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Carpenter Technology Reports Fourth Quarter Results

Stocks in this article: CRS

Conference Call

Carpenter will host a conference call and webcast today, July 31, at 10:00 a.m., ET, to discuss financial results and operations for the fiscal fourth 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, 2011 and the quarterly reports on Form 10-Q for the quarters ended September 30, 2011, December 31, 2011 and March 31, 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)
       
June 30, June 30,
2012 2011
 
ASSETS
Current assets:
Cash and cash equivalents $ 211.0 $ 492.5
Marketable securities - 30.5
Accounts receivable, net 354.2 259.4
Inventories 642.0 328.6
Deferred income taxes 10.6 14.9
Other current assets   31.9     31.7  
Total current assets 1,249.7 1,157.6
 
Property, plant and equipment, net 924.6 662.9
Goodwill 260.5 44.9
Other intangibles, net 109.9 30.0
Other assets   83.1     96.5  
Total assets $ 2,627.8   $ 1,991.9  
 
LIABILITIES
Current liabilities:
Accounts payable $ 236.1 $ 170.5
Accrued liabilities 217.1 124.9
Current portion of long-term debt   101.0     100.0  
Total current liabilities 554.2 395.4
 
Long-term debt, net of current portion 305.9 407.8
Accrued pension liabilities 377.3 188.5
Accrued postretirement benefits 179.8 108.7
Deferred income taxes 31.4 48.3
Other liabilities   66.1     67.2  
Total liabilities   1,514.7     1,215.9  
 
STOCKHOLDERS' EQUITY
Carpenter stockholders' equity:
Common stock 274.0 273.7
Capital in excess of par value 252.7 235.4
Reinvested earnings 1,109.6 1,022.1
Common stock in treasury, at cost (120.0 ) (532.2 )
Accumulated other comprehensive loss   (412.5 )   (233.3 )
Total Carpenter stockholders' equity   1,103.8     765.7  
Noncontrolling interest   9.3     10.3  
Total equity   1,113.1     776.0  
Total liabilities and equity $ 2,627.8   $ 1,991.9  
 
 
PRELIMINARY
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
       
 
Three Months Ended Year Ended
June 30, June 30,
 
2012 2011 2012 2011
 
NET SALES $ 643.7 $ 483.6 $ 2,028.7 $ 1,675.1
Cost of sales   523.1     406.6     1,637.7     1,426.1  
Gross profit 120.6 77.0 391.0 249.0
 
Selling, general and administrative expenses 54.1 39.6 169.2 149.5
Acquisition related costs   -     2.4     11.7     3.1  
Operating income 66.5 35.0 210.1 96.4
 
Interest expense (5.4 ) (4.2 ) (23.8 ) (17.1 )
Other income, net   0.9     2.8     2.3     8.5  
 
Income before income taxes 62.0 33.6 188.6 87.8
Income tax expense   21.0     7.7     67.0     16.1  
 
Net income 41.0 25.9 121.6 71.7
 
Less: Net income attributable to noncontrolling interest   0.2     0.4     0.4     0.7  
 
NET INCOME ATTRIBUTABLE TO CARPENTER $ 40.8   $ 25.5   $ 121.2   $ 71.0  
 
EARNINGS PER SHARE:
Basic $ 0.77   $ 0.57   $ 2.55   $ 1.59  
Diluted $ 0.77   $ 0.57   $ 2.53   $ 1.59  
 
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic   52.6     44.2     47.1     44.1  
Diluted   53.3     45.0     47.8     44.7  
 
Cash dividends per common share $ 0.18   $ 0.18   $ 0.72   $ 0.72  
 
 
PRELIMINARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
   
Year Ended
June 30,
 
2012 2011
 
OPERATING ACTIVITIES:
Net income $ 121.6 $ 71.7
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization 83.8 66.5
Deferred income taxes 36.8 (5.0 )
Net pension expense 42.1 60.8
Net loss on disposal of property and equipment 2.0 0.8
Changes in working capital and other:
Accounts receivable (31.1 ) (56.9 )
Inventories (77.3 ) (116.1 )
Other current assets 1.6 6.4
Accounts payable 10.2 34.5
Accrued liabilities 20.1 4.6
Pension contribution (30.0 ) (3.9 )
Boarhead Farms settlement (21.8 ) -
Other, net   2.3     0.8  
Net cash provided from operating activities   160.3     64.2  
 
INVESTING ACTIVITIES:
Purchases of property, equipment and software (171.9 ) (79.6 )
Proceeds from disposals of property and equipment 1.2 1.1
Acquisition of businesses, net of cash acquired (12.9 ) (45.4 )
Capital contributions to equity method investment (1.8 ) (6.2 )
Purchases of marketable securities - (91.3 )
Proceeds from sales and maturities of marketable securities   30.5     166.0  
Net cash used for investing activities   (154.9 )   (55.4 )
 
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt, net of offering costs - 247.4
Payments on long-term debt assumed in connection with acquisition of business (153.7 ) (12.4 )
Payments on long-term debt (100.0 ) -
Proceeds received from sale of noncontrolling interest - 9.1
Dividends paid (33.7 ) (32.1 )
Payments of debt issue costs - (1.4 )
Tax benefits on share-based compensation 2.2 1.7
Proceeds from stock options exercised   1.8     1.6  
Net cash (used for) provided from financing activities   (283.4 )   213.9  
 
Effect of exchange rate changes on cash and cash equivalents   (3.5 )   4.4  
 
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (281.5 ) 227.1
Cash and cash equivalents at beginning of period   492.5     265.4  
Cash and cash equivalents at end of period $ 211.0   $ 492.5  
 
 
PRELIMINARY
SEGMENT FINANCIAL DATA
(in millions, except pounds sold)
           
Three Months Ended Year Ended
June 30, June 30,
2012 2011 2012 2011
Pounds sold (000):
Specialty Alloys Operations 60,720 55,280 207,560 207,246
Performance Engineered Products 3,840 4,032 14,182 14,134
Latrobe 17,012 - 22,970 -
Intersegment   (5,544 )   (1,260 )   (9,180 )   (4,546 )
 
Consolidated pounds sold   76,028     58,052     235,532     216,834  
 
Net sales:
Specialty Alloys Operations
Net sales excluding surcharge $ 324.5 $ 276.0 $ 1,126.8 $ 990.4
Surcharge   119.9     132.2     439.8     440.9  
 
Specialty Alloys Operations net sales $ 444.4   $ 408.2   $ 1,566.6   $ 1,431.3  
 
Performance Engineered Products
Net sales excluding surcharge $ 93.5 $ 81.2 $ 342.1 $ 243.2
Surcharge   1.4     1.1     4.9     5.1  
 
Performance Engineered Products net sales $ 94.9   $ 82.3   $ 347.0   $ 248.3  
 
Latrobe
Net sales excluding surcharge $ 123.4 $ 10.2 $ 193.2 $ 38.7
Surcharge   18.4     -     24.5     -  
 
Latrobe net sales $ 141.8   $ 10.2   $ 217.7   $ 38.7  
 
Intersegment   (37.4 )   (17.1 )   (102.6 )   (43.2 )
Consolidated net sales $ 643.7   $ 483.6   $ 2,028.7   $ 1,675.1  
 
Operating income:
Specialty Alloys Operations $ 65.5 $ 44.5 $ 229.4 $ 139.3
Performance Engineered Products 9.7 12.2 41.7 35.0
Latrobe 9.2 0.6 13.3 2.2
Corporate costs (including acquisition related costs) (11.9 ) (12.5 ) (53.2 ) (42.0 )
Pension earnings, interest & deferrals (4.3 ) (8.8 ) (15.3 ) (35.2 )
Intersegment   (1.7 )   (1.0 )   (5.8 )   (2.9 )
 
Consolidated operating income $ 66.5   $ 35.0   $ 210.1   $ 96.4  
 
 
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, 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 Year Ended
June 30, June 30,
FREE CASH FLOW 2012 2011 2012 2011
Net cash provided from operating activities $ 112.4 $ 117.2 $ 160.3 $ 64.2
Purchases of property, equipment and software (64.6 ) (44.0 ) (171.9 ) (79.6 )
Proceeds from disposals of property and equipment 0.6 0.1 1.2 1.1
Capital contributions to equity method investment (1.8 ) - (1.8 ) (6.2 )
Proceeds received from sale of noncontrolling interest - - - 9.1
Dividends paid (9.5 ) (8.0 ) (33.7 ) (32.1 )
Acquisition of businesses, net of cash acquired   -     (3.8 )   (12.9 )   (45.4 )
 
Free cash flow $ 37.1   $ 61.5   $ (58.8 ) $ (88.9 )
 
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   Year Ended
June 30, June 30,
NET PENSION EXPENSE PER DILUTED SHARE 2012   2011 2012   2011
 
Pension plans expense $ 10.1 $ 13.6 $ 38.5 $ 54.0
Other postretirement benefits expense   1.7     1.6     3.6     6.8  
Net pension expense 11.8 15.2 42.1 60.8
Income tax benefit   (4.4 )   (5.8 )   (15.9 )   (23.2 )
Net pension expense, net of tax $ 7.4   $ 9.4   $ 26.2   $ 37.6  
 
Net pension expense per diluted share $ 0.14   $ 0.21   $ 0.55   $ 0.84  
 
Weighted average diluted common shares   53.3     45.0     47.8     44.7  
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 Year Ended
AND ACQUISITION RELATED COSTS (FROM TRANSACTION) June 30, June 30,
  2012 2011 2012 2011
 
Net sales $ 643.7 $ 483.6 $ 2,028.7 $ 1,675.1
Less: surcharge revenue   137.0     131.2     459.1     444.0  
Consolidated net sales excluding surcharge $ 506.7   $ 352.4   $ 1,569.6   $ 1,231.1  
 
Operating income $ 66.5 $ 35.0 $ 210.1 $ 96.4
Pension earnings, interest & deferrals   4.3     8.8     15.3     35.2  
Operating income excluding pension earnings, interest
and deferrals $ 70.8 $ 43.8 $ 225.4 $ 131.6
 
Acquisition related costs (from transaction)   -     2.4     11.7     3.1  
 
Operating income excluding pension earnings, interest
and deferrals and acquisition related costs (from transaction) $ 70.8   $ 46.2   $ 237.1   $ 134.7  
 
Operating margin excluding surcharge, pension earnings,
interest and deferrals   14.0 %   12.4 %   14.4 %   10.7 %
 
Operating margin excluding surcharge, pension earnings,
interest and deferrals and acquisition related costs (from transaction)   14.0 %   13.1 %   15.1 %   10.9 %
Management believes that removing the impacts of raw material surcharges and acquisition related costs (from transaction) 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 Months Ended

June 30, 2012

  Year Ended

June 30, 2012

 
Latrobe segment operating income $ 9.2 $ 13.3

Inventory fair value cost adjustments included in Latrobe segment operating income

8.7 11.6

Carpenter distribution business operating income in Mexico included in Latrobe segment results

(0.2 ) (1.9 )
Latrobe pension EID included in pension EID expense   (0.7 )   (0.9 )
Adjusted Latrobe operating results before income taxes 17.0 22.1
Income taxes   (6.0 )   (7.7 )
Adjusted Latrobe operating results $ 11.0   $ 14.4  
 
Adjusted Latrobe operating results per diluted share $ 0.21   $ 0.30  
 
Weighted average shares outstanding   53.3     47.8  
 
 
TOTAL ACQUISITION RELATED COSTS Three Months Ended

June 30, 2012

  Year Ended

June 30, 2012

 
Acquisition related costs (from transaction) $ - $ 11.7
Inventory fair value cost adjustments   8.7     11.6  
Total acquisition related costs before income taxes 8.7 23.3
Income taxes   (3.0 )   (6.8 )
Total acquisition related costs $ 5.7   $ 16.5  
 
Total acquisition related costs per diluted share $ 0.11   $ 0.35  
 
Weighted average shares outstanding   53.3     47.8  
 
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 Year Ended
June 30, June 30,
NET SALES BY END USE MARKET 2012 2011 2012 2011
 
End Use Market Excluding Surcharge:
Aerospace and defense $ 219.6 $ 141.6 $ 668.8 $ 512.1
Industrial and consumer 102.4 90.7 346.7 324.9
Energy 68.1 54.2 227.4 156.0
Transportation 31.0 25.5 104.0 95.0
Medical 34.1 30.2 125.7 104.4
Distribution   51.5   10.2   97.0   38.7
 
Consolidated net sales excluding surcharge $ 506.7 $ 352.4 $ 1,569.6 $ 1,231.1
 
Surcharge revenue   137.0   131.2   459.1   444.0
 
Consolidated net sales $ 643.7 $ 483.6 $ 2,028.7 $ 1,675.1
 
 
 
Three Months Ended Year Ended
June 30, June 30,
NET SALES BY MAJOR PRODUCT CLASS 2012 2011 2012 2011
 
Net Sales by Product Class Excluding Surcharge:
Special alloys $ 188.0 $ 149.6 $ 626.2 $ 548.0
Stainless steel 147.2 124.3 512.4 414.8
Titanium products 43.3 39.9 156.6 135.3
Powder metals 16.5 17.7 59.7 56.9
Alloy and tool steel 52.9 5.9 85.7 21.6
Distribution and other   58.8   15.0   129.0   54.5
 
Consolidated net sales excluding surcharge $ 506.7 $ 352.4 $ 1,569.6 $ 1,231.1
 
Surcharge revenue   137.0   131.2   459.1   444.0
 
Consolidated net sales $ 643.7 $ 483.6 $ 2,028.7 $ 1,675.1
 




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