are 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: May 12, 1994 s/G. Walton Cottrell
------------------------- --------------------------------
G. Walton Cottrell
Sr. Vice President - Finance
and Chief Financial Officer