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 March 31, 1999
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 April 30, 1999.
Common stock, $5 par value 21,921,969
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 March 31, 1999 (Unaudited)
and June 30, 1998..................................... 3 & 4
Consolidated Statement of Income (Unaudited) for the
Three and Nine Months Ended March 31, 1999 and 1998. 5
Consolidated Statement of Cash Flows (Unaudited) for the
Nine Months Ended March 31, 1999 and 1998............ 6
Consolidated Statement of Comprehensive Income
(Unaudited) for the Three and Nine Months Ended
March 31, 1999 and 1998.............................. 7
Notes to Consolidated Financial Statements (Unaudited).. 8 - 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 14 - 17
Forward-looking Statements.............................. 18
Part II OTHER INFORMATION............................... 19 - 20
Exhibit Index............................................. E-1
PART I
- ------
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET (Page 1 of 2)
March 31, 1999 and June 30, 1998
(in millions, except share data)
March 31 June 30
1999 1998
--------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7.9 $ 52.4
Accounts receivable, net 160.8 177.0
Inventories 262.2 267.1
Net assets held for sale 21.5 130.2
Other current assets 13.8 18.8
-------- --------
Total current assets 466.2 645.5
Property, plant and equipment,
at cost 1,227.4 1,104.8
Less accumulated depreciation
and amortization 497.1 460.7
-------- --------
730.3 644.1
Prepaid pension cost 132.9 138.0
Goodwill, net 181.8 171.8
Other assets 111.0 99.5
-------- --------
Total assets $1,622.2 $1,698.9
======== ========
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET (Page 2 of 2)
March 31, 1999 and June 30, 1998
(in millions, except share data)
March 31 June 30
LIABILITIES 1999 1998
- ----------- --------- --------
(Unaudited)
Current liabilities:
Short-term debt $ 166.9 $ 119.8
Accounts payable 64.1 80.5
Accrued compensation 21.1 35.0
Accrued income taxes 10.7 -
Deferred income taxes 3.2 24.8
Other accrued liabilities 44.0 52.7
Current portion of long-term debt 15.5 36.3
-------- --------
Total current liabilities 325.5 349.1
Long-term debt, net of current portion 355.3 370.7
Accrued postretirement benefits 132.6 132.8
Deferred income taxes 137.2 142.9
Other liabilities 42.1 43.9
SHAREHOLDERS' EQUITY
Preferred stock -
$5 par value, authorized 2,000,000
shares; issued 435.2 shares at
March 31, 1999 and 441.1 shares
at June 30, 1998 27.5 27.8
Common stock at $5 par value -
authorized 100,000,000 shares; issued
23,026,876 shares at March 31, 1999
and 22,995,036 shares at June 30,
1998 115.1 115.0
Capital in excess of par value -
common stock 191.2 190.0
Reinvested earnings 361.6 359.1
Common stock in treasury, at cost -
1,104,907 shares at March 31, 1999
and 147,920 shares at June 30, 1998 (38.4) (3.4)
Deferred compensation (16.1) (17.8)
Foreign currency translation
adjustments (11.4) (11.2)
-------- --------
Total shareholders' equity 629.5 659.5
-------- --------
Total liabilities and
shareholders' equity $1,622.2 $1,698.9
======== ========
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
for the three and nine months ended March 31, 1999 and 1998
(in millions, except per share data)
Three Months Nine Months
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales $271.8 $329.0 $770.8 $858.5
------ ------ ------ ------
Costs and expenses:
Cost of sales 207.9 240.9 574.6 622.7
Selling and
administrative
expenses 40.0 42.1 121.1 118.0
Interest expense 7.9 8.3 21.6 22.3
Special charge 14.2 - 14.2 -
Other expense (income),
net 3.3 .5 1.0 (.9)
------ ------ ------ ------
273.3 291.8 732.5 762.1
------ ------ ------ ------
Income (loss) before
income taxes (1.5) 37.2 38.3 96.4
Income tax expense
(benefit) (2.7) 15.2 12.7 38.6
------ ------ ------ ------
Net income $ 1.2 $ 22.0 $ 25.6 $ 57.8
====== ====== ====== ======
Earnings per common share:
Basic $ .04 $ 1.07 $ 1.10 $ 2.86
====== ====== ====== ======
Diluted $ .04 $ 1.02 $ 1.08 $ 2.73
====== ====== ====== ======
Weighted average common
shares outstanding
(diluted) 22.8 21.5 23.1 21.0
====== ====== ====== ======
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, 1999 and 1998
(in millions)
1999 1998
---- ----
OPERATIONS
Net income $ 25.6 $ 57.8
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation and amortization 49.6 42.7
Deferred income taxes (16.9) 5.4
Prepaid pension costs (18.7) (16.8)
Special charge 14.2 -
Loss on disposal of assets 2.1 2.0
Changes in working capital and other,
net of acquisitions:
Receivables 18.5 2.5
Inventories 7.0 (21.7)
Accounts payable (18.7) (8.4)
Accrued current liabilities (12.4) (3.5)
Other, net (4.2) 1.5
------ ------
Net cash provided from operations 46.1 61.5
------ ------
INVESTING ACTIVITIES
Purchases of plant and equipment (118.9) (66.3)
Proceeds from disposals of
plant and equipment .2 .9
Proceeds from (cash used for)
net assets held for sale 97.0 (23.0)
Acquisitions of businesses, net
of cash received (23.1) (176.0)
------ ------
Net cash used for investing activities (44.8) (264.4)
------ ------
FINANCING ACTIVITIES
Net change in short-term debt 47.1 48.7
Payments on long-term debt (36.2) (121.4)
Proceeds from issuance of long-term debt - 140.0
Payments to acquire treasury stock (34.9) -
Dividends paid (23.1) (20.5)
Proceeds from issuance of common stock 1.3 150.0
------ ------
Net cash provided from (used for) financing
activities (45.8) 196.8
------ ------
DECREASE IN CASH AND CASH EQUIVALENTS (44.5) (6.1)
Cash and cash equivalents at
beginning of period 52.4 18.6
------ ------
Cash and cash equivalents at
end of period $ 7.9 $ 12.5
====== ======
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 nine months ended March 31, 1999 and 1998
(in millions)
Three Months Nine Months
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
Net income $ 1.2 $ 22.0 $ 25.6 $ 57.8
Foreign currency
translation,
net of tax (.2) .1 (.2) (.7)
------ ------ ------ ------
Comprehensive income $ 1.0 $ 22.1 $ 25.4 $ 57.1
====== ====== ====== ======
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 of
normal recurring adjustments and a special charge, necessary
for a fair presentation have been included. Operating
results for the nine months ended March 31, 1999 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 year's amounts have
been made to conform with the current year's presentation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
------------------------------------------
2. Earnings Per Common Share
-------------------------
The calculations of earnings per share for the periods ended March 31,
1999 and 1998 are as follows:
(in millions, except per share data)
Three Months Nine Months
1999 1999
----------------- -----------------
Basic Diluted Basic Diluted
----- ------- ----- -------
Net income $ 1.2 $ 1.2 $ 25.6 $ 25.6
Dividends accrued on
convertible preferred
stock, net of tax
benefits (.4) - (1.2) -
Assumed shortfall
between common and
preferred dividend - (.3) - (.6)
------ ------- ------ ------
Earnings available for
common shareholders $ .8 $ .9 $ 24.4 $ 25.0
====== ======= ====== ======
Weighted average
number of common
shares outstanding 21.9 21.9 22.2 22.2
Assumed conversion
of preferred shares - .9 - .9
Effect of shares
issuable under
stock option plans - - - -
------ ------ ------ ------
Weighted average
common shares 21.9 22.8 22.2 23.1
====== ====== ====== ======
Earnings per share $ 0.04 $ 0.04 $ 1.10 $ 1.08
====== ====== ====== ======
Three Months Nine Months
1998 1998
----------------- -----------------
Basic Diluted Basic Diluted
----- ------- ---- -------
Net income $ 22.0 $ 22.0 $ 57.8 $ 57.8
Dividends accrued on
convertible preferred
stock, net of tax
benefits (.3) - (1.1) -
Assumed shortfall
between common and
preferred dividend - (.1) - (.4)
------ ------ ------ ------
Earnings available for
common shareholders $ 21.7 $ 21.9 $ 56.7 $ 57.4
====== ====== ====== ======
Weighted average
number of common
shares outstanding 20.3 20.3 19.8 19.8
Assumed conversion
of preferred shares - .9 - .9
Effect of shares
issuable under
stock option plans - .3 - .3
------ ------ ------ ------
Weighted average
common shares 20.3 21.5 19.8 21.0
====== ====== ====== ======
Earnings per share $ 1.07 $ 1.02 $ 2.86 $ 2.73
====== ====== ====== ======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
------------------------------------------
3. Inventories
-----------
Mar 31 June 30
1999 1998
------ -------
(in millions)
Finished and purchased products $158.2 $169.1
Work in process 189.0 183.3
Raw materials and supplies 46.6 46.2
------ ------
Total at current cost 393.8 398.6
Excess of current cost
over LIFO values 131.6 131.5
------ ------
Inventory per Balance Sheet $262.2 $267.1
====== ======
The current cost of LIFO-valued inventories was $347.1
million at March 31, 1999 and $352.2 million at June 30, 1998.
4. 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 two remaining
businesses are recorded in net assets held for sale in the
consolidated balance sheet at March 31, 1999. 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.
Beginning January 1, 1999, the operating results for the
remaining businesses have been included in Carpenter's
consolidated statement of income and were immaterial.
Through December 31, 1998, 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 goodwill. 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 March 31, 1999
in the net assets held for sale follows:
(in millions)
Balance June 30, 1998 $ 130.2
Proceeds from sales of businesses (108.4)
Net cash funded by Carpenter 8.1
Interest allocated 2.3
Goodwill adjustment (increase) (11.7)
Increase in estimated proceeds from
sales of businesses 1.0
-------
Balance March 31, 1999 $ 21.5
=======
The above increase in estimated proceeds from sales of
businesses was offset by charges of $2.8 million for changes
in other estimates related to Talley businesses. These
effects are included in other expense (income) on the
consolidated statement of income in the March 1999 quarter.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
------------------------------------------
5. 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.
Since August 6, 1998, .9 million shares had been repurchased
at a total cost of $34.5 million. In addition, treasury
shares increased by $.4 million as a result of employee
benefit plan transactions.
6. Special Charge
--------------
During the third quarter of fiscal 1999, Carpenter
recorded a pre-tax charge of $14.2 million ($8.5 million
after-tax or $.37 per diluted share) related to a salaried
workforce reduction and a reconfiguration of its U.S.
distribution network. The positions being eliminated
include various salaried positions throughout the Specialty
Alloys Operations and corporate offices. The charge
consisted of various personnel-related costs for about 220
employees to cover severance payments, enhanced pension
benefits, medical coverage and related items. Approximately
$13.4 million of the charge will be paid from pension funds
and, accordingly, this portion of the special charge reduced
the prepaid pension cost account on the balance sheet.
Through March 31, 1999 there had been a reduction of
approximately 130 employees. The remaining 90 employees are
expected to be terminated within one year.
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 nine months
ended March 31, 1999, no amounts were charged to operations
for environmental remediation costs. The liability for
environmental remediation costs remaining at March 31, 1999
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 fiscal 1999, approximately $1.8 million of cash
was received under settlements of litigation relating to
insurance coverages for certain superfund sites. The
remaining discounted receivable for recoveries from these
settlements at March 31, 1999 was 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
------------------------------------------
7. Commitments and Contingencies, continued
-----------------------------
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.
Other
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 approximately $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.
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 became the Mexican peso instead of
the U.S. dollar on January 1, 1999. This change in
functional currency did not 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
------------------------------------------
9. Accounting Pronouncements, continued
-------------------------
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Results of Operations - Quarter Ended March 31, 1999 vs.
- --------------------------------------------------------
Quarter Ended March 31, 1998:
- ----------------------------
Net income for the quarter ended March 31, 1999 was $9.7
million before a special charge for salaried workforce reductions
and $1.2 million after the special charge compared to $22.0
million for the same quarter last year. Diluted earnings per
share were $.41 before the special charge and $.04 after the
special charge compared to $1.02 for the same period a year ago.
The decrease in earnings before the special charge was primarily
attributable to lower unit sales volume and reduced operating
levels for the Specialty Alloys and Dynamet operations.
Net sales were $271.8 million, a decrease of 17% from $329.0
million in the same period last year. The sales of Carpenter's
Specialty Alloys Operations declined approximately 20 percent
from the March 1998 quarter as a result of inventory adjustments
in the aerospace market and lower sales to industrial markets
such as the petrochemical industry. Selling price decreases and
weaker product mix also affected sales. The sales dollar volume
of Dynamet, Carpenter's titanium processing subsidiary, also
declined 14 percent from the same period a year ago. Engineered
Products Group's sales in the third quarter equaled those of the
same quarter a year ago.
Cost of sales as a percent of net sales increased to 76.5%
in the current year's third quarter versus 73.2% 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 the
volume effects.
Selling and administrative costs decreased by $2.1 million as a
result of the workforce reduction, a higher pension credit
associated with excess funding in Carpenter's pension plans and
reduced profit sharing and bonus costs.
The special charge of $14.2 million before taxes was a result
of Carpenter's previously announced reduction in salaried personnel
and a workforce reduction due to reconfiguration of Carpenter's
distribution system. These staff reductions and distribution system
changes are expected to result in a reduction in annual costs of $11
million before income taxes when fully implemented. Details are
included in Note 6 to the consolidated financial statements.
Other expense increased $2.8 million from the same quarterly
period a year ago due to adjustments of estimates related to
Talley businesses and foreign exchange losses.
An income tax benefit of $2.2 million was recognized during
the quarter as a result of tax issues that were satisfactorily
resolved during the period.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS, continued
-------------------------
Results of Operations - Nine Months Ended March 31, 1999 vs.
- ------------------------------------------------------------
Nine Months Ended March 31, 1998:
- --------------------------------
Net income for the nine months ended March 31, 1999 before
the special charge was $34.1 million, down 41% compared to $57.8
million for the same period a year ago. Diluted earnings per
share before the special charge were $1.45 in the first nine
months, compared with $2.73 for the nine months ended March 31,
1998. Net income after the special charge was $25.6 million for
the nine months ended March 31, 1999. Diluted earnings per share
after the special charge were $1.08 for the nine months ended
March 31, 1999. The lower results were primarily a result of
lower unit sales volume and reduced operating levels for the
Specialty Alloys and Dynamet operations.
Net sales were $770.8 million, down 10% from $858.5 million
in the same period last year. Excluding the sales of businesses
acquired since July 1, 1997, sales decreased 15%, primarily as a
result of a 10% decrease in Specialty Alloys unit volume, and a
15% 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 7% to $136.3
million, of which $43.0 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 74.5%
from 72.5% 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 $3.1 million
primarily due to newly acquired companies.
Cash Flow and Financial Condition:
- ---------------------------------
During the nine months ended March 31, 1999, Carpenter's
cash and cash equivalents decreased by $44.5 million, as shown in
the consolidated statement of cash flows.
Net cash generated from operating activities was $46.1
million. Excluding amounts acquired through purchases of
businesses, accounts receivable decreased $18.5 million, accounts
payable and accrued current liabilities decreased $31.1 million,
and inventories decreased $7.0 million, primarily as a result of
normal seasonal trends and lower sales.
Investing activities consumed $44.8 million in cash during
the first nine months of fiscal 1999. Total spending for
business acquisitions, net of cash received, was $23.1 million.
Capital expenditures were at a high level as Carpenter continued
its capital expenditure program to invest for future business
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS, continued
-------------------------
Cash Flow and Financial Condition, continued:
- ---------------------------------
requirements, including manufacturing capacity. As of March 31,
1999, the total of approved capital improvement projects in
excess of $1 million each was approximately $356 million of which
approximately $132 million was spent as of March 31, 1999. Total
capital expenditures anticipated for fiscal 1999 are $155 million
of which $118.9 million was spent as of March 31, 1999.
The dispositions of businesses formerly owned by Talley (net
assets held for sale) provided $97.0 million of pre-tax cash, net
of allocated interest and costs of dispositions. As of March 31,
1999, the remaining net cash expected to be received from these
businesses was $21.5 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 during the next
several months, and will be used to repay short-term debt.
Details are included in Note 4 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 Note 5 to the
consolidated financial statements.
Total debt increased by $10.9 million since June 30, 1998 to
a level of $537.7 million or 41.1% of total capital employed,
including deferred taxes.
At March 31, 1999, Carpenter was in a strong liquidity
position, with current assets exceeding current liabilities by
$140.7 million (a ratio of 1.4 to 1). This favorable ratio is
conservatively stated because certain inventories are valued
$131.6 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS, continued
-------------------------
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.
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 estimate of total
costs to remediate Carpenter's Year 2000 Issues has been
increased to $9.2 million from the $8.5 million estimated at 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 ability of Carpenter, along with other
domestic producers of stainless steel products, to obtain a
favorable ruling in dumping and countervailing duty claims
against foreign producers; 5) the level of export sales impacted
by political and economic instability, particularly in Asia,
Eastern Europe and Latin America, resulting in lower global
demand for stainless steel products; 6) the level of sales
impacted by 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; 7) 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 businesses held for sale; 8) the effects on
operations of changes in U.S. and foreign governmental laws and
public policy, including environmental regulations; and 9) 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 6. Exhibits and Reports on Form 8-K.
----------------------------------------
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, 4 and 5 are omitted as the answer is negative or
the items are not applicable.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
(Registrant)
Date: May 13, 1999
------------------ --------------------------------
G. Walton Cottrell
Sr. Vice President - Finance
and Chief Financial Officer
Exhibit 27
CARPENTER TECHNOLOGY CORPORATION
FINANCIAL DATA SCHEDULE
(in millions, except per share data)
(unaudited)
At March 31, 1999
- -----------------
Cash and cash equivalents $ 7.9
Accounts receivable, net $ 160.8
Inventories $ 262.2
Total current assets $ 466.2
Property, plant and equipment $1,227.4
Accumulated depreciation and amortization $ 497.1
Total assets $1,622.2
Total current liabilities $ 325.5
Long-term debt, net of current portion $ 355.3
Preferred stock $ 27.5
Common stock $ 115.1
Other stockholders' equity $ 486.9
Total liabilities and stockholders' equity $1,622.2
For the Nine Months Ended March 31, 1999
- ----------------------------------------
Net sales of tangible products $ 770.8
Total revenues $ 770.8
Cost of tangible goods sold $ 574.6
Total costs and expenses applicable to
sales and revenues $ 574.6
Other costs and expenses $ 136.3
Interest expense $ 21.6
Income before income taxes $ 38.3
Income taxes $ 12.7
Income from continuing operations $ 25.6
Net income $ 25.6
Earnings per share - basic $ 1.10
Earnings per share - diluted $ 1.08
E-2