Item 1. Business
(a) General Development of Business:
Carpenter Technology Corporation, incorporated in 1904, and its subsidiaries are engaged in the manufacture, fabrication, and marketing of specialty metals and structural ceramics. There were no significant changes in the form of organization or mode of conducting business of Carpenter Technology Corporation (hereinafter called the Company) during the year ended June 30, 1994, except for the transactions described below:
On July 28, 1993, the Company purchased all of the capital stock (the "Stock") of Aceros Fortuna, S.A. de C.V. and two related companies ("Fortuna"). Fortuna is the largest distributor of specialty steel long products (those in bar, rod, wire or strip forms) in Mexico. Fortuna also operates a heat treatment facility and a leasing company, in Mexico City. The purchase price for the Stock was $20.4 million. In addition, the Company paid $2.5 million for agreements not to compete and paid acquisition costs. This investment is being accounted for using the purchase method of accounting.
On September 2, 1993, the Company acquired for $45.0 million in cash, 19 percent of the shares of Walsin-CarTech Specialty Steel Corporation, a joint venture with Walsin Lihwa Corporation in Taiwan. The joint venture has constructed a facility and installed equipment in this facility in Taiwan to manufacture and distribute specialty steel. Initial production trial runs of steel began in July 1994. The Company has an option to acquire up to an additional 16 percent of the outstanding shares of the joint venture from Walsin Lihwa at any time until July 1, 1996. Alternatively, the Company may require Walsin Lihwa to purchase its 19 percent ownership for the original purchase cost at any time up to July 1, 1997. This investment is being accounted for using the equity method of accounting.
In addition, on July 22, 1994, the Company acquired all of the outstanding shares of Certech, Inc. and an affiliated company (Certech), for $16.0 million comprised of $12.8 million in cash and the balance in shares of Carpenter common stock. Certech, with plants in New Jersey, Pennsylvania and the United Kingdom had sales of about $17 million in fiscal 1994. It is a recognized leader in the technology and manufacturing of structural ceramic products.
The acquisition of Certech enabled the Company to quickly attain a substantial position in the structural ceramics market.
(b) Financial Information About Industry Segments:
The Company is primarily engaged in one business segment, the manufacture, fabrication and marketing of specialty metals.
(c) Narrative Description of Business:
(1) Products:
The Company processes basic raw materials such as chromium, nickel, 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. Sales of finished products include:
STAINLESS STEELS - A broad range of corrosion resistant alloys including conventional stainless steels and many proprietary grades for special applications.
SPECIAL ALLOYS - Other special purpose alloys used in critical components such as bearings and fasteners. Heat resistant alloys that range from slight modifications of the stainless steels to complex nickel and cobalt base alloys. Alloys for electronic, magnetic and electrical applications with controlled thermal expansion characteristics, or high electrical resistivity or special magnetic characteristics. Special stainless steels and zirconium base alloys for nuclear reactors.
TOOL STEELS - 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 - Carbon steels purchased for distribution and other miscellaneous products.
The products of the Company are sold primarily in the United States and principally through its own sales organization with service centers and sales offices located in many of the major cities of the country. Sales outside of the United States, including export sales, were $67.1 million, $30.7 million and $33.9 million in fiscal 1994, 1993 and 1992, respectively.
(2) Classes of Products:
The approximate percentage of the Company's consolidated net sales contributed by the major classes of products for the last three fiscal years are as follows:
1994 1993 1992 ---- ---- ---- Stainless Steel 60% 60% 57% Special Alloys 29% 33% 36% Tool Steel 8% 7% 7% Other 3% - - ---- ---- ---- 100% 100% 100% ==== ==== ==== (3) Raw Materials:
The Company depends on continued delivery of critical raw materials for its day-to-day operations. These raw materials are nickel, ferrochrome, cobalt, molybdenum, manganese and scrap, both alloy and steel. 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.
The Company is in a strong raw material position because of its long-term relationships with major suppliers. These suppliers provide material availability and competitive prices for these key raw materials.
The Company has also established and maintains raw material inventory at appropriate levels at the Reading plant. These raw materials inventory levels are balanced to meet inventory targets while maintaining continued operations during potential periods of disruption.
(4) Patents and Licenses:
The Company and its subsidiaries and affiliates own a number of United States and foreign patents and have granted licenses under some or all of them. Certain of the products produced by the Company are covered by patents of other companies from whom licenses have been obtained. The Company does not consider its business to be materially dependent upon any patent or patent rights.
(5) Seasonality of Business:
The Company'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 shutdowns in this period by the Company 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 quarters for the past three fiscal years:
1994 1993 1992 ---- ---- ---- Quarter Ended September 30 21% 24% 22% Quarter Ended December 31 23% 21% 23% Quarter Ended March 31 28% 27% 29% Quarter Ended June 30 28% 28% 26% ---- ---- ---- 100% 100% 100% ==== ==== ==== (6) Customers:
The Company 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 on the Company.
(7) Backlog:
As of August 31, 1994, the Company had a backlog of orders, believed to be firm, of approximately $196.0 million, substantially all of which is expected to be shipped within the current fiscal year. The backlog as of August 31, 1993 was approximately $122.0 million.
(8) Competition:
The business of the Company is highly competitive. There are 14 major domestic companies producing one or more similar specialty metal products in competition with the Company. Furthermore, a number of different products may, in certain instances, be substituted for the Company's finished product. Additionally, numerous foreign producers import into the United States various specialty metal products similar to those produced by the Company. Imports of foreign specialty steels have long been a serious 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.
The Voluntary Restraint Arrangements (VRA's) limiting the volume of foreign specialty steel products which could be exported to the United States expired as scheduled in 1992. The U.S. Government chose not to extend the VRA's, leaving the domestic producers with the alternative of filing unfair trade actions against foreign specialty steel producers.
In January 1994, the International Trade Commission (ITC) ruled that the domestic industry had been injured by dumped stainless steel rod imports from Brazil, France and India and the U.S. Department of Commerce issued dumping orders against the three countries targeted. As a result, additional duties will be collected at margins ranging from 24.6% to 26.5% against Brazil, 24.59% against France and 48.8% against India on all imports of stainless steel rod from those countries.
On December 30, 1993, the Company joined with six other domestic producers in filing new antidumping actions against imports of stainless steel bar from Brazil, India, Italy, Japan and Spain. In February 1994, the ITC determined that there was a preliminary indication of injury and, on July 28, 1994, the U.S. Department of Commerce issued a preliminary dumping determination against the five countries, with margins ranging up to 61%. As a result, importers are required to post bonds on cash deposits covering the amounts of the potential additional duties. The final determinations of dumping and injury are expected by the end of calendar 1994.
Negotiations by the U.S. Trade Representative with the major steel producing nations of the world to develop a Multilateral Steel Agreement (MSA) are continuing. The objective of the MSA would be to reduce unfair trade in steel products by establishing international commitments and disciplines aimed at eliminating subsidies and other trade-distortive practices.
(9) Research, Product and Process Development:
The Company's expenditures for company-sponsored research and development were approximately $13.6 million, $12.9 million and $14.0 million in fiscal 1994, 1993 and 1992, respectively.
(10) Environmental Regulations:
The Company, as well as other steel companies, is subject to various stringent federal, state, and local environmental laws and regulations. The liability for future environmental remediation costs is evaluated on a quarterly basis by management. The Company accrues amounts for environmental remediation costs which represent management's best estimate of the probable and reasonably estimable costs relating to environ- mental remediation. For further information on environmental remediation, see the Commitments and Contingencies section included in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 16 to the financial statements included in Item 8 "Financial Statements and Supplementary Data".
The costs of maintaining and operating environ- mental control equipment were about $8.5 million and $8.2 million for fiscal 1994 and 1993, respectively. The capital expenditures for environmental control equipment were about $.5 million and $2.6 million for fiscal 1994 and 1993, respectively. The Company anticipates spending approximately $15.0 million on major domestic environmental capital projects over the next five fiscal years. Due to the possibility of unanticipated factual or regulatory developments, the amount of future capital expenditures may vary.
(11) Employees:
As of August 31, 1994, the Company had 4,085 full- time employees.
Item 2.
Item 2. Properties
The locations of the Company's principal manufacturing plants are: Reading, Pennsylvania; Orangeburg, South Carolina; and San Diego, California. The Reading and Orangeburg plants are owned in fee. The San Diego plant is owned, but the land is leased.
The Company has an annual practical melting capacity of approximately 208,000 ingot tons of its normal product mix. The annual tons shipped will be considerably less than the tons melted due to finishing losses. During the years ended June 30, 1994 and 1993, the Company operated at approximately 78 percent and 70 percent, respectively, of its melting capacity due to significant reductions in its finished and process inventories.
The Company also operates sales offices and service centers, most of which are owned, at 35 locations in 15 states and 8 foreign countries.
The plants, service centers and offices of the Company have been acquired at various times over many years. There is an active maintenance program to keep facilities in good condition. In addition, the Company has had an active capital spending program to replace equipment as needed to keep it technologically competitive on a world-wide basis. The Company believes its facilities are in good condition and suitable for its business needs.
Item 3.
Item 3. 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 4.
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 and certain divisional 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 Shareholders. All of the corporate officers listed below have held responsible positions with the registrant for more than five years except for Nicholas F. Fiore and Robert W. Lodge.
Dr. Fiore served as Managing Director of Materials and Applied Physics for Arthur D. Little, Inc. in 1989, President of Cabot Ceramics, Inc. from 1986 to 1989, Vice President - Cabot High Performance Alloys from 1985 to 1986, Vice President and General Manager - Cabot Specialty Materials from 1983 to 1985, and Vice President and Corporate Director of Technology of Cabot Corporation from 1982 to 1983. Before joining Cabot, Dr. Fiore spent 15 years with the University of Notre Dame, serving as Professor and Chairman of the Department of Metallurgy and Materials Science from 1972 to 1981.
Mr. Lodge served as Vice President of Human Resources for Johnson Matthey, Inc. from 1988 to 1991 and in various assignments in industrial relations and human resources with Rockwell International Corporation from 1977 to 1988. There is no family relationship between any of the officers.
Assumed Present Name Age Positions Position - - - ---- --- ---------- --------- Robert W. Cardy 58 Chairman, President & Chief Executive Officer July 1992 Director November 1990
Donald C. Bristol 55 Senior Vice President - Steel Division January 1993
Edward B. Bruno 54 Controller October 1975
G. Walton Cottrell 54 Sr. Vice President - Finance & Chief Financial Officer January 1993
Nicholas F. Fiore 54 Senior Vice President - Strategic Businesses January 1993
Robert W. Lodge 51 Vice President - Human & Admin. Services September 1991
John A. Schuler 52 Treasurer November 1978
Robert J. Torcolini 43 Vice President - Manufacturing Operations, Steel Division January 1993
Richard J. Weiler 57 Vice President - Sales and Marketing, Steel Division January 1993
John R. Welty 45 Vice President - General Counsel & Secretary January 1993
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Common stock of the Company is listed on the New York Stock Exchange. The ticker symbol is CRS. Here are the high and low market prices of the Company's stock for the past two fiscal years:
Quarter Ended: 1994 1993 ________________________________________________________________ High Low High Low
September 30 $56-3/8 $49-3/8 $49-1/4 $41
December 31 $58-1/4 $50 $51-1/8 $43-3/8
March 31 $66-3/8 $56-1/2 $52-1/8 $48-3/8
June 30 $62-3/4 $56-1/2 $55-3/8 $47-3/8 ________________________________________________________________ $66-3/8 $49-3/8 $55-3/8 $41
The Company has paid quarterly cash dividends on its common stock for 88 consecutive years. The quarterly dividend rate has been $.60 per share for each of the past three years.
The Company had 5,977 common shareholders of record as of June 30, 1994. The balance of the information required by this item is disclosed in Note 8 to the financial statements included in Item 8 "Financial Statements and Supplementary Data".
Item 6.
Item 6. Selected Financial Data Five-Year Financial Summary Dollar amounts in thousands, except per share data (years ended June 30) 1994 1993 1992 1991 1990 ______________________________________________________________________ Summary of Operations
Net Sales $628,795 $576,248 $570,200 $562,476 $584,351 Income before extra- ordinary charges & cumulative effect of changes in accounting principles $ 38,289 $ 26,534 $ 14,884 $ 30,071 $ 45,017 Extraordinary charges net of income taxes $ (2,039)$ - $ (1,238)$ - $ - Cumulative effect of changes in accounting principles, net of income taxes $ - $(74,676)$ - $ - $ - Net income (loss) $ 36,250 $(48,142)$ 13,646 $ 30,071 $ 45,017
Financial Position at Year-End
Total assets $729,911 $699,565 $714,752 $716,995 $695,419 Long-term debt, net $158,070 $189,895 $196,604 $122,661 $126,503
Per Share Data Primary: Income before extra- ordinary charges & cumulative effects of changes in accounting principles $ 4.55 $ 3.11 $ 1.63 $ 3.52 $ 5.05 Net income (loss) $ 4.30 $ (6.21)$ 1.48 $ 3.52 $ 5.05 Fully Diluted: Income before extra- ordinary charges & cumulative effects of changes in accounting principles $ 4.40 $ 3.03 $ 1.63 $ 3.52 $ 5.05 Net income (loss) $ 4.16 $ (5.77)$ 1.48 $ 3.52 $ 5.05 Cash dividends-common $ 2.40 $ 2.40 $ 2.40 $ 2.40 $ 2.325
See Item 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT'S DISCUSSION OF OPERATIONS
Summary
Net sales and earnings trends for the past three fiscal years are summarized below:
(dollars in millions - except per share) 1994 1993 1992 __________________________________________________________________ Net sales $628.8 $576.2 $570.2 Income before extraordinary charges and cumulative effect of changes in accounting principles $ 38.3 $ 26.5 $ 14.9 Net income (loss) $ 36.3 $(48.1) $ 13.6 Primary earnings per share before extraordinary charges and cumulative effect of changes in accounting principles $ 4.55 $ 3.11 $ 1.63 Primary earnings (loss) per share $ 4.30 $ (6.21) $ 1.48 __________________________________________________________________
Fiscal 1994 and 1992 results were adversely affected by extraordinary charges for debt retirement as described in Note 7 to the financial statements. Fiscal 1993 results were reduced by a large, one-time retroactive charge for the cumulative effect of adopting two accounting changes as described in Note 1 to the financial statements.
Earnings before the extraordinary charges and accounting changes improved in each of the past two years as a result of the improved economy and internal programs for cost reduction, asset utilization and market share enhancements.
The chart below shows net sales by product line for the past three fiscal years:
1994 1993 1992 (dollars in millions) Sales % Sales % Sales % __________________________________________________________________
Stainless steel $375.0 60 $342.9 60 $325.3 57 Special alloys 182.4 29 190.3 33 205.8 36 Tool steel 49.6 8 43.0 7 39.1 7 Other 21.8 3 - - - - __________________________________________________________________ Total $628.8 100 $576.2 100 $570.2 100 ==================================================================
The following table is the approximate breakdown of sales by end- use markets (excludes sales of Aceros Fortuna in 1994):
Years Ended June 30 1994 1993 1992 ________________________________________________________________ Metal producing and distribution 14% 13% 11% Motor vehicles and equipment 14 13 13 Aerospace 12 14 16 Electrical and electronic equipment 12 12 12 General industrial equipment 11 11 11 Power generation and distribution 8 7 7 Metal working equipment 7 7 6 Chemical and petroleum processing 5 5 6 Consumer durables 5 5 5 Instruments and controls 4 4 5 Housing and construction 3 3 3 Miscellaneous 5 6 5 ________________________________________________________________ 100% 100% 100% ================================================================
Results of Operations - Fiscal 1994 Versus Fiscal 1993
Sales were $628.8 million in fiscal 1994, up 9 percent from the fiscal 1993 level of $576.2 million. Approximately 60 percent of the increase was from the inclusion, in fiscal 1994, of the results of Aceros Fortuna, S.A. de C.V., a Mexican steel distribution company, which was acquired in July 1993 (described in Note 2 to the financial statements).
The remainder of the sales improvement was due to an 8 percent increase in unit volume shipments of the Steel Division. Demand for stainless bar and wire products was at a high level, especially in the January to June 1994 period. Also, mill-direct business in commodity-priced products was accepted to more fully utilize production capability. This strategy and reduced sales of high temperature alloys for the aerospace industry resulted in a lower-priced sales mix. Unit selling prices for domestic specialty steel shipments fell an average of 2 percent due to lower nickel costs and continued competitive price pressures, particularly from imported products.
Cost of sales as a percentage of sales decreased to 73 percent versus 76 percent a year earlier. The improved cost ratio was chiefly the result of the increased production level and manufacturing efficiency gains for the Steel Division. These favorable effects were partially offset by the lower unit selling prices. Cost of sales in each of the last two fiscal years was favorably affected by reductions in inventories valued using the LIFO method. The LIFO method values inventory reductions at historical costs which were lower than current costs. This favorable effect on costs, before taxes and profit sharing impacts, was $24.9 million in fiscal 1994 and $25.7 million in fiscal 1993.
Raw material costs per unit purchased decreased by 6 percent during fiscal 1994 versus the year-earlier costs primarily because of a 15 percent drop in the cost of nickel. Labor costs for Steel Division production and maintenance employees were up by 4 percent as a result of base wage increases in July 1993 and higher profit sharing payments. Excluding the Company's Mexican operations, there was a decrease of about 40 salaried employees during fiscal 1994, offsetting most of the increase in salaries due to inflation.
Natural gas costs per unit consumed increased by 27 percent over fiscal 1993's level, but electricity costs per unit fell by 13 percent.
Selling and administrative expenses increased by $10.3 million during fiscal 1994 due chiefly to the inclusion of Aceros Fortuna costs in fiscal 1994 and increased salaried employment costs.
Interest expense was lower by $5.1 million in fiscal 1994 principally because of the capitalization of $3.6 million of interest related to the investment in the Walsin-CarTech Specialty Steel Corporation in Taiwan (described in Note 3 to the financial statements). Also, interest rates were lower, especially since the retirement of the 12-7/8% debentures in March 1994.
Fiscal 1994 includes $.9 million of losses for the Company's 19 percent share of the losses of the Walsin-CarTech joint venture (described in Note 3 to the financial statements).
Other income decreased by $4.1 million primarily because fiscal 1993 income included a $3.7 million award in a patent suit.
Income taxes as a percent of pre-tax income (effective tax rate) increased to 39 percent in fiscal 1994 from 38 percent a year earlier because of an increase in the federal statutory rate. A reconciliation of the effective tax rate to the federal statutory rate is presented in Note 14 to the financial statements. During fiscal 1994, the Company retired at a premium, $55.3 million of its 12-7/8% debentures, and recorded an extraordinary charge of $2.0 million including unamortized discount and issue costs, net of $1.2 million of income tax benefits (described in Note 7 to the financial statements).
Results of Operations - Fiscal 1993 Versus Fiscal 1992
Sales increased by 1 percent in fiscal 1993. Total unit volume shipped increased by 6 percent while lower average selling prices and product mix changes reduced average selling prices by 2 percent and 3 percent, respectively. Fiscal 1993 sales were enhanced by securing additional mill-direct business for high turnover items to help fill vacancies in mill schedules. However, this additional business had lower than average selling prices and profit margins. The aerospace markets continued to weaken throughout the year. Selling prices were under continued pressure due to a very competitive market, increased imports and lower raw material costs.
Cost of sales as a percentage of sales decreased slightly in fiscal 1993 due to a $25.7 million positive effect on earnings of reductions in inventories valued using the LIFO method. This benefit was partially offset by the unfavorable effect of operating production facilities at lower capacity rates, a less profitable sales mix and lower unit selling prices.
Raw material costs per unit purchased decreased by 10 percent in fiscal 1993 from year-earlier levels. Nickel and chromium costs decreased by 16 percent and 7 percent, respectively.
Labor costs per-hour-worked for Steel Division production and maintenance employees increased by 14 percent in fiscal 1993. An average base wage increase of 4 percent on July 1, 1992, higher profit sharing payments and increased costs for retiree medical expenses were the chief factors. The salaried staff level was reduced by approximately 130 people as a result of a cost reduction program.
Other income increased by $5.0 million as a result of a $3.7 million award in a patent suit and an increase in interest income.
Interest expense increased in fiscal 1993 by 5 percent to $20.6 million due to a full-year effect of the fiscal 1992 refinancing of short-term debt to long-term debt at higher interest rates.
Income taxes as a percent of pre-tax income (effective tax rate) increased to 38 percent in fiscal 1993 from 34.8 percent in fiscal 1992 due to increased state income taxes.
MANAGEMENT'S DISCUSSION OF CASH FLOW AND FINANCIAL CONDITION
Cash Flow
Cash flow from operations remained at high levels throughout the past three fiscal years due to strong income before extraordinary charges and the cumulative effect of accounting changes and because of significant inventory reductions. A $10.0 million lump sum royalty payment received from Walsin-CarTech also improved cash flow during fiscal 1994 (see Note 3 to the financial statements).
Excluding the Aceros Fortuna inventory acquired, inventories decreased by $41.8 million in terms of current costs during fiscal 1994 as a result of the Company's Continuous Improvement process to reduce lead times while still maintaining a high customer service level. Since most of this reduction was in inventories accounted for on the LIFO method, the reduction was only $16.9 million in terms of historical costs for accounting purposes. The $24.9 million differential was reflected as a reduction in cost of sales during fiscal 1994. The Company's Continuous Improvement process also helped reduce inventories during fiscal 1993 by $88.9 million in terms of current costs.
Accounts receivable increased $1.9 million in fiscal 1994, excluding the Aceros Fortuna accounts receivable acquired, and $12.5 million in fiscal 1993, as a result of increased fourth quarter sales each year. The average days sales outstanding in 1994 was comparable to 1993.
Capital expenditures of $26.6 million in fiscal 1994 were concentrated in the Company's Reading, Pennsylvania, plant for normal replacements, modernization and incremental capability. The major capital projects were for the modernization of wire finishing operations and the purchase and installation of a second rotary forge.
On July 28, 1993, the Company acquired all of the outstanding shares of Aceros Fortuna and two affiliated companies for cash of $20.4 million and paid $2.5 million for agreements not to compete (described in Note 2 to the financial statements). On September 2, 1993, the Company acquired, for $45.0 million in cash, 19 percent of the shares of the Walsin-CarTech joint venture (described in Note 3 to the financial statements).
On March 1, 1994, the Company retired at a premium, the entire outstanding principal amount of $55.3 million of its 12-7/8% debentures. The funding for this retirement came from the Company's credit facilities, but is intended to be replaced with long-term debt in the future (described in Note 7 to the financial statements). Payments made on other long-term debt totaled $13.4 million and $6.8 million in fiscal 1994 and 1993, respectively.
The dividend payout rates on common and preferred stock were maintained at $2.40 and $5,362.50 per share, respectively, and totaled about $21.0 million in each of the past three years. Dividends on common stock will continue to be reviewed periodically in light of projected earnings trends and cash requirements.
In June 1989, the Board of Directors authorized the purchase of up to 1,200,000 shares of Carpenter common stock, and in September 1991, in conjunction with the establishment of an ESOP, the Board of Directors authorized the purchase of 600,000 shares of common stock to avoid the dilutive effect of the issuance of convertible stock to the ESOP. Shares purchased under these programs totaled 346,217 in fiscal 1992 and 253,800 in fiscal 1993 for a total of $28.3 million in cash. During fiscal 1993 and 1994, share repurchases were suspended in order to conserve cash for the investments discussed earlier.
Financial Condition
During fiscal 1992 through 1994, the Company maintained the ability to provide adequate cash to meet its needs through strong cash flow from operations, management of working capital and its flexibility to use outside sources of financing to supplement internally generated funds.
Fiscal 1994 ended in a sound liquidity position, with current assets exceeding current liabilities by $72.7 million (a ratio of 1.7 to 1). This favorable ratio is conservatively stated because inventories are valued $125.7 million less than the current cost as a result of using the LIFO method. Total debt at June 30, 1994 was $173.7 million or 35.7 percent of total capital, including deferred taxes, versus 41.0 percent of total capital, including deferred taxes, at June 30, 1993.
In January 1994, the Company entered into a $150.0 million financing arrangement with a number of banks, providing for the availability of $125.0 million of revolving credit to January 1998 and lines of credit of $25.0 million. This facility was used to fund the cash portion of the acquisition of Certech, Inc. (described in Note 17 to the financial statements). Interest is based on short-term market rates or competitive bids.
This financing arrangement replaced a previous revolving credit and lines of credit arrangement.
In summary, we believe that our present financial resources, both from internal and external sources, are adequate to meet our foreseeable short-term and long-term liquidity needs.
Commitments and Contingencies
Environmental The Company has environmental liabilities at some of its owned operating facilities, and has been designated as a "potentially responsible party" with respect to certain superfund waste disposal sites. Additionally, the Company has been notified that it may be a potentially responsible party with respect to other superfund sites as to which no proceedings have been instituted against the Company. Neither the exact amount of cleanup costs nor the final method of their allocations among all designated potentially responsible parties at these superfund sites has been determined. The estimated range of the reasonably possible costs of remediation at the Company-owned operating facilities and the superfund sites is between $7.0 million and $15.0 million. The Company has accrued for environmental remediation costs which represent management's best estimate of the probable and reasonably estimable remediation costs. Additional details are provided in Note 16 to the financial statements. The Company 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 The Company is also defending various claims and legal actions, and is subject to commitments and contingencies which are common to its operations. The Company provides for costs relating to these matters when a loss is probable and the amount is reason- ably estimable. Additional details are provided in Note 16 to the financial statements. 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 the Company's financial position.
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Item 8.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Data
Page ---- Financial Statements:
Report of Independent Accountants 20
Consolidated Statement of Income for the Years Ended June 30, 1994, 1993 and 1992 21
Consolidated Statement of Cash Flows for the Years Ended June 30, 1994, 1993 and 1992 22
Consolidated Balance Sheet as of June 30, 1994 and 1993 23
Consolidated Statement of Changes in Shareholders' Equity for the Years Ended June 30, 1994, 1993, and 1992 24-25
Notes to Financial Statements 26-42
Supplementary Data:
Quarterly Financial Data (Unaudited) 43-44
Report of Independent Accountants
To the Shareholders of Carpenter Technology Corporation:
We have audited the accompanying consolidated financial statements of Carpenter Technology Corporation and subsidiaries listed in the index on page 19 of this Form 10-K. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Carpenter Technology Corporation and subsidiaries as of June 30, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company changed its methods for accounting for income taxes and postretirement benefits other than pensions in the year ended June 30, 1993.
s/Coopers & Lybrand COOPERS & LYBRAND
2400 Eleven Penn Center Philadelphia, Pennsylvania July 26, 1994
Consolidated Statement of Income Carpenter Technology Corporation and Subsidiaries for the years ended June 30, 1994, 1993 and 1992 (in thousands, except per share data) _________________________________________________________________ 1994 1993 1992
Net sales $628,795 $576,248 $570,200 _________________________________________________________________ Costs and expenses: Cost of sales 458,473 436,057 439,785 Selling and administrative expenses 92,525 82,214 80,829 Interest expense 15,521 20,594 19,637 Equity in loss of joint venture 910 - - Special charge - - 7,500 Other income, net (1,362) (5,416) (378) _________________________________________________________________ 566,067 533,449 547,373 _________________________________________________________________ Income before income taxes, extraordinary charges and cumulative effect of changes in accounting principles 62,728 42,799 22,827 Income taxes 24,439 16,265 7,943 _________________________________________________________________ Income before extraordinary charges and cumulative effect of changes in accounting principles 38,289 26,534 14,884 Extraordinary charges - premium on retirement of long-term debt, net of income taxes (2,039) - (1,238) Cumulative effect of changes in accounting principles, net of income taxes - (74,676) - _________________________________________________________________ Net income (loss) $ 36,250 $(48,142) $ 13,646 ================================================================= Primary earnings (loss) per common share: Income before extraordinary charges and cumulative effect of changes in accounting principles $ 4.55 $ 3.11 $ 1.63 Extraordinary charges (.25) - (.15) Cumulative effect of changes in accounting principles - (9.32) - _________________________________________________________________ Earnings (loss) per common share $ 4.30 $ (6.21) $ 1.48 ================================================================= Weighted average common shares outstanding 8,065 8,009 8,342 ================================================================= Fully-diluted earnings (loss) per common share: Income before extraordinary charges and cumulative effect of changes in accounting principles $ 4.40 $ 3.03 $ 1.63 Extraordinary charges (.24) - (.15) Cumulative effect of changes in accounting principles - (8.80) - _________________________________________________________________ Earnings (loss) per common share $ 4.16 $ (5.77) $ 1.48 ================================================================= Weighted average common shares outstanding 8,543 8,500 8,721 =================================================================
See accompanying notes to consolidated financial statements.
Consolidated Statement of Cash Flows Carpenter Technology Corporation and Subsidiaries for the years ended June 30, 1994, 1993 and 1992 _________________________________________________________________ (in thousands) 1994 1993 1992
OPERATIONS Net income (loss) $ 36,250 $(48,142) $ 13,646 Adjustments to reconcile net income (loss) to net cash provided from operations: Depreciation and amortization 28,983 26,947 25,657 Deferred income taxes 4,057 10,953 3,125 Prepaid pension cost (11,563) (11,834) (9,875) Equity in loss of joint venture 910 - - Extraordinary charges 2,039 - 1,238 Cumulative effect of changes in accounting principles - 74,676 - Special charge - - 7,500 Changes in working capital and other: Receivables (1,889) (12,497) 4,030 Inventories 16,907 63,137 29,644 Other, net 23,772 (8,192) (13,154) _________________________________________________________________ Net cash provided from operations 99,466 95,048 61,811 _________________________________________________________________ INVESTING ACTIVITIES Purchases of plant and equipment (26,604) (20,563) (35,042) Disposals of plant and equipment 3,144 405 1,762 Investment in joint venture (49,196) - - Acquisition of wholly-owned subsidiaries, net of cash received (22,323) - - _________________________________________________________________ Net cash used for investing activities (94,979) (20,158) (33,280) _________________________________________________________________ FINANCING ACTIVITIES Payments on short-term debt (2,794) - (60,231) Proceeds from issuance of long-term debt 45,851 - 99,485 Payments on long-term debt (71,271) (6,843) (24,492) Dividends paid (20,824) (20,868) (21,339) Proceeds from issuance of common stock 4,245 955 211 Payments to acquire treasury stock - (11,633) (16,700) Preferred stock issuance cost - - (850) _________________________________________________________________ Net cash used for financing activities (44,793) (38,389) (23,916) _________________________________________________________________ EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (112) - - _________________________________________________________________ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (40,418) 36,501 4,615 _________________________________________________________________ Cash and cash equivalents at beginning of year 45,822 9,321 4,706 _________________________________________________________________ Cash and cash equivalents at end of year $ 5,404 $ 45,822 $ 9,321 ================================================================= Supplemental Data: Interest payments, net of amounts capitalized $ 17,592 $ 22,195 $ 19,809 Income tax payments, net of refunds $ 18,066 $ 2,538 $ 4,129 _________________________________________________________________
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheet Carpenter Technology Corporation and Subsidiaries June 30, 1994 and 1993 _________________________________________________________________ (in thousands, except share data) 1994 1993
ASSETS Current Assets: Cash and cash equivalents $ 5,404 $ 45,822 Accounts receivable, net 95,412 90,426 Inventories 65,262 70,590 Deferred income taxes 463 2,737 Other current assets 4,629 7,120 _________________________________________________________________ Total current assets 171,170 216,695 _________________________________________________________________ Property, plant and equipment, net 391,840 391,129 _________________________________________________________________ Prepaid pension cost 73,185 61,602 _________________________________________________________________ Investment in joint venture 48,576 - _________________________________________________________________ Other assets 45,140 30,139 _________________________________________________________________ Total assets $729,911 $699,565 =================================================================
LIABILITIES Current liabilities: Accounts payable $ 35,478 $ 24,328 Accrued compensation 18,654 14,457 Accrued income taxes 616 2,080 Other accrued liabilities 28,153 25,951 Current portion of long-term debt 15,618 6,617 _________________________________________________________________ Total current liabilities 98,519 73,433 _________________________________________________________________ Long-term debt, net of current portion 158,070 189,895 _________________________________________________________________ Accrued postretirement benefits 139,365 143,876 _________________________________________________________________ Deferred income taxes 74,739 66,765 _________________________________________________________________ Other liabilities and deferred income 20,074 7,135 _________________________________________________________________ SHAREHOLDERS' EQUITY Preferred stock, $5 par value - authorized 2,000,000 shares 29,029 29,128 Common stock, $5 par value - authorized 50,000,000 shares 48,061 47,542 Capital in excess of par value 50,882 46,131 Reinvested earnings 204,667 189,241 Common stock in treasury, at cost (66,150) (66,150) Deferred compensation (26,386) (27,431) Foreign currency translation adjustments (959) - _________________________________________________________________ Total shareholders' equity 239,144 218,461 _________________________________________________________________ Total liabilities and shareholders' equity $729,911 $699,565 =================================================================
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 the Company and all majority-owned subsidiaries. All significant intercompany accounts and transactions are eliminated. The equity method of accounting is used when the Company has less than a 50% interest in other entities. Under the equity method, original investments are recorded at cost and adjusted by the Company's share of undistributed earnings or losses of these entities.
Business Segment
The Company is engaged in one business segment, the manufacture, fabrication and distribution of specialty metals.
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.
Depreciation
Depreciation for financial reporting purposes is computed by the straight-line method. This method allocates depreciation equally over the estimated lives of the assets, which principally are 45 years for buildings and 20 years for machinery and equipment. Depreciation for income tax purposes is computed using accelerated methods.
Goodwill and Covenants Not to Compete
Other assets include goodwill and covenants not to compete arising from the acquisition of Aceros Fortuna. The covenants are being amortized on a straight-line basis over their 4 year contractual life. Goodwill, representing the excess of the purchase price over the estimated fair value of the net assets of Aceros Fortuna, is being amortized on a straight-line basis over 20 years. The Company's policy is to record an impairment loss against the goodwill in the period when it is determined that the carrying amount of the asset may not be recoverable. This determination includes evaluation of factors such as current market value, future
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
asset utilization, business climate and future cash flows expected to result from the use of the net assets.
Environmental Expenditures
Environmental expenditures that pertain to current operations or relate to future revenues are expensed or capitalized consistent with the Company's capitalization policy. Expenditures that result from the remediation of an existing condition caused by past operations, 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 a receivable only when they are estimable and probable.
Foreign Currency Translation
The functional currency for the majority of the Company's international operations is the local currency, and, accordingly, the respective assets and liabilities are translated at year-end exchange rates, while the income and expense components are translated at average exchange rates prevailing during the year. The resulting translation adjustments are accumulated in a separate section of shareholders' equity on the consolidated balance sheet. All gains and losses resulting from foreign currency transactions are reflected in income.
Futures Contracts and Commodity Price Swaps
In connection with the anticipated purchase of nickel for certain future sales, the Company enters into nickel futures contracts and commodity price swaps to reduce the risk of nickel cost increases. These futures contracts and commodity price swaps are accounted for as hedges, and, accordingly, gains and losses are deferred and included in cost of sales as part of the nickel cost in the periods when the nickel purchases are made. At June 30, 1994, the Company had entered into contracts hedging future commodity purchases of approximately $19.7 million. The fair market value of these contracts was $21.3 million.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Changes in Accounting Principles
During fiscal 1993, the Company adopted two financial accounting standards, "Employers' Accounting for Postretirement Benefits Other than Pensions" (SFAS 106) and "Accounting for Income Taxes" (SFAS 109).
SFAS 106 requires companies to accrue the cost of postretirement benefits over the years employees provide services to the date of their full eligibility for such benefits. Previously, these costs were expensed as claims were incurred. The Company elected to immediately recognize the transition obligation for benefits earned as of July 1, 1992, resulting in a non-cash charge of $146.8 million pre-tax ($87.1 million after taxes or $10.87 per share), representing the cumulative effect of the change in accounting. The expense accrued in fiscal 1993 under the new method exceeded the amount under the previous method by $7.4 million pre-tax ($4.3 million after taxes or $.54 per share).
SFAS 109 changes the method of accounting for income taxes from the deferral method to the asset/liability method. Under this method, deferred income taxes are determined based on enacted tax laws and rates, which are applied to the differences between the financial statement bases and tax bases of assets and liabilities. The adoption of this statement resulted in a credit to income of $12.4 million ($1.55 per share) principally for the cumulative effect of restating deferred taxes as of July 1, 1992 to current tax rates. This new standard also increased the deferred taxes provided during fiscal 1993 by $1.8 million ($.23 per share).
Financial statements of years prior to fiscal 1993 were not restated for the adoption of these new standards.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Company-Owned Life Insurance Program
During fiscal 1994, the Company established a Company-Owned Life Insurance program covering essentially all of the U.S. based employees. At June 30, 1994, the cash surrender value ($27.4 million) and the insurance policy loans ($27.2 million) were netted and included in other assets on the consolidated balance sheet. The purpose of the program is to provide cash to fund employee benefit obligations and for other corporate purposes.
2. ACQUISITION OF WHOLLY-OWNED SUBSIDIARIES
On July 28, 1993, the Company acquired all of the outstanding shares of Aceros Fortuna, S.A. de C.V., a Mexican steel distribution company, and two affiliated companies for cash of $20.4 million, paid $2.5 million for agreements not to compete, and paid acquisition costs. In addition, the Company acquired equipment from an affiliated company in Mexico for $5.1 million.
The acquisition has been accounted for using the purchase method of accounting, and, accordingly, the purchase price has been allocated to the assets purchased and the liabilities assumed based upon the fair values at the date of acquisition. The excess of the purchase price over the fair values of the net assets acquired was $8.2 million and has been recorded as goodwill, which is being amortized on a straight-line basis over 20 years. The amount of goodwill amortization for fiscal 1994 was $.4 million.
The net purchase price was allocated as follows:
(in thousands)
Working capital, other than cash $ 6,552 Property, plant and equipment 6,634 Other assets 2,661 Goodwill 8,213 Other liabilities (1,737) -------- Purchase price, net of cash received $ 22,323 ========
The operating results of these acquired businesses have been included in the consolidated statement of income from the date of acquisition. On the basis of a pro forma consolidation of the results of operations as if the acquisition had taken place at the beginning of fiscal 1993 rather than at July 28, 1993, consolidated net sales would have been $631.5 million for fiscal 1994, and $609.8 million for fiscal 1993. Consolidated pro forma income and earnings
2. ACQUISITION OF WHOLLY-OWNED SUBSIDIARIES (continued)
per share, before the cumulative effect of accounting changes and extraordinary charge, would not have been materially different from the reported amounts for fiscal 1994 and 1993. Such pro forma amounts are not necessarily indicative of what the actual consolidated results of operations might have been if the acquisition had been effective at the beginning of fiscal 1993.
3. INVESTMENT IN JOINT VENTURE
On September 2, 1993, the Company acquired for $45.0 million in cash, 19 percent of the shares of Walsin-CarTech Specialty Steel Corporation, a joint venture with Walsin Lihwa Corporation in Taiwan. The joint venture has constructed a facility and installed equipment in this facility in Taiwan to manufacture and distribute specialty steel. The Company has an option to acquire up to an additional 16 percent of the outstanding shares of the joint venture from Walsin Lihwa at any time until July 1, 1996. Alternatively, the Company may require Walsin Lihwa to purchase its 19 percent ownership for the original purchase cost at any time up to July 1, 1997.
This investment is being accounted for using the equity method of accounting. The investment account has been increased for interest costs capitalized during the preoperating period, totaling $3.6 million, and for acquisition costs. The Company's share of the joint venture's foreign currency translation adjustments is reflected in both the investment account and shareholders' equity on the consolidated balance sheet.
Condensed financial information of the joint venture for fiscal 1994 is summarized below:
(in thousands) -------------- Condensed Financial Information: Current assets $ 17,334 Non-current assets $277,878 Current liabilities $ 62,331 Shareholders' equity $232,881 Loss for the year $ 4,789
A separate agreement also provides for the Company to provide marketing and technical assistance to the joint venture in exchange for an initial lump sum royalty payment of $10.0 million, received in October 1993, and continuing royalties based on sales over the 10-year term of the agreement. The initial lump sum royalty has been deferred and is being recognized as income over the term of the agreement.
3. INVESTMENT IN JOINT VENTURE (continued)
In addition, the joint venture and the Company entered into distribution agreements establishing the joint venture as the exclusive distributor of the Company's Steel Division products in countries throughout Asia and the Company as the exclusive distributor of the joint venture's products in North, Central and South America.
4. INVENTORIES June 30 ___________________ (in thousands) 1994 1993 ___________________________________________________________ Finished $ 76,187 $ 97,129 Work in process 85,247 80,072 Raw materials and supplies 29,558 31,472 ___________________________________________________________ Total at current cost 190,992 208,673 ___________________________________________________________ Less excess of current cost over LIFO values 125,730 138,083 ___________________________________________________________ $ 65,262 $ 70,590 ===========================================================
Current cost of LIFO-valued inventories was $165.8 million at June 30, 1994 and $192.7 million at June 30, 1993. Reductions in LIFO-valued inventories resulted in an increase in income before extraordinary charge and cumulative effect of changes in accounting principles of approximately $12.1 million or $1.50 per share and $13.4 million or $1.67 per share in the years ended June 30, 1994 and 1993, respectively.
5. PROPERTY, PLANT AND EQUIPMENT June 30 ___________________ (in thousands) 1994 1993 ___________________________________________________________ Land $ 8,304 $ 6,907 Buildings and building equipment 143,714 140,411 Machinery and equipment 554,449 545,708 Construction in progress 17,253 6,243 ___________________________________________________________ Total at cost 723,720 699,269 ___________________________________________________________ Less accumulated depreciation and amortization 331,880 308,140 ___________________________________________________________ $391,840 $391,129
===========================================================
6. OTHER ACCRUED LIABILITIES
June 30 ___________________ (in thousands) 1994 1993 ___________________________________________________________ Medical expenses $ 11,455 $ 6,414 Interest 3,417 5,840 Environmental costs 2,427 3,550 Other 10,854 10,147 ___________________________________________________________ $ 28,153 $ 25,951 ===========================================================
7. DEBT ARRANGEMENTS
In January 1994, the Company entered into a $150.0 million financing arrangement with a number of banks, providing for the availability of $125.0 million of revolving credit to January 1998 and lines of credit of $25.0 million. Interest is based on short-term market rates or competitive bids. This financing arrangement replaced a previous revolving credit and lines of credit arrangement.
At June 30, 1994, the Company had on file a Form S-3 registration statement ("Shelf Registration") with the Securities and Exchange Commission to provide for the issuance of up to $100.0 million of medium-term debt securities. The net proceeds from any offering under this Shelf Registration will be added to the Company's working capital and be available for general corporate purposes.
For the years ended June 30, 1994, 1993 and 1992, interest cost totaled $19.6 million, $21.8 million and $20.6 million, of which $4.1 million, $1.2 million, and $1.0 million, respectively, was capitalized.
Long-term debt outstanding at June 30, 1994 and 1993, is summarized as follows:
(in thousands) 1994 1993 ________________________________________________________________________ 9% Sinking fund debentures due 2022; sinking fund requirements are $5.0 million annually from 2003 to 2021 $ 99,525 $99,508 12-7/8% Sinking fund debentures due 2014 - 55,561 Borrowings under credit arrangements at 4.4% to 4.7% 39,339 - 9.4% Notes due in annual installments of $3.6 million through 1997 10,714 14,286 9.89% Senior notes, series A, due in 1995 9,000 9,000 10.45% Senior notes, series B, due in annual installments of $3.0 million through 1999 15,000 18,000 Capitalized lease obligations at 8.3% to 9.5% due in installments through 1998 110 157 _______________________________________________________________________ 173,688 196,512 Less amounts due within one year 15,618 6,617 _______________________________________________________________________ $158,070 $189,895 =======================================================================
Aggregate maturities of long-term debt for the four years subsequent to June 30, 1995 are $6.6 million in fiscal 1996 and $3.0 million in fiscal 1997 through 1999. The fair value of long-term debt as of June 30, 1994, determined by using current interest rates and market values of similar issues, was approximately $179.0 million.
During fiscal 1994, the Company used proceeds from the revolving credit facilities to retire at a premium $55.3 million of its 12-7/8% debentures originally due in 2014. This retirement resulted in an extraordinary charge of $2.0 million including unamortized discount and issue costs, net of $1.2 million of income tax benefits, or $.25 per share. Although the funding for the retirement principally came from the Company's credit facilities, it is intended to be replaced with long-term debt in the future. Consequently, such debt of $39.3 million at June 30, 1994 was classified as long-term debt on the consolidated balance sheet.
During fiscal 1992, the Company used proceeds from short- term borrowings to retire at a premium $18.4 million of its 12-7/8% debentures originally due in 2014. This retirement resulted in an extraordinary charge of $1.2 million including unamortized discount and issue costs, net of $.7 million of income tax benefits, or $.15 per share.
The Company's financing arrangements contain restrictions which, among other things, limit the aggregate amount of the Company's dividends. Reinvested earnings available for dividends at June 30, 1994 were approximately $62.5 million.
8. COMMON STOCK PURCHASE RIGHTS
The Company has issued one common stock purchase right ("Right") for every outstanding share of common stock. 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 the Company'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 the Company's common stock, or (3) 10 days after the Company's Board of Directors determines that a holder of 15 percent or more of the Company's shares has an interest adverse to those of the Company or its shareholders (an "adverse person"). Upon distribution, each Right would then entitle a holder to buy from the Company one newly issued share of its common stock for an exercise price of $90. 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 the Company and holder of 20 percent or more of the Company'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 the Company (depending on the circumstances) having a market value equal to twice the exercise price of the Right. The Rights may be redeemed by the Company for $.05 per Right at any time before they become exercisable and expire June 26, 1996.
9. COMMON STOCK OPTIONS
The Company has three incentive stock option plans for officers and key employees: a 1993 plan, a 1982 plan and a 1977 plan.
The 1993 plan provides that the Board of Directors may grant incentive stock options, non-qualified stock options, stock appreciation rights and restricted stock, and will determine the terms and conditions of each grant. 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. Incentive stock options granted during the ten-year term of the plan may not exceed 500,000 shares plus any shares canceled or expired. The number of shares available annually for awards under this plan is limited to one percent of the common shares outstanding at the end of the preceding fiscal year plus shares available, but not awarded, during the preceding two
years and any shares or options forfeited, expired or terminated. Restricted stock awards vest equally at the end of each year of employment for the five-year period from the date of grant. When the restricted shares are issued, deferred compensation is recorded in the shareholders' equity section of the consolidated balance sheet. The deferred compensation is charged to expense over the vesting period. During fiscal 1994, $.2 million was charged to expense. As of June 30, 1994 and 1993, 10,582 and 7,864 shares, respectively, were reserved for options and restricted stock which may be granted under this plan.
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. Options granted under the 1982 plan expire five years after grant if granted prior to August 9, 1990, and all the options granted since that date expire ten years after grant. Options granted under the 1977 plan expire ten years after grant. At June 30, 1994 and 1993, 142,360 shares were reserved for options which may be granted under the 1977 plan.
The Company also has a stock option plan which provides for the granting of stock options 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, 1994 and 1993, 51,000 and 58,500 shares, respectively, were reserved for options which may be granted under this plan.
A summary of the options and transactions for the past three years follows:
Number Option Price of Shares per Share ___________________________________________________________ Balance June 30, 1991 309,340 $38.00-$51.50 (93,365 shares exercisable) Granted 103,640 $47.63-$52.00 Exercised (14,096) $38.00-$46.00 Cancelled (20,044) $38.00-$51.00 ___________________________________________________________ Balance June 30, 1992 378,840 $38.00-$52.00 (275,200 shares exercisable) Granted 65,690 $44.75-$54.13 Exercised (27,710) $38.00-$51.00 Cancelled (23,785) $45.00-$51.00 ___________________________________________________________ Balance June 30, 1993 393,035 $38.00-$54.13 (327,345 shares exercisable) Granted 68,380 $53.75-$60.38 Exercised (97,659) $38.00-$51.50 Cancelled (1,580) $48.25-$54.13 ___________________________________________________________ Balance June 30, 1994 (293,796 shares exercisable) 362,176 $38.00-$60.38 ===========================================================
Of the 362,176 options outstanding at June 30, 1994, 120,470 relate to the 1993 plan, 147,876 relate to the 1982 plan, 61,830 relate to the 1977 plan and 32,000 relate to the plan for non-employee Directors. No adjustments to income are made with respect to options granted or exercised under the plans.
10. PENSION PLANS
The Company has several noncontributory defined benefit pension plans, which cover substantially all employees. The benefits are based primarily upon employees' years of service and average earnings prior to retirement. The Company's funding policy for the domestic plans is to contribute, at a minimum, amounts sufficient to meet ERISA requirements. Plan assets are held in trust, and consist primarily of publicly traded common stocks and fixed income instruments. The underfunded plans include the pension plan of the Company's Mexican operations and several supplemental retirement plans for certain key employees and outside Directors.
Net pension credits included the following components:
(in thousands) 1994 1993 1992 ___________________________________________________________ Service cost of benefits earned $ 9,891 $ 8,950 $ 7,649 Interest cost on projected benefit obligation 25,576 24,765 24,250 Return on plan assets: Actual (8,351) (47,148) (60,077) Deferred (34,297) 6,771 23,113 Net amortization and deferral (3,304) (4,435) (4,139) ___________________________________________________________ Net pension credits $(10,485) $(11,097) $ (9,204) =========================================================== Principal actuarial assumptions: Discount rate 7.5% 8.0% 8.5% Long-term rate of compensation increase 4.5% 4.5% 4.4% Long-term rate of return on plan assets 9.0% 9.0% 9.0% ===========================================================
The .5% reductions in the discount rates increased expense $1.8 million in both fiscal 1994 and 1993.
The funded status of these plans at June 30, 1994 and 1993, is summarized as follows:
Overfunded Underfunded (in thousands) 1994 1993 1994 1993 _____________________________________________________________________ Actuarial present value of benefit obligations: Vested benefit obligation $260,008 $278,224 $ 6,523 $4,499 Accumulated benefit obligation 293,755 308,739 7,738 4,562 Projected benefit obli- gation for service rendered to date 341,646 343,183 11,298 5,490 Plan assets at fair value 467,144 482,752 2,395 163 Plan assets in excess of (less than) projected benefit obligation 125,498 139,569 (8,903) (5,327) Unrecognized net (gain) loss - experience different from assumptions (36,793) (60,643) 2,113 792 Unrecognized transition (asset) obligation (20,283) (23,179) 347 232 Unrecognized prior service cost 4,763 5,855 702 106 _____________________________________________________________________ Prepaid (accrued) pension cost $ 73,185 $ 61,602 $ (5,741) $(4,197) ===================================================================== Principal actuarial assumptions: Discount rate 8.0% 7.5% 9.0% 7.5% Long-term rate of compensation increase 4.5% 4.5% 7.5% 6.8% =====================================================================
The actuarial present value of the projected benefit obligation is computed assuming the continuing existence of the plans. The obligation to fund these plans would be substantially higher than the accumulated benefit obligation if the plans were terminated.
The Company also maintains a defined contribution pension and savings plan for substantially all domestic employees. The Company contributions, equal to 3% of each participant's base pay, were $3.7 million in fiscal 1994, $3.6 million in fiscal 1993 and $3.7 million in fiscal 1992.
11. POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS
In addition to pension plan benefits, the Company provides certain health care and life insurance benefits for retired employees and covered dependents. Substantially all domestic employees become eligible for these benefits upon normal retirement.
In fiscal 1993, the Company adopted Statement of Financial Accounting Standards No. 106 (SFAS 106) "Employers' Accounting for Postretirement Benefits Other Than Pensions" (see Note 1).
Expense of postretirement medical and life insurance benefits in fiscal years 1994 and 1993 included the following components:
(in thousands) 1994 1993 ___________________________________________________________ Service cost of benefits earned $ 2,803 $ 2,511 Interest cost on accumulated postretirement benefit obligation 10,622 11,457 Return on plan assets: Actual 370 53 Deferred loss (1,341) (552) ___________________________________________________________ Postretirement medical and life insurance benefits expense $ 12,454 $ 13,469 =========================================================== Principal actuarial assumptions: Discount rate 7.5% 8.0% Return on plan assets 9.0% 9.0% Trend rate - beginning* 12.0% 14.0% Trend rate - ultimate 6.0% 6.0% *Declines 1% per year to the ultimate rate. ===========================================================
The .5% reduction of the discount rate increased expense $.6 million in fiscal 1994.
Financial statements of years prior to fiscal 1993 were not restated for the adoption of SFAS 106. Postretirement medical and life insurance claims incurred for fiscal 1992 totaled $7.1 million.
The funded status of the postretirement medical and life insurance benefit plans at June 30, 1994 and 1993, is summarized as follows:
(in thousands) 1994 1993 ___________________________________________________________ Accumulated postretirement benefit obligation (APBO): Retirees $ 84,913 $ 95,530 Fully eligible active plan participants 18,337 10,493 Other active plan participants 28,669 39,148 ________________________ Total APBO 131,919 145,171 Plan assets at fair value 14,275 9,959 ___________________________________________________________ APBO in excess of plan assets 117,644 135,212 Unrecognized net gain 30,047 8,664 Unrecognized prior service cost (1,552) - ___________________________________________________________ Accrued postretirement benefits $146,139 $143,876 =========================================================== Principal actuarial assumptions: Discount rate 8.0% 7.5% Trend rate - beginning* 11.0% 12.0% Trend rate - ultimate 6.0% 6.0% *Declines 1% per year to the ultimate rate. ===========================================================
The health-care cost trend rate assumption has a significant effect on the amounts reported. If the assumed health-care cost trend rate was increased by 1 percent, the APBO at June 30, 1994 would increase by $18.0 million and the net periodic postretirement benefit expense for fiscal 1994 would have increased by $2.0 million.
The Company established a Voluntary Employee Benefit Trust (VEBA) in fiscal 1992 to begin funding its obligation under the postretirement health-care plan. Contributions of $5.0 million per year beginning in fiscal 1992 were made to the VEBA Trust. The VEBA Trust assets have been invested in trust-owned life insurance.
12. EMPLOYEE STOCK OWNERSHIP PLAN
In fiscal 1992, the Board of Directors established a leveraged employee stock ownership plan ("ESOP") to assist current employees with their future retiree medical obligations. The Company issued 461.5 shares of a new class of convertible preferred stock at $65,000.00 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 will be satisfied by the ESOP as the Company makes contributions to the ESOP and dividends are paid on the preferred stock. As payments are made on the note, shares of preferred stock will be allocated to participating employees' accounts within the ESOP. The Company contributed $.9 million in fiscal 1994, $.6 million in fiscal 1993 and $.4 million in fiscal 1992 to the ESOP. Compensation expense related to the plan was $2.1 million in fiscal 1994, $2.0 million in fiscal 1993 and $1.3 million in fiscal 1992.
The preferred stock is initially convertible into approximately 461,500 shares of common stock, at a conversion price of $65.00 per share of common stock. The shares of preferred stock pay a cumulative annual dividend of $5,362.50 per share, are entitled to vote together with the common stock as a single class and have 1,300 votes per share. The stock is redeemable by the Company at any time after September 5, 1996 at an initial price of $67,600.00 per share.
13. RESEARCH AND DEVELOPMENT
Research and development expenses aggregated $13.6 million in fiscal 1994, $12.9 million in fiscal 1993 and $14.0 million in fiscal 1992.
14. INCOME TAXES
In fiscal 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes" (see Note 1).
14. INCOME TAXES (continued)
Provisions for income taxes consisted of the following:
(in thousands) 1994 1993 1992 ___________________________________________________________ Current: Federal $18,040 $ 4,345 $ 4,984 State 798 968 (166) Foreign 1,544 - - Deferred: Federal 4,937 9,867 2,616 State (128) 1,085 509 Foreign (752) - - ___________________________________________________________ $24,439 $16,265 $ 7,943 ===========================================================
The following is a reconciliation of the statutory federal income tax rate to the actual effective income tax rate:
(% of pre-tax income) 1994 1993 1992 ____________________________________________________________ Federal tax rate 35.0% 34.0% 34.0% Increase in taxes resulting from: State income taxes, net of federal tax benefit 1.7 4.4 1.1 Federal and state tax rate changes 1.4 - - Other, net 0.9 (0.4) (0.3) ____________________________________________________________ Effective tax rate 39.0% 38.0% 34.8% ============================================================
Deferred taxes under SFAS 109 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, 1994 and 1993:
(in thousands) 1994 1993 ___________________________________________________________ Deferred tax liabilities: Depreciation and amortization $111,356 $110,512 Prepaid pensions 24,167 19,175 Other 12,731 6,385 ___________________________________________________________ Total deferred tax liabilities 148,254 136,072 ___________________________________________________________ Deferred tax assets: Postretirement provisions 57,230 58,607 Other reserve provisions 17,217 12,882 Alternative minimum tax credit carryforward - 1,019 Valuation allowance (469) (464) ___________________________________________________________ Total deferred tax assets 73,978 72,044 ___________________________________________________________ Net deferred tax liability $ 74,276 $ 64,028 ===========================================================
15. SPECIAL CHARGE
In June 1992, a provision of $7.5 million ($4.9 million after taxes or $.59 per share) was established for the anticipated costs of a planned program to reduce salaried personnel. Affected employees were provided severance pay, temporary health care, and life insurance coverage.
16. COMMITMENTS AND CONTINGENCIES
Environmental
The Company, as well as other steel companies, is subject to various stringent federal, state, and local environmental laws and regulations. The liability for future environmental remediation costs is evaluated on a quarterly basis by management. The Company 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, 1994 and 1992, $1.2 million and $2.2 million, respectively, were charged to operations for environmental cleanup costs (no expense was recognized in fiscal 1993). The liability for environmental cleanup costs remaining at June 30, 1994 and 1993, was $4.7 million, while the amount of
recoveries recorded as a receivable was $.8 million at June 30, 1994. As a result of factors such as the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the identification of presently unknown remediation sites and the allocation of costs among potentially responsible parties, estimated costs for future environmental compliance and remediation are necessarily imprecise and it is not possible to predict the amount or timing of future costs of environmental remediation requirements which may subsequently be determined. Based upon information presently available, such future costs are not expected to have a material adverse effect on the Company's competitive or financial position. However, such costs could be material to results of operations in a particular future quarter or year.
Other
The Company is also defending various claims and legal actions, and is subject to commitments and contingencies which are common to its operations. The Company 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 the Company's future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount of 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 the Company's financial position.
17. SUBSEQUENT EVENT
On July 22, 1994, the Company acquired all of the outstanding shares of Certech, Inc. and an affiliated company, for $16.0 million comprised of $12.8 million in cash and the balance in shares of Carpenter common stock. Certech manufactures a broad line of complex injection molded ceramics parts.
Quarterly Financial Data (Unaudited)
Our 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 shutdowns in this period by Carpenter and by many of our customers. This seasonal pattern can be disrupted by major economic cycles or special accounting adjustments.
(dollars in thousands - except per share amounts) First Second Third Fourth Fiscal Quarter Quarter Quarter Quarter Year ____________________________________________________________________________ Results of Operations Fiscal 1994 Net sales $129,429 $147,127 $174,347 $177,892 $628,795 Gross profits $ 31,724(1) $ 38,593(1)$ 50,170(1)$ 49,835 $170,322 Income before extraordinary charge(2) $ 2,772 $ 7,360 $ 12,825 $ 15,332 $ 38,289 Net income $ 2,772 $ 7,360 $ 10,786(3)$ 15,332 $ 36,250 ____________________________________________________________________________ Fiscal 1993 Net sales $139,386 $123,026 $155,370 $158,466 $576,248 Gross profits $ 29,109 $ 28,134 $ 41,867 $ 41,081 $140,191 Income before cumu- lative effect of changes in accounting principles(2) $ 2,652 $ 1,914 $ 10,202 $ 11,766 $ 26,534 Net income (loss) $(72,024)(4)$ 1,914 $ 10,202 $ 11,766 $(48,142) ____________________________________________________________________________ Per Common Share Fiscal 1994 Primary earnings: Income before extraordinary charge $ .30 $ .86 $ 1.54 $ 1.85 $ 4.55 Net income $ .30 $ .86 $ 1.29(3)$ 1.85 $ 4.30 Fully-diluted earnings: Income before extraordinary charge $ .30 $ .84 $ 1.49 $ 1.77 $ 4.40 Net income $ .30 $ .84 $ 1.25(3)$ 1.77 $ 4.16 ____________________________________________________________________________ Fiscal 1993 Primary earnings: Income before cumu- lative effect of changes in accounting principles $ .28 $ .19 $ 1.22 $ 1.42 $ 3.11 Net income (loss) $ (9.04)(4)$ .19 $ 1.22 $ 1.42 $ (6.21) Fully-diluted earnings: Income before cumu- lative effect of changes in accounting principles $ .28 $ .19 $ 1.19 $ 1.37 $ 3.03 Net income (loss) $ (8.52)(4)$ .19 $ 1.19 $ 1.37 $ (5.77) ____________________________________________________________________________
See notes on page 44.
Notes to Quarterly Financial Data (Unaudited)
(1) Restated for the reclassification of depreciation expense resulting in a reduction of gross profit of $.4 million.
(2) Reductions in LIFO-valued inventories resulted in increases in income before extraordinary charge and cumulative effect of changes in accounting principles of $2.1 million, $1.5 million, $5.5 million and $3.0 million for the first, second, third and fourth quarters of fiscal 1994, respectively, and $.3 million, $.3 million, $6.4 million and $6.4 million for the first, second, third and fourth quarters of fiscal 1993, respectively.
(3) Includes extraordinary charge for retirement of 12-7/8% debentures at a premium ($2.0 million after taxes, or $.25 and $.24 for primary and fully-diluted earnings per share, respectively).
(4) Includes cumulative effect of changes in accounting principles ($74.7 million after taxes or $9.32 and $8.80 for primary and fully-diluted earnings per share, respectively).
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosure
Not Applicable
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information required as to directors is incorporated herein by reference to the "Election of Directors" section of the 1994 definitive Proxy Statement.
Information concerning the Company's executive officers appears in Part I of this Annual Report on Form 10-K.
Item 11.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference from the 1994 definitive Proxy Statement under the "Election of Directors" section.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The security ownership of directors and officers as a group is described in the 1994 definitive Proxy Statement under "Security Ownership of Directors and Officers" section. Such information is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference from the 1994 definitive Proxy Statement under the "Election of Directors" section.
PART IV
Item 14.
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 schedules should be read in conjunction with the consolidated financial statements (see Item 8. Financial Statements):
Report of Independent Accountants V - Property, Plant and Equipment VI - Accumulated Depreciation and Amortization of Property, Plant and Equipment VIII - Valuation and Qualifying Accounts IX - Short-Term Borrowings X - Supplementary Income Statement Information
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
TO THE SHAREHOLDERS OF CARPENTER TECHNOLOGY CORPORATION
Our report on the consolidated financial statements of Carpenter Technology Corporation and subsidiaries is included on page 20 of the 1994 Annual Report on Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in Item 14(a) of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
s/Coopers & Lybrand COOPERS & LYBRAND
2400 Eleven Penn Center Philadelphia, Pennsylvania July 26, 1994
(2) The following documents are filed as exhibits:
3. Articles of Incorporation and By-Laws of the Company 4. Instruments Defining the Rights of Security Holders, Including Indentures 10. Material Contracts 11. Statement re Computation of Per Share Earnings 23. Consent of Experts and Counsel 24. Power of Attorney 27. Financial Data Schedule 99. Additional Exhibits
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated May 18, 1994, with respect to the execution of two Agreements and Plans of Merger to acquire all of the issued and outstanding capital stock of two affiliated companies, Certech, Incorporated, a Pennsylvania corporation, and Certech, Inc., a New Jersey corporation (jointly, "Certech"). The purchase price was not disclosed. Certech manufactures a broad line of complex injection molded ceramic parts and was profitable in the fiscal year ended April 30, 1994, on sales of approximately $17.0 million. The closing of the transaction occurred on July 22, 1994, at which time the Company paid approximately 80 percent of the purchase price in cash and 20 percent in common stock.
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 27, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.
s/Robert W. Cardy Chairman, President & September 27, 1994 _____________________ Chief Executive Officer Robert W. Cardy and Director (Principal Executive Officer)
s/G. Walton Cottrell Sr. Vice President - September 27, 1994 _____________________ Finance & Chief G. Walton Cottrell Financial Officer
s/Edward B. Bruno Controller (Principal September 27, 1994 _____________________ Accounting Officer) Edward B. Bruno
* Director September 27, 1994 _____________________ Marcus C. Bennett
* Director September 27, 1994 _____________________ Dennis M. Draeger
* Director September 27, 1994 _____________________ C. McCollister Evarts, M.D.
* Director September 27, 1994 _____________________ Carl R. Garr
* Director September 27, 1994 _____________________ William J. Hudson, Jr.
* Director September 27, 1994 _____________________ Arthur E. Humphrey
* Director September 27, 1994 _____________________ Edward W. Kay
* Director September 27, 1994 _____________________ Frederick C. Langenberg
* Director September 27, 1994 _____________________ Mylle Bell Mangum
* Director September 27, 1994 _____________________ Marlin Miller, Jr.
* Director September 27, 1994 _____________________ Paul R. Roedel
Original Powers of Attorney authorizing John R. Welty to sign this Report on behalf of: Marcus C. Bennett, Dennis M. Draeger, C. McCollister Evarts, M.D., Carl R. Garr, William J. Hudson, Jr., Arthur E. Humphrey, Edward W. Kay, Frederick C. Langenberg, Mylle Bell Mangum, Marlin Miller, Jr., Paul R. Roedel, 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 V. PROPERTY, PLANT AND EQUIPMENT
(in thousands)
Col. A Col. B Col. C Col. D Col. E Col. F _______ _______ _______ _______ _______ _______ Balance at Beg- Balance inning Addi- at End of tions Retire- of Classification Period at Cost(1) ments Other(2) Period ________________ _______ _______ _______ _______ _______
Year ended June 30, 1994:
Land $ 6,907 $ 1,565 $ (1) $ (167) $ 8,304 Buildings & building equipment 140,411 4,665 (102) (1,260) 143,714 Machinery & equipment 545,708 15,994 (6,387) (866) 554,449 Construction in progress 6,243 11,014(3) - (4) 17,253 ________ ________ ________ ________ ________
Total $699,269 $ 33,238(4)$ (6,490) $ (2,297) $723,720 ======== ======== ======== ======== ========
Year ended June 30, 1993:
Land $ 6,907 $ - $ - $ - $ 6,907 Buildings & building equipment 135,914 4,538 (41) - 140,411 Machinery & equipment 520,809 26,735 (1,836) - 545,708 Construction in progress 16,953 (10,710)(3) - - 6,243 ________ ________ ________ ________ ________
Total $680,583 $ 20,563 $ (1,877) $ - $699,269 ======== ======== ======== ======== ========
Year ended June 30, 1992:
Land $ 6,810 $ 101 $ (4) $ - $ 6,907 Buildings & building equipment 132,734 3,463 (283) - 135,914 Machinery & equipment 499,575 25,601 (4,367) - 520,809 Construction in progress 11,076 5,877(3) - - 16,953 ________ ________ ________ ________ ________
Total $650,195 $ 35,042 $ (4,654) $ - $680,583 ======== ======== ======== ======== ========
See notes on page.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
SCHEDULE VI. ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT(5)
(in thousands)
Col. A Col. B Col. C Col. D Col. E Col. F _______ _______ _______ _______ _______ _______ Accumulated Depreciation by Classifi- Balance cations of at Beg- Balance Property as inning Addi- at End Listed in of tions Retire- of Schedule V Period at Cost ments Other(2) Period ___________ _______ _______ _______ _______ ________
Year ended June 30, 1994:
Buildings & building equipment $ 54,597 $ 3,535 $ (32) $ (412) $ 57,688 Machinery & equipment 253,543 25,448 (4,234) (565) 274,192 ________ ________ ________ ________ ________
Total $308,140 $ 28,983 $ (4,266) $ (977) $331,880 ======== ======== ======== ======== ========
Year ended June 30, 1993:
Buildings & building equipment $ 51,413 $ 3,192 $ (8) $ - $ 54,597 Machinery & equipment 231,252 23,755 (1,464) - 253,543 ________ ________ ________ ________ ________
Total $282,665 $ 26,947 $ (1,472) $ - $308,140 ======== ======== ======== ======== ========
Year ended June 30, 1992:
Buildings & building equipment $ 48,461 $ 3,091 $ (139) $ - $ 51,413 Machinery & equipment 211,439 22,566 (2,753) - 231,252 ________ ________ ________ ________ ________
Total $259,900 $ 25,657 $ (2,892) $ - $282,665 ======== ======== ======== ======== ========
See notes on page.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
SCHEDULE V. PROPERTY, PLANT AND EQUIPMENT (continued) and SCHEDULE VI. ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (continued)
Notes: (1) Additions relate principally to expansion and replacement of existing production and related facilities.
(2) Includes foreign currency translation adjustments and reclassifications to other assets of properties held for sale.
(3) Net of transfers to other classifications upon completion.
(4) Includes $6.6 million of net assets of Aceros Fortuna acquired on July 28, 1993.
(5) Depreciation is computed by the straight-line method. The estimated lives of the assets are as follows:
. Buildings and building equipment: Land improvements, 20 years Buildings and equipment, 20 to 45 years
. Machinery and equipment: Machinery and equipment, 5 to 20 years Autos and trucks, 3 to 6 years Office furniture & equipment, 4 to 10 years
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
SCHEDULE VIII. VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
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, 1994:
Allowance for doubtful accounts receivable $ 500 $ 470 $ 316 $ (667) $ 619 ====== ====== ====== ====== ======
Year ended June 30, 1993:
Allowance for doubtful accounts receivable $ 500 $ 617 $ 337 $ (954) $ 500 ====== ====== ====== ====== ======
Year ended June 30, 1992:
Allowance for doubtful accounts receivable $ 500 $ 553 $ 216 $ (769) $ 500 ====== ====== ====== ====== ======
(1) Recoveries of accounts previously written off, net of collection expenses.
(2) Doubtful accounts written off.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
SCHEDULE IX. SHORT-TERM BORROWINGS
(in thousands)
Col. A Col. B Col. C Col. D Col. E Col. F ______ _______ _______ _______ _______ _______ Maximum Average Weighted Amount Amount Average Out- Out- Interest Category of Weighted standing standing Rate Aggregate Balance Average During During During Short-Term at End Interest the the the Borrowings(1) Period Rate Period Period(2) Period(3) ___________ _______ ________ ________ ________ ________
Year ended June 30, 1994:
Bank Borrowings $ - - $ 19,620 $ 4,096 4.8% Commercial Paper $ - - $ 20,000 $ 5,585 3.4%
Year ended June 30, 1993:
Bank Borrowings $ - - $ 4,500 $ 2,139 3.8% Commercial Paper $ - - $ - $ 279 3.6%
Year ended June 30, 1992:
Bank Borrowings $ - - $ 50,000 $ 29,064 5.3% Commercial Paper $ - - $ 60,411 $ 38,656 5.6%
Notes: (1) For details of debt arrangements, see Note 7 to the financial statements included in Item 8 "Financial Statements and Supplementary Data." (2) The average amount outstanding during the period was computed by multiplying the principal amount outstanding by the number of days outstanding and dividing the total by the number of days in the year. (3) The weighted average interest rate during the period was computed by dividing the actual interest expense by the average short-term debt outstanding.
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
SCHEDULE X. SUPPLEMENTARY INCOME STATEMENT INFORMATION
for the Years Ended June 30, 1994, 1993, and 1992
(in thousands)
Charged to Costs and Expenses __________________________________ 1994 1993 1992 ________ ________ ________
Maintenance and Repairs $ 42,862 $ 38,380 $ 38,861 ======== ======== ========