GlobeNewswire Inc | Jan 28, 2021 08:00AM EST

January 28, 2021

Generated$84 millionof operating cash flow; free cash flow of$51 million

Total liquidity of$665 millionincluding$271 millionof cash on hand

PHILADELPHIA, Jan. 28, 2021 (GLOBE NEWSWIRE) -- Carpenter Technology Corporation (NYSE: CRS) (the Company) today announced financial results for the fiscal second quarter ended December 31, 2020. For the quarter, the Company reported a net loss of $84.9 million, or $1.76 loss per diluted share. Excluding special items, adjusted loss per diluted share was $0.61 for the quarter.

Our second quarter results reflect our continued emphasis on driving cash flow generation as we ended the second quarter with $665 million in total liquidity including $271 million in cash, said Tony R. Thene, President and CEO of Carpenter Technology. Over the last nine months, we have generated $214 million in free cash flow. We also moved quickly to implement targeted cost reduction initiatives and portfolio realignments that are delivering significant costs savings. We believe the combination of these strategic actions gives us increased flexibility and places us on solid ground to capitalize on demand patterns as market conditions normalize.

During the pandemic, we continued to strengthen our customer relationships. To that end, in the Aerospace and Defense end-use market, we have recently secured multiple, beneficial long-term contracts with key customers which further demonstrates the future outlook is strong. We are also well positioned to benefit from a recovery in the Medical end-use market as the supply chain gains confidence to meet pent up demand for elective procedures. Overall, we believe end-use market conditions will gradually improve during the second half of fiscal year 2021 and are working hard to capitalize on the recovery.

Our core business is built upon over 130 years of advanced material development, production and expertise. We remain a critical supply chain partner today and have made strategic investments to build upon that position in the years to come. The addition of our hot strip mill will significantly strengthen our soft magnetic capabilities at a time when electrification is helping to shape the long-term profile of many of our end-use markets. We also have built an additive manufacturing platform focused on powder lifecycle management. These investments are a strategic extension of our core business and consistent with our mandate to deliver increasing value to our customers and our stakeholders.

Financial Highlights

($ in millions) Q2 Q2 Q1 FY2021 FY2020 FY2021Net Sales $ 348.8 $ 573.0 $ 353.3 Net Sales Excluding Surcharge $ 299.4 $ 471.2 $ 307.2 Revenue (a)Operating (Loss) Income $ (89.0 ) $ 55.0 $ (48.8 )Adjusted Operating (Loss) Income $ (32.3 ) $ 57.3 $ (30.9 )Excluding Special Items (a)Net (Loss) Income $ (84.9 ) $ 38.8 $ (47.1 )Cash Provided from Operating $ 83.6 $ 21.8 $ 88.0 ActivitiesFree Cash Flow (a) $ 51.0 $ (34.5 ) $ 62.6 (a) Non-GAAP financial measures explained in the attached tables

Net sales for the second quarter of fiscal year 2021 were $348.8 million compared with $573.0 million in the second quarter of fiscal year 2020, a decrease of $224.2 million (negative 39 percent), on 33 percent lower volume. Net sales excluding surcharge were $299.4 million, a decrease of $171.8 million (negative 36 percent) from the same period a year ago.

Operating loss was $89.0 million compared to operating income of $55.0 million in the prior year period. Adjusted operating loss excluding special items was $32.3 million in the recent second quarter. Special items excluded from adjusted operating loss in the current quarter include a goodwill impairment charge of $52.8 million associated with the Companys Additive reporting unit that is included in the Performance Engineered Products segment and $3.9 million of costs associated with COVID-19. These COVID-19 costs principally consist of direct incremental operating costs including outside services to execute enhanced cleaning protocols, additional personal protective equipment, isolation pay for production employees potentially exposed to COVID-19 and various operating supplies necessary to maintain the operations while keeping employees safe against possible exposure in the Companys facilities.

Cash provided from operating activities in the second quarter of fiscal year 2021 was $83.6 million, compared to $21.8 million in the same quarter last year. Free cash flow in the second quarter of fiscal year 2021 was positive $51.0 million, compared to negative $34.5 millionin the same quarter last year. The increases in operating cash flow and free cash flow primarily reflect the impact of inventory reduction in the current quarter partially offset by lower earnings relative to the same quarter a year ago. In addition, capital expenditures were $26.6 million in the second quarter of fiscal year 2021 compared to $46.7 million in the same quarter last year.

Total liquidity, including cash and available credit facility borrowings, was $665.4 million at the end of the second quarter of fiscal year 2021. This consisted of $271.4 million of cash and $394.0 million of available borrowings under the Companys credit facility.

Conference Call and Webcast Presentation

Carpenter Technology will host a conference call and webcast presentation today, January 28th at 10:00 a.m. ET, to discuss the financial results of operations for the second quarter of fiscal year 2021. Please dial +1 412-317-9259 for access to the live conference call. Access to the live webcast will be available at Carpenter Technologys website ( http://www.carpentertechnology.com), and a replay will soon be made available at http://www.carpentertechnology.com. Presentation materials used during this conference call will be available for viewing and download at http://www.carpentertechnology.com.

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 non-GAAP measures are important, are included in the attached schedules.

About Carpenter Technology

Carpenter Technology Corporationis a recognized leader in high-performance specialty alloy-based materials and process solutions for critical applications in the aerospace, defense, medical, transportation, energy, industrial and consumer electronics markets. Founded in 1889,Carpenter Technologyhas evolved to become a pioneer in premium specialty alloys, including titanium, nickel, and cobalt, as well as alloys specifically engineered for additive manufacturing (AM) processes and soft magnetics applications.Carpenter Technologyhas expanded its AM capabilities to provide a complete end-to-end solution to accelerate materials innovation and streamline parts production. More information aboutCarpenter Technologycan be found atwww.carpentertechnology.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 Technologys filings with the Securities and Exchange Commission, including its report on Form 10-K for the year ended June 30, 2020, Form 10-Q for the quarter ended September 30, 2020 and the exhibits attached to those filings. They include but are not limited to: (1) the cyclical nature of the specialty materials business and certain end-use markets, including aerospace, defense, medical, transportation, energy, industrial and consumer, or other influences on Carpenter Technologys 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; (2) the ability of Carpenter Technology to achieve cash generation, growth, earnings, profitability, operating income, cost savings and reductions, qualifications, productivity improvements or process changes; (3) the ability to recoup increases in the cost of energy, raw materials, freight or other factors; (4) domestic and foreign excess manufacturing capacity for certain metals; (5) fluctuations in currency exchange rates; (6) the effect of government trade actions; (7) the valuation of the assets and liabilities in Carpenter Technologys pension trusts and the accounting for pension plans; (8) possible labor disputes or work stoppages; (9) the potential that our customers may substitute alternate materials or adopt different manufacturing practices that replace or limit the suitability of our products; (10) the ability to successfully acquire and integrate acquisitions; (11) the availability of credit facilities to Carpenter Technology, its customers or other members of the supply chain; (12) the ability to obtain energy or raw materials, especially from suppliers located in countries that may be subject to unstable political or economic conditions; (13) Carpenter Technologys manufacturing processes are dependent upon highly specialized equipment located primarily in facilities in Reading and Latrobe, Pennsylvania and Athens, Alabama for which there may be limited alternatives if there are significant equipment failures or a catastrophic event; (14) the ability to hire and retain key personnel, including members of the executive management team, management, metallurgists and other skilled personnel; (15) fluctuations in oil and gas prices and production; (16) uncertainty regarding the return to service of the Boeing 737 MAX aircraft and the related supply chain disruption; (17) potential impacts of the COVID-19 pandemic on our operations, financial results and financial position; (18) our efforts and efforts by governmental authorities to mitigate the COVID-19 pandemic, such as travel bans, shelter in place orders and business closures, and the related impact on resource allocations and manufacturing and supply chains; (19) our status as a critical, essential or life-sustaining business in light of COVID-19 business closure laws, orders and guidance being challenged by a governmental body or other applicable authority; (20) our ability to execute our business continuity, operational, budget and fiscal plans in light of the COVID-19 pandemic; and (21) our ability to successfully carry out restructuring and business exit activities on the expected terms and timelines. Any of these factors could have an adverse and/or fluctuating effect on Carpenter Technologys 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 (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended. Carpenter Technology undertakes no obligation to update or revise any forward-looking statements.

PRELIMINARYCONSOLIDATED STATEMENTS OF OPERATIONS(in millions, except per share data)(Unaudited)

Three Months Ended Six Months Ended December 31, December 31, 2020 2019 2020 2019 NET SALES $ 348.8 $ 573.0 $ 702.1 $ 1,158.4 Cost of sales 342.8 460.4 692.6 933.1 Gross profit 6.0 112.6 9.5 225.3 Selling, general and 42.2 55.3 84.5 108.2 administrative expensesRestructuring and asset ? 2.3 10.0 2.3 impairment chargesGoodwill impairment 52.8 ? 52.8 ? Operating (loss) income (89.0 ) 55.0 (137.8 ) 114.8 Interest expense, net (7.9 ) (5.3 ) (14.6 ) (10.7 )Loss on debt extinguishment, net ? ? (8.2 ) ? Other income (expense), net 1.3 0.8 (1.1 ) 0.5 (Loss) income before income taxes (95.6 ) 50.5 (161.7 ) 104.6 Income tax (benefit) expense (10.7 ) 11.7 (29.7 ) 24.6 NET (LOSS) INCOME $ (84.9 ) $ 38.8 $ (132.0 ) $ 80.0 (LOSS) EARNINGS PER COMMON SHARE: Basic $ (1.76 ) $ 0.80 $ (2.74 ) $ 1.65 Diluted $ (1.76 ) $ 0.79 $ (2.74 ) $ 1.64 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic 48.3 48.1 48.3 48.0 Diluted 48.3 48.5 48.3 48.4

PRELIMINARYCONSOLIDATED STATEMENTS OF CASH FLOWS(in millions)(Unaudited)

Six Months Ended December 31, 2020 2019OPERATING ACTIVITIES Net (loss) income $ (132.0 ) $ 80.0 Adjustments to reconcile net (loss) income to net cash provided from operating activities:Loss on debt extinguishment, net 8.2 ? Depreciation and amortization 59.6 61.0 Non-cash restructuring and asset impairment charges 8.7 1.5 Deferred income taxes (10.1 ) 5.5 Net pension expense 8.1 7.6 Goodwill impairment charge 52.8 ? Share-based compensation expense 5.4 8.5 Net loss on disposals of property, plant and equipment 0.1 0.1 and assets held for saleChanges in working capital and other: Accounts receivable 64.2 5.0 Inventories 155.8 (108.2 )Other current assets (26.8 ) (12.9 )Accounts payable (13.1 ) (1.0 )Accrued liabilities (3.1 ) (17.1 )Pension plan contributions (4.7 ) (3.6 )Other postretirement plan contributions (1.2 ) (1.6 )Other, net (0.3 ) (2.2 )Net cash provided from operating activities 171.6 22.6 INVESTING ACTIVITIES Purchases of property, plant, equipment and software (59.9 ) (94.3 )Proceeds from disposals of property, plant and equipment 1.5 0.1 and assets held for saleProceeds from divestiture of business 20.0 ? Net cash used for investing activities (38.4 ) (94.2 )FINANCING ACTIVITIES Credit agreement borrowings ? 114.6 Credit agreement repayments ? (45.7 )Net change in short-term credit agreement borrowings (170.0 ) 30.3 Proceeds from issuance of long-term debt, net of offering 395.5 ? costsPayments on long-term debt (250.0 ) ? Payments for debt extinguishment costs, net (8.2 ) ? Payments for debt issue costs (1.1 ) ? Dividends paid (19.5 ) (19.4 )Proceeds from stock options exercised ? 4.2 Withholding tax payments on share-based compensation (2.2 ) (7.7 )awardsNet cash (used for) provided from financing activities (55.5 ) 76.3 Effect of exchange rate changes on cash and cash 0.6 (1.8 )equivalentsINCREASE IN CASH AND CASH EQUIVALENTS 78.3 2.9 Cash and cash equivalents at beginning of period 193.1 27.0 Cash and cash equivalents at end of period $ 271.4 $ 29.9

PRELIMINARYCONSOLIDATED BALANCE SHEETS(in millions)(Unaudited)

December 31, June 30, 2020 2020ASSETS Current assets: Cash and cash equivalents $ 271.4 $ 193.1 Accounts receivable, net 230.3 292.3 Inventories 565.1 724.3 Other current assets 85.8 56.6 Total current assets 1,152.6 1,266.3 Property, plant and equipment, net 1,326.1 1,351.1 Goodwill 241.4 290.4 Other intangibles, net 45.4 52.1 Deferred income taxes 5.1 4.9 Other assets 273.3 262.4 Total assets $ 3,043.9 $ 3,227.2 LIABILITIES Current liabilities: Short-term credit agreement borrowings $ ? $ 170.0 Accounts payable 108.4 124.2 Accrued liabilities 157.4 157.9 Total current liabilities 265.8 452.1 Long-term debt 694.0 551.8 Accrued pension liabilities 375.2 399.5 Accrued postretirement benefits 138.0 137.4 Deferred income taxes 127.5 130.2 Other liabilities 110.5 110.5 Total liabilities 1,711.0 1,781.5 STOCKHOLDERS? EQUITY Common stock 280.1 280.1 Capital in excess of par value 317.0 321.4 Reinvested earnings 1,416.5 1,568.0 Common stock in treasury, at cost (317.6 ) (325.8 )Accumulated other comprehensive loss (363.1 ) (398.0 )Total stockholders' equity 1,332.9 1,445.7 Total liabilities and stockholders' equity $ 3,043.9 $ 3,227.2

PRELIMINARYSEGMENT FINANCIAL DATA(in millions, except pounds sold)(Unaudited)

Three Months Ended Six Months Ended December 31, December 31, 2020 2019 2020 2019Pounds sold (000): Specialty Alloys 38,602 56,564 81,970 116,606 OperationsPerformance 1,534 3,424 2,998 6,674 Engineered ProductsIntersegment (516 ) (690 ) (1,000 ) (1,684 )Consolidated pounds 39,620 59,298 83,968 121,596 sold Net sales: Specialty Alloys OperationsNet sales excluding $ 251.6 $ 382.5 $ 506.4 $ 775.7 surchargeSurcharge 48.8 100.5 94.7 198.4 Specialty Alloys 300.4 483.0 601.1 974.1 Operations net sales Performance Engineered ProductsNet sales excluding 54.1 104.1 115.3 212.0 surchargeSurcharge 0.7 1.9 1.4 3.4 PerformanceEngineered Products 54.8 106.0 116.7 215.4 net sales Intersegment Net sales excluding (6.3 ) (15.4 ) (15.2 ) (29.9 )surchargeSurcharge (0.1 ) (0.6 ) (0.5 ) (1.2 )Intersegment net (6.4 ) (16.0 ) (15.7 ) (31.1 )sales Consolidated net $ 348.8 $ 573.0 $ 702.1 $ 1,158.4 sales Operating (Loss) Income:Specialty Alloys $ (11.6 ) $ 76.3 $ (30.2 ) $ 157.3 OperationsPerformance (7.2 ) 0.4 (10.9 ) (1.7 )Engineered ProductsCorporate (includingrestructuring, (70.6 ) (21.9 ) (97.1 ) (41.0 )goodwill and assetimpairment charges)Intersegment 0.4 0.2 0.4 0.2 Consolidated (loss) $ (89.0 ) $ 55.0 $ (137.8 ) $ 114.8 operating income

The Company has two reportable segments, Specialty Alloys Operations (SAO) and Performance Engineered Products (PEP).

The SAO segment is comprised of Carpenters major premium alloy and stainless steel manufacturing operations. This includes operations performed at mills primarily in Reading and Latrobe, Pennsylvania and surrounding areas as well as South Carolina and Alabama.

The PEP segment is comprised of the Companys differentiated operations. This segment includes the Dynamet titanium business, the Carpenter Additive business and the Latrobe and Mexico distribution businesses. Effective July 1, 2020, the Company's Carpenter Powder Products business was merged into the Carpenter Additive business. The Amega West business was also part of the PEP segment however the business was divested during the quarter ended September 30, 2020. The businesses in the PEP segment are managed with an entrepreneurial structure to promote flexibility and agility to quickly respond to market dynamics. It is our belief this model will ultimately drive overall revenue and profit growth. The pounds sold data above for the PEP segment includes only the Dynamet and Additive businesses.

Corporate costs are comprised of executive and director compensation, and other corporate facilities and administrative expenses not allocated to the segments. Also included are items that management considers not representative of ongoing operations and other specifically identified income or expense items.

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 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 and is included in other income (expense), net.

PRELIMINARYNON-GAAP FINANCIAL MEASURES(in millions, except per share data)(Unaudited)

Three Months Ended Six Months Ended December 31, December 31,ADJUSTED OPERATING MARGINEXCLUDING SURCHARGE REVENUE 2020 2019 2020 2019AND SPECIAL ITEMS Net sales $ 348.8 $ 573.0 $ 702.1 $ 1,158.4 Less: surcharge revenue 49.4 101.8 95.6 200.6 Net sales excluding $ 299.4 $ 471.2 $ 606.5 $ 957.8 surcharge revenue Operating (loss) income $ (89.0 ) $ 55.0 $ (137.8 ) $ 114.8 Special items: Restructuring and asset ? 2.3 10.0 2.3 impairment chargesGoodwill impairment 52.8 ? 52.8 ? COVID-19 costs 3.9 ? 11.8 ? Operating (loss) income $ (32.3 ) $ 57.3 $ (63.2 ) $ 117.1 Operating margin (25.5 ) 9.6 % (19.6 ) 9.9 % % % Adjusted operating margin ) )excluding surcharge revenue (10.8 % 12.2 % (10.4 % 12.2 %and special items

Management believes that removing the impact of raw material surcharge from operating margin provides a more consistent basis for comparing results of operations from period to period, thereby permitting management to evaluate performance and investors to make decisions based on the ongoing operations of the Company. In addition, management believes that excluding special items from operating margin is helpful in analyzing our operating performance, as these items are not indicative of ongoing operating performance. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Companys board of directors and others.

Loss Income Loss PerADJUSTED LOSS PER SHARE Before Tax Net Loss DilutedEXCLUDING SPECIAL ITEMS Income Benefit Share* Taxes Three months endedDecember 31, 2020 as $ (95.6 ) $ 10.7 $ (84.9 ) $ (1.76 )reported Special items: Goodwill impairment 52.8 (0.1 ) 52.7 1.09 COVID-19 costs 3.9 (0.9 ) 3.0 0.06 Three months endedDecember 31, 2020 as $ (38.9 ) $ 9.7 $ (29.2 ) $ (0.61 )adjusted * Impact per diluted share calculated using weighted average common sharesoutstanding of 48.3 million for the three months ended December 31, 2020.

Income Income EarningsADJUSTED EARNINGS PER SHARE Before Tax Net PerEXCLUDING SPECIAL ITEMS Income Expense Income Diluted Taxes Share* Three months ended December $ 50.5 $ (11.7 ) $ 38.8 $ 0.79 31, 2019 as reported Special item: Restructuring charges 2.3 (0.5 ) 1.8 0.04 Three months ended December $ 52.8 $ (12.2 ) $ 40.6 $ 0.83 31, 2019 as adjusted * Impact per diluted share calculated using weighted average common sharesoutstanding of 48.5 million for the three months ended December 31, 2019.

ADJUSTED LOSS PER Loss Before Income Loss PerSHARE EXCLUDING Income Tax Net Loss DilutedSPECIAL ITEMS Taxes Benefit Share* Six months endedDecember 31, 2020 as $ (161.7 ) $ 29.7 $ (132.0 ) $ (2.74 )reported Special items: Loss on debt 8.2 (2.0 ) 6.2 0.13 extinguishment, netGoodwill impairment 52.8 (0.1 ) 52.7 1.09 Restructuring andasset impairment 10.0 (2.4 ) 7.6 0.16 chargesCOVID-19 costs 11.8 (3.5 ) 8.3 0.17 Six months endedDecember 31, 2020 as $ (78.9 ) $ 21.7 $ (57.2 ) $ (1.19 )adjusted * Impact per diluted share calculated using weighted average common sharesoutstanding of 48.3 million for the six months ended December 31, 2020.

ADJUSTED EARNINGS PER Income Income EarningsSHARE EXCLUDING SPECIAL Before Tax Net PerITEMS Income Expense Income Diluted Taxes Share* Six months ended December $ 104.6 $ (24.6 ) $ 80.0 $ 1.64 31, 2019 as reported Special item: Restructuring charges 2.3 (0.5 ) 1.8 0.03 Six months ended December $ 106.9 $ (25.1 ) $ 81.8 $ 1.67 31, 2019 as adjusted * Impact per diluted share calculated using weighted average common sharesoutstanding of 48.4 million for the six months ended December 31, 2019.

Management believes that (loss) earnings per share adjusted to exclude the impact of the special items is helpful in analyzing the operating performance of the Company, as these items are not indicative of ongoing operating performance. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Companys board of directors and others.

Three Months Ended Six Months Ended December 31, December 31,FREE CASH FLOW 2020 2019 2020 2019 Net cash provided from operating $ 83.6 $ 21.8 $ 171.6 $ 22.6 activitiesPurchases of property, plant, (26.6 ) (46.7 ) (59.9 ) (94.3 )equipment and softwareProceeds from disposals ofproperty, plant and equipment 1.5 0.1 1.5 0.1 and assets held for saleProceeds from divestiture of 2.4 ? 20.0 ? businessDividends paid (9.9 ) (9.7 ) (19.5 ) (19.4 ) Free cash flow $ 51.0 $ (34.5 ) $ 113.7 $ (91.0 )

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.

PRELIMINARYSUPPLEMENTAL SCHEDULE(in millions)(Unaudited)

Three Months Ended Six Months Ended December 31, December 31,NET SALES BY END-USE 2020 2019 2020 2019MARKETEnd-Use MarketExcluding Surcharge Revenue:Aerospace and Defense $ 148.5 $ 278.8 $ 296.0 $ 564.9 Medical 29.0 43.5 59.0 87.5 Transportation 25.8 30.6 50.2 63.6 Energy 17.7 26.9 39.0 59.9 Industrial and 56.3 63.9 119.4 124.1 ConsumerDistribution 22.1 27.5 42.9 57.8 Total net salesexcluding surcharge 299.4 471.2 606.5 957.8 revenue Surcharge revenue 49.4 101.8 95.6 200.6 Total net sales $ 348.8 $ 573.0 $ 702.1 $ 1,158.4

Media Inquiries: Investor Inquiries:Heather Beardsley The Plunkett Group+1 610-208-2278 Brad Edwardshbeardsley@cartech.com +1 914-582-4187 brad@theplunkettgroup.com