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, 1997
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, 1997.
Common stock, $5 par value 19,439,069
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 as of March 31, 1997
(Unaudited) and June 30, 1996......................... 3 & 4
Consolidated Statement of Income (Unaudited) for the
Three and Nine Months Ended March 31, 1997 and 1996... 5
Consolidated Statement of Cash Flows (Unaudited) for the
Nine Months Ended March 31, 1997 and 1996............. 6
Notes to Consolidated Financial Statements.............. 7 - 9
Management's Discussion and Analysis of Results
of Operations.........................................10 & 11
Part II OTHER INFORMATION................................12 & 13
Exhibit Index............................................. E-1
PART I
- ------ Carpenter Technology Corporation
Consolidated Balance Sheet (Page 1 of 2)
March 31, 1997 and June 30, 1996
(in thousands, except share data)
March 31 June 30
1997 1996
--------- ---------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 26,487 $ 13,159
Accounts receivable, net 153,751 137,103
Inventories 206,653 160,452
Deferred income taxes - 2,113
Other current assets 13,465 11,643
---------- ----------
Total current assets 400,356 324,470
Property, plant and equipment,
at cost 919,226 809,697
Less accumulated depreciation
and amortization 415,088 390,225
---------- ----------
504,138 419,472
Prepaid pension cost 99,813 91,474
Investment in joint venture 8,813 9,760
Goodwill, net 99,152 18,792
Other assets 89,391 48,003
---------- ----------
Total assets $1,201,663 $ 911,971
========== ==========
See accompanying notes to consolidated financial statements.
Carpenter Technology Corporation
Consolidated Balance Sheet (Page 2 of 2)
March 31, 1997 and June 30, 1996
(in thousands, except share data)
March 31 June 30
LIABILITIES 1997 1996
- ----------- --------- ---------
(Unaudited)
Current liabilities:
Short-term debt $ 101,870 $ 18,964
Accounts payable 72,836 75,811
Accrued compensation 19,700 26,088
Accrued income taxes 8,806 13,656
Other accrued liabilities 33,490 30,446
Deferred income taxes 6,474 -
Current portion of long-term debt 3,443 7,010
---------- ----------
Total current liabilities 246,619 171,975
Long-term debt, net of current portion 247,784 188,024
Accrued postretirement benefits 138,705 137,738
Deferred income taxes 110,882 84,460
Other liabilities and deferred income 25,982 20,697
SHAREHOLDERS' EQUITY
- --------------------
Preferred stock -
$5 par value, authorized 2,000,000
shares; issued 450.0 shares at
March 31, 1997 and 453.1 shares
at June 30, 1996 28,405 28,581
Common stock at $5 par value -
authorized 50,000,000 shares; issued
19,599,224 shares at March 31, 1997
and 19,545,751 shares at June 30, 1996 97,996 97,729
Capital in excess of par value -
common stock 52,976 13,498
Reinvested earnings 287,578 267,956
Common stock in treasury, at cost -
160,155 shares at March 31, 1997 and
2,930,074 shares at June 30, 1996 (3,526) (64,483)
Deferred compensation (20,901) (22,830)
Foreign currency translation
adjustments (10,837) (11,374)
---------- ----------
Total shareholders' equity 431,691 309,077
---------- ----------
Total liabilities and
shareholders' equity $1,201,663 $ 911,971
========== ==========
See accompanying notes to consolidated financial statements.
Carpenter Technology Corporation
Consolidated Statement of Income
(Unaudited)
for the three and nine months ended March 31, 1997 and 1996
(in thousands, except per share data)
Three Months Nine Months
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Net sales $250,869 $233,274 $654,285 $627,869
-------- -------- -------- --------
Costs and expenses:
Cost of sales 188,953 174,575 489,340 468,009
Selling and
administrative
expenses 31,019 28,379 90,197 81,675
Interest expense 5,225 5,010 14,127 14,413
Equity in loss of
joint venture 206 3,955 922 6,320
Other (income)
expense, net 330 (2,815) (755) (3,610)
-------- -------- -------- --------
225,733 209,104 593,831 566,807
-------- -------- -------- --------
Income before income
taxes 25,136 24,170 60,454 61,062
Income taxes 9,642 9,444 23,238 22,137
-------- -------- -------- --------
Net income $ 15,494 $ 14,726 $ 37,216 $ 38,925
======== ======== ======== ========
Earnings per common share:
Primary $ .86 $ .86 $ 2.11 $ 2.27
======== ======== ======== ========
Fully diluted $ .84 $ .83 $ 2.04 $ 2.19
======== ======== ======== ========
Weighted average common
shares outstanding 17,768 16,735 17,064 16,657
======== ======== ======== ========
Dividends per common
share $ .33 $ .33 $ .99 $ .99
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
Carpenter Technology Corporation
Consolidated Statement of Cash Flows
(Unaudited)
for the nine months ended March 31, 1997 and 1996
(in thousands)
1997 1996
---- ----
OPERATIONS
Net income $ 37,216 $ 38,925
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation and amortization 28,475 26,407
Deferred income taxes 8,146 4,596
Prepaid pension cost (8,339) (7,810)
Equity in loss of joint venture 922 6,320
Gain on sale of partial interest
in joint venture - (2,650)
Changes in working capital and other,
net of acquisitions:
Receivables 1,903 (9,464)
Inventories (14,202) (43,913)
Accounts payable (10,139) 4,248
Accrued current liabilities (15,085) (1,190)
Other, net (3,601) 161
-------- --------
Net cash provided from operations 25,296 15,630
INVESTING ACTIVITIES -------- --------
Purchases of plant and equipment (74,095) (25,269)
Disposals of plant and equipment 576 1,185
Acquisitions of businesses, net
of cash received (50,654) (10,584)
Proceeds from sale of partial
interest in joint venture - 32,672
-------- --------
Net cash used for investing activities (124,173) (1,996)
-------- --------
FINANCING ACTIVITIES
Provided by short-term debt 72,906 23,824
Proceeds from issuance of long-term debt 60,000 -
Payments on long-term debt (4,009) (6,112)
Dividends paid (17,594) (17,457)
Proceeds from issuance of common stock 1,009 4,104
-------- --------
Net cash provided from financing activities 112,312 4,359
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (107) (177)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 13,328 17,816
Cash and cash equivalents at beginning of period 13,159 20,120
-------- --------
Cash and cash equivalents at end of period $ 26,487 $ 37,936
======== ========
Supplemental Data:
- -----------------
Non-Cash Investing Activities:
Treasury stock issued for business acquisitions $ 99,517 $ 4,500
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,
1997 are not necessarily indicative of the results that may be expected
for the year ending June 30, 1997. For further information, refer to
the consolidated financial statements and footnotes included in the
Company's 1996 Annual Report on Form 10-K.
The June 30, 1996 condensed balance sheet data was derived from
audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
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
----------- March 31 June 30
1997 1996
-------- --------
(in thousands)
Finished and purchased products $134,244 $129,184
Work in process 177,979 134,751
Raw materials and supplies 56,301 58,388
-------- --------
Total at current cost 368,524 322,323
Less excess of current cost
over LIFO values 161,871 161,871
-------- --------
Inventory per Balance Sheet $206,653 $160,452
======== ========
The current cost of LIFO-valued inventories was $335.5 million
at March 31, 1997 and $295.4 million at June 30, 1996.
Notes to Consolidated Financial Statements
------------------------------------------
(continued)
4. Acquisition of Business
-----------------------
On February 28, 1997, the Company purchased all of the
common stock of Dynamet Incorporated in exchange for
approximately 2.8 million shares of its treasury common
stock with a fair market value of $99.5 million and $51.5
million of cash, including acquisition costs. Dynamet is a
manufacturer of titanium bar, wire and powder products, with
sales for calendar year 1996 of approximately $100 million.
The acquisition of Dynamet Incorporated has been
accounted for using the purchase method of accounting. The
purchase price allocation is based upon preliminary
appraisal values and management estimates and is subject to
reclassifications and adjustments in the future. The
purchase price has been allocated as follows:
(in thousands)
Working capital, other than cash $ 24,011
Property, plant and equipment 37,804
Other assets 27,264
Goodwill 81,079
Noncurrent liabilities (19,987)
--------
Purchase price, net of cash received $150,171
========
Deferred tax liabilities included in the allocation
totaled $27.0 million.
The operating results of Dynamet Incorporated 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 Dynamet and
the companies acquired during fiscal 1996 had been
acquired at the beginning of fiscal 1996, combined net sales
would have been approximately $728.7 million for the nine
months ended March 31, 1997, and $699.1 million for the nine
months ended March 31, 1996, respectively. Consolidated pro
forma net income and primary earnings per share would have
been $43.9 million and $2.18 for the nine months ended
March 31, 1997, and $42.1 million and $2.11 for the nine
months ended March 31, 1996, respectively. 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 1996.
Notes to Consolidated Financial Statements
------------------------------------------
(continued)
5. Potential Acquisitions of Businesses
------------------------------------
On January 23, 1997, the Company announced its plan to
acquire all of the common stock of Global Technology, Inc.
for approximately $8.5 million of Company common stock, $1.1
million of cash and the assumption of approximately $8.4
million of Global Technology debt. Global Technology has
two primary businesses: conversion services for processing
bar and wire products made of stainless steel, super alloys,
titanium and carbon steel; and the design and manufacture of
coil and bar processing equipment. Global Technology's
sales for calendar year 1996 were approximately $30 million.
On March 31, 1997, the Company announced its plan to
acquire the assets of Rathbone Precision Metals, Inc., a
manufacturer of custom, cold-drawn metal shapes. Rathbone's
sales for the year ended September 29, 1996 were
approximately $10 million.
These potential acquisitions are subject to due diligence
review and negotiation of final terms and conditions. Assuming
the acquisitions are made, the cash required for these two
acquisitions will be funded from the Company's existing financing
arrangements. These transactions will be accounted for using the
purchase method of accounting.
6. Debt Arrangements
-----------------
In February 1997, the Company renegotiated its existing
financing arrangements with a number of banks to increase
its credit facilities from $150 million to $200 million,
lower the costs of the facilities and extend the term to
February 2002. The arrangements provide for the availability
of $150 million of revolving credit and lines of credit of
$50 million. Interest is based on short-term market rates or
competitive bids. This financing arrangement replaces the
previous revolving credit and lines of credit arrangement.
7. Remeasurement of Mexican Operations
-----------------------------------
Effective January 1, 1997, the Company's operation in
Mexico was considered to operate in a highly inflationary
economy as defined by Statement of Financial Accounting
Standard ("SFAS") 52. When a foreign entity operates in a
highly inflationary economy, the U.S. dollar is used as the
functional currency rather than the local currency.
Nonmonetary assets and liabilities and related expenses are
translated into U.S. dollars at historical exchange rates.
All other income statement amounts are translated using
average exchange rates for the period. Monetary assets and
liabilities are translated at end-of-period exchange rates.
Gains or losses on translation are reported in income. The
effect on income of the above translation was not material
for the three months ended March 31, 1997.
Management's Discussion & Analysis of Results of Operations
-----------------------------------------------------------
Third Quarter Results:
- ---------------------
Net income for the quarter ended March 31, 1997 was $15.5
million versus $14.7 million in the same quarter last year.
Primary earnings per share of $.86 were the same as in the third
quarter a year ago. The improved results were primarily a result
of higher shipments, the inclusion of the operations of Dynamet
Incorporated since the date of acquisition on February 28, 1997,
and lower losses related to the reduced investment in Walsin-CarTech,
Carpenter's Taiwanese joint venture.
Sales were $250.9 million, up 8% from $233.3 million in the
same period last year. This increase in sales was primarily the
result of the inclusion of the operations of Dynamet and
increased sales of ceramic products and the Mexican steel
distribution operations. Core Steel Division unit volume
shipments were up 4 percent.
Cost of sales was 75 percent of net sales in both periods.
The effect on this ratio of a reduced Steel Division production
level to adjust inventories was offset by lower raw material
costs.
Selling and administrative costs were higher by $2.6
million, primarily as a result of increased depreciation and
amortization and the inclusion of costs for Dynamet.
Other income decreased by $3.1 million, primarily as a
result of a prior year gain of $2.7 million from the sale of the
Company's partial interest in Walsin-CarTech.
Nine Month Results:
- ------------------
Net income for the nine months ended March 31, 1997 was
$37.2 million, compared with $38.9 million for the same period
last year. Primary earnings per share were $2.11 compared with
$2.27 for the same period a year ago. The decrease in earnings
was primarily a result of a 2 percent decrease in core Steel
Division unit volume, an extended maintenance shutdown period in
the September 1996 quarter which resulted in lower manufacturing
levels and higher repair spending, and a lower plant utilization
level in the second and third quarter. These adverse effects
were partially offset by lower raw material costs and reduced
losses related to the investment in Walsin-CarTech.
Sales were $654.3 million, a 4 percent increase from $627.9
million last year. The increase in sales was primarily the
result of the inclusion of the operations of Dynamet and
increased sales of ceramic products and the Mexican steel
distribution operations. The sales increases were partially
offset by a 2 percent decrease in core Steel Division unit volume
shipments.
Management's Discussion & Analysis of Results of Operations
-----------------------------------------------------------
(continued)
Nine Month Results, continued:
- ------------------
Cost of sales was 75 percent of net sales in both
periods. The effect on this ratio of a reduced Steel Division
production level to adjust inventories and the extended
maintenance shutdown was offset by lower raw material costs.
Selling and administrative costs were higher by $8.5 million,
primarily as a result of increased depreciation and amortization
and the inclusion of costs for the companies acquired.
Other income decreased by $2.9 million, primarily as a
result of a prior year gain of $2.7 million from the sale of the
Company's partial interest in Walsin-CarTech.
The effective tax rate for the nine months ended March 31,
1997 was higher than last year, primarily due to changes in state
income tax estimates and a federal income tax law change relating
to company-owned life insurance programs.
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 or which is known by the Company
to be contemplated by governmental authorities. 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.
-----------------------------
The Company hereby incorporates by reference Item 2 of its
Current Report on Form 8-K dated February 28, 1997 (as amended by
Form 8-KA filed on May 13, 1997), related to the Company's
acquisition of Dynamet Incorporated.
Item 5. Other Information.
-------------------------
On January 22, 1997, the Board of Directors of the Company
elected Dr. J. Michael Fitzpatrick as a director to serve until
the Annual Stockholders' Meeting in 1999 at which time he will
stand for election to serve in Class One. On February 28, 1997,
Peter Rossin became a director to serve until the Annual
Stockholders' Meeting on October 20, 1997 at which time he will
stand for election to serve in Class Two. On April 24, 1997, the
Board of Directors of the Company elected Robert J. Lawless as a
director to serve until the Annual Stockholders' Meeting in 1998
at which time he will stand for election to serve in Class Three.
Item 6. Exhibits and Reports on Form 8-K.
----------------------------------------
a. The following documents are filed as exhibits:
11. Statement re Computations of Per Share
Earnings.
12. Statement re Computations of Ratios of
Earnings to Fixed Charges.
27. Financial Data Schedule.
99. Additional Exhibits.
(i) Press Release dated January 22, 1997
(ii) Press Release dated April 24, 1997
b. The Company filed two (2) Current Reports on Form
8-K for events occurring during the quarter of the
fiscal year covered by this report. The reports,
one dated January 6, 1997 and the other dated
February 28, 1997 (as amended by Form 8-KA filed
on May 13, 1997), related to the Company's
acquisition of Dynamet Incorporated.
Items 3 and 4 are 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: May 15, 1997 s/G. Walton Cottrell
--------------------- -----------------------------------
G. Walton Cottrell
Sr. Vice President - Finance
and Chief Financial Officer