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Carpenter Technology Corporation (NYSE:CRS)

Investor & Analyst Conference Call

September 7, 2012 9:00 am ET

Executives

Michael A. Hajost – Investor Relations

William A. Wulfsohn – President and Chief Executive Officer

K. Douglas Ralph – Senior Vice President and Chief Financial Officer

Mark S. Kamon – Senior Vice President - Commercial, Specialty Alloys Operations

Andrew T. Ziolkowski – Senior Vice President - Latrobe Operations

Sanjay Guglani – Vice President - Premium Engineered Products

David L. Strobel – Senior Vice President - Global Operations

Timothy R. Armstrong – Vice President - Research and Product Commercialization

Analysts

Josh Sullivan – Sterne, Agee & Leach

Gautam Khanna – Cowen & Co., LLC

Lloyd T. O'Carroll – Davenport & Company

R. Bentley Offutt – Offutt Securities

Dick Glasbrook – Neuberger Berman

John A. Paulson – Citigroup

Edward Marshall – Sidoti & Company, LLC

Peter Arment – Sterne, Agee & Leach Group Inc.

Michael Gambardella – JPMorgan

Michael A. Hajost

Good morning, everyone. Welcome to Carpenter Technology's September 2012 Investor Day. My name is Mike Hajost, I am the Vice President of Investor Relations and Treasurer for Carpenter. It's great to see a full room with some of the familiar faces here in New York City. And I also want to acknowledge and thank all those who are participating on our live webcast as well this morning.

We have a very forward agenda this morning, which includes a very detailed presentation. And within the presentation, we are going to be making forward-looking statements, so that's really important that you read and understand our disclosures that we've got on page two of the presentation.

To make sure that this event was most relevant for all of you. We actually conducted investor survey this summer, and one of the questions we asked was, what information is most important for us to cover today? And we reassess with this survey about 36 combined sell-side and buy-side analysts. And the topics that you see on the left side in blue are really the areas of interest that you wanted us to address.

The bullet points to the right of those indicate that things that we are going to covered today. So, the most important here thing is that, we have listened to you and we will address those things that are most interest for you to hear today.

This is our second Investor Day in the last year and a half. And our Investor Days are very unique events. It gives us the opportunity to talk about things in much greater detail than we can in other types of venues that we have. We can’t cover these kind of things on earnings calls, or one-on-one meetings, or Roche or things like that. But we have the opportunity here today to really talk a lot more in-depth in a much more detail that we typically can.

And then within that, we are able to then talk a lot more about long-term strategy of the company. So another benefit is, you can access to the management team of Carpenter. Again, you used to see me and Bill and Doug, but now we really have the broader team here, which also gives you the opportunity to ask and have all your questions answered as well today.

It's a common understanding that companies should not have an Investor Day unless they’ve got something really unique and exciting to talk about. And I think from today, you will not be disappointed in terms of what we are going to cover. So with that, it’s my pleasure to introduce to you our President and CEO, Bill Wulfsohn.

William A. Wulfsohn

Okay, thank you, Mike, and thank you, everyone, for taking the time to join us this morning. Our last Investor Day was 18 months ago. And since then we have been very busy, and I think our progress is an evident. We set our primary goal back 18 months ago coming off of if you will the great recession to get back to prior peak even at a level that we had enjoyed several years back.

And I am pleased to say, we are ahead of schedule. And today, we will be announcing new earnings targets for both this year, the mid decade, as well the end of the decade. Today, we really will be talking about our future strategies and how we will get there? And as you may have noticed, we put out roughly five or six different announcements over the last week or so, really in preparation for today, things that we’ve been working on that we haven't previously disclosed, but wanted to be able to talk about openly.

And then just one that I will highlight, we’ll talk about our China facility and we’ll talk about other aspects of what we are doing. But I assume most of you have heard or read this morning that we put our announcement to that. We are both happy and sad and both at the same time to note that, Doug Ralph will be retiring from Carpenter. He will retire after the first of the year. This is something that Doug initiated. He is one of the fortunate one that can make the decision to do other things with his wife, while he is still young and feeling good, and I think he wants to play a lot of golf.

But I will say that as happy as we are for him as an individual and for his wife. Doug is a tremendous there and has brought much to our company, not just financial leadership, but also strategic and managerial expertise. And so we are going to miss him, but he is going to be here with us for through the year if you will, roughly until one year from now. And we will be making a transition. We will be completing the search. And you will hear about the transition and Doug will be with us from, but we're going to miss him.

So, thanks, Doug

K. Douglas Ralph

From an agenda standpoint plans to cover the bulk of our focus on our strategy and our forward expectations and I assume most of you have a pretty good sense for who we are. We will talk that would be appropriate to just talk about who we are as a company and really more specifically what makes us unique. We are different than just a steel company and I would like to explain to you how and why?

123 years union free and our main right insight, I think it's a culture that many of you who visited our company understands, is based upon pride, dignity, respect, and most importantly innovation. So we’ve got a couple of old pictures here to depict our innovation as well as our commitments of our workforce. And here you have, we provide the material to the early Wright Brothers planes to the Spirit of St. Louis. We’ve been in the aerospace industry for a long time.

And really that's how Carpenter as a company has thrived in an environments and the region of the world that a lot of companies have in fact have perished. What does make us different though in the market is, we strategically position ourselves and that's what we are going to talk about, for the majority of the discussion is, how we position ourselves? What actions we are taking to make sure that we are really a specialty materials company in the metals market, and not just the broad supplier to the commodity sector.

We focus of our energies on supercritical markets with very demanding applications and we look at technology as our primary avenue for enabling customers to do and better things in the supercritical applications. And with that, I hope that you will understand and see that, while we are in the metal space, we really are a specialty materials company.

So that's probably a lot of people say. They want to be a specialty material company. How are we actually achieving it? Well, to start off with out of 1.5 billion metric tons of steel that’s produced, we participate in only 1% of that market segment. And you can see that this was actually an assessment that was owned by steel and metals marketing research that depicts that within the specialty steel market, there is a further subsegments, there is alloy steels, there is stainless flat.

And really when you get to the higher value and the lowest volume is, when you get into the areas in green and that’s the area that we have 100% of our sales mix in. That's where we sell our products. And when you think of other companies of course, you know a lot of carbon steel companies. You know some other people who do participate in the upper green portion and have a heavy concentration also in the stainless flat market. And others were trying to move up into that portion of the overall mix.

So when you look at our revenues and our markets that we focus on back to the supercritical type of applications, it’s not surprising to see that we have roughly two-thirds of our business and what you would consider to be those very demanding environments of aerospace, defense, energy and medical.

And actually we are going to end up talking about all five of these markets, including transportation and industrial, because our focus is even within those subsegments to focus on the very differentiated niches where a lot of value can be added.

The other thing is when you look at our capabilities, they are really unique to the industry and with that, we have seen our business internally grow dramatically. And as Mark came and we will talk to later on, we are expanding our international footprint, because as our customers become more global, we have to make sure, we effectively support them as well.

And last, but not least, I think this is an important point to recognize, which is that, we are a company which is not driven if you will by raw material commodity prices. We are in essence a converter of materials. And with that we don't have a high correlation of our profitability to the underlying raw materials.

So there are others that are vertically integrated and when titanium, they are very price, they will be very profitable and when titanium is low, they will suffer, or nickel, but that's not our case. We have very effective surcharge mechanisms. We have very differentiated products with long-term agreements. So our profitability is not fundamentally correlated with nickel prices, or titanium prices.

So in summary, this is a quick baseline. You’ve got a 123 years of experience. We are very much in the 1% and in fact, I am proud to say that, we are the 1%. And we feel good about saying that. We are in the 1%, but we are talking about the 1% of the metals market, that's truly specialty. We think it's a very unique competitive position that’s not dependent upon raw material prices. And so much of our business is focused on aerospace and energy.

Okay, we are here to talk about the future, but it's only appropriate to talk about what we said we are going to do and how do we execute against our agenda that we put forward to you just 18 months ago. And I think when you see the results, I think you will see that at least from our perspective, we’ve executed well versus what we said we can do.

And to that end on page 13, this is actually the same page if you were to pull out the Investor Day presentation from 18 months ago. This is what we said, we are going to do as a company. We are going to optimize core, regain our profitability. We are going to accelerate with acquisitions, develop new technology, while strengthening our foundation to make sure that, we were becoming the most profitable, most global, and most respected company in the specialty metals market.

And we targeted to get a return to our prior EBITDA levels by fiscal year 2014. And I am very pleased to say that, we're well on path to make sure that, that happens in fiscal year 2013. And as you will see on the next page 14, that’s really as we account for without the impact of Latrobe, okay. Latrobe does add to that, but you can see that we expect we will be above the prior peak on the Legacy business.

When you factor in Latrobe, we will be roughly 20% higher. We expect in fiscal year 2013 than the previous peak, so a lot of progress in that area. Mark Kamon, Sanjay Guglani, also Dave Strobel will be talking about how we've been able to achieve that through the market gains. But I will tell you as we focused heavily on enhancing our mix and selling value and going with our limited capacity into areas that ultimately value the kind of technology and quality standards that we can meet.

At the same time, back in the area of optimizing the core, we’ve taken actions, which will flush out as we move to the discussions to double the capacity in our premium metal space. And this is very important, because what we are going to talk about as we go on is that this is an industry that even at this point in time when things are a little bit uncertain, the economy is a little bit unsettled, we are finding that our demand is greater than our ability to supply.

And we think with the demand patterns coming up, but this is actually going to be a challenge for the industry. And so we’ve been very proactive about making the types of investments that will allow us to leverage the demand growth and really bring some value to our shareholders.

Now, moving on to acquisitions, I remember that when I first started talking about acquisitions at a meeting like this, I referred to strategic acquisitions and somebody kind of came up afterwards and said, I don’t like that part of your strategy. And I said, why not? And they said, well, because strategic means that you’re going to buy it and you’re going to say that is strategic, and you are going to say that, it brings on your earnings, but it’s going to pay off in the long run.

And so we quickly changed our language too, we want strategic, but we really want accretive acquisitions. And that’s what we’ve done. We’ve done five acquisitions, our largest is Latrobe. We’re very proud of bringing that team, that business. We have representative from the business here with us today. And what you find in the business is that, you have roughly 76% of their business, is in the aerospace and energy, what a great match?

And that in fact, it was an acquisition that was immediately accretive, during its first four months, and we expect that it will add over 10% to our EPS in fiscal year 2013. And there is roughly $25 million with the synergies, which you’re going to hear, there is opportunity for upside on, which is forthcoming if you will over the years to come.

The integration has gone very well. We are tracking ahead of the expectations and we put a couple of codes on here. We have our couple of new board members that came with a deal, and we are very pleased bringing very interesting and great perspectives to the board. And they as some of you may know, when they said that, they were willing to bring the companies together, they had no interest in getting cash for their position in Latrobe.

They believed in Latrobe, they believed in the cycle, and they believed in Carpenter and the synergies. So they swapped their equity for our equity. And what that did was that, not only kept very valuable players in the game with us, but it also meant that we were able to keep our balance sheet pretty clean, when you consider all the investments that we are making. And we’ll reference that and that gives us not only stability, but flexibility as we move forward.

We also completed four acquisitions in the oil and gas industry. And we are very pleased about. As you can see the relative growth that Amega West our largest single acquisition in the areas had relative to the rig count growth. And the reasons for that are simple. There is a great team there in the right environment. They have very strong talents and connections in the marketplace, but with the backing of Carpenter, they’ve been able to get access to materials, technology, and other resources that have helped them to grow their business.

But it’s also help the Legacy Carpenter business to get closer to the OEMs. So some of the materials that we know can add value to down hole completions and applications like that. We now have a way of giving that voice to be end customer, and we are seeing it, it really take hold. We have since done several other acquisitions, really focused on expanding our capabilities, as well as our ability to cover other parts of the globe. And I think the logic behind that will be very self-evident in short order here as we continue.

Finally, here, I would like to note that we have taken a strong effort in commercializing technology. And I am going to touch on it briefly. But you are going to hear it in every market discussion we have. Dr. Tim Armstrong will speak to some of these as we move forward in the presentation.

But we’ve actually moved these differential, proprietary technologies into the marketplace, and we’ve continued to invest toward achieving the peak EBITDA plus levels that we’ve talked about, while increasing our investments in CapEx and staffing, and in our labs and our capabilities, and not only have we focused on commercializing the products that are in the top portion of the screen. But what you will here today is, our number of additional new materials, which we are going to be talking about, which really enables further applications and development in the marketplace.

So we feel very good about our robust portfolio products and our ability to keep working towards the top end of that specialty market. And again I think it will be very clear to you, why we focus so much energy in this area as we move on.

Now, moving to our foundation, we’ve made some enhancements to how we run the business. We’ve moved into an SAO and a PEP orientation, you will hear from the leaders of both those businesses. The SAO is our mill operations. And really with the addition of Latrobe and also Athens, our vision is, we are going to run this as a cohesive system that we are going to move materials from one facility to another, based upon the capabilities that exit in the capacity that’s available.

And from that you will hear already, we are seeing tremendous and feeling the tremendous gains and productivity and output that we can get by just using the right equipment on the right applications. But you will hear later on Mark, Guglani, and Dave about how just by bringing Latrobe and Carpenter together, 4000 tons this year, 4000 tons next year. And we once we bring Athens on, we won’t just get the incremental capacity from Athens, but we will get a synergistic benefit based upon the capabilities of what runs well with those facilities.

So we are running that as a system and the key there is functional expertise, okay. We need to make sure, we manufacture well that we buy our raw material well and all the functional dynamics we need to work cohesively. Those are very different success dynamics. And as it relates to our pet businesses, which have the same value proposition, they are selling differential material, technology driven, same type of markets, same type of critical applications, but they are very niche focused. And they really needed to be run with more of a P&L entrepreneurial mindsets.

And so we’ve set those in a separate reporting arm, and I think it's given us a lot of flexible to do what you’ve seen with a megawatts to quickly bring on additional technology and applications, new facilities as we needed without a lot of processing bureaucracy.

And then to complete our actions over the last 18 months, we’ve worked to strengthen our foundation. And I point you down here to if you will the bottom right, where you can see that, we’ve invested $475 million in acquisitions, as well as capital investments to enhance our capacity and capability. And we’ve done that and our liquidity has remained. And actually from a debt rating perspective, we’ve improved our ratios. So we’ve kept the flexibility. We’ve kept the financial stability and yet, we’ve completed very significant actions to enhance our business.

So I hope the key message while you can read, what we just talk about. I hope what you really take from that is, we set a strategy. We make commitments. We focus on executing on those commitments, and we are trying to balance delivering strong operating results with building our strong business for the future. That's a truism in every company, but I think in the type of industry we are in, where it takes a long time to build and qualify technologies to build relationships, investing in the future is important from an investment standpoint as just delivering in the short run.

So we wanted to do both. And like I said, we’re a ahead of schedule from respective of delivering on final commitments. Okay so that's all we're going to talk about, about the past and about the base of the company. Let’s talk about what it is, we are going to do going forward, how we are going to create shareholder value and I am going to describe to you the overall strategy for driving rapid and profitable growth, and then you are going to hear more details about that as we move into ultimately kind of two eras. And I want that to quickly jump out, because a lot of what we are going to say, we will fall into that.

One is, in fiscal year 2013 to 2015, we clearly are in a growth mode. We have growth that’s enabled by demand, by pricing, we have cross productivity, we have the synergies that are coming from Latrobe. We have the accretion that’s coming from Latrobe. But we are fundamentally investing back into extend our capacity. Whey you get to 2015 and beyond, we will have completed the majority of the investments, the heavy investments that we will need to have made to really make this company very strong for an extended period of time.

The type of investments we are making are not replacing motors, we were in things like that, which are maintenance oriented. We are fundamentally changing our capabilities and we are fundamentally changing our product line, so that our mix will be even stronger and we will show that. And I think what that means is that, we’ll be a growth company after 2015, but we’ll also be, I think a cash machine, and we’ll talk about that, because that gives new opportunities for us.

Okay, so our strategy. If you look at the top left here, you can see the same picture that I showed before, and the green on the top left, there is the 1% of the market, that’s pretty good to focus on that. But what I want to try to highlight is that, what we do is, we further segment that into the ultra premium, the premium, and the value. And that’s a very important distinction, which you are going to see come to light through this presentation, because not all parts of that triangle are equal in terms of profitability and sustainability and our value equation.

And you have some who are trying to enter the value segment and as they do and, we are continuing to bolster and grow the premium and ultra premium segments.

So with that we’d like to make sure that we take this concept and add some granularity to it, I know that’s great again, specialty materials, ultra premium, and all-times great. But what does that really mean? We actually have definitions around that. And for those of you who are a little bit more technically inclined, or knowledgeable about our business, the boxes that are in the center really relate to the production technologies that are associated with the ultra premium, the premium and the value.

And a lot of the air melt that’s produced to standard quality would be in the value area. You see that you get into vacuum melting or very precision, maybe stringent quality requirements as you get into the premium area and towards the top you get into the very specialty items, which typically involved a triple note. Why is that we focus on that area? Well, to start off with, it’s more profitable and prices are higher in those segments, and they should be higher, and it’s only appropriate, because performance is more important than cost.

I hope none of you have, or whenever have to have a hard spent, but if you do, I'm guessing, you'd rather have a good quality hard spent than one that’s cheap. And so we provide the types of materials that go into that kind of application, so it's worth the premium, and it's critical to the application. At the same time, I think because of the critical nature is the high cost of entry and really takes strategic partnerships, trust-based paid partnerships.

This is so important if an OEM doesn’t trust you, if they don't know how you work and you don't stand up with integrity, they're not going to do business with you, because their franchise has underlined with your name. And because of that, what you find is that, there really are only several competitors roughly three that, that can command close to 80% of the market. In addition to that and this is also part of the SMR study that we engaged on. You can see in the VIM, the VAR and yes, these are the more ultra premium, melting and remelting areas these are the capacity utilizations.

Today, in 2012, we have demand that exceed supply, and we have lead times that are going out to the first quarter of next year. And demand is expected to continue to grow and this is what all of the known capacity addition that SMR has been able to access. But I will tell you that fundamentally, we are investing as a company, I believe more in capacity additions than anybody else at this time. And as we're going to talk about in the next page, these are in capacity additions that you just say, I am going to do it and tomorrow you have it.

So this is why it's difficult? Somebody else will come to you and they will, Carpenter is okay, they are a pretty good company, but we are just going to do the same thing, okay great. And it's not thing that others can try and that they won't be successful over time, so I don't mean to give any sense that we're overconfidence. But I just want to points out some really key points. When you look at the quality processes that are required, we have 19 external certificatations and that meant 372 on-site audit base by independent parties whether they would be customers, or outside registration authority.

These are very rigorous. You have to have your quality system together, or you just don't pass, and you can't play. We have a 177 VAPs, 397 control plants, and we think it takes roughly 2 years for VAP. We have over 11,000 SKUs. Now, what does that mean? People can put in a VIM or VAR, you can order those. But we don’t sell a big bulk of something. We sell lots of individual special custom things, which are unique for the application, that have the properties and size and dimensionality of the green structure that’s needed and duplicating 11,000 takes a fair amount of time.

Long lead times, where we are investing in our Athens facility, took us a better than a year or two kind of figure out exactly what we are going to do. It’s going to take three years to ultimately get it, so that it’s up and running, which will be next year. And then what you will see is that, we will have a qualification cycle, but we are in the good position that we can move non-VAP materials into that site and run it, even though we don’t have it fully qualified. If people just want to get into business, they actually have to run those assets at a very low level for what can be your two or three-year process until there is full approvals. So the cost of entry is very high and the lead times are very high. So we feel like it’s a sustainable situation.

And finally, back to the trust-based relationship 20 primes, 27 forgers, we have to get through a forger for a plan, so you can kind of multiple the two, against each other. And that you end up with all the control plans we have, it takes a long time to build those relationships.

Okay, so that’s great. We're focused on the Premium, the Ultra Premium segments, how we are doing that, and I'd like to take a walk through. The first part is, we're very fortunate, because were those materials are used, happened to be very attractive and growing markets for Carpenter. And how we're doing it is, this is an actual internal assessment, it’s not meant to be a figurative illustration, but this is where we are investing our capital.

We are investing 80% of it and 90% of our R&D efforts in the Ultra Premium segment. And what we are doing is between 2010 and 2015, you will actually see when Mark Kamon gets up off where we are today. But we are dramatically enhancing and the proportion of our business that comes from the ultra premium end.

And then on the premium side, we're doing the same thing and it’s at the cost of the value. So some of you have asked over the last year or so, you say you're in very premium applications, but meanwhile you also say that you are exiting some portions from market, how do I add that up? Because it doesn’t make sense. And the answer is, that when you are in the Ultra Premium and Premium segments, it’s very difficult for companies to replace you.

When you are in the value segment, it’s easier for them to replace you. And that’s what we said that, we've been very responsible working with our customers. We have very good working relationships with our customers. We know that if the economy goes down, we will probably be more active in the value segment as well. But in the end that’s an area that we can do less business today and those customers, while they may prefer to do business with us can find an alternative source. And I hope that clarifies that question that was the one that came up in the investor survey.

Start off and looking at our markets, 46% right now of our market is aerospace and defense. We say aerospace and defense really we’ll talk about it later, defense is not a major portion of what we do, and you can see all the different applications, market share leader in most of those. But the red portion is what came with Latrobe, when we bought Latrobe on. And what’s interesting is, you saw the pie, our participation in the aerospace industry grew by 50% with the addition of Latrobe are failed to the aerospace industry by 50%, okay.

And from my definition this is all ultra premium and premium products. Why do we feel good about this market going forward? Lots of different sources, lots of information, you, I’m sure have your own that you can tap. But this is a growing market and as you can see in the upper right corner, a lot of that growth has really been driven by the demand for aircraft in Asia. And so unless you believe the whole world economies going to unwind, I think Asia is gong to remain a fairly strong end market for aircraft, Boeing, Airline Monitor, Airbus, they all say, roughly the same things.

And the news is while the market is growing at 5%, we expect that we as a company will grow at close to double that rate, okay. Why would we make that kind of all the session? Well, first of all, just looking at the build construct. On page 32 here, you’ll see that the percentage of widebody aircraft is increasing. And then on the bottom, you can see that an index of material using an A320 as one shows that you have so much greater content for aircraft. Now, this is not just Carpenter content. This is content for our type of products, things that go and fasteners and the engine and the flap tracks and so forth.

But you can see that every A380 that’s build is five A320s. We’re in different between the production of those. So just by the fact that there is this mix shift, we expect that there will be an additional 2% compound annual growth rate over and above the build rate, which will come from a broad material demand perspective.

In addition, back to our theme, we’re trying to enable critical applications with technology and I know this is a busy slide, and so I apologize you can reflect upon it as you have a few moments. But what should come across to you here is that we are providing solutions, technology solutions that enable OEMs to design their aircraft differently, to design them later, to enable them to run, the engines to run at higher temperatures, to allow them to get out of the metal coating that causes rusting and more chem. cause rusting, if they chip away on landing gear, and we’ll talk about that.

And you can see in the upper right, some of the gains that we’ve had because of that 39,000 pounds for billet, are up billet for each 747-8 and the structural growth that we’ve had, our growth in structural areas. So again, we’re trying to make this granular for you. This is all sounds nice. Everybody puts that on a pager or whatever.

What we did was, we actually broke down the new 737 and the A320neo. We looked at the parts that we provide today and how much material is used. We look at the parts that will be used in the future and where we’re essentially specified in, or going to be the leading supplier. And our conclusion is that, we’ll have work constant on the 737 Max and A320neo then we enjoy under our legacy effect today.

So as they switch from one to the other, again, it’s logical. We’re providing technology and enabling solutions that enables the aerospace manufacturers to complete some of their design. So we’re very excited about this change, and we view it as a positive.

Yesterday, Boeing just announced that they doubled their orders over the last several years for the 737-900ER, that’s an application where we just provide material for flap track. That’s the type of thing that when it happens, it’s good, and so we’re not fearful of these changes, we look at them as opportunities to grow our participation.

In the aerospace, while 84% of our sales are related to if you will new equipment. It’s important to remember that there is a replacement market. And so you have this tremendous build of aircraft in the field, that’s taking place. And you also have an aging fleet that’s taking, or every year gets older BCG then analysis as far as you can see that the average age of our narrowbody is 12 years, and the average age of a widebody is around 13 years.

The MRO business is likely to grow. And this is one that may have a little more criticality, because you’ll tend to see that airlines will put off maintenance when they can and do it when they can afford it. But it’s clearly a growing market for us.

So in summary, the overall demand of growth if you will on the OEM side is above 5%. But because of the types of materials that we provide, we believe we can grow on this marketplace at roughly doubled the organic rate, okay. And that’s what if you will some of the share that we maybe able to pickup just by the fact that, we’re going to have capacity where others in our industry maybe running short.

Okay, we’ll move now on to our fastest growing market. And this is the energy market roughly 12% of our sales. We’ve more than tripled that business over the course of two years. So that, when we say fastest growing, we mean it. How did we do that? Some of this was through acquisition, we acquired Amega West and the related businesses. We also acquired FFS, which was part of the Latrobe acquisition.

But you can see that we’ve added $67 million of organic growth to the, if you will $76 million acquisition, that all goes back to this concept that by working closely, by giving the freedom and flexibility to the entrepreneurs who are running these businesses by giving them greater resources and getting that connection to the OEMs, we can get more of our materials into application and help their business to grow and help our business grow.

This could be the busiest chart on the page, but in some respects I'll say the most important. What this page will show you is that, nobody surprised here. The percentage of rigs, which are directional drilling has gone up dramatically over the last five, six years. And as I hope, we provide materials non-magnetic drill collars, which are essential to house the critical instrumentation that enables accurate drilling in the directional well.

Okay, so that's the past, but how about the future. We all know natural gas prices are down. That is true and it’s actually below the threshold drilling price. But there are two factors and so this is why you haven't seen the rig count go down dramatically, because also, the threshold drilling price for oil is significantly below the roughly $90, that’s in the marketplace today. So what you've seen is a shift from gas, which was at one point as we recall $12 and $14, a decatherm.

Over to oil, and this is a global market, we know this is a global market. So the demand is very strong. But the other point is, in the top right hand corner, what you see is that, the shift that plays if you will, we think of the U.S., but the U.S. is actually a small fraction of this potential. So that's why we've been making investments and expanding our footprint into just Canada, but Singapore and Dubai, so that we can grow in other parts of the world just as we've grown in the U.S. here as natural gas continues to grow.

And then finally, you have the increased number of rigs that are going to be going offshore. I hope that you read our recent announcement, where we were awarded a major contract from Petrobras, where we're in that market providing drill collars and other materials. So we view this as a great and growing market for the years to come.

This is another important slide, I think just to tell you why we are so excited. This is Carpenter. When you look at when we acquired Amega, we've been able to move our market share up pretty dramatically since Amega has come on-board, and you saw that in the rate of our demand growth versus the rate of the growing growth. But we’ve really been somewhat limited in terms of our production capacity.

And so we haven’t focused as much and are now focusing more on the completions market, the part of the drilling that stays in place in the well in that growth of environment throughout the life of the well. And the key point for us is that, by just achieving the market share that we have in the non-magnetic market could double our participation in the oil and gas market, and by getting that same penetration and completions.

And that is something that we had good success on. And I think Sanjay will speak to that as well Mark. And I just want to highlight that, that’s not just because we are real nice guys and everything is, because we are going to the OEM’s with solutions. They have mud motors, which are wearing out and six months, or a year, or a year and a half, and we can offer them four years, or longer because of the types of materials. Those are value-added propositions that resonate with them that we didn’t have a way of getting to them in the past, we now do.

Industrial gas turbines and other important part of our business has been a little bit slower if you will over the last couple of years, and not just the industry. But I can see the expectation is that, the amount of natural gas, which will be converted into energy is increasing, I think we see that movement from coal to gas. But also back to this replacement TARP concept, every seven years, these gas turbines need a, they need an overhauling and they need replacement parts. And we are providing materials that last longer and are part of that replacement cycle. So we think we are in a strong position as that market continues to grow.

And then to complete the energy story just highlights on nuclear. And nuclear is a difficult. Once you asses a year and half ago, there was a lot of excitement about what may come now, or enforce with the tragedy that occurred in Japan a little bit less clear. We do have materials that qualify, they are capable, near-net-shape valves and other materials.

But what you believe in the nuclear industry we’ll grow or not, is somewhat immaterial to our demand pattern, because we have a great market in providing materials for containment of nuclear waste. And that is a growing market and we know that. Every bit of nuclear energy creates waste and with that, they need to be contained. So actually Dr. Armstrong will be talking about the technology behind this later. I will leave this to him.

The next ultra premium market that we serve in premium products is the medical markets. You can see is really across a wide array of products from implants to surgical tools. And this year is why we are bullish on this market? Because everyday we get little older, and the population in this country is getting little older, and with that it’s projected that the number of knee and hip replacements are growing.

But that’s just part of the story, because today our market for raw materials is Europe, Japan, and the U.S. And the reality is, a lot of these procedures are not common place in the BRIC nations. But look in the BRIC population and the access that those countries and those people will have to the types of medical treatments that we have today and to us that means that we have a growing market, and again, we’ve got some great technology, again Tim will be talking about MithralMax an enabling material in more detail. So I’ll leave that to him.

Okay, now we’re going to move into the last two segments and I’m going to do so fairly quickly. But I think it’s very important conceptually for you to understand and organizationally, we’ve had to get our heads around this.

Automotive, all right, automotive can be a tough market, right, it’s a big market, but it’s a tough market. And so what you’ve seen is that, over time we’ve de-emphasized certain portions of that market. We don’t sell as much muffler hanger materials as we used to. I don’t know how much value we can add to muffler hanger material. But at the same time, there’s a great opportunity not just because the market’s growing, but because of the announcement on whether you’re in support of it or not, the reality is that, there’s a new Cap A standard to get to 55 miles per gallon within roughly a 15-year period.

And with that, we get back to the core proposition of, can we add value, and the answer is, yes. So if it’s a muffler hanger, or valve then, we’re happy to, if we have capacity support, those customers if they need us in a pinch, we’ll support them. But what excites us is, when we can provide materials like we do today for turbochargers, that allow the engines to run at higher temperatures, or we have in our, some of our specialty materials and again Dr. Armstrong will talk about it, but the, likely new materials. We have ultra high strength steel, which they’re going to have to take out over 500 pounds per vehicle on average to meet the new fuel standard. And we have technology that allows thinner materials and lighter materials with the same strength and fatigue properties as existing materials.

We can add value and for us they can be premium or ultra premium products. So actually, we’d be very happy of this portion of our business group, but only if it was in the upper end.

And then continuing that till that theme in the niche industrial and consumer, and last time I did the investor presentation, I actually had a customer who is in the industrial space. And he said, yes, that’s a program still supply them anymore, because we were so clearly so focused on aerospace and energy and so forth.

And I had to explain to him and I hope it comes through here is that, where we add value in knife blades and precision drawn by, we’re making investments in these areas to expand our capabilities. Solenoids and fittings, these are the fittings that go into chemical plants and power plants that, if they don’t work not only do you loose the whole plant capability, but the people can be injured, they come to us, because we can provide the kind of surety and the kind of quality that they need to make their products work. So with that, we will continue to invest, but only in the upper portion.

Before I leave this the section, I just like to highlight that one of the changes that we've really pressed for organizationally is a focus on customer satisfaction excellence. It’s not that we didn’t have it before, but as I came on board, we were little bit inwardly focused which is an uncommon for our mill type operation, but we have a dedication to be the best supplier to our customers and in our industry.

And you can say, while that amplifies that truism, but we've set up an operating, or senior operating group including the teams that’s over here, we need monthly on these. And why is this so important? Because a lot of our customers are the one that are, they have basic metal manufacturing too, and some are capable in the upper end, but maybe looking to invest there and others have the opportunity to try to move up and they would, if we don’t supply good product and good service. But if we provide, not only the best technology and quality, but the best service, satisfaction, whenever they want to buy from anybody else, and so that, that’s our team in Montreal internally.

Lastly, I just touch on acquisitions. We've got a fair amount on our plate, so it’s not like we're looking out to go out and do lots big acquisitions. In the short-term, we’ll talk about cash flow later on. But I just want to share with you the kind of criteria that we use internally.

We look for things that are close to the core. When we say does not create strategic and intended consequences, we don’t want to put ourselves in the position where we're competing with our customers and our customers wonder, if they should be doing business with us. We're not looking for big turnaround operations that are going to distract management and we want it to be financially accretive and achievable.

And I think this has worked for us so far, probably would have greater focus over the next three years in the PEP business, all times then in the SOA business where we're frankly, we were pretty well occupied with the Latrobe integration.

So in summary, I hope it’s clear that we're focused on the upper part of the 1%. It’s a higher profit, higher cost entry, supply demand is in our favor. The markets fit very well with what we want to do and we're going to support it with technology, customer satisfaction, and also the capacity and capability, so we can give the right kind of support and lead time to our customers.

So with that we're going to move now a level bound and get deeper into the organization and talk about how that manifest itself in the specific business segments, and we’re going to use this bridge to show you how we plan to move from where we are now to where we are going. And I think what we’ve tried to capture here and this is very similar to what we did a couple of years back. We’ve set a target for ourselves and we’ve noted that is fiscal year 2015 and that is our objective.

Now, fiscal year 2015 will be the startup if you will fully of our Athens operations. So that’s what we’ve said. It’s really a mid decade target, but we expect to achieve it in fiscal year 2015. And again, there will be a lot going on in fiscal year itself. So just want to make that note.

And with that then, I turn it over to Mark Kamon, who is responsible for our sale business.

Mark S. Kamon

Thanks, Bill. Good morning, everyone. I’m going to take you all a little journey of where we were in the last couple of years, and where we’re going in the next few years. And just one level deeper in the SAO operation, SAO is Specialty Alloys Operations. In the box at the top, it’s just the simple way of how we think about our business, right. Let’s not get too complex, it’s volume and a right volume, times the margin minus the overhead that we used to run the business, we make money.

So as we looked at our business a couple of years ago, you’ve heard us talk a lot about mixed management and you will talk is cheap. So what I’m going to show you is, what has actually happened to our business. As Bill talked about our volume has increased, but it has increased modestly. But our margin as you can see from this graph and the trajectory from fiscal year 2010 to 2012, our margins have gone up substantially. The red line depicts the target we set two years ago in order to get back to peak. On here we just talk about peak, that's what that redline means, and I’m going to build on this chart over the next couple of steps.

But fundamentally, we talk about the improving mix. If you look at some of the statistics and the key facts, those are pretty impressive gains, and our goal as we go forward is to build on those gains and expand that and leverage the volume that’s coming online. So as we look at some of what I call the portfolio transformation that is taking place, you can see using the same triangular Bill introduced earlier, the ultra premium and premium portions of our business just over two years, we’ve migrated our portfolio to a totally different place.

And if I stood up here a couple of years ago and said, we’re going to take the value portion as we defined it here from 32 to 14, you might scratch your head. But we’ve increased volume and we drastically improved the mix and subsequently the margin that comes out of that mix.

So if you look at volume over the same period, again, volume went up modestly overall, but our premium volume and ultra premium went up 30% during these three years. So that’s the whole focus on mix and let me say, it’s not just commercial, it’s our operating folks executing flawlessly to make this happen for us. So the change in the shape and the nature of portfolio and doing it well with good customer service, good quality. So a lot of good progress has been made as we take a look at the first couple of years of this decade.

Then we go into future, so our goal in the future is to get into that green box. We set another line, that’s the red line, that’s our next target, that’s our mid-year target. We intend to hold our games in margin per pound, and in fact improve those. But now we’re really going to have a volume levered upon. In fact 4000 tons you saw in the previous slide, the next two years because of efficiency and effectiveness coming out of our existing operations as well as the integration of Latrobe. So we’re going to add 8000 tons over the next couple of years, and all of a sudden we got some volume leverage going forward.

So the trick for us now is continue that progress on margin per pound and leverage the volume across that. And frankly, we’re enthusiastic and are just excited about with the potential this year.

We look at ultra-premium and premium as we go forward, so we started from where we left off in that previous volume chart, 13 and 14, as I said the goal is to get 4000 additional tons in each of those years, they’ll talk about the fact that we’re still a little capacity constrained, we have six month lead times, it’s not a good thing, we’re driving more volume capability in order to address some of that. But frankly, the demand is exceeding, still exceeding our capacity.

So a lot of good activity, and then we get into the red zone if you will, which is 10,000 tons of additional volume in ’15, and then in the future as we’ve communicated 27,000 tons of additional volume through the addition of our plant in asset.

So significant growth trajectory, volume supporting it, support from customers, and we’ll talk about that a little bit now as we go forward. International sales, international sales have grown strongly for us, but I think what’s really critical about the international sales, if you look at the nature of that mix, again it’s aero defense energy, it’s those strong markets that are a significant portion of our international growth.

So between 10 and 15, 300% growth in revenues in international, and frankly our international footprint, as you’re going to hear from Andy Ziolkowski here in a minute, our international footprint is going to help us leverage the Latrobe portfolio out into the international marketplace. So we’ve got some great achievements, we’ve got a strong base of activity, but also good momentum as we go in the future.

Our whole commercial strategy, and still talk about trust, and I can’t emphasize enough, trust and working with your customers, so that together you create win-win relationships. And I’m talking about the sales today, but where’s the customer going, what are the needs of his industry or her industry, what can we bring to the table to create value for our customers and also value for Carpenter, and that’s really what the left side of it is partnering philosophy is all about.

Let’s make sure their strategic vision, all of our customers strategic vision and our strategic vision come together in a support in a trust, that enable us to grow and develop with our customers. We’ve had some great success there, gains over the past couple of years, stronger and longer LTA's, that will support our business going forward, I’m going to show you that in a second.

Aero engine, significant growth for our business in aero engines, Bill talked about structures, 117% aero structures from 10 to12 growth, and we continue to see further growth potential there. Energy, Bill showed you an awful lot about that that’s happening for the core SOA business, as well as the Amega West and other companies we’ve added. And lastly, the global reach that we talked about a moment ago.

But what does this mean? As we take those relationships and those partnerships, what it means is, and in this chart is the list of the top ten customers in our aerospace market that Carpenter has. And over the last couple of years, we put in place long-term agreements that are mutually beneficial, but showed a strong share, strong growth as the industry grows. And obviously, you can see the Athens plant, which is the ash redline supports that facility as going forward. And I can assure you, our customers are enthusiastic about our investment, or supportive. And I think if you needed any proves that customers are supporting and line it up with us on what we are trying to do. I think this really sends a strong message in that regard.

So a question that’s been on your mind that we’ve heard from some people is, Kamon, you are going to crash the business, we are going to do when you get this volume, what's going to happen? Let’s just take a look at what this business is now look like as we go forward with Athens. So the purple segment at the bottom is where we are right now in 2012. That's our basic business. So when we look at growth rates for aerospace as we go forward in the additional products that we have come in online, that’s our projected growth in yellow for the Aerospace segment of our business.

If you take a look at energy, we layer another segment of growth on top with a lot of the new products and new activities we have going on. We have other markets inside our core Carpenter business that require forging. So this is all forge products, this is products that have to go across a loader reforce and again, we are nearing capacity today and industry needs a lot more capacity.

So we have other products whether it's nickel valves going into big diesel engines, or various automotive things, its other premium and high-value products that require forging on the way down to smaller components. So we have growth in other markets as well. And now when we take Latrobe and Latrobe needs capacity as well going into the future, and we laid the forge requirements for Latrobe. And their growth strategy on top of what we have now, that Athens facility is going to get an awful lot of attention.

I put a ash line up there to talk about capacity with assets and that capacity represents the 27,000 tons that we said initially we would add with this facility as we ramp it up and it will take couple of years to get to that level. You can say that within this decade, we are going to be saying, all right, now, what’s the next segment that we have to add, because we’ve done a lot pressure, with a lot of pressure that’s going to take this thing right up between 27,000 tons.

Again, the aerospace portion of portfolio I showed you on a previous slide, customers have sighed up. We’ve done long-term agreements with the top 10 customers that are supporting this activity in this facility. So we are enthusiastic about this. And I think just as enthusiastic, if you look at that bar on the far right, the majority of the product that’s in these growth curves that I am showing you is product that is premium and ultra premium.

So we’ve got a facility frankly that we joke, but every week or so, we said, it’s okay, can you get it on a quarter earlier day, what are you going to do about that. And we’ve got s great team working on the execution of this facility. So, we just can’t wait and we’ve got customers and support in the industry to make this project go.

Let’s talk about our portfolio segmentation for a minute, because I want to just point out a couple of things. You’ve seen this chart and you are going to see again are the triangle. But as Bill talked about the ultra premium products tend to be very differentiated, very designed for very specific applications that are, when I would say strategic to our customers and strategic to the industries.

And as we look at that, we are constantly and continuously improving those products. So it’s something that might have been ultra premium before. I think Bill said, example earlier where 80% to 90% of our capital and R&D has gone at that segment. Products that have certain performance characteristics before, five years later have better performance characteristics.

That’s what enables for us to continue to grow and sustain our participation in this important segment of our business. If you look at premium products, I want to use an example to really bring home what the difference between these. When I talk about our customers and working closely with our customers, we sell some bar products that if I truly out, you would say, hi, yeah, there is a lot of people that make their grade accept. We make it with much tighter tolerances, stress free, straightness without compare, and our customers can machine their parts out of it 20% faster.

So it isn’t just buying a bar, it’s buying a bar that makes your business work better. And that’s really what some of our premium products are, obviously, some of our premium products are multi-melted as Bill illustrated before. So premium is a combination of unique special quality, or tolerance capabilities, as well as back to melting and multimelt VARs and ESRs. So that kind of defines our premium segment. And then of course our value products, frankly, our value products are extraordinarily high-quality and it's an area that is an important part of our business, it’s just not an emphasized part of our business as we are looking our strategy going forward, okay.

So how do we see evolution over time? So I showed you theses numbers on the fiscal year 2010 ultra premium, premium, and value break out that we had an evolution that has started, and frankly, that evolution is going to continue as we go into 2015. There's a number of investments and enablers that are helping to make this happen. And it's some of the big things that you've heard about, but it's also when we look at something like precision tolerance bar, and I just used that example. Those are some smaller investments, but are really core, when we talk about spending some basic capital dollars on the business, really core to making our products better and service our customers better. And I think that's really the key, bringing that value.

As Doug highlighted China finishing, we obviously have an announcement it just went out by putting some finishing facilities and people might say, see, why are you doing this, what's so unique about putting finishing in China? First of all, we have an awful lot of customers in China and in Asia-Pacific in general that really value the products we deliver.

But when you make a 100% of the manufacturing steps in the U.S., the final step is even when you're ready to ship is six weeks away, okay it's not close enough. So two things. China obviously is 1.4 billion people, and they're going to be doing a lot the things, aerospace, energy that is important in China, medical, all of our important markets that we talk about are growing very rapidly for us in that region.

This footprint allows us to keep IP here in the States, but yet have a localized manufacturing footprint that can provide quick service, short lead times and the right kind of products to service their needs, and so it's a perfect complement for what we're doing here today. That also complements our distribution business, which exists. We have a distribution site to-date outside of Shanghai and Suzhou that also, this will help us leverage. So it’s a modest step, it’s a $20 million facility, that's an important stuff, and it will lead to a better future for us in that whole region.

So in summary, when we think about SAO, which is our fairly large portion of our mill business, premium capacity expansion, our customers need it, the industry needs it, we're first in and I want to emphasize, you can hear about this in a minute, I will emphasize if not do ask capacity. It's the latest technology, it raises the bar and it supplies, the important products that customers need going forward. Portfolio management we still be a part of what we do. We going to start taking the Latrobe facility and their market basket of products in the SAO facility and put them together and make sure, we’re producing the right mix that our customers need and take advantage of opportunities that we have to work their mix.

Our international objectives are strong and we see significant growth there, and that will support this business going forward. And lastly, and I think most importantly, is the value proposition with our customers, the partnerships that we are doing with our customers are really one of the key strength of Carpenter along with the technology that are certainly second to none. So it’s not a little enthusiastic about where we are and we are going. This company has a wonderful future. We have great customer, great products, great place to be.

I’m going to introduce now Andy Ziolkowski, the Senior VP of Latrobe to talk about Latrobe.

Andrew T. Ziolkowski

Well, I make sure I got your name like, because I am probably going to block a little bit of your view. So I would like to say, and close to the net, so and just. Hi, good morning, everybody.

As Mark said, I’m Andy Ziolkowski, and I’d like to introduce some folks today. Bill talked about some of the legacy management team of Latrobe. We have Mark Weberding here today, he heads up our Business and Commercial Operations, and Dan Hennessy, he has primary responsibility for the operations integration. And you will get sometime during the lunch hour to interact with them, so I would encourage you to do that and cooperate some of the things I am going to talk about this morning.

As we said, I am Andy Ziolkowski, about 22 years at Carpenter. And over the last year, I’ve had the good fortune of transitioning from Latrobe, running Latrobe operations and oversee the integration. So what I will do today is try to provide some context into the integration, how it’s going and some expectations that we have going forward.

That will be Mark’s light on China. Okay, so a little bit about the business. Basically 70% of the business is the manufacturing organization and then it’s much like the company of business today, and that’s what our focus most of my conversation. There is about a 30% of the business that is distribution facility. And we’re really going to kind of break that down and talk about it in two different components.

Bill will talk a little bit about the legacy traditional, Latrobe distribution operations, and then FSS we mentioned that earlier in the energy discussion, and Sanjay will talk about then PEP. So we’ve made some announcements. We are going to divest of the legacy distribution organization, own FSS into PEP. And ultimately, as you will see going forward, the integration activity is going to be so invasive. So key and critical to both organizations that approve it’s going to be very hard to discern discrete operation. So you are going to see and how we report Latrobe differently in the segment today, but as Bill showed you the overall infrastructure, you will see that manufacturing operations rule up under SAO.

The companies are very, very similar. Now, again the most of my comments I will focus on manufacturing. When we did the integration discussions, a lot of the discussions revolved around our mantra stronger together. And during those discussions, multiple times we talked about the capabilities of being complementary.

So that would complementary and whether it’s the markets, the supply chains, the customer basis, those things fit together very well, and I will touch upon that. So just take the company in general, great people, long tradition, we have two companies come together, 123-year tradition, next calendar year we celebrate our centennial at Latrobe, 100 years of lots of knowledge, lots of capability in these markets.

We have core competencies in alloys steel and bearing steels, complementary and I will show you that a little bit to the markets that we serve and a little different from the traditional SAO portfolio.

Focus on premium materials, focus on niche opportunities, demanding specifications, high value market, very similar to SOA. And when you look at the supply chain, there are unique things to what we can bring to bare at Latrobe, but it’s very consistent with the operations that Dave will go over. We have two in the largest VIMs in the world, half working is very similar, but fits in nicely. We both had presses, but Latrobe’s press is a little bit smaller than Carpenter’s. We all have forges, right, but we were smaller one and the larger at SAO, we want to fits rate in the middle.

So, as we really talk about the synergies and bringing these two companies together, a lot of what we do will be focused on getting more premium capacity out into the market, if I had 4,000 tons and 4,000 tons, Latrobe plays a key until Athens comes along, key component in that strategy is Latrobe and what we can do and we will do that by adding capacity, I will talk about that and getting more out of the infrastructure that we have today keen credit of going forward.

The other thing that’s unique about us is the markets that we serve, we have some unique capabilities in the commercial landing gear, to move around 50,000 pound pieces of material, it’s quite unique and melt 45-inch diameter, remelt 45-inch diameter cross sections, it’s quite unique.

But we have those capabilities at Latrobe and we’ll talk about how they fit into our aspirations going forward. If I can illustrate some of the complimentary nature of the portfolio, aerospace is probably the best place to do it, okay. And as Bill said earlier, by adding the Latrobe portfolio to Carpenter, it increases our revenues by 50% this segment. And you saw on the earlier slide between aerospace and defense 63% of our portfolio that Latrobe has dedicated to aerospace. And when you look at where we have a strong market leadership positions. In black we have depicted the traditional Carpenter portfolio. So Avionics and Power core capability for SAO faster as you know about rings and discs, or the kinds of things we talk about.

Now, interestingly, in red when you bring in the Latrobe portfolio, what you see is, we are in the same space. We talked to a lot of the same people, but not about the same applications. But it’s really unique, structural, and the engine play, extremely complementary. So we bring in Latrobe leader in the landing gear space, again, very unique to play into what Tim is going to talk about in landing gear coming forward.

It’s a structural play. If you take the A320neo, the addition of Latrobe to Carpenter adds our content on that platform by 150%. And then when you take the engines, now look at that engine cross section, that’s a compelling complementary story. When you take the rings and the discs, the market position that we have then add bearings and shafts, again, if you see how these two things put together not very much overlap, some in the structural area, but it’s really a differentiation between PH stainless steels, the higher end PH stainless steels for Carpenter push customs for 65, those things in the 13.8 and 15.5 in Latrobe portfolio.

Now, let’s talk a little bit about how we are bringing these companies together and what we are getting out of it. We talk a lot about the synergies, the values of bringing these two companies together. And it will largely come from our ability to get more good stuff out of the existing system, all right, and operational efficiency.

We believe that we will have the run rate and they were around $14 million of about $25 million a year. And what I’m going to talk to you today about is a little of the upside opportunity, those things that we haven’t built into the modeling. So in the first stuff period then, as you could imagine we get out in the initial four months and we do the typical things that you would do and we have some consolidation of redundant activities, some leverage from both lead and nickel market and those things that we can actually combine. But very quickly as we move into 2013 and built into the guidance that we are providing, is this premium capacity and these operational efficiencies. In over the next slide, I’m going to show you where that’s coming from.

Premium capacity, we kind of use these terms interchangeably here, but for this sake, it is something that’s been melted or remelted, okay, implies better stuff. And when you look at our history over time, you can see a couple of different stuff, we are getting better stuff out of the system. So by 2015, nearly 80% of our portfolio will be premium now, that’s amazing, all right. So not only we are getting more outs, but we are also adding to capacity. So by 2015, compared to 2012 levels, we’ve added 18% to the overall volume that comes out largely by putting in new VARs.

In fact when we announced the deal in the March timeframe to now, we have already installed a new VAR combined with the best technologies in both Carpenter and Latrobe, and we’re already putting production material through that in the month of August. That’s amazing. And we’ll have two more that will come on by the end of the calendar year. So that’s gone very well. What else we’ll do, as you look at the blue, the darker blue portions of the bars, now that it is build into the deal synergies, the additional volume and the ability to move across the system.

You’ve heard Mark talk about now looking across the portfolio and getting more nickel materials as the proxy for better stuff, or nickel materials out. So the light blue is the steel and bearing kind of materials and the darker blue was the nickel-based traditional SOA type of materials. Our proportion to envisioning the overall mix of the output of what comes of Latrobe is increasing. Now, it’s not built into the deal economics, and where we have significant upside opportunity is in that light blue portion, the traditional steel portfolio and getting more out of the capacity that we have there.

So very similar to the numbers that Mark showed earlier and the transformation that we did to get more out of the existing portfolio, we imply the same techniques here, and we are just starting that, okay.

Now, a little bit of substance behind what we are talking about. So we keep talking about okay, things are going well, things are ahead of schedule, and those things are true. And I can sit up here and tell you that for certain key aerospace products and we’ve combined the best capabilities, the techniques, the tribal knowledge of both the organizations was taken thermal processing times down by 60% over the way we were producing them before, or we’ve improved no for finding times by 20%.

And the three charts that I have here with the blue bars, if you use, the red line is kind of preacquisition and the succeeding four months, you can see whether it’s yield. We have some examples of how the yields are improving. We are getting more of the output, that’s a 30% in the upper right hand corner, 30% improvement in melt output out of our new VIM already, all right, substance is there.

We are out of the gate extremely fast and having a lot of progress, and we believe there is other opportunity. As I said earlier, making more capacity available and a lot of that is debottlenecking the constraints that we have to-date and then getting operationally more efficient. This bottom right hand corner is a great depiction of that. So it’s a premium, premium melted wire products and both Latrobe and Carpenter made in the past. And what you see in the top right is, the way Latrobe. And the red boxes are constrained output work centers or constrained output that we want to avoid to get more better stuff through.

So if you look at the first process, that’s the number, the number of boxes is basically the number of steps and yep, there were some constrained work centers embedding, couple of more steps, couple of more constrained work centers. The third row is the new way we are doing it together. Fewer steps, no constraint centers as providing almost 1,000 more tons of output for this product over $12 million of opportunity in fiscal 2013, it’s a great example of how we’re bringing the best of both companies together and getting more output of the system.

Icing on the cake, CDLs famous description of the things that we didn’t build into the deal economics, do we have leverage that’s not build into what we talked about. there’s going to be some things that are, I would suggest maybe software. we got a lot of very interesting insight from our customers now having two companies in the same markets, not the exact same end use, but similar customers and a lot of good voice of the customer interaction, or that international infrastructure that Mark showed earlier and our trajectory in the traditional SAO portfolio and now getting to put largely 90% of our sales in Latrobe in North America, and we didn’t have a very large infrastructure to have our products travel offshore.

now we can plug into this great infrastructure that we have on the SAO side whether it’d be Europe or Asia. and we’re already seeing an increased order activity, increased employees coming in through that avenue. But where the real concrete opportunities are and I talked about them in the mix management, we believe that’s the highest leverageable capability that we have. And earlier on, I was speaking with some of you about how the progress of the integration was going.

one of the questions was, is there really any potential for other insights to get us more quickly into these markets. You’re going to hear Tim give two great examples where the unique experiences of both companies that will come together and really accelerate our new products. Whether it’d be a landing here, now imagine and Tim is going to go through it that the stainless landing gear opportunities takeoff, but there are these unique customers with these unique specifications, its unique infrastructure capabilities that you need to have to more further penetrate that market. We have them today.

so we can just plug-in the higher value stainless materials into the 300M supply chain and go from there or as I said to you earlier, one of the very cooler products that Tim is going to talk about is ultra high strength alloy steel, one of our significant core competencies is in Premium Alloys steel. So the ability to more rapidly develop that, we’ll deploy it into the market.

One of our core products in the wire area as Latrobe is that we call it edge wire, but it’s a high speed tool steel that’s electron beam welded on to a substrate, and it's really the business end of a band saw. But that substrate is a high fatigue operation that would be uniquely positioned for some of the things Tim is going to talk about, that’s a 50,000 ton addressable market, a great example of where these two companies come together and with our core competencies we are stronger that we were individually.

And I review with this, we believe again as Bill said we’re going to be more than 10% accretive in fiscal 2013, and we announced this deal. And today, stock price is basically the same and there is a lot of upside potential and what I just showed you. So I would suggest you that it's largerly not reflected the value that we will bring from Latrobe and the stock price we have today.

So let me leave you with this. It’s a great company. It’s got great people at Latrobe, and these organizations are coming together very nicely. You saw some of the leverage we will have in aerospace and some of the core markets, very closely aligned with what we do today. We believe there is upside in the integration. It's going extremely well so far. And we believe there is nothing, but upside as we go forward. And as I talked to you before, we are about 10% accretive in fiscal 2013.

And with that, I'm going to turn it over to Sanjay Guglani, and he is going to cover PEP.

Sanjay Guglani

Thank you, Andy. Sanjay Guglani, I'm the Vice President of the PEP segment. I'll start off by giving you a quick overview of this segment and then talk about each of the businesses in detail.

So this segment is about $400 million in revenue, four businesses with very large growth potential. And they are largely independently on, but they share the same strategy and the values that Carpenter does, that is to focus on high-end niche differentiated areas and that is consistent to the Carpenter philosophy.

One of the things that the PEP segment has allowed us to do is to redefine the business boundaries of what Carpenter does. As an example, previously Carpenter used to sell large diameter bar in oil and gas, non-magnetic alloy. And the four integration acquisition of Amega West has allowed us to then machine, precision machine these and provide finished components into the oil and gas industry, and therefore redefined our business boundaries.

We expect that similar kinds of moves in the future will continue to reshape the Carpenter portfolio. We have had significant gains to-date, launched new products. We have completed two acquisitions. After the acquisition, we have added four new locations. The fourth one is San Antonio, Texas. To support drilling activity in Eagle Ford, you might have heard a lot of the activity, rigs are moving to Eagle Ford in Texas area and we are right there at the request of our customers. And we have strengthened our market share in each of the four businesses. And we also have very strong plans for the next two years. So PEP is a critical and core part of our business today and we will continue to be part of the business in the future.

Now, let’s move on to the Amega West. This has been a great business for us. We acquired the business New Year January 2011. So in 18 months, we more then doubled the size of the business. We have a great team in place, and Carpenter has continued to aggressively invest not just cash, but resources technology, and we’ve done a great job. Amega is very well established in North America and that has been the source of majority of our growth. We do have operations in Singapore and Dubai and shortly we will announce another operation in Asia, and that has been a good thing for us.

North America has 70% of the global direction drilling. So it’s consistent with where the activity is today. But as the activity goes outside North America, the shale gas is explode of outside, we will be right there with them with our customers today and our new customers in the future.

We have commercialized new alloy SCF 260, which is a new non-mag alloy. The field test results have come out wonderfully well. This alloy has twice the corrosion resistance and ten times the field life often comp in alloys, comparable alloys. That’s great news for our customers, they love their performance. In addition to new non-mag alloy, Amega has been working diligently with Carpenter powder business, and a sister company of Amega to extend the life of equipment by putting new coatings of powder that improve way of life, way of resistance. And that’s good thing again for our customers.

Still we are well-positioned, we have continued to grow our share and our customers love the value proposition we have provided. Specialty field supply, as Andy mentioned, this business came to us as part of Latrobe acquisition earlier this year. Roughly half the size of Amega, the focus is on oil and gas.

And that to within oil and gas selected high-end demanding applications, directional drilling, blowout preventers, subsea components all of these will see rapid growth in the future. And you see this historical growth has been also quite good. The plans for SSS are to grow all these footprints. So far the growth has been out of a smaller footprint, primarily in Texas. But as we ask these the leaders of the business where do you want to grow, they name the same locations that Amega is already present in, we think that’s a great place for the two businesses to work together.

Carpenter also has a great portfolio of premium and ultra premium oil and gas alloys, that SSS will provide a channel to the market, example MP35N, it’s a great application in oil and gas.

I would like to quickly reiterate that the oil and gas industry trends are supporting long-term growth, directional drilling continue to increase as a percentage of the rig count, and rig count continues to increase as well. Our offshore rig count increases that’s good for directional drilling and for completions.

And in the very last column on the right-hand side, the dark blue at the bottom is North American focus in shale gas, but that’s only 20% of the shale gas potential in the world. And again as shale gas development was outside North America that will help the businesses both Amega as well as SSS.

So let’s talk about Carpenter powder products, our powder business. Powder is a very specialized form of metal. Customers use powder when they want to have higher performance, when they want to reduce manufacturing costs, when they want to reduce the lead times to manufacture products, or they want to improve the inspectability of the finished components. Let me give an example of an emerging application that is growing very, very rapidly, it's called 3D printing of products or additive manufacturing. Due to a great article in the February 2011 Economist, that talks about the manufacturing technology that will change the world, and this is about 3D printing of metal powder. There was another article more recently again in the Economist, April 2012, the third Industrial revolution both talk about additive manufacturing, and we supply the powder for that.

So the way this works is, conventional way of manufacturing a complex part is, you take the chunk of metal and machine away, so you are ultimately machining away a lot of the metal that you’ve put in, and then you're taking lot of the time and expense to machine it.

The new way of doing this in the future is going to be, use a 3D printer with a laser sintering, so you put a layer of powder sinter it in the places you want to grow it, and keep on printing it layer-by-layer, and it is being used today in high volume production in several areas, and I'll have a couple of samples on the lunch table, and I'll be happy to take more questions at that time.

We are also targeting other new applications, metal injection molding instead of using plastic, we are using now metal powder and injecting it into molds to make high volume complex parts, we'll have few samples of that as well, and we are continuing to invest in new products, DualZorb is a neutron absorbing material that has five times the neutron absorbing capability of conventional borated stainless steel.

So that allows the customers to make nuclear fuel, spent nuclear fuel storage out of thermal material, because you don't need as much material, that allows you put more material or spend fuel in the same container size and make it lighter, and that's a great news for our customers.

We're also investing in technology improvement, process improvement to make super clean powder that is extremely important as these are demanding applications that go into aerospace and gas turbines that have rotating components running at $30,000, $40,000 RPM, you want ultra-clean, super-clean powder and we're investing in that technology as well. So we have a great team, very good products and we have good customer service and very attractive markets.

Dynamite is our titanium business; dynamite is all about precision, smaller diameter titanium bar and wire, the keyword is precision. 95% of our revenue in dynamite comes from aerospace and medical. In the medical industry in the bottom right, as Bill had alluded to earlier, the demographics are pointing in the right direction for us. More implants, good news for us. We do supply a lot of bar that goes into titanium implants. And on the top right-hand side we talked about aerospace, we are a leading supplier of aerospace wire into titanium plasters, and we'll talk about little bit more of that in the next slide.

Our focus in dynamite has been in the rolling and finishing, you look in the bottom left hand side of the slide, talks about the titanium products supply chain, our focus has been in the green chevron, rolling and finishing and that's a very technology intensive part of the supply chain where we are investing in processes and coatings. You won’t think coatings are important, they’re extremely important, allows our customers to head these fasteners at higher speed, better ease, better shape.

We are investing heavily in that part of the supply chain, we have chosen strategically to stay away from the upstream supply of sponge and melt, and that strategy has worked out very well for us. Some of our PAs have decided to invest in sponge or melt, but we have very good relationships with out suppliers, and we have long-term agreements with them. And there is sufficient industry capacity, so we feel no need to invest in that. That has allowed us to conserve our capital, and it insulates us somewhat from the volatility in the sponge and melt sectors. So we are the market leaders in the world, we have great customer service with great products, and good customer relationships.

Aerospace fasteners on a significant part of the Carpenter portfolio, and as you can see on the left hand side the same slide that Bill had talked about, so the overall bill rate is 5%, but the wide body, larger aircraft, double-aisle, double-decker aircraft, these are growing faster 9%, and that is helping our fasteners to grow actually faster than the 5% overall build rate. So nickel is growing at 9%, titanium 15% and we have leading positions in both nickel and titanium.

The question keeps coming up, why is titanium growing faster than nickel? So there are two reasons why, as the aircraft grow bigger and bigger, they need stronger fasteners, so the choice is you go bigger, heavier fasteners or you can use titanium for the same effect with lighter weight fasteners, and that allows weight savings, and that's great.

The other driver for titanium fasteners is use of composites, composites require material, fastener material that is compatible with them and titanium is the compatibility material. So as you hear more 787s go out Airbus 380 go out, 350s go out, that's very good news for titanium fasteners. So the industry is trying to support long term growth.

In addition to the organic growth investments we are aggressively making in each of the four businesses. We are continuing to augment that with acquisitive growth. So Bill talked about the secondary point here, the criteria for selection still holds for us. It does for the entire company.

Our focus in PEP is on Precision, Machining and Finishing it, processes that are adjacent to what we already do, either in PEP, or adjacent to what SAO does, or what Latrobe does. That’s a great, sometimes forward integration moves, that’s very good for us. We are looking also at value-added services and we are continuing to focus on energy, aerospace, medical, and niche industrial.

So I want to leave you with the summary of PEP segment, it’s a critical part of Carpenter today, and it will continue to be a part of Carpenter in the future, huge growth potential. We’re in the right segments, aerospace, energy, niche industrial, medical, and we have strong position in target segments, we are continuing to make aggressive investments and augmenting not. We are augmenting the organic investments in growth with acquisitions. And we today project profit growth in the PEP segment at more than 20% a year for the next three years.

With that, let me hand it back to Bill.

William A. Wulfsohn

Okay, thank you, Sanjay. So just before we wrap up the portion of our discussion that’s on the next two years, I want to just take a moment to talk about the sale of our distribution business that’s which you see in the red bar that and we have some startup costs with Athens as well that are already included in our guidance.

Why would we make an announcement, why we saw in the distribution business? It’s profitable, it’s a good business, it’s in the metals markets. It’s consistent with our strategy. If you have read and I believe we are in the discipline of market leaders and old book there, I would tell you that it’s tough to be good in all markets. You have to choose where you are going to be really focused and devote your time and resources and capabilities.

And I think that’s the case here. There are other people who can add more value. This is a value segment. It doesn’t have a tremendous amount of material coming out of our core system. It’s basically moving other people’s materials.

So we think from a shareholder perspective, while we are not in desperate need of cash, or anything like that, we can take the cash, we can get from this and reinvest it in other areas of the business that we will have more value. So it’s just a consistent part of our strategy.

And with that just leave you with, I think we have and hopefully conveyed our a very consistent strategy about how we will execute on the premium and ultra premium end, and focus on getting our EBITDA levels up by mid decade to quite a considerable increase over the 300 and sum that we had last year close to double. And now we would like to transition into discussions about fiscal year 2015 and beyond. And there is a little overlap there, because some of these will start to manifest themselves in fiscal year 2015. And to be in that discussion, we’ll ask Dave Strobel to come up, he is our Senior Vice President of Operations. He’ll talk to you about our expansions in the Athens facility.

David L. Strobel

Thank you. Good morning, folks. We will talk about where we are going with operations. It’s important to talk about the foundation that we basically set over the last several years. Now, foundation is basically a goal towards, driving towards operational excellence, and for us where operational excellence means is on going and noteworthy improvement in four key areas; safety, quality, delivery, and cost.

Form a safety perspective, I’m really proud to say that we reduced our injury rate by over 50% over the last five years. Yes, we still have injury, so no, I’m not happy with our performance, this is an area we need to continue to work on going forward, but yet notable improvement.

From a quality perspective, we measure quality in a couple of different ways, claims from our customers. Obviously, we don’t like to have those and also our internal remake, so if something goes wrong, we have to remake in order another obvious issue.

We’ve reduced debt rate by 25% over the last two years. From a delivery perspective, despite how full we have our operations, which is an on going challenge for us. This past year we have seen a 10% improvement in the delivery performance to our customers, again very noteworthy.

And last, but not least, from a cost perspective, this business is really about understanding the details. And I’m very proud to say that the team what the actions that we have taken, we’ve been able to reduce our cost per ton over each of the last three years.

At a high level, however, we done that, on the upper right there you see the green arrow, increases in productivity especially in those capacity constrained areas. How do we focus on that and get more out of those operations. With that additional yield improvement, that’s kind of like free weight that we have coming out of the operations.

And over this past year, we’ve had a real strong focus on our raw materials area, as well as melt shop performance, close to $20 million in improvement year-on-year in those key areas. We are also going to do some less of the things which you see there at the red arrow. So rework, again, that’s a bad thing, we want to reduce that. Cobble, that’s basically a wreck on hot mill really bad thing, our hot mill up against any other in the world. Our Cobble rate is 0.5%. And how we operate our business and the number one and two bill orders we have are going to cross that mill absolutely excellent performance.

So this is really about driving operations to improve our performance to our customers and continue to execute in a very strong fashion. So 18 months ago as here we talked about the manufacturing footprint that we had at that time. And this chart here basically shows what our presence was during that timeframe.

So fast forward 18 months to today, and so we drop in all these green dots, this is what’s happened. So we have been very, very busy. We added Amega West, Oilfield Alloys, Arwin Machining. We put a new power supply in at CPP Rhode Island for our MIM powders and the demand that we have there. Additional capabilities that Dynamet, Florida, we’ve also expanded in our Redding operations and had the acquisition of Latrobe.

Going forward, we have heard about the, you have heard about the expansion into China. So we have that going on and we have also got the Athens Alabama plant that I will tell you more about in just a few minutes. Obviously, we’ve been very busy with reinvesting back into our core business and building towards our future. So we have got a lot of great facilities. We have got great people at each of those facilities. So how do we get the most out of the whole with everything we have got going on. It’s really looking at the best practices between our operations and bench marking. And basically operating has one integrated mill operating system. And Bill talked about that up front, but it’s very, very important to us.

And the chart that you see on the upper right there, if you take a look at the operations, so using Latrobe and using Redding as an example, we do have like processes, but we have different sweet spots for those processes. So it’s a matter of taking look at the sweet spots and taking look at the operations, and how do we get more out of that. And we are getting a lot more out of those operations with that knowledge and with that potential that we have. So as an example, and Andy as he mentioned dropping hours out of the melting and refining times that we have, that’s pre-capacity, same thing with the thermal treatments.

If you take a look at the number of heats per day out of the Arc shop at Latrobe, it’s up 16%, and I think we can double that by the end of this year, even more capacity that we can free up into VIM furnaces. And the change over times that we have in some of the key constrained units like VAR, we’ve seen close to 5% improvement in the utilization in those furnaces. If you take a look at across the facilities and look at the procurement opportunities, we expect to save $4 million this year from the purchasing perspective with what we’re buying.

And last but not least die restoration. Both Redding and Latrobe, we’ve got lots of hammers and dies. We are going to have hammers down at the Athens plant. We’ve developed a lot of really strong intellectual property associated with the design and maintenance of those hammers and dies. And we will have all the capability of the company at one location to feed all its various facilities.

So while we are working towards, building towards future, we’ve also been taking a look at, what can we get as far as additional capacity out of our current system today? And that work is helped to get us an additional 4,000 tons this past year, and we're working on 4,000 tons additional this year, working in cooperation with Latrobe.

So from a capacity perspective, we’ve turned on two additional ESRs over the last eight months in Redding. Andy talked about the three additional VARs at its Latrobe facility and again, we’ve got the first went up and running already. We think it 8,000 tons additional product through our caster to feed Latrobe this upcoming year.

We've been able to work on getting additional throughput through our press, it’s been a constrained work center. With that additional throughput through the press, we’ve had to invest an additional furnaces to support that, and that’s a really good thing, now continue to invest in technology in a lot of our key areas. So tight tolerance bar, Mark talked about that, that’s really important to us, more in line processing across to our operations to reduce our lead times. We're continuing to invest in these key areas for our customers.

All right. So this transition now, I will talk about Athens plant. It was called the focus facility when we first announced it, why the focus being on four to 18-inch diameter forged bar products and with very short lead times, four to six-week lead times as what we're talking about getting out of this facility, it’s a game changer for us.

This facility and so we move from focus facility to the Athens plant, it’s actually located in Limestone County in Alabama. We thought about calling at the Limestone Plant, but thought that really creates some additional confusions, so we avoided that one. But going forward, with this plant which will house the largest radio forge in the world has got great capabilities, is going to be based on the foundation that I talked about up front as far as operational excellence.

So if you take a loot at this chart slightly different from the one that you saw with Mark's presentation. So FY’12 to FY’3 again, we are adding 4,000 additional tons there, 13 to 14. We are out of base, and then we start to kick in Athens, and a lot of capability with Athens 27,000 tons and up to $600 million in additional revenue.

The great thing about that plant is, it has a relatively low break-even to be EPS neutral less than 6,000 tons, we’ve got to get through there to get past break-even. And if you take a look at our backlog and what we’ve seen over the last two years, we absolutely believe the demand is there for it, we’ve seen a really strengthening backlog.

So the picture is worth of 1000 words. The bottom here is the aerial short of the site itself. Upper left is a plant that we bought, it’s adjacent to it, literally across the street on the Delphi plant. It will house our administration. It’s also great floor space as far as getting construction materials ready to set up for it. And on the upper right hand side, I talked about this being the largest radio forge in the world, and what you’re looking at there is the largest radio forge foundation in the world. And that's what you see in the little box down below, very exciting time for us.

This is another transition of what that plant will look like, when we are complete with it. So the great thing about this site is, it’s not just for Carpenter today, or for the next five years, we’ve got with this location the opportunity to grow over the next 20 to 50 years. We have 230 acres on the Athens north site. So when it comes to adding capabilities, we will be able to expand, we will be able to put the furnaces in, additional remelt furnaces, and expand our hot working and finishing capabilities significantly.

So from the base infrastructure standpoint that first piece $500 million, it’s going to take us well to develop that over three years. As far as incremental capacities instead of hundreds of millions, we’re talking about ten of millions, instead of years, we’re talking about months. So really set us up very well for the future. A big part of the technology that goes into this plant has been modeled in cooperation with the folks from R&D.

And I would like to have Tim Armstrong come up and talk about what's going on there at this time.

Timothy R. Armstrong

Thanks, Dave. Good morning. So we’re going to talk about the technology and new products portion of the program here. So I’ll just start it out by talking about the tools we use on the modeling and simulation. As Dave alluded to, this is a key tool that highly differentiates us from others. We used this in our last specs of our business to model our processes, it drives down cost, improves efficiency, decreases turnaround time, and really, really helps us shorten the cycle time of our products to move new products and current products out of the system faster. It was a great guide used to help select the forge in the Athens facility. So this is a really good group of people, highly differential, and really gives us an advantage over others.

So, all right. So, Mark and Bill talked about how we’re moving our mix up, and so we’re getting more ultra premium and premium products, and how as we go forward, we want to enhance that and sustain that. R&D is the innovation engine for Carpenter and its full purpose is to innovate either by a technology acquisition, or by inventing new differential products, or by partnerships like we did with the landing gear program that was just announced to build a robust pipeline of new products that will sustain this company going forward.

And we believe, through that innovation, we will build that large volume of ultra premium and premium products. But that is not the only thing, there is always a but. The other part of the puzzle is that, we have to accelerate our go-to-market strategy and our commercialization of new products.

So if you look historically, new products tend to be unknown and familiar and when you take them out to our customers, they are not anxious to get them into new products. The adoption is very, very slow. And so we tend to have to wait for a new platform to open. And that can take years, if not decades to get sometime the new products in.

So what we’ve done is brought two organizations together, R&D and marketing. And within this new product commercialization focus, we had set up product champions. And these champions go out and work with our customers at the design and development level. And what they do is introduce our products and their unique attributes and get our customers to use all those attributes to redesign their products.

So what we are going from is a design driven process to a materials driven process. And what that will do is shorten qualification times and time then to first sales. And as I, in about two slides we’ll talk about the stainless landing gear initiative, that is a great example to how we’ve used this materials driven process to shorten and develop new products.

All right. So Bill really touched on this one, gave you a couple of the key takeaways. I only want to do a couple more. The table up at the top left shows some of our legacy alloys. And the one thing I want to point out here is our alloys that we develop are very strategic in nature. Such that even years after introduction, we’re still generating sales from them, as you can see there in the sales growth over the last two years with some of those alloys.

And as we look forward, we still see continued sales growth in some of these alloys, so strategic very beneficial to our customers. The other takeaway is that, this is just a brief snapshot of some of the new products we are going to introduce, or are introducing. And so we have a robust pipeline, I’m going to talk about some of these going forward, but we have a large, large pipeline of new products across all our major markets that I think are going to differentiate us in the future.

So let’s go into the new product portion where we can spend sometime talking about some of these key initiatives that you’ve heard about in the past and that have been in the recent press release. So 2011, we kind of gave you a brief overview that we were looking at being in the stainless landing gear area, we were talking about 475 as maybe the alloy of choice.

And as you saw in the press release yesterday, we’ve been involved now for 24 months in an airbus driven consortia with Messier-Bugatti-Dowty and University of Sheffield doing a design and materials validation program. And so, in the last 24 months, we’ve gone through that. In the spring, we just passed a critical milestone, where we down selected to custom 465 as a material choice going forward for the main fitting of the Airbus A320 in this test program.

So it’s a big, big critical milestone path. So where we are today? We are currently in a prototype stage or we’re going to be building nine main fittings that will then go forward to be tested in full scale tests at Airbus, progress through yet another critical milestone at about a years time and then by 2014 go into a full scale like validation program and fly this in a Airbus A320 somewhere in there. So this is the program and are we excited, absolutely excited. And as you’ve heard from Andy Ziolkowski, this fits very, very well within the Latrobe mix, it’s an upgrade and it’s also a volume upgrade.

So we see a lot of growth potential here, and we’re now getting a lot of interest from other OEM. So this is not just the initial consortium, we’ve got others coming in, grabbing this material, testing it and seeing how it plays in their applications. So very, very exciting program with a lot of hope for the future here.

There has been a lot of discussion already from Sanjay and others on some of our energy alloys, we’ve not really introduced you to a broad-based energy portfolio in the past, I am not going to spend too much time here, you’ve heard some. We’re going to talk about PremoMet on the last slide, but this is a ultra high strength alloy steel that has the, because of the strength to weight ratio, the ability to lightweight, getting a lot of interest in wind, energy for light weighting gear boxes Sanjay talked about near-net shapes for valve bodies.

We’ve gone through in the last 18 months code cases with the Electric Power Research Institute to get these approved for both conventional coal and nuclear power plants. The big takeaway there, that each one of those power plants when they are built has somewhere between several hundred to 3,000 to 4,000 valve bodies, each weighing 200 and 500 pounds a lot of potential volume there to put these valves in. And why they are interest, the properties are more uniform, they are more inspectable, and we can produce them through the powder process much faster than taking a raw product and machining it.

The new drill collar alloy SCF260, which is really exciting about that over our conventional drill collars is this one, it’s the next generation development of a 25-year cycle of upgrading our drill collar alloys, so it’s next new product. But it’s got a ten times increase in fatigue resistance and a two times increase in corrosion resistance. So when you think about extending the lifetime of these products big, big potential there to extend these products lifetimes in once they are in the hole. So really exciting things going on here and on top of this, we have a whole suite of new high strength corrosion resistance stainless steels that are already getting some interest in the oil and gas area that are going to be first-in-class with respect to strength and corrosion resistance when they are introduced.

All right, so, MithralMax, this is a proprietary process that we license from a small company and broad in-house. The outcome of this is that, it can make very, very fine grain materials, and by fine grain, we’re talking nanocrystalline, bulk nanocrystalline material. So this is a first commercial introduction of any process that can make very, very fine grain materials. What’s exciting about this is, with this process, you can get properties you never before imagined. so it’s very transformative in nature.

So it can be applied to titanium, stainless steel, and eventually we hope nickel-based alloys. So we give you an example of what you can do with this, commercially pure titanium, we can increase the strength 70%, we can increase the fatigue resistance 60%. So if you’re a designer, you can think about what you can do with those to design, you can start thinking about designing, enhance lifetime of medical products. you can think about designing medical products that maybe have greater mobility, that are more conformable when placed in the body. So you can see the great interest the medical industry is having and when we look forward to medical, we see a lot of potential.

We’re getting this material now on the hands of many, many orthopedic companies. we now have a long-term agreement with a dental company to start developing this for dental implants, because it facilities a wide range of new products that have greater life times.

Going forward, we’re really going to take a look at how this plays in aerospace and energy, because when you think about this titanium and aerospace for fasteners, our stainless steel. so there’s a lot of, I think upside to this that we still have to figure out, and then hopefully, we’ll report out the next time we hear in front of you. We think this is just highly transformative; it’s really going to change the future of metals in the next several decades.

All right, ultra high-strength alloys steel. this is our PremoMet and Temper Tough alloys. Temper Tough is an air-melted alloy steel, PremoMet is alloy steel, and our PremoMet is a double melt steel. Just so you realize it, that’s the different same composition. We have really moved this forward into a lot of late-stage qualifications in our key markets Industrial, Consumer, and Transportation.

So a couple of highlights here, we already heard about band saws 50,000 ton addressable market, we’re already making band saw blades for demonstration at Carpenter. I believe there is going to be a lot of product life extension there and improved performance.

Automotive, high strength structural components to increase the strength of frame for the automobile, there is a 500 pound per car opportunity for this material, so think about it, 15 million vehicles is supposed to be built this year, or next year, 500 pounds of vehicles, if we can introduce this a lot of upside. Wind turbines I’ve already talked about, light weighting the gear boxes, crankshafts, we’re already getting in this into high performance vehicles and crankshafts and connecting rods.

So good upside, big takeaway, high fatigue resistance, lighter weight, you’re going to talk, this is going to be have a big play in all lightweight applications. And we’ve also moved into some small sales in some specialty areas, and so this thing is moving forward, we see a lot of upside coming forward. So really excited about this plus, we see a lot more partnerships developing for products that are within our key mix right at the moment.

So with that, I'm going to turn it over to Doug Ralph.

K. Douglas Ralph

So, good morning. I'm Doug Ralph, and I will be leaving my role as CFO, as it was announced earlier this morning. That will be after a long smooth transition to my eventual successor. And what I can assure you is that, I will be 110% engaged in driving the business forward between now and then, I can also assure you that, I'm going to be a long-term shareholder of Carpenter. In part, that’s because I know too much, for that not to be thrilled, but I also have a great deal of confidence about our business and the team that I work with.

We are running at about five of eleven. We are running about five minutes behind our schedule, you can just indulge us for five more minutes, we'll finish up the financial overview section here and be on to some questions and answers.

You can see here a summary of the points that Dave and Tim just made and in particularly the added Athens capacity and the new product opportunities are very key parts of our second half of the decade strategy. And as I will now cover, we are setting a realistic target of being at $4.3 billion to $5 billion of revenue by the end of the decade. That's a sustained growth rate on our business, so 9% to 12% per year over the decade and an EBITDA target of $900 million to $1 billion by the end of the decade, and that represents more than doubling our current level of EBITDA that we expect to achieve this fiscal year.

At the same time, the outcome of our growth strategies is that over the second half of the decade, we'll be generating over $1 billion in investable free cash flow in that second half of the decade. Before I get too far into the forward financial target, so I do just want to highlight that we’re making good progress against what was our previous key financial targets on the legacy Carpenter business before Latrobe, of exceeding our prior peak level of profitability, and we will get there a year ahead of target and hopefully that gives you some confidence on our ability to focus on and deliver against the financial targets that we communicate.

What you can also see there on the numbers below the chart is that, this is now the third year of what's been very strong profit improvement by the company. In fiscal year 2011, we improved our EBITDA by $92 million. In fiscal year 2012 there was a further $112 million EBITDA improvement and consistent with the guidance that we provided for fiscal year 2013, we expect another more than $110 million improvement in our EBITDA this fiscal year, and that's consistent with the more than $70 million of operating income growth year-to-year that we expect.

This recent progress has been driven strongly by an increase in our profit per pound. And that increase in our profit per pound is a function of better product mix, as well as pricing. And you can see that in the relationship here between our revenue growth rate and our volume growth rate, which for the past two years has been strongly positive.

We completed the first phase of that and are moving into the second act to the play so to speak here with Latrobe, where Latrobe as you’ve heard Cobble today will generate additional premium tons, which will further improve our product mix, and we would expect a continually higher average mill profit per pound, including Latrobe. And those are the key elements of delivering our mid-decade profit target of $550 million to $580 million of EBITDA.

Lot of data on this chart, I will start with explaining our peer group. So in our 10-K, we published a group of 18 peer group companies, U.S. and global companies that make up our peer group and with Carpenter that makes a population of 19. And as you can see here that the financial returns that we’ve delivered over the last three years are at the very top of that 19 company peer group.

We are number one in revenue growth over the three years. We are a solid number three in EBITDA, our EBIT growth over the three years. And you can see the impact that this has all had on our stock price performance relative to the peer group at the bottom of the page. So over the three-year periods, we are number one out of the 19 company peer group.

In the last 18 months, since our Investor Day, we are number two out of the 19 companies. And over the last nine months, our stock has not performed as well relative to the Group, despite what we believe has been consistently a strong financial performance on our part. And we believe this often has more to do with nonperformance factors like our overweighting in the XME index, which can be volatile with the latest concerns on the global economy, Europe, or the direction of commodity prices. And as I hope, we’ve established today. We are much less vulnerable than the general metals industry to these factors.

I was talking to somebody coming in this morning and I asked what you want to here from us today? And then he said, well the most important thing that you can say is that, your growth stock. Well, I think this is very much the profile of the growth stock that you see displayed up here. And we’ve already talked a lot about the key elements to get to our mid-decade target of $550 million to $580 million of EBITDA, that represents a 11% to 14% growth rate over the EBITDA level we expect to achieve this year.

By the end of the decade we are targeting as I mentioned EBITDA of $900 million to a $1 billion, which is more than double where we expect to end up in the current fiscal year. And you can see the components of that are good, solid, continual progress in our mill business, which consists here of SAO, plus Latrobe, plus Athens investment contribution eventually.

On top of that you have nice complementary contribution from our PEP businesses in growth rate. And then really kicking into the second half the decade, you see here, what is a very conservative estimate of the new product potential that Tim just talked about. And we’ve also made an assumption here that, we deploy some of our excess free cash flow in the kind of accretive M&A bolt-on opportunities in our PEP business, which gets us to the total here. And really based on those new products and what we do with our cash flow, potential is obviously to be able to even exceed this.

From a top line revenue standpoint, we expect to be able to sustain growth of 9% to 12% on our business through the decade, and that would take us to this $4.3 to $5 billion level, or effectively doubling also of the revenue line.

Now, we consider these very reasonable end of the decade targets, and we’re confident that they can be delivered. Now, we want to just focus a little bit about volatility. As we mentioned, we expect our business to have less volatility than others in the industry. We are in lot of the right markets for today’s economy between aerospace, energy, and the high end medical products, transportation, consumer and industrial products that we talked about. And while those markets have historically had some volatility, we believe that we have good market diversification and we also believe that there is the potential there for much positive differentiated growth potential in those markets relative to average GDP, or the average economy.

We’ve covered many of the other points on this slide that also contributes to lower volatility in our business, and I’ll just highlight again. As Dave mentioned on Athens, we’re investing a lot of money in Athens, but our view of the risk relative to the substantial upside potential with that investment is very modest risk. The facility would be EPS break-even at only 6,000 tons, or a little less than 25% of the initial capacity. It will be cash break-even at about a third of that level and when you factor in the lower cost per ton, it even further mitigates the risk with the facility.

I want to shift now to cash flow, so we’ve summarized this in two brackets. You can see our next two fiscal years. And as we’ve mentioned, we would expect to be negative free cash flow on both of those years, about $175 million in total, $125 million this year, $50 million next year, yeah the scale doesn’t do it justice here, but the cash from earning is strong and going to be growing over that period of time. But you can see that we are fully investing that cash about $600 million in CapEx over these two years in CapEx investments against the business, and the biggest part of that is Athens. All that leads to the $175 million and while we’ve announced the number of initiatives especially in the last week and a half, all that is very consistent with a $175 million estimate.

Beginning in fiscal year 2015 and over the second half of the decade, you can see that the business clearly has a potential to generate over $1 billion in free cash flow. Again, the scale doesn’t quite give it justice here, but a very strong and growing contribution from cash from operations and investing a little over third of that back in CapEx. And that still with that level is $175 million a year in CapEx over the second half of the decade. And you can see that even at that healthy level, still healthy level of investment, we're generating the $1 billion in the free cash flow.

Moving on to our balance sheet we have maintained a strong investment grade balance sheet over this investment period. And we expect to continue to do so. If you look at the very bottom of this chart between our available debt capacity within the three times leverage target that we've communicated and the ample liquidity that we have here, we’ve got enough resources to invest in the growth strategy for the company. And as indicated by green up arrows there that is the EBITDA, the business improves, that will increase the available debt capacity in the business.

Now, in any financial planning, it’s always prudent to look at a downside scenario, and while we don’t anticipate this to happen. What we've modeled here is, the downturn is similar to what we experienced in physical 2008, 2009. Revenue was down 32%, it took about three years to recover back to the previous level. And if that were to happen again, it would result in an estimated cash flow reduction of about $100 million over the first 18 months. So that’s lower revenue offset by some working capital give back and about $400 million overall if it takes three years to get back to that prior level.

This I should point out is, the last downturn we modeled here was twice as severe as the one that occurred prior to that after 9/11. And the bottom line of this chart is that, with the upsizing of our revolver that we did a little over a year ago, and the fact that it all that remains available to us, we view that as a very good insurance policy, should we be in a downturn scenario.

We also here did a little bit of math on what is the trough EBITDA level, because we’re fundamentally a stronger company at the up part of the cycle and the down part of the cycle. Last time our EBITDA troughed at about $130 million. We would expect with the nature of our current business that trough would be more like $200 million and so an appropriate stress test to do on our business plan.

A busy slide here, so now back to our base business plan and $1 billion of investable free cash flow, and one of the questions that we asked when we conducted the investor survey before the events is, how we should deploy that cash flow and you can see your survey ranking on the right side of the page there. And our cash deployment objects are very consistent with those priorities. Our number one objective is going to continue to be capital investment and organic growth in our R&D program and on average, we feel like we can deliver a 15% average return on that cash investment, and you can see the components of that.

Our second priority will be accretive acquisitions. We approached those in a way that are conservative in terms of valuation. And I think we are building a good track record of being able to achieve and exceed the deal economics that we establish.

I do want to comment a little bit more on pension funding. I talked about it in our last call. Just to share some more on our thinking here, the reduction in interest rates and lower asset returns have significantly increased our near-term required cash pension contributions. And this comes at a time when we are investing a lot of CapEx into our business growth. And while we can fund that with our capital structure, we believe that there may be an attractive opportunity to accelerate some part of the pension contributions, while avoiding any risk of putting too much in the plan. And we would do this as part of a refinancing of our May debt maturity in the spring.

We’ll continue to keep you updated on that in our quarterly calls. The math does work out in a way that we’d recoup the extra funding over a very short period of time, less than four years, whatever additional we put in, we’d get back in less required contributions over that period of time. And we would also reduce our pension expense on earnings, which currently drives our EPS down by $0.83 at the same time.

The next one, debt reduction was a little bit confusing, collectively, it was ranked number two in the survey. But as you can see 94% of you says, our current leverage is adequate or too conservative. And we believe there we can stay within our investment grade parameters and take advantage of current attractive borrowing rates, it would be a smart thing for the business to do what I was describing with our spring debt maturity.

Rounding out the list you have dividend. We’ve been a consistent payor for over 100 years of dividend. Our yield right now is an attractive 1.5% on top of what we believe is very attractive stock price appreciation potential as well. And then share repurchase where we had a Board authorized program that ended in August of 2008. And right now there are no current plans with our capital investment to reinitiate that.

Okay, so I’m going to venture into a stop price discussion here. You’re all very capable of doing your own analysis on this, but a couple of things that we wanted to point out relative to our current evaluation. You can see in that top chart there where we are tracking our performance against our forward EBITDA multiple against of the competitive peer group there that despite our stronger revenue and profit growth, we’re currently trading back at only an averagish forward multiple against that peer group. And that is something that you can see from the chart there, that has really changed in the last nine months or so.

The chart at the bottom of the page there looks at the forward EBITDA on one axis, and then the percentage of different companies business that are in, aerospace and defense on the other axis. And you can see two distinct groupings of companies here, those that have a higher percentage of their business in aerospace and defense generally have a higher forward, multiple that they are trading on, and then the other group of customers with a lower percentage of lower forward multiple.

And Carpenter sits in the middle of these two groups and with our action, with a full year of Latrobe and the contribution that’s making in aerospace and energy, and the sale of our distribution business. The Carpenter portfolio was going to move to the right, and as of right now, we are not earning the kind of multiple, the companies that are similarly focused in aerospace and defense are earning.

And then finally, on the right side of the slide there, no surprise here. When you look at the forward multiples based on the analyst’s estimates that are following us, they do decline as you move out in the periods of time here. And what this does to me is that, as we are successful in executing our earnings growth strategy that we are outlining here today, that should have a very favorable impact on the price going forward. This all points to what we believe is an attractive current valuation on our stock.

So just to sum up here then, we are confident in our ability to extend our growth progress beyond the $550 million to $580 million of EBITDA that we are setting as a mid-decade target, and we expect to achieve a very realistic EBITDA potential of $900 million to $1 billion by the end of the decade. At the same time, we’ll continue to maintain a strong balance sheet, and we expect to generate over $1 billion in free cash flow over the second half of the decade that will enable us to continued growth in generating strong shareholder value.

With that, I’ll transition back to Bill for a few closing comments, and then we’ll open up for your questions.

William A. Wulfsohn

Okay. Thank you, Doug. And thank you all for your patience everyone. Just a little bit longer, but we really do appreciate the feedback that we got with the investor survey we took that very seriously, tried to make sure we were covering the things that we hope were of interest to you and tried to provide a high level strategy, but also the level of granularity, so that you’d know this isn’t just kind of hopes and dreams and aspirations, but we’re putting a lot of concrete actions behind it.

I hope what came through is that, we are very much focused on the high-end of the high-end, where we’re comfortable with ourselves being in the 1%, where we’re well positioned in the attractive and growing markets, and we are increasing capacity at a time when demand is growing. And we think that gives us a lot of upsides, and so we see a strong sustained top line growth delivering a lot of EBITDA and lot of cash. And I think we’ve also shown that, when we make commitments, we have a heavy focus on execution in delivering on those.

So we’d like to think that, you'll walk away with a good understanding that we’re a good investment for the future. And just leave you here as we go into Q&A with really the core summary as we’re in the very premium area, supercritical markets, very demanding applications with the technology emphasis that allows us to play at the top end, and while we are clearly committed to the metal space, I think we're really a specialty materials company.

And so with that, I'll say once again thank you for your time and participation, and we'd love to take any or all questions you might have. Actually, I think what we’re going to do because of the webcast, we’re going to make sure we get the microphones around, so question in the front row.

Question-and-Answer Session

Josh Sullivan – Sterne, Agee & Leach

Thanks. Josh Sullivan from Sterne, Agee. I mean, if you look at the Latrobe synergies or mix management, that’s not in the $25 million announced. What inning would you say we are versus the relative mix management that you’ve done at the legacy Carpenter facility and running?

William A. Wulfsohn

Yeah. Andy is probably in the best position, but I'll try to help set the pace for him, I think we are in the very early innings of that one, really the focus has been on driving the capacity gains and optimizing the system, some of that comes naturally in terms of mix optimization, but frankly, some of it is definitely still to come. So…

Andrew T. Ziolkowski

So I like the sports analogy, okay. So we’re, with your betting practice, we’ve done the initial assessment of just looking at the opportunity, a lot of that early on is arithmetic. I guess we start to look at the portfolios and our techniques and how we go about this is partially the portfolio will see where you add value and see where you don’t, that activity is largely done. You saw by the blue bars, we are moving into the cross system activities, that’s part of what we’re doing, so we are rapidly moving on our capabilities to know nickel based products, add Latrobe, that activity is going on at larger light blue is the area that we're kind of just getting started, okay.

William A. Wulfsohn

So and just I would add that, Carol Jackson who's here runs our Bar, Wire and Strip business. So that’s the business that Andy ran before, he went over to Latrobe. She is getting great results, and a lot of those results are being driven on actually the activities that Andy initiated a year ago in terms of the mix optimization. So he’s pretty experienced in this realm, and we got right guy in the seat over there to make sure we duplicate that kind of results again. So very early innings on it.

Gautam Khanna – Cowen & Co., LLC

Gautam Khanna of Cowen, you mentioned early in the presentation number of your commercial aerospace LTAs that extend up through the end of the decade. One, the seventh largest, I guess is up or recomplete soon. I’m just curious, we are at a point in the cycle where presumably your customers are more concerned about execution. Can you just talk about price sensitivity, does price in that business go up, go down, how should we think about in the business you already have in aero, how price unfolds over the next couple of years?

William A. Wulfsohn

Yeah, and this is a very important point, because we like any company want to make sure we’re getting a very good return for our shareholders, but as you can see we’re trying to achieve that through technology and mix. We want to and our supply demand environment get fair value for our product, and this is actually a good climate we’re finding for those discussions. But we’re also not going to be profiteers that are going to try to take advantage of the shortage in the marketplace to jack up the prices on an LTA, because if we do that what’ll end up happening is, we’ll probably win the business just long enough for them to qualify an alternative supplier and pull somebody else in, or develop it with themselves.

So we do see pricing opportunities, we see mix management opportunities. Now, on the transactional side and as we bring on our new capacity, that’s where you can see a significant volume of transactional business coming in. And there we’re much more comfortable telling the customer that on the basis of your purchasing patterns, this is the price and if you want a long-term agreement, we’re happy to sit down and negotiate that with you, but then we’re talking about the supply partnership. So there is definitely going to be leveraging in terms of that if you will the more temporary transactional type business.

Gautam Khanna – Cowen & Co., LLC

And just a follow-up, can you comment on what you’re seeing in the current business environment in aerospace. You mentioned there is an after-market component to what you do. One of your competitors cited that as a reason for weakness in the quarter if they sell similar product. What are you seeing, what explains to disconnect between what you saw in the second calendar quarter relative to your competition and what are you seeing since then?

William A. Wulfsohn

Well, we unlike a couple of our competitors are not integrated downstream, so they probably have better visibility in terms of one particular, whether demand pattern is being affected by after-market versus primary OEM business. They probably have the ability to see that with greater clarity. I’d ask Mark to comment on our backlog and what we see and how that’s going.

Mark S. Kamon

I think, when you start talking about one small slice of business out of a whole portfolio, there is so many moving parts that we could see weakness in, for example, the element you talked about, we would never see it. And the reason we wouldn’t see it is, we have a backlog, we have a six-month backlog in our key products. And if my friend here, Dave Strobel makes a crack of capacity available we’ve got product to put in. So we’re moving and when we say we are going after 4,000 more tons next year, it's not like Dave is going to make 4,000 tons available and we're going to go what do we do now. As they come available, we have markets we’re attacking and opportunities out there, which are enabling us to do what we did in the fourth quarter for example.

William A. Wulfsohn

I would just to add that in general, and we knew that this would be a question. I mean these are somewhat uncertain times just economically with all the news out there. so we not surprisingly just looked at our end of the month backlog, just we’re walking in here. We had previously announced that we had some record backlogs coming out of in our forged bar and billet business in July. And what we’re seeing is that, the backlogs on the premium and ultra premium products are same very strong.

And in the value segment, there is the pad of weakness if you will, actually weakness would be too strong, but it’s not as big, it's still strong, but in multi month. But and so I don't know who you are referencing in terms of our competitor, but I would say that in that premium and ultra premium, the demand seem to be staying strong. But in some of the other segments that are little bit more towards the commodity and we’re seeing maybe a little bit more volatility. So I don't know if that helps to triangulate.

Unidentified Analyst

Great, thanks. It’s (Inaudible) from Topeka Capital Markets. Just on the energy front your fastest growing end market, can you talk a little bit about the market structure from the non-magnetic side and the completions. Is it very fragmented, or where there is a lot more room for consolidation? And then secondarily, with the pricing structure, is it more LTAs or spot business?

Unidentified Company Representative

Okay. And logically I think we'll turn that question over to Sanjay, who is running that business in overall energy effort.

Sanjay Guglani

So the first question is the market segment for both non-mag and completions fragmented. Somewhat yes, but whether it's fragmented or not, our value proposition is fairly well received by the customers and they are willingly given us more and more share in the non-mag business.

In completions, we have a very strong product portfolio. We are continuing to invest in new alloys and as Dr. Armstrong talked about, we have three new alloys in our portfolio being developed. The constraint in the completions part of our portfolio is that really nearing capacity. And as we bring on new capacity, we will be able to enter into long-term agreements with several customers in that arena.

In fact, we’ve had customers call us very recently several of them wanting to get more. So there is more room for us to grow in that arena. I just say, I don’t remember the second part of your question.

Unidentified Analyst

Just a structure, LTA’s versus spot market?

Sanjay Guglani

The non-mag part of our portfolio, we do add value in the vertical integration today that we have in the forward integration play and we are not seeing seen any significant changes in the pricing in that part of the world. And in the completions spot, we do have long-term agreements with pricing attached to it. So again, there is not enough volatility in that part.

William A. Wulfsohn

But in general, I think it’s fair to say that, that’s a market that is less long-term agreement oriented than saying aerospace.

Sanjay Guglani

Correct.

Unidentified Analyst

And then, if I could just one follow-up on the non-magnetic side. Is it, it seems like you have a fair amount of market share, is it is a competitive advantage, I mean we’ve seen on aerospace side, where they are really trying to limit the management of the supply base. Are we seeing a similar theme in the energy side?

Sanjay Guglani

Customers always want to spread the supply base. Our growth has been coming from continuing to strengthen our position in specific areas that we already present, but also Amega has been aggressively growing the footprint of service centers across North America and in the globe. So a lot of growth is coming also from new sites that we are going into, plus the addition of new alloys, really puts us head and shoulder above our competition.

Unidentified Analyst

I have a quick question as far as your outlook, the 2015 and 2020. I was wondering how would you characterize kind of the, your current businesses in terms of the cycle. Are you thinking that we are mid-cycle toward the end of the cycle and then when you break down into more granules 2015, 2020. What are the assumptions underneath there as far as where are you expecting to be kind of flat line as far as where you are in the cycle versus 2013?

What I am trying to figure out is, you seem to be doing a lot of mix shift in a lot more value added, but when I look at the margins roughly from 2013 through the end of the decade, they seem to be just improving slightly and I was just kind of wondering what the underlying assumptions are?

William A. Wulfsohn

Sure, when we’ve covered, I think fairly clearly the macro assumptions and they are pretty consistent with third-party benchmark growth dimensions if you will industry indices. You’ve seen some of the areas why we believe we will get more, more share if you will because of the enabling technology.

I would say that we’re somewhat conservative and there is an opportunity, we will be pressing internally to make sure that we get the value that we should from the enabling technologies. So just as there is always the risk that there could be an economic downturn in the last half of the decade, or even sooner, there is also upside opportunity that we can get better margins and whether that’s through the Latrobe mix management or through the new technology pricing as we bring it in the market place. But we tried to provide, we will say a fairly conservative in what we think is balanced view. So I hope that answers your question. There is some upside there, I would think, but that will be.

We are looking forward to coming back in another 18 months or two years and then we will be ready for that cycle. And I think that’s when we can make firmer commitments about the margins that will come from those new opportunities.

Unidentified Analyst

Thank you. I wanted to also comment on kind of the outlook through the end of the decade and really focus on your comments about the cash cow aspect beyond 2015. So it seems to me like in specialty metals there is a requirement that you continue to invest, as you point out to stay ahead of the competition. And especially as the commodity metals continue to be quite competitive with China slowing, what makes you so confident that there won’t be more of an encouraging from over the next decade, from other producers that are looking for that extra margin that you’ve been very comfortable and successful in?

William A. Wulfsohn

Well, two points on that, one would be the investment profile and then the second would be the competitive incursions. We expect that there will be that competitors globally will be trying to go towards portions of our business and that some of those will naturally become more commodity in nature. And I think that was the key point of Dr. Armstrong’s chart, which was somewhat illustrative. If we don’t do research, if we don’t invest in our capabilities, we are going to see a gradual commoditization of our business. Anybody who thinks they can still stand and stay where they are, the world is moving and it’s moving by you. So that’s why we are trying to be proactive and make sure that we have technology as a core part of our mix.

So that’s maybe the first part. The second comes on to, I personally and Doug and I have some discussions about this. I think that some of our projections about the capital needs in the second half of the decade are pretty conservative, because we are investing heavily in our capabilities now. And for those who’ve been and walk the floor in Redding, you can see some of the investments we’ve made, they are world class. The VIMs that we put into Latrobe, some of the largest in the world, some of the most capable, the new VARs and the ESRs, we are putting in the biggest most productive forge in a very lean, linear kind of format.

So yes, you will have those, who will want to enter our market, but you saw some of the barriers or there the cost to get in, makes it challenging. But if don’t continue to reinvest ourselves, or reinvent ourselves, I think that we run that risk, but we are making those investments.

And I think that we have the capacity to add over time through the investment. And Dave made the point, but maybe I should try to bring it home even a little bit more that $500 million and three years to build the Athens facility. But we want to grow up by the next increment to 3,000 tons. We’re talking about literally months and $5 million, $10 million, $15 million, those kind of investments as opposed to these big investments. We focused this facility to make it, so that the additions are very much drop-in, and that’s why we’ve been able to add capacity so quickly at Latrobe.

When they put in their initial investments for the vacuum melt and re-melt, what they did was, they created stations and bays where, and they kept some which were open, and literally you could just, I mean, I think the team over there would say it takes a little more work from this. But you could literally drop-in a new system and get up and running pretty quickly.

So that’s why I think, we are creating the leverage to make sure that we can have that up side, and grow without having to put all this money. And once again, the technology we’re putting in is leading, it’s not following technology. And this was for us, probably grown a little longer, but this was a fundamental choice that we had to make as a company. Where we’re going to lead from the front, or where we’re going to try to protect and our strategy was we’re going to lead from the front.

So that’s why we’re trying to make, what we think, we’ll be the most capable, not just from quality, but productivity capabilities in the world. So, yeah, we’re going to have to keep on our game. But I’m not sure that we’re just going to have to total capital added to solve the problem. We’re putting the capital on it right now, and that’s why we’re spending a lot of money to do that.

Lloyd T. O'Carroll – Davenport & Company

Lloyd O'Carroll Davenport, the switch from coal to gas-fired power seems compelling to me.

Unidentified Company Representative

Right.

Lloyd T. O'Carroll – Davenport & Company

For both environmental and more importantly economic reasons. Why hasn’t this happen faster? There’s been a lot of chatter about IGT, orders big just over the horizon. Why haven’t they happened yet, and when will we see them?

Unidentified Company Representative

So, the transition has been happening. Several coal-fired power plants are being shut down. The transition is happening faster in North America than in the rest of the world. And there is a fundamental reason that in North America gas is splintable, in fact the word there is a blood of gas in North America.

The transition is taking more time outside North America, because of the prices of gas being very high. And as you can see gas is a seasonal commodity, you can’t transport gas very long distances. But in Asia, as well as in Europe, there are significant shale plays that are present. And as the fracking technology and dekatherm technology goes from North America into these areas. That will dramatically reduce the cost and make it long-term more affordable, and that transition will continue happening very, very quickly.

Lloyd T. O'Carroll – Davenport & Company

So, the other point thought I think may be more specifically to your question is the economics associated with putting and converting from existing coal to gas, is there, if you are looking at a reasonably long-term horizon. But then, the underlying utilities have to have the capital to be able to invest, they have to have the ability to justify for themselves or for their shareholders the five type euro return on making the conversion. And they have to do it with a confidence that natural gas is going to stay at 280 as opposed to go back up to $14 in the dekatherm I mean obviously, that that have something made a big conversion and have that kind of dynamic that would be difficult to defend.

So, I think all of those factors are wane in, but the longer and more cleared is that the gas will be so plentiful that it would be at this is kind of $3 or lower dollar dekatherm. And the more environmental legislation pushes and makes it more difficult for existing coal facilities to a myth as their meting today. It’s definitely going to drive it, but in my view that’s what’s preventing it today.

Lloyd T. O'Carroll – Davenport & Company

Yeah. I’d looked at several power suppliers for the aluminum side….

Unidentified Company Representative

Yeah.

Lloyd T. O'Carroll – Davenport & Company

Of the area that have been watching? And EPA rigs coming in 14%, 25% higher operating costs, huge CapEx.

Unidentified Company Representative

All right

Lloyd T. O'Carroll – Davenport & Company

Why aren’t utilities putting the CapEx before the regulators today?

Unidentified Company Representative

Right, right and it’s not surprisingly and the industry is going to react. And the good news is when they say oh my goodness; there is a big need that that’s right when our capacity will be readily available and this is a type of business that we can easily move into our operation.

Lloyd T. O'Carroll – Davenport & Company

Can you just talk about the qualification process in the aerospace and then energy, how long does for a customer to qualify for products? And then secondarily, what are your customers saying about the new facility, are they willing to place orders, how far in advance, and how much capacity are they, is this kind of a pushing towards new capacity expansion process or, are you just decide, why can’t they sign up earlier?

William A. Wulfsohn

So let’s sum, I’m going to try to give you the full answer because it’s a really important question and it’s a three, I’m going to break it down in the three parts, the first part is when we start up, we have vendor approved process capacity primarily in Reading also in Latrobe, and right now that’s used for both vendor approved processes production and non-vendor approved processes, materials which would otherwise just have to have performance classification around that.

And so when we start up the Athens operations, we will start up with vendor approved process material because it will take some time to get those approvals, but doesn’t mean we can utilize that capacity, we can shift the non-vendor approved process material down to Athens and process at there, so this might be a performance backed for an oil and gas downhole, this is again one of those reasons, why it’s hard for somebody to enter new with the kind of investment we have, we can shift the capacity and just use better utilize what we have in Reading and Latrobe, and then quickly bring volume into our combined system which is why we are operating as a system.

Now in terms of the qualification process Dave has lived at, so may be he can speak toward and then Mark can talk about customer response, because he has been work with lot of customers talking about this.

David L. Strobel

So from a qualification perspective, as we talked about and as Bill showed you that one slide, it can be fairly lengthy process, but that the – when you take a look at the interest of our customers in this facility, the one thing that we have heard time and time again is that they are willing to work with us way ahead of times as far as developing this qualification plans and programs, because of the flexibility that this facility with four, six week lead times provides them as far as certainly with their various products that they're looking for in a very quick fashion.

So yeah, they are long qualification periods, but working with them and with an incentive to work with a much lower lead time process, we think, we can pretty much fast track through those requirements.

William A. Wulfsohn

Mark, anything you want to add?

Mark S. Kamon

Yeah, I think, I would add two things, Carpenter, and I would add, when I say Carpenter on including Latrobe, when I say this, who is the first metals producer to be AS9100 rev C approved and the reason that is our processes are well documented, and this is a very important aerospace certification, our processes are well documented, our performance is well documented, and that’s just a price of admission before you could even think about trying to put a facility and you better have the quality process is end points to support it.

And what I will tell you is the slide that Bill showed, that showed VIM capacity utilization in the industry going up, VAR capacity going up, and it’s not what, this is just raw capacity that’s being demanded and all of the producers are pretty tight right now.

Our customers see that, they understand it, and they’re asking, where am I going to be in five years. How do I get the material? I’m going to need, if my business is going to grow. And so, they are working with us, we’re working with them that’s why we’re able to secure long-term views they’re mutually beneficial. The capacity we’re putting on is absolutely required by our industry. And certainly valued by our customers.

William A. Wulfsohn

And so two just other additional points, really at the heart of your question is the pace that the Athens facility will be approved by the vendors, will be proportional to the amount of need has pent-up at the time. If there is a need in the industry, that will be approved quickly for vendor approved process. If not, if times are slow then it’s just another cost of fuel to the OEMs, which is why we can rotate materials across our facility.

Lloyd T. O'Carroll – Davenport & Company

So, just a follow-up so how much of your business is vendor approved and how much is not?

William A. Wulfsohn

Well, if we look at the Ultra Premium side of it, I don’t know that we’ve calculated this, but in the Ultra Premium end, it has to be the great majority of what we have. And I would say it’s a good thing for us to look at, but it have to be a probably 50% of the premium. But that’s where our long-term agreements tend to be and that’s where the high-end materials tend to go. So, what we – just one other small point is, the qualification process actually for us will begin starting next year before the plant begins.

Not just the product approvals and all that, but the reason why we have expense in our income statement this year, and why we’ll have expenses, because our first construction, the first thing we’re building is our Met Lab. And why is that because you need to get ultrasonic tanks, qualify so they can test, and you need they’ve operators that can do it, and that’s a two year process in and out itself. So we’ve already begun that so, when we’re up and started, that’s not an impairment to getting further and having the materials that are tested, actually and having the customers trust those results.

Lloyd T. O'Carroll – Davenport & Company

Okay, last follow-up on this issue…

William A. Wulfsohn

Well, it’s a great point.

Lloyd T. O'Carroll – Davenport & Company

Have you noticed any change in customer behavior as the rig count pulls back or as the heck ups in the supply chain and aerospace continue or is that much longer data decision that they have to make?

William A. Wulfsohn

So, I would describe that in the aerospace and the energy area that when you go back to 18 months ago, there was this ramp-up and people were kind of getting back in the game.

We are now probably more mid-cycle, if you will, in terms of the tone that’s out there, there is strong demand and our customers are for the most part very busy. They are at the same time somewhat cautious to try to carry too much inventory because what will happen with the euro and what will happen when some of these things we talk about.

And so we are seeing strong demand for our products in that context. And we are and our customers, I think, are remaining concerned about the surge of demand that’s likely to come when people feel more comfortable that the economic climate will improve and that the raw materials won't be dropping at a heavy rate or something like that.

So we're actually a little bit more cautious on that surge coming through and our ability to support that when it comes through because inventories from a customer level are not real high right now, it's not like people have been stockpiling.

R. Bentley Offutt – Offutt Securities

Yes, it’s Bentley Offutt calling from Offutt Securities. I was trying to get some more clarification. One of the things that you said to me about your prior investor get together 18 months ago was the opportunity for new specialty models. And in the case of the landing gear for example, I think it was $1 billion a year in time and of course you have an important relationship with Airbus and that's on the 320, I believe. Can you give us a little bit better stretch-out view where you see it going for example, what type of interest have you gotten from Boeing and where do you see those going as far as some of the larger newer aircraft for Airbus?

William A. Wulfsohn

Okay. I would ask that to Dr. Armstrong, he can speak specifically to the landing gear portion. I would say though that landing gear is one material and it's for – or one application and so we're very excited about that and see the interest growing. But in addition to that as we’ve described, our custom series of material used in all sorts of structural applications that it's not just one product for one niche, it's really a broad portfolio that we think is going to increase the use of raw materials for aircraft.

Timothy R. Armstrong

Yeah, so let me answer your question with respect to the platform that this will be qualified on. So the Airbus program that we’re participating on, the outcome of this, if we are successful will be custom 465 being specified on the entire commercial platform.

So three things for the A320, to the A380, they’ll be qualified to be used on. So, it could be at some point, and the aftermarket, so it could be used as a replacement for titanium, bit – so that's one aspect. So with respect to Boeing, I can’t go into too many details, but we’re working with the other OEMs in this area both from a landing gear perspective and from an airframe perspective. And so it's been looked at as how it fits into their future growth needs. And at this point, I think that’s all I can say. Andy, you want to say anything about this end market?

Andrew T. Ziolkowski

So the one other point that I would say is that when you look at the things that we’ve talk about, and Tim talked about in some of the business discussions we are on, these are all the same concepts, that’s the top asset list about we talk about before. So, we're seeing these things through and we are seeing them succeed as you can appreciate, it takes time. So, we didn't show smoke before, and now we'll show mirrors. We're actually seeing these things through and there is a additional materials that we’ve developed, which I think, we’ll be talking by the time we meet next.

R. Bentley Offutt – Offutt Securities

Thank you.

Dick Glasbrook – Neuberger Berman

It’s Dick Glasbrook at Neuberger Berman. Some of the questions I was curious about with regard to the landing gear were previously asked and answered, but I did have two others. Firstly, you’re already in this business, so to what degree should we think about incremental revenue versus potential decremental revenue?

William A. Wulfsohn

Right.

Unidentified Company Participant

And secondly, I don't quite understand the proposition for the customer; is there any weight savings here? And if there is, could that drive a retrofit capacity or utilization for major airframe checks?

William A. Wulfsohn

Sure. So those are great questions. And yeah, the total business has an outstanding business for materials for landing gear, and we’re a quality supplier of that. What this would mean is in terms of custom 465 is two things: one is a movement from, we’ll say more of a premium product to more of an ultra premium product, so with that you – there will be a higher price on that naturally for the quality of the materials. And also because of – that’s a proprietary material to Carpenter and that could bring a greater share percentage. Now, in addition to that when you're talking specifically, I’m sorry, the second part of your question was around the…

Unidentified Analyst

The planes go in for….

William A. Wulfsohn

What the value proposition, I'm sorry. Thank you. The value proposition for the user is really twofold. One is from an environmental standpoint. The current materials need a cadmium coating to prevent them for rusting. Cadmium is not an acceptable material for use in Europe with the REACH legislation. It’s a difficult material to work within it once the risk that you get a chip in it, and you have premature corrosion. And so Tim, I thing we’ve done studies on this or it’s been with the life of the landing gear, you may want to talk about the cycles.

Timothy R. Armstrong

Yeah, as typical alloyed landing gear has a retrofit window somewhere between six and eight years depending on how the cadmium coating holds on, when you switch to a stainless steels that retrofit windows got to go to about 10 to 12 years. So on a typical 24 year lifetime with alloy steels if you’re looking at three replacements to the landing gear going to stainless steel it’s going to be two. So what’s going to add a lot of longevity and reduce the cost to the operator of those aircraft.

Unidentified Company Representative

And that’s the value.

Unidentified Analyst

(Inaudible)

Unidentified Company Representative

So, the question was could we add in the landing gear and de-check over time. And the answer to that is that impact is what we’re working on is the approval of the design. So one of the nice things about the material we provide is while there is some redesign, it fits the cavity or the window and the basic frame that exists today. So it can be dropped in, and it doesn’t have – need a new aircraft design to enable the use of that material, so it can be used for replacement. Yes.

Unidentified Analyst

(Inaudible)

Unidentified Company Representative

The billion was what we thought was the addressable market there were question was round the size and the scaling now, and we viewed as the addressable market with the technology that we have.

John A. Paulson – Citigroup

Hi, John Paulson with Citi. I just have a quick question, how do you see the end market breakout for the ultra premium products. And so how you see that evolving over time perhaps over to the 2020 forecast that you have?

Unidentified Company Representative

Sure. So clearly the majority of the ultra premium applications are in aerospace, you’ll have some niche applications in the energy market, and then you also have them in the medical area where the criticality is so key. You draw that as a distinction where you would tend to see in the premium area probably more of the energy type applications and more of the automotive or transportation applications where they need very precision product or the kind of PremoMet material that we provide. We put that into the more of the premium segment. So hopefully that gives you a sense for the market distribution.

John A. Paulson – Citigroup

And I guess I was just wondering how do you see that changing over time, or do you think that that would hold relatively constant??

K. Douglas Ralph

Well, you’ve seen the projections that we have internally in terms of the mix change that we’re working towards. And so I think in there you naturally see that the ultra premium we intend to grow and we tend to grow our position, in the premium area we intend to grow as well, some of that will be also aerospace some of the structural components like we were talking about would be in the premium segment.

So I think it fits with our overall mix, if I had to pick a pie chart down the road, and say what is it going to look like, I would say that it would look like what we have today with a bigger aerospace, a bigger energy, bigger medical, more of a niche industrial focus, okay, and then less in transportation and consumer unless we get the big breakthroughs in terms of if it turns out that 500 that are temper tough and PremoMet can be used to light weight automobiles, the potential of that is way beyond our estimations, and frankly we would need a partner to help with the manufacturer, that would probably end up more in the value area, but there will be such a profound value associated with that in terms of the quantity of the, it really would be game changing for us.

So I would say on the base we would expect that our core markets to continue to consolidate, but you have these potentials for a breakthrough in the technology we have which could change our outlook on that.

Edward Marshall – Sidoti & Company, LLC

Ed Marshall with Sidoti. I’m curious, what is unique to the Athens facility that you’re able to get such a low breakeven point to EPS, and I think maybe you can frame it in respect to the core SAO business?

Unidentified Company Representative

Well, one of the quick things that Dave can speak to the facility, but whereas we’ve got 2500 to 3000 employees at writing, we're going to have less than 250 at Athens, it’s the degree of lean automation that’s being designed into the facility is tremendous, and that part of the technology solution, a lot of it's in the forge, and then a lot of it’s in just how, what productivity that we'll be able to get out of that, being able to do things once pass or one step as opposed to having to do it in multiple passes through maybe a forge and a press, but a lot of it just has to do with the lean layout, and I know a lot of you have visited the riding facility which we’re very proud of, which you can walk a long distance following the metal, we are trying to take what could be seven miles down to like 700 yards, in terms of material moving, so Dave probably took the thunder, but is there anything?

David L. Strobel

Just I mean, I think you had it very well, the technology that we're employing here is really unique, and when you think about the ability to take out hot work cycles and with that heating cycles and with that time, and working capital, it's huge. And so we feel very confident, lean operation design right from the very beginning and very short lead times.

Unidentified Company Representative

And what's really interesting, and maybe another venue we can talk more, but there are products now that take multiple steps to get to the size that we are looking for. And so it’s logical, that if you can eliminate some of those steps, you get a productivity improvement, that’s great. But each time we produce, we have a yield loss. You have cut back on the metal whether it’d be for testing or for quality purposes, and so every time you cut back or go through one these processors you’re loosing a percent of the original melt. So if you can do it in one step as oppose to two or three, that the yield improvements are really profound.

Peter Arment – Sterne, Agee & Leach Group Inc.

Thanks. Peter Arment, Sterne, Agee. I want to circle back regarding Latrobe. Some of the biggest benefits you’re going to be the mixed management as you’ve identified. But, and usually the operational efficiencies, there was a lot of discussions, initially when you closed about comparing premium melt cycle times, what you’re doing and riding, and what Latrobe is doing, may be you could give us little discussion on that, and when you think you’d be able to match up what you’re doing and riding and in other opportunities given the great assets that Latrobe exceed that?

Unidentified Company Representative

Thank you for asking that, because these guys love, they want to talk about.

David L. Strobel

Russell, it’s a way from Dave. If you look at the construct of the synergies, the overwhelming majority comes from the premium capacity. But that’s a manifestation of a couple different things, these operational efficiencies that you are talking about, we are manifesting sales and more premium outlook. Yeah there’ll be cost and quality and those kinds of things that come along with. But we’re – as we’ve showed in that one, upper chart that was, the upper right in your hand, and it’s specifically we’re talking about, so there is 30% improvements already.

Peter Arment – Sterne, Agee & Leach Group Inc.

Well, I’m sorry, we get that specific, we know we want without naming the product talk about some specific heat times, because I know you’ve said some pretty significant targets and been able to achieve them?

Unidentified Company Representative

Sure, so just on the melt output, so one of the key and critical things is getting more material out of the VIM shop, both to feed more premium and to feed assets. So we think, we’ll be I’m not going to give the specific numbers, but half the way there by the end of the calendar year, and pretty much where we need to be by the end of the fiscal year. And that’s building those numbers. So in that 2014, we’ll be kind of up in running just in time for getting material ready to feed the Athens facility. And in the proof within the numbers, I mean we’re 30% of the way there now.

Now there’ll be some more dramatic changes in terms of capital when things like that to help us to get the risk. But early on, we have very good idea, and a very good plan of what we want to do, and how to do it. But just to anecdotally those referring to some of the – and we took thermal processing, as I told you with see a [yielding] cycles of a key aerospace material reducing by 60%. So we are having some profound and these are not, we did one, we did one and guess that it was better. I’m talking about a repeatable basis, things that go through the pipeline on a perpetual.

Unidentified Company Representative

And one of the other just befits along those as well we can talk about that for Latrobe the addition of Latrobe team, they have had have legacies on best-in-class capabilities, not just physically capable, but in terms of their intellectual property. so they bought a lot of know-how to what we’re doing also back in, we’ll say the legacy Carpenter already. So it’s a two-way street, and we’re driving both ways on that highway.

Peter Arment – Sterne, Agee & Leach Group Inc.

Okay. Thank you.

Unidentified Analyst

Thanks and good morning. One for Doug, don’t want him to feel left out.

K. Douglas Ralph

I was feeling like to plan up here.

Unidentified Analyst

You’ve talked about Carpenter’s inclusion in the steel ETF and it’s over weight if you have your choice, would you be out of it or least reweighted and if that is a choice, is there anything you can do better?

K. Douglas Ralph

May be all can educate me. I’ll view that something that we’re unable to control if that’s the wrong view somebody can educate me. but it’s I think clearly hurting our performance.

Unidentified Company Representative

Now hopefully just through discussions like today, I mean that more we understand that we’re not tied to the raw materials. We’re not tied to the basic commodity dynamic in the same way that other companies, which can be very successful and very profitable, but we’re a different kind of company, hopefully that that you all will have the correct impression about the value we provide and how we should be positioned.

Unidentified Analyst

Okay. Second one relates to what you’re going to do with the cash flow. they could expect to get. are you looking to go downstream with acquisitions? Are you looking more to go sideways?

William A. Wulfsohn

We have taken and then very clear in on our strategy that we, maybe you always have an issue where there is some overlap. But we have a lot of customers that our downstream. they do open die forging and those types of things and we’re not interested in getting to the market. it’s not that it isn’t a good market, it’s a great market. but you know we have a lot of valued customers that are in that market, if we go in that market, they might not be as inclined to be, have us as a major source for them.

So I think we would be looking at other adjacencies in addition to how we could add to the scope and capability of what we provide to, if you will the industry customers today whether that would be additional metals or additional aspects of the metal, additional interim processing, but before the open die forging kind of end state. and really I am not trying to put-off the question, but we’ve tried to telegraph how the situation is going to be a lot different in a couple of years than where we are today.

and I think naturally, we will be back before you, and we’ll be talking about cash flow and how they deploy it and getting your feedback on how we should do that as we get closer to that window. so I’m not trying to punt on it, but it will be clear. we know it’s out there.

Michael Gambardella – JPMorgan

Mike Gambardella, JPMorgan. I’ll keep the pressure on Doug. What are some of the options you’re looking at to address the pension problem, and what are some of the possible implications from a cash state standpoint, and also from an expense standpoint?

K. Douglas Ralph

And Mike and Tom Cramsey, our Chief Accounting Officer have done a lot of analysis on this, but really the singular option that we’re looking at right now is an amount of earlier funding, accelerated funding into the plan. We’ve done various analysis with our third-party actuary to make sure that in doing that, there’s an extremely high probability that, that won’t be putting too much into the plan, so we’re trying to find that sweet spot in triangulating that several different ways, and the main advantage of that strategy is, some of the things that I mentioned.

I mean we look at it from a cash payout standpoint, and if we can put an amount into the plan, tied into our debt solution at a time when the credit markets are very favorable, you get that cash back just in less required contributions over a very short period of time, less than four years than what we’re looking at. We also take that drag out of our EPS that we view would be very positive as well.

And beyond all the required cash contributions, the other thing that’s happened in the pension area is that the PBGC premiums were being under funded are up significantly, and so that’s another expense that we would be able to avoid or minimize as a result of that strategy.

Michael Gambardella – JPMorgan

Thanks.

Michael A. Hajost

So with that we’ve hit the noon hour. And so I’d like to say thank you all for attending your good questions and all your feedback before the session. This will conclude the webcast, and with that for those [Ends Abruptly]

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