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 and nine month periods ended March 31, 2026, 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.

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 2026 Form 10-K. Our discussions here focus on our results during or as of the three month period ended September 30, 2026, and the comparable period of fiscal year 2026, and to the extent applicable, on material changes from information discussed in the 2026 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 2026 Form 10-K for detailed background information and with any such intervening Form 8-K.

Previous wording

During the nine months ended March 31, 2026, 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.

Current wording

During the three months ended September 30, 2026, 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 may 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 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.

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 re-measurement event occurs. We currently expect the total net pension expense for fiscal year 2027 will be $5.9 million as compared with total net pension expense of $14.6 million in fiscal year 2026. The lower expected expense for fiscal year 2027 reflects higher plan assets and a higher expected return on plan assets compared to fiscal year 2026.

Previous wording

The following is the net pension expense for the three and nine months ended March 31, 2026 and March 31, 2025:

Current wording

The following is the net pension expense for the three months ended September 30, 2026 and September 30, 2025:

Previous wording

Net pension expense is recorded in accounts that are included in cost of sales, selling, general and administrative expenses and other expense (income), 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, 2026 and 2025:

Current wording

Net pension expense is recorded in accounts that are included in cost of sales, selling, general and administrative expenses and other income, 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, 2026 and 2025:

Previous wording

As of March 31, 2026 and June 30, 2025, service cost amounts related to the net pension expense capitalized in gross inventory were $1.1 million and $1.6 million, respectively.

Current wording

As of September 30, 2026 and June 30, 2026, service cost amounts related to the net pension expense capitalized in gross inventory were $1.1 million and $1.0 million, respectively.

Previous wording

In the quarter ended March 31, 2026, we reported operating income of $186.5 million compared to $137.8 million in the prior year same quarter. The results for the quarter ended March 31, 2026, represent an increase of 35 percent over the prior year third quarter and surpassed our second quarter of fiscal year 2026 by 20 percent, which at that time was a record. The SAO segment realized $208.0 million of operating income with an operating margin of 28.3 percent, or adjusted operating margin of 35.6 percent. This compares to $151.4 million of operating income with an operating margin of 23.5 percent, or adjusted operating margin of 29.1 percent, during the quarter ended March 31, 2025. The SAO margin expansion was driven by a combination of continued productivity gains, pricing realization and improved product mix. These factors enabled SAO to deliver its strongest quarterly operating performance to date.

Current wording

In the quarter ended September 30, 2026, we reported operating income of $196.4 million compared to $153.3 million in the quarter ended September 30, 2025. The results for the quarter ended September 30, 2026, represent an increase of 28 percent over the quarter ended September 30, 2025, establishing a strong foundation for the rest of the fiscal year. The SAO segment realized $216.3 million of operating income with an operating margin of 29.6 percent, or adjusted operating margin of 37.7 percent. This compares to $170.7 million of operating income with an operating margin of 25.9 percent, or adjusted operating margin of 32.0 percent, during the quarter ended September 30, 2025. The SAO margin expansion was driven by productivity improvements, mix management and the benefits of pricing actions. These factors enabled SAO to deliver its strongest first quarter operating performance to date.

Previous wording

The record operating performance was accompanied by strong cash generation, reflecting higher earnings and continued discipline in working capital management. We generated $364.9 million of cash from operating activities in the nine months ended March 31, 2026, as compared with cash provided from operating activities of $182.3 million in the nine months ended March 31, 2025. Adjusted free cash flow was $207.3 million in the nine months ended March 31, 2026, as compared with adjusted free cash flow of $86.1 million in the nine months ended March 31, 2025. With a strong balance sheet and meaningful cash provided from operations, we will continue to take a balanced approach to capital allocation by 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 nine months ended March 31, 2026, we repurchased 445,000 shares of our common stock on the open market for an aggregate of $133.9 million and funded dividend payments of $30.2 million.

Current wording

The strong operating performance was accompanied by an increase in operating cash flow, reflecting higher earnings partially offset by changes in working capital, primarily inventory in the three months ended September 30, 2026. We generated $52.8 million of cash from operating activities in the three months ended September 30, 2026, as compared to $39.2 million in the three months ended September 30, 2025. Free cash flow was negative $24.8 million in the three months ended September 30, 2026, as compared with negative $3.4 million in the three months ended September 30, 2025. The unfavorable change in free cash flow reflects increased capital expenditures, namely from the brownfield expansion compared to the three months ended September 30, 2025. With a strong balance sheet and meaningful cash generation from operations, 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 brownfield expansion project. During the three months ended September 30, 2026, we repurchased 241,924 shares of our common stock on the open market for an aggregate of $133.9 million. Additionally, we funded dividend payments of $9.9 million.

Previous wording

We continue to closely monitor the evolving conflict among the United States, Israel and Iran and its impact to the end-use markets we serve. We also continue to monitor the ongoing tariff changes and engage with our customers and suppliers to analyze how these items 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 these items will not have a material impact on the Company.

Current wording

We continue to closely monitor the evolving conflict among the United States, Israel and Iran and its impact to the end-use markets we serve. We also continue to monitor the ongoing tariff changes and engage with our customers and suppliers to analyze how these items 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 have in the past used and plan to continue using 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 these items will not have a material impact on the Company.

Previous wording

For the three months ended March 31, 2026, we reported net income of $139.6 million, or $2.77 earnings per diluted share. This compares with net income for the three months ended March 31, 2025, of $95.4 million, or $1.88 earnings per diluted share. The results for the three months ended March 31, 2026, reflect an ongoing 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, 2025.

Current wording

For the three months ended September 30, 2026, we reported net income of $162.5 million, or $3.25 earnings per diluted share. This compares with net income for the three months ended September 30, 2025, of $122.5 million, or $2.43 earnings per diluted share. The results for the three months ended September 30, 2026, reflect strengthening demand, productivity improvements, mix management and the benefits of pricing actions compared to the three months ended September 30, 2025.

Previous wording

Net sales for the three months ended March 31, 2026, were $811.5 million, which is a 12 percent increase over the three months ended March 31, 2025. Excluding surcharge revenue, sales increased 10 percent from the three months ended March 31, 2025. The results excluding surcharge revenue reflect realized price increases and improving product mix during the three months ended March 31, 2026, compared to the three months ended March 31, 2025. Excluding surcharge revenue, sales in the Aerospace and Defense end-use market increased 17 percent compared to the three months ended March 31, 2025.

Current wording

Net sales for the three months ended September 30, 2026, were $798.2 million, which is a 9 percent increase over the three months ended September 30, 2025. Excluding surcharge revenue, sales increased 5 percent from the three months ended September 30, 2025. The results excluding surcharge revenue primarily reflect the impact of price increases and stronger product demand for materials used in the end-use markets of Aerospace and Defense and Industrial and Consumer during the three months ended September 30, 2026, compared to the three months ended September 30, 2025. Excluding surcharge revenue, sales in the Aerospace and Defense end-use market increased 10 percent compared to the three months ended September 30, 2025.

Previous wording

Geographically, domestic net sales increased 9 percent from the three months ended March 31, 2025, to $473.9 million. Excluding surcharge revenue, domestic sales increased 8 percent from the three months ended March 31, 2025, driven by higher sales in the Aerospace and Defense, Energy and Industrial and Consumer end-use markets, partially offset by lower sales in the Medical end-use market. Sales outside the United States increased 15 percent from the three months ended March 31, 2025, to $337.6 million for the three months ended March 31, 2026. Excluding surcharge revenue, sales outside the United States increased 13 percent from the three months ended March 31, 2025. This reflects higher sales in the Aerospace and Defense end-use market in all regions and higher sales in the Energy end-use market in the European region offset by lower sales in the Energy end-use market in the Asia Pacific region and the Medical end-use market in the European region compared to the three months ended March 31, 2025. 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 $1.3 million increase in net sales during the three months ended March 31, 2026, compared to the three months ended March 31, 2025. Net sales outside the United States represented 42 percent and 40 percent of net sales for the three months ended March 31, 2026 and 2025, respectively.

Current wording

Geographically, domestic net sales increased 7 percent from the three months ended September 30, 2025, to $464.6 million. Excluding surcharge revenue, domestic sales increased 4 percent from the three months ended September 30, 2025, driven by higher sales in the Aerospace and Defense and Industrial and Consumer end-use markets. Sales outside the United States increased 11 percent from the three months ended September 30, 2025, to $333.6 million for the three months ended September 30, 2026. Excluding surcharge revenue, sales outside the United States increased 7 percent from the three months ended September 30, 2025. This reflects higher sales in the Aerospace and Defense end-use market in all regions partially offset by lower sales in the Energy end-use market in the European region and lower sales in the Medical end-use market in all regions compared to the three months ended September 30, 2025. A portion of our sales outside the United States are denominated in foreign currencies. Fluctuations in foreign currency exchange rates had minimal impact on net sales during the three months ended September 30, 2026, compared to the three months ended September 30, 2025. Net sales outside the United States represented 42 percent and 41 percent of net sales for the three months ended September 30, 2026 and 2025, respectively.

Previous wording

Aerospace and Defense end-use market sales increased 17 percent from the three months ended March 31, 2025, to $534.2 million. Excluding surcharge revenue, sales increased 17 percent from the three months ended March 31, 2025. The results for the three months ended March 31, 2026, reflect strong demand driven by increasing build rates and the need to maintain aging fleets. The three months ended March 31, 2026, 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 September 30, 2025, to $534.6 million. Excluding surcharge revenue, sales increased 10 percent from the three months ended September 30, 2025. The results for the three months ended September 30, 2026, reflect double-digit increases in the Aerospace engine, fastener and structural sub-markets driven by increasing build rates and the need to maintain aging fleets.

Previous wording

Medical end-use market sales decreased 23 percent from the three months ended March 31, 2025, to $65.8 million. Excluding surcharge revenue, sales decreased 29 percent from the three months ended March 31, 2025. For the three months ended March 31, 2026, 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 March 31, 2025.

Current wording

Medical end-use market sales decreased 12 percent from the three months ended September 30, 2025, to $65.5 million. Excluding surcharge revenue, sales decreased 16 percent from the three months ended September 30, 2025. For the three months ended September 30, 2026, results reflect lower shipments as a result of the medical supply chain managing inventory levels closely, partially offset by share gains in the orthopedic sub-market compared to the three months ended September 30, 2025.

Previous wording

Energy end-use market sales of $174.5 million reflect a 23 percent increase from the nine months ended March 31, 2025. Excluding surcharge revenue, sales increased 23 percent from the nine months ended March 31, 2025. The results reflect higher demand in the power generation sub-market for both new and refurbished industrial gas turbines partially offset by decreased shipments for material used in the oil and gas sub-market compared to the nine months ended March 31, 2025.

Current wording

Energy end-use market sales of $46.5 million in the three months ended September 30, 2026, reflect a 15 percent decrease from the three months ended September 30, 2025. Excluding surcharge revenue, sales decreased 23 percent from the three months ended September 30, 2025. The results reflect lower sales in both the power generation and oil and gas sub-markets compared to the three months ended September 30, 2025.

Previous wording

Transportation end-use market sales decreased 12 percent from the three months ended March 31, 2025, to $24.7 million. Excluding surcharge revenue, sales decreased 12 percent from the three months ended March 31, 2025. The results reflect weaker production rates for light-duty vehicles and lower build rates for medium and heavy-duty vehicles compared to the three months ended March 31, 2025.

Current wording

Transportation end-use market sales increased 18 percent from the three months ended September 30, 2025, to $26.8 million. Excluding surcharge revenue, sales increased 11 percent from the three months ended September 30, 2025. The results reflect stronger production rates for light, medium and heavy-duty vehicles compared to the three months ended September 30, 2025.

Previous wording

Industrial and Consumer end-use market sales increased 7 percent from the three months ended March 31, 2025, to $97.0 million. Excluding surcharge revenue, sales increased 8 percent from the three months ended March 31, 2025. The results reflect higher demand across all Industrial sub-markets, particularly semiconductor and fluid control materials, partially offset by lower demand for consumer electronics materials compared to the three months ended March 31, 2025.

Current wording

Industrial and Consumer end-use market sales increased 11 percent from the three months ended September 30, 2025, to $102.7 million. Excluding surcharge revenue, sales increased 11 percent from the three months ended September 30, 2025. The results reflect higher demand across many Industrial sub-markets, including semiconductor and fluid control materials, partially offset by lower demand for consumer electronics materials compared to the three months ended September 30, 2025.

Previous wording

Our gross profit in the three months ended March 31, 2026, increased to $251.8 million, or 31.0 percent of net sales, as compared with $200.8 million, or 27.6 percent of net sales in the three months ended March 31, 2025. Excluding the impact of surcharge revenue, our adjusted gross margin in the three months ended March 31, 2026, was 38.4 percent as compared to 33.6 percent in the three months ended March 31, 2025. The increased gross profit for the three months ended March 31, 2026, reflects an ongoing improvement in product mix in the Aerospace and Defense and Energy end-use markets 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, 2026, increased to $256.3 million, or 32.1 percent of net sales, as compared with $216.4 million, or 29.5 percent of net sales in the three months ended September 30, 2025. Excluding the impact of surcharge revenue, our adjusted gross margin in the three months ended September 30, 2026, was 40.4 percent as compared to 35.9 percent in the three months ended September 30, 2025. The increased gross profit for the three months ended September 30, 2026, reflects a combination of higher demand in the Aerospace and Defense and Industrial and Consumer end-use markets, productivity improvements, mix management and the benefits of pricing actions compared to the three months ended September 30, 2025.

Previous wording

Our surcharge mechanism is structured to recover increases in raw material costs, although in certain cases with a lag effect as discussed above. While the surcharge generally protects the absolute gross profit dollars, it does have a dilutive effect on gross margin as a percent of sales. We present and discuss these financial measures because management believes removing the impact of these items provides a more consistent and meaningful basis for comparing results of operations from period to period. See the section "Non-GAAP Financial Measures" below for further discussion of these financial measures. The following represents a summary of the dilutive impact of the surcharge on gross margin.

Current wording

Our surcharge mechanism is structured to recover increases in raw material costs, although in certain cases with a lag effect as discussed above. While the surcharge generally protects the absolute gross profit dollars, it does have a dilutive effect on gross margin as a percent of sales. We present and discuss these financial measures because management believes removing the impact of this item provides a more consistent and meaningful basis for comparing results of operations from period to period. See the section "Non-GAAP Financial Measures" below for further discussion of these financial measures. The following represents a summary of the dilutive impact of the surcharge on gross margin.

Previous wording

Selling, general and administrative expenses in the three months ended March 31, 2026, were $65.3 million or 8.0 percent of net sales (10.0 percent of net sales excluding surcharge) as compared with $63.0 million or 8.7 percent of net sales (10.6 percent of net sales excluding surcharge) in the three months ended March 31, 2025. The selling, general and administrative expenses for the three months ended March 31, 2026, reflect higher salary, benefit and variable compensation costs compared to the three months ended March 31, 2025.

Current wording

Selling, general and administrative expenses in the three months ended September 30, 2026, were $59.9 million or 7.5 percent of net sales (9.4 percent of net sales excluding surcharge) as compared with $63.1 million or 8.6 percent of net sales (10.5 percent of net sales excluding surcharge) in the three months ended September 30, 2025. The selling, general and administrative expenses for the three months ended September 30, 2026, reflect lower variable compensation costs compared to the three months ended September 30, 2025.

Previous wording

Our operating income in the three months ended March 31, 2026, was $186.5 million, or 23.0 percent of net sales, as compared with operating income of $137.8 million, or 19.0 percent of net sales, in the three months ended March 31, 2025. Excluding surcharge revenue, adjusted operating margin was 28.4 percent for the three months ended March 31, 2026, as compared with 23.1 percent for the three months ended March 31, 2025. The operating results for the three months ended March 31, 2026, reflect an ongoing improvement in product mix in the Aerospace and Defense and Energy end-use markets 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, 2025.

Current wording

Our operating income in the three months ended September 30, 2026, was $196.4 million, or 24.6 percent of net sales, as compared with operating income of $153.3 million, or 20.9 percent of net sales, in the three months ended September 30, 2025. Excluding surcharge revenue, adjusted operating margin was 30.9 percent for the three months ended September 30, 2026, as compared with 25.4 percent for the three months ended September 30, 2025. The operating results for the three months ended September 30, 2026, reflect a combination of higher demand in the Aerospace and Defense and Industrial and Consumer end-use markets, productivity improvements, mix management and the benefits of pricing actions compared to the three months ended September 30, 2025.

Previous wording

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

Current wording

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

Previous wording

Interest expense, net for the three months ended March 31, 2026, was $8.7 million compared with $12.0 million in the three months ended March 31, 2025. Capitalized interest reduced interest expense by $1.9 million for the three months ended March 31, 2026, and $0.7 million for the three months ended March 31, 2025. The lower interest expense, net in the three months ended March 31, 2026, 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.

Current wording

Interest expense, net for the three months ended September 30, 2026, was $7.1 million compared with $11.5 million in the three months ended September 30, 2025. Capitalized interest reduced interest expense by $3.5 million for the three months ended September 30, 2026, and $1.2 million for the three months ended September 30, 2025. The decrease in interest expense, net in the three months ended September 30, 2026, 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 expense, net for the three months ended March 31, 2026, was $1.1 million as compared with $3.8 million of other expense, net for the three months ended March 31, 2025. The three months ended March 31, 2026, reflect $1.4 million of expense from pension earnings, interest and deferrals compared to $3.9 million of expense in the three months ended March 31, 2025, driven primarily by greater expected returns on plan assets during fiscal year 2026.

Current wording

Other income, net for the three months ended September 30, 2026, was $3.1 million as compared with $3.0 million of other income, net for the three months ended September 30, 2025. The three months ended September 30, 2026, reflect $0.7 million of income from pension earnings, interest and deferrals compared to $1.4 million of expense in the three months ended September 30, 2025, driven primarily by greater expected returns on plan assets during fiscal year 2027.

Previous wording

Income tax expense was $37.1 million, or 21.0 percent of income before income taxes for the three months ended March 31, 2026, as compared with income tax expense of $26.6 million, or 21.8 percent of income before income taxes for the three months ended March 31, 2025.

Current wording

Income tax expense was $29.9 million, or 15.5 percent of income before income taxes for the three months ended September 30, 2026, as compared with income tax expense of $22.3 million, or 15.4 percent of income before income taxes for the three months ended September 30, 2025.

Previous wording

Income tax expense for the three months ended March 31, 2026, includes discrete tax benefits of $1.6 million attributable to employee share-based compensation and $2.5 million as a result of changes in the Company's prior year tax positions. Income tax expense for the three months ended March 31, 2025 included discrete tax benefits of $3.2 million attributable to employee share-based compensation.

Current wording

Income tax expense for the three months ended September 30, 2026, includes discrete tax benefits of $12.1 million attributable to employee share-based compensation. Income tax expense for the three months ended September 30, 2025 included discrete tax benefits of $10.8 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; however, we do not expect they will have a material impact on our effective tax rate.

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. The impact of the provisions in the OBBBA are dependent on our facts in each fiscal year and guidance from the Internal Revenue Service; however, they have not had 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. 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.

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 2026 additional guidance, the "Side-by-Side Package," was released. 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

We have two reportable business segments: SAO and PEP. For more detailed segment information, see Note 16 of the Notes to Consolidated Financial Statements included in Item 1.

Current wording

Summary information about our operating results on a segment basis is set forth below. We have two reportable business segments: SAO and PEP. For more detailed segment information, see Note 15 of the Notes to Consolidated Financial Statements included in Item 1.

Previous wording

Net sales for the three months ended March 31, 2026, for the SAO segment increased 14 percent to $735.1 million, as compared with $642.9 million in the three months ended March 31, 2025. Excluding surcharge revenue, net sales for the three months ended March 31, 2026 increased 13 percent compared to the three months ended March 31, 2025. 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 March 31, 2025.

Current wording

Net sales for the three months ended September 30, 2026, for the SAO segment increased 11 percent to $730.4 million, as compared with $659.6 million in the three months ended September 30, 2025. Excluding surcharge revenue, net sales for the three months ended September 30, 2026 increased 7 percent compared to the three months ended September 30, 2025. The higher sales are driven by increased demand in the Aerospace and Defense and Industrial and Consumer end-use markets compared to the three months ended September 30, 2025.

Previous wording

Operating income for the SAO segment was $553.2 million or 26.9 percent of net sales (33.6 percent of net sales excluding surcharge revenue) in the nine months ended March 31, 2026, as compared with operating income of $421.5 million or 22.3 percent of net sales (27.9 percent of net sales excluding surcharge revenue) in the nine months ended March 31, 2025. The operating income for the nine months ended March 31, 2026, reflects a combination of continued productivity gains, pricing realization and improved product mix compared to the nine months ended March 31, 2025.

Current wording

Operating income for the SAO segment was $216.3 million or 29.6 percent of net sales (37.7 percent of net sales excluding surcharge revenue) in the three months ended September 30, 2026, as compared with operating income of $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. The operating income for the three months ended September 30, 2026, reflects a combination of productivity improvements, mix management and the benefits of pricing actions compared to the three months ended September 30, 2025.

Previous wording

Net sales for the three months ended March 31, 2026, for the PEP segment decreased 7 percent to $97.7 million, as compared with $104.9 million in the three months ended March 31, 2025. Excluding surcharge revenue, net sales for the three months ended March 31, 2026, decreased 6 percent compared to the three months ended March 31, 2025. The current quarter results reflect lower sales in the Medical and Distribution end-use markets partially offset by growth in the Aerospace and Defense and Industrial and Consumer end-use markets.

Current wording

Net sales for the three months ended September 30, 2026, for the PEP segment decreased 3 percent to $91.1 million, as compared with $93.6 million in the three months ended September 30, 2025. Excluding surcharge revenue, net sales for the three months ended September 30, 2026, decreased 5 percent compared to the three months ended September 30, 2025. The current quarter results reflect lower sales in the Medical end-use market partially offset by growth in the Energy and Distribution end-use markets.

Previous wording

Operating income for the PEP segment was $6.7 million or 6.9 percent of net sales (7.4 percent of net sales excluding surcharge revenue) in the three months ended March 31, 2026, compared with operating income of $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. The results for the three months ended March 31, 2026, reflect a reduction in Medical end-use market sales in Titanium partially offset by improving profitability in Additive compared to the three months ended March 31, 2025.

Current wording

Operating income for the PEP segment was $7.3 million or 8.0 percent of net sales (8.8 percent of net sales excluding surcharge revenue) in the three months ended September 30, 2026, compared with operating income of $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. The results for the three months ended September 30, 2026, reflect a reduction in Medical end-use market sales in Titanium partially offset by improving profitability in Additive compared to the three months ended September 30, 2025.

Previous wording

During the nine months ended March 31, 2026, we generated cash from operating activities of $364.9 million as compared to $182.3 million in the nine months ended March 31, 2025. Our adjusted free cash flow, which we define under "Non-GAAP Financial Measures" below, was $207.3 million in the nine months ended March 31, 2026, as compared to $86.1 million for the nine months ended March 31, 2025. The improvement in cash from operating activities for the nine months ended March 31, 2026, reflects higher earnings after noncash adjustments to net income and less cash used to build inventory and lower required pension contributions partially offset by higher cash used for other working capital needs compared to the nine months ended March 31, 2025. Cash used to build inventory was $45.1 million in the nine months ended March 31, 2026, compared to $93.3 million of cash used to build inventory in the nine months ended March 31, 2025. During the nine months ended March 31, 2026, cash flow was negatively impacted by $31.0 million of cash used for accrued liabilities compared to $14.0 million in the nine months ended March 31, 2025.

Current wording

During the three months ended September 30, 2026, we generated cash from operating activities of $52.8 million as compared to $39.2 million in the three months ended September 30, 2025. Our free cash flow, which we define under "Non-GAAP Financial Measures" below, was negative $24.8 million in the three months ended September 30, 2026, as compared to negative $3.4 million for the three months ended September 30, 2025. The improvement in cash from operating activities for the three months ended September 30, 2026, reflects higher earnings partially offset by changes in working capital, primarily inventory, compared to the three months ended September 30, 2025. Cash used to build inventory was $61.6 million in the three months ended September 30, 2026, compared to $15.6 million of cash generated from inventory in the three months ended September 30, 2025. The unfavorable change in free cash flow reflects increased capital expenditures compared to the prior year period, namely from the brownfield expansion in Athens, Alabama.

Previous wording

Capital expenditures for property, plant, equipment and software were $157.6 million for the nine months ended March 31, 2026, as compared to $96.3 million for the nine months ended March 31, 2025. In fiscal year 2026, we expect capital expenditures, including the brownfield expansion, to be approximately $260.0 million.

Current wording

Capital expenditures for property, plant, equipment and software were $77.7 million for the three months ended September 30, 2026, as compared to $42.6 million for the three months ended September 30, 2025. In fiscal year 2027, we expect capital expenditures, including the brownfield expansion, to be in the range of $355.0 million to $375.0 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, 2026, were $30.2 million as compared to $30.2 million in the nine months ended March 31, 2025. In the nine months ended March 31, 2026 and 2025 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 nine months ended March 31, 2026, we repurchased 445,000 shares of our common stock on the open market for an aggregate of $133.9 million. 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, 2026, $164.2 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 three months ended September 30, 2026, were $9.9 million as compared to $10.1 million in the three months ended September 30, 2025. In the three months ended September 30, 2026 and 2025 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 $1.0 billion of our outstanding common stock. During the three months ended September 30, 2026, we repurchased 241,924 shares of our common stock on the open market for an aggregate of $133.9 million. During the three months ended September 30, 2025, we repurchased 200,000 shares for an aggregate of $49.1 million. As of September 30, 2026, $985.0 million remains available for future purchases under the $1.0 billion share repurchase program.

Previous wording

During the nine months ended March 31, 2026, we made pension contributions of $17.1 million to our qualified defined benefit pension plans. We currently expect to make required contributions of $6.4 million to our domestic qualified defined benefit pension plans during the remainder of fiscal year 2026.

Current wording

During the three months ended September 30, 2026, we made pension contributions of $8.6 million to our qualified defined benefit pension plans. We currently expect to make required contributions of $16.9 million to our domestic qualified defined benefit pension plans during the remainder of fiscal year 2027.

Previous wording

We have demonstrated the ability to generate cash to meet our needs through cash flows from operations, management of working capital and the ability to access capital markets to supplement internally generated funds. We target minimum liquidity of $150.0 million, consisting of cash and cash equivalents added to available borrowing capacity under our Credit Facility.

Current wording

We have demonstrated the ability to generate cash to meet our needs through cash flows from operations, management of working capital and the ability to access capital markets to supplement internally generated funds. We anticipate that we will continue to do so for the next twelve months and thereafter for the foreseeable future. We target minimum liquidity of $150.0 million, consisting of cash and cash equivalents added to available borrowing capacity under our Credit Facility.

Previous 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.

Current wording

On November 20, 2025, we entered into the Credit Facility 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 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 and restatement of the Credit Facility extended the maturity to November 20, 2030.

Previous 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 March 31, 2026, the borrowing rate for the Credit Facility was 5.39%, however, we had no short-term borrowings. As of March 31, 2026, we had $1.0 million of issued letters of credit under the Credit Facility and the balance of the Credit Facility, $499.0 million, remains available to us.

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 September 30, 2026, the borrowing rate for the Credit Facility was 5.638%, however, we had no short-term borrowings. As of September 30, 2026, we had $0.9 million of issued letters of credit under the Credit Facility and the balance of the Credit Facility, $499.1 million, remains available to us.