10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2017

or

o 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, Pennsylvania	19103
(Address of principal executive offices)	(Zip Code)

610-208-2000

(Registrant’s telephone number, including area code)

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 x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.  Yes x  No o

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:	x		Accelerated filer:	o
Non-accelerated filer:	o	(Do not check if a smaller reporting company)	Smaller reporting company:	o
			Emerging growth company	o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

The number of shares outstanding of the issuer’s common stock as of January 25, 2018 was 46,916,395.

CARPENTER TECHNOLOGY CORPORATION

FORM 10-Q

INDEX

			Page
PART I	FINANCIAL INFORMATION
	Item 1	Financial Statements
		Consolidated Balance Sheets (unaudited) as of December 31, 2017 and June 30, 2017	3
		Consolidated Statements of Income (unaudited) for the Three Months and Six Months Ended December 31, 2017 and 2016	4
		Consolidated Statements of Comprehensive Income (unaudited) for the Three Months and Six Months Ended December 31, 2017 and 2016	5
		Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended December 31, 2017 and 2016	6
		Consolidated Statements of Changes in Equity (unaudited) for the Six Months Ended December 31, 2017 and 2016	7
		Notes to the Consolidated Financial Statements (unaudited)	8
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3	Quantitative and Qualitative Disclosures About Market Risk	46
	Item 4	Controls and Procedures	47
PART II	OTHER INFORMATION
	Item 1	Legal Proceedings	47
	Item 1A	Risk Factors	47
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	47
	Item 6	Exhibits	48
		Signature	49

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CARPENTER TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

($ in millions, except share data)

	December 31, 2017			June 30, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	20.7		$	66.3
Accounts receivable, net	297.2			290.4
Inventories	771.8			690.4
Other current assets	69.8			46.5
Total current assets	1,159.5			1,093.6
Property, plant and equipment, net	1,298.7			1,316.8
Goodwill	263.4			263.4
Other intangibles, net	61.6			64.9
Deferred income taxes	4.1			7.6
Other assets	156.8			131.8
Total assets	$	2,944.1		$	2,878.1
LIABILITIES
Current liabilities:
Short-term credit agreement borrowings	$	9.3		$	—
Current portion of long-term debt	55.0			55.0
Accounts payable	205.1			201.1
Accrued liabilities	118.4			139.9
Total current liabilities	387.8			396.0
Long-term debt, net of current portion	548.3			550.0
Accrued pension liabilities	369.7			378.3
Accrued postretirement benefits	123.4			122.6
Deferred income taxes	128.1			184.8
Other liabilities	50.0			47.8
Total liabilities	1,607.3			1,679.5
Contingencies and commitments (see Note 8)
STOCKHOLDERS’ EQUITY
Common stock — authorized 100,000,000 shares; issued 55,450,861 shares at December 31, 2017 and 55,349,658 shares at June 30, 2017; outstanding 46,894,896 shares at December 31, 2017 and 46,753,180 shares at June 30, 2017	277.3			276.7
Capital in excess of par value	294.4			284.8
Reinvested earnings	1,420.1			1,321.8
Common stock in treasury (8,555,965 shares and 8,596,478 shares at December 31, 2017 and June 30, 2017, respectively), at cost	(339.9		)	(341.6		)
Accumulated other comprehensive loss	(315.1		)	(343.1		)
Total stockholders' equity	1,336.8			1,198.6
Total liabilities and stockholders' equity	$	2,944.1		$	2,878.1

See accompanying notes to consolidated financial statements.

3

CARPENTER TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

($ in millions, except per share data)

	Three Months Ended December 31,						Six Months Ended December 31,
	2017			2016			2017			2016
Net sales	$	487.8		$	427.4		$	967.5		$	816.3
Cost of sales	402.1			364.9			796.2			707.8
Gross profit	85.7			62.5			171.3			108.5
Selling, general and administrative expenses	44.9			47.1			88.8			91.7
Operating income	40.8			15.4			82.5			16.8
Interest expense	(7.3		)	(7.4		)	(14.5		)	(14.8		)
Other income, net	0.2			0.3			0.9			1.0
Income before income taxes	33.7			8.3			68.9			3.0
Income tax (benefit) expense	(58.4		)	1.3			(46.6		)	2.2
Net income	$	92.1		$	7.0		$	115.5		$	0.8
EARNINGS PER COMMON SHARE:
Basic	$	1.93		$	0.15		$	2.43		$	0.01
Diluted	$	1.92		$	0.15		$	2.41		$	0.01
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic	47.2			47.0			47.1			47.0
Diluted	47.6			47.1			47.5			47.1
Cash dividends per common share	$	0.18		$	0.18		$	0.36		$	0.36

See accompanying notes to consolidated financial statements.

4

CARPENTER TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

($ in millions)

	Three Months Ended December 31,						Six Months Ended December 31,
	2017			2016			2017		2016
Net income	$	92.1		$	7.0		$	115.5	$	0.8
Other comprehensive income, net of tax
Pension and postretirement benefits, net of tax of $(0.8), $(3.5), $(2.1) and $(14.0), respectively	2.5			5.7			4.6		23.1
Net gain on derivative instruments, net of tax of $(5.6), $(2.4), $(10.4) and $(8.8), respectively	15.0			3.8			23.1		14.6
Foreign currency translation	(1.5		)	(4.0		)	0.3		(4.7		)
Other comprehensive income	16.0			5.5			28.0		33.0
Comprehensive income	$	108.1		$	12.5		$	143.5	$	33.8

See accompanying notes to consolidated financial statements.

5

CARPENTER TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

($ in millions)

	Six Months Ended December 31,
	2017			2016
OPERATING ACTIVITIES
Net income	$	115.5		$	0.8
Adjustments to reconcile net income to net cash provided from (used for) operating activities:
Depreciation and amortization	58.0			58.7
Deferred income taxes	(66.2		)	39.1
Net pension expense	7.1			31.0
Share-based compensation expense	8.1			6.5
Loss on disposals of property and equipment	0.4			0.3
Changes in working capital and other:
Accounts receivable	(3.8		)	0.8
Inventories	(81.5		)	(74.2		)
Other current assets	(17.6		)	(5.6		)
Accounts payable	11.8			17.2
Accrued liabilities	(6.2		)	4.0
Pension plan contributions	(4.9		)	(100.0		)
Other postretirement plan contributions	(1.8		)	(1.8		)
Other, net	(1.6		)	(2.2		)
Net cash provided from (used for) operating activities	17.3			(25.4		)
INVESTING ACTIVITIES
Purchases of property, equipment and software	(55.7		)	(45.1		)
Net cash used for investing activities	(55.7		)	(45.1		)
FINANCING ACTIVITIES
Credit agreement borrowings	—			80.0
Credit agreement repayments	—			(55.0		)
Net change in short-term credit agreement borrowings	9.3			—
Dividends paid	(17.2		)	(17.0		)
Tax benefits on share-based compensation	—			0.3
Proceeds from stock options exercised	3.5			1.8
Withholding tax payments on share-based compensation awards	(0.6		)	(0.4		)
Net cash (used for) provided from financing activities	(5.0		)	9.7
Effect of exchange rate changes on cash and cash equivalents	(2.2		)	1.3
DECREASE IN CASH AND CASH EQUIVALENTS	(45.6		)	(59.5		)
Cash and cash equivalents at beginning of period	66.3			82.0
Cash and cash equivalents at end of period	$	20.7		$	22.5
SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash investing activities:
Acquisition of property, equipment and software	$	5.8		$	6.0

See accompanying notes to consolidated financial statements.

6

CARPENTER TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDEDDECEMBER 31, 2017 AND 2016

(Unaudited)

($ in millions, except per share data)

	Common Stock				Reinvested Earnings			Common Stock in Treasury			Accumulated Other Comprehensive (Loss) Income			Total Equity
	Par Value of $5		Capital in Excess of Par Value
Balances at June 30, 2017	$	276.7	$	284.8	$	1,321.8		$	(341.6	)	$	(343.1	)	$	1,198.6
Net income					115.5									115.5
Pension and postretirement benefits gain, net of tax											4.6			4.6
Net gain on derivative instruments, net of tax											23.1			23.1
Foreign currency translation											0.3			0.3
Cash Dividends:														0
Common @ $0.36 per share					(17.2		)							(17.2		)
Share-based compensation plans			6.7					1.7						8.4
Stock options exercised	0.6		2.9											3.5
Balances at December 31, 2017	$	277.3	$	294.4	$	1,420.1		$	(339.9	)	$	(315.1	)	$	1,336.8

	Common Stock				Reinvested Earnings			Common Stock in Treasury			Accumulated Other Comprehensive (Loss) Income			Total Equity
	Par Value of $5		Capital in Excess of Par Value
Balances at June 30, 2016	$	276.3	$	273.5	$	1,308.9		$	(343.9	)	$	(409.9	)	$	1,104.9
Net income					0.8									0.8
Pension and postretirement benefits gain, net of tax											23.1			23.1
Net gain on derivative instruments, net of tax											14.6			14.6
Foreign currency translation											(4.7		)	(4.7		)
Cash Dividends:														0
Common @ $0.36 per share					(17.0		)							(17.0		)
Share-based compensation plans			5.0					1.5						6.5
Stock options exercised	0.4		1.4											1.8
Tax windfall on share-based compensation			0.3											0.3
Balances at December 31, 2016	$	276.7	$	280.2	$	1,292.7		$	(342.4	)	$	(376.9	)	$	1,130.3

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 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, 2017 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’s annual report on Form 10-K for the fiscal year ended June 30, 2017 (the “2017 Form 10-K”). Operating results for the three and six months ended December 31, 2017 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”, the “Company”, “Registrant”, “Issuer”, “we” and “our” refer to Carpenter Technology Corporation.

During the six months ended December 31, 2017, the Company changed the presentation of borrowings and repayments made under its revolving credit facility in the consolidated statements of cash flows. Prior year amounts have been reclassified to conform to the six months ended December 31, 2017 presentation.

2. Acquisition and Divestiture

On February 28, 2017, the Company acquired substantially all the assets of Puris LLC (“Puris”), for a cash purchase price of $35.3 million. The acquisition provides the Company with immediate entry into the rapidly growing titanium powder market, an expanded presence in additive manufacturing and strengthens the Company’s capabilities as a solutions provider for customers across its end-use markets.  The purchase price allocation resulted in the purchase price being allocated as follows: $1.7 million of working capital, $6.5 million of property and equipment, $8.5 million of identifiable intangible assets and $18.6 million to goodwill.

In the fourth quarter of fiscal year 2017, the Company divested its Specialty Steel Supply (“SSS”) business. The divestiture was completed in two separate transactions for total cash proceeds of $12.0 million. The operations of the SSS business were historically included in the Performance Engineered Products (“PEP”) segment. The Company does not have any significant continuing involvement in the operations of SSS after the divestiture.

3. 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.

8

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The calculations of basic and diluted earnings per common share for the three and six months ended December 31, 2017 and 2016 were as follows: 

	Three Months Ended December 31,						Six Months Ended December 31,
(in millions, except per share data)	2017			2016			2017			2016
Net income	$	92.1		$	7.0		$	115.5		$	0.8
Less: earnings and dividends allocated to participating securities	(0.9		)	(0.1		)	(1.0		)	(0.1		)
Earnings available for common stockholders used in calculation of basic earnings per common share	$	91.2		$	6.9		$	114.5		$	0.7
Weighted average number of common shares outstanding, basic	47.2			47.0			47.1			47.0
Basic earnings per common share	$	1.93		$	0.15		$	2.43		$	0.01
Net income	$	92.1		$	7.0		$	115.5		$	0.8
Less: earnings and dividends allocated to participating securities	(0.9		)	(0.1		)	(1.0		)	(0.1		)
Earnings available for common stockholders used in calculation of diluted earnings per common share	$	91.2		$	6.9		$	114.5		$	0.7
Weighted average number of common shares outstanding, basic	47.2			47.0			47.1			47.0
Effect of shares issuable under share-based compensation plans	0.4			0.1			0.4			0.1
Weighted average number of common shares outstanding, diluted	47.6			47.1			47.5			47.1
Diluted earnings per common share	$	1.92		$	0.15		$	2.41		$	0.01

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 December 31,		Six Months Ended December 31,
(in millions)	2017	2016	2017	2016
Stock options	0.6	2.0	0.8	1.8

9

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4. Inventories

Inventories consisted of the following components as of December 31, 2017 and June 30, 2017:

($ in millions)	December 31, 2017		June 30, 2017
Raw materials and supplies	$	186.1	$	152.8
Work in process	395.5		365.6
Finished and purchased products	190.2		172.0
Total inventory	$	771.8	$	690.4

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 also uses the first-in, first-out (“FIFO”) and average cost methods. As of December 31, 2017 and June 30, 2017, $128.8 million and $107.3 million of inventory, respectively, was accounted for using a method other than the LIFO inventory costing method.

5. Accrued Liabilities

Accrued liabilities consisted of the following as of December 31, 2017 and June 30, 2017:

($ in millions)	December 31, 2017		June 30, 2017
Accrued compensation and benefits	$	52.6	$	59.1
Accrued postretirement benefits	15.5		15.5
Accrued interest expense	11.2		11.2
Deferred revenue	10.7		9.8
Derivative financial instruments	2.9		13.1
Other	25.5		31.2
Total accrued liabilities	$	118.4	$	139.9

10

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6. Pension and Other Postretirement Benefits

The components of the net periodic benefit cost related to the Company’s pension and other postretirement benefits for the three and six months ended December 31, 2017 and 2016 were as follows:

Three months ended December 31,	Pension Plans						Other Postretirement Plans
($ in millions)	2017			2016			2017			2016
Service cost	$	2.4		$	7.7		$	0.7		$	0.9
Interest cost	13.0			12.4			2.4			2.3
Expected return on plan assets	(16.5		)	(16.6		)	(1.7		)	(1.7		)
Amortization of net loss	3.4			9.5			0.7			0.8
Amortization of prior service cost (benefit)	0.5			0.5			(1.3		)	(1.6		)
Net periodic benefit costs	$	2.8		$	13.5		$	0.8		$	0.7

Six months ended December 31,	Pension Plans						Other Postretirement Plans
($ in millions)	2017			2016			2017			2016
Service cost	$	4.7		$	16.0		$	1.3		$	1.8
Interest cost	26.1			25.3			4.8			4.6
Expected return on plan assets	(33.0		)	(31.9		)	(3.5		)	(3.4		)
Amortization of net loss	6.8			18.9			1.5			1.6
Amortization of prior service cost (benefit)	1.0			0.8			(2.6		)	(3.2		)
Curtailment charge	—			0.5			—			—
Net periodic benefit costs	$	5.6		$	29.6		$	1.5		$	1.4

In September 2016, the Company announced changes to retirement plans it offers to certain employees. Benefits accrued to eligible participants of its largest qualified defined benefit pension plan and certain non-qualified benefit plans were frozen effective December 31, 2016.  The Company recognized the plan freeze in the three months ended September 30, 2016 as a curtailment, since the plan changes eliminated the accrual of defined benefits for future services for a significant number of participants. The impact of the curtailment included a one-time accelerated recognition of outstanding unamortized prior service costs of $0.5 million, which was recognized in the three months ended September 30, 2016.

During the six months ended December 31, 2017 and 2016, the Company made $4.9 million and $100.0 million, respectively, of contributions to its qualified defined benefit pension plans. The Company currently expects to contribute $1.8 million to its qualified defined benefit pension plans during the remainder of fiscal year 2018.

7. Debt

On March 31, 2017, the Company entered into a $400.0 million unsecured revolving credit facility (“Credit Agreement”) that extends to March 2022. Interest on the borrowings under the Credit Agreement accrue at variable rates, based upon LIBOR or a defined “Base Rate,” both are determined based upon the rating of the Company’s senior unsecured long-term debt (the “Debt Rating”). The applicablemargin to be added to LIBOR ranges from 1.00% to 1.75% (1.50% as of December 31, 2017), and for Base Rate-determined loans, from 0.00% to 0.75% (0.50% as of December 31, 2017). The Company also pays a quarterly commitment fee ranging from 0.125% to 0.400% (0.275% as of December 31, 2017), determined based upon the Debt Rating, of the unused portion of the $400.0 million commitment under the Credit Agreement. In addition, the Company must pay certain letter of credit fees, ranging from 1.00% to 1.75% (1.50% as of December 31, 2017), with respect to letters of credit issued under the Credit Agreement. The Company has the right to voluntarily prepay and re-borrow loans and to terminate or reduce the commitments under the facility. As of December 31, 2017, the Company had $6.0 million of issued letters of credit and $9.3 million of borrowings under the Credit Agreement with the balance of $384.7 million available to the Company.

11

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company is subject to certain financial and restrictive covenants under the Credit Agreement, which, among other things, require the maintenance of a minimum interest coverage ratio of 3.50 to 1.00. The interest coverage ratio is defined in the Credit Agreement as, for any period, the ratio of consolidated earnings before interest, taxes, depreciation and amortization and non-cash net pension expense (“EBITDA”) to consolidated interest expense for such period. The Credit Agreement also requires the Company to maintain a debt to capital ratio of less than 55 percent. The debt to capital ratio is defined in the Credit Agreement as the ratio of consolidated indebtedness, as defined therein, to consolidated capitalization, as defined therein. As of December 31, 2017 and June 30, 2017, the Company was in compliance with all of the covenants of the Credit Agreement.

Long-term debt outstanding as of December 31, 2017 and June 30, 2017 consisted of the following:

($ in millions)	December 31, 2017		June 30, 2017
Medium-term notes, Series B at 6.97% to 7.10% due from April 2018 to May 2018 (face value of $55.0 million at December 31, 2017 and June 30, 2017)	$	55.0	$	55.0
Senior unsecured notes, 5.20% due July 2021 (face value of $250.0 million at December 31, 2017 and June 30, 2017)	249.3		251.2
Senior unsecured notes, 4.45% due March 2023 (face value of $300.0 million at December 31, 2017 and June 30, 2017)	299.0		298.8
Total	603.3		605.0
Less: amounts due within one year	55.0		55.0
Long-term debt, net of current portion	$	548.3	$	550.0

For the three months ended December 31, 2017 and 2016, interest costs totaled $7.9 million and $7.7 million, respectively, of which $0.6 million and $0.3 million, respectively, were capitalized as part of the cost of property, equipment and software. For the six months ended December 31, 2017 and 2016, interest costs totaled $15.6 million and $15.3 million, respectively, of which $1.1 million and $0.5 million, respectively, were capitalized as part of the cost of property, equipment and software.

8. 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, 2017, the Company increased the liability for a Company-owned former operating site by $0.1 million. The liabilities recorded for environmental remediation costs at Superfund sites, other third party-owned sites and Carpenter-owned current or former operating facilities remaining at December 31, 2017 and June 30, 2017 were $16.2 million and $16.1 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.

12

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 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.

9. 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 or liabilities in active markets; quoted prices for identical or similar assets or 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 or 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.

13

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2017	Fair Value Measurements Using Input Type
($ in millions)	Level 2
Assets:
Marketable securities:
Municipal auction rate securities	$	3.5
Derivative financial instruments	31.7
Total assets	$	35.2
Liabilities:
Derivative financial instruments	$	4.1

June 30, 2017	Fair Value Measurements Using Input Type
($ in millions)	Level 2
Assets:
Marketable securities:
Municipal auction rate securities	$	3.4
Derivative financial instruments	14.5
Total assets	$	17.9
Liabilities:
Derivative financial instruments	$	19.1

The Company’s derivative financial instruments consist of commodity forward contracts, foreign currency forward contracts and interest rate swaps. These instruments are measured at fair value using the market method valuation technique. The inputs to this technique utilize information related to foreign exchange rates, commodity prices and interest rates published by third party leading financial news and data providers. This is observable data; however, the valuation of these instruments is not based on actual transactions for the same instruments and, as such, they are classified as Level 2. The Company’s use of derivatives and hedging policies are more fully discussed in Note 10.

The Company has currently chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States of America.

The carrying amounts of other financial instruments not listed in the table below approximate fair value due to the short-term nature of these items. The carrying amounts and estimated fair values of the Company’s financial instruments not recorded at fair value in the financial statements were as follows:

	December 31, 2017				June 30, 2017
($ in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current portion	$	603.3	$	622.0	$	605.0	$	622.5
Company-owned life insurance	$	16.0	$	16.0	$	15.9	$	15.9

14

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The carrying amount of company-owned life insurance reflects cash surrender values based upon the market values of underlying securities, using Level 2 inputs, net of any outstanding policy loans. The carrying value associated with the cash surrender value of these policies is recorded in other assets in the accompanying consolidated balance sheets.

The fair values of long-term debt as of December 31, 2017 and June 30, 2017 were determined by using current interest rates for debt with terms and maturities similar to the Company’s existing debt arrangements and accordingly would be classified as Level 2 inputs in the fair value hierarchy.

10. Derivatives and Hedging Activities

The Company uses commodity forwards, interest rate swaps, forward interest rate swaps and foreign currency forwards to manage risks generally associated with commodity price, interest rate and foreign currency rate fluctuations. The following explains the various types of derivatives and includes a recap about the impact the derivative instruments had on the Company’s financial position, results of operations and cash flows.

Cash Flow Hedging — Commodity forward contracts: The Company enters into commodity forward contracts to fix the price of a portion of anticipated future purchases of certain critical raw materials and energy to manage the risk of cash flow variability associated with volatile commodity prices. The commodity forward contracts have been designated as cash flow hedges. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in accumulated other comprehensive income (loss) (“AOCI”) to the extent effective, and reclassified to cost of sales in the period during which the hedged transaction affects earnings or it becomes probable that the forecasted transaction will not occur. As of December 31, 2017, the Company had forward contracts to purchase 21.0 million pounds of certain raw materials with settlement dates through December 2023.

Cash Flow Hedging — Forward interest rate swaps: Historically, the Company has entered into forward interest rate swap contracts to manage the risk of cash flow variability associated with fixed interest debt expected to be issued. The forward interest rate swaps were designated as cash flow hedges. The qualifying hedge contracts were marked-to-market at each reporting date and any unrealized gains or losses were included in AOCI to the extent effective, and reclassified to interest expense in the period during which the hedged transaction affected earnings or it became probable that the forecasted transaction would not occur.  Upon the issuance of the fixed rate debt, the forward interest rate swap contracts were terminated. The realized gains at the time the interest rate swap contracts were terminated are being amortized over the term of the underlying debt. For the three months ended December 31, 2017 and 2016, net gains of $0.1 million and $0.1 million, respectively, related to the previously terminated contracts were recorded as a reduction to interest expense. For the six months ended December 31, 2017 and 2016, net gains of $0.2 million and $0.2 million, respectively, related to the previously terminated contracts were recorded as a reduction to interest expense.

Cash Flow Hedging — Foreign currency forward contracts: The Company uses foreign currency forward contracts to hedge a portion of anticipated future sales denominated in foreign currencies, principally the Euro and Pound Sterling, in order to offset the effect of changes in exchange rates. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective, and reclassified to net sales in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.

The Company also uses foreign currency forward contracts to protect certain short-term asset positions denominated in foreign currencies against the effect of changes in exchange rates. These positions do not qualify for hedge accounting and accordingly are marked-to-market at each reporting date through charges to other income and expense. As of December 31, 2017 and June 30, 2017, the fair value of the outstanding foreign currency forwards not designated as hedging instruments and the charges to income for changes in fair value for these contracts were not material.

15

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Fair Value Hedging - Interest rate swaps: The Company uses interest rate swaps to achieve a level of floating rate debt relative to fixed rate debt where appropriate. The Company has designated fixed to floating interest rate swaps as fair value hedges. Accordingly, the changes in the fair value of these instruments are immediately recorded in earnings. The mark-to-market values of both the fair value hedging instruments and the underlying debt obligations are recorded as equal and offsetting gains and losses in interest expense in the consolidated statements of income. As of December 31, 2017 and June 30, 2017, the total notional amount of floating interest rate contracts was $150.0 million. For the three months ended December 31, 2017 and 2016, net gains of $0.2 million and $0.5 million, respectively, were recorded as a reduction to interest expense. For the six months ended December 31, 2017 and 2016, net gains of $0.4 million and $0.9 million, respectively, were recorded as a reduction to interest expense.

The fair value and location of outstanding derivative contracts recorded in the accompanying consolidated balance sheets were as follows as of December 31, 2017 and June 30, 2017:

December 31, 2017	Interest Rate Swaps		Foreign Currency Contracts		Commodity Contracts		Total Derivatives
($ in millions)
Asset Derivatives:
Derivatives designated as hedging instruments:
Other current assets	$	0.5	$	—	$	12.7	$	13.2
Other assets	0.6		—		17.9		18.5
Total asset derivatives	$	1.1	$	—	$	30.6	$	31.7
Liability Derivatives:
Derivatives designated as hedging instruments:
Accrued liabilities	$	—	$	1.3	$	1.6	$	2.9
Other liabilities	0.9		—		0.3		1.2
Total liability derivatives	$	0.9	$	1.3	$	1.9	$	4.1

June 30, 2017	Interest Rate Swaps		Foreign Currency Contracts		Commodity Contracts		Total Derivatives
($ in millions)
Asset Derivatives:
Derivatives designated as hedging instruments:
Other current assets	$	0.6	$	0.2	$	6.4	$	7.2
Other assets	1.6		—		5.7		7.3
Total asset derivatives	$	2.2	$	0.2	$	12.1	$	14.5
Liability Derivatives:
Derivatives designated as hedging instruments:
Accrued liabilities	$	—	$	1.0	$	12.1	$	13.1
Other liabilities	—		—		6.0		6.0
Total liability derivatives	$	—	$	1.0	$	18.1	$	19.1

Substantially all of the derivative contracts are subject to master netting arrangements, or similar agreements with each counterparty, which provide for the option to settle contracts on a net basis when they settle on the same day and in the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event. The Company presents the outstanding derivative contracts on a net basis by counterparty in the consolidated balance sheets. If the Company had chosen to present the derivative contracts on a gross basis, the total asset derivatives would have been $33.6 million and total liability derivatives would have been $6.0 million as of December 31, 2017.

16

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

According to the provisions of the Company’s derivative arrangements, in the event that the fair value of outstanding derivative positions with certain counterparties exceeds certain thresholds, the Company may be required to issue cash collateral to the counterparties. As of December 31, 2017 and June 30, 2017, the Company had no cash collateral held by counterparties.

The Company is exposed to credit loss in the event of nonperformance by counterparties on its derivative instruments as well as credit or performance risk with respect to its customer commitments to perform. Although nonperformance is possible, the Company does not anticipate nonperformance by any of the parties. In addition, various master netting arrangements are in place with counterparties to facilitate settlements of gains and losses on these contracts.

17

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings or it becomes probable the forecasted transactions will not occur. The following is a summary of the gains (losses) related to cash flow hedges recognized during the three and six months ended December 31, 2017 and 2016:

	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
	Three Months Ended December 31,						Six Months Ended December 31,
($ in millions)	2017			2016			2017			2016
Derivatives in Cash Flow Hedging Relationship:
Commodity contracts	$	20.7		$	(22.5	)	$	30.3		$	(15.4	)
Foreign exchange contracts	(0.3		)	0.6			(0.7		)	0.6
Total	$	20.4		$	(21.9	)	$	29.6		$	(14.8	)

($ in millions)	Location of (Loss) Gain Reclassified from AOCI into Income	Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)						Amount of (Loss) Gain  Reclassified from AOCI into Income (Ineffective Portion)
		Three Months Ended December 31,						Three Months Ended December 31,
		2017			2016			2017		2016
Derivatives in Cash Flow Hedging Relationship:
Commodity contracts	Cost of sales	$	(0.2	)	$	(7.9	)	$	—	$	—
Foreign exchange contracts	Net sales	(0.1		)	0.5			—		—
Forward interest rate swaps	Interest expense	0.1			0.1			—		—
Total		$	(0.2	)	$	(7.3	)	$	—	$	—

($ in millions)	Location of (Loss) Gain Reclassified from AOCI into Income	Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)						Amount of (Loss) Gain Reclassified from AOCI into Income (Ineffective Portion)
		Six Months Ended December 31,						Six Months Ended December 31,
		2017			2016			2017			2016
Derivatives in Cash Flow Hedging Relationship:
Commodity contracts	Cost of sales	$	(2.8	)	$	(18.0	)	$	(0.8	)	$	0.5
Foreign exchange contracts	Net sales	(0.5		)	0.6			—			—
Forward interest rate swaps	Interest expense	0.2			0.2			—			—
Total		$	(3.1	)	$	(17.2	)	$	(0.8	)	$	0.5

The Company estimates that $10.5 million of net derivative gains included in AOCI as of December 31, 2017 will be reclassified into income within the next 12 months. No significant cash flow hedges were discontinued during the three and six months ended December 31, 2017.

18

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11. Other Income, Net

Other income, net consisted of the following:

	Three Months Ended December 31,						Six Months Ended December 31,
($ in millions)	2017			2016			2017			2016
Foreign exchange loss	$	(0.9	)	$	(0.2	)	$	(0.8	)	$	(0.2	)
Unrealized gains on company-owned life insurance contracts and investments held in rabbi trusts	0.9			0.3			1.4			0.8
Other	0.2			0.2			0.3			0.4
Total other income, net	$	0.2		$	0.3		$	0.9		$	1.0

12. Income Taxes

The effective tax rate used for interim periods is the estimated annual effective consolidated tax rate, based on the current estimate of full year results, except that taxes related to specific events, if any, are recorded in the interim period in which they occur. The annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pre-tax income of the Company in each tax jurisdiction in which it operates, and the development of tax planning strategies during the year. In addition, the Company’s tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits, and other factors that cannot be predicted with certainty. As such there can be significant volatility in interim tax provisions.

Income tax expense for the three months ended December 31, 2017 was a benefit of $58.4 million, or negative 173.3 percent of pre-tax income as compared with expense of $1.3 million, or 15.7 percent of pre-tax income for the three months ended December 31, 2016. Income tax expense for the six months ended December 31, 2017 was a benefit of $46.6 million or negative 67.6 percent of pre-tax income as compared with expense of $2.2 million, or 73.3 percent of pre-tax income for the six months ended December 31, 2016.

An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Act”) was enacted on December 22, 2017. The Act includes provisions that reduce the federal corporate income tax rate, create a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings (i.e. transition tax), and change certain business deductions including allowing for immediate expensing of certain qualified capital expenditures. The permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% is effective January 1, 2018. Based on the provisions of the Act, during the quarter ended December 31, 2017, the Company’s estimated annual effective tax rate was adjusted to incorporate the lower federal tax rate that will be phased in for fiscal year 2018. The Company also recorded discrete income tax net benefits of $66.0 million during the quarter ended December 31, 2017. Included in this benefit are a $73.3 million tax benefit to reflect the impact of the re-measurement of deferred tax assets and liabilities at the reduced federal tax rate, $5.1 million expense for the transition tax and income tax expense of $2.2 million for increases in certain state valuation allowances for deferred tax assets resulting from the impact of a state law change that will limit the Company’s ability to utilize state net operating loss carryforwards.

The Company determined that the amounts recorded for the liability associated transition tax are provisional because various components of the computation are not yet finalized as of December 31, 2017, including the following significant items: the actual aggregate foreign cash position and the earnings and profits of the foreign entities as of June 30, 2018, the interpretation and identification of cash positions as of June 30, 2018, and computations of accumulated earnings and profits balances as of November 2, 2017 and December 31, 2017. Under the Act, the transition tax will be paid over an eight year period beginning in fiscal year 2019.

The Company also determined that the re-measurement of deferred tax assets and liabilities at the lower federal corporate income tax rate is provisional until such time that the underlying temporary differences are known rather than estimated.

19

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Future adjustments to the provisional amounts related to the Act will be recorded as discrete adjustments to income tax expense in the period in which those adjustments are determined.

Income tax expense for the three months ended December 31, 2016 includes tax benefits of $0.9 million associated with the repatriation of earnings from one of our foreign subsidiaries. Income tax expense also includes a $0.3 million benefit primarily due to additional research and development credits claimed in the prior year.

In October 2016, the Company made a voluntary pension contribution of $100.0 million that was announced in connection with the plan freeze.  As a result of the pension contribution, income tax expense in the six months ended December 31, 2016 included a discrete tax charge of $2.1 million due to reduced tax benefits for domestic manufacturing claimed in prior periods.

As of June 30, 2017, the Company had $99.1 million of indefinitely reinvested foreign earnings for which deferred income taxes had not been provided.  Given the Act’s significant changes and potential opportunities to repatriate cash tax free, the Company is in the process of evaluating its assertions for indefinite reinvestment.

13. Business Segments

The Company has two reportable segments, Specialty Alloys Operations (“SAO”) and Performance Engineered Products (“PEP”).

The SAO segment is comprised of the Company’s major premium alloy and stainless steel manufacturing operations. This includes operations performed at mills primarily in Reading and Latrobe, Pennsylvania and surrounding areas as well as South Carolina and Alabama. The combined assets of the SAO operations are being managed in an integrated manner to optimize efficiency and profitability across the total system.

The PEP segment is comprised of the Company’s differentiated operations. This segment includes the Dynamet titanium business, the Carpenter Powder Products business, the Amega West business, and the Latrobe and Mexico distribution businesses. The businesses in the PEP segment are managed with an entrepreneurial structure to promote flexibility and agility to quickly respond to market dynamics. 

The Company’s executive management evaluates the performance of these operating segments based on sales, operating income and cash flow generation. Segment operating profit excludes general corporate costs, which include executive and director compensation, and other corporate facilities and administrative expenses not allocated to the segments.

The service cost component of the Company’s net pension expense, which represents the estimated cost of future pension liabilities earned associated with active employees, is included in the operating income of the business segments. The residual net pension expense, which is comprised of the expected return on plan assets, interest costs on the projected benefit obligations of the plans and amortization of actuarial gains and losses and prior service costs, is included under the heading “Pension earnings, interest and deferrals”.

On a consolidated basis, one customer, Arconic Inc., accounted for approximately 10 percent of the net sales for both the three and six months ended December 31, 2017. On a consolidated basis, one customer, Arconic Inc., accounted for approximately 17 percent and 15 percent of the net sales for the three and six months ended December 31, 2016, respectively. Approximately 22 percent of the accounts receivable outstanding at December 31, 2017 is due from two customers, Arconic Inc. and Precision Castparts Corporation. No single customer accounted for 10 percent or more of the accounts receivable outstanding at June 30, 2017.

20

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Segment Data	Three Months Ended December 31,						Six Months Ended December 31,
($ in millions)	2017			2016			2017			2016
Net Sales:
Specialty Alloys Operations	$	406.3		$	348.6		$	803.1		$	663.7
Performance Engineered Products	104.8			83.2			205.5			161.7
Intersegment	(23.3		)	(4.4		)	(41.1		)	(9.1		)
Consolidated net sales	$	487.8		$	427.4		$	967.5		$	816.3

Segment Data	Three Months Ended December 31,						Six Months Ended December 31,
($ in millions)	2017			2016			2017			2016
Operating Income:
Specialty Alloys Operations	$	49.8		$	35.6		$	100.3		$	60.6
Performance Engineered Products	7.5			0.8			12.8			(2.0		)
Corporate costs	(13.9		)	(16.0		)	(26.9		)	(29.8		)
Pension earnings, interest and deferrals	(0.5		)	(5.6		)	(1.1		)	(12.7		)
Intersegment	(2.1		)	0.6			(2.6		)	0.7
Consolidated operating income	$	40.8		$	15.4		$	82.5		$	16.8

Segment Data	Three Months Ended December 31,					Six Months Ended December 31,
($ in millions)	2017			2016		2017			2016
Depreciation and Amortization:
Specialty Alloys Operations	$	23.4		$	23.7	$	46.5		$	47.2
Performance Engineered Products	5.1			5.2		10.1			10.3
Corporate	0.9			0.9		1.8			1.7
Intersegment	(0.2		)	0.1		(0.4		)	(0.5		)
Consolidated depreciation and amortization	$	29.2		$	29.9	$	58.0		$	58.7

Segment Data	Three Months Ended December 31,					Six Months Ended December 31,
($ in millions)	2017			2016		2017			2016
Capital Expenditures:
Specialty Alloys Operations	$	11.2		$	8.3	$	28.4		$	23.0
Performance Engineered Products	6.3			2.5		11.1			7.0
Corporate	9.6			7.7		16.7			15.2
Intersegment	(0.3		)	—		(0.5		)	(0.1		)
Consolidated capital expenditures	$	26.8		$	18.5	$	55.7		$	45.1

Segment Data	December 31, 2017			June 30, 2017
($ in millions)
Total Assets:
Specialty Alloys Operations	$	2,337.9		$	2,292.1
Performance Engineered Products	475.7			434.3
Corporate	148.4			167.2
Intersegment	(17.9		)	(15.5		)
Consolidated total assets	$	2,944.1		$	2,878.1

21

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

14.Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements - Adopted in current period

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation — Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting, which outlines new provisions intended to simplify various aspects related to accounting for share-based payments and their presentation in the financial statements. The update revises requirements in the following areas: income tax consequences, forfeitures and classification on the statement of cash flows. The Company adopted this standard in the quarter ended September 30, 2017. The standard did not have a material impact on the consolidated financial statements of the Company. The amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement will be applied prospectively. The inclusion of excess tax benefits and deficiencies as a component of income tax expense will increase volatility of the provision for income taxes as the amount of excess tax benefits or deficiencies from share-based compensation awards are dependent on the stock price at the date the awards are exercised or vested. The Company does not expect the impact to be material to the Company’s consolidated results of operations; however, such determination is subject to change based on facts and circumstances at the time when awards vest or settle. The Company accounts for forfeitures of share-based awards when they occur. The Company applied the amendments related to the presentation of excess tax benefits on the consolidated statement of cash flows using a prospective transition method, and as a result, excess tax benefits related to share-based awards will be reported as cash flows from operating activities. The Company applied the amendments related to the presentation of statutory tax withholding on the consolidated statement of cash flows using a retrospective transition method as required, and as a result, statutory tax withholding related to share-based awards which had been previously classified as cash flows used for operating activities has been be reclassified as cash flows used for financing activities.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments, which outlines new provisions intended to reduce the existing diversity in practice related to accounting for the cash flow and its presentation in the financial statements. ASU 2016-15 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company adopted the provisions of ASU 2016-15 in the quarter ended September 30, 2017. The adoption of ASU 2016-15 did not materially impact the Company’s consolidated statement of cash flows.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash, which outlines that a statement of cash flows explains the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company adopted the provisions of ASU 2016-18 in the quarter ended September 30, 2017. The adoption of ASU 2016-18 did not materially impact the Company’s consolidated statement of cash flows.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment, which outlines updates to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. ASU 2017-04 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2017-04 in the quarter ended September 30, 2017. The adoption of ASU 2017-04 did not have an impact on the Company’s financial statements.

22

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Recently Issued Accounting Pronouncements - Pending Adoption

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in ASU 2014-09 requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance in ASU 2014-09 permits two methods of adoption: full retrospective in which the standard is applied to all of the periods presented or modified retrospective where an entity would recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. The adoption will include updates as provided under ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients; ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers; ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments and ASU 2017-14, Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606).

The Company is in the process of evaluating the effect that Topic 606 will have on its Consolidated Financial Statements and related disclosures, as well as the expected method of adoption. Currently, the Company is in the process of completing the assessment phase of its evaluation.   The assessment phase includes conducting and evaluating the results of internal surveys of its businesses, holding revenue recognition workshops with commercial and business unit finance leadership, and reviewing revenue arrangements across all businesses to initially identify a set of applicable qualitative revenue recognition changes related to the standards update.   The Company’s method of adoption for Topic 606 has not yet been determined and is not expected to be finalized until the assessment phase of the evaluation has been completed.  The Company’s effective date for the adoption of Topic 606 is July 1, 2018.

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842). ASU 2016-02 improves transparency and comparability among companies by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU 2016-02 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2016-02 on the consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory, which outlines updates to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. ASU 2016-16 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2016-16 on the consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which outlines updates to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. ASU 2017-07 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2017-07 on the consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. ASU 2017-12 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2017-12 on the consolidated financial statements.

23

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

15. Reclassifications from Accumulated Other Comprehensive Income (Loss) (AOCI)

The changes in AOCI by component, net of tax, for the three months ended December 31, 2017 and 2016 were as follows:

Three Months Ended December 31, 2017 ($ in millions) (a)	Cash flow hedging items		Pension and other postretirement benefit plan items			Unrealized losses on available-for- sale securities			Foreign currency items			Total
Balance at September 30, 2017	$	5.8	$	(296.9	)	$	(0.3	)	$	(39.7	)	$	(331.1	)
Other comprehensive income (loss) before reclassifications	14.9		—			—			(1.5		)	13.4
Amounts reclassified from AOCI (b)	0.1		2.5			—			—			2.6
Net other comprehensive income (loss)	15.0		2.5			—			(1.5		)	16.0
Balance at December 31, 2017	$	20.8	$	(294.4	)	$	(0.3	)	$	(41.2	)	$	(315.1	)

Three Months Ended December 31, 2016 ($ in millions) (a)	Cash flow hedging items			Pension and other postretirement benefit plan items			Unrealized losses on available-for- sale securities			Foreign currency items			Total
Balance at September 30, 2016	$	(11.0	)	$	(326.9	)	$	(0.3	)	$	(44.2	)	$	(382.4	)
Other comprehensive loss before reclassifications	(0.6		)	—			—			(4.0		)	(4.6		)
Amounts reclassified from AOCI (b)	4.4			5.7			—			—			10.1
Net other comprehensive income (loss)	3.8			5.7			—			(4.0		)	5.5
Balance at December 31, 2016	$	(7.2	)	$	(321.2	)	$	(0.3	)	$	(48.2	)	$	(376.9	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

(b) See separate table below for further details.

The changes in AOCI by component, net of tax, for the six months ended December 31, 2017 and 2016 were as follows:

Six Months Ended December 31, 2017 ($ in millions) (a)	Cash flow hedging items			Pension and other postretirement benefit plan items			Unrealized losses on available-for- sale securities			Foreign currency items			Total
Balance at June 30, 2017	$	(2.3	)	$	(299.0	)	$	(0.3	)	$	(41.5	)	$	(343.1	)
Other comprehensive income before reclassifications	21.0			—			—			0.3			21.3
Amounts reclassified from AOCI (b)	2.1			4.6			—			—			6.7
Net other comprehensive income	23.1			4.6			—			0.3			28.0
Balance at December 31, 2017	$	20.8		$	(294.4	)	$	(0.3	)	$	(41.2	)	$	(315.1	)

24

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Six Months Ended December 31, 2016 ($ in millions) (a)	Cash flow hedging items			Pension and other postretirement benefit plan items			Unrealized losses on available-for- sale securities			Foreign currency items			Total
Balance at June 30, 2016	$	(21.8	)	$	(344.3	)	$	(0.3	)	$	(43.5	)	$	(409.9	)
Other comprehensive income (loss) before reclassifications	3.9			11.4			—			(4.7		)	10.6
Amounts reclassified from AOCI (b)	10.7			11.7			—			—			22.4
Net current-period other comprehensive income (loss)	14.6			23.1			—			(4.7		)	33.0
Balance at December 31, 2016	$	(7.2	)	$	(321.2	)	$	(0.3	)	$	(48.2	)	$	(376.9	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

(b) See separate table below for further details.

25

CARPENTER TECHNOLOGY CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following is a summary of amounts reclassified from AOCI for the three and six months ended December 31, 2017 and 2016:

($ in millions) (a)	Location of (loss) gain	Amount Reclassified from AOCI Three Months Ended December 31,						Amount Reclassified from AOCI Six Months Ended December 31,
Details about AOCI Components		2017			2016			2017			2016
Cash flow hedging items:
Commodity contracts	Cost of sales	$	(0.2	)	$	(7.9	)	$	(2.8	)	$	(18.0	)
Foreign exchange contracts	Net sales	(0.1		)	0.5			(0.5		)	0.6
Forward interest rate swaps	Interest expense	0.1			0.1			0.2			0.2
	Total before tax	(0.2		)	(7.3		)	(3.1		)	(17.2		)
	Tax benefit	0.1			2.9			1.0			6.5
	Net of tax	$	(0.1	)	$	(4.4	)	$	(2.1	)	$	(10.7	)

($ in millions) (a)	Location of (loss) gain	Amount Reclassified from AOCI Three Months Ended December 31,						Amount Reclassified from AOCI Six Months Ended December 31,
Details about AOCI Components		2017			2016			2017			2016
Amortization of pension and other postretirement benefit plan items:
Net actuarial loss	(b)	$	(4.1	)	$	(10.3	)	$	(8.3	)	$	(20.5	)
Prior service benefit	(b)	0.8			1.1			1.6			2.4
Curtailment charge	(b)	—			—			—			(0.5		)
	Total before tax	(3.3		)	(9.2		)	(6.7		)	(18.6		)
	Tax benefit	0.8			3.5			2.1			6.9
	Net of tax	$	(2.5	)	$	(5.7	)	$	(4.6	)	$	(11.7	)

(a) Amounts in parentheses indicate debits to income/loss.

(b) These AOCI components are included in the computation of net periodic benefit cost (see Note 6. Pension and Other Postretirement Benefits for additional details).

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Background and General

We are engaged in the manufacturing, fabrication and distribution of specialty metals. We primarily process basic raw materials such as nickel, cobalt, titanium, manganese, chromium, molybdenum, iron scrap and other metal alloying elements through various melting, hot forming and cold working facilities to produce finished products in the form of billet, bar, rod, wire and narrow strip in many sizes and finishes. We also produce certain metal powders. Our sales are distributed directly from our production plants and distribution network as well as through independent distributors. Unlike many other specialty steel producers, we operate our own worldwide network of service and distribution centers. These service centers, located in the United States, Canada, Mexico, Europe and Asia, allow us to work more closely with customers and to offer various just-in-time stocking programs. We also manufacture and rent down-hole drilling tools and components used in the oil and gas industry.

As part of our overall business strategy, we have sought out and considered opportunities related to strategic acquisitions, divestitures and joint collaborations as well as possible business unit dispositions aimed at broadening our offering to the marketplace. We have participated with other companies to explore potential terms and structures of such opportunities and expect that we will continue to evaluate these opportunities.

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Our discussions below in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in Item 7 of our 2017 Form 10-K. Our discussions here focus on our results during or as of the three and six-month periods ended December 31, 2017 and the comparable periods of fiscal year 2017, and to the extent applicable, on material changes from information discussed in the 2017 Form 10-K and other important intervening developments or information that we have reported on Form 8-K. These discussions should be read in conjunction with the 2017 Form 10-K for detailed background information and with any such intervening Form 8-K.

Impact of Raw Material Prices and Product Mix

We value most of our inventory utilizing the last-in, first-out (“LIFO”) inventory costing method. Under the LIFO inventory costing method, changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials may potentially have been acquired at significantly different values due to the length of time from the acquisition of the raw materials to the sale of the processed finished goods to the customers. In a period of rising raw material costs, the LIFO inventory valuation normally results in higher cost of sales. Conversely, in a period of decreasing raw material costs, the LIFO inventory valuation normally results in lower cost of sales.

The volatility of the costs of raw materials has impacted our operations over the past several years. We, and others in our industry, generally have been able to pass cost increases on major raw materials through to our customers using surcharges that are structured to recover increases in raw material costs. Generally, the formula used to calculate a surcharge is based on published prices of the respective raw materials for the previous month which correlates to the prices we pay for our raw material purchases. However, a portion of our surcharges to customers may be calculated using a different surcharge formula or may be based on the raw material prices at the time of order, which creates a lag between surcharge revenue and corresponding raw material costs recognized in cost of sales. The surcharge mechanism protects our net income on such sales except for the lag effect discussed above. However, surcharges have had a dilutive effect on our gross margin and operating margin percentages as described later in this report.

Approximately 30 percent of our net sales are sales to customers under firm price sales arrangements. Firm price sales arrangements involve a risk of profit margin fluctuations, particularly when raw material prices are volatile. In order to reduce the risk of fluctuating profit margins on these sales, we enter into commodity forward contracts to purchase certain critical raw materials necessary to produce the related products sold. Firm price sales arrangements generally include certain annual purchasing commitments and consumption schedules agreed to by the customers at selling prices based on raw material prices at the time the arrangements are established. If a customer fails to meet the volume commitments (or the consumption schedule deviates from the agreed-upon terms of the firm price sales arrangements), the Company may need to absorb the gains or losses associated with the commodity forward contracts on a temporary basis. Gains or losses associated with commodity forward contracts are reclassified to earnings/loss when earnings are impacted by the hedged transaction. Because we value most of our inventory under the LIFO costing methodology, changes in the cost of raw materials and production activities are recognized in cost of sales in the current period attempting to match the most recently incurred costs with revenues. Gains or losses on the commodity forward contracts are reclassified from other comprehensive income (loss) together with the actual purchase price of the underlying commodities when the underlying commodities are purchased and recorded in inventory. To the extent that the total purchase price of the commodities, inclusive of the gains or losses on the commodity forward contracts, are higher or lower relative to the beginning of year costs, our cost of goods sold reflects such amounts. Accordingly, the gains and/or losses associated with commodity forward contracts may not impact the same period that the firm price sales arrangements revenue is recognized, and comparisons of gross profit from period to period may be impacted. These firm price sales arrangements are expected to continue as we look to strengthen our long-term customer relationships by expanding, renewing and in certain cases extending to a longer-term, our customer long-term arrangements.

We produce hundreds of grades of materials with a wide range of pricing and profit levels depending on the grade. In addition, our product mix within a period is subject to the fluctuating order patterns of our customers as well as decisions we may make on participation in certain products based on available capacity, including the impacts of capacity commitments we may have under existing customer agreements. While we expect to see positive contribution from a more favorable product mix in our margin performance over time, the impact by period may fluctuate and period-to-period comparisons may vary.

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Net Pension Expense

Net pension expense, as we define it below, includes the net periodic benefit costs related to both our pension and other postretirement plans. The net periodic benefit costs are determined annually based on beginning of year balances and are recorded ratably throughout the fiscal year, unless a significant re-measurement event occurs. We currently expect that the total net periodic benefit costs for fiscal year 2018 will be $14.0 million as compared with $48.2 million in fiscal year 2017.  The following is the pension expense for the three and six months ended December 31, 2017 and 2016:

	Three Months Ended December 31,				Six Months Ended December 31,
($ in millions)	2017		2016		2017		2016
Pension plans	$	2.8	$	13.5	$	5.6	$	29.6
Other postretirement plans	0.8		0.7		1.5		1.4
Net periodic benefit costs	$	3.6	$	14.2	$	7.1	$	31.0

In September 2016, we announced changes to retirement plans we offer to certain employees. The decision was consistent with addressing costs and actively managing the business. Benefits accrued to eligible participants of our largest qualified defined benefit pension plan and certain non-qualified pension plans were frozen effective December 31, 2016. Approximately 1,900 affected employees were transitioned to the Company’s 401(k) plan that has been in effect for eligible employees since 2012, when the pension plan was closed to new entrants. We recognized the plan freeze in the three months ended September 30, 2016 as a curtailment, since it eliminated the accrual for a significant number of participants for all of their future services. We also made a voluntary pension contribution of $100.0 million to the affected plan in October 2016.  

The service cost component of net pension expense represents the estimated cost of future pension liabilities earned associated with active employees. The pension earnings, interest and deferrals (“pension EID”) is comprised of the expected return on plan assets, interest costs on the projected benefit obligations of the plans and amortization of actuarial gains and losses and prior service costs.

Net pension expense is recorded in accounts that are included in both the cost of sales and selling, general and administrative expenses based on the function of the associated employees. The following is a summary of the classification of net pension expense for the three and six months ended December 31, 2017 and 2016:

	Three Months Ended December 31,				Six Months Ended December 31,
($ in millions)	2017		2016		2017		2016
Cost of sales:
Service cost	$	2.7	$	7.2	$	5.3	$	14.8
Pension earnings, interest and deferrals	—		3.8		—		8.9
	2.7		11.0		5.3		23.7
Selling, general and administrative expenses:
Service cost	0.4		1.4		0.7		3.0
Pension earnings, interest and deferrals	0.5		1.8		1.1		3.8
Curtailment charge	—		—		—		0.5
	0.9		3.2		1.8		7.3
Net pension expense	$	3.6	$	14.2	$	7.1	$	31.0

As of December 31, 2017 and June 30, 2017, amounts related to the net pension expense capitalized in gross inventory were $1.6 million and $3.4 million, respectively.

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Operating Performance Overview

We delivered a solid first half to fiscal year 2018 including driving consistent backlog growth, gaining market share through expanded and new customer relationships, and enhancing our manufacturing discipline through the Carpenter Operating Model. Our SAO segment recorded its best second quarter and best first half since fiscal year 2014, while results at our PEP segment finished well ahead of our expectations. In addition, we submitted the majority of our Aerospace Vendor Approved Processes qualifications for our Athens facility, representing a major milestone. We are now actively working with our major customers to secure necessary approvals.

Conditions across our end-use markets continue to improve and we are generating increased customer demand for our solutions and growing our backlog. In the Aerospace and Defense end-use market, new engine platform demand is increasing and we are further benefiting from our strong position across a range of attractive sub-markets. In addition, demand for our solutions portfolio in the Medical end-use market remains high while the recovery in the oil and gas sub-market is strengthening.

Moving forward, we will continue to strategically invest in our core long-term growth capabilities. In addition, given the recent US tax reform, we plan to accelerate our investment into key areas including additive manufacturing and soft magnetics, which is consistent with our commitment to being a leading solutions provider for our customers.

Results of Operations — Three Months Ended December 31, 2017 vs. Three Months Ended December 31, 2016

For the three months ended December 31, 2017, we reported net income of $92.1 million, or $1.92 per diluted share. Excluding special items, earnings per share would have been $0.55 per diluted share for the three months ended December 31, 2017. This compares with net income for the same period a year earlier of $7.0 million, or $0.15 per diluted share. The current period results reflect stronger product demand driven by improving market conditions across our end-use markets. 

Net Sales

Net sales for the three months ended December 31, 2017 were $487.8 million, which was a 14 percent increase over the same period a year ago. Excluding surcharge revenue, sales increased13 percent on a 13 percent increase in shipment volume from the same period a year ago. The results primarily reflect the impact of stronger demand for materials primarily used in the Aerospace and Defense, Industrial and Consumer and Medical end-use markets.

Geographically, sales outside the United States increased 17 percent from the same period a year ago to $160.7 million for the three months ended December 31, 2017. The increase is primarily due to stronger demand in Europe in the Aerospace and Defense and Medical end-use markets and Asia Pacific in the Aerospace and Defense and Industrial and Consumer end-use markets. A portion of our sales outside the United States are denominated in foreign currencies. The impact of fluctuations in foreign currency exchange rates resulted in a $2.0 million increase in sales during the three months ended December 31, 2017 compared to the three months ended December 31, 2016. Net sales outside the United States represented 33 percent and 32 percent of total net sales for the three months ended December 31, 2017 and 2016, respectively.

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Sales by End-Use Markets

We sell to customers across diversified end-use markets. The following table includes comparative information for our net sales, which includes surcharge revenue by principal end-use markets.  We believe this is helpful supplemental information in analyzing the performance of the business from period to period:

	Three Months Ended December 31,				$ Increase		% Increase
($ in millions)	2017		2016
Aerospace and Defense	$	264.9	$	242.7	$	22.2	9	%
Energy	31.8		30.1		1.7		6	%
Transportation	35.8		33.5		2.3		7	%
Medical	42.8		26.8		16.0		60	%
Industrial and Consumer	83.1		66.6		16.5		25	%
Distribution	29.4		27.7		1.7		6	%
Total net sales	$	487.8	$	427.4	$	60.4	14	%

The following table includes comparative information for our net sales by the same principal end-use markets, but excluding surcharge revenue:

	Three Months Ended December 31,				$ Increase		% Increase
($ in millions)	2017		2016
Aerospace and Defense	$	220.3	$	199.0	$	21.3	11	%
Energy	28.9		27.1		1.8		7	%
Transportation	29.7		28.7		1.0		3	%
Medical	37.2		25.1		12.1		48	%
Industrial and Consumer	70.2		59.2		11.0		19	%
Distribution	29.2		27.6		1.6		6	%
Total net sales excluding surcharge	$	415.5	$	366.7	$	48.8	13	%

Sales to the Aerospace and Defense end-use market increased9 percent from the second quarter a year ago to $264.9 million. Excluding surcharge revenue, sales increased11 percent from the second quarter a year ago on a 15 percent increase in shipment volume. The results reflect improved demand in the fastener, structural and distribution sub-markets as we benefited from our broad industry participation. In addition, we experienced stronger demand for our defense related applications driven by specific programs.

Sales to the Energy end-use market of $31.8 million reflect a 6 percent increase from the second quarter a year ago. Excluding surcharge revenue, sales increased7 percent from a year ago. The results reflect the impact of an increase in sales, particularly rental and replacement activity through our Amega West business outpacing the moderate oil and gas sub-market expansion, partially offset by weaker demand for materials used in power generation applications.

Transportation end-use market sales increased7 percent from the second quarter a year ago to $35.8 million. Excluding surcharge revenue, sales increased3 percent on 2 percent higher shipment volume from the second quarter a year ago. The results reflect the impact of stronger demand for our material as a result of increases in medium and heavy duty truck production partially offset by continued softness in passenger car production.

30

Medical end-use market sales increased60 percent from the second quarter a year ago to $42.8 million. Excluding surcharge revenue, sales increased48 percent on 39 percent higher shipment volume from the second quarter a year ago. The results reflect improved market conditions, share gains with key customers and the positive impact of supply chain inventory rebuilding for titanium materials used within the orthopedic and cardiology sub-markets.

Industrial and Consumer end-use market sales increased25 percent from the second quarter a year ago to $83.1 million. Excluding surcharge revenue, sales increased19 percent on a 15 percent increase in shipment volume. The results reflect the impact of stronger demand in select industrial applications and consumer electronics applications.

Gross Profit

Our gross profit in the second quarter increased37 percent to $85.7 million, or 17.6 percent of net sales as compared with $62.5 million, or 14.6 percent of net sales in the same quarter a year ago. Excluding the impact of surcharge revenue, our gross margin in the second quarter was 20.6 percent as compared to 17.0 percent in the same period a year ago. The current quarter results reflect stronger product demand across end-use markets driving higher volumes compared to the same period a year ago.

 Our surcharge mechanism is structured to recover increases in raw material costs, although in certain cases with a lag effect as discussed above. We estimate that the effect of surcharge lag negatively impacted our operating income by $3.0 million for the current second quarter.

While the surcharge generally protects the absolute gross profit dollars, it does have a dilutive effect on gross margin as a percent of sales. The following represents a summary of the dilutive impact of the surcharge on gross margin for the comparative three month periods. See the section “Non-GAAP Financial Measures” below for further discussion of these financial measures.

	Three Months Ended December 31,
($ in millions)	2017			2016
Net sales	$	487.8		$	427.4
Less: surcharge revenue	72.3			60.7
Net sales excluding surcharge revenue	$	415.5		$	366.7
Gross profit	$	85.7		$	62.5
Gross margin	17.6		%	14.6		%
Gross margin excluding surcharge revenue	20.6		%	17.0		%

Selling, General and Administrative Expenses

Selling, general and administrative expenses of $44.9 million were 9.2 percent of net sales (10.8 percent of net sales excluding surcharge) as compared with $47.1 million and 11.0 percent of net sales (12.8 percent of net sales excluding surcharge) in the same quarter a year ago. Selling, general and administrative expenses decreased in the second quarter primarily as a result of lower consulting costs compared to the same quarter a year ago.

Operating Income

Our operating income in the recent second quarter was $40.8 million or 8.4 percent of net sales as compared with $15.4 million or 3.6 percent of net sales in the same quarter a year ago. Excluding surcharge revenue and pension EID, operating margin was 9.9 percent for the most recent quarter as compared with 5.7 percent a year ago. The increase in our operating margin for the second quarter of fiscal year 2018 reflects the impacts of stronger product demand across end-use markets and lower selling, general and administrative expenses compared to the same period a year ago.

31

Operating income has been significantly impacted by our pension EID, which may be volatile based on conditions in the financial markets. The following presents our operating income and operating margin, in each case excluding the impact of surcharge revenue on net sales. We present and discuss these financial measures because management believes removing these items provides a more consistent and meaningful basis for comparing ongoing results of operations from period to period. See the section “Non-GAAP Financial Measures” below for further discussion of these financial measures.

	Three Months Ended December 31,
($ in millions)	2017			2016
Net sales	$	487.8		$	427.4
Less: surcharge revenue	72.3			60.7
Net sales excluding surcharge revenue	$	415.5		$	366.7
Operating income	$	40.8		$	15.4
Pension EID	0.5			5.6
Operating income excluding pension EID	$	41.3		$	21.0
Operating margin	8.4		%	3.6		%
Operating margin excluding surcharge and pension EID	9.9		%	5.7		%

Interest Expense

Interest expense for the three months ended December 31, 2017 was $7.3 million compared with $7.4 million in the same period a year ago. We have used interest rate swaps to achieve a level of floating rate debt to fixed rate debt where appropriate. Interest expense for the three months ended December 31, 2017 includes net gains from interest rate swaps of $0.2 million compared with $0.5 million of net gains from interest rate swaps for the three months ended December 31, 2016. Capitalized interest reduced interest expense by $0.6 million for the three months ended December 31, 2017 and $0.3 million for the three months ended December 31, 2016.

Other Income, Net

Other income, net for the three months ended December 31, 2017 was $0.2 million as compared with $0.3 million for the three months ended December 31, 2016.

Income Taxes

Income tax expense in the recent second quarter was a benefit of $58.4 million, or negative 173.3 percent of pre-tax income compared with expense of $1.3 million, or 15.7 percent of pre-tax income in the same quarter a year ago.

An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (the “Act”) was enacted on December 22, 2017. The Act includes provisions that reduce the federal corporate income tax rate, create a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings (i.e. transition tax), and change certain business deductions including allowing for immediate expensing of certain qualified capital expenditures. The permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% is effective January 1, 2018. Based on the provisions of the Act, we adjusted our estimated annual effective tax rate to incorporate the lower blended federal tax rate that will be phased in for our fiscal year 2018. We also recorded a discrete net tax benefit of $66 million which reflects a $73.3 tax benefit related to the re-measurement of deferred tax assets and liabilities at the reduced federal tax rate, and a charge of $5.1 million for the transition tax. The discrete net tax benefit also includes a charge of $2.2 million associated with a state law change that will limit our ability to utilize certain state net operating loss carryforwards.

Income tax expense in the prior year includes tax benefits of $0.9 million associated with the repatriation of earnings from one of our foreign subsidiaries. Income tax expense also includes benefits of $0.3 million primarily due to additional research and development credits claimed in the prior year.

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Business Segment Results

We have two reportable business segments: SAO and PEP.

The following table includes comparative information for volumes by business segment:

	Three Months Ended December 31,				Increase (Decrease)		% Increase (Decrease)
(Pounds sold, in thousands)	2017		2016
Specialty Alloys Operations	60,080		51,314		8,766		17	%
Performance Engineered Products *	3,282		2,350		932		40	%
Intersegment	(3,098	)	(378	)	(2,720	)	(720	)%
Consolidated pounds sold	60,264		53,286		6,978		13	%

* Pounds sold data for PEP segment includes Dynamet and Carpenter Powder Products businesses only.

The following table includes comparative information for net sales by business segment:

	Three Months Ended December 31,						$ Increase (Decrease)			% Increase (Decrease)
($ in millions)	2017			2016
Specialty Alloys Operations	$	406.3		$	348.6		$	57.7		17	%
Performance Engineered Products	104.8			83.2			21.6			26	%
Intersegment	(23.3		)	(4.4		)	(18.9		)	(430	)%
Total net sales	$	487.8		$	427.4		$	60.4		14	%

The following table includes comparative information for our net sales by business segment, but excluding surcharge revenue:

	Three Months Ended December 31,						$ Increase (Decrease)			% Increase (Decrease)
($ in millions)	2017			2016
Specialty Alloys Operations	$	331.8		$	288.1		$	43.7		15	%
Performance Engineered Products	104.6			83.0			21.6			26	%
Intersegment	(20.9		)	(4.4		)	(16.5		)	(375	)%
Total net sales excluding surcharge revenue	$	415.5		$	366.7		$	48.8		13	%

Specialty Alloys Operations Segment

Net sales for the quarter ended December 31, 2017 for the SAO segment increased17 percent to $406.3 million, as compared with $348.6 million in the same quarter a year ago. Excluding surcharge revenue, net sales increased15 percent on 17 percent higher shipment volume from a year ago.  The results reflect the impact of stronger product demand driven by improving market conditions across our end-use markets compared to the prior year same quarter.

Operating income for the SAO segment was $49.8 million or 12.3 percent of net sales (15.0 percent of net sales excluding surcharge revenue) in the recent second quarter, as compared with $35.6 million or 10.2 percent of net sales (12.4 percent of net sales excluding surcharge revenue) in the same quarter a year ago. The increase in operating income reflects the impact of higher volume compared to the prior year same quarter.

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Performance Engineered Products Segment

Net sales for the quarter ended December 31, 2017 for the PEP segment increased26 percent to $104.8 million, as compared with $83.2 million in the same quarter a year ago. Excluding surcharge revenue, net sales of $104.6 millionincreased26 percent from a year ago. The results reflect an increase in sales primarily in the Energy and Medical end-use markets.

Operating income for the PEP segment was $7.5 million or 7.2 percent of net sales in the recent second quarter, compared with operating income of $0.8 million or 1.0 percent of net sales in the same quarter a year ago. The results reflect the increasing demand for titanium products combined with ongoing improvements in our oil and gas businesses and cost reduction initiatives.

Results of Operations — Six Months EndedDecember 31, 2017 vs. Six Months EndedDecember 31, 2016

Net Sales

Net sales for the six months ended December 31, 2017 were $967.5 million, which was a 19 percent increase over the same period a year ago. Excluding surcharge revenue, sales increased17 percent on 15 percent higher shipment volume from the same period a year ago. The results primarily reflect the impact of stronger product demand for materials primarily used in the Aerospace and Defense, Medical and Industrial and Consumer end-use markets.

Geographically, sales outside the United States increased 24 percent from the same period a year ago to $320.6 million for the six months ended December 31, 2017. The increase is primarily due to higher demand in Europe in the Aerospace and Defense and Medical end-use markets, Asia Pacific in the Aerospace and Defense and Industrial and Consumer end-use markets and Canada in the Energy end-use market. A portion of our sales outside the United States are denominated in foreign currencies. The impact of fluctuations in foreign currency exchange rates resulted in a $3.3 million increase in sales during the six months ended December 31, 2017 compared to the six months ended December 31, 2016. Net sales outside the United States represented 33 percent and 32 percent of total net sales for the six months ended December 31, 2017 and 2016, respectively.

Sales by End-Use Markets

We sell to customers across diversified end-use markets. The following table includes comparative information for our net sales, which includes surcharge revenue by principal end-use markets.  We believe this is helpful supplemental information in analyzing the performance of the business from period to period:

	Six Months Ended December 31,				$ Increase		% Increase
($ in millions)	2017		2016
Aerospace and Defense	$	523.5	$	448.9	$	74.6	17	%
Energy	63.8		58.5		5.3		9	%
Transportation	72.5		68.7		3.8		6	%
Medical	81.0		51.4		29.6		58	%
Industrial and Consumer	167.5		133.0		34.5		26	%
Distribution	59.2		55.8		3.4		6	%
Total net sales	$	967.5	$	816.3	$	151.2	19	%

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The following table includes comparative information for our net sales by the same principal end-use markets, but excluding surcharge revenue:

	Six Months Ended December 31,				$ Increase		% Increase
($ in millions)	2017		2016
Aerospace and Defense	$	435.8	$	372.5	$	63.3	17	%
Energy	57.8		52.8		5.0		9	%
Transportation	60.3		59.2		1.1		2	%
Medical	70.6		48.1		22.5		47	%
Industrial and Consumer	141.9		118.5		23.4		20	%
Distribution	58.9		55.5		3.4		6	%
Total net sales excluding surcharge	$	825.3	$	706.6	$	118.7	17	%

Sales to the Aerospace and Defense end-use market increased17 percent from the same period a year ago to $523.5 million. Excluding surcharge revenue, sales increased17 percent from the same period a year ago on a 20 percent increase in shipment volume. The results reflect the impact of stronger demand for materials used in aerospace engines and structural applications as well as defense applications driven by specific programs.

Sales to the Energy end-use market of $63.8 million reflect a 9 percent increase from the same period a year ago. Excluding surcharge revenue, sales increased9 percent from a year ago. The results reflect an increase in sales of rental and replacement activity through our Amega West business driven by a moderate increase in the oil and gas sub-market offset by weaker demand for materials used in power generation applications.

Transportation end-use market sales increased6 percent from the same period a year ago to $72.5 million. Excluding surcharge revenue, sales increased2 percent on 2 percent lower shipment volume from the same period a year ago. The results reflect the impact of stronger demand for our materials as a result of increases in medium and heavy duty truck production offset by continued softness in passenger car production.

Medical end-use market sales increased58 percent from the same period a year ago to $81.0 million. Excluding surcharge revenue, sales increased47 percent on 30 percent higher shipment volume from the same period a year ago. The results reflect improved market conditions, share gains with key customers and the positive impact of supply chain inventory rebuilding for titanium materials within the orthopedic and cardiology sub-markets.

Industrial and Consumer end-use market sales increased26 percent from the same period a year ago to $167.5 million. Excluding surcharge revenue, sales increased20 percent on a 13 percent increase in shipment volume. The results reflect the impact of stronger demand for materials used in consumer electronics applications and industrial applications due in part to a moderate increase in recovery of oil and gas activity.

Gross Profit

Our gross profit in the six months endedDecember 31, 2017 increased 58 percent to $171.3 million, or 17.7 percent of net sales as compared with $108.5 million, or 13.3 percent of net sales in the same period a year ago. Excluding the impact of surcharge revenue, our gross margin in the six months endedDecember 31, 2017 was 20.8 percent as compared to 15.4 percent in the same period a year ago. The results for the six months endedDecember 31, 2017 reflect stronger product demand across end-use markets and stronger product mix compared to the same period a year ago.

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Our surcharge mechanism is structured to recover increases in raw material costs, although in certain cases with a lag effect as discussed above. While the surcharge generally protects the absolute gross profit dollars, it does have a dilutive effect on gross margin as a percent of sales. The following represents a summary of the dilutive impact of the surcharge on gross margin for the comparative six month periods. See the section “Non-GAAP Financial Measures” below for further discussion of these financial measures.

	Six Months Ended December 31,
($ in millions)	2017			2016
Net sales	$	967.5		$	816.3
Less: surcharge revenue	142.2			109.7
Net sales excluding surcharge revenue	$	825.3		$	706.6
Gross profit	$	171.3		$	108.5
Gross margin	17.7		%	13.3		%
Gross margin excluding surcharge revenue	20.8		%	15.4		%

Selling, General and Administrative Expenses

Selling, general and administrative expenses of $88.8 million were 9.2 percent of net sales (10.8 percent of net sales excluding surcharge) for the six months ended December 31, 2017 as compared with $91.7 million or 11.2 percent of net sales (13.0 percent of net sales excluding surcharge) in the same period a year ago.  Selling, general and administrative expenses decreased in the six months ended December 31, 2017 primarily as a result of lower consulting costs and pension expense offset by higher variable compensation accruals compared to the same period a year ago.

Operating Income

Our operating income in the six months ended December 31, 2017 was $82.5 million, or 8.5 percent of net sales as compared with $16.8 million, or 2.1 percent of net sales in the same period a year ago. Excluding surcharge revenue, pension EID and special items, operating margin was 10.1 percent for the six months ended December 31, 2017 and 4.2 percent for the same period a year ago. The increase in the operating margin reflects the impact of stronger product demand across end-use markets combined with stronger product mix and lower selling, general and administrative expenses compared to the same period a year ago.

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Operating income has been significantly impacted by our pension EID, which may be volatile based on conditions in the financial markets, as well as special items. The following presents our operating income and operating margin, in each case excluding the impact of surcharge on net sales, pension EID and special items. We present and discuss these financial measures because management believes removing the impact of these items provides a more consistent and meaningful basis for comparing results of operations from period to period. See the section “Non-GAAP Financial Measures” below for further discussion of these financial measures.

	Six Months Ended December 31,
($ in millions)	2017			2016
Net sales	$	967.5		$	816.3
Less: surcharge revenue	142.2			109.7
Net sales excluding surcharge revenue	$	825.3		$	706.6
Operating income	$	82.5		$	16.8
Pension EID	1.1			12.7
Operating income excluding pension EID	83.6			29.5
Special items:
Pension curtailment charge	—			0.5
Operating income excluding pension EID and special items	$	83.6		$	30.0
Operating margin	8.5		%	2.1		%
Operating margin excluding surcharge, pension EID and special items	10.1		%	4.2		%

Interest Expense

Interest expense for the six months endedDecember 31, 2017 was $14.5 million compared with $14.8 million in the same period a year ago. We have used interest rate swaps to achieve a level of floating rate debt to fixed rate debt where appropriate. Interest expense for the six months endedDecember 31, 2017 includes net gains from interest rate swaps of $0.4 million compared with $0.9 million for the six months endedDecember 31, 2016. Capitalized interest reduced interest expense by $1.1 million for the six months endedDecember 31, 2017 and $0.5 million for the six months endedDecember 31, 2016.

Other Income, Net

Other income, net was $0.9 million for the recent six months endedDecember 31, 2017 compared to $1.0 million in the same period a year ago.

Income Taxes

Income tax expense in the six months endedDecember 31, 2017 was a benefit of $46.6 million, or negative 67.6 percent of pre-tax income as compared with expense of $2.2 million, or 73.3 percent of pre-tax income in the six months endedDecember 31, 2016.

In December 2017, the United States enacted tax reform legislation. The Act includes provisions that reduce the federal corporate income tax rate, create a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings (i.e. transition tax), and change certain business deductions including allowing for immediate expensing of certain qualified capital expenditures. The permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% is effective January 1, 2018. Based on the provisions of the Act, during the current quarter we adjusted our estimated annual effective tax rate to incorporate the lower blended federal tax rate. We also recorded a discrete net tax benefit of $66 million which reflects a $73.3 tax benefit related to the re-measurement of deferred tax assets and liabilities at the reduced federal tax rate and a charge of $5.1 million for the transition tax. The discrete net tax benefit also includes a charge of $2.2 million associated with a state law change that will limit our ability to utilize certain state net operating loss carryforwards.

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In October 2016, the Company made a voluntary pension contribution of $100.0 million that was announced in connection with the plan freeze.  As a result of the pension contribution, income tax expense in the six months ended December 31, 2016 included a discrete tax charge of $2.1 million due to reduced tax benefits for domestic manufacturing claimed in prior periods.

Business Segment Results

We have two reportable business segments: SAO and PEP.

The following table includes comparative information for volumes by business segment:

	Six Months Ended December 31,				Increase (Decrease)		% Increase (Decrease)
(Pounds sold, in thousands)	2017		2016
Specialty Alloys Operations	121,270		103,674		17,596		17	%
Performance Engineered Products *	6,808		4,764		2,044		43	%
Intersegment	(4,468	)	(972	)	(3,496	)	(360	)%
Consolidated pounds sold	123,610		107,466		16,144		15	%

* Pounds sold data for PEP segment includes Dynamet and Carpenter Powder Products businesses only.

The following table includes comparative information for net sales by business segment:

	Six Months Ended December 31,						$ Increase (Decrease)			% Increase (Decrease)
($ in millions)	2017			2016
Specialty Alloys Operations	$	803.1		$	663.7		$	139.4		21	%
Performance Engineered Products	205.5			161.7			43.8			27	%
Intersegment	(41.1		)	(9.1		)	(32.0		)	(352	)%
Total net sales	$	967.5		$	816.3		$	151.2		19	%

The following table includes comparative information for our net sales by business segment, but excluding surcharge revenue:

	Six Months Ended December 31,						$ Increase (Decrease)			% Increase (Decrease)
($ in millions)	2017			2016
Specialty Alloys Operations	$	657.4		$	554.0		$	103.4		19	%
Performance Engineered Products	205.1			161.3			43.8			27	%
Intersegment	(37.2		)	(8.7		)	(28.5		)	(328	)%
Total net sales excluding surcharge revenue	$	825.3		$	706.6		$	118.7		17	%

Specialty Alloys Operations Segment

Net sales for the six months endedDecember 31, 2017 for the SAO segment increased21 percent to $803.1 million, as compared with $663.7 million in the same period a year ago. Excluding surcharge revenue, net sales increased19 percent on 17 percent higher shipment volume from a year ago.  The results reflect the impact of stronger product demand driven by improving market conditions across our end-use markets compared to the prior year same period.

Operating income for the SAO segment was $100.3 million or 12.5 percent of net sales (15.3 percent of net sales excluding surcharge revenue) in the recent six months endedDecember 31, 2017 as compared with $60.6 million or 9.1 percent of net sales (10.9 percent of net sales excluding surcharge revenue) in the same period a year ago. The increase in operating income reflects the impact of higher product demand and stronger product mix driven by improving market conditions across our end-use markets compared to the prior year same period.

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Performance Engineered Products Segment

Net sales for the six months endedDecember 31, 2017 for the PEP segment increased27 percent to $205.5 million, as compared with $161.7 million in the same period a year ago. Excluding surcharge revenue, net sales increased27 percent from a year ago. The results reflect an increase in sales primarily in the Energy and Medical end-use markets.

Operating income for the PEP segment was $12.8 million or 6.2 percent of net sales in the recent six months endedDecember 31, 2017, compared with an operating loss of $2.0 million or 1.2 percent of net sales in the same period a year ago. The results reflect the increasing demand for titanium products combined with ongoing improvements in our oil and gas businesses and cost reduction initiatives.

Liquidity and Financial Resources

During the six months ended December 31, 2017, we generated cash flows from operations of $17.3 million compared to cash used for operations of $25.4 million in the same period a year ago. Our free cash flow, which we define under “Non-GAAP Financial Measures” below, was negative $55.6 million as compared to negative $87.5 million for the same period a year ago. The free cash flow results reflect unfavorable working capital levels driven by increased investment in inventory to meet customer demands and higher accounts receivable driven by increased shipments. The results also reflect higher capital spending levels as we increased our investment in key growth initiatives during fiscal year 2018. In addition, the prior year results reflect the impact of the $100 million pension contribution offset by cash tax benefits realized with the contribution of approximately $39 million.

Capital expenditures for property, equipment and software were $55.7 million for the six months ended December 31, 2017 as compared to $45.1 million for the same period a year ago. In fiscal year 2018, we expect capital expenditures to be approximately $135 million.

Dividends during the six months ended December 31, 2017 and 2016 were $17.2 million and $17.0 million, respectively, and were paid at the same quarterly rate of $0.18 per share of common stock in both periods.

We have demonstrated the ability to generate cash to meet our needs through cash flows from operations, management of working capital and the availability of outside sources of financing to supplement internally generated funds. We generally target minimum liquidity of $150 million, consisting of cash and cash equivalents added to available borrowing capacity under our Credit Agreement. Our Credit Agreement contains a revolving credit commitment of $400.0 million, which expires in March 2022. As of December 31, 2017, we had $6 million of issued letters of credit and $9.3 million of borrowings under the Credit Agreement. The balance of the Credit Agreement ($384.7 million) remains available to us. As of December 31, 2017, we had total liquidity of $405.4 million, including $20.7 million of cash and cash equivalents. From time to time during the six months ended December 31, 2017, we have borrowed under our Credit Agreement. The weighted average daily borrowing under the Credit Agreement during the six months ended December 31, 2017 was approximately $8.6 million with daily outstanding borrowings ranging from $0.0 million to $30.8 million during the period.

We believe that our cash and cash equivalents of $20.7 million as of December 31, 2017 and available borrowing capacity of $384.7 million under our credit facility will be sufficient to fund our cash needs over the foreseeable future.

In the fourth quarter of fiscal year 2018, $55.0 million of medium term notes are due for redemption. We currently expect to fund the redemption of these notes using available cash.

During the six months ended December 31, 2017, we made pension contributions of $4.9 million to our qualified defined benefit pension plans. We currently expect to make approximately $1.8 million of contributions to our qualified defined benefit pension plans during the remainder of fiscal year 2018.

As of December 31, 2017, we had cash and cash equivalents of approximately $19.0 million held at various foreign subsidiaries. Our global cash deployment considers, among other things, the geographic location of our subsidiaries’ cash balances, the locations of our anticipated liquidity needs, and the cost to access international cash balances, as necessary. The Act requires a one-time tax on previously deferred foreign earnings and generally provides for tax-free repatriations of these earnings beginning January 1, 2018. This will allow additional opportunities to access cash generated internationally. From time to time, we may make short-term intercompany borrowings against our cash held outside the United States in order to reduce or eliminate any required borrowing under our Credit Agreement.

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We are subject to certain financial and restrictive covenants under the Credit Agreement, which, among other things, require the maintenance of a minimum interest coverage ratio (3.50 to 1.00 as of December 31, 2017). The interest coverage ratio is defined in the Credit Agreement as, for any period, the ratio of consolidated earnings before interest, taxes, depreciation and amortization and non-cash net pension expense (“EBITDA”) to consolidated interest expense for such period. The Credit Agreement also requires the Company to maintain a debt to capital ratio of less than 55%. The debt to capital ratio is defined in the Credit Agreement as the ratio of consolidated indebtedness, as defined therein, to consolidated capitalization, as defined therein. As of December 31, 2017, the Company was in compliance with all of the covenants of the Credit Agreement.

The following table shows our actual ratio performance with respect to the financial covenants as of December 31, 2017:

Covenant	Covenant Requirement	Actual Ratio
Consolidated interest coverage	3.50 to 1.00 (minimum)	10.91 to 1.00
Consolidated debt to capital	55% (maximum)	31.4%

We continue to believe that we will maintain compliance with the financial and restrictive covenants in future periods. To the extent that we do not comply with the covenants under the Credit Agreement, this could reduce our liquidity and flexibility due to potential restrictions on borrowings available to us unless we are able to obtain waivers or modifications of the covenants.

Non-GAAP Financial Measures

The following provides additional information regarding certain non-GAAP financial measures that we use in this report. Our definitions and calculations of these items may not necessarily be the same as those used by other companies.

Net Sales and Gross Margin Excluding Surcharge Revenue

This report includes discussions of net sales as adjusted to exclude the impact of raw material surcharge and the resulting impact on gross margins, which represent financial measures that have not been determined in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). We present and discuss these financial measures because management believes removing the impact of raw material surcharge from net sales and cost of sales provides a more consistent basis for comparing results of operations from period to period for the reasons discussed earlier in this report. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, our Board of Directors and others. See our earlier discussion of “Gross Profit” for a reconciliation of net sales and gross margin, excluding surcharge revenue to net sales as determined in accordance with U.S. GAAP. Net sales and gross margin excluding surcharge revenue is not a U.S. GAAP financial measure and should not be considered in isolation of, or as a substitute for, net sales and gross margin calculated in accordance with U.S. GAAP.

Operating Income and Operating Margin Excluding Surcharge Revenue, Pension EID and Special Items

This report includes discussions of operating income and operating margin as adjusted to exclude the impact of raw material surcharge revenue, pension EID and special items which represent financial measures that have not been determined in accordance with U.S. GAAP. We present and discuss these financial measures because management believes removing the impact of raw material surcharge from net sales and cost of sales provides a more consistent and meaningful basis for comparing results of operations from period to period for the reasons discussed earlier in this report. In addition, management believes that excluding pension EID and special items from operating income and operating margin is helpful in analyzing our operating performance particularly as pension EID may be volatile due to changes in the financial markets. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, our Board of Directors and others. See our earlier discussion of operating income for a reconciliation of operating income and operating margin excluding pension EID and special items to operating income and operating margin determined in accordance with U.S. GAAP. Operating income and operating margin excluding surcharge revenue, pension EID and special items is not a U.S. GAAP financial measure and should not be considered in isolation of, or as a substitute for, operating income and operating margin calculated in accordance with U.S. GAAP.

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Adjusted Earnings Per Share

The following provides a reconciliation of adjusted earnings per share, to its most directly comparable U.S. GAAP financial measures:

($ in millions, except per share amounts)	Income Before Income Taxes		Income Tax Benefit (Expense)			Net Income			Earnings Per Diluted Share*
Three months ended December 31, 2017, as reported	$	33.7	$	58.4		$	92.1		$	1.92
Special items:
Impact of US tax reform and other legislative changes	—		(66.0		)	(66.0		)	(1.37		)
Three months ended December 31, 2017, as adjusted	$	33.7	$	(7.6	)	$	26.1		$	0.55

* Impact per diluted share calculated using weighted average common shares outstanding of 47.6 million for the three months ended December 31, 2017.

($ in millions, except per share amounts)	Income Before Income Taxes		Income Tax Expense			Net Income		Earnings Per Diluted Share*
Three months ended December 31, 2016, as reported	$	8.3	$	(1.3	)	$	7.0	$	0.15
Special items:
None reported	—		—			—		—
Three months ended December 31, 2016, as adjusted	$	8.3	$	(1.3	)	$	7.0	$	0.15

* Impact per diluted share calculated using weighted average common shares outstanding of 47.1 million for the three months ended December 31, 2016.

($ in millions, except per share amounts)	Income Before Income Taxes		Income Tax Benefit (Expense)			Net Income			Earnings Per Diluted Share**
Six months ended December 31, 2017, as reported	$	68.9	$	46.6		$	115.5		$	2.41
Special items:
Impact of US tax reform and other legislative changes	—		(66.0		)	(66.0		)	(1.38		)
Six months ended December 31, 2017, as adjusted	$	68.9	$	(19.4	)	$	49.5		$	1.03

** Impact per diluted share calculated using weighted average common shares outstanding of 47.5 million for the six months endedDecember 31, 2017.

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($ in millions, except per share amounts)	Income Before Income Taxes		Income Tax (Expense) Benefit			Net Income		Earnings Per Diluted Share**
Six months ended December 31, 2016, as reported	$	3.0	$	(2.2	)	$	0.8	$	0.01
Special items:
Pension curtailment	0.5		(0.1		)	0.4		0.01
Income tax item*	—		2.1			2.1		0.04
Total impact of special items	0.5		2.0			2.5		0.05
Six months ended December 31, 2016, as adjusted	$	3.5	$	(0.2	)	$	3.3	$	0.06

* Discrete income tax charge recorded during the three months ended September 30, 2016 as a result of changes to prior year income taxes in connection with our decision to make a voluntary pension contribution in October 2016.

** Impact per diluted share calculated using weighted average common shares outstanding of 47.1 million for the six months endedDecember 31, 2016.

Management believes that the presentation of earnings per share adjusted to exclude the special items is helpful in analyzing the operating performance of the Company, as these items are not indicative of ongoing operating performance. Our definitions and calculations of these items may not necessarily be the same as those used by other companies. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, our Board of Directors and others. Adjusted earnings per share is not a U.S. GAAP financial measure and should not be considered in isolation of, or as a substitute for, earnings per share calculated in accordance with U.S. GAAP.

Free Cash Flow

The following provides a reconciliation of free cash flow, as used in this report, to its most directly comparable U.S. GAAP financial measures:

	Six Months Ended December 31,
($ in millions)	2017			2016
Net cash provided from (used for) operating activities	$	17.3		$	(25.4	)
Purchases of property, equipment and software	(55.7		)	(45.1		)
Dividends paid	(17.2		)	(17.0		)
Free cash flow	$	(55.6	)	$	(87.5	)

Management believes that the presentation of free cash flow provides useful information to investors regarding our financial condition because it is a measure of cash generated which management evaluates for alternative uses. It is management’s current intention to use excess cash to fund investments in capital equipment, acquisition opportunities and consistent dividend payments. Free cash flow is not a U.S. GAAP financial measure and should not be considered in isolation of, or as a substitute for, cash flows calculated in accordance with U.S. GAAP.

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Contingencies

Environmental

We are subject to various federal, state, local and international environmental laws and regulations relating to pollution, protection of public health and the environment, natural resource damages and occupational safety and health. Although compliance with these laws and regulations may affect the costs of our operations, compliance costs to date have not been material. We have environmental remediation liabilities at some of our owned operating facilities and have been designated as a PRP with respect to certain third party Superfund waste-disposal sites and other third party-owned sites. We accrue amounts for environmental remediation costs that represent our best estimate of the probable and reasonably estimable future costs related to environmental remediation. During the six months ended December 31, 2017, the company increased the liability for a company-owned former operating site by $0.1 million. The liabilities recorded for environmental remediation costs at Superfund sites, other third party-owned sites and Carpenter-owned current or former operating facilities remaining at December 31, 2017 and June 30, 2017 were $16.2 million and $16.1 million, respectively. Additionally, we have been notified that we may be a PRP with respect to other Superfund sites as to which no proceedings have been instituted against us. Neither the exact amount of remediation costs nor the final method of their allocation among all designated PRPs at these Superfund sites have been determined. Accordingly, at this time, we cannot reasonably estimate expected costs for such matters. The liability for future environmental remediation costs that can be reasonably estimated is evaluated on a quarterly basis.

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 our financial position, results of operations or cash flows over the long-term.  However, such costs could be material to our financial position, results of operations or cash flows in a particular future quarter or year.

Other

 We are defending various routine claims and legal actions that are incidental to our business, and that are common to our operations, including those pertaining to product claims, commercial disputes, patent infringement, employment actions, employee benefits, compliance with domestic and foreign laws, personal injury claims and tax issues. Like many other manufacturing companies in recent years we, from time to time, have 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. We provide 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 our 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, we believe that the total liability from these matters will not have a material effect on our 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 our financial position, results of operations or cash flows in a particular future quarter or year.

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Critical Accounting Policies and Estimates

A summary of other significant accounting policies is discussed in our 2017 Form 10-K Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and in Note 1, Summary of Significant Accounting Policies, of the Notes to our consolidated financial statements included in Part II, Item 8 thereto.

Goodwill

Goodwill is not amortized, but instead is tested for impairment, at least annually at the reporting unit level.  Potential impairment is identified by comparing the fair value of a reporting unit to its carrying value.  The fair value is estimated based principally upon discounted cash flow analysis.  If the carrying value of the reporting unit exceeds its fair value, any impairment loss is measured by comparing the carrying value of the reporting unit’s goodwill to its implied fair value.  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 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. The discount rates used in the discounted cash flow are estimated based on a market participant’s perspective of each reporting unit's weighted average cost of capital.  The terminal value, which represents the value attributed to the reporting unit beyond the forecast period, is estimated using a perpetuity growth rate assumption. The income tax rates used in the discounted cash flow analysis represent estimates of the long-term statutory income tax rates for each reporting unit based on the jurisdictions in which the reporting units operate.

As of June 30, 2017, we had four reporting units with goodwill recorded. Goodwill associated with our SAO reporting unit is tested at the SAO segment level and represents approximately 75 percent of our total goodwill. All other goodwill is associated with our PEP segment, which includes 3 reporting units with goodwill recorded.

As of June 30, 2017, the fair value of the SAO reporting unit exceeded the carrying value by approximately 20 percent. The goodwill recorded related to the SAO reporting unit as of June 30, 2017 was $195.5 million. The discounted cash flows analysis for the 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, we used a weighted average cost of capital of 10 percent and a terminal growth rate assumption of 3 percent.

The estimate of fair value requires significant judgment. We based our fair value estimates on assumptions that we believe to be reasonable but that are unpredictable and inherently uncertain, including estimates of future growth rates and operating margins and assumptions about the overall economic climate and the competitive environment for our business units. There can be no assurance that our estimates and assumptions made for purposes of our goodwill and identifiable intangible asset testing as of the time of testing will prove to be accurate predictions of the future. If our assumptions regarding business projections, competitive environments or anticipated growth rates are not correct, we may be required to record goodwill and/or intangible asset impairment charges in future periods, whether in connection with our next annual impairment testing or earlier, if an indicator of an impairment is present before our next annual evaluation.

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Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected, anticipated or implied. The most significant of these uncertainties are described in Carpenter’s filings with the Securities and Exchange Commission, including its report on Form 10-K for the year ended June 30, 2017, Form 10-Q for the quarter ended September 30, 2017, and the exhibits attached to those filings. They include but are not limited to: (1) the cyclical nature of the specialty materials business and certain end-use markets, including aerospace, defense, industrial, transportation, consumer, medical, and energy, or other influences on Carpenter’s business such as new competitors, the consolidation of competitors, customers, and suppliers or the transfer of manufacturing capacity from the United States to foreign countries; (2) the ability of Carpenter to achieve cash generation, growth, earnings, profitability, operating income, cost savings and reductions, qualifications, productivity improvements or process changes; (3) the ability to recoup increases in the cost of energy, raw materials, freight or other factors; (4) domestic and foreign excess manufacturing capacity for certain metals; (5) fluctuations in currency exchange rates; (6) the degree of success of government trade actions; (7) the valuation of the assets and liabilities in Carpenter’s pension trusts and the accounting for pension plans; (8) possible labor disputes or work stoppages; (9) the potential that our customers may substitute alternate materials or adopt different manufacturing practices that replace or limit the suitability of our products; (10) the ability to successfully acquire and integrate acquisitions; (11) the availability of credit facilities to Carpenter, its customers or other members of the supply chain; (12) the ability to obtain energy or raw materials, especially from suppliers located in countries that may be subject to unstable political or economic conditions; (13) Carpenter’s manufacturing processes are dependent upon highly specialized equipment located primarily in facilities in Reading and Latrobe, Pennsylvania and Athens, Alabama for which there may be limited alternatives if there are significant equipment failures or a catastrophic event; (14) the ability to hire and retain key personnel, including members of the executive management team, management, metallurgists and other skilled personnel; and (15) fluctuations in oil and gas prices and production. Any of these factors could have an adverse and/or fluctuating effect on Carpenter’s results of operations. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended. Carpenter undertakes no obligation to update or revise any forward-looking statements.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We use derivative financial instruments to reduce certain types of financial risk. Firm price sales arrangements involve a risk of profit margin fluctuations particularly as raw material prices have been volatile. As discussed in Note 10 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, “Financial Statements”, in order to reduce the risk of fluctuating profit margins on these sales, we enter into commodity forward contracts to purchase certain critical raw materials necessary to produce the products sold under the firm price sales arrangements. If a customer fails to perform its obligations under the firm price sales arrangements, we may realize losses as a result of the related commodity forward contracts.

We are actively involved in managing risks associated with energy resources. Risk containment strategies include interaction with primary and secondary energy suppliers as well as obtaining adequate insurance coverage to compensate us for potential business interruption related to lack of availability of energy resources. In addition, we have used forwards and options to fix the price of a portion of our anticipated future purchases of certain energy requirements to protect against the impact of significant increases in energy costs. We also use surcharge mechanisms to offset a portion of these charges where appropriate.

Fluctuations in foreign currency exchange rates could subject us to risk of losses on anticipated future cash flows from our international operations or customers. Foreign currency forward contracts are used to hedge certain foreign exchange risks.

We use interest rate swaps to achieve a level of floating rate debt relative to fixed rate debt where appropriate.  Historically, we have entered into forward interest rate swap contracts to manage the risk of cash flow variability associated with fixed interest debt expected to be issued.

All hedging strategies are reviewed and approved by senior financial management before being implemented. Senior financial management has established policies regarding the use of derivative instruments that prohibit the use of speculative or leveraged derivatives. Market valuations are performed at least quarterly to monitor the effectiveness of our risk management programs.

Based on the current funding level, the allocation policy for pension plan assets is to have approximately 60 percent in return seeking assets and 40 percent in liability matching assets. Return seeking assets include domestic and international equities and diversified loan funds. Liability matching assets include long duration bond funds.

The status of our financial instruments as of December 31, 2017 is provided in Note 10 to the consolidated financial statements included in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. Assuming either of the following occurred on December 31, 2017, (a) an instantaneous 10 percent decrease in the price of raw materials and energy for which we have commodity forward contracts, or (b) a 10 percent strengthening of the U.S. dollar versus foreign currencies for which foreign exchange forward contracts existed, our results of operations would not have been materially affected in either scenario.

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Item 4. Controls and Procedures

(a) Evaluation of Effectiveness of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a—15(e) and 15d—15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2017. Based on that evaluation, our management, including the President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures as of December 31, 2017 were effective in providing a reasonable level of assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required under the Securities and Exchange Commission’s rules and forms, including a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to the Company’s management, including the Company’s President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2017 that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Pending legal proceedings involve ordinary routine litigation incidental to our business, which we do not believe would have a material adverse effect on our business regardless of their outcome. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contingencies.”

Item 1A. Risk Factors

We have evaluated the risks associated with our business and operations and determined that those risk factors included in Part 1, Item 1A of our 2017 Annual Report on Form 10-K adequately disclose the material risks that we face.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no reportable purchases during the quarter ended December 31, 2017, however employees surrendered 249 shares to the Company, at an average purchase price of $48.61, during such quarter for the payment of the minimum tax liability withholding obligations upon the vesting of shares of restricted stock and the exercise of options. We do not consider this a share buyback program.

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Item 6. Exhibits

Exhibit No.	Description
10.A	Amended and Restated Carpenter Technology Corporation Change in Control Severance Plan. (filed herewith)
31 (A)	Certification of President and Chief Executive Officer pursuant to Rule 13a—14(a) and Rule 15d—14(a) of the Securities Exchange Act, as amended. (filed herewith)
31 (B)	Certification of Senior Vice President and Chief Financial Officer pursuant to Rule 13a—14(a) and Rule 15d—14(a) of the Securities Exchange Act, as amended. (filed herewith)
32	Certification of President and Chief Executive Officer and Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith)
101	The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2017, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated Statements of Changes in Equity; and (vi) the Notes to the Consolidated Financial Statements.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized officer.

	Carpenter Technology Corporation
	(Registrant)
Date: February 1, 2018	/s/ Damon J. Audia
	Damon J. Audia
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

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Exhibit Index

Exhibit No.	Description
10.A	Amended and Restated Carpenter Technology Corporation Change in Control Severance Plan.
31 (A)	Certification of President and Chief Executive Officer pursuant to Rule 13a—14(a) and Rule 15d—14(a) of the Securities Exchange Act, as amended.
31 (B)	Certification of Senior Vice President and Chief Financial Officer pursuant to Rule 13a—14(a) and Rule 15d—14(a) of the Securities Exchange Act, as amended.
32	Certification of President and Chief Executive Officer and Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2017, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated Statements of Changes in Equity; and (vi) the Notes to the Consolidated Financial Statements.

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EX-10.A

Exhibit 10.A

AMENDED AND RESTATED

CARPENTER TECHNOLOGY CORPORATION

CHANGE IN CONTROL SEVERANCE PLAN

INTRODUCTION

As is the case with many publicly held corporations, there exists the possibility of a Change in Control of the Carpenter Technology Corporation (the “Company”). This possibility and the uncertainty it creates may result in the loss or distraction of employees of the Company and its Subsidiaries to the detriment of the Company and its stockholders. The avoidance of such loss and distraction is essential to protecting and enhancing the best interests of the Company and its stockholders.

When a Change in Control is perceived as imminent, or is occurring, the Company should be able to receive and rely on disinterested service from employees regarding the best interests of the Company and its stockholders without concern that employees might be distracted or concerned by the personal uncertainties and risks created by the perception of an imminent or occurring Change in Control.

It is consistent with the employment practices and policies of the Company and its Subsidiaries and in the best interests of the Company and its stockholders to treat fairly its employees whose employment terminates in connection with or following a Change in Control. Accordingly, it has been determined that appropriate steps should be taken to assure the Company and its Subsidiaries of the continued employment and attention and dedication to duty of their employees and to seek to ensure the availability of their continued service, notwithstanding the possibility, threat or occurrence of a Change in Control.

Therefore, in order to fulfill the above purposes, the Carpenter Technology Corporation Change in Control Severance Plan was developed and adopted.

The Company now desires to make certain amendments to the Carpenter Technology Corporation Change in Control Severance Plan.

Therefore, in order to fulfill the immediately preceding purpose, the Carpenter Technology Corporation Change in Control Severance Plan has been amended and restated in its entirety effective October 10, 2017, with the exception of certain prospective amendments, if any, which are effective on such other dates as set forth herein.

ARTICLE I

ESTABLISHMENT OF PLAN

As of the Effective Date, the Company established a separation compensation plan known as the Carpenter Technology Corporation Change in Control Severance Plan (the “Plan”), as amended and restated in this document.

This restatement of the Plan shall apply to terminations occurring on or after October 10, 2017.

ARTICLE II

DEFINITIONS

As used herein the following words and phrases shall have the following meanings unless the context clearly indicates otherwise:

(a) Affiliated Company. Any company controlled by, controlling or under common control with the Company.

(b) Annual Salary. The Participant’s regular annual base salary immediately prior to his termination of employment, including compensation converted to other benefits under a flexible pay arrangement maintained by the Company or any Subsidiary or deferred pursuant to a written plan or agreement with the Company or any Subsidiary, but excluding overtime pay, allowances, premium pay, compensation paid or payable under any Company bonus or incentive plan of the Company or any Subsidiary or any similar payment.

(c) Board. The Board of Directors of the Company.

(d) Cause. Any termination of a Participant’s employment with the Company or a Subsidiary which results from:

(i) Participant’s conviction of a crime involving moral turpitude;

(ii) Participant becoming incapable of performing the duties of his employment with Company or Subsidiary due to loss or suspension of any license or certification required for the performance of those duties;

(iii) conduct by Participant that is found by Company or Subsidiary to constitute fraud, embezzlement, or theft that occurs during or in the course of Participant’s employment with Company or Subsidiary;

(iv) intentional damage by Participant to Company’s or Subsidiary’s assets or property or the assets or property of Company’s or Subsidiary’s customers, vendors, or employees;

(v) intentional disclosure by Participant of Company’s or Subsidiary’s confidential information contrary to Company’s or Subsidiary’s policies or instructions received by Participant during or in the course of Participant’s employment with Company or Subsidiary;

(vi) intentional engagement by Participant in any activity which would constitute a breach of duty of loyalty to Company or Subsidiary;

(vii) conduct by Participant found by Company or Subsidiary to constitute a willful and continued failure or refusal by Participant to substantially perform Participant’s duties for Company or Subsidiary (except as a result of incapacity due to physical or mental illness);

(viii) Participant’s failure to comply with Company’s or Subsidiary’s policies or practices despite having been advised and/or instructed regarding those policies or practices; or

(ix) conduct by Participant that is demonstrably and materially injurious to Company or Subsidiary, monetarily or otherwise, as determined by Company or Subsidiary, including injury to Company’s or Subsidiary’s reputation or conduct by Participant otherwise having an adverse effect upon Company’s or Subsidiary’s interests, as determined by Company or Subsidiary.

(e) Change in Control. The occurrence of any of the following events:

(i) Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of either (x) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (y) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company, or (D) any acquisition pursuant to a transaction that complies with clauses (A), (B), and (C) of paragraph (iii) of this definition of Change in Control;

(ii) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board during any 12 month period; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(iii) Consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company or the acquisition of the assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors (or, for a non-corporate entity, equivalent governing body), as the case may

be, of the entity resulting from such Business Combination (including, without limitation, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one (1) or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors (or, for a non-corporate entity, equivalent governing body) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

(iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

(f) Code. The Internal Revenue Code of 1986, as amended from time to time.

(g) Committee. The Compensation Committee of the Board.

(h) Company. Carpenter Technology Corporation and any successor or assignee to the business or assets which becomes bound by this Plan by reason of Article V.

(i) Date of Termination. The date on which a Participant ceases to be an Employee of an Employer within the meaning of Treasury Regulation Section 1.409A-1(h) and which constitutes a “separation from service.”

(j) Disability. A qualified physician designated by the Company or a Subsidiary has reviewed and approved the determination that a Participant is either:

(i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or

(ii) by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company or a Subsidiary.

(k) Effective Date. August 20, 2007.

(l) Employee. A full-time employee of an Employer and a member of the Employer’s “select group of management or highly compensated employees,” as defined in ERISA Sections 201(2), 301(a)(3), and 401(a)(1).

(m) Employer. The Company or any Subsidiary (or any parent corporation of the Company or any of such parent corporation’s subsidiaries) by which a Participant is employed.

(n) ERISA. The Employee Retirement Income Security Act of 1974, as amended from time to time.

(o) Good Reason. A Participant’s voluntary termination of employment within the ninety (90) day period following the initial existence of one (1) or more of the following conditions arising without the Participant’s consent:

(i) a material diminution in the Participant’s Annual Salary;

(ii) a material permanent diminution in the Participant’s authority, duties, or responsibilities;

(iii) a material change in the geographic location at which the Participant must perform services which is at least fifty (50) miles from his current principal place of work;

(iv) change in title from Chief Executive Officer or Chief Financial Officer to a non-Chief Executive Officer or non-Chief Financial Officer title; or

(v) any other action or inaction that constitutes a material breach by the Company or a Subsidiary of any employment agreement between the Participant and the Company or Subsidiary; and

within thirty (30) days following the initial existence of a condition described in subsections (i) through (iv) above, the Participant must provide notice to the Company or Subsidiary of the existence of the condition, and the Company or Subsidiary must fail to remedy the condition within thirty (30) days of receipt of such notice.

(p) Participant. Any Employee of the Employer at Hay pay grade level 22 or higher, any Employee of the Employer in an equivalent position who is designated as a Participant by the Chief Executive Officer of the Company, and until the later of October 10, 2020 or the third anniversary of the date on which notice of the amendment of this Section of the Plan is provided to Participants, any other Employee who was a Participant prior to the October 10, 2017 restatement of the Plan; provided, however, that no individual who is a party to a separately executed change in control or similar agreement with the Company or any of its Affiliated Companies entered into prior to a Change in Control shall be a Participant so long as such agreement remains in force. Each individual who is a Participant immediately prior to a Change in Control shall remain a Participant at least until the second anniversary of the Change in Control. Notwithstanding the foregoing, individuals employed primarily outside of the United States are not eligible to be Participants.

(q) Plan. Carpenter Technology Corporation Change in Control Severance Plan.

(r) Separation Benefits. The benefits described in Section 4.2 and Appendices A, B and C that are provided to qualifying Participants under the Plan.

(s) Subsidiary. Any corporation in which the Company, directly or indirectly, holds a majority of the voting power of such corporation’s outstanding shares of capital stock.

(t) Target Annual Bonus. The Participant’s target bonus under the Company’s annual incentive plans for the fiscal year in which such Participant’s Date of Termination occurs (or, if no target bonus has been set for such fiscal year, the Participant’s target bonus for the immediately preceding fiscal year).

ARTICLE III

ELIGIBILITY

A Participant shall cease to be a Participant in the Plan only as a result of an amendment or termination of the Plan complying with Article VI of the Plan, or when the Participant ceases to be an Employee of any Employer, unless, at the time the Participant ceases to be an Employee, such Participant is entitled to payment of a Separation Benefit as provided in the Plan. A Participant entitled to payment of a Separation Benefit or any other amounts under the Plan shall remain a Participant in the Plan until the full amount of the Separation Benefit and any other amounts payable under the Plan have been paid to the Participant.

ARTICLE IV

SEPARATION BENEFITS

4.1 Terminations of Employment Which Give Rise to Separation Benefits Under This Plan. A Participant shall be entitled to Separation Benefits as set forth in Section 4.2 below if, at any time during the two-year period immediately following a Change in Control, the Participant’s employment is terminated (i) by the Employer for any reason other than Cause, death, or Disability or (ii) by the Participant for Good Reason.

4.2 Separation Benefits. If a Participant’s employment is terminated in circumstances entitling such Participant to Separation Benefits pursuant to Section 4.1, the Company shall provide to such Participant, within ten (10) days following the Date of Termination, a lump sum cash payment and outplacement services as set forth in Appendix A, B or C, as applicable. The Chief Executive Officer of the Company shall designate which Appendix shall apply to each Employee of the Employer who he designated as a Participant. Any Participant who is demoted to Hay pay grade level 21 or below shall be entitled to Separation Benefits under Appendix C. For purposes of determining the Separation Benefits set forth in Appendix A, B or C, if the termination of the Participant’s employment is for Good Reason based upon a reduction of the Participant’s Annual Salary, opportunity to earn Target Annual Bonuses, or other compensation or employee benefits, such reduction shall be ignored.

4.3 Other Benefits Payable. To the extent not theretofore paid or provided, the Company shall timely pay or provide (or cause to be paid or provided) to a Participant entitled to the Separation Benefits, any amounts or benefits required to be paid or provided to the Participant, or which the Participant is eligible to receive, under the General Retirement Plan for Employees of Carpenter Technology Corporation (the “GRP”), and the Separation Benefits shall be reduced, dollar for dollar (but not below zero), by any amounts received by the Participant pursuant to the GRP. Any other severance pay or pay in lieu of notice required to be paid to such Participant under applicable law or under any other severance pay plan or policy of the Company or any Employer, including, without limitation, under the Severance Pay Plan for Salaried Employees of Carpenter Technology Corporation (but excluding the GRP) shall be reduced, dollar for dollar (but not below zero), by the Separation Benefits. The Separation Benefits shall in no event affect a Participant’s eligibility for or entitlement to benefits under the GRP or any other qualified or nonqualified retirement or pension benefit or welfare or fringe benefit plan, program, policy, practice, contract or agreement of the Company and its Affiliated Companies. Without limiting the generality of the foregoing, the Participant’s resignation under this Plan with or without Good Reason,

shall in no way affect the Participant’s ability to terminate employment by reason of the Participant’s “retirement” under any compensation and benefits plans, programs or arrangements of the Affiliated Companies, including without limitation any retirement or pension plans or arrangements or to be eligible to receive benefits under any compensation or benefit plans, programs or arrangements of the Affiliated Companies, including without limitation any retirement or pension plan or arrangement of the Affiliated Companies or substitute plans adopted by the Company or its successors, and any termination which otherwise qualifies as Good Reason shall be treated as such even if it is also a “retirement” for purposes of any such plan.

4.4 Certain Reduction of Payments by the Company.

(a) Reduction of Certain Payments. For purposes of this Section 4.4: (i) a “Payment” shall mean any payment or distribution in the nature of compensation to or for the benefit of the Participant, whether paid or payable pursuant to this Plan or otherwise; (ii) “Plan Payment” shall mean a Payment paid or payable pursuant to this Plan (disregarding this Section 4.4); (iii) “Present Value” shall mean such value determined in accordance with Sections 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code; and (iv) “Reduced Amount” shall mean an amount expressed in Present Value that maximizes the aggregate Present Value of Plan Payments without causing any Payment to be nondeductible by the Company or Employer because of Section 280G of the Code.

(b) Anything in this Plan to the contrary notwithstanding, in the event PricewaterhouseCoopers LLP or such other accounting firm selected by the Company prior to the Change in Control (the “Accounting Firm”) shall determine that receipt of all Payments would subject the Participant to tax under Section 4999 of the Code, the aggregate Plan Payments shall be reduced (but not below zero) to meet the definition of Reduced Amount.

(c) If the Accounting Firm determines that aggregate Plan Payments should be reduced to the Reduced Amount, the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof, and the Participant may then elect, in his sole discretion, which and how much of the Plan Payments shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Plan Payments equals the Reduced Amount), and shall advise the Company in writing of his election within 30 days of his receipt of notice. If no such election is made by the Participant within such 30-day period, the Company may elect which of such Plan Payments shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Plan Payments equals the Reduced Amount) and shall notify the Participant promptly of such election. All determinations made by the Accounting Firm under this Section shall be binding upon the Company and the Participant and shall be made within 60 days of a termination of employment of the Participant. As promptly as practicable following such determination, the Company shall pay to or distribute for the benefit of the Participant such Plan Payments as are then due to the Participant under this Plan and shall promptly pay to or distribute for the benefit of the Participant in the future such Plan Payments as become due to the Participant under this Plan.

(d) As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of the Participant pursuant to this Plan which should not have been so paid or distributed (“Overpayment”) or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of the Participant pursuant to this Plan could have been so paid or distributed (“Underpayment”), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Accounting Firm, based upon the assertion of a

deficiency by the Internal Revenue Service against either the Company or the Participant which the Accounting Firm believes has a high probability of success determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of the Participant shall be treated for all purposes as a loan to the Participant which the Participant shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by the Participant to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which the Participant is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Accounting Firm, based upon controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Participant together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

(e) All fees and expenses of the Accounting Firm in implementing the provisions of this Section 4.4 shall be borne by the Company.

ARTICLE V

SUCCESSOR TO COMPANY

5.1 This Plan shall bind any successor of the Company or to all or substantially all of its assets or its businesses (whether direct or indirect, by purchase, merger, consolidation or otherwise), in the same manner and to the same extent that the Company would be obligated under this Plan if no succession had taken place.

5.2 In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by this Plan, the Company shall require such successor expressly and unconditionally to assume and agree to perform the Company’s obligations under this Plan, in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

ARTICLE VI

DURATION, AMENDMENT AND TERMINATION

6.1 Duration of Plan. If a Change in Control has not occurred and the Board does not have knowledge of an event that could reasonably be expected to constitute a Change in Control, this Plan may be terminated by resolution adopted by the Board; provided that the Participants are given written notice of such termination three (3) years in advance of such termination. If a Change in Control occurs while this Plan is in effect, this Plan shall continue in full force and effect for at least two (2) years following such Change in Control, and shall not terminate or expire until after all Participants who become entitled to any payments hereunder shall have received such payments in full.

6.2 Amendment or Termination. The Board may amend or terminate this Plan; provided, that this Plan may not be terminated or amended in a manner adverse to Participants prior to the third anniversary of the date on which notice of such amendment or termination is provided to the Participants or during the two-year period following a Change in Control.

6.3 Procedure for Extension, Amendment or Termination. Any extension, amendment or termination of this Plan by the Board in accordance with the foregoing shall be made by action of the Board in accordance with the Company’s charter and by-laws and applicable law.

6.4 Delegation of Power to Amend or Terminate. The powers of the Board under this Section 6 are herebydelegated to the Committee.

ARTICLE VII

MISCELLANEOUS

7.1 Full Settlement. The Company’s obligation to make the payments provided for under this Plan and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against a Participant or others. In no event shall a Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Participant under any of the provisions of this Plan and such amounts shall not be reduced whether or not the Participant obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which a Participant may reasonably incur as a result of any contest by the Company, the Participant or others of the validity or enforceability of, or liability under, any provision of this Plan or any guarantee of performance thereof (including as a result of any contest by the Participant about the amount of any payment pursuant to this Plan), provided, that the Participant shall be required to reimburse the Company for such payments if the Participant does not prevail on substantially all of the issues in connection with such dispute.

7.2 Employment Status. This Plan does not constitute a contract of employment or impose on the Participant or the Participant’s Employer any obligation for the Participant to remain an Employee or change the status of the Participant’s employment or the policies of the Company and its Subsidiaries regarding termination of employment. For purposes of this Plan, employment with any of the Company’s Subsidiaries or any parent corporation of the Company or any of its subsidiaries shall be treated as continued employment with the Company.

7.3 Confidential Information. Each Participant shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its Affiliated Companies, and their respective businesses, which shall have been obtained by the Participant during the Participant’s employment by the Company or any of its Affiliated Companies and which shall not be or become public knowledge (other than by acts by the Participant or representatives of the Participant in violation of this Plan). After termination of a Participant’s employment with the Company, the Participant shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 7.3 constitute a basis for deferring or withholding any amounts otherwise payable under this Plan.

7.4 Named Fiduciary; Administration. The Company is the named fiduciary of the Plan, and shall administer the Plan, acting through the Committee.

7.5 Claim Procedure. If an Employee or former Employee makes a written request alleging a right to receive benefits under this Plan or alleging a right to receive an adjustment in benefits being paid under the Plan, the Committee shall treat it as a claim for benefit. All claims for benefit under the Plan shall be sent to the Committee and must be received within 30 days after termination of employment. If the Committee determines that any individual who has claimed a right to receive benefits, or different benefits, under the Plan is not entitled to receive all or any part of the benefits claimed, it will inform the claimant in writing of its determination and the reasons therefor in a manner calculated to be understood

by the claimant. The notice will be sent within 60 days of the claim. The notice shall make specific reference to the reasons for denial and pertinent Plan provisions on which the denial is based, and describe any additional material or information necessary for the claim to succeed and a description of why it is necessary. Such notice shall, in addition, inform the claimant what procedure the claimant should follow to take advantage of the review procedures set forth below in the event the claimant desires to contest the denial of the claim. The claimant may within 90 days thereafter submit in writing to the Committee a notice that the claimant contests the denial of his claim by the Committee and desires a further review. The Committee shall within 60 days thereafter review the claim and authorize the claimant to appear personally and review pertinent documents and submit issues and comments relating to the claim to the persons responsible for making the determination on behalf of the Committee. The Committee will render its final decision with specific reasons therefor and in a manner calculated to be understood by the claimant, and will transmit it to the claimant within 60 days of the written request for review. If the Committee fails to respond to a claim filed in accordance with the foregoing within 60 days, the Committee shall be deemed to have denied the claim. This Section 7.5 shall not serve to prohibit any Participant from bringing an action in a court of competent jurisdiction to enforce his rights under the Plan after satisfaction of the foregoing procedures. Notwithstanding the foregoing, the claims and appeals procedure provided for in this Section 7.5 will be provided for the use and benefit of Participants who may choose to use such procedures, but compliance with the provisions of these claims and appeals procedures will not be mandatory for any Participant claiming benefits after a Change in Control. It will not be necessary for any Participant to exhaust these procedures and remedies after a Change in Control prior to bringing any legal claim or action, or asserting any other demand, for payments or other benefits to which such participant claims entitlement.

7.6 Unfunded Plan Status. All payments pursuant to the Plan shall be made from the general funds of the Company and no special or separate fund shall be established or other segregation of assets made to assure payment. No Participant or other person shall have under any circumstances any interest in any particular property or assets of the Company as a result of participating in the Plan. Notwithstanding the foregoing, the Company may (but shall not be obligated to) create one (1) or more grantor trusts, the assets of which are subject to the claims of the Company’s creditors, to assist it in accumulating funds to pay its obligations under the Plan.

7.7 Validity and Severability. The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision of the Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

7.8 Governing Law. The validity, interpretation, construction and performance of the Plan shall in all respects be governed by the laws of the State of Delawarewithout reference to principles of conflict of law, except to the extent pre-empted by Federal law.

7.9 Top-Hat Plan. For purposes of ERISA, the Plan is intended to constitute a “top-hat” plan, as described in Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA and the regulations promulgated thereunder.

7.10 Section 409A. Notwithstanding any provision of this Plan to the contrary, to the extent that the benefits provided under subsections (b) and (c) of Appendices A, B and C, Section 4.4, and Section 7.1 are not “disability pay” or “death benefit” plans within the meaning of Treasury Regulation Section 1.409A-1(a)(5), then (i) the amount of such benefits provided during one (1) calendar year shall not affect the amount of such benefits provided in any other taxable year, except to the extent such

benefits consist of the reimbursement of expenses referred to in Section 105(b) of the Code in which case a limitation may be imposed on the amount of such reimbursements as described in Treasury Regulation Section 1.409A-3(i)(1)(iv)(B); (ii) any benefits that are reimbursements must be made on or before the last day of the calendar year following the calendar year in which the fee or expense was incurred (provided, that the Participant shall have submitted an invoice for such fee or expense at least 10 days before the end of the calendar year next following the calendar year in which such fee or expense was incurred) or, in the case of the benefits under Section 4.4, the tax was due to the applicable taxing authority; and (iii) to the extent any such benefit is an in-kind benefit, such benefit may not be liquidated or exchanged for another benefit. In addition, within the time period permitted by the applicable Treasury Regulations, the Company may, in consultation with the Participant, modify the Plan, in the least restrictive manner necessary and without any diminution in the value of the payments to the Participant, in order to cause the provisions of the Plan to comply with the requirements of Section 409A of the Code, so as to avoid the imposition of taxes and penalties on the Participant pursuant to Section 409A of the Code. The Plan is intended to be exempt from the application of Code Section 409A. To the extent this Plan is determined to be subject to Code Section 409A and a provision of the Plan is contrary to or fails to address the requirements of Code Section 409A and related Treasury Regulations, the Plan shall be construed and administered as necessary to comply with such requirements to the extent allowed under applicable Treasury Regulations until the Plan is appropriately amended to comply with such requirements. Furthermore, to the extent this Plan is determined to be subject to Code Section 409A, any payment made on account of the termination of a “specified employee” (as determined under Treas. Reg. § 1.409A-1(i)) shall be made on the date that is six (6) months after the Employee’s Date of Termination to the extent necessary to comply with the requirements of Code Section 409A and related Treasury Regulations; provided, however, that the payments of vested amounts to which the Employee would have been entitled during such 6-month period, but for this Section, shall be accumulated and paid to the Employee on the first (1st) day of the seventh (7th) month following the Employee’s Date of Termination.

APPENDIX A

(Hay pay grade level 31)

If the Participant is (i) an Employee of the Employer at Hay pay grade level 31 or (ii) designated as entitled to receive Separation Benefits under this Appendix A by the Chief Executive Officer of the Company, either, on the Date of Termination, he shall receive the following Separation Benefits in accordance with Section 4.2. Notwithstanding the foregoing, a Participant whose Date of Termination occurs prior to the later of October 10, 2020 or the third anniversary of the date on which notice of the amendment of this Appendix to the Plan is provided to Participants and who would be a Chief Executive Officer / E4 Profile had the Employer continued to use such classifications, shall receive the greater of the Separation Benefits provided under this Appendix or the Appendix applicable to his Hay pay grade level on the Date of Termination.

(a) A cash lump sum which shall be the aggregate of the amounts set forth in clauses (i), (ii), (iii) and (iv):

(i) the sum of (A) any portion of the Participant’s Annual Salary earned through the Date of Termination that was not previously paid and (B) any accrued vacation pay, in each case to the extent not theretofore paid and in full satisfaction of the rights of the Participant thereto;

(ii) an amount equal to three (3) times the Participant’s Annual Salary;

(iii) an amount equal to one (1) times the Participant’s Target Annual Bonus; and

(iv) an amount equal to thirty-six (36) months of the Employer and Employee portion of the cost at the Date of Termination of continuing group medical, prescription and dental coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), with interest on one-half of such amount at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

(b) The Company shall at its sole expense provide the Participant with reasonable outplacement services during the one-year period following the Participant’s Date of Termination. The Participant shall not, however, be entitled to any payment in lieu of accepting outplacement assistance services.

(c) If the Participant (and eligible family members) desires to elect COBRA, the Employer shall continue to permit the Participant (and eligible family members) to maintain such coverage at his (or their) sole expense until the end of the COBRA period, subject to the terms of such plan and applicable law.

(d) Any reimbursements or in-kind benefits provided under this Plan that are subject to Code Section 409A shall be made or provided in accordance with the requirements of Code Section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the period of time specified in the Plan, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year, (iii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit. 

APPENDIX B

(Hay pay grade level 23 to 30)

If the Participant is (i) an Employee of the Employer at Hay pay grade level 23 to 30 or (ii) designated as entitled to receive Separation Benefits under this Appendix B by the Chief Executive Officer of the Company, either, on the Date of Termination, he shall receive the following Separation Benefits in accordance with Section 4.2. Notwithstanding the foregoing, a Participant whose Date of Termination occurs prior to the later of October 10, 2020 or the third anniversary of the date on which notice of the amendment of this Appendix to the Plan is provided to Participants and who would be an Executive Vice President or Senior Vice President / E3 Profile had the Employer continued to use such classifications, shall receive the greater of the Separation Benefits provided under this Appendix or the Appendix applicable to his Hay pay grade level on the Date of Termination.

(a) A cash lump sum which shall be the aggregate of the amounts set forth in clauses (i), (ii), (iii) and (iv):

(i) the sum of (A) any portion of the Participant’s Annual Salary earned through the Date of Termination that was not previously paid and (B) any accrued vacation pay, in each case to the extent not theretofore paid and in full satisfaction of the rights of the Participant thereto;

(ii) an amount equal to two (2) times the Participant’s Annual Salaray;

(iii) an amount equal to one (1) times the Participant’s Target Annual Bonus; and

(iv) an amount of twenty-four (24) months of the Employer and Employee portion of the cost at the Date of Termination of continuing group medical, prescription and dental coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), with interest on the one-quarter of such amount at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

(b) The Company shall at its sole expense provide the Participant with reasonable outplacement services during the one-year period following the Participant’s Date of Termination. The Participant shall not, however, be entitled to any payment in lieu of accepting outplacement assistance services.

(c) If the Participant (and eligible family members) desires to elect COBRA, the Employer shall continue to permit the Participant (and eligible family members) to maintain such coverage at his (or their) sole expense until the end of the COBRA period, subject to the terms of such plan and applicable law.

(d) Any reimbursements or in-kind benefits provided under this Plan that are subject to Code Section 409A shall be made or provided in accordance with the requirements of Code Section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the period of time specified in the Plan, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year, (iii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

APPENDIX C

(Hay pay grade level 22)

If the Participant is (i) an Employee of the Employer at Hay pay grade level 22, (ii) designated as entitled to receive Separation Benefits under this Appendix C by the Chief Executive Officer of the Company, or (iii) entitled to Separation Benefits under this Appendix C because he is demoted to Hay pay grade level 21 or below, each, on the Date of Termination, he shall receive the following Separation Benefits in accordance with Section 4.2. Notwithstanding the foregoing, a Participant whose Date of Termination occurs prior to the later of October 10, 2020 or the third anniversary of the date on which notice of the amendment of this Appendix to the Plan is provided to Participants and who would be a Vice President or Assistant Vice President / E1 or E2 Profile had the Employer continued to use such classifications, shall receive the greater of the Separation Benefits provided under this Appendix or the Appendix applicable to his Hay pay grade level on the Date of Termination.

(a) A cash lump sum which shall be the aggregate of the amounts set forth in clauses (i), (ii), (iii) and (iv):

(i) the sum of (A) any portion of the Participant’s Annual Salary earned through the Date of Termination that was not previously paid and (B) any accrued vacation pay, in each case to the extent not theretofore paid and in full satisfaction of the rights of the Participant thereto;

(ii) an amount equal to one (1) times the Participant’s Annual Salary;

(iii) an amount equal to one (1) times the Participant’s Target Annual Bonus; and

(iv) an amount of twelve (12) months of the Employer and Employee portion of the cost at the Date of Termination of continuing group medical, prescription and dental coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”).

(b) The Company shall at its sole expense provide the Participant with reasonable outplacement services during the one-year period following the Participant’s Date of Termination. The Participant shall not, however, be entitled to any payment in lieu of accepting outplacement assistance services.

(c) If the Participant (and eligible family members) desires to elect COBRA, the Employer shall continue to permit the Participant (and eligible family members) to maintain such coverage at his (or their) sole expense until the end of the COBRA period, subject to the terms of such plan and applicable law.

(d) Any reimbursements or in-kind benefits provided under this Plan that are subject to Code Section 409A shall be made or provided in accordance with the requirements of Code Section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the period of time specified in the Plan, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year, (iii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

EX-31.A

Exhibit 31 (A)

CERTIFICATIONS OF PERIODIC REPORTS PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Tony R. Thene, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of the Carpenter Technology Corporation (the “Registrant”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

(d) Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: February 1, 2018	/s/ Tony R. Thene
	Tony R. Thene
	President and Chief Executive Officer

EX-31.B

Exhibit 31 (B)

CERTIFICATIONS OF PERIODIC REPORTS PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Damon J. Audia, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of the Carpenter Technology Corporation (the “Registrant”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

(d) Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: February 1, 2018	/s/ Damon J. Audia
	Damon J. Audia
	Senior Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION OF PERIODIC FINANCIAL REPORTS PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Carpenter Technology Corporation (the “Issuer”) on Form 10-Q for the quarter ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Periodic Report”), I, Tony R. Thene, and I, Damon J. Audia, each hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Periodic Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and that information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Date: February 1, 2018
/s/ Tony R. Thene	/s/ Damon J. Audia
Tony R. Thene	Damon J. Audia
President and Chief Executive Officer	Senior Vice President and Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Dec. 31, 2017	Jan. 25, 2018
Document and Entity Information
Entity Registrant Name	CARPENTER TECHNOLOGY CORP
Entity Central Index Key	0000017843
Document Type	10-Q
Document Period End Date	Dec. 31, 2017
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		46,916,395
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Millions	Dec. 31, 2017	Jun. 30, 2017
Current assets:
Cash and cash equivalents	$ 20.7	$ 66.3
Accounts receivable, net	297.2	290.4
Inventories	771.8	690.4
Other current assets	69.8	46.5
Total current assets	1,159.5	1,093.6
Property, plant and equipment, net	1,298.7	1,316.8
Goodwill	263.4	263.4
Other intangibles, net	61.6	64.9
Deferred income taxes	4.1	7.6
Other assets	156.8	131.8
Total assets	2,944.1	2,878.1
Current liabilities:
Short-term credit agreement borrowings	9.3	0.0
Current portion of long-term debt	55.0	55.0
Accounts payable	205.1	201.1
Accrued liabilities	118.4	139.9
Total current liabilities	387.8	396.0
Long-term debt, net of current portion	548.3	550.0
Accrued pension liabilities	369.7	378.3
Accrued postretirement benefits	123.4	122.6
Deferred income taxes	128.1	184.8
Other liabilities	50.0	47.8
Total liabilities	1,607.3	1,679.5
Contingencies and commitments
STOCKHOLDERS’ EQUITY
Common stock — authorized 100,000,000 shares; issued 55,450,861 shares at December 31, 2017 and 55,349,658 shares at June 30, 2017; outstanding 46,894,896 shares at December 31, 2017 and 46,753,180 shares at June 30, 2017	277.3	276.7
Capital in excess of par value	294.4	284.8
Reinvested earnings	1,420.1	1,321.8
Common stock in treasury (8,555,965 shares and 8,596,478 shares at December 31, 2017 and June 30, 2017, respectively), at cost	(339.9)	(341.6)
Accumulated other comprehensive loss	(315.1)	(343.1)
Total stockholders' equity	1,336.8	1,198.6
Total liabilities and stockholders' equity	$ 2,944.1	$ 2,878.1

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CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - shares	Dec. 31, 2017	Jun. 30, 2017
Statement of Financial Position [Abstract]
Common stock authorized (in shares)	100,000,000	100,000,000
Common stock issued (in shares)	55,450,861	55,349,658
Common stock outstanding (in shares)	46,894,896	46,753,180
Common stock in treasury (in shares)	8,555,965	8,596,478

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CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) shares in Millions, $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Income Statement [Abstract]
Net sales	$ 487.8	$ 427.4	$ 967.5	$ 816.3
Cost of sales	402.1	364.9	796.2	707.8
Gross profit	85.7	62.5	171.3	108.5
Selling, general and administrative expenses	44.9	47.1	88.8	91.7
Operating income	40.8	15.4	82.5	16.8
Interest expense	(7.3)	(7.4)	(14.5)	(14.8)
Other income, net	0.2	0.3	0.9	1.0
Income before income taxes	33.7	8.3	68.9	3.0
Income tax (benefit) expense	(58.4)	1.3	(46.6)	2.2
Net income	$ 92.1	$ 7.0	$ 115.5	$ 0.8
EARNINGS PER COMMON SHARE:
Basic (in dollars per share)	$ 1.93	$ 0.15	$ 2.43	$ 0.01
Diluted (in dollars per share)	$ 1.92	$ 0.15	$ 2.41	$ 0.01
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic (in shares)	47.2	47.0	47.1	47.0
Diluted (in shares)	47.6	47.1	47.5	47.1
Cash dividends per common share (in dollars per share)	$ 0.18	$ 0.18	$ 0.36	$ 0.36

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Statement of Comprehensive Income [Abstract]
Net income	$ 92.1	$ 7.0	$ 115.5	$ 0.8
Other comprehensive income, net of tax
Pension and postretirement benefits, net of tax of $(0.8), $(3.5), $(2.1) and $(14.0), respectively	2.5	5.7	4.6	23.1
Net gain on derivative instruments, net of tax of $(5.6), $(2.4), $(10.4) and $(8.8), respectively	15.0	3.8	23.1	14.6
Foreign currency translation	(1.5)	(4.0)	0.3	(4.7)
Other comprehensive income	16.0	5.5	28.0	33.0
Comprehensive income	$ 108.1	$ 12.5	$ 143.5	$ 33.8

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - (Parenthetical) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Statement of Comprehensive Income [Abstract]
Pension and post-retirement benefits, tax (expense) benefit	$ (0.8)	$ (3.5)	$ (2.1)	$ (14.0)
Net loss on derivative instruments, tax expense (benefit)	$ (5.6)	$ (2.4)	$ (10.4)	$ (8.8)

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Millions	6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
OPERATING ACTIVITIES
Net income	$ 115.5	$ 0.8
Adjustments to reconcile net income to net cash provided from (used for) operating activities:
Depreciation and amortization	58.0	58.7
Deferred income taxes	(66.2)	39.1
Net pension expense	7.1	31.0
Share-based compensation expense	8.1	6.5
Loss on disposals of property and equipment	0.4	0.3
Changes in working capital and other:
Accounts receivable	(3.8)	0.8
Inventories	(81.5)	(74.2)
Other current assets	(17.6)	(5.6)
Accounts payable	11.8	17.2
Accrued liabilities	(6.2)	4.0
Pension plan contributions	(4.9)	(100.0)
Other postretirement plan contributions	(1.8)	(1.8)
Other, net	(1.6)	(2.2)
Net cash provided from (used for) operating activities	17.3	(25.4)
INVESTING ACTIVITIES
Purchases of property, equipment and software	(55.7)	(45.1)
Net cash used for investing activities	(55.7)	(45.1)
FINANCING ACTIVITIES
Credit agreement borrowings	0.0	80.0
Credit agreement repayments	0.0	(55.0)
Net change in short-term credit agreement borrowings	9.3	0.0
Dividends paid	(17.2)	(17.0)
Tax benefits on share-based compensation	0.0	0.3
Proceeds from stock options exercised	3.5	1.8
Withholding tax payments on share-based compensation awards	(0.6)	(0.4)
Net cash (used for) provided from financing activities	(5.0)	9.7
Effect of exchange rate changes on cash and cash equivalents	(2.2)	1.3
DECREASE IN CASH AND CASH EQUIVALENTS	(45.6)	(59.5)
Cash and cash equivalents at beginning of period	66.3	82.0
Cash and cash equivalents at end of period	20.7	22.5
Non-cash investing activities:
Acquisition of property, equipment and software	$ 5.8	$ 6.0

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited) - USD ($) $ in Millions	Total	Common Stock	Capital in Excess of Par Value	Reinvested Earnings	Common Stock in Treasury	Accumulated Other Comprehensive (Loss) Income
Balances, period start at Jun. 30, 2016	$ 1,104.9	$ 276.3	$ 273.5	$ 1,308.9	$ (343.9)	$ (409.9)
Increase (Decrease) in Stockholders' Equity
Net income	0.8			0.8
Pension and postretirement benefits gain, net of tax	23.1					23.1
Net gain on derivative instruments, net of tax	14.6					14.6
Foreign currency translation	(4.7)					(4.7)
Cash Dividends:
Common @ $0.36 per share	(17.0)			(17.0)
Share-based compensation plans	6.5		5.0		1.5
Stock options exercised	1.8	0.4	1.4
Tax windfall on share-based compensation	0.3		0.3
Balances, period end at Dec. 31, 2016	1,130.3	276.7	280.2	1,292.7	(342.4)	(376.9)
Balances, period start at Sep. 30, 2016						(382.4)
Increase (Decrease) in Stockholders' Equity
Net income	7.0
Pension and postretirement benefits gain, net of tax	5.7
Net gain on derivative instruments, net of tax	3.8
Foreign currency translation	(4.0)
Balances, period end at Dec. 31, 2016	1,130.3	276.7	280.2	1,292.7	(342.4)	(376.9)
Balances, period start at Jun. 30, 2017	1,198.6	276.7	284.8	1,321.8	(341.6)	(343.1)
Increase (Decrease) in Stockholders' Equity
Net income	115.5			115.5
Pension and postretirement benefits gain, net of tax	4.6					4.6
Net gain on derivative instruments, net of tax	23.1					23.1
Foreign currency translation	0.3					0.3
Cash Dividends:
Common @ $0.36 per share	(17.2)			(17.2)
Share-based compensation plans	8.4		6.7		1.7
Stock options exercised	3.5	0.6	2.9
Balances, period end at Dec. 31, 2017	1,336.8	277.3	294.4	1,420.1	(339.9)	(315.1)
Balances, period start at Sep. 30, 2017						(331.1)
Increase (Decrease) in Stockholders' Equity
Net income	92.1
Pension and postretirement benefits gain, net of tax	2.5
Net gain on derivative instruments, net of tax	15.0
Foreign currency translation	(1.5)
Balances, period end at Dec. 31, 2017	$ 1,336.8	$ 277.3	$ 294.4	$ 1,420.1	$ (339.9)	$ (315.1)

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited) - (Parenthetical) - $ / shares	3 Months Ended		6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Statement of Stockholders' Equity [Abstract]
Cash dividends per common share (in dollars per share)	$ 0.18	$ 0.18	$ 0.36	$ 0.36
Common stock, par value (in dollars per share)	$ 5	$ 5	$ 5	$ 5

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Basis of Presentation

6 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

Basis of Presentation

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 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, 2017 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’s annual report on Form 10-K for the fiscal year ended June 30, 2017 (the “2017 Form 10-K”). Operating results for the three and six months ended December 31, 2017 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”, the “Company”, “Registrant”, “Issuer”, “we” and “our” refer to Carpenter Technology Corporation.

During the six months ended December 31, 2017, the Company changed the presentation of borrowings and repayments made under its revolving credit facility in the consolidated statements of cash flows. Prior year amounts have been reclassified to conform to the six months ended December 31, 2017 presentation.

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Acquisition and Divestiture

6 Months Ended

Dec. 31, 2017

Business Combinations [Abstract]

Acquisition and Divestiture

Acquisition and Divestiture

On February 28, 2017, the Company acquired substantially all the assets of Puris LLC (“Puris”), for a cash purchase price of $35.3 million. The acquisition provides the Company with immediate entry into the rapidly growing titanium powder market, an expanded presence in additive manufacturing and strengthens the Company’s capabilities as a solutions provider for customers across its end-use markets.  The purchase price allocation resulted in the purchase price being allocated as follows: $1.7 million of working capital, $6.5 million of property and equipment, $8.5 million of identifiable intangible assets and $18.6 million to goodwill.

In the fourth quarter of fiscal year 2017, the Company divested its Specialty Steel Supply (“SSS”) business. The divestiture was completed in two separate transactions for total cash proceeds of $12.0 million. The operations of the SSS business were historically included in the Performance Engineered Products (“PEP”) segment. The Company does not have any significant continuing involvement in the operations of SSS after the divestiture.

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Earnings per Common Share

6 Months Ended

Dec. 31, 2017

Earnings Per Share [Abstract]

Earnings per Common Share

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 six months ended December 31, 2017 and 2016 were as follows: 

	Three Months Ended December 31,						Six Months Ended December 31,
(in millions, except per share data)	2017			2016			2017			2016
Net income	$	92.1		$	7.0		$	115.5		$	0.8
Less: earnings and dividends allocated to participating securities	(0.9		)	(0.1		)	(1.0		)	(0.1		)
Earnings available for common stockholders used in calculation of basic earnings per common share	$	91.2		$	6.9		$	114.5		$	0.7
Weighted average number of common shares outstanding, basic	47.2			47.0			47.1			47.0
Basic earnings per common share	$	1.93		$	0.15		$	2.43		$	0.01
Net income	$	92.1		$	7.0		$	115.5		$	0.8
Less: earnings and dividends allocated to participating securities	(0.9		)	(0.1		)	(1.0		)	(0.1		)
Earnings available for common stockholders used in calculation of diluted earnings per common share	$	91.2		$	6.9		$	114.5		$	0.7
Weighted average number of common shares outstanding, basic	47.2			47.0			47.1			47.0
Effect of shares issuable under share-based compensation plans	0.4			0.1			0.4			0.1
Weighted average number of common shares outstanding, diluted	47.6			47.1			47.5			47.1
Diluted earnings per common share	$	1.92		$	0.15		$	2.41		$	0.01

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 December 31,		Six Months Ended December 31,
(in millions)	2017	2016	2017	2016
Stock options	0.6	2.0	0.8	1.8

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Inventories

6 Months Ended

Dec. 31, 2017

Inventory, Net [Abstract]

Inventories

Inventories

Inventories consisted of the following components as of December 31, 2017 and June 30, 2017:

($ in millions)	December 31, 2017		June 30, 2017
Raw materials and supplies	$	186.1	$	152.8
Work in process	395.5		365.6
Finished and purchased products	190.2		172.0
Total inventory	$	771.8	$	690.4

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 also uses the first-in, first-out (“FIFO”) and average cost methods. As of December 31, 2017 and June 30, 2017, $128.8 million and $107.3 million of inventory, respectively, was accounted for using a method other than the LIFO inventory costing method.

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Accrued Liabilities

6 Months Ended

Dec. 31, 2017

Accrued Liabilities, Current [Abstract]

Accrued Liabilities

Accrued Liabilities

Accrued liabilities consisted of the following as of December 31, 2017 and June 30, 2017:

($ in millions)	December 31, 2017		June 30, 2017
Accrued compensation and benefits	$	52.6	$	59.1
Accrued postretirement benefits	15.5		15.5
Accrued interest expense	11.2		11.2
Deferred revenue	10.7		9.8
Derivative financial instruments	2.9		13.1
Other	25.5		31.2
Total accrued liabilities	$	118.4	$	139.9

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Pension and Other Postretirement Benefits

6 Months Ended

Dec. 31, 2017

Retirement Benefits [Abstract]

Pension and Other Postretirement Benefits

Pension and Other Postretirement Benefits

The components of the net periodic benefit cost related to the Company’s pension and other postretirement benefits for the three and six months ended December 31, 2017 and 2016 were as follows:

Three months ended December 31,	Pension Plans						Other Postretirement Plans
($ in millions)	2017			2016			2017			2016
Service cost	$	2.4		$	7.7		$	0.7		$	0.9
Interest cost	13.0			12.4			2.4			2.3
Expected return on plan assets	(16.5		)	(16.6		)	(1.7		)	(1.7		)
Amortization of net loss	3.4			9.5			0.7			0.8
Amortization of prior service cost (benefit)	0.5			0.5			(1.3		)	(1.6		)
Net periodic benefit costs	$	2.8		$	13.5		$	0.8		$	0.7

Six months ended December 31,	Pension Plans						Other Postretirement Plans
($ in millions)	2017			2016			2017			2016
Service cost	$	4.7		$	16.0		$	1.3		$	1.8
Interest cost	26.1			25.3			4.8			4.6
Expected return on plan assets	(33.0		)	(31.9		)	(3.5		)	(3.4		)
Amortization of net loss	6.8			18.9			1.5			1.6
Amortization of prior service cost (benefit)	1.0			0.8			(2.6		)	(3.2		)
Curtailment charge	—			0.5			—			—
Net periodic benefit costs	$	5.6		$	29.6		$	1.5		$	1.4

In September 2016, the Company announced changes to retirement plans it offers to certain employees. Benefits accrued to eligible participants of its largest qualified defined benefit pension plan and certain non-qualified benefit plans were frozen effective December 31, 2016.  The Company recognized the plan freeze in the three months ended September 30, 2016 as a curtailment, since the plan changes eliminated the accrual of defined benefits for future services for a significant number of participants. The impact of the curtailment included a one-time accelerated recognition of outstanding unamortized prior service costs of $0.5 million, which was recognized in the three months ended September 30, 2016.

During the six months ended December 31, 2017 and 2016, the Company made $4.9 million and $100.0 million, respectively, of contributions to its qualified defined benefit pension plans. The Company currently expects to contribute $1.8 million to its qualified defined benefit pension plans during the remainder of fiscal year 2018.

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Debt

6 Months Ended

Dec. 31, 2017

Debt Disclosure [Abstract]

Debt

Debt

On March 31, 2017, the Company entered into a $400.0 million unsecured revolving credit facility (“Credit Agreement”) that extends to March 2022. Interest on the borrowings under the Credit Agreement accrue at variable rates, based upon LIBOR or a defined “Base Rate,” both are determined based upon the rating of the Company’s senior unsecured long-term debt (the “Debt Rating”). The applicablemargin to be added to LIBOR ranges from 1.00% to 1.75% (1.50% as of December 31, 2017), and for Base Rate-determined loans, from 0.00% to 0.75% (0.50% as of December 31, 2017). The Company also pays a quarterly commitment fee ranging from 0.125% to 0.400% (0.275% as of December 31, 2017), determined based upon the Debt Rating, of the unused portion of the $400.0 million commitment under the Credit Agreement. In addition, the Company must pay certain letter of credit fees, ranging from 1.00% to 1.75% (1.50% as of December 31, 2017), with respect to letters of credit issued under the Credit Agreement. The Company has the right to voluntarily prepay and re-borrow loans and to terminate or reduce the commitments under the facility. As of December 31, 2017, the Company had $6.0 million of issued letters of credit and $9.3 million of borrowings under the Credit Agreement with the balance of $384.7 million available to the Company.

The Company is subject to certain financial and restrictive covenants under the Credit Agreement, which, among other things, require the maintenance of a minimum interest coverage ratio of 3.50 to 1.00. The interest coverage ratio is defined in the Credit Agreement as, for any period, the ratio of consolidated earnings before interest, taxes, depreciation and amortization and non-cash net pension expense (“EBITDA”) to consolidated interest expense for such period. The Credit Agreement also requires the Company to maintain a debt to capital ratio of less than 55 percent. The debt to capital ratio is defined in the Credit Agreement as the ratio of consolidated indebtedness, as defined therein, to consolidated capitalization, as defined therein. As of December 31, 2017 and June 30, 2017, the Company was in compliance with all of the covenants of the Credit Agreement.

Long-term debt outstanding as of December 31, 2017 and June 30, 2017 consisted of the following:

($ in millions)	December 31, 2017		June 30, 2017
Medium-term notes, Series B at 6.97% to 7.10% due from April 2018 to May 2018 (face value of $55.0 million at December 31, 2017 and June 30, 2017)	$	55.0	$	55.0
Senior unsecured notes, 5.20% due July 2021 (face value of $250.0 million at December 31, 2017 and June 30, 2017)	249.3		251.2
Senior unsecured notes, 4.45% due March 2023 (face value of $300.0 million at December 31, 2017 and June 30, 2017)	299.0		298.8
Total	603.3		605.0
Less: amounts due within one year	55.0		55.0
Long-term debt, net of current portion	$	548.3	$	550.0

For the three months ended December 31, 2017 and 2016, interest costs totaled $7.9 million and $7.7 million, respectively, of which $0.6 million and $0.3 million, respectively, were capitalized as part of the cost of property, equipment and software. For the six months ended December 31, 2017 and 2016, interest costs totaled $15.6 million and $15.3 million, respectively, of which $1.1 million and $0.5 million, respectively, were capitalized as part of the cost of property, equipment and software.

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Contingencies and Commitments

6 Months Ended

Dec. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

Contingencies and Commitments

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, 2017, the Company increased the liability for a Company-owned former operating site by $0.1 million. The liabilities recorded for environmental remediation costs at Superfund sites, other third party-owned sites and Carpenter-owned current or former operating facilities remaining at December 31, 2017 and June 30, 2017 were $16.2 million and $16.1 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.

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, 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.

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Fair Value Measurements

6 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

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 or liabilities in active markets; quoted prices for identical or similar assets or 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 or 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, 2017	Fair Value Measurements Using Input Type
($ in millions)	Level 2
Assets:
Marketable securities:
Municipal auction rate securities	$	3.5
Derivative financial instruments	31.7
Total assets	$	35.2
Liabilities:
Derivative financial instruments	$	4.1

June 30, 2017	Fair Value Measurements Using Input Type
($ in millions)	Level 2
Assets:
Marketable securities:
Municipal auction rate securities	$	3.4
Derivative financial instruments	14.5
Total assets	$	17.9
Liabilities:
Derivative financial instruments	$	19.1

The Company’s derivative financial instruments consist of commodity forward contracts, foreign currency forward contracts and interest rate swaps. These instruments are measured at fair value using the market method valuation technique. The inputs to this technique utilize information related to foreign exchange rates, commodity prices and interest rates published by third party leading financial news and data providers. This is observable data; however, the valuation of these instruments is not based on actual transactions for the same instruments and, as such, they are classified as Level 2. The Company’s use of derivatives and hedging policies are more fully discussed in Note 10.

The Company has currently chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States of America.

The carrying amounts of other financial instruments not listed in the table below approximate fair value due to the short-term nature of these items. The carrying amounts and estimated fair values of the Company’s financial instruments not recorded at fair value in the financial statements were as follows:

	December 31, 2017				June 30, 2017
($ in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current portion	$	603.3	$	622.0	$	605.0	$	622.5
Company-owned life insurance	$	16.0	$	16.0	$	15.9	$	15.9

The carrying amount of company-owned life insurance reflects cash surrender values based upon the market values of underlying securities, using Level 2 inputs, net of any outstanding policy loans. The carrying value associated with the cash surrender value of these policies is recorded in other assets in the accompanying consolidated balance sheets.

The fair values of long-term debt as of December 31, 2017 and June 30, 2017 were determined by using current interest rates for debt with terms and maturities similar to the Company’s existing debt arrangements and accordingly would be classified as Level 2 inputs in the fair value hierarchy.

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Derivatives and Hedging Activities

6 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities

Derivatives and Hedging Activities

The Company uses commodity forwards, interest rate swaps, forward interest rate swaps and foreign currency forwards to manage risks generally associated with commodity price, interest rate and foreign currency rate fluctuations. The following explains the various types of derivatives and includes a recap about the impact the derivative instruments had on the Company’s financial position, results of operations and cash flows.

Cash Flow Hedging — Commodity forward contracts: The Company enters into commodity forward contracts to fix the price of a portion of anticipated future purchases of certain critical raw materials and energy to manage the risk of cash flow variability associated with volatile commodity prices. The commodity forward contracts have been designated as cash flow hedges. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in accumulated other comprehensive income (loss) (“AOCI”) to the extent effective, and reclassified to cost of sales in the period during which the hedged transaction affects earnings or it becomes probable that the forecasted transaction will not occur. As of December 31, 2017, the Company had forward contracts to purchase 21.0 million pounds of certain raw materials with settlement dates through December 2023.

Cash Flow Hedging — Forward interest rate swaps: Historically, the Company has entered into forward interest rate swap contracts to manage the risk of cash flow variability associated with fixed interest debt expected to be issued. The forward interest rate swaps were designated as cash flow hedges. The qualifying hedge contracts were marked-to-market at each reporting date and any unrealized gains or losses were included in AOCI to the extent effective, and reclassified to interest expense in the period during which the hedged transaction affected earnings or it became probable that the forecasted transaction would not occur.  Upon the issuance of the fixed rate debt, the forward interest rate swap contracts were terminated. The realized gains at the time the interest rate swap contracts were terminated are being amortized over the term of the underlying debt. For the three months ended December 31, 2017 and 2016, net gains of $0.1 million and $0.1 million, respectively, related to the previously terminated contracts were recorded as a reduction to interest expense. For the six months ended December 31, 2017 and 2016, net gains of $0.2 million and $0.2 million, respectively, related to the previously terminated contracts were recorded as a reduction to interest expense.

Cash Flow Hedging — Foreign currency forward contracts: The Company uses foreign currency forward contracts to hedge a portion of anticipated future sales denominated in foreign currencies, principally the Euro and Pound Sterling, in order to offset the effect of changes in exchange rates. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective, and reclassified to net sales in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.

The Company also uses foreign currency forward contracts to protect certain short-term asset positions denominated in foreign currencies against the effect of changes in exchange rates. These positions do not qualify for hedge accounting and accordingly are marked-to-market at each reporting date through charges to other income and expense. As of December 31, 2017 and June 30, 2017, the fair value of the outstanding foreign currency forwards not designated as hedging instruments and the charges to income for changes in fair value for these contracts were not material.

Fair Value Hedging - Interest rate swaps: The Company uses interest rate swaps to achieve a level of floating rate debt relative to fixed rate debt where appropriate. The Company has designated fixed to floating interest rate swaps as fair value hedges. Accordingly, the changes in the fair value of these instruments are immediately recorded in earnings. The mark-to-market values of both the fair value hedging instruments and the underlying debt obligations are recorded as equal and offsetting gains and losses in interest expense in the consolidated statements of income. As of December 31, 2017 and June 30, 2017, the total notional amount of floating interest rate contracts was $150.0 million. For the three months ended December 31, 2017 and 2016, net gains of $0.2 million and $0.5 million, respectively, were recorded as a reduction to interest expense. For the six months ended December 31, 2017 and 2016, net gains of $0.4 million and $0.9 million, respectively, were recorded as a reduction to interest expense.

The fair value and location of outstanding derivative contracts recorded in the accompanying consolidated balance sheets were as follows as of December 31, 2017 and June 30, 2017:

December 31, 2017	Interest Rate Swaps		Foreign Currency Contracts		Commodity Contracts		Total Derivatives
($ in millions)
Asset Derivatives:
Derivatives designated as hedging instruments:
Other current assets	$	0.5	$	—	$	12.7	$	13.2
Other assets	0.6		—		17.9		18.5
Total asset derivatives	$	1.1	$	—	$	30.6	$	31.7
Liability Derivatives:
Derivatives designated as hedging instruments:
Accrued liabilities	$	—	$	1.3	$	1.6	$	2.9
Other liabilities	0.9		—		0.3		1.2
Total liability derivatives	$	0.9	$	1.3	$	1.9	$	4.1

June 30, 2017	Interest Rate Swaps		Foreign Currency Contracts		Commodity Contracts		Total Derivatives
($ in millions)
Asset Derivatives:
Derivatives designated as hedging instruments:
Other current assets	$	0.6	$	0.2	$	6.4	$	7.2
Other assets	1.6		—		5.7		7.3
Total asset derivatives	$	2.2	$	0.2	$	12.1	$	14.5
Liability Derivatives:
Derivatives designated as hedging instruments:
Accrued liabilities	$	—	$	1.0	$	12.1	$	13.1
Other liabilities	—		—		6.0		6.0
Total liability derivatives	$	—	$	1.0	$	18.1	$	19.1

Substantially all of the derivative contracts are subject to master netting arrangements, or similar agreements with each counterparty, which provide for the option to settle contracts on a net basis when they settle on the same day and in the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event. The Company presents the outstanding derivative contracts on a net basis by counterparty in the consolidated balance sheets. If the Company had chosen to present the derivative contracts on a gross basis, the total asset derivatives would have been $33.6 million and total liability derivatives would have been $6.0 million as of December 31, 2017.

According to the provisions of the Company’s derivative arrangements, in the event that the fair value of outstanding derivative positions with certain counterparties exceeds certain thresholds, the Company may be required to issue cash collateral to the counterparties. As of December 31, 2017 and June 30, 2017, the Company had no cash collateral held by counterparties.

The Company is exposed to credit loss in the event of nonperformance by counterparties on its derivative instruments as well as credit or performance risk with respect to its customer commitments to perform. Although nonperformance is possible, the Company does not anticipate nonperformance by any of the parties. In addition, various master netting arrangements are in place with counterparties to facilitate settlements of gains and losses on these contracts.

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings or it becomes probable the forecasted transactions will not occur. The following is a summary of the gains (losses) related to cash flow hedges recognized during the three and six months ended December 31, 2017 and 2016:

	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
	Three Months Ended December 31,						Six Months Ended December 31,
($ in millions)	2017			2016			2017			2016
Derivatives in Cash Flow Hedging Relationship:
Commodity contracts	$	20.7		$	(22.5	)	$	30.3		$	(15.4	)
Foreign exchange contracts	(0.3		)	0.6			(0.7		)	0.6
Total	$	20.4		$	(21.9	)	$	29.6		$	(14.8	)

($ in millions)	Location of (Loss) Gain Reclassified from AOCI into Income	Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)						Amount of (Loss) Gain  Reclassified from AOCI into Income (Ineffective Portion)
		Three Months Ended December 31,						Three Months Ended December 31,
		2017			2016			2017		2016
Derivatives in Cash Flow Hedging Relationship:
Commodity contracts	Cost of sales	$	(0.2	)	$	(7.9	)	$	—	$	—
Foreign exchange contracts	Net sales	(0.1		)	0.5			—		—
Forward interest rate swaps	Interest expense	0.1			0.1			—		—
Total		$	(0.2	)	$	(7.3	)	$	—	$	—

($ in millions)	Location of (Loss) Gain Reclassified from AOCI into Income	Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)						Amount of (Loss) Gain Reclassified from AOCI into Income (Ineffective Portion)
		Six Months Ended December 31,						Six Months Ended December 31,
		2017			2016			2017			2016
Derivatives in Cash Flow Hedging Relationship:
Commodity contracts	Cost of sales	$	(2.8	)	$	(18.0	)	$	(0.8	)	$	0.5
Foreign exchange contracts	Net sales	(0.5		)	0.6			—			—
Forward interest rate swaps	Interest expense	0.2			0.2			—			—
Total		$	(3.1	)	$	(17.2	)	$	(0.8	)	$	0.5

The Company estimates that $10.5 million of net derivative gains included in AOCI as of December 31, 2017 will be reclassified into income within the next 12 months. No significant cash flow hedges were discontinued during the three and six months ended December 31, 2017.

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Other Income, Net

6 Months Ended

Dec. 31, 2017

Other Income and Expenses [Abstract]

Other Income, Net

Other Income, Net

Other income, net consisted of the following:

	Three Months Ended December 31,						Six Months Ended December 31,
($ in millions)	2017			2016			2017			2016
Foreign exchange loss	$	(0.9	)	$	(0.2	)	$	(0.8	)	$	(0.2	)
Unrealized gains on company-owned life insurance contracts and investments held in rabbi trusts	0.9			0.3			1.4			0.8
Other	0.2			0.2			0.3			0.4
Total other income, net	$	0.2		$	0.3		$	0.9		$	1.0

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Income Taxes

6 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The effective tax rate used for interim periods is the estimated annual effective consolidated tax rate, based on the current estimate of full year results, except that taxes related to specific events, if any, are recorded in the interim period in which they occur. The annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pre-tax income of the Company in each tax jurisdiction in which it operates, and the development of tax planning strategies during the year. In addition, the Company’s tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits, and other factors that cannot be predicted with certainty. As such there can be significant volatility in interim tax provisions.

Income tax expense for the three months ended December 31, 2017 was a benefit of $58.4 million, or negative 173.3 percent of pre-tax income as compared with expense of $1.3 million, or 15.7 percent of pre-tax income for the three months ended December 31, 2016. Income tax expense for the six months ended December 31, 2017 was a benefit of $46.6 million or negative 67.6 percent of pre-tax income as compared with expense of $2.2 million, or 73.3 percent of pre-tax income for the six months ended December 31, 2016.

An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Act”) was enacted on December 22, 2017. The Act includes provisions that reduce the federal corporate income tax rate, create a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings (i.e. transition tax), and change certain business deductions including allowing for immediate expensing of certain qualified capital expenditures. The permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% is effective January 1, 2018. Based on the provisions of the Act, during the quarter ended December 31, 2017, the Company’s estimated annual effective tax rate was adjusted to incorporate the lower federal tax rate that will be phased in for fiscal year 2018. The Company also recorded discrete income tax net benefits of $66.0 million during the quarter ended December 31, 2017. Included in this benefit are a $73.3 million tax benefit to reflect the impact of the re-measurement of deferred tax assets and liabilities at the reduced federal tax rate, $5.1 million expense for the transition tax and income tax expense of $2.2 million for increases in certain state valuation allowances for deferred tax assets resulting from the impact of a state law change that will limit the Company’s ability to utilize state net operating loss carryforwards.

The Company determined that the amounts recorded for the liability associated transition tax are provisional because various components of the computation are not yet finalized as of December 31, 2017, including the following significant items: the actual aggregate foreign cash position and the earnings and profits of the foreign entities as of June 30, 2018, the interpretation and identification of cash positions as of June 30, 2018, and computations of accumulated earnings and profits balances as of November 2, 2017 and December 31, 2017. Under the Act, the transition tax will be paid over an eight year period beginning in fiscal year 2019.

The Company also determined that the re-measurement of deferred tax assets and liabilities at the lower federal corporate income tax rate is provisional until such time that the underlying temporary differences are known rather than estimated.

Future adjustments to the provisional amounts related to the Act will be recorded as discrete adjustments to income tax expense in the period in which those adjustments are determined.

Income tax expense for the three months ended December 31, 2016 includes tax benefits of $0.9 million associated with the repatriation of earnings from one of our foreign subsidiaries. Income tax expense also includes a $0.3 million benefit primarily due to additional research and development credits claimed in the prior year.

In October 2016, the Company made a voluntary pension contribution of $100.0 million that was announced in connection with the plan freeze.  As a result of the pension contribution, income tax expense in the six months ended December 31, 2016 included a discrete tax charge of $2.1 million due to reduced tax benefits for domestic manufacturing claimed in prior periods.

As of June 30, 2017, the Company had $99.1 million of indefinitely reinvested foreign earnings for which deferred income taxes had not been provided.  Given the Act’s significant changes and potential opportunities to repatriate cash tax free, the Company is in the process of evaluating its assertions for indefinite reinvestment.

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Business Segments

6 Months Ended

Dec. 31, 2017

Segment Reporting [Abstract]

Business Segments

Business Segments

The Company has two reportable segments, Specialty Alloys Operations (“SAO”) and Performance Engineered Products (“PEP”).

The SAO segment is comprised of the Company’s major premium alloy and stainless steel manufacturing operations. This includes operations performed at mills primarily in Reading and Latrobe, Pennsylvania and surrounding areas as well as South Carolina and Alabama. The combined assets of the SAO operations are being managed in an integrated manner to optimize efficiency and profitability across the total system.

The PEP segment is comprised of the Company’s differentiated operations. This segment includes the Dynamet titanium business, the Carpenter Powder Products business, the Amega West business, and the Latrobe and Mexico distribution businesses. The businesses in the PEP segment are managed with an entrepreneurial structure to promote flexibility and agility to quickly respond to market dynamics. 

The Company’s executive management evaluates the performance of these operating segments based on sales, operating income and cash flow generation. Segment operating profit excludes general corporate costs, which include executive and director compensation, and other corporate facilities and administrative expenses not allocated to the segments.

The service cost component of the Company’s net pension expense, which represents the estimated cost of future pension liabilities earned associated with active employees, is included in the operating income of the business segments. The residual net pension expense, which is comprised of the expected return on plan assets, interest costs on the projected benefit obligations of the plans and amortization of actuarial gains and losses and prior service costs, is included under the heading “Pension earnings, interest and deferrals”.

On a consolidated basis, one customer, Arconic Inc., accounted for approximately 10 percent of the net sales for both the three and six months ended December 31, 2017. On a consolidated basis, one customer, Arconic Inc., accounted for approximately 17 percent and 15 percent of the net sales for the three and six months ended December 31, 2016, respectively. Approximately 22 percent of the accounts receivable outstanding at December 31, 2017 is due from two customers, Arconic Inc. and Precision Castparts Corporation. No single customer accounted for 10 percent or more of the accounts receivable outstanding at June 30, 2017.

Segment Data	Three Months Ended December 31,						Six Months Ended December 31,
($ in millions)	2017			2016			2017			2016
Net Sales:
Specialty Alloys Operations	$	406.3		$	348.6		$	803.1		$	663.7
Performance Engineered Products	104.8			83.2			205.5			161.7
Intersegment	(23.3		)	(4.4		)	(41.1		)	(9.1		)
Consolidated net sales	$	487.8		$	427.4		$	967.5		$	816.3

Segment Data	Three Months Ended December 31,						Six Months Ended December 31,
($ in millions)	2017			2016			2017			2016
Operating Income:
Specialty Alloys Operations	$	49.8		$	35.6		$	100.3		$	60.6
Performance Engineered Products	7.5			0.8			12.8			(2.0		)
Corporate costs	(13.9		)	(16.0		)	(26.9		)	(29.8		)
Pension earnings, interest and deferrals	(0.5		)	(5.6		)	(1.1		)	(12.7		)
Intersegment	(2.1		)	0.6			(2.6		)	0.7
Consolidated operating income	$	40.8		$	15.4		$	82.5		$	16.8

Segment Data	Three Months Ended December 31,					Six Months Ended December 31,
($ in millions)	2017			2016		2017			2016
Depreciation and Amortization:
Specialty Alloys Operations	$	23.4		$	23.7	$	46.5		$	47.2
Performance Engineered Products	5.1			5.2		10.1			10.3
Corporate	0.9			0.9		1.8			1.7
Intersegment	(0.2		)	0.1		(0.4		)	(0.5		)
Consolidated depreciation and amortization	$	29.2		$	29.9	$	58.0		$	58.7

Segment Data	Three Months Ended December 31,					Six Months Ended December 31,
($ in millions)	2017			2016		2017			2016
Capital Expenditures:
Specialty Alloys Operations	$	11.2		$	8.3	$	28.4		$	23.0
Performance Engineered Products	6.3			2.5		11.1			7.0
Corporate	9.6			7.7		16.7			15.2
Intersegment	(0.3		)	—		(0.5		)	(0.1		)
Consolidated capital expenditures	$	26.8		$	18.5	$	55.7		$	45.1

Segment Data	December 31, 2017			June 30, 2017
($ in millions)
Total Assets:
Specialty Alloys Operations	$	2,337.9		$	2,292.1
Performance Engineered Products	475.7			434.3
Corporate	148.4			167.2
Intersegment	(17.9		)	(15.5		)
Consolidated total assets	$	2,944.1		$	2,878.1

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Recent Accounting Pronouncements

6 Months Ended

Dec. 31, 2017

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements - Adopted in current period

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation — Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting, which outlines new provisions intended to simplify various aspects related to accounting for share-based payments and their presentation in the financial statements. The update revises requirements in the following areas: income tax consequences, forfeitures and classification on the statement of cash flows. The Company adopted this standard in the quarter ended September 30, 2017. The standard did not have a material impact on the consolidated financial statements of the Company. The amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement will be applied prospectively. The inclusion of excess tax benefits and deficiencies as a component of income tax expense will increase volatility of the provision for income taxes as the amount of excess tax benefits or deficiencies from share-based compensation awards are dependent on the stock price at the date the awards are exercised or vested. The Company does not expect the impact to be material to the Company’s consolidated results of operations; however, such determination is subject to change based on facts and circumstances at the time when awards vest or settle. The Company accounts for forfeitures of share-based awards when they occur. The Company applied the amendments related to the presentation of excess tax benefits on the consolidated statement of cash flows using a prospective transition method, and as a result, excess tax benefits related to share-based awards will be reported as cash flows from operating activities. The Company applied the amendments related to the presentation of statutory tax withholding on the consolidated statement of cash flows using a retrospective transition method as required, and as a result, statutory tax withholding related to share-based awards which had been previously classified as cash flows used for operating activities has been be reclassified as cash flows used for financing activities.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments, which outlines new provisions intended to reduce the existing diversity in practice related to accounting for the cash flow and its presentation in the financial statements. ASU 2016-15 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company adopted the provisions of ASU 2016-15 in the quarter ended September 30, 2017. The adoption of ASU 2016-15 did not materially impact the Company’s consolidated statement of cash flows.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash, which outlines that a statement of cash flows explains the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company adopted the provisions of ASU 2016-18 in the quarter ended September 30, 2017. The adoption of ASU 2016-18 did not materially impact the Company’s consolidated statement of cash flows.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment, which outlines updates to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. ASU 2017-04 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2017-04 in the quarter ended September 30, 2017. The adoption of ASU 2017-04 did not have an impact on the Company’s financial statements.

Recently Issued Accounting Pronouncements - Pending Adoption

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in ASU 2014-09 requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance in ASU 2014-09 permits two methods of adoption: full retrospective in which the standard is applied to all of the periods presented or modified retrospective where an entity would recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. The adoption will include updates as provided under ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients; ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers; ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments and ASU 2017-14, Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606).

The Company is in the process of evaluating the effect that Topic 606 will have on its Consolidated Financial Statements and related disclosures, as well as the expected method of adoption. Currently, the Company is in the process of completing the assessment phase of its evaluation.   The assessment phase includes conducting and evaluating the results of internal surveys of its businesses, holding revenue recognition workshops with commercial and business unit finance leadership, and reviewing revenue arrangements across all businesses to initially identify a set of applicable qualitative revenue recognition changes related to the standards update.   The Company’s method of adoption for Topic 606 has not yet been determined and is not expected to be finalized until the assessment phase of the evaluation has been completed.  The Company’s effective date for the adoption of Topic 606 is July 1, 2018.

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842). ASU 2016-02 improves transparency and comparability among companies by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU 2016-02 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2016-02 on the consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory, which outlines updates to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. ASU 2016-16 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2016-16 on the consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which outlines updates to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. ASU 2017-07 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2017-07 on the consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. ASU 2017-12 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2017-12 on the consolidated financial statements.

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Reclassifications from Accumulated Other Comprehensive Income (Loss) (AOCI)

6 Months Ended

Dec. 31, 2017

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Reclassifications from Accumulated Other Comprehensive (Loss) Income

Reclassifications from Accumulated Other Comprehensive Income (Loss) (AOCI)

The changes in AOCI by component, net of tax, for the three months ended December 31, 2017 and 2016 were as follows:

Three Months Ended December 31, 2017 ($ in millions) (a)	Cash flow hedging items		Pension and other postretirement benefit plan items			Unrealized losses on available-for- sale securities			Foreign currency items			Total
Balance at September 30, 2017	$	5.8	$	(296.9	)	$	(0.3	)	$	(39.7	)	$	(331.1	)
Other comprehensive income (loss) before reclassifications	14.9		—			—			(1.5		)	13.4
Amounts reclassified from AOCI (b)	0.1		2.5			—			—			2.6
Net other comprehensive income (loss)	15.0		2.5			—			(1.5		)	16.0
Balance at December 31, 2017	$	20.8	$	(294.4	)	$	(0.3	)	$	(41.2	)	$	(315.1	)

Three Months Ended December 31, 2016 ($ in millions) (a)	Cash flow hedging items			Pension and other postretirement benefit plan items			Unrealized losses on available-for- sale securities			Foreign currency items			Total
Balance at September 30, 2016	$	(11.0	)	$	(326.9	)	$	(0.3	)	$	(44.2	)	$	(382.4	)
Other comprehensive loss before reclassifications	(0.6		)	—			—			(4.0		)	(4.6		)
Amounts reclassified from AOCI (b)	4.4			5.7			—			—			10.1
Net other comprehensive income (loss)	3.8			5.7			—			(4.0		)	5.5
Balance at December 31, 2016	$	(7.2	)	$	(321.2	)	$	(0.3	)	$	(48.2	)	$	(376.9	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

(b) See separate table below for further details.

The changes in AOCI by component, net of tax, for the six months ended December 31, 2017 and 2016 were as follows:

Six Months Ended December 31, 2017 ($ in millions) (a)	Cash flow hedging items			Pension and other postretirement benefit plan items			Unrealized losses on available-for- sale securities			Foreign currency items			Total
Balance at June 30, 2017	$	(2.3	)	$	(299.0	)	$	(0.3	)	$	(41.5	)	$	(343.1	)
Other comprehensive income before reclassifications	21.0			—			—			0.3			21.3
Amounts reclassified from AOCI (b)	2.1			4.6			—			—			6.7
Net other comprehensive income	23.1			4.6			—			0.3			28.0
Balance at December 31, 2017	$	20.8		$	(294.4	)	$	(0.3	)	$	(41.2	)	$	(315.1	)

Six Months Ended December 31, 2016 ($ in millions) (a)	Cash flow hedging items			Pension and other postretirement benefit plan items			Unrealized losses on available-for- sale securities			Foreign currency items			Total
Balance at June 30, 2016	$	(21.8	)	$	(344.3	)	$	(0.3	)	$	(43.5	)	$	(409.9	)
Other comprehensive income (loss) before reclassifications	3.9			11.4			—			(4.7		)	10.6
Amounts reclassified from AOCI (b)	10.7			11.7			—			—			22.4
Net current-period other comprehensive income (loss)	14.6			23.1			—			(4.7		)	33.0
Balance at December 31, 2016	$	(7.2	)	$	(321.2	)	$	(0.3	)	$	(48.2	)	$	(376.9	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

(b) See separate table below for further details.

The following is a summary of amounts reclassified from AOCI for the three and six months ended December 31, 2017 and 2016:

($ in millions) (a)	Location of (loss) gain	Amount Reclassified from AOCI Three Months Ended December 31,						Amount Reclassified from AOCI Six Months Ended December 31,
Details about AOCI Components		2017			2016			2017			2016
Cash flow hedging items:
Commodity contracts	Cost of sales	$	(0.2	)	$	(7.9	)	$	(2.8	)	$	(18.0	)
Foreign exchange contracts	Net sales	(0.1		)	0.5			(0.5		)	0.6
Forward interest rate swaps	Interest expense	0.1			0.1			0.2			0.2
	Total before tax	(0.2		)	(7.3		)	(3.1		)	(17.2		)
	Tax benefit	0.1			2.9			1.0			6.5
	Net of tax	$	(0.1	)	$	(4.4	)	$	(2.1	)	$	(10.7	)

($ in millions) (a)	Location of (loss) gain	Amount Reclassified from AOCI Three Months Ended December 31,						Amount Reclassified from AOCI Six Months Ended December 31,
Details about AOCI Components		2017			2016			2017			2016
Amortization of pension and other postretirement benefit plan items:
Net actuarial loss	(b)	$	(4.1	)	$	(10.3	)	$	(8.3	)	$	(20.5	)
Prior service benefit	(b)	0.8			1.1			1.6			2.4
Curtailment charge	(b)	—			—			—			(0.5		)
	Total before tax	(3.3		)	(9.2		)	(6.7		)	(18.6		)
	Tax benefit	0.8			3.5			2.1			6.9
	Net of tax	$	(2.5	)	$	(5.7	)	$	(4.6	)	$	(11.7	)

(a) Amounts in parentheses indicate debits to income/loss.

(b) These AOCI components are included in the computation of net periodic benefit cost (see Note 6. Pension and Other Postretirement Benefits for additional details).

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Basis of Presentation (Policies)

6 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

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 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, 2017 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’s annual report on Form 10-K for the fiscal year ended June 30, 2017 (the “2017 Form 10-K”). Operating results for the three and six months ended December 31, 2017 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”, the “Company”, “Registrant”, “Issuer”, “we” and “our” refer to Carpenter Technology Corporation.

During the six months ended December 31, 2017, the Company changed the presentation of borrowings and repayments made under its revolving credit facility in the consolidated statements of cash flows. Prior year amounts have been reclassified to conform to the six months ended December 31, 2017 presentation.

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.

Inventories

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 also uses the first-in, first-out (“FIFO”) and average cost methods.

Regulatory Environmental Costs

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.

Contingencies and Commitments

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, 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.

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 or liabilities in active markets; quoted prices for identical or similar assets or 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 or 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.

Fair Value of Financial Instruments

The Company’s derivative financial instruments consist of commodity forward contracts, foreign currency forward contracts and interest rate swaps. These instruments are measured at fair value using the market method valuation technique. The inputs to this technique utilize information related to foreign exchange rates, commodity prices and interest rates published by third party leading financial news and data providers. This is observable data; however, the valuation of these instruments is not based on actual transactions for the same instruments and, as such, they are classified as Level 2. The Company’s use of derivatives and hedging policies are more fully discussed in Note 10.

The Company has currently chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States of America.

Business Segments

The Company has two reportable segments, Specialty Alloys Operations (“SAO”) and Performance Engineered Products (“PEP”).

The SAO segment is comprised of the Company’s major premium alloy and stainless steel manufacturing operations. This includes operations performed at mills primarily in Reading and Latrobe, Pennsylvania and surrounding areas as well as South Carolina and Alabama. The combined assets of the SAO operations are being managed in an integrated manner to optimize efficiency and profitability across the total system.

The PEP segment is comprised of the Company’s differentiated operations. This segment includes the Dynamet titanium business, the Carpenter Powder Products business, the Amega West business, and the Latrobe and Mexico distribution businesses. The businesses in the PEP segment are managed with an entrepreneurial structure to promote flexibility and agility to quickly respond to market dynamics. 

The Company’s executive management evaluates the performance of these operating segments based on sales, operating income and cash flow generation. Segment operating profit excludes general corporate costs, which include executive and director compensation, and other corporate facilities and administrative expenses not allocated to the segments.

The service cost component of the Company’s net pension expense, which represents the estimated cost of future pension liabilities earned associated with active employees, is included in the operating income of the business segments. The residual net pension expense, which is comprised of the expected return on plan assets, interest costs on the projected benefit obligations of the plans and amortization of actuarial gains and losses and prior service costs, is included under the heading “Pension earnings, interest and deferrals”.

Recent Accounting Pronouncements Adopted and Not Yet Applicable or Adopted

Recently Issued Accounting Pronouncements - Adopted in current period

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation — Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting, which outlines new provisions intended to simplify various aspects related to accounting for share-based payments and their presentation in the financial statements. The update revises requirements in the following areas: income tax consequences, forfeitures and classification on the statement of cash flows. The Company adopted this standard in the quarter ended September 30, 2017. The standard did not have a material impact on the consolidated financial statements of the Company. The amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement will be applied prospectively. The inclusion of excess tax benefits and deficiencies as a component of income tax expense will increase volatility of the provision for income taxes as the amount of excess tax benefits or deficiencies from share-based compensation awards are dependent on the stock price at the date the awards are exercised or vested. The Company does not expect the impact to be material to the Company’s consolidated results of operations; however, such determination is subject to change based on facts and circumstances at the time when awards vest or settle. The Company accounts for forfeitures of share-based awards when they occur. The Company applied the amendments related to the presentation of excess tax benefits on the consolidated statement of cash flows using a prospective transition method, and as a result, excess tax benefits related to share-based awards will be reported as cash flows from operating activities. The Company applied the amendments related to the presentation of statutory tax withholding on the consolidated statement of cash flows using a retrospective transition method as required, and as a result, statutory tax withholding related to share-based awards which had been previously classified as cash flows used for operating activities has been be reclassified as cash flows used for financing activities.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments, which outlines new provisions intended to reduce the existing diversity in practice related to accounting for the cash flow and its presentation in the financial statements. ASU 2016-15 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company adopted the provisions of ASU 2016-15 in the quarter ended September 30, 2017. The adoption of ASU 2016-15 did not materially impact the Company’s consolidated statement of cash flows.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash, which outlines that a statement of cash flows explains the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company adopted the provisions of ASU 2016-18 in the quarter ended September 30, 2017. The adoption of ASU 2016-18 did not materially impact the Company’s consolidated statement of cash flows.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment, which outlines updates to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. ASU 2017-04 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2017-04 in the quarter ended September 30, 2017. The adoption of ASU 2017-04 did not have an impact on the Company’s financial statements.

Recently Issued Accounting Pronouncements - Pending Adoption

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in ASU 2014-09 requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance in ASU 2014-09 permits two methods of adoption: full retrospective in which the standard is applied to all of the periods presented or modified retrospective where an entity would recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. The adoption will include updates as provided under ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients; ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers; ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments and ASU 2017-14, Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606).

The Company is in the process of evaluating the effect that Topic 606 will have on its Consolidated Financial Statements and related disclosures, as well as the expected method of adoption. Currently, the Company is in the process of completing the assessment phase of its evaluation.   The assessment phase includes conducting and evaluating the results of internal surveys of its businesses, holding revenue recognition workshops with commercial and business unit finance leadership, and reviewing revenue arrangements across all businesses to initially identify a set of applicable qualitative revenue recognition changes related to the standards update.   The Company’s method of adoption for Topic 606 has not yet been determined and is not expected to be finalized until the assessment phase of the evaluation has been completed.  The Company’s effective date for the adoption of Topic 606 is July 1, 2018.

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842). ASU 2016-02 improves transparency and comparability among companies by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU 2016-02 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2016-02 on the consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory, which outlines updates to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. ASU 2016-16 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2016-16 on the consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which outlines updates to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. ASU 2017-07 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2017-07 on the consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. ASU 2017-12 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2017-12 on the consolidated financial statements.

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Earnings per Common Share (Tables)

6 Months Ended

Dec. 31, 2017

Earnings Per Share [Abstract]

Schedule of calculations of basic and diluted earnings per common share

The calculations of basic and diluted earnings per common share for the three and six months ended December 31, 2017 and 2016 were as follows: 

	Three Months Ended December 31,						Six Months Ended December 31,
(in millions, except per share data)	2017			2016			2017			2016
Net income	$	92.1		$	7.0		$	115.5		$	0.8
Less: earnings and dividends allocated to participating securities	(0.9		)	(0.1		)	(1.0		)	(0.1		)
Earnings available for common stockholders used in calculation of basic earnings per common share	$	91.2		$	6.9		$	114.5		$	0.7
Weighted average number of common shares outstanding, basic	47.2			47.0			47.1			47.0
Basic earnings per common share	$	1.93		$	0.15		$	2.43		$	0.01
Net income	$	92.1		$	7.0		$	115.5		$	0.8
Less: earnings and dividends allocated to participating securities	(0.9		)	(0.1		)	(1.0		)	(0.1		)
Earnings available for common stockholders used in calculation of diluted earnings per common share	$	91.2		$	6.9		$	114.5		$	0.7
Weighted average number of common shares outstanding, basic	47.2			47.0			47.1			47.0
Effect of shares issuable under share-based compensation plans	0.4			0.1			0.4			0.1
Weighted average number of common shares outstanding, diluted	47.6			47.1			47.5			47.1
Diluted earnings per common share	$	1.92		$	0.15		$	2.41		$	0.01

Schedule of awards issued under share-based compensation plans excluded from the calculations of diluted earnings per share

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 December 31,		Six Months Ended December 31,
(in millions)	2017	2016	2017	2016
Stock options	0.6	2.0	0.8	1.8

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Inventories (Tables)

6 Months Ended

Dec. 31, 2017

Inventory, Net [Abstract]

Schedule of inventories

Inventories consisted of the following components as of December 31, 2017 and June 30, 2017:

($ in millions)	December 31, 2017		June 30, 2017
Raw materials and supplies	$	186.1	$	152.8
Work in process	395.5		365.6
Finished and purchased products	190.2		172.0
Total inventory	$	771.8	$	690.4

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Accrued Liabilities (Tables)

6 Months Ended

Dec. 31, 2017

Accrued Liabilities, Current [Abstract]

Schedule of accrued liabilities

Accrued liabilities consisted of the following as of December 31, 2017 and June 30, 2017:

($ in millions)	December 31, 2017		June 30, 2017
Accrued compensation and benefits	$	52.6	$	59.1
Accrued postretirement benefits	15.5		15.5
Accrued interest expense	11.2		11.2
Deferred revenue	10.7		9.8
Derivative financial instruments	2.9		13.1
Other	25.5		31.2
Total accrued liabilities	$	118.4	$	139.9

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Pension and Other Postretirement Benefits (Tables)

6 Months Ended

Dec. 31, 2017

Retirement Benefits [Abstract]

Schedule of components of the net periodic benefit cost

The components of the net periodic benefit cost related to the Company’s pension and other postretirement benefits for the three and six months ended December 31, 2017 and 2016 were as follows:

Three months ended December 31,	Pension Plans						Other Postretirement Plans
($ in millions)	2017			2016			2017			2016
Service cost	$	2.4		$	7.7		$	0.7		$	0.9
Interest cost	13.0			12.4			2.4			2.3
Expected return on plan assets	(16.5		)	(16.6		)	(1.7		)	(1.7		)
Amortization of net loss	3.4			9.5			0.7			0.8
Amortization of prior service cost (benefit)	0.5			0.5			(1.3		)	(1.6		)
Net periodic benefit costs	$	2.8		$	13.5		$	0.8		$	0.7

Six months ended December 31,	Pension Plans						Other Postretirement Plans
($ in millions)	2017			2016			2017			2016
Service cost	$	4.7		$	16.0		$	1.3		$	1.8
Interest cost	26.1			25.3			4.8			4.6
Expected return on plan assets	(33.0		)	(31.9		)	(3.5		)	(3.4		)
Amortization of net loss	6.8			18.9			1.5			1.6
Amortization of prior service cost (benefit)	1.0			0.8			(2.6		)	(3.2		)
Curtailment charge	—			0.5			—			—
Net periodic benefit costs	$	5.6		$	29.6		$	1.5		$	1.4

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Debt (Tables)

6 Months Ended

Dec. 31, 2017

Debt Disclosure [Abstract]

Schedule of long-term debt outstanding

Long-term debt outstanding as of December 31, 2017 and June 30, 2017 consisted of the following:

($ in millions)	December 31, 2017		June 30, 2017
Medium-term notes, Series B at 6.97% to 7.10% due from April 2018 to May 2018 (face value of $55.0 million at December 31, 2017 and June 30, 2017)	$	55.0	$	55.0
Senior unsecured notes, 5.20% due July 2021 (face value of $250.0 million at December 31, 2017 and June 30, 2017)	249.3		251.2
Senior unsecured notes, 4.45% due March 2023 (face value of $300.0 million at December 31, 2017 and June 30, 2017)	299.0		298.8
Total	603.3		605.0
Less: amounts due within one year	55.0		55.0
Long-term debt, net of current portion	$	548.3	$	550.0

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Fair Value Measurements (Tables)

6 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Schedule of fair value of assets and liabilities measured on a recurring basis

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, 2017	Fair Value Measurements Using Input Type
($ in millions)	Level 2
Assets:
Marketable securities:
Municipal auction rate securities	$	3.5
Derivative financial instruments	31.7
Total assets	$	35.2
Liabilities:
Derivative financial instruments	$	4.1

June 30, 2017	Fair Value Measurements Using Input Type
($ in millions)	Level 2
Assets:
Marketable securities:
Municipal auction rate securities	$	3.4
Derivative financial instruments	14.5
Total assets	$	17.9
Liabilities:
Derivative financial instruments	$	19.1

Schedule of carrying amounts and estimated fair values of financial instruments not recorded at fair value in the financial statements

The carrying amounts and estimated fair values of the Company’s financial instruments not recorded at fair value in the financial statements were as follows:

	December 31, 2017				June 30, 2017
($ in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current portion	$	603.3	$	622.0	$	605.0	$	622.5
Company-owned life insurance	$	16.0	$	16.0	$	15.9	$	15.9

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Derivatives and Hedging Activities (Tables)

6 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of fair value and location of outstanding derivative contracts recorded in consolidated balance sheets

The fair value and location of outstanding derivative contracts recorded in the accompanying consolidated balance sheets were as follows as of December 31, 2017 and June 30, 2017:

December 31, 2017	Interest Rate Swaps		Foreign Currency Contracts		Commodity Contracts		Total Derivatives
($ in millions)
Asset Derivatives:
Derivatives designated as hedging instruments:
Other current assets	$	0.5	$	—	$	12.7	$	13.2
Other assets	0.6		—		17.9		18.5
Total asset derivatives	$	1.1	$	—	$	30.6	$	31.7
Liability Derivatives:
Derivatives designated as hedging instruments:
Accrued liabilities	$	—	$	1.3	$	1.6	$	2.9
Other liabilities	0.9		—		0.3		1.2
Total liability derivatives	$	0.9	$	1.3	$	1.9	$	4.1

June 30, 2017	Interest Rate Swaps		Foreign Currency Contracts		Commodity Contracts		Total Derivatives
($ in millions)
Asset Derivatives:
Derivatives designated as hedging instruments:
Other current assets	$	0.6	$	0.2	$	6.4	$	7.2
Other assets	1.6		—		5.7		7.3
Total asset derivatives	$	2.2	$	0.2	$	12.1	$	14.5
Liability Derivatives:
Derivatives designated as hedging instruments:
Accrued liabilities	$	—	$	1.0	$	12.1	$	13.1
Other liabilities	—		—		6.0		6.0
Total liability derivatives	$	—	$	1.0	$	18.1	$	19.1

Summary of the (losses) gains related to cash flow hedges

The following is a summary of the gains (losses) related to cash flow hedges recognized during the three and six months ended December 31, 2017 and 2016:

	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
	Three Months Ended December 31,						Six Months Ended December 31,
($ in millions)	2017			2016			2017			2016
Derivatives in Cash Flow Hedging Relationship:
Commodity contracts	$	20.7		$	(22.5	)	$	30.3		$	(15.4	)
Foreign exchange contracts	(0.3		)	0.6			(0.7		)	0.6
Total	$	20.4		$	(21.9	)	$	29.6		$	(14.8	)

($ in millions)	Location of (Loss) Gain Reclassified from AOCI into Income	Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)						Amount of (Loss) Gain  Reclassified from AOCI into Income (Ineffective Portion)
		Three Months Ended December 31,						Three Months Ended December 31,
		2017			2016			2017		2016
Derivatives in Cash Flow Hedging Relationship:
Commodity contracts	Cost of sales	$	(0.2	)	$	(7.9	)	$	—	$	—
Foreign exchange contracts	Net sales	(0.1		)	0.5			—		—
Forward interest rate swaps	Interest expense	0.1			0.1			—		—
Total		$	(0.2	)	$	(7.3	)	$	—	$	—

($ in millions)	Location of (Loss) Gain Reclassified from AOCI into Income	Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)						Amount of (Loss) Gain Reclassified from AOCI into Income (Ineffective Portion)
		Six Months Ended December 31,						Six Months Ended December 31,
		2017			2016			2017			2016
Derivatives in Cash Flow Hedging Relationship:
Commodity contracts	Cost of sales	$	(2.8	)	$	(18.0	)	$	(0.8	)	$	0.5
Foreign exchange contracts	Net sales	(0.5		)	0.6			—			—
Forward interest rate swaps	Interest expense	0.2			0.2			—			—
Total		$	(3.1	)	$	(17.2	)	$	(0.8	)	$	0.5

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Other Income, Net (Tables)

6 Months Ended

Dec. 31, 2017

Other Income and Expenses [Abstract]

Schedule of other income, net

Other income, net consisted of the following:

	Three Months Ended December 31,						Six Months Ended December 31,
($ in millions)	2017			2016			2017			2016
Foreign exchange loss	$	(0.9	)	$	(0.2	)	$	(0.8	)	$	(0.2	)
Unrealized gains on company-owned life insurance contracts and investments held in rabbi trusts	0.9			0.3			1.4			0.8
Other	0.2			0.2			0.3			0.4
Total other income, net	$	0.2		$	0.3		$	0.9		$	1.0

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Business Segments (Tables)

6 Months Ended

Dec. 31, 2017

Segment Reporting [Abstract]

Schedule of results of operation, depreciation and amortization, capital expenditures and total assets by reportable segments

Segment Data	Three Months Ended December 31,						Six Months Ended December 31,
($ in millions)	2017			2016			2017			2016
Net Sales:
Specialty Alloys Operations	$	406.3		$	348.6		$	803.1		$	663.7
Performance Engineered Products	104.8			83.2			205.5			161.7
Intersegment	(23.3		)	(4.4		)	(41.1		)	(9.1		)
Consolidated net sales	$	487.8		$	427.4		$	967.5		$	816.3

Segment Data	Three Months Ended December 31,						Six Months Ended December 31,
($ in millions)	2017			2016			2017			2016
Operating Income:
Specialty Alloys Operations	$	49.8		$	35.6		$	100.3		$	60.6
Performance Engineered Products	7.5			0.8			12.8			(2.0		)
Corporate costs	(13.9		)	(16.0		)	(26.9		)	(29.8		)
Pension earnings, interest and deferrals	(0.5		)	(5.6		)	(1.1		)	(12.7		)
Intersegment	(2.1		)	0.6			(2.6		)	0.7
Consolidated operating income	$	40.8		$	15.4		$	82.5		$	16.8

Segment Data	Three Months Ended December 31,					Six Months Ended December 31,
($ in millions)	2017			2016		2017			2016
Depreciation and Amortization:
Specialty Alloys Operations	$	23.4		$	23.7	$	46.5		$	47.2
Performance Engineered Products	5.1			5.2		10.1			10.3
Corporate	0.9			0.9		1.8			1.7
Intersegment	(0.2		)	0.1		(0.4		)	(0.5		)
Consolidated depreciation and amortization	$	29.2		$	29.9	$	58.0		$	58.7

Segment Data	Three Months Ended December 31,					Six Months Ended December 31,
($ in millions)	2017			2016		2017			2016
Capital Expenditures:
Specialty Alloys Operations	$	11.2		$	8.3	$	28.4		$	23.0
Performance Engineered Products	6.3			2.5		11.1			7.0
Corporate	9.6			7.7		16.7			15.2
Intersegment	(0.3		)	—		(0.5		)	(0.1		)
Consolidated capital expenditures	$	26.8		$	18.5	$	55.7		$	45.1

Segment Data	December 31, 2017			June 30, 2017
($ in millions)
Total Assets:
Specialty Alloys Operations	$	2,337.9		$	2,292.1
Performance Engineered Products	475.7			434.3
Corporate	148.4			167.2
Intersegment	(17.9		)	(15.5		)
Consolidated total assets	$	2,944.1		$	2,878.1

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Reclassifications from Accumulated Other Comprehensive Income (Loss) (AOCI) (Tables)

6 Months Ended

Dec. 31, 2017

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Schedule of changes in AOCI by component, net of tax

The changes in AOCI by component, net of tax, for the three months ended December 31, 2017 and 2016 were as follows:

Three Months Ended December 31, 2017 ($ in millions) (a)	Cash flow hedging items		Pension and other postretirement benefit plan items			Unrealized losses on available-for- sale securities			Foreign currency items			Total
Balance at September 30, 2017	$	5.8	$	(296.9	)	$	(0.3	)	$	(39.7	)	$	(331.1	)
Other comprehensive income (loss) before reclassifications	14.9		—			—			(1.5		)	13.4
Amounts reclassified from AOCI (b)	0.1		2.5			—			—			2.6
Net other comprehensive income (loss)	15.0		2.5			—			(1.5		)	16.0
Balance at December 31, 2017	$	20.8	$	(294.4	)	$	(0.3	)	$	(41.2	)	$	(315.1	)

Three Months Ended December 31, 2016 ($ in millions) (a)	Cash flow hedging items			Pension and other postretirement benefit plan items			Unrealized losses on available-for- sale securities			Foreign currency items			Total
Balance at September 30, 2016	$	(11.0	)	$	(326.9	)	$	(0.3	)	$	(44.2	)	$	(382.4	)
Other comprehensive loss before reclassifications	(0.6		)	—			—			(4.0		)	(4.6		)
Amounts reclassified from AOCI (b)	4.4			5.7			—			—			10.1
Net other comprehensive income (loss)	3.8			5.7			—			(4.0		)	5.5
Balance at December 31, 2016	$	(7.2	)	$	(321.2	)	$	(0.3	)	$	(48.2	)	$	(376.9	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

(b) See separate table below for further details.

The changes in AOCI by component, net of tax, for the six months ended December 31, 2017 and 2016 were as follows:

Six Months Ended December 31, 2017 ($ in millions) (a)	Cash flow hedging items			Pension and other postretirement benefit plan items			Unrealized losses on available-for- sale securities			Foreign currency items			Total
Balance at June 30, 2017	$	(2.3	)	$	(299.0	)	$	(0.3	)	$	(41.5	)	$	(343.1	)
Other comprehensive income before reclassifications	21.0			—			—			0.3			21.3
Amounts reclassified from AOCI (b)	2.1			4.6			—			—			6.7
Net other comprehensive income	23.1			4.6			—			0.3			28.0
Balance at December 31, 2017	$	20.8		$	(294.4	)	$	(0.3	)	$	(41.2	)	$	(315.1	)

Six Months Ended December 31, 2016 ($ in millions) (a)	Cash flow hedging items			Pension and other postretirement benefit plan items			Unrealized losses on available-for- sale securities			Foreign currency items			Total
Balance at June 30, 2016	$	(21.8	)	$	(344.3	)	$	(0.3	)	$	(43.5	)	$	(409.9	)
Other comprehensive income (loss) before reclassifications	3.9			11.4			—			(4.7		)	10.6
Amounts reclassified from AOCI (b)	10.7			11.7			—			—			22.4
Net current-period other comprehensive income (loss)	14.6			23.1			—			(4.7		)	33.0
Balance at December 31, 2016	$	(7.2	)	$	(321.2	)	$	(0.3	)	$	(48.2	)	$	(376.9	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

(b) See separate table below for further details.

Schedule of amounts reclassified from AOCI

The following is a summary of amounts reclassified from AOCI for the three and six months ended December 31, 2017 and 2016:

($ in millions) (a)	Location of (loss) gain	Amount Reclassified from AOCI Three Months Ended December 31,						Amount Reclassified from AOCI Six Months Ended December 31,
Details about AOCI Components		2017			2016			2017			2016
Cash flow hedging items:
Commodity contracts	Cost of sales	$	(0.2	)	$	(7.9	)	$	(2.8	)	$	(18.0	)
Foreign exchange contracts	Net sales	(0.1		)	0.5			(0.5		)	0.6
Forward interest rate swaps	Interest expense	0.1			0.1			0.2			0.2
	Total before tax	(0.2		)	(7.3		)	(3.1		)	(17.2		)
	Tax benefit	0.1			2.9			1.0			6.5
	Net of tax	$	(0.1	)	$	(4.4	)	$	(2.1	)	$	(10.7	)

($ in millions) (a)	Location of (loss) gain	Amount Reclassified from AOCI Three Months Ended December 31,						Amount Reclassified from AOCI Six Months Ended December 31,
Details about AOCI Components		2017			2016			2017			2016
Amortization of pension and other postretirement benefit plan items:
Net actuarial loss	(b)	$	(4.1	)	$	(10.3	)	$	(8.3	)	$	(20.5	)
Prior service benefit	(b)	0.8			1.1			1.6			2.4
Curtailment charge	(b)	—			—			—			(0.5		)
	Total before tax	(3.3		)	(9.2		)	(6.7		)	(18.6		)
	Tax benefit	0.8			3.5			2.1			6.9
	Net of tax	$	(2.5	)	$	(5.7	)	$	(4.6	)	$	(11.7	)

(a) Amounts in parentheses indicate debits to income/loss.

(b) These AOCI components are included in the computation of net periodic benefit cost (see Note 6. Pension and Other Postretirement Benefits for additional details).

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Acquisition and Divestiture (Details) $ in Millions		3 Months Ended
	Feb. 28, 2017 USD ($)	Jun. 30, 2017 USD ($) transaction	Dec. 31, 2017 USD ($)
Business Acquisition [Line Items]
Goodwill acquired		$ 263.4	$ 263.4
Discontinued Operations, Disposed of by Sale | Specialty Steel Supply
Business Acquisition [Line Items]
Number of separate transactions to complete the divestiture (transaction) | transaction		2
Proceeds from sale of business		$ 12.0
Puris LLC
Business Acquisition [Line Items]
Asset purchase price	$ 35.3
Working capital acquired		1.7
Property, plant, and equipment acquired		6.5
Identifiable intangible assets		8.5
Goodwill acquired		$ 18.6

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Earnings per Common Share - Schedule of Calculations of Basic and Diluted Earnings per Common Share (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Earnings Per Share [Abstract]
Net income	$ 92.1	$ 7.0	$ 115.5	$ 0.8
Less: earnings and dividends allocated to participating securities	(0.9)	(0.1)	(1.0)	(0.1)
Earnings available for common stockholders used in calculation of basic earnings per common share	$ 91.2	$ 6.9	$ 114.5	$ 0.7
Weighted average number of common shares outstanding, basic (in shares)	47.2	47.0	47.1	47.0
Basic earnings per common share (in dollars per share)	$ 1.93	$ 0.15	$ 2.43	$ 0.01
Earnings available for common stockholders used in calculation of diluted earnings per common share	$ 91.2	$ 6.9	$ 114.5	$ 0.7
Effect of shares issuable under share-based compensation plans (in shares)	0.4	0.1	0.4	0.1
Weighted average number of common shares outstanding, diluted (in shares)	47.6	47.1	47.5	47.1
Diluted earnings per common share (in dollars per share)	$ 1.92	$ 0.15	$ 2.41	$ 0.01

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Earnings per Common Share - Schedule of awards issued under share-based compensation plans excluded from the calculations of diluted earnings per share (Details) - shares shares in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Stock options
Awards issued under share-based compensation plans that were excluded from calculations of diluted earnings per share because their effects were anti-dilutive
Awards excluded from computation of earnings per share (in shares)	0.6	2.0	0.8	1.8

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Inventories - Schedule of Inventories (Details) - USD ($) $ in Millions	Dec. 31, 2017	Jun. 30, 2017
Inventory, Net [Abstract]
Raw materials and supplies	$ 186.1	$ 152.8
Work in process	395.5	365.6
Finished and purchased products	190.2	172.0
Total inventory	$ 771.8	$ 690.4

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Inventories - Narrative (Details) - USD ($) $ in Millions	Dec. 31, 2017	Jun. 30, 2017
Inventory, Net [Abstract]
Other than LIFO inventory	$ 128.8	$ 107.3

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Accrued Liabilities (Details) - USD ($) $ in Millions	Dec. 31, 2017	Jun. 30, 2017
Accrued Liabilities, Current [Abstract]
Accrued compensation and benefits	$ 52.6	$ 59.1
Accrued postretirement benefits	15.5	15.5
Accrued interest expense	11.2	11.2
Deferred revenue	10.7	9.8
Derivative financial instruments	2.9	13.1
Other	25.5	31.2
Total accrued liabilities	$ 118.4	$ 139.9

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Pension and Other Postretirement Benefits - Schedule of Components of the Net Periodic Benefit Cost (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Pension Plans
Pension and Other Postretirement Benefit Disclosures
Service cost	$ 2.4	$ 7.7	$ 4.7	$ 16.0
Interest cost	13.0	12.4	26.1	25.3
Expected return on plan assets	(16.5)	(16.6)	(33.0)	(31.9)
Amortization of net loss	3.4	9.5	6.8	18.9
Amortization of prior service cost (benefit)	0.5	0.5	1.0	0.8
Curtailment charge			0.0	0.5
Net periodic benefit costs	2.8	13.5	5.6	29.6
Other Postretirement Plans
Pension and Other Postretirement Benefit Disclosures
Service cost	0.7	0.9	1.3	1.8
Interest cost	2.4	2.3	4.8	4.6
Expected return on plan assets	(1.7)	(1.7)	(3.5)	(3.4)
Amortization of net loss	0.7	0.8	1.5	1.6
Amortization of prior service cost (benefit)	(1.3)	(1.6)	(2.6)	(3.2)
Curtailment charge			0.0	0.0
Net periodic benefit costs	$ 0.8	$ 0.7	$ 1.5	$ 1.4

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Pension and Other Postretirement Benefits - Narrative (Details) - Pension Plans - USD ($) $ in Millions	3 Months Ended	6 Months Ended		12 Months Ended
	Sep. 30, 2016	Dec. 31, 2017	Dec. 31, 2016	Jun. 30, 2018
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Curtailment charge	$ 0.5
Qualified Plan
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Contributions		$ 4.9	$ 100.0
Qualified Plan | Forecast
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Contributions				$ 1.8

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Debt - Narrative (Details)		3 Months Ended		6 Months Ended
	Mar. 31, 2017 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Jun. 30, 2017 USD ($)
Debt Instrument [Line Items]
Short-term borrowings		$ 9,300,000		$ 9,300,000		$ 0
Interest costs		7,900,000	$ 7,700,000	15,600,000	$ 15,300,000
Interest costs, capitalized		600,000	$ 300,000	1,100,000	$ 500,000
Credit Agreement
Debt Instrument [Line Items]
Maximum borrowing capacity	$ 400,000,000
Letters of credit issued		6,000,000		6,000,000
Short-term borrowings		9,300,000		9,300,000
Credit Agreement available for future borrowings		$ 384,700,000		$ 384,700,000
Credit Agreement | LIBOR
Debt Instrument [Line Items]
Interest rate margin				1.50%
Credit Agreement | LIBOR | Minimum
Debt Instrument [Line Items]
Interest rate margin	1.00%
Credit Agreement | LIBOR | Maximum
Debt Instrument [Line Items]
Interest rate margin	1.75%
Credit Agreement | Base Rate
Debt Instrument [Line Items]
Interest rate margin				0.50%
Credit Agreement | Base Rate | Minimum
Debt Instrument [Line Items]
Interest rate margin	0.00%
Credit Agreement | Base Rate | Maximum
Debt Instrument [Line Items]
Interest rate margin	0.75%
Letters of credit
Debt Instrument [Line Items]
Commitment fee rate				0.275%
Letter of credit fees				1.50%
Required interest coverage ratio	3.50
Letters of credit | Minimum
Debt Instrument [Line Items]
Commitment fee rate	0.125%
Letter of credit fees	1.00%
Letters of credit | Maximum
Debt Instrument [Line Items]
Commitment fee rate	0.40%
Letter of credit fees	1.75%
Required debt to capital ratio (less than 55%)	0.55

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Debt - Schedule of long-term debt outstanding (Details) - USD ($)	Dec. 31, 2017	Jun. 30, 2017
Debt Instrument [Line Items]
Total	$ 603,300,000	$ 605,000,000
Less: amounts due within one year	55,000,000	55,000,000
Long-term debt, net of current portion	548,300,000	550,000,000
Medium-term notes, Series B 6.97% to 7.10% due April 2018 To May 2018
Debt Instrument [Line Items]
Face amount	55,000,000.0	55,000,000.0
Total	$ 55,000,000	$ 55,000,000
Medium-term notes, Series B 6.97% to 7.10% due April 2018 To May 2018 | Minimum
Debt Instrument [Line Items]
Interest rate	6.97%	6.97%
Medium-term notes, Series B 6.97% to 7.10% due April 2018 To May 2018 | Maximum
Debt Instrument [Line Items]
Interest rate	7.10%	7.10%
Senior unsecured notes, 5.20% due July 2021
Debt Instrument [Line Items]
Interest rate	5.20%	5.20%
Face amount	$ 250,000,000.0	$ 250,000,000.0
Total	$ 249,300,000	$ 251,200,000
4.45% Senior Unsecured Notes due 2023
Debt Instrument [Line Items]
Interest rate	4.45%	4.45%
Face amount	$ 300,000,000.0	$ 300,000,000.0
Total	$ 299,000,000	$ 298,800,000

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Contingencies and Commitments (Details) - USD ($) $ in Millions	6 Months Ended
	Dec. 31, 2017	Jun. 30, 2017
Commitments and Contingencies Disclosure [Abstract]
Increase made by the company in the liabilities of environmental remediation costs	$ 0.1
Environmental remediation liability	$ 16.2	$ 16.1

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Fair Value Measurements - Schedule of fair value of assets and liabilities measured on a recurring basis (Details) - Measured on a recurring basis - Level 2 - USD ($) $ in Millions	Dec. 31, 2017	Jun. 30, 2017
Assets:
Derivative financial instruments	$ 31.7	$ 14.5
Total assets	35.2	17.9
Liabilities:
Derivative financial instruments, liabilities	4.1	19.1
Municipal auction rate securities
Assets:
Marketable securities:	$ 3.5	$ 3.4

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Fair Value Measurements - Schedule of carrying amounts and estimated fair values of financial instruments not recorded at fair value in the financial statements (Details) - Level 2 - USD ($) $ in Millions	Dec. 31, 2017	Jun. 30, 2017
Carrying Value
Carrying amounts and estimated fair values of financial instruments not recorded at fair value
Long-term debt, including current portion	$ 603.3	$ 605.0
Company-owned life insurance	16.0	15.9
Fair Value
Carrying amounts and estimated fair values of financial instruments not recorded at fair value
Long-term debt, including current portion	622.0	622.5
Company-owned life insurance	$ 16.0	$ 15.9

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Derivatives and Hedging Activities - Narrative (Details) lb in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2017 USD ($) lb	Dec. 31, 2016 USD ($)	Dec. 31, 2017 USD ($) lb	Dec. 31, 2016 USD ($)	Jun. 30, 2017 USD ($)
Fair value of derivatives
Total asset derivatives on a gross basis	$ 33,600,000		$ 33,600,000
Total liability derivatives on a gross basis	6,000,000		6,000,000
Cash collateral held by counterparties	$ 0		0		$ 0
Net derivative losses included in AOCI expected to be reclassified into earnings			$ 10,500,000
Cash flow hedges | Commodity contracts
Fair value of derivatives
Amounts of raw materials to be purchased from forward contracts (in pounds) | lb	21.0		21.0
Cash flow hedges | Interest Rate Swaps
Fair value of derivatives
Net gains recorded as a reduction to interest expense	$ 100,000	$ 100,000	$ 200,000	$ 200,000
Fair value hedging | Interest Rate Swaps
Fair value of derivatives
Net gains recorded as a reduction to interest expense	200,000	$ 500,000	400,000	$ 900,000
Total notional amounts of interest rate contracts	$ 150,000,000		$ 150,000,000		$ 150,000,000

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Derivatives and Hedging Activities - Schedule of fair value and location of outstanding derivative contracts recorded in consolidated balance sheets (Details) - USD ($) $ in Millions	Dec. 31, 2017	Jun. 30, 2017
Fair value of derivatives
Derivatives designated as hedging instruments, Asset	$ 31.7	$ 14.5
Derivatives designated as hedging instruments, Liability	4.1	19.1
Other current assets
Fair value of derivatives
Derivatives designated as hedging instruments, Asset	13.2	7.2
Other assets
Fair value of derivatives
Derivatives designated as hedging instruments, Asset	18.5	7.3
Accrued liabilities
Fair value of derivatives
Derivatives designated as hedging instruments, Liability	2.9	13.1
Other liabilities
Fair value of derivatives
Derivatives designated as hedging instruments, Liability	1.2	6.0
Interest Rate Swaps
Fair value of derivatives
Derivatives designated as hedging instruments, Asset	1.1	2.2
Derivatives designated as hedging instruments, Liability	0.9	0.0
Interest Rate Swaps | Other current assets
Fair value of derivatives
Derivatives designated as hedging instruments, Asset	0.5	0.6
Interest Rate Swaps | Other assets
Fair value of derivatives
Derivatives designated as hedging instruments, Asset	0.6	1.6
Interest Rate Swaps | Accrued liabilities
Fair value of derivatives
Derivatives designated as hedging instruments, Liability	0.0	0.0
Interest Rate Swaps | Other liabilities
Fair value of derivatives
Derivatives designated as hedging instruments, Liability	0.9	0.0
Foreign exchange contracts
Fair value of derivatives
Derivatives designated as hedging instruments, Asset	0.0	0.2
Derivatives designated as hedging instruments, Liability	1.3	1.0
Foreign exchange contracts | Other current assets
Fair value of derivatives
Derivatives designated as hedging instruments, Asset	0.0	0.2
Foreign exchange contracts | Other assets
Fair value of derivatives
Derivatives designated as hedging instruments, Asset	0.0	0.0
Foreign exchange contracts | Accrued liabilities
Fair value of derivatives
Derivatives designated as hedging instruments, Liability	1.3	1.0
Foreign exchange contracts | Other liabilities
Fair value of derivatives
Derivatives designated as hedging instruments, Liability	0.0	0.0
Commodity contracts
Fair value of derivatives
Derivatives designated as hedging instruments, Asset	30.6	12.1
Derivatives designated as hedging instruments, Liability	1.9	18.1
Commodity contracts | Other current assets
Fair value of derivatives
Derivatives designated as hedging instruments, Asset	12.7	6.4
Commodity contracts | Other assets
Fair value of derivatives
Derivatives designated as hedging instruments, Asset	17.9	5.7
Commodity contracts | Accrued liabilities
Fair value of derivatives
Derivatives designated as hedging instruments, Liability	1.6	12.1
Commodity contracts | Other liabilities
Fair value of derivatives
Derivatives designated as hedging instruments, Liability	$ 0.3	$ 6.0

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Derivatives and Hedging Activities - Summary of the (losses) gains related to cash flow hedges (Details) - Cash flow hedges - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
(Losses) gains related to cash flow hedges
Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)	$ 20.4	$ (21.9)	$ 29.6	$ (14.8)
Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)	(0.2)	(7.3)	(3.1)	(17.2)
Amount of (Loss) Gain Reclassified from AOCI into Income (Ineffective Portion)	0.0	0.0	(0.8)	0.5
Commodity contracts
(Losses) gains related to cash flow hedges
Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)	20.7	(22.5)	30.3	(15.4)
Commodity contracts | Cost of sales
(Losses) gains related to cash flow hedges
Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)	(0.2)	(7.9)	(2.8)	(18.0)
Amount of (Loss) Gain Reclassified from AOCI into Income (Ineffective Portion)	0.0	0.0	(0.8)	0.5
Foreign exchange contracts
(Losses) gains related to cash flow hedges
Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)	(0.3)	0.6	(0.7)	0.6
Foreign exchange contracts | Net sales
(Losses) gains related to cash flow hedges
Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)	(0.1)	0.5	(0.5)	0.6
Amount of (Loss) Gain Reclassified from AOCI into Income (Ineffective Portion)	0.0	0.0	0.0	0.0
Forward interest rate swaps | Interest expense
(Losses) gains related to cash flow hedges
Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)	0.1	0.1	0.2	0.2
Amount of (Loss) Gain Reclassified from AOCI into Income (Ineffective Portion)	$ 0.0	$ 0.0	$ 0.0	$ 0.0

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Other Income, Net (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Other Income and Expenses [Abstract]
Foreign exchange loss	$ (0.9)	$ (0.2)	$ (0.8)	$ (0.2)
Unrealized gains on company-owned life insurance contracts and investments held in rabbi trusts	0.9	0.3	1.4	0.8
Other	0.2	0.2	0.3	0.4
Total other income, net	$ 0.2	$ 0.3	$ 0.9	$ 1.0

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Income Taxes (Details) - USD ($) $ in Millions	1 Months Ended	3 Months Ended		6 Months Ended
	Oct. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Jun. 30, 2017
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Income tax (benefit) expense		$ (58.4)	$ 1.3	$ (46.6)	$ 2.2
Income tax expense as a percent of pre-tax income (loss)		(173.30%)	15.70%	(67.60%)	73.30%
Tax Cuts and Jobs Act of 2017, income tax benefit		$ 66.0
Tax Cuts and Jobs Act of 2017, tax benefit of deferred tax assets and liabilities re-measurement		73.3
Tax Cuts and Jobs Act of 2017, tax expense for transition tax		5.1
Net tax benefit associated with research and development			$ 0.9
Net tax benefit associated with research and development			$ 0.3
Discrete tax tax charge				$ 2.1
Indefinitely reinvested foreign earnings						$ 99.1
General Retirement Plan
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Discretionary contribution	$ 100.0
State and Local Jurisdiction
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Income tax (benefit) expense		$ 2.2

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Business Segments - Narrative (Details) - segment	3 Months Ended		6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Concentration Risk [Line Items]
Number of reportable segments (segment)			2
Customer Concentration Risk | Net Sales | Arconic
Concentration Risk [Line Items]
Concentration risk	10.00%	17.00%	10.00%	15.00%
Customer Concentration Risk | Accounts Receivable | Arconic Inc. And Precision Castparts Corporation [Member]
Concentration Risk [Line Items]
Concentration risk			22.00%

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Business Segments - Schedule of results of operation, depreciation and amortization, capital expenditures and total assets by reportable segments (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Jun. 30, 2017
Net Sales:
Net Sales:	$ 487.8	$ 427.4	$ 967.5	$ 816.3
Operating Income:
Operating Income:	40.8	15.4	82.5	16.8
Depreciation and Amortization:
Depreciation and Amortization:	29.2	29.9	58.0	58.7
Capital Expenditures:
Capital Expenditures:	26.8	18.5	55.7	45.1
Total Assets:
Total Assets:	2,944.1		2,944.1		$ 2,878.1
Corporate
Operating Income:
Operating Income:	(13.9)	(16.0)	(26.9)	(29.8)
Depreciation and Amortization:
Depreciation and Amortization:	0.9	0.9	1.8	1.7
Capital Expenditures:
Capital Expenditures:	9.6	7.7	16.7	15.2
Total Assets:
Total Assets:	148.4		148.4		167.2
Segment Reconciling Items
Operating Income:
Pension earnings, interest and deferrals	(0.5)	(5.6)	(1.1)	(12.7)
Intersegment
Net Sales:
Net Sales:	(23.3)	(4.4)	(41.1)	(9.1)
Operating Income:
Operating Income:	(2.1)	0.6	(2.6)	0.7
Depreciation and Amortization:
Depreciation and Amortization:	(0.2)	0.1	(0.4)	(0.5)
Capital Expenditures:
Capital Expenditures:	(0.3)	0.0	(0.5)	(0.1)
Total Assets:
Total Assets:	(17.9)		(17.9)		(15.5)
Specialty Alloys Operations | Operating
Net Sales:
Net Sales:	406.3	348.6	803.1	663.7
Operating Income:
Operating Income:	49.8	35.6	100.3	60.6
Depreciation and Amortization:
Depreciation and Amortization:	23.4	23.7	46.5	47.2
Capital Expenditures:
Capital Expenditures:	11.2	8.3	28.4	23.0
Total Assets:
Total Assets:	2,337.9		2,337.9		2,292.1
Performance Engineered Products | Operating
Net Sales:
Net Sales:	104.8	83.2	205.5	161.7
Operating Income:
Operating Income:	7.5	0.8	12.8	(2.0)
Depreciation and Amortization:
Depreciation and Amortization:	5.1	5.2	10.1	10.3
Capital Expenditures:
Capital Expenditures:	6.3	$ 2.5	11.1	$ 7.0
Total Assets:
Total Assets:	$ 475.7		$ 475.7		$ 434.3

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Reclassifications from Accumulated Other Comprehensive Income (Loss) (AOCI) - Schedule of changes in AOCI by component, net of tax (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Changes in the balance of Accumulated Other Comprehensive Income
Balances, period start			$ 1,198.6	$ 1,104.9
Balances, period end	$ 1,336.8	$ 1,130.3	1,336.8	1,130.3
Cash flow hedging items
Changes in the balance of Accumulated Other Comprehensive Income
Balances, period start	5.8	(11.0)	(2.3)	(21.8)
Other comprehensive income (loss) before reclassifications	14.9	(0.6)	21.0	3.9
Amounts reclassified from AOCI	0.1	4.4	2.1	10.7
Net other comprehensive income (loss)	15.0	3.8	23.1	14.6
Balances, period end	20.8	(7.2)	20.8	(7.2)
Pension and other postretirement benefit plan items
Changes in the balance of Accumulated Other Comprehensive Income
Balances, period start	(296.9)	(326.9)	(299.0)	(344.3)
Other comprehensive income (loss) before reclassifications	0.0	0.0	0.0	11.4
Amounts reclassified from AOCI	2.5	5.7	4.6	11.7
Net other comprehensive income (loss)	2.5	5.7	4.6	23.1
Balances, period end	(294.4)	(321.2)	(294.4)	(321.2)
Unrealized losses on available-for- sale securities
Changes in the balance of Accumulated Other Comprehensive Income
Balances, period start	(0.3)	(0.3)	(0.3)	(0.3)
Other comprehensive income (loss) before reclassifications	0.0	0.0	0.0	0.0
Amounts reclassified from AOCI	0.0	0.0	0.0	0.0
Net other comprehensive income (loss)	0.0	0.0	0.0	0.0
Balances, period end	(0.3)	(0.3)	(0.3)	(0.3)
Foreign currency items
Changes in the balance of Accumulated Other Comprehensive Income
Balances, period start	(39.7)	(44.2)	(41.5)	(43.5)
Other comprehensive income (loss) before reclassifications	(1.5)	(4.0)	0.3	(4.7)
Amounts reclassified from AOCI	0.0	0.0	0.0	0.0
Net other comprehensive income (loss)	(1.5)	(4.0)	0.3	(4.7)
Balances, period end	(41.2)	(48.2)	(41.2)	(48.2)
Accumulated Other Comprehensive (Loss) Income
Changes in the balance of Accumulated Other Comprehensive Income
Balances, period start	(331.1)	(382.4)	(343.1)	(409.9)
Other comprehensive income (loss) before reclassifications	13.4	(4.6)	21.3	10.6
Amounts reclassified from AOCI	2.6	10.1	6.7	22.4
Net other comprehensive income (loss)	16.0	5.5	28.0	33.0
Balances, period end	$ (315.1)	$ (376.9)	$ (315.1)	$ (376.9)

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Reclassifications from Accumulated Other Comprehensive Income (Loss) (AOCI) - Schedule of amounts reclassified from AOCI (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Amount reclassified from AOCI
Cost of sales	$ 402.1	$ 364.9	$ 796.2	$ 707.8
Net sales	487.8	427.4	967.5	816.3
Interest expense	7.3	7.4	14.5	14.8
Total before tax	33.7	8.3	68.9	3.0
Tax benefit	58.4	(1.3)	46.6	(2.2)
Net income	92.1	7.0	115.5	0.8
Cash flow hedging items
Amount reclassified from AOCI
Net of tax	(0.1)	(4.4)	(2.1)	(10.7)
Net actuarial loss
Amount reclassified from AOCI
Total before tax	(4.1)	(10.3)	(8.3)	(20.5)
Prior service benefit
Amount reclassified from AOCI
Total before tax	0.8	1.1	1.6	2.4
Curtailment charge
Amount reclassified from AOCI
Total before tax	0.0	0.0	0.0	(0.5)
Pension and other postretirement benefit plan items
Amount reclassified from AOCI
Total before tax	(3.3)	(9.2)	(6.7)	(18.6)
Tax benefit	0.8	3.5	2.1	6.9
Net of tax	(2.5)	(5.7)	(4.6)	(11.7)
Amount Reclassified from AOCI | Cash flow hedging items
Amount reclassified from AOCI
Total before tax	(0.2)	(7.3)	(3.1)	(17.2)
Tax benefit	0.1	2.9	1.0	6.5
Net income	(0.1)	(4.4)	(2.1)	(10.7)
Amount Reclassified from AOCI | Commodity contracts | Cash flow hedging items
Amount reclassified from AOCI
Cost of sales	(0.2)	(7.9)	(2.8)	(18.0)
Amount Reclassified from AOCI | Foreign exchange contracts | Cash flow hedging items
Amount reclassified from AOCI
Net sales	(0.1)	0.5	(0.5)	0.6
Amount Reclassified from AOCI | Interest Rate Swaps | Cash flow hedging items
Amount reclassified from AOCI
Interest expense	$ 0.1	$ 0.1	$ 0.2	$ 0.2