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: ~~September 30,~~December 31, 2022


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

For the transition period from _______ to _______

Commission file number 1-5318

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.)

525 William Penn Place
Suite 3300
Pittsburgh,	Pennsylvania	15219
(Address of principal executive offices)		(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Capital Stock, par value $1.25 per share	KMT	New York Stock Exchange
Preferred Stock Purchase Rights		New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	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 ☒

As of ~~October~~January 31, ~~2022 80,576,387~~2023 80,527,022 shares of the Registrant’s Capital Stock, par value $1.25 per share, were outstanding.

Table of Contents

KENNAMETAL INC.

FORM 10-Q

FOR THE THREE AND SIX MONTHS ENDED ~~SEPTEMBER 30,~~DECEMBER 31, 2022

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.	1.	Financial Statements		1.	Financial Statements

		Condensed Consolidated Statements of Income (Unaudited) Three months ended September 30, 2022 and 2021	4		Condensed Consolidated Statements of Income (Unaudited) Three and six months ended December 31, 2022 and 2021	4

		Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three months ended September 30, 2022 and 2021	4		Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and six months ended December 31, 2022 and 2021	4

		Condensed Consolidated Balance Sheets (Unaudited) September 30, 2022 and June 30, 2022	5		Condensed Consolidated Balance Sheets (Unaudited) December 31, 2022 and June 30, 2022	5

		Condensed Consolidated Statements of Cash Flow (Unaudited) Three months ended September 30, 2022 and 2021	6		Condensed Consolidated Statements of Cash Flow (Unaudited) Six months ended December 31, 2022 and 2021	6

		Notes to Condensed Consolidated Financial Statements (Unaudited)	7		Notes to Condensed Consolidated Financial Statements (Unaudited)	7

2.	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

3.	3.	Quantitative and Qualitative Disclosures About Market Risk	28	3.	Quantitative and Qualitative Disclosures About Market Risk	32

4.	4.	Controls and Procedures	28	4.	Controls and Procedures	32

PART II - OTHER INFORMATION	PART II - OTHER INFORMATION			PART II - OTHER INFORMATION
1.	1.	Legal Proceedings	29	1.	Legal Proceedings	33

2.	2.	Unregistered Sales of Equity Securities and Use of Proceeds	29	2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

6.	6.	Exhibits	30	6.	Exhibits	34

Signatures	Signatures		31	Signatures		35

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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that do not relate strictly to historical or current facts. You can identify forward-looking statements by 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: uncertainties related to changes in macroeconomic and/or global conditions, including as a result of increased inflation and Russia's invasion of Ukraine and the imposition of sanctions on Russia; uncertainties related to the effects of the ongoing COVID-19 pandemic, including the emergence of more contagious or virulent strains of the virus, its impacts on our business operations, financial results and financial position and on the industries in which we operate and the global economy generally, including as a result of travel restrictions, business and workforce disruptions associated with the pandemic; other economic recession or inflationary pressures; our ability to achieve all anticipated benefits of restructuring, simplification and modernization initiatives; Commercial Excellence growth initiatives, Operational Excellence initiatives, our foreign operations and international markets, and the impact on our business of currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability, including the conflict in Ukraine; 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 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 of our Annual Report on Form 10-K and in other periodic reports we file from time to time with the Securities and Exchange Commission. We can give no assurance that any goal or plan set forth in our forward-looking statements will be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. 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 September 30,				Three Months Ended December 31,				Six Months Ended December 31,
(in thousands, except per share amounts)	(in thousands, except per share amounts)	2022		2021			(in thousands, except per share amounts)	2022			2021		2022		2021
Sales	Sales	$	494,792	$	483,509		Sales	$	497,121		$	486,673	$	991,913	$	970,182
Cost of goods sold	Cost of goods sold	334,824		322,759			Cost of goods sold	354,231			333,718		689,055		656,477
Gross profit	Gross profit	159,968		160,750			Gross profit	142,890			152,955		302,858		313,705
Operating expense	Operating expense	108,278		102,694			Operating expense	105,756			106,654		214,035		209,348
Restructuring and asset impairment charges (Note 5)		—		190

Restructuring and other charges, net (Note 6)							Restructuring and other charges, net (Note 6)	(1,505)			(3,460)		(1,505)		(3,270)
Gain on divestiture (Note 3)							Gain on divestiture (Note 3)	—			(1,001)		—		(1,001)
Amortization of intangibles	Amortization of intangibles	3,164		3,260			Amortization of intangibles	3,148			3,257		6,312		6,517
Operating income	Operating income	48,526		54,606			Operating income	35,491			47,505		84,016		102,111
Interest expense	Interest expense	6,638		6,321			Interest expense	7,015			6,460		13,652		12,781
Other expense (income), net	Other expense (income), net	1,009		(3,459)			Other expense (income), net	588			(3,142)		1,597		(6,601)
Income before income taxes	Income before income taxes	40,879		51,744			Income before income taxes	27,888			44,187		68,767		95,931
Provision for income taxes	Provision for income taxes	11,242		13,992			Provision for income taxes	4,964			11,462		16,206		25,454
Net income	Net income	29,637		37,752			Net income	22,924			32,725		52,561		70,477
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	1,441		1,554			Less: Net income attributable to noncontrolling interests	1,025			1,304		2,466		2,858
Net income attributable to Kennametal	Net income attributable to Kennametal	$	28,196	$	36,198		Net income attributable to Kennametal	$	21,899		$	31,421	$	50,095	$	67,619
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS	PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS						PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS
Basic earnings per share	Basic earnings per share	$	0.35	$	0.43		Basic earnings per share	$	0.27		$	0.38	$	0.62	$	0.81
Diluted earnings per share	Diluted earnings per share	$	0.34	$	0.43		Diluted earnings per share	$	0.27		$	0.37	$	0.61	$	0.80
Basic weighted average shares outstanding	Basic weighted average shares outstanding	81,544		83,880			Basic weighted average shares outstanding	80,737			83,637		81,141		83,759
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	82,165		84,751			Diluted weighted average shares outstanding	81,237			84,374		81,677		84,502

KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


		Three Months Ended September 30,				Three Months Ended December 31,				Six Months Ended December 31,
(in thousands)	(in thousands)	2022		2021			(in thousands)	2022			2021		2022		2021
Net income	Net income	$	29,637	$	37,752		Net income	$	22,924		$	32,725	$	52,561	$	70,477
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax						Other comprehensive income (loss), net of tax

Reclassification of unrealized gain on derivatives designated and qualified as cash flow hedges	Reclassification of unrealized gain on derivatives designated and qualified as cash flow hedges	(192)		(192)			Reclassification of unrealized gain on derivatives designated and qualified as cash flow hedges	(192)			(192)		(385)		(385)
Unrecognized net pension and other postretirement benefit plans gain		3,324		1,904
Unrecognized net pension and other postretirement benefit plans (loss) gain							Unrecognized net pension and other postretirement benefit plans (loss) gain	(3,371)			876		(47)		2,781
Reclassification of net pension and other postretirement benefit plans loss	Reclassification of net pension and other postretirement benefit plans loss	806		2,215			Reclassification of net pension and other postretirement benefit plans loss	832			2,201		1,639		4,416
Foreign currency translation adjustments	Foreign currency translation adjustments	(52,949)		(16,476)			Foreign currency translation adjustments	52,819			(10,081)		(130)		(26,557)

Total other comprehensive loss, net of tax		(49,011)		(12,549)
Total comprehensive (loss) income		(19,374)		25,203
Less: comprehensive (loss) income attributable to noncontrolling interests		(324)		1,099
Comprehensive (loss) income attributable to Kennametal Shareholders		$	(19,050)	$	24,104
Total other comprehensive income (loss), net of tax							Total other comprehensive income (loss), net of tax	50,088			(7,196)		1,077		(19,745)
Total comprehensive income							Total comprehensive income	73,012			25,529		53,638		50,732
Less: comprehensive income attributable to noncontrolling interests							Less: comprehensive income attributable to noncontrolling interests	2,092			855		1,768		1,954
Comprehensive income attributable to Kennametal Shareholders							Comprehensive income attributable to Kennametal Shareholders	$	70,920		$	24,674	$	51,870	$	48,778

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

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KENNAMETAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in thousands, except per share data)	(in thousands, except per share data)	September 30, 2022		June 30, 2022		(in thousands, except per share data)	December 31, 2022		June 30, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	64,568	$	85,586	Cash and cash equivalents	$	76,784	$	85,586
Accounts receivable, less allowance for doubtful accounts of $9,082 and $9,422, respectively		278,716		295,346
Inventories (Note 8)		591,470		570,836
Accounts receivable, less allowance for doubtful accounts of $9,214 and $9,422, respectively						Accounts receivable, less allowance for doubtful accounts of $9,214 and $9,422, respectively	291,016		295,346
Inventories (Note 9)						Inventories (Note 9)	605,780		570,836

Other current assets	Other current assets	76,732		72,940		Other current assets	74,723		72,940
Total current assets	Total current assets	1,011,486		1,024,708		Total current assets	1,048,303		1,024,708
Property, plant and equipment:	Property, plant and equipment:					Property, plant and equipment:
Land and buildings	Land and buildings	409,533		410,039		Land and buildings	418,169		410,039
Machinery and equipment	Machinery and equipment	1,868,682		1,904,872		Machinery and equipment	1,922,740		1,904,872
Less accumulated depreciation	Less accumulated depreciation	(1,305,685)		(1,312,870)		Less accumulated depreciation	(1,359,343)		(1,312,870)
Property, plant and equipment, net	Property, plant and equipment, net	972,530		1,002,041		Property, plant and equipment, net	981,566		1,002,041
Other assets:	Other assets:					Other assets:
Goodwill (Note 16)		257,949		264,230
Other intangible assets, less accumulated amortization of $161,057 and $160,699, respectively (Note 16)		101,573		105,725
Goodwill (Note 17)						Goodwill (Note 17)	266,633		264,230
Other intangible assets, less accumulated amortization of $167,120 and $160,699, respectively (Note 17)						Other intangible assets, less accumulated amortization of $167,120 and $160,699, respectively (Note 17)	99,496		105,725
Operating lease right-of-use assets	Operating lease right-of-use assets	43,823		47,206		Operating lease right-of-use assets	42,934		47,206
Deferred income taxes	Deferred income taxes	52,895		54,602		Deferred income taxes	57,129		54,602
Other	Other	75,952		75,012		Other	82,540		75,012
Total other assets	Total other assets	532,192		546,775		Total other assets	548,732		546,775
Total assets	Total assets	$	2,516,208	$	2,573,524	Total assets	$	2,578,601	$	2,573,524
LIABILITIES	LIABILITIES					LIABILITIES
Current liabilities:	Current liabilities:					Current liabilities:

Revolving and other lines of credit and notes payable (Note 10)		$	85,239	$	21,186
Revolving and other lines of credit and notes payable (Note 11)						Revolving and other lines of credit and notes payable (Note 11)	$	78,805	$	21,186
Current operating lease liabilities	Current operating lease liabilities	11,872		12,387		Current operating lease liabilities	11,622		12,387
Accounts payable	Accounts payable	205,940		227,887		Accounts payable	206,722		227,887
Accrued income taxes	Accrued income taxes	38,637		29,476		Accrued income taxes	41,025		29,476
Accrued expenses	Accrued expenses	40,826		56,310		Accrued expenses	41,848		56,310

Other current liabilities	Other current liabilities	114,974		138,403		Other current liabilities	114,312		138,403
Total current liabilities	Total current liabilities	497,488		485,649		Total current liabilities	494,334		485,649
Long-term debt, less current maturities (Note 9)		594,566		594,364
Long-term debt, less current maturities (Note 10)						Long-term debt, less current maturities (Note 10)	594,768		594,364
Operating lease liabilities	Operating lease liabilities	32,464		35,342		Operating lease liabilities	31,848		35,342
Deferred income taxes	Deferred income taxes	31,174		32,185		Deferred income taxes	32,231		32,185
Accrued pension and postretirement benefits	Accrued pension and postretirement benefits	107,048		112,995		Accrued pension and postretirement benefits	115,165		112,995
Accrued income taxes	Accrued income taxes	322		6,369		Accrued income taxes	355		6,369
Other liabilities	Other liabilities	14,801		15,373		Other liabilities	20,699		15,373
Total liabilities	Total liabilities	1,277,863		1,282,277		Total liabilities	1,289,400		1,282,277
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
EQUITY (Note 14)
EQUITY (Note 15)						EQUITY (Note 15)
Kennametal Shareholders’ Equity:	Kennametal Shareholders’ Equity:					Kennametal Shareholders’ Equity:
Preferred stock, no par value; 5,000 shares authorized; none issued	Preferred stock, no par value; 5,000 shares authorized; none issued	—		—		Preferred stock, no par value; 5,000 shares authorized; none issued	—		—
Capital stock, $1.25 par value; 120,000 shares authorized; 81,020 and 81,337 shares issued, respectively		101,095		101,671
Capital stock, $1.25 par value; 120,000 shares authorized; 80,512 and 81,337 shares issued, respectively						Capital stock, $1.25 par value; 120,000 shares authorized; 80,512 and 81,337 shares issued, respectively	100,641		101,671
Additional paid-in capital	Additional paid-in capital	478,930		494,202		Additional paid-in capital	473,323		494,202
Retained earnings	Retained earnings	1,082,575		1,070,655		Retained earnings	1,088,379		1,070,655
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(461,197)		(413,951)		Accumulated other comprehensive loss	(412,176)		(413,951)
Total Kennametal Shareholders’ Equity	Total Kennametal Shareholders’ Equity	1,201,403		1,252,577		Total Kennametal Shareholders’ Equity	1,250,167		1,252,577
Noncontrolling interests	Noncontrolling interests	36,942		38,670		Noncontrolling interests	39,034		38,670
Total equity	Total equity	1,238,345		1,291,247		Total equity	1,289,201		1,291,247
Total liabilities and equity	Total liabilities and equity	$	2,516,208	$	2,573,524	Total liabilities and equity	$	2,578,601	$	2,573,524

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

Table of Contents

KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)


		Three Months Ended September 30,					Six Months Ended December 31,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2022		2021
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net income	Net income	$	29,637	$	37,752	Net income	$	52,561	$	70,477
Adjustments to reconcile to cash from operations:	Adjustments to reconcile to cash from operations:					Adjustments to reconcile to cash from operations:
Depreciation	Depreciation	29,459		29,124		Depreciation	60,932		58,229
Amortization	Amortization	3,164		3,260		Amortization	6,312		6,517
Stock-based compensation expense	Stock-based compensation expense	8,282		7,202		Stock-based compensation expense	13,909		13,374
Restructuring and asset impairment charges (Note 5)		—		28
Restructuring and other charges, net (Note 6)						Restructuring and other charges, net (Note 6)	(1,505)		(3,246)
Deferred income taxes	Deferred income taxes	64		171		Deferred income taxes	(2,649)		108

Gain on divestiture (Note 3)						Gain on divestiture (Note 3)	—		(1,001)
Other	Other	(2,406)		(370)		Other	1,769		22
Changes in certain assets and liabilities:	Changes in certain assets and liabilities:					Changes in certain assets and liabilities:
Accounts receivable	Accounts receivable	5,303		19,340		Accounts receivable	3,961		23,017
Inventories	Inventories	(38,499)		(34,355)		Inventories	(32,901)		(67,031)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	(42,145)		(43,677)		Accounts payable and accrued liabilities	(52,835)		(36,616)
Accrued income taxes	Accrued income taxes	1,552		5,835		Accrued income taxes	1,223		8,562
Accrued pension and postretirement benefits	Accrued pension and postretirement benefits	(2,482)		(7,156)		Accrued pension and postretirement benefits	(4,475)		(12,884)
Other	Other	(2,677)		(1,351)		Other	6,207		(1,724)
Net cash flow (used in) provided by operating activities		(10,748)		15,803
Net cash flow provided by operating activities						Net cash flow provided by operating activities	52,509		57,804
INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(29,484)		(17,844)		Purchases of property, plant and equipment	(50,622)		(37,736)
Disposals of property, plant and equipment	Disposals of property, plant and equipment	202		393		Disposals of property, plant and equipment	2,466		598

Proceeds from divestiture (Note 3)						Proceeds from divestiture (Note 3)	—		1,001
Other	Other	(12)		37		Other	88		63
Net cash flow used in investing activities	Net cash flow used in investing activities	(29,294)		(17,414)		Net cash flow used in investing activities	(48,068)		(36,074)
FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Net increase (decrease) in notes payable		3,388		(7,997)
Net decrease in notes payable						Net decrease in notes payable	(7)		(5,129)
Net increase in revolving and other lines of credit	Net increase in revolving and other lines of credit	60,900		—		Net increase in revolving and other lines of credit	57,800		9,000

Purchase of capital stock	Purchase of capital stock	(19,376)		(12,909)		Purchase of capital stock	(30,068)		(35,508)
The effect of employee benefit and stock plans and dividend reinvestment	The effect of employee benefit and stock plans and dividend reinvestment	(4,757)		(6,317)		The effect of employee benefit and stock plans and dividend reinvestment	(5,753)		(6,774)
Cash dividends paid to Shareholders	Cash dividends paid to Shareholders	(16,273)		(16,737)		Cash dividends paid to Shareholders	(32,371)		(33,460)
Other	Other	(757)		21		Other	(755)		(678)
Net cash flow provided by (used in) financing activities		23,125		(43,939)
Net cash flow used in financing activities						Net cash flow used in financing activities	(11,154)		(72,549)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(4,101)		(1,181)		Effect of exchange rate changes on cash and cash equivalents	(2,089)		(1,429)
CASH AND CASH EQUIVALENTS	CASH AND CASH EQUIVALENTS					CASH AND CASH EQUIVALENTS
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(21,018)		(46,731)		Net decrease in cash and cash equivalents	(8,802)		(52,248)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	85,586		154,047		Cash and cash equivalents, beginning of period	85,586		154,047
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	64,568	$	107,316	Cash and cash equivalents, end of period	$	76,784	$	101,799

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.BASIS OF PRESENTATION

The condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q, which include our accounts and those of our subsidiaries in which we have a controlling interest, should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022 (the “2022 Annual Report”). The condensed consolidated balance sheet as of June 30, 2022 was derived from the audited balance sheet included in our 2022 Annual Report. The 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 ~~three~~six months ended ~~September 30,~~December 31, 2022 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 2023 is to the fiscal year ending June 30, 2023. When used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, the terms “the Company,” “we,” “our” and “us” refer to Kennametal Inc. and its subsidiaries.

2.SUPPLEMENTAL CASH FLOW DISCLOSURES


		Three Months Ended September 30,					Six Months Ended December 31,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2022		2021
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	5,143	$	4,966	Interest	$	13,430	$	12,617
Income taxes	Income taxes	9,626		7,986		Income taxes	17,631		16,784
Supplemental disclosure of non-cash information:	Supplemental disclosure of non-cash information:					Supplemental disclosure of non-cash information:
Changes in accounts payable related to purchases of property, plant and equipment	Changes in accounts payable related to purchases of property, plant and equipment	(8,708)		(800)		Changes in accounts payable related to purchases of property, plant and equipment	(7,226)		(150)

3. DIVESTITURE

During the year ended June 30, 2020, we completed the sale of certain assets of the non-core specialty alloys and metals business within the Infrastructure segment located in New Castle, Pennsylvania to Advanced Metallurgical Group N.V. for an aggregate price of $24.0 million.

The net book value of these assets at closing was $29.5 million, and the pre-tax loss on divestiture recognized during the year ended June 30, 2020 was $6.5 million. Transaction proceeds were primarily used for capital expenditures related to our simplification/modernization efforts. During the year ended June 30, 2022, we recorded a pre-tax gain of $1.0 million on the New Castle divestiture due to proceeds held in escrow until November 2021.

4. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received 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.

~~As of September 30, 2022, the fair values of our financial assets and financial liabilities are categorized as follows:~~

(in thousands) Level 1 Level 2 Level 3 Total
Assets:
Derivatives (1)
$ — $ 230 $ — $ 230
Total assets at fair value $ — $ 230 $ — $ 230
Liabilities:
Derivatives (1)
$ — $ 147 $ — $ 147
Total liabilities at fair value $ — $ 147 $ — $ 147

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of December 31, 2022, the fair values of our financial assets and financial liabilities are categorized as follows:


(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Derivatives (1)	$	—	$	99	$	—	$	99
Total assets at fair value	$	—	$	99	$	—	$	99

Liabilities:
Derivatives (1)	$	—	$	8	$	—	$	8
Total liabilities at fair value	$	—	$	8	$	—	$	8

As of June 30, 2022, the fair values of our financial assets and financial liabilities are categorized as follows:


(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Derivatives (1)	$	—	$	176	$	—	$	176
Total assets at fair value	$	—	$	176	$	—	$	176

Liabilities:
Derivatives (1)	$	—	$	574	$	—	$	574
Total liabilities at fair value	$	—	$	574	$	—	$	574

(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.

4.5. 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, we do not hold any 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.

There were no derivatives designated as hedging instruments as of ~~September 30,~~December 31, 2022 and June 30, 2022. The fair value of derivatives not designated as hedging instruments in the condensed consolidated balance sheets are as follows:


(in thousands)	(in thousands)	September 30, 2022		June 30, 2022		(in thousands)	December 31, 2022		June 30, 2022

Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments					Derivatives not designated as hedging instruments
Other current assets - currency forward contracts	Other current assets - currency forward contracts	$	230	$	176	Other current assets - currency forward contracts	$	99	$	176
Other current liabilities - currency forward contracts	Other current liabilities - currency forward contracts	(147)		(574)		Other current liabilities - currency forward contracts	(8)		(574)
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments	83		(398)		Total derivatives not designated as hedging instruments	91		(398)
Total derivatives	Total derivatives	$	83	$	(398)	Total derivatives	$	91	$	(398)

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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) losses related to derivatives not designated as hedging instruments have been recognized as follows:


		Three Months Ended September 30,				Three Months Ended December 31,				Six Months Ended December 31,
(in thousands)	(in thousands)	2022		2021			(in thousands)	2022		2021		2022		2021
Other expense (income), net - currency forward contracts	Other expense (income), net - currency forward contracts	$	(306)	$	140		Other expense (income), net - currency forward contracts	$	(197)	$	(134)	$	(503)	$	6

NET INVESTMENT HEDGES

As of ~~September 30,~~December 31, 2022 and June 30, 2022, we had certain foreign currency-denominated intercompany loans payable with total aggregate principal amounts of ~~zero~~€17.0 million and €13.0 million, respectively, designated as net investment hedges to hedge the foreign exchange exposure of our net investment in our Euro-based subsidiaries. ~~Gains~~A loss of ~~$1.7~~$0.4 million and ~~$1.3~~a gain of $0.1 million were recorded as a component of foreign currency translation adjustments in other comprehensive income for the three months ended ~~September 30,~~December 31, 2022 and 2021, respectively. Gains of $1.3 million and $1.4 million were recorded as a component of foreign currency translation adjustments in other comprehensive loss for the six months ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, 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	€	17,040	$	18,182	June 30, 2023

~~Table of Contents~~(2) Includes principal and accrued interest.

~~KENNAMETAL INC.~~

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

5.6. RESTRUCTURING AND ~~RELATED~~OTHER CHARGES, NET

We recorded no restructuring and related charges for the three and six months ended ~~September 30,~~December 31, 2022. For the three months ended ~~September 30,~~December 31, 2021, we recorded restructuring and related benefits from the reversal of charges of ~~$1.2~~$1.7 million, which consisted of ~~charges~~benefits of ~~$1.2~~$1.7 million in Metal Cutting and an immaterial amount in Infrastructure. Of this amount, restructuring ~~charges~~benefits were ~~$0.2~~$3.5 million and restructuring-related charges were ~~$1.1~~$1.8 million (included in cost of goods sold) ~~for~~.

For the ~~three~~six months ended ~~September 30, 2021.~~December 31, 2021, we recorded restructuring and related benefits from the reversal of charges of $0.4 million, which consisted of benefits of $0.4 million in Metal Cutting and an immaterial amount in Infrastructure. Of this amount, restructuring benefits were $3.3 million and restructuring-related charges were $2.8 million (included in cost of goods sold).

As of ~~September 30,~~December 31, 2022, ~~$4.5~~$3.7 million and $1.5 million of the restructuring accrual was recorded in other current liabilities and other liabilities, respectively, in our condensed consolidated balance sheet. As of June 30, 2022, $6.0 million and $1.9 million of the restructuring accrual was recorded in other current liabilities and other liabilities, respectively. The amounts are as follows:


(in thousands)	(in thousands)	June 30, 2022		Expense		Asset Write-Down		Translation		Cash Expenditures		September 30, 2022		(in thousands)	June 30, 2022		Expense		Translation		Cash Expenditures		December 31, 2022
Severance	Severance	$	7,919	$	—	$	—	$	(426)	$	(1,486)	$	6,007	Severance	$	7,919	$	—	$	(38)	$	(2,659)	$	5,222

Total	Total	$	7,919	$	—	$	—	$	(426)	$	(1,486)	$	6,007	Total	$	7,919	$	—	$	(38)	$	(2,659)	$	5,222

~~6. STOCK-BASED COMPENSATION~~

~~Stock Options~~

~~Changes~~Included in ~~our stock options~~other charges, net for the three and six months ended ~~September 30,~~December 31, 2022 ~~were as follows:~~
Options Weighted Average Exercise Price Weighted Average Remaining Life (years) Aggregate Intrinsic value (in thousands)
Options outstanding, June 30, 2022 271,843 $ 37.45
Exercised — —
Lapsed or forfeited (31,163) 36.76
Options outstanding, September 30, 2022 240,680 $ 37.54 1.9 $ —
Options vested, September 30, 2022 240,680 $ 37.54 1.9 $ —
Options exercisable, September 30, 2022 240,680 $ 37.54 1.9 $ —

Asis a net benefit of ~~September 30, 2022 and June 30, 2022, there was no unrecognized compensation cost related to options outstanding, and all options were fully vested as~~$1.5 million, consisting primarily of ~~September 30, 2022 and 2021.~~

~~There was no cash received~~$1.9 million from ~~the exercise~~a gain on a sale of options during the three months ended September 30, 2022 and 2021. The total intrinsic value of options exercised was zero during the three months ended September 30, 2022 and immaterial during the three months ended September 30, 2021.property.

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCK-BASED COMPENSATION

Stock Options

Changes in our stock options for the six months ended December 31, 2022 were as follows:


	Options	Weighted Average Exercise Price		Weighted Average Remaining Life (years)	Aggregate Intrinsic value (in thousands)
Options outstanding, June 30, 2022	271,843	$	37.45

Exercised	—	—
Lapsed or forfeited	(31,163)	36.76
Options outstanding, December 31, 2022	240,680	$	37.54	1.7	$	45
Options vested, December 31, 2022	240,680	$	37.54	1.7	$	45
Options exercisable, December 31, 2022	240,680	$	37.54	1.7	$	45

As of December 31, 2022 and June 30, 2022, there was no unrecognized compensation cost related to options outstanding, and all options were fully vested as of December 31, 2022 and 2021.

The amount of cash received from the exercise of options during the six months ended December 31, 2022 and 2021 was zero and $0.2 million, respectively. The total intrinsic value of options exercised during the six months ended December 31, 2022 and 2021 was zero and $0.1 million, respectively.

Restricted Stock Units – Performance Vesting and Time Vesting

Changes in our performance vesting and time vesting restricted stock units for the ~~three~~six months ended ~~September 30,~~December 31, 2022 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, 2022	Unvested, June 30, 2022	350,955	$	33.44	1,213,896	$	33.53	Unvested, June 30, 2022	350,955	$	33.44	1,213,896	$	33.53
Granted	Granted	189,469	27.27		693,410	27.24		Granted	189,469	27.27		731,339	26.95
Vested	Vested	—	—		(499,717)	32.10		Vested	—	—		(614,499)	32.62
Performance metric adjustments, net	Performance metric adjustments, net	(52,111)	27.58		—	—		Performance metric adjustments, net	(52,111)	27.58		—	—
Forfeited	Forfeited	—	—		(12,823)	32.14		Forfeited	(3,884)	28.97		(35,016)	31.72
Unvested, September 30, 2022		488,313	$	31.67	1,394,766	$	30.93
Unvested, December 31, 2022								Unvested, December 31, 2022	484,429	$	31.69	1,295,720	$	30.30

During the ~~three~~six months ended ~~September 30,~~December 31, 2022 and 2021, compensation expense related to time vesting and performance vesting restricted stock units was ~~$7.8~~$13.1 million and ~~$7.0~~$12.6 million, respectively. Performance vesting stock units were adjusted by 52,111 units during the ~~three~~six months ended ~~September 30,~~December 31, 2022 related to the fiscal 2022 performance year. As of ~~September 30,~~December 31, 2022, the total unrecognized compensation cost related to unvested time vesting and performance vesting restricted stock units was ~~$38.7~~$34.0 million and is expected to be recognized over a weighted average period of ~~2.1~~2.0 years.

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. PENSION AND OTHER POSTRETIREMENT BENEFITS

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


		Three Months Ended September 30,				Three Months Ended December 31,				Six Months Ended December 31,
(in thousands)	(in thousands)	2022		2021			(in thousands)	2022		2021		2022		2021
Service cost	Service cost	$	238	$	286		Service cost	$	235	$	281	$	474	$	567
Interest cost	Interest cost	8,040		5,659			Interest cost	8,002		5,641		16,042		11,300
Expected return on plan assets	Expected return on plan assets	(10,026)		(13,037)			Expected return on plan assets	(9,983)		(12,999)		(20,008)		(26,035)
Amortization of transition obligation	Amortization of transition obligation	21		24			Amortization of transition obligation	20		24		41		48
Amortization of prior service cost	Amortization of prior service cost	2		3			Amortization of prior service cost	2		3		4		5
Recognition of actuarial losses	Recognition of actuarial losses	1,105		2,970			Recognition of actuarial losses	1,092		2,941		2,197		5,911

Net periodic pension income	Net periodic pension income	$	(620)	$	(4,095)		Net periodic pension income	$	(632)	$	(4,109)	$	(1,250)	$	(8,204)

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


		Three Months Ended September 30,				Three Months Ended December 31,				Six Months Ended December 31,
(in thousands)	(in thousands)	2022		2021			(in thousands)	2022		2021		2022		2021

Interest cost	Interest cost	$	104	$	72		Interest cost	$	104	$	72	$	209	$	144
Amortization of prior service credit	Amortization of prior service credit	(68)		(69)			Amortization of prior service credit	(68)		(69)		(136)		(138)
Recognition of actuarial loss	Recognition of actuarial loss	48		74			Recognition of actuarial loss	48		74		96		148
Net periodic other postretirement benefit cost	Net periodic other postretirement benefit cost	$	84	$	77		Net periodic other postretirement benefit cost	$	84	$	77	$	169	$	154

The service cost component of net periodic pension income is reported as a component of cost of goods sold and operating expense. All other components of net periodic pension income and net periodic other postretirement benefit cost are reported as a component of other expense (income), net.

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~~KENNAMETAL INC.~~

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

8.9. INVENTORIES

We used the last-in, first-out (LIFO) method of valuing inventories for 4038 percent and 39 percent of total inventories at ~~September 30,~~December 31, 2022 and June 30, 2022, respectively. Inventory valuations under the LIFO method are based on an annual determination of quantities and costs as of June 30 of each year; therefore, the interim LIFO valuations are based on our projections of expected year-end inventory levels and costs and are subject to any final year-end LIFO inventory adjustments.

Inventories consisted of the following:


(in thousands)	(in thousands)	September 30, 2022		June 30, 2022		(in thousands)	December 31, 2022		June 30, 2022
Finished goods	Finished goods	$	331,354	$	316,936	Finished goods	$	345,529	$	316,936
Work in process and powder blends	Work in process and powder blends	243,394		231,214		Work in process and powder blends	241,884		231,214
Raw materials	Raw materials	101,293		107,024		Raw materials	101,617		107,024
Inventories at current cost	Inventories at current cost	676,041		655,174		Inventories at current cost	689,030		655,174
Less: LIFO valuation	Less: LIFO valuation	(84,571)		(84,338)		Less: LIFO valuation	(83,250)		(84,338)
Total inventories	Total inventories	$	591,470	$	570,836	Total inventories	$	605,780	$	570,836

9.10. LONG-TERM DEBT

Fixed rate debt had a fair market value of ~~$505.3~~$516.3 million and $536.1 million at ~~September 30,~~December 31, 2022 and June 30, 2022, respectively. The Level 2 fair value is determined based on the quoted market prices for similar debt instruments as of ~~September 30,~~December 31, 2022 and June 30, 2022, respectively.

~~10.~~

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. REVOLVING AND OTHER LINES OF CREDIT AND NOTES PAYABLE

During fiscal 2022, we entered into the Sixth Amended and Restated Credit Agreement dated as of June 14, 2022 (the Credit Agreement). The Credit Agreement is a five-year, multi-currency, revolving credit facility, which we use to augment cash from operations and as an additional source of funds. The Credit Agreement provides for revolving credit loans of up to $700.0 million for working capital, capital expenditures and general corporate purposes. The Credit Agreement allows for borrowings in U.S. dollars, euros, Canadian dollars, pounds sterling and Japanese yen. Interest payable under the Credit Agreement is based upon the type of borrowing under the facility and may be (1) Euro Interbank Offered Rate (EURIBOR), Sterling Overnight Index Average (SONIA), Tokyo Interbank Offered Rate (TIBOR), Secured Overnight Financing Rate (SOFR), and Canadian Dollar Offered Rate (CDOR) for any borrowings in euros, pounds sterling, yen, U.S. dollars and Canadian dollars, respectively, 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 June 2027.

The Credit Agreement requires us to comply with various restrictive and affirmative covenants, including one financial covenant: a maximum leverage ratio where debt, net of domestic cash in excess of $25 million and sixty percent of the unrestricted cash held outside of the United States, must be less than or equal to 3.75 times trailing twelve months EBITDA, adjusted for certain non-cash expenses.

As of ~~September 30,~~December 31, 2022, we were in compliance with all the covenants of the Credit Agreement and we had ~~$79.9~~$76.8 million of borrowings outstanding and ~~$620.1~~$623.2 million of additional availability. We had $19.0 million of borrowings outstanding as of June 30, 2022.

Borrowings on other lines of credit and notes payable were ~~$5.3~~$2.0 million and $2.2 million at ~~September 30,~~December 31, 2022 and June 30, 2022, respectively.

~~11.~~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 sites associated with our current or former operations.

We establish and maintain accruals for estimated liabilities associated with certain environmental matters. At ~~September 30,~~December 31, 2022, the balance of such accruals was ~~$12.3~~$12.2 million, of which ~~$7.9~~$1.9 million was current. At June 30, 2022, the balance was $12.5 million, of which $7.9 million was current. The decrease in the current balances reflects adjustments in estimated completion timelines based on currently available information, while the composition of such accruals remains largely unchanged. These accruals are generally not discounted.

~~Table of Contents~~

~~KENNAMETAL INC.~~

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

We record a loss contingency when the available information indicates it is probable that we have incurred a liability and the amount of the loss is reasonably estimable. The likelihood of a loss with respect to a particular environmental matter is often difficult to predict, and determining a meaningful estimate of the loss or a range of loss may not be practicable based on information available. When a material loss contingency is probable but a reasonable estimate cannot be made, or when a material loss contingency is at least reasonably possible, disclosure is provided. The accruals we have established for estimated environmental liabilities represent our best current estimate of the probable and reasonably estimable costs of addressing 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 United States Environmental Protection Agency (USEPA), other governmental agencies and by the Potentially Responsible Party (PRP) groups in which we are participating. The accrued 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 or the courts on these matters.

Among other environmental laws, we are subject to the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA), under which we have been identified by the USEPA or other third party as a PRP with respect to environmental remedial costs at certain Superfund sites. We have evaluated our claims and estimated liability associated with these sites based upon the best information currently available to us. We believe our environmental accruals are adequate to cover our portion of the environmental remedial costs at the sites where we have been designated a PRP, to the extent these expenses are probable and reasonably estimable.

~~12.~~

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. INCOME TAXES

The effective income tax rates for the three months ended ~~September 30,~~December 31, 2022 and 2021 were ~~27.5~~17.8 percent and ~~27.0~~25.9 percent, respectively. The year-over-year change is primarily due to a $2.2 million tax benefit recorded in the current year quarter related to Swiss tax reform and geographical mix.

The effective income tax rates for the six months ended December 31, 2022 and 2021 were 23.6 percent and 26.5 percent, respectively. The year-over-year change is primarily due to a $2.2 million tax benefit recorded in the current year quarter related to Swiss tax reform and geographical mix.

Swiss tax reform

Swiss tax reform legislation was effectively enacted during the December quarter of fiscal 2020 when the Canton of Schaffhausen approved the Federal Act on Tax Reform and AHV Financing on October 8, 2019 (Swiss tax reform). Significant changes from Swiss tax reform include the abolishment of certain favorable tax regimes and the creation of a multi-year transitional period at both the federal and cantonal levels. The transitional provisions of Swiss tax reform allow companies to utilize a combination of lower tax rates and tax basis adjustments to fair value, which are used for tax depreciation and amortization purposes resulting in deductions over the transitional period. To reflect the federal and cantonal transitional provisions, as they apply to us, we recorded a deferred tax asset of $14.5 million during the three months ended December 31, 2020. We ~~consider~~considered the deferred tax asset from Swiss tax reform to be an estimate based on our ~~current~~ interpretation of the legislation, which iswas subject to change based on further legislative guidance, review with the Swiss federal and cantonal authorities, and modifications to the underlying valuation. ~~We anticipate finalization~~During the three months ended December 31, 2022, we finalized the calculation of the transitional provisions of Swiss tax reform after a review and receipt of a ruling from the Swiss federal and cantonal authorities and recorded a $2.2 million tax benefit to adjust the deferred tax asset ~~within the next three months.~~and income tax liabilities related to fiscal years 2021 and 2022.

~~13.~~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.

The following table provides the computation of diluted shares outstanding for the three and six months ended December 31, 2022 and 2021:


	Three Months Ended December 31,		Six Months Ended December 31,
(in thousands)	2022	2021	2022	2021
Weighted-average shares outstanding during the period	80,737	83,637	81,141	83,759
Add: Unexercised stock options and unvested restricted stock units	500	737	536	743
Number of shares on which diluted earnings per share is calculated	81,237	84,374	81,677	84,502
Unexercised stock options with an exercise price greater than the average market price and restricted stock units not included in the computation because they were anti-dilutive	1,388	145	1,373	183

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. EQUITY

A summary of the changes in the carrying amounts of total equity, Kennametal Shareholders’ equity and equity attributable to noncontrolling interests for the three months ending December 31, 2022 and 2021 is as follows:


	Kennametal Shareholders’ Equity
(in thousands, except per share amounts)	Capital stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interests		Total equity
Balance as of September 30, 2022	$	101,095	$	478,930	$	1,082,575	$	(461,197)	$	36,942	$	1,238,345
Net income	—		—		21,899		—		1,025		22,924
Other comprehensive income	—		—		—		49,021		1,067		50,088
Dividend reinvestment	2		45		—		—		—		47
Capital stock issued under employee benefit and stock plans(3)	131		4,453		—		—		—		4,584
Purchase of capital stock	(587)		(10,105)		—		—		—		(10,692)
Cash dividends ($0.20 per share)	—		—		(16,095)		—		—		(16,095)



Total equity, December 31, 2022	$	100,641	$	473,323	$	1,088,379	$	(412,176)	$	39,034	$	1,289,201


	Kennametal Shareholders’ Equity
(in thousands, except per share amounts)	Capital stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interests		Total equity
Balance as of September 30, 2021	$	104,527	$	550,790	$	1,012,055	$	(342,421)	$	39,696	$	1,364,647
Net income	—		—		31,421		—		1,304		32,725
Other comprehensive loss	—		—		—		(6,747)		(449)		(7,196)
Dividend reinvestment	1		46		—		—		—		47
Capital stock issued under employee benefit and stock plans(3)	65		5,604		—		—		—		5,669
Purchase of capital stock	(751)		(21,848)		—		—		—		(22,599)
Cash dividends ($0.20 per share)	—		—		(16,720)		—		—		(16,720)


Total equity, December 31, 2021	$	103,842	$	534,592	$	1,026,756	$	(349,168)	$	40,551	$	1,356,573

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

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~The following table provides the computation of diluted shares outstanding for the three months ended September 30, 2022 and 2021:~~

Three Months Ended September 30,
(in thousands) 2022 2021
Weighted-average shares outstanding during the period 81,544 83,880
Add: Unexercised stock options and unvested restricted stock units 621 871
Number of shares on which diluted earnings per share is calculated 82,165 84,751
Unexercised stock options with an exercise price greater than the average market price and restricted stock units not included in the computation because they were anti-dilutive 1,249 482

~~14. EQUITY~~

A summary of the changes in the carrying amounts of total equity, Kennametal Shareholders’ equity and equity attributable to noncontrolling interests for the ~~three~~six months ending ~~September 30,~~December 31, 2022 and 2021 is as follows:

Kennametal Shareholders’ Equity
(in thousands, except per share amounts) Capital stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Non-controlling interests Total equity
Balance as of June 30, 2022 $ 101,671 $ 494,202 $ 1,070,655 $ (413,951) $ 38,670 $ 1,291,247
Net income — — 28,196 — 1,441 29,637
Other comprehensive loss — — — (47,246) (1,765) (49,011)
Dividend reinvestment 2 44 — — — 46
Capital stock issued under employee benefit and stock plans(3)
454 3,028 — — — 3,482
Purchase of capital stock (1,032) (18,344) — — — (19,376)
Cash dividends ($0.20 per share) — — (16,276) — — (16,276)
Cash dividends to non-controlling interests — — — — (1,404) (1,404)
Total equity, September 30, 2022 $ 101,095 $ 478,930 $ 1,082,575 $ (461,197) $ 36,942 $ 1,238,345
Kennametal Shareholders’ Equity
(in thousands, except per share amounts) Capital stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Non-controlling interests Total equity
Balance as of June 30, 2021 $ 104,518 $ 562,820 $ 992,597 $ (330,327) $ 38,597 $ 1,368,205
Net income — — 36,198 — 1,554 37,752
Other comprehensive loss — — — (12,094) (455) (12,549)
Dividend reinvestment 2 46 — — — 48
Capital stock issued under employee benefit and stock plans(3)
447 392 — — — 839
Purchase of capital stock (440) (12,468) — — — (12,908)
Cash dividends ($0.20 per share) — — (16,740) — — (16,740)
Total equity, September 30, 2021 $ 104,527 $ 550,790 $ 1,012,055 $ (342,421) $ 39,696 $ 1,364,647


	Kennametal Shareholders’ Equity
(in thousands, except per share amounts)	Capital stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interests		Total equity
Balance as of June 30, 2022	$	101,671	$	494,202	$	1,070,655	$	(413,951)	$	38,670	$	1,291,247
Net income	—		—		50,095		—		2,466		52,561
Other comprehensive income	—		—		—		1,775		(698)		1,077
Dividend reinvestment	4		89		—		—		—		93
Capital stock issued under employee benefit and stock plans(3)	585		7,481		—		—		—		8,066
Purchase of capital stock	(1,619)		(28,449)		—		—		—		(30,068)
Cash dividends ($0.40 per share)	—		—		(32,371)		—		—		(32,371)
Cash dividends to non-controlling interests	—				—		—		(1,404)		(1,404)


Total equity, December 31, 2022	$	100,641	$	473,323	$	1,088,379	$	(412,176)	$	39,034	$	1,289,201


	Kennametal Shareholders’ Equity
(in thousands, except per share amounts)	Capital stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interests		Total equity
Balance as of June 30, 2021	$	104,518	$	562,820	$	992,597	$	(330,327)	$	38,597	$	1,368,205
Net income	—		—		67,619		—		2,858		70,477
Other comprehensive loss	—		—		—		(18,841)		(904)		(19,745)
Dividend reinvestment	3		92		—		—		—		95
Capital stock issued under employee benefit and stock plans(3)	512		5,997		—		—		—		6,509
Purchase of capital stock	(1,191)		(34,317)		—		—		—		(35,508)
Cash dividends ($0.40 per share)	—		—		(33,460)		—		—		(33,460)


Total equity, December 31, 2021	$	103,842	$	534,592	$	1,026,756	$	(349,168)	$	40,551	$	1,356,573

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

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

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

~~15.~~16. ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of, and changes in, accumulated other comprehensive loss (AOCL) were as follows, net of tax, for the ~~three~~six months ended ~~September 30,~~December 31, 2022:


(in thousands)	(in thousands)	Pension and other postretirement benefits		Currency translation adjustment		Derivatives		Total		(in thousands)	Pension and other postretirement benefits		Currency translation adjustment		Derivatives		Total
Attributable to Kennametal:	Attributable to Kennametal:									Attributable to Kennametal:
Balance, June 30, 2022	Balance, June 30, 2022	$	(208,406)	$	(210,048)	$	4,503	$	(413,951)	Balance, June 30, 2022	$	(208,406)	$	(210,048)	$	4,503	$	(413,951)
Other comprehensive income (loss) before reclassifications		3,324		(51,184)		—		(47,860)
Other comprehensive (loss) income before reclassifications										Other comprehensive (loss) income before reclassifications	(47)		568		—		521
Amounts reclassified from AOCL	Amounts reclassified from AOCL	806		—		(192)		614		Amounts reclassified from AOCL	1,639		—		(385)		1,254
Net other comprehensive income (loss)	Net other comprehensive income (loss)	4,130		(51,184)		(192)		(47,246)		Net other comprehensive income (loss)	1,592		568		(385)		1,775
AOCL, September 30, 2022		$	(204,276)	$	(261,232)	$	4,311	$	(461,197)
AOCL, December 31, 2022										AOCL, December 31, 2022	$	(206,814)	$	(209,480)	$	4,118	$	(412,176)

Attributable to noncontrolling interests:	Attributable to noncontrolling interests:									Attributable to noncontrolling interests:
Balance, June 30, 2022	Balance, June 30, 2022	$	—	$	(7,547)	$	—	$	(7,547)	Balance, June 30, 2022	$	—	$	(7,547)	$	—	$	(7,547)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	—		(1,765)		—		(1,765)		Other comprehensive loss before reclassifications	—		(698)		—		(698)
Net other comprehensive loss	Net other comprehensive loss	—		(1,765)		—		(1,765)		Net other comprehensive loss	—		(698)		—		(698)
AOCL, September 30, 2022		$	—	$	(9,312)	$	—	$	(9,312)
AOCL, December 31, 2022										AOCL, December 31, 2022	$	—	$	(8,245)	$	—	$	(8,245)

The components of, and changes in, AOCL were as follows, net of tax, for the ~~three~~six months ended ~~September 30,~~December 31, 2021:


(in thousands)	(in thousands)	Pension and other postretirement benefits		Currency translation adjustment		Derivatives		Total		(in thousands)	Pension and other postretirement benefits		Currency translation adjustment		Derivatives		Total
Attributable to Kennametal:	Attributable to Kennametal:									Attributable to Kennametal:
Balance, June 30, 2021	Balance, June 30, 2021	$	(213,172)	$	(122,428)	$	5,273	$	(330,327)	Balance, June 30, 2021	$	(213,172)	$	(122,428)	$	5,273	$	(330,327)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	1,904		(16,021)		—		(14,117)		Other comprehensive income (loss) before reclassifications	2,781		(25,653)		—		(22,872)
Amounts reclassified from AOCL	Amounts reclassified from AOCL	2,215		—		(192)		2,023		Amounts reclassified from AOCL	4,416		—		(385)		4,031
Net other comprehensive income (loss)	Net other comprehensive income (loss)	4,119		(16,021)		(192)		(12,094)		Net other comprehensive income (loss)	7,197		(25,653)		(385)		(18,841)
AOCL, September 30, 2021		$	(209,053)	$	(138,449)	$	5,081	$	(342,421)
AOCL, December 31, 2021										AOCL, December 31, 2021	$	(205,975)	$	(148,081)	$	4,888	$	(349,168)

Attributable to noncontrolling interests:	Attributable to noncontrolling interests:									Attributable to noncontrolling interests:
Balance, June 30, 2021	Balance, June 30, 2021	$	—	$	(3,982)	$	—	$	(3,982)	Balance, June 30, 2021	$	—	$	(3,982)	$	—	$	(3,982)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	—		(455)		—		(455)		Other comprehensive loss before reclassifications	—		(904)		—		(904)
Net other comprehensive loss	Net other comprehensive loss	—		(455)		—		(455)		Net other comprehensive loss	—		(904)		—		(904)
AOCL, September 30, 2021		$	—	$	(4,437)	$	—	$	(4,437)
AOCL, December 31, 2021										AOCL, December 31, 2021	$	—	$	(4,886)	$	—	$	(4,886)

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Reclassifications out of AOCL for the three and six months ended ~~September 30,~~December 31, 2022 and 2021 consisted of the following:


		Three Months Ended September 30,				Three Months Ended December 31,					Six Months Ended December 31,
(in thousands)	(in thousands)	2022		2021			Affected line item in the Income Statement	(in thousands)	2022			2021		2022		2021		Affected line item in the Income Statement
Gains on cash flow hedges:	Gains on cash flow hedges:							Gains on cash flow hedges:
Forward starting interest rate swaps	Forward starting interest rate swaps	$	(255)	$	(255)		Interest expense	Forward starting interest rate swaps	$	(255)		$	(255)	$	(511)	$	(511)	Interest expense

Total before tax	Total before tax	(255)		(255)				Total before tax	(255)			(255)		(511)		(511)
Tax impact	Tax impact	63		63			Provision for income taxes	Tax impact	63			63		126		126		Provision for income taxes
Net of tax	Net of tax	$	(192)	$	(192)			Net of tax	$	(192)		$	(192)	$	(385)	$	(385)

Pension and other postretirement benefits:	Pension and other postretirement benefits:							Pension and other postretirement benefits:
Amortization of transition obligations	Amortization of transition obligations	$	21	$	24		Other income, net	Amortization of transition obligations	$	20		$	24	$	41	$	48	Other income, net
Amortization of prior service credit	Amortization of prior service credit	(66)		(66)			Other income, net	Amortization of prior service credit	(66)			(66)		(132)		(133)		Other income, net
Recognition of actuarial losses	Recognition of actuarial losses	1,153		3,044			Other income, net	Recognition of actuarial losses	1,140			3,015		2,293		6,059		Other income, net
Total before tax	Total before tax	1,108		3,002				Total before tax	1,094			2,973		2,202		5,974
Tax impact	Tax impact	(302)		(787)			Provision for income taxes	Tax impact	(262)			(772)		(563)		(1,558)		Provision for income taxes
Net of tax	Net of tax	$	806	$	2,215			Net of tax	$	832		$	2,201	$	1,639	$	4,416

The amount of income tax allocated to each component of other comprehensive ~~loss~~income (loss) for the three months ended ~~September 30,~~December 31, 2022 and 2021 were as follows:


				2022						2021							2022						2021
(in thousands)	(in thousands)	Pre-tax		Tax impact		Net of tax		Pre-tax		Tax impact		Net of tax		(in thousands)	Pre-tax		Tax impact		Net of tax		Pre-tax		Tax impact		Net of tax

Reclassification of unrealized gain on derivatives designated and qualified as cash flow hedges	Reclassification of unrealized gain on derivatives designated and qualified as cash flow hedges	$	(255)	$	63	$	(192)	$	(255)	$	63	$	(192)	Reclassification of unrealized gain on derivatives designated and qualified as cash flow hedges	$	(255)	$	63	$	(192)	$	(255)	$	63	$	(192)
Unrecognized net pension and other postretirement benefit plans gain		4,479		(1,155)		3,324		2,598		(694)		1,904
Unrecognized net pension and other postretirement benefit plans (loss) gain														Unrecognized net pension and other postretirement benefit plans (loss) gain	(4,564)		1,193		(3,371)		1,232		(356)		876
Reclassification of net pension and other postretirement benefit plans loss	Reclassification of net pension and other postretirement benefit plans loss	1,108		(302)		806		3,002		(787)		2,215		Reclassification of net pension and other postretirement benefit plans loss	1,094		(262)		832		2,973		(772)		2,201
Foreign currency translation adjustments	Foreign currency translation adjustments	(52,799)		(150)		(52,949)		(16,457)		(19)		(16,476)		Foreign currency translation adjustments	52,675		144		52,819		(10,062)		(19)		(10,081)

Other comprehensive loss		$	(47,467)	$	(1,544)	$	(49,011)	$	(11,112)	$	(1,437)	$	(12,549)
Other comprehensive income (loss)														Other comprehensive income (loss)	$	48,950	$	1,138	$	50,088	$	(6,112)	$	(1,084)	$	(7,196)

The amount of income tax allocated to each component of other comprehensive income (loss) for the six months ended December 31, 2022 and 2021 were as follows:


			2022						2021
(in thousands)	Pre-tax		Tax impact		Net of tax		Pre-tax		Tax impact		Net of tax

Reclassification of unrealized gain on derivatives designated and qualified as cash flow hedges	$	(511)	$	126	$	(385)	$	(511)	$	126	$	(385)
Unrecognized net pension and other postretirement benefit plans (loss) gain	(85)		38		(47)		3,831		(1,050)		2,781
Reclassification of net pension and other postretirement benefit plans loss	2,202		(563)		1,639		5,974		(1,558)		4,416
Foreign currency translation adjustments	(124)		(6)		(130)		(26,519)		(38)		(26,557)

Other comprehensive income (loss)	$	1,482	$	(405)	$	1,077	$	(17,225)	$	(2,520)	$	(19,745)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~16.~~17. GOODWILL AND OTHER INTANGIBLE ASSETS

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


(in thousands)	(in thousands)	Metal Cutting		Infrastructure		Total		(in thousands)	Metal Cutting		Infrastructure		Total
Gross goodwill	Gross goodwill	$	441,891	$	633,211	$	1,075,102	Gross goodwill	$	441,891	$	633,211	$	1,075,102
Accumulated impairment losses	Accumulated impairment losses	(177,661)		(633,211)		(810,872)		Accumulated impairment losses	(177,661)		(633,211)		(810,872)
Balance as of June 30, 2022	Balance as of June 30, 2022	$	264,230	$	—	$	264,230	Balance as of June 30, 2022	$	264,230	$	—	$	264,230

Activity for the three months ended September 30, 2022:
Activity for the six months ended December 31, 2022:								Activity for the six months ended December 31, 2022:
Change in gross goodwill due to translation	Change in gross goodwill due to translation	(6,281)		—		(6,281)		Change in gross goodwill due to translation	2,403		—		2,403

Gross goodwill	Gross goodwill	435,610		633,211		1,068,821		Gross goodwill	444,294		633,211		1,077,505
Accumulated impairment losses	Accumulated impairment losses	(177,661)		(633,211)		(810,872)		Accumulated impairment losses	(177,661)		(633,211)		(810,872)
Balance as of September 30, 2022		$	257,949	$	—	$	257,949
Balance as of December 31, 2022								Balance as of December 31, 2022	$	266,633	$	—	$	266,633

The components of our other intangible assets were as follows:


		Estimated Useful Life (in years)	September 30, 2022				June 30, 2022						Estimated Useful Life (in years)	December 31, 2022				June 30, 2022
(in thousands)	(in thousands)		Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization		(in thousands)		Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization

Technology-based and other	Technology-based and other	4 to 20	$	30,907	$	(22,242)		$	31,592	$	(22,734)	Technology-based and other	4 to 20	$	31,792	$	(23,324)		$	31,592	$	(22,734)
Customer-related	Customer-related	10 to 21	178,151		(104,948)			180,263		(104,698)		Customer-related	10 to 21	180,105		(108,815)			180,263		(104,698)
Unpatented technology	Unpatented technology	10 to 30	31,564		(23,396)			31,807		(22,950)		Unpatented technology	10 to 30	31,687		(24,098)			31,807		(22,950)
Trademarks	Trademarks	5 to 20	12,283		(10,471)			12,403		(10,317)		Trademarks	5 to 20	12,418		(10,883)			12,403		(10,317)
Trademarks	Trademarks	Indefinite	9,725		—			10,359		—		Trademarks	Indefinite	10,614		—			10,359		—
Total	Total		$	262,630	$	(161,057)		$	266,424	$	(160,699)	Total		$	266,616	$	(167,120)		$	266,424	$	(160,699)

~~17.~~18. SEGMENT DATA

We operate in two reportable segments consisting of Metal Cutting and Infrastructure. Our reportable operating segments have been determined in accordance with our internal management structure, which is organized based on operating activities, the manner in which we organize segments for allocating resources, 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, our Board of Directors, strategic initiatives, and certain other costs and report them in Corporate. Our reportable operating segments do not represent the aggregation of two or more operating segments.

METAL CUTTING The Metal Cutting segment develops and manufactures high performance tooling and metal cutting products and services and offers an assortment of standard and custom metal cutting solutions to diverse end markets, including aerospace, general engineering, energy and transportation. The products include milling, hole making, turning, threading and toolmaking systems used in the manufacture of airframes, aero engines, trucks and automobiles, ships and various types of industrial equipment. We leverage advanced manufacturing capabilities in combination with varying levels of customization to solve our customers’ toughest challenges and deliver improved productivity for a wide range of applications. Metal Cutting markets its products under the Kennametal®, WIDIA®, WIDIA Hanita® and WIDIA GTD® brands through its direct sales force, a network of independent and national distributors, integrated supplier channels and via the Internet. Application engineers and technicians are critical to the sales process and directly assist our customers with specified product design, selection, application and support.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFRASTRUCTURE Our Infrastructure segment produces engineered tungsten carbide and ceramic components, earth-cutting tools, and advanced metallurgical powders, primarily for the energy, earthworks and general engineering end markets. These wear-resistant products include compacts, nozzles, frac seats and custom components used in oil and gas and petrochemical industries; rod blanks and abrasive water jet nozzles for general industries; earth cutting tools and systems used in underground mining, trenching and foundation drilling and road milling; tungsten carbide powders for the oil and gas, aerospace and process industries; and ceramics used by the packaging industry for metallization of films and papers. We combine deep metallurgical and engineering expertise with advanced manufacturing capabilities, such as 3D printing, to deliver solutions that drive improved productivity for our customers. Infrastructure markets its products primarily under the Kennametal® brand and sells through a direct sales force as well as through distributors.

Our sales and operating income by segment are as follows:


		Three Months Ended September 30,				Three Months Ended December 31,				Six Months Ended December 31,
(in thousands)	(in thousands)	2022		2021			(in thousands)	2022		2021		2022		2021
Sales:	Sales:						Sales:
Metal Cutting	Metal Cutting	$	299,936	$	298,430		Metal Cutting	$	299,469	$	298,581	$	599,405	$	597,011
Infrastructure	Infrastructure	194,856		185,079			Infrastructure	197,652		188,092		392,508		373,171
Total sales	Total sales	$	494,792	$	483,509		Total sales	$	497,121	$	486,673	$	991,913	$	970,182
Operating income:	Operating income:						Operating income:
Metal Cutting	Metal Cutting	$	28,605	$	29,164		Metal Cutting	$	26,222	$	27,895	$	54,828	$	57,059
Infrastructure	Infrastructure	20,787		26,036			Infrastructure	10,097		19,971		30,884		46,007
Corporate	Corporate	(866)		(594)			Corporate	(828)		(361)		(1,696)		(955)
Total operating income	Total operating income	48,526		54,606			Total operating income	35,491		47,505		84,016		102,111
Interest expense	Interest expense	6,638		6,321			Interest expense	7,015		6,460		13,652		12,781
Other expense (income), net	Other expense (income), net	1,009		(3,459)			Other expense (income), net	588		(3,142)		1,597		(6,601)
Income before income taxes	Income before income taxes	$	40,879	$	51,744		Income before income taxes	$	27,888	$	44,187	$	68,767	$	95,931

The following table presents Kennametal's revenue disaggregated by geography:


		Three Months Ended							Three Months Ended
		September 30, 2022			September 30, 2021				December 31, 2022			December 31, 2021
(in percentages)	(in percentages)	Metal Cutting	Infrastructure	Total Kennametal	Metal Cutting	Infrastructure	Total Kennametal	(in percentages)	Metal Cutting	Infrastructure	Total Kennametal	Metal Cutting	Infrastructure	Total Kennametal
Americas	Americas	45%	62%	51%	40%	58%	47%	Americas	44%	60%	50%	40%	57%	47%
EMEA	EMEA	33	16	27	38	19	31	EMEA	36	18	29	38	17	30
Asia Pacific	Asia Pacific	22	22	22	22	23	22	Asia Pacific	20	22	21	22	26	23

~~The following tables presents Kennametal's revenue disaggregated by end market:~~

Three Months Ended September 30, 2022
(in percentages) Metal Cutting Infrastructure Total Kennametal
General engineering 56% 32% 46%
Transportation 27 — 16
Aerospace 10 — 6
Energy 7 32 17
Earthworks — 36 15


	Six Months Ended
	December 31, 2022			December 31, 2021
(in percentages)	Metal Cutting	Infrastructure	Total Kennametal	Metal Cutting	Infrastructure	Total Kennametal
Americas	44%	61%	51%	40%	57%	47%
EMEA	35	17	27	38	19	30
Asia Pacific	21	22	22	22	24	23

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Three Months Ended September 30, 2021
(in percentages) Metal Cutting Infrastructure Total Kennametal
General engineering 56% 35% 48%
Transportation 28 — 17
Aerospace 9 — 5
Energy 7 29 16
Earthworks — 36 14
The following tables presents Kennametal's revenue disaggregated by end market:


	Three Months Ended December 31, 2022
(in percentages)	Metal Cutting	Infrastructure	Total Kennametal
General engineering	56%	35%	47%
Transportation	27	—	16
Aerospace	10	—	6
Energy	7	29	17
Earthworks	—	36	14


	Three Months Ended December 31, 2021
(in percentages)	Metal Cutting	Infrastructure	Total Kennametal
General engineering	57%	36%	48%
Transportation	26	—	16
Aerospace	9	—	6
Energy	8	28	16
Earthworks	—	36	14


	Six Months Ended December 31, 2022
(in percentages)	Metal Cutting	Infrastructure	Total Kennametal
General engineering	56%	33%	47%
Transportation	27	—	16
Aerospace	10	—	6
Energy	7	31	17
Earthworks	—	36	14


	Six Months Ended December 31, 2021
(in percentages)	Metal Cutting	Infrastructure	Total Kennametal
General engineering	56%	35%	48%
Transportation	27	—	17
Aerospace	9	—	5
Energy	8	29	16
Earthworks	—	36	14

1820

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

OVERVIEW

Kennametal Inc. was founded based on a tungsten carbide technology breakthrough in 1938. The Company was incorporated in Pennsylvania in 1943 as a manufacturer of tungsten carbide metal cutting tooling and was listed on the New York Stock Exchange (NYSE) in 1967. With more than 80 years of materials expertise, the Company is a global industrial technology leader, helping customers across the aerospace, earthworks, energy, general engineering and transportation industries manufacture with precision and efficiency. This expertise includes the development and application of tungsten carbides, ceramics, super-hard materials and solutions used in metal cutting and extreme wear applications to keep customers up and running longer against conditions such as corrosion and high temperatures.

Our standard and custom product offerings span metal cutting and wear applications including turning, milling, hole making, tooling systems and services, as well as specialized wear components and metallurgical powders. End users of our metal cutting products include manufacturers engaged in a diverse array of industries including: the manufacturers of transportation vehicles and components, machine tools and light and heavy machinery; airframe and aerospace components; and energy-related components for the oil and gas industry, as well as power generation. Our wear and metallurgical powders are used by producers and suppliers in equipment-intensive operations such as road construction, mining, quarrying, oil and gas exploration, refining, production and supply.

Throughout the MD&A, we refer to measures used by management to evaluate performance. We also refer to a number of financial measures that are 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 (decline) and constant currency end market sales growth (decline). We provide the definitions of these non-GAAP financial measures at the end of the MD&A section as well as details on the use and derivation of these financial measures.

Our sales of ~~$494.8~~$497.1 million for the quarter ended ~~September 30,~~December 31, 2022 increased 2 percent year-over-year, reflecting 911 percent organic sales growth, partially offset by an unfavorable foreign currency effect of 78 percent and an unfavorable business days effect of 1 percent.

Operating income was ~~$48.5~~$35.5 million compared to ~~$54.6~~$47.5 million in the prior year quarter. The year-over-year decrease of ~~$6.1~~$12.0 million was primarily due ~~primarily~~ to ~~favorable pricing, higher sales volumes and favorable product mix which were more than offset by~~ higher raw material costs of approximately ~~$17~~$23 million, higher ~~costs,~~wages and general inflation, including an inflationary bonus of $2 million for certain German employees, unfavorable foreign currency exchange ~~headwinds~~ of approximately $6 million, and in the Infrastructure segment, under-absorption of approximately $5 million ~~from temporary supply chain disruptions.~~mainly due to reduced powder production to actively manage the drawdown of safety stock. These factors were partially offset by higher price realization and higher sales volumes. Operating margin was ~~9.8~~7.1 percent compared to ~~11.3~~9.8 percent in the prior year quarter. The Metal Cutting and Infrastructure segments had operating margins of ~~9.5~~8.8 percent and ~~10.7~~5.1 percent, respectively, for the quarter ended ~~September 30,~~December 31, 2022.

On March 11, 2020, the World Health Organization declared the Coronavirus Disease 2019 (COVID-19) a pandemic bringing significant uncertainty in our end markets and operations. Since then, many jurisdictions have eased or eliminated stay-at-home, social distancing, and various other restrictions implemented at the onset of the pandemic, as the administration and acceptance of vaccines has ~~increased. Alternatively,~~increased and COVID-19 cases have dropped. One of the last countries to ease pandemic-control measures was China, which in December 2022 announced it would be rolling back some of its most strict anti-COVID-19 restrictions, including lockdowns, mask mandates and ~~elevated infection rates continue to exist in various regions. The~~travel restrictions. Nevertheless, the restrictions in China, temporary labor shortages due to COVID-19 related absenteeism in certain regions and other supply chain challenges ~~have~~ created significant operating constraints on our ~~business.~~business during the course of the pandemic.

Russia's invasion of Ukraine in February 2022 ~~has~~ resulted in the imposition of economic sanctions on Russia by the United States, Canada, the European Union and other countries. We have experienced increased costs for energy and raw materials and other supply chain issues due, in part, to the negative impact of the conflict on the global economy. During the March quarter of 2022, the Company ceased operations in Russia and subsequently decided to liquidate its legal entity in Russia, which is expected to be completed during fiscal 2023.

In addition, our business has been negatively affected by foreign currency exchange and inflationary headwinds. We have been able to partially mitigate the effects of inflation, foreign currency exchange challenges and other disruptions through price increases on our products. We cannot predict the ultimate effect of these issues on our business, operating results or financial condition, but we will continue to monitor macroeconomic conditions and attempt to mitigate the negative effect to the extent possible.

For the three months ended September 30, 2022, the Company repurchased $19 million of Kennametal common stock under its $200 million three-year program. Inception-to-date the Company has repurchased $105 million of Kennametal common stock.

The Company paid $16 million in cash dividends to Kennametal shareholders during the quarter. The Company has a long history of consistently paying dividends to shareholders since its listing on the New York Stock Exchange in 1967.

1921

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

For the three and six months ended December 31, 2022, the Company repurchased $11 million and $30 million, respectively, of Kennametal common stock under its $200 million three-year program. Inception-to-date the Company has repurchased $115 million of Kennametal common stock.

The Company paid $16 million and $32 million in cash dividends to Kennametal shareholders during the three and six months ended December 31, 2022, respectively. The Company has a long history of consistently paying dividends to shareholders since its listing on the New York Stock Exchange in 1967.

Current quarter earnings per diluted share (EPS) was ~~$0.34.~~$0.27. EPS of ~~$0.43~~$0.37 in the prior year quarter was ~~unfavorably~~favorably affected by the net benefit from the reversal of restructuring and related charges of $0.02 per share and the gain on the New Castle divestiture of $0.01 per share, partially offset by differences in annual projected tax rates of $0.01 per share.

Net cash flow ~~used in operating activities was $10.7 million during the three months ended September 30, 2022 compared to net cash flow~~ provided by operating activities ~~of $15.8~~was $52.5 million during the six months ended December 31, 2022 compared to $57.8 million during the prior year ~~quarter.~~period. Capital expenditures were ~~$29.5~~$50.6 million and ~~$17.8~~$37.7 million during the ~~three~~six months ended ~~September 30,~~December 31, 2022 and 2021, respectively.

RESULTS OF CONTINUING OPERATIONS

SALES

Sales for the three months ended ~~September 30,~~December 31, 2022 were ~~$494.8~~$497.1 million, an increase of ~~$11.3~~$10.4 million, or 2 percent, from ~~$483.5~~$486.7 million in the prior year quarter. The increase in sales was driven by organic growth of 911 percent, partially offset by an unfavorable foreign currency effect of 8 percent and an unfavorable business days effect of 1 percent.

Sales for the six months ended December 31, 2022 were $991.9 million, an increase of $21.7 million, or 2 percent, from $970.2 million in the prior year period. The increase in sales was driven by organic growth of 10 percent, partially offset by an unfavorable currency exchange effect of 7 percent and an unfavorable business days effect of 1 percent.

Our sales growth (decline) by end market and region are as follows:


		Three Months Ended September 30, 2022		Three Months Ended December 31, 2022			Six Months Ended December 31, 2022
(in percentages)	(in percentages)	As Reported	Constant Currency		(in percentages)	As Reported	Constant Currency	As Reported	Constant Currency
End market sales growth (decline):	End market sales growth (decline):				End market sales growth (decline):
Aerospace	Aerospace	18%	25%		Aerospace	12%	19%	15%	22%
Energy	Energy	11	15		Energy	4	8		12
Earthworks	Earthworks	6	11		Earthworks	4	11	5	11
General engineering	General engineering	(1)	5		General engineering	—	7	(1)	6
Transportation	Transportation	(3)	6		Transportation	3	13	—	9
Regional sales growth (decline):	Regional sales growth (decline):				Regional sales growth (decline):
Americas	Americas	12%	13%		Americas	11%		12%
Europe, the Middle East and Africa (EMEA)					Europe, the Middle East and Africa (EMEA)	(3)	12	(7)	8
Asia Pacific	Asia Pacific	—	7		Asia Pacific	(8)	2	(4)	4
Europe, the Middle East and Africa (EMEA)		(11)	4

GROSS PROFIT

Gross profit for the three months ended ~~September 30,~~December 31, 2022 was ~~$160.0~~$142.9 million, a decrease of ~~$0.8~~$10.1 million from ~~$160.8~~$153.0 million in the prior year quarter. The decrease was primarily due ~~primarily~~ to ~~favorable pricing, higher sales volumes and favorable product mix which were more than offset by~~ higher raw material costs of approximately ~~$17~~$23 million, ~~higher costs,~~unfavorable foreign currency exchange ~~headwinds~~ of approximately $12 million, higher wages and general inflation, including an inflationary bonus of $2 million for certain German employees, under-absorption of approximately $5 million ~~from temporary supply chain disruptions. Operating margin was 9.8 percent compared~~mainly due to ~~11.3 percent in~~reduced powder production to actively manage the ~~prior year quarter.~~drawdown of safety stock, and depreciation of approximately $2 million due to the decision to scrap certain assets. These factors were partially offset by higher price realization and higher sales volumes. Gross profit margin for the three months ended ~~September 30,~~December 31, 2022 was ~~32.3~~28.7 percent, as compared to ~~33.2~~31.4 percent in the prior year quarter.

~~OPERATING EXPENSE~~

Operating expense for the three months ended September 30, 2022 was $108.3 million compared to $102.7 million for the three months ended September 30, 2021. The year-over-year change is due primarily to an increase in travel and higher salaries.

~~Research and development expenses included in operating expense totaled $10.6 million and $10.2 million for the three months ended September 30, 2022 and 2021, respectively.~~

~~INTEREST EXPENSE~~

~~Interest expense for the three months ended September 30, 2022 increased to $6.6 million compared to $6.3 million for the three months ended September 30, 2021.~~

~~OTHER EXPENSE/INCOME, NET~~

Other expense for the three months ended September 30, 2022 was $1.0 million compared to other income of $3.5 million during the three months ended September 30, 2021. The year-over-year change is due primarily to lower net periodic pension income in the current year.

2022

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

Gross profit for the six months ended December 31, 2022 was $302.9 million, a decrease of $10.8 million from $313.7 million in the prior year period. The decrease was primarily due to higher raw material costs of approximately $41 million, unfavorable foreign currency exchange of approximately $24 million, higher wages and general inflation, including an inflationary bonus of $2 million for certain German employees, temporary supply chain disruptions of approximately $5 million, under-absorption of approximately $5 million mainly due to reduced powder production to actively manage the drawdown of safety stock, and depreciation of approximately $2 million due to the decision to scrap certain assets. These factors were partially offset by higher price realization and higher sales volumes. Gross profit margin for the six months ended December 31, 2022 was 30.5 percent, as compared to 32.3 percent in the prior year period.

OPERATING EXPENSE

Operating expense for the three months ended December 31, 2022 was $105.8 million compared to $106.7 million for the three months ended December 31, 2021. Operating expense for the six months ended December 31, 2022 was $214.0 million compared to $209.3 million for the six months ended December 31, 2021.

Research and development expenses included in operating expense totaled $10.7 million and $10.5 million for the three months ended December 31, 2022 and 2021, respectively, and $21.3 million and $20.7 million for the six months ended December 31, 2022 and 2021, respectively.

INTEREST EXPENSE

Interest expense for the three months ended December 31, 2022 increased to $7.0 million compared to $6.5 million for the three months ended December 31, 2021. Interest expense for the six months ended December 31, 2022 increased to $13.7 million compared to $12.8 million for the six months ended December 31, 2021. The changes for both periods were primarily related to the increased amounts outstanding under the Credit Agreement.

OTHER EXPENSE/INCOME, NET

Other expense for the three months ended December 31, 2022 was $0.6 million compared to other income of $3.1 million during the three months ended December 31, 2021. Other expense for the six months ended December 31, 2022 was $1.6 million compared to other income of $6.6 million during the six months ended December 31, 2021. The changes for both periods were due primarily to lower net periodic pension income in the current year.

PROVISION FOR INCOME TAXES

The effective income tax rates for the six months ended December 31, 2022 and 2021 were 23.6 percent and 26.5 percent, respectively. The year-over-year change is primarily due to a $2.2 million tax benefit recorded in the current year period related to Swiss tax reform and geographical mix.

BUSINESS SEGMENT REVIEW

~~Our sales and operating income by segment are as follows:~~
Three Months Ended September 30,
(in thousands) 2022 2021
Sales:
Metal Cutting $ 299,936 $ 298,430
Infrastructure 194,856 185,079
Total sales $ 494,792 $ 483,509
Operating income:
Metal Cutting $ 28,605 $ 29,164
Infrastructure 20,787 26,036
Corporate (866) (594)
Total operating income 48,526 54,606
Interest expense 6,638 6,321
Other expense (income), net 1,009 (3,459)
Income before income taxes $ 40,879 $ 51,744

~~METAL CUTTING~~

Three Months Ended September 30,
(in thousands, except operating margin) 2022 2021
Sales $ 299,936 $ 298,430
Operating income 28,605 29,164
Operating margin 9.5 % 9.8 %


			~~Three Months Ended September 30, 2022~~
~~(in percentages)~~
~~Organic sales growth~~			9%
~~Foreign currency exchange effect(1)~~			~~(8)~~



~~Sales growth~~			1%

~~Table of Contents~~

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

Three Months Ended September 30, 2022
(in percentages) As Reported Constant Currency
End market sales growth (decline):
Aerospace 18% 25%
General engineering — 8
Transportation (3) 6
Energy (3) 4
Regional sales growth (decline):
Americas 12% 13%
Asia Pacific (1) 6
EMEA (11) 5

For the three months ended September 30, 2022, Metal Cutting sales increased 1 percent from the prior year quarter. The increase in sales was driven by organic growth of 9 percent, partially offset by an unfavorable foreign currency effect of 8 percent. Aerospace end market sales increased in all regions as global travel levels and airplane manufacturing continue to recover, despite ongoing supply chain issues on certain components. Energy sales increased in the Americas and Asia Pacific, excluding the impact from foreign currency exchange, as economic activity improves and countries develop alternative supply chains in response to the Russia sanctions, partially offset by a decrease in EMEA. Sales in our general engineering end market increased in all regions, excluding the impact from foreign currency exchange, as manufacturing activity continues to recover from the COVID-19 pandemic and strong underlying demand continues, though inflation and supply chain challenges mitigated growth. Transportation end market sales increased in all regions, excluding the impact from foreign currency exchange, due to improved automotive manufacturing levels and continued strong underlying demand. On a regional basis, the sales increase in the Americas was driven by increases in all end markets. The sales increase in EMEA, excluding the impact from foreign currency exchange, was driven by increases in the aerospace, general engineering, and transportation end markets, partially offset by a decrease in the energy end market. The sales increase in Asia Pacific, excluding the impact from foreign currency exchange, was driven by increases in all end markets.

For the three months ended September 30, 2022, Metal Cutting operating income was $28.6 million compared to $29.2 million in the prior year quarter. The year-over-year change was due primarily to favorable pricing, higher sales volumes and favorable product mix which were more than offset by higher raw material costs of approximately $5 million, foreign currency exchange headwinds of approximately $5 million, higher costs and temporary supply chain disruptions.

~~INFRASTRUCTURE~~

Three Months Ended September 30,
(in thousands) 2022 2021
Sales $ 194,856 $ 185,079
Operating income 20,787 26,036
Operating margin 10.7 % 14.1 %


			~~Three Months Ended September 30, 2022~~
~~(in percentages)~~
~~Organic sales growth~~			~~10%~~
~~Foreign currency exchange effect(1)~~			~~(5)~~



~~Sales growth~~			5%

~~Table of Contents~~

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

Three Months Ended September 30, 2022
(in percentages) As Reported Constant Currency
End market sales growth (decline):
Energy 17% 20%
Earthworks 6 11
General engineering (5) —
Regional sales growth (decline):
Americas 13% 13%
Asia Pacific 3 8
EMEA (14) —

For the three months ended September 30, 2022, Infrastructure sales increased by 5 percent from the prior year quarter. The increase in sales was driven by organic growth of 10 percent, partially offset by an unfavorable foreign currency effect of 5 percent. Energy end market sales increased as U.S. oil and gas contributed to the year-over-year and as land rig counts continue to increase. Earthworks end market sales increased primarily due to growth in mining and construction. General engineering end market sales were flat year over year, excluding the impact from foreign currency exchange, driven by decreases in EMEA and the Americas, offset by an increase in Asia Pacific. On a regional basis, the sales increase in the Americas was driven by increases in the energy and earthworks end markets, partially offset by a decline in general engineering due to the loss of a customer who elected to insource production. The sales in EMEA were flat year over year, excluding the impact from foreign currency exchange, due to an increase in the earthworks end market offset with a decrease in general engineering due to order timing. The sales increases in Asia Pacific were driven by increases in the earthworks and general engineering end markets, partially offset by a decline in the energy end market.

For the three months ended September 30, 2022, Infrastructure operating income was $20.8 million compared to $26.0 million in the prior year quarter. The year-over-year change was due primarily to favorable pricing, higher sales volumes and favorable product mix which were more than offset by higher raw material costs of approximately $13 million, higher costs, temporary supply chain disruptions and foreign currency exchange headwinds of approximately $1 million.

~~CORPORATE~~

Three Months Ended September 30,
(in thousands) 2022 2021
Corporate expense $ (866) $ (594)

~~For the three months ended September 30, 2022, Corporate expense increased by $0.3 million from the prior year quarter.~~

~~LIQUIDITY AND CAPITAL RESOURCES~~

~~Cash flow from operations is the primary source of funding for our capital expenditures. For the three months ended September 30, 2022, cash flow used in operating activities was $10.7 million.~~

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

Our sales and operating income by segment are as follows:


	Three Months Ended December 31,				Six Months Ended December 31,
(in thousands)	2022		2021		2022		2021
Sales:
Metal Cutting	$	299,469	$	298,581	$	599,405	$	597,011
Infrastructure	197,652		188,092		392,508		373,171
Total sales	$	497,121	$	486,673	$	991,913	$	970,182
Operating income:
Metal Cutting	$	26,222	$	27,895	$	54,828	$	57,059
Infrastructure	10,097		19,971		30,884		46,007
Corporate	(828)		(361)		(1,696)		(955)
Total operating income	35,491		47,505		84,016		102,111
Interest expense	7,015		6,460		13,652		12,781
Other expense (income), net	588		(3,142)		1,597		(6,601)
Income before income taxes	$	27,888	$	44,187	$	68,767	$	95,931

METAL CUTTING


	Three Months Ended December 31,						Six Months Ended December 31,
(in thousands, except operating margin)	2022			2021			2022			2021
Sales	$	299,469		$	298,581		$	599,405		$	597,011
Operating income	26,222			27,895			54,828			57,059
Operating margin	8.8		%	9.3		%	9.1		%	9.6		%


	Three Months Ended December 31, 2022	Six Months Ended December 31, 2022
(in percentages)
Organic sales growth	11%	10%
Foreign currency exchange effect(1)	(10)	(9)
Business days effect(2)	(1)	(1)


Sales growth	—%	—%


	Three Months Ended December 31, 2022		Six Months Ended December 31, 2022
(in percentages)	As Reported	Constant Currency	As Reported	Constant Currency
End market sales growth (decline):
Aerospace	12%	19%	15%	22%
Transportation	3	13	—	9
General engineering	(2)	6	(1)	7
Energy	(6)	1	(4)	3
Regional sales growth (decline):
Americas	11%	12%	12%	12%
EMEA	(6)	9	(8)	7
Asia Pacific	(8)	2	(5)	4

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

For the three months ended December 31, 2022, Metal Cutting sales were flat compared to the prior year quarter. This was driven by organic growth of 11 percent, offset by an unfavorable foreign currency effect of 10 percent and an unfavorable business days effect of 1 percent. Aerospace end market sales increased in all regions as global travel levels and airplane manufacturing continue to recover from the COVID-19 pandemic, despite ongoing supply chain issues affecting certain components. Energy sales, excluding the effect from foreign currency, increased in Asia Pacific as economic activity increased, partially offset by decreases in the Americas and EMEA driven by timing of customer investments. Sales in our general engineering end market increased, excluding the effect of foreign currency, in the Americas and EMEA as manufacturing activity continues to recover from the effect of the COVID-19 pandemic and strong underlying demand continues, though inflation and supply chain challenges mitigated growth. In Asia Pacific, sales in our general engineering end market decreased due to ongoing COVID-19 challenges. Transportation end market sales increased in all regions due to improved automotive manufacturing levels and continued strong underlying demand. On a regional basis, the sales increase in the Americas and EMEA, excluding the effect from foreign currency exchange, were driven by increases in the aerospace, transportation, and general engineering end markets, partially offset by a decrease in the energy end market. The sales increase in Asia Pacific, excluding the effect from foreign currency exchange, was driven by increases in the aerospace, energy and transportation end markets, partially offset by a decrease in the general engineering end market.

For the three months ended December 31, 2022, Metal Cutting operating income was $26.2 million compared to $27.9 million in the prior year quarter. The decrease in operating income was primarily due to higher wages and general inflation, including an inflationary bonus of $2 million for certain German employees, higher raw material costs of approximately $8 million, unfavorable foreign currency exchange of approximately $6 million and depreciation of approximately $2 million due to the decision to scrap certain assets. These factors were partially offset by higher price realization, higher sales volumes and a gain of approximately $2 million on a property sale.

For the six months ended December 31, 2022, Metal Cutting sales were flat compared to the prior year period. This was driven by organic growth of 10 percent, offset by an unfavorable foreign currency effect of 9 percent and an unfavorable business days effect of 1 percent. Aerospace end market sales increased in all regions as global travel levels and airplane manufacturing continue to recover from the effect of the COVID-19 pandemic, despite ongoing supply chain issues affecting certain components. Energy sales increased, excluding the effect of foreign currency, in the Americas and Asia Pacific as economic activity increased and countries began developing alternative supply chains in response to the sanctions on Russia, partially offset by a decrease in EMEA. Sales in our general engineering end market increased, excluding the effect of foreign currency, in all regions as manufacturing activity continues to recover from the effect of the COVID-19 pandemic and strong underlying demand continues, though inflation and supply chain challenges mitigated growth. Transportation end market sales increased, excluding the effect of foreign currency, in all regions due to improved automotive manufacturing levels and continued strong underlying demand. On a regional basis, the sales increase in the Americas and Asia Pacific, excluding the effect from foreign currency exchange, were driven by increases in all end markets. The sales increase in EMEA, excluding the effect from foreign currency exchange, was driven by increases in the aerospace, general engineering and transportation end markets, partially offset by a decrease in the energy end market.

For the six months ended December 31, 2022, Metal Cutting operating income was $54.8 million compared to $57.1 million in the prior year period. The decrease in operating income was primarily due to higher wages and general inflation, including an inflationary bonus of $2 million for certain German employees, higher raw material costs of approximately $12 million, unfavorable foreign currency exchange of approximately $10 million and depreciation including approximately $2 million due to the decision to scrap certain assets. These factors were partially offset by higher price realization, higher sales volumes and a gain of approximately $2 million on a property sale.

INFRASTRUCTURE


	Three Months Ended December 31,						Six Months Ended December 31,
(in thousands)	2022			2021			2022			2021
Sales	$	197,652		$	188,092		$	392,508		$	373,171
Operating income	10,097			19,971			30,884			46,007
Operating margin	5.1		%	10.6		%	7.9		%	12.3		%

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


	Three Months Ended December 31, 2022	Six Months Ended December 31, 2022
(in percentages)
Organic sales growth	12%	11%
Foreign currency exchange effect(1)	(6)	(5)
Business days effect(2)	(1)	(1)


Sales growth	5%	5%


	Three Months Ended December 31, 2022		Six Months Ended December 31, 2022
(in percentages)	As Reported	Constant Currency	As Reported	Constant Currency
End market sales growth (decline):
Energy	8%	11%	13%	16%
Earthworks	4	11	5	11
General engineering	3	10	(1)	5
Regional sales growth (decline):
Americas	10%	11%	12%	12%
EMEA	6	23	(4)	11
Asia Pacific	(8)	2	(3)	5

For the three months ended December 31, 2022, Infrastructure sales increased by 5 percent from the prior year quarter. The increase in sales was driven by organic growth of 12 percent, partially offset by an unfavorable foreign currency effect of 6 percent and an unfavorable business days effect of 1 percent. Energy end market sales increased as U.S. oil and gas contributed to the year-over-year increase and as land rig counts continue to increase. Earthworks end market sales increased primarily due to growth in mining. In general engineering, the increase in sales was across all regions, excluding the effect from foreign currency exchange. On a regional basis, the sales increases in the Americas and EMEA, excluding the effect of foreign currency, was driven by increases in all end markets. The sales increase in Asia Pacific, excluding the effect of foreign currency, was driven by increases in the earthworks and general engineering end markets, partially offset by a decline in the energy end market.

For the three months ended December 31, 2022, Infrastructure operating income was $10.1 million compared to $20.0 million in the prior year quarter. The decrease in operating income was primarily due to higher raw material costs of approximately $16 million, under-absorption of approximately $5 million mainly due to reduced powder production to actively manage the drawdown of safety stock, higher wages and general inflation, and price realization ahead of raw material cost increases in the prior year quarter that did not repeat. These factors were partially offset by modest sales volume growth.

For the six months ended December 31, 2022, Infrastructure sales increased by 5 percent from the prior year period. The increase in sales was driven by organic growth of 11 percent, partially offset by an unfavorable foreign currency effect of 5 percent and an unfavorable business days effect of 1 percent. Energy end market sales increased as U.S. oil and gas contributed to the year-over-year increase and as land rig counts continue to increase. Earthworks end market sales increased primarily due to growth in mining and to a lesser extent construction. In general engineering, excluding the effect of foreign currency, the increase in sales was driven by growth in EMEA and Asia Pacific, partially offset by a decline in the Americas. On a regional basis, the sales increases in the Americas was driven by increases in the earthworks and energy end markets, partially offset by a decline in the general engineering end market. The sales increase in EMEA, excluding the effect of foreign currency, was driven by increases in all end markets. The sales increase in Asia Pacific, excluding the effect of foreign currency, was driven by increases in the earthworks and general engineering end markets, partially offset by a decline in the energy end market.

For the six months ended December 31, 2022, Infrastructure operating income was $30.9 million compared to $46.0 million in the prior year period. The decrease in operating income was primarily due to higher raw material costs of approximately $28 million, higher wages and general inflation, under-absorption of approximately $5 million mainly due to reduced powder production to actively manage the drawdown of safety stock, temporary supply chain disruptions and unfavorable foreign currency exchange of approximately $3 million. These factors were partially offset by higher price realization and sales volume growth.

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

CORPORATE


	Three Months Ended December 31,				Six Months Ended December 31,
(in thousands)	2022		2021		2022		2021
Corporate expense	$	(828)	$	(361)	$	(1,696)	$	(955)

For the three months ended December 31, 2022, Corporate expense increased by $0.5 million from the prior year quarter. For the six months ended December 31, 2022 Corporate expense decreased by $0.7 million from the prior year period.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations is the primary source of funding for our capital expenditures. For the six months ended December 31, 2022, cash flow provided by operating activities was $52.5 million.

We consider the majority of the unremitted earnings of our non-U.S. subsidiaries to be permanently reinvested. With regard to these unremitted earnings, 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, including liquidity needs associated with our domestic debt service requirements. With regard to the small portion of unremitted earnings that are not indefinitely reinvested, we maintain a deferred tax liability for foreign withholding and U.S. state income taxes.

In 2012, we received an assessment from the Italian tax authority that denied certain tax deductions primarily related to our 2008 tax return. Attempts at negotiating a reasonable settlement with the tax authority were unsuccessful; and as a result, we decided to litigate the matter. While the outcome of the litigation is still pending, the tax authority served notice in the September quarter of fiscal 2020 requiring payment in the amount of €36 million. Accordingly, we requested and were granted a stay and are not currently required to make a payment in connection with this assessment. We continue to believe that the assessment is baseless and accordingly, no income tax liability has been recorded in connection with this assessment in any period. However, if the Italian tax authority were to be successful in litigation, settlement of the amount alleged by the Italian tax authority would result in an increase to income tax expense by as much as ~~€36.7~~€36.8 million, or ~~$35.8~~$39.3 million, including penalties and interest of ~~€22.0~~€22.1 million, or ~~$21.4~~$23.6 million.

At ~~September 30,~~December 31, 2022, cash and cash equivalents were ~~$64.6~~$76.8 million, Total Kennametal Shareholders' equity was ~~$1,201.4~~$1,250.2 million and total debt was ~~$679.8~~$673.6 million. Our current senior credit ratings are at investment grade levels. We believe that our current financial position, liquidity and credit ratings provide us 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, 2022.

~~Cash Flow Used in/Provided by Operating Activities~~

During the three months ended September 30, 2022, cash flow used in operating activities was $10.7 million, compared to cash flow provided by operating activities of $15.8 million for the prior year period. Cash flow used in operating activities for the current year period consisted of net income and non-cash items amounting to an inflow of $68.2 million and changes in certain assets and liabilities netting to an outflow of $78.9 million. Contributing to the changes in certain assets and liabilities were a decrease in accounts payable and accrued liabilities of $42.1 million, an increase in inventories of $38.5 million due to higher material costs, lengthening supply chains and higher sales volumes and a decrease in accrued pension and postretirement benefits of $2.5 million. Partially offsetting these cash outflows was a decrease in accounts receivable of $5.3 million and an increase in accrued income taxes of $1.6 million.

During the three months ended September 30, 2021, cash flow provided by operating activities was $15.8 million and consisted of net income and non-cash items amounting to an inflow of $77.2 million and changes in certain assets and liabilities netting to an outflow of $61.4 million. Contributing to the changes in certain assets and liabilities were an increase in accrued income taxes of $5.8 million and a decrease in accounts receivable of $19.3 million. Offsetting these cash inflows were a decrease in accrued pension and postretirement benefits of $7.2 million, an increase in inventories of $34.4 million, a decrease in accounts payable and accrued liabilities of $43.7 million and an increase in other of $1.4 million.

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

Cash Flow Provided by Operating Activities

During the six months ended December 31, 2022, cash flow provided by operating activities was $52.5 million, compared to $57.8 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 $131.3 million and changes in certain assets and liabilities netting to an outflow of $78.8 million. Contributing to the changes in certain assets and liabilities were a decrease in accounts payable and accrued liabilities of $52.8 million, an increase in inventories of $32.9 million, and a decrease in accrued pension and postretirement benefits of $4.5 million. Partially offsetting these cash outflows was a decrease in accounts receivable of $4.0 million.

During the six months ended December 31, 2021, cash flow provided by operating activities consisted of net income and non-cash items amounting to an inflow of $144.5 million and changes in certain assets and liabilities netting to an outflow of $86.7 million. Contributing to the changes in certain assets and liabilities were an increase in inventories of $67.0 million and a decrease in accounts payable and accrued liabilities of $36.6 million. Partially offsetting these cash outflows was a decrease in accounts receivable of $23.0 million.

Cash Flow Used in Investing Activities

Cash flow used in investing activities was ~~$29.3~~$48.1 million for the ~~three~~six months ended ~~September 30,~~December 31, 2022, compared to ~~$17.4~~$36.1 million for the prior year period. During the current year period, cash flow used in investing activities primarily included capital expenditures, net of ~~$29.3~~$48.2 million, which consisted primarily of equipment upgrades, partially offset by disposals of property, plant, and equipment of ~~$0.2~~$2.5 million.

~~Cash~~For the six months ended December 31, 2021, cash flow used infor investing activities ~~was $17.4 million for the three months ended September 30, 2021 and primarily~~ included capital expenditures, net of ~~$17.5~~$37.1 million, which consisted primarily of expenditures related to our simplification/modernization initiatives and equipment ~~upgrades.~~upgrades, partially offset by the $1.0 million in proceeds from the New Castle divestiture.

Cash Flow ~~Provided by/~~Used in Financing Activities

Cash flow ~~provided by financing activities was $23.1 million for the three months ended September 30, 2022 compared to cash flow~~ used in financing activities ~~of $43.9~~was $11.2 million for the six months ended December 31, 2022 compared to $72.5 million in the prior year period. During the current year period, cash flow ~~provided by~~used in financing activities included ~~$60.9~~$57.8 million of borrowings under the Credit Agreement, ~~and a $3.4 million increase in notes payable, partially~~more than offset by ~~$19.4~~$30.1 million in common shares repurchased, ~~$16.3~~$32.4 million of cash dividends paid to Kennametal Shareholders and ~~$4.8~~$5.8 million of the effect of employee benefit and stock plans and dividend reinvestment.

~~Cash~~For the six months ended December 31, 2021, cash flow used infor financing activities ~~was $43.9~~included $35.5 million ~~for the three months ended September 30, 2021 and included $16.7~~in common shares repurchased, $33.5 million of cash dividends paid to Kennametal Shareholders, ~~$12.9~~$6.8 million ~~in common shares repurchased,~~of the effect of employee benefit and stock plans and dividend reinvestment, and a ~~$8.0~~$5.1 million decrease in notes ~~payable.~~payable, partially offset by $9 million from the borrowings under the Credit Agreement.

FINANCIAL CONDITION

Working capital was ~~$514.0~~$554.0 million at ~~September 30,~~December 31, 2022, ~~a decrease~~an increase of ~~$25.1~~$14.9 million from $539.1 million at June 30, 2022. The ~~decrease~~increase in working capital was primarily driven by an increase in inventories of $34.9 million, a decrease in other current liabilities of $24.1 million, a decrease in accounts payable of $21.2 million and a decrease in accrued expenses of $14.5 million, partially offset by an increase in borrowings under the Credit Agreement of ~~$64.1~~$57.6 million, an increase in accrued income taxes of $11.5 million and a decrease in cash and cash equivalents of $21.0 million and a decrease in accounts receivable of $16.6 million, partially offset by an increase in inventories of $20.6 million, a decrease in other current liabilities of $23.4 million, a decrease in accounts payable of $21.9 million, and a decrease in accrued expenses of $15.5$8.8 million. Currency exchange rate effects ~~decreased~~increased working capital by a total of approximately ~~$25.7~~$0.4 million, the ~~impact~~effect of which is included in the aforementioned changes.

Property, plant and equipment, net decreased ~~$29.5~~$20.5 million from $1,002.0 million at June 30, 2022 to ~~$972.5~~$981.6 million at ~~September 30,~~December 31, 2022, primarily due to depreciation expense of ~~$29.5 million and unfavorable currency effects of $20.6~~$60.9 million, partially offset by net capital additions of ~~$29.5~~$48.2 million and foreign currency effects of $0.3 million.

At ~~September 30,~~December 31, 2022, other assets were ~~$532.2~~$548.7 million, ~~a decrease~~an increase of ~~$14.6~~$2.0 million from $546.8 million at June 30, 2022. The ~~decrease~~increase was primarily due to ~~amortization~~an increase in deferred income taxes of ~~intangibles of $3.2~~$2.5 million, ~~a decrease~~an increase in goodwill of ~~$6.3~~$2.4 million due to currency exchange effects, ~~and a decrease in the operating lease right-of-use asset of $3.4 million,~~ partially offset by ~~an increase in other assets~~amortization of ~~$0.9~~intangibles of $6.3 million.

Kennametal Shareholders' equity was ~~$1,201.4~~$1,250.2 million at ~~September 30,~~December 31, 2022, a decrease of ~~$51.2~~$2.4 million from $1,252.6 million at June 30, 2022. The decrease was primarily due to ~~other comprehensive loss~~cash dividends paid to Kennametal Shareholders of ~~$49.0~~$32.4 million and the repurchase of capital stock of ~~$19.4~~$30.1 million primarily under the share repurchase program that was initiated during fiscal 2022, ~~and cash dividends paid to Kennametal Shareholders of $16.3 million,~~ partially offset by net income attributable to Kennametal of ~~$29.6~~$50.1 million.

~~DISCUSSION OF CRITICAL ACCOUNTING POLICIES~~

~~There have been no changes to our critical accounting policies since June 30, 2022.~~

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

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

There have been no changes to our critical accounting policies since June 30, 2022.

RECONCILIATION OF FINANCIAL MEASURES NOT DEFINED BY U.S. GAAP

In accordance with SEC rules, below are the definitions of the non-GAAP financial measures we use in this report and the reconciliation of these measures to the most closely related GAAP financial measures. 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. We believe 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 effects 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 (decline) (which is the most directly comparable GAAP measure) by end market excluding the effects 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 effect of business days. We believe this measure provides investors with a supplemental understanding of underlying end market trends by providing end market sales growth (decline) on a consistent basis. Also, we report constant currency end market sales growth at the consolidated and segment levels.

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

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


Three Months Ended September 30, 2022		Metal Cutting	Infrastructure	Total
Three Months Ended December 31, 2022					Three Months Ended December 31, 2022	Metal Cutting	Infrastructure	Total
Organic sales growth	Organic sales growth	9%	10%	9%	Organic sales growth	11%	12%	11%
Foreign currency exchange effect(1)	Foreign currency exchange effect(1)	(8)	(5)	(7)	Foreign currency exchange effect(1)	(10)	(6)	(8)

Business days effect(2)					Business days effect(2)	(1)

Sales growth	Sales growth	1%	5%	2%	Sales growth	—%	5%	2%


Six Months Ended December 31, 2022	Metal Cutting	Infrastructure	Total
Organic sales growth	10%	11%	10%
Foreign currency exchange effect(1)	(9)	(5)	(7)
Business days effect(2)	(1)	(1)	(1)


Sales growth	—%	5%	2%

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

Reconciliations of constant currency end market sales growth to end market sales growth (decline)(2) are as follows:

Metal Cutting
Three Months Ended September 30, 2022 General engineering Transportation Aerospace Energy
Constant currency end market sales growth 8% 6% 25% 4%
Foreign currency exchange effect(1)
(8) (9) (7) (7)
End market sales growth (decline)(2)
—% (3)% 18% (3)%
Infrastructure
Three Months Ended September 30, 2022 Energy Earthworks General engineering
Constant currency end market sales growth 20% 11% —%
Foreign currency exchange effect(1)
(3) (5) (5)
End market sales growth (decline)(2)
17% 6% (5)%
Total
Three Months Ended September 30, 2022 General engineering Transportation Aerospace Energy Earthworks
Constant currency end market sales growth 5% 6% 25% 15% 11%
Foreign currency exchange effect(1)
(6) (9) (7) (4) (5)
End market sales(decline) growth(2)
(1)% (3)% 18% 11% 6%


Metal Cutting
Three Months Ended December 31, 2022	General engineering	Transportation	Aerospace	Energy
Constant currency end market sales growth	6%	13%	19%	1%
Foreign currency exchange effect(1)	(8)	(10)	(7)	(7)


End market sales (decline) growth(2)	(2)%	3%	12%	(6)%


Infrastructure
Three Months Ended December 31, 2022	Energy	Earthworks	General engineering
Constant currency end market sales growth	11%	11%	10%
Foreign currency exchange effect(1)	(3)	(7)	(7)


End market sales growth(2)	8%	4%	3%


Total
Three Months Ended December 31, 2022	General engineering	Transportation	Aerospace	Energy	Earthworks
Constant currency end market sales growth	7%	13%	19%	8%	11%
Foreign currency exchange effect(1)	(7)	(10)	(7)	(4)	(7)


End market sales growth(2)	—%	3%	12%	4%	4%


Metal Cutting
Six Months Ended December 31, 2022	General engineering	Transportation	Aerospace	Energy
Constant currency end market sales growth	7%	9%	22%	3%
Foreign currency exchange effect(1)	(8)	(9)	(7)	(7)


End market sales (decline) growth(2)	(1)%	—%	15%	(4)%


Infrastructure
Six Months Ended December 31, 2022	Energy	Earthworks	General engineering
Constant currency end market sales growth	16%	11%	5%
Foreign currency exchange effect(1)	(3)	(6)	(6)


End market sales growth (decline)(2)	13%	5%	(1)%


Total
Six Months Ended December 31, 2022	General engineering	Transportation	Aerospace	Energy	Earthworks
Constant currency end market sales growth	6%	9%	22%	12%	11%
Foreign currency exchange effect(1)	(7)	(9)	(7)	(4)	(6)


End market sales (decline) growth(2)	(1)%	—%	15%	8%	5%

Table of Contents

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

Reconciliations of constant currency regional sales growth to reported regional sales growth (decline)(3) are as follows:


		Three Months Ended September 30, 2022			Three Months Ended December 31,		Six Months Ended December 31,
		Americas	EMEA	Asia Pacific			Americas	EMEA	Asia Pacific	Americas	EMEA	Asia Pacific
Metal Cutting	Metal Cutting					Metal Cutting
Constant currency regional sales growth	Constant currency regional sales growth	13%	5%	6%		Constant currency regional sales growth	12%	9%	2%	12%	7%	4%
Foreign currency exchange effect(1)	Foreign currency exchange effect(1)	(1)	(16)	(7)		Foreign currency exchange effect(1)	(1)	(15)	(10)	—	(15)	(9)

Regional sales growth (decline)(3)	Regional sales growth (decline)(3)	12%	(11)%	(1)%		Regional sales growth (decline)(3)	11%	(6)%	(8)%	12%	(8)%	(5)%

Infrastructure	Infrastructure					Infrastructure
Constant currency regional sales growth	Constant currency regional sales growth	13%	—%	8%		Constant currency regional sales growth	11%	23%	2%	12%	11%	5%
Foreign currency exchange effect(1)	Foreign currency exchange effect(1)	—	(14)	(5)		Foreign currency exchange effect(1)	(1)	(17)	(10)	—	(15)	(8)

Regional sales growth (decline)(3)	Regional sales growth (decline)(3)	13%	(14)%	3%		Regional sales growth (decline)(3)	10%	6%	(8)%	12%	(4)%	(3)%

Total	Total					Total
Constant currency regional sales growth	Constant currency regional sales growth	13%	4%	7%		Constant currency regional sales growth	11%	12%	2%	12%	8%	4%
Foreign currency exchange effect(1)	Foreign currency exchange effect(1)	(1)	(15)	(7)		Foreign currency exchange effect(1)	—	(15)	(10)	—	(15)	(8)

Regional sales growth (decline)(3)	Regional sales growth (decline)(3)	12%	(11)%	—%		Regional sales growth (decline)(3)	11%	(3)%	(8)%	12%	(7)%	(4)%

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

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

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our market risk exposures since June 30, 2022.


ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this 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 ~~September 30,~~December 31, 2022 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

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
Approximate Dollar Value of
of Shares that May
Yet Be Purchased
Under the Plans or
Programs (2)
July 1 through July 31, 2022 645 $ 23.14 — $ 114,700,000
August 1 through August 31, 2022 382,993 26.56 250,000 108,200,000
September 1 through September 30, 2022 575,806 22.30 573,645 95,400,000
Total 959,444 $ 24.00 823,645


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	Approximate Dollar Value of of Shares that May Yet Be Purchased Under the Plans or Programs (2)
October 1 through October 31, 2022	364,150	$	22.39	364,150	$	87,200,000
November 1 through November 30, 2022	106,547	24.10		103,977	84,700,000
December 1 through December 31, 2022	29,156	26.44		—	84,700,000
Total	499,853	$	22.99	468,127

(1)During the current period, ~~1,795~~1,745 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 ~~134,004~~29,981 shares of restricted stock to Kennametal, upon vesting, to satisfy tax withholding requirements.

(2)On July 27, 2021, the Board of Directors of the Company approved a share repurchase program authorizing the Company to purchase up to $200 million of the Company's common stock over a three-year period outside of the Company's dividend reinvestment program.

UNREGISTERED SALES OF EQUITY SECURITIES

None.

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ITEM 6. EXHIBITS

Rule 13a-14(a)/15d-14(a) Certifications

31.1

Certification executed by Christopher Rossi, President and Chief Executive Officer of Kennametal Inc.

Filed herewith.

31.2

Certification executed by Patrick S. Watson, Vice President and Chief Financial Officer of Kennametal Inc.

Filed herewith.

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 Christopher Rossi, President and Chief Executive Officer of Kennametal Inc., and Patrick S. Watson, Vice President and Chief Financial Officer of Kennametal Inc.

Filed herewith.

101

XBRL

101.INS (3)

XBRL Instance Document

Filed herewith.

101.SCH (4)

XBRL Taxonomy Extension Schema Document

Filed herewith.

101.CAL (4)

XBRL Taxonomy Extension Calculation Linkbase Document

Filed herewith.

101.DEF (4)

XBRL Taxonomy Definition Linkbase

Filed herewith.

101.LAB (4)

XBRL Taxonomy Extension Label Linkbase Document

Filed herewith.

101.PRE (4)

XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith.

(3)The instance document does not appear in the Interactive Data File because its XBRL (Extensible Business Reporting Language) tags are embedded within the Inline XBRL document.

(4)Attached as Exhibit 101 to this report are the following documents formatted in Inline XBRL: (i) the Condensed Consolidated Statements of Income for the three and six months ended ~~September 30,~~December 31, 2022 and 2021, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended ~~September 30,~~December 31, 2022 and 2021, (iii) the Condensed Consolidated Balance Sheets at ~~September 30,~~December 31, 2022 and June 30, 2022, (iv) the Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~September 30,~~December 31, 2022 and 2021 and (v) Notes to Condensed Consolidated Financial Statements for the three and six months ended ~~September 30,~~December 31, 2022 and 2021.

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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:

~~November 3, 2022~~February 8, 2023

By:

/s/ John W. Witt

John W. Witt
Vice President Finance and Corporate Controller

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	Three Months Ended September 30, 2021
(in percentages)	Metal Cutting	Infrastructure	Total Kennametal
General engineering	56%	35%	48%
Transportation	28	—	17
Aerospace	9	—	5
Energy	7	29	16
Earthworks	—	36	14