UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 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 December 31, 1996. Common stock, $5 par value 16,630,423 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 December 31, 1996 (Unaudited) and June 30, 1996.......................................... 3 & 4 Consolidated Statement of Income (Unaudited) for the Three and Six Months Ended December 31, 1996 and 1995...... 5 Consolidated Statement of Cash Flows (Unaudited) for the Six Months Ended December 31, 1996 and 1995................ 6 Notes to Consolidated Financial Statements................... 7 & 8 Management's Discussion and Analysis of Results of Operations.............................................. 9 & 10 Part II OTHER INFORMATION.....................................11 - 14 Exhibit Index.................................................. E-1
PART I CARPENTER TECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEET (Page 1 of 2) December 31, 1996 and June 30, 1996 (in thousands, except share data) December 31 June 30 1996 1996 ----------- -------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 12,137 $ 13,159 Accounts receivable, net 108,433 137,103 Inventories 184,693 160,452 Deferred income taxes 1,250 2,113 Other current assets 14,305 11,643 -------- -------- Total current assets 320,818 324,470 Property, plant and equipment, at cost 859,396 809,697 Less accumulated depreciation and amortization 406,539 390,225 -------- -------- 452,857 419,472 Prepaid pension cost 96,890 91,474 Investment in joint venture 9,049 9,760 Goodwill, net 18,257 18,792 Other assets 50,527 48,003 ________ ________ Total assets $948,398 $911,971 ======== ======== See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEET (Page 2 of 2) December 31, 1996 and June 30, 1996 (in thousands, except share data) December 31 June 30 LIABILITIES 1996 1996 - ----------- ----------- -------- (Unaudited) Current liabilities: Short-term debt $ 68,459 $ 18,964 Accounts payable 56,787 75,811 Accrued compensation 17,767 26,088 Accrued income taxes 11,733 13,656 Other accrued liabilities 30,480 30,446 Current portion of long-term debt 3,300 7,010 -------- -------- Total current liabilities 188,526 171,975 Long-term debt, net of current portion 187,905 188,024 Accrued postretirement benefits 138,185 137,738 Deferred income taxes 88,388 84,460 Other liabilities and deferred income 24,266 20,697 SHAREHOLDERS' EQUITY - -------------------- Preferred stock - $5 par value, authorized 2,000,000 shares; issued 451.1 shares at December 31, 1996 and 453.1 shares at June 30, 1996 28,456 28,581 Common stock at $5 par value - authorized 50,000,000 shares; issued 19,561,339 shares at December 31, 1996 and 19,545,751 shares at June 30, 1996 97,807 97,729 Capital in excess of par value - common stock 13,828 13,498 Reinvested earnings 277,949 267,956 Common stock in treasury, at cost - 2,930,916 shares at December 31, 1996 and 2,930,074 shares at June 30, 1996 (64,506) (64,483) Deferred compensation (21,546) (22,830) Foreign currency translation adjustments (10,860) (11,374) -------- -------- Total shareholders' equity 321,128 309,077 ________ ________ Total liabilities and shareholders' equity $948,398 $911,971 ======== ======== See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION CONSOLIDATED STATEMENT OF INCOME (Unaudited) for the three and six months ended December 31, 1996 and 1995 (in thousands, except per share data) Three Months Six Months ------------------ ------------------ 1996 1995 1996 1995 ---- ---- ---- ---- Net sales $208,670 $210,126 $403,416 $394,595 -------- -------- -------- -------- Costs and expenses: Cost of sales 152,069 157,229 300,387 293,434 Selling and administrative expenses 29,623 28,310 59,178 53,295 Interest expense 4,476 4,821 8,902 9,403 Equity in loss of joint venture 60 2,140 716 2,365 Other income, net (501) (398) (1,085) (794) -------- -------- -------- -------- 185,727 192,102 368,098 357,703 -------- -------- -------- -------- Income before income taxes 22,943 18,024 35,318 36,892 Income taxes 9,296 5,731 13,596 12,693 -------- -------- -------- -------- Net income $ 13,647 $ 12,293 $ 21,722 $ 24,199 ======== ======== ======== ======== Earnings per common share: Primary $ .79 $ .71 $ 1.25 $ 1.41 ======== ======== ======== ======== Fully diluted $ .75 $ .69 $ 1.20 $ 1.36 ======== ======== ======== ======== Weighted average common shares outstanding 16,726 16,698 16,719 16,619 ======== ======== ======== ======== Dividends per common share $ .33 $ .33 $ .66 $ .66 ======== ======== ======== ======== See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) for the six months ended December 31, 1996 and 1995 (in thousands) 1996 1995 ---- ---- OPERATIONS Net income $ 21,722 $ 24,199 Adjustments to reconcile net income to net cash provided from operations: Depreciation and amortization 18,472 17,366 Deferred income taxes 4,889 2,444 Prepaid pension cost (5,416) (5,076) Equity in loss of joint venture 716 2,365 Changes in working capital and other: Receivables 28,575 2,600 Inventories (24,458) (34,389) Accounts payable (18,992) 2,608 Accrued current liabilities (10,161) (5,189) Other, net 620 783 -------- -------- Net cash provided from operations 15,967 7,711 -------- -------- INVESTING ACTIVITIES Purchases of plant and equipment (51,262) (13,938) Disposals of plant and equipment 183 378 Acquisitions of businesses, net of cash received - (10,584) -------- -------- Net cash used for investing activities (51,079) (24,144) -------- -------- FINANCING ACTIVITIES Provided by short-term debt 49,495 20,724 Payments on long-term debt (3,829) (5,899) Dividends paid (11,729) (11,615) Proceeds from issuance of common stock 260 3,884 -------- -------- Net cash provided from financing activities 34,197 7,094 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (107) (191) -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (1,022) (9,530) Cash and cash equivalents at beginning of period 13,159 20,120 -------- -------- Cash and cash equivalents at end of period $ 12,137 $ 10,590 ======== ======== Supplemental Data: - ----------------- Cash Paid During the Year For: Interest payments, net of amounts capitalized $ 8,216 $ 8,383 Income tax payments, net of refunds $ 9,966 $ 11,461 Non-Cash Investing Activities: Acquisitions of businesses with treasury stock $ - $ 4,500 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 six months ended December 31, 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 effect 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. 3. Inventories ----------- December 31 June 30 1996 1996 ----------- ------- (in thousands) Finished $140,945 $129,184 Work in process 151,521 134,751 Raw materials and supplies 53,913 58,388 -------- -------- Total at current cost 346,379 322,323 Excess of current cost over LIFO values 161,686 161,871 -------- -------- Inventory per Balance Sheet $184,693 $160,452 ======== ======== The current cost of LIFO-valued inventories was $315.4 million at December 31, 1996 and $295.4 million at June 30, 1996.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued ------------------------------------------ 4. Subsequent Events ----------------- On January 7, 1997, the Company announced its plan to acquire all of the common stock of Dynamet Incorporated for approximately $99 million of Company common stock, $51 million of cash and the assumption of Dynamet's debt of approximately $11 million. Dynamet is a manufacturer of titanium bar, wire and powder products. Dynamet's sales for calendar year 1996 were approximately $100 million. On January 23, 1997, the Company announced its plan to acquire all of the common stock of Global Technology, Inc. for approximately $8.5 million of Company common stock, $1.1 million of cash and the assumption of approximately $8.4 million of Global Technology debt. Global Technology has two primary businesses: conversion services for processing bar and wire products made of stainless steel, super alloys, titanium and carbon steel; and the design and manufacture of coil and bar processing equipment. Global Technology's sales for calendar year 1996 were approximately $30 million. The cash required for these two acquisitions will be funded from the Company's existing financing arrangements. These transactions will be accounted for as a purchase in accordance with APB #16. Effective January 1, 1997, the Mexican subsidiary is considered to operate in a highly inflationary economy as defined by Statement of Financial Accounting Standard ("SFAS") 52. When a foreign entity operates in a highly inflationary economy, the U.S. dollar is used as the functional currency rather than the local currency. Nonmonetary assets and liabilities and related expenses are translated into U.S. dollars at historical exchange rates. All other income statement amounts are translated using average exchange rates for the period. Monetary assets and liabilities are translated at end-of-period exchange rates. Gains or losses on translation are reported in income.
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS ----------------------------------------------------------- Second Quarter Results: - ---------------------- Net income for the quarter ended December 31, 1996 was $13.6 million versus $12.3 million in the same quarter last year. Primary earnings per share were $.79 compared with $.71 for the same period a year ago. The improved results were primarily a result of lower raw material costs and reduced losses related to the investment in Walsin-CarTech, a joint venture in Taiwan. Sales were $208.7 million, a 1% decrease from $210.1 million in the same period last year. This decrease in sales was primarily the result of a 6 percent decrease in Core Steel Division unit volume, which was mostly offset by an improved Core Steel Division product mix. Cost of sales as a percent of net sales decreased to 73 percent in the current year's second fiscal quarter from 75 percent in last year's second quarter. The improvement was primarily the result of lower raw material costs. The effective tax rate for the second quarter was higher than the same quarter last year. Last year's quarterly tax rate was favorably affected by lower state income tax estimates, while the current quarter was negatively impacted by a federal income tax law change relating to company-owned life insurance programs. Six Month Results: - ----------------- Net income for the six months ended December 31, 1996 was $21.7 million, compared with $24.2 million for the same period last year. Primary earnings per share were $1.25 compared with $1.41 for the same period a year ago. The decrease in earnings was primarily a result of a 6 percent decrease in Core Steel Division unit volume and an extended maintenance shutdown period in the September 1996 quarter which resulted in lower manufacturing levels and higher repair spending. The earnings decreases were partially offset by reduced losses related to the investment in Walsin-Cartech. Sales were $403.4 million, a 2 percent increase from $394.6 million last year. The increase was primarily a result of including the results of three companies acquired after September 30, 1995, an improved Steel Division product mix and increased sales volume of the engineered products business segment. Cost of sales was 74 percent of net sales in both periods. The effect on this ratio of increased maintenance costs as a result of the extended shutdown period was offset by lower raw material costs and higher sales. Selling and administrative costs were higher by $5.9 million, primarily as a result of increased depreciation and amortization and the inclusion of costs for the companies acquired during the past year. The effective tax rate for the six months ended December 31, 1996 was higher than last year. The increase was primarily due to second quarter changes in state income tax estimates and a federal income tax law change, as previously discussed.
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 or which is known by the Company to be 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 or capital expenditures exceeding ten percent of the current assets of the Company or (3) includes a governmental authority as a party and involves potential monetary sanctions in excess of $100,000. Item 4. Submission of Matters to a Vote of Security Holders. ----------------------------------------------------------- a. The Annual Meeting of Stockholders of the Company was held on October 21, 1996. b. Information required by this paragraph is omitted since (i) proxies for the Annual Meeting were solicited pursuant to Regulation 14 under the Securities Exchange Act, (ii) there was no solicitation in opposition to the management s nominees as listed in the proxy statement and (iii) all of such nominees were elected. c. Set forth below is a description of the matters voted upon at the Annual Meeting and the number of votes cast for, against or withheld, as well as the number of abstentions and broker nonvotes, as applicable to each such matter. 1. Election Of Directors. The following four directors were --------------------- elected to the Board of Directors of the Company. There were no other nominees for director. A. Marcus C. Bennett Shares voted for: 15,198,472 Shares voted against or withheld: 295,721 Abstentions: N/A Broker nonvotes: N/A
Item 4. Submission of Matters to a Vote of Security Holders, ----------------------------------------------------------- continued B. Carl R. Garr Shares voted for: 15,186,317 Shares voted against or withheld: 307,876 Abstentions: N/A Broker nonvotes: N/A C. William S. Dietrich, II Shares voted for: 15,190,493 Shares voted against or withheld: 303,700 Abstentions: N/A Broker nonvotes: N/A D. Marlin Miller, Jr. Shares voted for: 15,198,125 Shares voted against or withheld: 296,068 Abstentions: N/A Broker nonvotes: N/A 2. The accounting firm of Coopers & Lybrand was elected independent accountants for the year ending June 30, 1997. Shares voted for: 15,334,167 Shares voted against or withheld: 160,026 Abstentions: N/A Broker nonvotes: N/A 3. An amendment to the Stock-Based Incentive Compensation Plan for Officers and Key Employees as described in the Proxy Statement was approved. Shares voted for: 11,877,207 Shares voted against: 1,963,179 Abstentions: 248,295 Broker nonvotes: 1,405,512 Item 5. Other Information. ------------------------- a. Effective December 5, 1996, the first sentence of Section 2.1 of the Company s Bylaws was amended to read as follows: The business of the Corporation shall be managed under the direction of the Board, which shall consist of not less than three nor more than seventeen directors, the exact number of directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board.
Item 6. Exhibits and Reports on Form 8-K. ---------------------------------------- a. The following documents are filed as exhibits: 3. Amendment to the Bylaws of the Company as adopted December 5, 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 and 3 are omitted as the answer is negative or the item is 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: February 7, 1997 s/G. Walton Cottrell ---------------- -------------------------------- G. Walton Cottrell Sr. Vice President - Finance and Chief Financial Officer