Exhibit 99
Carpenter Technology Reports Record First Quarter Results
WYOMISSING, Pa.--(BUSINESS WIRE)--Oct. 24, 2005--Carpenter
Technology Corporation (NYSE:CRS):
Highlights:
-- Net income up 103% to a first quarter record $40 million
-- An increase of 78% in operating income from a year ago
-- Record first quarter sales of $346 million, up 16%
Carpenter Technology Corporation (NYSE:CRS) today reported record
first quarter sales and net income. The results reflected robust
conditions in the aerospace market, increased sales of higher value
materials, and the benefits from the company's continued focus on lean
and variation reduction.
Net sales for the first fiscal quarter ended September 30, 2005
were $346.0 million, compared with $297.6 million for the same quarter
a year ago.
Net income in the recent first quarter was $40.1 million, or $1.54
per diluted share, compared to net income of $19.8 million, or $0.80
per diluted share, a year ago.
Free cash flow in the recent first quarter was $0.7 million,
compared with free cash flow of $27.3 million in the quarter a year
ago. The lower free cash flow partially reflected investments in
additional working capital required to support future sales. At
September 30, 2005, net debt was $59.4 million or $144.4 million lower
than a year ago.
First Quarter - Operating Summary
"We achieved a record first quarter as a result of favorable
market conditions, particularly in aerospace, and our continued focus
on operational excellence through lean and variation reduction," said
Robert J. Torcolini, chairman, president and chief executive officer.
"We are especially pleased to have achieved these results given the
escalating costs of energy and the continued high prices of raw
materials.
"Our business operating model, which focuses on the sale of higher
value products and on reducing complexity through the elimination of
marginally profitable products, has created significant operating
leverage."
Carpenter's sales increased 16 percent in the first quarter from a
year ago, which reflected a better product mix, higher base selling
prices and surcharges. Excluding surcharge revenue, sales increased 15
percent from the first quarter a year ago.
Sales increased in most major end-use markets during the first
quarter versus the same quarter a year ago. Aerospace market sales
increased 48 percent, which reflected strong demand for premium alloys
and ceramics used in the manufacture of jet engines and titanium used
in the manufacture of structural components.
Medical market sales increased 51 percent from the first quarter a
year ago as a result of growth with key customers, international sales
growth and increased selling prices.
Power generation market sales decreased 3 percent. However,
excluding the sales of a divested business, power generation market
sales increased 27 percent from the first quarter a year ago. The
increase reflected higher selling prices, surcharges and marginally
higher demand.
Sales to the automotive and truck markets were 8 percent higher
due to base pricing actions, surcharges and increased demand for
ceramic materials used in engine components for trucks. The sales
growth was tempered by reduced shipments of specialty and stainless
alloys.
Industrial market sales increased 4 percent primarily as a result
of higher base prices, surcharges and the sale of higher value
materials to capital equipment manufacturers. The increased sales were
partially offset by the intentional reduction in the sale of
marginally profitable products.
Sales to the consumer market decreased 9 percent from the first
quarter a year ago. Reduced sales of materials used in consumer
durable goods and reduced shipments of marginally profitable products
accounted for a majority of the change.
Geographically, sales outside the United States increased 27
percent from a year ago and represented 30 percent of first quarter
sales. In the recent first quarter, sales outside the United States
benefited from strength in the European aerospace and medical markets.
Carpenter's gross profit in the first quarter increased to $91.7
million, or 26.5 percent of sales, from $63.4 million, or 21.3 percent
of sales, in the quarter a year ago.
The 520 basis point increase in the gross profit margin reflected
a better product mix due to increased sales of higher value materials,
notably to the aerospace, medical, and power generation markets, and
higher base prices. Margins also benefited from lean initiatives,
variation reduction and the intentional reduction in the sale of
marginally profitable products.
In the first quarter of fiscal 2006, selling and administrative
expenses were $28.0 million, or 8.1 percent of sales, compared to
$27.7 million, or 9.3 percent of sales, in the same quarter a year
ago.
Carpenter's first quarter operating income increased to $63.7
million, or 18.4 percent of sales, from $35.7 million, or 12.0 percent
of sales, a year ago. The increase from a year ago reflected the
improvement in gross profit and a continued focus on managing selling
and administrative expenses.
Outlook
"The strength of the recovery in the aerospace market should
continue to drive demand for our premium alloys, titanium and ceramic
materials," Torcolini said. "We are leveraging these opportunities by
improving the fundamentals of our business by pricing products for the
value delivered, reducing complexity through product mix management
and by focusing on lean and variation reduction.
"Based on current market conditions and our operational
effectiveness initiatives, we expect to achieve another record year."
Accordingly, Carpenter is now raising its free cash flow
expectations for fiscal 2006 to be in excess of $125 million. The
company previously estimated that free cash flow would be in excess of
$100 million.
Segment Results - First Quarter
Specialty Metals
Net sales for the quarter ended September 30, 2005 for the
Specialty Metals segment, which includes the Specialty Alloys
Operations (SAO), Dynamet, and Carpenter Powder Products (CPP)
business units, were $321.3 million, compared to $267.0 million in the
same quarter a year ago.
SAO sales increased 16 percent from the same quarter a year ago.
The increase was due primarily to increased demand of higher value
materials from the aerospace and medical markets, pricing actions and
surcharges. SAO shipments decreased 16 percent from the quarter a year
ago primarily reflecting the strategy to reduce the sale of marginally
profitable products, and lower demand from the automotive and consumer
markets.
Dynamet's sales increased 59 percent in the first quarter versus a
year ago. Robust demand from the aerospace market, continued growth in
the domestic and foreign medical markets, and higher base selling
prices were principally responsible for the sales growth. The sales
increase also reflected the impact of a significant rise in titanium
material costs.
CPP's sales were 45 percent higher than a year ago due to sales
growth in Europe and Asia, market share gains and higher selling
prices.
Operating income for the Specialty Metals segment was $61.0
million, compared to $32.8 million a year ago. The increase in
operating income reflected the effects of increased volumes of higher
value materials, higher base prices and continued operational
improvements through lean and variation reduction.
Engineered Products Segment
Net sales for this segment, which includes sales of ceramic and
fabricated metal components, were $25.1 million, compared to $31.2
million a year ago. Last year's first quarter included $7.4 million in
sales from a business that was divested in the fourth quarter of
fiscal 2005.
Operating income for the Engineered Products segment increased to
$5.2 million from $4.6 million a year ago. The divested business had a
negligible impact on operating income in the quarter a year ago.
Operating income benefited from higher sales, increased base selling
prices and better operating efficiencies from lean and variation
reduction.
Net Pension Expense
In the first quarter of fiscal 2006, Carpenter had pre-tax net
pension expense of $2.7 million. This amount was partially offset by
the favorable tax effects of Medicare Part D, which resulted in net
pension expense of $0.06 per diluted share. This compares to pre-tax
net pension expense of $0.6 million, or less than $0.01 per diluted
share, for the same quarter a year ago.
The increase in the net pension expense in the first quarter of
fiscal 2006 from a year ago primarily results from a decrease in the
discount rate from 6.25 percent to 5.00 percent.
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
Interest expense for the quarter increased to $6.0 million from
$5.8 million in the first quarter a year ago. The increase in interest
expense primarily reflected higher interest rates, which more than
offset the benefit from reduced debt levels.
Other income for the first quarter was $3.0 million as compared to
$0.6 million in the first quarter a year ago. Increased interest
income from invested cash and foreign exchange gains were the primary
contributors to the change.
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 in the recent first quarter was $0.7 million,
compared with free cash flow of $27.3 million in the first quarter a
year ago. The decrease in free cash flow primarily reflected an
increase in inventories needed to support future sales, and reductions
in accounts payable and accrued liabilities.
Carpenter believes that its current financial resources, both from
internal and external sources, will be more than adequate to meet its
foreseeable needs.
Conference Call
Carpenter will host a conference call and webcast today, October
24, at 1:30 p.m., Eastern Time, to discuss the results of operations
for the first quarter of fiscal 2006.
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
superalloys, stainless steels, titanium alloys, 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,
2005, and the exhibits attached to that filing. These uncertainties
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
September 30
-----------------------
2005 2004
------------ ----------
NET SALES $346.0 $297.6
Cost of sales 254.3 234.2
------------ ----------
Gross profit 91.7 63.4
Selling and administrative expenses 28.0 27.7
------------ ----------
Operating income 63.7 35.7
Interest expense 6.0 5.8
Other income, net (3.0) (0.6)
------------ ----------
Income before income taxes 60.7 30.5
Income taxes 20.6 10.7
------------ ----------
NET INCOME $40.1 $19.8
============ ==========
EARNINGS PER COMMON SHARE:
Basic $1.59 $0.83
============ ==========
Diluted $1.54 $0.80
============ ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 25.0 23.5
============ ==========
Diluted 25.9 24.5
============ ==========
Cash dividends per common share $0.15 $0.0825
============ ==========
PRELIMINARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Three Months Ended
September 30
---------------------
2005 2004
---------- ----------
OPERATIONS:
Net income $40.1 $19.8
Adjustments to reconcile net income to
net cash provided from operations:
Depreciation 11.0 11.7
Amortization 0.6 0.9
Deferred income taxes 0.3 6.4
Net pension expense 2.7 0.6
Net loss on asset disposals 0.2 0.1
Changes in working capital and other:
Receivables 4.3 3.4
Inventories (25.6) (17.8)
Other current assets 0.5 (2.1)
Accounts payable (12.4) 6.6
Accrued current liabilities (10.1) 1.5
Other, net (1.3) 1.0
---------- ----------
Net cash provided from operations 10.3 32.1
---------- ----------
INVESTING ACTIVITIES:
Purchases of plant, equipment and software (5.7) (2.5)
Proceeds from disposals of plant and equipment 0.2 --
Purchases of marketable securities (73.9) (41.5)
Sales of marketable securities 72.3 8.1
---------- ----------
Net cash used for investing activities (7.1) (35.9)
---------- ----------
FINANCING ACTIVITIES:
Net change in short-term debt -- (0.5)
Dividends paid (4.1) (2.3)
Proceeds from issuance of common stock 3.1 21.1
---------- ----------
Net cash (used for) provided from financing
activities (1.0) 18.3
---------- ----------
Effect of exchange rate changes on cash and cash
equivalents 0.2 (0.7)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 2.4 13.8
Cash and cash equivalents at beginning of period 163.8 76.6
---------- ----------
Cash and cash equivalents at end of period $166.2 $90.4
========== ==========
Certain reclassifications of prior year's amounts have been made to
conform with current year's presentation.
PRELIMINARY
CONSOLIDATED BALANCE SHEET
(in millions)
September 30 June 30
2005 2005
------------ ----------
ASSETS
Current assets:
Cash and cash equivalents $166.2 $163.8
Marketable securities 108.2 106.6
Accounts receivable, net 188.7 193.4
Inventories 254.3 228.6
Deferred income taxes 6.1 7.4
Other current assets 34.5 31.8
------------ ----------
Total current assets 758.0 731.6
Property, plant and equipment, net 563.3 569.2
Prepaid pension cost 249.9 250.8
Goodwill 46.4 46.4
Trademarks and trade names, net 20.9 21.1
Other assets 33.8 34.3
------------ ----------
Total assets $1,672.3 $1,653.4
============ ==========
LIABILITIES
Current liabilities:
Accounts payable $121.0 $133.4
Accrued liabilities 103.1 115.5
Current portion of long-term debt 0.2 0.2
------------ ----------
Total current liabilities 224.3 249.1
Long-term debt, net of current portion 333.6 333.7
Accrued postretirement benefits 106.7 108.5
Deferred income taxes 193.0 192.5
Other liabilities 46.3 45.4
------------ ----------
Total liabilities 903.9 929.2
------------ ----------
STOCKHOLDERS' EQUITY
Convertible preferred stock 19.0 19.7
Common stock 130.6 129.7
Capital in excess of par value - common
stock 283.4 278.1
Reinvested earnings 390.5 354.5
Common stock in treasury, at cost (35.9) (35.8)
Deferred compensation (8.4) (9.2)
Accumulated other comprehensive loss (10.8) (12.8)
------------ ----------
Total stockholders' equity 768.4 724.2
------------ ----------
Total liabilities and stockholders' equity $1,672.3 $1,653.4
============ ==========
PRELIMINARY
SEGMENT FINANCIAL DATA
(in millions)
Three Months Ended
September 30
--------------------
2005 2004
---------- ---------
Net sales:
Specialty Metals $321.3 $267.0
Engineered Products 25.1 31.2
Intersegment (0.4) (0.6)
---------- ---------
Consolidated net sales $346.0 $297.6
========== =========
Operating income:
Specialty Metals $61.0 $32.8
Engineered Products 5.2 4.6
Corporate costs (5.1) (5.1)
Pension earnings, interest & deferrals 2.6 3.7
Intersegment -- (0.3)
---------- ---------
Consolidated operating income $63.7 $35.7
========== =========
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."
PRELIMINARY
SELECTED FINANCIAL MEASURES
(in millions, except per share data)
Three Months Ended
September 30
-------------------
FREE CASH FLOW 2005 2004
--------- ---------
Net cash provided from operations $10.3 $32.1
Purchases of plant, equipment and
software (5.7) (2.5)
Proceeds from disposals of plant and
equipment 0.2 --
Dividends paid (4.1) (2.3)
--------- ---------
Free cash flow $0.7 $27.3
========= =========
Free cash flow is a measure of cash generated which management
evaluates for alternative uses.
September September
30 June 30 30
NET DEBT 2005 2005 2004
--------- --------- ---------
Short-term debt $--- $--- $1.7
Current portion of long-term debt 0.2 0.2 20.2
Long-term debt, net of current portion 333.6 333.7 334.5
--------- --------- ---------
Total debt 333.8 333.9 356.4
Cash (166.2) (163.8) (90.4)
Marketable securities (108.2) (106.6) (62.2)
--------- --------- ---------
Net debt $59.4 $63.5 $203.8
========= ========= =========
Accumulated cash and marketable securities can be used for debt
repayment, if appropriate.
Three Months Ended
September 30
-------------------
NET PENSION EXPENSE 2005 2004
--------- ---------
Pension plan expense (income) $1.5 ($0.6)
Other postretirement benefits expense 1.2 1.2
--------- ---------
Pre-tax net pension expense 2.7 0.6
Income tax benefit (1.2) (0.5)
--------- ---------
Net pension expense $1.5 $0.1
========= =========
Net pension expense per share $0.06 $0.00
========= =========
Weighted average diluted common shares 25.9 24.5
========= =========
Grouping these retirement benefits together, and discussing changes in
this volatile net expense is helpful in analyzing the operational
performance of the company.
CONTACT: Carpenter Technology Corporation
Investor and Media Inquiries:
Jaime Vasquez, 610-208-2165
jvasquez@cartech.com