UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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)
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 September 30, 1994.
Common stock, $5 par value 8,155,164
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 September 30, 1994 (Unaudited)
and June 30, 1994.......................................... 3 & 4
Consolidated Statement of Income (Unaudited) for the
Three Months Ended September 30, 1994 and 1993............. 5
Consolidated Statement of Cash Flows (Unaudited) for the
Three Months Ended September 30, 1994 and 1993............. 6
Notes to Consolidated Financial Statements................... 7 - 9
Management's Discussion and Analysis of Results
of Operations.............................................. 9
Part II OTHER INFORMATION.....................................10 & 11
Exhibit Index.................................................. E-1
PART I
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Page 1 of 2)
September 30, 1994 and June 30, 1994
(in thousands, except share data)
September 30 June 30
1994 1994
------------ ----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 9,752 $ 5,404
Accounts receivable, net 87,135 95,412
Inventories 71,306 65,262
Deferred income taxes 463 463
Other current assets 10,013 4,629
-------- --------
Total current assets 178,669 171,170
-------- --------
Property, plant and equipment,
at cost 741,287 723,720
Less accumulated depreciation
and amortization 339,003 331,880
-------- --------
402,284 391,840
-------- --------
Prepaid pension cost 75,167 73,185
-------- --------
Investment in joint venture 50,526 48,576
-------- --------
Other assets 55,092 45,140
-------- --------
Total assets $761,738 $729,911
======== ========
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Page 2 of 2)
September 30, 1994 and June 30, 1994
(in thousands, except share data)
September 30 June 30
LIABILITIES 1994 1994
- - - ----------- ------------ -----------
(Unaudited)
Current liabilities:
Short-term debt $ 19,850 $ -
Accounts payable 41,318 35,478
Accrued compensation 9,902 18,654
Accrued income taxes 3,851 616
Other accrued liabilities 28,276 28,153
Current portion of long-term debt 7,299 15,618
-------- --------
Total current liabilities 110,496 98,519
-------- --------
Long-term debt, net of current portion 171,244 158,070
-------- --------
Accrued postretirement benefits 140,019 139,365
-------- --------
Deferred income taxes 75,555 74,739
-------- --------
Other liabilities and deferred income 20,107 20,074
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock, $5 par value -
authorized 2,000,000 shares; issued
459.3 shares at September 30, 1994
and 459.9 shares at June 30, 1994 29,002 29,029
Common stock, $5 par value -
authorized 50,000,000 shares; issued
9,624,919 shares at September 30, 1994
and 9,612,181 shares at June 30, 1994 48,125 48,061
Capital in excess of par value 52,471 50,882
Reinvested earnings 204,325 204,667
Common stock in treasury, at cost -
1,469,755 shares at September 30, 1994
and 1,522,604 shares at June 30, 1994 (63,988) (66,150)
Deferred compensation (25,771) (26,386)
Foreign currency translation
adjustments 153 (959)
-------- --------
Total shareholders' equity 244,317 239,144
-------- --------
Total liabilities and
shareholders' equity $761,738 $729,911
======== ========
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
for the three months ended September 30, 1994 and 1993
(in thousands, except per share data)
1994 1993
---- ----
Net sales $156,084 $129,429
-------- --------
Costs and expenses:
Cost of sales 121,568 97,505
Selling & administrative
expenses 23,954 20,662
Interest expense 2,698 5,036
Equity in loss (profit)
of joint venture 240 (120)
Other income, net (511) (405)
-------- --------
147,949 122,678
-------- --------
Income before income taxes 8,135 6,751
Income taxes 3,203 3,979
-------- --------
Net income $ 4,932 $ 2,772
======== ========
Earnings per common share $ .55 $ .30
======== ========
Weighted average common
shares outstanding 8,201 7,981
======== ========
Dividends per common
share $ .60 $ .60
======== ========
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
for the three months ended September 30, 1994 and 1993
(in thousands)
1994 1993
---- ----
OPERATIONS
Net income $ 4,932 $ 2,772
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation and amortization 7,373 7,150
Deferred income taxes 302 2,348
Prepaid pension cost (1,982) (2,898)
Equity in loss (profit) of joint venture 240 (120)
Changes in working capital and other:
Receivables 11,694 16,588
Inventories (4,818) 106
Other, net (5,270) (4,189)
-------- -------
Net cash provided from operations 12,471 21,757
-------- -------
INVESTING ACTIVITIES
Purchases of plant and equipment (11,012) (10,015)
Disposals of plant and equipment 47 378
Investment in joint venture (1,020) (45,892)
Acquisition of wholly-owned
subsidiaries, net of cash received (13,005) (22,200)
-------- --------
Net cash used for investing activities (24,990) (77,729)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of short-term debt 19,850 24,776
Proceeds from issuance of long-term debt 40,000 -
Payments on long-term debt (38,309) (491)
Dividends paid (5,274) (5,196)
Proceeds from issuance of common stock 604 163
-------- --------
Net cash provided by financing activities 16,871 19,252
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (4) -
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,348 (36,720)
Cash and cash equivalents at
beginning of period 5,404 45,822
-------- --------
Cash and cash equivalents at
end of period $ 9,752 $ 9,102
======== ========
Supplemental Data:
Interest payments, net of amounts capitalized $ 4,411 $ 8,545
Income tax payments, net of refunds $ (411) $ 223
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED 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 three months ended September 30, 1994 are not
necessarily indicative of the results that may be expected
for the year ending June 30, 1995. For further information,
refer to the consolidated financial statements and footnotes
included in the Company's 1994 Annual Report on Form 10-K.
The June 30, 1994 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
-------------------------
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
-----------
September 30 June 30
1994 1994
-------- --------
(in thousands)
Finished $ 73,899 $ 76,187
Work in process 91,820 85,247
Raw materials and supplies 31,317 29,558
-------- --------
Total at current cost 197,036 190,992
Excess of current cost
over LIFO values 125,730 125,730
-------- --------
Inventory per Balance Sheet $ 71,306 $ 65,262
======== ========
3. Inventories, continued
-----------
The current cost of LIFO-valued inventories was $169.9
million at September 30, 1994 and $165.8 million at June 30,
1994. Reduction in LIFO-valued inventories resulted in an
increase in net income of approximately $2.1 million or $.26
per share for the three months ended September 30, 1993.
4. Acquisition of Wholly-Owned Subsidiaries
----------------------------------------
On July 22, 1994, the Company acquired all of the
outstanding shares of Certech, Inc., and an affiliated
company, for $16.6 million, including acquisition costs,
comprised of $13.4 million in cash and 53,124 shares of
treasury common stock. Certech manufactures a broad line
of complex injection molded ceramics parts.
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 was approximately $10 million and
has been recorded as intangible assets and goodwill.
As previously reported, 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.
The operating results of these acquired businesses have
been included in the Consolidated Statement of Income from
the dates of acquisition. On the basis of a pro forma
combination of the results of operations as if the
acquisitions had taken place at the beginning of fiscal
1994, combined net sales would have been approximately
$158 million and $135 million for the quarters ended
September 30, 1994 and 1993, respectively. Combined pro
forma net income and earnings per share would not have been
materially different from the reported amounts for both
periods. Such pro forma amounts are not necessarily
indicative of what the actual combined results of operations
might have been if the acquisitions had been effective at the
beginning of fiscal 1994.
5. Debt Arrangements
-----------------
During the quarter ended September 30, 1994, the
Company issued $40.0 million of medium-term debt securities
with a 7.66% average interest rate under a Form S-3
registration statement ("Shelf Registration") on file with
the Securities and Exchange Commission. On October 5, 1994,
the Company issued an additional $10.0 million of medium-
term debt securities with a 7.75% interest rate. The
proceeds were used to retire borrowings under credit
arrangements.
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS
-----------------------------------------------------------
Net income for the quarter was $4.9 million or $.55 per
share versus $2.8 million or $.30 per share in the same quarter
last year. The improved results were primarily due to higher
sales volume. In addition, earnings last year were adversely
affected by a one-time charge of $1.5 million, or $.19 per share,
to increase net deferred tax liabilities for a change in the
U.S. corporate income tax rate.
Sales were $156.1 million, a 21 percent increase over the
$129.4 million last year. The increase in sales was primarily a
result of the higher shipment levels, particularly of stainless
bar and wire products to the automotive and equipment manufacturers.
Steel Division unit volume shipments were up 15 percent compared
with the year-ago period. Sales and profits were also improved by
the inclusion of the results of Certech, Inc. and Aceros Fortuna
S.A., which were acquired on July 22, 1994 and July 28, 1993,
respectively.
Cost of sales as a percent of net sales increased from 75
percent in last year's first fiscal quarter to 78 percent in the
current year's first quarter. Last year's cost of sales was
favorably impacted because of an inventory reduction program and
the use of the LIFO inventory valuation method which reduced
costs by $3.3 million before taxes or $.26 per share after taxes.
In addition, raw material costs were 23 percent higher in this
year's first fiscal quarter versus last year's first fiscal
quarter.
Interest costs decreased by $2.3 million versus the same
period last year. This was primarily due to increased
capitalized interest costs during the pre-operating period of
Walsin-CarTech Specialty Steel Corporation, a joint venture with
Walsin Lihwa Corporation. Additionally, the Company replaced
high interest cost debt with lower interest cost borrowings in
the March 1994 quarter.
PART II - OTHER INFORMATION
- - - ---------------------------
Item 1. Legal Proceedings.
-------------------------
There are no material pending legal proceedings, other than
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. 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 2. Changes in Securities.
-----------------------------
(a) See Note 5 to Financial Statements contained in Part I.
Item 6. Exhibits and Reports on Form 8-K.
----------------------------------------
a. The following documents are filed as exhibits:
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, 4 and 5 are omitted as the answer is 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: November 10, 1994 /s/G. Walton Cottrell
------------------- --------------------------------
G. Walton Cottrell
Sr. Vice President - Finance
and Chief Financial Officer