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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): August 2, 2017
 
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.)        
 
 
 
600 Grant Street
Suite 5100
Pittsburgh, Pennsylvania
 
 
  
15219-2706           
 
 
 
(Address of Principal Executive Offices)
 
 
  
(Zip Code)                  
Registrant’s telephone number, including area code: (412) 248-8000
(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))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]





 
 
 
 
 







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 August 2, 2017, Kennametal Inc. (Kennametal or the Company) issued an earnings announcement for its fiscal fourth quarter and fiscal year ended June 30, 2017.
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: sales, gross profit and margin, operating expense, operating expense as a percentage of sales, operating income (loss) and margin, effective tax rate, net income (loss), earnings per diluted share (EPS) and loss per diluted share (LPS), Industrial operating income and margin, Widia operating (loss) income and margin and Infrastructure operating income (loss) and margin. Adjustments for the three months ended June 30, 2017 include restructuring and related charges. Adjustments for the three months ended June 30, 2016 include: (1) restructuring and related charges, (2) tax impact of prior impairment charges, (3) fixed asset disposal charges, (4) loss on divestiture and (5) U.S. deferred tax valuation allowance. Adjustments for the twelve months ended June 30, 2017 include: (1) restructuring and related charges and (2) Australia deferred tax valuation allowance. Adjustments for the twelve months ended June 30, 2016 include: (1) restructuring and related charges, (2) goodwill and other intangible asset impairment charges, (3) loss on divestiture and related charges, (4) fixed asset disposal charges, (5) operations of divested businesses and (6) U.S. deferred tax valuation allowance. 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 (FOCF) and earnings before interest, taxes, depreciation and amortization (EBITDA) and margin, which are 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 (FOCF)
FOCF 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 FOCF 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.
EBITDA
EBITDA are a non-GAAP financial measure and are defined as net income attributable to Kennametal (which is the most directly comparable GAAP measure), with interest expense, interest income, provision for income taxes, depreciation and amortization added back. However, we believe that EBITDA are widely used as a measure of operating performance and are 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. Additionally, Kennametal will adjust EBITDA. Management uses this information in reviewing operating performance.
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.
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 segment level and is used as such for internal performance measurement.







PRIMARY WORKING CAPITAL (UNAUDITED)
 
 
 
 
(in thousands, except percents)
6/30/2017
3/31/2017
12/31/2016
9/30/2016
6/30/2016
Average
Current assets
$
1,113,901

$
1,043,046

$
971,745

$
991,837

$
1,075,341

 
Current liabilities
461,478

426,799

390,151

402,574

427,275

 
Working capital, GAAP
$
652,423

$
616,247

$
581,594

$
589,263

$
648,066

 
Excluding items:
 
 
 
 
 
 
Cash and cash equivalents
(190,629
)
(100,817
)
(102,001
)
(119,411
)
(161,579
)
 
Other current assets
(55,166
)
(75,061
)
(80,375
)
(64,660
)
(84,016
)
 
    Total excluded current assets
(245,795
)
(175,878
)
(182,376
)
(184,071
)
(245,595
)
 
    Adjusted current assets
868,106

867,168

789,369

807,766

829,746

 
Current maturities of long-term debt and capital leases, including notes payable
(925
)
(1,591
)
(2,263
)
(1,381
)
(1,895
)
 
Other current liabilities
(244,831
)
(234,367
)
(219,008
)
(225,189
)
(243,341
)
 
    Total excluded current liabilities
(245,756
)
(235,958
)
(221,271
)
(226,570
)
(245,236
)
 
    Adjusted current liabilities
215,722

190,841

168,880

176,004

182,039

 
Primary working capital
$
652,384

$
676,327

$
620,489

$
631,762

$
647,707

$
645,734

 
 
Three Months Ended
 
 
 
6/30/2017
3/31/2017
12/31/2016
9/30/2016
Total
Sales
 
$
565,025

$
528,630

$
487,573

$
477,140

$
2,058,368

Primary working capital as a percentage of sales
 
 
 
31.4
%

PRIMARY WORKING CAPITAL (UNAUDITED)
 
 
 
 
(in thousands, except percents)
6/30/2016
3/31/2016
12/31/2015
9/30/2015
6/30/2015
Average
Current assets
$
1,075,341

$
1,099,260

$
1,062,992

$
1,168,511

$
1,258,546

 
Current liabilities
427,275

421,415

394,983

438,406

482,744

 
Working capital, GAAP
$
648,066

$
677,845

$
668,009

$
730,105

$
775,802

 
Excluding items:
 
 
 
 
 
 
Cash and cash equivalents
(161,579
)
(136,564
)
(138,978
)
(97,199
)
(105,494
)
 
Other current assets
(84,016
)
(111,479
)
(113,113
)
(120,583
)
(132,148
)
 
    Total excluded current assets
(245,595
)
(248,043
)
(252,091
)
(217,782
)
(237,642
)
 
    Adjusted current assets
829,746

851,217

810,901

950,729

1,020,904

 
Current maturities of long-term debt and capital leases, including notes payable
(1,895
)
(4,140
)
(5,942
)
(25,285
)
(15,702
)
 
Other current liabilities
(243,341
)
(247,943
)
(237,444
)
(235,385
)
(279,661
)
 
    Total excluded current liabilities
(245,236
)
(252,083
)
(243,386
)
(260,670
)
(295,363
)
 
    Adjusted current liabilities
182,039

169,332

151,597

177,736

187,381

 
Primary working capital
$
647,707

$
681,885

$
659,304

$
772,993

$
833,523

$
719,082

 
 
Three Months Ended
 
 
 
6/30/2016
3/31/2016
12/31/2015
9/30/2015
Total
Sales
 
$
521,224

$
497,837

$
524,021

$
555,354

$
2,098,436

Primary working capital as a percentage of sales
 
 
 
34.3
%
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 equity plus total debt. The most directly comparable GAAP measure is debt to equity, which is defined as total debt divided by total equity. Management believes that debt to capital provides additional insight into the underlying capital structure and performance of the Company.







Net Debt
Net debt is a non-GAAP financial measure and is defined by Kennametal as total debt less cash and cash equivalents. The most directly comparable GAAP measure is total debt. Management believes that net debt aids in the evaluation of the Company’s financial condition.
DEBT TO CAPITAL AND NET DEBT (UNAUDITED)
 
June 30,
 
June 30,
(in thousands, except percents)
 
2017
 
2016
Total debt
 
$
695,916

 
$
695,443

Total equity
 
1,052,653

 
995,801

Debt to equity, GAAP
 
66.1
%
 
69.8
%
Total debt
 
695,916

 
695,443

Total equity
 
1,052,653

 
995,801

Total capital
 
1,748,569

 
1,691,244

Debt to capital
 
39.8
%
 
41.1
%
Total debt
 
695,916

 
695,443

Cash and cash equivalents
 
190,629

 
161,579

Net Debt
 
$
505,287

 
$
533,864

Debt to EBITDA
Debt to EBITDA is a non-GAAP financial measure and is defined by Kennametal as total debt divided by the sum of the four trailing quarters of EBITDA. The most directly comparable GAAP measure is debt to net income attributable to Kennametal. Management believes that debt to EBITDA provides additional insight into the underlying capital structure, liquidity and performance of the Company. Additionally, Kennametal will adjust debt to EBITDA.
DEBT TO ADJUSTED EBITDA
 
 
 
 
 
 
 
 
JUNE 30, 2017 (in thousands, except debt to net income and debt to adjusted EBITDA)
 
 
 
 
Three Months Ended
EBITDA
 
6/30/2017
 
3/31/2017
 
12/31/2016
 
9/30/2016
Net income (loss) attributable to Kennametal
 
$
24,643

 
$
38,890

 
$
7,262

 
$
(21,656
)
Add back:
 
 
 
 
 
 
 
 
  Interest expense
 
7,367

 
7,331

 
7,151

 
6,993

  Interest income
 
(246
)
 
(306
)
 
(206
)
 
(248
)
  Provision for income taxes
 
7,494

 
9,301

 
8,221

 
4,879

  Depreciation
 
22,709

 
22,375

 
22,827

 
23,167

  Amortization
 
3,912

 
4,245

 
4,150

 
4,271

EBITDA
 
$
65,879

 
$
81,836

 
$
49,405

 
$
17,406

Adjustments:
 
 
 
 
 
 
 
 
  Restructuring and related charges
 
23,165

 
9,623

 
11,783

 
31,657

Adjusted EBITDA
 
$
89,044

 
$
91,459

 
$
61,188

 
$
49,063

Total debt
 
 
 
 
 
 
 
$
695,916

Trailing four quarters net income attributable to Kennametal
 
 
 
 
 
49,139

Debt to net income attributable to Kennametal
 
 
 
 
 
 
 
14.2

Total debt
 
 
 
 
 
 
 
$
695,916

Trailing four quarters adjusted EBITDA
 
 
 
 
 
 
 
290,754

Debt to adjusted EBITDA
 
 
 
 
 
 
 
2.4


Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
99.1    Fiscal 2017 Fourth 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: August 2, 2017
 
 
 
By:
 
/s/ Patrick S. Watson
 
 
 
 
 
 
 
 
Patrick S. Watson
 
 
 
 
 
 
 
 
Vice President Finance and Corporate Controller