FinanceLooker

Excrept from filing document 2024-06-30

As of December 29 2023 the aggregate market value of the registrant s Capital Stock held by non affiliates of the registrant estimated solely for the purposes of this Form 10 K was approximately 961 400 000 For purposes of the foregoing calculation only all directors and executive officers of the registrant and each person who may be deemed to own beneficially more than 5 of the registrant s Capital Stock have been deemed affiliates
Statements and financial discussion and analysis contained herein and in the documents incorporated by reference herein that are not historical facts are 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 the Exchange Act For example statements about Kennametal s expectations regarding future growth and any statements regarding future operating or financial performance or events are forward looking We have also included forward looking statements in this Annual Report on Form 10 K Annual Report 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 Any forward looking statements are based on current knowledge expectations and 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 conflict between Israel and Gaza 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 conflicts in Ukraine and Gaza 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 this Annual Report We can give no assurance that any goal or plan set forth in forward looking statements can be achieved and readers are cautioned not to place undue reliance on such statements which speak only as of the date made We undertake no obligation to release publicly any revisions to forward looking statements as a result of future events or developments
With more than 85 years of materials expertise Kennametal Inc the Company is a global industrial technology leader that helps customers across the Aerospace Defense Earthworks Energy General Engineering and Transportation end markets build their products with precision and efficiency The Company was founded based on a tungsten carbide technology breakthrough in 1938 and was incorporated in Pennsylvania in 1943 as a manufacturer of tungsten carbide metal cutting tooling In 1967 it was listed on the New York Stock Exchange NYSE with the stock ticker KMT
The Company s core 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 We bring together material science technical expertise innovation and customer service in a way that allows us to anticipate customers needs and help them overcome problems and achieve their manufacturing objectives
Our standard and custom product offering spans 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 the Company s metal cutting products include manufacturers engaged in a diverse array of industries including 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 The Company s 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 and for aerospace and defense
Unless otherwise specified any reference to a year refers to our fiscal year ending on June 30 Unless the context requires otherwise the terms we our and us refer to Kennametal Inc and its subsidiaries
Kennametal operates in two segments Metal Cutting and Infrastructure The Company s reportable operating segments have been determined in accordance with the Company s internal management structure which is organized based on operating activities the manner in which we organize segments for making operating decisions and assessing performance and the availability of separate financial results Sales and operating income by segment are presented in Management s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7 of this Annual Report MD A Additional segment data is provided in Note 21 of our consolidated financial statements set forth in Item 8 of this Annual Report
The Metal Cutting segment develops and manufactures high performance tooling and metal cutting products and services and offers an assortment of standard and custom metal cutting solutions to diverse end markets including Aerospace Defense General Engineering Energy and Transportation 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
brands through its direct sales force a network of independent and national distributors integrated supplier channels and digitally Application engineers and technicians are critical to the sales process and directly assist our customers with specified product design selection application and support
Our Infrastructure segment produces engineered tungsten carbide and ceramic components earth cutting tools and advanced metallurgical powders primarily for the Aerospace Defense 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 high temperature critical wear components tungsten penetrators and armor solutions for aerospace and defense and ceramics used by the packaging industry for metallization of films and papers We combine deep metallurgical and engineering expertise with advanced manufacturing capabilities such as 3D printing to deliver solutions that drive improved productivity for our customers Infrastructure markets its products primarily under the Kennametal
During 2024 we generated 60 percent of our consolidated sales in markets outside of the United States of America U S with principal international operations in Western Europe China and India We also operate manufacturing and distribution facilities in Israel Latin America South Africa and Vietnam while serving customers through sales offices agents and distributors in Europe and other parts of the world While geographic diversification helps to minimize the sales and earnings effect of demand changes in any one particular region our international operations are subject to normal risks of doing business globally including fluctuations in currency exchange rates and changes in social political and economic environments
Our international sales and long lived assets are presented in Note 21 of the Company s consolidated financial statements set forth in Item 8 of this Annual Report Further information about the effects and risks of currency exchange rates are presented in the Quantitative and Qualitative Disclosures About Market Risk section set forth in Item 7A of this Annual Report
We continually evaluate new opportunities to expand into new market areas and to introduce new and or complementary product offerings into new or existing areas where appropriate We expect to continue to grow our business and further enhance our market position through the investment opportunities that exist within our core businesses including potential acquisitions in the near term In 2024 the Company completed an immaterial business combination for total consideration of approximately 6 5 million Goodwill of approximately 3 8 million was recorded in the Metal Cutting segment as a result of the acquisition
Our major metallurgical raw materials consist of tungsten ore concentrates and scrap carbide which are used to make tungsten oxide as well as compounds and secondary materials such as cobalt Although an adequate supply of these raw materials currently exists our major sources for raw materials are located abroad and prices fluctuate at times We exercise great care in selecting purchasing and managing the availability of raw materials utilizing a mix of long term supply agreements coupled with spot purchases Additionally our internal tungsten recycling capability provides us access to additional sources of tungsten and therefore helps to mitigate our reliance on third parties We also purchase steel bars and forgings for making toolholders and other tool parts as well as for producing mining tools rotary cutting tools and accessories We purchase products for use in manufacturing processes and for resale from thousands of suppliers located in the U S and abroad
Our R D efforts focus on delivering innovations to our customers from both new product and process technology development New product development provides solutions to our customers manufacturing challenges and productivity requirements New process technology is developed and implemented in support of operational excellence to enhance product quality and efficiency at our plant sites We use a disciplined framework and have established stage gates or sequential tests to remove inefficiencies and accelerate commercial success This framework is designed to accelerate and streamline development into a series of actions and decision points integrating resource tasks to implement new and enhanced products and process technologies faster Our stage gate process ensures a strong linkage between verified customer requirements and corporate strategy and enables us to gain the full benefits of our investment in development work
Our business is affected by seasonal variations to varying degrees by summer road construction traditional summer vacation shutdowns of customers plants and holiday shutdowns that affect our sales levels during the first and second quarters of our fiscal year
As one of the world s leading producers of tooling and metal cutting products specialty wear resistant components and ceramics earth cutting tools and advanced metallurgical powders we maintain a competitive position in major markets worldwide We actively compete in the sale of all our products with several large global competitors and with many smaller niche businesses offering various capabilities to customers around the world While several of our competitors are divisions of larger corporations our industry remains largely fragmented containing several hundred fabricators toolmakers and niche specialty coating businesses Many of our competitors operate relatively small facilities producing a limited selection of tools while buying cemented tungsten carbide components from original producers of cemented tungsten carbide products including Kennametal We also supply coated solutions and other engineered wear resistant products to both larger corporations and smaller niche businesses Given the fragmentation opportunities for consolidation exist from both U S based and internationally based firms as well as among thousands of industrial supply distributors
The principal competitive differentiators in our businesses include customer focused support and application expertise custom and standard product innovation product performance and quality and our brand recognition We derive competitive advantage from our premium brand positions global presence application expertise and ability to address unique customer needs with new and improved tools innovative surface and wear resistant solutions highly engineered components consistent quality traditional and digital customer service and technical assistance capabilities state of the art manufacturing and multiple sales channels With these strengths we are able to sell products based on the value added productivity we deliver to our customers rather than competing solely on price
From time to time we are a 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 assets While we currently believe that the amount of ultimate liability if any we may face with respect to these actions will not materially affect our financial position results of operations or liquidity the ultimate outcome of any litigation is uncertain Were an unfavorable outcome to occur or if protracted litigation were to ensue the effect on us could be material
Compliance with government laws and regulations pertaining to the discharge of materials or pollutants into the environment or otherwise relating to the protection of the environment did not have a material effect on our capital expenditures or competitive position for the years covered by this Annual Report nor is such compliance expected to have a material effect on us in the future
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 sites associated with our current or former operations
We establish and maintain accruals for estimated liabilities associated with certain environmental matters As of June 30 2024 and 2023 the balances of these accruals were 11 0 million and 12 0 million respectively These accruals represent anticipated costs associated with the remediation of these issues and are generally not discounted
We record a loss contingency when the available information indicates it is probable that we have incurred a liability and the amount of the loss is reasonably estimable The likelihood of a loss with respect to a particular environmental matter is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on information available When a material loss contingency is probable but a reasonable estimate cannot be made or when a material loss contingency is at least reasonably possible disclosure is provided The accruals we have established for estimated environmental liabilities represent our best current estimate of the probable and reasonably estimable costs of addressing 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 The 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 or the courts on these matters
Among other environmental laws we are subject to the Comprehensive Environmental Response Compensation and Liability Act of 1980 CERCLA under which we have been identified by the USEPA or other third party as a PRP with respect to environmental remedial costs at certain Superfund sites We have evaluated our claims and estimated liability associated with these sites based upon the best information currently available to us We believe our environmental accruals are adequate to cover our portion of the environmental remedial costs at the sites where we have been designated a PRP to the extent these expenses are probable and reasonably estimable
We employed 8 447 people including approximately 8 400 full time employees as of June 30 2024 Approximately 2 700 employees were located in the U S and 5 700 were located in other parts of the world principally Germany India and China As of June 30 2024 approximately 2 300 of our employees were represented by labor unions We consider our labor relations to be generally good
We continue to deploy our strategy and supporting infrastructure to elevate and advance diversity and inclusion D I across our global organization and instill accountability for our performance Our D I initiatives are guided by our D I Steering Team which was formed in fiscal 2023 The Steering Team is led by four senior executives who are responsible for one of our D I strategic pillars awareness acquisition development and community
Our D I strategy is also championed by the Global Inclusion Council which consists of cross functional global leaders Four regional inclusion councils covering the Americas Asia Pacific EMEA and India execute the strategies and provide a global perspective We track key metrics to monitor the progress of our D I strategy and goals focusing on diverse representation and identifying areas for improvement across all levels of the organization
As part of our awareness initiatives in 2024 we continued to enhance the D I sections of the Company s intranet and intend to redesign our external website in 2025 We expanded our Employee Resource Groups ERGs to foster communication and mentorship among diverse groups within the Company We currently have five official ERGs Women at Work W W in the Americas the Women s Excellence Forum in India the Women s Business Council in EMEA the Black Excellence Network BXN focused on supporting our Black and African American employees in the Americas and the Different Abilities ERG in EMEA supporting employees with disabilities in Germany We expect to launch additional ERGs in the future and have developed a toolkit to help ERGs set goals aligned with our business objectives
BXN hosted an educational month long celebration of Black History Month in February 2024 that all employees had an opportunity to engage in through our internal social media platform Our facilities around the world held events in March 2024 to celebrate Women s History Month and International Women s Day recognizing the achievements of female colleagues and participating in activities and discussions Lastly we incorporated global recognition and educational opportunities for Mental Health Awareness Month in May 2024 reinforcing our ongoing commitment to the well being of our employees
We continue to focus globally on increasing the number of women in professional roles The tables below show the percentage of our employees who are women and the percentage of leadership roles at the Company held by women as of the dates indicated
Safety including the health of our employees and contractors is one of our core values and a priority across our global operations We are committed to developing a world class health and safety culture aimed at achieving zero injuries and illnesses The long term vision to achieving our world class health and safety culture is formalized and communicated in our Environmental Health and Safety EHS Roadmap that consists of four focus areas fatality and serious injury FSI prevention incident prevention leadership development and culture and environmental compliance and sustainability
The Company uses our EHS Management System including an extensive list of apps to enable streamlined collection tracking and dissemination of key data related to our EHS standards and requirements Along with each standard we have developed a self assessment used to evaluate performance and develop action plans for advancing on the EHS Roadmap
In 2024 we continued to achieve positive results in proactive risk identification and closure programs which drive our culture of eliminating hazards prior to potential incidents Our total recordable incident rate TRIR performance was 0 34 in 2024 compared to 0 42 in 2023
For the Company to grow our employees must grow and develop continuously We offer learning and development opportunities for all employees In 2024 this included training for senior mid level and emerging leaders in role and function specific skills such as change management process improvement and sales training We also offered our operational employees technical training through the Kennametal Knowledge Center
Supporting our learning and development efforts is our OneTeam learning management system LMS Available in multiple languages OneTeam offers more than 5 000 online courses in an easy to use interface Throughout 2024 over 3 400 employees accessed the LMS and completed over 14 500 courses Training is offered to our employees in many different formats Although not all training hours are tracked through OneTeam over 10 200 hours of completed training were recorded in the system during 2024
The Company offers competitive compensation and benefits packages to build a qualified and motivated workforce and to meet their health and wellness needs Our overall executive compensation philosophy is designed to attract incentivize and retain high performing talent Executive compensation includes a mix of base salary annual cash based incentives under our Annual Incentive Plan AIP and our equity based Long Term Incentive Plan LTIP
The AIP which is based on the Company s achievement of short term financial and strategic goals includes important Environmental Social and Governance ESG goals for all executive leadership team members and other key senior leaders These goals are tied to worker safety and D I and represent an important step in advancing accountability on ESG strategies
To measure the effectiveness of our employee engagement strategy we track key performance indicators such as our voluntary turnover rate Our voluntary turnover rate was 7 9 percent in 2024 compared to 8 1 percent in 2023 We also conduct annual Be Heard employee engagement surveys to gather input and feedback on a wide range of categories including teamwork diversity and inclusion health and safety ethical behavior and decision making We use the survey results which are shared with employees to refine employee engagement programs and develop new initiatives In our most recent survey launched in April 2024 we had a response rate of 82 percent and showed improvement in engagement scores across our global production and professional workforce Our average engagement score was 71 in 2024 up from 69 in 2023
Our internet address is www kennametal com On the SEC Filings page of our website which is accessible under the About Us tab under Investor Relations and then the Financials tab we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission SEC our annual reports on Form 10 K our annual proxy statements our annual conflict minerals disclosure and reports on Form SD our annual reports on Form 11 K our quarterly reports on Form 10 Q our current reports on Form 8 K and any amendments to these reports filed or furnished pursuant to Section 13 a or 15 d of the Exchange Act The SEC Filings page of our website also includes Forms 3 4 and 5 filed pursuant to Section 16 a of the Exchange Act All filings posted on our SEC Filings page are available to be viewed on our website free of charge On the Corporate Governance page of our website which is accessible under the About Us tab under Investor Relations we post the following charters and guidelines Audit Committee Charter Compensation and Human Capital Committee Charter Nominating Corporate Governance Committee Charter Kennametal Inc Corporate Governance Guidelines and Kennametal Inc Stock Ownership Guidelines On the Ethics and Compliance page of our website which is under the About Us tab we post our Code of Conduct All charters and guidelines posted on our website are available to be viewed free of charge Information contained on our website is not part of this Annual Report or our other filings with the SEC Copies of this Annual Report and those items disclosed on the Corporate Governance and Ethics and Compliance pages of our website are available without charge upon written request to Investor Relations Kennametal Inc 525 William Penn Place Suite 3300 Pittsburgh Pennsylvania 15219 2706 The SEC maintains an internet site www sec gov that contains reports proxy and information statements and other information regarding issuers including Kennametal that file electronically with the SEC
This section describes material risks to our business that are currently known to us Our business financial condition or results of operations may be materially affected by a number of factors Our management regularly monitors the risks inherent in our business with input from our Enterprise Risk Management process In addition to real time monitoring we periodically conduct a formal enterprise wide risk assessment to identify factors and circumstances that might present significant risk to the Company Many of these risks are discussed throughout this report The risks below however are not exhaustive We operate in a rapidly changing environment Other risks that we currently believe to be immaterial could become material in the future We are also subject to legal and regulatory changes New factors could emerge and it is not possible to predict the outcome of all such risk factors on our business financial condition or results of operations The following discussion details the material risk factors and uncertainties that we believe could cause Kennametal s actual results to differ materially from those projected in any forward looking statements
The Russian invasion of Ukraine in February 2022 and the resulting sanctions and actions taken against Russia by the United States Canada the European Union and other countries have restricted our ability to sell certain products in Russia and Ukraine In 2022 the Company ceased operations in Russia and subsequently decided to liquidate its legal entity in Russia which is expected to be completed in 2025 A significant escalation or expansion of the conflict beyond its current geographic political and economic scope and scale could have a material adverse effect on our business results of operations and financial condition and could exacerbate other risks Such risks include but are not limited to an energy shortage in Europe as Russia has limited natural gas and other supplies into Europe an increase in the frequency and severity of the cybersecurity threats we and various third parties with whom we do business experience unfavorable changes in exchange rates further shortages delivery delays and price inflation in a wide variety of raw materials and components widespread reductions in customer demand and increased logistical challenges
We 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 global Coronavirus Disease 2019 COVID 19 pandemic negatively affected the global economy disrupted financial markets international trade impacted qualified personnel availability and significantly affected global supply chains all of which had an effect on the Company and our end markets The extent to which our business may be affected by public health threats or outbreaks in the future will depend on a variety of factors many of which are outside of our control including the duration of a pandemic or outbreak impacts on economic activity and the possibility of recession or financial market instability
Our business has historically been cyclical and subject to significant effect from economic downturns Global economic downturns coupled with global financial and credit market disruptions have had a negative effect on our sales and profitability historically These events could contribute to weak end markets a sharp drop in demand for our products and services higher energy costs and commodity prices and higher costs of borrowing and or diminished credit availability Although we believe that the long term prospects for our business remain positive we are unable to predict the future course of industry variables or the strength and pace or sustainability of economic development
We have manufacturing operations and assets located outside of the U S including but not limited to those in Western Europe Brazil Canada China India Israel South Africa and Vietnam We also sell our products to customers and distributors located outside of the U S During the year ended June 30 2024 60 percent of our consolidated sales were derived from non U S markets These international operations are subject to a number of special risks in addition to the risks that affect our domestic operations including currency exchange rate fluctuations differing protections of intellectual property trade barriers exchange controls regional economic uncertainty overlap of different tax regimens differing and possibly more stringent labor regulations labor unrest risk of governmental expropriation domestic and foreign customs and tariffs current and changing regulatory environments including but not limited to the risks associated with the importation and exportation of products and raw materials risk of failure of our foreign employees to comply with both U S and foreign laws including antitrust laws trade regulations and the Foreign Corrupt Practices Act difficulty in obtaining distribution support difficulty in staffing and managing widespread operations differences in the availability and terms of financing social and political instability and unrest and risks of increased taxes and or adverse tax consequences Also in some foreign jurisdictions we may be subject to laws limiting the right and ability of entities organized or operating therein to pay dividends or remit earnings to affiliated companies unless specified conditions are met To the extent we are unable to effectively manage our international operations and these risks our international sales may be adversely affected we may be subject to additional and unanticipated costs and we may be subject to litigation or regulatory action As a consequence our business financial condition and results of operations could be seriously harmed
We are subject to various taxes in the U S and numerous other jurisdictions Our future results of operations could be adversely affected by changes in our effective tax rate as a result of a change in the mix of earnings between U S and non U S jurisdictions or among jurisdictions with differing statutory tax rates changes in tax laws or treaties or in their application or interpretation changes in generally accepted accounting principles changes in the valuation of deferred tax assets and liabilities changes in the amount of earnings indefinitely reinvested in certain non U S jurisdictions and the results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures
The U S government has imposed tariffs on certain foreign goods from a variety of countries and regions most notably China that it perceives as engaging in unfair trade practices and previously raised the possibility of imposing significant additional tariff increases or expanding the tariffs to capture other types of goods from other countries In response many of these foreign governments have imposed retaliatory tariffs on goods that their countries import from the U S Uncertainties with respect to tariffs trade agreements or any potential trade wars could negatively affect the global economy and could affect demand for our products and could have a material adverse effect on our financial condition results of operations and cash flows Changes in tariffs and trade barriers could also result in adverse changes in the cost and availability of our raw materials and our ability to manufacture globally to support global sales which could lead to increased costs that we may not be able to effectively pass on to customers each of which could materially adversely affect our operating margins results of operations and cash flows
Despite our concerted effort to minimize risk to our production capabilities and corporate information systems and to reduce the effect of unforeseen interruptions to us through business continuity planning we still may be exposed to interruptions due to catastrophe natural disaster pandemic terrorism or acts of war which are beyond our control Disruptions to our facilities or systems or to those of our key suppliers could also interrupt operational processes and adversely affect our ability to manufacture our products and provide services and support to our customers As a result our business our results of operations financial position cash flows and stock price could be adversely affected
Changes in the regulatory environment including environmental health and safety regulations could subject us to increased compliance and manufacturing costs which could have a material adverse effect on our business
Certain of our products contain hard metals including tungsten and cobalt Hard metal dust is being studied for potential adverse health effects by organizations in several regions throughout the world including the U S Europe and Japan Future studies on the health effects of hard metals may result in our products being classified as hazardous to human health which could lead to new regulations in countries in which we operate that may restrict or prohibit the use of and or exposure to hard metal dust New regulation of hard metals could require us to change our operations and these changes could affect the quality of our products and materially increase our costs
We are subject to various environmental laws and any violation of or our liabilities under these laws could adversely affect us Our operations necessitate the use and handling of hazardous materials and as a result we are subject to various federal state local and foreign laws regulations and ordinances relating to the protection of the environment including those governing discharges to air and water handling and disposal practices for solid and hazardous wastes the cleanup of contaminated sites and the maintenance of a safe workplace These laws impose penalties fines and other sanctions for noncompliance and liability for response costs property damages and personal injury resulting from past and current spills disposals or other releases of or exposure to hazardous materials We could incur substantial costs as a result of noncompliance with or liability for cleanup or other costs or damages under these laws We may be subject to more stringent environmental laws in the future If more stringent environmental laws are enacted in the future these laws could have a material adverse effect on our business financial condition and results of operations
Some of our principal customers are mining and drilling companies that supply coal oil gas or other fuels as a source of energy to utility companies or for transportation The operations of these mining and drilling companies are geographically diverse and are subject to or affected by a wide array of regulations in the jurisdictions where they operate As a result of changes in regulations and laws relating to these industries including without limitation actions to limit or reduce greenhouse gas emissions from the use of fossil fuels our customers operations could be disrupted or curtailed by governmental authorities The high cost of compliance with these regulations may also induce customers to discontinue or limit their operations and may discourage companies from developing new opportunities As a result of these factors demand for our mining and drilling related products could be substantially affected by regulations adversely affecting the mining and drilling industries or altering the fuel choices of utilities or in transportation Our principal customers also include transportation original equipment manufacturers and tier suppliers engaged in the production of internal combustion engines As a result of breakthrough technologies changing consumer preferences or regulations designed to limit or reduce greenhouse gas emissions from the use of fossil fuels in transportation demand for our products could be negatively affected
re is growing concern that a gradual increase in global average temperatures may cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters Such climate change may impair our production capabilities disrupt our supply chain or impact demand for our products Growing concern over climate change also may result in additional legal or regulatory requirements designed to reduce or mitigate the effects of carbon dioxide and other greenhouse gas emissions on the environment Increased energy or compliance costs and expenses as a result of increased legal or regulatory requirements may cause disruptions in or an increase in the costs associated with the manufacturing and distribution of our products The impacts of climate change and legal or regulatory initiatives to address climate change could have a long term adverse impact on our business financial condition and results of operations
The sale of metal cutting mining highway construction and other tools and related products as well as engineered components and advanced materials entails an inherent risk of product liability claims We cannot give any assurances that the coverage limits of our insurance policies will be adequate or that our policies will cover any particular loss Insurance can be expensive and we may not always be able to purchase insurance on commercially acceptable terms if at all Claims brought against us that are not covered by insurance or that result in recoveries in excess of our insurance coverage could have a material adverse effect on our business financial condition and results of operations
We have implemented restructuring and other actions to reduce structural costs improve operational efficiency and position the Company for long term profitable growth However there is no assurance that these efforts or that any other actions that we have taken or may take in the future will be sufficient to counter any future economic or industry disruptions We cannot provide assurance that we will not incur future restructuring charges or impairment charges or that we will achieve all of the anticipated benefits from the restructuring actions we have taken or plan to take in the future
We may evaluate acquisition opportunities that have the potential to strengthen or expand our business We can give no assurances however that any acquisition opportunities will arise or if they do that they will be consummated or that additional financing if needed will be available on satisfactory terms In addition acquisitions involve inherent risks that the businesses acquired will not perform in accordance with our expectations We may not be able to achieve the synergies and other benefits we expect from the integration of acquisitions as successfully or rapidly as projected if at all Our failure to consummate an acquisition or effectively integrate newly acquired operations could prevent us from realizing our expected strategic growth and rate of return on an acquired business and could have a material and adverse effect on our results of operations and financial condition
At June 30 2024 goodwill totaled 271 6 million or 11 percent of our total assets Goodwill results from acquisitions representing the excess of cost over the fair value of the net tangible and other identifiable intangible assets we have acquired We assess at least annually whether there has been impairment in the value of our goodwill If future operating performance at our Metal Cutting reporting unit were to fall significantly below current levels we could record under current applicable accounting rules a non cash impairment charge for goodwill Any determination requiring the impairment of a significant portion of goodwill would negatively affect our financial condition and results of operations
Our future success depends in part upon our ability to protect and defend our intellectual property We rely principally on nondisclosure agreements and other contractual arrangements and trade secret laws and to a lesser extent trademark and patent laws to protect our intellectual property However these measures may be inadequate to protect our intellectual property from infringement by others or prevent misappropriation of our proprietary rights In addition the laws of some foreign countries do not protect proprietary rights to the same extent as do U S laws If one of our patents is infringed upon by a third party we may need to devote significant time and financial resources to defend our rights with respect to such patent We may not be successful in defending our patents Similarly while we do not knowingly infringe on the patents copyrights or other intellectual property rights of others we may be required to spend a significant amount of time and financial resources to resolve any infringement claims against us and we may not be successful in defending our position or negotiating alternative remedies Our inability to protect our proprietary information and enforce or defend our intellectual property rights in proceedings initiated by us or brought against us could have a material adverse effect on our business financial condition and results of operations
Our ability to provide high quality products and services depends in part on our ability to retain our skilled personnel in the areas of management product engineering servicing and sales Competition for such personnel is intense and our competitors can be expected to attempt to hire our management and skilled employees from time to time In addition our restructuring activities and strategies for growth have placed and are expected to continue to place increased demands on our management s skills and resources If we are unable to retain our management team and professional personnel our customer relationships and level of technical expertise could be negatively affected which may materially and adversely affect our business
Any interruption of our workforce including interruptions due to our restructuring initiatives unionization efforts changes in labor relations or shortages of appropriately skilled individuals could affect our business
Our domestic and foreign operations are subject to significant competitive pressures We compete directly and indirectly with other manufacturers and suppliers of metal cutting tools engineered components and advanced materials Some of our competitors are larger than we are and may have greater access to financial resources or be less leveraged than us In addition the industry in which our products are used is a large fragmented industry that is highly competitive
We rely on information technology infrastructure both on premises and third party managed to achieve our business objectives Despite security measures taken by us our information technology systems may be vulnerable to computer viruses or attacks by hackers or breached due to employee error supplier error programming errors malfeasance or other disruptions Any disruption of our infrastructure could negatively affect our ability to record or process orders manufacture and ship in a timely manner or otherwise carry on business in the normal course Any disruption could cause us to lose customers or revenue and could require us to incur significant expense to remediate Increased global information technology threats vulnerabilities and a rise in sophisticated and targeted international computer crime pose a risk to the security of our systems and networks and the confidentiality availability and integrity of our data Any such breach in security could expose the Company and its employees customers and suppliers to risks of misuse of confidential information manipulation and destruction of data production downtimes litigation and operational disruptions which in turn could adversely affect the Company s reputation competitive position business or results of operations
In addition we could be subject to liability if confidential information relating to customers employees vendors and the extended supply chain or other parties is misappropriated from our computer system We cannot assure that our ongoing focus on system improvements will be sufficient to prevent or limit the damage from any cyber attack or network disruption We do not believe we have been the target of a material successful cyber attack
The raw materials we use for our products include tungsten ore concentrates and scrap carbide which are used to make tungsten oxide as well as compounds and secondary materials such as cobalt We also purchase steel bars and forgings for making toolholders and other tool parts as well as for producing mining tools rotary cutting tools and accessories A significant portion of our raw materials is supplied by sources outside of the U S The raw materials extraction industry is highly cyclical and at times pricing and supply can be volatile due to a number of factors beyond our control including natural disasters pandemics or public health issues general economic and political conditions labor costs competition import duties tariffs and currency exchange rate fluctuations This volatility can significantly affect our raw material costs In an environment of increasing raw material prices competitive conditions can affect how much of these price increases we can recover in the form of higher sales prices for our products To the extent we are unable to pass on any raw material price increases to our customers our profitability could be adversely affected Furthermore restrictions in the supply of tungsten cobalt and other raw materials could adversely affect our operating results If the prices for our raw materials increase or we are unable to secure adequate supplies of raw materials on favorable terms our profitability could be impaired If the prices for our raw materials decrease we could face product pricing challenges
Our existing revolving credit facility and other debt agreements each a Debt Facility and collectively Debt Facilities contain restrictive covenants including restrictions on our ability to incur indebtedness These restrictions could limit our ability to effectuate future acquisitions limit our ability to pay dividends limit our ability to make capital expenditures or restrict our financial flexibility Our revolving credit facility contains covenants requiring us to achieve certain financial and operating results and maintain compliance with a specified financial ratio Our ability to meet the financial covenant or requirements in our revolving credit facility may be affected by events beyond our control and we may not be able to satisfy such covenants and requirements A breach of these covenants or our inability to comply with the financial ratio tests or other restrictions contained in a Debt Facility could result in an event of default under one or more of our other Debt Facilities Upon the occurrence of an event of default under a Debt Facility and the expiration of any grace periods the lenders could elect to declare all amounts outstanding under one or more of our other Debt Facilities together with accrued interest to be immediately due and payable If this were to occur our assets may not be sufficient to fully repay the amounts due under our Debt Facilities or our other indebtedness
We assess identify and manage cybersecurity risks through a structured process We rely on the National Institute of Standards and Technology NIST Cybersecurity Framework to guide our approach covering risk identification analysis prioritization and treatment We continuously monitor and mitigate identified risks particularly those deemed significant to the Company including but not limited to operational risk i e disruption of business operations intellectual property theft fraud extortion harm to employees or customers violation of privacy laws and other litigation and legal risk and reputational risk which are tracked through our enterprise risk management program
We closely oversee risks associated with using third party service providers This involves evaluating their adherence to our security requirements conducting technical assessments monitoring their operational performance and establishing incident reporting protocols when our information is impacted by cyber incidents
Despite our efforts we acknowledge the potential impact of cyber threats on our operations and business While the Company has not experienced any significant risks from cyber threats to date we recognize the potential consequences including operational disruptions legal costs damage to our reputation and financial impacts We remain vigilant and proactive in managing these risks We deploy state of the art technologies and services to help us identify and respond to security incidents manage a 24 7 Security Operations Center and regularly test our preparedness for cyber incidents These efforts enable us to effectively recognize and respond to low impact incidents avoiding their escalation to more problematic situations
The Board of Directors of the Company maintains oversight of cybersecurity risks ensuring the effectiveness of our risk management processes The Audit Committee is specifically tasked with monitoring cybersecurity risks evaluating our approach to cybersecurity assessing emerging threats and ensuring appropriate measures are in place to mitigate risks
Management led by the Chief Information Security Officer the CISO plays a crucial role in assessing and managing cybersecurity risks The CISO holds a Master of Science in Information Security and Assurance along with other technical certifications has over 20 years of experience in cybersecurity and has extensive experience managing cybersecurity programs in multinational manufacturing companies The IT Risk Management Committee under guidance of the CISO oversees the assessment and mitigation of identified risk Regular reporting mechanisms keep the Board of Directors of the Company informed about our cybersecurity posture and emerging risks enabling informed decision making regarding cybersecurity strategy and resource allocation
Our principal executive offices are located at 525 William Penn Place Suite 3300 Pittsburgh Pennsylvania 15219 We also have corporate offices in Neuhausen Switzerland Bangalore India and Singapore Our technology center is located at 1600 Technology Way P O Box 231 Latrobe Pennsylvania 15650 A summary of our principal manufacturing facilities and other materially important properties is as follows
We also have a network of customer service centers located throughout North America Europe India Asia Pacific and Latin America a significant portion of which are leased The majority of our research and development efforts are conducted at our technology center located in Latrobe Pennsylvania U S as well as at our facilities in Rogers Arkansas U S Fürth Germany and Bangalore India
We use all of our significant properties in the businesses of powder metallurgy tools tooling systems engineered components and advanced materials Our production capacity is adequate for our present needs We believe that our properties have been adequately maintained are generally in good condition and are suitable for our business as presently conducted
The information set forth in Part I Item 1 of this Annual Report under the caption Regulation is incorporated by reference into this Item 3 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 assets Although we currently believe that the amount of ultimate liability if any we may face with respect to these actions will not materially affect our financial position results of operations or liquidity the ultimate outcome of any litigation is uncertain Were an unfavorable outcome to occur or if protracted litigation were to ensue the effect on us could be material
The information incorporated by reference into Part III Item 12 of this Annual Report from our 2024 Proxy Statement under the heading Equity Compensation Plans Equity Compensation Plan Information is hereby incorporated by reference into this Item 5
The following graph compares cumulative total shareholder return on our capital stock with the cumulative total shareholder return on the common stock of the companies in the Standard Poor s Mid Cap 400 Market Index S P Midcap 400 the Standard Poor s 400 Capital Goods S P 400 Capital Goods the Standard Poor s Global 1200 Industrials Index S P Global 1200 Industrials the Standard Poor s Composite 1500 Index S P Composite 1500 and the peer group of companies determined by us New Peer Group and Old Peer Group for the period from July 1 2019 to June 30 2024
In fiscal 2024 we established a New Peer Group in order to align with how we evaluate our executive compensation and we believe this group is representative of Kennametal s peers We have included both this New Peer Group as well as the Old Peer Group in the comparisons below
The New Peer Group consists of the following companies Alamo Group Inc Barnes Group Inc Carpenter Technologies Crane Co Curtiss Wright Corporation EnPro Industries Inc ESAB Corporation Flowserve Corporation Franklin Electric Graco Inc ITT Inc Lincoln Electric Holdings Inc Mueller Water Products Inc Nordson Corporation Simpson Manufacturing Co Inc SPX Corporation The Timken Company Watts Water Technologies Inc Woodward Inc and Zurn Water Solutions Corporation
The Old Peer Group consists of the following companies Alamo Group Inc Altra Industrial Motion Corp Barnes Group Inc Carpenter Technologies Crane Co Crane NXT Co Curtiss Wright Corporation Enovis Corp EnPro Industries Inc Flowserve Corporation Franklin Electric Graco Inc ITT Inc Lincoln Electric Holdings Inc Nordson Corporation Simpson Manufacturing Co Inc SPX Corporation The Timken Company Watts Water Technologies Inc Woodward Inc and Zurn Water Solutions Corporation
During the current period 1 682 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 57 501 shares of restricted stock to Kennametal upon vesting to satisfy tax withholding requirements
On July 27 2021 the Board of Directors of the Company approved a share repurchase program authorizing the Company to purchase up to 200 million of the Company s common stock over a three year period outside of the Company s dividend reinvestment program The initial share repurchase program was completed as of June 30 2024 In February 2024 the Board of Directors of the Company authorized an additional 200 million three year share repurchase program that is in place for fiscal 2025
The following discussion should be read in connection with the consolidated financial statements of Kennametal Inc and the related financial statement notes included in Item 8 of this Annual Report Unless otherwise specified any reference to a year is to our fiscal year ended June 30 Additionally when used in this Annual Report unless the context requires otherwise the terms we our and us refer to Kennametal Inc and its subsidiaries
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 85 years of materials expertise the Company is a global industrial technology leader helping customers across Aerospace Defense Earthworks Energy General Engineering and Transportation 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 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 the Company s 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 The Company s 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 and for aerospace and defense
Throughout Management s Discussion and Analysis of Financial Condition and Results of Operations the MD A we refer to measures used by management to evaluate performance We also refer to a number of financial measures that are not defined under accounting principles generally accepted in the United States of America U S GAAP including organic sales growth decline constant currency regional sales growth decline and constant currency end market sales growth decline The explanation at the end of the MD A provides the definition of these non GAAP financial measures as well as details on their use and a reconciliation to the most directly comparable GAAP financial measures
Operating income was 170 2 million or 8 3 percent margin compared with 192 4 million or 9 3 percent margin in the prior year The decrease in operating income was primarily due to lower sales and production volumes higher wages and general inflation higher restructuring and related charges of approximately 6 million charges of approximately 4 million consisting of repairs and impairments of fixed assets and inventory due to the tornado that affected the Company s Rogers Arkansas facility during the fourth quarter and unfavorable foreign currency exchange of approximately 2 million These factors were partially offset by pricing restructuring benefits of approximately 21 million and lower raw material costs In 2024 the Metal Cutting and Infrastructure segments had operating margins of 10 4 percent and 5 2 percent respectively
In July 2021 the Board of Directors of the Company approved a share repurchase program authorizing the Company to purchase up to 200 million of the Company s common stock over a three year period During 2024 the Company repurchased a total of 2 6 million shares of common stock for 65 million completing the initial share repurchase program In February 2024 the Board of Directors of the Company authorized an additional 200 million three year share repurchase program that is in place for fiscal 2025
On May 26 2024 the Company s production facility in Rogers AR sustained damage from a tornado At the time of the storm the facility was shut down for the Memorial Day weekend and no employees were onsite The Company resumed operations at the facility after a two week shutdown Charges of approximately 4 million were recorded during the June quarter of fiscal 2024 consisting of repairs and impairments of fixed assets and inventory The Company is continuing to work with its insurance provider to finalize a claim for insurance recoveries related to the tornado
Russia s invasion of Ukraine in February 2022 resulted in the imposition of economic sanctions on Russia by the United States Canada the European Union and other countries We have experienced increased costs for energy and raw materials and other supply chain issues due in part to the negative impact of the conflict on the global economy During the March quarter of 2022 the Company ceased operations in Russia and subsequently decided to liquidate its legal entity in Russia which is currently expected to be completed during fiscal 2025 Similarly the conflict in Gaza that began in October 2023 could negatively impact the Company s financial condition or results of operations To date the conflict in Gaza has not significantly affected the Company s business activities or results of operations
In addition our business has been negatively affected by foreign currency exchange and inflationary headwinds We have been able to partially mitigate the effects of inflation foreign currency exchange headwinds and other disruptions through price increases on our products We cannot predict the ultimate effect of these issues on our business operating results or financial condition but we will continue to monitor macroeconomic conditions and attempt to mitigate the negative effect to the extent possible
We reported earnings per diluted share EPS of 1 37 for 2024 EPS for the year was unfavorably affected by restructuring and related charges of 0 13 per share EPS in the prior year of 1 46 was unfavorably affected by restructuring and related charges of 0 06 per share
We generated cash flow from operating activities of 277 1 million in 2024 compared to 257 9 million during the prior year Capital expenditures were 107 6 million and 94 4 million during 2024 and 2023 respectively During 2024 the Company returned a total of 129 million to the shareholders through 65 4 million in share repurchases under the initial 200 million three year program and 63 4 million in dividends
For a discussion related to the results of operations changes in financial condition and liquidity and capital resources for fiscal 2022 refer to Part II Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2023 Annual Report on Form 10 K which was filed with the United States Securities and Exchange Commission on August 9 2023
Gross profit decreased 19 3 million to 627 1 million in 2024 from 646 4 million in 2023 The decrease in gross profit was primarily due to lower sales and production volumes higher wages and general inflation charges of approximately 4 million consisting of repairs and impairments of fixed assets and inventory due to the tornado that affected our Rogers Arkansas facility during the fourth quarter and unfavorable foreign currency exchange of approximately 2 million These factors were partially offset by pricing lower raw material costs and restructuring benefits The gross profit margin for 2024 was 30 6 percent compared to 31 1 percent in 2023
We invested further in technology and innovation to continue delivering high quality products to our customers Research and development expenses included in operating expense totaled 44 2 million and 43 1 million for 2024 and 2023 respectively
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 20 1 million compared to a target of approximately 25 million were recorded through June 30 2024 consisting of 14 8 million in Metal Cutting and 5 3 million in Infrastructure The majority of the remaining charges are expected to be recognized in fiscal 2025 This action delivered annualized run rate pre tax savings of approximately 33 million at the end of fiscal 2024
During 2024 we recorded restructuring and related charges of 12 4 million which consisted of 8 5 million in Metal Cutting and 3 9 million in Infrastructure These amounts are inclusive of a reversal of restructuring and related charges of 1 1 million related to prior actions including 0 4 million in operating expense Also included in restructuring and other charges net during 2024 is a net benefit of 0 6 million primarily due to the sale of properties
Interest expense in 2024 was 26 5 million a decrease of 2 0 million compared to 28 5 million in 2023 The portion of our debt subject to variable rates of interest was less than 1 percent at June 30 2024 and 2023 There were no borrowings outstanding under the Credit Agreement as of June 30 2024 and 2023
In 2024 other income expense net was 0 7 million of other income net compared to other expense net of 4 3 million in 2023 The increase of 5 0 million in other income net was primarily due to a loss of 3 million recognized in 2023 due to a litigation settlement related to legacy operations that did not repeat in 2024
The effective tax rate for 2024 was 21 3 percent compared to 22 7 percent for 2023 The year over year change in the effective tax rate is primarily due to current year adjustments that include a 7 8 million benefit related to a tax rate change in Switzerland a 6 2 million benefit related to a change in unrecognized tax benefits a 3 1 million charge to settle the Italian tax litigation prior year adjustments for the release of a valuation allowance related to net deferred tax assets in Brazil a benefit to adjust a deferred tax asset associated with tax reform in Switzerland and geographical mix
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 which was eventually settled during 2024 We continue to believe the assessment was baseless and that our 2008 tax return was compliant in all material respects with Italian income tax rules and regulations Accordingly no income tax liability had been recorded in connection with this assessment in any period During fiscal 2023 the Italian government launched a tax amnesty program aimed at reducing the number of tax disputes pending before the Italian courts Pursuant to program guidelines payments made to successfully resolve a dispute had to be received by the Italian government no later than September 30 2023 Due to the prolonged amount of time the case had been pending and the inherent costs and risks of further litigating the matter we decided to negotiate a settlement with the Italian tax authority that resulted in an income tax charge of 3 1 million during fiscal 2024 With this settlement the matter is officially closed
Net income attributable to Kennametal was 109 3 million or 1 37 of earnings per diluted share EPS in 2024 compared to 118 5 million or EPS of 1 46 in 2023 The decrease is a result of the factors previously discussed
We operate in two reportable operating segments consisting of Metal Cutting and Infrastructure Corporate expenses that are not allocated are reported in Corporate Segment determination is based upon internal organizational structure the manner in which we organize segments for making operating decisions and assessing performance and the availability of separate financial results See Note 21 of our consolidated financial statements set forth in Item 8 of this Annual Report
In 2024 Metal Cutting sales of 1 280 8 million increased by 11 0 million or 1 percent from 2023 This was driven by organic sales growth of 1 percent Aerospace Defense end market sales increased in EMEA and the Americas as a result of our focused execution on our strategic initiatives the effects of which were partially offset by a decline in Asia Pacific due to lower economic activity in China Sales in the General Engineering end market were flat compared to the prior year as increases in the Americas were offset by a decrease in Asia Pacific and EMEA due to lower economic activity Energy end market sales declined in Asia Pacific due to delays in wind energy projects and the Americas as a result of the slower oil and gas market partially offset by an increase of sales in EMEA Transportation end market sales increased in EMEA due to improving hybrid electric vehicle business partially offset by declines in Asia Pacific and the Americas resulting from slowing customer demand
On a regional basis sales in the Americas increased primarily due to General Engineering and Aerospace Defense Growth in EMEA reflects execution on our strategic initiatives Sales decreased in Asia Pacific due to lower economic activity in China
In 2024 Metal Cutting operating income was 132 6 million a 3 2 million decrease from 2023 The decrease in operating income was primarily due to lower sales and production volumes higher wages and general inflation and higher restructuring charges of approximately 3 million These factors were partially offset by pricing and restructuring benefits of approximately 17 million Metal Cutting operating margin in 2024 was 10 4 percent compared to 10 7 percent in the prior year
In 2024 Infrastructure sales of 766 1 million decreased by 42 3 million or 5 percent from 2023 This was driven by organic sales decline of 4 percent and an unfavorable foreign currency exchange effect of 1 percent Energy end market sales decreased primarily due to U S oil and gas activities as land rig counts decreased year over year Sales in the General Engineering end market decreased in the Americas as a result of declines in industrial activity year over year and ore inventory sales in the prior year that did not repeat partially offset by growth in Asia Pacific and EMEA Earthworks end market sales decreased due to construction in the Americas lower snowplow blades in the Americas due to a milder winter and underground mining in Asia Pacific Aerospace Defense end market sales increased due to the execution of our growth initiatives and order timing
On a regional basis sales in the Americas decreased primarily due to lower U S oil and gas and industrial activity year over year Sales increased in EMEA primarily as a result of defense related activity in EMEA Sales were flat in Asia Pacific excluding the unfavorable foreign currency effect due to a decline in underground mining offset by increases in the General Engineering end market and construction
In 2024 Infrastructure operating income was 39 9 million a 19 9 million decrease from 2023 The decrease in operating income was primarily due to lower sales and production volumes higher wages and general inflation charges of approximately 4 million consisting of repairs and impairments of fixed assets and inventory due to the tornado that affected the Company s Rogers Arkansas facility during the fourth quarter and higher restructuring charges of approximately 3 million These factors were partially offset by restructuring benefits of approximately 5 million Infrastructure operating margin in 2024 was 5 2 percent compared to 7 4 percent in the prior year
Cash flow from operations is the primary source of funding for working capital requirements reinvesting in our business through capital expenditures and returning value to shareholders through dividends and share repurchases During the year ended June 30 2024 cash flow provided by operating activities was 277 1 million
During fiscal 2022 we entered into the Sixth Amended and Restated Credit Agreement dated as of June 14 2022 the Credit Agreement The Credit Agreement is a five year multi currency revolving credit facility which we use to augment cash from operations and as 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 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 Euro Interbank Offered Rate EURIBOR Sterling Overnight Index Average SONIA Tokyo Interbank Offered Rate TIBOR and Secured Overnight Financing Rate SOFR for any borrowings in euros pounds sterling yen and U S dollars respectively 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 2027
The Credit Agreement requires us to comply with various restrictive and affirmative covenants including one financial covenant a maximum leverage ratio where debt net of domestic cash in excess of 25 million and sixty percent of the unrestricted cash held outside of the United States must be less than or equal to 3 75 times trailing twelve months EBITDA adjusted for certain non cash expenses
As of June 30 2024 we were in compliance with all covenants of the Credit Agreement and we had no borrowings outstanding and 700 0 million of availability There were no of borrowings outstanding as of June 30 2023
Borrowings on other lines of credit and notes payable were 1 4 million and 0 7 million at June 30 2024 and 2023 respectively The lines of credit represented short term borrowings under credit lines with commercial banks in the various countries in which we operate The availability of the credit lines translated into U S dollars at June 30 2024 exchange rates totaled 56 2 million
For the year ended June 30 2024 average daily borrowings outstanding under the Credit Agreement were approximately 26 1 million The weighted average interest rate on borrowings under the Credit Agreement was 6 3 percent for the year ended June 30 2024 Based upon our debt structure at June 30 2024 and 2023 less than 1 percent of our debt was exposed to variable rates of interest
We consider the majority of the 1 6 billion 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 Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested earnings is not practicable due to our legal entity structure and the complexity of U S and local tax laws 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 The deferred tax liability associated with unremitted earnings of our non U S subsidiaries not permanently reinvested is 6 9 million as of June 30 2024
At June 30 2024 we had cash and cash equivalents of 128 0 million Total Kennametal Shareholders equity was 1 249 9 million and total debt was 597 4 million Our current senior credit ratings are considered investment grade We believe that our current financial position liquidity and credit ratings provide us access to the capital markets We continue to closely monitor our liquidity position and the condition of the capital markets as well as the counterparty risk of our credit providers
Cash generated from operations is expected to meet our planned capital expenditures of approximately 110 million and expected dividend payments in fiscal 2025 There can be no assurance however that we will generate cash from operations in line with our expectations or that these projections will remain constant throughout fiscal 2025 If cash generated from operations is not sufficient to support these activities we may be required to use existing cash and cash equivalents reduce capital expenditures or borrow under the Credit Agreement We believe that our cash and cash equivalents cash flow from operations and available borrowings are sufficient to meet both the short term and long term capital needs of the Company
Purchase obligations consist of purchase commitments for materials supplies and machinery and equipment as part of the ordinary conduct of business Purchase obligations with variable price provisions were determined assuming market prices as of June 30 2024 remain constant
Unrecognized tax benefits are positions taken or expected to be taken on an income tax return that may result in additional payments to tax authorities These amounts include interest of 0 1 million and a penalty of 0 1 million accrued related to such positions as of June 30 2024 If a tax authority agrees with the tax position taken or expected to be taken or the applicable statute of limitations expires then additional payments will not be necessary
The standby letters of credit relate to insurance and other activities The guarantees are non debt guarantees with financial institutions which are required primarily for security deposits product performance guarantees and advances
In July 2021 the Board of Directors of the Company approved a share repurchase program authorizing the Company to purchase up to 200 million of the Company s common stock over a three year period During 2024 the Company repurchased 2 6 million shares of common stock for 65 million completing the initial share repurchase program In February 2024 the Board of Directors of the Company authorized an additional 200 million three year share repurchase program that is in place for fiscal 2025
During 2024 cash flow provided by operating activities was 277 1 million compared to 257 9 million in 2023 During 2024 cash flow provided by operating activities consisted of net income and non cash items amounting to 278 2 million and changes in certain assets and liabilities netting to an outflow of 1 1 million Contributing to the change in certain assets and liabilities were a decrease in accrued income taxes of 16 2 million a decrease in accrued pension and postretirement benefits of 9 5 million a decrease in accounts payable and accrued liabilities of 6 1 million and an increase in accounts receivable of 2 6 million partially offset by a decrease in inventories of 36 8 million
During 2023 cash flow provided by operating activities was 257 9 million consisting of net income and non cash items amounting to 284 0 million and changes in certain assets and liabilities netting to an outflow of 26 1 million Contributing to the change in certain assets and liabilities were a decrease in accounts payable and accrued liabilities of 32 5 million an increase in accounts receivable of 11 5 million and a decrease in accrued pension and postretirement benefits of 10 1 million partially offset by a decrease in inventories of 17 6 million
Cash flow used for investing activities was 109 4 million for 2024 an increase of 20 2 million compared to 89 2 million in 2023 During 2024 cash flow used for investing activities included capital expenditures net of 102 1 million which consisted primarily of equipment upgrades the acquisition of a business for 4 0 million and an investment in a strategic partnership
Cash flow used for financing activities was 141 7 million for 2024 compared to 143 1 million in 2023 During 2024 cash flow used for financing activities primarily included 65 6 million in common shares repurchased primarily under the share repurchase program 63 4 million of cash dividends paid to shareholders and 10 0 million of the effect of employee benefit and stock plans and dividend reinvestment
Cash flow used for financing activities was 143 1 million for 2023 and included 64 5 million of cash dividends paid to shareholders 49 3 million in common shares repurchased primarily under the share repurchase program 19 0 million from the repayment of borrowings under the Credit Agreement and 6 0 million of the effect of employee benefit and stock plans and dividend reinvestment
At June 30 2024 total assets were 2 503 8 million a decrease of 43 5 million from 2 547 2 million at June 30 2023 Total liabilities decreased 17 9 million from 1 233 1 million at June 30 2023 to 1 215 2 million at June 30 2024
Working capital was 586 6 million at June 30 2024 a decrease of 6 2 million from 592 8 million at June 30 2023 The decrease in working capital was primarily driven by a decrease in inventories of 43 0 million an increase in other current liabilities of 6 3 million and a decrease in accounts receivable of 4 5 million Partially offsetting these items was an increase in cash and cash equivalents of 22 0 million a decrease in accrued income taxes of 12 0 million and a decrease in accounts payable of 11 8 million Currency exchange rate effects decreased working capital by a total of approximately 7 5 million the effects of which are included in the aforementioned changes
Property plant and equipment net decreased 31 0 million from 969 1 million at June 30 2023 to 938 1 million at June 30 2024 primarily due to depreciation of 123 1 million disposals of 5 4 million and an unfavorable currency exchange effect of approximately 5 5 million partially offset by capital additions of 107 6 million
At June 30 2024 other assets were 563 1 million an increase of 11 7 million from 551 4 million at June 30 2023 The primary drivers for the increase were an increase in deferred income taxes of 13 8 million an increase in operating right of use assets of 5 1 million and an investment in a strategic partnership Partially offsetting these items was amortization of 11 6 million Currency exchange rate effects decreased other assets by a total of approximately 4 1 million the effects of which are included in the aforementioned changes
Kennametal Shareholders equity was 1 249 9 million at June 30 2024 a decrease of 25 6 million from 1 275 4 million in the prior year The decrease was primarily due to the repurchase of capital stock of 65 6 million primarily under the share repurchase program cash dividends paid to Kennametal Shareholders of 63 4 million and other comprehensive loss attributable to Kennametal of 20 2 million partially offset by net income attributable to Kennametal of 109 3 million and capital stock issued under employee benefit and stock plans of 13 4 million
Rising costs including the cost of certain raw materials continue to affect our operations throughout the world We experienced higher levels of inflation in 2024 and expect inflation will continue to be a challenge in fiscal 2025 We will strive to minimize the effects through cost containment productivity improvements and price increases
In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the U S we make judgments and estimates about the amounts reflected in our consolidated financial statements As part of our financial reporting process our management collaborates to determine the necessary information on which to base our judgments and develops estimates used to prepare the consolidated financial statements We use relevant information available at the end of each period to make these judgments and estimates Our significant accounting policies are described in Note 2 of our consolidated financial statements which are included in Item 8 of this Annual Report We believe that the following discussion addresses our critical accounting policies
The Company s contracts with customers are comprised of purchase orders and for larger customers may also include long term agreements We account for a contract when it has approval and commitment from both parties the rights of the parties and payment terms are identified the contract has commercial substance and collectability of consideration is probable These contracts with customers typically relate to the manufacturing of products which represent single performance obligations that are satisfied when control of the product passes to the customer The Company considers the timing of right to payment transfer of risk and rewards transfer of title transfer of physical possession and customer acceptance when determining when control transfers to the customer As a result revenue is generally recognized at a point in time either upon shipment or delivery based on the specific shipping terms in the contract The shipping terms vary across all businesses and depend on the product customary local commercial terms and the type of transportation Shipping and handling activities are accounted for as activities to fulfill a promise to transfer a product to a customer and as such costs incurred are recorded when the related revenue is recognized Payment for products is due within a limited time period after shipment or delivery typically within 30 to 90 calendar days of the respective invoice dates The Company does not generally offer extended payment terms
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods Amounts billed and due from our customers are classified as accounts receivable less allowance for doubtful accounts on the consolidated balance sheets Certain contracts with customers primarily distributor customers have an element of variable consideration that is estimated when revenue is recognized under the contract Variable consideration primarily includes volume incentive rebates which are based on achieving a certain level of purchases and other performance criteria as established by our distributor programs These rebates are estimated based on projected sales to the customer and accrued as a reduction of net sales as they are earned The majority of our products are consumed by our customers or end users in the manufacture of their products Historically we have experienced very low levels of returned products and do not consider the effect of returned products to be material We have recorded an estimated returned goods allowance to provide for any potential returns
We warrant that products 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 discussed above
The Company records a contract asset when it has a right to payment from a customer that is conditioned on events that have occurred other than the passage of time The Company also records a contract liability when customers prepay but the Company has not yet satisfied its performance obligation The Company did not have any material remaining performance obligations contract assets or liabilities as of June 30 2024 and 2023
The Company pays sales commissions related to certain contracts which qualify as incremental costs of obtaining a contract However the Company applies the practical expedient that allows an entity to recognize incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that would have been recognized is one year or less These costs are recorded within operating expense in our consolidated statements of income
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 Forfeitures are recorded as incurred We utilize the Black Scholes valuation method to establish the fair value of all stock option awards Time vesting stock units are valued at the market value of the stock on the grant date Performance vesting stock units with a market condition are valued using a Monte Carlo model
We accrue for contingencies when it is probable that a liability or loss has been incurred and the amount can be reasonably estimated Contingencies by their nature relate to uncertainties that require the exercise of judgment in both assessing whether or not a liability or loss has been incurred and estimating the amount of probable loss The significant contingencies affecting our consolidated financial statements include environmental health and safety matters and litigation
We evaluate the recoverability of property plant and equipment operating lease right of use ROU assets and intangible assets that are amortized whenever events or changes in circumstances indicate the carrying amount of 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 performed at the asset group level 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 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 group
Goodwill represents the excess of cost over the fair value of the net assets of acquired companies We evaluate the recoverability of goodwill of each of our reporting units by comparing the fair value of each reporting unit with its carrying value Goodwill is tested at least annually for impairment As of June 30 2024 goodwill of 271 6 million was allocated to the Metal Cutting reporting unit and there is no goodwill allocated to the Infrastructure reporting unit We perform our annual impairment test during the June quarter in connection with our annual planning process unless there are impairment indicators that warrant a test prior to that quarter We can use a qualitative test known as Step 0 or a quantitative method to determine whether impairment has occurred
Under the Step 0 test the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value Qualitative factors may include but are not limited to economic conditions industry and market considerations cost factors overall financial performance of the reporting unit and other entity and reporting unit specific events If after assessing these qualitative factors the Company determines it is more likely than not that the fair value of the reporting unit is less than the carrying value then performing the Step 1 quantitative test is necessary
Step 1 of the quantitative test requires comparison of the fair value of the reporting unit to the respective carrying value If the carrying value of the reporting unit is less than the fair value no impairment exists Otherwise the Company would recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to the reporting unit
The fair value of a reporting unit is 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 the reporting unit The discounted cash flow method is used to measure the fair value of our equity under the income approach A terminal value utilizing a constant growth rate of cash flows is used to calculate a terminal value after the explicit projection period The estimates and assumptions used in our calculations include revenue and gross margin growth rates expected capital expenditures to determine projected cash flows expected tax rates and an estimated discount rate to determine present value of expected cash flows These estimates are based on historical experiences our projections of future operating activity and our weighted average cost of capital WACC In order to determine the discount rate the Company uses a market perspective WACC approach The WACC is calculated incorporating weighted average returns on debt and equity from market participants Therefore changes in the market which are beyond the control of the Company may have an effect on future calculations of estimated fair value
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 annual goodwill 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 affect the estimated fair values of the Metal Cutting reporting unit may include such items as i a decrease in expected future cash flows specifically a decrease in sales volume driven by a prolonged weakness in customer demand or other pressures adversely affecting our long term sales trends and ii inability to achieve the sales from our strategic growth initiatives
In 2024 we elected to implement Step 0 and were not required to conduct the quantitative analysis In 2023 and 2022 we performed quantitative analyses using a combination of a discounted cash flow analysis and market multiples based upon historical and projected financial information No impairment was recorded during 2024 2023 and 2022
We sponsor pension and other postretirement 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 either the expected work life of employees or over the average life of participants participating in these plans depending on plan status and on participant population This estimation requires our judgment about the discount rate used to determine these obligations expected return on plan assets rate of future compensation increases 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 Our 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 At June 30 2024 a hypothetical 25 basis point increase or decrease in our discount rates would be immaterial to our pre tax income
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
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
We expect to contribute approximately 10 0 million and 1 0 million to our pension and other postretirement benefit plans respectively in 2025 Expected pension contributions in 2025 are primarily for international plans
We record allowances for estimated losses resulting from the inability of our customers to make required payments We assess the creditworthiness of our customers based on multiple sources of information and analyze additional factors such as our historical bad debt experience industry concentrations of credit risk current economic trends changes in customer payment terms and forward looking information This assessment requires significant judgment If the financial condition of our customers was to deteriorate additional allowances may be required resulting in future operating losses that are not included in the allowance for doubtful accounts at June 30 2024
We use the last in first out method for determining the cost of a significant portion of our U S inventories and they are stated at the lower of cost or market The cost of the remainder of our inventories is measured using approximate costs determined on the first in first out basis or using the average cost method and are stated at the lower of cost or net realizable value When market conditions indicate an excess of carrying costs over market value a lower of cost or net realizable value provision or a lower of cost or market provision as applicable is recorded Once inventory is determined to be excess or obsolete a new cost basis is established that is not subsequently written back up in future periods
The Company s provision for income taxes is calculated based on income and statutory tax rates in the various jurisdictions in which the Company operates and requires the use of management s estimates and judgments Management judgment is required in determining the Company s worldwide provision for income taxes and recording the related assets and liabilities including accruals for unrecognized tax benefits and assessing the need for valuation allowances on deferred tax assets Realization of our deferred tax assets is primarily dependent on future taxable income the timing and amount of which are uncertain 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 As of June 30 2024 the deferred tax assets net of valuation allowances relate primarily to net operating loss and other carryforwards pension benefits accrued employee benefits and inventory In the event that we were to determine that we would not be able to realize our deferred tax assets in the future an increase in the valuation allowance would be required In the event we were to determine that we are able to use our deferred tax assets for which a valuation allowance is recorded a decrease in the valuation allowance would be required
In accordance with SEC rules we are providing descriptions of the non GAAP financial measures included in this Annual Report and reconciliations to the most closely related GAAP financial measures We believe that these measures provide useful perspective on underlying business trends and results and 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 and may therefore also be useful to investors as they are a view of our business results through the eyes of management These non GAAP financial measures are not intended to be considered by the user in place of the related GAAP financial measure but rather as supplemental information to our business results These non GAAP financial measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted
Organic sales growth decline is a non GAAP financial measure of sales growth decline which is the most directly comparable GAAP measure excluding the effects of acquisitions divestitures business days and foreign currency exchange from year over year comparisons We believe this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth decline on a consistent basis We report organic sales growth decline at the consolidated and segment levels
Constant currency end market sales growth decline is a non GAAP financial measure of sales growth decline which is the most directly comparable GAAP measure by end market excluding the effects of acquisitions divestitures and foreign currency exchange from year over year comparisons We note that unlike organic sales growth decline constant currency end market sales growth decline does not exclude the effect of business days We believe this measure provides investors with a supplemental understanding of underlying end market trends by providing end market sales growth decline on a consistent basis We report constant currency end market sales growth decline at the consolidated and segment levels
Constant currency regional sales growth decline is a non GAAP financial measure of sales growth decline which is the most directly comparable GAAP measure by region excluding the effects of acquisitions divestitures and foreign currency exchange from year over year comparisons We note that unlike organic sales growth decline constant currency regional sales growth decline does not exclude the effect of business days We believe this measure provides investors with a supplemental understanding of underlying regional trends by providing regional sales growth decline on a consistent basis We report constant currency regional sales growth decline at the consolidated and segment levels
We are exposed to certain market risks arising from transactions that are entered into in the normal course of business As part of our financial risk management program we use certain derivative financial instruments to manage these risks We do not enter into derivative transactions for speculative purposes and therefore hold no derivative instruments for trading purposes We may use derivative financial instruments to provide predictability to the effects of changes in foreign exchange rates on our consolidated results 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 See Notes 2 and 6 of our consolidated financial statements set forth in Item 8 of this Annual Report
We are exposed to counterparty credit risk for nonperformance of derivative contracts and in the event of nonperformance to market risk for changes in currency exchange rates as well as settlement risk We manage exposure to counterparty credit risk through credit standards diversification of counterparties and procedures to monitor concentrations of credit risk We do not anticipate nonperformance by any of the counterparties
Included below is a sensitivity analysis that is based upon a hypothetical 10 percent weakening or strengthening in the U S dollar and its effects on the June 30 2024 currency exchange rates We compared our contractual derivative arrangements in effect at June 30 2024 to the hypothetical foreign exchange in the sensitivity analysis to determine the effect on pre tax income and accumulated other comprehensive loss Our analysis takes into consideration the different types of derivative instruments and the applicability of hedge accounting
Also included below is a sensitivity analysis that is based upon a hypothetical 10 percent change on the effective interest rates under our current borrowing arrangements as of June 30 2024 We compared our borrowing arrangements in effect at June 30 2024 to the hypothetical interest rates in the sensitivity analysis to determine the effect on interest expense pre tax income and accumulated other comprehensive loss
Certain currency forward contracts that hedge significant cross border intercompany loans are considered as other derivatives and therefore do not qualify for hedge accounting 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 At June 30 2024 a hypothetical 10 percent strengthening or weakening of the U S dollar would have changed accumulated other comprehensive loss net of tax by 0 6 million and pre tax income by an immaterial amount
At June 30 2024 and 2023 we had 597 4 million and 595 9 million respectively of outstanding debt including revolving and other lines of credit and notes payable The effective interest rate was 3 7 percent as of June 30 2024 and 2023 respectively Based upon our debt structure at June 30 2024 and 2023 less than 1 percent of our debt was exposed to variable rates of interest A hypothetical change of 10 percent in market interest rates from June 30 2024 levels would be immaterial
Currency exchange rate fluctuations decreased diluted earnings per share by 0 11 in 2024 and decreased diluted earnings per share by 0 19 in 2023 Currency exchange rate fluctuations may have a material effect on future earnings in the short term and long term
Management is responsible for establishing and maintaining adequate internal control over financial reporting Management has conducted an assessment of the Company s internal controls over financial reporting as of June 30 2024 using the criteria in
issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO The Company s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
issued by the COSO The effectiveness of the Company s internal control over financial reporting as of June 30 2024 has been audited by PricewaterhouseCoopers LLP an independent registered public accounting firm as stated in their report which is included in this Annual Report on Form 10 K
and the related consolidated statements of income of comprehensive income of shareholders equity and of cash flows for each of the three years in the period ended June 30 2024 including the related notes and financial statement schedule listed in the index appearing under Item 15 a 2 collectively referred to as the consolidated
and the results of its operations and its cash flows for each of the three years in the period ended June 30 2024 in conformity with accounting principles generally accepted in the United States of America Also in our opinion the Company maintained in all material respects effective internal control over financial reporting as of June 30 2024 based on criteria established in
The Company s management is responsible for these consolidated financial statements for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management s Report on Internal Control over Financial Reporting appearing under Item 8 Our responsibility is to express opinions on the Company s consolidated financial statements and on the Company s internal control over financial reporting based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audits also included performing such other procedures as we considered necessary in the circumstances We believe that our audits provide a reasonable basis for our opinions
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that i pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company ii provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and iii provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
As described in Notes 2 and 13 to the consolidated financial statements the Company recorded a provision for income taxes of 30 8 million for the year ended June 30 2024 The Company s provision for income taxes is calculated based on income and statutory tax rates in the various jurisdictions in which the Company operates and requires the use of management s estimates and judgments Management judgment is required in determining the Company s worldwide provision for income taxes and recording the related assets and liabilities including accruals for unrecognized tax benefits and assessing the need for valuation allowances on deferred tax assets
The principal considerations for our determination that performing procedures relating to the provision for income taxes is a critical audit matter are i a high degree of auditor effort in performing procedures and evaluating management s provision for income taxes and the related assets and liabilities including the accruals for unrecognized tax benefits as well as management s assessment of the need for valuation allowances on deferred tax assets and ii the audit effort involved the use of professionals with specialized skill and knowledge
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements These procedures included testing the effectiveness of controls relating to the provision for income taxes including controls over accruals for unrecognized tax benefits and valuation allowances on deferred tax assets These procedures also included among others i testing the accuracy of the provision for income taxes which included the effective tax rate reconciliation and permanent and temporary differences ii evaluating whether the data utilized in the calculations of the provision for income taxes and deferred tax assets and liabilities were appropriate and consistent with evidence obtained in other areas of the audit iii evaluating the identification of accruals for unrecognized tax benefits and the reasonableness of the more likely than not determination in consideration of court decisions legislative actions statutes of limitations and developments in tax examinations by jurisdiction and iv evaluating the reasonableness of management s assessment of the realizability of its deferred tax assets based on expectations of the ability to utilize its tax attributes through testing of historical and estimated future taxable income Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of management s judgments and estimates related to the application of foreign and domestic tax laws and regulations
With more than 85 years of materials expertise the Company is a global industrial technology leader helping customers across the Aerospace Defense Earthworks Energy General Engineering and Transportation end markets 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 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 the Company s 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 The Company s 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 and for aerospace and defense
Unless otherwise specified any reference to a year is to a fiscal year ended June 30 When used in this Annual Report on Form 10 K unless the context requires otherwise the terms we our and us refer to Kennametal Inc and its subsidiaries
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 consolidated 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 consolidated financial statements We use historical experience and available information to make these judgments and estimates Actual amounts could differ from the estimates reflected in our consolidated financial statements
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 2024
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 record allowances for estimated losses resulting from the inability of our customers to make required payments We assess the creditworthiness of our customers based on multiple sources of information and analyze additional factors such as our historical bad debt experience industry concentrations of credit risk current economic trends changes in customer payment terms and forward looking information
We use the last in first out LIFO method for determining the cost of a significant portion of our United States U S inventories and they are stated at the lower of cost or market The cost of the remainder of our inventories is measured using approximate costs determined on the first in first out basis or using the average cost method and are stated at the lower of cost or net realizable value When market conditions indicate an excess of carrying costs over market value a lower of cost or net realizable value provision or a lower of cost or market provision as applicable is recorded Once inventory is determined to be excess or obsolete a new cost basis is established that is not subsequently written back up in future periods
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 lives
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
We evaluate the recoverability of property plant and equipment operating lease right of use ROU assets 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 performed at the asset group level 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 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 group
Goodwill represents the excess of cost over the fair value of the net assets of acquired companies Goodwill is tested at least annually for impairment We perform our annual impairment test during the June quarter in connection with our annual planning process unless there are impairment indicators that warrant a test prior to that quarter As of June 30 2024 only the Metal Cutting reporting unit has goodwill recorded We can use a qualitative test known as Step 0 or a quantitative method to determine whether impairment has occurred In 2024 we elected to implement Step 0 and were not required to conduct the quantitative analysis In 2023 and 2022 we performed quantitative analyses 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 assumptions used to determine the fair value of the reporting unit
The majority of our intangible assets with definite lives are amortized on a straight line basis while certain customer related intangible assets are amortized on an accelerated method Identifiable assets with finite lives are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable
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 either the expected work life of employees or over the average life of participants participating in these plans depending on plan status and on participant population This estimation requires our judgment about the discount rate used to determine these obligations expected return on plan assets rate of future compensation increases 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
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
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
The Company s contracts with customers are comprised of purchase orders and for larger customers may also include long term agreements We account for a contract when it has approval and commitment from both parties the rights of the parties and payment terms are identified the contract has commercial substance and collectability of consideration is probable These contracts with customers typically relate to the manufacturing of products which represent single performance obligations that are satisfied when control of the product passes to the customer The Company considers the timing of right to payment transfer of risk and rewards transfer of title transfer of physical possession and customer acceptance when determining when control transfers to the customer As a result revenue is generally recognized at a point in time either upon shipment or delivery based on the specific shipping terms in the contract The shipping terms vary across all businesses and depend on the product customary local commercial terms and the type of transportation Shipping and handling activities are accounted for as activities to fulfill a promise to transfer a product to a customer and as such costs incurred are recorded when the related revenue is recognized Payment for products is due within a limited time period after shipment or delivery typically within 30 to 90 calendar days of the respective invoice dates The Company does not generally offer extended payment terms
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods Amounts billed and due from our customers are classified as accounts receivable less allowance for doubtful accounts on the consolidated balance sheets Certain contracts with customers primarily distributor customers have an element of variable consideration that is estimated when revenue is recognized under the contract Variable consideration primarily includes volume incentive rebates which are based on achieving a certain level of purchases and other performance criteria as established by our distributor programs These rebates are estimated based on projected sales to the customer and accrued as a reduction of net sales as they are earned The majority of our products are consumed by our customers or end users in the manufacture of their products Historically we have experienced very low levels of returned products and do not consider the effect of returned products to be material We have recorded an estimated returned goods allowance to provide for any potential returns
We warrant that products 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 discussed above
The Company records a contract asset when it has a right to payment from a customer that is conditioned on events that have occurred other than the passage of time The Company also records a contract liability when customers prepay but the Company has not yet satisfied its performance obligation The Company did not have any material remaining performance obligations contract assets or liabilities as of June 30 2024 and 2023
The Company pays sales commissions related to certain contracts which qualify as incremental costs of obtaining a contract However the Company applies the practical expedient that allows an entity to recognize incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that would have been recognized is one year or less These costs are recorded within operating expense in our consolidated statements of income
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 Forfeitures are recorded as incurred We utilize the Black Scholes valuation method to establish the fair value of all stock option awards Time vesting stock units are valued at the market value of the stock on the grant date Performance vesting stock units with a market condition are valued using a Monte Carlo model
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 The Kennametal Inc Stock and Incentive Plan of 2010 as Amended and Restated on October 22 2013 and further amended on January 27 2015 A R 2010 Plan by the Kennametal Inc 2016 Stock and Incentive Plan and on October 27 2020 by the Kennametal Inc 2020 Stock and Incentive Plan 2020 Plan authorize 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 and 2020 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 2024 2023 and 2022 was immaterial In addition to stock option grants the A R 2010 Plan and the 2020 Plan permit 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 of 44 2 million 43 1 million and 42 1 million in 2024 2023 and 2022 respectively were expensed as incurred These costs are included in operating expense in the consolidated statements of income
The Company s provision for income taxes is calculated based on income and statutory tax rates in the various jurisdictions in which the Company operates and requires the use of management s estimates and judgments Management judgment is required in determining the Company s worldwide provision for income taxes and recording the related assets and liabilities including accruals for unrecognized tax benefits and assessing the need for valuation allowances on deferred tax assets 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 Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not greater than 50 percent that a tax benefit will not be realized In evaluating the need for a valuation allowance we consider all potential sources of taxable income including income available in carryback periods future reversals of taxable temporary differences projections of taxable income and income from tax planning strategies as well as all available positive and negative evidence Positive evidence includes factors such as a history of profitable operations and projections of future profitability within the carry forward period including taxable income from tax planning strategies Negative evidence includes items such as cumulative losses projections of future losses or carryforward periods that are not long enough to allow for the utilization of the deferred tax asset based on existing projections of income Upon changes in facts and circumstances we may conclude that deferred tax assets for which no valuation allowance is currently recorded may not be realized resulting in a charge to establish a valuation allowance Existing valuation allowances are re examined under the same standards of positive and negative evidence If it is determined that it is more likely than not that a deferred tax asset will be realized the appropriate amount of the valuation allowance if any is released
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 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
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 Certain currency forward contracts hedging significant cross border intercompany loans are considered other derivatives and therefore do not qualify for hedge accounting
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 are recorded in accumulated other comprehensive loss and are recognized as a component of cost of goods sold when the underlying sale of products or services is recognized into earnings
We designate financial instruments as net investment hedges from time to time to hedge the foreign exchange exposure of our net investment in foreign currency based subsidiaries The remeasurements of these non derivatives designated as net investment hedges are calculated each period with changes reported in foreign currency translation adjustment within accumulated other comprehensive loss Such amounts will remain in accumulated other comprehensive loss unless we complete or substantially complete liquidation or disposal of our investment in the underlying foreign operations
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 The local currency is the functional currency of most of our locations
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 June 30 2024 and June 30 2023 the obligations outstanding that the Company has confirmed as valid to the financial institutions under the program were 26 1 million and 20 7 million respectively and were recorded within trade accounts payable
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date The fair value hierarchy consists of three levels to prioritize the inputs used in valuations as defined below
Level 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
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 consolidated balance sheets with the offset to other income expense net Losses gains related to derivatives not designated as hedging instruments have been recognized as follows
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 are recorded in accumulated other comprehensive loss and are recognized as a component of cost of goods sold when the underlying sale of products or services is recognized into earnings The notional amount of the contracts translated into U S dollars at June 30 2024 was 6 4 million There were no such contracts outstanding as of June 30 2023 The time value component of the fair value of range forward contracts is excluded from the assessment of hedge effectiveness
As of June 30 2024 we had certain foreign currency denominated intercompany loans payable with a total aggregate principal amount of 279 7 million designated as net investment hedges to hedge the foreign exchange exposure of our net investment in our China based subsidiaries As of June 30 2023 we had no foreign currency denominated intercompany loans payable designated as net investment hedges A loss of 0 2 million and a gain of 0 7 million were recorded as a component of foreign currency translation adjustments in other comprehensive loss as of June 30 2024 and June 30 2023 respectively
As of June 30 2024 271 6 million of goodwill was allocated to the Metal Cutting reporting unit We completed annual tests of goodwill impairment and recorded no impairments during 2024 2023 or 2022 for our Metal Cutting reporting unit We can use a qualitative test known as Step 0 or a quantitative method to determine whether impairment has occurred In 2024 we elected to implement Step 0 and were not required to conduct the quantitative analysis In 2023 and 2022 we performed quantitative analyses using a combination of a discounted cash flow analysis and market multiples based upon historical and projected financial information
In 2024 the Company completed a business combination for total consideration of approximately 6 5 million Goodwill of approximately 3 8 million was recorded in the Metal Cutting segment as a result of the acquisition
Amortization expense for intangible assets was 11 6 million 12 6 million and 13 0 million for 2024 2023 and 2022 respectively Estimated amortization expense for 2025 through 2029 is 10 6 million 10 3 million 8 8 million 7 8 million and 7 7 million respectively
At the inception of our contracts we determine if the contract is or contains a lease A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration ROU assets 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 lease as of the commencement date
We account for non lease components separately from lease components These costs often relate to the payments for 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 5 9 million 7 0 million and 3 7 million for the years ended June 30 2024 2023 and 2022 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 years ended June 30 2024 2023 and 2022 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 material lease transactions with related parties
Operating lease expense is recognized on a straight line basis over the lease term and is included in operating expense on our consolidated statements of income Operating lease cost was 22 3 million 22 0 million and 21 3 million in 2024 2023 and 2022 respectively
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 consolidated balance sheet as of June 30 2024
In February 2021 we issued 300 0 million of 2 800 percent Senior Unsecured Notes with a maturity date of March 1 2031 Interest is paid semi annually on March 1 and September 1 of each year On June 7 2018 we issued 300 0 million of 4 625 percent Senior Unsecured Notes with a maturity date of June 15 2028 Interest on these notes is paid semi annually on June 15 and December 15 of each year
Fixed rate debt had a fair market value of 545 9 million and 527 4 million at June 30 2024 and 2023 respectively The Level 2 fair value is determined based on the quoted market prices for similar debt instruments as of June 30 2024 and 2023 respectively
During fiscal 2022 we entered into the Sixth Amended and Restated Credit Agreement dated as of June 14 2022 the Credit Agreement The Credit Agreement is a five year multi currency revolving credit facility which we use to augment cash from operations and as 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 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 Euro Interbank Offered Rate EURIBOR Sterling Overnight Index Average SONIA Tokyo Interbank Offered Rate TIBOR and Secured Overnight Financing Rate SOFR for any borrowings in euros pounds sterling yen and U S dollars respectively 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 2027
The Credit Agreement requires us to comply with various restrictive and affirmative covenants including one financial covenant a maximum leverage ratio where debt net of domestic cash in excess of 25 million and sixty percent of the unrestricted cash held outside of the United States must be less than or equal to 3 75 times trailing twelve months EBITDA adjusted for certain non cash expenses
As of June 30 2024 we were in compliance with all covenants of the Credit Agreement and we had no borrowings outstanding and 700 0 million of availability There were no borrowings outstanding as of June 30 2023 The weighted average interest rate on borrowings under the Credit Agreement was 6 3 percent for the year ended June 30 2024
Borrowings on other lines of credit and notes payable were 1 4 million and 0 7 million at June 30 2024 and 2023 respectively The lines of credit represented short term borrowings under credit lines with commercial banks in the various countries in which we operate The availability of these credit lines translated into U S dollars at June 30 2024 exchange rates totaled 56 2 million
Legislation was effectively enacted during the December quarter of fiscal 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 multi 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 December quarter of fiscal 2020 We considered the deferred tax asset from Swiss tax reform to be an estimate based on our current interpretation of the legislation which was subject to change based on further legislative guidance review with the Swiss federal and cantonal authorities and modifications to the underlying valuation During the December quarter of our fiscal 2023 we adjusted the calculation of the transitional provisions of Swiss tax reform after a review and receipt of a ruling from the Swiss federal and cantonal authorities and recorded a 2 2 million tax benefit to adjust the deferred tax asset and income tax liabilities related to fiscal years 2021 and 2022
During 2024 we recorded a tax benefit of 7 8 million to record the effects of a tax rate increase enacted by the cantonal and municipal tax authorities where we operate in Switzerland The impact of this item is included in the tax reconciliation table under the caption Combined effects of Swiss tax reform
During 2024 we recorded a tax benefit of 6 2 million to reduce an accrual for an unrecognized tax benefit due to the lapse of the statute of limitation The impact of this item is included in the tax reconciliation table under the caption Change in valuation allowance and other uncertain tax positions
During 2024 we recorded a tax charge of 3 1 million to settle income tax litigation in Italy The impact of this item is included in the tax reconciliation table under the caption Change in valuation allowance and other uncertain tax positions
During 2023 we released a 2 9 million valuation allowance that was previously recorded against our net deferred tax assets in Brazil The impact of this item is included in the tax reconciliation table under the caption Change in valuation allowance and other uncertain tax positions
During 2023 we recorded a tax benefit of 2 2 million to reflect the adjustment of our calculation of the transitional provisions of Swiss tax reform The impact of this item is included in the tax reconciliation table under the caption Combined effects of Swiss tax reform
Included in deferred tax assets at June 30 2024 is 18 2 million associated with tax credits and other carryforward items in the U S and Europe Of that amount 17 4 million expires through 2044 and 0 8 million does not expire
Included in deferred tax assets at June 30 2024 is 20 3 million associated with NOL carryforwards in U S state and foreign jurisdictions Of that amount 2 9 million expires through 2029 0 8 million expires through 2034 0 9 million expires through 2039 3 4 million expires through 2044 and the remaining 12 3 million does not expire The realization of these tax benefits is primarily dependent on future taxable income in these jurisdictions
A valuation allowance of 5 9 million has been placed against deferred tax assets primarily in U S state Hong Kong and Bolivia jurisdictions all of which would be allocated to income tax expense upon realization of the deferred tax assets As the respective operations generate sufficient income the valuation allowances will be partially or fully reversed at such time we believe it will be more likely than not that the deferred tax assets will be realized In 2024 the valuation allowance related to these deferred tax assets decreased by 2 4 million
We consider the majority of the 1 6 billion 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 Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested earnings is not practicable due to our legal entity structure and the complexity of U S and local tax laws 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 The deferred tax liability associated with unremitted earnings of our non U S subsidiaries not permanently reinvested is 6 9 million as of June 30 2024
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 which was eventually settled during 2024 We continue to believe the assessment was baseless and that our 2008 tax return was compliant in all material respects with Italian income tax rules and regulations Accordingly no income tax liability had been recorded in connection with this assessment in any period During fiscal 2023 the Italian government launched a tax amnesty program aimed at reducing the number of tax disputes pending before the Italian courts Pursuant to program guidelines payments made to successfully resolve a dispute had to be received by the Italian government no later than September 30 2023 Due to the prolonged amount of time the case had been pending and the inherent costs and risks of further litigating the matter we decided to negotiate a settlement with the Italian tax authority that resulted in an income tax charge of 3 1 million during fiscal 2024 With this settlement the matter is officially closed
The total amount of unrecognized tax benefits that if recognized would affect the effective tax rate in 2024 2023 and 2022 is 1 3 million 6 9 million and 7 6 million respectively We believe that it is reasonably possible that the amount of unrecognized tax benefits will decrease by approximately 0 1 million within the next twelve months
Our policy is to recognize interest and penalties related to income taxes as a component of the provision for income taxes in the consolidated statements of income We recognized a decrease of 0 9 million and 0 3 million in 2024 and 2023 respectively and an increase of 0 1 million in 2022 As of June 30 2024 and 2023 the amount of interest accrued was 0 1 million and 1 0 million respectively As of June 30 2024 and 2023 the amount of penalty accrued was 0 1 million
With few exceptions we are no longer subject to income tax examinations by tax authorities for years prior to 2019 The Internal Revenue Service has audited or the statute of limitations has expired for all U S tax years prior to 2020 Various state and foreign jurisdiction tax authorities are in the process of examining our income tax returns for various tax years ranging from 2017 to 2023 We continuously review our uncertain tax positions and evaluate any potential issues that may lead to an increase or decrease in the total amount of unrecognized tax benefits recorded
We have defined benefit pension plans that cover certain employees in the U S Germany the UK Switzerland Canada India and Israel Pension benefits under defined benefit pension plans are based on years of service and for certain plans on average compensation for specified years preceding retirement We fund pension costs in accordance with the funding requirements of the Employee Retirement Income Security Act of 1974 ERISA as amended for U S plans and in accordance with local regulations or customs for non U S plans The accrued benefit for all participants in the Kennametal Inc Retirement Income Plan was frozen as of December 31 2016 The majority of our defined benefit pension plans are closed to future participation
We have an Executive Retirement Plan for certain executives and a Supplemental Executive Retirement Plan both of which are closed to future participation as of June 15 2017 and July 26 2006 respectively
We presently provide varying levels of postretirement health care and life insurance benefits to certain employees and retirees By fiscal 2019 participants over the age of 65 were transitioned to a private exchange and some received a fixed Health Retirement Account HRA contribution to offset the cost of their coverage Postretirement health and life benefits are closed to future participants as of December 31 2016
We use a June 30 measurement date for all of our plans During fiscal 2021 as part of the plan to wind up the fully frozen overfunded Canadian defined benefit pension plans the Company purchased an upfront annuity for retirees The Company expects to complete the wind up of the Canadian plans by fiscal 2025
During 2023 the Company annuitized a portion of its UK defined benefit pension plans through the purchase of a full buy in policy The Company expects to progress to a buy out and an eventual wind up of this portion of the UK plans after completing customary procedures including obtaining relevant regulatory approvals the timing of which is expected to occur over the next year
To the best of our knowledge and belief the asset portfolios of our defined benefit pension plans do not contain our capital stock Apart from the partial annuitization of the Canadian and UK plans as previously mentioned we do not issue insurance contracts to cover future annual benefits of defined benefit pension plan participants The accumulated benefit obligation for all defined benefit pension plans was 674 2 million and 695 3 million as of June 30 2024 and 2023 respectively
As of June 30 2024 the projected benefit payments including future service accruals for these plans for 2025 through 2029 are 57 6 million 55 6 million 55 9 million 54 7 million and 54 2 million respectively and 254 3 million in 2030 through 2034
The amounts of accumulated other comprehensive loss expected to be recognized in net periodic pension cost during 2025 related to net actuarial losses are 8 4 million The amount of accumulated other comprehensive income expected to be recognized in net periodic pension cost during 2025 related to transition obligations and prior service cost is immaterial
As of June 30 2024 the projected benefit payments including future service accruals for our other postretirement benefit plans for 2025 through 2029 are 1 0 million 1 0 million 0 9 million 0 8 million and 0 7 million respectively and 2 9 million in 2030 through 2034
The amounts of accumulated other comprehensive loss expected to be recognized in net periodic other postretirement benefits cost during 2025 related to net actuarial losses and related to prior service credit are costs of 0 1 million and income of 0 3 million respectively
The service cost component of net periodic pension income of 1 2 million 1 0 million and 1 1 million for 2024 2023 and 2022 respectively was reported as a component of cost of goods sold and operating expense The other components of net periodic pension income and net periodic other postretirement benefit cost totaling a net benefit of 2 9 million 2 6 million and 16 8 million for 2024 2023 and 2022 respectively were presented as a component of other income expense net
The rates of return on plan assets are based on historical performance as well as future expected returns by asset class considering macroeconomic conditions current portfolio mix long term investment strategy and other available relevant information
The annual assumed rate of increase in the per capita cost of covered benefits the health care cost trend rate for our postretirement benefit plans was no longer applicable in 2024 The assumptions were as follows for 2023 and 2022
The primary objective of certain of our pension plans investment policies is to ensure that sufficient assets are available to provide the benefit obligations at the time the obligations come due The overall investment strategy for the defined benefit pension plans assets combines considerations of preservation of principal and moderate risk taking The assumption of an acceptable level of risk is warranted in order to achieve satisfactory results consistent with the long term objectives of the portfolio Fixed income securities comprise a significant portion of the portfolio due to their plan liability matching characteristics and to address the plans cash flow requirements Additionally diversification of investments within each asset class is utilized to further reduce the effect of losses in single investments
Investment management practices for U S defined benefit pension plans must comply with ERISA and all applicable regulations and rulings thereof The use of derivative instruments is permitted where appropriate and necessary for achieving overall investment policy objectives Currently the use of derivative instruments is not significant when compared to the overall investment portfolio
The Company utilizes a liability driven investment strategy LDI for the assets of its U S defined benefit pension plans in order to reduce the volatility of the funded status of these plans and to meet the obligations at an acceptable cost over the long term This LDI strategy entails modifying the asset allocation and duration of the assets of the plans to more closely match the liability profile of these plans The asset reallocation involves increasing the fixed income allocation reducing the equity component and adding alternative investments Longer duration interest rate swaps have been utilized periodically in order to increase the overall duration of the asset portfolio to more closely match the liabilities
The following sections describe the valuation methodologies used to measure the fair value of the defined benefit pension plan assets including an indication of the level in the fair value hierarchy in which each type of asset is generally classified see Note 5 for the definition of fair value and a description of the fair value hierarchy
Investments in corporate fixed income securities consist of corporate debt and asset backed securities These investments are classified as level two and are valued using independent observable market inputs such as the treasury curve swap curve and yield curve
Investments in government securities consist of fixed income securities such as U S government and agency obligations and foreign government bonds and asset and mortgage backed securities such as obligations issued by government sponsored organizations These investments are classified as level two and are valued using independent observable market inputs such as the treasury curve credit spreads and interest rates
Other investments consist primarily of state and local obligations and short term investments including cash corporate notes and various short term debt instruments which can be redeemed within a nominal redemption notice period These investments are primarily classified as level two and are valued using independent observable market inputs
The fair value methods described may not be reflective of future fair values Additionally while the Company believes the valuation methods are appropriate and consistent with other market participants the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in different fair value measurement at the reporting date
Investments in common collective trusts invest primarily in publicly traded securities and are valued using net asset value NAV of units of a bank collective trust Therefore these amounts have not been classified in the fair value hierarchy and are presented in the tables to reconcile the fair value hierarchy to the total fair value of plan assets
Certain U S employees are eligible to participate in the Kennametal Thrift Plus Plan Thrift which is a qualified defined contribution plan under section 401 k of the Internal Revenue Code Under the Thrift eligible employees receive a full match of their contributions up to 6 percent of eligible compensation
All contributions including the company match and discretionary are made in cash and invested in accordance with participants investment elections There are no minimum amounts that must be invested in company stock and there are no restrictions on transferring amounts out of company stock to another investment choice other than excessive trading rules applicable to such investments Employee contributions and our matching and discretionary contributions vest immediately as of the participants employment dates
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 20 1 million compared to a target of approximately 25 million were recorded through June 30 2024 consisting of 14 8 million in Metal Cutting and 5 3 million in Infrastructure The majority of the remaining charges are expected to be recognized in fiscal 2025
During 2024 we recorded restructuring and related charges of 12 4 million which consisted of 8 5 million in Metal Cutting and 3 9 million in Infrastructure These amounts are inclusive of a reversal of restructuring and related charges of 1 1 million related to prior actions including 0 4 million in operating expense Also included in restructuring and other charges net during 2024 is a net benefit of 0 6 million primarily due to the sale of properties
During 2023 we recorded restructuring and related charges of 6 6 million which consisted of 5 3 million in Metal Cutting and 1 3 million in Infrastructure These amounts are inclusive of a reversal of restructuring and related charges of 0 8 million related to prior actions Also included in restructuring and other charges net during 2023 is a net benefit of 2 5 million primarily due to the sale of properties
During 2022 we recorded restructuring and related charges of 4 2 million which consisted of 3 6 million in Metal Cutting and 0 6 million in Infrastructure Of this amount a net benefit from the reversal of restructuring charges totaled 1 2 million and restructuring related charges of 5 5 million were included in cost of goods sold
As of June 30 2024 8 4 million of the restructuring accrual is recorded in other current liabilities and 2 4 million is recorded in other liabilities in our consolidated balance sheet As of June 30 2023 9 4 million of the restructuring accrual is recorded in other current liabilities and 0 5 million is recorded in other liabilities in our consolidated balance sheet The amounts are as follows
Fixed rate debt had a fair market value of 545 9 million and 527 4 million at June 30 2024 and 2023 respectively The Level 2 fair value is determined based on the quoted market prices for similar debt instruments as of June 30 2024 and 2023 respectively
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of temporary cash investments and trade receivables By policy we make temporary cash investments with high credit quality financial institutions and limit the amount of exposure to any one financial institution With respect to trade receivables concentrations of credit risk are significantly reduced because we serve numerous customers in many industries and geographic areas
We are exposed to counterparty credit risk for nonperformance of derivatives and in the unlikely event of nonperformance to market risk for changes in interest and currency exchange rates as well as settlement risk We manage exposure to counterparty credit risk through credit standards diversification of counterparties and procedures to monitor concentrations of credit risk We do not anticipate nonperformance by any of the counterparties As of June 30 2024 and 2023 we had no significant concentrations of credit risk
Tax benefits relating to excess stock based compensation deductions are presented in the consolidated statements of cash flows as operating cash inflows Tax benefits resulting from stock based compensation deductions were less than the amounts reported for financial reporting purposes by 1 5 million and 0 8 million in 2024 and 2023 respectively and greater than the amounts reported for financial reporting purposes by 0 2 million in 2022
The amount of cash received from the exercise of capital stock options during 2024 2023 and 2022 was zero zero and 0 2 million respectively The related tax benefit was zero in 2024 2023 and 2022 The total intrinsic value of options exercised in 2024 2023 and 2022 was zero zero and 0 1 million respectively
Performance vesting restricted stock units are earned based on both annual and three year performance targets The performance vesting restricted stock units are subject to a service condition that requires the individual to be employed by the Company at the payment date after a three year period with the exception of retirement eligible grantees Time vesting stock units are valued at the market value of the stock on the grant date Performance vesting stock units with a market condition are valued using a Monte Carlo model
During 2024 2023 and 2022 compensation expense related to performance vesting and time vesting restricted stock units was 23 4 million 23 3 million and 20 1 million respectively Performance vesting stock units were adjusted by 37 378 units during 2024 related to the fiscal 2023 performance year As of June 30 2024 the total unrecognized compensation cost related to unvested performance vesting and time vesting restricted stock units was 21 5 million and is expected to be recognized over a weighted average period of 1 6 years
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 sites associated with our current or former operations
We establish and maintain accruals for estimated liabilities associated with certain environmental matters At June 30 2024 the balance of such accruals was 11 0 million of which 1 6 million was current At June 30 2023 the balance was 12 0 million of which 1 7 million was current respectively These accruals are generally not discounted
We record a loss contingency when the available information indicates it is probable that we have incurred a liability and the amount of the loss is reasonably estimable The likelihood of a loss with respect to a particular environmental matter is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on information available When a material loss contingency is probable but a reasonable estimate cannot be made or when a material loss contingency is at least reasonably possible disclosure is provided The accruals we have established for estimated environmental liabilities represent our best current estimate of the probable and reasonably estimable costs of addressing 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 The 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 or the courts on these matters
Among other environmental laws we are subject to the Comprehensive Environmental Response Compensation and Liability Act of 1980 CERCLA under which we have been identified by the USEPA or other third party as a PRP with respect to environmental remedial costs at certain Superfund sites We have evaluated our claims and estimated liability associated with these sites based upon the best information currently available to us We believe our environmental accruals are adequate to cover our portion of the environmental remedial costs at the sites where we have been designated a PRP to the extent these expenses are probable and reasonably estimable
Various lawsuits arising during the normal course of business are pending against us In our opinion the ultimate liability if any resulting from these matters will have no significant effect on our consolidated financial position or results of operations During 2023 we recorded a litigation settlement of 3 million related to legacy operations within other income expense net
We have purchase commitments for materials supplies and machinery and equipment as part of the ordinary conduct of business Some of these commitments extend beyond one year and are based on minimum purchase requirements We believe these commitments are not at prices in excess of current market
Sales to affiliated companies were immaterial in 2024 2023 and 2022 We do not have any other related party transactions that affect our operations results of operations cash flows or financial condition
The Company manages and reports its business in the following two segments Metal Cutting and Infrastructure The Company s reportable operating segments have been determined in accordance with the Company s internal management structure which is organized based on operating activities the manner in which we organize segments for making operating decisions and assessing performance and the availability of separate financial results We do not allocate certain corporate expenses related to executive retirement plans the Company s Board of Directors and strategic initiatives as well as certain other costs and report them in Corporate Our reportable operating segments do not represent the aggregation of two or more operating segments
The Metal Cutting segment develops and manufactures high performance tooling and metal cutting products and services and offers an assortment of standard and custom metal cutting solutions to diverse end markets including Aerospace Defense General Engineering Energy and Transportation 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
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
Our Infrastructure segment produces engineered tungsten carbide and ceramic components earth cutting tools and advanced metallurgical powders primarily for the Aerospace Defense 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 high temperature critical wear components tungsten penetrators and armor solutions for aerospace and defense and ceramics used by the packaging industry for metallization of films and papers We combine deep metallurgical and engineering expertise with advanced manufacturing capabilities such as 3D printing to deliver solutions that drive improved productivity for our customers Infrastructure markets its products primarily under the Kennametal
Metal Cutting and Infrastructure segment assets are principally accounts receivable less allowance for doubtful accounts inventories property plant and equipment net goodwill other intangible assets net of accumulated amortization and operating lease ROU assets Corporate assets are principally cash and cash equivalents other current assets long term prepaid pension benefit deferred income taxes and other assets
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 as of June 30 2024 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 Exchange Act of 1934 as amended 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 June 30 2024 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
The effectiveness of Kennametal s internal control over financial reporting as of June 30 2024 has been audited by PricewaterhouseCoopers LLP an independent registered public accounting firm as stated in their report included in Item 8 of this Annual Report which is incorporated herein by reference
There have been no changes in internal control over financial reporting that occurred during the fourth quarter of 2024 that have materially affected or are reasonably likely to materially affect the Company s internal control over financial reporting
In the quarter ended June 30 2024 none of our directors or officers as defined in Rule 16a 1 f of the Exchange Act adopted modified or terminated a plan for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Rule 10b5 1 c or a non Rule 10b5 1 trading arrangement for the purchase or sale of our securities within the meaning of Item 408 of Regulation S K
President and Chief Executive Officer since June 2024 and President Metal Cutting since June 2021 Formerly President Services and Solutions of Flowserve from 2019 to 2021 and Senior Vice President and President of TE SubCom from 2017 to 2018 Previously spent over 11 years at Danaher Fortive Corporation from 2006 through 2017 serving in various roles of increasing responsibility the latest being President Thomson Industries
Vice President and Chief Administrative Officer since May 2019 Vice President and Chief Human Resources and Corporate Relations Officer since December 2015 Vice President and Chief Human Resources Officer from June 2011 to November 2015
Vice President Kennametal Inc and President Infrastructure Business Segment since February 2020 Formerly Vice President of Asia Pacific for the Donaldson Company from 2016 to 2020 and Vice President Global Engine Aftermarket from 2010 to 2016 He started at Donaldson Company in 1995 and held roles of increasing responsibility until 2020
Vice President Secretary and General Counsel Kennametal Inc since December 2016 Vice President Secretary and Interim General Counsel from July 2016 to December 2016 Vice President Associate General Counsel Assistant Secretary from March 2016 to July 2016 Assistant General Counsel Assistant Secretary from August 2011 to February 2016
Vice President and Chief Technology Officer since September 2018 Formerly Global Technology Director in Transportation and Advanced Polymers business at DuPont from January 2016 to September 2018 and Global Technology Director in Building Innovations at DuPont from 2013 to January 2016
Vice President Finance and Chief Financial Officer since June 2022 Formerly Vice President Finance and Corporate Controller Kennametal Inc from March 2017 to June 2022 Vice President Finance Industrial Business from March 2014 to February 2017 Director Finance Kennametal EMEA from August 2011 to August 2014
Vice President Finance and Corporate Controller since June 2022 Formerly Director Internal Audit Kennametal Inc from April 2019 to June 2022 Assistant Corporate Controller Kennametal Inc from August 2018 to April 2019 Assurance Director at PricewaterhouseCoopers PwC from July 2016 to August 2018 and prior to this in other roles of increasing responsibility at PwC
Each executive officer has been elected by the Board of Directors to serve until removed or until a successor is elected and qualified Unless otherwise noted none of the executive officers i has an arrangement or understanding with any other person s pursuant to which he or she was selected as an officer ii has any family relationship with any director or executive officer of the Company or iii is involved in any legal proceeding which would require disclosure under this item
Incorporated herein by reference is the information to be provided under the captions Proposal I Election of Directors in our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after June 30 2024 2024 Proxy Statement Also incorporated herein by reference is the information to be set forth under the caption Ethics and Corporate Governance Code of Conduct and Ethics and Corporate Governance Corporate Governance in the 2024 Proxy Statement
The Company has adopted an insider trading policy governing the purchase sale and or other disposition of its securities by its directors officers employees and other covered persons The Company believes this policy is reasonably designed to promote compliance with insider trading laws rules and regulations and the NYSE listing standards
The Company has a separately designated standing Audit Committee established in accordance with Section 3 a 58 A of the Exchange Act The members of the Audit Committee are Steven H Wunning Chair Sagar A Patel Paul Sternlieb and Larry Stranghoener Incorporated herein by reference is the information provided under the caption Board of Directors and Board Committees Committee Functions Audit Committee in the 2024 Proxy Statement
Incorporated herein by reference from our 2024 Proxy Statement is the information to be set forth under the captions Executive Compensation Compensation Discussion and Analysis Compensation and Human Capital Committee Report Analysis of Risk Inherent in our Compensation Policies and Practices Executive Compensation Tables 2024 Nonqualified Deferred Compensation Retirement Programs and Potential Payments Upon Termination or Change in Control Also incorporated herein by reference from our 2024 Proxy Statement is the information to be set forth under the captions Board of Directors Compensation and Benefits and Board of Directors and Board Committees Committee Functions Compensation and Human Capital Committee Interlocks and Insider Participation
Incorporated herein by reference from our 2024 Proxy Statement are i the information to be set forth under the caption Equity Compensation Plans ii the information to be set forth under the caption Ownership of Capital Stock by Directors Nominees and Executive Officers with respect to the directors and officers shareholdings and iii the information to be set forth under the caption Principal Holders of Voting Securities with respect to other beneficial owners
Incorporated herein by reference is the information to be set forth under the captions Ethics and Corporate Governance Corporate Governance Board of Director Review and Approval of Related Person Transactions Executive Compensation Executive Compensation Tables and Ethics and Corporate Governance Corporate Governance Board Composition and Independence in the 2024 Proxy Statement
Incorporated herein by reference is the information with respect to pre approval policies set forth under the caption Proposal II Ratification of PricewaterhouseCoopers LLP PCAOB ID 238 as our Independent Registered Public Accounting Firm for the Fiscal Year ending June 30 2025 Audit Committee Pre Approval Policy and the information with respect to principal accountant fees and services set forth under Proposal II Ratification of PricewaterhouseCoopers LLP as our Independent Registered Public Accounting Firm for the Fiscal Year ending June 30 2025 Fees and Services to be set forth in the 2024 Proxy Statement
Pursuant to the requirements of Section 13 or 15 d 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
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated
The financial statement schedule required by Part II Item 8 of this document is filed as part of this report All of the other schedules are omitted as the required information is inapplicable or the information is presented in our consolidated financial statements or related notes
Form of Kennametal Inc Nonstatutory Stock Option Award for Non Employee Directors granted under Amendment No 1 to the Kennametal Inc Stock and Incentive Plan of 2010 As Amended and Restated October 22 2013
Form of Kennametal Inc Cash Settled Share Based Award for China based Employees granted under Amendment No 1 to the Kennametal Inc Stock and Incentive Plan of 2010 As Amended and Restated October 22 2013
Form of Kennametal Inc Cash Settled Share Based Award for China based Employees granted under Amendment No 1 to the Kennametal Inc Stock and Incentive Plan of 2010 As Amended and Restated October 22 2013
Sixth Amended and Restated Credit Agreement dated as of June 14 2022 among Kennametal Inc and Kennametal Europe GmbH the Borrowers and the several banks and other financial institutions or entities from time to time parties thereto the Lenders Bank of America N A London Branch as Euro Swingline Lender PNC Bank National Association and JPMorgan Chase Bank N A as co syndication agents BNP Paribas Citizens Bank N A Mizuho Bank Ltd and U S Bank National Association as co documentation agents and Bank of America N A as administrative agent
Certification Pursuant to 18 U S C Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002 executed by Sanjay Chowbey President and Chief Executive Officer of Kennametal Inc and Patrick S Watson Vice President and Chief Financial Officer of Kennametal Inc
Attached as Exhibit 101 to this report are the following documents formatted in Inline XBRL i the Consolidated Statements of Income for the years ended June 30 2024 2023 and 2022 ii the Consolidated Statements of Comprehensive Income for the years ended June 30 2024 2023 and 2022 iii the Consolidated Balance Sheets at June 30 2024 and 2023 iv the Consolidated Statements of Cash Flows for the years ended June 30 2024 2023 and 2022 and v Notes to Consolidated Financial Statements for the years ended June 30 2024 2023 and 2022

Company Name	KENNAMETAL INC Vist SEC web-site
Category	MACHINE TOOLS, METAL CUTTING TYPES
Trading Symbol	KMT