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, 1996
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, 1996.
Common stock, $5 par value 16,609,762
Class Number of shares outstanding
The Exhibit Index appears on page E-1.
<PAGE>
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
Part I FINANCIAL INFORMATION
Consolidated Balance Sheet as of March 31, 1996 (Unaudited)
and June 30, 1995.......................................... 3 & 4
Consolidated Statement of Income (Unaudited) for the
Three and Nine Months Ended March 31, 1996 and 1995........ 5
Consolidated Statement of Cash Flows (Unaudited) for the
Nine Months Ended March 31, 1996 and 1995.................. 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
<PAGE>
PART I
- ------
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Page 1 of 2)
March 31, 1996 and June 30, 1995
(in thousands, except share data)
March 31 June 30
1996 1995
--------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 37,936 $ 20,120
Accounts receivable, net 131,231 118,848
Inventories 143,895 91,383
Deferred income taxes 127 1,827
Other current assets 11,994 8,251
-------- --------
Total current assets 325,183 240,429
Property, plant and equipment,
at cost 789,072 763,755
Less accumulated depreciation
and amortization 383,257 360,175
-------- --------
405,815 403,580
Prepaid pension cost 88,992 81,182
Investment in joint venture 10,566 49,085
Goodwill, net 18,488 15,701
Other assets 44,119 41,798
________ ________
Total assets $893,163 $831,775
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Page 2 of 2)
March 31, 1996 and June 30, 1995
(in thousands, except share data)
March 31 June 30
LIABILITIES 1996 1995
- ----------- --------- ---------
(Unaudited)
Current liabilities:
Short-term debt $ 44,674 $ 20,145
Accounts payable 58,575 51,162
Accrued compensation 18,940 21,457
Accrued income taxes 9,424 5,442
Other accrued liabilities 26,222 28,684
Current portion of long-term debt 7,136 7,286
-------- --------
Total current liabilities 164,971 134,176
Long-term debt, net of current portion 191,059 194,762
Accrued postretirement benefits 142,050 140,855
Deferred income taxes 81,725 78,415
Other liabilities and deferred income 21,230 19,622
SHAREHOLDERS' EQUITY
- --------------------
Preferred stock -
$5 par value, authorized 2,000,000 shares;
issued 454.3 shares at March 31, 1996 and
456.7 shares at June 30, 1995 28,603 28,825
Common stock at $5 par value -
authorized 50,000,000 shares; issued 19,539,326
shares at March 31, 1996 and 19,337,964 shares
at June 30, 1995 97,697 96,690
Capital in excess of par value - common stock 12,299 6,801
Reinvested earnings 252,582 231,114
Common stock in treasury, at cost -
2,929,564 shares at March 31, 1996 and
3,046,208 shares at June 30, 1995 (64,354) (67,002)
Deferred compensation (23,657) (25,461)
Foreign currency translation adjustments (11,042) (7,022)
-------- --------
Total shareholders' equity 292,128 263,945
________ ________
Total liabilities and shareholders' equity $893,163 $831,775
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
for the three and nine months ended March 31, 1996 and 1995
(in thousands, except per share data)
Three Months Nine Months
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales $233,274 $211,636 $627,869 $540,120
-------- -------- -------- --------
Costs and expenses:
Cost of sales 175,410 154,101 468,844 403,586
Selling and administrative
expenses 28,379 25,929 81,675 75,095
Interest expense 5,010 4,315 14,413 10,077
Equity in loss of joint venture 3,955 1,880 6,320 2,980
Other (income) expense, net (3,650) 619 (4,445) (139)
-------- -------- -------- --------
209,104 186,844 566,807 491,599
-------- -------- -------- --------
Income before income taxes 24,170 24,792 61,062 48,521
Income taxes 9,444 9,429 22,137 18,399
-------- -------- -------- --------
Net income $ 14,726 $ 15,363 $ 38,925 $ 30,122
======== ======== ======== ========
Earnings per common share:
Primary $ .86 $ .91 $ 2.27 $ 1.77
======== ======== ======== ========
Fully diluted $ .83 $ .89 $ 2.19 $ 1.72
======== ======== ======== ========
Weighted average common shares
outstanding 16,735 16,284 16,657 16,328
======== ======== ======== ========
Dividends per common share $ .33 $ .30 $ .99 $ .90
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
for the nine months ended March 31, 1996 and 1995
(in thousands)
1996 1995
OPERATIONS ---- ----
Net income $ 38,925 $ 30,122
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation and amortization 26,407 24,103
Deferred income taxes 4,596 2,607
Prepaid pension cost (7,810) (6,046)
Equity in loss of joint venture 6,320 2,980
Gain on sale of partial interest in joint venture (2,650) -
Changes in working capital and other:
Receivables (9,464) (15,023)
Inventories (43,913) (34,214)
Accounts payable 4,248 15,445
Accrued current liabilities (1,190) 2,984
Other, net 161 (2,595)
-------- --------
Net cash provided from operations 15,630 20,363
-------- --------
INVESTING ACTIVITIES
Purchases of plant and equipment (25,269) (28,604)
Disposals of plant and equipment 1,185 866
Acquisitions of businesses, net of cash received (10,584) (13,025)
Proceeds from sale of partial
interest in joint venture 32,672 -
Investment in joint venture - (2,060)
-------- --------
Net cash used for investing activities (1,996) (42,823)
-------- --------
FINANCING ACTIVITIES
Provided by short-term debt 23,824 44,875
Proceeds from issuance of long-term debt - 50,000
Payments on long-term debt (6,112) (52,568)
Dividends paid (17,457) (15,798)
Proceeds from issuance of common stock 4,104 660
Payments to acquire treasury stock - (3,001)
-------- --------
Net cash provided from financing activities 4,359 24,168
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (177) (773)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 17,816 935
Cash and cash equivalents at beginning of period 20,120 5,404
-------- --------
Cash and cash equivalents at end of period $ 37,936 $ 6,339
Supplemental Data: ======== ========
- -----------------
Cash Paid During the Year For:
Interest payments, net of amounts capitalized $ 16,409 $ 10,877
Income tax payments, net of refunds $ 12,335 $ 7,524
Non-Cash Investing Activities:
Acquisitions of businesses with treasury stock $ 4,500 $ 3,200
See accompanying notes to consolidated financial statements.
<PAGE>
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, 1996 are not necessarily indicative of the results that
may be expected for the year ending June 30, 1996. For further
information, refer to the consolidated financial statements and
footnotes included in the Company's 1995 Annual Report on Form 10-K.
The June 30, 1995 condensed balance sheet data was derived from
audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
2. Earnings Per Common Share
-------------------------
Primary earnings per common share are computed by dividing net
income (less preferred dividends net of tax benefits) by the weighted
average number of common shares and common share equivalents outstanding
during the period. On a fully-diluted basis, both net earnings and
shares outstanding are adjusted to assume the conversion of the
convertible preferred stock.
3. Inventories
-----------
March 31 June 30
1996 1995
-------- --------
(in thousands)
Finished $120,186 $ 92,930
Work in process 131,551 110,468
Raw materials and supplies 45,775 41,602
-------- --------
Total at current cost 297,512 245,000
Excess of current cost over LIFO values 153,617 153,617
-------- --------
Inventory per Balance Sheet $143,895 $ 91,383
======== ========
The current cost of LIFO-valued inventories was $272.6 million at
March 31, 1996 and $219.7 million at June 30, 1995.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
4. Two-For-One Common Stock Split
------------------------------
On August 10, 1995, the Board of Directors of the Company declared
a two-for-one common stock split which was distributed on September 15,
1995, to shareholders of record on September 1, 1995. The par value of
common shares remained at $5 per share. All share and per share data
for the prior year have been restated for the effect of this two-for-one
common stock split.
5. Acquisitions of Businesses
--------------------------
On October 26, 1995, the Company purchased all of the common stock
of Parmatech Corporation in exchange for 120,786 shares of treasury
common stock with a fair market value of $4.5 million and assumed $2.7
million of Parmatech's debt. An additional $1.5 million of Company
common stock will be paid if certain performance criteria are achieved
for the year ending June 30, 1996. Parmatech manufactures complex, net
or near-net shape parts from a powder metal slurry using an injection
molding process.
On November 9, 1995, the Company acquired Green Bay Supply Co.,
Inc. for approximately $11 million in cash. Green Bay is a master
distributor which purchases specialty metal products globally and
resells them to independent distributors in the United States.
The acquisitions have been accounted for using the purchase method
of accounting and, accordingly, the purchase prices have been allocated
to the assets purchased and the liabilities assumed based upon the
estimated fair values at the dates of acquisition. The excess of
purchase price over the preliminary estimated fair values of the net
assets acquired was approximately $3.5 million and has been recorded
as goodwill.
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 1995, combined net sales would have been approximately $638
million for the nine months ended March 31, 1996, and $219 million and
$559 million for the three and nine months ended March 31, 1995,
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 1995.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
6. Sale of Partial Interest in Joint Venture
-----------------------------------------
On March 19, 1996, the Company sold a portion of its interest
in Walsin-CarTech Specialty Steel Corporation, a corporate joint
venture in Taiwan with Walsin Lihwa Corporation, reducing its
ownership interest to 5% from 19%. The Company received $32.7 million
in cash from the sale which resulted in a $2.7 million pre-tax gain.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS
-----------------------------------------------------------
Third Quarter Results:
- ---------------------
Net income for the quarter ended March 31, 1996 was $14.7 million
versus $15.4 million in the same quarter last year. Primary earnings
per share were $.86 compared with $.91 for the same period a year ago.
The decrease in results is primarily due to increased costs and reduced
sales volume, partly due to record snowfalls that resulted in two lost
workdays at the Reading plant and disruptions in material flow throughout
the East Coast. Results were also affected by one-time costs to assimilate
recently acquired businesses and other actions to improve business
performance.
Sales revenues were $233.3 million, a 10 percent increase over the
$211.6 million last year. The increase in sales was primarily a result
of selling price actions and improved product mix. Sales were also higher
by $5.4 million due to the inclusion of the sales of Parmatech Corporation
and Green Bay Supply Co., Inc. which were acquired in fiscal 1996.
Cost of sales as a percent of net sales was 75 percent for the third
quarter of this year compared to 73 percent last year, while selling and
administrative expenses were 12 percent of sales in both years. Raw
material costs rose at a faster rate than sales revenues, causing most of
the deterioration in cost of sales as a percent of sales. Also, cost of
sales were adversely affected by the harsh winter weather and capacity
constraints.
Interest costs increased by $.7 million compared to the same quarter
last year, principally as a result of lower capitalized interest and a
higher level of debt.
The Company's interest in Walsin-CarTech, a joint venture in Taiwan,
resulted in a loss of $4.0 million versus a $1.9 million loss in the same
quarter last year. The current year loss was partially offset by a gain
of $2.7 million from the sale of most of its interest in the joint venture.
The gain is included in Other Income on the Consolidated Statement of Income.
Nine Month Results:
- ------------------
Net income for the nine months ended March 31, 1996 was $38.9 million,
compared with $30.1 million for the same period last year. Primary earnings
per share were $2.27 compared with $1.77 for the same period a year ago.
The improved results were primarily due to higher sales volume and improved
profit margins.
Sales were $627.9 million, a 16 percent increase from $540.1 million
last year. This increase was a result of a 2 percent increase in Steel
Division unit volume shipments, increased selling prices, and the inclusion
of sales of Parmatech Corporation and Green Bay Supply Co., Inc.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS IN OPERATIONS
-----------------------------------------------------------
(continued)
Nine Month Results, continued:
- ------------------
Cost of sales was 75 percent of net sales in both periods. Higher
raw material, labor and other costs were offset by increased selling prices.
Selling and administrative expenses fell to 13 percent of net sales
versus 14 percent a year ago, primarily because these costs tend to change
less rapidly than sales.
Interest costs increased by $4.3 million versus the same period last
year, principally as a result of lower capitalized interest and a higher
level of debt.
The Company's share of Walsin-CarTech's results was a loss of $6.3
million for the nine months this year versus a loss of $3.0 million for
the same period last year. Lower volumes, reduced selling prices and
lower production levels were the primary reasons for the increased loss.
The current year loss was somewhat offset by a gain of $2.7 million on
the sale of the Company's partial interest in the joint venture. The gain
is included in Other Income on the Consolidated Statement of Income.
<PAGE>
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 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:
11. Statement regarding computation of per share earnings.
27. Financial data schedule.
b. The Company filed one (1) Report on Form 8-K for an event
occurring during the quarter of the fiscal year covered by
this report. The report, dated March 19, 1996, was filed
on March 28, 1996, with respect to the Company's exercise
of a portion of its option to reduce its investment in
Walsin-CarTech Specialty Steel Corporation.
Items 2, 3, 4 and 5 are omitted as the answer is negative or the item
is not applicable.
<PAGE>
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 14, 1996 s/G. Walton Cottrell
---------------- --------------------------------
G. Walton Cottrell
Sr. Vice President - Finance
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Title Page
- ----------- ----- ----
11. Statement regarding computation of
per share earnings. E-2 & E-3
27. Financial data schedule. E-4
E-1
<PAGE>
Exhibit 11
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
PRIMARY EARNINGS PER COMMON SHARE COMPUTATIONS
For the Three and Nine Months Ended March 31, 1996 and 1995
(in thousands, except per share data)
Three Months Nine Months
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Net Income for Primary
- ----------------------
Earnings Per Common
-------------------
Share
-----
Net income $ 14,726 $ 15,363 $ 38,925 $ 30,122
Dividends accrued on
convertible preferred
stock, net of tax
benefits (391) (472) (1,181) (1,271)
-------- -------- -------- --------
Net income for primary
earnings per common
share $ 14,335 $ 14,891 $ 37,744 $ 28,851
======== ======== ======== ========
Weighted Average Common
- -----------------------
Shares
------
Weighted average number
of common shares
outstanding 16,605 16,210 16,511 16,246
Effect of shares
issuable under
stock option plans 130 74 146 82
-------- -------- -------- --------
Weighted average
common shares 16,735 16,284 16,657 16,328
======== ======== ======== ========
Primary Earnings Per
- --------------------
Common Share $ .86 $ .91 $ 2.27 $ 1.77
------------ ======== ======== ======== ========
All share and per share data for the three and nine months ended
March 31, 1995, have been restated for the effect of a
two-for-one common stock split that was distributed on
September 15, 1995 to shareholders of record on September 1,
1995.
E-2
<PAGE>
Exhibit 11
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
FULLY DILUTED EARNINGS PER COMMON SHARE COMPUTATIONS
For the Three and Nine Months Ended March 31, 1996 and 1995
(in thousands, except per share data)
Three Months Nine Months
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Net Income for Fully
- --------------------
Diluted Earnings Per
--------------------
Common Share
------------
Net income $ 14,726 $ 15,363 $ 38,925 $ 30,122
Assumed shortfall
between common and
preferred dividend (161) (134) (486) (531)
-------- -------- -------- --------
Net income for fully
diluted earnings per
common share $ 14,565 $ 15,229 $ 38,439 $ 29,591
======== ======== ======== ========
Weighted Average Common
- -----------------------
Shares
------
Weighted average number
of common shares
outstanding 16,605 16,210 16,511 16,246
Assumed conversion of
preferred shares 910 918 910 918
Effect of shares
issuable under
stock option plans 152 76 166 82
-------- -------- -------- --------
Weighted average
common shares 17,667 17,204 17,587 17,246
======== ======== ======== ========
Fully Diluted Earnings
- ----------------------
Per Common Share $ .83 $ .89 $ 2.19 $ 1.72
---------------- ======== ======== ======== ========
All share and per share data for the three and nine months ended
March 31, 1995, have been restated for the effect of a
two-for-one common stock split that was distributed on
September 15, 1995 to shareholders of record on September 1,
1995.
E-3
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> $37,936
<SECURITIES> $0
<RECEIVABLES> $131,231
<ALLOWANCES> $0
<INVENTORY> $143,895
<CURRENT-ASSETS> $325,183
<PP&E> $789,072
<DEPRECIATION> $383,257
<TOTAL-ASSETS> $893,163
<CURRENT-LIABILITIES> $164,971
<BONDS> $191,059
<COMMON> $97,697
$0
$28,603
<OTHER-SE> $165,828
<TOTAL-LIABILITY-AND-EQUITY> $893,163
<SALES> $627,869
<TOTAL-REVENUES> $627,869
<CGS> $468,844
<TOTAL-COSTS> $468,844
<OTHER-EXPENSES> $1,875
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $14,413
<INCOME-PRETAX> $61,062
<INCOME-TAX> $22,137
<INCOME-CONTINUING> $38,925
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $38,925
<EPS-PRIMARY> $2.27
<EPS-DILUTED> $2.19
</TABLE>
