CARPENTER TECHNOLOGY CORPCRS
CARPENTER TECHNOLOGY CORP Income Taxes Disclosure
Income Taxes
Income (loss) before income taxes for the Company's domestic and foreign operations was as follows:
| Years Ended June 30, | ||||||||||||||||||||
| ($ in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Domestic | $ | 454.5 | $ | 224.1 | $ | 51.2 | ||||||||||||||
| Foreign | 12.8 | (12.5) | 21.3 | |||||||||||||||||
| Income before income taxes | $ | 467.3 | $ | 211.6 | $ | 72.5 | ||||||||||||||
The expense (benefit) for income taxes from continuing operations consisted of the following:
| Years Ended June 30, | ||||||||||||||||||||
| ($ in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | 89.8 | $ | 30.4 | $ | 8.6 | ||||||||||||||
| State | 14.5 | 4.2 | 2.6 | |||||||||||||||||
| Foreign | 4.4 | 3.8 | 5.3 | |||||||||||||||||
| Total current | 108.7 | 38.4 | 16.5 | |||||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | (16.1) | (10.1) | (0.9) | |||||||||||||||||
| State | (1.3) | (2.7) | (0.5) | |||||||||||||||||
| Foreign | — | (0.5) | 1.0 | |||||||||||||||||
| Total deferred | (17.4) | (13.3) | (0.4) | |||||||||||||||||
| Total income tax expense | $ | 91.3 | $ | 25.1 | $ | 16.1 | ||||||||||||||
The following is a reconciliation of income taxes computed at the U.S. Federal income tax rate to the Company's effective income tax rates:
| Years Ended June 30, | ||||||||||||||||||||
| (% of pre-tax income) | 2025 | 2024 | 2023 | |||||||||||||||||
| Statutory federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||||||||
| State income taxes, net of federal tax benefit | 2.4 | 2.7 | 2.8 | |||||||||||||||||
| Foreign tax rate differential | 0.1 | (0.3) | 0.9 | |||||||||||||||||
| Research and development tax credit | (0.9) | (1.6) | (3.5) | |||||||||||||||||
| Foreign derived intangible income deduction | (1.6) | (1.8) | — | |||||||||||||||||
| Adjustments of prior years' income taxes | (0.1) | — | 8.7 | |||||||||||||||||
| Non-deductible goodwill impairment | — | 1.4 | — | |||||||||||||||||
| Tax benefit related to closure of Additive operations | — | (8.7) | — | |||||||||||||||||
| Non-taxable income | (0.1) | (0.5) | (0.8) | |||||||||||||||||
| Non-deductible expenses | 0.4 | 6.4 | (0.1) | |||||||||||||||||
| Non-deductible compensation | 1.2 | 1.6 | 1.4 | |||||||||||||||||
| Share-based compensation | (2.7) | (3.2) | — | |||||||||||||||||
| Changes in valuation allowances | — | (4.7) | (7.4) | |||||||||||||||||
| Law changes | — | — | 0.4 | |||||||||||||||||
| Interest on prior tax positions | (0.2) | (0.4) | (1.3) | |||||||||||||||||
| Other, net | — | — | 0.1 | |||||||||||||||||
| Effective income tax rate | 19.5 | % | 11.9 | % | 22.2 | % | ||||||||||||||
Deferred taxes are recorded for temporary differences between the carrying amounts of assets and liabilities and their tax bases. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company had state net operating loss carryforwards of $139.8 million expiring between fiscal years 2026 and 2045. A significant portion of the state net operating loss carryforwards are subject to an annual limitation that, under current law, is likely to limit future tax benefits to approximately $6.1 million. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be revised in the near term if estimates of future taxable income during the carryforward period change.
Valuation allowances increased by $0.2 million during fiscal year 2025. As a result of increases in estimates of projected future taxable income during the carryforward period, valuation allowance was reduced by $0.1 million for the expected realization of previously limited state tax credit carryforwards. This was offset by a $0.3 million increase in net operating losses incurred in certain jurisdictions for which no tax benefit was recognized.
The significant components of deferred tax assets and liabilities that are recorded in the consolidated balance sheets are summarized in the table below:
| June 30, | ||||||||||||||
| ($ in millions) | 2025 | 2024 | ||||||||||||
| Deferred tax assets: | ||||||||||||||
| Pensions | $ | 26.3 | $ | 33.1 | ||||||||||
| Postretirement provisions | 11.3 | 14.4 | ||||||||||||
| Non-equity compensation | 9.6 | 9.6 | ||||||||||||
| Net operating loss carryforwards | 8.3 | 8.5 | ||||||||||||
| Tax credit carryforwards | 1.6 | 2.0 | ||||||||||||
| Operating lease liabilities | 8.1 | 8.9 | ||||||||||||
| Other | 21.0 | 20.1 | ||||||||||||
| Gross deferred tax assets | 86.2 | 96.6 | ||||||||||||
| Valuation allowances | (2.6) | (2.4) | ||||||||||||
| Total deferred tax assets | 83.6 | 94.2 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Depreciation | 198.4 | 219.6 | ||||||||||||
| Intangible assets | 2.4 | 3.2 | ||||||||||||
| Inventories | 28.3 | 28.2 | ||||||||||||
| Operating lease right-of-use assets | 6.4 | 7.0 | ||||||||||||
| Other | 3.1 | 2.8 | ||||||||||||
| Total deferred tax liabilities | 238.6 | 260.8 | ||||||||||||
| Deferred tax liabilities, net | $ | 155.0 | $ | 166.6 | ||||||||||
The Company does not have unrecognized tax benefits as of June 30, 2025, 2024 and 2023. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.
All years prior to fiscal year 2018 have been settled with the Internal Revenue Service and with most significant state, local and foreign tax jurisdictions.
The Company asserts that substantially all undistributed earnings from foreign subsidiaries are not considered indefinitely reinvested. The potential tax implications from the distribution of these earnings are expected to be limited to withholding taxes in certain jurisdictions and are not expected to materially impact the consolidated financial statements.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Aug 12, 2025 | Showing above |
| 2024 | Aug 13, 2024 | |
| 2023 | Aug 11, 2023 | |
| 2022 | Aug 15, 2022 | |
| 2021 | Aug 19, 2021 | |
| 2020 | Sep 4, 2020 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.