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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 December 31, 2023
 
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 January 22, 2024, was 49,412,387.


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)December 31,
2023
June 30,
2023
ASSETS
Current assets:
Cash and cash equivalents$15.7 $44.5 
Accounts receivable, net508.4 531.3 
Inventories797.8 639.7 
Other current assets88.3 66.4 
Total current assets1,410.2 1,281.9 
Property, plant, equipment and software, net1,364.2 1,383.8 
Goodwill241.4 241.4 
Other intangibles, net25.4 28.7 
Deferred income taxes6.7 6.6 
Other assets111.3 111.5 
Total assets$3,159.2 $3,053.9 
LIABILITIES  
Current liabilities:  
Short-term credit agreement borrowings$13.9 $ 
Accounts payable313.4 278.1 
Accrued liabilities158.4 181.3 
Total current liabilities485.7 459.4 
Long-term debt693.6 693.0 
Accrued pension liabilities191.2 190.1 
Accrued postretirement benefits47.2 45.8 
Deferred income taxes168.8 170.3 
Other liabilities98.9 99.2 
Total liabilities1,685.4 1,657.8 
Contingencies and commitments (see Note 9)
STOCKHOLDERS' EQUITY  
Common stock — authorized 100,000,000 shares; issued 56,634,411 shares at December 31, 2023 and 56,143,131 shares at June 30, 2023; outstanding 49,412,070 shares at December 31, 2023 and 48,635,740 shares at June 30, 2023
283.2 280.7 
Capital in excess of par value327.9 328.4 
Reinvested earnings1,294.8 1,228.0 
Common stock in treasury (7,222,341 shares and 7,507,391 shares at December 31, 2023 and June 30, 2023, respectively), at cost
(289.7)(298.0)
Accumulated other comprehensive loss(142.4)(143.0)
Total stockholders' equity1,473.8 1,396.1 
Total liabilities and stockholders' equity$3,159.2 $3,053.9 

See accompanying notes to consolidated financial statements.
2

CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


Three Months Ended
December 31,
Six Months Ended
December 31,
 ($ in millions, except per share data)2023202220232022
Net sales$624.2 $579.1 $1,276.1 $1,102.0 
Cost of sales501.6 509.1 1,029.4 977.2 
Gross profit122.6 70.0 246.7 124.8 
Selling, general and administrative expenses52.8 47.4 107.9 93.9 
Operating income 69.8 22.6 138.8 30.9 
Interest expense, net13.0 13.0 25.7 25.6 
Other expense, net
1.6 1.9 5.5 5.4 
Income (loss) before income taxes55.2 7.7 107.6 (0.1)
Income tax expense12.5 1.5 21.0 0.5 
Net income (loss)$42.7 $6.2 $86.6 $(0.6)
EARNINGS (LOSS) PER COMMON SHARE:  
Basic$0.86 $0.13 $1.75 $(0.02)
Diluted$0.85 $0.13 $1.73 $(0.02)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:  
Basic49.7 48.8 49.4 48.7 
Diluted50.2 49.0 50.0 48.7 
 
See accompanying notes to consolidated financial statements.
3

CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Three Months Ended
December 31,
Six Months Ended
December 31,
 ($ in millions)2023202220232022
Net income (loss)$42.7 $6.2 $86.6 $(0.6)
Other comprehensive income (loss), net of tax:    
Pension and postretirement benefits, net of tax of $(0.3), $(0.4), $(0.6) and $(0.8), respectively
0.8 1.1 1.6 2.1 
Net (loss) gain on derivative instruments, net of tax of $0.8, $(2.1), $1.2 and $(0.4), respectively
(2.5)6.5 (3.7)1.2 
Foreign currency translation 4.8 6.9 2.7 3.6 
Total other comprehensive income, net of tax3.1 14.5 0.6 6.9 
Comprehensive income, net of tax$45.8 $20.7 $87.2 $6.3 
 
See accompanying notes to consolidated financial statements.
4

CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
($ in millions)20232022
OPERATING ACTIVITIES  
Net income (loss)$86.6 $(0.6)
Adjustments to reconcile net income (loss) to net cash provided from (used for) operating activities:  
Depreciation and amortization66.7 64.8 
Deferred income taxes(1.0)(0.9)
Net pension expense 11.8 9.9 
Share-based compensation expense8.5 7.1 
Net loss on disposals of property, plant and equipment1.2 0.6 
Changes in working capital and other:  
Accounts receivable23.9 (58.5)
Inventories(157.5)(226.7)
Other current assets(25.4)(4.1)
Accounts payable37.8 62.1 
Accrued liabilities(26.8)(12.1)
Pension plan contributions(4.8) 
Other postretirement plan contributions(0.7)(1.5)
Other, net1.6 (4.6)
Net cash provided from (used for) operating activities21.9 (164.5)
INVESTING ACTIVITIES  
Purchases of property, plant, equipment and software(47.3)(31.0)
Net cash used for investing activities(47.3)(31.0)
FINANCING ACTIVITIES  
Short-term credit agreement borrowings, net change13.9 41.2 
Credit agreement borrowings46.5 60.1 
Credit agreement repayments(46.5)(20.1)
Dividends paid(19.8)(19.7)
Proceeds from stock options exercised19.4  
Withholding tax payments on share-based compensation awards(18.0)(3.4)
Net cash (used for) provided from financing activities(4.5)58.1 
Effect of exchange rate changes on cash and cash equivalents1.1 3.2 
DECREASE IN CASH AND CASH EQUIVALENTS(28.8)(134.2)
Cash and cash equivalents at beginning of year44.5 154.2 
Cash and cash equivalents at end of period$15.7 $20.0 
SUPPLEMENTAL CASH FLOW INFORMATION:  
Noncash investing activities: Purchase of property, plant, equipment and software$10.9 $8.1 

See accompanying notes to consolidated financial statements.
5

CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2023 AND 2022
(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 September 30, 2023$282.6 $320.4 $1,262.0 $(290.2)$(145.5)$1,429.3 
Net income  42.7   42.7 
Pension and postretirement benefits, net of tax    0.8 0.8 
Net loss on derivative instruments, net of tax    (2.5)(2.5)
Foreign currency translation    4.8 4.8 
Cash dividends:     
     Common @ $0.20 per share
  (9.9)  (9.9)
Share-based compensation plans0.1 2.5  0.5  3.1 
Stock options exercised0.5 5.0    5.5 
Balances at December 31, 2023$283.2 $327.9 $1,294.8 $(289.7)$(142.4)$1,473.8 
 
 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 September 30, 2022$280.1 $314.3 $1,194.3 $(300.8)$(181.1)$1,306.8 
Net income  6.2   6.2 
Pension and postretirement benefits, net of tax    1.1 1.1 
Net gain on derivative instruments, net of tax    6.5 6.5 
Foreign currency translation    6.9 6.9 
Cash dividends:     
     Common @ $0.20 per share
  (9.8)  (9.8)
Share-based compensation plans1.0  2.4  3.4 
Balances at December 31, 2022$280.1 $315.3 $1,190.7 $(298.4)$(166.6)$1,321.1 
 
See accompanying notes to consolidated financial statements.




6

CARPENTER TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2023 AND 2022
(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  86.6   86.6 
Pension and postretirement benefits, net of tax    1.6 1.6 
Net loss on derivative instruments, net of tax    (3.7)(3.7)
Foreign currency translation    2.7 2.7 
Cash dividends:     
     Common @ $0.40 per share
  (19.8)  (19.8)
Share-based compensation plans0.6 (18.0) 8.3  (9.1)
Stock options exercised1.9 17.5    19.4 
Balances at December 31, 2023$283.2 $327.9 $1,294.8 $(289.7)$(142.4)$1,473.8 

 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 loss  (0.6)  (0.6)
Pension and postretirement benefits, net of tax    2.1 2.1 
Net gain on derivative instruments, net of tax    1.2 1.2 
Foreign currency translation    3.6 3.6 
Cash dividends:     
     Common @ $0.40 per share
  (19.7)  (19.7)
Share-based compensation plans(5.0) 9.0  4.0 
Balances at December 31, 2022$280.1 $315.3 $1,190.7 $(298.4)$(166.6)$1,321.1 

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 six months ended December 31, 2023 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 $13.5 million and $14.0 million at December 31, 2023 and June 30, 2023, respectively, and are included in accrued liabilities on the consolidated balance sheets. Revenue recognized for the three and six months ended December 31, 2023 and 2022 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 six months ended December 31, 2023 and 2022 were as follows:
End-Use Market DataThree Months Ended December 31, 2023Three Months Ended December 31, 2022
($ in millions)SAOPEPIntersegmentTotalSAOPEPIntersegmentTotal
Aerospace and Defense$302.1 $25.7 $(6.8)$321.0 $263.5 $23.0 $(6.4)$280.1 
Medical65.5 32.4(10.2)87.7 49.5 32.9 (8.7)73.7 
Transportation34.9 2.3 37.2 40.1 1.6 (0.3)41.4 
Energy48.4 3.7 52.1 32.1 2.7  34.8 
Industrial and Consumer98.5 9.6(3.8)104.3 110.6 17.0 (7.9)119.7 
Distribution 22.0(0.1)21.9  29.5 (0.1)29.4 
Total net sales$549.4 $95.7 $(20.9)$624.2 $495.8 $106.7 $(23.4)$579.1 
Geographic DataThree Months Ended December 31, 2023Three Months Ended December 31, 2022
($ in millions)SAOPEPIntersegmentTotalSAOPEPIntersegmentTotal
United States$326.3 $53.9 $(6.2)$374.0 $303.0 $61.0 $(10.3)$353.7 
Europe91.9 18.6(4.0)106.5 71.0 19.4 (3.2)87.2 
Asia Pacific82.3 11.5(10.8)83.0 79.0 10.0 (9.8)79.2 
Mexico26.4 8.3(0.1)34.6 22.0 10.2  32.2 
Canada11.7 2.4 14.1 11.9 3.4 0.1 15.4 
Other10.8 1.00.2 12.0 8.9 2.7 (0.2)11.4 
Total net sales$549.4 $95.7 $(20.9)$624.2 $495.8 $106.7 $(23.4)$579.1 
10

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

End-Use Market DataSix Months Ended December 31, 2023Six Months Ended December 31, 2022
($ in millions)SAOPEPIntersegmentTotalSAOPEPIntersegmentTotal
Aerospace and Defense$634.1 $50.9 $(11.5)$673.5 $510.4 $43.8 $(12.4)$541.8 
Medical120.9 68.1(21.4)167.6 90.3 57.5 (14.9)132.9 
Transportation75.0 4.2 79.2 76.0 2.7 (0.4)78.3 
Energy91.5 5.20.1 96.8 58.7 4.1 (0.1)62.7 
Industrial and Consumer197.9 19.3(7.8)209.4 207.8 30.1 (13.3)224.6 
Distribution 49.7(0.1)49.6  61.8 (0.1)61.7 
Total net sales$1,119.4 $197.4 $(40.7)$1,276.1 $943.2 $200.0 $(41.2)$1,102.0 
Geographic DataSix Months Ended December 31, 2023Six Months Ended December 31, 2022
($ in millions)SAOPEPIntersegmentTotalSAOPEPIntersegmentTotal
United States$666.8 $112.0 $(11.4)$767.4 $574.3 $116.6 $(17.6)$673.3 
Europe186.8 35.4(8.3)213.9 149.9 35.2 (7.1)178.0 
Asia Pacific185.0 21.9(20.8)186.1 136.6 17.1 (16.4)137.3 
Mexico40.8 18.0 58.8 44.1 21.1  65.2 
Canada20.9 6.9 27.8 20.7 6.4  27.1 
Other19.1 3.2(0.2)22.1 17.6 3.6 (0.1)21.1 
Total net sales$1,119.4 $197.4 $(40.7)$1,276.1 $943.2 $200.0 $(41.2)$1,102.0 
11

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4.    Earnings (Loss) per Common Share
 
The Company calculates basic and diluted earnings (loss) per share using the two class method. Under the two class method, earnings (loss) 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 (loss) available to each class of stock are divided by the weighted average number of outstanding shares for the period in each class. Diluted earnings (loss) per share assumes the issuance of common stock for all potentially dilutive share equivalents outstanding. For the six months ended December 31, 2022, the Company incurred a net loss and accordingly excluded all potentially dilutive securities from the determination of diluted loss per share as their impact was anti-dilutive.

The calculations of basic and diluted earnings (loss) per common share for the three and six months ended December 31, 2023 and 2022 were as follows: 
Three Months Ended
December 31,
Six Months Ended
December 31,
(in millions, except per share data)2023202220232022
Net income (loss)$42.7 $6.2 $86.6 $(0.6)
Dividends allocated to participating securities(0.1)(0.1)(0.1)(0.2)
Earnings (loss) available for common stockholders used in calculation of basic earnings (loss) per common share$42.6 $6.1 $86.5 $(0.8)
Weighted average number of common shares outstanding, basic49.7 48.8 49.4 48.7 
Basic earnings (loss) per common share$0.86 $0.13 $1.75 $(0.02)
Net income (loss) $42.7 $6.2 $86.6 $(0.6)
Dividends allocated to participating securities(0.1)(0.1)(0.1)(0.2)
Earnings (loss) available for common stockholders used in calculation of diluted earnings (loss) per common share$42.6 $6.1 $86.5 $(0.8)
Weighted average number of common shares outstanding, basic49.7 48.8 49.4 48.7 
Effect of shares issuable under share-based compensation plans0.5 0.2 0.6  
Weighted average number of common shares outstanding, diluted50.2 49.0 50.0 48.7 
Diluted earnings (loss) per common share$0.85 $0.13 $1.73 $(0.02)
 
The following awards issued under share-based compensation plans were excluded from the above calculations of diluted earnings (loss) per share because their effects were anti-dilutive:

Three Months Ended
December 31,
Six Months Ended
December 31,
(in millions)2023202220232022
Stock options 1.7  1.8 
12

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5.    Inventories
 
Inventories consisted of the following components as of December 31, 2023 and June 30, 2023:
 
($ in millions)December 31,
2023
June 30,
2023
Raw materials and supplies$223.1 $157.7 
Work in process430.6 370.1 
Finished and purchased products144.1 111.9 
Total inventories$797.8 $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 December 31, 2023 and June 30, 2023, $155.3 million and $133.2 million of inventory, respectively, was accounted for using a method other than the LIFO inventory costing method.

6.    Accrued Liabilities
 
Accrued liabilities consisted of the following as of December 31, 2023 and June 30, 2023:
 
($ in millions)December 31,
2023
June 30,
2023
Accrued compensation and benefits$68.0 $92.4 
Accrued interest expense18.5 18.5 
Accrued postretirement benefits16.1 16.1 
Contract liabilities13.5 14.0 
Derivative financial instruments10.2 6.4 
Current portion of lease liabilities8.6 9.1 
Accrued taxes4.1 4.9 
Accrued pension liabilities3.3 3.3 
Accrued income taxes1.2 2.5 
Other14.9 14.1 
Total accrued liabilities$158.4 $181.3 

13

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7.    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 six months ended December 31, 2023 and 2022 were as follows:
 
Three Months Ended December 31,
2023202220232022
($ in millions)Pension PlansOther Postretirement Plans
Service cost$2.0 $2.0 $0.4 $0.5 
Interest cost11.8 11.5 2.5 2.4 
Expected return on plan assets(10.1)(11.2)(1.8)(1.7)
Amortization of net loss (gain)2.2 2.4 (0.6)(0.4)
Amortization of prior service cost (credits)0.5 0.5 (1.0)(1.0)
    Net pension expense (income)$6.4 $5.2 $(0.5)$(0.2)
Six Months Ended December 31,
2023202220232022
($ in millions)Pension PlansOther Postretirement Plans
Service cost$4.2 $4.0 $0.7 $1.0 
Interest cost23.6 23.0 5.0 4.8 
Expected return on plan assets(20.2)(22.4)(3.7)(3.4)
Amortization of net loss (gain)4.4 4.8 (1.2)(0.8)
Amortization of prior service cost (credits)1.0 1.0 (2.0)(2.1)
    Net pension expense (income)$13.0 $10.4 $(1.2)$(0.5)
During the six months ended December 31, 2023 and 2022, the Company made $4.8 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.
14

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8.    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 December 31, 2023, the Company had $1.7 million of issued letters of credit under the Credit Facility and $13.9 million of short-term borrowings. The balance of $334.4 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 December 31, 2023), and for Base Rate-determined loans, from 0.75% to 1.50% (0.75% as of December 31, 2023). The Company also pays a quarterly commitment fee ranging from 0.250% to 0.375% (0.250% as of December 31, 2023), 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 December 31, 2023), with respect to letters of credit issued under the Credit Facility. As of December 31, 2023, the borrowing rate for the Credit Facility was 7.10%.

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 thresholds 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, 2023, the Company was in compliance with all of the covenants of the Credit Facility.

Long-term debt outstanding as of December 31, 2023 and June 30, 2023 consisted of the following:
($ in millions)December 31,
2023
June 30,
2023
Senior unsecured notes, 6.375% due July 2028 (face value of $400.0 million at December 31, 2023 and June 30, 2023)
$396.9 $396.5 
Senior unsecured notes, 7.625% due March 2030 (face value of $300.0 million at December 31, 2023 and June 30, 2023)
296.7 296.5 
Total debt693.6 693.0 
Less: amounts due within one year  
Long-term debt, net of current portion$693.6 $693.0 
 
For the three months ended December 31, 2023 and 2022, interest costs totaled $13.3 million and $13.3 million, respectively, of which $0.3 million and $0.3 million, respectively, were capitalized as part of the cost of property, plant, equipment and software. For the six months ended December 31, 2023 and 2022, interest costs totaled $26.5 million and $26.1 million, respectively, of which $0.8 million and $0.5 million, respectively, were capitalized as part of the cost of property, plant, equipment and software.
15

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9.    Contingencies and Commitments

Environmental
 
The Company is 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 the Company's operations, compliance costs to date have not been material. The Company has environmental remediation liabilities at some of its owned operating facilities and has been designated as a potentially responsible party ("PRP") with respect to certain third party Superfund waste-disposal sites and other third party-owned sites. The Company accrues amounts for environmental remediation costs that represent management's best estimate of the probable and reasonably estimable future costs related to environmental remediation.

During the six months ended December 31, 2023, the Company increased the liability for environmental remediation costs by $0.4 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, 2023 and June 30, 2023 were $16.9 million and $16.5 million, respectively. Additionally, the Company has been notified that it may be a PRP with respect to other Superfund sites as to which no proceedings have been instituted against the Company. 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 the Company cannot reasonably estimate expected costs for such matters. The liability for future environmental remediation costs that can be reasonably estimated is evaluated by management on a quarterly basis. The Company accrues amounts for environmental remediation costs that represent management's best estimate of the probable and reasonably estimable future costs related to environmental remediation.

Estimates of the amount and timing of future costs of environmental remediation requirements are inherently imprecise because of the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the identification of currently unknown remediation sites and the allocation of costs among the PRPs. Based upon information currently available, such future costs are not expected to have a material effect on the Company's financial position, results of operations or cash flows over the long-term. However, such costs could be material to the Company's financial position, results of operations or cash flows in a particular future quarter or year.

Other
 
The Company is defending various routine claims and legal actions that are incidental to its business and common to its operations, including those pertaining to product claims, commercial disputes, patent infringement, employment actions, employee benefits, compliance with domestic and foreign laws and regulations, personal injury claims and tax issues. Like many other manufacturing companies in recent years, the Company, from time to time, has been named as a defendant in lawsuits alleging personal injury as a result of exposure to chemicals and substances in the workplace such as asbestos. The Company provides for costs relating to these matters when a loss is probable and the amount of the loss is reasonably estimable. The effect of the outcome of these matters on the Company's future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount and timing (both as to recording future charges to operations and cash expenditures) of the resolution of such matters. While it is not feasible to determine the outcome of these matters, management believes that the total liability from these matters will not have a material effect on the Company's financial position, results of operations or cash flows over the long-term. However, there can be no assurance that an increase in the scope of pending matters or that any future lawsuits, claims, proceedings or investigations will not be material to the Company's financial position, results of operations or cash flows in a particular future quarter or year.

16

CARPENTER TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10.    Fair Value Measurements
 
The fair value hierarchy has three levels based on the inputs used to determine fair value. Level 1 refers to quoted prices in active markets for identical assets or liabilities. Level 2 refers to observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 refers to unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. Currently, the Company does not use Level 1 and 3 inputs.

The following tables present the Company's assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy:

December 31, 2023Fair Value
Measurements Using
Input Type
($ in millions)Level 2
Assets: 
Derivative financial instruments$ 
Liabilities: 
Derivative financial instruments$11.5 
June 30, 2023Fair Value
Measurements Using
Input Type
($ in millions)Level 2
Assets: 
Derivative financial instruments$3.7 
Liabilities: 
Derivative financial instruments$6.8 
 
The Company's derivative financial instruments consist of commodity forward contracts and foreign currency forward contracts. These instrum