Carpenter(CRS) - 2025 Q4 - Annual Report

Part I Business Carpenter Technology manufactures specialty metals through SAO and PEP segments, serving diverse markets like aerospace and defense - The company is organized into two reportable business segments: Specialty Alloys Operations (SAO) and Performance Engineered Products (PEP)[13] - SAO comprises the company's major premium alloy and stainless steel manufacturing operations, managed in an integrated manner for efficiency[15] - PEP consists of differentiated operations, including the Dynamet titanium business, Carpenter Additive, and distribution businesses, managed with an entrepreneurial structure to respond quickly to market dynamics[16] - The business depends on critical raw materials such as nickel, cobalt, and titanium, with the company using pricing surcharges, indexing, and forward contracts to mitigate price volatility[17][18] - As of June 30, 2025, the company had approximately 4,500 employees, with collective bargaining agreements covering employees in Washington, PA (expiring Aug 2025) and Latrobe, PA (expiring July 2027)[35] Research & Development and Environmental Expenditures (FY2023-2025) | Expense Category | 2025 | 2024 | 2023 | | :--- | :--- | :--- | :--- | | R&D Expenditures | $26.1M | $25.6M | $24.4M | | Environmental Control Operating Costs | $18.0M | $17.4M | $15.7M | | Environmental Control Capital Expenditures | $1.1M | $0.7M | $0.3M | International Operations Data (FY2023-2025) | Metric | 2025 | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Sales Outside U.S. | $1,177.2M | $1,136.7M | $994.1M | | Long-Lived Assets Outside U.S. (Year-End) | $5.0M | $5.2M | N/A | Risk Factors The company faces risks from cyclical markets, raw material volatility, environmental regulations, operational disruptions, and cybersecurity threats - Demand in end-use markets is cyclical, particularly in commercial aerospace, defense, and energy, which can significantly affect financial results[40][41][42] - The company relies on third parties for critical raw materials like nickel, cobalt, and titanium, making it vulnerable to price volatility and supply disruptions[46][47] - Extensive environmental, health, and safety regulations create potential for significant liabilities from cleanup costs, fines, and third-party claims[51][52] - Manufacturing processes are complex and depend on critical, high-cost equipment, with significant production facilities concentrated in Pennsylvania and Alabama, increasing exposure to geographic-specific disruptions[58][59] - International operations expose the company to risks from tariffs, political instability, and currency fluctuations, alongside potential changes to U.S. trade policies[64][65] - The company is a regular target of cybersecurity threats, and a breach could lead to operational disruptions, theft of confidential data, and financial losses[68][69] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[72] Cybersecurity The company's cybersecurity program, aligned with NIST frameworks and overseen by the Audit/Finance Committee, has not materially impacted its business - The company's cybersecurity program is aligned with NIST standards and focuses on imperatives such as rapid response, identity management, and supply chain risk management[74][76] - The Audit/Finance Committee of the Board of Directors oversees cybersecurity risk, which is integrated into the company's Enterprise Risk Management (ERM) process[80] - A dedicated Chief Information Security Officer (CISO) with over 15 years of experience is responsible for the overall cybersecurity program[81] - As of the report date, the company is not aware of any risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect its business, operations, or financial condition[79] Properties The company owns principal manufacturing mills in PA and AL, with PEP facilities in PA, FL, and AL, and leases corporate offices - The principal locations of the SAO segment's integrated mills are in Reading, PA, Latrobe, PA, and Athens, AL, and these facilities are owned[83][84] - The PEP segment's main locations include facilities in Washington, PA, Clearwater, FL, and Athens, AL[83] - Corporate offices are leased and located in Philadelphia, Pennsylvania, and Raleigh, North Carolina[85] Legal Proceedings The company is involved in routine legal proceedings, including environmental remediation, not expected to materially impact its long-term financial position - The company has environmental remediation liabilities and has been designated as a Potentially Responsible Party (PRP) for certain Superfund and other waste disposal sites[87] - Based on current information, management does not expect the ultimate resolution of known contingencies to have a material adverse effect on the company's long-term financial position, cash flows, or results of operations[88] Mine Safety Disclosures This item is not applicable to the company - Not applicable[90] Executive Officers of the Registrant This section provides a list of the company's corporate executive officers, including their positions and tenure Executive Officers | Name | Age | Position | Assumed Present Position | | :--- | :--- | :--- | :--- | | Tony R. Thene | 64 | President and Chief Executive Officer | July 2015 | | Timothy Lain | 53 | Senior Vice President and Chief Financial Officer | August 2020 | | Brian J. Malloy | 58 | Senior Vice President and Chief Operating Officer | December 2023 | | James D. Dee | 68 | Senior Vice President, General Counsel and Secretary | August 2020 | | Marshall D. Akins | 42 | Vice President - Chief Commercial Officer | February 2022 | Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Carpenter Technology's common stock trades on NYSE, pays quarterly dividends, and has an active share repurchase program with $298.1 million remaining Quarterly Common Stock Price Range (NYSE) | Period Ended | Fiscal Year 2025 High | Fiscal Year 2025 Low | Fiscal Year 2024 High | Fiscal Year 2024 Low | | :--- | :--- | :--- | :--- | :--- | | September 30 | $166.51 | $103.37 | $71.19 | $51.94 | | December 31 | $198.24 | $144.76 | $74.06 | $60.38 | | March 31 | $213.66 | $165.14 | $71.65 | $58.87 | | June 30 | $279.51 | $138.61 | $112.75 | $70.19 | - The company paid a quarterly cash dividend of $0.20 per share of common stock during each quarter of fiscal years 2025 and 2024[99] - A share repurchase program of up to $400.0 million was authorized in July 2024, with $298.1 million remaining available for future purchases as of June 30, 2025[101] Share Repurchases for Quarter Ended June 30, 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | May 1-31, 2025 | 50,000 | $233.11 | | June 1-30, 2025 | 50,000 | $248.32 | | Total | 100,000 | $240.72 | Reserved This item is reserved and contains no information - Item 6 is reserved[108] Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2025 was a record year with $521.8 million operating income and $2.9 billion net sales, driven by SAO performance and strong market demand Business Trends Financial performance shows strong growth, with Aerospace and Defense sales increasing to 62% of total net sales in fiscal 2025 Selected Financial Results (FY2023-2025) | ($ in millions, except per share data) | 2025 | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Net sales | $2,877.1 | $2,759.7 | $2,550.3 | | Operating income | $521.8 | $323.1 | $133.1 | | Net income | $376.0 | $186.5 | $56.4 | | Diluted earnings per share | $7.42 | $3.70 | $1.14 | | Adjusted free cash flow | $287.5 | $179.0 | $(67.6) | Net Sales by End-Use Market (% of Total) | End-Use Market | 2025 | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Aerospace and Defense | 62% | 56% | 51% | | Medical | 12% | 14% | 12% | | Energy | 7% | 7% | 6% | | Transportation | 4% | 5% | 7% | | Industrial and Consumer | 12% | 15% | 19% | | Distribution | 3% | 3% | 5% | Results of Operations — Fiscal Year 2025 Compared to Fiscal Year 2024 Fiscal 2025 net income more than doubled to $376.0 million on 4% net sales growth, driven by strong market performance and improved margins FY2025 vs. FY2024 Performance Summary | Metric | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Net Income | $376.0M | $186.5M | | Diluted EPS | $7.42 | $3.70 | | Net Sales | $2,877.1M | $2,759.7M | | Operating Income | $521.8M | $323.1M | - Sales to the Aerospace and Defense market increased by 15% to $1,768.6 million, and sales to the Energy market increased by 8% to $200.3 million[133] - Gross profit increased to $768.6 million, or 26.7% of net sales, compared to $584.3 million, or 21.2% of net sales, in the prior year[138] - The effective tax rate for fiscal year 2025 was 19.5%, compared to 11.9% for fiscal year 2024[151] Business Segment Results (FY2025 vs. FY2024) SAO segment operating income increased 44% to $588.6 million on 5% sales growth, while PEP segment performance remained flat Segment Operating Income (FY2025 vs. FY2024) | Segment | FY2025 Operating Income | FY2024 Operating Income | % Change | | :--- | :--- | :--- | :--- | | Specialty Alloys Operations (SAO) | $588.6M | $408.5M | +44.1% | | Performance Engineered Products (PEP) | $37.0M | $36.0M | +2.8% | - SAO's net sales increased 5% to $2,563.6 million, while its operating margin expanded significantly to 23.0% from 16.7% in the prior year[159][160] - PEP's net sales decreased 1% to $405.4 million, with operating income remaining nearly flat compared to fiscal 2024[161][162] Results of Operations — Fiscal Year 2024 Compared to Fiscal Year 2023 Fiscal 2024 net income surged to $186.5 million on 8% net sales growth, driven by strong market demand and operational efficiencies FY2024 vs. FY2023 Performance Summary | Metric | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net Income | $186.5M | $56.4M | | Diluted EPS | $3.70 | $1.14 | | Net Sales | $2,759.7M | $2,550.3M | | Operating Income | $323.1M | $133.1M | - Sales growth was strong in key markets: Aerospace and Defense (+19%), Medical (+25%), and Energy (+14%)[167] - Gross profit margin improved to 21.2% in FY2024 from 13.2% in FY2023[173] - Special items in FY2024 included a $14.1M goodwill impairment charge, $16.9M in restructuring charges, and a $51.9M noncash pension settlement charge[164] Liquidity and Financial Resources Fiscal 2025 saw improved liquidity with $440.4 million cash from operations and $664.4 million total liquidity, with capital expenditures projected to increase in fiscal 2026 Cash Flow and Liquidity Summary | ($ in millions) | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Cash from Operating Activities | $440.4 | $274.9 | | Adjusted Free Cash Flow | $287.5 | $179.0 | | Capital Expenditures | $154.3 | $96.6 | | Total Liquidity (at year-end) | $664.4 | N/A | - Capital expenditures are expected to be in the range of $280.0 million to $300.0 million in fiscal year 2026[199] - During fiscal year 2025, the company repurchased 575,000 shares of common stock for $101.9 million and paid dividends of $40.3 million[200] - As of June 30, 2025, the company was in compliance with all financial covenants under its Credit Facility, with a consolidated interest coverage ratio of 14.37 to 1.00 (minimum 3.00) and a net leverage ratio of 0.86 to 1.00 (maximum 4.00)[208][209] Quantitative and Qualitative Disclosures about Market Risk The company manages market risks from commodity prices, energy costs, and currency fluctuations using non-speculative derivative financial instruments - The company uses commodity forward contracts to reduce the risk of profit margin fluctuations on firm price sales arrangements due to volatile raw material prices[250] - Foreign currency forward contracts are used to hedge certain foreign exchange risks associated with international operations and customer transactions[252] - All hedging strategies are reviewed and approved by senior financial management, and the use of speculative or leveraged derivatives is prohibited[254] Financial Statements and Supplementary Data This section provides the company's audited consolidated financial statements, including statements of operations, balance sheets, and cash flows, with accompanying notes and auditor reports Consolidated Statement of Operations Highlights (FY2025) | ($ in millions) | 2025 | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Net sales | $2,877.1 | $2,759.7 | $2,550.3 | | Gross profit | $768.6 | $584.3 | $337.3 | | Operating income | $521.8 | $323.1 | $133.1 | | Net income | $376.0 | $186.5 | $56.4 | Consolidated Balance Sheet Highlights (June 30, 2025) | ($ in millions) | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Total Current Assets | $1,764.7 | $1,591.2 | | Total Assets | $3,486.8 | $3,291.7 | | Total Current Liabilities | $483.7 | $466.3 | | Total Liabilities | $1,599.8 | $1,662.9 | | Total Stockholders' Equity | $1,887.0 | $1,628.8 | Consolidated Statement of Cash Flows Highlights (FY2025) | ($ in millions) | 2025 | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Net cash provided from operating activities | $440.4 | $274.9 | $14.7 | | Net cash used for investing activities | $(152.9) | $(95.9) | $(82.3) | | Net cash used for financing activities | $(167.1) | $(23.3) | $(40.1) | | Increase (Decrease) in Cash | $116.4 | $154.6 | $(109.7) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[476] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2025, with no material changes - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[477] - There were no changes in the company's internal control over financial reporting during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, these controls[479] Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the fourth quarter of fiscal 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[480] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[482] Part III Directors, Executive Officers and Corporate Governance Information on executive officers, directors, and corporate governance is incorporated by reference from the fiscal year 2025 Proxy Statement - Required information for this item is incorporated by reference from the Company's fiscal year 2025 definitive Proxy Statement[483] Executive Compensation Executive compensation information, including discussion and analysis, is incorporated by reference from the fiscal year 2025 Proxy Statement - Required information for this item is incorporated by reference from the Company's fiscal year 2025 definitive Proxy Statement[484] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference, with 3,283,169 securities available for future issuance under equity compensation plans Equity Compensation Plan Information as of June 30, 2025 | Plan Category | Securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 273,991 | $44.76 | 3,283,169 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 273,991 | $44.76 | 3,283,169 | Certain Relationships, Related Transactions and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the fiscal year 2025 Proxy Statement - Required information for this item is incorporated by reference from the Company's fiscal year 2025 definitive Proxy Statement[486] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the fiscal year 2025 Proxy Statement - Required information for this item is incorporated by reference from the Company's fiscal year 2025 definitive Proxy Statement[486] Part IV Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, including consolidated financial statements and Schedule II - The consolidated financial statements are included in Item 8 of the report[487] - Schedule II — Valuation and Qualifying Accounts is included and should be read with the consolidated financial statements[487] Form 10-K Summary No summary is provided under this item - None[494]