SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the fiscal year ended June 30, 1998
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)
Securities registered pursuant to Section 12(b) of the Act:
(Name of each exchange
(Title of each class) on which registered)
- --------------------- ----------------------
Common stock, par value $5 per share......New York Stock Exchange
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 the filing
requirements for at least the past 90 days. Yes X . No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of September 1, 1998, 22,729,354 shares of Common Stock of
Carpenter Technology Corporation were outstanding and the
aggregate market value of such Common Stock held by nonaffiliates
(based upon its closing transaction price on the Composite Tape
on such date) was $873,670,909.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference certain information from the
1998 definitive Proxy Statement, which will be dated on or about
September 25, 1998.
The Exhibit Index appears on pages E-1 to E-5.
<PAGE>
PART I
Item 1. Business
(a) General Development of Business:
Carpenter Technology Corporation, incorporated in
1904, is engaged in the manufacture, fabrication, and
distribution of specialty metals and certain engineered
products. There were no significant changes in the
form of organization or mode of conducting business of
Carpenter Technology Corporation (hereinafter called
"the Company" or "Carpenter") during the year ended
June 30, 1998, except for the transactions described
below:
During fiscal 1998, Carpenter acquired the
businesses described below, which were accounted for by
the purchase method of accounting:
On February 19, 1998, Carpenter completed the
acquisition of Talley Industries, Inc. ("Talley").
Carpenter acquired the outstanding common and preferred
stock of Talley for $187.0 million of cash, including
acquisition costs, and assumed Talley debt with a fair
market value of $136.5 million. Talley had $35.1
million of cash at the initial acquisition date. The
transaction was initially financed by short-term debt
issued under Carpenter's revolving credit agreement.
Most of this short-term debt was repaid from the
proceeds of the common stock offering in March 1998.
See Note 10 to the consolidated financial statements,
included in Item 8 "Financial Statements and Supplementary
Data". Talley is a diversified manufacturer composed
of a stainless steel products segment, a government
products and services segment and an industrial
products segment. Carpenter intends to retain the
companies in the stainless steel products segment, but
divest the companies in the government products and
services and industrial product segments. The sales of
these segments are expected to be completed by
December 1998. Accordingly, the segments to be
divested are accounted for as net assets held for sale
in the consolidated balance sheet. This acquisition
provides additional metals manufacturing capacity and
distribution outlets augmenting the Specialty Alloys
Operations unit.
On October 31, 1997, Carpenter acquired the net
assets of Shalmet Corporation and its affiliates for
$9.3 million in stock and cash, including acquisition
costs, and assumed $4.1 million of Shalmet's debt.
Shalmet converts "black" coil and bar to "bright" round
bar and coil products. This acquisition has provided
incremental coil and bar finishing capacity augmenting
the output of Carpenter's main Reading, Pennsylvania
Specialty Alloys plant.
<PAGE>
On September 30, 1997, Carpenter acquired four of
the operating units of ICI Australia, Ltd. in exchange
for $16.6 million of cash including acquisition costs.
These four operating units manufacture structural
ceramic components and powder products. The ICI
acquisition builds on Carpenter's growing expertise in
making ceramics components, and gives Carpenter access
to fine grain zirconia technology.
(b) Financial Information About Industry Segments:
Carpenter is primarily engaged in one business
segment - the manufacture, fabrication and distribution
of specialty metals. Additionally, Carpenter
manufactures certain engineered products. The
engineered products operations do not qualify as a
reportable segment and therefore are not presented as a
separate business segment.
(c) Narrative Description of Business:
(1) Products:
Carpenter primarily processes basic raw materials
such as chromium, nickel, titanium, iron scrap and
other metal alloying elements through various melting,
hot forming and cold working facilities to produce
finished products in the form of billet, bar, rod,
wire, narrow strip, special shapes, and hollow forms in
many sizes and finishes and produces certain fabricated
metal products. In addition, ceramic and metal-injection
molded products are produced from various
raw materials using molding, heating and other
processes. Sales of finished products include:
STAINLESS STEELS -
A broad range of corrosion resistant alloys
including conventional stainless steels and many
proprietary grades for special applications.
SPECIAL ALLOYS -
Other special purpose alloys used in critical
components such as bearings and fasteners. Heat
resistant alloys that range from slight modifications
of the stainless steels to complex nickel
and cobalt base alloys. Alloys for electronic,
magnetic and electrical applications with
controlled thermal expansion characteristics, or
high electrical resistivity or special magnetic
characteristics. Fabrication of special stainless
steels and zirconium base alloys into tubular
products for the aircraft industry and nuclear
reactors.
<PAGE>
TOOL AND OTHER STEEL -
Tool and die steels which are extremely hard
alloys used for tooling and other wear-resisting
components in metalworking operations such as
stamping, extrusion and machining. Other steel
includes carbon steels purchased for distribution
and other miscellaneous products.
CERAMICS AND OTHER MATERIALS -
Certain engineered products, including ceramic
cores for casting ranging from small simple
configurations to large complex shapes and
structural ceramic components. Also, metal
injected molded designs in a variety of materials,
ultra-hard parts, and precision welded tubular
products, as well as drawn solid tubular shapes.
TITANIUM PRODUCTS -
A corrosion resistant, highly specialized metal
with a combination of high strength and low
density. Most common uses are in aircraft,
medical devices, sporting equipment and chemical
and petroleum processing.
Carpenter's products are sold primarily in the
United States and principally through its own sales
organization with service centers and sales offices
located in many of the major cities of the country.
Sales outside of the United States, including export
sales, were $179.6 million, $117.8 million and $96.5
million in fiscal 1998, 1997 and 1996, respectively.
(2) Classes of Products:
The approximate percentage of Carpenter's
consolidated net sales contributed by the major classes
of products for the last three fiscal years are as
follows:
1998 1997 1996
---- ---- ----
Stainless steel 47% 49% 58%
Special alloys 30% 34% 32%
Titanium products 11% 5% -
Tool and other steel 6% 7% 7%
Ceramics and other
materials 6% 5% 3%
---- ---- ----
100% 100% 100%
==== ==== ====
(3) Raw Materials:
Carpenter depends on continued delivery of
critical raw materials for its day-to-day operations.
These raw materials are nickel, ferrochrome, cobalt,
molybdenum, titanium, manganese and scrap. Some of
these raw materials sources are located in countries
subject to potential interruptions of supply. These
potential interruptions could cause material shortages
and affect the availability and price.
<PAGE>
Carpenter is in a strong raw material position
because of its long-term relationships with major
suppliers. These suppliers provide availability of
material and competitive prices for these key raw
materials to help Carpenter maintain the appropriate
levels of raw materials.
(4) Patents and Licenses:
Carpenter owns a number of United States and
foreign patents and has granted licenses under some or
all of them. Certain of the products produced by
Carpenter are covered by patents of other companies
from whom licenses have been obtained. Carpenter does
not consider its business to be materially dependent
upon any patent or patent rights.
(5) Seasonality of Business:
Carpenter's sales and earnings results are
normally influenced by seasonal factors. The first
fiscal quarter (three months ending September 30) is
typically the lowest - chiefly because of annual plant
vacation and maintenance shutdowns in this period by
Carpenter as well as by many of its customers. The
timing of major changes in the general economy can
alter this pattern, but over the longer time frame, the
historical patterns generally prevail. The chart below
shows the percent of net sales by quarter for the past
three fiscal years:
Quarter Ended 1998 1997 1996
------------- ---- ---- ----
September 30 21% 21% 21%
December 31 24% 22% 24%
March 31 28% 27% 27%
June 30 27% 30% 28%
---- ---- ----
100% 100% 100%
==== ==== ====
Fiscal 1998 includes the effects of the acquisition of
a majority interest in Talley on December 5, 1997 and
the remainder on February 19, 1998. Fiscal 1997
includes the acquisition of Dynamet on February 28,
1997.
(6) Customers:
Carpenter is not dependent upon a single customer,
or a very few customers, to the extent that the loss of
any one or more would have a materially adverse effect.
(7) Backlog:
As of June 30, 1998, Carpenter had a backlog of
orders, believed to be firm, of approximately $275
million, substantially all of which is expected to be
shipped within the current fiscal year. The backlog as
of June 30, 1997 was approximately $265 million.
(8) Competition:
Carpenter's business is highly competitive. It
supplies materials to a wide variety of end-use market
segments, none of which consumes more than about 30
percent of Carpenter's output, and competes with
various companies depending on end-use segment, product
or geography.
There are approximately 20 domestic companies
producing one or more similar specialty metal products
that are considered to be major competitors to the
specialty metals operations in one or more product
segments. There are several dozen smaller producing
companies and converting companies in the United States
who are competitors. Carpenter also competes directly
with several hundred independent distributors of
products similar to those distributed by Carpenter's
wholly owned distribution system. Additionally,
numerous foreign producers import into the United
States various specialty metal products similar to
those produced by Carpenter. Furthermore, a number of
different products may, in certain instances, be
substituted for Carpenter's finished product.
Imports of foreign specialty steels have long been
a concern to the domestic steel industry because of the
potential for unfair pricing by foreign producers.
Such pricing practices have usually been supported by
foreign governments through direct and indirect
subsidies.
Because of these unfair trade practices, Carpenter
has filed trade actions against foreign producers who
have dumped their specialty steel products into the
United States. As a result of these actions, the U.S.
Department of Commerce has issued antidumping orders
for the collection of dumping duties on imports of
stainless bar from Brazil, India, Japan and Spain at
rates ranging up to about 61% of the value and on
imports of stainless rod from Brazil, France and India
at rates ranging up to about 49% of the value. These
antidumping orders will continue in effect until the
calendar year 2000, unless further extended.
On July 30, 1997, Carpenter joined with three
other domestic producers in filing new antidumping and
countervailing duty trade actions against imports of
stainless steel rod from seven countries - Germany,
Italy, Japan, Korea, Spain, Sweden and Taiwan. These
countries represent over 90% of current total imports
of stainless steel rod. On July 21, 1998, the U.S.
Department of Commerce, as a result of an extensive
investigation of the producers in these seven
countries, made a determination of antidumping and
countervailing duty rates ranging up to 34% of the
value of imports of stainless steel rod. On September
1, 1998, the U.S. International Trade Commission ruled
that the domestic industry, including Carpenter, had in
fact been injured by dumped and subsidized imports of
stainless steel rod from Italy, Japan, Korea, Spain,
Sweden and Taiwan. The seventh country, Germany, was
excluded from the injury ruling. Accordingly, the
Commerce Department has issued antidumping duty orders
against producers in the six countries and
countervailing duty orders against production in Italy.
These orders are expected to be in effect for a period
of up to five years, unless further extended.
Carpenter has also joined with other domestic
stainless steel wire producers in filing a new
antidumping action against imports of another stainless
product from six countries. The petition was filed on
March 27, 1998 against producers of stainless steel
wire in India, Japan, Korea, Spain, Taiwan and Canada.
The industry group alleges that the foreign stainless
steel wire is being dumped into the U.S. at prices
which would require antidumping duty rates ranging up
to 78% of the value.
The U.S. Department of Commerce and the U.S.
International Trade Commission are expected to complete
their investigation of the unfair trade charges before
the end of fiscal 1999. Preliminary antidumping duty
rate determinations are expected to be made in the last
quarter of calendar year 1998.
(9) Research, Product and Process Development:
Carpenter's expenditures for company-sponsored
research and development were approximately $14.6
million, $13.0 million and $13.8 million in fiscal
1998, 1997 and 1996, respectively.
(10) Environmental Regulations:
Carpenter is subject to various stringent federal,
state, and local environmental laws and regulations.
The liability for future environmental remediation
costs is evaluated by management on a quarterly basis.
Carpenter accrues amounts for environmental remediation
costs which represent management's best estimate of the
probable and reasonably estimable costs relating to
environmental remediation. Recoveries of expenditures
are recognized as a receivable when they are estimable
and probable. For further information on environmental
remediation, see the Commitments and Contingencies
section included in Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of
Operations" and Note 16 to the consolidated financial
statements included in Item 8 "Financial Statements and
Supplementary Data".
The costs of maintaining and operating environmental
control equipment were about $7.0 million and
$7.9 million for fiscal 1998 and 1997, respectively.
The capital expenditures for environmental control
equipment were $1.1 million for each of fiscal 1998 and
1997. Carpenter anticipates spending approximately
$6.0 million on major domestic environmental capital
projects over the next five fiscal years. This
includes $1.0 million for fiscal 1999 and $2.0 million
in fiscal 2000. Due to the possibility of
unanticipated factual or regulatory developments, the
amount of future capital expenditures may vary.
(11) Employees:
As of August 31, 1998, Carpenter and its
affiliates had approximately 6,000 employees.
(d) Financial information about foreign and domestic
operations and export sales:
Reference Note 17 to the consolidated financial
statements included in Item 8 "Financial Statements and
Supplementary Data".
Item 2. Properties
The primary locations of Carpenter's specialty metals
manufacturing and fabrication plants are: Reading, Pennsylvania;
Hartsville, South Carolina; Washington, Pennsylvania; Orangeburg,
South Carolina; and Clearwater, Florida. The Reading,
Hartsville, Washington, and Orangeburg plants are owned in fee.
The Clearwater plant is owned, but the land is leased.
The primary locations of Carpenter's engineered products
manufacturing operations are: Wood-Ridge, New Jersey; Carlstadt,
New Jersey; Corby, England; Wilkes-Barre, Pennsylvania; Chicago,
Illinois; Auburn, California; El Cajon, California; and Petaluma,
California. The Corby, Chicago and El Cajon plants are owned,
while the rest of the locations are leased.
The Reading plant has an annual practical melting capacity
of approximately 226,000 ingot tons of its normal product mix.
The annual tons shipped will be considerably less than the tons
melted due to processing losses and finishing operations. During
the years ended June 30, 1998 and 1997, the plant operated at
approximately 86 percent and 90 percent, respectively, of its
melting capacity.
The Talley Metals plant in Hartsville, South Carolina has an
annual hot rolling capacity of approximately 49,000 tons. The
annual tons shipped will be less than the tons hot rolled due to
processing losses in finishing operations. During the period
from January 1, 1998 to June 30, 1998, the plant operated at
approximately 93% of its hot rolling capacity.
Carpenter also operates sales offices and distribution and
service centers, most of which are owned, at 44 locations in 16
states and 9 foreign countries.
The plants, service centers and offices of Carpenter have
been acquired at various times over many years. There is an
active maintenance program to keep facilities in good condition.
In addition, Carpenter has had an active capital spending program
to replace equipment as needed to keep it technologically
competitive on a world-wide basis. Carpenter believes its
facilities are in good condition and suitable for its business
needs.
Item 3. Legal Proceedings
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
Carpenter 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
Carpenter, or any owner of more than five percent of any class of
voting securities of Carpenter, or any associate of any Director,
Officer, affiliate, or security holder of Carpenter, is a party
adverse to Carpenter or has a material interest adverse to the
interest of Carpenter 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 Carpenter (2) involves a claim for damages,
potential monetary sanctions or capital expenditures exceeding
ten percent of the current assets of Carpenter 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
Not applicable.
Executive Officers of the Registrant
Listed below are the names of corporate executive officers
as of fiscal year end, including those required to be listed as
executive officers for Securities and Exchange Commission
purposes, each of whom assumes office after the annual meeting of
the Board of Directors which immediately follows the Annual
Meeting of Stockholders. All of the corporate officers listed
below have held responsible positions with the registrant for
more than five years except for Dennis M. Draeger.
Mr. Draeger, who was elected Executive Vice President of
Carpenter as of July 1, 1998, was a director of the corporation
from 1992 until June 30, 1996. Mr. Draeger assumed the duties of
Senior Vice President - Specialty Alloys Operations for Carpenter
effective July 1, 1996, when he resigned from Carpenter's Board
of Directors. Prior to that he had been President of Worldwide
Floor Products Operations for Armstrong World Industries, Inc.
since 1994 and he became Group Vice President for Armstrong in
1988.
<PAGE>
Assumed
Present
Name Age Positions Position
- ---- --- --------- --------
Robert W. Cardy 62 Chairman, President &
Chief Executive Officer July 1992
Director
G. Walton Cottrell 58 Senior Vice President -
Finance & Chief
Financial Officer January 1993
Dennis M. Draeger 57 Executive Vice President July 1998
Nicholas F. Fiore 58 Senior Vice President -
Engineered Products
Group January 1993
Robert W. Lodge 55 Vice President -
Human Resources September 1991
John R. Welty 49 Vice President,
General Counsel &
Secretary January 1993
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
Common stock of Carpenter is listed on the New York Stock
Exchange. The ticker symbol is CRS. The high and low market
prices of Carpenter's stock for the past two fiscal years are
indicated below:
1998 1997
Quarter Ended: High Low High Low
- --------------------------------------------------------------
September 30 $49-9/16 $44-5/16 $37-5/8 $31-1/4
December 31 $52-7/16 $46 $36-3/4 $32
March 31 $54 $42-1/4 $39-1/4 $34-3/4
June 30 $58-15/16 $49-1/2 $48-1/8 $37-1/4
- --------------------------------------------------------------
Annual $58-15/16 $42-1/4 $48-1/8 $31-1/4
The range of Carpenter's common stock price from July 1,
1998 to September 21, 1998 was $54-3/16 to $30. The closing
price of the common stock was $32-13/16 on September 21, 1998.
Carpenter has paid quarterly cash dividends on its common
stock for 92 consecutive years. The quarterly dividend rate was
$.33 per share for the fiscal years ended June 30, 1998, 1997 and
1996.
Carpenter had 5,944 common shareholders of record as of
August 31, 1998. The balance of the information required by this
item is disclosed in Note 10 to the consolidated financial
statements included in Item 8 "Financial Statements and
Supplementary Data".
<PAGE>
Item 6. Selected Financial Data
Five-Year Financial Summary
Dollar amounts in millions, except per share data
(years ended June 30)
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Summary of Operations
Net Sales $1,176.7 $ 939.0 $ 865.3 $ 757.5 $ 628.8
Income before extra-
ordinary charge $ 84.0 $ 60.0 $ 60.1 $ 47.5 $ 38.3
Extraordinary charge,
net of income taxes $ - $ - $ - $ - $ (2.0)
Net income $ 84.0 $ 60.0 $ 60.1 $ 47.5 $ 36.3
Financial Position
at Year-End
Total assets $1,698.9 $1,223.0 $ 912.0 $ 831.8 $ 729.9
Long-term debt, net $ 370.7 $ 244.7 $ 188.0 $ 194.8 $ 158.1
Per Share Data(a)
Basic:
Income before extra-
ordinary charge $ 4.01 $ 3.32 $ 3.54 $ 2.83 $ 2.29
Net income $ 4.01 $ 3.32 $ 3.54 $ 2.83 $ 2.16
Diluted:
Income before extra-
ordinary charge $ 3.84 $ 3.16 $ 3.38 $ 2.70 $ 2.20
Net income $ 3.84 $ 3.16 $ 3.38 $ 2.70 $ 2.08
Cash dividends-common $ 1.32 $ 1.32 $ 1.32 $ 1.20 $ 1.20
See Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for discussion of factors
that affect the comparability of the "Selected Financial Data".
(a) Carpenter adopted Statement of Financial Accounting
Standards No. 128 in December 1997. Earnings per share data
for all periods prior to that date have been restated.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's Discussion of Operations
Summary
Net sales and earnings trends for the past three fiscal years are
summarized below:
(in millions, except per share data) 1998 1997 1996
- -----------------------------------------------------------------
Net sales $1,176.7 $939.0 $865.3
Net income $ 84.0 $ 60.0 $ 60.1
Basic earnings per share $ 4.01 $ 3.32 $ 3.54
Diluted earnings per share $ 3.84 $ 3.16 $ 3.38
Net sales have reached record levels in each of the past two
years as a result of growth of the core businesses and
acquisitions of businesses.
Net income and basic and diluted earnings per share increased to
record levels in fiscal 1998 as a result of strong demand in most
product lines, productivity improvements and the accretive
effects of acquired businesses.
The chart below shows net sales by major material group for the
past three fiscal years:
(in millions) 1998 1997 1996
- -----------------------------------------------------------------
Sales % Sales % Sales %
--------------------------------------------
Stainless steel $ 552.6 47 $461.5 49 $496.9 58
Special alloys 348.7 30 317.9 34 273.4 32
Titanium products 128.5 11 44.4 5 2.9 -
Tool and other steel 77.7 6 69.4 7 62.8 7
Ceramics and other
materials 69.2 6 45.8 5 29.3 3
--------------------------------------------
Total $1,176.7 100 $939.0 100 $865.3 100
============================================
Results of Operations - Fiscal 1998 Versus Fiscal 1997
Net sales were $1,176.7 million in fiscal 1998, a 25 percent
increase from the $939.0 million achieved in fiscal 1997.
Approximately 75 percent of the sales increase resulted from
inclusion of the results of businesses acquired during fiscal
1998 and the full year effects of businesses included for only a
portion of fiscal 1997. Excluding businesses acquired over the
past two years, sales were up by 5 percent due to strong demand
in most market sectors, but especially for aerospace
applications. Sales of high temperature alloys, ceramic cores
and aircraft tubing products were all at high levels, driven by
increased customer demand to support strong commercial aircraft
build schedules. Average unit selling prices for most specialty
metals products remained about the same as in fiscal 1997.
<PAGE>
Stainless steel product sales rose by 20 percent primarily
because of the acquisition of Talley Industries' stainless steel
products segment and Rathbone Precision Metals, Inc. In
addition, demand from most end-use markets was strong throughout
the year.
Carpenter's sales outside the United States increased by 52
percent to $179.6 million during fiscal 1998. More than half of
the sales were in Europe where sales increased by 78 percent.
Details of the geographic makeup of sales for the past three
years is included in Note 17 to the consolidated financial
statements.
Cost of sales as a percentage of sales dropped to 72 percent in
fiscal 1998 from 74 percent in fiscal 1997. This improvement
occurred due to improved margins and a higher production level in
the Specialty Alloys Operations unit and the full year effect of
Dynamet's sales.
Specialty Alloys Operations' raw material costs per unit
purchased were down by an average of 8 percent during fiscal
1998. The average cost of nickel in fiscal 1998 decreased by 20
percent from the prior year level. Labor costs for this unit of
Carpenter were about the same as the prior year as base wage and
profit sharing increases were offset by productivity improvements
and favorable pension credit effects.
Selling and administrative expenses were higher than in fiscal
1997 by $33.0 million and increased to 14 percent of sales versus
13 percent in fiscal 1997. About 70 percent of the increased
costs resulted from the inclusion of costs for acquired
businesses. Increased costs to support sales office expansions,
higher distribution costs resulting from increased sales levels,
and increased professional fees accounted for most of the
remaining year-to-year increase.
Net pension credits reduced cost of sales and selling and
administration expenses by $21.7 million in fiscal 1998 and $9.1
million in fiscal 1997. The increase in these net credits was a
result of improved market investment performance of the plan
assets.
Interest expense increased by $9.1 million mainly because of debt
incurred to acquire businesses over the past two years and
working capital requirements.
Other expense (income) net was negatively impacted in fiscal 1998
by $5.2 million. The sale of Carpenter's remaining investment in
the Walsin-CarTech joint venture in Taiwan resulted in a $2.7
million pre-tax loss in fiscal 1998. After income tax benefits,
this loss was insignificant. In addition, provisions for losses
on former Carpenter plant sites held for sale increased by $4.8
million in fiscal 1998.
Income taxes as a percent of pre-tax income (effective tax rate)
was approximately 39 percent in fiscal years 1998 and 1997. A
reconciliation of the effective tax rate to the federal statutory
rate is presented in Note 15 to the consolidated financial
statements.
Results of Operations - Fiscal 1997 Versus Fiscal 1996
Net sales were $939.0 million in fiscal 1997, a 9 percent
increase from the $865.3 million level in fiscal 1996. A
majority of the increase resulted from the inclusion of Dynamet's
sales in the four months since its acquisition in February 1997.
Increased sales of ceramic products, an improved mix of Specialty
Alloys Operations products and increased sales of the Mexican
steel distribution operations also contributed to the higher
fiscal 1997 sales level.
Unit volume of Specialty Alloys Operations products was unchanged
from the fiscal 1996 level. Demand for specialty alloy products
was at a high level across most of the product spectrum,
especially special alloys for aerospace and automotive
applications. The product mix shifted toward more premium-melted
products and away from certain commodity-priced products. Unit
selling prices remained relatively constant during fiscal 1997.
Cost of sales as a percentage of sales was 74 percent in both
years. In fiscal 1997, lower Specialty Alloys Operations raw
material costs were offset by higher labor, energy, maintenance
shutdown and environmental costs.
Specialty Alloys Operations raw material costs per unit purchased
decreased by 12 percent during fiscal 1997 versus the
year-earlier costs as a result of decreases in the cost of cobalt
(26 percent), nickel (11 percent), and chromium (10 percent).
Also, the purchase premium for semi-finished and finished
products to supplement internal capacity was lower in fiscal
1997.
Labor costs per hour for Specialty Alloys Operations production
and maintenance employees were up by 2 percent principally as a
result of a base wage increase in July 1996, which was partially
offset by lower profit sharing costs.
Selling and administrative expenses were 13 percent of net sales
in fiscal years 1997 and 1996. Costs were higher by $13.5
million in fiscal 1997 primarily because of the inclusion of the
costs for acquired companies and increased use of outside
services for revising computer systems to be year 2000 compliant.
Interest expense increased by $1.0 million in fiscal 1997 versus
fiscal 1996, as a result of a higher level of debt, primarily due
to the Dynamet acquisition, offset by an increased level of
capitalized interest on capital projects.
Other expense (income) net improved in fiscal 1997 from that of
fiscal 1996 by $4.6 million. Carpenter's share of the net losses
in the Walsin-CarTech joint venture in Taiwan decreased by $5.8
million because of a reduced percentage ownership and an improved
operating performance of this joint venture.
<PAGE>
Income taxes as a percent of pre-tax income (effective tax rate)
increased to 39 percent in fiscal 1997 from 37 percent a year
earlier. The fiscal 1997 tax rate was negatively impacted by a
federal income tax law change relating to company-owned life
insurance programs, while the prior year's tax rate was favorably
affected by a state income tax rate change. A reconciliation of
the effective rate to the federal statutory rate is presented in
Note 15 to the consolidated financial statements.
Management's Discussion of Cash Flow and Financial Condition
Cash Flow
Cash flow from operations was very strong over the past three
years, despite working capital needs to support growth in sales.
Net cash generated from operating activities increased to $108.4
million in fiscal 1998 from $74.7 million and $50.6 million in
fiscal 1997 and fiscal 1996, respectively.
Investing activities consumed $250.2 million in cash during
fiscal 1998, $153.1 million in fiscal 1997 and $28.0 million in
fiscal 1996. Capital expenditures remain at high levels as
Carpenter continues its capital expenditure program. As of June
30, 1998, the total of approved capital improvement projects in
excess of $1.0 million was approximately $250.0 million, of which
$67.0 million was spent through June 30, 1998. Total capital
spending for all projects in fiscal 1999 is expected to be $150.0
million to $175.0 million. These projects are to upgrade and
increase production capabilities, reduce costs of production,
increase the throughput and quality of existing facilities, and
make environmental improvements. The major projects, all in
Reading, Pennsylvania, include modernization of the strip
finishing facility ($87.0 million), a new 4,500 ton forging press
($42.0 million), four new vacuum arc-remelting furnaces ($22.0
million), and annealing expansion ($16.0 million).
Total capital expenditures for fiscal 1998, 1997 and 1996 were
$99.5 million, $93.6 million and $48.6 million, respectively.
During fiscal 1998, Carpenter acquired the businesses of Talley
Industries, Inc., Shalmet Corporation, ICI Advanced Ceramics,
Parmaco AG, and Aceromex Atlas, S.A. de C.V. During fiscal 1997,
Carpenter acquired Rathbone Precision Metals, Inc. and Dynamet
Incorporated. During fiscal 1996, Carpenter acquired Green Bay
Supply Co., Inc., Parmatech Corporation, and Crafts Technology,
Inc. The cost of all acquisitions totaled $251.3 million in cash
and $105.0 million in common stock. Details of these
transactions are included in Note 3 to the consolidated financial
statements.
<PAGE>
The sales of businesses formerly owned by Talley (net assets held
for sale) provided $41.4 million of cash before taxes. After an
allocation of interest and cash used by those businesses, the net
cash provided was $20.7 million during fiscal 1998. As of June
30, 1998, the remaining net cash expected to be received on the
disposition of these businesses was $130.2 million before income
taxes and is shown as net assets held for sale in the
consolidated balance sheet. These cash proceeds are expected to
be received by December 1998 and will be used to repay short-term
debt. Details are included in Note 4 to the consolidated
financial statements.
During fiscal 1998, Carpenter sold its remaining interest in the
Walsin-CarTech joint venture in Taiwan. Carpenter received $5.3
million in cash from the sale, which resulted in a slight loss
after taxes. During fiscal 1996, Carpenter reduced its ownership
percentage of Walsin-CarTech for $32.7 million in cash, and
recorded a $1.0 million gain after taxes.
Total debt, excluding debt of acquired businesses, increased
$54.5 million during fiscal 1998. During fiscal 1998, Carpenter
issued $198.0 million of medium-term notes with a 6.61 percent
average interest rate. The net proceeds were used to reduce
short-term borrowings which were incurred principally to repay
debt assumed in the acquisition of Talley. Details of debt are
provided in Note 8 to the consolidated financial statements.
During fiscal 1998, Carpenter issued approximately 3.2 million
shares of common stock in a public stock offering. Net proceeds
from the issuance were $144.4 million and were used primarily to
repay debt incurred to finance the acquisition of Talley.
The dividend payout rates on common and preferred stock were
maintained at $1.32 and $5,362.50 per share, respectively, and
totaled $28.5 million, $24.4 million and $23.2 million in fiscal
1998, 1997 and 1996, respectively.
Financial Condition and Liquidity
During the past three fiscal years, Carpenter maintained the
ability to provide adequate cash to meet its needs through strong
cash flow from operations, management of working capital and its
flexibility to use outside sources of financing to supplement
internally generated funds.
Carpenter ended fiscal 1998 in a sound liquidity position, with
current assets exceeding current liabilities by $296.4 million (a
ratio of 1.8 to 1). This favorable ratio is conservatively
stated because certain inventories are valued $131.5 million less
than the current cost as a result of using the LIFO method.
Total debt at June 30, 1998, was $526.8 million, or 38.9 percent
of total capital, including deferred taxes, versus 36.9 percent
of total capital, including deferred taxes, at June 30, 1997.
<PAGE>
Financing is available under a $300 million financing arrangement
with four banks, providing for $250 million of revolving credit
and lines of credit of $50 million. Carpenter limits the
aggregate commercial paper and credit facility borrowings at any
one time to a maximum of $300 million. As of June 30, 1998,
$180.2 million was available under the credit facility and
commercial paper program. Details of financing arrangements are
provided in Note 8 to the consolidated financial statements.
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.
Market Sensitive Instruments and Risk Management
Carpenter uses derivative financial instruments to reduce certain
types of financial risk. Raw material cost fluctuations for
metals businesses are normally offset by selling price
adjustments primarily through the use of surcharge mechanisms.
Firm price sales contracts involve a risk of profit margin
decline in the event of raw material increases. Carpenter
reduces this risk by entering into commodity futures and
commodity price swaps which are effective hedges of the risk.
Fluctuations in foreign exchange subject Carpenter to risk of
losses on anticipated future cash flows from its foreign
operations. Foreign currency forward contracts are used to hedge
this foreign exchange risk. These hedging strategies are
reviewed and approved by management before being implemented.
Management has established policies regarding the use of
derivative instruments which prohibit the use of speculative or
leveraged derivatives. Monthly market valuations are performed
to monitor the effectiveness of Carpenter's risk management
programs.
The status of Carpenter's financial instruments as of June 30,
1998, is provided in Note 9 to the consolidated financial
statements. Assuming (a) an instantaneous 10 percent decrease in
the price of raw materials for which Carpenter has commodity
futures and swaps, (b) a 10 percent strengthening of the U.S.
dollar versus foreign currencies for which foreign exchange
forward contracts existed, and (c) a 10 percent change in
interest rates on Carpenter's short-term debt had all occurred on
June 30, 1998, Carpenter's results of operations, cash flow and
financial position would not have been materially affected.
<PAGE>
Commitments and Contingencies
Environmental
Carpenter has environmental liabilities at some of its owned
operating facilities, and has been designated as a potentially
responsible party ("PRP") with respect to certain superfund waste
disposal sites. Additionally, Carpenter has been notified that
it may be a PRP with respect to other superfund sites as to which
no proceedings have been instituted against Carpenter. Neither
the exact amount of cleanup costs nor the final method of their
allocation among all designated PRPs at these superfund sites has
been determined. Carpenter accrues amounts for environmental
remediation costs that represent management's best estimate of
the probable and reasonably estimable costs related to
environmental remediation. The liability recorded for
environmental cleanup costs at June 30, 1998 was $10.0 million.
The estimated range of the reasonably possible costs of
remediation at Carpenter-owned operating facilities and the
superfund sites is between $10.0 million and $14.0 million as of
June 30, 1998. Recoveries of expenditures are recognized as
receivables when they are estimable and probable.
The remaining discounted amount receivable for recoveries at June
30, 1998 was $2.2 million. Additional details are provided in
Note 16 to the consolidated financial statements. Carpenter does
not anticipate that its financial position will be materially
affected by additional environmental remediation costs, although
quarterly or annual operating results could be materially
affected by future developments.
Other
Carpenter also is defending various claims and legal actions, and
is subject to commitments and contingencies that are common to
its operations. Carpenter provides for costs relating to these
matters when a loss is probable and the amount is reasonably
estimable. Additional details are provided in Note 16 to the
consolidated financial statements. While it is not feasible to
determine the outcome of these matters, management believes that
any total ultimate liability will not have a material effect on
Carpenter's financial position or results of operations and cash
flows.
<PAGE>
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. The following describes Carpenter's status regarding
these issues.
Carpenter's State of Readiness
Carpenter has been formally addressing its Year 2000 Issues
during the past several fiscal years. These efforts involve
assessments, conversion plans and conversion implementation and
testing for all internal systems running on a variety of
computing platforms ranging from mainframe to programmable logic
controllers.
All mainframe-based computer systems have been assessed, plans
have been put into place and required conversion of computer
programs is approximately 95 percent complete. Converted
programs have been tested and placed into operation. Full
conversion is expected to be completed by December 1998.
The non-mainframe-based applications consist of over 270
individually identified projects throughout Carpenter.
Assessments have been completed and conversion plans have been
developed for more than half of these projects.
Completion of conversion plans is expected by December 1998, with
testing and implementation scheduled by July 1999.
In summary, Carpenter believes that its internal systems will be
Year 2000 compliant in all material respects by December 1999.
In addition to these efforts regarding internal systems,
Carpenter has begun assessing the state of readiness of its major
suppliers. Surveys have been sent to all significant suppliers
of materials and services to Carpenter's operations to determine
their preparedness for the Year 2000. These suppliers include
raw material, energy and production supply providers as well as
suppliers of financial, communication and logistics services.
Responses have been received from approximately half of these
suppliers with no major potential problems identified. Carpenter
plans to continue this communication effort and to expand it to
include on-site reviews of large, critical suppliers. This
effort is expected to be completed by December 1998.
<PAGE>
Carpenter has a very large, diverse customer base with more than
13,000 customers. No customer represents more than 4 percent of
Carpenter's sales. Carpenter has not yet begun an assessment and
evaluation of the state of readiness of its customers, although
many customers have requested from Carpenter information
regarding its Year 2000 Issues. Major customers will be
contacted within the next year to determine if any significant
loss of business is to be expected because of their inability to
correct their Year 2000 Issues on a timely basis.
Costs to Address Carpenter's Year 2000 Issues
The following is a summary of past and expected future costs to
remediate Carpenter's Year 2000 Issues:
Fiscal Fiscal Estimated
1997 1998 Future
(in millions) Costs Costs Costs Total
- --------------------------------------------------------------------
Costs Charged To Income
Before Taxes(a) $1.5 $2.2 $1.6 $5.3
Capitalized Software
and Hardware(b) - - 3.2 3.2
---- ---- ---- ----
Total Year 2000 Costs $1.5 $2.2 $4.8 $8.5
==== ==== ==== ====
(a) The majority of these costs were for outside consultants
and programmers, were in addition to the normal budget for
information systems, and were paid currently. As a result of
these efforts, no major systems projects have been deferred
to future periods.
(b) Costs to replace non-Year 2000 compliant systems.
Risks of Year 2000 Issues and Contingency Plans
As stated above, Carpenter expects that its systems will be fully
operational and will not cause any material disruptions because
of Year 2000 Issues. Because of the uncertainties associated
with assessing preparedness of suppliers and customers, there is
a risk of a material adverse effect on Carpenter's future results
of operations if these constituencies are not capable of
correcting their Year 2000 Issues, if any. Carpenter plans, as
outlined above, to continue assessing these risks through reviews
with suppliers and customers. Contingency plans will be
developed to deal with any problems which may become known as a
result of these reviews. Contingency plans relating to
suppliers, if necessary, will be developed by July 1999. Such
plans relating to customers will be developed by December 1999.
<PAGE>
Forward-Looking Statements
This Form 10-K 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 consumer durables, all
of which are subject to changes in general economic conditions;
2) the impact of inventory adjustments in Carpenter's aerospace
customer base; 3) the criticality of certain raw materials
acquired from foreign sources, some of which are located in
countries that may be subject to unstable political and economic
conditions, potentially affecting the prices of these materials;
4) the level of export sales impacted by political and economic
instability, export controls, changes in legal and regulatory
requirements, policy changes affecting the markets, changes in
tax laws and tariffs, exchange rate fluctuations and accounts
receivable collection; 5) the general economic and financial
market conditions and other uncertainties which affect Carpenter
generally and may specifically affect the sales of the remaining
companies which comprise the industrial products and government
products and services business segments of Talley Industries,
Inc.; 6) the effects on operations of changes in U.S. and foreign
governmental laws and public policy, including environmental
regulations; and 7) the ability of Carpenter's suppliers and
customers to correct or replace their computer systems for Year
2000 Issues. Any of these factors could have an adverse and/or
fluctuating effect on Carpenter's results of operations. The
forward-looking statements in this document are intended to be
subject to the safe harbor protection provided by Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Supplementary Data
Page
----
Consolidated Financial Statements:
Report of Independent Accountants 24
Consolidated Statement of Income for the
Years Ended June 30, 1998, 1997 and 1996 25
Consolidated Statement of Cash Flows for the
Years Ended June 30, 1998, 1997 and 1996 26
Consolidated Balance Sheet as of
June 30, 1998 and 1997 27
Consolidated Statement of Changes in
Shareholders' Equity for the Years Ended
June 30, 1998, 1997 and 1996 28-29
Notes to Consolidated Financial Statements 30-55
Supplementary Data:
Quarterly Financial Data (Unaudited) 56
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Shareholders of Carpenter Technology Corporation:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, changes in
shareholders' equity and cash flows present fairly, in all
material respects, the financial position of Carpenter Technology
Corporation and subsidiaries at June 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the
three years in the period ended June 30, 1998, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 27, 1998, except as to the
information presented in Note 18
for which the date is August 6, 1998
<PAGE>
Consolidated Statement of Income
Carpenter Technology Corporation
for the years ended June 30, 1998, 1997 and 1996
(in millions, except
per share data) 1998 1997 1996
- -------------------- --------------------------
Net sales $1,176.7 $939.0 $865.3
--------------------------
Costs and expenses:
Cost of sales 849.3 697.9 636.8
Selling and administrative
expenses 159.4 126.4 112.9
Interest expense 29.0 19.9 18.9
Other expense (income), net 2.1 (3.1) 1.5
--------------------------
1,039.8 841.1 770.1
--------------------------
Income before income taxes 136.9 97.9 95.2
Income taxes 52.9 37.9 35.1
--------------------------
Net income $ 84.0 $ 60.0 $ 60.1
==========================
Earnings per common share:
Basic $ 4.01 $ 3.32 $ 3.54
Diluted $ 3.84 $ 3.16 $ 3.38
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statement of Cash Flows
Carpenter Technology Corporation
for the years ended June 30, 1998, 1997 and 1996
(in millions) 1998 1997 1996
- ------------- ---------------------------
OPERATIONS
Net income $ 84.0 $ 60.0 $ 60.1
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation and amortization 58.2 42.7 36.6
Deferred income taxes 14.6 7.1 4.5
Prepaid pension costs (21.1) (8.3) (10.3)
Loss (gain) on asset disposals 5.0 .8 (1.8)
Changes in working capital and other,
net of acquisitions:
Receivables 5.5 (3.1) (14.7)
Inventories (17.2) (17.3) (59.6)
Accounts payable (12.0) (4.2) 21.3
Accrued current liabilities (7.8) 11.2 16.2
Other, net (.8) (14.2) (1.7)
---------------------------
Net cash provided from operations 108.4 74.7 50.6
---------------------------
INVESTING ACTIVITIES
Purchases of plant and equipment (99.5) (93.6) (48.6)
Proceeds from disposals of plant
and equipment 1.1 .7 1.2
Acquisitions of businesses,
net of cash received (177.8) (60.2) (13.3)
Net assets held for sale 20.7 - -
Proceeds from sale of interest
in joint venture 5.3 - 32.7
---------------------------
Net cash used for investing
activities (250.2) (153.1) (28.0)
---------------------------
FINANCING ACTIVITIES
Net change in short-term debt 39.3 53.6 (1.9)
Proceeds from issuance of long-term debt 198.0 60.0 -
Payments on long-term debt (182.8) (7.1) (9.1)
Proceeds from issuance of common stock 149.6 1.8 4.6
Dividends paid (28.5) (24.4) (23.2)
---------------------------
Net cash provided from (used for)
financing activities 175.6 83.9 (29.6)
---------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 33.8 5.5 (7.0)
Cash and cash equivalents at
beginning of year 18.6 13.1 20.1
---------------------------
Cash and cash equivalents at
end of year $ 52.4 $ 18.6 $ 13.1
===========================
SUPPLEMENTAL DATA:
Cash paid during the year for:
Interest payments, net of
amounts capitalized $ 25.6 $ 18.7 $ 17.9
Income tax payments, net of refunds $ 54.2 $ 23.9 $ 20.9
Non-cash investing and financing
activities:
Treasury stock issued for
business acquisitions $ 1.0 $ 99.5 $ 4.5
Debt assumed in business acquisitions $141.7 $ 10.2 $ 2.8
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Balance Sheet
Carpenter Technology Corporation
June 30, 1998 and 1997
(in millions, except share data) 1998 1997
- -------------------------------- ----------------------
ASSETS
Current assets:
Cash and cash equivalents $ 52.4 $ 18.6
Accounts receivable, net of
allowance for doubtful
accounts ($1.9 and $1.4) 177.0 159.9
Inventories 267.1 211.5
Net assets held for sale 130.2 -
Other current assets 18.8 12.2
----------------------
Total current assets 645.5 402.2
Property, plant and equipment, net 644.1 513.6
Prepaid pension cost 138.0 99.8
Goodwill, net 171.8 104.6
Other assets 99.5 102.8
----------------------
Total assets $1,698.9 $1,223.0
======================
LIABILITIES
Current liabilities:
Short-term debt $ 119.8 $ 82.5
Accounts payable 80.5 79.0
Accrued compensation 35.0 26.9
Accrued income taxes - 19.2
Deferred income taxes 24.8 5.6
Other accrued liabilities 52.7 41.4
Current portion of long-term debt 36.3 3.4
----------------------
Total current liabilities 349.1 258.0
Long-term debt, net of current portion 370.7 244.7
Accrued postretirement benefits 132.8 135.9
Deferred income taxes 142.9 110.8
Other liabilities 43.9 24.3
SHAREHOLDERS' EQUITY
Preferred stock - authorized
2,000,000 shares 27.8 28.2
Common stock - authorized
50,000,000 shares 115.0 98.2
Capital in excess of par value -
common stock 190.0 54.3
Reinvested earnings 359.1 303.6
Common stock in treasury, at cost (3.4) (3.5)
Deferred compensation (17.8) (20.3)
Foreign currency translation
adjustments (11.2) (11.2)
----------------------
Total shareholders' equity 659.5 449.3
----------------------
Total liabilities and
shareholders' equity $1,698.9 $1,223.0
======================
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statement of Changes in Shareholders' Equity
Carpenter Technology Corporation
for the years ended June 30, 1998, 1997 and 1996
<CAPTION>
Common Stock
Preferred ----------------- Trans- Total
Stock Par Capital in Deferred lation Share-
(in millions, except Par Value Value Excess of Reinvested Treasury Compen- Adjust- holders'
per share data) of $5 of $5 Par Value Earnings Stock sation ments Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Balances at June 30, 1995 $28.8 $96.7 $ 6.8 $231.1 $(67.0) $(25.5) $ (7.0) $263.9
Distributions to ESOP (0.2) 0.2 -
Stock options exercised 1.0 3.6 4.6
Shares issued to acquire
business 1.8 2.7 4.5
Net income 60.1 60.1
Cash dividends:
Preferred @ $5,362.50
per share (1.5) (1.5)
Common @ $1.32 per share (21.7) (21.7)
Restricted shares cancelled (0.2) 0.2 -
Reduction of ESOP note 1.2 1.2
Accrued compensation 1.3 1.3
Other 1.1 (4.4) (3.3)
- ---------------------------------------------------------------------------------------------------------
Balances at June 30, 1996 28.6 97.7 13.5 268.0 (64.5) (22.8) (11.4) 309.1
Distributions to ESOP (0.4) 0.1 0.3 -
Stock options exercised 0.4 1.4 1.8
Shares issued to acquire
business 38.5 61.0 99.5
Net income 60.0 60.0
Cash dividends:
Preferred @ $5,362.50
per share (1.6) (1.6)
Common @ $1.32 per share (22.8) (22.8)
Reduction of ESOP note 1.4 1.4
Accrued compensation 1.1 1.1
Other 0.6 0.2 0.8
- ---------------------------------------------------------------------------------------------------------
Balances at June 30, 1997 28.2 98.2 54.3 303.6 (3.5) (20.3) (11.2) 449.3
Distributions to ESOP (0.4) 0.1 0.3 -
Common stock offering 15.8 128.6 144.4
Stock options exercised 0.9 4.3 5.2
Shares issued to acquire
business 0.5 0.5 1.0
Net income 84.0 84.0
Cash dividends:
Preferred @ $5,362.50
per share (1.6) (1.6)
Common @ $1.32 per share (26.9) (26.9)
Reduction of ESOP note 1.5 1.5
Accrued compensation 1.0 1.0
Other 2.0 (0.4) 1.6
- ---------------------------------------------------------------------------------------------------------
Balances at June 30, 1998 $27.8 $115.0 $190.0 $359.1 $ (3.4) $(17.8) $(11.2) $659.5
=========================================================================================================
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity (continued)
Carpenter Technology Corporation
for the years ended June 30, 1998, 1997 and 1996
Common Shares
Preferred -----------------------------------
Shares Net
Issued Issued Treasury Outstanding
- --------------------------------------------------------------------------------
Balances at June 30, 1995 456.7 19,337,964 (3,046,208) 16,291,756
Distributions to ESOP (3.6) 7,251 7,251
Stock options exercised,
net of 41,010 shares exchanged 200,536 200,536
Restricted shares cancelled (4,652) (4,652)
Shares issued to acquire business 120,786 120,786
- --------------------------------------------------------------------------------
Balances at June 30, 1996 453.1 19,545,751 (2,930,074) 16,615,677
Distributions to ESOP (5.8) 10,400 10,400
Stock options exercised,
net of 45,826 shares exchanged 86,769 86,769
Restricted shares cancelled (2,590) (2,590)
Shares issued to acquire business 2,772,059 2,772,059
- --------------------------------------------------------------------------------
Balances at June 30, 1997 447.3 19,642,920 (160,605) 19,482,315
Distributions to ESOP (6.2) 12,806 12,806
Common stock offering 3,162,500 3,162,500
Stock options exercised,
net of 766 shares exchanged 171,401 171,401
Restricted shares cancelled (1,292) (1,292)
Shares purchased (7,432) (7,432)
Shares issued to acquire business 21,409 21,409
Performance shares issued 5,409 5,409
- --------------------------------------------------------------------------------
Balances at June 30, 1998 441.1 22,995,036 (147,920) 22,847,116
================================================================================
See accompanying notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
__________
1. Summary of Significant Accounting Policies
Description of Business - Carpenter is primarily engaged in
one business segment - the manufacture, fabrication and
distribution of specialty metals. Sales of finished products
include stainless steels, special alloys, tool steels and
titanium in the forms of bar, rod, wire and strip.
Additionally, Carpenter manufactures certain engineered
products including structural ceramics, metal injection
molded products and ultra-hard wear parts. The engineered
products do not qualify as a reportable segment and
therefore are not presented as a separate business segment.
Carpenter's products are sold primarily in the United States
and principally through its own sales organization, with
service centers and sales offices located in many of the
major cities of the country.
Basis of Consolidation - The consolidated financial
statements include the accounts of Carpenter and all
majority-owned subsidiaries. All significant intercompany
accounts and transactions are eliminated.
Cash Equivalents - Cash equivalents consist of highly liquid
instruments with maturities at the time of acquisition of
three months or less. Cash equivalents are stated at cost,
which approximates market.
Inventories - Inventories are valued at the lower of cost or
market. Cost for inventories is principally determined by
the Last-In, First-Out (LIFO) method. Carpenter also uses
the First-In, First-Out (FIFO) and average cost methods.
Computer Software - During 1998, Carpenter adopted Statement
of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use."
The adoption of this statement did not have a material
effect on Carpenter's financial position or results of
operations.
Depreciation and Amortization - Depreciation for financial
reporting purposes is computed by the straight-line method.
Depreciation for income tax purposes is computed using
accelerated methods.
The costs of intangible assets other than goodwill, which
are included in other assets on the consolidated balance
sheet, are comprised principally of trademarks and
tradenames, computer software, and agreements not to compete
and are amortized for financial reporting purposes on a
straight-line basis over their respective estimated useful
lives, ranging from 3 to 30 years.
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Pensions and Other Postretirement Benefit Plans - During
fiscal 1998, Carpenter adopted Statement of Financial
Accounting Standards ("SFAS") No. 132, "Employers'
Disclosures about Pension and Other Postretirement
Benefits." SFAS 132 revises disclosure requirements for
pension and other postretirement benefit plans, without
changing the measurement or recognition of the benefit costs
of these plans. It standardizes the disclosure requirements
for pensions and other postretirement benefits to the extent
practicable.
Goodwill - Goodwill, representing the excess of the purchase
price over the estimated fair value of the net assets of
companies acquired to date, is being amortized on a
straight-line basis over the estimated life of the goodwill,
not to exceed 40 years. Carpenter's policy is to record an
impairment loss against the goodwill in the period when it
is determined that the carrying amount of the asset may not
be recoverable. This determination includes evaluation of
factors such as current market value, future asset
utilization, business climate and future cash flows expected
to result from the use of the net assets.
Long-Lived Assets - Long-lived assets, including related
goodwill, are reviewed for impairment and written down to
fair value whenever events or changes in circumstances
indicate that the carrying value may not be recoverable.
Carpenter evaluates long-lived assets for impairment by
individual business unit.
Environmental Expenditures - Environmental expenditures that
pertain to current operations or to future revenues are
expensed or capitalized consistent with Carpenter's
capitalization policy. Expenditures that result from the
remediation of an existing condition caused by past
operations and that do not contribute to current or future
revenues are expensed. Liabilities are recognized for
remedial activities when the cleanup is probable and the
cost can be reasonably estimated. Recoveries of
expenditures are recognized as receivables when they are
estimable and probable. Estimated liabilities are not
discounted to present value, but estimated receivables are
measured on a discounted basis.
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Foreign Currency Translation and Remeasurement - Assets and
liabilities of foreign operations, where the functional
currency is the local currency, are translated into U.S.
dollars at the fiscal year end exchange rate. The related
translation adjustments are recorded as cumulative
translation adjustments, a separate component of
shareholders' equity. Revenues and expenses are translated
using average exchange rates prevailing during the year.
Foreign currency exchange gains and losses are included in
net income. Realized and unrealized foreign currency
exchange gains and losses for the years presented were not
material.
For foreign operations where the functional currency is the
U.S. dollar or whose economic environment is highly
inflationary as defined by SFAS 52, non-monetary assets and
liabilities are translated at historical exchange rates.
All other assets and liabilities are translated at year-end
rates. Inventories charged to cost of sales and
depreciation are translated at historical exchange rates.
All other income and expense items are translated at average
rates of exchange prevailing during the year. Gains and
losses that result from translation are included in
earnings. Effective January 1, 1997, Carpenter's operations
in Mexico were considered to operate in a highly
inflationary economy as defined by SFAS 52.
Futures Contracts and Commodity Price Swaps - In connection
with the anticipated purchase of raw materials for certain
fixed-price sales arrangements, Carpenter enters into
futures contracts and commodity price swaps to reduce the
risk of cost increases. The contracts do not have leveraged
features and generally are not entered into for speculative
purposes. The significant characteristics and terms of the
anticipated purchase of raw materials are identifiable, and
the contracts are designated and effective as hedges,
because of the high correlation between the contracts and
the items being hedged. As such, they are accounted for as
hedges and unrealized gains and losses are deferred and
included in cost of sales in the periods when the related
transactions are completed.
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Foreign Currency Forward Contracts - In connection with
certain future payments between Carpenter and its various
European subsidiaries, foreign currency forward contracts
are used to reduce the risk of foreign currency exposures.
Carpenter's primary foreign currency exposures are in
France. The foreign currency forward contracts do not
qualify as hedges for financial reporting purposes, as the
anticipated cash flows are not definitive. Therefore, the
contracts are marked to market and any related gain or loss
is included in other income on a current basis. Gains and
losses for the years presented were not material to
Carpenter's results of operations or cash flows.
Earnings Per Common Share - In December 1997, Carpenter
adopted SFAS 128, "Earnings Per Share," which replaced the
calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share.
Basic 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 outstanding during
the period. On a diluted basis, shares outstanding are
adjusted for common share equivalents, and both net earnings
and shares outstanding are adjusted to assume the conversion
of the convertible preferred stock. All prior period
earnings per share amounts presented have been restated in
accordance with SFAS 128.
Use of Estimates - 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.
Reclassifications - Certain reclassifications of prior
years' amounts have been made to conform with the current
year's presentation.
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Other Accounting Pronouncements - The Financial Accounting
Standards Board, ("FASB") issued SFAS 130, "Reporting
Comprehensive Income," and SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information," which
will be effective for Carpenter's fiscal year 1999. SFAS
130 requires that all items which are defined as components
of comprehensive income be reported in the financial
statements and displayed with the same prominence as other
financial statements. SFAS 131 establishes standards for
reporting of information about operating segments and
related disclosures about products and services, geographic
areas and major customers. Carpenter has not determined the
full impact of these standards on its future financial
disclosures.
The FASB issued SFAS 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 133 will not have a significant effect on Carpenter's
future results of operations or financial position.
<PAGE>
2. Earnings Per Common Share
The computation of basic and diluted earnings per share for
the years ended June 30, 1998, 1997 and 1996 follows:
(in millions, except per share data)
1998 1997 1996
---- ---- ----
Basic EPS:
Net income $ 84.0 $ 60.0 $ 60.1
Dividends accrued on
convertible preferred
stock, net of tax
benefits (1.6) (1.6) (1.5)
------- ------- -------
Earnings available for
common shareholders $ 82.4 $ 58.4 $ 58.6
======= ======= =======
Weighted average common
shares outstanding 20.5 17.6 16.5
======= ======= =======
Basic earnings per share $ 4.01 $ 3.32 $ 3.54
======= ======= =======
Diluted EPS:
Net income $ 84.0 $ 60.0 $ 60.1
Assumed shortfall between
common and preferred
dividend (.6) (.6) (.6)
------- ------- -------
Earnings available for
common shareholders $ 83.4 $ 59.4 $ 59.5
======= ======= =======
Weighted average common
shares outstanding 20.5 17.6 16.5
Assumed conversion of
preferred shares .9 .9 .9
Effect of shares issuable
under stock option plans .3 .3 .2
------- ------- -------
Adjusted weighted average
common shares 21.7 18.8 17.6
======= ======= =======
Diluted earnings per share $ 3.84 $ 3.16 $ 3.38
======= ======= =======
<PAGE>
3. Acquisitions of Businesses
During the past three fiscal years, Carpenter acquired the
businesses described below, which were accounted for by the
purchase method of accounting:
Fiscal 1998
On February 19, 1998, Carpenter completed the
acquisition of Talley Industries, Inc. ("Talley").
Carpenter acquired the outstanding common and preferred
stock of Talley for $187.0 million of cash, including
acquisition costs, and assumed Talley debt with a fair
market value of $136.5 million. Talley had $35.1
million of cash at the initial acquisition date. The
transaction was initially financed by short-term debt
issued under Carpenter's revolving credit agreement.
Most of this short-term debt was repaid from the
proceeds of the common stock offering. Based upon a
preliminary valuation, $64.7 million of the purchase
price was allocated to goodwill which is being
amortized on a straight-line basis over 40 years, the
estimated life of the goodwill.
Talley is a diversified manufacturer composed of a
stainless steel products segment, a government products
and services segment and an industrial products
segment. Carpenter intends to retain the companies in
the stainless steel products segment, but divest the
companies in the government products and services and
industrial products segments. Accordingly, the
segments to be divested are accounted for as net assets
held for sale in the consolidated balance sheet (see
Note 4).
On October 31, 1997, Carpenter acquired the net assets
of Shalmet Corporation and its affiliates for $9.3
million in stock and cash, including acquisition costs,
and assumed $4.1 million of Shalmet's debt. Shalmet
converts "black" coil and bar to "bright" round bar and
coil products. Based upon a preliminary valuation, the
fair value of the net assets acquired approximates the
purchase price.
<PAGE>
3. Acquisitions of Businesses (continued)
On September 30, 1997, Carpenter acquired four of the
operating units of ICI Australia, Ltd. for $16.6
million of cash, including acquisition costs. These
four operating units manufacture structural ceramic
components and powder products. Based upon a
preliminary valuation, $4.9 million of the purchase
price was allocated to goodwill, which is being
amortized on a straight-line basis over 20 years.
Fiscal 1998 includes other acquisitions which are
immaterial.
Fiscal 1997
On June 19, 1997, Carpenter acquired the net assets of
Rathbone Precision Metals, Inc., for $9.6 million in
cash, including acquisition costs. Rathbone is a
manufacturer of custom, cold-drawn metal shapes. The
purchase price included goodwill of $6.8 million, which
is being amortized on a straight-line basis over 20
years.
On February 28, 1997, Carpenter purchased all of the
common stock of Dynamet Incorporated in exchange for
approximately 2.8 million shares of Carpenter's
treasury common stock with a fair market value of $99.5
million and $51.5 million of cash, including
acquisition costs. In addition, Carpenter entered into
consulting and non-competition agreements for $10.3
million, a portion of which is payable over four years.
Dynamet is a manufacturer of titanium bar and wire and
powder products. The purchase price included goodwill
of $81.0 million which is being amortized on a
straight-line basis over 30 years.
Fiscal 1996
On November 9, 1995, Carpenter acquired the net assets
of Green Bay Supply Co., Inc., for $10.8 million in
cash, including acquisition costs. Green Bay is a
master distributor which purchases specialty metal
products globally and resells them to independent
distributors in the United States. The purchase price
approximated the fair value of the assets acquired.
<PAGE>
3. Acquisitions of Businesses (continued)
On October 26, 1995, Carpenter acquired all of the
outstanding shares of Parmatech Corporation in exchange
for 120,786 shares of treasury common stock with a fair
value of $4.5 million and incurred acquisition costs of
$.2 million. Parmatech manufactures complex, net or
near-net shape parts from a powder metal slurry using
an injection molding process. The purchase price
included goodwill of $4.1 million which is being
amortized on a straight-line basis over 20 years.
Fiscal 1996 includes other acquisitions which are
immaterial.
The purchase prices have been allocated to the assets
purchased and the liabilities assumed based upon the fair
values on the dates of acquisition, as follows:
(in millions) 1998 1997 1996
---------------------------
Working capital,
other than cash $ 34.7 $ 26.5 $ 9.5
Property, plant and
equipment 81.8 38.8 4.6
Prepaid pension cost 17.2 - -
Goodwill 72.1 87.5 4.1
Other assets 11.1 27.2 2.1
Noncurrent liabilities (38.1) (20.3) (2.5)
---------------------------
Purchase price, net of
cash received $178.8 $159.7 $17.8
===========================
Deferred tax liabilities included in the allocation totaled
$36.8 million in fiscal 1998, $27.0 million in fiscal 1997
and $1.3 million in fiscal 1996. Debt included in the
allocation was $141.7 million in fiscal 1998, $10.2 million
in fiscal 1997, and $2.8 million in fiscal 1996.
The operating results of these acquired businesses have been
included in the consolidated statement of income from the
dates of acquisition. The following table reflects an
unaudited pro forma consolidation of the results of
operations as if the Talley and fiscal 1997 acquisitions had
taken place at the beginning of fiscal 1997:
<PAGE>
3. Acquisitions of Businesses (continued)
(in millions, except
per share amounts) 1998 1997
---- ----
Net sales $1,222.3 $1,132.5
Net income $ 82.6 $ 64.0
Earnings per share:
Basic $ 3.95 $ 3.17
Diluted $ 3.78 $ 3.04
The unaudited pro forma amounts are not necessarily
indicative of what the actual consolidated results of
operations might have been if the acquisitions had occurred
at the beginning of fiscal 1997.
4. Net Assets Held for Sale
As described in Note 3, Carpenter intends to sell the
businesses in the government products and services and
industrial products segments of Talley. The sales are
expected to be completed by December 1998. The expected net
proceeds of these sales and the cash flows of these
businesses until they are sold less an allocation of
interest expense for the holding period were allocated to
net assets held for sale in the allocation of the Talley
purchase price. Any difference between the actual and
expected amounts will result in an adjustment of goodwill
unless there is a difference caused by a post-acquisition
event.
Activity from the acquisition date to June 30, 1998, in the
net assets held for sale follows:
(in millions)
Allocation of purchase price $150.9
Net cash funded by Carpenter 14.1
Interest allocated 6.6
Proceeds from sales of businesses (41.4)
-------
Balance June 30, 1998 $130.2
=======
The businesses held for sale had net income of $2.7 million
from December 5, 1997 to June 30, 1998. The net cash funded
by Carpenter, including working capital and property, plant
and equipment investments, was $14.1 million which was
accounted for as an increase in the carrying value of the
net assets held for sale.
<PAGE>
4. Net Assets Held for Sale (continued)
Several of the businesses to be sold have defined benefit
pension plans which are expected to be assumed by the
buyers. The aggregate present values of pension obligations
and assets of these plans at June 30, 1998, were $4.2
million and $5.9 million, respectively.
5. Inventories
June 30
(in millions) 1998 1997
----------------
Finished and purchased products $169.1 $121.5
Work in process 183.3 177.6
Raw materials and supplies 46.2 51.2
----------------
Total at current cost 398.6 350.3
----------------
Less excess of current cost
over LIFO values 131.5 138.8
----------------
$267.1 $211.5
================
Current cost of LIFO-valued inventories was $352.2 million
at June 30, 1998, and $317.6 million at June 30, 1997.
6. Property, Plant and Equipment
June 30
(in millions) 1998 1997
----------------
Land $ 9.5 $ 8.9
Buildings and building equipment 204.6 183.5
Machinery and equipment 836.0 707.0
Construction in progress 54.7 37.0
----------------
Total at cost 1,104.8 936.4
----------------
Less accumulated depreciation
and amortization 460.7 422.8
----------------
$ 644.1 $513.6
================
The estimated useful lives are principally 45 years for
buildings and 20 years for machinery and equipment. The
ranges are as follows:
Estimated Useful Lives
Buildings and building equipment:
Land improvements 20 years
Buildings and equipment 20 to 45 years
Machinery and equipment:
Machinery and equipment 5 to 20 years
Autos and trucks 3 to 6 years
Office furniture and equipment 3 to 10 years
<PAGE>
6. Property, Plant and Equipment (continued)
For the years ended June 30, 1998, 1997 and 1996,
depreciation expense was $46.8 million, $36.8 million and
$33.7 million, respectively.
7. Other Accrued Liabilities
June 30
(in millions) 1998 1997
---------------
Employee benefits $14.8 $11.0
Interest 8.5 6.1
Environmental costs 4.9 7.4
Other 24.5 16.9
---------------
$52.7 $41.4
===============
8. Debt Arrangements
Carpenter has a $300 million financing arrangement with four
banks, providing for the availability of $250 million of
revolving credit and $50 million under lines of credit.
Interest is based on short-term market rates. As of June
30, 1998, there was $100.0 million outstanding under the
revolving credit agreement, no borrowings outstanding under
the lines of credit and $19.8 million of commercial paper
outstanding.
During January 1998, Carpenter filed a Form S-3 registration
statement ("Shelf Registration") with the Securities and
Exchange Commission to provide for the issuance of $350
million of its common stock and debt securities (see Note
10). Subsequently, Carpenter issued $198.0 million of
medium-term debt securities with a 6.61% average interest
rate under this Shelf Registration. The proceeds were used
to reduce short-term borrowings, which were incurred
principally to repay debt assumed in the acquisition of
Talley.
For the years ended June 30, 1998, 1997 and 1996, interest
cost totaled $31.2 million, $22.3 million and $19.3 million,
of which $2.1 million, $2.4 million and $.4 million,
respectively, were capitalized.
The weighted average interest rates for short-term
borrowings during fiscal 1998 and 1997 were 6.0% and 5.9%,
respectively.
<PAGE>
8. Debt Arrangements (continued)
Long-term debt outstanding at June 30, 1998 and 1997,
consists of the following:
(in millions) 1998 1997
------- -------
Medium term notes at 6.28%
to 7.10% due from
April 2003 to 2018 $198.0 $ -
9% Sinking fund debentures
due 2022, callable beginning in
March 2002 at 104.2%; sinking
fund requirements are $5.0 million
annually from 2003 to 2021 99.6 99.6
Medium-term notes at
6.78% to 7.80% due from
October 1998 to 2005 80.0 80.0
Short-term debt classified as
long-term debt at 5.9% to 6.0% - 60.0
10.75% Senior notes due 2003,
callable beginning in
October 1998 at 105.4% 23.2 -
Other 6.2 8.5
------- -------
Total 407.0 248.1
Less amounts due within one year 36.3 3.4
------- -------
$370.7 $244.7
======= =======
Aggregate maturities of long-term debt for the four years
subsequent to June 30, 1999, are $15.4 million in fiscal
2000, $10.4 million in fiscal 2001, $25.2 million in fiscal
2002, and $45.2 million in fiscal 2003.
Carpenter's financing arrangements contain restrictions on
the total amount of debt and the minimum tangible net worth
allowed.
<PAGE>
9. Financial Instruments
The carrying amounts and estimated fair values of
Carpenter's financial instruments were as follows:
June 30
(in millions) 1998 1997
------------------ ------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------------ ------------------
Cash and cash equivalents $ 52.4 $ 52.4 $ 18.6 $ 18.6
Company-owned life insurance $ 81.1 $ 81.1 $ 88.3 $ 88.3
Short-term debt $119.8 $119.8 $ 82.5 $ 82.5
Long-term debt $407.0 $425.0 $248.1 $259.8
Futures contracts and
commodity price swaps $ - $ (3.9)* $ - $ (1.8)*
Foreign currency forward
contracts $ .2 $ .2 $ .9 $ .9
*The unrealized losses on futures contracts are deferred and will be
included in cost of sales when the related transactions are completed.
The carrying amounts for cash, cash equivalents and
short-term debt approximate their fair values due to the
short maturities of these instruments. The carrying amount
for company-owned life insurance is based on cash surrender
values determined by the insurance carriers.
The fair value of long-term debt as of June 30, 1998 and
1997, was determined by using current interest rates and
market values of similar issues.
The fair value of raw material futures contracts and
commodity price swaps was based on quoted market prices for
these instruments. The notional amounts of these
instruments were $15.4 million and $21.7 million at June 30,
1998 and 1997, respectively. These financial instruments
have various maturity dates ranging from 1998 to 2000.
The fair value of foreign currency forward contracts
represents the amount to be exchanged if the existing
contracts were settled at year end, based on market quotes.
The notional amounts of these contracts were $5.5 million
and $8.2 million at June 30, 1998 and 1997, respectively.
The foreign currency forward contracts have various maturity
dates in 1998 and 1999.
Carpenter is exposed to credit risk related to its financial
instruments in the event of non-performance by the
counterparties. Carpenter does not generally require
collateral or other security to support these financial
instruments. However, the counterparties to these
transactions are major institutions deemed credit worthy by
Carpenter. Carpenter does not anticipate non-performance by
the counterparties.
<PAGE>
10. Common Stock
Common Stock Offering:
As part of Carpenter's Shelf Registration Statement
registering $350 million of its common stock and debt
securities, Carpenter completed a public offering during
March 1998 of 3.2 million shares of its common stock at a
price of $48-1/16 per share. Net proceeds from the sale
were used principally to repay debt incurred to finance the
acquisition of Talley.
Common Stock Authorization:
Carpenter's Board of Directors has approved the adoption and
the submission to the stockholders for approval at the 1998
Annual Meeting of Stockholders of an amendment to the
Restated Certificate of Incorporation that would increase
the number of authorized shares of common stock from 50
million shares to 100 million shares.
Common Stock Purchase Rights:
Carpenter has issued one common stock purchase right
("Right") for every outstanding share of common stock.
Except as otherwise provided in the Rights Agreement, the
Rights will become exercisable and separate Rights
certificates will be distributed to the shareholders: (1) 10
days following the acquisition of 20 percent or more of
Carpenter's common stock, (2) 10 business days (or such
later date as the Board may determine) following the
commencement of a tender or exchange offer for 20 percent or
more of Carpenter's common stock, or (3) 10 days after
Carpenter's Board of Directors determines that a holder of
15 percent or more of Carpenter's shares has an interest
adverse to those of Carpenter or its shareholders (an
"adverse person"). Upon distribution, each Right would then
entitle a holder to buy from Carpenter one newly issued
share of its common stock for an exercise price of $145.
<PAGE>
10. Common Stock (continued)
After distribution, upon: (1) any person acquiring 20
percent of the outstanding stock (other than pursuant to a
fair offer as determined by the Board), (2) a 20 percent
holder engaging in certain self-dealing transactions, (3)
the determination of an adverse person, or (4) certain
mergers or similar transactions between Carpenter and holder
of 20 percent or more of Carpenter's common stock, each
Right (other than those held by the acquiring party)
entitles the holder to purchase shares of common stock of
either the acquiring company or Carpenter (depending on the
circumstances) having a market value equal to twice the
exercise price of the Right. The Rights may be redeemed by
Carpenter for $.025 per Right at any time before they become
exercisable. The Rights Agreement expires on June 26, 2006.
11. Stock-Based Compensation
Carpenter has three stock-based compensation plans for
officers and key employees: a 1993 plan, a 1982 plan and a
1977 plan.
1993 Plan:
The 1993 plan provides that the Board of Directors may grant
incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock and performance share
awards, and determine the terms and conditions of each
grant. In fiscal 1998, the plan was amended to provide the
Chief Executive Officer with limited authority to grant
stock options and restricted stock. As of June 30, 1998 and
1997, 1,091,955 and 1,358,455 shares, respectively, were
reserved for options and share awards which may be granted
under this plan.
Stock option grants under this plan must be at no less than
market value on the date of grant, are exercisable after one
year of employment following the date of grant, and will
expire no more than ten years after the date of grant.
Restricted stock awards vest equally at the end of each year
of employment for the five-year period from the date of
grant. When the restricted shares are issued, deferred
compensation is recorded in the shareholders' equity section
of the consolidated balance sheet. The deferred
compensation is charged to expense over the vesting period.
During fiscal 1998, 1997 and 1996, $.5 million, $.6 million
and $.6 million, respectively, were charged to expense for
vested restricted shares.
Performance share awards are earned only if Carpenter
achieves certain performance levels over a three-year
period. The awards are payable in shares of common stock
<PAGE>
11. Stock-Based Compensation (continued)
and expensed over the three-year performance period. In
June 1998, 1997 and 1996, 41,700, 24,700 and 18,400
performance share awards, respectively, were granted
contingent on performance over the three fiscal years after
grant. During fiscal 1998 and 1997, $1.0 million and $.3
million, respectively, was charged to expense for earned
performance shares. There was no charge to expense for
these awards in fiscal 1996.
1982 and 1977 Plans:
The 1982 plan expired in June 1992; however, all outstanding
unexpired options granted prior to that date remain in
effect. Under the 1982 and 1977 plans, options are granted
at the market value on the date of grant, and are
exercisable after one year of employment following the date
of grant and expire ten years after grant. At June 30, 1998
and 1997, 1,420 and 48,520 shares, respectively, were
reserved for options which may be granted under the 1977
plan.
Carpenter has a stock-based compensation plan which provides
for the granting of stock options and other market-based
units to non-employee Directors. Options are granted at the
market value on the date of the grant and are exercisable
after one year of Board service following the date of grant.
Options expire ten years after the date of grant. At June
30, 1998 and 1997, 109,000 and 129,000 shares, respectively,
were reserved for options which may be granted under this
plan.
Carpenter accounts for its stock option plans in accordance
with APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations. Under APB Opinion
25, no compensation cost is recognized because the exercise
price of Carpenter's employee stock options equals the
market price of the underlying stock at the date of the
grant. Had compensation cost for Carpenter's stock option
plans been determined based on the fair value at the grant
date for awards in accordance with SFAS 123, "Accounting for
Stock-based Compensation," net income would have been
reduced by $1.1 million and $.9 million, or $.05 for basic
and diluted earnings per share in fiscal 1998 and 1997.
There would have been no effect on net income or basic and
diluted earnings per share in fiscal 1996.
<PAGE>
11. Stock-Based Compensation (continued)
These pro forma adjustments were calculated using the
Black-Scholes option pricing model to value all stock
options granted since July 1, 1995. A summary of the
assumptions and data used in these calculations follows:
1998 1997 1996
---- ---- ----
Weighted average exercise
price of options
exercisable $34.98 $30.05 $27.87
Fair value per share of
options granted during
the year $ 7.59 $ 7.93 $ 6.26
Fair value assumptions:
Risk-free interest rate 5.6% 6.3% 5.8%
Expected volatility 18.3% 20.6% 20.6%
Expected life of options 5 years 5 years 5 years
Expected dividends 4.2% 4.2% 4.2%
A summary of the option activity under all plans for the
past three years follows:
Weighted
Average
Number of Exercise
Shares Price
-----------------------
Balance June 30, 1995 794,152 $27.17
Granted 270,500 $33.58
Exercised (241,546) $25.39
Cancelled (9,600) $32.21
-----------------------
Balance June 30, 1996 813,506 $29.77
Granted 315,600 $43.17
Exercised (132,595) $28.06
Cancelled (7,100) $34.73
-----------------------
Balance June 30, 1997 989,411 $34.24
Granted 338,200 $49.66
Exercised (172,167) $30.53
Cancelled (5,000) $41.16
-----------------------
Balance June 30, 1998 1,150,444 $39.29
=======================
<PAGE>
11. Stock-Based Compensation (continued)
Following is a summary of stock options outstanding at
June 30, 1998:
Outstanding Options
------------------------------------------------------------
Weighted
Number Average Weighted
Exercise Outstanding at Remaining Average
Price Range 06/30/98 Life Exercise Price
------------------------------------------------------------
$19 -$30 249,424 4.35 $26.57
$31 -$40 322,720 7.53 $33.87
$41 -$51 578,300 9.55 $47.94
---------
1,150,444 $39.29
=========
Exercisable Options
------------------------------------------------------------
Number Weighted
Exercise Exercisable at Average
Price Range 06/30/98 Exercise Price
------------------------------------------------------------
$19 -$30 249,424 $26.57
$31 -$40 322,720 $33.87
$41 -$46 240,100 $45.56
-------
812,244 $34.98
=======
Of the options outstanding at June 30, 1998, 648,595 relate
to the 1993 plan, 86,547 relate to the 1982 plan, 307,800
relate to the 1977 plan and 107,502 relate to the plan for
non-employee Directors.
<PAGE>
12. Pension and Other Postretirement Benefits
Carpenter provides several noncontributory defined benefit
pension plans and postretirement benefit plans to a majority
of its employees. The following provides a reconciliation of
benefit obligations, plan assets, and funded status of the
plans. Other
Pension Plans Postretirement Plans
(in millions) 1998 1997 1998 1997
---- ---- ---- ----
Change in projected
-------------------
benefit
-------
obligation
----------
Projected benefit
obligation at
beginning of year $482.4 $ 448.3 $ 140.8 $ 144.4
Service cost 15.1 13.4 2.4 2.4
Interest cost 36.6 32.7 10.3 10.6
Plans of acquired
companies 37.0 1.2 - -
Amendments - - - (12.3)
Actuarial loss 37.5 15.3 17.6 3.4
Benefits paid (31.2) (28.5) (8.3) (7.7)
--------------------------------------
Projected benefit
obligation at
end of year $577.4 $ 482.4 $ 162.8 $ 140.8
======================================
Change in plan assets
---------------------
Fair value of plan
assets at beginning
of year $721.0 $ 600.5 $ 45.6 $ 33.6
Actual return on
plan assets 177.5 150.2 15.8 9.2
Company contributions .3 .2 8.1 10.4
Plans of acquired
companies 54.4 .8 - -
Benefits paid from
plan assets (33.1) (30.7) (8.3) (7.6)
--------------------------------------
Fair value of plan
assets at end
of year $920.1 $ 721.0 $ 61.2 $ 45.6
======================================
Funded status of
----------------
the plans $342.7 $ 238.6 $(101.6) $( 95.2)
---------
Unrecognized
transition asset (8.5) (11.2) - -
Unrecognized prior
service cost
(benefit) 29.6 32.0 (9.7) ( 10.3)
Unrecognized net
gain (234.5) (167.5) (29.1) ( 36.5)
--------------------------------------
Prepaid (accrued)
benefit cost $129.3 $ 91.9 $(140.4) $(142.0)
======================================
<PAGE>
12. Pension and Other Postretirement Benefits (continued)
Other
Pension Plans Postretirement Plans
(in millions) 1998 1997 1998 1997
---- ---- ---- ----
Principal actuarial
-------------------
assumptions at
--------------
June 30:
--------
Discount rate 7.0% 7.5% 7.0% 7.5%
Long-term rate of
compensation
increase 4.5% 4.5%
Long-term rate of
return on plan
assets 9.0% 9.0% 9.0% 9.0%
Pension and other postretirement plans included the following net
credits and costs components:
Other
Pension Plans Postretirement Plans
(in millions) 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Service cost $ 15.1 $13.4 $11.4 $ 2.4 $ 2.4 $ 2.3
Interest cost 36.6 32.7 28.8 10.3 10.6 9.8
Expected return on
plan assets (66.5) (52.9) (46.5) (4.1) (3.1) (2.3)
Amortization of
transition asset (2.9) (2.9) (2.9) - - -
Amortization of prior
service cost 2.4 2.4 .5 (.6) .2 .1
Amortization of net
(gain) loss (6.4) (1.8) .2 (1.5) (1.4) (1.7)
------- ------ ------ ------ ------ ------
Plans(credit) cost $(21.7) $(9.1) $(8.5) $ 6.5 $ 8.7 $8.2
======= ====== ====== ====== ====== ======
Pension Plans
Carpenter has several underfunded plans. As of June 30, 1998 and
1997, the projected benefit obligation of the underfunded plans
was $15.3 and $14.5 million, the total fair value of assets was
$2.0 million and $2.4 million, and the accumulated benefit
obligation was $12.6 million and $11.6 million, respectively.
During fiscal 1997 Carpenter established a separate account
within a pension plan to fund certain postretirement medical
benefits paid in fiscal 1998 and 1997. As a result, all active
employees in this plan became fully vested in their accrued
pension benefits.
Carpenter also maintains defined contribution pension and savings
plans for substantially all domestic employees. Company
contributions were $6.8 million in fiscal 1998, $5.3 million in
fiscal 1997 and $4.8 million in fiscal 1996. There were 1,427,110
common shares reserved for issuance under the savings plans at
June 30, 1998.
<PAGE>
12. Pension and Other Postretirement Benefits (continued)
Other Postretirement Plans
The postretirement benefit plans consist of health care and
life insurance plans. Carpenter pays claims incurred
currently for most retired employees and contributes
discretionary amounts, not to exceed the amount deductible
for tax purposes, into a Voluntary Employee Trust Fund
(VEBA). Plan assets are invested in trust-owned life
insurance.
The assumed health care cost trend rate at June 30, 1998 and
1997 was 7% and 8% respectively, and will decrease to 6% in
fiscal 1999 and thereafter.
The health-care cost trend rate has a significant effect on
the amounts reported. If the assumed health-care cost trend
rate was increased by 1 percent, the projected benefit
obligation at June 30, 1998 would have increased by $16.8
million and the postretirement benefit expense for fiscal
1998 would have increased by $1.4 million. If the assumed
health-care cost trend rate was decreased by 1 percent, the
projected benefit obligation at June 30, 1998 would have
decreased by $14.3 million and the postretirement benefit
expense for fiscal 1998 would have decreased by $1.2
million.
13. Employee Stock Ownership Plan
Carpenter has a leveraged employee stock ownership plan
("ESOP") to assist a majority of its employees with their
future retiree medical obligations. Carpenter issued 461.5
shares of convertible preferred stock at $65,000 per share
to the ESOP in exchange for a $30.0 million 15-year 9.345%
note which is included in the shareholders' equity section
of the consolidated balance sheet as deferred compensation.
The preferred stock is recorded net of related issuance
costs.
Principal and interest obligations on the note are satisfied
by the ESOP as Carpenter makes contributions to the ESOP and
dividends are paid on the preferred stock. As payments are
made on the note, shares of preferred stock are allocated to
participating employees' accounts within the ESOP.
Carpenter contributed $1.4 million in fiscal 1998 and $1.3
million in fiscal 1997 and 1996 to the ESOP. Compensation
expense related to the plan was $1.8 million in fiscal 1998,
$1.9 million in fiscal 1997 and $2.0 million in fiscal 1996.
<PAGE>
13. Employee Stock Ownership Plan (continued)
As of June 30, 1998, the ESOP held 444.1 shares of the
convertible preferred stock, consisting of 164.3 allocated
shares and 276.8 unallocated shares. Each preferred share is
convertible into 2,000 shares of common stock. There are
882,294 common shares reserved for issuance under the ESOP
at June 30, 1998. The shares of preferred stock pay a
cumulative annual dividend of $5,362.50 per share, are
entitled to vote together with the common stock as a single
class and have 2,600 votes per share. The stock is
redeemable at Carpenter's option at $67,600 per share,
declining to $65,000 per share by 2001.
14. Supplemental Data
(in millions) 1998 1997 1996
------ ------ ------
Research and development
costs $14.6 $13.0 $13.8
Repairs and maintenance
costs $63.7 $58.3 $53.4
15. Income Taxes
Provisions for income taxes consisted of the following:
(in millions) 1998 1997 1996
------ ------ ------
Current:
Federal $32.0 $25.9 $28.1
State 3.1 2.4 2.0
Foreign 3.2 2.5 .4
Deferred:
Federal 9.6 4.9 3.6
State 4.1 1.8 (.2)
Foreign .9 .4 1.2
------ ------ ------
$52.9 $37.9 $35.1
====== ====== ======
The following is a reconciliation of the statutory federal
income tax rate to the actual effective income tax rate:
(% of pre-tax income) 1998 1997 1996
------ ------ ------
Federal tax rate 35.0% 35.0% 35.0%
Increase (decrease) in
taxes resulting from:
State income taxes,
net of federal tax
benefit 2.7 2.8 2.0
Goodwill amortization 1.3 0.7 0.4
Federal and state tax
rate changes - 0.3 (0.5)
Other, net ( .3) (0.1) (0.1)
------ ------ ------
Effective tax rate 38.7% 38.7% 36.8%
====== ====== ======
<PAGE>
15. Income Taxes (continued)
Deferred taxes are recorded based upon temporary differences
between financial statement and tax bases of assets and
liabilities. The following deferred tax liabilities and
assets were recorded as of June 30, 1998 and 1997:
(in millions) 1998 1997
------- -------
Deferred tax liabilities:
Depreciation and amortization $148.5 $124.4
Prepaid pensions 49.8 34.1
Net assets held for sale 20.3 -
Intangible assets 13.6 11.5
Inventories 12.1 10.2
Other 8.1 11.3
------- -------
Total deferred tax liabilities 252.4 191.5
------- -------
Deferred tax assets:
Postretirement provisions 53.6 53.8
Other reserve provisions 32.0 22.2
Valuation allowance (.9) (.9)
------- ------
Total deferred tax assets 84.7 75.1
------- -------
Net deferred tax liability $167.7 $116.4
======= =======
16. Commitments and Contingencies
Environmental
Carpenter is subject to various stringent federal, state and
local environmental laws and regulations. The liability for
future environmental remediation costs is evaluated by
management on a quarterly basis. 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 years ended June 30, 1998 and 1997, $8.1 million and
$5.9 million, respectively, were charged to operations for
environmental remediation costs (no expense was recognized
in fiscal 1996). The liability recorded for environmental
cleanup costs remaining at June 30, 1998 and 1997, was $10.0
million and $11.2 million, respectively. The estimated
range of the reasonably possible future costs of remediation
at Carpenter-owned operating facilities and superfund sites
is between $10.0 million and $14.0 million.
<PAGE>
16. Commitments and Contingencies (continued)
During fiscal years 1998 and 1997, Carpenter entered into
partial settlements of litigation relating to insurance
coverages for certain superfund sites and recognized income
before income taxes of $4.6 million and $3.0 million,
respectively. During fiscal 1998, about $9.4 million of
cash was received under these settlements for the superfund
sites. The remaining discounted amounts receivable for
recoveries from these settlements at June 30, 1998 and 1997,
were $2.2 million and $7.0 million, respectively.
Estimates of the amount and timing of future costs of
environmental remediation requirements are necessarily
imprecise because of the continuing evolution of
environmental laws and regulatory requirements, the
availability and application of technology and the
identification of presently unknown remediation sites and
the allocation of costs among the potentially responsible
parties. Based upon information presently available, such
future costs are not expected to have a material effect on
Carpenter's competitive or financial position. However, such
costs could be material to results of operations in a
particular future quarter or year.
Other
Carpenter is also defending various claims and legal
actions, and is subject to commitments and contingencies
which are common to its operations. Carpenter provides for
costs relating to these matters when a loss is probable and
the amount is reasonably estimable. The effect of the
outcome of these matters on Carpenter's future results of
operations and liquidity cannot be predicted because any
such effect depends on future results of operations and the
amount and timing (both as to recording future charges to
operations and cash expenditures) of the resolution of such
matters. While it is not feasible to determine the outcome
of these matters, in the opinion of management, any total
ultimate liability will not have a material effect on
Carpenter's financial position or results of operations and
cash flows.
<PAGE>
17. Operations by Geographic Area
Carpenter's sales outside the United States were made in the
following geographic areas:
(in millions) 1998 1997 1996
---- ---- ----
Europe $ 91.7 $ 51.4 $ 37.2
Mexico 45.6 34.7 26.6
Canada 17.4 14.1 13.6
Asia Pacific 11.8 8.8 9.3
Other 13.1 8.8 9.8
------ ------ ------
$179.6 $117.8 $ 96.5
====== ====== ======
Direct export sales, included above, from the United States
to customers were $59.4 million, $36.0 million and $36.1
million for fiscal years 1998, 1997 and 1996, respectively.
These amounts exclude export sales to Carpenter's foreign
subsidiaries.
Identifiable assets of foreign subsidiaries were
$77.8 million in fiscal 1998, $50.5 million in fiscal 1997,
and $36.9 million in fiscal 1996.
Operating income of foreign subsidiaries was $8.3 million in
fiscal 1998, $7.6 million in fiscal 1997, and $7.3 million
in fiscal 1996.
18. Subsequent Event
On August 6, 1998, Carpenter's Board of Directors approved a
stock repurchase program for up to 1.2 million or 5 percent,
of the outstanding shares of Carpenter's common stock. The
shares may be purchased over time and held as treasury
shares. As of June 30, 1998, Carpenter had 22.8 million
common shares outstanding.
<PAGE>
SUPPLEMENTARY DATA
Quarterly Financial Data (Unaudited)
Quarterly sales and earnings results are usually influenced by
seasonal factors. The first fiscal quarter (three months ending
September 30) is typically the lowest because of annual plant
vacation and maintenance shutdowns in this period by Carpenter
and by many of its customers. This seasonal pattern can be
disrupted by major economic cycles or special accounting
adjustments.
(dollars and shares
in millions - First Second Third Fourth
except per share amounts) Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------
Results of Operations
Fiscal 1998
Net sales $ 249.5 $ 280.0 $ 329.0 $ 318.2
Gross profits $ 70.1 $ 77.1 $ 87.8 $ 92.4
Net income $ 17.1 $ 18.7 $ 22.1 $ 26.1
Fiscal 1997
Net sales $ 194.7 $ 208.7 $ 250.9 $ 284.7
Gross profits $ 46.4 $ 56.6 $ 61.9 $ 76.2
Net income $ 8.1 $ 13.6 $ 15.5 $ 22.8
- ----------------------------------------------------------------
Earnings Per Common Share(a)
Fiscal 1998
Basic earnings $ .86 $ .93 $ 1.07 $ 1.13
Diluted earnings $ .82 $ .89 $ 1.02 $ 1.08
Fiscal 1997
Basic earnings $ .46 $ .80 $ .86 $ 1.15
Diluted earnings $ .45 $ .75 $ .84 $ 1.10
- ----------------------------------------------------------------
Weighted Average Common
Shares Outstanding (a)
Fiscal 1998
Basic 19.5 19.6 20.3 22.8
Diluted 20.7 20.7 21.5 24.0
Fiscal 1997
Basic 16.6 16.6 17.6 19.5
Diluted 17.6 17.7 18.7 20.6
- ----------------------------------------------------------------
(a) Carpenter adopted Statement of Financial Accounting
Standards No. 128 in December 1997. Earnings per share and
share data for all periods prior to that date have been
restated.
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure
Not Applicable
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required as to directors is incorporated
herein by reference to the 1998 definitive Proxy Statement under
the caption "Election of Directors."
Information concerning Carpenter's executive officers
appears in Part I of this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information required by this item is incorporated herein
by reference to the 1998 definitive Proxy Statement under the
caption "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this item is incorporated herein
by reference to the 1998 definitive Proxy Statement under the
captions "Ownership of Common Stock by Certain Beneficial Owners"
and "Security Ownership of Directors and Officers."
Item 13. Certain Relationships and Related Transactions
Not applicable
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) Documents Filed as Part of this Report:
(1) The following consolidated financial statement schedule
should be read in conjunction with the consolidated
financial statements (see Item 8. Financial Statements):
Report of Independent Accountants on Financial
Statement Schedule
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is contained in the
consolidated financial statements or notes thereto.
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors of
Carpenter Technology Corporation:
Our audits of the consolidated financial statements referred
to in our report dated July 27, 1998, except as to the
information presented in Note 18 for which the date is August 6,
1998, appearing in this Annual Report on Form 10-K also included
an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements.
s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 27, 1998, except as to the
information presented in
Note 18 for which the date is
August 6, 1998
<PAGE>
(2) The following documents are filed as exhibits:
2. Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
3. Articles of Incorporation and By-Laws of the
Company
4. Instruments Defining the Rights of Security
Holders, Including Indentures
10. Material Contracts
12. Computation of Ratios of Earnings to Fixed Charges
23. Consent of Independent Accountants
24. Powers of Attorney
27. Financial Data Schedule
99. Additional Exhibits
(b) Reports on Form 8-K:
A Current Report on Form 8-K, dated March 31, 1998, was
filed on behalf of Carpenter on April 15, 1998. The
Report covered Item 5, Other Events. No financial
statements were filed with this Report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By s/G. Walton Cottrell
------------------------------
G. Walton Cottrell
Sr. Vice President - Finance &
Chief Financial Officer
Date: September 25, 1998
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed by the following persons on
behalf of the registrant in the capacities and on the dates
indicated.
s/Robert W. Cardy Chairman, President & September 25, 1998
- ---------------------
Robert W. Cardy Chief Executive Officer
and Director (Principal
Executive Officer)
s/G. Walton Cottrell Sr. Vice President - September 25, 1998
- ---------------------
G. Walton Cottrell Finance & Chief
Financial Officer
s/Edward B. Bruno Vice President and September 25, 1998
- ---------------------
Edward B. Bruno Corporate Controller
(Principal Accounting
Officer)
Director
- ---------------------
Marcus C. Bennett
* Director September 25, 1998
- ---------------------
William S. Dietrich II
Director
- ---------------------
C. McCollister Evarts, M.D.
* Director September 25, 1998
- ---------------------
J. Michael Fitzpatrick
* Director September 25, 1998
- ---------------------
William J. Hudson, Jr.
<PAGE>
* Director September 25, 1998
- ---------------------
Edward W. Kay
Director
- ---------------------
Robert J. Lawless
* Director September 25, 1998
- ---------------------
Marlin Miller, Jr.
Director
- ---------------------
Robert N. Pokelwaldt
* Director September 25, 1998
- ---------------------
Peter C. Rossin
* Director September 25, 1998
- ---------------------
Kathryn C. Turner
Director
- ---------------------
Kenneth L. Wolfe
Original Powers of Attorney authorizing John R. Welty to sign
this Report on behalf of: William S. Dietrich II,
J. Michael Fitzpatrick, William J. Hudson, Jr., Edward W. Kay,
Marlin Miller, Jr., Peter C. Rossin, and Kathryn C. Turner are
being filed with the Securities and Exchange Commission.
*By s/John R. Welty
-------------------------------
John R. Welty
Attorney-in-fact
<PAGE>
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
(in millions)
Column A Column B Column C Column D Column E
- -------- -------- ------------------ -------- ---------
Additions
Balance ------------------
at Beg- Charged Charged Balance
inning to to at End
of Costs & Other Deduc- of
Description Period Expenses Accounts(1) tions(2) Period
- ----------- -------- -------- -------- ----- ------
Year ended
June 30, 1998:
Allowance for
doubtful
accounts
receivable $ 1.4 $ 0.7 $ 0.4 $(0.6) $ 1.9
===== ===== ===== ====== =====
Year ended
June 30, 1997:
Allowance for
doubtful
accounts
receivable $ 1.2 $ 0.3 $ 0.5 $(0.6) $ 1.4
===== ===== ===== ====== =====
Year ended
June 30, 1996:
Allowance for
doubtful
accounts
receivable $ 1.0 $ 0.4 $ 0.5 $(0.7) $ 1.2
===== ===== ===== ====== =====
(1) Includes beginning balances of acquired businesses and
recoveries of accounts previously written off, net of
collection expenses.
(2) Doubtful accounts written off.
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Title Page
- ----------- ----- ----
2. Plan of Acquisition, Reorganization,
Arrangement, Liquidation or Succession
A. Agreement and Plan of Merger among
Carpenter Technology Corporation,
Score Acquisition Corp. and Talley
Industries, Inc. dated September 25,
1997 is incorporated herein by
reference to Exhibit (c)(1) to
Schedule 14d-1 relating to Talley
Industries, Inc. filed on October 2,
1997 by Carpenter and Score
Acquisition Corp.
B. Agreement and Plan of Merger dated
January 6, 1997, by and among Dynamet
Incorporated, Shareholders of Dynamet
Incorporated and Carpenter is
incorporated herein by reference to
Exhibit 1 to Carpenter's Current
Report on Form 8-K filed on
March 27, 1997.
3. Articles of Incorporation and By-Laws
A. Restated Certificate of Incorporation
is incorporated herein by reference
to Exhibit 3A of Carpenter's 1987
Annual Report on Form 10-K.
B. By-Laws, amended as of December 5, 1996,
are incorporated herein by reference to
Exhibit 3B of Carpenter's 1996 Annual
Report on Form 10-K and to Exhibit 3 of
Carpenter's Form 10-Q Quarterly Report
for the quarter ended December 31, 1996.
4. Instruments Defining Rights of Security
Holders, Including Indentures
A. Restated Certificate of Incorporation
and By-Laws set forth in Exhibit Nos.
3A and 3B, above.
B. Carpenter's Registration Statement
No. 333-44757, as filed on Form S-3 on
January 22, 1998, and amended on
February 13, 1998, with respect to
issuance of Common Stock and unsecured
debt is incorporated herein by reference.
<PAGE>
C. Prospectus, dated February 13, 1998 and
Prospectus Supplement, dated March 31, 1998,
File No. 333-44757, with respect to issuance
Of $198,000,000 of Medium Term Notes
are incorporated by reference.
D. Indenture dated January 12, 1994,
between Carpenter and U.S. Bank
Trust National Association, formerly
known as First Trust of New York,
National Association, as successor
Trustee to Morgan Guaranty Trust
Company of New York, related to
Carpenter's I) $100,000,000 of
unsecured medium term notes registered
on Registration Statement No. 33-51613
and ii) $198,000,000 of unsecured
medium term notes registered on
Registration Statement No. 333-44757
is incorporated by reference to
Carpenter's Report on Form 10-Q for
the quarterly period ended
December 31, 1993.
E. Forms of Fixed Rate and Floating Rate
Medium-Term Note, Series B are
incorporated by reference to Exhibit 20
to Carpenter's Current Report on Form
8-K filed on April 15, 1998.
F. Pricing Supplements No. 1 through 25
dated and filed from April 2, 1998 to
June 11, 1998, supplements to Prospectus
dated February 13, 1998 and Prospectus
Supplement dated March 31, 1998, File No.
333-44757 with respect to issuance of
$198,000,000 of Medium Term Notes are
incorporated herein by reference.
10. Material Contracts
A. Supplemental Retirement Plan for
Executive Officers, amended as of
April 23, 1996, is incorporated
herein by reference to Exhibit No. 10A
to Carpenter's 1996 Annual Report on
Form 10-K.
B. Management and Officers Capital Appre-
ciation Plan, an Incentive Stock Option
Plan, amended as of August 9, 1990, is
incorporated herein by reference to
Exhibit No. 10B to Carpenter's 1990
Annual Report on Form 10-K.
<PAGE>
C. Incentive Stock Option Plan for
Officers and Key Employees, amended
as of August 9, 1990, is incorporated
herein by reference to Exhibit No. 10C
to the Company's 1990 Annual Report on
Form 10-K.
D. Directors Retirement Plan is incorporated
herein by reference to Exhibit No. 10E to
Carpenter's 1983 Annual Report on Form
10-K.
E. Deferred Compensation Plan for
Nonmanagement Directors of Carpenter
Technology Corporation, amended as of
December 7, 1995, is incorporated
herein by reference to Exhibit No. 10E
to Carpenter's 1996 Annual Report on
Form 10-K.
F. Deferred Compensation Plan for Corporate
and Division Officers of Carpenter
Technology Corporation, amended as of
April 1, 1997, is incorporated by
reference to Exhibit E-9 to Carpenter's 1997
Annual Report on Form 10-K.
G. Executive Annual Compensation Plan,
amended as of July 1, 1997 is
incorporated by reference to Exhibit
E-20 to Carpenter's 1997 Annual
Report on Form 10-K.
H. Non-Qualified Stock Option Plan For
Non-Employee Directors, as amended, is
incorporated herein by reference to
Appendix A of Carpenter's 1997 Proxy
Statement.
I. Officers' Supplemental Retirement Plan
of Carpenter Technology Corporation is
incorporated herein by reference to
Exhibit 10I to Carpenter's 1990 Annual
Report on Form 10-K.
J. Trust Agreement between Carpenter and
the Chase Manhattan Bank, N.A., dated
September 11, 1990 as amended and
restated on May 1, 1997, relating in
part to the Supplemental Retirement
Plan for Executive Officers, Deferred
Compensation Plan for Corporate and
Division Officers and the Officers'
Supplemental Retirement Plan of
Carpenter Technology Corporation is
incorporated by reference to Exhibit
E-28 to Carpenter's 1997 Annual Report
Form 10-K.
<PAGE>
K. Indemnification Agreements, entered
Into between Carpenter and each of the
directors and the following executive
officers: Robert W. Cardy, Dennis M.
Draeger, G. Walton Cottrell, Nicholas F.
Fiore, Robert W. Lodge and John R. Welty
are incorporated by reference to the form
attached to Carpenter's 1993 Form 10-K.
L. Stock-Based Incentive Compensation Plan
for Officers and Key Employees, amended
as of June 27, 1996, is incorporated
herein by reference to Appendix A to
the 1996 Proxy Statement.
M. Stock Purchase Agreement dated
July 28, 1993, between Carpenter
Technology Corporation, Carpenter
Investments, Inc. and the shareholders
of Aceros Fortuna, S.A. de C.V. and
Movilidad Moderna, S.A. de C.V. with
respect to the purchase of all the
capital stock of Aceros Fortuna and
Movilidad Moderna is incorporated by
reference to Exhibit 1 to Carpenter's
Form 8-K Current Report dated
July 28, 1993.
N. Special Severance Agreements entered
into between Carpenter and each of
the following executive officers:
Robert W. Cardy, Dennis M. Draeger,
G. Walton Cottrell, Nicholas F. Fiore,
Robert W. Lodge, and John R. Welty
are incorporated herein by reference
to the form attached to Carpenter's
1995 Form 10-K.
O. Trust Agreement between Carpenter
and the Chase Manhattan Bank, N.A.,
dated December 7, 1990 as amended and
restated on May 1, 1997, relating in
part to the Directors' Retirement Plan
and the Deferred Compensation Plan for
Nonmanagement Directors, is
incorporated by reference to
Exhibit E-83 to Carpenter's 1997
Annual Report on Form 10-K.
P. Underwriting Agreement dated March 10, 1998
between Carpenter and J.P. Morgan
Securities Inc.; Credit Suisse First
Boston Corporation; Bear, Stearns &
Co. Inc. and Paine Webber Incorporated is
incorporated herein by reference to
Carpenter's Form 8-K/A filed on
March 19, 1998.
<PAGE>
Q. Distribution Agreement dated
March 31, 1998 between Carpenter and
Credit Suisse First Boston Corporation
and J.P. Morgan Securities Inc. is
incorporated by reference to
Exhibit 1 to Carpenter's Current Report
on Form 8-K filed on April 15, 1998.
12. Computations of Ratios of Earnings to
Fixed Charges E-6
23. Consent of Experts and Counsel
Consent of Independent Accountants E-7
24. Powers of Attorney
Powers of Attorney in favor of
G. Walton Cottrell or John R. Welty. E-8
27. Financial Data Schedule E-15
99. Additional Exhibits
Agreement to Furnish Debt Instruments E-16
<PAGE>
Exhibit 12
Carpenter Technology Corporation
Computations of Ratios of Earnings to Fixed Charges -- unaudited
Five years Ended June 30, 1998
(dollars in millions)
1998(b) 1997 1996 1995 1994
------- ---- ---- ---- ----
Fixed charges:
Interest costs (a) $ 31.2 $ 22.3 $ 19.3 $ 17.8 $ 19.7
Interest component of
non-capitalized lease
rental expense (c) 2.9 2.4 2.0 2.4 2.5
------ ------ ------ ------ ------
Total fixed charges $ 34.1 $ 24.7 $ 21.3 $ 20.2 $ 22.2
====== ====== ====== ====== ======
Earnings as defined:
Income before income
taxes and extraordinary
charge $136.9 $ 97.9 $ 95.2 $ 74.6 $ 62.7
Add: Loss in less-than-
fifty-percent-owned
entities and loss (gain)
on sale of partial
interest in less-than-
fifty-percent owned
entities 3.4 1.2 4.3 3.0 0.9
Fixed charges less
interest capitalized 32.0 22.3 21.0 17.0 18.1
Amortization of
capitalized interest 1.9 1.9 2.1 1.9 1.8
------ ------ ------ ------ ------
Earnings as defined $174.2 $123.3 $122.6 $ 96.5 $ 83.5
====== ====== ====== ====== ======
Ratio of earnings to
fixed charges 5.1x 5.0x 5.7x 4.8x 3.8x
====== ====== ====== ====== ======
(a) Includes interest capitalized relating to significant
construction projects, and amortization of debt discount and
debt expense.
(b) Excludes interest and earnings related to net assets held
for sale.
(c) One-third of rental expense which approximates the interest
component of non-capitalized leases.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the
registration statements of Carpenter Technology Corporation and
subsidiaries on Forms S-8 and S-3 (File Nos. 2-83780, 2-81019,
2-60469, 33-42536, 33-65077, 33-51613, 33-54045, 333-43017,
333-55667 and 333-55669) of our reports dated July 27, 1998,
except as to the information presented in Note 18 for which the
date is August 6, 1998, on our audits of the consolidated
financial statements and financial statement schedule of
Carpenter Technology Corporation and subsidiaries as of June 30,
1998 and 1997, and for the years ended June 30, 1998, 1997 and
1996, which reports are included in this Annual Report on Form
10-K.
s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 25, 1998
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1998, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 10th day of September, 1998.
/s/ William S. Dietrich II
---------------------------
William S. Dietrich II
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1998, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 10th day of September, 1998.
/s/J. Michael Fitzpatrick
--------------------------
J. Michael Fitzpatrick
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1998, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 10th day of September, 1998.
/s/William J. Hudson, Jr.
--------------------------
William J. Hudson, Jr.
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1998, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 10th day of September, 1998.
/s/Edward W. Kay
----------------------
Edward W. Kay
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the
Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 on Form 10-K, for the year ended June 30,
1998, of said Company, and any and all amendments to said Annual
Report and all instruments necessary or incidental in connection
therewith and to file the same with the Securities and Exchange
Commission. Said attorneys shall individually have full power
and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever
requisite or desirable to be done in the premises, as fully and
to all intents and purposes as the undersigned might or could do
in person, the undersigned hereby ratifying and approving the
acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 10th day of September, 1998.
/s/Marlin Miller, Jr.
-----------------------
Marlin Miller, Jr.
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the
Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 on Form 10-K, for the year ended June 30,
1998, of said Company, and any and all amendments to said Annual
Report and all instruments necessary or incidental in connection
therewith and to file the same with the Securities and Exchange
Commission. Said attorneys shall individually have full power
and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever
requisite or desirable to be done in the premises, as fully and
to all intents and purposes as the undersigned might or could do
in person, the undersigned hereby ratifying and approving the
acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 10th day of September, 1998.
/s/Peter C. Rossin
---------------------
Peter C. Rossin
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned in her
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the
Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 on Form 10-K, for the year ended June 30,
1998, of said Company, and any and all amendments to said Annual
Report and all instruments necessary or incidental in connection
therewith and to file the same with the Securities and Exchange
Commission. Said attorneys shall individually have full power
and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever
requisite or desirable to be done in the premises, as fully and
to all intents and purposes as the undersigned might or could do
in person, the undersigned hereby ratifying and approving the
acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 17th day of September, 1998.
/s/Kathryn C. Turner
----------------------
Kathryn C. Turner
Director
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> $52
<SECURITIES> $0
<RECEIVABLES> $177
<ALLOWANCES> $0
<INVENTORY> $267
<CURRENT-ASSETS> $646
<PP&E> $1,105
<DEPRECIATION> $461
<TOTAL-ASSETS> $1,699
<CURRENT-LIABILITIES> $349
<BONDS> $371
$0
$28
<COMMON> $115
<OTHER-SE> $517
<TOTAL-LIABILITY-AND-EQUITY> $1,699
<SALES> $1,177
<TOTAL-REVENUES> $1,177
<CGS> $849
<TOTAL-COSTS> $849
<OTHER-EXPENSES> $2
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $29
<INCOME-PRETAX> $137
<INCOME-TAX> $53
<INCOME-CONTINUING> $84
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $84
<EPS-PRIMARY> $4.01
<EPS-DILUTED> $3.84
</TABLE>
Exhibit 99
AGREEMENT TO FURNISH DEBT INSTRUMENTS
Pursuant to Instruction 3 (b)(4)(iii) to Item 601 of
Regulation S-K, Carpenter has not included as an Exhibit any
instrument with respect to long-term debt if the total amount of
debt authorized by such instrument does not exceed 10% of the
total assets of Carpenter. Carpenter agrees, pursuant to this
Instruction, to furnish a copy of any such instrument to the
Securities and Exchange Commission upon request of the
Commission.
CARPENTER TECHNOLOGY CORPORATION
By /s/John R. Welty
-----------------
John R. Welty
Vice President,
General Counsel and Secretary
<PAGE>
