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Carpenter Technology Reports Third Quarter Results

Stocks in this article: CRS

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, and the Amega West business. 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 will be managed together with the Latrobe's distribution business.

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."

 
PRELIMINARY
NON-GAAP FINANCIAL MEASURES
(in millions, except per share data)
         
 
Three Months Ended Nine Months Ended
March 31, March 31,
FREE CASH FLOW 2012 2011 2012 2011
 
Net cash provided from (used for) operating activities $ 75.7 $ 11.1 $ 47.9 $ (53.0 )
Purchases of property, equipment and software (47.0 ) (17.9 ) (107.3 ) (35.6 )
Proceeds from disposals of property and equipment 0.4 0.9 0.6 1.0
Acquisition of equity method investment - - - (6.2 )
Proceeds received from sale of noncontrolling interest - - - 9.1
Dividends paid (8.0 ) (8.1 ) (24.2 ) (24.1 )
Acquisition of businesses, net of cash acquired   (11.5 )   -     (12.9 )   (41.6 )
 
Free cash flow $ 9.6   $ (14.0 ) $ (95.9 ) $ (150.4 )
 

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 Nine Months Ended
March 31, March 31,
NET PENSION EXPENSE PER DILUTED SHARE 2012   2011 2012   2011
 
Pension plans expense $ 9.7 $ 13.5 $ 28.4 $ 40.4
Other postretirement benefits expense   0.9     1.7     1.9     5.1  
Net pension expense 10.6 15.2 30.3 45.5
Income tax benefit   (4.0 )   (5.7 )   (11.5 )   (17.1 )
Net pension expense, net of tax $ 6.6   $ 9.5   $ 18.8   $ 28.4  
 
Net pension expense per diluted share $ 0.14   $ 0.21   $ 0.41   $ 0.64  
 
Weighted average diluted common shares   47.9     44.7     46.0     44.6  
 

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 Nine Months Ended
AND TOTAL ACQUISITION RELATED COSTS March 31, March 31,
  2012 2011 2012 2011
 
Net sales $ 539.9 $ 464.2 $ 1,385.1 $ 1,191.5
Less: surcharge revenue   120.9     126.2     322.2     312.7  
Consolidated net sales excluding surcharge $ 419.0   $ 338.0   $ 1,062.9   $ 878.8  
 
Operating income $ 55.7 $ 35.2 $ 143.6 $ 61.4
Pension earnings, interest & deferrals   3.8     8.8     11.1     26.4  
Operating income excluding pension earnings, interest
and deferrals $ 59.5   $ 44.0   $ 154.7   $ 87.8  
 
Total acquisition related costs   10.8     -     14.6     -  
 
Operating income excluding pension earnings, interest
and deferrals and total acquisition related costs $ 70.3   $ 44.0   $ 169.3   $ 87.8  
 
Operating margin excluding surcharge, pension earnings,
interest and deferrals   14.2 %   13.0 %   14.6 %   10.0 %
 
Operating margin excluding surcharge, pension earnings,
interest and deferrals and total acquisition related costs   16.8 %   13.0 %   15.9 %   10.0 %
 

Management believes that removing the impacts of raw material surcharges and total acquisition 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)
   
ADJUSTED LATROBE OPERATING RESULTS

Three MonthsEndedMarch 31, 2012

 

Nine MonthsEndedMarch 31, 2012

 

 
Latrobe segment operating income $ 2.9 $ 4.2
Inventory fair value cost adjustments included in Latrobe segment

operating income

2.9 2.9
Carpenter distribution business operating income in Mexico included

in Latrobe segment results

(0.5 ) (1.8 )
Latrobe pension EID included in pension EID expense   (0.2 )   (0.2 )
Adjusted Latrobe operating results before income taxes 5.1 5.1
Income taxes   (1.7 )   (1.7 )
Adjusted Latrobe operating results $ 3.4   $ 3.4  
 
Adjusted Latrobe operating results per diluted share $ 0.07   $ 0.07  
 
Weighted average shares outstanding   47.9     46.0  
 
 
TOTAL ACQUISITION RELATED COSTS

Three MonthsEndedMarch 31, 2012

 

Nine MonthsEndedMarch 31, 2012

 

 
Acquisition related costs (from transaction) $ 7.9 $ 11.7
Inventory fair value cost adjustments   2.9     2.9  
Total acquisition related costs before income taxes 10.8 14.6
Income taxes   (3.4 )   (3.8 )
Total acquisition related costs $ 7.4   $ 10.8  
 
Total acquisition related costs per diluted share $ 0.15   $ 0.23  
 
Weighted average shares outstanding   47.9     46.0  

Management believes that removing the impacts of the adjusted Latrobe operating results and the total acquisition related costs is useful when comparing results of operations from period to period.

PRELIMINARY
SUPPLEMENTAL SCHEDULES
(in millions)
       
 
Three Months Ended Nine Months Ended
March 31, March 31,
NET SALES BY MAJOR PRODUCT CLASS 2012 2011 2012 2011
 
Net Sales by Product Class Excluding Surcharge:
Special alloys $ 173.9 $ 154.1 $ 438.2 $ 398.4
Stainless steel 133.1 113.7 365.4 290.6
Titanium products 37.9 34.1 113.3 95.4
Powder metals 14.2 15.4 43.1 39.2
Alloy and tool steel 23.5 5.9 32.8 15.7
Distribution and other   36.4   14.8   70.1   39.5
 
Consolidated net sales excluding surcharge $ 419.0 $ 338.0 $ 1,062.9 $ 878.8
 
Surcharge revenue   120.9   126.2   322.2   312.7
 
Consolidated net sales $ 539.9 $ 464.2 $ 1,385.1 $ 1,191.5
 
 
Three Months Ended Nine Months Ended
March 31, March 31,
NET SALES BY END USE MARKET 2012 2011 2012 2011
 
End Use Market Excluding Surcharge:
Aerospace and defense $ 178.3 $ 146.0 $ 449.4 $ 370.8
Industrial and consumer 95.0 84.8 244.2 234.1
Energy 57.2 44.4 159.3 101.8
Transportation 28.5 25.0 73.0 69.4
Medical 34.1 27.8 91.5 74.2
Distribution   25.9   10.0   45.5   28.5
 
Consolidated net sales excluding surcharge $ 419.0 $ 338.0 $ 1,062.9 $ 878.8
 
Surcharge revenue   120.9   126.2   322.2   312.7
 
Consolidated net sales $ 539.9 $ 464.2 $ 1,385.1 $ 1,191.5




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