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Carpenter Technology Reports Third Quarter Results

Other income was $1.7 million compared to $1.1 million in the fiscal year 2011 third quarter.

The provision for income tax was $18.8 million or 36.3 percent of pre-tax income compared to $3.1 million or 9.7 percent of pre-tax income in the third quarter of fiscal year 2011 – which was exceptionally low due to tax benefits associated with changes in previous tax positions. The tax rate in the quarter reflects the non-deductibility of some Latrobe transaction costs as well as a state tax item. The estimated tax rate for the full fiscal year is currently 36 percent.

Net income attributable to Carpenter was $33.0 million or $0.69 per diluted share. Excluding $7.4 million, net of tax, or $0.15 per share of total Latrobe acquisition related costs, net income attributable to Carpenter would have been $40.4 million or $0.84 per share. Net income attributable to Carpenter in the same quarter a year ago was $28.6 million or $0.64 per share.

Free cash flow, defined as cash from operations less capital expenditures, dividends, and the net impact from the purchase and sale of businesses, was $9.6 million in the current quarter.

Markets:

Aerospace & Defense market sales were $240.5 million in the third quarter, up 21 percent compared with the same period a year ago. Excluding surcharge revenue, aerospace & defense sales were up 22 percent on 34 percent higher volume (or up 12 percent on 6 percent higher volume without Latrobe). Aerospace results reflect strength in all areas. Demand for titanium fastener material is now exceeding prior peak levels, and nickel and stainless fastener demand has shown significant growth over the prior year. Demand for engine components remains strong, driven by high build rates. Sales of aerospace structural components also increased significantly due to the addition of Latrobe and continued progress selling Carpenter’s Custom-series stainless alloys.

Industrial & Consumer market sales were 128.7 million in the third quarter, down 3 percent compared with the same period a year ago. Excluding surcharge revenue, sales increased 12 percent on 10 percent lower volume (or up 8 percent on 13 percent lower volume without Latrobe). The year-over-year revenue growth and volume declines reflect the continued impact of mix management and pricing actions. The percentage of volume in differentiated product applications with strategically important customers is increasing as a result of these actions.

Energy market sales of $68.6 million increased 28 percent compared to the same period a year ago. Excluding surcharge revenue, energy market sales increased 29 percent on 61 percent higher volume (or up 24 percent on 50 percent higher volume without Latrobe). Power Generation and Oil & Gas each demonstrated strength in the quarter. Mix was impacted as sales of non-magnetic drill collars increased at a faster rate than materials into power generation. Activity in the industrial gas turbine market continues to grow as natural gas prices remain low, causing increased customer demand. The oil & gas segment also continued to grow with the directional drilling rig count hitting a new peak this quarter and shifts from gas to oil.

Medical market sales were $37.8 million in the third quarter, up 15 percent from a year ago. Excluding surcharge revenue, medical market sales increased 23 percent on 1 percent lower volume (unchanged without Latrobe). The revenue growth is attributable to customer shifts to tighter specification medical grade alloys which creates increased demand for Carpenter premium products.

Transportation market sales were $38.2 million, an increase of 6 percent from a year earlier. Excluding surcharge revenue, transportation sales increased 14 percent on 7 percent higher volume (relatively unchanged without Latrobe). Revenue and volume increases reflect demand growth for high value materials required in turbo charger, gasket and fuel system applications used in smaller, higher efficiency turbo charged engines, particularly in Europe.

International sales in the third quarter were $178.7 million, an increase of 30 percent compared with the same quarter a year earlier - driven by a 38 percent increase in European sales and a 33 percent increase in Asia/Pacific sales. Growth in Europe was led by increased demand for materials used for aerospace, industrial gas turbines and high value automotive applications. Growth in Asia/Pacific was led by material sales into the automotive, oil & gas and industrial end-markets. Total international sales in the quarter represented 33 percent of total Company revenue, compared with 30 percent in the prior year.

Outlook

“We expect to finish the year strong, and should see an increase in our total fiscal year 12 operating income of about $100 million or 70 percent higher than last year, excluding non-cash pension EID expense and including Latrobe. This is higher than our targeted 50 percent increase excluding Latrobe, and includes about 10 points of growth due to Latrobe. We continue to expect free cash flow will be positive in the fourth quarter, with lower inventory levels, but modestly negative for the full year.

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