(Mark One)

(Exact name of Registrant as specified in its Charter)

(Registrant's telephone number, including area code)

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 such filing requirements for the past 90 days.

Yes  X  No    

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of October 31, 1999.

The Exhibit Index appears on page E-1.  

See accompanying notes to consolidated financial statements.

(in millions, except per share data)

See accompanying notes to consolidated financial statements.

(in millions)

See accompanying notes to consolidated financial statements.

(in millions)

See accompanying notes to consolidated financial statements.

(Unaudited)

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation have been included. Operating results for the three months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending June 30, 2000. The June 30, 1999 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in Carpenter's 1999 Annual Report on Form 10-K.

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.

Certain reclassifications of prior year's amounts have been made to conform with the current year's presentation. These reclassifications did not affect reported net income.

The calculations of earnings per share for the periods ended September 30, 1999 and 1998 are as follows:

The current cost of LIFO-valued inventories was $316.1 million at September 30, 1999 and $294.9 million at June 30, 1999.

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

On January 15, 1999, the Bridgeport, Connecticut, Port Authority issued a Notice of Condemnation for the taking of Carpenter's former plant site in that city. On August 6, 1999, the Port Authority filed a Certificate of Taking, acquiring fee simple ownership of the property. The proposed compensation for the site is $2.5 million and the Port Authority has stated its intention to seek reimbursement of any additional site remediation costs. The carrying value for the site on Carpenter's books is approximately $14 million and is based upon an appraisal and arms-length negotiated selling prices with interested parties. Carpenter has begun legal proceedings in court to obtain a fair value for the property and requested a permanent injunction barring condemnation or, in the alternative, a declaratory judgment absolving Carpenter from any remediation costs caused by the Port Authority's development efforts. While the ultimate outcome of these proceedings is undeterminable, in the opinion of management the Port Authority's proposed compensation and remediation reimbursement are unreasonable and will not be upheld and accordingly, no provision has been made for an impairment in carrying value.

Carpenter is also defending various claims and legal actions, and is subject to commitments and contingencies which are common to its operations. Carpenter 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, in the opinion of management, any total ultimate liability will not have a material effect on Carpenter's financial position, results of operations or cash flows.

Statement of Financial Accounting Standards (SFAS) 131, "Disclosures about Segments of an Enterprise and Related Information," requires companies to disclose segment information on the same basis as that used internally by executive management to evaluate segment performance. Carpenter is organized on a product basis and managed in three segments: Specialty Alloys, Titanium Alloys and Engineered Products. For the following segment reporting, the Specialty Alloys and Titanium Alloys (Dynamet) segments have been aggregated into one reportable segment (Specialty Metals) because of the similarities in products, processes, customers and distribution methods.

Specialty Metals includes the manufacture and distribution of stainless, titanium, high temperature, electronic, tool and other alloys in bar, wire, rod, and strip forms. Sales are distributed both directly from producing plants and from a Carpenter operated distribution network.

Engineered Products includes structural ceramic products, ceramic cores for the casting industry, metal-injection molded products, tubular metal products for nuclear and aerospace applications, custom shaped bar and ultra hard wear materials.

Effective July 1, 1999, management changed the basis for measuring the business segments' profits to exclude the costs of all corporate functions and the pension credit from the Specialty Metals segment, to transfer the Mexican operations from the Engineered Products segment to the Specialty Metals segment, to allocate certain corporate costs to the business segments, and to show separately both the unallocated corporate costs and the pension credit. All segment data for the quarter ended September 30, 1998, have been restated to reflect the current segment reporting structure.

Carpenter evaluates segment performance based upon income before interest and income taxes (EBIT) and return on assets after the allocation of certain corporate costs. Sales between the segments are generally made at market-related prices.

The pension credit represents the income relating to Carpenter's overfunded defined benefit pension plans. None of the pension credit is allocated to the business segments. The corporate costs primarily represent the unallocated portion of the operating costs of the Finance, Information Services, Law and Human Resource Departments and Corporate management staff. Corporate assets are primarily cash and cash equivalents, prepaid pension cost, certain assets held for sale, corporate-owned life insurance, and corporate operating assets.

Carpenter's sales are not materially dependent on a single customer or small group of customers.

During the third quarter of fiscal 1999, Carpenter recorded a pre-tax charge of $14.2 million ($8.5 million after-tax or $.37 per diluted share) related to a salaried work force reduction and a reconfiguration of its U.S. distribution network. The positions being eliminated included various salaried positions throughout the Specialty Alloys Operations and corporate offices. The charge consisted chiefly of various personnel-related costs for about 210 employees to cover severance payments, enhanced pension benefits, medical coverage and related items. Approximately $13.0 million of the charge will be paid from pension funds and, accordingly, this portion of the special charge reduced the prepaid pension cost account on the balance sheet. Through September 30, 1999, there was a reduction of approximately 160 employees. The remaining employees are expected to depart during fiscal 2000.

The Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which will be effective for Carpenter's fiscal year 2001. This standard requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in fair value of derivatives will be recorded each period in current earnings or comprehensive income. Carpenter anticipates that, due to its limited use of derivative instruments, the adoption of SFAS No. 133 will not have a significant effect on Carpenter's future results of operations or financial position. 

Net income for the quarter ended September 30, 1999, was $10.2 million compared to $12.2 million for the same quarter a year ago. Diluted earnings per share were $.44 per share compared to $.51 per share for the year-earlier quarter. The lower earnings were primarily the result of a 5 percent reduction in net sales.

Net sales were $238.6 million compared to $250.3 million for last year's first quarter. This decline was primarily the result of a 7 percent reduction in the sales revenue of Carpenter's Specialty Metals segment which aggregates the Specialty Alloys and Dynamet units.

Cost of sales as a percent of net sales remained approximately the same at 73.7 percent of sales compared to 73.4 percent last year, primarily because of reductions in manufacturing costs and increased pension credits. In addition, a change during fiscal 1999 in the estimated useful life of certain major manufacturing equipment resulted in a reduction in depreciation expense of $1.8 million for the quarter ended September 30, 1999.

Selling, general and administrative expenses decreased by $.8 million but were slightly higher as a percent of net sales. Although cost reduction efforts offset the effects of inflation, the reduction in sales revenues resulted in the increased percentage of costs to net sales.

Interest expense for the quarter rose from $6.5 million a year ago to $7.4 million, primarily because of increased short-term debt required to finance Carpenter's capital projects.

Other income and expense, net was more favorable than a year ago by $1.3 million. Both periods included losses on investments in corporate-owned life insurance and real estate held for sale while the September 1999 quarter also included non-operating income from property sales and recoveries of notes receivable.

During the quarter ended September 30, 1999, Carpenter changed its segment reporting. The changes are described in Note 7 to the Consolidated Financial Statements. All segment data for the quarter ended September 30, 1998, have been restated to reflect the current segment reporting structure.

Net sales for this segment, which aggregates the Specialty Alloys and Dynamet units of Carpenter were $208.7 million which was 7 percent lower than those of the same quarter a year ago. The decline in sales was primarily due to selling price decreases and lower sales to the aerospace market. This was somewhat offset by a Specialty Alloys Operations unit volume increase of 5 percent from the same quarterly period a year ago, due to stronger shipments to the automotive and industrial products markets.

Earnings before interest and taxes (EBIT) for the Specialty Metals segment were $18.2 million which was 25% lower than last year's first quarter. The sales revenue decline was the primary factor in the lower earnings. Profit margins were squeezed as selling prices fell 8 percent in Specialty Alloys Operations and 13 percent at Dynamet despite higher costs for nickel versus a year ago. These effects were partially offset by cost reductions in manufacturing and administrative functions.

Net sales for this segment were $30.4 million which was 18 percent higher than the same quarter of last year. Sales were improved for ceramic cores used in aerospace and land-based turbine blade applications, nuclear fuel channels, metal-injection molded products and special shaped bar.

EBIT was $1.4 million versus a near break-even level a year ago due chiefly to the improved sales level. Manufacturing cost reductions were partially offset by increased spending for new selling and marketing initiatives.

Pension credits, which result from the significant overfunding of Carpenter's defined benefit pension plans, were $11.4 million in the September 1999 quarter versus $8.8 million in the same quarter a year ago. The improved level of credits was due primarily to the significant investment returns on the pension plan assets over the past year.

During the three months ended September 30, 1999, Carpenter's cash and cash equivalents increased by $.2 million, as shown in the consolidated statement of cash flows.

Net cash generated from operating activities was $22.5 million, primarily as a result of net income adjusted for non-cash expenses and credits. Net working capital changes resulted in positive cash flow primarily due to normal seasonal fluctuations.

Investing activities for plant and equipment consumed $23.4 million in cash during the first three months of fiscal 2000. Total capital expenditures for all of fiscal 2000 are anticipated to be about $100 million.

Total debt increased by $8.5 million since June 30, 1999 to a level of $518.9 million or 39.6% of total capital employed, including deferred taxes.

At September 30, 1999, Carpenter was in a strong liquidity position, with current assets exceeding current liabilities by $104.6 million (a ratio of 1.3 to 1). This ratio is conservatively stated because certain inventories are valued $98.7 million less than the current cost as a result of using the LIFO method.

Carpenter believes that its present financial resources, both from internal and external resources, will be adequate to meet its foreseeable short-term and long-term liquidity needs.

Reference Carpenter's June 30, 1999 Form 10-K and Carpenter's world-wide-web site at www.cartech.com for details on its status regarding Year 2000 Issues. The estimate of total costs to remediate Carpenter's Year 2000 Issues is $9.2 million of which $7.5 million was spent through September 30, 1999. Carpenter is confident that its internal systems are now Year 2000 ready in all material respects.

This Form 10-Q contains various "Forward-looking Statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations regarding future events that involve a number of risks and uncertainties which could cause actual results to differ from those of such forward-looking statements. Such risks and uncertainties include those set forth in other filings made by Carpenter under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and also include the following factors: 1) the cyclical nature of the specialty materials business and certain end-use markets, including, but not limited to, aerospace, automotive and consumer durables, all of which are subject to changes in general economic and financial market conditions; 2) excess inventory and the impact of inventory adjustments in Carpenter's aerospace customer base; 3) worldwide excess capacity for certain alloys which Carpenter produces, resulting in increased competition and downward pricing pressure on Carpenter products; 4) the criticality of certain raw materials acquired from foreign sources, some of which are located in countries that may be subject to unstable political and economic conditions, potentially affecting the prices of these materials; 5) the level of export sales impacted by political and economic instability, particularly in Asia, Eastern Europe and Latin America, resulting in lower global demand for stainless steel products; 6) the ability of Carpenter, along with other domestic producers of stainless steel products, to obtain favorable rulings in dumping and countervailing duty claims against foreign producers; 7) the level of sales impacted by export controls, changes in legal and regulatory requirements, policy changes affecting the markets, changes in tax laws and tariffs, exchange rate fluctuations and accounts receivable collection; 8) the effects on operations of changes in U.S. and foreign governmental laws and public policy, including environmental regulations; 9) the accuracy of Carpenter's belief that its internal computer systems are Year 2000 ready and the sufficiency of Carpenter's Year 2000 contingency plans; and 10) the ability of Carpenter's suppliers and customers to correct or replace their computer systems for Year 2000 Issues. Any of these factors could have an adverse and/or fluctuating effect on Carpenter's 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.

There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or to which any of their properties is subject or which is known by the Company to be contemplated by government authorities. There are no material proceedings to which any Director, Officer, or affiliate of the Company, or any owner of more than five percent of any class of voting securities of the Company, or any associate of any Director, Officer, affiliate, or security holder of the Company, is a party adverse to the Company or has a material interest adverse to the interest of the Company or its 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 the business or financial condition of the Company, (2) involves a claim for damages, potential sanctions or capital expenditures exceeding ten percent of the current assets of the Company or (3) includes a governmental authority as a party and involves potential monetary sanctions in excess of $100,000.

1. On October 25, 1999, Carpenter Technology Corporation held its 1999 Annual Meeting of Stockholders.

b. At the 1999 Annual Meeting, stockholders of Carpenter elected the following Directors to three-year terms which will expire at the 2002 Annual Meeting of Stockholders: Marcus C. Bennett, William S. Dietrich, II, Dennis M. Draeger, J. Michael Fitzpatrick, and Marlin Miller, Jr. Voting for these Directors was as follows:

The following are Directors whose terms continued following the 1999 Annual Meeting: Robert W. Cardy, Dr. C. McCollister Evarts, William J. Hudson, Robert J. Lawless, Robert N. Pokelwaldt, Peter C. Rossin, Kathryn C. Turner and Kenneth L. Wolfe.

c. Stockholders also approved the appointment of

PricewaterhouseCoopers LLP as independent public accountants for Carpenter for fiscal 2000. The voting on this matter was as follows:

a. The following documents are filed as exhibits:

27. Financial Data Schedule.

b. The Company did not file any Reports on Form 8-K

for events occurring during the quarter of the

fiscal year covered by this report.

Items 2, 3 and 5 are omitted as the answer is negative or the items are not applicable.

Pursuant to the requirements 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.