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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): OCTOBER 29, 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 October 29, 2003, Kennametal Inc. ("Kennametal" or "the Company") issued a
press release announcing financial results for its first quarter ended September
30, 2003.
The press release contains non-GAAP 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
and Widia integration costs. Kennametal management excludes these items in
measuring and compensating internal performance to more easily compare the
Company's financial performance period to period. 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.
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.
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.
Additionally, during our quarterly teleconference we may use various other
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 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.
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 except with respect to reporting segments in which the most
comparable GAAP measure is operating 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.
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.
SUPPLEMENTAL INFORMATION AND RECONCILIATIONS
RECONCILIATION TO GAAP WORKING CAPITAL (UNAUDITED)
September 30,
-----------------------------
2003 2002
--------- ---------
Current assets $ 796,365 $ 750,397
Current liabilities 314,789 289,860
--------- ---------
Working capital in accordance with GAAP 481,576 460,537
Excluded items:
Cash and cash equivalents (14,720) (14,300)
Deferred income taxes (114,619) (71,084)
Other current assets (47,003) (40,110)
--------- ---------
Total excluded current assets $(176,342) $(125,494)
Adjusted current assets 620,023 624,903
Short-term debt, including notes payable (11,375) (16,992)
Accrued liabilities (195,761) (171,045)
--------- ---------
Total excluded current liabilities $(207,136) $(188,037)
Adjusted current liabilities 107,653 101,823
Primary working capital $ 512,370 $ 523,080
-more-
SUPPLEMENTAL INFORMATION AND RECONCILIATIONS
KENNAMETAL INC. EBIT RECONCILIATION (UNAUDITED)
September 30,
----------------------------
2003 2002
-------- --------
Net income, as reported $ 8,764 $ 10,829
As % of sales 2.0% 2.7%
Add back:
Interest 6,600 8,485
Taxes 4,452 5,255
-------- --------
EBIT 19,816 24,569
Additional adjustments:
Minority interest 695 338
Restructuring, including
items in COGS 3,393 (181)
Widia integration 1,559 711
Interest income (436) (640)
Securitization fees 397 537
-------- --------
Adjusted EBIT $ 25,424 $ 25,334
======== ========
As of % of sales 5.7% 6.3%
-more-
SUPPLEMENTAL INFORMATION AND RECONCILIATIONS
MSSG SEGMENT (UNAUDITED):
Quarter Ended
September 30,
--------------------------
2003 2002
-------- --------
Sales, as reported $271,129 $240,422
Widia sales(1) (26,018) -
Foreign currency exchange (11,098) -
-------- --------
Adjusted sales $234,013 $240,422
======== ========
MSSG EBIT (UNAUDITED):
Quarter Ended
September 30,
-------------------------
2003 2002
------- -------
MSSG operating income, as reported $23,502 $23,473
As % of sales 8.7% 9.8%
Other income 264 189
------- -------
EBIT 23,766 23,662
Adjustments:
MSSG restructuring, including items in COGS 3,393 -
Widia integration 1,511 711
------- -------
EBIT, excluding special charges $28,670 $24,373
======= =======
As % of sales 10.6% 10.1%
(1) Widia was acquired on August 30, 2002. Sales related to Widia for July and
August have been removed from the 2003 results in order to reflect
comparable Widia activity for both years.
-more-
SUPPLEMENTAL INFORMATION AND RECONCILIATIONS
AMSG SEGMENT (UNAUDITED):
Quarter Ended
September 30,
---------------------------
2003 2002
-------- --------
Sales, as reported $ 93,631 $ 83,409
Widia acquisition(1) (5,476) -
Foreign currency exchange (2,775) -
-------- --------
Adjusted sales $ 85,380 $ 83,409
======== ========
AMSG EBIT (UNAUDITED):
Quarter Ended
September 30,
---------------------------
2003 2002
-------- --------
AMSG operating income (expense), as reported $ 11,822 $ 11,385
As % of sales 12.6% 13.6%
Other income (expense) 113 58
-------- --------
EBIT 11,935 11,443
Adjustments:
AMSG restructuring - (181)
Widia integration 48 -
-------- --------
EBIT, excluding special charges $ 11,983 $ 11,262
======== ========
As % of sales 12.8% 13.5%
(1) Widia was acquired on August 30, 2002. Sales related to Widia for July and
August have been removed from the 2003 results in order to reflect
comparable Widia activity for both years.
-more-
SUPPLEMENTAL INFORMATION AND RECONCILIATIONS
J&L SEGMENT (UNAUDITED):
Quarter Ended
September 30,
---------------------------
2003 2002
-------- --------
Sales, as reported $ 48,139 $ 48,606
Foreign currency exchange (221) -
-------- --------
Adjusted sales $ 47,918 $ 48,606
======== ========
J&L EBIT (UNAUDITED):
Quarter Ended
September 30,
---------------------------
2003 2002
-------- --------
J&L operating income, as reported $ 2,685 $ 2,301
As % of sales 5.6% 4.7%
Other (expense) - (11)
-------- --------
EBIT 2,685 2,290
Adjustments:
J&L restructuring - -
-------- --------
EBIT, excluding special charges $ 2,685 $ 2,290
======== ========
As % of sales 5.6% 4.7%
-more-
SUPPLEMENTAL INFORMATION AND RECONCILIATIONS
FSS SEGMENT (Unaudited):
Quarter Ended
September 30,
---------------------------
2003 2002
-------- --------
Sales, as reported $ 31,676 $ 31,781
Foreign currency exchange (79) -
-------- --------
Adjusted sales $ 31,597 $ 31,781
======== ========
FSS EBIT (Unaudited):
Quarter Ended
September 30,
---------------------------
2003 2002
-------- --------
FSS operating income, as reported $ (281) $ (19)
As % of sales -0.9% -0.1%
Other (expense) income 2 100
-------- --------
EBIT (279) 81
Adjustments:
FSS restructuring - -
-------- --------
EBIT, excluding special charges $ (279) $ 81
======== ========
As % of sales -0.9% 0.3%
-more-
SUPPLEMENTAL INFORMATION AND RECONCILIATIONS
RECONCILIATION TO GAAP - GROSS PROFIT (UNAUDITED)
QUARTER ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
AS A % AS A %
2003 OF SALES 2002 OF SALES
---- -------- ---- --------
Gross profit $144,107 32.4% $130,969 32.4%
Widia integration and restructuring charges 2,954 0.7% - 0.0%
-------- ---- -------- ----
Gross profit, excluding special items $147,061 33.1% $130,969 32.4%
======== ==== ======== ====
OPERATING EXPENSE RECONCILIATION (UNAUDITED):
Quarter ended Quarter ended
Sept. 30, 2003 Sept. 30, 2002
-------------- --------------
Operating expense, as reported $ 121,239 $ 104,835
Integration costs (1,448) (711)
--------- ---------
Operating expense, excluding special items 119,791 104,124
Less:
Widia operating expense 8,441 -
Unfavorable foreign exchange 4,979 -
--------- ---------
Operating expense, excluding special items,
Widia expense and foreign exchange
$ 106,371 $ 104,124
========= =========
-end-
Exhibit Index
Exhibit Description
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99.1 Press Release dated October 29, 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: October 29, 2003 By: /s/ TIMOTHY A. HIBBARD
---------------------------------
Timothy A. Hibbard
Corporate Controller and
Chief Accounting Officer