Exhibit 99
Carpenter Technology Reports Record Second Quarter Results
WYOMISSING, Pa.--(BUSINESS WIRE)--Jan. 23, 2006--Carpenter
Technology Corporation (NYSE:CRS):
-- Quarterly net income up 32% to a second quarter record $42.9
million - second highest overall quarterly net income in
Company history
-- Operating income up 42% from a year ago
-- Record second quarter revenues of $345.7 million
Carpenter Technology Corporation (NYSE:CRS) today reported record
second quarter sales and net income. The Company continued to
experience strong demand for its higher value materials, particularly
in the aerospace and medical markets, and to benefit from its lean and
variation reduction initiatives.
Net sales for the second quarter ended December 31, 2005 were
$345.7 million, compared with $312.1 million for the same quarter a
year ago.
Net income in the second quarter was $42.9 million, or $1.65 per
diluted share, compared to net income of $32.5 million, or $1.28 per
diluted share, a year ago.
Free cash flow in the second quarter was $41.4 million, compared
with $15.3 million in the quarter a year ago. At December 31, 2005,
net debt was $12.5 million, down $164.3 million from a year ago, and
$46.9 million from the end of the last quarter.
First Half Results
Net sales for the first six months of the current fiscal year were
$691.7 million, compared with $609.7 million for the same period a
year ago.
Net income for the first six months of the current fiscal year was
$83.0 million, or $3.19 per diluted share, compared with net income of
$52.4 million, or $2.09 per diluted share, for the same period a year
ago.
Free cash flow for the first six months of fiscal 2006 was $42.1
million, compared to free cash flow of $42.6 million for the same
period a year ago.
Second Quarter - Operating Summary
"Results this quarter reflected solid demand for our higher value
materials across several key end-use markets worldwide," said Robert
J. Torcolini, chairman, president and chief executive officer. "The
ongoing strength of the aerospace market drove increased demand for
our special alloys, titanium and ceramic materials. In addition, the
pursuit of operational excellence through our relentless focus on lean
initiatives and variation reduction contributed to the increased
profitability.
"This was the second most profitable quarter in Carpenter's
history despite what has historically been one of our seasonally
weakest periods," Torcolini added. "Our performance this quarter
represents further progress in creating an operating model that should
sustain returns above our cost of capital and build shareholder value
through all phases of a business cycle."
For the second quarter, Carpenter's sales increased 11 percent
compared to a year ago. Excluding a business divested in the fourth
quarter of fiscal 2005, sales in the second quarter were up 14 percent
compared to the same quarter a year ago. Sales in the most recent
quarter benefited from increased sales of higher value materials,
especially to the aerospace and medical markets, higher base selling
prices and surcharges. Adjusted for surcharge revenue, sales increased
12 percent from the second quarter a year ago.
Sales increased in several key end-use markets during the second
quarter versus the same quarter a year ago. Medical market sales
increased 63 percent as a result of growth with key customers,
international sales growth and increased selling prices.
Aerospace market sales increased 44 percent, which reflected
strong demand for special alloys and ceramics used in the manufacture
of jet engines, and titanium used in the manufacture of structural
components. Demand for these materials is not only being driven by the
significant increase in the number of aircraft being built but also by
the specific models of aircraft. The new wide-body aircraft typically
require a greater use of lighter-weight materials such as titanium.
Sales to the automotive and truck markets increased 1 percent.
Solid demand from the heavy duty truck market was partially offset by
the effects of reduced automotive production levels and corresponding
inventory adjustments within the supply chain.
Sales to the power generation market decreased 27 percent.
Adjusting for sales from the divested business, sales to this market
increased 20 percent in the second quarter compared to the same
quarter a year ago.
Sales to the consumer market were down 7 percent compared to a
year ago primarily due to the intentional reduction in the sale of
marginally profitable products. Also, reduced demand for materials
sold to the housing and electronics markets contributed to the
decline.
Industrial market sales decreased 12 percent also due to our
decision not to pursue marginally profitable business as well as
inventory adjustments within certain supply channels.
Geographically, sales outside the United States increased 29
percent from a year ago and represented 31 percent of second quarter
sales. International sales reflected strong demand for higher value
materials, particularly in the aerospace and medical markets.
Carpenter's gross profit in the second quarter increased to $93.8
million, or 27.1 percent of sales, from $74.5 million, or 23.9 percent
of sales, in the same quarter a year ago.
The 320 basis point increase in the gross profit margin reflected
higher base selling prices, and a richer product mix. Margins also
benefited from the continuing lean and variation reduction
initiatives.
Carpenter's second quarter operating income increased to $63.9
million, or 18.5 percent of sales, from $44.9 million, or 14.4 percent
of sales, a year ago. The increase is the product of improved gross
margins and selling and administrative expenses that were held flat
compared to a year ago.
Outlook
"We expect that the strength of key end-use markets, particularly
aerospace, will continue to drive our performance through the balance
of this fiscal year," Torcolini said. "Additionally, we remain
dedicated to reducing costs and improving operating performance
through lean initiatives and variation reduction."
Consequently, based upon our expectations for improvements in
working capital, Carpenter is now raising its fiscal 2006 free cash
flow forecast to be in excess of $150 million. The company previously
estimated that free cash flow would be in excess of $125 million.
Segment Results - Second Quarter
Specialty Metals
Net sales for the quarter ended December 31, 2005 for the
Specialty Metals segment, which includes Specialty Alloys Operations
(SAO), Dynamet, and Carpenter Powder Products (CPP) business units,
were $321.0 million, compared to $280.4 million in the same quarter a
year ago.
SAO sales increased 11 percent from the same quarter a year ago.
The increase was due primarily to strong demand for higher value
materials from the aerospace market, pricing actions, and surcharges.
SAO volume decreased 18 percent from the same quarter a year ago. The
decline reflects a strategy not to pursue marginally profitable
business in addition to lower shipments to the industrial, consumer
and automotive markets.
Dynamet's sales increased 60 percent in the second 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 sales growth. The sales
increase also reflected the impact of a significant rise in titanium
costs.
CPP's sales were 13 percent higher than a year ago due to higher
selling prices and increased demand from the industrial market.
Operating income for the Specialty Metals segment was $63.2
million, compared to $40.1 million a year ago. The increase in
operating income reflected increased sales of higher value materials,
higher base prices and continued operational improvements.
Engineered Products Segment
Net sales for this segment, which includes sales of fabricated
metal and ceramic components, were $25.3 million, compared to $32.5
million a year ago. Last year's second quarter included $9.5 million
in sales from a business that was divested in the fourth quarter of
fiscal 2005. Sales in this segment increased across most major end-use
markets.
In the second quarter, operating income for the Engineered
Products segment was $4.2 million compared to $6.2 million in the
second quarter of 2005. The reduction is primarily attributable to
operating income from the divested business included in the second
quarter of 2005.
Segment Results - Year-to-Date
Specialty Metals
Net sales for the first six months of fiscal 2006 for the
Specialty Metals segment were $642.3 million, compared to $547.5
million for the same period a year ago.
SAO sales increased 13 percent from the same period a year ago due
to solid demand for higher value materials from the aerospace, power
generation and medical markets, pricing actions and surcharges. SAO
volume decreased 17 percent from the same period a year ago due to the
intentional reduction in the sale of marginally profitable products
and lower shipments primarily to the industrial, consumer and
automotive markets.
Dynamet's sales increased 59 percent during the first six months
of fiscal 2006 compared to the same period 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 sales growth.
CPP's sales were 28 percent higher than a year ago due to higher
selling prices, stronger demand from the industrial market and a
better product mix.
Operating income for the Specialty Metals segment was $124.2
million for the first six months of fiscal 2006 as compared to $72.9
million for the same period a year ago. The increase in operating
income reflected increased sales of higher value materials, higher
base prices and continued operational improvements.
Engineered Products Segment
Net sales for the Engineered Products segment through the first
six months of fiscal 2006 was $50.3 million as compared to $63.7
million for the same period a year ago. Sales in the first half of
fiscal 2005 included $16.8 million from a business that was
subsequently divested. This group of companies experienced increased
sales to the automotive, power generation, medical and aerospace
markets, and higher base selling prices.
Operating income for the Engineered Products segment was $9.4
million compared to $10.8 million in the first half of fiscal 2005.
The reduction is primarily attributable to operating income from the
divested business included in the first six months of fiscal 2005.
Net Pension Expense
In the second quarter of 2006, Carpenter had pre-tax net pension
expense of $2.7 million. This was partially offset by the favorable
tax effects of Medicare Part D, which resulted in net pension expense
of $0.05 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 second quarter of
fiscal 2006 from a year ago primarily reflects a decrease in the
discount rate from 6.25% to 5.00% as a result of a lower interest rate
environment.
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 2006, selling and administrative
expenses of $29.9 million were 8.6 percent of sales compared to $29.6
million, or 9.5 percent of sales, in the same quarter a year ago.
For the first six months of fiscal 2006, selling and
administrative expenses of $58.0 million were 8.4 percent of sales
compared to $57.3 million, or 9.4 percent of sales, for the first half
of fiscal 2005.
Interest expense for the quarter of $5.9 million was unchanged
from the second quarter a year ago. For the first six months of fiscal
2006, interest expense was $11.9 million compared to $11.7 million in
the same period a year ago.
Other income in the quarter was $8.7 million compared to $4.8
million in last year's second quarter. The increase in other income
for the quarter is primarily due to increases in interest income from
higher balances of invested cash, increased receipts from the
"Continued Dumping and Subsidy Offset Act" and foreign exchange gains.
Receipts from the "Continued Dumping and Subsidy Offset Act of
2000" were $4.8 million in the most recent second quarter. In last
year's second quarter, receipts under this program were $3.6 million.
For fiscal 2006 year to date, other income rose to $11.7 million
from $5.3 million for the comparable year ago period. The increase in
other income is due primarily to increases in interest income from
higher balances of invested cash, increased receipts from the
"Continued Dumping and Subsidy Offset Act" and foreign exchange gains.
In the second quarter of fiscal 2005, Carpenter's income tax
provision benefited from a $4.5 million, or the equivalent of $0.18
per diluted share, favorable 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 in the recent second quarter was $41.4 million,
compared with free cash flow of $15.3 million in the second quarter a
year ago. Through the first six months of fiscal 2006 free cash flow
was $42.1 million, compared to $42.6 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.
Conference Call
Carpenter will host a conference call and webcast today, January
23, at 10:00 AM, Eastern Time, to discuss the results of operations
for the second 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
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,
2005, its subsequent Form 10-Q 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
--------------- ----------------
2005 2004 2005 2004
------- ------- ------- --------
NET SALES $345.7 $312.1 $691.7 $609.7
Cost of sales 251.9 237.6 506.2 471.7
------- ------- ------- --------
Gross profit 93.8 74.5 185.5 138.0
Selling and administrative expenses 29.9 29.6 58.0 57.3
------- ------- ------- --------
Operating income 63.9 44.9 127.5 80.7
Interest expense 5.9 5.9 11.9 11.7
Other income, net (8.7) (4.8) (11.7) (5.3)
------- ------- ------- --------
Income before income taxes 66.7 43.8 127.3 74.3
Income taxes 23.8 11.3 44.3 21.9
------- ------- ------- --------
NET INCOME $42.9 $32.5 $83.0 $52.4
======= ======= ======= ========
EARNINGS PER COMMON SHARE:
Basic $1.69 $1.33 $3.28 $2.17
======= ======= ======= ========
Diluted $1.65 $1.28 $3.19 $2.09
======= ======= ======= ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 25.2 24.1 25.1 23.8
======= ======= ======= ========
Diluted 26.0 25.1 25.9 24.8
======= ======= ======= ========
Cash dividends per common share $0.15 0.10 $0.30 $0.1825
======= ======= ======= ========
PRELIMINARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Six Months Ended
December 31
--------------------
2005 2004
---------- ---------
OPERATIONS:
Net income $83.0 $52.4
Adjustments to reconcile net income to
net cash provided from operations:
Depreciation 22.5 23.4
Amortization 1.0 2.0
Deferred income taxes 1.8 9.4
Net pension expense 5.4 1.2
Net loss on asset disposals 0.3 0.1
Changes in working capital and other:
Receivables 15.6 (4.4)
Inventories (36.5) (28.5)
Other current assets 4.7 (3.5)
Accounts payable (27.0) (14.5)
Accrued current liabilities (6.0) 12.4
Other, net (4.5) 2.4
---------- ---------
Net cash provided from operations 60.3 52.4
---------- ---------
INVESTING ACTIVITIES:
Purchases of plant, equipment and software (10.2) (4.8)
Proceeds from disposals of plant and equipment 0.2 0.2
Purchases of marketable securities (150.3) (65.5)
Sales of marketable securities 185.9 19.3
---------- ---------
Net cash provided from (used for) investing
activities 25.6 (50.8)
---------- ---------
FINANCING ACTIVITIES:
Net change in short-term debt -- (0.7)
Dividends paid (8.2) (5.2)
Proceeds from issuance of common stock 7.7 35.1
---------- ---------
Net cash (used for) provided from financing
activities (0.5) 29.2
---------- ---------
Effect of exchange rate changes on cash and cash
equivalents 0.9 (3.7)
---------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 86.3 27.1
Cash and cash equivalents at beginning of period 163.8 76.6
---------- ---------
Cash and cash equivalents at end of period $250.1 $103.7
========== =========
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
2005 2005
------------ ---------
ASSETS
Current assets:
Cash and cash equivalents $250.1 $163.8
Marketable securities 71.0 106.6
Accounts receivable, net 176.8 193.4
Inventories 264.8 228.6
Deferred income taxes 8.5 7.4
Other current assets 24.3 31.8
------------ ---------
Total current assets 795.5 731.6
Property, plant and equipment, net 555.8 569.2
Prepaid pension cost 249.0 250.8
Goodwill 46.4 46.4
Trademarks and trade names, net 20.6 21.1
Other assets 33.7 34.3
------------ ---------
Total assets $1,701.0 $1,653.4
============ =========
LIABILITIES
Current liabilities:
Accounts payable $106.2 $133.4
Accrued liabilities 105.3 115.5
Current portion of long-term debt 0.2 0.2
------------ ---------
Total current liabilities 211.7 249.1
Long-term debt, net of current portion 333.4 333.7
Accrued postretirement benefits 103.9 108.5
Deferred income taxes 194.9 192.5
Other liabilities 46.3 45.4
------------ ---------
Total liabilities 890.2 929.2
------------ ---------
STOCKHOLDERS' EQUITY
Convertible preferred stock 18.9 19.7
Common stock 131.3 129.7
Capital in excess of par value - common stock 289.0 278.1
Reinvested earnings 429.3 354.5
Common stock in treasury, at cost (35.9) (35.8)
Deferred compensation (7.3) (9.2)
Accumulated other comprehensive loss (14.5) (12.8)
------------ ---------
Total stockholders' equity 810.8 724.2
------------ ---------
Total liabilities and stockholders' equity $1,701.0 $1,653.4
============ =========
PRELIMINARY
SEGMENT FINANCIAL DATA
(in millions)
Three Months Six Months
Ended Ended
December 31 December 31
--------------- ---------------
2005 2004 2005 2004
------- ------- ------- -------
Net sales:
Specialty Metals $321.0 $280.4 $642.3 $547.5
Engineered Products 25.3 32.5 50.3 63.7
Intersegment (0.6) (0.8) (0.9) (1.5)
------- ------- ------- -------
Consolidated net sales $345.7 $312.1 $691.7 $609.7
======= ======= ======= =======
Operating income:
Specialty Metals $63.2 $40.1 $124.2 $72.9
Engineered Products 4.2 6.2 9.4 10.8
Corporate costs (6.1) (5.0) (11.4) (10.1)
Pension earnings, interest &
deferrals 2.6 3.7 5.2 7.4
Intersegment --- (0.1) 0.1 (0.3)
------- ------- ------- -------
Consolidated operating income $63.9 $44.9 $127.5 $80.7
======= ======= ======= =======
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 Six Months Ended
December 31 December 31
------------------ ----------------
FREE CASH FLOW 2005 2004 2005 2004
----------- ------ -------- -------
Net cash provided from operations $50.0 $20.3 $60.3 $52.4
Purchases of plant, equipment and
software (4.5) (2.3) (10.2) (4.8)
Proceeds from disposals of plant and
equipment --- 0.2 0.2 0.2
Dividends paid (4.1) (2.9) (8.2) (5.2)
----------- ------ -------- -------
Free cash flow $41.4 $15.3 $42.1 $42.6
=========== ====== ======== =======
Free cash flow is a measure of cash generated which management
evaluates for alternative uses.
December 31 June 30 December 31
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 333.4 333.7 333.6
----------- ------- -----------
Total debt 333.6 333.9 355.5
Cash (250.1) (163.8) (103.7)
Marketable securities (71.0) (106.6) (75.0)
----------- ------- -----------
Net debt $12.5 $63.5 $176.8
=========== ======= ===========
Accumulated cash and marketable securities can be used for debt
repayment, if appropriate.
Three Months Ended Six Months Ended
December 31 December 31
------------------ ----------------
NET PENSION EXPENSE 2005 2004 2005 2004
--------- -------- ------- --------
Pension plan expense (income) $1.5 ($0.6) $3.0 ($1.2)
Other postretirement benefits
expense 1.2 1.2 2.4 2.4
--------- -------- ------- --------
Pre-tax net pension expense 2.7 0.6 5.4 1.2
Income tax benefit (1.3) (0.5) (2.6) (1.1)
--------- -------- ------- --------
Net pension expense $1.4 $0.1 $2.8 $0.1
========= ======== ======= ========
Net pension expense per share $0.05 $0.00 $0.11 $0.00
================== ================
Weighted average diluted common
shares 26.0 25.1 25.9 24.8
================== ================
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