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Carpenter Technology Reports 2nd Quarter Results

Carpenter Technology Corp. reported record second quarter net income of $32.5 million on record net sales of $312.1 million for the second fiscal quarter ended December 31, 2004. The record sales and net income reflected strong market conditions and a continued focus on costs through lean and variation reduction.

Second Quarter Results—Net income of $32.5 million ($1.28 per diluted share) compares to net income of $7.5 million ($.31 per diluted share) a year ago. Net income in the second quarter a year ago included non-cash pension and retiree medical expenses (net pension expense) of $4.4 million ($.12 per diluted share). In the recent second quarter, Carpenter's net pension expense was less than $.01 per diluted share.

In addition to strong market conditions and better operating efficiencies, Carpenter's recent second quarter net income benefited from the receipt of $3.6 million, or the equivalent of $.09 per diluted share, from the "Continued Dumping and Subsidy Offset Act of 2000." Last year in the second quarter, Carpenter received $5.2 million, or the equivalent of $.14 per diluted share under this program.

Net income in the recent second quarter also reflected a $4.5 million ($.18 per diluted share ) favorable settlement of an outstanding tax matter. In the second quarter a year ago, net income benefited from a $2.4 million ($.10 per diluted share ) settlement of an outstanding tax matter.

Net sales of $312.1 million compare with $226.3 million for the same period a year ago. Free cash flow was $15.3 million, compared with free cash flow of $9.4 million in the second quarter a year ago. At the end of the recent second quarter, total debt net of cash was $176.8 million. Carpenter’s net debt amount was $27.0 million lower than at the end of the previous quarter and $144.5 million lower than a year ago.

First Half Results—Net income was $52.4 million ($2.09 per diluted share) compared with net income of $8.0 million ($.32 per diluted share) for the same period a year ago. Net sales were $609.7 million, compared with $439.6 million for the same period a year ago. Free cash flow was $42.6 million, compared to free cash flow of $31.6 million for the same period a year ago.

Operating Summary—"Strong market conditions and our continued focus on cost reduction through lean and variation reduction resulted in record second quarter earnings," said Robert J. Torcolini, Chairman, President and CEO. "Demand was strong across most of our major markets with particularly strong demand coming from the aerospace sector."

Carpenter's sales increased 38% in the second quarter from a year ago, reflecting strong demand, a better product mix, increased base selling prices and raw material surcharges to help recover high raw material and energy costs. Excluding surcharge revenue, sales increased approximately 28% from the second quarter a year ago.

Sales increased in most major end-use markets during the second quarter versus the same quarter a year ago. Industrial markets sales increased 43%; aerospace market sales, 79%; consumer market sales, 33%; automotive market sales, 25%; and medical market sales, 33%. Sales to the power generation market decreased 24% from a particularly strong second quarter a year ago.

Geographically, sales outside the United States increased 48% from a year ago and represented 27% of second quarter sales. Sales outside the United States benefited from the effects of a weaker U.S. dollar, strong growth in Asia and increased demand for aerospace and medical materials.

Carpenter's gross profit in the second quarter increased to $74.5 million (23.9% of sales) from $39.5 million (17.5% of sales) a year ago. In the second quarter a year ago, the gross profit reflected non-cash pension expense of $3.2 million (1.4% of sales). The gross profit in the recent second quarter included non-cash pension and retiree medical expenses of $0.2 million. Carpenter attributes the improvement to strong sales growth, a better product mix, higher base prices and a continued focus on lean and variation reduction.

Carpenter's second quarter operating income increased to $44.9 million (14.4% of sales) from $11.8 million (5.2% of sales) a year ago. The increase reflects the improvement in gross profit and a modest increase in selling and administrative expenses compared to the quarter a year ago.

Outlook—"We expect that demand across our major markets will remain strong throughout the balance of this fiscal year," Torcolini said. "Given the strong demand and our ongoing focus on lean and variation reduction, we anticipate continued year-over-year operating improvement."

Accordingly, the company expects that free cash flow will be approximately $100 million for fiscal 2005. Carpenter had previously estimated that free cash flow would be in excess of $80 million.