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): January 29, 2009
Kennametal Inc.
(Exact Name of Registrant as Specified in Its Charter)
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| Pennsylvania
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1-5318
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25-0900168 |
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(Commission File Number)
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(IRS Employer Identification No.) |
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| World Headquarters |
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| 1600 Technology Way |
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| P.O. Box 231 |
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| Latrobe, Pennsylvania
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15650-0231 |
| (Address of Principal Executive Offices)
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(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):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition
On January 29, 2009, Kennametal Inc. (Kennametal or the Company) issued an earnings announcement
for its fiscal second quarter ended December 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: gross
profit, operating expense, operating income, Metalworking Sales and Services Group (MSSG) operating
income and margin, Advanced Materials Solutions Group (AMSG) operating income and margin, effective
tax rate, net income and diluted earnings per share. Adjustments include: (1) restructuring and
related charges for the three and six months ended December 31, 2008 and (2) impact of a German tax
law change for the six months ended December 31, 2007. Management adjusts for these items in
measuring and compensating internal performance and to more easily compare the Company’s financial
performance period-to-period. The press release also contains 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.
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.
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, minority interest and shareowners’ equity. The most directly comparable GAAP
measure is return on invested capital calculated utilizing GAAP net income. 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.
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 earnings 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 operating performance or cash generation 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.
Debt to Capital
Debt to capital is a non-GAAP financial measure and is defined by Kennametal as total debt divided
by total shareowners’ equity plus minority interest plus total debt. The most directly comparable
GAAP measure is debt to equity, which is defined as total debt divided by shareowners’ equity.
Management believes that debt to capital provides additional insight into the underlying capital
structuring and performance of the Company.
ADJUSTED EBIT (UNAUDITED)
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Three Months Ended |
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December 31, |
| (in thousands, except percents) |
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2008 |
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2007 |
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Net income, as reported |
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$ |
15,659 |
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50,146 |
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Net income as a percent of sales |
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2.8 |
% |
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7.7 |
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Add back: |
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Interest expense |
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8,026 |
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8,531 |
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Tax expense |
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4,700 |
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10,670 |
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EBIT |
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28,385 |
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69,347 |
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Additional adjustments: |
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Minority interest expense |
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(101 |
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1,037 |
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Interest income |
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(1,380 |
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(1,259 |
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Securitization fees |
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— |
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5 |
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Special Items: |
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Restructuring and related charges |
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10,088 |
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Adjusted EBIT |
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$ |
36,992 |
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$ |
69,130 |
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Adjusted EBIT as a percent of sales |
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6.5 |
% |
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10.7 |
% |
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PRIMARY WORKING CAPITAL (UNAUDITED)
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December 31, |
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June 30, |
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2008 |
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2008 |
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Current assets |
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$ |
1,004,239 |
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$ |
1,151,986 |
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Current liabilities |
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413,324 |
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521,311 |
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Working capital in accordance with GAAP |
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$ |
590,915 |
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$ |
630,675 |
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Excluding items: |
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Cash and cash equivalents |
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(69,731 |
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(86,478 |
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Other current assets |
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(102,398 |
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(91,914 |
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Total excluded current assets |
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(172,129 |
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(178,392 |
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Adjusted current assets |
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832,110 |
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973,594 |
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Current maturities of long-term debt and capital leases, including notes payable |
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(43,111 |
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(33,600 |
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Other current liabilities |
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(241,434 |
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(298,661 |
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Total excluded current liabilities |
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(284,545 |
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(332,261 |
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Adjusted current liabilities |
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128,779 |
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189,050 |
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Primary working capital |
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703,331 |
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$ |
784,544 |
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