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Kennametal Announces Fourth Quarter and Fiscal Year 2009 Results
- Sequentially improved Q4 operating results, excluding charges related to
impairment and restructuring
- Fiscal year EPS of $0.80 , excluding charges related to restructuring,
impairment and divestiture
- Free operating cash flow of $17 million for the quarter and $90 million for
the fiscal year
- Completed previously announced divestiture for cash proceeds of
- Further strengthened financial position and liquidity with equity issuance
and amended credit agreement
LATROBE, Pa.,
Chairman, President and Chief Executive Officer
Reconciliations of all non-GAAP financial measures are set forth in the attached tables and descriptions of certain non-GAAP financial measures are contained in our report on Form 8-K to which this release is attached.
Fiscal 2009 Fourth Quarter Key Developments
-- Sales for the quarter were $386 million , compared with $724 million in
the same quarter last year. The 47 percent decrease in sales was due
to a 43 percent organic decline and a 4 percent decrease from
unfavorable foreign currency effects. A net favorable impact from
acquisitions and divestitures was offset by the effect of one less
workday.
-- The company continued to implement certain restructuring plans to
reduce costs and improve operating efficiencies. During the June
quarter, the company recognized pre-tax charges related to these
initiatives of $21 million , or $0.08 per share. Pre-tax charges
recorded to date for these initiatives were $82 million . Including
these charges, the company expects to recognize approximately $115
million of pre-tax charges related to its restructuring plans. The
majority of the remaining charges are expected to be incurred by
December 31, 2009 , most of which are expected to be cash expenditures.
The company realized pre-tax benefits of approximately $50 million
from these actions in fiscal 2009 and expects to realize approximately
$75 million of additional pre-tax benefits in fiscal 2010. This would
bring the total annual ongoing pre-tax benefits from these actions to
approximately $125 million .
-- Operating loss was $25 million for the current quarter compared to
operating income of $80 million for the prior year quarter. Absent
restructuring related charges recorded in both periods, operating loss
for the current quarter was $3 million compared to operating income of
$88 million in the prior year quarter. The adjusted operating loss for
the current quarter improved sequentially from the March 2009 quarter
despite a sequential decline in sales. This improvement was driven by
a higher run rate of restructuring benefits as well as the impact of
additional cost reduction actions such as employee furloughs and the
suspension of contributions to certain employee benefit plans.
-- The reported effective tax rate was 39.1 percent. On an adjusted
basis, the effective tax rate was (116.4) percent compared to 19.9
percent in the prior year quarter. The change in the adjusted rate
was driven by different jurisdictional mix of pre-tax results.
-- On June 30, 2009 , Kennametal completed the sale of its high speed
steel drills, related product lines and assets as the company
continued to focus on shaping its business portfolio and rationalizing
its manufacturing footprint. Cash proceeds from this divestiture
amount to $29 million , of which $26 million was received through July
2009 , with the balance expected to be received in the December 2009
quarter. The pre-tax loss on the sale and related charges of $26
million , as well as the related tax effects, were recorded in
discontinued operations. The company expects to incur additional
pre-tax charges related to this divestiture of $4 million to $7
million over the next six months.
-- Net loss was $33 million for the current year quarter, compared to net
income of $60 million in the prior year quarter. Absent the charges
related to restructuring and divestiture, net loss for the current
quarter was $10 million , compared to net income of $66 million in the
prior year quarter.
-- Reported EPS was ($0.45 ), compared with prior year quarter reported
EPS of $0.77 . Adjusted EPS was ($0.13 ) compared to prior year quarter
adjusted EPS of $0.85 . A reconciliation follows:
Earnings (Loss) Per Diluted Share Reconciliation
Fourth Quarter FY 2009 Fourth Quarter FY 2008
Reported EPS ($0.45) Reported EPS $0.77
Restructuring and Restructuring and related
related charges 0.08 charges 0.08
Loss on divestiture and
related charges 0.24
-----------------------------------------------------------------------
Adjusted EPS ($0.13) Adjusted EPS $0.85
=======================================================================
Fiscal Year 2009 Key Developments
-- Cash flow from operating activities was $192 million for fiscal year
2009, compared with $280 million for the prior fiscal year. Capital
expenditures for fiscal year 2009 were $105 million , a reduction of
$59 million or 36 percent from fiscal year 2008. Free operating cash
flow for the current fiscal year was $90 million , compared with $119
million in the prior fiscal year. The generation of free operating
cash flow was bolstered through strong focus on receivable collection,
inventory reduction from close management of production levels and
reduced capital expenditures.
-- Sales of $2.0 billion decreased 23 percent from $2.6 billion in the
previous fiscal year. Sales decreased 21 percent organically and 3
percent from unfavorable foreign currency effects. This was partially
offset by the net favorable impact of acquisitions and divestitures of
1 percent.
-- In the March quarter, the company recorded a non-cash pre-tax charge
of $111 million for impairment of goodwill and an indefinite lived
trademark.
-- Operating loss was $100 million , compared with operating income of
$259 million for the prior fiscal year. Absent charges related to
restructuring and impairment recorded in both periods, operating
income for fiscal year 2009 was $85 million compared to $302 million
for the prior fiscal year. This decrease was principally the result of
reduced sales volumes and the related lower manufacturing cost
absorption as well as higher raw material costs. A considerable
portion of the impact of these factors was offset by a combination of
restructuring benefits, other cost reduction actions, higher price
realization and lower provisions for employee incentive compensation
plans.
-- The reported effective tax rate was 10.0 percent. On an adjusted
basis, the effective tax rate was 16.6 percent compared with 21.2
percent in the prior fiscal year. The decrease in the adjusted rate
was driven by the release of a deferred tax valuation allowance and a
benefit from the completion of a routine income tax examination.
-- Reported EPS was ($1.64 ) compared to the prior year reported EPS of
$2.15 . Adjusted EPS of $0.80 decreased 71 percent, compared with
prior year adjusted EPS of $2.76 . A reconciliation follows:
Earnings (Loss) Per Diluted Share Reconciliation
FY 2009 FY 2008
Reported EPS ($1.64) Reported EPS $2.15
Restructuring and Impact of German tax reform
related charges 0.82 bill 0.08
Asset impairment charges 1.38 Goodwill impairment charge 0.45
Loss on divestiture and Restructuring and related
related charges 0.24 charges 0.08
---------------------------------------------------------------------
Adjusted EPS $0.80 Adjusted EPS $2.76
=====================================================================
-- Adjusted return on invested capital (ROIC) was 4.4 percent compared to
12.3 percent for the prior fiscal year.
Segment Highlights of Fiscal 2009 Fourth Quarter
MSSG operating loss was
AMSG operating income was
Corporate operating loss decreased by 54 percent, or
Recent Actions to Enhance Liquidity and Further Strengthen Financial Position
In
Outlook
Given the magnitude of the current global economic downturn and the ongoing related uncertainty, visibility remains quite limited regarding global industrial activity and the corresponding demand for the company's products.
While recognizing the difficulty at this time of looking forward with any
relative degree of certainty, management presently believes that global
industrial activity may now be at or close to a bottom. Assuming that is the
case,
Under these economic assumptions,
Should global economic conditions develop in line with management's
assumptions, the company expects to continue to experience the adverse effects
of the global recession during the first half of fiscal 2010 followed by
year-over-year sales growth and positive earnings performance in the second
half of fiscal 2010. As such, for the first quarter of fiscal 2010,
Dividend Declared
Fourth quarter and full year results for fiscal 2009 will be discussed in
a live Internet broadcast at
This release contains "forward-looking" statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements are statements that do not
relate strictly to historical or current facts. You can identify
forward-looking statements by the fact they use words such as "should,"
"anticipate," "estimate," "approximate," "expect," "may," "will," "project,"
"intend," "plan," "believe" and other words of similar meaning and expression
in connection with any discussion of future operating or financial performance
or events. Forward looking statements in this release concern, among other
things,
FINANCIAL HIGHLIGHTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Year Ended
(in thousands, except per June 30, June 30,
share amounts) 2009 2008 (1) 2009 2008 (1)
-------------------------------------------------------------------------
Sales $386,037 $723,951 $1,999,859 $2,589,786
Cost of goods sold 287,208 476,189 1,423,320 1,682,715
-------------------------------------------------------------------------
Gross profit 98,829 247,762 576,539 907,071
Operating expense 104,024 158,748 489,567 594,187
Restructuring and asset
impairment charges 16,214 4,891 173,656 39,891
Loss on divestitures - 582 - 582
Amortization of intangibles 3,260 3,806 13,134 13,864
-------------------------------------------------------------------------
Operating (loss) income (24,669) 79,735 (99,818) 258,547
Interest expense 5,503 7,351 27,244 31,586
Other (income) expense, net (4,617) (754) (14,566) (2,439)
-------------------------------------------------------------------------
(Loss) income before
income taxes and
minority interest (25,555) 73,138 (112,496) 229,400
(Benefit) provision for
income taxes (10,002) 14,581 (11,205) 62,754
Minority interest expense 266 329 1,111 2,980
-------------------------------------------------------------------------
(Loss) income from
continuing operations (15,819) 58,228 (102,402) 163,666
(Loss) income from
discontinued operations (17,174) 1,352 (17,340) 4,109
-------------------------------------------------------------------------
Net (loss) income $(32,993) $59,580 $(119,742) $167,775
=========================================================================
Basic (loss) earnings
per share:
Continuing operations $(0.21) $0.76 $(1.40) $2.13
Discontinued operations (0.24) 0.02 (0.24) 0.05
-------------------------------------------------------------------------
$(0.45) $0.78 $(1.64) $2.18
=========================================================================
Diluted (loss) earnings
per share:
Continuing operations $(0.21) $0.75 $(1.40) $2.10
Discontinued operations (0.24) 0.02 (0.24) 0.05
-------------------------------------------------------------------------
$(0.45) $0.77 $(1.64) $2.15
=========================================================================
Dividends per share $0.12 $0.12 $0.48 $0.47
=========================================================================
Basic weighted average
shares outstanding 72,772 76,346 73,122 76,811
=========================================================================
Diluted weighted average
shares outstanding 72,772 77,614 73,122 78,201
=========================================================================
(1) Amounts have been reclassified to reflect discontinued operations
related to the divestiture of the high speed steel drills and related
products business.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, June 30,
(in thousands) 2009 2008
-----------------------------------------------------------------------
ASSETS
Cash and cash equivalents $69,823 $86,478
Accounts receivable, net 278,977 512,794
Inventories 381,306 460,800
Other current assets 145,798 91,914
-----------------------------------------------------------------------
Total current assets 875,904 1,151,986
Property, plant and equipment, net 720,326 749,755
Goodwill and intangible assets, net 677,436 802,722
Other assets 73,308 79,886
-----------------------------------------------------------------------
Total assets $2,346,974 $2,784,349
=======================================================================
LIABILITIES
Current maturities of long-term debt and
capital leases, including notes payable $49,365 $33,600
Accounts payable 87,176 189,050
Other current liabilities 242,428 298,661
-----------------------------------------------------------------------
Total current liabilities 378,969 521,311
Long-term debt and capital leases 436,592 313,052
Other liabilities 263,958 280,552
-----------------------------------------------------------------------
Total liabilities 1,079,519 1,114,915
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 20,012 21,527
SHAREOWNERS' EQUITY 1,247,443 1,647,907
-----------------------------------------------------------------------
Total liabilities and shareowners' equity $2,346,974 $2,784,349
=======================================================================
SEGMENT DATA (UNAUDITED) Three Months Ended Year Ended
June 30, June 30,
(in thousands) 2009 2008(1) 2009 2008(1)
---------------------------------------------------------------------
Outside Sales:
Metalworking Solutions and
Services Group $218,827 $459,012 $1,191,759 $1,674,516
Advanced Materials
Solutions Group 167,210 264,939 808,100 915,270
---------------------------------------------------------------------
Total outside sales $386,037 $723,951 $1,999,859 $2,589,786
=====================================================================
Sales By
Geographic Region:
United States $176,751 $298,762 $907,967 $1,092,102
International 209,286 425,189 1,091,892 1,497,684
---------------------------------------------------------------------
Total sales by
geographic region $386,037 $723,951 $1,999,859 $2,589,786
=====================================================================
Operating (Loss) Income:
Metalworking Solutions and
Services Group $(29,401) $65,987 $(19,180) $255,391
Advanced Materials
Solutions Group 13,536 32,858 (39,539) 83,925
Corporate and
eliminations (2) (8,804) (19,110) (41,099) (80,769)
---------------------------------------------------------------------
Total operating
(loss) income $(24,669) $79,735 $(99,818) $258,547
=====================================================================
(1) Amounts have been reclassified to reflect discontinued operations
related to the divestiture of the high speed steel drills and
related products business.
(2) Includes corporate functional shared services and intercompany
eliminations.
In addition to reported results under generally accepted accounting
principles in the United States of America (GAAP), the following financial
highlight tables include, where appropriate, a reconciliation of adjusted
results including gross profit, operating expense, operating income, MSSG
operating income and margin, AMSG operating income and margin, income from
continuing operations, income before income taxes and minority interest,
provision for income taxes, effective tax rate, net income and diluted
(loss) earnings per share as well as free operating cash flow and adjusted
return on invested capital (which are non-GAAP financial measures), to the
most directly comparable GAAP measures. 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. Reconciliations of all non-GAAP financial measures are set
forth in the attached tables and descriptions of certain non-GAAP
financial measures are contained in our report of Form 8-K to which this
release is attached.
THREE MONTHS ENDED JUNE 30, 2009 (UNAUDITED)
Loss
(in thousands, from
except per Gross Operating Operating Continuing Net Diluted
share amounts) Profit Expense Loss Operations Loss EPS
-------------------------------------------------------------------------
2009 Reported
Results $98,829 $104,024 $(24,669) $(15,819) $(32,993) $(0.45)
Restructuring
and
related
charges 3,961 (996) 21,171 6,065 6,065 0.08
Loss on
divestiture
and related
charges - - - - 17,258 0.24
-------------------------------------------------------------------------
2009 Adjusted
Results $102,790 $103,028 $(3,498) $(9,754) $(9,670) $(0.13)
=========================================================================
MSSG AMSG
(in thousands, Operating Operating
except percents) Loss Income
--------------------------------------------------------------------------
2009 Reported
Results $(29,401) $13,536
2009 Reported
Operating Margin (13.4%) 8.1%
Restructuring and
related charges 13,614 4,612
2009 Adjusted
Results $(15,787) $18,148
==========================================================================
2009 Adjusted
Operating Margin (7.2%) 10.9%
==========================================================================
Loss before
Income (Benefit)
Taxes and Provision
(in thousands, Minority for Income Effective
except percents) Interest Taxes Tax Rate
--------------------------------------------------------------------------
2009 Reported
Results $(25,555) $(10,002) 39.1%
Restructuring and
related charges 21,171 15,108 (155.5)
--------------------------------------------------------------------------
2009 Adjusted
Results $(4,384) $5,106 (116.4%)
==========================================================================
THREE MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
Income
(in thousands, from
except per Gross Operating Operating Continuing Net Diluted
share amounts) Profit Expense Income Operations Income EPS
--------------------------------------------------------------------------
2008 Reported
Results $247,762 $158,748 $79,735 $58,228 $59,580 $0.77
Restructuring
and
related
charges 1,441 (1,916) 8,248 6,635 6,635 0.08
--------------------------------------------------------------------------
2008 Adjusted
Results $249,203 $156,832 $87,983 $64,863 $66,215 $0.85
==========================================================================
MSSG AMSG
(in thousands, Operating Operating
except percents) Income Income
--------------------------------------------------------------------------
2008 Reported
Results $65,987 $32,858
2008 Reported
Operating Margin 14.4% 12.4%
Restructuring and
related charges 4,855 3,012
--------------------------------------------------------------------------
2008 Adjusted
Results $70,842 $35,870
==========================================================================
2008 Adjusted
Operating Margin 15.4% 13.5%
==========================================================================
Income
before
Income
Taxes and Provision
(in thousands, Minority for Income Effective
except percents) Interest Taxes Tax Rate
--------------------------------------------------------------------------
2008 Reported
Results $73,138 $14,581 19.9%
Restructuring and
related charges 8,248 1,613 -
--------------------------------------------------------------------------
2008 Adjusted
Results $81,386 $16,194 19.9%
==========================================================================
YEAR ENDED JUNE 30, 2009 (UNAUDITED) (Loss)
Income
(in thousands, Operating from
except per Gross Operating (Loss) Continuing Net (Loss) Diluted
share amounts) Profit Expense Income Operations Income EPS
--------------------------------------------------------------------------
2009 Reported
Results $576,539 $489,567 $(99,818) $(102,402) $(119,742) $(1.64)
Restructuring
and
related
charges 10,860 182 73,292 60,020 60,020 0.82
Asset
impairment
charges - - 111,042 101,200 101,200 1.38
Loss on
divestiture
and related
charges - - - - 17,657 0.24
--------------------------------------------------------------------------
2009 Adjusted
Results $587,399 $489,749 $84,516 $58,818 $59,135 $0.80
==========================================================================
Effective
Tax Rate
--------------------------------------------------------------------------
2009 Reported Results 10.0%
Restructuring and
related charges (1.5)
Asset impairment charges 8.1
--------------------------------------------------------------------------
2009 Adjusted Results 16.6%
==========================================================================
YEAR ENDED JUNE 30, 2008 (UNAUDITED)
Income
(in thousands, from
except per Gross Operating Operating Continuing Net Diluted
share amounts) Profit Expense Income Operations Income EPS
--------------------------------------------------------------------------
2008 Reported
Results $907,071 $594,187 $258,547 $163,666 $167,775 $2.15
German
tax law
change - - - 6,594 6,594 0.08
Goodwill
impairment
charge - - 35,000 35,000 35,000 0.45
Restructuring
and
related
charges 1,441 (1,916) 8,248 6,635 6,635 0.08
--------------------------------------------------------------------------
2008 Adjusted
Results $908,512 $592,271 $301,795 $211,895 $216,004 $2.76
==========================================================================
Effective
Tax Rate
--------------------------------------------------------------------------
2008 Reported Results 27.4%
German tax law change (2.4)
Goodwill impairment charge (3.6)
Restructuring and related charges (0.2)
--------------------------------------------------------------------------
2008 Adjusted Results 21.2%
==========================================================================
FREE OPERATING CASH FLOW (UNAUDITED)
Three Months Ended Year Ended
June 30, June 30,
(in thousands) 2009 2008 2009 2008
-------------------------------------------------------------------------
Net cash flow provided by
operating activities $28,524 $121,228 $192,263 $279,786
Purchases of property,
plant and equipment (12,130) (32,902) (104,842) (163,489)
Proceeds from disposals of
property, plant and equipment 528 469 2,914 2,839
-------------------------------------------------------------------------
Free operating cash flow $16,922 $88,795 $90,335 $119,136
=========================================================================
RETURN ON INVESTED CAPITAL (UNAUDITED)
June 30, 2009 (in thousands, except percents)
Invested
Capital 6/30/2009 3/31/2009 12/31/2008 9/30/2008 6/30/2008 Average
--------------------------------------------------------------------------
Debt $485,957 $502,093 $522,722 $481,723 $346,652 $467,829
Minority
interest 20,012 18,678 19,235 20,412 21,527 19,973
Shareowners'
Equity 1,247,443 1,249,328 1,430,727 1,465,757 1,647,907 1,408,232
--------------------------------------------------------------------------
Total $1,753,412 $1,770,099 $1,972,684 $1,967,892 $2,016,086 $1,896,035
==========================================================================
Three Months Ended
Interest Expense 6/30/2009 3/31/2009 12/31/2008 9/30/2008 Total
--------------------------------------------------------------------------
Interest expense $5,503 $6,658 $8,000 $7,083 $27,244
------------------------------------------------------------------
Income tax benefit 4,523
-----
Total
interest
expense,
net of tax $22,721
========
Total Income 6/30/2009 3/31/2009 12/31/2008 9/30/2008 Total
--------------------------------------------------------------------------
Net (loss)
income,
as reported $(32,993) $(137,875) $15,659 $35,467 $(119,742)
Restructuring and
related charges 6,065 36,768 9,779 7,408 60,020
Asset impairment
charges - 101,200 - - 101,200
Loss on
divestiture
and related
charges 17,258 399 - - 17,657
Minority interest
expense (income) 266 161 (101) 785 1,111
--------------------------------------------------------------------------
Total income,
adjusted $(9,404) $653 $25,337 $43,660 $60,246
=================================================================
Total
interest
expense,
net of tax 22,721
--------
$82,967
Average invested
capital $1,896,035
-----------
Adjusted Return on
Invested Capital 4.4%
===========
Return on invested
capital calculated
utilizing net loss,
as reported is as
follows:
Net loss, as
reported $(119,742)
Total
interest
expense,
net of tax 22,721
--------------------------------------------------------------------------
$(97,021)
Average invested
capital $1,896,035
--------------------------------------------------------------------------
Return on
Invested Capital (5.1%)
==========================================================================
RETURN ON INVESTED CAPITAL (UNAUDITED)
June 30, 2008 (in thousands, except percents)
Invested
Capital 6/30/2008 3/31/2008 12/31/2007 9/30/2007 6/30/2007 Average
--------------------------------------------------------------------------
Debt $346,652 $428,456 $446,956 $377,051 $366,829 $393,189
Minority
interest 21,527 21,879 20,276 19,122 17,624 20,086
Shareowners'
equity 1,647,907 1,615,568 1,563,297 1,531,378 1,484,467 1,568,523
--------------------------------------------------------------------------
Total $2,016,086 $2,065,903 $2,030,529 $1,927,551 $1,868,920 $1,981,798
==========================================================================
Three Months Ended
Interest Expense 6/30/2008 3/31/2008 12/31/2007 9/30/2007 Total
--------------------------------------------------------------------------
Interest expense $7,351 $7,974 $8,494 $7,767 $31,586
Securitization fees 4 5 5 8 22
--------------------------------------------------------------------------
Total interest
expense $7,355 $7,979 $8,499 $7,775 $31,608
=================================================================
Income tax benefit 6,701
-------
Total interest
expense, net of tax $24,907
========
Total Income 6/30/2008 3/31/2008 12/31/2007 9/30/2007 Total
--------------------------------------------------------------------------
Net income, as
reported $59,580 $23,170 $50,146 $34,879 $167,775
Impact of German tax
law change - - - 6,594 6,594
Goodwill
impairment charge - 35,000 - - 35,000
Restructuring and
related charges 6,635 - - - 6,635
Minority
interest expense 329 742 1,037 872 2,980
--------------------------------------------------------------------------
Total income,
adjusted $66,544 $58,912 $51,183 $42,345 $218,984
================================================================
Total interest
expense, net of tax 24,907
--------
$243,891
Average invested
capital $1,981,798
------------
Adjusted Return on
Invested Capital 12.3%
============
Return on invested
capital calculated
utilizing net
income, as reported
is as follows:
Net income, as
reported $167,775
Total interest
expense, net of tax 24,907
--------------------------------------------------------------------------
$192,682
Average invested
capital $1,981,798
--------------------------------------------------------------------------
Return on
Invested Capital 9.7%
==========================================================================
SOURCE
CONTACT: Investor Relations, Quynh McGuire, +1-724-539-6559, or Media
Relations,