Oct. 27, 2006 — Carpenter Technology Corp. reported net income of $51.2 million on record net sales of $404.5 million for the first quarter ended September 30, 2006. Carpenter says the record results were led by solid demand across several key end-use markets, increased sales of higher value products, and the company’s continued focus on cost through lean and variation reduction.

First Quarter Results—The $51.2 million net income ($1.94 per diluted share) compares to net income of $40.1 million ($1.54 per diluted share) a year ago. Net sales of $404.5 million compare with net sales of $346.0 million for the same quarter a year ago.

Free cash flow in the first quarter was $50.8 million, compared with $0.7 million in the quarter a year ago.

Operating Summary—Carpenter’s sales increased 17% compared to a year ago. Sales benefited from higher surcharges, base price increases, and increased sales of higher value materials. Adjusted for surcharges, sales increased 10% from the year-ago first quarter.

Sales to the aerospace market increased 34% from the first quarter a year ago to $158 million, a first-quarter record. Demand for titanium materials used in the manufacture of fasteners for commercial and military aircraft was particularly strong during the quarter and resulted in record shipments. Additionally, Carpenter experienced solid demand for its specialty alloys and ceramic materials used in the manufacture of aircraft engines, turbine blades, and airframe structural components.

Automotive and truck market sales grew 23% from the year-ago first quarter to $52 million. Increased sales of high temperature materials used in engine components were the primary reason for the growth. Also, higher sales of materials used in automotive safety devices contributed to the increase.

Sales to the industrial market increased 13% to $88 million. The industrial market excludes sales of materials used in oil and gas exploration applications, which are now included in a new category titled “energy.” Sales to the industrial market primarily benefited from increased sales of materials used in the manufacture of capital equipment and higher value products sold to independent distributors.

Consumer market sales increased 2% to $48 million. Increased sales of higher-value strip products used in thermostats and consumer electronic applications were partially offset by reduced sales to the sporting goods market.

Sales to the energy market, which includes oil and gas and power generation, were $29 million or flat with a year ago. Sales to the oil and gas sector increased 67 percent from the year-ago quarter. Sales benefited from profitable market share gains as well as growth with key customers. Offsetting the growth was lower sales to the power generation sector due to the timing of shipments to customers.

Medical market sales decreased 7% to $30 million. The decline in sales reflected inventory adjustments taking place within that supply chain.

Geographically, sales outside the United States increased 20% from the year-ago first quarter to $123 million, a first-quarter record. International sales, which represented 30% of total sales, reflected strong demand for higher-value materials, particularly from the aerospace market.

Carpenter’s gross profit increased 13% to $103.9 million (25.7% of sales) from $91.7 million (26.5% of sales) in the same quarter a year ago.

The decline in gross margin as a percent of sales resulted from the steep rise in the cost of nickel, a primary raw material for the company. During the quarter, average nickel prices on the London Metal Exchange were 100% higher than the year-ago quarter. Cost of sales included a $26.2 million charge to value inventories using the last-in, first-out (LIFO) method of accounting, due primarily to rising nickel costs. In the year-ago first quarter, cost of sales included a $3.7 million credit to value inventories using LIFO.

Carpenter’s surcharge mechanism is structured to recover high raw material costs, although with a lag effect. Additionally, gross margin as a percent of sales was negatively impacted by a 68% increase in the amount of surcharge collected during the recent first quarter versus a year ago. While the surcharge protects the absolute gross profit dollars, it does have a dilutive effect on gross margin as a percent of sales. In the recent first quarter, the dilutive effect on gross margin was approximately 120 basis points.

Partially offsetting the impact of higher raw material costs on margins were increased base prices, higher volumes and ongoing cost reductions generated by lean and variation reduction initiatives.

Carpenter generated a 15% increase in operating income to a first quarter record of $73.1 million (18.1% of sales) from $63.7 million (18.4% of sales) generated a year ago. Operating income in the recent first quarter reflected $1.6 million of due-diligence expenses associated with the review of an acquisition target.

Outlook—“The strength in aerospace and other key markets should continue to drive our performance through the balance of this fiscal year,” said Torcolini. “We are continuing with our relentless focus on lean and variation reduction to create additional operating leverage as we capitalize on these strong market conditions.

“We remain committed to refining our business operating model so that we will continue to generate returns in excess of our cost of capital through all phases of a business cycle.”

Torcolini concluded, “Based on current market conditions and expectations for steady growth, we anticipate another record year of sales and net income in fiscal 2007. Additionally, we expect free cash flow to exceed $200 million.”

Carpenter operates in two business segments, Specialty Metals and Engineered Products. Specialty Metals includes the company’s Specialty Alloys, Dynamet and Carpenter Powder Products business operations. These operations have been aggregated into one reportable segment because of the similarities in products, processes, customers, distribution methods and economic characteristics.