UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
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.)
1047 N. Park Road, Wyomissing, Pennsylvania 19610-1339
(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 January 31, 1999.
Common stock, $5 par value 21,923,185
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, 1998 (Unaudited)
and June 30, 1998..................................... 3 & 4
Consolidated Statement of Income (Unaudited) for the
Three and Six Months Ended December 31, 1998 and 1997. 5
Consolidated Statement of Cash Flows (Unaudited) for the
Six Months Ended December 31, 1998 and 1997........... 6
Consolidated Statement of Comprehensive Income
(Unaudited) for the Three and Six Months Ended
December 31, 1998 and 1997............................ 7
Notes to Consolidated Financial Statements (Unaudited).. 8 - 12
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................13 - 16
Forward-looking Statements.............................. 17
Part II OTHER INFORMATION................................18 - 19
Exhibit Index............................................. E-1
PART I
- ------ CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET (Page 1 of 2)
December 31, 1998 and June 30, 1998
(in millions, except share data)
December 31 June 30
1998 1998
--------- --------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 8.4 $ 52.4
Accounts receivable, net 139.4 177.0
Inventories 295.6 267.1
Net assets held for sale 22.6 130.2
Other current assets 18.9 18.8
-------- --------
Total current assets 484.9 645.5
Property, plant and equipment,
at cost 1,196.3 1,104.8
Less accumulated depreciation
and amortization 483.9 460.7
-------- --------
712.4 644.1
Prepaid pension cost 145.5 138.0
Goodwill, net 182.6 171.8
Other assets 98.6 99.5
-------- --------
Total assets $1,624.0 $1,698.9
======== ========
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET (Page 2 of 2)
December 31, 1998 and June 30, 1998
(in millions, except share data)
December 31 June 30
LIABILITIES 1998 1998
- ----------- --------- --------
(Unaudited)
Current liabilities:
Short-term debt $ 147.5 $ 119.8
Accounts payable 72.4 80.5
Accrued compensation 16.4 35.0
Accrued income taxes 12.0 -
Deferred income taxes 2.9 24.8
Other accrued liabilities 46.8 52.7
Current portion of long-term debt 15.6 36.3
-------- --------
Total current liabilities 313.6 349.1
Long-term debt, net of current portion 355.5 370.7
Accrued postretirement benefits 132.2 132.8
Deferred income taxes 140.0 142.9
Other liabilities 47.1 43.9
SHAREHOLDERS' EQUITY
- --------------------
Preferred stock -
$5 par value, authorized 2,000,000
shares; issued 436.9 shares at
December 31, 1998 and 441.1 shares
at June 30, 1998 27.6 27.8
Common stock at $5 par value -
authorized 100,000,000 shares; issued
23,025,016 shares at December 31, 1998
and 22,995,036 shares at June 30,
1998 115.1 115.0
Capital in excess of par value -
common stock 191.1 190.0
Reinvested earnings 368.0 359.1
Common stock in treasury, at cost -
1,103,487 shares at December 31, 1998
and 147,920 shares at June 30, 1998 (38.3) (3.4)
Deferred compensation (16.7) (17.8)
Foreign currency translation
adjustments (11.2) (11.2)
-------- --------
Total shareholders' equity 635.6 659.5
________ ________
Total liabilities and
shareholders' equity $1,624.0 $1,698.9
======== ========
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
for the three and six months ended December 31, 1998 and 1997
(in millions, except per share data)
Three Months Six Months
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
Net sales $248.7 $280.0 $499.0 $529.5
------ ------ ------ ------
Costs and expenses:
Cost of sales 183.1 202.6 366.7 381.8
Selling and
administrative
expenses 41.0 39.4 81.1 75.9
Interest expense 7.2 8.2 13.7 14.0
Other income, net (2.8) (1.4) (2.3) (1.4)
------ ------ ------ ------
228.5 248.8 459.2 470.3
------ ------ ------ ------
Income before income
taxes 20.2 31.2 39.8 59.2
Income taxes 8.0 12.5 15.4 23.4
------ ------ ------ ------
Net income $ 12.2 $ 18.7 $ 24.4 $ 35.8
====== ====== ====== ======
Earnings per common share:
Basic $ .54 $ .93 $ 1.06 $ 1.79
====== ====== ====== ======
Diluted $ .53 $ .89 $ 1.03 $ 1.71
====== ====== ====== ======
Weighted average common
shares outstanding
(diluted) 22.9 20.7 23.3 20.7
====== ====== ====== ======
Dividends per common
share $ .33 $ .33 $ .66 $ .66
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
for the six months ended December 31, 1998 and 1997
(in millions)
1998 1997
---- ----
OPERATIONS
Net income $ 24.4 $ 35.8
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation and amortization 31.9 26.6
Deferred income taxes (14.4) 3.5
Prepaid pension costs (17.8) (11.1)
Loss on disposal of assets .3 .7
Changes in working capital and other,
net of acquisitions:
Receivables 39.9 20.5
Inventories (26.4) (31.7)
Accounts payable (10.4) (6.3)
Accrued current liabilities (12.4) (10.4)
Other, net (1.0) (.3)
------ ------
Net cash provided from operations 14.1 27.3
------ ------
INVESTING ACTIVITIES
Purchases of plant and equipment (85.5) (43.9)
Proceeds from disposals of
plant and equipment .3 .5
Proceeds from (cash used for)
net assets held for sale 95.9 (6.2)
Acquisitions of businesses, net
of cash received (11.4) (130.8)
------ ------
Net cash used for investing activities (.7) (180.4)
------ ------
FINANCING ACTIVITIES
Net change in short-term debt 27.7 48.6
Proceeds from issuance of long-term debt - 140.0
Payments on long-term debt (35.9) (9.5)
Payments to acquire treasury stock (34.9) -
Dividends paid (15.5) (13.6)
Proceeds from issuance of common stock 1.2 4.0
------ ------
Net cash provided from (used for) financing
activities (57.4) 169.5
------ ------
INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS (44.0) 16.4
Cash and cash equivalents at
beginning of period 52.4 18.6
------ ------
Cash and cash equivalents at end of period $ 8.4 $ 35.0
====== ======
Supplemental Data:
- -----------------
Non-Cash Investing Activities:
Treasury stock issued for business acquisition $ - $ 1.0
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
for the three and six months ended December 31, 1998 and 1997
(in millions)
Three Months Six Months
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
Net income $ 12.2 $ 18.7 $ 24.4 $ 35.8
Foreign currency
translation,
net of tax - (.4) - (.8)
------ ------ ------ ------
Comprehensive income $ 12.2 $ 18.3 $ 24.4 $ 35.0
====== ====== ====== ======
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, 1998 are not necessarily
indicative of the results that may be expected for the year
ending June 30, 1999. The June 30, 1998 condensed balance
sheet data was derived from audited financial statements,
but does not include all disclosures required by generally
accepted accounting principles. For further information,
refer to the consolidated financial statements and footnotes
included in Carpenter's 1998 Annual Report on Form 10-K.
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.
Certain reclassifications of prior years' amounts have
been made to conform with the current year's presentation.
2. Earnings Per Common Share
-------------------------
In December 1997, Carpenter adopted SFAS No. 128,
"Earnings per Share" which replaced the calculation of
primary and fully diluted earnings per share with basic and
diluted earnings per share.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
------------------------------------------
2. Earnings Per Common Share, continued
-------------------------
The calculations of earnings per share for the periods ending
December 31, 1998 and 1997 are as follows:
(in millions, except per share data)
Three Months Six Months
1998 1998
------------------ ------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
Net income $ 12.2 $ 12.2 $ 24.4 $ 24.4
Dividends accrued on con-
vertible preferred stock,
net of tax benefits (.3) - (.7) -
Assumed shortfall between
common and preferred dividend - (.2) - (.3)
------ ------ ------ ------
Earnings available for
common shareholders $ 11.9 $ 12.0 $ 23.7 $ 24.1
====== ====== ====== ======
Weighted average number of
common shares outstanding 22.0 22.0 22.3 22.3
Assumed conversion of
preferred shares - .9 - .9
Effect of shares issuable
under stock option plans - - - .1
------ ------ ------ ------
Weighted average common shares 22.0 22.9 22.3 23.3
====== ====== ====== ======
Earnings per share $ 0.54 $ 0.53 $ 1.06 $ 1.03
====== ====== ====== ======
Three Months Six Months
1997 1997
------------------ ------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
Net income $ 18.7 $ 18.7 $ 35.8 $ 35.8
Dividends accrued on con-
vertible preferred stock,
net of tax benefits (.4) - (.8) -
Assumed shortfall between
common and preferred dividend - (.2) - (.4)
------ ------ ------ ------
Earnings available for
common shareholders $ 18.3 $ 18.5 $ 35.0 $ 35.4
====== ====== ====== ======
Weighted average number of
common shares outstanding 19.6 19.6 19.5 19.5
Assumed conversion of
preferred shares - .9 - .9
Effect of shares issuable
under stock option plans - .2 - .3
------ ------ ------ ------
Weighted average common shares 19.6 20.7 19.5 20.7
====== ====== ====== ======
Earnings per share $ 0.93 $ 0.89 $ 1.79 $ 1.71
====== ====== ====== ======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
------------------------------------------
3. Inventories
----------- Dec 31 June 30
1998 1998
------ ------
(in millions)
Finished and purchased products $186.0 $169.1
Work in process 173.7 183.3
Raw materials and supplies 67.1 46.2
------ ------
Total at current cost 426.8 398.6
Excess of current cost
over LIFO values 131.2 131.5
------ ------
Inventory per Balance Sheet $295.6 $267.1
====== ======
The current cost of LIFO-valued inventories was $379.7
million at December 31, 1998 and $352.2 million at June 30, 1998.
4. Common Stock Repurchase Program
-------------------------------
On August 6, 1998, Carpenter rescinded the 1989 stock
repurchase program and approved a new stock repurchase program
for up to 1.2 million, or 5 percent, of the outstanding shares
of Carpenter's common stock. The shares may be purchased over
time and held as treasury shares. As of December 31, 1998, .9
million shares had been repurchased at a total cost of $34.5
million. In addition, treasury shares purchased increased by
$.4 million as a result of employee benefit plans.
5. Authorized Shares of Common Stock
---------------------------------
On October 26, 1998, the shareholders of Carpenter
approved an amendment to Carpenter's Restated Certificate of
Incorporation to increase the number of authorized shares of
common stock from 50 million to 100 million shares.
6. Net Assets Held for Sale
------------------------
Carpenter has sold most of the businesses of the
government products and services and industrial products
segments of Talley Industries, Inc. (Talley) which were
acquired in December 1997. The expected pre-tax cash
proceeds, net of costs, for the sale of the remaining
businesses are recorded in net assets held for sale in the
consolidated balance sheet at December 31, 1998. The
operating results for all of the businesses in these
segments were excluded from Carpenter's consolidated
statement of income from the date of acquisition through
December 31, 1998. Operating results for the remaining
businesses to the dates of their sales and any gain or loss
on their sales will be included in Carpenter's consolidated
statement of income beginning January 1, 1999. Changes in
estimates for net cash proceeds on the sales of all of the
businesses, interest costs and operating cash flows until
the time of their sale have been recorded as adjustments of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
------------------------------------------
6. Net Assets Held for Sale, continued
------------------------
goodwill through December 31, 1998. No further goodwill
adjustments will be made for the Talley acquisition except
for pre-acquisition income tax issues, if any.
A summary of activity from June 30, 1998 to December 31,
1998 in the net assets held for sale follows:
(in millions)
Balance June 30, 1998 $ 130.2
Proceeds from sales of businesses (108.1)
Net cash funded by Carpenter 9.9
Interest allocated 2.3
Goodwill adjustment (11.7)
-------
Balance December 31, 1998 $ 22.6
=======
7. Commitments and Contingencies - Environmental
---------------------------------------------
Carpenter accrues amounts for environmental remediation
costs which represent management's best estimate of the
probable and reasonably estimable costs relating to
environmental remediation. For the three and six months
ended December 31, 1998, no amounts were charged to
operations for environmental remediation costs. The
liability for environmental remediation costs remaining at
December 31, 1998 was $10 million. The estimated range of
the reasonably possible future costs of remediation at
Carpenter-owned operating facilities and superfund sites is
between $10 million and $14 million.
During the first and second quarters of fiscal 1999,
approximately $1.5 million and $.3 million of cash,
respectively, were received under settlements of litigation
relating to insurance coverages for certain superfund sites,
leaving the remaining discounted receivable for recoveries
from these settlements at December 31, 1998 at approximately
$.4 million.
Estimates of the amount and timing of future costs of
environmental remediation requirements are necessarily
imprecise because of the continuing evolution of
environmental laws and regulatory requirements, the
availability and application of technology and the
identification of presently unknown remediation sites and
the allocation of costs among the potentially responsible
parties. Based upon information presently available, such
future costs are not expected to have a material effect on
Carpenter's competitive or financial position. However,
such costs could be material to results of operations in a
particular future quarter or year.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
------------------------------------------
8. Change in Functional Currency
-----------------------------
Beginning January 1, 1999, Mexico ceased to be a highly
inflationary economy for accounting purposes. As a result,
the functional currency will become the Mexican peso instead
of the U.S. dollar after December 31, 1998. This change in
functional currency is not expected to have a material
effect on Carpenter's financial statements or operations.
9. Accounting Pronouncements
-------------------------
The FASB has issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which
will be effective beginning in the fourth quarter of
Carpenter's fiscal year 1999. SFAS No. 131 establishes
standards for methods by which public business enterprises
report information about operating segments in annual
financial statements and requires them to report selected
information about operating segments in interim financial
reports issued to shareholders. It also establishes
standards for related disclosures about products and
services, geographic areas, and major customers. Carpenter
has not determined the full impact of this standard on its
future financial disclosures.
The FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which will be
effective for Carpenter's fiscal year 2000. This standard
requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in fair value of
derivatives will be recorded each period in current earnings
or comprehensive income. Carpenter anticipates that, due to
its limited use of derivative instruments, the adoption of
SFAS No. 133 will not have a significant effect on
Carpenter's future results of operations or financial
position.
10. Subsequent Event
----------------
On January 15, 1999, the Bridgeport, Connecticut Port
Authority issued a Notice of Condemnation for the taking of
Carpenter's former plant site in that city. The proposed
compensation for the site is $2.5 million. The carrying
value for the site on Carpenter's books is more than $14
million and is based upon a recent appraisal and arms-length
negotiated selling prices with prospective purchasers.
Carpenter has begun legal proceedings in Federal court to
contest the condemnation, or in the alternative, obtain a
fair value for the property. While the ultimate outcome of
these proceedings is undeterminable, in the opinion of
management the Port Authority's offer is unfair and will not
be upheld and accordingly, no provision has been made for an
impairment in carrying value.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Results of Operations - Quarter Ended December 31, 1998 vs.
- -----------------------------------------------------------
Quarter Ended December 31, 1997:
- -------------------------------
Net income for the quarter ended December 31, 1998 was $12.2 million,
a 35% decrease compared to $18.7 million for the same quarter last year.
Diluted earnings per share were $.53 per share for the quarter compared
to $.89 per share for the same period a year ago. The decrease was
primarily attributable to lower unit sales volume and reduced operating
levels for the Specialty Alloys and Dynamet operations. The diluted
earnings per share decrease was also attributed to the increase in common
shares outstanding as a result of the December 1997 acquisition of Talley
Industries, Inc. (Talley).
Net sales were $248.7 million, a decrease of 11% from $280.0 million
in the same period last year. The volume of shipments by Carpenter's
Specialty Alloys Operations, excluding Talley, declined approximately 16
percent from the December 1997 quarter as a result of inventory adjustments
in the aerospace market and lower sales to industrial markets such as the
petrochemical industry. The rod mill in Hartsville, SC, was purchased from
Talley in December 1997 and accordingly is included in Carpenter's
Specialty Alloys Operations sales for only one month in the quarter ended
December 31, 1997. Dynamet's sales declined approximately 15 percent due
to lower sales to the aerospace market. Engineered Products Group's sales
increased approximately 6 percent, largely as a result of increased sales
by Certech, which produces ceramic cores for casting aerospace and
industrial turbine blades.
Cost of sales as a percent of net sales increased to 73.6% in the
current year's second quarter versus 72.4% a year ago primarily because
of lower production levels in the Specialty Alloys and Dynamet operations.
The favorable effect of lower raw material costs and increased pension
credits partially offset this negative item.
Selling and administrative costs were higher by $1.6 million
primarily due to the inclusion of costs of newly acquired companies.
Other income increased by $1.4 million primarily because of increases
in the value of investments held in a company-owned life insurance program.
Results of Operations - Six Months Ended December 31, 1998 vs.
- --------------------------------------------------------------
Six Months Ended December 31, 1997:
- ----------------------------------
Net income for the six months ended December 31, 1998 was $24.4 million,
down 32% compared to $35.8 million for the same period a year ago. Diluted
earnings per share were $1.03 in the first six months, compared with $1.71
for the six months ended December 31, 1997. The lower results were
primarily a result of lower unit sales volume and reduced operating levels
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
------------------------------------------------------------
AND RESULTS OF OPERATIONS, continued
-------------------------
Results of Operations - Six Months Ended December 31, 1998 vs.
- --------------------------------------------------------------
Six Months Ended December 31, 1997, continued:
- ----------------------------------
for the Specialty Alloys and Dynamet operations. The diluted earnings
per share decrease was also attributable to the increase in common
shares outstanding as a result of the December 1997 acquisition of Talley.
Net sales were $499.0 million, down 6% from $529.5 million in the
same period last year. Excluding the sales of business acquired since
last year, sales decreased 14%, primarily as a result of a 15% decrease
in Specialty Alloys unit volume, excluding Talley, and a 16% decrease in
Dynamet sales. The lower sales were primarily a result of inventory
adjustments in the aerospace markets and lower sales to industrial markets.
Sales outside of the United States increased by 3% to $81.9 million,
of which $24.8 million was exported by domestic operations. The increase
was primarily attributable to businesses acquired after July 1, 1997.
Cost of sales as a percent of net sales increased to 73.5% from
72.1% last year. The increase is primarily attributable to lower
production levels in the Specialty Alloys and Dynamet operations. The
favorable effect of lower raw material costs and increased pension
credits partially offset this negative item.
Selling and administrative costs were higher by $5.2 million
primarily due to newly acquired companies.
Cash Flow and Financial Condition:
- ---------------------------------
During the six months ended December 31, 1998, Carpenter's cash and
cash equivalents decreased by $44.0 million, as shown in the Consolidated
Statement of Cash Flows.
Net cash generated from operating activities was $14.1 million.
Excluding amounts acquired through purchases of businesses, accounts
receivable decreased $39.9 million, accounts payable and accrued
current liabilities decreased $22.8 million, and inventories
increased $26.4 million, primarily as a result of normal seasonal
trends and lower sales.
Investing activities consumed $.7 million in cash during the first
six months of fiscal 1998. Total spending for business acquisitions,
net of cash received, was $11.4 million. Capital expenditures were at
a high level as Carpenter continued its capital expenditure program to
invest for future business requirements, including manufacturing capacity.
As of December 31, 1998, the total of approved capital improvement
projects in excess of $1 million was approximately $354 million of which
approximately $108 million was spent as of December 31, 1998. The major
projects and the amounts approved by Carpenter's Board of Directors are:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
------------------------------------------------------------
AND RESULTS OF OPERATIONS, continued
-------------------------
Cash Flow and Financial Condition, continued:
- ---------------------------------
expansion and modernization of its strip finishing facility ($87 million),
expansion and modernization of the melting facilities ($70 million),
expansion of manufacturing capacity at the Talley Metals plant in Hartsville,
SC ($44 million), a new 4500 ton forging press ($42 million), and bar
finishing equipment ($22 million). Total capital expenditures
anticipated for fiscal 1999 are $155 million of which $85.5 million
was spent as of December 31, 1998. Spending plans for future fiscal
years are being reevaluated by management to consider current and
expected business conditions and may be materially reduced from those
previously reported.
The dispositions of businesses formerly owned by Talley (net
assets held for sale) provided $95.9 million of pre-tax cash, net
of allocated interest and costs of dispositions. As of
December 31, 1998, the remaining net cash expected to be received
on the disposition of these businesses was $22.6 million before
income taxes and is shown as net assets held for sale in the
consolidated balance sheet. These cash proceeds are expected to
be received by June 1999 and will be used to repay short-term
debt. Details are included in the notes to the consolidated
financial statements.
Financing activities included cash payments of $34.5 million for
the purchase of Carpenter common stock under the stock repurchase
program, which is discussed in the notes to the consolidated financial
statements.
Total debt decreased by $8.2 million since June 30, 1998 to a
level of $518.6 million or 40.0% of total capital employed, including
deferred taxes.
At December 31, 1998, Carpenter was in a strong liquidity position,
with current assets exceeding current liabilities by $171.3 million (a
ratio of 1.5 to 1). This favorable ratio is conservatively stated
because certain inventories are valued $131.2 million less than the
current cost as a result of using the LIFO method.
Carpenter believes that its present financial resources, both
from internal and external resources, including the anticipated
proceeds from the sales of the Talley segments, will be adequate to
meet its foreseeable short-term and long-term liquidity needs.
Year 2000 Issues:
Carpenter, its suppliers and customers are heavily reliant upon
computer systems for many aspects of their businesses. The calendar
year 2000 will make many current computerized systems ineffective and
will require corrections or replacements before January 1, 2000. This
situation ("Year 2000 Issues") could have a material adverse effect
upon Carpenter if not adequately remedied by Carpenter, its suppliers
and customers on a timely basis.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
------------------------------------------------------------
AND RESULTS OF OPERATIONS, continued
-------------------------
Year 2000 Issues, continued:
- ----------------
Reference Carpenter's June 30, 1998 Form 10-K and Carpenter's
world-wide-web site at www.cartech.com for details on its status
regarding Year 2000 Issues. The total estimated costs to remediate
Carpenter's Year 2000 Issues have not changed significantly since
June 30, 1998. Carpenter believes that its internal systems will
be Year 2000 compliant in all material respects by December 1999.
Forward-looking Statements
--------------------------
This Form 10-Q contains various "Forward-looking Statements"
within the meaning of the Private Securities Litigation Reform
Act of 1995. These statements are based on current expectations
regarding future events that involve a number of risks and
uncertainties which could cause actual results to differ from
those of such forward-looking statements. Such risks and
uncertainties include those set forth in other filings made by
Carpenter under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and also include the
following factors: 1) the cyclical nature of the specialty
materials business and certain end-use markets, including, but
not limited to, aerospace, automotive and industrial products,
all of which are subject to changes in general economic
conditions; 2) the impact of inventory adjustments in Carpenter's
aerospace customer base; 3) the criticality of certain raw
materials acquired from foreign sources, some of which are
located in countries that may be subject to unstable political
and economic conditions, potentially affecting the prices of
these materials; 4) the level of export sales impacted by
political and economic instability, export controls, changes in
legal and regulatory requirements, policy changes affecting the
markets, changes in tax laws and tariffs, exchange rate
fluctuations and accounts receivable collection; 5) the general
economic and financial market conditions and other uncertainties
which affect Carpenter generally and may specifically affect the
sales of the remaining companies of Talley Industries, Inc.; 6)
the effects on operations of changes in U.S. and foreign
governmental laws and public policy, including environmental
regulations; and 7) the ability of Carpenter's suppliers and
customers to correct or replace their computer systems for Year
2000 Issues. Any of these factors could have an adverse and/or
fluctuating effect on Carpenter's results of operations. The
forward-looking statements in this document are intended to be
subject to the safe harbor protection provided by Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.
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 government 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 4. Submission of Matters to a Vote of Security Holders.
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Information concerning matters submitted to stockholders at
the 1998 Annual Meeting of Stockholders of Carpenter is
incorporated herein by reference to Carpenter's Form 10-Q filed
on November 13, 1998.
Item 6. Exhibits and Reports on Form 8-K.
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a. The following documents are filed as exhibits:
27. Financial Data Schedule.
b. The Company did not file any Reports on Form 8-K
for events occurring during the quarter of the
fiscal year covered by this report.
Items 2, 3 and 5 are omitted as the answer is negative or
the items are not applicable.
SIGNATURES
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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
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(Registrant)
Date: February 11, 1999 s/G. Walton Cottrell
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G. Walton Cottrell
Sr. Vice President - Finance
and Chief Financial Officer