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 December 31, 1995
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 December 31, 1995.
Common stock, $5 par value 16,602,336
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 December 31, 1995 (Unaudited)
and June 30, 1995..................................... 3 & 4
Consolidated Statement of Income (Unaudited) for the
Three and Six Months Ended December 31, 1995 & 1994... 5
Consolidated Statement of Cash Flows (Unaudited) for the
Six Months Ended December 31, 1995 and 1994........... 6
Notes to Consolidated Financial Statements.............. 7 & 8
Management's Discussion and Analysis of Results
of Operations......................................... 9 & 10
Part II OTHER INFORMATION................................11 - 13
Exhibit Index............................................. E-1
<PAGE>
PART I
- ------ CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Page 1 of 2)
December 31, 1995 and June 30, 1995
(in thousands, except share data)
December 31 June 30
1995 1995
----------- ----------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 10,590 $ 20,120
Accounts receivable, net 119,129 118,848
Inventories 134,262 91,383
Deferred income taxes 772 1,827
Other current assets 11,449 8,251
-------- --------
Total current assets 276,202 240,429
Property, plant and equipment,
at cost 779,707 763,755
Less accumulated depreciation
and amortization 375,866 360,175
-------- --------
403,841 403,580
Prepaid pension cost 86,258 81,182
Investment in joint venture 44,408 49,085
Goodwill, net 18,748 15,701
Other assets 42,654 41,798
________ ________
Total assets $872,111 $831,775
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Page 2 of 2)
December 31, 1995 and June 30, 1995
(in thousands, except share data)
December 31 June 30
LIABILITIES 1995 1995
- ----------- ________ ________
(Unaudited)
Current liabilities:
Short-term debt $ 41,570 $ 20,145
Accounts payable 56,928 51,162
Accrued compensation 15,441 21,457
Accrued income taxes 3,994 5,442
Other accrued liabilities 31,143 28,684
Current portion of long-term debt 7,198 7,286
________ ________
Total current liabilities 156,274 134,176
Long-term debt, net of current portion 191,210 194,762
Accrued postretirement benefits 141,490 140,855
Deferred income taxes 80,171 78,415
Other liabilities and deferred income 20,814 19,622
SHAREHOLDERS' EQUITY
- --------------------
Preferred stock -
$5 par value, authorized 2,000,000 shares;
issued 454.5 shares at December 31, 1995
and 456.7 shares at June 30, 1995 28,675 28,825
Common stock at $5 par value -
authorized 50,000,000 shares; issued
19,528,056 shares at December 31, 1995
and 19,337,964 shares at June 30, 1995 97,640 96,690
Capital in excess of par value - common stock 12,064 6,801
Reinvested earnings 243,698 231,114
Common stock in treasury, at cost -
2,925,720 shares at December 31, 1995
and 3,046,208 shares at June 30, 1995 (64,354) (67,002)
Deferred compensation (24,201) (25,461)
Foreign currency translation adjustments (11,370) (7,022)
Total shareholders' equity 282,152 263,945
________ ________
Total liabilities and shareholders' equity $872,111 $831,775
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
for the three and six months ended December 31, 1995 and 1994
(in thousands, except per share data)
Three Months Six Months
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
Net sales $210,126 $172,400 $394,595 $328,484
-------- -------- -------- --------
Costs and expenses:
Cost of sales 157,229 127,917 293,434 249,485
Selling and
administrative
expenses 27,933 25,239 52,725 49,193
Interest expense 4,821 3,064 9,403 5,762
Equity in loss of
joint venture 2,140 860 2,365 1,100
Other income, net (21) (274) (224) (785)
-------- -------- -------- --------
192,102 156,806 357,703 304,755
-------- -------- -------- --------
Income before income
taxes 18,024 15,594 36,892 23,729
Income taxes 5,731 5,767 12,693 8,970
-------- -------- -------- --------
Net income $ 12,293 $ 9,827 $ 24,199 $ 14,759
======== ======== ======== ========
Earnings per common share:
Primary $ .71 $ .58 $ 1.41 $ .86
======== ======== ======== ========
Fully diluted $ .69 $ .56 $ 1.36 $ .83
======== ======== ======== ========
Weighted average common
shares outstanding 16,698 16,322 16,619 16,364
======== ======== ======== ========
Dividends per common
share $ .33 $ .30 $ .66 $ .60
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
for the six months ended December 31, 1995 and 1994
(in thousands)
1995 1994
OPERATIONS ---- ----
Net income $ 24,199 $ 14,759
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation and amortization 17,366 15,916
Deferred income taxes 2,444 1,922
Prepaid pension cost (5,076) (3,927)
Equity in loss of joint venture 2,365 1,100
Changes in working capital and other:
Receivables 2,600 6,163
Inventories (34,389) (22,732)
Accounts payable 2,608 10,856
Accrued current liabilities (5,189) 415
Other, net 783 (5,685)
-------- --------
Net cash provided from operations 7,711 18,787
INVESTING ACTIVITIES
Purchases of plant and equipment (13,938) (19,948)
Disposals of plant and equipment 378 600
Acquisitions of businesses, net of cash received (10,584) (13,055)
Investment in joint venture - (2,060)
-------- --------
Net cash used for investing activities (24,144) (34,463)
FINANCING ACTIVITIES -------- --------
Provided by short-term debt 20,724 31,265
Proceeds from issuance of long-term debt - 50,000
Payments on long-term debt (5,899) (52,140)
Dividends paid (11,615) (10,552)
Proceeds from issuance of common stock 3,884 663
Payments to acquire treasury stock - (3,002)
-------- --------
Net cash provided from financing activities 7,094 16,234
EFFECT OF EXCHANGE RATE CHANGES ON CASH -------- --------
AND CASH EQUIVALENTS (191) (471)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,530) 87
Cash and cash equivalents at beginning of period 20,120 5,404
-------- --------
Cash and cash equivalents at end of period $ 10,590 $ 5,491
Supplemental Data: ======== ========
Cash Paid During the Year For:
Interest payments, net of amounts capitalized $ 8,383 $ 4,562
Income tax payments, net of refunds $ 11,461 $ 3,941
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 six months ended December 31, 1995 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
-----------
December 31 June 30
1995 1995
-------- --------
(in thousands)
Finished $114,492 $ 92,930
Work in process 127,803 110,468
Raw materials and supplies 45,584 41,602
-------- --------
Total at current cost 287,879 245,000
Excess of current cost
over LIFO values 153,617 153,617
-------- --------
Inventory per Balance Sheet $134,262 $ 91,383
======== ========
The current cost of LIFO-valued inventories was $253.1
million at December 31, 1995 and $219.7 million at June 30,
1995.
<PAGE>
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 sales performance for
the year ending June 30, 1996 is achieved. 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 $212
million and $404 million for the three and six months ended
December 31, 1995, and $178 million and $340 million for the
three and six months ended December 31, 1994, 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>
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS
-----------------------------------------------------------
Second Quarter Results:
- ----------------------
Net income for the quarter ended December 31, 1995 was $12.3
million versus $9.8 million in the same quarter last year.
Primary earnings per share were $.71 compared with $.58 for the
same period a year ago. The improved results were primarily due
to increased sales volume and selling prices in the Steel
Division, combined with a lower effective tax rate because of
reduced state income tax estimates.
Sales revenues were $210.1 million, a 22 percent increase
over the $172.4 million last year. The increase in sales was
primarily a result of higher shipment levels of automotive,
aerospace, and power generation related products, and increased
international sales. Sales were also higher by $3.1 million due
to the inclusion of the sales of Parmatech Corporation, acquired
in October 1995, and Green Bay Supply Co., Inc., acquired during
November 1995.
Cost of sales as a percent of net sales was 75 percent for
the second quarter of this year compared to 74 percent last year,
while selling and administrative expenses were reduced to 13
percent of sales from 15 percent a year ago. Second quarter
results were negatively impacted by increased Steel Division
maintenance spending in preparation for higher equipment
utilization rates during the balance of the fiscal year in order
to ship the high customer backlog currently being experienced.
The Company's 19 percent interest in Walsin-CarTech, a joint
venture in Taiwan, resulted in a loss of $2.1 million versus a
$.9 million loss in the same quarter last year. Results of
operations this year have been adversely impacted by a
deterioration in mix, weak pricing and production inefficiencies.
Last year, pre-operating expenses were capitalized through
December 31, 1994.
Interest costs increased by $1.8 million compared to the
same quarter last year, principally as a result of lower
capitalized interest relating to the Company's investment in
Walsin-CarTech.
Six Month Results:
- -----------------
Net income for the six months ended December 31, 1995 was
$24.2 million, compared with $14.8 million for the same period
last year. Primary earnings per share were $1.41 compared with
$.86 for the same period a year ago. The improved results were
primarily due to higher sales volume, improved profit margins,
and a lower effective tax rate.
Sales were $394.6 million, a 20 percent increase from $328.5
million last year. This increase was a result of a 4 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 OF OPERATIONS
(continued)
Six Months Results, continued:
- ------------------
Cost of sales decreased to 74 percent of net sales in the
current fiscal year compared to 76 percent for the same period
last year. This improvement was primarily the result of the
selling price increases to recover raw material and other cost
increases and to restore profit margins which had eroded in prior
years.
Selling and administrative expenses fell to 13 percent of
net sales versus 15 percent a year ago, primarily because these
costs tend to change less rapidly than sales.
The Company's 19 percent share of Walsin-CarTech's results
was a loss of $2.4 million for the six months this year versus a
loss of $1.1 million for the same period last year. Lower
volumes, reduced selling prices and lower production levels were
the primary reasons for the increased loss. Last year,
pre-operating expenses were capitalized through December 31,
1994.
Interest costs increased by $3.6 million versus the same
period last year, principally due to last year's capitalization
of $2.1 million of interest relating to the Company's joint
venture investment in Walsin-CarTech.
<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. 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.
-----------------------------------------------------------
a. The Annual Meeting of Stockholders of the Company was
held on October 23, 1995.
b. Information required by this paragraph is omitted since
(i) proxies for the Annual Meeting were solicited pursuant to
Regulation 14 under the Securities Exchange Act, (ii) there was
no solicitation in opposition to the management's nominees as
listed in the Proxy Statement and (iii) all of such nominees were
elected.
c. Set forth below is a description of the matters voted
upon at the Annual Meeting and the number of votes cast for,
against or withheld, as well as the number of abstentions and
broker nonvotes, as applicable to each such matter.
1. Election Of Directors. The following five directors
---------------------
were elected to the Board of Directors of the Company. There were
no other nominees for director.
A. Robert W. Cardy
Shares voted for: 6,984,037
Shares voted against or withheld: 96,139
Abstentions: N/A
Broker nonvotes: N/A
B. Arthur E. Humphrey
Shares voted for: 6,983,751
Shares voted against or withheld: 98,710
Abstentions: N/A
Broker nonvotes: N/A
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders, continued
- ----------------------------------------------------------------------
C. Edward W. Kay
Shares voted for: 6,937,680
Shares voted against or withheld: 190,853
Abstentions: N/A
Broker nonvotes: N/A
D. Frederick C. Langenberg
Shares voted for: 6,985,026
Shares voted against or withheld: 96,161
Abstentions: N/A
Broker nonvotes: N/A
E. Kathryn C. Turner
Shares voted for: 6,932,341
Shares voted against or withheld: 201,529
Abstentions: N/A
Broker nonvotes: N/A
2. The accounting firm of Coopers & Lybrand was elected
independent accountants for the year ending June 30, 1996.
Shares voted for: 6,998,501
Shares voted against or withheld: 53,180.5
Abstentions: 28,022.5
Broker nonvotes: N/A
3. An amendment to the Non-Qualified Stock Plan for Non-
Employee Directors as described in the Proxy Statement was
approved.
Shares voted for: 6,459,003.5
Shares voted against or withheld: 513,353
Abstentions: 107,347.5
Broker nonvotes: N/A
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 no 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 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: January 31, 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 E-2
per share earnings. &
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 Six Months Ended December 31, 1995 and 1994
(in thousands, except per share data)
Three Months Six Months
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
Net Income for Primary Earnings
- -------------------------------
Per Common Share
----------------
Net income $ 12,293 $ 9,827 $ 24,199 $ 14,759
Dividends accrued on convertible
preferred stock, net of tax
benefits (390) (400) (790) (800)
-------- -------- -------- --------
Net income for primary earnings
per common share $ 11,903 $ 9,427 $ 23,409 $ 13,959
======== ======== ======== ========
Weighted Average Common Shares
- ------------------------------
Weighted average number of
common shares outstanding 16,547 16,252 16,464 16,264
Effect of shares issuable under
stock option plans 151 70 155 100
-------- -------- -------- --------
Weighted average common shares 16,698 16,322 16,619 16,364
======== ======== ======== ========
Primary Earnings Per Common Share $ .71 $ .58 $ 1.41 $ .86
======== ======== ======== ========
All share and per share data for the three and six months ended
December 31, 1994, 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 Six Months Ended December 31, 1995 and 1994
(in thousands, except per share data)
Three Months Six Months
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
Net Income for Fully Diluted
- ----------------------------
Earnings Per Common Share
-------------------------
Net income $ 12,293 $ 9,827 $ 24,199 $ 14,759
Assumed shortfall between
common and preferred dividend (143) (199) (326) (397)
-------- -------- -------- --------
Net income for fully diluted
earnings per common share $ 12,150 $ 9,628 $ 23,873 $ 14,362
======== ======== ======== ========
Weighted Average Common Shares
- ------------------------------
Weighted average number of
common shares outstanding 16,547 16,252 16,464 16,264
Assumed conversion of
preferred shares 912 918 912 918
Effect of shares issuable under
stock option plans 189 64 202 102
-------- -------- -------- --------
Weighted average common shares 17,648 17,234 17,578 17,284
======== ======== ======== ========
Fully Diluted Earnings
Per Common Share $ .69 $ .56 $ 1.36 $ .83
======== ======== ======== ========
All share and per share data for the three and six months ended
December 31, 1994, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> $10,590
<SECURITIES> 0
<RECEIVABLES> $119,129
<ALLOWANCES> 0
<INVENTORY> $134,262
<CURRENT-ASSETS> $276,202
<PP&E> $779,707
<DEPRECIATION> $375,866
<TOTAL-ASSETS> $872,111
<CURRENT-LIABILITIES> $156,274
<BONDS> $191,210
<COMMON> $97,640
0
$28,675
<OTHER-SE> $155,837
<TOTAL-LIABILITY-AND-EQUITY> $872,111
<SALES> $394,595
<TOTAL-REVENUES> $394,595
<CGS> $293,434
<TOTAL-COSTS> $293,434
<OTHER-EXPENSES> $2,141
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $9,403
<INCOME-PRETAX> $36,892
<INCOME-TAX> $12,693
<INCOME-CONTINUING> $24,199
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $24,199
<EPS-PRIMARY> $1.41
<EPS-DILUTED> $1.36
</TABLE>
