Slide 1: Offutt Securities, Inc. September 2, 2004
OFFUTT SECURITIES, INC. September 2, 2004
Slide 2: Forward-Looking Statements
Forward - Looking Statements Some of Carpenter’s statements will be forward-looking statements, which are based on current expectations. Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Carpenter’s recent SEC filings, including t
Slide 3: Agenda
AGENDA Bob Torcolini Carpenter Overview Chairman, President & CEO Market Overview Operating Highlights Terry Geremski Financial Highlights Sr. VP - Finance & CFO Bob Torcolini Corporate Initiatives © 2004 Carpenter Technology Corporation
Slide 4: Key Characteristics of Carpenter Technology
Key Characteristics of Carpenter Technology Leading manufacturer of specialty materials High performance metals Engineered products Sales and distribution system supports growth Customer oriented Front-line field metallurgists / sales engineers Diverse and attractive end-use markets Leading provider
Slide 5: Key Characteristics of Carpenter Technology
Key Characteristics of Carpenter Technology $500 million investment program completed Expansion of product line Lower capex requirements Geographically diverse 27% of sales derived from international markets Expansion into low cost / developing markets Strong capital base Consistent cash flow genera
Slide 6: Sophisticated Products for Niche Markets
Sophisticated Products for Niche Markets (Fiscal Year Ended June 30, 2004) Industrial 29% Consumer 18% Aerospace 23% Power Generation 8% Medical 7% Automotive 15%
Slide 7: Orthopedic Implants
irthopedic Implants oY
Slide 8: Operating in a Niche Segment
Operating in a Niche Segment U.S. Steel Consumption 131,700,000 tons Carbon Steel 129,000,000 tons Specialty Steel 2,700,000 tons Stainless Steel 2,130,000 tons Electrical Steel 400,000 tons Superalloys 70,000 tons Tool Steel 100,000 tons Flat Rolled / Other 1,830,000 tons Long Products 300,000 tons
Slide 9: Market Overview
Market Overview Robust manufacturing conditions recovery is broad based supply chain inventories are lean demand is strong pricing actions favorable currency effects Stronger demand in major markets Q4 yr.-over-yr. sales change industrial (+53%) automotive (+47%) medical (+29%) consumer (+20%) aeros
Slide 10: Boeing/Airbus Commercial Jet Build Rates
Boeing/Airbus Commercial Jet Build Rates Change in Build Schedule # of deliveries 900 750 600 450 300 2000 2001 2002 2003 2004 2005 2006 2007 2008 Jan-04 Jul-04 Source: Airline Monitor
Slide 11: CRS' Aerospace Revenues
CRS’ Aerospace Revenues ($ in millions) 300 250 200 150 100 50 0 FY 98 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 $330 $290 $263 $320 $293 $209 $234
Slide 12: Market Overview
Market Overview Robust manufacturing conditions recovery is broad based supply chain inventories are lean demand is strong pricing actions favorable currency effects Stronger demand in major markets Q4 yr.-over-yr. sales change industrial (+53%) automotive (+47%) medical (+29%) consumer (+20%) aeros
Slide 13: Nickel/Cobalt Price
Nickel/Cobalt Price Nickel $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 Cobalt Nickel Cobalt
Slide 14: Operating Highlights
Slide 14 Operating Highlights CARPENTER 7
Slide 15: Sales Highlights - Fourth Quarter
Sales Highlights - Fourth Quarter FY 03 FY 04 % Chg Sales ($ in mm) $212.4 $296.8 39.7% Sales by product line Stainless up 39% Special Alloys up 55% Ceramics / Other Materials up 17% Titanium up 12% Tool / Other Steel up 43% Sales by key end markets Aerospace / Power Generation up 39% Industrial up
Slide 16: Sales Highlights - Fourth Quarter
Sales Highlights - Fourth Quarter Improving Aerospace Sales Customer inventories in-line with demand Share gain with new and existing customers Spares - commercial/military aircraft engines Accelerated build rate Recovery in Power Generation Sales New IGT build rates still relatively low Foreign dem
Slide 17: Sales Highlights - Fourth Quarter
Sales Highlights - Fourth Quarter Growth and Recovery in Medical Sales renewed demand in market new product and customer success increased international market share Strengthening Industrial Sales increased capital investments by manufacturers market share gains Increasing Consumer Sales consumer du
Slide 18: International Sales
International Sales ($ in mm) $275 $225 $175 $125 $75 $25 -$25 FY 04 FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02 FY 03 $98 $118 $180 $185 $207 $240 $250 $218 $276 Asia Pacific 17% Other 6% Europe 50% Canada 8% Mexico 19% FY 2004
Slide 19: Financial Highlights
Slide 19 Financial Highlights CARPENTER 7
Slide 20: Financial Highlights - Fourth Quarter
Financial Highlights - - Fourth Quarter FY 03 FY 04 Change Sales (mm) $212.4 $296.8 $84.4 Gross Profit $48.3 $62.3 $14.0 % of sales 22.7% 21.0% Adj. Gross Profit $47.3 $64.8 $17.5 % of sales 22.3% 21.8% Underlying gross margin improvement better operating efficiencies and yields better product mix P
Slide 21: Financial Highlights - Fourth Quarter
Financial Highlights - - Fourth Quarter FY 03 FY04 Change Operating Income (mm) $19.8 $31.2 $11.4 % of sales 9.3% 10.5% Adj. Operating Income $19.1 $34.8 $15.7 % of sales 9.0% 11.7% Managed selling and administrative expenses
Slide 22: Working Capital Management
Working Capital Management Days Sales Outstanding 65 60 55 50 45 40 Q1-02 Q2-02 Q3-02 Q4-02 Q1-03 Q2-03 Q3-03 Q4-03 Q1-04 Q2-04 Q3-04 Q4-04
Slide 23: Free Cash Flow Generation
Free Cash Flow Generation (after capex and dividends) ($ millions) $70 $20 -$30 -$80 FY 00 FY 01 FY 02 FY 03 FY 04 -$67 $53 $80 $80 $88
Slide 24: Focus on Debt Reduction
Focus on Debt Reduction Net Debt Position $323 million ($ millions) $600 $500 $400 $300 $200 $100 $0 FYE 00 FYE 01 FYE 02 FYE 03 FYE 04 $573 $515 $434 $353 $250 © 2004 Carpenter Technology Corporation
Slide 25: Capital Resources as of June 30, 2004
Capital Resources as of June 30, 2004 Commitment Outstanding Unused Commitment Maturity Committed Revolving Credit $150.0 $2.2 $137.0(1) Nov. 2006 Receivables Purchase Facility 50.0 0.0 50.0 Dec. 2004 Unsecured Notes 99.1 — May 2013 MTN – Series C 99.5 — Aug. 2011 MTN – Series B 152.0 — Various Othe
Slide 26: Corporate Initiatives
Slide 26 Corporate Initiatives =;
Slide 27: Corporate Initiatives
Corporate Initiatives Operational Excellence lean operating model variation reduction productivity improvements quality / yield / cycle time inventory turns Profit Optimization value pricing managing mix complexity reduction
Slide 28: Improving Operating Performance
Improving Operating Performance EBITDA* as Percent of Sales (TTM basis) 15.0% 10.0% 5.0% Q1-01 Q2-01 Q3-01 Q4-01 Q1-02 Q2-02 Q3-02 Q4-02 Q1-03 Q2-03 Q3-03 Q4-03 Q1-04 Q2-04 Q3-04 Q4-04 11.3% 12.0% 12.4% 11.8% 11.7% 11.0% 8.5% 7.3% 6.3% 6.2% 8.4% 11.0% 11.8% 12.7% 13.6% 13.8% * Operating income + dep
Slide 29: Corporate Initiatives
Corporate Initiatives Growth and Innovation Focus on specialty materials Continue to invest in R&D and technical service Service development - VMI and supply chain services Leverage international opportunities Realize additional value of component manufacturing
Slide 30: Summary
Summary Favorable economic conditions Aerospace market improving Further cost reduction is necessary and possible Profit optimization Improve working capital turns Achieve financial goals. At a minimum, 12% operating margin 9% RONA