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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31,SEPTEMBER 30, 2017
Commission file number 1-5318
KENNAMETAL INC.
(Exact name of registrant as specified in its charter)
 
Pennsylvania  25-0900168
(State or other jurisdiction of incorporation or organization)  (I.R.S. Employer Identification No.)
   
600 Grant Street
Suite 5100
Pittsburgh, Pennsylvania
  15219-2706
(Address of principal executive offices)  (Zip Code)
Website: www.kennametal.com
Registrant’s telephone number, including area code: (412) 248-8000
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [  ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [X] NO [  ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X]  Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)  Smaller reporting company [  ]
  Emerging growth company [  ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [  ] NO [X]
Indicate the number of shares outstanding of each of the issuer’s classes of capital stock, as of the latest practicable date.
Title of Each Class Outstanding at April 28,October 31, 2017
Capital Stock, par value $1.25 per share      80,554,19881,048,153
 


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KENNAMETAL INC.
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED MARCH 31,SEPTEMBER 30, 2017
TABLE OF CONTENTS
 
Item No.Item No.Page No.Item No.Page No.
  
  
1.  
  
  
  
  
  
  
2.
  
3.
  
4.
  
1.
  
2.
  
6.
   

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




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PART I – FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
     
 Three Months Ended March 31, Nine Months Ended March 31,
(in thousands, except per share amounts)2017 2016 2017 2016
Sales$528,630
 $497,837
 $1,493,343
 $1,577,212
Cost of goods sold342,365
 340,484
 1,015,926
 1,127,828
Gross profit186,265
 157,353
 477,417
 449,384
Operating expense116,939
 121,004
 347,808
 373,827
Restructuring and asset impairment charges (Notes 8 and 18)7,169
 7,142
 44,230
 128,498
Loss on divestiture (Note 5)
 (2,557) 
 130,750
Amortization of intangibles4,245
 4,429
 12,665
 16,315
Operating income (loss)57,912
 27,335
 72,714
 (200,006)
Interest expense7,331
 7,113
 21,475
 20,895
Other expense (income), net1,626
 (1,938) 2,470
 (1,582)
Income (loss) before income taxes48,955
 22,160
 48,769
 (219,319)
Provision (benefit) for income taxes9,301
 5,465
 22,401
 (61,499)
Net income (loss)39,654
 16,695
 26,368
 (157,820)
Less: Net income attributable to noncontrolling interests764
 695
 1,873
 1,634
Net income (loss) attributable to Kennametal$38,890
 $16,000
 $24,495
 $(159,454)
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS    
Basic earnings (loss) per share$0.48
 $0.20
 $0.31
 $(2.00)
Diluted earnings (loss) per share$0.48
 $0.20
 $0.30
 $(2.00)
Dividends per share$0.20
 $0.20
 $0.60
 $0.60
Basic weighted average shares outstanding80,398
 79,871
 80,219
 79,814
Diluted weighted average shares outstanding81,381
 80,224
 80,965
 79,814
The accompanying notes are an integral part of these condensed consolidated financial statements.
 Three Months Ended September 30,
(in thousands, except per share amounts)2017 2016
Sales$542,454
 $477,140
Cost of goods sold357,461
 333,610
Gross profit184,993
 143,530
Operating expense119,330
 119,865
Restructuring and asset impairment charges (Notes 7 and 17)5,525
 28,605
Amortization of intangibles3,661
 4,271
Operating income (loss)56,477
 (9,211)
Interest expense7,149
 6,993
Other expense, net88
 118
Income (loss) before income taxes49,240
 (16,322)
Provision for income taxes9,602
 4,879
Net income (loss)39,638
 (21,201)
Less: Net income attributable to noncontrolling interests455
 455
Net income (loss) attributable to Kennametal$39,183
 $(21,656)
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS
Basic earnings (loss) per share$0.48
 $(0.27)
Diluted earnings (loss) per share$0.48
 $(0.27)
Dividends per share$0.20
 $0.20
Basic weighted average shares outstanding81,071
 80,054
Diluted weighted average shares outstanding82,123
 80,054


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KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
     
Three Months Ended March 31,Nine Months Ended March 31,Three Months Ended September 30,
(in thousands)2017 20162017 20162017 2016
Net income (loss)$39,654
 $16,695
$26,368
 $(157,820)$39,638
 $(21,201)
Other comprehensive income (loss), net of tax     
Unrealized (loss) gain on derivatives designated and qualified as cash flow hedges(866) (637)614
 165
Reclassification of unrealized loss (gain) on expired derivatives designated and qualified as cash flow hedges389
 238
1,158
 (1,946)
Other comprehensive income, net of tax   
Unrealized loss on derivatives designated and qualified as cash flow hedges(619) (126)
Reclassification of unrealized loss on expired derivatives designated and qualified as cash flow hedges396
 387
Unrecognized net pension and other postretirement benefit (loss) gain(725) (888)3,376
 1,561
(1,965) 630
Reclassification of net pension and other postretirement benefit loss1,804
 1,219
5,434
 3,641
1,779
 1,834
Foreign currency translation adjustments13,785
 17,783
(26,480) (24,705)19,868
 1,164
Reclassification of foreign currency translation adjustment (gain) loss realized upon sale
 (1,940)
 15,088
Total other comprehensive income (loss), net of tax14,387
 15,775
(15,898) (6,196)
Total other comprehensive income, net of tax19,459
 3,889
Total comprehensive income (loss)54,041
 32,470
10,470
 (164,016)59,097
 (17,312)
Less: comprehensive income attributable to noncontrolling interests1,734
 1,222
2,203
 1,094
739
 870
Comprehensive income (loss) attributable to Kennametal Shareholders$52,307
 $31,248
$8,267
 $(165,110)$58,358
 $(18,182)
The accompanying notes are an integral part of these condensed consolidated financial statements.

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KENNAMETAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
     
(in thousands, except per share data)March 31,
2017
 June 30,
2016
September 30,
2017
 June 30,
2017
ASSETS      
Current assets:      
Cash and cash equivalents$100,817
 $161,579
$110,697
 $190,629
Accounts receivable, less allowance for doubtful accounts of $12,562 and $12,724, respectively376,956
 370,916
Inventories (Note 11)490,212
 458,830
Deferred income taxes (Note 3)
 26,713
Accounts receivable, less allowance for doubtful accounts of $13,455 and $13,693, respectively385,624
 380,425
Inventories (Note 10)514,720
 487,681
Other current assets75,061
 57,303
64,874
 55,166
Total current assets1,043,046
 1,075,341
1,075,915
 1,113,901
Property, plant and equipment:      
Land and buildings351,909
 353,789
351,351
 350,002
Machinery and equipment1,541,177
 1,511,462
1,616,376
 1,577,776
Less accumulated depreciation(1,164,311) (1,134,611)(1,212,208) (1,183,390)
Property, plant and equipment, net728,775
 730,640
755,519
 744,388
Other assets:      
Goodwill (Note 18)294,315
 298,487
Other intangible assets, less accumulated amortization of $124,163 and $114,093, respectively (Note 18)193,069
 207,208
Assets held for sale (Note 7)7,547
 6,980
Goodwill (Note 17)304,678
 301,367
Other intangible assets, less accumulated amortization of $134,941 and $129,981, respectively (Note 17)187,740
 190,527
Deferred income taxes (Note 3)34,481
 14,459
28,772
 28,349
Other41,053
 36,648
39,529
 29,984
Total other assets562,918
 556,802
568,266
 557,207
Total assets$2,334,739
 $2,362,783
$2,399,700
 $2,415,496
LIABILITIES      
Current liabilities:      
Current maturities of long-term debt and capital leases$253
 $732
$96
 $190
Notes payable to banks1,338
 1,163
1,156
 735
Accounts payable190,841
 182,039
186,342
 215,722
Accrued income taxes17,732
 16,602
7,135
 6,202
Accrued expenses76,026
 74,470
65,122
 85,682
Other current liabilities140,609
 152,269
137,116
 152,947
Total current liabilities426,799
 427,275
396,967
 461,478
Long-term debt and capital leases, less current maturities (Notes 3 and 12)694,631
 693,548
Deferred income taxes (Note 3)13,690
 17,126
Long-term debt and capital leases, less current maturities (Note 11)695,357
 694,991
Deferred income taxes15,479
 14,883
Accrued pension and postretirement benefits190,434
 201,473
162,941
 160,860
Accrued income taxes2,837
 3,100
2,737
 2,636
Other liabilities26,777
 24,460
28,141
 27,995
Total liabilities1,355,168
 1,366,982
1,301,622
 1,362,843
EQUITY (Note 16)   
Commitments and contingencies   
EQUITY (Note 15)   
Kennametal Shareholders’ Equity:      
Preferred stock, no par value; 5,000 shares authorized; none issued
 

 
Capital stock, $1.25 par value; 120,000 shares authorized; 80,252 and 79,694 shares issued, respectively
100,315
 99,618
Capital stock, $1.25 par value; 120,000 shares authorized; 80,967 and 80,665 shares issued, respectively
101,208
 100,832
Additional paid-in capital457,305
 436,617
476,690
 474,547
Retained earnings757,079
 780,597
788,599
 765,607
Accumulated other comprehensive loss(368,737) (352,509)(304,517) (323,692)
Total Kennametal Shareholders’ Equity945,962
 964,323
1,061,980
 1,017,294
Noncontrolling interests33,609
 31,478
36,098
 35,359
Total equity979,571
 995,801
1,098,078
 1,052,653
Total liabilities and equity$2,334,739
 $2,362,783
$2,399,700
 $2,415,496
The accompanying notes are an integral part of these condensed consolidated financial statements.

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KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
     
Nine Months Ended March 31,Three Months Ended September 30,
(in thousands)2017 20162017 2016
OPERATING ACTIVITIES      
Net income (loss)$26,368
 $(157,820)$39,638
 $(21,201)
Adjustments for non-cash items:      
Depreciation68,369
 73,297
22,777
 23,167
Amortization12,665
 16,315
3,661
 4,271
Stock-based compensation expense17,285
 14,705
6,543
 9,088
Restructuring and asset impairment charges (Note 8 and 18)1,224
 111,922
Restructuring and asset impairment charges (Note 7 and 17)3,159
 (77)
Deferred income tax provision1,300
 (85,426)577
 456
Loss on divestiture (Note 5)
 130,750
Other(2,711) 239
1,368
 (1,312)
Changes in certain assets and liabilities:      
Accounts receivable(12,736) 44,125
626
 23,111
Inventories(38,110) 47,778
(19,704) 838
Accounts payable and accrued liabilities25,789
 (16,244)
Accounts payable and accrued liabilities (Note 3)(62,654) (2,145)
Accrued income taxes1,087
 (12,989)398
 (521)
Accrued pension and postretirement benefits(18,799) (22,901)(8,060) (5,644)
Other(1,710) 1,663
(8,203) (6,480)
Net cash flow provided by operating activities80,021
 145,414
Net cash flow (used for) provided by operating activities(19,874) 23,551
INVESTING ACTIVITIES      
Purchases of property, plant and equipment(94,095) (83,285)(42,106) (42,264)
Disposals of property, plant and equipment3,852
 5,102
426
 1,138
Proceeds from divestiture (Note 5)
 61,100
Other111
 835
(67) 159
Net cash flow used for investing activities(90,132) (16,248)(41,747) (40,967)
FINANCING ACTIVITIES      
Net increase (decrease) in notes payable333
 (4,088)423
 (128)
Term debt borrowings25,298
 50,070
Term debt repayments(25,830) (94,337)(93) (244)
Purchase of capital stock(188) (231)(55) (63)
Dividend reinvestment and the effect of employee benefit and stock plans7,057
 1,713
Dividend reinvestment and the effect of employee benefit and stock plans (Note 3)(3,969) (2,124)
Cash dividends paid to Shareholders(48,013) (47,780)(16,191) (15,980)
Other(6,439) (55)(320) (6,576)
Net cash flow used for financing activities(47,782) (94,708)(20,205) (25,115)
Effect of exchange rate changes on cash and cash equivalents(2,869) (3,388)1,894
 363
CASH AND CASH EQUIVALENTS      
Net (decrease) increase in cash and cash equivalents(60,762) 31,070
Net decrease in cash and cash equivalents(79,932) (42,168)
Cash and cash equivalents, beginning of period161,579
 105,494
190,629
 161,579
Cash and cash equivalents, end of period$100,817
 $136,564
$110,697
 $119,411
The accompanying notes are an integral part of these condensed consolidated financial statements.


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KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   



1.ORGANIZATION
Kennametal Inc. was incorporated in Pennsylvania in 1943.1943 as a manufacturer of tungsten carbide metal cutting tooling. From this beginning, Kennametal Inc. and its subsidiaries (collectively, Kennametal or the Company) arehas grown into a leading global manufacturerleader in the development and supplierapplication of tooling, engineered componentstungsten carbides, ceramics, super-hard materials and advanced materials consumedsolutions used in production processes. We believe that ourmetal cutting and mission-critical wear applications to combat extreme conditions associated with wear fatigue, corrosion and high temperatures. The Company's reputation for manufacturing excellence,material technology, metal cutting application knowledge, as well as our technological expertise and innovation we deliver in our productsthe development of custom solutions and services, helps uscontributes to achieve aits leading position in ourits primary markets.
Our product offering includes a wide selection of standard and customized technologies for metalworking applications, such as turning, milling, hole making, tooling systems and services. End users of ourthe Company's metalworking products include metalworking and machinery manufacturers and suppliers acrossengaged in a diverse array of industries includingincluding: the aerospace, defense,manufacturers of transportation vehicles and components, machine tool,tools and light machinery and heavy machinery,machinery; airframe and aerospace components; and energy-related components for the oil and gas industry, as well as power generation.
In addition, we produce specialized wear components and metallurgical powders that are used for custom-engineered and challenging applications. End users of the Company's products include producers and suppliers in a number of equipment-intensive industriesoperations such as coal mining, road construction, and quarrying, as well as oil and gas exploration, refining, production and supply. Our end users' applications range from airframes to mining operations, engines to oil wells and turbochargers to processing.
In order to take advantage of the growth opportunities of our WIDIA brand, we implemented a new operating structure at the beginning of fiscal 2017. A key attribute of the new structure is the establishment of the Widia operating segment. In order to better leverage the opportunities in this business, in addition to being more agile and competitive in the marketplace, we are placing higher levels of focus, determination and leadership in this business. The Industrial and Widia segments in 2017 were formed from the 2016 Industrial segment. We now have three global reportable operating segments: Industrial, Widia, and Infrastructure.
 
2.BASIS OF PRESENTATION

The condensed consolidated financial statements, which include our accounts and those of our majority-owned subsidiaries, should be read in conjunction with our 20162017 Annual Report on Form 10-K. The condensed consolidated balance sheet as of June 30, 20162017 was derived from the audited balance sheet included in our 20162017 Annual Report on Form 10-K. These interim statements are unaudited; however, we believe that all adjustments necessary for a fair statement of the results of the interim periods were made and all adjustments are normal recurring adjustments. The results for the ninethree months ended March 31,September 30, 2017 and 2016 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 20172018 is to the fiscal year ending June 30, 2017.2018. When used in this Form 10-Q, unless the context requires otherwise, the terms “we,” “our” and “us” refer to Kennametal Inc. and its subsidiaries.

3.NEW ACCOUNTING STANDARDS
Adopted
In January 2017,March 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting," which is intended to simplify equity-based award accounting and presentation. The guidance impacts income tax accounting related to equity-based awards, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. We adopted this guidance July 1, 2017. The adoption of this guidance resulted in three changes. (1) The increase to deferred tax assets of $1.4 million related to cumulative excess tax benefits previously unrecognized was offset by a valuation allowance, due to the valuation allowance position of our U.S. entity. (2) Excess tax benefits, previously reported in the financing activities section of the condensed consolidated statement of cash flows, is now reported in the operating activities section, adopted on a prospective basis. Therefore, prior period statements of cash flow were not retrospectively adjusted for this provision. (3) Employee taxes paid when Kennametal withholds shares for tax withholding purposes, previously reported in the operating activities section of the condensed consolidated statement of cash flows, is now reported in the financing activities section, adopted on a retrospective basis. Therefore, prior period statements of cash flow were retrospectively adjusted for this provision: cash flow provided by operating activities and cash flow used for financing activities increased by $1.7 million for the three months ended September 30, 2016.
In July 2015, the FASB issued guidanceASU No. 2015-11, "Simplifying the Measurement of Inventory," which requires that inventory other than LIFO be subsequently measured at the lower of cost and net realizable value, as opposed to simplify the testprevious practice of lower of cost or market. Subsequent measurement is unchanged for goodwill impairment by removing step two of the test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. The newinventory measured using LIFO. We adopted this guidance requires an entity to perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, including goodwill. This standard is effective for Kennametal beginning July 1, 2020; however, early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The Company has chosen to early adoptAdoption of this guidance and doesdid not expect the adoption of the guidance to have a material impact on our condensed consolidated financial position, results of operations and cash flows.
In November 2015, the Financial Accounting Standards Board (FASB) issued guidance on balance sheet classification of deferred taxes. The amendments in this guidance require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position, in comparison to the previous practice of separating deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet. We adopted this guidance July 1, 2016 on a prospective basis. Therefore, prior period balance sheets were not retrospectively adjusted. Current deferred tax assets of $26.7 million and current deferred tax liabilities of $0.6 million are reported in the June 30, 2016 balance sheet.
In April 2015, the FASB issued guidance on the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance was effective for Kennametal beginning July 1, 2016 and was retrospectively applied to all periods presented. Debt issuance costs of $5.0 million and $6.0 million are reported as direct reductions of the carrying amounts of debt liabilities in the balance sheet as of March 31, 2017 and June 30, 2016, respectively.statements.

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KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
   


In April 2015, the FASB issued guidance on accounting for fees paid in a cloud computing arrangement. The amendments in this update provide guidance to customers about treatment of costs as either capitalized and amortized as an intangible asset or expensed as incurred as a service contract. The amendments provide clarification that costs in arrangements that include software license should be capitalized and amortized, and costs in arrangements that do not include a software license should be expensed as incurred. This standard was effective for Kennametal beginning July 1, 2016 and was applied prospectively. The adoption of this guidance did not have a material impact on our condensed consolidated financial position, results of operations and cash flows.
Issued
In MarchAugust 2017, the FASB issued ASU No. 2017-12, "Targeted Improvements to Accounting for Hedging Activities," which seeks to improve financial reporting and obtain closer alignment with risk management activities, in addition to simplifying the application of hedge accounting guidance on the presentation of net periodic pension cost and net periodic postretirement benefit cost. The guidance requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations.additional disclosures. This guidance is effective for Kennametal beginningus July 1, 2018.2019. We are in the process of assessing the impact the adoption of this guidance willmay have on our condensed consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606.” This ASU replaces nearly all existing U.S. GAAP guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment. It also requires additional disclosures. We will adopt this standard on July 1, 2018. We have commenced our assessment of the new standard and developed a project plan to guide the implementation. Currently, we are analyzing the standard's impact on our customer arrangements and evaluating the new standard against our historical accounting policies and practices, including the timing of revenue recognition. In particular, we are assessing the identification of performance obligations and the impact of variable consideration on the transaction price determination. We continue to evaluate the impact that the adoption of this ASU will have on the condensed consolidated financial statements, including the timing of revenue recognition associated with certain customized products primarily in the Industrial and Infrastructure segments. Further, we continue to assess certain marketing programs and expect to identify more performance obligations under ASC 606 as compared with deliverables and separate units of account previously identified, primarily in the Industrial and Widia segments. We are evaluating the timing of revenue to determine if it will occur in the same or different periods. We have not yet determined the complete impact of adoption on our condensed consolidated financial statements.

4.SUPPLEMENTAL CASH FLOW DISCLOSURES
Nine Months Ended March 31,Three Months Ended September 30,
(in thousands)2017 20162017 2016
Cash paid during the period for:      
Income taxes$8,627
 $4,943
Interest$20,725
 $20,056
7,060
 6,935
Income taxes20,013
 38,429
Supplemental disclosure of non-cash information:      
Changes in accounts payable related to purchases of property, plant and equipment15,404
 16,400
11,477
 15,404

5.DIVESTITURE

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

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


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6.5.FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy consists of three levels to prioritize the inputs used in valuations, as defined below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3: Inputs that are unobservable.


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As of March 31,September 30, 2017, the fair values of the Company’s financial assets and financial liabilities are categorized as follows: 
(in thousands)Level 1
 Level 2
 Level 3
 Total
Level 1
 Level 2
 Level 3
 Total
Assets:              
Derivatives (1)
$
 $1,421
 $
 $1,421
$
 $163
 $
 $163
Total assets at fair value$
 $1,421
 $
 $1,421
$
 $163
 $
 $163
              
Liabilities:              
Derivatives (1)
$
 $1,352
 $
 $1,352
$
 $1,674
 $
 $1,674
Total liabilities at fair value$
 $1,352
 $
 $1,352
$
 $1,674
 $
 $1,674
 
As of June 30, 2016,2017, the fair values of the Company’s financial assets and financial liabilities are categorized as follows:
(in thousands)Level 1
 Level 2
 Level 3
 Total
Level 1
 Level 2
 Level 3
 Total
Assets:              
Derivatives (1)
$
 $334
 $
 $334
$
 $359
 $
 $359
Total assets at fair value$
 $334
 $
 $334
$
 $359
 $
 $359
              
Liabilities:              
Derivatives (1)
$
 $763
 $
 $763
$
 $910
 $
 $910
Contingent consideration
 
 6,600
 6,600
Total liabilities at fair value$
 $763
 $6,600
 $7,363
$
 $910
 $
 $910
 (1) Currency derivatives are valued based on observable market spot and forward rates and are classified within Level 2 of the fair value hierarchy.

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

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7.6.DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
As part of our financial risk management program, we use certain derivative financial instruments. We do not enter into derivative transactions for speculative purposes and, therefore, hold no derivative instruments for trading purposes. We account for derivative instruments as a hedge of the related asset, liability, firm commitment or anticipated transaction, when the derivative is specifically designated and qualifies as a hedge of such items. Our objective in managing foreign exchange exposures with derivative instruments is to reduce volatility in cash flow. We measure hedge effectiveness by assessing the changes in the fair value or expected future cash flows of the hedged item. The ineffective portions are recorded in other expense, net.
The fair value of derivatives designated and not designated as hedging instruments in the condensed consolidated balance sheet are as follows:
(in thousands)March 31,
2017
 June 30,
2016
September 30,
2017
 June 30,
2017
Derivatives designated as hedging instruments      
Other current assets - range forward contracts$901
 $323
$38
 $1
Other current liabilities - range forward contracts(1,510) (671)
Other assets - range forward contracts40
 
15
 
Other liabilities - range forward contracts
 (101)
Total derivatives designated as hedging instruments941
 323
(1,457) (771)
Derivatives not designated as hedging instruments      
Other current assets - currency forward contracts480
 11
110
 358
Other current liabilities - currency forward contracts(1,352) (763)(164) (138)
Total derivatives not designated as hedging instruments(872) (752)(54) 220
Total derivatives$69
 $(429)$(1,511) $(551)


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Certain currency forward contracts that hedge significant cross-border intercompany loans are considered as other derivatives and therefore do not qualify for hedge accounting. These contracts are recorded at fair value in the condensed consolidated balance sheet, with the offset to other expense, (income), net. Gains related to derivatives not designated as hedging instruments have been recognized as follows:
Three Months Ended March 31, Nine Months Ended March 31,Three Months Ended September 30,
(in thousands)2017 2016 2017 20162017 2016
Other expense (income), net - currency forward contracts$538
 $(182) $161
 $(116)
Other expense, net - currency forward contracts$(116) $(318)
 
CASH FLOW HEDGES
Range forward contracts (a transaction where both a put option is purchased and a call option is sold) are designated as cash flow hedges and hedge anticipated cash flows from cross-border intercompany sales of products and services. Gains and losses realized on these contracts at maturity are recorded in accumulated other comprehensive loss and are recognized as a component of other expense, net when the underlying sale of products or services is recognized into earnings. The notional amount of the contracts translated into U.S. dollars at March 31,September 30, 2017 and June 30, 2016,2017, was $66.2$75.7 million and $53.3$75.3 million, respectively. The time value component of the fair value of range forward contracts is excluded from the assessment of hedge effectiveness. Assuming the market rates remain constant with the rates at March 31,September 30, 2017, we expect to recognize into earnings in the next 12 months $0.6$1.8 million of income on outstanding derivatives.
The following represents gains and losses related to cash flow hedges:
 Three Months Ended March 31, Nine Months Ended March 31,
(in thousands)2017 2016 2017 2016
(Losses) gains recognized in other comprehensive loss, net$(866) $(914) $615
 $(637)
Losses reclassified from accumulated other comprehensive loss into other expense (income), net$390
 $629
 $1,158
 $293
 Three Months Ended September 30,
(in thousands)2017 2016
Losses recognized in other comprehensive loss, net$(619) $(125)
Losses reclassified from accumulated other comprehensive loss into other expense, net$392
 $386
No portion of the gains or losses recognized in earnings was due to ineffectiveness and no amounts were excluded from our effectiveness testing for the three months ended September 30, 2017 and 2016.
NET INVESTMENT HEDGES
As of September 30, 2017, we had certain foreign currency-denominated intercompany loans payable with total aggregate principal amounts of €33.0 million as net investment hedges to hedge the foreign exchange exposure of our net investment in Euro-based subsidiaries. A loss of $1.3 million was recorded as a component of foreign currency translation adjustments in other comprehensive income (loss) for the three months ended September 30, 2017. We did not have net investment hedges during the three months ended September 30, 2016.

As of September 30, 2017, the foreign currency-denominated intercompany loans payable designated as net investment hedges consisted of:
Instrument
Notional (EUR in thousands)(2)
Notional (USD in thousands)(2)
Maturity
Foreign currency-denominated intercompany loan payable26,728
$31,616
June 26, 2022
Foreign currency-denominated intercompany loan payable8,653
10,235
November 20, 2018
Foreign currency-denominated intercompany loan payable2,041
2,414
October 11, 2019
(2) Includes principal and accrued interest.

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

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No portion of the gains or losses recognized in earnings was due to ineffectiveness and no amounts were excluded from our effectiveness testing for the nine months ended March 31, 2017 and 2016.
NET INVESTMENT HEDGES
During the three months ended March 31, 2017, we designated certain foreign currency-denominated intercompany loans payable with total aggregate principal amounts of €63.0 million as net investment hedges to hedge the foreign exchange exposure of our net investment in Euro-based subsidiaries. The remeasurements of these non-derivatives designated as net investment hedges are calculated each period with changes reported in foreign currency translation adjustment within accumulated other comprehensive loss. Such amounts will remain in accumulated other comprehensive loss unless we complete or substantially complete liquidation or disposal of our investment in the underlying foreign operations. A loss of $0.5 million was recorded as a component of foreign currency translation adjustments in other comprehensive income (loss) for the three and nine months ended March 31, 2017. We did not have net investment hedges during the three and nine months ended March 31, 2016.

As of March 31, 2017, the foreign currency-denominated intercompany loans payable designated as net investment hedges consisted of:
Instrument
Notional (EUR in thousands)(2)
Notional (USD in thousands)(2)
Maturity
Foreign currency-denominated intercompany loan payable30,046
$32,083
June 30, 2017
Foreign currency-denominated intercompany loan payable26,327
28,112
June 26, 2022
Foreign currency-denominated intercompany loan payable8,612
9,196
November 20, 2018
Foreign currency-denominated intercompany loan payable2,032
2,169
October 11, 2017
(2) Includes principal and accrued interest.

8.RESTRUCTURING AND RELATED CHARGES
We are implementing restructuring actions to streamline the Company's cost structure. These initiatives are expected to improve the alignment of our cost structure with the current operating environment through headcount reductions, as well as rationalization and consolidation of certain manufacturing facilities. These restructuring actions are expected to be completed by December of fiscal 2019 and are anticipated to be mostly cash expenditures.
The total pre-tax charges for these programs are expected to be in the range of $165 million to $195 million, which is expected to be approximately 60 percent Industrial, 5 percent Widia, 30 percent Infrastructure and 5 percent Corporate. Total restructuring and related charges since inception of $124.5$154.5 million havehas been recorded for these programs through March 31,September 30, 2017: $65.4$84.5 million in Industrial, $40.7$49.1 million in Infrastructure, $11.1$13.6 million in Widia and $7.3 million in Corporate.
We have recorded restructuring and related charges of $9.6$6.9 million and $14.0$31.7 million for the three months ended March 31,September 30, 2017 and 2016, respectively. Of these amounts, restructuring charges totaled $7.1$5.5 million and $7.5$28.6 million, forrespectively. During the three months ended March 31, 2017 andSeptember 30, 2016, respectively. Restructuringan immaterial amount of restructuring charges of $0.4 million werewas related to inventory disposals and werewas recorded in cost of goods sold. There were no restructuring charges related to inventory disposals and recorded in cost of good sold forduring the three months ended March 31, 2016.September 30, 2017. Restructuring-related charges of $1.7$1.3 million and $1.1$2.0 million were recorded in cost of goods sold and $0.8$0.1 million and $5.4$1.1 million in operating expense for the three months ended March 31,September 30, 2017 and 2016, respectively.
As of September 30, 2017 and June 30, 2017, property, plant, and equipment of $7.5 million and $7.0 million, respectively, for certain closed manufacturing locations that are part of our restructuring programs met held for sale criteria. We expect to sell these assets within one year from the balance sheet date. These assets are recorded at the lower of carrying amount or fair value less cost to sell. We have recorded restructuring and related charges of $53.1 million and $38.0 million for the nine months ended March 31, 2017 and 2016, respectively. Ofalso ceased depreciating these amounts, restructuring charges totaled $44.5 million and $20.1 million, of which expense of $0.3 million and $0.1 million were related to inventory and were recorded in cost of goods sold for the nine months ended March 31, 2017 and 2016, respectively. Restructuring-related charges of $5.8 million and $4.7 million were recorded in cost of goods sold and $2.8 million and $13.2 million in operating expense for the nine months ended March 31, 2017 and 2016, respectively.

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assets.
As of March 31,September 30, 2017 $13.3and June 30, 2017, $19.7 million and $2.5$27.3 million of the restructuring accrual is recorded in other current liabilities, respectively, and as of September 30, 2017 and June 30, 2017, $2.5 million is recorded in other liabilities respectively, in our condensed consolidated balance sheet. The restructuring accrual of $15.7 million as of June 30, 2016 is recorded in other current liabilities. The amount attributable to each segment is as follows:
(in thousands)June 30, 2016 Expense Asset Write-Down Translation Cash Expenditures March 31, 2017June 30, 2017 Expense Asset Write-Down Translation Cash Expenditures September 30, 2017
Industrial                      
Severance$8,180
 $25,359
 $
 $(313) $(24,395) $8,831
$17,639
 $1,686
 $
 $696
 $(7,627) $12,394
Facilities
 111
 (111) 
 
 

 2,374
 (2,374) 
 
 
Other809
 (30) 
 (10) (546) 223
94
 (30) 
 2
 (22) 44
Total Industrial$8,989
 $25,440
 $(111) $(323) $(24,941) $9,054
$17,733
 $4,030
 $(2,374) $698
 $(7,649) $12,438
                      
Widia                      
Severance$909
 $4,820
 $
 $(60) $(4,637) $1,032
$2,434
 $342
 $
 $141
 $(1,545) $1,372
Facilities
 10
 (10) 
 
 

 747
 (747) 
 
 
Other90
 (6) 
 (1) (83) 

 (6) 
 
 6
 
Total Widia$999
 $4,824
 $(10) $(61) $(4,720) $1,032
$2,434
 $1,083
 $(747) $141
 $(1,539) $1,372
                      
Infrastructure                      
Severance$5,301
 $12,838
 $
 $(159) $(12,351) $5,629
$9,573
 $381
 $
 $158
 $(1,726) $8,386
Facilities33
 1,399
 (1,399) 
 
 33
21
 38
 (38) 
 (21) 
Other381
 (15) 
 (5) (279) 82
45
 (7) 
 
 5
 43
Total Infrastructure$5,715
 $14,222
 $(1,399) $(164) $(12,630) $5,744
$9,639
 $412
 $(38) $158
 $(1,742) $8,429
Total$15,703
 $44,486
 $(1,520) $(548) $(42,291) $15,830
$29,806
 $5,525
 $(3,159) $997
 $(10,930) $22,239

9.8.STOCK-BASED COMPENSATION
Stock Options
There were no grants made during the ninethree months ended March 31, 2017.
The assumptions used in our Black-Scholes valuation related to grants made during the nine months ended March 31, 2016 were as follows:
Risk-free interest rate1.4%
Expected life (years) (3)
4.5
Expected volatility (4)
31.7%
Expected dividend yield2.1%
(3) Expected life is derived from historical experience.
(4) Expected volatility is based on the implied historical volatility of our stock.September 30, 2017 and 2016.


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Changes in our stock options for the ninethree months ended March 31,September 30, 2017 were as follows:
 Options 
Weighted
Average
Exercise Price
 Weighted Average Remaining Life (years) 
Aggregate
Intrinsic value
(in thousands)
Options outstanding, June 30, 20162,547,809
 $33.72
    
Granted
 
    
Exercised(250,366) 28.59
    
Lapsed or forfeited(183,249) 31.29
    
Options outstanding, March 31, 20172,114,194
 $34.53
 4.2 $12,207
Options vested and expected to vest, March 31, 20172,096,072
 $34.58
 4.2 $12,017
Options exercisable, March 31, 20171,641,869
 $35.97
 3.1 $7,382
 Options 
Weighted
Average
Exercise Price
 Weighted Average Remaining Life (years) 
Aggregate
Intrinsic value
(in thousands)
Options outstanding, June 30, 20171,726,791
 $34.08
    
Granted
 
    
Exercised(1,628) 26.99
    
Lapsed or forfeited(60,849) 39.40
    
Options outstanding, September 30, 20171,664,314
 $33.89
 4.5 $12,406
Options vested and expected to vest, September 30, 20171,654,835
 $33.92
 4.5 $12,291
Options exercisable, September 30, 20171,383,912
 $35.47
 3.8 $8,380
During the ninethree months ended March 31,September 30, 2017 and 2016, compensation expense related to stock options was $1.30.2 million and $2.80.5 million, respectively. As of March 31,September 30, 2017, the total unrecognized compensation cost related to options outstanding was $1.10.7 million and is expected to be recognized over a weighted average period of 1.4 years1.0 year.
Weighted average fair value of options granted during the nine months ended March 31, 2016 was $6.45 per option. Fair value of options vested during the ninethree months ended March 31,September 30, 2017 and 2016 was $3.3$1.6 million and $2.32.6 million, respectively.
Tax benefits relating to excess stock-based compensation deductions are presented in the condensed consolidated statements of cash flow as financing cash inflows. No tax benefits were realized resulting from stock-based compensation deductions for the ninethree months ended March 31,September 30, 2017 and 2016 due to the valuation allowance on U.S. deferred tax assets. Tax benefits resulting from stock-based compensation deductions were less than amounts reported for financial reporting purposes by $1.8 million for the nine months ended March 31, 2016.
The amount of cash received from the exercise of capital stock options during the ninethree months ended March 31,September 30, 2017 and 2016 was $7.2 million and $1.0 million, respectively.immaterial. No related tax benefit was realized for the ninethree months ended March 31,September 30, 2017 and 2016 due to the valuation allowance on U.S. deferred tax assets, and the related tax benefit was immaterial for the nine months ended March 31, 2016.assets. The total intrinsic value of options exercised during the ninethree months ended March 31,September 30, 2017 was $1.6 million, and the total intrinsic value of options exercised during the nine months ended March 31, 2016 was immaterial.
Under the provisions of the Kennametal Inc. Stock and Incentive Plan of 2010 as amended and restated on October 22, 2013 and as further amended January 27, 2015, and the Kennametal Inc. 2016 Stock and Incentive Plan, plan participants may deliver stock, owned by the holder for at least six months, in payment of the option price and receive credit for the fair market value of the shares on the date of delivery. The fair market value of shares delivered during both the ninethree months ended March 31,September 30, 2017 and 2016 was immaterial.

Restricted Stock Units – Time Vesting and Performance Vesting
Performance vesting restricted stock units are earned pro rata each year if certain performance goals are met over a three-year period and are also subject to a service condition that requires the individual to be employed by the Company at the vesting date after the three-year performance period, with the exception of retirement eligible grantees, who upon retirement are entitled to vest in any units that have been earned, including a prorated portion in the partially completed fiscal year in which the retirement occurs. Time vesting stock units are valued at the market value of the stock on the grant date. Performance vesting stock units with a market condition are valued using a Monte Carlo model.
Changes in our time vesting and performance vesting restricted stock units for the three months ended September 30, 2017 were as follows:
 Performance Vesting Stock Units Performance Vesting Weighted Average Fair Value 
Time Vesting
Stock Units
 Time Vesting Weighted Average Fair Value
Unvested, June 30, 2017280,250
 $27.62
 1,153,444
 $27.66
Granted158,397
 38.81
 414,515
 37.50
Vested(10,031) 42.83
 (371,610) 30.81
Performance metric adjustments, net16,766
 25.84
 
 
Forfeited
 
 (10,311) 32.50
Unvested, September 30, 2017445,382
 $31.19
 1,186,038
 $30.06

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Changes in our time vesting and performance vesting restricted stock units forDuring the ninethree months ended March 31, 2017 were as follows:
 Performance Vesting Stock Units Performance Vesting Weighted Average Fair Value 
Time Vesting
Stock Units
 Time Vesting Weighted Average Fair Value
Unvested, June 30, 2016115,467
 $36.96
 1,014,744
 $31.97
Granted235,241
 26.35
 610,633
 25.45
Vested(17,124) 45.24
 (362,563) 35.27
Performance metric not achieved(35,980) 26.35
 
 
Forfeited(17,354) 35.31
 (68,458) 27.60
Unvested, March 31, 2017280,250
 $27.62
 1,194,356
 $27.87
During the nine months ended March 31,September 30, 2017 and 2016, compensation expense related to time vesting and performance vesting restricted stock units was $15.86.0 million and $11.78.3 million, respectively. As of March 31,September 30, 2017, the total unrecognized compensation cost related to unvested time vesting and performance vesting restricted stock units was $17.027.5 million and is expected to be recognized over a weighted average period of 2.02.3 years.

10.9.BENEFIT PLANS
We sponsor several defined benefit pension plans. Additionally, we provide varying levels of postretirement health care and life insurance benefits to some U.S. employees.
The table below summarizes the components of net periodic pension income:
 Three Months Ended March 31, Nine Months Ended March 31,
(in thousands)2017 2016 2017 2016
Service cost$720
 $1,154
 $2,180
 $3,473
Interest cost7,756
 9,375
 23,335
 28,299
Expected return on plan assets(14,659) (14,560) (44,088) (43,924)
Amortization of transition obligation22
 19
 67
 61
Amortization of prior service credit(113) (104) (339) (313)
Recognition of actuarial losses2,066
 1,805
 6,266
 5,452
Settlement gain(320) 
 (320) 
Special termination benefit charge
 
 
 214
Net periodic pension income$(4,528) $(2,311) $(12,899) $(6,738)

The settlement gain of $0.3 million during the three and nine months ended March 31, 2017 is the result of income from the settlement with several terminated Executive Retirement Plan participants. The special termination benefit charge of $0.2 million during the nine months ended March 31, 2016 is the result of lump sum payments to several terminated Executive Retirement Plan participants.
 Three Months Ended September 30,
(in thousands)2017 2016
Service cost$404
 $733
Interest cost7,657
 7,809
Expected return on plan assets(14,090) (14,757)
Amortization of transition obligation23
 23
Amortization of prior service cost (credit)173
 (113)
Recognition of actuarial losses1,710
 2,112
Net periodic pension (income) cost$(4,123) $(4,193)
The table below summarizes the components of net periodic other postretirement benefit cost:
Three Months Ended March 31, Nine Months Ended March 31,Three Months Ended September 30,
(in thousands)2017 2016 2017 20162017 2016
Interest cost$168
 $210
 $505
 $630
$157
 $168
Amortization of prior service credit(6) (6) (16) (16)(6) (6)
Recognition of actuarial loss89
 81
 266
 242
70
 89
Net periodic other postretirement benefit cost$251
 $285
 $755
 $856
$221
 $251


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11.10.INVENTORIES
We used the last-in, first-out (LIFO) method of valuing inventories for 4541 percent and 4443 percent of total inventories at March 31,September 30, 2017 and June 30, 2016,2017, respectively. Since inventory valuations under the LIFO method are based on an annual determination of quantities and costs as of June 30 of each year, the interim LIFO valuations are based on our projections of expected year-end inventory levels and costs. Therefore, the interim financial results are subject to any final year-end LIFO inventory adjustments.
Inventories consisted of the following: 
(in thousands)March 31, 2017 June 30, 2016September 30, 2017 June 30, 2017
Finished goods$286,990
 $284,054
$298,266
 $290,817
Work in process and powder blends168,354
 166,274
190,638
 166,857
Raw materials90,389
 68,472
86,072
 87,627
Inventories at current cost545,733
 518,800
574,976
 545,301
Less: LIFO valuation(55,521) (59,970)(60,256) (57,620)
Total inventories$490,212
 $458,830
$514,720
 $487,681


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


12.11.LONG-TERM DEBT
Our five-year, multi-currency, revolving credit facility, as amended and restated in April 2016 (Credit Agreement) permitsprovides for revolving credit loans of up to $600 million for working capital, capital expenditures and general corporate purposes. The Credit Agreement requires us to comply with various restrictive and affirmative covenants, including two financial covenants: a maximum leverage ratio and a minimum consolidated interest coverage ratio (as those terms are defined in the Credit agreement). We were in compliance with all covenants as of March 31,September 30, 2017. We had no borrowings outstanding under the Credit Agreement as of March 31,September 30, 2017 and June 30, 2016.2017. Borrowings under the Credit Agreement are guaranteed by our significant domestic subsidiaries. The Credit Agreement matures in April 2021.
Fixed rate debt had a fair market value of $700.7$707.2 million and $704.0 million at March 31,September 30, 2017 and June 30, 2016,2017, respectively. The Level 2 fair value is determined based on the quoted market price of this debt as of March 31,September 30, 2017 and June 30, 2016,2017, respectively.

13.ENVIRONMENTAL MATTERS
12.ENVIRONMENTAL MATTERS
The operation of our business has exposed us to certain liabilities and compliance costs related to environmental matters. We are involved in various environmental cleanup and remediation activities at certain of our locations.
Superfund Sites Among other environmental laws, we are subject to the Comprehensive Environmental Response Compensation and Liability Act of 1980 (Superfund)(CERCLA), under which we have been designated by the United States Environmental Protection Agency (USEPA) as a potentially responsible partyPotentially Responsible Party (PRP) with respect to environmental remedial costs at certain Superfund sites. We have evaluated our claims and liabilities associated with these Superfund sites based upon best currently available information. We believe our environmental accruals are adequate to cover our portion of the environmental remedial costs at the Superfund sites where we have been designated a PRP, to the extent these expenses are probable and reasonably estimable.
Other Environmental Matters We establish and maintain reserves for other potential environmental issues. At March 31,September 30, 2017 and June 30, 2016,2017, the balances of these reserves were $12.1$12.6 million and $12.5$12.4 million, respectively. These reserves represent anticipated costs associated with the remediation of these issues.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


The reserves we have established for environmental liabilities represent our best current estimate of the costs of addressing all identified environmental situations, based on our review of currently available evidence, and taking into consideration our prior experience in remediation and that of other companies, as well as public information released by the USEPA, other governmental agencies and by the PRP groups in which we are participating. Although the reserves currently appear to be sufficient to cover these environmental liabilities, there are uncertainties associated with environmental liabilities, and we can give no assurance that our estimate of any environmental liability will not increase or decrease in the future. The reserved and unreserved liabilities for all environmental concerns could change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, technological changes, discovery of new information, the financial strength of other PRPs, the identification of new PRPs and the involvement of and direction taken by the government on these matters.
We maintain a Corporate Environmental Health and Safety (EHS) Department to monitor compliance with environmental regulations and to oversee remediation activities. In addition, we have designated EHS coordinatorsanalysts 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
The effective income tax rates for the three months ended March 31,September 30, 2017 and 2016 were 19.0 percent and 24.7 percent, respectively. The decrease is primarily driven by a prior year asset impairment charge, current quarter earnings in the U.S. that cannot be tax affected in the current year and a prior year loss on divestiture, offset partially by a favorable impact in the prior year quarter related to a U.S. provision to return adjustment that did not repeat in the current year.
The effective income tax rates for the nine months ended March 31, 2017 and 2016 were 45.919.5 percent (provision on income) and 28.029.9 percent (benefit(provision on a loss), respectively. The change was primarily driven by restructuring and related charges, a favorable impactU.S. losses in the prior year quarter related to aand U.S. provision to return adjustment that did not repeatincome in the current year, and current year-to-date losses in the U.S. that cannotneither of which can be tax affected in the current year, offset partially bydue to a prior year asset impairment charge and a prior year lossfull valuation allowance on divestiture.our domestic deferred tax assets.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


15.14.EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of shares outstanding during the period, while diluted earnings per share is calculated to reflect the potential dilution that would occur related to the issuance of capital stock under stock option grants, performance awards and restricted stock units. The difference between basic and diluted earnings per share relates solely to the effect of capital stock options, performance awards and restricted stock units.
For purposes of determining the number of diluted shares outstanding, weighted average shares outstanding for basic earnings per share calculations were increased due solely to the dilutive effect of unexercised capital stock options, unvested performance awards and unvested restricted stock units by 1.0 million shares and 0.41.1 million shares for the three months ended March 31, 2017 and 2016, respectively, and 0.7 million shares for the nine months ended March 31,September 30, 2017. Unexercised capital stock options, performance awards and restricted stock units of 1.2 million shares and 3.10.8 million shares for the three months ended March 31, 2017 and 2016, respectively, and 1.8 million shares for the nine months ended March 31,September 30, 2017 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 ninethree months ended March 31,September 30, 2016, the effect of unexercised capital stock options, unvested performance awards and unvested restricted stock units was anti-dilutive as a result of a net loss in the period and therefore has been excluded from diluted shares outstanding as well as from the diluted earnings per share calculation.

15.EQUITY
A summary of the changes in the carrying amounts of total equity, Kennametal Shareholders’ equity and equity attributable to noncontrolling interests as of September 30, 2017 and 2016 is as follows:
 Kennametal Shareholders’ Equity    
(in thousands)Capital
stock
 Additional
paid-in
capital
 Retained
earnings
 Accumulated
other
comprehensive loss
 Non-
controlling
interests
 Total equity
Balance as of June 30, 2017$100,832
 $474,547
 $765,607
 $(323,692) $35,359
 $1,052,653
Net income
 
 39,183
 
 455
 39,638
Other comprehensive income
 
 
 19,175
 284
 19,459
Dividend reinvestment2
 53
 
 
 
 55
Capital stock issued under employee benefit and stock plans(3)
376
 2,143
 
 
 
 2,519
Purchase of capital stock(2) (53) 
 
 
 (55)
Cash dividends paid
 
 (16,191) 
 
 (16,191)
Balance as of September 30, 2017$101,208
 $476,690
 $788,599
 $(304,517) $36,098
 $1,098,078
 Kennametal Shareholders’ Equity    
(in thousands)
Capital
stock
 
Additional
paid-in
capital
 
Retained
earnings
��Accumulated
other
comprehensive
loss
 
Non-
controlling
interests
 Total equity
Balance as of June 30, 2016$99,618
 $436,617
 $780,597
 $(352,509) $31,478
 $995,801
Net (loss) income
 
 (21,656) 
 455
 (21,201)
Other comprehensive income
 
 
 3,474
 415
 3,889
Dividend reinvestment3
 60
 
 
 
 63
Capital stock issued under employee benefit and stock plans(3)
290
 6,609
 
 
 
 6,899
Purchase of capital stock(3) (60) 
 
 
 (63)
Cash dividends paid
 
 (15,980) 
 
 (15,980)
Balance as of September 30, 2016$99,908
 $443,226
 $742,961
 $(349,035) $32,348
 $969,408

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16.EQUITY
A summary of the changes in the carrying amounts of total equity, Kennametal Shareholders’ equity and equity attributable to noncontrolling interests as of March 31, 2017 and 2016 is as follows:
 Kennametal Shareholders’ Equity    
(in thousands)Capital
stock
 Additional
paid-in
capital
 Retained
earnings
 Accumulated
other
comprehensive loss
 Non-
controlling
interests
 Total equity
Balance as of June 30, 2016$99,618
 $436,617
 $780,597
 $(352,509) $31,478
 $995,801
Net income
 
 24,495
 
 1,873
 26,368
Other comprehensive (loss) income
 
 
 (16,228) 330
 (15,898)
Dividend reinvestment7
 181
 
 
 
 188
Capital stock issued under employee benefit and stock plans(5)
697
 20,688
 
 
 
 21,385
Purchase of capital stock(7) (181) 
 
 
 (188)
Cash dividends paid
 
 (48,013) 
 (72) (48,085)
Balance as of March 31, 2017$100,315
 $457,305
 $757,079
 $(368,737) $33,609
 $979,571
 Kennametal Shareholders’ Equity    
(in thousands)
Capital
stock
 
Additional
paid-in
capital
 
Retained
earnings
 Accumulated
other
comprehensive
loss
 
Non-
controlling
interests
 Total equity
Balance as of June 30, 2015$99,219
 $419,829
 $1,070,282
 $(243,523) $29,628
 $1,375,435
Net (loss) income
 
 (159,454) 
 1,634
 (157,820)
Other comprehensive loss
 
 
 (5,656) (540) (6,196)
Dividend reinvestment12
 219
 
 
 
 231
Capital stock issued under employee benefit and stock plans(5)
380
 10,863
 
 
 
 11,243
Purchase of capital stock(12) (219) 
 
 
 (231)
Cash dividends paid
 
 (47,780) 
 (71) (47,851)
Balance as of March 31, 2016$99,599
 $430,692
 $863,048
 $(249,179) $30,651
 $1,174,811
(5)(3) Net of restricted stock units delivered upon vesting to satisfy tax withholding requirements.

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

17.16.ACCUMULATED OTHER COMPREHENSIVE LOSS

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

The components of, and changes in, AOCL were as follows, net of tax, for the three months ended September 30, 2017 (in thousands):
Attributable to Kennametal:Postretirement benefit plansCurrency translation adjustmentDerivativesTotal
Balance, June 30, 2017$(189,038)$(126,606)$(8,048)$(323,692)
Other comprehensive income before reclassifications(1,965)19,584
(619)17,000
Amounts reclassified from AOCL1,779

396
2,175
Net current period other comprehensive
  income
(186)19,584
(223)19,175
AOCL, September 30, 2017$(189,224)$(107,022)$(8,271)$(304,517)
     
Attributable to noncontrolling interests:    
Balance, June 30, 2017$
$(2,164)$
$(2,164)
Other comprehensive income before
  reclassifications

284

284
Net current period other comprehensive
  income

284

284
AOCL, September 30, 2017$
$(1,880)$
$(1,880)


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The components of, and changes in, AOCL were as follows, net of tax, for the ninethree months ended March 31, 2017 (in thousands):
Attributable to Kennametal:Postretirement benefit plansCurrency translation adjustmentDerivativesTotal
Balance, June 30, 2016$(212,163)$(131,212)$(9,134)$(352,509)
Other comprehensive income (loss) before reclassifications3,376
(26,810)614
(22,820)
Amounts reclassified from AOCL5,434

1,158
6,592
Net current period other comprehensive
  income (loss)
8,810
(26,810)1,772
(16,228)
AOCL, March 31, 2017$(203,353)$(158,022)$(7,362)$(368,737)
     
Attributable to noncontrolling interests:    
Balance, June 30, 2016$
$(3,446)$
$(3,446)
Other comprehensive income before
  reclassifications

330

330
Net current period other comprehensive income
330

330
AOCL, March 31, 2017$
$(3,116)$
$(3,116)

The components of, and changes in, AOCL were as follows, net of tax, for the nine months ended March 31,September 30, 2016 (in thousands):
Attributable to Kennametal:Postretirement benefit plansCurrency translation adjustmentDerivativesTotal
Balance, June 30, 2015$(138,793)$(97,309)$(7,421)$(243,523)
Other comprehensive income (loss) before reclassifications1,561
(24,165)165
(22,439)
Amounts reclassified from AOCL3,641
15,088
(1,946)16,783
Net current period other comprehensive
  income (loss)
5,202
(9,077)(1,781)(5,656)
AOCL, March 31, 2016$(133,591)$(106,386)$(9,202)$(249,179)
     
Attributable to noncontrolling interests:    
Balance, June 30, 2015$
$(2,258)$
$(2,258)
Other comprehensive loss before
  reclassifications

(540)
(540)
Net current period other comprehensive
  loss

(540)
(540)
AOCL, March 31, 2016$
$(2,798)$
$(2,798)




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Attributable to Kennametal:Postretirement benefit plansCurrency translation adjustmentDerivativesTotal
Balance, June 30, 2016$(212,163)$(131,212)$(9,134)$(352,509)
Other comprehensive income before reclassifications630
749
(126)1,253
Amounts reclassified from AOCL1,834

387
2,221
Net current period other comprehensive
  income
2,464
749
261
3,474
AOCL, September 30, 2016$(209,699)$(130,463)$(8,873)$(349,035)
     
Attributable to noncontrolling interests:    
Balance, June 30, 2016$
$(3,446)$
$(3,446)
Other comprehensive income before
  reclassifications

415

415
Net current period other comprehensive
  income

415

415
AOCL, September 30, 2016$
$(3,031)$
$(3,031)

Reclassifications out of AOCL for the three and nine months ended March 31,September 30, 2017 and 2016 consisted of the following (in thousands):
 Three Months Ended March 31,Nine Months Ended March 31,  
Details about AOCL components2017 20162017 2016 Affected line item in the Income Statement
Gains and losses on cash flow hedges:        
Forward starting interest rate swaps$545
 $525
$1,635
 $1,574
 Interest expense
Currency exchange contracts(156) (141)(477) (4,713) Other expense (income), net
Total before tax389
 384
1,158
 (3,139)  
Tax impact
 (146)
 1,193
 Provision (benefit) for income taxes
Net of tax$389
 $238
$1,158
 $(1,946)  
         
Postretirement benefit plans:        
Amortization of transition obligations$22
 $19
$67
 $61
 See note 10 for further details
Amortization of prior service credit(119) (110)(355) (329) See note 10 for further details
Recognition of actuarial losses2,155
 1,886
6,532
 5,694
 See note 10 for further details
Total before tax2,058
 1,795
6,244
 5,426
  
Tax impact(254) (576)(810) (1,785) Provision (benefit) for income taxes
Net of tax$1,804
 $1,219
$5,434
 $3,641
  
         
Foreign currency translation adjustments:        
Released due to divestiture$
 $(1,940)$
 $15,088
 Loss on divestiture
Total before taxes
 (1,940)
 15,088
  
Tax impact
 

 
 Provision (benefit) for income taxes
Net of tax$
 $(1,940)$
 $15,088
  

The amount of income tax allocated to each component of other comprehensive income for the three months ended March 31, 2017 and 2016:
  2017    2016 
(in thousands)Pre-taxTax impactNet of tax  Pre-taxTax impactNet of tax
Unrealized loss on derivatives designated and qualified as cash flow hedges$(866)$
$(866)  $(1,027)$390
$(637)
Reclassification of unrealized loss on expired derivatives designated and qualified as cash flow hedges389

389
  384
(146)238
Unrecognized net pension and other postretirement benefit loss(970)245
(725)  (1,332)444
(888)
Reclassification of net pension and other postretirement benefit loss2,058
(254)1,804
  1,795
(576)1,219
Foreign currency translation adjustments13,706
79
13,785
  19,432
(1,649)17,783
Reclassification of foreign currency translation adjustment gain realized upon sale


  (1,940)
(1,940)
Other comprehensive income$14,317
$70
$14,387
  $17,312
$(1,537)$15,775
 Three Months Ended September 30,  
Details about AOCL components2017 2016 Affected line item in the Income Statement
Gains and losses on cash flow hedges:     
Forward starting interest rate swaps$566
 $545
 Interest expense
Currency exchange contracts(170) (158) Other expense, net
Total before tax396
 387
  
Tax impact
 
 Provision for income taxes
Net of tax$396
 $387
  
      
Postretirement benefit plans:     
Amortization of transition obligations$23
 $23
 See note 9 for further details
Amortization of prior service credit167
 (119) See note 9 for further details
Recognition of actuarial losses1,780
 2,201
 See note 9 for further details
Total before tax1,970
 2,105
  
Tax impact(191) (271) Provision for income taxes
Net of tax$1,779
 $1,834
  


2017

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KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
   


The amount of income tax allocated to each component of other comprehensive lossincome for the ninethree months ended March 31,September 30, 2017 and 2016:
  2017    2016 
(in thousands)Pre-taxTax impactNet of tax  Pre-taxTax impactNet of tax
Unrealized gain on derivatives designated and qualified as cash flow hedges$614
$
$614
  $266
$(101)$165
Reclassification of unrealized loss (gain) on expired derivatives designated and qualified as cash flow hedges1,158

1,158
  (3,139)1,193
(1,946)
Unrecognized net pension and other postretirement benefit gain4,431
(1,055)3,376
  1,884
(323)1,561
Reclassification of net pension and other postretirement benefit loss6,244
(810)5,434
  5,426
(1,785)3,641
Foreign currency translation adjustments(26,559)79
(26,480)  (25,294)589
(24,705)
Reclassification of foreign currency translation adjustment loss realized upon sale


  15,088

15,088
Other comprehensive loss$(14,112)$(1,786)$(15,898)  $(5,769)$(427)$(6,196)
  2017    2016 
(in thousands)Pre-taxTax impactNet of tax  Pre-taxTax impactNet of tax
Unrealized loss on derivatives designated and qualified as cash flow hedges$(619)$
$(619)  $(126)$
$(126)
Reclassification of unrealized loss on expired derivatives designated and qualified as cash flow hedges396

396
  387

387
Unrecognized net pension and other postretirement benefit (loss) gain(2,600)635
(1,965)  716
(86)630
Reclassification of net pension and other postretirement benefit loss1,970
(191)1,779
  2,105
(271)1,834
Foreign currency translation adjustments20,445
(577)19,868
  1,164

1,164
Other comprehensive income$19,592
$(133)$19,459
  $4,246
$(357)$3,889

18.17.GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of cost over the fair value of the net assets of acquired companies. Goodwill and other intangible assets with indefinite lives are tested at least annually for impairment. We perform our annual impairment tests during the June quarter in connection with our annual planning process, unless there are impairment indicators based on the results of an ongoing cumulative qualitative assessment that warrant a test prior to that. We evaluate the recoverability of goodwill for each of our reporting units by comparing the fair value of each reporting unit with its carrying value. The fair values of our reporting units are determined using a combination of a discounted cash flow analysis and market multiples based upon historical and projected financial information. We apply our best judgment when assessing the reasonableness of the financial projections used to determine the fair value of each reporting unit. We evaluate the recoverability of indefinite-lived intangible assets using a discounted cash flow analysis based on projected financial information. This evaluation is sensitive to changes in market interest rates and other external factors.
Identifiable assets with finite lives are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable.
At the beginningA summary of fiscal 2017, we reorganized our operating structure in a manner that changed the composition of our reporting units. The Industrial and Widia reporting units in fiscal 2017 were formed from the fiscal 2016 Industrial reporting unit. In connection with this reporting unit realignment, during the first quarter of fiscal 2017 we updated our goodwill impairment assessment based on a quantitative analysis. We evaluated the goodwill of our reporting units immediately prior to and after the realignment and concluded in both cases that there was no impairment. We allocated our goodwill from the former Industrial segment to the current Industrial and Widia segments using a relative fair value approach. The restated Industrial reporting unit passed the goodwill impairment test with fair value substantially exceeded the carrying value. The new Widia reporting unit's fair value approximates its carrying value.amount of goodwill attributable to each segment, as well as the changes in such, is as follows:
See Note 19 for further discussion regarding the Company's segments.
We are currently exploring strategic alternatives for one of our non-core Infrastructure businesses. The estimated net book value of the business is approximately $30 million as of March 31, 2017. As the strategic direction has not yet been determined for this business, the Company cannot determine if additional impairment charges will be incurred.
(in thousands)Industrial Widia Infrastructure Total
Gross goodwill$410,694
 $41,515
 $633,211
 $1,085,420
Accumulated impairment losses(137,204) (13,638) (633,211) (784,053)
Balance as of June 30, 2017$273,490
 $27,877
 $
 $301,367
        
Activity for the three months ended September 30, 2017:       
Change in gross goodwill due to translation3,176
 135
 
 3,311
        
Gross goodwill413,870
 41,650
 633,211
 1,088,731
Accumulated impairment losses(137,204) (13,638) (633,211) (784,053)
Balance as of September 30, 2017$276,666
 $28,012
 $
 $304,678

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A summary of the carrying amount of goodwill attributable to each segment, as well as the changes in such, is as follows:
(in thousands)Industrial Widia Infrastructure Total
Gross goodwill$408,705
 $40,624
 $633,211
 $1,082,540
Accumulated impairment losses(137,204) (13,638) (633,211) (784,053)
Balance as of June 30, 2016$271,501
 $26,986
 $
 $298,487
        
Activity for the nine months ended March 31, 2017:       
Change in gross goodwill due to translation(4,459) 287
 
 (4,172)
        
Gross goodwill404,246
 40,911
 633,211
 1,078,368
Accumulated impairment losses(137,204) (13,638) (633,211) (784,053)
Balance as of March 31, 2017$267,042
 $27,273
 $
 $294,315

Fiscal 2016 December Quarter Impairment Charge
As previously disclosed, we recorded a non-cash pre-tax impairment charge during the three months ended December 31, 2015 of $106.1 million in the Infrastructure segment, of which $105.7 million was for goodwill and $0.4 million was for an indefinite-lived trademark intangible asset. We also recorded a preliminary non-cash pre-tax impairment charge during the three months ended December 31, 2015 of $2.3 million in the Widia segment for an indefinite-lived trademark intangible asset. These impairment charges were recorded in restructuring and asset impairment charges in our condensed consolidated statements of income.

Divestiture Impact on Goodwill and Other Intangible Assets
During the nine months ended March 31, 2016, we completed the sale of non-core businesses, see Note 5. As a result of this transaction, goodwill decreased by $1.1 million and $6.5 million in our Industrial and Infrastructure segments, respectively. These decreases were recorded in the loss on divestiture account in our condensed consolidated statements of income.
The components of our other intangible assets were as follows:
Estimated
Useful Life
(in years)
 March 31, 2017June 30, 2016
Estimated
Useful Life
(in years)
 September 30, 2017June 30, 2017
(in thousands) 
Gross Carrying
Amount
 
Accumulated
Amortization
  
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
  
Gross Carrying
Amount
 
Accumulated
Amortization
Contract-based3 to 15 $7,059
 $(7,002)  $7,152
 $(6,886)3 to 15 $7,071
 $(7,027)  $7,064
 $(7,014)
Technology-based and other4 to 20 45,753
 (27,822)  47,323
 (27,011)4 to 20 46,875
 (29,911)  46,461
 (29,061)
Customer-related10 to 21 204,088
 (70,983)  205,471
 (66,938)10 to 21 206,552
 (77,963)  205,502
 (74,669)
Unpatented technology10 to 30 31,691
 (9,967)  31,837
 (4,614)10 to 30 31,833
 (11,235)  31,754
 (10,589)
Trademarks5 to 20 12,259
 (8,389)  12,668
 (8,644)5 to 20 12,492
 (8,805)  12,401
 (8,648)
TrademarksIndefinite 16,382
 
  16,850
 
Indefinite 17,858
 
  17,326
 
Total $317,232
 $(124,163)  $321,301
 $(114,093) $322,681
 $(134,941)  $320,508
 $(129,981)
During the ninethree months ended March 31,September 30, 2017 and 2016, we recorded amortization expense of $12.7$3.7 million and $16.3$4.3 million, respectively, related to our other intangible assets.

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

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KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


The Company's reportable operating segments have been determined in accordance with the Company's internal management structure, which is organized based on operating activities, the manner in which we organize segments for making operating decisions and assessing performance and the availability of separate financial results. We do not allocate certain corporate expenses related to executive retirement plans, the Company’s Board of Directors and strategic initiatives, as well as certain other costs and report them in Corporate. None of our three reportable operating segments represent the aggregation of two or more operating segments.
The Industrial segment generally serves customers that operate in industrial end markets such as transportation, general engineering, and aerospace and defense market sectors, as well as the machine tool industry, delivering high performance metalworking tools for specified purposes. TheOur customers in these end markets use our products and services in the manufacture of engines, airframes, automobiles, trucks, ships and other various types of industrial equipment. The technology and customization requirements for customers we serveprovide vary by customer, application and industry. The value we deliverIndustrial goes to market under the Kennametal® brand through its direct sales force, a network of independent and national chain distributors, integrated supplier channels and via the Internet. Application engineers and technicians are critical to the sales process and directly assist our Industrial segment customers centers on ourwith specified product design, selection, application expertise and our diverse offering of products and services, with products delivered through a diverse base including direct and indirect channels.support.
The Widia segment generally serves customers that operate in industrial end markets, primarily in general engineering, delivering high performance metalworking tools for general purposes. Whereas the Industrial segment's core is in application expertise and specific customer needs, Widia offers a competitive alternative for generalfocused assortment of standard custom metal cutting solutions across a broader platform for application, with products deliveredto general engineering, aerospace, energy and transportation customers. We serve our customers primarily through indirect channels.a network of value added resellers, integrated supplier channels and via the Internet. Widia markets its products under the WIDIA®, WIDIA Hanita® and WIDIA GTD® brands.
The Infrastructure segment generally serves customers that operate in the energy and earthworks and energymarket sectors whothat support primary industries such as oil and gas, power generation and chemicals; underground, surface and hard-rock mining,mining; highway construction and road maintenance. Generally, we rely on customer intimacymaintenance; and process industries such as food and feed. Our success is determined by our ability to serve this segment. By gaininggain an in-depth understanding of our customers’ engineering and development needs, we are able to offerprovide complete system solutions and high-performance capabilities to optimize and add value to their operations.
Our Infrastructure markets its products primarily under the Kennametal® brand and sells through a direct sales and operating income (loss) by segment areforce as follows:
 Three Months Ended March 31, Nine Months Ended March 31,
(in thousands)2017 2016 2017 2016
Sales:       
Industrial (6)
$289,455
 $274,123
 $825,990
 $812,892
Widia (6)
46,297
 42,249
 130,186
 127,696
Infrastructure192,878
 181,465
 537,167
 636,624
Total sales$528,630
 $497,837
 $1,493,343
 $1,577,212
Operating income (loss):       
Industrial (6)
$38,535
 $26,371
 $62,138
 $59,855
Widia (6)
606
 (1,679) (7,797) (8,053)
Infrastructure19,770
 3,748
 22,457
 (242,417)
Corporate(999) (1,105) (4,084) (9,391)
Total operating income (loss)57,912
 27,335
 72,714
 (200,006)
Interest expense7,331
 7,113
 21,475
 20,895
Other expense (income), net1,626
 (1,938) 2,470
 (1,582)
Income (loss) from continuing operations before income taxes$48,955
 $22,160
 $48,769
 $(219,319)
well as distributors.

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KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
   


Total assetsOur sales and operating income (loss) by segment are as follows:
Three Months Ended September 30,
(in thousands)March 31, 2017 June 30, 20162017 2016
Industrial (6)
$1,100,690
 $1,019,887
Widia (6)
191,453
 195,339
Sales:   
Industrial$297,464
 $269,043
Widia45,243
 41,015
Infrastructure199,747
 167,082
Total sales$542,454
 $477,140
Operating income (loss):   
Industrial$34,812
 $5,556
Widia62
 (5,756)
Infrastructure791,194
 849,447
22,069
 (7,587)
Corporate251,402
 298,110
(466) (1,424)
Total assets$2,334,739
 $2,362,783
Total operating income (loss)56,477
 (9,211)
Interest expense7,149
 6,993
Other expense, net88
 118
Income (loss) from continuing operations before income taxes$49,240
 $(16,322)
(6) Amounts for the three and nine months ended March 31, 2017 and as of June 30, 2016 have been restated to reflect the change in reportable operating segments.

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OVERVIEW

Kennametal Inc. iswas incorporated in Pennsylvania in 1943 as a leadingmanufacturer of tungsten carbide metal cutting tooling. From this beginning, the Company has grown into a global manufacturerleader in the development and supplierapplication of tooling, engineered componentstungsten carbides, ceramics, super-hard materials and advanced materials consumedsolutions used in production processes. We deliver productivity solutionsmetal cutting and mission-critical wear applications to customers seeking peak performance in demanding environments. The Company provides innovative wear-resistant products, application engineering and services backed by advanced material science serving customers across diverse sectors of industrial production, transportation, earthworks, energy, construction, process industries and aerospace. Kennametal solutions are built around industry-essential technology platforms, including precision-engineered metalworking tools and components, surface technologies and earth cutting tools that are mission-critical to customer operations battlingcombat extreme conditions associated with wear fatigue, corrosion and high temperatures. The Company’sCompany's reputation for material and industrial technology, excellence,metal cutting application knowledge, as well as expertise and innovation in the development of custom solutions and services, contributes to its leading position in its primary industrialmarkets.
Our product offering includes a wide selection of standard and infrastructure markets.customized technologies for metalworking applications, such as turning, milling, hole making, tooling systems and services. End users of the Company’sCompany's metalworking products include manufacturers metalworking suppliers, machinery operators and processors engaged in a diverse array of industries includingincluding: the manufacturemanufacturers of transportation vehicles and components;components, machine tool,tools and light machinery and heavy machinery industries;machinery; airframe and aerospace components; and energy-related components defense;for the oil and gas industry, as well as power generation.
In addition, we produce specialized wear components and metallurgical powders that are used for custom-engineered and challenging applications. End users of the Company's products include producers and suppliers in equipment-intensive operations such as coal mining, road construction, quarrying, oil and gas exploration, refining, production and supply. We believe we are one
Overall performance in the first quarter of fiscal year 2018 surpassed our expectations. On a consolidated basis, sales increased 13.7 percent, reflecting the largest global providerssales growth in all segments, regions and end markets. Operating margin improved significantly to 10.4 percent from a 1.9 percent loss margin in the prior year quarter reflecting improvement in both gross margin and operating expense as a percentage of consumable metal cutting tools and tooling supplies.sales.
This quarter’s results exceeded our expectations by almost every metric. Sales grew and costs declined, reflecting continuing progress with the work we began nine months ago. Our sales of $528.6$542.5 million for the quarter ended March 31,September 30, 2017 increased 613.7 percent compared to sales for the quarter ended March 31, 2016.September 30, 2016, driven by organic sales growth of 13 percent and favorable currency exchange impact of 2 percent, partially offset by fewer business days impact of 1 percent compared to the prior year quarter. Every segment and every region reported increased sales. The Widia segment posted quarterly profit for the first time with operating margin of 1.3 percent.sales and improved profitability. The Industrial, Infrastructure and InfrastructureWidia segments posted operating margins of 13.311.7 percent, 11.0 percent and 10.30.1 percent, respectively.
Operating income was $57.9$56.5 million, compared to $27.3a $9.2 million loss in the prior year quarter. Year-over-year comparative operating results reflect incremental restructuring benefits of approximately $20$24.8 million organic sales growth, higher absorption and productivity, lowerless restructuring and related charges in the current period, andorganic sales growth, incremental restructuring benefits of approximately $22 million, favorable mix and higher productivity and fixed cost absorption, partially offset by higher performance-based compensation expense, more overtime costs and the negative effects of higher raw material costs.
We reported current quarter earnings per diluted share of $0.48, which include $0.07 per share of restructuring and related charges. The permanentloss per diluted share of $0.27 in the prior year quarter included $0.38 per share of restructuring and related charges.
We substantially completed our existing restructuring programs in the quarter. The savings that we are realizinghave realized from restructuring are the result of all programs that we havehad undertaken over the past 2733 months. Approximate ongoing annualized savings for the programs are $165 million and inception to date total charges were $154.5 million. Pre-tax benefits from these restructuring actions were approximately $30$40 million in the current quarter, of which approximately $20$22 million were incremental to the same quarter one year ago. As of March 31, 2017, we are anticipating approximately $90 million of the annualized savings associated with our employment reduction initiative. We expect our other restructuring programs to deliver annualized savings of $75 million to $90 million once completed. Refer to the Results of Continuing Operations section of Item 2 for further discussion and analysis of our restructuring programs.
In addition to these restructuring programs, our product and process simplification, End-to-End and factory modernization initiatives are underway. Very littleThe cost savings we achieved include only a small amount of the current period progress reflects the structuralanticipated benefits from the modernization and End-to-End initiativesModernization initiative that we have planned, norand the benefits from theour ongoing product and process simplification initiatives. The results of those programs are expectedanticipated to accrue to the Company over the next two to threefew years.
We reported current quarter earnings per diluted share of $0.48, which include $0.12 per share of restructuring and related charges. Earnings per diluted share of $0.20 in the prior year quarter included $0.18 per share of restructuring and related charges,had a net gain of $0.03 per share from divestiture, and a tax impact of $0.02 per share related to prior year second quarter asset impairment charges.
We generated cash flowoutflow from operating activities of $80.0 million and $145.4$19.9 million during the ninethree months ended March 31,September 30, 2017 and 2016, respectively.compared to an net cash inflow from operating activities of $23.6 million during the prior year quarter. The decreasechange is due primarily to increasesa net outflow from changes in primary working capitalother assets and higher restructuring payments,liabilities, partially offset by higher cash earnings and lower tax and pension payments.the net inflow from net income with adjustments for non-cash items. Capital expenditures were $94.1$42.1 million and $83.3$42.3 million during the ninethree months ended March 31,September 30, 2017 and 2016, respectively.
We invested further in technology and innovation to continue meetingdelivering high quality products to our customers' needs.customers. Research and development expenses included in operating expense totaled $9.4$9.6 million for the three months ended March 31,September 30, 2017.
The following narrative provides further discussion and analysis of our results of operations, liquidity and capital resources, as well as other pertinent matters.


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NEW OPERATING STRUCTURE IMPLEMENTED IN FISCAL 2017

In order to take advantage of the growth opportunities of our WIDIA brand, we implemented a new operating structure in fiscal 2017.
A key attribute of the new structure is the establishment of the Widia operating segment. In order to better leverage the opportunities in this business, in addition to being more agile and competitive in the marketplace, we are placing higher levels of focus, determination and leadership in the business. The newly formed Industrial and Widia segments were formed from the previously reported Industrial segment. Amounts for the three and nine months ended March 31, 2016 and as of June 30, 2016 have been restated to reflect the change in reportable operating segments.
We now have three reportable operating segments going forward: Industrial, Widia and Infrastructure.
In connection with this change, we updated our goodwill impairment assessment based on a quantitative analysis during the first quarter of fiscal 2017. We evaluated the goodwill of our reporting units immediately prior to and after the realignment and concluded in both cases that there was no impairment. We allocated our goodwill from the former Industrial segment to the current Industrial and Widia segments using a relative fair value approach. The restated Industrial reporting unit passed the goodwill impairment test with fair value substantially exceeded the carrying value. The new Widia reporting unit's fair value approximates its carrying value. The amount of goodwill allocated to the Widia reporting unit was $27.0 million.
We completed Step 1 of the Widia goodwill impairment test using both an income approach and a market approach.  The discounted cash flow method was used to measure the fair value of our equity under the income approach. A terminal value utilizing a constant growth rate of cash flows was used to calculate a terminal value after the explicit projection period. The estimates and assumptions used in our calculations include revenue growth rates, expense growth rates, expected capital expenditures to determine projected cash flows, expected tax rates and an estimated discount rate to determine present value of expected cash flows. These estimates are based on historical experiences, our projections of future operating activity and our weighted average cost of capital ("WACC"). The discount rate used was 14.5 percent. In order to determine the discount rate, the Company uses a market perspective WACC approach. The WACC is calculated incorporating weighted average returns on debt and equity from market participants. Therefore, changes in the market, which are beyond the control of the Company, may have an impact on future calculations of estimated fair value. Management forecasts were used for the years ending June 30, 2017-2021, with a residual period growth rate of 3.0 percent. The tax rate used was 25.0 percent. Under the market approach, we estimate the fair value based on market multiples of revenue and earnings of comparable publicly traded companies and comparable transactions of similar companies.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the goodwill and indefinite-lived intangible impairment test will prove to be an accurate prediction of the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our reporting units may include such items as: (i) a decrease in expected future cash flows, specifically, a decrease in sales volume driven by a prolonged weakness in consumer demand or other competitive pressures adversely affecting our long-term volume trends, unfavorable working capital changes and an inability to successfully achieve our cost savings targets; (ii) inability to achieve all of the anticipated benefits from restructuring actions assumed; (iii) an economic recovery that significantly differs from our assumptions in timing and/or degree; (iv) volatility in the equity and debt markets or other country specific factors which could result in a higher discount rate; and (v) sensitivity to market transaction multiples.

RESULTS OF CONTINUING OPERATIONS

SALES
Sales for the three months ended March 31, 2017 were $528.6 million, an increase of $30.8 million or 6 percent, from $497.8 million in the prior year quarter. The increase in sales was driven by a 5 percent organic growth and a 2 percent increase due to more business days, partially offset by a 1 percent unfavorable currency exchange impact. Excluding the impact of currency exchange, sales increased by approximately 21 percent in energy, 8 percent in general engineering, 4 percent in earthworks and 3 percent in transportation, offset partially by a decrease of approximately 1 percent in aerospace and defense. On a regional basis excluding the impact of currency exchange, sales increased by 15 percent in Asia, 6 percent in the Americas and 5 percent in Europe.

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Throughout the MD&A, we refer to measures used by management to evaluate performance. We also refer to a number of financial measures that are not defined under accounting principles generally accepted in the United States of America (U.S. GAAP), including organic sales growth. The explanation at the end of the MD&A provides the definition of this non-GAAP financial measures as well as details on the use and the derivation of these financial measures.

RESULTS OF CONTINUING OPERATIONS

SALES
Sales for the ninethree months ended March 31,September 30, 2017 were $1,493.3$542.5 million a decrease, an increase of $83.9$65.3 million or 513.7 percent, from $1,577.2$477.1 million in the prior year period.quarter. The decreaseincrease in sales was driven by a 513 percent decline from divestitureorganic sales growth and a 12 percent unfavorablefavorable currency exchange impact, partially offset by a 1 percent organic growth.decrease due to fewer business days. Excluding the impact of currency exchange, and divestiture, sales increased by approximately 524 percent in energy, 414 percent in general engineering, 3earthworks, 10 percent in aerospace and defense, and 17 percent in transportation, offset partially by a decrease of approximately 9general engineering and 7 percent in earthworks.transportation. On a regional basis excluding the impact of currency exchange, and divestiture, sales increased 6by 15 percent in Asia while sales remained flatPacific, 13 percent in both the Americas and Europe.8 percent in Europe, the Middle East and Africa (EMEA).

GROSS PROFIT
Gross profit for the three months ended March 31,September 30, 2017 was $186.3185.0 million, an increase of $28.9$41.5 million from $157.4$143.5 million in the prior year quarter. The increase was primarily due to organic sales growth, incremental restructuring benefits of approximately $10$16 million, sales volume growth,favorable mix, higher productivity and fixed cost absorption, and productivity and favorable mix, partially offset by unfavorable currency exchange impact of $3.1 million and $0.8 million less restructuring related charges, partially offset by higher compensation expense and raw material costs. The gross profit margin for the three months ended March 31,September 30, 2017 was 35.234.1 percent, as compared to 31.630.1 percent generated in the prior year quarter.
Gross profit for the nine months ended March 31, 2017 was $477.4 million, an increase of $28.0 million from $449.4 million in the prior year period. The increase was primarily due to higher fixed cost absorption and productivity, lower raw material costs and incremental restructuring benefits of approximately $20 million, partially offset by unfavorable mix, divestiture impact of $11.4 million and unfavorable currency exchange impact of $8.6 million. The gross profit margin for the nine months ended March 31, 2017 was 32.0 percent, as compared to 28.5 percent generated in the prior year period.

OPERATING EXPENSE
Operating expense for the three months ended March 31,September 30, 2017 decreased $4.1slightly to $119.3 million or 3.4 percent to $116.9 million as compared to $121.0$119.9 million infor the prior year quarter.three months ended September 30, 2016. The decrease was primarily due to incremental restructuring benefits of approximately $10$7 million $4.6and $0.9 million less in restructuring-related charges, partially offset by higher compensation expense and favorablean unfavorable foreign currency exchange impacts of $1.0 million, partially offset by $7.3 million higher employment-related costs.
Operating expense for the nine months ended March 31, 2017 decreased $26.0 million or 7.0 percent to $347.8 million as compared to $373.8 million in the prior year period. The decrease was primarily due to incremental restructuring benefits of approximately $25 million, divestiture impact of $10.5 million, $10.4 million less in restructuring-related charges and favorable foreign currency exchange impacts of $3.5 million, offset partially by higher employment-related costs of $17.0$1.6 million.

RESTRUCTURING AND RELATED CHARGES AND ASSET IMPAIRMENT CHARGES
In prior years, we implemented restructuring actions to streamline the Company's cost structure. The purpose of these initiatives was to improve the alignment of our cost structure with the current operating environment through headcount reductions, as well as rationalization and consolidation of certain manufacturing facilities. These restructuring actions were substantially completed in the September quarter of fiscal 2018, were mostly cash expenditures and achieved annual run rate ongoing pre-tax savings of approximately $165 million.
We have recorded restructuring and related charges of $9.6$6.9 million and $14.0$31.7 million for the three months ended March 31,September 30, 2017 and 2016, respectively. Of these amounts, restructuring charges totaled $7.1$5.5 million and $7.5$28.6 million, forrespectively. During the three months ended March 31, 2017 andSeptember 30, 2016, respectively. Restructuringan immaterial amount of restructuring charges of $0.4 million werewas related to inventory disposals and were recorded in cost of goods sold. There were no restructuring charges related to inventory disposals and recorded in cost of good sold forduring the three months ended March 31, 2016.September 30, 2017. Restructuring-related charges of $1.7$1.3 million and $1.1$2.0 million were recorded in cost of goods sold and $0.8$0.1 million and $5.4$1.1 million in operating expense for the three months ended March 31, 2017 and 2016, respectively.
We have recorded restructuring and related charges of $53.1 million and $38.0 million for the nine months ended March 31, 2017 and 2016, respectively. Of these amounts, restructuring charges totaled $44.5 million and $20.1 million, of which expense of $0.3 million and $0.1 million were related to inventory and were recorded in cost of goods sold for the nine months ended March 31, 2017 and 2016, respectively. Restructuring-related charges of $5.8 million and $4.7 million were recorded in cost of goods sold and $2.8 million and $13.2 million in operating expense for the nine months ended March 31,September 30, 2017 and 2016, respectively.
Total restructuring and related charges since the inception of our restructuring plans through March 31,September 30, 2017 were $124.5$154.5 million. See Note 87 in our condensed consolidated financial statements set forth in Part I Item 1 of this Quarterly Report on Form 10-Q (Note 8)7).

INTEREST EXPENSE
27Interest expense for the three months ended September 30, 2017 and 2016 was $7.1 million and $7.0 million, respectively.


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We are implementing restructuring actions to streamline the Company's cost structure. These initiatives are expected to improve the alignment of our cost structure with the current operating environment through headcount reductions, as well as rationalization and consolidation of certain manufacturing facilities. These restructuring actions are currently anticipated to deliver annual ongoing pre-tax savings of $165 million to $180 million once completed by December of fiscal 2019 and are anticipated to be mostly cash expenditures. The total pre-tax charges for these programs are expected to be in the range of $165 million to $195 million.
Asset Impairment Charges
We recorded non-cash pre-tax asset impairment charges of $108.5 million during the nine months ended March 31, 2016. See Note 18 in our condensed consolidated financial statements set forth in Part I Item 1 of this Quarterly Report on Form 10-Q (Note 18).

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

INTEREST EXPENSE
InterestOther expense for the three months ended March 31,September 30, 2017 increased $0.2and 2016 was $0.1 million to $7.3 million as compared to $7.1 million. Foreign currency transaction gains in the prior year quarter. Interest expense for the nine months ended March 31, 2017 increased $0.6 million to $21.5 million as compared to $20.9 million in the prior year period.

OTHER EXPENSE (INCOME), NET
Other expense, net for the three months ended March 31, 2017, was $1.6 million compared to other income, net of $1.9 million in the prior year quarter. The year-over-year change was primarily due to foreign currency transaction losses.
Other expense, net for the nine months ended March 31, 2017, was $2.5 million compared to other income, net of $1.6 million in the prior year period. The year-over-year change was primarily due to losses on derivatives, partiallycurrent period were offset by loss on sale of assets in the prior year and income from transition services provided related to the acquirer of our non-core businesses.a prior divestiture.

INCOME TAXES
The effective income tax rates for the three months ended March 31,September 30, 2017 and 2016 were 19.0 percent and 24.7 percent, respectively. The decrease is primarily driven by a prior year asset impairment charge, current quarter earnings in the U.S. that cannot be tax affected in the current year and a prior year loss on divestiture, offset partially by a favorable impact in the prior year quarter related to a U.S. provision to return adjustment that did not repeat in the current year.
The effective income tax rates for the nine months ended March 31, 2017 and 2016 were 45.919.5 percent (provision on income) and 28.029.9 percent (benefit(provision on a loss), respectively. The change was primarily driven by restructuring and related charges, a favorable impactU.S. losses in the prior year quarter related to aand U.S. provision to return adjustment that did not repeatincome in the current year, and current year-to-date losses in the U.S. that cannotneither of which can be tax affected in the current year, offset partially bydue to a prior year asset impairment charge and a prior year lossfull valuation allowance on divestiture.our domestic deferred tax assets.

BUSINESS SEGMENT REVIEW

We operate three reportable segments consisting of Industrial, Widia and Infrastructure. Expenses that are not allocated are reported in Corporate. Segment determination is based upon the manner in which we organize segments for making operating decisions and assessing performance and the availability of separate financial results.
Amounts forINDUSTRIAL
For the three months ended September 30, 2017, Industrial sales increased 11 percent from the prior year quarter. General engineering sales continue to experience growth from sales in the indirect channel across all regions and ninepositive performance in the light and general engineering sector in EMEA. Transportation sales in the quarter to tier suppliers and OEMs grew in Asia Pacific and EMEA. Oil and gas drilling sales in the Americas continue to provide overall growth in energy, coupled with increases in power generation sales globally. Conditions continue to be favorable in the aerospace sector, with global sales related to engine growth being supplemented by increasing demand related to frames in the Americas. The sales increases in Asia Pacific and EMEA were primarily driven by the transportation and general engineering end markets. The sales increase in the Americas was primarily driven by the performance in the energy, general engineering and aerospace and defense end markets.
For the three months ended March 31, 2016 forSeptember 30, 2017, Industrial operating income increased by $29.3 million, driven primarily by $14.7 million less restructuring and Widia have been restated to reflectrelated charges in the changecurrent quarter, incremental restructuring benefits of approximately $13 million and organic sales growth, partially offset by unfavorable mix and higher compensation expense. Industrial operating margin was 11.7 percent compared with 2.1 percent in reportable operating segments.the prior year.
 Three Months Ended September 30,
(in thousands)2017 2016
Sales$297,464
 $269,043
Operating income34,812
 5,556

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INDUSTRIAL
 Three Months Ended March 31, Nine Months Ended March 31,
(in thousands)2017 2016 2017 2016
Sales$289,455
 $274,123
 $825,990
 $812,892
Operating income38,535
 26,371
 62,138
 59,855
Three Months Ended September 30, 2017
Sales growth, in percentages
Organic9%
Currency exchange2
Business days
Total11%
By region (1):
Asia Pacific14%
Americas8
EMEA7
By end market (1):
Energy22%
General engineering7
Aerospace and defense7
Transportation7
(1) Excluding the impact of currency exchange

WIDIA
For the three months ended September 30, 2017, Widia sales increased 10 percent from the prior year quarter. Widia organic sales growth was positively impacted by restoring distribution in Europe, growth in India related to higher local and global demand trends, in addition to increasing demand in the U.S. energy markets and higher growth rates in emerging markets.
For the three months ended March 31,September 30, 2017, Industrial sales increased 6 percent fromWidia operating income was $0.1 million compared to an operating loss of $5.8 million for the prior year quarter, reflectingperiod. The year-over-year change of $5.8 million was driven primarily by organic sales growth, $2.2 million less restructuring and related charges, incremental restructuring benefits of 5approximately $1 million and favorable mix. Widia operating income margin was 0.1 percent and a 3compared with operating loss margin of 14.0 percent increase due to more business days, partially offset by 2 percent unfavorable currency exchange.in the prior year.
 Three Months Ended September 30,
(in thousands)2017 2016
Sales$45,243
 $41,015
Operating income (loss)62
 (5,756)
Three Months Ended September 30, 2017
Sales growth, in percentages
Organic9%
Currency exchange1
Business days
Total10%
By region (1):
EMEA19%
Asia Pacific8
Americas5
By end market (1):
General engineering9%
(1) Excluding the impact of currency exchange sales increased approximately 18 percent in energy, 9 percent in general engineering, 6 percent in aerospace and defense and 3 percent in transportation. General engineering sales benefited from growth in the indirect channel, due in part to the strengthening of oil and gas in the U.S. and growth in the China automotive market. Oil and gas in the Americas likewise contributed to overall growth in energy, coupled with increases in power generation globally. Transportation experienced growth in Asia with tiered suppliers and truck OEMs which was tempered slightly by lower project sales in the Americas. Conditions continue to be favorable in the aerospace sector, with engine growth being supplemented by increasing demand related to frames.On a segment regional basis excluding the impact of currency exchange, sales increased 17 percent in Asia, 6 percent in Europe and 4 percent in the Americas. The sales increase in Asia was primarily driven by the transportation, general engineering, aerospace and defense and energy end markets. The sales increase in Europe was primarily driven by the performance in the general engineering, aerospace and defense and transportation end markets. The sales increase in the Americas was primarily driven by the performance in the general engineering and energy end markets, partially offset by decreases in the transportation and aerospace and defense end markets.
For the three months ended March 31, 2017, Industrial operating income increased by $12.2 million, driven primarily by incremental restructuring benefits of approximately $11 million, organic sales growth, higher absorption and productivity and $2.9 million less restructuring and related charges, partially offset by higher performance-based compensation, a prior year adjustment to the estimated loss on divestiture that resulted in a gain of $3.7 million and unfavorable mix. Industrial operating margin was 13.3 percent compared with 9.6 percent in the prior year.
For the nine months ended March 31, 2017, Industrial sales increased 2 percent from the same period last year, reflecting organic growth of 4 percent, offset partially by unfavorable currency exchange of 2 percent. Excluding the impact of currency exchange and divestiture, sales increased 7 percent in general engineering, 6 percent in aerospace and defense and 1 percent in transportation, while energy remained flat. Activity in the aerospace sector remains elevated with sales growing globally. General engineering sales have benefited from stability in indirect channel stock levels, offsetting the general industrial weakness caused by the decline in the energy sector. The transportation market was mixed with more projects contributing to higher sales in Asia, partially offset by less favorable conditions in Europe and Americas. On a segment regional basis excluding the impact of divestiture and currency exchange, sales increased 10 percent in Asia, 4 percent in the Americas and 1 percent in Europe. The sales increase in Asia was primarily driven by the transportation and general engineering end markets and to a lesser extent the aerospace and defense end market. The sales increase in the Americas was primarily driven by the performance in the general engineering end market and to a lesser extent the energy end market, partially offset by a decrease in the transportation end market. The sales increase in Europe was primarily driven by the performance in the aerospace and defense and general engineering end markets, offset partially by a decrease in the transportation end market.
For the nine months ended March 31, 2017, Industrial operating income increased by $2.3 million, driven primarily by $24 million incremental restructuring benefits, organic sales growth, higher absorption and productivity and a $3.6 million loss on divestiture in the prior period, partially offset by $12.3 million higher restructuring and related charges, unfavorable currency exchange and unfavorable mix. Industrial operating margin was 7.5 percent compared with 7.4 percent in the prior year.


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WIDIA
INFRASTRUCTURE
 Three Months Ended March 31, Nine Months Ended March 31,
(in thousands)2017
2016 2017 2016
Sales$46,297
 $42,249
 $130,186
 $127,696
Operating income (loss)606
 (1,679) (7,797) (8,053)
For the three months ended March 31,September 30, 2017, WidiaInfrastructure sales increased 10by 20 percent from the prior year quarter driven by organic. Oil and gas in the U.S. is now stabilizing, manifesting in high year-over-year growth in energy with average U.S. land rig counts up over 100 percent compared to the prior year quarter. Underground mining continues to show signs of 9 percent and a 1 percent increaseimprovement in the earthworks market. Construction sales improved in part due to more business days. On a segment regional basis excluding the impacttiming of currency exchange,orders related to the road rehabilitation season. The sales increased 14 percentincrease in Asia 11 percentPacific was driven primarily by the performance in the industrial applications and mining end markets. Growth in the Americas was primarily driven by the oil and 3 percentgas, industrial applications and construction end markets. The sales increase in Europe.EMEA was primarily driven by performance in the earthworks and construction end markets.
For the three months ended March 31,September 30, 2017, WidiaInfrastructure operating income was $0.6$22.1 million compared to a $1.7an operating loss of $7.6 million loss for the prior year period. The year-over-year change of $2.3$29.7 million was driven primarily by organic sales growth, and incremental restructuring benefits of approximately $2 million. Widia operating income margin was 1.3 percent compared with operating loss margin of 4.0 percent in the prior year.
For the nine months ended March 31, 2017, Widia segment sales increased by 2 percent from the same period last year, due to organic growth of 4 percent, offset partially by an unfavorable business days impact of 1 percent and unfavorable currency exchange of 1 percent. On a segment regional basis excluding the impact of currency exchange, sales increased 12 percent in Asia, offset partially by a decrease of 3 percent in Europe, while sales in the Americas remained flat.
For the nine months ended March 31, 2017, Widia operating loss was $7.8 million compared to $8.1 million for the prior year period. Operating loss decreased by $0.3 million, driven primarily by incremental restructuring benefits of approximately $4 million, a prior period other intangible asset impairment charge of $2.3 million, lower raw material costs, higher absorption and productivity and organic sales growth, offset by $2.8 million higher restructuring and related charges and unfavorable mix. Widia operating loss margin was 6.0 percent compared with 6.3 percent in the prior year.

INFRASTRUCTURE
 Three Months Ended March 31, Nine Months Ended March 31,
(in thousands)2017 2016 2017 2016
Sales$192,878
 $181,465
 $537,167
 $636,624
Operating income (loss)19,770
 3,748
 22,457
 (242,417)
For the three months ended March 31, 2017, Infrastructure sales increased by 6 percent from the prior year quarter, reflecting organic growth of 4 percent and a 2 percent increase due to more business days. Excluding the impact of currency exchange, sales increased by approximately 22 percent in energy, 3 percent in earthworks and 1 percent in general engineering. Key energy markets, particularly in North America, showed strong growth during the quarter with average quarterly land U.S. rig counts up 37 percent year-over-year. On a segment regional basis excluding the impact of currency exchange, sales increased 12 percent in Asia and 6 percent in the Americas, while Europe remained flat. The sales increase in Asia was driven primarily by the performance in the earthworks and general engineering end markets. The sales increase in the Americas was primarily driven by performance in the energy and earthworks end markets. Flat sales in Europe reflect an increase in the energy end market, offset by a decrease in the earthworks end market.
For the three months ended March 31, 2017, Infrastructure operating income increased by $16.0 million, driven primarily by incremental restructuring program benefits of approximately $8 million, higher absorption and productivity, favorable mix, a prior period $1.1$7.9 million loss on divestiture and $0.7 million lowerless restructuring and related charges in the current period, favorable mix and higher fixed cost absorption and productivity, partially offset partially by higher raw material costs in the current period.. Infrastructure operating margin was 10.311.0 percent compared with 2.14.5 percent in the prior year.
 Three Months Ended September 30,
(in thousands)2017 2016
Sales$199,747
 $167,082
Operating income (loss)22,069
 (7,587)
Three Months Ended September 30, 2017
Sales growth (decline), in percentages
Organic19 %
Currency exchange2
Business days(1)
Total20 %
By region (1):
Asia Pacific21 %
Americas20
EMEA8
By end market (1):
Energy25 %
Earthworks13
General engineering8
(1) Excluding the impact of currency exchange

CORPORATE
For the three months ended September 30, 2017, Corporate unallocated expense decreased $1.0 million, or 67.3 percent, from the prior year quarter.
 Three Months Ended September 30,
(in thousands)2017 2016
Corporate unallocated expense$(466) $(1,424)


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For the nine months ended March 31, 2017, Infrastructure sales decreased by 16 percent, reflecting a 12 percent decline due to divestiture, a 3 percent organic sales decline and a 1 percent unfavorable currency exchange impact. Excluding the impact of currency exchange and divestiture, sales decreased by approximately 10 percent in earthworks and 2 percent in general engineering, offset partially by an increase of approximately 7 percent in energy. Key energy markets, particularly in North America, have continued to stabilize during the year. U.S. rig counts have increased steadily from fiscal 2016 year-end lower levels. Oil and gas sales in the Americas have increased year-over-year by 19 percent compared to the prior year. Conditions in underground mining in North America were impacted by challenges in the first half of the year and sales have declined by 17 percent compared to the prior year. On a segment regional basis excluding the impact of divestiture and currency exchange, sales decreased 4 percent in Europe, 3 percent in the Americas and 1 percent in Asia. The sales decrease in Europe was driven primarily by a decrease in earthworks, partially offset by an increase in energy. The sales decrease in the Americas was primarily driven by decreases in the earthworks and general engineering end markets, offset partially by an increase in the energy end market. The sales decrease in Asia was driven primarily by the performance in the earthworks end market, offset partially by increases in the general engineering end market, and to a lesser extent increases in the energy end market.
For the nine months ended March 31, 2017, Infrastructure operating income was $22.5 million compared to operating loss of $242.4 million for the prior year period. The change in operating results is due primarily to a prior period $127.2 million loss on divestiture, prior period goodwill and other intangible asset impairment charges of $106.1 million, lower raw material costs, higher productivity, incremental restructuring program benefits of approximately $17 million and divestiture impact of $1.9 million, offset partially by lower organic sales, $5.6 million more restructuring and related charges and unfavorable mix. Infrastructure operating income margin was 4.2 percent compared with operating loss margin of 38.1 percent in the prior year.

CORPORATE
 Three Months Ended March 31, Nine Months Ended December 31,
(in thousands)2017 2016 2016 2016
Corporate unallocated expense$(999) $(1,105) $(4,084) $(9,391)
For the three months ended March 31, 2017, Corporate unallocated expense decreased $0.1 million, or 9.6 percent, from the prior year quarter.
For the nine months ended March 31, 2017, Corporate unallocated expense decreased $5.3 million, or 56.5 percent, primarily due to $5.6 million lower restructuring-related charges in the current period.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations is the primary source of funding for capital expenditures and internal growth.expenditures. Year to date March 31,September 30, 2017 cash flow provided byused for operating activities was $80.019.9 million, primarily driven by cash earnings, partially offset by increases in primary working capital and bydue to a net outflowsoutflow from changes in other assets and liabilities.liabilities, partially offset by the net inflow from net income with adjustments for non-cash items.
Our five-year, multi-currency, revolving credit facility, as amended and restated in April 2016 (Credit Agreement) is used to augment cash from operations and is an additional source of funds. The Credit Agreement permitsprovides for revolving credit loans of up to $600.0 million for working capital, capital expenditures and general corporate purposes. The Credit Agreement allows for borrowings in U.S. dollars, euro, Canadian dollars, pound sterling and Japanese yen. Interest payable under the Credit Agreement is based upon the type of borrowing under the facility and may be (1) LIBOR plus an applicable margin, (2) the greater of the prime rate or the Federal Funds effective rate plus an applicable margin, or (3) fixed as negotiated by us. The Credit Agreement matures in April 2021. We had no borrowings outstanding on our Credit Agreement as of March 31,September 30, 2017.
The Credit Agreement requires us to comply with various restrictive and affirmative covenants, including two financial covenants: a maximum leverage ratio and a minimum consolidated interest coverage ratio (as those terms are defined in the Credit agreement). We were in compliance with all covenants as of March 31,September 30, 2017. For the ninethree months ended March 31,September 30, 2017, average daily borrowings outstanding under the Credit Agreement were approximately $29.1$3.5 million. Borrowings under the Credit Agreement are guaranteed by our significant domestic subsidiaries.

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We consider substantially all of the unremitted earnings of our non-U.S. subsidiaries that have not previously been taxed in the U.S. to be permanently reinvested. As of March 31,September 30, 2017, cash and cash equivalents of $42.8$82.3 million and short-term intercompany advances made by our foreign subsidiaries to our U.S. parent of $18.5$9.5 million would not be available for use in the U.S. on a long-term basis without incurring U.S. federal and state income tax consequences. We have not, nor do we anticipate the need to, repatriate funds to the U.S. to satisfy domestic liquidity needs arising in the ordinary course of business or associated with our domestic debt service requirements.
At March 31,September 30, 2017, cash and cash equivalents were $100.8$110.7 million, total debt, including notes payable, was $696.2 million and totalTotal Kennametal Shareholders' equity was $946.0$1,062.0 million and total debt was $696.6 million. Our current senior credit ratings are at investment grade levels. We believe that our current financial position, liquidity and credit ratings provide access to the capital markets. We believe that we have sufficient resources available to meet cash requirements for the next 12 months. We continue to closely monitor our liquidity position and the condition of the capital markets, as well as the counterparty risk of our credit providers.
There have been no material changes in our contractual obligations and commitments since June 30, 2016.2017.
Cash Flow (Used for) Provided by Operating Activities
During the ninethree months ended March 31,September 30, 2017, cash flow used for operating activities was $19.9 million, compared to cash flow provided by operating activities was $80.0 million, compared to $145.4of $23.6 million for the prior year period. Cash flow provided byused for operating activities for the current year period consisted of net income and non-cash items amounting to an inflow of $124.5 million and changes in certain assets and liabilities netting to an outflow of $44.5$97.6 million and net income and non-cash items amounting to an inflow of $77.7 million. Contributing to the changes in certain assets and liabilities were a decrease of accounts payable and accrued liabilities of $62.7 million, an increase in inventories of $38.1$19.7 million due in part to increasing volumes and a decrease in accrued pension and postretirement benefits of $18.8 million and an increase in accounts receivable of $12.7$8.1 million. Partially offsetting these cash outflows was a net increase of accounts payable and accrued liabilities of $25.8 million. The increases in inventories, accounts payable and accounts receivable is due in part to higher demand trends in most of our end markets.
During the ninethree months ended March 31,September 30, 2016, cash flow provided by operating activities for the period consisted of net loss and non-cash items amounting to an inflow of $104.0$14.4 million, and by changes in certain assets and liabilities netting to an inflow of $41.4$9.2 million. Contributing to the changes in certain assets and liabilities were a decrease in accounts receivable of $44.1$23.1 million due to lower sales volume and a decrease in inventory of $47.8 million due to our continued focus on working capital management.volume. Offsetting these cash inflows were a decrease in accrued pension and postretirement benefits of $5.6 million and a net decrease of accounts payable and accrued liabilities of $16.2$2.1 million primarily driven by lower restructuring liabilities and accrued compensation, partially offset by an increase in accounts payable due to lower volumes and our continued focus on working capital management; a decrease in accrued pension and postretirement benefits of $22.9 million primarily due to payments to previous executives; and a decrease of accrued income taxes of $13.0 million primarily driven by payment of a capital gains tax related to a prior period tax reorganization.payable.
Cash Flow Used for Investing Activities
Cash flow used for investing activities was $90.141.7 million for the ninethree months ended March 31,September 30, 2017, compared to $16.241.0 million in the prior year period. During the current year period, cash flow used for investing activities included capital expenditures, net of $90.2$41.7 million, which consisted primarily of equipment upgrades.
For the ninethree months ended March 31,September 30, 2016, cash flow used for investing activities included capital expenditures, net of $78.2$41.1 million, which consisted primarily of equipment upgrades. These capital expenditures were partially offset by $61.1 million of proceeds from the sale of non-core businesses.
Cash Flow Used for Financing Activities
Cash flow used for financing activities was $47.8 million for the nine months ended March 31, 2017 compared to $94.7 million in the prior year period. During the current year period, cash flow used for financing activities included $48.0 million of cash dividends paid to Shareholders and a $6.4 million payment on the remaining contingent consideration related to a prior acquisition. These cash outflows were partially offset by $7.1 million of dividend reinvestment and the effect of employee benefit and stock plans.
For the nine months ended March 31, 2016, cash flow used for financing activities primarily included $48.4 million net decrease in borrowings and $47.8 million of cash dividends paid to Shareholders. These cash flows were partially offset by $1.7 million of dividend reinvestment and the effect of employee benefit and stock plans.


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Cash Flow Used for Financing Activities
Cash flow used for financing activities was $20.2 million for the three months ended September 30, 2017 compared to $25.1 million in the prior year period. During the current year period, cash flow used for financing activities included $16.2 million of cash dividends paid to Shareholders and $4.0 million of dividend reinvestment and the effect of employee benefit and stock plans.
For the three months ended September 30, 2016, cash flow used for financing activities included $16.0 million of cash dividends paid to Shareholders, a $6.6 million payment on the remaining contingent consideration related to a prior acquisition, $2.1 million of dividend reinvestment and the effect of employee benefit and stock plans and $0.4 million net decrease in borrowings.

FINANCIAL CONDITION

Working capital was $616.2678.9 million at March 31,September 30, 2017, a decreasean increase of $31.826.5 million from $648.1$652.4 million at June 30, 2016.2017. The decreaseincrease in working capital was primarily driven by a decrease in cash and cash equivalents of $60.8 million, a decrease in deferred income taxes of $26.7 million due to the impact of prospective adoption of a new accounting standard requiring all deferred tax assets and liabilities to be classified as long-term and a decrease in accounts payable of $8.8$29.4 million, as a result of increasing volumes. Partially offsetting these items were an increase in inventories of $31.4$27.0 million due in part to increasing volumes, a decrease in accrued expenses of $20.6 million driven by payroll timing and lower accrued vacation pay, a decrease in other current liabilities of $15.8 million due primarily to bonus payments and restructuring payments and an increase in other current assets of $17.8$9.7 million due primarily to the reclassification of $14 millionhigher prepaid taxes from noncurrent to current as we expect to receive a refund in the next 12 months,other than income and higher prepaid maintenance. Partially offsetting these items was a decrease in other current liabilitiescash and cash equivalents of $11.7 million due primarily to the payment to relieve the remaining contingent consideration related to a prior year acquisition lower accrued compensation and an increase in accounts receivable of $6.0 million due to increasing volumes.$79.9 million. Currency exchange rate effects decreasedincreased working capital inby a total by $10.3of $9.4 million, the impact of which is included in the aforementioned changes.
Property, plant and equipment, net decreased $1.8increased $11.1 million from $730.6$744.4 million at June 30, 20162017 to $728.8$755.5 million at March 31,September 30, 2017, primarily due to depreciation expensecapital additions of $68.4$30.6 million and a negativepositive currency exchange impact of $7.9$7.5 million during the current period and disposals of $3.9 million. These decreases areperiod. This increase is partially offset by capital expendituresdepreciation expense of $94.1$22.8 million which includes $15.4 million change in accounts payableand impairment related to purchasesrestructuring programs of property, plant and equipment.$2.4 million.
At March 31,September 30, 2017, other assets were $562.9$568.3 million, an increase of $6.1$11.1 million from $556.8$557.2 million at June 30, 2016.2017. The primary driverdrivers for the increase waswere an increase in deferred income taxesother assets of $20.0$9.5 million primarily due to an increase in pension plan assets and an increase in goodwill of $3.3 million due in part to the impact of prospective adoption of a new accounting standard requiring all deferred tax assets and liabilities to be classified as long-term.favorable currency exchange effects. This increase was partially offset by a $14.1$2.8 million decrease in other intangible assets, which was due to amortization expense of $12.7$3.7 million, and unfavorablepartially offset by favorable currency exchange effects of $1.4 million, and a $4.2 million decrease in goodwill due to currency exchange effects.$0.9 million.
Long-term debt and capital leases increased by $1.1$0.4 million to $694.6$695.4 million at March 31,September 30, 2017 from $693.5$695.0 million at June 30, 2016.2017.
Kennametal Shareholders' equity was $946.0$1,062.0 million at March 31,September 30, 2017, a decreasean increase of $18.4$44.7 million from $964.3$1,017.3 million at June 30, 2016.2017. The decreaseincrease was primarily due to cash dividends paid to Shareholders of $48.0 million and unfavorable currency exchange of $26.5 million, partially offset by net income attributable to Kennametal of $24.5$39.2 million, capital stock issued under employee benefit and stock plans of $21.4$2.5 million, reclassification of net pension and other postretirement benefit loss of $5.4$1.8 million and favorable currency exchange of $19.6 million, partially offset by cash dividends paid to Shareholders of $16.2 million and unrecognized net pension and other postretirement benefit gainloss of $3.4$2.0 million.

ENVIRONMENTAL MATTERS

The operation of our business has exposed us to certain liabilities and compliance costs related to environmental matters. We are involved in various environmental cleanup and remediation activities at certain of our locations.
Superfund Sites Among other environmental laws, we are subject to the Comprehensive Environmental Response Compensation and Liability Act of 1980 (Superfund)(CERCLA), under which we have been designated by the United States Environmental Protection Agency (USEPA) as a potentially responsible partyPotentially Responsible Party (PRP) with respect to environmental remedial costs at certain Superfund sites. We have evaluated our claims and liabilities associated with these Superfund sites based upon best currently available information. We believe our environmental accruals are adequate to cover our portion of the environmental remedial costs at the Superfund sites where we have been designated a PRP, to the extent these expenses are probable and reasonably estimable.
Other Environmental Matters We establish and maintain reserves for other potential environmental issues. At March 31,September 30, 2017 and June 30, 2016,2017, the balances of these reserves were $12.1$12.6 million and $12.5$12.4 million, respectively. These reserves represent anticipated costs associated with the remediation of these issues.

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The reserves we have established for environmental liabilities represent our best current estimate of the costs of addressing all identified environmental situations, based on our review of currently available evidence, and taking into consideration our prior experience in remediation and that of other companies, as well as public information released by the USEPA, other governmental agencies, and by the PRP groups in which we are participating. Although the reserves currently appear to be sufficient to cover these environmental liabilities, there are uncertainties associated with environmental liabilities, and we can give no assurance that our estimate of any environmental liability will not increase or decrease in the future. The reserved and unreserved liabilities for all environmental concerns could change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, technological changes, discovery of new information, the financial strength of other PRPs, the identification of new PRPs and the involvement of and direction taken by the government on these matters.
We maintain a Corporate Environmental Health and Safety (EHS) Department, to monitor compliance with environmental regulations and to oversee remediation activities. In addition, we have designated EHS coordinatorsanalysts who are responsible for each of our global manufacturing facilities. Our financial management team periodically meets with members of the Corporate EHS Department and the Corporate Legal Department to review and evaluate the status of environmental projects and contingencies. On a quarterly basis, we review financial provisions and reserves for environmental contingencies and adjust these reserves when appropriate.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES
Effective July 1, 2017 with the adoption of new Financial Accounting Standards Board (FASB) guidance on subsequent measurement of inventory, non-LIFO inventories are now stated at the lower of cost or net realizable value. LIFO inventories continue to be stated at the lower of cost or market.
There have been no other changes to our critical accounting policies since June 30, 2016.2017.

NEW ACCOUNTING STANDARDS

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

RECONCILIATION OF FINANCIAL MEASURES NOT DEFINED BY U.S. GAAP In accordance with the SEC's Regulation G, the following provides definitions of the non-GAAP financial measures and the reconciliation to the most closely related GAAP financial measure. We believe that these measures provide useful perspective on underlying business trends and results and provide a supplemental measure of year-over-year results. The non-GAAP financial measures described below are used by management in making operating decisions, allocating financial resources and for business strategy purposes. These measures may be useful to investors as they provide supplemental information about business performance and provide investors a view of our business results through the eyes of management. These non-GAAP financial measures are not intended to be considered by the user in place of the related GAAP financial measure, but rather as supplemental information to our business results. These non-GAAP financial measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted.
Organic sales growth Organic sales growth is a non-GAAP financial measure of sales growth (which is the most directly comparable GAAP measure) excluding the impacts of acquisitions, divestitures, business days and foreign currency exchange from year-over-year comparisons. Management believes this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis.
Reconciliations of organic sales growth to the most closely related GAAP financial measure, sales growth, are as follows:
Three months ended September 30, 2017 Sales Growth Foreign Currency Exchange Impact Business Days Impact Organic Sales Growth
Industrial 11% 2% —% 9%
Widia 10% 1% —% 9%
Infrastructure 20% 2% (1)% 19%
Total Kennametal 14% 2% (1)% 13%

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our market risk exposures since June 30, 2016.2017.
ITEM 4.    CONTROLS AND PROCEDURES

As of the end of the period covered by this quarterly report on Form 10-Q, the Company's management evaluated, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). The Company's disclosure controls were designed to provide a reasonable assurance that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, the controls have been designed to provide reasonable assurance of achieving the controls' stated goals. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective to provide reasonable assurance at March 31,September 30, 2017 to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (i) accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and (ii) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

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

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PART II. OTHER INFORMATION
 
ITEM 1.    LEGAL PROCEEDINGS
The information set forth in Part I, Item 1, under the caption “Regulation” of the annual report on Form 10-K for the year ended June 30, 20162017 is incorporated by reference into this Item 1. From time to time, we are party to legal claims and proceedings that arise in the ordinary course of business, which may relate to our operations or assets, including real, tangible or intellectual property. Although certain of these types of actions are currently pending, we do not believe that any individual proceeding is material or that our pending legal proceedings in the aggregate are material to Kennametal.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
 
Period
Total Number of
Shares Purchased (1) 

 
Average Price
Paid per Share

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

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

January 1 through January 31, 20174,061
 $34.46
 
 10,100,100
February 1 through February 28, 20179,477
 37.44
 
 10,100,100
March 1 through March 31, 20173,469
 38.75
 
 10,100,100
Total17,007
 $37.00
 
  
Period
Total Number of
Shares Purchased (1) 

 
Average Price
Paid per Share

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

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

July 1 through July 31, 2017
 $
 
 10,100,100
August 1 through August 31, 201779,099
 37.46
 
 10,100,100
September 1 through September 30, 20173,649
 35.73
 
 10,100,100
Total82,748
 $37.39
 
  
 
(1)During the current period, 1,6161,544 shares were purchased on the open market on behalf of Kennametal to fund the Company’s dividend reinvestment program. Also, during the current period employees delivered 15,39181,204 shares of restricted stock to Kennametal, upon vesting, to satisfy tax withholding requirements.
(2)On July 25, 2013, the Company publicly announced an amended repurchase program for up to 17 million shares of its outstanding capital stock outside of the Company's dividend reinvestment program.

UNREGISTERED SALES OF EQUITY SECURITIES
None.    


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ITEM 6.    EXHIBITS
(10)Material Contracts
(10.1)Exhibit 10.1 of the Form 8-K filed November 3, 2017 (File No. 001-05318) is incorporated herein by reference.
(10.2)Exhibit 10.2 of the Form 8-K filed November 3, 2017 (File No. 001-05318) is incorporated herein by reference.
(31) Rule 13a-14(a)/15d-14(a) Certifications   
(31.1)   Filed herewith.
(31.2)   Filed herewith.
(32) Section 1350 Certifications   
(32.1)   Filed herewith.
(101) XBRL   
(101.INS) XBRL Instance Document  Filed herewith.
(101.SCH) XBRL Taxonomy Extension Schema Document  Filed herewith.
(101.CAL) XBRL Taxonomy Extension Calculation Linkbase Document  Filed herewith.
(101.DEF) XBRL Taxonomy Definition Linkbase Filed herewith.
(101.LAB) XBRL Taxonomy Extension Label Linkbase Document  Filed herewith.
(101.PRE) XBRL Taxonomy Extension Presentation Linkbase Document  Filed herewith.
 

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 KENNAMETAL INC.
 
Date:May 9,November 7, 2017By:  /s/ Patrick S. Watson                                               
 
Patrick S. Watson
Vice President Finance and Corporate Controller

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