UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2017~~2018

Commission file number 1-5318

KENNAMETAL INC.

(Exact name of registrant as specified in its charter)



Pennsylvania		25-0900168
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

600 Grant Street Suite 5100 Pittsburgh, Pennsylvania		15219-2706
(Address of principal executive offices)		(Zip Code)

~~Website:~~ ~~www.kennametal.com~~

Registrant’s telephone number, including area code: (412) 248-8000

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 [ ]

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 [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)		Smaller reporting company [ ]
		Emerging growth company [ ]

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]

Indicate the number of shares outstanding of each of the issuer’s classes of capital stock, as of the latest practicable date.



Title of Each Class		Outstanding at April ~~28, 2017~~30, 2018
Capital Stock, par value $1.25 per share		~~80,554,198~~81,628,262

Table of Contents

KENNAMETAL INC.

FORM 10-Q

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, ~~2017~~2018

TABLE OF CONTENTS


Item No.	Item No.	Page No.	Item No.	Page No.

PART I - FINANCIAL INFORMATION	PART I - FINANCIAL INFORMATION		PART I - FINANCIAL INFORMATION

1.	Financial Statements		Financial Statements

	Condensed Consolidated Statements of Income (Unaudited) Three and nine months ended March 31, 2017 and 2016	4	Condensed Consolidated Statements of Income (Unaudited) Three and nine months ended March 31, 2018 and 2017	4

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and nine months ended March 31, 2017 and 2016	5	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and nine months ended March 31, 2018 and 2017	5

	Condensed Consolidated Balance Sheets (Unaudited) March 31, 2017 and June 30, 2016	6	Condensed Consolidated Balance Sheets (Unaudited) March 31, 2018 and June 30, 2017	6

	Condensed Consolidated Statements of Cash Flow (Unaudited) Nine months ended March 31, 2017 and 2016	7	Condensed Consolidated Statements of Cash Flow (Unaudited) Nine months ended March 31, 2018 and 2017	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

3.	Quantitative and Qualitative Disclosures About Market Risk	34	Quantitative and Qualitative Disclosures About Market Risk	37

4.	Controls and Procedures	34	Controls and Procedures	38

PART II - OTHER INFORMATION	PART II - OTHER INFORMATION		PART II - OTHER INFORMATION
1.	Legal Proceedings	35	Legal Proceedings	39

2.	Unregistered Sales of Equity Securities and Use of Proceeds	35	Unregistered Sales of Equity Securities and Use of Proceeds	39

6.	Exhibits	35	Exhibits	39

Signatures	Signatures	36	Signatures	40

Table of Contents

FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are statements that do not relate strictly to historical or current facts. You can identify forward-looking statements by the fact they use words such as “should,” “anticipate,” “estimate,” “approximate,” “expect,” “may,” “will,” “project,” “intend,” “plan,” “believe” and other words of similar meaning and expression in connection with any discussion of future operating or financial performance or events. We have also included forward looking statements in this Quarterly Report on Form 10-Q concerning, among other things, our strategy, goals, plans and projections regarding our financial position, liquidity and capital resources, results of operations, market position and product development. These statements are based on current estimates that involve inherent risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, our actual results could vary materially from our current expectations. There are a number of factors that could cause our actual results to differ from those indicated in the forward-looking statements. They include: ~~economic recession;~~downturns in the business cycle or the economy; our ability to achieve ~~all~~ anticipated benefits of our restructuring initiatives; risks related to our foreign operations and international markets, such as fluctuations in currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability; changes in the regulatory environment in which we operate, including environmental, health and safety regulations; potential for future goodwill and other intangible asset impairment charges; our ability to protect and defend our intellectual property; continuity and security of information technology infrastructure; competition; our ability to retain our management and employees; demands on management resources; availability and cost of the raw materials we use to manufacture our products; product liability claims; integrating acquisitions and achieving the expected savings and synergies; global or regional catastrophic events; demand for and market acceptance of our products; business divestitures; ~~energy costs; commodity prices;~~ labor relations; and implementation of environmental remediation matters. We provide additional information about many of the specific risks we face in the “Risk Factors” ~~Section~~section of our Annual Report on Form 10-K. We can give no assurance that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. ~~We undertake no obligation~~Except as required by law, we do not intend to release publicly any revisions to forward-looking statements as a result of future events or developments.

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended March 31,					Nine Months Ended March 31,					Three Months Ended March 31,				Nine Months Ended March 31,
(in thousands, except per share amounts)	2017		2016			2017		2016			2018		2017		2018		2017
Sales	$	528,630	$	497,837		$	1,493,343	$	1,577,212		$	607,936	$	528,630	$	1,721,734	$	1,493,343
Cost of goods sold	342,365		340,484			1,015,926		1,127,828			388,475		342,365		1,124,736		1,015,926
Gross profit	186,265		157,353			477,417		449,384			219,461		186,265		596,998		477,417
Operating expense	116,939		121,004			347,808		373,827			129,151		116,939		369,131		347,808
Restructuring and asset impairment charges (Notes 8 and 18)	7,169		7,142			44,230		128,498
Loss on divestiture (Note 5)	—		(2,557		)	—		130,750
Restructuring and asset impairment charges (Note 7)											1,264		7,169		6,834		44,230
Amortization of intangibles	4,245		4,429			12,665		16,315			3,690		4,245		11,028		12,665
Operating income (loss)	57,912		27,335			72,714		(200,006		)
Operating income											85,356		57,912		210,005		72,714
Interest expense	7,331		7,113			21,475		20,895			7,468		7,331		21,848		21,475
Other expense (income), net	1,626		(1,938		)	2,470		(1,582		)
Income (loss) before income taxes	48,955		22,160			48,769		(219,319		)
Provision (benefit) for income taxes	9,301		5,465			22,401		(61,499		)
Net income (loss)	39,654		16,695			26,368		(157,820		)
Other expense, net											647		1,626		2,046		2,470
Income before income taxes											77,241		48,955		186,111		48,769
Provision for income taxes											24,130		9,301		51,204		22,401
Net income											53,111		39,654		134,907		26,368
Less: Net income attributable to noncontrolling interests	764		695			1,873		1,634			2,245		764		3,256		1,873
Net income (loss) attributable to Kennametal	$	38,890	$	16,000		$	24,495	$	(159,454	)
Net income attributable to Kennametal											$	50,866	$	38,890	$	131,651	$	24,495
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS	PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS										PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS
Basic earnings (loss) per share	$	0.48	$	0.20		$	0.31	$	(2.00	)
Diluted earnings (loss) per share	$	0.48	$	0.20		$	0.30	$	(2.00	)
Basic earnings per share											$	0.62	$	0.48	$	1.62	$	0.31
Diluted earnings per share											$	0.61	$	0.48	$	1.59	$	0.30
Dividends per share	$	0.20	$	0.20		$	0.60	$	0.60		$	0.20	$	0.20	$	0.60	$	0.60
Basic weighted average shares outstanding	80,398		79,871			80,219		79,814			81,793		80,398		81,445		80,219
Diluted weighted average shares outstanding	81,381		80,224			80,965		79,814			83,109		81,381		82,670		80,965

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended March 31,						Nine Months Ended March 31,						Three Months Ended March 31,						Nine Months Ended March 31,
(in thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Net income (loss)	$	39,654		$	16,695		$	26,368		$	(157,820	)
Net income													$	53,111		$	39,654		$	134,907		$	26,368
Other comprehensive income (loss), net of tax
Unrealized (loss) gain on derivatives designated and qualified as cash flow hedges	(866		)	(637		)	614			165			(783		)	(866		)	(1,688		)	614
Reclassification of unrealized loss (gain) on expired derivatives designated and qualified as cash flow hedges	389			238			1,158			(1,946		)
Reclassification of unrealized loss on expired derivatives designated and qualified as cash flow hedges													898			389			2,301			1,158
Unrecognized net pension and other postretirement benefit (loss) gain	(725		)	(888		)	3,376			1,561			(1,749		)	(725		)	(4,339		)	3,376
Reclassification of net pension and other postretirement benefit loss	1,804			1,219			5,434			3,641			1,344			1,804			4,692			5,434
Foreign currency translation adjustments	13,785			17,783			(26,480		)	(24,705		)	20,282			13,785			54,075			(26,480		)
Reclassification of foreign currency translation adjustment (gain) loss realized upon sale	—			(1,940		)	—			15,088
Total other comprehensive income (loss), net of tax	14,387			15,775			(15,898		)	(6,196		)	19,992			14,387			55,041			(15,898		)
Total comprehensive income (loss)	54,041			32,470			10,470			(164,016		)
Total comprehensive income													73,103			54,041			189,948			10,470
Less: comprehensive income attributable to noncontrolling interests	1,734			1,222			2,203			1,094			2,515			1,734			4,699			2,203
Comprehensive income (loss) attributable to Kennametal Shareholders	$	52,307		$	31,248		$	8,267		$	(165,110	)
Comprehensive income attributable to Kennametal Shareholders													$	70,588		$	52,307		$	185,249		$	8,267

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

KENNAMETAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in thousands, except per share data)	March 31, 2017			June 30, 2016			March 31, 2018			June 30, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	100,817		$	161,579		$	221,906		$	190,629
Accounts receivable, less allowance for doubtful accounts of $12,562 and $12,724, respectively	376,956			370,916
Inventories (Note 11)	490,212			458,830
Deferred income taxes (Note 3)	—			26,713
Accounts receivable, less allowance for doubtful accounts of $13,404 and $13,693, respectively							410,550			380,425
Inventories (Note 10)							537,205			487,681
Assets held for sale (Note 7)							4,947			—
Other current assets	75,061			57,303			65,979			55,166
Total current assets	1,043,046			1,075,341			1,240,587			1,113,901
Property, plant and equipment:
Land and buildings	351,909			353,789			359,512			350,002
Machinery and equipment	1,541,177			1,511,462			1,703,582			1,577,776
Less accumulated depreciation	(1,164,311		)	(1,134,611		)	(1,258,140		)	(1,183,390		)
Property, plant and equipment, net	728,775			730,640			804,954			744,388
Other assets:
Goodwill (Note 18)	294,315			298,487
Other intangible assets, less accumulated amortization of $124,163 and $114,093, respectively (Note 18)	193,069			207,208
Assets held for sale (Note 7)							886			6,980
Goodwill (Note 17)							309,433			301,367
Other intangible assets, less accumulated amortization of $144,012 and $129,981, respectively (Note 17)							181,676			190,527
Deferred income taxes (Note 3)	34,481			14,459			22,160			28,349
Other	41,053			36,648			58,166			29,984
Total other assets	562,918			556,802			572,321			557,207
Total assets	$	2,334,739		$	2,362,783		$	2,617,862		$	2,415,496
LIABILITIES
Current liabilities:
Current maturities of long-term debt and capital leases	$	253		$	732		$	—		$	190
Notes payable to banks	1,338			1,163			1,399			735
Accounts payable	190,841			182,039			220,205			215,722
Accrued income taxes	17,732			16,602			27,300			6,202
Accrued expenses	76,026			74,470			88,505			85,682
Other current liabilities	140,609			152,269			140,381			152,947
Total current liabilities	426,799			427,275			477,790			461,478
Long-term debt and capital leases, less current maturities (Notes 3 and 12)	694,631			693,548
Deferred income taxes (Note 3)	13,690			17,126
Long-term debt and capital leases, less current maturities (Note 11)							696,087			694,991
Deferred income taxes							14,856			14,883
Accrued pension and postretirement benefits	190,434			201,473			168,328			160,860
Accrued income taxes	2,837			3,100			8,766			2,636
Other liabilities	26,777			24,460			25,881			27,995
Total liabilities	1,355,168			1,366,982			1,391,708			1,362,843
EQUITY (Note 16)
Commitments and contingencies
EQUITY (Note 15)
Kennametal Shareholders’ Equity:
Preferred stock, no par value; 5,000 shares authorized; none issued	—			—			—			—
Capital stock, $1.25 par value; 120,000 shares authorized; 80,252 and 79,694 shares issued, respectively	100,315			99,618
Capital stock, $1.25 par value; 120,000 shares authorized; 81,626 and 80,665 shares issued, respectively							102,032			100,832
Additional paid-in capital	457,305			436,617			506,902			474,547
Retained earnings	757,079			780,597			848,485			765,607
Accumulated other comprehensive loss	(368,737		)	(352,509		)	(270,094		)	(323,692		)
Total Kennametal Shareholders’ Equity	945,962			964,323			1,187,325			1,017,294
Noncontrolling interests	33,609			31,478			38,829			35,359
Total equity	979,571			995,801			1,226,154			1,052,653
Total liabilities and equity	$	2,334,739		$	2,362,783		$	2,617,862		$	2,415,496

The accompanying notes are an integral part of these condensed consolidated financial statements.

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KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)


	Nine Months Ended March 31,						Nine Months Ended March 31,
(in thousands)	2017			2016			2018			2017
OPERATING ACTIVITIES
Net income (loss)	$	26,368		$	(157,820	)
Net income							$	134,907		$	26,368
Adjustments for non-cash items:
Depreciation	68,369			73,297			69,994			68,369
Amortization	12,665			16,315			11,028			12,665
Stock-based compensation expense	17,285			14,705			16,225			17,285
Restructuring and asset impairment charges (Note 8 and 18)	1,224			111,922
Restructuring and asset impairment charges (Note 7)							4,267			1,224
Deferred income tax provision	1,300			(85,426		)	6,911			1,300
Loss on divestiture (Note 5)	—			130,750
Other	(2,711		)	239			3,384			(2,711		)
Changes in certain assets and liabilities:
Accounts receivable	(12,736		)	44,125			(14,761		)	(12,736		)
Inventories	(38,110		)	47,778			(32,861		)	(38,110		)
Accounts payable and accrued liabilities	25,789			(16,244		)
Accounts payable and accrued liabilities (Note 3)							(15,703		)	28,561
Accrued income taxes	1,087			(12,989		)	20,206			1,087
Accrued pension and postretirement benefits	(18,799		)	(22,901		)	(19,973		)	(18,799		)
Other	(1,710		)	1,663			(3,038		)	(1,710		)
Net cash flow provided by operating activities	80,021			145,414			180,586			82,793
INVESTING ACTIVITIES
Purchases of property, plant and equipment	(94,095		)	(83,285		)	(128,310		)	(94,095		)
Disposals of property, plant and equipment	3,852			5,102			2,196			3,852
Proceeds from divestiture (Note 5)	—			61,100
Other	111			835			321			111
Net cash flow used for investing activities	(90,132		)	(16,248		)	(125,793		)	(90,132		)
FINANCING ACTIVITIES
Net increase (decrease) in notes payable	333			(4,088		)
Net increase in notes payable							791			333
Term debt borrowings	25,298			50,070			—			25,298
Term debt repayments	(25,830		)	(94,337		)	(190		)	(25,830		)
Purchase of capital stock	(188		)	(231		)	(163		)	(188		)
Dividend reinvestment and the effect of employee benefit and stock plans	7,057			1,713
Dividend reinvestment and the effect of employee benefit and stock plans (Note 3)							17,493			4,285
Cash dividends paid to Shareholders	(48,013		)	(47,780		)	(48,773		)	(48,013		)
Other	(6,439		)	(55		)	(415		)	(6,439		)
Net cash flow used for financing activities	(47,782		)	(94,708		)	(31,257		)	(50,554		)
Effect of exchange rate changes on cash and cash equivalents	(2,869		)	(3,388		)	7,741			(2,869		)
CASH AND CASH EQUIVALENTS
Net (decrease) increase in cash and cash equivalents	(60,762		)	31,070
Net increase (decrease) in cash and cash equivalents							31,277			(60,762		)
Cash and cash equivalents, beginning of period	161,579			105,494			190,629			161,579
Cash and cash equivalents, end of period	$	100,817		$	136,564		$	221,906		$	100,817

The accompanying notes are an integral part of these condensed consolidated financial statements.

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.ORGANIZATION

Kennametal Inc. was incorporated in Pennsylvania in ~~1943.~~1943 as a manufacturer of tungsten carbide metal cutting tooling. From this beginning, Kennametal Inc. and its subsidiaries (collectively, Kennametal or the Company) ~~are~~has grown into a ~~leading~~ global ~~manufacturer~~leader in the development and ~~supplier~~application of ~~tooling, engineered components~~tungsten carbides, ceramics, super-hard materials and ~~advanced materials consumed~~solutions used in ~~production processes. We believe that our~~metal cutting and mission-critical wear applications to combat extreme conditions associated with wear fatigue, corrosion and high temperatures. The Company's reputation for ~~manufacturing excellence,~~material technology, metal cutting application knowledge, as well as ~~our technological~~ expertise and innovation ~~we deliver~~ in ~~our products~~the development of custom solutions and services, ~~helps us~~contributes to ~~achieve a~~its leading position in ~~our~~its primary markets.

Our product offering includes a wide selection of standard and customized technologies for metalworking applications, such as turning, milling, hole making, tooling systems and services. End users of ~~our~~the Company's metalworking products include ~~metalworking and machinery~~ manufacturers ~~and suppliers across~~engaged in a diverse array of industries ~~including~~including: the ~~aerospace, defense,~~manufacturers of transportation vehicles and components, machine ~~tool,~~tools and light ~~machinery~~ and heavy ~~machinery,~~machinery; airframe and aerospace components; and energy-related components for the oil and gas industry, as well as power generation.

We also produce specialized wear components and metallurgical powders that are used for custom-engineered and challenging applications. End users of the Company's products include producers and suppliers in ~~a number of~~ equipment-intensive ~~industries~~operations such as coal mining, road construction, ~~and~~ quarrying, ~~as well as~~and oil and gas exploration, refining, production and supply. ~~Our end users' applications range from airframes to mining operations, engines to oil wells and turbochargers to processing.~~

In order to take advantage of the growth opportunities of our WIDIA brand, we implemented a new operating structure at the beginning of fiscal 2017. A key attribute of the new structure is the establishment of the Widia operating segment. In order to better leverage the opportunities in this business, in addition to being more agile and competitive in the marketplace, we are placing higher levels of focus, determination and leadership in this business. The Industrial and Widia segments in 2017 were formed from the 2016 Industrial segment. We now have three global reportable operating segments: Industrial, Widia, and Infrastructure.

2.BASIS OF PRESENTATION

The condensed consolidated financial statements, which include our accounts and those of our majority-owned subsidiaries, should be read in conjunction with our ~~2016~~2017 Annual Report on Form 10-K. The condensed consolidated balance sheet as of June 30, ~~2016~~2017 was derived from the audited balance sheet included in our ~~2016~~2017 Annual Report on Form 10-K. These interim statements are unaudited; however, we believe that all adjustments necessary for a fair statement of the results of the interim periods were made and all adjustments are normal recurring adjustments. The results for the nine months ended March 31, ~~2017~~2018 and ~~2016~~2017 are not necessarily indicative of the results to be expected for a full fiscal year. Unless otherwise specified, any reference to a “year” is to a fiscal year ended June 30. For example, a reference to ~~2017~~2018 is to the fiscal year ending June 30, ~~2017.~~2018. When used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, the terms “we,” “our” and “us” refer to Kennametal Inc. and its subsidiaries.

3.NEW ACCOUNTING STANDARDS

Adopted

In ~~January 2017,~~March 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting," which is intended to simplify equity-based award accounting and presentation. The guidance impacts income tax accounting related to equity-based awards, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. We adopted this guidance July 1, 2017. The adoption of this guidance resulted in three changes: (1) the increase to deferred tax assets of $1.4 million related to cumulative excess tax benefits previously unrecognized was offset by a valuation allowance, due to the valuation allowance position of our U.S. entity at the time of adoption of this standard; (2) excess tax benefits, previously reported in the financing activities section of the condensed consolidated statements of cash flow, is now reported in the operating activities section, adopted on a prospective basis; therefore, prior period statements of cash flow were not retrospectively adjusted for this provision; and (3) employee taxes paid when Kennametal withholds shares for tax withholding purposes, previously reported in the operating activities section of the condensed consolidated statement of cash flows, are now reported in the financing activities section, adopted on a retrospective basis; therefore, prior period statements of cash flow were retrospectively adjusted for this provision. Cash flow provided by operating activities and cash flow used for financing activities increased by $2.8 million for the nine months ended March 31, 2017.

In July 2015, the FASB issued ~~guidance~~ASU No. 2015-11, "Simplifying the Measurement of Inventory," which requires that inventory other than LIFO be subsequently measured at the lower of cost and net realizable value, as opposed to ~~simplify~~ the ~~test~~previous practice of lower of cost or market. Subsequent measurement is unchanged for goodwill impairment by removing step two of the test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. The newinventory measured using LIFO. We adopted this guidance requires an entity to perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, including goodwill. This standard is effective for Kennametal beginning July 1, ~~2020; however, early adoption is permitted for goodwill impairment tests performed on testing dates after January 1,~~ 2017. ~~The Company has chosen to early adopt~~Adoption of this guidance ~~and does~~did not ~~expect the adoption of the guidance to~~ have a material impact on our condensed consolidated financial ~~position, results of operations and cash flows.~~

In November 2015, the Financial Accounting Standards Board (FASB) issued guidance on balance sheet classification of deferred taxes. The amendments in this guidance require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position, in comparison to the previous practice of separating deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet. We adopted this guidance July 1, 2016 on a prospective basis. Therefore, prior period balance sheets were not retrospectively adjusted. Current deferred tax assets of $26.7 million and current deferred tax liabilities of $0.6 million are reported in the June 30, 2016 balance sheet.

In April 2015, the FASB issued guidance on the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance was effective for Kennametal beginning July 1, 2016 and was retrospectively applied to all periods presented. Debt issuance costs of $5.0 million and $6.0 million are reported as direct reductions of the carrying amounts of debt liabilities in the balance sheet as of March 31, 2017 and June 30, 2016, respectively.statements.

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Issued

In ~~April 2015,~~February 2018, the FASB issued ~~guidance on accounting for fees paid in a cloud computing arrangement.~~ASU No. 2018-02, “Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which includes amendments related to the reclassification of the income tax effects of the Tax Cuts and Jobs Act of 2017 (TCJA) to improve the usefulness of information reported to financial statement users. The amendments in this update ~~provide guidance to customers~~also require certain disclosures about treatment of costs as either capitalized and amortized as an intangible asset or expensed as incurred as a service contract. The amendments provide clarification that costs in arrangements that include software license should be capitalized and amortized, and costs in arrangements that do not include a software license should be expensed as incurred. This standard was effective for Kennametal beginning July 1, 2016 and was applied prospectively. The adoption of this guidance did not have a material impact on our condensed consolidated financial position, results of operations and cash flows.

~~Issued~~

In March 2017, the FASB issued guidance on the presentation of net periodic pension cost and net periodic postretirement benefit cost. The guidance requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations.stranded tax effects. This guidance is effective for ~~Kennametal beginning~~us July 1, ~~2018.~~2019, although early adoption is permitted. We are in the process of assessing the impact the adoption of this guidance ~~will~~may have on our condensed consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606.” This ASU replaces nearly all existing U.S. GAAP guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment. It also requires additional disclosures. We will adopt this standard on July 1, ~~2018.~~2018 using the modified retrospective approach. We have ~~commenced~~a project team that has performed a detailed review of the terms and provisions in customer contracts, tentatively concluding that the new standard will not affect the timing and measurement of revenue for these contracts in comparison to the results of historical accounting policies and practices. Under the provisions of this ASU, we believe certain costs currently reported in operating expense may be reclassified to cost of goods sold on the condensed consolidated statement of income, as they represent costs incurred in satisfaction of performance obligations. Although we have not yet finalized our assessment of the new standard and developed a project plan to guide the implementation. Currently, we are analyzing the standard's impact on our customer arrangements and evaluating the new standard against our historical accounting policies and practices, including the timing of revenue recognition. We have not yet determined the impact of adoption of this guidance, we do not expect it to have a material impact on our condensed consolidated financial ~~statements.~~statements other than additional disclosures.


4.	SUPPLEMENTAL CASH FLOW DISCLOSURES


	Nine Months Ended March 31,				Nine Months Ended March 31,
(in thousands)	2017		2016		2018		2017
Cash paid during the period for:
Income taxes					$	24,087	$	20,013
Interest	$	20,725	$	20,056	21,091		20,725
Income taxes	20,013		38,429
Supplemental disclosure of non-cash information:
Changes in accounts payable related to purchases of property, plant and equipment	15,404		16,400		11,477		15,404


5.	~~DIVESTITURE~~

During the nine months ended March 31, 2016, Kennametal completed the sale of the outstanding capital stock of: Kennametal Extrude Hone LLC and its wholly owned subsidiaries, Kennametal Stellite S.r.l. (Bellusco, Italy), Kennametal Stellite S.p.A. (Milan, Italy), Kennametal Stellite GmbH (Koblenz, Germany); and all of the assets of the businesses of: Tricon (manufacturing operations in Birmingham, Alabama; Chicago, Illinois; and Elko, Nevada), Landis (manufacturing operation in Waynesboro, Pennsylvania); and all of the assets located at the Biel, Switzerland manufacturing facility ("non-core businesses") to Madison Industries for an aggregate price of $61.1 million, net. A portion of the transaction proceeds were used to pay down revolver debt and the remaining balance was held as cash on hand.

The net book value of these non-core businesses was $191.9 million, which included a refinement to estimated working capital adjustment. We recognized a pre-tax loss on the sale of $133.3 million during the three months ended December 31, 2015 which included the impact of estimated working capital adjustments, deal costs and transaction costs. We recorded a pre-tax net gain on divestiture during the three months ended March 31, 2016 of approximately $2.6 million, which consisted primarily of the write-off of the currency translation adjustments of a legal entity liquidated in the March quarter, partially offset by a refinement to our estimated working capital adjustment. The pre-tax net loss on divestiture during the nine months ended March 31, 2016 was $130.8 million, of which $127.2 million and $3.6 million were recorded in the Infrastructure and Industrial segments, respectively. The pre-tax income attributable to the non-core businesses was assessed and determined to be immaterial for disclosure for the periods presented.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

6.5.FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received ~~to sell~~on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy consists of three levels to prioritize the inputs used in valuations, as defined below:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including 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; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3: Inputs that are unobservable.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of March 31, ~~2017,~~2018, the fair values of the Company’s financial assets and financial liabilities are categorized as follows:


(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Derivatives ⁽¹⁾	$	—	$	1,421	$	—	$	1,421	$	—	$	44	$	—	$	44
Total assets at fair value	$	—	$	1,421	$	—	$	1,421	$	—	$	44	$	—	$	44

Liabilities:
Derivatives⁽¹⁾	$	—	$	1,352	$	—	$	1,352	$	—	$	1,289	$	—	$	1,289
Total liabilities at fair value	$	—	$	1,352	$	—	$	1,352	$	—	$	1,289	$	—	$	1,289

As of June 30, ~~2016,~~2017, the fair values of the Company’s financial assets and financial liabilities are categorized as follows:


(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Derivatives ⁽¹⁾	$	—	$	334	$	—	$	334	$	—	$	359	$	—	$	359
Total assets at fair value	$	—	$	334	$	—	$	334	$	—	$	359	$	—	$	359

Liabilities:
Derivatives ⁽¹⁾	$	—	$	763	$	—	$	763	$	—	$	910	$	—	$	910
Contingent consideration	—		—		6,600		6,600
Total liabilities at fair value	$	—	$	763	$	6,600	$	7,363	$	—	$	910	$	—	$	910

⁽¹⁾ Currency derivatives are valued based on observable market spot and forward rates and are classified within Level 2 of the fair value hierarchy.

There have been no changes in classification and transfers between levels in the fair value hierarchy in the current period. The fair value of contingent consideration payable that was classified as Level 3 at June 30, 2016 related to our probability assessments of expected future milestone targets, primarily associated with product delivery, related to a previous acquisition. During the the nine months ended March 31, 2017, the Company paid the remaining $6.6 million in conjunction with achieved milestone targets. The payment is recorded in the financing activities section of our condensed consolidated statement of cash flow for the nine months ended March 31, 2017 under the caption "other." The contingent consideration was recorded in other current liabilities in our condensed consolidated balance sheet at June 30, 2016. No other changes in the expected outcome have occurred during the nine months ended March 31, 2017.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~


7.6.	DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As part of our financial risk management program, we use certain derivative financial instruments. We do not enter into derivative transactions for speculative purposes and, therefore, hold no derivative instruments for trading purposes. We account for derivative instruments as a hedge of the related asset, liability, firm commitment or anticipated transaction, when the derivative is specifically designated and qualifies as a hedge of such items. Our objective in managing foreign exchange exposures with derivative instruments is to reduce volatility in cash flow. We measure hedge effectiveness by assessing the changes in the fair value or expected future cash flows of the hedged item. The ineffective portions are recorded in other expense, net.

The fair value of derivatives designated and not designated as hedging instruments in the condensed consolidated balance sheet are as follows:


(in thousands)	March 31, 2017			June 30, 2016			March 31, 2018			June 30, 2017
Derivatives designated as hedging instruments
Other current assets - range forward contracts	$	901		$	323		$	—		$	1
Other assets - range forward contracts	40			—
Other current liabilities - range forward contracts							(1,262		)	(671		)
Other liabilities - range forward contracts							—			(101		)
Total derivatives designated as hedging instruments	941			323			(1,262		)	(771		)
Derivatives not designated as hedging instruments
Other current assets - currency forward contracts	480			11			44			358
Other current liabilities - currency forward contracts	(1,352		)	(763		)	(27		)	(138		)
Total derivatives not designated as hedging instruments	(872		)	(752		)	17			220
Total derivatives	$	69		$	(429	)	$	(1,245	)	$	(551	)

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Certain currency forward contracts that hedge significant cross-border intercompany loans are considered as other derivatives and therefore do not qualify for hedge accounting. These contracts are recorded at fair value in the condensed consolidated balance sheet, with the offset to other expense, ~~(income),~~ net. Gains related to derivatives not designated as hedging instruments have been recognized as follows:


	Three Months Ended March 31,					Nine Months Ended March 31,					Three Months Ended March 31,				Nine Months Ended March 31,
(in thousands)	2017		2016			2017		2016			2018		2017		2018			2017
Other expense (income), net - currency forward contracts	$	538	$	(182	)	$	161	$	(116	)	$	182	$	538	$	(26	)	$	161

CASH FLOW HEDGES

Range forward contracts (a transaction where both a put option is purchased and a call option is sold) are designated as cash flow hedges and hedge anticipated cash flows from cross-border intercompany sales of products and services. Gains and losses realized on these contracts ~~at maturity~~ are recorded in accumulated other comprehensive loss and are recognized as a component of other expense, net when the underlying sale of products or services is recognized into earnings. The notional amount of the contracts translated into U.S. dollars at March 31, ~~2017~~2018 and June 30, ~~2016,~~2017, was ~~$66.2~~$61.6 million and ~~$53.3~~$75.3 million, respectively. The time value component of the fair value of range forward contracts is excluded from the assessment of hedge effectiveness. Assuming the market rates remain constant with the rates at March 31, ~~2017,~~2018, we expect to recognize into earnings $1.5 million of expense on outstanding derivatives in the next 12 ~~months $0.6 million of income on outstanding derivatives.~~months.

The following represents gains and losses related to cash flow hedges:


	Three Months Ended March 31,						Nine Months Ended March 31,					Three Months Ended March 31,						Nine Months Ended March 31,
(in thousands)	2017			2016			2017		2016			2018			2017			2018			2017
(Losses) gains recognized in other comprehensive loss, net	$	(866	)	$	(914	)	$	615	$	(637	)	$	(782	)	$	(866	)	$	(1,688	)	$	615
Losses reclassified from accumulated other comprehensive loss into other expense (income), net	$	390		$	629		$	1,158	$	293
Losses reclassified from accumulated other comprehensive loss into other expense, net												$	761		$	390		$	2,024		$	1,158

No portion of the gains or losses recognized in earnings was due to ineffectiveness and no amounts were excluded from our effectiveness testing for the nine months ended March 31, 2018 and 2017.

NET INVESTMENT HEDGES

As of March 31, 2018, we had certain foreign currency-denominated intercompany loans payable with total aggregate principal amounts of €33.0 million as net investment hedges to hedge the foreign exchange exposure of our net investment in Euro-based subsidiaries. Losses of $1.1 million and $2.9 million were recorded as a component of foreign currency translation adjustments in other comprehensive income (loss) for the three and nine months ended March 31, 2018, respectively, compared to a loss of $0.5 million recorded for the three and nine months ended March 31, 2017.

As of March 31, 2018, the foreign currency-denominated intercompany loans payable designated as net investment hedges consisted of:



Instrument	Notional (EUR in thousands)⁽²⁾		Notional (USD in thousands)⁽²⁾		Maturity
Foreign currency-denominated intercompany loan payable	€	27,126	$	33,414	June 26, 2022
Foreign currency-denominated intercompany loan payable	8,687		10,700		November 20, 2018
Foreign currency-denominated intercompany loan payable	2,009		2,475		October 11, 2019

⁽²⁾ Includes principal and accrued interest.


7.	RESTRUCTURING AND RELATED CHARGES

In prior years, we implemented restructuring actions` to streamline the Company's cost structure. The purpose of these initiatives was to improve the alignment of our cost structure with the current operating environment through employee reductions, as well as rationalization and consolidation of certain manufacturing facilities. These restructuring actions were substantially completed in the first quarter of fiscal 2018 and were mainly cash expenditures.

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~No portion of the gains or losses recognized in earnings was due to ineffectiveness and no amounts were excluded from our effectiveness testing for the nine months ended March 31, 2017 and 2016.~~

~~NET INVESTMENT HEDGES~~

During the three months ended March 31, 2017, we designated certain foreign currency-denominated intercompany loans payable with total aggregate principal amounts of €63.0 million as net investment hedges to hedge the foreign exchange exposure of our net investment in Euro-based subsidiaries. The remeasurements of these non-derivatives designated as net investment hedges are calculated each period with changes reported in foreign currency translation adjustment within accumulated other comprehensive loss. Such amounts will remain in accumulated other comprehensive loss unless we complete or substantially complete liquidation or disposal of our investment in the underlying foreign operations. A loss of $0.5 million was recorded as a component of foreign currency translation adjustments in other comprehensive income (loss) for the three and nine months ended March 31, 2017. We did not have net investment hedges during the three and nine months ended March 31, 2016.

~~As of March 31, 2017, the foreign currency-denominated intercompany loans payable designated as net investment hedges consisted of:~~

Instrument
Notional (EUR in thousands)⁽²⁾
Notional (USD in thousands)⁽²⁾
Maturity
Foreign currency-denominated intercompany loan payable € 30,046
$ 32,083
June 30, 2017
Foreign currency-denominated intercompany loan payable 26,327
28,112
June 26, 2022
Foreign currency-denominated intercompany loan payable 8,612
9,196
November 20, 2018
Foreign currency-denominated intercompany loan payable 2,032
2,169
October 11, 2017

~~(2) Includes principal and accrued interest.~~


8.	~~RESTRUCTURING AND RELATED CHARGES~~

The total pre-tax charges for these programs are expected to be in the range of $165 million to $195 million, which is expected to be approximately 60 percent Industrial, 5 percent Widia, 30 percent Infrastructure and 5 percent Corporate. Total restructuring and related charges since inception of ~~$124.5~~$157.7 million have been recorded for these programs through March 31, ~~2017: $65.4~~2018: $85.6 million in Industrial, ~~$40.7~~$50.9 million in Infrastructure, ~~$11.1~~$13.9 million in Widia and $7.3 million in Corporate.

We ~~have~~ recorded restructuring and related charges of ~~$9.6~~$1.7 million and ~~$14.0~~$9.6 million for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, respectively. Of these amounts, restructuring charges totaled ~~$7.1~~$1.1 million and ~~$7.5~~$7.1 million for the three months ended March 31, 2018 and 2017, ~~and 2016, respectively. Restructuring charges~~respectively, of ~~$0.4~~which benefit of $0.2 million ~~were~~was related to inventory and ~~were~~was recorded in cost of goods sold for the three months ended March 31, ~~2016.~~2018. Restructuring-related charges of ~~$1.7~~$0.9 million and ~~$1.1~~$1.7 million were recorded in cost of goods sold and $0.3 million of benefit and $0.8 million ~~and $5.4 million~~of expense were recorded in operating expense for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, respectively.

We ~~have~~ recorded restructuring and related charges of ~~$53.1~~$10.0 million and ~~$38.0~~$53.1 million for the nine months ended March 31, ~~2017~~2018 and ~~2016,~~2017, respectively. Of these amounts, restructuring charges totaled ~~$44.5~~$6.7 million and ~~$20.1~~$44.5 million, of which benefit of $0.2 million and expense of $0.3 ~~million and $0.1~~ million were related to inventory and were recorded in cost of goods sold for the nine months ended March 31, ~~2017~~2018 and ~~2016,~~2017, respectively. Restructuring-related charges of ~~$5.8~~$3.3 million and ~~$4.7~~$5.8 million were recorded in cost of goods sold and ~~$2.8~~$0.1 million and ~~$13.2~~$2.8 million in operating expense for the nine months ended March 31, 2018 and 2017, ~~and 2016,~~ respectively.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

As of March 31, 2018 and June 30, 2017, ~~$13.3~~property, plant, and equipment of $5.8 million and ~~$2.5~~$7.0 million, respectively, for certain closed manufacturing locations that are part of our restructuring programs met held for sale criteria. We expect to sell these assets within one year from the balance sheet date. These assets are recorded at the lower of carrying amount or fair value less cost to sell. We have also ceased depreciating these assets.

As of March 31, 2018 and June 30, 2017, $11.8 million and $27.3 million of the restructuring accrual is recorded in other current liabilities and $0.5 million and $2.5 million is recorded in other liabilities, respectively, in our condensed consolidated balance sheet. ~~The restructuring accrual of $15.7 million as of June 30, 2016 is recorded in other current liabilities.~~ The amount attributable to each segment is as follows:


(in thousands)	June 30, 2016		Expense			Asset Write-Down			Translation			Cash Expenditures			March 31, 2017		June 30, 2017		Expense			Asset Write-Down			Translation		Cash Expenditures			March 31, 2018
Industrial
Severance	$	8,180	$	25,359		$	—		$	(313	)	$	(24,395	)	$	8,831	$	17,639	$	1,804		$	—		$	1,171	$	(15,099	)	$	5,515
Facilities	—		111			(111		)	—			—			—		—		3,084			(3,084		)	—		—			—
Other	809		(30		)	—			(10		)	(546		)	223		94		(29		)	—			3		(38		)	30
Total Industrial	$	8,989	$	25,440		$	(111	)	$	(323	)	$	(24,941	)	$	9,054	$	17,733	$	4,859		$	(3,084	)	$	1,174	$	(15,137	)	$	5,545

Widia
Severance	$	909	$	4,820		$	—		$	(60	)	$	(4,637	)	$	1,032	$	2,434	$	384		$	—		$	249	$	(3,067	)	$	—
Facilities	—		10			(10		)	—			—			—		—		747			(747		)	—		—			—
Other	90		(6		)	—			(1		)	(83		)	—		—		(6		)	—			1		8			3
Total Widia	$	999	$	4,824		$	(10	)	$	(61	)	$	(4,720	)	$	1,032	$	2,434	$	1,125		$	(747	)	$	250	$	(3,059	)	$	3

Infrastructure
Severance	$	5,301	$	12,838		$	—		$	(159	)	$	(12,351	)	$	5,629	$	9,573	$	422		$	—		$	273	$	(3,501	)	$	6,767
Facilities	33		1,399			(1,399		)	—			—			33		21		265			(265		)	—		(21		)	—
Other	381		(15		)	—			(5		)	(279		)	82		45		(7		)	—			—		(21		)	17
Total Infrastructure	$	5,715	$	14,222		$	(1,399	)	$	(164	)	$	(12,630	)	$	5,744	$	9,639	$	680		$	(265	)	$	273	$	(3,543	)	$	6,784
Total	$	15,703	$	44,486		$	(1,520	)	$	(548	)	$	(42,291	)	$	15,830	$	29,806	$	6,664		$	(4,096	)	$	1,697	$	(21,739	)	$	12,332


9.8.	STOCK-BASED COMPENSATION

Stock Options

There were no grants made during the nine months ended March 31, 2018 and 2017.

~~The assumptions used in our Black-Scholes valuation related to grants made during the nine months ended March 31, 2016 were as follows:~~



~~Risk-free interest rate~~	~~1.4~~	%
~~Expected life (years)~~ ⁽³⁾	~~4.5~~
~~Expected volatility~~ ⁽⁴⁾	~~31.7~~	%
~~Expected dividend yield~~	~~2.1~~	%

~~(3) Expected life is derived from historical experience.~~

~~(4) Expected volatility is based on the implied historical volatility of our stock.~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Changes in our stock options for the nine months ended March 31, ~~2017~~2018 were as follows:

Options
Weighted
Average
Exercise Price
Weighted Average Remaining Life (years)
Aggregate
Intrinsic value
(in thousands)
Options outstanding, June 30, 2016 2,547,809
$ 33.72

Granted —
—

Exercised (250,366 ) 28.59

Lapsed or forfeited (183,249 ) 31.29

Options outstanding, March 31, 2017 2,114,194
$ 34.53
4.2 $ 12,207
Options vested and expected to vest, March 31, 2017 2,096,072
$ 34.58
4.2 $ 12,017
Options exercisable, March 31, 2017 1,641,869
$ 35.97
3.1 $ 7,382



	Options		Weighted Average Exercise Price		Weighted Average Remaining Life (years)	Aggregate Intrinsic value (in thousands)
Options outstanding, June 30, 2017	1,726,791		$	34.08
Granted	—		—
Exercised	(609,230	)	35.68
Lapsed or forfeited	(94,292	)	34.06
Options outstanding, March 31, 2018	1,023,269		$	33.12	5.2	$	8,168
Options vested and expected to vest, March 31, 2018	1,020,522		$	33.13	5.2	$	8,141
Options exercisable, March 31, 2018	845,436		$	33.98	4.7	$	6,159

During the nine months ended March 31, ~~2017~~2018 and ~~2016,~~2017, compensation expense related to stock options was $~~1.3~~0.6 million and $~~2.8~~1.3 million, respectively. As of March 31, ~~2017,~~2018, the total unrecognized compensation cost related to options outstanding was $~~1.1~~0.2 million and is expected to be recognized over a weighted average period of ~~1.4 years~~.0.5 years.

~~Weighted average fair value of options granted during the nine months ended March 31, 2016 was~~ ~~$6.45~~ ~~per option.~~ Fair value of options vested during the nine months ended March 31, 2018 and 2017 ~~and 2016~~ was ~~$3.3~~$1.9 million and $~~2.3~~3.3 million, respectively.

Tax benefits relating to excess stock-based compensation deductions are presented in the operating activities section of the condensed consolidated statements of cash flow ~~as financing cash inflows. No tax benefits were realized resulting from stock-based compensation deductions~~ for the nine months ended March 31, 2018. Tax benefits resulting from stock-based compensation deductions were greater than the amounts reported for financial reporting purposes by $0.1 million for the nine months ended March 31, 2018, and no tax benefits were realized for the nine months ended March 31, 2017due to the valuation allowance on U.S. deferred tax assets. ~~Tax benefits resulting from stock-based compensation deductions were less than amounts reported for financial reporting purposes by $1.8 million for the nine months ended March 31, 2016.~~

The amount of cash received from the exercise of capital stock options during the nine months ended March 31, 2018 and 2017 was $21.7 million and ~~2016 was~~ $7.2 million, ~~and $1.0 million,~~ respectively. NoThe related tax benefit was $1.4 million for the nine months ended March 31, 2018, and there was no related tax benefit realized for the nine months ended March 31, 2017 due to the valuation allowance on U.S. deferred tax ~~assets, and the related tax benefit was immaterial for the nine months ended March 31, 2016.~~assets. The total intrinsic value of options exercised during the nine months ended March 31, 2018 and2017 was $6.4 million and $1.6 million, ~~and the total intrinsic value of options exercised during the nine months ended March 31, 2016 was immaterial.~~respectively.

Under the provisions of the Kennametal Inc. Stock and Incentive Plan of 2010, as amended and restated on October 22, 2013 and as further amended January 27, 2015, and the Kennametal Inc. 2016 Stock and Incentive Plan, plan participants may deliver stock, owned by the holder for at least six months, in payment of the option price and receive credit for the fair market value of the shares on the date of delivery. The fair market value of shares delivered during ~~both~~ the nine months ended March 31, ~~2017~~2018 and ~~2016~~2017 was immaterial.

Restricted Stock Units – Time Vesting and Performance Vesting

Performance vesting restricted stock units are earned pro rata each year if certain performance goals are met over a three-year period and are also subject to a service condition that requires the individual to be employed by the Company at the vesting date after the three-year performance period has ended, with the exception of retirement eligible grantees, who upon retirement are entitled to vest in any units that have been earned, including a prorated portion infor the partially completed fiscal year in which the retirement occurs. Time vesting stock units are valued at the market value of the stock on the grant date. Performance vesting stock units with a market condition are valued using a Monte Carlo model.

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Changes in our time vesting and performance vesting restricted stock units for the nine months ended March 31, ~~2017~~2018 were as follows:


	Performance Vesting Stock Units		Performance Vesting Weighted Average Fair Value		Time Vesting Stock Units		Time Vesting Weighted Average Fair Value		Performance Vesting Stock Units		Performance Vesting Weighted Average Fair Value		Time Vesting Stock Units		Time Vesting Weighted Average Fair Value
Unvested, June 30, 2016	115,467		$	36.96	1,014,744		$	31.97
Unvested, June 30, 2017									280,250		$	27.62	1,153,444		$	27.66
Granted	235,241		26.35		610,633		25.45		158,397		38.81		434,391		37.87
Vested	(17,124	)	45.24		(362,563	)	35.27		(10,031	)	42.83		(417,712	)	30.27
Performance metric not achieved	(35,980	)	26.35		—		—
Performance metric adjustments, net									16,766		25.88		—		—
Forfeited	(17,354	)	35.31		(68,458	)	27.60		(36,085	)	30.91		(66,507	)	30.98
Unvested, March 31, 2017	280,250		$	27.62	1,194,356		$	27.87
Unvested, March 31, 2018									409,297		$	31.22	1,103,616		$	30.47

During the nine months ended March 31, ~~2017~~2018 and ~~2016,~~2017, compensation expense related to time vesting and performance vesting restricted stock units was $~~15.8~~15.0 million and $~~11.7~~15.8 million, respectively. As of March 31, ~~2017,~~2018, the total unrecognized compensation cost related to unvested time vesting and performance vesting restricted stock units was $~~17.0~~18.1 million and is expected to be recognized over a weighted average period of 2.0 years.


~~10.~~9.	BENEFIT PLANS

We sponsor several defined benefit pension plans. Additionally, we provide varying levels of postretirement health care and life insurance benefits to some U.S. employees.

The table below summarizes the components of net periodic pension income:


	Three Months Ended March 31,						Nine Months Ended March 31,						Three Months Ended March 31,						Nine Months Ended March 31,
(in thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Service cost	$	720		$	1,154		$	2,180		$	3,473		$	414		$	720		$	1,224		$	2,180
Interest cost	7,756			9,375			23,335			28,299			7,716			7,756			23,051			23,335
Expected return on plan assets	(14,659		)	(14,560		)	(44,088		)	(43,924		)	(14,188		)	(14,659		)	(42,410		)	(44,088		)
Amortization of transition obligation	22			19			67			61			24			22			70			67
Amortization of prior service credit	(113		)	(104		)	(339		)	(313		)
Amortization of prior service (credit) cost													(42		)	(113		)	90			(339		)
Recognition of actuarial losses	2,066			1,805			6,266			5,452			1,746			2,066			5,174			6,266
Settlement gain	(320		)	—			(320		)	—			—			(320		)	—			(320		)
Special termination benefit charge	—			—			—			214
Net periodic pension income	$	(4,528	)	$	(2,311	)	$	(12,899	)	$	(6,738	)	$	(4,330	)	$	(4,528	)	$	(12,801	)	$	(12,899	)

The settlement gain of $0.3 million during the three and nine months ended March 31, 2017 is the result of income from the settlement with several terminated Executive Retirement Plan participants. ~~The special termination benefit charge of $0.2 million during the nine months ended March 31, 2016 is the result of lump sum payments to several terminated Executive Retirement Plan participants.~~

The table below summarizes the components of net periodic other postretirement benefit cost:


	Three Months Ended March 31,						Nine Months Ended March 31,						Three Months Ended March 31,						Nine Months Ended March 31,
(in thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Interest cost	$	168		$	210		$	505		$	630		$	157		$	168		$	471		$	505
Amortization of prior service credit	(6		)	(6		)	(16		)	(16		)	(6		)	(6		)	(16		)	(16		)
Recognition of actuarial loss	89			81			266			242			70			89			210			266
Net periodic other postretirement benefit cost	$	251		$	285		$	755		$	856		$	221		$	251		$	665		$	755

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~~11.~~10.	INVENTORIES

We used the last-in, first-out (LIFO) method of valuing inventories for 4539 percent and 4443 percent of total inventories at March 31, ~~2017~~2018 and June 30, ~~2016,~~2017, respectively. Since inventory valuations under the LIFO method are based on an annual determination of quantities and costs as of June 30 of each year, the interim LIFO valuations are based on our projections of expected year-end inventory levels and costs. Therefore, the interim financial results are subject to any final year-end LIFO inventory adjustments.

Inventories consisted of the following:


(in thousands)	March 31, 2017			June 30, 2016			March 31, 2018			June 30, 2017
Finished goods	$	286,990		$	284,054		$	304,313		$	290,817
Work in process and powder blends	168,354			166,274			217,659			166,857
Raw materials	90,389			68,472			88,792			87,627
Inventories at current cost	545,733			518,800			610,764			545,301
Less: LIFO valuation	(55,521		)	(59,970		)	(73,559		)	(57,620		)
Total inventories	$	490,212		$	458,830		$	537,205		$	487,681


~~12.~~11.	LONG-TERM DEBT

Our five-year, multi-currency, revolving credit facility, as amended and restated in April 2016 (Credit Agreement) ~~permits~~, provides for revolving credit loans of up to $600 million for working capital, capital expenditures and general corporate purposes. The Credit Agreement requires us to comply with various restrictive and affirmative covenants, including two financial covenants: a maximum leverage ratio and a minimum consolidated interest coverage ratio (as those terms are defined in the ~~agreement)~~Credit Agreement). We were in compliance with all such covenants as of March 31, ~~2017.~~2018. We had no borrowings outstanding under the Credit Agreement as of March 31, ~~2017~~2018 and June 30, ~~2016.~~2017. Borrowings under the Credit Agreement are guaranteed by our significant domestic subsidiaries. The Credit Agreement matures in April 2021.

Fixed rate debt had a fair market value of ~~$700.7~~$700.3 million and $704.0 million at March 31, ~~2017~~2018 and June 30, ~~2016,~~2017, respectively. The Level 2 fair value is determined based on the quoted market price of this debt as of March 31, ~~2017~~2018 and June 30, ~~2016,~~2017, respectively.

~~13.ENVIRONMENTAL MATTERS~~


12.	ENVIRONMENTAL MATTERS

The operation of our business has exposed us to certain liabilities and compliance costs related to environmental matters. We are involved in various environmental cleanup and remediation activities at certain of our locations.

Superfund Sites Among other environmental laws, we are subject to the Comprehensive Environmental Response Compensation and Liability Act of 1980 ~~(Superfund)~~(CERCLA), under which we have been designated by the United States Environmental Protection Agency (USEPA) as a ~~potentially responsible party~~Potentially Responsible Party (PRP) with respect to environmental remedial costs at certain Superfund sites. We have evaluated our claims and liabilities associated with these Superfund sites based upon best currently available information. We believe our environmental accruals are adequate to cover our portion of the environmental remedial costs at the Superfund sites where we have been designated a PRP, to the extent these expenses are probable and reasonably estimable.

Other Environmental Matters We establish and maintain reserves for other potential environmental issues. At March 31, ~~2017~~2018 and June 30, ~~2016,~~2017, the balances of these reserves were ~~$12.1~~$12.8 million and ~~$12.5~~$12.4 million, respectively. These reserves represent anticipated costs associated with the remediation of these issues.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The reserves we have established for environmental liabilities represent our best current estimate of the costs of addressing all identified environmental situations, based on our review of currently available evidence, and taking into consideration our prior experience in remediation and that of other companies, as well as public information released by the USEPA, other governmental agencies and by the PRP groups in which we are participating. Although the reserves currently appear to be sufficient to cover these environmental liabilities, there are uncertainties associated with environmental liabilities, and we can give no assurance that our estimate of any environmental liability will not increase or decrease in the future. The reserved and unreserved liabilities for all environmental concerns could change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, technological changes, discovery of new information, the financial strength of other PRPs, the identification of new PRPs and the involvement of and direction taken by the government on these matters.

We maintain a Corporate Environmental Health and Safety (EHS) Department to monitor compliance with environmental regulations and to oversee remediation activities. In addition, we have designated EHS ~~coordinators~~analysts who are responsible for each of our global manufacturing facilities. Our financial management team periodically meets with members of the Corporate EHS Department and the Corporate Legal Department to review and evaluate the status of environmental projects and contingencies. On a quarterly basis, we review financial provisions and reserves for environmental contingencies and adjust these reserves when appropriate.


~~14.~~13.	INCOME TAXES

On December 22, 2017, TCJA was signed into law in the U.S. TCJA amends the Internal Revenue Code of 1986 to reduce tax rates and modify policies, credits and deductions for individuals and corporations. For corporations, TCJA reduces the federal tax rate from a maximum of 35.0 percent to a flat 21.0 percent rate and transitions from a worldwide tax system to a territorial tax system. TCJA also adds many new provisions including changes to bonus depreciation, the deduction for executive compensation and interest expense, a tax on global intangible low-taxed income (GILTI), the base erosion anti-abuse tax (BEAT) and a deduction for foreign-derived intangible income (FDII). We are assessing the impact of certain provisions, including the tax on GILTI, the BEAT and the deduction for FDII, which do not apply to the Company until fiscal 2019. This assessment includes the evaluation of our accounting election relative to GILTI as either a period cost or an adjustment to deferred tax assets or liabilities of our foreign subsidiaries for the new tax. The two material items that effect the Company for fiscal 2018 are the reduction in the tax rate and a one-time tax that is imposed on our unremitted foreign earnings (toll tax).

On December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (SAB 118) that includes additional guidance allowing companies to use a measurement period, similar to that used in business combinations, to account for the impacts of TCJA in their financial statements. We have accounted for the impacts of TCJA to the extent a reasonable estimate could be made during the three and nine months ended March 31, 2018. We will continue to refine our estimates throughout the measurement period, which will not extend beyond 12 months from the enactment of TCJA, or until the accounting is complete.

The U.S. federal tax rate reduction is effective as of January 1, 2018. As a June 30 fiscal year-end taxpayer, our 2018 fiscal year U.S. federal statutory tax rate is expected to be a blended rate of 28.1 percent. We expect our U.S. federal statutory tax rate to be 21.0 percent in 2019.

As a result of the reduction in the U.S. corporate income tax rate from 35.0 percent to 21.0 percent under TCJA, we recorded a provisional reduction to our net deferred tax assets during the three months ended December 31, 2017 with a corresponding decrease to the valuation allowance prior to its release on December 31, 2017. The result of this reduction had no impact on our condensed consolidated statement of income for the six months ended December 31, 2017. The revaluation of our deferred tax assets and liabilities are subject to further adjustments during the measurement period due to the complexity of determining our net deferred tax liability as of the enactment date. Some of the information necessary to determine the accounting effects of the tax rate change includes finalizing the assessment of which existing deferred balances at the enactment date reverse in 2018 at the 28.1 percent tax rate and which deferred balances will reverse after 2018 at the 21.0 percent tax rate.

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

During the three months ended December 31, 2017, we estimated the toll tax charge to be $77 million after available foreign tax credits. We recorded an adjustment to this estimate during the three months ended March 31, 2018, primarily related to consideration of Internal Revenue Service notices issued during the March quarter. The adjustment resulted in an additional $6 million of expense, increasing the total estimated toll tax charge to $83 million as of March 31, 2018. The toll tax charge consumed our entire U.S. federal net operating loss carryforward and other credit carryforwards, which represent a significant portion of our previously available deferred tax assets, and was offset by the release of the valuation allowance associated with these assets. As a result of the March quarter adjustment, we estimate a cash payment of $6.4 million associated with the toll charge which will be paid over eight years, of which $5.9 million is classified as long-term accrued income taxes in our condensed consolidated balance sheet as of March 31, 2018. The toll tax charge is preliminary, and subject to finalization of collecting all information, applying any additional regulatory guidance issued after March 31, 2018, considering changes in interpretations and assumptions and analyzing the calculation, along with foreign taxes and the related gross-up, in reasonable detail to complete the accounting.

During the three months ended December 31, 2017, we released a valuation allowance of $3.9 million that was previously recorded against our net deferred tax assets in the U.S. The valuation allowance release was triggered by utilization of a significant portion of our deferred tax assets to satisfy the toll tax provision in TCJA. Along with expected full-year income in the U.S. in fiscal 2018, we anticipate our domestic deferred taxes to be in a net liability position by June 30, 2018.

We consider substantially all of the unremitted earnings of our non-U.S. subsidiaries that have not previously been taxed in the U.S. to be permanently reinvested. As a result of TCJA, which among other provisions allows for a 100% dividends received deduction from controlled foreign subsidiaries, we will re-evaluate our assertion with respect to permanent reinvestment. As part of this evaluation, we will consider our global working capital and capital investment requirements, among other considerations, including the potential tax liabilities that would be incurred if the non-U.S. subsidiaries distribute cash to the U.S. parent. If we determine that an entity should no longer remain subject to the permanent reinvestment assertion, we will accrue additional tax charges, including but not limited to state income taxes, withholding taxes and other relevant foreign taxes in the period the conclusion is determined. In accordance with SAB 118, we expect to complete our evaluation by December 22, 2018.

The effective income tax rates for the three months ended March 31, 2018 and 2017 ~~and 2016~~ were ~~19.0~~31.2 percent and ~~24.7~~19.0 percent, respectively. The ~~decrease~~change is primarily driven by ~~a prior year asset impairment~~the discrete tax charge ~~current quarter earnings in the U.S. that cannot be tax affected~~of $6 million recorded in the current ~~year~~quarter for adjustment to the toll tax charge and a prior year ~~loss on divestiture, offset partially by a favorable impact~~U.S. income not being tax-effected and current year U.S. income being subject to tax. This is the result of the valuation allowance, originally recorded in the ~~prior year~~fourth quarter ~~related to a U.S. provision to return adjustment that did not repeat~~of fiscal 2016, being released in the ~~current year.~~December quarter of fiscal 2018.

The effective income tax rates for the nine months ended March 31, 2018 and 2017 were 27.5 percent and ~~2016 were~~ 45.9 percent, ~~(provision on income) and 28.0 percent (benefit on a loss),~~ respectively. The change ~~was~~is primarily driven by restructuring and related charges, ~~a favorable impact in the prior year quarter related~~and to a ~~U.S. provision to return adjustment that did not repeat~~lesser extent the net discrete tax charges recorded in the current year associated with TCJA and prior year U.S. loss not being tax-effected and current ~~year-to-date losses~~year U.S. income being subject to tax as a result of the aforementioned timing of release of the valuation allowance.

During the three months ended December 31, 2017, we identified an error related to the tax rate that had historically been used to calculate the deferred tax charge on intra-entity product transfers. This resulted in an overstatement of deferred tax assets of $8.2 million as of June 30, 2017. During the December quarter of fiscal 2018, $2.9 million of this amount was corrected in connection with the release of the U.S. valuation allowance. Therefore, the out of period adjustment recorded resulted in a further increase of $5.3 million to the provision for income taxes for the three months ended December 31, 2017. The remaining balance related to this item was reclassified and included in other current assets. The impact to the effective tax rate was 2.8 percent for the nine months ended March 31, 2018. After evaluation, we determined that ~~cannot be tax affected in~~ the ~~current~~impact of the adjustment was not material to the previously issued financial statements, nor are the out of period adjustments material to the estimated results of fiscal year ~~offset partially by a prior year asset impairment charge and a prior year loss on divestiture.~~2018.


~~15.~~14.	EARNINGS PER SHARE

Basic earnings per share is computed using the weighted average number of shares outstanding during the period, while diluted earnings per share is calculated to reflect the potential dilution that would occur related to the issuance of capital stock under stock option grants, performance awards and restricted stock units. The difference between basic and diluted earnings per share relates solely to the effect of capital stock options, performance awards and restricted stock units.

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For purposes of determining the number of diluted shares outstanding, weighted average shares outstanding for basic earnings per share calculations were increased due solely to the dilutive effect of unexercised capital stock options, unvested performance awards and unvested restricted stock units by 1.3 million shares and 1.0 million shares for the three months ended March 31, 2018 and ~~0.4~~2017, respectively, and 1.2 million shares and 0.7 million shares for the nine months ended March 31, 2018 and 2017, respectively. Unexercised capital stock options, unvested performance awards and unvested restricted stock units of 1.2 million shares for the three months ended March 31, 2017 and ~~2016, respectively, and 0.7~~0.4 million shares for the nine months ended March 31, 2017. Unexercised capital stock options, performance awards and restricted stock units of 1.2 million shares and 3.1 million shares for the three months ended March 31, 2017 and 2016, respectively, and 1.8 million shares for the nine months ended March 31, 2018 and 2017, respectively, were not included in the computation of diluted earnings per share because the option exercise price was greater than the average market price, and therefore the inclusion would have been anti-dilutive. ~~For the nine months ended March 31, 2016, the effect~~The amount of shares of unexercised capital stock options, unvested performance awards and unvested restricted stock units ~~was anti-dilutive as a result of a net loss~~for the three months ended March 31, 2018 that were not included in the ~~period and therefore has been excluded from diluted shares outstanding as well as from the~~computation of diluted earnings per share ~~calculation.~~was immaterial.

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~~KENNAMETAL INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~



15.		EQUITY

~~16.EQUITY~~

A summary of the changes in the carrying amounts of total equity, Kennametal Shareholders’ equity and equity attributable to noncontrolling interests as of March 31, ~~2017~~2018 and ~~2016~~2017 is as follows:


	Kennametal Shareholders’ Equity																		Kennametal Shareholders’ Equity
(in thousands)	Capital stock			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Non- controlling interests			Total equity			Capital stock			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Non- controlling interests			Total equity
Balance as of June 30, 2016	$	99,618		$	436,617		$	780,597		$	(352,509	)	$	31,478		$	995,801
Balance as of June 30, 2017																			$	100,832		$	474,547		$	765,607		$	(323,692	)	$	35,359		$	1,052,653
Net income	—			—			24,495			—			1,873			26,368			—			—			131,651			—			3,256			134,907
Other comprehensive (loss) income	—			—			—			(16,228		)	330			(15,898		)
Other comprehensive income																			—			—			—			53,598			1,443			55,041
Dividend reinvestment	7			181			—			—			—			188			5			158			—			—			—			163
Capital stock issued under employee benefit and stock plans⁽⁵⁾⁽³⁾	697			20,688			—			—			—			21,385			1,200			32,355			—			—			—			33,555
Purchase of capital stock	(7		)	(181		)	—			—			—			(188		)	(5		)	(158		)	—			—			—			(163		)
Cash dividends paid	—			—			(48,013		)	—			(72		)	(48,085		)
Balance as of March 31, 2017	$	100,315		$	457,305		$	757,079		$	(368,737	)	$	33,609		$	979,571
Cash dividends																			—			—			(48,773		)	—			(1,229		)	(50,002		)
Balance as of March 31, 2018																			$	102,032		$	506,902		$	848,485		$	(270,094	)	$	38,829		$	1,226,154

Kennametal Shareholders’ Equity
(in thousands)
Capital
stock

Additional
paid-in
capital

Retained
earnings
Accumulated
other
comprehensive
loss
Non-
controlling
interests
Total equity
Balance as of June 30, 2015 $ 99,219
$ 419,829
$ 1,070,282
$ (243,523 ) $ 29,628
$ 1,375,435
Net (loss) income —
—
(159,454 ) —
1,634
(157,820 )
Other comprehensive loss —
—
—
(5,656 ) (540 ) (6,196 )
Dividend reinvestment 12
219
—
—
—
231
Capital stock issued under employee benefit and stock plans⁽⁵⁾
380
10,863
—
—
—
11,243
Purchase of capital stock (12 ) (219 ) —
—
—
(231 )
Cash dividends paid —
—
(47,780 ) —
(71 ) (47,851 )
Balance as of March 31, 2016 $ 99,599
$ 430,692
$ 863,048
$ (249,179 ) $ 30,651
$ 1,174,811

~~(5)~~



	Kennametal Shareholders’ Equity
(in thousands)	Capital stock			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Non- controlling interests			Total equity
Balance as of June 30, 2016	$	99,618		$	436,617		$	780,597		$	(352,509	)	$	31,478		$	995,801
Net income	—			—			24,495			—			1,873			26,368
Other comprehensive (loss) income	—			—			—			(16,228		)	330			(15,898		)
Dividend reinvestment	7			181			—			—			—			188
Capital stock issued under employee benefit and stock plans⁽³⁾	697			20,688			—			—			—			21,385
Purchase of capital stock	(7		)	(181		)	—			—			—			(188		)
Cash dividends	—			—			(48,013		)	—			(72		)	(48,085		)
Balance as of March 31, 2017	$	100,315		$	457,305		$	757,079		$	(368,737	)	$	33,609		$	979,571

(3) Net of restricted stock units delivered upon vesting to satisfy tax withholding requirements.

The amounts of comprehensive ~~loss~~income (loss) attributable to Kennametal Shareholders and noncontrolling interests are disclosed in the condensed consolidated statements of comprehensive income.


~~17.~~	~~ACCUMULATED OTHER COMPREHENSIVE LOSS~~

Total accumulated other comprehensive loss (AOCL) consists of net income (loss) and other changes in equity from transactions and other events from sources other than shareholders. It includes postretirement benefit plan adjustments, currency translation adjustments and unrealized gains and losses from derivative instruments designated as cash flow hedges.

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


16.	ACCUMULATED OTHER COMPREHENSIVE LOSS

Total accumulated other comprehensive loss (AOCL) consists of net income and other changes in equity from transactions and other events from sources other than shareholders. It includes postretirement benefit plan adjustments, currency translation adjustments and unrealized gains and losses from derivative instruments designated as cash flow hedges.

The components of, and changes in, AOCL were as follows, net of tax, for the nine months ended March 31, 2018 (in thousands):



Attributable to Kennametal:	Postretirement benefit plans			Currency translation adjustment			Derivatives			Total
Balance, June 30, 2017	$	(189,038	)	$	(126,606	)	$	(8,048	)	$	(323,692	)
Other comprehensive income (loss) before reclassifications	(4,339		)	52,632			(1,688		)	46,605
Amounts reclassified from AOCL	4,692			—			2,301			6,993
Net current period other comprehensive income	353			52,632			613			53,598
AOCL, March 31, 2018	$	(188,685	)	$	(73,974	)	$	(7,435	)	$	(270,094	)

Attributable to noncontrolling interests:
Balance, June 30, 2017	$	—		$	(2,164	)	$	—		$	(2,164	)
Other comprehensive income before reclassifications	—			1,443			—			1,443
Net current period other comprehensive income	—			1,443			—			1,443
AOCL, March 31, 2018	$	—		$	(721	)	$	—		$	(721	)

The components of, and changes in, AOCL were as follows, net of tax, for the nine months ended March 31, 2017 (in thousands):

Attributable to Kennametal: Postretirement benefit plans Currency translation adjustment Derivatives Total
Balance, June 30, 2016 $ (212,163 ) $ (131,212 ) $ (9,134 ) $ (352,509 )
Other comprehensive income (loss) before reclassifications 3,376
(26,810 ) 614
(22,820 )
Amounts reclassified from AOCL 5,434
—
1,158
6,592
Net current period other comprehensive
income (loss)
8,810
(26,810 ) 1,772
(16,228 )
AOCL, March 31, 2017 $ (203,353 ) $ (158,022 ) $ (7,362 ) $ (368,737 )

Attributable to noncontrolling interests:
Balance, June 30, 2016 $ —
$ (3,446 ) $ —
$ (3,446 )
Other comprehensive income before
reclassifications
—
330
—
330
Net current period other comprehensive income —
330
—
330
AOCL, March 31, 2017 $ —
$ (3,116 ) $ —
$ (3,116 )

~~The components of, and changes in, AOCL were as follows, net of tax, for the nine months ended March 31, 2016 (in thousands):~~

Attributable to Kennametal: Postretirement benefit plans Currency translation adjustment Derivatives Total
Balance, June 30, 2015 $ (138,793 ) $ (97,309 ) $ (7,421 ) $ (243,523 )
Other comprehensive income (loss) before reclassifications 1,561
(24,165 ) 165
(22,439 )
Amounts reclassified from AOCL 3,641
15,088
(1,946 ) 16,783
Net current period other comprehensive
  income (loss)
5,202
(9,077 ) (1,781 ) (5,656 )
AOCL, March 31, 2016 $ (133,591 ) $ (106,386 ) $ (9,202 ) $ (249,179 )

Attributable to noncontrolling interests:
Balance, June 30, 2015 $ —
$ (2,258 ) $ —
$ (2,258 )
Other comprehensive loss before
  reclassifications
—
(540 ) —
(540 )
Net current period other comprehensive
  loss
—
(540 ) —
(540 )
AOCL, March 31, 2016 $ —
$ (2,798 ) $ —
$ (2,798 )



Attributable to Kennametal:	Postretirement benefit plans			Currency translation adjustment			Derivatives			Total
Balance, June 30, 2016	$	(212,163	)	$	(131,212	)	$	(9,134	)	$	(352,509	)
Other comprehensive income (loss) before reclassifications	3,376			(26,810		)	614			(22,820		)
Amounts reclassified from AOCL	5,434			—			1,158			6,592
Net current period other comprehensive income (loss)	8,810			(26,810		)	1,772			(16,228		)
AOCL, March 31, 2017	$	(203,353	)	$	(158,022	)	$	(7,362	)	$	(368,737	)

Attributable to noncontrolling interests:
Balance, June 30, 2016	$	—		$	(3,446	)	$	—		$	(3,446	)
Other comprehensive income before reclassifications	—			330			—			330
Net current period other comprehensive income	—			330			—			330
AOCL, March 31, 2017	$	—		$	(3,116	)	$	—		$	(3,116	)

Table of Contents

KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Reclassifications out of AOCL for the three and nine months ended March 31, ~~2017~~2018 and ~~2016~~2017 consisted of the following (in thousands):


	Three Months Ended March 31,						Nine Months Ended March 31,							Three Months Ended March 31,						Nine Months Ended March 31,
Details about AOCL components	2017			2016			2017			2016			Affected line item in the Income Statement	2018			2017			2018			2017			Affected line item in the Income Statement
Gains and losses on cash flow hedges:
Forward starting interest rate swaps	$	545		$	525		$	1,635		$	1,574		Interest expense	$	566		$	545		$	1,698		$	1,635		Interest expense
Currency exchange contracts	(156		)	(141		)	(477		)	(4,713		)	Other expense (income), net	623			(156		)	1,350			(477		)	Other expense, net
Total before tax	389			384			1,158			(3,139		)		1,189			389			3,048			1,158
Tax impact	—			(146		)	—			1,193			Provision (benefit) for income taxes	(291		)	—			(747		)	—			Provision for income taxes
Net of tax	$	389		$	238		$	1,158		$	(1,946	)		$	898		$	389		$	2,301		$	1,158

Postretirement benefit plans:
Amortization of transition obligations	$	22		$	19		$	67		$	61		See note 10 for further details	$	24		$	22		$	70		$	67		See note 9 for further details
Amortization of prior service credit	(119		)	(110		)	(355		)	(329		)	See note 10 for further details
Amortization of prior service (credit) cost														(48		)	(119		)	74			(355		)	See note 9 for further details
Recognition of actuarial losses	2,155			1,886			6,532			5,694			See note 10 for further details	1,816			2,155			5,384			6,532			See note 9 for further details
Total before tax	2,058			1,795			6,244			5,426				1,792			2,058			5,528			6,244
Tax impact	(254		)	(576		)	(810		)	(1,785		)	Provision (benefit) for income taxes	(448		)	(254		)	(836		)	(810		)	Provision for income taxes
Net of tax	$	1,804		$	1,219		$	5,434		$	3,641			$	1,344		$	1,804		$	4,692		$	5,434

Foreign currency translation adjustments:
Released due to divestiture	$	—		$	(1,940	)	$	—		$	15,088		Loss on divestiture
Total before taxes	—			(1,940		)	—			15,088
Tax impact	—			—			—			—			Provision (benefit) for income taxes
Net of tax	$	—		$	(1,940	)	$	—		$	15,088

The amount of income tax allocated to each component of other comprehensive income for the three months ended March 31, ~~2017~~2018 and ~~2016:~~2017:


				2017									2016									2018									2017
(in thousands)	Pre-tax			Tax impact			Net of tax			Pre-tax			Tax impact			Net of tax			Pre-tax			Tax impact			Net of tax			Pre-tax			Tax impact			Net of tax
Unrealized loss on derivatives designated and qualified as cash flow hedges	$	(866	)	$	—		$	(866	)	$	(1,027	)	$	390		$	(637	)	$	(1,037	)	$	254		$	(783	)	$	(866	)	$	—		$	(866	)
Reclassification of unrealized loss on expired derivatives designated and qualified as cash flow hedges	389			—			389			384			(146		)	238			1,189			(291		)	898			389			—			389
Unrecognized net pension and other postretirement benefit loss	(970		)	245			(725		)	(1,332		)	444			(888		)	(2,271		)	522			(1,749		)	(970		)	245			(725		)
Reclassification of net pension and other postretirement benefit loss	2,058			(254		)	1,804			1,795			(576		)	1,219			1,792			(448		)	1,344			2,058			(254		)	1,804
Foreign currency translation adjustments	13,706			79			13,785			19,432			(1,649		)	17,783			20,437			(155		)	20,282			13,706			79			13,785
Reclassification of foreign currency translation adjustment gain realized upon sale	—			—			—			(1,940		)	—			(1,940		)
Other comprehensive income	$	14,317		$	70		$	14,387		$	17,312		$	(1,537	)	$	15,775		$	20,110		$	(118	)	$	19,992		$	14,317		$	70		$	14,387

Table of Contents

KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The amount of income tax allocated to each component of other comprehensive ~~loss~~income (loss) for the nine months ended March 31, ~~2017~~2018 and ~~2016:~~2017:

2017 2016
(in thousands) Pre-tax Tax impact Net of tax Pre-tax Tax impact Net of tax
Unrealized gain on derivatives designated and qualified as cash flow hedges $ 614
$ —
$ 614
$ 266
$ (101 ) $ 165
Reclassification of unrealized loss (gain) on expired derivatives designated and qualified as cash flow hedges 1,158
—
1,158
(3,139 ) 1,193
(1,946 )
Unrecognized net pension and other postretirement benefit gain 4,431
(1,055 ) 3,376
1,884
(323 ) 1,561
Reclassification of net pension and other postretirement benefit loss 6,244
(810 ) 5,434
5,426
(1,785 ) 3,641
Foreign currency translation adjustments (26,559 ) 79
(26,480 ) (25,294 ) 589
(24,705 )
Reclassification of foreign currency translation adjustment loss realized upon sale —
—
—
15,088
—
15,088
Other comprehensive loss $ (14,112 ) $ (1,786 ) $ (15,898 ) $ (5,769 ) $ (427 ) $ (6,196 )



				2018									2017
(in thousands)	Pre-tax			Tax impact			Net of tax			Pre-tax			Tax impact			Net of tax
Unrealized (loss) gain on derivatives designated and qualified as cash flow hedges	$	(2,236	)	$	548		$	(1,688	)	$	614		$	—		$	614
Reclassification of unrealized loss on expired derivatives designated and qualified as cash flow hedges	3,048			(747		)	2,301			1,158			—			1,158
Unrecognized net pension and other postretirement benefit (loss) gain	(5,705		)	1,366			(4,339		)	4,431			(1,055		)	3,376
Reclassification of net pension and other postretirement benefit loss	5,528			(836		)	4,692			6,244			(810		)	5,434
Foreign currency translation adjustments	54,495			(420		)	54,075			(26,559		)	79			(26,480		)
Other comprehensive income (loss)	$	55,130		$	(89	)	$	55,041		$	(14,112	)	$	(1,786	)	$	(15,898	)


~~18.~~17.	GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of cost over the fair value of the net assets of acquired companies. Goodwill and other intangible assets with indefinite lives are tested at least annually for impairment. We perform our annual impairment tests during the June quarter in connection with our annual planning process, unless there are impairment indicators based on the results of an ongoing cumulative qualitative assessment that warrant a test prior to that. We evaluate the recoverability of goodwill for each of our reporting units by comparing the fair value of each reporting unit with its carrying value. The fair values of our reporting units are determined using a combination of a discounted cash flow analysis and market multiples based upon historical and projected financial information. We apply our best judgment when assessing the reasonableness of the financial projections used to determine the fair value of each reporting unit. We evaluate the recoverability of indefinite-lived intangible assets using a discounted cash flow analysis based on projected financial information. This evaluation is sensitive to changes in market interest rates and other external factors.

Identifiable assets with finite lives are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable.

~~At the beginning~~A summary of fiscal 2017, we reorganized our operating structure in a manner that changed the composition of our reporting units. The Industrial and Widia reporting units in fiscal 2017 were formed from the fiscal 2016 Industrial reporting unit. In connection with this reporting unit realignment, during the first quarter of fiscal 2017 we updated our goodwill impairment assessment based on a quantitative analysis. We evaluated the goodwill of our reporting units immediately prior to and after the realignment and concluded in both cases that there was no impairment. We allocated our goodwill from the former Industrial segment to the current Industrial and Widia segments using a relative fair value approach. The restated Industrial reporting unit passed the goodwill impairment test with fair value substantially exceeded the carrying ~~value. The new Widia reporting unit's fair value approximates its carrying value.~~amount of goodwill attributable to each segment, as well as the changes in such, is as follows:

~~See Note 19 for further discussion regarding the Company's segments.~~

We are currently exploring strategic alternatives for one of our non-core Infrastructure businesses. The estimated net book value of the business is approximately $30 million as of March 31, 2017. As the strategic direction has not yet been determined for this business, the Company cannot determine if additional impairment charges will be incurred.



(in thousands)	Industrial			Widia			Infrastructure			Total
Gross goodwill	$	410,694		$	41,515		$	633,211		$	1,085,420
Accumulated impairment losses	(137,204		)	(13,638		)	(633,211		)	(784,053		)
Balance as of June 30, 2017	$	273,490		$	27,877		$	—		$	301,367

Activity for the nine months ended March 31, 2018:
Change in gross goodwill due to translation	7,611			455			—			8,066

Gross goodwill	418,305			41,970			633,211			1,093,486
Accumulated impairment losses	(137,204		)	(13,638		)	(633,211		)	(784,053		)
Balance as of March 31, 2018	$	281,101		$	28,332		$	—		$	309,433

Table of Contents

KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~A summary of the carrying amount of goodwill attributable to each segment, as well as the changes in such, is as follows:~~

(in thousands) Industrial Widia Infrastructure Total
Gross goodwill $ 408,705
$ 40,624
$ 633,211
$ 1,082,540
Accumulated impairment losses (137,204 ) (13,638 ) (633,211 ) (784,053 )
Balance as of June 30, 2016 $ 271,501
$ 26,986
$ —
$ 298,487

Activity for the nine months ended March 31, 2017:
Change in gross goodwill due to translation (4,459 ) 287
—
(4,172 )

Gross goodwill 404,246
40,911
633,211
1,078,368
Accumulated impairment losses (137,204 ) (13,638 ) (633,211 ) (784,053 )
Balance as of March 31, 2017 $ 267,042
$ 27,273
$ —
$ 294,315

~~Fiscal 2016 December Quarter Impairment Charge~~

As previously disclosed, we recorded a non-cash pre-tax impairment charge during the three months ended December 31, 2015 of $106.1 million in the Infrastructure segment, of which $105.7 million was for goodwill and $0.4 million was for an indefinite-lived trademark intangible asset. We also recorded a preliminary non-cash pre-tax impairment charge during the three months ended December 31, 2015 of $2.3 million in the Widia segment for an indefinite-lived trademark intangible asset. These impairment charges were recorded in restructuring and asset impairment charges in our condensed consolidated statements of income.

~~Divestiture Impact on Goodwill and Other Intangible Assets~~

During the nine months ended March 31, 2016, we completed the sale of non-core businesses, see Note 5. As a result of this transaction, goodwill decreased by $1.1 million and $6.5 million in our Industrial and Infrastructure segments, respectively. These decreases were recorded in the loss on divestiture account in our condensed consolidated statements of income.

The components of our other intangible assets were as follows:


	Estimated Useful Life (in years)	March 31, 2017					June 30, 2016						Estimated Useful Life (in years)	March 31, 2018					June 30, 2017
(in thousands)	Estimated Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization				Gross Carrying Amount		Accumulated Amortization			Estimated Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization				Gross Carrying Amount		Accumulated Amortization
Contract-based	3 to 15	$	7,059	$	(7,002	)		$	7,152	$	(6,886	)	3 to 15	$	7,066	$	(7,036	)		$	7,064	$	(7,014	)
Technology-based and other	4 to 20	45,753		(27,822		)		47,323		(27,011		)	4 to 20	47,357		(31,244		)		46,461		(29,061		)
Customer-related	10 to 21	204,088		(70,983		)		205,471		(66,938		)	10 to 21	208,107		(84,114		)		205,502		(74,669		)
Unpatented technology	10 to 30	31,691		(9,967		)		31,837		(4,614		)	10 to 30	32,071		(12,566		)		31,754		(10,589		)
Trademarks	5 to 20	12,259		(8,389		)		12,668		(8,644		)	5 to 20	12,600		(9,052		)		12,401		(8,648		)
Trademarks	Indefinite	16,382		—				16,850		—			Indefinite	18,487		—				17,326		—
Total		$	317,232	$	(124,163	)		$	321,301	$	(114,093	)		$	325,688	$	(144,012	)		$	320,508	$	(129,981	)

During the nine months ended March 31, ~~2017~~2018 and ~~2016,~~2017, we recorded amortization expense of ~~$12.7~~$11.0 million and ~~$16.3~~$12.7 million, respectively, related to our other intangible assets.


~~19.~~18.	SEGMENT DATA

Kennametal delivers productivity to customers seeking peak performance in demanding environments by providing innovative custom and standard wear-resistant solutions. To provide these solutions, we harness our knowledge of advanced materials and application development with a commitment to environmental sustainability. Our product offering includes a wide selection of standard and customized technologies for metalworking, such as sophisticated metal cutting tools, tooling systems and services, as well as advanced, high-performance materials, such as cemented tungsten carbide products, super alloys, coatings and investment castings to address customer demands. We offer these products through a variety of channels to meet customer-specified needs.

~~Table of Contents~~

~~KENNAMETAL INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~The Company's~~Our reportable operating segments have been determined in accordance with ~~the Company's~~our internal management structure, which is organized based on operating activities, the manner in which we organize segments for making operating decisions and assessing performance and the availability of separate financial results. We do not allocate certain corporate expenses related to executive retirement plans, ~~the Company’s~~our Board of Directors and strategic initiatives, as well as certain other costs and report them in Corporate. None of our three reportable operating segments represent the aggregation of two or more operating segments.

The Industrial segment generally serves customers that operate in industrial end markets such as transportation, general engineering, ~~and~~ aerospace and defense market sectors, as well as the machine tool industry, delivering high performance metalworking tools for specified purposes. ~~The~~Our customers in these end markets use our products and services in the manufacture of engines, airframes, automobiles, trucks, ships and other various types of industrial equipment. The technology and customization requirements ~~for customers~~ we ~~serve~~provide vary by customer, application and industry. ~~The value we deliver~~Industrial goes to market under the Kennametal^® brand through its direct sales force, a network of independent and national chain distributors, integrated supplier channels and via the Internet. Application engineers and technicians are critical to the sales process and directly assist our ~~Industrial segment~~ customers ~~centers on our~~with specified product design, selection, application ~~expertise~~ and ~~our diverse offering of products and services, with products delivered through a diverse base including direct and indirect channels.~~support.

The Widia segment generally serves customers that operate in industrial end markets, primarily in general engineering, delivering high performance metalworking tools for general purposes. Whereas the Industrial segment's core is in application expertise and specific customer needs, Widia offers a ~~competitive alternative for general~~focused assortment of standard custom metal cutting solutions ~~across a broader platform for application, with products delivered~~to general engineering, aerospace, energy and transportation customers. We serve our customers primarily through ~~indirect channels.~~a network of value added resellers, integrated supplier channels and via the Internet. Widia markets its products under the WIDIA^®, WIDIA Hanita^® and WIDIA GTD^® brands.

The Infrastructure segment generally serves customers that operate in the energy and earthworks ~~and energy~~market sectors ~~who~~that support primary industries such as oil and gas, power generation and chemicals; underground, surface and hard-rock ~~mining,~~mining; highway construction and road ~~maintenance. Generally, we rely on customer intimacy~~maintenance; and process industries such as food and feed. Our success is determined by our ability to ~~serve this segment. By gaining~~gain an in-depth understanding of our customers’ engineering and development needs, ~~we are able~~ to ~~offer~~provide complete system solutions and high-performance capabilities to optimize and add value to their operations.

Infrastructure markets its products primarily under the Kennametal~~Our~~^® brand and sells through a direct sales ~~and operating income (loss) by segment are~~force as ~~follows:~~well as distributors.

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2017 2016 2017 2016
Sales:
Industrial ⁽⁶⁾
$ 289,455
$ 274,123
$ 825,990
$ 812,892
Widia ⁽⁶⁾
46,297
42,249
130,186
127,696
Infrastructure 192,878
181,465
537,167
636,624
Total sales $ 528,630
$ 497,837
$ 1,493,343
$ 1,577,212
Operating income (loss):
Industrial ⁽⁶⁾
$ 38,535
$ 26,371
$ 62,138
$ 59,855
Widia ⁽⁶⁾
606
(1,679 ) (7,797 ) (8,053 )
Infrastructure 19,770
3,748
22,457
(242,417 )
Corporate (999 ) (1,105 ) (4,084 ) (9,391 )
Total operating income (loss) 57,912
27,335
72,714
(200,006 )
Interest expense 7,331
7,113
21,475
20,895
Other expense (income), net 1,626
(1,938 ) 2,470
(1,582 )
Income (loss) from continuing operations before income taxes $ 48,955
$ 22,160
$ 48,769
$ (219,319 )

2322

Table of Contents

KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Total assets~~Our sales and operating income (loss) by segment are as follows:


					Three Months Ended March 31,						Nine Months Ended March 31,
(in thousands)	March 31, 2017		June 30, 2016		2018			2017			2018			2017
Industrial ⁽⁶⁾	$	1,100,690	$	1,019,887
Widia ⁽⁶⁾	191,453		195,339
Sales:
Industrial					$	333,012		$	289,455		$	942,922		$	825,990
Widia					52,217			46,297			145,204			130,186
Infrastructure					222,707			192,878			633,608			537,167
Total sales					$	607,936		$	528,630		$	1,721,734		$	1,493,343
Operating income (loss):
Industrial					$	53,029		$	38,535		$	131,132		$	62,138
Widia					1,638			606			2,556			(7,797		)
Infrastructure	791,194		849,447		31,767			19,770			79,347			22,457
Corporate	251,402		298,110		(1,078		)	(999		)	(3,030		)	(4,084		)
Total assets	$	2,334,739	$	2,362,783
Total operating income					85,356			57,912			210,005			72,714
Interest expense					7,468			7,331			21,848			21,475
Other expense, net					647			1,626			2,046			2,470
Income from continuing operations before income taxes					$	77,241		$	48,955		$	186,111		$	48,769

~~(6) Amounts for the three and nine months ended March 31, 2017 and as of June 30, 2016 have been restated to reflect the change in reportable operating segments.~~

2423

Table of Contents

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

OVERVIEW

Kennametal Inc. iswas incorporated in Pennsylvania in 1943 as a ~~leading~~manufacturer of tungsten carbide metal cutting tooling. From this beginning, the Company has grown into a global ~~manufacturer~~leader in the development and ~~supplier~~application of ~~tooling, engineered components~~tungsten carbides, ceramics, super-hard materials and ~~advanced materials consumed~~solutions used in ~~production processes. We deliver productivity solutions~~metal cutting and mission-critical wear applications to customers seeking peak performance in demanding environments. The Company provides innovative wear-resistant products, application engineering and services backed by advanced material science serving customers across diverse sectors of industrial production, transportation, earthworks, energy, construction, process industries and aerospace. Kennametal solutions are built around industry-essential technology platforms, including precision-engineered metalworking tools and components, surface technologies and earth cutting tools that are mission-critical to customer operations battlingcombat extreme conditions associated with wear fatigue, corrosion and high temperatures. The ~~Company’s~~Company's reputation for material ~~and industrial~~ technology, ~~excellence,~~metal cutting application knowledge, as well as expertise and innovation in the development of custom solutions and services, contributes to its leading position in its primary ~~industrial~~markets.

Our product offering includes a wide selection of standard and ~~infrastructure markets.~~customized technologies for metalworking applications, such as turning, milling, hole making, tooling systems and services. End users of the ~~Company’s~~Company's metalworking products include manufacturers ~~metalworking suppliers, machinery operators and processors~~ engaged in a diverse array of industries ~~including~~including: the ~~manufacture~~manufacturers of transportation vehicles and ~~components;~~components, machine ~~tool,~~tools and light ~~machinery~~ and heavy ~~machinery industries;~~machinery; airframe and aerospace components; and energy-related components ~~defense;~~for the oil and gas industry, as well as power generation.

Throughout the MD&A, we refer to measures used by management to evaluate performance. We ~~believe we~~also refer to a number of financial measures that are ~~one~~not defined under accounting principles generally accepted in the United States of America (U.S. GAAP), including organic sales growth, constant currency regional sales growth and constant currency end market sales growth. The explanation at the end of the ~~largest global providers~~MD&A provides the definition of ~~consumable metal cutting tools~~these non-GAAP financial measures as well as details on the use and ~~tooling supplies.~~the derivation of these financial measures.

~~This quarter’s~~Operating results ~~exceeded our expectations by almost every metric. Sales grew~~for the third quarter of fiscal year 2018 were strong. End markets are robust, and ~~costs declined, reflecting continuing progress with~~ the work being performed on all three of our initiatives - growth, simplification and modernization - is driving improvements to results and margins. On a consolidated basis, sales increased 15.0 percent, reflecting sales growth in all segments, regions and end markets. We are aggressively pursuing our simplification efforts and starting to get traction on the execution of our modernization initiatives, which contributed to our strong results. In addition, even in the face of rising raw material costs, price realization outpaced raw material cost inflation, a trend we ~~began nine months ago.~~ expect to continue in the June quarter. Operating margin improved significantly to 14.0 percent from 11.0 percent in the prior year quarter reflecting improvement in both gross margin and operating expense as a percentage of sales. We remain intensely focused on executing our multi-year simplification and modernization plan.

Our sales of ~~$528.6~~$607.9 million for the quarter ended March 31, ~~2017~~2018 increased 615.0 percent compared to sales for the quarter ended March 31, ~~2016.~~2017, driven by organic sales growth of 11 percent and favorable currency exchange impact of 6 percent, partially offset by fewer business days impact of 2 percent compared to the prior year quarter. Every segment and every region reported increased ~~sales. The Widia segment posted quarterly profit for the first time with operating margin of 1.3 percent.~~sales and improved profitability. The Industrial, Infrastructure and ~~Infrastructure~~Widia segments posted operating margins of ~~13.3~~15.9 percent, 14.3 percent and ~~10.3~~3.1 percent, respectively.

Operating income was ~~$57.9~~$85.4 million, compared to ~~$27.3~~$57.9 million in the prior year quarter. Year-over-year comparative operating results reflect organic sales growth, incremental restructuring benefits of approximately ~~$20~~$11 million, ~~organic sales growth, higher absorption and productivity, lower~~$7.9 million less restructuring and related charges in the current period, favorable currency exchange and ~~favorable~~ mix, partially offset by higher ~~performance-based~~raw material costs, decreased manufacturing efficiency in part due to modernization efforts in progress, salary inflation and higher variable compensation ~~and~~expense due to higher than expected operating results.

Our effective tax rate for the ~~negative~~full fiscal year is expected to be higher than anticipated at the beginning of fiscal year 2018. This increase in the tax rate is due primarily to the ongoing effects of ~~higher raw material costs.~~

no longer having a valuation allowance on U.S. deferred tax assets. The ~~permanent savings that~~release of the valuation allowance in the December quarter of fiscal 2018 was triggered by the application of the toll tax provision in the Tax Cuts and Jobs Act of 2017 (TCJA). Along with expected full-year income in the U.S. in fiscal 2018, we ~~are realizing from restructuring are the~~anticipate our domestic deferred taxes to be in a net liability position by June 30, 2018. As a result of ~~all programs that~~TCJA, we ~~have undertaken over the past 27 months. Pre-tax benefits~~anticipate our long-term, beyond fiscal 2018, tax rate will decrease from ~~these restructuring actions were approximately $30 million in the current quarter, of which approximately $20 million were incremental~~mid-20s to the same quarter one year ago. As of March 31, 2017, we are anticipating approximately $90 million of the annualized savings associated with our employment reduction initiative. We expect our other restructuring programs to deliver annualized savings of $75 million to $90 million once completed. Refer to the Results of Continuing Operations section of Item 2 for further discussion and analysis of our restructuring programs.

In addition to these restructuring programs, our product and process simplification, End-to-End and factory modernization initiatives are underway. Very little of the current period progress reflects the structural benefits from the modernization and End-to-End initiatives that we have planned, nor the benefits from the ongoing product and process simplification initiatives. The results of those programs are expected to accrue to the Company over the next two to three years.low-20s.

We reported current quarter earnings per diluted share of ~~$0.48,~~$0.61, which include a $0.08 per share charge related to adjustments made to the provisional toll tax associated with U.S. tax reform and $0.01 per share of restructuring and related charges. The earnings per diluted share of $0.48 in the prior year quarter included $0.12 per share of restructuring and related charges. Earnings per diluted share of $0.20 in the prior year quarter included $0.18 per share of restructuring and related charges, a net gain of $0.03 per share from divestiture, and a tax impact of $0.02 per share related to prior year second quarter asset impairment charges.

We generated cash flow from operating activities of $80.0 million and $145.4 million during the nine months ended March 31, 2017 and 2016, respectively. The decrease is due primarily to increases in primary working capital and higher restructuring payments, partially offset by higher cash earnings and lower tax and pension payments. Capital expenditures were $94.1 million and $83.3 million during the nine months ended March 31, 2017 and 2016, respectively.

We invested further in technology and innovation to continue meeting our customers' needs. Research and development expenses included in operating expense totaled $9.4 million for the three months ended March 31, 2017.

~~The following narrative provides further discussion and analysis of our results of operations, liquidity and capital resources, as well as other pertinent matters.~~

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

~~NEW OPERATING STRUCTURE IMPLEMENTED IN FISCAL 2017~~

~~In order~~We substantially completed our existing restructuring programs in the first quarter of fiscal year 2018. Pre-tax benefits from these restructuring actions were approximately $41 million in the current quarter, of which approximately $11 million were incremental to ~~take advantage~~the prior year quarter. These cost savings achieved through the previous restructuring programs do not include the anticipated benefits from our modernization initiative. Please see the Results of ~~the growth opportunities~~Continuing Operations section of Item 2 for further discussion and analysis of our ~~WIDIA brand, we implemented~~restructuring programs. While modernization is starting to drive improved results along with continuing benefits from simplification, incrementally higher results of those programs are anticipated to accrue to the Company over the next few years.

We had a ~~new~~net cash inflow from operating ~~structure in fiscal 2017.~~

~~A key attribute~~activities of $180.6 million during the new structure is the establishment of the Widia operating segment. In order to better leverage the opportunities in this business, in addition to being more agile and competitive in the marketplace, we are placing higher levels of focus, determination and leadership in the business. The newly formed Industrial and Widia segments were formed from the previously reported Industrial segment. Amounts for the three and nine months ended March 31, ~~2016~~2018 compared to $82.8 million during the prior year quarter. The increase is due primarily to higher cash from operations before changes in certain other assets and ~~as of June 30, 2016 have been restated~~liabilities and lower restructuring payments, partially offset by higher working capital. Capital expenditures were $128.3 million and $94.1 million during the nine months ended March 31, 2018 and 2017, respectively, in part attributable to ~~reflect the change in reportable operating segments.~~increased spending for modernization.

We ~~now have three reportable~~invested further in technology and innovation to continue delivering high quality products to our customers. Research and development expenses included in operating ~~segments going forward: Industrial, Widia and Infrastructure.~~

In connection with this change, we updated our goodwill impairment assessment based on a quantitative analysis during the first quarter of fiscal 2017. We evaluated the goodwill of our reporting units immediately prior to and after the realignment and concluded in both cases that there was no impairment. We allocated our goodwill from the former Industrial segment to the current Industrial and Widia segments using a relative fair value approach. The restated Industrial reporting unit passed the goodwill impairment test with fair value substantially exceeded the carrying value. The new Widia reporting unit's fair value approximates its carrying value. The amount of goodwill allocated to the Widia reporting unit was $27.0 million.

We completed Step 1 of the Widia goodwill impairment test using both an income approach and a market approach. The discounted cash flow method was used to measure the fair value of our equity under the income approach. A terminal value utilizing a constant growth rate of cash flows was used to calculate a terminal value after the explicit projection period. The estimates and assumptions used in our calculations include revenue growth rates, expense growth rates, expected capital expenditures to determine projected cash flows, expected tax rates and an estimated discount rate to determine present value of expected cash flows. These estimates are based on historical experiences, our projections of future operating activity and our weighted average cost of capital ("WACC"). The discount rate used was 14.5 percent. In order to determine the discount rate, the Company uses a market perspective WACC approach. The WACC is calculated incorporating weighted average returns on debt and equity from market participants. Therefore, changes in the market, which are beyond the control of the Company, may have an impact on future calculations of estimated fair value. Management forecasts were usedtotaled $10.0 million for the years ending June 30, 2017-2021, with a residual period growth rate of 3.0 percent. The tax rate used was 25.0 percent. Under the market approach, we estimate the fair value based on market multiples of revenue and earnings of comparable publicly traded companies and comparable transactions of similar companies.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the goodwill and indefinite-lived intangible impairment test will prove to be an accurate prediction of the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our reporting units may include such items as: (i) a decrease in expected future cash flows, specifically, a decrease in sales volume driven by a prolonged weakness in consumer demand or other competitive pressures adversely affecting our long-term volume trends, unfavorable working capital changes and an inability to successfully achieve our cost savings targets; (ii) inability to achieve all of the anticipated benefits from restructuring actions assumed; (iii) an economic recovery that significantly differs from our assumptions in timing and/or degree; (iv) volatility in the equity and debt markets or other country specific factors which could result in a higher discount rate; and (v) sensitivity to market transaction multiples.three months ended March 31, 2018.

RESULTS OF CONTINUING OPERATIONS

SALES

Sales for the three months ended March 31, ~~2017~~2018 were $~~528.6~~607.9 million, an increase of ~~$30.8~~$79.3 million or 615 percent, from $~~497.8~~528.6 million in the prior year quarter. The increase in sales was driven by a 511 percent organic sales growth and a 6 percent favorable currency exchange impact, partially offset by a 2 percent ~~increase~~decrease due to ~~more~~fewer business ~~days,~~days.

Sales for the nine months ended March 31, 2018 were $1,721.7 million, an increase of $228.4 million or 15 percent, from $1,493.3 million in the prior year period. The increase in sales was driven by a 13 percent organic sales growth and a 3 percent favorable currency exchange impact, partially offset by a 1 percent decrease due to fewer business days.



End Market Sales Growth:	As Reported				Constant Currency
	Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018		Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018
Aerospace and defense	23	%	15	%	17	%	11	%
General engineering	16		14		10		10
Energy	14		22		11		19
Transportation	13		13		4		8
Earthworks	10		13		5		9



Regional Sales Growth:	As Reported				Constant Currency
	Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018		Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018
Europe, the Middle East and Africa (EMEA)	19	%	16	%	5	%	7	%
Asia Pacific	15		18		8		14
Americas	13		14		12		14

GROSS PROFIT

Gross profit for the three months ended March 31, 2018 was $219.5 million, an increase of $33.2 million from $186.3 million in the prior year quarter. The increase was primarily due to organic sales growth, favorable foreign currency exchange impact of $12.7 million, incremental restructuring benefits of approximately $9 million, favorable mix and $1.0 million less restructuring-related charges, partially offset by higher raw material costs, decreased manufacturing efficiency in part due to modernization efforts in progress, and salary inflation. The gross profit margin for the three months ended March 31, 2018 was 36.1 percent, as compared to 35.2 percent in the prior year quarter.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Gross profit for the nine months ended March 31, 2018 was $597.0 million, an increase of $119.6 million from $477.4 million in the prior year period. The increase was primarily due to organic sales growth, incremental restructuring benefits of approximately $37 million, favorable currency exchange impact of $21.0 million, favorable mix and $2.9 million less restructuring-related charges, partially offset by salary inflation and higher raw material costs. The gross profit margin for the nine months ended March 31, 2018 was 34.7 percent, as compared to 32.0 percent in the prior year period.

OPERATING EXPENSE

Operating expense for the three months ended March 31, 2018 increased to $129.2 million compared to $116.9 million for the three months ended March 31, 2017. The increase was primarily due to unfavorable currency exchange ~~impact. Excluding the~~ impact of $6.4 million, higher variable compensation expense due to higher than expected operating results and salary inflation, partially offset by incremental restructuring benefits of approximately $2 million and $1.1 million less in restructuring-related charges.

Operating expense for the nine months ended March 31, 2018 increased to $369.1 million compared to $347.8 million for the nine months ended March 31, 2017. The increase was primarily due to an unfavorable currency exchange ~~sales increased~~impact of $10.9 million, salary inflation and higher variable compensation expense due to higher than expected operating results, partially offset by ~~approximately 21 percent in energy, 8 percent in general engineering, 4 percent in earthworks and 3 percent in transportation, offset partially by a decrease~~incremental restructuring benefits of approximately ~~1 percent~~$14 million and $2.7 million less in ~~aerospace~~restructuring-related charges.

RESTRUCTURING AND RELATED CHARGES AND ASSET IMPAIRMENT CHARGES

In prior years, we implemented restructuring actions to streamline the Company's cost structure. The purpose of these initiatives was to improve the alignment of our cost structure with the current operating environment through employment reductions, as well as rationalization and ~~defense. On a regional basis excluding the impact~~consolidation of ~~currency exchange, sales increased by 15 percent in Asia, 6 percent~~certain manufacturing facilities. These restructuring actions were substantially completed in the ~~Americas~~first quarter of fiscal 2018, were mostly cash expenditures and ~~5 percent~~achieved annual run rate ongoing pre-tax savings of approximately $165 million.

We recorded restructuring and related charges of $1.7 million and $9.6 million for the three months ended March 31, 2018 and 2017, respectively. Of these amounts, restructuring charges totaled $1.1 million and $7.1 million for the three months ended March 31, 2018 and 2017, respectively, of which benefit of $0.2 million was related to inventory and was recorded in ~~Europe.~~cost of goods sold for the three months ended March 31, 2018. Restructuring-related charges of $0.9 million and $1.7 million were recorded in cost of goods sold and $0.3 million of benefit and $0.8 million of expense were recorded in operating expense for the three months ended March 31, 2018 and 2017, respectively.

We recorded restructuring and related charges of $10.0 million and $53.1 million for the nine months ended March 31, 2018 and 2017, respectively. Of these amounts, restructuring charges totaled $6.7 million and $44.5 million, of which benefit of $0.2 million and expense of $0.3 million were related to inventory and were recorded in cost of goods sold for the nine months ended March 31, 2018 and 2017, respectively. Restructuring-related charges of $3.3 million and $5.8 million were recorded in cost of goods sold and $0.1 million and $2.8 million in operating expense for the nine months ended March 31, 2018 and 2017, respectively.

Total restructuring and related charges since the inception of our restructuring plans through March 31, 2018 were $157.7 million. See Note 7 in our condensed consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q (Note 7).

INTEREST EXPENSE

Interest expense for the three months ended March 31, 2018 and 2017 was $7.5 million and $7.3 million, respectively. Interest expense for the nine months ended March 31, 2018 and 2017 was $21.8 million and $21.5 million, respectively.

OTHER EXPENSE, NET

Other expense for the three months ended March 31, 2018 decreased to $0.6 million compared to $1.6 million for the three months ended March 31, 2017 primarily due to higher interest income and foreign currency transaction gains in the current quarter, partially offset by prior year income from transition services provided related to a prior divestiture that did not repeat.

Other expense for the nine months ended March 31, 2018 decreased to $2.0 million compared to $2.5 million for the nine months ended March 31, 2017 primarily due to foreign currency transaction gains in the current period and higher interest income, partially offset by prior year income from transition services provided related to a prior divestiture that did not repeat.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Sales for the nine months ended March 31, 2017 were $1,493.3 million, a decrease of $83.9 million or 5 percent, from $1,577.2 million in the prior year period. The decrease in sales was driven by a 5 percent decline from divestiture and a 1 percent unfavorable currency exchange impact, partially offset by 1 percent organic growth. Excluding the impact of currency exchange and divestiture, sales increased by approximately 5 percent in energy, 4 percent in general engineering, 3 percent in aerospace and defense and 1 percent in transportation, offset partially by a decrease of approximately 9 percent in earthworks. On a regional basis excluding the impact of currency exchange and divestiture, sales increased 6 percent in Asia while sales remained flat in both the Americas and Europe.

~~GROSS PROFIT~~

~~Gross profit for the three months ended March 31, 2017 was~~ ~~$186.3 million, an increase of $28.9 million from~~ ~~$157.4 million~~ in the prior year quarter. The increase was primarily due to incremental restructuring benefits of approximately $10 million, sales volume growth, higher fixed cost absorption and productivity and favorable mix, partially offset by unfavorable currency exchange impact of $3.1 million and higher raw material costs. The gross profit margin for the three months ended March 31, 2017 was 35.2 percent, as compared to 31.6 percent generated in the prior year quarter.

Gross profit for the nine months ended March 31, 2017 was $477.4 million, an increase of $28.0 million from $449.4 million in the prior year period. The increase was primarily due to higher fixed cost absorption and productivity, lower raw material costs and incremental restructuring benefits of approximately $20 million, partially offset by unfavorable mix, divestiture impact of $11.4 million and unfavorable currency exchange impact of $8.6 million. The gross profit margin for the nine months ended March 31, 2017 was 32.0 percent, as compared to 28.5 percent generated in the prior year period.

~~OPERATING EXPENSE~~

Operating expense for the three months ended March 31, 2017 decreased $4.1 million or 3.4 percent to $116.9 million as compared to $121.0 million in the prior year quarter. The decrease was primarily due to incremental restructuring benefits of approximately $10 million, $4.6 million less in restructuring-related charges and favorable foreign currency exchange impacts of $1.0 million, partially offset by $7.3 million higher employment-related costs.

Operating expense for the nine months ended March 31, 2017 decreased $26.0 million or 7.0 percent to $347.8 million as compared to $373.8 million in the prior year period. The decrease was primarily due to incremental restructuring benefits of approximately $25 million, divestiture impact of $10.5 million, $10.4 million less in restructuring-related charges and favorable foreign currency exchange impacts of $3.5 million, offset partially by higher employment-related costs of $17.0 million.

~~RESTRUCTURING AND RELATED CHARGES AND ASSET IMPAIRMENT CHARGES~~

We have recorded restructuring and related charges of $9.6 million and $14.0 million for the three months ended March 31, 2017 and 2016, respectively. Of these amounts, restructuring charges totaled $7.1 million and $7.5 million for the three months ended March 31, 2017 and 2016, respectively. Restructuring charges of $0.4 million were related to inventory and were recorded in cost of goods sold for the three months ended March 31, 2016. Restructuring-related charges of $1.7 million and $1.1 million were recorded in cost of goods sold and $0.8 million and $5.4 million in operating expense for the three months ended March 31, 2017 and 2016, respectively.

We have recorded restructuring and related charges of $53.1 million and $38.0 million for the nine months ended March 31, 2017 and 2016, respectively. Of these amounts, restructuring charges totaled $44.5 million and $20.1 million, of which expense of $0.3 million and $0.1 million were related to inventory and were recorded in cost of goods sold for the nine months ended March 31, 2017 and 2016, respectively. Restructuring-related charges of $5.8 million and $4.7 million were recorded in cost of goods sold and $2.8 million and $13.2 million in operating expense for the nine months ended March 31, 2017 and 2016, respectively.

Total restructuring and related charges since the inception of our restructuring plans through March 31, 2017 were $124.5 million. See Note 8 in our condensed consolidated financial statements set forth in Part I Item 1 of this Quarterly Report on Form 10-Q (Note 8).

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~~Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)~~

We are implementing restructuring actions to streamline the Company's cost structure. These initiatives are expected to improve the alignment of our cost structure with the current operating environment through headcount reductions, as well as rationalization and consolidation of certain manufacturing facilities. These restructuring actions are currently anticipated to deliver annual ongoing pre-tax savings of $165 million to $180 million once completed by December of fiscal 2019 and are anticipated to be mostly cash expenditures. The total pre-tax charges for these programs are expected to be in the range of $165 million to $195 million.

~~Asset Impairment Charges~~

We recorded non-cash pre-tax asset impairment charges of $108.5 million during the nine months ended March 31, 2016. See Note 18 in our condensed consolidated financial statements set forth in Part I Item 1 of this Quarterly Report on Form 10-Q (Note 18).

~~LOSS ON DIVESTITURE~~

We recognized a pre-tax loss on the sale of $133.3 million during the three months ended December 31, 2015 which included the impact of estimated working capital adjustments, deal costs and transaction costs. We recorded a pre-tax net gain on divestiture during the three months ended March 31, 2016 of approximately $2.6 million, which consists primarily of the write-off of the currency translation adjustments of a legal entity liquidated in the March quarter, partially offset by a refinement to our estimated working capital adjustment.The pre-tax net loss on divestiture during the nine months ended March 31, 2016 is $130.8 million, of which $127.2 million and $3.6 million were recorded in the Infrastructure and Industrial segments, respectively. See Note 5 in our condensed consolidated financial statements set forth in Part I Item 1 of this Quarterly Report on Form 10-Q (Note 5).

~~INTEREST EXPENSE~~

Interest expense for the three months ended March 31, 2017 increased $0.2 million to $7.3 million as compared to $7.1 million in the prior year quarter. Interest expense for the nine months ended March 31, 2017 increased $0.6 million to $21.5 million as compared to $20.9 million in the prior year period.

~~OTHER EXPENSE (INCOME), NET~~

~~Other expense, net for the three months ended March 31, 2017, was~~ ~~$1.6 million~~ ~~compared to other income, net of~~ ~~$1.9 million~~ ~~in the prior year quarter. The year-over-year change was primarily due to foreign currency transaction losses.~~

Other expense, net for the nine months ended March 31, 2017, was $2.5 million compared to other income, net of $1.6 million in the prior year period. The year-over-year change was primarily due to losses on derivatives, partially offset by loss on sale of assets in the prior year and income from transition services provided to the acquirer of our non-core businesses.

INCOME TAXES

The effective income tax rates for the nine months ended March 31, 2018 and 2017 were 27.5 percent and ~~2016 were~~ 45.9 percent, ~~(provision on income) and 28.0 percent (benefit on a loss),~~ respectively. The change ~~was~~is primarily driven by restructuring and related charges, ~~a favorable impact in the prior year quarter related~~and to a ~~U.S. provision to return adjustment that did not repeat~~lesser extent the net discrete tax charges recorded in the current year associated with TCJA and prior year U.S. loss not being tax-effected and current ~~year-to-date losses in~~year U.S. income being subject to tax as a result of the ~~U.S. that cannot be tax affected in~~aforementioned timing of release of the ~~current year, offset partially by a prior year asset impairment charge and a prior year loss on divestiture.~~valuation allowance.

BUSINESS SEGMENT REVIEW

We operate three reportable segments consisting of Industrial, Widia and Infrastructure. Expenses that are not allocated are reported in Corporate. Segment determination is based upon the manner in which we organize segments for making operating decisions and assessing performance and the availability of separate financial results.

~~Amounts for the three~~Our sales and ~~nine months ended March 31, 2016 for Industrial and Widia have been restated to reflect the change in reportable~~ operating ~~segments.~~income (loss) by segment are as follows:



	Three Months Ended March 31,						Nine Months Ended March 31,
(in thousands)	2018			2017			2018			2017
Sales:
Industrial	$	333,012		$	289,455		$	942,922		$	825,990
Widia	52,217			46,297			145,204			130,186
Infrastructure	222,707			192,878			633,608			537,167
Total sales	$	607,936		$	528,630		$	1,721,734		$	1,493,343
Operating income (loss):
Industrial	$	53,029		$	38,535		$	131,132		$	62,138
Widia	1,638			606			2,556			(7,797		)
Infrastructure	31,767			19,770			79,347			22,457
Corporate	(1,078		)	(999		)	(3,030		)	(4,084		)
Total operating income	85,356			57,912			210,005			72,714
Interest expense	7,468			7,331			21,848			21,475
Other expense, net	647			1,626			2,046			2,470
Income from continuing operations before income taxes	$	77,241		$	48,955		$	186,111		$	48,769

INDUSTRIAL



	Three Months Ended March 31,						Nine Months Ended March 31,
(in thousands, except operating margin)	2018			2017			2018			2017
Sales	$	333,012		$	289,455		$	942,922		$	825,990
Operating income	53,029			38,535			131,132			62,138
Operating margin	15.9		%	13.3		%	13.9		%	7.5		%

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

~~INDUSTRIAL~~

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2017 2016 2017 2016
Sales $ 289,455
$ 274,123
$ 825,990
$ 812,892
Operating income 38,535
26,371
62,138
59,855



	Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018

In percentages
Organic sales growth	10	%	11	%
Foreign currency exchange impact⁽¹⁾	8		4
Business days impact⁽²⁾	(3	)	(1	)
Divestiture impact⁽³⁾	—		—
Acquisition impact⁽⁴⁾	—		—
Sales growth	15	%	14	%



Regional Sales Growth:	As Reported				Constant Currency
	Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018		Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018
EMEA	22	%	17	%	7	%	8	%
Americas	12		11		12		10
Asia Pacific	7		14		—		11



End Market Sales Growth:	As Reported				Constant Currency
	Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018		Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018
Aerospace and defense	19	%	13	%	13	%	10	%
General engineering	15		13		7		8
Transportation	13		13		4		8
Energy	10		18		4		14

For the three ~~months~~months ended March 31, ~~2017,~~2018, Industrial sales increased 615 percent from the prior year quarter. General engineering sales experienced growth from the indirect channel in the Americas and EMEA as well as from the general engineering sector in both regions, while shipment disruptions in Asia Pacific in the prior year quarter ~~reflecting organic growth of 5 percent and a 3 percent increase~~yielded unusual patterns in sales that did not repeat. Transportation sales increased due to ~~more business days,~~growth to tier suppliers and OEMs in EMEA and the Americas, partially offset by 2 percent unfavorable currency exchange. Excluding the impact of currency exchange, sales increased approximately 18 percent in energy, 9 percent in general engineering, 6 percent in aerospace and defense and 3 percent in transportation. General engineering sales benefited from growth in the indirect channel, due in part to the strengthening of oil and gas in the U.S. and growth in the China automotive market. Oil and gas in the Americas likewise contributed to overall growth in energy, coupled with increases in power generation globally. Transportation experienced growth in Asia with tiered suppliers and truck OEMs which was tempered slightly by lower projectslowing car sales in ~~the Americas.~~China. Conditions continue to be favorable in the aerospace sector ~~with engine~~due to growth ~~being supplemented by increasing demand~~in sales in the Americas related to ~~frames.On a segment regional basis excluding the impact of currency exchange, sales increased 17 percent in Asia, 6 percent in Europe~~engines and ~~4 percent~~frames. Oil and gas sales in the ~~Americas.~~Americas continue to provide growth in energy. The sales increase in ~~Asia~~the Americas was primarily driven by the ~~transportation,~~performance in the aerospace and defense, general engineering, ~~aerospace and defense~~transportation and energy end markets. The sales increase in ~~Europe~~EMEA was primarily driven by the performance in the general engineering ~~aerospace and defense~~ and transportation end markets. Sales were relatively flat in Asia Pacific transportation and general engineering.

For the three months ended March 31, 2018, Industrial operating income increased by $14.5 million, driven primarily by organic sales growth, incremental restructuring benefits of approximately $7 million, $4.1 million less restructuring and related charges in the current quarter and favorable currency exchange impact, partially offset by decreased manufacturing efficiency in part due to modernization efforts in progress, higher variable compensation expense due to higher than expected operating results and salary inflation. Industrial operating margin was 15.9 percent compared with 13.3 percent in the prior year quarter.

For the nine months ended March 31, 2018, Industrial sales increased 14 percent from the prior year period. General engineering sales experienced growth from the indirect channel across all regions as well as positive performance in the light and general engineering sector in EMEA and the Americas. Transportation sales to tier suppliers globally increased in the period, as well as to OEMs in EMEA and Asia Pacific. These increases were partially offset by lower sales to OEMs in the Americas. Oil and gas sales in the Americas continue to provide overall growth in energy in addition to increases in global renewable power generation sales. Conditions continue to be favorable in the aerospace sector due to growth in engine sales in the Americas and Asia Pacific supplemented by increasing demand related to frames in the Americas. The sales increases in Asia Pacific and EMEA were primarily driven by the performance in the transportation and general engineering end markets. The sales increase in the Americas was primarily driven by the performance in the general engineering, ~~and~~ energy, ~~end markets, partially offset by decreases in the transportation and aerospace and defense end markets.~~

For the three months ended March 31, 2017, Industrial operating income increased by $12.2 million, driven primarily by incremental restructuring benefits of approximately $11 million, organic sales growth, higher absorption and productivity and $2.9 million less restructuring and related charges, partially offset by higher performance-based compensation, a prior year adjustment to the estimated loss on divestiture that resulted in a gain of $3.7 million and unfavorable mix. Industrial operating margin was 13.3 percent compared with 9.6 percent in the prior year.

For the nine months ended March 31, 2017, Industrial sales increased 2 percent from the same period last year, reflecting organic growth of 4 percent, offset partially by unfavorable currency exchange of 2 percent. Excluding the impact of currency exchange and divestiture, sales increased 7 percent in general engineering, 6 percent in aerospace and defense and 1 percent in transportation, while energy remained flat. Activity in the aerospace sector remains elevated with sales growing globally. General engineering sales have benefited from stability in indirect channel stock levels, offsetting the general industrial weakness caused by the decline in the energy sector. The transportation market was mixed with more projects contributing to higher sales in Asia, partially offset by less favorable conditions in Europe and Americas. On a segment regional basis excluding the impact of divestiture and currency exchange, sales increased 10 percent in Asia, 4 percent in the Americas and 1 percent in Europe. The sales increase in Asia was primarily driven by the transportation and general engineering end markets and to a lesser extent the aerospace and defense end market. The sales increase in the Americas was primarily driven by the performance in the general engineering end market and to a lesser extent the energy end market, partially offset by a decrease in the transportation end market. The sales increase in Europe was primarily driven by the performance in the aerospace and defense and general engineering end markets, offset partially by a decrease in the transportation end market.

For the nine months ended March 31, 2017, Industrial operating income increased by $2.3 million, driven primarily by $24 million incremental restructuring benefits, organic sales growth, higher absorption and productivity and a $3.6 million loss on divestiture in the prior period, partially offset by $12.3 million higher restructuring and related charges, unfavorable currency exchange and unfavorable mix. Industrial operating margin was 7.5 percent compared with 7.4 percent in the prior year.

markets.

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~~WIDIA~~

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2017
2016 2017 2016
Sales $ 46,297
$ 42,249
$ 130,186
$ 127,696
Operating income (loss) 606
(1,679 ) (7,797 ) (8,053 )

For the three months ended March 31, 2017, Widia sales increased 10 percent from the prior year quarter, driven by organic growth of 9 percent and a 1 percent increase due to more business days. On a segment regional basis excluding the impact of currency exchange, sales increased 14 percent in Asia, 11 percent in the Americas and 3 percent in Europe.

For the three months ended March 31, 2017, Widia operating income was $0.6 million compared to a $1.7 million loss for the prior year period. The year-over-year change of $2.3 million was driven primarily by organic sales growth and incremental restructuring benefits of approximately $2 million. Widia operating income margin was 1.3 percent compared with operating loss margin of 4.0 percent in the prior year.

For the nine months ended March 31, 2017, Widia segment sales increased by 2 percent from the same period last year, due to organic growth of 4 percent, offset partially by an unfavorable business days impact of 1 percent and unfavorable currency exchange of 1 percent. On a segment regional basis excluding the impact of currency exchange, sales increased 12 percent in Asia, offset partially by a decrease of 3 percent in Europe, while sales in the Americas remained flat.

For the nine months ended March 31, 2017, Widia operating loss was $7.8 million compared to $8.1 million for the prior year period. Operating loss decreased by $0.3 million, driven primarily by incremental restructuring benefits of approximately $4 million, a prior period other intangible asset impairment charge of $2.3 million, lower raw material costs, higher absorption and productivity and organic sales growth, offset by $2.8 million higher restructuring and related charges and unfavorable mix. Widia operating loss margin was 6.0 percent compared with 6.3 percent in the prior year.

~~INFRASTRUCTURE~~

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2017 2016 2017 2016
Sales $ 192,878
$ 181,465
$ 537,167
$ 636,624
Operating income (loss) 19,770
3,748
22,457
(242,417 )

For the three months ended March 31, 2017, Infrastructure sales increased by 6 percent from the prior year quarter, reflecting organic growth of 4 percent and a 2 percent increase due to more business days. Excluding the impact of currency exchange, sales increased by approximately 22 percent in energy, 3 percent in earthworks and 1 percent in general engineering. Key energy markets, particularly in North America, showed strong growth during the quarter with average quarterly land U.S. rig counts up 37 percent year-over-year. On a segment regional basis excluding the impact of currency exchange, sales increased 12 percent in Asia and 6 percent in the Americas, while Europe remained flat. The sales increase in Asia was driven primarily by the performance in the earthworks and general engineering end markets. The sales increase in the Americas was primarily driven by performance in the energy and earthworks end markets. Flat sales in Europe reflect an increase in the energy end market, offset by a decrease in the earthworks end market.

For the three months ended March 31, 2017, Infrastructure operating income increased by $16.0 million, driven primarily by incremental restructuring program benefits of approximately $8 million, higher absorption and productivity, favorable mix, a prior period $1.1 million loss on divestiture and $0.7 million lower restructuring and related charges in the current period, offset partially by higher raw material costs in the current period. Infrastructure operating margin was 10.3 percent compared with 2.1 percent in the prior year.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine months ended March 31, ~~2017, Infrastructure sales decreased~~2018, Industrial operating income increased by 16 percent, reflecting a 12 percent decline due to divestiture, a 3 percent organic sales decline and a 1 percent unfavorable currency exchange impact. Excluding the impact of currency exchange and divestiture, sales decreased by approximately 10 percent in earthworks and 2 percent in general engineering, offset partially by an increase of approximately 7 percent in energy. Key energy markets, particularly in North America, have continued to stabilize during the year. U.S. rig counts have increased steadily from fiscal 2016 year-end lower levels. Oil and gas sales in the Americas have increased year-over-year by 19 percent compared to the prior year. Conditions in underground mining in North America were impacted by challenges in the first half of the year and sales have declined by 17 percent compared to the prior year. On a segment regional basis excluding the impact of divestiture and currency exchange, sales decreased 4 percent in Europe, 3 percent in the Americas and 1 percent in Asia. The sales decrease in Europe was$69.0 million, driven primarily by ~~a decrease in earthworks, partially offset by an increase in energy. The~~organic sales decrease in the Americas was primarily driven by decreases in the earthworks and general engineering end markets, offset partially by an increase in the energy end market. The sales decrease in Asia was driven primarily by the performance in the earthworks end market, offset partially by increases in the general engineering end market, and to a lesser extent increases in the energy end market.

For the nine months ended March 31, 2017, Infrastructure operating income was $22.5 million compared to operating loss of $242.4 million for the prior year period. The change in operating results is due primarily to a prior period $127.2 million loss on divestiture, prior period goodwill and other intangible asset impairment charges of $106.1 million, lower raw material costs, higher productivity,growth, incremental restructuring ~~program~~ benefits of approximately ~~$17~~$31 million, ~~and divestiture impact of $1.9~~$24.7 million ~~offset partially by lower organic sales, $5.6 million more~~less restructuring and related charges in the current period and favorable currency exchange impact, partially offset by higher variable compensation expense and salary inflation, decreased manufacturing efficiency in part due to modernization efforts in progress, and unfavorable mix. ~~Infrastructure~~Industrial operating ~~income~~ margin was ~~4.2~~13.9 percent compared with ~~operating loss margin of 38.1~~7.5 percent in the prior ~~year.~~year period.

~~CORPORATE~~WIDIA


	Three Months Ended March 31,						Nine Months Ended December 31,						Three Months Ended March 31,						Nine Months Ended March 31,
(in thousands)	2017			2016			2016			2016			2018			2017			2018			2017
Corporate unallocated expense	$	(999	)	$	(1,105	)	$	(4,084	)	$	(9,391	)
Sales													$	52,217		$	46,297		$	145,204		$	130,186
Operating income (loss)													1,638			606			2,556			(7,797		)
Operating margin													3.1		%	1.3		%	1.8		%	(6.0		)%



	Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018

In percentages
Organic sales growth	9	%	9	%
Foreign currency exchange impact⁽¹⁾	5		3
Business days impact⁽²⁾	(1	)	—
Divestiture impact⁽³⁾	—		—
Acquisition impact⁽⁴⁾	—		—
Sales growth	13	%	12	%



Regional Sales Growth:	As Reported				Constant Currency
	Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018		Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018
EMEA	25	%	23	%	14	%	16	%
Asia Pacific	22		13		15		9
Americas	2		5		1		5

For the three months ended March 31, ~~2017, Corporate unallocated expense decreased $0.1~~2018, Widia sales increased 13 percent from the prior year quarter. Excluding the effects of currency exchange, strong sales in Asia Pacific were mainly driven by China and India, followed by EMEA growth due primarily to increases in Eastern Europe and Germany. Demand in the Americas was strong. However, a large order in the prior year quarter did not repeat this year. Thus, sales growth was lower in the Americas relative to the other regions.

For the three months ended March 31, 2018, Widia operating income increased by $1.0 million ~~or 9.6~~driven primarily by organic sales growth and $0.4 million less restructuring and related charges in the current quarter, partially offset by slightly unfavorable mix. Widia operating income margin was 3.1 percent ~~from~~compared with 1.3 percent in the prior year quarter.

For the nine months ended March 31, ~~2017,~~2018, Widia sales increased 12 percent from the prior year period. Sales growth in EMEA was broad-based, while sales growth in Asia Pacific was primarily driven by China and India.

For the nine months ended March 31, 2018, Widia operating income was $2.6 million compared to an operating loss of $7.8 million for the prior year period. The year-over-year change of $10.4 million was driven primarily by organic sales growth, $4.5 million less restructuring and related charges and incremental restructuring benefits of approximately $2 million. Widia operating income margin was 1.8 percent compared with operating loss margin of 6.0 percent in the prior year period.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

INFRASTRUCTURE



	Three Months Ended March 31,						Nine Months Ended March 31,
(in thousands)	2018			2017			2018			2017
Sales	$	222,707		$	192,878		$	633,608		$	537,167
Operating income	31,767			19,770			79,347			22,457
Operating margin	14.3		%	10.3		%	12.5		%	4.2		%



	Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018

In percentages
Organic sales growth	14	%	17	%
Foreign currency exchange impact⁽¹⁾	3		2
Business days impact⁽²⁾	(2	)	(1	)
Divestiture impact⁽³⁾	—		—
Acquisition impact⁽⁴⁾	—		—
Sales growth	15	%	18	%



Regional Sales Growth:	As Reported				Constant Currency
	Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018		Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018
Asia Pacific	26	%	25	%	19	%	21	%
Americas	15		18		14		18
EMEA	8		10		(5	)	1



End Market Sales Growth:	As Reported				Constant Currency
	Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018		Three Months Ended March 31, 2018		Nine Months Ended March 31, 2018
General engineering	21	%	18	%	16	%	15	%
Energy	16		23		14		21
Earthworks	9		12		4		9

For the three months ended March 31, 2018, Infrastructure sales increased by 15 percent from the prior year quarter. Infrastructure saw strength in many end markets during the current quarter. Favorability in general engineering is driven primarily by overall more robust activity in the general economy, particularly in the Americas. Additionally, increases in process industries and oil and gas activity in the U.S. yielded strong growth in the energy end market. Growth in earthworks was driven primarily by mining in Asia Pacific, partially offset by softness in mining in EMEA. The sales increase in Asia Pacific was driven primarily by the performance in the earthworks and general engineering end markets, while growth in the Americas was primarily driven by the general engineering and energy end markets. Excluding the favorable impacts of currency exchange, the sales decrease in EMEA was driven by a decline in performance in earthworks. This is mainly due to the anticipation of labor disruptions in South Africa that did not occur, yet still affected underground mining in the region. Also contributing to the sales decrease in EMEA is declines in general engineering, partially offset by growth in energy.

For the three months ended March 31, 2018, Infrastructure operating income increased by $12.0 million driven primarily by organic sales growth, favorable mix, $3.3 million less restructuring and related charges in the current quarter and incremental restructuring benefits of approximately $3 million, partially offset by higher raw material costs, decreased manufacturing efficiency in part due to modernization efforts in progress and higher compensation expense. Infrastructure operating margin was 14.3 percent compared with 10.3 percent in the prior year quarter.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

For the nine months ended March 31, 2018, Infrastructure sales increased by 18 percent from the prior year period. On a year-to-date basis, Infrastructure saw improvements in all end markets, including underground mining and construction. Year-over-year growth in energy was strong with an increase in rig count activity and increased power generation activity. Strong growth in general engineering is driven primarily by overall more robust activity in the general economy, particularly in the Americas. The sales increase in Asia Pacific was driven primarily by the performance in the earthworks and general engineering end markets. Growth in the Americas was driven by the performance in all three end markets: energy, general engineering and earthworks.

For the nine months ended March 31, 2018, Infrastructure operating income increased by $56.9 million driven primarily by organic sales growth, favorable mix, incremental restructuring benefits of approximately $17 million and $13.8 million less restructuring and related charges in the current period, partially offset by higher raw material costs, compensation expense and overtime costs. Infrastructure operating margin was 12.5 percent compared with 4.2 percent in the prior year period.

CORPORATE



	Three Months Ended March 31,						Nine Months Ended March 31,
(in thousands)	2018			2017			2018			2017
Corporate unallocated expense	$	(1,078	)	$	(999	)	$	(3,030	)	$	(4,084	)

For the three months ended March 31, 2018, Corporate unallocated expense decreased ~~$5.3~~$0.1 million, or ~~56.5~~7.9 percent, ~~primarily due to $5.6~~from the prior year quarter. For the nine months ended March 31, 2018, Corporate unallocated expense decreased $1.1 million, ~~lower restructuring-related charges in~~or 25.8 percent, from the ~~current~~prior year period.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations is the primary source of funding for capital ~~expenditures and internal growth.~~expenditures. Year to date March 31, ~~2017~~2018 cash flow provided by operating activities was $~~80.0~~180.6 million, primarily ~~driven by cash earnings,~~due to the net inflow from net income with adjustments for non-cash items, partially offset by ~~increases in primary working capital and by~~a net ~~outflows~~outflow from changes in other assets and liabilities.

Our five-year, multi-currency, revolving credit facility, as amended and restated in April 2016 (Credit Agreement), is used to augment cash from operations and is an additional source of funds. The Credit Agreement ~~permits~~provides for revolving credit loans of up to $600.0 million for working capital, capital expenditures and general corporate purposes. The Credit Agreement allows for borrowings in U.S. dollars, euro, Canadian dollars, pound sterling and Japanese yen. Interest payable under the Credit Agreement is based upon the type of borrowing under the facility and may be (1) LIBOR plus an applicable margin, (2) the greater of the prime rate or the Federal Funds effective rate plus an applicable margin, or (3) fixed as negotiated by us. The Credit Agreement matures in April 2021. We had no borrowings outstanding onunder our Credit Agreement as of March 31, ~~2017.~~2018.

The Credit Agreement requires us to comply with various restrictive and affirmative covenants, including two financial covenants: a maximum leverage ratio and a minimum consolidated interest coverage ratio (as those terms are defined in the ~~agreement)~~Credit Agreement). We were in compliance with all such covenants as of March 31, ~~2017.~~2018. For the nine months ended March 31, ~~2017,~~2018, average daily borrowings outstanding under the Credit Agreement were approximately ~~$29.1~~$1.3 million. Borrowings under the Credit Agreement are guaranteed by our significant domestic subsidiaries.

We consider substantially all of the unremitted earnings of our non-U.S. subsidiaries that have not previously been taxed in the U.S. to be permanently reinvested. As a result of TCJA, which among other provisions allows for a 100% dividends received deduction from controlled foreign subsidiaries, we will re-evaluate our assertion with respect to permanent reinvestment. As part of this evaluation, we will consider our global working capital and capital investment requirements, among other considerations including the potential tax liabilities that would be incurred if the non-U.S. subsidiaries distribute cash to the U.S. parent. If we determine that an entity should no longer remain subject to the permanent reinvestment assertion, we will accrue additional tax charges, including but not limited to state income taxes, withholding taxes and other relevant foreign taxes in the period the conclusion is determined. In accordance with SEC guidance in Staff Accounting Bulletin 118, we expect to complete our evaluation by December 22, 2018. We have not, nor do we anticipate the need to, repatriate funds to the U.S. to satisfy domestic liquidity needs arising in the ordinary course of business or associated with our domestic debt service requirements.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

~~We consider~~During the ~~unremitted earnings of our non-U.S. subsidiaries that have not previously been taxed in~~three months ended December 31, 2017, we estimated the ~~U.S.~~toll tax charge to be ~~permanently reinvested. As~~$77 million after available foreign tax credits. We recorded an adjustment to this estimate during the three months ended March 31, 2018, primarily related to consideration of Internal Revenue Service notices issued during the March quarter. The adjustment resulted in an additional $6 million of expense, increasing the total estimated toll tax charge to $83 million as of March 31, ~~2017, cash and cash equivalents of $42.8 million and short-term intercompany advances made by~~2018. The toll tax charge consumed our ~~foreign subsidiaries to our U.S. parent of $18.5 million would not be available for use in the U.S. on a long-term basis without incurring~~entire U.S. federal net operating loss carryforward and ~~state income~~other credit carryforwards, which represent a significant portion of our previously available deferred tax ~~consequences. We have not, nor do we anticipate~~assets, and was offset by the ~~need to, repatriate funds to~~release of the ~~U.S. to satisfy domestic liquidity needs arising in the ordinary course of business or~~valuation allowance associated with these assets. As a result of the March quarter adjustment, we estimate a cash payment of $6.4 million associated with the toll charge which will be paid over eight years, of which $5.9 million is classified as long-term accrued income taxes in our ~~domestic debt service requirements.~~condensed consolidated balance sheet as of March 31, 2018. The toll tax charge is preliminary, and subject to finalization of collecting all information, applying any additional regulatory guidance issued after March 31, 2018, considering changes in interpretations and assumptions and analyzing the calculation, along with foreign taxes and the related gross-up, in reasonable detail to complete the accounting.

At March 31, ~~2017,~~2018, cash and cash equivalents were ~~$100.8~~$221.9 million, ~~total debt, including notes payable, was $696.2 million and total~~Total Kennametal Shareholders' equity was ~~$946.0~~$1,187.3 million and total debt was $697.5 million. Our current senior credit ratings are at investment grade levels. We believe that our current financial position, liquidity and credit ratings provide access to the capital markets. We believe that we have sufficient resources available to meet cash requirements for the next 12 months. We continue to closely monitor our liquidity position and the condition of the capital markets, as well as the counterparty risk of our credit providers.

There have been no material changes in our contractual obligations and commitments since June 30, ~~2016.~~2017.

Cash Flow Provided by Operating Activities

During the nine months ended March 31, ~~2017,~~2018, cash flow provided by operating activities was ~~$80.0~~$180.6 million, compared to ~~$145.4~~$82.8 million for the prior year period. Cash flow provided by operating activities for the current year period consisted of net income and non-cash items amounting to an inflow of $246.7 million and changes in certain assets and liabilities netting to an outflow of $66.1 million. Contributing to the changes in certain assets and liabilities were an increase in inventories of $32.9 million due in part to increasing volumes, a decrease in accrued pension and postretirement benefits of $20.0 million, a decrease in accounts payable and accrued liabilities of $15.7 million and an increase in accounts receivable of $14.8 million due in part to increasing volumes. Partially offsetting these cash outflows was an increase in accrued income taxes of $20.2 million.

During the nine months ended March 31, 2017, cash flow provided by operating activities consisted of net income and non-cash items amounting to an inflow of $124.5 million and changes in certain assets and liabilities netting to an outflow of ~~$44.5~~$41.7 million. Contributing to the changes in certain assets and liabilities were an increase in inventories of $38.1 million, a decrease in accrued pension and postretirement benefits of $18.8 million and an increase in accounts receivable of $12.7 million. Partially offsetting these cash outflows was a net increase of accounts payable and accrued liabilities of ~~$25.8~~$28.6 million. The increases in inventories, accounts payable and accounts receivable iswas due in part to higher demand trends in most of our end markets.

During the nine months ended March 31, 2016, cash flow provided by operating activities for the period consisted of net loss and non-cash items amounting to an inflow of $104.0 million, and by changes in certain assets and liabilities netting to an inflow of $41.4 million. Contributing to the changes in certain assets and liabilities were a decrease in accounts receivable of $44.1 million due to lower sales volume and a decrease in inventory of $47.8 million due to our continued focus on working capital management. Offsetting these cash inflows were a decrease of accounts payable and accrued liabilities of $16.2 million primarily driven by lower restructuring liabilities and accrued compensation, partially offset by an increase in accounts payable due to lower volumes and our continued focus on working capital management; a decrease in accrued pension and postretirement benefits of $22.9 million primarily due to payments to previous executives; and a decrease of accrued income taxes of $13.0 million primarily driven by payment of a capital gains tax related to a prior period tax reorganization.

Cash Flow Used for Investing Activities

Cash flow used for investing activities was $~~90.1~~125.8 million for the nine months ended March 31, ~~2017,~~2018, compared to $~~16.2~~90.1 million infor the prior year period. During the current year period, cash flow used for investing activities included capital expenditures, net of ~~$90.2~~$126.1 million, which consisted primarily of equipment ~~upgrades.~~upgrades and modernization initiatives.

For the nine months ended March 31, ~~2016,~~2017, cash flow used for investing activities included capital expenditures, net of ~~$78.2~~$90.2 million, which consisted primarily of equipment upgrades. ~~These capital expenditures were partially offset by $61.1 million of proceeds from the sale of non-core businesses.~~

Cash Flow Used for Financing Activities

Cash flow used for financing activities was $~~47.8~~31.3 million for the nine months ended March 31, ~~2017~~2018 compared to $~~94.7~~50.6 million in the prior year period. During the current year period, cash flow used for financing activities included $48.8 million of cash dividends paid to Shareholders, partially offset by $17.5 million of dividend reinvestment and the effect of employee benefit and stock plans.

For the nine months ended March 31, 2017, cash flow used for financing activities included $48.0 million of cash dividends paid to Shareholders and a $6.4 million payment on the remaining contingent consideration related to a prior acquisition. These cash outflows were partially offset by ~~$7.1 million of dividend reinvestment and the effect of employee benefit and stock plans.~~

For the nine months ended March 31, 2016, cash flow used for financing activities primarily included $48.4 million net decrease in borrowings and $47.8 million of cash dividends paid to Shareholders. These cash flows were partially offset by $1.7$4.3 million of dividend reinvestment and the effect of employee benefit and stock plans.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

FINANCIAL CONDITION

Working capital was $~~616.2~~762.8 million at March 31, ~~2017, a decrease~~2018, an increase of $~~31.8~~110.4 million from ~~$648.1~~$652.4 million at June 30, ~~2016.~~2017. The ~~decrease~~increase in working capital was primarily driven by ~~a decrease~~an increase in inventories of $49.5 million due primarily to increasing demand and cost inflation, an increase in cash and cash equivalents of ~~$60.8~~$31.3 million, an increase in accounts receivable of $30.1 million due in part to increasing volumes, a decrease in ~~deferred income taxes~~other current liabilities of ~~$26.7~~$12.6 million primarily due to ~~the impact of prospective adoption of a new accounting standard requiring all deferred tax assets and liabilities to be classified as long-term and~~ a decrease in ~~accounts payable of $8.8 million as a result of increasing volumes. Partially offsetting these items were an increase in inventories of $31.4 million,~~the restructuring accrual and an increase in other current assets of ~~$17.8~~$10.8 million due in part to reclassification of tax assets from deferred income taxes to other current assets related to an out of period adjustment. Partially offsetting these items was an increase in accrued income taxes of $21.1 million due primarily to ~~the reclassification of $14 million prepaid taxes from noncurrent to current as we expect to receive a refund~~increased taxable income in the next 12 months, a decrease in other current liabilities of $11.7 million due primarily to the payment to relieve the remaining contingent consideration related to a prior year acquisition lower accrued compensation and an increase in accounts receivable of $6.0 million due to increasing volumes.taxpaying jurisdictions. Currency exchange rate effects ~~decreased~~increased working capital inby a total ~~by $10.3~~of $26.5 million, the impact of which is included in the aforementioned changes.

Property, plant and equipment, net ~~decreased $1.8~~increased $60.6 million from ~~$730.6~~$744.4 million at June 30, ~~2016~~2017 to ~~$728.8~~$805.0 million at March 31, ~~2017,~~2018, primarily due to ~~depreciation expense~~capital additions of ~~$68.4~~$116.8 million and a ~~negative~~positive currency exchange impact of ~~$7.9~~$18.7 million during the current period and disposals of $3.9 million. These decreases are partially offset by capital expenditures of $94.1 million, which includes $15.4 million change in accounts payable related to purchases of property, plant and equipment.

At March 31, 2017, other assets were $562.9 million, an increase of $6.1 million from $556.8 million at June 30, 2016. The primary driver for the increase was an increase in deferred income taxes of $20.0 million due in part to the impact of prospective adoption of a new accounting standard requiring all deferred tax assets and liabilities to be classified as long-term.period. This increase was partially offset by ~~a $14.1~~depreciation expense of $70.0 million, impairment related to restructuring programs of $3.1 million and disposals of $2.2 million.

At March 31, 2018, other assets were $572.3 million, an increase of $15.1 million from $557.2 million at June 30, 2017. The primary drivers for the increase were an increase in other assets of $28.2 million primarily due to an increase in pension plan assets and an increase in goodwill of $8.1 million due to favorable currency exchange effects. This increase was partially offset by an $8.9 million decrease in other intangible assets, which was due to amortization expense of ~~$12.7~~$11.0 million ~~and unfavorable~~partially offset by favorable currency exchange effects of ~~$1.4~~$2.1 million, and a ~~$4.2~~$6.2 million decrease in ~~goodwill~~deferred income taxes primarily due to ~~currency exchange effects.~~out of period adjustment related to tax assets recorded on intra-entity inventory transfers, partially offset by release of the valuation allowance on U.S. deferred tax assets.

Long-term debt and capital leases increased by $1.1 million to ~~$694.6~~$696.1 million at March 31, ~~2017~~2018 from ~~$693.5~~$695.0 million at June 30, ~~2016.~~2017.

Kennametal Shareholders' equity was ~~$946.0~~$1,187.3 million at March 31, ~~2017, a decrease~~2018, an increase of ~~$18.4~~$170.0 million from ~~$964.3~~$1,017.3 million at June 30, ~~2016.~~2017. The ~~decrease~~increase was primarily due to ~~cash dividends paid to Shareholders of $48.0 million and unfavorable currency exchange of $26.5 million, partially offset by~~ net income attributable to Kennametal of ~~$24.5~~$131.7 million, favorable currency exchange of $52.6 million and capital stock issued under employee benefit and stock plans of ~~$21.4~~$33.6 million, ~~reclassification~~partially offset by cash dividends paid to Shareholders of ~~net pension and other postretirement benefit loss of $5.4 million and unrecognized net pension and other postretirement benefit gain of $3.4~~$48.8 million.

ENVIRONMENTAL MATTERS

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The reserves we have established for environmental liabilities represent our best current estimate of the costs of addressing all identified environmental situations, based on our review of currently available evidence, and taking into consideration our prior experience in remediation and that of other companies, as well as public information released by the USEPA, other governmental agencies, and by the PRP groups in which we are participating. Although the reserves currently appear to be sufficient to cover these environmental liabilities, there are uncertainties associated with environmental liabilities, and we can give no assurance that our estimate of any environmental liability will not increase or decrease in the future. The reserved and unreserved liabilities for all environmental concerns could change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, technological changes, discovery of new information, the financial strength of other PRPs, the identification of new PRPs and the involvement of and direction taken by the government on these matters.

We maintain a Corporate Environmental Health and Safety (EHS) Department, to monitor compliance with environmental regulations and to oversee remediation activities. In addition, we have designated EHS ~~coordinators~~analysts who are responsible for each of our global manufacturing facilities. Our financial management team periodically meets with members of the Corporate EHS Department and the Corporate Legal Department to review and evaluate the status of environmental projects and contingencies. On a quarterly basis, we review financial provisions and reserves for environmental contingencies and adjust these reserves when appropriate.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

Effective July 1, 2017 with the adoption of new Financial Accounting Standards Board (FASB) guidance on subsequent measurement of inventory, non-LIFO inventories are now stated at the lower of cost or net realizable value. LIFO inventories continue to be stated at the lower of cost or market.

There have been no other changes to our critical accounting policies since June 30, ~~2016.~~2017.

NEW ACCOUNTING STANDARDS

See Note 3 to our condensed consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of new accounting standards.

RECONCILIATION OF FINANCIAL MEASURES NOT DEFINED BY U.S. GAAP In accordance with the SEC's Regulation G, the following provides definitions of the non-GAAP financial measures we use in this report and the reconciliation to the most closely related GAAP financial measure. We believe that these measures provide useful perspective on underlying business trends and results and provide a supplemental measure of year-over-year results. The non-GAAP financial measures described below are used by management in making operating decisions, allocating financial resources and for business strategy purposes. These measures may be useful to investors as they provide supplemental information about business performance and provide investors a view of our business results through the eyes of management. These non-GAAP financial measures are not intended to be considered by the user in place of the related GAAP financial measure, but rather as supplemental information to our business results. These non-GAAP financial measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted.

Organic sales growth Organic sales growth is a non-GAAP financial measure of sales growth (which is the most directly comparable GAAP measure) excluding the impacts of acquisitions, divestitures, business days and foreign currency exchange from year-over-year comparisons. We believe this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis. Also, we report organic sales growth at the consolidated and segment levels.

Constant currency end market sales growth Constant currency end market sales growth is a non-GAAP financial measure of sales growth (which is the most directly comparable GAAP measure) by end market excluding the impacts of acquisitions, divestitures and foreign currency exchange from year-over-year comparisons. We note that, unlike organic sales growth, constant currency end market sales growth does not exclude the impact of business days. We believe this measure provides investors with a supplemental understanding of underlying end market trends by providing end market sales growth on a consistent basis. Also, we report constant currency end market sales growth at the consolidated and segment levels. Widia sales are reported only in the general engineering end market. Therefore, we do not provide constant currency end market sales growth for the Widia segment and, thus, do not include a reconciliation for that metric.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Constant currency regional sales growth (decline) Constant currency regional sales growth (decline) is a non-GAAP financial measure of sales growth (which is the most directly comparable GAAP measure) by region excluding the impacts of acquisitions, divestitures and foreign currency exchange from year-over-year comparisons. We note that, unlike organic sales growth, constant currency regional sales growth (decline) does not exclude the impact of business days. We believe this measure provides investors with a supplemental understanding of underlying regional trends by providing regional sales growth on a consistent basis. Also, we report constant currency regional sales growth (decline) at the consolidated and segment levels.

Reconciliations of organic sales growth to sales growth are as follows:



Three Months Ended March 31, 2018	Industrial	Widia	Infrastructure	Total
Organic sales growth	10%	9%	14%	11%
Foreign currency exchange impact⁽¹⁾	8	5	3	6
Business days impact⁽²⁾	(3)	(1)	(2)	(2)
Divestiture impact⁽³⁾	—	—	—	—
Acquisition impact⁽⁴⁾	—	—	—	—
Sales growth	15%	13%	15%	15%



Nine Months Ended March 31, 2018	Industrial	Widia	Infrastructure	Total
Organic sales growth	11%	9%	17%	13%
Foreign currency exchange impact⁽¹⁾	4	3	2	3
Business days impact⁽²⁾	(1)	—	(1)	(1)
Divestiture impact⁽³⁾	—	—	—	—
Acquisition impact⁽⁴⁾	—	—	—	—
Sales growth	14%	12%	18%	15%

Reconciliations of constant currency end market sales growth to end market sales growth⁽⁵⁾, are as follows:



Industrial
Three Months Ended March 31, 2018	General engineering	Transportation	Aerospace and defense	Energy
Constant currency end market sales growth	7%	4%	13%	4%
Foreign currency exchange impact⁽¹⁾	8	9	6	6
Divestiture impact⁽³⁾	—	—	—	—
Acquisition impact⁽⁴⁾	—	—	—	—
End market sales growth⁽⁵⁾	15%	13%	19%	10%

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)



Infrastructure
Three Months Ended March 31, 2018	Energy	Earthworks	General engineering
Constant currency end market sales growth	14%	4%	16%
Foreign currency exchange impact⁽¹⁾	2	5	5
Divestiture impact⁽³⁾	—	—	—
Acquisition impact⁽⁴⁾	—	—	—
End market sales growth⁽⁵⁾	16%	9%	21%



Total
Three Months Ended March 31, 2018	General engineering	Transportation	Aerospace and defense	Energy	Earthworks
Constant currency end market sales growth	10%	4%	17%	11%	5%
Foreign currency exchange impact⁽¹⁾	6	9	6	3	5
Divestiture impact⁽³⁾	—	—	—	—	—
Acquisition impact⁽⁴⁾	—	—	—	—	—
End market sales growth⁽⁵⁾	16%	13%	23%	14%	10%



Industrial
Nine Months Ended March 31, 2018	General engineering	Transportation	Aerospace and defense	Energy
Constant currency end market sales growth	8%	8%	10%	14%
Foreign currency exchange impact⁽¹⁾	5	5	3	4
Divestiture impact⁽³⁾	—	—	—	—
Acquisition impact⁽⁴⁾	—	—	—	—
End market sales growth⁽⁵⁾	13%	13%	13%	18%



Infrastructure
Nine Months Ended March 31, 2018	Energy	Earthworks	General engineering
Constant currency end market sales growth	21%	9%	15%
Foreign currency exchange impact⁽¹⁾	2	3	3
Divestiture impact⁽³⁾	—	—	—
Acquisition impact⁽⁴⁾	—	—	—
End market sales growth⁽⁵⁾	23%	12%	18%



Total
Nine Months Ended March 31, 2018	General engineering	Transportation	Aerospace and defense	Energy	Earthworks
Constant currency end market sales growth	10%	8%	11%	19%	9%
Foreign currency exchange impact⁽¹⁾	4	5	4	3	4
Divestiture impact⁽³⁾	—	—	—	—	—
Acquisition impact⁽⁴⁾	—	—	—	—	—
End market sales growth⁽⁵⁾	14%	13%	15%	22%	13%

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Reconciliations of constant currency regional sales growth (decline) to reported regional sales growth⁽⁶⁾, are as follows:



Industrial	Three Months Ended March 31, 2018			Nine Months Ended March 31, 2018
	Americas	EMEA	Asia Pacific	Americas	EMEA	Asia Pacific
Constant currency regional sales growth	12%	7%	—%	10%	8%	11%
Foreign currency exchange impact⁽¹⁾	—	15	7	1	9	3
Divestiture impact⁽³⁾	—	—	—	—	—	—
Acquisition impact⁽⁴⁾	—	—	—	—	—	—
Regional sales growth⁽⁶⁾	12%	22%	7%	11%	17%	14%



Widia	Three Months Ended March 31, 2018			Nine Months Ended March 31, 2018
	Americas	EMEA	Asia Pacific	Americas	EMEA	Asia Pacific
Constant currency regional sales growth	1%	14%	15%	5%	16%	9%
Foreign currency exchange impact⁽¹⁾	1	11	7	—	7	4
Divestiture impact⁽³⁾	—	—	—	—	—	—
Acquisition impact⁽⁴⁾	—	—	—	—	—	—
Regional sales growth⁽⁶⁾	2%	25%	22%	5%	23%	13%



Infrastructure	Three Months Ended March 31, 2018			Nine Months Ended March 31, 2018
	Americas	EMEA	Asia Pacific	Americas	EMEA	Asia Pacific
Constant currency regional sales growth (decline)	14%	(5)%	19%	18%	1%	21%
Foreign currency exchange impact⁽¹⁾	1	13	7	—	9	4
Divestiture impact⁽³⁾	—	—	—	—	—	—
Acquisition impact⁽⁴⁾	—	—	—	—	—	—
Regional sales growth⁽⁶⁾	15%	8%	26%	18%	10%	25%



Total	Three Months Ended March 31, 2018			Nine Months Ended March 31, 2018
	Americas	EMEA	Asia Pacific	Americas	EMEA	Asia Pacific
Constant currency regional sales growth	12%	5%	8%	14%	7%	14%
Foreign currency exchange impact⁽¹⁾	1	14	7	—	9	4
Divestiture impact⁽³⁾	—	—	—	—	—	—
Acquisition impact⁽⁴⁾	—	—	—	—	—	—
Regional sales growth⁽⁶⁾	13%	19%	15%	14%	16%	18%

⁽¹⁾ Foreign currency exchange impact is calculated by dividing the difference between current period sales at prior period foreign exchange rates and prior period sales by prior period sales.

⁽²⁾ Business days impact is calculated by dividing the year-over-year change in weighted average working days (based on mix of sales by country) by prior period weighted average working days.

⁽³⁾ Divestiture impact is calculated by dividing prior period sales attributable to divested businesses by prior period sales.

⁽⁴⁾ Acquisition impact is calculated by dividing current period sales attributable to acquired businesses by prior period sales.

⁽⁵⁾ Aggregate sales for all end markets sum to the sales amount presented on Kennametal's financial statements.

⁽⁶⁾ Aggregate sales for all regions sum to the sales amount presented on Kennametal's financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our market risk exposures since June 30, ~~2016.~~2017.

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ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this ~~quarterly report~~Quarterly Report on Form 10-Q, the Company's management evaluated, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). The Company's disclosure controls were designed to provide a reasonable assurance that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, the controls have been designed to provide reasonable assurance of achieving the controls' stated goals. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective to provide reasonable assurance at March 31, ~~2017~~2018 to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (i) accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and (ii) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

There were no changes in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~The information set forth in Part I, Item 1, under the caption “Regulation” of the annual report on Form 10-K for the year ended June 30, 2016 is incorporated by reference into this Item 1.~~ From time to time, we are party to legal claims and proceedings that arise in the ordinary course of business, which may relate to our operations or assets, including real, tangible or intellectual property. Although certain of these types of actions are currently pending, we do not believe that any individual proceeding is material or that our pending legal proceedings in the aggregate are material to Kennametal. See "Note 12. Environmental Matters" for a discussion of our exposure to certain environmental liabilities.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

Period
Total Number of
Shares Purchased ⁽¹⁾

Average Price
Paid per Share

Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs ⁽²⁾

January 1 through January 31, 2017 4,061
$ 34.46
—
10,100,100
February 1 through February 28, 2017 9,477
37.44
—
10,100,100
March 1 through March 31, 2017 3,469
38.75
—
10,100,100
Total 17,007
$ 37.00
—



Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs ⁽²⁾
January 1 through January 31, 2018	—	$	—	—	10,100,100
February 1 through February 28, 2018	5,389	46.29		—	10,100,100
March 1 through March 31, 2018	1,399	40.54		—	10,100,100
Total	6,788	$	45.10	—


(1)	During the current period, ~~1,616~~1,248 shares were purchased on the open market on behalf of Kennametal to fund the Company’s dividend reinvestment program. Also, during the current period employees delivered ~~15,391~~5,540 shares of restricted stock to Kennametal, upon vesting, to satisfy tax withholding requirements.


(2)	On July 25, 2013, the Company publicly announced an amended repurchase program for up to 17 million shares of its outstanding capital stock outside of the Company's dividend reinvestment program.

UNREGISTERED SALES OF EQUITY SECURITIES

None.

ITEM 6. EXHIBITS



(31)	Rule 13a-14(a)/15d-14(a) Certifications
(31.1)	Certification executed by ~~Ronald M. De Feo,~~Christopher Rossi, President and Chief Executive Officer of Kennametal Inc.	Filed herewith.
(31.2)	Certification executed by Jan Kees van Gaalen, Vice President and Chief Financial Officer of Kennametal Inc.	Filed herewith.
(32)	Section 1350 Certifications
(32.1)	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by ~~Ronald M. De Feo,~~Christopher Rossi, President and Chief Executive Officer of Kennametal Inc., and Jan Kees van Gaalen, Vice President and Chief Financial Officer of Kennametal Inc.	Filed herewith.
(101)	XBRL
(101.INS)	XBRL Instance Document	Filed herewith.
(101.SCH)	XBRL Taxonomy Extension Schema Document	Filed herewith.
(101.CAL)	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith.
(101.DEF)	XBRL Taxonomy Definition Linkbase	Filed herewith.
(101.LAB)	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith.
(101.PRE)	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith.

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SIGNATURES

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.



			KENNAMETAL INC.

Date:	May ~~9, 2017~~8, 2018	By:	/s/ Patrick S. Watson
			Patrick S. Watson Vice President Finance and Corporate Controller

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