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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): JULY 30, 2003
KENNAMETAL INC.
(Exact name of registrant as specified in its charter)
Commission file number 1-5318
PENNSYLVANIA 25-0900168
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
WORLD HEADQUARTERS
1600 TECHNOLOGY WAY
P.O. BOX 231
LATROBE, PENNSYLVANIA 15650-0231
(Address of registrant's principal executive offices)
Registrant's telephone number, including area code: (724) 539-5000
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ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On July 30, 2003, Kennametal Inc. ("Kennametal") issued a press release
announcing financial results for its fourth quarter and fiscal year ended June
30, 2003.
The press release contains non-GAAP (generally accepted accounting principles)
financial measures, including gross profit, operating expense, operating income,
net income (loss) and diluted EPS in each case excluding special items. The
special items include: restructuring charges, Widia integration costs
electronics and goodwill impairment. Kennametal management excludes these items
in measuring and compensating internal performance to better understand
underlying operations. We believe investors should have available the same
information that management uses to measure and compensate performance.
Kennametal management believes that presentation of these non-GAAP financial
measures provides useful information into the results of operations of the
company for the current, past and future periods.
Kennametal also presents free operating cash flow in the press release. Free
operating cash flow is a non-GAAP presentation and is defined as cash provided
by continuing operations (in accordance with GAAP) less capital expenditures and
proceeds from asset disposals. Free operating cash flow is considered to be an
important indicator of Kennametal's ability to generate liquidity because it
better represents cash generated from operations that can be used for strategic
initiatives, dividends or debt repayment.
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.
Primary working capital
-----------------------
Primary working capital is a non-GAAP presentation and is defined as accounts
receivable, net of allowance for doubtful accounts, plus inventories minus
accounts payable. The most directly comparable GAAP number 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.
EBIT
----
EBIT is an acronym for Earnings Before Interest and Taxes and is not a
calculation in accordance with GAAP. 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.
Adjusted sales
--------------
Kennametal adjusted sales as reported under GAAP for specific items including
acquisitions and foreign currency translation. Management believes that
adjusting the sales as reported under GAAP provides additional insight into the
underlying operations. Management uses this information in reviewing operating
performance and in the determination of compensation.
Adjusted Gross Profit
---------------------
Kennametal adjusted gross profit as recorded under GAAP for specific items
including Widia integration and restructuring charges. Management believes that
the adjusted gross profit information is an important indicator of the Company's
underlying operating performance.
Operating expense reconciliation:
--------------------------------
Kennametal adjusted operating expense as reported under GAAP for Widia
Integration, Restructuring charges, Widia operating expense, foreign exchange
and decreased pension income. Management believes that the adjusted operating
expense provides additional insight into the underlying operations. Management
uses this information in reviewing operating performance and in the
determination of compensation.
Debt-to-Capital:
----------------
Debt to equity in accordance with GAAP is defined as total debt divided by
Stockholder's Equity and total debt. Debt to equity is defined by Kennametal as
total current and long term debt divided by total Shareowner's equity plus
minority interest plus total debt. Kennametal adjusted its debt to equity
percentage for the additional minimum pension charge and electronics impairment
that is recorded in equity. Management believes that the adjustment provides
additional insight into the underlying capital structuring and performance of
the company.
FINANCIAL HIGHLIGHTS
RECONCILIATION TO GAAP PRIMARY WORKING CAPITAL (UNAUDITED)
June 30,
---------------------------
2003 2002
--------- ---------
Current assets $ 764,679 $ 637,384
Current liabilities 336,347 262,100
--------- ---------
Working capital in accordance with GAAP 428,332 375,284
Excluded items:
Cash and cash equivalents (15,093) (10,385)
Deferred income taxes (79,564) (71,375)
Other current assets (42,119) (31,447)
--------- ---------
Total excluded current assets $(136,776) $(113,207)
Adjusted current assets 627,903 524,177
Short-term debt (10,845) (23,480)
Accrued liabilities (205,649) (137,034)
--------- ---------
Total excluded current liabilities $(216,494) $(160,514)
Adjusted current liabilities 119,853 101,586
Primary working capital $ 508,050 $ 422,591
SUPPLEMENTAL INFORMATION AND RECONCILIATIONS
KENNAMETAL INC. EBIT RECONCILIATION (UNAUDITED)
Quarter Ended Twelve Months Ended
June 30, June 30,
---------------------------- ----------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Operating income, as reported $ 5,875 $ 30,834 $ 67,925 $ 91,317
As % of sales 1.3% 7.7% 3.9% 5.8%
Adjusted other (income)(1) (1,981) (145) (1,608) (1,321)
--------- --------- --------- ---------
EBIT 7,856 30,979 69,533 92,638
Adjustments:
Restructuring 4,195 5,025 15,844 30,045
Electronics impairment 16,110 - 16,110 -
Strong Tool divestiture - 3,522 - 3,522
Widia integration 3,681 144 7,685 144
--------- --------- --------- ---------
EBIT, excluding special charges $ 31,842 $ 39,670 $ 109,172 $ 126,349
========= ========= ========= =========
As % of sales 6.9% 9.8% 6.2% 8.0%
(1) Other (income), as reported $ (2,117) $ (182) $ (2,531) $ (361)
Minus Interest income (549) (570) (2,815) (1,531)
Plus Securitization fees 413 533 1,892 2,491
--------- --------- --------- ---------
Adjusted other (income) $ (1,981) $ (145) $ (1,608) $ (1,321)
========= ========= ========= =========
-more-
FINANCIAL HIGHLIGHTS (CONTINUED)
MSSG SEGMENT (UNAUDITED):
Quarter Ended Twelve Months Ended
June 30, June 30,
----------------------------- -----------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Sales, as reported $ 299,032 $ 231,151 $ 1,123,175 $ 897,157
Widia sales (43,038) - (162,427) -
Foreign currency exchange (23,694) - (57,311) -
----------- ----------- ----------- -----------
Adjusted sales $ 232,300 $ 231,151 $ 903,437 $ 897,157
=========== =========== =========== ===========
MSSG EBIT (UNAUDITED):
Quarter Ended Twelve Months Ended
June 30, June 30,
----------------------- -----------------------
2003 2002 2003 2002
-------- -------- -------- --------
MSSG Operating income, as reported $ 24,139 $ 29,243 $ 90,627 $ 97,323
As % of sales 8.1% 12.7% 8.1% 10.8%
Other income 3,073 2,020 3,619 4,539
-------- -------- -------- --------
EBIT 27,212 31,263 94,246 101,862
Adjustments:
MSSG restructuring 3,134 2,104 9,060 10,245
Widia integration 2,511 - 6,493 -
-------- -------- -------- --------
EBIT, excluding special charges $ 32,857 $ 33,367 $109,799 $112,107
======== ======== ======== ========
As % of sales 11.0% 14.4% 9.8% 12.5%
-more-
FINANCIAL HIGHLIGHTS (CONTINUED)
AMSG SEGMENT (UNAUDITED):
Quarter Ended Twelve Months Ended
June 30, June 30,
------------------------- -------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Sales, as reported $ 88,185 $ 80,170 $ 319,223 $ 307,668
Widia acquisition (1,438) - (1,438) -
Carmet acquisition - - (4,851) -
Foreign currency exchange (4,184) - (9,521) -
--------- --------- --------- ---------
Adjusted sales $ 82,563 $ 80,170 $ 303,413 $ 307,668
========= ========= ========= =========
AMSG EBIT (UNAUDITED):
Quarter Ended Twelve Months Ended
June 30, June 30,
------------------------ ------------------------
2003 2002 2003 2002
-------- -------- -------- --------
AMSG Operating income (expense), as reported $ (7,805) $ 10,082 $ 17,348 $ 26,781
As % of sales -8.9% 12.6% 5.4% 8.7%
Other income (expense) 111 1,139 (30) 847
-------- -------- -------- --------
EBIT (7,694) 11,221 17,318 27,628
Adjustments:
AMSG restructuring 1,224 1,424 4,406 7,997
Electronics impairment 16,110 - 16,110 -
Widia integration 1,170 - 1,192 -
-------- -------- -------- --------
EBIT, excluding special charges $ 10,810 $ 12,645 $ 39,026 $ 35,625
======== ======== ======== ========
As % of sales 12.3% 15.8% 12.2% 11.6%
-more-
FINANCIAL HIGHLIGHTS (CONTINUED)
J&L SEGMENT (UNAUDITED):
Quarter Ended Twelve Months Ended
June 30, June 30,
------------------------- -------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Sales, as reported $ 48,158 $ 52,013 $ 196,170 $ 226,010
Strong Tool sales - (1,651) - (25,860)
Foreign currency exchange (546) - (1,982) -
--------- --------- --------- ---------
Adjusted sales $ 47,612 $ 50,362 $ 194,188 $ 200,150
========= ========= ========= =========
J&L EBIT (UNAUDITED):
Quarter Ended Twelve Months Ended
June 30, June 30,
------------------------ ------------------------
2003 2002 2003 2002
-------- -------- -------- --------
J&L Operating income, as reported $ 931 $ 1,044 $ 6,140 $ (681)
As % of sales 1.9% 2.0% 3.1% 0.3%
Other (expense) (3) (3,487) (58) (3,370)
-------- -------- -------- --------
EBIT 928 (2,443) 6,082 (4,051)
Adjustments:
Loss on sale of strong tool 3,522 -- 3,522
J&L restructuring (64) 247 1,203 10,093
-------- -------- -------- --------
EBIT, excluding special charges $ 864 $ 1,326 $ 7,285 $ 9,564
======== ======== ======== ========
As % of sales 1.8% 2.5% 3.7% 4.2%
-more-
FINANCIAL HIGHLIGHTS (CONTINUED)
FSS SEGMENT (UNAUDITED):
Quarter Ended Twelve Months Ended
June 30, June 30,
------------------------- -------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Sales, as reported $ 28,390 $ 39,564 $ 120,389 $ 152,907
Foreign currency exchange (47) - (68) -
--------- --------- --------- ---------
Adjusted sales $ 28,343 $ 39,564 $ 120,321 $ 152,907
========= ========= ========= =========
FSS EBIT (UNAUDITED):
Quarter Ended Twelve Months Ended
June 30, June 30,
--------------------- ----------------------
2003 2002 2003 2002
------- ------- ------- -------
FSS Operating income, as reported $ 264 $ 215 $ (56) $ 2,014
As % of sales 0.9% 0.5% 0.0% 1.3%
Other (expense) income - (100) 58 (163)
------- ------- ------- -------
EBIT 264 115 2 1,851
======= ======= ======= =======
Adjustments:
FSS restructuring - 335 38 635
------- ------- ------- -------
EBIT, excluding special charges $ 264 $ 450 $ 40 $ 2,486
======= ======= ======= =======
As % of sales 0.9% 1.1% 0.0% 1.6%
-more-
SUPPLEMENTAL INFORMATION AND RECONCILIATIONS
RECONCILIATION TO GAAP - GROSS PROFIT (UNAUDITED)
QUARTER ENDED QUARTER ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
------------------ ------------------ ------------------ -------------------
AS A % AS A % AS A % AS A %
2003 OF SALES 2002 OF SALES 2003 OF SALES 2002 OF SALES
---- -------- ---- -------- ---- -------- ---- --------
Gross Profit $148,791 32.1% $136,873 34.0% $568,904 32.3% $510,824 32.3%
Widia integration and restructuring charges 2,011 0.4% 357 0.1% 2,209 0.2% 2,727 0.1%
-------- ---- -------- ---- -------- ---- -------- ----
Gross Profit, excluding special items $150,802 32.5% $137,230 34.1% $571,113 32.5% $513,551 32.4%
======== ==== ======== ==== ======== ==== ======== ====
OPERATING EXPENSE RECONCILIATION: (UNAUDITED)
Quarter ended Quarter ended
June 30, 2003 June 30, 2002
------------- -------------
Operating expense, as reported 121,757 100,685
Integration costs (1,670) (155)
--------------------------
Operating expense, excluding special items 120,087 100,530
Less:
Widia operating expense 12,000 -
Unfavorable foreign exchange 7,947 -
Decrease in pension income 1,591 -
--------------------------
Operating expense, excluding special items
and Widia expense, foreign exchange
and decreased pension income 98,549 100,530
DEBT TO EQUITY RECONCILIATION (UNAUDITED): June 30, 2003
-------------
In accordance with GAAP 41.2%
Less: Adjustments (0.6%)
--------
Adjusted debt to capital 41.5%
Electronics impairment (0.5%)
Excluding minimum pension adjustments (1.1%)
--------
Adjusted Debt to Equity net of pension 39.9%
--------
-end-
Exhibit Index
Exhibit Description
------- -----------
99.1 Press Release dated July 30, 2003. Furnished herewith.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KENNAMETAL INC.
Date: July 30, 2003 By: /s/ TIMOTHY A. HIBBARD
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Timothy A. Hibbard
Corporate Controller and
Chief Accounting Officer