Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Jun. 30, 2014 |
Summary of Significant Accounting Policies [Abstract] | ' |
Principles of Consolidation, Policy [Policy Text Block] | ' |
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include our accounts and those of our majority-owned subsidiaries. All significant intercompany balances and transactions are eliminated. Investments in entities of less than 50 percent of the voting stock over which we have significant influence are accounted for on an equity basis. The factors used to determine significant influence include, but are not limited to, our management involvement in the investee, such as hiring and setting compensation for management of the investee, the ability to make operating and capital decisions of the investee, representation on the investee’s board of directors and purchase and supply agreements with the investee. Investments in entities of less than 50 percent of the voting stock in which we do not have significant influence are accounted for on the cost basis. |
Use of Estimates in the Preparation of Financial Statements, Policy [Policy Text Block] | ' |
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP), we make judgments and estimates about the amounts reflected in our financial statements. As part of our financial reporting process, our management collaborates to determine the necessary information on which to base our judgments and develop estimates used to prepare the financial statements. We use historical experience and available information to make these judgments and estimates. However, different amounts could be reported using different assumptions and in light of different facts and circumstances. Therefore, actual amounts could differ from the estimates reflected in our financial statements. |
Cash and Cash Equivalents, Policy [Policy Text Block] | ' |
CASH AND CASH EQUIVALENTS Cash investments having original maturities of three months or less are considered cash equivalents. Cash equivalents principally consist of investments in money market funds and bank deposits at June 30, 2014. |
Accounts Receivable, Policy [Policy Text Block] | ' |
ACCOUNTS RECEIVABLE We market our products to a diverse customer base throughout the world. Trade credit is extended based upon periodically updated evaluations of each customer’s ability to satisfy its obligations. We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. Accounts receivable reserves are determined based upon an aging of accounts and a review of specific accounts. |
Inventory, Policy [Policy Text Block] | ' |
INVENTORIES Inventories are stated at the lower of cost or market. We use the last-in, first-out (LIFO) method for determining the cost of a significant portion of our United States (U.S.) inventories. The cost of the remainder of our inventories is determined under the first-in, first-out or average cost methods. When market conditions indicate an excess of carrying costs over market value, a lower-of-cost-or-market provision is recorded. Excess and obsolete inventory reserves are established based upon our evaluation of the quantity of inventory on hand relative to demand. The excess and obsolete inventory reserve at June 30, 2014 and 2013 was $52.7 million and $52.7 million, respectively. |
Property, Plant and Equipment, Policy [Policy Text Block] | ' |
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost. Major improvements are capitalized, while maintenance and repairs are expensed as incurred. Retirements and disposals are removed from cost and accumulated depreciation accounts, with the gain or loss reflected in operating income. Interest related to the construction of major facilities is capitalized as part of the construction costs and is depreciated over the facilities estimated useful life. |
Depreciation for financial reporting purposes is computed using the straight-line method over the following estimated useful lives: building and improvements over 15-40 years; machinery and equipment over 4-15 years; furniture and fixtures over 5-10 years and computer hardware and software over 3-5 years. |
Leased property and equipment under capital leases are depreciated using the straight-line method over the terms of the related leases. |
Long Lived Assets, Policy [Policy Text Block] | ' |
LONG-LIVED ASSETS We evaluate the recoverability of property, plant and equipment and intangible assets that are amortized, whenever events or changes in circumstances indicate the carrying amount of any such assets may not be fully recoverable. Changes in circumstances include technological advances, changes in our business model, capital structure, economic conditions or operating performance. Our evaluation is based upon, among other things, our assumptions about the estimated future undiscounted cash flows these assets are expected to generate. When the sum of the undiscounted cash flows is less than the carrying value of the asset or asset group, we will recognize an impairment loss to the extent that carrying value exceeds fair value. We apply our best judgment when performing these evaluations to determine if a triggering event has occurred, the undiscounted cash flows used to assess recoverability and the fair value of the asset. |
Goodwill and Other Intangible Assets, Policy [Policy Text Block] | ' |
GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill represents the excess of cost over the fair value of the net assets of acquired companies. Goodwill and other intangible assets with indefinite lives are tested at least annually for impairment. We perform our annual impairment tests during the June quarter in connection with our annual planning process, unless there are impairment indicators that warrant a test prior to that. |
A summary of the carrying amount of goodwill attributable to each segment, as well as the changes in such, is as follows: |
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(in thousands) | Industrial | | | Infrastructure | | | Total | | | | | | | |
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Goodwill | $ | 407,610 | | | $ | 462,582 | | | $ | 870,192 | | | | | | | |
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Accumulated impairment losses | (150,842 | ) | | — | | | (150,842 | ) | | | | | | |
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Balance as of June 30, 2012 | $ | 256,768 | | | $ | 462,582 | | | $ | 719,350 | | | | | | | |
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Translation | 1,315 | | | 1,090 | | | 2,405 | | | | | | | |
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Change in goodwill | 1,315 | | | 1,090 | | | 2,405 | | | | | | | |
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Goodwill | 408,925 | | | 463,672 | | | 872,597 | | | | | | | |
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Accumulated impairment losses | (150,842 | ) | | — | | | (150,842 | ) | | | | | | |
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Balance as of June 30, 2013 | $ | 258,083 | | | $ | 463,672 | | | $ | 721,755 | | | | | | | |
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Acquisition | $ | 60,100 | | | $ | 183,477 | | | $ | 243,577 | | | | | | | |
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Translation | 3,312 | | | 6,932 | | | 10,244 | | | | | | | |
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Change in goodwill | 63,412 | | | 190,409 | | | 253,821 | | | | | | | |
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Goodwill | 472,337 | | | 654,081 | | | 1,126,418 | | | | | | | |
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Accumulated impairment losses | (150,842 | ) | | — | | | (150,842 | ) | | | | | | |
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Balance as of June 30, 2014 | $ | 321,495 | | | $ | 654,081 | | | $ | 975,576 | | | | | | | |
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We recorded no goodwill or other intangible asset impairments in 2014, 2013 and 2012. |
The Company is currently exploring strategic alternatives for a portion of its Infrastructure business, which has an estimated net book value of approximately $39.0 million as of June 30, 2014. As the strategic direction has not yet been determined, the Company cannot determine if an impairment loss is either probable or estimable. |
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The components of our other intangible assets were as follows: |
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| Estimated | | 30-Jun-14 | | 30-Jun-13 |
Useful Life |
(in thousands) | (in years) | | Gross Carrying | | | Accumulated | | | Gross Carrying | | | Accumulated | |
| Amount | Amortization | Amount | Amortization |
Contract-based | 3 to 15 | | $ | 23,446 | | | $ | (10,820 | ) | | $ | 21,450 | | | $ | (8,374 | ) |
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Technology-based and other | 4 to 20 | | 54,842 | | | (28,516 | ) | | 38,005 | | | (26,006 | ) |
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Customer-related | 10 to 21 | | 285,751 | | | (76,376 | ) | | 178,318 | | | (58,148 | ) |
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Unpatented technology | 10 to 30 | | 61,867 | | | (12,549 | ) | | 45,972 | | | (9,761 | ) |
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Trademarks | 5 to 20 | | 19,256 | | | (10,984 | ) | | 14,055 | | | (9,151 | ) |
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Trademarks | Indefinite | | 37,259 | | | — | | | 36,405 | | | — | |
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Total | | | $ | 482,421 | | | $ | (139,245 | ) | | $ | 334,205 | | | $ | (111,440 | ) |
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On November 4, 2013, we acquired the Tungsten Materials Business (TMB) from Allegheny Technologies Incorporated (ATI), the operations of which are included in both the Industrial and Infrastructure segments. As a result of the acquisition, we increased goodwill by $243.6 million and other intangible assets by $127.3 million based on our purchase price allocations. In the Infrastructure segment we recorded customer-related intangible assets of $102.0 million with an estimated useful life of 18 years to 21 years, technology-based and other intangibles of $13.1 million with an estimate useful life of 10 years to 13 years, trademarks of $2.7 million with an estimated useful life of 10 years and contract-based intangibles of $1.6 million with an estimated useful life of 3 years. In the Industrial segment we recorded customer-related intangible assets of $2.9 million with an estimated useful life of 10 years, trademarks of $2.5 million with an estimated useful life of 10 years, unpatented technology of $2.3 million with an estimated useful life of 10 years and technology-based an other intangibles of $0.2 million with an estimated useful life of 5 years. These other intangible assets will be amortized over their respective estimated useful lives. |
In the Infrastructure and Industrial segments we recorded $183.5 million and $60.1 million of goodwill, respectively, related to the TMB acquisition. The goodwill recorded relates to operating synergies associated with the acquisition that we expected to realize. Goodwill of $202.1 million was deductible for tax purposes. |
On August 1, 2013, we acquired the operating assets of Comercializadora Emura S.R.L. and certain related entities (Emura), in our Infrastructure segment. As a result of the acquisition we increased other intangible assets by $16.4 million based on our purchase price allocations. We recorded supplier relationship intangible assets in technology-based and other of $15.9 million with an estimated useful life of 20 years, contract-based intangibles of $0.4 million with an estimated useful life of 3 years and trademarks of $0.1 million with an estimated useful life of 20 years. These intangible assets will be amortized over their respective estimated useful lives. |
We recorded currency translation adjustments which increased intangible assets by $3.0 million in 2014 and decreased intangible assets by $0.2 million in 2013. |
Amortization expense for intangible assets was $26.2 million, $20.8 million and $16.4 million for 2014, 2013 and 2012, respectively. Estimated amortization expense for 2015 through 2019 is $27.7 million, $27.3 million, $25.4 million, $23.5 million, and $22.7 million, respectively. |
Pension and Other Postretirement Benefits, Policy [Policy Text Block] | ' |
PENSION AND OTHER POSTRETIREMENT BENEFITS We sponsor these types of benefit plans for certain employees and retirees. Accounting for the cost of these plans requires the estimation of the cost of the benefits to be provided well into the future and attributing that cost over the expected work life of employees participating in these plans. This estimation requires our judgment about the discount rate used to determine these obligations, expected return on plan assets, rate of future compensation increases, rate of future health care costs, withdrawal and mortality rates and participant retirement age. Differences between our estimates and actual results may significantly affect the cost of our obligations under these plans. |
In the valuation of our pension and other postretirement benefit liabilities, management utilizes various assumptions. Discount rates are derived by identifying a theoretical settlement portfolio of high quality corporate bonds sufficient to provide for a plan’s projected benefit payments. This rate can fluctuate based on changes in the corporate bond yields. |
The long-term rate of return on plan assets is estimated based on an evaluation of historical returns for each asset category held by the plans, coupled with the current and short-term mix of the investment portfolio. The historical returns are adjusted for expected future market and economic changes. This return will fluctuate based on actual market returns and other economic factors. |
The rate of future health care costs is based on historical claims and enrollment information projected over the next year and adjusted for administrative charges. This rate is expected to decrease until 2024. |
Future compensation rates, withdrawal rates and participant retirement age are determined based on historical information. These assumptions are not expected to significantly change. Mortality rates are determined based on a review of published mortality tables. |
Earnings Per Share, Policy [Policy Text Block] | ' |
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 occurs related to the issuance of capital stock under stock option grants, restricted stock awards and restricted stock units. The difference between basic and diluted earnings per share relates solely to the effect of capital stock options, restricted stock awards and restricted stock units. |
For purposes of determining the number of diluted shares outstanding at June 30, 2014, 2013 and 2012, weighted average shares outstanding for basic earnings per share calculations were increased due solely to the dilutive effect of unexercised capital stock options, unvested restricted stock awards and unvested restricted stock units by 1.0 million, 1.1 million and 1.2 million shares, respectively. Unexercised capital stock options, restricted stock units and restricted stock awards of 0.3 million, 1.0 million and 0.7 million shares at June 30, 2014, 2013 and 2012, respectively, were not included in the computation of diluted earnings per share because the option exercise price was greater than the average market price, and therefore the inclusion would have been anti-dilutive. |
Revenue Recognition, Policy [Policy Text Block] | ' |
REVENUE RECOGNITION We recognize revenue upon shipment of our products and assembled machines. Our general conditions of sale explicitly state that the delivery of our products and assembled machines is freight on board shipping point and that title and all risks of loss and damage pass to the buyer upon delivery of the sold products or assembled machines to the common carrier. |
Our general conditions of sale explicitly state that acceptance of the conditions of shipment are considered to have occurred unless written notice of objection is received by Kennametal within 10 calendar days of the date specified on the invoice. We do not ship products or assembled machines unless we have documentation from our customers authorizing shipment. Our products are consumed by our customers in the manufacture of their products. Historically, we have experienced very low levels of returned products and assembled machines and do not consider the effect of returned products and assembled machines to be material. We have recorded an estimated returned goods allowance to provide for any potential returns. |
We warrant that products and services sold are free from defects in material and workmanship under normal use and service when correctly installed, used and maintained. This warranty terminates 30 days after delivery of the product to the customer and does not apply to products that have been subjected to misuse, abuse, neglect or improper storage, handling or maintenance. Products may be returned to Kennametal, only after inspection and approval by Kennametal and upon receipt by the customer of shipping instructions from Kennametal. We have included an estimated allowance for warranty returns in our returned goods allowance. |
We recognize revenue related to the sale of specialized assembled machines upon customer acceptance and installation, as installation is deemed essential to the functionality of a specialized assembled machine. Sales of specialized assembled machines were immaterial for 2014, 2013 and 2012. |
Stock-Based Compensation, Policy [Policy Text Block] | ' |
STOCK-BASED COMPENSATION We recognize stock-based compensation expense for all stock options, restricted stock awards and restricted stock units over the period from the date of grant to the date when the award is no longer contingent on the employee providing additional service (substantive vesting period). We utilize the Black-Scholes valuation method to establish the fair value of all stock option awards. |
Capital stock options are granted to eligible employees at fair market value at the date of grant. Capital stock options are exercisable under specified conditions for up to 10 years from the date of grant. At the 2013 Annual Meeting of Shareowners, the Kennametal Inc. Stock and Incentive Plan of 2010, as Amended and Restated on October 22, 2013 (A/R 2010 Plan) was approved. The A/R 2010 Plan authorizes the issuance of up to 9,500,000 shares of the Company’s capital stock plus any shares remaining unissued under the Kennametal Inc. Stock and Incentive Plan of 2002, as amended (2002 Plan). Under the provisions of the A/R 2010 Plan participants may deliver stock, owned by the holder for at least six months, in payment of the option price and receive credit for the fair market value of the shares on the date of delivery. The fair market value of shares delivered during 2014, 2013 and 2012 were $0.5 million, $0.1 million and $0.4 million, respectively. In addition to stock option grants, the A/R 2010 Plan permits the award of stock appreciation rights, performance share awards, performance unit awards, restricted stock awards, restricted unit awards and share awards to directors, officers and key employees. |
Research and Development Costs, Policy [Policy Text Block] | ' |
RESEARCH AND DEVELOPMENT COSTS Research and development costs of $44.0 million, $39.7 million and $38.3 million in 2014, 2013 and 2012, respectively, were expensed as incurred. These costs are included in operating expense in the consolidated statements of income. |
Shipping and Handling Fees and Costs, Policy [Policy Text Block] | ' |
SHIPPING AND HANDLING FEES AND COSTS All fees billed to customers for shipping and handling are classified as a component of sales. All costs associated with shipping and handling are classified as a component of cost of goods sold. |
Income Taxes, Policy [Policy Text Block] | ' |
INCOME TAXES Deferred income taxes are recognized based on the future income tax effects (using enacted tax laws and rates) of differences in the carrying amounts of assets and liabilities for financial reporting and tax purposes. A valuation allowance is recognized if it is “more likely than not” that some or all of a deferred tax asset will not be realized. |
Derivative Instruments and Hedging Activities, Policy [Policy Text Block] | ' |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES As part of our financial risk management program, we use certain derivative financial instruments. We do not enter into derivative transactions for speculative purposes and, therefore, hold no derivative instruments for trading purposes. We use derivative financial instruments to provide predictability to the effects of changes in foreign exchange rates on our consolidated results, achieve our targeted mix of fixed and floating interest rates on outstanding debt. Our objective in managing foreign exchange exposures with derivative instruments is to reduce volatility in cash flow, allowing us to focus more of our attention on business operations. With respect to interest rate management, these derivative instruments allow us to achieve our targeted fixed-to-floating interest rate mix, as a separate decision from funding arrangements, in the bank and public debt markets. |
We account for derivative instruments as a hedge of the related asset, liability, firm commitment or anticipated transaction, when the derivative is specifically designated as a hedge of such items. We measure hedge effectiveness by assessing the changes in the fair value or expected future cash flows of the hedged item. The ineffective portions are recorded in other expense (income), net. Certain currency forward contracts hedging significant cross-border intercompany loans are considered other derivatives and, therefore, do not qualify for hedge accounting. These contracts are recorded at fair value in the balance sheet, with the offset to other expense (income), net. |
Cash Flow Hedges [Policy Text Block] | ' |
CASH FLOW HEDGES 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 and losses realized on these contracts at maturity are recorded in accumulated other comprehensive (loss) income, and are recognized as a component of other expense (income), net when the underlying sale of products or services is recognized into earnings. |
Interest Rate Floating-to-fixed interest rate swap contracts, designated as cash flow hedges, are entered into from time to time to hedge our exposure to interest rate changes on a portion of our floating rate debt. These interest rate swap contracts convert a portion of our floating rate debt to fixed rate debt. We record 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 (loss) income. |
Fair Value Hedges [Policy Text Block] | ' |
FAIR VALUE HEDGES Interest Rate Fixed-to-floating interest rate swap contracts, designated as fair value hedges, are entered into from time to time to hedge our exposure to fair value fluctuations on a portion of our fixed rate debt. These interest rate swap contracts convert a portion of our fixed rate debt to floating rate debt. When in place, these contracts require periodic settlement, and the difference between amounts to be received and paid under the contracts is recognized in interest expense. |
Currency Translation, Policy [Policy Text Block] | ' |
CURRENCY TRANSLATION Assets and liabilities of international operations are translated into U.S. dollars using year-end exchange rates, while revenues and expenses are translated at average exchange rates throughout the year. The resulting net translation adjustments are recorded as a component of accumulated other comprehensive (loss) income. The local currency is the functional currency of most of our locations. Losses from currency transactions included in other expense (income), net were $2.5 million, $4.5 million and $2.6 million for 2014, 2013 and 2012, respectively. |
New Accounting Standards, Policy [Policy Text Block] | ' |
NEW ACCOUNTING STANDARDS |
Adopted |
As of July 1, 2013, Kennametal adopted disclosure requirements related to reclassifications out of accumulated other comprehensive income by component. See Note 13 to these consolidated financial statements for required disclosures. Other than the change in disclosures, the adoption of this guidance had no impact on the consolidated financial statements. |
As of July 1, 2013, Kennametal adopted additional guidance on testing indefinite lived intangible assets for impairment. The guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step impairment test. The adoption of this guidance had no impact on the consolidated financial statements. |
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Issued |
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers: Topic 606”. This ASU replaces nearly all existing U.S. GAAP guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment. This standard is effective for Kennametal July 1, 2017. We are in the process of assessing the impact the adoption of this ASU will have on its consolidated financial statements. |
In April 2014, the FASB issued an ASU that changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has or will have a major effect on an entity's operations and financial results. This standard is effective for Kennametal July 1, 2015. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The ASU is not expected to have a material effect. |
In July 2013, the FASB issued new guidance on the presentation in the financial statements of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance takes into account these losses and carryfowards as well as the intended or likelihood of use of the unrecognized tax benefit in determining the balance sheet classification as an asset or liability. This guidance is effective for Kennametal beginning July 1, 2014 and will not have a material impact. |