Exhibit 99
Carpenter Technology Reports Record First Quarter Results
-- Record first quarter net income of $51 million - up 28% from
last year's record first quarter
-- Results include LIFO inventory valuation reserve charge of $26
million
-- Record first quarter sales of $404 million - up 17% from last
year's record first quarter
-- Aerospace market quarterly sales increased 34% to $158
million, a first quarter record
Business Editors
WYOMISSING, Pa.--(BUSINESS WIRE)--Oct. 26, 2006--Carpenter
Technology Corporation (NYSE:CRS) today reported record first quarter
sales and net income. Results were led by solid demand across several
key end-use markets, increased sales of higher value products, and the
company's continued focus on cost through lean and variation
reduction.
Net sales for the first quarter ended September 30, 2006 were
$404.5 million, compared with $346.0 million for the same quarter a
year ago.
Net income in the first quarter was $51.2 million, or $1.94 per
diluted share, compared to net income of $40.1 million, or $1.54 per
diluted share, a year ago.
Free cash flow in the first quarter was $50.8 million, compared
with $0.7 million in the quarter a year ago.
First Quarter - Operating Summary
"Our focus on the sale of higher value materials, continued
efforts in lean and variation reduction, and favorable market
conditions helped us to achieve record first quarter results," said
Robert J. Torcolini, chairman, president and chief executive officer.
"We are especially pleased to report record performance despite the
significant rise in the cost of raw materials during the quarter.
"Demand from the aerospace market remained robust during the
quarter, resulting in record first quarter shipments of titanium
materials and solid growth in our specialty alloys and ceramic
materials."
For the first quarter, Carpenter's sales increased 17 percent
compared to a year ago. Sales benefited from higher surcharges, base
price increases, and increased sales of higher value materials.
Adjusted for surcharges, sales increased 10 percent from the first
quarter a year ago.
Sales to the aerospace market increased 34 percent from the first
quarter a year ago to $158 million, a first quarter record. Demand for
titanium materials used in the manufacture of fasteners for commercial
and military aircraft was particularly strong during the quarter and
resulted in record shipments. Additionally, Carpenter experienced
solid demand for its specialty alloys and ceramic materials used in
the manufacture of aircraft engines, turbine blades, and airframe
structural components.
Automotive and truck market sales grew 23 percent from the first
quarter a year ago to $52 million. Increased sales of high temperature
materials used in engine components were the primary reason for the
growth. Also, higher sales of materials used in automotive safety
devices contributed to the increase.
Sales to the industrial market increased 13 percent to $88
million. The industrial market excludes sales of materials used in oil
and gas exploration applications, which are now included in a new
category titled "energy." Sales to the industrial market primarily
benefited from increased sales of materials used in the manufacture of
capital equipment and higher value products sold to independent
distributors.
Consumer market sales increased 2 percent to $48 million.
Increased sales of higher value strip products used in thermostats and
consumer electronic applications were partially offset by reduced
sales to the sporting goods market.
Sales to the energy market, which includes oil and gas and power
generation, were $29 million or flat with a year ago. Sales to the oil
and gas sector increased 67 percent from the same quarter a year ago.
Sales benefited from profitable market share gains as well as growth
with key customers. Offsetting the growth was lower sales to the power
generation sector due to the timing of shipments to customers.
Medical market sales decreased 7 percent to $30 million. The
decline in sales reflected inventory adjustments taking place within
that supply chain.
Geographically, sales outside the United States increased 20
percent from the same quarter a year ago to $123 million, a first
quarter record. International sales, which represented 30 percent of
total sales, reflected strong demand for higher value materials,
particularly from the aerospace market.
Carpenter's first quarter gross profit increased 13 percent to
$103.9 million, or 25.7 percent of sales, from $91.7 million, or 26.5
percent of sales, in the same quarter a year ago.
The decline in gross margin as a percent of sales resulted from
the steep rise in the cost of nickel, a primary raw material for the
company. During the quarter, average nickel prices on the London Metal
Exchange were 100 percent higher than the quarter a year ago. Cost of
sales in the first quarter of fiscal 2006 included a charge of $26.2
million to value inventories using the last-in, first-out (LIFO)
method of accounting, due primarily to rising nickel costs. In the
first quarter a year ago, cost of sales included a $3.7 million credit
to value inventories using LIFO.
Carpenter's surcharge mechanism is structured to recover high raw
material costs, although with a lag effect. Additionally, gross margin
as a percent of sales was negatively impacted by a 68 percent increase
in the amount of surcharge collected during the recent first quarter
versus a year ago. While the surcharge protects the absolute gross
profit dollars, it does have a dilutive effect on gross margin as a
percent of sales. In the recent first quarter, the dilutive effect on
gross margin was approximately 120 basis points.
Partially offsetting the impact of higher raw material costs on
margins were increased base prices, higher volumes and ongoing cost
reductions generated by lean and variation reduction initiatives.
Carpenter generated a 15 percent increase in operating income to a
first quarter record of $73.1 million, or 18.1 percent of sales from
$63.7 million, or 18.4 percent of sales, generated a year ago.
Operating income in the recent first quarter reflected $1.6 million of
due diligence expenses associated with the review of an acquisition
target.
Outlook
"The strength in aerospace and other key markets should continue
to drive our performance through the balance of this fiscal year,"
said Torcolini. "We are continuing with our relentless focus on lean
and variation reduction to create additional operating leverage as we
capitalize on these strong market conditions.
"We remain committed to refining our business operating model so
that we will continue to generate returns in excess of our cost of
capital through all phases of a business cycle."
Torcolini concluded, "Based on current market conditions and
expectations for steady growth, we anticipate another record year of
sales and net income in fiscal 2007. Additionally, we expect free cash
flow to exceed $200 million."
Segment Results - First Quarter
Specialty Metals
Net sales for the quarter ended September 30, 2006 for the
Specialty Metals segment, which includes Specialty Alloys Operations,
Dynamet, and Carpenter Powder Products business units, were $377.2
million, compared to $321.3 million in the same quarter a year ago.
Sales of specialty alloys, stainless steels and titanium experienced
strong growth in the quarter.
Sales of specialty alloys increased 20 percent to $172 million in
the first quarter from a year ago. Solid demand from the aerospace and
oil and gas markets were the primary contributors to the increase.
Stainless steel sales were $144 million or 13 percent higher than
a year ago. Higher sales to the automotive and industrial markets
contributed to the increase.
Sales of titanium increased 33 percent to $48 million. Robust
demand from the aerospace market for wire products used in the
manufacture of aerospace structural fasteners was the primary
contributor to the growth. Partially offsetting the increase was
reduced sales to the medical market.
Operating income for the Specialty Metals segment was $71.9
million in the recent first quarter, compared to $61.0 million in the
same quarter a year ago. The change 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, increased 12 percent to $28.0 million
from $25.1 million a year ago. Increased sales of ceramic cores used
in the casting of jet engine turbine blades primarily drove the
improvement.
In the first quarter, operating income for the Engineered Products
segment was $5.4 million compared to $5.2 million in the same quarter
a year ago. The increase was attributable to higher sales and better
operating efficiencies.
Other Items
In the first quarter of fiscal 2007, selling and administrative
expenses were $30.8 million, or 7.6 percent of sales, compared to
$28.0 million, or 8.1 percent of sales, in the same quarter a year
ago. The increase was primarily related to $1.6 million of due
diligence expenses associated with the review of an acquisition target
and $0.8 million from executive recruitment fees.
Interest expense for the quarter was $5.8 million, compared with
$6.0 million in the first quarter a year ago.
Other income in the quarter was $5.9 million, compared with $3.0
million in last year's first quarter. The change in other income is
primarily due to increased interest income from higher balances of
invested cash.
Carpenter's income tax provision in the recent first quarter was
$22.0 million, or 30.1 percent of pre-tax income, versus $20.6
million, or 33.9 percent, in the same quarter a year ago. The tax
provision in the recent first quarter was favorably impacted by the
reversal of certain deferred tax valuation allowances due to changes
in specific state tax laws and an improved outlook regarding the
ability to use those benefits. The company expects that its full year
tax rate will be in the range of 33 to 35 percent.
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 $50.8 million,
compared with free cash flow of $0.7 million in the quarter a year
ago.
Conference Call
Carpenter will host a conference call and webcast today, October
26, at 10:00 AM, Eastern Time, to discuss the results of operations
for the first quarter of fiscal 2007.
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,
2006, 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; 9) the
potential that our customers may substitute alternate materials or
adopt different manufacturing practices that replace or limit the
suitability of our products; and 10) the ability to successfully
acquire and integrate acquisitions. 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
September 30
------------------
2006 2005
-------- -------
NET SALES $404.5 $346.0
Cost of sales 300.6 254.3
-------- -------
Gross profit 103.9 91.7
Selling and administrative expenses 30.8 28.0
-------- -------
Operating income 73.1 63.7
Interest expense 5.8 6.0
Other income, net (5.9) (3.0)
-------- -------
Income before income taxes 73.2 60.7
Income taxes 22.0 20.6
-------- -------
NET INCOME $51.2 $40.1
======== =======
EARNINGS PER COMMON SHARE:
Basic $1.99 $1.59
======== =======
Diluted $1.94 $1.54
======== =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 25.5 25.0
======== =======
Diluted 26.3 25.9
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Cash dividends per common share 0.225 $0.15
======== =======
PRELIMINARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Three Months Ended
September 30
------------------
2006 2005
--------- --------
OPERATING ACTIVITIES:
Net income $51.2 $40.1
Adjustments to reconcile net income to
net cash provided from operations:
Depreciation 11.5 11.0
Amortization 0.4 0.6
Deferred income taxes (6.1) 0.3
Net pension expense 1.2 2.7
Net loss on asset disposals 0.1 0.2
Changes in working capital and other:
Receivables 5.1 4.3
Inventories (8.6) (25.6)
Other current assets (8.0) 0.5
Accounts payable 25.4 (12.4)
Accrued current liabilities (3.5) (10.1)
Other, net (4.7) (1.3)
--------- --------
Net cash provided from operating activities 64.0 10.3
--------- --------
INVESTING ACTIVITIES:
Purchases of plant, equipment and software (7.3) (5.7)
Proceeds from disposals of plant and equipment 0.2 0.2
Purchases of marketable securities (309.2) (73.9)
Sales of marketable securities 100.4 72.3
--------- --------
Net cash used for investing activities (215.9) (7.1)
--------- --------
FINANCING ACTIVITIES:
Payments on long-term debt (0.1) --
Dividends paid (6.1) (4.1)
Tax benefits on share-based compensation 0.1 --
Proceeds from common stock options exercised 0.1 3.1
--------- --------
Net cash used for financing activities (6.0) (1.0)
--------- --------
Effect of exchange rate changes on cash and cash
equivalents (1.0) 0.2
--------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (158.9) 2.4
Cash and cash equivalents at beginning of period 413.4 163.8
--------- --------
Cash and cash equivalents at end of period $254.5 $166.2
========= ========
PRELIMINARY
CONSOLIDATED BALANCE SHEET
(in millions)
September 30 June 30
2006 2006
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $254.5 $413.4
Marketable securities 290.0 81.2
Accounts receivable, net 229.8 234.7
Inventories 233.7 224.3
Deferred income taxes 15.5 13.7
Other current assets 40.6 32.0
------------ -----------
Total current assets 1,064.1 999.3
Property, plant and equipment, net 536.4 541.1
Prepaid pension cost 247.0 247.1
Goodwill 46.4 46.4
Trademarks and trade names, net 19.9 20.1
Other assets 33.9 33.9
------------ -----------
Total assets $1,947.7 $1,887.9
============ ===========
LIABILITIES
Current liabilities:
Accounts payable $162.9 $137.4
Accrued liabilities 130.7 133.8
Current portion of long-term debt 0.2 0.2
------------ -----------
Total current liabilities 293.8 271.4
Long-term debt, net of current portion 332.9 333.1
Accrued postretirement benefits 99.4 102.2
Deferred income taxes 183.2 189.0
Other liabilities 47.3 45.9
------------ -----------
Total liabilities 956.6 941.6
------------ -----------
STOCKHOLDERS' EQUITY
Convertible preferred stock 17.8 18.0
Common stock 132.6 132.5
Capital in excess of par value - common
stock 294.8 294.2
Reinvested earnings 594.9 549.8
Common stock in treasury, at cost (36.7) (37.3)
Deferred compensation (1.5) (1.5)
Accumulated other comprehensive loss (10.8) (9.4)
------------ -----------
Total stockholders' equity 991.1 946.3
------------ -----------
Total liabilities and stockholders' equity $1,947.7 $1,887.9
============ ===========
PRELIMINARY
SEGMENT FINANCIAL DATA
(in millions)
Three Months Ended
September 30
------------------
2006 2005
--------- --------
Net sales:
Specialty Metals $377.2 $321.3
Engineered Products 28.0 25.1
Intersegment (0.7) (0.4)
--------- --------
Consolidated net sales $404.5 $346.0
========= ========
Operating income:
Specialty Metals $71.9 $61.0
Engineered Products 5.4 5.2
Corporate costs (7.9) (5.1)
Pension earnings, interest & deferrals 3.6 2.6
Intersegment 0.1 --
--------- --------
Consolidated operating income $73.1 $63.7
========= ========
Carpenter operates in two business segments, Specialty Metals and
Engineered Products. Specialty Metals includes our Specialty Alloys,
Dynamet and Carpenter Powder Products business operations. These
operations have been aggregated into one reportable segment 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 2006 2005
--------- --------
Net cash provided from operations $64.0 $10.3
Purchases of plant, equipment and software (7.3) (5.7)
Proceeds from disposals of plant and equipment 0.2 0.2
Dividends paid (6.1) (4.1)
--------- --------
Free cash flow $50.8 $0.7
========= ========
Free cash flow is a measure of cash generated which management
evaluates for alternative uses.
CONTACT: Carpenter Technology
Investor and Media Inquiries:
Jaime Vasquez, 610-208-2165
jvasquez@cartech.com