10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

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, Pennsylvania	19610
(Address of principal executive offices)	(Zip Code)

610-208-2000

(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  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated file” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer:  þ                    Accelerated filer:  ¨                    Non-accelerated filer:  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of October 25, 2006.

Common stock, $5 par value	25,567,820
Class	Number of shares outstanding

CARPENTER TECHNOLOGY CORPORATION

FORM 10-Q

INDEX

			Page
PART I	FINANCIAL INFORMATION
	Item 1	Financial Statements
		Consolidated Balance Sheet (unaudited) as of September 30, 2006 and June 30, 2006	3
		Consolidated Statement of Income (unaudited) for the Three Months Ended September 30, 2006 and 2005	4
		Consolidated Statement of Comprehensive Income (unaudited) for the Three Months Ended September 30, 2006 and 2005	5
		Consolidated Statement of Cash Flows (unaudited) for the Three Months Ended September 30, 2006 and 2005	6
		Notes to Consolidated Financial Statements (unaudited)	7 – 17
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18 –26
	Item 3	Quantitative and Qualitative Disclosures about Market Risk	26 – 27
	Item 4	Controls and Procedures	27
PART II	OTHER INFORMATION
	Item 1	Legal Proceedings	28
	Item 1A	Risk Factors	28
	Item 4	Submission of Matters to a Vote of Security Holders	28 – 29
	Item 6	Exhibits	30 – 31
		Signature	32

2

PART I

Item 1. Financial Statements

CARPENTER TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEET

(Unaudited)

September 30, 2006 and June 30, 2006

(in millions, except share data)

	September 30 2006			June 30 2006
ASSETS
Current assets:
Cash and cash equivalents	$	254.5		$	352.8
Marketable securities		290.0			141.8
Accounts receivable, net		229.8			234.7
Inventories		233.7			224.3
Deferred income taxes		15.5			13.7
Other current assets		40.6			32.0
Total current assets		1,064.1			999.3
Property, plant and equipment, net		536.4			541.1
Prepaid pension cost		247.0			247.1
Goodwill		46.4			46.4
Trademarks and trade names, net		19.9			20.1
Other assets		33.9			33.9
Total assets	$	1,947.7		$	1,887.9
LIABILITIES
Current liabilities:
Accounts payable	$	162.9		$	137.4
Accrued liabilities		130.7			133.8
Current portion of long-term debt		0.2			0.2
Total current liabilities		293.8			271.4
Long-term debt, net of current portion		332.9			333.1
Accrued postretirement benefits		99.4			102.2
Deferred income taxes		183.2			189.0
Other liabilities		47.3			45.9
Total liabilities	$	956.6		$	941.6
STOCKHOLDERS’ EQUITY
Convertible preferred stock – authorized 2,000,000 shares; issued 287.7 shares and 290.4 shares at September 30, 2006 and June 30, 2006, respectively	$	17.8		$	18.0
Common stock – authorized 100,000,000 shares; issued 26,511,836 and 26,505,018 shares at September 30, 2006 and June 30, 2006, respectively		132.6			132.5
Capital in excess of par value		294.8			294.2
Reinvested earnings		594.9			549.8
Common stock in treasury (973,644 shares and 990,610 shares at September 30, 2006 and June 30, 2006, respectively), at cost		(36.7	)		(37.3	)
Deferred compensation		(1.5	)		(1.5	)
Accumulated other comprehensive loss		(10.8	)		(9.4	)
Total stockholders’ equity		999.1			946.3
Total liabilities and stockholders’ equity	$	1,947.7		$	1,887.9

See accompanying notes to consolidated financial statements.

3

CARPENTER TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

for the three months ended September 30, 2006 and 2005

(in millions, except per share data)

	Three Months Ended September 30,
	2006			2005
NET SALES	$	404.5		$	346.0
Cost of sales		300.6			254.3
Gross profit		103.9			91.7
Selling and administrative expenses		30.8			28.0
Operating income		73.1			63.7
Interest expense		5.8			6.0
Other income, net		(5.9	)		(3.0	)
Income before income taxes		73.2			60.7
Income tax expense		22.0			20.6
NET INCOME	$	51.2		$	40.1
EARNINGS PER COMMON SHARE:
Basic	$	1.99		$	1.59
Diluted	$	1.94		$	1.54
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		25.5			25.0
Diluted		26.3			25.9
Cash dividends per common share	$	0.225		$	0.150

See accompanying notes to consolidated financial statements.

4

CARPENTER TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

for the three months ended September 30, 2006 and 2005

(in millions)

	Three Months Ended September 30
	2006			2005
Net income	$	51.2		$	40.1
Net (loss) gain on derivative instruments, net of tax benefits (expense) of $1.6 and ($1.5), respectively		(2.7	)		2.6
Foreign currency translation gain (loss)		1.3			(0.6	)
Comprehensive income	$	49.8		$	42.1

See accompanying notes to consolidated financial statements.

5

CARPENTER TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

for the three months ended September 30, 2006 and 2005

(in millions)

	September 30 2006			September 30 2005
OPERATING ACTIVITIES:
Net income	$	51.2		$	40.1
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation		11.5			11.0
Amortization		0.4			0.6
Deferred income taxes		(6.1	)		0.3
Net pension expense		1.2			2.7
Net loss on asset disposals		0.1			0.2
Changes in working capital and other:
Receivables		5.1			4.3
Inventories		(8.6	)		(25.6	)
Other current assets		(8.0	)		0.5
Accounts payable		25.4			(12.4	)
Accrued current liabilities		(3.5	)		(10.1	)
Other, net		(4.7	)		(1.3	)
Net cash provided from operating activities		64.0			10.3
INVESTING ACTIVITIES:
Purchases of plant, equipment and software		(7.3	)		(5.7	)
Proceeds from disposals of plant and equipment		0.2			0.2
Purchases of marketable securities		(265.6	)		(49.6	)
Sales of marketable securities		117.4			53.6
Net cash used for investing activities		(155.3	)		(1.5	)
FINANCING ACTIVITIES:
Payments on long-term debt		(0.1	)		—
Dividends paid		(6.1	)		(4.1	)
Tax benefits on share-based compensation		0.1			—
Proceeds from common stock options exercised		0.1			3.1
Net cash used for financing activities		(6.0	)		(1.0	)
Effect of exchange rate changes on cash and cash equivalents		(1.0	)		0.2
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(98.3	)		8.0
Cash and cash equivalents at beginning of period		352.8			159.5
Cash and cash equivalents at end of period	$	254.5		$	167.5

See accompanying notes to consolidated financial statements.

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

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, consisting only of normal and recurring adjustments, necessary for a fair statement are reflected in the interim periods presented. Operating results for the three months ended September 30, 2006 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2007. The June 30, 2006 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in Carpenter’s fiscal year 2006 Annual Report on Form 10-K.

Income Taxes

The tax rate used for interim periods is the estimated annual effective consolidated tax rate, based on the current estimate of full year results, except that taxes related to specific events, if any, are recorded in the interim period in which they occur.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”), which establishes a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards that permit, or in some cases require, estimates of fair market value. SFAS 157 also expands financial statement disclosure requirements about a company’s use of fair value measurements, including the effect of such measures on earnings. The Company is required to adopt this new accounting guidance effective the first quarter of fiscal 2009. The Company is currently evaluating the provisions of SFAS 157, but the adoption is not expected to have a material impact on its consolidated financial statements.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet. Gains and losses, prior service costs and credits and any remaining transition amounts under SFAS 87 and SFAS 106 that have not yet been recognized through net periodic benefit cost will be recognized in accumulated other comprehensive income, net of tax effects. SFAS 158 will not change the amount of net periodic benefit expense recognized in an entity’s results of operations. SFAS 158 is effective for Carpenter for the year-end fiscal 2007 financial statements. Application of this standard at June 30, 2006 would have resulted in a decrease to prepaid pension cost of approximately $170 million, an increase in other liabilities of approximately $11 million, a decrease to other postretirement benefits of $8 million, a decrease in deferred tax liability of $66 million, and a decrease to stockholders’ equity of $107 million. The adoption of SFAS 158 will not impact the Company’s key financial debt covenant ratios. However, the effect at the adoption date of June 30, 2007 or any other future date could significantly differ depending on the measurement of pension assets and obligations at such date.

In September 2006, the SEC staff issued Staff Accounting Bulletin 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 requires that public companies utilize a “dual-approach” when assessing the quantitative effects of financial misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. The guidance in SAB 108 is effective for annual financial statements for fiscal years ending after November 15, 2006. The adoption of SAB 108 did not have a material effect on our consolidated financial position or results of operations.

In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” This 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 15, 2006. The Company will be evaluating this Interpretation during the current fiscal year to determine its potential impact when effective.

In May 2005, The FASB issued SFAS No. 154, “Accounting for Changes and Error Corrections – A Replacement of APB Opinion No. 20 and FASB Statement No. 3,” (“SFAS 154”) effective for years beginning after December 15, 2005. The adoption of this Statement did not have an effect on our financial statements.

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

2. Financial Statement Revision

Certain prior year amounts have been revised to present variable rate demand notes (“VRDN’s”) or other financial instruments properly as marketable securities or cash equivalents, based on the underlying characteristics of the investments. As a result, the September 30, 2005 Consolidated Statement of Cash Flows and June 30, 2006 Consolidated Balance Sheet have been revised to reflect the proper classification of these securities. This revision had no impact on Carpenter’s net income, changes in stockholders’ equity, net cash provided from operating activities or Free Cash Flow. The effects of this revision are as follows.

	Three Months Ended September 30, 2005
(in millions)	As Originally Reported			As Revised
Statement of Cash Flows:
Purchases of marketable securities	$	(73.9	)	$	(49.6	)
Sales of marketable securities	$	72.3		$	53.6
Net cash used for investing activities	$	(7.1	)	$	(1.5	)
Increase in cash and cash equivalents	$	2.4		$	8.0
Cash and cash equivalents at beginning of period	$	163.8		$	159.5
Cash and cash equivalents at end of period	$	166.2		$	167.5
	June 30, 2006
(in millions)	As Originally Reported			As Revised
Balance Sheet:
Cash and cash equivalents	$	413.4		$	352.8
Marketable securities	$	81.2		$	141.8
Total current assets	$	999.3		$	999.3

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

3. Earnings Per Common Share

The calculations of earnings per share for the three months ended September 30, 2006 and 2005 are shown below.

	Three Months Ended September 30
(in millions, except per share data)	2006			2005
Basic:
Net income	$	51.2		$	40.1
Dividends accrued on convertible preferred stock, net of tax benefits		(0.4	)		(0.4	)
Earnings available for common stockholders	$	50.8		$	39.7
Weighted average number of common shares outstanding		25.5			25.0
Basic earnings per common share	$	1.99		$	1.59
Diluted:
Net income	$	51.2		$	40.1
Assumed shortfall between common and preferred dividend		(0.2	)		(0.2	)
Earnings available for common stockholders	$	51.0		$	39.9
Weighted average number of common shares outstanding		25.5			25.0
Assumed conversion of preferred shares		0.6			0.7
Effect of shares issuable under stock option plans		0.2			0.2
Adjusted weighted average common shares		26.3			25.9
Diluted earnings per common share	$	1.94		$	1.54

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

4. Investments in Marketable Securities

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

September 30, 2006

(in millions)	Corporate Bonds		Government Bonds		Other Fixed Income Securities		Total
Cost	$	21.0	$	253.8	$	15.2	$	290.0
Unrealized losses		—		—		—		—
Estimated fair value	$	21.0	$	253.8	$	15.2	$	290.0
Due in one year or less	$	21.0	$	229.9	$	15.2	$	266.1
Due in one through three years		—		23.9		—		23.9
	$	21.0	$	253.8	$	15.2	$	290.0

June 30, 2006

(in millions)	Corporate Bonds		Government Bonds		Other Fixed Income Securities		Total
Cost	$	23.4	$	101.3	$	17.1	$	141.8
Unrealized losses		—		—		—		—
Estimated fair value	$	23.4	$	101.3	$	17.1	$	141.8
Due in one year or less	$	23.4	$	101.3	$	17.1	$	141.8

For the three months ended September 30, 2006, proceeds from sales of marketable securities were $117.4 million. Realized losses on these sales were less than $0.1 million. For the three months ended September 30, 2005, proceeds from sales of marketable securities were $53.6 million. Realized losses on these sales were less than $0.1 million.

11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

5. Inventories

(in millions)	September 30 2006		June 30 2006
Raw materials and supplies	$	31.5	$	28.8
Work in process		142.3		132.0
Finished and purchased products		59.9		63.5
Total inventory	$	233.7	$	224.3

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. The effect of using the LIFO methodology to value inventory, rather than FIFO, increased cost of sales by $26.2 million for the three months ended September 30, 2006 and decreased cost of sales by $3.7 million for the three months ended September 30, 2005.

6. Accrued Liabilities

(in millions)	September 30 2006		June 30 2006
Income taxes	$	49.8	$	28.4
Employee benefits		25.5		30.4
Compensation		17.7		40.8
Interest		7.7		5.7
Derivative financial instruments		5.1		4.7
Taxes, other than income		4.8		4.5
Deferred revenue		2.6		2.6
Environmental costs		1.7		1.8
Professional services		1.6		1.3
Other		14.2		13.6
	$	130.7	$	133.8

12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

7. Pension and Other Postretirement Benefits

The components of the net periodic benefit cost related to Carpenter’s pension and other postretirement benefits for the three months ended September 30, 2006 and 2005 are as follows:

	Pension Plans						Other Postretirement Plans
Three months ended September 30: (in millions)	2006			2005			2006			2005
Service cost	$	4.3		$	4.6		$	0.6		$	0.7
Interest cost		11.6			10.0			2.7			2.7
Expected return on plan assets		(16.8	)		(16.3	)		(1.5	)		(1.5	)
Amortization of net loss		1.6			3.0			0.5			1.3
Amortization of prior service cost (benefit)		0.2			0.2			(2.0	)		(2.0	)
Net expense	$	0.9		$	1.5		$	0.3		$	1.2

8. Contingencies

Environmental

Carpenter is subject to various federal, state, local and foreign 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 on an annual or periodic basis. 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. There were no additional amounts accrued during the three months ended September 30, 2006 or 2005. The liability 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 September 30, 2006 was $5.9 million. The estimated range at September 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 $10.3 million.

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

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.

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 September 30, 2006, there is approximately $2.0 million recorded related to these indemnifications.

Other

Carpenter is also 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, compliance with domestic and foreign laws, personal injury claims and tax issues. 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, 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.

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

9. 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. At September 30, 2006, the ESOP held 287.7 shares of convertible preferred stock. Each preferred share is convertible into at least 2,000 shares of common stock.

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

10. Other Income

Other income, net consists of the following:

	Three months ended
(in millions)	September 30 2006			September 30 2005
Interest income	$	(5.3	)	$	(2.3	)
Increase in equity in minority interests of unconsolidated subsidiaries		(0.3	)		(0.2	)
Foreign exchange gain		—			(0.4	)
Other		(0.3	)		(0.1	)
	$	(5.9	)	$	(3.0	)

11. Income Taxes

The tax rate used for interim periods is the estimated annual effective consolidated tax rate, based on the current estimate of full year results, except that taxes related to specific events, if any, are recorded in the interim period in which they occur.

In the recent first quarter, Carpenter’s income tax provision was reduced by $4.0 million reflecting the reversal of certain deferred tax valuation allowances due to changes in specific state tax laws and an improved outlook regarding the ability to use those benefits.

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

12. Business Segments

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 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. For our Engineered Products segment, sales of approximately 23 percent ($6.4 million) and 18 percent ($4.5 million) were to one customer for the three months ended September 30, 2006 and 2005, respectively.

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

(Unaudited)

	Three Months Ended September 30
(in millions)	2006			2005
Net sales:
Specialty Metals	$	377.2		$	321.3
Engineered Products		28.0			25.1
Intersegment		(0.7	)		(0.4	)
Consolidated net sales	$	404.5		$	346.0
Operating income:
Specialty Metals	$	71.9		$	61.0
Engineered Products		5.4			5.2
Corporate costs		(7.9	)		(5.1	)
Pension earnings, interest & deferrals		3.6			2.6
Intersegment		0.1			—
Consolidated operating income	$	73.1		$	63.7
(in millions)	September 30, 2006			June 30, 2006
Total assets:
Specialty Metals	$	1,074.9		$	1,066.3
Engineered Products		67.8			66.5
Corporate assets		805.0			755.1
Consolidated total assets	$	1,947.7		$	1,887.9

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations – Three Months Ended September 30, 2006 vs. Three Months Ended September 30, 2005:

Operating Performance Overview

For the first fiscal quarter ended September 30, 2006, we reported net income of $51.2 million or $1.94 per diluted share. This was a 28 percent increase from net income for the same period a year ago. Our results reflected solid demand across several key end-use markets, increased sales of higher value products, and our continued focus on cost through lean and variation reduction.

Net sales

Net sales for the three months ended September 30, 2006 were $404.5 million, which was a 17 percent increase over the same period a year ago. Sales benefited from higher surcharges, base price increases and increased sales of higher value materials. Excluding surcharge revenue, sales increased 10 percent from the first quarter a year ago.

In terms of end-use markets, sales to the aerospace market increased 34 percent from the first quarter a year ago to $158.1 million. Demand for titanium materials used in the manufacture of fasteners for commercial and military aircraft was particularly robust during the quarter. Additionally, we experienced solid demand for our specialty alloys used in the manufacture of aircraft engines and airframe structural components. Sales of our ceramic cores used in the casting of turbine blades for aircraft engines also increased.

Automotive and truck market sales grew 23 percent from the first quarter a year ago to $51.8 million. Demand for high temperature alloys used in automotive engine components and specialty alloys and stainless steels used in automotive safety devices such as airbag sensors contributed to the increase.

Industrial sector sales increased 13 percent from the first quarter a year ago to $88.3 million. Sales to the industrial market primarily benefited from increased sales of materials used in the manufacture of capital equipment and higher value products sold to independent distributors. Beginning with this quarter, sales to the oil and gas sector are no longer included in industrial market sales. These sales are included in a new category for Carpenter titled energy, which also includes sales to the power generation sector. We are now segregating sales in this manner due to our increased focus on the energy market.

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Sales to the consumer market increased 2 percent to $47.8 million from a year ago. Increased sales of higher value strip products used in thermostats and consumer electronic applications were partially offset by reduced sales to the sporting goods market.

Sales to the energy market of $28.8 million were relatively flat with a year ago. Sales to the oil and gas sector increased 67 percent from the same quarter a year ago and benefited from profitable market share gains as well as growth with key customers. Offsetting this growth was lower sales to the power generation sector due to the timing of shipments to customers.

Sales to the medical market decreased 7 percent to $29.7 million in the first quarter from a year ago. Although the strong growth fundamentals in this market are unchanged, demand declined due to inventory adjustments taking place within the supply chain.

Geographically, sales outside the United States increased 20 percent from the same quarter a year ago to $123.0 million. International sales, which represented 30 percent of total sales, reflected strong demand for higher value materials, particularly from the aerospace market.

Gross profit

Our gross profit in the first quarter increased 13 percent to $103.9 million, or 25.7 percent of sales, from $91.7 million, or 26.5 percent of sales, in the same quarter a year ago. The decline in gross profit as a percent of sales was directly attributable to the significant increase in surcharge revenue collected. The increase in surcharge revenue primarily reflected the change in nickel prices, which were 100 percent higher, on average, compared to a year ago and had a dilutive effect of 120 basis points on gross margin. Cost of sales in the first quarter of fiscal 2006 included a charge of $26.2 million to value inventories using the last-in, first-out (LIFO) method of accounting, due primarily to the rising nickel costs. For the same period a year ago, cost of sales included a $3.7 million credit to value inventories using LIFO.

Our surcharge mechanism is structured to recover high raw material costs, although with a lag effect. While the surcharge protects the absolute gross profit dollars, it does have a dilutive effect on gross margin as a percent of sales. During the recent first quarter, gross margin as a percent of sales was negatively impacted by a 68 percent increase in the amount of surcharge collected compared to the same period a year ago.

Partially offsetting the impact of higher raw material costs on margins were increased base prices, higher volumes and ongoing cost reductions generated by lean and variation reduction initiatives.

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Selling and administrative expenses

Selling and administrative expenses of $30.8 million were 7.6 percent of sales compared to $28.0 million or 8.1 percent of sales in the same quarter a year ago. The increase in selling and administrative dollars reflected $1.6 million of costs associated with due diligence activities of a potential acquisition target and $0.8 million of executive recruitment fees.

Other income

Other income for the recent first quarter was $5.9 million compared with $3.0 million in the first quarter a year ago. The increase is primarily due to increased interest income from higher balances of invested cash, cash equivalents and marketable securities.

Income taxes

Our tax provision in the recent first quarter was $22.0 million, or 30.1 percent of pre-tax income, versus $20.6 million, or 33.9 percent, in the same quarter a year ago. The tax provision in the recent first quarter was favorably impacted by $4.0 million related to the reversal of certain deferred tax valuation allowances due to changes in specific state tax laws and an improved outlook regarding the ability to use those benefits.

Business Segment Results:

We operate in two business segments, Specialty Metals and Engineered Products. 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 our production plants and our distribution network and through independent distributors.

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

Specialty Metals Segment

Net sales for the quarter ended September 30, 2006 for the Specialty Metals segment were $377.2 million, compared to $321.3 million in the same quarter a year ago. Sales of specialty alloys, stainless steels and titanium experienced strong growth in the quarter.

Sales of specialty alloys increased 20 percent to $172.0 million in the first quarter from a year ago. Solid demand from the aerospace and energy markets were the primary contributors to the increase.

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Our stainless steel sales were $143.9 million or 13 percent above the first quarter a year ago. Solid automotive and industrial market demand contributed to the increase. Our stainless steel sales contain a much greater proportion of higher value materials as a result of our focus on reducing marginally profitable products.

Sales of our titanium alloys increased 33 percent from a year ago to $47.9 million, which was the largest year-over-year increase in our product lines. Robust demand from the aerospace market for coil products used in the manufacture of aerospace structural fasteners was the primary contributor to the growth. Partially offsetting this increase were reduced sales to the medical market.

Operating income for the Specialty Metals segment was $71.9 million in the recent first quarter, compared to $61.0 million in the same quarter a year ago. The increase in operating income reflected the effects of increased sales of higher value materials, higher base prices and a continued focus on operational improvements.

Engineered Products Segment

Net sales for this segment increased 12 percent to $28.0 million from $25.1 million a year ago. Increased sales of ceramic cores used in the casting of jet engine turbine blades primarily drove this increase.

Operating income for our Engineered Products segment increased to $5.4 million in the recent first quarter from $5.2 million in the same quarter a year ago. The increase was attributable to higher sales and better operating efficiencies.

Cash Flow and Financial Condition:

We have maintained the ability to provide 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.

Cash provided from operating activities was $64.0 million for the recent quarter. For the same period last year, cash provided from operating activities was $10.3 million. In addition to $11.1 million in higher earnings, cash flow from operating activities benefited from improved working capital. Accounts receivable were $41.1 million higher than a year ago, due primarily to increased sales. Days sales outstanding were reduced to 48 days compared to 49 days at the end of the first quarter a year ago. Inventories of $233.7 million were $20.6 million lower than a year ago.

Capital expenditures for plant, equipment and software were $7.3 million for the current first quarter versus $5.7 million for the same period a year ago. Dividends were $6.1 million this year compared to $4.1 million last year. During the first quarter of fiscal 2007, our free cash flow was $50.8 million versus $0.7 million for the same period a year ago.

We believe that our current financial resources, both from internal and external sources, will be more than adequate to meet our foreseeable needs.

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Non-GAAP Selected 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

	Three Months Ended September 30
(in millions)	2006			2005
Net cash provided from operating activities	$	64.0		$	10.3
Purchases of plant, equipment and software		(7.3	)		(5.7	)
Proceeds from disposals of plant & equipment		0.2			0.2
Dividends paid		(6.1	)		(4.1	)
Free cash flow	$	50.8		$	0.7

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 use excess cash for the repayment of debt when economically feasible, or for other general corporate purposes.

Net cash provided from operations includes the addition of depreciation and amortization to net income. The level of purchases of property, equipment and software was considerably lower than the level of depreciation and amortization in fiscal years 2002 through 2006, due primarily to the relatively high level of capital expenditures in fiscal years 1997 through 2001. The current level is not expected to be indicative of future purchase levels. We anticipate that total fiscal 2007 capital expenditures will be in the range of $35 million to $45 million.

Contingencies:

Environmental

We are subject to various federal, state, local and foreign 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 our costs of operations, compliance costs to date have not been material on an annual or periodic basis. 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 our best estimate of the

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probable and reasonably estimable costs related to environmental remediation. There were no additional amounts accrued during the three months ended September 30, 2006 or 2005. The liability 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 September 30, 2006 was $5.9 million. The estimated range at September 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 $10.3 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 foreign 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 any 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.

Critical Accounting Policies and Estimates:

Inventories are stated at the lower of cost or market. The cost of inventories is primarily determined using the Last-In, First-Out (“LIFO”) method, although we also use the First-In, First-Out (“FIFO”) and average cost methods. Costs include direct materials, direct labor and applicable manufacturing overhead, and other direct costs. Under the LIFO inventory valuation method, changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials and other costs may have been incurred at significantly different values due to the length of time of our production cycle. The prices for many of the raw materials we use have been volatile. Since we value most of our inventory utilizing the LIFO inventory costing methodology, a rapid rise in raw material costs has a negative impact on our operating results. For example, during the first quarter of the current fiscal year, the effect of the increase in raw material costs on our LIFO inventory valuation method resulted in an increase to cost of sales of $26.2 million. In a period of rising

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prices, cost of sales expense recognized under LIFO is generally higher than the cash costs incurred to acquire the inventory sold. Conversely, in a period of declining raw material prices, cost of sales recognized under LIFO is generally lower than cash costs incurred to acquire the inventory sold.

Since the LIFO inventory valuation methodology is designed for annual determination, interim estimates of the annual LIFO valuation are required. We recognize the effects of the LIFO inventory valuation method on an interim basis by projecting the expected annual LIFO cost based on cost increases to date. These projections of annual LIFO inventory valuation reserve changes are updated quarterly and are evaluated based upon material, labor and overhead costs.

Recent Accounting Pronouncements:

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”), which establishes a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards that permit, or in some cases require, estimates of fair market value. SFAS 157 also expands financial statement disclosure requirements about a company’s use of fair value measurements, including the effect of such measures on earnings. We are required to adopt this new accounting guidance effective our first quarter of fiscal 2009. Although we are currently evaluating the provisions of SFAS 157, the adoption is not expected to have a material impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet. Gains and losses, prior service costs and credits and any remaining transition amounts under SFAS 87 and SFAS 106 that have not yet been recognized through net periodic benefit cost will be recognized in accumulated other comprehensive income, net of tax effects. SFAS 158 will not change the amount of net periodic benefit expense recognized in an entity’s results of operations. SFAS 158 is effective to us for the year-end fiscal 2007 financial statements. Application of this standard at June 30, 2006 would have resulted in a decrease to prepaid pension cost of approximately $170 million, an increase in other liabilities of approximately $11 million, a decrease to other postretirement benefits of $8 million, a decrease in deferred tax liability of $66 million, and a decrease to stockholders’ equity of $107 million. The adoption of SFAS 158 will not impact the Company’s key financial debt covenant ratios. However, the effect at the adoption date of June 30, 2007 or any other future date could significantly differ depending on the measurement of pension assets and obligations at such date.

In September 2006, the SEC staff issued Staff Accounting Bulletin 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 requires that public companies utilize a “dual-approach” when assessing the quantitative effects of financial

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misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. The guidance in SAB 108 is effective for annual financial statements for fiscal years ending after November 15, 2006. The adoption of SAB 108 did not have a material effect on our consolidated financial position or results of operations.

In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” This 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 15, 2006. We will be evaluating this Interpretation during the current fiscal year to determine its potential impact when effective.

In May 2005, The FASB issued SFAS No. 154, “Accounting for Changes and Error Corrections – A Replacement of APB Opinion No. 20 and FASB Statement No. 3,” (“SFAS 154”) effective for years beginning after December 15, 2005. The adoption of this Statement did not have an effect on our financial statements.

Outlook:

The strength in the aerospace and other key markets should continue to drive performance through the balance of this fiscal year. We are continuing with our relentless focus on lean and variation reduction to create additional operating leverage as we capitalize on these strong market conditions. Based on current market conditions and expectations for steady growth, we anticipate another record year of sales and net income in fiscal 2007.

On September 21, 2006, we issued a press release announcing our strategic initiatives to drive long-term growth. These initiatives include accelerating growth in certain core markets, profitable growth through complementary acquisitions, establishment of a share repurchase program and payment of competitive dividends.

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Forward-looking Statements

This Form 10-Q 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 our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended June 30, 2006, and the exhibits attached to that filing. 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 energy, including 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; 9) the potential that our customers may substitute alternate materials or adopt different manufacturing practices that replace or limit the suitability of our products; and 10) the ability to successfully acquire and integrate acquisitions. 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 3. Quantitative and Qualitative Disclosures About Market Risk

We use derivative instruments to reduce certain types of financial risks. 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 the 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.

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

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.

Our accounting treatment for our various derivatives is discussed in detail in Note 9 of our fiscal year 2006 Annual Report on Form 10-K. There have been no significant changes to our policies or procedures related to derivative instruments. Assuming on September 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.

Item 4. 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.

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

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PART II – OTHER INFORMATION

Item 1. 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 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 (3) includes a governmental authority as a party and involves potential monetary sanctions in excess of $100,000.

Item 1A. Risk Factors

There have been no material changes to our risk factors from those included in our Annual Report on Form 10-K.

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

a. On October 16, 2006, Carpenter Technology Corporation held its 2006 Annual Meeting of Stockholders.

b. At the 2006 Annual Meeting, stockholders of Carpenter elected Carl G. Anderson, Jr., Robert J. Torcolini, and Dr. Jeffrey Wadsworth to be directors for three-year terms that will expire in 2009. Voting was as follows:

	For	Withheld
Carl G. Anderson, Jr.	23,605,820	272,732
Robert J. Torcolini	23,199,120	679,433
Dr. Jeffrey Wadsworth	23,428,371	450,181

The following are the other directors whose terms continued following the 2006 Annual Meeting: I. Martin Inglis, Peter N. Stephans, Kathryn C. Turner, Stephen M. Ward, J. Michael Fitzpatrick and Gregory A. Pratt.

c. Stockholders also approved the amended Stock-Based Compensation Plan for Non-Employee Directors. The voting on this matter was as follows:

	For	Against	Abstain
Approval of amended Stock-Based Compensation Plan For Non-Employee Directors	18,426,247	2,644,608	660,630

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d. Stockholders also approved the amended and restated Stock-Based Incentive Compensation Plan for Officers and Key Employees. The voting on this matter was as follows:

	For	Against	Abstain
Approval of amended and restated Stock-Based Incentive Compensation Plan for Officers and Key Employees	19,251,094	1,756,273	724,119

e. Stockholders also approved the amended and restated Executive Bonus Compensation Plan. The voting on this matter was as follows:

	For	Against	Abstain
Approval of amended and restated Executive Bonus Compensation Plan	21,960,014	1,186,661	731,875

c. Stockholders also approved the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for Carpenter for fiscal year 2007. The voting on this matter was as follows:

	For	Against	Abstain
Appointment of PricewaterhouseCoopers LLP	23,487,577	321,996	68,978

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Item 6. Exhibits

3. Articles of Incorporation and By-Laws

(A) Restated Certificate of Incorporation dated October 26, 1998 is hereby incorporated by reference to Exhibit 3(A) of Carpenter’s 2005 Annual Report on Form 10-K filed September 9, 2005.

(B) By-Laws, amended as of August 24, 2006 are hereby incorporated by reference to Exhibit 3(B) of Carpenter’s 2006 Annual Report on Form 10-K filed August 29, 2006.

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.

(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.

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(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) Executive Bonus Compensation Plan, restated June 29, 2006 and further amended as of August 24, 2006 to be effective June 29, 2006 is attached as an Exhibit to this Quarterly Report on Form 10-Q.

(B) Stock-Based Incentive Compensation Plan For Non-Employee Directors, as amended through August 24, 2006 to be effective June 29 2006, is attached as an Exhibit to this Quarterly Report on Form 10-Q.

(C) Stock-Based Incentive Compensation Plan for Officers and Key Employees, as amended and restated August 24, 2006 to be effective June 29, 2006, is attached as an Exhibit to this Quarterly Report on Form 10-Q.

31.1 Section 302 Certification of the Chairman, President and Chief Executive Officer

31.2 Section 302 Certification of the Senior Vice President - Finance and Chief Financial Officer

32. Section 906 Certification

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

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned duly authorized officer, on its behalf and in the capacity indicated.

	Carpenter Technology Corporation                     (Registrant)
Date: November 3, 2006	/s/ M. David Kornblatt
	M. David Kornblatt Senior Vice President – Finance and Chief Financial Officer

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EX-10.(A)

Exhibit 10(A)

EXECUTIVE BONUS COMPENSATION PLAN OF

CARPENTER TECHNOLOGY CORPORATION

EFFECTIVE JULY 1, 1989

As Restated June 29, 2006

Further Amended August 24, 2006

To be Effective June 29, 2006

I. Statement and Purpose of Plan

The Executive Bonus Compensation Plan of Carpenter Technology Corporation provides additional compensation for selected employees based on the Company’s financial performance. The combination of Base Pay and Executive Bonus Compensation is intended to provide a competitive cash-compensation opportunity to Participants.

II. Definitions

A. Base Pay means a Participant’s gross bi-weekly salary paid during the Performance Period (including holidays, vacation and approved absence) plus the restoration of (1) any salary reduction resulting from any Company plan providing benefits authorized under sections 125, 401(a) or 409A of the Code and (2) deductions from salary for jury duty pay, military pay or workers compensation payments. Eligible Base Pay during an approved absence is limited to one week per occurrence under this Plan. Excluded from Base Pay are any payments from a third-party and cash payments from the Company not otherwise expressly included (e.g., moving allowance, mortgage interest differential allowance, imputed income, severance pay, etc.).

B. Board means the Board of Directors of the Company.

C. Code means the Internal Revenue Code of 1986, as amended.

D. Committee means a committee of the Board of Directors selected to administer the Plan. With respect to Qualified Executive Bonus Compensation, the Committee shall be comprised exclusively of two or more members of the Board who are non-employee “outside directors” within the meaning of section 162(m)(4)(C) of the Code and treasury regulation 1.162-27(e)(3) or designate a sub-committee that is so comprised.

E. Company means Carpenter Technology Corporation, a Delaware corporation, or any successor by merger, purchase or otherwise.

F. Determination Date means the date upon which the Committee determines Performance Goals and Executive Bonus Compensation opportunities. The Determination Date must be no later than (1) 90 days after the first day of the Performance Period and (2) the date upon which 25% of the Performance Period has elapsed.

G. Disability means that the Participant has been totally disabled by bodily injury or disease in the opinion of a qualified physician designated by the Company so as to be prevented thereby from engaging in any employment then available by the Company during the remainder of the Performance Period. Disability does not include incapacity contracted, suffered or incurred while the Participant was engaged in, or resulted from the Participant’s having engaged in, a criminal enterprise.

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H. Executive Bonus Compensation means an amount that is payable to a Participant in the Plan based on the achievement of specified Performance Goals.

I. Extraordinary Event means an extraordinary Company event as determined in accordance with generally accepted accounting principles.

J. General Retirement Plan means the General Retirement Plan for Employees of Carpenter Technology Corporation, effective January 1, 1950, as amended from time to time.

K. Participant means any employee, who on or before April 1 of the first year of the Performance Period is also (1) designated by the Board to act as the President, Vice-Chairman, Chief Executive Officer, Chief Operating Officer or any category of Vice-President of the Company, or (2) other key employee of the Company designated by the Committee to participate in the Plan.

L. Performance Goal means an objective measure of the Company’s financial performance used to determine a Participant’s Executive Bonus Compensation that has been established by the Committee not later than the Determination Date. Performance Goals may be measured on an absolute or relative basis. Relative performance may be measured against an external index, such as a group of peer companies, industry groups or a financial market index. Permissible Performance Goals may be based upon: (1) the price of Common Stock, (2) the market share of the Company or its subsidiaries (or any business unit thereof), (3) sales or revenue by the Company or its subsidiaries (or any business unit thereof), (4) earnings or diluted earnings per share of Common Stock, with or without net pension credit/expense, (5) return on shareholder equity of the Company, (6) costs of the Company or its subsidiaries (or any business unit thereof), (7) cash flow of the Company or its subsidiaries (or any business unit thereof), (8) return on total assets of the Company or its subsidiaries (or any business unit thereof) (“ROA”), (9) return on invested capital of the Company or its subsidiaries (or any business unit thereof), (10) return on net assets of the Company or its subsidiaries (or any business unit thereof) (“RONA”), (11) operating income of the Company or its subsidiaries (or any business unit thereof), with or without net pension credit/expense, (12) net income of the Company or its subsidiaries (or any business unit thereof) with or without net pension credit/expense, (13) costs of capital of the Company or its subsidiaries (or any business unit thereof), (14) earnings before interest and income taxes (“EBIT”) or earnings before interest, income taxes, depreciation and amortization (“EBITDA”) of the Company or its subsidiaries, (15) economic profit of the Company or its subsidiaries, (16) economic value added, or (17) any other financial or other measurement deemed appropriate by the Committee, as it relates to the results of operations or other measurable progress of the Company or its subsidiaries (or any business unit thereof). The Committee shall have discretion to determine the specific targets with respect to each of these categories of Performance Goals.

M. Performance Period means a period of one or more consecutive fiscal years, or portions thereof, of the Company as established by the Committee during which the performance of the Company, any subsidiary or any department thereof, or any individual is measured for the

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purpose of determining the extent to which a Performance Goal is achieved. Nothing in this Plan shall prevent the Committee from establishing a Performance Period that commences prior to the termination of one or more other Performance Periods.

N. Plan means the Carpenter Technology Corporation Executive Bonus Compensation Plan herein set forth, as amended from time to time.

O. Qualified Executive Bonus Compensation means Executive Bonus Compensation that is intended to be “qualified performance-based compensation” under section 162(m) of the Code and treasury regulation 1.162-27(e), including any successor provision.

P. Retirement means a Participant’s termination of employment with eligibility to receive a monthly payment in the following month under either the General Retirement Plan or the Supplemental Retirement Plan for Executives of Carpenter Technology Corporation (“SERP”).

III. Administration

The Committee shall have the authority, subject to the provisions herein, (A) to select employees to participate in the Plan; (B) to establish and administer the Performance Goals and the Executive Bonus Compensation opportunities applicable to each Participant and certify whether the Performance Goals have been attained; (C) to construe and interpret the Plan and any agreement or instrument entered into under or in connection with the Plan; (D) to establish, amend, and waive rules and regulations for the Plan’s administration; and (E) to make all other determinations that may be necessary or advisable for the administration of the Plan. Any determination by the Committee pursuant to the Plan shall be final, binding and conclusive on all employees and Participants and anyone claiming under or through any of them.

IV. Establishment of Performance Goals and Executive Bonus Compensation Opportunities

A. No later than the Determination Date for each Performance Period, the Committee shall establish in writing, the method for computing the amount of Qualified Executive Bonus Compensation or percentage of Base Pay that may be payable under the Plan to each Participant in the Plan for such Performance Period if the Performance Goals established by the Committee for such Performance Period are attained in whole or in part. The maximum amount that may be payable to any Participant in any calendar year under the Plan shall not exceed four (4) times the maximum deduction limit imposed by section 162(m) of the Code on compensation that is not performance based. Such method shall be stated in terms of an objective formula or standard that precludes discretion to increase the amount of Qualified Executive Bonus Compensation or percentage of Base Pay that would otherwise be due upon attainment of the goals and may be different for each Participant. Notwithstanding anything to the contrary contained herein, the Committee may, however, exercise negative discretion within the meaning of treasury regulation 1.162-27(e)(2)(iii)(A) with respect to any Executive Bonus Compensation hereunder to reduce any amount that would otherwise be payable hereunder to the extent necessary to allow the Company to deduct that Executive Bonus Compensation despite the limits imposed by section 162(m) of the Code.

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B. No later than the Determination Date for each Performance Period, the Committee shall establish in writing, the Performance Goals for such Performance Period.

V. Attainment of Performance Goals Required; Employment Status

Executive Bonus Compensation shall be paid under this Plan for any Performance Period only upon the attainment of the Performance Goals established by the Committee with respect to such Performance Period. Executive Bonus Compensation shall also be contingent upon the Participant remaining employed by the Company or a subsidiary of the Company during such Performance Period, except as follows:

A. A Participant may receive Executive Bonus Compensation which shall be paid at the same time as the Executive Bonus Compensation the Participant would have received for such Performance Period had no termination of employment occurred, and which shall be equal to the amount of such Executive Bonus Compensation multiplied by a fraction the numerator of which is the number of full and partial pay periods elapsed in such Performance Period prior to termination of employment and the denominator of which is the number of total pay periods in the Performance Period in the event termination of employment is by reason of the Participant’s death, Disability or, unless otherwise determined by the Committee, Retirement.

B. A Participant whose employment terminates prior to the end of a Performance Period for any reason not excepted above shall not be entitled to any Executive Bonus Compensation under the Plan for that Performance Period.

VI. Shareholder Approval and Committee Certification; Payment of Executive Bonus Compensation

A. Unless the Committee provides otherwise, (1) earned Executive Bonus Compensation shall be paid no later than 2 ¹/2 months after the end of the Performance Period with respect to which such Executive Bonus Compensation is earned, and (2) such payment shall be made in cash (subject to any payroll tax withholding the Company may determine applies).

B. Payment of any Qualified Executive Bonus Compensation under this Plan shall be contingent upon an affirmative vote of the shareholders of at least a majority of the votes cast (including abstentions) approving the Plan, including the basis upon which Performance Goals may be established under Section II(L) hereof, sufficient to satisfy the applicable requirements of Code section 162(m) and the regulations promulgated thereunder. Unless and until such shareholder approval is obtained, no Qualified Executive Bonus Compensation shall be paid pursuant to this Plan.

C. Payment of any Qualified Executive Bonus Compensation under this Plan shall be contingent upon the Committee’s certifying in writing that the Performance Goals and any other material terms applicable to such Qualified Executive Bonus Compensation were in fact satisfied, in accordance with applicable treasury regulations under Code section 162(m). Unless and until the Committee so certifies, such Qualified Executive Bonus Compensation shall not be paid. Notwithstanding anything to the contrary herein, the Committee may make appropriate adjustments when certifying the attainment of Performance Goals to reflect the occurrence of

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any Extraordinary Event during the Performance Period to the extent necessary to ensure that the determination of whether applicable Performance Goals were met is consistent with the basis upon which such Performance Goals were established.

D. Every fifth year following shareholder approval of this Plan, or more frequently if necessary for purposes of Code section 162(m), this Plan shall be resubmitted to shareholders for their reapproval for the relevant Performance Period(s).

VII. Amendment, Termination and Term of Plan

The Board may amend, modify or terminate this Plan at any time. The Plan will remain in effect until terminated by the Board.

VIII. Interpretation and Construction

A. No provision of the Plan, nor the selection of any Participant, shall constitute an employment agreement or affect the duration of any Participant’s employment, which shall remain “employment at will” unless an employment agreement between the Company and the Participant provides otherwise. Both the Participant and the Company shall remain free to terminate employment at any time to the same extent as if the Plan had not been adopted.

B. Any provision of the Plan that could be construed to prevent Qualified Executive Bonus Compensation under the Plan from qualifying for deductibility under section 162(m) of the Code or treasury regulation 1.162-27(e) shall be administered, interpreted and construed to carry out such intention and any provision that cannot be so administered, interpreted and construed shall to that extent be disregarded.

IX. Governing Law

The terms of this Plan shall be governed by the laws of the Commonwealth of Pennsylvania, without reference to the conflicts of laws principles thereof.

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EX-10.(B)

Exhibit 10(B)

CARPENTER TECHNOLOGY CORPORATION

STOCK-BASED COMPENSATION PLAN FOR

NON-EMPLOYEE DIRECTORS

Effective August 9, 1990

Restated as of October 20, 1997

As amended through August 24, 2006

To be effective June 29, 2006

1. Purpose:

The purposes of the Plan are to attract and retain the services of experienced and knowledgeable non-employee directors, to encourage Eligible Directors of Carpenter Technology Corporation (the “Company”) to acquire a proprietary and vested interest in the growth and performance of the Company, and to generate an increased incentive for Eligible Directors to contribute to the Company’s future success and prosperity, thus enhancing the value of the Company for the benefit of its stockholders.

This Plan is an amendment and restatement of the Carpenter Technology Corporation Non-Qualified Stock Option Plan for Non-Employee Directors as adopted effective August 9, 1990, restated October 20, 1997 and last amended October 22, 2001. The rights of any Eligible Director whose service as an Eligible Director ended on or before June 29, 2006 shall be governed by the terms of the Plan as in effect when that Eligible Director’s Award was granted.

2. Definitions:

As used in the Plan, the following terms shall have the meanings set forth below:

a) “Annual Retainer” shall mean base compensation for services as an Eligible Director. Annual Retainer shall not include meeting fees, committee service fees, if any, expense allowances or reimbursements or any other additional compensation for services as an Eligible Director.

b) “Award” shall mean the Options, Performance Units and Stock Units granted under the Plan.

c) “Award Agreement” shall mean the written agreement, instrument or document evidencing an Award.

d) “Beneficiary” shall mean the person who the Eligible Director designates to receive any unpaid portion of the Eligible Director’s account should the Eligible Director’s death occur before the Eligible Director receives the entire balance to the credit of such Eligible Director’s account. If the Eligible Director does not designate a Beneficiary, the Beneficiary shall be the person’s spouse if the person is married at the time of death, or the Eligible Director’s estate if unmarried at the time of the person’s death.

e) “Board” shall mean the Board of Directors of the Company.

f) “Cause” shall mean the Eligible Director’s: (i) willful misconduct or gross negligence in connection with the performance of the Eligible Director’s duties for the Company or any affiliated company; (ii) conviction of, or a plea of guilty or nolo contendere to, a felony or a crime involving fraud or moral turpitude; (iii) engagement in any business that directly or indirectly competes with the Company or any affiliated company; or (iv) disclosure of trade secrets, customer lists or confidential information of the Company or any affiliated company to a competitor or unauthorized person.

g) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

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h) “Common Stock” shall mean the Common Stock, $5.00 par value, of the Company.

i) “Company” shall mean Carpenter Technology Corporation, a Delaware corporation, or any successor corporation.

j) “Disability” shall mean that a qualified physician designated by the Company has reviewed and approved the determination that an Eligible Director is either:

(i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or

(ii) by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees or directors of the Company or any subsidiary.

k) “Election Date” shall mean with respect to an Option hereunder the date of the appointment, election, or re-election of the Eligible Director that prompted the grant of such Option.

l) “Eligible Director” shall mean each director of the Company who is not an employee of the Company or any of the Company’s subsidiaries [as defined in section 424(f) of the Code], or who is not otherwise excluded from participation by agreement.

m) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

n) “Fair Market Value” shall mean the fair market value of the Company’s Common Stock, determined in accordance with section 409A of the Code, and based upon (i) the last sale price of the Common Stock on the date on which such value is determined, as reported on the consolidated tape of New York Stock Exchange issues or, if there shall be no trades on such date, on the date nearest preceding such date; (ii) if the Common Stock is not then listed for trading on the New York Stock Exchange, the last sale price of the Common Stock on the date on which such value is determined, as reported on another recognized securities exchange or on the NASDAQ National Market System if the Common Stock shall then be listed and traded upon such exchange or system or, if there shall be no trades on such date, on the date nearest preceding such date; or (iii) the mean between the bid and asked quotations for such stock on such date (as reported by a recognized stock quotation services) or, in the event that there shall be no bid or asked quotations on such date, then upon the basis of the mean between the bid and asked quotations on the date nearest preceding such date.

o) “Grant Date” shall mean with respect to an Option hereunder the date upon which such Option is granted, and with respect to Performance Units the date upon which the Board determines Performance Goals and passes a resolution creating a Performance Unit opportunity.

p) “Option” shall mean any right granted to an Eligible Director allowing such Eligible Director to purchase Shares at such price or prices and during such period or periods as set forth under the Plan. All Options shall be non-qualified options not entitled to special tax treatment under section 422 of the Code.

q) “Performance Goal” shall mean a goal the attainment of which is substantially uncertain at the time the Performance Goal is established that must be met by the end of a period specified by the Board. Performance Goals may be measured on an absolute or relative basis. Relative performance may be measured against an external index, such as a group of peer companies, industry groups or a financial market index. Performance Goals may be based upon: (i) the price of Common Stock, (ii) the market share of the Company or its subsidiaries (or any business unit thereof), (iii) sales or revenue by the Company or its subsidiaries (or any business unit thereof), (iv) earnings or diluted earnings per share of Common Stock, with or without net pension credit/expense, (v) return on shareholder equity of the Company, (vi) costs of the Company or its subsidiaries (or any business unit thereof), (vii) cash flow of the Company or its subsidiaries (or any business unit thereof), (viii) return

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on total assets of the Company or its subsidiaries (or any business unit thereof) (“ROA”), (ix) return on invested capital of the Company or its subsidiaries (or any business unit thereof), (x) return on net assets of the Company or its subsidiaries (or any business unit thereof) (“RONA”), (xi) operating income of the Company or its subsidiaries (or any business unit thereof), with or without net pension credit/expense, (xii) net income of the Company or its subsidiaries (or any business unit thereof) with or without net pension credit/expense, (xiii) costs of capital of the Company or its subsidiaries (or any business unit thereof), (xiv) earnings before interest and income taxes (“EBIT”) or earnings before interest, income taxes, depreciation and amortization (“EBITDA”) of the Company or its subsidiaries, (xv) economic profit of the Company or its subsidiaries, (xvi) total shareholder return, (xvii) economic value added, or (xviii) any other financial or other measurement deemed appropriate by the Board, as it relates to the results of operations or other measurable progress of the Company or its subsidiaries (or any business unit thereof). The Board shall have discretion to determine the specific targets with respect to each of these categories of Performance Goals.

r) “Performance Unit” shall mean the right to receive, following termination of service as an Eligible Director, one share of Common Stock. Performance Units will be earned, if at all, based upon the attainment of Performance Goals by the end of a period specified by the Board. For purposes of this Plan, fractional Performance Units, measured to the nearest four decimal places, may be credited.

s) “Release Date” shall mean the fifth business day occurring after the Company’s earnings release for the preceding fiscal period. In calculating the Release Date, the day of an earnings release shall be counted if the earnings release is made before the opening of trading on the New York Stock Exchange and shall not be counted if such release is made after the opening of trading.

t) “Retirement” shall mean termination of Board service other than for Cause with a minimum of three years of service as an Eligible Director.

u) “Shares” shall mean shares of Common Stock.

v) “Stock Unit” shall mean the right to receive, following both service as an Eligible Director for one year following the grant of the Stock Unit under Section 8(a) and termination of service as an Eligible Director, one share of Common Stock. For purposes of this Plan, fractional Stock Units, measured to the nearest four decimal places, may be credited.

w) “Unit” shall mean a Performance Unit, a Stock Unit, or both, as required by context.

x) “Window” shall mean a 30 calendar-day period of time beginning on a Release Date.

3. Administration:

(a) The Plan shall be administered by the Company. Subject to the terms of the Plan, the Board shall have the power to interpret the provisions and supervise the administration of the Plan. Any action of the Board in administering the Plan shall be final, conclusive and binding on all persons, including the Company, Eligible Directors, persons claiming rights from or through Eligible Directors and stockholders of the Company.

(b) Subject to the provisions of the Plan, the Board shall have full and final authority in its discretion (a) to determine the terms and conditions of any Award granted under the Plan (including, but not limited to, restrictions as to vesting, transferability or forfeiture, exercisability or settlement of an Award and waivers or accelerations thereof, and waivers of or modifications to performance conditions relating to an Award, based in each case on such considerations as the Board shall determine) and all other matters to be determined in connection with an Award; (b) to determine whether, to what extent, and under what circumstances an Award may be canceled, forfeited, or surrendered; (c) to determine whether, and to certify that, Performance Goals to which the settlement of an Award is subject are satisfied; (d) to correct any defect or supply any omission or reconcile any inconsistency in the Plan, and to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan; and (e) to make all other determinations as it may deem necessary or advisable for the administration of the Plan. Notwithstanding the foregoing, an Eligible Director must be recused and abstain from participating in any action of the Board that affects his or her outstanding Award.

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4. Shares Subject to the Plan:

a) Total Number. Subject to adjustment as provided in this Section, the total number of Shares as of August 18, 2006 available for Awards under the Plan shall be 500,000 increased by any shares of Common Stock that were reserved under the Plan prior to this amendment but were either (a) not subject to Awards or (b) subject to Awards that were forfeited, canceled or expired unexercised. Any Shares issued hereunder may consist, in whole or in part, of authorized and unissued Shares or treasury Shares.

b) Reduction of Shares Available.

(i) The grant of an Option will reduce the number of Shares available for further grants by the number of Shares subject to such Option.

(ii) Any shares issued by the Company through the assumption or substitution of outstanding grants from an acquired company shall not reduce the Shares available for grants under the Plan.

(iii) The grant of Performance Units or Stock Units will reduce the number of Shares available for further grants by the number of Units granted.

c) Increase of Shares Available. The lapse, cancellation or other termination of an Option or Unit that has not been fully exercised or paid shall increase the available Shares for such Options or Units by the number of Shares that have not been issued upon exercise of such Option or payment of such Unit.

d) Other Adjustments. The total number and kind of Shares available for Options or Units under the Plan or which may be allocated to any one Eligible Director, the number and kind of Shares subject to outstanding Options or Units, and the exercise price for such Options or the value of Units shall be appropriately adjusted by the Board for any increase or decrease in the number of outstanding Shares resulting from a stock dividend, subdivision, combination of Shares, reclassification, or other change in corporate structure affecting the Shares or for any conversion of the Shares into or exchange of the Shares for other Shares as a result of any merger or consolidation (including a sale of assets) or other recapitalization as may be necessary to maintain the proportionate interest of the Option or Unit holder.

5. Initial Options:

Initial Options may be granted to Eligible Directors as follows:

a) Initial Grant. Each Eligible Director who has not previously received a grant under this Plan may be granted an Option to acquire up to 2,000 Shares on such Eligible Director’s Election Date or such later date as may be required to comply with the Company’s normal practices under applicable security laws and regulations.

b) Terms and Conditions. Any Option granted under this Section 5 shall be subject to the following terms and conditions:

(i) Option Price. The purchase price per Share purchasable under an Option shall be 100% of the Fair Market Value of a Share on the Grant Date.

(ii) Exercisability. Unless otherwise provided by this Plan, an Option shall become exercisable in whole or in part one year from the Grant Date.

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6. Annual Options:

Annual Options may be granted to Eligible Directors as follows:

a) Annual Grant. Each Eligible Director on or after the Effective Date of the Plan may be granted, immediately after the annual meeting of the Company’s stockholders, an Option to acquire up to 4,000 Shares either in lieu of or in addition to such Eligible Director’s Annual Retainer.

b) Terms and Conditions. Any Option granted under this Section 6 shall be subject to the following terms and conditions:

(i) Option Price. The purchase price per Share purchasable under an Option shall be 100% of the Fair Market Value of a Share on the Grant Date.

(ii) Exercisability. Unless otherwise provided by this Plan, an Option shall become exercisable in whole or in part one year from the Grant Date.

7. General Terms:

The following provisions shall apply to any Option:

a) Option Period. Each Option shall expire ten years from its Grant Date, subject to earlier termination as hereinafter provided.

b) Each Option granted under this Plan shall become exercisable by the Eligible Director only after the completion of one year of Board service immediately following the Grant Date; provided, however, that for Annual Options under Section 6, uninterrupted Board service by the Eligible Director until the annual meeting of the Company’s stockholders next following the Grant Date shall be deemed completion of one year of Board service. Exercise of any or all prior existing Options shall not be required.

c) No Option under this Plan may be transferable by the Eligible Director except by will or the laws of descent and distribution. In the event of the death of the Eligible Director more than one year after the Grant Date, an Option may be transferred to the Eligible Director’s personal representative, heirs or legatees (“Transferee”) and may be exercised by the Transferee for the remainder of the exercise period then available to the Eligible Director. In the event of the Retirement from Board service or Disability of an Eligible Director, an Option may be exercised prior to its expiration during the original ten-year exercise period beginning on the Grant Date. In all other cases of termination of Board service of an Eligible Director except for removal for Cause, an Option, if otherwise exercisable by the Eligible Director at the time of such termination, may be exercised within three months after such termination. In the event of removal for Cause, all existing Options shall be of no force and effect.

d) Method of Exercise. Any Option may be exercised by the Eligible Director in whole or in part at such time or times and by such methods as the Board may specify. The applicable Award Agreement may provide that the Eligible Director may make payment of the Option price in cash, Shares, held for at least six months, or such other consideration as the Board may specify, or any combination thereof, having a Fair Market Value on the exercise date equal to the total Option price.

8. Stock Units:

a) Grant of Stock Units. On the date of the annual meeting of stockholders, each Eligible Director shall be granted each year, in place of equivalent cash compensation, a number of Stock Units determined by dividing 50% of the Eligible Director’s Annual Retainer by the Fair Market Value on that date.

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b) Election of Stock Units. By written election filed with the Board before the end of any calendar year, an Eligible Director may elect to increase the percentage in Section 8(a) above to 100%, and thereby have the entire Eligible Director’s Annual Retainer payable in each calendar year beginning after the date of the election granted in Stock Units. An election under this Section 8(b) shall remain in effect until changed, in writing, by the Eligible Director. Any such change shall be effective in the first calendar year beginning after the date of the written notice of change.

c) Forfeiture of Stock Units. Stock Units granted at an annual meeting of stockholders will be forfeited if the Eligible Director terminates service as an Eligible Director for any reason other than Retirement, Disability, or death, before the next annual meeting of stockholders. Stock Units voluntarily deferred under Section 8(b) are at all times fully vested.

9. Performance Units:

a) Grant of Performance Units. Opportunities to earn Performance Units may be granted annually to an Eligible Director. When granting an opportunity for Performance Units, the Board shall determine the number of Performance Units (including fractions) eligible to be earned by an Eligible Director, the Performance Goals applicable to such Performance Units, and any restrictions on the Performance Units or Shares that may become earned with the attainment of the Performance Goals.

b) Allocation of Performance Units. After the close of the applicable period, the Board shall determine the extent to which Performance Units are earned as a result of the attainment of Performance Goals. As soon as practicable following the Board’s determination, earned Performance Units (or fractions thereof) shall be allocated to the Eligible Director’s account with an initial value equal to the Fair Market Value at the close of the applicable period.

10. Nontransferability of Units:

Neither Performance Units nor Stock Units may be sold, transferred, pledged, assigned or otherwise alienated, other than by will or by the laws of descent and distribution.

11. Dividend Equivalents:

An Eligible Director who has earned Performance Units or been granted Stock Units will also be allocated additional Units, determined on a quarterly basis. The number of additional Units to be allocated will be determined by multiplying the quarterly dividend per Share for the immediately preceding quarter by the number of Units credited to the Eligible Director’s account on the first day of that calendar quarter and dividing the result by the Fair Market Value on the last business day of that quarter.

12. Payment of Units:

a) Following an Eligible Director’s Retirement, or termination of service on account of Disability, the Eligible Director shall be paid a number of Shares equal to the number of whole Units credited to the Eligible Director’s account, with cash paid in lieu of any fractional Units. The amount of cash to be paid will be based on the Fair Market Value on the date of the Eligible Director’s termination of service as an Eligible Director. In the case of the Eligible Director’s death, the payment will be made to the Eligible Director’s Beneficiary.

b) Manner and Form of Payment. An Eligible Director shall receive Shares in payment of Units credited to the Eligible Director’s account in a single lump sum distribution as soon as is practicable following the Eligible Director’s termination of service, provided, however, that no payment shall be made later than March 15 of the calendar year following the Eligible Director’s termination of service.

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13. Change in Control:

a) Notwithstanding anything in this Plan to the contrary, in the event of a Change in Control of the Company, the Options granted under Sections 5 and 6 shall vest and become immediately exercisable and any unvested Stock Units granted under Section 8 shall vest.

b) For purposes of this Plan, “Change in Control” means:

(i) The acquisition by any individual, entity or group within the meaning of section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% 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 13(b), the following acquisitions shall not constitute a Change in 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 13(b)(iii)(A), 13(b)(iii)(B) and 13(b)(iii)(C);

(ii) 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;

(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.

c) Payment for Performance Units. Within 30 days following a Change in Control of the Company, as defined in Section 13(b) of this Plan, there shall be paid in cash to Eligible Directors with an opportunity to

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receive Performance Units under an incomplete performance period a pro rata amount based upon the assumed achievement of all relevant Performance Goals at target levels, and upon the length of time within the performance period that has elapsed before the Change in Control of the Company; provided, however, that (i) the Board shall endeavor in good faith to comply with the requirements of section 409A of the Code with any payment hereunder; (ii) if the Board determines that actual performance to the date of the Change in Control of the Company exceeds targeted levels, the prorated payouts shall be made using the actual performance data; and (iii) there shall not be an accelerated payout with respect to Performance Units that qualify as “Derivative Securities” under section 16 of the Exchange Act that were granted less than six months before the Change in Control of the Company.

14. Amendments and Termination:

a) Board Authority. The Board may amend or terminate the Plan at any time; provided that no amendment may be made (i) without the appropriate approval of the Company’s stockholders if such approval is necessary to comply with any tax or other regulatory requirement, including any stockholder approval required as a condition to exemptive relief under section 16(b) of the Exchange Act; (ii) which would constitute a repricing or exchange of any Option; or (iii) which would adversely impair or affect, without the consent of the Eligible Director, any rights or obligations under any Option or Unit theretofore granted to such Eligible Director, unless required by the Code, applicable securities laws, or the rules of any exchange upon which the Company’s Common Stock is listed.

b) Prior Stockholder and Eligible Director Approval. Anything herein to the contrary notwithstanding, in the event that amendments to the Plan are required in order that the Plan or any other stock-based compensation plan of the Company complies with (1) the requirements of Rule 16b-3 issued under the Exchange Act, as amended from time to time, (2) any successor rules promulgated by the Securities and Exchange Commission related to the treatment of benefit and compensation plans under section 16 of the Exchange Act, or (3) other applicable law, stock exchange rule or accounting rule, the Board is authorized to make such amendments without the consent of Eligible Directors or the stockholders of the Company.

15. General Provisions:

a) Compliance Regulations. All certificates for Shares delivered under this Plan pursuant to any Option or Unit shall be subject to such stock-transfer orders and other restrictions as the Board may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed, and any applicable federal or state securities law, and the Board may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. The Company shall not be required to issue or deliver any Shares under the Plan prior to the completion of any registration or qualification of such Shares under any federal or state law, or under any ruling or regulations of any governmental body or national securities exchange that the Board in its sole discretion shall deem to be necessary or appropriate.

b) Other Plans. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required by applicable law or the rules of any stock exchange on which the Common Stock is then listed; and such arrangements may be either generally applicable or applicable only in specific cases.

c) Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Delaware and applicable federal law.

d) Conformity With Law. If any provision of this Plan is or becomes or is deemed invalid, illegal, or unenforceable in any jurisdiction, or would disqualify the Plan or any Option or Unit under any law deemed applicable by the Board, such provision shall be construed or deemed amended in such jurisdiction to conform to applicable laws or if it cannot be construed or deemed amended without, in the determination of the Board, materially altering the intent of the Plan, it shall be stricken and the remainder of the Plan shall remain in full force and effect.

e) Insufficient Shares. In the event there are insufficient Shares remaining to satisfy all of the grants of Options or Units made on the same day, such Options or Units shall be reduced pro-rata.

16. Effective Date and Termination:

The Plan’s original effective date, as approved by the Board and ratified by the stockholders at the Annual Meeting held October 30, 1990, was August 9, 1990. The Plan was last amended before its restatement by the Board on August 10, 1995; and ratified by the stockholders at the Annual Meeting held October 23, 1995. The Plan was restated under its current title and ratified by the stockholders at the Annual Meeting held October 20, 1997. The restated Plan was previously amended effective April 26, 2001 and October 22, 2001. The effective date of this amendment is June 29, 2006, provided that the Plan, as amended, is ratified by the Company’s stockholders at the Annual Meeting to be held on October 16, 2006. If this amendment is not so ratified, the Plan as amended through October 22, 2001, shall remain in effect. The Plan will terminate upon the date on which all outstanding Options have expired or terminated, and all outstanding Units have been paid or otherwise provided for.

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EX-10.(C)

Exhibit 10(C)

CARPENTER TECHNOLOGY CORPORATION

STOCK-BASED INCENTIVE COMPENSATION PLAN

FOR OFFICERS AND KEY EMPLOYEES

Adopted June 22, 1993

As Amended and Restated August 24, 2006

To be Effective June 29, 2006

CARPENTER TECHNOLOGY CORPORATION

STOCK-BASED INCENTIVE COMPENSATION PLAN

FOR OFFICERS AND KEY EMPLOYEES

Section 1. Purpose of the Plan. The purpose of the Plan is to assist the Company and its Subsidiaries in attracting and retaining valued Employees by offering them a greater stake in the Company’s success and a closer identity with it, and to encourage ownership of the Company’s stock by such Employees.

Section 2. Definitions. As used herein, the following definitions shall apply:

2.1. “Award” means the grant of Restricted Stock, Options or Restricted Stock Units under the Plan.

2.2. “Award Agreement” means the written agreement, instrument or document evidencing an Award.

2.3. “Board” means the Board of Directors of the Company.

2.4. “Cause” means the Employee’s: (a) willful misconduct or gross negligence in connection with the performance of the Employee’s duties for the Company or any Subsidiary; (b) conviction of, or a plea of guilty or nolo contendere to, a felony or a crime involving fraud or moral turpitude; (c) engagement in any business that directly or indirectly competes with the Company or any Subsidiary; (d) disclosure of trade secrets, customer lists or confidential information of the Company or any Subsidiary to a competitor or unauthorized person; or (e) act or omission that results in a violation of policy of either the Company or any Subsidiary, as reasonably determined by the Board in its sole discretion.

2.5. “Change in Control” means and includes each of the following:

(a) The acquisition by any person, entity, or group of persons (within the meaning of section 13(d)(3) or 14(d)(2) of the Exchange Act) (each, a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of either (i) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) 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, the following acquisitions shall not constitute a Change in 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 2.5(c)(i), 2.5(c)(ii) and 2.5(c)(iii);

(b) 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,

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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;

(c) 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, (i) 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 surviving entity resulting from such Business Combination (including, without limitation, a surviving entity 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, (ii) no Person (excluding any surviving entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such surviving entity resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the surviving entity resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such surviving entity, except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the surviving entity 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

(d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

2.6. “Code” means the Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference to any successor provision of the Code.

2.7. “Committee” means the committee designated by the Board to administer the Plan under Section 4. With respect to Qualified Performance-Based Awards, the Committee shall either be comprised exclusively of two or more members of the Board who are Non-Employee Directors and “outside directors” within the meaning of section 162(m)(4)(C) of the Code and treasury regulation 1.162-27(e)(3) or designate a sub-committee that is so comprised.

2.8. “Common Stock” means the Common Stock of the Company, par value $5.00 per share.

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2.9. “Company” means Carpenter Technology Corporation, a Delaware corporation, or any successor corporation.

2.10. “Disability” means a qualified physician designated by the Company has reviewed and approved the determination that an Employee:

(a) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or

(b) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company or any Subsidiary; and, in either case.

2.11. “Employee” means an officer or other key employee of the Company or a Subsidiary including a director who is such an employee.

2.12. “Exchange Act” means the Securities Exchange Act of 1934, as amended. A reference to any provision of the Exchange Act or rule promulgated under the Exchange Act shall include reference to any successor provision or rule.

2.13. “Extraordinary Event” means an extraordinary Company event as determined in accordance with generally accepted accounting principles.

2.14. “Fair Market Value” means on any given date, the closing price of a share of Common Stock on the New York Stock Exchange, or, in the absence of a closing price on such date, the closing price on the last trading day preceding such date.

2.15. “Non-Employee Director” means a member of the Board who is not an Employee as defined in Rule 16b-3 promulgated by the U.S. Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

2.16. “Non-Qualified Option” means an Option or portion thereof not intended to be an “Incentive Stock Option” as defined in section 422 of the Code.

2.17. “Option” means a right granted under the Plan to purchase a specified number of shares of Common Stock at a specified price. All Options available under the Plan are Non-Qualified Options.

2.18. “Outside Director” means a member of the Board within the meaning of section 162(m)(4)(C) of the Code and treasury regulation 1.162-27(e)(3), or any successor thereto.

2.19. “Participant” means any individual who receives an Award.

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2.20. “Performance Goal” means a goal the attainment of which is substantially uncertain at the time the Award is granted that must be met by the end of a period specified by the Committee. Performance Goals may be measured on an absolute or relative basis. Relative performance may be measured against an external index, such as a group of peer companies, industry groups or a financial market index. Performance Goals may be based upon: (a) the price of Common Stock, (b) the market share of the Company or its Subsidiaries (or any business unit thereof), (c) sales or revenue by the Company or its Subsidiaries (or any business unit thereof), (d) earnings or diluted earnings per share of Common Stock, with or without net pension credit/expense, (e) return on shareholder equity of the Company, (f) costs of the Company or its Subsidiaries (or any business unit thereof), (g) cash flow of the Company or its Subsidiaries (or any business unit thereof), (h) return on total assets of the Company or its Subsidiaries (or any business unit thereof) (“ROA”), (i) return on invested capital of the Company or its Subsidiaries (or any business unit thereof), (j) return on net assets of the Company or its Subsidiaries (or any business unit thereof) (“RONA”), (k) operating income of the Company or its Subsidiaries (or any business unit thereof), with or without net pension credit/expense, (l) net income of the Company or its Subsidiaries (or any business unit thereof) with or without net pension credit/expense, (m) costs of capital of the Company or its Subsidiaries (or any business unit thereof), (n) earnings before interest and income taxes (“EBIT”) or earnings before interest, income taxes, depreciation and amortization (“EBITDA”) of the Company or its Subsidiaries, (o) economic profit of the Company or its Subsidiaries, (p) total shareholder return, (q) economic value added or (r) any other financial or other measurement deemed appropriate by the Committee, as it relates to the results of operations or other measurable progress of the Company or its Subsidiaries (or any business unit thereof). The Committee shall have discretion to determine the specific targets with respect to each of these categories of Performance Goals.

2.21. “Performance Period” means a period of one or more consecutive fiscal years, or portions thereof, of the Company specified by the Committee during which the performance of the Company, any Subsidiary or any department thereof, or any individual is measured for the purpose of determining the extent to which a Performance Goal is achieved. Nothing in this Plan shall prevent the Committee from establishing a Performance Period that commences prior to the termination of one or more other Performance Periods.

2.22. “Plan” means the Carpenter Technology Corporation Stock-Based Incentive Compensation Plan for Officers and Key Employees herein set forth, as amended from time to time.

2.23. “Qualified Performance-Based Award” means an Award or portion of an Award that is intended to satisfy the requirements for “qualified performance-based compensation” under section 162(m) of the Code and the regulations issued thereunder. The Committee shall designate any Qualified Performance-Based Award as such at the time it is granted.

2.24. “Restricted Stock” means Common Stock granted by the Committee under Section 6.1 of the Plan.

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2.25. “Restricted Stock Unit” means a book-entry unit with a value equal to one share of Common Stock.

2.26. “Restriction Period” means the period during which Restricted Stock granted under Section 6.1 of the Plan is subject to forfeiture.

2.27. “Retirement” means the Participant’s termination of employment with the Company with eligibility to receive a monthly retirement benefit payment in the following month under either the General Retirement Plan for Employees of Carpenter Technology Corporation or the Supplemental Retirement Plan for Executives of Carpenter Technology Corporation.

2.28. “Subsidiary” means any corporation, partnership, joint venture or other business entity of which 50% or more of the outstanding voting power is beneficially owned, directly or indirectly, by the Company.

2.29. “Year of Service” means each 12-month period following the Participant’s commencement of service with the Company or any of its Subsidiaries during which the Participant has worked at least one hour for the Company or any of its Subsidiaries.

Section 3. Eligibility. Any Employee may be selected by the Company to receive an Award.

Section 4. Administration and Implementation of Plan.

4.1. The Plan shall be administered by the Committee. Any action of the Committee in administering the Plan shall be final, conclusive and binding on all persons, including the Company, its Subsidiaries, their employees, Participants, persons claiming rights from or through Participants and stockholders of the Company.

4.2. Subject to the provisions of the Plan, and specifically including Section 3 hereof, the Committee shall have full and final authority in its discretion (a) to select the Employees who will receive Awards pursuant to the Plan, (b) to determine the type or types of Awards to be granted to each Participant, (c) to determine the number of shares of Common Stock to which an Award will relate, the terms and conditions of any Award granted under the Plan (including, but not limited to, restrictions as to vesting, transferability or forfeiture, exercisability or settlement of an Award and waivers or accelerations thereof, and waivers of or modifications to performance conditions relating to an Award, based in each case on such considerations as the Committee shall determine) and all other matters to be determined in connection with an Award; (d) to determine whether, to what extent, and under what circumstances an Award may be canceled, forfeited, or surrendered; (e) to determine whether, and to certify that, Performance Goals to which the settlement of an Award is subject are satisfied; (f) to correct any defect or supply any omission or reconcile any inconsistency in the Plan, and to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan; and (g) to make all other determinations as it may deem necessary or advisable for the administration of the Plan.

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4.3. The Committee may delegate to the Company’s Chief Executive Officer (the “CEO”), its authority under Section 4.2(a)-(d) above, to grant or amend Awards covering a pre-determined aggregate number of shares of Common Stock. Such delegation is limited to the authority to grant and amend Awards to Participants who are not subject to the requirements of Rule 16b-3 of the Exchange Act. Any Awards granted or amended by the CEO shall be subject to the terms of the Plan. The CEO shall report to the Committee, in a form and manner to be determined by the Committee, at least annually on the disposition of shares subject to Awards granted or amended by the CEO.

Section 5. Shares of Common Stock Subject to the Plan.

5.1. Subject to adjustment as provided in Section 9, the total number of shares of Common Stock available for Awards under the Plan as of August 18, 2006 shall be 2,300,000 shares, increased by any shares of Common Stock that were reserved under the Plan but were either (a) not subject to Awards or (b) subject to Awards which were forfeited, canceled or expired unexercised, in either case prior to this amendment and restatement. Common Stock granted under the Plan may be reserved or made available from the Company’s authorized and unissued Common Stock or from Common Stock reacquired and held in the Company’s treasury.

5.2. Subject to adjustment as provided in Section 9, the maximum number of shares that may be granted to any Employee as Awards under the Plan during any calendar year shall not exceed 500,000 shares.

5.3. If any shares subject to an Award are forfeited or such Award otherwise terminates or is settled for any reason whatsoever without an actual distribution of shares to the Participant, any shares counted against the number of shares available for issuance pursuant to the Plan with respect to such Award shall, to the extent of any such forfeiture, settlement, or termination, again be available for Awards under the Plan; provided, however, that the Committee may adopt procedures for the counting of shares relating to any Award to ensure appropriate counting, avoid double counting, and provide for adjustments in any case in which the number of shares actually distributed differs from the number of shares previously counted in connection with such Award.

Section 6. Awards. Awards may be granted on the terms and conditions set forth in this Section 6. In addition, the Committee may impose on any Award or the exercise thereof, at the date the Award is granted or thereafter, such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including terms requiring forfeiture of Awards in the event of the termination of employment or other relationship with the Company or any Subsidiary by the Participant; provided, however, that the Committee shall retain full power to accelerate or waive any such additional term or condition as it may have previously imposed. Each Award shall be evidenced by an Award Agreement. The right of a Participant to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such Performance Goals as may be specified by the Committee consistent with Section 6.6 hereof.

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6.1. Restricted Stock. An Award of Restricted Stock is a grant by the Company of a specified number of shares of Common Stock to the Participant, which shares are subject to forfeiture upon the happening of specified events. Such an Award shall be subject to the following terms and conditions:

(a) Upon determination of the number of shares of Restricted Stock to be granted to the Participant, the Committee shall direct the Company to see that its transfer agent and registrar for the Common Stock (“Transfer Agent”) establishes a special account representing the number of restricted shares of Common Stock issued to the Participant. Following the Restriction Period, the Company will instruct the Transfer Agent to remove the restriction from such shares of Common Stock held for the Participant in the special account and transfer these shares to an unrestricted account in the Participant’s name.

(b) From time to time during the Restriction Period, the Committee may, but is not required to, authorize the payment of an amount equivalent to a dividend declared and paid on the Company’s Common Stock to any Participant awarded Restricted Stock. Such payment may be made in cash currently or deemed reinvested in Restricted Stock as determined by the Committee in its sole discretion. During the Restriction Period the Participant shall have the right to vote the shares of Restricted Stock.

(c) The Award Agreement shall specify the duration of the Restriction Period and the performance, employment or other conditions under which the Restricted Stock may be forfeited to the Company. The Restriction Period for such Awards, unless otherwise determined by the Committee, shall be at least (i) three years for Awards that vest solely on the passage of time and (ii) one year for Awards that are earned in whole or in part upon the attainment of Performance Goals. At the end of the Restriction Period applicable to all or a portion of the Restricted Stock, as applicable, the restrictions imposed hereunder shall lapse with respect to that number of shares of Restricted Stock and these shares will be transferred to an unrestricted account in the Participant’s name.

6.2. Options. Options give a Participant the right to purchase a specified number of shares of Common Stock from the Company for a specified time period at a fixed (or other determinable) price. The Award of Options shall be subject to the following terms and conditions:

(a) Option Price: The price per share at which Common Stock may be purchased upon exercise of an Option shall be determined by the Committee, but shall not be less than the Fair Market Value of a share of Common Stock on the date the Award is granted.

(b) Term of Options: The Award Agreement shall specify when an Option may be exercisable and the terms and conditions applicable thereto. The term of an Option shall in no event be greater than ten years and no Option may be exercisable sooner than one year from the date the Award is granted.

(c) Payment of Option Price: The Committee shall determine the time or times at which an Option may be exercised by the Participant in whole or in part, whether the exercise price for an Option shall be paid in cash, by the surrender at Fair Market Value of

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Common Stock, by any combination of cash and shares of Common Stock, the means or methods of payment, including “cashless exercise” arrangements, to the extent permitted by applicable law, and the methods by which, or the time or times at which, Common Stock will be delivered or deemed to be delivered to the Participant upon the exercise of such Option. Notwithstanding the foregoing, the Committee shall not permit payment through any method that would constitute a prohibited extension of credit to those officers of the Company who are subject to the provisions of the Sarbanes-Oxley Act of 2002.

6.3. Restricted Stock Units. Restricted Stock Units shall confer on the Participant the right to receive the Fair Market Value of the Restricted Stock Units upon the attainment of Performance Goals, after a period or periods of time, or a combination thereof specified by the Committee. The Award of Restricted Stock Units shall be subject to the following terms and conditions:

(a) A Participant may not receive Awards of Restricted Stock Units totaling more than the limit set forth in Section 5.2 hereof.

(b) Dividend Equivalents: The Committee may, but is not required to, authorize the payment of an amount equivalent to a dividend declared and paid on the Company’s Common Stock to any Participant awarded Restricted Stock Units, provided that any such payment, if authorized, shall not be made unless and until such Restricted Stock Units are earned and the relevant time period or periods satisfied and/or the attainment of Performance Goals is certified by the Committee. Such payment may be made in cash currently or deemed reinvested in Restricted Stock Units as determined by the Committee in its sole discretion.

(c) Voting Rights: A Participant shall not have voting rights with respect to Restricted Stock Units prior to payment of Common Stock in satisfaction of such Restricted Stock Units.

(d) Form and Timing of Payment of Restricted Stock Units: Payment of Restricted Stock Units shall be made as soon as practicable following the close of the Performance Period or other applicable period. Payment shall be in the form of Common Stock which has an aggregate Fair Market Value equal to the Fair Market Value of the Restricted Stock Units at the close of the Performance Period or other applicable period at the Committee’s discretion. Any Common Stock issued in payment of the applicable Restricted Stock Units may be subject to such additional restrictions as the Committee deems appropriate. In such case, the Common Stock issued shall be Restricted Stock subject to the provisions of section 6.1 hereof.

6.4. Deferral of Restricted Stock Units. The Committee may, but need not, permit a Participant to defer receipt of payment in satisfaction of earned Restricted Stock Units, provided that any such deferral shall be administered in good faith compliance with section 409A of the Code and the guidance thereunder, including the following rules:

(a) A Participant may only elect to defer payment of vested Restricted Stock Units by making a valid, irrevocable election prior to: (i) in the case of Restricted Stock Units that may become vested solely based upon the attainment of Performance Goals within a Performance Period, six months prior to any date during the Performance Period upon which the

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outcome of Performance Goals will determine the portion, if any, of the vesting of such Award, (ii) in the case of Restricted Stock Units that may become vested in whole or in part as a result of the passage of time, the earlier of 30 days following the grant of Restricted Stock Units or the last day of the Company’s fiscal year during which the Restricted Stock Units are granted so long as the initial scheduled vesting of such Restricted Stock Units does not precede the last day of the subsequent fiscal year;

(b) Unless otherwise provided by the Committee, during the deferral period, the Participant shall have those rights with respect to Restricted Stock Units set forth at Section 6.3(b);

(c) A Participant may elect to have such Restricted Stock Units paid upon:

(i) such Participant’s Retirement, which shall constitute a “Separation from Service”, within the meaning of section 409A of the Code and the guidance thereunder;

(ii) a Change in Control;

(iii) Disability;

(iv) the earlier to occur of (i), (ii) or (iii) above;

(v) the occurrence of an “Unforeseeable Emergency” within the meaning of section 409A of the Code and the guidance thereunder; or

(vi) a date specified by the Participant, provided that such date shall be no earlier than the first day of the fourth month of the Company’s fiscal year following the year during which such Restricted Stock Units are earned or time-vested;

(d) Notwithstanding the foregoing, a Participant who is a “Specified Employee” within the meaning of section 409A of the Code and the guidance thereunder, may not receive payment with respect to any deferred Restricted Stock Units earlier than 6 months following such Participant’s Separation from Service, except that in the event of any Participant’s earlier death, such Restricted Stock Units shall be paid within 30 days after the Company receives notice of the Participant’s death; and

(e) The Committee is authorized to take such action as it deems necessary and reasonable to avoid the application of the additional tax described in section 409A(a)(1)(B) of the Code to any Award deferred hereunder.

6.5. Effect of Termination on Awards. Unless otherwise specified in the Award Agreement applicable to the relevant Award, the following rules shall apply:

(a) Options: Provided the Participant has remained in service for at least 12 months following the grant of an Option to such Participant, such Participant’s Option will be exercisable following such Participant’s termination of employment as follows:

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(i) If the Participant’s termination of employment is by reason of such Participant’s death or Disability, all Options that were granted more than 12 months before such event shall become fully vested and exercisable by the Participant or his or her estate at any time prior to the expiration of the original term of the Option.

(ii) If the Participant’s termination is by reason of Retirement, all unexercisable Options that were granted more than 12 months before such Retirement date shall be immediately vested and exercisable by the Participant or his or her estate prior to the expiration of the original term of the Option provided, however, that the Committee (or the CEO in the case of an Option granted under Section 4.3 hereof) reserves the right to determine that unvested Options are forfeited. Options that were exercisable at the Participant’s Retirement shall continue to be exercisable by the Participant, or his or her estate, prior to the expiration of the original term.

(iii) If the Participant’s termination of employment is for any reason other than as described in Sections 6.5(a)(i) and 6.5(a)(ii) above, any then exercisable Option shall expire, and no longer be exercisable, by the Participant or his or her estate as of the earlier of three months following such termination or the original term of the Option.

(b) Restricted Stock and Restricted Stock Units:

(i) If the Participant’s termination of employment is by reason of such Participant’s death or Disability, all earned Restricted Stock or Restricted Stock Units shall become immediately vested and payable to the Participant, or his or her estate. The Participant, or his or her estate, shall also be eligible to receive a pro-rated payout of any unearned performance-based Restricted Stock or Restricted Stock Units, payable at the time such payment would otherwise have been made had the Participant’s employment continued, based upon the extent to which Performance Goals were met during the Performance Period.

(ii) If the Participant’s termination is by reason of Retirement, all earned Restricted Stock and Restricted Stock Units shall become immediately vested and payable to the Participant, or his or her estate. The Participant, or his or her estate shall also be eligible to receive a pro-rated payout of any unearned performance-based Restricted Stock or Restricted Stock Units, payable at the time such payment would otherwise have been made had the Participant’s employment continued, based upon the extent to which Performance Goals were met during the Performance Period. Notwithstanding the foregoing, the Committee (or the CEO in the case of an Award granted under Section 4.3 hereof) reserves the right to determine that unvested Restricted Stock and Restricted Stock Units are forfeited.

(iii) In the event of the Participant’s termination of employment for any reason other than death, Disability or Retirement, any Award of Restricted Stock or Restricted Stock Units subject to Performance Goals or other restrictions or conditions not satisfied at the time of such termination shall be forfeited.

(c) Termination for Cause: Notwithstanding anything in the Plan to the contrary, in the event a Participant’s employment with the Company or any Subsidiary is terminated for Cause, the Committee (or the CEO in the case of an Award granted under Section 4.3 hereof) may, in its sole discretion, cancel each unexercised or unvested Award granted to such Participant effective upon such termination.

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6.6. Rules Applicable to Qualified Performance-Based Awards. To the extent the Committee determines, in its sole discretion, necessary or advisable in order to comply with the deductibility limitations of section 162(m) of the Code applicable to Qualified Performance-Based Awards, the following rules shall apply:

(a) Only Employees who are “Covered Employees” within the meaning of section 162(m) of the Code shall be eligible to receive Qualified Performance-Based Awards. The Committee shall designate in its sole discretion which Covered Employees will be Participants for a Performance Period within the earlier of (x) the first 90 days of a Performance Period and (y) the lapse of 25% of the Performance Period.

(b) The Committee shall establish in writing within the earlier of (x) the first 90 days of a Performance Period and (y) the lapse of 25% of the Performance Period, and in any event, while the outcome is substantially uncertain, (i) Performance Goals for the Performance Period, and (ii) in respect of such Performance Goals, a minimum acceptable level of achievement below which no payment will be made or no Award shall vest or become exercisable, and an objective formula or other method for determining the amount of any payment to be made or the extent to which an Award hereunder shall vest or become exercisable if performance is at or above such minimum acceptable level but falls short of the maximum achievement of the specified Performance Goals.

(c) Following the completion of a Performance Period, the Committee shall review and certify in writing whether, and to what extent, the Performance Goals for the Performance Period have been achieved and, if so, calculate and certify in writing the amount of the Qualified Performance-Based Awards earned for the period based upon the Performance Goals and the related formulas or methods as determined pursuant to Section 6.6(b). The Committee shall then determine the actual amount payable or the extent to which an Award is vested or exercisable as a result of attainment of such Performance Goals under each Participant’s Award for the Performance Period, and, in doing so, may reduce or eliminate, except as otherwise provided in the Award Agreement, the amount of the Award. In no event shall the Committee have the authority to increase Award amounts to any Covered Employee. Notwithstanding anything to the contrary herein, the Committee may make appropriate adjustments when certifying the attainment of Performance Goals to reflect the occurrence of any Extraordinary Event during the Performance Period to the extent necessary to ensure that the determination of whether applicable Performance Goals were met is consistent with the basis upon which such Performance Goals were established.

(d) An Award granted, vesting or becoming exercisable with respect to a Performance Period shall be paid (unless such Award is subject to the Participant’s exercise, which exercise such Participant has not effectuated) to the Participant within a reasonable time after completion of the certification described in Section 6.6(c).

6.7. Additional Provisions Applicable to Awards. Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem

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with, or in substitution for, any other Award granted under the Plan or any Award granted under any other plan of the Company or any Subsidiary or any business entity acquired by the Company or any Subsidiary, or any other right of a Participant to receive payment from the Company or any Subsidiary.

Section 7. Exchange and Buy Out Provisions. Subject to the restrictions of Section 10 hereof, the Committee may at any time exchange or buy out any previously granted Award other than an Award with an exercise price that is less than Fair Market Value or may provide in any Award Agreement terms and conditions under which the Participant must sell, or offer to sell, to the Company any unexercised Award, whether or not vested, or any Common Stock acquired pursuant to such Award for a payment in cash, Common Stock or other property based on such terms and conditions as the Committee shall determine and communicate to the Participant at the time that such offer is made or as may be set forth in the Award Agreement.

Section 8. Change in Control. Notwithstanding any provision in this Plan to the contrary and unless otherwise provided in the applicable Participant’s Award Agreement, upon the occurrence of a Change in Control, (a) each Option then outstanding shall become immediately exercisable to the full extent of any shares of Common Stock subject thereto, (b) any remaining restrictions on shares of Restricted Stock shall immediately lapse, and (c) the Performance Goals and/or time period or periods applicable to any Restricted Stock or Restricted Stock Units shall be deemed satisfied and payment shall be made pursuant to Sections 6.1(c) and 6.3(d), respectively.

Section 9. Adjustments upon Changes in Capitalization.

9.1. In the event that the Committee shall determine that any stock dividend, recapitalization, forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, extraordinary or unusual cash distribution or other similar corporate transaction or event, affects the Common Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (a) the number and kind of shares of Common Stock which may thereafter be issued in connection with Awards, (b) the number and kind of shares of Common Stock issuable in respect of outstanding Awards, (c) the aggregate number and kind of shares of Common Stock available under the Plan, and (d) the exercise or Award-date price relating to any Award or, if deemed appropriate, make provision for a cash payment with respect to any outstanding Award; provided, however, in each case, that no adjustment shall be made that would adversely affect the status of any Award that is intended to be a Qualified Performance-Based Award.

9.2. In addition, the Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards, including any Performance Goals, in recognition of unusual or nonrecurring events (including, without limitation, events described in Section 15.1) affecting the Company or any Subsidiary, or in response to changes in applicable laws, regulations, or accounting principles. Notwithstanding the foregoing, no adjustment shall be made in any outstanding Awards to the extent that such adjustment would adversely affect the status of an Award intended to be a Qualified Performance-Based Award.

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Section 10. Changes to the Plan and Awards. The Board may amend, alter, suspend, discontinue, or terminate the Plan without the consent of the Company’s stockholders or Participants, except that any such amendment, alteration, suspension, discontinuation, or termination shall be subject to the approval of the Company’s stockholders if such action would (a) increase the number of shares subject to the Plan, except as permitted at Section 9.1 hereof, (b) constitute a repricing or exchange of any Awards issued hereunder, (c) change the provisions of this Section 10, or (d) such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Common Stock may then be listed or quoted, and the Board may otherwise, in its discretion, determine to submit other such changes to the Plan to the stockholders for approval; provided, however, that without the consent of an affected Participant, no amendment, alteration, suspension, discontinuation, or termination of the Plan may materially and adversely affect the rights of such Participant under any outstanding Award unless required to comply with any provision of the Code, applicable securities laws, or the rules of any exchange upon which the Company’s Common Stock is listed.

Section 11. No Right to Award, Employment or Service. No Participant shall have any claim to be granted any Award under the Plan, and there is no obligation that the terms of Awards be uniform or consistent among Participants. Neither the Plan nor any action taken hereunder shall be construed as giving any Employee any right to be retained in the employ of the Company or any Subsidiary. For purposes of this Plan, transfer of employment between the Company and its Subsidiaries and affiliates shall not be deemed a termination of employment.

Section 12. Taxes. Each Participant must make appropriate arrangement for the payment of any taxes relating to an Award granted hereunder. The Company or any Subsidiary is authorized to withhold from any payment relating to an Award under the Plan, including from a distribution of Common Stock or any payroll or other payment to a Participant amounts of withholding and other taxes due in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Company and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold or receive Common Stock or other property and to make cash payments in respect thereof in satisfaction of a Participant’s tax obligations. Withholding of taxes in the form of shares of Common Stock from the profit attributable to the Award shall not occur at a rate that exceeds the legally required federal and state withholding rates.

Section 13. Limits on Transferability; Beneficiaries. No Award or other right or interest of a Participant under the Plan shall be pledged, encumbered, or hypothecated to, or in favor of, or subject to any lien, obligation, or liability of such Participant to, any party, other than the Company, any Subsidiary or affiliate, or assigned or transferred by such Participant otherwise than by will or the laws of descent and distribution, and such Awards and rights shall be exercisable during the lifetime of the Participant only by the Participant or his or her guardian or legal representative. Notwithstanding the foregoing, the Committee may, in its discretion, provide that Awards or other rights or interests of a Participant granted pursuant to the Plan be transferable, without consideration, to immediate family members (i.e., children, grandchildren or spouse), to trusts for the benefit of such immediate family members and to partnerships in which such family members are the only partners. The Committee may attach to such

13

transferability feature such terms and conditions as it deems advisable. In addition, a Participant may, in the manner established by the Committee, designate a beneficiary (which may be a person or a trust) to exercise the rights of the Participant, and to receive any distribution, with respect to any Award upon the death of the Participant. A beneficiary, guardian, legal representative or other person claiming any rights under the Plan from or through any Participant shall be subject to all terms and conditions of the Plan and any Award Agreement applicable to such Participant, except as otherwise determined by the Committee, and to any additional restrictions deemed necessary or appropriate by the Committee.

Section 14. Foreign Nationals. Without amending the Plan, Awards may be granted to Employees who are foreign nationals or employed outside the United States or both, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to further the purpose of the Plan.

Section 15. Securities Law Requirements.

15.1. No Award granted hereunder shall be exercisable if the Company shall at any time determine that (a) the listing upon any securities exchange, registration or qualification under any state or federal law of any Common Stock otherwise deliverable upon such exercise, or (b) the consent or approval of any regulatory body or the satisfaction of withholding tax or other withholding liabilities, is necessary or appropriate in connection with such exercise. In any of the events referred to in clause (a) or clause (b) above, the exercisability of such Awards shall be suspended and shall not be effective unless and until such withholding, listing, registration, qualifications or approval shall have been effected or obtained free of any conditions not acceptable to the Company in its sole discretion, notwithstanding any termination of any Award or any portion of any Award during the period when exercisability has been suspended.

15.2. The Committee may require, as a condition to receive or exercise any Award, that the Participant deliver to the Company representations, warranties and agreements to the effect that any shares of Common Stock to be purchased or acquired pursuant to such Award are for investment only and without any present intention to sell or otherwise distribute such shares and that the Participant will not dispose of such shares in transactions which, in the opinion of counsel to the Company, would violate the registration provisions of the Securities Act of 1933, as amended, and the rules and regulations thereunder. The certificates issued to evidence such shares shall bear appropriate legends summarizing such restrictions on the disposition thereof.

Section 16. Termination. Unless earlier terminated, the Plan shall terminate upon the date on which all outstanding Awards have expired, terminated, been paid or otherwise provided for, and no Awards under the Plan shall thereafter be granted.

Section 17. Fractional Shares. The Company will not be required to issue any fractional shares of Common Stock pursuant to the Plan. The Committee may provide for the elimination of fractions and settlement of such fractional shares of Common Stock in cash.

Section 18. Discretion. In exercising, or declining to exercise, any grant of authority or discretion hereunder, the Committee may consider or ignore such factors or circumstances and may accord such weight to such factors and circumstances as the Committee alone and in its sole judgment deems appropriate and without regard to the effect such exercise, or declining to exercise such grant of authority or discretion, would have upon the affected Participant, any other Participant, any employee, the Company, any Subsidiary, any affiliate, any stockholder or any other person.

Section 19. Governing Law. To the extent that Federal laws (such as the Exchange Act or the Code) do not apply, the validity and construction of the Plan and any Award Agreements entered into thereunder shall be construed and enforced in accordance with the laws of the State of Delaware, but without giving effect to the choice of law principles thereof.

Section 20. Adoption of the Plan and Effective Date. The Plan shall become effective upon its approval by the stockholders of the Company, and no Award granted under this restatement shall become exercisable, realizable or vested prior to such approval.

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EX-31.1

Exhibit 31.1

CERTIFICATIONS OF PERIODIC REPORTS PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Anne L. Stevens, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q (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: November 3, 2006	/s/ Anne L. Stevens
	Anne L. Stevens, Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS OF PERIODIC REPORTS PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, M. David Kornblatt, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q (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: November 3, 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-Q Report of Carpenter Technology Corporation (the “Issuer”) on Form 10-Q for the quarter ended September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Periodic Report”), I, Anne L. Stevens, and I, M. David Kornblatt, 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.

November 3, 2006

/s/ Anne L. Stevens	/s/ M. David Kornblatt
Anne L. Stevens	M. David Kornblatt
Chairman, President and Chief Executive Officer	Senior Vice President-Finance and Chief Financial Officer