Item 2.02 Results of Operations and Financial Condition
On April 24, 2009, Kennametal Inc. (Kennametal or the Company) issued an
earnings announcement for its fiscal third quarter ended March 31, 2009.
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
(loss) income, Metalworking Sales and Services Group (MSSG) operating
(loss) income, Advanced Materials Solutions Group (AMSG) operating
(loss) income, net (loss) income and diluted (loss) earnings per share.
Adjustments include: (1) restructuring and related charges for the three and
nine months ended March 31, 2009, (2) asset impairment charges for the three and
nine months ended March 31, 2009, (3) goodwill impairment charge for the three
and nine months ended March 31, 2008 and (4) impact of German tax law change for
the nine months ended March 31, 2008. 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, which is also a non-GAAP measure and is
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.
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.
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.
Table of Contents
ADJUSTED EBIT (UNAUDITED)
Three Months Ended
March 31,
(in thousands, except percents) 2009 2008
Net (loss) income, as reported $ (137,874 ) $ 23,170
Net (loss) income as a percent of sales (31.2 %) 3.4 %
Add back (deduct):
Interest expense 6,672 8,005
Tax (benefit) expense (14,660 ) 16,616
EBIT (145,862 ) 47,791
Additional adjustments:
Minority interest expense 161 742
Interest income (806 ) (1,321 )
Securitization fees - 5
Special Items:
Restructuring and related charges 33,537 -
Goodwill and intangible impairment charges 111,042 35,000
Adjusted EBIT $ (1,928 ) $ 82,217
Adjusted EBIT as a percent of sales (0.4 %) 11.9 %
DEBT TO CAPITAL (UNAUDITED) March 31, June 30,
(in thousands, except percents) 2009 2008
Total debt $ 502,093 $ 346,652
Total shareowners' equity 1,249,328 1,647,907
Debt to equity, GAAP 40.2 % 21.0 %
Total debt $ 502,093 $ 346,652
Minority interest 18,678 21,527
Total shareowners' equity 1,249,328 1,647,907
Total capital $ 1,770,099 $ 2,016,086
Debt to capital 28.4 % 17.2 %
|
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
99.1 Fiscal 2009 Third Quarter Earnings Announcement
Table of Contents
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: April 24, 2009 By: /s/ Wayne D. Moser
Wayne D. Moser
Vice President Finance and Corporate
Controller
