November 29, 1999

Mr. Jonathan G. Katz
U. S. Securities and Exchange Commission
450 Fifth Street N. W.
Washington, D.C. 20549-0609

Re: File No. S7-22-99; Release No.34-41987
Audit Committee Disclosure

Dear Mr. Katz:

Carpenter Technology Corporation ("Carpenter"), a New York Stock Exchange listed company, is a leading manufacturer and distributor of stainless steels, titanium and other specialty alloys and various engineered products. The Company employs approximately 5,800 people worldwide and in fiscal year 1999 (ended June 30, 1999) had sales in excess of $1 billion.

Carpenter is pleased to provide you with comments on your proposed rules to implement the Recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees. We agree with the general thrust and intent of the Recommendations and your proposed rules. We commend the Blue Ribbon Committee and the Commission for the thoughtful analysis of means to strengthen the audit committee's oversight of corporate financial reporting. Indeed, our current governance structure needs only minimal changes to comply with the new NYSE audit committee requirements. However, we do have some concerns with your proposals.

Pre-Filing Review of Quarterly Financial Statements

Many companies, including Carpenter, currently have independent auditors review the quarterly financials. These reviews are normally conducted without a formal or written report. We agree with the Commission's proposal to require reviews of interim financial statements by independent public accountants prior to filing of the Form 10-Q. This is now required by the major accounting firms and has been Carpenter's practice for many years. We believe that this requirement should apply to all public companies and to all interim financial statements, whether in the Form 10-Q or in 1933 Securities Act filings. Furthermore, we believe that the reviews should be completed prior to the quarterly
earnings press release in order to avoid the detection of material misstatement after earnings are announced to the public. Moreover, we believe that the SEC should require that companies disclose that independent auditors have reviewed the quarterly financial statements. This disclosure would be meaningful to investors, even though the review would be required by the SEC. The Commission's current rules, however, discourage such a disclosure. If a company discloses in its filings that a review has been performed, the rules require the company to file a copy of the auditors' report.

While we agree that the independent auditors should review the interim financial statements, we do not believe that the Commission should require the filing of a written report. A requirement to file a report on the independent auditors' review, as suggested by the Release, would add cost and time to the review process without a concomitant benefit. We are concerned that such a requirement could delay the filing of the Form 10-Q. Further, a report of the auditors' review could be misinterpreted by an unsophisticated reader to mean that an audit was performed. We urge the Commission to eliminate the requirement to file the report if this disclosure is made. This is particularly troubling in light of the Commission's proposal to shorten the time period within which to file the Form 10-Q (down from 45 to 30 days after the end of the quarter). A "working meeting" of management and outside auditors to review the financials, without concerns of having to file a report (and the attendant liabilities), would do more to strengthen financial reporting. We recommend that a report be mandated only in the event of a material disagreement between the independent auditors and management. Even if the independent auditors prepared a report of their review, there may be legitimate reasons why a company would not want to file the report.

Audit Committee Report and Charter

This proposal requires that the audit committee provide a report in the proxy statement concerning its review and discussion of the audited financial statements and the outside auditors' independence. In addition, the audit committee must state whether, based on its review and discussions, anything has come to its attention to cause it to believe that the audited financials contain an untrue statement of material fact or omit to state a material fact necessary to make the financials not misleading. These two disclosures concerning material misstatements or omissions and a review of the financials could result in liability if an immaterial matter matures into a material matter at a later date.

We offer an adaptation of a Blue Ribbon Committee Recommendation as an alternative to proposed paragraph (a) (4). Perhaps a representation by the audit committee that, "to the best of its belief, it has satisfied, in all material respects, its responsibilities according to its charter," would satisfy the Commission's goal without unjustified liability exposure of the audit committee.

The Commission requests comments as to whether it should require more complete disclosure about the activities of the audit committee, such as: the significant accounting issues it considered and/or discussed with management and the independent auditors; conclusions reached concerning the significant issues; and the basis for the committee's belief about the financial statements. Such disclosures would be, or would be dangerously close to, disclosing the substance of the deliberations of the of the audit committee. We believe the suggested disclosures would have a chilling effect on audit committee activities. Because of concerns over increased liability, audit committees may avoid, rather than tackle, tough accounting issues if more complete disclosure is required.

We question the need for a report from the audit committee, particularly if the charter (or a summary of the charter) and the representation that we suggest are included in the proxy statement. Indeed, the additional space, verbiage and cost associated with expanding the proxy statement could have the negative effect of rendering the proxy statement less readable, notwithstanding any plain English requirements. In any event, it would be an unnecessary duplication of time, effort and money to also include this disclosure in the annual report on Form 10-K and the annual report to shareholders.

A plain English summary of the charter's material terms would more effectively communicate the audit committee's role than a presentation of the text of the charter. Most investors undoubtedly have only an interest in the material terms of the audit committee charter. Furthermore, a requirement to include the entire text may have the undesired effect of encouraging skimpy, vague committee charters.

In summary, we recommend that only a plain English summary of the audit committee charter be included annually in one disclosure document, as well as, a general statement that the audit committee has satisfied its material charter requirements.

Thank you for your consideration.


Vice President, General Counsel
and Secretary