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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 10-Q

(Mark One)
 
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024
 
or
 
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            
 
Commission File Number 1-5828
 
CARPENTER TECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its Charter)

Delaware 23-0458500
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1735 Market Street, 15th Floor
 
Philadelphia,Pennsylvania19103
(Address of principal executive offices) (Zip Code)
610-208-2000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $5 Par ValueCRS New York Stock Exchange
Title of each classTrading Symbol Name of each exchange on which registered
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No


 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
   
Non-accelerated filer(Do not check if a smaller reporting company)Smaller reporting company
Emerging growth company




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
 
The number of shares outstanding of the issuer's common stock as of April 26, 2024, was 49,608,268.


CARPENTER TECHNOLOGY CORPORATION
FORM 10-Q
INDEX
 
   Page
 
    
  
    
  
    
  
    
  
    
  
    
  
    
  
    
 
    
 
    
 
 
    
 
    
 
    
 
 
    
  

1

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
 
CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($ in millions, except share data)March 31,
2024
June 30,
2023
ASSETS
Current assets:
Cash and cash equivalents$53.5 $44.5 
Accounts receivable, net521.2 531.3 
Inventories796.1 639.7 
Other current assets82.2 66.4 
Total current assets1,453.0 1,281.9 
Property, plant, equipment and software, net1,351.4 1,383.8 
Goodwill227.3 241.4 
Other intangibles, net23.8 28.7 
Deferred income taxes6.7 6.6 
Other assets114.0 111.5 
Total assets$3,176.2 $3,053.9 
LIABILITIES  
Current liabilities:  
Accounts payable$275.2 $278.1 
Accrued liabilities178.2 181.3 
Total current liabilities453.4 459.4 
Long-term debt693.9 693.0 
Accrued pension liabilities212.2 190.1 
Accrued postretirement benefits47.2 45.8 
Deferred income taxes167.6 170.3 
Other liabilities99.3 99.2 
Total liabilities1,673.6 1,657.8 
Contingencies and commitments (see Note 10)
STOCKHOLDERS' EQUITY  
Common stock — authorized 100,000,000 shares; issued 56,643,276 shares at March 31, 2024 and 56,143,131 shares at June 30, 2023; outstanding 49,426,636 shares at March 31, 2024 and 48,635,740 shares at June 30, 2023
283.2 280.7 
Capital in excess of par value333.2 328.4 
Reinvested earnings1,291.0 1,228.0 
Common stock in treasury (7,216,640 shares and 7,507,391 shares at March 31, 2024 and June 30, 2023, respectively), at cost
(289.5)(298.0)
Accumulated other comprehensive loss(115.3)(143.0)
Total stockholders' equity1,502.6 1,396.1 
Total liabilities and stockholders' equity$3,176.2 $3,053.9 

See accompanying notes to consolidated financial statements.
2

CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


Three Months Ended
March 31,
Nine Months Ended
March 31,
($ in millions, except per share data)2024202320242023
Net sales$684.9 $690.1 $1,961.1 $1,792.1 
Cost of sales537.9 596.6 1,567.4 1,573.9 
Gross profit147.0 93.5 393.7 218.2 
Selling, general and administrative expenses57.0 54.2 164.8 148.0 
Goodwill impairment14.1  14.1  
Operating income 75.9 39.3 214.8 70.2 
Interest expense, net12.9 14.5 38.6 40.1 
Other expense, net
52.9 0.8 58.5 6.2 
Income before income taxes10.1 24.0 117.7 23.9 
Income tax expense3.8 5.4 24.8 5.9 
Net income $6.3 $18.6 $92.9 $18.0 
EARNINGS PER COMMON SHARE:  
Basic$0.12 $0.38 $1.87 $0.36 
Diluted$0.12 $0.38 $1.85 $0.36 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:  
Basic49.7 48.8 49.5 48.7 
Diluted50.3 49.2 50.1 49.0 
 
See accompanying notes to consolidated financial statements.
3

CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Three Months Ended
March 31,
Nine Months Ended
March 31,
($ in millions)2024202320242023
Net income $6.3 $18.6 $92.9 $18.0 
Other comprehensive income (loss), net of tax:    
Net gain (loss) on derivative instruments, net of tax of $(0.7), $3.5, $0.5 and $3.1, respectively
2.3 (10.9)(1.4)(9.7)
Pension and postretirement benefits, net of tax of $(8.4), $(0.4), $(9.0) and $(1.3), respectively
27.0 1.1 28.6 3.2 
Foreign currency translation (2.2)2.3 0.5 5.9 
Total other comprehensive income (loss), net of tax27.1 (7.5)27.7 (0.6)
Comprehensive income, net of tax$33.4 $11.1 $120.6 $17.4 
 
See accompanying notes to consolidated financial statements.
4

CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
($ in millions)20242023
OPERATING ACTIVITIES  
Net income$92.9 $18.0 
Adjustments to reconcile net income to net cash provided from (used for) operating activities:  
Depreciation and amortization100.8 97.5 
Goodwill impairment charge14.1  
Deferred income taxes(11.3) 
Net pension expense 69.8 14.9 
Share-based compensation expense13.7 10.4 
Net loss on disposals of property, plant and equipment3.5 0.7 
Changes in working capital and other:  
Accounts receivable9.3 (130.6)
Inventories(155.6)(213.5)
Other current assets(19.2)(0.3)
Accounts payable(1.0)42.0 
Accrued liabilities(5.2)8.4 
Pension plan contributions(4.9) 
Other postretirement plan contributions(1.8)(2.6)
Other, net0.3 (5.1)
Net cash provided from (used for) operating activities105.4 (160.2)
INVESTING ACTIVITIES  
Purchases of property, plant, equipment and software(68.9)(51.5)
Proceeds from disposals of property, plant and equipment0.1  
Net cash used for investing activities(68.8)(51.5)
FINANCING ACTIVITIES  
Short-term credit agreement borrowings, net change 3.6 
Credit agreement borrowings62.5 183.7 
Credit agreement repayments(62.5)(78.7)
Dividends paid(29.9)(29.5)
Proceeds from stock options exercised19.8 1.5 
Withholding tax payments on share-based compensation awards(18.2)(3.5)
Net cash (used for) provided from financing activities(28.3)77.1 
Effect of exchange rate changes on cash and cash equivalents0.7 2.7 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS9.0 (131.9)
Cash and cash equivalents at beginning of year44.5 154.2 
Cash and cash equivalents at end of period$53.5 $22.3 
SUPPLEMENTAL CASH FLOW INFORMATION:  
Noncash investing activities: Purchase of property, plant, equipment and software$11.6 $11.2 

See accompanying notes to consolidated financial statements.
5

CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Unaudited)

 Common StockReinvested EarningsCommon Stock in TreasuryAccumulated Other Comprehensive (Loss) IncomeTotal Equity
($ in millions, except per share data)
Par Value of $5
Capital in Excess of Par Value
Balances at December 31, 2023$283.2 $327.9 $1,294.8 $(289.7)$(142.4)$1,473.8 
Net income  6.3   6.3 
Net gain on derivative instruments, net of tax    2.3 2.3 
Pension and postretirement benefits, net of tax    27.0 27.0 
Foreign currency translation    (2.2)(2.2)
Cash dividends:     
     Common @ $0.20 per share
  (10.1)  (10.1)
Share-based compensation plans4.9  0.2  5.1 
Stock options exercised0.4    0.4 
Balances at March 31, 2024$283.2 $333.2 $1,291.0 $(289.5)$(115.3)$1,502.6 
 
 Common StockReinvested EarningsCommon Stock in TreasuryAccumulated Other Comprehensive (Loss) IncomeTotal Equity
($ in millions, except per share data)
Par Value of $5
Capital in Excess of Par Value
Balances at December 31, 2022$280.1 $315.3 $1,190.7 $(298.4)$(166.6)$1,321.1 
Net income  18.6   18.6 
Net loss on derivative instruments, net of tax    (10.9)(10.9)
Pension and postretirement benefits, net of tax    1.1 1.1 
Foreign currency translation    2.3 2.3 
Cash dividends:     
     Common @ $0.20 per share
  (9.8)  (9.8)
Share-based compensation plans3.3   3.3 
Stock options exercised0.2 1.3    1.5 
Balances at March 31, 2023$280.3 $319.9 $1,199.5 $(298.4)$(174.1)$1,327.2 
 
See accompanying notes to consolidated financial statements.




6

CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2024 AND 2023
(Unaudited)

 Common StockReinvested EarningsCommon Stock in TreasuryAccumulated Other Comprehensive (Loss) IncomeTotal Equity
($ in millions, except per share data)
Par Value of $5
Capital in Excess of Par Value
Balances at June 30, 2023$280.7 $328.4 $1,228.0 $(298.0)$(143.0)$1,396.1 
Net income  92.9  92.9 
Net loss on derivative instruments, net of tax    (1.4)(1.4)
Pension and postretirement benefits, net of tax    28.6 28.6 
Foreign currency translation    0.5 0.5 
Cash dividends:     
     Common @ $0.60 per share
  (29.9)  (29.9)
Share-based compensation plans(4.5) 8.5  4.0 
Stock options exercised2.5 9.3    11.8 
Balances at March 31, 2024$283.2 $333.2 $1,291.0 $(289.5)$(115.3)$1,502.6 

 Common StockReinvested EarningsCommon Stock in TreasuryAccumulated Other Comprehensive (Loss) IncomeTotal Equity
($ in millions, except per share data)
Par Value of $5
Capital in Excess of Par Value
Balances at June 30, 2022$280.1 $320.3 $1,211.0 $(307.4)$(173.5)$1,330.5 
Net income  18.0   18.0 
Net loss on derivative instruments, net of tax    (9.7)(9.7)
Pension and postretirement benefits, net of tax    3.2 3.2 
Foreign currency translation    5.9 5.9 
Cash dividends:     
     Common @ $0.60 per share
  (29.5)  (29.5)
Share-based compensation plans(1.7) 9.0  7.3 
Stock options exercised0.2 1.3    1.5 
Balances at March 31, 2023$280.3 $319.9 $1,199.5 $(298.4)$(174.1)$1,327.2 

See accompanying notes to consolidated financial statements.

7

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    Basis of Presentation
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("U.S. GAAP") for complete financial statements. In the opinion of management, all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair statement of the results are reflected in the interim periods presented. The June 30, 2023 consolidated balance sheet data was derived from audited financial statements, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in Carpenter Technology's Annual Report on Form 10-K for the fiscal year ended June 30, 2023 (the "2023 Form 10-K"). Operating results for the three and nine months ended March 31, 2024 are not necessarily indicative of the operating results for any future period.

As used throughout this report, unless the context requires otherwise, the terms "Carpenter," "Carpenter Technology," the "Company," "Registrant," "Issuer," "we" and "our" refer to Carpenter Technology Corporation.
 
2.    Recent Accounting Pronouncements
 
Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The guidance in ASU 2023-07 seeks to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this ASU require a public entity to disclose the following: significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss; an amount for other segment items by reportable segment and a description of its composition; and the title and position of the CODM and how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. This ASU requires public entities to provide all annual disclosures about a reportable segment's profit or loss and assets currently required by Topic 280 in interim periods. ASU 2023-07 clarifies that if the CODM uses more than one measure of a segment's profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 is a requirement for additional disclosure and is not expected to materially impact the consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The guidance in this ASU enhances the transparency and decision functionality of income tax disclosures to provide investors information to better assess how an entity's operations and related tax risks, tax planning and operational opportunities affect its tax rate and prospects for future cash flow. The amendments in this ASU require public entities to disclose the following specific categories in the rate reconciliation by both percentages and reporting currency amounts: the effect of state and local income tax, net of federal (national) income tax, foreign tax effects, effects of changes in tax laws or rates enacted in the current period, effects of cross-border tax laws, tax credits, changes in valuation allowances, nontaxable or nondeductible items and changes in unrecognized tax benefits. The amendments in ASU 2023-09 also require public entities to provide additional information for reconciling items that meet the qualitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pre-tax income (loss) by the applicable statutory income tax rate). The ASU requires reporting entities to annually disclose the year-to-date amount of income taxes paid (net of refunds received) disaggregated by federal, state and foreign localities. The amendments in this ASU should be applied on a prospective basis and retrospective application is permitted. For public business entities, ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements not yet issued. ASU 2023-09 is a requirement for additional disclosure and is not expected to materially impact the consolidated financial statements.

8

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3.    Revenue

The Company recognizes revenue in accordance with Topic 606, Revenue from Contracts. The Company applies the five-step model in the FASB's guidance, which requires the Company to: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies a performance obligation.

The Company recognizes revenue when performance obligations under the terms of a customer purchase order or contract are satisfied. This occurs when control of the goods and services has transferred to the customer, which is generally determined when title, ownership, and risk of loss pass to the customer, all of which occurs upon shipment or delivery of the product. Consignment transactions are arrangements where the Company transfers product to a customer location but retains ownership and control of such product until it is used by the customer. Revenue for consignment arrangements is recognized upon usage by the customer. Service revenue is recognized as the services are performed.

The Company's standard customer purchase order or contract for goods transferred has a single performance obligation for which revenue is recognized at a point in time. The standard terms and conditions of a customer purchase order include general rights of return and product warranty provisions related to nonconforming product. Depending on the circumstances, the product is either replaced or a quality adjustment is issued. Such warranties do not represent a separate performance obligation.

The Company's standard customer purchase order or contract sets forth the transaction price for the products and services purchased under that arrangement. Some customer arrangements include variable consideration, such as volume rebates, which generally depend upon the Company's customers meeting specified performance criteria, such as a purchasing level over a period of time. The Company exercises judgment to estimate the most likely amount of variable consideration at each reporting date.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for its product. The standard payment terms are 30 days. The Company has elected to use the practical expedient that permits the Company to not adjust for the effects of a significant financing component if it expects that at the contract inception, the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Amounts billed to customers for shipping and handling activities to fulfill the Company's promise to transfer the goods are included in revenues and costs incurred by the Company for the delivery of goods are classified as cost of sales in the consolidated statements of operations. Shipping terms may vary for products shipped outside the United States depending on the mode of transportation, the country where the material is shipped and any agreements made with the customers.

Contract liabilities are recognized when the Company has received consideration from a customer to transfer goods or services at a future point in time when the Company performs under the purchase order or contract. Contract liabilities were $13.7 million and $14.0 million at March 31, 2024 and June 30, 2023, respectively, and are included in accrued liabilities on the consolidated balance sheets. Revenue recognized for the three and nine months ended March 31, 2024 and 2023 from amounts included in contract liabilities at the beginning of the period was not significant and substantially all of the Company's contract liabilities are recognized within a twelve-month period.

The Company has elected to use the practical expedient that permits the omission of disclosure for remaining performance obligations which are expected to be satisfied in one year or less.

9

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Disaggregation of Revenue

The Company operates in two business segments, Specialty Alloys Operations ("SAO") and Performance Engineered Products ("PEP"). Revenue is disaggregated within these two business segments by diversified end-use markets and by geographical locations. Comparative information of the Company's overall revenues by end-use markets and geographic locations for the three and nine months ended March 31, 2024 and 2023 were as follows:
End-Use MarketThree Months Ended March 31, 2024Three Months Ended March 31, 2023
($ in millions)SAOPEPIntersegmentTotalSAOPEPIntersegmentTotal
Aerospace and Defense$367.3 $30.5 $(6.7)$391.1 $321.6 $31.2 $(8.6)$344.2 
Medical77.7 35.0 (13.1)99.6 63.9 32.8 (10.5)86.2 
Transportation33.0 1.8 (0.4)34.4 51.2 1.8 (0.2)52.8 
Energy37.5 1.2  38.7 42.8 3.9 (0.1)46.6 
Industrial and Consumer93.0 10.4 (5.8)97.6 123.9 15.8 (9.0)130.7 
Distribution 23.5  23.5  29.6  29.6 
Total net sales$608.5 $102.4 $(26.0)$684.9 $603.4 $115.1 $(28.4)$690.1 
Geographic LocationThree Months Ended March 31, 2024Three Months Ended March 31, 2023
($ in millions)SAOPEPIntersegmentTotalSAOPEPIntersegmentTotal
United States$335.4 $56.0 $(8.1)$383.3 $368.4 $61.5 $(10.3)$419.6 
Europe127.0 22.4 (7.8)141.6 112.8 23.5 (6.1)130.2 
Asia Pacific94.3 10.4 (10.0)94.7 78.3 12.5 (12.0)78.8 
Mexico20.9 8.5 (0.1)29.3 15.9 9.2  25.1 
Canada18.5 2.8  21.3 13.9 4.9 0.1 18.9 
Other12.4 2.3  14.7 14.1 3.5 (0.1)17.5 
Total net sales$608.5 $102.4 $(26.0)$684.9 $603.4 $115.1 $(28.4)$690.1 
10

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

End-Use MarketNine Months Ended March 31, 2024Nine Months Ended March 31, 2023
($ in millions)SAOPEPIntersegmentTotalSAOPEPIntersegmentTotal
Aerospace and Defense$1,001.5 $81.5 $(18.3)$1,064.7 $832.1 $75.0 $(21.2)$885.9 
Medical198.6 103.1 (34.5)267.2 154.2 90.3 (25.4)219.1 
Transportation108.0 6.0 (0.3)113.7 127.2 4.6 (0.7)131.1 
Energy129.0 6.4  135.4 101.4 7.9 0.1 109.4 
Industrial and Consumer290.9 29.7 (13.6)307.0 331.7 45.9 (22.3)355.3 
Distribution 73.2 (0.1)73.1  91.4 (0.1)91.3 
Total net sales$1,728.0 $299.9 $(66.8)$1,961.1 $1,546.6 $315.1 $(69.6)$1,792.1 
Geographic LocationNine Months Ended March 31, 2024Nine Months Ended March 31, 2023
($ in millions)SAOPEPIntersegmentTotalSAOPEPIntersegmentTotal
United States$1,002.4 $168.2 $(19.9)$1,150.7 $942.7 $178.1 $(27.8)$1,093.0 
Europe313.8 57.8 (16.1)355.5 262.8 58.8 (13.4)308.2 
Asia Pacific279.3 32.3 (30.9)280.7 214.9 29.6 (28.3)216.2 
Mexico61.6 26.5  88.1 60.0 30.3  90.3 
Canada39.4 9.7  49.1 34.6 11.3  45.9 
Other31.5 5.4 0.1 37.0 31.6 7.0 (0.1)38.5 
Total net sales$1,728.0 $299.9 $(66.8)$1,961.1 $1,546.6 $315.1 $(69.6)$1,792.1 
11

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4.    Earnings per Common Share
 
The Company calculates basic and diluted earnings per share using the two class method. Under the two class method, earnings are allocated to common stock and participating securities (non-vested restricted shares and units that receive non-forfeitable dividends) according to their participation rights in dividends and undistributed earnings. The earnings available to each class of stock are divided by the weighted average number of outstanding shares for the period in each class. Diluted earnings per share assumes the issuance of common stock for all potentially dilutive share equivalents outstanding.

The calculations of basic and diluted earnings per common share for the three and nine months ended March 31, 2024 and 2023 were as follows: 
Three Months Ended
March 31,
Nine Months Ended
March 31,
(in millions, except per share data)2024202320242023
Net income $6.3 $18.6 $92.9 $18.0 
Dividends allocated to participating securities(0.1)(0.1)(0.2)(0.3)
Earnings available for common stockholders used in calculation of basic earnings per common share$6.2 $18.5 $92.7 $17.7 
Weighted average number of common shares outstanding, basic49.7 48.8 49.5 48.7 
Basic earnings per common share$0.12 $0.38 $1.87 $0.36 
Net income$6.3 $18.6 $92.9 $18.0 
Dividends allocated to participating securities(0.1)(0.1)(0.2)(0.3)
Earnings available for common stockholders used in calculation of diluted earnings per common share$6.2 $18.5 $92.7 $17.7 
Weighted average number of common shares outstanding, basic49.7 48.8 49.5 48.7 
Effect of shares issuable under share-based compensation plans0.6 0.4 0.6 0.3 
Weighted average number of common shares outstanding, diluted50.3 49.2 50.1 49.0 
Diluted earnings per common share$0.12 $0.38 $1.85 $0.36 
 
The following awards issued under share-based compensation plans were excluded from the above calculations of diluted earnings per share because their effects were anti-dilutive:


Three Months Ended
March 31,
Nine Months Ended
March 31,
(in millions, except per share data)2024202320242023
Stock options 0.6  1.7 
12

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5.    Inventories
 
Inventories consisted of the following components as of March 31, 2024 and June 30, 2023:
 
($ in millions)March 31,
2024
June 30,
2023
Raw materials and supplies$186.7 $157.7 
Work in process468.1 370.1 
Finished and purchased products141.3 111.9 
Total inventories$796.1 $639.7 
 
Inventories are valued at the lower of cost or market. Cost for inventories is principally determined using the last-in, first-out ("LIFO") inventory costing method. The Company values other inventory at the lower of cost or net realizable value, determined by the first-in, first-out and average cost methods. As of March 31, 2024 and June 30, 2023, $157.7 million and $133.2 million of inventory, respectively, was accounted for using a method other than the LIFO inventory costing method.

6.    Goodwill

Goodwill

Goodwill is not amortized but instead is tested at least annually for impairment as of June 1, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. Potential impairment is identified by comparing the fair value of a reporting unit to its carrying value. If the carrying value of the reporting unit exceeds its fair value, any impairment loss is measured by the difference between the carrying value of the reporting unit and its fair value, not to exceed the carrying amount of goodwill. The discounted cash flow analysis for each reporting unit tested requires significant estimates and assumptions related to cash flow forecasts, discount rates, terminal values and income tax rates. The cash flow forecasts include significant judgments and assumptions related to revenue growth rates, which include perpetual growth rates, gross margin and weighted average cost of capital. The cash flow forecasts are developed based on assumptions about each reporting unit's markets, product offerings, pricing, capital expenditure and working capital requirements as well as cost performance.

As of June 30, 2023, the Company had three reporting units with goodwill recorded. Goodwill associated with the SAO reporting was $195.5 million and represented approximately 81 percent of total goodwill. The remaining goodwill was associated with the PEP segment, which included two reporting units, Dynamet and Latrobe Distribution, with goodwill recorded of $31.8 million and $14.1 million, respectively.

As of June 1, 2023, the fair value of the SAO reporting unit exceeded the carrying value by approximately 60 percent. The discounted cash flows analysis for the SAO reporting unit includes assumptions related to our ability to increase volume, improve mix, expand product offerings and continue to implement opportunities to reduce costs over the next several years. For purposes of the discounted cash flow analysis for SAO's fair value, a weighted average cost capital of 11.0 percent and a terminal growth rate assumption of 2.5 percent were used. If the long-term growth rate for this reporting unit had been hypothetically reduced by 0.5 percent at June 1, 2023, the SAO reporting unit would have a fair value that exceeded the carrying value by approximately 57 percent.

As of June 1, 2023, the fair value of the Dynamet reporting unit exceeded the carrying value by approximately 106 percent. For purposes of the discounted cash flow analysis for Dynamet's fair value, a weighted average cost capital of 14.0 percent and a terminal growth rate assumption of 2.5 percent were used. If the long-term growth rate for this reporting unit had been hypothetically reduced by 0.5 percent at June 1, 2023, the Dynamet reporting unit would have a fair value that exceeded the carrying value by approximately 104 percent.

13

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the quarter ended March 31, 2024, the Company identified an impairment triggering event in the Latrobe Distribution reporting unit within the PEP segment related to a decline in customer ordering patterns. This combined with market headwinds due to general industrial macroeconomic conditions including rising interest rates has contributed to lower sales and profit margins compared to the established annual operation plan for fiscal year 2024. Despite efforts of the Company to mitigate the market challenges, results have not improved for the Latrobe Distribution reporting unit during the quarter ended March 31, 2024. In light of these market conditions at the time, the pace of growth in the future projections for the Latrobe Distribution reporting unit were lowered.

The Company determined the goodwill associated with the Latrobe Distribution reporting unit was impaired and recorded an impairment charge of $14.1 million during the quarter ended March 31, 2024, which represented the entire balance of goodwill for this reporting unit. The fair value was estimated using a weighting of discounted cash flows and the use of market multiples valuation techniques. After the impairment loss recognized during the quarter ended March 31, 2024, the Company has two reporting units with goodwill recorded. As of March 31, 2024, goodwill associated with the SAO reporting unit is $195.5 million and represents approximately 86 percent of total goodwill. The remaining goodwill of $31.8 million as of March 31, 2024 is associated with the Dynamet reporting unit in the PEP segment. The fair value is estimated using a weighting of discounted cash flows and the use of market multiples valuation techniques for the SAO reporting unit and the Dynamet reporting unit. The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining the fair value of the reporting units.

Accumulated goodwill impairment losses of $148.7 million are related solely to the PEP segment. The changes in the carrying amount of goodwill by reportable segment for the nine months ended March 31, 2024 were as follows:

($ in millions)June 30, 2023ImpairmentMarch 31, 2024
Goodwill$376.0 $— $376.0 
Accumulated impairment losses(134.6)(14.1)(148.7)
Total goodwill$241.4 $(14.1)$227.3 
Specialty Alloys Operations$195.5 $ $195.5 
Performance Engineered Products45.9 (14.1)31.8 
Total goodwill$241.4 $(14.1)$227.3 


7.    Accrued Liabilities
 
Accrued liabilities consisted of the following as of March 31, 2024 and June 30, 2023:
 
($ in millions)March 31,
2024
June 30,
2023
Accrued compensation and benefits$100.4 $92.4 
Accrued postretirement benefits16.1 16.1 
Contract liabilities13.7 14.0 
Current portion of lease liabilities8.6 9.1 
Derivative financial instruments8.0 6.4 
Accrued interest expense6.4 18.5 
Accrued taxes4.4 4.9 
Accrued pension liabilities3.3 3.3 
Accrued income taxes1.7 2.5 
Other15.6 14.1 
Total accrued liabilities$178.2 $181.3 

14

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8.    Pension and Other Postretirement Benefits
 
The components of the net periodic pension expense (income) related to the Company's pension and other postretirement benefits for the three and nine months ended March 31, 2024 and 2023 were as follows:
 
Three Months Ended March 31,
2024202320242023
($ in millions)Pension PlansOther Postretirement Plans
Service cost$2.1 $2.0 $0.3 $0.5 
Interest cost10.4 11.5 2.6 2.4 
Expected return on plan assets(8.3)(11.2)(1.8)(1.7)
Amortization of net loss (gain)1.9 2.4 (0.6)(0.4)
Amortization of prior service cost (credits)0.5 0.5 (1.0)(1.0)
Pension settlement charge51.9    
    Net pension expense (income)$58.5 $5.2 $(0.5)$(0.2)
Nine Months Ended March 31,
2024202320242023
($ in millions)Pension PlansOther Postretirement Plans
Service cost$6.2 $5.9 $1.1 $1.5 
Interest cost34.0 34.5 7.6 7.2 
Expected return on plan assets(28.5)(33.6)(5.5)(5.1)
Amortization of net loss (gain)6.2 7.2 (1.9)(1.2)
Amortization of prior service cost (credits)1.6 1.5 (2.9)(3.0)
Pension settlement charge51.9    
    Net pension expense (income)$71.4 $15.5 $(1.6)$(0.6)
In the quarter ended March 31, 2024, the Company executed a buy-out annuity transaction for the Company's largest defined benefit plan. The Company determined that the annuity settlement and lump-sum payments exceeded the threshold of service cost and interest cost components and therefore settlement accounting was required. As a result, the Company recorded a noncash settlement charge of $51.9 million in the quarter ended March 31, 2024 within other expense, net. The settlement triggered a remeasurement for the affected benefit plan in the quarter ended March 31, 2024 using a weighted average discount rate of 5.90 percent compared to the rate of 5.85 percent utilized at June 30, 2023. The impact of the remeasurement increased the anticipated full fiscal year net pension expense by $0.5 million of which $0.2 million was recognized within pension earnings, interest and deferrals in the current quarter. The remeasurement also resulted in an increase of accrued pension liabilities and accumulated other comprehensive loss of $17.4 million based on the current discount rate and lower than anticipated investment returns.
During the nine months ended March 31, 2024 and 2023, the Company made $4.9 million and $0.0 million, respectively, of contributions to its qualified defined benefit pension plans. The Company currently expects to make $6.4 million of required cash pension contributions to its qualified defined benefit pension plans during the remainder of fiscal year 2024.
15

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9.    Debt

On April 14, 2023, the Company 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"). The Credit Facility amended and restated the Company's then existing Amended and Restated Credit Agreement dated as of March 26, 2021 which had been set to expire on March 31, 2024. The Second Amendment extends the maturity to April 12, 2028.

The Credit Facility is a secured revolving credit facility with a commitment of $350.0 million subject to the 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 the consolidated EBITDA; and provides for the issuance of letters of credit subject to a $40.0 million sub-limit. The Company has 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, 2024, the Company had $1.2 million of issued letters of credit under the Credit Facility and no short-term borrowings. The balance of $348.8 million remains available to the Company.

Interest on the borrowings under the Credit Facility accrues at variable rates which are determined based upon the Company's consolidated total leverage ratio. The applicable margin to be added to Alternative Currency Daily Rate, Alternative Currency Term Rate and Term SOFR determined loans ranges from 1.75% to 2.50% (1.75% as of March 31, 2024), and for Base Rate-determined loans, from 0.75% to 1.50% (0.75% as of March 31, 2024). The Company also pays a quarterly commitment fee ranging from 0.250% to 0.375% (0.250% as of March 31, 2024), determined based upon the consolidated total leverage ratio, of the unused portion of the commitment under the Credit Facility. In addition, the Company must pay certain letter of credit fees, ranging from 1.75% to 2.50% (1.75% as of March 31, 2024), with respect to letters of credit issued under the Credit Facility. As of March 31, 2024, the borrowing rate for the Credit Facility was 7.08%.

The Company is 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 March 31, 2024, the Company was in compliance with all of the covenants of the Credit Facility.

Long-term debt outstanding as of March 31, 2024 and June 30, 2023 consisted of the following:
($ in millions)March 31,
2024
June 30,
2023
Senior unsecured notes, 6.375% due July 2028 (face value of $400.0 million at March 31, 2024 and June 30, 2023)
$397.0 $396.5 
Senior unsecured notes, 7.625% due March 2030 (face value of $300.0 million at March 31, 2024 and June 30, 2023)
296.9 296.5 
Total debt693.9 693.0 
Less: amounts due within one year  
Long-term debt, net of current portion$693.9 $693.0 
 
For the three months ended March 31, 2024 and 2023, interest costs totaled $13.3 million and $15.0 million, respectively, of which $0.4 million and $0.5 million, respectively, were capitalized as part of the cost of property, plant, equipment and software. For the nine months ended March 31, 2024 and 2023, interest costs totaled $39.8 million and $