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Carpenter Technology Reports
3rd Quarter Results

April 27, 2004 — Carpenter Technology Corp. reported net income of $9.5 million on net sales of $280.4 million for the third fiscal quarter ended March 31, 2004.

Net income of $9.5 million ($.39 per diluted share) compares to $1.7 million ($.06 per diluted share) a year ago. This year's third quarter included $4.4 million ($.12 per diluted share) of non-cash pension and retiree medical expenses. The year-ago quarter benefited from non-cash net pension income of $0.8 million ($.02 per diluted share). Net sales, $280.4 million, compare to $234.6 million for the same period a year ago.

Results reflect strong sales growth worldwide, continued improvement in operating performance and significant free cash flow generation. The company comments that results improved despite steep increases in the cost of raw materials and energy.

Free cash flow, defined as net cash provided before financing activities but after dividends and excluding the effects of marketable securities, was $47.4 million in the third quarter versus $22.6 million a year ago. Carpenter's total debt, net of cash and marketable securities and including amounts outstanding under its receivables purchase facility, was $265.7 million at the end of the recent third quarter. This net debt level is $55.6 million lower than at the end of the previous quarter and $113.7 million lower than a year ago.

Year-to-Date Results—Net sales for the first nine months of the current fiscal year were $719.9 million, compared with last year's level of $658.7 million. For the nine-month period a year ago, sales included $12.9 million from companies that were subsequently divested.

Net income for the first nine months of the current fiscal year was $17.5 million ($.72 per diluted share), compared to a net loss of $16.4 million ($.79 per diluted share) for the same period a year ago. For the nine-month period, non-cash pension and retiree medical expenses were $13.2 million ($.36 per diluted share). For the same period a year ago, Carpenter had non-cash net pension income of $2.6 million ($.07 per diluted share).

Through the first nine months of the current fiscal year, Carpenter had other income of $8.2 million, primarily reflecting receipt of funds under the "Continued Dumping and Subsidy Offset Act of 2000" and payment from a litigation matter. In the same period a year ago, the company had other income of $4.4 million primarily as a result of the receipt of funds under this program.

Earlier this fiscal year Carpenter had a special charge of $2.3 million ($.06 per diluted share) associated with the early repayment of debt. For the nine-month period a year ago, the company had special charges of $27.0 million ($.73 per diluted share) associated with cost reduction initiatives.

For the first nine months of this fiscal year, the company generated $79.0 million of free cash flow versus $48.5 million for the same period a year ago.

Operating Summary—"During the quarter, we experienced a strong increase in sales due to improved demand across most markets and the effect of recent pricing actions, including the pass through of escalating raw material and energy costs. In addition, our sales benefited from a weaker U.S. dollar," said Robert J. Torcolini, Chairman, President and CEO.

Third quarter sales improved for virtually all end-use markets compared to a year ago. Automotive market sales increased 34% from a year ago, while medical market sales increased 34%; industrial market sales increased 21%; aerospace and power generation market sales increased 12%; and consumer market sales increased 15%. Geographically, sales outside the United States increased 36% from a year ago and represented 29% of third quarter sales.

Carpenter's gross profit in the third quarter improved to $48.7 million (17.4% of sales) from $35.9 million (15.3% of sales) a year ago. The gross profit in the recent third quarter included non-cash pension and retiree medical expenses of $3.1 million (1.1% of sales). In the third quarter a year ago, gross profit reflected non-cash pension income of $1.0 million (0.4 percent of sales). The improvement in gross profit reflects lower costs realized through lean and variation reduction initiatives and a better product mix. This improvement occurred despite steep increases in raw materials and energy costs.

As a result of the improvement in gross profit, Carpenter's third quarter income before other income and expense (net sales less cost of sales and selling and administrative expenses) increased to $18.9 million (6.7% of sales) from $7.8 million (3.3% of sales) a year ago. The improvement more than offset the change in the non-cash pension and retiree medical expense to $4.4 million from non-cash income of $0.8 million in the third quarter a year ago.

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 third quarter was $47.4 million, compared to $22.6 million a year ago. For the nine-month period ended March 31, 2004, free cash flow was $79.0 million, compared to $48.5 million for the same period 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 third quarter, Carpenter had approximately $170 million available under its credit facilities.

Outlook—"We expect that Carpenter's results will increasingly reflect our efforts to align product pricing with the value delivered and to focus on those products in which the company can most profitably compete globally," Torcolini said. "We are encouraged by the cost reductions and operating improvements made during the past several quarters and believe that there is substantial opportunity for further improvement through a continuous focus on lean and variation reduction initiatives."

Carpenter said that it now expects its free cash flow to exceed $100 million for the current fiscal year before a potential $25 million contribution to fund future post-retirement medical expenses.

Carpenter Technology produces and distributes specialty alloys, including stainless steels, titanium alloys and superalloys, and various engineered products.

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