Carpenter Technology Corp. reported record net income of $19.8 million on record net sales of $297.6 million for the first fiscal quarter ended September 30, 2004. Carpenter attributes the results to strong broad based demand and continued improvement in its operating performance.

First Quarter Results—Net income of $19.8 million ($.80 per diluted share) compares to net income of $0.5 million ($.00 per diluted share) a year ago. Last year’s first quarter net income included non-cash pension and retiree medical expenses of $4.4 million ($.12 per diluted share). In the recent first quarter, Carpenter's net pension expense was less than $.01 per diluted share.

Net sales of $297.6 million compare with $213.3 million for the same period a year ago. Free cash flow was $27.3 million, compared with free cash flow of $22.2 million in the first quarter a year ago. At the end of the quarter, total debt net of cash was $203.8 million. Carpenter's net debt amount was $45.9 million lower than at the end of the previous quarter, and $129.5 million lower than a year ago.

Operating Summary—"Profitable sales growth combined with our continued focus on lean and variation reduction allowed us to achieve record first quarter earnings," said Robert J. Torcolini, Chairman, President and CEO. "During the quarter, we experienced strong demand across all of our major markets, including aerospace, which appears to be gaining momentum in its recovery.

"The sales increase also reflected a better product mix as a result of stronger demand in key markets and selective volume increases, partially offset by our initiative to eliminate less profitable products.

"Our operating results continued to illustrate the benefits gained from our lean and variation reduction work, which resulted in increased yields and productivity while reducing costs."

Carpenter's sales increased 40% in the first quarter from a year ago, reflecting strong demand, selective market share gains, increased base selling prices and raw material surcharges to help recover escalating raw material and energy costs. Excluding surcharge revenue, sales increased approximately 30% from the first quarter a year ago.

All major end-use markets experienced year-over-year sales increases during the first quarter. Industrial markets sales increased 34%; aerospace market sales 47%; consumer market sales, 47%; automotive market sales, 28%; power generation market sales 61%; and medical market sales, 23%.

Geographically, sales outside the United States increased 39% from a year ago and represented 28% of first quarter sales. Sales outside the United States benefited from the effects of a weaker U.S. dollar, selective market share gains and stronger demand from most end-use markets.

Carpenter's gross profit in the first quarter increased to $63.4 million (21.3% of sales) from $34.0 million (15.9% of sales) a year ago. Gross profit included non-cash pension and retiree medical expenses of $0.2 million. The gross profit as a percentage of sales also reflected the negative effect from the dilution caused by the pass through of increased raw material prices.

Last year’s first quarter gross profit reflected non-cash pension expense of $3.1 million (1.5% of sales). Strong sales growth, a better product mix, base price increases and Carpenter's continued focus on lean and variation reduction were the primary contributors to the gross profit improvement.

Carpenter's first quarter operating income increased to $35.7 million (12.0% of sales) from $5.3 million (2.5% of sales) a year ago. The increase reflects the improvement in gross profit and a reduction in selling and administrative expenses.

Cash Flow and Liquidity—Carpenter has maintained the ability to provide cash to meet its needs through cash flow from operations, management of working capital and the flexibility to use outside sources of financing to supplement internally generated funds. Free cash flow for the first quarter was $27.3 million, compared to $22.2 million a year ago.

Carpenter believes that its current financial resources, both from internal and external sources, will be more than adequate to meet its foreseeable needs. At the end of the first quarter, Carpenter had approximately $180 million available under its credit facilities.

Labor Relations—On September 28, 2004, the United Steel Workers of America (USWA) filed a petition with the National Labor Relations Board (NLRB) seeking an election to determine if the USWA should represent, for collective bargaining, certain production and maintenance employees located at Carpenter's Specialty Alloy Operations in Reading, Pa. The election is currently scheduled for November 11, 2004.

Carpenter's Reading facility has had previous union organizing activities that were not successful, the most recent in October 2002. Carpenter intends to oppose the union organizing attempt by the USWA in accordance with the rules and procedures of the NLRB.

Outlook—"We continue to work diligently to further improve our operating performance through lean and variation reduction. We are complementing these actions by our strategy to price products and services commensurate with the value delivered," Torcolini said. "Based on current market conditions, we expect that demand for our materials will remain strong across all end-use markets at least through the balance of the fiscal year. Additionally, we are seeing further momentum in the recovery of the aerospace market and a moderate improvement in the power generation market."

Accordingly, Carpenter expects that its operating performance will show year-over-year quarterly improvements throughout the remainder of the current fiscal year ending June 30, 2005. The company now expects to generate free cash flow in excess of $80 million for fiscal 2005. Carpenter had previously estimated that free cash flow would be in excess of $60 million.