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, 1999
Commission file number 1-5828
CARPENTER TECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware 23-0458500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1047 N. Park Road, Wyomissing, Pennsylvania 19610-1339
(Address of principal executive offices) (Zip Code)
610-208-2000
(Registrant's telephone number, including area code)
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. [ ]
As of August 31, 1999, 21,929,887 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 $501,646,165.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference certain information from the
1999 definitive Proxy Statement, dated September 23, 1999.
The Exhibit Index appears on pages E-1 to E-5.
TABLE OF CONTENTS
Page
Number
------
PART I 3
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a
Vote of Security Holders 10
PART II 12
Item 5. Market for Registrant's Common Stock
and Related Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
Item 8. Financial Statements and Supplementary Data 25
Item 9. Disagreements on Accounting and Financial
Disclosure 58
PART III 59
Item 10. Directors and Executive Officers of the
Registrant 59
Item 11. Executive Compensation 59
Item 12. Security Ownership of Certain Beneficial
Owners and Management 59
Item 13. Certain Relationships and Related
Transactions 59
PART IV 60
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 60
SIGNATURES 62
EXHIBIT INDEX E-1
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, 1999, except for the transactions described
below:
During fiscal 1999, Carpenter acquired the
businesses described below:
In April 1999, Carpenter finalized a joint venture
with Kalyani Steels Ltd. that established two companies
in India, at an initial cost of $10.7 million,
including organization costs. The companies
established are Kalyani Carpenter Special Steels Ltd.
(KCSS), a specialty steel manufacturing company, and
Kalyani Carpenter Metal Centres Ltd. (KCMC), a
specialty steel distribution company. Carpenter,
through a wholly-owned subsidiary, owns 26 percent of
KCSS and 51 percent of KCMC.
In October 1998, Carpenter acquired the strip
producing business of Telcon, Ltd., for $11.4 million
of cash, including acquisition costs. This facility
produces narrow strip for electronic applications using
magnetic and controlled expansion alloys.
(b) Financial Information About Segments:
Carpenter is organized on a product basis and
managed in three segments: Specialty Alloys, Titanium
Alloys and Engineered Products. The Specialty Alloys
and Titanium segments have been aggregated into one
reportable segment (Specialty Metals) because of the
similarities in products, processes, customers and
distribution methods. See Note 18 to the consolidated
financial statements included in Item 8 "Financial
Statements and Supplementary Data" for additional
segment reporting information.
(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 metal
powders and fabricated metal products. In addition,
ceramic and metal-injection molded products are
produced from various raw materials using molding,
heating and other processes.
Specialty Metals includes the manufacture and distribution
of stainless steels, titanium, high temperature alloys,
electronic alloys, tool steels and other alloys in bar, wire,
rod and strip forms. Sales are distributed both directly from
producing plants and from a Carpenter operated distribution
network. Specialty Metals 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.
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.
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.
Engineered Products includes structural ceramic products,
ceramic cores for the casting industry, metal-injection
molded products, tubular metal products for nuclear and
aerospace applications, custom shaped bar and ultra hard
wear materials. Engineered Products finished products
include:
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.
Sales outside of the United States, including
export sales, were $184.8 million, $179.6 million and
$117.8 million in fiscal 1999, 1998 and 1997,
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:
1999 1998 1997
---- ---- ----
Stainless steel 46% 47% 49%
Special alloys 29% 30% 34%
Titanium products 10% 11% 5%
Ceramics and other
materials 8% 6% 5%
Tool and other steel 7% 6% 7%
---- ---- ----
100% 100% 100%
==== ==== ====
(3) Raw Materials:
Carpenter's Specialty Metals segment 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.
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 1999 1998 1997
------------- ---- ---- ----
September 30 24% 21% 21%
December 31 24% 24% 22%
March 31 26% 28% 27%
June 30 26% 27% 30%
---- ---- ----
100% 100% 100%
==== ==== ====
The above trends were also affected by the acquisitions
of businesses. Fiscal 1999 included the effects of the
acquisition of certain assets of Telcon, Ltd. in
October 1998. Fiscal 1998 includes the effects of the
acquisition of a majority interest in Talley
Industries, Inc. on December 5, 1997 and the remainder
on February 19, 1998. Fiscal 1997 included the
acquisition of Dynamet, Incorporated 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, 1999, Carpenter had a backlog of
orders, believed to be firm, of approximately $201
million, substantially all of which is expected to be
shipped within the current fiscal year. The backlog as
of June 30, 1998 was approximately $275 million.
(8) Competition:
Carpenter's business is highly competitive. It
supplies materials to a wide variety of end-use market
sectors, none of which consumes more than about 28%
percent of Carpenter's output, and competes with
various companies depending on end-use sector, product
or geography.
There are approximately 11 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
sectors. 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
several years ago joined with other domestic producers
in the filing of trade actions against foreign
producers who had dumped their specialty steel products
into the United States. As a result of these actions,
the U.S. Department of Commerce 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 63% 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 be terminated at various dates
during calendar year 2000, unless further extended.
As a result of a more recent trade action filed by
Carpenter and other domestic producers in 1997,
antidumping orders have been issued by the U.S.
Commerce Department for the collection of dumping
duties on imports of stainless steel rod from Italy,
Japan, Korea, Spain, Sweden and Taiwan at rates ranging
up to 34% of the value. Countervailing duty orders
were also issued on certain stainless steel rod imports
from Italy. These orders were effective September 15,
1998 and will continue for a period of five years,
unless modified or further extended.
In early 1998, another trade action was filed by
Carpenter and other domestic producers against imports
of stainless steel wire from Italy, Japan, Korea,
Spain, Taiwan and Canada. On April 6, 1999, the U.S.
Commerce Department determined that imports from all
six countries were being dumped into the U.S., and
significant dumping duties were established. However,
these duties were not implemented because of the U.S.
International Trade Commission's final ruling on May
10, 1999 that the domestic stainless steel wire
industry had not been materially injured by the dumped
imports.
(9) Research, Product and Process Development:
Carpenter's expenditures for company-sponsored
research and development were approximately $14.0
million, $14.6 million and $13.0 million in fiscal
1999, 1998 and 1997, 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 17 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 $16.3 million and
$7.0 million for fiscal 1999 and 1998, respectively.
The capital expenditures for environmental control
equipment were $.3 million and $1.1 million for fiscal
1999 and 1998, respectively. Carpenter anticipates
spending approximately $6.0 million on major domestic
environmental capital projects over the next five
fiscal years. This includes $1.2 million for fiscal
2000 and $1.7 million in fiscal 2001. Due to the
possibility of unanticipated factual or regulatory
developments, the amount of future capital expenditures
may vary.
(11) Employees:
As of August 31, 1999, Carpenter and its
affiliates had approximately 5,700 employees.
(d) Financial information about foreign and domestic
operations and export sales:
Reference Note 18 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; Clearwater, Florida; and Crawley, England. The
Reading, Hartsville, Washington, Orangeburg and Crawley 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 231,000 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, 1999 and 1998, the plant operated at
approximately 79 percent and 86 percent, respectively, of its
melting capacity.
During the fiscal years 1999 and 1998, the Talley Metals
plant in Hartsville, South Carolina had 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 year ended June 30, 1999 and
during the period from January 1, 1998 to June 30, 1998, the
plant operated at approximately 84% and 93%, respectively, of its
hot rolling capacity. The rolling capacity has recently been
increased to 78,500 tons as a result of improvements to the mill.
Carpenter also operates sales offices and distribution and
service centers, most of which are owned, at 40 locations in 15
states and 10 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 President and Chief Operating
Officer and Director of Carpenter effective June 1, 1999, was
Executive Vice President of Carpenter from July 1, 1998 to May
31, 1999 and 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 63 Chairman and
Chief Executive Officer July 1992
Director
G. Walton Cottrell 59 Senior Vice President -
Finance & Chief
Financial Officer January 1993
Dennis M. Draeger 58 President and Chief
Operating Officer June 1999
Director
Nicholas F. Fiore 59 Senior Vice President -
Engineered Products
Group January 1993
Robert W. Lodge 56 Vice President -
Human Resources September 1991
John R. Welty 50 Vice President,
General Counsel &
Secretary January 1993
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:
1999 1998
Quarter Ended: High Low High Low
- ---------------------------------------------------------------
September 30 $54-3/16 $30 $49-9/16 $44-5/16
December 31 $37-3/4 $30-3/16 $52-7/16 $46
March 31 $37-1/8 $23-5/8 $54 $42-1/4
June 30 $32-13/16 $24-15/16 $58-15/16 $49-1/2
- ---------------------------------------------------------------
Annual $54-3/16 $23-5/8 $58-15/16 $42-1/4
The range of Carpenter's common stock price from July 1,
1999 to September 10, 1999 was $22-5/8 to $29-3/8. The closing
price of the common stock was $23-3/8 on September 10, 1999.
Carpenter has paid quarterly cash dividends on its common
stock for 93 consecutive years. The quarterly dividend rate was
$.33 per share for the fiscal years ended June 30, 1999, 1998 and
1997.
Carpenter had 5,984 common shareholders of record as of
August 31, 1999. The balance of the information required by this
item is disclosed in Note 11 to the consolidated financial
statements included in Item 8 "Financial Statements and
Supplementary Data".
Item 6. Selected Financial Data
Five-Year Financial Summary
Dollar amounts in millions, except per share data
(years ended June 30)
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
Summary of Operations
Net sales $1,036.7 $1,176.7 $ 939.0 $ 865.3 $ 757.5
Net income $ 37.1 $ 84.0 $ 60.0 $ 60.1 $ 47.5
Financial Position
at Year-End
Total assets $1,607.8 $1,698.9 $1,223.0 $ 912.0 $ 831.8
Long-term debt, net $ 355.0 $ 370.7 $ 244.7 $ 188.0 $ 194.8
Per Share Data
Earnings:
Basic $ 1.61 $ 4.01 $ 3.32 $ 3.54 $ 2.83
Diluted $ 1.58 $ 3.84 $ 3.16 $ 3.38 $ 2.70
Cash dividends-common $ 1.32 $ 1.32 $ 1.32 $ 1.32 $ 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".
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's Discussion of Operations
Overview
After achieving record sales and earnings in fiscal 1998,
Carpenter's results of operations declined in fiscal 1999. The
lower results were driven primarily by reduced demand in key
market sectors and increased competition from imported stainless
steel products.
Net sales and earnings trends for the past three fiscal years are
summarized below:
(in millions, except per share data) 1999 1998 1997
- -----------------------------------------------------------------
Net sales $1,036.7 $1,176.7 $ 939.0
Net income $ 45.6* $ 84.0 $ 60.0
Diluted earnings per share $ 1.95* $ 3.84 $ 3.16
*Excludes a special charge of $8.5 million after taxes or $.37
per diluted share for the personnel-related costs of a salaried
work force reduction and a reconfiguration of Carpenter's U.S.
distribution network (see note 3 to the consolidated financial
statements). These salaried staff reductions and distribution
network changes are expected to result in annual cost savings of
approximately $7.0 million after taxes.
The chart below shows net sales by major material group for the
past three fiscal years:
(in millions) 1999 1998 1997
- -----------------------------------------------------------------
Sales % Sales % Sales %
--------------------------------------------
Stainless steel $ 479.9 46 $ 552.6 47 $461.5 49
Special alloys 294.9 29 348.7 30 317.9 34
Titanium products 102.6 10 128.5 11 44.4 5
Ceramics and other
materials 86.2 8 69.2 6 45.8 5
Tool and other steel 73.1 7 77.7 6 69.4 7
--------------------------------------------
Total $1,036.7 100 $1,176.7 100 $939.0 100
============================================
Results of Operations - Fiscal 1999 Versus Fiscal 1998
Net sales were $1,036.7 million in fiscal 1999, a 12 percent
decrease from the record level of $1,176.7 million in fiscal
1998. Reduced unit volume accounted for approximately $121
million of the sales decrease. Unit selling price decreases
averaged 6 percent, accounting for $74 million of the sales
decrease. Most of these negative effects were experienced in the
Specialty Metals segment and were partially offset by the
inclusion of a full year's sales in fiscal 1999 for companies
acquired during fiscal 1998.
Sales outside the United States rose by 3 percent to $184.8
million during fiscal 1999. Approximately $101 million of these
sales were to customers in Europe where additional market share
was obtained through expansion of sales efforts and the
acquisition of a strip facility and a metal injection products
company. Details of sales by geographic region for the past
three fiscal years are presented in note 18 to the consolidated
financial statements.
Cost of sales as a percentage of sales increased to 75 percent in
fiscal 1999 from 72 percent a year earlier, because of lower
production levels, selling price reductions and a less profitable
product mix in the Specialty Metals segment. Reduced staffing
levels, lower raw material costs and increased pension credits
helped to partially offset the margin decline.
Selling and administrative expenses for fiscal 1999 were higher
than in fiscal 1998 by $3.6 million, primarily because of the
impact of newly acquired companies and increases in salaries.
Reductions in salaried staffing levels, lower bonus payments and
improved pension credits helped to offset these effects.
Net pension credits resulting from the pension plans' overfunded
status reduced cost of sales and selling and administrative
expenses by $29.1 million in fiscal 1999 and $21.7 million in
fiscal 1998. This improved level of credit was primarily the
result of market investment performance of the plans' assets.
Other (income) expense, net was favorable by $2.2 million as
compared to fiscal 1998. This improvement was primarily related
to a nonrecurring pre-tax loss of $2.7 million in fiscal 1998 for
the sale of a joint venture in Taiwan.
Income taxes as a percent of pre-tax income (effective tax rate)
was approximately 34 percent in fiscal 1999 and 39 percent in
fiscal 1998. The resolution of certain prior year state tax
issues was the major factor in the lower rate. See note 16 to
the consolidated financial statements for a reconciliation of the
statutory federal tax rate to the effective tax rate.
Business Segment Results
(see note 18 to the consolidated financial statements)
Specialty Metals Segment
in millions 1999 1998 Decrease
----------- ---- ---- --------
Net sales $886.4 $1,035.2 $148.8
Income before interest
expense and income
taxes (EBIT) $ 89.6* $ 151.4 $ 61.8
*Excludes special charge of $14.2 million (see note 3 to the
consolidated financial statements).
The 14 percent decrease in net sales was due to a combination of
lower unit volume and reduced selling prices, each accounting for
about one-half of the sales decline. Selling prices for both the
Specialty Alloys' products and Dynamet's titanium products were
lower by 7 percent, in part due to lower nickel, cobalt and
titanium costs but also because of intense competition. In
stainless products the increased competition from imported steel
was a key factor.
Sales to the aerospace market sector were adversely affected by
inventory reductions by customers to correct for overstocked
inventory positions. Sales to industrial end use markets were
another area of weakness, especially in products for
petrochemical, semiconductor and processing industry
applications. Automotive products were down moderately as a
result of a General Motors strike early in the year and design
changes.
EBIT fell 41 percent primarily because of the lower unit sales
volume and selling prices. Profit margins were also affected by
a less profitable product mix and a lower production level as
inventories were reduced. Lower costs for raw materials, more
favorable pension credits and reductions in salaried and
production staffing levels helped offset the sales effects.
Engineered Products Segment
Increase
in millions 1999 1998 (Decrease)
----------- ---- ---- ----------
Net sales $153.7 $144.4 $ 9.3
Income before interest
expense and income
taxes (EBIT) $ 4.6 $ 9.2 $(4.6)
The 6 percent increase in sales was the result of including a
full year's sales in fiscal 1999 for Carpenter Advanced Ceramics,
which was acquired during 1998, and volume growth, particularly
in ceramic cores for aerospace and land-based turbine blade
castings and in structural ceramics applications. Sales of the
Mexican steel distribution business were down because of the weak
Mexican economy.
The 50 percent decrease in EBIT was due to several factors. EBIT
of the Mexican distribution network was hurt by the weak economy
there. Developmental costs for new metal injection molded
products, start-up costs for three new ceramics facilities and
expanded sales and marketing and process research programs were
higher in fiscal 1999. Finally, an equipment impairment loss of
$1.5 million was recognized in fiscal 1999.
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, sales
were up by 5 percent due to strong demand in most market sectors,
but especially for aerospace applications. Average unit selling
prices for most specialty metals products remained about the same
as in fiscal 1997.
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 due
to the acquisition of Dynamet Incorporated and expanded market
share.
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 Metals segment and the full year effect of
Dynamet's sales.
Selling and administrative expenses were higher than in fiscal
1997 by $34.0 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
administrative 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 plans'
assets.
Interest expense increased by $9.1 million mainly because of debt
incurred to acquire businesses and working capital requirements.
Other (income) expense, net was negatively impacted in fiscal
1998 by $5.2 million. The sale of Carpenter's remaining
investment in a joint venture in Taiwan resulted in a $2.7
million pre-tax loss in fiscal 1998. 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 16 to the consolidated financial
statements.
Business Segment Results
Specialty Metals Segment
in millions 1998 1997 Increase
----------- ---- ---- --------
Net sales $1,035.2 $ 842.0 $ 193.2
Income before interest
expense and income
taxes (EBIT) $ 151.4 $ 108.4 $ 43.0
The 23 percent increase in net sales was the result of increased
unit volume shipments of the Specialty Alloys unit and the
inclusion of the Dynamet Incorporated unit for a full year in
fiscal 1998 versus only four months in fiscal 1997 (Dynamet was
acquired in February 1997). Demand was strong in most market
sectors, but especially for aerospace applications. Sales of
high temperature alloys and titanium were at high levels, driven
by increased customer demand to support strong commercial
aircraft build schedules. Unit selling prices for most products
remained about the same as in fiscal 1997.
The 40 percent increase in EBIT was primarily the result of the
increased unit volume sold, higher production levels and the
inclusion of Dynamet's results for the full year. Higher pension
credits, lower raw material costs and productivity improvements
also contributed to the improved EBIT.
Engineered Products Segment
in millions 1998 1997 Increase
----------- ---- ---- --------
Net sales $144.4 $ 99.5 $44.9
Income before interest
expense and income
taxes (EBIT) $ 9.2 $ 4.4 $ 4.8
Approximately 72 percent of the sales improvement was due to the
inclusion of sales of Rathbone Precision Metals, Carpenter
Advanced Ceramics and Aceromex Atlas, which were acquired in
early fiscal 1998. The remainder of the sales improvement was
due to a strong demand in the Mexican distribution business and
the ceramic core business for aerospace and land-based turbine
applications.
The EBIT improvement was attributable to inclusion of the
acquired companies mentioned above and the unit volume
improvements in Mexico and ceramics products. EBIT in both
periods was adversely affected by research and development
expenditures for ceramics and metal injection molding
technologies.
Management's Discussion of Cash Flow and Financial Condition
Cash Flow
Cash flow from operations was strong over the past three years.
Net cash generated from operating activities was $87.4 million in
fiscal 1999, despite the weak business conditions. This level
was down from the record $108.4 million of fiscal 1998 but above
the 1997 cash flow of $74.7 million.
Investing activities used $54.3 million of cash in fiscal 1999, a
significant drop from the $250.2 million and $153.1 million used
in fiscal 1998 and 1997, respectively. The reduced level in
fiscal 1999 was due to proceeds from the sales of the Talley
business segments Carpenter didn't choose to keep and a reduction
in business acquisition activities, offset by higher capital
expenditures.
Capital expenditures continued at a high level. Fiscal 1999
expenditures totaled $153.1 million versus $99.5 million in
fiscal 1998 and $93.6 million in fiscal 1997. The 1999 level was
lower than originally planned because of reevaluations of capital
needs in view of current business conditions. The major
expenditures during fiscal 1999 were for new strip facilities, a
new forging press and capacity expansion projects at the
Hartsville, South Carolina, facility. The total remaining costs
on approved projects in excess of $1 million was $170 million at
June 30, 1999. Of this amount, $97 million has been placed on
hold pending changes in business conditions. The most
significant open projects are for the completion of the strip
modernization and expansion and forge press. Total capital
spending for all projects is expected to be $100 million in
fiscal 2000 and then decrease to a level below the annual
depreciation expense of approximately $58 million after 2000.
Business acquisition activities were at a much lower pace in
fiscal 1999 than in the two prior years. Fiscal 1999 acquisition
spending totaled $23.1 million versus $177.8 million in fiscal
1998 and $60.2 million in fiscal 1997. The acquisitions in
fiscal 1999 included the strip business of Telcon, Ltd., in the
United Kingdom and two joint ventures for specialty steel
production and distribution in India. The most significant
acquisitions in fiscal 1998 and 1997 were Talley Industries,
Inc., and Dynamet Incorporated, respectively. Details of
acquisition activities for the past three years are included in
note 4 to the consolidated financial statements.
During fiscal 1999 and 1998, Carpenter sold all of the businesses
of the Talley Industries, Inc., government products and services
and industrial products segments, as planned at the time Talley
was acquired in fiscal 1998. These sales resulted in net
proceeds before taxes of $121.4 million in fiscal 1999 and $20.7
million in fiscal 1998. Additional detail regarding these
divestitures is provided in note 5 to the consolidated financial
statements.
Total debt decreased by $16.4 million to $510.4 million in fiscal
1999. Debt as a percent of total capital (debt, deferred taxes
and shareholders' equity) increased to 39.4 percent at June 30,
1999, from 38.9 percent at the beginning of the fiscal year.
Details of debt and financing arrangements are provided in note 9
to the consolidated financial statements.
In fiscal 1999, $35.0 million of cash was used to acquire 955,567
treasury common shares. The dividend payout rates on common and
preferred stock were maintained at $1.32 and $5,362.50 per share,
respectively, and totaled $30.7 million, $28.5 million and $24.4
million in fiscal years 1999, 1998 and 1997, respectively.
Financial Condition and Liquidity
During the past three fiscal years, Carpenter maintained the
ability to provide adequate cash to meet its needs through 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 1999 in a strong liquidity position, with
current assets exceeding current liabilities by $128.2 million (a
ratio of 1.4 to 1). This ratio is conservatively stated because
certain inventories are valued $101.1 million less than the
current cost as a result of using the LIFO method.
Financing is available under a $250 million financing arrangement
with four banks, providing for $200 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 $250 million. As of June 30, 1999, $110
million was available under the credit facility and commercial
paper program. Details of financing arrangements are provided in
note 9 to the consolidated financial statements.
Carpenter believes that its present financial resources, both
from internal and external resources, 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 the
Specialty Metals Segment are normally offset by selling price
adjustments primarily through the use of surcharge mechanisms and
base price adjustments. 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,
1999 and 1998, is provided in note 10 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, 1999 and 1998, Carpenter's results of operations,
cash flow and financial position would not have been materially
affected.
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, 1999 was $9.7 million.
The estimated range of the reasonably possible costs of
remediation at Carpenter-owned operating facilities and the
superfund sites is between $9.7 million and $13.0 million as of
June 30, 1999. Recoveries of expenditures are recognized as
receivables when they are estimable and probable.
Additional details are provided in note 17 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 17 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.
Year 2000 Issues
Carpenter's State of Readiness
Carpenter has been formally addressing its Year 2000 issues since
March 1996. These efforts involve developing an inventory,
assessing the Year 2000 impact, developing conversion plans,
remediating noncompliant items, testing, contacting mission
critical vendors and suppliers, contacting selected customers,
and developing contingency plans. A project team representing
all business units has been in place since December 1998 and
meeting regularly to monitor and report on the status of the
project. All known Year 2000 projects have been completed as of
August 31, 1999.
Risks of Year 2000 Issues and Contingency Plans
Carpenter expects that all of its systems will be fully
operational and will not cause any material disruptions because
of Year 2000 issues. Contingency plans are being developed for
any process determined to be mission critical. Contingency
planning is scheduled to be completed for all business units by
September 30, 1999.
Because of the uncertainties associated with assessing
preparedness of suppliers, 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. Carpenter has contacted and is continuing to monitor the
progress of all suppliers determined to be mission critical. All
suppliers who have responded indicated that they will be able to
provide their products or services to Carpenter with no
interruptions. Contingency plans are currently being developed
for these suppliers to prepare for a possible unexpected outage.
Carpenter has a very large, diverse customer base with thousands
of customers. No customer represents more than 4 percent of
Carpenter's net sales. However, Carpenter has assessed the state
of readiness of its major customers to determine if there will be
any significant loss of business due to the Year 2000 computer
issues and has not found any major customer who is not actively
addressing the issues on a timely basis.
Carpenter hired an independent consultant to perform a status
study of its Year 2000 efforts in March 1999. This review
resulted in several recommendations to improve the project
effectiveness. The recommendations have been reviewed with
management and appropriate actions have been taken.
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 Fiscal Estimated
1997 1998 1999 Fiscal 2000
(in millions) Costs Costs Costs Costs Total
- ----------------------------------------------------------------------------
Costs charged to income
before taxes(a) $1.5 $2.2 $ .9 $ .9 $5.5
Capitalized software
and hardware(b) - - 2.4 1.3 3.7
Total Year 2000 costs $1.5 $2.2 $3.3 $2.2 $9.2
(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. Carpenter does not separately track the
internal costs, principally payroll related costs of its
employees, incurred to address the Year 2000 issue.
(b) Costs to replace non-Year 2000 compliant systems.
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 and financial
market conditions; 2) excess inventory and the impact of
inventory adjustments in Carpenter's aerospace customer base; 3)
worldwide excess capacity for certain alloys which Carpenter
produces, resulting in increased competition and downward pricing
pressure on Carpenter products; 4) 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; 5) the level of export sales impacted by
political and economic instability, particularly in Asia, Eastern
Europe and Latin America, resulting in lower global demand for
stainless steel products; 6) the ability of Carpenter, along with
other domestic producers of stainless steel products, to obtain a
favorable ruling in dumping and countervailing duty claims
against foreign producers; 7) the level of sales impacted by
export controls, changes in legal and regulatory requirements,
policy changes affecting the markets, changes in tax laws and
tariffs, exchange rate fluctuations and accounts receivable
collection; 8) the effects on operations of changes in U.S. and
foreign governmental laws and public policy, including
environmental regulations; and 9) the ability of Carpenter's
suppliers and customers to correct or replace their computer
systems for Year 2000 Issues. Any of these factors could have an
adverse and/or fluctuating effect on Carpenter's results of
operations. The forward-looking statements in this document are
intended to be subject to the safe harbor protection provided by
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Supplementary Data
Page
----
Consolidated Financial Statements:
Report of Independent Accountants 26
Consolidated Statement of Income for the
Years Ended June 30, 1999, 1998 and 1997 27
Consolidated Statement of Cash Flows for the
Years Ended June 30, 1999, 1998 and 1997 28
Consolidated Balance Sheet as of
June 30, 1999 and 1998 29
Consolidated Statement of Changes in
Shareholders' Equity for the Years Ended
June 30, 1999, 1998 and 1997 30-31
Notes to Consolidated Financial Statements 32-56
Supplementary Data:
Quarterly Financial Data (Unaudited) 57
Report of Independent Accountants
To the Board of Directors and
Shareholders of Carpenter Technology Corporation:
In our opinion, the accompanying consolidated balance sheet and
the related consolidated statements of income, comprehensive
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,
1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended June 30,
1999, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of
Carpenter'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 that 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, 1999, except as to the information presented in note 17
for which the date is August 6, 1999.
Consolidated Statement of Income
Carpenter Technology Corporation
for the years ended June 30, 1999, 1998 and 1997
(in millions, except
per share data) 1999 1998 1997
--------------------------
Net sales $1,036.7 $1,176.7 $939.0
--------------------------
Costs and expenses:
Cost of sales 773.5 848.3 697.9
Selling and administrative
expenses 164.0 160.4 126.4
Interest expense 29.3 29.0 19.9
Special charge 14.2 - -
Other (income) expense, net (.1) 2.1 (3.1)
--------------------------
980.9 1,039.8 841.1
--------------------------
Income before income taxes 55.8 136.9 97.9
Income taxes 18.7 52.9 37.9
--------------------------
Net income $ 37.1 84.0 $ 60.0
==========================
Earnings per common share:
Basic $ 1.61 $ 4.01 $ 3.32
Diluted $ 1.58 $ 3.84 $ 3.16
See accompanying notes to consolidated financial statements.
Consolidated Statement of Cash Flows
Carpenter Technology Corporation
for the years ended June 30, 1999, 1998 and 1997
(in millions) 1999 1998 1997
- ------------- ---------------------------
OPERATIONS
Net income $ 37.1 $ 84.0 $ 60.0
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation 51.8 46.8 36.8
Amortization of intangible assets 13.9 11.4 5.9
Deferred income taxes (6.2) 14.6 7.1
Prepaid pension costs (29.4) (21.1) (8.3)
Net loss on asset disposals 1.5 5.0 .8
Special charge 14.2 - -
Changes in working capital and other,
net of acquisitions:
Receivables 28.7 5.5 (3.1)
Inventories 18.9 (17.2) (17.3)
Accounts payable (23.2) (12.0) (4.2)
Accrued current liabilities (10.2) (7.8) 11.2
Other, net (9.7) (.8) (14.2)
---------------------------
Net cash provided from operations 87.4 108.4 74.7
---------------------------
INVESTING ACTIVITIES
Purchases of plant and equipment (153.1) (99.5) (93.6)
Proceeds from disposals of plant
and equipment .5 1.1 .7
Acquisitions of businesses,
net of cash received ( 23.1) (177.8) (60.2)
Proceeds from net assets held for sale 121.4 20.7 -
Proceeds from sale of interest
in joint venture - 5.3 -
---------------------------
Net cash used for investing activities (54.3) (250.2) (153.1)
---------------------------
FINANCING ACTIVITIES
Net change in short-term debt 20.2 39.3 53.6
Proceeds from issuance of long-term debt - 198.0 60.0
Payments on long-term debt (36.6) (182.8) (7.1)
Payments to acquire treasury stock (35.0) - -
Dividends paid (30.7) (28.5) (24.4)
Proceeds from issuance of common stock 2.1 149.6 1.8
---------------------------
Net cash provided from (used for)
financing activities (80.0) 175.6 83.9
---------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (46.9) 33.8 5.5
Cash and cash equivalents at
beginning of year 52.4 18.6 13.1
---------------------------
Cash and cash equivalents at
end of year $ 5.5 $ 52.4 $ 18.6
===========================
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheet
Carpenter Technology Corporation
June 30, 1999 and 1998
(in millions, except share data) 1999 1998
- -------------------------------- ----------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5.5 $ 52.4
Accounts receivable, net of
allowance for doubtful
accounts of $1.9 each year 150.6 177.0
Inventories 250.3 267.1
Net assets held for sale - 130.2
Other current assets 16.3 18.8
----------------------
Total current assets 422.7 645.5
Property, plant and equipment, net 750.4 644.1
Prepaid pension cost 140.5 138.0
Goodwill, net 179.2 171.8
Other assets 115.0 99.5
----------------------
Total assets $1,607.8 $1,698.9
======================
LIABILITIES
Current liabilities:
Short-term debt $ 140.0 $ 119.8
Accounts payable 59.6 80.5
Accrued liabilities 78.2 87.7
Deferred income taxes 1.3 24.8
Current portion of long-term debt 15.4 36.3
----------------------
Total current liabilities 294.5 349.1
Long-term debt, net of current portion 355.0 370.7
Accrued postretirement benefits 138.9 140.5
Deferred income taxes 149.8 142.9
Other liabilities 37.1 36.2
SHAREHOLDERS' EQUITY
Preferred stock - authorized
2,000,000 shares 26.8 27.8
Common stock - authorized
100,000,000 shares 115.3 115.0
Capital in excess of par value -
common stock 191.9 190.0
Reinvested earnings 365.5 359.1
Common stock in treasury, at cost (38.4) (3.4)
Deferred compensation (16.4) (17.8)
Foreign currency translation
adjustments (12.2) (11.2)
----------------------
Total shareholders' equity 632.5 659.5
----------------------
Total liabilities and
shareholders' equity $1,607.8 $1,698.9
======================
See accompanying notes to consolidated financial statements.
Consolidated Statement of Changes in Shareholders' Equity
Carpenter Technology Corporation
for the years ended June 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Preferred Common Stock 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, 1996 $28.6 $97.7 $13.5 $268.0 $(64.5) $(22.8) $(11.4) $309.1
Net income 60.0 60.0
Cash dividends:
Common @ $1.32 per share (22.8) (22.8)
Preferred @ $5,362.50
per share (1.6) (1.6)
Stock options exercised 0.4 1.4 1.8
Shares issued to acquire
business 38.5 61.0 99.5
Other (0.4) 0.1 0.9 2.5 0.2 3.3
- ----------------------------------------------------------------------------------------------------------
Balances at June 30, 1997 28.2 98.2 54.3 303.6 (3.5) (20.3) (11.2) 449.3
Net income 84.0 84.0
Cash dividends:
Common @ $1.32 per share (26.9) (26.9)
Preferred @ $5,362.50
per share (1.6) (1.6)
Stock options exercised 0.9 4.3 5.2
Common stock offering 15.8 128.6 144.4
Shares issued to acquire
business 0.5 0.5 1.0
Other ( 0.4) 0.1 2.3 (0.4) 2.5 4.1
- ----------------------------------------------------------------------------------------------------------
Balances at June 30, 1998 27.8 115.0 190.0 359.1 (3.4) (17.8) (11.2) 659.5
Net income 37.1 37.1
Cash dividends:
Common @ $1.32 per share (29.2) (29.2)
Preferred @ $5,362.50
per share (1.5) (1.5)
Stock options exercised 0.1 0.4 0.5
Treasury shares purchased (35.0) (35.0)
Other (1.0) 0.2 1.5 1.4 (1.0) 1.1
- ----------------------------------------------------------------------------------------------------------
Balances at June 30, 1999 $26.8 $115.3 $191.9 $365.5 $(38.4) $(16.4) $(12.2) $632.5
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
Consolidated Statement of Changes in Shareholders' Equity (continued)
Carpenter Technology Corporation
for the years ended June 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Preferred Common Shares
---------------------------------
Shares Net
Issued Issued Treasury Outstanding
<S> <C> <C> <C> <C>
Balances at June 30, 1996 453.1 19,545,751 (2,930,074) 16,615,677
Stock options exercised,
net of 45,826 shares exchanged 86,769 86,769
Shares issued to acquire business 2,772,059 2,772,059
Other (5.8) 10,400 (2,590) 7,810
- -------------------------------------------------------------------------------
Balances at June 30, 1997 447.3 19,642,920 (160,605) 19,482,315
Stock options exercised,
net of 766 shares exchanged 171,401 171,401
Common stock offering 3,162,500 3,162,500
Shares issued to acquire business 21,409 21,409
Treasury shares purchased (7,432) (7,432)
Other (6.2) 18,215 (1,292) 16,923
- -------------------------------------------------------------------------------
Balances at June 30, 1998 441.1 22,995,036 (147,920) 22,847,116
Stock options exercised 13,940 13,940
Treasury shares purchased (955,567) (955,567)
Other (15.3) 42,800 (1,554) 41,246
- -------------------------------------------------------------------------------
Balances at June 30, 1999 425.8 23,051,776 (1,105,041) 21,946,735
===============================================================================
</TABLE>
Consolidated Statement of Comprehensive Income
Carpenter Technology Corporation
for the years ended June 30, 1999, 1998 and 1997
(in millions) 1999 1998 1997
- ------------- ---- ---- ----
Net income $ 37.1 $ 84.0 $ 60.0
Foreign currency translation, net of tax (1.0) - .2
Comprehensive income $ 36.1 $ 84.0 $ 60.2
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
__________
1. Summary of Significant Accounting Policies
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. Investments in
companies in which Carpenter has an ownership interest of 20
percent or more are accounted for on an equity basis and
accordingly, Carpenter's share of their income is included
in consolidated net income.
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.
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. Upon disposal, assets and related
depreciation are removed from the accounts and the
differences between the net amounts and proceeds from
disposal are included in income.
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.
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,
ranging from 20 to 40 years. Accumulated amortization of
goodwill was $16.2 million and $9.5 million at June 30, 1999
and 1998, respectively.
Long-Lived Assets - Long-lived assets, including goodwill
and other intangibles, 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 through future cash flows. Carpenter evaluates
long-lived assets for impairment by individual business
unit.
Notes to Consolidated Financial Statements
__________
1. Summary of Significant Accounting Policies (continued)
Environmental Expenditures - Environmental expenditures that
pertain to current operations or to future revenues are
expensed or capitalized consistent with Carpenter's
capitalization policy for property, plant and equipment.
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.
Foreign Currency Translation - Assets and liabilities of
most foreign operations are translated at exchange rates in
effect at year-end, and their income statements are
translated at the average monthly exchange rates prevailing
during the year. Translation gains and losses are
accumulated in a separate component of stockholders' equity
until the foreign entity is sold or liquidated. For
operations in highly inflationary countries and where the
local currency is not the functional currency, inventories,
property, plant and equipment, and other noncurrent assets
are converted to U.S. dollars at historical exchange rates,
and all gains or losses from conversion are included in net
income.
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.
Notes to Consolidated Financial Statements
__________
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.
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 and expense in the consolidated statement of
income. Gains and losses for the years presented were not
material to Carpenter's results of operations or cash flows.
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.
New Accounting Pronouncements - Effective July 1, 1998,
Carpenter adopted Statement of Financial Accounting
Standards (SFAS) 130, "Reporting Comprehensive Income."
This statement 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. In fiscal 1999, Carpenter
also adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information" (see note 18).
Pending Accounting Pronouncements - The Financial Accounting
Standards Board (FASB) issued SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities" which will be
effective for Carpenter's fiscal 2001. 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.
Notes to Consolidated Financial Statements
__________
2. Earnings Per Common Share
The computation of basic and diluted earnings per share for
the years ended June 30, 1999, 1998 and 1997 follows:
(in millions, except per share data)
1999 1998 1997
---- ---- ----
Basic EPS:
Net income $ 37.1 $ 84.0 $ 60.0
Dividends accrued on
convertible preferred
stock, net of tax
benefits (1.5) (1.6) (1.6)
------ ------ ------
Earnings available for
common shareholders $ 35.6 $ 82.4 $ 58.4
====== ====== ======
Weighted average common
shares outstanding 22.1 20.5 17.6
====== ====== ======
Basic earnings per share $ 1.61 $ 4.01 $ 3.32
====== ====== ======
Diluted EPS:
Net income $ 37.1 $ 84.0 $ 60.0
Assumed shortfall between
common and preferred
dividends (.7) (.6) (.6)
------ ------ ------
Earnings available for
common shareholders $ 36.4 $ 83.4 $ 59.4
====== ====== ======
Weighted average common
shares outstanding 22.1 20.5 17.6
Assumed conversion of
preferred shares .9 .9 .9
Effect of shares issuable
under stock option plans .1 .3 .3
------ ------ ------
Adjusted weighted average
common shares 23.1 21.7 18.8
====== ====== ======
Diluted earnings per share $ 1.58 $ 3.84 $ 3.16
====== ====== ======
Notes to Consolidated Financial Statements
__________
3. Special Charge
During the third quarter of fiscal 1999, Carpenter recorded
a pre-tax charge of $14.2 million ($8.5 million after-tax or
$.37 per diluted share) related to a salaried work force
reduction and a reconfiguration of its U.S. distribution
network. The positions being eliminated include various
salaried positions throughout the Specialty Alloys
Operations and corporate offices. The charge consisted
chiefly of various personnel-related costs for about 210
employees to cover severance payments, enhanced pension
benefits, medical coverage and related items. Approximately
$13.0 million of the charge will be paid from pension funds
and, accordingly, this portion of the special charge reduced
the prepaid pension cost account on the balance sheet.
Through June 30, 1999, there was a reduction of
approximately 150 employees. The remaining employees are
expected to depart during fiscal 2000.
4. 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 1999
In April 1999, Carpenter finalized a joint venture with
Kalyani Steels Ltd. that established two companies in
India, at an initial cost of $10.7 million, including
organization costs. The companies established are
Kalyani Carpenter Special Steels Ltd. (KCSS), a
specialty steel manufacturing company, and Kalyani
Carpenter Metal Centres Ltd. (KCMC), a specialty steel
distribution company. Carpenter owns 26 percent of
KCSS and 51 percent of KCMC. The investment in KCSS
exceeded Carpenter's share of the initial equity of
KCSS by $6.0 million which is included in other assets
in the consolidated balance sheet and is being
amortized on a straight-line basis over 20 years.
In October 1998, Carpenter acquired the strip producing
business of Telcon, Ltd., for $11.4 million of cash,
including acquisition costs. This facility produces
narrow strip for electronic applications using magnetic
and controlled expansion alloys. Based upon a
preliminary valuation, the fair value of the net assets
acquired approximated the purchase price.
Fiscal 1999 included other acquisitions which were
immaterial. The pro-forma impact of the fiscal 1999
acquisitions was not material.
Notes to Consolidated Financial Statements
__________
4. Acquisitions of Businesses (continued)
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
purchase price included $78.3 million of goodwill which
is being amortized on a straight-line basis over 40
years.
Talley was a diversified company composed of a
stainless steel products segment, a government products
and services segment and an industrial products
segment. Carpenter has retained the companies in the
stainless steel products segment, and divested all of
the companies in the other two segments. Accordingly,
the divested segments were accounted for as net assets
held for sale (see note 5).
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 semi-finished coil and bar to finished round
bar and coil products. The fair value of the net assets
acquired approximated the purchase price.
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. The purchase price
included $4.9 million of goodwill, which is being
amortized on a straight-line basis over 20 years.
Fiscal 1998 included other acquisitions which were
immaterial.
Notes to Consolidated Financial Statements
__________
4. Acquisitions of Businesses (continued)
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. 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.
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) 1999 1998 1997
---------------------------
Working capital,
other than cash $ 2.3 $ 34.7 $ 26.5
Property, plant and
equipment 9.1 81.8 38.8
Prepaid pension cost - 17.2 -
Goodwill 1.0 72.1 87.5
Other assets 10.7 11.1 27. 2
Noncurrent liabilities - (38.1) (20.3)
---------------------------
Purchase price, net of
cash received $ 23.1 $178.8 $159.7
===========================
During fiscal 1999, adjustments for final purchase price
allocations resulted in an increase in goodwill of $13.0
million and a reduction of deferred taxes of $10.4 million.
Deferred tax liabilities included in the allocation totaled
$36.8 million in fiscal 1998 and $27.0 million in fiscal
1997. Debt included in the allocation was $141.7 million in
fiscal 1998 and $10.2 million in fiscal 1997. No debt or
deferred taxes were included in the allocation in fiscal
1999.
Notes to Consolidated Financial Statements
__________
5. Net Assets Held for Sale
The eight businesses of the government products and services
and industrial products segments of Talley Industries, Inc.
(Talley), were sold as of June 30, 1999. The net income of
all of the businesses in these segments was excluded from
Carpenter's consolidated statement of income from the date
of acquisition through December 31, 1998 and amounted to
$2.7 million for fiscal 1998 and $1.5 million for fiscal
1999. Beginning January 1, 1999, the operating results for
the remaining businesses have been included in Carpenter's
consolidated statement of income until the dates of their
sales.
Through December 31, 1998, changes in estimates for net cash
proceeds on the sales of all of the businesses, interest
costs and operating cash flows until the time of their sale
were recorded as adjustments of goodwill.
A summary of activity for the past two fiscal years in the
net assets held for sale follows:
(in millions) 1999 1998
------ ------
Balance beginning of year $130.2 $ -
Allocation of purchase price - 150.9
Proceeds from sales of businesses (134.0) (41.4)
Net cash funded by Carpenter 10.3 14.1
Interest allocated 2.3 6.6
Changes in estimated net
proceeds on sales:
Charged to goodwill (11.7) -
Credited to pre-tax income 1.7* -
Pre-tax income of businesses from
January 1, 1999 to dates
of sales 1.2* -
------ ------
Balance end of year $ - $130.2
====== ======
* Included in other income and expense on the consolidated
statement of income. In addition, other changes in the
purchase price allocation subsequent to December 31, 1998,
resulted in expense of $3.4 million which was also
included in other income and expense.
Notes to Consolidated Financial Statements
__________
6. Inventories
June 30
(in millions) 1999 1998
----------------
Finished and purchased products $142.6 $169.1
Work in process 167.3 183.3
Raw materials and supplies 41.5 46.2
----------------
Total at current cost 351.4 398.6
----------------
Less excess of current cost
over LIFO values 101.1 131.5
----------------
$250.3 $267.1
================
Current cost of LIFO-valued inventories was $294.9 million
at June 30, 1999, and $352.2 million at June 30, 1998.
7. Property, Plant and Equipment
June 30
(in millions) 1999 1998
---------------------
Land $ 13.9 $ 9.5
Buildings and building equipment 220.0 204.6
Machinery and equipment 923.9 836.0
Construction in progress 96.0 54.7
---------------------
Total at cost 1,253.8 1,104.8
---------------------
Less accumulated depreciation
and amortization 503.4 460.7
---------------------
$ 750.4 $ 644.1
=====================
The estimated useful lives of depreciable assets are as
follows: land improvements - 20 years; buildings and
equipment - 20 to 45 years; machinery and equipment - 5 to
30 years; autos and trucks - 3 to 6 years; office furniture
and equipment - 3 to 10 years. Effective April l, 1999,
Carpenter changed its estimates of the useful lives of
certain major manufacturing equipment from 20 to 30 years.
This change recognizes the current expectations of economic
useful lives for this equipment and resulted in a reduction
of depreciation expense of $1.8 million or $.04 per diluted
share during the fourth quarter of fiscal 1999.
8. Accrued Liabilities
June 30
(in millions) 1999 1998
---------------
Compensation $27.5 $35.0
Employee benefits 20.9 14.8
Interest 8.5 8.5
Income taxes 2.1 -
Environmental costs 1.9 4.9
Other 17.3 24.5
---------------
$78.2 $87.7
===============
Notes to Consolidated Financial Statements
__________
9. Debt Arrangements
Carpenter has a $250 million financing arrangement with four
banks, providing for the availability of $200 million of
revolving credit and $50 million under lines of credit.
Interest is based on short-term market rates. As of
June 30, 1999, there was $140.0 million outstanding under
the revolving credit agreement, and no borrowings under the
lines of credit or commercial paper.
For the years ended June 30, 1999, 1998 and 1997, interest
cost totaled $34.8 million, $31.1 million and $22.3 million,
of which $5.5 million, $2.1 million and $2.4 million,
respectively, were capitalized.
The weighted average interest rates for short-term
borrowings during fiscal 1999 and 1998 were 5.5 percent and
6.0 percent, respectively.
Long-term debt outstanding at June 30, 1999 and 1998,
consists of the following:
(in millions) 1999 1998
------- -------
Medium-term notes at 6.28%
to 7.10% due from
April 2003 to 2018 $ 198.0 $ 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
August 1999 to 2005 70.0 80.0
10.75% Senior notes due 2003,
redeemed during 1999,
financed with short-term debt - 23.2
Other 2.8 6.2
------- -------
Total 370.4 407.0
Less amounts due within one year 15.4 36.3
------- -------
Long-term debt, net of current portion $ 355.0 $ 370.7
======= =======
Aggregate maturities of long-term debt for the four years
subsequent to June 30, 2000, are $10.4 million in fiscal
2001, $25.2 million in fiscal 2002, $45.2 million in fiscal
2003, and $.2 million in fiscal 2004.
Carpenter's financing arrangements contain restrictions on
the total amount of debt and the minimum tangible net worth
allowed.
Notes to Consolidated Financial Statements
__________
10. Financial Instruments
The carrying amounts and estimated fair values of
Carpenter's financial instruments were as follows:
June 30
-------------------------------------
(in millions) 1999 1998
------------------ -----------------
Carrying Fair Carrying Fair
Value Value Value Value
------------------ -----------------
Cash and cash equivalents $ 5.5 $ 5.5 $ 52.4 $ 52.4
Company-owned life insurance $ 19.7 $ 19.7 $ 81.1 $ 81.1
Short-term debt $ 140.0 $ 140.0 $ 119.8 $ 119.8
Long-term debt $ 370.4 $ 364.5 $ 407.0 $ 425.0
Futures contracts and
commodity price swaps $ - $ 1.7* $ - $ (3.9)*
Foreign currency forward
contracts $ .8 $ .8 $ .2 $ .2
*The unrealized gains and (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, 1999 and
1998, 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 $17.0 million and $15.4 million at June 30,
1999 and 1998, respectively. These financial instruments
have various maturity dates ranging from 1999 to 2003.
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, principally in the
Euro, were $14.0 million and $5.5 million at June 30, 1999
and 1998, respectively. The foreign currency forward
contracts have various maturity dates in 1999 and 2000.
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.
Notes to Consolidated Financial Statements
__________
11. Common Stock
Common Stock Authorization:
During 1998, Carpenter's shareholders approved an amendment
to the Restated Certificate of Incorporation which increased
the number of authorized shares of common stock from 50
million shares to 100 million shares.
Common Stock Repurchase Program:
On August 6, 1998, Carpenter rescinded the 1989 stock
repurchase program and approved a new stock repurchase
program for up to 1.2 million, or 5 percent, of the
outstanding shares of Carpenter's common stock. The shares
may be purchased over time and held as treasury shares.
Since August 6, 1998, .9 million shares had been repurchased
at a total cost of $34.5 million. In addition, treasury
shares increased by $.5 million as a result of employee
benefit plan transactions.
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.
Notes to Consolidated Financial Statements
__________
11. 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.
12. 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, 1999 and
1998, 463,415 and 1,050,255 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 over periods ranging from one
to five years from the date of grant. When 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 1999, 1998 and 1997, $.4
million, $.5 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
Notes to Consolidated Financial Statements
__________
12. Stock-Based Compensation (continued)
and expensed over the three-year performance period. In
June 1998 and 1997, 41,700 and 24,700 performance share
awards, respectively, were granted contingent on performance
over the three fiscal years after grant. During fiscal 1999,
1998 and 1997, $.5 million, $1.0 million and $.3 million,
respectively, were charged to expense for earned performance
shares.
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, 1999
and 1998, 2,120 and 1,420 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, 1999 and 1998, 85,000 and 109,000 shares, respectively,
were reserved for options which may be granted under this
plan.
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, 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 339,700 $49.65
Exercised (172,167) $30.53
Cancelled (5,000) $41.16
-----------------------
Balance June 30, 1998 1,151,944 $39.30
Granted 597,500 $28.80
Exercised (13,940) $30.67
Cancelled (13,760) $49.16
-----------------------
Balance June 30, 1999 1,721,744 $35.65
=======================
Notes to Consolidated Financial Statements
__________
12. Stock-Based Compensation (continued)
Following is a summary of stock options outstanding at
June 30, 1999:
Outstanding Options
-------------------------------------------------------------
Weighted
Number Average Weighted
Exercise Outstanding at Remaining Average
Price Range 06/30/99 Life Exercise Price
-------------------------------------------------------------
$19 -$30 757,709 8.22 $ 27.69
$31 -$40 398,035 6.70 $ 33.38
$41 -$51 566,000 8.54 $ 47.90
---------
1,721,744 $ 35.65
=========
Of the options outstanding at June 30, 1999, 1,205,275
relate to the 1993 plan, 83,267 relate to the 1982 plan,
304,700 relate to the 1977 plan and 128,502 relate to the
plan for non-employee Directors.
Exercisable Options
------------------------------------------------------------
Number Weighted
Exercise Exercisable at Average
Price Range 06/30/99 Exercise Price
------------------------------------------------------------
$19 -$30 188,709 $ 25.42
$31 -$40 371,535 $ 33.23
$41 -$51 564,000 $ 47.91
---------
1,124,244 $ 39.28
=========
Notes to Consolidated Financial Statements
__________
12. Stock-Based Compensation (continued)
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 $1.6 million, $1.1 million and $.9 million, and
diluted earnings per share would have been reduced by $.07,
$.05 and $.05 in fiscal 1999, 1998 and 1997, respectively.
These pro forma adjustments were calculated using the
Black-Scholes option pricing model to value all stock
options granted since July 1, 1996. A summary of the
assumptions and data used in these calculations follows:
1999 1998 1997
---- ---- ----
Weighted average exercise
price of options
exercisable $39.28 $34.98 $30.05
Weighted average
fair value per share
of options $10.12 $ 7.59 $ 7.93
Fair value assumptions:
Risk-free interest rate 5.4% 5.6% 6.3%
Expected volatility 20.3% 18.3% 20.6%
Expected life of options 5 years 5 years 5 years
Expected dividends 2.7% 2.9% 4.2%
13. 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.
Notes to Consolidated Financial Statements
__________
13. Pension and Other Postretirement Benefits (continued)
Other
Pension Plans Postretirement Plans
(in millions) 1999 1998 1999 1998
---- ---- ---- ----
Change in projected
-------------------
benefit obligation
------------------
Projected benefit
obligation at
beginning of year $585.8 $482.4 $ 170.5 $ 140.8
Service cost 17.6 15.1 2.9 2.4
Interest cost 39.6 36.6 11.4 10.3
Plans of acquired companies - 45.4 - 7.7
Change in purchase
price allocation (28.4) - - -
Special termination benefits(a) 12.8 - - -
Plan amendments 3.2 - - -
Actuarial loss 3.7 37.5 6.6 17.6
Benefits paid (42.1) (31.2) (8.6) (8.3)
------------------------------------
Projected benefit obligation
at end of year $592.2 $585.8 $ 182.8 $ 170.5
====================================
Change in plan assets
---------------------
Fair value of plan assets at
beginning of year $920.1 $721.0 $ 61.2 $ 45.6
Actual return on plan assets 151.1 177.5 19.3 15.8
Company contributions .4 .3 8.4 8.1
Plans of acquired companies - 54.4 - -
Change in purchase price
allocation (47.0) - - -
Benefits paid from plan assets (42.9) (33.1) (8.6) (8.3)
------------------------------------
Fair value of plan assets
at end of year $981.7 $920.1 $ 80.3 $ 61.2
====================================
Funded status of the plans $389.5 $334.3 $(102.5) $(109.3)
--------------------------
Unrecognized transition asset (5.6) (8.5) - -
Unrecognized prior service
cost (benefit) 30.4 29.6 (9.0) (9.7)
Unrecognized net gain (292.3) (234.5) (34.7) (29.1)
------------------------------------
Prepaid (accrued) benefit cost $122.0 $120.9 $(146.2) $(148.1)
====================================
Principal actuarial
-------------------
assumptions at June 30:
----------------------
Discount rate 7.0% 7.0% 7.0% 7.0%
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%
(a) Benefits provided to employees terminated as a result of
a salaried work force reduction and reconfiguration of distribution
network. See note 3 to the consolidated financial statements.
Notes to Consolidated Financial Statements
__________
13. Pension and Other Postretirement Benefits (continued)
Pension and other postretirement plans included the following net
credits and costs components:
Other
Pension Plans Postretirement Plans
(in millions) 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Service cost $ 17.6 $ 15.1 $13.4 $ 2.9 $ 2.4 $ 2.4
Interest cost 39.6 36.6 32.7 11.4 10.3 10.6
Expected return on
plan assets (80.9) (66.5) (52.9) (5.5) (4.1) (3.1)
Amortization of
transition asset (2.9) (2.9) (2.9) - - -
Amortization of prior
service cost 2.4 2.4 2.4 (.7) (.6) .2
Amortization of net
gain (9.7) (6.4) (1.8) (1.3) (1.5) (1.4)
Change in purchase
price allocation 4.8 - - - - -
------ ------ ----- ----- ----- -----
Net(credit) cost $(29.1) $(21.7) $(9.1) $ 6.8 $ 6.5 $ 8.7
====== ====== ===== ===== ===== =====
Pension Plans
Carpenter has several underfunded plans. As of June 30,
1999 and 1998, the projected benefit obligation of the
underfunded plans was $26.7 million and $23.7 million, the
total fair value of assets was $2.0 million and $2.0
million, and the accumulated benefit obligation was $22.8
million and $20.5 million, respectively.
During fiscal 1999, adjustments for final purchase price
allocations resulted in an increase in goodwill of $10.3
million. Additional purchase price adjustments resulted in
a charge to pre-tax income of $4.8 million which was
included in other income and expense on the consolidated
statement of income.
During fiscal 1997 Carpenter established a separate account
within a pension plan to fund certain postretirement medical
benefit payments. As a result, the Plan is required to
fully vest certain participants in their accrued pension
benefits.
Carpenter also maintains defined contribution pension and
savings plans for substantially all domestic employees.
Company contributions were $7.1 million in fiscal 1999, $6.8
million in fiscal 1998 and $5.3 million in fiscal 1997.
There were 1,437,110 common shares reserved for issuance
under the savings plans at June 30, 1999.
Notes to Consolidated Financial Statements
__________
13. Pension and Other Postretirement Benefits (continued)
Other Postretirement Plans
The postretirement benefit plans consist of health care and
life insurance plans. Prior to June 1999, Carpenter paid
claims incurred for most retired employees. Beginning in
June 1999, benefit payments are being paid by a Voluntary
Employee Benefit Association (VEBA). Carpenter contributes
discretionary amounts, not to exceed the amount deductible
for tax purposes, into the VEBA. Plan assets are invested
in trust-owned life insurance.
The assumed health care cost trend rate for fiscal years
after 1999 is 6 percent. 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, 1999
would have increased by $18.1 million and the postretirement
benefit expense for fiscal 1999 would have increased by
$1.7 million. If the assumed health care cost trend rate
was decreased by 1 percent, the projected benefit obligation
at June 30, 1999 would have decreased by $15.5 million and
the postretirement benefit expense for fiscal 1999 would
have decreased by $1.4 million.
14. Employee Stock Ownership Plan
Carpenter has a leveraged employee stock ownership plan
("ESOP") to assist certain 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 $1.5 million in fiscal 1999, $1.4
million in fiscal 1998 and $1.3 million in fiscal 1997 to
the ESOP. Compensation expense related to the plan was $1.7
million in fiscal 1999, $1.8 million in fiscal 1998 and $1.9
million in fiscal 1997.
As of June 30, 1999, the ESOP held 425.8 shares of the
convertible preferred stock, consisting of 179.4 allocated
shares and 246.4 unallocated shares. Each preferred share is
convertible into 2,000 shares of common stock. There are
851,650 common shares reserved for issuance under the ESOP
at June 30, 1999. The shares of preferred stock pay a
Notes to Consolidated Financial Statements
__________
14. Employee Stock Ownership Plan (continued)
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.
15. Supplemental Data
(in millions) 1999 1998 1997
---- ---- ----
Cost Data:
Research and development
costs $ 14.0 $ 14.6 $ 13.0
Repairs and maintenance
costs $ 61.4 $ 63.7 $ 58.3
Cash Flow Data:
Cash paid during the year for:
Interest payments, net of
amounts capitalized $ 28.3 $ 25.6 $ 18.7
Income tax payments, net of
refunds $ 19.1 $ 54.2 $ 23.9
Non-cash investing and financing
activities:
Treasury stock issued for
business acquisitions $ - $ 1.0 $ 99.5
Debt assumed in business
acquisitions $ - $141.7 $ 10.2
16. Income Taxes
Provisions for income taxes consisted of the following:
(in millions) 1999 1998 1997
---- ---- ----
Current:
Federal $18.2 $32.0 $25.9
State 3.6 3.1 2.4
Foreign 3.1 3.2 2.5
Deferred:
Federal (5.0) 9.6 4.9
State (1.2) 4.1 1.8
Foreign - .9 .4
----- ----- -----
$18.7 $52.9 $37.9
===== ===== =====
Notes to Consolidated Financial Statements
__________
16. Income Taxes (continued)
The following is a reconciliation of the statutory federal
income tax rate to the actual effective income tax rate:
(% of pre-tax income) 1999 1998 1997
---- ---- ----
Federal tax rate 35.0% 35.0% 35.0%
Increase (decrease) in
taxes resulting from:
State income taxes,
net of federal tax
benefit 3.8 2.7 2.8
Goodwill amortization 3.9 1.3 0.7
Nontaxable income (2.7) (1.7) (2.0)
Federal and state tax
law changes (0.8) - 0.3
Settlement of prior
years' tax issues (5.6) - -
Other, net (0.1) 1.4 1.9
----- ----- -----
Effective tax rate 33.5% 38.7% 38.7%
===== ===== =====
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, 1999 and 1998:
(in millions) 1999 1998
------ ------
Deferred tax liabilities:
Depreciation $150.9 $148.5
Prepaid pensions 61.1 49.8
Net assets held for sale - 20.3
Intangible assets 12.5 13.6
Inventories 11.9 12.1
Other 5.8 8.1
------ ------
Total deferred tax liabilities 242.2 252.4
------ ------
Deferred tax assets:
Postretirement provisions 53.2 53.6
Other reserve provisions 38.8 32.0
Valuation allowance (.9) (.9)
------ ------
Total deferred tax assets 91.1 84.7
------ ------
Net deferred tax liability $151.1 $167.7
====== ======
Notes to Consolidated Financial Statements
__________
17. 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 cost of sales
for environmental remediation costs. No expense was
recognized in fiscal 1999. The liability recorded for
environmental cleanup costs remaining at June 30, 1999 and
1998, was $9.7 million and $10.0 million, respectively. The
estimated range of the reasonably possible future costs of
remediation at Carpenter-owned operating facilities and
superfund sites is between $9.7 million and $13.0 million.
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. No income was recognized in fiscal 1999.
During fiscal 1999 and 1998, approximately $1.8 million and
$9.4 million, respectively, of cash was received under these
settlements for the superfund sites. No cash was received
in fiscal 1997. The remaining discounted amounts receivable
for recoveries from these settlements at June 30, 1999 and
1998, were $.4 million and $2.2 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
On January 15, 1999, the Bridgeport, Connecticut, Port
Authority issued a Notice of Condemnation for the taking of
Carpenter's former plant site in that city. On August 6,
1999, the Port Authority filed a Certificate of Taking,
acquiring fee simple ownership of the property. The
proposed compensation for the site is $2.5 million and the
Notes to Consolidated Financial Statements
__________
17. Commitments and Contingencies (continued)
Port Authority has stated its intention to seek
reimbursement of any additional site remediation costs. The
carrying value for the site on Carpenter's books is
approximately $14 million and is based upon a recent
appraisal and arms-length negotiated selling prices with
interested parties. Carpenter has begun legal proceedings
in court to obtain a fair value for the property and
requested a permanent injunction barring condemnation or, in
the alternative, a declaratory judgment absolving Carpenter
from any remediation costs caused by the Port Authority's
development efforts. While the ultimate outcome of these
proceedings is undeterminable, in the opinion of management
the Port Authority's proposed compensation and remediation
reimbursement are unreasonable and will not be upheld and
accordingly, no provision has been made for an impairment in
carrying value.
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, results of operations or
cash flows.
18. Business Segments and Geographic Data
Carpenter adopted SFAS 131, "Disclosures about Segments of
an Enterprise and Related Information", beginning in fiscal
1999. SFAS 131 requires companies to disclose segment
information on the same basis as that used internally by
executive management to evaluate segment performance.
Carpenter is organized on a product basis and managed in
three segments: Specialty Alloys, Titanium Alloys and
Engineered Products. For the following segment reporting,
the Specialty Alloys and Titanium Alloys segments have been
aggregated into one reportable segment (Specialty Metals)
because of the similarities in products, processes,
customers and distribution methods.
Specialty Metals includes the manufacture and distribution
of stainless, titanium, high temperature, electronic, tool
and other alloys in bar, wire, rod, and strip forms. Sales
are distributed both directly from producing plants and from
a Carpenter operated distribution network.
Notes to Consolidated Financial Statements
__________
18. Business Segments and Geographic Data (continued)
Engineered Products includes structural ceramic products,
ceramic cores for the casting industry, metal-injection
molded products, tubular metal products for nuclear and
aerospace applications, custom shaped bar and ultra hard
wear materials.
The accounting policies of both reportable segments are the
same as those described in the Summary of Significant
Accounting Policies. Carpenter evaluates segment
performance based upon income before interest and income
taxes (EBIT) and return on assets. The Specialty Metals
segment includes costs of most corporate functions. No
allocation of these costs has been made to the Engineered
Products Segment. The primary corporate costs not included
in the Specialty Metals segment are those for certain
corporate owned life insurance programs and the earnings
effects of the sales of the Talley businesses. Sales
between the segments are generally made at market-related
prices. Corporate assets are primarily cash and cash
equivalents, the Talley assets held for sale, corporate
owned life insurance, and other investments.
Carpenter's sales are not materially dependent on a single
customer or small group of customers.
Geographic Data
(in millions) 1999 1998 1997
---- ---- ----
Net Sales (a):
United States $ 851.9 $ 997.1 $ 821.2
Europe 101.4 91.7 51.4
Mexico 43.8 45.6 34.7
Canada 16.3 17.4 14.1
Asia Pacific 12.2 11.8 8.8
Other 11.1 13.1 8.8
-------- -------- --------
Consolidated $1,036.7 $1,176.7 $ 939.0
======== ======== ========
Long-lived assets:
United States $1,139.5 $1,027.3 $ 802.6
Europe 12.8 4.8 4.3
Mexico 14.2 14.8 13.3
Canada .9 .4 .4
Asia Pacific .2 1.1 .2
Other 17.5 5.0 -
-------- -------- --------
Consolidated $1,185.1 $1,053.4 $ 820.8
======== ======== ========
(a) Net sales are attributed to countries based on the
location of the customer.
Notes to Consolidated Financial Statements
__________
18. Business Segments and Geographic Data (continued)
Segment Data
(in millions) 1999 1998 1997
---- ---- ----
Net sales:
Specialty Metals $ 886.4 $1,035.2 $ 842.0
Engineered Products 153.7 144.4 99.5
Intersegment (3.4) (2.9) (2.5)
-------- -------- --------
Consolidated net sales $1,036.7 $1,176.7 $ 939.0
======== ======== ========
Income before income taxes:
Specialty Metals,
including corporate costs $ 75.4(a) $ 151.4 $ 108.4
Engineered Products 4.6 9.2 4.4
Other corporate income, net 2.5 2.2 1.6
Eliminations - (.2) (.1)
-------- ------- -------
Consolidated EBIT 82.5 162.6 114.3
Interest expense (29.3) (29.0) (19.9)
Interest income 2.6 3.3 3.5
-------- ------- -------
Consolidated income
before income taxes $ 55.8 $ 136.9 $ 97.9
======== ======== ========
Total Assets:
Specialty Metals $1,411.2 $1,324.6 $1,082.6
Engineered Products 151.6 145.1 113.6
Corporate assets 45.0 229.2 26.8
-------- -------- --------
Consolidated total assets $1,607.8 $1,698.9 $1,223.0
======== ======== ========
Depreciation:
Specialty Metals $ 46.0 $ 42.1 $ 33.2
Engineered Products 5.8 4.7 3.6
-------- -------- --------
Consolidated depreciation $ 51.8 $ 46.8 $ 36.8
======== ======== ========
Amortization of
intangible assets:
Specialty Metals $ 11.6 $ 9.4 $ 4.3
Engineered Products 2.3 2.0 1.6
-------- -------- --------
Consolidated amortization $ 13.9 $ 11.4 $ 5.9
======== ======== ========
Capital expenditures:
Specialty Metals $ 141.9 $ 87.6 $ 85.0
Engineered Products 11.1 11.4 8.6
Corporate .1 .5 -
-------- -------- --------
Consolidated capital
expenditures $ 153.1 $ 99.5 $ 93.6
======== ======== ========
(a) Includes special charge of $14.2 million for salaried
work force reduction and reconfiguration of
distribution network. See note 3 to the consolidated
financial statements.
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 economic cycles or special accounting adjustments.
(dollars and shares
in millions, except First Second Third Fourth
per share amounts) Quarter Quarter Quarter(a) Quarter
- ----------------------------------------------------------------
Results of Operations
Fiscal 1999
Net sales $ 250.3 $ 248.7 $ 271.8 $ 265.9
Gross profits $ 66.7 $ 65.6 $ 63.9 $ 67.0
Net income $ 12.2 $ 12.2 $ 1.2 $ 11.5
Fiscal 1998
Net sales $ 249.5 $ 280.0 $ 329.0 $ 318.2
Gross profits $ 70.3 $ 77.4 $ 88.1 $ 92.6
Net income $ 17.1 $ 18.7 $ 22.1 $ 26.1
- ----------------------------------------------------------------
Earnings Per Common Share
Fiscal 1999
Basic earnings $ .52 $ .54 $ .04 $ .51
Diluted earnings $ .51 $ .53 $ .04 $ .50
Fiscal 1998
Basic earnings $ .86 $ .93 $ 1.07 $ 1.13
Diluted earnings $ .82 $ .89 $ 1.02 $ 1.08
- ----------------------------------------------------------------
Weighted Average Common
Shares Outstanding
Fiscal 1999
Basic 22.7 22.0 21.9 21.9
Diluted 23.7 22.9 22.8 22.8
Fiscal 1998
Basic 19.5 19.6 20.3 22.8
Diluted 20.7 20.7 21.5 24.0
- ----------------------------------------------------------------
(a) Fiscal 1999 includes a special charge of $14.2 million ($8.5
million after-tax or $.37 per diluted share) related to a
salaried work force reduction and a reconfiguration of the
U.S. distribution network.
Item 9. Disagreements on Accounting and Financial Disclosure
Not Applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required as to directors is incorporated
herein by reference to the 1999 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.
Information concerning a director's failure to timely file a
Form 4 report as required under Section 16(a) of the Exchange Act
is incorporated herein by reference to the 1999 definitive Proxy
Statement under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance."
Item 11. Executive Compensation
The information required by this item is incorporated herein
by reference to the 1999 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 1999 definitive Proxy Statement under the
captions "Ownership of Carpenter Stock by Certain Beneficial
Owners" and "Ownership of Carpenter Stock by Directors and
Officers."
Item 13. Certain Relationships and Related Transactions
Not applicable
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, 1999, except as to the
information presented in Note 17 for which the date is August 6,
1999, 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, 1999, except as to the
information presented in
Note 17 for which the date is
August 6, 1999
(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 May 12, 1999, was
filed on behalf of Carpenter on May 19, 1999. The
Report covered Item 5, Other Events. No financial
statements were filed with this Report.
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 24, 1999
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 and September 24, 1999
- ---------------------
Robert W. Cardy Chief Executive Officer
and Director (Principal
Executive Officer)
s/Dennis M. Draeger President and Chief September 24, 1999
- ---------------------
Dennis M. Draeger Operating Officer
s/G. Walton Cottrell Sr. Vice President - September 24, 1999
- ---------------------
G. Walton Cottrell Finance & Chief
Financial Officer
s/Edward B. Bruno Vice President and September 24, 1999
- ---------------------
Edward B. Bruno Corporate Controller
(Principal Accounting
Officer)
* Director September 24, 1999
- ---------------------
Marcus C. Bennett
* Director September 24, 1999
- ---------------------
William S. Dietrich II
* Director September 24, 1999
- ---------------------
C. McCollister Evarts, M.D.
* Director September 24, 1999
- ---------------------
J. Michael Fitzpatrick
* Director September 24, 1999
- ---------------------
William J. Hudson, Jr.
* Director September 24, 1999
- ---------------------
Robert J. Lawless
* Director September 24, 1999
- ---------------------
Marlin Miller, Jr.
* Director September 24, 1999
- ---------------------
Robert N. Pokelwaldt
* Director September 24, 1999
- ---------------------
Peter C. Rossin
* Director September 24, 1999
- ---------------------
Kathryn C. Turner
* Director September 24, 1999
- ---------------------
Kenneth L. Wolfe
Original Powers of Attorney authorizing John R. Welty to sign
this Report on behalf of: Marcus C. Bennett, William S.
Dietrich II, C. McCollister Evarts, M.D., J. Michael Fitzpatrick,
William J. Hudson, Jr., Robert J. Lawless, Marlin Miller, Jr.,
Robert N. Pokelwaldt, Peter C. Rossin, Kathryn C. Turner and
Kenneth L. Wolfe are being filed with the Securities and Exchange
Commission.
*By s/John R. Welty
-----------------------
John R. Welty
Attorney-in-fact
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
(in millions)
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Balance Additions
------------------
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, 1999:
Allowance for
doubtful
accounts
receivable $ 1.9 $ 0.8 $ 0.1 $(0.9) $ 1.9
===== ===== ===== ====== =====
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
===== ===== ===== ====== =====
(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 3 of Carpenter's Form 10-Q
Quarterly Report for the quarter ended
September 30, 1998.
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. Rights Agreement relating to Rights
distributed to holders of Carpenter's
Stock, amended as of April 23, 1996, is
incorporated by reference to Carpenter's
Current Report on Form 8-K filed
May 3, 1996.
C. 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.
D. 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.
E. 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
Quarterly Report for the period ended
December 31, 1993.
F. 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.
G. 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.
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
on Form 10-K.
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 of agreement 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.
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
Exhibit 12
Carpenter Technology Corporation
Computations of Ratios of Earnings to Fixed Charges -- unaudited
Five years Ended June 30, 1999
(dollars in millions)
1999 1998(b) 1997 1996 1995
---- ------- ---- ---- ----
Fixed charges:
Interest costs (a) $ 34.8 $ 31.2 $ 22.3 $ 19.3 $ 17.8
Interest component of
non-capitalized lease
rental expense (c) 3.2 2.9 2.4 2.0 2.4
------ ------ ------ ------ ------
Total fixed charges $ 38.0 $ 34.1 $ 24.7 $ 21.3 $ 20.2
====== ====== ====== ====== ======
Earnings as defined:
Income before income
taxes $ 55.8 $136.9 $ 97.9 $ 95.2 $ 74.6
Add: Loss in less-than-
fifty-percent-owned
entities and loss
on sale of partial
interest in less-than-
fifty-percent owned
entities 0.0 3.4 1.2 4.3 3.0
Fixed charges less
interest capitalized 32.5 32.0 22.3 21.0 17.0
Amortization of
capitalized interest 2.0 1.9 1.9 2.1 1.9
------ ------ ------ ------ ------
Earnings as defined $ 90.3 $174.2 $123.3 $122.6 $ 96.5
====== ====== ====== ====== ======
Ratio of earnings to
fixed charges 2.4x 5.1x 5.0x 5.7x 4.8x
====== ====== ====== ====== ======
(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.
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, 33-54045, 333-43017,
333-55667 and 333-55669) of our reports dated July 27, 1999,
except as to the information presented in Note 17 for which the
date is August 6, 1999, on our audits of the consolidated
financial statements and financial statement schedule of
Carpenter Technology Corporation and subsidiaries as of June 30,
1999 and 1998, and for the years ended June 30, 1999, 1998 and
1997, which reports are included in this Annual Report on Form
10-K.
s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 24, 1999
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 l3 or l5(d) of the Securities
Exchange Act of l934 on Form l0-K, for the year ended June 30,
l999, 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 12th day of August, l999.
________________________________
Marcus C. Bennett
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 l3 or l5(d) of the Securities
Exchange Act of l934 on Form l0-K, for the year ended June 30,
l999, 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 12th day of August, l999.
________________________________
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 l3 or l5(d) of the Securities
Exchange Act of l934 on Form l0-K, for the year ended June 30,
l999, 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 11th day of August, l999.
________________________________
C. McCollister Evarts, M.D.
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 l3 or l5(d) of the Securities
Exchange Act of l934 on Form l0-K, for the year ended June 30,
l999, 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 12th day of August, l999.
________________________________
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 l3 or l5(d) of the Securities
Exchange Act of l934 on Form l0-K, for the year ended June 30,
l999, 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 12th day of August, l999.
________________________________
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 l3 or l5(d) of the Securities
Exchange Act of l934 on Form l0-K, for the year ended June 30,
l999, 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 9th day of August, l999.
________________________________
Robert J. Lawless
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 l3 or l5(d) of the Securities
Exchange Act of l934 on Form l0-K, for the year ended June 30,
l999, 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 12th day of August, l999.
________________________________
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 l3 or l5(d) of the Securities
Exchange Act of l934 on Form l0-K, for the year ended June 30,
l999, 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 12th day of August, l999.
________________________________
Robert N. Pokelwaldt
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 l3 or l5(d) of the Securities
Exchange Act of l934 on Form l0-K, for the year ended June 30,
l999, 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 5th day of August, l999.
________________________________
Peter C. Rossin
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 l3 or l5(d) of the Securities
Exchange Act of l934 on Form l0-K, for the year ended June 30,
l999, 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 12th day of August, l999.
________________________________
Kathryn C. Turner
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 l3 or l5(d) of the Securities
Exchange Act of l934 on Form l0-K, for the year ended June 30,
l999, 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 6th day of August, l999.
________________________________
Kenneth L. Wolfe
Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 6
<SECURITIES> 0
<RECEIVABLES> 151
<ALLOWANCES> 0
<INVENTORY> 250
<CURRENT-ASSETS> 423
<PP&E> 1254
<DEPRECIATION> 503
<TOTAL-ASSETS> 1608
<CURRENT-LIABILITIES> 295
<BONDS> 355<F1>
0
27
<COMMON> 115
<OTHER-SE> 491
<TOTAL-LIABILITY-AND-EQUITY> 1608
<SALES> 1037
<TOTAL-REVENUES> 1037
<CGS> 774
<TOTAL-COSTS> 774
<OTHER-EXPENSES> 178
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 56
<INCOME-TAX> 19
<INCOME-CONTINUING> 37
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37
<EPS-BASIC> 1.61<F2>
<EPS-DILUTED> 1.58
<FN>
<F1>REPRESENTS LONG-TERM DEBT, NET OF CURRENT PORTION
<F2>REPRESENTS BASIC EPS AS REQUIRED UNDER FAS 128
</FN>
</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
