Exhibit 99
Carpenter Technology Reports First Quarter Results
WYOMISSING, Pa.--(BUSINESS WIRE)--Oct. 27, 2003--Carpenter
Technology Corporation (NYSE:CRS) today reported continued improvement
in its operating performance and increased free cash flow generation
despite ongoing weak market conditions and higher raw material costs.
Net sales for the first fiscal quarter ended September 30, 2003
were $213.3 million compared to $213.8 million for the same period a
year ago. Last year's first quarter included $5.1 million from
companies that were subsequently divested.
Net income for the quarter was $0.5 million or $.00 per diluted
share, compared to a net loss of $10.9 million or $.51 per diluted
share a year ago. This year's first quarter included $4.4 million or
$.12 per diluted share of non-cash pension and retiree medical
expenses. The quarter a year ago benefited from net pension income of
$1.1 million or $.03 per diluted share.
In the first quarter a year ago, Carpenter incurred a special
charge of $14.2 million or $.38 per diluted share, as a result of its
strategy to reduce costs and improve operational effectiveness. The
charge related primarily to severance costs associated with the
elimination of salaried positions.
As a result of the improved operating performance, a reduction in
its dividend and working capital management, free cash flow, defined
as net cash before financing activities but after dividends, increased
to $22.2 million in the first quarter versus $8.7 million a year ago.
Carpenter's total debt, net of cash and including amounts
outstanding under its receivables purchase facility, was $333.3
million at the end of the recent first quarter. This net debt level is
$23.0 million lower than at the end of the previous quarter and $85.2
million lower than a year ago.
Operating Summary
"The significant improvement in our operating performance versus a
year ago reflects our continued focus on operational excellence and
cost reduction," said Robert J. Torcolini, chairman, president and
chief executive officer. "Although we see substantial opportunity for
further improvement, we are encouraged by our progress in the first
quarter given the continued soft demand from several key markets."
Sales in the first quarter were relatively flat compared to a year
ago. However, after adjusting for divested companies, sales increased
two percent versus a year ago. The sales increase was primarily driven
by stronger demand for higher value products from the power
generation, automotive and medical markets, which more than offset
lower volumes of stainless steel rod. Sales also benefited from an
increase in aerospace and medical demand in the European market.
Carpenter's gross profit in the first quarter improved to $34.0
million or 15.9 percent of sales from $33.6 million or 15.7 percent a
year ago. The gross profit in the recent first quarter included
non-cash pension and retiree medical expenses of $3.1 million or 1.5
percent of sales. In the first quarter a year ago, the gross profit
reflected pension income of $1.3 million or 0.6 percent of sales.
The improvement in the gross profit reflects lower labor costs
from reduced employment levels, improved yields, realized operating
efficiencies and a better sales mix. Partially offsetting the
improvement were higher raw material costs, particularly nickel, which
included the impact of a supply disruption at a major producer.
Selling and administrative expenses in the first quarter were
reduced by $3.0 million or 9 percent from a year ago. The decrease
resulted from lower employment levels and reduced professional fees
despite an increase in non-cash pension and retiree medical expenses
of $1.1 million. Pension and retiree medical expenses or income are
included in both cost of goods sold and selling and administrative
expenses.
As a result of the improvement in gross profit and reduced selling
and administrative expenses, Carpenter's first quarter income before
other income and expense (net sales less cost of sales and selling and
administrative expenses) increased to $5.3 million or 2.5 percent of
sales from $1.9 million or 0.9 percent of sales a year ago. The
increase occurred despite the change in the non-cash pension and
retiree medical expense to $4.4 million from non-cash income of $1.1
million in the first quarter a year ago.
Outlook
"The challenges of the current economic environment, which are
further aggravated by the availability of low priced imports and
excess global stainless steel capacity, make it imperative that we
continue our focus on lean practices and process variation reduction,"
Torcolini said. "The resulting further cost reductions will enable
Carpenter to effectively compete on a global basis and attain an
acceptable level of profitability through all phases of a business
cycle."
Management believes that many of Carpenter's key markets have
stabilized. Based on these conditions and excluding the non-cash
pension and retiree medical expenses, Carpenter expects to show
improved year-over-year comparisons through the balance of fiscal
2004, as previously stated.
Additionally, Carpenter confirmed its previously announced
expectation of generating free cash flow in excess of $50 million for
the current fiscal year.
Segment Results
Specialty Metals
Net sales for the quarter ended September 30, 2003 for the
Specialty Metals segment, which includes the Specialty Alloys
Operations (SAO), Dynamet, and Carpenter Powder Products (CPP)
business units, were $189.7 million or $3.7 million higher than in the
same quarter a year ago.
SAO sales increased 1 percent due to a better product mix, which
was offset by lower volumes. SAO volume was 10 percent lower than last
year, due mainly to reduced sales of lower value stainless steel rod
products. SAO's sales mix benefited from increased sales of higher
value products to the power generation and automotive markets and the
reduced sales of rod products.
Dynamet's sales increased 8 percent in the first quarter versus a
year ago, primarily due to strong sales growth in the medical market,
which more than offset lower sales to the aerospace market.
CPP's sales increased 8 percent from the same quarter a year ago.
The sales increase reflected higher sales to the power generation,
capital goods and chemical processing markets.
Income for the Specialty Metals segment of $11.3 million, compared
to $2.9 million in the same quarter a year ago. The increase reflects
lower labor costs from reduced employment levels, an improved product
mix, improved yields, realized operating efficiencies and lower
selling and administrative expenses.
These benefits were partially offset by significantly higher raw
material costs, which were further aggravated by a supply disruption
at a major nickel supplier.
Engineered Products Segment
Net sales for this segment, which includes sales of ceramics and
metal components, were $24.1 million as compared to $28.4 million a
year ago. Last year's first quarter included $5.1 million in sales
from businesses that were subsequently divested. Increased sales to
the aerospace and industrial markets more than offset reduced sales to
the consumer market.
Income for the Engineered Products segment was $2.5 million in the
first quarter versus $2.2 million a year ago. The increase primarily
reflects the benefit of cost savings initiatives.
Net Pension Expense / Income
In the first quarter of fiscal 2004, Carpenter had non-cash
pension and retiree medical expenses of $4.4 million or $.12 per
diluted share. This compares to net pension income of $1.1 million or
$.03 per diluted share for the same quarter a year ago. The net
pension amount is actuarially determined as of each June 30 and held
constant throughout the fiscal year.
The fiscal 2004 pension expense primarily results from the
accumulated effect of investment losses from more than two years of
declining stock market returns. The stock market performance, coupled
with the low interest rate environment resulted in a change of
actuarial assumptions. The changes included a reduction in the
expected rate of return to 8.5 percent from 10.0 percent and a
lowering of the discount rate to 6.0 percent from 7.25 percent, both
of which had the effect of increasing the company's pension and
retiree medical expenses.
The pension expense is a non-cash item, as the company's defined
benefit pension plan remains well funded and, as in prior years, the
company is not required to make a cash contribution to the plan.
Special Charges
Last year's first quarter included a special charge of $14.2
million for the costs of eliminating salaried positions and for losses
on asset disposals.
Other Items
Selling and administrative expenses of $28.7 million were lower
than last year by $3.0 million or 9 percent. The reduction was due to
lower employment levels and professional fees.
Interest expense of $6.3 million compared to $8.0 million in the
first quarter a year ago. Lower debt levels and interest rates were
the primary reasons for the decline.
Other income of $1.6 million in the first quarter compared to $0.3
million in the quarter a year ago. The increase was largely due to
favorable exchange rates.
Cash Flow and Liquidity
Carpenter has maintained the ability to provide cash to meet its
needs through cash flow from operations, management of working capital
and the flexibility to use outside sources of financing to supplement
internally generated funds.
Free cash flow (cash flow provided before financing activities
less dividends paid) was $22.2 million versus $8.7 million a year ago.
Carpenter believes that its current financial resources, both from
internal and external sources, will be more than adequate to meet its
foreseeable needs. At the end of the first quarter, Carpenter had
approximately $160 million available under its credit facilities.
Selected Financial Measures
Additional details regarding selected financial measures can be
found in the attached financial schedules.
Conference Call
Carpenter will host an analyst meeting in New York City, which
will be simultaneously available by conference call and by webcast
today, October 27, at 1:30 p.m., Eastern Time. Call 610-208-2800 for
additional details about the meeting.
Carpenter produces and distributes specialty materials and various
engineered products. Information about Carpenter can be found on the
Internet at www.cartech.com, with selected products sold online at
www.carpenterdirect.com.
Except for historical information, all other information in this
news release consists of forward-looking statements within the meaning
of the Private Securities Litigation Act of 1995. These
forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ from those projected, anticipated
or implied. The most significant of these uncertainties are described
in Carpenter's filings with the Securities and Exchange Commission
including its annual report on Form 10-K for the year ended June 30,
2003, and its most recent registration statement on Form S-4, filed on
September 16, 2003, as amended on October 3, 2003. They include but
are not limited to: 1) the cyclical nature of the specialty materials
business and certain end-use markets, including aerospace, power
generation, automotive, industrial and consumer, all of which are
subject to changes in general economic and financial market
conditions; 2) the ability of Carpenter to ensure adequate supplies of
raw materials and to recoup increased costs of electricity, natural
gas, and raw materials, such as nickel, through increased prices and
surcharges; 3) domestic and foreign excess manufacturing capacity for
certain metals that Carpenter produces; 4) fluctuations in currency
exchange rates, resulting in increased competition and downward
pricing pressure on certain Carpenter products; 5) the degree of
success of government trade actions; 6) fluctuations in stock markets
which could impact the valuation of the assets in Carpenter's pension
trusts and the accounting for pension assets; 7) the potential cost
advantages that new competitors or competitors who have reorganized
through bankruptcy may have; 8) the transfer of manufacturing capacity
from the United States to foreign countries; and 9) the consolidation
of customers and suppliers. Any of these factors could have an adverse
and/or fluctuating effect on Carpenter's results of operations. The
forward-looking statements in this document are intended to be subject
to the safe harbor protection provided by Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Carpenter undertakes no obligation
to update or revise any forward-looking statements.
CONSOLIDATED STATEMENT OF INCOME
(in Millions, Except per Share Data)
Three Months
Ended
September 30
----------------
2003 2002
-------- -------
NET SALES $213.3 $213.8
Cost of sales 179.3 180.2
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Gross profit 34.0 33.6
Selling and administrative expenses 28.7 31.7
Special charge -- 14.2
Interest expense 6.3 8.0
Other income, net (1.6) (0.3)
-------- -------
Income (loss) before income taxes 0.6 (20.0)
Income tax expense (benefit) 0.1 (9.1)
-------- -------
NET INCOME (LOSS) 0.5 (10.9)
======== =======
EARNINGS (LOSS) PER COMMON SHARE:
Basic $0.00 ($0.51)
======== =======
Diluted $0.00 ($0.51)
======== =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
Basic 22.3 22.3
======== =======
Diluted 22.3 22.3
======== =======
Cash dividends per common share $0.0825 $0.33
======== =======
Certain reclassifications of prior year's amounts have been made to
conform with current year's presentation.
PRELIMINARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in Millions)
Three Months
Ended
September 30
--------------
2003 2002
------ -------
OPERATIONS:
Net income (loss) $0.5 ($10.9)
Adjustments to reconcile net income (loss) to
net cash provided from operations:
Depreciation 12.8 13.7
Amortization 2.4 2.2
Deferred income taxes (1.4) (3.0)
Net pension expense (income) 4.4 (1.1)
Net (gain) loss on asset disposals (0.1) 0.1
Special charge -- 14.2
Changes in working capital and other:
Receivables (1.7) 16.6
Inventories (6.9) (7.7)
Accounts payable 10.9 (3.4)
Accrued current liabilities 6.8 (2.2)
Income tax refund 0.3 11.0
Other, net (1.9) (10.1)
------ -------
Net cash provided from operations 26.1 19.4
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INVESTING ACTIVITIES:
Purchases of plant, equipment and software (1.6) (3.1)
Proceeds from disposals of plant and equipment 0.1 0.2
------ -------
Net cash used for investing activities (1.5) (2.9)
------ -------
FINANCING ACTIVITIES:
Net change in short-term debt (0.4) (1.4)
Payments on long-term debt -- (1.0)
Checks not cleared (3.7) --
Dividends paid (2.4) (7.8)
------ -------
Net cash used for financing activities (6.5) (10.2)
------ -------
Effect of exchange rate changes on cash and cash
equivalents 0.8 (0.3)
------ -------
INCREASE IN CASH AND CASH EQUIVALENTS 18.9 6.0
Cash and cash equivalents at beginning of period 53.5 18.7
------ -------
Cash and cash equivalents at end of period $72.4 $24.7
====== =======
Certain reclassifications of prior year's amounts have been made to
conform with current year's presentation.
PRELIMINARY
CONSOLIDATED BALANCE SHEET
(in Millions)
Sept. 30 June 30
2003 2003
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $72.4 $53.5
Accounts receivable, net 115.4 113.8
Inventories 187.4 180.9
Other current assets 25.3 21.1
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Total current assets 400.5 369.3
Property, plant and equipment, net 640.1 651.7
Prepaid pension cost 252.0 253.7
Goodwill 46.3 46.3
Trademarks and trade names, net 25.1 25.4
Other assets 47.2 53.5
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Total assets $1,411.2 $1,399.9
========= =========
LIABILITIES
Current liabilities:
Short-term debt $17.0 $17.1
Accounts payable 75.4 68.2
Accrued compensation 16.5 13.5
Accrued income taxes 7.6 6.1
Accrued liabilities 42.6 40.6
Deferred income taxes 5.0 4.3
Current portion of long-term debt 0.1 0.1
--------- ---------
Total current liabilities 164.2 149.9
Long-term debt, net of current portion 378.6 378.9
Accrued postretirement benefits 183.6 182.4
Deferred income taxes 166.3 166.7
Other liabilities 44.3 47.4
--------- ---------
Total liabilities 937.0 925.3
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STOCKHOLDERS' EQUITY
Convertible preferred stock 14.1 10.2
Common stock 117.3 117.3
Capital in excess of par value - common stock 199.8 199.8
Reinvested earnings 201.8 203.7
Common stock in treasury, at cost (38.2) (38.3)
Deferred compensation (5.1) (3.8)
Accumulated other comprehensive loss (15.5) (14.3)
--------- ---------
Total stockholders' equity 474.2 474.6
--------- ---------
Total liabilities and stockholders' equity $1,411.2 $1,399.9
========= =========
PRELIMINARY
SEGMENT FINANCIAL DATA
(in Millions)
Three Months
Ended
September 30
---------------
2003 2002
------- -------
Net sales:
Specialty Metals $189.7 $186.0
Engineered Products 24.1 28.4
Intersegment (0.5) (0.6)
------- -------
Consolidated net sales $213.3 $213.8
======= =======
Operating results:
Specialty Metals $11.3 $2.9
Engineered Products 2.5 2.2
Net pension (expense) income (4.4) 1.1
Corporate costs (4.1) (4.3)
Special charge - (14.2)
Interest expense (6.3) (8.0)
Other income, net 1.6 0.3
------- -------
Consolidated income (loss) before
income taxes $0.6 ($20.0)
======= =======
Carpenter is organized in the following business units: Specialty
Alloys Operations, Dynamet, Carpenter Powder Products and Engineered
Products. For segment reporting, Specialty Alloys Operations, Dynamet
and Carpenter Powder Products operating segments have been aggregated
into one reportable segment, Specialty Metals, because of the
similarities in products, processes, customers, distribution methods
and economic characteristics.
Certain reclassifications of prior year's amounts have been made to
conform with current year's presentation.
PRELIMINARY
SELECTED FINANCIAL MEASURES
(in Millions)
Three Months
Ended
September
----------------
FREE CASH FLOW 2003 2002
------- -------
Net cash provided from operations $26.1 $19.4
Net cash used for investing
activities (1.5) (2.9)
Dividends paid (2.4) (7.8)
------- -------
Free cash flow $22.2 $8.7
======= =======
Free cash flow is a measure of cash generated which management
evaluates for alternative uses and has chosen to apply to debt
repayment.
Sept. 30 June 30 Sept. 30
NET DEBT 2003 2003 2002
------- ------- -------
Accounts receivable purchase facility $10.0 $10.0 $10.0
Short-term debt 17.0 17.1 15.5
Current portion of long-term debt 0.1 0.1 50.1
Long-term debt, net of current portion 378.6 378.9 367.6
------- ------- -------
Total Debt 405.7 406.1 443.2
Cash (72.4) (53.5) (24.7)
Checks not cleared -- 3.7 --
------- ------- -------
Net Debt $333.3 $356.3 $418.5
======= ======= =======
Accumulated cash is expected to be used for debt repayment until a
targeted debt to capital ratio is achieved.
Three Months
Ended
September 30
----------------
NET SALES ADJUSTED FOR
DIVESTED COMPANIES 2003 2002
------- -------
Net sales $213.3 $213.8
Divested companies 0.0 (5.1)
------- -------
Net sales adjusted for divested companies $213.3 $208.7
======= =======
PRELIMINARY
SELECTED FINANCIAL MEASURES
(in Millions)
Three Months
Ended
September 30
---------------
NET PENSION EXPENSE (INCOME) 2003 2002
------- -------
Pension plan expense (income) $2.2 ($4.1)
Other postretirement benefit expense 2.2 3.0
------- -------
4.4 (1.1)
Income tax (benefit) expense (1.8) 0.4
------- -------
Net pension expense (income) $2.6 ($0.7)
======= =======
Pension expense (income) per share $0.12 ($0.03)
======= =======
Weighted average diluted common shares 22.3 22.3
======= =======
Three Months
Ended
September 30
---------------
SPECIAL CHARGE 2003 2002
------- -------
Reductions in workforce -- $11.3
Writedown of certain assets -- 2.9
------- -------
Special charge -- 14.2
Income tax benefit -- (5.7)
------- -------
Special charge, net of income taxes -- $8.5
======= =======
Special charge per share -- $0.38
======= =======
Weighted average diluted common shares 22.3 22.3
======= =======
Three Months
Ended
September 30
---------------
INCOME BEFORE OTHER INCOME 2003 2002
------- -------
AND EXPENSE
Net sales $213.3 $213.8
Cost of sales (179.3) (180.2)
Selling and administrative expenses (28.7) (31.7)
------- -------
Income before other income and expense $5.3 $1.9
======= =======
CONTACT: Carpenter Technology Corporation
Investors:
Jaime Vasquez, 610-208-2165
jvasquez@cartech.com
or
Media:
Katharine B. Marshall, 610-413-4139
kmarshall@cartech.com