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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2020
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.) |
| | | |
1735 Market Street | 15th Floor | | 19103 |
Philadelphia | Pennsylvania | | |
(Address of principal executive offices) | | (Zip Code) |
610-208-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: |
| | | | |
Common Stock, $5 Par Value | | CRS | | New York Stock Exchange |
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | | | |
Large accelerated filer | ☒ | | Accelerated filer | ☐ |
| | |
Non-accelerated filer | ☐ | (Do not check if a smaller reporting company) | Smaller reporting company | ☐ |
| | | | |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the issuer’s common stock as of April 23, 2020 was 47,805,050.
CARPENTER TECHNOLOGY CORPORATION
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
| | | | | | | | |
($ in millions, except share data) | | March 31,
2020 | | June 30,
2019 |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 93.0 |
| | $ | 27.0 |
|
Accounts receivable, net | | 374.4 |
| | 384.1 |
|
Inventories | | 869.0 |
| | 787.7 |
|
Other current assets | | 40.7 |
| | 37.4 |
|
Total current assets | | 1,377.1 |
| | 1,236.2 |
|
Property, plant and equipment, net | | 1,395.2 |
| | 1,366.2 |
|
Goodwill | | 325.1 |
| | 326.4 |
|
Other intangibles, net | | 61.2 |
| | 67.2 |
|
Deferred income taxes | | 3.8 |
| | 4.2 |
|
Other assets | | 267.0 |
| | 187.6 |
|
Total assets | | $ | 3,429.4 |
| | $ | 3,187.8 |
|
| | | | |
LIABILITIES | | | | |
Current liabilities: | | | | |
Short-term credit agreement borrowings | | $ | 170.0 |
| | $ | 19.7 |
|
Accounts payable | | 209.6 |
| | 238.7 |
|
Accrued liabilities | | 136.4 |
| | 157.6 |
|
Total current liabilities | | 516.0 |
| | 416.0 |
|
Long-term debt | | 552.4 |
| | 550.6 |
|
Accrued pension liabilities | | 359.7 |
| | 371.2 |
|
Accrued postretirement benefits | | 122.8 |
| | 122.1 |
|
Deferred income taxes | | 151.5 |
| | 142.7 |
|
Other liabilities | | 108.5 |
| | 65.1 |
|
Total liabilities | | 1,810.9 |
| | 1,667.7 |
|
| | | | |
Contingencies and commitments (see Note 11) | |
| |
|
| | | | |
STOCKHOLDERS’ EQUITY | | | | |
Common stock — authorized 100,000,000 shares; issued 56,012,748 shares at March 31, 2020 and 55,808,743 shares at June 30, 2019; outstanding 47,804,334 shares at March 31, 2020 and 47,470,363 shares at June 30, 2019 | | 280.1 |
| | 279.0 |
|
Capital in excess of par value | | 325.7 |
| | 320.4 |
|
Reinvested earnings | | 1,696.1 |
| | 1,605.3 |
|
Common stock in treasury (8,208,414 shares and 8,338,380 shares at March 31, 2020 and June 30, 2019, respectively), at cost | | (328.1 | ) | | (332.8 | ) |
Accumulated other comprehensive loss | | (355.3 | ) | | (351.8 | ) |
Total stockholders' equity | | 1,618.5 |
| | 1,520.1 |
|
Total liabilities and stockholders' equity | | $ | 3,429.4 |
| | $ | 3,187.8 |
|
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | Nine Months Ended
March 31, |
(in millions, except per share data) | | 2020 | | 2019 | | 2020 | | 2019 |
Net sales | | $ | 585.4 |
| | $ | 609.9 |
| | $ | 1,743.8 |
| | $ | 1,738.8 |
|
Cost of sales | | 475.9 |
| | 486.7 |
| | 1,409.0 |
| | 1,416.9 |
|
Gross profit | | 109.5 |
| | 123.2 |
|
| 334.8 |
|
| 321.9 |
|
| | | | | | | | |
Selling, general and administrative expenses | | 50.8 |
| | 50.0 |
| | 159.0 |
| | 148.3 |
|
Restructuring charges | | — |
| | — |
| | 2.3 |
| | — |
|
Operating income | | 58.7 |
| | 73.2 |
|
| 173.5 |
|
| 173.6 |
|
| | | | | | | | |
Interest expense | | (4.9 | ) | | (7.1 | ) | | (15.6 | ) | | (20.3 | ) |
Other (expense) income, net | | (3.9 | ) | | 1.9 |
| | (3.4 | ) | | 0.1 |
|
| | | | | | | | |
Income before income taxes | | 49.9 |
| | 68.0 |
|
| 154.5 |
|
| 153.4 |
|
Income tax expense | | 10.0 |
| | 16.9 |
| | 34.6 |
| | 35.3 |
|
| | | | | | | | |
Net income | | $ | 39.9 |
| | $ | 51.1 |
|
| $ | 119.9 |
|
| $ | 118.1 |
|
| | | | | | | | |
EARNINGS PER COMMON SHARE: | | |
| | |
| | | | |
Basic | | $ | 0.82 |
| | $ | 1.06 |
| | $ | 2.47 |
| | $ | 2.45 |
|
Diluted | | $ | 0.82 |
| | $ | 1.05 |
| | $ | 2.46 |
| | $ | 2.43 |
|
| | | | | | | | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | |
| | |
| | | | |
Basic | | 48.1 |
| | 47.7 |
| | 48.0 |
| | 47.7 |
|
Diluted | | 48.3 |
| | 48.1 |
| | 48.4 |
| | 48.1 |
|
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | Nine Months Ended
March 31, |
($ in millions) | | 2020 | | 2019 | | 2020 | | 2019 |
Net income | | $ | 39.9 |
| | $ | 51.1 |
| | $ | 119.9 |
| | $ | 118.1 |
|
Other comprehensive (loss) income, net of tax | | |
| | |
| | |
| | |
|
Cumulative adjustment upon adoption of ASU 2017-12 reclassified to reinvested earnings | | — |
| | — |
| | — |
| | (1.0 | ) |
Pension and postretirement benefits, net of tax of $(0.9), $(0.5), $(3.1) and $(1.5), respectively | | 3.1 |
| | 1.7 |
| | 9.1 |
| | 5.1 |
|
Net (loss) gain on derivative instruments, net of tax of $2.8, $(1.0), $0.4 and $12.5, respectively | | (8.9 | ) | | 3.2 |
| | (1.3 | ) | | (35.2 | ) |
Marketable securities gain, net of tax of $0.0, $0.0, $0.0 and $0.0, respectively | | — |
| | — |
| | — |
| | 0.3 |
|
Foreign currency translation (loss) gain | | (13.2 | ) | | 1.1 |
| | (11.3 | ) | | (0.9 | ) |
Other comprehensive (loss) income, net of tax | | (19.0 | ) | | 6.0 |
|
| (3.5 | ) |
| (31.7 | ) |
Comprehensive income | | $ | 20.9 |
| | $ | 57.1 |
|
| $ | 116.4 |
|
| $ | 86.4 |
|
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| | | | | | | | |
| | Nine Months Ended March 31, |
($ in millions) | | 2020 | | 2019 |
OPERATING ACTIVITIES | | |
| | |
|
Net income | | $ | 119.9 |
| | $ | 118.1 |
|
Adjustments to reconcile net income to net cash provided from operating activities: | | |
| | |
|
Depreciation and amortization | | 92.2 |
| | 90.9 |
|
Non-cash restructuring charges | | 1.5 |
| | — |
|
Deferred income taxes | | 7.0 |
| | 7.0 |
|
Net pension expense | | 11.5 |
| | 8.7 |
|
Share-based compensation expense | | 12.4 |
| | 12.7 |
|
Net loss on disposals of property, plant and equipment and assets held for sale | | — |
| | 0.7 |
|
Gain on insurance recovery | | — |
| | (11.4 | ) |
Changes in working capital and other: | | |
| | |
|
Accounts receivable | | 7.6 |
| | (12.1 | ) |
Inventories | | (85.2 | ) | | (168.3 | ) |
Other current assets | | (5.2 | ) | | 7.6 |
|
Accounts payable | | (26.9 | ) | | 36.6 |
|
Accrued liabilities | | (33.4 | ) | | (25.2 | ) |
Pension plan contributions | | (4.9 | ) | | (4.3 | ) |
Other postretirement plan contributions | | (2.7 | ) | | (2.5 | ) |
Other, net | | 1.1 |
| | (1.3 | ) |
Net cash provided from operating activities | | 94.9 |
| | 57.2 |
|
INVESTING ACTIVITIES | | |
| | |
|
Purchases of property, plant, equipment and software | | (144.0 | ) | | (130.7 | ) |
Proceeds from disposals of property, plant and equipment and assets held for sale | | 0.3 |
| | 0.3 |
|
Proceeds from insurance recovery | | — |
| | 11.4 |
|
Acquisition of business, net of cash acquired | | — |
| | (79.0 | ) |
Proceeds from sales and maturities of marketable securities | | — |
| | 2.9 |
|
Net cash used for investing activities | | (143.7 | ) | | (195.1 | ) |
FINANCING ACTIVITIES | | |
| | |
|
Credit agreement borrowings | | 331.1 |
| | 163.9 |
|
Credit agreement repayments | | (181.1 | ) | | (63.9 | ) |
Net change in short-term credit agreement borrowings | | 0.3 |
| | 27.0 |
|
Dividends paid | | (29.1 | ) | | (28.9 | ) |
Proceeds from stock options exercised | | 4.3 |
| | 3.7 |
|
Withholding tax payments on share-based compensation awards | | (7.8 | ) | | (4.4 | ) |
Net cash provided from financing activities | | 117.7 |
| | 97.4 |
|
Effect of exchange rate changes on cash and cash equivalents | | (2.9 | ) | | 3.2 |
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | 66.0 |
| | (37.3 | ) |
Cash and cash equivalents at beginning of period | | 27.0 |
| | 56.2 |
|
Cash and cash equivalents at end of period | | $ | 93.0 |
| | $ | 18.9 |
|
SUPPLEMENTAL CASH FLOW INFORMATION: | | |
| | |
|
Non-cash investing activities: | | |
| | |
|
Acquisition of property, plant, equipment and software | | $ | 14.1 |
| | $ | 12.8 |
|
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2020 AND 2019
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Reinvested Earnings | | Common Stock in Treasury | | Accumulated Other Comprehensive (Loss) Income | | Total Equity |
($ in millions, except per share data) | | Par Value of $5 | | Capital in Excess of Par Value | | | | |
Balances at December 31, 2019 | | $ | 280.1 |
| | $ | 322.1 |
| | $ | 1,665.9 |
| | $ | (328.4 | ) | | $ | (336.3 | ) | | $ | 1,603.4 |
|
Net income | | |
| | |
| | 39.9 |
| | |
| | |
| | 39.9 |
|
Pension and postretirement benefits gain, net of tax | | |
| | |
| | |
| | |
| | 3.1 |
| | 3.1 |
|
Net loss on derivative instruments, net of tax | | |
| | |
| | |
| | |
| | (8.9 | ) | | (8.9 | ) |
Foreign currency translation | | |
| | |
| | |
| | |
| | (13.2 | ) | | (13.2 | ) |
Cash Dividends: | | |
| | |
| | |
| | |
| | |
| |
|
|
Common @ $0.20 per share | | |
| | |
| | (9.7 | ) | | |
| | |
| | (9.7 | ) |
Share-based compensation plans | |
|
| | 3.6 |
| | |
| | 0.3 |
| | |
| | 3.9 |
|
Stock options exercised | |
|
| |
|
| | |
| | |
| | |
| | — |
|
Balances at March 31, 2020 | | $ | 280.1 |
| | $ | 325.7 |
| | $ | 1,696.1 |
| | $ | (328.1 | ) | | $ | (355.3 | ) | | $ | 1,618.5 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Reinvested Earnings | | Common Stock in Treasury | | Accumulated Other Comprehensive (Loss) Income | | Total Equity |
($ in millions, except per share data) | | Par Value of $5 | | Capital in Excess of Par Value | | | | |
Balances at December 31, 2018 | | $ | 279.0 |
| | $ | 315.0 |
| | $ | 1,524.6 |
| | $ | (335.6 | ) | | $ | (277.5 | ) | | $ | 1,505.5 |
|
Net income | | |
| | |
| | 51.1 |
| | |
| | |
| | 51.1 |
|
Pension and postretirement benefits gain, net of tax | | |
| | |
| | |
| | |
| | 1.7 |
| | 1.7 |
|
Net gain on derivative instruments, net of tax | | |
| | |
| | |
| | |
| | 3.2 |
| | 3.2 |
|
Foreign currency translation | | |
| | |
| | |
| | |
| | 1.1 |
| | 1.1 |
|
Cash Dividends: | | |
| | |
| | |
| | |
| | |
| |
|
|
Common @ $0.20 per share | | |
| | |
| | (9.6 | ) | | |
| | |
| | (9.6 | ) |
Share-based compensation plans | |
|
| | 4.6 |
| | |
| |
|
| | |
| | 4.6 |
|
Stock options exercised | | | |
|
| | |
| | |
| | |
| | — |
|
Balances at March 31, 2019 | | $ | 279.0 |
| | $ | 319.6 |
| | $ | 1,566.1 |
| | $ | (335.6 | ) | | $ | (271.5 | ) | | $ | 1,557.6 |
|
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2020 AND 2019
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Reinvested Earnings | | Common Stock in Treasury | | Accumulated Other Comprehensive (Loss) Income | | Total Equity |
($ in millions, except per share data) | | Par Value of $5 | | Capital in Excess of Par Value | | | | |
Balances at June 30, 2019 | | $ | 279.0 |
| | $ | 320.4 |
| | $ | 1,605.3 |
| | $ | (332.8 | ) | | $ | (351.8 | ) | | $ | 1,520.1 |
|
Net income | | |
| | |
| | 119.9 |
| | |
| | |
| | 119.9 |
|
Pension and postretirement benefits gain, net of tax | | |
| | |
| | |
| | |
| | 9.1 |
| | 9.1 |
|
Net loss on derivative instruments, net of tax | | |
| | |
| | |
| | |
| | (1.3 | ) | | (1.3 | ) |
Foreign currency translation | | |
| | |
| | |
| | |
| | (11.3 | ) | | (11.3 | ) |
Cash Dividends: | | |
| | |
| | |
| | |
| | |
| |
|
|
Common @ $0.60 per share | | |
| | |
| | (29.1 | ) | | |
| | |
| | (29.1 | ) |
Share-based compensation plans | | 0.5 |
| | 1.6 |
| | |
| | 4.7 |
| | |
| | 6.8 |
|
Stock options exercised | | 0.6 |
| | 3.7 |
| | |
| | |
| | |
| | 4.3 |
|
Balances at March 31, 2020 | | $ | 280.1 |
| | $ | 325.7 |
| | $ | 1,696.1 |
| | $ | (328.1 | ) | | $ | (355.3 | ) | | $ | 1,618.5 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Reinvested Earnings | | Common Stock in Treasury | | Accumulated Other Comprehensive (Loss) Income | | Total Equity |
($ in millions, except per share data) | | Par Value of $5 | | Capital in Excess of Par Value | | | | |
Balances at June 30, 2018 | | $ | 278.6 |
| | $ | 310.0 |
| | $ | 1,475.9 |
| | $ | (338.8 | ) | | $ | (239.8 | ) | | $ | 1,485.9 |
|
Cumulative adjustment upon adoption of ASU 2017-12 | | | | | | 1.0 |
| | | | (1.0 | ) | | — |
|
Net income | | |
| | |
| | 118.1 |
| | |
| | |
| | 118.1 |
|
Pension and postretirement benefits gain, net of tax | | |
| | |
| | |
| | |
| | 5.1 |
| | 5.1 |
|
Net loss on derivative instruments, net of tax | | |
| | |
| | |
| | |
| | (35.2 | ) | | (35.2 | ) |
Marketable securities gain, net of tax | | |
| | |
| | |
| | |
| | 0.3 |
| | 0.3 |
|
Foreign currency translation | | |
| | |
| | |
| | |
| | (0.9 | ) | | (0.9 | ) |
Cash Dividends: | | |
| | |
| | |
| | |
| | |
| |
|
|
Common @ $0.60 per share | | |
| | |
| | (28.9 | ) | | |
| | |
| | (28.9 | ) |
Share-based compensation plans | | |
| | 6.3 |
| | |
| | 3.2 |
| | |
| | 9.5 |
|
Stock options exercised | | 0.4 |
| | 3.3 |
| | |
| | |
| | |
| | 3.7 |
|
Balances at March 31, 2019 | | $ | 279.0 |
| | $ | 319.6 |
| | $ | 1,566.1 |
| | $ | (335.6 | ) | | $ | (271.5 | ) | | $ | 1,557.6 |
|
See accompanying notes to consolidated financial statements.
CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair statement of the results are reflected in the interim periods presented. The June 30, 2019 consolidated balance sheet data was derived from audited financial statements, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in Carpenter Technology’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019 (the “2019 Form 10-K”). Operating results for the three and nine months ended March 31, 2020 are not necessarily indicative of the operating results for any future period.
As used throughout this report, unless the context requires otherwise, the terms “Carpenter”, "Carpenter Technology", the “Company”, “Registrant”, “Issuer”, “we” and “our” refer to Carpenter Technology Corporation.
Restructuring charges for the three and nine months ended March 31, 2020 were $0.0 million and $2.3 million, respectively, before taxes. During the quarter ended December 31, 2019, the Company approved restructuring actions to reduce overhead costs and position the Company to drive long-term, profitable growth. The activities undertaken in connection with the restructuring were substantially complete in the quarter ended December 31, 2019.
| |
3. | Recent Accounting Pronouncements |
Recently Issued Accounting Pronouncements - Adopted in current fiscal year
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02 Leases (Topic 842) which replaces the existing guidance in ASC 840, Leases. The standard improves transparency and comparability among companies by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU 2016-02 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. The Company adopted the provisions of ASU 2016-02 in the first quarter of fiscal year 2020 using the modified retrospective transition method, which did not require the Company to adjust comparative periods. Operating leases are included in other assets, accrued liabilities (current) and other liabilities (long-term) on the consolidated balance sheets. The Company’s right-of-use ("ROU") assets and lease liabilities are recognized on the lease commencement date in an amount that represents the present value of future lease payments. Upon adoption of the new lease guidance, the Company recorded a ROU asset and lease liability on the consolidated balance sheet for several types of operating leases, including land and buildings, equipment (e.g. trucks and forklifts), vehicles and computer equipment. The adoption of the standard had no impact on the Consolidated Statements of Income or the Consolidated Statements of Cash Flows. There was no cumulative effect of adopting the standard at the date of initial application in reinvested earnings.
CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company elected the package of practical expedients included in this guidance, which allowed it to not reassess: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and, (iii) the initial direct costs for existing leases. The Company has elected the practical expedient to not separate lease components from nonlease components for all asset classes. The Company will recognize lease expense in the consolidated statements of operations on a straight-line basis over the lease term. The Company also made a policy election to not recognize ROU assets and lease liabilities for short-term leases with an initial term of 12 months or less for all asset classes. Leases with the option to extend their term or terminate early are reflected in the lease term when it is reasonably certain that the Company will exercise such options. The Company has expanded the disclosure of operating leases included in Note 12.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income (loss) to reinvested earnings for standard tax effects resulting from the Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (the “Tax Cuts and Jobs Act”). ASU 2018-02 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. The Company adopted the provisions of ASU 2018-02 in the first quarter of fiscal year 2020. The adoption of ASU 2018-02 did not materially impact the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40) - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. ASU 2018-15 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. The Company early adopted the provisions of ASU 2018-15 in the first quarter of fiscal year 2020 and elected the prospective adoption method. The adoption of ASU 2018-15 did not materially impact the consolidated financial statements.
Recently Issued Accounting Pronouncements - Pending Adoption
At this time there are no issued pronouncements pending adoption that would materially impact the Company.
The Company recognizes revenue in accordance with Topic 606, Revenue from Contracts. The Company applies the five-step model in the FASB’s guidance, which requires the Company to: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies a performance obligation.
The Company recognizes revenue when performance obligations under the terms of a customer purchase order or contract are satisfied. This occurs when control of the goods and services has transferred to the customer, which is generally determined when title, ownership, and risk of loss pass to the customer, all of which occurs upon shipment or delivery of the product or the service is performed. Consignment transactions are arrangements where the Company transfers product to a customer location but retains ownership and control of such product until it is used by the customer. Revenue for consignment arrangements is recognized upon usage by the customer. Service revenue is recognized as the services are performed.
Each customer purchase order or contract for goods transferred has a single performance obligation for which revenue is recognized at a point in time. The standard terms and conditions of a customer purchase order include general rights of return and product warranty provisions related to nonconforming product. Depending on the circumstances, the product is either replaced or a quality adjustment is issued. Such warranties do not represent a separate performance obligation.
CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Each customer purchase order or contract sets forth the transaction price for the products and services purchased under that arrangement. Some customer arrangements include variable consideration, such as volume rebates, which generally depend upon the Company’s customers meeting specified performance criteria, such as a purchasing level over a period of time. The Company exercises judgment to estimate the most likely amount of variable consideration at each reporting date.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for its product. The standard payment terms are 30 days. The Company has elected to use the practical expedient that permits a Company to not adjust for the effects of a significant financing component if it expects that at the contract inception, the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Amounts billed to customers for shipping and handling activities to fulfill the Company’s promise to transfer the goods are included in revenues and costs incurred by the Company for the delivery of goods and are classified as cost of sales in the consolidated statements of income. Shipping terms may vary for products shipped outside the United States depending on the mode of transportation, the country where the material is shipped and any agreements made with the customers.
Contract liabilities are recognized when the Company has received consideration from a customer to transfer goods or services at a future point in time when the Company performs under the purchase order or contract. Contract liabilities were $11.0 million and $10.5 million at March 31, 2020 and June 30, 2019, respectively, and are included in accrued liabilities on the consolidated balance sheets.
The Company has elected to use the practical expedient that permits the omission of disclosure for remaining performance obligations which are expected to be satisfied in one year or less.
Disaggregation of Revenue
The Company operates in two business segments, Specialty Alloys Operations (“SAO”) and Performance Engineered Products (“PEP”). Revenue is disaggregated within these two business segments by diversified end-use markets and by geographical location. Comparative information of the Company’s overall revenues by end-use markets and geography for the three and nine months ended March 31, 2020 and 2019 were as follows:
|
| | | | | | | | | | | | | | | | |
End-Use Market Data | | Three Months Ended
March 31, | | Nine Months Ended
March 31, |
($ in millions) | | 2020 |
| 2019 | | 2020 | | 2019 |
Aerospace and Defense | | $ | 356.4 |
| | $ | 342.1 |
| | $ | 1,058.4 |
| | $ | 951.9 |
|
Medical | | 53.0 |
| | 55.1 |
| | 151.0 |
| | 147.6 |
|
Transportation | | 33.5 |
| | 39.9 |
| | 111.9 |
| | 118.0 |
|
Energy | | 32.7 |
| | 49.0 |
| | 103.2 |
| | 136.1 |
|
Industrial and Consumer | | 80.1 |
| | 87.4 |
| | 231.4 |
| | 280.9 |
|
Distribution | | 29.7 |
| | 36.4 |
| | 87.9 |
| | 104.3 |
|
Consolidated net sales | | $ | 585.4 |
|
| $ | 609.9 |
|
| $ | 1,743.8 |
|
| $ | 1,738.8 |
|
CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | | | | | | | | | | |
Geographic Data | | Three Months Ended
March 31, | | Nine Months Ended
March 31, |
($ in millions) | | 2020 | | 2019 | | 2020 | | 2019 |
United States | | $ | 367.7 |
| | $ | 414.1 |
| | $ | 1,123.6 |
| | $ | 1,183.3 |
|
Europe | | 109.5 |
| | 97.7 |
| | 304.7 |
| | 270.9 |
|
Asia Pacific | | 62.6 |
| | 47.1 |
| | 183.7 |
| | 139.4 |
|
Mexico | | 17.8 |
| | 22.7 |
| | 55.3 |
| | 65.4 |
|
Canada | | 15.1 |
| | 17.5 |
| | 44.4 |
| | 50.2 |
|
Other | | 12.7 |
| | 10.8 |
| | 32.1 |
| | 29.6 |
|
Consolidated net sales | | $ | 585.4 |
| | $ | 609.9 |
| | $ | 1,743.8 |
| | $ | 1,738.8 |
|
On October 22, 2018, the Company acquired all the outstanding shares of LPW Technology Ltd. (“LPW”), for a cash purchase price of $79.0 million, net of cash acquired. The acquisition combines LPW’s metal powder lifecycle management technology and processes with the Company's technical expertise in producing highly engineered metal powders and additively manufactured components. The purchase price allocation was completed in the fourth quarter of fiscal year 2019 and resulted in the purchase price being allocated to: $2.1 million of accounts receivable, $4.5 million of inventory, $0.5 million of other current assets, $11.9 million of property, plant and equipment, $11.4 million of identifiable intangible assets, $59.0 million of goodwill, $4.4 million of accounts payable, $2.5 million of current liabilities and $3.5 million of other liabilities.
| |
6. | Earnings per Common Share |
The Company calculates basic and diluted earnings per share using the two class method. Under the two class method, earnings are allocated to common stock and participating securities (non-vested restricted shares and units that receive non-forfeitable dividends) according to their participation rights in dividends and undistributed earnings. The earnings available to each class of stock are divided by the weighted average number of outstanding shares for the period in each class. Diluted earnings per share assumes the issuance of common stock for all potentially dilutive share equivalents outstanding.
CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The calculations of basic and diluted earnings per common share for the three and nine months ended March 31, 2020 and 2019 were as follows:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | Nine Months Ended
March 31, |
(in millions, except per share data) | | 2020 | | 2019 | | 2020 | | 2019 |
Net income | | $ | 39.9 |
| | $ | 51.1 |
| | $ | 119.9 |
| | $ | 118.1 |
|
Less: earnings and dividends allocated to participating securities | | (0.4 | ) | | (0.6 | ) | | (1.1 | ) | | (1.4 | ) |
Earnings available for common stockholders used in calculation of basic earnings per common share | | $ | 39.5 |
| | $ | 50.5 |
| | $ | 118.8 |
| | $ | 116.7 |
|
| | | | | | | | |
Weighted average number of common shares outstanding, basic | | 48.1 |
| | 47.7 |
| | 48.0 |
| | 47.7 |
|
| | | | | | | | |
Basic earnings per common share | | $ | 0.82 |
| | $ | 1.06 |
| | $ | 2.47 |
| | $ | 2.45 |
|
| | | | | | | | |
Net income | | $ | 39.9 |
| | $ | 51.1 |
| | $ | 119.9 |
| | $ | 118.1 |
|
Less: earnings and dividends allocated to participating securities | | (0.4 | ) | | (0.6 | ) | | (1.1 | ) | | (1.4 | ) |
Earnings available for common stockholders used in calculation of diluted earnings per common share | | $ | 39.5 |
| | $ | 50.5 |
