UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended: ~~March 31,~~September 30, 2023


☐			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 ~~April 28,~~October 31, 2023 ~~80,275,367~~79,603,305 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 NINE~~ MONTHS ENDED ~~MARCH 31,~~SEPTEMBER 30, 2023

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 and nine months ended March 31, 2023 and 2022	4		Condensed Consolidated Statements of Income (Unaudited) Three months ended September 30, 2023 and 2022	4

		Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and nine months ended March 31, 2023 and 2022	4		Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three months ended September 30, 2023 and 2022	4

		Condensed Consolidated Balance Sheets (Unaudited) March 31, 2023 and June 30, 2022	5		Condensed Consolidated Balance Sheets (Unaudited) September 30, 2023 and June 30, 2023	5

		Condensed Consolidated Statements of Cash Flow (Unaudited) Nine months ended March 31, 2023 and 2022	6		Condensed Consolidated Statements of Cash Flow (Unaudited) Three months ended September 30, 2023 and 2022	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	21	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

3.	3.	Quantitative and Qualitative Disclosures About Market Risk	32	3.	Quantitative and Qualitative Disclosures About Market Risk	29

4.	4.	Controls and Procedures	32	4.	Controls and Procedures	29

5.				5.	Other Information	29

PART II - OTHER INFORMATION	PART II - OTHER INFORMATION			PART II - OTHER INFORMATION
1.	1.	Legal Proceedings	33	1.	Legal Proceedings	30

2.	2.	Unregistered Sales of Equity Securities and Use of Proceeds	33	2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	30

6.	6.	Exhibits	34	6.	Exhibits	31

Signatures	Signatures		35	Signatures		32

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~~resulting sanctions on Russia; ~~uncertainties related to~~ the adverse effects of the ~~ongoing~~ COVID-19 pandemic ~~including the emergence of more contagious or virulent strains of the virus,~~and 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;~~generally; other economic ~~recession or inflationary pressures;~~recession; 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~~such as 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.

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(in thousands, except per share amounts)	(in thousands, except per share amounts)	2023		2022		2023		2022		(in thousands, except per share amounts)	2023		2022
Sales	Sales	$	536,036	$	512,259	$	1,527,949	$	1,482,441	Sales	$	492,476	$	494,792
Cost of goods sold	Cost of goods sold	368,122		347,639		1,057,177		1,004,116		Cost of goods sold	329,578		334,824
Gross profit	Gross profit	167,914		164,620		470,772		478,325		Gross profit	162,898		159,968
Operating expense	Operating expense	113,273		107,075		327,308		316,423		Operating expense	111,649		108,278
Restructuring and other charges, net (Note 6)	Restructuring and other charges, net (Note 6)	(994)		947		(2,499)		(2,323)		Restructuring and other charges, net (Note 6)	3,086		—
Gain on divestiture (Note 3)		—		—		—		(1,001)

Amortization of intangibles	Amortization of intangibles	3,164		3,234		9,476		9,751		Amortization of intangibles	3,045		3,164
Operating income	Operating income	52,471		53,364		136,487		155,475		Operating income	45,118		48,526
Interest expense	Interest expense	7,747		6,436		21,399		19,217		Interest expense	6,601		6,638
Other expense (income), net		986		(4,528)		2,584		(11,129)
Other expense, net										Other expense, net	89		1,009
Income before income taxes	Income before income taxes	43,738		51,456		112,504		147,387		Income before income taxes	38,428		40,879
Provision for income taxes	Provision for income taxes	10,672		14,578		26,878		40,031		Provision for income taxes	8,059		11,242
Net income	Net income	33,066		36,878		85,626		107,356		Net income	30,369		29,637
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	1,129		1,583		3,594		4,443		Less: Net income attributable to noncontrolling interests	312		1,441
Net income attributable to Kennametal	Net income attributable to Kennametal	$	31,937	$	35,295	$	82,032	$	102,913	Net income attributable to Kennametal	$	30,057	$	28,196
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	$	0.40	$	0.42	$	1.01	$	1.23	Basic earnings per share	$	0.38	$	0.35
Diluted earnings per share	Diluted earnings per share	$	0.39	$	0.42	$	1.01	$	1.22	Diluted earnings per share	$	0.37	$	0.34
Basic weighted average shares outstanding	Basic weighted average shares outstanding	80,611		83,084		80,967		83,538		Basic weighted average shares outstanding	80,025		81,544
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	81,281		83,807		81,525		84,268		Diluted weighted average shares outstanding	80,699		82,165

KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(in thousands)	(in thousands)	2023		2022		2023		2022		(in thousands)	2023		2022
Net income	Net income	$	33,066	$	36,878	$	85,626	$	107,356	Net income	$	30,369	$	29,637
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)		(577)		(577)		Reclassification of unrealized gain on derivatives designated and qualified as cash flow hedges	(192)		(192)
Unrecognized net pension and other postretirement benefit plans (loss) gain		(1,059)		1,511		(1,106)		4,291
Unrecognized net pension and other postretirement benefit plans gain										Unrecognized net pension and other postretirement benefit plans gain	1,517		3,324
Reclassification of net pension and other postretirement benefit plans loss	Reclassification of net pension and other postretirement benefit plans loss	842		2,185		2,480		6,601		Reclassification of net pension and other postretirement benefit plans loss	1,054		806
Foreign currency translation adjustments	Foreign currency translation adjustments	13,689		(8,068)		13,559		(34,626)		Foreign currency translation adjustments	(20,188)		(52,949)

Total other comprehensive income (loss), net of tax		13,280		(4,564)		14,356		(24,311)
Total comprehensive income		46,346		32,314		99,982		83,045
Less: comprehensive income attributable to noncontrolling interests		1,483		1,127		3,250		3,080
Comprehensive income attributable to Kennametal Shareholders		$	44,863	$	31,187	$	96,732	$	79,965
Total other comprehensive loss, net of tax										Total other comprehensive loss, net of tax	(17,809)		(49,011)
Total comprehensive income (loss)										Total comprehensive income (loss)	12,560		(19,374)
Less: comprehensive loss attributable to noncontrolling interests										Less: comprehensive loss attributable to noncontrolling interests	(326)		(324)
Comprehensive income (loss) attributable to Kennametal Shareholders										Comprehensive income (loss) attributable to Kennametal Shareholders	$	12,886	$	(19,050)

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)	March 31, 2023		June 30, 2022		(in thousands, except per share data)	September 30, 2023		June 30, 2023
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	93,474	$	85,586	Cash and cash equivalents	$	95,098	$	106,021
Accounts receivable, less allowance for doubtful accounts of $9,084 and $9,422, respectively		313,866		295,346
Accounts receivable, less allowance for doubtful accounts of $8,185 and $8,759, respectively						Accounts receivable, less allowance for doubtful accounts of $8,185 and $8,759, respectively	288,655		307,313
Inventories (Note 9)	Inventories (Note 9)	595,088		570,836		Inventories (Note 9)	570,345		557,630

Other current assets	Other current assets	76,607		72,940		Other current assets	56,457		55,825
Total current assets	Total current assets	1,079,035		1,024,708		Total current assets	1,010,555		1,026,789
Property, plant and equipment:	Property, plant and equipment:					Property, plant and equipment:
Land and buildings	Land and buildings	416,432		410,039		Land and buildings	412,338		416,291
Machinery and equipment	Machinery and equipment	1,941,238		1,904,872		Machinery and equipment	1,954,536		1,951,535
Less accumulated depreciation	Less accumulated depreciation	(1,382,753)		(1,312,870)		Less accumulated depreciation	(1,408,628)		(1,398,758)
Property, plant and equipment, net	Property, plant and equipment, net	974,917		1,002,041		Property, plant and equipment, net	958,246		969,068
Other assets:	Other assets:					Other assets:
Goodwill (Note 17)	Goodwill (Note 17)	268,784		264,230		Goodwill (Note 17)	266,582		269,551
Other intangible assets, less accumulated amortization of $170,920 and $160,699, respectively (Note 17)		96,562		105,725
Other intangible assets, less accumulated amortization of $175,481 and $173,346, respectively (Note 17)						Other intangible assets, less accumulated amortization of $175,481 and $173,346, respectively (Note 17)	89,817		93,164
Operating lease right-of-use assets	Operating lease right-of-use assets	41,180		47,206		Operating lease right-of-use assets	43,000		43,036
Deferred income taxes	Deferred income taxes	57,387		54,602		Deferred income taxes	64,453		65,519
Other	Other	85,716		75,012		Other	80,107		80,107
Total other assets	Total other assets	549,629		546,775		Total other assets	543,959		551,377
Total assets	Total assets	$	2,603,581	$	2,573,524	Total assets	$	2,512,760	$	2,547,234
LIABILITIES	LIABILITIES					LIABILITIES
Current liabilities:	Current liabilities:					Current liabilities:

Revolving and other lines of credit and notes payable (Note 11)	Revolving and other lines of credit and notes payable (Note 11)	$	64,055	$	21,186	Revolving and other lines of credit and notes payable (Note 11)	$	31,179	$	689
Current operating lease liabilities	Current operating lease liabilities	11,145		12,387		Current operating lease liabilities	11,712		11,379
Accounts payable	Accounts payable	197,158		227,887		Accounts payable	197,369		203,341
Accrued income taxes	Accrued income taxes	41,546		29,476		Accrued income taxes	19,170		25,143
Accrued expenses	Accrued expenses	46,851		56,310		Accrued expenses	42,191		55,635

Other current liabilities	Other current liabilities	127,974		138,403		Other current liabilities	118,225		137,788
Total current liabilities	Total current liabilities	488,729		485,649		Total current liabilities	419,846		433,975
Long-term debt, less current maturities (Note 10)	Long-term debt, less current maturities (Note 10)	594,970		594,364		Long-term debt, less current maturities (Note 10)	595,374		595,172
Operating lease liabilities	Operating lease liabilities	30,581		35,342		Operating lease liabilities	31,786		32,178
Deferred income taxes	Deferred income taxes	32,584		32,185		Deferred income taxes	31,410		32,062
Accrued pension and postretirement benefits	Accrued pension and postretirement benefits	116,771		112,995		Accrued pension and postretirement benefits	112,542		115,536
Accrued income taxes	Accrued income taxes	—		6,369		Accrued income taxes	1,545		1,446
Other liabilities	Other liabilities	23,630		15,373		Other liabilities	21,506		22,697
Total liabilities	Total liabilities	1,287,265		1,282,277		Total liabilities	1,214,009		1,233,066
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
EQUITY (Note 15)	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; 80,274 and 81,337 shares issued, respectively		100,342		101,671
Capital stock, $1.25 par value; 120,000 shares authorized; 79,818 and 79,835 shares issued, respectively						Capital stock, $1.25 par value; 120,000 shares authorized; 79,818 and 79,835 shares issued, respectively	99,773		99,794
Additional paid-in capital	Additional paid-in capital	470,709		494,202		Additional paid-in capital	453,385		465,406
Retained earnings	Retained earnings	1,104,219		1,070,655		Retained earnings	1,138,712		1,124,590
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(399,251)		(413,951)		Accumulated other comprehensive loss	(431,512)		(414,343)
Total Kennametal Shareholders’ Equity	Total Kennametal Shareholders’ Equity	1,276,019		1,252,577		Total Kennametal Shareholders’ Equity	1,260,358		1,275,447
Noncontrolling interests	Noncontrolling interests	40,297		38,670		Noncontrolling interests	38,393		38,721
Total equity	Total equity	1,316,316		1,291,247		Total equity	1,298,751		1,314,168
Total liabilities and equity	Total liabilities and equity	$	2,603,581	$	2,573,524	Total liabilities and equity	$	2,512,760	$	2,547,234

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

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KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)


		Nine Months Ended March 31,					Three Months Ended September 30,
(in thousands)	(in thousands)	2023		2022		(in thousands)	2023		2022
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net income	Net income	$	85,626	$	107,356	Net income	$	30,369	$	29,637
Adjustments to reconcile to cash from operations:	Adjustments to reconcile to cash from operations:					Adjustments to reconcile to cash from operations:
Depreciation	Depreciation	91,710		87,984		Depreciation	30,461		29,459
Amortization	Amortization	9,476		9,751		Amortization	3,045		3,164
Stock-based compensation expense	Stock-based compensation expense	18,765		18,024		Stock-based compensation expense	8,696		8,282
Restructuring and other charges, net (Note 6)	Restructuring and other charges, net (Note 6)	(2,499)		(2,444)		Restructuring and other charges, net (Note 6)	3,087		—
Deferred income taxes	Deferred income taxes	(2,658)		593		Deferred income taxes	(104)		64

Gain on divestiture (Note 3)		—		(1,001)

Other	Other	3,971		703		Other	5,623		(2,406)
Changes in certain assets and liabilities:	Changes in certain assets and liabilities:					Changes in certain assets and liabilities:
Accounts receivable	Accounts receivable	(16,427)		(17,757)		Accounts receivable	17,937		5,303
Inventories	Inventories	(17,271)		(99,486)		Inventories	(20,266)		(38,499)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	(46,253)		(11,416)		Accounts payable and accrued liabilities	(32,555)		(42,145)
Accrued income taxes	Accrued income taxes	1,524		14,733		Accrued income taxes	(11,676)		1,552
Accrued pension and postretirement benefits	Accrued pension and postretirement benefits	(6,994)		(20,318)		Accrued pension and postretirement benefits	(2,925)		(2,482)
Other	Other	7,212		6,301		Other	(5,981)		(2,677)
Net cash flow provided by operating activities		126,182		93,023
Net cash flow provided by (used in) operating activities						Net cash flow provided by (used in) operating activities	25,711		(10,748)
INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(71,083)		(60,151)		Purchases of property, plant and equipment	(31,799)		(29,484)
Disposals of property, plant and equipment	Disposals of property, plant and equipment	4,774		765		Disposals of property, plant and equipment	3,048		202

Proceeds from divestiture (Note 3)		—		1,001

Other	Other	95		62		Other	27		(12)
Net cash flow used in investing activities	Net cash flow used in investing activities	(66,214)		(58,323)		Net cash flow used in investing activities	(28,724)		(29,294)
FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Net decrease in notes payable		(567)		(7,111)
Net increase in notes payable						Net increase in notes payable	7,212		3,388
Net increase in revolving and other lines of credit	Net increase in revolving and other lines of credit	43,600		27,500		Net increase in revolving and other lines of credit	23,400		60,900

Purchase of capital stock	Purchase of capital stock	(37,556)		(50,522)		Purchase of capital stock	(13,725)		(19,376)
The effect of employee benefit and stock plans and dividend reinvestment	The effect of employee benefit and stock plans and dividend reinvestment	(6,036)		(6,889)		The effect of employee benefit and stock plans and dividend reinvestment	(7,013)		(4,757)
Cash dividends paid to Shareholders	Cash dividends paid to Shareholders	(48,468)		(50,062)		Cash dividends paid to Shareholders	(15,935)		(16,276)
Other	Other	(986)		(682)		Other	9		(754)
Net cash flow used in financing activities		(50,013)		(87,766)
Net cash flow (used in) provided by financing activities						Net cash flow (used in) provided by financing activities	(6,052)		23,125
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(2,067)		(999)		Effect of exchange rate changes on cash and cash equivalents	(1,858)		(4,101)
CASH AND CASH EQUIVALENTS	CASH AND CASH EQUIVALENTS					CASH AND CASH EQUIVALENTS
Net increase in cash and cash equivalents		7,888		(54,065)
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(10,923)		(21,018)
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	106,021		85,586
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	93,474	$	99,982	Cash and cash equivalents, end of period	$	95,098	$	64,568

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~~2023 (the ~~“2022~~“2023 Annual Report”). The condensed consolidated balance sheet as of June 30, ~~2022~~2023 was derived from the audited balance sheet included in our ~~2022~~2023 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 ~~nine~~three months ended ~~March 31,~~September 30, 2023 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~~2024 is to the fiscal year ending June 30, ~~2023.~~2024. 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


		Nine Months Ended March 31,					Three Months Ended September 30,
(in thousands)	(in thousands)	2023		2022		(in thousands)	2023		2022
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	19,720	$	17,519	Interest	$	5,031	$	5,143
Income taxes	Income taxes	28,012		24,705		Income taxes	13,310		9,626
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	(7,245)		2,502		Changes in accounts payable related to purchases of property, plant and equipment	(4,789)		(8,708)

3. ~~DIVESTITURE~~SUPPLIER FINANCE PROGRAM

~~During~~We have a supplier finance program managed through two global financial institutions under which we agree to pay the ~~year ended~~financial institutions the stated amount of confirmed invoices from our participating suppliers on the invoice due date. We, or the global financial institutions, may terminate our agreements at any time upon 30 days written notice. We do not provide any forms of guarantees under these agreements. Supplier participation in the program is solely up to the supplier. We have no economic interest in a supplier’s decision to participate in the program, and their participation has no bearing on our payment terms or amounts due. The payment terms that we have with our suppliers under this program are considered commercially reasonable. As of September 30, 2023 and June 30, ~~2020, we completed~~2023, the ~~sale~~amount of ~~certain assets of~~obligations outstanding that the ~~non-core specialty alloys and metals business within~~Company has confirmed as valid to 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~~financial institutions under the program was ~~$29.5~~$24.5 million and ~~the pre-tax loss on divestiture recognized during the year ended June 30, 2020~~$20.7 million, respectively, and 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.~~within trade accounts payable.

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.

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of ~~March 31,~~September 30, 2023, the fair values of our financial assets and financial liabilities are categorized as follows:


(in thousands)	(in thousands)	Level 1		Level 2		Level 3		Total		(in thousands)	Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Derivatives (1)	Derivatives (1)	$	—	$	160	$	—	$	160	Derivatives (1)	$	—	$	1	$	—	$	1
Total assets at fair value	Total assets at fair value	$	—	$	160	$	—	$	160	Total assets at fair value	$	—	$	1	$	—	$	1

Liabilities:	Liabilities:									Liabilities:
Derivatives (1)	Derivatives (1)	$	—	$	3	$	—	$	3	Derivatives (1)	$	—	$	90	$	—	$	90
Total liabilities at fair value	Total liabilities at fair value	$	—	$	3	$	—	$	3	Total liabilities at fair value	$	—	$	90	$	—	$	90

As of June 30, ~~2022,~~2023, the fair values of our financial assets and financial liabilities are categorized as follows:


(in thousands)	(in thousands)	Level 1		Level 2		Level 3		Total		(in thousands)	Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Derivatives (1)	Derivatives (1)	$	—	$	176	$	—	$	176	Derivatives (1)	$	—	$	68	$	—	$	68
Total assets at fair value	Total assets at fair value	$	—	$	176	$	—	$	176	Total assets at fair value	$	—	$	68	$	—	$	68

Liabilities:	Liabilities:									Liabilities:
Derivatives (1)	Derivatives (1)	$	—	$	574	$	—	$	574	Derivatives (1)	$	—	$	100	$	—	$	100
Total liabilities at fair value	Total liabilities at fair value	$	—	$	574	$	—	$	574	Total liabilities at fair value	$	—	$	100	$	—	$	100

(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.

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 ~~March 31,~~September 30, 2023 and June 30, ~~2022.~~2023. The fair value of derivatives not designated as hedging instruments in the condensed consolidated balance sheets are as follows:


(in thousands)	(in thousands)	March 31, 2023		June 30, 2022		(in thousands)	September 30, 2023		June 30, 2023

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	$	160	$	176	Other current assets - currency forward contracts	$	1	$	68
Other current liabilities - currency forward contracts	Other current liabilities - currency forward contracts	(3)		(574)		Other current liabilities - currency forward contracts	(90)		(100)
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments	157		(398)		Total derivatives not designated as hedging instruments	(89)		(32)
Total derivatives	Total derivatives	$	157	$	(398)	Total derivatives	$	(89)	$	(32)

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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,~~sheets, with the offset to other expense, ~~(income),~~ net. Losses (gains) related to derivatives not designated as hedging instruments have been recognized as follows:


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(in thousands)	(in thousands)	2023		2022		2023		2022		(in thousands)	2023		2022
Other expense (income), net - currency forward contracts	Other expense (income), net - currency forward contracts	$	56	$	(541)	$	(447)	$	(535)	Other expense (income), net - currency forward contracts	$	122	$	(306)

NET INVESTMENT HEDGES

As of ~~March 31,~~September 30, 2023 and June 30, ~~2022, we had certain~~2023, there were no foreign currency-denominated intercompany loans payable ~~with total aggregate principal amounts of €17.1 million and €13.0 million, respectively,~~outstanding that were designated as net investment ~~hedges to hedge the foreign exchange exposure of our net investment in our Euro-based subsidiaries.~~hedges. A ~~loss of $0.3 million and a~~ gain of ~~$0.1~~$1.7 million were recorded as a component of foreign currency translation adjustments in other comprehensive income (loss) for the three months ended March 31, 2023 and 2022, respectively. Gains of $1.0 million and $1.5 million werewas recorded as a component of foreign currency translation adjustments in other comprehensive loss for the ~~nine~~three months ended ~~March 31, 2023 and 2022, respectively.~~

~~As of March 31, 2023, 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 € 17,129 $ 18,649 June 30, 2023

~~(2)~~ ~~Includes principal and accrued interest.~~September 30, 2022.

6. RESTRUCTURING AND OTHER CHARGES, NET

In the June quarter of fiscal 2023, we announced an initiative to streamline our cost structure while continuing to invest in our high-return commercial and operational excellence initiatives. Total restructuring and related charges for this program of $11.1 million, compared to a target of approximately $20 million, were recorded through September 30, 2023, consisting of $8.5 million in Metal Cutting and $2.6 million in Infrastructure. The majority of the remaining charges are expected to be recognized in fiscal 2024.

We recorded restructuring and related charges of $3.7 million for the three months ended September 30, 2023, which consisted of $2.5 million in Metal Cutting and $1.2 million in Infrastructure. Also included in restructuring and other charges, net during the three months ended September 30, 2023 is a net benefit of $0.6 million primarily due to the sale of property.

We recorded no restructuring and related charges for the three ~~and nine~~ months ended March 31, 2023. For the three months ended March 31, 2022, we recorded restructuring and related charges of $3.0 million, which consisted of charges of $3.0 million in Metal Cutting and an immaterial amount in Infrastructure. Of this amount, restructuring charges were $0.9 million and restructuring-related charges were $2.1 million (included in cost of goods sold).

For the nine months ended March 31, 2022, we recorded restructuring and related charges of $2.6 million, which consisted of charges of $2.6 million in Metal Cutting and an immaterial amount in Infrastructure. Of this amount, the net benefits from the reversal of restructuring charges were $2.3 million and restructuring-related charges were $4.9 million (included in cost of goods sold).September 30, 2022.

As of ~~March 31,~~September 30, 2023, ~~$2.9~~$7.7 million and ~~$1.5~~$2.2 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~~2023, $9.4 million and ~~$1.9~~$0.5 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		Translation		Cash Expenditures		March 31, 2023		(in thousands)	June 30, 2023		Expense		Translation		Cash Expenditures		September 30, 2023
Severance	Severance	$	7,919	$	—	$	29	$	(3,529)	$	4,419	Severance	$	9,885	$	3,694	$	(229)	$	(3,448)	$	9,902

Total	Total	$	7,919	$	—	$	29	$	(3,529)	$	4,419	Total	$	9,885	$	3,694	$	(229)	$	(3,448)	$	9,902

~~Included~~

7. STOCK-BASED COMPENSATION

Stock Options

Changes in ~~other charges, net~~our stock options for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2023 ~~is a net benefit~~were as follows:


	Options	Weighted Average Exercise Price		Weighted Average Remaining Life (years)	Aggregate Intrinsic value (in thousands)
Options outstanding, June 30, 2023	217,614	$	37.29

Exercised	—
Lapsed or forfeited	(52,304)	45.24
Options outstanding, September 30, 2023	165,310	$	34.78	1.5	$	56
Options vested, September 30, 2023	165,310	$	34.78	1.5	$	56
Options exercisable, September 30, 2023	165,310	$	34.78	1.5	$	56

As of ~~$1.0 million~~September 30, 2023 and ~~$2.5 million, respectively, consisting primarily from gains on the sale~~June 30, 2023, there was no unrecognized compensation cost related to options outstanding, and all options were fully vested as of ~~properties.~~September 30, 2023 and 2022.

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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 nine months ended March 31, 2023 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 (54,229) 38.10
Options outstanding, March 31, 2023 217,614 $ 37.29 1.6 $ 94
Options vested, March 31, 2023 217,614 $ 37.29 1.6 $ 94
Options exercisable, March 31, 2023 217,614 $ 37.29 1.6 $ 94

~~As of March 31, 2023 and June 30, 2022, there~~There was no ~~unrecognized compensation cost related to options outstanding, and all options were fully vested as of March 31, 2023 and 2022.~~

~~The amount of~~ cash received from the exercise of options during the ~~nine~~three months ended ~~March 31,~~September 30, 2023 and ~~2022 was zero and $0.2 million, respectively.~~2022. The total intrinsic value of options exercised during the ~~nine~~three months ended ~~March 31,~~September 30, 2023 and 2022 was ~~zero and $0.1 million, respectively.~~zero.

Restricted Stock Units – Performance Vesting and Time Vesting

Changes in our performance vesting and time vesting restricted stock units for the ~~nine~~three months ended ~~March 31,~~September 30, 2023 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		350,955	$	33.44	1,213,896	$	33.53
Unvested, June 30, 2023								Unvested, June 30, 2023	483,481	$	31.68	1,207,442	$	30.26
Granted	Granted	189,469	27.27		736,175	26.92		Granted	270,911	25.99		676,764	25.99
Vested	Vested	—	—		(635,923)	32.65		Vested	(172,542)	51.63		(528,627)	30.74
Performance metric adjustments, net	Performance metric adjustments, net	(52,111)	27.58		—	—		Performance metric adjustments, net	37,378	38.45		—	—
Forfeited	Forfeited	(4,832)	30.49		(79,830)	30.59		Forfeited	(44,998)	50.87		(8,576)	28.10
Unvested, March 31, 2023		483,481	$	31.68	1,234,318	$	30.23
Unvested, September 30, 2023								Unvested, September 30, 2023	574,230	$	21.94	1,347,003	$	27.94

During the ~~nine~~three months ended ~~March 31,~~September 30, 2023 and 2022, compensation expense related to time vesting and performance vesting restricted stock units was ~~$17.7~~$8.3 million and ~~$17.2~~$7.8 million, respectively. Performance vesting stock units were adjusted by ~~52,111~~37,378 units during the ~~nine~~three months ended ~~March 31,~~September 30, 2023 related to the fiscal ~~2022~~2023 performance year. As of ~~March 31,~~September 30, 2023, the total unrecognized compensation cost related to unvested time vesting and performance vesting restricted stock units was ~~$28.7~~$38.6 million and is expected to be recognized over a weighted average period of ~~1.8~~2.1 years.

8. PENSION AND OTHER POSTRETIREMENT BENEFITS

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


	Three Months Ended September 30,
(in thousands)	2023		2022
Service cost	$	297	$	238
Interest cost	8,907		8,040
Expected return on plan assets	(11,161)		(10,026)
Amortization of transition obligation	19		21
Amortization of prior service cost	(1)		2
Recognition of actuarial losses	1,444		1,105


Net periodic pension income	$	(495)	$	(620)

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


	Three Months Ended September 30,
(in thousands)	2023		2022

Interest cost	$	107	$	104
Amortization of prior service credit	(63)		(68)
Recognition of actuarial loss	34		48
Net periodic other postretirement benefit cost	$	78	$	84

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, net.

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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 March 31, Nine Months Ended March 31,
(in thousands) 2023 2022 2023 2022
Service cost $ 243 $ 279 $ 718 $ 846
Interest cost 8,085 5,631 24,127 16,931
Expected return on plan assets (10,045) (12,985) (30,054) (39,020)
Amortization of transition obligation 21 23 62 71
Amortization of prior service cost 1 3 4 9
Recognition of actuarial losses 1,117 2,918 3,314 8,829
Net periodic pension income $ (578) $ (4,131) $ (1,829) $ (12,334)

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

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2023 2022 2023 2022
Interest cost $ 104 $ 72 $ 312 $ 216
Amortization of prior service credit (68) (69) (203) (207)
Recognition of actuarial loss 48 74 144 223
Net periodic other postretirement benefit cost $ 84 $ 77 $ 253 $ 232

9. INVENTORIES

We used the last-in, first-out (LIFO) method of valuing inventories for 3733 percent and 3933 percent of total inventories at ~~March 31,~~September 30, 2023 and June 30, ~~2022,~~2023, 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)	March 31, 2023		June 30, 2022		(in thousands)	September 30, 2023		June 30, 2023
Finished goods	Finished goods	$	339,069	$	316,936	Finished goods	$	336,340	$	328,094
Work in process and powder blends	Work in process and powder blends	241,712		231,214		Work in process and powder blends	240,803		233,346
Raw materials	Raw materials	97,920		107,024		Raw materials	82,898		81,552
Inventories at current cost	Inventories at current cost	678,701		655,174		Inventories at current cost	660,041		642,992
Less: LIFO valuation	Less: LIFO valuation	(83,613)		(84,338)		Less: LIFO valuation	(89,696)		(85,362)
Total inventories	Total inventories	$	595,088	$	570,836	Total inventories	$	570,345	$	557,630

10. LONG-TERM DEBT

Fixed rate debt had a fair market value of ~~$538.2~~$519.1 million and ~~$536.1~~$527.4 million at ~~March 31,~~September 30, 2023 and June 30, ~~2022,~~2023, respectively. The Level 2 fair value is determined based on the quoted market prices for similar debt instruments as of ~~March 31,~~September 30, 2023 and June 30, ~~2022,~~2023, respectively.

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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 ~~March 31,~~September 30, 2023, we were in compliance with all the covenants of the Credit Agreement, and ~~we had $62.6~~there were $23.4 million of borrowings outstanding and ~~$637.4~~$676.6 million of additional availability. ~~We had $19.0 million of~~There were no borrowings outstanding as of June 30, ~~2022.~~2023.

Borrowings on other lines of credit and notes payable were ~~$1.5~~$7.8 million and ~~$2.2~~$0.7 million at ~~March 31,~~September 30, 2023 and June 30, ~~2022,~~2023, respectively.

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 ~~March 31,~~September 30, 2023, the balance of such accruals was ~~$12.1~~$11.8 million, of which $1.6 million was current. At June 30, 2023, the balance was $12.0 million, of which $1.7 million was current. ~~At June 30, 2022, the balance was $12.5 million,~~

Table 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.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.

~~Table of Contents~~

~~KENNAMETAL INC.~~

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

13. INCOME TAXES

The effective income tax rates for the three months ended ~~March 31,~~September 30, 2023 and 2022 were ~~24.4~~21.0 percent and ~~28.3~~27.5 percent, respectively. The year-over-year change is primarily due to a $6.2 million benefit associated with a change in unrecognized tax benefits which was partially offset by a $2.9 million charge to settle the Italian tax litigation and geographical mix.

~~The effective~~Italian Income Tax Litigation Settlement

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 which was eventually settled during the current quarter. We continue to believe the assessment was baseless and that our 2008 tax return was compliant, in all material respects, with Italian income tax ~~rates for the nine months ended March 31, 2023~~rules and ~~2022 were 23.9 percent and 27.2 percent, respectively. The year-over-year change is primarily due to geographical mix and a $2.2 million~~regulations. Accordingly, no income tax ~~benefit~~liability had been recorded in connection with this assessment in any period. If the ~~second quarter~~Italian tax authority had been successful in litigation, payment of the ~~current year related~~assessment amount at its face on September 30, 2023 would have resulted in an increase to ~~Swiss~~income tax ~~reform.~~expense for as much as €35.7 million, or $37.9 million, of which penalties and interest would have been €21.0 million, or $22.3 million.

~~Swiss~~During fiscal 2023, the Italian government launched a tax ~~reform~~

~~Swiss~~amnesty program aimed at reducing the number of tax ~~reform legislation was effectively enacted during~~disputes pending before the ~~December quarter~~Italian courts. Pursuant to program guidelines, payments made to successfully resolve a dispute had to be received by the Italian government no later than September 30, 2023. Due to the prolonged amount of ~~fiscal 2020 when~~time 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 regimescase had been pending, and the ~~creation~~inherent costs and risks of further litigating the matter, we decided to negotiate a ~~multi-year transitional period at both~~settlement with the ~~federal and cantonal levels. The transitional provisions~~Italian tax authority that resulted in an income tax charge 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~~$2.9 million in ~~deductions over~~ the ~~transitional period. To reflect~~current quarter. With this settlement, we consider 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 considered the deferred tax asset from Swiss tax reformmatter to be an estimate based on our interpretation of the legislation, which was subject to change based on further legislative guidance, review with the Swiss federal and cantonal authorities, and modifications to the underlying valuation. During the quarter 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 and income tax liabilities related to fiscal years 2021 and 2022.officially closed.

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 nine months ended March 31, 2023 and 2022:~~

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2023 2022 2023 2022
Weighted-average shares outstanding during the period 80,611 83,084 80,967 83,538
Add: Unexercised stock options and unvested restricted stock units 670 723 558 730
Number of shares on which diluted earnings per share is calculated 81,281 83,807 81,525 84,268
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 453 372 646 340

~~Table of Contents~~

~~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 March 31, 2023 and 2022 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 December 31, 2022 $ 100,641 $ 473,323 $ 1,088,379 $ (412,176) $ 39,034 $ 1,289,201
Net income — — 31,937 — 1,129 33,066
Other comprehensive income — — — 12,925 355 13,280
Dividend reinvestment 2 45 — — — 47
Capital stock issued under employee benefit and stock plans(3)
29 4,499 — — — 4,528
Purchase of capital stock (330) (7,158) — — — (7,488)
Cash dividends ($0.20 per share) — — (16,097) — — (16,097)
Cash dividends to non-controlling interests — — — — (221) (221)
Total equity, March 31, 2023 $ 100,342 $ 470,709 $ 1,104,219 $ (399,251) $ 40,297 $ 1,316,316
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 December 31, 2021 $ 103,842 $ 534,592 $ 1,026,756 $ (349,168) $ 40,551 $ 1,356,573
Net income — — 35,295 — 1,583 36,878
Other comprehensive loss — — — (4,107) (457) (4,564)
Dividend reinvestment 2 45 — — — 47
Capital stock issued under employee benefit and stock plans(3)
31 4,457 — — — 4,488
Purchase of capital stock (577) (14,437) — — — (15,014)
Cash dividends ($0.20 per share) — — (16,606) — — (16,606)
Total equity, March 31, 2022 $ 103,298 $ 524,657 $ 1,045,445 $ (353,275) $ 41,677 $ 1,361,802

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

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The following table provides the computation of diluted shares outstanding for the three months ended September 30, 2023 and 2022:


	Three Months Ended September 30,
(in thousands)	2023	2022
Weighted-average shares outstanding during the period	80,025	81,544
Add: Unexercised stock options and unvested restricted stock units	674	621
Number of shares on which diluted earnings per share is calculated	80,699	82,165
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	390	1,249

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 ~~nine~~three months ending ~~March 31,~~September 30, 2023 and 2022 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 — — 82,032 — 3,594 85,626
Other comprehensive income — — — 14,700 (344) 14,356
Dividend reinvestment 6 134 — — — 140
Capital stock issued under employee benefit and stock plans(3)
614 11,980 — — — 12,594
Purchase of capital stock (1,949) (35,607) — — — (37,556)
Cash dividends ($0.60 per share) — — (48,468) — (48,468)
Cash dividends to non-controlling interests — — — (1,623) (1,623)
Total equity, March 31, 2023 $ 100,342 $ 470,709 $ 1,104,219 $ (399,251) $ 40,297 $ 1,316,316
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 — — 102,913 — 4,443 107,356
Other comprehensive loss — — — (22,948) (1,363) (24,311)
Dividend reinvestment 5 137 — — — 142
Capital stock issued under employee benefit and stock plans(3)
543 10,454 — — — 10,997
Purchase of capital stock (1,768) (48,754) — — — (50,522)
Cash dividends ($0.60 per share) — — (50,065) — — (50,065)
Total equity, March 31, 2022 $ 103,298 $ 524,657 $ 1,045,445 $ (353,275) $ 41,677 $ 1,361,802


	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, 2023	$	99,794	$	465,406	$	1,124,590	$	(414,343)	$	38,721	$	1,314,168
Net income	—		—		30,057				312		30,369
Other comprehensive loss	—		—		—		(17,169)		(640)		(17,809)
Dividend reinvestment	2		43		—						45
Capital stock issued under employee benefit and stock plans(2)	610		1,028		—						1,638
Purchase of capital stock	(633)		(13,092)		—						(13,725)
Cash dividends ($0.20 per share)	—		—		(15,935)		—		—		(15,935)



Total equity, September 30, 2023	$	99,773	$	453,385	$	1,138,712	$	(431,512)	$	38,393	$	1,298,751

~~(3)~~


	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(2)	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

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

16. ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of, and changes in, accumulated other comprehensive loss (AOCL) were as follows, net of tax, for the ~~nine~~three months ended ~~March 31,~~September 30, 2023:


(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		$	(208,406)	$	(210,048)	$	4,503	$	(413,951)
Other comprehensive (loss) income before reclassifications		(1,106)		13,903		—		12,797
Balance, June 30, 2023										Balance, June 30, 2023	$	(215,435)	$	(202,641)	$	3,733	$	(414,343)
Other comprehensive income (loss) before reclassifications										Other comprehensive income (loss) before reclassifications	1,517		(19,548)		—		(18,031)
Amounts reclassified from AOCL	Amounts reclassified from AOCL	2,480				(577)		1,903		Amounts reclassified from AOCL	1,054				(192)		862
Net other comprehensive income (loss)	Net other comprehensive income (loss)	1,374		13,903		(577)		14,700		Net other comprehensive income (loss)	2,571		(19,548)		(192)		(17,169)
AOCL, March 31, 2023		$	(207,032)	$	(196,145)	$	3,926	$	(399,251)
AOCL, September 30, 2023										AOCL, September 30, 2023	$	(212,864)	$	(222,189)	$	3,541	$	(431,512)

Attributable to noncontrolling interests:	Attributable to noncontrolling interests:									Attributable to noncontrolling interests:
Balance, June 30, 2022		$	—	$	(7,547)	$	—	$	(7,547)
Balance, June 30, 2023										Balance, June 30, 2023	$	—	$	(8,139)	$	—	$	(8,139)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	—		(344)		—		(344)		Other comprehensive loss before reclassifications	—		(640)		—		(640)
Net other comprehensive loss	Net other comprehensive loss	—		(344)		—		(344)		Net other comprehensive loss	—		(640)		—		(640)
AOCL, March 31, 2023		$	—	$	(7,891)	$	—	$	(7,891)
AOCL, September 30, 2023										AOCL, September 30, 2023	$	—	$	(8,779)	$	—	$	(8,779)

The components of, and changes in, AOCL were as follows, net of tax, for the ~~nine~~three months ended ~~March 31,~~September 30, 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, 2021		$	(213,172)	$	(122,428)	$	5,273	$	(330,327)
Balance, June 30, 2022										Balance, June 30, 2022	$	(208,406)	$	(210,048)	$	4,503	$	(413,951)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	4,291		(33,263)		—		(28,972)		Other comprehensive income (loss) before reclassifications	3,324		(51,184)		—		(47,860)
Amounts reclassified from AOCL	Amounts reclassified from AOCL	6,601		—		(577)		6,024		Amounts reclassified from AOCL	806		—		(192)		614
Net other comprehensive income (loss)	Net other comprehensive income (loss)	10,892		(33,263)		(577)		(22,948)		Net other comprehensive income (loss)	4,130		(51,184)		(192)		(47,246)
AOCL, March 31, 2022		$	(202,280)	$	(155,691)	$	4,696	$	(353,275)
AOCL, September 30, 2022										AOCL, September 30, 2022	$	(204,276)	$	(261,232)	$	4,311	$	(461,197)

Attributable to noncontrolling interests:	Attributable to noncontrolling interests:									Attributable to noncontrolling interests:
Balance, June 30, 2021		$	—	$	(3,982)	$	—	$	(3,982)
Balance, June 30, 2022										Balance, June 30, 2022	$	—	$	(7,547)	$	—	$	(7,547)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	—		(1,363)		—		(1,363)		Other comprehensive loss before reclassifications	—		(1,765)		—		(1,765)
Net other comprehensive loss	Net other comprehensive loss	—		(1,363)		—		(1,363)		Net other comprehensive loss	—		(1,765)		—		(1,765)
AOCL, March 31, 2022		$	—	$	(5,345)	$	—	$	(5,345)
AOCL, September 30, 2022										AOCL, September 30, 2022	$	—	$	(9,312)	$	—	$	(9,312)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Reclassifications out of AOCL for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2023 and 2022 consisted of the following:


		Three Months Ended March 31,				Nine Months Ended March 31,						Three Months Ended September 30,
(in thousands)	(in thousands)	2023		2022		2023		2022		Affected line item in the Income Statement	(in thousands)	2023		2022		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)	$	(766)	$	(766)	Interest expense	Forward starting interest rate swaps	$	(255)	$	(255)	Interest expense

Total before tax	Total before tax	(255)		(255)		(766)		(766)			Total before tax	(255)		(255)
Tax impact	Tax impact	63		63		189		189		Provision for income taxes	Tax impact	63		63		Provision for income taxes
Net of tax	Net of tax	$	(192)	$	(192)	$	(577)	$	(577)		Net of tax	$	(192)	$	(192)

Pension and other postretirement benefits:	Pension and other postretirement benefits:										Pension and other postretirement benefits:
Amortization of transition obligations	Amortization of transition obligations	$	21	$	23	$	62	$	71	Other income, net	Amortization of transition obligations	$	19	$	21	Other income, net
Amortization of prior service credit	Amortization of prior service credit	(67)		(66)		(199)		(198)		Other income, net	Amortization of prior service credit	(64)		(66)		Other income, net
Recognition of actuarial losses	Recognition of actuarial losses	1,165		2,992		3,458		9,052		Other income, net	Recognition of actuarial losses	1,478		1,153		Other income, net
Total before tax	Total before tax	1,119		2,949		3,321		8,925			Total before tax	1,433		1,108
Tax impact	Tax impact	(277)		(764)		(841)		(2,324)		Provision for income taxes	Tax impact	(379)		(302)		Provision for income taxes
Net of tax	Net of tax	$	842	$	2,185	$	2,480	$	6,601		Net of tax	$	1,054	$	806

The amount of income tax allocated to each component of other comprehensive income (loss) for the three months ended ~~March 31,~~September 30, 2023 and 2022 were as follows:


				2023						2022							2023						2022
(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 (loss) gain		(1,428)		369		(1,059)		2,054		(543)		1,511
Unrecognized net pension and other postretirement benefit plans gain														Unrecognized net pension and other postretirement benefit plans gain	2,047		(530)		1,517		4,479		(1,155)		3,324
Reclassification of net pension and other postretirement benefit plans loss	Reclassification of net pension and other postretirement benefit plans loss	1,119		(277)		842		2,949		(764)		2,185		Reclassification of net pension and other postretirement benefit plans loss	1,433		(379)		1,054		1,108		(302)		806
Foreign currency translation adjustments	Foreign currency translation adjustments	13,598		91		13,689		(8,055)		(13)		(8,068)		Foreign currency translation adjustments	(20,188)		—		(20,188)		(52,799)		(150)		(52,949)

Other comprehensive income (loss)		$	13,034	$	246	$	13,280	$	(3,307)	$	(1,257)	$	(4,564)
Other comprehensive loss														Other comprehensive loss	$	(16,963)	$	(846)	$	(17,809)	$	(47,467)	$	(1,544)	$	(49,011)

~~The amount of income tax allocated to each component of other comprehensive income (loss) for the nine months ended March 31, 2023 and 2022 were as follows:~~

2023 2022
(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 $ (766) $ 189 $ (577) $ (766) $ 189 $ (577)
Unrecognized net pension and other postretirement benefit plans (loss) gain (1,512) 406 (1,106) 5,885 (1,594) 4,291
Reclassification of net pension and other postretirement benefit plans loss 3,321 (841) 2,480 8,925 (2,324) 6,601
Foreign currency translation adjustments 13,474 85 13,559 (34,575) (51) (34,626)
Other comprehensive income (loss) $ 14,517 $ (161) $ 14,356 $ (20,531) $ (3,780) $ (24,311)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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	$	447,212	$	633,211	$	1,080,423
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		$	264,230	$	—	$	264,230
Balance as of June 30, 2023								Balance as of June 30, 2023	$	269,551	$	—	$	269,551

Activity for the nine months ended March 31, 2023:
Activity for the three months ended September 30, 2023:								Activity for the three months ended September 30, 2023:
Change in gross goodwill due to translation	Change in gross goodwill due to translation	4,554		—		4,554		Change in gross goodwill due to translation	(2,969)		—		(2,969)

Gross goodwill	Gross goodwill	446,445		633,211		1,079,656		Gross goodwill	444,243		633,211		1,077,454
Accumulated impairment losses	Accumulated impairment losses	(177,661)		(633,211)		(810,872)		Accumulated impairment losses	(177,661)		(633,211)		(810,872)
Balance as of March 31, 2023		$	268,784	$	—	$	268,784
Balance as of September 30, 2023								Balance as of September 30, 2023	$	266,582	$	—	$	266,582

The components of our other intangible assets were as follows:


		Estimated Useful Life (in years)	March 31, 2023				June 30, 2022						Estimated Useful Life (in years)	September 30, 2023				June 30, 2023
(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	$	31,993	$	(23,728)		$	31,592	$	(22,734)	Technology-based and other	4 to 20	$	31,618	$	(23,769)		$	31,872	$	(23,838)
Customer-related	Customer-related	10 to 21	180,515		(111,283)			180,263		(104,698)		Customer-related	10 to 21	179,286		(114,264)			179,889		(112,890)
Unpatented technology	Unpatented technology	10 to 30	31,700		(24,723)			31,807		(22,950)		Unpatented technology	10 to 30	31,467		(25,774)			31,487		(25,177)
Trademarks	Trademarks	5 to 20	12,447		(11,186)			12,403		(10,317)		Trademarks	5 to 20	12,384		(11,674)			12,426		(11,441)
Trademarks	Trademarks	Indefinite	10,827		—			10,359		—		Trademarks	Indefinite	10,543		—			10,836		—
Total	Total		$	267,482	$	(170,920)		$	266,424	$	(160,699)	Total		$	265,298	$	(175,481)		$	266,510	$	(173,346)

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 and defense, 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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KENNAMETAL INC.

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 aerospace and defense, 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; high temperature critical wear components, tungsten penetrators and armor solutions for aerospace and defense; 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 March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(in thousands)	(in thousands)	2023		2022		2023		2022		(in thousands)	2023		2022
Sales:	Sales:									Sales:
Metal Cutting	Metal Cutting	$	333,507	$	313,813	$	932,912	$	910,824	Metal Cutting	$	308,229	$	299,936
Infrastructure	Infrastructure	202,529		198,446		595,037		571,617		Infrastructure	184,247		194,856
Total sales	Total sales	$	536,036	$	512,259	$	1,527,949	$	1,482,441	Total sales	$	492,476	$	494,792
Operating income:	Operating income:									Operating income:
Metal Cutting	Metal Cutting	$	43,765	$	30,232	$	98,593	$	87,292	Metal Cutting	$	32,117	$	28,605
Infrastructure	Infrastructure	9,658		23,673		40,543		69,680		Infrastructure	13,644		20,787
Corporate	Corporate	(952)		(541)		(2,649)		(1,497)		Corporate	(643)		(866)
Total operating income	Total operating income	52,471		53,364		136,487		155,475		Total operating income	45,118		48,526
Interest expense	Interest expense	7,747		6,436		21,399		19,217		Interest expense	6,601		6,638
Other expense (income), net		986		(4,528)		2,584		(11,129)
Other expense, net										Other expense, net	89		1,009
Income before income taxes	Income before income taxes	$	43,738	$	51,456	$	112,504	$	147,387	Income before income taxes	$	38,428	$	40,879

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


		Three Months Ended							Three Months Ended
		March 31, 2023			March 31, 2022				September 30, 2023			September 30, 2022
(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	44%	60%	50%	41%	62%	49%	Americas	45%	59%	50%	45%	62%	51%
EMEA	EMEA	38	19	31	38	16	30	EMEA	37	19	30	33	16	27
Asia Pacific	Asia Pacific	18	21	19	21	22	21	Asia Pacific	18	22	20	22	22	22

Nine Months Ended
March 31, 2023 March 31, 2022
(in percentages) Metal Cutting Infrastructure Total Kennametal Metal Cutting Infrastructure Total Kennametal
Americas 44% 61% 50% 40% 59% 47%
EMEA 36 17 29 38 18 30
Asia Pacific 20 22 21 22 23 23
To better align with the Company's strategic goals and initiatives, certain of the end markets that are reported externally and used to analyze sales performance were redefined beginning in the fourth quarter of fiscal 2023. The changes include 1.) defense sales were moved from general engineering and are now combined with aerospace sales for a new "aerospace and defense" end market, 2.) certain Metal Cutting sales have been reclassified from general engineering to the aerospace and defense end market, and 3.) Infrastructure's ceramics sales have been reclassified from energy to the general engineering end market. The fiscal 2023 period has been retrospectively restated to align with the new end markets.

1917

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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


		Three Months Ended March 31, 2023				Three Months Ended September 30, 2023
(in percentages)	(in percentages)	Metal Cutting	Infrastructure	Total Kennametal	(in percentages)	Metal Cutting	Infrastructure	Total Kennametal
General engineering	General engineering	56%	33%	47%	General engineering	54%	34%	46%
Transportation	Transportation	26	—	16	Transportation	27	—	17
Aerospace		11	—	7
Aerospace & Defense					Aerospace & Defense	12	6	10
Energy	Energy	7	32	17	Energy	7	22	13
Earthworks	Earthworks	—	35	13	Earthworks	—	38	14


		Three Months Ended March 31, 2022				Three Months Ended September 30, 2022
(in percentages)	(in percentages)	Metal Cutting	Infrastructure	Total Kennametal	(in percentages)	Metal Cutting	Infrastructure	Total Kennametal
General engineering	General engineering	55%	33%	47%	General engineering	55%	35%	47%
Transportation	Transportation	28	—	17	Transportation	27	—	16
Aerospace		9	—	6
Aerospace & Defense					Aerospace & Defense	11	3	8
Energy	Energy	8	30	16	Energy	7	25	14
Earthworks	Earthworks	—	37	14	Earthworks	—	37	15

Nine Months Ended March 31, 2023
(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

Nine Months Ended March 31, 2022
(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

2018

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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 and defense, 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~~offering spans 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~~the Company's 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~~The Company’s 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.~~supply, and for aerospace and defense.

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 (decline), 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 ~~$536.0~~$492.5 million for the quarter ended ~~March 31,~~September 30, 2023 ~~increased 5 percent year-over-year, reflecting 8 percent~~reflect flat organic ~~sales~~ growth and ~~a favorable~~no meaningful effect from business days ~~effect of 1 percent, partially offset by an unfavorable~~or foreign ~~currency effect of 4 percent.~~currency.

Operating income was ~~$52.5~~$45.1 million compared to ~~$53.4~~$48.5 million in the prior year quarter. The ~~slight~~ year-over-year decrease of ~~$0.9~~$3.4 million was primarily due to higher wages and general inflation, lower sales volumes, higher raw material costs and restructuring and related charges of approximately ~~$20~~$4 million ~~under-absorption of approximately $5 million within~~in the ~~Infrastructure segment, higher wages, general inflation and unfavorable foreign currency exchange of approximately $3 million.~~current quarter. These factors were partially offset by higher price realization and ~~in the Metal Cutting segment, higher sales volumes.~~operational efficiencies including restructuring savings. Operating margin was ~~9.8~~9.2 percent compared to ~~10.4~~9.8 percent in the prior year quarter. The Metal Cutting and Infrastructure segments had operating margins of ~~13.1~~10.4 percent and ~~4.8~~7.4 percent, respectively, for the quarter ended ~~March 31,~~September 30, 2023.

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~~Although COVID-19 is no longer considered a global emergency, the onset of the pandemic, as the administration and acceptance of vaccines has 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 travel restrictions. The slow recovery 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.

Russia's invasion of Ukraine in February 2022 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 2024. Similarly, the developing conflict in Israel that began in October 2023 could negatively impact the Company's financial condition or results of operations. To date, the Israeli conflict has not significantly affected the Company's business activities or results of operations.

~~In addition,~~The outcome of the strike of the U.S. United Auto Workers (UAW) members also has the potential to negatively affect our business as well as our customers in the transportation end market. To date, the strike has not significantly affected the Company's business activities or results of operations.

Our business has also 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~~Current quarter earnings per diluted share (EPS) was $0.37 compared to EPS of $0.34 in the prior year quarter. EPS for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2023 ~~the Company repurchased $7 million~~was unfavorably affected by restructuring and ~~$37 million, respectively,~~related charges of ~~Kennametal common stock under its $200 million three-year program. Inception-to-date the Company has repurchased $123 million of Kennametal common stock.~~$0.04 per share.

2119

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

~~The Company paid $16~~Cash flow provided by operating activities was $25.7 million ~~and $48 million in cash dividends to Kennametal shareholders~~ during the three ~~and nine~~ months ended ~~March 31,~~September 30, 2023 compared to negative $10.7 million during the prior year period. Capital expenditures were $31.8 million and $29.5 million during the three months ended September 30, 2023 and 2022, respectively. During the three months ended September 30, 2023, the Company returned approximately $30 million to shareholders through $14 million in share repurchases under the three-year share repurchase program and $16 million in dividends. 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 $0.39. EPS of $0.42 in the prior year quarter was unfavorably affected by restructuring and related charges of $0.03 per share and charges related to Russian and Ukrainian operations of $0.02 per share.

Net cash flow provided by operating activities was $126.2 million during the nine months ended March 31, 2023 compared to $93.0 million during the prior year period. Capital expenditures were $71.1 million and $60.2 million during the nine months ended March 31, 2023 and 2022, respectively.

RESULTS OF CONTINUING OPERATIONS

SALES

Sales for the three months ended ~~March 31,~~September 30, 2023 were ~~$536.0~~$492.5 million, ~~an increase~~a decrease of ~~$23.8~~$2.3 million, or 50 percent, from ~~$512.3~~$494.8 million in the prior year ~~quarter. The increase in~~quarter, reflecting flat organic sales ~~was driven by organic~~ growth ~~of 8 percent~~ and ~~a favorable~~no meaningful effect from business days ~~effect of 1 percent, partially offset by an unfavorable~~or foreign ~~currency effect of 4 percent.~~

Sales for the nine months ended March 31, 2023 were $1,527.9 million, an increase of $45.5 million, or 3 percent, from $1,482.4 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.currency.

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


		Three Months Ended March 31, 2023		Nine Months Ended March 31, 2023			Three Months Ended September 30, 2023
(in percentages)	(in percentages)	As Reported	Constant Currency	As Reported	Constant Currency	(in percentages)	As Reported	Constant Currency
End market sales growth (decline):	End market sales growth (decline):					End market sales growth (decline):
Aerospace		21%	25%	17%	23%
Aerospace & Defense						Aerospace & Defense	19%	17%
Energy	Energy	7	9	7	11	Energy	(12)
Earthworks	Earthworks	(3)	1	2	8	Earthworks	(2)	—
General engineering	General engineering	6	9	1	7	General engineering	—	(1)
Transportation	Transportation	—	5	—	8	Transportation	1	(1)
Regional sales growth (decline):
Regional sales (decline) growth:						Regional sales (decline) growth:
Americas	Americas	8%		10%	11%	Americas	(3)%
Europe, the Middle East and Africa (EMEA)	Europe, the Middle East and Africa (EMEA)	7	14	(2)	10	Europe, the Middle East and Africa (EMEA)	13	8
Asia Pacific	Asia Pacific	(6)	1	(5)	3	Asia Pacific	(12)	(8)

GROSS PROFIT

Gross profit for the three months ended ~~March 31,~~September 30, 2023 was ~~$167.9~~$162.9 million, an increase of ~~$3.3~~$2.9 million from ~~$164.6~~$160.0 million in the prior year quarter. The increase was primarily due to higher price realization and ~~in the Metal Cutting segment, higher sales volumes.~~operational efficiencies including restructuring savings. These factors were partially offset by higher wages and general inflation, lower sales volumes and higher raw material costs of approximately $20 million, under-absorption of approximately $5 million within the Infrastructure segment, higher wages, general inflation and unfavorable foreign currency exchange of approximately $6 million.costs. Gross profit margin for the three months ended ~~March 31,~~September 30, 2023 was ~~31.3 percent, as compared to 32.1 percent in the prior year quarter.~~

Gross profit for the nine months ended March 31, 2023 was $470.8 million, a decrease of $7.6 million from $478.3 million in the prior year period. The decrease was primarily due to higher raw material costs of approximately $61 million, unfavorable foreign currency exchange of approximately $30 million, higher wages and general inflation, including an inflationary bonus of $2 million for certain German employees, under-absorption of approximately $10 million within the Infrastructure segment, temporary supply chain disruptions of approximately $5 million 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 nine months ended March 31, 2023 was 30.833.1 percent, as compared to 32.3 percent in the prior year ~~period.~~quarter.

OPERATING EXPENSE Operating expense for the three months ended September 30, 2023 was $111.6 million compared to $108.3 million for the three months ended September 30, 2022.

Research and development expenses included in operating expense totaled $11.0 million and $10.6 million for the three months ended September 30, 2023 and 2022, respectively.

RESTRUCTURING AND OTHER CHARGES, NET In the June quarter of fiscal 2023, we announced an initiative to streamline our cost structure while continuing to invest in our high-return commercial and operational excellence initiatives. During the quarter, we achieved restructuring savings of approximately $4 million from this action, and currently expect to deliver annualized run rate pre-tax savings of approximately $20 million by the end of fiscal 2024. Total restructuring and related charges for this program of $11.1 million, compared to a target of approximately $20 million, were recorded through September 30, 2023, consisting of $8.5 million in Metal Cutting and $2.6 million in Infrastructure. The majority of the remaining charges are expected to be recognized in fiscal 2024.

2220

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

~~OPERATING EXPENSE~~

~~Operating expense for the three months ended March 31, 2023 was $113.3 million compared to $107.1~~We recorded restructuring and related charges of $3.7 million for the three months ended ~~March 31, 2022. Operating expense for the nine months ended March 31,~~September 30, 2023, ~~was $327.3~~which consisted of $2.5 million ~~compared to $316.4~~in Metal Cutting and $1.2 million ~~for the nine months ended March 31, 2022. The increases~~ in ~~both periods were primarily due to higher wages and general inflation, partially offset by foreign currency exchange.~~

~~Research and development expenses~~Infrastructure. Also included in ~~operating expense totaled $11.3 million~~restructuring and ~~$10.6 million for~~other charges, net during the three months ended ~~March 31,~~September 30, 2023 ~~and 2022, respectively, and $32.6~~is a net benefit of $0.6 million ~~and $31.3 million for~~primarily due to the ~~nine months ended March 31, 2023 and 2022, respectively.~~sale of property.

INTEREST EXPENSE

Interest expense for the three months ended ~~March 31,~~September 30, 2023 ~~increased to $7.7~~remained flat at $6.6 million compared to ~~$6.4~~$6.6 million for the three months ended ~~March 31,~~September 30, 2022. ~~The increase in interest~~

OTHER EXPENSE, NET Other expense, net for the three months ended ~~March 31,~~September 30, 2023 was ~~primarily related to higher market interest rates. Interest expense for the nine months ended March 31, 2023 increased to $21.4~~$0.1 million compared to $19.2 million for the nine months ended March 31, 2022. The increase in interest expense for the nine months ended March 31, 2023 was due to increased amounts outstanding under the Credit Agreement and higher market interest rates.

~~OTHER EXPENSE/INCOME, NET~~

~~Other expense for the three months ended March 31, 2023 was~~ $1.0 ~~million compared to other income of $4.5~~ million during the three months ended ~~March 31, 2022. Other expense for the nine months ended March 31, 2023 was $2.6 million compared to other income of $11.1 million during the nine months ended March 31,~~September 30, 2022. The ~~changes for both periods were~~year-over year change is due primarily to ~~lower net periodic pension income in the current year.~~foreign currency exchange.

PROVISION FOR INCOME TAXES

~~The effective~~Italian Income Tax Litigation Settlement

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 which was eventually settled during the current quarter. We continue to believe the assessment was baseless and that our 2008 tax return was compliant, in all material respects, with Italian income tax ~~rates for the nine months ended March 31, 2023~~rules and ~~2022 were 23.9 percent and 27.2 percent, respectively. The year-over-year change is primarily due to geographical mix and a $2.2 million~~regulations. Accordingly, no income tax ~~benefit~~liability had been recorded in connection with this assessment in any period. If the ~~second quarter~~Italian tax authority had been successful in litigation, payment of the assessment amount at its face on September 30, 2023 would have resulted in an increase to income tax expense for as much as €35.7 million, or $37.9 million, of which penalties and interest would have been €21.0 million, or $22.3 million.

During fiscal 2023, the Italian government launched a tax amnesty program aimed at reducing the number of tax disputes pending before the Italian courts. Pursuant to program guidelines, payments made to successfully resolve a dispute had to be received by the Italian government no later than September 30, 2023. Due to the prolonged amount of time the case had been pending, and the inherent costs and risks of further litigating the matter, we decided to negotiate a settlement with the Italian tax authority that resulted in an income tax charge of $2.9 million in the current ~~year related~~quarter. With this settlement, we consider the matter to ~~Swiss tax reform and geographical mix.~~be officially closed.

BUSINESS SEGMENT REVIEW

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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 March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(in thousands)	(in thousands)	2023		2022		2023		2022		(in thousands)	2023		2022
Sales:	Sales:									Sales:
Metal Cutting	Metal Cutting	$	333,507	$	313,813	$	932,912	$	910,824	Metal Cutting	$	308,229	$	299,936
Infrastructure	Infrastructure	202,529		198,446		595,037		571,617		Infrastructure	184,247		194,856
Total sales	Total sales	$	536,036	$	512,259	$	1,527,949	$	1,482,441	Total sales	$	492,476	$	494,792
Operating income:	Operating income:									Operating income:
Metal Cutting	Metal Cutting	$	43,765	$	30,232	$	98,593	$	87,292	Metal Cutting	$	32,117	$	28,605
Infrastructure	Infrastructure	9,658		23,673		40,543		69,680		Infrastructure	13,644		20,787
Corporate	Corporate	(952)		(541)		(2,649)		(1,497)		Corporate	(643)		(866)
Total operating income	Total operating income	52,471		53,364		136,487		155,475		Total operating income	45,118		48,526
Interest expense	Interest expense	7,747		6,436		21,399		19,217		Interest expense	6,601		6,638
Other expense (income), net		986		(4,528)		2,584		(11,129)
Other expense, net										Other expense, net	89		1,009
Income before income taxes	Income before income taxes	$	43,738	$	51,456	$	112,504	$	147,387	Income before income taxes	$	38,428	$	40,879

METAL CUTTING


		Three Months Ended March 31,						Nine Months Ended March 31,							Three Months Ended September 30,
(in thousands, except operating margin)	(in thousands, except operating margin)	2023			2022			2023			2022			(in thousands, except operating margin)	2023			2022
Sales	Sales	$	333,507		$	313,813		$	932,912		$	910,824		Sales	$	308,229		$	299,936
Operating income	Operating income	43,765			30,232			98,593			87,292			Operating income	32,117			28,605
Operating margin	Operating margin	13.1		%	9.6		%	10.6		%	9.6		%	Operating margin	10.4		%	9.5		%

Three Months Ended March 31, 2023 Nine Months Ended March 31, 2023
(in percentages)
Organic sales growth 10% 10%
Foreign currency exchange effect(1)
(5) (8)
Business days effect(2)
1 —
Sales growth 6% 2%


			Three Months Ended September 30, 2023
(in percentages)
Organic sales growth			2%
Foreign currency exchange effect(1)			1



Sales growth			3%


		Three Months Ended March 31, 2023		Nine Months Ended March 31, 2023			Three Months Ended September 30, 2023
(in percentages)	(in percentages)	As Reported	Constant Currency	As Reported	Constant Currency	(in percentages)	As Reported	Constant Currency
End market sales growth (decline):	End market sales growth (decline):					End market sales growth (decline):
Aerospace		21%	25%	17%	23%
Aerospace & Defense						Aerospace & Defense	9%	7%
Transportation	Transportation	—	5	—	8	Transportation	1	(1)
General engineering	General engineering	7	11	2	8	General engineering	3	1
Energy	Energy	3	7	(2)	4	Energy	(2)	(3)
Regional sales growth (decline):	Regional sales growth (decline):					Regional sales growth (decline):
Americas	Americas	16%	16%	13%	14%	Americas	4%	3%
EMEA	EMEA	5	11	(4)	9	EMEA	14	8
Asia Pacific	Asia Pacific	(10)	(3)	(7)	2	Asia Pacific	(16)	(13)

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

For the three months ended ~~March 31,~~September 30, 2023, Metal Cutting sales increased 63 percent compared to the prior year quarter. This was driven by organic growth of 102 percent and a favorable ~~business days effect of 1 percent, partially offset by an unfavorable~~ foreign currency effect of 51 percent. Aerospace & defense end market sales increased in the Americas and EMEA as a result of our focused execution on our strategic initiatives and a continuing expansion in global travel following the ~~effects of which were partially offset by unfavorable foreign currency exchange. Sales in the general engineering end market increased in all regions as strong underlying demand continues,~~COVID-19 slowdown, the effects of which were partially offset by unfavorable foreign currency exchange ~~our exit~~and a decline in Asia Pacific due to lower economic activity in China. Sales in the general engineering end market increased in the Americas and EMEA as industrial activity continues to recover from ~~Russia~~the COVID-19 pandemic and underlying economic activity expands, the effects of which were partially offset by unfavorable foreign currency exchange and a slower recovery in China from COVID-related disruptions. Energy end market sales ~~increased as the customer year-end inventory rebalancing activities subsided,~~declined in all regions due to market disruptions and project delays, the effects of which were partially offset by ~~unfavorable~~favorable foreign currency exchange. Transportation end market sales ~~benefited from~~declined in Asia Pacific and the Americas as a result of slowing customer demand, the effects of which were partially offset by improving customer supply chains and hybrid/electric vehicle business in ~~the Americas~~EMEA and ~~EMEA, the effects of which were offset by unfavorable~~favorable foreign currency exchange.

On a regional basis, sales in the Americas increased primarily due to ~~the continued broad~~strength in general engineering and ~~resilient demand of our end markets.~~aerospace & defense. Sales growth in EMEA reflects the execution on our strategic ~~initiatives, the effects of which were partially offset by unfavorable foreign currency exchange.~~initiatives. Sales in Asia Pacific ~~were negatively affected by~~decreased due to a slower recovery in China from COVID-related disruptions and unfavorable foreign currency exchange.

For the three months ended ~~March 31,~~September 30, 2023, Metal Cutting operating income was ~~$43.8~~$32.1 million compared to ~~$30.2~~$28.6 million in the prior year quarter. The increase in operating income was primarily due to higher price realization ~~higher sales volumes~~ and ~~a gain of approximately $1 million on a property sale.~~operational efficiencies including restructuring savings. These factors were partially offset by higher ~~raw material costs of approximately $7 million, higher~~ wages and ~~unfavorable foreign currency exchange of approximately $2 million.~~

For the nine months ended March 31, 2023, Metal Cutting sales increased 2 percent compared to the prior year period. This was driven by organic growth of 10 percent, partially offset by an unfavorable foreign currency effect of 8 percent. Aerospace end market sales increased as a result of our focused execution on our strategic initiatives, the effects of which were partially offset by unfavorable foreign currency exchange. Sales in the general engineering end market increased in all regions as strong underlying demand continues, the effects of which were partially offset by unfavorable foreign currency exchange, our exit from Russia and a slower recovery in China from COVID-related disruptions. Energy end market sales increased as the customer year-end inventory rebalancing activities subsided, the effects of which were partially offset by unfavorable foreign currency exchange. Transportation end market sales benefited from improving customer supply chains and hybrid/electric vehicle business in the Americas and EMEA, the effects of which were offset by unfavorable foreign currency exchange. On a regional basis, sales in the Americas increased primarily due to the continued broad and resilient demand of our end markets. Sales growth in EMEA reflects the execution on our strategic initiatives, the effects of which were partially offset by unfavorable foreign currency exchange. Sales in Asia Pacific were negatively affected by a slower recovery in China from COVID-related disruptions and unfavorable foreign currency exchange.

For the nine months ended March 31, 2023, Metal Cutting operating income was $98.6 million compared to $87.3 million in the prior year period. The increase in operating income was primarily due to higher price realization, higherinflation, lower sales volumes, restructuring and ~~a gain~~related charges of approximately $3 million ~~on property sales. These factors were partially offset by~~in the current quarter and higher raw material costs of approximately $19 million, higher wages and general inflation, including an inflationary bonus of $2 million for certain German employees, unfavorable foreign currency exchange of approximately $12 million and depreciation including approximately $2 million due to the decision to scrap certain assets.costs.

INFRASTRUCTURE


		Three Months Ended March 31,						Nine Months Ended March 31,							Three Months Ended September 30,
(in thousands)	(in thousands)	2023			2022			2023			2022			(in thousands)	2023			2022
Sales	Sales	$	202,529		$	198,446		$	595,037		$	571,617		Sales	$	184,247		$	194,856
Operating income	Operating income	9,658			23,673			40,543			69,680			Operating income	13,644			20,787
Operating margin	Operating margin	4.8		%	11.9		%	6.8		%	12.2		%	Operating margin	7.4		%	10.7		%

Three Months Ended March 31, 2023 Nine Months Ended March 31, 2023
(in percentages)
Organic sales growth 5% 9%
Foreign currency exchange effect(1)
(3) (4)
Business days effect(2)
— (1)
Sales growth 2% 4%


			Three Months Ended September 30, 2023
(in percentages)
Organic sales decline			(3)%
Foreign currency exchange effect(1)			(1)
Business days effect(4)			(1)


Sales decline			(5)%

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


		Three Months Ended March 31, 2023		Nine Months Ended March 31, 2023			Three Months Ended September 30, 2023
(in percentages)	(in percentages)	As Reported	Constant Currency	As Reported	Constant Currency	(in percentages)	As Reported	Constant Currency
End market sales growth (decline):
End market sales (decline) growth:						End market sales (decline) growth:
Energy	Energy	8%	10%	11%	14%	Energy	(16)%	(17)%
Earthworks	Earthworks	(3)	1	2	8	Earthworks	(3)	—
General engineering	General engineering	1	5	—	5	General engineering	(8)	(8)
Regional sales growth (decline):
Aerospace & Defense						Aerospace & Defense	73	67
Regional sales (decline) growth:						Regional sales (decline) growth:
Americas	Americas	(1)%	—%	7%	8%	Americas	(10)%	(10)%
EMEA	EMEA	16	24	2	15	EMEA	12	11
Asia Pacific	Asia Pacific	—	7	(2)	6	Asia Pacific	(5)	—

For the three months ended ~~March 31,~~September 30, 2023, Infrastructure sales ~~increased~~decreased by 25 percent from the prior year quarter. The ~~increase~~decrease in sales was driven by an organic ~~growth~~sales decline of 53 percent, ~~partially offset by~~ an unfavorable foreign currency effect of 31 percent and an unfavorable business days effect of 1 percent. Energy end market sales decreased primarily due to U.S. oil and gas where land rig counts decreased year over year. Sales in the general engineering end market decreased in all regions primarily due to declines in industrial activity year over year. Earthworks end market sales were flat year over year, excluding the unfavorable foreign currency effect, as growth in underground mining was offset by a decline in construction. Aerospace & defense end market sales increased primarily due to strength in U.S. oil and gas and as land rig counts continue to increase, the effects of which were partially offset by unfavorable foreign currency exchange. Sales in the general engineering end market increased in EMEA due to strong demand, which was partially offset by unfavorable foreign currency exchange and lower demand in the Americas primarily due to the loss of a customer who elected to insource production. Earthworks end market sales increased in Asia Pacific as underlying demand in underground mining continues to be strong, the effects of which were offset by unfavorable foreign currency exchange and order timing in ~~the Americas.~~EMEA. On a regional basis, sales in EMEA increased ~~in all end markets, primarily in general engineering,~~due to the effects of which were partially offset by unfavorable foreign currency exchange. Sales increased in Asia Pacific primarily in earthworks and to a lesser extent general engineering, the effects of which were partially offset by unfavorable foreign currency exchange and a decline in the energyaerospace & defense end market. Sales in ~~the Americas increased in energy, the effects of which~~Asia Pacific were ~~offset by decreases in general engineering and earthworks and~~flat year over year, excluding the unfavorable foreign currency ~~exchange.~~effect, due to an increase in the earthworks end market offset with decreases in other end markets. Sales in the Americas declined primarily due to the energy and general engineering end markets.

For the three months ended ~~March 31,~~September 30, 2023, Infrastructure operating income was ~~$9.7~~$13.6 million compared to ~~$23.7~~$20.8 million in the prior year quarter. The decrease in operating income was primarily due to lower sales volumes, higher raw material costs ~~of approximately $13 million, under-absorption of approximately $5 million, general inflation~~ and ~~lower sales volumes. These factors were partially offset by higher~~less price realization.

CORPORATE


	Three Months Ended September 30,
(in thousands)	2023		2022
Corporate expense	$	(643)	$	(866)

For the ~~nine~~three months ended ~~March 31,~~September 30, 2023, ~~Infrastructure sales increased~~Corporate expense decreased by ~~4 percent~~$0.2 million from the prior year ~~period. The increase in sales was driven by organic growth~~quarter.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations is the primary source of 9 percent, partially offset by an unfavorable foreign currency effect of 4 percent and an unfavorable business days effect of 1 percent. Energy end market sales increased primarily due to strength in U.S. oil and gas and as land rig counts continue to increase, the effects of which were partially offset by unfavorable foreign currency exchange. Sales in the general engineering end market increased in EMEA due to strong demand, which was partially offset by unfavorable foreign currency exchange and lower demand in the Americas primarily due to the loss of a customer who elected to insource production. Earthworks end market sales increased in Asia Pacific as underlying demand in underground mining continues to be strong, the effects of which were offset by unfavorable foreign currency exchange and order timing in the Americas. On a regional basis, sales in EMEA increased in all end markets, primarily in general engineering, the effects of which were partially offset by unfavorable foreign currency exchange. Sales increased in Asia Pacific primarily in earthworks and to a lesser extent general engineering, the effects of which were partially offset by unfavorable foreign currency exchange and a decline in the energy end market. Sales in the Americas increased in energy, the effects of which were offset by decreases in general engineering and earthworks and unfavorable foreign currency exchange.

funding for our capital expenditures. For the ~~nine~~three months ended ~~March 31,~~September 30, 2023, ~~Infrastructure~~cash flow provided by operating ~~income~~activities was $40.5 million compared to $69.7 million in the prior year period. The decrease in operating income was primarily due to higher raw material costs of approximately $41 million, higher wages and general inflation, under-absorption of approximately $10 million, temporary supply chain disruptions and unfavorable foreign currency exchange of approximately $4$25.7 million. ~~These factors were partially offset by higher price realization and sales volume growth.~~

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~~CORPORATE~~

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2023 2022 2023 2022
Corporate expense $ (952) $ (541) $ (2,649) $ (1,497)

For the three months ended March 31, 2023, Corporate expense increased by $0.4 million from the prior year quarter. For the nine months ended March 31, 2023 Corporate expense increased by $1.2 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 nine months ended March 31, 2023, cash flow provided by operating activities was $126.2 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 theAt 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 €35.5 million, or $38.6 million, including penalties and interest of €20.8 million, or $22.6 million.

~~At March 31,~~30, 2023, cash and cash equivalents were ~~$93.5~~$95.1 million. Total Kennametal Shareholders' equity was ~~$1,276.0~~$1,260.4 million and total debt was ~~$659.0~~$626.6 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.~~2023.

Share Repurchase Program In July 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. During the three months ended September 30, 2023, the Company repurchased 505 thousand shares of common stock for $13.7 million.

Dividends During the three months ended September 30, 2023, the Company paid a dividend of $0.20 per share for a total of $15.9 million in dividends returned to shareholders.

Cash Flow Provided by (Used in) Operating Activities

During the three months ended September 30, 2023, cash flow provided by operating activities was $25.7 million, compared to negative $10.7 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 $81.2 million and changes in certain assets and liabilities netting to an outflow of $55.5 million. Contributing to the changes in certain assets and liabilities were a decrease in accounts payable and accrued liabilities of $32.6 million, an increase in inventories of $20.3 million, and a decrease in accrued income taxes of $11.7 million. Offsetting these cash outflows was a decrease in accounts receivable of $17.9 million.

During the three months ended September 30, 2022, cash flow used in operating activities was $10.7 million consisting 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.

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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 nine months ended March 31, 2023, cash flow provided by operating activities was $126.2 million, compared to $93.0 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 $204.4 million and changes in certain assets and liabilities netting to an outflow of $78.2 million. Contributing to the changes in certain assets and liabilities were a decrease in accounts payable and accrued liabilities of $46.3 million, an increase in inventories of $17.3 million, an increase in accounts receivable of $16.4 million and a decrease in accrued pension and postretirement benefits of $7.0 million.

During the nine months ended March 31, 2022, cash flow provided by operating activities consisted of net income and non-cash items amounting to an inflow of $221.0 million and changes in certain assets and liabilities netting to an outflow of $127.9 million. Contributing to the changes in certain assets and liabilities were an increase in inventories of $99.5 million due to higher material costs, lengthening supply chains and higher sales volumes, a decrease in accrued pension and postretirement benefits of $20.3 million, an increase in accounts receivable of $17.8 million and a decrease in accounts payable and accrued liabilities of $11.4 million. Partially offsetting these cash outflows was an increase in accrued income taxes of $14.7 million.

~~Cash Flow~~ Used in Investing Activities

Cash flow used in investing activities was ~~$66.2~~$28.7 million for the ~~nine~~three months ended ~~March 31,~~September 30, 2023, compared to ~~$58.3~~$29.3 million for the prior year period. During the current year period, cash flow used in investing activities primarily included capital expenditures of ~~$71.1~~$31.8 million, which consisted primarily of equipment upgrades, partially offset by disposals of property, plant, and equipment of ~~$4.8~~$3.0 million.

For the ~~nine~~three months ended ~~March 31,~~September 30, 2022, cash flow used in investing activities was $29.3 million and primarily included capital expenditures ~~net~~ of ~~$59.4~~$29.5 million, which consisted primarily of equipment upgrades, partially offset by ~~$1.0 million in proceeds from the New Castle divestiture.~~disposals of property, plant, and equipment of $0.2 million.

Cash Flow Used in (Provided by) Financing Activities

Cash flow used in financing activities was ~~$50.0~~$6.1 million for the ~~nine~~three months ended ~~March 31,~~September 30, 2023 compared to ~~$87.8~~cash flow provided by financing activities of $23.1 million in the prior year period. During the current year period, cash flow used in financing activities primarily included ~~$48.5~~$15.9 million of cash dividends paid to Kennametal Shareholders, ~~$37.6~~$13.7 million in common shares repurchased, and ~~$6.0~~$7.0 million of the effect of employee benefit and stock plans and dividend reinvestment, partially offset by ~~$43.6~~$23.4 million ~~from the~~of borrowings under the Credit ~~Agreement.~~Agreement and an increase in notes payable of $7.2 million.

For the ~~nine~~three months ended ~~March 31,~~September 30, 2022, cash flow ~~used in~~provided by financing activities was $23.1 million and included ~~$50.5~~$60.9 million of borrowings under the Credit Agreement and a $3.4 million increase in notes payable, partially offset by $19.4 million in common shares repurchased, ~~$50.1~~$16.3 million of cash dividends paid to Kennametal Shareholders ~~$7.1 million of a decrease in notes payable~~ and ~~$6.9~~$4.8 million of the effect of employee benefit and stock plans and dividend ~~reinvestment, partially offset by $27.5 million from the borrowings under the Credit Agreement.~~reinvestment.

FINANCIAL CONDITION

Working capital was ~~$590.3~~$590.7 million at ~~March 31,~~September 30, 2023, ~~an increase~~a decrease of ~~$51.2~~$2.1 million from ~~$539.1~~$592.8 million at June 30, ~~2022.~~2023. The ~~increase~~decrease in working capital was primarily driven by an increase in borrowings under the Credit Agreement and notes payable of $30.5 million, a decrease in accounts ~~payable~~receivable of ~~$30.7 million, an increase in inventories of $24.3~~$18.7 million, and ~~increase~~a decrease in ~~accounts receivable~~cash and cash equivalents of ~~$18.5~~$10.9 million, partially offset by a decrease in other current liabilities of ~~$10.4~~$19.6 million, a decrease in accrued expenses of ~~$9.5~~$13.4 million, and an increase in ~~cash and cash equivalents~~inventories of ~~$7.9 million, partially offset by an increase in revolving and other lines of credit and notes payable to banks of $42.9 million and an increase in accrued income taxes of $12.1~~$12.7 million. Currency exchange rate effects ~~increased~~decreased working capital by a total of approximately ~~$6.4 million, the effect of which is included in the aforementioned changes.~~$10.2 million.

Property, plant and equipment, net decreased ~~$27.1~~$10.8 million from ~~$1,002.0~~$969.1 million at June 30, ~~2022~~2023 to ~~$974.9~~$958.2 million at ~~March 31,~~September 30, 2023, primarily due to depreciation expense of ~~$91.7~~$30.5 million and unfavorable currency effects of $7.6 million, partially offset by net capital additions of ~~$66.3 million and foreign currency effects of $5.4~~$28.8 million.

At ~~March 31,~~September 30, 2023, other assets were ~~$549.6~~$544.0 million, ~~an increase~~a decrease of ~~$2.9~~$7.4 million from ~~$546.8~~$551.4 million at June 30, ~~2022.~~2023. The ~~increase~~decrease was primarily due to ~~an increase in other assets of $10.7 million, an increase in goodwill of $4.6 million due to currency exchange effects and an increase in deferred income taxes of $2.8 million, partially offset by~~ amortization of intangibles of ~~$9.5~~$3.0 million and unfavorable currency exchange effects.

Kennametal Shareholders' equity was $1,260.4 million at September 30, 2023, a decrease ~~in operating lease right-of-use (ROU) assets~~ of ~~$6.0~~$15.1 million from $1,275.4 million at June 30, 2023. The decrease was primarily due to other comprehensive loss of $17.8 million, cash dividends paid to Kennametal Shareholders of $15.9 million and the repurchase of capital stock of $13.7 million primarily under the share repurchase program that was initiated during fiscal 2022, partially offset by net income attributable to Kennametal of $30.1 million.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

There have been no changes to our critical accounting policies since June 30, 2023.

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

Kennametal Shareholders' equity was $1,276.0 million at March 31, 2023, an increase of $23.4 million from $1,252.6 million at June 30, 2022. The increase was primarily due to net income attributable to Kennametal of $82.0 million, other comprehensive income of $14.7 million and capital stock issued under employee benefit and stock plans of $12.6 million, partially offset by cash dividends paid to Kennametal Shareholders of $48.5 million and the repurchase of capital stock of $37.6 million primarily under the share repurchase program that was initiated during fiscal 2022.

~~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 (decline) Organic sales growth (decline) is a non-GAAP financial measure of sales growth (decline) (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 (decline) on a consistent basis. Also, we report organic sales growth (decline) at the consolidated and segment levels.

Constant currency end market sales growth (decline) Constant currency end market sales growth (decline) 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 (decline) at the consolidated and segment levels.

Constant currency regional sales growth (decline) Constant currency regional sales growth (decline) 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 (decline) at the consolidated and segment levels.

Reconciliations of organic sales growth (decline) to sales growth (decline) are as follows:

Three Months Ended March 31, 2023 Metal Cutting Infrastructure Total
Organic sales growth 10% 5% 8%
Foreign currency exchange effect(1)
(5) (3) (4)
Business days effect(2)
1 — 1
Sales growth 6% 2% 5%


Three Months Ended September 30, 2023	Metal Cutting	Infrastructure	Total
Organic sales growth (decline)	2%	(3)%	—%
Foreign currency exchange effect(1)	1	(1)	—
Business days effect(4)	—	(1)	—


Sales growth (decline)	3%	(5)%	—%

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

Nine Months Ended March 31, 2023 Metal Cutting Infrastructure Total
Organic sales growth 10% 9% 10%
Foreign currency exchange effect(1)
(8) (4) (7)
Business days effect(2)
— (1) —
Sales growth 2% 4% 3%

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

Metal Cutting
Three Months Ended March 31, 2023 General engineering Transportation Aerospace Energy
Constant currency end market sales growth 11% 5% 25% 7%
Foreign currency exchange effect(1)
(4) (5) (4) (4)
End market sales growth(2)
7% —% 21% 3%
Infrastructure
Three Months Ended March 31, 2023 Energy Earthworks General engineering
Constant currency end market sales growth 10% 1% 5%
Foreign currency exchange effect(1)
(2) (4) (4)
End market sales growth (decline)(2)
8% (3)% 1%
Total
Three Months Ended March 31, 2023 General engineering Transportation Aerospace Energy Earthworks
Constant currency end market sales growth 9% 5% 25% 9% 1%
Foreign currency exchange effect(1)
(3) (5) (4) (2) (4)
End market sales growth (decline)(2)
6% —% 21% 7% (3)%

Metal Cutting
Nine Months Ended March 31, 2023 General engineering Transportation Aerospace Energy
Constant currency end market sales growth 8% 8% 23% 4%
Foreign currency exchange effect(1)
(6) (8) (6) (6)
End market sales growth (decline)(2)
2% —% 17% (2)%
Infrastructure
Nine Months Ended March 31, 2023 Energy Earthworks General engineering
Constant currency end market sales growth 14% 8% 5%
Foreign currency exchange effect(1)
(3) (6) (5)
End market sales growth(2)
11% 2% —%
Total
Nine Months Ended March 31, 2023 General engineering Transportation Aerospace Energy Earthworks
Constant currency end market sales growth 7% 8% 23% 11% 8%
Foreign currency exchange effect(1)
(6) (8) (6) (4) (6)
End market sales growth(2)
1% —% 17% 7% 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 (decline) to end market sales growth (decline)(2) are as follows:


Metal Cutting
Three Months Ended September 30, 2023	General Engineering	Transportation	Aerospace & Defense	Energy
Constant currency end market sales growth (decline)	1%	(1)%	7%	(3)%
Foreign currency exchange effect(1)	2	2	2	1


End market sales growth (decline)(2)	3%	1%	9%	(2)%


Infrastructure
Three Months Ended September 30, 2023	Energy	Earthworks	General Engineering	Aerospace & Defense
Constant currency end market sales (decline) growth	(17)%	—%	(8)%	67%
Foreign currency exchange effect(1)	1	(3)	—	6%


End market sales (decline) growth(2)	(16)%	(3)%	(8)%	73%


Total
Three Months Ended September 30, 2023	General Engineering	Transportation	Aerospace & Defense	Energy	Earthworks
Constant currency end market sales (decline) growth	(1)%	(1)%	17%	(12)%	—%
Foreign currency exchange effect(1)	1	2	2	—	(2)


End market sales growth (decline)(2)	—%	1%	19%	(12)%	(2)%

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


		Three Months Ended March 31, 2023			Nine Months Ended March 31, 2023				Three Months Ended September 30, 2023
		Americas	EMEA	Asia Pacific	Americas	EMEA	Asia Pacific		Americas	EMEA	Asia Pacific
Metal Cutting	Metal Cutting							Metal Cutting
Constant currency regional sales growth (decline)	Constant currency regional sales growth (decline)	16%	11%	(3)%	14%	9%	2%	Constant currency regional sales growth (decline)	3%	8%	(13)%
Foreign currency exchange effect(1)	Foreign currency exchange effect(1)	—	(6)	(7)	(1)	(13)	(9)	Foreign currency exchange effect(1)	1	6	(3)

Regional sales growth (decline)(3)	Regional sales growth (decline)(3)	16%	5%	(10)%	13%	(4)%	(7)%	Regional sales growth (decline)(3)	4%	14%	(16)%

Infrastructure	Infrastructure							Infrastructure
Constant currency regional sales growth		—%	24%	7%	8%	15%	6%
Constant currency regional sales (decline) growth								Constant currency regional sales (decline) growth	(10)%	11%	—%
Foreign currency exchange effect(1)	Foreign currency exchange effect(1)	(1)	(8)	(7)	(1)	(13)	(8)	Foreign currency exchange effect(1)	—	1	(5)

Regional sales (decline) growth(3)	Regional sales (decline) growth(3)	(1)%	16%	—%	7%	2%	(2)%	Regional sales (decline) growth(3)	(10)%	12%	(5)%

Total	Total							Total
Constant currency regional sales growth		8%	14%	1%	11%	10%	3%
Constant currency regional sales (decline) growth								Constant currency regional sales (decline) growth	(3)%	8%	(8)%
Foreign currency exchange effect(1)	Foreign currency exchange effect(1)	—	(7)		(1)	(12)	(8)	Foreign currency exchange effect(1)	—	5	(4)

Regional sales growth (decline)(3)		8%	7%	(6)%	10%	(2)%	(5)%
Regional sales (decline) growth(3)								Regional sales (decline) growth(3)	(3)%	13%	(12)%

(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.

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

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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.~~2023.


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 ~~March 31,~~September 30, 2023 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.


ITEM 5. OTHER INFORMATION

Rule 10b5-1 Trading Arrangements

In the quarter ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, modified or terminated a plan for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or a non-Rule 10b5-1 trading arrangement for the purchase or sale of our securities, within the meaning of Item 408 of Regulation S-K.

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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, AND ISSUER PURCHASES OF EQUITY SECURITIES

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)
January 1 through January 31, 2023 3,704 $ 26.02 — $ 84,700,000
February 1 through February 28, 2023 142,647 28.49 141,000 80,700,000
March 1 through March 31, 2023 126,918 28.34 121,000 77,300,000
Total 273,269 $ 28.39 262,000


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, 2023	140,368	$	28.86	138,360	$	61,600,000
August 1 through August 31, 2023	436,056	26.52		229,545	55,400,000
September 1 through September 30, 2023	136,868	25.56		136,750	51,900,000
Total	713,292	$	26.80	504,655

(1)During the current period, ~~1,647~~1,712 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 ~~9,622~~206,925 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.

3330

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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 nine~~ months ended ~~March 31,~~September 30, 2023 and 2022, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2023 and 2022, (iii) the Condensed Consolidated Balance Sheets at ~~March 31,~~September 30, 2023 and June 30, ~~2022,~~2023, (iv) the Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~March 31,~~September 30, 2023 and 2022 and (v) Notes to Condensed Consolidated Financial Statements for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2023 and 2022.

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SIGNATURES

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

KENNAMETAL INC.

Date:

~~May~~November 3, 2023

By:

/s/ John W. Witt

John W. Witt
Vice President Finance and Corporate Controller

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Instrument	Notional (EUR in thousands)(2)		Notional (USD in thousands)(2)		Maturity
Foreign currency-denominated intercompany loan payable	€	17,129	$	18,649	June 30, 2023


	Nine Months Ended
	March 31, 2023			March 31, 2022
(in percentages)	Metal Cutting	Infrastructure	Total Kennametal	Metal Cutting	Infrastructure	Total Kennametal
Americas	44%	61%	50%	40%	59%	47%
EMEA	36	17	29	38	18	30
Asia Pacific	20	22	21	22	23	23


	Nine Months Ended March 31, 2022
(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