-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L+Uyd2hmlyL4hXPIOIzB7NSnxFRvFBvsc3e08KCl2RxsSsAycQMn7Xs6h/gP8VVz kYDhism2td16s6Gm+F+NeA== 0000017843-96-000019.txt : 19960927 0000017843-96-000019.hdr.sgml : 19960927 ACCESSION NUMBER: 0000017843-96-000019 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960926 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARPENTER TECHNOLOGY CORP CENTRAL INDEX KEY: 0000017843 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 230458500 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05828 FILM NUMBER: 96634760 BUSINESS ADDRESS: STREET 1: PO BOX 14662 CITY: READING STATE: PA ZIP: 19612-4662 BUSINESS PHONE: 2152082000 MAIL ADDRESS: STREET 1: P O BOX 14662 CITY: READING STATE: PA ZIP: 19612-4662 10-K 1 1996 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1996 Commission file number 1-5828 CARPENTER TECHNOLOGY CORPORATION (Exact name of Registrant as specified in its Charter) Delaware 23-0458500 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 West Bern Street, Reading, Pennsylvania 19612-4662 (Address of principal executive offices) (Zip Code) 610-208-2000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: (Name of each exchange (Title of each class) on which registered) - --------------------- ---------------------- Common stock, par value $5 per share......New York Stock Exchange 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 the filing requirements for at least the past 90 days. Yes X . No . --- --- Indicate by check mark if disclosure of delinquent filers pur- suant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of August 30, 1996, 16,617,647 shares of Common Stock of Carpenter Technology Corporation were outstanding and the aggregate market value of such Common Stock held by nonaffiliates (based upon its closing transaction price on the Composite Tape on such date) was $560,845,586. DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates by reference certain information from the 1996 definitive Proxy Statement. The Exhibit Index appears on pages E-1 to E-6. PART I 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. 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. 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. 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. 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. 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" for discussion of factors that affect the comparability of the "Selected Financial Data". 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. 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. Consolidated Statement of Changes in Shareholders' Equity Carpenter Technology Corporation for the years ended June 30, 1996, 1995 and 1994
Common Stock Preferred ----------------- Stock Par Capital in (in thousands, except Par Value Value Excess of Reinvested Treasury share and per share data) of $5 of $5 Par Value Earnings Stock - -------------------------------------------------------------------------------- Balances at June 30, 1993 $ 29,128 $ 47,542 $ 46,131 $189,241 $(66,150) Distributions to ESOP (99) 1 11 Stock options exercised, net of 10,308 shares exchanged 437 3,808 Restricted shares issued, net 81 900 Net income 36,250 Cash dividends: Preferred, $5,362.50 per share, net of income taxes (1,606) Common, $2.40 per share (19,218) Reduction of ESOP note Accrued compensation Translation adjustments Other 32 Balances at June 30, 1994 29,029 48,061 50,882 204,667 (66,150) Distributions to ESOP (204) 1 9 Stock options exercised, net of 133 shares exchanged 176 1,569 Restricted shares issued, net 107 1,238 (28) Shares purchased (3,002) Shares issued to acquire business 1,022 2,178 Net income 47,492 Cash dividends: Preferred, $5,362.50 per share, net of income taxes (1,599) Common, $2.40 per share (19,446) Reduction of ESOP note Accrued compensation Translation adjustments Other 426 Effects of 2-for-1 common stock split 48,345 (48,345) Balances at June 30, 1995 28,825 96,690 6,801 231,114 (67,002) Distributions to ESOP (244) 36 206 Stock options exercised, net of 41,010 shares exchanged 1,003 3,587 Restricted shares cancelled (138) Shares issued to acquire business 1,843 2,657 Net income 60,148 Cash dividends: Preferred, $5,362.50 per share, net of income taxes (1,572) Common, $1.32 per share (21,734) Reduction of ESOP note Accrued compensation Translation adjustments, net Other 1,061 Balances at June 30, 1996 $ 28,581 $ 97,729 $ 13,498 $267,956 $(64,483) ============================================= See accompanying notes to consolidated financial statements.
Consolidated Statement of Changes in Shareholders' Equity Carpenter Technology Corporation for the years ended June 30, 1996, 1995 and 1994
Share Data ---------------------------------------------- Foreign Total Common Shares Deferred Currency Share- Preferred ----------------------------------- Compen- Translation holders' Shares Net sation Adjustments Equity Issued Issued Treasury Outstanding ------------------------------ ---------------------------------------------- Balances at June 30, 1993 $(27,431) $ - $218,461 461.2 9,508,355 (1,522,584) 7,985,771 Distributions to ESOP (87) (1.3) 215 215 Stock options exercised, net of 10,308 shares exchanged 4,245 87,351 87,351 Restricted shares issued, net (981) - 16,260 (20) 16,240 Net income 36,250 Cash dividends: Preferred, $5,362.50 per share, net of income taxes (1,606) Common, $2.40 per share (19,218) Reduction of ESOP note 941 941 Accrued compensation 1,085 1,085 Translation adjustments (959) (959) Other 32 Balances at June 30, 1994 (26,386) (959) 239,144 459.9 9,612,181 (1,522,604) 8,089,577 Distributions to ESOP (194) (3.2) 179 179 Stock options exercised, net of 133 shares exchanged 1,745 35,272 35,272 Restricted shares issued, net (1,317) - 21,350 (500) 20,850 Shares purchased (3,002) (53,124) (53,124) Shares issued to acquire business 3,200 53,124 53,124 Net income 47,492 Cash dividends: Preferred, $5,362.50 per share, net of income taxes (1,599) Common, $2.40 per share (19,446) Reduction of ESOP note 1,071 1,071 Accrued compensation 1,171 1,171 Translation adjustments (6,063) (6,063) Other 426 Effects of 2-for-1 common stock split - 9,668,982 (1,523,104) 8,145,878 Balances at June 30, 1995 (25,461) (7,022) 263,945 456.7 19,337,964 (3,046,208) 16,291,756 Distributions to ESOP (2) (3.6) 7,251 7,251 Stock options exercised, net of 41,010 shares exchanged 4,590 200,536 200,536 Restricted shares cancelled 138 - (4,652) (4,652) Shares issued to acquire business 4,500 120,786 120,786 Net income 60,148 Cash dividends: Preferred, $5,362.50 per share, net of income taxes (1,572) Common, $1.32 per share (21,734) Reduction of ESOP note 1,209 1,209 Accrued compensation 1,284 1,284 Translation adjustments, net (4,352) (4,352) Other 1,061 Balances at June 30, 1996 $(22,830) $(11,374) $309,077 453.1 19,545,751 (2,930,074) 16,615,677 ================================================================================ 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. Disagreements on Accounting and Financial Disclosure Not Applicable PART III 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. 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. 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. 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. 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. EX-99 2 EXHIBIT INDEX EXHIBIT INDEX ------------- Exhibit No. Title Page - ----------- ----- ---- 3. Articles of Incorporation and By-Laws A. Restated Certificate of Incorporation is incorporated herein by reference to Exhibit 3A of the Company's 1987 Annual Report on Form 10-K. B. By-Laws, amended as of October 24, 1994. 4. Instruments Defining Rights of Security Holders, Including Indentures A. Restated Certificate of Incorporation and By-Laws set forth in Exhibit Nos. 3A and 3B, above. B. Rights Agreement relating to Rights distributed to holders of the Company's Stock, amended as of April 23, 1996, is incorporated by reference to the Company's Current Report on Form 8-K filed May 3, 1996. C. Agreement to furnish to the Securities and Exchange Commission upon request a copy of the Note Agreement relating to the Company's 9.40% Notes Due October 30, 1996 is incorporated herein by reference to Exhibit 4E of the Company's 1987 Annual Report on Form 10-K. D. Certificate of Designation, Preferences and Rights of the Series A Convertible Preferred Stock is incorporated herein by reference to Exhibit No. 3.1 to the Company's Form 8-K Current Report dated September 6, 1991. E. Indenture related to the Company's $100,000,000 of 9.0% Sinking Fund Debentures due 2022 is incorporated herein by reference to Exhibit No. 4A to the Company's Form 10-Q Quarterly Report for the quarter ended March 31, 1992. F. The Company's Registration Statement No. 33-51613, as filed on Form S-3 on January 6, 1994, with respect to its Medium Term Note Program for issuance of unsecured debt up to $100,000,000 and the Prospectus and Prospectus Supplement, both dated and filed June 14, 1994, with respect thereto are incorporated by reference. G. Indenture dated January 12, 1994, between the Company and Morgan Guaranty Trust Company of New York, as Trustee, related to the Company's $100,000,000 of unsecured medium term notes registered under Registration No. 33-51613 is incorporated by reference to the Company's Report on Form 10-Q for the quarterly period ended December 31, 1993. H. The Company's Registration Statement No. 33-54045 as filed on Form S-8 on June 8, 1994, with respect to its Stock-Based Incentive Compensation Plan is incorporated by reference. I. Pricing Supplements Nos. 1 and 2, dated August 8, 1994, as filed on August 9, 1994, to Registration No. 33-51613 with respect to issuance of $15,000,000 of debt under the Company's $100,000,000 Medium Term Note Program is incorporated by reference. J. Pricing Supplements Nos. 3 and 4, dated September 12, 1994, as filed on September 13, 1994 to Registration No. 33-51613 with respect to issuance of $15,000,000 of debt under the Company's $100,000,000 Medium Term Note Program is incorporated by reference. K. Pricing Supplement No. 5 dated September 21, 1994 as filed on September 22, 1994 to Registration No. 33-51613 with respect to the issuance of $10,000,000 of debt under the Company's $100,000,000 Medium Term Note Program is incorporated by reference. L. Pricing Supplement No. 6 dated October 5, 1994 as filed on October 6, 1994 to Registration No. 33-51613 with respect to issuance of $10,000,000 of debt under the Company's $100,000,000 Medium Term Note Program is incorporated by reference. M. Pricing Supplements Nos. 7 and 8 dated June 15, 1995 as filed on June 19, 1995 to Registration No. 33-51613 with respect to issuance of $30,000,000 of debt under the Company's $100,000,000 Medium Term Note Program is incorporated by reference. 10. Material Contracts A. Supplemental Retirement Plan for E-7 Executive Officers, amended as of April 23, 1996, in the form attached hereto. B. Management and Officers Capital Appre- ciation Plan, an Incentive Stock Option Plan, amended as of August 9, 1990, is incorporated herein by reference to Exhibit No. 10B to the Company's 1990 Annual Report on Form 10-K. C. Incentive Stock Option Plan for Officers and Key Employees, amended as of August 9, 1990, is incorporated herein by reference to Exhibit No. 10C to the Company's 1990 Annual Report on Form 10-K. D. Directors Retirement Plan is incorporated herein by reference to Exhibit No. 10E to the Company's 1983 Annual Report on Form 10-K. E. Deferred Compensation Plan for Nonmanage- E-15 ment Directors of Carpenter Technology Corporation, amended as of December 7, 1995, in the form attached hereto. F. Deferred Compensation Plan for Corporate E-24 and Division Officers of Carpenter Technology Corporation, amended as of December 7, 1995, in the form attached hereto. G. Executive Annual Compensation Plan is incorporated herein by reference to Exhibit No. 10G to the Company's 1990 Annual Report on Form 10-K. H. Non-Qualified Stock Option Plan For Non-Employee Directors amended as of October 23, 1995, is incorporated herein by reference to Exhibit No. 10H to the Company's 1990 Annual Report on Form 10-K and the 1995 Proxy Statement. I. Officers' Supplemental Retirement Plan of Carpenter Technology Corporation is incorporated herein by reference to Exhibit 10I to the Company's 1990 Annual Report on Form 10-K. J. Trust Agreement between the Company and the Chase Manhattan Bank, N.A. dated September 11, 1990 relating, in part, to the Supplemental Retirement Plan for Executive Officers, Deferred Compensation Plan for Corporate and Division Officers of Carpenter Technology Corporation and the Officers' Supplemental Retirement Plan of Carpenter Technology Corporation, set forth in Exhibits Nos. 10A, 10F and 10I, above is incorporated herein by reference to Exhibit No. 10J to the Company's 1990 Annual Report on Form 10-K. K. Carpenter Technology Corporation Employee Stock Ownership Plan, effective as of September 6, 1991, is incorporated herein by reference to Exhibit No. 10.1 to the Company's Form 8-K Current Report dated September 6, 1991. L. Carpenter Technology Corporation Employee Stock Ownership Plan Trust Agreement dated September 6, 1991, between the Company and State Street Bank and Trust Company, not in its individual capacity, but solely in its capacity as the Trustee, is incorporated herein by reference to Exhibit No. 10.2 to the Company's Form 8-K Current Report dated September 6, 1991. M. Stock Purchase Agreement dated September 6, 1991, between the Company and State Street Bank and Trust Company, not in its indivi- dual capacity, but solely in its capacity as the Trustee, is incorporated herein by reference to Exhibit No. 10.3 to the Company's Form 8-K Current Report dated September 6, 1991. N. Stock Subscription and Investment Agreement and related letter agreement, both dated April 8, 1993, between Walsin Lihwa Corporation and the Company are incorporated by reference to Exhibit 1 of the Company's Current Report on Form 8-K, dated April 7, 1993. O. Indemnification Agreements, entered into between the Company and each of the directors and the following executive officers: Robert W. Cardy, Dennis M. Draeger, G. Walton Cottrell, Nicholas F. Fiore, Robert W. Lodge and John R. Welty are incorporated by reference to the form attached to the Company's 1993 Form 10-K. P. Stock-Based Incentive Compensation Plan for Officers and Key Employees, amended as of June 27, 1996, is incorporated herein by reference to Appendix A to the 1996 Proxy Statement. Q. Stock Purchase Agreement dated July 28, 1993, between Carpenter Technology Corporation, Carpenter Investments, Inc. and the share- holders of Aceros Fortuna, S.A. de C.V. and Movilidad Moderna, S.A. de C.V. with respect to the purchase of all the capital stock of Aceros Fortuna and Movilidad Moderna is incorporated by reference to Exhibit 1 to the Company's Form 8-K Current Report dated July 28, 1993. R. Distribution Agreement dated January 12, 1994 among the Company, CS First Boston Corporation and J. P. Morgan Securities Inc. is incorporated by reference to Exhibit 1 to the Company's Registration Statement No. 33-51613. S. Special Severance Agreements entered into between the Company and each of the following executive officers: Robert W. Cardy, Dennis M. Draeger, G. Walton Cottrell, Nicholas F. Fiore, Robert W. Lodge, and John R. Welty are incorporated herein by reference to the form attached to the Company's 1995 Form 10-K. T. Trust Agreement between the Company E-34 and the Chase Manhattan Bank, N.A. dated December 7, 1990, relating in part to the Directors Retirement Plan and the Deferred Compensation Plan for Nonmanagement Directors set forth in Exhibits 10D and 10E above in the form attached hereto. 11. Statement re Computation of Per Share E-53 Earnings 12. Statement re Computations of Ratios E-55 23. Consent of Experts and Counsel E-56 Consent of Independent Accountants 24. Powers of Attorney E-57 Powers of Attorney in favor of G. Walton Cottrell or John R. Welty. 27. Financial Data Schedule E-72 99. Additional Exhibits 1996 Proxy Statement, submitted to the SEC via Edgar on September 25, 1996 EX-10 3 SUPPLEMENTAL RETIREMENT PLAN SUPPLEMENTAL RETIREMENT PLAN FOR EXECUTIVES OF CARPENTER TECHNOLOGY CORPORATION EFFECTIVE DECEMBER 13, 1979 AS AMENDED APRIL 23, 1996 E-7 SUPPLEMENTAL RETIREMENT PLAN FOR EXECUTIVES OF CARPENTER TECHNOLOGY CORPORATION Effective December 13, 1979 As Amended April 23, 1996 1. Purpose ------- The purpose of this Plan is to attract, retain and motivate designated employees of Carpenter Technology Corporation (the "Corporation") who are Participants in the Plan by providing supplemental pension and death benefits to enhance their economic security during their active careers with the Corporation and in Retirement. 2. Definitions ----------- (A) "Annual Base Formula Retirement Benefit" shall mean the annual benefit computed to measure total annual retirement income after normal Retirement age, as provided in Section 6. (B) "Annual Supplemental Retirement Benefit" shall mean the annual benefit to be paid from the Plan, as provided in Section 7, and shall be paid in accordance with the provisions of Section 5. (C) "Board" shall mean the Board of Directors of Carpenter Technology Corporation. (D) "Consecutive Five-Year Calculation Period" shall mean any of the periods of five consecutive calculation years created under the definition of "average monthly earnings" found in the General Retirement Plan. (E) "Disabled" shall mean totally disabled as described in, and which results in, the Participant's eligibility to receive benefits under the Corporation's Long Term Disability Plan. (F) "Former Participant" shall mean any person who has previously been a Participant in this Plan and was either (i) a Participant for at least three years or (ii) an employee of the Company for at least ten years. (G) "General Retirement Plan" shall mean the Corporation's "General Retirement Plan for Employees of Carpenter Technology Corporation" as in effect on the last date of a Participant's employment with the Corporation as a participant under the General Retirement Plan. (H) "Participant" shall mean any person included in the Plan, as provided in Section 3 and shall also mean a Former Participant except as otherwise provided in Section 6. E-8 (I) "Plan" shall mean the Supplemental Retirement Plan for Executives of Carpenter Technology Corporation. (J) "Retirement" shall mean the date of retirement as defined in the General Retirement Plan. (K) "Spouse" shall mean the Participant's spouse as defined in section 4.5(a)(1) of the General Retirement Plan. 3. Participants ------------ Participants in the Plan will consist of such employees of the Corporation as the Board in its sole discretion may from time to time designate. Participation in the Plan will terminate only (A) upon termination of employment of a Participant for any reason other than Retirement under conditions where benefits are payable under Section 7 (except that a Former Participant shall be eligible to receive any previously accrued benefit under this Plan), or (B) when further participation is canceled by the Board (except that a Former Participant shall be eligible to receive any previously accrued benefit under this Plan), or (C) when a Participant performs services for the Corporation solely as an independent contractor or consultant (except that such Participant shall continue to receive any previously accrued benefit under this Plan), or (D) notwithstanding anything to the contrary contained in (A), (B) or (C) above, when a Participant competes with the Corporation as provided in the Supplemental Retirement Agreement referenced in Section 4 hereof, (in which case no further payments will be made under the Plan). 4. Supplemental Retirement Agreement --------------------------------- Each Participant, as a condition precedent to becoming a Participant, will enter into an agreement with the Corporation, in a form supplied by and satisfactory to the Corporation, which will, inter alia, (A) set forth the provisions of the benefits of this Plan, (B) permit the Corporation, in its sole discretion, to insure the Participant's life under an individual life insurance policy in which the Corporation is the owner and beneficiary at no cost to the Participant, and (C) contain a noncompetition provision. E-9 5. Benefits -------- (A) Each Participant who shall retire under the conditions set forth in Section 7 will receive an Annual Supplemental Retirement Benefit paid from the general assets of the Corporation for a period of fifteen years commencing as provided herein. Such benefit will be paid in consecutive quarter yearly payments on the first business day of January, April, July and October (hereinafter individually referred to as the "Quarterly Payment Date") for the immediately preceding calendar quarters ended, December 31, March 31, June 30 and September 30, respectively. The initial payment shall be made on the first Quarterly Payment Date following the Participant's Retirement, or, at the election of a Disabled Participant, commencing upon any subsequent Quarterly Payment Date which occurs while the Participant remains Disabled, but in no event later than the Quarterly Payment Date following the earlier of the Participant's cessation of disability or the attainment of age 65. Proration shall be made for a short calendar quarter and calculated on a 90 day per quarter basis. (B) In the event of the death of a Participant after Retirement and before the entire number of said quarterly payments have been paid, such remaining unpaid quarterly payments will be paid to the last beneficiary designated in writing by the Participant to, and received by, the Pension Board or, in the absence or failure of any such designation or the designated beneficiary fails to survive for the said fifteen year period, to the surviving Spouse of the Participant, or in the absence of such Spouse, to the Participant's estate. In the event the designated beneficiary fails to survive and the Participant's Spouse does not survive for the said fifteen years, the Pension Board may elect to make a lump sum payment of the unpaid amount to the Participant's estate, or the Spouse's estate, or the beneficiary's estate, as the Pension Board may determine in its sole discretion to be fair and equitable, said lump sum payment being the present value of the remaining payments, determined in accordance with the average rate of interest published by the Pension Benefit Guaranty Corporation for immediate annuities for the 36 months immediately preceding the date of such payment. E-10 (C) In the event of the death of a Participant before Retirement when the Participant would have been eligible to receive retirement benefits under either Section 7(A) or 7(B), the Normal or Early Supplemental Retirement Benefit to which the Participant would have been entitled had he retired on the date of his death will be paid to the last beneficiary designated in writing by the Participant to, and received by, the Pension Board or, in the absence or failure of any such designation or the designated beneficiary fails to survive for the said fifteen year period, to the surviving Spouse of the Participant, or, in the absence of such Spouse, to the Participant's estate. Such benefit will be determined as of the date of death of the Participant and will be paid in accordance with the payment procedures in Section 5(A). In the event the designated beneficiary fails to survive and the Participant's Spouse does not survive for the said fifteen years, the Pension Board may elect to make a lump sum payment of the unpaid amount to the Participant's estate, or the Spouse's estate, or the beneficiary's estate, as the Pension Board may determine in its sole discretion to be fair and equitable, said lump sum pay- ment being the present value of the remaining payments, determined in accordance with the average rate of interest published by the Pension Benefit Guaranty Corporation for immediate annuities for the 36 months immediately preceding the date of such payment. (D) No benefit payable under this Plan shall be subject in any way to alienation, sale, transfer, assignment, pledge, attachment, garnishment, execution, or encumbrance of any kind, and any attempt to accomplish the same shall be void and of no effect. 6. Annual Base Formula Retirement Benefit -------------------------------------- The Annual Base Formula Retirement Benefit shall be calculated at the date of Retirement or in the case of a Former Participant at the termination of participation and will be equal to (A) the Participant's or Former Participant's average annual earnings calculated by multiplying the "average monthly earnings" (as determined for pension purposes under the General Retirement Plan) by 12 (or in the event the Participant or Former Participant has insufficient service to create a Consecutive Five-Year Calculation Period, the average annual earnings calculated from such years of service and fractions thereof, rounded to the nearest month) [in either event, if the Participant had eligible compensation reduced under the General Retirement Plan to comply with section 401(a)(17) of the Internal Revenue Code of 1986, and the regulations there- under, as amended, or has deferred compensation under any deferred compensation plan of the Corporation, other than any deferred compensation previously included in the definition of "earnings" contained in the General Retirement Plan, such deferred and/or reduced compensation shall be added, for the sole purpose of determining the benefit under this Section, to the Participant's earnings in the year the Participant would have been credited with such earnings under the General Retirement Plan but for such deferral and/or reduction], E-11 (B) multiplied by a percentage which is (l) five percent for each year of service, or fraction thereof, with the Corporation up to a maximum of ten years, that an individual has been designated a Participant in this Plan subsequent to December 13, 1979, plus (2) (with respect to Participants and Former Participants who became Participants before October 1, 1988) two percent for each other year of service or fraction thereof with the Corporation, or its subsidiaries; or (3) (with respect to Participants and Former Participants who became Participants on or after October 1, 1988 and retire prior to January 1, 1997) 1.26 percent for each other year of service or fraction thereof with the Corporation, or its subsidiaries; or (4) (with respect to Participants and Former Participants who became Participants on or after October 1, 1988 and retire after December 31, 1996) 1.3 percent for each year of service up to 20 years and 1.4 percent for each additional year of service or fraction thereof with the Corporation, or its subsidiaries; provided, however, that the aggregate of the percentages of this Subparagraph 6(B) shall not exceed the sum of 60% plus one-quarter percent per year for each year or fraction thereof for such service exceeding 30 years, (C) reduced by the sum of the following (such reduction to commence and be fixed as of the respective calculation dates hereinafter stated): (l) the Participant's accrued pension benefits calculated to be payable from any other defined benefit pension plans (including but not limited to the General Retirement Plan, the Benefit Equalization Plan, the Earnings Adjustment Plan, the Officers' Supplemental Retirement Plan, and any pension plans from other prior employment) as of the respective date or dates of earliest entitlement or, if later, the date of retirement under such pension plans, before any actuarial reduction for option election; provided, however, that any such reduction shall not include the portion of any other pension benefit resulting from the Participant's express contribution, nor any benefits attri- butable to a defined contribution entitlement and (2) the amount of the Primary Social Security Retirement Benefit calculated to be payable as of the date of earliest entitlement or, if later, the date of Retirement hereunder. E-12 7. Annual Supplemental Retirement Benefits --------------------------------------- (A) Normal Retirement. (1) A Participant shall receive upon Retirement a Normal Supplemental Retirement Benefit if he has attained (a) age 62 or older with five or more years of service with the Corporation or its subsidiaries, or (b) thirty years of service with the Corporation or its subsidiaries. (2) The amount of such benefit will be the Annual Base Formula Retirement Benefit, as set forth in Section 6. (B) Early Retirement. (1) In the event of Retirement before attainment of eligibility for Normal Retirement, a Participant shall receive an Early Supplemental Retirement benefit if he is then vested under the General Retirement Plan. (2) The amount of such benefit will be equal to the Annual Base Formula Retirement Benefit, as set forth in Section 6(A) and 6(B), reduced to its equivalent actuarial value from age 62 to the date of initial payment to the Participant based on the average rate of interest published by the Pension Benefit Guaranty Corporation for immediate annuities for the immediately preceding 36 months, and subsequently adjusted for any further reduction required under Section 6(C). (C) Mutual Consent Retirement. (1) A Participant shall receive upon Retirement hereunder with fifteen or more years' service with the Corporation or its subsidiaries, a Mutual Consent Retirement if: (a) he is entitled to retire under the General Retirement Plan, and (b) both the Participant and the Corporation agree that his Retirement under this Plan would be mutually beneficial. (2) The amount of such benefit will be the Annual Base Formula Retirement Benefit, as set forth in Section 6. (D) Notwithstanding anything to the contrary contained in this Plan, no Participant, Spouse or other beneficiary may become entitled to benefits under this Plan without the Participant or Former Participant first completing five consecutive years of service with the Corporation or its subsidiaries, unless otherwise provided in writing and expressly authorized by Board approval. E-13 8. General Provisions ------------------ (A) The administration of this Plan shall be by the Pension Board appointed by the Board under the provisions of the General Retirement Plan. Any interpretation of this Plan shall be by the Compensation and Stock Option Committee of the Board. (B) The benefits provided by this Plan will be paid from the general assets of the Corporation or otherwise as the Board may from time to time determine. (C) The Board reserves the right at any time to modify or amend in whole or in part any or all of the provisions of the Plan, subject to the provisions of the Supplemental Retirement Agreement between the Corporation and each Participant. E-14 EX-10 4 DEF COMP NONMANAGEMENT DIRECTORS CARPENTER TECHNOLOGY CORPORATION DEFERRED COMPENSATION PLAN FOR NON-MANAGEMENT DIRECTORS ------------------------------------------------------- This is the Carpenter Technology Corporation Deferred Compensation Plan for Non-Management Directors, effective January 1, 1995, established by Carpenter Technology Corporation and its subsidiaries expressly included herein to provide its non-employee directors with an additional method of planning for their retirement. The Plan is intended to be an unfunded plan maintained for the purpose of providing deferred compensation to the non-employee directors of Carpenter Technology Corporation. ARTICLE I - DEFINITIONS ------------------------ The following words and phrases as used herein have the following meanings unless the context plainly requires a different meaning: 1.1 Account means the total amount credited to the bookkeeping ------- accounts in which a Participant's Contributions are maintained, including earnings thereon. 1.2 Beneficiary means the person that the Participant designates to ----------- receive any unpaid portion of the Participant's Account should the Participant's death occur before the Participant receives the entire balance to the credit of such Participant's Account. If the Participant does not designate a beneficiary, his Beneficiary shall be his spouse if he is married at the time of his death, or his estate if he is unmarried at the time of his death. 1.3 Board of Directors means the board of directors of ------------------ Carpenter Technology Corporation. 1.4 Code means the Internal Revenue Code of 1986, as amended. ---- 1.5 Compensation means all amounts that a Director receives in ------------ payment for serving on the Board of Directors. Notwithstanding the preceding sentence, Compensation shall not include amounts identified by the Corporation as expense allowances or reimbursements. 1.6 Contribution means an amount deferred under the Plan pursuant ------------ to a Participant's election under Article IV and credited to a Participant's Account. No money or other assets will actually be contributed to such Accounts. 1.7 Corporation means the Carpenter Technology Corporation. ----------- 1.8 Director means an individual who serves on the Board of -------- Directors or on the board of directors of any subsidiary that the Board of Directors of Carpenter Technology Corporation designates to participate in the Plan. A list of the subsidiaries currently designated to participate in the Plan is attached hereto as Appendix A. 1.9 Effective Date means January 1, 1995. -------------- 1.10 Five-Year Medium Term Note Borrowing Rate means the ----------------------------------------- Corporation's Five-Year Medium Term Note Borrowing Rate, as provided by one of the Corporation's investment bankers for any such medium term note that would have been issued on November 15 (or the next business day thereafter if November 15 is not a business day) of each Plan Year. 1.11 Participant means a Director who elects to participate in the ----------- Plan pursuant to Section 2.2. 1.12 Pension Board means the Pension Board appointed pursuant to ------------- the General Retirement Plan for Employees of Carpenter Technology Corporation, as constituted from time to time. 1.13 Plan means the Carpenter Technology Corporation Deferred ---- Compensation Plan for Non-Management Directors, as may be amended from time to time. 1.14 Plan Administrator means the Pension Board. ------------------ 1.15 Plan Year means the 12-month period beginning January 1 and --------- ending December 31. ARTICLE II - PARTICIPATION -------------------------- 2.1 Eligibility to Participate. All Directors who are neither current -------------------------- nor past employees of the Corporation or any of its subsidiaries are eligible to participate in the Plan. 2.2 Participation. Any Director who elects to participate in the ------------- Plan shall become a Participant in the Plan immediately upon enrolling as a Participant by the method required by the Plan Administrator. An individual shall remain a Participant under the Plan until all amounts credited to the Participant's Account have been distributed to the Participant or the Participant's Beneficiary. ARTICLE III - VESTING --------------------- Participants are always fully vested in all amounts credited to their Accounts. ARTICLE IV - CONTRIBUTIONS -------------------------- 4.1 Eligibility to Receive Contributions. Subject to Section 5.4.2, ------------------------------------ a Participant may receive Contributions in each Plan Year that the Participant is a Director and is not an employee of the Corporation. 4.2 Contributions. A Participant may elect to defer up to 100% of ------------- the Participant's Compensation and to have the Corporation make a Contribution of that amount to the Participant's Account under the Plan. 4.3 Elections. --------- 4.3.1 Frequency and Timing of Elections. Elections may be --------------------------------- made once each Plan Year and they may not be modified during the Plan Year. The Participant must make an election by December 15 of a Plan Year for it to take effect for the next Plan Year. However, for the initial Plan Year beginning January 1, 1995, elections must be made by January 31, 1995, and they will be effective as of February 1, 1995. 4.3.2 Duration of Elections. Elections to receive --------------------- Contributions under this Article IV expire at the end of each Plan Year for which the election was made. 4.3.3 Restriction on Elections. Elections to receive ------------------------ Contributions may be in the form of a whole percentage or in $1 increments. 4.4 Earnings. All amounts credited to a Participant's Account shall -------- be credited with earnings at a rate equal to the Five-Year Medium Term Note Borrowing Rate, established as of November 15 (or the next business day thereafter if November 15 is not a business day) of the prior Plan Year. For the first Plan Year, the rate is 8.25%. The Pension Board shall communicate to all Directors the Five-Year Medium Term Note Borrowing Rate for the next Plan Year no later than November 30 of the current Plan Year. Earnings on Contributions shall begin to accrue on the date that such Contributions would have been paid to the Participant but for an election to defer under this Article IV. Earnings shall be compounded semi-annually on each January 1 and July 1. In addition, any distribution not made on either January 1 or July 1 shall have earnings compounded as of the date of distribution. ARTICLE V - DISTRIBUTIONS ------------------------- 5.1 Payment of Distributions. All distributions shall, at the ------------------------ Company's discretion, be made directly out of the Corporation's general assets or from the Carpenter Technology Corporation Non-Qualified Benefits Trust for Directors. 5.2 Form of Distributions. A Participant may receive distributions --------------------- in one of the following manners, which the Participant shall elect on the initial enrollment form. 5.2.1 A lump sum distribution of the Participant's entire Account; 5.2.2 Ten annual installments, with the distribution each year equal to the product resulting from multiplying the then current Account balance by a fraction. The numerator of the fraction is always one, and the denominator of the fraction is ten for the first distribution and is reduced by one for each subsequent distribution; 5.2.3 Fifteen annual installments, with the distribution each year equal to the product resulting from multiplying the then current Account balance by a fraction. The numerator of the fraction is always one, and the denominator of the fraction is fifteen for the first distribution and is reduced by one for each subsequent distribution; or 5.2.4 On a schedule that is the same as that used for payments made to the Participant under the Carpenter Technology Corporation Director Retirement Plan. 5.3 Timing of Distributions. Participants shall elect on their ----------------------- initial enrollment forms when distributions of their Accounts will begin, which shall either be a specific date or event. At any point prior to a year in which a distribution of any or all of a Participant's Account is scheduled for distribution pursuant to this Article V, the Participant shall have the option to further defer all or part of the scheduled distribution to a later year. A scheduled distribution or portion thereof may, however, be further deferred only once. 5.4 Accelerated Distributions. Subject to the following forfeiture ------------------------- and suspension provisions, a Participant may elect to receive a distribution of all or a portion of his Account prior to the date or dates originally elected under Section 5.3 as long as such distribution is at least $5,000. 5.4.1 Forfeiture of Earnings. A Participant shall forfeit ---------------------- any earnings attributable to the amount distributed pursuant to Section 5.4 that accrued during the six-month period ending on the date of the distribution. The amount of forfeited earnings shall be calculated using the highest interest rate that was in effect during the six-month period. If, however, the actual earnings credited to a Participant's Account are less than the amount determined in the immediately preceding sentence, no amount beyond the actual earnings shall be forfeited. Any amounts forfeited under this Section shall not be distributed or allocated to any other Account in the Plan and shall be forfeited to the Corporation. 5.4.2 Suspension of Participation. If a Participant --------------------------- elects to accelerate a distribution under Section 5.4, he will not be entitled to receive any Contributions under the Plan for the Plan Year immediately following the Plan Year in which the Participant elected to accelerate a distribution. Any election made to receive Contributions for a Plan Year in which participation is suspended shall be disregarded. 5.5 Termination of Service. Upon termination of service as a ---------------------- Director, a Participant, or the Beneficiary if the termination of service is caused by the Participant's death, shall have the following options with respect to the distribution of the Participant's Account: 5.5.1 Reaffirm Current Election. The Participant or ------------------------- Beneficiary may elect to reaffirm the Participant's election under Section 5.3 that was in effect at the time of the Participant's termination; or 5.5.2 Request a New Election. The Participant or ---------------------- Beneficiary may elect a new distribution option available under Section 5.2, subject to the Corporation's consent. ARTICLE VI - PLAN ADMINISTRATION -------------------------------- 6.1 General. The Plan shall be administered by the Pension Board, ------- which is the Plan Administrator. 6.2 Responsibilities and Reports. The Plan Administrator may ---------------------------- pursuant to a written resolution allocate among one or more of its members specific responsibilities under the Plan and the Plan Administrator may name other persons to carry out such responsibilities. The Plan Administrator shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports that are furnished by any actuary, accountant, controller, counsel, investment banker or other person who is employed or engaged for such purposes. 6.3 Governing Law. This Plan shall be governed by and construed in ------------- accordance with the laws of the Commonwealth of Pennsylvania, to the extent not preempted by federal law. ARTICLE VII - CLAIMS PROCEDURE ------------------------------ 7.1 Plan Interpretation. The Human Resources Committee of the ------------------- Board of Directors shall have the authority and responsibility to interpret and construe the Plan and to decide all questions arising thereunder, including without limitation, questions of eligibility for participation, eligibility for Contributions, the amount of Account balances, and the timing of the distribution thereof, and shall have the authority to deviate from the literal terms of the Plan to the extent it shall determine to be necessary or appropriate to operate the Plan in compliance with the provisions of applicable law. Notwithstanding the above, a member of the Human Resources Committee shall not take any part in decisions regarding his participation in the Plan. 7.2 Denial of Claim for Benefits. Any denial by the Human Resources ---------------------------- Committee of any claim for benefits under the Plan by a Participant or Beneficiary shall be stated in writing by the Human Resources Committee and delivered or mailed to the Participant or Beneficiary. The Human Resources Committee shall furnish the claimant with notice of the decision not later than 90 days after receipt of the claim, unless special circum- stances require an extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 90 day period. In no event shall such extension exceed a period of 90 days from the end of such initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Human Resources Committee expects to render the final decision. The notice of the Human Resources Committee's decision shall be written in a manner calculated to be understood by the claimant and shall include (i) the specific reasons for thedenial, including, where appropriate, references to the Plan, (ii) any additional information necessary to perfect the claim with an explanation of why the information is necessary, and (iii) an explanation of the procedure for perfecting the claim. 7.3 Appeal of Denial. The claimant shall have 60 days after receipt ---------------- of written notification of denial of his or her claim in which to file a written appeal with the Human Resources Committee. As a part of any such appeal, the claimant may submit issues and comments in writing and shall, on request, be afforded an opportunity to review any documents pertinent to the perfection of his or her claim. The Human Resources Committee shall render a written decision on the claimant's appeal ordinarily within 60 days of receipt of notice thereof but, in no case, later than 120 days. ARTICLE VIII - FUNDING ---------------------- 8.1 Funding. The Corporation shall not segregate or hold separately ------- from its general assets any amounts credited to the Accounts, and shall be under no obligation whatsoever to fund in advance any amounts under the Plan, including Contributions and earnings thereon. 8.2 Insolvency. In the event that the Corporation becomes insolvent, ---------- all Participants and Beneficiaries shall be treated as general, unsecured creditors of the Corporation with respect to any amounts credited to the Accounts under the Plan. ARTICLE IX - AMENDMENT AND TERMINATION -------------------------------------- 9.1 Reservation of Rights. The Corporation reserves the right to --------------------- amend or terminate the Plan at any time by action of the Board of Directors. Notwithstanding the foregoing, no such amendment or termination shall reduce the balance of any Participant's Account as of the date of such amendment or termination. 9.2 Funding upon Termination. Upon a complete termination of the ------------------------ Plan, the Corporation shall contribute to the Carpenter Technology Corporation Non-Qualified Benefits Trust for Directors an amount equal to the aggregate of all amounts credited to Participants' Accounts as of the date of such termination. If the Carpenter Technology Corporation Non-Qualified Benefits Trust for Directors does not exist at the time the Plan is terminated, the Corporation shall create an irrevocable grantor trust to which it will contribute such amounts. This newly created trust shall be designed to ensure that Participants will not be subject to taxation on amounts contributed to and held under the trust on their behalf before the amounts are distributed. 9.3 Survival of Accounts and Elections. Notwithstanding ---------------------------------- any termination of the Plan, the trustee of the trust to which amounts are contributed under Section 9.2 shall maintain the Accounts for Participants in the same manner as under this Plan and all elections for distributions under Article V of the Plan shall survive the termination and remain in effect. ARTICLE X - MISCELLANEOUS ------------------------- 10.1 Limited Purpose of Plan. The establishment or ----------------------- existence of the Plan shall not confer upon any individual the right to be continued as a Director. 10.2 Non-alienation. No amounts payable under the Plan -------------- shall be subject in any manner to anticipation, assignment, or voluntary or involuntary alienation. 10.3 Facility of Payment. If the Plan Administrator, in its ------------------- sole discretion, deems a Participant or Beneficiary who is eligible to receive any payment hereunder to be incompetent to receive the same by reason of age, illness or any infirmity or incapacity of any kind, the Plan Administrator may direct the Corporation to apply such payment directly for the benefit of such person, or to make payment to any person selected by the Plan Administrator to disburse the same for the benefit of the Participant or Beneficiary. Payments made pursuant to this Section 10.3 shall operate as a discharge, to the extent thereof, of all liabilities of the Corporation and the Plan Administrator to the person for whose benefit the payments are made. To record the adoption of the Plan, the Carpenter Technology Corporation has caused its authorized officers to affix its corporate name and seal this 20th day of December, 1995. [CORPORATE SEAL] CARPENTER TECHNOLOGY CORPORATION Attest: By: s/Robert W. Lodge --------------------- ------------------------------- Secretary Robert W. Lodge Title: Vice President - Human & ------------------------ Administrative Services ----------------------- CARPENTER TECHNOLOGY CORPORATION DEFERRED COMPENSATION PLAN FOR NON-MANAGEMENT DIRECTORS ------------------------------------------------------- APPENDIX A PARTICIPATING SUBSIDIARIES -------------------------- None As of January 1, 1995 EX-10 5 DEF COMP OFFICERS DEFERRED COMPENSATION PLAN FOR OFFICERS AND KEY EMPLOYEES OF CARPENTER TECHNOLOGY CORPORATION -------------------------------- This is the Deferred Compensation Plan for Officers and Key Employees of Carpenter Technology Corporation, effective January 1, 1995, established by Carpenter Technology Corporation and its subsidiaries expressly included herein to provide its senior executives with an additional method of planning for their retirement. The Plan is intended to be an "unfunded" plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974. ARTICLE I - DEFINITIONS ----------------------- The following words and phrases as used herein have the following meanings unless the context plainly requires a different meaning: 1.1 Account means the total amount credited to the ------- bookkeeping accounts in which a Participant's Contributions are maintained, including earnings thereon. The Accounts will consist of subaccounts for each type of Contribution made under Article IV, as the Plan Administrator deems necessary. 1.2 Beneficiary means the person that the Participant ----------- designates to receive any unpaid portion of the Participant's Account should the Participant's death occur before the Participant receives the entire balance to the credit of such Participant's Account. If the Participant does not designate a beneficiary, his Beneficiary shall be his spouse if he is married at the time of his death, or his estate if he is unmarried at the time of his death. 1.3 Board of Directors means the board of directors of ------------------ Carpenter Technology Corporation or the Human Resources Committee thereof (including any successor committee performing similar duties). 1.4 Code means the Internal Revenue Code of 1986, as ---- amended. 1.5 Compensation means all amounts that are treated as ------------ wages for Federal income tax withholding under Section 3401(a) of the Code for the Plan Year plus amounts that would be paid to the Employee during the year but for the Employee's election under a cash or deferred arrangement described in Section 401(k) of the Code or a cafeteria plan described in Section 125 of the Code. Notwithstanding the preceding sentence, Compensation shall not include: 1.5.1 bonuses or other amounts payable under the Annual Extra Compensation Plan, the Executive Annual Compensation Plan, and the Quarterly Profit Sharing Program; 1.5.2 contributions by the Employer to this or any other plan or plans for the benefit of its employees, except as otherwise expressly provided in this Section 1.6; or 1.5.3 amounts identified by the Employer as expense allowances or reimbursements regardless of whether such amounts are treated as wages under the Code. 1.6 Contribution means an amount deferred under the Plan ------------ pursuant to a Participant's election under Article IV and credited to a Participant's Account. No money or other assets will actually be contributed to such Accounts. 1.7 Effective Date means January 1, 1995. -------------- 1.8 Employee means an individual who is employed by the -------- Employer. 1.9 Employer means the Carpenter Technology Corporation and -------- any subsidiary that the Board of Directors designates as an Employer. A list of the subsidiaries currently designated as an Employer is attached hereto as Appendix A. 1.10 Executive Annual Compensation Plan means the Carpenter ---------------------------------- Technology Corporation Executive Annual Compensation Plan, as may be amended from time to time. 1.11 Five-Year Medium Term Note Borrowing Rate means the ----------------------------------------- Employer's Five-Year Medium Term Note Borrowing Rate, as provided by one of the Employer's investment bankers for any such medium term note that would have been issued on November 15 (or the next business day thereafter if November 15 is not a business day) of each Plan Year. 1.12 Participant means a Senior Executive who elects to ----------- participate in the Plan pursuant to Section 2.2. 1.13 Pension Board means the Pension Board appointed ------------- pursuant to the General Retirement Plan for Employees of Carpenter Technology Corporation, as constituted from time to time. 1.14 Plan means the Deferred Compensation Plan for Officers ---- and Key Employees of Carpenter Technology Corporation, as may be amended from time to time. 1.15 Plan Administrator means the Pension Board. ------------------ 1.16 Plan Year means the 12-month period beginning January 1 --------- and ending December 31. 1.17 Quarterly Profit Sharing Program means the Carpenter -------------------------------- Technology Corporation Quarterly Profit Sharing Program, as may be amended from time to time. 1.18 Senior Executive means an Employee who is classified as ---------------- "exempt" under the Fair Labor Standards Act of 1938, as amended, and whose salary grade is at least 19, or any other Employee who the Board expressly designates as a Senior Executive. 1.19 Special Products Division Extra Compensation Plans -------------------------------------------------- means the Profit Sharing Plan for Special Products Division Employees, as may be amended from time to time; the Management Bonus Plan for Special Products Division Employees, as may be amended from time to time; and, prior to July 1, 1995, the Carpenter Technology Corporation Annual Extra Compensation Plan for Special Products Division Management Employees. ARTICLE II - PARTICIPATION -------------------------- 2.1 Eligibility to Participate. All Senior Executives are -------------------------- eligible to participate in the Plan. 2.2 Participation. Any Senior Executive who elects to ------------- participate in the Plan shall become a Participant in the Plan immediately upon enrolling as a Participant by the method required by the Plan Administrator. An individual shall remain a Participant under the Plan until all amounts credited to the Participant's Account have been distributed to the Participant or the Participant's Beneficiary. ARTICLE III - VESTING --------------------- Participants are always fully vested in all amounts credited to their Accounts. ARTICLE IV - CONTRIBUTIONS -------------------------- 4.1 Eligibility to Receive Contributions. Subject to ------------------------------------ Section 5.4.2, a Participant may receive Contributions in each Plan Year that the Participant is a Senior Executive. 4.2 Salary Deferral Contributions. A Participant may elect ----------------------------- to defer up to 25% of the Participant's Compensation and to have the Employer make a Contribution of that amount to the Participant's Account under the Plan. 4.3 Profit Sharing Deferral Contributions. A Participant ------------------------------------- may elect to defer up to 100% of the amount the Participant is eligible to receive under the Quarterly Profit Sharing Program in any Plan Year and to have the Employer make a Contribution of that amount to the Participant's Account under the Plan. 4.4 Annual Executive Compensation Deferral Contributions. ---------------------------------------------------- A Participant may elect to defer up to 100% of the amounts the Participant is eligible to receive under the Executive Annual Compensation Plan or the Special Products Division Extra Compensation Plans in any Plan Year and to have the Employer make a Contribution of that amount to the Participant's Account under the Plan. 4.5 Other Deferral Contributions. A Participant may elect ---------------------------- to defer up to 100% of the amount the Participant is eligible to receive under any compensation plan that the Board designates a compensation plan for purposes of this Section 4.5, and to have the Employer make a Contribution of that amount to the Participant's Account under the Plan. 4.6 Elections. --------- 4.6.1 Frequency and Timing of Elections. Elections --------------------------------- may be made once each Plan Year and they may not be modified during the Plan Year. For Salary Deferral Contributions, Profit Sharing Deferral Contributions and Other Deferral Contributions, described in Sections 4.2, 4.3 and 4.5 respectively, the Participant must make an election by December 15 of a Plan Year for it to take effect for the next Plan Year. However, for the initial Plan Year beginning January 1, 1995, elections must be made by January 31, 1995, and they will be effective as of March 1, 1995. For Annual Executive Compensation Deferral Contributions described in Section 4.4, the Participant must make an election by March 31 of the fiscal year for which the award is based. 4.6.2 Duration of Elections. Elections to receive --------------------- Contributions under this Article IV expire at the end of the Plan Year for which the election was made. 4.6.3 Restriction on Elections. Elections to ------------------------ receive Contributions may be in the form of a whole percentage or in $1 increments. 4.7 Earnings. All amounts credited to a Participant's -------- Account shall be credited with earnings at a rate equal to the Five-Year Medium Term Note Borrowing Rate, established as of November 15 (or the next business day thereafter if November 15 is not a business day) of the prior Plan Year. For the first Plan Year, the rate is 8.25%. The Pension Board shall communicate to all Senior Executives the Five-Year Medium Term Note Borrowing Rate for the next Plan Year no later than November 30 of the current Plan Year. Earnings on Contributions shall begin to accrue on the date that such Contributions would have been paid to the Participant but for an election to defer under this Article IV. Earnings shall be compounded semi-annually on each January 1 and July 1. In addition, any distribution not made on either January 1 or July 1 shall have earnings compounded as of the date of distribution. ARTICLE V - DISTRIBUTIONS ------------------------- 5.1 Payment of Distributions. All distributions shall, at ------------------------ the Employer's discretion, be made directly out of the Employer's general assets or from the Carpenter Technology Corporation Non- Qualified Employee Benefits Trust. 5.2 Form of Distributions. A Participant may receive --------------------- distributions in one of the following manners, which the Participant shall elect on the initial enrollment forms. A Participant may elect to receive distributions from each subaccount in different manners and at different times. 5.2.1 A lump sum distribution of the Participant's entire Account; 5.2.2 Ten annual installments, with the distribution each year equal to the product resulting from multiplying the then current Account balance by a fraction. The numerator of the fraction is always one, and the denominator of the fraction is ten for the first distribution and is reduced by one for each subsequent distribution; or 5.2.3 Fifteen annual installments, with the distribution each year equal to the product resulting from multiplying the then current Account balance by a fraction. The numerator of the fraction is always one, and the denominator of the fraction is fifteen for the first distribution and is reduced by one for each subsequent distribution. 5.3 Timing of Distributions. Participants shall elect on ----------------------- their initial enrollment forms when distributions of their Accounts will begin, which shall either be a specific date or event. At any point prior to a year in which a distribution of any or all of a Participant's Account is scheduled for distribution pursuant to this Article V, the Participant shall have the option to further defer all or part of the scheduled distribution to a later year. A scheduled distribution or portion thereof may, however, be further deferred only once. 5.4 Accelerated Distributions. Subject to the following ------------------------- forfeiture and suspension provisions, a Participant may elect to receive a distribution of all or a portion of his Account prior to the date or dates originally elected under Section 5.3, as long as such distribution is at least $5,000. 5.4.1 Forfeiture of Earnings. A Participant shall ---------------------- forfeit any earnings attributable to the amount distributed pursuant to Section 5.4 that accrued during the six-month period ending on the date of the distribution. The amount of forfeited earnings shall be calculated using the highest interest rate that was in effect during the six-month period. If, however, the actual earnings credited to a Participant's Account are less than the amount determined in the immediately preceding sentence, no amount beyond the actual earnings shall be forfeited. Any amounts forfeited under this Section shall not be distributed or allocated to any other Account in the Plan and shall be forfeited to the Employer. 5.4.2 Suspension of Participation. If a --------------------------- Participant elects to accelerate a distribution under Section 5.4, he will not be entitled to receive any Contributions under the Plan for the Plan Year immediately following the Plan Year in which the Participant elected to accelerate a distribution. Any election made to receive Contributions for a Plan Year in which participation is suspended shall be disregarded. 5.5 Termination of Employment. Upon termination of ------------------------- employment, a Participant, or the Beneficiary if the termination is caused by the Participant's death, shall have the following options with respect to the distribution of the Participant's Account: 5.5.1 Reaffirm Current Election. The Participant ------------------------- or Beneficiary may elect to reaffirm the Participant's election under Section 5.3 that was in effect at the time of the Participant's termination; or 5.5.2 Request a New Election. The Participant or ---------------------- Beneficiary may elect a new distribution option available under Section 5.2, subject to the Employer's consent. ARTICLE VI - PLAN ADMINISTRATION -------------------------------- 6.1 General. The Plan shall be administered by the Pension ------- Board, which is the Plan Administrator. 6.2 Responsibilities and Reports. The Plan Administrator ---------------------------- may, pursuant to a written resolution, allocate among one or more of its members specific responsibilities under the Plan, and the Plan Administrator may name other persons to carry out such responsibilities. The Plan Administrator shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports that are furnished by any actuary, accountant, controller, counsel, investment banker or other person who is employed or engaged for such purposes. 6.3 Governing Law. This Plan shall be governed by and ------------- construed in accordance with the laws of the Commonwealth of Pennsylvania, to the extent not preempted by federal law. ARTICLE VII - CLAIMS PROCEDURE ------------------------------- 7.1 Plan Interpretation. The Human Resources Committee of ------------------- the Board of Directors shall have the authority and responsibility to interpret and construe the Plan and to decide all questions arising thereunder, including, without limitation, questions of eligibility for participation, eligibility for Contributions, the amount of Account balances, and the timing of the distribution thereof, and shall have the authority to deviate from the literal terms of the Plan to the extent it shall determine to be necessary or appropriate to operate the Plan in compliance with the provisions of applicable law. Notwithstanding the above, a member of the Human Resources Committee shall not take any part in decisions regarding his participation in the Plan. 7.2 Denial of Claim for Benefits. Any denial by the Human ---------------------------- Resources Committee of any claim for benefits under the Plan by a Participant or Beneficiary shall be stated in writing by the Human Resources Committee and delivered or mailed to the Participant or Beneficiary. The Human Resources Committee shall furnish the claimant with notice of the decision not later than 90 days after receipt of the claim, unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 90 day period. In no event shall such extension exceed a period of 90 days from the end of such initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Human Resources Committee expects to render the final decision. The notice of the Human Resources Committee's decision shall be written in a manner calculated to be understood by the claimant and shall include (i) the specific reasons for the denial, including, where appropriate, references to the Plan, (ii) any additional information necessary to perfect the claim with an explanation of why the information is necessary, and (iii) an explanation of the procedure for perfecting the claim. 7.3 Appeal of Denial. The claimant shall have 60 days ---------------- after receipt of written notification of denial of his or her claim in which to file a written appeal with the Human Resources Committee. As a part of any such appeal, the claimant may submit issues and comments in writing and shall, on request, be afforded an opportunity to review any documents pertinent to the perfection of his or her claim. The Human Resources Committee shall render a written decision on the claimant's appeal ordinarily within 60 days of receipt of notice thereof but, in no case, later than 120 days. ARTICLE VIII - FUNDING ---------------------- 8.1 Funding. The Employer shall not segregate or hold ------- separately from its general assets any amounts credited to the Accounts, and shall be under no obligation whatsoever to fund in advance any amounts under the Plan, including Contributions and earnings thereon. 8.2 Insolvency. In the event that the Employer becomes ---------- insolvent, all Participants and Beneficiaries shall be treated as general, unsecured creditors of the Employer with respect to any amounts credited to the Accounts under the Plan. ARTICLE IX - AMENDMENT AND TERMINATION -------------------------------------- 9.1 Reservation of Rights. The Employer reserves the right --------------------- to amend or terminate the Plan at any time by action of the Board of Directors. Notwithstanding the foregoing, no such amendment or termination shall reduce the balance of any Participant's Account as of the date of such amendment or termination. 9.2 Funding upon Termination. Upon a complete termination ------------------------ of the Plan, the Employer shall contribute to the Carpenter Technology Corporation Non-Qualified Employee Benefits Trust an amount equal to the aggregate of all amounts credited to Participants' Accounts as of the date of such termination. If the Carpenter Technology Corporation Non-Qualified Employee Benefits Trust does not exist at the time the Plan is terminated, the Employer shall create an irrevocable grantor trust to which it will contribute such amounts. This newly created trust shall be designed to ensure that Participants will not be subject to taxation on amounts contributed to and held under the trust on their behalf before the amounts are distributed. 9.3 Survival of Accounts and Elections. Notwithstanding ---------------------------------- any termination of the Plan, the trustee of the trust to which amounts are contributed under Section 9.2 shall maintain the Accounts for Participants in the same manner as under this Plan and all elections for distributions under Article V of the Plan shall survive the termination and remain in effect. ARTICLE X - MISCELLANEOUS ------------------------- 10.1 Limited Purpose of Plan. The establishment or ----------------------- existence of the Plan shall not confer upon any individual the right to be continued as an Employee. The Employer expressly reserves the right to discharge any Employee whenever in its judgment its best interests so require. 10.2 Non-alienation. No amounts payable under the Plan -------------- shall be subject in any manner to anticipation, assignment, or voluntary or involuntary alienation. 10.3 Facility of Payment. If the Plan Administrator, in its ------------------- sole discretion, deems a Participant or Beneficiary who is eligible to receive any payment hereunder to be incompetent to receive the same by reason of age, illness or any infirmity or incapacity of any kind, the Plan Administrator may direct the Employer to apply such payment directly for the benefit of such person, or to make payment to any person selected by the Plan Administrator to disburse the same for the benefit of the Participant or Beneficiary. Payments made pursuant to this Section 10.3 shall operate as a discharge, to the extent thereof, of all liabilities of the Employer and the Plan Administrator to the person for whose benefit the payments are made. To record the adoption of the Plan, the Carpenter Technology Corporation has caused its authorized officers to affix its corporate name and seal this 20th day of December, 1995. [CORPORATE SEAL] CARPENTER TECHNOLOGY CORPORATION Attest: By: s/Robert W. Lodge --------------------- ------------------------------ Secretary Robert W. Lodge Title: Vice President - Human & ------------------------ Administrative Services ----------------------- DEFERRED COMPENSATION PLAN FOR OFFICERS AND KEY EMPLOYEES OF CARPENTER TECHNOLOGY CORPORATION -------------------------------- APPENDIX A PARTICIPATING SUBSIDIARIES ------------------------- None As of January 1, 1995 EX-10 6 TRUST AGREEMENT TRUST AGREEMENT --------------- Carpenter Technology Corporation Non-Qualified Benefits Trust for Directors TRUST AGREEMENT effective as of the 7th day of December, 1990, by and between Carpenter Technology Corporation, a corporation organized under the laws of the State of Delaware (hereinafter referred to as the "Company"), and THE CHASE MANHATTAN BANK, N.A., a banking association organized under the laws of the United States of America (hereinafter referred to as the "Trustee"). BACKGROUND ---------- The Company maintains the benefit plans listed on Exhibit A hereto (the "Plans") for the benefit of various of its Directors. The Company intends to create a trust, to which it will contribute cash, or other property acceptable to the Trustee, to help the Company meet its obligations under the Plans, and to assure that, subject to the sufficiency of the Trust Fund, payments provided for by the Plans are not improperly withheld in the event of a Change in Control of the Company. The establishment of this Trust shall not affect the Company's continuing obligation to make payments under the Plans, except that the liability shall be reduced to the extent payments are made by the Trustee hereunder. The assets of the Trust Fund shall be, and shall remain, subject to the claims of the Company's general creditors in the event of the Company's insolvency. Otherwise, the Trust shall be irrevocable until all liabilities under all Plans have been satisfied, at which time the Trust shall terminate, and all remaining assets of the Trust Fund shall be returned to the Company. The Trust is intended to be a "grantor trust" with the result that the corpus and income of the Trust are treated as assets and income of the Company pursuant to sections 671 through 679 of the "Code". The Company intends that the Plans not be deemed funded (within the meaning of Title I of ERISA) despite the existence of this Trust. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the Company and the Trustee covenant and agree as follows: ARTICLE I DEFINITIONS; ESTABLISHMENT OF TRUST ------------------------------------ Section 1.01 Definitions. Whenever used in this Trust ----------- Agreement, unless otherwise provided or the context otherwise requires: (a) "Account" shall mean an account maintained in respect of a ------- Participant pursuant to Section 4.02. (b) "Benefits" shall mean, with respect to each Participant, the -------- benefits payable to or in respect of that Participant pursuant to the applicable Plan listed on Exhibit A. (c) "Change in Control" is defined in Article III. ----------------- (d) "Code" shall mean the Internal Revenue Code of 1986, as ---- amended from time to time. (e) "Committee" shall mean the Compensation and Stock Option --------- Committee of the Company's Board of Directors. (f) "Company" shall mean Carpenter Technology Corporation or any ------- successor company by merger, acquisition or otherwise. (g) "ERISA" means the Employee Retirement Income Security Act of ----- 1974, as amended from time to time. (h) "Participant" shall mean each person entitled to benefits ----------- under any Plan, including the beneficiaries pursuant to any Plan. (i) "Plan" shall mean any plan listed on Exhibit A hereto, as in ---- effect from time to time. "Plans" shall mean all such plans. (j) "Trust" shall mean the trust established under this Trust ----- Agreement. (k) "Trust Agreement" shall mean this trust agreement, as from --------------- time to time amended. (l) "Trust Fund" shall mean the trust fund held from time to ---------- time by the Trustee hereunder consisting of all contributions received by the Trustee together with the investments and reinvestment made therewith and all net profits and earnings thereon less all payments and charges therefrom. (m) "Trustee" shall mean The Chase Manhattan Bank, N.A., or its ------- successor, or an officer, director or employee of such a Trustee exercising any fiduciary powers under this Trust Agreement; provided, however, that in no event may any subsidiary or affiliate of the Company or any Participant be such a successor Trustee. Section 1.02 Establishment and Title of the Trust. The Company ------------------------------------ hereby establishes with the Trustee a trust to be known as the "Carpenter Technology Corporation Non-Qualified Benefits Trust for Directors," consisting of such sums of money and other property acceptable to the Trustee as from time to time may be paid or delivered to the Trustee pursuant to this Trust Agreement. The Trust Fund shall be held by the Trustee in trust and shall be dealt with in accordance with the provisions of this Trust Agreement. Section 1.03 Acceptance by the Trustee. The Trustee accepts ------------------------- the Trust established hereunder on the terms and conditions set forth herein and agrees to perform the duties imposed on it by this Trust Agreement. ARTICLE II INVESTMENT AND ADMINISTRATION OF THE TRUST FUND ----------------------------------------------- Section 2.01 Powers and Duties of the Trustee. In addition -------------------------------- to every power and discretion conferred upon the Trustee by any other provision of this Trust Agreement, the Trustee shall have the following express powers with respect to the Trust Fund: (a) To make investments and reinvestments of the assets of the Trust Fund (i) in direct obligations of the United States of America or agencies of the United States of America or obligations unconditionally and fully guaranteed as to principal and interest by the United States of America, in each case maturing within three (3) years or less from the date of acquisition; or (ii) in negotiable certificates of deposit or bank investment contracts (in each case maturing within three (3) years or less from the date of acquisition) issued by a commer- cial bank, including the Trustee, organized and existing under the laws of the United States of America or any state thereof having a combined capital and surplus of at least $1,000,000,000, and a Moody's senior debt rating of at least an "A-" or equivalent. (iii) in money market or similar interest bearing accounts maintained by the Trustee. (iv) in any commingled trust fund maintained by the Trustee for the collective investment of trust funds or any mutual fund, which invests in portfolios of assets described in this Section 2.01(a). (v) notwithstanding Section 2.01(a)(i) and (ii) to the contrary, any funds contributed during a period in which a Potential Change in Control exists, shall only be invested or reinvested in U.S. Treasury instruments with a maturity not to exceed ninety (90) days, or as provided in Section 2.01(a)(iii). (b) To employ agents, experts and counsel; to delegate discretionary powers to, and rely upon information and advice furnished by such agents, experts and counsel, and to pay their reasonable fees and disbursements as an expense of the trust fund upon obtaining the Company's prior consent, which shall not be unreasonably denied, and provided further that such consent shall be deemed to have been given if, within ten business days of being notified by the Trustee, in writing, of its intention to incur such expenses, the Company has not objected thereto and provided that Company consent shall not be required with respect to this Section 2.01(b) if notice of a Change in Control has been given to the Trustee under Section 3.03; and (c) From time to time to register any property in the name of its nominee or in its own name, or to hold it unregistered or in such form that title shall pass by delivery or to cause the same to be deposited in a depository or clearing corporation or system established to settle transfers of securities and to cause such securities to be merged and held in bulk by the nominee of such depository or clearing corporation or system. ARTICLE III CHANGE IN CONTROL ----------------- Section 3.01 Definition of Change in Control. For purposes ------------------------------- of this Trust, a "Change in Control" of the Company shall be deemed to have occurred if (a) A "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or (b) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Section 3.01(a), 3.01(c) or 3.01(d) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. Section 3.02 Definition of a Potential Change in Control. ------------------------------------------- For purposes of this Trust, a "Potential Change in Control" of the Company shall be deemed to have occurred if (a) The Company enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Company, (b) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a change in control of the Company; (c) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding securities, increases his beneficial ownership of such securities by 5% or more of the combined voting power of the Company's then outstanding securities on the effective date of this Agreement; or (d) the Board of Directors of the Company adopts a resolution to the effect that, for purposes of this Trust, a "potential change in control" has occurred. Such a resolution will be provided to the Trustee in certified form. Section 3.03 Requirement of Notice. Notwithstanding the --------------------- definitions in Sections 3.01 and 3.02, no Change in Control or Potential Change in Control shall be deemed to have occurred for purposes of this Trust Agreement unless and until the Trustee has actual written notice from the Company or from any person who was an officer of the Company prior to the alleged Change in Control or the alleged Potential Change in Control that such Change in Control or Potential Change in Control has occurred. ARTICLE IV CONTRIBUTIONS ------------- Section 4.01 Contributions by the Company. ---------------------------- (a) The Company will make contributions hereunder at such times, and in such amounts, as the Company may determine to be appropriate to enable the Trust to accumulate assets sufficient to pay all, or any part, as determined by the Company, of the benefits payable under the Plans. (b) Upon the occurrence of a Potential Change in Control, the Company, if it so chooses, will deliver to the Trustee cash and/or marketable securities having a fair market value in an amount equal to the sum of the amounts, determined by an actuary selected by the Company, which will be sufficient to fund fully the Company's obligations to pay to the Participants the full amount of all Benefits to which they may become entitled pursuant to the Plans. The actuarial basis employed by such actuary shall include the following assumptions: no interest will be earned on plan assets; Directors' fees will increase at the rate of 10% per annum; there will be no change in the plan; and, a Director will be assumed to terminate at such time as to maximize his benefits under the Plans but not later than age 70. Any such contribution shall be identified to the Trustee, by the Company, as a Section 4.01(b) contribution. (c) In addition to contributions made to the Trust pursuant to Sections 4.01(a) and 4.01(b), the Company shall deliver to the Trustee any amounts which the Trustee is required to pay pursuant to Section 6.02. (d) The Trustee shall be responsible only for contributions actually received by it hereunder. The Trustee shall have no duty or authority to ascertain whether any contributions should be made to it or to bring any action or proceeding to enforce any obligation to make any such contribution. Section 4.02 Accounts. -------- (a) Before a Change In Control. The Company shall create a separate -------------------------- Account for each Participant, cause records to be maintained by the Company, or retain a separate recordkeeper as the Company's agent, reflecting the amount, if any, credited to that Participant in accordance with the terms of the Deferred Compensation Plan for Nonmanagement Directors of Carpenter Tech- nology Corporation (the "Deferred Compensation Plan"). When a contribution is made, the Company shall notify the Trustee of the amount of such contribu- tion allocable to each Participant's Account and/or specific plans. The Trustee shall not be required to maintain any separate account records, but shall rely solely upon the information maintained by the Company and the notice to the Trustee as herein provided. The remainder, (or all thereof if no allocation is indicated) of such contribution shall not be specifically allocated to any Plan or any Participant, but shall be available to discharge the Company's obligations to make benefit payments under any of the Plans in accordance with the applicable provisions of Article V. The Company shall, however, provide to the Trustee, with respect to each Plan, at such intervals as the Company shall determine, but in no event less frequently than annually, a schedule listing each Participant, each Plan under which that Participant has accrued a benefit and the amount of such benefit. The Trustee shall have no responsibility with respect to the determination or accuracy of any such allocations and/or the accrued benefits due any participant or plan as herein provided, but shall rely solely upon such information provided to it by the Company. (b) Following a Change In Control. Upon notice to the Trustee ----------------------------- that a Change in Control has occurred, or that a Potential Change in Control has occurred and that the Company has invoked the allocation procedures of this Section 4.02(b), the Trustee, based upon the schedule of such benefits most recently provided to the Trustee by the Company, shall allocate all of the Trust Fund's assets as follows: assets shall first be allocated to the Deferred Compensation Plan portion of each Participant's Account in an amount equal to each Participant's accrued benefit therein not previously allocated thereto. In the event that the Trust Fund's assets are insufficient to fully fund each Participant's accrued benefit under the Deferred Compensation Plan, the assets shall be allocated ratably to the Participants' Accounts in the ratio that the accrued benefits in respect of each such Participant under said Deferred Compensation Plan bear to the total accrued benefits of all such Participants under said plan. The balance of the assets shall be allocated to each participant's account in an amount equal to each participant's accrued benefit under all of the Plans other than the Deferred Compensation Plans. If the assets of the Trust Fund, after making provision for the Deferred Compensation Plan, are insufficient to fully fund all of the accrued benefits of all Participants under all of the other Plans, those assets shall be allocated ratably to the Participants' Accounts in the ratio that the accrued benefits in respect of each such Participant under all of such other Plans bear to the total accrued benefits of all such Participants under all such other Plans. Section 4.03 Delivery to the Company. Any Section 4.01(b) ----------------------- contribution delivered to the Trustee shall be returned to the Company without interest on the 181st day following (and exclusive of the date of) its receipt by the Trustee, unless within 180 days following such receipt by the Trustee, a notice of the "Change in Control" shall have been received by the Trustee pursuant to Section 3.03. Such 180-day period shall be extended for an additional 180-day period for any "Potential Change in Control" which occurs or continues during any initial or extended 180-day period. The Company will provide the Trustee with written notice of any extension. Section 4.04 Trustee's Agent. The Trustee shall be entitled --------------- to retain such actuarial, accounting, legal and other services as it may deem necessary to accomplish and/or maintain such allocations, payments and/or Participant Account records as are provided for under Articles IV and V hereof, and to pay for such services as an expense of the Trust Fund out of the assets of the Trust Fund, unless promptly paid by the Company. ARTICLE V PAYMENT OF BENEFITS ------------------- Section 5.01 Payments by Trustee. ------------------- (a) Prior to a Change In Control. Until such time as Section ---------------------------- 5.01(b) applies, all payments to Participants in any of the Plans shall be made by the Company, as agent for the Trustee, in accordance with the applicable provisions of the Plans. Upon receipt of written instructions to the Trustee from the Company of the amount needed to pay such benefits the Trustee shall promptly disburse such funds to the Company and, upon that disbursement shall have no further responsibility with respect to such funds or their application. (b) Following a Change In Control. Following notice to the ----------------------------- Trustee that a Change in Control has occurred, and subject to the limitation of Section 5.01(c), the Trustee shall make payments to Participants and their beneficiaries from the Trust Fund in accordance with the payment schedule most recently provided by the Company to the Trustee prior to the occurrence of the Change in Control; provided, however, that if the Company and a Participant agree to the substitution of a new payment schedule with respect to such Participant following the occurrence of a Change in Control, the Trustee shall instead make payments in accordance with such substitute payment schedule. In the event that the Company and a Participant (or in the event of his death, his Beneficiary) disagree as to the amount, form or duration of benefit payments under a Plan, the Trustee shall continue to make benefit payments pursuant to the payment schedule most recently provided by the Company prior to a Change in Control until authorized to make payments under a substitute schedule by both the Participant (or Beneficiary) and the Company or until the Trustee receives a final non-appealable order from a court of competent jurisdiction to alter such benefit payment schedule. (c) Any amount paid under this Section 5.01 shall be charged by the Company or the Trustee, as the case may be, against the Account of the applicable Participant and no payment with respect to an Account shall be made in excess of the amount credited to such Account. (d) The Trustee shall not make any payments to Participants or beneficiaries from the Trust Fund except as provided in this Section 5.01 even though it may be informed from another source that payments are due under a Plan. The Trustee shall be fully protected in making payments or omitting to make payments in accordance with Section 5.01(b). Section 5.02 Determinations by Committee or Company. -------------------------------------- (a) If at any time the Company or, if Section 5.01(b) applies, the Trustee, determines that any amount held in the Trust Fund is includible in the gross income of a Participant or his beneficiary for federal income tax purposes prior to payment of such amount from the Trust Fund, the Trustee, upon notice from the Company or, if Section 5.01(b) applies, upon notice by a Participant or Beneficiary, in the format provided in Exhibit B, that based on a (i) change in the tax or revenue laws of the United States of America, (ii) a published ruling or similar announcement issued by the Internal Revenue Service, (iii) a regulation issued by the Secretary of the Treasury or his delegate, (iv) a decision by a court of competent jurisdiction involving the Participant or Beneficiary, or (v) a closing agreement made under Code Section 7121 that is approved by the Internal Revenue Service and involves the Participant or Beneficiary, that Participant or Beneficiary has recognized or will recognize income for federal income tax purposes with respect to amounts that are or will be payable to him under the Plans before they are paid to him, shall pay such amount to such person in the manner directed by the Committee or by such notice to the Trustee and the Participant's Account shall be charged, or his accrued benefit reduced, accordingly. (b) If at any time the Company prior to a Change in Control determines that the amount allocated to the Account of any Participant exceeds the amount reasonably expected to be necessary to provide the Benefits payable in respect of such Participant from such Account, such excess may be reallocated to the Accounts of other Participants or held as part of the unallocated Fund, as determined by the Company. If at any time prior to a Change in Control the Committee determines that the Benefits in respect of all Participants have been paid in full, the Committee shall so notify the Trustee in writing. Section 5.03 Withholding, Returns and Reports. -------------------------------- (a) Prior to a Change in Control. Prior to a Change in Control, ---------------------------- the Company shall withhold all required federal, state and local taxes from benefit payments under any of the Plans, and remit those withholdings to the appropriate taxing authorities. The Company shall also be responsible for the preparation of all information reports, returns, receipts and other communications required by Chapter 61 of the Code to be filed with, or distributed to, any person or governmental entity. (b) Following a Change in Control. Following a Change in ----------------------------- Control, the Trustee shall assume the Company's responsibilities under Section 5.03(a) with respect to benefit payments under any of the Plans, and shall reduce such benefit payments by the amount of any such required withholding. The Trustee shall remit the net benefit payments to the Participants and shall pay the required tax withheld to the Company, which shall continue to be responsible for the preparation and filing of all items required by Chapter 61 of the Code, as enumerated in Section 5.03(a). (c) The Company and the Trustee shall cooperate with each other in providing any information reasonably necessary to enable the other to carry out any of its responsibilities under this Section 5.03. Section 5.04 Company's Continuing Obligations. -------------------------------- Notwithstanding any provisions of this Trust Agreement to the contrary, the Company shall remain obligated to pay the Benefits under the Plan. To the extent the amount in the Trust Fund is not sufficient to pay any Benefits when due, the Company shall pay such deficiency directly to the person entitled thereto. Nothing in this Trust Agreement shall relieve the Company of its liabilities to pay the Benefits except to the extent such liabilities are met by the application of Trust Fund assets. Section 5.05 Company's Income. The Company agrees that all ---------------- income, deductions and credits of the Trust Fund belong to it as owner for income tax purposes and will be included on the Company's income tax returns to the extent required by applicable law. ARTICLE VI CONCERNING THE TRUSTEE ---------------------- Section 6.01 Notices to the Trustee. Except as provided in ---------------------- Section 5.02, the Trustee may rely on the authenticity, truth and accuracy of: (a) any notice, direction, certification, approval or other writing of the Company, if evidenced by an instrument signed in the name of the Company by its Chairman, President, any Vice President, Secretary, Assistant Secretary or Treasurer, and believed in good faith by it to be genuine; (b) any notice, direction, certification, approval or other written, oral or other transmitted form of instruction received by the Trustee and believed by it in good faith to be genuine and to be sent by or on behalf of the Committee; or (c) any copy of a resolution of the Board of Directors of the Company, if certified by the Secretary or an Assistant Secretary of the Company under its corporate seal. (d) The Company shall furnish the Trustee from time to time with a list of the names and signatures of the officers or other persons authorized to act under this Section 6.01(a) and (b), or in any other manner authorized to notify or instruct the Trustee pursuant to the provisions of this Agreement. Any such list shall be certified by the Secretary or an Assistant Secretary of the Company, and may be relied upon by the Trustee until it receives a revised list. Section 6.02 Expenses of the Trust Fund. The Trustee shall -------------------------- pay out of the Trust Fund: (a) all brokerage fees and transfer tax expenses and other expenses incurred in connection with the sale or purchase of investments; (b) all real and personal property taxes, income taxes and other taxes of any kind at any time levied or assessed under any present or future law upon, or with respect to, the Trust Fund or any property included in the Trust Fund; (c) the Trustee's compensation and expenses as provided in Section 6.03, unless promptly paid by the Company; and (d) unless promptly paid by the Company, all other reasonable expenses of administering the Trust. Notwithstanding the foregoing, the Trustee shall, at Company expense and direction, contest the validity of any taxes in any manner deemed appropriate by the Company or its counsel, but only if it has received an indemnity bond or other security satisfactory to it to pay any expenses of such contest; provided, however, that the Trustee shall have no obligation to contest if it receives an opinion of counsel of its choice to the effect that there is no basis in law or fact for such contest. Alternatively, the Company may itself contest the validity of any such taxes. Section 6.03 Compensation of the Trustee. The Company will pay to the Trustee compensation for its services time to time in accordance with its schedule of fees then in effect for trusts of similar nature, and will reimburse the Trustee for all reasonable expenses (including attorneys' fees) incurred by the Trustee in the administration of the Trust. Section 6.04 Protection of the Trustee. The Company agrees ------------------------- to indemnify and hold harmless the Trustee from and against any and all damages, losses, claims or expenses as incurred (including expenses of investigation and fees and disbursements of counsel to the Trustee and any taxes imposed on the Trust Fund or income of the Trust) arising out of or in connection with the performance by the Trustee of its duties hereunder, except to the extent that any such damages, losses, claims or expenses result from the negligence or willful misconduct of the Trustee, its officers, employees or agents. Section 6.05 Duties of the Trustee. The Trustee will be --------------------- under no obligation to perform any duties whatsoever, except such duties as are specifically set forth as such in this Trust Agreement, and no implied covenant or obligation will be read into this Trust Agreement against the Trustee. The Trustee will not be compelled to take any action toward the execution or enforcement of the Trust or to prosecute or defend any suit in respect thereof, unless indemnified to its satisfaction against loss, costs, liability and expense or there are sufficient assets in the Trust Fund to provide such indemnity; and the Trustee will be under no liability or obligation to anyone with respect to any failure on the part of the Company to perform any of its obligations under the Plans. Nothing in this Trust Agreement should be construed as requiring the Trustee to make any payment in excess of amounts held in the Trust Fund at the time of such payment. Section 6.06 Settlement of Accounts of the Trustee. The ------------------------------------- Trustee shall keep or cause to be kept accurate and detailed records of all investments, receipts, disbursements and other transactions hereunder. Such records shall be open to inspection and audit at all reasonable times during normal business hours by any person designated by the Company. At least annually, or upon such more frequent intervals, but not more frequent than monthly, as the Company may direct, the Trustee shall file with the Company a written statement, listing the investments of the Trust Fund and any uninvested cash balance thereof, and setting forth all receipts, disbursements, payments and other transactions respecting the Trust Fund not included in any such previous statement. Any statement, when approved by the Company, will be binding and conclusive on the Company; and the Trustee will thereby be released and discharged from any liability or accountability to the Company with respect to all matters set forth therein. Omission by the Company to object in writing to any specific items in any such statement, which shall be deemed an account stated, within ninety (90) days after its delivery will constitute approval of the account by the Company. No other accounts or reports shall be required to be given to the Company, except as stated herein or except as otherwise agreed to in writing by the Trustee. Except as provided above, the Trustee shall not be required to file an accounting, judicial or otherwise. Section 6.07 Right to Judicial Settlement. Nothing contained ---------------------------- in this Trust Agreement shall be construed as depriving the Trustee of the right to have a judicial settlement of its accounts, and upon any proceeding for a judicial settlement of the Trustee's accounts or for instructions the only necessary party thereto in addition to the Trustee shall be the Company. Section 6.08 Resignation or Removal of the Trustee. The ------------------------------------- Trustee may at any time resign upon sixty (60) days notice in writing to the Company (which sixty (60) days notice requirement may be waived by agreement in writing of the Company). Prior to a Change in Control, or a Potential Change in Control, the Trustee may be removed by the Company upon sixty (60) days notice in writing to the Trustee (which sixty (60) days notice requirement may be waived by agreement in writing of the Trustee). Section 6.09 Appointment of Successor Trustee. In the event -------------------------------- of the resignation or removal of the Trustee, or in any other event in which the Trustee ceases to act, a successor trustee may be appointed by the Company by instrument in writing delivered to and accepted by the successor trustee. Notice of such appointment will be given by the Company to the retiring trustee, and the successor trustee will deliver to the retiring trustee an instrument in writing accepting such appointment. If no appointment of a successor trustee is made within a reasonable time after such a resignation, removal or other event, any court of competent jurisdiction may appoint a successor trustee. In the event of such resignation, removal or other event, the retiring trustee or its successors and assigns shall file with the Company a final statement to which the provisions of Section 6.06 shall apply. In the event of the appointment of a successor trustee, such successor trustee will succeed to all the right, title and estate of, and will be, the Trustee; and the retiring trustee will after the settlement of its final account as provided for in Section 6.06, and the receipt of any compensation or expenses due it, deliver the Trust Fund to the successor trustee together with all such instruments of transfer, conveyance, assignment and further assurance as the successor trustee may reasonably require. The retiring trustee will retain a first lien upon the Trust Fund to secure all amounts due the retiring trustee pursuant to the provisions of this Trust Agreement. The Company will provide the Trustee with a ratification and release upon such resignation, removal or other event. Section 6.10 Merger or Consolidation of the Trustee. Any -------------------------------------- corporation continuing as the result of any merger or resulting from any consolidation to which merger or consolidation the Trustee is a party, or any corporation to which substantially all the business and assets of the Trustee may be transferred, will be deemed automatically to be continuing as the Trustee. ARTICLE VII ENFORCEMENT ----------- Section 7.01 Enforcement of Trust Agreement and Legal ---------------------------------------- Proceedings. The Company shall have the right to enforce any provision of - ----------- this Trust Agreement in its own name. In any action or proceeding affecting the Trust, the only necessary parties shall be the Company and the Trustee and, except as otherwise required by applicable law, no other person shall be entitled to any notice or service of process. Any judgment entered in such an action or proceeding shall, to the maximum extent permitted by applicable law, be binding and conclusive on all persons having or claiming to have any interest in the Trust. ARTICLE VIII AMENDMENT, REVOCATION AND TERMINATION ------------------------------------- Section 8.01 Amendment. The Company may from time to time --------- prior to the occurrence of a Change in Control or a Potential Change in Control with respect to which the allocation procedures of Section 4.02(b) are invoked, with the Trustee's consent, amend in writing, in whole or in part, any or all of the provisions of this Trust Agreement without the consent of any Participant or any other person; provided, however, that no such amendment shall increase the duties or obligations or change the compensation of the Trustee without the Trustee's written consent. This Trust Agreement may not be amended following a Change in Control nor may it be amended following a Potential Change in Control with respect to which the allocation procedures of Section 4.02(b) are invoked unless the resulting allocations are revoked pursuant to Section 4.03. Section 8.02 Irrevocability. Subject to section 10.08, the -------------- Trust shall be irrevocable and, except as otherwise provided in Section 8.03 and Article IX, shall be held for the exclusive purpose of providing the Benefits to Participants and their beneficiaries and defraying expenses of the Trust in accordance with the provisions of this Trust Agreement. Section 8.03 Termination. The Trust shall terminate if the ----------- Committee provides the Trustee with a written statement to the effect that the Benefits in respect of all Participants have been paid in full. As soon as practicable following such event, the Trustee shall settle its final accounts in accordance with Section 6.06 and, after receipt of any unpaid fees and expenses, shall distribute the balance of the Trust Fund to the Company, provided, however, that after a Change in Control, such Committee statement shall be accompanied by written approvals of the Participants then listed on the most recent payment schedule provided to the Trustee pursuant to Section 4.02. In the event any such Participant does not approve, Section 5.01(b) shall apply. ARTICLE IX CLAIMS OF COMPANY'S CREDITORS ----------------------------- Section 9.01 Insolvency. As used in this Article IX, the ---------- Company shall be deemed to be "Insolvent" if (i) the Company is unable to pay its debts generally as they come due, or (ii) the Company is subject to a pending proceeding as a debtor under the federal Bankruptcy Code (or any successor federal statute). In the event the Company shall be deemed Insolvent, the assets of the Trust shall be subject to claims of creditors of the Company (hereinafter referred to as "Bankruptcy Creditors"). Section 9.02 Discontinuance of Benefits. If at any time (i) -------------------------- the Company or a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, or (ii) the Trustee is served with any order, process or paper from a court of competent jurisdiction to the effect that the Company is Insolvent, the Trustee shall give notice thereof to the Company, shall discontinue payment of Benefits under this Trust Agreement, shall hold the Trust Fund for the benefit of the Company's Bankruptcy Creditors, and shall resume payment of Benefits under this Trust Agreement in accordance with Article V only upon: (a) in the case of clause (ii) above, the receipt of an order of a court of competent jurisdiction authorizing or requiring such payment, and (b) in the case of clause (i) above, receipt of written notice from the Company that the Company is not Insolvent. The Board of Directors of the Company and the Company's Treasurer shall further be obligated to give the Trustee prompt written notice in the event that the Company becomes Insolvent, with the same consequences as provided in the immediately preceding sentence. If payment of Benefits has been discontinued pursuant to clause (i) of the second preceding sentence, the Board of Directors of the Company and the Company's Treasurer shall be obligated to give the Trustee prompt written notice in the event the Company is not Insolvent, and such notice from such Board of Directors or Treasurer shall be treated as notice from the Company for purposes of the second preceding sentence. The Trustee shall not be liable to anyone in the event Benefits are discontinued pursuant to this Section 9.02. If the Trustee discontinues payment of Benefits pursuant to this Section 9.02 and subsequently resumes such payment, to the extent the Trust Fund is sufficient for such purpose, the first payment to a Participant following such discontinuance shall include an aggregate amount equal to the payments which would have been made to such Participant under this Trust Agreement but for this Section 9.02, as shall be determined by the Committee or if Section 5.01(b) applies, by the Trustee. No interest shall be due or payable with respect to any such payments in arrears. ARTICLE X MISCELLANEOUS PROVISIONS ------------------------ Section 10.01 Successors. This Trust Agreement shall be ---------- binding upon and inure to the benefit of the Company and the Trustee and their respective successors and assigns. Section 10.02 Nonalienation. Except insofar as applicable law ------------- may otherwise require: (a) no amount payable to or in respect of any Participant at any time under the Trust shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind, and any attempt to so alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber any such amount, whether presently or thereafter payable, shall be void; and (b) the Trust Fund shall in no manner be liable for or subject to the debts or liabilities of any Participant. Section 10.03 Communications. -------------- (a) Communications to the Company shall be addressed to the Company at P.O. Box 14662, Reading, PA 19612-4662, Attn. Treasurer, Carpenter Technology Corporation, provided, however, that upon the Company's written request, such communications shall be sent to such other address as the Company may specify. (b) Communications to the Trustee shall be addressed to its Trusts and Estates Services Division, U.S. Private Banking, 1211 Avenue of the Americas, 34th Floor, New York, New York 10036; provided, however, that upon the Trustee's written request, such communications shall be sent to such other address as the Trustee may specify. (c) No communication shall be binding on the Trustee until it is received by the Trustee, and no communication shall be binding on the Company until it is received by the Company. Section 10.04 Headings. Titles to the Sections of this Trust -------- Agreement are included for convenience only and shall not control the meaning or interpretation of any provision of this Trust Agreement. Section 10.05 Third Parties. A third party dealing with the ------------- Trustee shall not be required to make inquiry as to the authority of the Trustee to take any action nor be under any obligation to follow the proper application by the Trustee of the proceeds of sale of any property sold by the Trustee or to inquire into the validity or propriety of any act of the Trustee. Section 10.06 Governing Law. This Trust Agreement and the ------------- Trust established hereunder shall be governed by and construed, enforced, and administered in accordance with the laws of the State of New York and the Trustee shall be liable to account only in the courts of that state. Section 10.07 Counterparts. This Trust Agreement may be ------------ executed in any number of counterparts, each of which shall be deemed to be the original although the others shall not be produced. Section 10.8 IRS Ruling - Funded Status. The Company intends -------------------------- to apply to the Internal Revenue Service for a ruling to the effect that this Trust is a grantor trust within the meaning of section 671, et. seq. of the Code and that contributions hereunder will not be treated as taxable income to Plan Participants until distributed to those Participants. If the Company is unable to obtain a satisfactory ruling to that effect, or if any Plan is finally determined to be funded within the meaning of Title I of ERISA because of the existence of this Trust and if a Change in Control has not then occurred, the Company shall have the right, notwithstanding the provisions of Article VIII, to further amend or revoke the Trust. If the Trust is revoked, its assets, after deducting any unpaid fees or expenses due the Trustee, shall be returned to the Company. IN WITNESS WHEREOF, this Trust Agreement has been duly executed by the parties hereto as of the day and year first above written. Attest: CARPENTER TECHNOLOGY CORPORATION By: s/John A. Schuler ----------------------------- Treasurer Attest: THE CHASE MANHATTAN BANK, N.A. By: s/William P. Barbeosch ----------------------------- TRUST3A.AGM STATE OF ) ) COUNTY OF ) Personally appeared , of , signer and sealer of the foregoing instrument, and acknowledged the same to be his free act and deed as such and the free act and deed of said company, before me. Notary Public STATE OF ) ) ss.: COUNTY OF ) Personally appeared , of , signer and sealer of the foregoing instrument, and acknowledged the same to be his free act and deed as such and the free act and deed of said company, before me. Notary Public EXHIBIT "A" ------------ 1. Deferred Compensation Plan For Nonmanagement Directors of Carpenter Technology Corporation Effective January 1, 1983 Amended as of December 13, 1984. 2. Carpenter Technology Corporation Director Retirement Plan Adopted June 9, 1983, Efffective August 1, 1981. EXHIBIT "B" ----------- FORM OF NOTICE CONCERNING EARLY TAXATION ---------------------------------------- I, the undersigned Participant (Beneficiary) under the Carpenter Technology Corporation Non-Qualified Benefits Trust for Directors hereby notify The Chase Manhattan Bank, N.A., as Trustee, that pursuant to Section 5.02(a) thereof, the undersigned will recognize income for Federal income tax purposes due to funds held in said Trust and request payment of all funds held in my account. I do hereby certify the above to be a true statement and I hereby furnish the following independent verification of the reasons why I will recognize income for Federal income tax purposes: [List below the type of independent verification and enclose a copy of such verification.] EX-11 7 EARNINGS PER SHARE Exhibit 11 CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES PRIMARY EARNINGS PER COMMON SHARE COMPUTATIONS For the Years Ended June 30, 1996, 1995 and 1994 1996 1995 1994 -------- -------- -------- (in thousands, except per share data) Net Income for Primary Earnings - ------------------------------- Per Common Share ---------------- Income before extraordinary charge $ 60,148 $ 47,492 $ 38,289 Dividends accrued on convertible preferred stock, net of tax benefits (1,572) (1,599) (1,606) -------- -------- -------- Income for primary earnings per common share before extra- ordinary charge $ 58,576 $ 45,893 $ 36,683 Extraordinary charge, net of income taxes - - (2,039) -------- -------- -------- Net income for primary earnings per common share $ 58,576 $ 45,893 $ 34,644 ======== ======== ======== Weighted Average Common Shares - ------------------------------ Weighted average number of common shares outstanding 16,537 16,240 16,052 Effect of shares issuable under the stock option plans 140 87 78 -------- -------- -------- Weighted average common shares 16,677 16,327 16,130 ======== ======== ======== Primary Earnings Per Common Share - --------------------------------- Primary earnings per common share before extraordinary charge $ 3.51 $ 2.81 $ 2.28 Extraordinary charge - - (.13) -------- -------- -------- Primary earnings per common share $ 3.51 $ 2.81 $ 2.15 ======== ======== ======== Exhibit 11 CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES FULLY DILUTED EARNINGS PER COMMON SHARE COMPUTATIONS For the Years Ended June 30, 1996, 1995 and 1994 1996 1995 1994 -------- -------- -------- (in thousands, except per share data) Net Income for Fully Diluted - ---------------------------- Earnings Per Common Share ------------------------- Income before extraordinary charge $ 60,148 $ 47,492 $ 38,289 Shortfall between common and preferred dividend (644) (705) (699) -------- -------- -------- Income for fully diluted earnings per common share before extraordinary charge 59,504 46,787 37,590 Extraordinary charge, net of income taxes - - (2,039) -------- -------- -------- Net income for fully diluted earnings per common share $ 59,504 $ 46,787 $ 35,551 ======== ======== ======== Weighted Average Common Shares - ------------------------------ Weighted average number of common shares outstanding 16,537 16,240 16,052 Conversion of preferred shares 909 917 922 Effect of shares issuable under the stock option plans 158 152 112 -------- -------- -------- Weighted average common shares 17,604 17,309 17,086 ======== ======== ======== Fully Diluted Earnings Per - -------------------------- Common Share ------------ Fully diluted earnings per common share before extraordinary charge $ 3.38 $ 2.70 $ 2.20 Extraordinary charge - - (.12) -------- -------- -------- Fully diluted earnings per common share $ 3.38 $ 2.70 $ 2.08 ======== ======== ======== EX-12 8 RATIO SCHEDULE Exhibit 12 CARPENTER TECHNOLOGY CORPORATION COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES -- unaudited Five years Ended June 30, 1996 (dollars in thousands) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Fixed charges: Interest costs (a) $ 19,275 $ 17,797 $ 19,651 $ 21,759 $ 20,627 Interest component of non-capitalized lease rental expense (b) 2,074 2,452 2,522 2,532 2,480 -------- -------- -------- -------- -------- Total fixed charges $ 21,349 $ 20,249 $ 22,173 $ 24,291 $ 23,107 ======== ======== ======== ======== ======== Earnings as defined: Income before income taxes, extraordinary charge and cumulative effect of changes in accounting principles $ 95,170 $ 74,571 $ 62,728 $ 42,799 $ 22,827 Fixed charges less interest capitalized 21,009 16,994 18,043 23,126 22,117 Amortization of capitalized interest 2,074 1,952 1,788 1,725 1,696 -------- -------- -------- -------- -------- Earnings as defined $118,253 $ 93,517 $ 82,559 $ 67,650 $ 46,640 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 5.5x 4.6x 3.7x 2.8x 2.0x ====== ====== ====== ====== ====== (a) Include interest capitalized relating to significant construction projects and amortization of debt discount and debt expense. (b) One-third of rental expense which approximates an interest component of non-capitalized leases. EX-23 9 CONSENT Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Carpenter Technology Corporation and subsidiaries on Form S-8 and S-3 (File No. 2-83780, 2-81019, 2-60649, 33-42536, 33-51613 and 33-54045) of our reports dated July 29, 1996, on our audits of the consolidated financial statements and financial statement schedule of Carpenter Technology Corporation and subsidiaries as of June 30, 1996 and 1995, and for the years ended June 30, 1996, 1995 and 1994, which reports are included in this Annual Report on Form 10-K. s/Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania September 25, 1996 EX-24 10 POWERS OF ATTORNEY CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as a Director of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/Marcus C. Bennett ----------------------------- Marcus C. Bennett Director CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as a Director of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/William J. Hudson, Jr. ------------------------------ William J. Hudson, Jr. Director CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as a Director of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/William S. Dietrich, II ------------------------------ William S. Dietrich, II Director CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as a Director of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/Dr. C. McCollister Evarts ------------------------------ Dr. C. McCollister Evarts Director CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as a Director of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/Carl R. Garr ------------------------------ Carl R. Garr Director CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as a Director of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/Arthur E. Humphrey ------------------------------ Arthur E. Humphrey Director CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as a Director of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/Edward W. Kay ------------------------------ Edward W. Kay Director CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as a Director of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/Frederick C. Langenberg ------------------------------ Frederick C. Langenberg Director CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as a Director of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/Marlin Miller, Jr. ------------------------------ Marlin Miller, Jr. Director CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as a Director of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/Paul R. Roedel ------------------------------ Paul R. Roedel Director CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as a Director of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/Kathryn C. Turner ------------------------------ Kathryn C. Turner Director CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as a Director of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/Kenneth L. Wolfe ------------------------------ Kenneth L. Wolfe Director CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as the Controller of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as the Controller of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/Edward B. Bruno ------------------------------ Edward B. Bruno Controller CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as the Treasurer of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as the Treasurer of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/John A. Schuler ------------------------------ John A. Schuler Treasurer CARPENTER TECHNOLOGY CORPORATION -------------------------------- POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned in his capacity as the Chief Financial Officer of Carpenter Technology Corporation does hereby appoint G. Walton Cottrell and John R. Welty or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as the Chief Financial Officer of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 1996, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys. IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 12th day of September, 1996. s/G. Walton Cottrell ______________________________ G. Walton Cottrell Chief Financial Officer EX-27 11 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JUN-30-1996 JUN-30-1996 $13,159 $0 $137,103 $0 $160,452 $324,470 $809,697 $390,225 $911,971 $171,975 $188,024 $97,729 $0 $28,581 $182,767 $911,971 $865,324 $865,324 $636,783 $636,783 $1,543 $0 $18,935 $95,170 $35,022 $60,148 $0 $0 $0 $60,148 $3.51 $3.38
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