Carpenter Technology Reports Record First Quarter Results

Highlights:

-- Net income up 103% to a first quarter record $40 million

-- An increase of 78% in operating income from a year ago

-- Record first quarter sales of $346 million, up 16%

Carpenter Technology Corporation (NYSE:CRS) today reported recordfirst quarter sales and net income. The results reflected robustconditions in the aerospace market, increased sales of higher valuematerials, and the benefits from the company's continued focus on leanand variation reduction.

Net sales for the first fiscal quarter ended September 30, 2005were $346.0 million, compared with $297.6 million for the same quartera year ago.

Net income in the recent first quarter was $40.1 million, or $1.54per diluted share, compared to net income of $19.8 million, or $0.80per diluted share, a year ago.

Free cash flow in the recent first quarter was $0.7 million,compared with free cash flow of $27.3 million in the quarter a yearago. The lower free cash flow partially reflected investments inadditional working capital required to support future sales. AtSeptember 30, 2005, net debt was $59.4 million or $144.4 million lowerthan a year ago.

First Quarter - Operating Summary

"We achieved a record first quarter as a result of favorablemarket conditions, particularly in aerospace, and our continued focuson operational excellence through lean and variation reduction," saidRobert J. Torcolini, chairman, president and chief executive officer."We are especially pleased to have achieved these results given theescalating costs of energy and the continued high prices of rawmaterials.

"Our business operating model, which focuses on the sale of highervalue products and on reducing complexity through the elimination ofmarginally profitable products, has created significant operatingleverage."

Carpenter's sales increased 16 percent in the first quarter from ayear ago, which reflected a better product mix, higher base sellingprices and surcharges. Excluding surcharge revenue, sales increased 15percent from the first quarter a year ago.

Sales increased in most major end-use markets during the firstquarter versus the same quarter a year ago. Aerospace market salesincreased 48 percent, which reflected strong demand for premium alloysand ceramics used in the manufacture of jet engines and titanium usedin the manufacture of structural components.

Medical market sales increased 51 percent from the first quarter ayear ago as a result of growth with key customers, international salesgrowth and increased selling prices.

Power generation market sales decreased 3 percent. However,excluding the sales of a divested business, power generation marketsales increased 27 percent from the first quarter a year ago. Theincrease reflected higher selling prices, surcharges and marginallyhigher demand.

Sales to the automotive and truck markets were 8 percent higherdue to base pricing actions, surcharges and increased demand forceramic materials used in engine components for trucks. The salesgrowth was tempered by reduced shipments of specialty and stainlessalloys.

Industrial market sales increased 4 percent primarily as a resultof higher base prices, surcharges and the sale of higher valuematerials to capital equipment manufacturers. The increased sales werepartially offset by the intentional reduction in the sale ofmarginally profitable products.

Sales to the consumer market decreased 9 percent from the firstquarter a year ago. Reduced sales of materials used in consumerdurable goods and reduced shipments of marginally profitable productsaccounted for a majority of the change.

Geographically, sales outside the United States increased 27percent from a year ago and represented 30 percent of first quartersales. In the recent first quarter, sales outside the United Statesbenefited from strength in the European aerospace and medical markets.

Carpenter's gross profit in the first quarter increased to $91.7million, or 26.5 percent of sales, from $63.4 million, or 21.3 percentof sales, in the quarter a year ago.

The 520 basis point increase in the gross profit margin reflecteda better product mix due to increased sales of higher value materials,notably to the aerospace, medical, and power generation markets, andhigher base prices. Margins also benefited from lean initiatives,variation reduction and the intentional reduction in the sale ofmarginally profitable products.

In the first quarter of fiscal 2006, selling and administrativeexpenses were $28.0 million, or 8.1 percent of sales, compared to$27.7 million, or 9.3 percent of sales, in the same quarter a yearago.

Carpenter's first quarter operating income increased to $63.7million, or 18.4 percent of sales, from $35.7 million, or 12.0 percentof sales, a year ago. The increase from a year ago reflected theimprovement in gross profit and a continued focus on managing sellingand administrative expenses.

Outlook

"The strength of the recovery in the aerospace market shouldcontinue to drive demand for our premium alloys, titanium and ceramicmaterials," Torcolini said. "We are leveraging these opportunities byimproving the fundamentals of our business by pricing products for thevalue delivered, reducing complexity through product mix managementand by focusing on lean and variation reduction.

"Based on current market conditions and our operationaleffectiveness initiatives, we expect to achieve another record year."

Accordingly, Carpenter is now raising its free cash flowexpectations for fiscal 2006 to be in excess of $125 million. Thecompany previously estimated that free cash flow would be in excess of$100 million.

Segment Results - First Quarter

Specialty Metals

Net sales for the quarter ended September 30, 2005 for theSpecialty Metals segment, which includes the Specialty AlloysOperations (SAO), Dynamet, and Carpenter Powder Products (CPP)business units, were $321.3 million, compared to $267.0 million in thesame quarter a year ago.

SAO sales increased 16 percent from the same quarter a year ago.The increase was due primarily to increased demand of higher valuematerials from the aerospace and medical markets, pricing actions andsurcharges. SAO shipments decreased 16 percent from the quarter a yearago primarily reflecting the strategy to reduce the sale of marginallyprofitable products, and lower demand from the automotive and consumermarkets.

Dynamet's sales increased 59 percent in the first quarter versus ayear ago. Robust demand from the aerospace market, continued growth inthe domestic and foreign medical markets, and higher base sellingprices were principally responsible for the sales growth. The salesincrease also reflected the impact of a significant rise in titaniummaterial costs.

CPP's sales were 45 percent higher than a year ago due to salesgrowth in Europe and Asia, market share gains and higher sellingprices.

Operating income for the Specialty Metals segment was $61.0million, compared to $32.8 million a year ago. The increase inoperating income reflected the effects of increased volumes of highervalue materials, higher base prices and continued operationalimprovements through lean and variation reduction.

Engineered Products Segment

Net sales for this segment, which includes sales of ceramic andfabricated metal components, were $25.1 million, compared to $31.2million a year ago. Last year's first quarter included $7.4 million insales from a business that was divested in the fourth quarter offiscal 2005.

Operating income for the Engineered Products segment increased to$5.2 million from $4.6 million a year ago. The divested business had anegligible impact on operating income in the quarter a year ago.Operating income benefited from higher sales, increased base sellingprices and better operating efficiencies from lean and variationreduction.

Net Pension Expense

In the first quarter of fiscal 2006, Carpenter had pre-tax netpension expense of $2.7 million. This amount was partially offset bythe favorable tax effects of Medicare Part D, which resulted in netpension expense of $0.06 per diluted share. This compares to pre-taxnet pension expense of $0.6 million, or less than $0.01 per dilutedshare, for the same quarter a year ago.

The increase in the net pension expense in the first quarter offiscal 2006 from a year ago primarily results from a decrease in thediscount rate from 6.25 percent to 5.00 percent.

The net pension amount is actuarially determined as of each June30 and typically held constant throughout the fiscal year. Thecompany's defined benefit pension plan remains well funded and, as inprior years, the company is not required to make a cash contributionto the plan.

Other Items

Interest expense for the quarter increased to $6.0 million from$5.8 million in the first quarter a year ago. The increase in interestexpense primarily reflected higher interest rates, which more thanoffset the benefit from reduced debt levels.

Other income for the first quarter was $3.0 million as compared to$0.6 million in the first quarter a year ago. Increased interestincome from invested cash and foreign exchange gains were the primarycontributors to the change.

Cash Flow and Liquidity

Carpenter has maintained the ability to provide cash to meet itsneeds through cash flow from operations, management of working capitaland the flexibility to use outside sources of financing to supplementinternally generated funds.

Free cash flow in the recent first quarter was $0.7 million,compared with free cash flow of $27.3 million in the first quarter ayear ago. The decrease in free cash flow primarily reflected anincrease in inventories needed to support future sales, and reductionsin accounts payable and accrued liabilities.

Carpenter believes that its current financial resources, both frominternal and external sources, will be more than adequate to meet itsforeseeable needs.

Conference Call

Carpenter will host a conference call and webcast today, October24, at 1:30 p.m., Eastern Time, to discuss the results of operationsfor the first quarter of fiscal 2006.

Please call 610-208-2800 for details of the conference call.Access to the call will also be made available at Carpenter's web site(www.cartech.com) and through CCBN (www.ccbn.com). A replay of thecall will be made available at www.cartech.com or at www.ccbn.com.

Carpenter produces and distributes specialty alloys, includingsuperalloys, stainless steels, titanium alloys, and various engineeredproducts. Information about Carpenter can be found on the Internet atwww.cartech.com.

Except for historical information, all other information in thisnews release consists of forward-looking statements within the meaningof the Private Securities Litigation Act of 1995. Theseforward-looking statements are subject to risks and uncertainties thatcould cause actual results to differ from those projected, anticipatedor implied. The most significant of these uncertainties are describedin Carpenter's filings with the Securities and Exchange Commissionincluding its annual report on Form 10-K for the year ended June 30,2005, and the exhibits attached to that filing. These uncertaintiesinclude but are not limited to: 1) the cyclical nature of thespecialty materials business and certain end-use markets, includingaerospace, power generation, automotive, industrial and consumer, orother influences on Carpenter's business such as new competitors, theconsolidation of customers and suppliers or the transfer ofmanufacturing capacity from the United States to foreign countries; 2)the ability of Carpenter to achieve cost savings, productivityimprovements or process changes; 3) the ability to recoup increases inthe cost of energy and raw materials or other factors; 4) domestic andforeign excess manufacturing capacity for certain metals; 5)fluctuations in currency exchange rates; 6) the degree of success ofgovernment trade actions; 7) the valuation of the assets andliabilities in Carpenter's pension trusts and the accounting forpension plans; 8) possible labor disputes or work stoppages; and 9)the potential that our customers may substitute alternate materials oradopt different manufacturing practices that replace or limit thesuitability of our products. Any of these factors could have anadverse and/or fluctuating effect on Carpenter's results ofoperations. The forward-looking statements in this document areintended to be subject to the safe harbor protection provided bySection 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended. Carpenterundertakes no obligation to update or revise any forward-lookingstatements.

CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data)


Three Months Ended
September 30
-----------------------
2005 2004
------------ ----------

NET SALES $346.0 $297.6

Cost of sales 254.3 234.2
------------ ----------
Gross profit 91.7 63.4

Selling and administrative expenses 28.0 27.7
------------ ----------
Operating income 63.7 35.7

Interest expense 6.0 5.8
Other income, net (3.0) (0.6)
------------ ----------

Income before income taxes 60.7 30.5
Income taxes 20.6 10.7
------------ ----------
NET INCOME $40.1 $19.8
============ ==========

EARNINGS PER COMMON SHARE:
Basic $1.59 $0.83
============ ==========
Diluted $1.54 $0.80
============ ==========


WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 25.0 23.5
============ ==========
Diluted 25.9 24.5
============ ==========

Cash dividends per common share $0.15 $0.0825
============ ==========






PRELIMINARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)

Three Months Ended
September 30
---------------------
2005 2004
---------- ----------

OPERATIONS:
Net income $40.1 $19.8
Adjustments to reconcile net income to
net cash provided from operations:
Depreciation 11.0 11.7
Amortization 0.6 0.9
Deferred income taxes 0.3 6.4
Net pension expense 2.7 0.6
Net loss on asset disposals 0.2 0.1
Changes in working capital and other:
Receivables 4.3 3.4
Inventories (25.6) (17.8)
Other current assets 0.5 (2.1)
Accounts payable (12.4) 6.6
Accrued current liabilities (10.1) 1.5
Other, net (1.3) 1.0
---------- ----------
Net cash provided from operations 10.3 32.1
---------- ----------

INVESTING ACTIVITIES:
Purchases of plant, equipment and software (5.7) (2.5)
Proceeds from disposals of plant and equipment 0.2 --
Purchases of marketable securities (73.9) (41.5)
Sales of marketable securities 72.3 8.1
---------- ----------
Net cash used for investing activities (7.1) (35.9)
---------- ----------

FINANCING ACTIVITIES:
Net change in short-term debt -- (0.5)
Dividends paid (4.1) (2.3)
Proceeds from issuance of common stock 3.1 21.1
---------- ----------
Net cash (used for) provided from financing
activities (1.0) 18.3
---------- ----------

Effect of exchange rate changes on cash and cash
equivalents 0.2 (0.7)
---------- ----------

INCREASE IN CASH AND CASH EQUIVALENTS 2.4 13.8
Cash and cash equivalents at beginning of period 163.8 76.6
---------- ----------
Cash and cash equivalents at end of period $166.2 $90.4
========== ==========



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
2005 2005
------------ ----------

ASSETS
Current assets:
Cash and cash equivalents $166.2 $163.8
Marketable securities 108.2 106.6
Accounts receivable, net 188.7 193.4
Inventories 254.3 228.6
Deferred income taxes 6.1 7.4
Other current assets 34.5 31.8
------------ ----------
Total current assets 758.0 731.6

Property, plant and equipment, net 563.3 569.2
Prepaid pension cost 249.9 250.8
Goodwill 46.4 46.4
Trademarks and trade names, net 20.9 21.1
Other assets 33.8 34.3
------------ ----------
Total assets $1,672.3 $1,653.4
============ ==========

LIABILITIES
Current liabilities:
Accounts payable $121.0 $133.4
Accrued liabilities 103.1 115.5
Current portion of long-term debt 0.2 0.2
------------ ----------
Total current liabilities 224.3 249.1

Long-term debt, net of current portion 333.6 333.7
Accrued postretirement benefits 106.7 108.5
Deferred income taxes 193.0 192.5
Other liabilities 46.3 45.4
------------ ----------
Total liabilities 903.9 929.2
------------ ----------


STOCKHOLDERS' EQUITY
Convertible preferred stock 19.0 19.7
Common stock 130.6 129.7
Capital in excess of par value - common
stock 283.4 278.1
Reinvested earnings 390.5 354.5
Common stock in treasury, at cost (35.9) (35.8)
Deferred compensation (8.4) (9.2)
Accumulated other comprehensive loss (10.8) (12.8)
------------ ----------
Total stockholders' equity 768.4 724.2
------------ ----------

Total liabilities and stockholders' equity $1,672.3 $1,653.4
============ ==========





PRELIMINARY
SEGMENT FINANCIAL DATA
(in millions)


Three Months Ended
September 30
--------------------
2005 2004
---------- ---------

Net sales:
Specialty Metals $321.3 $267.0
Engineered Products 25.1 31.2
Intersegment (0.4) (0.6)
---------- ---------

Consolidated net sales $346.0 $297.6
========== =========

Operating income:
Specialty Metals $61.0 $32.8
Engineered Products 5.2 4.6
Corporate costs (5.1) (5.1)
Pension earnings, interest & deferrals 2.6 3.7
Intersegment -- (0.3)
---------- ---------

Consolidated operating income $63.7 $35.7
========== =========


Carpenter is organized in the following business units: Specialty
Alloys Operations, Dynamet, Carpenter Powder Products and Engineered
Products. For segment reporting, the Specialty Alloys Operations,
Dynamet and Carpenter Powder Products operating segments have been
aggregated into one reportable segment, Specialty Metals, because of
the similarities in products, processes, customers, distribution
methods and economic characteristics.

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, which 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
SELECTED FINANCIAL MEASURES
(in millions, except per share data)


Three Months Ended
September 30
-------------------
FREE CASH FLOW 2005 2004
--------- ---------

Net cash provided from operations $10.3 $32.1
Purchases of plant, equipment and
software (5.7) (2.5)
Proceeds from disposals of plant and
equipment 0.2 --
Dividends paid (4.1) (2.3)
--------- ---------
Free cash flow $0.7 $27.3
========= =========

Free cash flow is a measure of cash generated which management
evaluates for alternative uses.


September September
30 June 30 30
NET DEBT 2005 2005 2004
--------- --------- ---------

Short-term debt $--- $--- $1.7
Current portion of long-term debt 0.2 0.2 20.2
Long-term debt, net of current portion 333.6 333.7 334.5
--------- --------- ---------
Total debt 333.8 333.9 356.4
Cash (166.2) (163.8) (90.4)
Marketable securities (108.2) (106.6) (62.2)
--------- --------- ---------
Net debt $59.4 $63.5 $203.8
========= ========= =========

Accumulated cash and marketable securities can be used for debt
repayment, if appropriate.


Three Months Ended
September 30
-------------------
NET PENSION EXPENSE 2005 2004
--------- ---------

Pension plan expense (income) $1.5 ($0.6)
Other postretirement benefits expense 1.2 1.2
--------- ---------
Pre-tax net pension expense 2.7 0.6
Income tax benefit (1.2) (0.5)
--------- ---------
Net pension expense $1.5 $0.1
========= =========

Net pension expense per share $0.06 $0.00
========= =========

Weighted average diluted common shares 25.9 24.5
========= =========

Grouping these retirement benefits together, and discussing changes in
this volatile net expense is helpful in analyzing the operational
performance of the company.