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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-5318
KENNAMETAL INC.
(Exact name of registrant as specified in its charter)
Pennsylvania  25-0900168
(State or other jurisdiction of incorporation or organization)  (I.R.S. Employer Identification No.)
525 William Penn Place  
Suite 3300
Pittsburgh,Pennsylvania15219
(Address of principal executive offices)  (Zip Code)
Registrant’s telephone number, including area code: (412248-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Capital Stock, par value $1.25 per shareKMTNew York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of October 31, 2022 80,576,387 shares of the Registrant’s Capital Stock, par value $1.25 per share, were outstanding.



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KENNAMETAL INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
 
Item No.Page No.
1.
Three months ended September 30, 2022 and 2021
Three months ended September 30, 2022 and 2021
September 30, 2022 and June 30, 2022
Three months ended September 30, 2022 and 2021
2.
3.
4.
1.
2.
6.

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




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PART I – FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended September 30,
(in thousands, except per share amounts)20222021
Sales$494,792 $483,509 
Cost of goods sold334,824 322,759 
Gross profit159,968 160,750 
Operating expense108,278 102,694 
Restructuring and asset impairment charges (Note 5) 190 
Amortization of intangibles3,164 3,260 
Operating income48,526 54,606 
Interest expense6,638 6,321 
Other expense (income), net1,009 (3,459)
Income before income taxes40,879 51,744 
Provision for income taxes11,242 13,992 
Net income29,637 37,752 
Less: Net income attributable to noncontrolling interests1,441 1,554 
Net income attributable to Kennametal$28,196 $36,198 
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS
Basic earnings per share$0.35 $0.43 
Diluted earnings per share$0.34 $0.43 
Basic weighted average shares outstanding81,544 83,880 
Diluted weighted average shares outstanding82,165 84,751 

KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 Three Months Ended September 30,
(in thousands)20222021
Net income$29,637 $37,752 
Other comprehensive income (loss), net of tax
Reclassification of unrealized gain on derivatives designated and qualified as cash flow hedges(192)(192)
Unrecognized net pension and other postretirement benefit plans gain3,324 1,904 
Reclassification of net pension and other postretirement benefit plans loss806 2,215 
Foreign currency translation adjustments(52,949)(16,476)
Total other comprehensive loss, net of tax (49,011)(12,549)
Total comprehensive (loss) income(19,374)25,203 
Less: comprehensive (loss) income attributable to noncontrolling interests(324)1,099 
Comprehensive (loss) income attributable to Kennametal Shareholders$(19,050)$24,104 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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KENNAMETAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share data)
September 30, 2022
June 30, 2022
ASSETS
Current assets:
Cash and cash equivalents$64,568 $85,586 
Accounts receivable, less allowance for doubtful accounts of $9,082 and $9,422, respectively
278,716 295,346 
Inventories (Note 8)591,470 570,836 
Other current assets76,732 72,940 
Total current assets1,011,486 1,024,708 
Property, plant and equipment:
Land and buildings409,533 410,039 
Machinery and equipment1,868,682 1,904,872 
Less accumulated depreciation(1,305,685)(1,312,870)
Property, plant and equipment, net972,530 1,002,041 
Other assets:
Goodwill (Note 16)257,949 264,230 
Other intangible assets, less accumulated amortization of $161,057 and $160,699, respectively (Note 16)
101,573 105,725 
Operating lease right-of-use assets43,823 47,206 
Deferred income taxes52,895 54,602 
Other75,952 75,012 
Total other assets532,192 546,775 
Total assets$2,516,208 $2,573,524 
LIABILITIES
Current liabilities:
Revolving and other lines of credit and notes payable (Note 10)$85,239 $21,186 
Current operating lease liabilities11,872 12,387 
Accounts payable205,940 227,887 
Accrued income taxes38,637 29,476 
Accrued expenses40,826 56,310 
Other current liabilities 114,974 138,403 
Total current liabilities497,488 485,649 
Long-term debt, less current maturities (Note 9)594,566 594,364 
Operating lease liabilities32,464 35,342 
Deferred income taxes31,174 32,185 
Accrued pension and postretirement benefits107,048 112,995 
Accrued income taxes322 6,369 
Other liabilities14,801 15,373 
Total liabilities1,277,863 1,282,277 
Commitments and contingencies
EQUITY (Note 14)
Kennametal Shareholders’ Equity:
Preferred stock, no par value; 5,000 shares authorized; none issued
  
Capital stock, $1.25 par value; 120,000 shares authorized; 81,020 and 81,337 shares issued, respectively
101,095 101,671 
Additional paid-in capital478,930 494,202 
Retained earnings1,082,575 1,070,655 
Accumulated other comprehensive loss(461,197)(413,951)
Total Kennametal Shareholders’ Equity1,201,403 1,252,577 
Noncontrolling interests36,942 38,670 
Total equity1,238,345 1,291,247 
Total liabilities and equity$2,516,208 $2,573,524 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Three Months Ended
September 30,
(in thousands)20222021
OPERATING ACTIVITIES
Net income$29,637 $37,752 
Adjustments to reconcile to cash from operations:
Depreciation29,459 29,124 
Amortization3,164 3,260 
Stock-based compensation expense8,282 7,202 
Restructuring and asset impairment charges (Note 5) 28 
Deferred income taxes 64 171 
Other(2,406)(370)
Changes in certain assets and liabilities:
Accounts receivable5,303 19,340 
Inventories(38,499)(34,355)
Accounts payable and accrued liabilities(42,145)(43,677)
Accrued income taxes1,552 5,835 
Accrued pension and postretirement benefits(2,482)(7,156)
Other(2,677)(1,351)
Net cash flow (used in) provided by operating activities(10,748)15,803 
INVESTING ACTIVITIES
Purchases of property, plant and equipment(29,484)(17,844)
Disposals of property, plant and equipment202 393 
Other(12)37 
Net cash flow used in investing activities(29,294)(17,414)
FINANCING ACTIVITIES
Net increase (decrease) in notes payable3,388 (7,997)
Net increase in revolving and other lines of credit60,900  
Purchase of capital stock(19,376)(12,909)
The effect of employee benefit and stock plans and dividend reinvestment(4,757)(6,317)
Cash dividends paid to Shareholders(16,273)(16,737)
Other(757)21 
Net cash flow provided by (used in) financing activities23,125 (43,939)
Effect of exchange rate changes on cash and cash equivalents(4,101)(1,181)
CASH AND CASH EQUIVALENTS
Net decrease in cash and cash equivalents(21,018)(46,731)
Cash and cash equivalents, beginning of period85,586 154,047 
Cash and cash equivalents, end of period$64,568 $107,316 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.BASIS OF PRESENTATION
The condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q, which include our accounts and those of our subsidiaries in which we have a controlling interest, should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022 (the “2022 Annual Report”). The condensed consolidated balance sheet as of June 30, 2022 was derived from the audited balance sheet included in our 2022 Annual Report. The interim statements are unaudited; however, we believe that all adjustments necessary for a fair statement of the results of the interim periods were made and all adjustments are normal recurring adjustments. The results for the three months ended September 30, 2022 are not necessarily indicative of the results to be expected for a full fiscal year. Unless otherwise specified, any reference to a “year” is to a fiscal year ended June 30. For example, a reference to 2023 is to the fiscal year ending June 30, 2023. When used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, the terms “the Company,” “we,” “our” and “us” refer to Kennametal Inc. and its subsidiaries.

2.SUPPLEMENTAL CASH FLOW DISCLOSURES
Three Months Ended September 30,
(in thousands)20222021
Cash paid during the period for:
Interest$5,143 $4,966 
Income taxes9,626 7,986 
Supplemental disclosure of non-cash information:
Changes in accounts payable related to purchases of property, plant and equipment(8,708)(800)

3.     FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy consists of three levels to prioritize the inputs used in valuations, as defined below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3: Inputs that are unobservable.
As of September 30, 2022, the fair values of our financial assets and financial liabilities are categorized as follows: 
(in thousands)Level 1Level 2Level 3Total
Assets:
Derivatives (1)
$— $230 $— $230 
Total assets at fair value$— $230 $— $230 
Liabilities:
Derivatives (1)
$— $147 $— $147 
Total liabilities at fair value$— $147 $— $147 
 
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KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of June 30, 2022, the fair values of our financial assets and financial liabilities are categorized as follows:
(in thousands)Level 1Level 2Level 3Total
Assets:
Derivatives (1)
$— $176 $— $176 
Total assets at fair value$— $176 $— $176 
Liabilities:
Derivatives (1)
$— $574 $— $574 
Total liabilities at fair value$— $574 $— $574 
 (1) Currency derivatives are valued based on observable market spot and forward rates and are classified within Level 2 of the fair value hierarchy.
There have been no changes in classification and transfers between levels in the fair value hierarchy in the current period.

4.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
As part of our financial risk management program, we use certain derivative financial instruments. We do not enter into derivative transactions for speculative purposes and, therefore, we do not hold any derivative instruments for trading purposes. We account for derivative instruments as a hedge of the related asset, liability, firm commitment or anticipated transaction, when the derivative is specifically designated and qualifies as a hedge of such items. Our objective in managing foreign exchange exposures with derivative instruments is to reduce volatility in cash flow. We measure hedge effectiveness by assessing the changes in the fair value or expected future cash flows of the hedged item.
There were no derivatives designated as hedging instruments as of September 30, 2022 and June 30, 2022. The fair value of derivatives not designated as hedging instruments in the condensed consolidated balance sheets are as follows:
(in thousands)September 30, 2022
June 30, 2022
Derivatives not designated as hedging instruments
Other current assets - currency forward contracts$230 $176 
Other current liabilities - currency forward contracts(147)(574)
Total derivatives not designated as hedging instruments83 (398)
Total derivatives$83 $(398)
Certain currency forward contracts that hedge significant cross-border intercompany loans are considered as other derivatives and therefore do not qualify for hedge accounting. These contracts are recorded at fair value in the condensed consolidated balance sheet, with the offset to other expense (income), net. (Gains) losses related to derivatives not designated as hedging instruments have been recognized as follows:
Three Months Ended September 30,
(in thousands)20222021
Other expense (income), net - currency forward contracts$(306)$140 
 
NET INVESTMENT HEDGES
As of September 30, 2022 and June 30, 2022, we had certain foreign currency-denominated intercompany loans payable with total aggregate principal amounts of zero and €13.0 million, respectively, designated as net investment hedges to hedge the foreign exchange exposure of our net investment in our Euro-based subsidiaries. Gains of $1.7 million and $1.3 million were recorded as a component of foreign currency translation adjustments in other comprehensive income for the three months ended September 30, 2022 and 2021, respectively.

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

5.    RESTRUCTURING AND RELATED CHARGES
We recorded no restructuring and related charges for the three months ended September 30, 2022. For the three months ended September 30, 2021, we recorded restructuring and related charges of $1.2 million, which consisted of charges of $1.2 million in Metal Cutting and an immaterial amount in Infrastructure. Of this amount, restructuring charges were $0.2 million and restructuring-related charges were $1.1 million (included in cost of goods sold) for the three months ended September 30, 2021.
As of September 30, 2022, $4.5 million and $1.5 million of the restructuring accrual was recorded in other current liabilities and other liabilities, respectively, in our condensed consolidated balance sheet. As of June 30, 2022, $6.0 million and $1.9 million of the restructuring accrual was recorded in other current liabilities and other liabilities, respectively. The amounts are as follows:
(in thousands)
June 30, 2022
ExpenseAsset Write-DownTranslationCash ExpendituresSeptember 30, 2022
Severance$7,919 $ $ $(426)$(1,486)$6,007 
Total$7,919 $ $ $(426)$(1,486)$6,007 

6.    STOCK-BASED COMPENSATION
Stock Options
Changes in our stock options for the three months ended September 30, 2022 were as follows:
OptionsWeighted Average Exercise PriceWeighted Average Remaining Life (years)Aggregate Intrinsic value (in thousands)
Options outstanding, June 30, 2022
271,843 $37.45 
Exercised  
Lapsed or forfeited(31,163)36.76   
Options outstanding, September 30, 2022
240,680 $37.54 1.9$ 
Options vested, September 30, 2022
240,680 $37.54 1.9$ 
Options exercisable, September 30, 2022
240,680 $37.54 1.9$ 
As of September 30, 2022 and June 30, 2022, there was no unrecognized compensation cost related to options outstanding, and all options were fully vested as of September 30, 2022 and 2021.
There was no cash received from the exercise of options during the three months ended September 30, 2022 and 2021. The total intrinsic value of options exercised was zero during the three months ended September 30, 2022 and immaterial during the three months ended September 30, 2021.
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KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Restricted Stock Units – Performance Vesting and Time Vesting
Changes in our performance vesting and time vesting restricted stock units for the three months ended September 30, 2022 were as follows:
Performance Vesting Stock UnitsPerformance Vesting Weighted Average Fair ValueTime Vesting Stock UnitsTime Vesting Weighted Average Fair Value
Unvested, June 30, 2022
350,955 $33.44 1,213,896 $33.53 
Granted189,469 27.27 693,410 27.24 
Vested  (499,717)32.10 
Performance metric adjustments, net(52,111)27.58   
Forfeited  (12,823)32.14 
Unvested, September 30, 2022
488,313 $31.67 1,394,766 $30.93 
During the three months ended September 30, 2022 and 2021, compensation expense related to time vesting and performance vesting restricted stock units was $7.8 million and $7.0 million, respectively. Performance vesting stock units were adjusted by 52,111 units during the three months ended September 30, 2022 related to the fiscal 2022 performance year. As of September 30, 2022, the total unrecognized compensation cost related to unvested time vesting and performance vesting restricted stock units was $38.7 million and is expected to be recognized over a weighted average period of 2.1 years.

7.    PENSION AND OTHER POSTRETIREMENT BENEFITS
The table below summarizes the components of net periodic pension income:
Three Months Ended September 30,
(in thousands)20222021
Service cost$238 $286 
Interest cost8,040 5,659 
Expected return on plan assets(10,026)(13,037)
Amortization of transition obligation21 24 
Amortization of prior service cost2 3 
Recognition of actuarial losses1,105 2,970 
Net periodic pension income$(620)$(4,095)
The table below summarizes the components of net periodic other postretirement benefit cost:
Three Months Ended September 30,
(in thousands)20222021
Interest cost$104 $72 
Amortization of prior service credit(68)(69)
Recognition of actuarial loss48 74 
Net periodic other postretirement benefit cost$84 $77 
The service cost component of net periodic pension income is reported as a component of cost of goods sold and operating expense. All other components of net periodic pension income and net periodic other postretirement benefit cost are reported as a component of other expense (income), net.

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

8.    INVENTORIES
We used the last-in, first-out (LIFO) method of valuing inventories for 40 percent and 39 percent of total inventories at September 30, 2022 and June 30, 2022, respectively. Inventory valuations under the LIFO method are based on an annual determination of quantities and costs as of June 30 of each year; therefore, the interim LIFO valuations are based on our projections of expected year-end inventory levels and costs and are subject to any final year-end LIFO inventory adjustments.
Inventories consisted of the following: 
(in thousands)September 30, 2022
June 30, 2022
Finished goods$331,354 $316,936 
Work in process and powder blends243,394 231,214 
Raw materials101,293 107,024 
Inventories at current cost676,041 655,174 
Less: LIFO valuation(84,571)(84,338)
Total inventories$591,470 $570,836 

9.    LONG-TERM DEBT
Fixed rate debt had a fair market value of $505.3 million and $536.1 million at September 30, 2022 and June 30, 2022, respectively. The Level 2 fair value is determined based on the quoted market prices for similar debt instruments as of September 30, 2022 and June 30, 2022, respectively.

10.    REVOLVING AND OTHER LINES OF CREDIT AND NOTES PAYABLE
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, Canadian dollars, pounds sterling and Japanese yen. Interest payable under the Credit Agreement is based upon the type of borrowing under the facility and may be (1) Euro Interbank Offered Rate (EURIBOR), Sterling Overnight Index Average (SONIA), Tokyo Interbank Offered Rate (TIBOR), Secured Overnight Financing Rate (SOFR), and Canadian Dollar Offered Rate (CDOR) for any borrowings in euros, pounds sterling, yen, U.S. dollars and Canadian 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 September 30, 2022, we were in compliance with all the covenants of the Credit Agreement and we had $79.9 million of borrowings outstanding and $620.1 million of additional availability. We had $19.0 million of borrowings outstanding as of June 30, 2022.
Borrowings on other lines of credit and notes payable were $5.3 million and $2.2 million at September 30, 2022 and June 30, 2022, respectively.

11.     ENVIRONMENTAL MATTERS
The operation of our business has exposed us to certain liabilities and compliance costs related to environmental matters. We are involved in various environmental cleanup and remediation activities at certain sites associated with our current or former operations.
We establish and maintain accruals for estimated liabilities associated with certain environmental matters. At September 30, 2022, the balance of such accruals was $12.3 million, of which $7.9 million was current. At June 30, 2022, the balance was $12.5 million, of which $7.9 million was current. These accruals are generally not discounted.
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KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

12.     INCOME TAXES
The effective income tax rates for the three months ended September 30, 2022 and 2021 were 27.5 percent and 27.0 percent, respectively. The year-over-year change is due primarily to geographical mix.
Swiss tax reform
Swiss tax reform 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 three months ended December 31, 2020. We consider the deferred tax asset from Swiss tax reform to be an estimate based on our current interpretation of the legislation, which is subject to change based on further legislative guidance, review with the Swiss federal and cantonal authorities, and modifications to the underlying valuation. We anticipate finalization of the deferred tax asset within the next three months.

13.    EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of shares outstanding during the period, while diluted earnings per share is calculated to reflect the potential dilution that would occur related to the issuance of capital stock under stock option grants, performance awards and restricted stock units. The difference between basic and diluted earnings per share relates solely to the effect of capital stock options, performance awards and restricted stock units.
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KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table provides the computation of diluted shares outstanding for the three months ended September 30, 2022 and 2021:
Three Months Ended September 30,
(in thousands)20222021
Weighted-average shares outstanding during the period
81,544 83,880 
Add: Unexercised stock options and unvested restricted stock units621 871 
Number of shares on which diluted earnings per share is calculated
82,165 84,751 
Unexercised stock options with an exercise price greater than the average market price and restricted stock units not included in the computation because they were anti-dilutive1,249 482 

14.    EQUITY
A summary of the changes in the carrying amounts of total equity, Kennametal Shareholders’ equity and equity attributable to noncontrolling interests for the three months ending September 30, 2022 and 2021 is as follows:
 Kennametal Shareholders’ Equity  
(in thousands, except per share amounts)Capital stockAdditional paid-in capitalRetained earningsAccumulated other comprehensive lossNon-controlling interestsTotal equity
Balance as of June 30, 2022
$101,671 $494,202 $1,070,655 $(413,951)$38,670 $1,291,247 
Net income— — 28,196 — 1,441 29,637 
Other comprehensive loss— — — (47,246)(1,765)(49,011)
Dividend reinvestment2 44 — — — 46 
Capital stock issued under employee benefit and stock plans(3)
454 3,028 — — — 3,482 
Purchase of capital stock(1,032)(18,344)— — — (19,376)
Cash dividends ($0.20 per share)
— — (16,276)— — (16,276)
Cash dividends to non-controlling interests— — — — (1,404)(1,404)
Total equity, September 30, 2022
$101,095 $478,930 $1,082,575 $(461,197)$36,942 $1,238,345 
 Kennametal Shareholders’ Equity  
(in thousands, except per share amounts)Capital stockAdditional paid-in capitalRetained earningsAccumulated other comprehensive lossNon-controlling interestsTotal equity
Balance as of June 30, 2021
$104,518 $562,820 $992,597 $(330,327)$38,597 $1,368,205 
Net income— — 36,198 — 1,554 37,752 
Other comprehensive loss— — — (12,094)(455)(12,549)
Dividend reinvestment2 46 — — — 48 
Capital stock issued under employee benefit and stock plans(3)
447 392 — — — 839 
Purchase of capital stock(440)(12,468)— — — (12,908)
Cash dividends ($0.20 per share)
— — (16,740)— — (16,740)
Total equity, September 30, 2021
$104,527 $550,790 $1,012,055 $(342,421)$39,696 $1,364,647 
(3) Net of restricted stock units delivered upon vesting to satisfy tax withholding requirements.
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KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

15.    ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of, and changes in, accumulated other comprehensive loss (AOCL) were as follows, net of tax, for the three months ended September 30, 2022:
(in thousands)Pension and other postretirement benefitsCurrency translation adjustmentDerivativesTotal
Attributable to Kennametal:
Balance, June 30, 2022
$(208,406)$(210,048)$4,503 $(413,951)
Other comprehensive income (loss) before reclassifications3,324 (51,184) (47,860)
Amounts reclassified from AOCL806  (192)614 
Net other comprehensive income (loss)4,130 (51,184)(192)(47,246)
AOCL, September 30, 2022
$(204,276)$(261,232)$4,311 $(461,197)
Attributable to noncontrolling interests:
Balance, June 30, 2022
$— $(7,547)$— $(7,547)
Other comprehensive loss before reclassifications— (1,765)— (1,765)
Net other comprehensive loss— (1,765)— (1,765)
AOCL, September 30, 2022
$— $(9,312)$— $(9,312)

The components of, and changes in, AOCL were as follows, net of tax, for the three months ended September 30, 2021:
(in thousands)Pension and other postretirement benefitsCurrency translation adjustmentDerivativesTotal
Attributable to Kennametal:
Balance, June 30, 2021
$(213,172)$(122,428)$5,273 $(330,327)
Other comprehensive income (loss) before reclassifications1,904 (16,021) (14,117)
Amounts reclassified from AOCL2,215  (192)2,023 
Net other comprehensive income (loss)4,119 (16,021)(192)(12,094)
AOCL, September 30, 2021
$(209,053)$(138,449)$5,081 $(342,421)
Attributable to noncontrolling interests:
Balance, June 30, 2021
$— $(3,982)$— $(3,982)
Other comprehensive loss before reclassifications— (455)— (455)
Net other comprehensive loss— (455)— (455)
AOCL, September 30, 2021
$— $(4,437)$— $(4,437)

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

Reclassifications out of AOCL for the three months ended September 30, 2022 and 2021 consisted of the following:
Three Months Ended September 30,
(in thousands)20222021Affected line item in the Income Statement
Gains on cash flow hedges:
Forward starting interest rate swaps$(255)$(255)Interest expense
Total before tax(255)(255)
Tax impact63 63 Provision for income taxes
Net of tax$(192)$(192)
Pension and other postretirement benefits:
Amortization of transition obligations$21 $24 Other income, net
Amortization of prior service credit(66)(66)Other income, net
Recognition of actuarial losses1,153 3,044 Other income, net
Total before tax1,108 3,002 
Tax impact(302)(787)Provision for income taxes
Net of tax$806 $2,215 

The amount of income tax allocated to each component of other comprehensive loss for the three months ended September 30, 2022 and 2021 were as follows:
20222021
(in thousands)Pre-taxTax impactNet of taxPre-taxTax impactNet of tax
Reclassification of unrealized gain on derivatives designated and qualified as cash flow hedges$(255)$63 $(192)$(255)$63 $(192)
Unrecognized net pension and other postretirement benefit plans gain4,479 (1,155)3,324 2,598 (694)1,904 
Reclassification of net pension and other postretirement benefit plans loss1,108 (302)806 3,002 (787)2,215 
Foreign currency translation adjustments(52,799)(150)(52,949)(16,457)(19)(16,476)
Other comprehensive loss$(47,467)$(1,544)$(49,011)$(11,112)$(1,437)$(12,549)


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

16.    GOODWILL AND OTHER INTANGIBLE ASSETS
A summary of the carrying amount of goodwill attributable to each segment, as well as the changes in such carrying amounts, is as follows:
(in thousands)Metal CuttingInfrastructureTotal
Gross goodwill$441,891 $633,211 $1,075,102 
Accumulated impairment losses(177,661)(633,211)(810,872)
Balance as of June 30, 2022
$264,230 $ $264,230 
Activity for the three months ended September 30, 2022:
Change in gross goodwill due to translation(6,281) (6,281)
Gross goodwill435,610 633,211 1,068,821 
Accumulated impairment losses(177,661)(633,211)(810,872)
Balance as of September 30, 2022
$257,949 $ $257,949 
The components of our other intangible assets were as follows:
 Estimated
Useful Life
(in years)
September 30, 2022June 30, 2022
(in thousands)Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Technology-based and other
4 to 20
$30,907 $(22,242)$31,592 $(22,734)
Customer-related
10 to 21