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 March 31, 1995
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 March 31, 1995.
Common stock, $5 par value 8,105,443
Class Number of shares outstanding
The Exhibit Index appears on page E-1.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
Part I FINANCIAL INFORMATION
Consolidated Balance Sheet March 31, 1995 (Unaudited)
and June 30, 1994..................................... 3 & 4
Consolidated Statement of Income (Unaudited) for the
Three and Nine Months Ended March 31, 1995 and 1994... 5
Consolidated Statement of Cash Flows (Unaudited) for the
Nine Months Ended March 31, 1995 and 1994............. 6
Notes to Consolidated Financial Statements.............. 7 - 9
Management's Discussion and Analysis of
Results of Operations................................. 9 & 11
Part II OTHER INFORMATION................................12 & 13
Exhibit Index............................................. E-1
PART I
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Page 1 of 2)
March 31, 1995 and June 30, 1994
(in thousands, except share data)
March 31 June 30
1995 1994
---------- ---------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 6,339 $ 5,404
Accounts receivable, net 112,049 95,412
Inventories 95,495 65,262
Deferred income taxes 1,204 463
Other current assets 6,458 4,629
-------- --------
Total current assets 221,545 171,170
-------- --------
Property, plant and equipment,
at cost 754,308 723,720
Less accumulated depreciation
and amortization 352,700 331,880
-------- --------
401,608 391,840
-------- --------
Prepaid pension cost 79,231 73,185
-------- --------
Investment in joint venture 48,988 48,576
-------- --------
Other assets 57,370 45,140
-------- --------
Total assets $808,742 $729,911
======== ========
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Page 2 of 2)
March 31, 1995 and June 30, 1994
(in thousands, except share data)
March 31 June 30
1995 1994
-------- --------
LIABILITIES (Unaudited)
- -----------
Current liabilities:
Short-term debt $ 44,875 $ -
Accounts payable 51,311 35,478
Accrued compensation 14,992 18,654
Accrued income taxes 8,477 616
Other accrued liabilities 27,840 28,153
Current portion of long-term debt 7,129 15,618
-------- --------
Total current liabilities 154,624 98,519
-------- --------
Long-term debt, net of current portion 167,155 158,070
-------- --------
Accrued postretirement benefits 143,352 139,365
-------- --------
Deferred income taxes 76,408 74,739
-------- --------
Other liabilities and deferred income 18,354 20,074
-------- --------
SHAREHOLDERS' EQUITY
- --------------------
Preferred stock, $5 par value -
authorized 2,000,000 shares; issued
457.7 shares at March 31, 1995
and 459.9 shares at June 30, 1994 28,895 29,029
Common stock, $5 par value -
authorized 50,000,000 shares; issued
9,628,322 shares at March 31, 1995
and 9,612,181 shares at June 30, 1994 48,142 48,061
Capital in excess of par value 52,617 50,882
Reinvested earnings 218,991 204,667
Common stock in treasury, at cost -
1,522,879 shares at March 31, 1995
and 1,522,604 shares at June 30, 1994 (66,989) (66,150)
Deferred compensation (24,723) (26,386)
Foreign currency translation
adjustments (8,084) (959)
-------- --------
Total shareholders' equity 248,849 239,144
-------- --------
Total liabilities and
shareholders' equity $808,742 $729,911
======== ========
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
for the Three and Nine Months Ended March 31, 1995 and 1994
(in thousands, except per share data)
Three Months Nine Months
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
Net sales $211,636 $174,347 $540,120 $450,903
-------- -------- -------- --------
Costs and expenses:
Cost of sales 154,101 123,907 403,586 329,676
Selling and
administrative
expenses 26,229 24,359 75,422 67,846
Interest expense 4,315 3,499 10,077 12,713
Equity in loss of
joint venture 1,880 935 2,980 1,055
Other expense
(income), net 319 (72) (466) (994)
-------- -------- -------- --------
186,844 152,628 491,599 410,296
-------- -------- -------- --------
Income before income
taxes and extra-
ordinary charge 24,792 21,719 48,521 40,607
Income taxes 9,429 8,894 18,399 17,650
-------- -------- -------- --------
Income before extra-
ordinary charge 15,363 12,825 30,122 22,957
Extraordinary charge,
net of income taxes - (2,039) - (2,039)
-------- -------- -------- --------
Net income $ 15,363 $ 10,786 $ 30,122 $ 20,918
======== ======== ======== ========
Earnings per common share:
Income before extra-
ordinary charge $ 1.82 $ 1.54 $ 3.53 $ 2.70
Extraordinary charge - (.25) - (.25)
-------- -------- -------- --------
Earnings per common
share $ 1.82 $ 1.29 $ 3.53 $ 2.45
======== ======== ======== ========
Weighted average common
shares outstanding 8,142 8,101 8,164 8,050
======== ======== ======== ========
Dividends per common
share $ .60 $ .60 $ 1.80 $ 1.80
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
for the Nine Months Ended March 31, 1995 and 1994
(in thousands)
1995 1994
OPERATIONS ---- ----
Net income $ 30,122 $ 20,918
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation and amortization 24,103 21,612
Deferred income taxes 2,607 6,231
Prepaid pension cost (6,046) (10,135)
Extraordinary charge - 2,039
Equity in loss of joint venture 2,980 1,055
Changes in working capital and other:
Receivables (15,023) 1,686
Inventories (34,214) 12,327
Other, net 15,834 21,037
-------- --------
Net cash provided from operations 20,363 76,770
-------- --------
INVESTING ACTIVITIES
Purchases of plant and equipment (28,604) (21,084)
Disposals of plant and equipment 866 1,334
Investment in joint venture (2,060) (48,282)
Acquisition of wholly-owned
subsidiaries, net of cash received (13,025) (22,200)
-------- --------
Net cash used for investing activities (42,823) (90,232)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of (payments on)
short-term debt 44,875 (2,239)
Proceeds from issuance of long-term debt 50,000 45,851
Payments on long-term debt (52,568) (59,155)
Dividends paid (15,798) (15,592)
Payments to acquire treasury stock (3,001) -
Proceeds from issuance of common stock 660 3,807
-------- --------
Net cash provided (required) by financing
activities 24,168 (27,328)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (773) -
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 935 (40,790)
Cash and cash equivalents at beginning of
period 5,404 45,822
-------- --------
Cash and cash equivalents at end of period $ 6,339 $ 5,032
======== ========
Supplemental Data:
Interest payments, net of amounts capitalized $ 10,877 $ 16,450
Income tax payments, net of refunds $ 7,524 $ 11,414
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 nine months ended March 31, 1995, 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 to Shareholders.
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.
3. Inventories
-----------
March 31 June 30
1995 1994
-------- --------
(in thousands)
Finished $ 82,725 $ 76,187
Work in process 103,994 85,247
Raw materials and supplies 34,506 29,558
-------- --------
Total at current cost 221,225 190,992
Excess of current cost
over LIFO values 125,730 125,730
-------- --------
Inventory per Balance Sheet $ 95,495 $ 65,262
======== ========
3. Inventories, continued
-----------
The current cost of LIFO-valued inventories was $196.6
million at March 31, 1995 and $165.8 million at June 30,
1994. Reductions in LIFO-valued inventories resulted in an
increase in net income of approximately $5.5 million or $.68
per share and $9.1 million or $1.13 per share for the three
and nine months ended March 31, 1994, respectively. There
were no LIFO accounting effects in the current fiscal year.
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 $542
million for the nine months ended March 31, 1995, and $184
million and $470 million for the three and nine months ended
March 31, 1994, 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 nine months ended March 31, 1995, 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 three and nine months ended March 31, 1995,
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 $3.8 million
and $8.6 million for the three and nine months, respec-
tively, related to Aceros Fortuna, the Company's Mexican
steel distributor acquired on July 28, 1993.
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS
----------------------------------------------------------
Third Quarter Results:
- ---------------------
Net income for the quarter ended March 31, 1995 was $15.4
million versus $12.8 million in the same quarter last year. Last
year's results included an extraordinary charge of $2.0 million
after tax ($.25 per share) for the early extinguishment of high
interest cost debt. Earnings per share were $1.82 compared with
$1.54 before the extraordinary charge for the same period a year
ago. The improved results were primarily due to higher sales
volume coupled with increased selling prices and the inclusion of
Certech, Inc., acquired in July 1994.
Sales were $211.6 million, a 21 percent increase over the
$174.3 million last year. The increase in sales was primarily a
result of 6 percent higher Steel Division shipment levels,
chiefly of stainless bar and wire products to automotive and
equipment applications, and a resurgence of sales to aerospace
related manufacturers. 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. Sales were also higher because of the
inclusion of the sales of Certech, Inc.
Cost of sales as a percent of net sales was 73 percent and
71 percent for the third quarter of fiscal 1995 and 1994,
respectively. This year's third quarter was favorably impacted
by higher production efficiencies due to increased capacity
utilization. Last year's third quarter included the favorable
impact of lower inventory levels and the use of the LIFO
inventory valuation method which reduced costs by $8.6 million
before taxes, or $.68 per share after taxes. There were no LIFO
accounting effects in the current fiscal quarter.
Walsin-CarTech Specialty Steel Corporation, a joint venture
with Walsin Lihwa Corporation in the Republic of China (Taiwan),
became operational during the March 1995 quarter. Year-to-year
earnings comparisons were unfavorably impacted by the amortiza-
tion of the startup costs and the discontinuation of capitalizing
interest related to the investment in this venture.
Nine Month Results:
- ------------------
Net income for the nine months ended March 31, 1995 was
$30.1 million, compared with $23.0 million before an
extraordinary charge of $2.0 million after tax ($.25 per share)
for the same period last year. Earnings per share were $3.53
compared with $2.70 before the extraordinary charge 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 at the Steel Division. 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 $540.1 million, a 20 percent increase from $450.9
million last year. This increase was primarily due to a 10
percent increase in Steel Division unit volume shipments, higher
selling prices resulting from price increases to offset higher
labor and supply costs, surcharges to offset sharply rising raw
material costs, 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 75 percent of net sales in the
current fiscal year versus 73 percent for the same period last
year. 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 $14.4 million before
taxes, or $1.13 per share for the nine month period. There were
no LIFO accounting effects in the current fiscal year. Excluding
the LIFO effects, cost of sales as a percent of net sales
decreased slightly due to production efficiencies resulting from
increased Steel Division capacity utilization. These positive
effects were partially offset by higher raw material costs.
Interest costs decreased by $2.6 million for the first nine
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.
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 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 record or
beneficially 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 is no administrative or judicial proceeding arising under
any Federal, State or local provisions that have been enacted or
adopted regulating the discharge of materials into the environ-
ment 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 5. Other Information.
-------------------------
On April 25, 1995, the Board of Directors of the Company
elected Kenneth L. Wolfe as a director to serve until the Annual
Stockholders Meeting on October 23, 1995 at which time he will
stand for election to serve in Class Two.
Item 6. Exhibits and Reports on Form 8-K.
----------------------------------------
a. The following documents are filed as exhibits:
11. Statement re computation of per share
earnings.
27. Financial data schedule
99. Additional exhibits.
(i) Press release dated April 25, 1995
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 2, 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, 1995 s/G. Walton Cottrell
------------- -------------------------------
G. Walton Cottrell
Sr. Vice President - Finance
and Chief Financial Officer