kmt-20230930

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: September 30, 2023


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

For the transition period from _______ to _______

Commission file number 1-5318

KENNAMETAL INC.

(Exact name of registrant as specified in its charter)


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

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

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

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


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

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

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

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


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

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

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

As of October 31, 2023 79,603,305 shares of the Registrant’s Capital Stock, par value $1.25 per share, were outstanding.

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KENNAMETAL INC.

FORM 10-Q

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023

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Item No.		Page No.

PART I - FINANCIAL INFORMATION

1.	Financial Statements

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

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

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

	Condensed Consolidated Statements of Cash Flow (Unaudited) Three months ended September 30, 2023 and 2022	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

3.	Quantitative and Qualitative Disclosures About Market Risk	29

4.	Controls and Procedures	29

5.	Other Information	29

PART II - OTHER INFORMATION
1.	Legal Proceedings	30

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



6.	Exhibits	31

Signatures		32

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FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that do not relate strictly to historical or current facts. You can identify forward-looking statements by words such as “should,” “anticipate,” “estimate,” “approximate,” “expect,” “may,” “will,” “project,” “intend,” “plan,” “believe” and other words of similar meaning and expression in connection with any discussion of future operating or financial performance or events. We have also included forward-looking statements in this Quarterly Report on Form 10-Q concerning, among other things, our strategy, goals, plans and projections regarding our financial position, liquidity and capital resources, results of operations, market position and product development. These statements are based on current estimates that involve inherent risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, our actual results could vary materially from our current expectations. There are a number of factors that could cause our actual results to differ from those indicated in the forward-looking statements. They include: uncertainties related to changes in macroeconomic and/or global conditions, including as a result of increased inflation and Russia's invasion of Ukraine and the resulting sanctions on Russia; the adverse effects of the COVID-19 pandemic and its impacts on our business operations, financial results and financial position and on the industries in which we operate and the global economy generally; other economic recession; our ability to achieve all anticipated benefits of restructuring, simplification and modernization initiatives; Commercial Excellence growth initiatives, Operational Excellence initiatives, our foreign operations and international markets, such as currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability, including the conflict in Ukraine; changes in the regulatory environment in which we operate, including environmental, health and safety regulations; potential for future goodwill and other intangible asset impairment charges; our ability to protect and defend our intellectual property; continuity of information technology infrastructure; competition; our ability to retain our management and employees; demands on management resources; availability and cost of the raw materials we use to manufacture our products; product liability claims; integrating acquisitions and achieving the expected savings and synergies; global or regional catastrophic events; demand for and market acceptance of our products; business divestitures; energy costs; commodity prices; labor relations; and implementation of environmental remediation matters. We provide additional information about many of the specific risks we face in the “Risk Factors” section of our Annual Report on Form 10-K and in other periodic reports we file from time to time with the Securities and Exchange Commission. We can give no assurance that any goal or plan set forth in our forward-looking statements will be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. Except as required by law, we do not intend to release publicly any revisions to forward-looking statements as a result of future events or developments.

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended September 30,
(in thousands, except per share amounts)	2023		2022
Sales	$	492,476	$	494,792
Cost of goods sold	329,578		334,824
Gross profit	162,898		159,968
Operating expense	111,649		108,278
Restructuring and other charges, net (Note 6)	3,086		—

Amortization of intangibles	3,045		3,164
Operating income	45,118		48,526
Interest expense	6,601		6,638
Other expense, net	89		1,009
Income before income taxes	38,428		40,879
Provision for income taxes	8,059		11,242
Net income	30,369		29,637
Less: Net income attributable to noncontrolling interests	312		1,441
Net income attributable to Kennametal	$	30,057	$	28,196
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS
Basic earnings per share	$	0.38	$	0.35
Diluted earnings per share	$	0.37	$	0.34
Basic weighted average shares outstanding	80,025		81,544
Diluted weighted average shares outstanding	80,699		82,165

KENNAMETAL INC.

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


	Three Months Ended September 30,
(in thousands)	2023		2022
Net income	$	30,369	$	29,637
Other comprehensive income (loss), net of tax

Reclassification of unrealized gain on derivatives designated and qualified as cash flow hedges	(192)		(192)
Unrecognized net pension and other postretirement benefit plans gain	1,517		3,324
Reclassification of net pension and other postretirement benefit plans loss	1,054		806
Foreign currency translation adjustments	(20,188)		(52,949)

Total other comprehensive loss, net of tax	(17,809)		(49,011)
Total comprehensive income (loss)	12,560		(19,374)
Less: comprehensive loss attributable to noncontrolling interests	(326)		(324)
Comprehensive income (loss) attributable to Kennametal Shareholders	$	12,886	$	(19,050)

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

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KENNAMETAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in thousands, except per share data)	September 30, 2023		June 30, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	95,098	$	106,021
Accounts receivable, less allowance for doubtful accounts of $8,185 and $8,759, respectively	288,655		307,313
Inventories (Note 9)	570,345		557,630


Other current assets	56,457		55,825
Total current assets	1,010,555		1,026,789
Property, plant and equipment:
Land and buildings	412,338		416,291
Machinery and equipment	1,954,536		1,951,535
Less accumulated depreciation	(1,408,628)		(1,398,758)
Property, plant and equipment, net	958,246		969,068
Other assets:
Goodwill (Note 17)	266,582		269,551
Other intangible assets, less accumulated amortization of $175,481 and $173,346, respectively (Note 17)	89,817		93,164
Operating lease right-of-use assets	43,000		43,036
Deferred income taxes	64,453		65,519
Other	80,107		80,107
Total other assets	543,959		551,377
Total assets	$	2,512,760	$	2,547,234
LIABILITIES
Current liabilities:

Revolving and other lines of credit and notes payable (Note 11)	$	31,179	$	689
Current operating lease liabilities	11,712		11,379
Accounts payable	197,369		203,341
Accrued income taxes	19,170		25,143
Accrued expenses	42,191		55,635


Other current liabilities	118,225		137,788
Total current liabilities	419,846		433,975
Long-term debt, less current maturities (Note 10)	595,374		595,172
Operating lease liabilities	31,786		32,178
Deferred income taxes	31,410		32,062
Accrued pension and postretirement benefits	112,542		115,536
Accrued income taxes	1,545		1,446
Other liabilities	21,506		22,697
Total liabilities	1,214,009		1,233,066
Commitments and contingencies
EQUITY (Note 15)
Kennametal Shareholders’ Equity:
Preferred stock, no par value; 5,000 shares authorized; none issued	—		—
Capital stock, $1.25 par value; 120,000 shares authorized; 79,818 and 79,835 shares issued, respectively	99,773		99,794
Additional paid-in capital	453,385		465,406
Retained earnings	1,138,712		1,124,590
Accumulated other comprehensive loss	(431,512)		(414,343)
Total Kennametal Shareholders’ Equity	1,260,358		1,275,447
Noncontrolling interests	38,393		38,721
Total equity	1,298,751		1,314,168
Total liabilities and equity	$	2,512,760	$	2,547,234

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

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KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)


	Three Months Ended September 30,
(in thousands)	2023		2022
OPERATING ACTIVITIES
Net income	$	30,369	$	29,637
Adjustments to reconcile to cash from operations:
Depreciation	30,461		29,459
Amortization	3,045		3,164
Stock-based compensation expense	8,696		8,282
Restructuring and other charges, net (Note 6)	3,087		—
Deferred income taxes	(104)		64


Other	5,623		(2,406)
Changes in certain assets and liabilities:
Accounts receivable	17,937		5,303
Inventories	(20,266)		(38,499)
Accounts payable and accrued liabilities	(32,555)		(42,145)
Accrued income taxes	(11,676)		1,552
Accrued pension and postretirement benefits	(2,925)		(2,482)
Other	(5,981)		(2,677)
Net cash flow provided by (used in) operating activities	25,711		(10,748)
INVESTING ACTIVITIES
Purchases of property, plant and equipment	(31,799)		(29,484)
Disposals of property, plant and equipment	3,048		202


Other	27		(12)
Net cash flow used in investing activities	(28,724)		(29,294)
FINANCING ACTIVITIES
Net increase in notes payable	7,212		3,388
Net increase in revolving and other lines of credit	23,400		60,900




Purchase of capital stock	(13,725)		(19,376)
The effect of employee benefit and stock plans and dividend reinvestment	(7,013)		(4,757)
Cash dividends paid to Shareholders	(15,935)		(16,276)
Other	9		(754)
Net cash flow (used in) provided by financing activities	(6,052)		23,125
Effect of exchange rate changes on cash and cash equivalents	(1,858)		(4,101)
CASH AND CASH EQUIVALENTS
Net decrease in cash and cash equivalents	(10,923)		(21,018)
Cash and cash equivalents, beginning of period	106,021		85,586
Cash and cash equivalents, end of period	$	95,098	$	64,568

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

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.BASIS OF PRESENTATION

The condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q, which include our accounts and those of our subsidiaries in which we have a controlling interest, should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 (the “2023 Annual Report”). The condensed consolidated balance sheet as of June 30, 2023 was derived from the audited balance sheet included in our 2023 Annual Report. The interim statements are unaudited; however, we believe that all adjustments necessary for a fair statement of the results of the interim periods were made and all adjustments are normal recurring adjustments. The results for the three months ended September 30, 2023 are not necessarily indicative of the results to be expected for a full fiscal year. Unless otherwise specified, any reference to a “year” is to a fiscal year ended June 30. For example, a reference to 2024 is to the fiscal year ending June 30, 2024. When used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, the terms “the Company,” “we,” “our” and “us” refer to Kennametal Inc. and its subsidiaries.

2.SUPPLEMENTAL CASH FLOW DISCLOSURES


	Three Months Ended September 30,
(in thousands)	2023		2022
Cash paid during the period for:
Interest	$	5,031	$	5,143
Income taxes	13,310		9,626
Supplemental disclosure of non-cash information:
Changes in accounts payable related to purchases of property, plant and equipment	(4,789)		(8,708)

3. SUPPLIER FINANCE PROGRAM

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

4. FAIR VALUE MEASUREMENTS

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

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

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

Level 3: Inputs that are unobservable.

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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


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

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

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


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

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

(1) Currency derivatives are valued based on observable market spot and forward rates and are classified within Level 2 of the fair value hierarchy.

There have been no changes in classification and transfers between levels in the fair value hierarchy in the current period.

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As part of our financial risk management program, we use certain derivative financial instruments. We do not enter into derivative transactions for speculative purposes and, therefore, we do not hold any derivative instruments for trading purposes. We account for derivative instruments as a hedge of the related asset, liability, firm commitment or anticipated transaction, when the derivative is specifically designated and qualifies as a hedge of such items. Our objective in managing foreign exchange exposures with derivative instruments is to reduce volatility in cash flow. We measure hedge effectiveness by assessing the changes in the fair value or expected future cash flows of the hedged item.

There were no derivatives designated as hedging instruments as of September 30, 2023 and June 30, 2023. The fair value of derivatives not designated as hedging instruments in the condensed consolidated balance sheets are as follows:


(in thousands)	September 30, 2023		June 30, 2023






Derivatives not designated as hedging instruments
Other current assets - currency forward contracts	$	1	$	68
Other current liabilities - currency forward contracts	(90)		(100)
Total derivatives not designated as hedging instruments	(89)		(32)
Total derivatives	$	(89)	$	(32)

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KENNAMETAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Certain currency forward contracts that hedge significant cross-border intercompany loans are considered as other derivatives and therefore do not qualify for hedge accounting. These contracts are recorded at fair value in the condensed consolidated balance sheets, with the offset to other expense, net. Losses (gains) related to derivatives not designated as hedging instruments have been recognized as follows:


	Three Months Ended September 30,
(in thousands)	2023		2022
Other expense (income), net - currency forward contracts	$	122	$	(306)

NET INVESTMENT HEDGES

As of September 30, 2023 and June 30, 2023, there were no foreign currency-denominated intercompany loans payable outstanding that were designated as net investment hedges. A gain of $1.7 million was recorded as a component of foreign currency translation adjustments in other comprehensive loss for the three months ended September 30, 2022.

6. RESTRUCTURING AND OTHER CHARGES, NET

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

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

We recorded no restructuring and related charges for the three months ended September 30, 2022.

As of September 30, 2023, $7.7 million and $2.2 million of the restructuring accrual was recorded in other current liabilities and other liabilities, respectively, in our condensed consolidated balance sheet. As of June 30, 2023, $9.4 million and $0.5 million of the restructuring accrual was recorded in other current liabilities and other liabilities, respectively. The amounts are as follows:


(in thousands)	June 30, 2023		Expense		Translation		Cash Expenditures		September 30, 2023
Severance	$	9,885	$	3,694	$	(229)	$	(3,448)	$	9,902


Total	$	9,885	$	3,694	$

SEC Form 10-Q filed by Kennametal Inc.