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 December 31, 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 December 31, 1994.
Common stock, $5 par value 8,104,110
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, 1994 (Unaudited)
and June 30, 1994..................................... 3 & 4
Consolidated Statement of Income (Unaudited) for the
Three and Six Months Ended December 31, 1994 and 1993. 5
Consolidated Statement of Cash Flows (Unaudited) for the
Six Months Ended December 31, 1994 and 1993........... 6
Notes to Consolidated Financial Statements.............. 7 - 9
Management's Discussion and Analysis of Results
of Operations......................................... 9 & 10
Part II OTHER INFORMATION................................11 - 13
Exhibit Index............................................. E-1
PART I
------ CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Page 1 of 2)
December 31, 1994 and June 30, 1994
(in thousands, except share data)
December 31 June 30
1994 1994
----------- ---------
ASSETS (Unaudited)
- ------
Current assets:
Cash and cash equivalents $ 5,491 $ 5,404
Accounts receivable, net 91,603 95,412
Inventories 85,996 65,262
Deferred income taxes 284 463
Other current assets 9,810 4,629
-------- --------
Total current assets 193,184 171,170
-------- --------
Property, plant and equipment,
at cost 747,064 723,720
Less accumulated depreciation
and amortization 345,774 331,880
-------- --------
401,290 391,840
-------- --------
Prepaid pension cost 77,112 73,185
-------- --------
Investment in joint venture 50,611 48,576
-------- --------
Other assets 55,690 45,140
-------- --------
Total assets $777,887 $729,911
======== ========
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Page 2 of 2)
December 31, 1994 and June 30, 1994
(in thousands, except share data)
December 31 June 30
LIABILITIES 1994 1994
- ----------- ----------- --------
Current liabilities: (Unaudited)
Short-term debt $ 31,265 $ -
Accounts payable 46,816 35,478
Accrued compensation 12,856 18,654
Accrued income taxes 3,579 616
Other accrued liabilities 31,926 28,153
Current portion of long-term debt 7,207 15,618
-------- --------
Total current liabilities 133,649 98,519
-------- --------
Long-term debt, net of current portion 167,505 158,070
-------- --------
Accrued postretirement benefits 140,670 139,365
-------- --------
Deferred income taxes 75,696 74,739
-------- --------
Other liabilities and deferred income 18,642 20,074
-------- --------
SHAREHOLDERS' EQUITY
- --------------------
Preferred stock, $5 par value -
authorized 2,000,000 shares; issued
458.8 shares at December 31, 1994
and 459.9 shares at June 30, 1994 28,965 29,029
Common stock, $5 par value -
authorized 50,000,000 shares; issued
9,626,989 shares at December 31, 1994
and 9,612,181 shares at June 30, 1994 48,135 48,061
Capital in excess of par value 52,557 50,882
Reinvested earnings 208,874 204,667
Common stock in treasury, at cost -
1,522,879 shares at December 31, 1994
and 1,522,604 shares at June 30, 1994 (66,989) (66,150)
Deferred compensation (25,172) (26,386)
Foreign currency translation
adjustments (4,645) (959)
-------- --------
Total shareholders' equity 241,725 239,144
Total liabilities and -------- --------
shareholders' equity $777,887 $729,911
======== ========
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
for the three and six months ended December 31, 1994 and 1993
(in thousands, except per share data)
Three Months Six Months
------------------ ------------------
1994 1993 1994 1993
---- ---- ---- ----
Net sales $172,400 $147,127 $328,484 $276,556
-------- -------- -------- --------
Costs and expenses:
Cost of sales 127,917 108,264 249,485 205,769
Selling and
administrative
expenses 25,239 22,825 49,193 43,487
Interest expense 3,064 4,178 5,762 9,214
Equity in loss of
joint venture 860 240 1,100 120
Other income, net (274) (517) (785) (922)
-------- -------- -------- --------
156,806 134,990 304,755 257,668
Income before income
taxes 15,594 12,137 23,729 18,888
Income taxes 5,767 4,777 8,970 8,756
-------- -------- -------- --------
Net income $ 9,827 $ 7,360 $ 14,759 $ 10,132
======== ======== ======== ========
Earnings per common share:
Primary $ 1.16 $ .86 $ 1.71 $ 1.16
======== ======== ======== ========
Fully diluted $ 1.11 $ .84 $ 1.66 $ 1.14
======== ======== ======== ========
Weighted average common
shares outstanding 8,161 8,032 8,182 8,019
======== ======== ======== ========
Dividends per common
share $ .60 $ .60 $ 1.20 $ 1.20
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
for the six months ended December 31, 1994 and 1993
(in thousands)
1994 1993
OPERATIONS ---- ----
Net income $ 14,759 $ 10,132
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation and amortization 15,170 14,374
Deferred income taxes 1,922 2,714
Prepaid pension cost (3,927) (6,147)
Equity in loss of joint venture 1,100 120
Changes in working capital and other:
Receivables 6,163 18,960
Inventories (22,732) 2,040
Other, net 6,331 18,309
-------- --------
Net cash provided from operations 18,786 60,502
INVESTING ACTIVITIES -------- --------
Purchases of plant and equipment (19,948) (15,179)
Disposals of plant and equipment 600 691
Investment in joint venture (2,060) (47,072)
Acquisition of wholly-owned
subsidiaries, net of cash received (13,055) (22,200)
-------- --------
Net cash used for investing activities (34,463) (83,760)
FINANCING ACTIVITIES -------- --------
Proceeds from issuance of short-term debt 31,265 8,794
Proceeds from issuance of long-term debt 50,000 -
Payments on long-term debt (52,140) (4,067)
Dividends paid (10,552) (10,382)
Payments to acquire treasury stock (3,001) -
Proceeds from issuance of common stock 663 1,138
Net cash provided (required) by financing -------- --------
activities 16,235 (4,517)
EFFECT OF EXCHANGE RATE CHANGES ON CASH -------- --------
AND CASH EQUIVALENTS (471) -
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 87 (27,775)
Cash and cash equivalents at
beginning of period 5,404 45,822
-------- --------
Cash and cash equivalents at
end of period $ 5,491 $ 18,047
======== ========
Supplemental Data:
Interest payments, net of amounts capitalized $ 4,562 $ 9,277
Income tax payments, net of refunds $ 3,941 $ 2,768
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 six months ended December 31, 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
-------------------------
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.
On a fully-diluted basis, both net earnings and shares
outstanding are adjusted to assume the conversion of the
convertible preferred stock.
3. Inventories
-----------
December 31 June 30
1994 1994
---- ----
(in thousands)
Finished $ 76,339 $ 76,187
Work in process 103,265 85,247
Raw materials and supplies 32,122 29,558
-------- --------
Total at current cost 211,726 190,992
Excess of current cost
over LIFO values 125,730 125,730
-------- --------
Inventory per Balance Sheet $ 85,996 $ 65,262
======== ========
3. Inventories, continued
-----------
The current cost of LIFO-valued inventories was $187.8
million at December 31, 1994 and $165.8 million at June 30,
1994. Reductions in LIFO-valued inventories resulted in an
increase in net income of approximately $1.5 million or $.19
per share and $3.6 million or $.45 per share for the three
and six months ended December 31, 1993, respectively.
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 $16.7 million, including acquisition costs,
comprised of $13.5 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, and is
included in other assets on the consolidated balance sheet.
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 $330
million for the six months ended December 31, 1994, and $151
million and $286 million for the three and six months ended
December 31, 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 six months ended December 31, 1994, the
Company issued $50.0 million of medium-term debt securities
with a 7.68% average interest rate under a Form S-3
registration statement ("Shelf Registration") on file with
the Securities and Exchange Commission. The proceeds were
used to retire borrowings under credit arrangements.
6. Foreign Currency Translation Adjustments
----------------------------------------
The functional currency for the majority of the
Company's international operations is the local currency,
and, accordingly, the respective assets and liabilities are
translated at end of period exchange rates, while the income
and expense components are translated at average exchange
rates prevailing during the period. The resulting
translation adjustments are accumulated in a separate
section of shareholders' equity on the consolidated balance
sheet.
During the quarter ended December 31, 1994, the value
of the Mexican peso fell versus that of the U.S. dollar. As
a result of this devaluation, the Company recorded a
reduction to Shareholders' Equity of $4.7 million for the
quarter related to Aceros Fortuna, the Company's Mexican
steel distributor acquired on July 28, 1993.
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS
-----------------------------------------------------------
Second Quarter Results:
- ----------------------
Net income for the quarter ended December 31, 1994 was $9.8
million versus $7.4 million in the same quarter last year.
Primary earnings per share were $1.16 compared with $.86 for the
same period a year ago. The improved results were primarily due
to higher sales volume coupled with increased selling prices.
Sales were $172.4 million, a 17 percent increase over the
$147.1 million last year. The increase in sales was primarily a
result of 10 percent higher Steel Division shipment levels
chiefly of stainless bar and wire products to automotive and
equipment manufacturers. Sales were also higher because of the
inclusion of the sales of Certech, Inc., acquired in July 1994.
In addition, the Company has recently implemented selling price
increases to offset increasing labor and supply costs and has
instituted surcharges to offset sharply rising raw material
costs.
Cost of sales as a percent of net sales was 74 percent for
the second quarters of both fiscal 1995 and 1994. This year's
second quarter was favorably impacted by higher production
efficiencies due to increased capacity utilization. Last year's
second quarter included the favorable impact of lower inventory
levels and the use of the LIFO inventory valuation method which
reduced costs by $2.5 million before taxes, or $.19 per share.
Six Month Results:
- -----------------
Net income for the six months ended December 31, 1994 was
$14.8 million, compared with $10.1 million for the same period
last year. Primary earnings per share were $1.71 compared with
$1.16 for the same period a year ago. The improved results were
primarily due to higher sales volume and production efficiencies
due to increased capacity utilization. Additionally, 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 $328.5 million, a 19 percent increase from $276.6
million last year. This increase was primarily due to a 12
percent increase in Steel Division unit volume shipments and the
inclusion of the results of Certech, Inc. and Aceros Fortuna S.A.
de C.V., which were acquired on July 22, 1994 and July 28, 1993,
respectively.
Cost of sales increased to 76 percent of net sales in the
current fiscal year versus 74 percent for the same period last
year, primarily due to higher raw material costs. Last year's
cost of sales was favorably impacted by an inventory reduction
program and the use of the LIFO inventory valuation method which
reduced costs by $5.8 million before taxes, or $.45 per share for
the six month period.
Interest costs decreased by $3.5 million for the first six
months of this fiscal year compared to the same period last year.
This decrease was primarily the result of replacing high interest
cost debt with lower interest cost borrowings in the March 1994
quarter, combined with increased capitalized interest costs
during the pre-operating period of Walsin-CarTech Specialty Steel
Corporation, a joint venture with Walsin Lihwa Corporation in the
Republic of China (Taiwan).
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. 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.
-----------------------------
See Note 5 to the Financial Statements contained in Part I.
Item 4. Submission of Matters to a Vote of Security Holders.
-----------------------------------------------------------
The Annual Meeting of Stockholders of the Company was held
on October 24, 1994. The following directors were elected at the
meeting: Dr. C. McCollister Evarts; William J. Hudson, Jr.;
Mylle Bell Mangum; and Paul R. Roedel. The following directors
continued their terms of office after the meeting: Robert W.
Cardy; Arthur E. Humphrey; Edward W. Kay; Frederick C.
Langenberg; Marcus C. Bennett; Dennis M. Draeger; Carl R. Garr;
Marlin Miller, Jr. 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 four directors
were elected to the Board of Directors of the Company. There were
no other nominees for director.
A. Dr. C. McCollister Evarts
Shares voted for: 7,428,204
Shares withheld: 128,659
Abstentions: N/A
Broker nonvotes: N/A
B. William J. Hudson, Jr.
Shares voted for: 7,431,147
Shares withheld: 125,716
Abstentions: N/A
Broker nonvotes: N/A
C. Mylle Bell Mangum
Shares voted for: 7,425,421
Shares withheld: 131,442
Abstentions: N/A
Broker nonvotes: N/A
D. Paul R. Roedel
Shares voted for: 7,424,538
Shares withheld: 132,325
Abstentions: N/A
Broker nonvotes: N/A
2. The accounting firm of Coopers & Lybrand was elected
independent accountants for the year ending June 30, 1995.
Shares voted for: 7,456,925
Shares voted against: 61,187
Abstentions: N/A
Broker nonvotes: N/A
Item 5. Other Information.
-------------------------
1. On December 8, 1994 the Board of Directors of the
Company elected Kathryn C. Turner as a director to serve until
the Annual Stockholders meeting on October 23, 1995.
2. On December 8, 1994 the Board of Directors of the
Company adopted a new set of By-laws. A complete copy of the
By-laws as amended is attached as an exhibit to this report.
Item 6. Exhibits and Reports on Form 8-K.
----------------------------------------
a. The following documents are filed as exhibits:
3. By-laws as amended on December 8, 1994.
11. Statement regarding computation of per share
earnings.
99. Additional Exhibits.
A. Press release dated December 9, 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 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: February 9, 1995 s/G. Walton Cottrell
------------------- --------------------------------
G. Walton Cottrell
Sr. Vice President - Finance
and Chief Financial Officer