KENNAMETAL INC. OVERVIEW
Kennametal Inc. was founded based on a tungsten carbide technology breakthrough in 1938. The Company was incorporated inPennsylvania in 1943 as a manufacturer of tungsten carbide metal cutting tooling and was listed on theNew York Stock Exchange (NYSE) in 1967. With more than 80 years of materials expertise, the Company is a global industrial technology leader, helping customers across the aerospace, earthworks, energy, general engineering and transportation industries manufacture with precision and efficiency. This expertise includes the development and application of tungsten carbides, ceramics, super-hard materials and solutions used in metal cutting and extreme wear applications to keep customers up and running longer against conditions such as corrosion and high temperatures. Our standard and custom product offerings span metal cutting and wear applications including turning, milling, hole making, tooling systems and services, as well as specialized wear components and metallurgical powders. End users of our metal cutting products include manufacturers engaged in a diverse array of industries including: the manufacturers of transportation vehicles and components, machine tools and light and heavy machinery; airframe and aerospace components; and energy-related components for the oil and gas industry, as well as power generation. Our wear and metallurgical powders are used by producers and suppliers in equipment-intensive operations such as road construction, mining, quarrying, and oil and gas exploration, refining, production and supply. Throughout the MD&A, we refer to measures used by management to evaluate performance. We also refer to a number of financial measures that are not defined under accounting principles generally accepted inthe United States of America (U.S. GAAP), including organic sales growth, constant currency regional sales growth and constant currency end market sales growth. We provide the definitions of these non-GAAP financial measures at the end of the MD&A section as well as details on the use and derivation of these financial measures. Our sales of$483.5 million for the quarter endedSeptember 30, 2021 increased year-over-year reflecting a 19 percent organic sales growth and a 2 percent favorable currency exchange effect. Operating income increased$71.8 million from an operating loss of$17.2 million in the prior year quarter to operating income of$54.6 million in the current quarter. The year-over-year increase was due primarily to organic sales growth,$1 million of restructuring and related charges compared to$29 million in the prior year quarter, favorable pricing, favorable product mix and approximately$5 million of incremental simplification/modernization benefits, partially offset by approximately$15 million due to the restoration of salaries and other cost-control measures that were taken in the prior year. Operating margin was 11.3 percent compared to negative 4.3 percent in the prior year quarter. The Infrastructure and Metal Cutting segments had operating margins of 14.1 percent and 9.8 percent, respectively, for the quarter endedSeptember 30, 2021 . OnMarch 11, 2020 , theWorld Health Organization declared the Coronavirus Disease 2019 (COVID-19) a pandemic bringing significant uncertainty in our end markets and operations. Since then, national, regional and local governments have taken steps at various times since the pandemic began to limit the spread of the virus through stay-at-home, social distancing, and various other orders and guidelines. Although some jurisdictions have relaxed these measures, particularly as more and more people are vaccinated, others have not or have reinstated them as COVID-19 cases surge and variants emerge. The imposition of these measures has created significant operating constraints on our business. Throughout the pandemic, based on the guidance provided by theU.S. Centers for Disease Control and other relevant authorities, we have deployed safety protocols and processes to keep our employees safe while continuing to serve our customers. To date, we have not experienced a material disruption in our supply chain. The extent to which the COVID-19 pandemic may continue to affect our business, operating results or financial condition in the future will depend on number of factors, including the duration and spread of the pandemic, the emergence of more contagious or virulent strains of the virus, travel restrictions, business and workforce disruptions associated with the pandemic, including the availability of critical materials and resources, the success of preventative measures to contain or mitigate the spread of the virus and emerging variants, and the effectiveness of the distribution and acceptance of COVID-19 vaccines. We recorded$1.2 million of pre-tax restructuring and related charges in the quarter. Total restructuring and related charges since inception of$83.4 million were recorded throughSeptember 30, 2021 for the FY21 Restructuring Actions. The expected pre-tax charges for this program are approximately$90 million . Inception to date, we have achieved annualized savings of approximately$68 million . Current quarter earnings per diluted share (EPS) of$0.43 was unfavorably affected by restructuring and related charges of$0.01 per share. The loss per share (LPS) of$0.26 in the prior year quarter included restructuring and related charges of$0.30 per share, partially offset by differences in annual projected tax rates of$0.01 per share. 20
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
We generated net cash flows from operating activities of$15.8 million during the three months endedSeptember 30, 2021 compared to$9.6 million during the prior year period. Capital expenditures were$17.8 million and$39.3 million during the three months endedSeptember 30, 2021 and 2020, respectively, with the decrease primarily related to lower capital spending on our simplification/modernization initiative. RESULTS OF CONTINUING OPERATIONS SALES Sales for the three months endedSeptember 30, 2021 were$483.5 million , an increase of$83.2 million , from$400.3 million in the prior year quarter. The increase in sales was driven by organic sales growth of 19 percent and a 2 percent favorable currency exchange impact. Three Months Ended September 30, 2021 (in percentages) As Reported Constant Currency End market sales growth: Transportation 17% 14% General engineering 25 23 Earthworks 8 3 Energy 25 23 Aerospace 21 19 Regional sales growth: Asia Pacific 12% 7% Europe, the Middle East and Africa (EMEA) 21 18 Americas 26 24 GROSS PROFIT Gross profit for the three months endedSeptember 30, 2021 was$160.8 million , an increase of$55.7 million from$105.1 million in the prior year quarter. The increase was primarily due to organic sales growth, favorable pricing and product mix, favorable foreign currency exchange effect of approximately$4 million and incremental simplification/modernization benefits of approximately$3 million , partially offset by approximately$5 million due to the restoration of salaries and other cost-control measures that were taken in the prior year. Gross profit margin for the three months endedSeptember 30, 2021 was 33.2 percent, as compared to 26.2 percent in the prior year quarter. OPERATING EXPENSE Operating expense for the three months endedSeptember 30, 2021 was$102.7 million , an increase of$9.4 million from$93.3 million in the prior year quarter. The increase was primarily related to approximately$10 million from the restoration of previously reduced salaries and other cost-control measures that were taken in the prior year, partially offset by incremental simplification/modernization benefits of approximately$2 million . We invested further in technology and innovation during the current quarter to continue delivering high quality products to our customers. Research and development expenses included in operating expense totaled$10.2 million and$8.8 million for the three months endedSeptember 30, 2021 and 2020, respectively. 21
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESTRUCTURING AND RELATED CHARGES AND ASSET IMPAIRMENT CHARGES FY21 Restructuring Actions In the September quarter of fiscal 2020, we announced the initiation of restructuring actions inGermany associated with our simplification/modernization initiative to reduce structural costs. Subsequently, we also announced the acceleration of our other structural cost reduction plans including the closing of theJohnson City, Tennessee facility. Expected pre-tax charges for the FY21 Restructuring Actions are approximately$90 million . Total restructuring and related charges since inception of$83.4 million were recorded for this program throughSeptember 30, 2021 , consisting of:$75.7 million in Metal Cutting and$7.7 million in Infrastructure. The remaining charges related to the FY21 Restructuring Actions are expected to be within the Metal Cutting segment. Restructuring and Related Charges Recorded We recorded restructuring and related charges of$1.2 million for the three months endedSeptember 30, 2021 , 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 endedSeptember 30, 2021 . For the three months endedSeptember 30, 2020 , we recorded restructuring and related charges of$28.6 million which consisted of charges of$26.0 million in Metal Cutting and$2.6 million in Infrastructure. Of this amount, restructuring charges were$25.6 million and restructuring-related charges were$3.0 million (included in cost of goods sold) for the three months endedSeptember 30, 2020 . INTEREST EXPENSE Interest expense for the three months endedSeptember 30, 2021 decreased to$6.3 million compared to$10.6 million for the three months endedSeptember 30, 2020 . The decrease was primarily related to amounts outstanding under the Credit Agreement in the prior year quarter and the refinancing of long-term debt at a lower interest rate during fiscal 2021. OTHER INCOME, NET Other income for the three months endedSeptember 30, 2021 decreased to$3.5 million from$4.0 million during the three months endedSeptember 30, 2020 . PROVISION FOR INCOME TAXES The effective income tax rates for the three months endedSeptember 30, 2021 and 2020 were 27.0 percent (provision on income) and 12.1 percent (benefit on a loss), respectively. The year-over-year change is primarily due to the effects of higher pre-tax income in the current quarter. As ofSeptember 30, 2021 , we have$25.9 million ofU.S. net deferred tax assets, of which$57.0 million is related to net operating loss, tax credit, and other carryforwards that can be used to offset futureU.S. taxable income. Certain of these carryforwards will expire if they are not used within a specified timeframe. At this time, we consider it more likely than not that we will have sufficientU.S. taxable income in the future that will allow us to realize these net deferred tax assets. However, it is possible that some or all of these tax attributes could ultimately expire unused, especially if our end markets do not continue to recover from the COVID-19 global pandemic. Therefore, if we are unable to generate sufficientU.S. taxable income from our operations, a valuation allowance to reduce theU.S. net deferred tax assets may be required, which would materially increase income tax expense in the period in which the valuation allowance is recorded. BUSINESS SEGMENT REVIEW We operate in two reportable segments consisting of Metal Cutting and Infrastructure. Our reportable operating segments have been determined in accordance with our internal management structure, which is organized based on operating activities, the manner in which we organize segments for allocating resources, making operating decisions and assessing performance and the availability of separate financial results. We do not allocate certain corporate expenses related to executive retirement plans, our Board of Directors, strategic initiatives, and certain other costs and report them in Corporate. Our reportable operating segments do not represent the aggregation of two or more operating segments. 22
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Our sales and operating income (loss) by segment are as follows:
Three Months Ended September 30,
(in thousands) 2021 2020
Sales:
Metal Cutting $ 298,430 $ 247,876
Infrastructure 185,079 152,429
Total sales $ 483,509 $ 400,305
Operating income (loss):
Metal Cutting $ 29,164 $ (23,626)
Infrastructure 26,036 7,268
Corporate (594) (820)
Total operating income (loss) 54,606 (17,178)
Interest expense 6,321 10,578
Other income, net (3,459) (4,019)
Income (loss) before income taxes $ 51,744 $ (23,737)
METAL CUTTING
Three Months Ended September 30,
(in thousands, except operating margin) 2021 2020
Sales $ 298,430 $ 247,876
Operating income (loss) 29,164 (23,626)
Operating margin 9.8 % (9.5) %
(in percentages) Three Months Ended September 30, 2021
Organic sales growth 19%
Foreign currency exchange effect(1) 2
Business days effect(2) (1)
Sales growth 20%
Three Months Ended September 30, 2021
(in percentages) As Reported Constant Currency
End market sales growth:
Transportation 17% 14%
General engineering 25 23
Energy 4 1
Aerospace 21 19
Regional sales growth:
Asia Pacific 11% 7%
EMEA 23 21
Americas 24 22
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three months endedSeptember 30, 2021 , Metal Cutting sales increased 20 percent from the prior year quarter. Aerospace end market sales increased in all regions as airplane manufacturing began to recover. Energy sales increased in theAmericas as oil and gas drilling improved, partially offset by declines inAsia Pacific driven byChina wind power generation. Sales in our general engineering end market increased in all regions, as manufacturing activity continues to recover from the COVID-19 pandemic. Transportation end market sales increased in all regions due to improved automotive manufacturing levels, despite the ongoing supply chain challenges caused by the shortage of semiconductors. On a regional basis, the sales increases in theAmericas and EMEA were driven by increases in all end markets. The sales increase inAsia Pacific was driven by increases in the general engineering, aerospace and transportation markets slightly offset by a decrease in the energy market. For the three months endedSeptember 30, 2021 , Metal Cutting operating income was$29.2 million compared to an operating loss of$23.6 million in the prior year quarter. The year-over-year increase was driven primarily by organic sales growth,$1 million of restructuring and related charges compared to$26 million in the prior year quarter, favorable product mix, approximately$4 million of incremental simplification/modernization benefits and favorable pricing, partially offset by approximately$11 million due to the restoration of previously reduced salaries and other cost-control measures that were taken in the prior year and certain manufacturing inefficiencies. INFRASTRUCTURE Three Months Ended September 30, (in thousands) 2021 2020 Sales$ 185,079 $ 152,429 Operating income 26,036 7,268 Operating margin 14.1 % 4.8 % (in percentages) Three Months Ended September 30, 2021 Organic sales growth 19% Foreign currency exchange effect(1) 3 Business days effect(2) (1) Sales growth 21% Three Months Ended September 30, 2021 (in percentages) As Reported Constant Currency End market sales growth: Energy 39% 37% Earthworks 8 3 General engineering 25 23 Regional sales growth: Americas 28% 28% EMEA 14 8 Asia Pacific 12 7 For the three months endedSeptember 30, 2021 , Infrastructure sales increased by 21 percent from the prior year quarter. TheU.S. oil and gas market drove a year-over-year increase in the energy market. Sales in our earthworks end market increased primarily due to growth in mining, partially offset by a decline in construction. In general engineering, the increase in sales was across all regions. On a regional basis, the sales increase in theAmericas was driven by increases in all end markets. The sales increase in EMEA was driven by increases in the general engineering and earthworks markets slightly offset by a decrease in the energy market. The sales increase inAsia Pacific was driven by increases in the general engineering and energy markets slightly offset by a decrease in the earthworks market. 24
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three months endedSeptember 30, 2021 , Infrastructure operating income was$26.0 million compared to$7.3 million in the prior year quarter. The year-over-year change was driven primarily by organic sales growth, favorable pricing, restructuring and related charges in the prior year quarter of$3 million that did not repeat in the current quarter and favorable product mix, partially offset by approximately$3 million due to the restoration of previously reduced salaries and other cost-control measures that were taken in the prior year and higher raw material costs. CORPORATE Three Months Ended September 30, (in thousands) 2021 2020 Corporate expense $ (594)$ (820)
For the three months ended
LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations is the primary source of funding for our capital expenditures. For the three months endedSeptember 30, 2021 , cash flow provided by operating activities was$15.8 million . During the three months endedSeptember 30, 2020 , we entered into the First Amendment (the Amendment) to the Fifth Amended and Restated Credit Agreement dated as ofJune 21, 2018 , (as amended by the Amendment, the Credit Agreement). The Credit Agreement is a five-year, multi-currency, revolving credit facility and is used 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 inU.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) 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 Credit Agreement matures inJune 2023 . The Credit Agreement requires us to comply with various restrictive and affirmative covenants, including two financial covenants: (1) a maximum leverage ratio where debt, net of domestic cash in excess of$25 million and sixty percent of the unrestricted cash held outside ofthe United States , must be less than or equal to 3.5 times trailing twelve months EBITDA (temporarily increased by the Amendment to 4.25 times trailing twelve months EBITDA during the period fromSeptember 30, 2020 through and includingDecember 31, 2021 ), adjusted for certain non-cash expenses and which may be further adjusted, at our discretion, to include up to$120 million of cash restructuring charges throughDecember 31, 2021 ; and (2) a minimum consolidated interest coverage ratio of EBITDA to interest of 3.5 times (as the aforementioned terms are defined in the Credit Agreement). Borrowings under the Credit Agreement are guaranteed by our significant domestic subsidiaries. As ofSeptember 30, 2021 , we were in compliance with all covenants of the Credit Agreement. For the three months endedSeptember 30, 2021 , average daily borrowings outstanding under the Credit Agreement were approximately$3.9 million . We had no borrowings outstanding under the Credit Agreement and$700.0 million of additional availability as ofSeptember 30, 2021 andJune 30, 2021 . We consider the majority of the unremitted earnings of our non-U.S. subsidiaries to be permanently reinvested. With regard to these unremitted earnings, we have not, nor do we anticipate the need to, repatriate funds to theU.S. to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements. With regard to the small portion of unremitted earnings that are not indefinitely reinvested, we maintain a deferred tax liability for foreign withholding andU.S. state income taxes. In 2012, we received an assessment from the Italian tax authority that denied certain tax deductions primarily related to our 2008 tax return. Attempts at negotiating a reasonable settlement with the tax authority were unsuccessful; and as a result, we decided to litigate the matter. While the outcome of the litigation is still pending, the tax authority served notice in the September quarter of fiscal 2020 requiring payment in the amount of €36 million. Accordingly, we requested and were granted a stay and are not currently required to make a payment in connection with this assessment. We continue to believe that the assessment is baseless and accordingly, no income tax liability has been recorded in connection with this assessment in any period. However, if the Italian tax authority were to be successful in litigation, settlement of the amount alleged by the Italian tax authority would result in an increase to income tax expense by as much as €36.2 million, or$41.9 million , including penalties and interest of €21.5 million, or$24.9 million . A trial date has not yet been set by the Italian court. 25
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
AtSeptember 30, 2021 , cash and cash equivalents were$107.3 million , Total Kennametal Shareholders' equity was$1,325.0 million and total debt was$592.9 million . Our current senior credit ratings are at investment grade levels. We believe that our current financial position, liquidity and credit ratings provide us access to the capital markets. We believe that we have sufficient resources available to meet cash requirements for the next 12 months. We continue to closely monitor our liquidity position and the condition of the capital markets, as well as the counterparty risk of our credit providers. There have been no material changes in our contractual obligations and commitments sinceJune 30, 2021 . Cash Flow Provided by Operating Activities During the three months endedSeptember 30, 2021 , cash flow provided by operating activities was$15.8 million , compared to$9.6 million for the prior year period. Cash flow provided by operating activities for the current year period consisted of net income and non-cash items amounting to an inflow of$77.2 million and changes in certain assets and liabilities netting to an outflow of$61.4 million . Contributing to the changes in certain assets and liabilities were an increase in accrued income taxes of$5.8 million and a decrease in accounts receivable of$19.3 million . Offsetting these cash inflows were a decrease in accrued pension and postretirement benefits of$7.2 million , an increase in inventories of$34.4 million , a decrease in accounts payable and accrued liabilities of$43.7 million and an increase in other of$1.4 million . During the three months endedSeptember 30, 2020 , cash flow provided by operating activities consisted of net income and non-cash items amounting to an inflow of$18.7 million and changes in certain assets and liabilities netting to an outflow of$9.1 million . Contributing to the changes in certain assets and liabilities were a decrease in accrued income taxes of$11.6 million , a decrease in accounts payable and accrued liabilities of$8.2 million , a decrease in accrued pension and postretirement benefits of$6.9 million and an increase in accounts receivable of$6.7 million . Partially offsetting these cash outflows was a decrease in inventories of$23.3 million . Cash Flow Used for Investing Activities Cash flow used for investing activities was$17.4 million for the three months endedSeptember 30, 2021 , compared to$39.0 million for the prior year period. During the current year period, cash flow used for investing activities primarily included capital expenditures, net of$17.5 million , which consisted primarily of expenditures related to our simplification/modernization initiatives and equipment upgrades. For the three months endedSeptember 30, 2020 , cash flow used for investing activities included capital expenditures, net of$39.0 million , which consisted primarily of expenditures related to our simplification/modernization initiatives and equipment upgrades. Cash Flow Used for Financing Activities Cash flow used for financing activities was$43.9 million for the three months endedSeptember 30, 2021 compared to$483.4 million in the prior year period. During the current year period, cash flow used for financing activities included$16.7 million of cash dividends paid to Kennametal Shareholders,$12.9 million in common shares repurchased, and a$8.0 million decrease in notes payable. For the three months endedSeptember 30, 2020 , cash flow used for financing activities included$461.5 million of a net decrease in the revolving and other lines of credit and$16.6 million of cash dividends paid toKennametal Shareholders. FINANCIAL CONDITION Working capital was$577.7 million atSeptember 30, 2021 , an increase of$10.3 million from$567.4 million atJune 30, 2021 . The increase in working capital was driven by an increase in inventory of$28.7 million , a decrease in other current liabilities of$32.9 million and a decrease in accrued expenses of$13.8 million . Offsetting these were a decrease in accounts receivable of$23.2 million and a decrease in cash and cash equivalents of$46.7 million . Currency exchange rate effects decreased working capital by a total of approximately$7 million , the impact of which is included in the aforementioned changes. Property, plant and equipment, net decreased$18.7 million from$1,055.1 million atJune 30, 2021 to$1,036.4 million atSeptember 30, 2021 , primarily due to depreciation expense of$29.1 million and unfavorable currency effects of$6 million , partially offset by capital additions of approximately$17.8 million . AtSeptember 30, 2021 , other assets were$604.2 million , a decrease of$1.6 million from$605.8 million atJune 30, 2021 . The decrease was primarily due to amortization of intangibles of$3.6 million , a decrease in goodwill of$2.7 million due to unfavorable currency exchange effects and decreases in deferred income taxes and operating lease right-of-use assets, partially offset by an increase in other assets of$7.4 million . 26
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Kennametal Shareholders' equity was$1,325.0 million atSeptember 30, 2021 , a decrease of$4.7 million from$1,329.6 million atJune 30, 2021 . The decrease was primarily due to the repurchase of capital stock of$12.9 million under the share repurchase program that was initiated during the three months endedSeptember 30, 2021 , other comprehensive loss of$12.5 million and cash dividends paid to Kennametal Shareholders of$16.7 million , partially offset by net income attributable toKennametal of$36.2 million . DISCUSSION OF CRITICAL ACCOUNTING POLICIES There have been no changes to our critical accounting policies sinceJune 30, 2021 . RECONCILIATION OF FINANCIAL MEASURES NOT DEFINED BYU.S. GAAP In accordance withSEC rules, below are the definitions of the non-GAAP financial measures we use in this Quarterly Report on Form 10-Q and the reconciliation of these measures to the most closely related GAAP financial measures. We believe that these measures provide useful perspective on underlying business trends and results and provide a supplemental measure of year-over-year results. The non-GAAP financial measures described below are used by management in making operating decisions, allocating financial resources and for business strategy purposes. We believe these measures may be useful to investors as they provide supplemental information about business performance and provide investors a view of our business results through the eyes of management. These non-GAAP financial measures are not intended to be considered by the user in place of the related GAAP financial measure, but rather as supplemental information to our business results. These non-GAAP financial measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted. Organic sales growth Organic sales growth is a non-GAAP financial measure of sales growth (which is the most directly comparable GAAP measure) excluding the effects of acquisitions, divestitures, business days and foreign currency exchange from year-over-year comparisons. We believe this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis. Also, we report organic sales growth at the consolidated and segment levels. Constant currency end market sales growth Constant currency end market sales growth is a non-GAAP financial measure of sales growth (which is the most directly comparable GAAP measure) by end market excluding the effects of acquisitions, divestitures and foreign currency exchange from year-over-year comparisons. We note that, unlike organic sales growth, constant currency end market sales growth does not exclude the effect of business days. We believe this measure provides investors with a supplemental understanding of underlying end market trends by providing end market sales growth on a consistent basis. Also, we report constant currency end market sales growth at the consolidated and segment levels. Constant currency regional sales growth Constant currency regional sales growth is a non-GAAP financial measure of sales growth (which is the most directly comparable GAAP measure) by region excluding the effects of acquisitions, divestitures and foreign currency exchange from year-over-year comparisons. We note that, unlike organic sales growth, constant currency regional sales growth does not exclude the effect of business days. We believe this measure provides investors with a supplemental understanding of underlying regional trends by providing regional sales growth on a consistent basis. Also, we report constant currency regional sales growth at the consolidated and segment levels. Reconciliations of organic sales growth to sales growth are as follows: Three Months Ended September 30, 2021 Metal Cutting Infrastructure Total Organic sales growth 19% 19% 19% Foreign currency exchange effect(1) 2 3 2 Business days effect(2) (1) (1) - Sales growth 20% 21% 21% 27
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Reconciliations of constant currency end market sales growth to end market sales growth(4) are as follows: Metal Cutting Three Months Ended September 30, 2021 General engineering Transportation Aerospace Energy Constant currency end market sales growth 23% 14% 19% 1% Foreign currency exchange effect(1) 2 3 2 3 End market sales growth(4) 25% 17% 21% 4% Infrastructure Three Months Ended September 30, 2021 Energy Earthworks General engineering Constant currency end market sales growth 37% 3% 23% Foreign currency exchange effect(1) 2 5 2 End market sales growth(4) 39% 8% 25% Total
Three Months Ended
Earthworks
Constant currency end market sales
growth 23% 14% 19% 23% 3%
Foreign currency exchange effect(1) 2 3 2 2 5
End market sales growth(4) 25% 17% 21% 25% 8%
Reconciliations of constant currency regional sales growth to reported regional sales growth(5) are as follows:
Three Months Ended
September 30, 2021
Americas EMEA Asia Pacific
Metal Cutting
Constant currency regional sales growth 22% 21% 7%
Foreign currency exchange effect(1) 2 2 4 Regional sales growth(5) 24% 23% 11% Infrastructure Constant currency regional sales growth 28% 8%
7%
Foreign currency exchange effect(1) - 6 5 Regional sales growth(5) 28% 14% 12% Total Constant currency regional sales growth 24% 18%
7%
Foreign currency exchange effect(1) 2 3 5 Regional sales growth(5) 26% 21% 12% (1) Foreign currency exchange effect is calculated by dividing the difference between current period sales and current period sales at prior period foreign exchange rates by prior period sales. (2) Business days effect is calculated by dividing the year-over-year change in weighted average working days (based on mix of sales by country) by prior period weighted average working days. (4) Aggregate sales for all end markets sum to the sales amount presented onKennametal's condensed consolidated financial statements. (5) Aggregate sales for all regions sum to the sales amount presented onKennametal's condensed consolidated financial statements. 28
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