10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934 (No Fee Required)

For the fiscal year ended June 30, 2006

Commission file number 1-5828

CARPENTER TECHNOLOGY CORPORATION

(Exact name of Registrant as specified in its Charter)

Delaware	23-0458500
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

P. O. Box 14662, Reading, PA	19610
(Address of principal executive offices)	(Zip Code)

610-208-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

(Title of each class)	(Name of each exchange on which registered)
Common stock, par value $5 per share	New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.    Yes  x    No  ¨.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined by Rule 12b-2 of the Act).

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

As of August 18, 2006, 25,520,721 shares of Common Stock of Carpenter Technology Corporation were outstanding.

The aggregate market value of Common Stock held only by non-affiliates at December 31, 2005 was $1,745,159,177, based on the closing price per share of Common Stock on that date of $70.47 as reported on the New York Stock Exchange.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference certain information from the 2006 definitive Proxy Statement.

The Exhibit Index appears on pages E-1 to E-5.

TABLE OF CONTENTS

			Page Number
PART I
	Item 1	Business	3 – 9
	Item 1A	Risk Factors	9 – 14
	Item 1B	Unresolved Staff Comments	14
	Item 2	Properties	15
	Item 3	Legal Proceedings	15
	Item 4	Submission of Matters to a Vote of Security Holders	15
PART II
	Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
	Item 6	Selected Financial Data	17 – 18
	Item 7	Management’s Discussion and Analysis of Liquidity and Capital Resources and Results of Operations	19 – 37
	Forward-Looking Statements		38
	Item 7A	Quantitative and Qualitative Disclosures about Market Risk	38 – 39
	Item 8	Financial Statements and Supplementary Data	40 – 81
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	81
	Item 9A	Controls and Procedures	81
	Item 9B	Other Information	81
PART III
	Item 10	Directors and Executive Officers of the Registrant	82 – 84
	Item 11	Executive Compensation	84
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	84
	Item 13	Certain Relationships and Related Transactions	85
	Item 14	Principal Accounting Fees and Services	85
PART IV
	Item 15	Exhibits, Financial Statement Schedules	86
SIGNATURES			87 – 88
SCHEDULE II		Valuation and Qualifying Accounts	89
EXHIBIT INDEX			E-1 – E-5

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PART I

Item 1. Business

(a) General Development of Business:

Carpenter Technology Corporation (“Carpenter”), incorporated in 1904, is engaged in the manufacturing, fabrication, and distribution of specialty metals and engineered products. We made no significant changes in the form of our organization or mode of conducting business during the year ended June 30, 2006.

(b) Financial Information About Segments:

We are organized in the following business units: Specialty Alloys Operations, Dynamet, Carpenter Powder Products, and Engineered Products. For segment reporting, the Specialty Alloys Operations, Dynamet, and Carpenter Powder Products operating segments have been aggregated into one reportable segment, Specialty Metals, because of the similarities in products, processes, customers, distribution methods and economic characteristics. See Note 18 to our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data” for additional segment reporting information.

(c) Narrative Description of Business:

(1) Products:

We primarily process basic raw materials such as nickel, titanium, chromium, iron scrap and other metal alloying elements through various melting, hot forming and cold working facilities to produce finished products in the form of billet, bar, rod, wire, narrow strip, special shapes, and hollow forms in many sizes and finishes. We also produce certain metal powders and fabricated metal products. In addition, ceramic products are produced from various raw materials using molding, heating and other processes.

Our Specialty Metals segment includes the manufacturing and distribution of stainless steels, titanium, high temperature alloys, electronic alloys, tool steels and other alloys in billet, bar, wire, rod, strip and powder forms. Specialty Metals sales are distributed directly from our production plants and distribution network as well as through independent distributors.

Our Engineered Products segment includes the manufacture and sale of structural ceramic products, ceramic cores for the investment casting industry and custom shaped bar.

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Our major classes of products are:

Special alloys –

Other special purpose alloys used in critical components such as bearings and fasteners. Heat resistant alloys that range from slight modifications of the stainless steels to complex nickel and cobalt base alloys. Alloys for electronic, magnetic and electrical applications with controlled thermal expansion characteristics, or high electrical resistivity or special magnetic characteristics.

Stainless steels –

A broad range of corrosion resistant alloys including conventional stainless steels and many proprietary grades for special applications.

Titanium products –

A corrosion resistant, highly specialized metal with a combination of high strength and low density. Most common uses are in aircraft, medical devices, sporting equipment and chemical and petroleum processing.

Ceramics and other materials –

Certain engineered products, including ceramic cores for investment castings ranging from small simple configurations to large complex shapes and structural ceramic components, as well as drawn solid shapes.

Tool and other steels –

Tool and die steels, which are extremely hard metal alloys, used for tooling and other wear-resisting components in metalworking operations such as stamping, extrusion and machining. Other steels include carbon and alloy steels purchased for distribution and other miscellaneous products.

(2) Classes of Products:

The amounts and percentages of our net sales contributed by our major classes of products for the last three fiscal years are summarized in the following table:

($ in millions)	2006				2005				2004
Special alloys	$	703.8	45	%	$	515.6	39	%	$	369.6	37	%
Stainless steels		528.1	34			531.9	40			447.8	44
Titanium products		176.3	11			112.5	9			73.4	7
Ceramics and other materials		102.2	6			98.7	8			82.9	8
Tool and other steels		57.8	4			55.5	4			43.0	4
Total net sales	$	1,568.2	100	%	$	1,314.2	100	%	$	1,016.7	100	%

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(3) Raw Materials:

Our Specialty Metals segment depends on continued delivery of critical raw materials for its day-to-day operations. These raw materials include nickel, ferrochrome, cobalt, molybdenum, titanium, manganese and scrap. Some of these raw materials sources, many of which are international, could be subject to potential interruptions of supply as a result of political events, labor unrest or other reasons. These potential interruptions could cause material shortages and affect availability and price.

We have long-term relationships with major suppliers who provide availability of material at competitive prices. Purchase prices of certain raw materials have historically been volatile, and have been especially volatile over the past few years. We use pricing surcharges, indexing mechanisms and base price adjustments to reduce the impact of increased costs for the most significant of these materials. There can be delays between the time of the increase in the price of raw materials and the realization of the benefits of such mechanisms or actions that could have a short-term impact on our results.

(4) Patents and Licenses:

We own a number of United States and international patents and have granted licenses under some of them. Certain of our products are covered by patents held or owned by other companies from whom licenses have been obtained. Although these patents and licenses are believed to be of value, we do not consider our business to be materially dependent upon any single patent or patent rights.

(5) Seasonality of Business:

Our sales are normally influenced by seasonal factors. Historically, our first two fiscal quarters (three months ending September 30 and December 31) are typically the lowest – principally because of annual plant vacation and maintenance shutdowns by us as well as by many of our customers. However, the timing of major changes in the general economy or the markets for certain products can alter this pattern, particularly when certain raw materials are in short supply.

The chart below summarizes the percent of net sales by quarter for the past three fiscal years:

Quarter Ended	2006		2005		2004
September 30	22	%	23	%	21	%
December 31	22		24		22
March 31	27		26		28
June 30	29		27		29
	100	%	100	%	100	%

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(6) Customers:

On a consolidated basis, we are not dependent upon a single customer, or a very few customers, to the extent that the loss of any one or more would have a materially adverse effect on our consolidated statement of operations. In our Engineered Products segment (see Note 18 to the consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data” for further segment discussion), which accounted for $102.9 million, $129.1 million and $110.0 million of our sales in fiscal years 2006, 2005 and 2004, respectively, approximately 14 percent ($14.1 million), 17 percent ($21.9 million), and 18 percent ($19.8 million) of segment sales were to one customer in fiscal 2006, 2005 and 2004, respectively. There were no other significant individual customer sales volumes during fiscal years 2006, 2005 or 2004.

(7) Backlog:

As of June 30, 2006 we had a backlog of orders, believed to be firm, of approximately $481 million, substantially all of which is expected to be shipped within fiscal year 2007. Our backlog as of June 30, 2005 was approximately $430 million. Our backlogs have become less indicative of future sales levels due to shifting product mixes and customer ordering patterns.

(8) Competition:

Our business is highly competitive. We supply materials to a wide variety of end-use market sectors, none of which consumes more than 40 percent of our output, and compete with various companies depending on end-use market, product or geography.

There are approximately ten domestic companies producing one or more similar specialty metal products that are considered to be major competitors to the specialty metals operations in one or more end-use markets. There are several dozen smaller producing companies and converting companies in the United States that are competitors. We also compete directly with several hundred independent distributors of products similar to those distributed by us. Additionally, numerous foreign producers export into the United States various specialty metal products similar to those produced by us. Furthermore, a number of different products may, in certain instances, be substituted for our finished product.

Imports of foreign specialty steels, particularly stainless steels, have long been a concern to the domestic steel industry because of the potential for unfair pricing by foreign producers. Foreign governments through direct and indirect subsidies have usually supported such pricing practices. These unfair trade practices have resulted in high import penetration into the U.S. stainless steel markets, with calendar year 2005 levels at approximately 52 percent for stainless bar, 63 percent for stainless rod and 57 percent for stainless wire.

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Because of the unfair trade practices and the resulting injury, we joined with other domestic producers in the filing of trade actions against foreign producers who dumped their stainless steel products into the United States. As a result of these actions, in March 1995, the U.S. Department of Commerce issued antidumping orders for the collection of dumping duties on imports of stainless bar from Brazil, India, Japan and Spain at rates ranging up to 63 percent of their value. These orders remained in effect until January 2006. The U.S. International Trade Commission (ITC) recently voted to conduct a full (sunset) review of the antidumping duty orders on imports of stainless bar from Brazil, India, Japan and Spain. This review could result in a five year extension period for the antidumping orders. New antidumping orders were issued in March 2002 against imports of stainless bar from France, Germany, Italy, Korea and the United Kingdom and will continue in effect until March 2007.

In December 1993, the U.S. Department of Commerce issued antidumping orders on imports of stainless rod from Brazil, France and India at rates ranging up to 49 percent of their value. These orders were in effect until July 2005. The ITC and U.S. Department of Commerce have initiated the second sunset review of the antidumping duty orders covering stainless steel wire rod from Brazil, France and India. Additionally, in September 1998, antidumping orders were put in place with regard to imports of stainless rod from Italy, Japan, Korea, Spain, Sweden and Taiwan at rates ranging up to 34 percent of their value. A sunset review was completed in June 2004 by the ITC recommending continuation of these orders for another five years. The ITC determined that revoking the existing antidumping duty orders on stainless steel wire rod from Italy, Japan, Korea, Spain, Sweden, and Taiwan would likely lead to continuation or recurrence of material injury within a reasonably foreseeable time. As a result of the Commission’s affirmative determinations and the Department of Commerce’s affirmative findings, the existing orders on imports of stainless steel wire rod from Italy, Japan, Korea, Spain, Sweden, and Taiwan will remain in place. Italy did contest the final determination by the ITC not to revoke the antidumping duty order on stainless steel wire rod from Italy.

(9) Research, Product and Process Development:

Our expenditures for company-sponsored research and development were $10.2 million, $10.0 million and $10.8 million in fiscal 2006, 2005 and 2004, respectively. We believe that our ability to be a product innovator in special material development and manufacturing is an important factor in the success of the Company. Our strong commitment to setting new industry standards is evidenced by our Specialty Alloys Research and Development Center, where teams work in such areas as physical metallurgy, analytical chemistry, materials characterization and process and systems development. We have highly skilled engineering teams specializing in specific products at each of our operations.

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(10) Environmental Regulations:

We are subject to various stringent federal, state, local and international environmental laws and regulations relating to pollution, protection of public health and the environment, natural resource damages and occupational safety and health. Management evaluates the liability for future environmental remediation costs on a quarterly basis. We accrue amounts for environmental remediation costs representing management’s best estimate of the probable and reasonably estimable costs relating to environmental remediation. For further information on environmental remediation, see the Contingencies section included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 12 to our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data”.

Our costs of maintaining and operating environmental control equipment were $11.3 million, $11.2 million and $10.5 million for fiscal 2006, 2005 and 2004, respectively. The capital expenditures for environmental control equipment were $0.2 million for each of the fiscal years ending June 30, 2006, 2005 and 2004, respectively. We anticipate spending approximately $1.0 million on major domestic environmental capital projects over the next five fiscal years. This includes approximately $0.2 million in fiscal 2007 and $0.2 million in fiscal 2008. Due to the possibility of future regulatory developments, the amount of future capital expenditures may vary from these estimates.

(11) Employees:

As of June 30, 2006, our total workforce was 3,990 employees. Of our total workforce, approximately 420 employees are covered under collective bargaining agreements. The agreements expire at various times in the future, with the largest one covering 305 employees of Certech, Inc., in Wood-Ridge and Carlstadt, New Jersey, effective through January 31, 2007. The collective bargaining agreement for our Dynamet production employees in Washington, Pennsylvania will expire on August 31, 2007.

(d) Financial information about foreign and domestic operations and export sales:

Sales outside of the United States, including export sales, were $496.4 million, $365.0 million and $273.4 million in fiscal 2006, 2005 and 2004, respectively.

For further information on domestic and international sales, see Note 18 to our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data”.

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(e) Available Information:

The Board of Directors adopted a Code of Ethics for the Chief Financial Officer and Senior Financial Officers of Carpenter Technology Corporation. There were no waivers of the Code in fiscal 2006. The Code and any information regarding any waivers of the Code are disclosed on Carpenter’s website at www.cartech.com. Our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (SEC). Our Internet website and the content contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.

The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and other information regarding issuers that file electronically. Such information can be accessed through the Internet at www.sec.gov.

Item 1A. Risk Factors.

There are inherent risks and uncertainties associated with all businesses that could adversely affect operating performances or financial conditions. The following discussion outlines the risks and uncertainties that management believes are the most material to our business. However, these are not the only risks or uncertainties that could affect our business. Certain risks are associated specifically with our business, industry or customer base, while others are broader.

Cyclical Demand for Certain Products. Demand in our end use markets, including companies in the aerospace, industrial supply, consumer, automotive, medical, energy and power generation markets, can be cyclical in nature and sensitive to general economic conditions, competitive influences, and fluctuations in inventory levels throughout the supply chain. As a result, our results of operations, financial condition, cash flows and availability of credit could fluctuate significantly from period to period.

Risks Associated with Commercial Aerospace. A growing portion of our sales represents products sold to customers in the commercial aerospace market. The commercial aerospace market is historically cyclical due to both external and internal market factors. These factors include general economic conditions, airline profitability, consumer demand for air travel, varying fuel and labor costs, price competition, and international and domestic political conditions such as military conflict and the threat of terrorism. The length and degree of cyclical fluctuation can be influenced by any one or combination of these factors and therefore are difficult to predict with certainty. A downturn in the commercial aerospace industry would adversely affect the demand for our products and/or the prices at which we are able to sell our products, and our results of operations, business and financial condition could be materially adversely affected.

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Excess Worldwide Capacity. The steel industry continues to operate in an environment of excess supply. Continued domestic and international over capacity could lead to an overall reduction in prices of certain non-specialty products. Continued availability of lower cost, substitute materials may also cause significant fluctuation in future results as our customers opt for a lower cost alternative. In addition, developing economies such as China and India have led to a rapid increase in demand for certain products resulting in price and supply variations and causing companies to implement plans to meet that increased demand. If the demand from these economically developing countries subsides, additional excess worldwide capacity could significantly impact future worldwide pricing or export practices of certain products.

Raw Material Pricing; Pricing Actions. Although inflationary trends in recent years have been moderate, certain critical raw material costs, such as nickel, chromium, titanium, and scrap containing iron and nickel, have been volatile. Rapid increases in raw material costs may adversely affect our results of operations. The timing of pricing actions can be dependent upon market conditions, economic factors, raw material costs and availability, competitive factors, operating costs and/or other factors, some of which are beyond our control. The effects of any pricing actions may be delayed due to long manufacturing lead times or the terms of existing contracts. There is no guarantee that pricing actions will be able to offset rising costs or maintain the company’s profit margins.

Dependence on Critical Raw Materials Subject to Price and Availability Fluctuations. We rely on third parties to supply the raw materials that are critical to the manufacture of our products. These raw materials include nickel, ferrochrome, cobalt, molybdenum, titanium, manganese and various types of scrap. Purchase prices of these critical raw materials are subject to volatility due to factors that are not in our control. These materials are purchased from suppliers operating in countries that may be subject to unstable political and economic conditions. These conditions may disrupt supplies or affect the prices of these materials. At any given time we may be unable to obtain an adequate supply of these critical raw materials at agreeable prices or terms, on a timely basis, or at all. If suppliers increase the price of critical raw materials or are unwilling or unable to meet our demand, we may not have alternative sources of supply. In addition, we may be unable to recoup such price increases through surcharges or increased selling prices. The manufacture of some of our products is a complex process and requires long lead times. If unable to obtain adequate and timely deliveries of required raw materials when needed in our manufacturing process, we may be unable to meet customer orders in a timely manner or in sufficient quantities. This could cause us to lose sales, incur additional costs, delay new product introductions, or suffer harm to our reputation.

Risks Associated with Medical Costs and Retirement Benefits. We provide medical benefits to active and retired employees throughout most of our company. Most of the cost is paid by the company and is not covered by insurance. In addition, certain of our employees are covered by defined benefit pension plans with the

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majority of our plans covering employees in the United States. A decline in the value of plan investments in the future, an increase in costs or liabilities or unfavorable changes in laws or regulations that govern pension plan funding could materially change the timing and amount of required pension funding. A requirement to fund any deficit created in the future could have a material adverse effect on our results of operations and financial condition. Many domestic and international competitors do not provide defined benefit retiree health care and other international competitors operate in jurisdictions with government sponsored health care plans that may offer them a cost advantage.

Risks Associated with Environmental Matters. We are subject to various federal, state, local and international environmental laws and regulations relating to pollution, protection of public health and the environment, natural resource damages and occupational safety and health. We could incur substantial cleanup costs, fines and civil or criminal sanctions, third party property damage or personal injury claims as a result of violations or liabilities under these laws or non-compliance with environmental permits required at our facilities. We have environmental remediation liabilities at some of our owned operating facilities and have been designated as a potentially responsible party (“PRP”) with respect to certain third-party Superfund or similar waste disposal sites and other third party owned sites. Additionally, we have been notified that we may be a PRP with respect to other Superfund sites as to which no proceedings have been instituted against us. From time-to-time, we are a party to lawsuits and other proceedings involving alleged violations of, or liabilities arising from environmental laws. When our liability is probable and we can reasonably estimate our costs, we record environmental liabilities in our financial statements. In many cases, we are not able to determine whether we are liable, or if liability is probable, to reasonably estimate the loss or range of loss. Estimates of our liability remain subject to additional uncertainties, including the nature and extent of site contamination, available remediation alternatives, the extent of corrective actions that may be required, and the number and financial condition of other PRPs, as well as the extent of their responsibility for the remediation. We intend to adjust our accruals to reflect new information as appropriate. Future adjustments could have a material adverse effect on our results of operations in a given period, but we cannot reliably predict the amounts of such future adjustments. At June 30, 2006, our reserves for environmental matters totaled approximately $5.9 million. Future developments, administrative actions or liabilities relating to environmental matters could have a material adverse effect on our financial condition or results of operations.

Risks Associated with Current or Future Litigation and Claims. We are defending various claims and legal actions that have been or may be asserted against us relating to the conduct of our currently and formerly owned businesses, including those pertaining to product liability, commercial disputes, employment actions, employee benefits, compliance with domestic and federal laws, personal injury and tax issues. Due to the uncertainties of litigation, we can give no assurance that we will prevail on all claims made against us in the lawsuits that we currently face or that additional claims will not be made against us in the future. The outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to us. The resolution in any reporting

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period of one or more of these matters could have a material adverse effect on our results of operations for that period. We can give no assurance that any other matters brought in the future will not have a material effect on our financial condition, liquidity or results of operations.

Labor Matters. We have approximately 3,990 full-time employees, the majority of which are not covered by a collective bargaining agreement. Approximately 420 total employees at two of our business units are covered by various collective bargaining agreements. The agreements expire at various times in the future, with the largest one covering 305 employees of Certech, Inc., in Wood-Ridge and Carlstadt, New Jersey, effective through January 31, 2007. The collective bargaining agreement for our Dynamet production employees located in Washington, Pennsylvania, will expire in August, 2007. There can be no assurance that we will succeed in concluding collective bargaining agreements with the unions to replace those that expire. From time to time, the employees at our primary manufacturing facility in Reading, Pennsylvania, participate in election campaigns or union organizing attempts as to whether they should be represented by a union for collective bargaining. There is no guarantee that future organization attempts will not result in union representation.

Risks Associated With Complex Manufacturing Processes Requiring High Cost Capital Equipment. Our manufacturing processes are complex and depend upon critical, high cost equipment for which there may be only limited or no production alternatives. It is possible that we could experience prolonged periods of reduced production due to unplanned equipment failures and we could incur significant repair or replacement costs in the event of those failures. It is also possible that operations could be disrupted due to other unforeseen circumstances such as power outages, explosions, fires, floods, accidents and severe weather conditions. We must make regular, substantial capital investments and changes to our manufacturing processes to lower production costs, improve productivity, manufacture new or improved products and remain competitive. We may not be in a position to take advantage of business opportunities or respond to competitive pressures if we fail to update, replace or make additions to our equipment or our manufacturing processes in a timely manner. The cost to repair or replace much of our equipment or facilities would be significant. We cannot be certain that we will have sufficient internally generated cash or acceptable external financing to make necessary capital expenditures in the future.

Risks Associated with Acquisition and Disposition Strategies. We consider acquisition, joint ventures, and other business combination opportunities as well as possible business unit dispositions as part of our overall business strategy. From time-to-time, management holds discussions with management of other companies to explore such opportunities. As a result, the relative makeup of the businesses comprising our Company is subject to change. Acquisitions, joint ventures, and other business combinations involve various inherent risks, such as difficulties in integrating the operations, technologies, products and personnel of the acquired companies, diversion of management’s attention from existing operations, difficulties in entering markets in which we have limited or no direct prior experience, dependence on unfamiliar supply chains, insufficient revenues to offset increased expenses associated with acquisitions, loss of key employees of the acquired

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companies, inaccurate assessment of undisclosed liabilities, difficulties in realizing projected efficiencies, synergies and cost savings, and increases in our debt or limitation in our ability to access additional capital when needed.

Internal Controls Over Financial Reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements or inaccuracies. Effectiveness of reporting results in future periods is subject to the risk that controls may become inadequate, or that the degree of compliance with the policies or procedures may deteriorate.

Political and Social Turmoil and Other World Issues. War, civil conflict, terrorism, natural disasters, and public health issues including domestic or international pandemic, have caused and could cause damage or disruption to domestic or international commerce by creating economic or political uncertainties. These events could result in a decrease in demand for our products, make it difficult or impossible to deliver orders to customers or receive materials from suppliers, effect the availability or pricing of energy sources or other severe consequences that may or may not be predictable. As a result, our business, financial condition and results of operations could be materially adversely affected.

International Sales. We believe that international sales will continue to account for a significant percentage of our future revenues. Risks associated with international sales include: political and economic instability, including weak conditions in the world’s economies; accounts receivable collection; export controls; changes in legal and regulatory requirements; policy changes affecting the markets for our products; changes in tax laws and tariffs; and exchange rate fluctuations (which may affect sales to international customers and the value of profits earned on international sales when converted into dollars). Any of these factors could materially adversely effect our results for the period in which they occur.

Safety Issues. Various federal, state, local and international worker safety laws and regulations are applicable to our operations. We have used, and currently use and manufacture substantial quantities of substances that are considered hazardous, extremely hazardous or toxic under worker safety and health laws and regulations. Although we implement controls and procedures designed to reduce continuing risk of health and safety issues, we could incur substantial costs, fines and civil or criminal sanctions or personal injury claims as a result of violations or liabilities under these laws.

Retention of Key Personnel. Much of our future success depends on the continued service and availability of skilled personnel, including members of our executive management team, management, metallurgists and staff positions. The loss of key personnel could adversely affect our ability to perform until suitable replacements are found.

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Changes in Executive Management. We are experiencing changes in several of our Executive Officer positions. The Company’s Chairman, President and Chief Executive Officer has publicly announced his intention to retire upon appointment of his successor by the Board of Directors. A new Senior Vice President – Finance and Chief Financial Officer joined the Company in July 2006. The Company is also engaging a new Vice President – Human Resources. There is a risk that the business strategies or operational effectiveness of the Company could be materially and adversely affected by changes in the Company’s management personnel.

Item 1B. Unresolved Staff Comments.

None.

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Item 2. Properties

The primary locations of our specialty metals manufacturing plants are: Reading, Pennsylvania; Hartsville, South Carolina; Washington, Pennsylvania; Orangeburg, South Carolina; Bridgeville, Pennsylvania; Orwigsburg, Pennsylvania; Clearwater, Florida; Elyria, Ohio; Torshalla, Sweden and Crawley, England. The Reading, Hartsville, Washington, Orangeburg, Bridgeville, Orwigsburg, Elyria, Torshalla and Crawley plants are owned. The Clearwater plant is owned, but the land is leased. The Torshalla offices are leased.

The primary locations of our engineered products manufacturing operations are: Wood-Ridge and Carlstadt, New Jersey; Wilkes-Barre, Pennsylvania; Twinsburg, Ohio; Auburn, California; Palmer, Massachusetts; Derby and Corby, England; Queretaro, Mexico and Clayton, Australia. The Corby and Queretaro plants are owned, while the other locations are leased.

We also operate regional customer service and distribution centers, most of which are leased, at various locations in several states and foreign countries.

Our plants, customer service centers, and distribution centers were acquired or leased at various times over several years. There is an active maintenance program to ensure a safe operating environment and to keep facilities in good condition. In addition, we have had an active capital spending program to replace equipment as needed to keep it technologically competitive on a world-wide basis. We believe our facilities are in good condition and suitable for our business needs. As a specialty materials and alloys producer with considerable diversity in the types of product we manufacture, any measurement of the practical capacities at our facilities is affected by product mix and is therefore not meaningful in total.

Item 3. Legal Proceedings

Pending legal proceedings involve ordinary routine litigation incidental to our business. We are not aware of any material proceedings to which any of our Directors, Officers, or affiliates, or any owners of more than five percent of any class of our voting securities, or any associate of any of our Directors, Officers, affiliates, or security holders, is a party adverse to us or has a material interest adverse to our interests or those of our subsidiaries. There is no administrative or judicial proceeding arising under any Federal, State or local provisions regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment that (1) is material to our business or financial condition, (2) involves a claim for damages, potential monetary sanctions or capital expenditures exceeding ten percent of our current assets, or (3) includes a governmental authority as a party and involves potential monetary sanctions in excess of $100,000.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of our stockholders during the fourth quarter of fiscal 2006.

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PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

Our common stock is listed on the New York Stock Exchange (“NYSE”) and traded under the symbol “CRS”. The following table sets forth, for the periods indicated, the high and low closing prices for our common stock as reported by the NYSE.

	Fiscal 2006				Fiscal 2005
Quarter Ended:	High		Low		High		Low
September 30	$	64.94	$	51.28	$	47.74	$	31.30
December 31	$	71.30	$	51.64	$	61.81	$	38.91
March 31	$	97.82	$	72.01	$	70.00	$	51.35
June 30	$	139.75	$	95.18	$	63.08	$	51.03
Annual	$	139.75	$	51.28	$	70.00	$	31.30

The range of our common stock price on the NYSE from July 1, 2006 to August 18, 2006 was $90.67 to $120.15. The closing price of the common stock was $98.85 on August 18, 2006.

We have paid quarterly cash dividends on our common stock for 100 consecutive years. We paid a quarterly dividend of $0.15 per common share during each quarter of fiscal 2006.

During fiscal 2005, we paid a quarterly dividend of $0.0825 per common share during the first quarter, a dividend of $0.10 per common share during the second and third quarters, and a dividend of $0.125 per common share during the fourth quarter.

As of August 18, 2006, there were 3,661 common stockholders of record.

Certain information relating to securities authorized for issuance under our equity compensation plans is disclosed in Note 14 to our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data”.

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Item 6. Selected Financial Data

Five-Year Financial Summary

Dollar amounts in millions, except per share data

(years ended June 30)

	2006		2005(a)		2004(b)		2003(c)			2002(d)
Summary of Operations
Net sales	$	1,568.2	$	1,314.2	$	1,016.7	$	871.1		$	977.1
Operating income	$	310.7	$	204.2	$	68.1	$	8.1		$	17.3
Income (loss) before cumulative effect of accounting changes	$	211.8	$	135.5	$	36.0	$	(10.9	)	$	(6.0	)
Cumulative effect of accounting changes		—		—		—		—			(112.3	)
Net income (loss)	$	211.8	$	135.5	$	36.0	$	(10.9	)	$	(118.3	)
Financial Position at Year-End
Cash	$	413.4	$	163.8	$	76.6	$	53.5		$	18.7
Marketable securities	$	81.2	$	106.6	$	28.8	$	—		$	—
Total assets	$	1,887.9	$	1,653.4	$	1,456.2	$	1,399.9		$	1,479.5
Long-term obligations, net of current portion (including convertible preferred stock)	$	333.1	$	333.7	$	332.7	$	396.7		$	400.2
Per Share Data
Net earnings (loss):
Basic
Earnings (loss) before cumulative effect of accounting changes	$	8.33	$	5.54	$	1.51	$	(0.56	)	$	(0.35	)
Cumulative effect of accounting changes		—		—		—		—			(5.06	)
Net earnings (loss)	$	8.33	$	5.54	$	1.51	$	(0.56	)	$	(5.41	)
Diluted
Earnings (loss) before cumulative effect of accounting changes	$	8.08	$	5.37	$	1.49	$	(0.56	)	$	(0.35	)
Cumulative effect of accounting changes		—		—		—		—			(5.06	)
Net earnings (loss)	$	8.08	$	5.37	$	1.49	$	(0.56	)	$	(5.41	)
Cash dividend-common	$	0.60	$	0.4075	$	0.330	$	0.5775		$	1.32

^(a) Fiscal 2005 included an $8.7 million pre-tax gain on the sale of Carpenter Special Products in June 2005, which was sold for a total sales price of $19.5 million. See Note 19 to the consolidated financial statements included in Item 8. “Financial Statements and Supplemental Data”.

^(b) Fiscal 2004 included a $2.3 million pre-tax loss on early retirement of debt related to a $20 million open market purchase of certain medium term notes previously issued by the company and the termination of interest rate swaps associated with the partial repayment of foreign currency loans. See Note 7 to the consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data”.

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^(c) Fiscal 2003 included restructuring costs of $26.1 million related principally to workforce reduction, pension plan curtailment loss, and writedown of certain assets. Fiscal 2003 also included $0.9 million gain on sale of business related to the sale of two business units. In addition, fiscal 2003 included a $4.5 million loss on the early retirement of debt related to the redemption of approximately $90 million of the Company’s 9 percent debentures due 2022.

^(d) Fiscal 2002 reflected the adoption of SFAS 142 (Goodwill and Other Intangible Assets) effective July 1, 2001.

See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for discussion of factors that affect the comparability of the “Selected Financial Data”.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

This Overview is intended to provide a context for the following Management’s Discussion and Analysis of Financial Condition and Results of Operation. Management’s Discussion and Analysis of Financial Condition and Results of Operation should be read in conjunction with our consolidated financial statements, including the notes thereto, included in this annual report on Form 10-K. We have attempted to identify the most important matters on which our management focuses in evaluating our financial condition and operating performance and the short-term and long-term opportunities, challenges and risks (including material trends and uncertainties) which we face. We also discuss the actions we are taking to address these opportunities, challenges and risks. The Overview is not intended as a summary of, or a substitute for review of, Management’s Discussion and Analysis of Financial Condition and Results of Operation

Business

Carpenter is engaged in the manufacturing, fabrication, and distribution of specialty metals and engineered products. We primarily process basic raw materials such as nickel, titanium, chromium, iron scrap and other metal alloying elements through various melting, hot forming and cold working facilities to produce finished products in the form of billet, bar, rod, wire, narrow strip, special shapes, and hollow forms in many sizes and finishes. We also produce certain metal powders and fabricated metal products. In addition, ceramic products are produced from various raw materials using molding, heating and other processes.

Our Specialty Metals segment includes the manufacturing and distribution of stainless steels, titanium, high temperature alloys, electronic alloys, tool steels and other alloys in billet, bar, wire, rod, strip and powder forms. Specialty Metals sales are distributed directly from our production plants and distribution network as well as through independent distributors.

Our Engineered Products segment includes the manufacture and sale of structural ceramic products, ceramic cores for the investment casting industry and custom shaped bar.

The table below shows our net sales by major product class for the past three fiscal years:

($ in millions)	2006				2005				2004
Special alloys	$	703.8	45	%	$	515.6	39	%	$	369.6	37	%
Stainless steels		528.1	34			531.9	40			447.8	44
Titanium products		176.3	11			112.5	9			73.4	7
Ceramics and other materials		102.2	6			98.7	8			82.9	8
Tool and other steels		57.8	4			55.5	4			43.0	4
Total net sales	$	1,568.2	100	%	$	1,314.2	100	%	$	1,016.7	100	%

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Unlike many other specialty steel producers, we operate our own worldwide network of service/distribution centers. These service centers, located in the United States, Canada, Mexico and Europe, allow us to work more closely with customers and to offer various just-in-time stocking programs. As a result, we often serve as a technical partner in customizing specialty metals or in developing new ones.

Our sales are across a diversified list of end-use markets. The table below summarizes our sales by market over the past three fiscal years.

($ in millions)	2006				2005				2004
Aerospace	$	621.5	40	%	$	383.5	29	%	$	248.7	24	%
Industrial		349.1	22			369.5	28			294.0	29
Consumer		205.1	13			210.3	16			180.8	18
Automotive		185.6	12			182.9	14			153.4	15
Medical		138.2	9			96.0	7			71.8	7
Power Generation		68.7	4			72.0	6			68.0	7
Total net sales	$	1,568.2	100	%	$	1,314.2	100	%	$	1,016.7	100	%

In an effort to increase revenue and profits, we have increased our presence in fast-growing international markets. In recent years, we have expanded our sales and marketing efforts in Europe, Asia, and North America. Our European headquarters are based in Brussels, with our Asian sales directed from Singapore. Outside the United States, company-owned distribution facilities are located in Mexico, Canada, the United Kingdom and Belgium. In addition to the United States, where the majority of our manufacturing exists, we have manufacturing facilities in the United Kingdom, Mexico, Sweden and Australia. In fiscal 2006, $496.4 million, or 31.7 percent of our sales were to customers outside of the United States.

We believe that our ability to be a product innovator in special material development and manufacturing is an important factor in the success of the Company. Our strong commitment to setting new industry standards is evidenced by our Specialty Alloys Research and Development Center, where teams work in such areas as physical metallurgy, analytical chemistry, materials characterization and process and systems development. We also have highly skilled engineering teams specializing in specific products at each of our Engineered Products Operations.

Business Trends

Net sales and earnings for the past three fiscal years are summarized below:

(in millions, except per share data)	2006		2005		2004
Net sales	$	1,568.2	$	1,314.2	$	1,016.7
Net income	$	211.8	$	135.5	$	36.0
Diluted earnings per share	$	8.08	$	5.37	$	1.49

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Our results of operations have improved significantly over the past three fiscal years largely as a result of favorable market conditions and our focus on lean and variation reduction, especially in the aerospace and medical markets. The key components of our business practices are as follows:

• A shift in product mix to higher value materials;

• Improved margins from an intentional reduction in the sale of marginally profitable products;

• Pricing products for the value delivered;

• Expansion of sales in markets outside of the U.S.;

• Efforts to achieve operational excellence through our focus on lean and variation reduction.

Specifically, we use the phrase “lean and variation reduction” to refer to eliminating or reducing non-value added activities, process variation reduction, process control, work concentration, product flow based on specific customer quantity demand and constraint removal. Our lean and variation reduction philosophy applies to all aspects of our business, including product development, order taking and scheduling, manufacturing, logistics and administrative processes.

Increases in the cost of raw materials have impacted our operations over the past few years. We, and others in our industry, generally have been able to pass these cost increases through to our customers using surcharges or base price increases. This has impacted our sales numbers and had a dilutive effect on our gross profit percentages as described later in this discussion.

The amount of net pension expense has varied significantly over the past three years and may continue to do so in the future. The net pension expense is actuarially determined at the beginning of each fiscal year based upon the value of the assets in the pension trusts as well as actuarial assumptions, such as the discount rate used to value future liabilities and anticipated performance of investments. Volatility in long term interest rates and investment performance has resulted in changes in net pension expense. The impacts on the past three years are described in the discussions below. Pre-tax net pension expense, comprised of pension expense or income and post-retirement medical expenses, in fiscal years 2006, 2005, and 2004 was $10.8 million, $2.4 million, and $16.1 million, respectively.

Special Items Recorded in Fiscal Years 2005 and 2004

During the fourth quarter of 2005, we recorded a gain of $8.7 million before taxes on the sale of our subsidiary, Carpenter Special Products Corporation (CSPC). The divestiture was part of the company’s strategy to focus on its specialty material businesses. CSPC had sales of less than $30 million in fiscal 2005 and accounted for less than 2 percent of consolidated operating income.

In fiscal 2004, we incurred a loss on the early retirement of debt of $2.3 million before taxes. This loss was a result of a $20 million open market purchase of certain medium term notes previously issued by the company and the termination of interest rate swaps associated with the partial repayment of foreign currency loans. See Note 7 to our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data”.

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Results of Operations – Fiscal 2006 compared to Fiscal 2005

Our net income for fiscal 2006 was $211.8 million, or $8.08 per diluted share, versus net income of $135.5 million or $5.37 per diluted share for fiscal 2005.

Sales and operating profits were driven by strong demand for our higher value materials, especially from the aerospace and medical markets, higher selling prices, and cost savings and containment due to our continued focus on lean and variation reduction. Sales grew in most of our major product classes.

Free cash flow (see page 32 for Carpenter’s definition and a reconciliation to GAAP) was $202.8 million in fiscal 2006. At June 30, 2006, our cash and marketable securities exceeded our total debt by $161.3 million.

Net Sales

Net sales for fiscal 2006 were $1.6 billion, which was an increase of 19 percent from $1.3 billion in fiscal 2005. The $254.0 million increase in net sales was due to improved demand in our aerospace and medical markets, higher prices including surcharges and base price increases and product mix. Excluding surcharges, fiscal 2006 sales increased by 19 percent compared to fiscal 2005.

International sales in fiscal 2006 increased 36 percent to $496.4 million from the prior year primarily as a result of strong demand for higher value materials, particularly in the European aerospace and medical markets. Sales outside of the U.S. accounted for 31.7 percent of total sales in fiscal 2006 compared to 27.8 percent in fiscal 2005. Details of sales by geographical region for the past three fiscal years are presented in Note 18 to the consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data”.

Sales of our special alloys increased 37 percent from the prior year, to $703.8 million. The increase was driven by strong demand from the aerospace markets for alloys used in the manufacture of aircraft engines and structural components. The increase also reflected higher sales to the medical, automotive and energy markets, as well as higher base selling prices and surcharges.

Stainless steel sales of $528.1 million were relatively flat compared to the prior year. Higher selling prices and improved product mix offset reduced shipments of marginally profitable products and lower sales to the industrial and automotive markets.

Titanium alloy sales of $176.3 million were 57 percent more than a year ago. Increased sales to the aerospace and medical markets and higher selling prices due to the effect of passing through significantly higher titanium costs drove the increase.

Sales of our ceramic and other materials increased by 4 percent from fiscal 2005, to $102.2 million. Higher sales of ceramic cores and related products used in casting turbine blades for the aerospace market and fuel injectors for diesel engines were offset by lower sales of structural ceramic components sold to the industrial market and ceramic cores sold to the consumer market.

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In terms of end-use markets, sales to the aerospace market of $621.5 million in fiscal 2006 increased 62 percent from fiscal 2005. The increase was driven primarily by demand for high temperature alloys used in jet engine components and for titanium and special alloys used in airframe structural components. We have seen continued strength in the underlying demand for our materials due to the number and type of aircraft being built.

Sales to the industrial sector of $349.1 million, which includes materials used in equipment and other capital goods applications, decreased by 6 percent in fiscal 2006 from fiscal 2005. The decrease primarily reflects reduced sales of marginally profitable products.

Consumer market sales decreased by 2 percent from the prior year, to $205.1 million. This decrease resulted from reduced sales to the sporting goods, housing, and electronic markets.

Sales to the automotive market in fiscal 2006 remained relatively flat at $185.6 million. The increased popularity of high performance engines and more stringent emissions standards resulted in higher demand for special alloys and ceramic components, which offset reduced demand of other products driven by lower automobile production levels and corresponding adjustments in inventory within the supply chain.

Sales to the medical market of $138.2 million were 44 percent above a year ago, with strong growth in both domestic and international markets for our titanium materials and special alloys. Sales also benefited from pricing actions driven by the higher cost of materials and a favorable product mix.

Gross Profit

Gross profit in fiscal 2006 grew to $436.1 million, or 27.8 percent of sales, from $316.1 million, or 24.1 percent of sales, a year ago. The improvement in our gross profit percentage was due to higher base prices, product mix improvement due to increased demand for higher value materials and the elimination of marginally profitable product lines, increased productivity, and cost reduction attributed to continued success from our focus on lean and variation reduction.

Selling and Administrative Expenses

Selling and administrative expenses in fiscal 2006 were $125.4 million, or 8.0 percent of net sales, compared to $120.6 million, or 9.2 percent of net sales, in fiscal 2005. The increase in dollars primarily reflected increases in stock based compensation and other variable compensation expenses of $4.0 million, increases in outside professional fees of $3.0 million, and higher non-cash pension costs of $2.3 million. Fiscal 2005 included $4.2 million of expense representing the increase in a reserve related to ongoing cleanup costs at a location that was closed in 1987. Current fiscal year expense related to this location was $0.7 million.

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Interest Expense

Fiscal 2006 interest expense of $23.3 million was approximately equal to fiscal 2005. Interest on substantially all of our debt is at a fixed rate and the level of debt was consistent throughout the two-year period.

Other Income, Net

Other income, net was $21.7 million in fiscal 2006 versus $8.8 million in fiscal 2005. Interest income was $13.9 million in fiscal 2006 compared to $5.6 million in the prior year. This increase reflected higher average balances of cash during the year, and higher interest rates. Foreign exchange gains resulted in other income of $1.5 million in fiscal 2006 while we recorded a loss of $1.4 million in fiscal 2005. Fiscal 2006 included the receipt of $4.7 million of tariffs from the U.S. Customs Department under the “Dumping and Subsidy Offset Act of 2001”. Fiscal 2005 included $4.1 million of these funds.

Income Taxes

Our effective tax rate (income tax expense as a percent of income before taxes) for fiscal 2006 was 31.5 percent as compared to 28.7 percent last year. The fiscal year 2006 tax rate was more favorable than the statutory rate of 35 percent primarily due to the following items. We recorded a reduction in income tax expense of $5.8 million, or 1.9 percent of pretax income, reflecting the reversal of valuation allowances that had been recorded against state and foreign net operating loss carryforwards in prior years. Under Statement of Financial Accounting Standards No. 109 (SFAS109), valuation allowances should be reviewed each year and an assessment must be made as to the likelihood of recovery of those deferred taxes. Based on current year and forecasted taxable income in certain jurisdictions, we determined that it was appropriate to reverse a portion of this valuation allowance in fiscal 2006. We recognized a benefit of $4.6 million, or 1.5 percent of pretax income, related to US export incentives. We recognized a benefit of $3.2 million, or 1.0 percent of pretax income, in connection with the domestic manufacturing deduction, which was part of the American Jobs Creation Act of 2004 allowing a special deduction for qualified manufacturing activities.

The fiscal year 2005 tax rate was more favorable than the statutory rate of 35 percent due to several reasons. We recognized a benefit of $4.5 million representing the conclusion of an IRS review of prior year’s tax returns. Also, we recorded a reduction in income tax expense of $3.0 million reflecting the reversal of a portion of state tax net operating loss carryforward valuation allowances that had been recorded in prior years. During fiscal 2005, we adjusted the rates used to value state deferred taxes based on our review of effective tax rates in those states, which resulted in a decrease in tax expense of $2.8 million.

See Note 16 to the consolidated financial statements in Item 8. “Financial Statements and Supplementary Data” for a full reconciliation of the statutory federal tax rate to the effective tax rates.

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Net Pension Expense

We present our calculation of net pension expense within the Non-GAAP measures section on page 32. Our net pension expense is a non-cash item and is the aggregation of expense or income related to our pension plans and expense related to our other postretirement benefits plans. For fiscal years 2006 and 2005, our pre-tax net pension expense was $10.8 million and $2.4 million, respectively. These amounts include non-taxable Medicare Part D income of $3.0 million for fiscal 2006 and $3.5 million for fiscal 2005. The after tax net pension expense for fiscal years 2006 and 2005 was $5.7 million, or $0.22 per diluted share, and $0.2 million, or $0.01 per diluted share, respectively.

(in millions)	Pension Plans					Other Postretirement Plans				Total
	2006		2005			2006		2005		2006		2005
Classified as:
Cost of sales	$	3.1	$	(3.0	)	$	3.8	$	3.9	$	6.9	$	0.9
Selling and administrative expense		2.9		0.6			1.0		0.9		3.9		1.5
Total net pension (income) expense	$	6.0	$	(2.4	)	$	4.8	$	4.8	$	10.8	$	2.4

The service cost component of our net pension expense, which represents the estimated cost of future pension liabilities earned by active employees, is included in the operating income of the business segments. The residual net pension expense, which is comprised of the expected return on plan assets, interest costs on the projected benefit obligations of the plans, and amortization of actuarial gains and losses and prior service costs, is included under the heading “Pension earnings, interest & deferrals” in the segment financial data (see Note 18 to the consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data”).

The net pension amount is actuarially determined as of each June 30 and typically held constant throughout the fiscal year. Major factors that can cause changes in the expense from year to year are changes in plan assumptions, actual versus anticipated returns on assets and changes to plan provisions.

The switch to net pension expense in fiscal 2006 from net pension income in fiscal 2005 reflected a decrease in the discount rate used to value future liabilities from 6.25% to 5.00%.

In fiscal 2007, we expect that our pre-tax net pension expense will decrease to approximately $5.0 million, due largely to an increase in the discount rate from 5.00% to 6.25%. Our largest pension plan remains well funded, as measured under ERISA rules, and as in prior years, we are not required to make a cash contribution to the plan in fiscal 2007.

Business Segment Results (See Note 18 to the consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data”):

Specialty Metals Segment

Net sales in fiscal 2006 for this segment, which aggregates the Specialty Alloys Operations (SAO), Dynamet, and Carpenter Powder Products (CPP), of $1,467.1 million were $278.8 million, or 23 percent higher than the $1,188.3 million for fiscal 2005. SAO sales

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increased 21 percent from a year ago due to solid demand from the aerospace market, the sale of higher value materials to the medical and automotive markets, and pricing actions. Dynamet’s sales increased 57 percent in fiscal 2006 compared to a year ago due to robust demand from the aerospace market, continued growth in the domestic and international medical markets, higher base selling prices, and higher prices reflecting the pass through of significantly higher titanium costs. CPP’s sales in fiscal 2006 were 10 percent higher than the prior year due to higher selling prices, stronger demand from the industrial market, and a better product mix.

Operating income for the Specialty Metals segment was $311.8 million in fiscal 2006 compared to $183.9 million in fiscal 2005. The increase in operating income reflected increased sales of higher value materials, base pricing actions, and continued operational improvements.

Engineered Products Segment

Fiscal 2006 sales for this segment were $102.9 million, a 20 percent decrease from $129.1 million for the prior year. The exclusion of the sales of $29.2 million from a company divested at the end of fiscal 2005 represents the majority of this decrease.

Operating income for the Engineered Products segment for fiscal 2006 was $17.1 million compared to $22.2 million for fiscal 2005. The decrease in income was primarily due to the exclusion of the profits from the divested company and reduced sales in our structural ceramics component business.

Results of Operations – Fiscal 2005 compared to Fiscal 2004

Our net income for fiscal 2005 was $135.5 million or $5.37 per diluted share versus net income of $36.0 million or $1.49 per diluted share for fiscal 2004.

Sales and operating profits were driven by strong demand for our higher value materials, especially from the aerospace market, and continued focus on lean and variation reduction. Sales grew in all of our major product classes and in most of our major end-use markets. Operating income for 2005 included an $8.7 million gain on the sale of a business. Operating income also included pre-tax net pension expense, made up of pension income or expense and post-retirement medical expenses, of $2.4 million, versus $16.1 million in 2004 (see page 32 for Carpenter’s definition of net pension expense).

Free cash flow (see page 32 for Carpenter’s definition and a reconciliation to GAAP) was $133.8 million in fiscal 2005. This amount was after our decision to make a $25 million voluntary contribution to a VEBA trust that funds post-retirement medical expenses. At June 30, 2005, total debt net of cash and marketable securities was $63.5 million, or 8.1 percent of total capitalization, defined as total stockholders’ equity plus total debt net of cash and marketable securities.

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Net Sales

Net sales for fiscal 2005 were $1.3 billion, or an increase of 29 percent, from $1.0 billion in fiscal 2004. The $297.5 million increase in net sales was due to improved demand across our end-use markets, a better product mix, and the effect of recent price actions including surcharges relating to the pass through of escalating raw material costs. Excluding surcharges, fiscal 2005 sales increased by 22 percent compared to fiscal 2004.

International sales in fiscal 2005 increased 34 percent to $365.0 million from fiscal 2004 as a result of strong demand for materials sold to the European aerospace and medical markets, and growth in Asia. Details of sales by geographical region for the past three fiscal years are presented in Note 18 to the consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data”.

Stainless steel sales in fiscal 2005, of $531.9 million, were 19 percent higher than fiscal 2004. The increase reflected a better product mix, higher base selling prices and surcharges to cover the rising costs of raw materials. The increase in sales of stainless products was partially offset by reduced volume of lower value products, resulting from our decision to exit lower volume, marginally profitable business opportunities.

Sales of our special alloys increased 40 percent above fiscal 2004, to $515.6 million. Stronger demand from the aerospace and industrial markets and higher base selling prices and surcharges were the major contributors to this increase.

Titanium alloy sales of $112.5 million in fiscal 2005 were 53 percent more than fiscal 2004 due to increased sales to the aerospace and medical markets as a result of stronger demand and increased selling prices due to the effect of significantly higher titanium costs.

Fiscal 2005 sales of our ceramic and other materials product class increased by 19 percent above fiscal 2004, to $98.7 million, primarily due to higher sales of ceramic cores used in casting turbine blades for the aerospace industry and fuel injectors for diesel engines. Sales of structural ceramic components for the industrial market also increased during fiscal 2005.

In terms of end-use markets, sales to the aerospace market of $383.5 million in fiscal 2005 increased 54 percent from fiscal 2004. The increase in aerospace sales was driven primarily by demand for high temperature alloys used in jet engine components and for titanium used in airframe structural components. Worldwide commercial aircraft build rates in fiscal 2005 were strong relative to the previous year.

Sales to the industrial sector in fiscal 2005 of $369.5 million, which includes materials used in equipment and other capital goods applications, increased 26 percent from fiscal 2004. The increase reflects base price increases, surcharges and the strength of capital investments by the worldwide manufacturing sector.

Consumer market sales in fiscal 2005 increased by 16 percent over fiscal 2004, to $210.3 million. This increase resulted from the sale of higher value products to the sporting goods and electronics markets.

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Sales to the automotive market in fiscal 2005 were $182.9 million, or 19 percent above fiscal 2004. The increase is due to better mix driven by the sale of higher value materials, base price increases and surcharges. The increased popularity of high performance engines and more stringent emissions standards resulted in higher demand for special alloys and specialty materials.

Sales to the medical market of $96.0 million were 34 percent above fiscal 2004, with strong growth in both domestic and international markets for our special alloys and titanium materials. Sales benefited from market share gains and pricing actions as well.

Gross Profit

Gross profit in fiscal 2005 grew to $316.1 million or 24.1 percent of sales, from $185.2 million, or 18.2 percent of sales in fiscal 2004. Our gross profit in fiscal 2005 included pension and retiree medical expenses of $0.9 million, or less than 0.1 percent of sales, compared to $11.3 million, or 1.1 percent of sales, in fiscal 2004.

The improvement in gross profit was due to sales growth, product mix improvement due to increased demand for higher value materials, the elimination of marginally profitable product lines, higher base prices, and increased productivity and cost reduction attributed to our continued focus on lean and variation reduction. Gross profit as a percentage of sales was negatively impacted by the dilution caused by the direct pass through of the increased raw material prices through surcharges.

Selling and Administrative Expenses

Selling and administrative expenses in fiscal 2005 were $120.6 million, or 9.2 percent of net sales, compared to $117.1 million, or 11.5 percent of net sales, in fiscal 2004. The increase in dollars primarily reflected a $4.2 million increase of a reserve recorded in fiscal 2005 related to ongoing cleanup costs at a location that was closed in 1987. Selling and administrative expenses included pension and retiree medical expenses of $1.5 million in fiscal 2005 versus $4.8 million in fiscal 2004. A year over year reduction in amortization expense of $4.2 million was offset by an increase in employee variable compensation costs of approximately the same amount. The fringe benefit expense component of this classification increased by $1.0 million due primarily to increases in health care costs. In addition, selling and administrative expenses were adversely affected by a $1.0 million increase in the provision for bad debts reflecting the weakening financial condition of certain customers.

Interest Expense

Fiscal 2005 interest expense of $23.0 million represented a slight decrease from fiscal 2004. The impact of reduced average debt levels was offset by higher effective interest rates.

Other Income, Net

Other income, net was $8.8 million in fiscal 2005 versus $7.6 million in fiscal 2004. Fiscal 2005 included the receipt of $4.1 million of tariffs from the U.S. Customs Department under the “Dumping and Subsidy Offset Act of 2001”, while fiscal 2004 included $5.2 million of these funds. The interest income portion of this classification was $5.6 million in fiscal 2005

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compared to $1.9 million in the previous year. This increase primarily reflected higher average balances of cash during the year, which were invested in interest bearing instruments. Foreign exchange losses on accounts at international subsidiaries resulted in a decrease in other income of $1.4 million in fiscal 2005 while we recorded a gain of $0.4 million in fiscal 2004.

Income Taxes

Our effective tax rate (income tax expense as a percent of income before taxes) for fiscal 2005 was 28.7 percent as compared to 27.6 percent for fiscal 2004. The fiscal year 2005 tax rate was more favorable than the statutory rate of 35 percent due to several reasons. We recognized a benefit of $4.5 million representing the conclusion of an IRS review of the previous year’s tax returns. Also, we recorded a reduction in income tax expense of $3.0 million reflecting the reversal of a portion of state tax net operating loss carry forward valuation allowances that had been recorded in prior years. Under Statement of Financial Accounting Standards No. 109 (SFAS109), valuation allowances should be reviewed each year and an assessment must be made as to the likelihood of recovery of those deferred taxes. Based on current year and forecasted taxable state income, we determined that it was appropriate to reverse a portion of this valuation allowance in fiscal 2005. During fiscal 2005, we adjusted the rates used to value state deferred taxes based on our review of effective tax rates in those states, which resulted in a decrease in tax expense of $2.8 million.

The effective rate in fiscal 2004 was more favorable than the statutory rate of 35 percent due to resolution of an outstanding state tax matter that resulted in the reversal of $2.4 million of income taxes payable. See Note 16 to the consolidated financial statements in Item 8. “Financial Statements and Supplementary Data” for a reconciliation of the statutory federal tax rate to the effective tax rates.

Net Pension Expense

We present our calculation of net pension expense within the Non-GAAP measures section on page 32. Our net pension expense is a non-cash item and is the aggregation of expense or income related to our pension plans and expense related to our other postretirement benefits plans. For fiscal years 2005 and 2004, our pre-tax net pension expense was $2.4 million and $16.1 million, respectively. These amounts include non-taxable Medicare Part D income of $3.5 million for fiscal 2005 and $1.6 million for fiscal 2004. The after tax net pension expense for fiscal years 2005 and 2004 was $0.2 million, or $0.01 per diluted share, and $9.8 million, or $0.42 per diluted share, respectively.

(in millions)	Pension Plans					Other Postretirement Plans				Total
	2005			2004		2005		2004		2005		2004
Classified as:
Cost of sales	$	(3.0	)	$	5.3	$	3.9	$	6.0	$	0.9	$	11.3
Selling and administrative expense		0.6			3.4		0.9		1.4		1.5		4.8
Total net pension (income) expense	$	(2.4	)	$	8.7	$	4.8	$	7.4	$	2.4	$	16.1

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The service cost component of our net pension expense, which represents the estimated cost of future pension liabilities earned by active employees, is included in the operating income of the business segments. The residual net pension expense, which is comprised of the expected return on plan assets, interest costs on the projected benefit obligations of the plans, and amortization of actuarial gains and losses and prior service costs, is included under the heading “Pension earnings, interest & deferrals” in the segment financial data (see Note 18 to the consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data”).

The switch from pension expense in fiscal year 2004 to pension income in fiscal year 2005 reflected higher returns on assets in our largest pension plan and an increase in the discount rate from 6.0% to 6.25%.

Business Segment Results (See Note 18 to the consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data”):

Specialty Metals Segment

Net sales in fiscal 2005 for this segment, which aggregates the Specialty Alloys Operations (SAO), Dynamet, and Carpenter Powder Products (CPP), of $1,188.3 million were $279.2 million, or 31 percent higher than the $909.1 million for fiscal 2004. SAO sales increased 28 percent from the previous year due to stronger demand in the U.S. and European aerospace markets, pricing actions and surcharges. Dynamet’s sales increased 61 percent from the previous year due primarily to strong demand in domestic and international aerospace and medical markets, higher base selling prices, and surcharges reflecting the significant rise in titanium prices. CPP’s sales in fiscal 2005 were 40 percent higher than the previous year due to higher selling prices and stronger demand from the industrial and automotive markets.

Operating income for the Specialty Metals segment was $183.9 million in fiscal 2005, compared to $71.5 million in fiscal 2004. Increased sales combined with better gross margins achieved through price increases, improved productivity, better product mix, and cost reduction and containment efforts generated this significant improvement in income.

Engineered Products Segment

Fiscal 2005 sales for this segment were $129.1 million, a 17 percent increase from $110.0 million for fiscal 2004. Increased volume, especially from the aerospace and automotive markets, and base selling price increases were the main factors in this overall sales improvement.

Operating income for the Engineered Products segment for fiscal 2005 was $22.2 million and $14.4 million for fiscal 2004. The increase in income was primarily due to increased volumes and cost savings from lean and variation reduction initiatives.

Management’s Discussion of Liquidity and Capital Resources

We have maintained the ability to generate cash to meet our needs through cash flow from operations, management of working capital and the flexibility to use outside sources of financing to supplement internally generated funds.

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Free cash flow as defined on page 32, was $202.8 million in fiscal 2006 versus $133.8 million a year ago. Free cash flow for fiscal 2005 was calculated after a $25 million voluntary contribution to a VEBA trust that funds post-retirement medical expenses. No such contribution was made in fiscal 2006.

Our cash flow from operations was $237.6 million for fiscal 2006 and $142.5 million a year ago. Accounts receivable were $39.5 million higher than a year ago due to the increased level of sales, however, days sales outstanding were reduced to 44 days from 48 days a year ago. Inventories were $3.6 million lower than a year ago. Capital expenditures for plant, equipment and software were $19.3 million during fiscal 2006 versus $13.8 million for fiscal 2005. Included in fiscal 2005 cash flows from investing activities were $15.4 million of proceeds from the sale of a subsidiary.

On August 31, 2005, we refinanced our $150 million revolving credit facility that was due to expire in November 2006. The new $150 million revolving credit facility will expire in August 2010. Terms and conditions under the new revolving credit facility are essentially the same as the refinanced revolving credit facility. This includes two financial covenants, a minimum EBITDA-to-interest expense coverage and a maximum debt-to-capital ratio.

At June 30, 2006, we had $10.4 million of issued letters of credit under the revolving credit facility. The balance of the revolving credit facility ($139.6 million) was available to us. In addition to this facility, we had $50 million available under an accounts receivable purchase facility maintained with an independent financial institution with an expiration date of December 2006. As of June 30, 2006, there was no utilization of the facility.

For the years ended June 30, 2006, 2005 and 2004, interest cost totaled $23.6 million, $23.1 million, and $23.8 million, of which $0.3 million, $0.1 million, and $0.1 million, respectively, were capitalized as part of the cost of plant, equipment and software.

As part of our financing strategy, we consider the levels of fixed rate debt versus floating rate debt in order to optimize our cost of debt. Historically, we have used interest rate swaps to achieve this targeted level. These instruments obligate us to pay a swap counterparty either a floating rate of interest in return for us receiving a fixed rate of interest or obligate us to pay a fixed rate of interest in return for us receiving a floating rate of interest. We had no such swaps outstanding as of June 30, 2006 or 2005. Favorable market conditions during fiscal 2005 allowed the company to unwind its remaining swaps at a gain. These gains are amortized over the remaining life of the underlying debt issue as a reduction to interest expense.

We believe that our current financial resources, both from internal and external sources, will be adequate to meet our foreseeable needs. At June 30, 2006, we had approximately $189.6 million available under our credit facility and our accounts receivable purchase facility.

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Non-GAAP Financial Measures

The following tables provide additional information regarding certain non-GAAP financial measures. Our definitions and calculations of these items may not necessarily be the same as those used by other companies.

FREE CASH FLOW (in millions)	Year Ended June 30,
	2006			2005			2004
Net cash provided from operations	$	237.6		$	142.5		$	94.1
Net change in accounts receivable purchase facility		—			—			10.0
Purchases of plant, equipment and software		(19.3	)		(13.8	)		(8.0	)
Proceeds from the sale of business		—			15.4			—
Proceeds from disposals of plant and equipment		1.0			1.1			1.6
Dividends paid		(16.5	)		(11.4	)		(9.3	)
Free cash flow	$	202.8		$	133.8		$	88.4

Management believes that the presentation of free cash flow provides useful information to investors regarding our financial condition because it is a measure of cash generated which management evaluates for alternative uses. It is management’s current intention to apply excess cash to the repayment of debt when economically feasible, or for other general corporate purposes.

NET PENSION EXPENSE (in millions, except per share data)	Year Ended June 30,
	2006			2005			2004
Pension plan expense (income)	$	6.0		$	(2.4	)	$	8.7
Other postretirement benefits expense		4.8			4.8			7.4
Pre-tax net pension expense		10.8			2.4			16.1
Income tax benefit		(5.1	)		(2.2	)		(6.3	)
Net pension expense	$	5.7		$	0.2		$	9.8
Net pension expense per share	$	0.22		$	0.01		$	0.42
Weighted average diluted common shares		26.1			25.1			23.4

Management believes that grouping these retirement benefits together, and discussing changes in this volatile net expense is helpful in analyzing the operational performance of the company.

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Critical Accounting Policies and Estimates:

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an on-going basis, we evaluate our estimates, including those related to bad debts, customer claims, inventories, goodwill, intangible assets, income taxes, restructuring, pensions and other postretirement benefits, contingencies and litigation, environmental liabilities, and derivative instruments and hedging activities.

We believe the following are the critical accounting policies and areas affected by significant judgements and estimates impacting the preparation of our consolidated financial statements:

We maintain an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments. We perform ongoing credit evaluation on our customers. Should the financial condition of our customers deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories are stated at the lower of cost or market. The cost of inventories is determined primarily using the last-in, first-out (LIFO) method. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between our cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory writedowns may be required.

The amount of the pension income or expense, which is determined annually, is based upon the value of the assets in the pension trust at the beginning of the fiscal year as well as actuarial assumptions, such as the discount rate and the expected long-term rate of return on plan assets. The assumed long-term rate of return on pension plan assets is reviewed at each year end based on the plan’s investment policies, an analysis of the historical returns of the capital markets, and current interest rates. The plan’s current allocation policy is to have approximately 60 percent U.S. and international equities and 40 percent fixed income. The discount rate for the U.S. plan is determined by reference to Moody’s AA corporate bond index with maturities that approximate the anticipated cash outflows from the plan. The fluctuations in stock and bond markets could cause actual investment results to be significantly different from those assumed, and therefore, significantly impact the valuation of the assets in our pension trust. Changes in actuarial assumptions could significantly impact the accounting for the pension assets and liabilities. If the assumed long-term rate of return on plan assets was changed by 1 percent, the net pension expense would change by approximately $7.7 million. If the discount rate was changed by 0.25 percent, the net pension expense would change by approximately $1.8 million.

Long-lived assets are reviewed for impairment and written down to fair value whenever events or changes in circumstances indicate that the carrying value may not be recoverable through estimated future undiscounted cash flows. The amount of the impairment loss is the

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excess of the carrying amount of the impaired assets over the fair value of the assets based upon estimated future discounted cash flows. We evaluate long-lived assets for impairment by individual business unit. Changes in estimated cash flows could have a significant impact on whether or not an asset is impaired and the amount of the impairment.

Goodwill is not amortized, but instead is tested for impairment, at least annually. Potential impairment is identified by comparing the fair value of a reporting unit to its carrying value, including goodwill. The fair value is estimated based upon discounted cash flow analysis and the use of market multiples. If the carrying value of the reporting unit exceeds its fair value, any impairment loss is measured by comparing the carrying value of the reporting unit’s goodwill to its implied fair value.

Environmental expenditures that pertain to current operations or to future revenues are expensed or capitalized consistent with Carpenter’s capitalization policy for property, plant and equipment. Expenditures that result from the remediation of an existing condition caused by past operations and that do not contribute to current or future revenues are expensed. Liabilities are recognized for remedial activities when the remediation is probable and the cost can be reasonably estimated. Recoveries of expenditures for environmental remediation are recognized as assets only when recovery is deemed probable. Estimated liabilities are not discounted to present value, but estimated assets are measured on a discounted basis.

Deferred income taxes result from temporary differences in the recognition of income and expense for financial and income tax reporting purposes, or differences between the fair value of assets acquired in business combinations accounted for as purchases for financial reporting purposes and their corresponding tax bases. Deferred income taxes represent future tax benefits (assets) or costs (liabilities) to be recognized when those temporary differences reverse. We evaluate on a quarterly basis whether, based on all available evidence, we believe that our deferred income tax assets will be realizable. Valuation allowances are established when it is estimated that it is probable (more likely than not) that the tax benefit of the deferred tax assets will not be realized. The evaluation, as prescribed by Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. Future realization of deferred income tax assets ultimately depends upon the existence of sufficient taxable income within the carryback, carryforward period available under tax law.

Our current risk management strategies include the use of derivative instruments to reduce certain risks. The critical strategies include: (1) the use of commodity options to fix the price of a portion of anticipated future purchases of certain raw materials and energy to offset the effects of changes in the costs of those commodities; and (2) the use of foreign currency forwards and options to hedge a portion of anticipated future sales denominated in foreign currencies, principally the Euro, Pound Sterling and Australian dollar, in order to offset the effect of changes in exchange rates. Historically, we have also used interest rate swaps to maintain a certain level of floating rate debt relative to fixed rate debt. The commodity options and foreign currency forwards and options have been designated as cash flow hedges and

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unrealized net gains and losses are recorded in the accumulated other comprehensive income (loss) component of stockholders’ equity. When used, interest rate swaps were designated as fair value hedges and the changes in fair value of these instruments were immediately recorded in earnings. The mark-to-market values of both the fair value hedging instruments and the underlying debt obligations were recorded as equal and offsetting gains and losses in the interest expense component of the consolidated statement of income. As of June 30, 2006 and 2005, all interest rate swap agreements were terminated. We evaluate all derivative instruments each quarter to determine that they are highly effective. Any ineffectiveness is recorded in our consolidated statement of operations. If the anticipated future transactions were no longer expected to occur, unrealized gains and losses on the related hedges would be reclassified to the consolidated statement of operations.

Off Balance Sheet Arrangements

We had no active off balance sheet arrangements during the periods presented.

Contractual Obligations

At June 30, 2006, we had the following contractual cash obligations and other commercial commitments and contingencies:

(in millions)	Total		Fiscal 2007		Fiscal 2008		Fiscal 2009		Fiscal 2010		Fiscal 2011		Thereafter
Long-term debt	$	333.3	$	0.2	$	33.2	$	23.3	$	20.0	$	100.0	$	156.6
Accrued post-retirement benefits		151.4		13.6		13.7		13.8		14.4		15.1		80.8
Interest on long-term debt		147.6		23.5		23.1		21.4		19.9		19.3		40.4
Operating leases		23.2		8.6		7.8		4.5		1.6		0.4		0.3
Purchase commitments		377.7		324.1		44.9		8.7		—		—		—
Total contractual obligations	$	1,033.2	$	370.0	$	122.7	$	71.7	$	55.9	$	134.8	$	278.1

We have entered into purchase commitments primarily for various key raw materials at market related prices, all made in the normal course of business.

In addition, we had $10.4 million of outstanding letters of credit as of June 30, 2006.

Market Sensitive Instruments and Risk Management

See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for discussion of market sensitive instruments and associated market risk for Carpenter.

Contingencies

Environmental

We are subject to various federal, state, local and international environmental laws and regulations relating to pollution, protection of public health and the environment, natural

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resource damages and occupational safety and health. Although compliance with these laws and regulations may affect our costs of operations, compliance costs to date have not been material. We have environmental remediation liabilities at some of our owned operating facilities and have been designated as a potentially responsible party (“PRP”) with respect to certain third-party Superfund waste disposal sites and other third party owned sites. Additionally, we have been notified that we may be a PRP with respect to other Superfund sites as to which no proceedings have been instituted against us. Neither the exact amount of remediation costs nor the final method of their allocation among all designated PRPs at these Superfund sites has been determined. The liability for future environmental remediation costs is evaluated by management on a quarterly basis. We accrue amounts for environmental remediation costs that represent management’s best estimate of the probable and reasonably estimable costs related to environmental remediation. During fiscal years 2006, 2005 and 2004, an additional $0.3 million, $0.5 million and $0.6 million, respectively, was accrued related to three of our environmental remediation sites. The liabilities recorded for environmental remediation costs at Superfund sites, at other third party-owned sites and at Carpenter-owned current or former operating facilities remaining at June 30, 2006, 2005 and 2004, were $5.9 million, $6.1 million and $6.7 million, respectively. The estimated range at June 30, 2006 of the reasonably possible future costs of remediation at Superfund sites, at other third party-owned sites and at Carpenter-owned current or former operating facilities is between $5.9 million and $10.4 million.

Estimates of the amount and timing of future costs of environmental remediation requirements are inherently imprecise because of the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the identification of currently unknown remediation sites and the allocation of costs among the PRPs. Based upon information currently available, such future costs are not expected to have a material effect on our financial position, results of operations or cash flows. However, such costs could be material to our financial position, results of operations or cash flows in a particular future quarter or year.

Other

We are also defending various claims and legal actions, and are subject to contingencies that are common to our operations, including those pertaining to product claims, commercial disputes, employment actions, employee benefits, compliance with domestic and federal laws, personal injury claims and tax issues. We provide for costs relating to these matters when a loss is probable and the amount is reasonably estimable. The effect of the outcome of these matters on our future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount and timing (both as to recording future charges to operations and cash expenditures) of the resolution of such matters. While it is not feasible to determine the outcome of these matters, management believes that the total ultimate liability will not have a material effect on our financial position, results of operations or cash flows. However, such costs could be material to our financial position, results of operations or cash flows in a particular future quarter or year.

Future Outlook

We established our financial objectives more than three years ago. One key goal has been to consistently achieve a return that exceeds our cost of capital. We continue to work relentlessly on lean initiatives and variation reduction so that we can consistently generate strong returns and further enhance shareholder value.

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As we enter fiscal 2007, market conditions remain favorable, especially for our special alloys, titanium and ceramics as a result of robust conditions in the aerospace and medical markets. We expect that sales to the aerospace market will be higher in fiscal 2007 despite the delay in the first commercial delivery of the Airbus A380 and some inventory re-balancing within certain segments of the aerospace supply chain. Because of these conditions, we expect further improvement in our operating results in fiscal 2007.

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Forward-looking Statements

This Form 10-K contains various “Forward-looking Statements” pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements, which represent our expectations or beliefs concerning various future events, include statements concerning future revenues and continued growth in various market segments. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected, anticipated or implied. The most significant of these uncertainties are described in this Form 10-K. They include but are not limited to: 1) the cyclical nature of the specialty materials business and certain end-use markets, including aerospace, industrial, automotive, consumer, medical and power generation, or other influences on our business such as new competitors, the consolidation of customers and suppliers or the transfer of manufacturing capacity from the United States to foreign countries; 2) our ability to achieve cost savings, productivity improvements or process changes; 3) our ability to recoup increases in the costs of energy and raw materials or other factors; 4) domestic and foreign excess manufacturing capacity for certain metals; 5) fluctuations in currency exchange rates; 6) the degree of success of government trade actions; 7) the valuation of the assets and liabilities in our pension trusts and the accounting for pension plans; 8) possible labor disputes or work stoppages; and 9) the potential that our customers may substitute alternate materials or adopt different manufacturing practices that replace or limit the suitability of our products. Any of these factors could have an adverse and/or fluctuating effect on our results of operations. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We undertake no obligation to update or revise any forward-looking statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We use derivative financial instruments to reduce certain types of financial risk. Raw material cost fluctuations for our Specialty Metals Segment are normally offset by selling price adjustments, primarily through the use of surcharge mechanisms and base price adjustments. Firm price sales contracts involve a risk of profit margin decline in the event of raw material increases. We reduce this risk on certain raw materials by entering into commodity forward contracts, which are effective hedges of the risk, on these firm sales contracts.

We use forwards and options to fix the price of a portion of anticipated future purchases of certain energy to offset the effects of changes in the costs of these commodities. We also use surcharge mechanisms to offset a portion of these charges where appropriate.

Fluctuations in foreign currency exchange rates could subject us to risk of losses on anticipated future cash flows from our international operations or customers. Foreign currency forward contracts are used to hedge certain foreign exchange risk.

Historically, we have considered the use of interest rate swaps to achieve an appropriate level of floating rate debt relative to fixed rate debt.

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All hedging strategies are reviewed and approved by senior financial management before being implemented. Senior financial management has established policies regarding the use of derivative instruments that prohibit the use of speculative or leveraged derivatives. Market valuations are performed at least quarterly to monitor the effectiveness of our risk management programs.

The status of our financial instruments as of June 30, 2006 is provided in Note 9 to the consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data”. Assuming on June 30, 2006 (a) an instantaneous 10 percent decrease in the price of raw materials and energy for which we have commodity forward contracts, our results of operations would not have been materially affected, (b) a 10 percent strengthening of the U.S. dollar versus foreign currencies for which foreign exchange forward contracts existed, our results of operations would not have been materially affected, and (c) a 10 percent decrease in the market value of investments in corporate-owned life insurance, our results of operations would not have been materially affected.

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Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements and Supplementary Data

	Page
Consolidated Financial Statements:
Management’s Responsibilities for Financial Reporting	41
Management’s Report on Internal Control Over Financial Reporting	41
Report of Independent Registered Public Accounting Firm	42 – 43
Consolidated Statement of Income for the Years Ended June 30, 2006, 2005 and 2004	44
Consolidated Statement of Cash Flows for the Years Ended June 30, 2006, 2005 and 2004	45
Consolidated Balance Sheet as of June 30, 2006 and 2005	46
Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended June 30, 2006, 2005 and 2004	47 – 48
Consolidated Statement of Comprehensive Income (Loss) for the Years Ended June 30, 2006, 2005 and 2004	48
Notes to Consolidated Financial Statements	49 – 79
Supplementary Data:
Quarterly Financial Data (Unaudited)	80 – 81
Schedule II	89

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Management’s Responsibilities for Financial Reporting

Carpenter’s management prepared the financial statements included in this Annual Report on Form 10-K and is responsible for their integrity and objectivity. The statements were prepared in conformity with generally accepted accounting principles and, as such, include amounts based on management’s best judgments and estimates. Financial information elsewhere in this Annual Report is consistent with that in the financial statements.

Carpenter maintains a system of internal controls, supported by a code of conduct, designed to provide reasonable assurance that assets are safeguarded and transactions are properly executed and recorded for the preparation of financial information. We believe Carpenter’s system of internal controls provides this appropriate balance. The system of internal controls and compliance is continually monitored by Carpenter’s internal audit staff.

The Audit/Finance Committee of the Board of Directors, composed of independent directors who are neither current nor former employees of Carpenter, meets regularly with management, Carpenter’s internal auditors and our independent registered public accounting firm to consider audit results and to discuss significant internal control, auditing and financial reporting matters. Both the independent registered public accounting firm and internal auditors have unrestricted access to the Audit/Finance Committee.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of Carpenter’s internal control over financial reporting as of June 30, 2006. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on our assessment, we concluded that as of June 30, 2006, Carpenter’s internal control over financial reporting is effective based on those criteria.

Management’s assessment of Carpenter’s internal control over financial reporting as of June 30, 2006 has been audited by PricewaterhouseCoopers LLP, Carpenter’s independent registered public accounting firm, as stated in their report appearing herein.

/s/ Robert J. Torcolini

Robert J. Torcolini

Chairman, President and Chief Executive Officer

/s/ M. David Kornblatt

M. David Kornblatt

Senior Vice President – Finance and Chief Financial Officer

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Stockholders of Carpenter Technology Corporation:

We have completed integrated audits of Carpenter Technology Corporation’s 2006 and 2005 consolidated financial statements and of its internal control over financial reporting as of June 30, 2006 and audit of its 2004 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Carpenter Technology Corporation and its subsidiaries (the Company) at June 30, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the Financial Statement Schedule listed in the index appearing under Item 15(a)(1) presents fairly in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements and schedule in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in the accompanying “Management’s Report on Internal Control Over Financial Reporting” , that the Company maintained effective internal control over financial reporting as of June 30, 2006 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commissions (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2006, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United

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States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

August 25, 2006

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Consolidated Statement of Income

Carpenter Technology Corporation

For the years ended June 30, 2006, 2005 and 2004

(in millions, except per share data)	2006			2005			2004
NET SALES	$	1,568.2		$	1,314.2		$	1,016.7
Cost of sales		1,132.1			998.1			831.5
Gross profit		436.1			316.1			185.2
Selling and administrative expenses		125.4			120.6			117.1
Gain on sale of business		—			(8.7	)		—
Operating income		310.7			204.2			68.1
Interest expense		23.3			23.0			23.7
Loss on early retirement of debt		—			—			2.3
Other income, net		(21.7	)		(8.8	)		(7.6	)
Income before income taxes		309.1			190.0			49.7
Income tax expense		97.3			54.5			13.7
NET INCOME	$	211.8		$	135.5		$	36.0
EARNINGS PER COMMON SHARE:
Basic	$	8.33		$	5.54		$	1.51
Diluted	$	8.08		$	5.37		$	1.49
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		25.2			24.2			22.5
Diluted		26.1			25.1			23.4

See accompanying notes to consolidated financial statements.

44

Consolidated Statement of Cash Flows

Carpenter Technology Corporation

For the years ended June 30, 2006, 2005 and 2004

(in millions)	2006			2005			2004
OPERATING ACTIVITIES
Net income	$	211.8		$	135.5		$	36.0
Adjustments to reconcile net income to net cash provided from operations:
Depreciation		45.8			46.8			49.2
Amortization		1.8			3.4			7.9
Deferred income taxes		(11.0	)		7.7			6.5
Net pension expense		10.8			2.4			16.1
Net loss on asset disposals		1.0			1.2			0.1
Gain on sale of business		—			(8.7	)		—
Changes in working capital and other:
Receivables		(39.5	)		(31.8	)		(40.5	)
Net change in accounts receivable purchase facility		—			—			(10.0	)
Inventories		3.6			(49.8	)		(4.3	)
Other current assets		7.2			(9.2	)		(0.1	)
Accounts payable		4.0			26.2			44.5
Accrued current liabilities		16.6			46.1			28.8
Contribution to VEBA		—			(25.0	)		(25.0	)
Other, net		(14.5	)		(2.3	)		(15.1	)
Net cash provided from operations		237.6			142.5			94.1
INVESTING ACTIVITIES
Purchases of plant, equipment and software		(19.3	)		(13.8	)		(8.0	)
Proceeds from disposals of plant and equipment		1.0			1.1			1.6
Proceeds from sale of business		—			15.4			—
Purchases of marketable securities		(450.4	)		(172.4	)		(70.0	)
Sales of marketable securities		476.0			94.6			41.2
Net cash provided from (used for) investing activities		7.3			(75.1	)		(35.2	)
FINANCING ACTIVITIES
Net change in short-term debt		—			(2.3	)		(15.7	)
Payments on long-term debt		(0.2	)		(20.2	)		(20.2	)
Checks not cleared		—			—			(3.7	)
Dividends paid		(16.5	)		(11.4	)		(9.3	)
Tax benefits on share-based compensation		8.0			—			—
Proceeds from common stock options exercised		15.0			54.2			12.8
Net cash provided from (used for) financing activities		6.3			20.3			(36.1	)
Effect of exchange rate changes on cash and cash equivalents		(1.6	)		(0.5	)		0.3
INCREASE IN CASH AND CASH EQUIVALENTS		249.6			87.2			23.1
Cash and cash equivalents at beginning of year		163.8			76.6			53.5
Cash and cash equivalents at end of year	$	413.4		$	163.8		$	76.6

See accompanying notes to consolidated financial statements.

45

Consolidated Balance Sheet

Carpenter Technology Corporation

June 30, 2006 and 2005

(in millions, except share data)	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	413.4		$	163.8
Marketable securities		81.2			106.6
Accounts receivable, net of allowance for doubtful accounts of $3.8 and $4.8 at June 30, 2006 and 2005, respectively		234.7			193.4
Inventories		224.3			228.6
Deferred income taxes		13.7			7.4
Other current assets		32.0			31.8
Total current assets		999.3			731.6
Property, plant and equipment, net		541.1			569.2
Prepaid pension cost		247.1			250.8
Goodwill		46.4			46.4
Trademarks and trade names, net		20.1			21.1
Other assets		33.9			34.3
Total assets	$	1,887.9		$	1,653.4
LIABILITIES
Current liabilities:
Accounts payable	$	137.4		$	133.4
Accrued liabilities		133.8			115.5
Current portion of long-term debt		0.2			0.2
Total current liabilities		271.4			249.1
Long-term debt, net of current portion		333.1			333.7
Accrued postretirement benefits		102.2			108.5
Deferred income taxes		189.0			192.5
Other liabilities		45.9			45.4
Total liabilities		941.6			929.2
Contingencies and commitments (see Note 12)
STOCKHOLDERS’ EQUITY
Convertible preferred stock – authorized 2,000,000 shares; issued 290.4 and 316.8 shares at June 30, 2006 and 2005, respectively		18.0			19.7
Common stock – authorized 100,000,000 shares; issued 26,505,018 shares and 25,949,237 shares at June 30, 2006 and 2005, respectively		132.5			129.7
Capital in excess of par value – common stock		294.2			278.1
Reinvested earnings		549.8			354.5
Common stock in treasury (990,610 shares and 1,026,848 shares at June 30, 2006 and 2005, respectively), at cost		(37.3	)		(35.8	)
Deferred compensation		(1.5	)		(9.2	)
Accumulated other comprehensive loss		(9.4	)		(12.8	)
Total stockholders’ equity		946.3			724.2
Total liabilities and stockholders’ equity	$	1,887.9		$	1,653.4

See accompanying notes to consolidated financial statements.

46

Consolidated Statement of Changes in Stockholders’ Equity

Carpenter Technology Corporation

For the years ended June 30, 2006, 2005 and 2004

(in millions, except per share data)	Convertible Preferred Stock Par Value of $5			Common Stock					Reinvested Earnings			Common Stock in Treasury			Deferred Compen- Sation			Accumulated Other Comp. Loss			Total Stock- Holders’ Equity
				Par Value Of $5		Capital in Excess of Par Value
Balances at June 30, 2003	$	10.2		$	117.3	$	199.8		$	203.7		$	(38.3	)	$	(3.8	)	$	(14.3	)	$	474.6
Net income										36.0												36.0
Cash Dividends:
Common @ $0.33 per share										(7.4	)											(7.4	)
Preferred @ $5,362.50 per share										(1.9	)											(1.9	)
Stock options exercised					2.5		10.3															12.8
Minimum pension liability, net of tax																			1.2			1.2
Change in ESOP guarantee		12.0														(4.4	)					7.6
Other		(1.4	)		0.9		5.0						0.3			(1.3	)		11.6			15.1
Balances at June 30, 2004	$	20.8		$	120.7	$	215.1		$	230.4		$	(38.0	)	$	(9.5	)	$	(1.5	)	$	538.0
Net income										135.5												135.5
Cash Dividends:
Common @ $0.4075 per share										(9.8	)											(9.8	)
Preferred @ $5,362.50 per share										(1.6	)											(1.6	)
Stock options exercised					8.9		45.3															54.2
Minimum pension liability, net of tax																			(4.0	)		(4.0	)
Other		(1.1	)		0.1		17.7						2.2			0.3			(7.3	)		11.9
Balances at June 30, 2005	$	19.7		$	129.7	$	278.1		$	354.5		$	(35.8	)	$	(9.2	)	$	(12.8	)	$	724.2
Net income										211.8												211.8
Cash Dividends:
Common @ $0.60 per share										(15.0	)											(15.0	)
Preferred @ $5,362.50 per share										(1.5	)											(1.5	)
Stock options exercised					2.5		12.5															15.0
Minimum pension liability, net of tax																			0.3			0.3
Reclassification of unamortized share-based compensation							(5.8	)								5.8						—
Tax benefit on share-based compensation							8.0															8.0
Other		(1.7	)		0.3		1.4						(1.5	)		1.9			3.1			3.5
Balances at June 30, 2006	$	18.0		$	132.5	$	294.2		$	549.8		$	(37.3	)	$	(1.5	)	$	(9.4	)	$	946.3

See accompanying notes to consolidated financial statements.

47

Consolidated Statement of Changes in Stockholders’ Equity (continued)

Carpenter Technology Corporation

For the years ended June 30, 2006, 2005 and 2004

	Preferred Shares Issued		Common Shares
			Issued	Treasury		Net Outstanding
Balances at June 30, 2003	353.6		23,451,719	(1,114,849	)	22,336,870
Stock options exercised			499,019			499,019
Restricted stock awards			181,400			181,400
Other	(19.9	)	9,012	8,077		17,089
Balances at June 30, 2004	333.7		24,141,150	(1,106,772	)	23,034,378
Stock options exercised			1,774,261			1,774,261
Restricted stock awards				100,600		100,600
Other	(16.9	)	33,826	(20,676	)	13,150
Balances at June 30, 2005	316.8		25,949,237	(1,026,848	)	24,922,389
Stock options exercised			500,992			500,992
Restricted stock awards			5,400	73,908		79,308
Other	(26.4	)	49,389	(37,670	)	11,719
Balances at June 30, 2006	290.4		26,505,018	(990,610	)	25,514,408

Consolidated Statement of Comprehensive Income

Carpenter Technology Corporation

For the years ended June 30, 2006, 2005 and 2004

(in millions)	2006		2005			2004
Net income	$	211.8	$	135.5		$	36.0
Unrealized loss on securities classified as available-for-sale, net of tax of $(0.1), $0 and $0.1 million, respectively		0.1		—			(0.1	)
Net gains (losses) on derivative instruments, net of tax of $(1.1) million, $6.3 million, and $(8.5) million, respectively		1.9		(9.0	)		12.7
Minimum pension liability, net of taxes of $(0.1) million, $2.3 million, and $(0.8) million, respectively		0.3		(4.0	)		1.2
Foreign currency translation		1.1		1.7			(1.0	)
Comprehensive income	$	215.2	$	124.2		$	48.8

See accompanying notes to consolidated financial statements.

48

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Basis of Consolidation – The consolidated financial statements include the accounts of Carpenter and all majority-owned subsidiaries. All significant intercompany accounts and transactions are eliminated. Investments in companies in which Carpenter exercises significant influence, but which it does not control (generally a 20 to 50 percent ownership interest), are accounted for on the equity method of accounting and Carpenter’s share of their income or loss is included in other income, net in the Consolidated Statement of Income.

Revenue Recognition – Revenue, net of related discounts and allowances, is recognized when product is shipped and title and risk of loss has transferred to the customer.

Freight and Handling Fees and Costs – Freight and handling costs billed separately to customers are included as part of sales, and freight and handling costs expensed are included as part of cost of sales on the Consolidated Statement of Income.

Research and Development – Research and development expenditures, which amounted to $10.2, $10.0 and $10.8 million in fiscal 2006, 2005 and 2004, respectively, are expensed as incurred and are generally reported in cost of sales in the Consolidated Statement of Income. Substantially all development costs are related to developing new products or designing significant improvements to existing products.

Cash Equivalents – Cash equivalents consist of highly liquid instruments with maturities at the time of acquisition of three months or less. Cash equivalents are stated at cost, which approximates market.

Marketable Securities – Carpenter considers all highly liquid investments with an original maturity of more than three months when purchased and all auction-rate securities to be marketable securities. Carpenter has determined that all of its marketable securities are to be classified as available-for-sale. These securities are carried at market value, with the unrealized gains and losses reported in stockholders’ equity under the caption accumulated other comprehensive loss. Interest and dividends on securities classified as available-for-sale are included in other income, net.

Inventories – Inventories are valued at the lower of cost or market. Cost for inventories is principally determined by the Last-In, First-Out (LIFO) method. Carpenter also uses the First-In, First-Out (FIFO) and average cost methods. For fiscal 2006 and 2005, $48.6 million and $47.2 million of inventory, respectively, was accounted for using a method other than the LIFO method.

49

Notes to Consolidated Financial Statements (continued)

Fixed Assets and Depreciation – Fixed assets are stated at historical cost less accumulated depreciation. Depreciation for financial reporting purposes is computed by the straight-line method over the estimated useful lives of the assets. Depreciation for income tax purposes is computed using accelerated methods. Upon disposal, assets and related depreciation are removed from the accounts and the differences between the net amounts and proceeds from disposal are included in cost of goods sold in the consolidated statement of operations.

Computer Software and Amortization – Computer software is included in other assets on the consolidated balance sheet, and is amortized for financial reporting purposes on a straight-line basis over the respective estimated useful lives, ranging principally from 3 to 7 years.

Goodwill – Goodwill, representing the excess of the cost over the net tangible and identifiable intangible assets of acquired businesses, is stated at cost.

Goodwill is not amortized but instead is annually tested for impairment, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. Potential impairment is identified by comparing the fair value of a reporting unit to its carrying value, including goodwill. The fair value is estimated based upon discounted cash flow analysis and the use of market multiples. If the carrying value of the reporting unit exceeds its fair value, any impairment loss is measured by comparing the carrying value of the reporting unit’s goodwill to its implied fair value.

Trademarks and Trade Names – The costs of trademarks and trade names are amortized on a straight-line basis over the estimated useful life of these finite-lived assets.

Impairment of Long-Lived Assets – Long-lived assets, including property, plant and equipment and intangible assets subject to amortization, are reviewed for impairment and written down to fair value whenever events or changes in circumstances indicate that the carrying value may not be recoverable through future undiscounted cash flows. The amount of the impairment loss is the excess of the carrying amount of the impaired assets over the fair value of the assets based upon discounted future cash flows.

Environmental Expenditures – Environmental expenditures that pertain to current operations or to future revenues are expensed or capitalized consistent with Carpenter’s capitalization policy for property, plant and equipment. Expenditures that result from the remediation of an existing condition caused by past operations and that do not contribute to current or future revenues are expensed. Liabilities are recognized for remedial activities when the remediation is probable and the cost can be reasonably estimated. Recoveries of expenditures for environmental remediation are recognized as assets only when recovery is deemed probable. Estimated liabilities are not discounted to present value, but estimated assets are measured on a discounted basis.

50

Notes to Consolidated Financial Statements (continued)

Derivative Financial Instruments – All derivative financial instruments are recorded on the balance sheet at their fair value and changes in fair value are recorded each period in current earnings or comprehensive income. Carpenter enters into derivative financial instruments to hedge certain anticipated transactions, firm commitments, or assets and liabilities denominated in foreign currencies. Historically, Carpenter has utilized interest rate swaps to convert floating rate debt to fixed rate, or to convert fixed rate debt to floating rate.

Foreign Currency Translation – Assets and liabilities of most international operations are translated at exchange rates in effect at year-end, and their income statements are translated at the average monthly exchange rates prevailing during the year. Translation gains and losses are recorded each period in other comprehensive loss until the international entity is sold or liquidated.

Deferred Income Taxes – Deferred income taxes are recognized by applying enacted statutory tax rates, applicable to future years, to temporary differences between the tax bases and financial statement carrying values of Carpenter’s assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets to amounts that are more likely than not to be realized.

Earnings per Share – Basic earnings per share is calculated by dividing net earnings available to common shareholders by the weighted average number of shares outstanding for the period. Diluted earnings per share is calculated by dividing net earnings adjusted for the assumed shortfall between common and preferred dividends by the weighted average number of shares outstanding for the period, adjusted for the effect of an assumed conversion of preferred shares and the effect of all dilutive stock options at the end of the period.

Litigation – Periodically, Carpenter and its subsidiaries are parties to lawsuits arising out of the normal course of business. Carpenter records liabilities when a loss is probable and can be reasonably estimated. These estimates are based on an analysis made by internal and external legal counsel considering information known at the time.

Share-Based Compensation – As of June 30, 2006, Carpenter has two share-based employee compensation plans, which are described in detail in Note 14. Beginning July 1, 2005, Carpenter adopted revised FASB Statement No. 123R “Share Based Payment” (“FASB 123R”) using the modified prospective method. The adoption of FASB 123R had no material effect on operating income, income before taxes, net income, basic earnings per share or diluted earnings per share. In connection with the adoption of FASB 123R during fiscal 2006, $8.0 million related to the tax benefits on share-based compensation was reclassified from net cash provided from operations to net cash provided from financing activities. Compensation cost charged against income related to stock options for the year ended June 30, 2006 was $0.2 million, and represents the cost of the final year of vesting for options granted in 2004. No options were granted in 2006 or 2005.

51

Notes to Consolidated Financial Statements (continued)

For the years ended June 30, 2005 and 2004, Carpenter accounted for those plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. No share-based employee compensation cost related to stock options was reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if Carpenter had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to share-based employee compensation for stock options, for the years ended June 30, 2005 and 2004.

(in millions, except per share data)	2005			2004
Net income as reported	$	135.5		$	36.0
Deduct: Total share-based employee compensation expense determined under fair value based method for all stock option awards, net of related tax effect		(0.4	)		(0.7	)
Pro forma net income	$	135.1		$	35.3
Earnings per share:
Basic – as reported	$	5.54		$	1.51
Basic – pro forma	$	5.53		$	1.48
Diluted – as reported	$	5.37		$	1.49
Diluted – pro forma	$	5.36		$	1.46

These pro forma adjustments were calculated using the Black-Scholes option-pricing model to value all stock options granted since July 1, 1996. A summary of the assumptions and data used in these calculations follows. No fair value assumptions are provided for fiscal 2006 or 2005 as no options were granted during that period.

	2006		2005		2004
Weighted average exercise price of options exercisable	$	22.43	$	29.29	$	31.29
Weighted average fair price per share of options	$	4.43	$	4.16	$	3.95
Fair value assumptions:
Risk-free interest rate		N/A		N/A		3.1	%
Expected volatility		N/A		N/A		26.2	%
Expected life of options		N/A		N/A		5 years
Expected dividend yield		N/A		N/A		1.1	%

52

Notes to Consolidated Financial Statements (continued)

For the years ended June 30, 2005 and 2004, Carpenter accounted for stock-based compensation with retirement eligible provisions using the nominal vesting period approach. Beginning in fiscal 2006, with the adoption of FASB 123R, the Company began using the non-substantive vesting period approach for new awards granted with retirement eligible provisions. Applying the nominal vesting period approach rather than the non-substantive vesting period approach did not have a material effect on net income for any of the periods presented.

Use of Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. The Interpretation provides clarification related to accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” This Interpretation is effective for fiscal years beginning after December 31, 2006. The Company will be evaluating this Interpretation in fiscal year 2007 to determine its potential impact when effective.

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154 (“SFAS 154”) “Accounting for Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3”, effective for years beginning after December 15, 2005. The Company will comply with the provisions of SFAS 154 for any accounting changes or error corrections.

53

Notes to Consolidated Financial Statements (continued)

2. Earnings Per Common Share

The calculations of earnings per share for the years ended June 30, 2006, 2005 and 2004 are shown below.

(in millions, except per share data)	2006			2005			2004
Basic EPS:
Net income	$	211.8		$	135.5		$	36.0
Dividends accrued on convertible preferred stock, net of tax benefits		(1.5	)		(1.6	)		(1.8	)
Earnings available to common stockholders	$	210.3		$	133.9		$	34.2
Weighted average common shares outstanding		25.2			24.2			22.5
Basic earnings per share	$	8.33		$	5.54		$	1.51
Diluted EPS:
Net income	$	211.8		$	135.5		$	36.0
Assumed shortfall between common and preferred dividends		(0.8	)		(1.0	)		(1.0	)
Earnings available for common stockholders	$	211.0		$	134.5		$	35.0
Weighted average number of common shares outstanding		25.2			24.2			22.5
Assumed conversion of preferred shares		0.6			0.7			0.7
Effect of shares issuable under stock option plans		0.3			0.2			0.2
Adjusted weighted average common shares		26.1			25.1			23.4
Diluted net earnings per share	$	8.08		$	5.37		$	1.49

54

Notes to Consolidated Financial Statements (continued)

3. Investments in Marketable Securities

The fair value of Carpenter’s investments in marketable securities is based on quoted market prices as of June 30, 2006 and 2005. The following is a summary of marketable securities as of June 30, 2006 and 2005, all of which were classified as available-for-sale:

June 30, 2006 (in millions)	Corporate Bonds			Government Bonds			Other Fixed Income Securities		Total
Cost	$	24.3		$	36.7		$	20.2	$	81.2
Unrealized losses		—			—			—		—
Estimated fair value	$	24.3		$	36.7		$	20.2	$	81.2
Due in one year or less	$	24.3		$	36.7		$	20.2	$	81.2
Due in one through three years		—			—			—		—
	$	24.3		$	36.7		$	20.2	$	81.2
June 30, 2005 (in millions)	Corporate Bonds			Government Bonds			Other Fixed Income Securities		Total
Cost	$	19.9		$	56.5		$	30.4	$	106.8
Unrealized losses		(0.1	)		(0.1	)		—		(0.2	)
Estimated fair value	$	19.8		$	56.4		$	30.4	$	106.6
Due in one year or less	$	13.2		$	56.4		$	30.4	$	100.0
Due in one through three years		6.6			—			—		6.6
	$	19.8		$	56.4		$	30.4	$	106.6

For the fiscal years ended June 30, 2006, 2005 and 2004, proceeds from sales of marketable securities were $476.0, $94.6 million and $41.2 million, respectively. Realized losses on these sales during each of the fiscal years were approximately $0.1 million.

55

Notes to Consolidated Financial Statements (continued)

4. Inventories

	June 30
(in millions)	2006		2005
Raw materials and supplies	$	28.8	$	32.8
Work in process		132.0		130.4
Finished and purchased products		63.5		65.4
	$	224.3	$	228.6

If the first-in, first-out method of inventory had been used instead of the LIFO method, inventories would have been $267.7 and $270.6 million higher as of June 30, 2006 and 2005, respectively. Current cost of LIFO-valued inventories was $444.1 million at June 30, 2006 and $446.0 million at June 30, 2005. The reductions in LIFO-valued inventories decreased cost of sales by $2.0 million during fiscal 2006 and $0.3 million during fiscal 2004. There was no reduction during fiscal 2005.

5. Property, Plant and Equipment

	June 30
(in millions)	2006		2005
Land	$	7.2	$	7.2
Buildings and building equipment		231.8		230.5
Machinery and equipment		1,092.8		1,083.1
Construction in progress		9.9		10.3
Total at cost		1,341.7		1,331.1
Less accumulated depreciation and amortization		800.6		761.9
	$	541.1	$	569.2

The estimated useful lives of depreciable assets are as follows:

Asset Category	Useful Life (in Years)
Land improvements	20
Buildings and building equipment	20 – 45
Machinery and equipment	5 – 30
Autos and trucks	3 – 6
Office furniture and equipment	3 – 10

56

Notes to Consolidated Financial Statements (continued)

6. Goodwill and Trademarks and Trade Names, Net

Goodwill

Carpenter conducted its annual impairment review during the fourth quarter of 2006, 2005 and 2004 and determined that there was no goodwill impairment.

There were no changes to the carrying amount of goodwill during the fiscal years ended June 30, 2006, 2005 or 2004. At June 30, 2006, 2005 and 2004, the Specialty Metals Segment accounted for $34.6 million of the goodwill and the Engineered Products Segment accounted for $11.8 million.

Trademarks and Trade Names, Net

	June 30
(in millions)	2006			2005
Trademarks and trade names, at cost	$	29.9		$	29.9
Less accumulated amortization		(9.8	)		(8.8	)
Trademarks and trade names, net	$	20.1		$	21.1

Carpenter recorded $1.0 million of amortization expense during fiscal year 2006, and $1.1 million during fiscal years 2005 and 2004. The estimated annual amortization expense for each of the succeeding five fiscal years is $1.0 million.

7. Debt

Bonds and Notes

In December 2003, Carpenter purchased $20 million of previously issued, 6.95 percent Series A Medium Term Notes due June 2005 on the open market. In connection with the early redemption, a loss of $1.5 million was recorded, including unamortized issue costs associated with the Notes.

Credit Facilities

On August 31, 2005, we refinanced our $150 million revolving credit facility that was due to expire in November 2006. The new $150 million revolving credit facility will expire in August 2010. Terms and conditions under the new revolving credit facility are essentially the same as the refinanced revolving credit facility. This includes two financial covenants, a minimum EBITDA-to-interest expense coverage and a maximum debt-to-capital ratio.

57

Notes to Consolidated Financial Statements (continued)

At fiscal year end, the Company had less than $0.1 million in outstanding foreign currency loans and $10.4 million of issued letters of credit under the revolving credit facility. The balance of the revolving credit facility ($139.6 million) was available to the Company. In addition to this facility, the Company had $50 million available to it under an Accounts Receivable Purchase Facility (see Note 8).

For the years ended June 30, 2006, 2005 and 2004, interest expense totaled $23.6 million, $23.1 million and $23.8 million, of which $0.3 million, $0.1 million and $0.1 million, respectively, were capitalized as part of the cost of plant, equipment and software.

The weighted average interest rates for short-term borrowings during fiscal 2005 and 2004 were 2.5 percent and 2.1 percent, respectively. There were no short-term borrowings during fiscal 2006.

Long-term debt outstanding at June 30, 2006 and 2005, consists of the following:

	June 30
(in millions)	2006		2005
Senior unsecured notes, 6.625% due May 2013	$	99.4	$	99.3
Medium-term notes, Series B at 6.28% to 7.10% due from April 2008 to 2018 (face value of $132.0 million at June 30, 2006 and 2005)		132.7		133.0
Medium-term notes, Series C at 7.625% due August 2011 (face value of $100.0 million at June 30, 2006 and 2005)		100.5		100.6
Other		0.7		1.0
Total		333.3		333.9
Less amounts due within one year		0.2		0.2
Long-term debt, net of current portion	$	333.1	$	333.7

The carrying value of the debt has been adjusted to reflect the unrealized gain on interest rate swaps in accordance with fair value hedge accounting (see Note 9).

Aggregate maturities of long-term debt for the four years subsequent to June 30, 2007, are $33.2 million in fiscal 2008, $23.3 million in fiscal 2009, $20.0 million in fiscal 2010, and $100.0 million in fiscal 2011.

58

Notes to Consolidated Financial Statements (continued)

8. Accounts Receivable Purchase Facility

In December 2001, Carpenter entered into a $75 million three-year accounts receivable purchase facility (“Purchase Facility”) with an independent financial institution. In March 2003, Carpenter reduced this facility to $50 million and extended the term to December 2006. Pursuant to the terms of the Purchase Facility, Carpenter sells a participating interest in certain accounts receivable to an independent financial institution. These transactions are treated as sales under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”.

In June 2004, the Company repurchased a $10.0 million participating interest from the independent financial institution. As of June 30, 2006 and 2005, there was no utilization of the facility. Total fiscal 2006, 2005 and 2004 expenses relating to the Purchase Facility were $0.1 million, $0.2 million and $0.4 million, respectively.

9. Financial Instruments

The carrying amounts and estimated fair values of Carpenter’s financial instruments were as follows:

	June 30
	2006						2005
(in millions)	Carrying Value			Fair Value			Carrying Value		Fair Value
Cash and cash equivalents	$	413.4		$	413.4		$	163.8	$	163.8
Marketable securities	$	81.2		$	81.2		$	106.6	$	106.6
Company-owned life insurance	$	10.2		$	10.2		$	11.8	$	11.8
Long-term debt	$	333.3		$	345.1		$	333.9	$	359.7
Commodity forwards and options	$	18.0		$	18.0		$	7.8	$	7.8
Foreign currency forwards and options	$	(1.7	)	$	(1.7	)	$	1.6	$	1.6

The carrying amounts for cash, cash equivalents and short-term debt approximate their fair values due to the short-term maturities of these instruments. The carrying amount for marketable securities is based on quoted market prices. The carrying amount for company-owned life insurance reflects cash surrender values based upon the market values of underlying securities.

The fair values of long-term debt as of June 30, 2006 and 2005 were determined by using current interest rates.

59

Notes to Consolidated Financial Statements (continued)

The Company formally documents all relationships between its hedging instruments and hedged items, as well as its risk management objective and strategy for establishing various hedge relationships. The Company formally assesses, both at the inception of the hedge and on an on-going basis, whether each derivative instrument is highly effective in offsetting changes in the fair values or cash flows of hedged items.

Carpenter’s current risk management strategies include the use of derivative instruments to reduce certain risks. These strategies are:

• The use of commodity forwards and options to fix the price of a portion of future purchases of certain raw materials and energy to offset the effects of changes in the costs of those commodities.

• The use of foreign currency forwards and options to hedge a portion of future sales denominated in foreign currencies, principally the Euro, Pound Sterling and Australian Dollar, in order to offset the effect of changes in exchange rates.

• The use of foreign currency forwards and options to hedge certain foreign currency denominated intercompany receivables, primarily in Euro, Pound Sterling and Australian Dollar, to offset the effect on earnings of changes in exchange rates until these receivables are collected.

In addition, the Company has historically considered the use of interest rate swaps to achieve appropriate levels of floating rate debt relative to fixed rate debt.

The Company has designated commodity forwards and options, foreign currency forwards and options and floating to fixed interest rate swaps as cash flow hedges of anticipated commodity transactions, anticipated foreign exchange transactions and scheduled interest payments, respectively. Fair values for outstanding derivative instruments that are designated as cash flow hedges are accumulated in other comprehensive income in stockholders’ equity. The fair values are released to earnings when the related hedged items impact earnings. Amounts reclassified to the Consolidated Statement of Income are included in cost of sales (commodity hedges), interest expense (interest rate swaps) and sales (foreign currency hedges). If an anticipated transaction is no longer expected to occur, unrealized gains and losses on the related hedge are reclassified to the Consolidated Statement of Income. The changes in other accumulated comprehensive income associated with derivative hedging activities during the year ended June 30, 2006, 2005 and 2004 were as follows:

	2006			2005			2004
Balance at July 1	$	3.8		$	12.7		$	—
Current period changes in fair value, net of tax		11.2			5.4			23.4
Reclassifications to earnings, net of tax		(9.4	)		(14.3	)		(10.7	)
Balance at June 30	$	5.6		$	3.8		$	12.7

The Company has designated fixed to floating interest rate swaps as fair value hedges. Accordingly, the changes in the fair value of these instruments are immediately recorded in earnings. The mark-to-market values of both the fair value hedging

60

Notes to Consolidated Financial Statements (continued)

instruments and the underlying debt obligations are recorded as equal and offsetting gains and losses in the interest expense component of the Consolidated Statement of Income. As of June 30, 2006 and 2005, all interest rate swap agreements had been terminated. All existing fair value hedges were highly effective. As a result, there was no impact to earnings due to hedge ineffectiveness.

The hedges of intercompany receivables denominated in foreign currencies do not qualify for hedge accounting through other comprehensive income; therefore the hedges are marked to market on a quarterly basis and any gains or losses are recorded within other income, net on the Consolidated Statement of Income. All unrealized gains or losses on intercompany receivables denominated in foreign currencies are recorded in other income, net each quarter.

Any ineffectiveness is recorded in the Consolidated Statement of Income. The ineffectiveness for existing derivative instruments for the years ended June 30, 2006, 2005 and 2004 was immaterial.

As of June 30, 2006, $5.6 million after taxes of net gains from derivative instruments was included in accumulated other comprehensive loss. Gains of $5.8 million after taxes are expected to be reclassified to the Consolidated Statement of Income within one year. Losses of $0.2 million are expected to be reclassified to the Consolidated Statement of Income after one year.

Carpenter is exposed to credit risk related to its financial instruments in the event of non-performance by the counterparties. Carpenter does not generally require collateral or other security to support these financial instruments. However, the counterparties to these transactions are major financial institutions deemed creditworthy by Carpenter. Carpenter does not anticipate non-performance by the counterparties.

10. Accrued Liabilities

	June 30
(in millions)	2006		2005
Compensation	$	40.8	$	39.6
Employee benefits		30.4		25.5
Income taxes		28.4		18.4
Interest		5.7		5.6
Derivative financial instruments		4.7		—
Taxes, other than income		4.5		4.3
Deferred revenue		2.6		1.5
Environmental costs		1.8		1.3
Professional services		1.3		1.6
Other		13.6		17.7
	$	133.8	$	115.5

61

Notes to Consolidated Financial Statements (continued)

11. Pension and Other Postretirement Benefits

Carpenter provides several noncontributory defined benefit pension plans to certain employees. The plans provide defined benefits based on years of service and final average salary.

Carpenter also provides other postretirement benefit plans to certain of its employees. The postretirement benefit plans consist of health care and life insurance plans. From June 1999 to December 2003, retired employees benefit payments were paid by a Voluntary Employee Benefit Association Trust (VEBA). Beginning in January 2004, benefit payments were paid from Corporate assets. During the fourth quarters of fiscal 2005 and 2004, Carpenter made voluntary cash contributions of $25.0 million into the VEBA. Prior to 2002, Carpenter contributed discretionary amounts, which have not exceeded the amount deductible for tax purposes, into the VEBA. Plan assets are primarily invested in equity securities.

In fiscal 2005, Carpenter amended the General Retirement Plan to change the maximum benefit and top-heavy rules in accordance with the Economic Growth & Tax Relief Reconciliation Act of 2001.

Carpenter uses a measurement date of June 30 for the majority of its plans.

62

Notes to Consolidated Financial Statements (continued)

The following provides a reconciliation of benefit obligations, plan assets, and funded status of the plans.

	Pension Plans						Other Postretirement Plans
(in millions)	2006			2005			2006			2005
Change in projected benefit obligation
Projected benefit obligation at beginning of year	$	832.3		$	690.8		$	222.6		$	186.9
Service cost		19.0			15.3			2.7			2.3
Interest cost		40.4			42.0			10.7			11.3
Benefits paid		(50.0	)		(48.6	)		(12.2	)		(12.8	)
Actuarial (gain) loss		(68.6	)		125.8			(42.1	)		34.9
Plan amendments		—			2.6			—			—
Other		—			4.4			0.7			—
Projected benefit obligation at end of year	$	773.1		$	832.3		$	182.4		$	222.6
Change in plan assets
Fair value of plan assets at beginning of year	$	797.6		$	771.2		$	69.0		$	41.7
Actual return on plan assets		69.1			68.8			3.7			2.3
Benefits paid from plan assets		(50.0	)		(48.6	)		(12.2	)		(12.8	)
Contributions		2.7			2.8			12.0			37.8
Other		—			3.4			—			—
Fair value of plan assets at end of year	$	819.4		$	797.6		$	72.5		$	69.0
Funded status of the plans	$	46.3		$	(34.7	)	$	(109.9	)	$	(153.6	)
Unrecognized net loss		172.6			256.4			43.4			88.5
Unrecognized prior service cost (benefit)		8.3			9.2			(51.2	)		(59.0	)
Unrecognized transition obligation		—			0.1			—			—
Prepaid (accrued) benefit cost	$	227.2		$	231.0		$	(117.7	)	$	(124.1	)
Amounts recognized in Consolidated Balance Sheet consist of:
Accrued benefit liability	$	(26.4	)	$	(26.7	)	$	(117.7	)	$	(124.1	)
Intangible asset		247.1			250.8			—			—
Accumulated other comprehensive income		6.5			6.9			—			—
Net amount recognized	$	227.2		$	231.0		$	(117.7	)	$	(124.1	)
Additional information
(Decrease) Increase in minimum liability included in other comprehensive income	$	(0.4	)	$	6.3		$	—		$	—
Accumulated benefit obligation for all pension plans	$	707.6		$	767.7			N/A			N/A

63

Notes to Consolidated Financial Statements (continued)

Carpenter has several underfunded pension plans that are included in the data presented above. As of June 30, 2006 and 2005, the projected benefit obligation of the underfunded plans was $35.6 million and $33.5 million, the total fair value of assets was $4.7 million and $4.0 million, and the accumulated benefit obligation was $31.5 million and $31.4 million, respectively.

The components of the net periodic benefit cost related to Carpenter’s pension and other postretirement benefits are as follows:

	Pension Plans									Other Postretirement Plans
(in millions)	2006			2005			2004			2006			2005			2004
Service cost	$	19.0		$	15.3		$	16.5		$	2.7		$	2.3		$	2.9
Interest cost		40.4			42.0			41.7			10.7			11.3			11.1
Expected return on plan assets		(66.2	)		(64.3	)		(59.6	)		(5.8	)		(3.6	)		(1.4	)
Amortization of net loss		11.9			3.9			9.3			5.1			2.7			2.6
Amortization of prior service cost (benefit)		0.9			0.7			0.8			(7.9	)		(7.9	)		(7.8	)
Net expense (income)	$	6.0		$	(2.4	)	$	8.7		$	4.8		$	4.8		$	7.4

The service cost component of Carpenter’s net pension expense, which represents the estimated cost of future pension liabilities earned associated with active employees, is included in the operating income of the business segments. The residual net pension expense, which is comprised of the expected return on plan assets, interest costs on the projected benefit obligations of the plans, and amortization of actuarial gains and losses and prior service costs, is included under the heading “Pension earnings, interest & deferrals”, in the segment data presented in Note 18.

	Pension Plans						Other Postretirement Plans
	2006		2005		2004		2006		2005		2004
Principal actuarial assumptions at June 30:
Weighted-average assumptions used to determine benefit obligations at fiscal year end
Discount rate	6.25	%	5.00	%	6.25	%	6.25	%	5.00	%	6.25	%
Rate of compensation increase	3.64	%	3.64	%	3.50	%	N/A		N/A		N/A
Weighted-average assumptions used to determine net periodic benefit cost for the fiscal year
Discount rate	5.00	%	6.25	%	6.00	%	5.00	%	6.25	%	6.00	%
Expected long-term rate of return on plan assets	8.50	%	8.50	%	8.50	%	8.50	%	8.50	%	8.50	%
Long-term rate of compensation increase	3.64	%	3.50	%	3.50	%	N/A		N/A		N/A

64

Notes to Consolidated Financial Statements (continued)

The following table shows the expected health care rate increase and the future rate and time at which it is expected to remain constant.

	June 30,
	2006		2005
Assumed health care cost trend rate	10	%	10	%
Rate to which the cost trend rate is assumed to decline and remain (the ultimate trend rate)	5	%	5	%
Year that the rate reaches the ultimate trend rate	2012		2011

Assumed health care cost trend rates have a significant effect on the amounts reported for other postretirement benefits. A one percentage point increase in the assumed health care cost trend rate would increase service and interest cost and the postretirement benefit obligation by $0.7 million and $9.4 million, respectively. A one percentage point decrease in the assumed health care cost trend rate would decrease service and interest cost and the postretirement benefit obligation by $0.7 million and $8.2 million, respectively.

Plan Assets

Carpenter’s U.S. pension plans’ weighted-average asset allocations at June 30, 2006 and 2005, by asset category are as follows:

	June 30,
	2006		2005
Equity securities	60.2	%	61.4	%
Fixed income securities	39.7		38.6
Cash and cash equivalents	0.1		—
Total	100.0	%	100.0	%

Carpenter’s policy for developing a pension plan investment strategy includes the periodic development of an asset and liability study by an independent investment consultant. Management considers this study in establishing an asset allocation that is presented to and approved by the Pension Committee. Management determines an asset allocation that will provide the highest level of return for an acceptable level of risk. Accordingly, Carpenter invests in different asset classes including large-, mid- and small-cap growth and value funds, index and international equity funds, short-term and medium-term duration fixed-income funds and high yield funds. The plan’s current allocation policy is to have approximately 60 percent U.S. and international equities and 40 percent fixed income securities.

The Company may vary the actual asset mix based on the ratio of the plan assets and liabilities. The investment policy prohibits the use of derivative financial instruments that create or add leverage to an existing security position. Management reviews the asset allocation on a quarterly basis and makes revisions as deemed necessary.

65

Notes to Consolidated Financial Statements (continued)

Management establishes the expected long-term rate of return assumption by reviewing historical trends and analyzing the current and projected market conditions in relation to the plan’s asset allocation and risk management objectives. In determining the expected long-term rate of return, Carpenter considered historical returns for individual asset classes and the impact of active portfolio management.

The assets related to Carpenter’s other postretirement benefit plans were invested 100 percent in equity securities as of June 30, 2006 and 2005.

Cash Flows – Employer Contributions

Carpenter’s pension plan remains well funded as measured under ERISA rules, and the Company was not required to make a contribution to the plan during fiscal years 2006, 2005 or 2004. No contribution is anticipated for fiscal 2007. During the fourth quarters of fiscal 2005 and 2004, the Company made $25.0 million, voluntary contributions to a VEBA trust to fund future retiree medical expenses.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid. Pension Benefits are currently paid from plan assets and Other Benefits are currently paid from corporate assets:

($ millions)	Pension Benefits		Other Benefits
2007	$	50.2	$	13.6
2008	$	50.8	$	13.7
2009	$	53.2	$	13.8
2010	$	54.9	$	14.4
2011	$	55.0	$	15.1
2012 – 2016	$	308.1	$	80.8

Other Benefit Plans

Carpenter also maintains defined contribution retirement and savings plans for substantially all domestic employees. Company contributions were $4.8 million in fiscal 2006, $4.8 million in fiscal 2005 and $4.4 million in fiscal 2004.

66

Notes to Consolidated Financial Statements (continued)

12. Contingencies and Commitments

Environmental

Carpenter is subject to various federal, state, local and international environmental laws and regulations relating to pollution, protection of public health and the environment, natural resource damages and occupational safety and health. Although compliance with these laws and regulations may affect the costs of Carpenter’s operations, compliance costs to date have not been material. Carpenter has environmental remediation liabilities at some of its owned operating facilities and has been designated as a potentially responsible party (“PRP”) with respect to certain third-party Superfund waste disposal sites and other third party owned sites. Additionally, Carpenter has been notified that it may be a PRP with respect to other Superfund sites as to which no proceedings have been instituted against Carpenter. Neither the exact amount of remediation costs nor the final method of their allocation among all designated PRPs at these Superfund sites has been determined. The liability for future environmental remediation costs is evaluated by management on a quarterly basis. Carpenter accrues amounts for environmental remediation costs that represent management’s best estimate of the probable and reasonably estimable costs related to environmental remediation. During fiscal years 2006, 2005 and 2004, an additional $0.3 million, $0.5 million and $0.6 million, respectively, was accrued related to three environmental remediation sites. The liabilities recorded for environmental remediation costs at Superfund sites, at other third party-owned sites and at Carpenter-owned current or former operating facilities remaining at June 30, 2006, 2005 and 2004, were $5.9 million, $6.1 million and $6.7 million, respectively. The estimated range at June 30, 2006 of the reasonably possible future costs of remediation at Superfund sites, at other third party-owned sites and at Carpenter-owned current or former operating facilities is between $5.9 million and $10.4 million.

Estimates of the amount and timing of future costs of environmental remediation requirements are inherently imprecise because of the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the identification of currently unknown remediation sites and the allocation of costs among the PRPs. Based upon information currently available, such future costs are not expected to have a material effect on Carpenter’s financial position, results of operations or cash flows. However, such costs could be material to Carpenter’s financial position, results of operations or cash flows in a particular future quarter or year.

67

Notes to Consolidated Financial Statements (continued)

Guarantees/Indemnification Obligations

In connection with the divestitures of several previously owned companies, Carpenter undertook certain indemnification obligations as part of the definitive agreements for sale of those businesses. The indemnification obligations relate to Carpenter’s covenants, representations and warranties under the sale agreements, potential liability for operations of the businesses prior to the sale and other similar matters. The indemnification obligations are subject to conditions and limitations that are normal in agreements of this type. Further, certain of the indemnification obligations may be limited or barred by a monetary cap or a time limitation. However, other indemnifications are not subject to a monetary cap, therefore, we are unable to estimate the maximum potential future liability under the indemnity provisions of these agreements. The obligation to provide indemnification will normally arise only after the indemnified party makes a claim subject to review by Carpenter and in compliance with applicable procedures with respect to the method and timeliness of notice. Recourse may be available in limited situations against third parties from which Carpenter purchased the businesses. As of June 30, 2006 there was approximately $2.0 million recorded related to these indemnifications.

Other

Carpenter also is defending various claims and legal actions, and is subject to contingencies that are common to its operations, including those pertaining to product claims, commercial disputes, employment actions, employee benefits, personal injury claims and tax issues. The Company provides for costs relating to these matters when a loss is probable and the amount is reasonably estimable. The effect of the outcome of these matters on Carpenter’s future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount and timing (both as to recording future charges to operations and cash expenditures) of the resolution of such matters. While it is not feasible to determine the outcome of these matters, management believes that the total ultimate liability will not have a material effect on Carpenter’s financial position, results of operations or cash flows. However, such costs could be material to Carpenter’s financial position, results of operations or cash flows in a particular future quarter or year.

Carpenter has entered into purchase agreements primarily for various key raw materials at market related prices, all made in the normal course of business. The purchase commitments covered by these agreements aggregate approximately $377.7 million. Of this amount, $324.1 million relates to fiscal 2007, $44.9 million to fiscal 2008 and $8.7 million to fiscal 2009.

68

Notes to Consolidated Financial Statements (continued)

13. Operating Leases

Carpenter leases certain facilities and equipment under operating leases. Total rent expense was $5.4 million (net of sub-lease rental receipts), $7.7 million and $8.2 million for the fiscal years ended June 30, 2006, 2005 and 2004, respectively.

Future minimum payments (net of sub-lease rental receipts) for noncancelable operating leases in effect at June 30, 2006 are: $8.6 million in fiscal 2007, $7.8 million in fiscal 2008, $4.5 million in fiscal 2009, $1.6 million in fiscal 2010, $0.4 million in fiscal 2011, and $0.3 million thereafter.

14. Share-Based Compensation

Carpenter has two share-based compensation plans for officers and key employees: a 1993 plan and a 1977 plan, and a stock-based compensation plan for directors.

1993 Plan:

The 1993 plan provides that the Board of Directors may grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock and performance share awards, and determine the terms and conditions of each grant. In fiscal 1998, the plan was amended to provide the Chief Executive Officer with limited authority to grant stock options and restricted stock. In October 2000, the stockholders authorized an additional 1,800,000 shares to the plan for share awards. As of June 30, 2006 and 2005, 278,178 and 282,803 shares, respectively, were reserved for options and share awards which may be granted under this plan.

Performance-based restricted share awards are earned only if Carpenter achieves certain performance goals during a specified performance period. These shares vest from one to two years from the date of the attainment of performance goals. When performance-based restricted shares are earned, compensation cost is determined and charged to expense beginning in the performance period through the vesting period. During fiscal years 2006, 2005 and 2004, 63,358 shares, 51,600 shares and 146,000 shares, respectively were earned and, $5.4 million, $3.0 million and $2.3 million, respectively, was charged to expense related to performance-based restricted shares.

Time-based restricted share awards vest from the date of grant to periods ranging principally from three to five years from the date of grant. When time-based restricted shares are awarded, compensation cost is determined using the grant-date fair value and charged to expense over the vesting period. During fiscal years 2006, 2005 and 2004, 15,950, 49,000 and 40,400 shares, respectively were granted. Amounts charged to expense for the vesting of time-based restricted shares were $1.4 million, $0.3 million and $0.6 million, respectively.

Stock option grants under this plan must be at no less than market value on the date of grant, are exercisable generally after one year of employment following the date of

69

Notes to Consolidated Financial Statements (continued)

grant, and will in all cases expire no more than ten years after the date of grant. In 2003, the options granted by the Board became exercisable in equal annual increments over a three-year period. There have been no options granted under this plan since 2003.

1977 Plan:

The 1977 plan provides for the granting of stock options and stock appreciation rights. Options are granted at the market value on the date of grant, are exercisable after one year of employment following the date of grant and expire no more than ten years after grant. During fiscal 2005, the Board of Directors approved the cancellation of all authorized but unissued shares under this plan. Shares reserved for past grants will be cancelled if the underlying grants expire without being exercised.

Directors’ Plan:

Carpenter has a share-based compensation plan that provides for the granting of stock options and other market-based units to non-employee Directors. Options are granted at the market value on the date of the grant and are exercisable after one year of Board service following the date of grant. Options expire ten years after the date of grant. At June 30, 2006 and 2005, 101,842 and 108,537 shares, respectively, were reserved for options which may be granted under this plan. There have been no options granted under this plan since 2004.

At least 50 percent of each Director’s retainer is awarded in stock units at each annual meeting. Directors have the option to elect the balance of the retainer in stock units. Stock units are then paid in shares of common stock following a Director’s end of Board service through death, disability or approved retirement. Units awarded at each annual meeting are forfeited when a Director leaves the Board under other circumstances before the next annual meeting. Payment of units include a lump sum or 10 or 15 annual installments.

70

Notes to Consolidated Financial Statements (continued)

Option Activity (all plans):

	Number of Shares		Weighted Average Exercise Price
Balance at June 30, 2003	3,078,787		$	29.13
Granted	80,000			24.40
Exercised	(499,019	)		25.62
Cancelled	(82,215	)		33.25
Balance at June 30, 2004	2,577,553		$	29.53
Granted	—			—
Exercised	(1,774,261	)		30.57
Cancelled	(9,602	)		36.31
Balance at June 30, 2005	793,690		$	27.13
Granted	—			—
Exercised	(500,992	)		29.90
Cancelled	(7,000	)		22.02
Balance at June 30, 2006	285,698		$	22.40

Outstanding and Exercisable Options:

Exercise Price Range	Number Outstanding at 06/30/06	Weighted Average Remaining Life	Weighted Average Exercise Price		Number Exercisable At 06/30/06	Weighted Average Exercise Price
$10 - $30	240,483	6.22	$	18.90	230,483	$	18.79
$30 - $51	45,215	2.75		40.99	45,215		40.99
	285,698		$	22.40	275,698	$	22.43

Of the options outstanding at June 30, 2006, 199,798 relate to the 1993 plan, 5,900 relate to the 1977 plan and 80,000 relate to the Directors’ Plan.

Restricted Stock Awards (all plans):

	Number of Shares		Weighted Average Fair Value
Nonvested Balance at June 30, 2005	228,400		$	40.82
Time-based granted	15,950		$	96.04
Performance-based earned	63,358		$	115.50
Vested	(128,550	)	$	44.17
Forfeited	(7,425	)	$	47.97
Nonvested Balance at June 30, 2006	171,733		$	70.68

As of June 30, 2006, $7.5 million of compensation cost related to nonvested restricted stock awards remains to be recognized over a weighted average remaining life of 1.8 years.

71

Notes to Consolidated Financial Statements (continued)

15. Employee Stock Ownership Plan

Carpenter has a leveraged employee stock ownership plan (“ESOP”). Carpenter issued 461.5 shares of convertible preferred stock in fiscal 1992 at $65,000 per share to the ESOP in exchange for a $30.0 million, 15-year, 9.345 percent note, which is included in the stockholders’ equity section of the consolidated balance sheet as deferred compensation. The amount recorded related to the note as of June 30, 2006 and 2005 was $1.5 million and $3.4 million, respectively. The preferred stock is recorded net of related issuance costs.

The ESOP satisfies principal and interest obligations on the note as Carpenter makes contributions to the ESOP and dividends are paid on the preferred stock. As payments are made on the note, shares of preferred stock are allocated to participating employees’ accounts within the ESOP. Carpenter contributed $2.3 million in fiscal 2006, $2.2 million in fiscal 2005, and $2.1 million in fiscal 2004 to the ESOP. Compensation expense related to the plan was $0.9 million in fiscal 2006, $1.2 million in fiscal 2005 and $1.3 million in fiscal 2004.

As of June 30, 2006, the ESOP held 290.4 shares of the convertible preferred stock, consisting of 261.9 allocated shares and 28.5 unallocated shares. Each preferred share is convertible into at least 2,000 shares of common stock. There are 580,863 common shares reserved for issuance under the ESOP at June 30, 2006. The shares of preferred stock pay a cumulative annual dividend of $5,362.50 per share, are entitled to vote together with the common stock as a single class and have 2,600 votes per share. To the extent permitted by the ESOP and its trustee, the stock is redeemable at Carpenter’s option at $65,000 per share.

As a provision of the ESOP, participants are guaranteed a common share price of $32.50 per share upon conversion. At June 30, 2006 and 2005, no amounts were included in noncurrent liabilities for the preferred stock guarantee as the actual share price at June 30, 2006 and 2005 was greater than the guarantee price per share.

72

Notes to Consolidated Financial Statements (continued)

16. Income Taxes

Income before taxes were derived as follows:

(in millions)	2006		2005		2004
Domestic operations	$	276.4	$	163.4	$	35.1
International operations		32.7		26.6		14.6
	$	309.1	$	190.0	$	49.7

Carpenter’s provision (benefit) for income taxes consisted of the following:

(in millions)	2006			2005			2004
Current:
Federal	$	86.1		$	36.9		$	2.7
State		12.5			3.9			0.4
Foreign		9.7			6.0			4.1
Deferred:
Federal		(3.6	)		11.1			4.7
State		(3.8	)		(5.5	)		0.8
Foreign		(3.6	)		2.1			1.0
	$	97.3		$	54.5		$	13.7

Operating losses generated in fiscal 2003 were used to offset the fiscal 2004 and part of the fiscal 2005 liability.

The following is a reconciliation of the United States statutory federal income tax rate to the actual effective income tax rate:

(% of pre-tax income )	2006		2005		2004
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
Extraterritorial income exclusion	(1.5	)	(1.3	)	(1.3	)
IRS and state tax examinations settlements	—		(2.2	)	(4.9	)
State income taxes, net of federal tax benefit	2.7		0.2		1.8
Reversal of prior year tax valuation allowances	(1.9	)	(1.0	)	—
Domestic manufacturing deduction	(1.0	)	—		—
Nontaxable income	(0.7	)	(0.9	)	(3.7	)
Other, net	(1.1	)	(1.1	)	0.7
Effective income tax rate	31.5	%	28.7	%	27.6	%

73

Notes to Consolidated Financial Statements (continued)

Deferred taxes are recorded based upon temporary differences between financial statement and tax bases of assets and liabilities. The following deferred tax liabilities and assets were recorded as of June 30, 2006 and 2005:

(in millions)	2006			2005
Deferred tax liabilities:
Depreciation	$	164.0		$	163.8
Prepaid pension cost		98.1			99.6
Intangible assets		8.7			7.9
Inventories		6.9			6.0
Other		1.5			2.2
Total deferred tax liabilities		279.2			279.5
Deferred tax assets:
Postretirement provisions		62.3			52.9
Net operating loss carryforwards		22.5			26.7
Other reserve provisions		23.6			20.9
Pensions		9.2			8.9
Tax credit carryforwards		3.9			8.5
Valuation allowances		(17.6	)		(23.5	)
Total deferred tax assets		103.9			94.4
Net deferred tax liability	$	175.3		$	185.1

As of June 30, 2006, the Company had federal net operating losses of $3.6 million, state net operating losses of $311.3 million, and foreign net operating losses of $7.5 million available to be carried forward to future years. The $22.5 million deferred tax asset in 2006 consists of $1.3 million federal net operating loss carryforwards, $19.1 million state net operating loss carryforwards, and $2.1 million foreign net operating loss carryforwards.

The tax credit carryforwards in 2006 consist of $3.9 million of Foreign Tax Credits, which will begin to expire in 2010.

A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company has recorded a valuation allowance against certain of its tax net operating loss carryforwards. In 2006, the valuation allowance was $17.6 million and in 2005 the valuation allowance was $23.5 million. Under Statement of Financial Accounting Standards No. 109 (SFAS109), valuation allowances should be reviewed each year and an assessment must be made as to the likelihood of recovery of those deferred taxes. Based on current year and forecasted taxable state income, we determined that it was appropriate to reverse a portion of this valuation allowance in fiscal years 2006 and 2005.

74

Notes to Consolidated Financial Statements (continued)

At June 30, 2006, we had undistributed earnings of international subsidiaries, amounting to $56.0 million on which deferred income taxes have not been provided because earnings are expected to be reinvested indefinitely outside of the U.S. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes including any adjustments for foreign tax credit, state income taxes, and withholding taxes payable to the various foreign countries.

The American Jobs Creation Act of 2004 (“AJCA”) was enacted in October 2004. The AJCA created a temporary incentive for U.S. corporations to repatriate foreign subsidiary earnings by providing an elective 85 percent dividends received deduction for qualifying cash dividends from controlled foreign corporations. During 2006, Carpenter repatriated $25.7 million, of which $18.5 million qualified for the 85 percent dividends received deduction. The Company recorded tax expense of $1.1 million related to the repatriation. Prior to the AJCA, Carpenter did not provide deferred taxes on undistributed earnings of international subsidiaries as the Company intended to utilize these earnings to reinvest in their business operations outside the United States for an indefinite period of time.

Carpenter is routinely under audit by federal, state or local authorities in the areas of income taxes and the remittance of sales and use taxes. These audits include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal, state and local tax laws. The Company has settled all IRS examinations through June 30, 2002.

17. Other Income, Net

Other (income) expense, net consists of the following:

(in millions)	2006			2005			2004
Continued dumping and subsidy offset	$	(4.7	)	$	(4.1	)	$	(5.2	)
Interest income		(13.9	)		(5.6	)		(1.9	)
Foreign exchange (gain) loss		(1.5	)		1.4			(0.4	)
Increase in equity in minority interests of unconsolidated subsidiaries		(1.6	)		(0.9	)		(1.0	)
Other		—			0.4			0.9
	$	(21.7	)	$	(8.8	)	$	(7.6	)

75

Notes to Consolidated Financial Statements (continued)

18. Business Segments, Geographic and Product Data

Carpenter operates in two business segments, Specialty Metals and Engineered Products. Specialty Metals includes our 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.

Specialty Metals includes the manufacture and distribution of stainless steels, titanium, high temperature alloys, electronic alloys, tool steels and other alloys in billet, bar, wire, rod, strip and powder forms. Specialty Metals sales are distributed directly from Carpenter’s production plants and its distribution network and through independent distributors.

Engineered Products includes our business operations involved in the production and sale of structural ceramic products, ceramic cores for the casting industry and custom shaped bar.

The accounting policies of both reportable segments are the same as those described in the Summary of Significant Accounting Policies.

The service cost component of Carpenter’s net pension expense, which represents the estimated cost of future pension liabilities earned associated with active employees, is included in the operating income of the business segments. The residual net pension expense, which is comprised of the expected return on plan assets, interest costs on the projected benefit obligations of the plans, and amortization of actuarial gains and losses and prior service costs, is included under the heading “Pension earnings, interest & deferrals”.

Corporate assets are primarily domestic cash and cash equivalents, marketable securities and prepaid pension cost.

On a consolidated basis, Carpenter’s sales were not materially dependent on a single customer or a small group of customers. Of the sales of our Engineered Products segment, approximately 14 percent ($14.1 million), 17 percent ($21.9 million) and 18 percent ($19.8 million) of segment sales were to one customer in fiscal 2006, 2005 and 2004, respectively.

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Notes to Consolidated Financial Statements (continued)

Geographic Data

(in millions)	2006		2005		2004
Net Sales:(a)
United States	$	1,071.8	$	949.2	$	743.3
Europe		287.3		193.9		137.6
Asia Pacific		77.0		67.8		46.1
Mexico		64.8		61.9		50.9
Canada		39.6		21.9		21.9
Other		27.7		19.5		16.9
Consolidated net sales	$	1,568.2	$	1,314.2	$	1,016.7
Long-lived assets:
United States	$	854.3	$	888.6	$	930.5
Europe		17.9		16.9		18.3
Asia Pacific		11.8		11.2		10.6
Mexico		3.1		3.6		3.5
Canada		0.2		0.2		0.3
Other		1.3		1.3		1.2
Consolidated long-lived assets	$	888.6	$	921.8	$	964.4

^(a) Net sales were attributed to countries based on the location of the customer.

Product Data

(in millions)	2006		2005		2004
Special alloys	$	703.8	$	515.6	$	369.6
Stainless steels		528.1		531.9		447.8
Titanium products		176.3		112.5		73.4
Ceramics and other materials		102.2		98.7		82.9
Tool and other steels		57.8		55.5		43.0
Total net sales	$	1,568.2	$	1,314.2	$	1,016.7

77

Notes to Consolidated Financial Statements (continued)

Segment Data

(in millions)	2006			2005			2004
Net Sales:
Specialty Metals	$	1,467.1		$	1,188.3		$	909.1
Engineered Products		102.9			129.1			110.0
Intersegment		(1.8	)		(3.2	)		(2.4	)
Consolidated net sales	$	1,568.2		$	1,314.2		$	1,016.7
Operating Income:
Specialty Metals	$	311.8		$	183.9		$	71.5
Engineered Products		17.1			22.2			14.4
Gain on sale of business		—			8.7			—
Corporate costs		(28.2	)		(25.2	)		(20.9	)
Pension earnings, interest & deferrals		10.4			14.7			3.1
Intersegment		(0.4	)		(0.1	)		—
Consolidated operating income	$	310.7		$	204.2		$	68.1
Total Assets:
Specialty Metals	$	1,066.3		$	1,033.8		$	1,015.7
Engineered Products		66.5			70.7			79.9
Corporate assets		755.1			548.9			360.6
Consolidated total assets	$	1,887.9		$	1,653.4		$	1,456.2
Depreciation:
Specialty Metals	$	41.1		$	41.9		$	43.6
Engineered Products		3.9			4.5			4.8
Corporate		0.8			0.4			0.8
Consolidated depreciation	$	45.8		$	46.8		$	49.2
Amortization:
Specialty Metals	$	1.6		$	2.8		$	7.0
Engineered Products		0.2			0.2			0.3
Corporate		—			0.4			0.6
Consolidated amortization	$	1.8		$	3.4		$	7.9
Capital Expenditures, including software:
Specialty Metals	$	14.7		$	7.6		$	5.7
Engineered Products		2.5			2.8			1.9
Corporate		2.1			3.4			0.4
Consolidated capital expenditures, including software	$	19.3		$	13.8		$	8.0

78

Notes to Consolidated Financial Statements (continued)

19. Divestiture

During 2005, Carpenter sold Carpenter Specialty Products Corporation (CSPC), a business unit within the Engineered Products Group (EPG) segment. The operating results of CSPC were included within the EPG segment prior to the disposal. The total sale price of $19.5 million exceeded the carrying value by approximately $8.7 million. Consideration received in the sale included net cash proceeds of $15.4 million, a $3.0 million long-term note receivable and a $1.1 million current receivable representing final working capital adjustments. The $3.0 million note was included within “Other assets” while the $1.1 million working capital adjustment was included within “Other current assets” on the balance sheet. The $8.7 million gain on sale was included within “Gain on sale of business” on the consolidated statement of income and in the segment data.

Due to the immateriality of these operations compared to Carpenter’s overall operations, the divestiture of CSPC was not accounted for as discontinued operations in accordance with FASB 144.

20. Supplemental Data

The following are additional required disclosures and other material items:

(in millions)	2006			2005			2004
Cost Data:
Repairs and maintenance costs	$	52.2		$	48.2		$	44.1
Cash Flow Data:
Cash paid during the year for:
Interest payments, net of amounts capitalized	$	23.3		$	20.8		$	23.5
Income tax payments, net	$	78.1		$	18.6		$	—
Accumulated Other Comprehensive Loss:
Foreign currency translation adjustment	$	(11.0	)	$	(12.1	)	$	(13.8	)
Minimum pension liability adjustment		(4.0	)		(4.3	)		(0.4	)
Net unrealized gains on derivatives		5.6			3.6			12.7
	$	(9.4	)	$	(12.8	)	$	(1.5	)

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SUPPLEMENTARY DATA

Quarterly Financial Data (Unaudited)

Quarterly sales and earnings results are normally influenced by seasonal factors. Historically, the first two fiscal quarters (three months ending September 30 and December 31) are typically the lowest principally because of annual plant vacation and maintenance shutdowns by Carpenter and by many of its customers. However, the timing of major changes in the general economy or the markets for certain products can alter this pattern.

(dollars and shares in millions, except per share amounts)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Results of Operations
Fiscal 2006
Net sales	$	346.0	$	345.7	$	426.0	$	450.5
Gross profits	$	91.7	$	93.8	$	124.1	$	126.6
Operating income	$	63.7	$	63.9	$	92.3	$	90.9
Net income	$	40.1	$	42.9	$	60.8	$	68.0
Fiscal 2005
Net sales	$	297.6	$	312.1	$	342.1	$	362.4
Gross profits	$	63.4	$	74.5	$	85.2	$	92.9
Operating income	$	35.7	$	44.9	$	56.6	$	66.9
Net income	$	19.8	$	32.5	$	35.3	$	47.8
Earnings per common share
Fiscal 2006
Basic earnings	$	1.59	$	1.69	$	2.39	$	2.66
Diluted earnings	$	1.54	$	1.65	$	2.32	$	2.58
Fiscal 2005
Basic earnings	$	0.83	$	1.33	$	1.43	$	1.92
Diluted earnings	$	0.80	$	1.28	$	1.38	$	1.86

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	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
Weighted average common shares outstanding (in millions)
Fiscal 2006
Basic	25.0	25.2	25.3	25.4
Diluted	25.9	26.0	26.1	26.2
Fiscal 2005
Basic	23.5	24.1	24.4	24.7
Diluted	24.5	25.1	25.4	25.6

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable

Item 9A. Controls and Procedures

(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report were effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b) Management’s Report on Internal Control Over Financial Reporting

Management’s Report on the Company’s internal control over financial reporting is included in this Annual Report on Form 10-K and is incorporated herein by reference. The Company’s independent registered public accounting firm has issued a report on management’s assessment of the Company’s internal control over financial reporting, as stated in their report which is included in this Annual Report on Form 10-K.

(c) Changes in Internal Controls Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2006 that have materially affected, or are likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Not applicable

81

PART III

Item 10. Directors and Executive Officers of the Registrant

Listed below are the names of our corporate executive officers, including those required to be listed as executive officers for Securities and Exchange Commission purposes, each of whom assumes office after the annual organization meeting of the Board of Directors which immediately follows the Annual Meeting of Stockholders. All of the corporate officers listed below have held responsible positions with the registrant for more than five years except for J. Michael Fitzpatrick, who joined Carpenter on February 14, 2006; M. David Kornblatt, who joined Carpenter on July 5, 2006; and Dennis M. Oates, who joined Carpenter September 30, 2003; and Barry J. Chapman, who joined Carpenter August 28, 2006.

Robert J. Torcolini was elected Chairman, President and Chief Executive Officer on July 1, 2003. Mr. Torcolini had been President and Chief Operating Officer and Director, since July 1, 2002, Senior Vice President – Engineered Products Operations, since January 31, 2002, President of Dynamet, Incorporated, a subsidiary of Carpenter since February 28, 1997 and was Vice President – Manufacturing Operations – Specialty Alloys Operations from January 29, 1993 through February 27, 1997. On June 19, 2006, Mr. Torcolini publicly announced his intent to retire upon appointment of his successor by the Board of Directors.

J. Michael Fitzpatrick was elected Vice Chairman on February 14, 2006. Dr. Fitzpatrick continues as a member of the Board of Directors of Carpenter, on which he has served since 1997. Dr. Fitzpatrick was formerly President and Chief Operating Officer of Philadelphia-based Rohm and Haas Company. While at Rohm and Haas, he held positions in research and marketing and had general management responsibilities for 13 years in Brazil, Italy, Mexico and the United Kingdom. After returning to the U.S., he later became President and COO.

M. David Kornblatt was elected Senior Vice President – Finance and Chief Financial Officer effective July 5, 2006. Mr. Kornblatt most recently served as Vice President and Chief Financial Officer at York International, prior to its acquisition by Johnson Controls in December 2005. York International is a global manufacturer of heating, air conditioning and refrigeration products. At York International, Mr. Kornblatt had responsibility for audit, corporate accounting, financial planning and analysis, information technology, investor relations, tax, and treasury. Prior to joining York International, Mr. Kornblatt was the Director of Taxes-Europe for The Gillette Company in London, England.

Terrence E. Geremski served as Senior Vice President – Finance and Chief Financial Officer from January 29, 2001 through July 4, 2006. In July 2006, Mr. Geremski was elected Senior Vice President. Mr. Geremski retired from Carpenter effective August 1, 2006. Mr. Geremski was previously employed by Guilford Mills, Inc. in various financial positions from 1992 through August 2000, with the most current position held being Executive Vice President and Chief Financial Officer.

82

Dennis M. Oates was elected Senior Vice President – Specialty Alloys Operations effective July 1, 2004. Prior to that, Mr. Oates held the following position within Carpenter: Senior Vice President – Engineered Products Operations from September 30, 2003 through June 30, 2004. From July 2002 until September 2003, Mr. Oates operated Oates & Associates, a consulting organization specializing in strategic evaluations and reorganizations of U.S.-based manufacturing companies. From 1997 until July 2002, Mr. Oates served as President and Chief Executive Officer of TW Metals, a privately held metals distribution and processing company. Mr. Oates was also President and Chief Operating Officer from December 1995 through March 1997 for Connell Limited Partnership, a privately held company that operated six metals businesses. From 1974 through 1995 Mr. Oates held various positions of increasing responsibility with Lukens Steel Company, a producer of steel plates and a subsidiary of Lukens Inc., a NYSE company with various steel and specialty metals products. Mr. Oates’ last position with Lukens Steel was as President and Chief Operating Officer.

Michael L. Shor was elected Senior Vice President – Engineered Products Operations, effective July 1, 2004. Prior to that, Mr. Shor held the following positions within our Specialty Alloys Operations: Senior Vice President – Specialty Alloys Operations from January 31, 2000 through June 20, 2004; Vice President – Manufacturing Operations from March 3, 1997 through January 30, 2000; General Manager – Global Marketing and Product Services from July 13, 1995 through March 2, 1997; and General Manager – Marketing from October 1, 1994 through July 12, 1995.

David A. Christiansen was elected Vice President, General Counsel and Secretary effective November 1, 2002. Prior to that, Mr. Christiansen held the following positions within Carpenter: associate general counsel and assistant secretary from April, 1996 through November 1, 2002; senior staff attorney and assistant secretary from April, 1993 through April, 1996.

Barry J. Chapman was elected Vice President, Human Resources effective August 28, 2006. In his most recent assignment, Mr. Chapman spent four years serving as Vice President – Human Resources for Olympus America Inc., a $2 billion U.S. subsidiary of Olympus, a global leader in the medical devices and consumer electronics industries. Prior to that, Mr. Chapman served as Vice President – Human Resources for Volvo Trucking of North Carolina and as Vice President – Employee Relations for Navistar International Truck and Engine Corporation.

83

Name	Age	Positions	Assumed Present Position
Robert J. Torcolini	55	Chairman, President and Chief Executive Officer Director	July 2003
J. Michael Fitzpatrick	59	Vice Chairman and Director	February 2006
M. David Kornblatt	46	Senior Vice President – Finance & Chief Financial Officer	July 2006
Terrence E. Geremski	59	Senior Vice President	July 2006
Dennis M. Oates	53	Senior Vice President – Specialty Alloys Operations	July 2005
Michael L. Shor	47	Senior Vice President – Engineered Products Operations	July 2005
David A. Christiansen	51	Vice President, General Counsel & Secretary	November 2002
Barry J. Chapman	48	Vice President, Human Resources	August 2006

The information required as to directors is incorporated herein by reference to the fiscal 2006 definitive Proxy Statement under the caption “Election of Directors.”

On November 11, 2005, we filed with the New York Stock Exchange (“NYSE”) the Annual CEO Certification regarding our compliance with the NYSE’s Corporate Governance listing standards as required by Section 303 A-12(a) of the NYSE Listed Company Manual. In addition, we have filed as exhibits to our annual report on Form 10-K for the fiscal year ended June 30, 2005, the applicable certifications of our Chief Executive Officer and our Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act of 2002, regarding the quality of Carpenter’s public disclosures.

Item 11. Executive Compensation

The information required by this item is incorporated herein by reference to the fiscal 2006 definitive Proxy Statement under the caption “Executive Compensation.”

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this item is incorporated herein by reference to the fiscal 2006 definitive Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management.”

84

Item 13. Certain Relationships and Related Transactions

Not applicable

Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated herein by reference to the fiscal 2006 definitive Proxy Statement under the caption “Approval of Appointment of Independent Registered Public Accounting Firm”.

85

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Documents Filed as Part of this Report:

(1) The following consolidated financial statement schedule should be read in conjunction with the consolidated financial statements (see Item 8. “Financial Statements and Supplementary Data:”):

Schedule II – Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable or the required information is contained in the consolidated financial statements or notes thereto.

(2) The following documents are filed as exhibits:

3.	Articles of Incorporation and By-Laws
4.	Instruments Defining the Rights of Security Holders, Including Indentures
10.	Material Contracts
12.	Computation of Ratios of Earnings to Fixed Charges (unaudited)
21.	Subsidiaries of the Registrant
23.	Consent of Experts and Counsel
24.	Powers of Attorney
31.	Rule 13a-14(a)/15d-14(a) Certifications
32.	Section 1350 Certifications
99.	Additional Exhibits

86

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

CARPENTER TECHNOLOGY CORPORATION
By	/s/ M. David Kornblatt
	M. David Kornblatt
	Senior Vice President – Finance &
	Chief Financial Officer

Date: August 29, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.

/s/ Robert J. Torcolini Robert J. Torcolini	Chairman, President and Chief Executive Officer and Director (Principal Executive Officer)	August 29, 2006
/s/ M. David Kornblatt M. David Kornblatt	Senior Vice President – Finance & Chief Financial Officer (Principal Financial Officer)	August 29, 2006
/s/ J. Michael Fitzpatrick J. Michael Fitzpatrick	Vice Chairman and Director	August 29, 2006
/s/ Richard L. Simons Richard L. Simons	Vice President and Corporate Controller (Principal Accounting Officer)	August 29, 2006
* Carl G. Anderson, Jr.	Director	August 29, 2006
* Marillyn A. Hewson	Director	August 29, 2006
* Martin Inglis	Director	August 29, 2006

87

* Gregory A. Pratt	Director	August 29, 2006
* Peter N. Stephans	Director	August 29, 2006
* Kathryn C. Turner	Director	August 29, 2006
* Jeffrey Wadsworth	Director	August 29, 2006
* Stephen M. Ward, Jr.	Director	August 29, 2006

Original Powers of Attorney authorizing David A. Christiansen or M. David Kornblatt to sign this Report on behalf of: Carl G. Anderson, Jr., J. Michael Fitzpatrick, Marillyn A. Hewson, Martin Inglis, Gregory A. Pratt, Peter N. Stephans, Robert J. Torcolini, Kathryn C. Turner, Stephen M. Ward, Jr. and Jeffrey Wadsworth are being filed with the Securities and Exchange Commission.

*By	/s/ David A. Christiansen
	David A. Christiansen
	Attorney-in-fact

88

CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES

SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS

(in millions)

Column A	Column B		Column C Additions				Column D			Column E
Description	Balance at Beginning of Period		Charged to Costs & Expenses		Charged to Other Accounts		Deductions			Balance at End of Period
Year ended June 30, 2006
Allowance for doubtful accounts receivable	$	4.8	$	0.2	$	—	$	(1.2	)	$	3.8
Deferred tax valuation allowance	$	23.5	$	—	$	0.4	$	(6.3	)	$	17.6
Year ended June 30, 2005
Allowance for doubtful accounts receivable	$	3.6	$	1.5	$	—	$	(0.3	)	$	4.8
Deferred tax valuation allowance	$	23.5	$	—	$	—	$	—		$	23.5
Year ended June 30, 2004
Allowance for doubtful accounts receivable	$	3.2	$	1.3	$	—	$	(0.9	)	$	3.6
Deferred tax valuation allowance	$	18.6	$	4.9	$	—	$	—		$	23.5

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EXHIBIT INDEX

Exhibit No.		Title	Page
3.		Articles of Incorporation and By-Laws
	(A)	Restated Certificate of Incorporation dated October 26, 1998 is incorporated here in by reference to Exhibit 3(A) of Carpenter’s 2005 Annual Report on Form 10-K filed on September 9, 2005.
	(B)	By-Laws, amended as of August 24, 2006 are attached as an Exhibit to this Annual Report on Form 10-K.
4.		Instruments Defining Rights of Security Holders, Including Indentures
	(A)	Restated Certificate of Incorporation and By-Laws set forth in Exhibit Nos. 3A and 3B, above.
	(B)	Carpenter’s Registration Statement No. 333-44757, as filed on Form S-3 on January 22, 1998, and amended on February 13, 1998, with respect to issuance of Common Stock and unsecured debt is incorporated herein by reference.
	(C)	Prospectus, dated February 13, 1998 and Prospectus Supplement, dated March 31, 1998, File No. 333-44757, with respect to issuance of $198,000,000 of Medium Term Notes are incorporated by reference.
	(D)	Indenture dated as of January 12, 1994, between Carpenter and U.S. Bank Trust National Association, formerly known as First Trust of New York, National Association, as successor Trustee to Morgan Guaranty Trust Company of New York, related to Carpenter’s i) $100,000,000 of unsecured medium term notes registered on Registration Statement No. 33-51613 and ii) $198,000,000 of unsecured medium term notes registered on Registration Statement No. 333-44757 is incorporated by reference to Exhibit 4(c) to Carpenter’s Form S-3 (File No. 33-51613) filed January 6, 1994.
	(E)	Forms of Fixed Rate and Floating Rate Medium-Term Note, Series B are incorporated by reference to Exhibit 4(F) of Carpenter’s 2004 Annual Report on Form 10-K filed September 3, 2004.

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	(F)	Pricing Supplements No. 1 through 25 dated and filed from April 2, 1998 to June 11, 1998, supplements to Prospectus dated February 13, 1998 and Prospectus Supplement dated March 31, 1998, File No. 333-44757 with respect to issuance of $198,000,000 of Medium Term Notes are incorporated herein by reference.
	(G)	Carpenter’s Registration Statement No. 333-71518 as filed on Form S-4 on October 12, 2001, and amended on November 29, 2001, with respect to an offer to exchange $100,000,000 of Medium Term Notes is incorporated herein by reference.
	(H)	First Supplemental Indenture dated May 22, 2003, between Carpenter and U.S. Bank National Trust Association (formerly known as First Trust of New York, as successor Trustee to Morgan Guaranty Trust Company of New York) related to Carpenter’s issuance of $100,000,000 principal amount of its 6.625% Senior Notes due 2013 is incorporated herein by reference to Exhibit 4(I) of Carpenter’s 2003 Annual Report on Form 10-K filed September 12, 2003.
	(I)	Exchange and Registration Rights Agreement dated May 22, 2003, between Carpenter and Wachovia Securities as the initial purchaser of $100,000,000 principal amount of Carpenter’s 6.625% Senior Notes due 2013 is incorporated herein by reference to Exhibit 4(J) of Carpenter’s 2003 Annual Report on Form 10-K filed September 12, 2003.
	(J)	Form of Global Security with respect to the issuance by Carpenter and purchase by Wachovia Securities of $100,000,000 principal amount of Carpenter’s 6.625% Senior Notes due 2013 is incorporated herein by reference to Exhibit 4(K) of Carpenter’s 2003 Annual Report on Form 10-K filed September 12, 2003.
10.		Material Contracts
	(A)	Supplemental Retirement Plan for Executive Officers, amended as of January 1, 2004, is incorporated herein by reference to Exhibit 10(B) of Carpenter’s 2004 Annual Report on Form 10-K filed September 3, 2004.
	(B)	Management and Officers Capital Appreciation Plan, an Incentive Stock Option Plan, amended as of April 26, 2001, is attached as an Exhibit to this Annual Report on Form 10-K.
	(C)	Deferred Compensation Plan for Non-Management Directors of Carpenter Technology Corporation, amended as of January 1, 2005, is incorporated herein by reference to Exhibit 99.1 of Carpenter’s Form 8-K dated August 17, 2005.
	(D)	Deferred Compensation Plan for Officers and Key Employees of Carpenter Technology Corporation, amended as of January 1, 2005, is incorporated herein by reference to Exhibit 99.1 of Carpenter’s Form 8-K dated August 17, 2005.

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(E)	Executive Bonus Compensation Plan, amended as of July 1, 2002 is incorporated herein by reference to Exhibit 10(G) of Carpenter’s 2002 Annual Report on Form 10-K filed September 23, 2002.
(F)	Stock-Based Incentive Compensation Plan For Non-Employee Directors, amended as of October 22, 2001, is incorporated herein by reference to Exhibit 10(G) of Carpenter’s 2005 Annual Report on Form 10-K filed on September 9, 2005.
(G)	Officers’ Supplemental Retirement Plan of Carpenter Technology Corporation, restated as of December 9, 1993, and amended as of January 1, 2004, is incorporated herein by reference to Exhibit 10(H) of Carpenter’s 2004 Annual Report on Form 10-K filed September 3, 2004.
(H)	Trust Agreement between Carpenter and the Chase Manhattan Bank, N.A., dated September 11, 1990 as restated on May 1, 1997 and amended December 31, 2002 and January 10, 2003, relating in part to the Supplemental Retirement Plan for Executive Officers, Deferred Compensation Plan for Corporate and Division Officers and the Officers’ Supplemental Retirement Plan of Carpenter Technology Corporation is incorporated by reference to Exhibit 10(I) of Carpenter’s 2004 Annual Report on Form 10-K filed September 3, 2004 and the amendments thereof are incorporated herein by reference to Exhibit 10 (I) of Carpenter’s 2005 Annual Report on Form 10-K filed September 9, 2005.
(I)	Form of Indemnification Agreement, entered into between Carpenter and each of the directors and the following executive officers: Barry J. Chapman, David A. Christiansen, J. Michael Fitzpatrick, Terrence E. Geremski (retired as of August 1, 2006), M. David Kornblatt, Dennis M. Oates, Michael L. Shor and Robert J. Torcolini is incorporated herein by reference to Exhibit 10 (J) of Carpenter’s 2005 Annual Report on Form 10-K filed September 9, 2005.
(J)	Stock-Based Incentive Compensation Plan for Officers and Key Employees, amended as of June 27, 2002, is incorporated herein by reference to Exhibit 10(L) of Carpenter’s 2002 Annual Report on Form 10-K filed September 23, 2002.
(K)	Carpenter Technology Corporation Change of Control Severance Plan, adopted April 26, 2001, is attached as an Exhibit to this Annual Report on Form 10-K.
(L)	Form of amended and restated Special Severance Agreement entered into between Carpenter and each of the following executive officers: Barry J. Chapman, David A. Christiansen, J. Michael Fitzpatrick, Terrence E. Geremski (retired as of August 1, 2006), M. David Kornblatt, Dennis M. Oates, Michael L. Shor and Robert J. Torcolini is attached as an Exhibit to this Annual Report on Form 10-K.

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(M)	Earnings Adjustment Plan of Carpenter Technology Corporation, restated as of December 9, 1993 is attached as an Exhibit to this Annual Report on Form 10-K.
(N)	Benefit Equalization Plan of Carpenter Technology Corporation, restated as of December 9, 1993 is attached as an Exhibit to this Annual Report on Form 10-K.
(O)	Second Amendment dated August 21, 2003, to Five-Year Revolving Credit Agreement dated November 20, 2001, among Carpenter and certain of its subsidiaries as Borrowers and Wachovia Bank, National Association (successor to First Union National Bank), JP Morgan and a number of other financial institutions as lenders is incorporated herein by reference to Exhibit 10(O) of Carpenter’s 2003 Annual Report on Form 10-K filed September 12, 2003.
(P)	Trust Agreement between Carpenter and the Chase Manhattan Bank, N.A., dated December 7, 1990 as restated on May 1, 1997 and amended December 31, 2002 and January 10, 2003, relating in part to the Directors’ Retirement Plan and the Deferred Compensation Plan for Non-Management Directors, is incorporated by reference to Exhibit 10(O) of Carpenter’s 2004 Annual Report on Form 10-K filed September 3, 2004 and the amendments thereof are incorporated herein by reference to Exhibit 10 (O) of Carpenter’s 2005 Annual Report on Form 10-K filed September 9, 2005.
(Q)	Five-Year Revolving Credit Agreement dated as of August 31, 2005 among Carpenter and certain of its subsidiaries as Borrowers and with Wachovia Bank, National Association, JPMorgan Chase Bank and PNC Bank as Lenders is incorporated herein by reference to Exhibit 10 (P) of Carpenter’s 2005 Annual Report on Form 10-K filed September 9, 2005.
(R)	Receivables Purchase Agreement dated as of December 20, 2001 among CRS Funding Corp., Carpenter Technology Corporation, Market Street Funding Corporation and PNC Bank, National Association is incorporated herein by reference to Exhibit 10(iii) of Carpenter’s Form 10-Q for the quarter ended December 31, 2001 filed February 14, 2002.
(S)	First Amendment dated November 2, 2004 to the Purchase and Sale Agreement dated as of December 20, 2001 between Carpenter Technology Corporation and CRS Funding Corp is incorporated herein by reference to Exhibit 10(R) of Carpenter’s Annual Report on Form 10-K filed September 9, 2005.

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	(T)	Second, Third and Fourth Amendments to Receivables Purchase Agreement dated July 1, 2003, June 29, 2004 and November 2, 2004, respectively, among CRS Funding Corp., Carpenter Technology Corporation, Market Street Funding Corporation and PNC Bank, National Association are incorporated herein by reference to Exhibit 10 (S) of Carpenter’s Annual Report on Form 10-K filed September 9, 2005.
12.		Computations of Ratios of Earnings to Fixed Charges (unaudited)
21.		Subsidiaries of the Registrant
23.		Consent of Experts and Counsel Consent of Registered Public Accounting Firm
24.		Powers of Attorney Powers of Attorney in favor of M. David Kornblatt or David A. Christiansen
31.		Rule 13a-14(a)/15d-14(a) Certifications A.     Certification of Robert J. Torcolini B.     Certification of M. David Kornblatt
32.		Section 1350 Certifications Certifications of Robert J. Torcolini and M. David Kornblatt
99.		Additional Exhibits Agreement to Furnish Debt Instruments

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EX-3.B

Exhibit 3(B)

By-Laws

of

CARPENTER TECHNOLOGY CORPORATION

As Last Amended Effective August 24, 2006.

1. MEETINGS OF STOCKHOLDERS.

1.1 Annual Meeting. The annual meeting of stockholders shall be held during the month of October in each year, and shall be held at a place and time determined by the Board of Directors (the “Board”).

At an annual meeting of stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, or (b) otherwise brought before the meeting by or at the direction of the Board or by a stockholder in accordance with the following provisions. In addition to any other applicable requirements, for business to be brought before an annual meeting by a stockholder, the stockholder must have given notice thereof in writing to the Secretary of the Corporation, which must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of the stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder must be so received not later than the close of business on the 10th day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs.

A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business.

Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 1.1.

The chairperson of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 1.1 and, if the chairperson should so determine, any such business not properly brought before the meeting shall not be transacted.

1.2 Special Meetings. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation, special meetings of the stockholders may be called only by the Board pursuant to a resolution approved by a majority of the entire Board. At a special meeting of the stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board.

1.3 Place of Meetings. Meetings of the stockholders may be held in or outside Delaware at the place specified in the notice by the person or persons calling the meeting.

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1.4 Notice of Meetings. Written notice of each meeting of stockholders shall be mailed to each stockholder entitled to vote at the meeting, not less than 20 nor more than 40 days before the meeting, and shall state the time and place of the meeting and the purposes for which it is called.

1.5 Quorum. The presence in person or by proxy of the holders of a majority of the shares entitled to vote shall constitute a quorum for the transaction of any business, except as otherwise provided by law. In the absence of a quorum any officer entitled to preside at or act as secretary of such meeting shall have the power to adjourn the meeting from time to time until a quorum is present, without further notice other than announcement at the meeting of the adjourned time and place (provided that if a meeting is adjourned for more than 30 days, or if a new record date is set, a new notice must be given). At any adjourned meeting at which a quorum is present, any action may be taken which might have been taken at the meeting as originally called.

1.6 Voting; Proxies. Stockholders may attend meetings and vote either in person or by proxy. Without limiting the manner in which a stockholder may authorize another person or persons to act for the stockholder as proxy, either of the following shall constitute a valid means by which a stockholder may grant such authority:

(i) A stockholder may execute a writing authorizing another person or persons to act for the stockholder as proxy. Execution may be accomplished by the stockholder or an authorized officer, director, employee or agent signing such writing or causing their signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature.

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(ii) A stockholder may authorize another person or persons to act for the stockholder as proxy by transmitting or authorizing the transmission of a telegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram or other electronic transmission was authorized by the stockholder.

Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission authorizing another person or persons to act as proxy for a stockholder may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Corporate action to be taken by stockholder vote, other than the election of directors, shall be authorized by a majority of the votes cast at a meeting of stockholders at which a quorum is present, except as otherwise provided by law, by the Certificate of Incorporation, as amended from time to time, or by these By-Laws. Directors shall be elected in the manner provided in Section 2.1 of these By-Laws.

1.7 Inspectors of Election. In advance of every meeting of the stockholders, the Board by resolution or the Chairperson or President shall appoint one or more persons to act as inspectors of election at the meeting. One or more other persons may be designated as alternate inspectors to replace any inspector who is unable or unwilling to act at such meeting. If no

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inspector or alternate inspector has been appointed or is present, ready and willing to act at any meeting, the chairperson of the meeting shall appoint one or more persons to act as inspectors at the meeting. Each inspector, before discharging the duties of office, shall faithfully take and sign an oath to execute the duties of inspector with strict impartiality and according to the best of the inspector’s ability. The inspectors shall have the duties prescribed by law. Any person, including persons who serve the Corporation in other capacities, including without limitation, as officers, employees, agents or representatives of the Corporation, may act as an inspector, except that no candidate for the office of director shall act as an inspector of any election for directors.

1.8 Opening and Closing of the Polls. At every meeting of the stockholders, the chairperson of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at the meeting.

2. BOARD OF DIRECTORS.

2.1 Number, Election and Term of Directors. The business of the Corporation shall be managed under the direction of the Board, which shall consist of not less than six nor more than seventeen directors, the exact number of directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board. A majority of the Board must be persons who are neither current nor former officers or employees of the Corporation or its subsidiaries. The Board of Directors shall be divided into three classes. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board. The term of office of the first class will expire at the first annual meeting of the stockholders after the initial classification of the Board, that of the second class will expire at the second meeting after the initial classification of the Board, and that of the third class will expire

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at the third annual meeting after the initial classification of the Board. At each annual meeting of the stockholders after such initial classification of the Board, directors shall be chosen for a term of three years to succeed those whose terms expire, and shall hold office until the third following annual meeting of stockholders and until the election of their respective successors, subject to the provisions of Section 2.6 hereof. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case may a decrease in the number of directors shorten the term of any incumbent director. Directors shall be elected at each annual meeting of stockholders by a plurality of the votes cast by written ballot. As used in these By-Laws, “entire Board” means the total number of directors which the Corporation would have if there were no vacancies.

2.2 Quorum and Manner of Acting. A majority of the directors in office (but not less than one-third of the entire Board) shall constitute a quorum for the transaction of business at any meeting, except as provided in Section 2.7 of these By-Laws. Action of the Board shall be authorized by the vote of a majority of the directors present at the time of the vote, if a quorum is present, unless otherwise provided by law or these By-Laws. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum is present, on notice given as provided in Section 2.5 hereof.

2.3 Annual and Regular Meetings. Annual meetings of the Board, for the election of officers and consideration of other matters, shall be held either (a) without notice immediately

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after the annual meeting of stockholders and at the same place, or (b) as soon as practicable after the annual meeting of stockholders on notice as provided in Section 2.5 of these By-Laws. Regular meetings of the Board may be held at such times and places as the Board determines.

2.4 Special Meetings. Special meetings of the Board may be called by the Chairperson of the Board or the Chief Executive Officer of the Corporation or by three directors, one from each class of directors then in office.

2.5 Notice of Meetings; Waiver of Notice. Notice of the time and place of each regular and special meeting of the Board, and of each annual meeting not held immediately after the annual meeting of stockholders and at the same place, shall be given to each director by mailing it to the Director at the Director’s residence or usual place of business at least five days before the meeting, or by delivering or telephoning or telegraphing it to the Director at least one day before the meeting. Notice of a special meeting shall also state the general purpose or purposes for which the meeting is called. Notice need not be given to any director who submits a signed waiver of notice before or after the meeting, or who attends the meeting without protesting the lack of notice to him or herself, either before the meeting or when it begins. Notice of any adjourned meeting need not be given, other than by announcement at the meeting at which the adjournment is taken.

2.6 Resignation and Retirement of Directors. Any director may resign at any time by giving written notice to the Chief Executive Officer or Secretary of the Corporation, to take effect at the time specified therein. The acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make it effective. Unless otherwise provided by resolution of the Board, any director who is also an officer of the Corporation shall retire from

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the Board upon the earlier of (a) attaining age 65 or (b) retirement as an officer of the Corporation. Unless otherwise provided by resolution of the Board, any Director who is not an Officer of the Corporation shall retire from the Board at the next Annual Meeting of Stockholders after the Director attains the age of 70.

2.7 Vacancies. Any vacancy in the Board, including one created by an increase in the number of directors, may be filled for the unexpired term by a majority vote of the remaining directors, though not a quorum.

2.8 Action by Directors Without a Meeting. Any action by the Board or any committee of the Board may be taken without a meeting, if a written consent to the action is signed by all of the members of the Board or committee.

2.9 Compensation. Directors shall receive such compensation as the Board determines, together with reimbursement of their reasonable expenses in connection with the performance of their duties. A director may also be paid for serving the Corporation, its affiliates or subsidiaries in other capacities.

2.10 Nominations of Director Candidates. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors at meetings of stockholders. Nominations of persons for election to the Board of the Corporation may be made at a meeting of stockholders by (a) the Board, (b) any committee whose responsibilities include director nominations or person appointed by the Board, or (c) any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.10. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the

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Corporation. To be timely, a stockholder’s notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of the stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the 10th day following the date on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. Such stockholder’s notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Schedule 14A under the Securities Exchange Act of 1934, as amended; and (b) as to the stockholder giving the notice (i) the name and record address of the stockholder and (ii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation.

The chairperson of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure and, if the

9

chairperson should so determine, the chairperson shall so declare to the meeting and the defective nomination shall be disregarded.

3. COMMITTEES.

3.1 Standing Committees. The Board shall by resolution designate an Audit/Finance Committee, a Corporate Governance Committee, and a Human Resources Committee, each consisting of two or more members of the Board. Unless otherwise provided by Board resolution, any current or former officer or employee of the Corporation or its subsidiaries shall not serve on any Standing Committee. The members of each such Committee shall serve at the pleasure of the Board, and the Board shall designate from the membership a Committee chairperson and shall fill any membership vacancies. The Corporate Governance Committee shall determine, from time to time, after consultation with each Committee, the scope of each standing Committee’s responsibilities, which shall be set forth in a written statement to be submitted to the Board for approval. Each such Committee shall perform such other functions and exercise such other powers as may be delegated to it from time to time by the Board.

3.2 Executive Committee. The Board may by resolution designate an Executive Committee of four or more members of the Board, which Committee shall have all the authority of the Board except as otherwise provided in the resolution or by law. The members of such Committee shall serve at the pleasure of the Board, and the Board shall designate from among the membership a Committee chairperson and shall fill any membership vacancies.

3.3 Other Committees. The Board may by resolution provide for such other standing or special committees, composed of two or more members of the Board, and discontinue the same

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at its pleasure. Each such committee shall have such powers and perform such duties, not inconsistent with law, as may be assigned to it by the Board.

3.4 Meetings of Committees. Each committee of the Board shall fix its own rules of procedure consistent with the provisions of the Board governing such committee, and shall meet as provided by such rules or by resolution of the Board, and it shall also meet at the call of its chairperson or any two members of such committee. Unless otherwise provided by such rules or by such resolution, the provisions of Article 2 of these By-Laws relating to the place of holding and notice required of meetings of the Board shall govern committees of the Board. A majority of each committee shall constitute a quorum thereof; provided, however, that in the absence of any member of such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint a member of the Board otherwise qualified for membership of such committee to act in the place of such absent member. The vote of a majority of such quorum at a duly constituted meeting shall be sufficient to authorize any action within the scope of responsibilities of each committee, unless otherwise provided by the rules of such committee or by resolution of the Board. Each committee shall keep minutes of its meetings and all action taken by such committee shall be reported to the Board at its next meeting.

4. OFFICERS.

4.1 Executive and Other Officers. The officers of the Corporation shall be a Chairperson of the Board (who shall be elected from among the Directors); a President, if the Board chooses to elect one; one or more Vice Presidents, a Treasurer; a Secretary and a Controller (any of whom may be designated as executive officers). The offices of Chairperson and President may be held by the same person, and the offices of Treasurer, Controller or

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Secretary may be filled by the same person who may also be a Vice President. The Board shall designate the Chairperson or the President as Chief Executive Officer of the Corporation. The Officers specifically listed above, or otherwise designated as executive officers, shall be elected annually by the Board, and each such officer shall hold office until the next annual meeting of the Board and until the election of his successor, or until his earlier resignation or removal.

The Board may elect other officers including Vice Presidents (not otherwise designated by the Board as executive officers), Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, each of whom shall hold office for such period and have such powers and duties as the Board determines.

4.2 Vacancies. A vacancy in any office may be filled for the unexpired term in the manner prescribed in Section 4.1 of these By-Laws for election or appointment to the office.

4.3 Chairperson of the Board. The Chairperson of the Board, if one is elected, shall preside at all meetings of the Board and of the stockholders. The Chairperson shall perform all duties incident to the office of Chairperson of the Board and shall have such other powers and duties as the Board assigns to that individual. In the absence of the Chairperson, the Board shall designate a member of the Board as temporary Chairperson.

4.4 The President. The President shall perform all duties incident to the office of President and such other duties as the Board assigns to that individual.

4.5 Chief Executive Officer. The Chief Executive Officer shall, subject to the control of the Board, have the general management and control of the business and affairs of the Corporation and, in general, shall have all powers and perform all duties incident to the office of Chief Executive Officer.

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4.6 Vice Presidents. Each Vice President shall have such designation as the Board may determine and such powers and duties as the Board or the Chief Executive Officer, subject to the control of the Board, assigns to that individual. One of the Vice Presidents, who is an executive officer, may be designated by the Board to act, in the absence of the Chief Executive Officer, in the Chief Executive Officer’s place.

4.7 The Treasurer. The Treasurer shall, subject to the direction of the Chief Executive Officer, have charge of all funds, securities, notes, receipts and disbursements of the Corporation. The Treasurer shall be responsible for the deposit of Corporation funds in or withdrawal from such banks or other depositories as shall be selected by the Chief Executive Officer with the approval of the Board, and shall provide all necessary cash and other records to the Controller. The Treasurer shall perform such other duties as treasurers of corporations usually have or as the Chief Executive Officer or the Vice President to whom the Treasurer reports assigns to that individual.

4.8 The Secretary. The Secretary shall be the secretary of, and keep the minutes of, all meetings of the Board and of the stockholders, shall be responsible for giving notice of all meetings of the Board and of the stockholders and shall keep the seal and shall apply it to any instrument requiring it. The Secretary shall be custodian of the corporate records (except accounting records), contracts and documents, and shall have such other powers and duties as the Chief Executive Officer or the Vice President to whom the Secretary reports assigns to that individual. In the absence of the Secretary from meetings, the minutes shall be kept by the person appointed for that purpose by the presiding officer.

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4.9 The Controller. The Controller shall be the officer in charge of accounts of the Corporation and shall be responsible for the maintenance of adequate accounting and internal control procedures, and adequate records of the Corporation, for the preparation of financial statements and reports on the operation of the business. The Controller shall be responsible for the administration of the office and shall have such other powers and duties as the Board, the Chief Executive Officer or the Vice President to whom the Controller reports assigns to that individual.

4.10 Subsidiary, Business Unit or Division Officers. For administrative and management purposes, the Chief Executive Officer, may appoint such subsidiary, business unit or division officers (“Business Officers”) with such titles, as deemed necessary or advisable for the transaction of the business of the Corporation. Any Business Officer may be removed from office as a Business Officer, either with or without cause, at any time, by the Chief Executive Officer or by any other executive officer of the Corporation or officer of a subsidiary, business unit or division to whom such Business Officer may at the time be responsible. A Business Officer shall not be an officer of the Corporation by virtue of his or her position as such Business Officer. Business Officers shall perform such duties as shall be assigned to them from time to time by the Chief Executive Officer but no Business Officer shall execute any deed, lease or other conveyance or transfer of real property of the Corporation, any note or other evidence of indebtedness or any mortgage or other security for indebtedness.

5. SHARES.

5.1 Certificates. The shares of the Corporation shall be represented by certificates in the form approved by the Board, unless the Board by resolution provides that some or all classes or

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series of stock shall be uncertificated shares (provided that no such resolution shall apply to shares theretofore represented by a certificate unless and until such certificate is surrendered to the Corporation). Notwithstanding the adoption of such resolution by the Board, every holder of shares represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate representing such shares registered in his or her name on the Corporation’s books. Each certificate shall be signed by the Chairperson, the President or a Vice President and by the Secretary or the Treasurer. Any or all the signatures on the certificate may be a facsimile.

5.2 Transfers. Shares shall be transferable only on the Corporation’s books, (and, in the case of shares represented by certificates,) upon surrender of the certificate for the shares, properly endorsed. The Board may require satisfactory surety before issuing a new certificate to replace a certificate claimed to have been lost or destroyed.

5.3 Transfer Agents and Registrars. The Corporation shall have one or more transfer agents and one or more registrars of its shares, whose respective duties shall be defined by the Board. Unless the Board specifically directs otherwise with respect to a particular certificate, no certificates for shares shall be valid unless countersigned by a transfer agent and unless registered by a registrar.

6. MISCELLANEOUS.

6.1 Seal. The Board shall adopt a corporate seal, which shall be in the form of a circle and shall bear the Corporation’s name and the year and state in which it was incorporated.

6.2 Fiscal Year. The Board may determine the Corporation’s fiscal year. Until changed by the Board, the Corporation’s fiscal year shall end on June 30.

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6.3 Voting of Shares in Other Corporations. Shares in other corporations which are held by the Corporation may be represented and voted by the Chairperson, the President or a Vice President of this Corporation or by proxy or proxies appointed by one of them. The Board may, however, appoint some other person to vote the shares.

6.4 Indemnification of Officers, Directors, Employees and Agents. The Corporation shall, to the fullest extent permitted by Section 145 of the Delaware General Corporation Law as amended from time to time, indemnify all persons whom it may indemnify under that Section.

For these purposes an employee or agent shall be deemed to have acted in good faith only if his or her action were within the scope of employment as defined by an agreement with the Corporation or in accordance with the rules of the Corporation or an authorized officer thereof.

6.5 Amendments. These By-Laws may be amended, repealed or adopted by the affirmative vote of a majority of the entire Board or of the holders of two-thirds of the issued and outstanding stock of the Corporation entitled to vote.

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EX-10.B

Exhibit 10(B)

MANAGEMENT AND OFFICERS CAPITAL APPRECIATION PLAN,

AN INCENTIVE STOCK OPTION PLAN

Adopted May 12, 1977

(As last amended April 26, 2001)

1. Purpose.

The purposes of this Plan are to attract, retain and motivate key employees of Carpenter Technology Corporation and its wholly owned subsidiaries (“the Corporation”), to encourage stock ownership by such employees by providing them with a means to acquire a proprietary interest or to increase their proprietary interest in the Corporation’s success and to provide a greater community of interest between such employees and the Corporation’s stockholders.

2. Administration.

The Board of Directors of Carpenter Technology Corporation (“the Board”) shall be responsible for the operation of the Plan. It shall be authorized, subject to the provisions of the Plan, from time to time to establish such rules and regulations and to appoint such agents as it deems appropriate for the proper administration of the Plan, and to make such determinations under, and such interpretations of, and to take such steps in connection with, the Plan or the options or stock appreciation rights granted hereunder as it deems necessary or advisable. Any questions of interpretation as determined by the Board shall be final and binding upon all persons. The Board may delegate these powers to the Compensation and Stock Option Committee of the Board, consisting of at least three Directors not participating in the Plan.

3. Participants.

Participants in the Plan will consist of such officers or key employees of the Corporation as the Board in its sole discretion may, from time to time, designate. The Board’s designation of a participant at any time to receive benefits under the Plan shall not obligate it to designate such person to receive benefits at any other time. The Board shall consider such factors as it deems pertinent in selecting participants and in determining the type and amount of options and rights granted hereunder.

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4. Types of Benefits.

Benefits under the Plan may be granted in (a) non-qualified stock options (“options” or individually an “option”) which are intended to be nonstatutory options not qualifying under Section 422 or any other section of the Internal Revenue Code, and (b) stock appreciation rights, each as described below.

5. Shares Reserved Under the Plan.

(a) Subject to the provisions of Section 11, the maximum aggregate number of shares which may be made available for options hereunder is 400,000 shares of common stock of Carpenter Technology Corporation and no more than 40,000 shares of said 400,000 shares shall be optioned to any one individual. The shares involved in the unexercised portion of any terminated or expired option or stock appreciation right under the Plan may again be subject to options under the Plan. Such shares may be either authorized and unissued shares, or issued shares reacquired by the Corporation.

6. Options.

Options may be granted by the Board from time to time, subject to the following provisions:

(a) Each option granted under this Plan shall become exercisable by the optionee only after the optionee has completed one year of employment immediately following the date the option is granted, as determined by the Board (the “date of grant”), and shall expire ten years from the date of grant. Exercise of any or all prior existing options shall not be required.

(b) The option price per share of an option shall be determined by the Board but shall not be less than the fair market value of Carpenter Technology Corporation’s stock on the date of grant. For the purpose of this Plan, the term “fair market value” shall mean the closing price of Carpenter Technology Corporation common stock on the New York Stock Exchange on the date in question, or, in the absence of a closing price on such date, then the closing price on the last trading day preceding the date of grant, as reflected on the consolidated tape of New York Stock Exchange issues.

(c) No option under this Plan may be transferable by the optionee except by will or the laws of descent and distribution. In the event of the death of the optionee more than one year after the date of grant and not more than three months after the

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termination of the optionee’s employment by the Corporation, the option may be transferred to the optionee’s personal representative, heirs or legatees (“transferee”) and may be exercised by the transferee before the earlier of (i) the expiration of one year from the date of the death of the optionee or (ii) the expiration of 10 years from the date of grant. In the event of the retirement of an optionee, an option may be exercised prior to its expiration during the five year period beginning with the date of retirement; provided, however, that in the event of a retiree’s death during such five year period, unexercised options may be exercised by the transferee before the earlier of either items (i) or (ii) of this Section 6(c). In all other cases of termination of employment of an optionee, the option, if otherwise exercisable by the optionee at the time of such termination, may be exercised within three months after such termination.

Notwithstanding anything in the Plan to the contrary, in the event an optionee’s employment with the Corporation is terminated for “cause”, the Board (or if the Board has delegated its authority, the Compensation and Stock Option Committee) may, in its sole discretion, cancel each unexercised option awarded to such terminated optionee effective upon the termination. For purposes of this Section, a termination for “cause” shall mean termination of an optionee’s employment with the Corporation which results from either (a) the optionee committing an Intolerable Offense (as defined in the Corporation’s Personnel Practices and Policies as in effect on the date of termination) or (b) the operation of the Corporation’s Corrective Performance System (as set forth in the Corporation’s Personnel Procedures and Policies as in effect on the date of termination).

(d) Each option shall be exercisable for the full amount or any part thereof, including a partial exercise from time to time. All shares purchased under options shall be paid for in full at the time of purchase. Exercised options may be paid for with cash or stock of Carpenter Technology Corporation which has been held by the optionee for a period of at least six months, the value of which shall be the fair market value on the date of exercise of the options, as determined in Section 6(b) of the Plan.

7. Stock Appreciation Rights.

(a) Stock appreciation rights may be granted from time to time by the Board upon such terms and conditions as it may prescribe. The Board shall grant one stock appreciation right for every option share granted hereunder prior to August 9, 1990. The Board may in its discretion grant no more than one stock appreciation right for every option share granted hereunder on or subsequent to August 9, 1990. A stock appreciation right shall be

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exercisable only with exercise and surrender of the related option or portion thereof and shall entitle the optionee to receive the excess of the fair market value of the shares of the common stock for which the right is exercised on the date of such exercise over the option price under the related option. Such excess is hereafter called “the spread”.

(b) A stock appreciation right shall be exercisable only to the extent and at the same time that the related option is exercised.

(c) Upon the exercise of a stock appreciation right, the Corporation shall give to the optionee an amount equivalent to the spread (less any applicable withholding taxes) in cash, or in shares of Carpenter Technology Corporation’s common stock, or a combination of both, as the Board shall determine. Such determination may be made at the time of the granting of the stock appreciation right. The shares may consist either in whole or in part of authorized and unissued shares or issued shares reacquired by the Corporation. The payment of the stock appreciation right spread in shares of common stock will correspondingly reduce the number of shares reserved under Section 5. No fractional shares of common stock shall be issued and the Board shall determine whether cash shall be given in lieu of such fractional share or whether such fractional share shall be eliminated.

(d) A stock appreciation right shall terminate and may no longer be exercised upon the termination or expiration of the related option.

(e) Income attributable to the exercise of a stock appreciation right shall not be included in the calculation of pension or other benefits payable at any time by reason of the optionee’s employment by the Corporation.

(f) No stock appreciation right shall be transferable by the optionee except as provided in Section 6(c) of this Plan.

8. Valuation Date.

The options granted hereunder shall be valued for Federal income tax purposes on the date said options are exercised and the optionee, by accepting the option, agrees not to elect to value said options for tax purposes at any other date, including, without limitation, the date of grant.

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9. Adjustment Provisions.

If Carpenter Technology Corporation shall at any time change the number of issued shares of common stock without new consideration to the Corporation (such as by stock dividends, stock splits or stock combinations), the total number of shares reserved for issuance under this Plan and the number of shares covered by each outstanding benefit shall be adjusted so that the aggregate consideration payable to the Corporation and the value of each benefit shall not be changed. In the event of a merger or consolidation of Carpenter Technology Corporation, the Board shall make such adjustments with respect to options or take such other action as it deems necessary or appropriate to equitably reflect such merger or consolidation including, without limitation, the substitution of new options, the termination of existing options or the acceleration of the right to exercise. Appropriate adjustments shall be made by the Board in the terms of stock appreciation rights to reflect the foregoing changes.

10. Change in Control.

(a) Notwithstanding anything in this Plan to the contrary, in the event of a Change in Control of the Corporation (i) each Option shall become immediately exercisable and (ii) each stock appreciation right shall be fully exercisable for the sixty-day period immediately following the Change in Control of the Corporation using the Change in Control Price instead of the fair market value to determine the amount payable upon the exercise of such stock appreciation right. In addition, notwithstanding anything in this Plan to the contrary, if the employment of an optionee or holder of a stock appreciation right is terminated by the Corporation without “cause” as defined in Section 6(c), or, in the case of an employee who is covered by an employment arrangement or agreement that enables such employee to terminate for Good Reason (as defined in such arrangement or agreement), for Good Reason, during the two-year period commencing on the date of the occurrence of a Change in Control of the Corporation, then such employee shall be able to exercise his or her options and stock appreciation rights until the earlier of (x) the second anniversary of such employment termination or (y) the expiration of their original term.

(b) For purposes of this Plan, a “Change in Control of the Corporation” means:

(1) The acquisition by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)] (a “Person”) of beneficial ownership (within the meaning of Rule

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13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then-outstanding shares of common stock of Carpenter Technology Corporation (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of Carpenter Technology Corporation entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this Section 10(b), the following acquisitions shall not constitute a Change in Control of the Corporation: (i) any acquisition directly from Carpenter Technology Corporation, (ii) any acquisition by Carpenter Technology Corporation, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Carpenter Technology Corporation or any affiliated company or (iv) any acquisition by any corporation pursuant to a transaction that complies with Sections 10(b)(3)(A), 10(b)(3)(B) and 10(b)(3)(C);

(2) individuals who, as of the date hereof, constitute the Board (the”Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by Carpenter Technology Corporation’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(3) consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of Carpenter Technology Corporation or the acquisition of the assets or stock of another entity (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns Carpenter Technology Corporation or all or substantially all of Carpenter Technology Corporation’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their

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ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of Carpenter Technology Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

(4) approval by the stockholders of Carpenter Technology Corporation of a complete liquidation or dissolution of Carpenter Technology Corporation.

(c) For purposes of this Plan, Change in Control Price shall mean the higher of (i) the highest price paid per share of Corporation common stock in any transaction constituting a Change in Control of the Corporation or (ii) the highest fair market value per share of Carpenter Technology Corporation common stock as reported in the Wall Street Journal at any time during the sixty-day period preceding the Change in Control of the Corporation.

11. Amendment, Modification and Termination of the Plan.

The Board, at any time, may terminate, and at any time and from time to time, and in any respect, may amend or modify, the Plan; provided, however, that no such action by the Board, without approval of the stockholders, may (a) increase the total amount of common stock which may be purchased under options granted under the Plan or the maximum number of shares of common stock for which options may be granted under the Plan to any one individual, except as contemplated in Section 9, (b) permit options to be granted at less than fair market value, (c) permit any person while a member of the committee contemplated in Section 2 to be eligible to receive or hold an option or stock appreciation right under the Plan or (d) change the manner of computing the spread upon the exercise of a stock appreciation right.

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12. Effective Date of the Plan.

The Plan shall become effective upon approval by the Board; provided, however, that the Plan shall be submitted for ratification by the stockholders at the Annual Meeting to be held on November 7, 1977, and if not ratified shall be of no force and effect. All options and stock appreciation rights granted prior to such Annual Meeting shall be granted subject to ratification of the Plan by the stockholders of Carpenter Technology Corporation at such Meeting and no option shall be exercisable before such ratification.

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EX-10.K

Exhibit 10(K)

CARPENTER TECHNOLOGY CORPORATION

CHANGE OF CONTROL

SEVERANCE PLAN

INTRODUCTION

As is the case with many publicly held corporations, there exists the possibility of a Change of Control of the Company. This possibility and the uncertainty it creates may result in the loss or distraction of employees of the Company and its Subsidiaries to the detriment of the Company and its stockholders. The avoidance of such loss and distraction is essential to protecting and enhancing the best interests of the Company and its stockholders.

When a Change of Control is perceived as imminent, or is occurring, the Company should be able to receive and rely on disinterested service from employees regarding the best interests of the Company and its stockholders without concern that employees might be distracted or concerned by the personal uncertainties and risks created by the perception of an imminent or occurring Change of Control.

It is consistent with the employment practices and policies of the Company and its Subsidiaries and in the best interests of the Company and its stockholders to treat fairly its employees whose employment terminates in connection with or following a Change of Control. Accordingly, it has been determined that appropriate steps should be taken to assure the Company and its Subsidiaries of the continued employment and attention and dedication to duty of their employees and to seek to ensure the availability of their continued service, notwithstanding the possibility, threat or occurrence of a Change of Control.

Therefore, in order to fulfill the above purposes, the following plan has been developed and is hereby adopted.

ARTICLE I

ESTABLISHMENT OF PLAN

As of the Effective Date, the Company hereby establishes a separation compensation plan known as the Carpenter Technology Corporation Change of Control Severance Plan, as set forth in this document.

ARTICLE II

DEFINITIONS

As used herein the following words and phrases shall have the following meanings unless the context clearly indicates otherwise:

(a) Affiliated Company. Any company controlled by, controlling or under common control with the Company.

(b) Annual Salary. The Participant’s regular annual base salary immediately prior to his or her termination of employment, including compensation converted to other

benefits under a flexible pay arrangement maintained by the Company or any Subsidiary or deferred pursuant to a written plan or agreement with the Company or any Subsidiary, but excluding overtime pay, allowances, premium pay, compensation paid or payable under any Company bonus or incentive plan of the Company or any Subsidiary or any similar payment.

(c) Board. The Board of Directors of Carpenter Technology Corporation.

(d) Cause. With respect to any Participant: (i) the willful and continued failure of the Participant to perform substantially the Participant’s duties with the Company or any Subsidiary (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Participant by an executive officer of the Company which specifically identifies the manner in which the executive officer believes that the Participant has not substantially performed the Participant’s duties, or (ii) the willful engaging by the Participant in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company or any Subsidiary. For purposes of this definition, no act or failure to act on the part of the Participant shall be considered “willful” unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief that the Participant’s action or omission was in the best interests of the Company or any Subsidiary. Any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or another executive officer of the Company or any Subsidiary or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Participant in good faith and in the best interests of the Company.

(e) Change of Control. The occurrence of any of the following events:

(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (x) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (y) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company, or (D) any acquisition by any corporation pursuant to a transaction that complies with clauses (A), (B), and (C) of paragraph (iii) of this definition of Change of Control;

(ii) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of

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at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(iii) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of the assets or stock of another entity (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

(iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

(f) Code. The Internal Revenue Code of 1986, as amended from time to time.

(g) Committee. The Human Resources Committee of the Board.

(h) Company. Carpenter Technology Corporation and any successor or assignee to the business or assets which becomes bound by this Plan by reason of Article V.

(i) Date of Termination. The date on which a Participant ceases to be an Employee of an Employer.

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(j) Disability. A condition such that the Participant has terminated employment with the Participant’s Employer with a qualifying disability and has immediately begun receiving benefits from a long-term disability plan of the Company or any Employer.

(k) Effective Date. April 26, 2001.

(l) Employee. A full-time employee of an Employer.

(m) Employer. The Company or any Subsidiary (or any parent corporation of the Company or any of such parent corporation’s subsidiaries) by which a Participant is employed.

(n) ERISA. The Employee Retirement Income Security Act of 1974, as amended from time to time.

(o) Good Reason. With respect to any Participant, without such Participant’s written consent: (i) any reduction in the Participant’s Annual Salary or Target Annual Bonus opportunity, as in effect during the 120-day period immediately preceding the Change of Control (or as such amounts may be increased from time to time), other than as a result of an isolated and inadvertent action not taken in bad faith and which is remedied by the Employer promptly after receipt of notice thereof given by the Participant; (ii) the Employer requiring the Participant to relocate his or her principal place of business to a location which is more than 35 miles from his or her previous principal place of business; (iii) the assignment to the Participant of any duties inconsistent in any material and adverse respect with the duties assigned to the Participant during the 120-day period immediately prior to a Change of Control, other than an isolated, insubstantial and inadvertent action that is not taken in bad faith and is remedied by the Employer promptly after receipt of notice thereof from the Participant; (iv) any material reduction in benefits of the Participant, as in effect during the 120-day period immediately preceding the Change of Control, other than as a result of an isolated and inadvertent action not taken in bad faith and which is remedied by the Employer promptly after receipt of notice thereof given by the Participant; provided, however, that no material reduction shall be deemed to have occurred following a Change of Control if the benefits provided to the Participant are (A) reasonably equivalent to the benefits provided to similarly situated employees of the company resulting from a Business Combination and its subsidiaries, and (B) comparable to the benefits provided to the Participant immediately prior to the Change of Control; (v) any purported termination of the Plan otherwise than as expressly permitted by the Plan; or (vi) any failure by the Employer to comply with and satisfy Article VI of the Plan.

(p) Participant. Any individual whose employment is classified as job class 19 or above and any other individual employed by the Company or any of its Affiliated Companies in an equivalent position who is designated as a Participant by the Chief Executive Officer of the Company; provided, however, that no individual who is a party to a separately executed change of control or similar agreement with the Company or any of its Affiliated Companies entered into prior to a Change of Control shall be a Participant so long as such

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agreement remains in force. Each individual who is a Participant immediately prior to a Change of Control shall remain a Participant at least until the second anniversary of the Change of Control. Notwithstanding the foregoing, individuals employed primarily outside of the United States are not eligible to be Participants.

(q) Plan. Carpenter Technology Corporation Change of Control Severance Plan.

(r) Separation Benefits. The benefits described in Section 4.2 that are provided to qualifying Participants under the Plan.

(s) Subsidiary. Any corporation in which the Company, directly or indirectly, holds a majority of the voting power of such corporation’s outstanding shares of capital stock.

(t) Target Annual Bonus. The Participant’s target bonus under the Company’s annual incentive plans for the fiscal year in which such Participant’s Date of Termination occurs (or, if no target bonus has been set for such fiscal year, the Participant’s target bonus for the immediately preceding fiscal year).

ARTICLE III

ELIGIBILITY

A Participant shall cease to be a Participant in the Plan only as a result of an amendment or termination of the Plan complying with Article VI of the Plan, or when the Participant ceases to be an Employee of any Employer, unless, at the time the Participant ceases to be an Employee, such Participant is entitled to payment of a Separation Benefit as provided in the Plan. A Participant entitled to payment of a Separation Benefit or any other amounts under the Plan shall remain a Participant in the Plan until the full amount of the Separation Benefit and any other amounts payable under the Plan have been paid to the Participant.

ARTICLE IV

SEPARATION BENEFITS

4.1 Terminations of Employment Which Give Rise to Separation Benefits Under This Plan. A Participant shall be entitled to Separation Benefits as set forth in Section 4.2 below if, at any time during the two-year period immediately following a Change of Control, the Participant’s employment is terminated (i) by the Employer for any reason other than Cause, death, or Disability or (ii) by the Participant, within 120 days after the Participant has knowledge of the occurrence of Good Reason.

4.2 Separation Benefits.

(a) If a Participant’s employment is terminated in circumstances entitling such participant to Separation Benefits pursuant to Section 4.1, the Company shall provide to such

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Participant, within ten days following the Date of Termination, a lump sum cash payment as set forth in subsection (b) below, and shall provide to the Participant the continued benefits and outplacement as set forth in subsections (b), (c) and (d) below. For purposes of determining the benefits set forth in subsection (b), if the termination of the Participant’s employment is for Good Reason based upon a reduction of the Participant’s Annual Salary, opportunity to earn Target Annual Bonuses, or other compensation or employee benefits, such reduction shall be ignored.

(b) The cash lump sum referred to in Section 4.2(a) shall be the aggregate of the amounts set forth in clauses (i), (ii) and (iii):

(i) the sum of (A) any portion of the Participant’s Annual Salary earned through the Date of Termination that was not previously paid and (B) any compensation previously deferred by the Participant (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid and in full satisfaction of the rights of the Participant thereto;

(ii) an amount equal to one times the Participant’s Annual Salary; and

(iii) an amount equal to one times the Participant’s Target Annual Bonus.

(c) The Company shall at its sole expense provide the Participant with reasonable outplacement services, at a cost not to exceed $20,000, during the one-year period following the Participant’s Date of Termination. The Participant shall not, however, be entitled to any payment in lieu of accepting outplacement assistance services.

(d) The Participant (and eligible family members) shall be eligible for participation in and shall receive all benefits under any medical and dental plan, plan, program, policy, practice, contract or agreement of the Company and its Affiliated Companies for which the Participant was eligible prior to the Change of Control, on terms no less favorable than those applicable to the Participant prior to the Participant’s Date of Termination, for the six months immediately following the Participant’s Date of Termination; provided, however, that during any period when the Participant becomes reemployed with another employer and is eligible to receive any such benefits under another employer-provided plan, the medical and dental benefits provided by the Company and the Affiliated Companies described herein shall be secondary to those provided under such other plan during such period of eligibility.

4.3 Other Benefits Payable. To the extent not theretofore paid or provided, the Company shall timely pay or provide (or cause to be paid or provided) to a Participant entitled to the Separation Benefits, any amounts or benefits required to be paid or provided to the Participant, or which the Participant is eligible to receive, under the General Retirement Plan for Employees of Carpenter Technology Corporation (the “GRP”), and the Separation Benefits shall be reduced, dollar for dollar (but not below zero), by any amounts received by the Participant pursuant to the GRP. Any other severance pay or pay in lieu of notice required to be paid to

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such Participant under applicable law or under any other severance pay plan or policy of the Company or any Employer, including, without limitation, under the Severance Pay Plan for Salaried Employees of Carpenter Technology Corporation (but excluding the GRP) shall be reduced, dollar for dollar (but not below zero), by the Separation Benefits. The Separation Benefits shall in no event affect a Participant’s eligibility for or entitlement to benefits under the GRP or any other qualified or nonqualifed retirement or pension benefit or welfare or fringe benefit plan, program, policy, practice, contract or agreement of the Company and its Affiliated Companies.

4.4 Certain Reduction of Payments by the Company.

(a) Reduction of Certain Payments. For purposes of this Section 4.4: (i) a “Payment” shall mean any payment or distribution in the nature of compensation to or for the benefit of the Participant, whether paid or payable pursuant to this Plan or otherwise; (ii) “Plan Payment” shall mean a Payment paid or payable pursuant to this Plan (disregarding this Section 4.4); (iii) “Present Value” shall mean such value determined in accordance with Sections 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code; and (iv) “Reduced Amount” shall mean an amount expressed in Present Value that maximizes the aggregate Present Value of Plan Payments without causing any Payment to be nondeductible by the Company or Employer because of Section 280G of the Code.

(b) Anything in this Plan to the contrary notwithstanding, in the event PricewaterhouseCoopers LLP or such other accounting firm retained by the Company to perform its annual audit (the “Accounting Firm”) shall determine that receipt of all Payments would subject the Participant to tax under Section 4999 of the Code, the aggregate Plan Payments shall be reduced (but not below zero) to meet the definition of Reduced Amount.

(c) If the Accounting Firm determines that aggregate Plan Payments should be reduced to the Reduced Amount, the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof, and the Participant may then elect, in his or her sole discretion, which and how much of the Plan Payments shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Plan Payments equals the Reduced Amount), and shall advise the Company in writing of his or her election within 30 days of his or her receipt of notice. If no such election is made by the Participant within such 30-day period, the Company may elect which of such Plan Payments shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Plan Payments equals the Reduced Amount) and shall notify the Participant promptly of such election. All determinations made by the Accounting Firm under this Section shall be binding upon the Company and the Participant and shall be made within 60 days of a termination of employment of the Participant. As promptly as practicable following such determination, the Company shall pay to or distribute for the benefit of the Participant such Plan Payments as are then due to the Participant under this Plan and shall promptly pay to or distribute for the benefit of the Participant in the future such Plan Payments as become due to the Participant under this Plan.

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(d) As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of the Participant pursuant to this Plan which should not have been so paid or distributed (“Overpayment”) or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of the Participant pursuant to this Plan could have been so paid or distributed (“Underpayment”), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against either the Company or the Participant which the Accounting Firm believes has a high probability of success determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of the Participant shall be treated for all purposes as a loan to the Participant which the Participant shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by the Participant to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which the Participant is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Accounting Firm, based upon controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Participant together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

(e) All fees and expenses of the Accounting Firm in implementing the provisions of this Section 4.4 shall be borne by the Company.

ARTICLE V

SUCCESSOR TO COMPANY

5.1 This Plan shall bind any successor of the Company, its assets or its businesses (whether direct or indirect, by purchase, merger, consolidation or otherwise), in the same manner and to the same extent that the Company would be obligated under this Plan if no succession had taken place.

5.2 In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by this Plan, the Company shall require such successor expressly and unconditionally to assume and agree to perform the Company’s obligations under this Plan, in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

ARTICLE VI

DURATION, AMENDMENT AND TERMINATION

6.1 Duration of Plan. If a Change of Control has not occurred and the Board does not have knowledge of an event that could reasonably be expected to constitute a Change of

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Control, this Plan may be terminated by resolution adopted by the Board; provided that the Participants are given written notice of such termination three years in advance of such termination. If a Change of Control occurs while this Plan is in effect, this Plan shall continue in full force and effect for at least two years following such Change of Control, and shall not terminate or expire until after all Participants who become entitled to any payments hereunder shall have received such payments in full.

6.2 Amendment or Termination. The Board may amend or terminate this Plan; provided, that this Plan may not be terminated or amended in a manner adverse to Participants prior to the third anniversary of the date on which notice of such amendment or termination is provided to the Participants or during the two-year period following a Change of Control.

6.3 Procedure for Extension, Amendment or Termination. Any extension, amendment or termination of this Plan by the Board in accordance with the foregoing shall be made by action of the Board in accordance with the Company’s charter and by-laws and applicable law.

ARTICLE VII

MISCELLANEOUS

7.1 Full Settlement. The Company’s obligation to make the payments provided for under this Plan and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against a Participant or others. In no event shall a Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Participant under any of the provisions of this Plan and such amounts shall not be reduced whether or not the Participant obtains other employment. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which a Participant may reasonably incur as a result of any contest by the Company, the Participant or others of the validity or enforceability of, or liability under, any provision of this Plan or any guarantee of performance thereof (including as a result of any contest by the Participant about the amount of any payment pursuant to this Plan), provided, that such reimbursement shall be made only if the Participant prevails on substantially all of the issues in connection with such dispute. Such reimbursement shall be made as soon as practicable following the resolution of such contest or dispute (whether or not appealed).

7.2 Employment Status. This Plan does not constitute a contract of employment or impose on the Participant or the Participant’s Employer any obligation for the Participant to remain an Employee or change the status of the Participant’s employment or the policies of the Company and its Subsidiaries regarding termination of employment. For purposes of this Plan, employment with any of the Company’s Subsidiaries or any parent corporation of the Company or any of its subsidiaries shall be treated as continued employment with the Company.

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7.3 Confidential Information. Each Participant shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its Affiliated Companies, and their respective businesses, which shall have been obtained by the Participant during the Participant’s employment by the Company or any of its Affiliated Companies and which shall not be or become public knowledge (other than by acts by the Participant or representatives of the Participant in violation of this Plan). After termination of a Participant’s employment with the Company, the Participant shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 7.3 constitute a basis for deferring or withholding any amounts otherwise payable under this Plan.

7.4 Named Fiduciary; Administration. The Company is the named fiduciary of the Plan, and shall administer the Plan, acting through the Pension Board of the GRP (the “Administrative Committee”).

7.5 Claim Procedure. If an Employee or former Employee makes a written request alleging a right to receive benefits under this Plan or alleging a right to receive an adjustment in benefits being paid under the Plan, the Company shall treat it as a claim for benefit. All claims for benefit under the Plan shall be sent to the Administrative Committee and must be received within 30 days after termination of employment. If the Company determines that any individual who has claimed a right to receive benefits, or different benefits, under the Plan is not entitled to receive all or any part of the benefits claimed, it will inform the claimant in writing of its determination and the reasons therefor in a manner calculated to be understood by the claimant. The notice will be sent within 60 days of the claim. The notice shall make specific reference to the reasons for denial and pertinent Plan provisions on which the denial is based, and describe any additional material or information necessary for the claim to succeed and a description of why it is necessary. Such notice shall, in addition, inform the claimant what procedure the claimant should follow to take advantage of the review procedures set forth below in the event the claimant desires to contest the denial of the claim. The claimant may within 90 days thereafter submit in writing to the Company a notice that the claimant contests the denial of his or her claim by the Company and desires a further review. The Administrative Committee shall within 60 days thereafter review the claim and authorize the claimant to appear personally and review pertinent documents and submit issues and comments relating to the claim to the persons responsible for making the determination on behalf of the Company. The Company will render its final decision with specific reasons therefor and in a manner calculated to be understood by the claimant, and will transmit it to the claimant within 60 days of the written request for review. If the Company fails to respond to a claim filed in accordance with the foregoing within 60 days, the Company shall be deemed to have denied the claim. This Section 7.5 shall not serve to prohibit any Participant from bringing an action in a court of competent jurisdiction to enforce his or her rights under the Plan after satisfaction of the foregoing procedures.

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7.6 Unfunded Plan Status. All payments pursuant to the Plan shall be made from the general funds of the Company and no special or separate fund shall be established or other segregation of assets made to assure payment. No Participant or other person shall have under any circumstances any interest in any particular property or assets of the Company as a result of participating in the Plan. Notwithstanding the foregoing, the Company may (but shall not be obligated to) create one or more grantor trusts, the assets of which are subject to the claims of the Company’s creditors, to assist it in accumulating funds to pay its obligations under the Plan.

7.7 Validity and Severability. The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision of the Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

7.8 Governing Law. The validity, interpretation, construction and performance of the Plan shall in all respects be governed by the laws of the State of Delaware without reference to principles of conflict of law, except to the extent pre-empted by Federal law.

7.9 Top-Hat Plan. For purposes of ERISA, the Plan is intended to constitute a “top-hat” plan, as described in Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA and the regulations promulgated thereunder.

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EX-10.L

Exhibit 10(L)

SPECIAL SEVERANCE AGREEMENT [3x]

AGREEMENT, dated as of the [    ] day of [            ], [            ] (this “Agreement”), by and between Carpenter Technology Corporation, a Delaware corporation (the “Company”), and [            ] (the “Executive”).

WHEREAS, the Board of Directors of the Company (the “Board”), has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined herein). The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive’s full attention and dedication to the current Company and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control that ensure that the compensation and benefits expectations of the Executive will be satisfied and that are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

Section 1. Certain Definitions. (a) “Effective Date” means the first date during the Change of Control Period (as defined herein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and if the Executive’s employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then “Effective Date” means the date immediately prior to the date of such termination of employment.

(b) “Change of Control Period” means the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that, commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof, the “Renewal Date”), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.

(c) “Affiliated Company” means any company controlled by, controlling or under common control with the Company.

(d) “Change of Control” means:

(1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then-outstanding shares of common

stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this Section 1(d), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company or (iv) any acquisition by any corporation pursuant to a transaction that complies with Sections 1(d)(3)(A), 1(d)(3)(B) and 1(d)(3)(C).

(2) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.

(3) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of the assets or stock of another entity (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

(4) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

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Section 2. Employment Period. The Company hereby agrees to continue the Executive in its employ, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the “Employment Period”). The Employment Period shall terminate upon the Executive’s termination of employment for any reason.

Section 3. Terms of Employment. (a) Position and Duties. (1) During the Employment Period, (A) the Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the office where the Executive was employed immediately preceding the Effective Date or at any other location less than 35 miles from such office.

(2) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.

(b) Compensation. (1) Base Salary. During the Employment Period, the Executive shall receive an annual base salary (the “Annual Base Salary”) at an annual rate at least equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to the Executive by the Company and the Affiliated Companies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. The Annual Base Salary shall be paid at such intervals as the Company pays executive salaries generally. During the Employment Period, the Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. The Annual Base Salary shall not be reduced after any such increase and the term “Annual Base Salary” shall refer to the Annual Base Salary as so increased.

(2) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual Bonus”) in cash at least equal to the Annual Target Bonus, where the “Annual Target Bonus” is an amount equal to the Annual Base Salary times the Executive Annual Compensation

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Plan Total Target Percentage (as most recently approved by the Company’s Board of Directors or Human Resources Committee for the year in which the Effective Date occurs), or any comparable bonus under any predecessor or successor plan. Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus.

(3) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all cash incentive, equity incentive, savings and retirement plans, practices, policies, and programs applicable generally to other peer executives of the Company and the Affiliated Companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and the Affiliated Companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the Affiliated Companies.

(4) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and the Affiliated Companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and the Affiliated Companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits that are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the Affiliated Companies.

(5) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and the Affiliated Companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies.

(6) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and the Affiliated Companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies.

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(7) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and the Affiliated Companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies.

(8) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and the Affiliated Companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies.

Section 4. Termination of Employment. (a) Death or Disability. The Executive’s employment shall terminate automatically if the Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of the Executive has occurred during the Employment Period (pursuant to the definition of “Disability”), it may give to the Executive written notice in accordance with Section 11(b) of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. “Disability” means the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative.

(b) Cause. The Company may terminate the Executive’s employment during the Employment Period for Cause. “Cause” means:

(1) the willful and continued failure of the Executive to perform substantially the Executive’s duties (as contemplated by Section 3(a)(1)(A)) with the Company or any Affiliated Company (other than any such failure resulting from incapacity due to physical or mental illness or following the Executive’s delivery of a Notice of Termination for Good Reason), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company that specifically identifies the manner in which the Board or the Chief Executive Officer of the Company believes that the Executive has not substantially performed the Executive’s duties, or

(2) the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company.

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For purposes of this Section 4(b), no act, or failure to act, on the part of the Executive shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer of the Company or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board (excluding the Executive, if the Executive is a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel for the Executive, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in Section 4(b)(1) or 4(b)(2), and specifying the particulars thereof in detail.

(c) Good Reason. The Executive’s employment may be terminated by the Executive for Good Reason or by the Executive voluntarily without Good Reason. “Good Reason” means:

(1) the assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a), or any other diminution in such position, authority, duties or responsibilities (whether or not occurring solely as a result of the Company’s ceasing to be a publicly traded entity), excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(2) any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(3) the Company’s requiring the Executive (i) to be based at any office or location other than as provided in Section 3(a)(1)(B), (ii) to be based at a location other than the principal executive offices of the Company if the Executive was employed at such location immediately preceding the Effective Date, or (iii) to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;

(4) any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

(5) any failure by the Company to comply with and satisfy Section 10(c).

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For purposes of this Section 4(c), any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason pursuant to a Notice of Termination given during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. The Executive’s mental or physical incapacity following the occurrence of an event described above in clauses (1) through (5) shall not affect the Executive’s ability to terminate employment for Good Reason.

(d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). “Notice of Termination” means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s respective rights hereunder.

(e) Date of Termination. “Date of Termination” means (1) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Notice of Termination, (which date shall not be more than 30 days after the giving of such notice), as the case may be, (2) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (3) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.

Section 5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company terminates the Executive’s employment other than for Cause or Disability or the Executive terminates employment for Good Reason:

(1) The Company shall pay to the Executive, in a lump sum in cash within 10 days after the Date of Termination, the aggregate of the following amounts:

(A) the sum of (i) the Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid, (ii) the Annual Target Bonus times a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination and the denominator of which is 365, and (iii) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case, to the extent not theretofore paid (the sum of the amounts described in subclauses (i), (ii) and (iii), the “Accrued Obligations”);

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(B) the amount equal to three times the sum of (x) the Executive’s Annual Base Salary and (y) the Annual Target Bonus, reduced by any lump sum severance amount payable to the Executive pursuant to the General Retirement Plan for Employees of Carpenter Technology Corporation or any successor thereto (the “GRP”); and

(C) an amount equal to the excess of (i) the actuarial equivalent of the benefit under the Company’s qualified defined benefit retirement plan (the “Retirement Plan”) (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the Effective Date), any excess plan, and any supplemental retirement plan in which the Executive participates (collectively, the “SERP”) that the Executive would receive if the Executive’s employment continued for three years after the Date of Termination, assuming for this purpose that all accrued benefits are fully vested and assuming that the Executive’s compensation in each of the three years is that required by Sections 3(b)(1) and 3(b)(2), over (ii) the actuarial equivalent of the Executive’s actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination.

(2) For three years after the Executive’s Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive’s family at least equal to those that would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(4) or 3(b)(6) (including, without limitation, tax and financial planning services to the extent the Executive was entitled to such services under Section 3(b)(6)) if the Executive’s employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies and their families, provided, however, that, if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree medical and life insurance benefits, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period.

(3) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or that the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the Affiliated Companies (such other amounts and benefits, the “Other Benefits”).

8

(4) The Company shall at its sole expense provide the Executive with reasonable outplacement services, at a cost not to exceed $20,000, during the one-year period following the Executive’s Date of Termination. The Executive shall not, however, be entitled to any payment in lieu of accepting outplacement assistance services.

(b) Death. If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, the Company shall provide the Executive’s estate or beneficiaries with the Accrued Obligations and the timely payment or delivery of the Other Benefits, and shall have no other severance obligations under this Agreement. The Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 10 days of the Date of Termination. With respect to the provision of the Other Benefits, the term “Other Benefits” as utilized in this Section 5(b) shall include, without limitation, and the Executive’s estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and the Affiliated Companies to the estates and beneficiaries of peer executives of the Company and the Affiliated Companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive’s estate and/or the Executive’s beneficiaries, as in effect on the date of the Executive’s death with respect to other peer executives of the Company and the Affiliated Companies and their beneficiaries.

(c) Disability. If the Executive’s employment is terminated by reason of the Executive’s Disability during the Employment Period, the Company shall provide the Executive with the Accrued Obligations and the timely payment or delivery of the Other Benefits, and shall have no other severance obligations under this Agreement. The Accrued Obligations shall be paid to the Executive in a lump sum in cash within 10 days of the Date of Termination. With respect to the provision of the Other Benefits, the term “Other Benefits” as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and the Affiliated Companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive’s family, as in effect at any time thereafter generally with respect to other peer executives of the Company and the Affiliated Companies and their families.

(d) Cause; Other Than for Good Reason. If the Executive’s employment is terminated for Cause during the Employment Period, the Company shall provide to the Executive (1) the Executive’s Annual Base Salary through the Date of Termination, (2) the amount of any compensation previously deferred by the Executive, and (3) the Other Benefits, in each case, to the extent theretofore unpaid, and shall have no other severance obligations under this Agreement. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, the Company shall provide to the Executive the Accrued Obligations and the timely payment or delivery of the Other Benefits, and shall have no other severance obligations under this Agreement. In such case, all the Accrued Obligations shall be paid to the Executive in a lump sum in cash within 10 days of the Date of Termination.

9

Section 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or the Affiliated Companies and for which the Executive may qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement with the Company or the Affiliated Companies. Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or the Affiliated Companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement. Notwithstanding the foregoing, if the Executive receives payments and benefits pursuant to Section 5(a) of this Agreement, the Executive shall not be entitled to other severance pay or benefits under any severance plan, program or policy of the Company and the Affiliated Companies, unless otherwise specifically provided therein by an explicit reference to this Agreement, or provided under the GRP.

Section 7. Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment except as set forth in Section 5(a)(2). The Company agrees to pay as incurred (within 10 days following the Company’s receipt of an invoice from the Executive), to the full extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus, in each case, interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the “Code”).

Section 8. Certain Additional Payments by the Company.

(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any Payment would be subject to the Excise Tax, then the Executive shall be entitled to receive an additional payment (the “Gross-Up Payment”) in an amount such that, after payment by the Executive of all taxes (and any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. The Company’s obligation to make Gross-Up Payments under this Section 8 shall not be conditioned upon the Executive’s termination of employment.

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(b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by PricewaterhouseCoopers LLP, or such other nationally recognized certified public accounting firm as may be designated by the Executive (the “Accounting Firm”). The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within 5 days of the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the “Underpayment”), consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable, but no later than 30 business days after the Executive is informed in writing of such claim. The Executive shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall:

(1) give the Company any information reasonably requested by the Company relating to such claim,

(2) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

(3) cooperate with the Company in good faith in order effectively to contest such claim, and

11

(4) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole discretion, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties) imposed with respect to such advance or with respect to any imputed income in connection with such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

(e) Notwithstanding any other provision of this Section 8, the Company may, in its sole discretion, withhold and pay over to the Internal Revenue Service or any other applicable taxing authority, for the benefit of the Executive, all or any portion of the Gross-Up Payment, and the Executive hereby consents to such withholding.

(f) Definitions. The following terms shall have the following meanings for purposes of this Section 8.

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(i) “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.

(ii) A “Payment” shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise.

Section 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or the Affiliated Companies, and their respective businesses, which information, knowledge or data shall have been obtained by the Executive during the Executive’s employment by the Company or the Affiliated Companies and which information, knowledge or data shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive’s employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those persons designated by the Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.

Section 10. Successors. (a) This Agreement is personal to the Executive, and, without the prior written consent of the Company, shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. Except as provided in Section 10(c), without the prior written consent of the Executive this Agreement shall not be assignable by the Company.

(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. “Company” means the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise.

Section 11. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

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(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

if to the Executive:

to the last address listed for the Executive in the Company’s books and records.

if to the Company:

Carpenter Technology Corporation

P. O. Box 14662

Reading, PA 19612-4662

Attention: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d) The Company may withhold from any amounts payable under this Agreement such United States federal, state or local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e) The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is “at will” and, subject to Section 1(a), prior to the Effective Date, the Executive’s employment may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, except as specifically provided herein, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.

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IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

EXECUTIVE

[Name of Executive]

CARPENTER TECHNOLOGY CORPORATION

By

Name:

Title:

15

EX-10.M

Exhibit 10(M)

EARNINGS ADJUSTMENT PLAN OF

CARPENTER TECHNOLOGY CORPORATION

Effective January 1, 1989

Restated December 9, 1993

INTRODUCTION

This Earnings Adjustment Plan has been authorized by the Board of Directors of Carpenter Technology Corporation to pay supplemental benefits to certain benefit recipients for the purpose of restoring benefits which such recipients would have been entitled to receive under the General Retirement Plan, but which are precluded by the provisions of section 401(a)(17) of the Code.

Article 1 - Definitions

1.1 "Benefits" shall mean the supplemental benefits payable pursuant to the Plan.

1.2 "Code" means the Internal Revenue Code of 1986, and the regulations thereunder, as amended.

1.3 "Company" shall mean Carpenter Technology Corporation.

1.4 "Earnings" shall mean "earnings" as determined under the General Retirement Plan disregarding any limitation imposed by section 401(a)(17) of the Code. The removal of this limitation is not intended to restore any deferred earnings otherwise excluded from the General Retirement Plan definition of earnings.

1.5 "Employee" shall mean "employee" as determined under the General Retirement Plan.

1.6 "General Retirement Plan" shall mean the Corporation's "General Retirement Plan for Employees of Carpenter Technology Corporation" as in effect on the last date of a Participant's employment with the Corporation as a participant under the General Retirement Plan.

1.7 "Participant" shall mean any person included in participation in the Plan as provided in Article 2.

1.8 "Pension Board" shall mean the Pension Board as defined in the General Retirement Plan.

1.9 "Plan" shall mean the Earnings Adjustment Plan of Carpenter Technology Corporation, as described herein.

Article 2 - Participation

2.1 Every person who, as of January 1, 1989, is a Participant in the General Retirement Plan shall become a Participant as of such date. Each other person shall become a Participant upon commencement of participation in the General Retirement Plan.

2.2 An Employee's participation in the Plan shall terminate upon termination of employment with the Company unless at that time the Participant is entitled to an immediate or deferred pension pursuant to the General Retirement Plan.

Article 3 - Amount and Payment of Benefits

3.1 Benefits shall be payable by the Company coincident with, and to the same Participant or Participants, as shall, in the opinion of the Pension Board, be entitled to receive pension, co-pension, Pre-Pension Spouse, and/or Surviving Spouse benefits under the General Retirement Plan. Any such Benefits shall be payable from the general assets of the Company. The Benefits under the Plan shall be payable in the same manner as the benefits payable to a Participant or Participants under the General Retirement Plan.

3.2 The Benefits payable to or on account of a Participant or Participants pursuant to this Plan shall, before any modification necessary to conform to the provisions of Section 3.1, be equal to the benefits which would have been paid under the General Retirement Plan but calculated using Earnings as defined in Section 1.4 herein to modify the definition of "earnings" contained in the General Retirement Plan, minus the benefits actually payable to the Participant or Participants under the General Retirement Plan. The calculation of both benefits described in this paragraph shall be modified by disregarding any reduction in the amount of benefits under the General Retirement Plan attributable to any provision therein incorporating limitations imposed by section 415 of the Code.

Article 4 - Administration and Claims

4.1 The administration of the Plan, the exclusive power to interpret it, and the responsibility for carrying out its provisions are vested in the Pension Board. All expenses of administering the Plan shall be paid by the Company.

4.2 The claims procedures established under the General Retirement Plan shall be utilized herein.

Article 5 - General Provisions

5.1 The establishment of the Plan shall not be construed as conferring any legal rights upon any person for a continuation of employment, nor shall it interfere with the rights of the Company

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to discharge any person and to treat him without regard to the effect which such treatment might have upon such person as a Participant in the Plan.

5.2 Subject to any applicable law, no Benefits under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void, nor shall any such Benefits be in any manner liable for or subject to garnishment, attachment, execution or levy, or liable for or subject to the debts, contracts, liabilities, engagements or torts of the Participant.

5.3 The Plan shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania.

5.4 Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust or a fiduciary relationship of any kind between the Company and any person. Neither an Employee nor any other person shall acquire any interest greater than that of an unsecured creditor.

Article 6 - Amendment or Termination

6.1 The Board of Directors of the Company reserves the right to modify or to amend, in whole or in part, or to terminate, the Plan and any Benefits payable thereunder at any time.

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EX-10.N

Exhibit 10(N)

BENEFIT EQUALIZATION PLAN OF

CARPENTER TECHNOLOGY CORPORATION

Effective January 1, 1983

Restated December 9, 1993

INTRODUCTION

This Benefit Equalization Plan has been authorized by the Board of Directors of Carpenter Technology Corporation to pay supplemental benefits to certain benefit recipients for the purpose of restoring benefits which such recipients would have been entitled to receive under the General Retirement Plan, but which are precluded by the provisions of section 415 of the Code.

Article 1 - Definitions

1.1 “Benefits” shall mean the supplemental benefits payable pursuant to the Plan.

1.2 “Code” means the Internal Revenue Code of 1986, and the regulations thereunder, as amended.

1.3 “Company” shall mean Carpenter Technology Corporation.

1.4 “Employee” shall mean “employee” as determined under the General Retirement Plan.

1.5 “General Retirement Plan” shall mean the Corporation’s “General Retirement Plan for Employees of Carpenter Technology Corporation” as in effect on the last date of a Participant’s employment with the Corporation as a participant under the General Retirement Plan.

1.6 “Participant” shall mean any person included in participation in the Plan as provided in Article 2.

1.7 “Pension Board” shall mean the Pension Board as defined in the General Retirement Plan.

1.8 “Plan” shall mean the Benefit Equalization Plan of Carpenter Technology Corporation, as described herein.

Article 2 - Participation

2.1 Every person who, as of January 1, 1983, is a Participant in the General Retirement Plan shall become a Participant as of such date. Each other person shall become a Participant upon commencement of participation in the General Retirement Plan.

2.2 An Employee’s participation in the Plan shall terminate upon termination of employment with the Company unless at that time the Participant is entitled to an immediate or deferred pension pursuant to the General Retirement Plan.

Article 3 - Amount and Payment of Benefits

3.1 Benefits shall be payable by the Company coincident with, and to the same Participant or Participants, as shall, in the opinion of the Pension Board, be entitled to receive pension, co-pension, Pre-Pension Spouse, and/or Surviving Spouse benefits under the General Retirement Plan. Any such Benefits shall be payable from the general assets of the Company. The Benefits under the Plan shall be payable in the same manner as the benefits payable to a Participant or Participants under the General Retirement Plan.

3.2 The Benefits payable to or on account of a Participant or Participants pursuant to this Plan shall, before any modification necessary to conform to the provisions of Section 3.1, be equal to the benefits which would have been paid under the General Retirement Plan disregarding any reduction in the amount of benefits under the General Retirement Plan attributable to any provision therein incorporating limitations imposed by section 415 of the Code, minus the benefits actually payable to the Participant or Participants under the General Retirement Plan.

Article 4 - Administration and Claims

4.1 The administration of the Plan, the exclusive power to interpret it, and the responsibility for carrying out its provisions are vested in the Pension Board. All expenses of administering the Plan shall be paid by the Company.

4.2 The claims procedures established under the General Retirement Plan shall be utilized herein.

Article 5 - General Provisions

5.1 The establishment of the Plan shall not be construed as conferring any legal rights upon any person for a continuation of employment, nor shall it interfere with the rights of the Company to discharge any person and to treat him without regard to the effect which such treatment might have upon such person as a Participant in the Plan.

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5.2 Subject to any applicable law, no Benefits under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void, nor shall any such Benefits be in any manner liable for or subject to garnishment, attachment, execution or levy, or liable for or subject to the debts, contracts, liabilities, engagements or torts of the Participant.

5.3 The Plan shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania.

5.4 Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust or a fiduciary relationship of any kind between the Company and any person. Neither an Employee nor any other person shall acquire any interest greater than that of an unsecured creditor.

Article 6 - Amendment or Termination

6.1 The Board of Directors of the Company reserves the right to modify or to amend, in whole or in part, or to terminate, the Plan and any Benefits payable thereunder at any time.

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EX-12

Exhibit 12

Carpenter Technology Corporation

Computations of Ratios of Earnings to Fixed Charges — unaudited

Five years ended June 30, 2006

(dollars in millions)

	2006			2005			2004			2003			2002
Fixed charges:
Interest costs(a)	$	23.6		$	23.1		$	23.8		$	31.1		$	34.9
Interest component of non-capitalized lease rental expense(b)		1.8			2.6			2.7			3.8			4.0
Total fixed charges	$	25.4		$	25.7		$	26.5		$	34.9		$	38.9
Earnings as defined:
Income (loss) before income taxes and cumulative effect of accounting change	$	309.1		$	190.0		$	49.7		$	(22.9	)	$	(13.3	)
Less income from less-than-fifty- percent-owned entities, and add loss on sale of partial interest in less-than-fifty-percent owned entities		(1.6	)		(0.9	)		(1.0	)		(0.6	)		(0.4	)
Fixed charges less interest capitalized		25.1			25.6			26.4			34.8			38.6
Amortization of capitalized interest		2.5			2.5			2.5			2.6			2.6
Earnings as defined	$	335.1		$	217.2		$	77.6		$	13.9		$	27.5
Ratio of earnings to fixed charges		13.2x			8.5x			2.9x			0.4x			0.7x

^(a) Includes interest capitalized relating to significant construction projects, and amortization of debt discount and debt issue costs.

^(b) One-third of rental expense which approximates the interest component of non-capitalized leases.

EX-21

Exhibit 21

SUBSIDIARY LIST

Doing Business As	State of Incorporation
Carpenter Investments, Inc.	Delaware
CRS Holdings, Inc.	Delaware
CRS Investments, Inc.	Delaware
Dynamet Incorporated	Delaware
Talley Industries, Inc.	Delaware

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 and S-3 (File Nos. 2-83780, 2-81019, 2-60469, 33-42536, 33-65077, 33-54045, 333-40991, 333-43017, 333-55667, 333-55669 and 333-57774) of Carpenter Technology Corporation of our report dated August 25, 2006, relating to the financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

August 25, 2006

EX-24

Exhibit 24

CARPENTER TECHNOLOGY CORPORATION

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his capacity as a Director of Carpenter Technology Corporation, does hereby appoint M. David Kornblatt and David A. Christiansen or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 2006, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the exercise of any of the rights and powers herein granted, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys.

IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 24^th day of August, 2006.

/s/ Carl G. Anderson, Jr.

Carl G. Anderson, Jr.

Director

CARPENTER TECHNOLOGY CORPORATION

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his capacity as a Director of Carpenter Technology Corporation, does hereby appoint M. David Kornblatt and David A. Christiansen or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 2006, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the exercise of any of the rights and powers herein granted, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys.

IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 24^th day of August, 2006.

/s/ J. Michael Fitzpatrick

J. Michael Fitzpatrick

Director

CARPENTER TECHNOLOGY CORPORATION

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his capacity as a Director of Carpenter Technology Corporation, does hereby appoint M. David Kornblatt and David A. Christiansen or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 2006, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the exercise of any of the rights and powers herein granted, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys.

IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 24^th day of August, 2006.

/s/ Marillyn A. Hewson

Marillyn A. Hewson

Director

CARPENTER TECHNOLOGY CORPORATION

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his capacity as a Director of Carpenter Technology Corporation, does hereby appoint M. David Kornblatt and David A. Christiansen or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form l0-K, for the year ended June 30, 2006, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the exercise of any of the rights and powers herein granted, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys.

IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 24^th day of August, 2006.

/s/ I. Martin Inglis

I. Martin Inglis

Director

CARPENTER TECHNOLOGY CORPORATION

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his capacity as a Director of Carpenter Technology Corporation, does hereby appoint M. David Kornblatt and David A. Christiansen or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 2006, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the exercise of any of the rights and powers herein granted, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys.

IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 24^th day of August, 2006.

/s/ Gregory A. Pratt

Gregory A. Pratt

Director

CARPENTER TECHNOLOGY CORPORATION

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his capacity as a Director of Carpenter Technology Corporation, does hereby appoint M. David Kornblatt and David A. Christiansen or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 2006, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the exercise of any of the rights and powers herein granted, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys.

IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 24^th day of August, 2006.

/s/ Peter N. Stephans

Peter N. Stephans

Director

CARPENTER TECHNOLOGY CORPORATION

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his capacity as a Director of Carpenter Technology Corporation, does hereby appoint M. David Kornblatt and David A. Christiansen or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 2006, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the exercise of any of the rights and powers herein granted, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys.

IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 24^th day of August, 2006.

/s/ Kathryn C. Turner

Kathryn C. Turner

Director

CARPENTER TECHNOLOGY CORPORATION

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his capacity as a Director of Carpenter Technology Corporation, does hereby appoint M. David Kornblatt and David A. Christiansen or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 2006, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the exercise of any of the rights and powers herein granted, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys.

IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 24^th day of August, 2006.

/s/ Jeffrey Wadsworth

Jeffrey Wadsworth

Director

CARPENTER TECHNOLOGY CORPORATION

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his capacity as a Director of Carpenter Technology Corporation, does hereby appoint M. David Kornblatt and David A. Christiansen or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 2006, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the exercise of any of the rights and powers herein granted, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys.

IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 24^th day of August, 2006.

/s/ Stephen M. Ward, Jr.

Stephen M. Ward, Jr.

Director

CARPENTER TECHNOLOGY CORPORATION

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his capacity as a Director of Carpenter Technology Corporation, does hereby appoint M. David Kornblatt and David A. Christiansen or either of them his true and lawful attorneys to execute in his name, place and stead, in his capacity as Director of said Company, the Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K, for the year ended June 30, 2006, of said Company, and any and all amendments to said Annual Report and all instruments necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission. Said attorneys shall individually have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever requisite or desirable to be done in the exercise of any of the rights and powers herein granted, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys.

IN TESTIMONY WHEREOF, the undersigned has executed this instrument this 24^th day of August, 2006.

/s/ Robert J. Torcolini

Robert J. Torcolini

Director

EX-31.A

Exhibit 31.A

CERTIFICATIONS OF PERIODIC REPORTS PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert J. Torcolini, Chairman, President and Chief Executive Officer of Carpenter Technology Corporation (the “Registrant”), certify that:

1. I have reviewed this Annual Report on Form 10-K (the “Report”) of the Registrant;

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

(d) Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated: August 29, 2006	/s/ Robert J. Torcolini
	Robert J. Torcolini, Chairman, President and Chief Executive Officer

EX-31.B

Exhibit 31.B

CERTIFICATIONS OF PERIODIC REPORTS PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, M. David Kornblatt, Senior Vice President - Finance & Chief Financial Officer of Carpenter Technology Corporation (the “Registrant”), certify that:

1. I have reviewed this Annual Report on Form 10-K (the “Report”) of the Registrant;

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

(d) Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated: August 29, 2006	/s/ M. David Kornblatt
	M. David Kornblatt, Senior Vice President -
	Finance & Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION OF PERIODIC FINANCIAL REPORTS PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the 10-K Report of Carpenter Technology Corporation (the “Issuer”) on Form 10-K for the year ended June 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Periodic Report”), I, Robert J. Torcolini, Chairman, President and Chief Executive Officer of the Issuer, and I, M. David Kornblatt, Senior Vice President-Finance and Chief Financial Officer of the Issuer, each hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Periodic Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and that information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Date: August 29, 2006

/s/ Robert J. Torcolini	/s/ M. David Kornblatt
Robert J. Torcolini	M. David Kornblatt
Chairman, President and	Senior Vice President-Finance
Chief Executive Officer	and Chief Financial Officer

EX-99

Exhibit 99

AGREEMENT TO FURNISH DEBT INSTRUMENTS

Pursuant to Instruction 3(b)(4)(iii) to Item 601 of Regulation S-K, Carpenter has not included as an Exhibit any instrument with respect to long-term debt if the total amount of debt authorized by such instrument does not exceed 10% of the total assets of Carpenter. Carpenter agrees, pursuant to this Instruction, to furnish a copy of any such instrument to the Securities and Exchange Commission upon request of the Commission.

CARPENTER TECHNOLOGY CORPORATION
By:	/s/ David A. Christiansen
	David A. Christiansen
	Vice President,
	General Counsel and Secretary