Exhibit 99.1
Carpenter Technology Reports Second Quarter Results
WYOMISSING, Pa.--(BUSINESS WIRE)--Jan. 21, 2005--Carpenter
Technology Corporation (NYSE:CRS) today reported record second quarter
sales and net income, which reflected strong market conditions and a
continued focus on costs through lean and variation reduction.
Net sales for the second fiscal quarter ended December 31, 2004
were $312.1 million, compared with $226.3 million for the same period
a year ago.
Net income in the second quarter was $32.5 million or $1.28 per
diluted share, compared to net income of $7.5 million or $.31 per
diluted share a year ago.
Net income in the second quarter a year ago included non-cash
pension and retiree medical expenses (net pension expense) of $4.4
million or $.12 per diluted share. In the recent second quarter,
Carpenter's net pension expense was less than $.01 per diluted share.
In addition to strong market conditions and better operating
efficiencies, Carpenter's recent second quarter net income benefited
from the receipt of $3.6 million, or the equivalent of $.09 per
diluted share, from the "Continued Dumping and Subsidy Offset Act of
2000." Last year in the second quarter, Carpenter received $5.2
million, or the equivalent of $.14 per diluted share under this
program.
Net income in the recent second quarter also reflected a $4.5
million favorable settlement of an outstanding tax matter or the
equivalent of $.18 per diluted share. In the second quarter a year
ago, net income benefited from a $2.4 million settlement of an
outstanding tax matter or the equivalent of $.10 per diluted share.
Free cash flow in the recent second quarter was $15.3 million,
compared with free cash flow of $9.4 million in the second quarter a
year ago.
At the end of the recent second quarter, total debt net of cash
was $176.8 million. Carpenter's net debt amount was $27.0 million
lower than at the end of the previous quarter and $144.5 million lower
than a year ago.
First Half Results
Net sales for the first six months of the current fiscal year were
$609.7 million, compared with $439.6 million for the same period a
year ago.
Net income for the first six months of the current fiscal year was
$52.4 million or $2.09 per diluted share, compared with net income of
$8.0 million or $.32 per diluted share for the same period a year ago.
Free cash flow for the first six months of fiscal 2005 was $42.6
million, compared to free cash flow of $31.6 million for the same
period a year ago.
Second Quarter - Operating Summary
"Strong market conditions and our continued focus on cost
reduction through lean and variation reduction resulted in record
second quarter earnings," said Robert J. Torcolini, chairman,
president and chief executive officer. "Demand was strong across most
of our major markets with particularly strong demand coming from the
aerospace sector."
Carpenter's sales increased 38 percent in the second quarter from
a year ago, reflecting strong demand, a better product mix, increased
base selling prices and raw material surcharges to help recover high
raw material and energy costs. Excluding surcharge revenue, sales
increased approximately 28% from the second quarter a year ago.
Sales increased in most major end-use markets during the second
quarter versus the same quarter a year ago. Industrial markets sales
increased 43 percent; aerospace market sales, 79 percent; consumer
market sales, 33 percent; automotive market sales, 25 percent; and
medical market sales, 33 percent. Sales to the power generation market
decreased 24 percent from a particularly strong second quarter a year
ago.
Geographically, sales outside the United States increased 48
percent from a year ago and represented 27 percent of second quarter
sales. Sales outside the United States benefited from the effects of a
weaker U.S. dollar, strong growth in Asia and increased demand for
aerospace and medical materials.
Carpenter's gross profit in the second quarter increased to $74.5
million or 23.9 percent of sales from $39.5 million or 17.5 percent of
sales a year ago.
In the second quarter a year ago, the gross profit reflected
non-cash pension expense of $3.2 million or 1.4 percent of sales. The
gross profit in the recent second quarter included non-cash pension
and retiree medical expenses of $0.2 million.
Strong sales growth, a better product mix, higher base prices and
Carpenter's continued focus on lean and variation reduction were the
primary contributors to the gross profit improvement.
Carpenter's second quarter operating income increased to $44.9
million or 14.4 percent of sales from $11.8 million or 5.2 percent of
sales a year ago. The increase reflects the improvement in gross
profit and a modest increase in selling and administrative expenses
compared to the quarter a year ago.
Outlook
"We expect that demand across our major markets will remain strong
throughout the balance of this fiscal year," Torcolini said. "Given
the strong demand and our ongoing focus on lean and variation
reduction, we anticipate continued year-over-year operating
improvement."
Accordingly, the company now expects that free cash flow will be
approximately $100 million for fiscal 2005. Carpenter had previously
estimated that free cash flow would be in excess of $80 million.
Segment Results - Second Quarter
Specialty Metals
Net sales for the quarter ended December 31, 2004 for the
Specialty Metals segment, which includes the Specialty Alloys
Operations (SAO), Dynamet, and Carpenter Powder Products (CPP)
business units increased 42 percent to $280.4 million from $197.9
million in the same quarter a year ago.
SAO sales increased 39 percent from the same quarter a year ago
due to strong demand across most markets, a better product mix and
pricing actions, including surcharges for high raw material and energy
costs. In addition, SAO volume increased 7 percent despite an
intentional reduction in the sale of marginally profitable products.
Dynamet's sales increased 79 percent in the second quarter versus
a year ago primarily as a result of strong demand from the U.S. and
European aerospace markets and increased selling prices. CPP's sales
were 30 percent higher than a year ago due to increased demand from
the industrial, automotive and aerospace markets and increased selling
prices.
Operating income for the Specialty Metals segment was $40.1
million, compared to $12.0 million a year ago. The increase in
operating income reflected the effects of increased sales, higher base
pricing, a better product mix and continued operational improvements,
including better yields and improved productivity.
Engineered Products Segment
Net sales for this segment, which includes sales of fabricated
metal and ceramic components increased 12 percent to $32.5 million
from $28.9 million a year ago. Stronger demand from the industrial,
automotive and aerospace markets and higher base prices were the
primary drivers of the sales increase.
Operating income for the Engineered Products segment increased to
$6.2 million in the second quarter from $4.2 million a year ago.
Operating income benefited from higher sales, increased base selling
prices and better operating efficiencies from lean and variation
reduction.
Segment Results - Year-to-Date
Specialty Metals
Net sales for the first six months of fiscal 2005 for the
Specialty Metals segment were $547.5 million, compared to $387.6
million for the same period a year ago.
SAO sales increased 40 percent from a year ago, due to an improved
product mix, increased volumes, base pricing actions and surcharges to
cover the high costs of raw materials and energy. SAO volume was 9
percent higher than last year due to increased demand from most major
end-use markets, which was partially tempered by SAO's intentional
reduction in the sale of marginally profitable products.
Dynamet's sales increased 56 percent during the first six months
of fiscal 2005 compared to the same period a year ago. The increase is
due primarily to stronger demand from the aerospace and medical
markets and increased base prices. CPP's sales were 33 percent higher
than a year ago as a result of strong demand from the industrial,
automotive and aerospace markets and higher base selling prices.
Operating income for the Specialty Metals segment was $72.9
million during the first six months of fiscal 2005 as compared to
$19.1 million for the same period a year ago. The increase reflects
higher sales, increased base pricing and better operating efficiencies
including higher yields and improved productivity.
Engineered Products Segment
Net sales for this segment through the first six months of fiscal
2005 were $63.7 million as compared to $53.0 million for the same
period a year ago. This group of companies benefited from strong
demand across most major markets and higher base selling prices.
Operating income for the Engineered Products segment for the first
six months of fiscal 2005 was $10.8 million versus $6.5 million for
the same period a year ago. The increase in operating income was
primarily associated with stronger demand, better pricing and cost
savings initiatives.
Net Pension Expense
In the second quarter of fiscal 2005, Carpenter had net non-cash
pension and retiree medical expenses of $0.6 million, which was offset
by the favorable tax effects of Medicare Part D. As a result,
Carpenter's net pension expense did not have a measurable impact on
earnings per share in the recent second quarter. This compares to
non-cash pension and retiree medical expenses of $4.4 million or $.12
per diluted share for the same quarter a year ago.
The net pension amount is actuarially determined as of each June
30 and typically held constant throughout the fiscal year.
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.
Other Items
In the second quarter of fiscal 2005, selling and administrative
expenses of $29.6 million were 9.5 percent of sales versus $27.7
million or 12.2 percent of sales in the same quarter a year ago.
Selling and administrative expenses included net non-cash pension and
retiree medical expenses of $0.4 million in the current second quarter
versus $1.3 million in the quarter a year ago.
For the first six months of fiscal 2005, selling and
administrative expenses of $57.3 million were 9.4 percent of sales
compared to $56.4 million or 12.8 percent of sales in the same period
a year ago. For the first six months of the current fiscal year,
non-cash pension and retiree medical expenses included in selling and
administrative expenses were $0.8 million versus $2.5 million a year
ago.
Interest expense for the quarter decreased to $5.9 million from
$6.2 million in the quarter a year ago due to reduced debt levels. For
the first six months of fiscal 2005, interest expense was $11.7
million or $0.8 million lower than the same period a year ago.
In the second quarter a year ago, Carpenter incurred a charge of
$2.3 million associated with the early retirement of debt.
Other income for the second quarter was $4.8 million as compared
to $4.9 million in the second quarter a year ago. The recent second
quarter included $3.6 million received under the "Continued Dumping
and Subsidy Offset Act of 2000." In the quarter a year ago, Carpenter
received $5.2 million under this program.
Additionally, other income included $1.4 million of interest
income from investments and interest received under a tax settlement.
In the second quarter a year ago, interest income from investments
included in other income was $0.2 million.
In the recent second quarter, Carpenter's income tax provision was
reduced by $4.5 million as a result of a favorable tax settlement. In
the second quarter a year ago, net income benefited from a $2.4
million settlement of an outstanding tax matter.
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 for the second quarter was $15.3 million, compared
to $9.4 million a year ago. Through the first six months of fiscal
2005 free cash flow was $42.6 million, which compared to $31.6 million
for the same period 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 second quarter, Carpenter had
approximately $180 million available under its credit facilities.
Conference Call
Carpenter will host a conference call and webcast today, January
21, at 10:00 a.m., Eastern Time, to discuss the results of operations
for the second quarter.
Please call 610-208-2800 for details of the conference call.
Access to the call will also be made available at Carpenter's web site
(www.cartech.com) and through CCBN (www.ccbn.com). A replay of the
call will be made available at www.cartech.com or at www.ccbn.com.
Carpenter produces and distributes specialty alloys, including
stainless steels, titanium alloys and superalloys, and various
engineered products. Information about Carpenter can be found on the
Internet at www.cartech.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,
2004, its Form 10-Q for the first quarter and the exhibits attached to
those filings. 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, or other influences on Carpenter's business such as new
competitors, the consolidation of customers and suppliers or the
transfer of manufacturing capacity from the United States to foreign
countries; 2) the ability of Carpenter to achieve cost savings,
productivity improvements or process changes; 3) the ability to recoup
increases in the cost of energy and raw materials or other factors; 4)
domestic and foreign excess manufacturing capacity for certain metals;
5) fluctuations in currency exchange rates; 6) the degree of success
of government trade actions; 7) the valuation of the assets and
liabilities in Carpenter's pension trusts and the accounting for
pension plans; 8) possible labor disputes or work stoppages; and 9)
the potential that our customers may substitute alternate materials or
adopt different manufacturing practices that replace or limit the
suitability of our products. 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 Six Months Ended
December 31 December 31
------------------ ----------------
2004 2003 2004 2003
--------- -------- -------- -------
NET SALES $312.1 $226.3 $609.7 $439.6
Cost of sales 237.6 186.8 471.7 366.1
--------- -------- -------- -------
Gross profit 74.5 39.5 138.0 73.5
Selling and administrative
expenses 29.6 27.7 57.3 56.4
--------- -------- -------- -------
Operating income 44.9 11.8 80.7 17.1
Interest expense 5.9 6.2 11.7 12.5
Loss on early retirement of debt -- 2.3 -- 2.3
Other income, net (4.8) (4.9) (5.3) (6.6)
--------- -------- -------- -------
Income before income taxes 43.8 8.2 74.3 8.9
Income taxes 11.3 0.7 21.9 0.9
--------- -------- -------- -------
NET INCOME $32.5 $7.5 $52.4 $8.0
========= ======== ======== =======
EARNINGS PER COMMON SHARE:
Basic $1.33 $0.32 $2.17 $0.32
========= ======== ======== =======
Diluted $1.28 $0.31 $2.09 $0.32
========= ======== ======== =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 24.1 22.4 23.8 22.4
========= ======== ======== =======
Diluted 25.1 23.3 24.8 23.2
========= ======== ======== =======
Cash dividends per common share $0.10 $0.0825 $0.1825 $0.165
========= ======== ======== =======
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)
Six months ended
December 31
-----------------------
2004 2003
------------ ----------
OPERATIONS:
Net income $52.4 $8.0
Adjustments to reconcile net income to
net cash provided from operations:
Depreciation 23.4 24.8
Amortization 2.0 4.8
Deferred income taxes 9.4 (2.6)
Net pension expense 1.2 8.8
Net loss on asset disposals 0.1 0.2
Changes in working capital and other:
Receivables (4.4) (5.9)
Inventories (28.5) (10.7)
Other current assets (3.5) (1.4)
Accounts payable (14.5) 3.1
Accrued current liabilities 10.5 3.1
Income tax refund 1.9 0.3
Other, net 2.4 6.2
------------ ----------
Net cash provided from operations 52.4 38.7
------------ ----------
INVESTING ACTIVITIES:
Purchases of plant, equipment and software (4.8) (3.2)
Proceeds from disposals of plant and
equipment 0.2 0.6
Purchases of marketable securities (55.9) (18.7)
Sales of marketable securities 19.3 --
------------ ----------
Net cash used for investing activities (41.2) (21.3)
------------ ----------
FINANCING ACTIVITIES:
Net change in short-term debt (0.7) (9.3)
Payments on long-term debt -- (20.1)
Checks not cleared -- (3.7)
Dividends paid (5.2) (4.5)
Proceeds from issuance of common stock 35.1 1.2
------------ ----------
Net cash provided from (used for) financing
activities 29.2 (36.4)
------------ ----------
Effect of exchange rate changes on cash and
cash equivalents (3.7) (0.2)
------------ ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 36.7 (19.2)
Cash and cash equivalents at beginning of
period 76.6 53.5
------------ ----------
Cash and cash equivalents at end of period $113.3 $34.3
============ ==========
Certain reclassifications of prior year's amounts have been made to
conform with current year's presentation.
PRELIMINARY
CONSOLIDATED BALANCE SHEET
(in millions)
December 31 June 30
2004 2004
-------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $113.3 $76.6
Marketable securities 65.4 28.8
Accounts receivable, net 172.9 165.2
Inventories 214.9 185.0
Other current assets 33.8 36.2
-------------- -------------
Total current assets 600.3 491.8
Property, plant and equipment, net 590.9 608.7
Prepaid pension cost 248.9 247.0
Goodwill 46.4 46.4
Trademarks and trade names, net 21.6 24.3
Other assets 33.4 38.0
-------------- -------------
Total assets $1,541.5 $1,456.2
============== =============
LIABILITIES
Current liabilities:
Short-term debt $1.7 $2.2
Accounts payable 95.1 109.0
Accrued compensation 25.1 26.1
Accrued income taxes 20.0 10.3
Accrued liabilities 58.6 51.4
Deferred income taxes 7.4 10.9
Current portion of long-term debt 20.2 20.2
-------------- -------------
Total current liabilities 228.1 230.1
Long-term debt, net of current portion 333.6 332.7
Accrued postretirement benefits 137.9 143.5
Deferred income taxes 184.3 175.6
Other liabilities 37.3 36.3
-------------- -------------
Total liabilities 921.2 918.2
-------------- -------------
STOCKHOLDERS' EQUITY
Convertible preferred stock 20.3 20.8
Common stock 126.7 120.7
Capital in excess of par value - common
stock 244.3 215.1
Reinvested earnings 277.6 230.4
Common stock in treasury, at cost (37.8) (38.0)
Deferred compensation (7.7) (9.5)
Accumulated other comprehensive loss (3.1) (1.5)
-------------- -------------
Total stockholders' equity 620.3 538.0
-------------- -------------
Total liabilities and stockholders'
equity $1,541.5 $1,456.2
============== =============
Certain reclassifications of prior year's amounts have been made to
conform with current year's presentation.
PRELIMINARY
SEGMENT FINANCIAL DATA
(in millions)
Three Months Ended Six Months Ended
December 31 December 31
------------------ ----------------
2004 2003 2004 2003
--------- -------- -------- -------
Net sales:
Specialty Metals $280.4 $197.9 $547.5 $387.6
Engineered Products 32.5 28.9 63.7 53.0
Intersegment (0.8) (0.5) (1.5) (1.0)
--------- -------- -------- -------
Consolidated net sales $312.1 $226.3 $609.7 $439.6
========= ======== ======== =======
Operating income:
Specialty Metals $40.1 $12.0 $72.9 $19.1
Engineered Products 6.2 4.2 10.8 6.5
Corporate costs (5.0) (4.8) (10.1) (9.2)
Pension earnings, interest &
deferrals 3.7 0.4 7.4 0.8
Intersegment (0.1) -- (0.3) (0.1)
--------- -------- -------- -------
Consolidated operating income $44.9 $11.8 $80.7 $17.1
========= ======== ======== =======
Carpenter is organized in the following business units: Specialty
Alloys Operations, Dynamet, Carpenter Powder Products and Engineered
Products. For segment reporting, the 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.
The service cost component of net pension expense, which
represents the estimated cost of future pension liabilities earned
associated with active employees, is included in the operating results
of the business segments. The residual net pension expense, which is
comprised of the expected return on plan assets, interest costs on the
projected benefit obligations of the plans, and amortization of
actuarial gains and losses and prior service costs, is included under
the heading "Pension earnings, interest & deferrals."
Certain reclassifications of prior year's amounts have been made to
conform with current year's presentation.
PRELIMINARY
SELECTED FINANCIAL MEASURES
(in millions, except per share data)
Three Months Ended Six Months Ended
December 31 December 31
------------------ -----------------
FREE CASH FLOW 2004 2003 2004 2003
--------- -------- -------- --------
Net cash provided from operations $20.3 $12.6 $52.4 $38.7
Purchases of plant, equipment and
software (2.3) (1.6) (4.8) (3.2)
Proceeds from disposals of plant
and equipment 0.2 0.5 0.2 0.6
Dividends paid (2.9) (2.1) (5.2) (4.5)
--------- -------- -------- --------
Free cash flow $15.3 $9.4 $42.6 $31.6
========= ======== ======== ========
Free cash flow is a measure of cash generated which management
evaluates for alternative uses.
December 31 September 30 December 31
NET DEBT 2004 2004 2003
------------ ------------- -----------
Accounts receivable purchase
facility $--- $--- $10.0
Short-term debt 1.7 1.7 8.6
Current portion of long-term
debt 20.2 20.2 0.1
Long-term debt, net of current
portion 333.6 334.5 355.6
------------ ------------- -----------
Total debt 355.5 356.4 374.3
Cash (113.3) (94.6) (34.3)
Marketable securities (65.4) (58.0) (18.7)
------------ ------------- -----------
Net debt $176.8 $203.8 $321.3
============ ============= ===========
Accumulated cash and marketable securities are expected to be used for
debt repayment until a targeted debt to capital ratio is achieved.
Three Months Ended Six Months Ended
December 31 December 31
------------------ -----------------
NET PENSION EXPENSE 2004 2003 2004 2003
--------- -------- -------- --------
Pension plan (income) expense ($0.6) $2.2 ($1.2) $4.4
Other postretirement benefits
expense 1.2 2.2 2.4 4.4
--------- -------- -------- --------
0.6 4.4 1.2 8.8
Income tax benefit (0.5) (1.7) (1.1) (3.3)
--------- -------- -------- --------
Net pension expense $0.1 $2.7 $0.1 $5.5
========= ======== ======== ========
Net pension expense per share $0.00 $0.12 $0.00 $0.24
========= ======== ======== ========
Weighted average diluted common
shares 25.1 23.3 24.8 23.2
========= ======== ======== ========
CONTACT: Carpenter Technology Corporation
Investor and Media Inquiries:
Jaime Vasquez, 610-208-2165
jvasquez@cartech.com