UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011

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.)
World Headquarters
1600 Technology Way
P.O. Box 231
Latrobe, Pennsylvania		15650-0231
(Address of principal executive offices)		(Zip Code)

Website: www.kennametal.com

Registrant’s telephone number, including area code: (724) 539-5000

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 [X] NO [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES [X] NO [  ]

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

Large accelerated filer [X]		Accelerated filer [  ]		Non-accelerated filer [  ] (Do not check if a smaller reporting company)		Smaller reporting company [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [  ] NO [X]

Indicate the number of shares outstanding of each of the issuer’s classes of capital stock, as of the latest practicable date.

Title of Each Class		Outstanding at April 30, 2011
Capital Stock, par value $1.25 per share		81,803,328

 

 

KENNAMETAL INC.
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2011

TABLE OF CONTENTS

Item No.		Page No.
PART I — FINANCIAL INFORMATION
1. Financial Statements.
Condensed Consolidated Statements of Income (Unaudited) Three and nine months ended March 31, 2011 and 2010			4
Condensed Consolidated Balance Sheets (Unaudited) March 31, 2011 and June 30, 2010			5
Condensed Consolidated Statements of Cash Flow (Unaudited) Nine months ended March 31, 2011 and 2010			6
Notes to Condensed Consolidated Financial Statements (Unaudited)			7
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
3. Quantitative and Qualitative Disclosures About Market Risk			27
4. Controls and Procedures			27
PART II — OTHER INFORMATION
1. Legal Proceedings			28
2. Unregistered Sales of Equity Securities and Use of Proceeds			28
6. Exhibits			29
Signatures			30
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

FORWARD-LOOKING INFORMATION

This Form 10-Q contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are statements that do not relate strictly to historical or current facts. You can identify forward-looking statements by the fact they use 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. Forward-looking statements in this Form 10-Q may concern, among other things, Kennametal’s expectations regarding our strategy, goals, plans and projections regarding our financial position, liquidity and capital resources, results of operations, market position, and product development, all of which are based on current estimates that involve inherent risks and uncertainties. Among the factors that could cause the actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties related to: prolonged economic recession; restructuring and related actions (including associated costs and anticipated benefits); availability and cost of the raw materials we use to manufacture our products; our foreign operations and international markets, such as currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability; changes in the regulatory environment in which we operate, including environmental, health and safety regulations; our ability to protect and defend our intellectual property; competition; our ability to retain our management and employees; demands on management resources; successful completion of information systems upgrades, including our enterprise system software; potential claims relating to our products; integrating acquisitions and achieving the expected savings and synergies; business divestitures; global or regional catastrophic events; energy costs; commodity prices; labor relations; demand for and market acceptance of new and existing products; implementation of environmental remediation matters; and implementation of a new segment structure. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, actual outcomes could vary materially from those indicated. These and other risks are more fully described in the “Risk Factors” Section of our Annual Report on Form 10-K and in our other periodic filings with the Securities and Exchange Commission. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
(in thousands, except per share amounts)		2011				2010				2011				2010
Sales		$	614,830			$	493,165			$	1,709,756			$	1,345,425
Cost of goods sold			384,849				322,841				1,091,010				917,212
Gross profit			229,981				170,324				618,746				428,213
Operating expense			138,322				120,062				395,447				354,126
Restructuring charges (Note 7)			1,046				20,720				7,697				31,898
Amortization of intangibles			2,836				3,239				8,696				9,946
Operating income			87,777				26,303				206,906				32,243
Interest expense			5,767				6,531				17,294				18,856
Other expense (income), net			1,413				(1,496	)			3,071				(6,314	)
Income from continuing operations before income taxes			80,597				21,268				186,541				19,701
Provision for income taxes			15,394				11,065				41,092				11,026
Income from continuing operations			65,203				10,203				145,449				8,675
Loss from discontinued operations (Note 8)			-				-				-				(1,423	)
Net income			65,203				10,203				145,449				7,252
Less: Net income attributable to noncontrolling interests			520				518				2,376				1,417
Net income attributable to Kennametal		$	64,683			$	9,685			$	143,073			$	5,835
Amounts attributable to Kennametal Shareowners:
Income from continuing operations		$	64,683			$	9,685			$	143,073			$	7,258
Loss from discontinued operations			-				-				-				(1,423	)
Net income		$	64,683			$	9,685			$	143,073			$	5,835
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREOWNERS
Basic earnings (loss) per share:
Continuing operations		$	0.79			$	0.12			$	1.74			$	0.09
Discontinued operations			-				-				-				(0.02	)
		$	0.79			$	0.12			$	1.74			$	0.07
Diluted earnings (loss) per share:
Continuing operations		$	0.77			$	0.12			$	1.72			$	0.09
Discontinued operations			-				-				-				(0.02	)
		$	0.77			$	0.12			$	1.72			$	0.07
Dividends per share		$	0.12			$	0.12			$	0.36			$	0.36
Basic weighted average shares outstanding			82,138				81,358				82,144				80,756
Diluted weighted average shares outstanding			83,495				82,189				83,164				81,397

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

KENNAMETAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

		March 31,				June 30,
(in thousands, except per share data)		2011				2010
ASSETS
Current assets:
Cash and cash equivalents		$	184,192			$	118,129
Accounts receivable, less allowance for doubtful accounts of $24,245 and $24,789			418,546				326,699
Inventories (Note 11)			466,125				364,268
Deferred income taxes			71,424				62,083
Other current assets			52,510				44,752
Total current assets			1,192,797				915,931
Property, plant and equipment:
Land and buildings			365,565				341,748
Machinery and equipment			1,346,888				1,281,872
Less accumulated depreciation			(1,047,597	)			(959,085	)
Property, plant and equipment, net			664,856				664,535
Other assets:
Investments in affiliated companies			833				2,251
Goodwill (Note 18)			507,969				489,443
Other intangible assets, less accumulated amortization of $75,492 and $63,343 (Note 18)			153,858				155,306
Deferred income taxes			12,310				11,827
Other			36,599				28,530
Total other assets			711,569				687,357
Total assets		$	2,569,222			$	2,267,823
LIABILITIES
Current liabilities:
Current maturities of long-term debt and capital leases (Note 12)		$	476			$	3,539
Notes payable to banks			5,700				19,454
Accounts payable			166,085				125,360
Accrued income taxes			23,109				17,857
Accrued expenses			98,423				73,989
Other current liabilities (Note 7)			156,333				152,806
Total current liabilities			450,126				393,005
Long-term debt and capital leases, less current maturities (Note 12)			310,667				314,675
Deferred income taxes			67,650				63,266
Accrued pension and postretirement benefits			146,382				129,701
Accrued income taxes			5,870				5,193
Other liabilities			26,140				28,540
Total liabilities			1,006,835				934,380
Commitments and contingencies
EQUITY (Note 16)
Kennametal Shareowners’ Equity:
Preferred stock, no par value; 5,000 shares authorized; none issued			-				-
Capital stock, $1.25 par value; 120,000 shares authorized; 81,814 and 81,903 shares issued			102,267				102,379
Additional paid-in capital			495,140				492,454
Retained earnings			906,648				793,448
Accumulated other comprehensive income (loss)			36,115				(72,781	)
Total Kennametal Shareowners’ Equity			1,540,170				1,315,500
Noncontrolling interests			22,217				17,943
Total equity			1,562,387				1,333,443
Total liabilities and equity		$	2,569,222			$	2,267,823

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

KENNAMETAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)

Nine months ended March 31 (in thousands)		2011				2010 (1)
OPERATING ACTIVITIES
Net income		$	145,449			$	7,252
Adjustments for non-cash items:
Depreciation			60,165				61,323
Amortization			8,696				9,946
Stock-based compensation expense			15,727				12,529
Restructuring charges			2,609				366
Loss on divestitures			-				527
Deferred income tax (benefit) provision			(2,878	)			306
Other			4,637				(3,969	)
Changes in certain assets and liabilities, excluding effects of divestitures:
Accounts receivable			(71,692	)			(34,750	)
Inventories			(74,706	)			4,524
Accounts payable and accrued liabilities			37,250				9,109
Accrued income taxes			4,378				16,686
Other			(4,610	)			8,788
Net cash flow provided by operating activities			125,025				92,637
INVESTING ACTIVITIES
Purchases of property, plant and equipment			(33,348	)			(30,438	)
Disposals of property, plant and equipment			8,063				4,087
Proceeds from divestitures (Note 8)			-				27,788
Other			2,349				286
Net cash flow (used for) provided by investing activities			(22,936	)			1,723
FINANCING ACTIVITIES
Net decrease in notes payable			(13,844	)			(12,187	)
Net decrease in short-term revolving and other lines of credit			-				(18,400	)
Term debt borrowings			365,082				439,327
Term debt repayments			(366,653	)			(555,041	)
Purchase of capital stock			(26,457	)			(224	)
Net proceeds from equity offering			-				120,693
Dividend reinvestment and the effect of employee benefit and stock plans			15,081				6,603
Cash dividends paid to shareowners			(29,873	)			(29,429	)
Other			(1,045	)			(1,096	)
Net cash flow used for financing activities			(57,709	)			(49,754	)
Effect of exchange rate changes on cash and cash equivalents			21,683				(3,536	)
CASH AND CASH EQUIVALENTS
Net increase in cash and cash equivalents			66,063				41,070
Cash and cash equivalents, beginning of period			118,129				69,823
Cash and cash equivalents, end of period		$	184,192			$	110,893

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.		ORGANIZATION
		Kennametal Inc. was incorporated in Pennsylvania in 1943. Kennametal Inc. and its subsidiaries (collectively, Kennametal or the Company) are a leading global manufacturer and supplier of tooling, engineered components and advanced materials consumed in production processes. We believe that our reputation for manufacturing excellence, as well as our technological expertise and innovation in our principle products, has helped us to achieve a leading market presence in our primary markets. End users of our products include metalworking manufacturers and suppliers across a diverse array of industries including the aerospace, defense, transportation, machine tool, light machinery and heavy machinery industries, as well as manufacturers, producers and suppliers in a number of other industries including coal mining, highway construction, quarrying, oil and gas exploration and production industries. Our end users’ products and services include everything from airframes to coal, engines to oil wells and turbochargers to construction. We operate two global business units consisting of Industrial and Infrastructure.

2.		BASIS OF PRESENTATION
		The condensed consolidated financial statements, which include our accounts and those of our majority-owned subsidiaries, should be read in conjunction with our 2010 Annual Report on Form 10-K. The condensed consolidated balance sheet as of June 30, 2010 was derived from the audited balance sheet included in our 2010 Annual Report on Form 10-K. These interim statements are unaudited; however, we believe that all adjustments necessary for a fair statement of the results of the interim periods were made and all adjustments are normal, recurring adjustments. The results for the nine months ended March 31, 2011 and 2010 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 2011 is to the fiscal year ending June 30, 2011. When used in this Form 10-Q, unless the context requires otherwise, the terms “we,” “our” and “us” refer to Kennametal Inc. and its consolidated subsidiaries.

3.		NEW ACCOUNTING STANDARDS
		Adopted
		As of January 1, 2011, Kennametal adopted changes to intangible impairment testing for reporting units with zero or negative carrying amounts. These changes require an entity to perform all steps in the test for a reporting unit whose carrying value is zero or negative if it is more likely than not that an intangible impairment exists based on qualitative factors, resulting in the elimination of an entity’s ability to assert that such a reporting unit’s intangible assets are not impaired and additional testing is not necessary despite the existence of qualitative factors that indicate otherwise. The adoption of this guidance did not have an impact on our condensed consolidated financial statements.
		As of January 1, 2011, Kennametal adopted changes to the disclosures related to business combinations for a public entity that presents comparative financial statements. This guidance also expanded the supplemental pro forma business combination disclosures. The adoption of this guidance did not have an impact on our condensed consolidated financial statements.
		As of July 1, 2010, Kennametal adopted new guidance on consolidations for enterprises involved with variable interest entities. The guidance modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar) rights should be consolidated and clarifies that the determination of whether a company is required to consolidate a variable interest entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. This guidance requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity and also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
		As of July 1, 2010, Kennametal adopted new guidance on accounting for transfers of financial assets. This guidance requires additional disclosure regarding transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
		As of July 1, 2010, Kennametal adopted new guidance on revenue recognition for multiple-deliverable revenue arrangements. The guidance allows companies to allocate arrangement consideration in multiple deliverable arrangements in a manner that better reflects the transaction’s economics and may result in earlier revenue recognition. In addition, the residual method of allocating arrangement consideration is no longer permitted. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

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

4.

SUPPLEMENTAL CASH FLOW DISCLOSURES

Nine months ended March 31 (in thousands)		2011				2010
Cash paid (received) during the period for:
Interest		$	14,684			$	16,043
Income taxes			40,741				(5,129	)
Supplemental disclosure of non-cash information:
Contribution of capital stock to employees’ defined contribution benefit plans			948				4,248

5.		FAIR VALUE MEASUREMENTS
		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 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 March 31, 2011, the fair values of the Company’s financial assets and financial liabilities measured at fair value on a recurring basis are categorized as follows:

(in thousands)		Level 1				Level 2				Level 3				Total
Assets:
Derivatives (1)		$	-			$	4,416			$	-			$	4,416
Total assets at fair value		$	-			$	4,416			$	-			$	4,416
Liabilities:
Derivatives (1)		$	-			$	1,640			$	-			$	1,640
Total liabilities at fair value		$	-			$	1,640			$	-			$	1,640

(1)		Foreign currency derivative and interest rate swap contracts are valued based on observable market spot and forward rates and are classified within Level 2 of the fair value hierarchy.

As of June 30, 2010, the fair value of the Company’s financial assets and financial liabilities measured at fair value on a recurring basis are categorized as follows:

(in thousands)		Level 1				Level 2				Level 3				Total
Assets:
Derivatives (1)		$	-			$	43			$	-			$	43
Total assets at fair value		$	-			$	43			$	-			$	43
Liabilities:
Derivatives (1)		$	-			$	3,453			$	-			$	3,453
Total liabilities at fair value		$	-			$	3,453			$	-			$	3,453

(1)		Foreign currency derivative and interest rate swap contracts are valued based on observable market spot and forward rates and are classified within Level 2 of the fair value hierarchy.

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

6.		DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
		As part of our financial risk management program, we use certain derivative financial instruments. We do not enter into derivative transactions for speculative purposes and therefore hold no derivative instruments for trading purposes. We use derivative financial instruments to provide predictability to the effects of changes in foreign exchange rates on our consolidated results and to achieve our targeted mix of fixed and floating interest rates on outstanding debt. 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. Our objective in managing foreign exchange exposures with derivative instruments is to reduce volatility in cash flow, allowing us to focus more of our attention on business operations. With respect to interest rate management, these derivative instruments allow us to achieve our targeted fixed-to-floating interest rate mix as a separate decision from funding arrangements in the bank and public debt markets. We measure hedge effectiveness by assessing the changes in the fair value or expected future cash flows of the hedged item. The ineffective portions are recorded in other (income) expense, net.
		The fair value of derivatives designated in the condensed consolidated balance sheet are as follows:

		March 31,				June 30,
(in thousands)		2011				2010
Derivatives designated as hedging instruments
Other current assets - range forward contracts		$	3			$	34
Other current liabilities - range forward contracts			(426	)			(2	)
Other assets - forward starting interest rate swap contracts			2,990				-
Other liabilities - forward starting interest rate swap contracts			(659	)			(2,348	)
Total derivatives designated as hedging instruments			1,908				(2,316	)
Derivatives not designated as hedging instruments
Other current assets - currency forward contracts			1,423				9
Other current liabilities - currency forward contracts			(555	)			(1,103	)
Total derivatives not designated as hedging instruments			868				(1,094	)
Total derivatives		$	2,776			$	(3,410	)

Certain currency forward contracts hedging 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 balance sheet, with the offset to other expense (income), net. Losses (gains) related to derivatives not designated as hedging instruments have been recognized as follows:

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
(in thousands)		2011				2010				2011				2010
Other expense (income), net - currency forward contracts		$	480			$	(6,261	)		$	(1,302	)		$	794

FAIR VALUE HEDGES

Fixed-to-floating interest rate swap contracts, designated as fair value hedges, are entered into from time to time to hedge our exposure to fair value fluctuations on a portion of our fixed rate debt. These interest rate swap contracts convert a portion of our fixed rate debt to floating rate debt. These contracts require periodic settlement, and the difference between amounts to be received and paid under the interest rate swap contracts is recognized in interest expense. We had no such contracts outstanding at March 31, 2011 and June 30, 2010, respectively.

In February 2009, we terminated interest rate swap contracts to convert $200.0 million of our fixed rate debt to floating rate debt. These contracts were originally set to mature in June 2012. Upon termination, we received a cash payment of $13.2 million. This gain is being amortized as a component of interest expense over the remaining term of the related debt using the effective interest rate method. During the three and nine months ended March 31, 2011, $1.5 million and $4.4 million, respectively, were recognized as reductions in interest expense. During the three and nine months ended March 31, 2010, $1.4 million and $4.2 million, respectively, were recognized as reductions in interest expense.

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

CASH FLOW HEDGES

Currency forward contracts and range forward contracts (a transaction where both a put option is purchased and a call option is sold), designated as cash flow hedges, hedge anticipated cash flows from cross-border intercompany sales of products and services. Gains and losses realized on these contracts at maturity are recorded in accumulated other comprehensive loss, net of tax, and are recognized as a component of other expense (income), net when the underlying sale of products or services is recognized into earnings. The notional amount of the contracts translated into U.S. dollars at March 31, 2011 and 2010, was $41.4 million and $17.8 million, respectively. The time value component of the fair value of range forwards is excluded from the assessment of hedge effectiveness. Assuming the market rates remain constant with the rates at March 31, 2011, we expect to recognize a loss of $0.4 million in the next 12 months on outstanding derivatives.

We enter into floating-to-fixed interest rate swap contracts, designated as cash flow hedges, from time to time to hedge our exposure to interest rate changes on a portion of our floating rate debt. These interest rate swap contracts convert a portion of our floating rate debt to fixed rate debt. We record the fair value of these contracts as an asset or a liability, as applicable, in the balance sheet, with the offset to accumulated other comprehensive loss, net of tax. At March 31, 2011, we had forward starting interest rate swap contracts outstanding for forecasted transactions that effectively converted a cumulative notional amount of $125 million from floating to fixed interest rates. As of March 31, 2011, we recorded a net asset of $2.3 million on these contracts which was recorded as an offset in other comprehensive income, net of tax. Over the next 12 months, assuming the market rates remain constant with the rates at March 31, 2011, we do not expect to recognize into earnings any significant gains or losses on outstanding derivatives. We had no such contracts outstanding at March 31, 2010.

Amounts related to cash flow hedges have been recognized as follows:

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
(in thousands)		2011				2010				2011				2010
Gains (losses) recognized in other comprehensive loss		$	239			$	8			$	2,660			$	(1,017	)
Losses (gains) reclassified from accumulated other comprehensive loss into other expense (income), net		$	293			$	114			$	603			$	(1,234	)

No portion of the gains or losses recognized in earnings was due to ineffectiveness and no amounts were excluded from our effectiveness testing for the nine months ended March 31, 2011 and 2010, respectively.

7.

RESTRUCTURING CHARGES AND RELATED CHARGES

We continued to implement restructuring plans to reduce costs and improve operating efficiencies. These actions taken during the nine months ended March 31, 2011 related primarily to the rationalization of certain manufacturing facilities. Restructuring and related charges recorded during the nine months ended March 31, 2011 amounted to $14.9 million, including $8.7 million of restructuring charges of which $1.0 million were related to inventory disposals and recorded in cost of goods sold. Restructuring-related charges of $3.0 million and $3.2 million were recorded in cost of goods sold and operating expense, respectively, during the nine months ended March 31, 2011.

Restructuring and related charges recorded during the nine months ended March 31, 2010 amounted to $35.6 million, including $32.2 million of restructuring charges, of which $0.3 million related to inventory disposals and were recorded in cost of goods sold. Restructuring-related charges of $2.3 million and $1.1 million were recorded in cost of goods sold and operating expense, respectively, during the same period.

The combined total pre-tax charges are not expected to exceed $165 million, and are expected to be approximately 70% Industrial and 30% Infrastructure. We expect the majority of these pre-tax charges to be severance charges. Total restructuring and related charges since inception of $143 million have been recorded through March 31, 2011: approximately $99 million in Industrial, approximately $42 million in Infrastructure and approximately $2 million in Corporate for the write-off our pre-existing ERP system. The remaining restructuring charges are expected to be completed within the next three months and are anticipated to be mostly cash expenditures.

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

The restructuring accrual is recorded in other current liabilities in our condensed consolidated balance sheet and the amount attributable to each segment is as follows:

										Asset				Cash
(in thousands)		June 30, 2010				Expense				Write-down				Expenditures				Translation				March 31, 2011
Industrial
Severance		$	18,327			$	2,374			$	-			$	(13,678	)		$	1,471			$	8,494
Facilities			508				1,589				(1,589	)			(408	)			-				100
Other			403				1,355				-				(778	)			76				1,056
Total Industrial			19,238				5,318				(1,589	)			(14,864	)			1,547				9,650
Infrastructure
Severance			7,637				1,523				-				(8,779	)			944				1,325
Facilities			211				1,020				(1,020	)			(211	)			-				-
Other			168				870				-				(500	)			49				587
Total Infrastructure			8,016				3,413				(1,020	)			(9,490	)			993				1,912
Total		$	27,254			$	8,731			$	(2,609	)		$	(24,354	)		$	2,540			$	11,562

										Asset				Cash
(in thousands)		June 30, 2009				Expense				Write-down				Expenditures				Translation				June 30, 2010
Industrial
Severance		$	18,378			$	29,082			$	-			$	(28,086	)		$	(1,047	)		$	18,327
Facilities			477				790				(604	)			(142	)			(13	)			508
Other			176				1,393				-				(1,241	)			75				403
Total Industrial			19,031				31,265				(604	)			(29,469	)			(985	)			19,238
Infrastructure
Severance			7,659				12,119				-				(11,704	)			(437	)			7,637
Facilities			199				329				(251	)			(59	)			(7	)			211
Other			73				580				-				(517	)			32				168
Total Infrastructure			7,931				13,028				(251	)			(12,280	)			(412	)			8,016
Total		$	26,962			$	44,293			$	(855	)		$	(41,749	)		$	(1,397	)		$	27,254

8.

DISCONTINUED OPERATIONS

On June 30, 2009, we completed the sale of our high speed steel drills and related product lines. This divestiture was accounted for as discontinued operations. Cash proceeds received from this divestiture amounted to $28.5 million of which $27.0 million was received during the nine months ended March 31, 2010. We did not incur any pre-tax charges related to this divestiture during the three and nine months ended March 31, 2011. We incurred pre-tax charges related to this divestiture of $2.3 million during the nine months ended March 31, 2010. We do not expect to incur any additional pre-tax charges related to this divestiture.

The following represents the results of discontinued operations:

		Nine Months Ended
(in thousands)		March 31, 2010
Sales		$	-
Loss from discontinued operations before income taxes		$	(2,269	)
Income tax benefit			846
Loss from discontinued operations		$	(1,423	)

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

9.

STOCK-BASED COMPENSATION

On October 26, 2010, the Company’s shareowners approved the Kennametal Inc., Stock and Incentive Plan of 2010 (the “2010 Plan”). The 2010 Plan authorizes the issuance of up to 3,500,000 shares of the Company’s common stock plus the remaining shares from the 2002 Plan. Shares can be issued in the form of incentive stock options, non-statutory stock options, stock appreciation rights, performance share awards, performance unit awards, restricted stock awards, restricted unit awards and share awards.

Stock Options

The assumptions used in our Black-Scholes valuation related to grants made during the nine months ended March 31, 2011 and 2010 were as follows:

		2011				2010
Risk-free interest rate			1.4	%			2.3	%
Expected life (years) (1)			4.5				4.5
Expected volatility (2)			47.0	%			43.9	%
Expected dividend yield			2.0	%			1.8	%

(1)		Expected life is derived from historical experience.
(2)		Expected volatility is based on the historical volatility of our stock.

Changes in our stock options for the nine months ended March 31, 2011 were as follows:

										Weighted
						Weighted				Average				Aggregate
						Average				Remaining				Intrinsic value
		Options				Exercise Price				Life (years)				(in thousands)
Options outstanding, June 30, 2010			3,582,075			$	25.59
Granted			545,987				27.01
Exercised			(539,658	)			22.04
Lapsed and forfeited			(68,854	)			26.11
Options outstanding, March 31, 2011			3,519,550			$	26.35				6.2			$	44,527
Options vested and expected to vest, March 31, 2011			3,408,301			$	26.38				6.1			$	43,003
Options exercisable, March 31, 2011			2,053,102			$	26.66				4.9			$	25,348

During the nine months ended March 31, 2011 and 2010, compensation expense related to stock options was $4.2 million and $3.8 million, respectively. As of March 31, 2011, the total unrecognized compensation cost related to options outstanding was $5.4 million and is expected to be recognized over a weighted average period of 2.4 years.

Weighted average fair value of options granted during the nine months ended March 31, 2011 and 2010 was $9.22 and $7.31, respectively. Fair value of options vested during the nine months ended March 31, 2011 and 2010 was $4.4 million and $4.1 million, respectively.

Tax benefits, relating to excess stock-based compensation deductions, are presented in the statement of cash flow as financing cash inflows. Tax benefits resulting from stock-based compensation deductions exceeded amounts reported for financial reporting purposes by $2.4 million for the nine months ended March 31, 2011. Amounts reported for financial reporting purposes exceeded the tax benefit by $0.2 million for the nine months ended March 31, 2010.

The amount of cash received from the exercise of capital stock options during the nine months ended March 31, 2011 and 2010 was $11.3 million and $4.3 million, respectively. The related tax benefit for the nine months ended March 31, 2011 and 2010 was $2.6 million and $0.5 million, respectively. The total intrinsic value of options exercised during the nine months ended March 31, 2011 and 2010 was $8.0 million and $1.8 million, respectively.

Under the provisions of the 2010 Plan participants may deliver stock, owned by the holder for at least six months, in payment of the option price and receive credit for the fair market value of the shares on the date of delivery. The fair market value of shares delivered during the nine months ended March 31, 2011 was $0.6 million and was immaterial for the nine months ended March 31, 2010.

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

Restricted Stock Awards

Changes in our restricted stock awards for the nine months ended March 31, 2011 were as follows:

						Weighted
						Average Fair
		Shares				Value
Unvested restricted stock awards, June 30, 2010			198,701			$	32.71
Vested			(105,466	)			32.56
Forfeited			(1,040	)			34.02
Unvested restricted stock awards, March 31, 2011			92,195			$	32.90

During the nine months ended March 31, 2011 and 2010, compensation expense related to restricted stock awards was $1.6 million and $2.2 million, respectively. As of March 31, 2011, the total unrecognized compensation cost related to unvested restricted stock awards was $1.3 million and is expected to be recognized over a weighted average period of 1.1 years.

Restricted Stock Units — Time Vesting and Performance Vesting

Performance vesting restricted stock units (performance units) were granted to certain individuals. These performance units are earned pro rata each year if certain performance goals are met over a 3-year period, and are also subject to a service condition that requires the individual to be employed by the Company at the payment date after the 3-year performance period.

Changes in our time vesting and performance vesting restricted stock units for the nine months ended March 31, 2011 were as follows:

						Performance
		Performance				Vesting								Time Vesting
		Vesting				Weighted				Time Vesting				Weighted Average
		Stock				Average Fair				Stock				Fair
		Units				Value				Units				Value
Unvested performance vesting and time vesting restricted stock units, June 30, 2010			-			$	-				546,713			$	24.29
Granted			134,807				26.89				525,250				26.93
Vested			-				-				(73,806	)			23.24
Forfeited			(12,396	)			26.89				(40,883	)			25.51
Unvested performance vesting and time vesting restricted stock units, March 31, 2011			122,411			$	26.89				957,274			$	25.78

During the nine months ended March 31, 2011 and 2010, compensation expense related to time vesting and performance vesting restricted stock units was $8.6 million and $1.9 million, respectively. As of March 31, 2011, the total unrecognized compensation cost related to unvested time vesting and performance vesting restricted stock units was $15.2 million and is expected to be recognized over a weighted average period of 2.6 years.

Restricted Stock Units — STEP

As of March 31, 2011, participating executives had been granted awards under the Kennametal Inc. 2008 Strategic Transformational Equity Program, under the 2002 Plan (STEP), equal to that number of restricted stock units having a value of $27.8 million. A further amount of $9.5 million remains available under the STEP for additional awards that could be made to other executives; however, the Company has decided that it will not make any further awards under the STEP. No new grants under the STEP were made in the nine months ended March 31, 2011, and it is assumed that none of these units will vest. There are no voting rights or dividends associated with restricted stock units under the STEP.

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

Changes to the EPS performance-based portion of the STEP restricted stock units for the nine months ended March 31, 2011 were as follows:

						Weighted
		Stock				Average Fair
		Units				Value
Unvested EPS performance-based restricted stock units, June 30, 2010			502,371			$	35.54
Granted			-				-
Forfeited			(41,519	)			37.45
Unvested EPS performance-based restricted stock units, March 31, 2011			460,852			$	35.37

Changes to the TSR performance-based portion of the STEP restricted stock units for the nine months ended March 31, 2011 were as follows:

						Weighted
		Stock				Average Fair
		Units				Value
Unvested TSR performance-based restricted stock units, June 30, 2010			270,501			$	8.35
Granted			-				-
Forfeited			(22,355	)			9.20
Unvested TSR performance-based restricted stock units, March 31, 2011			248,146			$	8.28

During the nine months ended March 31, 2011 and 2010, compensation expense related to STEP restricted stock units was $0.3 million and $0.5 million, respectively. As of March 31, 2011, the total unrecognized compensation cost related to unvested STEP restricted stock units was $0.3 million and is expected to be recognized over a weighted average period of 0.5 years.

10.

BENEFIT PLANS

We sponsor several defined benefit pension plans. Additionally, we provide varying levels of postretirement health care and life insurance benefits to some U.S. employees.

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

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
(in thousands)		2011				2010				2011				2010
Service cost		$	1,927			$	1,976			$	5,748			$	5,971
Interest cost			10,319				10,525				30,776				31,875
Expected return on plan assets			(12,074	)			(11,519	)			(36,146	)			(34,683	)
Amortization of transition obligation			13				12				39				41
Amortization of prior service credit			(70	)			(70	)			(211	)			(210	)
Special termination benefits			-				1,610				-				3,577
Settlement loss			277				-				810				-
Recognition of actuarial losses			3,076				1,104				9,208				3,355
Net periodic pension cost		$	3,468			$	3,638			$	10,224			$	9,926

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

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

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
(in thousands)		2011				2010				2011				2010
Service cost		$	19			$	25			$	57			$	74
Interest cost			259				316				777				949
Amortization of prior service cost			-				2				-				6
Recognition of actuarial gains			(47	)			(92	)			(142	)			(276	)
Net periodic other postretirement benefit cost		$	231			$	251			$	692			$	753

11.

INVENTORIES

We used the last-in, first-out (LIFO) method of valuing inventories for approximately 47 percent and 51 percent of total inventories at March 31, 2011 and June 30, 2010, respectively. Because inventory valuations under the LIFO method are based on an annual determination of quantities and costs as of June 30 of each year, the interim LIFO valuations are based on our projections of expected year-end inventory levels and costs. Therefore, the interim financial results are subject to any final year-end LIFO inventory adjustments.

Inventories consisted of the following:

		March 31,				June 30,
(in thousands)		2011				2010
Finished goods		$	292,068			$	227,096
Work in process and powder blends			153,811				134,732
Raw materials and supplies			91,359				62,673
Inventories at current cost			537,238				424,501
Less: LIFO valuation			(71,113	)			(60,233	)
Total inventories		$	466,125			$	364,268

12.

LONG-TERM DEBT AND CAPITAL LEASES

Long-term debt and capital lease obligations consist primarily of Senior Unsecured Notes issued in June 2002 having an aggregate face amount of $300.0 million, maturing in June 2012, as well as borrowings under a five-year, multi-currency, revolving credit facility (2010 Credit Agreement) which permits revolving credit loans of up to $500.0 million for working capital, capital expenditures and general corporate purposes. The 2010 Credit Agreement allows for borrowings in U.S. dollars, euro, Canadian dollars, pound sterling and Japanese yen. Interest payable under the 2010 Credit Agreement is based upon the type of borrowing under the facility and may be (1) LIBOR plus an applicable margin, (2) the greater of the prime rate or the Federal Funds effective rate plus an applicable margin, or (3) fixed as negotiated by us.

The 2010 Credit Agreement requires us to comply with various restrictive and affirmative covenants, including two financial covenants: a maximum leverage ratio and a minimum consolidated interest coverage ratio (as those terms are defined in the agreement). We were in compliance with these financial covenants as of March 31, 2011. We had no borrowings outstanding under the 2010 Credit Agreement as of March 31, 2011 and June 30, 2010.

Borrowings under the 2010 Credit Agreement are guaranteed by our significant domestic subsidiaries.

Fixed rate debt had a fair market value of $319.1 million and $325.5 million at March 31, 2011 and June 30, 2010, respectively. The fair value is determined based on the quoted market price of this debt as of March 31, 2011 and June 30, 2010, respectively.

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

13.

ENVIRONMENTAL MATTERS

The operation of our business has exposed us to certain liabilities and compliance costs related to environmental matters. We are involved in various environmental cleanup and remediation activities at certain of our locations.

Superfund Sites We are involved as a Potentially Responsible Party (PRP) at various sites designated by the U.S. Environmental Protection Agency (USEPA) as Superfund sites. For certain of these sites, we have evaluated the claims and potential liabilities and have determined that neither are material, individually or in the aggregate. For certain other sites, proceedings are in the very early stages and have not yet progressed to a point where it is possible to estimate the ultimate cost of remediation, the timing and extent of remedial action that may be required by governmental authorities or the amount of our liability alone or in relation to that of any other PRPs.

Other Environmental We establish and maintain reserves for other potential environmental costs, which amounted to $5.3 million as of March 31, 2011. This accrual represents anticipated costs associated with the remediation of these issues. For the nine months ended March 31, 2011 we recorded approximately $1.4 million related to an environmental liability in our international operations and unfavorable foreign currency translation adjustments of $0.8 million, partially offset by a $1.1 million reversal of an international environmental liability. In addition, we paid a civil penalty of $0.2 million during the nine months ended March 31, 2011 related to our Chestnut Ridge, Pennsylvania facility closure.

The reserves we have established for environmental liabilities represent our best current estimate of the costs of addressing all identified environmental situations, based on our review of currently available evidence, and taking into consideration our prior experience in remediation and that of other companies, as well as public information released by the USEPA, other governmental agencies, and by the PRP groups in which we are participating. Although the reserves currently appear to be sufficient to cover these environmental liabilities, there are uncertainties associated with environmental liabilities, and we can give no assurance that our estimate of any environmental liability will not increase or decrease in the future. The reserved and unreserved exposures for all environmental concerns could change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, technological changes, discovery of new information, the financial strength of other PRPs, the identification of new PRPs and the involvement of and direction taken by the government on these matters.

We maintain a Corporate Environmental, Health and Safety (EHS) Department, as well as an EHS Steering Committee, to monitor compliance with environmental regulations and to oversee remediation activities. In addition, we have designated EHS coordinators who are responsible for each of our global manufacturing facilities. Our financial management team periodically meets with members of the Corporate EHS Department and the Corporate Legal Department to review and evaluate the status of environmental projects and contingencies. On a quarterly basis, we review financial provisions and reserves for environmental contingencies and adjust these reserves when appropriate.

14.

INCOME TAXES

The effective income tax rate for the three months ended March 31, 2011 and 2010 was 19.1 percent compared to 52.0 percent, respectively. The current year rate reflects the favorable impact of stronger operating results under our pan-European business strategy. The prior year rate was unfavorably impacted by restructuring and related charges in tax jurisdictions that did not result in a tax benefit.

The effective income tax rate for the nine months ended March 31, 2011 and 2010 was 22.0 percent compared to 56.0 percent, respectively. The current year rate reflects the favorable impact of stronger operating results under our pan-European business strategy. The prior year rate reflects the impact of restructuring and related charges in tax jurisdictions that did not result in a tax benefit.

15.

EARNINGS PER SHARE

Basic earnings per share are computed using the weighted average number of shares outstanding during the period, while diluted earnings per share are calculated to reflect the potential dilution that may occur related to the issuance of capital stock through grants of capital stock options, restricted stock awards and restricted stock units. The difference between basic and diluted earnings per share relates solely to the effect of capital stock options, restricted stock awards and restricted stock units.

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

For purposes of determining the number of diluted shares outstanding, weighted average shares outstanding for basic earnings per share calculations were increased due solely to the dilutive effect of unexercised capital stock options, unvested restricted stock awards and unvested restricted stock units by 1.4 million shares and 0.8 million shares for the three months ended March 31, 2011 and 2010, respectively and 1.0 million shares and 0.6 million shares for the nine months ended March 31, 2011 and 2010, respectively. Unexercised capital stock options, restricted stock units and restricted stock awards for the three months ended March 31, 2010 of 1.2 million shares and for the nine months ended March 31, 2011 and 2010 of 0.7 million and 3.0 million shares, respectively, were not included in the computation of diluted earnings per share because the inclusion would have been anti-dilutive. For the three months ended March 31, 2011 anti-dilutive shares were immaterial.

16.

EQUITY

A summary of the changes in the carrying amounts of total equity, Kennametal shareowners’ equity and equity attributable to noncontrolling interests as of March 31, 2011 and 2010 is as follows:

		Kennametal Shareowners’ Equity
														Accumulated
						Additional								other				Non-
		Capital				paid-in				Retained				comprehensive				controlling
(in thousands)		stock				capital				earnings				(loss) income				interests				Total equity
Balance as of June 30, 2010		$	102,379			$	492,454			$	793,448			$	(72,781	)		$	17,943			$	1,333,443
Net income			-				-				143,073				-				2,376				145,449
Other comprehensive income			-				-				-				108,896				2,030				110,926
Dividend reinvestment			9				225				-				-				-				234
Capital stock issued under employee benefit and stock plans			762				28,035				-				-				-				28,797
Purchase of capital stock			(883	)			(25,574	)			-				-				-				(26,457	)
Cash dividends paid			-				-				(29,873	)			-				(132	)			(30,005	)
Total equity, March 31, 2011		$	102,267			$	495,140			$	906,648			$	36,115			$	22,217			$	1,562,387

		Kennametal Shareowners’ Equity
														Accumulated
						Additional								other				Non-
		Capital				paid-in				Retained				comprehensive				controlling
(in thousands)		stock				capital				earnings				income				interests				Total equity
Balance as of June 30, 2009		$	91,540			$	357,839			$	786,345			$	11,719			$	20,012			$	1,267,455
Net income			-				-				5,835				-				1,417				7,252
Other comprehensive (loss) income			-				-				-				(8,504	)			136				(8,368	)
Dividend reinvestment			12				212				-				-				-				224
Capital stock issued under employee benefit and stock plans			493				16,401				-				-				-				16,894
Purchase of capital stock			(12	)			(212	)			-				-				-				(224	)
Equity offering			10,063				110,630				-				-				-				120,693
Cash dividends paid			-				-				(29,429	)			-				(176	)			(29,605	)
Total equity, March 31, 2010		$	102,096			$	484,870			$	762,751			$	3,215			$	21,389			$	1,374,321

The amounts of comprehensive income (loss) attributable to Kennametal shareowners and noncontrolling interests are disclosed in Note 17.

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

17.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is as follows:

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
Net income		$	65,203			$	10,203			$	145,449			$	7,252
Unrealized gain (loss) on derivatives designated and qualified as cash flow hedges, net of income tax			142				55				365				(990	)
Reclassification of unrealized loss (gain) on expired derivatives designated and qualified as cash flow hedges, net of income tax			98				(47	)			2,285				(27	)
Unrecognized net pension and other postretirement benefit (losses) gains, net of income tax			(1,294	)			2,045				(2,916	)			2,599
Reclassification of net pension and other postretirement benefit losses, net of income tax			1,868				172				5,588				1,363
Foreign currency translation adjustments, net of income tax			38,646				(34,674	)			105,604				(11,313	)
Total comprehensive income (loss)			104,663				(22,246	)			256,375				(1,116	)
Comprehensive income attributable to noncontrolling interests			1,258				124				4,406				1,553
Comprehensive income (loss) attributable to Kennametal Shareowners		$	103,405			$	(22,370	)		$	251,969			$	(2,669	)

18.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of cost over the fair value of the net assets of acquired companies. Goodwill and other intangible assets with indefinite lives are tested at least annually for impairment. We perform our annual impairment tests during the June quarter in connection with our annual planning process, unless there are impairment indicators that warrant a test prior to that. In conjunction with the implementation of our new operating structure on July 1, 2010, we tested goodwill for impairment and determined that there was no impairment at that time. We have noted no impairment indicators warranting additional testing. See Note 19 for further discussion regarding the Company’s segments.

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

(in thousands)		Industrial				Infrastructure				Total
Goodwill		$	393,974			$	246,311			$	640,285
Accumulated impairment losses			(150,842	)			-				(150,842	)
Balance as of June 30, 2010		$	243,132			$	246,311			$	489,443
Adjustments		$	192			$	-			$	192
Translation			15,204				3,130				18,334
Change in goodwill			15,396				3,130				18,526
Goodwill			409,370				249,441				658,811
Accumulated impairment losses			(150,842	)			-				(150,842	)
Balance as of March 31, 2011		$	258,528			$	249,441			$	507,969

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

The components of our other intangible assets were as follows:

		Estimated				March 31, 2011								June 30, 2010
		Useful Life				Gross Carrying				Accumulated				Gross Carrying				Accumulated
(in thousands)		(in years)				Amount				Amortization				Amount				Amortization
Contract-based			4 to 15			$	6,336			$	(5,321	)		$	6,357			$	(5,218	)
Technology-based and other			4 to 15				39,588				(24,584	)			37,136				(20,422	)
Customer-related			10 to 20				113,015				(36,153	)			108,470				(29,255	)
Unpatented technology			30				19,495				(4,722	)			19,216				(4,572	)
Trademarks			5 to 20				10,930				(4,712	)			10,647				(3,876	)
Trademarks		Indefinite					39,986				-				36,823				-
Total						$	229,350			$	(75,492	)		$	218,649			$	(63,343	)

During the nine months ended March 31, 2011, we recorded amortization expense of $8.7 million related to our other intangible assets and favorable foreign currency translation adjustments of $7.2 million.

19.

SEGMENT DATA

In order to take additional advantage of growth opportunities as well as to provide a better platform for continually improving the efficiency and effectiveness of operations, we implemented a new operating structure at the beginning of fiscal 2011.

The new structure provides for an enhanced market sector approach coupled with a more customer-centric focus for the sales organization and other key market-facing functions such as customer service, marketing, product management, engineering and product development. The new structure also involves the formation of a single, global integrated supply chain and logistics organization that unleashes additional opportunities to achieve higher customer satisfaction and realize lower costs to serve. Furthermore, the new structure provides for more uniform management of administrative functions on a global basis to further improve the consistency, effectiveness and efficiency of the services provided by these functions.

A key attribute of the new structure is the establishment of two new operating segments, by market sector, which replace the previous two operating segments that were based on a product focus. The two new reportable operating segments are named Industrial and Infrastructure. The Industrial business is focused on customers within the transportation, aerospace, defense and general engineering market sectors, as well as the machine tool industry. The Infrastructure business is focused on customers within the energy and earthworks industries. The formation of the two new reportable operating segments is consistent with the new management approach and internal financial reporting established under the new structure.

Under the new structure, more corporate expenses will be allocated to the new segments than were allocated to the previous segments. Corporate expenses related to executive retirement plans, the Company’s Board of Directors and strategic initiatives, as well as certain other costs, will continue to be reported as Corporate.

Kennametal delivers productivity to customers seeking peak performance in demanding environments by providing innovative custom and standard wear-resistant solutions, enabled through our advanced materials sciences, application knowledge and commitment to a sustainable environment. Our product offering includes a wide array of standard and custom solution products in metalworking, such as metalcutting tools and tooling systems, and advanced materials, such as cemented tungsten carbide products, to address customer demands. These products are offered through a variety of channels via an enterprise approach to customers in both of our operating segments.

The Industrial segment serves customers that operate in industrial end markets such as aerospace, defense, transportation and general engineering. The customers in these end markets manufacture engines, airframes, automobiles, trucks, ships and various industrial goods. The technology needs and level of customization vary by customer and industry served. We deliver value to our Industrial segment customers through our application expertise and diverse product offering.

The Infrastructure segment serves customers that operate in the earthworks and energy end markets. These customers support primary industries such as oil and gas, power generation, underground mining, surface and hard rock mining, highway construction and road maintenance. Generally, our Infrastructure segment customers are served through a customer intimacy model that allows us to offer full system solutions by gaining an in-depth understanding of our customers’ engineering needs. Our product offering promotes value by bringing enhanced performance and productivity to our customers’ processes and systems.

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

Our external sales and operating income by segment are as follows:

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2011				2010 (1)				2011				2010 (1)
External sales:
Industrial		$	391,763			$	305,802			$	1,091,560			$	831,939
Infrastructure			223,067				187,363				618,196				513,486
Total external sales		$	614,830			$	493,165			$	1,709,756			$	1,345,425
Operating income (loss):
Industrial		$	54,145			$	10,808			$	132,410			$	(1,140	)
Infrastructure			35,639				18,556				83,708				48,454
Corporate			(2,007	)			(3,061	)			(9,212	)			(15,071	)
Total operating income		$	87,777			$	26,303			$	206,906			$	32,243
Interest expense		$	5,767			$	6,531			$	17,294			$	18,856
Other expense (income), net			1,413				(1,496	)			3,071				(6,314	)
Income from continuing operations before income taxes		$	80,597			$	21,268			$	186,541			$	19,701

Our total assets by segment are as follows:

		March 31,				June 30,
(in thousands)		2011				2010 (1)
Total assets:
Industrial		$	1,441,302			$	1,310,635
Infrastructure			758,363				682,169
Corporate			369,557				275,019
Total assets		$	2,569,222			$	2,267,823

(1)		Amounts for the three and nine months ended March 31, 2010 and for the period as of June 30, 2010 have been restated to reflect the change in reportable operating segments.