UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 Commission File Number 1-5828 CARPENTER TECHNOLOGY CORPORATION (Exact name of Registrant as specified in its Charter) Delaware 23-0458500 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 West Bern Street, Reading, Pennsylvania 19612-4662 (Address of principal executive offices) (Zip Code) 610-208-2000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of September 30, 1995. Common stock, $5 par value 16,441,040 Class Number of shares outstanding The Exhibit Index appears on page E-1.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES FORM 10-Q INDEX Page ---- Part I FINANCIAL INFORMATION Consolidated Balance Sheet September 30, 1995 (Unaudited) and June 30, 1995........................................... 3 & 4 Consolidated Statement of Income (Unaudited) for the Three Months Ended September 30, 1995 and 1994.............. 5 Consolidated Statement of Cash Flows (Unaudited) for the Three Months Ended September 30, 1995 and 1994.............. 6 Notes to Consolidated Financial Statements.................... 7 & 8 Management's Discussion and Analysis of Results of Operations............................................... 9 Part II OTHER INFORMATION......................................10 & 11 Exhibit Index................................................... E-1
PART I - ------ CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Page 1 of 2) September 30, 1995 and June 30, 1995 (in thousands, except share data) September 30 June 30 1995 1995 ------------ ------- (Unaudited) ASSETS - ------ Current assets: Cash and cash equivalents $ 10,614 $ 20,120 Accounts receivable, net 105,765 118,848 Inventories 114,023 91,383 Deferred income taxes 1,163 1,827 Other current assets 9,427 8,251 -------- -------- Total current assets 240,992 240,429 Property, plant and equipment, at cost 768,986 763,755 Less accumulated depreciation and amortization 367,494 360,175 -------- -------- 401,492 403,580 Prepaid pension cost 83,749 81,182 Investment in joint venture 46,967 49,085 Goodwill, net 15,483 15,701 Other assets 41,532 41,798 -------- -------- Total assets $830,215 $831,775 ======== ======== See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Page 2 of 2) September 30, 1995 and June 30, 1995 (in thousands, except share data) September 30 June 30 LIABILITIES 1995 1995 - ----------- ------------ ------- (Unaudited) Current liabilities: Short-term debt $ 13,647 $ 20,145 Accounts payable 54,720 51,162 Accrued compensation 12,406 21,457 Accrued income taxes 10,316 5,442 Other accrued liabilities 24,608 28,684 Current portion of long-term debt 7,182 7,286 -------- -------- Total current liabilities 122,879 134,176 Long-term debt, net of current portion 194,727 194,762 Accrued postretirement benefits 141,217 140,855 Deferred income taxes 79,302 78,415 Other liabilities and deferred income 20,316 19,622 SHAREHOLDERS' EQUITY - -------------------- Preferred stock, $5 par value - authorized 2,000,000 shares; issued 456.1 shares at September 30, 1995 and 456.7 shares at June 30, 1995 28,781 28,825 Common stock, $5 par value - authorized 50,000,000 shares; issued 19,487,320 shares at September 30, 1995 and 19,337,964 shares at June 30, 1995 97,437 96,690 Capital in excess of par value 9,387 6,801 Reinvested earnings 237,235 231,114 Common stock in treasury, at cost - 3,046,280 shares at September 30, 1995 and 3,046,208 shares at June 30, 1995 (67,004) (67,002) Deferred compensation (24,833) (25,461) Foreign currency translation adjustments (9,229) (7,022) -------- -------- Total shareholders' equity 271,774 263,945 -------- -------- Total liabilities and shareholders' equity $830,215 $831,775 ======== ======== See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Unaudited) for the three months ended September 30, 1995 and 1994 (in thousands, except per share data) 1995 1994 ---- ---- Net sales $184,469 $156,084 -------- -------- Costs and expenses: Cost of sales 136,205 121,568 Selling & administrative expenses 24,792 23,954 Interest expense 4,582 2,698 Equity in loss of joint venture 225 240 Other income, net (203) (511) -------- -------- 165,601 147,949 -------- -------- Income before income taxes 18,868 8,135 Income taxes 6,962 3,203 -------- -------- Net income $ 11,906 $ 4,932 ======== ======== Earnings per common share: Primary $ .70 $ .28 ======== ======== Fully Diluted $ .67 $ .27 ======== ======== Weighted average common shares outstanding 16,538 16,402 ======== ======== Dividends per common share $ .33 $ .30 ======== ======== See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) for the three months ended September 30, 1995 and 1994 (in thousands) 1995 1994 OPERATIONS ---- ---- Net income $ 11,906 $ 4,932 Adjustments to reconcile net income to net cash provided from operations: Depreciation and amortization 8,482 7,737 Deferred income taxes 1,619 302 Prepaid pension cost (2,567) (1,982) Equity in loss of joint venture 225 240 Changes in working capital and other: Receivables 13,027 11,694 Inventories (22,807) (4,818) Accounts payable 3,569 5,181 Accrued current liabilities (8,229) (6,770) Other, net 547 (4,045) -------- -------- Net cash provided from operations 5,772 12,471 -------- -------- INVESTING ACTIVITIES Purchases of plant and equipment (6,498) (11,012) Disposals of plant and equipment 387 47 Investment in joint venture - (1,020) Acquisition of businesses, net of cash received - (13,005) -------- -------- Net cash used for investing activities (6,111) (24,990) -------- -------- FINANCING ACTIVITIES Provided by (payments on) short-term debt (6,507) 19,850 Proceeds from issuance of long-term debt - 40,000 Payments on long-term debt (139) (38,309) Dividends paid (5,785) (5,274) Proceeds from issuance of common stock 3,287 604 -------- -------- Net cash provided from (used for) financing activities (9,144) 16,871 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (23) (4) -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,506) 4,348 Cash and cash equivalents at beginning of period 20,120 5,404 -------- -------- Cash and cash equivalents at end of period $ 10,614 $ 9,752 ======== ======== Supplemental Data: Interest payments, net of amounts capitalized $ 6,829 $ 4,411 Income tax payments, net of refunds $ 457 $ (411) See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 1. Basis of Presentation --------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended September 30, 1995 are not necessarily indicative of the results that may be expected for the year ending June 30, 1996. For further information, refer to the consolidated financial statements and footnotes included in the Company's 1995 Annual Report on Form 10-K. The June 30, 1995 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. 2. Earnings Per Common Share ------------------------- Primary earnings per common share are computed by dividing net income (less preferred dividends net of tax benefits) by the weighted average number of common shares and common share equivalents outstanding during the period. On a fully-diluted basis, both net earnings and shares outstanding are adjusted to assume the conversion of the convertible preferred stock. 3. Inventories ----------- September 30 June 30 1995 1995 ---- ---- (in thousands) Finished $ 96,299 $ 92,930 Work in process 131,303 110,468 Raw materials and supplies 40,038 41,602 -------- -------- Total at current cost 267,640 245,000 Excess of current cost over LIFO values 153,617 153,617 -------- -------- Inventory per Balance Sheet $114,023 $ 91,383 ======== ======== The current cost of LIFO-valued inventories was $241.8 million at September 30, 1995 and $219.7 million at June 30, 1995.
4. Two-For-One Common Stock Split ------------------------------ On August 10, 1995, the Board of Directors of the Company declared a two-for-one common stock split which was distributed on September 15, 1995, to shareholders of record on September 1, 1995. The par value of common shares remained at $5 per share. All share and per share data for the prior year have been restated for the effect of this two-for-one common stock split. The Board also declared a ten percent increase in the common stock dividend, effective with the quarterly dividend to shareholders of record on August 22, 1995. 5. Subsequent Events ----------------- On October 26, 1995, the Company purchased all of the stock of Parmatech Corporation in exchange for $4.5 million of Company stock and assumed $2.7 million of Parmatech's debt. An additional $1.5 million of Company stock will be paid if certain future performance is achieved. Parmatech manufactures complex, net or near-net shape parts from a powder metal slurry using an injection molding process. Parmatech had sales of $6.5 million in calendar year 1994. On November 9, 1995, the Company acquired Green Bay Supply Co., Inc. for approximately $11 million. Green Bay is a master distributor that purchases specialty metal products globally and resells them to independent distributors in the United States. Green Bay was profitable on sales of $16 million in calendar year 1994.
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS ----------------------------------------------------------- Net income for the quarter was $11.9 million or $.70 per share versus $4.9 million or $.28 per share in the same quarter last year. The increase in earnings was primarily a result of improved sales volume and profit margins in the Steel Division. Sales were $184.5 million, an 18 percent increase over the $156.1 million in the same period last year. The increase in sales was primarily the result of selling price increases for steel products to recover higher raw material and other costs and to restore profit margins which had eroded in prior years. In addition, Steel Division unit volume shipments were up by 6 percent compared to the year earlier period. Cost of sales as a percent of net sales decreased to 74 percent in the current year's first fiscal quarter from 78 percent in the last year's first quarter. This improvement was primarily the result of the selling price increases and a higher plant utilization rate in the Steel Division. Interest costs increased by $1.9 million versus the same period last year. The increase was the result of higher debt levels during the September 1995 quarter and a lower level of capitalized interest. The September 1994 quarter included $1.0 million of capitalized interest related to the investment in Walsin-CarTech Specialty Steel Corporation, a joint venture with Walsin Lihwa Corporation, during its pre-operating period which ended in December 1994.
PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings. ------------------------- There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or to which any of their properties is subject. There are no material proceedings to which any Director, Officer, or affiliate of the Company, or any owner of more than five percent of any class of voting securities of the Company, or any associate of any Director, Officer, affiliate, or security holder of the Company, is a party adverse to the Company or has a material interest adverse to the interest of the Company or its subsidiaries. There is no administrative or judicial proceeding arising under any Federal, State or local provisions regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment that (1) is material to the business or financial condition of the Company, (2) involves a claim for damages, potential sanctions or capital expenditures exceeding ten percent of the current assets of the Company or (3) includes a governmental authority as a party and involves potential monetary sanctions in excess of $100,000. Item 5. Other Information. ------------------------- On October 26, 1995, the Company purchased all of the stock of Parmatech Corporation in exchange for $4.5 million of Company stock and assumed $2.7 million of Parmatech's debt. An additional $1.5 million of Company stock will be paid if certain future performance is achieved. Parmatech manufactures complex, net or near-net shape parts from a powder metal slurry using an injection molding process. Parmatech had sales of $6.5 million in calendar year 1994. On November 9, 1995, the Company acquired Green Bay Supply Co., Inc. for approximately $11 million. Green Bay is a master distributor that purchases specialty metal products globally and resells them to independent distributors in the United States. Green Bay was profit- able on sales of $16 million in calendar year 1994. Item 6. Exhibits and Reports on Form 8-K. ---------------------------------------- a. The following documents are filed as exhibits: 11. Statement regarding computation of per share earnings. 27. Financial Data Schedule. 99a. Press release dated October 26, 1995. 99b. Press release dated November 10, 1995. b. The Company filed no Reports on Form 8-K for events occurring during the quarter of the fiscal year covered by this report. Items 2, 3 and 4 are omitted as the answer is negative or the items are not applicable.
SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CARPENTER TECHNOLOGY CORPORATION -------------------------------- (Registrant) Date: November 13, 1995 s/ G. Walton Cottrell ------------------- -------------------------------- G. Walton Cottrell Sr. Vice President - Finance and Chief Financial Officer