Carpenter Technology Corporation (NYSE:CRS) today reported net
income from continuing operations of $46.9 million or $1.01 per
diluted share for the fiscal fourth quarter ended June 30, 2008,
which includes a special increase in reserves for litigation
matters of $0.08 per diluted share. This compares with net income
from continuing operations a year earlier of $58.9 million or $1.12
per diluted share. Financial highlights for the fourth quarter and
full fiscal year include: (millions, except EPS & pounds
shipped) � 4Q 2008 � 4Q 2007 � FY 2008 � FY 2007 Net Sales $556.3
$533.2 $1,953.5 $1,839.0 Net Sales excluding surcharge (a) $391.3
$349.5 $1,369.0 $1,316.7 Income from continuing operations $46.9
$58.9 $209.9 $215.2 Net income $53.4 $61.3 $287.1 $227.2 Diluted
EPS from continuing operations $1.01 $1.12 $4.31 $4.09 Diluted EPS
$1.15 $1.17 $5.89 $4.32 Free cash flow excluding sale and
acquisition of businesses (a) $61.7 $101.1 $111.8 $202.3 Pounds
sold (000) 65,028 56,382 223,460 229,072 � (a) non-GAAP financial
measure that is explained in the attached tables �We finished the
year with good growth momentum due to strong demand in the global
energy and aerospace markets, and improving demand in our
industrial and consumer businesses. Our international sales also
continued to grow at a double-digit rate year on year, and now
account for 34% of total annual sales,� said Anne Stevens,
chairman, president and chief executive officer. �We were pleased
to achieve record full year EPS results for the fourth consecutive
year. We continue to drive operational excellence initiatives to
improve our results, and expect to complete the expansion of our
premium melt facilities by the turn of the calendar year, which
will provide needed additional capacity.� Fourth Quarter Results
Net sales from continuing operations for the fourth quarter were
$556.3 million, or 4 percent higher than a year ago. Excluding
surcharge revenue, net sales from continuing operations were $391.3
million, 12 percent higher than last year. Pounds sold in the
fourth quarter were 15 percent above the quarter a year ago.
Volumes shipped by our Premium Alloys Operations segment increased
30 percent, due to continued strong demand from energy and
aerospace. Pounds sold by our Advanced Metals Operations segment
increased 10 percent reflecting improvement in the industrial and
consumer markets. Although volumes grew, gross profit in the fourth
quarter declined to $117.3 million, from $120.8 million a year
earlier. The results reflect LIFO accounting effects related to
changes in inventory levels and year to-year raw material costs,
other impacts from the year-to-year difference in raw material
costs, significant equipment upgrade activity, and general
inflationary pressures. Gross margin was 21.1 percent in the fourth
quarter, compared to 22.7 percent in the 2007 fourth quarter.
Adjusted for the dilutive impact of the surcharge revenue, the
year-to-year difference in the lag effect in our surcharge
mechanism, and the LIFO inventory effects, fourth quarter gross
margin on a comparable basis would have been an estimated 30.0
percent compared with an estimated 32.5 percent in the 2007 fourth
quarter. Operating income for the fourth quarter was $72.7 million,
down 17 percent compared with $87.4 million in the fourth quarter
of 2007. The decline in operating income reflected lower gross
profit, and an $11.2 million increase in SG&A expenses,
primarily from the special litigation reserve, investments
associated with driving our strategic initiatives, and other
year-end items. Adjusted for the lag effect, surcharge revenue,
other inventory effects and the special litigation reserve, fourth
quarter operating margin would have been an estimated 18.6 percent
versus an estimated 22.9 percent in the same quarter a year
earlier. Other income in the fourth quarter was $1.9 million,
compared with other income of $6.6 million in the 2007 fourth
quarter. The decrease of $4.7 million or $0.07 per share primarily
reflected lower interest income from invested cash. The income tax
provision for fourth quarter continuing operations totaled $23.2
million or 33.1 percent of pre-tax income, compared with an income
tax provision of $29.5 million or 33.4 percent in last year�s
fourth quarter. Income from continuing operations was $46.9 million
or $1.01 per diluted share, which includes a special reserve for
litigation matters of $0.08 per share. This compared with 2007
fourth quarter income from continuing operations of $58.9 million
or $1.12 per diluted share. Aerospace market sales were $208.3
million, an increase of 10 percent compared with a year earlier.
Excluding surcharge revenue, aerospace sales grew 12 percent over
the fourth quarter of 2007. Aerospace results picked up in the
second half of the fiscal year, consistent with the strong aircraft
build schedule. There was relatively little change in demand seen
from announced delays in the deliveries of the 787 and A380
airliners or the reductions in the U.S. domestic fleet. Energy
market sales increased to $76.2 million, 18 percent growth compared
with the fourth quarter 2007. Excluding surcharge revenue, energy
market sales increased 29 percent. Power generation sales showed
significant gains due to strong demand for our materials for
industrial gas turbines going to Europe, the Middle East and Asia
Pacific. Oil and gas exploration remains strong as the number of
directional drilling rigs increases around the world. Industrial
market sales were $121.6 million, up 4 percent from the fourth
quarter a year earlier. Excluding surcharge, industrial sales rose
17 percent. Sales improved for weld wire and stainless grades
supporting U.S. infrastructure projects, while there were offsets
from lower demand in the semiconductor and valves and fittings
segments. Medical market sales were $39.4 million, an increase of
11 percent compared with the 2007 fourth quarter. Excluding
surcharge revenue, medical sales grew 10 percent. The medical
supply chain appears to have worked through its adjustment period
from the last several quarters and is returning to more normal
purchasing patterns. Consumer market sales were $51.9 million, an
11 percent decrease compared with a year earlier. Excluding
surcharge revenue, sales improved 6 percent. The results reflect
good growth in electronics and sports, partially offset by weakness
in the housing and construction markets. Automotive market sales
were $58.9 million, a decline of 14 percent from the same period a
year ago. Excluding surcharge revenue, sales were down 6 percent.
Our business continues to be impacted by the current weakness in
the domestic auto market. Sales outside the United States were
$177.7 million for the fourth quarter, a 13 percent increase from
the same quarter a year earlier. Sales improved in all major
markets. Fiscal Year 2008 Results Net sales from continuing
operations for the year were $1.953 billion, or 6 percent higher
than a year ago. Excluding surcharge revenue, sales from continuing
operations were $1.369 billion, 4 percent higher than a year ago.
Pounds shipped in FY2008 were 2 percent lower than last year.
Pounds shipped by our Premium Alloys Operations segment increased
21 percent year on year, while our Advanced Metals Operations
segment declined 7 percent. Gross profit in FY2008 was $457.2
million, compared with $427.5 million a year earlier. Operating
income for FY 2008 was $309.1 million, up 2 percent compared with
$304.4 million in 2007. Operating margin excluding surcharge was
22.6 percent in FY2008, compared to 23.1 percent in 2007. Other
income in FY 2008 was $24.2 million, compared with other income of
$30.3 million in 2007. The income tax provision for FY2008
continuing operations totaled $102.9 million or 32.9 percent of
pre-tax income, compared with an income tax provision of $96.8
million or 31.0 percent last year. For the year, income from
continuing operations was $209.9 million or $4.31 per diluted
share, compared with 2007 income from continuing operations of
$215.2 million or $4.09 per diluted share. Market data for fiscal
2008 is shown below. Market � FY2008 Revenues (in millions) � %
change from FY2007 � % change from FY2007 w/o surcharges Aerospace
$753.3 9 % 2 % Energy $241.2 41 % 52 % Medical $133.6 7 % Flat
Industrial $419.5 (1 %) (3 %) Automotive $221.0 (6 %) (6 %)
Consumer $184.9 (7 %) (3 %) International $655.5 22 % n/a � Other
Financial Items Free cash flow for the fourth quarter excluding the
acquisition and divestitures was $61.7 million, and $111.8 million
for the year. Full year capital expenditures totaled $118.9
million, primarily reflecting Carpenter's ongoing expansion of its
premium melt capacity. Total FY2007 capital expenditures were $47.1
million. FY 2009 Outlook �In the 2009 fiscal year, we expect
continuing strong growth driven largely by the favorable industry
dynamics in our key aerospace and energy markets,� said Stevens.
�Our first half will be subject to capacity constraints on our
premium melt products that should be relieved when the new melting
facility and other equipment upgrades come on line around the
beginning of the 2009 calendar year. We are well situated to
respond to the challenges that the current economic conditions are
presenting, and anticipate greater demand for our high performance
materials as we pursue aggressive goals for new product
development. We will also continue our focused efforts on
operational excellence that are transforming a 120-year old
business. �We expect another year of record earnings and strong
free cash flow,� continued Stevens, �although several factors will
lead our second half comparisons to be stronger than the first
half. Of note, we have had significant planned outages including an
upgrade to our major rolling mill and an extended maintenance
outage on our cleaning facilities that will carry into the first
quarter.� Pension Effects During FY2008, the Company had net
pension income associated with its pension and other post
retirement benefit plans of $0.5 million. Based on the value of the
plans� assets and projected costs of the plans as of June 30, 2008,
the Company will experience a non-cash net pension expense during
fiscal 2009 of $20.1 million, which equates to a year-to-year
difference in reported earnings of roughly $0.28 per share. The
plans are well funded as of June 30, 2008, and the Company has had
no required cash contributions to the plans since 1986.
Discontinued Operations On June 30, 2008, Carpenter completed the
sale of its metal shapes business, Rathbone Precision Metal, to
Calvi Holdings, S.r.l., for $17.5 million in cash. Carpenter
recorded a pre-tax gain in the quarter of $8.1 million, or $0.09
per share on an after-tax basis. Results for the metal shapes
business were reported as discontinued operations for the fourth
quarter. Income from discontinued operations of $6.5 million
compares with income of $2.4 million for the fourth quarter 2007.
Details for the quarter and year, which includes the sale of our
ceramics businesses in March, 2008, are as follows: (millions) �
Q4-2008 � Q4-2007 � FY2008 � FY2007 Income from discontinued
operations $0.4 � $4.7 � $13.2 � $19.0 � Gain on sale, net of
expenses $8.1 � -- � $109.6 � -- � Income tax expense ($2.0 ) ($2.3
) ($45.6 ) ($7.0 ) Income from discontinued operations $6.5 � $2.4
� $77.2 � $12.0 � Share Repurchase Program Carpenter repurchased
3.1 million shares of its common stock during the fourth quarter
for a total of $174 million, or an average price of $56.43 per
share, under the $250 million share repurchase plan that was
authorized by the Board of Directors on December 21, 2007. As of
June 30, 2008, aggregate repurchases under this program and the
previously completed $250 million share repurchase program totaled
7.6 million shares with an aggregate cost of $454 million, or an
average price of $59.69/share. As of June 30, 2008, there were
45,295,770 shares of common stock outstanding. 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, July
31st, at 10:00 a.m., ET, to discuss financial results and
operations for the fiscal fourth quarter and full year. 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
Year Ended June 30 June 30 � 2008 2007 2008 2007 � NET SALES $556.3
$533.2 $1,953.5 $1,839.0 � Cost of sales 439.0 � 412.4 � 1,496.3 �
1,411.5 � Gross profit 117.3 120.8 457.2 427.5 � Selling, general
and administrative expenses 44.6 � 33.4 � 148.1 � 123.1 � Operating
income 72.7 87.4 309.1 304.4 � Interest expense 4.5 5.6 20.5 22.7
Other income, net (1.9 ) (6.6 ) (24.2 ) (30.3 ) � Income before
income taxes 70.1 88.4 312.8 312.0 Income taxes 23.2 � 29.5 � 102.9
� 96.8 � INCOME FROM CONTINUING OPERATIONS 46.9 58.9 209.9 215.2 �
INCOME FROM DISCONTINUED OPERATIONS 6.5 2.4 77.2 12.0 � � � � NET
INCOME $53.4 � $61.3 � $287.1 � $227.2 � � � � EARNINGS PER COMMON
SHARE - BASIC: Income from continuing operations $1.02 $1.12 $4.33
$4.16 Income from discontinued operations $0.14 � $0.05 � $1.59 �
$0.24 � NET INCOME PER SHARE - BASIC $1.16 � $1.17 � $5.92 � $4.40
� � EARNINGS PER COMMON SHARE - DILUTED: Income from continuing
operations $1.01 $1.12 $4.31 $4.09 Income from discontinued
operations $0.14 � $0.05 � $1.58 � $0.23 � NET INCOME PER SHARE -
DILUTED $1.15 � $1.17 � $5.89 � $4.32 � � � WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING: Basic 46.1 � 52.3 � 48.5 � 51.5 � Diluted 46.4
� 52.5 � 48.7 � 52.5 � � Cash dividends per common share $0.18 �
$0.15 � $0.63 � $0.4875 � � � CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions) � Year Ended June 30 � 2008 2007 � OPERATING
ACTIVITIES: Net income $287.1 $227.2 Adjustments to reconcile net
income to net cash provided from operations: Depreciation 46.8 47.1
Amortization 2.4 1.6 Deferred income taxes 2.1 5.7 Net pension
(income) expense (0.1 ) 4.9 Net (gain) loss on asset disposals (0.9
) 1.3 Gain on sale of businesses (109.6 ) -- Changes in working
capital and other: Receivables 6.3 (63.9 ) Inventories 17.4 (8.1 )
Other current assets (8.3 ) (4.5 ) Accounts payable (56.1 ) 77.8
Accrued current liabilities 19.8 (14.6 ) Other, net 11.6 � 0.6 �
Net cash provided from operating activities 218.5 � 275.1 � �
INVESTING ACTIVITIES: Purchases of plant, equipment and software
(118.9 ) (47.1 ) Proceeds from disposals of plant and equipment 1.5
-- Acquisition of business (6.6 ) -- Net proceeds from sale of
businesses 149.5 -- Purchases of marketable securities (366.2 )
(680.3 ) Sales of marketable securities 722.2 � 449.4 � Net cash
provided from (used for) investing activities 381.5 � (278.0 ) �
FINANCING ACTIVITIES: Payments on long-term debt (33.2 ) (0.2 )
Payments to acquire treasury stock (425.2 ) (28.9 ) Dividends paid
(30.6 ) (25.7 ) Tax benefits on share-based compensation 1.0 7.7
Proceeds from common stock options exercised 0.7 � 4.2 � Net cash
used for financing activities (487.3 ) (42.9 ) � Effect of exchange
rate changes on cash and cash equivalents (10.2 ) (6.2 ) � INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS 102.5 (52.0 ) Cash and cash
equivalents at beginning of period 300.8 � 352.8 � Cash and cash
equivalents at end of period $403.3 � $300.8 � � � CONSOLIDATED
BALANCE SHEET (in millions) � � June 30 June 30 2008 2007 � ASSETS
Current assets: Cash and cash equivalents $403.3 $300.8 Marketable
securities 5.3 372.7 Accounts receivable, net 285.1 303.2
Inventories 209.0 235.0 Deferred income taxes 16.4 13.3 Other
current assets 44.2 � 30.7 � Total current assets 963.3 1,255.7 �
Property, plant and equipment, net 583.8 537.4 Prepaid pension cost
51.5 132.4 Goodwill 35.2 46.4 Other intangibles 19.8 19.2 Other
assets 55.2 � 34.6 � Total assets $1,708.8 � $2,025.7 � �
LIABILITIES Current liabilities: Accounts payable $158.4 $215.9
Accrued liabilities 135.6 117.1 Current portion of long-term debt
23.0 � 33.2 � Total current liabilities 317.0 366.2 � Long-term
debt, net of current portion 276.7 299.5 Accrued postretirement
benefits 90.9 90.9 Deferred income taxes 98.4 143.5 Other
liabilities 77.2 � 57.9 � Total liabilities 860.2 � 958.0 � �
STOCKHOLDERS' EQUITY Common stock 273.0 272.8 Capital in excess of
par value - common stock 197.5 191.6 Reinvested earnings 1,006.0
751.3 Common stock in treasury, at cost (484.0 ) (65.7 )
Accumulated other comprehensive loss (143.9 ) (82.3 ) Total
stockholders' equity 848.6 � 1,067.7 � � Total liabilities and
stockholders' equity $1,708.8 � $2,025.7 � � � SEGMENT FINANCIAL
DATA (in millions) � � � � � Three Months Ended Year Ended June 30
June 30 � 2008 2007 2008 2007 � Net sales: Advanced Metals
Operations $393.1 $385.0 $1,390.7 $1,365.2 Premium Alloys
Operations 167.0 148.8 575.7 475.7 Intersegment (3.8 ) (0.6 ) (12.9
) (1.9 ) � Consolidated net sales $556.3 � $533.2 � $1,953.5 �
$1,839.0 � � Operating income: Advanced Metals Operations $50.4
$55.3 $188.7 $202.9 Premium Alloys Operations 34.3 36.6 144.7 120.1
Corporate costs (17.2 ) (7.9 ) (46.3 ) (33.2 ) Pension earnings,
interest & deferrals 4.9 3.6 21.7 14.5 Intersegment 0.3 � (0.2
) 0.3 � 0.1 � � Consolidated operating income $72.7 � $87.4 �
$309.1 � $304.4 � � 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 Year Ended June 30 June 30 FREE CASH FLOW 2008 2007 2008 2007
� Net cash provided from operations $75.0 $128.4 $218.5 $275.1
Purchases of plant, equipment and software (46.2 ) (19.3 ) (118.9 )
(47.1 ) Acquisition of business -- -- (6.6 ) -- Proceeds from
disposals of plant and equipment 0.1 (0.2 ) 1.5 -- Net proceeds
from sale of businesses 6.5 -- 149.5 -- Dividends paid (8.5 ) (7.8
) (30.6 ) (25.7 ) Free cash flow $26.9 � $101.1 � $213.4 � $202.3 �
� � � Three Months Ended Year Ended � June 30 June 30 FREE CASH
FLOW EXCLUDING IMPACTS OF SALE AND ACQUISITION OF BUSINESSES 2008
2007 2008 2007 � Net cash provided from operations $75.0 $128.4
$218.5 $275.1 Increased payment of income tax liability associated
with gain on sale of business 41.3 -- 41.3 -- Purchases of plant,
equipment and software (46.2 ) (19.3 ) (118.9 ) (47.1 ) Proceeds
from disposals of plant and equipment 0.1 (0.2 ) 1.5 -- Dividends
paid (8.5 ) (7.8 ) (30.6 ) (25.7 ) Free cash flow $61.7 � $101.1 �
$111.8 � $202.3 � � � Free cash flow is a measure of cash generated
which management evaluates for alternative uses. � � � SUPPLEMENTAL
SCHEDULES (in millions) � � Three Months Ended Year Ended June 30
June 30 NET SALES BY MAJOR PRODUCT LINE 2008 2007 2008 2007 �
Product Line Excluding Surcharge: Stainless steel $133.9 $124.7
$459.7 $476.7 Special alloys 182.1 158.8 647.1 573.5 Titanium
products 51.3 45.9 180.6 188.2 Tool and other steel 18.4 14.4 61.4
54.9 Other materials 5.6 � 5.7 � 20.2 � 23.4 � � Consolidated net
sales excluding surcharge $391.3 $349.5 $1,369.0 $1,316.7 �
Surcharge revenue 165.0 � 183.7 � 584.5 � 522.3 � � Consolidated
net sales $556.3 � $533.2 � $1,953.5 � $1,839.0 �
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