Carpenter Technology Corporation (NYSE:CRS) today reported net
income of $33.0 million or $0.62 per diluted share for the quarter
ended December 31, 2012, which was up from $23.6 million or $0.52
per share in the prior year second quarter.
“We are continuing to see strong end market demand for our
Premium and Ultra-Premium products, improving overall product mix,
and delivering higher than expected Latrobe synergies,” said
William A. Wulfsohn, President and Chief Executive Officer. “At the
same time, we see weaker demand for lower value mill product lines
and destocking in the titanium medical supply chain. We currently
expect a full year operating income improvement of 20 to 30 percent
versus our last fiscal year, with strong second half revenue and
earnings. We continue to believe that our sustained investment in
aerospace and energy markets will continue to drive profitable
growth over the next several years.”
Fiscal 2013 operating income growth projections exclude:
- Any impacts from the previously
announced potential sale of the distribution businesses.
- Expected one-time impacts of about $3
million for various restructuring opportunities - mainly
Latrobe-related ($0.3 million already expensed in YTD
results).
- Up to $3 million for system inventory
consulting fees communicated as part of the Latrobe deal economics
($1.6 million already expensed in YTD results).
Second Quarter Results
Financial highlights for the second quarter of fiscal year 2013
include:
(in millions, except per share amounts
& pounds sold)
2Q
FY 2013
2Q
FY 2012
YTD
FY 2013
YTD
FY 2012
Net Sales $533.5 $431.1 $1,078.5 $845.2
Net Sales Excluding Surcharge (a) $430.7 $330.3
$871.5 $643.9 Operating Income Excluding Pension
Earnings, Interest and Deferrals and Acquisition Related Cost (from
transaction)(a) $60.7 $49.9 $130.3
$98.9 Net Income Attributable to Carpenter $33.0
$23.6 $72.2 $47.4 Diluted Earnings per Share
$0.62 $0.52 $1.35 $1.05 Net Pension Expense
per Diluted Share (a) ($0.21) ($0.13) ($0.42)
($0.27) Free Cash Flow (a) ($51.6) $3.7
($154.2) ($105.5) Pounds Sold (000) (b) 62,582
49,042 126,596 96,066
(a) non-GAAP financial measure that is explained in the attached
tables
(b) excludes pounds sold through the distribution businesses
Net sales for the second quarter were $533.5 million, up 24
percent from the prior year. Excluding surcharge revenue, net sales
were $430.7 million, up 30 percent from a year ago on 28 percent
higher volume, due largely to the acquisition of Latrobe. Excluding
the Latrobe impact, second quarter net sales excluding surcharge
revenue were up 5 percent on 2 percent higher volume.
Specialty Alloy Operations (SAO) segment net sales excluding
surcharge revenue increased 7 percent on 1 percent higher volume
compared with the fiscal year 2012 second quarter. Most of this
growth occurred in high value Ultra-Premium and Premium products.
SAO operating income was $49.6 million, with a 17.9 percent
operating margin on net sales excluding surcharge revenue.
The Latrobe segment, which currently includes the Latrobe and
Mexico distribution businesses that are potentially going to be
divested, contributed $13.2 million of operating income in the
quarter, with a 13.0 percent operating margin. Latrobe continues to
perform ahead of pace on announced deal economics due to strong
progress on operational synergies.
Performance Engineered Products (PEP) segment sales increased 13
percent in the same period, due largely to the inclusion of the
Specialty Steel Supply (SSS) energy distribution business acquired
in connection with Latrobe. PEP operating income was $8.9 million,
with a 9.7 percent operating margin.
Gross profit was $102.6 million compared with $84.3 million in
the fiscal year 2012 second quarter. The higher gross profit was
driven by the addition of Latrobe, and improvement in SAO due to a
higher profit per pound from a richer product mix and higher
prices.
SG&A in the current quarter was $49.9 million or 11.6
percent of net sales excluding surcharge revenue, compared with
$38.0 million or 11.5 percent of revenue excluding surcharge for
the second quarter of fiscal year 2012. The increase in spending
primarily reflects the addition of Latrobe-related overhead
costs.
Operating income for the second quarter was $52.7 million
compared with $43.9 million a year earlier. Excluding surcharge
revenue and pension earnings, interest and deferrals (EID),
operating margin was 14.1 percent compared to 14.4 percent in the
fiscal year 2012 second quarter.
Interest expense in the quarter was $4.4 million compared to
$5.8 million in the year-ago period due to the inclusion of
capitalized interest as part of the Athens facility construction
project.
Other income was $1.3 million compared to $0.4 million in the
fiscal year 2012 second quarter due principally to the gain
recorded from unwinding the Sandvik powder joint ventures.
The provision for income tax was $16.4 million or 33.1 percent
of pre-tax income compared to $14.7 million or 38.2 percent of
pre-tax income in the second quarter of fiscal year 2012. The
second half tax rate is projected to be 33.5 percent.
Net income attributable to Carpenter was $33.0 million or $0.62
per diluted share. Net income attributable to Carpenter in the same
quarter a year ago was $23.6 million or $0.52 per diluted
share.
Free cash flow, defined as cash from operations less capital
expenditures, dividends, and the net impact from the purchase and
sale of businesses, was negative $51.6 million in the current
quarter. Strong net income was offset by higher capital spending,
largely related to the Athens facility construction, pension
contributions, and increased working capital levels.
The Company continues to plan for a debt refinancing transaction
in the third fiscal quarter that would replace the $100 million May
2013 debt maturity and could provide the opportunity to make a
discretionary pension contribution of up to $165 million that would
eliminate similar required cash contributions over the next several
years. As a result of the net positive impact of these actions, the
proceeds from the anticipated distribution business sale, and
inventory reduction versus the original planned level, the Company
expects to end the fiscal year with a cash and liquidity position
that is near its beginning fiscal year position, despite $350
million of capex investment for Athens and other projects.
The debt refinancing and discretionary pension contribution will
drive a one-time negative earnings impact in the current year,
which is expected to be approximately $0.13 per share from related
higher interest and income tax expense. Beginning in fiscal year
2014, and continuing for the next several years, these actions are
expected to drive an annual earnings improvement of approximately
$0.08 per share and increase free cash flow by about $17 million
per year.
Markets:
Aerospace & Defense market sales were $250.3 million
in the second quarter, up 30 percent compared with the same period
a year ago. Excluding surcharge revenue, aerospace & defense
sales were up 36 percent on 83 percent higher volume (or up 10
percent on 8 percent higher volume without Latrobe). Demand for
Carpenter’s and Latrobe’s Premium and Ultra-Premium aerospace
products remains strong. Demand for super-alloy engine materials
remains strong due to higher build rates and initial pull through
for new engine programs. Demand for nickel and stainless fastener
material increased year-over-year for the tenth consecutive quarter
– while shipments of titanium fastener material set a new second
quarter record, up slightly from the very strong year-ago period.
The addition of Latrobe’s structural, bearing and other
complementary products also contributed to the year-to-year growth
rate.
Energy market sales of $79.5 million increased 30 percent
compared to the same period a year ago. Excluding surcharge
revenue, energy market sales increased 33 percent (or up 6 percent
without Latrobe and SSS). Demand growth for material used in oil
& gas applications outpaced weaker demand for power generation
materials. Despite lower North American rig activity, demand for
Carpenter materials used in oil & gas drilling increased as
Amega West remained strong by expanding its footprint and gaining
share. In addition, there are a significant number of wells that
have been drilled and still require completion, which is leading to
growth of Ultra-Premium products. Build schedules at major
industrial gas turbine manufacturers are pointing toward
anticipated stronger second half growth in that sector after
temporary slowness in this area.
Medical market sales were $26.6 million in the second
quarter, down 16 percent from a year ago. Excluding surcharge
revenue, medical market sales decreased 14 percent on 21 percent
lower volume. Uncertainty surrounding pending legislative impacts
and economic sentiment continues to affect short-term demand for
medical materials. In addition, as largely seen in the PEP segment
results, continued inventory destocking within the titanium supply
chain is being influenced by falling titanium prices. Longer-term,
Carpenter remains well positioned to support the anticipated
positive demand trend for medical market materials.
Transportation market sales were $31.8 million, an
increase of 1 percent from a year earlier. Excluding surcharge
revenue, transportation sales increased 8 percent on 1 percent
lower volume (or up 5 percent on 3 percent lower volume without
Latrobe). Increasing fuel efficiency standards require automobiles
to become lighter and engines to operate at higher temperatures.
These design specifications continue to create demand for
higher-value materials used for turbo-charger, gasket, valve and
fuel system applications. This has led to revenue growth outpacing
volume growth. The recent announcement with United States Steel to
develop additional high volume transportation applications from
Carpenter’s proprietary high-strength, low-weight alloy, Temper
ToughTM, further demonstrates Carpenter’s strong growth
opportunities within this end-market.
Industrial & Consumer market sales were $111.6
million in the second quarter, up 6 percent compared with the same
period a year ago. Excluding surcharge revenue, sales increased 13
percent on 8 percent higher volume (or up 4 percent on 1 percent
lower volume without Latrobe). This market remains more sensitive
to economic uncertainty which is reflected in the powder metal
portion of the PEP segment and Value products within Latrobe.
Carpenter’s strategy to focus on specialized, high value niche
applications with strategically important customers has offset
overall demand softness in more commodity type products and
distributor channels.
International sales in the second quarter were $158.1
million, an increase of 11 percent compared with the same quarter a
year earlier - driven by a 30 percent increase in Asia/Pacific
sales, a 49 percent increase in sales to Canada and a 3 percent
increase in European sales. Growth in Asia/Pacific was led by
strong demand from the aerospace end market as the supply chain
grows in that geography. Growth in Europe and Canada was led by
demand for materials used for aerospace and oil & gas
applications.
Pension Effects
During the second quarter, the Company recorded expense
associated with its pension and other post-retirement benefit plans
of $17.1 million or $0.21 per diluted share. Pension expense in the
prior year second quarter was $9.8 million or $0.13 per diluted
share. The Company made cash contributions of $9.8 million during
the second quarter of fiscal year 2013, and expects to make
additional minimum cash contributions of approximately $24 million
over the balance of fiscal year 2013. As previously mentioned, the
Company continues to evaluate an additional discretionary pension
contribution of up to $165 million.
Non-GAAP Financial Measures
This press release includes discussions of financial measures
that have not been determined in accordance with U.S. generally
accepted accounting principles ("GAAP"). A reconciliation of the
non-GAAP financial measures to their most directly comparable
financial measures prepared in accordance with GAAP, accompanied by
reasons why the Company believes the measures are important, are
included in the attached schedules.
Conference Call
Carpenter will host a conference call and webcast today, January
31, at 10:00 a.m., ET, to discuss financial results and operations
for the fiscal second quarter. Please call 610-208-2222 for details
of the conference call. Access to the call will also be made
available at Carpenter's web site (http://www.cartech.com) and
through CCBN (http://www.ccbn.com). A replay of the call will be
made available at http://www.cartech.com or at
http://www.ccbn.com.
About Carpenter Technology
Carpenter produces and distributes premium alloys, including
special alloys, titanium alloys and powder metals, as well as
stainless steels, and alloy and tool steels. Information about
Carpenter can be found on the Internet at
http://www.cartech.com.
Forward-Looking Statements
This press release contains 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, 2012, the 10Q for the quarter ending
September 30, 2012 and the exhibits attached to those filings. They
include but are not limited to: (1) expectations with respect to
the synergies, costs and other anticipated financial impacts of the
Latrobe acquisition transaction could differ from actual synergies
realized, costs incurred and financial impacts experienced as a
result of the transaction; (2) the cyclical nature of the specialty
materials business and certain end-use markets, including
aerospace, defense, industrial, transportation, consumer, medical,
and energy, or other influences on Carpenter’s business such as new
competitors, the consolidation of competitors, customers, and
suppliers or the transfer of manufacturing capacity from the United
States to foreign countries;(3) the ability of Carpenter to achieve
cost savings, productivity improvements or process changes; (4) the
ability to recoup increases in the cost of energy, raw materials,
freight or other factors; (5) domestic and foreign excess
manufacturing capacity for certain metals; (6) fluctuations in
currency exchange rates; (7) the degree of success of government
trade actions; (8) the valuation of the assets and liabilities in
Carpenter’s pension trusts and the accounting for pension plans;
(9) possible labor disputes or work stoppages; (10) the potential
that our customers may substitute alternate materials or adopt
different manufacturing practices that replace or limit the
suitability of our products; (11) the ability to successfully
acquire and integrate acquisitions, including the Latrobe
acquisition; (12) the availability of credit facilities to
Carpenter, its customers or other members of the supply chain; (13)
the ability to obtain energy or raw materials, especially from
suppliers located in countries that may be subject to unstable
political or economic conditions; (14) Carpenter’s manufacturing
processes are dependent upon highly specialized equipment located
primarily in facilities in Reading and Latrobe, Pennsylvania for
which there may be limited alternatives if there are significant
equipment failures or catastrophic event; and (15) Carpenter’s
future success depends on the continued service and availability of
key personnel, including members of our executive management team,
management, metallurgists and other skilled personnel and the loss
of these key personnel could affect our ability to perform until
suitable replacements are found. 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 BALANCE SHEETS (in millions)
(Unaudited) December 31, June 30, 2012
2012 ASSETS Current assets: Cash and cash equivalents $ 63.1
$ 211.0 Accounts receivable, net 286.5 354.2 Inventories 733.6
642.0 Deferred income taxes 5.9 10.6 Other current assets
38.8 31.9 Total current assets 1,127.9 1,249.7
Property, plant and equipment, net 1,017.6 924.6 Goodwill
256.7 260.5 Other intangibles, net 102.1 109.9 Other assets
77.9 83.1 Total assets $ 2,582.2 $
2,627.8 LIABILITIES Current liabilities:
Accounts payable $ 188.4 $ 236.1 Accrued liabilities 186.6 217.1
Current portion of long-term debt
101.0
101.0 Total current liabilities 476.0 554.2
Long-term debt, net of current portion 305.2 305.9 Accrued
pension liabilities 336.3 377.3 Accrued postretirement benefits
178.1 179.8 Deferred income taxes 31.5 31.4 Other liabilities
67.8 66.1 Total liabilities
1,394.9 1,514.7 STOCKHOLDERS' EQUITY
Carpenter stockholders' equity: Common stock 274.5 274.0 Capital in
excess of par value 253.8 252.7 Reinvested earnings 1,162.7 1,109.6
Common stock in treasury, at cost (111.6 ) (120.0 ) Accumulated
other comprehensive loss (392.1 ) (412.5 ) Total
Carpenter stockholders' equity 1,187.3 1,103.8
Noncontrolling interest - 9.3
Total equity 1,187.3 1,113.1 Total
liabilities and equity $ 2,582.2 $ 2,627.8
PRELIMINARY CONSOLIDATED STATEMENTS OF INCOME (in millions,
except per share data) (Unaudited)
Three Months Ended Six Months Ended December 31, December 31,
2012 2011 2012 2011 NET SALES $ 533.5 $ 431.1 $
1,078.5 $ 845.2 Cost of sales 430.9 346.8
866.5 679.7 Gross profit 102.6
84.3 212.0 165.5 Selling, general and administrative
expenses 49.9 38.0 97.7 73.8 Acquisition-related costs -
2.4 - 3.8
Operating income 52.7 43.9 114.3 87.9 Interest expense (4.4
) (5.8 ) (9.6 ) (12.7 ) Other income (expense), net 1.3
0.4 3.9 (0.4 )
Income before income taxes 49.6 38.5 108.6 74.8 Income tax expense
16.4 14.7 35.9
27.2 Net income 33.2 23.8 72.7 47.6 Less: Net
income attributable to noncontrolling interest 0.2
0.2 0.5 0.2 NET
INCOME ATTRIBUTABLE TO CARPENTER $ 33.0 $ 23.6 $ 72.2
$ 47.4 EARNINGS PER SHARE: Basic $ 0.62
$ 0.53 $ 1.36 $ 1.06 Diluted $ 0.62 $
0.52 $ 1.35 $ 1.05 WEIGHTED AVERAGE
SHARES OUTSTANDING: Basic 52.9 44.4
52.8 44.4 Diluted 53.5
45.1 53.4 45.1
Cash dividends per common share $ 0.18 $ 0.18 $ 0.36
$ 0.36 PRELIMINARY CONSOLIDATED
STATEMENTS OF CASH FLOWS (in millions) (Unaudited)
Six Months Ended December 31, 2012 2011
OPERATING ACTIVITIES: Net income $ 72.7 $ 47.6 Adjustments to
reconcile net income to net cash provided from (used for) operating
activities: Depreciation and amortization 51.1 37.2 Deferred income
taxes (0.3 ) 13.6 Net pension expense 34.3 19.7 Net loss on
disposal of property and equipment 0.5 0.4 Changes in working
capital and other: Accounts receivable 69.8 22.5 Inventories (88.8
) (110.3 ) Other current assets (8.3 ) 1.9 Accounts payable (48.0 )
(21.5 ) Accrued liabilities (20.4 ) (4.1 ) Pension plan
contributions (57.9 ) (15.4 ) Boarhead Farms settlement - (21.8 )
Other, net (2.5 ) 2.4 Net cash provided from
(used for) operating activities 2.2 (27.8 )
INVESTING ACTIVITIES: Purchases of property, equipment and
software (136.9 ) (60.3 ) Proceeds from disposals of property and
equipment 0.1 0.2 Acquisition of business, net of cash acquired -
(1.4 ) Proceeds from sale of equity method investment 7.9 -
Proceeds from sales and maturities of marketable securities
- 30.4 Net cash used for investing activities
(128.9 ) (31.1 ) FINANCING ACTIVITIES:
Payments on long-term debt - (100.0 ) Dividends paid (19.1 ) (16.2
) Purchase of subsidiary shares from noncontrolling interest (8.4 )
- Tax benefits on share-based compensation 3.3 0.8 Proceeds from
stock options exercised 1.9 1.5 Net
cash used for financing activities (22.3 ) (113.9 )
Effect of exchange rate changes on cash and cash equivalents
1.1 (0.9 ) DECREASE IN CASH AND CASH
EQUIVALENTS (147.9 ) (173.7 ) Cash and cash equivalents at
beginning of period 211.0 492.5
Cash and cash equivalents at end of period $ 63.1 $ 318.8
PRELIMINARY SEGMENT FINANCIAL DATA (in
millions, except pounds sold) (Unaudited)
Three Months Ended Six Months Ended December
31, December 31, 2012 2011 2012 2011 Pounds sold* (000): Specialty
Alloys Operations 47,572 47,078 94,784 91,288 Performance
Engineered Products 3,228 3,434 6,612 6,872 Latrobe 14,464 - 30,570
- Intersegment (2,682 ) (1,470 ) (5,370 )
(2,094 ) Consolidated pounds sold 62,582
49,042 126,596 96,066
Net sales: Specialty Alloys Operations Net sales
excluding surcharge $ 277.1 $ 258.1 $ 550.0 $ 492.6 Surcharge
91.2 102.4 180.0
203.7 Specialty Alloys Operations net sales
368.3 360.5 $ 730.0 $ 696.3
Performance Engineered Products Net sales excluding
surcharge 91.7 81.2 $ 189.3 $ 164.2 Surcharge 1.2
1.1 2.3 2.3
Performance Engineered Products net sales 92.9
82.3 $ 191.6 $ 166.5 Latrobe Net sales
excluding surcharge 101.4 9.5 $ 207.6 19.6 Surcharge 12.5
- 28.2 -
Latrobe net sales 113.9 9.5 $ 235.8
19.6 Intersegment Net sales excluding
surcharge (39.5 ) (18.5 ) (75.4 ) (32.5 ) Surcharge (2.1 )
(2.7 ) (3.5 ) (4.7 ) Intersegment net sales
(41.6 ) (21.2 ) (78.9 ) (37.2 )
Consolidated net sales $ 533.5 $ 431.1 $
1,078.5 $ 845.2 Operating income: Specialty
Alloys Operations $ 49.6 $ 50.9 $ 104.1 $ 97.2 Performance
Engineered Products 8.9 10.4 20.4 22.2 Latrobe 13.2 0.7 28.9 1.2
Corporate costs (including acquisition-related costs) (10.6 ) (12.6
) (20.9 ) (22.8 ) Pension earnings, interest & deferrals (8.0 )
(3.6 ) (16.0 ) (7.2 ) Intersegment (0.4 ) (1.9 )
(2.2 ) (2.7 ) Consolidated operating income $
52.7 $ 43.9 $ 114.3 $ 87.9 In
January 2012, the Company announced it had made changes to its
reportable segments. The Company now has three reportable business
segments, Specialty Alloys Operations (SAO), Performance Engineered
Products (PEP) and Latrobe. Previously, the Company's reportable
segments consisted of Premium Alloys Operations (PAO), Advanced
Metals Operations (AMO) and Emerging Ventures. The SAO
segment is comprised of Carpenter's major premium alloy and
stainless steel manufacturing operations. This includes operations
performed at mills primarily in Reading, Pennsylvania and the
surrounding area, South Carolina, and the new premium products
manufacturing facility being built in Limestone County, Alabama.
The PEP segment is comprised of Carpenter's differentiated
operations. This includes Dynamet titanium business, the Carpenter
Powder Products (CPP) business, the Amega West business and the SSS
distribution business that was acquired in connection with the
Latrobe Acquisition. The businesses in the PEP segment are managed
with an entrepreneurial structure to promote speed and flexibility
and drive overall revenue and profit growth. The pounds sold data
above for the PEP segment includes only the Dynamet and CPP
businesses. The Latrobe segment is comprised of the
operations of the Latrobe business acquired effective February 29,
2012. The Latrobe segment provides management with the focus and
visibility into the business performance of these newly acquired
operations. The Latrobe segment also includes the results of
Carpenter’s distribution business in Mexico, which is being managed
together with the Latrobe's distribution business. As the Latrobe
business becomes integrated with Carpenter, its results will likely
be reported within the SAO business segment sometime in the future.
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,
or pension earning, interest and deferrals (pension EID), 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."
* Pounds sold excludes sales associated with the
distribution businesses. PRELIMINARY NON-GAAP FINANCIAL
MEASURES (in millions, except per share data) (Unaudited)
Three Months Ended Six Months
Ended December 31, December 31, FREE CASH FLOW 2012 2011 2012 2011
Net cash provided from (used for) operating activities $ 38.9 $
46.2 $ 2.2 $ (27.8 ) Purchases of property, equipment and software
(80.5 ) (33.0 ) (136.9 ) (60.3 ) Proceeds from disposals of
property and equipment 0.1 - 0.1 0.2 Purchase of subsidiary shares
from noncontrolling interest (8.4 ) - (8.4 ) - Proceeds from sale
of equity method investment 7.9 - 7.9 - Dividends paid (9.6 ) (8.1
) (19.1 ) (16.2 ) Acquisition of business, net of cash acquired
- (1.4 ) - (1.4 )
Free cash flow $ (51.6 ) $ 3.7 $ (154.2 ) $ (105.5 )
Management believes that the free cash flow measure provides useful
information to investors regarding our financial condition because
it is a measure of cash generated which management evaluates for
alternative uses. Three Months Ended
Six Months Ended December 31, December 31, NET PENSION EXPENSE PER
DILUTED SHARE 2012 2011 2012 2011 Pension
plans expense $ 14.8 $ 9.3 $ 29.6 $ 18.8 Other postretirement
benefits expense 2.3 0.5 4.7
0.9 Net pension expense 17.1 9.8 34.3 19.7
Income tax benefit (6.0 ) (3.8 ) (12.0 )
(7.5 ) Net pension expense, net of tax $ 11.1 $ 6.0
$ 22.3 $ 12.2 Net pension expense per
diluted share $ 0.21 $ 0.13 $ 0.42 $ 0.27
Weighted average diluted common shares 53.5
45.1 53.4 45.1
Management believes that net pension expense per diluted share is
helpful in analyzing the operating performance of the Company, as
net pension expense may be volatile due to changes in the financial
markets, which may result in significant fluctuations in operating
results from period to period. OPERATING MARGIN EXCLUDING SURCHARGE
AND PENSION EARNINGS, INTEREST AND
DEFERRALS Three Months Ended Six Months Ended AND
ACQUISITION-RELATED COSTS December 31, December 31, 2012
2011 2012 2011 Net sales $ 533.5 $ 431.1 $ 1,078.5 $ 845.2
Less: surcharge revenue 102.8 100.8
207.0 201.3 Consolidated net sales
excluding surcharge $ 430.7 $ 330.3 $ 871.5 $
643.9 Operating income $ 52.7 $ 43.9 $ 114.3 $ 87.9
Pension earnings, interest & deferrals 8.0
3.6 16.0 7.2 Operating income
excluding pension earnings, interest and deferrals $ 60.7 $ 47.5 $
130.3 $ 95.1 Acquisition-related costs -
2.4 - 3.8
Operating income excluding pension earnings, interest and deferrals
and acquisition-related costs $ 60.7 $ 49.9 $ 130.3
$ 98.9 Operating margin excluding surcharge
and pension earnings, interest and deferrals 14.1 %
14.4 % 15.0 % 14.8 % Operating margin
excluding pension earnings, interest and deferrals and
acquisition-related costs 14.1 % 15.1 % 15.0 %
15.4 % Management believes that removing the impacts of raw
material surcharges and acquisition-related costs from operating
margin provides a more consistent basis for comparing results of
operations from period to period. In addition, management believes
that excluding the impact of pension earnings, interest and
deferrals, which may be volatile due to changes in the financial
markets, is helpful in analyzing the true operating performance of
the Company. PRELIMINARY NON-GAAP FINANCIAL MEASURES (in
millions, except per share data) (Unaudited)
Three Months Ended
December 31,
Six Months Ended
December 31,
ADJUSTED LATROBE OPERATING RESULTS 2012 2011 2012 2011
Latrobe segment operating income $ 13.2 $ 0.7 $ 28.9 $ 1.2
Specialty Steel Supply operating income
included in Performance Engineered
Products segment results
0.8 - 2.7 -
Carpenter distribution business operating
income in Mexico included
in Latrobe segment results
(0.2 ) (0.7 ) (0.9 ) (1.2 ) Latrobe pension EID included in pension
EID expense (0.6 ) - (1.2 ) -
Adjusted Latrobe operating results before income taxes 13.2
- 29.5 - Income taxes (4.6 ) - (10.3 )
- Adjusted Latrobe operating results $ 8.6 $ -
$ 19.2 $ - Adjusted Latrobe operating
results per diluted share $ 0.16 $ - $ 0.36 $ - Dilutive impact of
shares issued in connection with Latrobe acquisition* (0.11
) - (0.24 ) - Net
accretion from Latrobe's operating results $ 0.05 $ -
$ 0.12 $ - Weighted average shares outstanding
53.5 45.1 53.4
45.1 * In connection with the Latrobe Acquisition,
Carpenter issued shares of common stock to the former owners which
resulted in an
additional 8.1 million weighted average
shares during the three and six months ended December 31, 2012.
IMPACTS OF FACILITY START-UP,
MANUFACTURING FOOTPRINTOPTIMIZATION AND INVENTORY REDUCTION
INITIATIVE COSTS
Three Months Ended
December 31,
Six Months Ended
December 31,
2012 2011 2012 2011 Facility start-up costs $
1.3 $ - $ 2.2 $ - Manufacturing footprint optimization costs 0.2 -
0.3 - Inventory reduction initiative costs 1.0
- 1.6 - Operating income impact
$ 2.5 $ - $ 4.1 $ - Consolidated
net sales excluding surcharges $ 430.7 $ 330.3 $
871.5 $ 643.9 Impact of facility start-up,
manufacturing footprint optimization and inventory
reduction initiative costs on operating
margin excluding surcharges
0.6 % 0.0 % 0.5 % 0.0 %
Operating income impact $ 2.5 $ - $ 4.1 $ - Income tax benefit
(0.9 ) - (1.4 ) - Net
income impact $ 1.6 $ - $ 2.7 $ -
Impact per diluted share $ 0.03 $ - $ 0.05
$ - Weighted average shares outstanding
53.5 45.1 53.4 45.1
Management believes that removing the impacts of costs
associated with (i.) start-up of our Athens, AL facility, (ii.)
manufacturing footprint optimization associated with evaluating and
executing opportunities primarily as a result of the Latrobe
acquisition to optimize manufacturing efficiencies, and (iii.) an
inventory reduction initiative aimed at identifying opportunities
reduce inventory levels and improve inventory turnover across the
mill operations are helpful in analyzing the operating performance
of the Company, as these costs are expected to be nonrecurring in
nature and may result in significant fluctuations in operating
results from period to period during fiscal years 2013 and 2014.
PRELIMINARY SUPPLEMENTAL SCHEDULES (in millions) (Unaudited)
Three Months Ended Six Months Ended December
31, December 31, NET SALES BY END USE MARKET 2012 2011 2012 2011
End Use Market Excluding Surcharge: Aerospace and defense $
194.6 $ 142.6 $ 389.9 $ 271.0 Industrial and consumer 85.4 75.8
172.0 149.3 Energy 69.0 51.7 138.4 102.1 Transportation 24.2 22.5
50.3 44.5 Medical 24.2 28.2 52.0 57.4 Distribution 33.3
9.5 68.9 19.6 Consolidated net sales
excluding surcharge 430.7 330.3 871.5 643.9 Surcharge
revenue 102.8 100.8 207.0 201.3
Consolidated net sales $ 533.5 $ 431.1 $ 1,078.5 $ 845.2
Three Months Ended Six Months Ended December 31,
December 31, NET SALES BY MAJOR PRODUCT CLASS 2012
2011 2012 2011 Net Sales by Product Class
Excluding Surcharge: Special alloys $ 157.5 $ 136.3 $ 326.4 $ 264.3
Stainless steel 139.3 120.4 260.2 232.2 Titanium products 36.5 36.7
76.2 75.4 Powder metals 12.2 15.2 27.0 29.0 Alloy and tool steel
46.2 4.1 100.2 9.3 Distribution and other 39.0 17.6
81.5 33.7 Consolidated net sales excluding
surcharge 430.7 330.3 871.5 643.9 Surcharge revenue
102.8 100.8 207.0 201.3 Consolidated
net sales $ 533.5 $ 431.1 $ 1,078.5 $ 845.2
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