Exhibit 99.1
Carpenter Technology Reports Record Fourth Quarter and Fiscal Year Results
WYOMISSING, Pa.--(BUSINESS WIRE)--July 26, 2006--Carpenter
Technology Corporation (NYSE:CRS)
-- Record quarterly net income of $68 million - up 42% from last
year
-- Record quarterly sales of $451 million - up 24% from last year
-- Aerospace market quarterly sales increased 71% to a record
high
-- Free cash flow exceeded $200 million for fiscal 2006
Carpenter Technology Corporation (NYSE:CRS) today reported record
fourth quarter sales and net income. Results were led by significantly
higher sales to the aerospace market, a richer product mix, and by the
company's continued focus on cost through lean and variation
reduction.
Net sales for the fourth quarter ended June 30, 2006 were $450.5
million, compared with $362.4 million for the same quarter a year ago.
Net income in the fourth quarter was $68.0 million, or $2.58 per
diluted share, compared to net income of $47.8 million, or $1.86 per
diluted share, a year ago.
The recent fourth quarter included a benefit of $0.19 per diluted
share as a result of favorable tax adjustments.
Earnings per share in the fourth quarter a year ago included a
benefit of $0.23 per diluted share from favorable tax adjustments and
a gain of $0.21 per diluted share from the sale of a subsidiary.
Excluding the tax adjustments and the gain on the sale of a
subsidiary, fourth quarter 2006 earnings per share increased by $0.97
or 68 percent from the fourth quarter a year ago.
Free cash flow in the fourth quarter was $106.9 million, compared
with $45.1 million in the quarter a year ago.
Fiscal 2006 Results
Net sales for fiscal 2006 were $1.57 billion, compared with $1.31
billion, for the previous fiscal year.
Net income for fiscal 2006 was $211.8 million, or $8.08 per
diluted share, compared with net income of $135.5 million, or $5.37
per diluted share, for the previous fiscal year.
Net income for fiscal 2006 included $0.19 per diluted share from
favorable tax adjustments. Fiscal 2005 net income included a benefit
of $0.44 per diluted share from favorable tax adjustments and a gain
of $0.21 per diluted share from the sale of a subsidiary.
Free cash flow for fiscal 2006 was $202.8 million, compared to
free cash flow of $133.8 million a year ago.
Fourth Quarter - Operating Summary
"Our continued focus on operational excellence through lean and
variation reduction and on producing high value, high performance
materials helped us to achieve a record fourth quarter and another
record fiscal year," said Robert J. Torcolini, chairman, president and
chief executive officer. "These efforts, combined with favorable
market conditions, allowed us to surpass last year's fourth quarter
earnings by more than 40 percent.
"Sales to the aerospace market were particularly strong,
increasing more than 70 percent from the quarter a year ago. Results
also benefited from increased sales of higher value materials to the
medical and automotive markets.
"These results demonstrate that our business operating model has
proven effective in enabling us to generate returns well above our
cost of capital. We will continue to improve upon our operating model
with the goal of building shareholder value through all phases of a
business cycle."
For the fourth quarter, Carpenter's sales increased 24 percent
compared to a year ago. Sales benefited from robust conditions in the
aerospace market, increased sales of higher value materials, and
higher base selling prices. Adjusted for surcharges, sales increased
23 percent from the fourth quarter a year ago.
Aerospace market sales increased 71 percent from the fourth
quarter a year ago to $193 million. The increase reflected strong
demand for specialty alloys used in the manufacture of aircraft
engines and titanium used in structural components. This marked the
second consecutive quarter in which aerospace sales accounted for more
than 40 percent of total Carpenter sales.
Medical market sales increased 29 percent to $37 million primarily
as a result of a richer product mix and increased selling prices.
Sales to the automotive and truck markets increased 5 percent to
$56 million. Sales benefited from increased demand for corrosion
resistant materials used in engine components such as fuel injectors
and high temperature materials used for engine valves.
Sales to the power generation market increased 5 percent to $14
million. Adjusted for sales of a divested business, sales to this
market increased 29 percent in the fourth quarter compared to the same
quarter a year ago.
Sales to the consumer market of $56 million were essentially flat
compared to a year ago. An increase in sales of materials used in
durable goods was offset primarily by reduced sales to the sporting
goods market.
Industrial market sales decreased 4 percent to $94 million. Higher
sales to the oil and gas market were offset by reduced sales of
marginally profitable products.
Geographically, sales outside the United States increased to $147
million or 38 percent from a year ago, and represented 33 percent of
fourth quarter sales. International sales reflected strong demand for
higher value materials, particularly in the aerospace and medical
markets.
Carpenter's fourth quarter gross profit increased 36 percent to
$126.6 million, or 28.1 percent of sales, from $92.9 million, or 25.6
percent of sales, in the same quarter a year ago.
The 250 basis point improvement in the gross margin reflected
pricing actions, a richer product mix primarily as a result of solid
demand for higher value materials from the aerospace, medical, and
automotive markets, and reduced sales of marginally profitable
products. Margins also benefited from ongoing cost reductions
generated by lean and variation reduction initiatives.
Carpenter's fourth quarter operating income increased 36 percent
to $90.9 million, or 20.2 percent of sales, from $66.9 million, or
18.5 percent of sales, a year ago. The increase resulted from improved
gross margins and diligent management of selling and administrative
expenses.
Outlook
"We believe that market conditions will remain favorable in fiscal
2007, particularly for our specialty alloys, titanium, and ceramic
materials sold into the aerospace market. We expect that sales to the
aerospace market will be higher in fiscal 2007 despite the delay in
the first commercial delivery of the Airbus A380 and some inventory
rebalancing within certain segments of the aerospace supply chain.
"Several other markets including medical and industrial are
expected to be strong as well," Torcolini said. "Although we are
pleased with our performance during the past fiscal year, we continue
to improve the fundamentals of our business through a relentless focus
on cost and on reducing complexity throughout our business."
Based on current market conditions, Carpenter expects that fiscal
2007 will be another record year for both sales and net income, and
anticipates that free cash flow will be in excess of $200 million.
Segment Results - Fourth Quarter
Specialty Metals
Net sales for the quarter ended June 30, 2006 for the Specialty
Metals segment, which includes Specialty Alloys Operations (SAO),
Dynamet, and Carpenter Powder Products (CPP) business units, were
$424.6 million, compared to $329.7 million in the same quarter a year
ago.
SAO sales increased 28 percent from the same quarter a year ago as
a result of higher base prices, a better product mix, and a 6 percent
increase in shipments. Higher shipments to the aerospace, automotive,
and power generation markets were primarily offset by lower shipments
to the consumer, medical, and industrial markets.
Dynamet's sales increased 49 percent in the fourth quarter versus
the same quarter a year ago. Robust demand from the aerospace market
for materials used in structural fasteners, increased sales to the
medical market, and higher base selling prices were principally
responsible for the sales growth. The sales increase also reflected
the impact of significantly higher titanium costs.
CPP's sales were essentially flat with a year ago. Increased sales
to the aerospace and medical markets were offset by the intentional
reduction in the sale of marginally profitable tool steel products.
Operating income for the Specialty Metals segment was $94.4
million in the recent fourth quarter, compared to $58.4 million in the
same quarter a year ago. The increase in operating income reflected
increased sales of higher value materials, higher base prices, and a
continued focus on operational improvements.
Engineered Products Segment
Net sales for this segment, which includes sales of ceramic
components and fabricated metal were $26.3 million, compared to $33.4
million a year ago. Last year's fourth quarter included $6.1 million
in sales from a business that was divested at the end of fiscal 2005.
Lower demand for ceramic components also contributed to the reduction
in sales.
In the fourth quarter, operating income for the Engineered
Products segment was $3.4 million compared to $5.8 million in the same
quarter a year ago. The decrease is attributed to reduced sales, lower
operating income in the ceramics businesses, and the absence of
operating income from the divested business.
Segment Results - Fiscal Year
Specialty Metals
Fiscal 2006 net sales for the Specialty Metals segment were $1.47
billion, compared to $1.19 billion for the previous fiscal year.
SAO sales increased 21 percent from the previous fiscal year due
to solid demand from the aerospace market, the sale of higher value
materials to the medical and automotive markets, and pricing actions.
SAO shipments decreased 7 percent from a year ago primarily due to the
intentional reduction in the sale of marginally profitable products.
Dynamet's sales increased 57 percent in fiscal 2006 compared to a
year ago. Robust demand from the aerospace market, continued growth in
the domestic and international medical markets, and higher base
selling prices were principally responsible for sales growth.
CPP's sales were 10 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 $311.8
million for fiscal 2006, as compared to $183.9 million for the
previous fiscal year. The increase in operating income reflected
increased sales of higher value materials, base pricing actions, and
continued operational improvements.
Engineered Products Segment
Net sales for the Engineered Products segment for fiscal 2006 were
$102.9 million, as compared to $129.1 million for the previous fiscal
year. Sales in the previous fiscal year included $29.2 million from
the business that was subsequently divested. This group of companies
experienced increased sales to the automotive and aerospace markets,
and higher base selling prices, which was partially offset by lower
sales to the consumer and industrial markets.
Operating income for the Engineered Products segment was $17.1
million compared to $22.2 million in the previous fiscal year. The
decrease is primarily attributable to lower operating income in the
ceramics businesses and the absence of operating income from the
divested business.
Other Items
In the fourth quarter of fiscal 2006, selling and administrative
expenses were $35.7 million, or 7.9 percent of sales, compared to
$34.7 million, or 9.6 percent of sales, in the same quarter a year
ago.
For fiscal 2006, selling and administrative expenses were $125.4
million, or 8.0 percent of sales, compared to $120.6 million, or 9.2
percent of sales, for the previous fiscal year.
Interest expense for the quarter of $5.5 million compared to $5.4
million in the fourth quarter a year ago. For fiscal 2006, interest
expense was $23.3 million compared to $23.0 million a year ago.
Other income in the quarter was $6.0 million compared to $1.1
million in last year's fourth quarter. The change in other income is
primarily due to increased interest income from higher balances of
invested cash and foreign exchange gains.
For fiscal 2006, other income rose to $21.7 million from $8.8
million for the previous fiscal year. The change in other income is
due primarily to increases in interest income from higher balances of
invested cash and foreign exchange gains.
Carpenter's income tax provision in the recent fourth quarter was
$23.4 million, or 25.6 percent of pre-tax income, versus $14.8
million, or 23.6 percent, in the same quarter a year ago.
In the recent fourth quarter, the company's income tax provision
was favorably impacted by $5.0 million primarily due to a reduction in
valuation allowances related to state tax operating loss carryforwards
and additional U.S. export incentives.
In the fourth quarter a year ago, the company's income tax
provision was favorably impacted by $5.8 million as a result of a
reduction in valuation allowances related to state tax operating loss
carryforwards and a benefit due to an adjustment of the state deferred
tax rate.
For fiscal 2006, Carpenter's income tax provision was $97.3
million, or 31.5 percent of pre-tax income, versus $54.5 million, or
28.7 percent in the previous fiscal year.
In addition to the favorable impacts in the fourth quarter a year
ago, the company's 2005 income tax provision benefited primarily from
a $4.5 million favorable tax settlement.
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 fourth quarter was $106.9 million,
compared with free cash flow of $45.1 million in the fourth quarter a
year ago. For fiscal 2006, free cash flow was $202.8 million, compared
to $133.8 million in the previous fiscal year.
Conference Call
Carpenter will host a conference call and webcast today, July 26,
at 10:00 AM, Eastern Time, to discuss the results of operations for
the fourth 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, industrial, automotive, consumer, medical, and
energy including power generation, 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.
PRELIMINARY
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data)
Three Months Ended Year Ended
June 30 June 30
--------------------- ---------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
NET SALES $450.5 $362.4 $1,568.2 $1,314.2
Cost of sales 323.9 269.5 1,132.1 998.1
---------- ---------- ---------- ----------
Gross profit 126.6 92.9 436.1 316.1
Selling and administrative
expenses 35.7 34.7 125.4 120.6
Gain on sale of business - (8.7) - (8.7)
---------- ---------- ---------- ----------
Operating income 90.9 66.9 310.7 204.2
Interest expense 5.5 5.4 23.3 23.0
Other income, net (6.0) (1.1) (21.7) (8.8)
---------- ---------- ---------- ----------
Income before income taxes 91.4 62.6 309.1 190.0
Income taxes 23.4 14.8 97.3 54.5
---------- ---------- ---------- ----------
NET INCOME $68.0 $47.8 $211.8 $135.5
========== ========== ========== ==========
EARNINGS PER COMMON SHARE:
Basic $2.66 $1.92 $8.33 $5.54
========== ========== ========== ==========
Diluted $2.58 $1.86 $8.08 $5.37
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 25.4 24.7 25.2 24.2
========== ========== ========== ==========
Diluted 26.2 25.6 26.1 25.1
========== ========== ========== ==========
Cash dividends per common
share $0.15 $0.125 $0.60 $0.4075
========== ========== ========== ==========
PRELIMINARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Year Ended
June 30
---------------------
2006 2005
---------- ----------
OPERATIONS:
Net income $211.8 $135.5
Adjustments to reconcile net income to
net cash provided from operations:
Depreciation and amortization 47.6 50.2
Deferred income taxes (11.0) 7.7
Net pension expense 10.8 2.4
Net loss on asset disposals 1.0 1.2
Gain on sale of business - (8.7)
Changes in working capital and other:
Receivables (39.5) (31.8)
Inventories 3.6 (49.8)
Other current assets 7.2 (9.2)
Accounts payable 4.0 26.2
Accrued current liabilities 16.6 46.1
Contribution to VEBA - (25.0)
Other, net (14.5) (2.3)
---------- ----------
Net cash provided from operations 237.6 142.5
---------- ----------
INVESTING ACTIVITIES:
Purchases of plant, equipment and software (19.3) (13.8)
Proceeds from disposals of plant and equipment 1.0 1.1
Proceeds from the sale of business - 15.4
Purchases of marketable securities (450.4) (172.4)
Sales of marketable securities 476.0 94.6
---------- ----------
Net cash provided from (used for) investing
activities 7.3 (75.1)
---------- ----------
FINANCING ACTIVITIES:
Net change in short-term debt - (2.3)
Payments on long-term debt (0.2) (20.2)
Dividends paid (16.5) (11.4)
Tax benefits on share-based compensation 8.0 -
Proceeds from issuance of common stock 15.0 54.2
---------- ----------
Net cash provided from financing activities 6.3 20.3
---------- ----------
Effect of exchange rate changes on cash and cash
equivalents (1.6) (0.5)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 249.6 87.2
Cash and cash equivalents at beginning of period 163.8 76.6
---------- ----------
Cash and cash equivalents at end of period $413.4 $163.8
========== ==========
Certain reclassifications of prior year's amounts have been made to
conform with current year's presentation.
PRELIMINARY
CONSOLIDATED BALANCE SHEET
(in millions)
June 30 June 30
2006 2005
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $413.4 $163.8
Marketable securities 81.2 106.6
Accounts receivable, net 234.7 193.4
Inventories 224.3 228.6
Deferred income taxes 11.4 7.4
Other current assets 32.0 31.8
---------- ----------
Total current assets 997.0 731.6
Property, plant and equipment, net 541.1 569.2
Prepaid pension cost 247.1 250.8
Goodwill 46.4 46.4
Trademarks and trade names, net 20.1 21.1
Other assets 33.9 34.3
---------- ----------
Total assets $1,885.6 $1,653.4
========== ==========
LIABILITIES
Current liabilities:
Accounts payable $137.4 $133.4
Accrued liabilities 133.8 115.5
Current portion of long-term debt 0.2 0.2
---------- ----------
Total current liabilities 271.4 249.1
Long-term debt, net of current portion 333.1 333.7
Accrued postretirement benefits 102.2 108.5
Deferred income taxes 186.7 192.5
Other liabilities 45.9 45.4
---------- ----------
Total liabilities 939.3 929.2
---------- ----------
STOCKHOLDERS' EQUITY
Convertible preferred stock 18.0 19.7
Common stock 132.5 129.7
Capital in excess of par value - common stock 294.2 278.1
Reinvested earnings 549.8 354.5
Common stock in treasury, at cost (37.3) (35.8)
Deferred compensation (1.5) (9.2)
Accumulated other comprehensive loss (9.4) (12.8)
---------- ----------
Total stockholders' equity 946.3 724.2
---------- ----------
Total liabilities and stockholders' equity $1,885.6 $1,653.4
========== ==========
PRELIMINARY
SEGMENT FINANCIAL DATA
(in millions)
Three Months Ended Year Ended
June 30 June 30
-------------------------------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
Net sales:
Specialty Metals $424.6 $329.7 $1,467.1 $1,188.3
Engineered Products 26.3 33.4 102.9 129.1
Intersegment (0.4) (0.7) (1.8) (3.2)
---------- ---------- ---------- ----------
Consolidated net sales $450.5 $362.4 $1,568.2 $1,314.2
========== ========== ========== ==========
Operating income:
Specialty Metals $94.4 $58.4 $311.8 $183.9
Engineered Products 3.4 5.8 17.1 22.2
Gain on sale of business - 8.7 - 8.7
Corporate costs (9.6) (9.9) (28.2) (25.2)
Pension earnings,
interest & deferrals 2.6 3.7 10.4 14.7
Intersegment 0.1 0.2 (0.4) (0.1)
---------- ---------- ---------- ----------
Consolidated operating
income $90.9 $66.9 $310.7 $204.2
========== ========== ========== ==========
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 Year Ended
June 30 June 30
--------------------- ---------------------
FREE CASH FLOW 2006 2005 2006 2005
---------- ---------- ---------- ----------
Net cash provided from
operations $115.9 $37.7 $237.6 $142.5
Purchases of plant,
equipment and software (5.6) (5.0) (19.3) (13.8)
Proceeds from disposals of
plant and equipment 0.7 0.5 1.0 1.1
Proceeds from the sale of
business - 15.4 - 15.4
Dividends paid (4.1) (3.5) (16.5) (11.4)
---------- ---------- ---------- ----------
Free cash flow $106.9 $45.1 $202.8 $133.8
========== ========== ========== ==========
Free cash flow is a measure of cash generated which management
evaluates for alternative uses.
CONTACT: Carpenter Technology Corporation
Investor and Media Inquiries:
Jaime Vasquez, 610-208-2165
jvasquez@cartech.com