UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-5828
CARPENTER TECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its Charter)
| Delaware | 23-0458500 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| P. O. Box 14662, Reading, PA | 19612 | |
| (Address of principal executive offices) | (Zip Code) | |
610-208-2000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of October 25, 2004.
| Common stock, $5 par value | 23,956,133 | |
| Class | Number of shares outstanding |
The Exhibit Index appears on page 27.
CARPENTER TECHNOLOGY CORPORATION
FORM 10-Q
INDEX
| Page | ||||||
| PART I | FINANCIAL INFORMATION | |||||
| Item 1 | ||||||
| Consolidated Balance Sheet (unaudited) as of September 30, 2004 and June 30, 2004 |
3 | |||||
| Consolidated Statement of Income (unaudited) for the Three Months Ended September 30, 2004 and 2003 |
4 | |||||
| 5 | ||||||
| 6 | ||||||
| 7 – 17 | ||||||
| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 – 24 | ||||
| Item 3 | 25 | |||||
| Item 4 | 25 | |||||
| PART II |
OTHER INFORMATION | |||||
| Item 1 | 26 | |||||
| Item 4 | 26 | |||||
| Item 5 | 27 | |||||
| Item 6 | 27 | |||||
| 28 | ||||||
2
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 2004 and June 30, 2004
(in millions)
| September 30 2004 |
June 30 2004 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 94.6 | $ | 76.6 | ||||
| Marketable securities |
58.0 | 28.8 | ||||||
| Accounts receivable, net |
162.3 | 165.2 | ||||||
| Inventories |
203.1 | 185.0 | ||||||
| Other current assets |
42.2 | 36.2 | ||||||
| Total current assets |
560.2 | 491.8 | ||||||
| Property, plant and equipment, net |
599.6 | 608.7 | ||||||
| Prepaid pension cost |
247.9 | 247.0 | ||||||
| Goodwill |
46.4 | 46.4 | ||||||
| Trademarks and trade names, net |
24.0 | 24.3 | ||||||
| Other assets |
35.9 | 38.0 | ||||||
| Total assets |
$ | 1,514.0 | $ | 1,456.2 | ||||
| LIABILITIES |
||||||||
| Current liabilities: |
||||||||
| Short-term debt |
$ | 1.7 | $ | 2.2 | ||||
| Current portion of long-term debt |
20.2 | 20.2 | ||||||
| Accounts payable |
115.7 | 109.0 | ||||||
| Accrued liabilities |
89.6 | 87.8 | ||||||
| Deferred income taxes |
12.2 | 10.9 | ||||||
| Total current liabilities |
239.4 | 230.1 | ||||||
| Long-term debt, net of current portion |
334.5 | 332.7 | ||||||
| Accrued postretirement benefits |
140.9 | 143.5 | ||||||
| Deferred income taxes |
181.7 | 175.6 | ||||||
| Other liabilities |
36.1 | 36.3 | ||||||
| Total liabilities |
932.6 | 918.2 | ||||||
| STOCKHOLDERS’ EQUITY |
||||||||
| Convertible preferred stock – authorized 2,000,000 shares |
20.8 | 20.8 | ||||||
| Common stock – authorized 100,000,000 shares; issued 24,958,135 and 24,141,150 shares at September 30, 2004 and June 30, 2004, respectively |
124.8 | 120.7 | ||||||
| Capital in excess of par value |
232.3 | 215.1 | ||||||
| Reinvested earnings |
247.9 | 230.4 | ||||||
| Common stock in treasury (1,112,252 shares and 1,106,772 shares at September 30, 2004 and June 30, 2004, respectively), at cost |
(38.3 | ) | (38.0 | ) | ||||
| Deferred compensation |
(8.6 | ) | (9.5 | ) | ||||
| Accumulated other comprehensive income (loss) |
2.5 | (1.5 | ) | |||||
| Total stockholders’ equity |
581.4 | 538.0 | ||||||
| Total liabilities and stockholders’ equity |
$ | 1,514.0 | $ | 1,456.2 | ||||
See accompanying notes to consolidated financial statements.
3
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
for the three months ended September 30, 2004 and 2003
(in millions, except per share data)
| Three Months Ended September 30 |
||||||||
| 2004 |
2003 |
|||||||
| NET SALES |
$ | 297.6 | $ | 213.3 | ||||
| Cost of sales |
234.2 | 179.3 | ||||||
| Gross profit |
63.4 | 34.0 | ||||||
| Selling and administrative expenses |
27.7 | 28.7 | ||||||
| Operating income |
35.7 | 5.3 | ||||||
| Interest expense |
5.8 | 6.3 | ||||||
| Other income, net |
(0.6 | ) | (1.6 | ) | ||||
| Income before income taxes |
30.5 | 0.6 | ||||||
| Income tax expense |
10.7 | 0.1 | ||||||
| NET INCOME |
$ | 19.8 | $ | 0.5 | ||||
| EARNINGS PER COMMON SHARE: |
||||||||
| Basic |
$ | 0.83 | $ | 0.00 | ||||
| Diluted |
$ | 0.80 | $ | 0.00 | ||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
||||||||
| Basic |
23.5 | 22.3 | ||||||
| Diluted |
24.5 | 22.3 | ||||||
| Cash dividends per common share |
$ | 0.0825 | $ | 0.0825 | ||||
See accompanying notes to consolidated financial statements.
4
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
for the three months ended September 30, 2004 and 2003
(in millions)
| 2004 |
2003 |
||||||
| Net income |
$ | 19.8 | $ | 0.5 | |||
| Unrealized gain on securities classified as available-for-sale |
0.1 | — | |||||
| Net gains on derivative instruments, net of tax of $0.9 million and $0.4 million, respectively |
3.0 | 0.7 | |||||
| Foreign currency translation |
0.9 | (1.9 | ) | ||||
| Comprehensive income (loss) |
$ | 23.8 | $ | (0.7 | ) | ||
See accompanying notes to consolidated financial statements.
5
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
for the three months ended September 30, 2004 and 2003
(in millions)
| 2004 |
2003 |
|||||||
| OPERATIONS: |
||||||||
| Net income |
$ | 19.8 | $ | 0.5 | ||||
| Adjustments to reconcile net income to net cash provided from operations: |
||||||||
| Depreciation |
11.7 | 12.8 | ||||||
| Amortization |
0.9 | 2.4 | ||||||
| Deferred income taxes |
6.4 | (1.4 | ) | |||||
| Net pension expense |
0.6 | 4.4 | ||||||
| Net loss (gain) on asset disposals |
0.1 | (0.1 | ) | |||||
| Changes in working capital and other: |
||||||||
| Receivables |
3.4 | (1.7 | ) | |||||
| Inventories |
(17.8 | ) | (6.9 | ) | ||||
| Other current assets |
(2.1 | ) | (2.6 | ) | ||||
| Accounts payable |
6.6 | 10.9 | ||||||
| Accrued current liabilities |
1.1 | 6.8 | ||||||
| Income tax refund |
0.4 | 0.3 | ||||||
| Other, net |
1.0 | 0.7 | ||||||
| Net cash provided from operations |
32.1 | 26.1 | ||||||
| INVESTING ACTIVITIES: |
||||||||
| Purchases of plant, equipment and software |
(2.5 | ) | (1.6 | ) | ||||
| Proceeds from disposals of plant and equipment |
— | 0.1 | ||||||
| Purchases of marketable securities |
(37.3 | ) | — | |||||
| Sales of marketable securities |
8.1 | — | ||||||
| Net cash used for investing activities |
(31.7 | ) | (1.5 | ) | ||||
| FINANCING ACTIVITIES: |
||||||||
| Net change in short-term debt |
(0.5 | ) | (0.4 | ) | ||||
| Checks not cleared |
— | (3.7 | ) | |||||
| Dividends paid |
(2.3 | ) | (2.4 | ) | ||||
| Proceeds from issuance of common stock |
21.1 | — | ||||||
| Net cash provided from (used for) financing activities |
18.3 | (6.5 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents |
(0.7 | ) | 0.8 | |||||
| INCREASE IN CASH AND CASH EQUIVALENTS |
18.0 | 18.9 | ||||||
| Cash and cash equivalents at beginning of period |
76.6 | 53.5 | ||||||
| Cash and cash equivalents at end of period |
$ | 94.6 | $ | 72.4 | ||||
See accompanying notes to consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| 1. | Basis of Presentation |
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal and recurring adjustments necessary for a fair presentation have been included. Operating results for the three months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending June 30, 2005. The June 30, 2004 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in Carpenter’s fiscal year 2004 Annual Report on Form 10-K.
Beginning in fiscal 2005, certain items on the consolidated statement of income previously included within other income, net, have been reclassified to cost of sales and selling and administrative expenses in order to present operating income. The reclassifications had no impact on reported net income, earnings per share or stockholders’ equity. Amounts reported for fiscal 2004 have been reclassified to conform to the fiscal 2005 presentation.
Stock-Based Compensation
As of September 30, 2004, Carpenter has two stock-based employee compensation plans, which are described in detail in Note 16 of Carpenter’s fiscal year 2004 Annual Report on Form 10-K. Carpenter accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings (loss) per share if Carpenter had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
| 1. | Basis of Presentation (continued) |
Stock-Based Compensation (continued)
| Three Months Ended September 30 |
||||||||
| (in millions, except per share data)
|
2004 |
2003 |
||||||
| Net income as reported |
$ | 19.8 | $ | 0.5 | ||||
| Deduct: Total stock-based employee c | ||||||||