UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): April 24, 2008
Kennametal Inc.
(Exact Name of Registrant as Specified in Its Charter)
| |
|
|
|
|
| Pennsylvania
|
|
1-5318
|
|
25-0900168 |
| |
|
|
|
|
| (State or Other Jurisdiction of Incorporation)
|
|
(Commission File Number)
|
|
(IRS Employer Identification No.) |
| |
|
|
|
|
World Headquarters
1600 Technology Way
P.O. Box 231
Latrobe, Pennsylvania
|
|
|
|
15650-0231 |
| |
|
|
|
|
| (Address of Principal Executive Offices)
|
|
|
|
(Zip Code) |
Registrant’s telephone number, including area code: (724) 539-5000
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (see General Instruction
A.2. below):
| o |
|
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| |
| o |
|
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| |
| o |
|
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b)) |
| |
| o |
|
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c)) |
TABLE OF CONTENTS
Item 2.02 Results of Operations and Financial Condition
On April 24, 2008, Kennametal Inc. (Kennametal or the Company) issued an earnings announcement for
its fiscal third quarter ended March 31, 2008.
The press release contains certain non-generally accepted accounting principles (GAAP) financial
measures. The following GAAP financial measures have been presented on an adjusted basis: operating
expense, operating income, Advanced Materials Solutions Group operating income (loss), effective
tax rate, income from continuing operations, net income and diluted earnings per share. Adjustments
include: (1) Goodwill impairment charge for the three and nine months ended March 31, 2008, (2)
impact of a German tax reform bill for the nine months ended March 31, 2008 and (3)(a) Electronics
impairment and divestiture-related charges and (b) adjustment on J&L Industrial Supply (J&L)
divestiture and transaction-related charges for the nine months ended March 31, 2007. Management
adjusts for these items in measuring and compensating internal performance to more easily compare
the Company’s financial performance period-to-period. The press release also contains adjusted free
operating cash flow and adjusted return on invested capital, which are also non-GAAP measures and
are defined below.
Management believes that presentation of these non-GAAP financial measures provides useful
information about the results of operations of the Company for the current period and past periods.
Management believes that investors should have available the same information that management uses
to assess operating performance, determine compensation and assess the capital structure of the
Company. These non-GAAP measures should not be considered in isolation or as a substitute for the
most comparable GAAP measures. Investors are cautioned that non-GAAP financial measures utilized
by the Company may not be comparable to non-GAAP financial measures used by other companies.
Adjusted Free Operating Cash Flow
Free operating cash flow is a non-GAAP financial measure and is defined by the Company as cash
provided by operations (which is the most directly comparable GAAP measure) less capital
expenditures plus proceeds from disposals of fixed assets. Management considers free operating cash
flow to be an important indicator of Kennametal’s cash generating capability because it better
represents cash generated from operations that can be used for strategic initiatives (such as
acquisitions), dividends, debt repayment and other investing and financing activities. Management
may further adjust free operating cash flow for significant unusual cash items. Management
considers adjusted free operating cash flow to be an important indicator of Kennametal’s cash
generating capability because it excludes significant unusual items.
Adjusted Return on Invested Capital
Adjusted Return on Invested Capital is a non-GAAP financial measure and is defined by the Company
as the previous 12 months’ net income, adjusted for interest expense, securitization fees, minority
interest expense and special items, divided by the sum of the previous five quarters’ average
balances of debt, securitized accounts receivable, minority interest and shareowners’ equity.
Management believes that this financial measure provides additional insight into the underlying
capital structure and performance of the Company. Management utilizes this non-GAAP measure in
determining compensation and assessing the operations of the Company. The most directly comparable
GAAP measure is return on invested capital calculated utilizing GAAP net income.
A copy of the Company’s earnings announcement is furnished under Exhibit 99.1 attached hereto.
Reconciliations of the above non-GAAP financial measures are included in the earnings announcement.
Additionally, during our quarterly teleconference we may use various non-GAAP financial measures to
describe the underlying operating results. Accordingly, we have compiled below certain
reconciliations as required by Regulation G. These non-GAAP measures should not be considered in
isolation or as a substitute for the most comparable GAAP measures. Investors are cautioned that
non-GAAP financial measures utilized by the Company may not be comparable to non-GAAP financial
measures used by other companies.
Adjusted EBIT
EBIT is an acronym for Earnings Before Interest and Taxes and is a non-GAAP financial measure. The
most directly comparable GAAP measure is net income. However, we believe that EBIT is widely used
as a measure of operating performance and we believe EBIT to be an important indicator of the
Company’s operational strength and performance. Nevertheless, the measure should not be considered
in isolation or as a substitute for operating income, cash flows from operating activities or any
other measure for determining liquidity that is calculated in accordance with GAAP. Additionally,
Kennametal will adjust EBIT for minority interest expense, interest income, securitization fees,
pre-tax income from discontinued operations and special items. Management uses this information in
reviewing operating performance and in determining compensation.
Primary Working Capital
Primary working capital is a non-GAAP financial measure and is defined as accounts receivable, net
plus inventories, net minus accounts payable. The most directly comparable GAAP measure is working
capital, which is defined as current assets less current liabilities. We believe primary working
capital better represents Kennametal’s performance in managing certain assets and liabilities
controllable at the business unit level and it is used as such for internal performance
measurement.
EBIT RECONCILIATION (UNAUDITED)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
March 31, |
|
|
March 31, |
|
| (in thousands, except percents) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
| |
Net income, as reported |
|
$ |
23,170 |
|
|
$ |
51,738 |
|
|
$ |
108,195 |
|
|
$ |
112,149 |
|
Net income as a percent of sales |
|
|
3.4 |
% |
|
|
8.4 |
% |
|
|
5.5 |
% |
|
|
6.5 |
% |
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
8,005 |
|
|
|
6,915 |
|
|
|
24,335 |
|
|
|
21,628 |
|
Tax expense |
|
|
16,616 |
|
|
|
18,520 |
|
|
|
48,953 |
|
|
|
47,457 |
|
Tax expense on discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
135 |
|
| |
|
|
EBIT |
|
|
47,791 |
|
|
|
77,173 |
|
|
|
181,483 |
|
|
|
181,369 |
|
Additional adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest expense |
|
|
742 |
|
|
|
757 |
|
|
|
2,651 |
|
|
|
1,956 |
|
Interest income |
|
|
(1,321 |
) |
|
|
(654 |
) |
|
|
(3,485 |
) |
|
|
(4,576 |
) |
Securitization fees |
|
|
5 |
|
|
|
5 |
|
|
|
18 |
|
|
|
33 |
|
Pre-tax income from discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,178 |
) |
Special Items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment charge |
|
|
35,000 |
|
|
|
— |
|
|
|
35,000 |
|
|
|
— |
|
Loss on sale of CPG and transaction-related charges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
570 |
|
Adjustment on J&L divestiture and transaction-related charges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,019 |
|
Electronics, impairment and transaction-related charges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,072 |
|
| |
|
|
Adjusted EBIT |
|
$ |
82,217 |
|
|
$ |
77,281 |
|
|
$ |
215,667 |
|
|
$ |
183,265 |
|
| |
|
|
Adjusted EBIT as a percent of sales |
|
|
11.9 |
% |
|
|
12.5 |
% |
|
|
11.0 |
% |
|
|
10.6 |
% |