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 and nine month periods ended March 31, 2025, 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.

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 2025 Form 10-K. Our discussions here focus on our results during or as of the three month period ended September 30, 2025, and the comparable period of fiscal year 2025, and to the extent applicable, on material changes from information discussed in the 2025 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 2025 Form 10-K for detailed background information and with any such intervening Form 8-K.

Previous wording

The volatility of the costs of raw materials has impacted our operations over the past several years. We, and others in our industry, generally have been able to pass cost increases on major raw materials through to our customers using surcharges that are structured to recover increases in raw material costs. Generally, the formula used to calculate a surcharge is based on published prices of the respective raw materials for the previous month which correlates to the prices we pay for our raw material purchases. However, a portion of our surcharges to customers may be calculated using a different surcharge formula or may be based on the raw material prices at the time of order, which creates a lag between surcharge revenue and corresponding raw material costs recognized in cost of sales. The surcharge mechanism protects our net income on such sales except for the lag effect discussed above. However, surcharges have had a dilutive effect on our gross margin and operating margin percentages as described later in this report.

Current wording

The volatility of the costs of raw materials has impacted our operations over the past several years. We, and others in our industry, generally have been able to pass cost increases on major raw materials through to our customers using surcharges that are structured to recover increases in raw material costs including the impact of tariffs. Generally, the formula used to calculate a surcharge is based on published prices of the respective raw materials for the previous month which correlates to the prices we pay for our raw material purchases. However, a portion of our surcharges to customers may be calculated using a different surcharge formula or may be based on the raw material prices at the time of order, which creates a lag between surcharge revenue and corresponding raw material costs recognized in cost of sales. The surcharge mechanism protects our net income on such sales except for the lag effect discussed above. However, surcharges have had a dilutive effect on our gross margin and operating margin percentages as described later in this report.

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

During the three months ended September 30, 2025, approximately 42 percent of our net sales were 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

Net pension expense, as we define it below, includes the net periodic benefit costs related to both our pension and other postretirement plans. The net periodic benefit costs are determined annually based on beginning of year balances and are recorded ratably throughout the fiscal year, unless a significant remeasurement event occurs. We currently expect the total net pension expense for fiscal year 2025 will be $24.8 million as compared with total net pension expense of $76.0 million in fiscal year 2024. Fiscal year 2024 included a noncash settlement charge of $51.9 million within other expense, net.

Current wording

Net pension expense, as we define it below, includes the net periodic benefit costs related to both our pension and other postretirement plans. The net periodic benefit costs are determined annually based on beginning of year balances and are recorded ratably throughout the fiscal year, unless a significant remeasurement event occurs. We currently expect the total net pension expense for fiscal year 2026 will be $14.3 million as compared with total net pension expense of $24.8 million in fiscal year 2025. The lower expected expense for fiscal year 2026 reflects higher plan assets and a higher expected return on plan assets compared to fiscal year 2025.

Previous wording

The following is the net pension expense for the three and nine months ended March 31, 2025 and March 31, 2024:

Current wording

The following is the net pension expense for the three months ended September 30, 2025 and September 30, 2024:

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 and nine months ended March 31, 2025 and 2024:

Current wording

Net pension expense is recorded in accounts that are included in cost of sales, selling, general and administrative expenses and other (income) 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, 2025 and 2024:

Previous wording

As of March 31, 2025 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.

Current wording

As of September 30, 2025 and June 30, 2025, service cost amounts related to the net pension expense capitalized in gross inventory were $1.2 million and $1.6 million, respectively.

Previous wording

During the quarter ended March 31, 2025, we continued to drive earnings momentum through improved productivity, product mix optimization and pricing actions. The SAO segment realized $151.4 million of operating income with an operating margin of 23.5 percent, or adjusted operating margin of 29.1 percent, an increase over the prior year same quarter of 17.0 percent, or adjusted operating margin of 21.4 percent. The SAO performance was driven by higher sales and expanding margins and marks the thirteenth consecutive quarter with increasing adjusted operating margins in the SAO segment.

Current wording

In the quarter ended September 30, 2025, we reported operating income of $153.3 million compared to $113.6 million in the prior year same quarter. Excluding the special item, as identified below, adjusted operating income was $117.2 million in the three months ended September 30, 2024. The results for the quarter ended September 30, 2025, represent an increase of 31 percent over the previous first fiscal quarter and surpassed our fourth quarter of fiscal year 2025, which at that time was a record. The SAO segment realized $170.7 million of operating income with an operating margin of 25.9 percent, or adjusted operating margin of 32.0 percent, an increase over the prior year same quarter of 20.8 percent, or adjusted operating margin of 26.3 percent. The SAO performance was driven by higher sales and expanding margins and marks the fifteenth consecutive quarter with increasing adjusted operating margins in the SAO segment.

Previous wording

In addition to the strong operating performance, we generated $182.3 million of cash from operating activities in the nine months ended March 31, 2025, as compared with cash generated from operating activities of $105.4 million in the nine months ended March 31, 2024. Adjusted free cash flow was $86.1 million in the nine months ended March 31, 2025, as compared with adjusted free cash flow of $36.6 million in the nine months ended March 31, 2024. 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, returning cash to stockholders through our stock buyback and dividend programs and investing in incremental growth initiatives, including the recently announced brownfield expansion project in Athens, Alabama. During the nine months ended March 31, 2025, we repurchased 475,000 shares of our common stock on the open market for an aggregate of $77.8 million.

Current wording

In addition to the strong operating performance, we generated $39.2 million of cash from operating activities in the three months ended September 30, 2025, as compared with cash generated from operating activities of $40.2 million in the three months ended September 30, 2024. Adjusted free cash flow was negative $3.4 million in the three months ended September 30, 2025, as compared with positive adjusted free cash flow of $13.3 million in the three months ended September 30, 2024. With a strong balance sheet and meaningful cash provided from operations, we will continue to take a balanced approach to capital allocation: sustaining our current asset base to achieve our targets and investing in high value growth initiatives like the recently announced brownfield capacity expansion while returning cash to shareholders. During the three months ended September 30, 2025, we repurchased 200,000 shares of our common stock on the open market for an aggregate of $49.1 million.

Previous wording

We continue to closely monitor the evolving tariff news as well as engage with our customers and suppliers to analyze how tariffs could impact our business. We, as well as others in our industry, have established long-standing surcharge mechanisms to pass through changes in raw material prices to our customers. We expect to use these surcharge mechanisms to pass through the impact of any incremental tariffs on our raw material costs to our customers. As such, at this time, based on current information we believe there will not be a material impact to the Company.

Current wording

We are monitoring the status of the U.S. government shutdown and analyzing how a continued shutdown could impact our business. Additionally, we continue to closely monitor the evolving tariff news as well as engage with our customers and suppliers to analyze how tariffs could impact our business. We, as well as others in our industry, have established long-standing surcharge mechanisms to pass through changes in raw material prices to our customers. We are using and will continue to use these surcharge mechanisms to pass through the impact of any incremental tariffs on our raw material costs to our customers. As such, at this time, based on current information we believe that tariffs will not have a material impact on the Company.

Previous wording

For the three months ended March 31, 2025, we reported net income of $95.4 million, or $1.88 earnings per diluted share. This compares with net income for the three months ended March 31, 2024, of $6.3 million, or $0.12 earnings per diluted share. Excluding the special items, as identified below, adjusted earnings per diluted share was $1.19 for the three months ended March 31, 2024. The results for the three months ended March 31, 2025, 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 March 31, 2024. During the three months ended March 31, 2024, we recorded a noncash goodwill impairment charge of $14.1 million related to our Latrobe Distribution reporting unit. The fiscal year 2024 results also include a noncash pension settlement charge of $51.9 million.

Current wording

For the three months ended September 30, 2025, we reported net income of $122.5 million, or $2.43 earnings per diluted share. This compares with net income for the three months ended September 30, 2024, of $84.8 million, or $1.67 earnings 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. The results for the three months ended September 30, 2025, 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, 2024. During the three months ended September 30, 2024, we recorded restructuring and asset impairment charges of $3.6 million as a result of actions taken to streamline operations in the Carpenter Additive business as announced during the quarter ended June 30, 2024.

Previous wording

Net sales for the three months ended March 31, 2025, were $727.0 million, which is a 6 percent increase over the three months ended March 31, 2024. Excluding surcharge revenue, sales increased 8 percent on a 7 percent decrease in shipment volume from the three months ended March 31, 2024. The results excluding surcharge revenue reflect realized price increases and improving product mix during the three months ended March 31, 2025, compared to the three months ended March 31, 2024. Excluding surcharge revenue, sales in the Aerospace and Defense end-use market increased 18 percent compared to the three months ended March 31, 2024.

Current wording

Net sales for the three months ended September 30, 2025, were $733.7 million, which is a 2 percent increase over the three months ended September 30, 2024. Excluding surcharge revenue, sales increased 4 percent from the three months ended September 30, 2024. The results excluding surcharge revenue reflect realized price increases and improving product mix during the three months ended September 30, 2025, compared to the three months ended September 30, 2024. Excluding surcharge revenue, sales in the Aerospace and Defense end-use market increased 11 percent compared to the three months ended September 30, 2024.

Previous wording

Geographically, sales in the United States increased 13 percent from the three months ended March 31, 2024, to $433.6 million. Excluding surcharge revenue, domestic sales increased 14 percent from the three months ended March 31, 2024, driven by stronger sales in the Aerospace and Defense end-use market. Sales outside the United States decreased 3 percent from the three months ended March 31, 2024, to $293.4 million for the three months ended March 31, 2025. Excluding surcharge revenue, sales outside the United States decreased 1 percent from the three months ended March 31, 2024, reflecting lower shipments in the Medical end-use market in the Asia Pacific region partially offset by the Energy end-use market in the European region compared to the three months ended March 31, 2024. A portion of our sales outside the United States are denominated in foreign currencies. The fluctuations in foreign currency exchange rates resulted in an $0.8 million decrease in net sales during the three months ended March 31, 2025, compared to the three months ended March 31, 2024. Net sales outside the United States represented 40 percent and 44 percent of net sales for the three months ended March 31, 2025 and 2024, respectively.

Current wording

Geographically, domestic net sales increased 3 percent from the three months ended September 30, 2024, to $432.4 million. Excluding surcharge revenue, domestic sales increased 5 percent from the three months ended September 30, 2024, driven by stronger sales in the Aerospace and Defense and Energy end-use markets. Sales outside the United States increased 2 percent from the three months ended September 30, 2024, to $301.3 million for the three months ended September 30, 2025. Excluding surcharge revenue, sales outside the United States increased 4 percent from the three months ended September 30, 2024, reflecting higher sales in Aerospace and Defense and Energy end-use markets in the European region offset by lower shipments in the Energy end-use market in the Asia Pacific region and lower sales in the Aerospace and Defense end-use market in Mexico compared to the three months ended September 30, 2024. A portion of our sales outside the United States are denominated in foreign currencies. The impact of fluctuations in foreign currency exchange rates resulted in a $0.5 million increase in net sales during the three months ended September 30, 2025, compared to the three months ended September 30, 2024. Net sales outside the United States represented 41 percent of net sales for the three months ended September 30, 2025 and 2024.

Previous wording

We sell to customers across diversified end-use markets. We believe that disclosing net sales by end-use markets is helpful supplemental information in analyzing the performance of the business from period to period. The following table includes comparative information for our net sales, which includes surcharge revenue, by end-use markets:

Current wording

We sell to customers across diversified end-use markets. We believe that disclosing net sales by end-use markets is helpful supplemental information in analyzing the performance of the business from period to period. The following table includes comparative information for our net sales, which includes surcharge revenue, by principal end-use markets:

Previous wording

The following table includes comparative information for our net sales by the same end-use markets, but excluding surcharge revenue:

Current wording

The following table includes comparative information for our net sales by the same principal end-use markets, but excluding surcharge revenue:

Previous wording

Aerospace and Defense end-use market sales increased 16 percent from the three months ended March 31, 2024, to $454.7 million. Excluding surcharge revenue, sales increased 18 percent from the three months ended March 31, 2024, on flat shipment volume. The results for the three months ended March 31, 2025, reflect realized price increases and balanced activity levels across the aerospace supply chain driven by the need to maintain and replace aging fleets, particularly in the engine, fastener and distribution sub-markets. The three months ended March 31, 2025, also reflect higher sales in the Defense end-use market for program specific applications.

Current wording

Aerospace and Defense end-use market sales increased 8 percent from the three months ended September 30, 2024, to $470.9 million. Excluding surcharge revenue, sales increased 11 percent from the three months ended September 30, 2024. The results for the three months ended September 30, 2025, reflect double-digit increases in the Aerospace engine and fastener sub-markets driven by the need to maintain and replace aging fleets. The three months ended September 30, 2025, also reflect higher sales in the Defense end-use market for program specific applications.

Previous wording

Medical end-use market sales decreased 3 percent from the nine months ended March 31, 2024, to $258.1 million. Excluding surcharge revenue, sales decreased 2 percent on 29 percent lower shipment volume from the nine months ended March 31, 2024. The results for the nine months ended March 31, 2025, reflect lower shipments as a result of the medical supply chain managing inventory levels closely, partially offset by realized price increases particularly in the orthopedic and dental sub-markets compared to the nine months ended March 31, 2024.

Current wording

Medical end-use market sales decreased 14 percent from the three months ended September 30, 2024, to $74.5 million. Excluding surcharge revenue, sales decreased 16 percent from the three months ended September 30, 2024. For the three months ended September 30, 2025, results reflect lower shipments as a result of the medical supply chain managing inventory levels closely, partially offset by realized price increases particularly in the dental sub-market compared to the three months ended September 30, 2024.

Previous wording

Energy end-use market sales of $142.3 million reflect a 5 percent increase from the nine months ended March 31, 2024. Excluding surcharge revenue, sales increased 14 percent on 2 percent higher shipment volume from the nine months ended March 31, 2024. The results reflect higher demand in the power generation sub-market for both new and refurbished industrial gas turbines partially offset by decreased rig counts and decreased shipments for material used in the oil and gas sub-market compared to the nine months ended March 31, 2024.

Current wording

Energy end-use market sales of $54.7 million in the three months ended September 30, 2025 reflect a 4 percent increase from the three months ended September 30, 2024. Excluding surcharge revenue, sales increased 8 percent from the three months ended September 30, 2024. The results reflect higher demand in the power generation sub-market for both new and refurbished industrial gas turbines to power data centers partially offset by decreased rig counts and decreased shipments for material used in the oil and gas sub-market compared to the three months ended September 30, 2024.

Previous wording

Our gross profit in the three months ended March 31, 2025, increased to $200.8 million, or 27.6 percent of net sales, as compared with $147.0 million, or 21.5 percent of net sales in the three months ended March 31, 2024. Excluding the impact of surcharge revenue, our adjusted gross margin in the three months ended March 31, 2025, was 33.6 percent as compared to 26.5 percent in the three months ended March 31, 2024. The increased gross profit for the three months ended March 31, 2025, 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 September 30, 2025 increased to $216.4 million, or 29.5 percent of net sales, as compared with $176.3 million, or 24.6 percent of net sales in the three months ended September 30, 2024. Excluding the impact of surcharge revenue, our adjusted gross margin in the three months ended September 30, 2025, was 35.9 percent as compared to 30.5 percent in the three months ended September 30, 2024. The increased gross profit for the three months ended September 30, 2025, 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 March 31, 2025, were $63.0 million or 8.7 percent of net sales (10.6 percent of net sales excluding surcharge) as compared with $57.0 million or 8.3 percent of net sales (10.3 percent of net sales excluding surcharge) in the three months ended March 31, 2024. The selling, general and administrative expenses for the three months ended March 31, 2025, reflect a charge for doubtful accounts and costs related to higher salary, benefit and variable compensation costs compared to the three months ended March 31, 2024.

Current wording

Selling, general and administrative expenses in the three months ended September 30, 2025, were $63.1 million or 8.6 percent of net sales (10.5 percent of net sales excluding surcharge) as compared with $59.1 million or 8.2 percent of net sales (10.2 percent of net sales excluding surcharge) in the three months ended September 30, 2024. The selling, general and administrative expenses for the three months ended September 30, 2025, reflect higher salary, benefit and variable compensation costs and an increase in professional service fees compared to the three months ended September 30, 2024.

Previous wording

During the nine months ended March 31, 2025, restructuring and asset impairment charges were $3.6 million, compared to no restructuring and asset impairment charges in the nine months ended March 31, 2024. The 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.

Current wording

During the three months ended September 30, 2025, there were no restructuring and asset impairment charges compared to $3.6 million in the three months ended September 30, 2024. The restructuring charges in the three months ended September 30, 2024, 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

Our operating income in the three months ended March 31, 2025, was $137.8 million, or 19.0 percent of net sales, as compared with operating income of $75.9 million, or 11.1 percent of net sales, in the three months ended March 31, 2024. Excluding surcharge revenue, adjusted operating margin was 23.1 percent for the three months ended March 31, 2025. Excluding surcharge revenue and the noncash special item, adjusted operating margin was 16.3 percent for the three months ended March 31, 2024. The operating results for the three months ended March 31, 2025, 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 March 31, 2024, in which we recognized a noncash goodwill impairment charge of $14.1 million related to our Latrobe Distribution reporting unit.

Current wording

Our operating income in the three months ended September 30, 2025, was $153.3 million, or 20.9 percent of net sales, as compared with operating income of $113.6 million, or 15.8 percent of net sales, in the three months ended September 30, 2024. Excluding surcharge revenue, adjusted operating margin was 25.4 percent for the three months ended September 30, 2025. Excluding surcharge revenue and the special item, adjusted operating margin was 20.3 percent for the three months ended September 30, 2024. The operating results for the three months ended September 30, 2025, 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, 2024, in which 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.

Previous wording

Interest expense, net for the three months ended March 31, 2025, was $12.0 million compared with $12.9 million in the three months ended March 31, 2024. Capitalized interest reduced interest expense by $0.7 million for the three months ended March 31, 2025, and $0.4 million for the three months ended March 31, 2024. The lower interest expense, net is due to no short-term borrowings under our Credit Facility in the three months ended March 31, 2025, compared to interest on borrowings in the three months ended March 31, 2024.

Current wording

Interest expense, net for the three months ended September 30, 2025, was $11.5 million compared with $12.4 million in the three months ended September 30, 2024. Capitalized interest reduced interest expense by $1.2 million for the three months ended September 30, 2025, and $0.4 million for the three months ended September 30, 2024. The lower interest expense, net is due to increased capitalized interest in relation to the brownfield expansion, in the three months ended September 30, 2025.

Previous wording

Other expense, net for the three months ended March 31, 2025, was $3.8 million as compared with $52.9 million of other expense, net for the three months ended March 31, 2024. The three months ended March 31, 2025, reflect $3.9 million of expense from pension earnings, interest and deferrals. The three months ended March 31, 2024, included a noncash pension settlement charge of $51.9 million.

Current wording

Other income, net for the three months ended September 30, 2025, was $3.0 million as compared with $0.1 million of other expense, net for the three months ended September 30, 2024. The three months ended September 30, 2025, reflect $1.4 million of expense from pension earnings, interest and deferrals compared to $3.9 million of expense from pension earnings, interest and deferrals in the three months ended September 30, 2024.

Previous wording

Income tax expense was $26.6 million, or 21.8 percent of pre-tax income for the three months ended March 31, 2025, as compared with income tax expense of $3.8 million, or 37.6 percent of pre-tax income for the three months ended March 31, 2024.

Current wording

Income tax expense was $22.3 million, or 15.4 percent of pre-tax income for the three months ended September 30, 2025, as compared with income tax expense of $16.3 million, or 16.1 percent of pre-tax income for the three months ended September 30, 2024.

Previous wording

Income tax expense for the nine months ended March 31, 2025, includes discrete tax benefits of $13.0 million attributable to employee share-based compensation. Income tax expense for the nine months ended March 31, 2024 included the unfavorable impacts of the $14.1 million non-deductible goodwill impairment charge and losses in certain foreign jurisdictions for which no tax benefit can be recognized. Also included were discrete tax benefits of $12.4 million associated with the pension settlement charge, $1.4 million as a result of changes in our prior year tax positions and $4.7 million attributable to employee share-based compensation.

Current wording

Income tax expense for the three months ended September 30, 2025 includes discrete tax benefits of $10.8 million attributable to employee share-based compensation. Income tax expense for the three months ended September 30, 2024 included discrete tax benefits of $6.8 million attributable to employee share-based compensation and $0.9 million for the impact of restructuring charges.

Previous wording

On October 8, 2021, the Organization for Economic Co-operation and Development ("OECD") released a statement on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which agreed to a two-pillar solution to address tax challenges of the digital economy. On December 20, 2021, the OECD released Pillar Two model rules defining a 15 percent global minimum tax rate for large multinational corporations. The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Pillar Two Framework. We determined the Pillar Two Framework does not have a significant impact on our financial position, results of operations or cash flows.

Current wording

On October 8, 2021, the Organization for Economic Co-operation and Development ("OECD") released a statement on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which agreed to a two-pillar solution to address tax challenges of the digital economy. On December 20, 2021, the OECD released Pillar Two model rules defining a 15 percent global minimum tax rate for large multinational corporations. The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Pillar Two Framework. In June 2025, the U.S. and the G-7 countries announced the intention to reach an agreement that would exempt U.S. parented multinationals from certain of the Pillar Two rules. The details of that agreement and its applicability globally have not been finalized. We determined the Pillar Two Framework as it exists today does not have a significant impact on our financial position, results of operations or cash flows.

Previous wording

Operating income for the SAO segment was $151.4 million or 23.5 percent of net sales (29.1 percent of net sales excluding surcharge revenue) in the three months ended March 31, 2025, as compared with operating income of $103.5 million or 17.0 percent of net sales (21.4 percent of net sales excluding surcharge revenue) in the three months ended March 31, 2024. This marks the thirteenth consecutive quarter with increasing adjusted operating margins in SAO. The operating income for the three months ended March 31, 2025 reflects stronger product mix and improved operational efficiencies compared to the three months ended March 31, 2024.

Current wording

Operating income for the SAO segment was $170.7 million or 25.9 percent of net sales (32.0 percent of net sales excluding surcharge revenue) in the three months ended September 30, 2025, as compared with operating income of $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. This marks the fifteenth consecutive quarter with increasing adjusted operating margins in SAO. The operating income for the three months ended September 30, 2025, reflects stronger product mix and operational efficiency gains compared to the three months ended September 30, 2024.

Previous wording

Net sales for the three months ended March 31, 2025, for the PEP segment increased 2 percent to $104.9 million, as compared with $102.4 million in the three months ended March 31, 2024. Excluding surcharge revenue, net sales for the three months ended March 31, 2025, increased 2 percent on 1 percent lower shipment volume compared to the three months ended March 31, 2024. The current quarter results reflect stronger demand in the Medical and Energy end-use markets partially offset by lower sales in the Industrial and Consumer end-use market.

Current wording

Net sales for the three months ended September 30, 2025 for the PEP segment decreased 7 percent to $93.6 million, as compared with $100.8 million in the three months ended September 30, 2024. Excluding surcharge revenue, net sales for the three months ended September 30, 2025, decreased 6 percent compared to the three months ended September 30, 2024. The current quarter results reflect lower sales in Medical and Distribution end-use markets partially offset by growth in the Aerospace and Defense end-use market.

Previous wording

Operating income for the PEP segment was $10.9 million or 10.4 percent of net sales (11.3 percent of net sales excluding surcharge revenue) in the three months ended March 31, 2025, compared with operating income of $9.2 million or 9.0 percent of net sales (9.7 percent of net sales excluding surcharge revenue) in the three months ended March 31, 2024. The improved results for the three months ended March 31, 2025 reflect improved operational efficiencies compared to the three months ended March 31, 2024.

Current wording

Operating income for the PEP segment was $9.4 million or 10.0 percent of net sales (10.8 percent of net sales excluding surcharge revenue) in the three months ended September 30, 2025, compared with operating income of $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. The improved results for the three months ended September 30, 2025 reflect improved operational efficiencies compared to the three months ended September 30, 2024.

Previous wording

During the nine months ended March 31, 2025, we generated cash from operating activities of $182.3 million as compared to $105.4 million in the nine months ended March 31, 2024. Our adjusted free cash flow, which we define under "Non-GAAP Financial Measures" below, was positive $86.1 million in the nine months ended March 31, 2025, as compared to positive $36.6 million for the nine months ended March 31, 2024. The improvement in cash from operating activities and adjusted free cash flow for the nine months ended March 31, 2025, resulted from higher earnings after noncash adjustments to net income partially offset by cash used for inventory build, higher pension contributions and higher capital expenditures compared to the nine months ended March 31, 2024. Cash used to build inventory was $93.3 million in the nine months ended March 31, 2025, compared to $155.6 million in the nine months ended March 31, 2024. During the nine months ended March 31, 2025, cash flow was negatively impacted by $39.4 million of higher accounts receivable compared to $9.3 million of cash generated from accounts receivable in the nine months ended March 31, 2024.

Current wording

During the three months ended September 30, 2025, we generated cash from operating activities of $39.2 million as compared to $40.2 million in the three months ended September 30, 2024. Our adjusted free cash flow, which we define under "Non-GAAP Financial Measures" below, was negative $3.4 million in the three months ended September 30, 2025, as compared to positive $13.3 million for the three months ended September 30, 2024. The decrease in adjusted free cash flow for the three months ended September 30, 2025, reflects higher capital expenditures, namely from the brownfield expansion, compared to the three months ended September 30, 2024. Cash generated from inventory was $15.6 million in the three months ended September 30, 2025, compared to $16.8 million of cash used to build inventory in the three months ended September 30, 2024. During the three months ended September 30, 2025, cash flow was negatively impacted by $36.2 million of higher accounts receivable compared to $3.4 million of cash generated from accounts receivable in the three months ended September 30, 2024.

Previous wording

Capital expenditures for property, plant, equipment and software were $96.3 million for the nine months ended March 31, 2025, as compared to $68.9 million for the nine months ended March 31, 2024. In fiscal year 2025, we expect capital expenditures to be approximately $155.0 million including expenditures on the recently announced brownfield expansion.

Current wording

Capital expenditures for property, plant, equipment and software were $42.6 million for the three months ended September 30, 2025, as compared to $26.9 million for the three months ended September 30, 2024. In fiscal year 2026, we expect capital expenditures, including the brownfield expansion, to be in the range of $280.0 million to $300.0 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 nine months ended March 31, 2025, were $30.2 million as compared to $29.9 million in the nine months ended March 31, 2024. In the nine months ended March 31, 2025 and 2024 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 nine months ended March 31, 2025, we repurchased 475,000 shares of our common stock on the open market for an aggregate of $77.8 million. As of March 31, 2025, $322.2 million remains available for future purchases. There were no share repurchases in fiscal year 2024.

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 three months ended September 30, 2025, were $10.1 million which were the same as $10.1 million in the three months ended September 30, 2024. In the three months ended September 30, 2025 and 2024 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. During the three months ended September 30, 2025, we repurchased 200,000 shares of our common stock on the open market for an aggregate of $49.1 million. 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, 2025, $249.0 million remained available for future purchases.

Previous wording

During the nine months ended March 31, 2025, we made pension contributions of $58.5 million to our qualified defined benefit pension plans. We currently expect to make required contributions of $6.0 million to our qualified defined benefit pension plans during the remainder of fiscal year 2025.

Current wording

During the three months ended September 30, 2025, we made pension contributions of $5.9 million to our qualified defined benefit pension plans. We currently expect to make required contributions of $17.6 million to our domestic qualified defined benefit pension plans during the remainder of fiscal year 2026.

Previous wording

As of March 31, 2025, the borrowing rate for the Credit Facility was 6.17%, however, we had no short-term borrowings. As of March 31, 2025, 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 September 30, 2025, the borrowing rate for the Credit Facility was 6.01%, however, we had no short-term borrowings. As of September 30, 2025, 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 $500.4 million as of March 31, 2025, which includes total cash and cash equivalents of $151.5 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 $556.9 million as of September 30, 2025, which includes total cash and cash equivalents of $208.0 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 March 31, 2025, we had cash and cash equivalents of $29.5 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 nine months ended March 31, 2025, we repatriated cash of $3.5 million 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 September 30, 2025, we had cash and cash equivalents of $39.2 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, 2025, we repatriated no 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

This report includes discussions of net sales as adjusted to exclude the impact of raw material surcharge and the resulting impact on gross margin, which represent financial measures that have not been determined in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). We present and discuss these financial measures because management believes removing the impact of raw material surcharge from net sales provides a more consistent basis for comparing results of operations from period to period for the reasons discussed earlier in this report. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, our Board of Directors and others. See our earlier discussion of "Gross Profit" for a reconciliation of net sales and gross margin, excluding surcharge revenue, to net sales as determined in accordance with U.S. GAAP. Net sales and gross margin excluding surcharge revenue is not a U.S. GAAP financial measure and should not be considered in isolation of, or as a substitute for, net sales and gross margin calculated in accordance with U.S. GAAP.

Current wording

This report includes discussions of net sales as adjusted to exclude the impact of raw material surcharge and the resulting impact on gross margin, which represent financial measures that have not been determined in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). We present and discuss these financial measures because management believes removing the impact of raw material surcharge from net sales provides a more consistent basis for comparing results of operations from period to period for the reasons discussed earlier in this report. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, our Board of Directors and others. See our earlier discussion of "Gross Profit" for a reconciliation of net sales and gross margin, excluding surcharge revenue, to net sales as determined in accordance with U.S. GAAP. Net sales and gross margin excluding surcharge revenue are not U.S. GAAP financial measures and should not be considered in isolation of, or as a substitute for, net sales and gross margin calculated in accordance with U.S. GAAP.

Previous wording

The following provides a reconciliation of adjusted earnings per share, to its most directly comparable U.S. GAAP financial measures:

Current wording

The following provides a reconciliation of adjusted earnings per diluted share, to its most directly comparable U.S. GAAP financial measures:

Previous wording

Management believes that the presentation of earnings per share adjusted to exclude the impact of special items is helpful in analyzing the operating performance of the Company, as these items are not indicative of ongoing operating performance. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Company's Board of Directors and others. Our definitions and calculations of these items may not necessarily be the same as those used by other companies. Adjusted earnings per share is not a U.S. GAAP financial measure and should not be considered in isolation of, or as a substitute for, earnings per share calculated in accordance with U.S. GAAP.

Current wording

Management believes that the presentation of earnings per diluted share adjusted to exclude the impact of special items is helpful in analyzing the operating performance of the Company, as these items are not indicative of ongoing operating performance. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Company's Board of Directors and others. Our definitions and calculations of these items may not necessarily be the same as those used by other companies. Adjusted earnings per diluted share is not a U.S. GAAP financial measure and should not be considered in isolation of, or as a substitute for, earnings per diluted share calculated in accordance with U.S. GAAP.