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 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.

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 and six month periods ended December 31, 2025, and the comparable periods 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

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.

Current wording

During the six months ended December 31, 2025 approximately 43 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

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

Current wording

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

Previous 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:

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 and six months ended December 31, 2025 and 2024:

Previous 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.

Current wording

In the quarter ended December 31, 2025, we reported operating income of $155.2 million compared to $118.9 million in the prior year same quarter. The results for the quarter ended December 31, 2025, represent an increase of 31 percent over the previous second fiscal quarter and surpassed our first quarter of fiscal year 2026, which at that time was a record. The SAO segment realized $174.6 million of operating income with an operating margin of 26.4 percent, or adjusted operating margin of 33.1 percent, an increase over the prior year same quarter of 22.5 percent, or adjusted operating margin of 28.3 percent. The SAO performance, its best quarter on record, was driven by higher sales and expanding margins and marks the sixteenth consecutive quarter with increasing adjusted operating margins in the SAO segment.

Previous 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.

Current wording

In addition to the strong operating performance, we generated $171.4 million of cash from operating activities in the six months ended December 31, 2025, as compared with cash generated from operating activities of $108.1 million in the six months ended December 31, 2024. Adjusted free cash flow was positive $82.5 million in the six months ended December 31, 2025, as compared with positive adjusted free cash flow of $51.9 million in the six months ended December 31, 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 and investing in high value growth initiatives while returning cash to shareholders. As such, we are investing to accelerate our growth with our brownfield expansion project which is expected to add primary and secondary melt capacity. Additionally, during the six months ended December 31, 2025, we repurchased 300,000 shares of our common stock on the open market for an aggregate of $81.2 million and funded dividend payments of $20.1 million.

Previous wording

Looking over the long-term, we expect that the same dynamics that are driving our current performance will get stronger. Our expected future increases in operating income will be driven by increasing sales and expanding margins from improving productivity, product mix and pricing actions. The markets that we serve, in particular Aerospace and Defense and Energy have a strong multi-year outlook. We are investing to accelerate our growth with our recently announced brownfield expansion which will add primary and secondary melt capacity. We believe Carpenter Technology is well-positioned to achieve our goals and continue to grow over the long-term.

Current wording

Looking over the long-term, we expect that the same dynamics that are driving our current performance will continue to get stronger. Our expected future increases in operating income will be driven by increasing sales and expanding margins from improving productivity, product mix and pricing actions. The markets that we serve, in particular Aerospace and Defense and Energy have a strong multi-year outlook. We believe Carpenter Technology is well-positioned to achieve our goals and continue to grow over the long-term.

Previous 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.

Current 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 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 and based on current information, we believe that tariffs will not have a material impact on the Company.

Previous 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.

Current wording

For the three months ended December 31, 2025, we reported net income of $105.3 million, or $2.09 earnings per diluted share. During the three months ended December 31, 2025, we recorded debt extinguishment losses of $15.6 million, or $12.0 million net of tax. Excluding this special item, adjusted earnings per diluted share was $2.33 for the three months ended December 31, 2025. This compares with net income for the three months ended December 31, 2024, of $84.1 million, or $1.66 earnings per diluted share. The results for the three months ended December 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 December 31, 2024.

Previous 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.

Current wording

Net sales for the three months ended December 31, 2025, were $728.0 million, which is an 8 percent increase over the three months ended December 31, 2024. Excluding surcharge revenue, sales increased 8 percent from the three months ended December 31, 2024. The results excluding surcharge revenue reflect realized price increases and improving product mix during the three months ended December 31, 2025, compared to the three months ended December 31, 2024. Excluding surcharge revenue, sales in the Aerospace and Defense end-use market increased 15 percent compared to the three months ended December 31, 2024.

Previous 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.

Current wording

Geographically, domestic net sales increased 4 percent from the three months ended December 31, 2024, to $434.0 million. Excluding surcharge revenue, domestic sales increased 4 percent from the three months ended December 31, 2024, driven by stronger sales in the Aerospace and Defense, Industrial and Consumer and Energy end-use markets. Sales outside the United States increased 14 percent from the three months ended December 31, 2024, to $294.0 million for the three months ended December 31, 2025. Excluding surcharge revenue, sales outside the United States increased 13 percent from the three months ended December 31, 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 the Mexico and South America regions compared to the three months ended December 31, 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 $0.9 million increase in net sales during the three months ended December 31, 2025, compared to the three months ended December 31, 2024. Net sales outside the United States represented 40 percent and 38 percent of net sales for the three months ended December 31, 2025 and 2024, respectively.

Previous 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.

Current wording

Aerospace and Defense end-use market sales increased 14 percent from the three months ended December 31, 2024, to $472.0 million. Excluding surcharge revenue, sales increased 15 percent from the three months ended December 31, 2024. The results for the three months ended December 31, 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 December 31, 2025 also reflect higher sales in the Defense end-use market for program specific applications.

Previous 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.

Current wording

Medical end-use market sales decreased 18 percent from the three months ended December 31, 2024 to $70.7 million. Excluding surcharge revenue, sales decreased 22 percent from the three months ended December 31, 2024. For the three months ended December 31, 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 December 31, 2024.

Previous 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.

Current wording

Energy end-use market sales of $50.8 million in the three months ended December 31, 2025 reflect a 17 percent increase from the three months ended December 31, 2024. Excluding surcharge revenue, sales increased 19 percent from the three months ended December 31, 2024. The results reflect higher demand in the power generation sub-market for both new and refurbished industrial gas turbines primarily driven by demand for 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 December 31, 2024.

Previous wording

Transportation end-use market sales decreased 19 percent from the three months ended September 30, 2024, to $22.8 million. Excluding surcharge revenue, sales decreased 15 percent from the three months ended September 30, 2024. The results reflect weaker consumer demand for light-duty vehicles partially offset by higher demand in specialty transportation applications compared to the three months ended September 30, 2024.

Current wording

Transportation end-use market sales decreased 20 percent from the three months ended December 31, 2024 to $22.8 million. Excluding surcharge revenue, sales decreased 19 percent from the three months ended December 31, 2024. The results reflect weaker consumer demand and shifting supply chain dynamics for light-duty vehicles compared to the three months ended December 31, 2024.

Previous wording

Industrial and Consumer end-use market sales increased 2 percent from the three months ended September 30, 2024, to $92.9 million. Excluding surcharge revenue, sales increased 4 percent from the three months ended September 30, 2024. The results reflect higher demand for semiconductor and consumer electronics materials in the Industrial and Consumer end-use market compared to the three months ended September 30, 2024.

Current wording

Industrial and Consumer end-use market sales increased 11 percent from the three months ended December 31, 2024 to $94.5 million. Excluding surcharge revenue, sales increased 10 percent from the three months ended December 31, 2024. The results reflect higher demand for semiconductor and consumer electronics materials in the Industrial and Consumer end-use market compared to the three months ended December 31, 2024.

Previous 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.

Current wording

Our gross profit in the three months ended December 31, 2025 increased to $218.3 million, or 30.0 percent of net sales, as compared with $177.5 million, or 26.2 percent of net sales in the three months ended December 31, 2024. Excluding the impact of surcharge revenue, our adjusted gross margin in the three months ended December 31, 2025 was 37.1 percent as compared to 32.4 percent in the three months ended December 31, 2024. The increased gross profit for the three months ended December 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.

Previous 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.

Current wording

Selling, general and administrative expenses in the three months ended December 31, 2025 were $63.1 million or 8.7 percent of net sales (10.7 percent of net sales excluding surcharge) as compared with $58.6 million or 8.7 percent of net sales (10.7 percent of net sales excluding surcharge) in the three months ended December 31, 2024. The selling, general and administrative expenses for the three months ended December 31, 2025 reflect higher salary, benefit and variable compensation costs and an increase in professional service fees compared to the three months ended December 31, 2024.

Previous 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.

Current wording

Interest expense, net for the three months ended December 31, 2025, was $10.2 million compared with $12.2 million in the three months ended December 31, 2024. Capitalized interest reduced interest expense by $1.5 million for the three months ended December 31, 2025, and $0.5 million for the three months ended December 31, 2024. The lower interest expense, net in the three months ended December 31, 2025, is due to higher capitalized interest and a lower interest rate on the 2034 Notes as compared to the notes that were prepaid and redeemed in full in November 2025.

Previous 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.

Current wording

Other income, net for the three months ended December 31, 2025, was $0.6 million as compared with $1.6 million of other expense, net for the three months ended December 31, 2024. The three months ended December 31, 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 December 31, 2024.

Previous 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.

Current wording

Income tax expense was $24.7 million, or 19.0 percent of income before income taxes for the three months ended December 31, 2025, as compared with income tax expense of $21.0 million, or 20.0 percent of income before income taxes for the three months ended December 31, 2024.

Previous 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.

Current wording

Income tax expense for the three months ended December 31, 2025 includes discrete tax benefits of $4.6 million attributable to employee share-based compensation and $3.6 million associated with the debt prepayment costs. Income tax expense for the three months ended December 31, 2024 included discrete tax benefits of $3.0 million attributable to employee share-based compensation.

Previous wording

The One Big Beautiful Bill Act (“OBBBA”) was signed into law on July 4, 2025. The provisions of the OBBBA have varying effective dates. The OBBBA allows an elective deduction for domestic research and development expenses, a reinstatement of elective 100 percent first-year bonus depreciation and modifies the tax rates on Foreign-Derived Deduction Eligible Income and income from non-U.S. subsidiaries (Net CFC Tested Income), among other provisions. A quantitative estimate of the specific financial effects for future periods cannot be reasonably determined at this time due to the complexity of the changes in the tax reform. The impact of the provisions in the OBBBA will depend on our facts in each fiscal year and anticipated guidance from the Internal Revenue Service.

Current wording

The One Big Beautiful Bill Act (“OBBBA”) was signed into law on July 4, 2025. The provisions of the OBBBA have varying effective dates. The OBBBA allows an elective deduction for domestic research and development expenses, a reinstatement of elective 100 percent first-year bonus depreciation and modifies the tax rates on Foreign-Derived Deduction Eligible Income and income from non-U.S. subsidiaries (Net CFC Tested Income), among other provisions. A quantitative estimate of the specific financial effects for future periods cannot be reasonably determined at this time due to the complexity of the changes in the tax reform. The impact of the provisions in the OBBBA will depend on our facts in each fiscal year and anticipated guidance from the Internal Revenue Service; however, we do not expect they will have a material impact on our effective tax rate.

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. 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.

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. In January of 2026 additional guidance was released, the "Side-by Side Package." We are currently evaluating the guidance. 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

Net sales for the three months ended September 30, 2025 for the SAO segment increased 2 percent to $659.6 million, as compared with $645.1 million in the three months ended September 30, 2024. Excluding surcharge revenue, net sales for the three months ended September 30, 2025 increased 5 percent compared to the three months ended September 30, 2024. The higher sales are driven by realized price increases and improving product mix in the Aerospace and Defense and Energy end-use markets compared to the three months ended September 30, 2024.

Current wording

Net sales for the three months ended December 31, 2025 for the SAO segment increased 10 percent to $661.6 million, as compared with $601.5 million in the three months ended December 31, 2024. Excluding surcharge revenue, net sales for the three months ended December 31, 2025 increased 10 percent compared to the three months ended December 31, 2024. The higher sales are driven by realized price increases and improving product mix in the Aerospace and Defense and Energy end-use markets compared to the three months ended December 31, 2024.

Previous 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.

Current wording

Operating income for the SAO segment was $174.6 million or 26.4 percent of net sales (33.1 percent of net sales excluding surcharge revenue) in the three months ended December 31, 2025, as compared with operating income of $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. This marks the sixteenth consecutive quarter with increasing adjusted operating margins in SAO. The operating income for the three months ended December 31, 2025, reflects the impact of product mix optimization and operational efficiency gains compared to the three months ended December 31, 2024.

Previous 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.

Current wording

Net sales for the three months ended December 31, 2025 for the PEP segment decreased 12 percent to $83.2 million, as compared with $95.0 million in the three months ended December 31, 2024. Excluding surcharge revenue, net sales for the three months ended December 31, 2025, decreased 10 percent compared to the three months ended December 31, 2024. The current quarter results reflect lower sales in Medical and Distribution end-use markets partially offset by growth in the Aerospace and Defense and Industrial and Consumer end-use markets.

Previous 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.

Current wording

During the six months ended December 31, 2025, there were no restructuring and asset impairment charges compared to $3.6 million of restructuring and asset impairment charges in the six months ended December 31, 2024. The restructuring and asset impairment 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

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.

Current wording

Our operating income in the six months ended December 31, 2025, was $308.6 million, or 21.1 percent of net sales, as compared with operating income of $232.5 million, or 16.7 percent of net sales, in the six months ended December 31, 2024. Excluding surcharge revenue, operating margin was 25.9 percent for the six months ended December 31, 2025, and 21.0 percent for the six months ended December 31, 2024, when excluding surcharge revenue and the special item identified below. The operating results for the six months ended December 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 six months ended December 31, 2024. The six months ended December 31, 2024 include restructuring and asset impairment charges of $3.6 million.

Previous 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.

Current wording

During the six months ended December 31, 2025, we generated cash from operating activities of $171.4 million as compared to $108.1 million in the six months ended December 31, 2024. Our adjusted free cash flow, which we define under "Non-GAAP Financial Measures" below, was $82.5 million in the six months ended December 31, 2025, as compared to $51.9 million for the six months ended December 31, 2024. The improvement in cash from operating activities for the six months ended December 31, 2025, reflects higher earnings after noncash adjustments to net income and less cash used to build inventory partially offset by higher cash used for other working capital needs compared to the six months ended December 31, 2024. Cash used to build inventory was $27.9 million in the six months ended December 31, 2025, compared to $80.7 million of cash used to build inventory in the six months ended December 31, 2024. During the six months ended December 31, 2025, cash flow was negatively impacted by $73.2 million of cash used for accrued liabilities compared to $36.9 million in the six months ended December 31, 2024.

Previous 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.

Current wording

Capital expenditures for property, plant, equipment and software were $88.9 million for the six months ended December 31, 2025, as compared to $56.2 million for the six months ended December 31, 2024. In fiscal year 2026, we expect capital expenditures, including the brownfield expansion, to be in the range of $300.0 million to $315.0 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, 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.

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, 2025, were $20.1 million as compared to $20.2 million in the six months ended December 31, 2024. In the six months ended December 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. During the six months ended December 31, 2025, we repurchased 300,000 shares of our common stock on the open market for an aggregate of $81.2 million. 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, 2025, $216.9 million remained available for future purchases.

Previous 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.

Current wording

During the six months ended December 31, 2025, we made pension contributions of $11.5 million to our qualified defined benefit pension plans. We currently expect to make required contributions of $12.0 million to our domestic qualified defined benefit pension plans during the remainder of fiscal year 2026.

Previous wording

On April 14, 2023, we entered into a Second Amended and Restated Credit Agreement with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer and the other lenders, agents and arrangers party thereto. The Credit Facility amended and restated our then existing Amended and Restated Credit Agreement dated as of March 26, 2021, which had been set to expire on March 31, 2024. The Credit Facility extends the maturity to April 12, 2028.

Current wording

On November 20, 2025, we entered into a Third Amended and Restated Credit Agreement with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer and the other lenders, agents and arrangers party thereto (the "Credit Facility"). The Credit Facility amended and restated our then existing Second Amended and Restated Credit Agreement dated as of April 14, 2023, which had been set to expire on April 12, 2028. The Third Amendment extends the maturity to November 20, 2030.

Previous wording

The Credit Facility is a secured revolving credit facility with a commitment of $350.0 million subject to our right, from time to time, to request an increase of the commitment by the greater of (i) $300.0 million or (ii) an amount equal to our consolidated EBITDA; and provides for the issuance of letters of credit subject to a $40.0 million sub-limit. We have the right to voluntarily prepay and re-borrow loans, to terminate or reduce the commitments under the Credit Facility, and, subject to certain lender approvals, to join subsidiaries as subsidiary borrowers.

Current wording

The Credit Facility is an unsecured revolving credit facility with a commitment of $500.0 million subject to the right, from time to time, to request an increase of the commitment not in excess of $650.0 million and provides for the issuance of letters of credit subject to a $40.0 million sub-limit. We have the right to voluntarily prepay and re-borrow loans, to terminate or reduce the commitments under the Credit Facility, and, subject to certain lender approvals, to join subsidiaries as subsidiary borrowers. As of December 31, 2025, the borrowing rate for the Credit Facility was 5.41%, however, we had no short-term borrowings. As of December 31, 2025, we had $1.1 million of issued letters of credit under the Credit Facility and the balance of the Credit Facility, $498.9 million, remains available to us.

Previous 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.

Current wording

We believe that our total liquidity of $730.8 million as of December 31, 2025, which includes total cash and cash equivalents of $231.9 million and available borrowing capacity of $498.9 million under the Credit Facility, will be sufficient to fund our cash needs over the foreseeable future.

Previous 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.

Current wording

As of December 31, 2025, we had cash and cash equivalents of $25.3 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, 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

We are subject to certain financial and restrictive covenants under the Credit Facility which requires the maintenance of a minimum interest coverage ratio of 3.00 to 1.00 and a consolidated net leverage ratio of no more than 4.00 to 1.00. The restrictions of these covenants (other than the financial ratio covenants) are subject to certain exceptions or threshold triggering amounts or events specified in the Credit Facility, and in some cases the restrictions may be waived by the lenders. As of September 30, 2025, we were in compliance with all of the covenants of the Credit Facility.

Current wording

We are subject to certain financial and restrictive covenants under the Credit Facility which requires the maintenance of a minimum interest coverage ratio of 3.00 to 1.00 and a consolidated net leverage ratio of no more than 3.50 to 1.00. The restrictions of these covenants (other than the financial ratio covenants) are subject to certain exceptions or threshold triggering amounts or events specified in the Credit Facility, and in some cases the restrictions may be waived by the lenders. As of December 31, 2025, we were in compliance with all of the covenants of the Credit Facility.

Previous wording

Impact per diluted share calculated using weighted average common shares outstanding of 50.4 million for the three months ended September 30, 2025.

Current wording

Impact per diluted share calculated using weighted average common shares outstanding of 50.4 million for the six months ended December 31, 2025.

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, 2025, the liability for environmental remediation costs remained flat. 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, 2025 and June 30, 2025 were $17.4 million and $17.4 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, 2025, 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, 2025 and June 30, 2025 were $17.5 million and $17.4 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.