Kennametal Inc. Form 8-K
 

 
 
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): October 19, 2005
Kennametal Inc.
(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania
(State or Other Jurisdiction of Incorporation)
     
1-5318   25-0900168
     
(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
Item 9.01. Financial Statements and Exhibits

 

 

Item 2.02 Results of Operations and Financial Condition
Attached hereto as Exhibit 99.1 and incorporated by reference herein is the text of a presentation delivered on October [19], 2005 by Markos I. Tambakeras, Chairman, President and Chief Executive Officer of Kennametal Inc. to Financial Executives International. This information is furnished pursuant to Item 2.02 of Form 8-K. The information in this report shall not be treated as filed for purposes of the Securities Exchange Act of 1934, as amended. The information presented by the Company contains certain non-GAAP financial measures including adjusted return on invested capital (“ROIC”), earnings before interest and taxes (“EBIT”), primary working capital (“PWC”), and debt to capital.
Kennametal management believes that presentation of these non-GAAP financial measures provides useful information about the results of operations of the Company for the current, past and future periods. Management believes that investors should have available the same information that management uses to assess operational performance, determine compensation, and assess the capital structure of the Company. Non-GAAP financial measures should not be considered in isolation or as a substitute for the most comparable GAAP measures. Non-GAAP financial measures utilized by the Company may not be comparable to non-GAAP financial measures used by other companies.
Reconciliations to the most comparable GAAP measure for the following forecasted non-GAAP financial measures are not available: EBIT and ROIC. The comparable GAAP measures are Net Income and ROIC calculated utilizing net income, respectively. As these measures are dependent on many factors and not derived from a specific calculation, reconciliation to comparable GAAP measures is not available. For the purposes of this presentation, the Company does not consider the lack of these reconciliations to be significant.
Accordingly, we have compiled below certain definitions and reconciliations as required by Regulation G.
ROIC
Adjusted Return on Invested Capital is a non-GAAP financial measure and is defined as the previous 12 months’ net income, adjusted for interest expense and special items, divided by the sum of the previous 12 months’ 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 structuring and performance of the Company. Management utilizes this non-GAAP measure in determining compensation and assessing the operations of the Company.
EBIT
EBIT is an acronym for Earnings Before Interest and Taxes and is not a calculation in accordance with GAAP. 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 restructuring charges, interest income and other items. Management uses this information in reviewing operating performance and in the determination of compensation.
Primary Working Capital
Primary working capital is a non-GAAP presentation 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 is used as such for internal performance measurement.
Debt-to-Capital
Debt-to-equity in accordance with GAAP is defined as total debt divided by Shareowners’ equity and total debt. Debt-to-capital is defined by Kennametal as total current and long term debt divided by total Shareowner’s equity plus minority interest plus total debt. Management believes that these financial measures provide additional insight into the underlying capital structuring and performance of the Company.

 

 

RECONCILIATIONS
DEBT TO CAPITAL RECONCILIATION (Unaudited):
                         
(in thousands)           June 30,        
    2005     2004     2003  
Total debt
   $ 437,374     $ 440,207     $ 525,687  
Total shareowners’ equity
     972,862       887,152       721,577  
 
                  
 
                        
Debt to equity, GAAP
     45.0 %     49.6 %     72.9 %
Total debt
   $ 437,374     $ 440,207     $ 525,687  
Minority interest
     17,460       16,232       18,880  
Total shareowners’ equity
     972,862       887,152       721,577  
 
                  
 
                        
Total capital
   $ 1,427,696     $ 1,343,591     $ 1,266,144  
 
                        
Debt to Capital
     30.6 %     32.8 %     41.5 %
EBIT RECONCILIATION (Unaudited):
                         
    Twelve Months Ended June 30,  
    2005     2004     2003  
Net income, as reported
   $ 119,291     $ 73,578     $ 18,130  
 
                        
As % of sales
     5.2 %     3.7 %     1.0 %
 
                        
Add back:
                        
 
                        
Interest
     27,277       25,884       36,166  
 
                        
Taxes
     61,394       35,500       14,300  
 
                  
 
                        
EBIT
     207,962       134,962       68,596  
 
                        
Additional adjustments:
                        
 
                        
Minority interest
     3,592       1,596       1,860  
 
                        
Interest income
     (3,462 )     (1,437 )     (2,815 )
 
                        
Securitization fees
     3,186       1,679       1,892  
 
                  
 
                        
Adjusted EBIT
   $ 211,278     $ 136,800     $ 69,533  
 
                  
-more-

 

 

RETURN ON INVESTED CAPITAL RECONCILIATION (Unaudited):
For the Period Ended June 30, 2005
                                                 
Invested Capital   6/30/2005     3/31/2005     12/31/2004     9/30/2004     6/30/2004     Average  
     
Debt
   $ 437,374     $ 485,168     $ 405,156     $ 435,435     $ 440,207     $ 440,668  
Accounts receivable securitized
     109,786       120,749       115,253       115,309       117,480       115,715  
Minority interest
     17,460       19,664       19,249       17,377       16,232       17,996  
Shareowners’ equity
     972,862       1,021,186       1,003,507       924,432       887,152       961,828  
 
                                    
Total
   $ 1,537,482     $ 1,646,767     $ 1,543,165     $ 1,492,553     $ 1,461,071     $ 1,536,207  
 
                                    
                                         
    Quarter Ended  
Interest Expense   6/30/2005     3/31/2005     12/31/2004     9/30/2004     Total  
     
Interest expense
   $ 7,897     $ 6,803     $ 6,121     $ 6,456     $ 27,277  
Securitization interest
     981       868       757       580       3,186  
 
                              
Total interest expense
   $ 8,878     $ 7,671     $ 6,878     $ 7,036     $ 30,463  
 
                              
Income tax benefit
                                     10,175  
 
                                      
Total Interest Expense, net of tax
                                   $ 20,288  
 
                                    
                                           
    Quarter Ended  
Total Income   6/30/2005     3/31/2005     12/31/2004     9/30/2004     Total  
     
Net Income, as reported
   $ 37,740     $ 30,650     $ 28,181     $ 22,720     $ 119,291  
Restructuring and asset impairment charges
     —       3,306       —       —       3,306  
Loss on assets held for sale
     —       1,086       —       —       1,086  
Minority interest expense
     238       1,449       928       977       3,592  
 
                              
Total Income, excluding special items
   $ 37,978     $ 36,491     $ 29,109     $ 23,697     $ 127,275  
 
                              
 
                                        
Total Income, excluding special items
                                   $ 127,275  
Total Interest Expense, net of tax
                                     20,288  
 
                                      
 
                                   $ 147,563  
Average invested capital
                                   $ 1,536,207  
 
                                      
Adjusted Return on Invested Capital
                                     9.6 %
 
                                        
Return on Invested Capital calculated utilizing Net Income, as reported is as follows:                
Net Income, as reported
                                   $ 119,291  
Total Interest Expense, net of tax
                                     20,288  
 
                                      
 
                                   $ 139,579  
Average invested capital
                                   $ 1,536,207  
 
                                      
Return on Invested Capital
                                     9.1 %
- more -

 

 

RETURN ON INVESTED CAPITAL RECONCILIATION (Unaudited):
For the Period Ended June 30, 2004
                                                 
Invested Capital   6/30/2004     3/31/2004     12/31/2003     9/30/2003     6/30/2003     Average  
     
Debt
   $ 440,207     $ 494,312     $ 481,327     $ 520,138     $ 525,687     $ 492,334  
Accounts receivable securitized
     117,480       108,916       101,422       95,318       99,316       104,490  
Minority interest
     16,232       16,598       16,286       16,089       18,880       16,817  
Shareowners’ equity
     887,152       809,904       791,442       746,562       721,577       791,327  
 
                                    
Total
   $ 1,461,071     $ 1,429,730     $ 1,390,477     $ 1,378,107     $ 1,365,460     $ 1,404,968  
 
                                    
                                         
    Quarter Ended  
Interest Expense   6/30/2004     3/31/2004     12/31/2003     9/30/2003     Total  
     
Interest expense
   $ 6,405     $ 6,332     $ 6,547     $ 6,600     $ 25,884  
Securitization interest
     443       356       483       397       1,679  
 
                              
Total interest expense
   $ 6,848     $ 6,688     $ 7,030     $ 6,997     $ 27,563  
 
                              
Income tax benefit
                                     8,820  
 
                                      
Total interest expense, net of tax
                                   $ 18,743  
 
                                      
                                         
    Quarter Ended  
Total Income   6/30/2004     3/31/2004     12/31/2003     9/30/2003     Total
     
Net income, as reported
   $ 29,852     $ 24,070     $ 10,892     $ 8,764     $ 73,578  
 
Minority interest expense
     (36 )     533       404       695       1,596  
MSSG restructuring
     —       —       1,109       2,307       3,416  
AMSG restructuring
     —       —       1,018       —       1,018  
Widia integration costs — MSSG
     —       —       —       1,027       1,027  
Widia integration costs — AMSG
     —       —       —       33       33  
Pension curtailment
     —       —       883       —       883  
Gain on Toshiba investment
     —       —       (2,990 )     —       (2,990 )
Note receivable
     —       —       1,360       —       1,360  
 
                              
Total Income, excluding special items
   $ 29,816     $ 24,603     $ 12,676     $ 12,826     $ 79,921  
 
                              
 
                                        
Total Income, excluding special items
                                   $ 79,921  
Total Interest Expense, net of tax
                                     18,743  
 
                                      
 
                                   $ 98,664  
Average invested capital
                                   $ 1,404,968  
 
                                      
Adjusted Return on Invested Capital
                                     7.0 %
 
                                        
Return on Invested Capital calculated utilizing Net Income, as reported is as follows:                
Net Income, as reported
                                   $ 73,578  
Total Interest Expense, net of tax
                                     18,743  
 
                                      
 
                                   $ 92,321  
Average invested capital
                                   $ 1,404,968  
 
                                      
Return on Invested Capital
                                     6.6 %
- more –

 

 

RETURN ON INVESTED CAPITAL RECONCILIATION (Unaudited):
For the Period Ended June 30, 2003
                                                 
Invested Capital   6/30/2003     3/31/2003     12/31/2002     9/30/2002     6/30/2002     Average  
     
Debt
   $ 525,687     $ 580,135     $ 617,016     $ 616,607     $ 411,367     $ 550,162  
Accounts receivable securitized
     99,316       93,614       100,000       95,117       95,900       96,789  
Minority interest
     18,880       18,070       17,594       17,685       10,671       16,580  
Shareowners’ equity
     721,577       756,511       737,729       721,007       713,962       730,157  
 
                                    
Total
   $ 1,365,460     $ 1,448,330     $ 1,472,339     $ 1,450,416     $ 1,231,900     $ 1,393,688  
 
                                    
                                         
                    Quarter Ended              
Interest Expense   6/30/2003     3/31/2003     12/31/2002     9/30/2002     Total  
     
Interest expense
   $ 9,108     $ 8,979     $ 9,594     $ 8,485     $ 36,166  
Securitization interest
     413       406       536       537       1,892  
 
                              
Total interest expense
   $ 9,521     $ 9,385     $ 10,130     $ 9,022     $ 38,058  
 
                              
Income tax benefit
                                     11,417  
 
                                      
Total interest expense, net of tax
                                   $ 26,641  
 
                                      
                                         
    Quarter Ended  
Total Income   6/30/2003     3/31/2003     12/31/2002     9/30/2002     Total  
     
Net income, as reported
   $ (4,868 )   $ 9,699     $ 2,470     $ 10,829     $ 18,130  
 
Minority interest expense
     74       739       709       338       1,860  
MSSG restructuring
     2,194       754       3,394       —       6,342  
AMSG restructuring
     857       773       1,577       (123 )     3,084  
AMSG Electronics impairment
     15,269       —       —       —       15,269  
Corporate restructuring
     (69 )     195       670       —       796  
Widia integration costs — MSSG
     1,758       1,337       967       483       4,545  
Widia integration costs — AMSG
     818       13       3       —       834  
J&L restructuring
     (45 )     561       327       —       843  
FSS restructuring
     —       6       20       —       26  
 
                              
Total Income, excluding special items
   $ 15,988     $ 14,077     $ 10,137     $ 11,527     $ 51,729  
 
                              
 
Total Income, excluding special items
                                   $ 51,729  
Total Interest Expense, net of tax
                                     26,641  
 
                                      
 
                                   $ 78,370  
Average invested capital
                                   $ 1,393,688  
 
                                      
Adjusted Return on Invested Capital
                                     5.6 %
 
                                        
Return on Invested Capital calculated utilizing Net Income, as reported is as follows:                
Net Income, as reported
                                   $ 18,130  
Total Interest Expense, net of tax
                                     26,641  
 
                                      
 
                                   $ 44,771  
Average invested capital
                                   $ 1,393,688  
 
                                      
Return on Invested Capital
                                     3.2 %
- more-

 

 

PRIMARY WORKING CAPITAL RECONCILIATON (Unaudited):
For the Period Ended June 30, 2005
                                                 
    FISCAL 2005  
    6/30/05     3/31/05     12/31/04     9/30/04     6/30/04     Average  
Current assets
   $ 831,062     $ 885,829     $ 845,374     $ 820,187     $ 796,945     $ 835,879  
Current liabilities
     428,658       458,464       397,921       483,485       486,527       451,011  
 
                                    
 
                                                
Working capital in accordance with GAAP
   $ 402,404     $ 427,365     $ 447,453     $ 336,702     $ 310,418     $ 384,868  
 
                                    
 
                                                
Excluding items:
                                                
Cash and cash equivalents
     (43,220 )     (34,792 )     (32,168 )     (28,688 )     (25,940 )     (32,961 )
Deferred income taxes
     (70,391 )     (98,063 )     (99,731 )     (96,144 )     (95,240 )     (91,914 )
Other current assets
     (37,466 )     (82,822 )     (39,605 )     (37,178 )     (40,443 )     (47,503 )
 
                                    
 
                                                
Total excluded current assets
   $ (151,077 )   $ (215,677 )   $ (171,504 )   $ (162,010 )   $ (161,623 )   $ (172,378 )
 
                                    
 
                                                
Adjusted current assets
     679,985       670,152       673,870       658,177       635,322       663,501  
 
                                    
 
                                                
Short-term debt, including notes payable
     (50,889 )     (56,225 )     (28,888 )     (116,446 )     (126,807 )     (75,851 )
Accrued liabilities
     (222,930 )     (259,971 )     (226,568 )     (220,496 )     (211,504 )     (228,294 )
 
                                    
 
                                                
Total excluded current liabilities
   $ (273,819 )   $ (316,196 )   $ (255,456 )   $ (336,942 )   $ (338,311 )   $ (304,145 )
 
                                    
 
                                                
Adjusted current liabilities
     154,839       142,268       142,465       146,543       148,216       146,866  
 
                                    
 
                                                
Primary working capital
   $ 525,146     $ 527,884     $ 531,405     $ 511,634     $ 487,106     $ 516,635  
 
                                    
 
                                                
Five quarter average PWC
                                       $ 516,635  
Sales, for the twelve months ended June 30, 2005
                                   2,304,167  
 
                                              
PWC as a percentage of sales
                                             22.4 %
-more-

 

 

PRIMARY WORKING CAPITAL RECONCILIATON (Unaudited):
For the Period Ended June 30, 2004
                                                 
    FISCAL 2004  
    6/30/04     3/31/04     12/31/03     9/30/03     6/30/03     Average  
Current assets
   $ 796,945     $ 790,892     $ 752,703     $ 768,634     $ 782,352     $ 778,305  
Current liabilities
     486,527       340,743       307,190       316,606       345,008       359,215  
 
                                    
 
                                                
Working capital in accordance with GAAP
   $ 310,418     $ 450,149     $ 445,513     $ 452,028     $ 437,344     $ 419,090  
 
                                    
 
                                                
Excluding items:
                                                
Cash and cash equivalents
     (25,940 )     (27,528 )     (15,086 )     (14,720 )     (15,093 )     (19,673 )
Deferred income taxes
     (95,240 )     (88,480 )     (88,820 )     (86,888 )     (97,237 )     (91,333 )
Other current assets
     (40,443 )     (38,803 )     (39,460 )     (47,003 )     (48,606 )     (42,863 )
 
                                    
 
                                                
Total excluded current assets
   $ (161,623 )   $ (154,811 )   $ (143,366 )   $ (148,611 )   $ (160,936 )   $ (153,869 )
 
                                    
 
                                                
Adjusted current assets
     635,322       636,081       609,337       620,023       621,416       624,436  
 
                                    
 
                                                
Short-term debt, including notes payable
     (126,807 )     (8,193 )     (12,872 )     (11,375 )     (10,845 )     (34,018 )
Accrued liabilities
     (211,504 )     (200,304 )     (181,755 )     (197,578 )     (215,654 )     (201,359 )
 
                                    
 
                                                
Total excluded current liabilities
   $ (338,311 )   $ (208,497 )   $ (194,627 )   $ (208,953 )   $ (226,499 )   $ (235,377 )
 
                                    
 
                                                
Adjusted current liabilities
     148,216       132,246       112,563       107,653       118,509       123,837  
 
                                    
 
                                                
Primary working capital
   $ 487,106     $ 503,835     $ 496,774     $ 512,370     $ 502,907     $ 500,599  
 
                                    
 
                                                
Five quarter average PWC
                                           $ 500,599  
Sales, for the twelve months ended June 30, 2004
                                   1,971,441  
 
                                              
PWC as a percentage of sales
                                             25.4 %
-more-

 

 

PRIMARY WORKING CAPITAL RECONCILIATON (Unaudited):
For the Period Ended June 30, 2003
                                                 
    FISCAL 2003  
    6/30/03     3/31/03     12/31/02     9/30/02     6/30/02     Average  
Current assets
   $ 782,352     $ 788,091     $ 755,018     $ 750,397     $ 637,384     $ 742,648  
Current liabilities
     345,008       344,865       281,431       289,860       262,100       304,653  
 
                                    
 
                                                
Working capital in accordance with GAAP
   $ 437,344     $ 443,226     $ 473,587     $ 460,537     $ 375,284     $ 437,995  
 
                                    
 
                                                
Excluding items:
                                                
Cash and cash equivalents
     (15,093 )     (17,250 )     (18,155 )     (14,300 )     (10,385 )     (15,037 )
Deferred income taxes
     (97,237 )     (81,651 )     (80,204 )     (71,084 )     (71,375 )     (80,310 )
Other current assets
     (48,606 )     (44,286 )     (53,868 )     (40,110 )     (31,447 )     (44,263 )
 
                                    
 
                                                
Total excluded current assets
   $ (160,936 )   $ (143,187 )   $ (152,227 )   $ (125,494 )   $ (113,207 )   $ (139,010 )
 
                                    
 
                                                
Adjusted current assets
     621,416       644,904       602,791       624,903       524,177       603,638  
 
                                    
 
                                                
Short-term debt, including notes payable
     (10,845 )     (15,068 )     (17,591 )     (16,992 )     (23,480 )     (16,795 )
Accrued liabilities
     (215,654 )     (208,816 )     (171,726 )     (171,045 )     (137,034 )     (180,855 )
 
                                    
 
                                                
Total excluded current liabilities
   $ (226,499 )   $ (223,884 )   $ (189,317 )   $ (188,037 )   $ (160,514 )   $ (197,650 )
 
                                    
 
                                                
Adjusted current liabilities
     118,509       120,981       92,114       101,823       101,586       107,003  
 
                                    
 
                                                
Primary working capital
   $ 502,907     $ 523,923     $ 510,677     $ 523,080     $ 422,591     $ 496,635  
 
                                    
 
                                                
Five quarter average PWC
                                           $ 496,635  
Sales, for the twelve months ended June 30, 2003
                                   1,758,957  
 
                                              
PWC as a percentage of sales
                                             28.2 %

 

 

Item 9.01 Financial Statements and Exhibits
Exhibit 99.1
Presentation by Markos I. Tambakeras delivered to Financial Executives International on October 19, 2005.

 

 

Signatures
     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
             
 
          KENNAMETAL INC.
 
           
 
            
 
  Date: October 19, 2005   By:   /s/ Timothy A. Hibbard
 
           
 
          Timothy A. Hibbard
 
          Corporate Controller and Chief Accounting Officer