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 September 30, 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 September 30, 1996.
Common stock, $5 par value 16,619,528
Class Number of shares outstanding
The Exhibit Index appears on page E-1.
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
FORM 10-Q
INDEX
Page
----
Part I FINANCIAL INFORMATION
Consolidated Balance Sheet September 30, 1996 (Unaudited)
and June 30, 1996........................................ 3 & 4
Consolidated Statement of Income (Unaudited) for the
Three Months Ended September 30, 1996 and 1995........... 5
Consolidated Statement of Cash Flows (Unaudited) for the
Three Months Ended September 30, 1996 and 1995........... 6
Notes to Consolidated Financial Statements................. 7 & 8
Management's Discussion and Analysis of Results
of Operations............................................ 9
Part II OTHER INFORMATION...................................10 & 11
Exhibit Index................................................ E-1
<PAGE>
PART I
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET (Page 1 of 2)
September 30, 1996 and June 30, 1996
(in thousands, except share data)
September 30 June 30
1996 1996
------------ ----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 14,444 $ 13,159
Accounts receivable, net 113,243 137,103
Inventories 164,858 160,452
Deferred income taxes 1,289 2,113
Other current assets 13,568 11,643
-------- --------
Total current assets 307,402 324,470
Property, plant and equipment,
at cost 829,220 809,697
Less accumulated depreciation
and amortization 398,520 390,225
-------- --------
430,700 419,472
Prepaid pension cost 94,201 91,474
Investment in joint venture 9,110 9,760
Goodwill, net 18,525 18,792
Other assets 48,983 48,003
________ ________
Total assets $908,921 $911,971
======== =========
See accompanying notes to consolidated financial statements.
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET (Page 2 of 2)
September 30, 1996 and June 30, 1996
(in thousands, except share data)
September 30 June 30
LIABILITIES 1996 1996
- ----------- --------- --------
(Unaudited)
Current liabilities:
Short-term debt $ 45,508 $ 18,964
Accounts payable 59,280 75,811
Accrued compensation 13,546 26,088
Accrued income taxes 12,635 13,656
Other accrued liabilities 26,397 30,446
Current portion of long-term debt 6,892 7,010
________ ________
Total current liabilities 164,258 171,975
Long-term debt, net of current portion 187,990 188,024
Accrued postretirement benefits 137,827 137,738
Deferred income taxes 85,183 84,460
Other liabilities and deferred income 21,370 20,697
SHAREHOLDERS' EQUITY
- --------------------
Preferred stock - $5 par value,
authorized 2,000,000 shares; issued
452.1 shares at September 30, 1996
and 453.1 shares at June 30, 1996 28,515 28,581
Common stock at $5 par value -
authorized 50,000,000 shares; issued
19,550,348 shares at September 30, 1996
and 19,545,751 shares at June 30, 1996 97,752 97,729
Capital in excess of par value - common stock 13,589 13,498
Reinvested earnings 270,177 267,956
Common stock in treasury, at cost - 2,930,820
shares at September 30, 1996 and 2,930,074
shares at June 30, 1996 (64,507) (64,483)
Deferred compensation (22,184) (22,830)
Foreign currency translation adjustments (11,049) (11,374)
-------- --------
Total shareholders' equity 312,293 309,077
-------- --------
Total liabilities and shareholders' equity $908,921 $911,971
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
for the three months ended September 30, 1996 and 1995
(in thousands, except per share data)
1996 1995
---- ----
Net sales $194,746 $184,469
-------- --------
Costs and expenses:
Cost of sales 148,318 136,205
Selling and administrative expenses 29,555 24,985
Interest expense 4,426 4,582
Equity in loss of joint venture 656 225
Other income, net (584) (396)
-------- --------
182,371 165,601
-------- --------
Income before income taxes 12,375 18,868
Income taxes 4,300 6,962
-------- --------
Net income $ 8,075 $ 11,906
======== ========
Earnings per common share:
Primary $ .46 $ .70
======== ========
Fully Diluted $ .45 $ .67
======== ========
Weighted average common
shares outstanding 16,712 16,538
======== ========
Cash dividends per common share $ .33 $ .33
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
for the three months ended September 30, 1996 and 1995
(in thousands)
1996 1995
OPERATIONS ---- ----
Net income $ 8,075 $ 11,906
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation and amortization 9,190 8,482
Deferred income taxes 1,502 1,619
Prepaid pension cost (2,727) (2,567)
Equity in loss of joint venture 656 225
Changes in working capital and other:
Receivables 23,902 13,027
Inventories (4,316) (22,807)
Accounts payable (16,544) 3,569
Accrued current liabilities (17,646) (8,229)
Other, net (1,213) 547
-------- --------
Net cash provided from operations 879 5,772
-------- --------
INVESTING ACTIVITIES
Purchases of plant and equipment (20,252) (6,498)
Disposals of plant and equipment 104 387
-------- --------
Net cash used for investing activities (20,148) (6,111)
-------- --------
FINANCING ACTIVITIES
Provided by (payments on) short-term debt 26,544 (6,507)
Payments on long-term debt (152) (139)
Dividends paid (5,854) (5,785)
Proceeds from issuance of common stock - 3,287
-------- --------
Net cash provided from (used for)
financing activities 20,538 (9,144)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 16 (23)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,285 (9,506)
Cash and cash equivalents at beginning of period 13,159 20,120
-------- --------
Cash and cash equivalents at end of period $ 14,444 $ 10,614
======== ========
SUPPLEMENTAL DATA:
Interest payments, net of amounts capitalized $ 7,545 $ 6,829
Income tax payments, net of refunds $ 3,640 $ 457
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 three months ended
September 30, 1996 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
3. Inventories
-----------
September 30 June 30
1996 1996
-------- --------
(in thousands)
Finished and purchased products $129,137 $129,184
Work in process 148,262 134,751
Raw materials and supplies 49,145 58,388
-------- --------
Total at current cost 326,544 322,323
Excess of current cost over LIFO values 161,686 161,871
-------- --------
Inventory per Balance Sheet $164,858 $160,452
======== ========
The current cost of LIFO-valued inventories was $297.1
million at September 30, 1996 and $295.4 million at June 30,
1996.
4. Accounting Pronouncements
-------------------------
The Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," and SFAS 123,
"Accounting for Stock-Based Compensation" which became
effective for fiscal years beginning after December 15,
1995. The Company adopted these statements effective
July 1, 1996. SFAS 121 establishes criteria for
recognizing, measuring and disclosing impairments of
long-lived assets, identifiable intangibles and goodwill.
The adoption of SFAS 121 in the quarter ended September 30,
1996 did not have a material effect on the accompanying
financial statements. SFAS 123 allows entities to choose
between a new fair value based method of accounting for
stock-based compensation and the current method of
accounting prescribed by Accounting Principles Board Opinion
25 ("APB 25"). Entities electing to continue using APB 25
must make annual pro forma disclosures of net income and
earnings per share as if the fair market value method of
accounting had been applied. The Company will continue
accounting for stock-based compensation in accordance with
APB 25.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS
-----------------------------------------------------------
Net income for the quarter was $8.1 million and primary earnings
per share were $.46 versus $11.9 million or $.70 per share in the same
quarter last year. The decrease in earnings was primarily a result of
an extended maintenance shutdown period, which resulted in lower manu-
facturing levels and higher repair spending levels.
Sales were $194.7 million, a 6 percent increase over the $184.5
million in the same period last year. The increase in sales was
primarily the result of including the results of companies acquired
after September 30, 1995, and an improved Steel Division product mix.
Core Steel Division unit volume shipments were down 6 percent, compared
to the year earlier period.
Cost of sales as a percent of net sales increased to 76 percent
in the current year's first fiscal quarter from 74 percent in last year's
first quarter. A decrease in raw material costs was more than offset by
increased maintenance costs as a result of the extended shutdown period.
The extended shutdown was needed as a result of the high operating rate of
manufacturing facilities over the past two fiscal years and the expectation
that the high operating rate will continue.
Selling and administrative costs were higher by $4.6 million,
primarily as a result of increased depreciation, amortization, freight,
travel costs and the inclusion of costs for the companies acquired during
the past year.
The effective tax rate for the first quarter was lower than the
anticipated full year rate for fiscal 1997 because of changes in estimates
in foreign tax liabilities.
<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 or any of its subsidiaries is a party or to which any
of their properties is subject and there are no such proceedings
which, to the knowledge of the Company, are 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, capital expenditures, deferred charges or
charges to income exceeding ten percent of the current assets of
the Company and its subsidiaries on a consolidated basis or (3)
includes a governmental authority as a party and which the
Company reasonably believes 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:
3. Amendment to the By-Laws of the Company as
adopted August 8, 1996
11. Statement regarding Computations of Per Share
Earnings
12. Statement regarding Computations of Ratios of
Earnings to Fixed Charges
27. Financial Data Schedule
b. The Company filed no Reports on Form 8-K for
events occurring during the quarter of the fiscal
year covered by this report.
Items 2, 3, 4 and 5 are omitted as the answer is negative or the
items are 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: November 12, 1996 s/G. Walton Cottrell
------------------- -------------------------------
G. Walton Cottrell
Sr. Vice President - Finance
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No. Title Page
--- ----- ----
3. Amendment to the By-Laws of the Company as adopted
August 8, 1996 E-2
11. Statement regarding Computations of Per Share Earnings E-3
&
E-4
12. Statement regarding Computations of Ratios of Earnings
to Fixed Charges E-5
27. Financial Data Schedule E-6
E-1
<PAGE>
Exhibit 3
AMENDMENT TO BY-LAWS OF
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
By resolution adopted at a duly convened meeting of the Board of
Directors of the Company held on August 8, 1996, the Board revised
Section 2.6 of the Company's By-Laws to read as follows:
2.6 Resignation and Retirement of Directors. Any director
----------------------------------------
may resign at any time by giving written notice to the
Chief Executive Officer or Secretary of the Corporation, to
take effect at the time specified therein. The acceptance
of such resignation, unless required by the terms thereof,
shall not be necessary to make it effective. Unless
otherwise provided by resolution of the Board, any director
who is also an officer of the Corporation shall retire from
the Board upon the earlier of (a) attaining age 65 or
(b) retirement as an officer of the Corporation. Unless
otherwise provided by resolution of the Board, any
Director who is not an Officer of the Corporation shall
retire from the Board at the next Annual Meeting of
Stockholders after the Director attains the age of 70.
E-2
<PAGE>
Exhibit 11
CARPENTER TECHNOLOGY CORPORATION
PRIMARY EARNINGS PER COMMON SHARE COMPUTATIONS
For the Three Months Ended September 30, 1996 and 1995
(in thousands, except per share data)
1996 1995
---- ----
Net Income for Primary Earnings
- -------------------------------
Per Common Share
----------------
Net income $ 8,075 $ 11,906
Dividends accrued on convertible
preferred stock, net of tax benefits (391) (400)
-------- --------
Net income for primary earnings
per common share $ 7,684 $ 11,506
======== ========
Weighted Average Common Shares
- ------------------------------
Weighted average number of
common shares outstanding 16,617 16,381
Effect of shares issuable under
stock option plans 95 157
-------- --------
Weighted average common shares 16,712 16,538
======== ========
Primary Earnings Per Common Share $ .46 $ .70
- --------------------------------- ======== ========
E-3
<PAGE>
Exhibit 11
CARPENTER TECHNOLOGY CORPORATION
FULLY DILUTED EARNINGS PER COMMON SHARE COMPUTATIONS
For the Three Months Ended September 30, 1996 and 1995
(in thousands, except per share data)
1996 1995
---- ----
Net Income for Fully Diluted
- ----------------------------
Earnings Per Common Share
-------------------------
Net income $ 8,075 $ 11,906
Assumed shortfall between common
and preferred dividend (222) (183)
-------- --------
Net income for fully diluted
earnings per common share $ 7,853 $ 11,723
======== ========
Weighted Average Common Shares
- ------------------------------
Weighted average number of common
shares outstanding 16,617 16,381
Assumed conversion of preferred shares 905 917
Effect of shares issuable under
stock option plans 122 192
-------- --------
Weighted average common shares 17,644 17,490
======== ========
Fully Diluted Earnings Per Common Share $ .45 $ .67
- --------------------------------------- ======== ========
E-4
<PAGE>
Exhibit 12
CARPENTER TECHNOLOGY CORPORATION
COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES -- unaudited
Five Years Ended June 30, 1996 and
Three Months Ended September 30, 1996
(dollars in thousands)
Three
Months Year Ended June 30
Ended --------------------------------------------
9/30/96 1996 1995 1994 1993 1992
------- ---- ---- ---- ---- ----
Fixed charges
Interest costs (a) $ 4,786 $ 19,275 $ 17,797 $ 19,651 $ 21,759 $ 20,627
Interest component of
non-capitalized lease
rental expense (b)
expense (b) 529 2,074 2,452 2,522 2,532 2,480
-------- -------- -------- -------- -------- --------
Total fixed charges $ 5,315 $ 21,349 $ 20,249 $ 22,173 $ 24,291 $ 23,107
======== ======== ======== ======== ======== ========
Earnings as defined:
Income before income
taxes, extraordinary
charge and cumulative
effect of changes in
accounting principles $ 12,375 $ 95,170 $ 74,571 $ 62,728 $ 42,799 $ 22,827
Add: Loss in less-than-
fifty-percent-owned
persons 656 7,025 3,000 910 - -
Less: Gain on sale of
partial interest in
less-than-fifty-
percent-owned persons - (2,650) - - - -
Fixed charges less
interest capitalized 4,955 21,009 16,994 18,043 23,126 22,117
Amortization of
capitalized interest 464 2,074 1,952 1,788 1,725 1,696
-------- -------- -------- -------- -------- --------
Earnings as defined $ 18,450 $122,628 $ 96,517 $ 83,469 $ 67,650 $ 46,640
======== ======== ======== ======== ======== ========
Ratio of earnings
to fixed charges 3.5x 5.7x 4.8x 3.8x 2.8x 2.0x
======== ======== ======== ======== ======== ========
(a) Includes interest capitalized relating to significant construction
projects and amortization of debt discount and debt expense.
(b) One-third of rental expense which approximates the interest component of
non-capitalized leases.
E-5
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> $14,444
<SECURITIES> $0
<RECEIVABLES> $113,243
<ALLOWANCES> $0
<INVENTORY> $164,858
<CURRENT-ASSETS> $307,402
<PP&E> $829,220
<DEPRECIATION> $398,520
<TOTAL-ASSETS> $908,921
<CURRENT-LIABILITIES> $164,258
<BONDS> $187,990
<COMMON> $97,752
$0
$28,515
<OTHER-SE> $186,026
<TOTAL-LIABILITY-AND-EQUITY> $908,921
<SALES> $194,746
<TOTAL-REVENUES> $194,746
<CGS> $148,318
<TOTAL-COSTS> $148,318
<OTHER-EXPENSES> $72
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $4,426
<INCOME-PRETAX> $12,375
<INCOME-TAX> $4,300
<INCOME-CONTINUING> $8,075
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $8,075
<EPS-PRIMARY> $.46
<EPS-DILUTED> $.45
</TABLE>
