UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 Commission File Number 1-5828 CARPENTER TECHNOLOGY CORPORATION (Exact name of Registrant as specified in its Charter) Delaware 23-0458500 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 West Bern Street, Reading, Pennsylvania 19612-4662 (Address of principal executive offices) (Zip Code) 610-208-2000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of September 30, 1996. Common stock, $5 par value 16,619,528 Class Number of shares outstanding The Exhibit Index appears on page E-1.
CARPENTER TECHNOLOGY CORPORATION FORM 10-Q INDEX Page ---- Part I FINANCIAL INFORMATION Consolidated Balance Sheet September 30, 1996 (Unaudited) and June 30, 1996........................................ 3 & 4 Consolidated Statement of Income (Unaudited) for the Three Months Ended September 30, 1996 and 1995........... 5 Consolidated Statement of Cash Flows (Unaudited) for the Three Months Ended September 30, 1996 and 1995........... 6 Notes to Consolidated Financial Statements................. 7 & 8 Management's Discussion and Analysis of Results of Operations............................................ 9 Part II OTHER INFORMATION...................................10 & 11 Exhibit Index................................................ E-1
PART I CARPENTER TECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEET (Page 1 of 2) September 30, 1996 and June 30, 1996 (in thousands, except share data) September 30 June 30 1996 1996 ------------ ---------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 14,444 $ 13,159 Accounts receivable, net 113,243 137,103 Inventories 164,858 160,452 Deferred income taxes 1,289 2,113 Other current assets 13,568 11,643 -------- -------- Total current assets 307,402 324,470 Property, plant and equipment, at cost 829,220 809,697 Less accumulated depreciation and amortization 398,520 390,225 -------- -------- 430,700 419,472 Prepaid pension cost 94,201 91,474 Investment in joint venture 9,110 9,760 Goodwill, net 18,525 18,792 Other assets 48,983 48,003 ________ ________ Total assets $908,921 $911,971 ======== ========= See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEET (Page 2 of 2) September 30, 1996 and June 30, 1996 (in thousands, except share data) September 30 June 30 LIABILITIES 1996 1996 - ----------- --------- -------- (Unaudited) Current liabilities: Short-term debt $ 45,508 $ 18,964 Accounts payable 59,280 75,811 Accrued compensation 13,546 26,088 Accrued income taxes 12,635 13,656 Other accrued liabilities 26,397 30,446 Current portion of long-term debt 6,892 7,010 ________ ________ Total current liabilities 164,258 171,975 Long-term debt, net of current portion 187,990 188,024 Accrued postretirement benefits 137,827 137,738 Deferred income taxes 85,183 84,460 Other liabilities and deferred income 21,370 20,697 SHAREHOLDERS' EQUITY - -------------------- Preferred stock - $5 par value, authorized 2,000,000 shares; issued 452.1 shares at September 30, 1996 and 453.1 shares at June 30, 1996 28,515 28,581 Common stock at $5 par value - authorized 50,000,000 shares; issued 19,550,348 shares at September 30, 1996 and 19,545,751 shares at June 30, 1996 97,752 97,729 Capital in excess of par value - common stock 13,589 13,498 Reinvested earnings 270,177 267,956 Common stock in treasury, at cost - 2,930,820 shares at September 30, 1996 and 2,930,074 shares at June 30, 1996 (64,507) (64,483) Deferred compensation (22,184) (22,830) Foreign currency translation adjustments (11,049) (11,374) -------- -------- Total shareholders' equity 312,293 309,077 -------- -------- Total liabilities and shareholders' equity $908,921 $911,971 ======== ======== See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION CONSOLIDATED STATEMENT OF INCOME (Unaudited) for the three months ended September 30, 1996 and 1995 (in thousands, except per share data) 1996 1995 ---- ---- Net sales $194,746 $184,469 -------- -------- Costs and expenses: Cost of sales 148,318 136,205 Selling and administrative expenses 29,555 24,985 Interest expense 4,426 4,582 Equity in loss of joint venture 656 225 Other income, net (584) (396) -------- -------- 182,371 165,601 -------- -------- Income before income taxes 12,375 18,868 Income taxes 4,300 6,962 -------- -------- Net income $ 8,075 $ 11,906 ======== ======== Earnings per common share: Primary $ .46 $ .70 ======== ======== Fully Diluted $ .45 $ .67 ======== ======== Weighted average common shares outstanding 16,712 16,538 ======== ======== Cash dividends per common share $ .33 $ .33 ======== ======== See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) for the three months ended September 30, 1996 and 1995 (in thousands) 1996 1995 OPERATIONS ---- ---- Net income $ 8,075 $ 11,906 Adjustments to reconcile net income to net cash provided from operations: Depreciation and amortization 9,190 8,482 Deferred income taxes 1,502 1,619 Prepaid pension cost (2,727) (2,567) Equity in loss of joint venture 656 225 Changes in working capital and other: Receivables 23,902 13,027 Inventories (4,316) (22,807) Accounts payable (16,544) 3,569 Accrued current liabilities (17,646) (8,229) Other, net (1,213) 547 -------- -------- Net cash provided from operations 879 5,772 -------- -------- INVESTING ACTIVITIES Purchases of plant and equipment (20,252) (6,498) Disposals of plant and equipment 104 387 -------- -------- Net cash used for investing activities (20,148) (6,111) -------- -------- FINANCING ACTIVITIES Provided by (payments on) short-term debt 26,544 (6,507) Payments on long-term debt (152) (139) Dividends paid (5,854) (5,785) Proceeds from issuance of common stock - 3,287 -------- -------- Net cash provided from (used for) financing activities 20,538 (9,144) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 16 (23) -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,285 (9,506) Cash and cash equivalents at beginning of period 13,159 20,120 -------- -------- Cash and cash equivalents at end of period $ 14,444 $ 10,614 ======== ======== SUPPLEMENTAL DATA: Interest payments, net of amounts capitalized $ 7,545 $ 6,829 Income tax payments, net of refunds $ 3,640 $ 457 See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation --------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending June 30, 1997. For further information, refer to the consolidated financial statements and footnotes included in the Company's 1996 Annual Report on Form 10-K. The June 30, 1996 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. Earnings Per Common Share ------------------------- Primary earnings per common share are computed by dividing net income (less preferred dividends, net of tax benefits) by the weighted average number of common shares and common share equivalents outstanding during the period. On a fully-diluted basis, both net earnings and shares outstanding are adjusted to assume the conversion of the convertible preferred stock.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. Inventories ----------- September 30 June 30 1996 1996 -------- -------- (in thousands) Finished and purchased products $129,137 $129,184 Work in process 148,262 134,751 Raw materials and supplies 49,145 58,388 -------- -------- Total at current cost 326,544 322,323 Excess of current cost over LIFO values 161,686 161,871 -------- -------- Inventory per Balance Sheet $164,858 $160,452 ======== ======== The current cost of LIFO-valued inventories was $297.1 million at September 30, 1996 and $295.4 million at June 30, 1996. 4. Accounting Pronouncements ------------------------- The Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and SFAS 123, "Accounting for Stock-Based Compensation" which became effective for fiscal years beginning after December 15, 1995. The Company adopted these statements effective July 1, 1996. SFAS 121 establishes criteria for recognizing, measuring and disclosing impairments of long-lived assets, identifiable intangibles and goodwill. The adoption of SFAS 121 in the quarter ended September 30, 1996 did not have a material effect on the accompanying financial statements. SFAS 123 allows entities to choose between a new fair value based method of accounting for stock-based compensation and the current method of accounting prescribed by Accounting Principles Board Opinion 25 ("APB 25"). Entities electing to continue using APB 25 must make annual pro forma disclosures of net income and earnings per share as if the fair market value method of accounting had been applied. The Company will continue accounting for stock-based compensation in accordance with APB 25.
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS ----------------------------------------------------------- Net income for the quarter was $8.1 million and primary earnings per share were $.46 versus $11.9 million or $.70 per share in the same quarter last year. The decrease in earnings was primarily a result of an extended maintenance shutdown period, which resulted in lower manu- facturing levels and higher repair spending levels. Sales were $194.7 million, a 6 percent increase over the $184.5 million in the same period last year. The increase in sales was primarily the result of including the results of companies acquired after September 30, 1995, and an improved Steel Division product mix. Core Steel Division unit volume shipments were down 6 percent, compared to the year earlier period. Cost of sales as a percent of net sales increased to 76 percent in the current year's first fiscal quarter from 74 percent in last year's first quarter. A decrease in raw material costs was more than offset by increased maintenance costs as a result of the extended shutdown period. The extended shutdown was needed as a result of the high operating rate of manufacturing facilities over the past two fiscal years and the expectation that the high operating rate will continue. Selling and administrative costs were higher by $4.6 million, primarily as a result of increased depreciation, amortization, freight, travel costs and the inclusion of costs for the companies acquired during the past year. The effective tax rate for the first quarter was lower than the anticipated full year rate for fiscal 1997 because of changes in estimates in foreign tax liabilities.
PART II - OTHER INFORMATION - ------- ----------------- Item 1. Legal Proceedings. ------------------------- There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or to which any of their properties is subject and there are no such proceedings which, to the knowledge of the Company, are contemplated by governmental authorities. There are no material proceedings to which any Director, Officer, or affiliate of the Company, or any owner of more than five percent of any class of voting securities of the Company, or any associate of any Director, Officer, affiliate, or security holder of the Company, is a party adverse to the Company or has a material interest adverse to the interest of the Company or its subsidiaries. There is no administrative or judicial proceeding arising under any Federal, State or local provisions regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment that (1) is material to the business or financial condition of the Company, (2) involves a claim for damages, potential sanctions, capital expenditures, deferred charges or charges to income exceeding ten percent of the current assets of the Company and its subsidiaries on a consolidated basis or (3) includes a governmental authority as a party and which the Company reasonably believes involves potential monetary sanctions in excess of $100,000. Item 6. Exhibits and Reports on Form 8-K. ---------------------------------------- a. The following documents are filed as exhibits: 3. Amendment to the By-Laws of the Company as adopted August 8, 1996 11. Statement regarding Computations of Per Share Earnings 12. Statement regarding Computations of Ratios of Earnings to Fixed Charges 27. Financial Data Schedule b. The Company filed no Reports on Form 8-K for events occurring during the quarter of the fiscal year covered by this report. Items 2, 3, 4 and 5 are omitted as the answer is negative or the items are not applicable.
SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CARPENTER TECHNOLOGY CORPORATION -------------------------------- (Registrant) Date: November 12, 1996 s/G. Walton Cottrell ------------------- ------------------------------- G. Walton Cottrell Sr. Vice President - Finance and Chief Financial Officer