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~~December 31, 2020



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

For the transition period from _______ to _______

Commission file number 1-5318

KENNAMETAL INC.

(Exact name of registrant as specified in its charter)



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

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

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

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


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

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

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

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



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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



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

As of ~~April 30, 2020, 82,913,959~~January 29, 2021 83,533,003 shares of the Registrant’s Capital Stock, par value $1.25 per share, were outstanding.

Table of Contents

KENNAMETAL INC.

FORM 10-Q

FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~MARCH~~DECEMBER 31, 2020

TABLE OF CONTENTS


Item No.		Page No.

PART I - FINANCIAL INFORMATION

1.	Financial Statements

	Condensed Consolidated Statements of Income (Unaudited) Three and six months ended December 31, 2020 and 2019	4

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and six months ended December 31, 2020 and 2019	4

	Condensed Consolidated Balance Sheets (Unaudited) December 31, 2020 and June 30, 2020	5

	Condensed Consolidated Statements of Cash Flow (Unaudited) Six months ended December 31, 2020 and 2019	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

3.	Quantitative and Qualitative Disclosures About Market Risk	35

4.	Controls and Procedures	35

PART II - OTHER INFORMATION
1.	Legal Proceedings	36

2.	Unregistered Sales of Equity Securities and Use of Proceeds	36



6.	Exhibits	37

Signatures		38

Item No. Page No.

PART I - FINANCIAL INFORMATION

1.
Financial Statements

Condensed Consolidated Statements of Income (Unaudited)
Three and nine months ended March 31, 2020 and 2019
4

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Three and nine months ended March 31, 2020 and 2019
4

Condensed Consolidated Balance Sheets (Unaudited)
March 31, 2020 and June 30, 2019
5

Condensed Consolidated Statements of Cash Flow (Unaudited)
Nine months ended March 31, 2020 and 2019
6

Notes to Condensed Consolidated Financial Statements (Unaudited)
7

2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
26

3.
Quantitative and Qualitative Disclosures About Market Risk
40

4.
Controls and Procedures
41

PART II - OTHER INFORMATION
1.
Legal Proceedings
42

2.
Unregistered Sales of Equity Securities and Use of Proceeds
43

6.
Exhibits
44

Signatures
45

Table of Contents

FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that do not relate strictly to historical or current facts. You can identify forward-looking statements by words such as “should,” “anticipate,” “estimate,” “approximate,” “expect,” “may,” “will,” “project,” “intend,” “plan,” “believe” and other words of similar meaning and expression in connection with any discussion of future operating or financial performance or events. We have also included forward-looking statements in this Quarterly Report on Form 10-Q concerning, among other things, our strategy, goals, plans and projections regarding our financial position, liquidity and capital resources, results of operations, market position and product development. These statements are based on current estimates that involve inherent risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, our actual results could vary materially from our current expectations. There are a number of factors that could cause our actual results to differ from those indicated in the forward-looking statements. They include: the duration of the COVID-19 pandemic and its impact on our business operations, financial results and financial position and on the industries in which we operate and the global economy generally; other downturns in the business cycle or the economy; our ability to achieve anticipated benefits from our restructuring, simplification and modernization 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; 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 ~~as updated in Part II, Item 1A of this Form 10-Q,~~ and in other periodic reports we file from time to time with the Securities and Exchange Commission. We can give no assurance that any goal or plan set forth in our forward-looking statements will be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. Except as required by law, we do not intend to release publicly any revisions to forward-looking statements as a result of future events or developments.

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

~~-KENNAMETAL~~KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended December 31,				Six Months Ended December 31,
(in thousands, except per share amounts)	2020		2019		2020		2019
Sales	$	440,507	$	505,080	$	840,812	$	1,023,168
Cost of goods sold	318,978		373,062		614,210		752,170
Gross profit	121,529		132,018		226,602		270,998
Operating expense	97,758		107,548		191,097		221,739
Restructuring and asset impairment charges (Note 6)	1,390		62,329		26,967		66,995
Loss on divestiture (Note 3)	0		6,517		0		6,517
Amortization of intangibles	3,347		3,262		6,681		7,008
Operating income (loss)	19,034		(47,638)		1,857		(31,261)
Interest expense	8,317		8,055		18,896		15,936
Other income, net	(3,857)		(4,211)		(7,875)		(6,891)
Income (loss) before income taxes	14,574		(51,482)		(9,164)		(40,306)
Benefit from income taxes	(5,676)		(45,253)		(8,554)		(41,487)
Net income (loss)	20,250		(6,229)		(610)		1,181
Less: Net income (loss) attributable to noncontrolling interests	862		(290)		1,677		653
Net income (loss) attributable to Kennametal	$	19,388	$	(5,939)	$	(2,287)	$	528
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS
Basic earnings (loss) per share	$	0.23	$	(0.07)	$	(0.03)	$	0.01
Diluted earnings (loss) per share	$	0.23	$	(0.07)	$	(0.03)	$	0.01
Basic weighted average shares outstanding	83,582		83,075		83,451		82,979
Diluted weighted average shares outstanding	84,197		83,075		83,451		83,618

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands, except per share amounts) 2020 2019 2020 2019
Sales $ 483,084
$ 597,204
$ 1,506,252
$ 1,771,285
Cost of goods sold 326,066
389,118
1,078,236
1,153,509
Gross profit 157,018
208,086
428,016
617,776
Operating expense 98,534
120,135
320,273
358,054
Restructuring and asset impairment charges (Notes 7 and 18) 17,187
2,440
84,182
5,061
Loss on divestiture (Note 4) —
—
6,517
—
Amortization of intangibles 3,404
3,640
10,413
10,780
Operating income 37,893
81,871
6,631
243,881
Interest expense 7,897
8,104
23,834
24,305
Other income, net (2,438 ) (4,993 ) (9,330 ) (11,775 )
Income (loss) before income taxes 32,434
78,760
(7,873 ) 231,351
Provision (benefit) for income taxes 30,193
8,632
(11,295 ) 46,553
Net income 2,241
70,128
3,422
184,798
Less: Net (loss) income attributable to noncontrolling interests (676 ) 1,578
(23 ) 4,852
Net income attributable to Kennametal $ 2,917
$ 68,550
$ 3,445
$ 179,946
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS
Basic earnings per share $ 0.04
$ 0.83
$ 0.04
$ 2.19
Diluted earnings per share $ 0.03
$ 0.82
$ 0.04
$ 2.16
Dividends per share $ 0.20
$ 0.20
$ 0.60
$ 0.60
Basic weighted average shares outstanding 83,106
82,479
83,022
82,305
Diluted weighted average shares outstanding 83,696
83,339
83,589
83,266

KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2020 2019 2020 2019
Net income $ 2,241
70,128
$ 3,422
$ 184,798
Other comprehensive (loss) income, net of tax
Unrealized (loss) gain on derivatives designated and qualified as cash flow hedges (1,000 ) 232
(144 ) 141
Reclassification of unrealized loss on derivatives designated and qualified as cash flow hedges 518
695
306
1,552
Unrecognized net pension and other postretirement benefit gain 2,573
51
2,123
1,246
Reclassification of net pension and other postretirement benefit loss 1,966
1,287
5,916
3,893
Foreign currency translation adjustments (38,018 ) (1,239 ) (47,691 ) (20,845 )
Total other comprehensive (loss) income, net of tax (33,961 ) 1,026
(39,490 ) (14,013 )
Total comprehensive (loss) income (31,720 ) 71,154
(36,068 ) 170,785
Less: comprehensive (loss) income attributable to noncontrolling interests (2,659 ) 1,612
(2,860 ) 4,154
Comprehensive (loss) income attributable to Kennametal Shareholders $ (29,061 ) 69,542
$ (33,208 ) $ 166,631

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

~~Table of Contents~~

~~KENNAMETAL INC.~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)~~

(in thousands, except per share data) March 31,
2020 June 30,
2019
ASSETS
Current assets:
Cash and cash equivalents $ 85,230
$ 182,015
Accounts receivable, less allowance for doubtful accounts of $10,090 and $10,083, respectively 304,162
379,855
Inventories (Note 10) 516,781
571,576
Other current assets 60,550
57,381
Total current assets 966,723
1,190,827
Property, plant and equipment:
Land and buildings 347,490
351,142
Machinery and equipment 1,884,545
1,804,871
Less accumulated depreciation (1,216,676 ) (1,221,118 )
Property, plant and equipment, net 1,015,359
934,895
Other assets:
Goodwill (Note 18) 268,658
300,011
Other intangible assets, less accumulated amortization of $133,306 and $158,507, respectively (Note 18) 135,687
160,998
Operating lease right-of-use assets (Note 11) 46,747
—
Deferred income taxes 32,196
20,507
Other 72,730
49,031
Total other assets 556,018
530,547
Total assets $ 2,538,100
$ 2,656,269
LIABILITIES
Current liabilities:
Current maturities of long-term debt (Note 12) $ 4,500
$ —
Notes payable to banks —
157
Current operating lease liabilities (Note 11) 12,935
—
Accounts payable 165,062
212,908
Accrued income taxes 10,470
29,223
Accrued expenses 51,466
76,616
Other current liabilities 138,698
142,822
Total current liabilities 383,131
461,726
Long-term debt, less current maturities (Note 12) 593,607
592,474
Operating lease liabilities (Note 11) 34,290
—
Deferred income taxes 13,504
23,322
Accrued pension and postretirement benefits 166,851
174,003
Accrued income taxes 9,304
9,038
Other liabilities 38,590
21,002
Total liabilities 1,239,277
1,281,565
Commitments and contingencies

EQUITY (Note 16)
Kennametal Shareholders’ Equity:
Preferred stock, no par value; 5,000 shares authorized; none issued —
—
Capital stock, $1.25 par value; 120,000 shares authorized; 82,914 and 82,421 shares issued, respectively
103,642
103,026
Additional paid-in capital 536,596
528,827
Retained earnings 1,030,582
1,076,862
Accumulated other comprehensive loss (410,197 ) (373,543 )
Total Kennametal Shareholders’ Equity 1,260,623
1,335,172
Noncontrolling interests 38,200
39,532
Total equity 1,298,823
1,374,704
Total liabilities and equity $ 2,538,100
$ 2,656,269


	Three Months Ended December 31,			Six Months Ended December 31,
(in thousands)	2020		2019	2020		2019
Net income (loss)	$	20,250	(6,229)	$	(610)	$	1,181
Other comprehensive income (loss), net of tax
Unrealized gain on derivatives designated and qualified as cash flow hedges	3,291		461	4,501		856
Reclassification of unrealized loss (gain) on derivatives designated and qualified as cash flow hedges	479		(393)	940		(212)
Unrecognized net pension and other postretirement benefit loss	(4,211)		(3,056)	(7,521)		(449)
Reclassification of net pension and other postretirement benefit loss	2,614		1,990	5,179		3,950
Foreign currency translation adjustments	42,601		25,751	74,547		(9,674)

Total other comprehensive income (loss), net of tax	44,774		24,753	77,646		(5,529)
Total comprehensive income (loss)	65,024		18,524	77,036		(4,348)
Less: comprehensive income (loss) attributable to noncontrolling interests	2,218		247	4,312		(201)
Comprehensive income (loss) attributable to Kennametal Shareholders	$	62,806	18,277	$	72,724	$	(4,147)

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

Table of Contents

KENNAMETAL INC.

CONDENSED CONSOLIDATED ~~STATEMENTS OF CASH FLOW~~BALANCE SHEETS (UNAUDITED)

Nine Months Ended March 31,
(in thousands) 2020 2019
OPERATING ACTIVITIES
Net income $ 3,422
$ 184,798
Adjustments for non-cash items:
Depreciation 79,078
72,087
Amortization 10,413
10,780
Stock-based compensation expense 14,289
18,844
Restructuring and asset impairment charges (Notes 7 and 18) 33,792
1,905
Deferred income tax provision (benefit) (23,597 ) 2,409
Loss on divestiture (Note 4) 6,517
—
Other 2,748
2,567
Changes in certain assets and liabilities:
Accounts receivable 60,616
(7,595 )
Inventories 29,947
(71,814 )
Accounts payable and accrued liabilities (34,351 ) (57,165 )
Accrued income taxes (21,957 ) 5,936
Accrued pension and postretirement benefits (18,163 ) (13,862 )
Other 3,305
8,575
Net cash flow provided by operating activities 146,059
157,465
INVESTING ACTIVITIES
Purchases of property, plant and equipment (206,061 ) (145,942 )
Disposals of property, plant and equipment 2,780
3,575
Proceeds from divestiture (Note 4) 23,950
—
Other (869 ) (371 )
Net cash flow used for investing activities (180,200 ) (142,738 )
FINANCING ACTIVITIES
Net decrease in notes payable (175 ) (871 )
Net increase (decrease) in short-term revolving and other lines of credit 4,500
(174 )
Term debt repayments —
(400,000 )
Purchase of capital stock (158 ) (161 )
The effect of employee benefit and stock plans and dividend reinvestment (5,747 ) (5,249 )
Cash dividends paid to Shareholders (49,725 ) (49,268 )
Other (2,698 ) (687 )
Net cash flow used for financing activities (54,003 ) (456,410 )
Effect of exchange rate changes on cash and cash equivalents (8,641 ) (1,873 )
CASH AND CASH EQUIVALENTS
Net decrease in cash and cash equivalents (96,785 ) (443,556 )
Cash and cash equivalents, beginning of period 182,015
556,153
Cash and cash equivalents, end of period $ 85,230
$ 112,597


(in thousands, except per share data)	December 31, 2020		June 30, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	103,188	$	606,684
Accounts receivable, less allowance for doubtful accounts of $10,058 and $9,430, respectively	275,151		237,983
Inventories (Note 9)	497,224		522,447


Other current assets	73,123		73,698
Total current assets	948,686		1,440,812
Property, plant and equipment:
Land and buildings	372,061		360,256
Machinery and equipment	2,019,786		1,913,967
Less accumulated depreciation	(1,318,373)		(1,235,952)
Property, plant and equipment, net	1,073,474		1,038,271
Other assets:

Goodwill (Note 16)	281,447		270,580
Other intangible assets, less accumulated amortization of $147,297 and $137,386, respectively (Note 16)	127,661		132,568
Operating lease right-of-use assets	53,972		48,035
Deferred income taxes	46,622		46,782
Other	82,964		60,543
Total other assets	592,666		558,508
Total assets	$	2,614,826	$	3,037,591
LIABILITIES
Current liabilities:

Revolving and other lines of credit and notes payable (Note 10)	34,979		500,368
Current operating lease liabilities	15,023		13,246
Accounts payable	134,153		164,641
Accrued income taxes	6,290		27,938
Accrued expenses	46,850		47,610


Other current liabilities	165,346		144,277
Total current liabilities	402,641		898,080
Long-term debt, less current maturities (Note 10)	593,757		594,083
Operating lease liabilities	39,582		35,372
Deferred income taxes	22,162		21,796
Accrued pension and postretirement benefits	187,174		175,458
Accrued income taxes	10,046		9,584
Other liabilities	39,775		34,430
Total liabilities	1,295,137		1,768,803
Commitments and contingencies	0		0
EQUITY (Note 14)
Kennametal Shareholders’ Equity:
Preferred stock, 0 par value; 5,000 shares authorized; NaN issued	0		0
Capital stock, $1.25 par value; 120,000 shares authorized; 83,464 and 82,923 shares issued, respectively	104,330		103,654
Additional paid-in capital	547,754		538,575
Retained earnings	969,301		1,004,898
Accumulated other comprehensive loss	(342,231)		(417,242)
Total Kennametal Shareholders’ Equity	1,279,154		1,229,885
Noncontrolling interests	40,535		38,903
Total equity	1,319,689		1,268,788
Total liabilities and equity	$	2,614,826	$	3,037,591

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

Table of Contents

KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)


	Six Months Ended December 31,
(in thousands)	2020		2019
OPERATING ACTIVITIES
Net (loss) income	$	(610)	$	1,181
Adjustments for non-cash items:
Depreciation	55,483		53,801
Amortization	6,681		7,008
Stock-based compensation expense	12,797		13,974
Restructuring and asset impairment charges (Note 6)	1,602		17,708
Deferred income taxes	(455)		(13,750)
Loss on divestiture (Note 3)	0		6,517
Other	4,549		350
Changes in certain assets and liabilities:
Accounts receivable	(22,538)		64,546
Inventories	46,711		34,329
Accounts payable and accrued liabilities	(9,631)		(28,548)
Accrued income taxes	(24,463)		(53,020)
Accrued pension and postretirement benefits	(13,435)		(12,101)
Other	10,661		(4,898)
Net cash flow provided by operating activities	67,352		87,097
INVESTING ACTIVITIES
Purchases of property, plant and equipment	(68,616)		(147,532)
Disposals of property, plant and equipment	904		835

Proceeds from divestiture (Note 3)	0		23,950
Other	93		(922)
Net cash flow used for investing activities	(67,619)		(123,669)
FINANCING ACTIVITIES
Net increase in notes payable	2,738		1,927
Net decrease in revolving and other lines of credit	(475,500)		0


Purchase of capital stock	(100)		(106)
The effect of employee benefit and stock plans and dividend reinvestment	(2,531)		(5,583)
Cash dividends paid to Shareholders	(33,310)		(33,143)
Other	(3,334)		(1,779)
Net cash flow used for financing activities	(512,037)		(38,684)
Effect of exchange rate changes on cash and cash equivalents	8,808		(1,549)
CASH AND CASH EQUIVALENTS
Net decrease in cash and cash equivalents	(503,496)		(76,805)
Cash and cash equivalents, beginning of period	606,684		182,015
Cash and cash equivalents, end of period	$	103,188	$	105,210

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

Table of Contents

KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.BASIS OF PRESENTATION


1.	~~BASIS OF PRESENTATION~~

The condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q, which include our accounts and those of our majority-owned subsidiaries, should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2019~~2020 (the ~~“2019~~“2020 Annual Report”). The condensed consolidated balance sheet as of June 30, ~~2019~~2020 was derived from the audited balance sheet included in our ~~2019~~2020 Annual Report. The interim statements are unaudited; however, we believe that all adjustments necessary for a fair statement of the results of the interim periods were made and all adjustments are normal recurring adjustments. The results for the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019 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 ~~2020~~2021 is to the fiscal year ending June 30, ~~2020.~~2021. When used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, the terms “the Company,” “we,” “our” and “us” refer to Kennametal Inc. and its subsidiaries.


2.	~~NEW ACCOUNTING STANDARDS~~

~~Adopted~~

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, "Leases: Topic 842," which replaces the existing guidance in ASC 840, Leases. The standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for substantially all leases. We adopted this ASU on July 1, 2019 using the modified retrospective transition approach with the optional transition relief that allows for a cumulative-effect adjustment in the period of adoption and without a restatement of prior periods. Therefore, prior period amounts were not adjusted and will continue to be reported under the accounting standards in effect for those periods. We determined that there was no cumulative-effect adjustment to beginning retained earnings on the condensed consolidated balance sheet. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward historical lease classification. Adoption of this ASU resulted in the recording of lease liabilities of approximately $49 million with the offset to lease ROU assets of $49 million as of July 1, 2019. The standard did not materially impact our condensed consolidated statement of income and our condensed consolidated statement of cash flows. Refer to Note 11 for additional disclosure regarding the adoption of this new standard.

In August 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 and additional disclosures. We adopted this ASU on July 1, 2019. Adoption of this guidance did not have a material effect on our condensed consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, “Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which includes amendments allowing the reclassification of the income tax effects of the Tax Cuts and Jobs Act of 2017 (TCJA) to improve the usefulness of information reported to financial statement users. The amendments in this update also require certain disclosures about stranded tax effects. Certain guidance is optional and was effective for Kennametal on July 1, 2019. We elected not to reclassify the stranded tax effects as permissible under this standard. Adoption of this guidance did not have a material effect on our condensed consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting," which expands the scope of accounting for stock-based compensation to nonemployees. We adopted this ASU on July 1, 2019. Adoption of this guidance did not have a material effect on our condensed consolidated financial statements.

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~~KENNAMETAL INC.~~

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


3.	~~SUPPLEMENTAL CASH FLOW DISCLOSURES~~

Nine Months Ended March 31,
(in thousands) 2020 2019
Cash paid during the period for:
Income taxes $ 31,523
$ 38,208
Interest 20,783
23,175
Supplemental disclosure of non-cash information:
Changes in accounts payable related to purchases of property, plant and equipment (16,000 ) 2,400

2.SUPPLEMENTAL CASH FLOW DISCLOSURES


4.	~~DIVESTITURE~~


	Six Months Ended December 31,
(in thousands)	2020		2019
Cash paid during the period for:
Interest	$	19,335	$	13,953
Income taxes	16,481		24,400
Supplemental disclosure of non-cash information:
Changes in accounts payable related to purchases of property, plant and equipment	(11,800)		(2,700)
Changes in notes payable related to purchases of property, plant and equipment	7,254		—

3.DIVESTITURE

During the ~~nine~~three months ended ~~March~~December 31, ~~2020,~~2019, we completed the sale of certain assets of the non-core specialty alloys and metals business within the Infrastructure segment located in New Castle, Pennsylvania to Advanced Metallurgical Group N.V. for an aggregate price of $24.0 million.

The net book value of these assets at closing was $29.5 million, and the pre-tax loss on divestiture recognized during the three months ended December 31, 2019 was $6.5 million. Transaction proceeds were primarily used for capital expenditures related to our simplification/modernization efforts.


5.	~~FAIR VALUE MEASUREMENTS~~

4.FAIR VALUE MEASUREMENTS

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

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

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3: Inputs that are unobservable.

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of ~~March~~December 31, 2020, the fair values of our financial assets and financial liabilities are categorized as follows:


(in thousands)	Level 1		Level 2		Level 3		Total		(in thousands)	Level 1		Level 2		Level 3		Total
Assets:									Assets:
Derivatives ⁽¹⁾	$	—	$	289	$	—	$	289	Derivatives (1)	$	—	$	5,821	$	—	$	5,821
Total assets at fair value	$	—	$	289	$	—	$	289	Total assets at fair value	$	—	$	5,821	$	—	$	5,821

Liabilities:									Liabilities:
Derivatives⁽¹⁾	$	—	$	1,878	$	—	$	1,878	Derivatives (1)	$	—	$	3	$	—	$	3
Total liabilities at fair value	$	—	$	1,878	$	—	$	1,878	Total liabilities at fair value	$	—	$	3	$	—	$	3

~~Table of Contents~~

~~KENNAMETAL INC.~~

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

As of June 30, ~~2019,~~2020, the fair values of our financial assets and financial liabilities are categorized as follows:


(in thousands)	Level 1		Level 2		Level 3		Total		(in thousands)	Level 1		Level 2		Level 3		Total
Assets:									Assets:
Derivatives ⁽¹⁾	$	—	$	152	$	—	$	152	Derivatives (1)	$	—	$	36	$	—	$	36
Total assets at fair value	$	—	$	152	$	—	$	152	Total assets at fair value	$	—	$	36	$	—	$	36

Liabilities:									Liabilities:
Derivatives ⁽¹⁾	$	—	$	55	$	—	$	55	Derivatives (1)	$	—	$	2,139	$	—	$	2,139
Total liabilities at fair value	$	—	$	55	$	—	$	55	Total liabilities at fair value	$	—	$	2,139	$	—	$	2,139

⁽¹⁾ Currency and interest rate 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.


6.	~~DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES~~

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As part of our financial risk management program, we use certain derivative financial instruments. We do not enter into derivative transactions for speculative purposes and, therefore, we do not hold noany 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 fair value of derivatives designated and not designated as hedging instruments in the condensed consolidated balance sheet are as follows:


(in thousands)	December 31, 2020		June 30, 2020
Derivatives designated as hedging instruments
Other current assets - range forward contracts	$	1,911	$	4

Other assets - forward starting interest rate swap contracts	3,879		20
Other liabilities - forward starting interest rate swap contracts	0		(2,094)
Total derivatives designated as hedging instruments	5,790		(2,070)
Derivatives not designated as hedging instruments
Other current assets - currency forward contracts	31		12
Other current liabilities - currency forward contracts	(3)		(45)
Total derivatives not designated as hedging instruments	28		(33)
Total derivatives	$	5,818	$	(2,103)

(in thousands)
March 31, 2020
June 30,
2019
Derivatives designated as hedging instruments
Other current assets - range forward contracts $ 170
$ 145
Other assets - forward starting interest rate swap contracts 89
—
Other liabilities - forward starting interest rate swap contracts (1,614 ) —
Total derivatives designated as hedging instruments (1,355 ) 145
Derivatives not designated as hedging instruments
Other current assets - currency forward contracts 30
8
Other current liabilities - currency forward contracts (264 ) (56 )
Total derivatives not designated as hedging instruments (234 ) (48 )
Total derivatives $ (1,589 ) $ 97

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Certain currency forward contracts that hedge significant cross-border intercompany loans are considered as other derivatives and therefore do not qualify for hedge accounting. These contracts are recorded at fair value in the condensed consolidated balance sheet, with the offset to other income, net. ~~Losses (gains)~~(Gains) losses 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 December 31,				Six Months Ended December 31,
(in thousands)	2020		2019			2020		2019		(in thousands)	2020		2019		2020		2019
Other income, net - currency forward contracts	$	220	$	(11	)	$	231	$	65	Other income, net - currency forward contracts	$	(2,127)	$	(1)	$	(1,409)	$	112

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~~KENNAMETAL INC.~~

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

CASH FLOW HEDGES

~~Range~~Currency forward contracts and 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~~Unrealized gains and losses ~~realized on~~related to these contracts are recorded in accumulated other comprehensive loss and are recognized as a component of cost of goods sold and other income, net when the underlying sale of products or services is recognized into earnings. ~~The~~All contracts expired as of December 31, 2020, and the notional amount of the contracts translated into U.S. dollars at ~~March 31, 2020~~ ~~and~~ June 30, ~~2019~~2020 was ~~$12.1 million and $61.5 million, respectively.~~$2.2 million. 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, 2020, we expect to recognize into earnings $0.1 million of income on outstanding derivatives in the next 12 months.~~

During ~~the third quarter of~~ fiscal 2020, we entered into forward starting interest rate swap contracts to hedge a portion of the interest rate risk related to our anticipated refinancing of ~~the~~our Senior Unsecured Notes due in fiscal 2022. We recorded the fair value of these contracts as an asset or a liability, as applicable, in the balance sheet, with the offset to accumulated other comprehensive ~~income,~~loss, net of tax. The notional amount of the contracts at ~~March~~December 31, 2020 and June 30, 2020 was $200.0 million. AsWe recorded assets of ~~March~~$3.9 million as of December 31, 2020 ~~we recorded an asset~~and $2.1 million of ~~$0.1 million and a liability~~liabilities as of ~~$1.6 million on these contracts, the net effect of which was recorded as a decrease to other comprehensive income, net of tax.~~

~~The following represents gains and losses~~June 30, 2020 related to ~~cash flow hedges:~~these contracts.

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2020 2019 2020 2019
(Losses) gains recognized in other comprehensive (loss) income, net $ (999 ) $ 695
$ (143 ) $ 603
Losses reclassified from accumulated other comprehensive loss into cost of goods sold and other income, net $ 457
$ 403
$ 1,007
$ 1,500

NaN portion of the gains or losses recognized in earnings was due to hedge ineffectiveness and 0 amounts were excluded from our effectiveness testing for the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019.

NET INVESTMENT HEDGES

As of ~~March~~December 31, 2020, and June 30, 2020, we had certain foreign currency-denominated intercompany loans payable with total aggregate principal amounts of ~~€42.5~~€15.9 million designated as net investment hedges to hedge the foreign exchange exposure of our net investment in our Euro-based subsidiaries. ~~We recorded gains~~The notional value of ~~$1.1~~the contract, which has a maturity date of June 26, 2022 and includes principal and accrued interest, was €16.2 million, or $19.9 million, as of December 31, 2020. Losses of $0.8 million and ~~$2.3~~$1.2 million were recorded as a component of foreign currency translation adjustments in other comprehensive ~~(loss)~~ income for the three months ended ~~March~~December 31, 2020 and 2019, respectively. ~~We recorded gains~~Losses of ~~$1.0~~$1.4 million and ~~$2.8~~$0.1 million were recorded as a component of foreign currency translation adjustments in other comprehensive ~~loss~~income (loss) for the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019, respectively.

~~As of~~ 6.~~March 31, 2020, the foreign currency-denominated intercompany loans payable designated as net investment hedges consisted of:~~RESTRUCTURING AND RELATED CHARGES

Instrument
Notional (EUR in thousands)⁽²⁾
Notional (USD in thousands)⁽²⁾
Maturity
Foreign currency-denominated intercompany loan payable € 28,727
$ 31,517
June 26, 2022
Foreign currency-denominated intercompany loan payable 20,091
22,043
November 22, 2021

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


7.	~~RESTRUCTURING AND RELATED CHARGES~~

FY20 Restructuring Actions

In the June quarter of fiscal 2019, we ~~began implementing~~implemented, and in fiscal 2020 substantially completed, the ~~current phase of restructuring~~FY20 Restructuring Actions associated with our simplification/modernization ~~initiative. These actions are expected~~initiative to reduce structural costs, improve operational efficiency and position us for long-term profitable growth. ~~These actions are expected to be completed in fiscal 2020 and are expected to be primarily cash expenditures.~~

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~~KENNAMETAL INC.~~

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

~~The pre-tax charges for these programs are expected to be in the range of $55 million to $60 million, which are expected to be 80 percent Industrial, 15 percent Infrastructure and 5 percent Widia.~~ Total restructuring and related charges since inception of ~~$50.0~~$54.8 million were recorded for this program through ~~March~~December 31, 2020, consisting of: ~~$40.6~~$46.5 million in ~~Industrial; $7.2~~Metal Cutting and $8.3 million in ~~Infrastructure; and $2.2 million in Widia.~~Infrastructure.

FY21 Restructuring Actions

~~On July 11, 2019,~~In the September quarter of fiscal 2020, we announced the initiation of restructuring actions in Germany associated with our simplification/modernization initiative, which are expected to reduce structural costs. ~~We have agreed with local employee representatives to downsize our Essen, Germany operations instead of the previously proposed closure. We are~~Subsequently, we also ~~evaluating~~announced the acceleration of ~~other facility closures as part~~our structural cost reduction plans including the closing of ~~these restructuring activities. These actions are expected to be completed by~~ the ~~end of fiscal 2021 and are expected to be primarily cash expenditures.~~

~~The~~Johnson City, Tennessee facility. Expected pre-tax charges for ~~these programs~~the FY21 Restructuring Actions are ~~expected to be in the range of $55~~$90 million to ~~$65 million, which is expected to be primarily in the Industrial segment.~~$100 million. Total restructuring and related charges since inception of ~~$28.8~~$74.7 million were recorded for this program through ~~March~~December 31, 2020, ~~all~~consisting of: $68.5 million in Metal Cutting and $6.2 million in Infrastructure. The majority of ~~which were recorded in~~ the ~~Industrial~~remaining charges related to the FY21 Restructuring Actions are expected to be within the Metal Cutting segment.

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Restructuring and Related Charges Recorded

We recorded restructuring and related charges of ~~$5.8~~$4.2 million, of which $3.5 million was in Metal Cutting and ~~$3.7~~$0.7 million was in Infrastructure, and $51.3 million for the three months ended ~~March~~December 31, 2020 and 2019, respectively. Of these amounts, restructuring charges totaled $1.8 million, ~~and $2.6 million for the three months ended March 31, 2020 and 2019, respectively,~~ of which ~~$0.2~~$0.4 million ~~were related to inventory and were recorded~~is included in cost of goods sold, for the three months ended ~~March~~December 31, 2020 and $48.0 million, of which $0.3 million was included in cost of goods sold, for the three months ended December 31, 2019. Restructuring-related charges of ~~$4.0~~$2.4 million and ~~$0.9~~$3.3 million were recorded in cost of goods sold for the three months ended ~~March~~December 31, 2020 and 2019, respectively. ~~Restructuring-related charges of $0.1 million were recorded in operating expense for the three months ended March 31, 2019.~~

We recorded restructuring and related charges of ~~$65.1~~$32.9 million, of which $29.5 million was in Metal Cutting and ~~$6.8~~$3.3 million was in Infrastructure, and $59.3 million for the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019, respectively. Of these amounts, restructuring charges totaled ~~$54.5~~$27.4 million, ~~and $5.3 million for the nine months ended March 31, 2020 and 2019, respectively,~~ of which ~~$0.6~~$0.4 million ~~and $0.2 million were related to inventory and were recorded~~is included in cost of goods sold, for the ~~nine~~six months ended ~~March~~December 31, 2020 and ~~2019, respectively.~~$52.7 million, of which $0.3 million was included in cost of goods sold, for the six months ended December 31, 2019. Restructuring-related charges of ~~$10.6~~$5.5 million and ~~$1.4~~$6.6 million were recorded in cost of goods sold for the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019, respectively. ~~Restructuring-related charges of $0.1 million were recorded in operating expense for the nine months ended March 31, 2019.~~

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~~KENNAMETAL INC.~~

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

As of ~~March~~December 31, 2020, ~~$24.7~~$36.2 million and ~~$16.2~~$16.9 million of the restructuring accrual iswas recorded in other current liabilities and other liabilities, respectively, in our condensed consolidated balance sheet. ~~The restructuring accrual of $19.2 million as~~As of June 30, ~~2019 is~~2020, $34.9 million and $12.5 million of the restructuring accrual was recorded in other current ~~liabilities.~~liabilities and other liabilities, respectively. The ~~amount attributable to each segment is~~amounts are as follows:


(in thousands)	June 30, 2020		Expense		Asset Write-Down		Translation		Cash Expenditures		December 31, 2020
Severance	$	47,303	$	25,775	$	0	$	5,400	$	(25,382)	$	53,096
Facilities	0		1,602		(1,602)		0		0		0
Other	63		0		0		4		(67)		0
Total	$	47,366	$	27,377	$	(1,602)	$	5,404	$	(25,449)	$	53,096

(in thousands) June 30, 2019 Expense Asset Write-Down Translation Cash Expenditures March 31, 2020
Industrial
Severance $ 8,863
$ 49,455
$ —
$ (780 ) $ (25,413 ) $ 32,125
Facilities —
1,857
(1,857 ) —
—
—
Other 35
4
—
(1 ) (22 ) 16
Total Industrial $ 8,898
$ 51,316
$ (1,857 ) $ (781 ) $ (25,435 ) $ 32,141

Widia
Severance $ 2,306
$ 342
$ —
$ (28 ) $ (321 ) $ 2,299
Facilities —
41
(41 ) —
—
—
Other 24
—
—
—
—
24
Total Widia $ 2,330
$ 383
$ (41 ) $ (28 ) $ (321 ) $ 2,323

Infrastructure
Severance $ 7,956
$ 2,053
$ —
$ (313 ) $ (3,225 ) $ 6,471
Facilities —
758
(758 ) —
—
—
Other 28
2
—
(1 ) (5 ) 24
Total Infrastructure $ 7,984
$ 2,813
$ (758 ) $ (314 ) $ (3,230 ) $ 6,495
Total $ 19,212
$ 54,512
$ (2,656 ) $ (1,123 ) $ (28,986 ) $ 40,959

7. STOCK-BASED COMPENSATION


8.	~~STOCK-BASED COMPENSATION~~

Stock Options

Changes in our stock options for the ~~nine~~six months ended ~~March~~December 31, 2020 were as follows:

Options
Weighted
Average
Exercise Price
Weighted Average Remaining Life (years)
Aggregate
Intrinsic value
(in thousands)
Options outstanding, June 30, 2019 781,673
$ 33.92

Exercised (34,525 ) 26.62

Lapsed or forfeited (42,544 ) 43.30

Options outstanding, March 31, 2020 704,604
$ 33.71
2.8 $ —
Options vested, March 31, 2020 704,604
$ 33.71
2.8 $ —
Options exercisable, March 31, 2020 704,604
$ 33.71
2.8 $ —


	Options	Weighted Average Exercise Price		Weighted Average Remaining Life (years)	Aggregate Intrinsic value (in thousands)
Options outstanding, June 30, 2020	646,959	$	33.60

Exercised	(154,912)	20.95
Lapsed or forfeited	(32,514)	42.70
Options outstanding, December 31, 2020	459,533	$	37.22	3.0	$	994
Options vested, December 31, 2020	459,533	$	37.22	3.0	$	994
Options exercisable, December 31, 2020	459,533	$	37.22	3.0	$	994

As of ~~March~~December 31, 2020 and June 30, 2020, there was no0 unrecognized compensation cost related to options ~~outstanding.~~

~~All~~outstanding, and all options were fully vested as of ~~March 31, 2020. Fair value of options vested during the nine months ended March 31, 2019 was $1.2 million.~~

Tax benefits relating to excess stock-based compensation deductions are presented in the operating activities section of the condensed consolidated statements of cash flow for the nine months ended MarchDecember 31, 2020 and 2019. Tax benefits resulting from stock-based compensation deductions were greater than the amounts reported for financial reporting purposes by $0.2 million and $1.3 million for the nine months ended March 31, 2020 and 2019, respectively.

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~~KENNAMETAL INC.~~

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

The amount of cash received from the exercise of options during the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019 was ~~$0.7~~$3.1 million and ~~$4.2~~$0.7 million, respectively. The total intrinsic value of options exercised was $1.6 million and $0.3 million during the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019, ~~was $0.3 million and $1.9 million,~~ respectively.

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Restricted Stock Units – Performance Vesting and Time Vesting

Changes in our performance vesting and time vesting restricted stock units for the ~~nine~~six months ended ~~March~~December 31, 2020 were as follows:


										Performance Vesting Stock Units	Performance Vesting Weighted Average Fair Value		Time Vesting Stock Units	Time Vesting Weighted Average Fair Value
	Performance Vesting Stock Units		Performance Vesting Weighted Average Fair Value		Time Vesting Stock Units		Time Vesting Weighted Average Fair Value
Unvested, June 30, 2019	405,230		$	35.58	926,927		$	36.43
Unvested, June 30, 2020									Unvested, June 30, 2020	554,633	$	34.26	1,039,695	$	32.48
Granted	275,216		28.74		633,902		27.95		Granted	220,876	33.49		917,716	31.82
Vested	(146,377	)	27.09		(459,783	)	33.93		Vested	(73,880)	47.45		(451,338)	34.08
Performance metric adjustments, net	32,707		32.79		—		—		Performance metric adjustments, net	(100,000)	32.92		0	0
Forfeited	(12,143	)	35.51		(43,776	)	32.40		Forfeited	(73,136)	33.14		(98,125)	31.37
Unvested, March 31, 2020	554,633		$	34.26	1,057,270		$	32.60
Unvested, December 31, 2020									Unvested, December 31, 2020	528,493	$	32.50	1,407,948	$	31.62

During the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019, compensation expense related to time vesting and performance vesting restricted stock units was ~~$13.7~~$12.3 million and ~~$18.0~~$13.4 million, respectively. Certain performance metrics related to fiscal 2020 were not met, resulting in an adjustment of 100,000 performance vesting stock units during the six months ended December 31, 2020. As of ~~March~~December 31, 2020, the total unrecognized compensation cost related to unvested time vesting and performance vesting restricted stock units was ~~$22.2~~$34.0 million and is expected to be recognized over a weighted average period of ~~2.0~~2.2 years.


9.	~~PENSION AND OTHER POSTRETIREMENT BENEFITS~~

8.PENSION AND OTHER POSTRETIREMENT BENEFITS

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

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2020 2019 2020 2019
Service cost $ 452
$ 406
$ 1,346
$ 1,224
Interest cost 6,848
7,979
20,504
23,939
Expected return on plan assets (13,539 ) (13,456 ) (40,491 ) (40,352 )
Amortization of transition obligation 23
23
67
68
Amortization of prior service cost (credit) 13
(5 ) 38
(15 )
Recognition of actuarial losses 2,597
1,682
7,777
5,056
Settlement gain —
—
(122 ) —
Net periodic pension income $ (3,606 ) $ (3,371 ) $ (10,881 ) $ (10,080 )


	Three Months Ended December 31,				Six Months Ended December 31,
(in thousands)	2020		2019		2020		2019
Service cost	$	419	$	445	$	836	$	895
Interest cost	5,783		6,832		11,557		13,656
Expected return on plan assets	(13,365)		(13,496)		(26,711)		(26,952)
Amortization of transition obligation	23		22		45		44
Amortization of prior service cost	8		13		17		25
Recognition of actuarial losses	3,386		2,585		6,758		5,180
Settlement gain	0		0		0		(122)

Net periodic pension income	$	(3,746)	$	(3,599)	$	(7,498)	$	(7,274)

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


	Three Months Ended December 31,				Six Months Ended December 31,
(in thousands)	2020		2019		2020		2019

Interest cost	$	76	$	101	$	153	$	202
Amortization of prior service credit	(69)		(69)		(138)		(138)
Recognition of actuarial loss	77		64		154		128
Net periodic other postretirement benefit cost	$	84	$	96	$	169	$	192

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2020 2019 2020 2019
Interest cost $ 101
$ 153
$ 303
$ 460
Amortization of prior service credit (69 ) (22 ) (207 ) (68 )
Recognition of actuarial loss 64
62
193
186
Net periodic other postretirement benefit cost $ 96
$ 193
$ 289
$ 578

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

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.INVENTORIES


~~10.~~	~~INVENTORIES~~

We used the last-in, first-out (LIFO) method of valuing inventories for 4340 percent and 4143 percent of total inventories at ~~March~~December 31, 2020 and June 30, ~~2019,~~2020, respectively. Inventory valuations under the LIFO method are based on an annual determination of quantities and costs as of June 30 of each year; therefore, the interim LIFO valuations are based on our projections of expected year-end inventory levels and costs and are subject to any final year-end LIFO inventory adjustments.

Inventories consisted of the following:


(in thousands)	December 31, 2020		June 30, 2020
Finished goods	$	316,120	$	318,071
Work in process and powder blends	180,032		190,041
Raw materials	64,915		75,589
Inventories at current cost	561,067		583,701
Less: LIFO valuation	(63,843)		(61,254)
Total inventories	$	497,224	$	522,447

(in thousands) March 31, 2020 June 30, 2019
Finished goods $ 293,990
$ 311,684
Work in process and powder blends 197,991
246,414
Raw materials 89,435
95,620
Inventories at current cost 581,416
653,718
Less: LIFO valuation (64,635 ) (82,142 )
Total inventories $ 516,781
$ 571,576

10.LONG-TERM DEBT AND REVOLVING AND OTHER LINES OF CREDIT

AtDuring the ~~inception of our contracts~~three months ended September 30, 2020, we ~~determine if~~entered into the ~~contract is or contains a lease. A contract is or contains a lease if it conveys~~First Amendment (the Amendment) to the ~~right to control the use of an identified asset for a period of time in exchange for consideration. ROU assets~~Fifth Amended and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement. For leases that do not have a readily determinable implicit rate, we use a discount rate based on our incremental borrowing rate, which is determined considering factors such as the lease term, our credit rating and the economic environment of the location of the leaseRestated Credit Agreement dated as of June 21, 2018, (as amended by the ~~commencement date.~~

~~We account for non-lease components separately from lease components. These costs often relate to~~Amendment, the ~~payments for~~Credit Agreement). The Credit Agreement is a proportionate share of real estate taxes, insurance, common area maintenance and other operating costs in addition to base rent. We also do not recognize ROU assets and liabilities for leases with an initial term of 12 months or less. Lease costs associated with leases of less than 12 months were $1.6 million and $5.8 million for the three and nine months ended March 31, 2020, respectively.

As a lessee, we have various operating lease agreements primarily related to real estate, vehicles and office and plant equipment. Our real estate leases, which are comprised primarily of manufacturing, warehousing, office and administration facilities, represent a majority of our lease liability. Our lease payments are largely fixed. Any variable lease payments, including utilities, common area maintenance and repairs and maintenance, are expensed during the period incurred. Variable lease costs were immaterial for the three and nine months ended March 31, 2020. A majority of our real estate leases include options to extend the lease and options to early terminate the lease. Leases with an early termination option generally involve a termination payment. We review all options to extend, terminate, or purchase the ROU assets at the inception of the lease and account for these options when they are reasonably certain of being exercised. Our lease agreements generally do not contain any material residual value guarantees or materially restrictive covenants. We do not have any material leases that have been signed but not commenced, and we did not have any lease transactions with related parties.

~~The weighted average remaining lease term and discount rate for our operating leases were approximately 8.7 years and 3.3 percent, respectively, at March 31, 2020.~~

Operating lease expense is recognized on a straight-line basis over the lease term and is included in operating expense on our consolidated statement of income. Operating lease cost was $4.2 million and $12.3 million for the three and nine months ended March 31, 2020, respectively.

~~The following table sets forth supplemental cash flow information related to our operating leases:~~

(in thousands) Nine Months Ended March 31, 2020
Operating cash flows from operating leases $ 12,181
ROU assets obtained in exchange for new operating lease liabilities $ 7,064

~~Table of Contents~~

~~KENNAMETAL INC.~~

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

The following table sets forth the maturities of our operating lease liabilities and reconciles the respective undiscounted payments to the operating lease liabilities in the condensed consolidated balance sheet as of March 31, 2020:

Year Ended June 30,
(in thousands) March 31, 2020
Remaining three months of 2020 $ 3,695
2021 12,989
2022 9,225
2023 6,083
2024 4,089
Thereafter 18,880
Total undiscounted operating lease payments $ 54,961
Less: discount to net present value 7,736
Total operating lease liabilities $ 47,225

~~The following table sets forth the future minimum lease payments for non-cancelable operating leases as of the year ended June 30, 2019:~~

Year Ended June 30,
(in thousands)
June 30, 2019
2020 $ 17,074
2021 12,212
2022 6,693
2023 4,294
2024 2,636
Thereafter 17,168
Total future minimum lease payments $ 60,077

~~Our~~ five-year, multi-currency, revolving credit facility and we use it to augment cash from operations and as ~~amended and restated in June 2018 (Credit Agreement),~~an additional source of funds. The Credit Agreement provides for revolving credit loans of up to ~~$700~~$700.0 million for working capital, capital expenditures and general corporate purposes. The Credit Agreement allows for borrowings in U.S. dollars, euros, Canadian dollars, pounds sterling and Japanese yen. Interest payable under the Credit Agreement is based upon the type of borrowing under the facility and may be (1) 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 June 2023.

The Credit Agreement requires us to comply with various restrictive and affirmative covenants, including two financial covenants: (1) a maximum leverage ratio where debt, net of domestic cash in excess of $25 million and, as added by the Amendment, sixty percent of the unrestricted cash held outside of the United States, must be less than or equal to 3.5 times trailing twelve months EBITDA (temporarily increased by the Amendment to 4.25 times trailing twelve months EBITDA during the period from September 30, 2020 through and including December 31, 2021), adjusted for certain non-cash expenses and which may be further adjusted, at our discretion, to include up to $120 million (increased from $80 million pursuant to the Amendment) of cash restructuring charges through December 31, 2021; and (2) a minimum consolidated interest coverage ratio of EBITDA to interest of 3.5 times (as the aforementioned terms are defined in the Credit Agreement). ~~We were in compliance with all such covenants as of~~ ~~March 31, 2020~~ and we expect to maintain compliance over the next 12 months. The Company reached this conclusion after considering the information currently available to us, including the anticipated effect of the Coronavirus 2019 (COVID-19) pandemic on the macroeconomic environment. Because the extent and duration of COVID-19 is unknown, its effect on the Company’s business, financial condition, operating results and cash flows is uncertain, and therefore it could adversely affect availability under the Credit Agreement.

~~We had $4.5 million of borrowings outstanding under the Credit Agreement as of~~ ~~March 31, 2020, and we had 0 borrowings outstanding as of June 30, 2019.~~ Borrowings under the Credit Agreement are guaranteed by our significant domestic subsidiaries. ~~The Credit Agreement matures in June 2023.~~

~~Subsequent to March~~As of December 31, 2020, we ~~drew~~were in compliance with all covenants of the Credit Agreement and we had $24.5 million of borrowings outstanding and $675.5 million of additional availability. There were $500.0 million ~~under the Credit Agreement. We decided to draw this $500.0 million~~of borrowings outstanding as ~~a measure to ensure access to future liquidity in light~~ of ~~the global financial market uncertainty resulting from the COVID-19 pandemic.~~

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company continues to assess the expected conditions in its primary end markets, including the effects of COVID-19 on the Company’s business, financial condition, operating results and cash flows. Because the extent and duration of the COVID-19 pandemic are uncertain, the effects of the pandemic could materially affect our availability to borrow under the Credit Agreement and our compliance with the maximum leverage ratio covenant of the Credit Agreement. To offset some of the uncertainty related to COVID-19, we obtained an Amendment to the Credit Agreement during the first quarter of fiscal 2021, as described above. We expect to access the capital markets to refinance the $300 million 3.875 percent Senior Unsecured Notes due February 2022 during the current fiscal year. In the event that a refinancing does not occur before the February 2022 maturity date, management believes that the Company will have the ability to repay the February 2022 Notes with projected cash on hand and availability under the Credit Agreement. However, the Company can provide no assurance of this due in part, but not limited to, the uncertainty surrounding the COVID-19 pandemic. If over the course of the next year, market conditions do not improve or further deteriorate, the Company may need to take one or a combination of the following additional actions to ensure the Company has adequate access to liquidity and remains in compliance with the maximum leverage ratio covenant of the Credit Agreement, both of which are within the Company’s control: implement additional short-term cost-control actions and undertake new restructuring programs. We have concluded that we will remain in compliance with the covenants of the Credit Agreement and, as a result, will have adequate access to liquidity to satisfy our obligations within one year after the date the financial statements are issued.

Fixed rate debt had a fair market value of ~~$623.1~~$643.5 million and ~~$622.0~~$630.2 million at ~~March~~December 31, 2020 and June 30, ~~2019,~~2020, respectively. The Level 2 fair value is determined based on the quoted market prices for similar debt instruments as of ~~March~~December 31, 2020 and June 30, ~~2019,~~2020, respectively.

11.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.

We establish and maintain ~~reserves~~accruals for certain potential environmental liabilities. At ~~March~~December 31, 2020, the balance of these accruals was $15.0 million, of which $2.6 million was current. At June 30, 2020, the balance was $15.6 million, of which $6.1 million was current. The balances as of December 31, and June 30, ~~2019,~~2020 include the ~~balances~~Company’s resolution of ~~these reserves were $11.8 million~~an environmental indemnity claim against the seller of a prior acquisition for which receivables are also recorded in other current and ~~$12.4 million, respectively.~~long-term assets. These ~~reserves~~accruals represent anticipated costs associated with potential remedial requirements and are generally not discounted.

The ~~reserves~~accruals we have established for potential 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 United States Environmental Protection Agency (USEPA), other governmental agencies and by the Potentially Responsible Party (PRP) groups in which we are participating. Although our ~~reserves~~accruals currently appear to be sufficient to cover these potential 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~~accrued liabilities for all environmental concerns could change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, technological changes, discovery of new information, the financial strength of other PRPs, the identification of new PRPs and the involvement of and direction taken by the government on these matters.

Superfund Sites Among other environmental laws, we are subject to the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA), under which we have been designated by the USEPA as a 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.

~~Effective tax rates~~

The effective income tax rates for the three months ended ~~March~~December 31, 2020 and 2019 were ~~93.1~~39.0 percent (benefit on income) and ~~11.0~~87.9 percent (benefit on a loss), respectively. The year-over-year change is primarily due to the effects of changes in projected pretax income in both periods, lower projected pre-tax income in the current year ~~restructuring~~ and ~~the Widia goodwill and other intangible asset impairment charges.~~geographical mix. The prior year rate included ~~a $6.8 million discrete benefit to adjust the Toll Tax charge based on regulations issued during the March quarter of fiscal 2019.~~

~~The effective income tax rates for the nine months ended~~ ~~March 31, 2020~~ and 2019 were 143.5 percent (benefit on a loss) and 20.1 percent (provision on income), respectively. The year-over-year change is primarily due to the change in the jurisdictional mix caused by expected restructuring and related charges, the Widia goodwill and other intangible asset impairment charges, a discrete $14.5 million benefit for the one-time effect of Swiss tax reform and the increase in global intangible low-taxed income (GILTI) and base erosion anti-abuse tax (BEAT). The prior year rate included a $9.7 million discrete benefit associated with tax reform and a $6.1 million charge related to changes ineffects from the ~~indefinite reinvestment assertion on certain foreign subsidiaries' undistributed earnings.~~

~~Coronavirus Aid, Relief, and Economic Security Act (CARES Act)~~

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, allows net operating losses arising in taxable years beginning after December 31, 2017 and before January 1, 2021 to be carried back to eachimpairment of the 5 preceding taxable years to generate a refund of previously paid income taxes; permits net operating loss carryovers and carrybacks to offset 100 percent of taxable income for taxable years beginning before January 1, 2021; and modifies the limitation on business interest by increasing the allowable business interest deduction from 30 percent of adjusted taxable income to 50 percent of adjusted taxable income for taxable years beginning in 2019 or 2020. We are currently in the process of evaluating the potential impact these provisions may have on the Company.

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The effective income tax rates for the six months ended December 31, 2020 and 2019 were 93.3 percent (benefit on a loss) and 102.9 percent (benefit on a loss), respectively. The year-over-year change is primarily due to the effects of lower projected pre-tax income in the current period and geographical mix. The prior year rate included a discrete $14.5 million benefit for the one-time effect of Swiss tax reform and the effects from the impairment of Widia goodwill.

Legislation was effectively enacted during the ~~nine~~three months ended ~~March~~December 31, ~~2020~~2019 when the Canton of Schaffhausen approved the Federal Act on Tax Reform and AHV Financing on October 8, 2019 (Swiss tax reform). Significant changes from Swiss tax reform include the abolishment of certain favorable tax regimes and the creation of a ten-year transitional period at both the federal and cantonal levels.

The transitional provisions of Swiss tax reform allow companies to utilize a combination of lower tax rates and tax basis adjustments to fair value, which are used for tax depreciation and amortization purposes resulting in deductions over the transitional period. To reflect the federal and cantonal transitional provisions, as they apply to us, we recorded a deferred tax asset of $14.5 million during the three months ended December 31, 2019. We consider the deferred tax asset from Swiss tax reform to be an estimate based on our current interpretation of the legislation, which is subject to change based on further legislative guidance, review with the Swiss federal and cantonal authorities and modifications to the underlying valuation. We expect such reviews with the relevant tax authorities will be finalized during the current fiscal year. There have been no material changes to the recorded deferred tax asset since inception.

13.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.

During the three months ended December 31, 2019 and the six months ended December 31, 2020, 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.

The following ~~tables provide~~table provides the computation of diluted shares outstanding for the three ~~and nine~~ months ended ~~March~~December 31, 2020 and the six months ended December 31, 2019:

Three Months Ended March 31,
Nine Months Ended
March 31,
(in thousands) 2020 2019 2020 2019
Weighted-average shares outstanding during period 83,106
82,479
83,022
82,305
Add: Unexercised stock options and unvested restricted stock units 590
860
567
961
Number of shares on which diluted earnings per share is calculated 83,696
83,339
83,589
83,266
Unexercised stock options with an exercise price greater than the average market price and restricted stock units not included in the computation because they were anti-dilutive 646
515
833
423

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


~~16.~~			~~EQUITY~~

A summary of the changes in the carrying amounts of total equity, Kennametal Shareholders’ equity and equity attributable to noncontrolling interests for the three months ending ~~March~~December 31, 2020 and 2019 is as follows:


	Kennametal Shareholders’ Equity
(in thousands, except per share amounts)	Capital stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interests		Total equity
Balance as of September 30, 2020	$	104,064	$	540,374	$	966,596	$	(385,648)	$	40,996	$	1,266,382
Net income	—		—		19,388		—		862		20,250
Other comprehensive income	—		—		—		43,417		1,357		44,774
Dividend reinvestment	2		48		—		—		—		50
Capital stock issued under employee benefit and stock plans(2)	266		7,691		—		—		—		7,957
Purchase of capital stock	(2)		(48)		—		—		—		(50)
Cash dividends ($0.20 per share)	—		—		(16,683)		—		—		(16,683)
Cash dividends to non-controlling interests	—		—		—		—		(1,361)		(1,361)
Other	—		(311)		—		—		(1,319)		(1,630)

Total equity, December 31, 2020	$	104,330	$	547,754	$	969,301	$	(342,231)	$	40,535	$	1,319,689


	Kennametal Shareholders’ Equity
(in thousands, except per share amounts)	Capital stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interests		Total equity
Balance as of September 30, 2019	$	103,542	$	530,695	$	1,066,763	$	(402,434)	$	39,084	$	1,337,650
Net loss	—		—		(5,939)		—		(290)		(6,229)
Other comprehensive income	—		—		—		24,215		538		24,753
Dividend reinvestment	2		50		—		—		—		52
Capital stock issued under employee benefit and stock plans(2)	76		5,827		—		—		—		5,903
Purchase of capital stock	(2)		(50)		—		—		—		(52)
Additions to noncontrolling interest	—		—		—		—		1,527		1,527
Cash dividends ($0.20 per share)	—		—		(16,577)		—		—		(16,577)
Total equity, December 31, 2019	$	103,618	$	536,522	$	1,044,247	$	(378,219)	$	40,859	$	1,347,027

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 December 31, 2019 $ 103,618
$ 536,522
$ 1,044,247
$ (378,219 ) $ 40,859
$ 1,347,027
Net income (loss) —
—
2,917
—
(676 ) 2,241
Other comprehensive loss —
—
—
(31,978 ) (1,983 ) (33,961 )
Dividend reinvestment 2
50
—
—
—
52
Capital stock issued under employee benefit and stock plans⁽³⁾
24
74
—
—
—
98
Purchase of capital stock (2 ) (50 ) —
—
—
(52 )
Cash dividends —
—
(16,582 )

—
(16,582 )
Total equity, March 31, 2020 $ 103,642
$ 536,596
$ 1,030,582
$ (410,197 ) $ 38,200
$ 1,298,823

Table of Contents

KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 December 31, 2018 $ 102,700
$ 522,413
$ 979,259
$ (334,632 ) $ 38,544
$ 1,308,284
Net income —
—
68,550
—
1,578
70,128
Other comprehensive income —
—
—
992
34
1,026
Dividend reinvestment 2
52
—
—
—
54
Capital stock issued under employee benefit and stock plans⁽³⁾
258
2,029
—
—
—
2,287
Purchase of capital stock (2 ) (52 ) —
—
—
(54 )
Additions to noncontrolling interest —
—
—
—
443
443
Cash dividends —
—
(16,448 ) —
(315 ) (16,763 )
Total equity, March 31, 2019 $ 102,958
$ 524,442
$ 1,031,361
$ (333,640 ) $ 40,284
$ 1,365,405

A summary of the changes in the carrying amounts of total equity, Kennametal Shareholders’ equity and equity attributable to noncontrolling interests for the ~~nine~~six months ending ~~March~~December 31, 2020 and 2019 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, 2019 $ 103,026
$ 528,827
$ 1,076,862
$ (373,543 ) $ 39,532
$ 1,374,704
Net income (loss) —
—
3,445
—
(23 ) 3,422
Other comprehensive loss —
—
—
(36,654 ) (2,836 ) (39,490 )
Dividend reinvestment 6
151
—
—
—
157
Capital stock issued under employee benefit and stock plans⁽³⁾
616
7,769
—
—
—
8,385
Purchase of capital stock (6 ) (151 ) —
—
—
(157 )
Additions to noncontrolling interest —
—
—
—
1,527
1,527
Cash dividends —
—
(49,725 ) —
—
(49,725 )
Total equity, March 31, 2020 $ 103,642
$ 536,596
$ 1,030,582
$ (410,197 ) $ 38,200
$ 1,298,823

~~Table of Contents~~

~~KENNAMETAL INC.~~

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

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, 2018 $ 102,058
$ 511,909
$ 900,683
$ (320,325 ) $ 36,002
$ 1,230,327
Net income —
—
179,946
—
4,852
184,798
Other comprehensive loss —
—
—
(13,315 ) (698 ) (14,013 )
Dividend reinvestment 5
156
—
—
—
161
Capital stock issued under employee benefit and stock plans⁽³⁾
900
12,533
—
—
—
13,433
Purchase of capital stock (5 ) (156 ) —
—
—
(161 )
Additions to noncontrolling interest —
—
—
—
443
443
Cash dividends —
—
(49,268 ) —
(315 ) (49,583 )
Total equity, March 31, 2019 $ 102,958
$ 524,442
$ 1,031,361
$ (333,640 ) $ 40,284
$ 1,365,405


	Kennametal Shareholders’ Equity
(in thousands, except per share amounts)	Capital stock			Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interests		Total equity
Balance as of June 30, 2020	$	103,654		$	538,575	$	1,004,898	$	(417,242)	$	38,903	$	1,268,788
Net (loss) income	—			—		(2,287)		—		1,677		(610)
Other comprehensive income	—			—		—		75,011		2,635		77,646
Dividend reinvestment	4		—	97		—		—		—		101
Capital stock issued under employee benefit and stock plans(2)	676			9,490		—		—		—		10,166
Purchase of capital stock	(4)			(97)		—		—		—		(101)
Cash dividends ($0.40 per share)	—			—		(33,310)		—		—		(33,310)
Cash dividends to non-controlling interests	—			—		—		—		(1,361)		(1,361)
Other	—			(311)		—		—		(1,319)		(1,630)

Total equity, December 31, 2020	$	104,330		$	547,754	$	969,301	$	(342,231)	$	40,535	$	1,319,689


	Kennametal Shareholders’ Equity
(in thousands, except per share amounts)	Capital stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interests		Total equity
Balance as of June 30, 2019	$	103,026	$	528,827	$	1,076,862	$	(373,543)	$	39,532	$	1,374,704
Net income	—		—		528		—		653		1,181
Other comprehensive loss	—		—		—		(4,676)		(853)		(5,529)
Dividend reinvestment	4		102		—		—		—		106
Capital stock issued under employee benefit and stock plans(2)	592		7,695		—		—		—		8,287
Purchase of capital stock	(4)		(102)		—		—		—		(106)
Additions to noncontrolling interest	—		—		—		—		1,527		1,527
Cash dividends ($0.40 per share)	—		—		(33,143)		—		—		(33,143)
Total equity, December 31, 2019	$	103,618	$	536,522	$	1,044,247	$	(378,219)	$	40,859	$	1,347,027

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

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

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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

15. ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of, and changes in, accumulated other comprehensive loss (AOCL) were as follows, net of tax, for the ~~nine~~six months ended ~~March~~December 31, 2020:

(in thousands) Pension and other postretirement benefits Currency translation adjustment Derivatives Total
Attributable to Kennametal:
Balance, June 30, 2019 $ (222,270 ) $ (147,595 ) $ (3,678 ) $ (373,543 )
Other comprehensive income (loss) before reclassifications 2,123
(44,855 ) (144 ) (42,876 )
Amounts reclassified from AOCL 5,916
—
306
6,222
Net current period other comprehensive
income (loss)
8,039
(44,855 ) 162
(36,654 )
AOCL, March 31, 2020 $ (214,231 ) $ (192,450 ) $ (3,516 ) $ (410,197 )

Attributable to noncontrolling interests:
Balance, June 30, 2019 $ —
$ (3,450 ) $ —
$ (3,450 )
Other comprehensive loss before
reclassifications
—
(2,836 ) —
(2,836 )
Net current period other comprehensive loss —
(2,836 ) —
(2,836 )
AOCL, March 31, 2020 $ —
$ (6,286 ) $ —
$ (6,286 )

~~Table of Contents~~

~~KENNAMETAL INC.~~

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

The components of, and changes in, AOCL were as follows, net of tax, for the ~~nine~~six months ended ~~March~~December 31, 2019:

(in thousands) Pension and other postretirement benefits Currency translation adjustment Derivatives Total
Attributable to Kennametal:
Balance, June 30, 2018 $ (187,755 ) $ (127,347 ) $ (5,223 ) $ (320,325 )
Other comprehensive income (loss) before reclassifications 1,246
(20,147 ) 141
(18,760 )
Amounts reclassified from AOCL 3,893
—
1,552
5,445
Net current period other comprehensive
income (loss)
5,139
(20,147 ) 1,693
(13,315 )
AOCL, March 31, 2019 $ (182,616 ) $ (147,494 ) $ (3,530 ) $ (333,640 )

Attributable to noncontrolling interests:
Balance, June 30, 2018 $ —
$ (2,913 ) $ —
$ (2,913 )
Other comprehensive loss before
reclassifications
—
(698 ) —
(698 )
Net current period other comprehensive loss —
(698 ) —
(698 )
AOCL, March 31, 2019 $ —
$ (3,611 ) $ —
$ (3,611 )

~~Reclassifications out of AOCL for the three and nine months ended March 31, 2020 and 2019 consisted of the following:~~

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2020 2019 2020 2019 Affected line item in the Income Statement
Gains and losses on cash flow hedges:
Forward starting interest rate swaps $ 611
$ 588
$ 1,833
$ 1,764
Interest expense
Currency exchange contracts 75
333
(1,428 ) 292
Cost of goods sold and other income, net
Total before tax 686
921
405
2,056

Tax impact (168 ) (226 ) (99 ) (504 ) Provision (benefit) for income taxes
Net of tax $ 518
$ 695
$ 306
$ 1,552

Pension and other postretirement benefits:
Amortization of transition obligations $ 23
$ 23
$ 67
$ 68
Other income, net
Amortization of prior service credit (56 ) (27 ) (169 ) (83 ) Other income, net
Recognition of actuarial losses 2,661
1,744
7,970
5,242
Other income, net
Total before tax 2,628
1,740
7,868
5,227

Tax impact (662 ) (453 ) (1,952 ) (1,334 ) Provision (benefit) for income taxes
Net of tax $ 1,966
$ 1,287
$ 5,916
$ 3,893

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Reclassifications out of AOCL for the three and six months ended December 31, 2020 and 2019 consisted of the following:

The amount of income tax allocated to each component of other comprehensive income (loss) ~~income~~ for the three months ended ~~March~~December 31, 2020 and 2019 were as follows:

2020 2019
(in thousands) Pre-tax Tax impact Net of tax Pre-tax Tax impact Net of tax
Unrealized (loss) gain on derivatives designated and qualified as cash flow hedges $ (1,325 ) $ 325
$ (1,000 ) $ 307
$ (75 ) $ 232
Reclassification of unrealized loss on derivatives designated and qualified as cash flow hedges 686
(168 ) 518
921
(226 ) 695
Unrecognized net pension and other postretirement benefit gain 3,295
(722 ) 2,573
172
(121 ) 51
Reclassification of net pension and other postretirement benefit loss 2,628
(662 ) 1,966
1,740
(453 ) 1,287
Foreign currency translation adjustments (38,103 ) 85
(38,018 ) (1,327 ) 88
(1,239 )
Other comprehensive (loss) income $ (32,819 ) $ (1,142 ) $ (33,961 ) $ 1,813
$ (787 ) $ 1,026

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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 ~~loss~~income (loss) for the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019 were as follows:

2020 2019
(in thousands) Pre-tax Tax impact Net of tax Pre-tax Tax impact Net of tax
Unrealized (loss) gain on derivatives designated and qualified as cash flow hedges $ (191 ) $ 47
$ (144 ) $ 187
$ (46 ) $ 141
Reclassification of unrealized loss on derivatives designated and qualified as cash flow hedges 405
(99 ) 306
2,056
(504 ) 1,552
Unrecognized net pension and other postretirement benefit gain 2,876
(753 ) 2,123
1,723
(477 ) 1,246
Reclassification of net pension and other postretirement benefit loss 7,868
(1,952 ) 5,916
5,227
(1,334 ) 3,893
Foreign currency translation adjustments (47,809 ) 118
(47,691 ) (21,007 ) 162
(20,845 )
Other comprehensive loss $ (36,851 ) $ (2,639 ) $ (39,490 ) $ (11,814 ) $ (2,199 ) $ (14,013 )

16.GOODWILL AND OTHER INTANGIBLE ASSETS

Fiscal 2020 ~~December Quarter Widia~~ Impairment ~~Charges~~Charge

In the December quarter of fiscal 2020, the Company experienced deteriorating market conditions, primarily in general engineering and transportation applications in India and China, in addition to overall global weakness in the manufacturing sector. In view of these declining conditions and the significant detrimental effect on cash flows and actual and projected revenue and earnings compared with ~~our most recent~~the prior annual impairment test, we determined that an impairment triggering event had occurred and performed an interim quantitative impairment test of our goodwill, indefinite-lived trademark intangible asset and other long-lived assets of our former Widia reporting unit. We evaluated the recoverability of goodwill for the reporting unit by comparing ~~the fair value with~~ its carrying value with the fair values determined using a combination of a discounted cash flow analysis and market multiples based upon historical and projected financial information. As a result of this test, we recorded a non-cash pre-tax impairment charge during the three months ended December 31, 2019 of $14.6 million in the former Widia segment, which is now part of the Metal Cutting segment as of July 1, 2020, of which $13.1 million was for goodwill and $1.5 million was for an indefinite-lived trademark intangible asset. These impairment charges are recorded in restructuring and asset impairment charges in our condensed consolidated statements of income. ~~No impairment was recorded for the other Widia long-lived assets.~~

~~Table of Contents~~

~~KENNAMETAL INC.~~

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

~~2020 March Quarter Widia Impairment Charges~~

We performed an interim quantitative impairment test of goodwill and the indefinite-lived trademark intangible asset for the Widia reporting unit during the March quarter of fiscal 2020. The decline in actual and projected financial results for the Widia reporting unit, primarily as a result of the COVID-19 pandemic, represented an interim impairment triggering event because there was essentially zero cushion between the reporting unit's carrying value and fair value as of March 31 2020. This is because the ~~Widia reporting unit was recorded at fair value as of the last impairment date of December 31, 2019.~~ We evaluated the recoverability of goodwill for the reporting unit by comparing the fair value with its carrying value, with the fair values determined using a combination of a discounted cash flow analysis and market multiples based upon historical and projected financial information. As a result of this interim test, we recorded a non-cash pre-tax impairment charge during the three months ended March 31, 2020 of $15.6 million in the Widia segment, of which $13.7 million was for goodwill and $1.9 million was for an indefinite-lived trademark intangible asset. These impairment charges are recorded in restructuring and asset impairment charges in our condensed consolidated statements of income. No impairment was recorded for the other Widia long-lived assets. Subsequent to the impairment charges recorded in the March quarter of fiscal 2020, there is no remaining goodwill for the Widia reporting unit and the carrying value of the indefinite-lived trademark is $10.9 million, which approximates fair value. Additionally, due to the significant cushion that existed between the fair value and the carrying value of the Industrial reporting unit, as measured on the last annual testing date, we determined that there was not an interim triggering event for this reporting unit during the third quarter of fiscal 2020. Certain events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair values of our reporting units and of the indefinite-lived trademark may include such items as: (i) a decrease in expected future cash flows, specifically, a further decrease in sales volume driven by a prolonged weakness in customer demand or other pressures, including those related to the COVID-19 pandemic, adversely affecting our long-term sales trends; (ii) inability to achieve the anticipated benefits from simplification/modernization and other cost reduction programs and (iii) inability to achieve the sales from our strategic growth initiatives.

Divestiture Impact on Other Intangible Assets

During the three months ended December 31, 2019, we completed the sale of certain assets of the non-core specialty alloys and metals business within the Infrastructure ~~segment. See~~segment, see Note 4.3. As a result of this transaction, other intangibles decreased by $12.5 million in our Infrastructure segment. This decrease was recorded in the loss on divestiture account in our condensed consolidated statements of income.

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

(in thousands) Industrial Widia Infrastructure Total
Gross goodwill $ 409,912
$ 40,941
$ 633,211
$ 1,084,064
Accumulated impairment losses (137,204 ) (13,638 ) (633,211 ) (784,053 )
Balance as of June 30, 2019 $ 272,708
$ 27,303
$ —
$ 300,011

Activity for the nine months ended March 31, 2020:
Change in gross goodwill due to translation (4,050 ) (484 ) —
(4,534 )
Impairment charges —
(26,819 ) —
(26,819 )

Gross goodwill 405,862
40,457
633,211
1,079,530
Accumulated impairment losses (137,204 ) (40,457 ) (633,211 ) (810,872 )
Balance as of March 31, 2020 $ 268,658
$ —
$ —
$ 268,658


(in thousands)	Metal Cutting		Infrastructure		Total
Gross goodwill	$	448,241	$	633,211	$	1,081,452
Accumulated impairment losses	(177,661)		(633,211)		(810,872)
Balance as of June 30, 2020	$	270,580	$	0	$	270,580

Activity for the six months ended December 31, 2020:
Change in gross goodwill due to translation	10,867		0		10,867



Gross goodwill	459,108		633,211		1,092,319
Accumulated impairment losses	(177,661)		(633,211)		(810,872)
Balance as of December 31, 2020	$	281,447	$	0	$	281,447

Table of Contents

KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The components of our other intangible assets were as follows:


	Estimated Useful Life (in years)	December 31, 2020				June 30, 2020
(in thousands)		Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization

Technology-based and other	4 to 20	$	33,881	$	(24,235)		$	32,713	$	(22,612)
Customer-related	10 to 21	183,624		(94,174)			181,408		(88,112)
Unpatented technology	10 to 30	31,906		(19,305)			31,586		(17,890)
Trademarks	5 to 20	13,332		(9,583)			13,087		(8,772)
Trademarks	Indefinite	12,215		—			11,160		—
Total		$	274,958	$	(147,297)		$	269,954	$	(137,386)

Estimated
Useful Life
(in years)
March 31, 2020 June 30, 2019
(in thousands)
Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
Amortization
Contract-based 3 to 15 —
—
7,062
(7,062 )
Technology-based and other 4 to 20 32,499
(22,162 ) 46,228
(31,890 )
Customer-related 10 to 21 180,955
(85,421 ) 205,213
(94,711 )
Unpatented technology 10 to 30 31,576
(17,271 ) 31,702
(15,492 )
Trademarks 5 to 20 13,036
(8,452 ) 14,755
(9,352 )
Trademarks Indefinite 10,927
—
14,545
—
Total $ 268,993
$ (133,306 ) $ 319,505
$ (158,507 )

Effective July 1, 2020, as a result of a change in commercial strategy, organizational structure, and the way performance is assessed and resources are allocated, the Industrial and Widia businesses were combined to form one Metal Cutting business. The Infrastructure business remained unchanged. Therefore, we currently operate in two reportable segments consisting of Metal Cutting and Infrastructure. Our reportable operating segments have been determined in accordance with ~~the~~ our internal management structure, which is organized based on operating activities, the manner in which we organize segments for allocating resources, making operating decisions and assessing performance and the availability of separate financial results. We do not allocate certain corporate expenses related to executive retirement plans, our Board of Directors, strategic initiatives, and certain other costs and report them in ~~Corporate. None of~~Corporate, and our reportable operating segments do not represent the aggregation of two or more operating segments.

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

~~WIDIA~~ Widia offers an assortment of standard and custom metal cutting solutions to general engineering, aerospace, energy and transportation customers. We serve our customers primarily through 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.~~

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

Table of Contents

KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2020 2019 2020 2019
Sales:
Industrial $ 260,738
$ 318,636
$ 820,008
$ 956,515
Widia 42,721
50,966
131,115
148,592
Infrastructure 179,625
227,602
555,129
666,178
Total sales $ 483,084
$ 597,204
$ 1,506,252
$ 1,771,285
Operating income (loss):
Industrial $ 30,147
$ 57,218
$ 32,159
$ 173,279
Widia (13,528 ) (4 ) (31,410 ) 3,817
Infrastructure 21,941
24,934
7,679
69,407
Corporate (667 ) (277 ) (1,797 ) (2,622 )
Total operating income 37,893
81,871
6,631
243,881
Interest expense 7,897
8,104
23,834
24,305
Other income, net (2,438 ) (4,993 ) (9,330 ) (11,775 )
Income (loss) from continuing operations before income taxes $ 32,434
$ 78,760
$ (7,873 ) $ 231,351


	Three Months Ended December 31,				Six Months Ended December 31,
(in thousands)	2020		2019		2020		2019
Sales:
Metal Cutting	$	282,917	$	323,579	$	530,793	$	647,664
Infrastructure	157,590		181,501		310,019		375,504
Total sales	$	440,507	$	505,080	$	840,812	$	1,023,168
Operating income (loss):
Metal Cutting	$	13,693	$	(35,177)	$	(9,933)	$	(15,870)
Infrastructure	6,265		(11,570)		13,533		(14,260)
Corporate	(924)		(891)		(1,743)		(1,131)
Total operating income (loss)	19,034		(47,638)		1,857		(31,261)
Interest expense	8,317		8,055		18,896		15,936
Other income, net	(3,857)		(4,211)		(7,875)		(6,891)
Income (loss) from continuing operations before income taxes	$	14,574	$	(51,482)	$	(9,164)	$	(40,306)

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

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

Three Months Ended March 31, 2020
(in thousands) Industrial Widia Infrastructure Total Kennametal
General engineering 44% 100% 35% 46%
Transportation 33 — — 18
Aerospace 13 — — 7
Energy 10 — 29 16
Earthworks — — 36 13


	Three Months Ended December 31, 2020
(in thousands)	Metal Cutting	Infrastructure	Total Kennametal
General engineering	53%	36%	47%
Transportation	31	—	20
Aerospace	8	—	5
Energy	8	25	14
Earthworks	—	39	14

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


	Three Months Ended December 31, 2019
(in thousands)	Metal Cutting	Infrastructure	Total Kennametal
General engineering	52%	34%	46%
Transportation	28	—	18
Aerospace	12	—	8
Energy	8	29	15
Earthworks	—	37	13

Nine Months Ended March 31, 2020
(in thousands) Industrial Widia Infrastructure Total Kennametal
General engineering 44% 100% 34% 45%
Transportation 33 — — 18
Aerospace 14 — — 8
Energy 9 — 29 16
Earthworks — — 37 13

Nine Months Ended March 31, 2019
(in thousands) Industrial Widia Infrastructure Total Kennametal
General engineering 44% 100% 34% 45%
Transportation 34 — — 18
Aerospace 13 — — 7
Energy 9 — 34 18
Earthworks — — 32 12

Table of Contents

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

OVERVIEW

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

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

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

Our sales of ~~$483.1~~$440.5 million for the quarter ended ~~March~~December 31, 2020 decreased 1913 percent year-over-year, reflecting 1714 percent organic sales decline ~~a 1 percent unfavorable currency exchange effect~~ and a 1 percent decline from ~~divestiture. The decline reflects~~divestiture, partially offset by a ~~global manufacturing slow down~~1 percent favorable currency exchange effect and ~~deteriorating end markets.~~a favorable impact of 1 percent from more business days. However, sales improved sequentially this quarter by approximately 10 percent, which outpaced the typical seasonal trend.

Operating income ~~decreased $44.0~~was $19.0 million ~~from $81.9~~compared to operating loss of $47.6 million in the prior year ~~quarter~~quarter. The year-over-year change of $66.7 million was due primarily to ~~$37.9~~lower restructuring and related charges of $46.7 million, lower raw material costs of approximately $29 million, approximately $23 million of incremental simplification/modernization benefits, cost-control measures and no goodwill and other intangible asset impairment charges or losses on divestiture in the current ~~quarter. The decrease in operating income was primarily due to~~year quarter, partially offset by organic sales decline and unfavorable labor and fixed cost absorption due to lower volumes and simplification/modernization efforts in progress, $15.6 million of goodwill and other intangible asset impairment charges and higher restructuring and related charges of $2.6 million, partially offset by incremental simplification/modernization benefits and lower variable compensation expense.volumes. Operating margin was ~~7.8~~a positive 4.3 percent compared to ~~13.7~~a negative 9.4 percent in the prior year quarter. The ~~Industrial~~Metal Cutting and Infrastructure segments had operating margins of ~~11.6~~4.8 percent and ~~12.2~~4.0 percent, respectively, ~~while~~for the ~~Widia segment had operating loss margin of 31.7 percent.~~quarter ended December 31, 2020.

The Coronavirus Disease 2019 (COVID-19) emerged in China at the end of calendar year 2019 bringing significant uncertainty in our end markets and operations. National, regional and local governments have taken steps to limit the spread of the virus through stay-at-home, social distancing, and various other orders and guidelines. The imposition of these measures has created ~~potentially~~ significant operating constraints on our business. Recognizing the potential for COVID-19 to significantly disrupt operations, we began to deploy safety protocols and processes globally during the ~~third~~March quarter of fiscal 2020 to keep our employees safe while continuing to serve our customers. ~~We have been deemed an essential business~~In fiscal 2020 and ~~continue to operate globally, apart from Kennametal India Ltd. and our Bolivian operations which were closed during~~through the ~~latter part of the third quarter~~first half of fiscal ~~2020 due to government mandates. We have~~2021, we did not ~~experienced~~experience a material disruption ~~in our supply chain to date as a result of these facility closures or elsewhere~~ in our supply chain. We expect COVID-19 will ~~more materially negatively affect~~continue to have a negative effect on customer demand in ~~the fourth quarter of~~ fiscal ~~2020~~2021 as a result of the disruption and uncertainty it is causing most acutely in the energy, aerospace and transportation end markets. The extent to which the COVID-19 pandemic may ~~impact~~continue to affect our business, operating results, financial condition, or liquidity in the future will depend on future developments, including the duration of the outbreak, travel restrictions, business and workforce disruptions, and the effectiveness of actions taken to contain and treat the disease.

~~The~~In connection with the Company's ~~strong liquidity position has allowed us to continue our~~ simplification/modernization ~~initiatives and~~initiative, we remain on track for $180 million of expected simplification/modernization savings by the ~~FY20 and~~end of fiscal 2021. FY21 Restructuring Actions are expected to deliver annualized savings of ~~$30~~$65 million to ~~$35~~$75 million, and ~~$25~~the expected pre-tax charges are $90 million to ~~$30 million, respectively.~~$100 million. We recorded ~~$5.8~~$4.2 million of pre-tax restructuring and related charges in the quarter, and total incremental ~~pre-tax~~ benefits ~~our from~~related to simplification/modernization ~~restructuring~~ initiatives were approximately $5$23 million in the ~~quarter. Total benefits~~current quarter, which includes incremental restructuring savings of approximately $17 million. The Company achieved annualized total savings inception to date from our simplification/modernization ~~efforts, including restructuring~~ initiatives ~~were approximately $15 million in the quarter, and we achieved annualized run-rate savings from simplification/modernization~~ of ~~approximately $87 million since inception.~~

$145 million.

Table of Contents

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

~~We recorded non-cash pre-tax Widia~~Current quarter earnings per diluted share (EPS) of $0.23 was unfavorably affected by restructuring and related charges of $0.04 per share, partially offset by differences in annual projected tax rates of $0.11 per share. The loss per diluted share (LPS) of $0.07 in the prior year quarter included restructuring and related charges of $0.55 per share, goodwill and other intangible asset impairment charges of ~~$15.6 million in the current quarter as a result~~$0.16 per share and loss on divestiture of ~~further deteriorating market conditions caused~~$0.06 per share, partially offset by ~~the COVID-19 global pandemic.~~

We reported current quarter earnings per diluted share (EPS) of $0.03. EPS for the current quarter was unfavorably affected by restructuring and related charges and goodwill and other intangible asset impairment charges. The earnings per diluted share of $0.82 in the prior year quarter included a discrete benefit from ~~U.S.~~Swiss tax reform of ~~$0.08~~$0.18 per share and ~~restructuring and related charges~~differences in annual projected tax rates of ~~$0.03~~$0.35 per share.The prior year quarter per share amounts have been recast to separately present the effect of the differences in projected annual tax rates during the period.

We generated net cash flows from operating activities of ~~$146.1~~$67.4 million during the ~~nine~~six months ended ~~March~~December 31, 2020 compared to ~~$157.5~~$87.1 million during the prior year quarter. Capital expenditures were ~~$206.1~~$68.6 million and ~~$145.9~~$147.5 million during the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019, respectively, with the ~~increase~~decrease primarily ~~due~~related to ~~higher~~lower capital spending ~~associated with~~on our simplification/modernization ~~initiatives.~~initiative.

RESULTS OF CONTINUING OPERATIONS

SALES

Sales for the three months ended ~~March~~December 31, 2020 were ~~$483.1~~$440.5 million, a decrease of ~~$114.1~~$64.6 million, or 1913 percent, from ~~$597.2~~$505.1 million in the prior year quarter. The decrease in sales was driven by 17a 14 percent organic sales decline ~~a 1 percent unfavorable currency exchange impact~~ and a 1 percent decline from ~~divestiture.~~divestiture, partially offset by a 1 percent favorable currency exchange impact and a favorable business day effect of 1 percent.

Sales for the ~~nine~~six months ended ~~March~~December 31, 2020 were ~~$1,506.3~~$840.8 million, a decrease of ~~$265.0~~$182.4 million, or 1518 percent, from ~~$1,771.3~~$1,023.2 million in the prior year period. The decrease in sales was driven by 13a 17 percent organic sales decline ~~a 1 percent unfavorable currency exchange impact~~ and a 1 percent decline from divestiture.


	Three Months Ended December 31, 2020		Six Months Ended December 31, 2020
(in percentages)	As Reported	Constant Currency	As Reported	Constant Currency
End market sales decline:
Aerospace	(42)%	(43)%	(44)%	(44)%
Energy	(20)	(22)	(23)	(24)
General engineering	(10)	(10)	(16)	(15)
Earthworks	(9)	(10)	(11)	(11)
Transportation	(3)	(4)	(13)	(13)
Regional sales decline:
Americas	(21)%	(19)%	(26)%	(24)%
Europe, the Middle East and Africa (EMEA)	(9)	(12)	(14)	(16)
Asia Pacific	—	(3)	(4)	(4)

Three Months Ended March 31, 2020 Nine Months Ended March 31, 2020
(in percentages) As Reported Constant Currency As Reported Constant Currency
End market sales decline:
Energy (25)% (23)% (24)% (23)%
General engineering (20) (17) (14) (12)
Transportation (19) (17) (17) (16)
Aerospace (17) (16) (9) (8)
Earthworks (8) (6) (5) (3)
Regional sales decline:
Americas (20)% (18)% (16)% (14)%
Europe, the Middle East and Africa (EMEA) (19) (16) (15) (11)
Asia Pacific (17) (15) (13) (12)

GROSS PROFIT

Gross profit for the three months ended ~~March~~December 31, 2020 was ~~$157.0~~$121.5 million, a decrease of ~~$51.1~~$10.5 million from ~~$208.1~~$132.0 million in the prior year quarter. The decrease was primarily due to an organic sales decline and unfavorable labor and fixed cost absorption due to lower volumes, ~~and simplification/modernization efforts in progress and greater restructuring and related charges of $3 million,~~ partially offset by lower raw material costs ~~of approximately $17 million~~ and incremental simplification/modernization benefits. Gross profit margin for the three months ended ~~March~~December 31, 2020 was ~~32.5~~27.6 percent, as compared to ~~34.8~~26.1 percent in the prior year quarter.

Gross profit for the ~~nine~~six months ended ~~March~~December 31, 2020 was ~~$428.0~~$226.6 million, a decrease of ~~$189.8~~$44.4 million from ~~$617.8~~$271.0 million in the prior year period. The decrease was primarily due to an organic sales decline and unfavorable labor and fixed cost absorption due to lower volumes, ~~and simplification/modernization efforts in progress, greater restructuring and related charges of $9 million and higher effective~~partially offset by lower raw material costs ~~partially offset by~~and incremental simplification/modernization benefits. Gross profit margin for the ~~nine~~six months ended ~~March~~December 31, 2020 was ~~28.4~~27.0 percent, as compared to ~~34.9~~26.5 percent in the prior year period.

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

OPERATING EXPENSE

Operating expense for the three months ended ~~March~~December 31, 2020 was ~~$98.5~~$97.8 million compared to ~~$120.1~~$107.5 million for the three months ended ~~March~~December 31, 2019. ~~The decrease was primarily due to lower incentive compensation expense, incremental restructuring simplification benefits and favorable currency exchange impact of approximately $1 million.~~

Operating expense for the ~~nine~~six months ended ~~March~~December 31, 2020 was ~~$320.3~~$191.1 million compared to ~~$358.1~~$221.7 million for the ~~nine~~six months ended ~~March~~December 31, 2019. ~~The decrease was~~Both decreases were primarily due to incremental ~~restructuring simplification~~simplification/modernization benefits ~~lower incentive compensation expense~~ and ~~favorable currency exchange impact of approximately $4 million.~~cost control measures.

We invested further in technology and innovation during the current quarter to continue delivering high quality products to our customers. Research and development expenses included in operating expense totaled ~~$9.8~~$9.3 million and ~~$10.5~~$10.1 million for the three months ended ~~March~~December 31, 2020 and 2019, respectively, and ~~$30.3~~$18.1 million and ~~$29.1~~$20.5 million for the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019, respectively.

RESTRUCTURING AND RELATED CHARGES AND ASSET IMPAIRMENT CHARGES

FY20 Restructuring Actions

In the June quarter of fiscal 2019, we ~~began implementing~~implemented, and in fiscal 2020 substantially completed, the ~~current phase of restructuring~~FY20 Restructuring Actions associated with our simplification/modernization ~~initiative. These actions are expected~~initiative to reduce structural costs, improve operational efficiency and position us for long-term profitable growth and are currently estimated to achieve $30 million to $35 million of annualized savings by the end of fiscal 2020. These actions are expected to be completed in fiscal 2020 and are expected to be primarily cash expenditures.

The pre-tax charges for these programs are expected to be in the range of $55 million to $60 million, which are expected to be 80 percent Industrial, 15 percent Infrastructure and 5 percent Widia. Restructuringgrowth. Total restructuring and related charges since inception of ~~$50.0~~$54.8 million were recorded for this program through ~~March~~December 31, 2020, consisting of: ~~$40.6~~$46.5 million in ~~Industrial; $7.2~~Metal Cutting and $8.3 million in ~~Infrastructure; and $2.2 million in Widia.~~Infrastructure. Inception to date, we have achieved annualized savings of approximately ~~$32 million.~~$35 million related to the FY20 Restructuring Actions.

FY21 Restructuring Actions

~~On July 11, 2019,~~In the September quarter of fiscal 2020, we announced the initiation of restructuring actions in Germany associated with our simplification/modernization initiative, which are expected to reduce structural costs. ~~We have agreed with local employee representatives to downsize our Essen, Germany operations instead of the previously proposed closure. We are~~Subsequently, we also ~~evaluating~~announced the acceleration of ~~other facility closures as part~~our structural cost reduction plans including the closing of ~~these restructuring activities. These actions~~the Johnson City, Tennessee facility. Estimated annualized benefits of the FY21 Restructuring Actions are ~~expected to deliver estimated annualized savings of $25~~$65 million to ~~$30~~$75 million ~~be completed by~~and the ~~end of fiscal 2021 and be primarily cash expenditures.~~

~~The~~expected pre-tax charges ~~for these programs~~ are ~~expected to be in the range of $55~~$90 million to ~~$65 million, which is expected to be primarily in the Industrial segment.~~$100 million. Total restructuring and related charges since inception of ~~$28.8~~$74.7 million were recorded for this program through ~~March~~December 31, 2020, consisting of: $68.5 million in Metal Cutting and $6.2 million in Infrastructure. The majority of the remaining charges related to the FY21 Restructuring Actions are expected to be in the ~~Industrial~~Metal Cutting segment. Inception to date, we have achieved annualized savings of approximately ~~$4 million.~~$48 million related to the FY21 Restructuring Actions.

Restructuring and Related Charges Recorded

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Goodwill and Other Intangible Asset Impairment Charges

We recorded non-cash pre-tax ~~goodwill and other~~ intangible asset impairment charges of ~~$15.6 million and $30.2~~$14.6 million during the three ~~and nine~~ months ended ~~March~~December 31, ~~2020.~~2019. See Note 1816 to our condensed consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

LOSS ON DIVESTITURE

INTEREST EXPENSE

Interest expense for the three months ended ~~March~~December 31, 2020 ~~and 2019 was $7.9~~increased to $8.3 million ~~and~~compared to $8.1 million ~~respectively.~~for the three months ended December 30, 2019. Interest expense for the ~~nine~~six months ended ~~March~~December 31, 2020 ~~decreased~~increased to ~~$23.8~~$18.9 million compared to ~~$24.3~~$15.9 million for the ~~nine~~six months ended ~~March~~December 31, 2019. Both increases were primarily due to the increase in borrowings under the Credit Agreement in the current periods.

OTHER INCOME, NET

Other income for the three months ended ~~March~~December 31, 2020 decreased to ~~$2.4~~$3.9 million from ~~$5.0~~$4.2 million during the three months ended ~~March~~December 31, 2019. Other income for the ~~nine~~six months ended ~~March~~December 31, 2020 ~~decreased~~increased to ~~$9.3~~$7.9 million from ~~$11.8~~$6.9 million during the ~~nine~~six months ended ~~March~~December 31, 2019. ~~The decreases in both periods were primarily driven by higher foreign currency transaction losses and less interest income, partially offset by higher pension income.~~

PROVISION FOR INCOME TAXES

~~Effective tax rates~~

The effective income tax rates for the nine months ended March 31, 2020 and 2019 were 143.5 percent (benefit on a loss) and 20.1 percent (provision on income), respectively. The year-over-year change is primarily due to the change in the jurisdictional mix caused by expected restructuring and related charges, the Widia goodwill and other intangible asset impairment charges, a discrete $14.5 million benefit for the one-time effect of Swiss tax reform and the ~~increase~~effects from the impairment of goodwill.

The effective income tax rates for the six months ended December 31, 2020 and 2019 were 93.3 percent (benefit on a loss) and 102.9 percent (benefit on a loss), respectively. The year-over-year change is primarily due to the effects of lower projected pre-tax income in ~~global intangible low-taxed income (GILTI)~~the current period and ~~base erosion anti-abuse tax (BEAT).~~geographical mix. The prior year rate included a ~~$9.7~~discrete $14.5 million ~~discrete~~ benefit ~~associated with tax reform and a $6.1 million charge related to changes in~~for the ~~indefinite reinvestment assertion on certain foreign subsidiaries' undistributed earnings.~~

~~Coronavirus Aid, Relief, and Economic Security Act (CARES Act)~~

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, allows net operating losses arising in taxable years beginning after December 31, 2017 and before January 1, 2021 to be carried back to each of the 5 preceding taxable years to generate a refund of previously paid income taxes; permits net operating loss carryovers and carrybacks to offset 100 percent of taxable income for taxable years beginning before January 1, 2021; and modifies the limitation on business interest by increasing the allowable business interest deduction from 30 percent of adjusted taxable income to 50 percent of adjusted taxable income for taxable years beginning in 2019 or 2020. We are currently in the process of evaluating the potential impact these provisions may have on the Company.

~~Swiss tax reform~~

Legislation was effectively enacted during the nine months ended March 31, 2020 when the Canton of Schaffhausen approved the Federal Act on Tax Reform and AHV Financing on October 8, 2019 (Swiss tax reform). Significant changes from Swiss tax reform include the abolishment of certain favorable tax regimes and the creation of a ten-year transitional period at both the federal and cantonal levels.

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

~~The transitional provisions~~one-time effect of Swiss tax reform ~~allow companies to utilize a combination~~and the effects from the impairment of lower tax rates and tax basis adjustments to fair value, which are used for tax depreciation and amortization purposes resulting in deductions over the transitional period. To reflect the federal and cantonal transitional provisions, as they apply to us, we recorded a deferred tax asset of $14.5 million during the three months ended December 31, 2019. We consider the deferred tax asset from Swiss tax reform to be an estimate based on our current interpretation of the legislation, which is subject to change based on further legislative guidance, review with the Swiss federal and cantonal authorities and modifications to the underlying valuation.goodwill.

~~We currently expect a modestly unfavorable effect on our Swiss tax expense during the ten-year transitional period.~~

BUSINESS SEGMENT REVIEW

WeEffective July 1, 2020, as a result of a change in commercial strategy, organizational structure, and the way performance is assessed and resources are allocated, the Industrial and Widia businesses were combined to form one Metal Cutting business. The Infrastructure business remained unchanged. Therefore, we currently operate ~~three~~in two reportable segments consisting of ~~Industrial, Widia~~Metal Cutting and Infrastructure. Our reportable operating segments have been determined in accordance with our internal management structure, which is organized based on operating activities, the manner in which we organize segments for allocating resources, making operating decisions and assessing performance and the availability of separate financial results. We do not allocate certain corporate expenses related to executive retirement plans, our Board of Directors, strategic initiatives, and certain other costs and report them in Corporate.

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

segments do not represent the aggregation of two or more operating segments.

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

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


	Three Months Ended December 31,				Six Months Ended December 31,
(in thousands)	2020		2019		2020		2019
Sales:
Metal Cutting	$	282,917	$	323,579	$	530,793	$	647,664
Infrastructure	157,590		181,501		310,019		375,504
Total sales	$	440,507	$	505,080	$	840,812	$	1,023,168
Operating income (loss):
Metal Cutting	$	13,693	$	(35,177)	$	(9,933)	$	(15,870)
Infrastructure	6,265		(11,570)		13,533		(14,260)
Corporate	(924)		(891)		(1,743)		(1,131)
Total operating income (loss)	19,034		(47,638)		1,857		(31,261)
Interest expense	8,317		8,055		18,896		15,936
Other income, net	(3,857)		(4,211)		(7,875)		(6,891)
Income (loss) before income taxes	$	14,574	$	(51,482)	$	(9,164)	$	(40,306)

METAL CUTTING


	Three Months Ended December 31,						Six Months Ended December 31,
(in thousands, except operating margin)	2020			2019			2020			2019
Sales	$	282,917		$	323,579		$	530,793		$	647,664
Operating income (loss)	13,693			(35,177)			(9,933)			(15,870)
Operating margin	4.8		%	(10.9)		%	(1.9)		%	(2.5)		%


	Three Months Ended December 31, 2020	Six Months Ended December 31, 2020
(in percentages)
Organic sales decline	(14)%	(18)%
Foreign currency exchange impact(1)	1	—



Sales decline	(13)%	(18)%


	Three Months Ended December 31, 2020		Six Months Ended December 31, 2020
(in percentages)	As Reported	Constant Currency	As Reported	Constant Currency
End market sales decline:
Aerospace	(42)%	(43)%	(44)%	(44)%
Energy	(16)	(18)	(16)	(17)
General engineering	(11)	(12)	(15)	(16)
Transportation	(3)	(4)	(13)	(13)
Regional sales decline:
Americas	(21)%	(20)%	(26)%	(24)%
EMEA	(9)	(12)	(16)	(18)
Asia Pacific	(3)	(6)	(7)	(7)

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

~~INDUSTRIAL~~

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands, except operating margin) 2020 2019 2020 2019
Sales $ 260,738
$ 318,636
$ 820,008
$ 956,515
Operating income 30,147
57,218
32,159
173,279
Operating margin 11.6 % 18.0 % 3.9 % 18.1 %

Three Months Ended March 31, 2020 Nine Months Ended March 31, 2020
(in percentages)
Organic sales decline (17)% (13)%
Foreign currency exchange impact⁽¹⁾
(2) (1)
Business days impact⁽²⁾
1 —
Sales decline (18)% (14)%

Three Months Ended March 31, 2020 Nine Months Ended March 31, 2020
(in percentages) As Reported Constant Currency As Reported Constant Currency
End market sales decline:
General engineering (20)% (18)% (15)% (13)%
Transportation (19) (17) (17) (16)
Aerospace (17) (16) (9) (8)
Energy (7) (6) (9) (7)
Regional sales decline:
EMEA (22)% (19)% (18)% (15)%
Americas (16) (16) (11) (11)
Asia Pacific (14) (12) (12) (11)

For the three months ended ~~March~~December 31, 2020, ~~Industrial~~Metal Cutting sales decreased 1813 percent from the prior year quarter due to the effects of COVID-19 on global manufacturing ~~slowdown~~activity. Aerospace end market sales declined in all regions due to a significant reduction in airplane manufacturing. Transportation end market sales declined in all regions except for the Americas, which had slight growth in the quarter. Sales in our general engineering end market declined in all regions except for Asia Pacific, which had slight growth in the quarter. The general engineering end market continued to be impacted by lower manufacturing activity related to the COVID-19 pandemic. Energy sales decreased primarily due to a decline in oil and ~~deteriorating conditions across all~~gas drilling in the Americas, partially offset by continued strength in wind power generation in China. On a regional basis, the sales decrease in the Americas was driven by declines in the general engineering, aerospace and energy end markets, partially offset by an increase in sales in the transportation end market, while the sales decrease in EMEA was driven by declines in all four end markets. The sales decrease in Asia Pacific was primarily driven by declines in the transportation and ~~regions.~~aerospace end markets, offset by increases in sales in both the general engineering and energy end markets.

For the three months ended December 31, 2020, Metal Cutting operating income was $13.7 million compared to operating loss of $35.2 million in the prior year quarter. The year-over-year change was driven primarily by lower restructuring and related charges of $45.7 million, approximately $15 million of incremental simplification/modernization benefits, lower raw material costs of $7 million, cost-control measures and no goodwill and other intangible asset impairment charges in the current year quarter, partially offset by organic sales decline and unfavorable labor and fixed cost absorption due to lower volumes.

For the six months ended December 31, 2020, Metal Cutting sales decreased 18 percent from the prior year period due to the effects of COVID-19 on global manufacturing activity. Aerospace end market sales declined in all regions due to a significant reduction in airplane manufacturing. Transportation end market sales declined in all regions due to continued weakness in auto build rates caused by a slowdown in auto sales. Sales in our general engineering end market declined in all regions as a result of continued ~~declines in~~lower manufacturing activity ~~and, in Asia Pacific, partially~~ related to the COVID-19 pandemic. Energy sales decreased primarily due to a decline in oil and gas drilling in the Americas, partially offset by continued strength in wind power generation in China. ~~Aerospace~~On a regional basis, the sales ~~declined~~decrease in the Americas ~~and EMEA, primarily~~was driven by ~~lower OEM production rates on certain platforms. In Asia, aerospace sales increased slightly due to inventory stocking orders from customers amid supply chain concerns. On a regional basis,~~declines in all four end markets, while the sales decrease in EMEA was primarily driven by declines in the general engineering, aerospace and transportation end markets, in addition to ~~declines~~a slight decline in the ~~aerospace~~energy end ~~market, while the sales decrease in the Americas was driven by declines in all four end markets.~~market. The sales decrease in Asia Pacific was primarily driven by declines in the transportation end market, in addition to declines in the aerospace and general engineering ~~and transportation~~ end markets, ~~partially~~ offset by ~~increases~~an increase in sales in the energy ~~and aerospace~~ end ~~markets.~~market.

For the ~~three~~six months ended ~~March~~December 31, 2020, ~~Industrial~~Metal Cutting operating ~~income decreased~~loss was $9.9 million compared to $15.9 million in the prior year period. The year-over-year change was driven primarily by ~~$27.1~~lower raw material costs, incremental simplification/modernization benefits, cost-control measures, lower restructuring and related charges of $26.0 million ~~driven primarily~~and no goodwill and other intangible asset impairment charges in the current period, partially offset by organic sales decline and unfavorable labor and fixed cost absorption due to lower ~~volumes and simplification/modernization efforts in progress, partially offset by incremental simplification/modernization benefits, lower raw material costs and lower variable compensation expense.~~volumes.

INFRASTRUCTURE


	Three Months Ended December 31,						Six Months Ended December 31,
(in thousands)	2020			2019			2020			2019
Sales	$	157,590		$	181,501		$	310,019		$	375,504
Operating income (loss)	6,265			(11,570)			13,533			(14,260)
Operating margin	4.0		%	(6.4)		%	4.4		%	(3.8)		%


	Three Months Ended December 31, 2020	Six Months Ended December 31, 2020
(in percentages)
Organic sales decline	(14)%	(15)%
Foreign currency exchange impact(1)	1	—
Business days impact(2)	1	—
Divestiture impact(3)	(1)	(2)

Sales decline	(13)%	(17)%

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

For the nine months ended March 31, 2020, Industrial sales decreased 14 percent from the prior year period. Transportation sales declined in all regions due to continued weakness in auto build rates, while sales in our general engineering end market declined in all regions driven by overall continued decline in global manufacturing activity. Energy sales decreased primarily due to a decline in oil and gas drilling in the Americas, partially offset by continued strength in renewable energy in China. Aerospace sales declined in all regions driven primarily by lower OEM production rates on certain platforms and timing of large projects in the first quarter of the prior year that did not repeat. On a regional basis, the sales decrease in EMEA was primarily due to declines in the transportation and general engineering end markets, and to a lesser extent, declines in the energy and aerospace end markets, while the sales decrease in the Americas was primarily driven by declines in all four end markets. The sales decrease in Asia Pacific was primarily driven by declines in the general engineering and transportation end markets and, to a lesser extent, a decline in the aerospace end market, partially offset by an increase in sales in the energy end market.

For the nine months ended March 31, 2020, Industrial operating income decreased by $141.1 million, driven primarily by greater restructuring and related charges of $56.6 million, organic sales decline and unfavorable labor and fixed cost absorption due to lower volumes and simplification/modernization efforts in progress, partially offset by incremental simplification/modernization benefits and lower variable compensation expense.

~~WIDIA~~

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2020 2019 2020 2019
Sales $ 42,721
$ 50,966
$ 131,115
$ 148,592
Operating (loss) income (13,528 ) (4 ) (31,410 ) 3,817
Operating margin (31.7 )% — % (24.0 )% 2.6 %

Three Months Ended March 31, 2020 Nine Months Ended March 31, 2020
(in percentages)
Organic sales decline (16)% (11)%
Foreign currency exchange impact⁽¹⁾
(1) (1)
Business days impact⁽²⁾
1 —
Sales decline (16)% (12)%


	Three Months Ended March 31, 2020		Nine Months Ended March 31, 2020			Three Months Ended December 31, 2020		Six Months Ended December 31, 2020
(in percentages)	As Reported	Constant Currency	As Reported	Constant Currency	(in percentages)	As Reported	Constant Currency	As Reported	Constant Currency
Regional sales decline:
End market sales decline:					End market sales decline:
Energy					Energy	(23)%	(24)%	(27)%	(28)%
Earthworks					Earthworks	(9)	(10)	(11)	(11)
General engineering					General engineering	(9)	(7)	(16)	(11)
Regional sales (decline) growth:					Regional sales (decline) growth:
Americas					Americas	(21)%	(18)%	(26)%	(23)%
EMEA					EMEA	(10)	(12)	(10)	(10)
Asia Pacific	(26)%	(25)%	(23)%	(22)%	Asia Pacific	5	1	3	1
EMEA	(16)	(14)	(9)	(7)
Americas	(10)	(10)	(6)	(6)

For the three months ended ~~March~~December 31, 2020, ~~Widia~~Infrastructure sales decreased 16by 13 percent from the prior year quarter. The ~~sales decrease in Asia Pacific was driven primarily by the overall weak~~U.S. oil and gas market conditions, most notably in China and India, which were significantly impacted by the COVID-19 pandemic. Sales in EMEA decreased primarily due to the increasingly difficult market environment, while the decreasedrove year-over-year decline in the ~~Americas was primarily due to a slower~~energy market with U.S. ~~manufacturing environment.~~

~~For the three months ended March 31, 2020, Widia operating loss was $13.5 million~~land rig counts down approximately 63 percent compared to ~~break-even operating income in~~ the prior year quarter. The change was driven primarily by organic sales decline and $15.6 million of goodwill and other intangible asset impairment charges, partially offset by incremental simplification/modernization benefits, lower raw material costs and lower variable compensation expense.

For the nine months ended March 31, 2020, Widia sales decreased 12 percent from the prior year period. The sales decrease in Asia Pacific for both periods was driven primarily by the overall weak market conditions, most notably in India and China.

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

Sales in EMEA decreased primarily due to the increasingly difficult market environment, partially offset by growth in products focused on aerospace applications, while the decrease in the Americas was primarily due to a slower U.S. manufacturing environment, partially offset by strength in Latin America.

For the nine months ended March 31, 2020, Widia operating loss was $31.4 million compared to operating income of $3.8 million in the prior year period. The change was driven primarily by $30.2 million of goodwill and other intangible asset impairment charges, organic sales decline, and higher manufacturing costs, partially offset by incremental simplification/modernization benefits and lower variable compensation expense.

Three Months Ended March 31, Nine Months Ended March 31,
(in thousands) 2020 2019 2020 2019
Sales $ 179,625
$ 227,602
$ 555,129
$ 666,178
Operating income 21,941
24,934
7,679
69,407
Operating margin 12.2 % 11.0 % 1.4 % 10.4 %

Three Months Ended March 31, 2020 Nine Months Ended March 31, 2020
(in percentages)
Organic sales decline (17)% (14)%
Foreign currency exchange impact⁽¹⁾
(1) (1)
Divestiture impact⁽³⁾
(3) (2)
Sales decline (21)% (17)%

Three Months Ended March 31, 2020 Nine Months Ended March 31, 2020
(in percentages) As Reported Constant Currency As Reported Constant Currency
End market sales decline:
Energy (31)% (29)% (30)% (29)%
General engineering (23) (17) (14) (9)
Earthworks (8) (6) (5) (3)
Regional sales (decline) growth:
Americas (24)% (21)% (21)% (19)%
Asia Pacific (18) (16) (12) (10)
EMEA (10) (6) (3) 2

For the three months ended March 31, 2020, Infrastructure sales decreased by 21 percent from the prior year quarter primarily as a result of lower activity in the oil and gas portion of the energy end market in the U.S. In the general engineering end market, the lower level of manufacturing activity drove the decline in the Americas and Asia Pacific, offset by increased defense-related activity in EMEA. Earthworks end market sales were down year-over-year due to softness in mining in the Americas and Asia ~~Pacific.~~Pacific and construction in the Americas. The sales decline in general engineering was driven by economic decline and effects of the COVID-19 pandemic in the Americas and EMEA. On a regional basis, the sales decrease in the Americas was primarily driven by ~~a decline~~declines in the energy end market, and to a lesser extent, declines in ~~both~~ the earthworks and general engineering ~~and earthworks~~ end markets. The sales decrease in EMEA was driven by a decline in general engineering. The increase in Asia Pacific ~~was primarily due to the negative impacts of COVID-19 on the general engineering and earthworks end markets. In EMEA, the sales decrease~~ was driven primarily by ~~declines in both~~ the ~~energy and earthworks~~general engineering end ~~markets,~~market, partially offset by ~~growth~~a decline in the ~~general engineering~~earthworks end market.

For the three months ended ~~March~~December 31, 2020, Infrastructure operating income ~~decreased~~was $6.3 million compared to operating loss of $11.6 million in the prior year quarter. The year-over-year change was driven primarily by ~~$3.0~~lower raw material costs of $22 million, ~~driven primarily~~approximately $5 million of simplification/modernization benefits, cost-control measures and no loss on divestiture in the current year quarter, partially offset by organic sales decline and unfavorable labor and fixed cost absorption due to lower ~~volumes and simplification/modernization efforts in progress, partially offset by incremental simplification/modernization benefits, lower raw material costs and lower variable compensation expense.~~

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

For the ~~nine~~six months ended ~~March~~December 31, 2020, Infrastructure sales decreased by 17 percent from the prior year period. The U.S. oil and gas market drove year-over-year decline in the energy market ~~while~~with U.S. land rig counts down approximately 68 percent compared to the prior year period. The sales decline in general engineering was driven by ~~general~~ economic decline and impact from the COVID-19 pandemic in the Americas and ~~Asia Pacific, offset by increased defense activity in~~ EMEA. Earthworks end market sales ~~declined~~were down year-over-year due to softness in mining in the Americas, and ~~softness in mining and construction in~~to a lesser extent, Asia Pacific ~~partially offset by growth in construction in~~and EMEA. On a regional basis, the ~~Americas. The~~ sales decrease in the Americas was primarily driven by ~~a decline~~declines in the energy end market, ~~but also due~~and to ~~decline~~a lesser extent, declines in the general engineering and earthworks end ~~market.~~markets, while in EMEA, the sales decrease was driven primarily by a decline in general engineering. The ~~decrease~~increase in sales in Asia Pacific was driven by lower levels of manufacturing activity and the negative impacts of COVID-19 in the general engineering end market. The sales increase in EMEA, excluding the unfavorable impact of currency exchange, was driven primarily by growth in both the general engineering and energy end ~~market,~~markets, partially offset by ~~declines~~a decline in ~~both~~ the ~~energy and~~ earthworks end ~~markets.~~market.

For the ~~nine~~six months ended ~~March~~December 31, 2020, Infrastructure operating income ~~decreased by $61.7~~was $13.5 million compared to operating loss of $14.3 million in the prior year period. The year-over-year change was driven primarily by lower raw material costs, simplification/modernization benefits, cost-control measures and no loss on divestiture in the current year period, partially offset by organic sales decline and unfavorable labor and fixed cost absorption due to lower volumes and simplification/modernization efforts in progress, unfavorable mix and a loss on divestiture of $6.5 million, partially offset by incremental simplification/modernization benefits and lower variable compensation expense.volumes.

For the three and six months ended ~~March~~December 31, 2020, Corporate expense remained consistent with the prior quarter and increased by ~~$0.4~~$0.6 million from the prior year ~~quarter. For the nine months ended March 31, 2020, Corporate expense decreased by $0.8 million from the prior year period.~~period, respectively.

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

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations is the primary source of funding for our capital expenditures. For the ~~nine~~six months ended ~~March~~December 31, 2020, cash flow provided by operating activities was ~~$146.1~~$67.4 million, primarily due to the net inflow from ~~net income with adjustments for non-cash items.~~cash earnings.

~~Our~~During the three months ended September 30, 2020, we entered into the First Amendment (the Amendment) to the Fifth Amended and Restated Credit Agreement dated as of June 21, 2018, (as amended by the Amendment, the Credit Agreement). The Credit Agreement is a five-year, multi-currency, revolving credit facility ~~as amended~~ and ~~restated in June 2018 (Credit Agreement),~~ is used to augment cash from operations and isas an additional source of funds. The Credit Agreement provides for revolving credit loans of up to $700.0 million for working capital, capital expenditures and general corporate purposes. The Credit Agreement allows for borrowings in U.S. dollars, euros, Canadian dollars, pounds sterling and Japanese yen. Interest payable under the Credit Agreement is based upon the type of borrowing under the facility and may be (1) 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 June 2023.

As of December 31, 2020, we were in compliance with all ~~such~~ covenants of the Credit Agreement and we had $24.5 million of borrowings outstanding and $675.5 million of additional availability. There were $500.0 million of borrowings outstanding as of ~~March 31, 2020~~June 30, 2020.

The Company continues to assess the expected conditions in its primary end markets, including the effects of COVID-19 on the Company’s business, financial condition, operating results and cash flows. Because the extent and duration of the COVID-19 pandemic are uncertain, the effects of the pandemic could materially affect our availability to borrow under the Credit Agreement and our compliance with the maximum leverage ratio covenant of the Credit Agreement. To offset some of the uncertainty related to COVID-19, we obtained an Amendment to the Credit Agreement during the first quarter of fiscal 2021, as described above. We expect to ~~maintain compliance over~~access the ~~next 12 months. As~~capital markets to refinance the $300 million 3.875 percent Senior Unsecured Notes due February 2022 during the current fiscal year. In the event that a ~~result of COVID-19, certain events or circumstances~~refinancing does not occur before the February 2022 maturity date, management believes that ~~could reasonably be expected~~the Company will have the ability to ~~negatively affect our~~repay the February 2022 Notes with projected cash on hand and availability under the Credit ~~Agreement may include such items as: (i) a decrease~~Agreement. However, the Company can provide no assurance of this due in ~~expected profitability, specifically, a further decrease in sales volume driven by a prolonged weakness in customer demand or other pressures, including those related~~part, but not limited to, the uncertainty surrounding the COVID-19 ~~pandemic, adversely affecting~~pandemic. If over the course of the next year, market conditions do not improve or further deteriorate, the Company may need to take one or a combination of the following additional actions to ensure the Company has adequate access to liquidity and remains in compliance with the maximum leverage ratio covenant of the Credit Agreement, both of which are within the Company’s control: implement additional short-term cost-control actions and undertake new restructuring programs. We have concluded that we will remain in compliance with the covenants of the Credit Agreement and, as a result, will have adequate access to liquidity to satisfy our ~~sales trends; and (ii) inability to achieve~~obligations within one year after the ~~anticipated benefits from simplification/modernization and other cost reduction programs.~~date the financial statements are issued.

For the ~~nine~~six months ended ~~March~~December 31, 2020, average daily borrowings outstanding under the Credit Agreement were approximately ~~$10.5~~$237.5 million. We had ~~$4.5~~$24.5 million and $500.0 million of borrowings outstanding under the Credit Agreement as of ~~March~~December 31, 2020 and ~~we had no borrowings outstanding as of~~ June 30, ~~2019. Borrowings under the Credit Agreement are guaranteed by our significant domestic subsidiaries.~~

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

We consider the majority of the unremitted earnings of our non-U.S. subsidiaries to be permanently reinvested. With regard to these unremitted earnings, we have not, nor do we anticipate the need to, repatriate funds to the U.S. to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements. With regard to the small portion of unremitted earnings that are not indefinitely reinvested, we maintain a deferred tax liability for foreign withholding and U.S. state income taxes.

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

In 2012, we received an assessment from the Italian tax authority that denied certain tax deductions primarily related to our 2008 tax return. Attempts at negotiating a reasonable settlement with the tax authority were unsuccessful; and as a result, we decided to litigate the matter. While the outcome of the litigation is still pending, the authority has served notice requiring payment in the amount of €36 million. Accordingly, we requested and were granted a stay and are not currently required to make a payment in connection with this assessment. We continue to believe that the assessment is baseless and accordingly, no income tax liability has been recorded in connection with this assessment in any period. However, if the Italian tax authority were to be successful in litigation, settlement of the amount alleged by the Italian tax authority would result in an increase to income tax expense ~~for~~by as much as €36 million, or ~~$40~~$44 million, ~~of which~~including penalties and interest ~~is €20~~of €21 million, or ~~$23~~$26 million. A trial date has not yet been set by the Italian court.

At ~~March~~December 31, 2020, cash and cash equivalents were ~~$85.2~~$103.2 million, Total Kennametal Shareholders' equity was ~~$1,260.6~~$1,279.2 million and total debt was ~~$598.1~~$628.7 million. Our current senior credit ratings are at investment grade levels. We believe that our current financial position, liquidity and credit ratings provide us access to the capital markets. We believe that we have sufficient resources available to meet cash requirements for the next 12 months. We continue to closely monitor our liquidity position and the condition of the capital markets, as well as the counterparty risk of our credit providers. There have been no material changes in our contractual obligations and commitments since June 30, ~~2019.~~2020.

We are also closely monitoring the rapidly evolving effects of the COVID-19 pandemic on our business operations, financial results and financial position and on the industries in which we operate. Subsequent to March 31, 2020, we drew $500.0 million under the Credit Agreement. We decided to draw this $500.0 million as a measure to ensure access to future liquidity in light of the global financial market uncertainty resulting from the COVID-19 pandemic.

Cash Flow Provided by Operating Activities

During the ~~nine~~six months ended ~~March~~December 31, 2019, cash flow provided by operating activities consisted of net income and non-cash items amounting to an inflow of ~~$293.4~~$86.8 million and changes in certain assets and liabilities netting to an ~~outflow~~inflow of ~~$135.9~~$0.3 million. Contributing to the changes in certain assets and liabilities were ~~an increase~~a decrease in accounts receivable of $64.5 million and a decrease in inventories of ~~$71.8~~$34.3 million. Partially offsetting these cash inflows were changes in accrued income taxes of $53.0 million, a decrease in accounts payable and accrued liabilities of ~~$57.2~~$28.5 million and a decrease in accrued pension and postretirement benefits of ~~$13.9 million. Partially offsetting these cash outflows was an increase in other of $8.6~~$12.1 million.

Cash Flow Used for Investing Activities

For the six months ended December 31, 2019, cash flow used for investing activities included capital expenditures, net of $146.7 million, which consisted primarily of expenses related to our simplification/modernization initiatives and equipment upgrades, partially offset by proceeds from divestiture of $24.0 million from the sale of certain assets of the non-core specialty alloys and metals business located in New Castle, Pennsylvania.

For the nine months ended March 31, 2019, cash flow used for investing activities included capital expenditures, net of $142.4 million, which consisted primarily of equipment upgrades and expenses related to our simplification/modernization initiatives.

Cash Flow Used for Financing Activities

For the six months ended December 31, 2019, cash flow used for financing activities included $33.1 million of cash dividends paid to Kennametal Shareholders and ~~$5.7~~$5.6 million of the effect of employee benefit and stock plans and dividend ~~reinvestment, partially offset by $4.5 million of borrowings outstanding under the Credit Agreement.~~reinvestment.

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

For the nine months ended March 31, 2019, cash flow used for financing activities included outflows of $400.0 million of term debt repayments from the early extinguishment of our 2.650 percent Senior Unsecured Notes, $49.3 million of cash dividends paid to Kennametal Shareholders and $5.2 million of the effect of employee benefit and stock plans and dividend reinvestment and an outflow from a net decrease in notes payable of $0.9 million.

Working capital was ~~$583.6~~$546.0 million at ~~March~~December 31, 2020, ~~a decrease~~an increase of ~~$145.5~~$3.3 million from ~~$729.1~~$542.7 million at June 30, ~~2019.~~2020. The ~~decrease~~increase in working capital was primarily driven by an increase in accounts receivable of $37.2 million and a decrease in accounts payable of $30.5 million, partially offset by a decrease in inventory of $25.2 million. Also offsetting the increase in working capital is the net decrease in cash and cash equivalents and revolving and other lines of ~~$96.8 million; a decrease in accounts receivable of $75.7 million due~~credit and notes payable primarily related to ~~a decline in sales, a decrease in inventories of $54.8 million and~~paying down outstanding borrowings on the ~~addition of~~Credit Agreement during the current operating lease liabilities of $12.9 million due to the adoption of the new lease accounting standard without a restatement of prior periods. Partially offsetting these items were a decrease in accounts payable of $47.8 million, a decrease in accrued expenses of $25.2 million primarily due to payroll timing and lower accrued vacation pay and a decrease in accrued income taxes of $18.8 million.fiscal year. Currency exchange rate effects ~~decreased~~increased working capital by a total of approximately ~~$22~~$36 million, the impact of which is included in the aforementioned changes.

Property, plant and equipment, net increased ~~$80.5~~$35.2 million from ~~$934.9~~$1,038.3 million at June 30, ~~2019~~2020 to ~~$1,015.4~~$1,073.5 million at ~~March~~December 31, 2020, primarily due to capital additions of approximately ~~$190.7~~$64.0 million and a positive currency exchange impact of approximately $31 million, partially offset by depreciation expense of ~~$79.1~~$55.5 million ~~a negative currency exchange impact of approximately $17 million,~~and disposals of ~~$7.8 million and divestiture effect of $6.7~~$4.5 million.

At ~~March~~December 31, 2020, other assets were ~~$556.0~~$592.7 million, an increase of ~~$25.5~~$34.2 million from ~~$530.5~~$558.5 million at June 30, ~~2019.~~2020. The primary ~~driver~~drivers for the increase was ~~the addition of operating lease ROU assets of $46.7 million in the quarter due to the adoption of the new lease accounting standard without a restatement of prior periods,~~ an increase in other assets of ~~$23.7~~$22.4 million primarily due to an increase in pension plan assets and an increase in ~~deferred income taxes of $11.7 million, partially offset by a decrease in~~ goodwill of ~~$31.4~~$10.9 million ~~primarily~~ due to ~~goodwill impairment charges recorded in the Widia segment of $26.8 million and unfavorable~~favorable currency exchange effects of approximately $4 million, and a decrease in other intangible assets of $25.3 million, primarily due to divestiture effect of $12.5 million, amortization expense of $10.4 million and impairment charges recorded in the Widia segment of $3.4 million.effects.

Kennametal Shareholders' equity was ~~$1,260.6~~$1,279.2 million at ~~March~~December 31, 2020, ~~a decrease~~an increase of ~~$74.5~~$49.3 million from ~~$1,335.2~~$1,229.9 million at June 30, ~~2019.~~2020. The ~~decrease~~increase was primarily due to ~~cash dividends paid to Kennametal Shareholders of $49.7 million and unfavorable~~favorable currency exchange effects of ~~$44.9~~$71.9 million ~~partially offset by~~and capital stock issued under employee benefit and stock plans of ~~$8.4~~$10.2 million, ~~pension and other postretirement benefit effects in other comprehensive loss~~partially offset by cash dividends paid to Kennametal Shareholders of ~~$8.0~~$33.3 million and net ~~income~~loss attributable to Kennametal of ~~$3.4~~$2.3 million.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

There have been no changes to our critical accounting policies since June 30, ~~2019.~~2020.

~~Goodwill and Indefinite-Lived Intangible Assets~~ 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 goodwill and other indefinite-lived intangible asset using a discounted cash flow analysis based on projected financial information. We perform our annual impairment tests for 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 warrants a test prior to that quarter.

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

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 interim and annual goodwill and indefinite-lived intangible impairment test will prove to be an accurate prediction of the future. Certain events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair values of our reporting units and of the indefinite-lived trademark may include such items as: (i) a decrease in expected future cash flows, specifically, a further decrease in sales volume driven by a prolonged weakness in customer demand or other pressures, including those related to the COVID-19 pandemic, adversely affecting our long-term sales trends; (ii) inability to achieve the anticipated benefits from simplification/modernization and other cost reduction programs and (iii) inability to achieve the sales from our strategic growth initiatives.

~~NEW ACCOUNTING STANDARDS~~

~~See Note 2 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 SEC rules, below are the definitions of the non-GAAP financial measures we use in this report and the reconciliation of these measures to the most closely related GAAP financial measures. We believe that these measures provide useful perspective on underlying business trends and results and provide a supplemental measure of year-over-year results. The non-GAAP financial measures described below are used by management in making operating decisions, allocating financial resources and for business strategy purposes. We believe these measures may be useful to investors as they provide supplemental information about business performance and provide investors a view of our business results through the eyes of management. These non-GAAP financial measures are not intended to be considered by the user in place of the related GAAP financial measure, but rather as supplemental information to our business results. These non-GAAP financial measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted.

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


Three Months Ended December 31, 2020	Metal Cutting	Infrastructure	Total
Organic sales decline	(14)%	(14)%	(14)%
Foreign currency exchange effect(1)	1	1	1
Business days effect(2)	—	1	1
Divestiture effect(3)	—	(1)	(1)

Sales decline	(13)%	(13)%	(13)%

Three Months Ended March 31, 2020 Industrial Widia Infrastructure Total
Organic sales decline (17)% (16)% (17)% (17)%
Foreign currency exchange impact⁽¹⁾
(2) (1) (1) (1)
Business days impact⁽²⁾
1 1 — —
Divestiture impact⁽³⁾
— — (3) (1)
Sales decline (18)% (16)% (21)% (19)%

Nine Months Ended March 31, 2020 Industrial Widia Infrastructure Total
Organic sales decline (13)% (11)% (14)% (13)%
Foreign currency exchange impact⁽¹⁾
(1) (1) (1) (1)
Divestiture impact⁽³⁾
— — (2) (1)
Sales decline (14)% (12)% (17)% (15)%


Six Months Ended December 31, 2020	Metal Cutting	Infrastructure	Total
Organic sales decline	(18)%	(15)%	(17)%


Divestiture effect(3)	—	(2)	(1)

Sales decline	(18)%	(17)%	(18)%

Industrial
Three Months Ended March 31, 2020 General engineering Transportation Aerospace Energy
Constant currency end market sales decline (18)% (17)% (16)% (6)%
Foreign currency exchange impact⁽¹⁾
(2) (2) (1) (1)
End market sales decline⁽⁴⁾
(20)% (19)% (17)% (7)%

Infrastructure
Three Months Ended March 31, 2020 Energy Earthworks General engineering
Constant currency end market sales decline (29)% (6)% (17)%
Foreign currency exchange impact⁽¹⁾
— (2) —
Divestiture impact⁽³⁾
(2) — (6)
End market sales decline⁽⁴⁾
(31)% (8)% (23)%

Total
Three Months Ended March 31, 2020 General engineering Transportation Aerospace Energy Earthworks
Constant currency end market sales decline (17)% (17)% (16)% (23)% (6)%
Foreign currency exchange impact⁽¹⁾
(1) (2) (1) — (2)
Divestiture impact⁽³⁾
(2) — — (2) —
End market sales decline⁽⁴⁾
(20)% (19)% (17)% (25)% (8)%


Metal Cutting
Three Months Ended December 31, 2020	General engineering	Transportation	Aerospace	Energy
Constant currency end market sales decline	(12)%	(4)%	(43)%	(18)%
Foreign currency exchange effect(1)	1	1	1	2


End market sales decline(4)	(11)%	(3)%	(42)%	(16)%


Infrastructure
Three Months Ended December 31, 2020	Energy	Earthworks	General engineering
Constant currency end market sales decline	(24)%	(10)%	(7)%
Foreign currency exchange effect(1)	1	1	2
Divestiture effect(3)	—	—	(4)

End market sales decline(4)	(23)%	(9)%	(9)%


Total
Three Months Ended December 31, 2020	General engineering	Transportation	Aerospace	Energy	Earthworks
Constant currency end market sales decline	(10)%	(4)%	(43)%	(22)%	(10)%
Foreign currency exchange effect(1)	1	1	1	2	1
Divestiture effect(3)	(1)	—	—	—	—

End market sales decline(4)	(10)%	(3)%	(42)%	(20)%	(9)%

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

Industrial
Nine Months Ended March 31, 2020 General engineering Transportation Aerospace Energy
Constant currency end market sales decline (13)% (16)% (8)% (7)%
Foreign currency exchange impact⁽¹⁾
(2) (1) (1) (2)
End market sales decline⁽⁴⁾
(15)% (17)% (9)% (9)%

Infrastructure
Nine Months Ended March 31, 2020 Energy Earthworks General engineering
Constant currency end market sales decline (29)% (3)% (9)%
Foreign currency exchange impact⁽¹⁾
— (2) (1)
Divestiture impact⁽³⁾
(1) — (4)
End market sales decline⁽⁴⁾
(30)% (5)% (14)%

Total
Nine Months Ended March 31, 2020 General engineering Transportation Aerospace Energy Earthworks
Constant currency end market sales decline (12)% (16)% (8)% (23)% (3)%
Foreign currency exchange impact⁽¹⁾
(1) (1) (1) — (2)
Divestiture impact⁽³⁾
(1) — — (1) —
End market sales decline⁽⁴⁾
(14)% (17)% (9)% (24)% (5)%

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


Metal Cutting
Six Months Ended December 31, 2020	General engineering	Transportation	Aerospace	Energy
Constant currency end market sales decline	(16)%	(13)%	(44)%	(17)%
Foreign currency exchange effect(1)	1	—	—	1


End market sales decline(4)	(15)%	(13)%	(44)%	(16)%


Infrastructure
Six Months Ended December 31, 2020	Energy	Earthworks	General engineering
Constant currency end market sales decline	(28)%	(11)%	(11)%
Foreign currency exchange effect(1)	2	—	1
Divestiture effect(3)	(1)	—	(6)

End market sales decline(4)	(27)%	(11)%	(16)%


Total
Six Months Ended December 31, 2020	General engineering	Transportation	Aerospace	Energy	Earthworks
Constant currency end market sales decline	(15)%	(13)%	(44)%	(24)%	(11)%
Foreign currency exchange effect(1)	1	—	—	2	—
Divestiture effect(3)	(2)	—	—	(1)	—

End market sales decline(4)	(16)%	(13)%	(44)%	(23)%	(11)%

Reconciliations of constant currency regional sales (decline) growth to reported regional sales decline (growth)⁽⁵⁾ are as follows:

Foreign currency exchange effect(1)

Regional sales decline(5)

Foreign currency exchange effect(1)

Divestiture effect(3)

Regional sales (decline) growth(5)

Foreign currency exchange effect(1)

Divestiture effect(3)

Regional sales decline(5)

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

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

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

⁽⁴⁾ Aggregate sales for all end markets sum to the sales amount presented on Kennametal's financial statements.

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



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Except for the broad effects of COVID-19 as a result of its negative impact on the global economy and major financial markets, there~~There have been no material changes to our market risk exposures since June 30, ~~2019.~~2020.



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~~December 31, 2020 ~~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

From time to time, we are party to legal claims and proceedings that arise in the ordinary course of business, which may relate to our operations or assets, including real, tangible or intellectual property. Although certain of these types of actions are currently pending, we do not believe that any individual proceeding is material or that our pending legal proceedings in the aggregate are material to Kennametal. See "Note ~~13.~~11. Environmental Matters" for a discussion of our exposure to certain environmental liabilities.

~~Item 1A. Risk Factors~~

Except as set forth below, during the quarter ended March 31, 2020, there were no material changes to the Risk Factors disclosed in Item 1A - “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019.

~~Public health threats or outbreaks of communicable diseases could have a material adverse effect on our operations and financial results.~~

We may face risks related to public health threats or outbreaks of communicable diseases. A widespread healthcare crisis, such as an outbreak of a communicable disease could adversely affect the global economy and our business, our suppliers and our customers’ ability to conduct business for an indefinite period of time. For example, the ongoing global Coronavirus Disease 2019 (COVID-19) pandemic, has negatively impacted the global economy, disrupted financial markets and international trade, resulted in increased unemployment levels and significantly impacted global supply chains, all of which have and are expected to continue to negatively impact our end markets. In addition, Federal, state, and local governments have implemented various mitigation measures, including travel restrictions, border closings, restrictions on public gatherings, shelter-in-place restrictions and limitations on non-essential business. Although in many jurisdictions we are considered an essential business, some of these actions have adversely impacted the ability of our employees, contractors, suppliers, customers, and other business partners to conduct business activities, and could continue to do so for an indefinite period of time. This could have a material adverse effect on our results of operations, financial condition, and liquidity. In particular, the continued spread of COVID-19 and efforts to contain the virus could:

~~continue to affect customer demand across our end markets and geographical regions;~~

~~affect our ability to conduct business in certain jurisdictions in which we operate where nationwide, regional or local lockdowns are currently implemented or may be implemented in the future;~~

~~cause us to experience an increase in costs as a result of the emergency measures we have taken, delayed payments from customers and uncollectible accounts;~~

~~cause delays and disruptions in our supply chain resulting in disruptions in the commencement dates of certain planned projects;~~

~~affect the availability of qualified personnel;~~

~~affect our ability to fund operations and maintain covenant compliance;~~

~~affect our access to financial markets;~~

~~negatively affect our ability to accurately forecast; and~~

~~cause other unpredictable events.~~

The situation surrounding COVID-19 remains fluid. The COVID-19 pandemic has negatively impacted our business operations, financial results and financial position and the industries in which we operate. The extent to which the COVID-19 pandemic may impact our business, operating results, financial condition, or liquidity in the future will depend on future developments, including the duration of the outbreak, travel restrictions, business and workforce disruptions, and the effectiveness of actions taken to contain and treat the disease.

~~Table of Contents~~



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, 2020 5,863
$ 31.87
—
10,100,100
February 1 through February 29, 2020 3,071
28.97
—
10,100,100
March 1 through March 31, 2020 —
—
—
10,100,100
Total 8,934
$ 30.87
—


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)
October 1 through October 31, 2020	20,807	$	29.21	—	10,100,100
November 1 through November 30, 2020	1,377	35.78		—	10,100,100
December 1 through December 31, 2020	6,072	36.28		—	10,100,100
Total	28,256	$	31.05	—


~~(1)~~	During the current period, 1,741 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 7,193 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.~~

(1)During the current period, 1,377 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 26,879 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.

Table of Contents



ITEM 6. EXHIBITS

~~(31)~~10

Material Contracts

10.1

Form of Kennametal Inc. Restricted Unit Award (three-year cliff vest) (granted under the 2020 Kennametal Inc. Stock and Incentive Plan)

Filed herewith.

10.2

Form of Kennametal Inc. Restricted Unit Award (two-year cliff vest) (granted under the 2020 Kennametal Inc. Stock and Incentive Plan)

Filed herewith.

10.3

Form of Kennametal Inc. Cash-Settled Long-Term Incentive Award for China-based employees (two-year cliff vest) (granted under the 2020 Kennametal Inc. Stock and Incentive Plan)

Filed herewith.

10.4

Form of Kennametal Inc. Restricted Unit Award for Non-Employee Directors (granted under the 2020 Kennametal Inc. Stock and Incentive Plan)

Filed herewith.

10.5

Form of Kennametal Inc. Restricted Unit Award (granted under the 2020 Kennametal Inc. Stock and Incentive Plan)

Filed herewith.

10.6

Form of Kennametal Inc. Cash-Settled Long-Term Incentive Award for China-based employees (granted under the 2020 Kennametal Inc. Stock and Incentive Plan)

Filed herewith.

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

~~(31.1)~~31.1

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

Filed herewith.

~~(31.2)~~31.2

Certification executed by Damon J. Audia, Vice President and Chief Financial Officer of Kennametal Inc.

Filed herewith.

~~(32)~~32

Section 1350 Certifications

~~(32.1)~~32.1

Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Christopher Rossi, President and Chief Executive Officer of Kennametal Inc., and Damon J. Audia, Vice President and Chief Financial Officer of Kennametal Inc.

Filed herewith.

~~(101)~~101

XBRL

~~(101.INS)~~101.INS ⁽³⁾

XBRL Instance Document

Filed herewith.

~~(101.SCH)~~101.SCH ⁽⁴⁾

XBRL Taxonomy Extension Schema Document

Filed herewith.

~~(101.CAL)~~101.CAL ⁽⁴⁾

XBRL Taxonomy Extension Calculation Linkbase Document

Filed herewith.

~~(101.DEF)~~101.DEF ⁽⁴⁾

XBRL Taxonomy Definition Linkbase

Filed herewith.

~~(101.LAB)~~101.LAB ⁽⁴⁾

XBRL Taxonomy Extension Label Linkbase Document

Filed herewith.

~~(101.PRE)~~101.PRE ⁽⁴⁾

XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith.

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


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

~~(4)~~

Attached as Exhibit 101 to this report are the following documents formatted in Inline XBRL: (i) the Condensed Consolidated Statement of Income for the three and nine months ended March 31, 2020 and 2019, (ii) the Condensed Consolidated Statement of Comprehensive Income for the three and nine months ended March 31, 2020 and 2019, (iii) the Condensed Consolidated Balance Sheet at March 31, 2020 and June 30, 2019, (iv) the Condensed Consolidated Statement of Cash Flows for the nine months ended March 31, 2020 and 2019 and (v) Notes to Condensed Consolidated Financial Statements for the three and nine ended March 31, 2020.

(4)Attached as Exhibit 101 to this report are the following documents formatted in Inline XBRL: (i) the Condensed Consolidated Statement of Income for the three and six months ended December 31, 2020 and 2019, (ii) the Condensed Consolidated Statement of Comprehensive Income for the three and six months ended December 31, 2020 and 2019, (iii) the Condensed Consolidated Balance Sheet at December 31, 2020 and June 30, 2020, (iv) the Condensed Consolidated Statement of Cash Flows for the six months ended December 31, 2020 and 2019 and (v) Notes to Condensed Consolidated Financial Statements for the three and six months ended December 31, 2020 and 2019.

Table of Contents

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 5, 2020~~February 3, 2021

By:

/s/ Patrick S. Watson

Patrick S. Watson

Vice President Finance and Corporate Controller



(in thousands, except per share data)	March 31, 2020			June 30, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	85,230		$	182,015
Accounts receivable, less allowance for doubtful accounts of $10,090 and $10,083, respectively	304,162			379,855
Inventories (Note 10)	516,781			571,576
Other current assets	60,550			57,381
Total current assets	966,723			1,190,827
Property, plant and equipment:
Land and buildings	347,490			351,142
Machinery and equipment	1,884,545			1,804,871
Less accumulated depreciation	(1,216,676		)	(1,221,118		)
Property, plant and equipment, net	1,015,359			934,895
Other assets:
Goodwill (Note 18)	268,658			300,011
Other intangible assets, less accumulated amortization of $133,306 and $158,507, respectively (Note 18)	135,687			160,998
Operating lease right-of-use assets (Note 11)	46,747			—
Deferred income taxes	32,196			20,507
Other	72,730			49,031
Total other assets	556,018			530,547
Total assets	$	2,538,100		$	2,656,269
LIABILITIES
Current liabilities:
Current maturities of long-term debt (Note 12)	$	4,500		$	—
Notes payable to banks	—			157
Current operating lease liabilities (Note 11)	12,935			—
Accounts payable	165,062			212,908
Accrued income taxes	10,470			29,223
Accrued expenses	51,466			76,616
Other current liabilities	138,698			142,822
Total current liabilities	383,131			461,726
Long-term debt, less current maturities (Note 12)	593,607			592,474
Operating lease liabilities (Note 11)	34,290			—
Deferred income taxes	13,504			23,322
Accrued pension and postretirement benefits	166,851			174,003
Accrued income taxes	9,304			9,038
Other liabilities	38,590			21,002
Total liabilities	1,239,277			1,281,565
Commitments and contingencies
EQUITY (Note 16)
Kennametal Shareholders’ Equity:
Preferred stock, no par value; 5,000 shares authorized; none issued	—			—
Capital stock, $1.25 par value; 120,000 shares authorized; 82,914 and 82,421 shares issued, respectively	103,642			103,026
Additional paid-in capital	536,596			528,827
Retained earnings	1,030,582			1,076,862
Accumulated other comprehensive loss	(410,197		)	(373,543		)
Total Kennametal Shareholders’ Equity	1,260,623			1,335,172
Noncontrolling interests	38,200			39,532
Total equity	1,298,823			1,374,704
Total liabilities and equity	$	2,538,100		$	2,656,269



(in thousands)	March 31, 2020			June 30, 2019
Derivatives designated as hedging instruments
Other current assets - range forward contracts	$	170		$	145
Other assets - forward starting interest rate swap contracts	89			—
Other liabilities - forward starting interest rate swap contracts	(1,614		)	—
Total derivatives designated as hedging instruments	(1,355		)	145
Derivatives not designated as hedging instruments
Other current assets - currency forward contracts	30			8
Other current liabilities - currency forward contracts	(264		)	(56		)
Total derivatives not designated as hedging instruments	(234		)	(48		)
Total derivatives	$	(1,589	)	$	97



Instrument	Notional (EUR in thousands)⁽²⁾		Notional (USD in thousands)⁽²⁾		Maturity
Foreign currency-denominated intercompany loan payable	€	28,727	$	31,517	June 26, 2022
Foreign currency-denominated intercompany loan payable	20,091		22,043		November 22, 2021



(in thousands)	June 30, 2019		Expense		Asset Write-Down			Translation			Cash Expenditures			March 31, 2020
Industrial
Severance	$	8,863	$	49,455	$	—		$	(780	)	$	(25,413	)	$	32,125
Facilities	—		1,857		(1,857		)	—			—			—
Other	35		4		—			(1		)	(22		)	16
Total Industrial	$	8,898	$	51,316	$	(1,857	)	$	(781	)	$	(25,435	)	$	32,141

Widia
Severance	$	2,306	$	342	$	—		$	(28	)	$	(321	)	$	2,299
Facilities	—		41		(41		)	—			—			—
Other	24		—		—			—			—			24
Total Widia	$	2,330	$	383	$	(41	)	$	(28	)	$	(321	)	$	2,323

Infrastructure
Severance	$	7,956	$	2,053	$	—		$	(313	)	$	(3,225	)	$	6,471
Facilities	—		758		(758		)	—			—			—
Other	28		2		—			(1		)	(5		)	24
Total Infrastructure	$	7,984	$	2,813	$	(758	)	$	(314	)	$	(3,230	)	$	6,495
Total	$	19,212	$	54,512	$	(2,656	)	$	(1,123	)	$	(28,986	)	$	40,959



	Options		Weighted Average Exercise Price		Weighted Average Remaining Life (years)	Aggregate Intrinsic value (in thousands)
Options outstanding, June 30, 2019	781,673		$	33.92
Exercised	(34,525	)	26.62
Lapsed or forfeited	(42,544	)	43.30
Options outstanding, March 31, 2020	704,604		$	33.71	2.8	$	—
Options vested, March 31, 2020	704,604		$	33.71	2.8	$	—
Options exercisable, March 31, 2020	704,604		$	33.71	2.8	$	—



(in thousands)	Nine Months Ended March 31, 2020
Operating cash flows from operating leases	$	12,181
ROU assets obtained in exchange for new operating lease liabilities	$	7,064



Year Ended June 30, (in thousands)	March 31, 2020
Remaining three months of 2020	$	3,695
2021	12,989
2022	9,225
2023	6,083
2024	4,089
Thereafter	18,880
Total undiscounted operating lease payments	$	54,961
Less: discount to net present value	7,736
Total operating lease liabilities	$	47,225


(in thousands)	Three Months Ended December 31, 2020	Six Months Ended December 31, 2019

Weighted-average shares outstanding during period	83,582	82,979
Add: Unexercised stock options and unvested restricted stock units	615	639
Number of shares on which diluted earnings per share is calculated	84,197	83,618
Unexercised stock options with an exercise price greater than the average market price and restricted stock units not included in the computation because they were anti-dilutive	386	641



	Three Months Ended March 31,		Nine Months Ended March 31,
(in thousands)	2020	2019	2020	2019
Weighted-average shares outstanding during period	83,106	82,479	83,022	82,305
Add: Unexercised stock options and unvested restricted stock units	590	860	567	961
Number of shares on which diluted earnings per share is calculated	83,696	83,339	83,589	83,266
Unexercised stock options with an exercise price greater than the average market price and restricted stock units not included in the computation because they were anti-dilutive	646	515	833	423



	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 December 31, 2019	$	103,618		$	536,522		$	1,044,247		$	(378,219	)	$	40,859		$	1,347,027
Net income (loss)	—			—			2,917			—			(676		)	2,241
Other comprehensive loss	—			—			—			(31,978		)	(1,983		)	(33,961		)
Dividend reinvestment	2			50			—			—			—			52
Capital stock issued under employee benefit and stock plans⁽³⁾	24			74			—			—			—			98
Purchase of capital stock	(2		)	(50		)	—			—			—			(52		)
Cash dividends	—			—			(16,582		)				—			(16,582		)
Total equity, March 31, 2020	$	103,642		$	536,596		$	1,030,582		$	(410,197	)	$	38,200		$	1,298,823


(in thousands)	Pension and other postretirement benefits		Currency translation adjustment		Derivatives		Total
Attributable to Kennametal:
Balance, June 30, 2020	$	(232,634)	$	(181,027)	$	(3,581)	$	(417,242)
Other comprehensive (loss) income before reclassifications	(7,521)		71,912		4,501		68,892
Amounts reclassified from AOCL	5,179		0		940		6,119
Net current period other comprehensive (loss) income	(2,342)		71,912		5,441		75,011
AOCL, December 31, 2020	$	(234,976)	$	(109,115)	$	1,860	$	(342,231)

Attributable to noncontrolling interests:
Balance, June 30, 2020	$	—	$	(5,909)	$	—	$	(5,909)
Other comprehensive income before reclassifications	—		2,635		—		2,635
Net current period other comprehensive income	—		2,635		—		2,635
AOCL, December 31, 2020	$	—	$	(3,274)	$	—	$	(3,274)


	Three Months Ended
	December 31, 2020			December 31, 2019
(in thousands)	Metal Cutting	Infrastructure	Total Kennametal	Metal Cutting	Infrastructure	Total Kennametal
Americas	38%	56%	44%	42%	61%	48%
EMEA	38	18	31	37	17	30
Asia Pacific	24	26	25	21	22	22



	Three Months Ended
	March 31, 2020				March 31, 2019
(in thousands)	Industrial	Widia	Infrastructure	Total Kennametal	Industrial	Widia	Infrastructure	Total Kennametal
Americas	41%	49%	64%	50%	40%	46%	67%	51%
EMEA	39	26	18	30	41	26	16	30
Asia Pacific	20	25	18	20	19	28	17	19


	Nine Months Ended									Six Months Ended
	March 31, 2020				March 31, 2019					December 31, 2020			December 31, 2019
(in thousands)	Industrial	Widia	Infrastructure	Total Kennametal	Industrial	Widia	Infrastructure	Total Kennametal	(in thousands)	Metal Cutting	Infrastructure	Total Kennametal	Metal Cutting	Infrastructure	Total Kennametal
Americas	41%	48%	62%	50%	40%	46%	66%	50%	Americas	38%	55%	44%	42%	62%	49%
EMEA	39	26	18	30	40	25	15	30	EMEA	38	20	31	37	18	30
Asia Pacific	20	26	20	20	20	29	19	20	Asia Pacific	24	25	25	21	20	21


	Three Months Ended March 31, 2019					Six Months Ended December 31, 2019
(in thousands)	Industrial	Widia	Infrastructure	Total Kennametal	(in thousands)	Metal Cutting	Infrastructure	Total Kennametal
General engineering	45%	100%	36%	46%	General engineering	52%	34%	45%
Transportation	33	—	—	18	Transportation	28	—	18
Aerospace	13	—	—	7	Aerospace	12	—	8
Energy	9	—	33	17	Energy	8	29	15
Earthworks	—	—	31	12	Earthworks	—	37	14



	Nine Months Ended March 31, 2019
(in thousands)	Industrial	Widia	Infrastructure	Total Kennametal
General engineering	44%	100%	34%	45%
Transportation	34	—	—	18
Aerospace	13	—	—	7
Energy	9	—	34	18
Earthworks	—	—	32	12


								Three Months Ended December 31, 2020			Six Months Ended December 31, 2020
	Three Months Ended March 31, 2020			Nine Months Ended March 31, 2020				Americas	EMEA	Asia Pacific	Americas	EMEA	Asia Pacific
Metal Cutting							Metal Cutting
Constant currency regional sales decline							Constant currency regional sales decline	(20)%	(12)%	(6)%	(24)%	(18)%	(7)%
Foreign currency exchange effect(1)							Foreign currency exchange effect(1)	(1)	3	3	(2)	2	—
	Americas	EMEA	Asia Pacific	Americas	EMEA	Asia Pacific
Industrial
Constant currency regional sales decline	(16)%	(19)%	(12)%	(11)%	(15)%	(11)%
Foreign currency exchange impact⁽¹⁾	—	(3)	(2)	—	(3)	(1)
Regional sales decline⁽⁵⁾	(16)%	(22)%	(14)%	(11)%	(18)%	(12)%

Widia
Constant currency regional sales decline	(10)%	(14)%	(25)%	(6)%	(7)%	(22)%
Foreign currency exchange impact⁽¹⁾	—	(2)	(1)	—	(2)	(1)
Regional sales decline⁽⁵⁾	(10)%	(16)%	(26)%	(6)%	(9)%	(23)%	Regional sales decline(5)	(21)%	(9)%	(3)%	(26)%	(16)%	(7)%

Infrastructure							Infrastructure
Constant currency regional sales (decline) growth	(21)%	(6)%	(16)%	(19)%	2%	(10)%	Constant currency regional sales (decline) growth	(18)%	(12)%	1%	(23)%	(10)%	1%
Foreign currency exchange impact⁽¹⁾	1	(3)	(2)	1	(5)	(2)
Divestiture impact⁽³⁾	(4)	(1)	—	(3)	—	—
Foreign currency exchange effect(1)							Foreign currency exchange effect(1)	—	2	4	1	—	2
Divestiture effect(3)							Divestiture effect(3)	(3)	—	—	(4)	—	—

Regional sales (decline) growth⁽⁵⁾	(24)%	(10)%	(18)%	(21)%	(3)%	(12)%	Regional sales (decline) growth(5)	(21)%	(10)%	5%	(26)%	(10)%	3%

Total							Total
Constant currency regional sales decline	(18)%	(16)%	(15)%	(14)%	(11)%	(12)%	Constant currency regional sales decline	(19)%	(12)%	(3)%	(24)%	(16)%	(4)%
Foreign currency exchange impact⁽¹⁾	—	(3)	(2)	(1)	(4)	(1)
Divestiture impact⁽³⁾	(2)	—	—	(1)	—	—
Foreign currency exchange effect(1)							Foreign currency exchange effect(1)	(1)	3	3	—	2	—
Divestiture effect(3)							Divestiture effect(3)	(1)	—	—	(2)	—	—

Regional sales decline⁽⁵⁾	(20)%	(19)%	(17)%	(16)%	(15)%	(13)%	Regional sales decline(5)	(21)%	(9)%	—%	(26)%	(14)%	(4)%



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, 2020	5,863	$	31.87	—	10,100,100
February 1 through February 29, 2020	3,071	28.97		—	10,100,100
March 1 through March 31, 2020	—	—		—	10,100,100
Total	8,934	$	30.87	—