Item 1. Business
(a) General Development of Business:
Carpenter Technology Corporation, incorporated in 1904, is engaged in the manufacture, fabrication, and distribution of specialty metals and engineered products. There were no significant changes in the form of organization or mode of conducting business of Carpenter Technology Corporation (hereinafter called the Company) during the year ended June 30, 1996, except for the transactions described below:
On November 9, 1995, the Company acquired the net assets of Green Bay Supply Co., Inc., for $10.8 million in cash, including acquisition costs. Green Bay is a master distributor which purchases specialty metal products globally and resells them to independent distributors in the United States. The acquisition of Green Bay enabled the Company to continue to serve some commodity-oriented markets while expanding its distribution channels. This investment was accounted for using the purchase method of accounting.
On October 26, 1995, the Company acquired all of the outstanding shares of Parmatech Corporation in exchange for 120,786 shares of treasury common stock with a fair value of $4.5 million and paid acquisition costs. Parmatech manufactures complex, net or near-net shape parts from a powder metal slurry using an injection molding process. The acquisition of Parmatech gave the Company an entry into metal injection molding of various parts. This investment was accounted for using the purchase method of accounting.
(b) Financial Information About Industry Segments:
The Company is primarily engaged in one business segment - the manufacture, fabrication and distribution of specialty metals. Additionally, the Company manufactures certain engineered products. The engineered products operations are not significant for separate presentation as a segment.
(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 and produces certain fabricated metal products. 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. Fabrication of special stainless steels and zirconium base alloys into tubular products for the aircraft industry and nuclear reactors.
TOOL AND OTHER STEEL - Tool and die steels which are extremely hard alloys used for tooling and other wear-resisting components in metalworking operations such as stamping, extrusion and machining. Other steel includes carbon steels purchased for distribution and other miscellaneous products.
ENGINEERED PRODUCTS - The Company manufactures certain engineered products, including structural ceramics, metal injection molded products and ultra-hard wear parts.
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 $96.5 million, $74.7 million and $67.1 million in fiscal 1996, 1995 and 1994, 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:
1996 1995 1994 ---- ---- ---- Stainless Steel 58% 56% 60% Special Alloys 32% 33% 29% Tool and Other Steel 7% 8% 11% Engineered Products 3% 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 availability of material 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.
(4) Patents and Licenses:
The Company owns a number of United States and foreign patents and has granted licenses under some or all of them. Certain of the products produced by 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 and maintenance 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:
1996 1995 1994 ---- ---- ---- Quarter Ended September 30 21% 20% 21% Quarter Ended December 31 24% 23% 23% Quarter Ended March 31 27% 28% 28% Quarter Ended June 30 28% 29% 28% ---- ---- ---- 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, 1996, the Company had a backlog of orders, believed to be firm, of approximately $230.3 million, substantially all of which is expected to be shipped within the current fiscal year. The backlog as of August 31, 1995 was approximately $231.0 million.
(8) Competition:
The business of the Company is highly competitive. It supplies materials to a wide variety of end-use and geographic market segments, none of which consumes more than about 20 percent of the Company's output, and competes with various companies depending on end-use segment, product or geography. There are 14 domestic companies producing one or more similar specialty metal products that are considered to be major competitors to the Company in one or more product segments. The Company also competes directly with several hundred independent distributors of products similar to those distributed by Carpenter's wholly owned distribution system. Additionally, numerous foreign producers import into the United States various specialty metal products similar to those produced by the Company. Furthermore, a number of different products may, in certain instances, be substituted for the Company's finished product.
Imports of foreign specialty steels have long been a concern to the domestic steel industry because of the potential for unfair pricing by foreign producers. Such pricing practices have usually been supported by foreign governments through direct and indirect subsidies.
Because of these unfair trade practices, the Company has been aggressive in filing trade actions against foreign producers who have dumped their specialty steel products into the United States. These actions have been successful and have resulted in dumping duties being assessed against imports of stainless steel bar and stainless steel rod from certain countries.
In February 1995, the International Trade Commission (ITC) ruled that the domestic industry had been injured by dumped stainless steel bar imports from Brazil, India, Japan and Spain. As a result, the U.S. Department of Commerce issued antidumping orders for the collection of additional duties on all imports of stainless steel bar from the four countries, at the following rates:
Brazil - 19.43% India - 3.87% to 21.02% Japan - 61.47% Spain - 7.74% to 62.85%
This ruling was the result of an antidumping petition which the Company had filed in conjunction with six other domestic producers in December 1993.
Previously, in January 1994, the U.S. Department of Commerce had issued antidumping orders for the collection of additional duties against all imports of stainless steel rod from Brazil, France and India, at the following rates:
Brazil - 24.6% to 26.5% France - 24.59% India - 48.8%
In September 1996, the duty rate for stainless rod imports from France was reduced by the Commerce Department to 10.06%, retroactive to August 1993.
The antidumping orders on stainless steel bar and stainless steel rod will continue in effect until the year 2000, unless further extended.
In a related matter, negotiations have begun between the U.S. government and the European Commission (EC) for a Multilateral Specialty Steel Agreement (MSSA). The objective of the MSSA would be to reduce unfair trade in specialty steel products by estab- lishing international commitments and disciplines aimed at eliminating subsidies and other trade-distortive practices. The baseline for negotiations is an agreement on principles and provisions developed over the past year between the Specialty Steel Industry of North America and the European steel industry group known as Eurofer. The U.S. government hopes to expand the scope of the current negotiations with the EC to also include other countries and to cover basic carbon steel products as well.
(9) Research, Product and Process Development:
The Company's expenditures for company-sponsored research and development were approximately $13.8 million, $12.3 million and $13.6 million in fiscal 1996, 1995 and 1994, respectively.
(10) Environmental Regulations:
The Company is subject to various stringent federal, state, and local environmental laws and regulations. The liability for future environmental remediation costs is evaluated by management on a quarterly basis. Liabilities are recognized for remedial activities, including remediation investigation and feasibility study costs, when the cleanup is probable and the cost can be reasonably estimated. Recoveries of expenditures are recognized as a receivable when they are estimable and probable. For further information on environmental remediation, see the Commitments and Contingencies section included in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 17 to the consolidated financial statements included in Item 8 "Financial Statements and Supplementary Data".
The costs of maintaining and operating environ- mental control equipment were about $7.4 million and $7.3 million for fiscal 1996 and 1995, respectively. The capital expenditures for environmental control equipment were $.4 million and $.5 million for fiscal 1996 and 1995, respectively. The Company anticipates spending approximately $26.5 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, 1996, the Company and its affiliates had 4,452 full-time employees.
Item 2.
Item 2. Properties
The locations of the Company's principal specialty metals manufacturing and fabrication 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 Reading plant has an annual practical melting capacity of approximately 207,000 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, 1996 and 1995, the plant operated at approximately 93 percent and 87 percent, respectively, of its melting capacity.
The Company also operates sales offices and distribution and service centers, most of which are owned, at 36 locations in 14 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 monetary 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 executive officers as of fiscal year end, and all persons chosen to become executive officers, 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 Robert W. Lodge, and except for Dennis M. Draeger.
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.
Mr. Draeger, who was a director of the Company since 1992, resigned as a member of the Board of Directors as of June 30, 1996. Mr. Draeger assumed his duties as Senior Vice President - Steel Division for the company effective July 1, 1996. Prior to that he was President of Worldwide Floor Products Operations for Armstrong World Industries, Inc. since 1994 and he became Group Vice President for Armstrong in 1988.
Assumed Present Name Age Positions Position - ---- --- --------- --------
Robert W. Cardy 60 Chairman, President & Chief Executive Officer July 1992 Director November 1990
G. Walton Cottrell 56 Senior Vice President - Finance & Chief Financial Officer January 1993
Dennis M. Draeger 55 Senior Vice President - Steel Division July 1996
Nicholas F. Fiore 56 Senior Vice President - Engineered Products January 1993
Robert W. Lodge 53 Vice President - Human Resources September 1991
John R. Welty 47 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: 1996 1995 - ------------------------------------------------------------------- High Low High Low
September 30 $41-3/16 $33-7/8 $32-13/16 $29
December 31 $44 $37-5/8 $31-5/8 $26-9/16
March 31 $42 $35-5/8 $29-1/4 $26-5/8
June 30 $40-1/8 $32 $34-1/16 $27-3/4 - ------------------------------------------------------------------- $44 $32 $34-1/16 $26-9/16
The Company has paid quarterly cash dividends on its common stock for 90 consecutive years. The quarterly dividend rate was $.33 per share, $.30 per share and $.30 per share for fiscal 1996, 1995 and 1994, respectively.
The Company had 5,908 common shareholders of record as of August 30, 1996. The balance of the information required by this item is disclosed in Note 10 to the consolidated 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)
1996 1995 1994 1993 1992 - ------------------------------------------------------------------------- Summary of Operations
Net Sales $865,324 $757,532 $628,795 $576,248 $570,200 Income before extra- ordinary charges & cumulative effect of changes in accounting principles $ 60,148 $ 47,492 $ 38,289 $ 26,534 $ 14,884 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) $ 60,148 $ 47,492 $ 36,250 $(48,142) $ 13,646
Financial Position at Year-End
Total assets $911,971 $831,775 $729,911 $699,565 $714,752 Long-term debt, net $188,024 $194,762 $158,070 $189,895 $196,604
Per Share Data Primary: Income before extra- ordinary charges & cumulative effect of changes in accounting principles $ 3.51 $ 2.81 $ 2.28 $ 1.55 $ .81 Net income (loss) $ 3.51 $ 2.81 $ 2.15 $ (3.11) $ .74 Fully Diluted: Income before extra- ordinary charges & cumulative effect of changes in accounting principles $ 3.38 $ 2.70 $ 2.20 $ 1.51 $ .81 Net income (loss) $ 3.38 $ 2.70 $ 2.08 $ (2.88) $ .74 Cash dividends-common $ 1.32 $ 1.20 $ 1.20 $ 1.20 $ 1.20
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:
(in millions - except per share) 1996 1995 1994 - -------------------------------- ---------------------- Net sales $865.3 $757.5 $628.8 Net income $ 60.1 $ 47.5 $ 36.3 Primary earnings per share $ 3.51 $ 2.81 $ 2.15
Sales and earnings increased in each of the past two years as a result of a strong market for specialty metals, selling price increases, an improved product mix, cost reduction efforts, and improved asset utilization. The sales and earnings results in fiscal 1996 were records for the Company.
Fiscal 1994 results were adversely affected by an extraordinary charge for debt retirement as described in Note 8 to the consolidated financial statements.
The chart below shows net sales by product line for the past three fiscal years:
(in millions) 1996 1995 1994 - ------------- ---------------------------------------- Sales % Sales % Sales % ---------------------------------------- Stainless steel $496.9 58 $424.7 56 $375.0 60 Special alloys 276.3 32 249.0 33 182.4 29 Tool and other steel 62.8 7 61.2 8 71.4 11 Engineered products 29.3 3 22.6 3 - - ---------------------------------------- Total $865.3 100 $757.5 100 $628.8 100 ========================================
The following table is the approximate breakdown of sales by end-use markets:
Years Ended June 30 1996 1995 1994 - ------------------- ------------------------ Aerospace 15% 13% 11% Motor vehicles and equipment 13 14 15 Metal producing and distribution 11 9 8 Electrical and electronic equipment 10 12 12 General industrial equipment 10 10 11 Fabricated metal products 7 7 7 Power generation and distribution 7 7 8 Chemical and petroleum processing 6 5 5 Metal working equipment 5 6 7 Consumer durables 4 5 4 Instruments and controls 4 4 4 Housing and construction 3 3 3 Miscellaneous 5 5 5 ------------------------ 100% 100% 100% ========================
Results of Operations - Fiscal 1996 Versus Fiscal 1995
Sales were $865.3 million in fiscal 1996, a 14 percent increase from the $757.5 million level in fiscal 1995. The sales improvement was primarily due to higher unit prices and a shift toward higher alloyed products in the Steel Division. Unit volume of Steel Division products was slightly higher than a year ago. Demand for specialty steel products has been at a high level, especially in automotive, aerospace, and chemical and petroleum processing related products. Unit selling prices for specialty steel shipments increased by an average of 8 percent to offset higher labor and other costs and to restore profit margins which had eroded in prior years. A raw material surcharge was established in fiscal 1995 to offset sharply rising raw material costs. The product mix shifted toward more premium-melted products and away from certain commodity-priced products.
Approximately 12 percent of the increase in sales was from the inclusion, in fiscal 1996, of Green Bay Supply Co., Inc., a specialty metals master distributor which was acquired in November 1995, and Parmatech Corporation, a metal injection molded parts business which was acquired in October 1995.
Cost of sales as a percentage of sales was 74 percent in both years. Higher raw material, labor and other costs were offset by increased selling prices.
Raw material costs per unit purchased increased by 11 percent during fiscal 1996 versus the year-earlier costs as a result of increases in the cost of nickel (9 percent), chromium (22 percent) and cobalt (6 percent). Also, in both fiscal years, the Company purchased at a premium semi-finished and finished products to supplement internal capacity.
Labor costs per hour for Steel Division production and maintenance employees were up by 4 percent principally as a result of a base wage increase in July 1995 and higher profit sharing payments partially offset by lower medical and pension costs.
Natural gas costs per unit consumed decreased by 2 percent versus fiscal 1995 costs, and electricity costs per unit decreased by 3 percent.
Selling and administrative expenses fell to 13 percent of net sales versus 14 percent last year, primarily because these costs tend to change less rapidly than sales. Costs were higher by $9.6 million primarily because of increased usage of outside services, additional travel costs and costs of acquired companies.
Interest expense increased by $4.4 million in fiscal 1996 versus fiscal 1995, principally as a result of lower capitalized interest and a higher level of debt.
Equity in losses of the Walsin-CarTech joint venture increased to $7.0 million in fiscal 1996 versus a loss of $3.0 million last year. Lower sales volume, reduced selling prices and lower production levels were the primary reasons for the increased loss. The current year loss was partially offset by a pre-tax gain of $2.7 million on the sale of a portion of the Company's interest in the joint venture. The gain is included in other income on the consolidated statement of income (described in Note 4 to the consolidated financial statements).
Income taxes as a percent of pre-tax income (effective tax rate) increased to 37 percent in fiscal 1996 from 36 percent a year earlier. A reconciliation of the effective tax rate to the federal statutory rate is presented in Note 16 to the consolidated financial statements.
Results of Operations - Fiscal 1995 Versus Fiscal 1994
Sales were $757.5 million in fiscal 1995, a 20 percent increase from the $628.8 million level in fiscal 1994. The sales improvement was primarily due to an 8 percent increase in volume and higher unit prices in the Steel Division. Demand for specialty steel products has been at a high level since January 1994, especially in automotive, equipment and aerospace-related markets. Unit selling prices for specialty steel shipments increased by an average of 7 percent to offset higher labor and supply costs, and a surcharge was established to offset sharply rising raw material costs. Also, the product mix shifted toward more premium-melted products.
Approximately 18 percent of the increase in sales was from the inclusion, in fiscal 1995, of Certech, Inc., and its affiliates, a ceramics business which was acquired in July 1994 (described in Note 3 to the consolidated financial statements).
Cost of sales as a percentage of sales increased to 74 percent versus 73 percent in fiscal 1994 because fiscal 1994 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. There were no LIFO accounting effects in fiscal 1995.
Raw material costs per unit purchased increased by 34 percent during fiscal 1995 versus the year-earlier costs as a result of large increases in the cost of nickel (42 percent), cobalt (52 percent) and molybdenum (77 percent). Also, in fiscal 1995, the Company purchased at a premium semi-finished and finished products to supplement internal capacity.
Labor costs for Steel Division production and maintenance employees were up by 6 percent as a result of a base wage increase in July 1994 and higher overtime and profit sharing payments.
Natural gas costs per unit consumed decreased by 10 percent versus fiscal 1994 costs, but electricity costs per unit increased by 3 percent.
Selling and administrative expenses increased by $10.7 million during fiscal 1995 due chiefly to the inclusion of Certech costs in fiscal 1995 and increased salaried employment and severance costs.
Interest expense was lower by $1.0 million in fiscal 1995 principally because of reduced interest rates due to the retirement of the 12-7/8% debentures in March 1994.
Equity in losses of the Walsin-CarTech joint venture, which became operational in January 1995, (described in Note 4 to the consolidated financial statements) increased by $2.1 million in fiscal 1995. Prior to that date, pre-operating costs were deferred by the joint venture.
Income taxes as a percent of pre-tax income (effective tax rate) decreased to 36 percent in fiscal 1995 from 39 percent a year earlier primarily because of retroactive deferred tax effects of an increase in the statutory federal rate in fiscal 1994. Both years' tax rates were favorably affected by non-recurring adjustments of deferred state taxes for changes in tax laws. A reconciliation of the effective tax rate to the federal statutory rate is presented in Note 16 to the consolidated financial statements.
Management's Discussion of Cash Flow and Financial Condition
Cash Flow
Cash flow from operations was very strong over the past three fiscal years despite working capital needs to support growth in sales.
Inventories, excluding amounts acquired through purchases of businesses, increased $59.6 million and $29.5 million in fiscal 1996 and 1995, respectively, due to higher sales levels of the Steel Division. Inventories had been reduced in fiscal 1994 as a result of the Company's continuous improvement process to reduce lead times while still maintaining a high customer service level.
Accounts receivable, excluding amounts relating to acquisitions, increased $14.8 million and $21.8 million in fiscal 1996 and 1995, respectively, as a result of increased fourth quarter sales each year. The average days sales outstanding at the end of fiscal 1996 was comparable to that of the past two fiscal years.
Capital expenditures of $48.6 million, $36.9 million and $26.6 million in fiscal 1996, 1995 and 1994, respectively, were concentrated in the Company's Reading, Pennsylvania plant and were used for normal replacements, modernization and incremental capability. In fiscal 1996, the Company announced approval of $125 million for major capital projects including a 20-ton vacuum induction melting furnace, two vacuum arc remelting furnaces, a narrow strip finishing facility, a bar finishing cell and a major rebuild of its 3,000-ton press. Approximately $12 million was spent on these projects during fiscal 1996.
During fiscal 1996, the Company acquired the businesses of Green Bay Supply Co., Inc. and Parmatech Corporation. During fiscal year 1995, the Company acquired Certech, Inc., and an affiliated company and in fiscal 1994 acquired Aceros Fortuna, S.A. de C.V., and affiliated companies. Fiscal 1996 and 1995 also include other less significant acquisitions. The cost of these acquisitions totaled $48.7 million in cash and $7.7 million in common stock. Details of these transactions are included in Note 3 to the consolidated financial statements.
During fiscal 1996, the Company sold a portion of its interest in Walsin-CarTech Specialty Steel Corporation, reducing its ownership interest from 19 percent to 5 percent. The Company received $32.7 million in cash from the sale which resulted in a $2.7 million pre-tax gain. Details of this transaction are included in Note 4 to the consolidated financial statements.
During fiscal 1995, $80.0 million of medium-term notes were issued with a 7.4% average interest rate, and a portion of the proceeds were used to retire borrowings under credit arrangements. Details of debt and financing arrangements are provided in Note 8 to the consolidated 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.
The dividend payout rate on common stock was increased to $1.32 per share for fiscal 1996 versus $1.20 for fiscal 1995 and 1994. The dividend rate increase was a result of the strong cash flows from improved performance, and indicates the Company's confidence in its future. The preferred stock dividend was maintained at $5,362.50 per share in each of the past three fiscal years. Total dividend payments were $23.3 million, $21.0 million and $20.8 million in fiscal 1996, 1995 and 1994, respectively.
Financial Condition
During the past three fiscal years, 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.
The Company ended fiscal 1996 in a sound liquidity position, with current assets exceeding current liabilities by $152.5 million (a ratio of 1.9 to 1). This favorable ratio is conservatively stated because certain inventories are valued $161.9 million less than the current cost as a result of using the LIFO method. Total debt at June 30, 1996, was $214.0 million, or 35.3 percent of total capital, including deferred taxes, versus 39.5 percent of total capital, including deferred taxes, at June 30, 1995.
Financing is available under a $150.0 million financing arrangement with a number of banks, providing for $125.0 million of revolving credit to January 1998 and lines of credit of $25.0 million.
At June 30, 1996, the Company had $20.0 million of medium-term debt securities available for issuance under a Shelf Registration on file with the Securities and Exchange Commission.
In summary, the Company believes that its present financial resources, both from internal and external sources, are adequate to meet its 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 ("PRP") with respect to certain superfund waste disposal sites. Additionally, the Company has been notified that it may be a PRP 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 allocation among all designated PRPs 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 $8.0 million and $18.0 million. The Company has accrued for environmental remediation costs, including remediation investigation and feasibility study costs, which represent management's best estimate of the probable and reasonably estimable remediation costs. The estimated range of the anticipated recoveries for environmental costs is between $4.0 million and $8.0 million. Recoveries of expenditures are recognized as a receivable when they are estimable and probable. Additional details are provided in Note 17 to the consolidated 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 reasonably estimable. Additional details are provided in Note 17 to the consolidated financial statements. While it is not feasible to determine the outcome of these matters, in the opinion of management, any total ultimate liability will not have a material effect on the Company's financial position or results of operations and cash flows.
Item 8.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Supplementary Data
Page ---- Consolidated Financial Statements:
Report of Independent Accountants 20
Consolidated Statement of Income for the Years Ended June 30, 1996, 1995 and 1994 21
Consolidated Statement of Cash Flows for the Years Ended June 30, 1996, 1995 and 1994 22
Consolidated Balance Sheet as of June 30, 1996 and 1995 23
Consolidated Statement of Changes in Shareholders' Equity for the Years Ended June 30, 1996, 1995 and 1994 24-25
Notes to Consolidated Financial Statements 26-47
Supplementary Data:
Quarterly Financial Data (Unaudited) 48
Report of Independent Accountants
To the Board of Directors and Shareholders of Carpenter Technology Corporation:
We have audited the accompanying consolidated balance sheet of Carpenter Technology Corporation and subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of income, cash flows and changes in shareholders' equity for each of the three years in the period ended June 30, 1996. 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, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles.
s/Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania July 29, 1996
Consolidated Statement of Income Carpenter Technology Corporation
for the years ended June 30, 1996, 1995 and 1994
(in thousands, except per share data) 1996 1995 1994 - --------------------- ---------------------------- Net sales $865,324 $757,532 $628,795 ---------------------------- Costs and expenses: Cost of sales 636,783 564,169 457,473 Selling and administrative expenses 112,893 103,269 92,525 Interest expense 18,935 14,542 15,521 Equity in loss of joint venture 7,025 3,000 910 Other income, net (5,482) (2,019) (362) ---------------------------- 770,154 682,961 566,067 ---------------------------- Income before income taxes and extraordinary charge 95,170 74,571 62,728 Income taxes 35,022 27,079 24,439 ---------------------------- Income before extraordinary charge 60,148 47,492 38,289 Extraordinary charge - premium on retirement of long-term debt, net of income taxes - - (2,039) ---------------------------- Net income $ 60,148 $ 47,492 $ 36,250 ============================
Primary earnings per common share: Income before extraordinary charge $ 3.51 $ 2.81 $ 2.28 Extraordinary charge - - (.13) ---------------------------- Earnings per common share $ 3.51 $ 2.81 $ 2.15 ============================ Weighted average common shares outstanding 16,677 16,327 16,130 ============================ Fully-diluted earnings per common share: Income before extraordinary charge $ 3.38 $ 2.70 $ 2.20 Extraordinary charge - - (.12) ---------------------------- Earnings per common share $ 3.38 $ 2.70 $ 2.08 ============================ Weighted average common shares outstanding 17,604 17,309 17,086 ============================
See accompanying notes to consolidated financial statements.
Consolidated Statement of Cash Flows Carpenter Technology Corporation for the years ended June 30, 1996, 1995 and 1994 (in thousands) 1996 1995 1994 - -------------- ---------------------------- OPERATIONS Net income $ 60,148 $ 47,492 $ 36,250 Adjustments to reconcile net income to net cash provided from operations: Depreciation and amortization 35,226 32,479 29,887 Deferred income taxes 4,527 3,314 4,057 Prepaid pension cost (10,292) (7,933) (11,563) Equity in loss of joint venture 7,025 3,000 910 Gain on sale of partial interest in joint venture (2,650) - - Extraordinary charge - - 2,039 Changes in working capital and other, net of acquisitions: Receivables (14,754) (21,819) (1,889) Inventories (59,619) (29,480) 16,907 Accounts payable 21,265 15,111 10,480 Accrued current liabilities 16,244 6,800 1,984 Other, net (7,083) (5,177) 10,404 ---------------------------- Net cash provided from operations 50,037 43,787 99,466 - ------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchases of plant and equipment (48,621) (36,945) (26,604) Disposals of plant and equipment 2,060 1,424 3,144 Acquisitions of businesses, net of cash received (13,301) (13,032) (22,323) Investment in joint venture - (2,060) (49,196) Proceeds from sale of partial interest in joint venture 32,672 - - ---------------------------- Net cash used for investing activities (27,190) (50,613) (94,979) - ------------------------------------------------------------------------------- FINANCING ACTIVITIES Provided by (payments on) short-term debt (1,884) 20,145 (2,794) Proceeds from issuance of long-term debt - 80,000 45,851 Payments on long-term debt (9,023) (55,736) (71,271) Dividends paid (23,306) (21,045) (20,824) Proceeds from issuance of common stock 4,590 1,745 4,245 Payments to acquire treasury stock - (3,002) - ---------------------------- Net cash provided from (used for) financing activities (29,623) 22,107 (44,793) - ------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (185) (565) (112) - ------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,961) 14,716 (40,418) Cash and cash equivalents at beginning of year 20,120 5,404 45,822 ---------------------------- Cash and cash equivalents at end of year $ 13,159 $ 20,120 $ 5,404 =============================================================================== SUPPLEMENTAL DATA: Cash paid during the year for: Interest payments, net of amounts capitalized $ 17,900 $ 15,441 $ 17,592 Income tax payments, net of refunds $ 20,942 $ 17,692 $ 18,066 Non-cash investing activities: Treasury stock issued for business acquisitions $ 4,500 $ 3,200 $ - See accompanying notes to consolidated financial statements.
Consolidated Balance Sheet Carpenter Technology Corporation
June 30, 1996 and 1995
(in thousands, except share data) 1996 1995 - --------------------------------- ------------------- ASSETS Current assets: Cash and cash equivalents $ 13,159 $ 20,120 Accounts receivable, net of allowance for doubtful accounts ($1,249 and $1,034) 137,103 118,848 Inventories 160,452 91,383 Deferred income taxes 2,113 1,827 Other current assets 11,643 8,251 ------------------ Total current assets 324,470 240,429 Property, plant and equipment, net 419,472 403,580 Prepaid pension cost 91,474 81,182 Investment in joint venture 9,760 49,085 Goodwill, net 18,792 15,701 Other assets 48,003 41,798 ------------------ Total assets $911,971 $831,775 ==================
LIABILITIES Current liabilities: Short-term debt $ 18,964 $ 20,145 Accounts payable 75,811 51,162 Accrued compensation 26,088 21,457 Accrued income taxes 13,656 5,442 Other accrued liabilities 30,446 28,684 Current portion of long-term debt 7,010 7,286 ------------------ Total current liabilities 171,975 134,176 Long-term debt, net of current portion 188,024 194,762 Accrued postretirement benefits 137,738 140,855 Deferred income taxes 84,460 78,415 Other liabilities and deferred income 20,697 19,622
SHAREHOLDERS' EQUITY Preferred stock - authorized 2,000,000 shares 28,581 28,825 Common stock - authorized 50,000,000 shares 97,729 96,690 Capital in excess of par value - common stock 13,498 6,801 Reinvested earnings 267,956 231,114 Common stock in treasury, at cost (64,483) (67,002) Deferred compensation (22,830) (25,461) Foreign currency translation adjustments (11,374) (7,022) ------------------ Total shareholders' equity 309,077 263,945 ------------------ Total liabilities and shareholders' equity $911,971 $831,775 ==================
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements __________
1. Summary of Significant Accounting Policies
Description of Business - The Company is primarily engaged in one business segment - the manufacture, fabrication and distribution of specialty metals. Sales of finished products include stainless steels, special alloys and tool steels in the forms of bar, rod, wire and strip. Additionally, the Company manufactures certain engineered products including structural ceramics, metal injection molded products and ultra-hard wear parts. The engineered products are not a significant part of the business and therefore are not presented as a separate business segment.
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.
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 a 20%-50% interest in other entities and for investments in corporate joint ventures. Under the equity method, the original investment is recorded at cost and adjusted by the Company's share of undistributed earnings or losses of the entity. All other investments are carried at cost.
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. The Company also uses the First-In, First-Out (FIFO) and average cost methods.
Depreciation - Depreciation for financial reporting purposes is computed by the straight-line method. This method allocates depreciation equally over the estimated useful lives of the assets. Depreciation for income tax purposes is computed using accelerated methods.
1. Summary of Significant Accounting Policies (continued)
Goodwill - Goodwill, representing the excess of the purchase price over the estimated fair value of the net assets of companies acquired to date, is being amortized on a straight-line basis over periods not to exceed 20 years, the estimated life of the goodwill. 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 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 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 and that do not contribute to current or future revenues are expensed. Liabilities are recognized for remedial activities, including remediation investigation and feasibility study costs, when the cleanup is probable and the cost can be reasonably estimated. Recoveries of expenditures are recognized as a receivable when they are estimable and probable.
Foreign Currency Translation - Assets and liabilities of foreign operations, where the functional currency is the local currency, are translated into U.S. dollars at the fiscal year end exchange rate. Revenues and expenses are translated using average exchange rates prevailing during the year. The related translation adjustments are recorded as cumulative translation adjustments, a separate component of shareholders' equity. Foreign currency exchange gains and losses are included in net income. Realized and unrealized foreign currency exchange gains and losses for the years presented were not material.
Futures Contracts and Commodity Price Swaps - In connection with the anticipated purchase of raw materials for certain fixed-price sales arrangements, the Company enters into futures contracts and commodity price swaps to reduce the risk of cost increases. These futures contracts and commodity price swaps are accounted for as hedges, and, accordingly, unrealized gains and losses are deferred and included in cost of sales in the periods when the purchases are made.
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.
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Accounting Pronouncements - The Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and SFAS 123, "Accounting for Stock-Based Compensation" which become effective for fiscal years beginning after December 15, 1995. The Company will adopt these statements effective July 1, 1996. SFAS 121 establishes criteria for recognizing, measuring and disclosing impairments of long-lived assets, identifiable intangibles and goodwill. The Company does not expect that the adoption of SFAS 121 will have a material effect on its financial position or results of operations. SFAS 123 allows entities to choose between a new fair value based method of accounting for stock-based compensation and the current method of accounting prescribed by Accounting Principles Board Opinion 25 (APB 25). Entities electing to continue using APB 25 must make pro forma disclosures of net income and earnings per share as if the fair market value method of accounting had been applied. The Company expects to continue accounting for stock-based compensation in accordance with APB 25. The pro forma effect for fiscal 1996 has not yet been determined.
1. Summary of Significant Accounting Policies (continued)
Company-Owned Life Insurance Program - The Company has a company-owned life insurance program covering essentially all of the U.S.-based employees. At June 30, 1996 and 1995, the cash surrender values, $81.4 million and $54.4 million, and the insurance policy loans, $80.7 million and $53.9 million, respectively, 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.
Reclassifications - Certain reclassifications of prior years' amounts have been made to conform with the current year's presentation.
2. Two-for-One Common Stock Split
On August 10, 1995, the Board of Directors of the Company declared a two-for-one common stock split which was distributed to shareholders of record on September 1, 1995. The par value of common shares remained at $5 per share.
The effect of the stock split has been retroactively reflected as of June 30, 1995, in the consolidated balance sheet and statement of changes in shareholders' equity, but activity for fiscal 1995 and prior periods was not restated in those statements. All references to the number of common shares and per share amounts elsewhere in the consolidated financial statements and related footnotes have been restated to reflect the effect of the split for all periods presented.
3. Acquisitions of Businesses
During the past three fiscal years, the Company acquired the entities described below, which were accounted for by the purchase method of accounting:
On November 9, 1995, the Company acquired the net assets of Green Bay Supply Co., Inc., for $10.8 million in cash, including acquisition costs. Green Bay is a master distributor which purchases specialty metal products globally and resells them to independent distributors in the United States. The purchase price approximates the fair value of the assets acquired.
3. Acquisitions of Businesses (continued)
On October 26, 1995, the Company acquired all of the outstanding shares of Parmatech Corporation in exchange for 120,786 shares of treasury common stock with a fair value of $4.5 million and paid acquisition costs. Parmatech manufactures complex, net or near-net shape parts from a powder metal slurry using an injection molding process. The excess of purchase price over the fair values of the net assets acquired was $4.1 million and has been recorded as goodwill, which is being amortized on a straight-line basis over 20 years.
On July 22, 1994, the Company acquired all of the outstanding shares of Certech, Inc., and an affiliated company, for $16.7 million, including acquisition costs, comprised of $13.5 million in cash and 106,248 shares of treasury common stock. Certech manufactures a broad line of complex injection molded ceramics parts. The excess of 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.
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 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.
Fiscal 1996 and 1995 also include other acquisitions which are immaterial.
3. Acquisitions of Businesses (continued)
The purchase prices have been allocated to the assets purchased and the liabilities assumed based upon the fair values on the dates of acquisition, as follows:
(in thousands) 1996 1995 1994 -------------- --------------------------- Working capital, other than cash $ 9,457 $ 1,894 $ 6,552 Property, plant and equipment 4,612 10,200 6,634 Other assets 2,158 1,740 2,661 Goodwill 4,094 8,154 8,213 Noncurrent liabilities (2,520) (5,756) (1,737) --------------------------- Purchase price, net of cash received $17,801 $16,232 $22,323 ===========================
The operating results of these acquired businesses have been included in the consolidated statement of income from the dates of acquisition. On the basis of a pro forma consolidation of the results of operations as if the acquisitions in fiscal 1996 and 1995 had taken place at the beginning of fiscal 1995, consolidated net sales would have been $879.8 million for fiscal 1996, and $793.3 million for fiscal 1995. Consolidated pro forma net income and earnings per share would not have been materially different from the reported amounts for fiscal 1996 and 1995. Such pro forma amounts are not necessarily indicative of what the actual consolidated results of operations might have been if the acquisitions had been effective at the beginning of fiscal 1995.
4. Investment in Joint Venture
The Company's investment in Walsin-CarTech Specialty Steel Corporation, a corporate joint venture in Taiwan with Walsin Lihwa Corporation, was $9.8 million at June 30, 1996 and $49.1 million at June 30, 1995. This investment is being accounted for using the equity method of accounting. The investment account has been increased for interest costs capitalized during the pre-operating period and acquisition costs. As these costs are amortized, the investment account is reduced. 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.
4. Investment in Joint Venture (continued)
From inception on September 2, 1993 through March 19, 1996, the Company owned a 19 percent interest in the joint venture, which became operational in January 1995. On March 19, 1996, the Company sold a portion of its interest in the joint venture to Walsin Lihwa Corporation, reducing its ownership interest to 5 percent. The Company received $32.7 million in cash from the sale which resulted in a $2.7 million pre-tax gain, which is included in other income on the consolidated statement of income. Additionally, Walsin Lihwa may acquire the Company's remaining 5 percent interest for the original purchase cost, plus interest at any time prior to March 19, 1998. Walsin Lihwa holds the right of first refusal should the Company seek to sell its remaining interest in the joint venture.
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 of stainless steel 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.
In addition, the joint venture and the Company have a distribution agreement establishing the Company as a distributor of the joint venture's products in North, Central and South America.
5. Inventories
June 30 (in thousands) 1996 1995 -------------- ------------------ Finished and purchased products $129,184 $ 92,930 Work in process 134,751 110,468 Raw materials and supplies 58,388 41,602 ------------------ Total at current cost 322,323 245,000 ------------------ Less excess of current cost over LIFO values 161,871 153,617 ------------------ $160,452 $ 91,383 ==================
5. Inventories (continued)
Current cost of LIFO-valued inventories was $280.1 million at June 30, 1996 and $219.7 million at June 30, 1995. Reductions in LIFO-valued inventories resulted in an increase in income before the extraordinary charge of approximately $12.1 million or $.75 per share in the year ended June 30, 1994. There were no LIFO accounting effects in the years ended June 30, 1996 and 1995.
6. Property, Plant and Equipment
June 30 (in thousands) 1996 1995 -------------- ------------------ Land $ 7,374 $ 7,222 Buildings and building equipment 154,871 151,151 Machinery and equipment 620,153 594,579 Construction in progress 27,299 10,803 ------------------ Total at cost 809,697 763,755 ------------------ Less accumulated depreciation and amortization 390,225 360,175 ------------------ $419,472 $403,580 ==================
The estimated useful lives are principally 45 years for buildings and 20 years for machinery and equipment. The ranges are as follows:
Estimated Useful Lives 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 and equipment 3 to 10 years
For the years ended June 30, 1996, 1995 and 1994, depreciation expense was $33.7 million, $31.2 million and $29.0 million, respectively.
7. Other Accrued Liabilities
June 30 (in thousands) 1996 1995 -------------- ------------------ Medical expenses $ 10,690 $ 10,645 Interest 5,557 4,872 Environmental costs 1,298 1,593 Other 12,901 11,574 ------------------ $ 30,446 $ 28,684 ==================
8. Debt Arrangements
During fiscal 1995, the Company issued $80.0 million of medium-term debt securities with a 7.38% average interest rate under a Form S-3 registration statement ("Shelf Registration") on file with the Securities and Exchange Commission. The proceeds were used to retire borrowings under credit arrangements. At June 30, 1996, the Company had an additional $20.0 million of medium-term debt securities available for issuance under the Shelf Registration.
The Company has 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. At June 30, 1996, there were no borrowings outstanding under the revolving credit agreement, $9.0 million outstanding under the lines of credit and an additional $10.0 million of short-term debt outstanding consisting of commercial paper.
For the years ended June 30, 1996, 1995 and 1994, interest cost totaled $19.3 million, $17.8 million and $19.6 million, of which $.4 million, $3.3 million and $4.1 million, respectively, was capitalized.
8. Debt Arrangements (continued)
The weighted average interest rates for short-term borrowings during fiscal 1996 and 1995 were 6.0% and 6.1%, respectively.
Long-term debt outstanding at June 30, 1996 and 1995, consists of the following:
(in thousands) 1996 1995 -------------- ------------------ 9% Sinking fund debentures due 2022; sinking fund requirements are $5.0 million annually from 2003 to 2021 $ 99,559 $ 99,542 Medium-term notes at 6.78% to 7.80% due from 1998 to 2005 80,000 80,000 10.45% Senior notes, series B, due in annual installments of $3.0 million through 1999 9,000 12,000 9.4% Notes due in annual installments of $3.6 million through 1997 3,571 7,143 Capitalized lease obligations at 7.6% to 10.1% due in installments through 2006 2,233 2,351 Other 671 1,012 ------------------ Total 195,034 202,048 ------------------ Less amounts due within one year 7,010 7,286 ------------------ $188,024 $194,762 ==================
Aggregate maturities of long-term debt for the four years subsequent to June 30, 1997 are $3.3 million in fiscal 1998, $13.3 million in fiscal 1999, $15.2 million in fiscal 2000, and $10.1 million in fiscal 2001.
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 after taxes of $2.0 million including unamortized discount and issue costs, or $.13 per share. Although the funding for the retirement originally came from the Company's credit facilities, it was replaced with the medium-term debt securities described earlier.
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, 1996, were approximately $132.8 million.
9. Financial Instruments
The Company's financial instrument portfolio is comprised of cash and cash equivalents, raw material futures contracts and commodity price swaps, company-owned life insurance, and short- and long-term debt instruments.
The carrying amounts for cash, cash equivalents, and short-term debt approximate their fair values due to the short maturities of these instruments. The carrying amount for company-owned life insurance is based on cash surrender values determined by the insurance carriers.
The fair value of long-term debt as of June 30, 1996 and 1995, determined by using current interest rates and market values of similar issues, was approximately $205.5 million and $208.7 million, respectively.
The fair value of raw material futures contracts and commodity price swaps is based on quoted market prices for these instruments. At June 30, 1996 and 1995, the Company had entered into contracts hedging future commodity purchases of approximately $21.6 million and $9.1 million, respectively. The fair market value of these contracts was $20.3 million and $12.2 million, respectively.
10. Common Stock Purchase Rights
The Company has issued one common stock purchase right ("Right") for every outstanding share of common stock. Except as otherwise provided in the Rights Agreement, the Rights will become exercisable and separate Rights certificates will be distributed to the shareholders: (1) 10 days following the acquisition of 20 percent or more of 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 $145. 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
10. Common Stock Purchase Rights (continued)
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 $.025 per Right at any time before they become exercisable. In fiscal 1996 the Rights Agreement was extended by the Board of Directors to June 26, 2006.
11. Stock-Based Compensation
The Company has three stock-based compensation plans for officers and key employees: a 1993 plan, a 1982 plan and a 1977 plan.
1993 Plan:
The 1993 plan provides that the Board of Directors may grant incentive stock options, non-qualified stock options, stock appreciation rights and restricted stock, and determine the terms and conditions of each grant. In fiscal 1996, the plan was amended, subject to Shareholder approval, to provide for performance share awards. As of June 30, 1996 and 1995, 1,530,303 and 10,186 shares, respectively, were reserved for options and share awards which may be granted under this plan.
Stock option grants under this plan must be at no less than market value on the date of grant, are exercisable after one year of employment following the date of grant, and will expire no more than ten years after the date of grant.
Restricted stock awards vest 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 1996, 1995 and 1994, $.6 million, $.3 million and $.2 million, respectively, were charged to expense for vested restricted shares.
11. Stock-Based Compensation (continued)
Performance share awards are earned only if the Company achieves certain performance levels over a three-year period. The awards are payable in shares of common stock and expensed over the three-year performance period. In June 1996, 18,400 performance share awards were granted contingent on performance over the next three fiscal years. There was no charge to expense for these awards in fiscal 1996.
1982 and 1977 Plans:
The 1982 plan expired in June 1992; however, all outstanding unexpired options granted prior to that date remain in effect. Under the 1982 and 1977 plans, options are granted at the market value on the date of grant, and are exercisable after one year of employment following the date of grant. Under the 1982 plan, options granted since August 9, 1990 expire ten years after grant, while options granted prior to that date have expired. Options granted under the 1977 plan expire ten years after grant. At June 30, 1996 and 1995, 164,620 and 284,720 shares, respectively, 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, 1996 and 1995, 157,000 and 89,000 shares, respectively, were reserved for options which may be granted under this plan.
11. Stock-Based Compensation (continued)
A summary of the option activity under all plans for the past three years follows:
Number of Option Price Shares per Share ----------------------- Balance June 30, 1993 786,070 $19.00-$27.06 Granted 136,760 $26.88-$30.19 Exercised (195,318) $19.00-$25.75 Cancelled (3,160) $24.12-$27.06 ----------------------- Balance June 30, 1994 724,352 $19.00-$30.19 Granted 144,000 $28.32-$32.56 Exercised (70,810) $22.38-$30.19 Cancelled (3,390) $24.12-$30.19 ----------------------- Balance June 30, 1995 794,152 $19.00-$32.56 Granted 270,500 $33.00-$39.12 Exercised (241,546) $19.00-$30.19 Cancelled (9,600) $28.32-$32.56 ----------------------- Balance June 30, 1996 813,506 $19.00-$39.12 ======================= At June 30, 1996, 543,006 of the 813,506 options outstanding were exercisable. Of the options outstanding at June 30, 1996, 428,830 relate to the 1993 plan, 146,574 relate to the 1982 plan, 154,580 relate to the 1977 plan and 83,522 relate to the plan for non-employee Directors. No adjustments to income are made with respect to options granted or exercised under the plans.
12. Pension Plans
The Company has several noncontributory defined benefit pension plans, which cover a majority of its 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.
12. Pension Plans (continued)
Net pension credits included the following components:
(in thousands) 1996 1995 1994 -------------- ---------------------------- Service cost of benefits earned $ 11,439 $ 9,852 $ 9,891 Interest cost on projected benefit obligation 28,852 27,255 25,576 Return on plan assets: Actual (96,868) (83,917) (8,351) Deferred gain (loss) 50,363 42,733 (34,297) Net amortization and deferral (2,240) (2,727) (3,304) ---------------------------- Net pension credits $ (8,454) $ (6,804) $(10,485) ============================ Principal actuarial assumptions: Discount rate 7.5% 8.0% 7.5% Long-term rate of compensation increase 4.5% 4.5% 4.5% Long-term rate of return on plan assets 9.0% 9.0% 9.0%
The .5% discount rate changes decreased the pension credit by $.8 million in fiscal 1996 and increased the pension credit by $.7 million in fiscal 1995.
The funded status of these plans at June 30, 1996 and 1995 is summarized as follows:
Overfunded Plans Underfunded Plans (in thousands) 1996 1995 1996 1995 -------------- -------------------------------------- Plan assets at fair value $598,648 $527,009 $ 1,888 $ 1,378 -------------------------------------- Actuarial present value of benefit obligations: Vested 310,648 271,332 9,006 7,214 Non-vested 60,433 55,694 397 332 -------------------------------------- Accumulated benefit obligation 371,081 327,026 9,403 7,546 Effect of future com- pensation increases 64,531 58,225 3,248 3,393 -------------------------------------- Projected benefit obligation 435,612 385,251 12,651 10,939 -------------------------------------- Plan assets in excess of (less than) projected benefit obligation $163,036 $141,758 $(10,763) $ (9,561) Unrecognized net (gain) loss - experience different from assumptions (90,990) (47,565) 3,527 3,008 Unrecognized transition (asset) obligation (14,491) (17,387) 417 463 Unrecognized prior service cost 33,919 4,376 294 717 -------------------------------------- Prepaid (accrued) pension cost $ 91,474 $ 81,182 $ (6,525) $ (5,373) ====================================== Principal actuarial assumptions: Discount rate 7.5% 7.5% 8.1% 7.1% Long-term rate of compensation increase 4.5% 4.5% 6.8% 6.0%
12. Pension Plans (continued)
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.
In fiscal 1996, the domestic pension plans were amended to provide an improved pension formula for participants and a pension increase for participants who retired before January 1, 1992. These amendments increased the prior service cost as of June 30, 1996 by $29.9 million.
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. During fiscal 1995, the Company established a company-owned life insurance program covering certain key employees and outside directors. The purpose of the program is to provide for the Company's obligation under the supplemental retirement plans. As of June 30, 1996 and 1995, the cash surrender value of $4.2 million and $2.0 million, respectively, was included in other assets on the consolidated balance sheet.
The Company also maintains defined contribution pension and savings plans for substantially all domestic employees. The Company contributions were $4.8 million in fiscal 1996, $4.5 million in fiscal 1995 and $3.7 million in fiscal 1994. There were 1,357,110 common shares reserved for issuance under the savings plans at June 30, 1996.
13. Postretirement Medical and Life Insurance Benefits
In addition to pension plan benefits, the Company provides health care and life insurance benefits for a majority of its retired employees and covered dependents. Eligible employees receive these benefits upon normal retirement.
Expense of postretirement medical and life insurance benefits consisted of the following components:
(in thousands) 1996 1995 1994 ------------- ---------------------------- Service cost of benefits earned $ 2,317 $ 2,287 $ 2,803 Interest cost on accumulated postretirement benefit obligation 9,767 10,317 10,622 Return on plan assets: Actual (4,548) (6,023) 370 Deferred gain (loss) 2,274 4,675 (1,341) Net amortization and deferral (1,575) (1,031) - ---------------------------- Postretirement medical and life insurance benefits expense $ 8,235 $ 10,225 $ 12,454 ============================ Principal actuarial assumptions: Discount rate 7.5% 8.0% 7.5% Return on plan assets 9.0% 9.0% 9.0% Trend rate - beginning* 10.0% 11.0% 12.0% Trend rate - ultimate 6.0% 6.0% 6.0%
*Declines 1% per year to the ultimate rate.
The .5% discount rate changes increased expense $.7 million in fiscal 1996 and decreased expense $.8 million in fiscal 1995.
13. Postretirement Medical and Life Insurance Benefits (continued)
The funded status of the postretirement medical and life insurance benefit plans at June 30, 1996 and 1995, is summarized as follows:
(in thousands) 1996 1995 -------------- ------------------ Accumulated postretirement benefit obligation (APBO): Retirees $ 90,669 $ 83,879 Fully eligible active plan participants 24,751 20,702 Other active plan participants 28,968 28,555 ------------------ Total APBO 144,388 133,136 Plan assets at fair value 33,624 24,586 ------------------ APBO in excess of plan assets 110,764 108,550 Unrecognized net gain 35,074 38,477 Unrecognized prior service cost (2,111) (1,441) ------------------ Accrued postretirement benefits $143,727 $145,586 ==================
Principal actuarial assumptions: Discount rate 7.5% 7.5% Trend rate - beginning* 9.0% 10.0% 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, 1996 would increase by $18.0 million and the postretirement benefit expense for fiscal 1996 would have increased by $1.7 million.
The Company has been voluntarily contributing amounts into a Voluntary Employee Trust Fund (VEBA) since fiscal 1992. Plan assets are invested in trust-owned life insurance.
14. Employee Stock Ownership Program
The Company has a leveraged employee stock ownership plan ("ESOP") to assist a majority of its employees with their future retiree medical obligations. The Company issued 461.5 shares of convertible preferred stock at $65,000 per share to the ESOP in exchange for a $30.0 million 15-year, 9.345% note which is included in the shareholders' equity section of the consolidated balance sheet as deferred compensation. The preferred stock is recorded net of related issuance costs.
Principal and interest obligations on the note are satisfied by the ESOP as 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 are allocated to participating employees' accounts within the ESOP. The Company contributed $1.3 million in fiscal 1996, $1.1 million in fiscal 1995 and $.9 million in fiscal 1994 to the ESOP. Compensation expense related to the plan was $2.0 million in fiscal 1996 and 1995 and $2.1 million in fiscal 1994.
As of June 30, 1996, the ESOP held 453.1 shares of the convertible preferred stock, consisting of 116.1 allocated shares and 337.0 unallocated shares. Each preferred share is convertible into 2,000 shares of common stock. There are 906,109 common shares reserved for issuance under the ESOP at June 30, 1996. 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 2,600 votes per share. The stock is redeemable at the Company's option at any time after September 5, 1996 at an initial price of $67,600 per share, declining to $65,000 per share by 2001.
15. Supplemental Data
(in thousands) 1996 1995 1994 -------------- ---------------------------- Research and development $ 13,825 $ 12,302 $ 13,597 Repairs and maintenance $ 53,369 $ 49,305 $ 42,862
16. Income Taxes
Provisions for income taxes consisted of the following:
(in thousands) 1996 1995 1994 -------------- ---------------------------- Current: Federal $ 28,057 $ 20,117 $ 18,040 State 2,018 2,488 798 Foreign 420 1,160 1,544
Deferred: Federal 3,589 4,332 4,937 State (211) (1,437) (128) Foreign 1,149 419 (752) ---------------------------- $ 35,022 $ 27,079 $ 24,439 ============================
The following is a reconciliation of the statutory federal income tax rate to the actual effective income tax rate:
(% of pre-tax income) 1996 1995 1994 --------------------- ------------------------- Federal tax rate 35.0% 35.0% 35.0% Increase (decrease) in taxes resulting from: State income taxes, net of federal tax benefit 2.0 4.1 1.7 Federal and state tax rate changes (0.5) (2.0) 1.4 Other, net 0.3 (0.8) 0.9 ------------------------- Effective tax rate 36.8% 36.3% 39.0% =========================
Deferred taxes are recorded based upon temporary differences between financial statement and tax bases of assets and liabilities. The following deferred tax liabilities and assets were recorded as of June 30, 1996 and 1995:
(in thousands) 1996 1995 ------------- ------------------ Deferred tax liabilities: Depreciation and amortization $110,906 $110,921 Prepaid pensions 30,659 26,578 Other 14,614 15,755 ------------------ Total deferred tax liabilities 156,179 153,254 ------------------ Deferred tax assets: Postretirement provisions 54,557 56,000 Other reserve provisions 20,576 21,168 Valuation allowance (1,301) (502) ------------------ Total deferred tax assets 73,832 76,666 ------------------ Net deferred tax liability $ 82,347 $ 76,588 ==================
16. Income Taxes (continued)
The change in the valuation allowance in fiscal 1996 relates to pre-acquisition net operating loss carryforwards of an acquired company.
17. Commitments and Contingencies
Environmental
The Company is subject to various stringent federal, state and local environmental laws and regulations. The liability for future environmental remediation costs is evaluated by management on a quarterly basis. 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 year ended June 30, 1996, no expense was recognized, but for the years ended June 30, 1995 and 1994, $1.0 million and $1.2 million, respectively, were charged to operations for environmental remediation costs. The liability recorded for environmental cleanup costs, including remediation investigation and feasibility study costs remaining at June 30, 1996 and 1995, was $5.6 million and $5.9 million, respectively.
In June 1996, the Company entered into a partial settlement of litigation relating to insurance coverages for certain superfund sites and recognized income of $4.1 million. The amounts receivable for recoveries from this settlement and from potentially responsible parties ("PRPs") at June 30, 1996 and 1995, were $4.2 million and $1.2 million, respectively.
Estimates of the amount and timing of future costs of environmental remediation requirements are necessarily imprecise because of the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology and the identification of presently unknown remediation sites and the allocation of costs among the PRPs. Based upon information presently available, such future costs are not expected to have a material 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.
17. Commitments and Contingencies (continued)
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 and timing (both as to recording future charges to operations and cash expenditures) of the resolution of such matters. While it is not feasible to determine the outcome of these matters, in the opinion of management, any total ultimate liability will not have a material effect on the Company's financial position or results of operations and cash flows.
SUPPLEMENTARY DATA
Quarterly Financial Data (Unaudited)
Quarterly sales and earnings results are usually influenced by seasonal factors. The first fiscal quarter (three months ending September 30) is typically the lowest because of annual plant vacation and maintenance shutdowns in this period by Carpenter and by many of our customers. This seasonal pattern can be disrupted by major economic cycles or special accounting adjustments.
(dollars in thousands- except per share First Second Third Fourth Fiscal amounts) Quarter Quarter Quarter Quarter(1) Year - --------------------------------------------------------------------------- Results of Operations Fiscal 1996 Net sales $184,469 $210,126 $233,274 $237,455 $865,324 Gross profits $ 48,264 $ 52,897 $ 58,699 $ 68,681 $228,541 Net income $ 11,906 $ 12,293 $ 14,726 $ 21,223 $ 60,148 - -------------------------------------------------------------------------- Fiscal 1995 Net sales $156,084 $172,400 $211,636 $217,412 $757,532 Gross profits $ 34,516 $ 44,483 $ 57,535 $ 56,829 $193,363 Net income $ 4,932 $ 9,827 $ 15,363 $ 17,370 $ 47,492 - -------------------------------------------------------------------------- Per Common Share Fiscal 1996 Primary earnings $ .70 $ .71 $ .86 $ 1.24 $ 3.51 Fully-diluted earnings $ .67 $ .69 $ .83 $ 1.19 $ 3.38 - -------------------------------------------------------------------------- Fiscal 1995 Primary earnings $ .28 $ .58 $ .91 $ 1.04 $ 2.81 Fully-diluted earnings $ .27 $ .56 $ .89 $ .98 $ 2.70 - --------------------------------------------------------------------------
(1) Changes in Pennsylvania income tax laws resulted in increases to net income of $1.5 million, or $.09 per share, during the fourth quarter of fiscal 1995.
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 1996 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 1996 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 1996 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 1996 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 schedule should be read in conjunction with the consolidated financial statements (see Item 8. Financial Statements):
Report of Independent Accountants Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the required information is contained in the consolidated financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND 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 1996 Annual Report on Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14(a) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
s/Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania July 29, 1996
(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 12. Statement re Computation of Ratios 23. Consent of Experts and Counsel 24. Powers 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 3, 1996 with respect to the amendment and extension of the Rights Agreements described in Exhibit 4B of the Exhibit Index.
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 26, 1996
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 26, 1996 - ---------------------- Chief Executive Officer Robert W. Cardy and Director (Principal Executive Officer)
s/G. Walton Cottrell Sr. Vice President - September 26, 1996 - ---------------------- Finance & Chief G. Walton Cottrell Financial Officer
s/Edward B. Bruno Controller (Principal September 26, 1996 - ---------------------- Accounting Officer) Edward B. Bruno
* Director September 26, 1996 - ---------------------- Marcus C. Bennett
* Director September 26, 1996 - ---------------------- William S. Dietrich II
* Director September 26, 1996 - ---------------------- C. McCollister Evarts, M.D.
* Director September 26, 1996 - ---------------------- Carl R. Garr
* Director September 26, 1996 - ---------------------- William J. Hudson, Jr.
* Director September 26, 1996 - ---------------------- Arthur E. Humphrey
* Director September 26, 1996 - ---------------------- Edward W. Kay
* Director September 26, 1996 - ---------------------- Frederick C. Langenberg
* Director September 26, 1996 - ---------------------- Marlin Miller, Jr.
* Director September 26, 1996 - ---------------------- Paul R. Roedel
* Director September 26, 1996 - ---------------------- Kathryn C. Turner
* Director September 26, 1996 - ---------------------- Kenneth L. Wolfe
Original Powers of Attorney authorizing John R. Welty to sign this Report on behalf of: Marcus C. Bennett, William S. Dietrich II, C. McCollister Evarts, M.D., Carl R. Garr, William J. Hudson, Jr., Arthur E. Humphrey, Edward W. Kay, Frederick C. Langenberg, Marlin Miller, Jr., Paul R. Roedel, Kathryn C. Turner, Kenneth L. Wolfe, are being filed with the Securities and Exchange Commission.
*By s/John R. Welty ------------------- John R. Welty Attorney-in-fact
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
(in 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 Accts(1) tions(2) Period - ----------- ------ -------- ----- ----- ------
Year ended June 30, 1996:
Allowance for doubtful accounts receivable $1,034 $ 440 $ 472 $ (697) $1,249
Year ended June 30, 1995:
Allowance for doubtful accounts receivable $ 619 $ 578 $ 338 $ (501) $1,034
Year ended June 30, 1994:
Allowance for doubtful accounts receivable $ 500 $ 470 $ 316 $ (667) $ 619
(1) Includes beginning balances of acquired businesses and recoveries of accounts previously written off, net of collection expenses.
(2) Doubtful accounts written off.