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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 27, 2011
Kennametal Inc.
(Exact Name of Registrant as Specified in Its Charter)
         
Pennsylvania   1-5318   25-0900168
         
(State or Other Jurisdiction of Incorporation)   (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):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] 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
On January 27, 2011, Kennametal Inc. (Kennametal or the Company) issued an earnings announcement for its fiscal second quarter ended December 31, 2010.
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, Industrial operating income and margin, Infrastructure operating income and margin, net income (loss) and diluted earnings per share. Adjustments include: (1) restructuring and related charges for the three and six months ended December 31, 2010 and 2009, respectively, and (2) divestiture related charges for the three and six months ended December 31, 2009. Management adjusts for these items in measuring and compensating internal performance and to more readily compare the Company’s financial performance period-to-period. The press release also contains free operating cash flow and adjusted return on invested capital (ROIC), which are both 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 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 dividends, debt repayment, strategic initiatives (such as acquisitions), 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, noncontrolling interest expense and special items, divided by the sum of the previous five quarters average balances of debt and total 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.
Debt to Capital
Debt to capital is a non-GAAP financial measure and is defined by Kennametal as total debt divided by the sum of total shareowners’ equity 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.

 


 

                 
 DEBT TO CAPITAL (UNAUDITED)   December 31,     June 30,  
 (in thousands, except percents)   2010     2010  
 
 Total debt
  $ 316,379     $ 337,668  
 Total shareowners’ equity
    1,476,427       1,333,443  
 
 Debt to equity, GAAP
    21.4 %     25.3 %
 
 Total debt
  $ 316,379     $ 337,668  
 Total shareowners’ equity
    1,476,427       1,333,443  
 
 Total capital
  $ 1,792,806     $ 1,671,111  
 
 Debt to capital
    17.6 %     20.2 %
 
 RETURN ON INVESTED CAPITAL (UNAUDITED)
 September 30, 2010 (in thousands, except percents)
                                                 
 Invested Capital   9/30/2010     6/30/2010     3/31/2010     12/31/2009     9/30/2009     Average  
 
 Debt
  $ 318,819     $ 337,668     $ 336,175     $ 338,781     $ 367,359     $ 339,760  
 Total equity
    1,437,616       1,333,443       1,374,321       1,400,245       1,400,759       1,389,277  
 
 Total
  $ 1,756,435     $ 1,671,111     $ 1,710,496     $ 1,739,026     $ 1,768,118     $ 1,729,037  
 
            Three Months Ended
 Interest Expense
            9/30/2010       6/30/2010       3/31/2010       12/31/2009     Total
 
 Interest expense
          $ 5,963     $ 6,347     $ 6,531     $ 5,954     $ 24,795  
         
 Income tax benefit
                                            6,670  
  
                                             
 Total interest expense, net of tax
                                          $ 18,125  
  
                                             
 Total Income
            9/30/2010       6/30/2010       3/31/2010       12/31/2009     Total
 
 Net income attributable to
Kennametal, as reported
          $ 34,921     $ 40,584     $ 9,685     $ 5,967     $ 91,157  
 Restructuring and related charges
            4,253       9,681       22,329       5,143       41,406  
 Loss on divestiture and related charges
            -       -       -       56       56  
 Noncontrolling interest expense
            1,035       366       518       270       2,189  
 
 Total income, adjusted
          $ 40,209     $ 50,631     $ 32,532     $ 11,436     $ 134,808  
         
 Total interest expense, net of tax
                                            18,125  
  
                                             
  
                                          $ 152,933  
 Average invested capital
                                          $ 1,729,037  
  
                                             
 Adjusted Return on Invested Capital
                                            8.8 %
  
                                             
  
                                               
 Return on invested capital calculated utilizing net income, as reported is as follows:                        
 Net income attributable to Kennametal, as reported                                   $ 91,157  
 Total interest expense, net of tax
                                            18,125  
 
  
                                          $ 109,282  
 Average invested capital
                                          $ 1,729,037  
 
 Return on Invested Capital
                                            6.3 %
 
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
99.1 Fiscal 2011 Second Quarter Earnings Announcement

 


 

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: January 27, 2011 
By:     /s/ Martha A. Bailey    
      Martha A. Bailey
  Vice President Finance and Corporate Controller