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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended June 30, 1996

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 (I.R.S. Employer
incorporation or organization) Identification No.)

101 West Bern Street, Reading, Pennsylvania 19612-4662
(Address of principal executive offices) (Zip Code)

610-208-2000
(Registrant's telephone number, including area code)

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

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

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days. Yes X . No .
--- ---
Indicate by check mark if disclosure of delinquent filers pur-
suant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of August 30, 1996, 16,617,647 shares of Common Stock of
Carpenter Technology Corporation were outstanding and the
aggregate market value of such Common Stock held by nonaffiliates
(based upon its closing transaction price on the Composite Tape
on such date) was $560,845,586.

DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference certain information from the
1996 definitive Proxy Statement.

The Exhibit Index appears on pages E-1 to E-6.


PART I

Item 1. Business

(a) General Development of Business:

Carpenter Technology Corporation, incorporated in
1904, is engaged in the manufacture, fabrication, and
distribution of specialty metals and engineered
products. There were no significant changes in the
form of organization or mode of conducting business of
Carpenter Technology Corporation (hereinafter called
the Company) during the year ended June 30, 1996,
except for the transactions described below:

On November 9, 1995, the Company acquired the net
assets of Green Bay Supply Co., Inc., for $10.8 million in
cash, including acquisition costs. Green Bay is a master
distributor which purchases specialty metal products
globally and resells them to independent distributors in the
United States. The acquisition of Green Bay enabled the
Company to continue to serve some commodity-oriented markets
while expanding its distribution channels. This investment
was accounted for using the purchase method of accounting.

On October 26, 1995, the Company acquired all of the
outstanding shares of Parmatech Corporation in exchange for
120,786 shares of treasury common stock with a fair value of
$4.5 million and paid acquisition costs. Parmatech
manufactures complex, net or near-net shape parts from a
powder metal slurry using an injection molding process. The
acquisition of Parmatech gave the Company an entry into
metal injection molding of various parts. This investment
was accounted for using the purchase method of accounting.

(b) Financial Information About Industry Segments:

The Company is primarily engaged in one business
segment - the manufacture, fabrication and distribution of
specialty metals. Additionally, the Company manufactures
certain engineered products. The engineered products
operations are not significant for separate presentation as
a segment.

(c) Narrative Description of Business:

(1) Products:

The Company processes basic raw materials such as
chromium, nickel, iron scrap and other metal alloying
elements through various melting, hot forming and cold
working facilities to produce finished products in the
form of billet, bar, rod, wire, narrow strip, special
shapes, and hollow forms in many sizes and finishes and
produces certain fabricated metal products. Sales of
finished products include:


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

SPECIAL ALLOYS -
Other special purpose alloys used in critical
components such as bearings and fasteners. Heat
resistant alloys that range from slight
modifications of the stainless steels to complex
nickel and cobalt base alloys. Alloys for
electronic, magnetic and electrical applications
with controlled thermal expansion characteristics,
or high electrical resistivity or special magnetic
characteristics. Fabrication of special stainless
steels and zirconium base alloys into tubular
products for the aircraft industry and nuclear
reactors.

TOOL AND OTHER STEEL -
Tool and die steels which are extremely hard
alloys used for tooling and other wear-resisting
components in metalworking operations such as
stamping, extrusion and machining. Other steel
includes carbon steels purchased for distribution
and other miscellaneous products.

ENGINEERED PRODUCTS -
The Company manufactures certain engineered
products, including structural ceramics, metal
injection molded products and ultra-hard wear
parts.

The products of the Company are sold primarily in
the United States and principally through its own sales
organization with service centers and sales offices
located in many of the major cities of the country.
Sales outside of the United States, including export
sales, were $96.5 million, $74.7 million and $67.1
million in fiscal 1996, 1995 and 1994, respectively.

(2) Classes of Products:

The approximate percentage of the Company's
consolidated net sales contributed by the major classes
of products for the last three fiscal years are as
follows:

1996 1995 1994
---- ---- ----
Stainless Steel 58% 56% 60%
Special Alloys 32% 33% 29%
Tool and Other Steel 7% 8% 11%
Engineered Products 3% 3% -
---- ---- ----
100% 100% 100%
==== ==== ====


(3) Raw Materials:

The Company depends on continued delivery of
critical raw materials for its day-to-day operations.
These raw materials are nickel, ferrochrome, cobalt,
molybdenum, manganese and scrap, both alloy and steel.
Some of these raw materials sources are located in
countries subject to potential interruptions of supply.
These potential interruptions could cause material
shortages and affect the availability and price.

The Company is in a strong raw material position
because of its long-term relationships with major
suppliers. These suppliers provide availability of
material and competitive prices for these key raw
materials. The Company has also established and
maintains raw material inventory at appropriate levels
at the Reading plant.

(4) Patents and Licenses:

The Company owns a number of United States and
foreign patents and has granted licenses under some or
all of them. Certain of the products produced by the
Company are covered by patents of other companies from
whom licenses have been obtained. The Company does not
consider its business to be materially dependent upon
any patent or patent rights.

(5) Seasonality of Business:

The Company's sales and earnings results are
normally influenced by seasonal factors. The first
fiscal quarter (three months ending September 30) is
typically the lowest - chiefly because of annual plant
vacation and maintenance shutdowns in this period by
the Company as well as by many of its customers. The
timing of major changes in the general economy can
alter this pattern, but over the longer time frame, the
historical patterns generally prevail. The chart below
shows the percent of net sales by quarters for the past
three fiscal years:

1996 1995 1994
---- ---- ----
Quarter Ended September 30 21% 20% 21%
Quarter Ended December 31 24% 23% 23%
Quarter Ended March 31 27% 28% 28%
Quarter Ended June 30 28% 29% 28%
---- ---- ----
100% 100% 100%
==== ==== ====


(6) Customers:

The Company is not dependent upon a single
customer, or a very few customers, to the extent that
the loss of any one or more would have a materially
adverse effect on the Company.

(7) Backlog:

As of August 31, 1996, the Company had a backlog
of orders, believed to be firm, of approximately $230.3
million, substantially all of which is expected to be
shipped within the current fiscal year. The backlog as
of August 31, 1995 was approximately $231.0 million.

(8) Competition:

The business of the Company is highly competitive.
It supplies materials to a wide variety of end-use and
geographic market segments, none of which consumes more
than about 20 percent of the Company's output, and
competes with various companies depending on end-use
segment, product or geography. There are 14 domestic
companies producing one or more similar specialty metal
products that are considered to be major competitors to
the Company in one or more product segments. The
Company also competes directly with several hundred
independent distributors of products similar to those
distributed by Carpenter's wholly owned distribution
system. Additionally, numerous foreign producers
import into the United States various specialty metal
products similar to those produced by the Company.
Furthermore, a number of different products may, in
certain instances, be substituted for the Company's
finished product.

Imports of foreign specialty steels have long been
a concern to the domestic steel industry because of the
potential for unfair pricing by foreign producers.
Such pricing practices have usually been supported by
foreign governments through direct and indirect
subsidies.

Because of these unfair trade practices, the
Company has been aggressive in filing trade actions
against foreign producers who have dumped their
specialty steel products into the United States. These
actions have been successful and have resulted in
dumping duties being assessed against imports of
stainless steel bar and stainless steel rod from
certain countries.



In February 1995, the International Trade
Commission (ITC) ruled that the domestic industry had
been injured by dumped stainless steel bar imports from
Brazil, India, Japan and Spain. As a result, the U.S.
Department of Commerce issued antidumping orders for
the collection of additional duties on all imports of
stainless steel bar from the four countries, at the
following rates:

Brazil - 19.43%
India - 3.87% to 21.02%
Japan - 61.47%
Spain - 7.74% to 62.85%

This ruling was the result of an antidumping petition
which the Company had filed in conjunction with six
other domestic producers in December 1993.

Previously, in January 1994, the U.S. Department
of Commerce had issued antidumping orders for the
collection of additional duties against all imports of
stainless steel rod from Brazil, France and India, at
the following rates:

Brazil - 24.6% to 26.5%
France - 24.59%
India - 48.8%

In September 1996, the duty rate for stainless rod imports
from France was reduced by the Commerce Department to 10.06%,
retroactive to August 1993.

The antidumping orders on stainless steel bar and
stainless steel rod will continue in effect until the
year 2000, unless further extended.

In a related matter, negotiations have begun
between the U.S. government and the European Commission
(EC) for a Multilateral Specialty Steel Agreement
(MSSA). The objective of the MSSA would be to reduce
unfair trade in specialty steel products by estab-
lishing international commitments and disciplines aimed
at eliminating subsidies and other trade-distortive
practices. The baseline for negotiations is an
agreement on principles and provisions developed over
the past year between the Specialty Steel Industry of
North America and the European steel industry group
known as Eurofer. The U.S. government hopes to expand
the scope of the current negotiations with the EC to
also include other countries and to cover basic carbon
steel products as well.

(9) Research, Product and Process Development:

The Company's expenditures for company-sponsored
research and development were approximately $13.8
million, $12.3 million and $13.6 million in fiscal
1996, 1995 and 1994, respectively.



(10) Environmental Regulations:

The Company is subject to various stringent
federal, state, and local environmental laws and
regulations. The liability for future environmental
remediation costs is evaluated by management on a
quarterly basis. Liabilities are recognized for
remedial activities, including remediation
investigation and feasibility study costs, when the
cleanup is probable and the cost can be reasonably
estimated. Recoveries of expenditures are recognized
as a receivable when they are estimable and probable.
For further information on environmental remediation,
see the Commitments and Contingencies section included
in Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note
17 to the consolidated financial statements included in
Item 8 "Financial Statements and Supplementary Data".

The costs of maintaining and operating environ-
mental control equipment were about $7.4 million and
$7.3 million for fiscal 1996 and 1995, respectively.
The capital expenditures for environmental control
equipment were $.4 million and $.5 million for fiscal
1996 and 1995, respectively. The Company anticipates
spending approximately $26.5 million on major domestic
environmental capital projects over the next five
fiscal years. Due to the possibility of unanticipated
factual or regulatory developments, the amount of
future capital expenditures may vary.

(11) Employees:

As of August 31, 1996, the Company and its affiliates
had 4,452 full-time employees.

Item 2. Properties

The locations of the Company's principal specialty metals
manufacturing and fabrication plants are: Reading, Pennsylvania;
Orangeburg, South Carolina; and San Diego, California. The
Reading and Orangeburg plants are owned in fee. The San Diego
plant is owned, but the land is leased.

The Reading plant has an annual practical melting capacity
of approximately 207,000 ingot tons of its normal product mix.
The annual tons shipped will be considerably less than the tons
melted due to finishing losses. During the years ended June 30,
1996 and 1995, the plant operated at approximately 93 percent and
87 percent, respectively, of its melting capacity.

The Company also operates sales offices and distribution and
service centers, most of which are owned, at 36 locations in 14
states and 8 foreign countries.



The plants, service centers and offices of the Company have
been acquired at various times over many years. There is an
active maintenance program to keep facilities in good condition.
In addition, the Company has had an active capital spending
program to replace equipment as needed to keep it technologically
competitive on a world-wide basis. The Company believes its
facilities are in good condition and suitable for its business
needs.

Item 3. Legal Proceedings

There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
the Company or any of its subsidiaries is a party or to which any
of their properties is subject. There are no material
proceedings to which any Director, Officer, or affiliate of the
Company, or any owner of more than five percent of any class of
voting securities of the Company, or any associate of any
Director, Officer, affiliate, or security holder of the Company,
is a party adverse to the Company or has a material interest
adverse to the interest of the Company or its subsidiaries.
There is no administrative or judicial proceeding arising under
any Federal, State or local provisions regulating the discharge
of materials into the environment or primarily for the purpose of
protecting the environment that (1) is material to the business
or financial condition of the Company (2) involves a claim for
damages, potential monetary sanctions or capital expenditures
exceeding ten percent of the current assets of the Company or (3)
includes a governmental authority as a party and involves
potential monetary sanctions in excess of $100,000.

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

Not applicable.

Executive Officers of the Registrant

Listed below are the names of corporate executive officers
as of fiscal year end, and all persons chosen to become executive
officers, including those required to be listed as executive officers
for Securities and Exchange Commission purposes, each of whom assumes
office after the annual meeting of the Board of Directors which
immediately follows the Annual Meeting of Shareholders. All of the
corporate officers listed below have held responsible positions with
the registrant for more than five years except for Robert W. Lodge,
and except for Dennis M. Draeger.


Mr. Lodge served as Vice President of Human Resources for
Johnson Matthey, Inc. from 1988 to 1991 and in various
assignments in industrial relations and human resources with
Rockwell International Corporation from 1977 to 1988. There is
no family relationship between any of the officers.

Mr. Draeger, who was a director of the Company since 1992,
resigned as a member of the Board of Directors as of June 30, 1996.
Mr. Draeger assumed his duties as Senior Vice President - Steel
Division for the company effective July 1, 1996. Prior to that
he was President of Worldwide Floor Products Operations for
Armstrong World Industries, Inc. since 1994 and he became Group
Vice President for Armstrong in 1988.

Assumed
Present
Name Age Positions Position
- ---- --- --------- --------

Robert W. Cardy 60 Chairman, President &
Chief Executive Officer July 1992
Director November 1990

G. Walton Cottrell 56 Senior Vice President -
Finance & Chief
Financial Officer January 1993

Dennis M. Draeger 55 Senior Vice President -
Steel Division July 1996

Nicholas F. Fiore 56 Senior Vice President -
Engineered Products January 1993

Robert W. Lodge 53 Vice President -
Human Resources September 1991

John R. Welty 47 Vice President,
General Counsel &
Secretary January 1993




PART II

Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters

Common stock of the Company is listed on the New York Stock
Exchange. The ticker symbol is CRS. Here are the high and low
market prices of the Company's stock for the past two fiscal
years:

Quarter Ended: 1996 1995
- -------------------------------------------------------------------
High Low High Low

September 30 $41-3/16 $33-7/8 $32-13/16 $29

December 31 $44 $37-5/8 $31-5/8 $26-9/16

March 31 $42 $35-5/8 $29-1/4 $26-5/8

June 30 $40-1/8 $32 $34-1/16 $27-3/4
- -------------------------------------------------------------------
$44 $32 $34-1/16 $26-9/16

The Company has paid quarterly cash dividends on its common
stock for 90 consecutive years. The quarterly dividend rate was
$.33 per share, $.30 per share and $.30 per share for fiscal
1996, 1995 and 1994, respectively.

The Company had 5,908 common shareholders of record as of
August 30, 1996. The balance of the information required by this
item is disclosed in Note 10 to the consolidated financial
statements included in Item 8 "Financial Statements and
Supplementary Data".


Item 6. Selected Financial Data

Five-Year Financial Summary
Dollar amounts in thousands, except per share data
(years ended June 30)

1996 1995 1994 1993 1992
- -------------------------------------------------------------------------
Summary of Operations

Net Sales $865,324 $757,532 $628,795 $576,248 $570,200
Income before extra-
ordinary charges &
cumulative effect
of changes in
accounting
principles $ 60,148 $ 47,492 $ 38,289 $ 26,534 $ 14,884
Extraordinary charges,
net of income taxes $ - $ - $ (2,039) $ - $ (1,238)
Cumulative effect of
changes in accounting
principles, net of
income taxes $ - $ - $ - $(74,676) $ -
Net income (loss) $ 60,148 $ 47,492 $ 36,250 $(48,142) $ 13,646

Financial Position
at Year-End

Total assets $911,971 $831,775 $729,911 $699,565 $714,752
Long-term debt, net $188,024 $194,762 $158,070 $189,895 $196,604

Per Share Data
Primary:
Income before extra-
ordinary charges &
cumulative effect
of changes in
accounting
principles $ 3.51 $ 2.81 $ 2.28 $ 1.55 $ .81
Net income (loss) $ 3.51 $ 2.81 $ 2.15 $ (3.11) $ .74
Fully Diluted:
Income before extra-
ordinary charges &
cumulative effect
of changes in
accounting
principles $ 3.38 $ 2.70 $ 2.20 $ 1.51 $ .81
Net income (loss) $ 3.38 $ 2.70 $ 2.08 $ (2.88) $ .74
Cash dividends-common $ 1.32 $ 1.20 $ 1.20 $ 1.20 $ 1.20

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

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

Management's Discussion of Operations

Summary

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

(in millions - except per share) 1996 1995 1994
- -------------------------------- ----------------------
Net sales $865.3 $757.5 $628.8
Net income $ 60.1 $ 47.5 $ 36.3
Primary earnings per share $ 3.51 $ 2.81 $ 2.15

Sales and earnings increased in each of the past two years as a
result of a strong market for specialty metals, selling price
increases, an improved product mix, cost reduction efforts, and
improved asset utilization. The sales and earnings results in
fiscal 1996 were records for the Company.

Fiscal 1994 results were adversely affected by an extraordinary
charge for debt retirement as described in Note 8 to the
consolidated financial statements.

The chart below shows net sales by product line for the past
three fiscal years:

(in millions) 1996 1995 1994
- ------------- ----------------------------------------
Sales % Sales % Sales %
----------------------------------------
Stainless steel $496.9 58 $424.7 56 $375.0 60
Special alloys 276.3 32 249.0 33 182.4 29
Tool and other steel 62.8 7 61.2 8 71.4 11
Engineered products 29.3 3 22.6 3 - -
----------------------------------------
Total $865.3 100 $757.5 100 $628.8 100
========================================

The following table is the approximate breakdown of sales by
end-use markets:

Years Ended June 30 1996 1995 1994
- ------------------- ------------------------
Aerospace 15% 13% 11%
Motor vehicles and equipment 13 14 15
Metal producing and distribution 11 9 8
Electrical and electronic equipment 10 12 12
General industrial equipment 10 10 11
Fabricated metal products 7 7 7
Power generation and distribution 7 7 8
Chemical and petroleum processing 6 5 5
Metal working equipment 5 6 7
Consumer durables 4 5 4
Instruments and controls 4 4 4
Housing and construction 3 3 3
Miscellaneous 5 5 5
------------------------
100% 100% 100%
========================

Results of Operations - Fiscal 1996 Versus Fiscal 1995

Sales were $865.3 million in fiscal 1996, a 14 percent increase
from the $757.5 million level in fiscal 1995. The sales
improvement was primarily due to higher unit prices and a shift
toward higher alloyed products in the Steel Division. Unit volume
of Steel Division products was slightly higher than a year ago.
Demand for specialty steel products has been at a high level,
especially in automotive, aerospace, and chemical and petroleum
processing related products. Unit selling prices for specialty
steel shipments increased by an average of 8 percent to offset
higher labor and other costs and to restore profit margins which
had eroded in prior years. A raw material surcharge was
established in fiscal 1995 to offset sharply rising raw material
costs. The product mix shifted toward more premium-melted
products and away from certain commodity-priced products.

Approximately 12 percent of the increase in sales was from the
inclusion, in fiscal 1996, of Green Bay Supply Co., Inc., a
specialty metals master distributor which was acquired in
November 1995, and Parmatech Corporation, a metal injection
molded parts business which was acquired in October 1995.

Cost of sales as a percentage of sales was 74 percent in both
years. Higher raw material, labor and other costs were offset by
increased selling prices.

Raw material costs per unit purchased increased by 11 percent
during fiscal 1996 versus the year-earlier costs as a result of
increases in the cost of nickel (9 percent), chromium (22
percent) and cobalt (6 percent). Also, in both fiscal years, the
Company purchased at a premium semi-finished and finished
products to supplement internal capacity.

Labor costs per hour for Steel Division production and
maintenance employees were up by 4 percent principally as a
result of a base wage increase in July 1995 and higher profit
sharing payments partially offset by lower medical and pension
costs.

Natural gas costs per unit consumed decreased by 2 percent versus
fiscal 1995 costs, and electricity costs per unit decreased by 3
percent.

Selling and administrative expenses fell to 13 percent of net
sales versus 14 percent last year, primarily because these costs
tend to change less rapidly than sales. Costs were higher by $9.6
million primarily because of increased usage of outside services,
additional travel costs and costs of acquired companies.

Interest expense increased by $4.4 million in fiscal 1996 versus
fiscal 1995, principally as a result of lower capitalized
interest and a higher level of debt.

Equity in losses of the Walsin-CarTech joint venture increased to
$7.0 million in fiscal 1996 versus a loss of $3.0 million last
year. Lower sales volume, reduced selling prices and lower
production levels were the primary reasons for the increased
loss. The current year loss was partially offset by a pre-tax
gain of $2.7 million on the sale of a portion of the Company's
interest in the joint venture. The gain is included in other
income on the consolidated statement of income (described in Note
4 to the consolidated financial statements).

Income taxes as a percent of pre-tax income (effective tax rate)
increased to 37 percent in fiscal 1996 from 36 percent a year
earlier. A reconciliation of the effective tax rate to the
federal statutory rate is presented in Note 16 to the
consolidated financial statements.

Results of Operations - Fiscal 1995 Versus Fiscal 1994

Sales were $757.5 million in fiscal 1995, a 20 percent increase
from the $628.8 million level in fiscal 1994. The sales
improvement was primarily due to an 8 percent increase in volume
and higher unit prices in the Steel Division. Demand for
specialty steel products has been at a high level since
January 1994, especially in automotive, equipment and
aerospace-related markets. Unit selling prices for specialty
steel shipments increased by an average of 7 percent to offset
higher labor and supply costs, and a surcharge was established to
offset sharply rising raw material costs. Also, the product mix
shifted toward more premium-melted products.

Approximately 18 percent of the increase in sales was from the
inclusion, in fiscal 1995, of Certech, Inc., and its affiliates,
a ceramics business which was acquired in July 1994 (described in
Note 3 to the consolidated financial statements).

Cost of sales as a percentage of sales increased to 74 percent
versus 73 percent in fiscal 1994 because fiscal 1994 was
favorably affected by reductions in inventories valued using the
LIFO method. The LIFO method values inventory reductions at
historical costs which were lower than current costs. This
favorable effect on costs, before taxes and profit sharing
impacts, was $24.9 million in fiscal 1994. There were no LIFO
accounting effects in fiscal 1995.

Raw material costs per unit purchased increased by 34 percent
during fiscal 1995 versus the year-earlier costs as a result of
large increases in the cost of nickel (42 percent), cobalt (52
percent) and molybdenum (77 percent). Also, in fiscal 1995,
the Company purchased at a premium semi-finished and finished
products to supplement internal capacity.


Labor costs for Steel Division production and maintenance
employees were up by 6 percent as a result of a base wage
increase in July 1994 and higher overtime and profit sharing
payments.

Natural gas costs per unit consumed decreased by 10 percent
versus fiscal 1994 costs, but electricity costs per unit
increased by 3 percent.

Selling and administrative expenses increased by $10.7 million
during fiscal 1995 due chiefly to the inclusion of Certech costs
in fiscal 1995 and increased salaried employment and severance
costs.

Interest expense was lower by $1.0 million in fiscal 1995
principally because of reduced interest rates due to the
retirement of the 12-7/8% debentures in March 1994.

Equity in losses of the Walsin-CarTech joint venture, which
became operational in January 1995, (described in Note 4 to the
consolidated financial statements) increased by $2.1 million in
fiscal 1995. Prior to that date, pre-operating costs were
deferred by the joint venture.

Income taxes as a percent of pre-tax income (effective tax rate)
decreased to 36 percent in fiscal 1995 from 39 percent a year
earlier primarily because of retroactive deferred tax effects of
an increase in the statutory federal rate in fiscal 1994. Both
years' tax rates were favorably affected by non-recurring
adjustments of deferred state taxes for changes in tax laws. A
reconciliation of the effective tax rate to the federal statutory
rate is presented in Note 16 to the consolidated financial
statements.


Management's Discussion of Cash Flow and Financial Condition

Cash Flow

Cash flow from operations was very strong over the past three
fiscal years despite working capital needs to support growth in
sales.

Inventories, excluding amounts acquired through purchases of
businesses, increased $59.6 million and $29.5 million in fiscal
1996 and 1995, respectively, due to higher sales levels of the
Steel Division. Inventories had been reduced in fiscal 1994 as a
result of the Company's continuous improvement process to reduce
lead times while still maintaining a high customer service level.

Accounts receivable, excluding amounts relating to acquisitions,
increased $14.8 million and $21.8 million in fiscal 1996 and
1995, respectively, as a result of increased fourth quarter sales
each year. The average days sales outstanding at the end of
fiscal 1996 was comparable to that of the past two fiscal years.

Capital expenditures of $48.6 million, $36.9 million and $26.6
million in fiscal 1996, 1995 and 1994, respectively, were
concentrated in the Company's Reading, Pennsylvania plant and
were used for normal replacements, modernization and incremental
capability. In fiscal 1996, the Company announced approval of
$125 million for major capital projects including a 20-ton vacuum
induction melting furnace, two vacuum arc remelting furnaces, a
narrow strip finishing facility, a bar finishing cell and a major
rebuild of its 3,000-ton press. Approximately $12 million was
spent on these projects during fiscal 1996.

During fiscal 1996, the Company acquired the businesses of Green
Bay Supply Co., Inc. and Parmatech Corporation. During fiscal
year 1995, the Company acquired Certech, Inc., and an affiliated
company and in fiscal 1994 acquired Aceros Fortuna, S.A. de C.V.,
and affiliated companies. Fiscal 1996 and 1995 also include other
less significant acquisitions. The cost of these acquisitions
totaled $48.7 million in cash and $7.7 million in common stock.
Details of these transactions are included in Note 3 to the
consolidated financial statements.

During fiscal 1996, the Company sold a portion of its interest in
Walsin-CarTech Specialty Steel Corporation, reducing its
ownership interest from 19 percent to 5 percent. The Company
received $32.7 million in cash from the sale which resulted in a
$2.7 million pre-tax gain. Details of this transaction are
included in Note 4 to the consolidated financial statements.

During fiscal 1995, $80.0 million of medium-term notes were
issued with a 7.4% average interest rate, and a portion of the
proceeds were used to retire borrowings under credit
arrangements. Details of debt and financing arrangements are
provided in Note 8 to the consolidated financial statements.

On March 1, 1994, the Company retired at a premium the entire
outstanding principal amount of $55.3 million of its 12-7/8%
debentures. The funding for this retirement came from the
Company's credit facilities.

The dividend payout rate on common stock was increased to $1.32
per share for fiscal 1996 versus $1.20 for fiscal 1995 and 1994.
The dividend rate increase was a result of the strong cash flows
from improved performance, and indicates the Company's confidence
in its future. The preferred stock dividend was maintained at
$5,362.50 per share in each of the past three fiscal years. Total
dividend payments were $23.3 million, $21.0 million and $20.8
million in fiscal 1996, 1995 and 1994, respectively.


Financial Condition

During the past three fiscal years, the Company maintained the
ability to provide adequate cash to meet its needs through strong
cash flow from operations, management of working capital and its
flexibility to use outside sources of financing to supplement
internally generated funds.

The Company ended fiscal 1996 in a sound liquidity position, with
current assets exceeding current liabilities by $152.5 million (a
ratio of 1.9 to 1). This favorable ratio is conservatively stated
because certain inventories are valued $161.9 million less than
the current cost as a result of using the LIFO method. Total debt
at June 30, 1996, was $214.0 million, or 35.3 percent of total
capital, including deferred taxes, versus 39.5 percent of total
capital, including deferred taxes, at June 30, 1995.

Financing is available under a $150.0 million financing
arrangement with a number of banks, providing for $125.0 million
of revolving credit to January 1998 and lines of credit of $25.0
million.

At June 30, 1996, the Company had $20.0 million of medium-term
debt securities available for issuance under a Shelf Registration
on file with the Securities and Exchange Commission.

In summary, the Company believes that its present financial
resources, both from internal and external sources, are adequate
to meet its foreseeable short-term and long-term liquidity needs.

Commitments and Contingencies

Environmental

The Company has environmental liabilities at some of its owned
operating facilities, and has been designated as a potentially
responsible party ("PRP") with respect to certain superfund waste
disposal sites. Additionally, the Company has been notified that
it may be a PRP with respect to other superfund sites as to which
no proceedings have been instituted against the Company. Neither
the exact amount of cleanup costs nor the final method of their
allocation among all designated PRPs at these superfund sites
has been determined. The estimated range of the reasonably
possible costs of remediation at the Company-owned operating
facilities and the superfund sites is between $8.0 million and
$18.0 million. The Company has accrued for environmental remediation
costs, including remediation investigation and feasibility study
costs, which represent management's best estimate of the probable and
reasonably estimable remediation costs. The estimated range of the
anticipated recoveries for environmental costs is between $4.0 million
and $8.0 million. Recoveries of expenditures are recognized as a
receivable when they are estimable and probable. Additional details
are provided in Note 17 to the consolidated financial statements. The
Company does not anticipate that its financial position will be
materially affected by additional environmental remediation costs,
although quarterly or annual operating results could be materially
affected by future developments.

Other

The Company is also defending various claims and legal actions,
and is subject to commitments and contingencies which are common
to its operations. The Company provides for costs relating to
these matters when a loss is probable and the amount is
reasonably estimable. Additional details are provided in Note 17
to the consolidated financial statements. While it is not
feasible to determine the outcome of these matters, in the
opinion of management, any total ultimate liability will not have
a material effect on the Company's financial position or results
of operations and cash flows.

Item 8. Financial Statements and Supplementary Data


Index to Consolidated Financial Statements and Supplementary Data


Page
----
Consolidated Financial Statements:

Report of Independent Accountants 20

Consolidated Statement of Income for the
Years Ended June 30, 1996, 1995 and 1994 21

Consolidated Statement of Cash Flows for the
Years Ended June 30, 1996, 1995 and 1994 22

Consolidated Balance Sheet as of
June 30, 1996 and 1995 23

Consolidated Statement of Changes in
Shareholders' Equity for the Years Ended
June 30, 1996, 1995 and 1994 24-25

Notes to Consolidated Financial Statements 26-47


Supplementary Data:

Quarterly Financial Data (Unaudited) 48





Report of Independent Accountants


To the Board of Directors and Shareholders
of Carpenter Technology Corporation:

We have audited the accompanying consolidated balance sheet of
Carpenter Technology Corporation and subsidiaries as of June 30,
1996 and 1995, and the related consolidated statements of income,
cash flows and changes in shareholders' equity for each of the
three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Carpenter Technology Corporation and
subsidiaries as of June 30, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles.




s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 29, 1996


Consolidated Statement of Income
Carpenter Technology Corporation

for the years ended June 30, 1996, 1995 and 1994


(in thousands, except
per share data) 1996 1995 1994
- --------------------- ----------------------------
Net sales $865,324 $757,532 $628,795
----------------------------
Costs and expenses:
Cost of sales 636,783 564,169 457,473
Selling and administrative
expenses 112,893 103,269 92,525
Interest expense 18,935 14,542 15,521
Equity in loss of joint venture 7,025 3,000 910
Other income, net (5,482) (2,019) (362)
----------------------------
770,154 682,961 566,067
----------------------------
Income before income taxes
and extraordinary charge 95,170 74,571 62,728
Income taxes 35,022 27,079 24,439
----------------------------
Income before extraordinary charge 60,148 47,492 38,289
Extraordinary charge - premium on
retirement of long-term debt,
net of income taxes - - (2,039)
----------------------------
Net income $ 60,148 $ 47,492 $ 36,250
============================


Primary earnings per common share:
Income before extraordinary
charge $ 3.51 $ 2.81 $ 2.28
Extraordinary charge - - (.13)
----------------------------
Earnings per common share $ 3.51 $ 2.81 $ 2.15
============================
Weighted average common shares
outstanding 16,677 16,327 16,130
============================
Fully-diluted earnings
per common share:
Income before extraordinary
charge $ 3.38 $ 2.70 $ 2.20
Extraordinary charge - - (.12)
----------------------------
Earnings per common share $ 3.38 $ 2.70 $ 2.08
============================
Weighted average common
shares outstanding 17,604 17,309 17,086
============================



See accompanying notes to consolidated financial statements.

Consolidated Statement of Cash Flows
Carpenter Technology Corporation
for the years ended June 30, 1996, 1995 and 1994
(in thousands) 1996 1995 1994
- -------------- ----------------------------
OPERATIONS
Net income $ 60,148 $ 47,492 $ 36,250
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation and amortization 35,226 32,479 29,887
Deferred income taxes 4,527 3,314 4,057
Prepaid pension cost (10,292) (7,933) (11,563)
Equity in loss of joint venture 7,025 3,000 910
Gain on sale of partial interest
in joint venture (2,650) - -
Extraordinary charge - - 2,039
Changes in working capital and other,
net of acquisitions:
Receivables (14,754) (21,819) (1,889)
Inventories (59,619) (29,480) 16,907
Accounts payable 21,265 15,111 10,480
Accrued current liabilities 16,244 6,800 1,984
Other, net (7,083) (5,177) 10,404
----------------------------
Net cash provided from operations 50,037 43,787 99,466
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of plant and equipment (48,621) (36,945) (26,604)
Disposals of plant and equipment 2,060 1,424 3,144
Acquisitions of businesses, net of cash received (13,301) (13,032) (22,323)
Investment in joint venture - (2,060) (49,196)
Proceeds from sale of partial
interest in joint venture 32,672 - -
----------------------------
Net cash used for investing activities (27,190) (50,613) (94,979)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES
Provided by (payments on) short-term debt (1,884) 20,145 (2,794)
Proceeds from issuance of long-term debt - 80,000 45,851
Payments on long-term debt (9,023) (55,736) (71,271)
Dividends paid (23,306) (21,045) (20,824)
Proceeds from issuance of common stock 4,590 1,745 4,245
Payments to acquire treasury stock - (3,002) -
----------------------------
Net cash provided from (used for)
financing activities (29,623) 22,107 (44,793)
- -------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (185) (565) (112)
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,961) 14,716 (40,418)
Cash and cash equivalents at beginning of year 20,120 5,404 45,822
----------------------------
Cash and cash equivalents at end of year $ 13,159 $ 20,120 $ 5,404
===============================================================================
SUPPLEMENTAL DATA:
Cash paid during the year for:
Interest payments, net of amounts capitalized $ 17,900 $ 15,441 $ 17,592
Income tax payments, net of refunds $ 20,942 $ 17,692 $ 18,066
Non-cash investing activities:
Treasury stock issued for business acquisitions $ 4,500 $ 3,200 $ -
See accompanying notes to consolidated financial statements.

Consolidated Balance Sheet
Carpenter Technology Corporation

June 30, 1996 and 1995

(in thousands, except share data) 1996 1995
- --------------------------------- -------------------
ASSETS
Current assets:
Cash and cash equivalents $ 13,159 $ 20,120
Accounts receivable, net of
allowance for doubtful accounts
($1,249 and $1,034) 137,103 118,848
Inventories 160,452 91,383
Deferred income taxes 2,113 1,827
Other current assets 11,643 8,251
------------------
Total current assets 324,470 240,429
Property, plant and equipment, net 419,472 403,580
Prepaid pension cost 91,474 81,182
Investment in joint venture 9,760 49,085
Goodwill, net 18,792 15,701
Other assets 48,003 41,798
------------------
Total assets $911,971 $831,775
==================

LIABILITIES
Current liabilities:
Short-term debt $ 18,964 $ 20,145
Accounts payable 75,811 51,162
Accrued compensation 26,088 21,457
Accrued income taxes 13,656 5,442
Other accrued liabilities 30,446 28,684
Current portion of long-term debt 7,010 7,286
------------------
Total current liabilities 171,975 134,176
Long-term debt, net of current portion 188,024 194,762
Accrued postretirement benefits 137,738 140,855
Deferred income taxes 84,460 78,415
Other liabilities and deferred income 20,697 19,622

SHAREHOLDERS' EQUITY
Preferred stock - authorized
2,000,000 shares 28,581 28,825
Common stock - authorized
50,000,000 shares 97,729 96,690
Capital in excess of par value -
common stock 13,498 6,801
Reinvested earnings 267,956 231,114
Common stock in treasury, at cost (64,483) (67,002)
Deferred compensation (22,830) (25,461)
Foreign currency translation adjustments (11,374) (7,022)
------------------
Total shareholders' equity 309,077 263,945
------------------
Total liabilities and shareholders' equity $911,971 $831,775
==================

See accompanying notes to consolidated financial statements.


Consolidated Statement of Changes in Shareholders' Equity
Carpenter Technology Corporation

for the years ended June 30, 1996, 1995 and 1994

Common Stock
Preferred -----------------
Stock Par Capital in
(in thousands, except Par Value Value Excess of Reinvested Treasury
share and per share data) of $5 of $5 Par Value Earnings Stock

- --------------------------------------------------------------------------------
Balances at June 30, 1993 $ 29,128 $ 47,542 $ 46,131 $189,241 $(66,150)
Distributions to ESOP (99) 1 11
Stock options exercised, net
of 10,308 shares exchanged 437 3,808
Restricted shares issued, net 81 900
Net income 36,250
Cash dividends:
Preferred, $5,362.50 per
share, net of income taxes (1,606)
Common, $2.40 per share (19,218)
Reduction of ESOP note
Accrued compensation
Translation adjustments
Other 32
Balances at June 30, 1994 29,029 48,061 50,882 204,667 (66,150)
Distributions to ESOP (204) 1 9
Stock options exercised, net
of 133 shares exchanged 176 1,569
Restricted shares issued, net 107 1,238 (28)
Shares purchased (3,002)
Shares issued to acquire
business 1,022 2,178
Net income 47,492
Cash dividends:
Preferred, $5,362.50 per
share, net of income taxes (1,599)
Common, $2.40 per share (19,446)
Reduction of ESOP note
Accrued compensation
Translation adjustments
Other 426
Effects of 2-for-1 common
stock split 48,345 (48,345)
Balances at June 30, 1995 28,825 96,690 6,801 231,114 (67,002)
Distributions to ESOP (244) 36 206
Stock options exercised, net
of 41,010 shares exchanged 1,003 3,587
Restricted shares cancelled (138)
Shares issued to acquire
business 1,843 2,657
Net income 60,148
Cash dividends:
Preferred, $5,362.50 per
share, net of income taxes (1,572)
Common, $1.32 per share (21,734)
Reduction of ESOP note
Accrued compensation
Translation adjustments, net
Other 1,061
Balances at June 30, 1996 $ 28,581 $ 97,729 $ 13,498 $267,956 $(64,483)
=============================================

See accompanying notes to consolidated financial statements.




Consolidated Statement of Changes in Shareholders' Equity
Carpenter Technology Corporation

for the years ended June 30, 1996, 1995 and 1994

Share Data
----------------------------------------------
Foreign Total Common Shares
Deferred Currency Share- Preferred -----------------------------------
Compen- Translation holders' Shares Net
sation Adjustments Equity Issued Issued Treasury Outstanding

------------------------------ ----------------------------------------------
Balances at June 30, 1993 $(27,431) $ - $218,461 461.2 9,508,355 (1,522,584) 7,985,771
Distributions to ESOP (87) (1.3) 215 215
Stock options exercised, net
of 10,308 shares exchanged 4,245 87,351 87,351
Restricted shares issued, net (981) - 16,260 (20) 16,240
Net income 36,250
Cash dividends:
Preferred, $5,362.50 per
share, net of income taxes (1,606)
Common, $2.40 per share (19,218)
Reduction of ESOP note 941 941
Accrued compensation 1,085 1,085
Translation adjustments (959) (959)
Other 32
Balances at June 30, 1994 (26,386) (959) 239,144 459.9 9,612,181 (1,522,604) 8,089,577
Distributions to ESOP (194) (3.2) 179 179
Stock options exercised, net
of 133 shares exchanged 1,745 35,272 35,272
Restricted shares issued, net (1,317) - 21,350 (500) 20,850
Shares purchased (3,002) (53,124) (53,124)
Shares issued to acquire
business 3,200 53,124 53,124
Net income 47,492
Cash dividends:
Preferred, $5,362.50 per
share, net of income taxes (1,599)
Common, $2.40 per share (19,446)
Reduction of ESOP note 1,071 1,071
Accrued compensation 1,171 1,171
Translation adjustments (6,063) (6,063)
Other 426
Effects of 2-for-1 common
stock split - 9,668,982 (1,523,104) 8,145,878
Balances at June 30, 1995 (25,461) (7,022) 263,945 456.7 19,337,964 (3,046,208) 16,291,756
Distributions to ESOP (2) (3.6) 7,251 7,251
Stock options exercised, net
of 41,010 shares exchanged 4,590 200,536 200,536
Restricted shares cancelled 138 - (4,652) (4,652)
Shares issued to acquire
business 4,500 120,786 120,786
Net income 60,148
Cash dividends:
Preferred, $5,362.50 per
share, net of income taxes (1,572)
Common, $1.32 per share (21,734)
Reduction of ESOP note 1,209 1,209
Accrued compensation 1,284 1,284
Translation adjustments, net (4,352) (4,352)
Other 1,061
Balances at June 30, 1996 $(22,830) $(11,374) $309,077 453.1 19,545,751 (2,930,074) 16,615,677
================================================================================

See accompanying notes to consolidated financial statements.




Notes to Consolidated Financial Statements
__________


1. Summary of Significant Accounting Policies

Description of Business - The Company is primarily engaged
in one business segment - the manufacture, fabrication and
distribution of specialty metals. Sales of finished products
include stainless steels, special alloys and tool steels in
the forms of bar, rod, wire and strip. Additionally, the
Company manufactures certain engineered products including
structural ceramics, metal injection molded products and
ultra-hard wear parts. The engineered products are not a
significant part of the business and therefore are not
presented as a separate business segment.

The products of the Company are sold primarily in the United
States and principally through its own sales organization,
with service centers and sales offices located in many of
the major cities of the country.

Basis of Consolidation - The consolidated financial
statements include the accounts of the Company and all
majority-owned subsidiaries. All significant intercompany
accounts and transactions are eliminated. The equity method
of accounting is used when the Company has a 20%-50%
interest in other entities and for investments in corporate
joint ventures. Under the equity method, the original
investment is recorded at cost and adjusted by the Company's
share of undistributed earnings or losses of the entity. All
other investments are carried at cost.

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

Inventories - Inventories are valued at the lower of cost or
market. Cost for inventories is principally determined by
the Last-In, First-Out (LIFO) method. The Company also uses
the First-In, First-Out (FIFO) and average cost methods.

Depreciation - Depreciation for financial reporting purposes
is computed by the straight-line method. This method
allocates depreciation equally over the estimated useful
lives of the assets. Depreciation for income tax purposes is
computed using accelerated methods.



1. Summary of Significant Accounting Policies (continued)

Goodwill - Goodwill, representing the excess of the purchase
price over the estimated fair value of the net assets of
companies acquired to date, is being amortized on a
straight-line basis over periods not to exceed 20 years, the
estimated life of the goodwill. The Company's policy is to
record an impairment loss against the goodwill in the period
when it is determined that the carrying amount of the asset
may not be recoverable. This determination includes
evaluation of factors such as current market value, future
asset utilization, business climate and future cash flows
expected to result from the use of the net assets.

Environmental Expenditures - Environmental expenditures that
pertain to current operations or to future revenues are
expensed or capitalized consistent with the Company's
capitalization policy. Expenditures that result from the
remediation of an existing condition caused by past
operations and that do not contribute to current or future
revenues are expensed. Liabilities are recognized for
remedial activities, including remediation investigation and
feasibility study costs, when the cleanup is probable and
the cost can be reasonably estimated. Recoveries of
expenditures are recognized as a receivable when they are
estimable and probable.

Foreign Currency Translation - Assets and liabilities of
foreign operations, where the functional currency is the
local currency, are translated into U.S. dollars at the
fiscal year end exchange rate. Revenues and expenses are
translated using average exchange rates prevailing during
the year. The related translation adjustments are recorded
as cumulative translation adjustments, a separate component
of shareholders' equity. Foreign currency exchange gains and
losses are included in net income. Realized and unrealized
foreign currency exchange gains and losses for the years
presented were not material.

Futures Contracts and Commodity Price Swaps - In connection
with the anticipated purchase of raw materials for certain
fixed-price sales arrangements, the Company enters into
futures contracts and commodity price swaps to reduce the
risk of cost increases. These futures contracts and
commodity price swaps are accounted for as hedges, and,
accordingly, unrealized gains and losses are deferred and
included in cost of sales in the periods when the purchases
are made.



1. Summary of Significant Accounting Policies (continued)

Earnings per Common Share - Primary earnings per common
share are computed by dividing net income (less preferred
dividends, net of tax benefits) by the weighted average
number of common shares and common share equivalents
outstanding during the period. On a fully-diluted basis,
both net earnings and shares outstanding are adjusted to
assume the conversion of the convertible preferred stock.

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

Accounting Pronouncements - The Financial Accounting
Standards Board issued Statement of Financial Accounting
Standard ("SFAS") 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
of," and SFAS 123, "Accounting for Stock-Based Compensation"
which become effective for fiscal years beginning after
December 15, 1995. The Company will adopt these statements
effective July 1, 1996. SFAS 121 establishes criteria for
recognizing, measuring and disclosing impairments of
long-lived assets, identifiable intangibles and goodwill.
The Company does not expect that the adoption of SFAS 121
will have a material effect on its financial position or
results of operations. SFAS 123 allows entities to choose
between a new fair value based method of accounting for
stock-based compensation and the current method of
accounting prescribed by Accounting Principles Board Opinion
25 (APB 25). Entities electing to continue using APB 25 must
make pro forma disclosures of net income and earnings per
share as if the fair market value method of accounting had
been applied. The Company expects to continue accounting for
stock-based compensation in accordance with APB 25. The pro
forma effect for fiscal 1996 has not yet been determined.



1. Summary of Significant Accounting Policies (continued)

Company-Owned Life Insurance Program - The Company has a
company-owned life insurance program covering essentially
all of the U.S.-based employees. At June 30, 1996 and 1995,
the cash surrender values, $81.4 million and $54.4 million,
and the insurance policy loans, $80.7 million and $53.9
million, respectively, were netted and included in other
assets on the consolidated balance sheet. The purpose of the
program is to provide cash to fund employee benefit
obligations and for other corporate purposes.

Reclassifications - Certain reclassifications of prior
years' amounts have been made to conform with the current
year's presentation.

2. Two-for-One Common Stock Split

On August 10, 1995, the Board of Directors of the Company
declared a two-for-one common stock split which was
distributed to shareholders of record on September 1, 1995.
The par value of common shares remained at $5 per share.

The effect of the stock split has been retroactively
reflected as of June 30, 1995, in the consolidated balance
sheet and statement of changes in shareholders' equity, but
activity for fiscal 1995 and prior periods was not restated
in those statements. All references to the number of common
shares and per share amounts elsewhere in the consolidated
financial statements and related footnotes have been
restated to reflect the effect of the split for all periods
presented.

3. Acquisitions of Businesses

During the past three fiscal years, the Company acquired the
entities described below, which were accounted for by the
purchase method of accounting:

On November 9, 1995, the Company acquired the net
assets of Green Bay Supply Co., Inc., for $10.8 million
in cash, including acquisition costs. Green Bay is a
master distributor which purchases specialty metal
products globally and resells them to independent
distributors in the United States. The purchase price
approximates the fair value of the assets acquired.



3. Acquisitions of Businesses (continued)

On October 26, 1995, the Company acquired all of the
outstanding shares of Parmatech Corporation in exchange
for 120,786 shares of treasury common stock with a fair
value of $4.5 million and paid acquisition costs.
Parmatech manufactures complex, net or near-net shape
parts from a powder metal slurry using an injection
molding process. The excess of purchase price over the
fair values of the net assets acquired was $4.1 million
and has been recorded as goodwill, which is being
amortized on a straight-line basis over 20 years.

On July 22, 1994, the Company acquired all of the
outstanding shares of Certech, Inc., and an affiliated
company, for $16.7 million, including acquisition
costs, comprised of $13.5 million in cash and 106,248
shares of treasury common stock. Certech manufactures a
broad line of complex injection molded ceramics parts.
The excess of purchase price over the fair values of
the net assets acquired was $8.2 million and has been
recorded as goodwill, which is being amortized on a
straight-line basis over 20 years.

On July 28, 1993, the Company acquired all of the
outstanding shares of Aceros Fortuna, S.A. de C.V., a
Mexican steel distribution company, and two affiliated
companies for cash of $20.4 million, paid $2.5 million
for agreements not to compete and paid acquisition
costs. In addition, the Company acquired equipment from
an affiliated company in Mexico for $5.1 million. The
excess of the purchase price over the fair values of
the net assets acquired was $8.2 million and has been
recorded as goodwill, which is being amortized on a
straight-line basis over 20 years.

Fiscal 1996 and 1995 also include other acquisitions
which are immaterial.



3. Acquisitions of Businesses (continued)

The purchase prices have been allocated to the assets
purchased and the liabilities assumed based upon the fair
values on the dates of acquisition, as follows:

(in thousands) 1996 1995 1994
-------------- ---------------------------
Working capital, other
than cash $ 9,457 $ 1,894 $ 6,552
Property, plant and
equipment 4,612 10,200 6,634
Other assets 2,158 1,740 2,661
Goodwill 4,094 8,154 8,213
Noncurrent liabilities (2,520) (5,756) (1,737)
---------------------------
Purchase price, net of
cash received $17,801 $16,232 $22,323
===========================

The operating results of these acquired businesses have been
included in the consolidated statement of income from the
dates of acquisition. On the basis of a pro forma
consolidation of the results of operations as if the
acquisitions in fiscal 1996 and 1995 had taken place at the
beginning of fiscal 1995, consolidated net sales would have
been $879.8 million for fiscal 1996, and $793.3 million for
fiscal 1995. Consolidated pro forma net income and earnings
per share would not have been materially different from the
reported amounts for fiscal 1996 and 1995. Such pro forma
amounts are not necessarily indicative of what the actual
consolidated results of operations might have been if the
acquisitions had been effective at the beginning of fiscal
1995.

4. Investment in Joint Venture

The Company's investment in Walsin-CarTech Specialty Steel
Corporation, a corporate joint venture in Taiwan with Walsin
Lihwa Corporation, was $9.8 million at June 30, 1996 and
$49.1 million at June 30, 1995. This investment is being
accounted for using the equity method of accounting. The
investment account has been increased for interest costs
capitalized during the pre-operating period and acquisition
costs. As these costs are amortized, the investment account
is reduced. The Company's share of the joint venture's
foreign currency translation adjustments is reflected in
both the investment account and shareholders' equity on the
consolidated balance sheet.



4. Investment in Joint Venture (continued)

From inception on September 2, 1993 through March 19, 1996,
the Company owned a 19 percent interest in the joint
venture, which became operational in January 1995. On March
19, 1996, the Company sold a portion of its interest in the
joint venture to Walsin Lihwa Corporation, reducing its
ownership interest to 5 percent. The Company received $32.7
million in cash from the sale which resulted in a $2.7
million pre-tax gain, which is included in other income on
the consolidated statement of income. Additionally, Walsin
Lihwa may acquire the Company's remaining 5 percent interest
for the original purchase cost, plus interest at any time
prior to March 19, 1998. Walsin Lihwa holds the right of
first refusal should the Company seek to sell its remaining
interest in the joint venture.

A separate agreement also provides for the Company to
provide marketing and technical assistance to the joint
venture in exchange for an initial lump sum royalty payment
of $10.0 million, received in October 1993, and continuing
royalties based on sales of stainless steel over the 10-year
term of the agreement. The initial lump sum royalty has been
deferred and is being recognized as income over the term of
the agreement.

In addition, the joint venture and the Company have a
distribution agreement establishing the Company as a
distributor of the joint venture's products in North,
Central and South America.

5. Inventories

June 30
(in thousands) 1996 1995
-------------- ------------------
Finished and purchased products $129,184 $ 92,930
Work in process 134,751 110,468
Raw materials and supplies 58,388 41,602
------------------
Total at current cost 322,323 245,000
------------------
Less excess of current cost
over LIFO values 161,871 153,617
------------------
$160,452 $ 91,383
==================


5. Inventories (continued)

Current cost of LIFO-valued inventories was $280.1 million
at June 30, 1996 and $219.7 million at June 30, 1995.
Reductions in LIFO-valued inventories resulted in an
increase in income before the extraordinary charge of
approximately $12.1 million or $.75 per share in the year
ended June 30, 1994. There were no LIFO accounting effects
in the years ended June 30, 1996 and 1995.

6. Property, Plant and Equipment

June 30
(in thousands) 1996 1995
-------------- ------------------
Land $ 7,374 $ 7,222
Buildings and building equipment 154,871 151,151
Machinery and equipment 620,153 594,579
Construction in progress 27,299 10,803
------------------
Total at cost 809,697 763,755
------------------
Less accumulated depreciation
and amortization 390,225 360,175
------------------
$419,472 $403,580
==================

The estimated useful lives are principally 45 years for
buildings and 20 years for machinery and equipment. The
ranges are as follows:

Estimated Useful Lives
Buildings and building equipment:
Land improvements 20 years
Buildings and equipment 20 to 45 years

Machinery and equipment:
Machinery and equipment 5 to 20 years
Autos and trucks 3 to 6 years
Office furniture and equipment 3 to 10 years

For the years ended June 30, 1996, 1995 and 1994, depreciation expense
was $33.7 million, $31.2 million and $29.0 million, respectively.



7. Other Accrued Liabilities

June 30
(in thousands) 1996 1995
-------------- ------------------
Medical expenses $ 10,690 $ 10,645
Interest 5,557 4,872
Environmental costs 1,298 1,593
Other 12,901 11,574
------------------
$ 30,446 $ 28,684
==================

8. Debt Arrangements

During fiscal 1995, the Company issued $80.0 million of
medium-term debt securities with a 7.38% average interest
rate under a Form S-3 registration statement ("Shelf
Registration") on file with the Securities and Exchange
Commission. The proceeds were used to retire borrowings
under credit arrangements. At June 30, 1996, the Company had
an additional $20.0 million of medium-term debt securities
available for issuance under the Shelf Registration.

The Company has a $150.0 million financing arrangement with
a number of banks, providing for the availability of $125.0
million of revolving credit to January 1998 and lines of
credit of $25.0 million. Interest is based on short-term
market rates or competitive bids. At June 30, 1996, there
were no borrowings outstanding under the revolving credit
agreement, $9.0 million outstanding under the lines of
credit and an additional $10.0 million of short-term debt
outstanding consisting of commercial paper.

For the years ended June 30, 1996, 1995 and 1994, interest
cost totaled $19.3 million, $17.8 million and $19.6 million,
of which $.4 million, $3.3 million and $4.1 million,
respectively, was capitalized.



8. Debt Arrangements (continued)

The weighted average interest rates for short-term
borrowings during fiscal 1996 and 1995 were 6.0% and 6.1%,
respectively.

Long-term debt outstanding at June 30, 1996 and 1995,
consists of the following:

(in thousands) 1996 1995
-------------- ------------------
9% Sinking fund debentures due 2022;
sinking fund requirements are
$5.0 million annually from 2003 to 2021 $ 99,559 $ 99,542
Medium-term notes at 6.78% to 7.80%
due from 1998 to 2005 80,000 80,000
10.45% Senior notes, series B,
due in annual installments of
$3.0 million through 1999 9,000 12,000
9.4% Notes due in annual installments
of $3.6 million through 1997 3,571 7,143
Capitalized lease obligations at
7.6% to 10.1% due in installments
through 2006 2,233 2,351
Other 671 1,012
------------------
Total 195,034 202,048
------------------
Less amounts due within one year 7,010 7,286
------------------
$188,024 $194,762
==================

Aggregate maturities of long-term debt for the four years
subsequent to June 30, 1997 are $3.3 million in fiscal 1998,
$13.3 million in fiscal 1999, $15.2 million in fiscal 2000,
and $10.1 million in fiscal 2001.

During fiscal 1994, the Company used proceeds from the
revolving credit facilities to retire at a premium $55.3
million of its 12-7/8% debentures originally due in 2014.
This retirement resulted in an extraordinary charge after
taxes of $2.0 million including unamortized discount and
issue costs, or $.13 per share. Although the funding for the
retirement originally came from the Company's credit
facilities, it was replaced with the medium-term debt
securities described earlier.

The Company's financing arrangements contain restrictions
which, among other things, limit the aggregate amount of the
Company's dividends. Reinvested earnings available for
dividends at June 30, 1996, were approximately $132.8
million.


9. Financial Instruments

The Company's financial instrument portfolio is comprised of
cash and cash equivalents, raw material futures contracts
and commodity price swaps, company-owned life insurance, and
short- and long-term debt instruments.

The carrying amounts for cash, cash equivalents, and
short-term debt approximate their fair values due to the
short maturities of these instruments. The carrying amount
for company-owned life insurance is based on cash surrender
values determined by the insurance carriers.

The fair value of long-term debt as of June 30, 1996 and
1995, determined by using current interest rates and market
values of similar issues, was approximately $205.5 million
and $208.7 million, respectively.

The fair value of raw material futures contracts and
commodity price swaps is based on quoted market prices for
these instruments. At June 30, 1996 and 1995, the Company
had entered into contracts hedging future commodity
purchases of approximately $21.6 million and $9.1 million,
respectively. The fair market value of these contracts was
$20.3 million and $12.2 million, respectively.

10. Common Stock Purchase Rights

The Company has issued one common stock purchase right
("Right") for every outstanding share of common stock.
Except as otherwise provided in the Rights Agreement, the
Rights will become exercisable and separate Rights
certificates will be distributed to the shareholders: (1) 10
days following the acquisition of 20 percent or more of the
Company's common stock, (2) 10 business days (or such later
date as the Board may determine) following the commencement
of a tender or exchange offer for 20 percent or more of the
Company's common stock, or (3) 10 days after the Company's
Board of Directors determines that a holder of 15 percent or
more of the Company's shares has an interest adverse to
those of the Company or its shareholders (an "adverse
person"). Upon distribution, each Right would then entitle a
holder to buy from the Company one newly issued share of its
common stock for an exercise price of $145. After
distribution, upon: (1) any person acquiring 20 percent of
the outstanding stock (other than pursuant to a fair offer
as determined by the Board), (2) a 20 percent holder
engaging in certain self-dealing transactions, (3) the
determination of an adverse person, or (4) certain mergers
or similar transactions between the Company and holder of 20


10. Common Stock Purchase Rights (continued)

percent or more of the Company's common stock, each Right
(other than those held by the acquiring party) entitles the
holder to purchase shares of common stock of either the
acquiring company or the Company (depending on the
circumstances) having a market value equal to twice the
exercise price of the Right. The Rights may be redeemed by
the Company for $.025 per Right at any time before they
become exercisable. In fiscal 1996 the Rights Agreement was
extended by the Board of Directors to June 26, 2006.

11. Stock-Based Compensation

The Company has three stock-based compensation plans for
officers and key employees: a 1993 plan, a 1982 plan and a
1977 plan.

1993 Plan:

The 1993 plan provides that the Board of Directors may grant
incentive stock options, non-qualified stock options, stock
appreciation rights and restricted stock, and determine the
terms and conditions of each grant. In fiscal 1996, the plan
was amended, subject to Shareholder approval, to provide for
performance share awards. As of June 30, 1996 and 1995,
1,530,303 and 10,186 shares, respectively, were reserved for
options and share awards which may be granted under this
plan.

Stock option grants under this plan must be at no less than
market value on the date of grant, are exercisable after one
year of employment following the date of grant, and will
expire no more than ten years after the date of grant.

Restricted stock awards vest equally at the end of each year
of employment for the five-year period from the date of
grant. When the restricted shares are issued, deferred
compensation is recorded in the shareholders' equity section
of the consolidated balance sheet. The deferred compensation
is charged to expense over the vesting period. During fiscal
1996, 1995 and 1994, $.6 million, $.3 million and $.2
million, respectively, were charged to expense for vested
restricted shares.


11. Stock-Based Compensation (continued)

Performance share awards are earned only if the Company
achieves certain performance levels over a three-year
period. The awards are payable in shares of common stock and
expensed over the three-year performance period. In June
1996, 18,400 performance share awards were granted
contingent on performance over the next three fiscal years.
There was no charge to expense for these awards in fiscal
1996.

1982 and 1977 Plans:

The 1982 plan expired in June 1992; however, all outstanding
unexpired options granted prior to that date remain in
effect. Under the 1982 and 1977 plans, options are granted
at the market value on the date of grant, and are
exercisable after one year of employment following the date
of grant. Under the 1982 plan, options granted since August
9, 1990 expire ten years after grant, while options granted
prior to that date have expired. Options granted under the
1977 plan expire ten years after grant. At June 30, 1996 and
1995, 164,620 and 284,720 shares, respectively, were
reserved for options which may be granted under the 1977
plan.

The Company also has a stock option plan which provides for
the granting of stock options to non-employee Directors.
Options are granted at the market value on the date of the
grant and are exercisable after one year of Board service
following the date of grant. Options expire ten years after
the date of grant. At June 30, 1996 and 1995, 157,000 and
89,000 shares, respectively, were reserved for options which
may be granted under this plan.


11. Stock-Based Compensation (continued)

A summary of the option activity under all plans for the
past three years follows:

Number of Option Price
Shares per Share
-----------------------
Balance June 30, 1993 786,070 $19.00-$27.06
Granted 136,760 $26.88-$30.19
Exercised (195,318) $19.00-$25.75
Cancelled (3,160) $24.12-$27.06
-----------------------
Balance June 30, 1994 724,352 $19.00-$30.19
Granted 144,000 $28.32-$32.56
Exercised (70,810) $22.38-$30.19
Cancelled (3,390) $24.12-$30.19
-----------------------
Balance June 30, 1995 794,152 $19.00-$32.56
Granted 270,500 $33.00-$39.12
Exercised (241,546) $19.00-$30.19
Cancelled (9,600) $28.32-$32.56
-----------------------
Balance June 30, 1996 813,506 $19.00-$39.12
=======================
At June 30, 1996, 543,006 of the 813,506 options outstanding
were exercisable. Of the options outstanding at June 30,
1996, 428,830 relate to the 1993 plan, 146,574 relate to the
1982 plan, 154,580 relate to the 1977 plan and 83,522 relate
to the plan for non-employee Directors. No adjustments to
income are made with respect to options granted or exercised
under the plans.

12. Pension Plans

The Company has several noncontributory defined benefit pension
plans, which cover a majority of its employees. The benefits are
based primarily upon employees' years of service and average
earnings prior to retirement. The Company's funding policy for
the domestic plans is to contribute, at a minimum, amounts
sufficient to meet ERISA requirements. Plan assets are held in
trust, and consist primarily of publicly traded common stocks and
fixed income instruments.


12. Pension Plans (continued)

Net pension credits included the following components:

(in thousands) 1996 1995 1994
-------------- ----------------------------
Service cost of benefits earned $ 11,439 $ 9,852 $ 9,891
Interest cost on projected
benefit obligation 28,852 27,255 25,576
Return on plan assets:
Actual (96,868) (83,917) (8,351)
Deferred gain (loss) 50,363 42,733 (34,297)
Net amortization and deferral (2,240) (2,727) (3,304)
----------------------------
Net pension credits $ (8,454) $ (6,804) $(10,485)
============================
Principal actuarial assumptions:
Discount rate 7.5% 8.0% 7.5%
Long-term rate of compensation
increase 4.5% 4.5% 4.5%
Long-term rate of return on
plan assets 9.0% 9.0% 9.0%

The .5% discount rate changes decreased the pension credit
by $.8 million in fiscal 1996 and increased the pension
credit by $.7 million in fiscal 1995.

The funded status of these plans at June 30, 1996 and 1995
is summarized as follows:

Overfunded Plans Underfunded Plans
(in thousands) 1996 1995 1996 1995
-------------- --------------------------------------
Plan assets at fair value $598,648 $527,009 $ 1,888 $ 1,378
--------------------------------------
Actuarial present value of
benefit obligations:
Vested 310,648 271,332 9,006 7,214
Non-vested 60,433 55,694 397 332
--------------------------------------
Accumulated benefit obligation 371,081 327,026 9,403 7,546
Effect of future com-
pensation increases 64,531 58,225 3,248 3,393
--------------------------------------
Projected benefit obligation 435,612 385,251 12,651 10,939
--------------------------------------
Plan assets in excess of
(less than) projected
benefit obligation $163,036 $141,758 $(10,763) $ (9,561)
Unrecognized net (gain) loss -
experience different from
assumptions (90,990) (47,565) 3,527 3,008
Unrecognized transition
(asset) obligation (14,491) (17,387) 417 463
Unrecognized prior service cost 33,919 4,376 294 717
--------------------------------------
Prepaid (accrued) pension cost $ 91,474 $ 81,182 $ (6,525) $ (5,373)
======================================
Principal actuarial assumptions:
Discount rate 7.5% 7.5% 8.1% 7.1%
Long-term rate of
compensation increase 4.5% 4.5% 6.8% 6.0%


12. Pension Plans (continued)

The actuarial present value of the projected benefit
obligation is computed assuming the continuing existence of
the plans. The obligation to fund these plans would be
substantially higher than the accumulated benefit obligation
if the plans were terminated.

In fiscal 1996, the domestic pension plans were amended to
provide an improved pension formula for participants and a
pension increase for participants who retired before January
1, 1992. These amendments increased the prior service cost
as of June 30, 1996 by $29.9 million.

The underfunded plans include the pension plan of the
Company's Mexican operations and several supplemental
retirement plans for certain key employees and outside
directors. During fiscal 1995, the Company established a
company-owned life insurance program covering certain key
employees and outside directors. The purpose of the program
is to provide for the Company's obligation under the
supplemental retirement plans. As of June 30, 1996 and 1995,
the cash surrender value of $4.2 million and $2.0 million,
respectively, was included in other assets on the
consolidated balance sheet.

The Company also maintains defined contribution pension and
savings plans for substantially all domestic employees. The
Company contributions were $4.8 million in fiscal 1996, $4.5
million in fiscal 1995 and $3.7 million in fiscal 1994.
There were 1,357,110 common shares reserved for issuance
under the savings plans at June 30, 1996.

13. Postretirement Medical and Life Insurance Benefits

In addition to pension plan benefits, the Company provides
health care and life insurance benefits for a majority of
its retired employees and covered dependents. Eligible
employees receive these benefits upon normal retirement.

Expense of postretirement medical and life insurance
benefits consisted of the following components:

(in thousands) 1996 1995 1994
------------- ----------------------------
Service cost of benefits earned $ 2,317 $ 2,287 $ 2,803
Interest cost on accumulated
postretirement benefit obligation 9,767 10,317 10,622
Return on plan assets:
Actual (4,548) (6,023) 370
Deferred gain (loss) 2,274 4,675 (1,341)
Net amortization and deferral (1,575) (1,031) -
----------------------------
Postretirement medical and
life insurance benefits expense $ 8,235 $ 10,225 $ 12,454
============================
Principal actuarial assumptions:
Discount rate 7.5% 8.0% 7.5%
Return on plan assets 9.0% 9.0% 9.0%
Trend rate - beginning* 10.0% 11.0% 12.0%
Trend rate - ultimate 6.0% 6.0% 6.0%

*Declines 1% per year to the ultimate rate.

The .5% discount rate changes increased expense $.7 million in
fiscal 1996 and decreased expense $.8 million in fiscal 1995.


13. Postretirement Medical and Life Insurance Benefits (continued)

The funded status of the postretirement medical and life
insurance benefit plans at June 30, 1996 and 1995, is
summarized as follows:

(in thousands) 1996 1995
-------------- ------------------
Accumulated postretirement
benefit obligation (APBO):
Retirees $ 90,669 $ 83,879
Fully eligible active
plan participants 24,751 20,702
Other active plan participants 28,968 28,555
------------------
Total APBO 144,388 133,136
Plan assets at fair value 33,624 24,586
------------------
APBO in excess of plan assets 110,764 108,550
Unrecognized net gain 35,074 38,477
Unrecognized prior service cost (2,111) (1,441)
------------------
Accrued postretirement benefits $143,727 $145,586
==================

Principal actuarial assumptions:
Discount rate 7.5% 7.5%
Trend rate - beginning* 9.0% 10.0%
Trend rate - ultimate 6.0% 6.0%

*Declines 1% per year to the ultimate rate.


The health-care cost trend rate assumption has a significant
effect on the amounts reported. If the assumed health-care
cost trend rate was increased by 1 percent, the APBO at June
30, 1996 would increase by $18.0 million and the
postretirement benefit expense for fiscal 1996 would have
increased by $1.7 million.

The Company has been voluntarily contributing amounts into a
Voluntary Employee Trust Fund (VEBA) since fiscal 1992. Plan
assets are invested in trust-owned life insurance.


14. Employee Stock Ownership Program

The Company has a leveraged employee stock ownership plan
("ESOP") to assist a majority of its employees with their
future retiree medical obligations. The Company issued 461.5
shares of convertible preferred stock at $65,000 per share
to the ESOP in exchange for a $30.0 million 15-year, 9.345%
note which is included in the shareholders' equity section
of the consolidated balance sheet as deferred compensation.
The preferred stock is recorded net of related issuance
costs.

Principal and interest obligations on the note are satisfied
by the ESOP as the Company makes contributions to the ESOP
and dividends are paid on the preferred stock. As payments
are made on the note, shares of preferred stock are
allocated to participating employees' accounts within the
ESOP. The Company contributed $1.3 million in fiscal 1996,
$1.1 million in fiscal 1995 and $.9 million in fiscal 1994
to the ESOP. Compensation expense related to the plan was
$2.0 million in fiscal 1996 and 1995 and $2.1 million in
fiscal 1994.

As of June 30, 1996, the ESOP held 453.1 shares of the
convertible preferred stock, consisting of 116.1 allocated
shares and 337.0 unallocated shares. Each preferred share is
convertible into 2,000 shares of common stock. There are
906,109 common shares reserved for issuance under the ESOP
at June 30, 1996. The shares of preferred stock pay a
cumulative annual dividend of $5,362.50 per share, are
entitled to vote together with the common stock as a single
class and have 2,600 votes per share. The stock is
redeemable at the Company's option at any time after
September 5, 1996 at an initial price of $67,600 per share,
declining to $65,000 per share by 2001.

15. Supplemental Data

(in thousands) 1996 1995 1994
-------------- ----------------------------
Research and development $ 13,825 $ 12,302 $ 13,597
Repairs and maintenance $ 53,369 $ 49,305 $ 42,862



16. Income Taxes

Provisions for income taxes consisted of the following:

(in thousands) 1996 1995 1994
-------------- ----------------------------
Current:
Federal $ 28,057 $ 20,117 $ 18,040
State 2,018 2,488 798
Foreign 420 1,160 1,544

Deferred:
Federal 3,589 4,332 4,937
State (211) (1,437) (128)
Foreign 1,149 419 (752)
----------------------------
$ 35,022 $ 27,079 $ 24,439
============================

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

(% of pre-tax income) 1996 1995 1994
--------------------- -------------------------
Federal tax rate 35.0% 35.0% 35.0%
Increase (decrease) in
taxes resulting from:
State income taxes, net
of federal tax benefit 2.0 4.1 1.7
Federal and state tax
rate changes (0.5) (2.0) 1.4
Other, net 0.3 (0.8) 0.9
-------------------------
Effective tax rate 36.8% 36.3% 39.0%
=========================

Deferred taxes are recorded based upon temporary differences
between financial statement and tax bases of assets and
liabilities. The following deferred tax liabilities and
assets were recorded as of June 30, 1996 and 1995:

(in thousands) 1996 1995
------------- ------------------
Deferred tax liabilities:
Depreciation and amortization $110,906 $110,921
Prepaid pensions 30,659 26,578
Other 14,614 15,755
------------------
Total deferred tax liabilities 156,179 153,254
------------------
Deferred tax assets:
Postretirement provisions 54,557 56,000
Other reserve provisions 20,576 21,168
Valuation allowance (1,301) (502)
------------------
Total deferred tax assets 73,832 76,666
------------------
Net deferred tax liability $ 82,347 $ 76,588
==================

16. Income Taxes (continued)

The change in the valuation allowance in fiscal 1996 relates
to pre-acquisition net operating loss carryforwards of an
acquired company.

17. Commitments and Contingencies

Environmental

The Company is subject to various stringent federal, state
and local environmental laws and regulations. The liability
for future environmental remediation costs is evaluated by
management on a quarterly basis. The Company accrues amounts
for environmental remediation costs which represent
management's best estimate of the probable and reasonably
estimable costs relating to environmental remediation. For
the year ended June 30, 1996, no expense was recognized, but
for the years ended June 30, 1995 and 1994, $1.0 million and
$1.2 million, respectively, were charged to operations for
environmental remediation costs. The liability recorded for
environmental cleanup costs, including remediation
investigation and feasibility study costs remaining at June
30, 1996 and 1995, was $5.6 million and $5.9 million,
respectively.

In June 1996, the Company entered into a partial settlement
of litigation relating to insurance coverages for certain
superfund sites and recognized income of $4.1 million. The
amounts receivable for recoveries from this settlement and
from potentially responsible parties ("PRPs") at June 30,
1996 and 1995, were $4.2 million and $1.2 million,
respectively.

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


17. Commitments and Contingencies (continued)

Other

The Company is also defending various claims and legal
actions, and is subject to commitments and contingencies
which are common to its operations. The Company provides for
costs relating to these matters when a loss is probable and
the amount is reasonably estimable. The effect of the
outcome of these matters on the Company's future results of
operations and liquidity cannot be predicted because any
such effect depends on future results of operations and the
amount and timing (both as to recording future charges to
operations and cash expenditures) of the resolution of such
matters. While it is not feasible to determine the outcome
of these matters, in the opinion of management, any total
ultimate liability will not have a material effect on the
Company's financial position or results of operations and
cash flows.


SUPPLEMENTARY DATA

Quarterly Financial Data (Unaudited)

Quarterly sales and earnings results are usually influenced
by seasonal factors. The first fiscal quarter (three months
ending September 30) is typically the lowest because of annual
plant vacation and maintenance shutdowns in this period by
Carpenter and by many of our customers. This seasonal pattern
can be disrupted by major economic cycles or special accounting
adjustments.

(dollars in thousands-
except per share First Second Third Fourth Fiscal
amounts) Quarter Quarter Quarter Quarter(1) Year
- ---------------------------------------------------------------------------
Results of Operations
Fiscal 1996
Net sales $184,469 $210,126 $233,274 $237,455 $865,324
Gross profits $ 48,264 $ 52,897 $ 58,699 $ 68,681 $228,541
Net income $ 11,906 $ 12,293 $ 14,726 $ 21,223 $ 60,148
- --------------------------------------------------------------------------
Fiscal 1995
Net sales $156,084 $172,400 $211,636 $217,412 $757,532
Gross profits $ 34,516 $ 44,483 $ 57,535 $ 56,829 $193,363
Net income $ 4,932 $ 9,827 $ 15,363 $ 17,370 $ 47,492
- --------------------------------------------------------------------------
Per Common Share
Fiscal 1996
Primary earnings $ .70 $ .71 $ .86 $ 1.24 $ 3.51
Fully-diluted
earnings $ .67 $ .69 $ .83 $ 1.19 $ 3.38
- --------------------------------------------------------------------------
Fiscal 1995
Primary earnings $ .28 $ .58 $ .91 $ 1.04 $ 2.81
Fully-diluted
earnings $ .27 $ .56 $ .89 $ .98 $ 2.70
- --------------------------------------------------------------------------

(1) Changes in Pennsylvania income tax laws resulted in increases to
net income of $1.5 million, or $.09 per share, during the fourth
quarter of fiscal 1995.

Item 9. Disagreements on Accounting and Financial Disclosure

Not Applicable


PART III

Item 10. Directors and Executive Officers of the Registrant

The information required as to directors is incorporated herein by
reference to the "Election of Directors" section of the 1996 definitive
Proxy Statement.

Information concerning the Company's executive officers appears in
Part I of this Annual Report on Form 10-K.

Item 11. Executive Compensation

The information required by this item is incorporated herein by
reference from the 1996 definitive Proxy Statement under the "Election
of Directors" section.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The security ownership of directors and officers as a group is
described in the 1996 definitive Proxy Statement under "Security Ownership
of Directors and Officers" section. Such information is incorporated herein
by reference.

Item 13. Certain Relationships and Related Transactions

The information required by this item is incorporated herein by
reference from the 1996 definitive Proxy Statement under the "Election
of Directors" section.



PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) Documents Filed as Part of this Report:

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

Report of Independent Accountants
Schedule II - Valuation and Qualifying Accounts

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


REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF CARPENTER TECHNOLOGY CORPORATION

Our report on the consolidated financial statements of
Carpenter Technology Corporation and subsidiaries is included on
page 20 of the 1996 Annual Report on Form 10-K. In connection
with our audits of such financial statements, we have also
audited the related financial statement schedule listed in Item
14(a) of this Form 10-K.

In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.



s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 29, 1996



(2) The following documents are filed as exhibits:

3. Articles of Incorporation and By-Laws of the Company
4. Instruments Defining the Rights of Security Holders,
Including Indentures
10. Material Contracts
11. Statement re Computation of Per Share Earnings
12. Statement re Computation of Ratios
23. Consent of Experts and Counsel
24. Powers of Attorney
27. Financial Data Schedule
99. Additional Exhibits

(b) Reports on Form 8-K:

The Company filed a Current Report on Form 8-K dated
May 3, 1996 with respect to the amendment and extension of
the Rights Agreements described in Exhibit 4B of the
Exhibit Index.


SIGNATURES

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

CARPENTER TECHNOLOGY CORPORATION


By s/G. Walton Cottrell
G. Walton Cottrell
Sr. Vice President - Finance &
Chief Financial Officer

Date: September 26, 1996

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


s/Robert W. Cardy Chairman, President & September 26, 1996
- ---------------------- Chief Executive Officer
Robert W. Cardy and Director (Principal
Executive Officer)


s/G. Walton Cottrell Sr. Vice President - September 26, 1996
- ---------------------- Finance & Chief
G. Walton Cottrell Financial Officer


s/Edward B. Bruno Controller (Principal September 26, 1996
- ---------------------- Accounting Officer)
Edward B. Bruno

* Director September 26, 1996
- ----------------------
Marcus C. Bennett


* Director September 26, 1996
- ----------------------
William S. Dietrich II


* Director September 26, 1996
- ----------------------
C. McCollister Evarts, M.D.


* Director September 26, 1996
- ----------------------
Carl R. Garr


* Director September 26, 1996
- ----------------------
William J. Hudson, Jr.


* Director September 26, 1996
- ----------------------
Arthur E. Humphrey


* Director September 26, 1996
- ----------------------
Edward W. Kay


* Director September 26, 1996
- ----------------------
Frederick C. Langenberg


* Director September 26, 1996
- ----------------------
Marlin Miller, Jr.


* Director September 26, 1996
- ----------------------
Paul R. Roedel


* Director September 26, 1996
- ----------------------
Kathryn C. Turner


* Director September 26, 1996
- ----------------------
Kenneth L. Wolfe


Original Powers of Attorney authorizing John R. Welty to sign
this Report on behalf of: Marcus C. Bennett, William S.
Dietrich II, C. McCollister Evarts, M.D., Carl R. Garr,
William J. Hudson, Jr., Arthur E. Humphrey, Edward W. Kay,
Frederick C. Langenberg, Marlin Miller, Jr., Paul R. Roedel,
Kathryn C. Turner, Kenneth L. Wolfe, are being filed with the
Securities and Exchange Commission.



*By s/John R. Welty
-------------------
John R. Welty
Attorney-in-fact


CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES

SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS

(in thousands)



Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Balance Additions
at Beg- Charged Charged Balance
inning to to at End
of Costs & Other Deduc- of
Description Period Expenses Accts(1) tions(2) Period
- ----------- ------ -------- ----- ----- ------

Year ended
June 30, 1996:

Allowance for doubtful
accounts receivable $1,034 $ 440 $ 472 $ (697) $1,249

Year ended
June 30, 1995:

Allowance for doubtful
accounts receivable $ 619 $ 578 $ 338 $ (501) $1,034

Year ended
June 30, 1994:

Allowance for doubtful
accounts receivable $ 500 $ 470 $ 316 $ (667) $ 619



(1) Includes beginning balances of acquired businesses and
recoveries of accounts previously written off, net of
collection expenses.

(2) Doubtful accounts written off.