Carpenter Technology Corporation (NYSE:CRS) today reported net
income from continuing operations of $50.8 million or $1.05 per
diluted share for the fiscal third quarter ended March 31, 2008.
This compared with record net income from continuing operations a
year earlier of $64.3 million or $1.22 per diluted share. The third
quarter 2008 results reflected reduced demand in Carpenter�s
economically sensitive industrial, automotive and consumer end-use
markets, combined with higher operating costs. Demand in the global
energy and aerospace markets was strong in the third quarter.
Including results of discontinued operations, and the net gain on
the sale of Carpenter�s ceramics business, net income was $120.0
million or $2.49 per diluted share. For the third quarter a year
earlier, Carpenter reported net income of $66.6 million or $1.27
per share. Financial highlights from the third quarter include:
(millions, except E.P.S. & pounds) � Q3-2008 � Q3-2007 � 9 mos.
2008 � 9 mos. 2007 Sales $509.8 $516.0 $1,407.4 $1,316.8 Sales
excluding surcharge(a) $355.7 $354.9 $987.3 $977.7 Net income from
continuing operations $50.8 $64.3 $164.4 $158.2 Net income $120.0
$66.6 $233.7 $165.9 Diluted E.P.S. from continuing operations $1.05
$1.22 $3.32 $3.00 Diluted E.P.S. $2.49 $1.27 $4.72 $3.15 Cash Flow
from operations $63.0 $38.9 $143.5 $146.7 Free Cash Flow(a) $162.4
$20.0 $186.5 $101.2 Pounds sold (000) 59,218 63,832 158,430 172,688
(a)non-GAAP financial measure that is explained in the attached
tables Third Quarter - Operating Summary "Our third quarter
financial results fell short of our original expectations due to
reduced demand in our economically sensitive markets, and higher
operating costs,� said Anne Stevens, chairman, president and chief
executive officer. "However, we have good overall top-line momentum
on the business moving forward, and we achieved record sales this
quarter in the energy and aerospace markets as a result of strong
demand, particularly in international markets. Based on current
conditions, fourth quarter sales and earnings should be at or above
this quarter�s performance. We expect our full year financial
results to be at record levels for the fourth consecutive year.�
Net sales from continuing operations of $509.8 million were 1
percent lower than a year ago. Adjusted for surcharge revenue,
sales from continuing operations were essentially flat with a year
ago Overall, pounds shipped were 7 percent below an exceptionally
strong third quarter a year ago. The Premium Alloys Operations
generated a 12 percent increase in pounds shipped due largely to
strong demand from the global energy and aerospace markets. This
was more than offset by a 9 percent decline in pounds shipped by
the Advanced Metals Operations, due principally to lower demand
related to the current weakness in the domestic industrial base.
Sales to the aerospace market were a record $210.6 million, an
increase of 11 percent compared with the prior year�s third
quarter. Adjusted for surcharge revenue, aerospace sales grew 6
percent year-over-year. The increase was largely driven by higher
sales of specialty alloys used in jet engines and fasteners, as
well as titanium coil used in fasteners. Energy market sales, which
include oil and gas and power generation, increased 25 percent from
a year ago to $57.9 million. Excluding surcharge revenue, sales
improved by 38 percent. The improvement resulted from strong demand
for specialty alloys used in the manufacture of industrial gas
turbines and increased global sales of high-strength corrosion
resistant materials to the oil and gas market. Medical market sales
were $35.5 million, an increase of 6 percent compared with the
third quarter a year earlier. Excluding surcharge revenue, sales
grew 3 percent. Sales to the industrial market were $104.7 million
or 19 percent lower than last year's third quarter. Adjusted for
surcharge revenue, sales decreased 16 percent. The decrease
reflected lower demand primarily for materials used in the
manufacture of capital goods and valves and fittings. Automotive
and truck market sales declined 14 percent to $55.1 million
compared with a year earlier. Excluding surcharge revenue, sales
declined 12 percent. The decrease primarily reflected the general
slowdown in the domestic automotive industry. Sales to the consumer
market were $46.0 million compared with $54.2 million a year
earlier, a decline of 15 percent. Excluding surcharge revenue,
consumer sales were 4 percent lower. The reduction in sales
primarily reflected the negative impact on demand for materials
used in the housing sector and the weakening domestic economy.
Geographically, sales outside the United States were a quarterly
record $178.6 million or 18 percent higher than the third quarter a
year ago. Sales to Europe were particularly strong, increasing 26
percent over last year�s third quarter, driven largely by the
aerospace and power generation markets. International sales
represented 35 percent of total sales during the recent third
quarter. Gross profit for the third quarter was $109.3 million,
compared with $122.4 million a year earlier. The lower gross profit
primarily reflected reduced volume against a strong year ago
period, higher operating costs due to production inefficiencies in
the quarter, and investments in our Manufacturing systems to drive
long-term operational effectiveness. These expenses were partially
offset by continued favorable mix improvement. Gross margin for the
third quarter 2008 was 21.4 percent, compared to 23.7 percent in
the same quarter a year ago. Adjusted for the dilutive impact of
the surcharge revenue, the year-to-year difference in the lag
effect in our surcharge mechanism, and other inventory effects,
gross margin on a comparable basis would have been an estimated
32.6 percent in the third quarter versus an estimated 34.3 percent
in the same quarter a year earlier. Operating income was $75.3
million compared with $92.5 million in the 2007 third quarter. The
decrease in operating income was the result of the lower gross
profit and a $4.1 million increase in selling, general and
administrative expenses, primarily from investments to drive future
growth initiatives. Adjusted for the lag effect, surcharge revenue
and other inventory effects, operating margin would have been an
estimated 23.1 percent in the third quarter compared to an
estimated 25.9 percent in the third quarter of 2007. Other income
in the recent third quarter was $3.7 million, compared with other
income of $6.0 million in the third quarter of 2007. The decrease
was primarily due to reduced interest income from invested cash as
a result of lower interest rates. The income tax provision on
continuing operations for third quarter 2008 was $23.1 million or
31.3 percent of pre-tax income. The comparable income tax provision
for the 2007 third quarter was $28.5 million or 30.7 percent. Net
income from continuing operations for the third quarter was $50.8
million or $1.05 per diluted share, compared with net income of
$64.3 million or $1.22 per diluted share in the third quarter of
2007. Free cash flow was $162.4 million for the third quarter 2008,
and $186.5 million for the nine month period. Excluding cash
amounts associated with the acquisition and divestitures in the
quarter, free cash flow was $26.0 million for the quarter and $50.1
million for the nine month period. Capital expenditures in the
third quarter were $29.9 million, primarily reflecting Carpenter�s
expansion of its premium melt capacity. The Company reconfirmed its
fiscal year 2008 free cash flow of approximately $100 million after
capital expenditures of about $125 million. Discontinued Operations
On March 31, 2008, Carpenter completed the sale of its ceramics
businesses, Certech and Carpenter Advanced Ceramics, to the Morgan
Crucible Company plc for $144.5 million and paid $1.5 million in
expenses related to the sale. Carpenter recorded a pre-tax gain in
the quarter of $102.7 million, or $1.43 per share on an after tax
basis. Results for the ceramics business for the third quarter were
reported as discontinued operations. The income from discontinued
operations of $69.2 million for the third quarter 2008 compares
with income of $2.3 million for the third quarter of 2007. Details
for the quarter and year to date are as follows: (millions) �
Q3-2008 � Q3-2007 � 9 mos. 2008 � 9 mos. 2007 Income from
operations $ 4.0 � $3.2 � $ 10.5 � $11.1 � Gain on sale, net of
expenses 102.7 � -- � 101.5 � -- � Income tax expense (37.5 ) (0.9
) (42.7 ) (3.4 ) Net income from discontinued operations $ 69.2 �
$2.3 � $ 69.3 � $ 7.7 � Share Repurchase Program During the third
quarter 2008, Carpenter repurchased $25.0 million or 361,300 shares
of its common stock under the $250 million share repurchase plan
that was authorized by the Board of Directors on December 21, 2007.
Total repurchases under this program and the previously completed
$250 million share repurchase program totaled 4,515,347 shares with
an aggregate cost of $279.6 million. The outstanding common stock
as of March 31, 2008, was 48,212,367. LIFO Effects The Company had
LIFO income of $8.6 million in the third quarter due primarily to
declining nickel prices during the quarter relative to the second
quarter of fiscal 2008. In the third quarter a year earlier, the
Company had LIFO expense of $56.1 million. This LIFO income/expense
is one component of our cost of goods sold and does not by itself
impact reported profit in the period. Sales Excluding Surcharge
This press release includes discussions of net sales as adjusted to
exclude the impact of raw material surcharges, which represents a
financial measure that has not been determined in accordance with
U.S. generally accepted accounting principles ("GAAP"). The Company
provides this additional financial measure because management
believes removing the impact of raw material surcharges from net
sales provides a more consistent basis for comparing results of
operations from period to period. Conference Call Carpenter will
host a conference call and webcast today, April 29th, at 10:00
a.m., ET, to discuss financial results and operations for the
fiscal 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. About Carpenter Technology
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, 2007, its subsequent Forms 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, 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;
10) the ability to successfully acquire and integrate acquisitions;
and 11) the ability of Carpenter to implement and manage material
capital expansion projects in a timely and efficient manner. 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
Nine Months Ended March 31 March 31 � 2008 � 2007 � 2008 � 2007 � �
NET SALES $509.8 $516.0 $1,407.4 $1,316.8 � Cost of sales 400.5 �
393.6 � 1,064.3 � 1,006.1 � Gross profit 109.3 122.4 343.1 310.7 �
Selling, general and administrative expenses 34.0 � 29.9 � 104.4 �
90.6 � Operating income 75.3 92.5 238.7 220.1 � Interest expense
5.1 5.7 15.9 17.1 Other income, net (3.7 ) (6.0 ) (22.1 ) (23.8 ) �
Income before income taxes 73.9 92.8 244.9 226.8 Income taxes 23.1
� 28.5 � 80.5 � 68.6 � INCOME FROM CONTINUING OPERATIONS 50.8 64.3
164.4 158.2 � INCOME FROM DISCONTINUED OPERATIONS 69.2 2.3 69.3 7.7
� � � � NET INCOME $120.0 � $66.6 � $233.7 � $165.9 � � � �
EARNINGS PER COMMON SHARE - BASIC: Income from continuing
operations $1.06 $1.25 $3.34 $3.07 Income from discontinued
operations $1.44 � $0.05 � $1.40 � $0.16 � NET INCOME PER SHARE -
BASIC $2.50 � $1.30 � $4.74 � $3.23 � � EARNINGS PER COMMON SHARE -
DILUTED: Income from continuing operations $1.05 $1.22 $3.32 $3.00
Income from discontinued operations $1.44 � $0.05 � $1.40 � $0.15 �
NET INCOME PER SHARE - DILUTED $2.49 � $1.27 � $4.72 � $3.15 � � �
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 48.0 � 51.4 �
49.3 � 51.2 � Diluted 48.3 � 52.6 � 49.6 � 52.6 � � Cash dividends
per common share $0.15 � $0.1125 � $0.45 � $0.3375 � � �
CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) � Nine Months
Ended March 31 � 2008 � 2007 � � OPERATING ACTIVITIES: Net income
$233.7 $165.9 Adjustments to reconcile net income to net cash
provided from operations: Depreciation 35.3 34.6 Amortization 1.8
1.2 Deferred income taxes (0.9 ) (8.4 ) Net pension (income)
expense (0.8 ) 3.6 Net (gain) loss on asset disposals (1.0 ) 0.4
Gain on sale of businesses (101.5 ) -- Changes in working capital
and other: Receivables 31.0 (58.1 ) Inventories (58.4 ) (32.2 )
Other current assets (5.5 ) (6.3 ) Accounts payable (42.3 ) 63.9
Accrued current liabilities 44.6 (16.0 ) Other, net 7.5 � (1.9 )
Net cash provided from operating activities 143.5 � 146.7 � �
INVESTING ACTIVITIES: Purchases of plant, equipment and software
(72.7 ) (27.8 ) Proceeds from disposals of plant and equipment 1.4
0.2 Acquisition of business (6.6 ) -- Net proceeds from sale of
businesses 143.0 -- Purchases of marketable securities (366.2 )
(544.2 ) Sales of marketable securities 713.2 � 336.7 � Net cash
provided from (used for) investing activities 412.1 � (235.1 ) �
FINANCING ACTIVITIES: Payments on long-term debt (0.2 ) (0.2 )
Payments to acquire treasury stock (250.8 ) (13.9 ) Dividends paid
(22.1 ) (17.9 ) Tax benefits on share-based compensation 1.2 4.9
Proceeds from common stock options exercised 0.6 � 2.7 � Net cash
used for financing activities (271.3 ) (24.4 ) � Effect of exchange
rate changes on cash and cash equivalents (10.2 ) (4.4 ) � INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS 274.1 (117.2 ) Cash and
cash equivalents at beginning of period 300.8 � 352.8 � Cash and
cash equivalents at end of period $574.9 � $235.6 � � �
CONSOLIDATED BALANCE SHEET (in millions) � March 31 June 30 2008 �
2007 � � ASSETS Current assets: Cash and cash equivalents $574.9
$300.8 Marketable securities 25.7 372.7 Accounts receivable, net
263.1 303.2 Inventories 285.7 235.0 Deferred income taxes 13.6 13.3
Other current assets 29.1 � 30.7 � Total current assets 1,192.1
1,255.7 � Property, plant and equipment, net 552.7 537.4 Prepaid
pension cost 139.5 132.4 Goodwill 40.2 46.4 Trademarks and trade
names, net 18.4 19.2 Other assets 43.6 � 34.6 � Total assets
$1,986.5 � $2,025.7 � � LIABILITIES Current liabilities: Accounts
payable $171.8 $215.9 Accrued liabilities 142.6 117.1 Current
portion of long-term debt 33.0 � 33.2 � Total current liabilities
347.4 366.2 � Long-term debt, net of current portion 299.8 299.5
Accrued postretirement benefits 86.5 90.9 Deferred income taxes
137.3 143.5 Other liabilities 77.8 � 57.9 � Total liabilities 948.8
� 958.0 � � STOCKHOLDERS' EQUITY Common stock 273.0 272.8 Capital
in excess of par value - common stock 200.1 191.6 Reinvested
earnings 961.1 751.3 Common stock in treasury, at cost (318.5 )
(65.7 ) Accumulated other comprehensive loss (78.0 ) (82.3 ) Total
stockholders' equity 1,037.7 � 1,067.7 � � Total liabilities and
stockholders' equity $1,986.5 � $2,025.7 � � � SEGMENT FINANCIAL
DATA (in millions) � � � � Three Months Ended Nine Months Ended
March 31 March 31 � 2008 � 2007 � 2008 � 2007 � � Net sales:
Advanced Metals Operations $361.9 $378.4 $997.6 $980.2 Premium
Alloys Operations 146.8 134.0 408.7 326.9 Other 3.4 3.7 10.2 11.0
Intersegment (2.3 ) (0.1 ) (9.1 ) (1.3 ) � Consolidated net sales
$509.8 � $516.0 � $1,407.4 � $1,316.8 � � Operating income:
Advanced Metals Operations $44.9 $65.6 $138.3 $147.6 Premium Alloys
Operations 34.3 29.4 110.4 83.5 Other 0.5 0.9 2.3 3.2 Corporate
costs (9.3 ) (7.1 ) (29.1 ) (25.4 ) Pension earnings, interest
& deferrals 4.9 3.6 16.8 10.8 Intersegment 0.0 � 0.1 � 0.0 �
0.4 � � Consolidated operating income $75.3 � $92.5 � $238.7 �
$220.1 � � � Beginning with the first quarter of fiscal 2008,
Carpenter realigned its reportable business segments to focus more
effectively on our customers, end-use markets, and operational
excellence goals. As a result, we now have two reportable business
segments: Advanced Metals Operations and Premium Alloys Operations.
� The Advanced Metals Operations (AMO) segment includes the
manufacturing and distribution of high temperature and high
strength metal alloys, stainless steels and titanium in the form of
small bars and rods, wire, narrow strip and powder. AMO sales are
spread across many of our end-use markets including aerospace,
industrial, consumer, automotive, and medical. � The Premium Alloys
Operations (PAO) segment includes the manufacturing and
distribution of high temperature and high strength metal alloys and
stainless steels in the form of ingots, billets, large bars and
hollows and primarily services the aerospace and energy markets. �
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." � �
� SELECTED FINANCIAL MEASURES (in millions) � � Three Months Ended
Nine Months Ended March 31 March 31 FREE CASH FLOW 2008 � 2007 �
2008 � 2007 � � Net cash provided from operations $63.0 $38.9
$143.5 $146.7 Purchases of plant, equipment and software (29.9 )
(13.2 ) (72.7 ) (27.8 ) Acquisition of business (6.6 ) -- (6.6 ) --
Proceeds from disposals of plant and equipment 0.1 -- 1.4 0.2 Net
proceeds from sale of businesses 143.0 -- 143.0 -- Dividends paid
(7.2 ) (5.7 ) (22.1 ) (17.9 ) Free cash flow $162.4 � $20.0 �
$186.5 � $101.2 � � Free cash flow is a measure of cash generated
which management evaluates for alternative uses. � � � �
SUPPLEMENTAL SCHEDULES (in millions) � � Three Months Ended Nine
Months Ended March 31 March 31 NET SALES BY MAJOR PRODUCT LINE 2008
� 2007 � 2008 � 2007 � � Product Line Excluding Surcharge:
Stainless steel $122.1 $132.9 $333.2 $360.1 Special alloys 165.7
154.1 465.0 414.7 Titanium products 48.2 45.3 129.3 142.3 Tool and
other steel 15.0 16.8 45.4 42.9 Other materials 4.7 � 5.8 � 14.4 �
17.7 � � Consolidated net sales excluding surcharge $355.7 $354.9
$987.3 $977.7 � Surcharge revenue 154.1 � 161.1 � 420.1 � 339.1 � �
Consolidated net sales $509.8 � $516.0 � $1,407.4 � $1,316.8 � �
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