CARPENTER TECHNOLOGY CORP

Previous wording

Our discussions below in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in Item 7 of our 2024 Form 10-K. Our discussions here focus on our results during or as of the three-month period ended September 30, 2024 and the comparable period of fiscal year 2024, and to the extent applicable, on material changes from information discussed in the 2024 Form 10-K and other important intervening developments or information that we have reported on Form 8-K. These discussions should be read in conjunction with the 2024 Form 10-K for detailed background information and with any such intervening Form 8-K.

Current wording

Our discussions below in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in Item 7 of our 2024 Form 10-K. Our discussions here focus on our results during or as of the three and six-month periods ended December 31, 2024 and the comparable periods of fiscal year 2024, and to the extent applicable, on material changes from information discussed in the 2024 Form 10-K and other important intervening developments or information that we have reported on Form 8-K. These discussions should be read in conjunction with the 2024 Form 10-K for detailed background information and with any such intervening Form 8-K.

Previous wording

Approximately 40 percent of our net sales are sales to customers under firm price sales arrangements. Firm price sales arrangements involve a risk of profit margin fluctuations, particularly when raw material prices are volatile. In order to reduce the risk of fluctuating profit margins on these sales, we enter into commodity forward contracts to purchase certain critical raw materials necessary to produce the related products sold. Firm price sales arrangements generally include certain annual purchasing commitments and consumption schedules agreed to by the customers at selling prices based on raw material prices at the time the arrangements are established. If a customer fails to meet the volume commitments (or the consumption schedule deviates from the agreed-upon terms of the firm price sales arrangements), we may need to absorb the gains or losses associated with the commodity forward contracts on a temporary basis. Gains or losses associated with commodity forward contracts are reclassified to earnings (loss) when earnings are impacted by the hedged transaction. Because we value most of our inventory under the LIFO costing methodology, changes in the cost of raw materials and production activities are recognized in cost of sales in the current period attempting to match the most recently incurred costs with revenues. Gains and/or losses on the commodity forward contracts are reclassified from accumulated other comprehensive income (loss) together with the actual purchase price of the underlying commodities when the underlying commodities are purchased and recorded in inventory. To the extent that the total purchase price of the commodities, inclusive of the gains or losses on the commodity forward contracts, are higher or lower relative to the beginning of year costs, our cost of goods sold reflects such amounts. Accordingly, the gains and/or losses associated with commodity forward contracts may not impact the same period that the firm price sales arrangements revenue is recognized, and comparisons of gross profit from period to period may be impacted. These firm price sales arrangements are expected to continue as we look to strengthen our long-term customer relationships by expanding, renewing and, in certain cases, extending to a longer term, our customer arrangements.

Current wording

Approximately 39 percent of our net sales are sales to customers under firm price sales arrangements. Firm price sales arrangements involve a risk of profit margin fluctuations, particularly when raw material prices are volatile. In order to reduce the risk of fluctuating profit margins on these sales, we enter into commodity forward contracts to purchase certain critical raw materials necessary to produce the related products sold. Firm price sales arrangements generally include certain annual purchasing commitments and consumption schedules agreed to by the customers at selling prices based on raw material prices at the time the arrangements are established. If a customer fails to meet the volume commitments (or the consumption schedule deviates from the agreed-upon terms of the firm price sales arrangements), we may need to absorb the gains or losses associated with the commodity forward contracts on a temporary basis. Gains or losses associated with commodity forward contracts are reclassified to earnings (loss) when earnings are impacted by the hedged transaction. Because we value most of our inventory under the LIFO costing methodology, changes in the cost of raw materials and production activities are recognized in cost of sales in the current period attempting to match the most recently incurred costs with revenues. Gains and/or losses on the commodity forward contracts are reclassified from accumulated other comprehensive income (loss) together with the actual purchase price of the underlying commodities when the underlying commodities are purchased and recorded in inventory. To the extent that the total purchase price of the commodities, inclusive of the gains or losses on the commodity forward contracts, are higher or lower relative to the beginning of year costs, our cost of goods sold reflects such amounts. Accordingly, the gains and/or losses associated with commodity forward contracts may not impact the same period that the firm price sales arrangements revenue is recognized, and comparisons of gross profit from period to period may be impacted. These firm price sales arrangements are expected to continue as we look to strengthen our long-term customer relationships by expanding, renewing and, in certain cases, extending to a longer term, our customer arrangements.

Previous wording

The following is the net pension expense for the three months ended September 30, 2024 and September 30, 2023:

Current wording

The following is the net pension expense for the three and six months ended December 31, 2024 and December 31, 2023:

Previous wording

Net pension expense is recorded in accounts that are included in cost of sales, selling, general and administrative expenses and other expense, net, based on the function of the associated employees and nature of expense. The following is a summary of the classification of net pension expense for the three months ended September 30, 2024 and 2023:

Current wording

Net pension expense is recorded in accounts that are included in cost of sales, selling, general and administrative expenses and other expense, net, based on the function of the associated employees and nature of expense. The following is a summary of the classification of net pension expense for the three and six months ended December 31, 2024 and 2023:

Previous wording

As of September 30, 2024 and June 30, 2024, service cost amounts related to the net pension expense capitalized in gross inventory were $1.5 million and $1.6 million, respectively.

Current wording

As of December 31, 2024 and June 30, 2024, service cost amounts related to the net pension expense capitalized in gross inventory were $1.6 million and $1.6 million, respectively.

Previous wording

During the quarter ended September 30, 2024 we continued to drive earnings momentum through improved productivity, product mix optimization and pricing actions. Notably, the SAO segment exceeded expectations delivering $134.5 million of operating income with an adjusted operating margin of 26.3 percent, an increase over the prior year same quarter of 19.4 percent. The SAO performance was driven by higher sales and expanding margins and marks the eleventh consecutive quarter with increasing adjusted operating margins in SAO.

Current wording

During the quarter ended December 31, 2024, we continued to drive earnings momentum through improved productivity, product mix optimization and pricing actions. The SAO segment realized $135.6 million of operating income with an operating margin of 22.5 percent, or adjusted operating margin of 28.3 percent, an increase over the prior year same quarter of 15.2 percent, or adjusted operating margin of 20.0 percent. The SAO performance was driven by higher sales and expanding margins and marks the twelfth consecutive quarter with increasing adjusted operating margins in the SAO segment.

Previous wording

In addition to the strong operating performance, we generated $40.2 million of cash from operating activities in the three months ended September 30, 2024, as compared with cash generated from operating activities of $7.4 million in the three months ended September 30, 2023. With a strong balance sheet and adjusted free cash flow, we will continue to take a balanced approach to capital allocation: sustaining our current asset base to achieve our targets, investing in incremental growth initiatives, and returning cash to stockholders. During the three months ended September 30, 2024, we repurchased 230,000 shares of our common stock on the open market for an aggregate of $32.1 million.

Current wording

In addition to the strong operating performance, we generated $108.1 million of cash from operating activities in the six months ended December 31, 2024, as compared with cash generated from operating activities of $21.9 million in the six months ended December 31, 2023. Adjusted free cash flow was $51.9 million in the six months ended December 31, 2024, as compared with negative adjusted free cash flow of $25.4 million in the six months ended December 31, 2023. With a strong balance sheet and adjusted free cash flow, we will continue to take a balanced approach to capital allocation: sustaining our current asset base to achieve our targets, investing in incremental growth initiatives, and returning cash to stockholders. During the six months ended December 31, 2024, we repurchased 275,000 shares of our common stock on the open market for an aggregate of $40.3 million.

Previous wording

For the three months ended September 30, 2024, we reported net income of $84.8 million, or $1.67 per diluted share. Excluding the special item, as identified below, adjusted earnings per diluted share was $1.73 for the three months ended September 30, 2024. This compares with net income for the three months ended September 30, 2023 of $43.9 million, or $0.88 per diluted share. The results for the three months ended September 30, 2024 reflect an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies compared to the three months ended September 30, 2023.

Current wording

For the three months ended December 31, 2024, we reported net income of $84.1 million, or $1.66 earnings per diluted share. This compares with net income for the three months ended December 31, 2023 of $42.7 million, or $0.85 per diluted share. The results for the three months ended December 31, 2024 reflect an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies compared to the three months ended December 31, 2023.

Previous wording

Net sales for the three months ended September 30, 2024 were $717.6 million, which was a 10 percent increase over the three months ended September 30, 2023. Excluding surcharge revenue, sales increased 17 percent on a 3 percent increase in shipment volume from the three months ended September 30, 2023. The results excluding surcharge revenue reflect realized price increases, improving product mix as well as stronger demand in the end-use markets of Aerospace and Defense and Energy during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Excluding surcharge revenue, sales in the Aerospace and Defense end-use market increased 34 percent compared to the three months ended September 30, 2023.

Current wording

Net sales for the three months ended December 31, 2024 were $676.9 million, which is an 8 percent increase over the three months ended December 31, 2023. Excluding surcharge revenue, sales increased 13 percent on a 6 percent decrease in shipment volume from the three months ended December 31, 2023. The results excluding surcharge revenue reflect realized price increases, improving product mix as well as higher shipments in the Aerospace and Defense end-use market during the three months ended December 31, 2024, compared to the three months ended December 31, 2023. Excluding surcharge revenue, sales in the Aerospace and Defense end-use market increased 35 percent compared to the three months ended December 31, 2023.

Previous wording

Geographically, sales in the United States increased 7 percent from the three months ended September 30, 2023, to $421.1 million. Excluding surcharge revenue, domestic sales increased 15 percent from the three months ended September 30, 2023, driven by stronger demand in the Aerospace and Defense end-use market. Sales outside the United States increased 15 percent from the three months ended September 30, 2023, to $296.5 million for the three months ended September 30, 2024. Excluding surcharge revenue, sales outside the United States increased 21 percent from the three months ended September 30, 2023, reflecting stronger demand in the Aerospace and Defense end-use market in the European and South America regions as well as higher sales in the Medical and Energy end-use markets in the European and Asia Pacific regions compared to the three months ended September 30, 2023. A portion of our sales outside the United States are denominated in foreign currencies. The fluctuations in foreign currency exchange rates resulted in a $0.1 million decrease in net sales during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Net sales outside the United States represented 41 percent and 40 percent of total net sales for the three months ended September 30, 2024 and 2023, respectively.

Current wording

Geographically, sales in the United States increased 12 percent from the three months ended December 31, 2023, to $419.2 million. Excluding surcharge revenue, domestic sales increased 16 percent from the three months ended December 31, 2023, driven by stronger sales in the Aerospace and Defense end-use market. Sales outside the United States increased 3 percent from the three months ended December 31, 2023, to $257.7 million for the three months ended December 31, 2024. Excluding surcharge revenue, sales outside the United States increased 8 percent from the three months ended December 31, 2023, reflecting stronger demand in the Aerospace and Defense end-use market in all regions as well as higher sales in the Medical end-use market in the European region compared to the three months ended December 31, 2023. A portion of our sales outside the United States are denominated in foreign currencies. The fluctuations in foreign currency exchange rates resulted in a $0.3 million decrease in net sales during the three months ended December 31, 2024, compared to the three months ended December 31, 2023. Net sales outside the United States represented 38 percent and 40 percent of total net sales for the three months ended December 31, 2024 and 2023, respectively.

Previous wording

Sales to the Aerospace and Defense end-use market increased 24 percent from the three months ended September 30, 2023, to $437.4 million. Excluding surcharge revenue, sales increased 34 percent from the three months ended September 30, 2023, on a 24 percent increase in shipment volume. The results for the three months ended September 30, 2024 reflect increasing activity levels across the aerospace supply chain due to higher aircraft build rates to replace aging fleets and meet increasing passenger travel demand, despite near-term Aerospace supply chain uncertainty. The three months ended September 30, 2024, also reflect higher sales in the Defense end-use market in response to global threats.

Current wording

Sales to the Aerospace and Defense end-use market increased 29 percent from the three months ended December 31, 2023, to $413.4 million. Excluding surcharge revenue, sales increased 35 percent from the three months ended December 31, 2023, on a 9 percent increase in shipment volume. The results for the three months ended December 31, 2024 reflect realized price increases and balanced activity levels across the aerospace supply chain driven by the need to maintain and replace aging fleets to meet increasing passenger travel demand. The three months ended December 31, 2024, also reflect higher sales in the Defense end-use market for program specific applications.

Previous wording

Industrial and Consumer end-use market sales decreased 13 percent from the three months ended September 30, 2023, to $91.2 million. Excluding surcharge revenue, sales decreased 9 percent on 28 percent lower shipment volume from the three months ended September 30, 2023. The results reflect lower demand for most applications in the Industrial and Consumer end-use market partially offset by an increase in the consumer sporting goods sub-market compared to the three months ended September 30, 2023.

Current wording

Industrial and Consumer end-use market sales decreased 18 percent from the three months ended December 31, 2023, to $85.2 million. Excluding surcharge revenue, sales decreased 16 percent on 19 percent lower shipment volume from the three months ended December 31, 2023. The results reflect lower demand for most applications in the Industrial and Consumer end-use market compared to the three months ended December 31, 2023.

Previous wording

Our gross profit in the three months ended September 30, 2024, increased to $176.3 million, or 24.6 percent of net sales, as compared with $124.1 million, or 19.0 percent of net sales in the three months ended September 30, 2023. Excluding the impact of surcharge revenue, our adjusted gross margin in the three months ended September 30, 2024, was 30.5 percent as compared to 25.2 percent in the three months ended September 30, 2023. The increased gross profit for the three months ended September 30, 2024 reflects an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies.

Current wording

Our gross profit in the three months ended December 31, 2024, increased to $177.5 million, or 26.2 percent of net sales, as compared with $122.6 million, or 19.6 percent of net sales in the three months ended December 31, 2023. Excluding the impact of surcharge revenue, our adjusted gross margin in the three months ended December 31, 2024, was 32.4 percent as compared to 25.3 percent in the three months ended December 31, 2023. The increased gross profit for the three months ended December 31, 2024 reflects an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies.

Previous wording

Selling, general and administrative expenses in the three months ended September 30, 2024, were $59.1 million or 8.2 percent of net sales (10.2 percent of net sales excluding surcharge) as compared with $55.1 million or 8.5 percent of net sales (11.2 percent of net sales excluding surcharge) in the three months ended September 30, 2023. The selling, general and administrative expenses for the three months ended September 30, 2024 reflect higher salary, benefit and variable compensation costs compared to the three months ended September 30, 2023.

Current wording

Selling, general and administrative expenses in the three months ended December 31, 2024, were $58.6 million or 8.7 percent of net sales (10.7 percent of net sales excluding surcharge) as compared with $52.8 million or 8.5 percent of net sales (10.9 percent of net sales excluding surcharge) in the three months ended December 31, 2023. The selling, general and administrative expenses for the three months ended December 31, 2024 reflect higher salary, benefit and variable compensation costs compared to the three months ended December 31, 2023.

Previous wording

Our operating income in the three months ended September 30, 2024, was $113.6 million, or 15.8 percent of net sales, as compared with operating income of $69.0 million, or 10.6 percent of net sales, in the three months ended September 30, 2023. Excluding surcharge revenue and the special item, adjusted operating margin was 20.3 percent for the three months ended September 30, 2024, as compared with 14.0 percent for the three months ended September 30, 2023. The operating results for the three months ended September 30, 2024 reflect an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies compared to the three months ended September 30, 2023. During the three months ended September 30, 2024, we recognized restructuring and asset impairment charges of $3.6 million related to actions taken to streamline operations in our Carpenter Additive business in the PEP segment.

Current wording

Our operating income in the three months ended December 31, 2024, was $118.9 million, or 17.6 percent of net sales, as compared with operating income of $69.8 million, or 11.2 percent of net sales, in the three months ended December 31, 2023. Excluding surcharge revenue, adjusted operating margin was 21.7 percent for the three months ended December 31, 2024, as compared with 14.4 percent for the three months ended December 31, 2023. The operating results for the three months ended December 31, 2024 reflect an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies compared to the three months ended December 31, 2023.

Previous wording

Interest expense, net for the three months ended September 30, 2024, was $12.4 million compared with $12.7 million in the three months ended September 30, 2023. Capitalized interest reduced interest expense by $0.4 million for the three months ended September 30, 2024, and $0.5 million for the three months ended September 30, 2023. The lower interest expense, net is due to no short-term borrowings under our Credit Facility in the three months ended September 30, 2024, compared to interest on borrowings in the three months ended September 30, 2023.

Current wording

Interest expense, net for the three months ended December 31, 2024, was $12.2 million compared with $13.0 million in the three months ended December 31, 2023. Capitalized interest reduced interest expense by $0.5 million for the three months ended December 31, 2024, and $0.3 million for the three months ended December 31, 2023. The lower interest expense, net is due to no short-term borrowings under our Credit Facility in the three months ended December 31, 2024, compared to interest on borrowings in the three months ended December 31, 2023.

Previous wording

Other expense, net for the three months ended September 30, 2024, was $0.1 million as compared with $4.0 million of other expense, net for the three months ended September 30, 2023. The three months ended September 30, 2024, reflects $3.9 million of expense from pension earnings, interest and deferrals partially offset by interest income and favorable market returns on investments used to fund Company-owned life insurance contracts and investments held in rabbi trusts. The three months ended September 30, 2023 includes $3.5 million of expense from pension earnings, interest and deferrals.

Current wording

Other expense, net for the three months ended December 31, 2024, was $1.6 million as compared with $1.6 million of other expense, net for the three months ended December 31, 2023. The three months ended December 31, 2024, reflects $3.9 million of expense from pension earnings, interest and deferrals partially offset by interest income and favorable market returns on investments used to fund Company-owned life insurance contracts and investments held in rabbi trusts. The three months ended December 31, 2023 includes $3.5 million of expense from pension earnings, interest and deferrals.

Previous wording

Income tax expense was $16.3 million, or 16.1 percent of pre-tax income for the three months ended September 30, 2024, as compared with income tax expense of $8.4 million, or 16.1 percent of pre-tax income for the three months ended September 30, 2023. Income tax expense for the three months ended September 30, 2024 includes discrete tax benefits of $6.8 million attributable to employee share-based compensation and $0.9 million for the impact of restructuring charges. Income tax expense for the three months ended September 30, 2023, included a discrete tax benefit of $4.1 million attributable to employee share-based compensation. Also included was the unfavorable impact of losses in certain foreign jurisdictions for which no tax benefit can be recognized.

Current wording

Income tax expense was $21.0 million, or 20.0 percent of pre-tax income for the three months ended December 31, 2024, as compared with income tax expense of $12.5 million, or 22.6 percent of pre-tax income for the three months ended December 31, 2023. Income tax expense for the three months ended December 31, 2024 includes discrete tax benefits of $3.0 million attributable to employee share-based compensation.

Previous wording

Pounds sold data for PEP segment includes Dynamet and Additive businesses only.

Current wording

Pounds sold data for the PEP segment includes Dynamet and Additive businesses only.

Previous wording

Net sales for the three months ended September 30, 2024 for the SAO segment increased 13 percent to $645.1 million, as compared with $570.1 million in the three months ended September 30, 2023. Excluding surcharge revenue, net sales for the three months ended September 30, 2024 increased 22 percent on flat shipment volume compared to the three months ended September 30, 2023. The higher sales excluding surcharge revenue in the SAO segment reflect double-digit percentage growth in the end-use markets of Aerospace and Defense, Medical and Energy driven by productivity gains, stronger product mix and pricing actions compared to the three months ended September 30, 2023.

Current wording

Net sales for the three months ended December 31, 2024 for the SAO segment increased 9 percent to $601.5 million, as compared with $549.4 million in the three months ended December 31, 2023. Excluding surcharge revenue, net sales for the three months ended December 31, 2024 increased 15 percent on 11 percent lower shipment volume compared to the three months ended December 31, 2023. The higher sales excluding surcharge revenue in the SAO segment reflect double-digit percentage growth in the Aerospace and Defense end-use market driven by productivity gains, stronger product mix and pricing actions compared to the three months ended December 31, 2023.

Previous wording

Operating income for the SAO segment was $134.5 million or 20.8 percent of net sales (26.3 percent of net sales excluding surcharge revenue) in the three months ended September 30, 2024, as compared with operating income of $80.8 million or 14.2 percent of net sales (19.4 percent of net sales excluding surcharge revenue) in the three months ended September 30, 2023. The operating income for the three months ended September 30, 2024 reflects stronger product mix and improved operational efficiencies compared to the three months ended September 30, 2023.

Current wording

Operating income for the SAO segment was $135.6 million or 22.5 percent of net sales (28.3 percent of net sales excluding surcharge revenue) in the three months ended December 31, 2024, as compared with operating income of $83.3 million or 15.2 percent of net sales (20.0 percent of net sales excluding surcharge revenue) in the three months ended December 31, 2023. This marks the twelfth consecutive quarter with increasing adjusted operating margins in SAO. The operating income for the three months ended December 31, 2024 reflects stronger product mix and improved operational efficiencies compared to the three months ended December 31, 2023.

Previous wording

Net sales for the three months ended September 30, 2024 for the PEP segment decreased 1 percent to $100.8 million, as compared with $101.8 million in the three months ended September 30, 2023. Excluding surcharge revenue, net sales for the three months ended September 30, 2024 decreased 1 percent on 14 percent higher shipment volume compared to the three months ended September 30, 2023. The current quarter results reflect lower sales in the Distribution end-use market partially offset by higher sales in the Medical end-use market. The three months ended September 30, 2024 also reflect fewer shipment days due to mandatory weather-related closures.

Current wording

Net sales for the three months ended December 31, 2024 for the PEP segment decreased 1 percent to $95.0 million, as compared with $95.7 million in the three months ended December 31, 2023. Excluding surcharge revenue, net sales for the three months ended December 31, 2024 decreased 2 percent on 5 percent lower shipment volume compared to the three months ended December 31, 2023. The current quarter results reflect lower sales in most end-use markets partially offset by higher sales in the Medical end-use market.

Previous wording

Operating income for the PEP segment was $7.3 million or 7.2 percent of net sales (7.9 percent of net sales excluding surcharge revenue) in the three months ended September 30, 2024, compared with operating income of $9.1 million or 8.9 percent of net sales (9.8 percent of net sales excluding surcharge revenue) in the three months ended September 30, 2023. The lower results for the three months ended September 30, 2024 reflect weaker demand conditions and lower margins compared to the three months ended September 30, 2023.

Current wording

Operating income for the PEP segment was $7.0 million or 7.4 percent of net sales (8.1 percent of net sales excluding surcharge revenue) in the three months ended December 31, 2024, compared with operating income of $7.1 million or 7.4 percent of net sales (8.1 percent of net sales excluding surcharge revenue) in the three months ended December 31, 2023. The flat results for the three months ended December 31, 2024 reflect weaker demand conditions as key strategic customers deferred orders compared to the three months ended December 31, 2023.

Previous wording

Medical end-use market sales increased 9 percent from the three months ended September 30, 2023, to $86.9 million. Excluding surcharge revenue, sales increased 10 percent on 16 percent lower shipment volume from the three months ended September 30, 2023. For the three months ended September 30, 2024, results reflect realized price increases particularly in the orthopedic and dental sub-markets compared to the three months ended September 30, 2023.

Current wording

Medical end-use market sales increased 3 percent from the six months ended December 31, 2023, to $173.2 million. Excluding surcharge revenue, sales increased 5 percent on 23 percent lower shipment volume from the six months ended December 31, 2023. The results for the six months ended December 31, 2024 reflect realized price increases particularly in the orthopedic and dental sub-markets compared to the six months ended December 31, 2023.

Previous wording

Sales to the Energy end-use market of $52.5 million in the three months ended September 30, 2024 reflect a 17 percent increase from the three months ended September 30, 2023. Excluding surcharge revenue, sales increased 35 percent on a 29 percent increase in shipment volume from the three months ended September 30, 2023. The results reflect higher demand in the power generation sub-market for industrial gas turbine refurbishments partially offset by decreased rig counts and demand for material used in the oil and gas sub-market compared to the three months ended September 30, 2023.

Current wording

Sales to the Energy end-use market of $96.0 million reflect a 1 percent decrease from the six months ended December 31, 2023. Excluding surcharge revenue, sales increased 8 percent on 3 percent higher shipment volume from the six months ended December 31, 2023. The results reflect higher demand in the power generation sub-market for industrial gas turbine refurbishments partially offset by decreased rig counts and demand for material used in the oil and gas sub-market compared to the six months ended December 31, 2023.

Previous wording

Transportation end-use market sales decreased 33 percent from the three months ended September 30, 2023, to $28.3 million. Excluding surcharge revenue, sales decreased 28 percent on a 29 percent decrease in shipment volume from the three months ended September 30, 2023. The results reflect declining light and heavy-duty build rates compared to the three months ended September 30, 2023.

Current wording

Transportation end-use market sales decreased 28 percent from the six months ended December 31, 2023, to $56.8 million. Excluding surcharge revenue, sales decreased 24 percent on 22 percent lower shipment volume from the six months ended December 31, 2023. The results for the six months ended December 31, 2024 reflect lower demand across light, medium and heavy-duty vehicle applications offset partially by higher demand in specialty transportation applications compared to the six months ended December 31, 2023.

Previous wording

During the three months ended September 30, 2024, restructuring and asset impairment charges were $3.6 million, compared to no restructuring and asset impairment charges in the three months ended September 30, 2023. Restructuring charges were a result of actions taken to streamline operations in our Carpenter Additive business in the PEP segment, as announced in the quarter ended June 30, 2024.

Current wording

During the six months ended December 31, 2024, restructuring and asset impairment charges were $3.6 million, compared to no restructuring and asset impairment charges in the six months ended December 31, 2023. Additional restructuring charges were a result of actions taken to streamline operations in our Carpenter Additive business in the PEP segment, as announced in the quarter ended June 30, 2024.

Previous wording

The following presents our operating income and operating margin, in each case excluding the impact of surcharge revenue on net sales and excluding the special item. We present and discuss these financial measures because management believes removing these items provides a more consistent and meaningful basis for comparing ongoing results of operations from period to period. See the section "Non-GAAP Financial Measures" below for further discussion of these financial measures.

Current wording

The following presents our operating income and operating margin, in each case excluding the impact of surcharge revenue on net sales and the special item. We present and discuss these financial measures because management believes removing these items provides a more consistent and meaningful basis for comparing ongoing results of operations from period to period. See the section "Non-GAAP Financial Measures" below for further discussion of these financial measures.

Previous wording

During the three months ended September 30, 2024, we generated cash from operating activities of $40.2 million as compared to $7.4 million in the three months ended September 30, 2023. Our adjusted free cash flow, which we define under "Non-GAAP Financial Measures" below, was positive $13.3 million as compared to negative $14.6 million for the three months ended September 30, 2023. The improvement in cash from operating activities and adjusted free cash flow for the three months ended September 30, 2024, resulted from higher earnings after noncash adjustments to net income partially offset by higher pension contributions and capital expenditures compared to the three months ended September 30, 2023. Cash used to build inventory was $16.8 million in the three-month period ended September 30, 2024, compared to $67.8 million in the three month period ended September 30, 2023. During the three months ended September 30, 2024, cash used for accounts receivable was $3.4 million compared to $18.4 million of cash generated from accounts receivable in the three months ended September 30, 2023.

Current wording

During the six months ended December 31, 2024, we generated cash from operating activities of $108.1 million as compared to $21.9 million in the six months ended December 31, 2023. Our adjusted free cash flow, which we define under "Non-GAAP Financial Measures" below, was positive $51.9 million as compared to negative $25.4 million for the six months ended December 31, 2023. The improvement in cash from operating activities and adjusted free cash flow for the six months ended December 31, 2024, resulted from higher earnings after noncash adjustments to net income partially offset by higher pension contributions and capital expenditures compared to the six months ended December 31, 2023. Cash used to build inventory was $80.7 million in the six-months ended December 31, 2024, compared to $157.5 million in the six months ended December 31, 2023. During the six months ended December 31, 2024, cash used for accounts receivable was $6.1 million compared to $23.9 million of cash generated from accounts receivable in the six months ended December 31, 2023.

Previous wording

Capital expenditures for property, plant, equipment and software were $26.9 million for the three months ended September 30, 2024, as compared to $22.0 million for the three months ended September 30, 2023. In fiscal year 2025, we expect capital expenditures to be approximately $125.0 million.

Current wording

Capital expenditures for property, plant, equipment and software were $56.2 million for the six months ended December 31, 2024, as compared to $47.3 million for the six months ended December 31, 2023. In fiscal year 2025, we expect capital expenditures to be approximately $125.0 million.

Previous wording

We evaluate liquidity needs for alternative uses including funding external growth opportunities, share repurchases as well as funding consistent dividend payments to stockholders. Dividends for the three months ended September 30, 2024 were $10.1 million as compared to $9.9 million in the three months ended September 30, 2023. In the three months ended September 30, 2024 and 2023 we declared and paid quarterly dividends of $0.20 per share. Additionally, we will discretionarily use excess cash for a share repurchase program up to $400.0 million of our outstanding common stock. The primary use of this program will be to offset dilution. During the three months ended September 30, 2024, we repurchased 230,000 shares of our common stock on the open market for an aggregate of $32.1 million. As of September 30, 2024, $367.9 million remains available for future purchases.

Current wording

We evaluate liquidity needs for alternative uses including funding external growth opportunities, share repurchases as well as funding consistent dividend payments to stockholders. Dividends for the six months ended December 31, 2024 were $20.2 million as compared to $19.8 million in the six months ended December 31, 2023. In the six months ended December 31, 2024 and 2023 we declared and paid quarterly dividends of $0.20 per share. Additionally, we will discretionally use excess cash for a share repurchase program up to $400.0 million of our outstanding common stock. The primary use of this program will be to offset dilution. During the six months ended December 31, 2024, we repurchased 275,000 shares of our common stock on the open market for an aggregate of $40.3 million. As of December 31, 2024, $359.7 million remains available for future purchases. There were no share repurchases in fiscal year 2024.

Previous wording

During the three months ended September 30, 2024, we made pension contributions of $9.6 million to our qualified defined benefit pension plans. We currently expect to contribute $17.0 million to our qualified defined benefit pension plans during the remainder of fiscal year 2025.

Current wording

During the six months ended December 31, 2024, we made pension contributions of $15.1 million to our qualified defined benefit pension plans. We currently expect to make required contributions of $11.5 million to our qualified defined benefit pension plans during the remainder of fiscal year 2025.

Previous wording

As of September 30, 2024, the borrowing rate for the Credit Facility was 7.09% however, we had no short-term borrowings. As of September 30, 2024, we had $1.1 million of issued letters of credit under the Credit Facility and the balance of the Credit Facility, $348.9 million, remains available to us.

Current wording

As of December 31, 2024, the borrowing rate for the Credit Facility was 6.21% however, we had no short-term borrowings. As of December 31, 2024, we had $1.1 million of issued letters of credit under the Credit Facility and the balance of the Credit Facility, $348.9 million, remains available to us.

Previous wording

We believe that our total liquidity of $499.1 million as of September 30, 2024, which includes total cash and cash equivalents of $150.2 million and available borrowing capacity of $348.9 million under the Credit Facility, will be sufficient to fund our cash needs over the foreseeable future.

Current wording

We believe that our total liquidity of $511.0 million as of December 31, 2024, which includes total cash and cash equivalents of $162.1 million and available borrowing capacity of $348.9 million under the Credit Facility, will be sufficient to fund our cash needs over the foreseeable future.

Previous wording

As of September 30, 2024, we had cash and cash equivalents of $22.2 million held at various foreign subsidiaries. Our global cash deployment considers, among other things, the geographic and institutional location of our subsidiaries' cash balances, the locations of our anticipated liquidity needs and the cost to access international cash balances, as necessary. During the three months ended September 30, 2024, we did not repatriate cash from foreign jurisdictions. From time to time, we may make short-term intercompany borrowings against our cash held outside the United States in order to reduce or eliminate any required borrowing under our Credit Facility.

Current wording

As of December 31, 2024, we had cash and cash equivalents of $22.6 million held at various foreign subsidiaries. Our global cash deployment considers, among other things, the geographic and institutional location of our subsidiaries' cash balances, the locations of our anticipated liquidity needs and the cost to access international cash balances, as necessary. During the six months ended December 31, 2024, we did not repatriate cash from foreign jurisdictions. From time to time, we may make short-term intercompany borrowings against our cash held outside the United States in order to reduce or eliminate any required borrowing under our Credit Facility.

Previous wording

Management believes that the presentation of adjusted free cash flow provides useful information to investors regarding our financial condition because it is a measure of cash generated which management evaluates for alternative uses. It is management's current intention to use excess cash to fund investments in capital equipment, acquisition opportunities and consistent dividend payments. Additionally, we will discretionally use excess cash for a share repurchase program up to $400.0 million of our outstanding common stock. The primary use of this program will be to offset dilution. Adjusted free cash flow is not a U.S. GAAP financial measure and should not be considered in isolation of, or as a substitute for, cash flows calculated in accordance with U.S. GAAP.

Current wording

Management believes that the presentation of adjusted free cash flow provides useful information to investors regarding our financial condition because it is a measure of cash generated which management evaluates for alternative uses. It is management's current intention to use excess cash to fund investments in capital equipment, acquisition opportunities and consistent dividend payments. Additionally, we will discretionally use excess cash to fund share repurchases of our outstanding common stock. Adjusted free cash flow is not a U.S. GAAP financial measure and should not be considered in isolation of, or as a substitute for, cash flows calculated in accordance with U.S. GAAP.

Previous wording

We are subject to various federal, state, local and international environmental laws and regulations relating to pollution, protection of public health and the environment, natural resource damages and occupational safety and health. Although compliance with these laws and regulations may affect the costs of our operations, compliance costs to date have not been material. We have environmental remediation liabilities at some of our owned operating facilities and have been designated as a PRP with respect to certain third party Superfund waste-disposal sites and other third party-owned sites. We accrue amounts for environmental remediation costs that represent our best estimate of the probable and reasonably estimable future costs related to environmental remediation. During the three months ended September 30, 2024, we increased the liability for environmental remediation costs by $0.1 million. The liabilities recorded for environmental remediation costs at Superfund sites, other third party-owned sites and Carpenter-owned current or former operating facilities remaining at September 30, 2024 and June 30, 2024 were $17.4 million and $17.3 million, respectively. Additionally, we have been notified that we may be a PRP with respect to other Superfund sites as to which no proceedings have been instituted against us. Neither the exact amount of remediation costs nor the final method of their allocation among all designated PRPs at these Superfund sites have been determined. Accordingly, at this time, we cannot reasonably estimate expected costs for such matters. The liability for future environmental remediation costs that can be reasonably estimated is evaluated on a quarterly basis.

Current wording

We are subject to various federal, state, local and international environmental laws and regulations relating to pollution, protection of public health and the environment, natural resource damages and occupational safety and health. Although compliance with these laws and regulations may affect the costs of our operations, compliance costs to date have not been material. We have environmental remediation liabilities at some of our owned operating facilities and have been designated as a PRP with respect to certain third party Superfund waste-disposal sites and other third party-owned sites. We accrue amounts for environmental remediation costs that represent our best estimate of the probable and reasonably estimable future costs related to environmental remediation. During the six months ended December 31, 2024, we increased the liability for environmental remediation costs by $0.1 million. The liabilities recorded for environmental remediation costs at Superfund sites, other third party-owned sites and Carpenter-owned current or former operating facilities remaining at December 31, 2024 and June 30, 2024 were $17.4 million and $17.3 million, respectively. Additionally, we have been notified that we may be a PRP with respect to other Superfund sites as to which no proceedings have been instituted against us. Neither the exact amount of remediation costs nor the final method of their allocation among all designated PRPs at these Superfund sites have been determined. Accordingly, at this time, we cannot reasonably estimate expected costs for such matters. The liability for future environmental remediation costs that can be reasonably estimated is evaluated on a quarterly basis.

Previous wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected, anticipated or implied. The most significant of these uncertainties are described in Carpenter Technology's filings with the Securities and Exchange Commission, including its report on Form 10-K for the fiscal year ended June 30, 2024, and the exhibits attached to that filing. They include but are not limited to: (1) the cyclical nature of the specialty materials business and certain end-use markets, including aerospace, defense, medical, energy, transportation, industrial and consumer, or other influences on Carpenter Technology's business such as new competitors, the consolidation of competitors, customers, and suppliers or the transfer of manufacturing capacity from the United States to foreign countries; (2) the ability of Carpenter Technology to achieve cash generation, growth, earnings, profitability, operating income, cost savings and reductions, qualifications, productivity improvements or process changes; (3) the ability to recoup increases in the cost of energy, raw materials, freight or other factors; (4) domestic and foreign excess manufacturing capacity for certain metals; (5) fluctuations in currency exchange and interest rates; (6) the effect of government trade actions; (7) the valuation of the assets and liabilities in Carpenter Technology's pension trusts and the accounting for pension plans; (8) possible labor disputes or work stoppages; (9) the potential that our customers may substitute alternate materials or adopt different manufacturing practices that replace or limit the suitability of our products; (10) the ability to successfully acquire and integrate acquisitions; (11) the availability of credit facilities to Carpenter Technology, its customers or other members of the supply chain; (12) the ability to obtain energy or raw materials, especially from suppliers located in countries that may be subject to unstable political or economic conditions; (13) Carpenter Technology's manufacturing processes are dependent upon highly specialized equipment located primarily in facilities in Reading and Latrobe, Pennsylvania and Athens, Alabama for which there may be limited alternatives if there are significant equipment failures or a catastrophic event; (14) the ability to hire and retain a qualified workforce and key personnel, including members of the executive management team, management, metallurgists and other skilled personnel; (15) fluctuations in oil and gas prices and production; (16) the impact of potential cyber attacks and information technology or data security breaches; (17) the ability of suppliers to meet obligations due to supply chain disruptions or otherwise; (18) the ability to meet increased demand, production targets or commitments; (19) the…

Excerpt shortened here; the source contains the full paragraph.

Current wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected, anticipated or implied. The most significant of these uncertainties are described in Carpenter Technology's filings with the Securities and Exchange Commission, including its report on Form 10-K for the fiscal year ended June 30, 2024, Form 10-Q for the fiscal quarter ended September 30, 2024, and the exhibits attached to such filings. They include but are not limited to: (1) the cyclical nature of the specialty materials business and certain end-use markets, including aerospace, defense, medical, energy, transportation, industrial and consumer, or other influences on Carpenter Technology's business such as new competitors, the consolidation of competitors, customers, and suppliers or the transfer of manufacturing capacity from the United States to foreign countries; (2) the ability of Carpenter Technology to achieve cash generation, growth, earnings, profitability, operating income, cost savings and reductions, qualifications, productivity improvements or process changes; (3) the ability to recoup increases in the cost of energy, raw materials, freight or other factors; (4) domestic and foreign excess manufacturing capacity for certain metals; (5) fluctuations in currency exchange and interest rates; (6) the effect of government trade actions, including tariffs; (7) the valuation of the assets and liabilities in Carpenter Technology's pension trusts and the accounting for pension plans; (8) possible labor disputes or work stoppages; (9) the potential that our customers may substitute alternate materials or adopt different manufacturing practices that replace or limit the suitability of our products; (10) the ability to successfully acquire and integrate acquisitions; (11) the availability of credit facilities to Carpenter Technology, its customers or other members of the supply chain; (12) the ability to obtain energy or raw materials, especially from suppliers located in countries that may be subject to unstable political or economic conditions; (13) Carpenter Technology's manufacturing processes are dependent upon highly specialized equipment located primarily in facilities in Reading and Latrobe, Pennsylvania and Athens, Alabama for which there may be limited alternatives if there are significant equipment failures or a catastrophic event; (14) the ability to hire and retain a qualified workforce and key personnel, including members of the executive management team, management, metallurgists and other skilled personnel; (15) fluctuations in oil and gas prices and production; (16) the impact of potential cyber attacks and information technology or data security breaches; (17) the ability of suppliers to meet obligations due to supply chain disruptions or otherwise; (18) th…

Excerpt shortened here; the source contains the full paragraph.