Carpenter Technology Reports First Quarter Results.Business Editors WYOMISSING, Pa.--(BUSINESS WIRE)--Oct. 28, 2002 Carpenter Technology Corporation Carpenter Technology Corporation (NYSE:CRS) is a leading manufacturer and distributor of specialty alloys, including stainless steel and titanium, and various engineered products made from metallic and ceramic materials. (NYSE NYSE See: New York Stock Exchange :CRS CRS Course CRS Certified Residential Specialist (real estate certification) CRS Central Reservation System CRS Can't Remember Stuff (polite form) CRS Cost Reduction Strategy CRS Consumer Relations Specialist ) today reported a fiscal first quarter loss but continued to further reduce debt. Net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the first fiscal quarter ended September September: see month. 30, 2002 were $213.8 million compared to $251.1 million for the same period a year ago. The first quarter net loss was $10.9 million or $.51 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to a net loss of $106.4 million or $4.82 per diluted share a year ago. Last year's first quarter included a $112.3 million charge, or $5.06 per diluted share, related to the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. ." As part of its strategy to reduce costs and improve operational effectiveness, the company announced in September that it would eliminate approximately 500 positions or 10 percent of its workforce. The net loss in the first quarter included an after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. special charge of $8.5 million related primarily to severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when costs associated with the elimination of salaried positions. Carpenter's net loss before the special charge was $2.4 million or $.13 per diluted share. Carpenter will incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. an after-tax special charge in the second quarter of approximately $6.0 million related primarily to the costs of early retirement incentives. The special charges incurred in the first and second quarters will not materially affect Carpenter's operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. since the severance costs will be funded predominately from its overfunded pension plan Overfunded pension plan A pension plan that has a positive surplus (i.e., assets exceed liabilities). . Free cash flow, defined as net cash before financing activities but after dividends, was $8.3 million in the first quarter versus $6.3 million a year ago. The first quarter of fiscal 2003 included an $11.0 million tax refund Tax refund Money back from the government when too much tax has been paid or withheld from a salary. . As a result of the company's working capital management efforts, total debt, net of cash and including amounts outstanding under the company's receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed purchase facility, was reduced to $418.5 million. This debt level is $15.6 million lower than at the end of the previous quarter and $90.2 million lower than a year ago. Operating Summary "As expected, business conditions in the first quarter were challenging," said Dennis Dennis is a male first name derived from the Greco-Roman name Dionysius meaning "servant of Dionysus", the Thracian god of wine, which is ultimately derived from the Greek Dios (Διος, "of Zeus") combined with Nysos or Nysa (Νυσα), where the M. Draeger, chairman and chief executive officer. "We are cautious about the timing of an economic recovery, as some recent indicators point to continued sluggish conditions in the U.S. manufacturing sector. "Accordingly, we have taken aggressive actions to further reduce costs so that Carpenter can be profitable, continue to generate free cash flow and pay down debt." In the first quarter, Carpenter's sales were negatively impacted by a steep decline in demand for aerospace and power generation related materials. The decline in sales also reflects inventory adjustments taking place within the supply chain due to expected lower deliveries for commercial jet aircraft and industrial gas turbines. Sales to the power generation market are expected to recover before sales to the aerospace market, which may be depressed at least until calendar year 2004. Partially offsetting the reduced demand from the aerospace and power generation markets were sales increases in several product lines of the company's industrial and consumer markets. Carpenter said it is encouraged by this increased activity since these two markets account for approximately 50 percent of the company's total sales. Sales to the automotive market were similar to last year's level. "We are focusing on growth through increased marketing efforts in all business units and by expanding product offerings within our distribution channels," Draeger said. Earlier this month, Carpenter launched a new product offering named Project 70+ (R) stainless. This line of premium machining stainless alloys This is a list of alloys for which an article exists in Wikipedia (or is proposed but not yet written). They are grouped by base metal, in order of increasing atomic number. Within these headings they are in no particular order. provides customers with superior machining performance and better lot-to-lot consistency over competing products. Despite increased stainless volumes from a year ago, Carpenter's operating performance was adversely affected by a shift in product mix towards lower value materials. In addition, specialty metals pricing continues to be impacted by weak demand, excess global capacity and the availability of low-priced imported stainless bar, rod and wire. "While near-term near-term adj. Of, for, or involving a short period of time in the near future. business conditions are challenging, Carpenter's fundamentals remain sound," Draeger said. "We have strengthened the company during this cyclical cyclical Of or relating to a variable, such as housing starts, car sales, or the price of a certain stock, that is subject to regular or irregular up-and-down movements. downturn Downturn The transition point between a rising, expanding economy to a falling, contracting one. downturn A decline in security prices or economic activity following a period of rising or stable prices or activity. by lowering our costs. These actions should enhance profitability as the economy recovers." In the current market environment, Carpenter expects to return to profitability in the second half of fiscal 2003 and generate free cash flow in excess of $40 million for fiscal 2003. Segment Results Specialty Metals Net sales for the quarter ended September 30, 2002 for the Specialty Metals segment, which includes the Specialty Alloys Operations (SAO Sa´o n. 1. (Zool.) Any marine annelid of the genus Hyalinæcia, especially H. tubicola of Europe, which inhabits a transparent movable tube resembling a quill in color and texture. ), Dynamet, and Carpenter Powder Products (CPP cpp - C preprocessor. ) business units, were $186.0 million or $29.7 million lower than in the same quarter a year ago. SAO sales decreased by 12 percent due to a significantly weaker sales mix sales mix See product mix. and reduced selling prices. SAO volume was 14 percent higher than last year due mainly to increased sales of lower valued stainless wire and rod products. However, the weaker sales mix that resulted, combined with decreased shipment levels of higher valued specialty alloys to the aerospace and power generation markets and sustained pricing pressures on stainless products, adversely impacted sales. Dynamet's sales decreased 37 percent in the first quarter versus a year ago, primarily due to lower volumes to the aerospace market. CPP's sales were about equal to last year. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. for the Specialty Metals segment was $2.9 million, which was $9.4 million lower than last year. This decrease was due primarily to SAO's weaker sales mix and Dynamet's reduced sales volumes, partially offset by improved operating efficiencies and by lower selling and administrative expenses. Engineered Products Segment Net sales for this segment, which includes sales of ceramic This article is about ceramic materials. For the fine art, see Ceramic art. The word ceramic is derived from the Greek word κεραμικός (keramikos). cores and complex shapes made from a wide variety of materials, were $28.4 million as compared to $35.7 million a year ago. Last year's first quarter included $1.7 million in sales from businesses that were subsequently divested. This group of companies was largely affected by a slowdown For articles with similar titles, see Slow Down (disambiguation). A slowdown is an industrial action in which employees perform their duties but seek to reduce productivity or efficiency in their performance of these duties. in the aerospace and industrial gas turbine turbine, rotary engine that uses a continuous stream of fluid (gas or liquid) to turn a shaft that can drive machinery. A water, or hydraulic, turbine is used to drive electric generators in hydroelectric power stations. markets. The operating income for the Engineered Products segment was $2.2 million in the first quarter versus $3.9 million a year ago. The decline in operating income was primarily due to lower volumes as a result of reduced demand from key markets. Net Pension Credit The net pension credit represents income relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc Carpenter's overfunded defined benefit pension plan, less the expense for the post-retirement benefit plans and the other underfunded un·der·fund tr.v. un·der·fund·ed, un·der·fund·ing, un·der·funds To provide insufficient funding for. underfunded adj → infradotado (económicamente) defined benefit pension plans. The net pension credit was $1.1 million in the first quarter versus $4.3 million last year. The net pension credit is chiefly a result of the overfunded position of Carpenter's largest defined benefit pension plan. The lower level of the net pension credit versus the prior year was due primarily to the equity markets' investment losses on the pension and post-retirement plan assets as of June June: see month. 30, 2002. Special Charges In the first quarter of fiscal 2003, an after-tax special charge of $8.5 million ($.38 per share) was incurred for the costs (severance payments, enhanced pension benefits and medical coverage) of eliminating approximately 235 salaried positions ($6.8 million after-tax) and for an estimated loss on asset disposals ($1.7 million after-tax). An additional after-tax special charge of approximately $6.0 million will be incurred in the second quarter, chiefly for the costs of early retirement incentives. These charges will not materially affect cash flow since the severance costs will be paid predominately from the company's overfunded pension plan. Other Comments Selling and administrative expenses of $31.7 million were lower than last year by $4.9 million or 13 percent. The favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. impacts of lower salary and benefits, depreciation and amortization, telecommunication telecommunication Communication between parties at a distance from one another. Modern telecommunication systems—capable of transmitting telephone, fax, data, radio, or television signals—can transmit large volumes of information over long distances. and travel and entertainment costs were partially offset by the reduced net pension credit. Interest expense of $8.0 million was lower than last year by $0.9 million due to lower current-year debt levels and lower interest rates. Income taxes in the current year first quarter include a $1.3 million benefit from research and development credits. Cash Flow and Liquidity Carpenter has maintained the ability to provide cash to meet its needs through cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses , management of working capital and the flexibility to use outside sources of financing to supplement internally generated funds. Free cash flow (cash flow provided before financing activities less dividends paid) was $8.3 million versus $6.3 million a year ago. The higher level of free cash flow was due to an $11.0 million tax refund. Carpenter believes that its current financial resources, both from internal and external sources, will be more than adequate to meet its foreseeable fore·see tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees To see or know beforehand: foresaw the rapid increase in unemployment. needs. At the end of the first quarter, Carpenter had approximately $135 million available under its credit facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities . Labor Relations Carpenter also announced that, on October October: see month. 23, 2002, the United Automobile, Aerospace, and Agricultural Implementation Workers of America America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. (UAW (spelling) UAW - Misspelling of "IAW"? ) filed a petition with the National Labor Relations Board National Labor Relations Board (NLRB), independent agency of the U.S. government created under the National Labor Relations Act of 1935 (Wagner Act), and amended by the acts of 1947 (Taft-Hartley Labor Act) and 1959 (Landrum-Griffin Act), which affirmed labor's right (NLRB) seeking an election to determine if the UAW should represent certain production and maintenance employees located at Carpenter's Reading, Pennsylvania Reading (IPA:/ˈrɛdɪŋ/) is the county seat of Berks County, Pennsylvania and the center of the Greater Reading Area. facility for collective bargaining collective bargaining, in labor relations, procedure whereby an employer or employers agree to discuss the conditions of work by bargaining with representatives of the employees, usually a labor union. . Carpenter's Reading facility has had previous union organizing activities that were not successful. Carpenter intends to oppose the union organizing drive by the UAW in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with the rules and procedures of the NLRB. Conference Call Carpenter will host an analyst meeting in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. , which will be simultaneously available by conference call and by webcast today, October 28, at 2 p.m., Eastern Time. The company will discuss the results of operations for the first quarter, current business conditions and strategic initiatives. Carpenter produces and distributes specialty materials, including stainless steels stainless steel: see steel. stainless steel Any of a family of alloy steels usually containing 10–30% chromium. The presence of chromium, together with low carbon content, gives remarkable resistance to corrosion and heat. , titanium alloys Titanium alloys are metallic materials which contain a mixture of titanium and other chemical elements. Such alloys have very high tensile strength and toughness (even at extreme temperatures), light weight, extraordinary corrosion resistance, and ability to withstand extreme , superalloys and various engineered products. Information about Carpenter can be found on the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the at www.cartech.com, with selected products sold online at www.carpenterdirect.com. Except for historical information, all other information in this news release consists of forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of the Private Securities Litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called 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 report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended June 30, 2002, and its most recent registration statement on Form S-4, filed on October 12, 2001, as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. on November November: see month. 29, 2001. They include but are not limited to: 1) the cyclical nature of the specialty materials business and certain end-use markets, including aerospace, automotive and consumer durables Consumer durables Consumer products that are expected to last three years or more, such as an automobile or a home appliance. consumer durables See durable goods. , which are subject to changes in general economic and financial market conditions; 2) the ability of Carpenter to recoup recoup To sell an asset at a price sufficient to recover the original outlay or to offset a previous loss. increased costs of electricity, natural gas and raw materials, such as nickel nickel, metallic chemical element; symbol Ni; at. no. 28; at. wt. 58.69; m.p. about 1,453°C;; b.p. about 2,732°C;; sp. gr. 8.902 at 25°C;; valence 0, +1, +2, +3, or +4. , through increased prices and surcharges; 3) worldwide excess manufacturing capacity for certain alloys that Carpenter produces; 4) fluctuations in currency exchange rates, resulting in increased competition and downward pricing pressure on certain Carpenter products; 5) the degree of success of government trade actions; and 6) fluctuations in stock markets that could impact the valuation of the assets in Carpenter's pension trusts and the accounting for pension assets. Carpenter undertakes no obligation to update or revise any forward-looking statements.
CONSOLIDATED STATEMENT OF OPERATIONS
(in Millions, Except per Share Data)
Quarter Ended
September 30
-----------------
2002 2001
-------- --------
NET SALES $213.8 $251.1
-------- --------
COSTS AND EXPENSES:
Cost of sales 180.2 198.3
Selling and administrative expenses 31.7 36.6
Special charge 14.2 --
Interest expense 8.0 8.9
Other income, net (0.3) (1.7)
-------- --------
233.8 242.1
-------- --------
Income (loss) before income taxes (20.0) 9.0
Income taxes (benefit) (9.1) 3.1
-------- --------
Net income (loss) before cumulative
effect of accounting change (10.9) 5.9
Cumulative effect of accounting change -- (112.3)
-------- --------
NET LOSS ($10.9) ($106.4)
======== ========
EARNINGS (LOSS) PER COMMON SHARE:
Basic:
Income (loss) before cumulative effect
of accounting changes ($0.51) $0.24
Cumulative effect of accounting changes -- (5.06)
-------- --------
Net loss ($0.51) ($4.82)
======== ========
Diluted:
Income (loss) before cumulative effect
of accounting changes ($0.51) $0.24
Cumulative effect of accounting changes -- (5.06)
-------- --------
Net loss ($0.51) ($4.82)
======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
Basic 22.3 22.2
======== ========
Diluted 22.3 23.0
======== ========
Cash dividends per common share $0.33 $0.33
======== ========
Certain reclassifications of prior year's amounts have been made to
conform with current year's presentation.
PRELIMINARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in Millions)
Quarter Ended
September 30
-----------------
2002 2001
------- ---------
OPERATIONS:
Net loss ($10.9) ($106.4)
Adjustments to reconcile net income to
net cash provided from operations:
Depreciation 13.7 14.1
Amortization of intangible assets 2.2 3.3
Goodwill impairment charge -- 112.3
Deferred income taxes (3.0) 2.2
Net pension credit (1.1) (4.3)
Net loss (gain) on asset disposals 0.1 (0.2)
Special charge 14.2 --
Changes in working capital and other:
Receivables 16.7 24.1
Inventories (8.1) (17.9)
Accounts payable (3.5) 2.6
Accrued current liabilities (2.3) (1.6)
Income tax refund 11.0 --
Other, net (10.0) (4.5)
------- ---------
Net cash provided from operations 19.0 23.7
------- ---------
INVESTING ACTIVITIES:
Purchases of plant, equipment and software (3.1) (9.8)
Proceeds from disposals of plant and equipment 0.2 0.2
------- ---------
Net cash used for investing activities (2.9) (9.6)
------- ---------
NET CASH PROVIDED BEFORE FINANCING ACTIVITIES 16.1 14.1
------- ---------
FINANCING ACTIVITIES:
Change in short-term debt (1.3) (90.3)
Proceeds from issuance of long-term debt -- 98.8
Payments on long-term debt (1.0) (15.0)
Dividends paid (7.8) (7.8)
Proceeds from issuance of common stock -- 0.5
------- ---------
Net cash used for financing activities (10.1) (13.8)
------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 6.0 0.3
Cash and cash equivalents at beginning of period 18.7 7.8
------- ---------
Cash and cash equivalents at end of period $24.7 $8.1
======= =========
------- ---------
Free cash flow (cash flow before financing less
dividends paid) $8.3 $6.3
======= =========
Certain reclassifications of prior year's amounts have been
made to conform with current year's presentation.
PRELIMINARY
CONSOLIDATED BALANCE SHEET
(in Millions)
September 30 June 30
2002 2002
-------------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $24.7 $18.7
Accounts receivable, net 117.0 133.7
Inventories 198.1 190.0
Other current assets 33.1 33.5
-------------- ---------
Total current assets 372.9 375.9
Property, plant and equipment, net 690.0 713.1
Prepaid pension cost 251.4 255.9
Goodwill, net 46.3 46.3
Trademarks and trade names, net 26.2 26.4
Other assets 60.0 61.9
-------------- ---------
Total assets $1,446.8 $1,479.5
============== =========
LIABILITIES
Current liabilities:
Short-term debt $15.5 $16.8
Accounts payable 73.3 76.8
Accrued liabilities 60.5 61.1
Deferred income taxes 5.0 5.9
Current portion of long-term debt 50.1 50.2
-------------- ---------
Total current liabilities 204.4 210.8
Long-term debt, net of current portion 367.6 375.8
Accrued postretirement benefits 170.8 167.8
Deferred income taxes 179.8 182.3
Other liabilities 43.0 34.5
-------------- ---------
Total liabilities 965.6 971.2
-------------- ---------
STOCKHOLDERS' EQUITY
Convertible preferred stock 9.2 24.4
Common stock 117.2 117.3
Capital in excess of par value - common
stock 200.1 200.1
Reinvested earnings 210.3 229.0
Common stock in treasury, at cost (38.4) (38.3)
Deferred compensation (4.2) (11.7)
Accumulated other comprehensive income
(loss) (13.0) (12.5)
-------------- ---------
Total stockholders' equity 481.2 508.3
-------------- ---------
Total liabilities and stockholders' equity $1,446.8 $1,479.5
============== =========
PRELIMINARY
SEGMENT FINANCIAL DATA
(in Millions)
Quarter Ended
September 30
---------------
2002 2001
------- -------
Net sales:
Specialty Metals $186.0 $215.7
Engineered Products 28.4 35.7
Intersegment (0.6) (0.3)
------- -------
Consolidated net sales $213.8 $251.1
======= =======
Operating results:
Specialty Metals $2.9 $12.3
Engineered Products 2.2 3.9
Net pension credit 1.1 4.3
Corporate costs (4.3) (4.3)
Special charge (14.2) --
Interest expense (8.0) (8.9)
Other income, net 0.3 1.7
------- -------
Consolidated income (loss)
before income taxes and
cumulative effect of
accounting changes ($20.0) $9.0
======= =======
Carpenter is organized on a product basis: Specialty Alloys
Operations, Dynamet, Carpenter Powder Products and Engineered Products
Group. For segment reporting purposes, Specialty Alloys Operations,
Dynamet and Carpenter Powder Products are aggregated into one
reportable segment called Specialty Metals because of the similarities
in products, processes, customers and distribution methods.
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