Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ] Sales Cost of goods sold Gross profit Operating expense Restructuring charges (Note 8) Amortization of intangibles Operating income Interest expense Other (income) expense, net Income before income taxes Provision for income taxes Net income Less: Net income attributable to noncontrolling interests Net income attributable to Kennametal PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREOWNERS Basic earnings per share Diluted earnings per share Dividends per share Basic weighted average shares outstanding Diluted weighted average shares outstanding ASSETS Current assets: Cash and cash equivalents Accounts receivable, less allowance for doubtful accounts of $18,709 and $20,958 Inventories (Note 11) Deferred income taxes Other current assets Total current assets Property, plant and equipment: Land and buildings Machinery and equipment Less accumulated depreciation Property, plant and equipment, net Other assets: Investments in affiliated companies Goodwill (Note 18) Other intangible assets, less accumulated amortization of $85,700 and $78,712 (Note 18) Deferred income taxes Other Total other assets Total assets LIABILITIES Current liabilities: Current maturities of long-term debt and capital leases (Note 12) Notes payable to banks Accounts payable Accrued income taxes Accrued expenses Other current liabilities (Note 8) Total current liabilities Long-term debt and capital leases, less current maturities (Note 12) Deferred income taxes Accrued pension and postretirement benefits Accrued income taxes Other liabilities Total liabilities Commitments and contingencies EQUITY (Note 16) Kennametal Shareowners’ Equity: Preferred stock, no par value; 5,000 shares authorized; none issued Capital stock, $1.25 par value; 120,000 shares authorized; 80,027 and 81,129 shares issued Additional paid-in capital Retained earnings Accumulated other comprehensive income Total Kennametal Shareowners’ Equity Noncontrolling interests Total equity Total liabilities and equity OPERATING ACTIVITIES Net income Adjustments for non-cash items: Depreciation Amortization Stock-based compensation expense Restructuring charges Deferred income tax provision (benefit) Other Changes in certain assets and liabilities: Accounts receivable Inventories Accounts payable and accrued liabilities Accrued income taxes Other Net cash flow provided by operating activities INVESTING ACTIVITIES Purchases of property, plant and equipment Disposals of property, plant and equipment Business acquisition, net of cash acquired (Note 5) Purchase of technology license Other Net cash flow used for investing activities FINANCING ACTIVITIES Net decrease in notes payable Net increase in short-term revolving and other lines of credit Term debt borrowings Term debt repayments Purchase of capital stock Settlement of interest rate swap agreement (Note 7) Dividend reinvestment and the effect of employee benefit and stock plans Cash dividends paid to shareowners Other Net cash flow provided by (used for) financing activities Effect of exchange rate changes on cash and cash equivalents CASH AND CASH EQUIVALENTS Net (decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period ORGANIZATION BASIS OF PRESENTATION NEW ACCOUNTING STANDARDS 2013. Cash paid during the period for: Interest Income taxes Supplemental disclosure of non-cash information: Contribution of capital stock to employees’ defined contribution benefit plans ACQUISITION 2013 ASSETS Current assets: Accounts receivable Inventories Other current assets Total current assets Property and equipment Goodwill Other intangible assets Deferred income taxes Other Total assets LIABILITIES Current liabilities: Short term debt and current maturities of long-term debt Accounts payable Accrued income taxes Other current liabilities Total current liabilities Long-term debt and capital leases Deferred income taxes Total liabilities Noncontrolling interest Net assets acquired Stellite. Pro forma (unaudited): Net Sales Net income attributable to Kennametal Per share data attributable to Kennametal : Basic earnings per share Diluted earnings per share FAIR VALUE MEASUREMENTS Assets: Derivatives (1) Total assets at fair value Liabilities: Derivatives (1) Total liabilities at fair value As of June 30, Assets: Derivatives (1) Total assets at fair value Liabilities: Derivatives (1) Total liabilities at fair value DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Derivatives designated as hedging instruments Other current assets - range forward contracts Other current liabilities - range forward contracts Other assets - forward starting interest rate swap contracts Other liabilities - forward starting interest rate swap contracts Total derivatives designated as hedging instruments Derivatives not designated as hedging instruments Other current assets - currency forward contracts Other current liabilities - currency forward contracts Total derivatives not designated as hedging instruments Total derivatives Other (income) expense, net - currency forward contracts We had no such contracts outstanding at Gains (losses) recognized in other comprehensive income, net Losses reclassified from accumulated other comprehensive income into other (income) expense, net Asset Write-down Industrial Severance Facilities Other Total Industrial Infrastructure Severance Facilities Other Total Infrastructure Total Asset Write-down Industrial Severance Facilities Other Total Industrial Infrastructure Severance Facilities Other Total Infrastructure Total Stock Options Risk-free interest rate Expected life (years)(2) Expected volatility(3) Expected dividend yield Changes in our stock options for the nine months ended March 31, Options outstanding, June 30, 2011 Granted Exercised Lapsed and forfeited Options outstanding, March 31, 2012 Options vested and expected to vest, March 31, 2012 Options exercisable, March 31, 2012 Unvested restricted stock awards, June 30, 2011 Vested Forfeited Unvested restricted stock awards, March 31, 2012 Unvested performance vesting and time vesting restricted stock units, June 30, 2011 Granted Vested Forfeited Unvested performance vesting and time vesting restricted stock units, March 31, 2012 Unvested EPS performance-based restricted stock units, June 30, 2011 Forfeited Unvested EPS performance-based restricted stock units, March 31, 2012 Unvested TSR performance-based restricted stock units, June 30, 2011 Forfeited Unvested TSR performance-based restricted stock units, March 31, 2012 Service cost Interest cost Expected return on plan assets Amortization of transition obligation Amortization of prior service credit Settlement loss Recognition of actuarial losses Net periodic pension cost The table below summarizes the components of the net periodic other postretirement benefit cost: Service cost Interest cost Amortization of prior service cost Recognition of actuarial gains Net periodic other postretirement benefit cost March 31, 2012 June 30, 2011 Finished goods Work in process and powder blends Raw materials Inventories at current cost Less: LIFO valuation Total inventories 2012 the United States where the tax rates are higher than the rest of the world. Capital stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Non- controlling interests Balance as of June 30, 2011 Net income Other comprehensive loss Dividend reinvestment Capital stock issued under employee benefit and stock plans Purchase of capital stock Cash dividends paid Noncontrolling interest acquisition Total equity, March 31, 2012 Capital stock Additional paid-in capital Retained earnings Accumulated other comprehensive (loss) income Non- controlling interests Balance as of June 30, 2010 Net income Other comprehensive income Dividend reinvestment Capital stock issued under employee benefit and stock plans Purchase of capital stock Cash dividends paid Total equity, March 31, 2011 Three Months Ended March 31, Nine Months Ended March 31, Net income Unrealized (loss) gain on derivatives designated and qualified as cash flow hedges, net of income tax (benefit) expense of ($0.0) million, $0.1 million, ($7.3) million and $1.4 million, respectively Reclassification of unrealized (gain) loss on expired derivatives designated and qualified as cash flow hedges, net of income tax expense (benefit) of $0.1 million, ($0.1) million, ($0.0) million and ($0.2) million, respectively Unrecognized net pension and other postretirement benefit (loss) gain, net of income tax (benefit) expense of ($0.2) million, ($0.3) million, $0.2 million and ($0.8) million, respectively Reclassification of net pension and other postretirement benefit loss, net of income tax benefit of $0.7 million, $1.0 million, $2.2 million and $2.9 million, respectively Foreign currency translation adjustments, net of income tax expense (benefit) of $17.2 million, $29.0 million, ($42.8) million and $ 11.3 million, respectively Total comprehensive income Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to Kennametal Shareowners GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill Accumulated impairment losses Balance as of June 30, 2011 Acquisition Translation Change in goodwill Goodwill Accumulated impairment losses Balance as of March 31, 2012 Useful Life (in years) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Contract-based Technology-based and other Customer-related Unpatented technology Trademarks Trademarks Total meet customer-specified needs. offering of products and services. their operations. Three Months Ended March 31, Nine Months Ended March 31, External sales: Industrial Infrastructure Total external sales Operating income: Industrial Infrastructure Corporate Total operating income Interest expense Other (income) expense, net Income before income taxes Operating income was as well as an ongoing inventory reduction initiative. Partially offsetting these effects, were reduced operating expenses due to continued cost discipline. $0.67. quarter purchased 786,000 of our shares, totaling 2.1 million shares year to date. Approximately 6.5 million shares remain available under our current share buy-back program. 2013 period. Stellite acquisition. $0.6 million and lower interest income. lower interest income. the United States where the tax rates are higher than the rest of the world. expense. Nine Months Ended March 31, External sales Operating income External sales Operating income market. Corporate unallocated expense lower pension expense. $1.1 million. As noted above, the 2011 Credit Agreement was amended in April 2013 to extend the maturity to April 2018. Borrowings under the 2011 Credit Agreement are guaranteed by our significant domestic subsidiaries. . 2012 There have been no material changes to our market risk exposure since June 30, As of the end of the period covered by this quarterly report on Form 10-Q, the 2013 to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (i) accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and (ii) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(2) January 1 through January 31, 2012 February 1 through February 29, 2012 March 1 through March 31, 2012 Total XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith.20122013 Pennsylvania 25-0900168 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 15650-0231 (Address(Address of principal executive offices) (Zip Code) Title of Each Class Outstanding at April 30, 2013 Capital Stock, par value $1.25 per share 78,737,393 Title of Each Class Outstanding at April 30, 2012 Capital Stock, par value $1.25 per share 80,045,908Item No. Page No. 1. 2. 3. 4. 2. 6. Forward-lookingWe have also included forward looking statements in this Quarterly Report on Form 10-Q may concern,concerning, among other things, Kennametal’s expectations regarding our strategy, goals, plans and projections regarding our financial position, liquidity and capital resources, results of operations, market position, and product development, all of whichdevelopment. These statements are based on current estimates that involve inherent risks and uncertainties. AmongShould 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 theour actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties related to:statements. They include: economic recession; anticipated benefits resulting from our recently completed restructuring activities; availability and cost of the raw materials we use to manufacture our products; our foreign operations and international markets, such as currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability; changes in the regulatory environment in which we operate, including environmental, health and safety regulations; our ability to protect and defend our intellectual property; competition; our ability to retain our management and employees; demands on management resources; potential claims relating to our products; integrating acquisitions and achieving the expected savings and synergies; business divestitures; global or regional catastrophic events; energy costs; commodity prices; labor relations; demand for and market acceptance of new and existing products; and implementation of environmental remediation matters. Should one or moreWe provide additional information about many of thesethe specific risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, actual outcomes could vary materially from those indicated. These and other risks are more fully describedwe face in the “Risk Factors” Section of our Annual Report on Form 10-K10-K. We can give no assurance that any goal or plan set forth in forward-looking statements can be achieved and in our other periodic filings withreaders are cautioned not to place undue reliance on such statements, which speak only as of the Securities and Exchange Commission.date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.I–I – FINANCIAL INFORMATION0000000000 0000000000 0000000000 0000000000 Three Months Ended Nine Months Ended March 31, March 31, (in thousands, except per share amounts) 2012 2011 2012 2011 $ 696,411 $ 614,830 $ 1,997,030 $ 1,709,756 449,965 384,849 1,267,638 1,091,010 246,446 229,981 729,392 618,746 138,904 138,322 419,459 395,447 - 1,046 - 7,697 4,250 2,836 10,982 8,696 103,292 87,777 298,951 206,906 8,003 5,767 18,746 17,294 (486 ) 1,413 (1,169 ) 3,071 95,775 80,597 281,374 186,541 19,538 15,394 57,093 41,092 76,237 65,203 224,281 145,449 738 520 3,099 2,376 $ 75,499 $ 64,683 $ 221,182 $ 143,073 $ 0.94 $ 0.79 $ 2.76 $ 1.74 $ 0.93 $ 0.77 $ 2.72 $ 1.72 $ 0.14 $ 0.12 $ 0.40 $ 0.36 80,110 82,138 80,179 82,144 81,535 83,495 81,434 83,164 Three Months Ended
March 31, Nine Months Ended
March 31,(in thousands, except per share amounts) 2013 2012 2013 2012 Sales $ 655,360 $ 696,411 $ 1,917,963 $ 1,997,030 Cost of goods sold 446,865 449,965 1,301,673 1,267,638 Gross profit 208,495 246,446 616,290 729,392 Operating expense 128,328 138,904 394,967 419,459 Amortization of intangibles 5,194 4,250 15,501 10,982 Operating income 74,973 103,292 205,822 298,951 Interest expense 7,504 8,003 20,430 18,746 Other expense (income), net 749 (486 ) 502 (1,169 ) Income before income taxes 66,720 95,775 184,890 281,374 Provision for income taxes 12,344 19,538 40,158 57,093 Net income 54,376 76,237 144,732 224,281 Less: Net income attributable to noncontrolling interests 460 738 2,285 3,099 Net income attributable to Kennametal $ 53,916 $ 75,499 $ 142,447 $ 221,182 PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREOWNERS Basic earnings per share $ 0.68 $ 0.94 $ 1.79 $ 2.76 Diluted earnings per share $ 0.67 $ 0.93 $ 1.76 $ 2.72 Dividends per share $ 0.16 $ 0.14 $ 0.48 $ 0.40 Basic weighted average shares outstanding 79,294 80,110 79,744 80,179 Diluted weighted average shares outstanding 80,619 81,535 80,912 81,434 BALANCE SHEETSSTATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)000000000000 000000000000 March 31, June 30, (in thousands, except per share data) 2012 2011 $ 125,549 $ 204,565 481,821 447,835 630,870 519,973 57,380 60,257 51,823 54,955 1,347,443 1,287,585 383,199 373,971 1,408,431 1,396,306 (1,051,971 ) (1,073,215 ) 739,659 697,062 752 829 731,348 511,328 254,924 152,279 33,683 29,876 90,765 75,510 1,111,472 769,822 $ 3,198,574 $ 2,754,469 $ 333,745 $ 307,304 667 3,659 223,656 222,678 47,677 38,098 94,143 102,576 154,321 167,206 854,209 841,521 306,459 1,919 124,573 83,310 128,536 134,919 3,093 3,094 36,005 31,065 1,452,875 1,095,828 - - 100,035 101,411 441,638 470,758 1,172,222 983,374 5,341 82,529 1,719,236 1,638,072 26,463 20,569 1,745,699 1,658,641 $ 3,198,574 $ 2,754,469 Three Months Ended
March 31, Nine Months Ended
March 31,(in thousands) 2013 2012 2013 2012 Net income $ 54,376 $ 76,237 $ 144,732 $ 224,281 Unrealized gain (loss) on derivatives designated and qualified as cash flow hedges, net of income tax (expense) benefit of ($0.1) million, ($0.1) million, $0.3 million and $7.1 million, respectively 212 90 (461 ) (11,292 ) Reclassification of unrealized loss (gain) on expired derivatives designated and qualified as cash flow hedges, net of income tax benefit (expense) of $0.3 million, ($0.1) million, $0.6 million and ($0.2) million, respectively 556 (235 ) 934 (264 ) Unrecognized net pension and other postretirement benefit gain (loss), net of income tax (expense) benefit of ($0.6) million, $0.2 million, ($0.1) million and ($0.2) million, respectively 1,918 (672 ) 438 393 Reclassification of net pension and other postretirement benefit loss, net of income tax benefit of $1.4 million, $0.7 million, $4.1 million and $2.2 million, respectively 2,392 1,291 7,227 3,864 Foreign currency translation adjustments, net of income tax benefit (expense) of $19.5 million, ($17.2) million, ($3.6) million and $42.8 million, respectively (34,258 ) 28,603 4,187 (72,138 ) Total comprehensive income 25,196 105,314 157,057 144,844 Comprehensive income attributable to noncontrolling interests 145 1,323 2,656 850 Comprehensive income attributable to Kennametal Shareowners $ 25,051 $ 103,991 $ 154,401 $ 143,994 STATEMENTS OF CASH FLOWBALANCE SHEETS (UNAUDITED)0000000000 0000000000 Nine months ended March 31 (in thousands) 2012 2011 $ 224,281 $ 145,449 63,163 60,165 10,982 8,696 17,108 15,727 - 2,609 3,827 (2,878 ) (11,311 ) 4,637 (1,478 ) (71,692 ) (85,276 ) (74,706 ) (56,969 ) 37,250 2,307 4,378 (2,398 ) (4,610 ) 164,236 125,025 (60,657 ) (33,348 ) 4,397 8,063 (382,562 ) - (10,000 ) - 400 2,349 (448,422 ) (22,936 ) (2,708 ) (13,844 ) 29,200 - 980,926 365,082 (683,573 ) (366,653 ) (66,786 ) (26,457 ) (22,406 ) - 23,072 15,081 (32,334 ) (29,873 ) (8,909 ) (1,045 ) 216,482 (57,709 ) (11,312 ) 21,683 (79,016 ) 66,063 204,565 118,129 $ 125,549 $ 184,192 (in thousands, except per share data) March 31,
2013 June 30,
2012ASSETS Current assets: Cash and cash equivalents $ 322,089 $ 116,466 Accounts receivable, less allowance for doubtful accounts of $12,706 and $12,530 442,486 478,989 Inventories (Note 10) 575,889 585,856 Deferred income taxes 53,472 51,017 Other current assets 48,494 50,634 Total current assets 1,442,430 1,282,962 Property, plant and equipment: Land and buildings 379,726 379,034 Machinery and equipment 1,443,039 1,396,359 Less accumulated depreciation (1,094,653 ) (1,033,192 ) Property, plant and equipment, net 728,112 742,201 Other assets: Investments in affiliated companies 716 685 Goodwill (Note 16) 718,751 719,350 Other intangible assets, less accumulated amortization of $105,610 and $89,886 (Note 16) 226,656 243,487 Deferred income taxes 19,796 25,205 Other 22,470 20,298 Total other assets 988,389 1,009,025 Total assets $ 3,158,931 $ 3,034,188 LIABILITIES Current liabilities: Current maturities of long-term debt and capital leases (Note 11) $ 3,836 $ 33,572 Notes payable to banks 43,299 41,565 Accounts payable 153,048 219,475 Accrued income taxes 10,145 39,270 Accrued expenses 76,669 97,177 Other current liabilities 117,316 147,563 Total current liabilities 404,313 578,622 Long-term debt and capital leases, less current maturities (Note 11) 703,895 490,608 Deferred income taxes 81,182 69,134 Accrued pension and post retirement benefits 180,914 190,747 Accrued income taxes 4,891 3,964 Other liabilities 29,902 32,892 Total liabilities 1,405,097 1,365,967 Commitments and contingencies EQUITY (Note 15) Kennametal Shareowners’ Equity: Preferred stock, no par value; 5,000 shares authorized; none issued — — Capital stock, $1.25 par value; 120,000 shares authorized; 78,732 and 80,085 shares issued 98,415 100,106 Additional paid-in capital 408,752 447,433 Retained earnings 1,350,984 1,246,973 Accumulated other comprehensive loss (136,643 ) (150,662 ) Total Kennametal Shareowners’ Equity 1,721,508 1,643,850 Noncontrolling interests 32,326 24,371 Total equity 1,753,834 1,668,221 Total liabilities and equity $ 3,158,931 $ 3,034,188 FINANCIAL STATEMENTS OF CASH FLOW (UNAUDITED) Nine Months Ended
March 31,(in thousands) 2013 2012 OPERATING ACTIVITIES Net income $ 144,732 $ 224,281 Adjustments for non-cash items: Depreciation 69,251 63,163 Amortization 15,501 10,982 Stock-based compensation expense 18,586 17,108 Deferred income tax provision 12,086 3,827 Other (744 ) (11,311 ) Changes in certain assets and liabilities: Accounts receivable 37,618 (1,478 ) Inventories 9,201 (85,276 ) Accounts payable and accrued liabilities (132,208 ) (56,969 ) Accrued income taxes (29,511 ) 2,307 Other 5,846 (2,398 ) Net cash flow provided by operating activities 150,358 164,236 INVESTING ACTIVITIES Purchases of property, plant and equipment (53,808 ) (60,657 ) Disposals of property, plant and equipment 1,763 4,397 Business acquisition, net of cash acquired (Note 5) — (382,562 ) Purchase of technology license — (10,000 ) Other (152 ) 400 Net cash flow used for investing activities (52,197 ) (448,422 ) FINANCING ACTIVITIES Net increase (decrease) in notes payable 1,686 (2,708 ) Net (decrease) increase in short-term revolving and other lines of credit (23,500 ) 29,200 Term debt borrowings 914,244 980,926 Term debt repayments (706,340 ) (683,573 ) Purchase of capital stock (78,487 ) (66,786 ) Sale of subsidiary stock (Note 15) 26,665 — Settlement of interest rate swap agreement (Note 7) — (22,406 ) Dividend reinvestment and the effect of employee benefit and stock plans 13,255 23,072 Cash dividends paid to Shareowners (38,436 ) (32,334 ) Other (2,660 ) (8,909 ) Net cash flow provided by financing activities 106,427 216,482 Effect of exchange rate changes on cash and cash equivalents 1,035 (11,312 ) CASH AND CASH EQUIVALENTS Net increase (decrease) in cash and cash equivalents 205,623 (79,016 ) Cash and cash equivalents, beginning of period 116,466 204,565 Cash and cash equivalents, end of period $ 322,089 $ 125,549 KENNAMETAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. was incorporated in Pennsylvania in 1943. Kennametal Inc. and its subsidiaries (collectively, Kennametal or the Company) are a leading global manufacturer and supplier of tooling, engineered components and advanced materials consumed in production processes. We believe that our reputation for manufacturing excellence, as well as our technological expertise and innovation we deliver in our principle products has helpedand services, helps us to achieve a leading market presenceposition in our primary markets. End users of our products include metalworking and machinery manufacturers and suppliers across a diverse array of industries, including the aerospace, defense, transportation, machine tool, light machinery and heavy machinery, industries, as well as manufacturers, producers and suppliers in a number of otherequipment-intensive industries includingsuch as coal mining, highwayroad construction and quarrying, andas well as oil and gas exploration, refining, production and production industries.supply. Our end users’ products include items rangingusers' applications range from airframes to coal mining operations, engines to oil wells and turbochargers to construction.processing. We operate two global business segments consisting of Industrial and Infrastructure.2. 20112012 Annual Report on Form 10-K. The condensed consolidated balance sheet as of June 30, 20112012 was derived from the audited balance sheet included in our 20112012 Annual Report on Form 10-K. These interim statements are unaudited; however, we believe that all adjustments necessary for a fair statement of the results of the interim periods were made and all adjustments are normal adjustments. The results for the nine months ended March 31, 20122013 and 20112012 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 20122013 is to the fiscal year ending June 30, 2012.2013. When used in this Form 10-Q, unless the context requires otherwise, the terms “we,” “our” and “us” refer to Kennametal Inc. and its consolidated subsidiaries.3. JanuaryJuly 1, 2012, Kennametal adopted changes to fair value measurements and disclosure. Many of the amendments in this guidance represent clarifications to existing guidance or changes in the measurement guidance for determining fair value. The most significant change in disclosures is an expansion of the information required for Level 3 measurements. Disclosures will be required about the use of a nonfinancial asset measured or disclosed at fair value if its use differs from its highest and best use. In addition, entities must report the level in the fair value hierarchy of assets and liabilities not recorded at fair value but where fair value is disclosed. The adoption of this guidance did not have an impact on our condensed consolidated financial statements.IssuedIn December 2011, the Financial Accounting Standards Board (FASB) deferred the requirement to present reclassifications of other comprehensive income on the face of the income statement. Companies would still be required to adopt the other requirements contained in the accounting guidance on presentation of other comprehensive income. This guidance is effective for Kennametal beginning July 1, 2012.In June 2011, the FASB issued guidance on presentation of comprehensive income. This guidance eliminateseliminated the current option to report other comprehensive income and its components in the statement of changes in equity. An entity cancould elect to present items of net income and other comprehensive income in one continuous statement or in two separate consecutive statements. Each component of net income and other comprehensive income, together with totals for comprehensive income and its two parts, net income and other comprehensive income, would need to be displayed under either alternative. ThisWe elected to present the two-statement option. Other than the change in presentation, the adoption of this guidance is effective for Kennametal beginninghad no impact on the condensed consolidated financial statements.2012.In September 2011, the FASB issued additional guidance on2012, Kennametal adopted changes to testing goodwill for impairment. The guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The adoption of this guidance did not have an impact on our condensed consolidated financial statements.2012. Nine Months Ended March 31, (in thousands) 2013 2012 Cash paid during the period for: Interest $ 18,260 $ 14,603 Income taxes 48,685 44,715 4.SUPPLEMENTAL CASH FLOW DISCLOSURES0000000000 0000000000 Nine months ended March 31 (in thousands) 2012 2011 $ 14,603 $ 14,684 44,715 40,741 - 948 5. pursuant to the terms of the Share Sale and Purchase Agreement dated January 13, 2012. The U.K.-based Stellite is a global manufacturer and provider of alloy-based critical wear solutions for extreme environments involving high temperature, corrosion and abrasion. Stellite employs approximately 1,300 people across seven primary operating facilities globally, including locations in the U.S., Canada, Germany, Italy, India and China. Stellite’s proprietary metal alloys, materials expertise, engineering design and fabrication capabilities complement Kennametal’s current business in the oil and gas, power generation, transportation and aerospace end markets. This acquisition is in alignment with Kennametal’s growth strategy and positions us to further achieve geographic and end market balance.Kennametal acquired Stellite for a purchase price of approximately $383 million;acquired, and fundedacquired.acquisition through existing credit facilities and operating cash flows. As part of the acquisition of Stellite, Kennametal incurred for both the three and nine months ended March 31, 2012, $5.7 million of acquisition related costs, which are included in operating expense.Purchase Price AllocationThis acquisition was accounted for under the acquisition method of accounting and accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based on estimated fair values at the date of the acquisition. The Condensed Consolidated Balance Sheet as of March 31, 2012 reflects the preliminary allocation of the purchase price and is subject to revision when appraisals are finalized, which is expected to occur in the June quarter of 2012.KENNAMETAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The preliminary allocation of the total purchase price to the fair values of the assets acquired and liabilities assumed is as follows:00000000000 (in thousands) Total $ 45,484 49,618 4,007 99,109 72,794 235,883 102,721 2,478 70 $ 513,055 $ 4,685 43,534 9,530 16,045 73,794 5,379 46,109 125,282 5,211 $ 382,562 In connection with this acquisition, we identified and valued certain intangible assets, including existing customer relationships, technologies and trademarks, as further discussed in Note 18. The goodwill recorded of $235.9 million is not deductible for tax purposes and is attributable to the operating synergies we expect to gain from the acquisition. These intangible assets are part of the Infrastructure segment.Stellite realized, includes net sales of $22.5$180.9 million and a net lossincome attributable to Kennametal of $4.7$3.3 million during the month ended March 31, 2012 related to the Company, including $5.7 million of acquisition related pre-tax costs.threenine months ended March 31, 2012 excluded $5.7 included $6.9 million of acquisitionintegration related pre-tax costs. The pro forma results for the three and nine months ended March 31, 2011 includes $2.0 million and $8.9 million, respectively, of acquisition related expenses. The pro forma results have been presented for comparative purposes only and are not indicative of future results of operations or what would have occurred had the acquisition been made on July 1, 2010.KENNAMETAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Unaudited pro forma summary of operating results of the Company, assuming the acquisition had occurred as of July 1, 2010 are as follows:000000000000 000000000000 000000000000 000000000000 Three Months Ended Nine Months Ended March 31, March 31, (in thousands) 2012 2011 2012 2011 $ 733,518 $ 687,121 $ 2,170,532 $ 1,901,888 $ 83,955 $ 68,819 $ 237,144 $ 145,028 $ 1.05 $ 0.84 $ 2.96 $ 1.77 $ 1.03 $ 0.82 $ 2.91 $ 1.74 Nine months ended March 31 (in thousands, except per share data) 2012 Pro forma (unaudited): Net Sales $ 2,159,679 Net income attributable to Kennametal $ 228,839 Per share data attributable to Kennametal : Basic earnings per share $ 2.85 Diluted earnings per share $ 2.81 6. 2012,2013, the fair values of the Company’s financial assets and financial liabilities measured at fair value on a recurring basis are categorized as follows:000000000 000000000 000000000 000000000 (in thousands) Level 1 Level 2 Level 3 Total $ - $ 487 $ - $ 487 $ - $ 487 $ - $ 487 $ - $ 58 $ - $ 58 $ - $ 58 $ - $ 58 (in thousands) Level 1 Level 2 Level 3 Total Assets: $ — $ 244 $ — $ 244 Total assets at fair value $ — $ 244 $ — $ 244 Liabilities: $ — $ 134 $ — $ 134 Total liabilities at fair value $ — $ 134 $ — $ 134 KENNAMETAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2011,2012, the fair value of the Company’s financial assets and financial liabilities measured at fair value on a recurring basis are categorized as follows:september300 september300 september300 september300 (in thousands) Level 1 Level 2 Level 3 Total $ - $ 896 $ - $ 896 $ - $ 896 $ - $ 896 $ - $ 3,330 $ - $ 3,330 $ - $ 3,330 $ - $ 3,330 (in thousands) Level 1 Level 2 Level 3 Total Assets: $ — $ 1,855 $ — $ 1,855 Total assets at fair value $ — $ 1,855 $ — $ 1,855 Liabilities: $ — $ 193 $ — $ 193 Total liabilities at fair value $ — $ 193 $ — $ 193 (1)Foreign currency derivative and interest rate swap contracts are valued based on observable market spot and forward rates and are classified within Level 2 of the fair value hierarchy.7. debt.debt and forecasted transactions. We account for derivative instruments as a hedge of the related asset, liability, firm commitment or anticipated transaction, when the derivative is specifically designated as a hedge of such items. Our objective in managing foreign exchange exposures with derivative instruments is to reduce volatility in cash flow, allowing us to focus more of our attention on business operations. With respect to interest rate management, these derivative instruments allow us to achieve our targeted fixed-to-floating interest rate mix, as a separate decision from funding arrangements, in the bank and public debt markets. We measure hedge effectiveness by assessing the changes in the fair value or expected future cash flows of the hedged item. The ineffective portions are recorded in other (income) expense (income), net.september30 september30 March 31, June 30, (in thousands) 2012 2011 $ 435 $ 87 (4 ) (159 ) - 772 - (3,169 ) 431 (2,469 ) 52 37 (54 ) (2 ) (2 ) 35 $ 429 $ (2,434 ) (in thousands) March 31,
2013 June 30,
2012Derivatives designated as hedging instruments Other current assets - range forward contracts $ 3 $ 554 Other current liabilities - range forward contracts (121 ) (193 ) Other assets - range forward contracts — 3 Total derivatives designated as hedging instruments (118 ) 364 Derivatives not designated as hedging instruments Other current assets - currency forward contracts 241 1,298 Other current liabilities - currency forward contracts (13 ) — Total derivatives not designated as hedging instruments 228 1,298 Total derivatives $ 110 $ 1,662 expense,, net. (Gains) losses related to derivatives not designated as hedging instruments have been recognized as follows:september3 september3 september3 september3 Three Months Ended Nine Months Ended March 31, March 31, (in thousands) 2012 2011 2012 2011 $ (747 ) $ 56 $ 33 $ (1,963 ) KENNAMETAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three Months Ended
March 31, Nine Months Ended
March 31,(in thousands) 2013 2012 2013 2012 Other expense (income), net - currency forward contracts $ (475 ) $ (747 ) $ 995 $ 33 $200.0$200.0 million of our fixed rate debt to floating rate debt. These contracts were originally set to mature in June 2012. Upon termination, we received a cash payment of $13.2 million.2012. This gain is beingwas amortized as a component of interest expense over the remaining term of the related debt using the effective interest rate method. The gain was fully amortized as of June 30, 2012. During the three and nine months ended March 31, 2012 $1.5, $1.5 million and $4.4$4.4 million, respectively, were recognized as a reduction in interest expense. During the three and nine months ended March 31, 2011, $1.5 million and $4.4 million, respectively, were recognized as a reduction in interest expense., are designated as cash flow hedges and hedge anticipated cash flows from cross-border intercompany sales of products and services. Gains and losses realized on these contracts at maturity are recorded in accumulated other comprehensive income, net of tax,loss, and are recognized as a component of other expense (income) expense,, net when the underlying sale of products or services is recognized into earnings. The notional amount of the contracts translated into U.S. dollars at March 31, 20122013 and June 30, 2011,2012, was $43.1$30.6 million and $37.6$69.9 million, respectively. The time value component of the fair value of range forward contracts is excluded from the assessment of hedge effectiveness. Assuming the market rates remain constant with the rates at March 31, 2012,2013, we expect to recognize a gain of $0.3 millioninto earnings in the next 12 months $0.2 million of losses on outstanding derivatives.We enter into floating-to-fixedincome,loss, net of tax.$150.0$150.0 million of our floating rate debt to fixed rate debt. Upon settlement, we made a cash payment of $22.4 million.$22.4 million. The loss is being amortized as a component of interest expense over the term of the related debt using the effective interest rate method. During the three and nine months ended March 31, 2013, $0.5 million and $1.4 million, respectively, were recognized as interest expense. During the three and nine months ended March 31, 2012, $0.3$0.3 million was recognized as interest expense. As of June 30, 2011, we recorded a liability of $2.4 million on these contracts which was recorded as a decrease to other comprehensive income, net of tax.Amountshedges have been recognized as follows:hedges:september september september september Three Months Ended Nine Months Ended March 31, March 31, (in thousands) 2012 2011 2012 2011 $ 155 $ (57 ) $ 11,742 $ (2,286 ) $ 11 $ 182 $ 177 $ 374 Three Months Ended
March 31, Nine Months Ended
March 31,(in thousands) 2013 2012 2013 2012 Gains (losses) recognized in other comprehensive loss, net $ 212 $ 90 $ (461 ) $ (11,292 ) Losses reclassified from accumulated other comprehensive loss into other expense (income), net $ 425 $ 11 $ 682 $ 175 three and nine months ended March 31, 20122013 and 2011.2012.8. RESTRUCTURING AND RELATED CHARGESDuring fiscal year 2011, we completed our restructuring plans to reduce costs and improve operating efficiencies. These actions related to the rationalization of certain manufacturing and service facilities as well as other employment cost reduction programs. There were no restructuring and related charges for the nine months ended March 31, 2012.Restructuring and related charges recorded during the nine months ended March 31, 2011 amounted to $14.9 million, including $8.7 million of restructuring charges of which $1.0 million were related to inventory disposals and recorded in cost of goods sold. Restructuring-related charges of $3.0 million and $3.2 million were recorded in cost of goods sold and operating expense, respectively, during the same period.KENNAMETAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The restructuring accrual is recorded in other current liabilities in our condensed consolidated balance sheet and the amount attributable to each segment is as follows:september3 september3 september3 september3 september3 september3 (in thousands) June 30, 2011 Expense Cash
Expenditures Translation March 31, 2012 $ 7,811 $ - $ - $ (6,136 ) $ (179 ) $ 1,496 525 - - (500 ) (25 ) - 1,604 - - (790 ) (102 ) 712 9,940 - - (7,426 ) (306 ) 2,208 1,650 - - (1,573 ) (77 ) - 269 - - (226 ) (10 ) 33 852 - - (339 ) (44 ) 469 2,771 - - (2,138 ) (131 ) 502 $ 12,711 $ - $ - $ (9,564 ) $ (437 ) $ 2,710 (in thousands) June 30, 2010 Expense Cash
Expenditures Translation June 30, 2011 $ 18,327 $ 4,363 $ - $ (16,510 ) $ 1,631 $ 7,811 508 2,318 (1,857 ) (444 ) - 525 403 2,031 - (931 ) 101 1,604 19,238 8,712 (1,857 ) (17,885 ) 1,732 9,940 7,637 2,484 - (9,399 ) 928 1,650 211 1,319 (1,057 ) (204 ) - 269 168 1,156 - (530 ) 58 852 8,016 4,959 (1,057 ) (10,133 ) 986 2,771 $ 27,254 $ 13,671 $ (2,914 ) $ (28,018 ) $ 2,718 $ 12,711 9.STOCK-BASED COMPENSATIONOn October 26, 2010, the Company’s shareowners approved the Kennametal Inc., Stock and Incentive Plan of 2010 (the 2010 Plan). The 2010 Plan authorizes the issuance of up to 3,500,000 shares of the Company’s common stock plus the remaining shares from the Kennametal Inc., Stock Incentive Plan of 2002, as amended (the 2002 Plan). Shares can be issued in the form of incentive stock options, non-statutory stock options, stock appreciation rights, performance share awards, performance unit awards, restricted stock awards, restricted unit awards and share awards.20122013 and 20112012 were as follows: 2012 2011 1.2% 1.4% 4.5 4.5 47.5% 47.0% 1.5% 2.0% 2013 2012 Risk-free interest rate 0.6 % 1.2 % 4.5 4.5 49.5 % 47.5 % Expected dividend yield 1.4 % 1.5 % common stock.KENNAMETAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)20122013 were as follows: Weighted Weighted Average Aggregate Average Remaining Intrinsic value Options Exercise Price Life (years) (in thousands) 3,388,003 $ 26.50 354,618 38.95 (730,000 ) 24.89 (50,675 ) 30.22 2,961,946 $ 28.32 6.0 $ 48,000 2,895,598 $ 28.28 5.9 $ 47,056 1,775,085 $ 27.76 4.8 $ 29,774 Options Options outstanding, June 30, 2012 2,891,563 $ 28.46 Granted 385,056 36.81 Exercised (377,970 ) 24.26 Lapsed and forfeited (39,530 ) 31.60 Options outstanding, March 31, 2013 2,859,119 $ 30.11 5.7 $ 26 2,820,193 $ 30.05 5.7 $ 25 Options exercisable, March 31, 2013 1,893,124 $ 28.72 4.5 $ 20 20122013 and 2011,2012, compensation expense related to stock options was $4.6$5.5 million and $4.2$4.6 million, respectively. As of March 31, 2012,2013, the total unrecognized compensation cost related to options outstanding was $4.5$3.1 million and is expected to be recognized over a weighted average period of 2.02.4 years.20122013 and 20112012 was $13.84$13.53 and $9.22,$13.84, respectively. Fair value of options vested during the nine months ended March 31, 20122013 and 20112012 was $4.6$5.1 million and $4.4$4.6 million, respectively.statementcondensed consolidated statements of cash flow as financing cash inflows. Tax benefits resulting from stock-based compensation deductions exceeded amounts reported for financial reporting purposes by $3.9$3.5 million and $2.4$3.9 million for the nine months ended March 31, 20122013 and 2011,2012, respectively.20122013 and 20112012 was $17.9$9.2 million and $11.3$17.9 million, respectively. The related tax benefit for the nine months ended March 31, 20122013 and 20112012 was $4.0$1.9 million and $2.6$4.0 million, respectively. The total intrinsic value of options exercised during the nine months ended March 31, 20122013 and 20112012 was $13.2$5.9 million and $8.0$13.2 million, respectively.20122013 and 2011 was $0.42012 were $0.1 million and $0.6$0.4 million, respectively.20122013 were as follows: Weighted Average Fair Shares Value 89,315 $ 32.90 (64,412 ) 34.46 (582 ) 29.60 24,321 $ 28.85 Shares Unvested restricted stock awards, June 30, 2012 24,030 $ 28.83 Vested (23,840 ) 28.83 Forfeited (190 ) 29.60 Unvested restricted stock awards, March 31, 2013 — $ — 20122013 and 2011,2012, compensation expense related to restricted stock awards was $0.8$0.1 million and $1.6$0.8 million, respectively. As of March 31, 2012, the total unrecognized compensation cost related to unvested restricted stock awards was $0.2 million and is expected to be recognized over a weighted average period of 0.4 years.KENNAMETAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) units (performance units) were granted to certain individuals. These performance units are earned pro rata each year if certain performance goals are met over a 3-yearthree-year period, and are also subject to a service condition that requires the individual to be employed by the Company at the payment date after the 3-yearthree-year performance period, with the exception of retirement eligible grantees, who upon retirement are entitled to receive payment for any units that have been earned, including a prorated portion in the partially completed fiscal year in which the retirement occurs.20122013 were as follows:september30 september30 september30 september30 Performance Performance Vesting Time Vesting Vesting Weighted Weighted Stock Average Fair Time Vesting Average Fair Units Value Stock Units Value 116,368 $ 26.89 906,082 $ 25.81 129,977 38.95 335,327 38.95 - - (239,824 ) 25.89 - - (38,511 ) 31.12 246,345 $ 31.27 963,074 $ 30.16 Unvested performance vesting and time vesting restricted stock units, June 30, 2012 246,345 $ 31.27 971,767 $ 30.47 Granted 131,693 36.76 363,573 36.82 Vested — — (439,086 ) 27.89 Forfeited (10,426 ) 35.97 (38,410 ) 33.21 Unvested performance vesting and time vesting restricted stock units, March 31, 2013 367,612 $ 32.08 857,844 $ 34.36 20122013 and 2011,2012, compensation expense related to time vesting and performance vesting restricted stock units was $11.6$12.8 million and $8.6$11.6 million, respectively. As of March 31, 2012,2013, the total unrecognized compensation cost related to unvested time vesting and performance vesting restricted stock units was $17.7$15.9 million and is expected to be recognized over a weighted average period of 2.32.4 years.Restricted Stock Units – STEPOn November 26, 2007, the Company adopted a one-time, long-term equity program, the Kennametal Inc. 2008 Strategic Transformational Equity Program, under the 2002 Plan (STEP). The STEP was designed to compensate participating executives for achievement of certain performance conditions during the period which began on October 1, 2007 and ended on September 30, 2011. Each participant was awarded a maximum number of restricted stock units, each representing a contingent right to receive one share of capital stock of the Company to the extent the unit was earned during the performance period and would have become payable under the STEP. The performance conditions were based on the Company’s total shareholder return (TSR) which governed 35 percent of the awarded restricted stock units, and cumulative adjusted earnings per share (EPS), which governed 65 percent of the awarded restricted stock units. The performance period for the STEP ended on September 30, 2011 and the minimum threshold levels of performance were not achieved. Therefore, all outstanding restricted stock units were forfeited by participating executives. As of March 31, 2012, no restricted stock units had been earned or paid under the STEP. There were no voting rights or dividends associated with restricted stock units under the STEP.Changes to the EPS performance-based portion of the STEP restricted stock units for the nine months ended March 31, 2012 were as follows: Weighted Stock Average Fair Units Value 431,789 $ 35.23 (431,789) 35.23 - $ - KENNAMETAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Changes to the TSR performance-based portion of the STEP restricted stock units for the nine months ended March 31, 2012 were as follows:septmeber septmeber Weighted Stock Average Fair Units Value 232,497 $ 8.21 (232,497 ) 8.21 - $ - During the nine months ended March 31, 2012 and 2011, compensation expense related to STEP restricted stock units was $0.2 million and $0.3 million, respectively.10.9. BENEFIT PLANS september september september september Three Months Ended Nine Months Ended March 31, March 31, (in thousands) 2012 2011 2012 2011 $ 1,728 $ 1,927 $ 5,178 $ 5,748 10,402 10,319 31,113 30,776 (12,752 ) (12,074 ) (38,168 ) (36,146 ) 16 13 48 39 (46 ) (70 ) (139 ) (211 ) 268 277 787 810 2,066 3,076 6,190 9,208 $ 1,682 $ 3,468 $ 5,009 $ 10,224 Three Months Ended Nine Months Ended March 31, March 31, (in thousands) 2012 2011 2012 2011 $ 19 $ 19 $ 56 $ 57 257 259 772 777 (22 ) - (67 ) - (14 ) (47 ) (42 ) (142 ) $ 240 $ 231 $ 719 $ 692 Three Months Ended
March 31, Nine Months Ended
March 31,(in thousands) 2013 2012 2013 2012 Service cost $ 1,945 $ 1,728 $ 5,853 $ 5,178 Interest cost 9,493 10,402 28,675 31,113 Expected return on plan assets (13,968 ) (12,752 ) (42,120 ) (38,168 ) Amortization of transition obligation 16 16 52 48 Amortization of prior service credit (49 ) (46 ) (146 ) (139 ) Settlement loss — 268 — 787 Recognition of actuarial losses 3,730 2,066 11,229 6,190 Net periodic pension cost $ 1,167 $ 1,682 $ 3,543 $ 5,009 Three Months Ended
March 31, Nine Months Ended
March 31,(in thousands) 2013 2012 2013 2012 Service cost $ 18 $ 19 $ 54 $ 56 Interest cost 234 257 703 772 Amortization of prior service cost (28 ) (22 ) (83 ) (67 ) Recognition of actuarial loss (gains) 104 (14 ) 312 (42 ) Net periodic other postretirement benefit cost $ 328 $ 240 $ 986 $ 719 11.10. INVENTORIES 4951 percent and 5049 percent of total inventories at March 31, 20122013 and June 30, 2011,2012, respectively. Because inventory valuations under the LIFO method are based on an annual determination of quantities and costs as of June 30 of each year, the interim LIFO valuations are based on our projections of expected year-end inventory levels and costs. Therefore, the interim financial results are subject to any final year-end LIFO inventory adjustments.(in thousands) March 31, 2013 June 30, 2012 Finished goods $ 286,096 $ 319,217 Work in process and powder blends 244,942 252,035 Raw materials 148,540 135,454 Inventories at current cost 679,578 706,706 Less: LIFO valuation (103,689 ) (120,850 ) Total inventories $ 575,889 $ 585,856 Inventories consisted of the following:0000000000 0000000000 (in thousands) $ 349,671 $ 303,716 256,215 202,940 147,590 109,683 753,476 616,339 (122,606 ) (96,366 ) $ 630,870 $ 519,973 12.11. LONG-TERM DEBT AND CAPITAL LEASES February 14,November 7, 2012, we issued $300$400.0 million of 3.8752.65 percent Senior Unsecured Notes due in 2022.2019. Interest will beis paid semi-annually on February 15May 1 and August 15November 1 of each year. We settled forward starting interest rate swap contracts related to the bond issuance as further discussed in Note 7. We intend to applyused the net proceeds from this notes offering to the repayment of our outstanding 7.20 percent Senior Unsecured Notes at their June 15, 2012 maturity. Pending such use, proceeds will be utilized to repay outstanding indebtedness under our credit facility and for general corporate purposes.The 7.20 percent 10 year Senior Unsecured Notes issued in June 2002 with an aggregate face amount of $300 million were reclassified to current maturities of long-term debt as of June 30, 2011.On October 21, 2011, we entered into an amendment to our 2010 Credit Agreement, which is used to augment cash from operations and as an additional source of funds. permits revolving credit loans of up to $600.0 million for working capital, capital expenditures and general corporate purposes. The 2011 Credit Agreement allows for borrowings in U.S. dollars, euro, Canadian dollars, pound sterling and Japanese yen. Interest payable under the 2011 Credit Agreement is based upon the type of borrowing under the facility and may be (1) LIBOR plus an applicable margin, (2) the greater of the prime rate or the Federal Funds effective rate plus an applicable margin, or (3) fixed as negotiated by us.The 2011 Credit Agreement requires us to comply with various restrictive and affirmative covenants, including two financial covenants: a maximum leverage ratio and a minimum consolidated interest coverage ratio (as those terms are defined in the agreement). We were in compliance with these financialall covenants as of 2012.2013. We had $29.2$3.7 million and $212.2 million of borrowings outstanding under the 2011 Credit Agreement as of March 31, 2012. We had no borrowings outstanding under the 2010 Credit Agreement as of 2013 and June 30, 2011.$604.6$713.2 million and $315.8$306.8 million at March 31, 20122013 and June 30, 2011,2012, respectively. The Level 1 fair value is determined based on the quoted market price of this debt as of March 31, 20122013 and June 30, 2011,2012, respectively.13.12. ENVIRONMENTAL MATTERS Potentially Responsible Partypotentially responsible party (PRP) at various sites designated by the U.S.United States Environmental Protection Agency (USEPA) as Superfund sites. For certain of these sites, we have evaluated the claims and potential liabilities and have determined that neither are material, individually or in the aggregate. For certain other sites, proceedings are in the very early stages and have not yet progressed to a point where it is possible to estimate the ultimate cost of remediation, the timing and extent of remedial action that may be required by governmental authorities or the amount of our liability alone or in relation to that of any other PRPs.PRP.costs, which amounted to $4.3 million and $5.4 million as of issues. At both March 31, 20122013 and June 30, 2011, respectively. This accrual represents2012, the balance of these reserves was $5.1 million. These reserves represent anticipated costs associated with the remediation of these issues. For the nine months ended March 31, 2012 we recorded favorable foreign currency translation adjustments of $0.4 million, an adjustment of $0.4 million and cash payments of $0.3 million against the reserve.KENNAMETAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)exposuresliabilities for all environmental concerns could change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, technological changes, discovery of new information, the financial strength of other PRPs, the identification of new PRPs and the involvement of and direction taken by the government on these matters. as well as an EHS Steering Committee, to monitor compliance with environmental regulations and to oversee remediation activities. In addition, we have designated EHS coordinators who are responsible for each of our global manufacturing facilities. Our financial management team periodically meets with members of the Corporate EHS Department and the Corporate Legal Department to review and evaluate the status of environmental projects and contingencies. On a quarterly basis, we review financial provisions and reserves for environmental contingencies and adjust these reserves when appropriate.14.13. INCOME TAXES 20122013 and 20112012 was 18.5 percent and 20.4 percent and 19.1 percent,, respectively. The decrease was primarily driven by the extension of the credit for increasing research activities under the American Taxpayer Relief Act of 2012 which was enacted during the current year rate was unfavorably impacted by non-deductible acquisition related costs. These drivers werequarter, partially offset by favorable adjustments to certain tax reserves and the impact of strongerhigher earnings in our pan European business model.20122013 and 20112012 was 21.7 percent and 20.3 percent and 22.0 percent,, respectively. The current year rateincrease was favorably impactedprimarily driven by a $5.6 million reduction of afavorable valuation allowance adjustment in the Netherlands,prior year and higher earnings in the United States where the tax rates are higher than the rest of the world. The impact of these items was partially offset by a benefit from the effective settlement of an income tax audit in Europe in the first quarter of this fiscal year as well as the favorable impactextension of stronger operating resultsthe credit for increasing research activities under our pan-European business strategy.the American Taxpayer Relief Act of 2012 which was enacted during the current period.15.14. EARNINGS PER SHARE areis computed using the weighted average number of shares outstanding during the period, while diluted earnings per share areis calculated to reflect the potential dilution that may occuroccurs related to the issuance of capital stock throughunder stock option grants, of capital stock options, restricted stock awards and restricted stock units. The difference between basic and diluted earnings per share relates solely to the effect of capital stock options, restricted stock awards and restricted stock units.1.4 million shares for both the three months ended March 31, 2012 and 2011, respectively, and 1.3 million shares and 1.01.4 million shares for the ninethree months ended March 31, 20122013 and 2011,2012, respectively, and 1.2 million shares and 1.3 million shares for the nine months ended March 31, 2013 and 2012, respectively. Unexercised capital stock options, restricted stock units and restricted stock awards of 0.3 million shares and 0.2 million shares for the three months ended March 31, 2013 and 2012, respectively, and1.0 million shares and 0.4 million shares for the nine months ended March 31, 20122013 and 2011 of 0.4 million and 0.7 million shares,2012, respectively, were not included in the computation of diluted earnings per share because the option exercise price was greater than the average market price, and therefore the inclusion would have been anti-dilutive. For the three months ended March 31, 2011 anti-dilutive shares were immaterial.KENNAMETAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)16.15. EQUITY shareowners’Shareowners’ equity and equity attributable to noncontrolling interests as of March 31, 20122013 and 20112012 is as follows: Kennametal Shareowners’ Equity Kennametal Shareowners’ Equity (in thousands) Total equity Capital
stock Additional
paid-in
capital Retained
earnings Accumulated
other
comprehensive loss Non-
controlling
interests Total equity $ 101,411 $ 470,758 $ 983,374 $ 82,529 $ 20,569 $ 1,658,641 - - 221,182 - 3,099 224,281 - - - (77,188 ) (2,249 ) (79,437 ) 8 195 - - - 203 1,124 34,963 - - - 36,087 (2,508 ) (64,278 ) - - - (66,786 ) - - (32,334 ) - (167 ) (32,501 ) - - - - 5,211 5,211 $ 100,035 $ 441,638 $ 1,172,222 $ 5,341 $ 26,463 $ 1,745,699 Kennametal Shareowners’ Equity (in thousands) Total equity $ 102,379 $ 492,454 $ 793,448 $ (72,781 ) $ 17,943 $ 1,333,443 Balance as of June 30, 2012 $ 100,106 $ 447,433 $ 1,246,973 $ (150,662 ) $ 24,371 $ 1,668,221 - - 143,073 - 2,376 145,449 — — 142,447 — 2,285 144,732 - - - 108,896 2,030 110,926 — — — 11,954 371 12,325 9 225 - - - 234 6 192 — — — 198 762 28,035 - - - 28,797 875 24,527 — — — 25,402 (883 ) (25,574 ) - - - (26,457 ) (2,572 ) (75,915 ) — — — (78,487 ) Sale of subsidiary stock — 12,515 — 2,065 7,727 22,307 - - (29,873 ) - (132 ) (30,005 ) — — (38,436 ) — (1,949 ) (40,385 ) $ 102,267 $ 495,140 $ 906,648 $ 36,115 $ 22,217 $ 1,562,387 Purchase of noncontrolling interests — — — — (479 ) (479 ) Total equity, March 31, 2013 $ 98,415 $ 408,752 $ 1,350,984 $ (136,643 ) $ 32,326 $ 1,753,834 Kennametal Shareowners’ Equity (in thousands) Accumulated
other
comprehensive
income Total equity Balance as of June 30, 2011 $ 101,411 $ 470,758 $ 983,374 $ 82,529 $ 20,569 $ 1,658,641 Net income — — 221,182 — 3,099 224,281 Other comprehensive loss — — — (77,188 ) (2,249 ) (79,437 ) Dividend reinvestment 8 195 — — — 203 Capital stock issued under employee benefit and stock plans 1,124 34,963 — — — 36,087 Purchase of capital stock (2,508 ) (64,278 ) — — — (66,786 ) Cash dividends paid — — (32,334 ) — (167 ) (32,501 ) — — — — 5,211 5,211 Total equity, March 31, 2012 $ 100,035 $ 441,638 $ 1,172,222 $ 5,341 $ 26,463 $ 1,745,699 shareownersShareowners and noncontrolling interests are disclosed in Note 17.KENNAMETAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)17.COMPREHENSIVE INCOMEComprehensive income is as follows: (in thousands) 2012 2011 2012 2011 $ 76,237 $ 65,203 $ 224,281 $ 145,449 (57 ) 98 (11,591 ) 2,285 (88 ) 142 35 365 (672 ) (1,294 ) 393 (2,916 ) 1,291 1,868 3,864 5,588 28,603 38,646 (72,138 ) 105,604 105,314 104,663 144,844 256,375 1,323 1,258 850 4,406 $ 103,991 $ 103,405 $ 143,994 $ 251,969 18.16.have noted no impairment indicators warranting additional testing.(in thousands) Industrial Infrastructure Total $ 411,945 $ 250,225 $ 662,170 (150,842 ) - (150,842 ) $ 261,103 $ 250,225 $ 511,328 $ - $ 235,883 $ 235,883 (10,679 ) (5,184 ) (15,863 ) (10,679 ) 230,699 220,020 401,266 480,924 882,190 (150,842 ) - (150,842 ) $ 250,424 $ 480,924 $ 731,348 (in thousands) Industrial Infrastructure Total Goodwill $ 394,883 $ 475,309 $ 870,192 Accumulated impairment losses (150,842 ) — (150,842 ) Balance as of June 30, 2012 $ 244,041 $ 475,309 $ 719,350 Translation 881 (1,480 ) (599 ) Change in goodwill 881 (1,480 ) (599 ) Goodwill 395,764 473,829 869,593 Accumulated impairment losses (150,842 ) — (150,842 ) Balance as of March 31, 2013 $ 244,922 $ 473,829 $ 718,751 Estimated March 31, 2012 June 30, 2011 (in thousands) 4 to 15 $ 21,089 $ (5,659 ) $ 6,349 $ (5,380 ) 4 to 15 38,405 (24,693 ) 39,743 (25,442 ) 10 to 20 182,527 (41,867 ) 113,977 (38,275 ) 15 to 30 47,529 (6,319 ) 19,540 (4,740 ) 5 to 20 14,236 (7,162 ) 10,902 (4,875 ) Indefinite 36,838 - 40,480 - $ 340,624 $ (85,700 ) $ 230,991 $ (78,712 ) As of March 1, 2012 we acquired Stellite in our Infrastructure segment. As a result we increased goodwill by $235.9 million and other intangible assets by $102.7 million based on preliminary purchase price allocations. These allocations are subject to revision based upon the finalization of the valuation of net assets expected to be completed in the fourth quarter of 2012. We recorded customer-related intangible assets of $72.7 million with an estimated useful life of 20 years, technology-based intangible assets of $28.3 million with an estimated useful life of 15 - 17 years and trademarks of $1.7 million with an estimated useful life of 5 years. These intangible assets will be amortized using the straight-line method over their respective estimated useful lives. March 31, 2013 June 30, 2012 (in thousands) Contract-based 4 to 15 $ 21,453 $ (7,890 ) $ 21,450 $ (6,423 ) Technology-based and other 4 to 17 37,742 (25,479 ) 37,594 (24,384 ) Customer-related 10 to 20 177,498 (54,458 ) 178,500 (44,354 ) Unpatented technology 15 to 30 45,560 (9,021 ) 46,035 (6,943 ) Trademarks 5 to 20 13,981 (8,762 ) 13,977 (7,782 ) Trademarks Indefinite 36,032 — 35,817 — Total $ 332,266 $ (105,610 ) $ 333,373 $ (89,886 ) 2012, we entered into a technology license agreement in our Infrastructure segment. This resulted in a $15.0 million increase of contract-based intangible assets. The technology license agreement will be amortized using the straight-line method over an estimated useful life of 10 years.During the nine months ended March 31, 2012,2013$11.0$15.5 million related to our other intangible assets and unfavorable foreign currency translation adjustments of $4.1 million.$1.3 million.19.17. SEGMENT DATA enabled throughwe harness our knowledge of advanced materials sciences,and application knowledge anddevelopment with a commitment to a sustainable environment.environmental sustainability. Our product offering includes a wide arrayselection of standard and custom solution products incustomized technologies for metalworking, such as sophisticated metalcutting tools, and tooling systems and services, as well as advanced, high-performance materials, such as cemented tungsten carbide products, super alloys, coatings and investment castings to address customer demands. TheseWe offer these products are offered through a variety of channels via an enterprise approach to customers in both of our operating segments.goods.equipment. The technology needs and level of customization requirements for customers we serve vary by customer, application and industry served. Weindustry. The value we deliver value to our Industrial segment customers throughcenters on our application expertise and our diverse product offering.the Stellite, acquisition, serves customers that operate in the earthworks and energy end markets. These customerssectors who support primary industries such as oil and gas, power generation, underground, mining, surface and hard rockhard-rock mining, highway construction and road maintenance. Generally, our Infrastructure segment customers are served through awe rely on customer intimacy model that allows us to offer full system solutions byserve this segment. By gaining an in-depth understanding of our customers’ engineering needs. Our product offering promotesand development needs, we are able to offer complete system solutions and high-performance capabilities to optimize and add value by bringing enhanced performance and productivity to our customers’ processes and systems. external sales and operating income by segment are as follows: (in thousands) 2012 2011 2012 2011 $ 418,554 $ 391,763 $ 1,246,261 $ 1,091,560 277,857 223,067 750,769 618,196 $ 696,411 $ 614,830 $ 1,997,030 $ 1,709,756 $ 71,195 $ 54,145 $ 206,778 $ 132,410 34,060 35,639 99,927 83,708 (1,963 ) (2,007 ) (7,754 ) (9,212 ) $ 103,292 $ 87,777 $ 298,951 $ 206,906 $ 8,003 $ 5,767 $ 18,746 $ 17,294 (486 ) 1,413 (1,169 ) 3,071 $ 95,775 $ 80,597 $ 281,374 $ 186,541 ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS Three Months Ended
March 31, Nine Months Ended
March 31,(in thousands) 2013 2012 2013 2012 Sales: Industrial $ 373,807 $ 418,554 $ 1,088,155 $ 1,246,261 Infrastructure 281,553 277,857 829,808 750,769 Total sales $ 655,360 $ 696,411 $ 1,917,963 $ 1,997,030 Operating income: Industrial $ 44,961 $ 71,195 $ 117,552 $ 206,778 Infrastructure 32,332 34,060 95,248 99,927 Corporate (2,320 ) (1,963 ) (6,978 ) (7,754 ) Total operating income $ 74,973 $ 103,292 $ 205,822 $ 298,951 Interest expense $ 7,504 $ 8,003 $ 20,430 $ 18,746 Other expense (income), net 749 (486 ) 502 (1,169 ) Income from continuing operations before income taxes $ 66,720 $ 95,775 $ 184,890 $ 281,374 principal products has helpedand services, help us to achieve a leading market presenceposition in our primary markets. We believe we are one of the largest global providers of consumable metalcutting tools and tooling supplies. End users of our products include metalworking and machinery manufacturers and suppliers across a diverse array of industries, including the aerospace, defense, transportation, machine tool, light machinery and heavy machinery, industries, as well as manufacturers, producers and suppliers in a number of otherequipment-intensive industries includingsuch as coal mining, highwayroad construction and quarrying, andas well as oil and gas exploration, refining, production and production industries.supply. Our end users’ products include items rangingusers' applications range from airframes to coal mining operations, engines to oil wells and turbochargers to construction.On March 1, 2012, we acquired all of the shares of Deloro Stellite Holdings 1 Limited (Stellite) pursuant to the terms of the Share Sale and Purchase Agreement dated January 13, 2012. The UK-based Stellite is a global manufacturer and provider of alloy-based critical wear solutions for extreme environments involving high temperature, corrosion and abrasion. Stellite employs approximately 1,300 people across seven primary operating facilities globally, including locations in the U.S., Canada, Germany, Italy, India and China. Stellite’s proprietary metal alloys, materials expertise, engineering design and fabrication capabilities complement Kennametal’s current business in the oil and gas, power generation, transportation and aerospace end markets. This acquisition is in alignment with our growth strategy and positions us to further achieve geographic and end market balance.We acquired Stellite for a purchase price of approximately $383 million and funded the acquisition through existing credit facilities and operating cash flows, and remain committed to maintaining our investment grade ratings. The transaction is expected to be accretive to earnings in the fiscal year ending June 30, 2013.We experienced strong growth for the March quarter across both business segments and all regions. processing.$696.4$655.4 million for the quarter ended March 31, 2012 grew 132013 decreased 6 percent compared to sales for the March quarter one year ago. Sales growth was primarily due to organic growth which includes both volume and price and the impact of the Stellite acquisition.We consumed higher cost raw materials in the quarter, while price levels remained unchanged. We had previously executed appropriate pricing actions and have continued to maintain our cost discipline during the quarter. We continue to monitor changes in raw material costs to ensure appropriate pricing.$103.3 an increase, a decrease of $15.5$28.3 million as compared to $103.3 million in the prior year quarter. Stellite contributed $2.9 million of operating income in the current year quarter, compared with a net operating loss of $87.8$4.6 million in the prior year quarter. The increase in operatingperiod. Operating income was driven by higherdeclined due to lower absorption of manufacturing costs related to reduced sales volume, and price, partially offset by higher raw material costs and acquisition related charges.delivered a record Marchreported current quarter earnings per diluted share of $0.93.hadhave kept cost containment actions in place and are managing our business to market conditions while staying focused on near term cash inflowflow objectives as well as long term growth strategies.$164.2$150.4 million during the nine months ended March 31, 2013, partially due to our inventory reduction initiative in which we reduced finished goods and work in progress by approximately $40 million year to date. Capital expenditures were $53.8 million during the nine months ended March 31, 2012, driven by2013.operating performance. Capital expenditures were $60.7 millionshares in the quarter and received net proceeds of approximately $27 million. We now own 75 percent of the Indian subsidiary.nine months ended March 31, 2012.$9.1$9.6 million for the three months ended March 31, 2012.20122013 were $696.4$655.4 million an increase, a decrease of $81.6$41.0 million, or 136 percent, from $614.8$696.4 million in the prior year quarter. Sales increased due to organic growth of 8 percent and the impacts of acquisition of 4 percent and more business days of 3 percent, partially offset by an unfavorable impact from foreign currency. The improvementdecrease in sales was driven by better performancea 6 percent organic decline, a 5 percent unfavorable effect from fewer business days and a 1 percent unfavorable effect from currency exchange, partially offset by a 6 percent increase due to two months of revenues from Stellite. The decrease in sales was driven primarily by weaker demand in our Infrastructure segment, across most regions. On an organic basis, sales declined 15 percent in energy markets, 12 percent in general engineering, 6 percent in the earthworks markets and 2 percent in transportation, while aerospace and defense sales grew by 14 percent.businessthe Industrial and Infrastructure segments and across allmost regions. OrganicOn an organic basis, sales growth drivers weredeclined 14 percent in general engineering, 11 percent in energy markets, 6 percent in the earthworks markets and 4 percent in transportation, while aerospace and defense of 14 percent, earthworks market of 12 percent, energy markets of 12 percent, general engineering of 7 percent while the transportation end market sales remained at a relatively similar level as the prior year.ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS (CONTINUED)Salesgrew by 10 percent.ninethree months ended March 31, 2012 were $1,997.02013 was $208.5 million an increase, a decrease of $287.2$37.9 million or 17 percent, from $1,709.8$246.4 million in the prior year quarter. Sales increasedThe decrease was primarily due to organic growthdecreased volumes and less absorption of 13 percent,manufacturing costs resulting from both lower sales as well as the impact of more business daysour inventory reduction initiative of 2 percent and a slightly favorable impact due to both acquisition and foreign currency effects.approximately $6.0 million. The improvement in sales was driven by better performance in both business segments and across all regions. Organic sales growth drivers were energy markets of 18 percent, earthworks market of 14 percent, general engineering of 13 percent, aerospace and defense of 13 percent and transportation of 7 percent.GROSS PROFITGrossgross profit margin for the 20122013 was $246.4 million, an increase of $16.4 million from $230.0 million31.8 percent, as compared to 35.4 percent generated in the prior year quarter. This increaseincreasedecline and lower related absorption of $52manufacturing costs from both lower sales as well as the impact of our inventory reduction initiative of approximatelyhigher raw material costs.cost reduction benefits. The gross profit margin for the threenine months ended March 31, 20122013 was 35.432.1 percent, as compared to 37.436.5 percent generated in the prior year quarter.Gross profit for the nine months ended March 31, 2012 was $729.4 million, an increase of $110.7 million from $618.7 million in the prior year quarter. This increase was primarily due to an organic sales increase of $226.2 million, partially offset by higher raw material costs. The gross profit margin for the nine months ended March 31, 2012 was 36.5 percent, as compared to 36.2 percent generated in the prior year quarter.2012 increased $0.62013 decreased $10.6 million or less than 17.6 percent to $138.9$128.3 million as compared to $138.3$138.9 million in the prior year quarter. The increasedecrease is primarily due to acquisition relatedcontainment of discretionary spending, lower employment costs of $5.7$4.0 million, and Stellite operating expenditures of $2.5 million, partially offsetdriven by lower professional fees of $3.4 million, a decrease in restructuring and related charges of $2.5 millionincentive compensation, and favorable currency effects of $1.82012 increased $24.12013 decreased $24.5 million or 6.15.8 percent to $419.5$395.0 million as compared to $395.4$419.5 million in the prior year period. The decrease is primarily due to lower employment costs of $17.1 million, driven by lower incentive compensation, favorable currency effects of $10.9 million and the effect of cost containment measures, partially offset by Stellite operating expense.increase isdecrease was primarily due to an increaselower interest rates on our borrowings resulting from the favorable effect of refinancing our 7.2% Notes that matured last June with lower interest 3.875% ten year Notes maturing in employment costs of $13.5 million, including higher sales compensation of $8.1 million due to better operating performance, acquisition related costs of $5.7 million, Stellite operating expenditures of $2.5 million and an unfavorable impact of foreign currency effects of $6.9 million,2022. This decrease was partially offset by a decrease in restructuring and related charges of $3.2 million.RESTRUCTURING CHARGESDuring fiscal year 2011, we completed our restructuring planshigher overall borrowings attributable to reduce costs and improve operating efficiencies. These actions related tofunding the rationalization of certain manufacturing and service facilities as well as other employment cost reduction programs. As the restructuring programs were completed in fiscal 2011, there were no restructuring and related charges for the three and nine months ended March 31, 2012. The Company’s restructuring programs are delivering annual ongoing pre-tax savings of approximately $170 million now that all programs are fully implemented.Restructuring and related charges recorded during the three months ended March 31, 2011 amounted to $5.5 million, including $1.6 million of restructuring charges, of which $0.6 million were related to inventory disposals and recorded in cost of goods sold. Restructuring related charges of $1.5 million and $2.4 million were recorded in cost of goods sold and operating expense, respectively, during the three months ended March 31, 2011.Restructuring and related charges recorded during the nine months ended March 31, 2011 amounted to $14.9 million, including $8.7 million of restructuring charges, of which $1.0 million were related to inventory disposals and recorded in cost of goods sold. Restructuring related charges of $3.0 million and $3.2 million were recorded in cost of goods sold and operating expense, respectively, during the nine months ended March 31, 2011.INTEREST EXPENSEthreenine months ended March 31, 2012 of $8.02013 increased $1.7 million increased $2.2to $20.4 million or 38.8 percent, from $5.8as compared toquarterperiod. The increase was primarily due to increased borrowings. Interesthigher borrowings attributable to funding the Stellite acquisition, partially offset by lower interest rates on our borrowings resulting from the refinancing discussed above. for the nine months ended March 31, 2012 of $18.7 million increased $1.4 million or 8.4 percent, from $17.3 million in the prior year quarter due to increased borrowingsITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS (CONTINUED)OTHER (INCOME) EXPENSE, NETOther income, net for the 20122013 was $0.5$0.7 million compared to other expense,income, net of $1.4$0.5 million for the prior year quarter. The increasedecrease was primarily driven by favorableunfavorable foreign currency transaction results of $1.5 million.income,expense, net for the nine months ended March 31, 20122013 was $1.2$0.5 million compared to other expense,income, net of $3.1$1.2 million for the prior year quarter.period. The increasedecrease was primarily driven by favorable foreign currency transaction results of $3.9 million.20122013 and 20112012 was 18.5 percent and 20.4 percent and 19.1 percent,, respectively. The decrease was primarily driven by the extension of the credit for increasing research activities under the American Taxpayer Relief Act of 2012 which was enacted during the current year rate was unfavorably impacted by non-deductible acquisition related costs. These drivers werequarter, partially offset by favorable adjustments to certain tax reserves and the impact of strongerhigher earnings in our pan European business model.20122013 and 20112012 was 21.7 percent and 20.3 percent and 22.0 percent,, respectively. The current year rateincrease was favorably impactedprimarily driven by a $5.6 million reduction of afavorable valuation allowance adjustment in the Netherlandsprior year and higher earnings in the United States where the tax rates are higher than the rest of the world. The impact of these items was partially offset by a benefit from the effective settlement of an income tax audit in Europe in the first quarter of this fiscal year as well as the favorable impact of stronger operating results under our pan-European business strategy.During the quarter, we implemented a strategy that would provide incremental taxable income in the Netherlands. Based on this assessment, we believe that it is more likely than not that we will be able to realize an additional portionextension of the net deferredcredit for increasing research activities under the American Taxpayer Relief Act of 2012 which was enacted during the current period.assetsauthority 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 have decided to litigate the issue. We believe the assessment is baseless, and accordingly, do not anticipate making a payment in connection with this jurisdiction. With respect to the other jurisdictions, we will continue to monitor our ability to realize the net deferredassessment. Accordingly, no income tax assetsliability has been recorded in these jurisdictions, and if appropriate, will adjust the valuation allowance. Such an adjustment mayconnection with this assessment; however, settlement at its face value would result in a material reductionan approximate $30 million increase to income tax expense in the period the adjustment occurs. Three Months Ended
March 31, (in thousands) 2012 2011 2012 2011 $ 418,554 $ 391,763 $ 1,246,261 $ 1,091,560 71,195 54,145 206,778 132,410 Three Months Ended
March 31, Nine Months Ended
March 31,(in thousands) 2013 2012 2013 2012 Sales $ 373,807 $ 418,554 $ 1,088,155 $ 1,246,261 Operating income 44,961 71,195 117,552 206,778 2012,2013, Industrial external sales increaseddecreased by 6.811 percent driven by an organic sales growthdecline ofand the impact of morea 5 percent unfavorable effect from fewer business days of 4and a 1 percent partially offset by unfavorable foreigneffect from currency effects.exchange. On an organic basis, sales growth was leddeclined by 12 percent in general engineering and 2 percent in transportation, while aerospace and defense growth ofsales grew 14 percent andpercent. Customer inventory levels remained low, impacting sales in general engineering growth of 7 percent, whileengineering. The decline in transportation end market sales remained at a relatively similar level as the prior year. Thereflected lower vehicle production rates in most geographic regions,while aerospace and defense end markets’ growth is due to the significant increase insales grew with increased production of commercial aircraft production. Growth in the general engineering end markets is attributable to new orders for industrial machinery as manufacturers have increased their capital spending, as well as increased metalworking machinery production driven by a modest reacceleration of the global economy.aircraft. On a regional basis, organic sales increaseddeclined by approximately 12 percent in the Americas, 1110 percent in EuropeAsia and were relatively flat9 percent in Asia due to strong comparisons to the prior year.Europe. The increasesales decrease in the AmericasAmerica and Europe was primarily driven by growththe decline in the general engineering end markets. For comparison purposes, organicThe sales increased by approximately 32 percentdecrease in Asia 29was primarily driven by the decline in the general engineering and transportation end markets.in Europe and 23compared with 17.0 percent in the Americas duringprior year.threenine months ended March 31, 2011.For the three months ended March 31, 2012,2013operating income increased $17.1 million. The primary drivers of the increase in operating income were higher organic sales of $21.3 million, partially offsetdecreased by an increase in raw material costs.ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS (CONTINUED)For the nine months ended March 31, 2012, Industrial external sales increased by 14.213 percent driven by an organic sales growthdecline of 12favorable foreignunfavorable effect from currency effectsexchange of 3 percent and the impact of morefewer business days.days of 2 percent. On an organic basis, sales increased in all served market sectors leddeclined by strong growth14 percent in general engineering of 13and 4 percent in transportation, while aerospace and defense of 13sales grew 10 percent. General engineering was unfavorably impacted by lower sales to the indirect channels due to further inventory destocking earlier in the quarter and overall lower customer inventory levels in the current quarter. Transportation experienced lower vehicle production rates in most geographic regions and extended plant shut-downs, particularly in Europe and Asia. Aerospace and defense sales benefited from the increase in commercial aircraft production. On a regional basis, sales declined by approximately 11 percent in the Americas, 9 percent in Europe and transportation of 7 percent. Growth9 percent in Asia. The sales decrease in America and Europe was primarily driven by the decline in the general engineering end markets is attributable to new orders for industrial machinery as manufacturers have increased their capital spending as well as increased metalworking machinery productionmarket. The sales decrease in Asia was primarily driven by a reaccelerating economy. The aerospace and defense end markets’ growth is due to a significant increase in commercial aircraft production and the growth in the transportation end markets was due to an overall increase in global vehicles sales and production. On a regional basis, organic sales increased by approximately 15 percent in Europe, 15 percent in the Americas and 2 percent in Asia. The increase in the Americas and Europe was driven by growthdecline in the general engineering and transportation end markets,markets. Three Months Ended
March 31, Nine Months Ended
March 31,(in thousands) 2013 2012 2013 2012 Sales $ 281,553 $ 277,857 $ 829,808 $ 750,769 Operating income 32,332 34,060 95,248 99,927 in Asiarelated to two months of revenues from Stellite, partially offset by an 8 percent organic decline and a 6 percent decline from fewer business days. The organic decrease was driven by the transportation end markets.For the nine months ended March 31, 2012, Industrial operating income increased $74.4 million. The primary drivers of the increase in operating income were organic sales growth of $126.3 million, partially offset by higher raw material costs.INFRASTRUCTURE Three Months Ended
March 31, Nine Months Ended
March 31, (in thousands) 2012 2011 2012 2011 $ 277,857 $ 223,067 $ 750,769 $ 618,196 34,060 35,639 99,927 83,708 For the three months ended March 31, 2012, Infrastructure external sales increased by 24.6 percent, driven by organic sales growth of 13 percent, 10 percent growth from acquisition and business days also favorably impacted sales by 3 percent, partially offset by unfavorable foreign currency effects. The organic increase was driven by higherlower sales in the energy and earthworks markets of 1215 percent each.and 6 percent, respectively. Energy related product sales increaseddecreased due to increasedlower drilling activity. Salesactivity in oil and gas. Earthwork sales declined from persistently weak underground coal mining activity in North America, where a number of additional mine closures further depressed sales, as well as a delayed start to the earthworks end markets increasedNorth America road construction season due to an increase in construction machinery production.the colder March weather. On a regional basis including the organic impact of Stellite, sales increaseddecreased by approximately 2418 percent in Asia, 16the Americas, 6 percent in Europe and 13 percentremained relatively flat in the Americas.Asia. The increasesales decrease in AsiaAmerica and the AmericasEurope was primarily driven by the performancedecline in the earthworks markets, whilemarket.European increase was more evenly split between both the earthworks and energy markets. For comparison purposes, organic sales increased by approximately 20 percent in the Americas, 15 percent in Asia and 11 percent in Europe during the three months ended March 31, 2011.For the three months ended March 31, 2012,2013$1.6by $1.7 million. Operating income included $5.7 million of acquisition related costs. OperatingInfrastructure operating income benefited from higherStellite operating income of $2.9 million in the current year quarter, compared with a net operating loss of $4.6 million in the prior year period. Operating income decreased due to the effects of the organic sales decline, as well as lower absorption of $28.8 million, partially offsetmanufacturing costs. Infrastructure operating margin was 11.5 percent compared with 12.3 percent in part by an increase in raw material costs and $5.7 millionthe prior year.2012,2013, Infrastructure external sales increased by 21.411 percent, driven by organic sales growth of 16 percent, 421 percent growth related to eight months of revenues from acquisitionStellite, partially offset by a 6 percent organic decline, a 2 percent unfavorable effect from currency exchange and favorable foreign currency effects.a 2 percent decline from fewer business days. The organic increasedecrease was driven by higherlower sales in the energy and earthworks markets of 1811 percent and 146 percent, respectively. Energy related product sales increaseddecreased due to higher U.S.delayed orders and international rig counts,lower drilling activity in oil and gas, primarily in North America. Earthwork sales declined from persistently weak underground coal mining activity in North America, where a number of mine closures further depressed sales, as well as increased shale production and increased natural gas inventories. Sales ina delayed start to the earthworks end markets increasedNorth America road construction season due to mining capacity expansion and the increase in construction machinery production.colder March weather. On a regional basis including the organic impact of Stellite, sales increaseddecreased by approximately 25 percent in Asia, 1514 percent in the Americas, and 133 percent in Europe.Europe and remained flat in Asia. The increasesales decrease in AsiaAmerica and the AmericasEurope was primarily driven by the performancedecline in the earthworks markets, while the European increase was more evenly split between both the earthworks and energy markets.2012,2013, Infrastructure operating income increased $16.2decreased by $4.7 million. Infrastructure operating income benefited from Stellite operating income of $11.1 million in the current year quarter, compared with a net operating loss of $4.6 million in the prior year period. Operating income grew primarilydecreased due to the effects of the organic sales decline and lower absorption of manufacturing costs, as well as an unfavorable sales mix. Infrastructure operating margin was 11.5 percent compared with 13.3 percent in the prior year. Three Months Ended
March 31, Nine Months Ended
March 31,(in thousands) 2013 2012 2013 2012 Corporate unallocated expense $ (2,320 ) $ (1,963 ) $ (6,978 ) $ (7,754 ) organic salesprofessional fees for strategic projects of $99.8$1.2 million, partially offset by increase in raw material costs.CORPORATE Three Months Ended
March 31, Nine Months Ended
March 31, (in thousands) 2012 2011 2012 2011 $ (1,963) $ (2,007) $ (7,754) $ (9,212) threenine months ended March 31, 2012, unallocated expense remained relatively flat.ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS (CONTINUED)For the nine months ended March 31, 2012,2013$1.5$0.8 million to $7.8 million. The decrease was primarilymainly due to lower strategic project spending of $4.7 million,pension expense, partially offset by an increase inhigher professional fees for strategic projects of $1.0 million and the timing of certain other charges.isand borrowings against our five-year, multi-currency, revolving credit facility (2011 Credit Agreement) are the primary sourcesources of funding for capital expenditures and internal growth.five year, multi-currency, revolving credit facility (20102010 Credit Agreement),Agreement, which is used to augment cash flow from operations and as an additional source of funds. The five-year, multi-currency, revolving credit facility (2011 Credit Agreement) extends to October 2016. The 2011 Credit Agreement permits revolving credit loans of up to $600.0these financialall covenants as of March 31, 2012.2013. We had $29.2$3.7 million of borrowings outstanding under the 2011 Credit Agreement as of March 31, 2012.2013. For the nine months ended March 31, 20122013, average daily borrowings outstanding under the 2010 and 2011 Credit AgreementsAgreement were approximately $117.1$205.2 million.On February 14, 2012, we issued $300 million of 3.875 percent Senior Unsecured Notes due in 2022. Interest will be paid semi-annually on February 15 and August 15 of each year. We intend to apply the net proceeds from this notes offering to the repayment of our outstanding 7.20 percent Senior Unsecured Notes at their June 15, 2012 maturity. Pending such use, proceeds will be utilized to repay outstanding indebtedness under our credit facility and for general corporate purposes.Our 7.20 percent 10 year Senior Unsecured Notes issued in June 2002 with an aggregate face amount of $300 million were reclassified to current maturities of long-term debt as of June 30, 2011., to be permanently reinvested. As of March 31, 2012,2013, cash and cash equivalents of $125$321.0 million and short term intercompany advances made by our foreign subsidiaries to our United StatesU.S. parent of $216$11.0 million would not be available for use in the United StatesU.S. on a long term basis, without incurring U.S. federal and state income tax consequences. These short term intercompany advances are in the form of intercompany loans made over quarter end to repay borrowings under our revolving credit agreement and have a duration of not more than fourteen days. 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.2012,2013, cash and cash equivalents were $125.5$322.1 million, total debt including notes payable and capital lease obligations, was $640.9$751.0 million and total Kennametal shareowners’Shareowners' equity was $1,719.2 million.$1,721.5 million. Our current senior credit ratings are at investment grade levels. We believe that our current financial position, liquidity and credit ratings provide access to the capital markets. We continue to closely monitor our liquidity position and the condition of the capital markets, as well as the counterparty risk of our credit providers.On March 1, 2012 we acquired Stellite from Duke Street Capital for $382.6 million. We funded the acquisition through existing facilities and operating cash flow, and remain committed to maintaining our investment grade ratings.2011.ITEM 2.2012MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS (CONTINUED)2012,2013, cash flow provided by operating activities was $164.2$150.4 million, compared to $125.0$164.2 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 $259.4 million, partially offset by changes in certain assets and liabilities netting to an outflow of $109.0 million. Contributing to the changes in certain assets and liabilities were a decrease in accounts payable and accrued liabilities of $132.2 million primarily driven by lower accounts payable, lower accrued payroll and payment of $19.0 million of incentive compensation and a decrease in accrued income taxes of $29.5 million, offset by a decrease in accounts receivable of $37.6 million due to lower sales volume, a decrease in inventory of $9.2 million primarily driven by our inventory reduction initiatives and an increase in other of $5.9 million. primarily driven by accounts payable payments of $35.1 million and payment of $27.0 million of incentive compensation, a decrease in other of $2.4 million and an increase in accounts receivable of $1.5 million, offset by an increase in accrued income taxes of $2.3 million.During the nine months ended March 31, 2011, cash flow provided by operating activities consisted of net income and non-cash items amounting to an inflow of $234.4 million, partially offset by changes in certain assets and liabilities netting to $109.4 million. Contributing to the changes in certain assets and liabilities was an increase in inventory of $74.7 million driven by an increase in production to meet higher demand and an increase in accounts receivable of $71.7 million due to higher sales volumes, partially offset by an increase in accounts payable and accrued liabilities of $37.3 million.$448.4$52.2 million for the nine months ended March 31, 2012,2013, compared to $22.9 $382.6 $10.0During the nine months ended March 31, 2011, cash flow used for investing activities included capital expenditures, net of $25.3 million, which consisted primarily of an Enterprise Resource Planning system and equipment upgrades.(Used for) Financing Activities$216.5$106.4 million for the nine months ended March 31, 20122013 compared to cash flow used for financing activities of $57.7$323.8$186.1 million net increase in borrowings which included $3.7 million of borrowings outstanding on our revolving credit facility, $26.7 million from the sale of capital stock in a subsidiary in India and $13.3 million of dividend reinvestment and the effect of employee benefit and stock plans. These cash flows were offset by $78.5 million used for the purchase of capital stock, $38.4 million of cash dividends paid to Shareowners and $2.8 million of other.and $29.2$29.2 million of borrowings outstanding onunder our our revolving credit facility and $23.1$23.1 million of dividend reinvestment and the effect of employee benefit and stock plans. These cash flows were partially offset by $66.8$66.8 million used for the purchase of capital stock, $32.3$32.3 million of cash dividends paid to shareownersShareowners and $22.4a $22.4 million payment related to the settlement of forward starting interest rate swap contracts.During the nine months ended March 31, 2011, cash flow used for financing activities included $29.9 million of cash dividends paid to shareowners, $26.5 million used for the purchase of capital stock and $15.4 million net decrease in borrowings, partially offset by $15.1 million of dividend reinvestment and the effect of employee benefit and stock plans.$493.2$1,038.1 million at March 31, 2012,2013, an increase of $47.1$333.8 million from $446.1$704.3 million at June 30, 2011.2012. The increase in working capital was driven primarily by an increase in inventoriescash and cash equivalents of $110.9$205.6 million due to higher business activity, anthe net increase in borrowings, a decrease in accounts receivablepayable of $34.0$66.4 million, a decrease in other current liabilities of $12.9driven primarily by the payoutdue to payment of incentive compensation of $19.0 million, a decrease in accrued income taxes of $29.1 million, a decrease in current maturities of long-term debt, capital leases and notes payable of $28.0 million due to a decrease in short-term revolving and other lines of credit and a decrease in accrued expenses of $8.4$20.5 million due to lower sales commission payments from lower sales volume and the timing of payments, partially offset bypayment. Partially offsetting these items was a decrease in cashaccounts receivable of $36.5 million due to lower sales volume and cash equivalentsa decrease in inventory of $79.0$10.0 million driven primarily by the acquisition of Stellite and purchase of capital stock, partially offset by net increase in borrowings due to the issuance of $300our inventory reduction initiatives. Foreign currency effects accounted for $3.2 million of 3.875 percent Senior Unsecured Notes, an increase in current maturities of long-term debtthe working capital change.capital leases of $26.4equipment, net decreased $14.1 million from $742.2 million at June 30, 2012 to $728.1 million at March 31, 2013, primarily due to depreciation expense of $69.3 million and capital disposals of $1.8 million, offset by capital additions of $53.8 million and a favorable foreign currency impact of $3.2 million.$29.2decrease were a decrease in other intangible assets of $16.8 million, outstanding on the revolving credit facility, an increasea decrease in accrueddeferred income taxes of $9.6other current assetsgoodwill of $3.1 million. Foreign currency effects and the impact of the Stellite acquisition accounted for $39.6 million and $45.8 million of the working capital change, respectively.Property, plant and equipment, net increased $42.6 million from $697.1 million at June 30, 2011 to $739.7 million at March 31, 2012, primarily due to the Stellite acquisition of $72.8 million and capital additions of $60.7$0.6 million, partially offset by depreciation expense of $63.2 million, unfavorable foreign currency impact of $20.7 million and capital disposals of $4.4 million.ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS (CONTINUED)At March 31, 2012, other assets were $1,111.5 million, an increase of $341.7 million from $769.8 million at June 30, 2011. The driver for the increase was an increase in goodwill of $220.0 million, an increase in other intangible assets of $102.6 million, an increase in other assets of $15.3 million and an increase in deferred income taxes of $3.8 million. The change in goodwill was primarily due to an increase of $235.9 million related to the acquisition of Stellite and unfavorable foreign currency effects of $15.9$2.2 million. The change in other intangible assets was due to an increase of $102.7 million related to the to the intangibles acquired as part of the of Stellite acquisition, technology license intangible asset acquisition in our Infrastructure segment for $15.0 million, offset by amortization expense of $11.0$15.5 million and unfavorable foreign currency translation adjustments of $4.1$1.3 million. The increasechange in goodwill was primarily due to acquisition purchase price adjustments. The change in other assets was primarily due to increase in pension assets due to higher return on plan assets, higher deferred financing fees related to the issuance of $300$400 million of 3.8752.65 percent Senior Unsecured Notes due in 20222019 and higheran increase in pension amortization of actuarial gains and losses of $1.3 million, partially offset by lower prepaid charges.Kennametal shareowners’ equity was $1,719.22012,2013 from $490.6 million at$81.1$77.6 million from $1,638.1$1,643.9 million at June 30, 2011.2012. The increase was primarily due to net income attributable to Kennametal of $221.2$142.4 million and, capital stock issued under employee benefit and stock plans of $36.1$25.4 million, partially offset bysale of subsidiary stock of $12.5 million and foreign currency translation adjustments of $72.1$5.9 million, partially offset by the purchase of capital stock of $66.8$78.5 million and cash dividends paid to shareownersShareowners of $32.3 million.$38.4 million.PRPpotentially responsible party (PRP) at various sites designated by the USEPAUnited States Environmental Protection Agency (USEPA) as Superfund sites. For certain of these sites, we have evaluated the claims and potential liabilities and have determined that neither are material, individually or in the aggregate. For certain other sites, proceedings are in the very early stages and have not yet progressed to a point where it is possible to estimate the ultimate cost of remediation, the timing and extent of remedial action that may be required by governmental authorities or the amount of our liability alone or in relation to that of any other PRPs.PRP.costs, which amounted to $4.3 million and $5.4 million as of issues. At both20122013 and June 30, 2011, respectively. This accrual represents2012, the balance of these reserves was $5.1 million. These reserves represent anticipated costs associated with the remediation of these issues. For the nine months ended March 31, 2012 we recorded favorable foreign currency translation adjustments of $0.4 million, an adjustment of $0.4 million and cash payments of $0.3 million against the reserve.exposuresliabilities for all environmental concerns could change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, technological changes, discovery of new information, the financial strength of other PRPs, the identification of new PRPs and the involvement of and direction taken by the government on these matters.EHSEnvironmental Health and Safety (EHS) Department, as well as an EHS Steering Committee, to monitor compliance with environmental regulations and to oversee remediation activities. In addition, we have designated EHS coordinators who are responsible for each of our global manufacturing facilities. Our financial management team periodically meets with members of the Corporate EHS Department and the Corporate Legal Department to review and evaluate the status of environmental projects and contingencies. On a quarterly basis, we review financial provisions and reserves for environmental contingencies and adjust these reserves when appropriate.2011.ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK2011.ITEM 4. CONTROLS AND PROCEDURES ITEM 4. CONTROLS AND PROCEDURESCompany’sCompany's management evaluated, with the participation of the Company’sCompany's Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’sCompany's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). The Company’sCompany'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’controls' stated goals. Based on that evaluation, the Company’sCompany's Chief Executive Officer and Chief Financial Officer have concluded that the Company’sCompany's disclosure controls and procedures wereare effective as of to provide reasonable assurance at March 31, 2012.Company’sCompany's internal control over financial reporting that occurred during the Company’sCompany's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.The SEC’s general guidance permits the exclusion of an assessment of the effectiveness of a registrant’s disclosure controls and procedures as they relate to its internal controls over financial reporting for an acquired business during the first year following such acquisition, if among other circumstances and factors there is not adequate time between the acquisition date and the date of assessment. As previously noted in this Form 10-Q, the Company completed the acquisition of Stellite on March 1, 2012. Stellite represents approximately 16 percent of the Company’s total assets as of March 31, 2012. Management’s assessment and conclusion on the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2012 excluded an assessment of the internal control over financial reporting of Stellite.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 18,798 $ 39.14 - 4,505,100 1,410 47.36 - 4,505,100 607 46.86 - 4,505,100 20,815 $ 39.93 - Period January 1 through January 31, 2013 40,000 $ 39.52 40,000 7,198,802 February 1 through February 28, 2013 525,137 41.06 446,000 6,752,802 March 1 through March 31, 2013 311,738 39.82 300,000 6,452,802 Total 876,875 $ 40.55 786,000 (1)(1) During the current period, 1,4101,398 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 11,99587,677 shares of restricted stock to Kennametal, upon vesting, to satisfy tax withholding requirements and 7,4101,800 shares of Kennametal stock as payment for the exercise price of stock options.(2)(2) On OctoberJuly 26, 2010,2012, the Company publicly announced aan amended repurchase program for up to 812 million shares of its outstanding commoncapital stock.(2)(10) Plan of acquisition, reorganization, arrangement,liquidation or successionMaterial Contract (2.1)(10.1) Tax Deed Covenant relating to Deloro Stellite Holdings 1 LimitedMarch 1,December 11, 2012 and effective on or about January 14, 2013. Filed herewith. (4) Instruments defining the rights of security holders, including indentures (4.1)(31)Indenture, dated as of February 14, 2012, by and between Kennametal Inc., as Issuer, and U.S. Bank National Association, as TrusteeExhibit 4.1 of the Form 8-K filed February 14, 2012 is incorporated herein by reference. (4.2)First Supplemental Indenture, dated as of February 14, 2012, by and between Kennametal Inc., as Issuer, and U.S. Bank National Association, as TrusteeExhibit 4.2 of the Form 8-K filed February 14, 2012 is incorporated herein by reference.(31)Rule 13a-14(a)/15d-14(a) Certifications (31.1) Certification executed by Carlos M. Cardoso, Chairman, President and Chief Executive Officer of Kennametal Inc. Filed herewith. (31.2) Certification executed by Frank P. Simpkins, Vice President and Chief Financial Officer of Kennametal Inc. Filed herewith. (32) (32) Section 1350 Certifications (32.1) Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Carlos M. Cardoso, Chairman, President and Chief Executive Officer of Kennametal Inc., and Frank P. Simpkins, Vice President and Chief Financial Officer of Kennametal Inc. Filed herewith. (101) XBRL (101.INS)**(101)XBRL (101.INS) XBRL Instance Document Filed herewith. (101.SCH) **XBRL Taxonomy Extension Schema Document Filed herewith. (101.CAL) ** (101.DEF)**Filed herewith. (101.DEF) XBRL Taxonomy Definition Linkbase Filed herewith.(101.LAB) **XBRL Taxonomy Extension Label Linkbase Document Filed herewith. (101.PRE) **XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith. **The XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or part of a registration statement or prospects for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of these sections.KENNAMETAL INC. Date: May 9, 20122013 By: /s/ Martha A. Bailey 32