10-QPeriod: Q1 FY2003

CARPENTER TECHNOLOGY CORP Quarterly Report for Q1 Ended Sep 30, 2002

Filed November 13, 2002For Securities:CRS

Summary

Carpenter Technology Corporation (CRS) reported a net loss of $10.9 million for the first quarter of fiscal year 2003, compared to a significantly larger loss of $106.4 million in the prior year's first quarter. This improvement was largely due to the absence of a substantial goodwill impairment charge recorded in the prior year. The current quarter's results were impacted by a $14.2 million pre-tax special charge related to workforce reductions aimed at improving operational effectiveness. Net sales declined by 14.9% year-over-year, driven by weaker demand in the aerospace and power generation markets, as well as pricing pressures on stainless products and an unfavorable product mix shift towards lower-value materials. Despite the net loss, the company reported positive operating cash flow of $19.0 million and reduced capital expenditures. Management expressed cautious optimism, expecting a return to profitability in the second half of fiscal 2003 and significant free cash flow generation. However, the company announced a reduction in its quarterly dividend to $0.0825 per share from $0.33 per share, signaling a focus on cost reduction and debt paydown amid continued economic sluggishness.

Key Highlights

  • 1Reported a net loss of $10.9 million ($0.51 per diluted share) for the three months ended September 30, 2002, a significant improvement from the $106.4 million loss ($4.82 per diluted share) in the prior year, primarily due to the absence of a large goodwill impairment charge.
  • 2Recognized a $14.2 million pre-tax special charge related to workforce reductions (elimination of ~235 salaried positions) aimed at cost reduction and operational efficiency.
  • 3Net sales decreased by 14.9% to $213.8 million, impacted by lower demand in aerospace and power generation sectors, pricing pressures on stainless products, and a shift in product mix.
  • 4Operating income for the Specialty Metals segment decreased significantly year-over-year, while the Engineered Products segment also saw a decline in sales and operating income.
  • 5Generated $19.0 million in cash from operations, with capital expenditures reduced to $3.1 million, resulting in positive free cash flow before financing activities of $16.1 million.
  • 6Announced a reduction in the quarterly cash dividend to $0.0825 per share from $0.33 per share, effective October 28, 2002.
  • 7Management anticipates a return to profitability in the second half of fiscal 2003 and expects to generate free cash flow exceeding $40 million for the full fiscal year.

Frequently Asked Questions

The significant improvement in net loss, from $106.4 million in the prior year to $10.9 million in the current quarter, is largely attributable to the absence of a $112.3 million goodwill impairment charge that was recorded in the prior year's first quarter related to the adoption of SFAS No. 142.

The company incurred a $14.2 million pre-tax special charge in the current quarter, primarily for severance costs associated with workforce reductions. While this charge increased the net loss, management stated that it will not materially affect operating cash flow because the severance costs are largely funded by the company's overfunded pension plan.

Net sales decreased by 14.9% due to a steep decline in demand for aerospace and power generation materials, sustained pricing pressures on stainless products, and an unfavorable shift in product mix towards lower-value materials. Inventory adjustments within the supply chain also contributed to the decline.

Carpenter Technology Corporation expects to return to profitability in the second half of fiscal year 2003. Management also projects generating free cash flow in excess of $40 million for the full fiscal year 2003.